Dismissed

Soni Gulati v. Jhs Svendgaard Laboratories Ltd.

Himachal Pradesh HC7 May 2015CO.P/8/2009

Case brief

AI extract

What is this about?

Winding up petition by a chartered accountant firm claiming unpaid professional fees for obtaining bank loan sanctions for the respondent company. The court held the debt bona fide disputed on substantial grounds and that the respondent was commercially solvent, so the presumption of inability to pay its debts did not arise. The company petition was dismissed.

What the court decided

AI extract

Soni Gulati Vs Jhs Svendgaard… — Insolvency and Bankruptcy | Himachal Pradesh HC (2015)

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IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

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Company Petition No. 8 of 2009. Judgment reserved on: 17.4.2015 Date of decision: May 7, 2015.

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Soni Gulati & Co. ….Petitioner. Versus JHS Svendgaard Laboratories Limited …Respondent.

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Coram

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The Hon’ble Mr. Justice Tarlok Singh Chauhan , Judge. Whether approved for reporting? Yes. For the Petitioner : Mr. K.D. Sood, Senior Advocate with Ms. Ranjana Chauhan, Advocate. For the Respondent : Mr. Atul Jhingan, Advocate.

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Tarlok Singh Chauhan, J.

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The petitioner by medium of this petition under

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Section 433(e) of the Companies Act, 1956 seeks winding up of the respondent company.

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It has been averred that the petitioner firm is registered with the Institute of Chartered Accountants of India and is carrying on the profession of the Chartered Accountants. Whereas, the respondent - company is a Public

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1 Whether reporters of Local Papers may be allowed to see the Judgment? Yes

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Limited Company constituted under the provisions of the Companies Act, 1956 and is limited by shares and is indebted to the petitioner for a Sum of 12,06, 580/- against Bill No. TS 5/09/06 dated 26.9.2006 for rendering services in connection with preparation of detailed project report for getting term loan and working capital limits sanctioned from Punjab National Bank. In addition, service tax or previous bill of 30,000/- and penalty for default in honouring the contract/backing out amounting to ` 1,50,000/- is also payable.

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It is further averred that the respondent used to avail professional services of the petitioner in matters of preparation of project reports, conducting audit, liaison with banks for term loans and working capital etc. and even company law matters. The petitioner also used to render such services on credit and also after taking some advance from time to time. The petitioner used to take instructions from the respondent on e-mail from its Managing Director as well as other officers of the company. Even information supplied for onward submission to various authorities/Bank was through e-mail.

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It is further averred that the petitioner had been doing his work properly but suddenly problem started when the Managing Director asked the petitioner to show EPS of more than

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15/- on a share of 10/- on the balance sheet of September,

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2005 on annualized basis ( as per MD this was the minimum EPS

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wanted by MB).

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In addition to this, the petitioner pointed out that:

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(i). the land building at MCIA which is in the name of Proprietor of erstwhile firm should be transferred to the company as part of going concern or disclosure made for the same ;

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(ii). identified some nonexistent assets and was against issue of shares to promoters against that and told not to take over those assets even from the promoters as on 31.3.2005;

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(iii). the petitioner refused to compromise with the professional duties cast upon by the professional ethics.

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This was sometime in Nov. 2005. On 29^th Nov. 2005 the

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petitioner got e-mail from MD asking to go slow with bank proposal, so as to match it with post public issue. The bank proposal at that time was in its final stage. On Dec. 27, 2005, petitioner got a call from MD and then an e-mail message that MD wants to change the auditors. Petitioner was offered

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assignment of internal audit and all work of IPO, but terms were not acceptable and so he declined the offer.

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It is further averred that during February petitioner was asked to resign as auditor which was done. Later petitioner was asked to give no objection certificate by new auditors which was also given but informed that the fee amounting to 6.65 lacs for work done has not been paid. However, this amount was settled by MD at 3 lacs as time already spent and claimed in the bill would be compensated by the continued assignment of bank loan proposal and with the condition that petitioner will continue with the job of Bank Term Loan and w/c limits of 25 crore with fee of 0.5% of sanctioned amount. In addition, it was agreed that the fee settled at 3 lacs would include 1.5 lacs as advance towards bank work (because the significant part this work has already been done and in Principal sanction obtained). The terms of payment were 50,000/- cheque dated 16.2.2006, 1,00,000/cheque dated March, 2006, 2,00,000/- on clearance from Zonal office of the bank, ` 5,00,000/- on sanction and balance on take over from Bank of Punjab.

