Full Text
HIGH COURT OF DELHI
JUDGMENT
M/S BRENNTAG INGREDIENTS (INDIA) PVT. LTD. ....Petitioner
Advocates who appeared in this case:
For the Petitioner : Ms Meenakshi Sood with Mr Mukesh Kumar.
For the Respondent : Mr S. Santanu.
1. The petitioner has filed the present petition under Section 433 (e), 434 and 439 of the Companies Act, 1956 (hereinafter referred to as the ‘Act’) for winding up of the respondent company alleging that the respondent has been unable to pay its debts owed to the petitioner. The respondent contends that there is no outstanding liability towards the petitioner as it is alleged that the amount claimed by the petitioner is in respect of material supplied by the petitioner which was found to be defective. 2014:DHC:1682
2. The only controversy that needs to be addressed in the present case is whether the defence raised by the respondent is bonafide or a sham defence.
3. Briefly stated the facts are as under:- 3.[1] The petitioner is in the business of dealing in chemicals for pharmaceuticals, paints and coating, food and other industries. The chemicals supplied by the petitioner are required by the respondent company for manufacturing Panels. The petitioner had been regularly supplying goods to the respondent which were utilized by the respondent without any complaints. 3.[2] The petitioner supplied certain goods in the month of December, 2010 and February, 2011 and duly raised the invoices for the same. The details of the said invoices are as under:- S.No. Invoice No. Date Amount (`) Outstanding amount on each invoices (`) 1 GOGP000610 08.12.2010 501,028.94 146,391.02 2 GOGP000623 14.12.2010 469,716.02 469,716.02 3 GOGP000632 21.12.2010 502,967.28 502,967.28 4 GOGP000863 21.02.2011 6,44,161.58 1,530.58 3.[3] The amount outstanding and payable by the respondent in respect of the said invoices aggregates to `11,45,690.55/- 3.[4] It is stated by the petitioner that the petitioner had been regularly pursuing the respondents for the outstanding payments, however, the respondent has failed and neglected to discharge its debts. The petitioner has placed on record various emails sent by the petitioner calling upon the respondent to ensure that the aforementioned invoices are duly paid. The petitioner has also referred to an email dated 21.09.2011 sent by the respondent stating that necessary arrangement for release of payment are being done on priority basis.
4. Given the fact that the payments due had not been effected by the respondent, the petitioner caused a notice dated 09.08.2012 under Section 433 (e) and 434 (1)(a) & (c) of the Act to be issued to the respondent calling upon the respondent to make the outstanding payment. This notice also elicited no response from the respondent.
5. In view of the fact that the payments had not been made by the respondent despite notice under Section 434 (1)(a) of the Act, the petitioner has filed the present petition.
6. It was contended on behalf of the respondent that there is no outstanding liability towards the petitioner. The respondent has stated that chemicals worth `81,74,425/- were supplied by the petitioner to the respondent and initially there was no quality issue however, material supplied vide Invoices no GOGP000610, GOGP000623 and GOGP000632 amounting to `14,97,542/- were found to be defective as the chemical supplied by petitioner could not produce requisite density and strength of the Panels. It is alleged that the products manufactured from using the chemicals supplied by the petitioner were rejected by the respondent’s customer (a Telecommunication Company) which has resulted in a huge loss to the respondent company.
7. The respondent contended that the petition is not maintainable under the Act as there is no debt towards the petitioner and mere refusal to make the payment demanded does not indicate an inability to pay debts. Further the respondent contended that the material supplied was defective and the company suffered huge lose as the entire consignments of Panels was rejected by Huawei. The respondent also relied upon three letters dated 22.09.2011, 25.11.2011 and 10.12.2011, copies of which were produced by the respondent after the petitioner had filed its rejoinder, to contend that there were extant disputes at the material time on account of which the payments due to the petitioner were withheld.
8. It has been contended on behalf of the petitioner that the dispute raised by the respondent that there was any defect in the goods is palpably false and malafide. It is asserted that the respondent had never raised any issue with regard to the quality of the material supplied by the petitioner and the petitioner had received no communication in this regard. The learned counsel for the petitioner submitted that the letters dated 22.09.2011, 25.11.2011 and 10.12.2011 relied upon by the respondent were never received by the petitioner and the same have been created after the filing of the present petition. It was contended that the reference of the letters did not find mention in the contemporaneous mails exchanged between the parties. It is submitted that since the payments due to the petitioner were not disputed at any stage prior to filing of the present petition no controversy could be raised at this belated stage. In terms of the purchase order payment was required to be made within a period of 90 days. This admittedly had not been done by the respondent.
