1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH, NAGPUR COMPANY PETITION NO. 6 OF 2007 (Dr.V;ilas Prabhakar Kanikdaley vs. Medico Research and Imaging (I) Pvt. Ltd.) ====================================== Shri V.R.Thakur, Adv. with Shri D.L.Dharmadhikari, Adv. for the petitioner Shri Mahesh Singh, Adv. with Shri G.Purohit, Adv. for Respondent. CORAM : Smt. Vasanti A. Naik, J. DATE : 13th OCTOBER, 2008 1. By this petition, the petitioner seeks the winding up of Medico Research and Imaging (I) Pvt. Ltd., a Company incorporated and registered under the provisions of the Companies Act, 1956. 2. The respondent Company was incorporated on 27.7.1996 for the purpose of running a M.R.I. Centre at Nagpur. The petitioner is a medical practitioner and a renowned Radiologist. Almost all the founder directors of the Company were renowned medical practitioners. The petitioner was also one of the founder Directors of the company and was holding shares worth Rs.2,62,000/-. According to the petitioner, a resolution was passed in the meeting of the Board of Directors on 24.09.1997 and it was decided that 10% of the gross receipts would be paid 2 to the radiologists towards their remuneration. According to the petitioner, nothing was paid to the petitioner or Dr.Mukund Vaidya, the other Radiologist, from the inception of the centre. It was decided that the arrears of fees payable to the radiologists would be paid as soon as the financial position of the Company improves, as, at the relevant time, the company was under financial crisis. 3. The petitioner resigned from the Directorship of the Company as well as from the post of consultant Radiologist of the M.R.I. Centre of the Company w.e.f. 21.08.2005. It is the case of the petitioner that at the time of tendering of resignation, an amount of Rs. 45,44,672/- was due and payable by the Company to the petitioner. Before tendering the resignation, the petitioner had demanded the arrears from the Company by letter dated 18/7/2005 and by the amendment, it is incorporated in the petition that the letter issued by the petitioner on 18.7.2005 was to be discussed in the meeting, which was not attended by the petitioner. By way of amended pleadings, it is further stated that the company did not communicate anything to the petitioner in writing regarding the decision taken by the company on the claim made by the petitioner. The petitioner was constrained to issue legal notices to the Company through his 3 advocate on 9.1.2006 and 21.1.2006, calling upon the company to make the payment of his remuneration as the company was not taking any cognizance of the request made by the petitioner to pay the arrears of fees. According to the petitioner, the notice dated 21.1.2006 was falsely replied by the company through its advocate and it was informed to the petitioner by the company that the resolution dated 24.9.1997 was missing. By the reply, the company also sought a copy of the resolution dated 24.9.1997 from the petitioner. 4. After the petitioner received the reply to the notice dated 21.1.2006, the petitioner again conveyed to the Company through his advocate on 29.5.2006 that the reply was an attempt to avoid the payment of the legitimate dues of the petitioner. A copy of the reply dated 3.5.2006 through yet another counsel of the company was also received by the petitioner. According to the petitioner, a false case was tried to be made out by the company with a view to avoid or delay the payment to the petitioner. Since, nothing was materialized from the meetings between some of the directors of the company and the petitioner in the office of the advocate of the petitioner, the petitioner issued a final notice dated 27.7.2006 and since the demand in the notice dated 27.7.2007 was not acceded to, the petitioner filed the petition for 4 winding up of the company. 5. The respondent company filed the preliminary submissions opposing the admission of the petition. It is stated in the submissions that none of the ingredients under sub-clause (e) of Section 433 of the Companies Act was made out by the petitioner. It was submitted that the petition or the documents annexed thereto did not show or demonstrate that any amount was legally due and payable to the petitioner. According to the company, the claim made by the petitioner was a false claim and the balance-sheets of the company showed the clear picture. The balance- sheets of the company up to 31.3.2004 had been signed by the petitioner himself and the balance-sheets did not show any outstanding dues. It was denied that at the time of tendering his resignation, the petitioner had requested the directors of the Company to clear of all his dues or that the directors had promised to clear the same immediately after the acceptance of the resignation of the petitioner. According to the respondent company, there were absolutely no dues to be paid to the petitioner. It was stated that the petitioner was liable to pay and reimburse a huge amount running into lacs of rupees to the respondent company as the petitioner and his wife had misappropriated the funds while they were managing 5 the affairs of the company on the confidence & faith reposed on them by the other directors of the respondent company. It was also submitted that the other radiologist, Dr. Mukund Vaidya had not claimed any amount towards the radiologist fees from the respondent company and this showed that there is no truth in the claim made by the petitioner. It was denied by the respondent company that the company had a fixed deposit of Rs.25,00,000/- made after meeting all expenses and the company was financially sound and was in a position to make the payment to the petitioner when he resigned in the year 2005. It was then stated that merely because there was a fixed deposit of Rs.25,00,000/- with the company, it did not mean that the company had enough funds to pay the petitioner as the balance sheets of the company reflected the true financial position. According to the respondent Company, some fixed deposits are always kept by the Company to meet the requirements of an emergent contingency that may arise due to the fault, defect or major breakdown of the machines. The respondent company sought for the dismissal of the petition with heavy compensatory costs. 