SHITAL FIBERS LTD. versus INDIAN ACRYLICS LIMITED on 6 April 2021

Conclusion

SHITAL FIBERS LTD.

v.

INDIAN ACRYLICS LIMITED(Civil Appeal No. 1105 of 2021)

APRIL 06, 2021

[R.F. NARIMAN, B.R. GAVAI AND HRISHIKESH ROY, JJ.]

Companies Act, 1956: ss. 433, 434 – Circumstances in whichcompany may be wound up by the court – On facts, company petitionseeking winding up of the appellant-defaulter company for itsinability to pay admitted debts – Company tribunal however gaveanother opportunity to the appellant to settle the accounts withrespect to the respondent and in case of failure, citation was to bepublished – In appeal, the High Court stayed the publication of theadmission notice subject to the appellant paying the outstandingamounts to the respondent and appellant paid the outstandingamounts, and there being no bona fide dispute persisting, dismissedthe appeal, however, held that the respondent’s claim towards anyinterest payments can be made to the Company Judge – On appealheld: Company court cannot decide on default in a winding upproceedings – If the debt is bona fide disputed and the defence is asubstantial one, the court will not wind up the company – Where thedebt is undisputed, the court will not act upon a defence that thecompany has the ability to pay the debt but the company choosesnot to pay that particular debt – Furthermore, the principles onwhich the court acts are that the defence of the company is in goodfaith and one of substance, the defence is likely to succeed in pointof law and the company adduces prima facie proof of the facts onwhich the defence depends, and all this would depend upon thefacts of the case – In the instant case, Company Judge as well asthe High Court found that the defence of the appellant could not besaid to be bona fide, in good faith and of substance – Order passedby the High Court upheld.

Dismissing the appeal, the Court

HELD: 1.1 If the debt is bona fide disputed and the defenceis a substantial one, the court will not wind up the company. It is A

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Aequally well settled, that where the debt is undisputed, the courtwill not act upon a defence that the company has the ability to paythe debt but the company chooses not to pay that particular debt.It is equally settled, that the principles on which the court actsare first, that the defence of the company is in good faith and oneof substance, secondly, the defence is likely to succeed in pointBof law and thirdly the company adduces prima facie proof of thefacts on which the defence depends. As to whether the defenceof a Company is in good faith or as to whether it is of a substanceand as to whether it is likely to succeed in point of law and as towhether the company adduces prima facie proof of the facts onCwhich defence depends, would depend upon the facts of each case.[Para 9, 10][209-G-H; 210-A-C]

1.2 It is amply clear, that both the Company Judge as wellas the Division Bench upon appreciation of the materials placedon record have found, that the defence as sought to be raised byDthe appellant with regard to the quality of the material suppliedby the respondent being defective was by way of an after-thought.The Division Bench found, that when the appellant raised a disputeabout the quality, the same was acknowledged by the respondentand it was reflected in its conduct by the grant of credit. Itobserved, that the respondent had fairly acknowledged the defectsEwhen there were any and it was reasonable to presume, that ifthere were any other defects, it would have recorded the same insome manner or the other. The Division Bench further found,that it was difficult to accept the case of the appellant, that thediscussions with regard to defective material were only oral. It

Ffurther found, that in the reply to the statutory notice there wereno mention at all with regard to oral agreement. The DivisionBench further found, that the contention of the appellant, thatthe goods manufactured utilizing the defective raw materialsupplied by the respondent being returned by the dealers andthereby the appellant suffered any damages, was also notGsupported by any document. It was concurrently found, that thedefence of the appellant was not bona fide one nor a substantialone. On facts, it was also found, that the appellant had takencontradictory stand in order to defeat the claim of the respondent.It was also concurrently found, that the appellant had failed toH

adduce prima facie proof of facts contended by it. [Para 19,20][215-F-H; 216-A-D]

1.3 Insofar as the contention of the appellant, that theappellant was an on-going Company running into profits and thatthe claim of the respondent was not admitted by it, is concerned,it is not a requirement in law. [Para 21][216-D-E]

1.4 In the instant case, the Division Bench has not issued adirection to grant the interest as claimed by the respondent. Onthe contrary, it has declined to enter into the question, as towhether the appellant was also liable to pay the interest sincethe company judge had not referred to the said issue. The DivisionBench therefore, while dismissing the appeal, has done so withoutprejudice to the respondent’s contention regarding interest whichmay be claimed either by way of an application for clarificationbefore the learned judge or by way of an appeal or by any otherproceeding. [Para 25][219-C-E]

