THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.43 of 2003 (Dated : 18-08-2011) Between: M/s. Ravi Containers Pvt. Ltd. Hyderabad ….Petitioner A n d M/s. Pragya Packaging Private Limited R.R.District …Respondent THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.43 of 2003 ORDER: This Company Petition has been taken out by M/s.Ravi Containers Private Limited (the petitioner, in short) under Sections 433(e), 434(f) and Section 439 of the Companies Act, 1956 read with Rule 95 of the Companies (Court) Rules, 1959 seeking an order of winding up of the company-M/s. Pragya Packaging Private Limited (the respondent-company, in short) on the ground that the respondent- company is indebted to the petitioner and has not paid its dues despite service of statutory notice. 2. The case of the petitioner, in brief, as set out in the petition, is:- The respondent is a company incorporated under the Companies Act, 1956 (the Act, in short) having its office at 27-B, A.P.11 C, Kattedan, R.R.District. The main objects of the respondent-company are to carry on in India and elsewhere the business to manufacture on its own or on job work basis, purchase, sale, import, transport and or otherwise deal in blow moulded HDPE, LDPE, LLDPE, PVC bottles, Jars, tumblers of various shapes and sizes and or injection moulded HDPE, LDPE, PVC caps & plugs with or without combination of other ferrous or nonferrous materials. The respondent-company entrusted the job work of conversion of raw material into packing material and its allies on payment of labour charges. The petitioner opened a running account and debited the amount to the account as and when labour charges are due and credited the account to the respondent-company as and when the amounts are received. The petitioner raised invoices towards labour charges for converting raw material into packing material and its allies. The respondent-company is due in a sum of Rs.4,10,093/- as on 31.1.2002 towards labour charges. As per the business terms and conditions, the respondent-company was to make the payment within two or three months from the date of delivery of the converted material. Delayed payments carry interest at the rate of 24% per annum. The petitioner demanded the respondent-company to pay the amounts due towards labour charges. The demands made by the petitioner did not yield any fruitful result. Therefore, the petitioner issued a statutory notice dated 15.2.2002, as provided under Section 434 of the Act calling upon the respondent-company to pay the amount due within three weeks. The respondent-company issued reply dated 2.3.2002 disputing the amount claimed by the petitioner. Hence this petition seeking the prayer stated supra. 3. Notice before admission came to be ordered on 17.7.2003. The respondent entered appearance through a counsel and filed counter. It is stated in the counter affidavit that the petitioner having received the raw material has not converted the same as desired and withheld substantial quantity of raw material. Until and unless the reconciliation in relation to the supply of granules by the respondent and delivery of packing material by the petitioner takes place, no amount can be stated to have been ascertained or stated to be due from the respondent-company. The respondent supplied moulds to the petitioner so as to convert the raw material into finished goods and if the value of the moulds in possession of the petitioner is taken into consideration, it is the petitioner who has to pay the amount to the respondent-company. Till reconciliation takes place, the amount claimed by the petitioner is to be categorized as disputed amount, in which case, the petitioner cannot be permitted to maintain a petition seeking an order of winding up of the respondent-company. 4. The petitioner filed reply affidavit. It is stated in the reply affidavit that the respondent, at no point of time, sought for return of raw material and moulds, which are allegedly retained by the petitioner. Paragraph 6(a) of the reply affidavit needs to be noted and it is thus:- “6.(a) As a matter of fact, if the contention of the Respondent is quite correct after supplying of the raw material and the moulds what prevented him to claim back the raw material and moulds which is kept with the petitioner and the Respondent has not placed single scrap of paper showing the demand of the raw material and moulds kept with the petitioner since the date of supply till giving the reply to the legal notice on 02-03-2002, i.e., till a period of more than `3’ years and even in counter the Respondent herein has not mentioned the reasons for not claiming for all the `3’ years which goes to prove that his allegation is false and frivolous and only to give colour to his counter the Respondent herein has invented and created a cock and bull story to get the sympathy and undue advantage from this Hon’ble Court to avoid the claim of the petitioner with an evil design”. 