6. In the rejoinder, it was stated that the petitioner's claim was not shown in the successive balance-sheets as the company was required to obtain 6 substantial loan from the financial institutions for its M.R.I. machines and in order to obtain soft loan at the lower rate of interest, a conscious decision was taken by all the directors of the respondent company that the claim of the directors including the radiologists should not be reflected in the balance sheets. An affidavit of the partner of the Chartered Accountant's firm, which was appointed as auditor of the respondent company was also annexed to the rejoinder. After the rejoinder and the affidavit of the partner of the Chartered Accountant's firm was placed on record, the respondent company filed the affidavits of all the directors of the company, which mentioned that the reason stated by the petitioner in the rejoinder for non inclusion of the claim in the account books or in the balance sheets was totally false and imaginary. It was stated in the affidavits of the directors that there was no need for manipulation of the accounts or balance sheets of the firm or for suppression of any of the so called liabilities of the company, from being projected in the balance-sheet. 7. Finally the petitioner filed an affidavit on 8.10.2008, with a view to produce the true copies of the statements of accounts of the respondent company for the financial years 1996-97 to 2004-05. By the affidavit dated 8.10.2008, the petitioner wanted to 7 point out that the financial condition of the company was stable in the year 2005 when petitioner made a claim. 8. Shri V.R. Thakur, the learned counsel for the petitioner submitted that the resolution dated 24.9.1997, clearly shows that the petitioner was entitled to 10% of the gross receipts as radiologists fees and since no fees were paid to the petitioner since the inception of the M.,R.I. centre and the same were liable to be paid to the petitioner as soon as the company was in a position to pay the same, the respondent company ought to have paid the same to the petitioner after the company received the demand from the petitioner on 18.7.2005, 9.1.2006 and finally by the statutory notice dated 21.1.2006. It is submitted on behalf of the petitioner that the reply to the statutory notice was received by the petitioner within a period of 21 days and since the respondent company had not denied its liability to pay the amount and had promised to consider the claim of the petitioner, there was a presumption of inability to pay or neglect to pay the debt under the provisions of sub- section 1(a) of Section 434 of the Companies Act. According to the learned counsel for the petitioner, the company had not disputed its liability to pay the debts to the petitioner by the reply, and had merely 8 asked for a copy of the resolution dated 24.9.1997 on the false pretext that the said resolution was not to be found in the records of the company. It is submitted on behalf of the petitioner that the subsequent communications and the actions of the respondent company clearly showed that the respondent company was considering the claim of the petitioner and the meetings of some of the directors of the company and the petitioner were held in the office of the Advocate of the petitioner in that regard. The counsel for the petitioner relied on the decisions of the Hon'ble Supreme Court reported in 1999(3) SCC 657 (State of Kerala and others vs. V.R.Kalliyanikutty and another) and 2000(2) SCC 756 (Pankaj Mehra and another vs. State of Maharashtra and others) to canvas that the exact meaning of the word 'due' would depend upon the facts and circumstances of each case and in this case, the facts reveal that an amount of Rs.45,44,672/- was due. It is submitted on behalf of the petitioner that the company has taken contradictory stands at different stages and hence it is necessary to consider the conduct of the company while considering whether the petition needs to be admitted. The counsel for the petitioner relied on the decision of the Punjab and Haryana High Court reported in 1998 Company Cases (P&H) 521 (Bhardwaj Gas vs. Appenzeli Petroleum Products) 9 to substantiate his submission that the very conduct of the company shows that it had failed to discharge its obligation of paying the radiologists fees to the petitioner. The counsel for the petitioner then relied on the decision reported in (2005) 7 SCC 42 (Mediquip Systems (P) Ltd. vs. Proxima Medical Sytem GMBH) and 1996 Vol. 85 Company Cases 190 (K.T.S.(Singapore) PLC Ltd vs. Associated Forest Products (Pvt.) Ltd., to canvass that the defence of the company should be prima facie sustainable and since the respondent company has changed its defence from time to time, it cannot be held that the defence of the company was a bonafide defence. 