THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.170 of 2001 (Dated : 17-10-2011) Between: M/s. Model Financial Corporation Ltd. …Petitioner A n d M/s. Transgene Biotek Limited ….Respondent THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.170 of 2001 ORDER: This Company Petition has been taken out by M/s.Model Financial Corporation Limited under Sections 433 (e), 434 (1)(a) and 439 (1) (b) of the Companies Act, 1956 (“the Act”, in short) seeking an order of winding up of M/s. TRANSGENE BIO-TEK LIMITED (“the respondent-company”, for brevity). 2(a). The respondent-company was originally incorporated under the provisions of the Act on 1-3-1990 as a private limited company under the name Transgene Biotek Private Limited with the Registrar of Companies, Andhra Pradesh, Hyderabad. Subsequently, it was converted into a Public Limited company on 28-9-1990 and accordingly, obtained a certificate from the Registrar of Companies on 28-11-1990. 2(b) The respondent-company approached the petitioner for financial assistance to acquire Medical Diagnostic Equipment on hire purchase basis. The petitioner provided financial assistance to the respondent- company to a tune of Rs.74,00,000/- for purchasing medical, diagnostic equipments under hire-purchase agreement bearing No.HPC-898. The respondent agreed to pay the amount in 36 monthly instalments at the rate of Rs.2,05,555/- save first instalment of Rs.2,05,575/-, which includes insurance charges. The respondent- company took delivery of equipment covered under the hire-purchase agreement. The respondent-company paid 17 instalments in full and 18th instalment in part and failed to pay the remaining instalments in spite of repeated requests and demands. The petitioner issued a legal notice dated 24-5-2000 under Section 434 of the Act demanding the respondent-company to pay the total amount of Rs.78, 82,203.79 paise. As the respondent-company failed to pay the amount due, despite service of statutory notice, the petitioner filed Company Petition 98 of 2000 seeking an order of winding up of the respondent-company. Pending disposal of C.P.No.98 of 2000, the respondent-company approached the petitioner and settled the matter by entering into a Memorandum of Understanding. Thereupon, the petitioner withdrew C.P.No.98 of 2000. As per the MoU dated 9-4- 2001, the petitioner agreed to receive Rs.18 lakhs against the liability of Rs.98,70,425.15 paise towards full and final settlement, subject to the respondent-company paying the amount in nine monthly instalments at the rate of Rs.2 lakhs each commencing from 9-4- 2001. In the event of the respondent committing default in payment of the amount, the MoU entered will be null and void and the respondent company should pay the total amount as per the original Hire- purchase agreement. The respondent-company paid Rs.2 lakhs towards the 1st instalment on 10-4-2001 and Rs.2 lakhs towards the 2nd instalment on 11-5-2001 and issued a cheque bearing No.044247, dated 30-6-2011 for Rs.2,00,000/- towards the 3rd instalment. On presentation, the cheque came to be dishonoured. Thereupon, the petitioner issued a legal notice to the respondent-company under Section 138 of the N.I.Act on 24-7-2001. As the respondent-company failed to pay the amount covered under the dishonoured cheque, criminal proceedings came to be initiated by the petitioner against the respondent-company. Except the payment of two instalments, the respondent-company failed to clear the dues as agreed under the MoU and consequently, the entire amount due under the hire-purchase agreement became payable. The petitioner issued a statutory legal notice dated 20-9-2001 to the respondent-company under the provisions of Section 434 of the Act demanding payment of the outstanding amount within 21 days from the date of receipt of the said notice. Despite service of the statutory notice, the respondent- company neither issued reply nor paid the demanded amount. Hence, the petition seeking an order of winding up of the respondent- company. 