1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO. 921 OF 2009 M/s. Ravin Cables Limited. ... Petitioner Vs M/s. Blue Star Limited. ... Respondent Mr. D.D. Madon, senior counsel i/b M/s.Shruti Desai & Co. for the Petitioner. Mr. J.P. Sen i/b Mr. Gaurang R. Mehta for the Respondent. CORAM : S.J. VAZIFDAR, J. DATED : 18TH JUNE, 2010. P.C. : 1. This is a Petition for winding up the Respondent-company on the ground that it is unable to pay its debts. 2. According to the Petitioner, the company is indebted to it in the sum of Rs.2,78,89,630/- together with interest thereon at 18 per cent per annum on account of goods sold and delivered by it to the company. That the goods were sold and delivered by the Petitioner to 2 the company is admitted. That the company accepted the goods and appropriated the same without any demur as to the quality and quantity thereof is admitted. The company has fairly admitted that the entire principal sum is due and payable by it to the Petitioner. It had, in fact, tendered the same to the Petitioner but subject to the condition that the Petitioner accepted the tender only in full and final satisfaction of it’s claim. The Petitioner did not accept the condition and, therefore, rejected the tender. 3. There is thus no dispute between the parties that the principal sum is due and payable by the company to the Petitioner. The company has only disputed its liability to pay interest. I have come to the conclusion that the Petitioner is entitled to interest both, under the contract as well as in law. 4. Mr. Sen submitted that there was no agreement to pay interest. He submitted that terms and conditions in the invoices do not constitute a contract. The term as to interest in the invoices, therefore, according to him, is of no consequence. 3 5. Whether the terms and conditions contained in an invoice or for that matter any document bind the parties is a question of fact and probably, in some cases, a question of law to the extent that it may involve the construction of a document or a term therein. For instance, after a contract is concluded between the parties, whether oral or in writing, one of the parties cannot unilaterally, without the consent of the other, make a claim for interest. This would constitute a variation of a concluded contract without the consent of both the contracting parties. However, even where an invoice follows after the performance of the contract it would be a question of fact whether the parties had entered into the contract on the terms and conditions stipulated therein. If it is found that the terms and conditions are contained in an invoice sent subsequently it follows that the parties are bound by the same. 6. The Petitioner, in paragraph 8 of the Petition stated that the goods were, sold, despatched and delivered as per the company’s purchase order, that the invoices/transport receipts were duly acknowledged by the company evidencing the receipt of the goods as per the specifications and requirements of the purchase order and that 4 the company had also agreed to the terms and conditions of the said purchase order. 7. I appreciate that thus far it is the Petitioner’s contention itself that the terms and conditions of supply were as per the purchase order. The pleading could have been clearer by averring that the goods were sold and delivered also on the terms and conditions contained in and evidenced by the invoices. There is no specific averment in this respect. Unfortunately, even the advocate’s notice does not specify the same. 8. I would not, however, for this reason reject Mr. Madon’s submission that the parties were also bound by the terms and conditions contained in the invoices. The correspondence and the Petition, read as a whole, indicates that the intention of the parties and of the draftsman of the Petition was that the parties were also bound by the terms and conditions contained in the invoices. 9. Note-3 in the last column of the purchase order states that the excise invoice/ED gate pass should be submitted along with delivery 5 challan at the time of supply. There is no dispute that the invoices were forwarded, as directed by the purchase order. The company, therefore, received the said invoices along with the supply of the goods. Upon the receipt of the invoices, the company never raised any protest as to the terms contained therein. This establishes that the parties accepted, as binding between themselves, the terms and conditions contained in the invoices. There never was any demur on the Respondent’s part as to the terms and conditions in the invoices. 10. In these circumstances, it must be held that the parties accepted that they would be bound by the terms and conditions contained in the invoices. As I will demonstrate shortly, the Respondent’s subsequent conduct establishes that it, in fact, accepted the terms of the invoices. In paragraph 9 of the petition, it is pleaded that as per the agreed payment terms, the payment in respect of all the respective bills should have been made within sixty days from the date of the respective invoices. This was a term in each of the invoices and not in the purchase orders. (A). By a letter dated 6th February, 2009, the Petitioner called upon 6 the company to confirm the said principal amount as payable by the company as on 31st January, 2009, which it did. By a letter dated 21st February, 2009, the Petitioner stated that it had sold the said goods by its “various invoices”. The Petitioner further stated : “All these invoices have fallen due for payment in the month of November and December, 2008 as per the agreed terms of credit.” This itself indicates that the Petitioner’s contention was that the payments were due as per the invoices and the terms and conditions contained therein. This is fortified by the further statement in the letter that the invoices were “overdue for a period exceeding two months over and above the normal credit term of two months....”