9. Shri Mahesh Singh, the learned counsel for the respondent submitted that the company has raised a bonafide dispute in this case. It is submitted on behalf of the company that the resolution dated 24.9.1997 was notionally accepted by the directors and in view of the resolution, the radiologist fees was payable to the radiologists as soon as the company was in a sound financial condition for paying the same. The counsel for the respondent submitted that the resolution further stated that the quantum of total fee payable to the radiologists was liable to be set aside in every balance sheet as outstanding payment 10 to the radiologist and in this case, the balance sheets from the years 1996-97 to 2004-05 do not show that any amount was due and payable to the radiologists as the radiologists fee. It is submitted on behalf of the respondent company that all the balance sheets till the year 2005 are signed by the petitioner himself and the affidavits of all the directors clearly show that the reason stated by the petitioner for non inclusion of the professional fees as outstanding amount for obtaining a soft loan is incorrect. It is then submitted on behalf of the respondent that the affidavit of the partner of the Chartered Accountant's firm is liable to be discarded for the reason that the auditor's reports from 1997 to the year 2004 show that the reports on the accounts for the concerned years were in compliance with the provisions of section 227(2) of the Companies Act, 1956 and the reports had been furnished on the basis of checks of all books and records. The counsel for the respondent submitted that the auditor's report clearly showed that the balance-sheet and the profit & loss account, dealt with, in the reports, were in agreement with the books of accounts and the books of accounts were maintained properly as required by law. The counsel for the respondent then submitted that the presumption of inability to pay under Section 434(1)(a) of the Companies Act did not arise in this 11 case as, by the reply to the statutory notice, the respondent had asked for a copy of the resolution dated 24.9.1997 and it was informed to the petitioner by the company that the respondent could not commit anything at that stage in regard to the petitioner's claim unless the zerox copy of the resolution was sent to the respondent. It is also submitted on behalf of the respondent that the other communications and the documents produced on record clearly show that the respondent company had raised a bonafide dispute and the petition for winding up of the company is liable to be dismissed. 10. I have considered the submissions made on behalf of the parties. At the outset, it is necessary to note that the petitioner was himself a director of the Company till 21.8.2005. By a communication dated 18.07.2005, it appears that for the first time the petitioner conveyed to the respondent company that as per Board's decision dated 24.9.1997, he should be paid 10% of turn over from the date of inception of the centre till consortium was started for the radiologists. It is then stated in this communication that the payment be made at the earliest. Communication dated 18.07.2005 was issued barely a month prior to the submission of his resignation as a director of the Company. The petitioner then issued a 12 legal notice on 9.1.2008 making a reference to his entitlement to the radiologists fees. By this notice, the petitioner had mainly demanded the payment of Rs. 2,62,000/- towards share price, and the company was also called upon to pay for the service rendered by the petitioner. Para 2 of the notice recites that the arrears of the radiologists fees were due and payable as soon as the financial position of the company improves, as at the relevant time the company was under financial crisis. It is for the first time that a demand for payment of Rs.48,32,872/- was made towards radiologist fees by the statutory notice dated 21.1.2006. It is necessary to note the contents of Para 2 of the statutory notice, wherein it is stated that, though the company had decided to pay 10% gross receipts to the petitioner as well as Dr. Mukund Vaidya, nothing was paid to the petitioner and the other radiologist on the ground that the company was undergoing financial crisis. Para 2 refers to yet another meeting dated 19.12.2000, in which it was decided to pay Rs.10,000/- per month to the petitioner as token remuneration from the month of December, 2000. According to the petitioner, this decision was taken because the company had not completely overcome the financial crisis. The statutory notice makes reference to the communication dated 18.07.2005 and notice dated 13 09.01.2006. 11. By the reply to the notice, it is conveyed by the company to the petitioner that the day to day affairs of the company were single handly managed by the petitioner as the director of the Company and as a radiologist and because of the insistence of the petitioner, his wife was appointed as an administrator of the Company. It is stated in the reply that both the petitioner and his wife were managing the affairs of the company and it was noticed that some of the important documents of the company were missing. The company, therefore, sought for a copy of the resolution dated 24.9.1997 on which the petitioner based his claim, as the same was misplaced and it was further conveyed to the petitioner by the respondent that the company cannot commit anything to the petitioner at that stage in the absence of the resolution. It appears that the copy of the resolution was thereafter furnished by the petitioner to the company. The petitioner then wrote to the respondent company through his counsel on 19.3.2006 stating therein that the petitioner and his wife did not have any record with them and the entire record was in the office of the company. However, in this notice, it is not stated that the petitioner and his wife, who was appointed as an administrator, were not managing 14 the day to day affairs of the company. On receiving the communication dated 19.03.2006, the respondent company again wrote to the petitioner through their counsel on 3.5.2006. It was stated in this communication that the claim for an amount of Rs. 45,44,672/- was false and baseless and the reliance placed by the petitioner on the resolution dated 24.9.1997 was totally illfounded. It was stated in this communication that the petitioner and his wife