3. Notice before admission came to be ordered on 13-11- 2001. The respondent entered appearance and filed counter. The sum and substance of the counter is:- The statutory notice dated 20-9- 2001 has not been addressed to the registered office of the respondent-company and therefore, it cannot be construed as a valid notice. The hire-purchase agreement dated 1-3-1995 is not legally enforceable as no goods/equipments of the petitioner were passed on to the respondent-company. The petitioner has not even averred specific name of the goods, description of the goods/equipments, source of ownership of the medical diagnostic equipments. No invoice/bill has been filed in to the Court to prove the ownership of the goods/equipments relatable to Hire Purchase agreement. Unless and until the existence of the goods/equipments and of their being owned by the petitioner is proved, no claim against the respondent-company can be based on the alleged Hire Purchase Agreement dated 1-3- 1995. The respondent is entitled to recover an amount of Rs.4,00,000/- paid under the MoU dated 9-4-2001 towards 1st and 2nd instalments. The respondent-company has a good turn over with crores of assets in value and employed considerable number of hands to man its operations and therefore, question of inability of the respondent-company to pay the debts as alleged by the petitioner does not arise. For better understanding of the plea of the respondent, I deem it appropriate to refer sub-paras (vi) and (vii) of Paragaraph 3 of the counter and they read thus:- “(vi) In reply to para 7 to 11, I submit that the Respondent company is not liable to pay any amount much less in 36 instalments. The respondent company is entitled to recall and recover the amount paid in 17 instalments and the part payment made under 18th instalment. As the Respondent is not liable to pay any amount under the H.P.Agreement, question of non payment of remaining instalments on repeated demands or otherwise does not arise. It is submitted that when the claim of the petitioner under Hire Purchase agreement itself is not legal, question of the demand of Rs.78,82,203-79 made by the petitioner under the legal notice, the petition filed claiming the said amount and the relief of order of winding up of Respondent Company thereof in C.P.98 of 2001 and the Memorandum of Understanding dated 9-4-2001 entered between the parties and settlement thereof Rs.18,00,000/- and agreement to pay the said amount by the Respondent in 9 instalments at Rs.2,00,000/- per month and the orders passed on 24-4-2001 closing the C.P No.98 of 2001 were taken on the premise and all are not maintainable. The Respondent Company is entitled to contest the contentious issues which were not adjudicated upon in the earlier proceedings of the Company Petition filed and voluntarily withdrawn later by petitioner, if the present company petition is otherwise maintainable in law. vii) I submit that the Respondent Company is entitled to recall and recover an amount of Rs.4,00,000/- paid under Memorandum of Understanding dated 9-4-2001 towards 1st and 2nd instalments and that the Respondent is not liable to pay the balance instalments thereof. As such invoking clause 2 of the Memorandum of Understanding dated 9-4- 2001 claiming an amount of Rs.1,11,48,280-29 by the petitioner and the notice dated 20-9-2001 issued claiming the said amount and the present C.P.No.170 of 2001 filed thereof for recording the claim of Rs.1,14,65,773-86 and sought an order of winding up of the respondent company are not sustainable in law. Hence, all the adverse allegations made under para 7 to 11 are hereby denied.” 4. The Company Petition came to be admitted by order dated 30-9- 2005 and the admission of the company petition was directed to be published as required under Rule 99 of the Companies (Court) Rules, 1959 in “Deccan Chronicle” and “Andhra Jyothi” and to file proof thereof in to Court. 5. The respondent-company carried the matter in appeal being O.S.A.No.65 of 2005. A Division Bench of this Court dismissed the appeal reserving liberty to the appellant to raise all the contentions, which were urged in the appeal, in the company petition. 