1.5 The company court while exercising its powers undersections 433 and 434 of the Companies Act would not be in aposition to decide, as to who was at fault in not complying withthe terms and conditions of the deed of settlement and thecompromise deed. A detailed investigation of facts andexamination of evidence and interpretation of various terms andconditions of the deed of settlement and the compromise enteredinto between the parties was necessary in adjudicating the claim,which could not be done in the proceedings under Section 434.[Para 27][220-D]

1.6 The Company Judge as well as the Division bench havefound, that the defence of the appellant could not be said to bebona fide, in good faith and of substance. [Para 28][220-C-D]

Mediquip Systems (P) Ltd. vs. Proxima Medical SystemGmbh (2005) 7 SCC 42 : [2005] 2 SCR 1015; VijayIndustries vs. NATL Technologies Ltd. (2009) 3 SCC527 : [2008] 17 SCR 972; IBA Health (India) PrivateLimited vs. Info-Drive Systems Sdn. Bhd. (2010) 10 SCC553 : [2010] 12 SCR 137 – distinguished.

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AMadhusudan Gordhandas & Co. vs. Madhu WoollenIndustries Pvt. Ltd. (1971) 3 SCC 632: [1972] 2 SCR 201 – referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1105Cof 2021

From the Judgment and Order dated 29.04.2016 of the High Courtof Punjab & Haryana at Chandigarh in Company Appeal No. 58 of2015 (O&M).

DKaran Nehra, Himanshu Gupta, Manoj C. Mishra, Advs. for theAppellant.

Tarun Gupta, Adv. for the Respondent.

The Judgment of the Court was delivered by EB. R. GAVAI, J.

1. Leave granted.

2. The present appeal challenges the judgment and order passedby the Division Bench of the Punjab & Haryana High Court in CompanyAppeal No. 58 of 2015 dated 29.4.2016, arising out of the order passedFby the learned Company Judge of the said Court, in Company PetitionNo.106 of 2009 dated 28.9.2015.

3. The facts, in brief, giving rise to the present appeal are as under:

The respondent – M/s Indian Acrylics Limited is a manufacturerof acrylic yarn having its manufacturing unit in village Harkrishanpura,GDistrict Sangrur. There was a transaction between the appellant – M/sShital Fibers Ltd. and the respondent - M/s Indian Acrylics Limited underwhich the respondent was to supply acrylic yarn to the appellant oncredit basis. As per the said arrangement, the supply of raw materialcommenced from 20.4.2007. The respondent supplied material worth H

Rs.81,98,014.45. There were certain issues raised by the appellant withregard to the quality of the material supplied by the respondent. As such,a sum of Rs. 6,22,073/- was credited by the respondent in the account ofthe appellant on account of material returned and also a credit note ofRs.5,00,000/- was given on account of some defect in quality. As per therespondent, appellant had made a payment of Rs.61,83,218/-. However,there was an outstanding balance of Rs.8,92,723/- as on 28.7.2008. Sincedespite repeated requests, balance amount was not paid, the respondentissued a statutory notice to the appellant. The same was duly respondedto. As the payment was not made despite notice being duly served onthe appellant, the respondent filed the aforesaid Company Petition seekingwinding up of the present appellant for its inability to pay admitted debts.The learned Company Judge vide order dated 28.9.2015 admitted theCompany Petition. However, while doing so, the learned Company Judgeobserved, that since the appellant was an on-going concern, an opportunityshould be granted to it to settle the accounts with the respondent by31.12.2015. Only in case of failure of the settlement, the citation wasdirected to be published.

Being aggrieved thereby, the appellant preferred an appeal beforethe Division Bench of the High Court. By an order dated 24.12.2015,the Division Bench of the High Court, while issuing notice, stayed thepublication of the admission notice, subject to the appellant paying theamount in question by 31.12.2015. Accordingly, the amount was so paidby the appellant.

Though the Division Bench of the High Court came to a conclusion,that there was no bona fide dispute and as such, there was no questionof directing the respondent to repay the amount, since the appellant hadsatisfied the respondent’s claim to the extent mentioned in the orderimpugned in the appeal, it dismissed the appeal.