5. The company petition came to be admitted on 28.2.2006 and the petitioner was directed to carry out publication in “Deccan Chronicle” English edition (local) and “Vartha’ telugu edition. The petitioner carried out publication and filed proof on 15.6.2006. On behalf of the petitioner, one witness was examined as PW-1 and 15 documents were marked as Exs.A-1 to A-15. On behalf of the respondent- company, three witnesses were examined as RWs 1 to 3 and 33 documents were marked as Exs.B-1 to B-33. 6. Heard learned counsel appearing for the petitioner and Sri S.Ravi, learned senior counsel appearing for the respondent- company. 7. Learned counsel appearing for the petitioner submits that the petitioner raised invoices towards labour charges, and as and when the respondent-company paid the money, the same has been duly credited to his account and balance has been arrived at, at the end of every financial year. A further submission has been made that Ex.A-5, copies of the balance sheets of the years 1998-99, 1999-2000, 2000- 2001 and ledger extracts substantiate the claim of the petitioner against the respondent-company. Learned counsel would further submit that the petitioner issued notice dated 14.2.2002 demanding the respondent-company to pay the amount due to a tune of Rs.4,10,093/- with interest at 24% per annum as per the ledger extract. The respondent-company issued reply dated 2.3.2002 disputing the claim. According to the learned counsel, the dispute raised by the respondent with regard to the claim of the petitioner is not bona fide and therefore, it is to be construed that the respondent- company neglected to pay the amount due warranting an order of winding up of the respondent-company. Learned counsel refers the ledger extracts for the years 1998-99, 1999-2000, 2000-2001 in support of his submissions. He would further submit that the respondent-company deducted TDS from the amounts payable to the petitioner for the years 1998-99 and 1999-2000 as per Ex.A-4 and paid the balance amount to the petitioner. If any payments were made by the respondent-company to the petitioner by way of cash, the same should have been after deducting the TDS, but it was not the case of the respondent-company that such a deduction had been made from the cash payments. Therefore, the version of the respondent-company that cash payment was made under the bills covered under Ex.B/1 to Ex.B/15 invoices cannot be believed. 8. Sri S.Ravi, learned senior counsel appearing for the respondent submits that the petitioner raised invoices for the labour charges and received amounts covered under the said invoices and no amount was due to the petitioner by the date of filing of the company petition. A further submission has been made that it is the petitioner who has to return a part of the raw material and also moulds supplied by the respondent-company. Learned counsel refers invoices exhibited as Ex.B1/1 to B1/22 in support of his contention. Much emphasis has been laid with regard to the seal appearing on the said invoices. The seal indicates that the petitioner received the amount by way of cash in full. In a way, the contention of the learned senior counsel is that the amount claimed by the petitioner is in dispute and the dispute is a substantial one, in which case the petition filed by the petitioner seeking an order of winding up of the respondent-company is liable to be dismissed. In support of his contentions, reliance has been placed on the decisions of the Supreme Court in Amalgamated Commercial Traders (P) Ltd. v. A.C.K.Krishnaswami and Anr[1], Mediquip Systems Pvt. Ltd. v. Promixa Medical Systems GMBH[2], and the decision of Allahabad High Court in N.N.Consultants Pvt. Ltd. v. Khatema Fibres Ltd.[3] and a Division Bench decision of this Court in Walnut Packaging Pvt. Ltd. v. Sirpur Paper Mills Ltd. and Anr.[4] 9. 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 ostensibly 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, vide decision of the Supreme Court in Amalgamated Commercial Traders (P) Ltd. v. A.C.K.Krishnaswami (1 supra). The above mentioned decision was later followed by the Supreme Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd.