THE HON’BLE Ms. JUSTICE G. ROHINI COMPANY PETITION No.35 OF 2003 Dated: 26.04.2011 Between : Percept Advertising Limited, Mumbai, Rep. by Shri Rubin T. Malkani, Vice President (Legal and commercial) … Petitioner And Shri Shakti LPG Limited, Hyderabad. … Respondent THE HON’BLE Ms. JUSTICE G. ROHINI COMPANY PETITION No.35 OF 2003 ORDER : This is a petition filed under Sections 433 (e) & (f), 434 (1) (a) & (c) and Section 439 of the Companies Act, 1956, for winding up of the respondent company. The petitioner claims to be a company engaged in the business of advertising, publicity, marketing and propaganda agents and advertisers to manufacturers, traders and dealers. It is stated that at the instance of the respondent company which was carrying on the business of manufactures, produces, importers, exporters, suppliers, dealers, processors of Liquefied Petroleum Gas (LPG) and other allied gases, the petitioner had carried on advertising work for and on behalf of the respondent. Against the advertising works so done, the petitioner raised various invoices/bills during the period from 23.06.1997 to 22.03.1999 for a total sum of Rs.1,19,97,199/-. However the respondent paid only Rs.89,33,439/- and a balance of Rs.30,63,706/- remained due and payable. In response to the letters/reminders addressed by the petitioner for payment of the outstanding dues, the respondent by letter dated 12.10.1999 informed the petitioner that there were certain discrepancies in the amount claimed and the matter would be looked into by its Accounts Department. Pending such exercise, it was assured that they would work out and communicate shortly a schedule for the release of Rs.23.09 lakhs. Since no such schedule was forthcoming from the respondents, the petitioner issued several reminders. By letter dated 19.2.2000 the respondent informed the petitioner that they were devising a payment plan. Again by letter dated 15.05.2000 the respondent assured the petitioner the release of payments within next two months stating that despite their continuing severe liquidity crunch, they were making every effort to commence release of payments. However no such payment was made and by letter dated 2.9.2000 the respondent had again assured release of amounts as soon as possible. Thereafter, by cheque dated 7.9.2000 the respondent paid a sum of Rs.25,000/- and assured that the balance outstanding would be cleared during the course of next few months. No further payments were made, but on the other hand the respondent by letter dated 25.09.2000 raised a dispute as to the amounts outstanding as well as the interest payable thereon. The petitioner by letter dated 11.10.2000, explained the basis for their demand / claim, and in response to the same the respondent gave a reply dated 31.10.2000 stating that they would make every possible effort to resolve the dispute amicably and specific action would be initiated whenever possible. Even thereafter, since no further payments were made, the petitioner got issued a legal notice dated 17.10.2001 calling upon the respondent to pay a sum of Rs.31,36,438/- together with interest at the rate of 24% p.a. within 3 weeks, failing which the respondent company would be deemed to be unable to pay its debts within the meaning of Section 434 (1) (a) of the Companies Act, 1956 and the proceedings would be initiated for winding up of the company. Having received the said notice, the respondent gave a reply dated 20.10.2001 stating that as the respondent company is a running concern filing a petition under Section 434 (1) (a) does not arise. It was also contended that they had cleared all the payments and no bill of the petitioner was pending with them. Hence the petitioner approached this Court invoking Section 433 (e) & (f) of the Companies Act for winding up of the respondent company. Having received notice in the company petition, the respondent filed an affidavit stating that on a reference made under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, ‘SICA’), Case No.248 of 2002 was registered and pending before the BIFR and that in the list of sundry creditors as of 31.03.2002 filed before the BIFR, it was shown that a sum of Rs.23,15,648/- was due and payable to the petitioner company. In view of the pendency of proceedings before the BIFR, the company petition was closed by order dated 7.7.2004 giving liberty to the petitioner to revive the company petition after the reference under Section 15 of SICA was disposed of. Thereafter, by order dated 3.10.2005 the reference pending on the file of BIFR was dismissed. In the circumstances, the petitioner moved C.A.No.218 of 2007 to reopen the company petition and the same was allowed by this