6. On behalf of the petitioner, one witness, V.S.R.P.Adusumilli, was examined as PW-1 and fourteen documents were marked as Exs.A-1 to A-14. Ex.A-1 is the Photostat copy of the certificate of incorporation of the petitioner firm issued by the Registrar of Companies, A.P., Hyderabad. Ex.A-2 is the Photostat copy of the extract of Resolution passed by the Board in the meeting held on 24-12-1992 authorising V.S.R.P.Adusumilli, Managing Director, to represent the petitioner firm in all matters and take all other steps as may be considered necessary and appropriate or expedient in the said legal matters. Ex.A-3 is the copy of minutes of the Board meeting of the respondent-company held on 22- 2-1995 to avail hire/lease equipment from the petitioner company. Ex.A-4 is the Photostat copy of the Hire-Purchase agreement dated 1-3-1995 executed by the respondent-company. Ex.A-5 is the letter dated 1-3-1995 enclosing copy of debit vouchers as proof of payment of invoice amount to M/s. Transgene Biotek Limited and requesting the petitioner to release payment. Exs.A-6, A-7 and A-8 are the Photostat copies of the debit vouchers, dated 12-1-1995. Ex.A-9 is the Memorandum of Understanding dated 9-4-2001. Ex.A-10 is the copy of the statutory notice dated 20th September 2001. Ex.A-11 is the acknowledgment. Ex.A-12 is true copy of the statement of account maintained by the petitioner with regard to the facility allowed to the respondent-company. Ex.A-13 is the letter dated 9-04-2001 addressed by the respondent-company to the petitioner, whereunder, the 1st instalment amount of Rs.2,00,000/- pursuant to the agreement dated 9-4-2001, has been paid by way of pay order No.205453 dated 30-3-2001 drawn on Indus Bank, Secunderabad. Ex.A-14 is the letter dated 14-12-2002 addressed to the petitioner by the respondent- company undertaking to pay the balance outstanding of Rs.8,00,000/- under one time settlement. 7. On behalf of the respondent-company, two witnesses, namely Dr.K.Koteswara Rao and P.Narayana Murthy were examined as RWs.1 and 2 and 12 documents were marked as Exs.B-1 to B-12. Ex.B-1 is the annual report for the year 2005-2006, Ex.B-2 is the annual report for the year 2006-2007, Ex.B-3 is the annual report for the year 2007-2008, Ex.B-4 is the annual report for the year 2008- 2009. Ex.B-5 is the letter dated 31-5-2007 issued by the Government of India, Ministry of Science and Technology, New Delhi. Ex.B-6 is the certificate dated 5-6-2007 issued by the Government of India, Department of Agriculture on the subject of “manufacturing drugs”, Ex.B-7 is licence dated 10-9-2007 issued by the Drugs Department, Ex.B-8 is the licence dated 10-9-2007 issued by the Drugs Department, Government of Andhra Pradesh, on the subject “manufacturing of drugs”, Ex.B-9 is the certificate dated 18-6-2008 issued by the Government of India, Department of Agriculture, Ex. B- 10 is the licence dated 24-11-2008 issued by the Drugs Department, Government of A.P., Ex.B-11 is the licence dated 31-12-2008 issued by the Drugs Department and Ex.B-12 is license dated 31-12-2008 issued by Drugs Department, Government of A.P. Exs.D-1 and D-2 also came to be marked. 8. The facts, which are not much in controversy, are:- The respondent-company availed loan of Rs.50,00,000/- as on 1st March 1995 for acquiring medical and diagnostic equipments. The loan amount is payable in 36 monthly instalments. The respondent- company executed a Hire-Purchase agreement on 01-3-1995. Apart from Hire-Purchase agreement, the respondent-company also executed a demand promissory note. The respondent-company represented to the petitioner that Rs.16,85,222/- Rs.12,26,107/-, Rs.21,72,904/- have been paid to the supplier of the medicinal equipments and therefore, sought for payment of the amount to it directly. Therefore, the petitioner released the loan amount to the respondent-company. As per the terms of the Hire-Purchase agreement, in case of default of payment of the instalments, compensation charges on over due instalments shall be paid at 36% p.a until the amount of such over-due instalments are paid up. The respondent-company paid 17 instalments in full and 18th instalment in part, and committed default in paying the subsequent instalments. The petitioner issued a legal notice on 24-5-2000 under Section 434 of the Companies Act calling upon the respondent-company to pay the amount due under the Hire-Purchase Agreement. The respondent- company