[5] The principles laid down in the above-mentioned judgments have been reiterated by the Supreme Court in Mediquip Systems (P) Ltd. v. Proxima Medical System GmbH (2nd supra), wherein it has been held that the defence raised by the appellant company be a substantial one and not mere moonshine and had to be finally adjudicated upon on the merits before the appropriate forum. The abovementioned judgments were followed by the Supreme Court in Vijay Industries v. NATL Technologies Ltd.[6] The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be “neglect to pay” within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non- payment of the amount of such a bona fide disputed debt cannot be termed as “neglect to pay” so as to incur the liability under Section 433(e) read with Section 434 (1) (a) of the Companies Act, 1956. 10. It is well settled that the procedure under Section 433 of the Indian Companies Act is summary. When the company produces prima facie proof of facts on which the defence depends and which is probable and there is likelihood to succeed in point of law, it cannot be said that the company has neglected to pay within the meaning of Section 434(1)(a) of the Companies Act. Bona fide dispute implied substantial ground for the dispute raised. In the summary procedure, which the Company Court must follow, if the Court is satisfied prima facie that the defence raised is bona fide and likely to succeed in a civil Court that would constitute sufficient reason for the Court to reject the petition relegating the parties to the civil court. 11. The issue that calls for adjudication in this company petition is whether the dispute raised by the respondent-company is genuine and bona fide or whether the defence raised is frivolous, untenable and put forward with an intention to avoid payment of dues to the petitioner? 12. POINT:- PW-1 is one of the Directors of the petitioner. Fifteen documents have been marked through him. Ex.A-10 is the bunch of delivery challans. Under those delivery challans, the petitioner received plastic granules for conversion into packing material. Ex.A- 11 is bunch of receiver slips acknowledging the receipt of packing material by the respondent-company. Ex.A-9 is the bunch of copies of invoices along with delivery challans. Under those invoices-cum- delivery challans, the respondent-company received packing material. Ex.A-5 series are the statements of account for the years 1.4.1998 to 31.3.1999, 1.4.1999 to 31.3.2000 and 1.4.2000 to 31.3.2001. These statements contain the acknowledgment of the respondent-company. When these statements are marked through PW-1, a suggestion was made to him that these statements were fabricated and the said suggestion was flatly denied by him. The petitioner marked bunch of credit vouchers as Ex.A-6. These credit vouchers are issued by the petitioner to the respondent as and when the respondent made payment. The nature of payment is also indicated in the credit vouchers. Nothing is suggested to PW-1 disputing the correctness of the credit vouchers. The only suggestion made to PW-1 in respect of the bunch of credit vouchers is that they do not bear any proof of being delivered to the respondent. Ex.A-6 credit vouchers are only the copies, originals of which were issued to the respondent as and when payments were made. It is evident from these credit vouchers that as and when payments were made by the respondent, the petitioner issued credit vouchers acknowledging the payments. It was suggested to PW-1 that all the credit vouchers evidencing the payments received from the respondent were not filed. It is pertinent to note that it is the respondent who is in possession of the original credit vouchers. Nothing prevented him to place on record the original credit vouchers. For better appreciation, I may refer the relevant portion of the cross-examination of PW-1, which reads as hereunder:- “ ……Ex.A.6 series does not bear any proof of being delivered to the respondents. I will have to check whether there is any proof of dispatch of Ex.A.6 to the respondent. It is not true to say that all the credit vouchers have been fabricated for the purpose of case. It is not true to say that we have not filed all the credit vouches towards receipt of payment from the respondent. It is not true to say that I have filed a false and I have tendered a false evidence”. 