Court by order dated 15.04.2008 thereby restoring to file the present company petition. Subsequently the respondent filed a counter denying its liability and contending that the documents filed by the petitioner to substantiate its claim were fabricated. When the matter was heard by this Court in the month of April, 2009, it was contended on behalf of the respondent that since the debt w as bona fide disputed it cannot be inferred that the respondent company had neglected to pay such a disputed amount. Having regard to the fact that the respondent company itself, in the list of sundry creditors filed before the BIFR, had shown that Rs.23,15,648/- was due and payable to the petitioner company, this Court opined that to the extent of the debt mentioned in the said list of creditors deserves a serious consideration. In the meanwhile, the Board of Directors of the respondent company passed a resolution to deposit the said sum of Rs.23,15,648/- to prove its bona fides without prejudice to any of its contentions raised in the company petition as well as the written statement filed by it in O.S.No.66 of 2004 pending on the file of the Court of the I-Additional Chief Judge, City Civil Court, Secunderabad. In view of the said resolution, this Court passed an order on 17.04.2009 as under: “If the respondent company is able to establish and show its bona fides by way of depositing the amount which was reflected by it as due and payable to the petitioner company while lodging its claim before the BIFR and raises a dispute about its further liability to pay the balance amount of approximately Rs.7 Lakhs, the defence taken by the respondent company cannot be characterised as an artificial explanation put up by it for warding off the present winding up proceedings.” Accordingly, this Court directed the respondent company to deposit a sum of Rs.23,15,648/- in one or more number of installments before the Registrar (Judl.) to the credit of this company petition and for the said purpose adjourned the matter by two months. It is also relevant to note that during the pendency of this company petition, the petitioner company filed O.S.No.66 of 2004 on the file of the Court of I-Addl. Chief Judge, City Civil Court, Secunderabad, against the respondent company for recovery of a sum of Rs.30,63,706/- along with interest at the rate of 24% p.a. The said suit was decreed by judgment dated 5.3.2010 and challenging the said judgment and decree, the respondent filed C.C.C.A.No.70 of 2010 in this Court. By order dated 7.7.2010 this Court in C.C.C.A.No.70 of 2010 granted interim stay of the judgment and decree in O.S.No.66 of 2004 subject to condition of depositing a further sum of Rs.2,00,000/- and costs in addition to the amount already deposited to the credit of the company petition. On such deposit, the petitioner herein was permitted to withdraw the said Rs.2,00,000/- and costs without furnishing any security. The petitioner was also permitted to withdraw 50% of the amount already deposited to the credit of the Company Petition by furnishing security and the balance 50% without furnishing security. It is not disputed before this Court that the respondent had deposited the amounts in compliance with the orders of this Court and the petitioner had withdrawn the amounts in terms of the order passed by this Court. However according to the petitioner a sum of Rs.19,05,882/- is still due and payable by the respondent company towards the principal amount and the interest payable thereupon. While referring to the series of letters exchanged between the parties prior to filing of the company petition wherein the respondent had assured the repayment, particularly the list of sundry creditors filed by the respondent before the BIFR showing that a sum of Rs.23,15,648/- was due and payable to the petitioner company, the learned counsel for the petitioner vehemently contended that the respondent company shall be deemed to be unable to pay its debts and therefore it is a fit case to direct winding up under Section 433 (e) of the Companies Act. In support of his submissions, the learned counsel for the petitioner relied upon the decisions of the Supreme Court in MADHUSUDAN GORDHANDAS & CO. v. MADHU WOLLEN INDUSTRIES[1] and PRAKASH CHAND SHARMA AND ORS. v. NARENDRA NATH SHARMA[2]. On the other hand, it is contended by the learned counsel for the respondent that the documents relied upon by the petitioner were fabricated and that the claim of the petitioner was false and baseless. It is also contended that there was never any understanding for payment of interest much less any admission on the part of the respondent to pay interest and in fact the petitioner had to repay