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However, the work was to be done in such a way that sanction matches with the Public issue. Letter was sent through e-mail for the same, as the work was done very fast as

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compared to the expectations of the respondent during the first assignment. Further, it was agreed that if at any stage the company backs out/or do not take the loan sanctioned/or take only in parts, the fee will still be payable as agreed and additional ` 1,50,000/- being agreed advance will also be payable as penalty by the respondent in case the loan is not taken or company backs out at any stage.

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It is further averred that no dues certificate was issued to enable the new auditors to take the assignment, but the respondent was asked not to put any date on that, because the auditors may have to sign the balance sheet as on 31.12.2005 in back date, as prospectus etc. has already been finalized and circulated. The petitioner looking at the time spent on the job including procuring Principal sanction from PNB, preparing various documents and taking over of or running business of firms, incorporation of the respondent company etc. accepted this. But by the time fresh papers were filed with PNB the time of validity of IPS was over, so the case had to be filed afresh by preparing fresh documents.

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It is the further case of petitioner that respondent through MD and other staff continued to chase the petitioner on daily basis till final sanction on 23^rd September, 2006. The

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petitioner handed over the bill for ` 12,06,580/- to the MD of the company on 26.9.2006 after final sanction of the loan. It is averred by the petitioner that during personal visit of the partner of petitioner to company office on 23^rd , 25^th September, 2006, the MD of the respondent promised the payment after he would be free from the public issue i.e. a week later but was asked to deliver the bill immediately since the MD was going to various cities for IPO conferences during those days.

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It is averred that these promises continued to be postponed and commitment changed for availing the facilities sanctioned which constrained the petitioner to issue legal notice on 9.1.2007 asking to pay the amount due within 30 days and on failure to pay winding up petition would be filed. Reply to the notice was received on 5.9.2007 wherein respondent accused the petitioner for blackmailing etc. and claimed that all payments had already been made to the petitioner. On 11.10.2007, the petitioner sent a letter to the MD advising him to inform the facts of the case to his solicitor enclosing some papers.

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It is further averred that the partner of the petitioner got a telephone call from the elder brother of the MD of respondent Mr. Punit, who is settled in USA, advising not to take any legal step and assured that he will convince the MD to make

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the payment. During February, 2008 the partner of petitioner got a call from MD of respondent asking him to prepare Power Project Report which the petitioner refused on the pretext of his outstanding dues. During May & June, 2008, it is claimed that the partner of petitioner again visited to MD of respondent and requested him to pay outstanding amount upon which MD threatened the petitioner with dire consequences. The partner of the petitioner had suffered heart attack on 26.6.2008 and was admitted in CCU of IGMC, Shimla.

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On these allegations, it is alleged that respondent had “failed and “ignored” to make payment of the outstanding amount which had become due on 26.9.2009 alongwith penalty of ` 1,50,000/- and interest on the whole amount. It has been prayed that the respondent-company having its registered office at Trilokpur Road, Kheri (Kala-Amb), Tehsil Nahan, District Sirmaur, Himachal Pradesh be ordered to be wounded up being “unable to pay its debts”.

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The respondent opposed the petition by filing its reply wherein preliminary objections regarding suppressing of material facts, malafide intentions, maintainability, disputed question of facts, claim being time barred, dismissal for non-compliance of Section 434(1)(a) of the Companies Act, 1956, no legally

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recoverable dues payable by the respondent, non-performance of the contract etc. were raised. In paragraphs I, J and K of the reply, the respondent has made the following averments:-

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“I. that the respondent has paid all fees and expenses to the petitioner which has been duly admitted and acknowledged by them which is clear from the document filed b y the petitioner appearing at page No.70 of their paper book wherein it has been stated by them on 11.2.2006 that they acted as the Statutory Auditors of the respondent company till 14.1.2005. Further, it has been declared therein by the petitioner that they have received all the claims/dues from respondent for whatever work done by them for the respondent and no dues/claim is pending from respondent in respect of any matter whatsoever, whether in their professional or personal capacity.

