Case: Evans Fraser (India) Limited Vs. Trig Detectives Private Limited

M/s. Trig Detectives Private Limited, hereinafter referred to as "the respondent company", a Company incorporated under the provisions of the Companies Act, 1956, hereinafter referred to as "the Act", filed a petition for winding up under Sections 433, 434 and 439(ii) of the Act. The respondent company gave its offer on 16th March, 2000 to M/s. Evans FraserCo. (India) Ltd., hereinafter referred to as "the appellant company", for supply of security services. This offer was accepted by the appellant company on 13th April, 2000 and security guards and supervisors were provided by the respondent company to the appellant company with effect from April, 2000. Bills were raised from time to time. During the period, when the bills were raised, some payments were also made. However, the entire dues of the respondent company were not cleared. On this premise, the respondent company through its advocates served a statutory notice dated 3rd February, 2006 under Section 434 of the Act calling upon the appellant company to make the payment of an amount of Rs. 70,75,456.9 within a period of 21 days from the date of service of the notice failing which they stated that they would be filing a winding up petition. This notice was served upon the appellant company but the appellant company failed to make the payment and, in fact, vide its reply dated 15th February, 2006, it stated that no amount was due from it and that the claim of the respondent company was without any basis. Again vide their advocates letter dated 20th March, 2006, the respondent company called upon the appellant to make the payment which they failed and vide their advocates letter dated 25th April, 2006, the appellants made a claim of Rs.having caused damage to their reputation and to the extent of Rs. 9,00,00,000/for loss of business suffered due to loss of reputation and called upon the respondent company to pay the same.2.According to the respondent company, they were covered by the exemption notification dated 26th August, 2003, in relation to providing of security guards services to the principal employer and they had intimated to the appellant company all details required for that purpose to show that the claim raised by them in their notice was fully justified. As the appellant company failed to make the payment in terms of the notices issued, the respondent company filed the petition praying for winding up of the appellant Company and for appointment of Official Liquidator in accordance with the provisions of the Companies Act. The transactions related to a considerable period.

Court's reasoning:
There is no dispute that the respondent company had submitted its offer dated 16th March, 2000 to the appellant company for providing security guard personnel at the stated rates to the appellant Company. The appellant company vide its letter dated 13th April, 2000 had agreed to the terms and conditions and had modified the rates as stated. The total amount payable per month was Rs.inclusive of reliever duty charges and service charges. This was operative for a period of six months initially. The payments were increased from time to time which is also evident from the documents placed on record includingThe amounts in excess of agreed amounts were also charged. Further, it is also clear that the security guard services were provided from 2000 to 2004. The ledger accounts of the respondent company had also been placed on record to show and substantiate the plea that it was a running account. These accounts show that the last payment of Rs. 1,50,600/was made by cheque on 27th October, 2003 in relation to Bill No. 203440 and thereafter no payment has been made by the appellant company to the respondent company. The appellant company has also placed on record, even in winding up petition, their accounts to show that each bill was being treated as separate transactions between the parties and payment against that bill was being made. The respondent company also produced before us the photo copies of the receipts issued by them in favour of the appellant company wherein they referred to particular payments and stated that full payment was made against the bill and/or that the monthly amount due and payable by the appellant Company.We have already noticed that the statement of account filed on behalf of thedoes not show any credit payment after October, 2003 though it claims to have raised number of bills thereafter on the basis that it was a running account of mutual interest. The payment was also made in the court under the directions of the court for a sum of Rs.5,35,791. Thereafter, except service of the legal notice and reply thereto, there is no correspondence between the parties which would substantiate that there was mutuality of account and any payments had been made on behalf of theThe learned Single Judge in the impugned judgment noticed that neither there is specific denial of the petitioners claim nor a specific defence is taken on the point of limitation in the reply affidavit. Thus, the plea of limitation was liable to be rejected. It was further noticed that part payment in lumpsum from time to time were made and not against the bills. On this premise, the learned Company Judge rejected the plea of limitation. These findings are challenged on the ground that they are contrary to the record and in fact, are not supported even by the documents produced on behalf of thefind some substance in the submission made. Certainly, evidence was required to show that there is mutuality in the running account and that the payments were not made bill to bill but on account. It has already been noticed that as per the statement filed by thethe payments were being made against the bill as demonstrated by Exhibit 6. That the statement of account does not show any payment or raising of a bill subsequent to August, 2004 while the statement of account filed by thebefore this court again reflects no payment of credit after October, 2003. These were the matters which ought to have been established by leading cogent oral and documentary evidence and the plea could not be rejected summarily in the manner in which it has been rejected under the impugned order. Furthermore, the order passed by the Division Bench of this court in Civil Writ Petition No. 3050 of 2003 also to a great extent supports the plea/defence taken by thethat it is not sham but is bonafide. In the said writ petition, thewas a party and no pleadings even were filed on their behalf to show that the amounts were due to theny. On the contrary, parties to the writ petition felt satisfied by the order of the court in directing theIt is a settled principle of law that, in a winding up petition, unless the disputes raised are without substance, it must be apparent from the record that, before the winding up petition is admitted, the company is unable to pay its debt. The petition for winding up cannot be equated with a petition simplicitor for recovery of money.In the present case, the defence raised by thewas bonafide and cannot be said to be a sham defence taken in abstract, dehors the correspondence between the parties. Most of the payments were made against bills or at least for the dues relatable to the month in which the security guards services were provided. The photo copies of the receipts, seen in the light of the statement of account and correspondence exchanged between the parties and the fact that the appellant company had disputed at the very outset their liability towards any debt and in fact had raised claims against the respondent company in reply to the legal a notice served upon the appellant company in terms of Section 433 of the Act are indicative of the fact that the defence raised by the appellant company is supported by prima facie material and, therefore, is bonapetition, presented ostensibly, for a winding up order to exert pressure on the other side would tantamount to improper exercise of special jurisdiction and as such would not be liable to be admitted. The admission of the petition and consequential appointment of a Liquidator jeopardises the interests of the company to a great extent. Winding up of a company would even amount to a civil death of the Company. Wherever the company has not been able to show any bona fide dispute to an apparently payable debt, the matters may be different. But where there are disputes raised bona fide and that too of a serious nature and parties would have to lead complex evidence, documentary and oral, to substantiate their claim or counter claim, it may not be proper to admit the companyis no document on record to show that the appellant company had even admitted the debt payable to the respondent company. Once a bona fide dispute is raised by the company which appears to be genuine, the order of winding up should not be passed. The previous litigation between the parties also indicates that the stand taken by the company in the winding up petition is not without any basis. The basic defence raised in the winding up petition is bona fide.Examining the factual matrix of the present case in light of the above principles, we have no hesitation in coming to the conclusion that these principles have not been correctly applied by the Court in admitting the winding up petition as the appellant company had raised a bona fide dispute which can more appropriately be gone into by leading cogent and detailed documentary or oral evidence by the parties. It would be difficult to determine these questions prima facie on the basis of the documents placed on record.