were managing the affairs of the company and by the resolution, it was notionally decided that the radiologists working in the M.R.I. centre would be considered for remuneration to the extent of 10% of the gross receipts, if the financial condition of the company permits such payment. It is further stated in the communication that the accounts were maintained by the petitioner himself since 1997 till the year 2004-05 and the financial position of the company was fully known to the petitioner. The radiologists fees were never shown in the books of accounts and the balance sheets as they were not the outstanding payments and debts of the company. It was conveyed to the petitioner by the respondent that the petitioner was fully aware of the import and spirit of the resolution dated 24.9.1997 and that he himself had not shown any outstanding payment towards the radiologists fees. It was also conveyed to the 15 petitioner by the said communication that in a period of 4 months & 20 days, the petitioner and his wife had misappropriated an amount of Rs.9,99,537/- and it was, therefore, necessary to ascertain what amount was actually misappropriated by the petitioner in the earlier 104 months. The communications between the parties ensued and the petitioner again wrote to the advocate of the respondent though his advocate denying the contents of the communication dated 3.5.2006 and it was stated in this communication that the entries regarding payment of radiologists fees were not reflected in the account books and the balance sheets, as the Chartered Accountant had advised the petitioner and the other directors not to show the same in the account books as the company was planning to avail the loan from the other banks. It was stated in the communication that the petitioner did not give up his claim towards the radiologist fees at any point of time. Since the dispute between the petitioner and the company was not settled, the petition for winding up of the company was filed by the petitioner. 12. A bare perusal of the resolution dated 24.9.1997 clearly shows that the fees payable to the radiologists were to be calculated since the inception of the centre and it was necessary to set aside the 16 quantum of total fees payable to the radiologists in every balance sheet as outstanding payment. The resolution then recorded that the amount was liable to be paid to the radiologists as soon as the company was in a financial position to pay the same. It is the case of the respondent company that the directors of the company had notionally agreed that 10% of the gross receipts should be paid to the radiologists as soon as the company would be in a sound financial position and if the outstanding amounts were shown in the balance sheets. It was thus necessary to show the outstanding amounts in every balance sheet. It is conspicuous to note that the petitioner himself made a reference to yet another resolution dated 19.12.2000, passed after Dr. Mukund Vaidya left India, which, according to the petitioner, was brought into effect with a view to pay an amount of Rs.10,000/- per month to the petitioner as a token as the company was in a financial crisis. Though the resolution dated 24.9.1997 speaks of setting aside of radiologists fees in every balance sheet, none of the balance sheets produced on record show that any amount was due or any outstanding payment was to be made to the petitioner or Dr.Mukund Vaidya towards radiologists fees. There is a serious dispute about the reasons stated by the petitioner for not showing these dues in the books of accounts and in the balance sheets, as 17 every director of the company has filed an affidavit denying the stand of the petitioner that the entries were not shown in the accounts and in the balance sheets as the company wanted to obtain a soft loan from the financial institutions and the Chartered Accountant of the company had informed the directors that the entries should not be shown in the accounts or in the balance sheets. The affidavit of the partner of the Chartered Accountant's firm makes an interesting reading. 13. Thus, the claim of the petitioner was not supported by any books of accounts, acknowledgment, agreement or any other documentary proof. According to the respondent, the claim of the petitioner was imaginary, as, in view of the resolution of 1997, the amounts were payable to the petitioner only if the financial condition of the company was sound and if the outstanding dues were shown in the balance sheets. At the cost of repetition, it is stated that the auditor's report, balance sheets and the accounts do not show that any amount was due and payable to the petitioner towards radiologists fees. It is apparent from the facts on the record that there was a bonafide dispute about the debt and the defence of the company, was a substantial defence. Since the debt in this case was not admitted, there was a valid excuse 18 for non-payment of the same. A presumption under Section 1(a) of Section 434 of the Companies Act did not arise in the facts of the case, as on receiving the statutory notice from the petitioner, the respondent had immediately conveyed to the petitioner that the copy of the resolution dated 24.9.1997 on which the claim of the petitioner was based, was missing and the company was not able to commit anything at that stage in the absence of the resolution. Much has been said about the meetings of the three directors of the Company & the petitioner in the office of the advocate of the petitioner to settle the claim. None of the documents issued by the respondent show that the directors of the respondent company admitted the dues of the petitioner even to a certain extent and agreed to pay the same to the petitioner and the meetings in the office of the advocate of the petitioner were held in that regard. It appears