However, insofar as the claim of the respondent with regard tointerest at the rate of 24% per annum is concerned, the Division Benchof the High Court found it not necessary to enter into the question, as towhether the appellant was liable to pay interest to the respondent sincethe learned Company Judge had not gone into that issue. However, theDivision Bench clarified, that the dismissal of the appeal was withoutprejudice to the respondent’s contention regarding interest which maybe claimed either by way of an application for clarification before thelearned Judge or by way of an appeal or by any other proceeding.

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ABeing aggrieved thereby, the present appeal.

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ABeing aggrieved thereby, the present appeal.

4. Shri Karan Nehra, learned counsel appearing on behalf of theappellant submits, that the defence of the appellant was a bona fideone. He submitted, that it was a specific case of the appellant, that onaccount of the defective material supplied by the respondent, the appellantBhad suffered huge losses and as such, it was the appellant who wasentitled to receive the damages from the respondent. He submitted, thatin view of the specific defence, which could not be said to be a moonshinedefence, the learned Company Judge ought not to have admitted theCompany Petition. He submitted, that the claim of the respondent couldnot stand even if it was made in summary proceedings under OrderCXXXVII of the Code of Civil Procedure, 1908. He submitted, thatrequirements under Section 433(e) and (f) of the Companies Act, 1956(hereinafter referred to as “the said Act”) stood on a much higherpedestal and as such, the learned Company Judge has erred in admittingthe petition. He submitted, for the same reason, the Division Bench hasDalso erred in not interfering with the direction of the learned CompanyJudge.

5. Shri Nehra further submitted, that since there was no agreementbetween the parties to pay interest on the balance/delayed payment, thedirection issued by the Division Bench of the High Court to consider theEclaim of the respondent for interest does not stand the scrutiny of law.

6. Shri Nehra relies on the judgments of this Court in MediquipSystems (P) Ltd. vs. Proxima Medical System Gmbh[1],Vijay Industriesvs. NATL Technologies Ltd.[2], and IBA Health (India) Private Limitedvs. Info-Drive Systems Sdn. Bhd.[3].F

7. Shri Tarun Gupta, learned counsel appearing on behalf of therespondent submits, that since the appellant, in spite of variouscommunications sent by the respondent requesting it to pay theoutstanding amount, had failed to do so, it was required to issue statutorydemand notice under Section 434 read with Section 433 (e) of the saidGAct. It is submitted, that the said notice was duly served upon the appellantand also replied to. Apart from making a vague denial and stating thatthe claim of the respondent is a matter of record, no specific defencewas taken. He further submits, that the appellant had totally changed 1 (2005) 7 SCC 422 (2009) 3 SCC 527H3 (2010) 10 SCC 553

the stand taken by it before the learned Company Court as against thestand taken by it in the reply to the statutory notice. He therefore submits,that the learned Company Judge as well as the Division Bench of theHigh Court had rightly held, that the defence of the appellant was not abona fide one. He submitted, that no interference would be warrantedin the concurrent findings of fact.

8. This Court in the case of Madhusudan Gordhandas & Co.vs. Madhu Woollen Industries Pvt. Ltd.[4], observed thus:

“20. Two rules are well settled. First, if the debt is bona fidedisputed and the defence is a substantial one, the court will notwind up the company. The court has dismissed a petition forwinding up where the creditor claimed a sum for goods sold to thecompany and the company contended that no price had beenagreed upon and the sum demanded by the creditor wasunreasonable. (See London and Paris Banking Corporation[(1874) LR 19 Eq 444] ) Again, a petition for winding up by acreditor who claimed payment of an agreed sum for work donefor the company when the company contended that the work hadnot been properly was not allowed. (See Re. Brighton Club andHorfold Hotel Co. Ltd. [(1865) 35 Beav 204])

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

9. It is therefore well settled, that if the debt is bona fide disputedand the defence is a substantial one, the court will not wind up thecompany. It is equally well settled, that where the debt is undisputed, the 4 (1971) 3 SCC 632

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Acourt will not act upon a defence that the company has the ability to paythe debt but the company chooses not to pay that particular debt. It isequally settled, that the principles on which the court acts are first, thatthe 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 thecompany adduces prima facie proof of the facts on which the defenceBdepends.

10. As to whether the defence of a Company is in good faith or asto whether it is of a substance and as to whether it is likely to succeed inpoint of law and as to whether the company adduces prima facie proofof the facts on which defence depends, would depend upon the facts ofCeach case.