13. All the amounts covered under Ex.A-6 credit vouchers have been reflected in Exs.B-31 to B-33 statement of account produced by the respondent-company itself through RW-3. The respondent-company examined three witnesses on its behalf to substantiate its defence that no amount is due to the petitioner. RW-3 claims to be the Director of the respondent-company. He admits in cross-examination that he became the Director of the respondent-company in 2008, whereas the transactions in dispute between the petitioner and respondent are relatable to the year 1997 to 2001. RW-3 admits in cross-examination that he was not aware of the cash payments reflected in Exs.B.32 and B.33 as he was not the Director at the relevant point of time. For better appreciation, I may refer the cross examination of RW-3 in his own words and it is thus:- “ I became a Director of the respondent company in 2008. As I am the Director of the respondent company, I am giving evidence as I was asked to do so by the other Directors. The documents Exs.A.5/2, A.5/3, and A.5/4, bear the seal of the company in rubber stamp. I cannot identify the signature appearing on the rubber stamp of the company in the above documents as that of the Directors. The delivery challans Exs.A.10/1 to 35 bear the name of the company, but I cannot say they are the challans of the company as I was not a Director at that time. In Exs.B.1 to B.16 writings appeared to be in the same handwriting. It is not true to say that the first letter `B’ in the word `being’ in Ex.B.1 to B.22 is similar. In some of the invoices the truck No. is mentioned as `ABX 1626’ but the nature of the vehicle is not mentioned. I cannot say that the said vehicle bearing No.ABX 1626 belongs to the respondent company. Ex.B.32 the TDS amount of Rs.4576/- paid on 25.11.2000 is not prior to Ex.B.32 and B.33 the respondent company might have made cash payment but I am not aware as I was not a Director at that time. After joining in the company as a Director, I use to pay the salary to the staff for some time and the Supervisor use to pay the salary later. At present, there is no employee by name `Raju’ working in the respondent company. At present there is no employee by name `Haribabu’. I cannot say any such person had worked previously. I cannot say that the agreement is to the effect that all the payments have to be made by way of account payee cheques. I cannot say if my brother Bindosingh Dugar appeared before the police at any time in connection with the complaint given by the petitioner. It is not true to say that Exs.B.31 to 33 are forged and fabricated documents. It is not true to say that I am giving false evidence to evade the claim of the petitioner company. It is not true that in spite of knowing everything I am deliberately not telling the truth. It is not true that I am safeguarding the interest of my brother Binodsingh Dugar……” It is explicit from the evidence of RW-3 that he had no personal knowledge of the transactions between the petitioner and respondent- company. Therefore, his evidence is of no avail. 14. RW-1-Binod Singh Dugar claims to be Director of the company. According to him, labour chargers were paid to the petitioner by way of cheques till the year 1999 and thereafter, payments were made by cash. His version of paying the amounts by way of cash to the petitioner is not consistent. In the cross-examination, he states at one stage that the payments were made by way of cash from the year 1999 and at another stage, he states that payments were made by way of cash from the year 2001. A witness, who gives contradictory statements in evidence, cannot be treated as a trust-worthy witness. The evidence of RW-1 indicates that as and when the amounts were paid to the respondent, tax was deducted at source and certificates were issued. But the cash payments allegedly made by the respondent-company to the petitioner does not indicate of deduction of tax at source. When the respondent was deducting tax at source as and when payments were made by way of cheques, there was no reason for the respondent not to deduct tax at source when payments were made by way of cash. Indeed the respondent-company issued Form 16-A as and when it deducted tax at source from the amounts payable to the petitioner company. Ex.A-4 is copy of Form 16A issued by the respondent as and when it deducted tax at source on payments made to the petitioner company. Ex.A-4 (Form 16-A) relates to the years 1.4.1998 to 31.3.1999 and 1.4.1999 to 31.3.2000. 15. RW-2-Ashok Jain is one of the Directors of the respondent- company. Except marking the copies of the balance sheets of the respondent-company, he does not speak of the transactions between the petitioner and respondent-company relating to the years 1997 to 2001. Therefore, his evidence is of no avail to the respondent- company. 