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1995 Supreme(AP) 964
Andhra Pradesh High Court
Judges : G.BIKSHAPATHY
Bhoruka Steels Limited - Appellant
Versus
Suresh and Suresh Wires (P.) Ltd. - Respondent
Decided On : 12-14-95
A company is not liable for debts incurred by its sister concerns.
Headnote:
COMPANY PETITION - WINDING UP - DEBT - LIABILITY - RESPONDENT COMPANY NOT LIABLE FOR DEBT INCURRED BY SISTER CONCERN - PETITION DISMISSED.
Fact of the Case:
Petitioner, a company engaged in wire drawing and steel manufacturing, supplied materials to the respondent company and its sister concerns. A dispute arose over payment for the materials supplied to the sister concern, V. C. R. and Sons, which issued a cheque that bounced. The petitioner issued a notice to the respondent company under section 434 of the Companies Act, alleging that the respondent company was unable to pay its debts. The respondent company denied liability, claiming that the debt was incurred by V. C. R. and Sons and that the petitioner should have proceeded against that company.
Finding of the Court:
The court found that the petitioner had failed to establish that the respondent company was liable for the debt incurred by V. C. R. and Sons. The court noted that the materials were supplied to V. C. R. and Sons and that payments were made by that company. The court also noted that the petitioner had accepted payment from V. C. R. and Sons and had not raised any demand with that company for non-realization of the cheque.
Issues: 1. Whether the respondent company incurred a debt payable to the petitioner? 2. Whether the petitioner-company is entitled to proceed against the respondent-company in respect of the material supplied to V. C. R. and Sons, which is a sister concern? 3. Whether the petitioner is entitled for the winding up of the respondent-company under sections 433 (3), 434 (1) (a) and 439 (b) of the Companies Act?
Ratio Decidendi: The court held that the respondent company was not liable for the debt incurred by V. C. R. and Sons. The court reasoned that the debt was incurred by V. C. R. and Sons and that the petitioner should have proceeded against that company. The court also held that the petitioner had failed to establish that the respondent company was unable to pay its debts, as required under sections 433 (3) and 434 of the Companies Act.
Final Decision: The court dismissed the petition for winding up of the respondent company.
( 1 ) BHORUKA Steels Ltd. , the petitioner herein filed the present petition under sections 433 (e), 434 (a) and 439 (b) of the Companies Act, 1956, seeking winding up of the respondent-company under the provisions of the Companies Act.
( 2 ) THE averments in the petition are that the petitioner is a company registered under the Companies Act. The object of the company is to do business in wire drawing and as manufacturers or dealers in, and exporters and importers in steel wires, copper, etc. The petitioner also renders professional and technical consultancy and advice to individuals, firms, companies, etc. , and carrying on any other business in the field of designing engineering relating to wire and cable industries. The other objects have been set forth in the memorandum of association. The petitioner by letter dated 16/01/1990, offered to supply 5. 5 mm. M. S. wire rod coils to the respondent. The price fixed was Rs. 96,000 per metric tone exclusive of sales tax. The payment shall be made immediately after the delivery of the material and for delayed payment 18% interest will be charged. The petitioner agreed to supply 500 mt. in the months of January, February and March, 1990, and also offered a discount of Rs. 150 per metric tone. However, no discount will be allowed if the total quantity agreed upon is not lifted. The respondent by letter dated 25/01/1990, confirmed the offer. It was also informed to the petitioner that the material will be purchased in the name of the respondent or in the name of the sister concerns, namely, Telangana Steel Industries and V. C. R. and Sons. In pursuance of the terms of supply, the petitioner supplied material to the respondent through invoice dated 12/02/1990, and F 15/02/1990. The material was supplied by the petitioner to the respondent and its sister concerns as per the instructions. However, the material supplied under bill No. 478 dated 14/02/1990, to V. C. R. and Sons, the sister concern paid a sum of Rs. 5,000 in cash out of total sum of Rs. 98,493. 15 and a cheque was given by V. C. R. and Sons for the balance sum of Rs. 93,493. 15 dated 1/03/1990. When the cheque was presented for collection, it was returned unpaid. Therefore, the petitioner by letter dated 9/03/1990, informed the respondent that as per the agreement between the petitioner and the respondent, the respondent is required to make the payment after receipt of the material. Even though the petitioner supplied the material to the tune of 118. 130 mt. , the amount was not paid. There was exchange of correspondence between the petitioner and the respondent with regard to the payment of the outstanding amount and the discount. Finally, a legal notice was issued to the respondent on 22/04/1991, asking the petitioner to pay the amount with interest at 20% per annum. A reply was sent on 28/05/1991, thereupon a notice under section 434 was issued to the respondent on 23/11/1992, and the same was acknowledged. Even though the statutory period had expired, the respondent failed and neglected to pay the debt. Under these circumstances, the petitioner approaches this court for the winding up of the company.
( 3 ) A counter-affidavit was filed on behalf of the respondent denying the averments made in the petition. The principal contention in the counter is that the claim of the petitioner-company is against V. C. R. and Sons, which is a sister concern of the respondent-company and the supplies were made to V. C. R. and Sons and a notice dated 9/05/1990, was also issued to the said company. Under those circumstances, the application would have been filed against the said company. It is further stated that the respondent-company was reconstituted on 1/10/1990, and a certificate of incorporation was issued on 26/10/1990. It is also stated by the respondent that the material is only directed to be supplied to the other sister concerns and the payment is made by the company to which the material is supplied and,
