Case: M/S. Vijay Industries Vs. M/S. Natl Technologies Ltd

Appellant is a small scale unit registered with the District Industries Centre. Admittedly, it supplied Castor Oil to the respondent valued at Rs. 89,13,589/-. A sum of Rs. 49,99,000/- had been paid by the respondent. The invoices of the credit bills attached with each of the supply contained a clause relating to payment of interest in the followingmust be paid within seven days or you are liable to pay 2% interest per month.It is not in dispute that at the foot of each credit bill an officer of the respondent - company had put its signatures as a token of acceptance.5. Appellant is said to have adjusted the amount first towards interest at the stipulated rate and balance against the principal amount. As despite demand the amount due and owed to it was not paid by the respondent, a legal notice was served upon it claiming interest on the said sum. It was stated that the appellant had appropriated account of payments made by it against the interest and balance, if any, against the principal amount. On the basis thereof, a demand for a sum of Rs. 64,58,457/- together with future interest at the rate of 2% per month was raised. The said legal notice was replied by the respondents,have received a legal notice from Sri Rao Raghunandan, Advocate dt. 06.01.2003. You are aware that after making payment of Rs. 10.00 lakhs towards Castor Oil Supplies to our plant, we have received a notice under Section 226 (3) of the Income Tax, 1961 from the Income Tax Department. As per the notice, we are directed to pay the amounts due to you on account of Castor Oil supplied directly to the department in view of your dues to the department to an extent of Rs. 25,43,737/-.Subsequently, we have paid by way of cheques to Income Tax Officer Ward-8(3) on account of supply of castor oil as detailed below:-Cheque No.BankDatedAmount(Rs.)074013Allahabad Bank9.8.022,00,000/-100313S.B.H.9.9.023,34,868/-5,34,868/-After adjusting the above amounts and our earlier payment of Rs.10.00 lakhs, the balance amount due to your company on account of oil supplies is only Rs. 27,40,882/-.In view of the notice served by the Income Tax Department, we could not arrange any payment directly to your company. This matter was brought to your notice and also advised you to obtain a direction from the Income Tax Department to pay the dues directly to your company. In the circumstances, we have not intentionally defaulted in making arrangements for the payment of your dues on account of Castor Oil Supplies from time to time.We request you kindly to obtain the clearance, so as to enable us to arrange payment of the outstanding amount due to you amounting to Rs. 27, 40,882/-. In the circumstances, we request you to kindly advice your advocate to withdraw the legal notice served on us forthwith.Without disputing its liability, however, in view of the correspondence that exchanged between the parties, the respondent offered to pay a sum of Rs. 2,00,000/- per week to the appellant beginning from April, 2003. It is on that assurance the appellant is said to have agreed to restore supply of Castor Oil provided it deposited 50% of the outstanding dues and remaining 50% at the rate of Rs. 2,00,000/- per week.7. In its letter dated 8.09.2003, the respondenthave accounted your payments against the interest and balances against Castor Oil Supplies approximately. On such account being taken the balance of Rs. 64, 58,457/- upto November, 2002. Accordingly, the balance upto 31st March, 2003 stands Rs. 69, 75,134/-. This amount carries interest @ 2 % per month.A sum of Rs. 8 lakhs was paid in between the period 19.04.2003 to 11.07.2003. As evidently, the appellant refused to make further supplies, a meeting took place, the minutes whereof reads,per the discussion regarding the old outstanding and for the continuity of the Business at present, Vijaya Industries is rotating, One Tanker load for the payment arrangement towards old outstanding. The Representatives of NATL Technologies Ltd. have agreed to arrange payment for the values of 2 truck loads of Castor Oil in the month of December. Against the above payment, the Company representative Sri Jagadish Prasad agreed for supply of Three Tanker loads including the existing One Tanker load, which is already supplying.Basing on the convenience and as per the discussions from time to time NATL have agreed to square up the old outstandings and bring in to the system for the rotation. Also in principle agreed to compensate Vijaya Industries for the delay in payment on account of earlier supplies after clearing the entire old dues.As the said agreement between the parties arrived at in the said meeting was not adhered to, on 23.12.2003 a legal notice under Section 434 of the Companies Act, 1956 was served on the respondent,client states that