9. I have heard the learned counsel for the parties. There is no dispute that the goods in respect of which the invoices have been raised were in fact supplied to the respondent. The respondent has also not disputed the value of the goods as stated in the invoice. Admittedly, the goods in question have been consumed by the respondent for its business. The case now put up by the respondent is that it has withheld payments against the invoices as its client had rejected the Panels manufactured by the respondent in which the material supplied by the petitioner was used. In order to examine the bona fides of this dispute, it would be essential to examine the merits as well as the stage at which such dispute had been raised. The goods in question were supplied in December 2010 and in February 2011. In terms of the invoices the payment of the said goods was to be paid by the respondent within 90 days. Thus, the last of the invoices (i.e. invoice dated 21.02.2011) should have been paid by 22.05.2011. Admittedly, there was no dispute between the parties at the material time and, therefore, there was no legitimate reason for the respondent to withhold the payment at that stage. However, it is apparent that the respondent failed and neglected to clear the payments on account of its own exigencies. The learned counsel for the petitioner has handed over the copies of two emails of August 2011 which indicate that the petitioner had been perusing the respondent for the payments that were, indisputably, due to the petitioner. It is also evident from the email dated 1st August, 2011 that the respondent had released a payment of `1.[5] lacs and the petitioner was pressing to the balance payment of `13.[5] lacs.
10. By an email dated 20.09.2011, the petitioner protested at the conduct of the respondent and also demanded to know when the respondent would release its full payment. The said email dated 20.09.2011 is relevant and is quoted below:- “Dear All, Please refer to our highly overdue payment of Rs.13.50 lac. Last month when we met at your office we were promised that there would be some part payment released to us once the bank issue was resolved, but it has been over 1 month since that discussion and there has been no payment made. The treatment of matter is highly irresponsible as we do not get any feedback also from your end after continuous feedback. Please let us know when you plan to release our full and final payment. Regards, Ravinder Gupta”
11. The response of the respondent is relevant and the extract is quoted below:- “Dear Mr Ravinder, How Are U!!! Would not prefer to get indulge into any debate but must reiterate that every time undersigned had picked up your call & updated u about our financial status/position correctly. Hope U hv all right to express the concern/& put allegations on us with or without reasons. Any How, Suggest that u need to be a little more patience for some more time. Our finance are making necessary arrangements for release of payments very soon on priority please. Please do get in touch with us in future also!!! Thanks & regards”
12. The said email clearly indicates that the only reason which was provided by the respondent for not making payment to the petitioner was its financial status. The amount being claimed by the petitioner was not disputed and the respondent also assured that it would make necessary arrangement for discharge of the said debt. Even, at this stage there was no whisper of any dispute with regard to the dues being claimed by the petitioner.
13. The petitioner has also referred to two other emails dated 22.09.2011 and 07.10.2011 sent by respondent which also indicates that the only reason that the respondent had provided to the petitioner for delay in making payments was the lack of availability of funds. These mails are also important to examine whether the communications produced by the respondent in its additional reply can be relied upon.
14. The mails dated 22.09.2011 and 07.10.2011 are quoted below:- “Dear Mr. Ravinder, We just wanted to verify with you the fact that all the dues shall be clear in a regular interval of time subject to retrieval of payment from our customer. We are also trying & exploring other option through various resources in order. generate/maximize cash inflow which will ease us to forecast the requisite timeline. Let hope, if the that things moves in desired direction or worse still all we owe/dues will be clear {in a phase manner} on or before 31st March 2012. Appreciate your concern and look forward to providing more of the resources in the future. Aside to Bhatia Ji: Can we provide Account payable Ageing schedule to the party at this stage. please comment. Ashutosh K.Sharma Manager—Corporate Purchase” “Ravinder Ji, Ref. trail mail & the telecom undersigned had with u today evening. Please excuse us, we failed to accommodate u again this time. Hope to do the needful in the next lot. Thanks for your patience & support. Rgds, Ashutosh K. Sharma Manager-Corporate Purchase”
15. After the aforementioned mails, the petitioner sent several emails, however, the respondent did not respond to any of the said mails. The notice dated 20.12.2011 under Section 434(1)(a) of the Companies Act, 1956 issued on behalf of the petitioner also elicited no response from the respondent.
