-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION Company Petition No. 965 of 2007 Kemtec Imaging Pvt.Ltd. ..Petitioner vs. Afga India Pvt.Ltd. ..Respondents Ms.Hetal Patel for petitioner. Mr.Harinder Toor i/b Crawford Bayley for respondent CORAM: S.C.DHARMADHIKARI CORAM: S.C.DHARMADHIKARI CORAM: S.C.DHARMADHIKARI J. J. J. 3rd July 2008 3rd July 2008 3rd July 2008 P.C. P.C. P.C. 1. This is a company petition seeking winding up of Agfa India Pvt.Ltd., a company incorporated and registered under the Companies Act, 1956 having its registered office at Thane as more particularly described in the petition. 2. It is the case of the petitioner that the Company is indebted in the sum of Rs.41,33,990/- along with interest. 3. It is the case of the petitioner that in the year 2002, the respondent approached the petitioner to promote the sale of their products and it was agreed that the petitioner would be paid a commission of 3.75% on net sale price after all discounts and all bills fully paid of sales by the petitioner. It is contended that debit notes were raised by the petitioner. The petitioner states that -2- the debit notes were accepted. There was correspondence in January and February, 2005 but the commission remained unpaid. The commission was being paid regularly from 2002 till December, 2004 by respondent. A demand was made for payment after the statement of accounts was forwarded. On 15th December, 2005, Mr.S.S.Krishna Swamy, Deputy General Manager (Operations) of the respondent personally visited the petitioner’s office. The accounts were tallied and account statements were furnished to him. Mr.Krishna Swami informed the petitioner that if any difference or deficiency in the accounts was found the communication in that behalf would be given within one week or else the matter can proceed. Mr.Krishna Swami or the respondent did not revert back to the petitioner after above period. The company did not take any steps to settle the terms and pay the outstanding sum. The reminders were sent from March to May 2006 to pay the above sums. 4. There being no response the petitioner was contemplating initiating all appropriate legal measures. However, to its shock and surprise, it received a letter dated 4th July, 2006 from the respondent wherein it was disclosed that in or about November, 2004 the Consumer Imaging Division of Afga India Pvt.Ltd. has been sold and transferred to Afga Photo India Pvt.Ltd. with all -3- liabilities and assets. The petitioner by its letter in reply pointed out that despite Mr.Krishna Swami’s personal visit and payment till December, 2004, for all this time, the fact was suppressed and no information was provided. Now, the liability is sought to be shifted on the other company and with the arrangement that is arrived at, the petitioner is not concerned. 5. The petitioner continued its correspondence with the respondent and served statutory notice. In reply to the statutory notice for the first time, the company raised a dispute that the commission is not payable even otherwise. The correspondence has continued thereafter. The company now purported to inform the petitioner that it has nothing to do with its dues and all personal visits so also responses, if any, were from Afga Photo Pvt. Ltd. and Mr.Krishna Swami also represented the said company. 6. It is in such circumstances that the petitioner contends that the respondent company continues to be in existence. It continues to be liable. It must, therefore, take steps to honour the dues or else presumption in law be drawn against it and the petition be admitted. -4- 7. The affidavit in reply has been filed on behalf of the respondent. It is stated in the affidavit in reply which was filed in this Court on 21st February, 2008 that the company is not liable to make payment. All dues have been taken over by Afga Photo India Pvt. Ltd. This is a winding up petition against the respondent but the claim is maintainable against another entity. If that entity is taken over the liability, then, the petitioner cannot seek winding up of the respondent company. Its plain duty in law is to proceed against the company Afga Photo India Pvt.Ltd. A copy of the agreement between these companies was duly annexed. 8. When this petition was placed before this Court, Hon’ble Mr.Justice Khanwilkar was not satisfied with this explanation on affidavit and passed a detailed order on 25th March, 2008. That detailed order demonstrates that this Court was not satisfied with the affidavit filed by the company. However, with a view to protect both sides this Court granted last opportunity to the respondent to satisfy the Court and make out its case with regard to the liability. Thereafter additional affidavit has been filed on behalf of the respondent. Needless to state that when the Court passed the order on 25th March, 2008, it had before it a rejoinder of the petitioner dated 24th March, -5- 2008 and after perusing the same, the above referred order was passed. 