Dismissed

Asg Biochem Private Limited v. Organon (India) Private Limited - U24231MH1967PTC187949

Bombay HC4 Feb 2014CP/455/2012

Case brief

AI extract

What is this about?

In a winding-up petition, the petitioner claimed an outstanding amount from the respondent company. The company defended by asserting it held unutilized CENVAT credit transferable via a prior slump sale of its undertaking. The judge found the defence was bona fide and not spurious, dismissing the petition.

What did the court decide?

The Company Petition was dismissed, adjourning the winding-up proceedings as the defence was found to be bona fide and requiring proper assessment of the CENVAT credit adjustment.

Asg Biochem Private Limited Vs Organon (India) Private… — Company and Corporate | Bombay HC (2014)

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CP455-13-D.DOC

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Shephali

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO. 455 OF 2012

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ASG BIOCHEM PRIVATE LIMITED

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A company incorporated under the Companies
Act, 1956 having its registered office at 607,
Rohit House 3, Tolstoy Marg New Delhi 110 001
and Corporate Office at Apeejay Satya House, 14,
LSC, Masjid Math, Greater Kailash-II, New
Delhi – 110 048

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CIN U2423DL2004PTC126594.

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...Petitioner

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versus

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ORGANON (INDIA) PRIVATE LIMITED

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a company incorporated under the Companies
Act, 1956, having its registered office at 7th floor,
Platina, Plot No. C-59, G-Block, Bandra-Kurla
Complex, Bandra (E),
Mumbai 400 098
CIN U24231MH1967PTC187949.

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…Respondent

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APPEARANCES

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Mr. H. L. Tiku, Senior Advocate a/w Ms. Yashmeet, Krishna Raja i/b
LJ Law, for the Petitioner.

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Mr. J. P. Sen, Senior Advocate, i/b M/s. Dholakia Law Associates, for
the Company.

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CP455-13-D.DOC

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CORAM:G.S.Patel, J.
DATE :4th February 2014

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P.C.:

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1.Heard Mr. Tiku and Mr. Sen, learned senior counsel for the
parties.

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2.The petitioner is a company engaged in the manufacture of
pharmaceuticals. It claims that an amount of Rs.41,22,001.20 is due
to it from Organon (India) Private Limited (“the Company”). The
petitioner’s claim is based on the value of various products and
goods said to have been sold, supplied and delivered by it to the
Company.

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3.Briefly stated, the Company’s defence is that the petitioner has
available with it an amount of Rs.23.87 Lakhs as a CENVAT credit. The
Company asked the petitioner to adjust this amount against its
claim. The petitioner did not. Having heard Mr. Tiku and Mr. Sen, I
am satisfied that the Company’s defence is not one that can be said
to be illusory, spurious or without substance. For the reasons that
follow, I am inclined to dismiss this Company Petition, but with no
order as to costs.

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4.The petitioner claims that in 2004, the Company approached the
petitioner and asked it to manufacture various products such as
active pharmaceuticals ingredients and intermediates, and to supply
these to the company on a loan licence basis. The petitioner agreed.

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CP455-13-D.DOC

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A loan licence agreement was executed. A copy is Exhibit A to the
petition. Mr. Tiku drew my attention to clauses 3.2, 3.3 and 3.4 of
this agreement. Clause 3.2 required the petitioner to raise invoices
of a fortnightly basis and the Company to make payment before the
last day of the month following the month in which the invoices
were raised. Interest at the rate of 1% per month on the outstanding
amount was payable for the duration of the delayed payment, if this
payment was not made under clause 3.3. Clause 3.4 required each
party to bear its own expenses toward taxes, duties and levies. The
Company was entitled to credit on account of excise duties etc. and
the petitioner was to pass on benefits of MODVAT to the Company for
the excise duty paid for input material.