11. In the present case, in the statutory notice dated 25.8.2008,the respondent – Company has specifically stated as under:

“4. That in that regard a sum of Rs.35,14,776.30 was outstandingDagainst you against various bills as on 25.8.2007 against thematerial supplied to you by my client, vide following invoices:

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F5. That after the said invoices no material has been supplied toyou by my client and the above amount of Rs.35,14,776.30 waspayable by you to my client. My client requested to you vide variouscommunications dated 16.11.07, 22.11.07, 23.11.07, 26.11.07,27.11.07, 28.11.07, 26.11.07, 1.12.07, 3.12.2007, 5.12.2007,6.12.2007, 7.12.2007, 8.12.2007, 10.12.2007, 11.12.2007,G12.12.2007, 13.12.2007, 15.12.2007, 17.12.2007 and 21.12.2007to pay the above said outstanding amount.

6. That in response to the above letters/faxes no communicationshave been received from you by my client rather you madelumpsum payments of Rs.15 lac through cheques, material H

returned by you worth Rs.6,22,073.00 and adjustment of Rs.5 lacwas made by way of credit note. The details of which are asfollows:

The total amount remains recoverable by my client from you isRs.8,92,723.45p (8,92,703.30 + 20.15) as on 8.5.2008 after receipt/credit of the above amounts of Rs.26,22,073.00 as mentionedabove.”

12. In reply to the said notice, the appellant has stated thus:

“4. In reply to para no.4 of your notice, it is a matter of recordsand it clearly shows about the business worth of my client.

5. In reply to para no.5 of your notice, it is a matter of record.However, there is nothing due to your client from my client, ratheron the contrary is true as mentioned in previous paras.

6. Para no.6 of the notice is not correct and does not depict thecorrect picture, rather on the contrary your client himself hadbeen coming to my client and settled the amount and agreed toreturn Rs. 25 Lacs out of which Rs.5 lacs returned, rest of theamount was not returned.

7. Para no.7 of your notice is wrong and incorrect. Detailed replyhas already been given in previous paras.”

13. It is thus clear, that in response to paragraph 4 and 5 whereinthe respondent has specified its claim, the only reply given is, that it is a A

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Amatter of record and that it shows about the business worth of his client.No doubt, that in paragraph 6, it is stated, that the respondent had himselfbeen coming to the appellant and settled the amount and agreed to returnRs.25 lakh out of which only Rs. 5 lakh was returned.

14. From the perusal of the written statement filed to the CompanyBPetition, it would reveal, that the main contention of the appellant was,that it was a running company making profits and further, that the claimof the respondent was not admitted by it. It was contended, that thepetition was filed only to pressurise the appellant to pay the dues whichwere neither admitted nor legally due.

C15. It was also stated in the written statement that till 26.6.2007there was no issue with regard to supply of raw material by the respondent.However, with effect from 26.6.2007 it was noticed, that raw materialsupplied was defective and the goods which were sold in the marketutilizing the said raw material were received back with some complaints.It was stated, that the goods which were supplied by the respondentDvide invoices dated 26.6.2007 onwards were defective and the productsmanufactured by the appellant – company using the said raw material(i.e. acrylic yarn) were returned by the dealers and importers due todefective quality. It was stated, that the appellant – Company had returnedthe defective raw material to the respondent – Company, which remainedEunused. It was stated, that the respondent had acknowledged the sameand credited an amount of Rs.6,22,073/- in the account of the appellant.It is further stated, that after various meetings and negotiations, therespondent agreed to compensate the appellant on account of supply ofdefective material by issuing a credit note of Rs.5 lakh. It was furtherstated, that as per the account of the appellant, an amount of Rs.53,648/F- was receivable from the respondent after making all the adjustments.

