THE HON'BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.219 of 2010 5th September, 2011 Between :- Laqshya Media Pvt.Ltd., Mumbai, Rep.by its Vice President Mr.Jude De Valliere .. Petitioner And M.B.S.Jewellers Private Limited, Having its Regd.Office at No.125, M.G.Road, First Floor, Secunderabad, Rep.by its Managing Director .. Respondent THE HON'BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.219 of 2010 ORDER:- This Company Petition has been taken out by Laqshya Media Pvt.Ltd., under Sections 433, 434 and 439 (1)(b) of the Companies Act, 1956, seeking an order for winding up of respondent Company – MBS Jewellers Private Limited. 2. The petition averments, in brief, are:- MBS Jewellers is a Private Limited Company registered and incorporated on 7th December, 2007 under the provisions of the Companies Act, 1956. Initially, the respondent Company was incorporated on 28-11-2005 as Mussadilal Bhagat Swaroop Jewellers Private Limited. Subsequently, the respondent Company changed its name from Mussadilal Bhagat Swaroop Jewellers Private Limited to M.B.S.Jewellers Private Limited. The authorized share capital of the respondent Company is Rs.25,00,00,000/- divided into 2,50,00,000 equity shares of Rs.10/- each. The respondent Company engaged the petitioner for handling its publicity campaign, which includes displaying, installing, printing and setting up of publicity material, at ‘7’ locations in Hyderabad for a period of one year commencing from 1-7- 2008. A monthly fee payable by the respondent Company for all the ‘7’ locations was Rs.5,33,000/-. The respondent Company placed Purchase Order dated 17-6-2008. Pursuant to the said Purchase Order, the petitioner commenced the campaign from 1-7-2008 at ‘7’ locations viz., (1) RTC X Roads, (2) Road No.36, Jubilee Hills, (3) Hitech City, Madhapur Police Station, (4) Hitech City, (5) Liberty Circle facing Basheerbagh, (6) Secunderabad Club Curve and (7) Necklace Road and continued up to 31-8-2008. A representative of the respondent Company namely Lehza Lakhani cancelled ‘6’ out of ‘7’ locations booked by the Company. Therefore, the petitioner continued the campaign in respect of only one location viz., Necklace Road from September, 2008 to December, 2008. The petitioner sent invoices towards the display charges to the respondent Company. Despite receipt of the invoices, the respondent Company failed and neglected to pay the same. Persuasions made with respondent Company did not yield any fruitful result. Therefore, the petitioner issued statutory notice dated 31-5-2010 calling upon the respondent Company to pay the amount due towards display charges. The respondent Company issued reply disputing its liability. According to the petitioner, the Purchase Order and Invoices and E-Mail messages establish the liability of the respondent Company and thus denial of debt by the respondent Company is not bona fide and the respondent Company is presumed to be commercially insolvent. 3. Notice before admission came to be ordered on 20-12-2010. Respondent entered appearance through a Counsel and filed counter. 4. P.Pratap has sworn to the counter affidavit. It is stated in the counter affidavit that there is no privity of contract between the petitioner and the respondent Company and that the signatory to the Purchase Order dated 17-6-2008 left the service of the respondent Company and that the said Lehza Lakhani has no authority to place Purchase Order. For better appreciation, I may refer para 5 of the counter affidavit which reads as hereunder:- “I submit that letter dt.16-7-2008 purpurted to have emanated from the petitioner Company it was specifically mentioned in the so called letter clause (1) of the general terms that specifically makes it clear that all sites are subject to availability at the time of final written communication from the respondent Company. I submit that there is no written communication that was signed and sent by the respondent Company to the petitioner Company and the petitioner Company may be put to strict proof of the said final confirmation communicated from the respondent Company to the petitioner Company. I submit that in the absence of the final written communication, communicated by the respondent Company to the petitioner Company the whole claim that is falsely focused in the Company petition is unsustainable claim and it can be said as a false, baseless, frivolous claim.” It is also stated in the counter affidavit that the balance sheets of the respondent Company for the year ending 31-3-2008 and for the year ending 31-3-2010 indicate that it has paid Income Tax to the extent of Rs.4 crores approximately for each year. 5. The petitioner filed reply affidavit. It is stated in the reply affidavit that the Purchase Order signed by Lehza Lakhani binds the respondent Company as she is the authorized signatory and that the petitioner is protected by the doctrine of Indoor Management. 