Back
2002 Supreme(Kar) 299
Karnataka High Court
Judges : H.L.Dattu
MYSORE SALES INTERNATIONAL LTD. - Appellant
Versus
UNITED BREWERIES LTD. - Respondent
C. P. 240 Of 2000
Decided On : 04/19/2002
A winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company.
Headnote:
The petitioner-company, a sole distributor of liquor products in the State of Karnataka, filed company petitions under Section 433 (e) and (f) of the Companies Act, 1956, seeking to wind up the respondent-companies, distilleries, breweries, and wineries, for their alleged inability to pay debts. The dispute arose from the State Government's amendment to the Karnataka Excise Act, which authorized the petitioner-company to collect a margin on liquor sales. The respondent-companies challenged the validity of the amended rules and refused to pay the margin, leading to the petitioner-company's claim for winding up.
Fact of the Case:
The Karnataka State Government amended the Karnataka Excise Act in 1989, introducing new rules that allowed for the appointment of a sole distributor for liquor products in the state. The petitioner-company, Mysore Sales International Limited (MSIL), was designated as the sole distributor and was authorized to collect a margin on liquor sales. Several respondent-companies, manufacturers of liquor, challenged the validity of the amended rules and refused to pay the margin to MSIL. MSIL filed company petitions under Section 433 (e) and (f) of the Companies Act, 1956, seeking to wind up the respondent-companies for their alleged inability to pay debts.
Finding of the Court:
The court found that the defense raised by the respondent-companies was bona fide and substantial, and that the debt claimed by the petitioner-company was disputed. The court held that the dispute could not be resolved in the winding-up proceedings and required a proper trial in a civil court. The court also found that the respondent-companies were commercially solvent and able to pay their debts, and that winding them up would not be in the public interest.
Issues: 1. Whether the debt claimed by the petitioner-company was a "debt due" within the meaning of Section 433 (e) of the Companies Act, 1956. 2. Whether the respondent-companies were unable to pay their debts, as alleged by the petitioner-company. 3. Whether the defense raised by the respondent-companies was bona fide and substantial. 4. Whether the dispute between the parties could be resolved in the winding-up proceedings or required a proper trial in a civil court. 5. Whether winding up the respondent-companies would be in the public interest.
Ratio Decidendi: The court held that the debt claimed by the petitioner-company was disputed and that the defense raised by the respondent-companies was bona fide and substantial. The court also found that the dispute could not be resolved in the winding-up proceedings and required a proper trial in a civil court. The court further held that the respondent-companies were commercially solvent and able to pay their debts, and that winding them up would not be in the public interest.
Final Decision: The court rejected the company petitions filed by the petitioner-company, holding that the debt claimed was disputed, the defense raised was bona fide and substantial, and that winding up the respondent-companies would not be in the public interest.
( 1 ) THE petitioner-company is common in all these company petitions. The respondent companies are either distilleries or breweries or wineries, having their registered office within the jurisdiction of this court. The facts are more or less similar and the legal issues raised are common. Therefore, all these company petitions are clubbed together, heard and disposed of by this common judgment.
( 2 ) FOR narration of facts and the contentions canvassed, in my judgment, I will be making reference to the pleadings in C. P. No. 32 of 1999.
( 3 ) THE petitioner is a company incorporated under the provisions of the Companies Act, 1956, its registered office is situate at MSIL House, No. 36, Cun-ningham Road, Bangalore. The object of the company is as stated in the memorandum of association. Apart from others, to carry on all kinds of agency business and in particular to act as the manufacturer's representatives, selling agents, distributors, storekeepers, stockists, business agents, organisers, canvassers, or local representatives of all products manufactured by the Government of Karnataka and/or the government of India in their industrial undertakings and also by limited liability companies or other companies, factories, firms, corporations, whatsoever, industrial or otherwise.
( 4 ) THE respondent is a company incorporated under the provisions of the Companies Act, 1956, as a public limited company by shares. The object for which the respondent-company is established is to conduct and carry on business in brewery, winery, distillery, etc. According to the petitioner-company, the nominal capital of the respondent-company is Rs. 100 crores, divided into ten crore shares of Rs. 10 each.
( 5 ) THE petitioner-Mysore Sales International Limited ("msil" for short) by this company petition filed under Section 433 (e) and (f) of the Companies Act, 1956 ("act" for short) has sought for winding up of the respondent--M/s. United Breweries Limited, on the ground, that the respondent-company is unable to pay its "debts due" within the meaning of Section 433 (e) and (f) read with Section 434 of the Act.
( 6 ) BRIEFLY stated the facts are :
The State Government in exercise of its powers under Section 71 of the Karnataka Excise Act (Karnataka Act 21 of 1966), has introduced an amendment to the Karnataka Excise (Sale of indian and Foreign Liquors) Rules, 1968. The amended Rules are known as the Karnataka excise (Sale of Indian and Foreign Liquors) (Amendment) Rules, 1989. The same is notified by publishing in the Official Gazette dated September 13, 1989. The amended Rules have come into force with effect from the 13th day of September, 1989. By this amendment, Clause (ii) in Rule 3 of the Rules, 1968, is substituted by providing a provision for grant of a licence known as "distributor's licence". Under Sub-clause (b) of Clause (ii) of Rule 3, the State Government is empowered to specify a Government owned or controlled company as sole distributor to deal in the products of all distilleries or breweries or wineries in the State of Karnataka or to import liquor from outside the State for the purpose of distribution or sale within the State or to export liquor outside the State. The amended Rules also make a provision for substitution of Conditions nos. 2 and 3 in Form No. CL -. The substituted provisions read as under :
" (a) The licensee may purchase the liquor only from distilleries/breweries/wineries, located within Karnataka or import from outside the State. (b) The licensee shall sell the liquor only to a person, who is holding CL-1 licence in the State or export liquor to a person outside the State, who is holding a valid licence to deal in liquor. "
( 7 ) UNDER Sub-clause (b) of Clause (ii) of Rule 3 of the amended Rules, the Excise Commissioner is authorised to grant distributor's licence.
( 8 ) AFTER publication of the aforesaid Rules, the State Government by its communication dated september 15, 1989, had informed th