failed to liquidate the liability and thereupon, the petitioner filed C.P.No.98 of 2000. Pending C.P.No.98 of 2000, the petitioner and the respondent-company entered into MoU on 9-4-2001, whereunder, the respondent-company agreed to pay Rs.18,00,000/- in nine monthly instalments at the rate of Rs.2,00,000/- commencing from 9-4-2001 and the petitioner accepted to receive the same towards full and final settlement of the loan amount. However, a condition has been imposed in the MoU that in the event of failure of the respondent-company to pay any one of the instalments, the original amount demanded by the petitioner shall stand revived. For better understanding, I may refer the relevant portion in the MoU, which has been exhibited as Ex.A-9 and it is thus:- “ If the above nine instalments or even any one of the said instalments are not paid on or before the above stipulated date or dates not withstanding any thing herein-before stated, this agreement, shall automatically stand ipso facto void and be of no effect and on the happening of such event, the debtor shall be liable to pay to the creditor the whole of the amount, due as on 4th April, 2001 i.e., Rs.98,70,425.15 (Rupees Ninety eight lacs seventy thousand four hundred twenty five and paise fifteen only) with overdue compensation charges thereon at 36% (thirty six percent) per annum under Condition No.5(b) of the said Hire Purchase Agreement No.HPC-898, dated 1st March, 1995, till the date the said amount is fully paid to the creditor.” 9. The respondent-company paid only two instalments; the 1st instalment being on 10-4-2001 and 2nd instalment being on 11-5-2001, and failed to pay the remaining instalments. On 30-6-2001, the respondent-company issued a cheque for Rs.2,00,000/- towards the third instalment, but the same came to be dishonoured. Thereupon, the petitioner issued a statutory notice dated 20-9-2011 under Section 434 of the Act demanding payment of entire amount due i.e., Rs.1,11,40,280.29 within 21 days from the date of receipt of the said notice. The said notice came to be served on the respondent- company. Ex.A-10 is the office copy of the statutory notice. Ex.A-11 is the acknowledgment of the respondent-company. Since the respondent-company failed to liquidate the liability, the petitioner filed this petition seeking the relief stated supra. 10. RW-1 admits in cross-examination that in the event of failing to pay any one of the instalments as agreed, the entire amount of Rs.98,70,425.15 has to be paid. For better appreciation, I may refer the relevant portion of the cross-examination of RW-1, which reads as hereunder:- “…The petitioner filed C.P.No.98 of 2000 earlier due to non- payment of instalments as agreed under Ex.A-4. We entered into an agreement on 9-4-2001 subsequent to the closure of C.P.No.98 of 2000. We agreed to pay Rs.18.00 lakhs under the agreement dated 9-4-2001 out of Rs.98,70,425-15 ps., as full and final settlement. The registered office was shown in Ex.A.9 to be at 44, Madhuranagar, Sanjeeva Reddy Nagar, Hyderabad-500 038. Ex.A.9 was signed by me. I do not remember how many instalments have been paid towards Rs.18.00 lakhs,but most of the instalments were paid. I do not admit that only two instalments were paid after Ex.A.9 as suggested. I do not recall whether after Ex.A.9, I had issued only two cheques and one of them bounced. It is true that it was stipulated in Ex.A.9 that even in case of default of payment of one instalment, the entire amount of Rs.98,70,425/- has to be paid. As we have not received the shares, the question of transfer of Rs.3,10,000/- equity shares in favour of the petitioner does not arise. It is not true to suggest that we withheld the transfer of said Rs.3,10,000/- equity shares to enable to split up the shares. It is not true to suggest that I received the shares, but intentionally and purposely did not transfer them to the petitioner. I do not remember whether any reply was given to the statutory notice Ex.A.10 dated 20- 09-2001. On seeing Ex.A.10, I do not recall giving any reply to the same. Ex.A.11 bears the stamp of our company. A case under Section 138 of the Negotiable Instruments Act had been filed against me prior to this