16. The petitioner was constrained to file the present petition and notice of the same was directed to be issued by an order dated 01.10.2012. The learned counsel for the respondent entered appearance on 07.01.2013 and sought some time to file a reply.
17. Although, four weeks time was granted to the respondent to file its reply, the respondent did not file its reply in time. It is stated that the reply was filed in April, 2013 however, the same was returned under objections. In the meantime, the petitioner filed its rejoinder. When the matter was taken up for hearing on 15.01.2014, it was found that although the rejoinder was on record the reply filed by the respondent was not on record. The respondent finally placed its reply on record on 18.02.2014. The respondent also filed an additional affidavit on 17.02.2014. In the reply, the respondent had stated that the quality of the chemicals supplied by the petitioner were not as ordered and this has led to a dispute between the respondent company and one of its clients. The respondent submitted that the chemical supplied by the petitioner was utilized in manufacturing Panels which could not produce the requisite density and strength. It was alleged that on account of the defective material, the consignment manufactured by the respondent were rejected. It is relevant to note that the respondent did not produce the correspondence referred to in its reply. The petitioner filed its rejoinder and categorically disputed that any communication raising any issue whatsoever with respect to the quality of the material supplied had ever been sent by the respondent. He stated that the respondent had not raised any issue with regard to the quality of the material supplied by the petitioner at any stage. The petitioner further asserted that the contention regarding the quality of the material supplied was raised by the respondent for the first time in its reply to the petitioner.
18. In order to counteract this statement made in the rejoinder, the respondent had filed an additional affidavit producing copies of three letters allegedly sent to the petitioner. The first letter was dated 22.09.2011. The relevant extract of the said letter is as under:- “During the financial year 2010-11 we have purchased chemicals worth Rs.81,74,425.00 from you. Generally there was no quality issue but regret to inform that the material supply worth Rs.14,97,542.96 (As mentioned above) have been found to be defective. Unknowingly we used the same to manufacture Panels which do not have the requisite density and strength. The PUF material formed deteriorated (Crumbled) resulting in rejection of our consignment manufactured out of above rejected chemicals. This has resulted in heavy loss as our client have debited huge amount to Lambda. We have therefore no option to hold your payments till the issue between Lambda and Huawei (One client) is settled.”
19. The said letter was allegedly followed by other letters dated 25.11.2011 and 10.12.2011. These letters are stoutly disputed by the petitioner and it is stated that no such communication had ever been received by the petitioner.
20. It is in these facts that the principal controversy to be addressed is whether the dispute raised by the respondent can be considered to be a bonafide dispute and whether the alleged letters can be relied upon to conclude that a substantial dispute was extent between the parties at the material time.
21. A reasonable and legitimate excuse to withhold payment would undoubtedly constitute a bonafide dispute. However, the stage at which such dispute is raised is usually a good indicator as to whether the dispute is bonafide. In the present case, the payments were due before 22.05.2011 and there was no legitimate excuse for the respondent to withhold payment at that material time. As discussed above, the only excuse that the respondent had provided to the petitioner, at the material time, for nonpayment of its dues was lack of funds. The respondent had repeatedly asked the petitioner to have patience and had assured that arrangements were being made for discharge of its debts. None of the emails sent by the respondent indicates any dispute by the parties.
22. There is a serious controversy with regard to the genuineness and veracity of the letters dated 22.09.2011, 25.11.2011 and 10.12.2011 which have been produced for the first time in February 2014. It is also important to note that none of the aforesaid letters indicates the name or designation of the person who has signed the letter. It is also relevant to note while the letter dated 22.09.2011 states that the payments are being withheld, the email of the same date sent by the respondent assures the petitioner that the payments due to the petitioner would be made and that the respondent was also trying to raise resources to “generate/maximize cash flow” which would enable the respondent to give a definite schedule for repayment. In any event the respondent promised that the dues would be paid before 31.03.2012. None of the emails sent by the petitioner subsequently, were responded to by the respondent. The respondent also did not respond to the notice under Section 434(1) (a) of the Act. In the event that there was any dispute as to the payment of dues to the petitioner, the petitioner ought to have been confronted with the same when a demand was made by the petitioner. And, in any event the notice under Section 434(1)(a) of the Act must be confronted by presenting the dispute sought to be raised. Absence of a response at the relevant stage indicating a dispute as to the payments being demanded, is an indicator of the lack of bonafides.