16. The learned Company Judge after considering the rivalcontentions observed thus:

“8. There is no document referred to by learned counsel for theGrespondent – Company written by it to the petitioner – Companyregarding defect in quality. In response to the statutory noticeissued by the petitioner – Company, the stand taken by therespondent – company in reply was that raw material worthRs.25,00,000/- supplied by the petitioner – Company to therespondent – company was lying with it in poor condition and H

SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED[B. R. GAVAI, J. ]

could not be used in production. Against promised compensationof Rs.25,00,000/-, credit note of only Rs.5,00,000/- was given. Asagainst a claim of Rs.8,92,723/- claimed by the petitioner, a sumof Rs.11,07,297/- is due from the petitioner – company to therespondent – company on account of losses suffered due to poorquality of yarn supplied. Demand of the aforesaid amount wasraised. In reply to the petition, the stand taken is altogether different.No doubt, the issue regarding defective material was raised,however, it was stated that the entire material supplied by thepetitioner – company was used, as a result of which the productwas defective, which was not marketable and on that account,the respondent – company suffered losses. The products weresold in the market, which were returned back. No communicationhas been referred to, which was addressed by the respondent –company to the petitioner – company, pointing out such defects.It was further sought to be claimed that after giving credit note ofRs.5,00,000/- in May, 2008, the petitioner – company agreed togive rebate to the extent of 50% on the total invoices on accountof the defective material. The calculations were made in thefollowing terms.

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9. From the aforesaid calculations, it is evident that now the standis that the respondent- company is to recover a sum of Rs.53,648/

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- from the petitioner – company, whereas in reply to the notice,the claim was to the tune of Rs.11,07,297/-. It is further relevantto add here that in reply to the petition, the story that settlementbetween the parties had taken place in May, 2008 regarding rebateon the invoice value is merely an after thought just to defeat thepetition, as no such plea was taken when reply to the statutorynotice was given in September, 2008.

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10. In view of the aforesaid discussion, I do not find that thedefence raised by the respondent – company is reasonable as thedebt cannot be said to be disputed, which has not been paid despitestatutory notice and even pendency of the present petition in thisCcourt for a period of about six years. Hence, the petition deservesto be admitted. Ordered accordingly.”

17. It could thus be seen, that the learned Company Judge hasfound, that the defence taken by the appellant with regard to the productsof the respondent being defective in quality was by way of an after-Dthought, inasmuch as, no document was placed on record in support ofsuch contention. It was further found, that whereas in reply to the noticethe appellant had claimed, that it was entitled to recover an amount ofRs.11,07,297/-, in the calculations given in written statement, the amountis Rs.53,648/-.

E18. This finding of fact is affirmed by the Division Bench of theHigh Court with following observations:

“7. The contention is not well-founded. We see no reason to drawsuch an inference. Indeed, the grant of credit would also indicatethat the respondent fairly acknowledged the defects when therewere any and that the rest of the consignment met with thecontractual specifications. It is necessary, therefore, to examinethe other surrounding facts and circumstances to judge the rivalcontentions.

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8. Firstly, when the appellant raised a dispute about the qualityand the same was acknowledged by the respondent it wasreflected in its conduct by the grant of credit. It is reasonable topresume that if there were any other defects and, in any event, ifthe appellant’s case was that the goods were defective, it wouldhave recorded the same in some manner or the other. Theappellant, however, contends that the discussions in this regard G

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were only oral. In the facts of this case it is difficult to accept thiscontention. The appellant’s case has varied between its reply tothe statutory notice and its written statement.

The respondent served a statutory notice dated 25.08.2008. Theappellant’s reply dated 10.09.2008 to the statutory notice does notrefer to an oral agreement much less an agreement by therespondent to pay the appellant compensation for the allegeddefective goods. This belies the defence now raised in the reply.

9. There is yet another fact which clearly disentitles the appellantto any credit in respect of the balance goods. The appellant,admittedly, retained the goods and, in fact, used the goods, namely,synthetic yarn, in the manufacture of its products, such as blankets.Having done so, the appellant cannot refuse to pay for the same.If the goods were defective, the appellant ought to have rejectedthe same. Having utilised the raw material supplied by therespondent, it is now not even possible for the appellant to returnthe same to the respondent.

Moreover, the appellant nowhere raised the contention that itscustomer, who purchased the final product, raised grievanceregarding the quality of the product. Moreover, the appellant hasnot furnished any details regarding its transactions with itscustomers involving the sale of goods manufactured from the rawmaterial supplied by the respondent. There is nothing to indicatethat the appellant suffered any damages on account thereof orthat the appellant was not paid for the same.

10. In these circumstances, the learned judge rightly rejected theappellant’s contentions. In our opinion, there is no bona fide disputeraised by the appellant in respect of the respondent’s claim.”