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5.The petitioner claims that from 1st January 2005 to early
September 2009, the company placed orders on the petitioner. The
petitioner manufactured products to order and supplied these to the
company. The petitioner periodically drew invoices on the
Company. Some payments were received.

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6.The petitioner claims that the Company did not make
payment of two debit notes or invoices. These two debit notes are
dated 10th May 2009, and are in the aggregate amount of
Rs.31,02,478.07. The petitioner also claimed overdue interest.

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7.On 26th April 2010, the petitioner wrote to the Company
demanding payment. The Company replied on 18th May 2010
CENVAT
saying that there was a outstanding of Rs. 23.87 lakhs as
credit “lying at your factory since the day of divestment of the

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CP455-13-D.DOC

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factory to you”. The Company claims that for some unknown
reason, the petitioner had never utilised this CENVAT credit despite
repeated requests and reminders. It claimed that an amount of
Rs.44.17 Lakhs was due to the Company from the petitioner. The
petitioner responded on 16th June 2010 that it had no right to utilize
any such CENVAT credit. It reiterated its demand.

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8.A further response from the Company of 6th July 2010 makes
it clear that there was, at some stage earlier, though not stated in the
petition, a transfer of the undertaking from the Company to the
petitioner. It was the Company’s case that the CENVAT credit could
have been utilised by the petitioner; and that despite repeated
requests this was never done.

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9.Ultimately, by its Advocate’s letter dated 24th April 2012, the
plaintiffs sent a statutory notice to the company demanding an
amount of Rs.39,97,002.37 with interest at the rate of 12% per
annum. The Company received this notice. It replied on 18th May
2012. In paragraph 3 of the reply, the company reiterated that the
petitioner could have adjusted or used CENVAT credit.

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10.Mr. Tiku said that the Commissioner of Central Excise,
Kolkata, issued a show cause notice to the petitioner regarding this
very amount of Rs.23.87 Lakhs of CENVAT credit, alleging that the
petitioner had irregularly and willfully used this amount. It is not in
dispute that this show cause notice was ultimately withdrawn and
drop orders were passed by the Commissioner of Central Excise.

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CP455-13-D.DOC

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11.Mr. Tiku’s case is, therefore, simple: he claims that the
Company has neglected to pay an amount that is indisputably due
under invoices for goods admittedly sold and delivered and services
rendered by the petitioner to the Company. As the company has
neglected to pay the demand within the period specified in the
statutory notice, it must be deemed to be unable to pay its debts and
must be ordered to be wound up. There is, Mr. Tiku submits, no
defence at all to this petition, much less a bona fide or genuine
defence.

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12.Mr. Sen for the Company submits that in this, as in so much
else, the truth lies somewhere in between and is far more nuanced
than Mr. Tiku would have it. The petition, he says, conceals facts
that are not only material and to the knowledge of the petitioners,
but are such that were they to have been pleaded, they would
inevitably have engendered a dismissal of the petition in limine.
These facts are crucial, he says, and have therefore been carefully
excsinded from the petition. Mr. Sen points to the Company’s
affidavit in reply filed. In paragraph 5 (ii) of this affidavit, the
Company states that there was an agreement for sale and purchase
between the parties in respect of the Company’s “DMD
undertaking”, the manufacturing unit in question. This was was
dated 30th June 2004. The Company’s DMD undertaking – the
entire unit – was sold to the petitioner in a slump sale as a going
concern for a lump sum consideration. The sale was effective 31st
October 2004. With the DMD undertaking or unit went all its fixed
assets, current assets and liabilities, engineering and other
consumable stores. The Company’s employees at the DMD
undertaking became the petitioner’s employees on the effective

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CP455-13-D.DOC

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date. One of the annexures to the slump sale agreement was the
present loan licence agreement. Clearly, that, too, was the subject of
this sale and transfer. The transfer took with it the CENVAT credit that
was, before the sale, on the books of the Company. The Company
surrendered its central excise registration certificate in respect of
this undertaking. The petitioner obtained a new central excise
registration. The CENVAT credit was, thus, transferred to the
petitioner’s account. Thus, Mr. Sen says, over and above the lump
CENVAT
sum consideration, the petitioners obtained the unutilized
credit. This CENVAT credit the petitioner never utilised, for the
reasons unknown to the Company.