23. If the controversy raised by the respondent is viewed in the perspective as indicated above, it is apparent that the same cannot be considered as a bonafide dispute. The letters alleged to have been sent by the respondent also cannot be relied upon as the same find no mention in the exchange of emails and the contents of the email dated 22.09.2011 of contrary to the contents of the letter of the alleged letter of the same date. The petitioner denies the receipt of said letters. The contemporaneous communications (emails) do not reflect the existence of the alleged letters. The notice under section 434(1)(a) of the Act was also not confronted by the respondent. It is apparent that the same cannot be relied upon to indicate a real and genuine dispute: First of all, the genuineness of the said letters is in serious doubt. Secondly, the said letters cannot be given any credence as, contrary to the letters, the mails sent by the respondent hold out an unequivocal assurance to pay the debt. Thirdly, a perusal of the alleged letters also indicates that they do not offer any substantial defence to the respondent.
24. The debt due to the petitioner is not disputed even by the alleged letter dated 22.09.2011 as the statement made therein only indicates that the respondent was withholding the payment. The alleged letters dated 25.11.2011 and 10.12.2011 also do not indicate that the respondent had made any definite claims against the petitioner. The dispute sought to be raised by the respondent is in the nature of claiming damages. No such definite claim has, admittedly, been made by the respondent against the petitioner. In the event that the respondent had any definite claim against the petitioner, it would have surely made such a claim in more definite terms. The fact that no claims have been preferred by the respondent also indicates that defence now raised has been conjured up and there was no real dispute that the respondent owed the amount claimed to the petitioner. In this view, the dispute in the matter now sought to be raised is without any substance and cannot be considered as a bonafide dispute.
25. The learned counsel for the respondent has relied upon the decision of this Court in M/s Saroj Gupta v. Kunal Pipes (India) P. Ltd.: (2012) 174 Comp Cas 446 (Delhi), in support of his contention that the question of the veracity of document cannot be examined by the Court in proceedings under Section 433(e) of the Act. Although it is well settled that substantial disputes which require adjudication and leading of evidence cannot not be considered by the Company Court. However, in cases where a sham and moonshine defence is raised, a Court is not precluded from examining the disputes sought to be raised and ascertaining whether the disputes have any merit and whether the disputes are bonafide. In the case of Kunal Pipes (supra), the facts indicated that a new management had taken over the respondent company on the basis of its audited balance sheet. The balance sheet of the respondent did not reflect the loans, which were claimed by the petitioner as payable by the respondent company. The petitioner relied upon an acknowledgement letter issued by an erstwhile Director of the company. The respondent disputed that the amount was payable and also disputed the letter of acknowledgement. The question whether any liability existed at all was disputed. It is in this context that the Court held that only a Civil Court could determine the issues raised by giving both parties opportunities to lead evidence. In the present case, the liability to pay the amount demanded by the petitioner is not in dispute. The emails sent by the respondent which are not disputed clearly indicate that the respondent had acknowledgement to pay the amounts claimed by the petitioner. The principal transaction is also admitted, inasmuch as there is no dispute that the petitioner had supplied the goods at an agreed value. The goods had been received and consumed by the respondent. It is also an admitted fact that no protest to the quality of goods had been made by the respondent at the material time.
26. The Supreme Court in the case of IBA Health (India) Private Limited v. Info-Drive Systems SDN. BHD.: (2010) 10 SCC 553 has explained that in case where there is a bonafide dispute, the petitioner cannot be recorded as a creditor for the purposes of winding up. However, in cases where the controversy raised by the respondent consists of a device to deprive a creditor of its honest dues, the same would not be considered as a bonafide dispute and the creditor would be entitled to maintain a petition for winding up of the company. The relevant portion of Para 20 of the said Judgment reads as under:- “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 bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full 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 bona fide 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 bona fide disputed debt.”