19. It is thus amply clear, that both the learned Company Judge aswell as the Division Bench upon appreciation of the materials placed onrecord have found, that the defence as sought to be raised by the appellantwith regard to the quality of the material supplied by the respondentbeing defective was by way of an after-thought. The Division Benchfound, that when the appellant raised a dispute about the quality, thesame was acknowledged by the respondent and it was reflected in itsconduct by the grant of credit. It observed, that the respondent hadfairly acknowledged the defects when there were any and it was AB

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Areasonable to presume, that if there were any other defects, it wouldhave recorded the same in some manner or the other. The DivisionBench further found, that it was difficult to accept the case of theappellant, that the discussions with regard to defective material wereonly oral. It further found, that in the reply to the statutory notice therewere no mention at all with regard to oral agreement. The Division BenchBfurther found, that the contention of the appellant, that the goodsmanufactured utilizing the defective raw material supplied by therespondent being returned by the dealers and thereby the appellantsuffered any damages, was also not supported by any document.

20. It was concurrently found, that the defence of the appellantCwas not bona fide one nor a substantial one. On facts, it was also found,that the appellant had taken contradictory stand in order to defeat theclaim of the respondent. It was also concurrently found, that the appellanthad failed to adduce prima facie proof of facts contented by it.

21. Insofar as the contention of the appellant, that the appellantDwas an on-going Company running into profits and that the claim of therespondent was not admitted by it, is concerned, it is not a requirementin law. Reliance in this respect could be placed on various judgments ofthis Court including the one in the case of Vijay Industries (supra).

22. Insofar as the reliance placed by the learned counsel for theEappellant on the judgment of this Court in the case of Mediquip Systems(P) Ltd. (supra) is concerned, in the said case this Court came to afinding, that there was a bona fide dispute concerning the claim of theappellant. It was also found, that there was no clear cut finding by thelearned single judge, that a debt is prima facie due and payable by theFCompany to the petitioning creditor. It was further found, that the companycourt had no jurisdiction to direct the company to deposit the amountpayable to a third party or to a party other than the petitioning creditor.As such, on facts, the said judgment would not be applicable to the factsof the present case.

G23. In the case of Vijay Industries (supra) relied by the appellant,thelearned single judge after finding, that a prima facie case has been madeout, admitted the company petition. However, in appeal, the DivisionBench set aside the order of the learned single judge. This Court whilesetting aside the order of the Division Bench observed thus:

“41. In the present case, on the date of filing of the application,dues in respect of at least a part of the debt which was more thanthe amount specified in Section 433 [sic Section 434(1)(a)] of theCompanies Act was not denied. It is not a requirement of the lawthat the entire debt must be definite and certain. The DivisionBench of the High Court proceeded on the basis that the entiresum covering both the principal and the interest must be undisputed,holding:

“Except making a bald allegation in the company petition thatthe petitioner had come to know that the respondent Companyowes large sums of money to its creditors and it is not in aposition to meet its debt obligations and as, therefore, becomecommercially insolvent, the petitioner has not taken necessarycare to prima facie establish the same. The only piece ofevidence available on the side of the petitioner is that therespondent is indebted to the petitioner a sum which is claimedtowards interest on the delayed payment. Assuming for amoment that the respondent Company is liable to pay intereston the delayed payments and it has not paid the said amount tothe petitioner, could it be said that the respondent neglected topay the debt, particularly when the respondent is disputing theliability of payment of interest on the delayed payments andwhen there is no such written agreement in between the partiesfor such payment of interest.”

42. The Division Bench upon noticing the facts of the matterformulated the question “as to whether the respondent is liable topay interest at 2% per month on delayed payments and when thatis being disputed would it constitute prima facie a valid ground foradmission of the company petition?” It was held:

“… The petitioner seeks to rely upon the invoices whichaccording to him contain at the foot a clause for payment ofinterest on delayed payments. Such a clause, even assuming isthere, since it has not been placed by means of any cogentevidence in this case, in view of the judgment of the RajasthanHigh Court in Kitply Industries case [(1998) 91 Comp Cas715 (Raj)] , cannot constitute an agreement between the partiesfor payment of interest. The legal position, thus, seems to beobvious. Before seeking a company to be wound up on the A

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ground that it is unable to pay its debts, it must be shown beforethe Court that the debt claimed against the company isascertained and definite and that the company failed to paythe same. Mere failure to pay the amount would not constitutethe requisite ‘neglect to pay’ as envisaged under clause (a) ofsub-section (1) of Section 434 of the Act when the companybona fide disputes the very liability and hence the defence takenup by it is of substance.”