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J. That it is most humbly submitted that the petitioner volunteered to the respondent to get them term loan and working capital limits of _23 crores sanctioned from Punjab National Bank on the condition that they will get the Zonal Office clearance by 6.3.2006, proposal cleared from Head Office by 25.3.2006, L/C opening by 1.4.2006 and get the sanction on or before 15__th_ _April, 2006 vide agreement in writing signed by the parties on 11.2.2006. The petitioner received a sum of_ 1,50,000/- from the respondent through three cheques for ` 50,000/- each dated 16.2.2006, 22.2.2006, and 25.3.2006 respectively towards advance for sanction. However, due to the inability of the petitioner to obtain the promised financial facility and loan and as a result of non availability of funds in time, respondent company suffered huge loss on account of Excise Duty loss as the land was already bought by the respondent company to set up their unit through internal resources but was unable to construct and move production to the tax free location due to inordinate delay and pressure tactics by the petitioner to continue extract money on one pretext or the other. It is submitted that apart from

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these the petitioner’s partner Sh. S.C. Soni cajoled the MD of the respondent company to cough out money in cash on the ground of his personal difficulties like his child’s admission to college etc., and ` 1,00,000/- (Rupees one lakh) was thus extracted with promise to return the same on completion of work and on payment of fees which also he is liable to return.

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K. That it is most respectfully submitted that petitioner failed inter alia to get the sanction of the financial facility and loan within the time as mutually agreed between the parties and thereby became liable to refund to the respondent the said entire advance received i.e. _1,50,000/- . This is evident and clear from the various documents filed by the petitioner with their paper book. It is submitted that the petitioner also made the respondent pay a sum of_ 5,00,000/- (Rupees five lakhs) to the bank towards processing fees much before the proposal was sanctioned. Despite repeated correspondences of the respondent to the bank to return the same the bank is yet to return the same causing loss to the respondent. Thus, the petitioner by their various acts of omission and commission has put the respondent to great loss and damages which he is fully liable to compensate.

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14. Similarly in para-7 of the reply on merits the respondent has stated as thus:-

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“It is most humbly submitted that respondent company had appointed their Merchant Bankers in August 2005 and filed RHP in SEBI by Feb, 2006. The petitioner was out of the whole IPO matter the day respondent appointed their Merchant Banker and EPS allegations of petitioner is nothing but a means to blackmail the respondent company. It is wrong and denied that the alleged work was done very fast as compared to the alleged expectations of the defendant during the alleged first assignment as alleged or otherwise. It is wrong and denied that the defendant was asked not to put any date on the No Dues Certificate as alleged or otherwise. Even otherwise, since it is a no objection to be given

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by the petitioner where is the question of asking defendant not to put a date on the same and especially when a date was already put on the same by the petitioner. It is wrong and denied that bill for _12,06,580/- was delivered by petitioner on 26.9.2006 as alleged or otherwise. It is denied that alleged last letter the petitioner got from the defendant regarding alleged work was on 12__th_ _Sept. 2006 as alleged or otherwise. On the other hand, no such alleged letter dated 12__th_ _Sept., 2006 was handed over by the respondent to the petitioner. It is wrong and denied that during alleged personal visit of the alleged partner of petitioner to company office on 23__rd_ _, 25__th_ _Sept., 2006 the MD of the defendant promised the alleged payment after the MD is free from alleged Public issue viz a week later but was asked to deliver the alleged bill immediately since MD was going to various cities for IPO conferences during those days as alleged or otherwise. It is wrong and denied that the alleged promises continued to postpone and alleged commitment changed for availing the alleged facilities sanctioned. It is wrong and denied that alleged reminder was also sent on 20.12.2006 by alleged partner of firm requesting to make payment of at least the alleged amount which had become allegedly due on sanction as alleged or otherwise and it is also denied that alleged bill was submitted on 26__th_ _Sept. 2006 as alleged or otherwise. It is wrong and denied that it was requested to pay at least_ 5 lakhs out of ` 12 lakhs as alleged or otherwise. It is wrong and denied that on phone the MD of defendant informed that payment would be made in full on alleged documentation with bank as alleged or otherwise. It is wrong and denied that looking at the lapse of sanction and alleged bad intention of the MD of the defendant, alleged notice was sent on 9.1.2007 asking to pay within 30 day and on failure to pay winding up petition would be filed as alleged or otherwise. It is wrong and denied that on 11.10.2007 petitioner sent alleged letter to the MD advising him to inform the facts of the case to his solicitor enclosing some alleged papers evidencing the alleged facts as stated in the said alleged letters