the excess amount received by it. While pointing out that in compliance with the order of this Court, the petitioner had deposited Rs.23,15,648/- to the credit of this company petition apart from Rs.2,00,000/- as directed in C.C.C.A.No.70 of 2010, it is contended by the learned counsel for the respondent that the petitioner failed to prove that the respondent was commercially insolvent. Having regard to the fact that C.C.C.A.No.70 of 2010 preferred by the respondent against the judgment and decree in O.S.No.66 of 2004 is pending on the file of this Court, the learned counsel for the respondent further contended that the petition for winding up is not maintainable. In support of his submissions, the learned counsel for the respondent relied upon KITTI STEELS LIMITED, HYDERABAD v. SANGHI INDUSTRIES LIMITED, HYDERABAD[3], MEDIQUIP SYSTEMS (P) LIMITED v. PROXIMA MEDICAL SYSTEM GMBH[4] and IBA HEALTH (P) LIMITED v. INFO- DRIVE SYSTEMS SDN. BHD.[5]. In KITTI STEELS LIMITED’S case (3 supra) as the money decree passed by the Civil Court in favour of the petitioner therein was not satisfied, the petitioner got issued a notice under Section 434 (1) of the Act calling upon the respondent therein to pay the decretal amount along with subsequent interest. As the respondent failed to pay the amounts even after receiving the said notice, the winding up petition came to be filed before this Court. It was contended inter alia on behalf of the respondent that as the appeal against the decree passed by the civil court against the respondent company was pending before this Court, the winding up petition was not maintainable. While referring to Section 443 (2) of the Companies Act, which empowered the Court to refuse to make an order of winding up if it is of the opinion that some other remedy is available to the petitioner, this Court held that winding up petition under Section 433 (e) would not lie since admittedly the petitioner obtained a decree and it was in appeal. As could be seen, it is a case where the petitioner therein obtained a money decree even before filing the winding up petition. Moreover the judgment and decree had been suspended pending the appeal. In the circumstances, this Court held that the decree was unenforceable and there was no enforceable debt against the respondent company and thus it was concluded that the winding up petition was not maintainable. In the instant case, the winding up proceedings were admittedly initiated much prior to the filing of the suit for recovery of money in the Civil Court. During the pendency of the company petition, the petitioner filed O.S.No.66 of 2004 by way of abundant caution to save the claim getting barred by limitation. In fact, by the date the suit was decreed there was already a direction by this Court that the respondent company should deposit a sum of Rs.23,15,648/- to the credit of the company petition to show its bona fides. Hence KITTI STEELS LIMITED’S case (3 supra) is clearly distinguishable on facts and is of no assistance to accept the contention of the respondent’s counsel that the winding up petition is liable to be dismissed in limini. In fact the Courts have held in various decisions that there was no bar to maintain both a Civil Suit for recovery of a debt and also filing a petition in the Company Court for winding up as the two were distinct [ vide State Bank of India v. Hegde & Golay Limited {1987 (62) Company Cases 239 (Karnataka)}; V.K. Jain v. Richa Laboratories (P) Limited {1993 (78) Company Cases 283 (Delhi)}; Karam Chand Thapar & Bros. (Coal) Sales Limited v. Acme Paper Limited {AIR 1994 Delhi 1}; and Central Bank v. Sukhani Mining & Engg. Indus. P. Limited {1977 (47) Company Cases 1 (Delhi)} ]. Coming to the merits of the case, it is to be noticed that this is a case where the respondent company had disputed its liability, particularly the interest claimed by the petitioner. The law is well settled that an order under Section 433 (e) is discretionary and there must be a debt due and the burden is on the petitioner to establish that there is a debt due and that the company is unable to pay the same. As held in MEDIQUIP SYSTEMS (P) LIMITED’S case (4 supra) and IBA HEALTH (P) LIMITED’S case (5 supra) a debt under Section 433 (e) must be a determined or definite sum of money payable immediately or at a future date and the inability referred to in the expression ‘unable to pay its debts’ in Section 433 (e) should be taken in the commercial sense. With regard to cases where the winding up petitions are based on the disputed claims, it was held by the Supreme Court in MADHUSUDAN GORDHANDAS’s case (1 supra) that the Court has to examine firstly whether the defence