. The credit period of two months is specified in the invoices themselves and not in the purchase order or anywhere else. When the letter was written, the credit period of two months had expired. It is important to note that the Petitioner, therefore, further stated in the letter that if the company failed to make payment, it would be constrained to raise a debit note for the overdue interest at 18% p.a. and take legal recourse to recover the same. (B). It is of vital importance to note that the company never disputed in the correspondence the applicability of the terms and conditions 7 contained in the invoices as regards the credit period. In other words, the company did not contend that it had not agreed to the terms and conditions stipulated in the invoices. If the terms and conditions contained in the invoice were not binding on the parties, the company would have responded with a query at some stage about the term as to the credit period. It is not the company’s case that it was entitled to a credit period under any other document or understanding. 11 Faced with this, Mr. Sen, the learned counsel appearing on behalf of the company, submitted that the Petitioner never raised the debit note for interest and that, therefore, the company did not deny the demand for interest. 12. The submission is unfounded and an after thought. The claim for interest was raised by the letter. The preparation and forwarding of a debit note would only be a formality in furtherance thereof. If indeed the terms and conditions of the invoices were inapplicable, the company would have immediately responded by denying the Petitioner’s right to claim interest at all either by raising a debit note or otherwise. 8 13. In the further correspondence between the parties, the company had disputed it’s liability to pay the principal amount on the ground that the goods purchased by it from the Petitioner was for another project which was on hold and as a result thereof, the company had not been paid by the other party. 14. This contention, apart from being unsustainable, was rightly not pressed during the hearing. What is important to note is that in this correspondence the company did not once contend that there was no credit period of sixty days or that there was no stipulation for the payment of interest between the parties. This is as clear an indication as any that the company considered itself bound by the terms and conditions contained in the invoices. 15. The Petitioner, by it’s advocate letter dated 22nd July, 2009 stated : “Our clients further state that as per the agreed terms, the payment in respect of all the respective bills referred to in Annexure-I should have been made within 60 (sixty) days from the date of respective invoices.” This, as I have stated earlier, was a term only in the invoices. The further statement in the letter : “Our clients state 9 that the credit period as per the purchase order terms and conditions was of 60 days” must be read in this context. By the said letter once again a demand for interest at the rate of 18% per annum was made. In fact, the Petitioner was entitled under the terms and conditions of the invoices to interest at the rate of 24% per annum. The letter was a statutory notice under sections 433 and 434 of the Companies Act, 1956. 16. In the reply to these letters, the company’s advocate did not deny the fact that there was a credit period of 60 days. Nor did he deny that interest was payable as per the terms of the contract. The bare/bald denials in the affidavits filed on behalf of the company regarding its liability to pay interest inspires no confidence. The company has not established in its affidavits that the parties were not bound by the terms and conditions contained in the invoices. 17. Thus, on facts, it is established that there was a contract between the parties for payment of interest at twenty-four per cent per annum for delayed payment. The Petitioner has, in fact, claimed interest at only 18% per annum. 10 18. The Petitioner would even otherwise be entitled in law to interest under the provisions of section 61 of the Sale of Goods Act and the Interest Act in view of the judgment of the Supreme Court in Vijay Industries vs. NATL Technologies Limited reported in (2009) 3 SCC 527. In paragraphs 34, 36, 39 and 50 the Supreme Court held as follows: “34. Section 433 of the Companies Act does not state that the debt must be precisely a definite sum. It has not been disputed before us that failure to pay the agreed interest or the statutory interest would come within the purview of the word “debt”. It is one thing to say that the amount of debt is not definite or ascertainable because of the bona fide dispute raised thereabout or there exists a dispute as regards quantity or quality of supply or such other defences which are available to the purchaser; but it is another thing to say that although the dues as regards the principal amount resulting from the quantity or quality of supply of the goods stands admitted but a question is raised as to whether any agreement had been entered into for payment of interest or whether the rate of interest would be applicable or not. In the latter case, in our opinion, the application for winding up cannot be dismissed. ............. 