as per the invoices raised by it, you are laible to pay interest at 2% per month if payment is not paid after availing the credit;In view of the above, my client calls upon you to pay an amount of Rs. 65,15,947/- with further interest thereon at 2% per month within three weeks from the date of receipt of this notice...In its reply to the said legal notice, the respondent did not deny or dispute demand of interest. According to it, the total sum due was Rs. 16,80,468/ (sic for Rs. 15, 80,460/-),the circumstances, we advice you kindly withdraw the legal notice dated 23rd December, 2003 so as to enable us to arrange payment for full and final settlement of your dues amounting to of Rs. 16,80,468/- within two months from the date of thisthat amount was not paid.11. Appellant filed a winding up petition under Section 433(e) and 433(f) read with Section 439 of the Companies Act on 23.01.2004.12. Respondent in its counter-affidavit before the learned Company Judge denied its liability to pay its interest for the first time, stating that it was not liable to pay any interest nor it entered into any agreement in connection therewith.13. Appellant in its rejoinder contended that the credit bills mentioned that the respondent was liable to pay interest at the rate of 2% per month on delayed payment.14. An interim order was passed on 17.02.2004the learned counsel agree that the matter can be settled out of Court having regard to the commercial relations between petitioner and respondent for long duration. Sri V.S. Raju, learned counsel for respondent has given a Demand Draft bearing No. 097852, dt. 14.06.2004 for an amount of Rs. 2,00,000/- (Rupees two lakhs only) drawn on Punjab National Bank, Bank Street, Hyderabad, and six post-dated cheques- five cheques bearing Nos. 216948, 216949, 216950, 216951, 216952 dt.25.07.2004, 25.08.2004, 25.09.2004, 25.10.2004 and 25.11.2004 respectively, each for an amount of Rs. 2,30,000/- (Rupees two lakhs thirty thousand only), and another cheque bearing No. 216953 dt.25.12.2004 for an amount of Rs. 2,30,468/- (Rupees two lakhs thirty thousand four hundred and sixty eight only), drawn on State Bank of India, Commercial Branch, Secunderabad, in favour of the petitioner company in Court today. Learned counsel for petitioner has received the Demand Drafts, without prejudice to the claim of the petitioner for interest and seeks time for getting instructions from his client regarding cheques.Post on 09.07.2004.The learned Single Judge, in view of the stand taken by the parties, while admitting the company petition by an order dated 10.11.2004 held that a prima facie case has been made out therefor having regard to the correspondences passed between the parties, the credit bills and also the minutes of the meeting.16. Aggrieved by and dissatisfied therewith, the respondent preferred an appeal. By reason of the impugned judgment, the Division Bench has allowed the said appeal.

Reasoning:
The findings of the High Court, with respect, are not correct for more than one reason; firstly, because the Division Bench did not hold that the invoices were not proved by cogent evidence; secondly, question of leading evidence would arise only after the company petition is admitted and, thirdly, issuance of invoices and signature of the respondent thereon is notjudgment of the Division Bench also contains a legal flaw insofar as it failed to take into consideration that the appellant had in fact issued three notices being dated 6.01.2003, 8.09.2003 and legal notice dated 23.12.2003 specifically mentioning that the payments had been adjusted towards interest first and balance, if any, shall be adjusted towards the principal. Thus, a prima face case was madebrings us to the question as to why an interest is payable. An interest is inter alia payable by way ofis also payable in terms of the provisions of Section 62(1)(a) of the Sale of Goods Act. Interest may be held to be payable in terms of Section 3 of the Interest Act, 1978 as also in terms of Sections 5 and 6 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act,the reasons aforementioned, we have no other option but to set aside the judgment of the High Court. The question, however, which arises for consideration is whether at this stage we shall remit the matter back to the learned Single Judge to admit the company petition or dispose of the matter ourselves. We choose to adopt the latter course. We are of the opinion that interest of justice would be subserved if we in exercise of our jurisdiction under Article 142 of the Constitution of India direct that the respondent to pay simple interest on the admitted sum at the rate of 12% per annum on the balance amount instead of 24% per annum within eight weeks from the date of amount became due till it is paid failing which the consequences provided in law shall ensue