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2008 Supreme(Mad) 1673
IN THE HIGH COURT OF JUDICATURE AT MADRAS
S. RAJESWARAN, J.
Eagle Speed Services (P) Ltd., rep. by its Chief Executive Officer and Authorised representative Mr. T. Sujit Kumar Sri Balaji Cylinders Pvt. Ltd., Chennai and Another
C.P. No. 153 and 154 of 2003
Decided On : 11 June 2008
R. Murali, for Petitioners
Sivam Sivanandraj, for Respondents
The court will not wind up a company if the debt is bona fidely disputed and the defence is substantial. 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:
Winding Up - Disputed Debt - Companies Act, 1956 - Sections 433, 434 - Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. AIR 1971 SC 2600, (1996) 86 Comp. Case 610 (Del), S.N. Steel Corporation v. Dany Dairy and Food Engineers Ltd. (1992) 73 Comp. Cases 357, Percept Advertising and Another v. Secunderabad Health Care Ltd. (1996) 91 Comp. Cases 591 (A.P.), Tata Iron and Steel Co. v. Micro Forge (India) Ltd. (2001) 104 Comp. Cases 533, Mediqup Systems Pvt. Ltd. v. Proxima Medical System G.M.B.H. AIR 2005 SC 4175 : (2005) 7 SCC 42
Fact of the Case:
The petitioner, a transport company, filed Company Petitions against two respondent companies for non-payment of transportation charges. The respondents disputed the debt, claiming negligence by the petitioner resulted in damaged cylinders and a dispute with a third party. The respondents also cleared the admitted liability in instalments.
Finding of the Court:
The court found that the respondents were able to clear their admitted debts and were disputing the balance amount in good faith. Following legal precedents, the court dismissed the Company petitions.
Issues: Disputed debt, liability for damaged goods, bona fide dispute, ability to pay debts
Ratio Decidendi: The court will not wind up a company if the debt is bona fidely disputed and the defence is substantial. The company's ability to pay debts must be judged from various facts and circumstances. 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.
Final Decision: The Company petitions were dismissed with no costs, and the petitioner was advised to establish their claim in the appropriate forum.
1. Both the Company Petitions are filed by the creditor of the respondent companies to wind up the respondent companies and to appoint the Official Liquidator, High Court, Madras as liquidator of the respondent companies to take charge and secure all the assets of the respondent companies and to pay costs.
2. As the petitioner in both the Company petitions and the issues involved are also one and the same, a common order is being passed to dispose of both the petitions.
3. C.P. No. 153 of 2003 was filed by the petitioner namely M/s. Eagle Speed Services (P.) Ltd. against the respondent company, by name, Sri Balaji Cylinders (P) Ltd.
4. The case of the petitioner in C.P. No. 153 of 2003 is that the petitioner company is engaged in the business of transporting goods to various places throughout the country and the respondent is engaged in the business of manufacture and sale of LPG Cylinders and allied products. The respondent company was in need of the services of a transporter for transporting the cylinders from its factory to the premises of various oil companies. Therefore, the respondent approached the petitioner and an agreement was entered into between the parties for effecting such transportation. The petitioner agreed to offer a credit limit of Rs. 8 lakhs for a period of 30 days. It was also made clear to the respondent that once the credit limit has been reached, the petitioners were under no obligation to effect any further transportation, unless the earlier bills comprised in such credit limit was cleared. Further, as per the procedure agreed to between the parties, once cylinders were transported to various locations and received by the consignee, the respondent became liable to effect payment for such transaction.
5. Pursuant to the above stated agreement, the petitioner duly effected transportation to the satisfaction of the respondent and the petitioner issued various freight bills pursuant to the consignment effected for a total sum of Rs. 60,15,489/-. But, the respondent was irregular in effecting payments. But in good faith, the petitioner effected further transportation even though the credit limit of Rs. 8 lakhs was reached as per the request of the respondent company.
6. The respondent sent a letter, dated 4.9.2001, enclosing cheques for a sum of Rs. 7.5 lakhs, drawn in favour of the petitioner. But, the respondent requested the petitioner not to present the cheques but to return the same to them once payments were made by the respondent and they have also promised to clear the outstanding soon. On 2.11.2001, the respondent requested the petitioner to return these cheques since they have issued ‘stop payment instructions’ to the bank. Since no payment was made by the respondent, the petitioner presented the cheques for encashment. A cheque for Rs. 2.5 lakhs was cleared but the other cheque for Rs. 5 lakhs was dishonoured with instructions “stop payment”. Subsequently, all the attempts made by the petitioner to get the payments from the respondent were in vain. The petitioner sent a notice dated 30.1.2002, calling upon, the respondent to pay the outstanding amount of Rs. 21,79,117,60. Though the notice was received by the respondent, no payment nor any response was received from the respondent.
7. Thus, according to the petitioner, the respondent is unable to pay its debts within the meaning of Sections 433 and 434 of the Companies Act, 1956.
8. Hence, the petitioner has filed this Company Petition No. 153 of 2003 for winding up of the respondent company.
9. The respondent entered appearance through their counsel and filed a counter affidavit.
10. In the counter affidavit filed by the respondent, it is stated that there was a running account between the petitioner and the respondent and the balance sheet filed by the petitioner contains a lot of discrepancies. It is further stated in the counter that the respondent and its sister concern M/s. Srinvasa Cylinders (P) Ltd. (respondent in C.P. No.154 of 2003) engag