It was furthermore held:

“Having regard to the facts and circumstances of the instantcase, we are of the considered view that the claim of thepetitioner towards interest on delayed payments since notcovered by any specific agreement between the parties interse is a contentious issue and the dispute as regards the paymentof interest is bona fide and it cannot, therefore, legitimately beconcluded that the respondent has neglected to pay. Thepetitioner, who pleaded inter alia in his petition that as per thetrade practice payments made shall be adjusted towards interestfirst and balance, if any, shall be adjusted towards principallater, failed to establish the same by any prima facie evidence.In the absence of any such trade practice, appropriating theamounts towards interest first and the balance, if any towardsprincipal next becomes inappropriate, in which event the claimof the petitioner that the respondent is liable to pay Rs 65,15,947basing upon such calculations cannot be accurate. The totalamount claimed by the petitioner as due in that view of thematter becomes doubtful and not definite. It is still got to beascertained if the claim of the respondent were to be consideredthat there has been no agreement for payment of interest ondelayed payments. For the above reasons, it cannot bepresumed prima facie that the respondent is unable to pay itsdebts.”

43. The findings of the High Court, with respect, are not correctfor more than one reason; firstly, because the Division Benchdid not hold that the invoices were not proved by cogentevidence; secondly, question of leading evidence would ariseonly after the company petition is admitted and, thirdly, issuance of invoices and signature of the respondent thereon is notdisputed.”

After observing the aforesaid, this Court further held, that theappellant was also entitled to the payment of interest.

24. It can thus clearly be seen, that this Court had clearly held,that it is not necessary while admitting the petition to establish that theentire claim is undisputed. We fail to understand, as to how the saidjudgment of this Court in Vijay Industries (supra) would be applicableto the facts of the present case. As a matter of fact, in the said case, thisCourt on consideration of the invoices had come to a conclusion, that theappellant was also entitled for the interest on delayed payment.

25. In the present case, the Division Bench has not issued a directionto grant the interest as claimed by the respondent. On the contrary, ithas declined to enter into the question, as to whether the appellant wasalso liable to pay the interest since the learned company judge had notreferred to the said issue. The Division Bench therefore, while dismissingthe appeal, has done so without prejudice to the respondent’s contentionregarding interest which may be claimed either by way of an applicationfor clarification before the learned judge or by way of an appeal or byany other proceeding.

26. We find, that the judgment of this Court in the case of IBAHealth (India) Private Limited (supra) would also not be applicable tothe facts of the present case. In the said case, it will be relevant to referto the following observations of this Court.

“29. On a detailed analysis of the various terms and conditionsincorporated in the deed of settlement as well as the compromisedeed and the averments made by the parties, we are of theconsidered view that there is a bona fide dispute with regard tothe amount of claim made by the respondent Company in thecompany petition which is substantial in nature. The CompanyCourt while exercising its powers under Sections 433 and 434 ofthe Companies Act, 1956 would not be in a position to decide whowas at fault in not complying with the terms and conditions of thedeed of settlement and the compromise deed which calls fordetailed investigation of facts and examination of evidence andcalls for interpretation of the various terms and conditions of the A

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Adeed of settlement and the compromise entered into between theparties.”

27. This Court held, that the company court while exercising itspowers under sections 433 and 434 of the Companies Act would not bein a position to decide, as to who was at fault in not complying with theBterms and conditions of the deed of settlement and the compromise deed.It was found, that in the said case, a detailed investigation of facts andexamination of evidence and interpretation of various terms and conditionsof the deed of settlement and the compromise entered into between theparties was necessary in adjudicating the claim, which could not be donein the proceedings under Section 434 of the said Act. In the said case, itCwas also noticed, that the claim was in respect of contingent debt andthat the disputes between the parties had been compromised in terms ofsettlement deed.

28. Such is not the case here. On facts, the learned CompanyJudge as well as the Division bench have found, that the defence of theDappellant could not be said to be bona fide, in good faith and of substance.

29. We are therefore of the considered view, that there is nomerit in the appeal. The same is accordingly dismissed. There shall beno order as to costs. Pending applications, if any, shall stand disposed of.

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Nidhi Jain

Appeal dismissed.

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