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and enclosures as alleged or otherwise. It is wrong and denied that the brother of the MD from USA, Mr. Punit called partner of the petitioner advising him not to take any legal step and assured that he would convince MD of defendant to make the alleged payment as alleged or otherwise. It is wrong and denied that during Feb. 2008 partner of the petitioner got a call from MD of defendant asking him to prepare alleged power project report to which petitioner asked to pay alleged previous dues first before alleged fresh assignment could be taken as alleged or otherwise. It is wrong and denied that during May & June, 2008 the alleged partner of petitioner called MD of the defendant requesting him to pay otherwise he would be compelled to take legal help for recovery including winding up petition as alleged or otherwise. It is wrong and denied that upon this, MD threatened with alleged dire consequences as alleged or otherwise. It is wrong and denied that purported bill for alleged services was sent on 26^th Sept. 2006 and the limitation fall on 26.09.2009 as alleged or otherwise. It is most humbly submitted that contents of para D of the reply may also form part and parcel of the present para.”

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All the other averments, as contained in the petition

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were denied.

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The petitioner filed rejoinder, reiterating the submissions made in the petition and the contrary submissions made in the reply were denied.

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This Court on 14.3.2014 had heard detailed arguments whereafter the judgment was reserved. But, before the judgment could be pronounced, the learned counsel for the petitioner moved an application for placing on record the documents relating to the public issue for which the services of

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the petitioner had been engaged by the respondent-Company for sanctioning the loan from the Punjab National Bank.

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In this application, it is alleged that the prospectus for public issue was published by the respondent-Company and even thereafter on 21.8.2006 the respondent-Company continued to correspond with the petitioner for sanctioning of the loan from the Punjab National Bank. In this regard a copy of financial results for the quarter ended 30.6.2006 was given to the petitioner for onward submission to the Punjab National Bank. It is further alleged that the loan was sanctioned to the respondentCompany by the Punjab National Bank on 23.9.2006 and communication in this regard was duly sent by the bank to the respondent-Company and the public issue was subsequently opened on 26.9.2006.

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In reply to this application, it is submitted that the averments of the petitioner to the effect that the respondentCompany even after 31.8.2006 continued to correspond with the petitioner for sanctioning of the loan was factually incorrect and projects an incomplete picture. As per the terms and conditions/regulations concerning the public issue, the respondent-Company prior to opening of the public issue was essentially required to arrange for the sanction of term loan.

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Since the petitioner failed to get the term loan sanctioned in a timely manner, the opening of the public issue got delayed. In order to avoid continuous and further delay in the opening of the public issue, the Company was constrained to seek sanction of the term loan from the Centurion Bank of Punjab Ltd. It was after obtaining this loan that the public issue was floated on 26.9.2006 and not due to any effort of the petitioner in attempting to get the term loan sanctioned from the Punjab National Bank. It was not denied that some functionaries of the Company may have corresponded with the petitioner, who by then had started blackmailing and threatening the respondentCompany that he would write letters to the regulatory bodies like SEBI and others for stalling the launching of the public issue.

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In rejoinder to the reply of this application, the petitioner has stated that the Managing Director of the respondent-Company vide his e-mail dated 11.9.2006 had asked the petitioner not to send e-mail on Airtel/Blackberry as he was not in station in Delhi and had been frequently touring. Earlier an unsigned statement had been sent by the Company to the petitioner and it had been requested that the Managing Director of the Company send signed statements and documents for submission to the Punjab National Bank.

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I have heard learned counsel for the parties and also

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gone through the records of the case carefully and meticulously.

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The following point arises for determination:-

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“Whether in the given facts and circumstances the respondent-Company is required to be wound up having failed and ignored to make payments of the outstanding amount being unable to pay its debts.”