company petition alleging dishonour of cheque. It is not true to suggest that the respondent company is liable to pay Rs.1,14,65,773/- to the petitioner company. Ex.A.13 dated 9-4-2001 is a letter addressed on behalf of the respondent company to the petitioner company. The address of the respondent company was shown to be at Sanjeeva Reddy Nagar. Ex.A- 14 is the letter dated 14-12-2002 addressed on behalf of the respondent company to the petitioner company wherein the address was shown at S.R.Nagar and the address of the company is that of the administrative office. Ex.A-13 and A- 14 do not specify that the address given is that of the administrative office. It is not true to suggest that the respondent company is unable to pay the debt due to the petitioner company.” 11. RW-2 is a witness to Ex.A-9 MoU, dated 9-4-2001. He admits in cross-examination that as per clause (2) of Ex.A-9 agreement, if any one of the nine instalments is not paid , the respondent has to pay the entire debt indicated therein. For better appreciation, I may refer the relevant portion of the cross-examination of RW-2, which reads as hereunder:- “ …The worth of the Medical Diagnostic Equipment which is the subject matter of the hire purchase agreement is Rs.74 lakhs. The monthly instalments payable under the hire purchase agreement is Rs.2,05,575/-. Since the amount has been reimbursed, I stated in the chief-affidavit that the respondent company sought hand loan of Rs.50 lakhs. As per Ex.A.4 Hire Purchase agreement, in case of default in payment of instalments, the respondent company is liable to pay interest at 36% per annum on over due instalments. As per the hire purchase agreement, the respondent also undertook to pay damages in the event of not paying the instalments on due date. I am a witness to Ex.A.9 agreement dated 09.4.2001. The registered office of the respondent company as stated in Ex.A.9 agreement is situated at C-44, Madhura Nagar, S.R.Nagar, Hyderabad. It is true in Ex.A.13, the address of the respondent company has been stated as C-44, Madhura Nagar, S.R.Nagar, Hyderbad. In Ex.A-14 also the address of the respondent company is mentioned as C-44, Madhura Nagar, S.R.Nagar, Hyderabad. It is true that as per Ex.A.9 agreement, an amount of Rs.18 lakhs is to be paid towards full and final settlement of the balance debt of Rs.98,70,425.15 ps. It is true as per clause 2 of Ex.A.9 agreement, if any one of the 9 instalments is not paid, the respondents have to pay the entire debt indicated therein. It is true there is a default in payment of 3rd instalment………” Let me now deal with the rival contentions of the parties. 12. Heard learned counsel appearing for the petitioner and learned counsel appearing for the respondent-company. 13. Learned counsel appearing for the petitioner submits that the respondent-company admitted its liability under Ex.A-9 agreement in categorical terms and no further proof is required to speak of the liability of the respondent-company. He would also submit that the parties herein are bound by the terms of the Hire-Purchase agreement, which has been exhibited as Ex.A-4, and the MoU dated 9-4-2001, which has been exhibited as Ex.A-9. As per the Hire Purchase agreement, the respondent-company agreed to pay compensation charges at 36% per annum on over due instalments and having agreed to pay the compensation, the respondent-company cannot be permitted to contend that the amount claimed by the petitioner is excessive or exorbitant. It is also contended by the learned counsel that the address of the respondent-company has been shown in Ex.A- 9 MoU as C-44, Madhuranagar, S.R.Nagar, Hyderabad. The statutory notice has been sent to the same address and the same has been received by the respondent-company and in which case, it is impermissible for the respondent-company to contend that the statutory notice is not properly served. Learned counsel refers the admissions made by RWs.1 and 2 with regard to receipt of statutory notice. In a way, his contention is that the amount claimed by the petitioner against the respondent-company is in accordance with the agreed terms and not beyond that. Since the undisputed amount has not been paid by the respondent-company despite service of statutory notice, the petition deserves to be allowed. 