9. In the additional affidavit filed by the respondent company it is stated thus: "4. I state that the Local Asset Sale and Transfer agreement dated 29th October, 2004 (hereinafter referred to as the said agreement) has been duly executed by the Respondent, in fact and law, pursuant to the powers and authorities conferred in the object clause 9 of the respondent;s Memorandum of Association read with Article 28 of the Articles of Association of the respondent and further read with the provisions of section 291 of the act under and pursuant to which the Resolution of the Board of Directors of respondent was duly passed on 19th October, 2004 authorising the officers of the Respondent to sign and conclude the transaction of sale of the business in question as contemplated in the said agreement. 5. I state that the provisions of its Memorandum of Articles of Association, primarily govern Respondent being a private company. I say further -6- that the respondent has, while concluding the transaction of sale under the said agreement, duly complied with the all the applicable provisions of the Act as well as its Memorandum of Articles of Association. 6. I say that though the respondent is a private company and although its Board of Directors are sufficiently authorised to enter into and conclude the transaction of sale under and pursuant to the provisions of section 291 of the Act as well as its Memorandum and Articles of Association, the respondent has, voluntarily and, as a matter of abundant caution and good corporate governance, obtained the approval of its Board of Directors as well as its members in the general meeting by a Resolution duly passed by members of the respondent at the Extra Ordinary General Meeting of the respondent held on 26th October, 2004." 10. Thus, this explanation that inadvertently the statement was made before this Court that the provisions of section 293 of the Company’s Act are attracted. The powers of the Directors and of the Board to deal with the company properties in usual and normal course of business -7- have been made applicable and invoked in this case and such powers are found in the Companies Act and more particularly in section 291 thereof. In other words, mention of a wrong provision would not invalidate the action or the agreement between the two companies if it is otherwise traceable to the powers conferred by law. In such circumstances, the petition should be dismissed. 11. After this affidavit was placed on record both sides made detailed submissions. Ms.Patel appearing for the petitioner would urge that this Court must draw adverse inference against the respondent for misleading this Court and making a mis statement of facts. In the eyes of law the company before this Court continues to be liable. It cannot avoid the responsibility and liability by shifting burden on another private limited company. In any event, she submits that these are private limited companies which are closely managed by same group. Once they are so closely managed and their identity is common, then, this Court must lift the corporate veil and upon piercing it pass such order as are permissible in law for winding up the respondent. She submits that otherwise private limited companies may arrive at such arrangements with a view to defeat the legitimate claims of creditors and in answer to winding up action, the claim would be that -8- although it continues to exist one of its division has been hived off. Such a contention would defeat and frustrate the mandate of law. 12. Ordinarily this contention could have been accepted and further scrutiny would be permissible. However, the affidavit which has been filed by the petitioner itself would disclose that the petitioner does not dispute execution of the agreement nor has it anywhere urged that it is sham and not genuine. Apart from the fact that not so urging it, additionally it is placed on record by the respondent that as early as on 25th November, 2004 the petitioner was informed by the respondent that the agreement between the parties has been executed on 1st November, 2004. The respondent has closed its Consumer Imaging Division.It has now been handed over to the newly founded group company called Afga Photo. The company has very clearly stated that the business operations are closely connected. However, that would not make any difference in as much as liability is admitted by Afga Photo. Afga Photo will continue to deal with the petitioner. However, as far as the respondent company is concerned on transfer of the division to Afga Photo they are fully discharged. All duties and responsibilities so also liabilities are taken over by Afga Photo. In -9- response to that communication even AFga photo by its letter dated 4th July, 2006, addressed to the petitioner, stated thus: "This is a reference to your letters dated 28th Jan 2006 and subsequent various ad-verbatim letters in March 2006 (last 30.3.2006) addressed to AFGA INDIA PVT LTD. referring and enclosing the same on the above subject. During December, 2005, Mr.S.Krishnaswamy from our office met with Mr.Rajesh Mehta and Prashant Shah, at your office in Mumbai and there, it was clearly explained