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In a petition for winding up of a company on the basis that the company is unable to pay its debts, apart from the merits of dispute, the sincerity of the respondent-Company in raising the same is also relevant. In such a situation, where the company disputes the claim and the said dispute appears to be bonafide, it naturally follows that the company has declined to pay the claim on account of a dispute and not on account of its inability or negligence to pay the debts. The assumption that the company is unable to pay its debts can only be made in a situation where the debt is undisputed or an illusory and a sham defense is sought to be raised towards the liability. In both these cases, the company is liable to pay the debt and the fact that it has failed and neglected to pay the same despite a notice under Section 434 (1) (a) of the Act would indicate that the Company is unable to discharge its liability. However, in a case where the company sincerely believes that the amount is not payable and is

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able to establish that there are bonafide disputes, the question of failure and neglect to pay an admitted debt does not arise as the claim is neither accepted as a debt nor admitted to be payable. In such circumstances there can be no failure or neglect to pay a debt as contemplated under Section 434(1) (a) of the Act. 23. Though number of judgments have been cited on either side, but in view of the comprehensive law laid down by the Hon’ble Supreme Court, this Court shall be confining itself to the pronouncements made by the Hon’ble Supreme Court from time to time.

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The Hon’ble Supreme Court in the matter of Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami reported in 1965 (35) Company Cases 456 has held that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the Company but if debt is not disputed on some substantial ground, the court may decide on the petition and make the order.

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The Hon’ble Supreme Court in the matter of

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Madhusudan Gordhandas & Co. Vs . Madhu Woollen Industries

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(P) Ltd. reported in 1971(3) SCC 632 has culled out the

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following rules for passing the order of winding up:-

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"20. Two rules are well settled.

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First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. See London and Paris Banking Corporation (1874) LR 19 Eq 444. Again, a petition for winding up by a creditor who claimed pauyment of an agreed sum for work done for the company when the company contended that the work had not been properly was not allowed. See Re. Brighton Club and Horfold Hotel Co. Ltd (18565) 35 Beav 204.

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21. Where the debit is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, see Re. A Company 94 SJ 369. Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely see Re. Tweeds Garages Ltd 1962 Ch 406. The principles which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends".

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In the case of Pradeshiya Industrial and

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Investment Corporation of Uttar Pradesh Vs. North India

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Petro Chemical and Another reported in 1994 (79) Company

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Cases 835, the Hon’ble Supreme Court has held that an order under Section 433(e) is discretionary and there must be a debt due and the company must be unable to pay the same and the debt must be a determined or definite sum of money payable immediately or at a further date and inability u/S.433(e) should be taken in the commercial sense.

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In the matter of Mediquip Systems (P) Ltd. Vs. Proxima Medical System GmbH reported in 2005(7) SCC 42

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Hon’ble Supreme Court has reiterated the principles relevant for passing winding up order by holding as follows:-

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"25. The rules as regards the disposal of winding-up petition based on disputed claims are thus stated by this Court in Madhsudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd (1971) 3 SCC 632.

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This Court has held that if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The principles on which the court acts are;

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[i] that the defence of the company is in good faith and one of substance;

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[ii] the defence is likely to succeed in point of law; and [ii] the company adduces prima facie proof of the facts on which the defence depends.

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In the matter of Vijay Industries Vs. NATL Technologies Limited reported in 2009(3) SCC 527 , the Hon’ble

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Supreme Court has reiterated the prerequisites for winding up on the ground of inability to pay debt by holding that for invoking Sec.433(e) what is necessary that despite service of notice by the creditor, the company which is indebted in a sum exceeding one lakh rupees then due, failed or neglected to pay the same within three weeks thereafter or to secure or compound for it to the reasonable satisfaction of the creditor. It has further been held that Section 433(e) does not state that the debt must be precisely a definite sum and it is not a requirement of law that the entire debt must be definite and certain.

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The Hon’ble Supreme Court in the case of IBA Health (India) Private Limited vs. INFO-Drive Systems SDN. BHD. (2010) 10 SCC 553, has also explained that a dispute would be substantial if it is bonafide and not spurious, speculative, illusory or misconceived, the relevant extract from the decision is quoted below:

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“20. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bonafide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full

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trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor’s debt is bonafide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bonafide disputed debt.”

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30. From the aforesaid judgments, the following broad legal principles can be deduced:

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1. If the debt is bonafide disputed and the defense is a substantial one, the Court will not wind up the company. Conversely, if the plea of denial of debit is moonshine or a cloak, spurious, speculative, illusory or misconceived, the Court can exercise the discretion to order the company to be wound up. 2. A petition presented ostensibly for winding up order, but in reality to exert pressure to pay the bonafide disputed debt is liable to be dismissed.

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3. Solvency is not a stand alone ground. It is relevant to test whether denial of debt is bonafide.