6. Heard learned Counsel appearing for the petitioner and the learned Counsel appearing for the respondent. 7. Learned Counsel appearing for the petitioner submits that the petitioner acted on the Purchse Order signed by Ms.Lehza Lakhani on behalf of the respondent Company and campaigned for the respondent Company by displaying boards at various locations and raised invoices in respect of ‘6’ locations commencing from 1-7-2008 till 31-8-2008 and in respect of one location commencing from 1-7-2008 to December, 2008 and the invoices raised by the petitioner have been accepted by the respondent Company and therefore it is impermissible by the respondent Company to deny its liability to pay the amounts covered under invoices on the ground of Ms.Lehza Lakhani is not authorized to place Purchase Order and that she left the services of the respondent Company. Learned Counsel refers the Purchase Order of the respondent Company and E-Mail messages transpired between the parties and the Invoices raised by the petitioner on the respondent Company. He would also contend that the petitioner is protected by the legal doctrine of Indoor Management and therefore the claims made by the petitioner on the respondent Company cannot be negatived on the ground of incompetency of Ms.Lehza Lakhani in placing the Purchase Order with the petitioner Company. In support of his contentions, reliance has been placed on the Judgment of Allahabad High Court in LAKSHMI RATAN COTTON MILLS CO.LTD., V. J.K.JUTE MILLS CO.LTD[1] wherein it has been held that when the money has been borrowed by the agent on behalf of the Company for its benefit, the Company is liable to pay. The burden of proving the incompetency of the Director to borrow money on behalf of the Company for want of proper resolution lay on the defendant. The plaintiff would be protected by the legal doctrine of Internal Management. The material facts in the said case are required to be noted:- A suit was filed against the Company for recovery of amount of Rs.1,50,000/-. Loan came to be advanced on the basis of the letter dated 24-12-1951 sent by Gulab Chand Jain, one of the Directors of the Company. A plea was taken by the Company that the said Gulab Chand Jain was not competent to raise loan for want of resolution by the Board of Directors. In these set of circumstances, it has been held by the Allahabad High Court as hereunder:- “As stated above, the only ground of his incompetency pleaded by the defendant was the want of a resolution authorizing him to borrow the money. The burden of proving that no such resolution was actually passed by the Board of Directors lay on the defendant. They have not produced their minute book, nor has Sri Gulab Chand Jain come into the witness-box to state that no such resolution was actually passed by the Board of Directors. The defendant having failed to produce any evidence in support of the only plea that had survived, the plea must be taken to have failed for want of evidence. However, the matter is approached from the legal stand point, we are of opinion that the defendant’s plea in this regard cannot be sustained, as the plaintiff’s would be protected by the legal doctrine of internal management. In order, however, to appreciate the legal aspect of this matter, certain admitted or proved facts must be borne in mind. It is admitted on behalf of the defendant that Sri Ghulab Chand Jain was a Director of the defendant Company. It is also admitted by the defendant Company that Article 148A of the Memorandum of Association lays down that Messrs. B.R.Sons Limited would be the Managing Agents of the defendant Company for a term of 20 years with effect from 15-7-1947. It is also admitted that Sri Gulab Chand Jain was a Director of B.R.Sons Limited, the Managing Agents. Further, it is also proved from Ext.7, a copy of the resolution passed at the Board of Director’s meeting of B.R.Sons Limited on 3-1-1951 that Sri Gulab Chand Jain and one Sri Sukhnandi Dayal Garg were jointly and severally authorized to represent the managing agency in the discharge of its functions as Managing Agents of the defendant Company and to make, draw, accept, endorse, and negotiate cheques, hundis and all other negotiable instruments or mercantile documents for and on behalf of the Company. This resolution delegated the entire power of the managing agency to Sri Gulab Chand Jain & Sri Sukhnandi Dayal Garg jointly and severally. Sri Gulab Chand Jain thus represented the Managing Agency, and could individually exercise all the powers of the managing agency when the transaction in question took place. Thus at the relevant time Sri Gulab Chand Jain combined within himself three-fold capacities. Firstly, he was a Director of the defendant Company, secondly, he was also a Director of the Managing Agency, and thirdly, the entire power of the managing agency was vested in him by a resolution passed by the Directors of the Managing Agency.” The above referred decision came to be cited with approval by the Delhi High Court in PUNJ STAR INDUSTRIES PVT.LTD. v. ATNA ENGINEERING PVT.LTD.AND ORS.