36. Tweed’s Garages Ltd. [(1962) 2 WLR 38 : (1962) 1 All ER 121], apart from Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd.[(1971) 3 SCC 632], has inter alia been followed by the Bombay High Court in Pfizer Ltd. v. Usan Laboratories (P) Ltd. [(1985) 57 11 Comp Cas 236 (Bom)]. holding that only because there is a dispute in regard to the rate of interest, the winding-up petition cannot be thrown out on that ground alone. Pfizer Ltd. v. Usan Laboratories (P) Ltd. [(1985) 57 Comp Cas 236 (Bom)]. has been followed by the Bombay High Court in Ispat Industries Ltd. [(2005) 2 CLJ 235 (Bom)], Pfizer Ltd. v. Usan Laboratories (P) Ltd. [(1985) 57 Comp Cases, 236]. was a case of principal plus interest. .................. 39. It is, however, of some interest to note that the Division Bench (in Mediquip Systems (P) Ltd. v. Proxima Medical System GmbH. [(2005) 7 SCC 42, SCC P. 50, para 24)] referred to a decision of the Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories (P) Ltd. [(1990) 3 Comp LJ 322 (Mad)] where the following principles relating to bona fide dispute had been evolved : “(1) If there is a dispute as regards the payment of the sum towards principal, however small that sum may be, a petition for winding up is not maintainable and the necessary forum for determination of such a dispute existing between the parties is the civil court; (2) The existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the parties to decide such a dispute before the civil court and in such an eventuality, the Company Court itself is competent to decide such a dispute in the winding-up proceedings; and (3) If there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the creditor to resort to both the remedies of filing of a civil suit as well as filing of a petition for winding up of the company.” 12 ................. 50. Interest is also payable in terms of the provisions of Section 61(2)(a) of the Sale of Goods Act. Interest may be held to be payable in terms of Section 3 of the Interest Act, 1978 as also in terms of Section 5 and 6 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.” [emphasis supplied]. 19. There are several compelling reasons to hold that amounts towards interest under an enactment such as the Sale of Goods Act and the Interest Act must be considered in a winding up Petition. However, it is not necessary to state the same in view of the judgment of the Supreme Court which supports the submission. 20. In view of the judgment of the Supreme Court the judgment of the Karnataka High Court relied upon by Mr. Sen in the case of Jyothi Limited vs. Boving Fouress Limited reported in 2001 3 CLJ 413 must be deemed to have been over-ruled. The learned Judge held in that case as under : 23. I may now summarize the legal position as to claims for `interest’ in a proceeding for winding up under section 433(e) of the Act : 13 ................. (e) Interest under section 61(2)(a) of the Sale of Goods Act, can be awarded by a court in a suit for recovery of the price of goods. Interest under section 3 of the Interest Act can be awarded in any proceedings for recovery of debt or damages or in any proceedings for interest (on any debt or damages already paid). Both these provisions specifically provide that interest can be awarded only in proceedings to recover money. They do not contemplate award of interest in proceedings which are not for recovery of money. Proceedings for winding up being proceedings not for recovery of money, no interest can be permitted or granted under section 61(2) (a) of the Sale of Goods Act, 1930, or section 3 of the Interest Act. (f) Award of interest either under section 61(2)(a) of the Sale of Goods Act or under section 3 of the Interest Act, is by way of damages, that is, making good the loss suffered by the seller/creditor, by denial of the use of the money due to him by the purchaser/debtor, by wrongfully withholding the money. These provisions are invoked only when there is no contract to pay interest. Thus a claim for interest based on section 61(2)(a) of the Sale of Goods Act or under Section 3 of the Interest Act, is not a claim for a `debt’ which is an ascertained sum due. This court cannot, therefore, compute and award interest based on section 61(2)(a) of the Sale of Goods Act or section 3 of the Interest Act. Nor can this court hold that non-payment of such interest granted and computed in winding up proceedings amounts inability to pay a `debt’. 21. Mr. Sen submitted that the company is financially sound. That by itself would not disentitle the Petitioner to an order in this Petition in view of the judgment of the Supreme Court in Madhusudan 14 Gordhandas & Co. vs. Madhusudan Industries (P) Limited (1971) 3 SCC 632 where it was held that where a debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt, but did not choose to pay that particular debt. 22. In the circumstances, the following order is passed :- (i) In the event of the company failing to pay the Petitioner a sum of Rs.3,20,01,680.34 on or before 31st August, 2010, the Company Petition to stand dismissed. Even in the event of the amount being paid, the Petitioner shall be at liberty to adopt any proceeding for further reliefs including further interest and shall also be entitled to adjust the amounts paid first towards interest. (ii) In case of failure on the part of the Company to pay the amount as aforesaid, the Petition shall stand admitted and to be advertised in Free Press Journal, Maharashtra Times and Maharashtra Government Gazette. In that event the Petitioner to deposit an 15 amount of Rs.10,000/- with the Prothonotary and Senior Master of this Court within four weeks from the date of default.