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4. Where the debt is undisputed and the company does not choose to pay the particular debt, its defence that it has the ability to pay the debt will not be acted upon by the Court.

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5. Where there is no dispute regarding the liability, but the dispute is confined only to the exact amount of the debt, the Court will make the winding up order.

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6. An order to wind up a company is discretionary. Even in a case where the companys liability to pay the debt was proved, order to wind up the company is not automatic. The Court will

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consider the wishes of shareholders and creditors and it may attach greater weight to the views of the creditors.

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7. A winding up order will not be made on a creditors petition if it would not benefit him or the companys creditors generally and the grounds furnished by the creditors opposing winding up will have an impact on the reasonableness of the case.

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In the light of the settled legal principles, the

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endeavour of this Court must be to find out whether the debt claimed by the petitioner is a bonafide disputed debt or not and in this process this Court will not dwell into the intricate disputed questions of fact like a Civil Court exercising its jurisdiction in a suit filed for recovery of money. It is for this precise reason that the pleadings of the parties has been quoted in extenso.

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The respondent has placed on record its balancesheets as on 31.3.2006 from which it can safely be gathered that the Company was in a financially sound and in solvent condition. Therefore, the question would arise is as to whether the dispute between the parties is extant and not illusory. No doubt, numbers of e-mails and other correspondences have been exchanged between the parties, which would indicate that the petitioner had indeed raised a dispute with the respondent, but then the question arises as to whether the defense raised by the respondent is a bonafide one or not. After all, to raise a

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presumption of a company’s inability to pay its debts it is not enough merely to show that the company had omitted to pay the debt despite service of statutory notice, it must be further shown that the company had omitted or neglected to pay without reasonable excuse and conditions of insolvency in the commercial sense exist.

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While considering the issue of commercial solvency, the Hon’ble Supreme Court in IBA Health (India) Supra held that the examination of the company’s insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bonafide dispute as to liability or whether it reflects an inability to pay, and in such a situation, solvency is relevant not as a separate ground. It was held as under:

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"24. The appellant Company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company's insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is relevant not as a separate ground. If there is no dispute as to the company's liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. The law should be

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allowed to proceed and if demand is not met and an application for liquidation is filed under Section 439 in reliance of the presumption under Section 434(1)(a) that the company is unable to pay it debts, the law should take its own course and the company of course will have an opportunity on the liquidation application to rebut that presumption.

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25. An examination of the company's solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company's liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterised as a stand alone ground."

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It would be noticed here that the petitioner has neither made any averment nor has placed any document on record to demonstrate that the respondent is commercially insolvent. On the other hand, from the documents on record, it is evident that the respondent is a profit making solvent company and is in a position to meet its debt as and when it arises.

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The Company Court exercises an equitable jurisdiction. It is well settled that a winding up petition is not

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legitimate means of seeking to enforce for payment of dues which is bonafidely disputed by the respondent.

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The respondent-Company has clearly set out in their reply the reasons why the amount as claimed by the petitioner has not been paid to them and the contents thereof have already been reproduced (infra). The debt, therefore, is disputed and it cannot also be said that the respondent-Company has no genuine or substantial ground for refusal to pay or is unable to pay the same. The Company refusal to pay debt is as a result of bonafide dispute. The dispute is substantial and genuine and cannot be termed to be spurious, speculative, illusory or misconceived.

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In view of the preceding analysis, it is evident that the amount due in the instant case has not crystallized and there is a bonafide dispute with regard to liability of the respondent to pay the amount in question to the petitioner. The petitioner has also failed to prove that the respondent is insolvent in the commercial sense.

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It is well settled that proceeding for winding up, is not a proceeding for the recovery of outstanding dues. Nor for that matter, can the remedy of a petition for winding up be utilized to

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pressure a company which is commercially solvent to pay a debt which is bonafide disputed.

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For the reasons aforesaid, no case for winding up of the respondent is made out. In the result, the company petition fails and is hereby dismissed, so also the pending application(s) if

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any.

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May 7, 2015 (Tarlok Singh Chauhan), (gr) Judge

Soni Gulati v. Jhs Svendgaard Laboratories Ltd.

Case brief

What is this about?

What the court decided

Soni Gulati v. Jhs Svendgaard Laboratories Ltd.

Case brief

What is this about?

What the court decided

A compact analysis

Issues for consideration

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