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13.Mr. Tiku is not correct in his submission that the CENVAT
credit could not be used by the petitioner, Mr. Sen says. Indeed,
there was no restriction on the use of that credit. After the slump
sale, it did not lie to the credit of the Company. It had migrated to
the petitioner itself. Mr. Sen took me through some documents
relating to the proceedings before the Commissioner of Central
Excise. Those proceedings emanated from a show cause notice
issued to the petitioner. They culminated in a drop order dated 3rd
August 2009. Paragraph 5 of that order notes the petitioner’s
submission that under Rule 10 of the Security Credit Rules, 2011,
the petitioner had transferred the CENVAT credit to its accounts after
it purchased the Company’s manufacturing division on 1st
November 2004. Paragraph 8 of that very order notes the
circumstances in which such a transfer is permissible. The drop
order is reasoned.

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CP455-13-D.DOC

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14.The noting recorded in paragraph 5 of the drop order is based
on a statement made by the petitioner itself. It was, therefore, to its
knowledge at all times that it had on its own books, post the slump
sale transfer, the very CENVAT credit that the Company had asked it to
adjust. It is difficult to understand how this material circumstance
could have been altogether elided from the petition. Mr. Sen is also
justified in pointing out that the petitioners have suppressed the
email exchange dated 18th August 2009 at Exhibits E and F to the
affidavit in reply. The email at Exhibit E is from the petitioner itself.
It confirms not only the fact of the drop order, but that the
petitioners have an unutilised CENVAT credit of Rs.23.87 Lakhs.

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15.It is in this context that one must assess whether the defence
of the company can be said to be totally without substance as Mr.
Tiku says. The petitioners have already filed a summary suit on the
same cause of action against the Company in the City Civil Court at
Dindoshi. The Company has disputed its liability to pay interest.
The invoices value is about Rs.31 Lakhs. The Company offers to pay
the balance after adjustments. The petitioner chooses to decline this
offer. It is impossible, given the circumstances, to accept Mr. Tiku’s
submission that because the transfer agreement was a slump sale
and although all the current assets were sold, there was no transfer
of the CENVAT credit from the company to the petitioner. Ex-facie,
this is contrary to the petitioner’s own submission before the
Commissioner of Central Excise that resulted in the drop order. It is
also in the teeth of the petitioner’s own email correspondence.
Similarly, Mr. Tiku’s submission that the CENVAT credit is only a
credit from the exchequer and not actual money received from the
Company is one that only needs to be stated to be rejected. Upon

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CP455-13-D.DOC

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the transfer of DMD undertaking, that CENVAT account stood
transferred to the petitioner. There was no impediment to petitioner
adjusting this credit against the amount it claimed from the
Company.

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16.In assessing a Company’s response to a statutory notice and
its defence to a petition for winding up under Sections 433 and 434
of the Companies Act, 1956, the court must consider whether the
Company can be said to have put forward a bona fide, tenable case
albeit on a prima-facie assessment. The amount claimed by the
petitioning-creditor must be ascertained. Where it is legitimately
disputed, and where the defence cannot be said to be spurious,
specious or speculative, purely illusory and without substance, an
order of winding up will not be made. On these considerations, it is
not possible to reject the Company’s defence out of hand.

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17.The petition is dismissed. There will be no order as to costs.

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(G.S. Patel, J.)

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Asg Biochem Private Limited v. Organon (India) Private Limited - U24231MH1967PTC187949

Case brief

What is this about?

What did the court decide?

Asg Biochem Private Limited v. Organon (India) Private Limited - U24231MH1967PTC187949

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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