16. Both the petitioner and the respondent-company placed on record copies of the ledger extracts. There is no dispute with regard to the payments made by the respondent by way of cheques. The dispute is only with regard to the payments allegedly made by the respondent-company by way of cash. As I stated earlier, as and when the petitioner received amounts from the respondent, the petitioner issued receipts. The respondent-company had not placed on record any receipts with regard to payments allegedly made by cash. The only reasonable conclusion is that cash payments reflected in the ledger extract of the respondent-company are not genuine. Had there been cash payments by the respondent on the dates indicated in the ledger extracts, which have been exhibited as Exs.B.31 to B.33, the same must have been reflected in their cashbook. For the reasons best known, the respondent failed to produce the cashbook to show that on the dates indicated in the ledger extracts, cash payments were made to the petitioner. 17. I have gone through the ledger extracts of the petitioner company, which have been exhibited as Ex.A-5 and the ledger extract of the respondent-company, which have been exhibited as Ex.B-31 to B.33. In Ex.B.32 ledger extract, the respondent-company claims to have paid cash of Rs.13,710/- against the job bill No.14. But, as seen from the invoices produced by the respondent, which has been exhibited as Ex.B-1/13, the amount stated therein is Rs.15,400/-. Therefore, the invoice amount mentioned in Ex.B-1/13 does not tally with the amount mentioned in the ledger extract. So also in Ex.B.32, the amount covered under Bill No.19 dated 15.01.2001 has been stated as Rs.31,470/- whereas the invoice which has been exhibited as Ex.B.1/10, the amount is shown as Rs.15,040/-. Of course, it is stated in Ex.B.1/10 and Ex.B.1/13 that certain quantity of material came to be rejected and balance amount payable has been arrived at. If it is the case of the rejection, the invoice amount is to be indicated on the credit column and the value of the rejected material has to be indicated at the debit column. Such a course has not been adopted. Similarly, the amount covered under Bill No.23 has been stated in Ex.B.32 as Rs.13,340/-. But, in the invoice, which has been exhibited as Ex.B.1/7, the amount is shown as Rs.15,720/-. 18. Be that as it may, it is the case of the respondent-company that disputes arose between the parties in 1999 and thereafter, the respondent is insisting for payment of amount by way of cash. As could be seen from the ledger extracts, even after the year 1999, amounts have been paid by way of cheque and that is evident from Ex.A.5/3 and Ex.A.5/4. I may point out the amounts paid by respondent by way of chques and they are dated 23.7.1999, 4.5.2000, 14.6.2000, 15.9.2000, 22.9.2000, 04.12.2000, 4.1.2001, 20.3.2001 and 31.3.2001. Therefore, the contention of the respondent that labour charges have been paid from the year 1999 only by way of cash cannot be believed. Therefore, the defence of the respondent- company that all the payments towards labour charges are paid by way of cash and no amount is due cannot be sustained. 19. It is the version of the respondent-company that moulds and part of raw material have been detained by the petitioner and if their value is taken into consideration, it is the petitioner who is due to them. I have gone through the reply notice dated 2.3.2002 issued by the respondent. Except asserting that it has to receive moulds and balance quantity of raw material from the petitioner, it is not indicated what is the quantity of raw material retained by the petitioner and what is the value of the moulds that are in possession of the petitioner. Therefore, the defence of the respondent-company is only moonshine and not a substantial one. The petitioner is able to prove its claim against the respondent-company by placing on record cogent and convincing evidence. Therefore, I am of the view that the amount claimed by the petitioner against the respondent is undisputed. When the respondent neglected to pay the `undisputed amount’, it is to be inferred that the respondent is commercially insolvent. Hence, I find that the petitioner made out a valid ground for an order of winding up of the respondent-company. 20. Accordingly, the Company Petition is allowed ordering winding up of the respondent-company viz., M/s. Pragya Packaging Private Limited, and the official liquidator attached to this Court is appointed as liquidator. Notice of the Order for winding up of the respondent Company- M/s. Pragya Packaging Private Limited shall be sent forthwith to the Official Liquidator in Form No.50 under Rule 109 of the Companies (Court) Rules, 1959, enclosing a copy of the petition and affidavit filed in support of the petition. Pursuant to Rule 114, the Official Liquidator shall forthwith take into his custody or under his control all