that none of the claims made by you in DEBIT NOTES is admitted or to be treated admissible, however, in fairness it was agreed, that there shall be a meeting needed to look into those claims case by case basis and only after closely examining and discussing the various debit notes raised by you, any view can be taken. As such, we do not agree with your Net Receivable amount shown due from us of Rs.1,23,68,990 and completely reject it. On the other hand, our books show as on 28/3/2006 an outstanding receivable amount due from you of Rs.43,83,496/- and Rs.2,85,444/- from Kolorkem, Delhi (sister concern of Kemtec Imaging) that after net of commission provision (please refer to our letter dated 15.2.2005, however, to be finalised with you in the meeting refer supra) that comes to Rs.14,90,617/- which you may please remit to us IMMEDIATELY to proceed further. You will please note that we have passed appropriate credit for machine return and payments received in the amounts above. Regarding E-1 form, due to your non cooperation regarding releaswe of C form to secure release of E-1 form, the matter is getting delayed inordinately, though with the photocopy of the "C" form provided by you, we are trying our best efforts to secure the E-1 form from the deptt. which please may be noted. Yours truly, -10- for Afga Photo India Pvt.Ltd. Sd/- Raj K.Malhotra Managing Director." 13. Despite this the petitioner and its Advocate continued the communications to the respondent. Later, the petitioner’s Advocate’s letter is addressed to both companies. However, the respondent continued to adopt its earlier stand and denied the liability. 14. This is not a case where for the first time some adjustment is pleaded or it can be held straightway that the transaction has been brought about only with a view to defeat or delay the claim of the petitioner. It is not as if the petitioner is not aware of the existence of the above arrangement. The petitioenr has been duly communicated the arrangement and aware as it is of the same it persists in winding up the respondent. Even in the further affidavit that has been filed the respondent has pointed out that on 15th February, 2005 Afga India has addressed a letter to some creditors including the petitioner. The respondent has communicated that the liability incurred by it is transferred to Afga Photo India and that is how the correspondence between the parties proceeded. In my view, this is not a remedy for -11- the petitioner to question the transaction or call upon this Court in its limited jurisdiction to pierce the corporte veil and probe the matter further. This is not a case where the petitioner is unaware of existence of both the companies. However, against whom it should proceed to recover its dues is something which this Court cannot decide and when the agreement has been pointed out. The defence raised is thus bonafide. The agreement is of November, 2004 and being aware of its existence the petitioner should have taken necessary steps. 15. That apart, there is also merit in the contention of the respondent that this is the claim under the foot of the account. There is no balance confirmation or admission of liability by Afga Photo or the respondent is the submission. The accounts have to be reconciled and there is a dispute. Even this aspect has some bearing on the ultimate liability. If both companies continue to be liable allegedly, then, winding up petition against the respondent alone is not maintainable. The petition must proceed against the other entity or if it desires that the transaction between two companies should be reopened it must initiate appropriate proceedings and implead all necessary parties thereto. When other company being not before this Court no relief can be granted. -12- 16. In my view, perusal of the petition and other material on record would disclose that this is a case where the petitioner is aware of the transaction/agreement between the two companies and its implications in law. The transaction cannot be questioned in these proceedings merely because in the opinion of the petitioner, two companies are allegedly under the same group and closely connected even otherwise. No materials are placed in that behalf as well. Mere inferences are requested to be drawn from a reading of some letters and contents thereof. It would not be permissible to indulge in such exercise in the limited jurisdiction of this Court. 17. For all these reasons the company petition fails and is accordingly dismissed. However, no opinion is expressed as far as petitioner’s right to recover the sums from Afga Photo so also the respondent if otherwise permissible in law and all such proceedings and pleas therein of both sides are kept open. The Court has for limited purpose of determining whether the dispute raised is bonafide has observed as above and such observations shall not be construed as this Court having approved the arrangement or that any conclusion is drawn that the same is otherwise legal and valid. -13- (S.C.DHARMADHIKARI J.) (S.C.DHARMADHIKARI J.) (S.C.DHARMADHIKARI J.)