14. Per contra; learned counsel appearing for the respondent submits that PW-1-V.S.R.P.Adusumilli has no authority in law to institute winding up proceedings against the respondent-company and therefore, the petition is liable to be dismissed. 15. I do not see any substance in his contention in view of Ex.A-2 Board Resolution dated 24-9-1992, whereunder PW-1- V.S.R.P.Adusumilli, Managing Director has been authorised to take necessary steps on behalf of the petitioner firm. Copy of the Board Resolution has been marked as Ex.A-2 through PW-1. Nothing is suggested to him disputing the genuineness of Ex.A-2 Board Resolution. 16. It is nextly contended by the learned counsel appearing for the respondent that the statutory notice dated 20-9-2001 has not been addressed to the registered office of the respondent-company and therefore, it cannot be termed as a valid notice. The contention of the learned counsel cannot be sustained in view of the description of the company in Ex.A.9 MoU and admissions made by RWs.1 and 2. In Ex.A.9 agreement, the description of the respondent-company, is as hereunder:- “ M/s/TRANSGENE BIO-TEK LIMITED, incorporated under the Companies Act, 1956 having its registered office at C-44, Madhura Nagar, S.R.Nagar, Hyderabad-500 038 represented by and through its Managing Director Dr.K.Koteswara Rao hereinafter called the “DEBTOR” which expression shall, unless excluded by or repugnant to the subject or context, mean and include its successors and assignees, of the SECOND PART..” 17. RW-1 admits in cross-examination that the registered office of the company being shown at C-44, Madhura Nagar, S.R.Nagar, Hyderabad – 500 0389. Ex.A-14 is the letter dated 14-12-2002 emanating from the respondent-company to the petitioner, wherein the address of the respondent-company has been shown at S.R.Nagar. Ex.A-13 is the letter dated 9-4-2001 emanating from the respondent- company, wherein also the address of the respondent-company has been shown as Madhura Nagar, S.R.Nagar, Hyderabad – 500 038. RW-2 also admitted in cross-examination that the registered office of the respondent-company as stated in Ex.A.9 is situated at C-44, Madhuranagar, S.R.Nagar, Hyderabad. He also admits that the address of the respondent-company has been mentioned in Exs.A- 13 and A-14 letters as C-44, Madhura Nagar, S.R.Nagar, Hyderabad. The statutory notice has been sent to the respondent-company to the same address and the respondent-company received the statutory notice. Ex.A-10 is the office copy of the notice and Ex.A-11 is the acknowledgment containing the seal of the respondent-company. Such is the evidence brought on record, the contention of the respondent that the statutory notice has not been properly served, has no merit. 18. Learned counsel appearing for the respondent would contend that the debt claimed by the petitioner is not legally enforceable and the defence pleaded by the respondent-company is bona fide and therefore the petition is liable to be dismissed. The witnesses examined on behalf of the respondent-company did not dispute of the respondent-company availing loan under the Hire Purchase Agreement. It is the respondent-company, who sought for release of the amount directly representing that the amounts have been paid to the supplier of the machinery under debit vouchers, which has been exhibited as Ex.A-2. The respondent having made such a representation to the petitioner and allowed the petitioner to release the money directly cannot be permitted to contend that the Hire Purchase Agreement is invalid as the description of the material purchased under the agreement has not been detailed or on any other score. Ex.A-9 MoU dated 9-4-2001 does not give any room for doubt that the respondent-company accepted its liability and undertook to discharge the liability within a specified time and failing which consented for revival of the original amount claimed by the petitioner. Therefore, the plea advanced by the respondent-company that the amount claimed by the petitioner is a disputed one has no substance. The defence pleaded by the respondent-company is unsustainable and it