[2]. 8. Learned Counsel appearing for the respondent submits that there is no privity of contract between the petitioner and the respondent Company and therefore question of paying the amount as claimed by the petitioner does not arise. He also submits that Ms.Lehza Lakhani is not the authorized signatory on behalf of the respondent Company and she has left the Company much earlier to the petitioner raising various invoices and at no point of time, the invoices have been accepted, in which case, there is no obligation on the part of the respondent Company to pay the amount covered under the said invoices. It is also contended by the learned Counsel that the respondent Company seriously disputed the claim made by the petitioner Company and the said dispute is required to be resolved by a competent Civil Court. The petitioner cannot be permitted to use the provisions of Section 434 of the Companies Act, 1956 as a pressure tactics to recover the disputed amount. In support of his submissions, reliance has been placed on the decision of the Supreme Court in M/S.IBA HEALTH (I) P.LTD. v. M/S.INFO-DRIVE SYSTEMS SDN.BHD.[3] wherein it has been held that if the Creditor’s debt is bona fide disputed on substantial grounds, Court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. 9. The issue that calls for adjudication in this petition is:- whether the petitioner made out a prima facie case for admission of the winding up petition against the respondent Company? 10. In the summary procedure which the Company Court must follow, if the Court is satisfied, prima facie, the defence raised in the circumstances of the case is bona fide and is likely to succeed in a civil suit that would constitute sufficient reason for the Court to reject the petition relegating the parties to the civil Court. A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at the stage of admission, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor’s debt is bona fide disputed on substantial grounds, the Court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a litigation should not be allowed to use the threat of winding up petition as a means of forcing the Company to pay a bona fide disputed debt. I n MADHUSUDAN GORDHANDAS AND CO. v. MADHU WOOLLEN INDUSTRIES PVT.LTD[4] the Supreme Court held that the principles on which the Court acts are first that the defence of the Company is in good faith and one of substance, and secondly, the defence is likely to succeed in point of law and thirdly, the Company adduce prima facie proof of facts on which the defence depends. 11. It is well settled that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the Company. A petition presented obstensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the Court. 12. The petitioner based its claim on the Purchase order allegedly sent by the respondent Company. The Purchase order is dated 17-6- 2008. The terms of the Purchase Order indicate that all the sites are subject to availability at the time of final written communication from the Company. As per the business terms, the respondent Company has to make 100% advance with the Purchase Order. A reading of this Purchase Order does not give any room for doubt that the petitioner has to act upon after receipt of the final written confirmation. Indisputably, there is no final written communication from the respondent Company accepting the agency of the petitioner for campaigning at various locations on its behalf. The petitioner remained silent till 25-9-2008. The petitioner allegedly sent ‘4’ invoices on 25-9-2008 and ‘3’ invoices on 12-1-2009. There is no material on record that these invoices have been accepted by the respondent Company. The respondent Company disputed of there being any contract with the petitioner with regard to campaigning its business at various locations. In the absence of any confirmation letter from the respondent Company, it is highly difficult to infer that there is any concluded contract between the petitioner and the respondent Company. 13. In the circumstances, I find that the dispute raised by the respondent Company is bona fide and it is based on substantial ground. Therefore, the Company is liable to be dismissed. Accordingly, the same is hereby dismissed. No costs. ________________________ B.Seshasayana Reddy, J 5th September, 2011 smr [1] AIR 1957 Allahabad 311 [2] 2010 (120) DRJ 183 [3] 2010 (8) Senior Civil Judge 724 [4] AUR 1971 S.C., 2600 = (1971) 3 SCC 632