27. In para 31 of the said judgment, the Supreme Court has held that:- “Where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purpose of winding up."Bona fide dispute" implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt upon which a petition is founded is a hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the company to pay before coming to that conclusion. The Company Court is expected to ascertain that the company's refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil Court. ”
28. It follows from the aforesaid decision that Court must examine whether the controversy raised by the respondent is bonafide and raises a substantial dispute or whether dispute raised has been conjured up only to defeat a legitimate claim of the creditor. In the present case, the stage and the manner in which the dispute has sought to be raised clearly indicates that the same is not a bonafide dispute.
29. The learned counsel for the respondent has also relied upon the decisions of this court in M/s Shubham Constructions v. M/s MVD Autocomponents Pvt. Ltd. & Anr.: 2013 (138) DRJ 274, Asian Steels v. Shree Bihari Forgings (P) Ltd.: 189 (2012) DLT 458 and Zhuhai Hansen Technology Co Ltd. v. Shilpi Cable Technologies Ltd.: 2013 IV AD (Delhi) 130. None of the decisions relied upon by the respondent are applicable to the facts of the present case. In the case of M/s Shubham Constructions (supra), the Court found that there were substantial disputes between the parties. In that case, the Court held that there were substantial disputes which required adjudication. In that case the disputes raised were in relation to a contract for construction of factory premises. The Court crystallized the issues that were required to be determined as under:-
Rs.1.80 crores, why is it that the arbitrator directed the respondent to pay only Rs.18,31,049/- (subject to removal of the defects) to the petitioner on the basis that the value of the contract was only Rs. 1.20 crores?
I. Are the defects mentioned in the defect list prepared jointly on 24.10.2009 due to construction or defects in the maintenance and upkeep after it was handed over to the respondent?
30. A bare perusal of the above issues indicate that the disputes involved in the said case were genuine and substantial. Similarly, in the case of Asian Steels (supra), the Court came to the conclusion that the case involved disputed questions of fact as the documents relied upon by both the parties were alleged as forged and fabricated. It is relevant to note that in that case the petitioner relied upon a Statement of confirmation of accounts. The said Statement was produced for the first time in the petition and was not relied upon by the petitioner in any of the contemporaneous correspondence. Even the statutory notice sent by the petitioner did not refer to the said confirmation. Accordingly, the Court came to a conclusion that the Statement of confirmation could not be accepted without the same being tested in trial. Indisputably, the matter involved disputed questions of fact. In the present case, the material facts are not in dispute. The alleged letters relied upon by the respondent do not find mention in the contemporaneous emails and even otherwise the merits of the contention raised therein do not indicate any substantial dispute.
31. In the case of Zhuhai Hansen Technology Co Ltd. (supra) the goods dispatched by the petitioner were not accepted by the respondent and were not cleared from customs. This, itself, indicates that the disputes involved in the matter were substantial and the payment for the said goods could not be accepted as a dent admitted by the respondent therein.
32. In view of the above, the present petition is admitted. The petitioner is directed to publish the advertisement of this petition in ‘The Statesman’ (English) and ‘Jansatta’ (Hindi) for a hearing to be held on 24.07.2014. The citation be published in the Delhi Gazette also.
33. The respondent company and its Directors are restrained from selling, transferring or in any manner alienating the assets of the company.
34. The Official Liquidator is appointed as a Provisional Liquidator. The Official Liquidator is directed take charge of the assets and books of account of the respondent company. The Directors of the respondent company shall file a Statement of Affairs with the Official Liquidator within 21 days from today. The Managing Director/whole time Director shall also file an affidavit disclosing the current addresses of all offices of the company as well as the current addresses of all the directors.
35. However, in order to enable the respondent company to settle the amounts payable to the petitioner, I deem it appropriate that the directions for publication of citations and appointment of Provisional Liquidator be not given effect to before three weeks from today. If in this period, the respondent and the petitioner are able to arrive at an amicable settlement for discharge of the dues, the aforesaid directions shall not be implemented.
36. In view of the above, CA No. 1876/2013 stands disposed of.
37. Relist on 24.07.2014 VIBHU BAKHRU, J MARCH 26, 2014 RK