of the company is in good faith and one of substance; secondly whether the defence is likely to succeed in point of law; and thirdly whether the company adduced prima facie proof of the facts on which the defence depends. It was also held in the said decision that the question as to whether the debt disputed by the respondent company is bona fide and is to be treated as a substantial defence has to be culled out from the facts and circumstances of each case. In the instant case, the respondent company itself had filed before the BIFR the list of sundry creditors showing that it owed Rs.23,15,648/- to the petitioner as on 31.03.2002. Though it was contended on behalf of the respondent that the said information had been furnished to the BIFR since it was required by the format and no significance need be attached to the information given in the said list, this Court did not accept the said contention and by order dated 17.04.2009 held that the debt to the extent shown in the list of sundry creditors before the BIFR deserved a serious consideration. Accordingly, there was a direction by this Court that the respondent should deposit the said sum of Rs.23,15,648/- to show its bona fides. Admittedly the entire amount as directed by this Court was deposited by the respondent company. Though O.S.No.66 of 2004 filed by the petitioner for recovery of a sum of Rs.30,63,706/- was decreed together with interest at the rate of 24% p.a., the said decree has not become final. The respondent company carried the matter in appeal and the correctness of the said judgment and decree is the subject-matter of C.C.C.A.No.70 of 2010 pending on the file of this Court. In the light of the aforesaid facts borne out of the record, I am of the opinion that the respondent could prima facie establish that its defence is bona fide and is of substance. Whether the defence of the respondent is likely to succeed or not is now the subject-matter of C.C.C.A.No.70 of 2010 pending on the file of this Court. It is also relevant to note that though O.S.No.66 of 2004 was decreed for the entire claim of Rs.30,63,706/- along with interest at the rate of 24% p.a., the operation of the said judgment and decree was stayed by this Court by order dated 7.7.2010 in C.C.C.A.M.P.No.258 of 2010 in C.C.C.A.No.70 of 2010 and the said order has been in operation. Hence the claim of the petitioner company for the balance amount of about Rs.7 Lakhs and interest thereupon cannot be held to be a debt due as of today. It is also relevant to note that in the counter-affidavit filed on behalf of the respondent, it is stated that the respondent company had paid as much as Rs.26 Crores in the recent past in full and final settlement of its liabilities to Banks and Financial Institutions and that its financial position had improved a lot. It is also stated that the respondent company presently employed about 30 workers and it had achieved a turnover of about Rs.3.10 Crores for the year 2006-2007 as per the audited balance sheet. Nothing could be placed before this Court by the petitioner contradicting the plea of the respondent. The fact that the respondent company had deposited a sum of Rs.23,15,648/- as well as a further sum of Rs.2,00,000/- and costs in compliance with the directions of this Court also shows that the petitioner’s allegation that the respondent is commercially insolvent is incorrect. However the learned counsel for the petitioner contended that even assuming that the respondent company has the ability to pay the debt, since the respondent has chosen not to pay the debt due to the petitioner, the defence that the respondent company is commercially solvent cannot be acted upon to refuse admission of the winding up. The said contention cannot be accepted since this is a case where the debt is disputed by the respondent company and as noticed above a prima facie case could be made out by the respondent that its defence is of substance. For the aforesaid reasons, I am of the opinion that the admission of the winding up petition and publication of admission is unwarranted at this stage. Having regard to the fact that C.C.C.A.No.70 of 2010 is pending on the file of this Court and that the dispute raised by the respondent company as to the debt due is the subject-matter of the said appeal, I deem it appropriate to defer the hearing of this company petition till C.C.C.A.No.70 of 2010 is heard and decided. Accordingly, there shall be a direction to post this Company Petition after the disposal of C.C.C.A.No.70 of 2010. ______________ G. ROHINI, J. Dt. 26.04.2011 gbs [1] AIR 1971 SC 2600 [2] AIR 1976 SC 2456 [3] 2010 (4) ALD 116 [4] (2005) 7 SCC 42 [5] 2010 (159) Company Cases 369 (SC)