HON’BLE SRI JUSTICE C.V. NAGARJUNA REDDY C.P.No.147 of 2010 Date : 29-10-2014 Between :
M/s. Goutham Enterprises, Represented by its Managing Director Mr. Hitesh Samani, Hyderabad .. Petitioner And M/s. ICATCH Communications India Ltd., Hyderabad .. Respondent Counsel for petitioner : Sri Ch. Ramesh Babu Counsel for respondent : Sri B. Chandrasen Reddy The Court made the following:
JUDGMENT:
This Company Petition is filed for an order to wind up the respondent for non-payment of the alleged debt due to the petitioner.
In the petition, the petitioner averred that the respondent is a limited company incorporated under the provisions of the Companies Act, 1956 (for short "the Act") with an authorized share capital of Rs.5,00,000/- comprising 50,000 equity shares of Rs.10/- each; that its main objects, inter alia, are to carry on business of indoor/outdoor advertising, moving advertising, advertising on liquid crystal display products or such other forms of electronic advertising; to carry on the business to maintain, install, prepare, fabricate, alter, convert, finish, buy, sell, import, export, hire, lease all kinds of advertising and publicity material etc. That the petitioner has undertaken the execution of work under different purchase orders on different dates for erection of a bus shelter at Secretariat, Hyderabad and for turn key ACP (Aluminium Composite Panels) Claddings work with supply of material and fixing charges at Ranchi, Jharkhand, vide purchase order dated 7-1-2009. That in pursuance of this order, the petitioner completed the works and sent a bill for an amount of Rs.19,39,100/-. That as per the understanding the respondent is supposed to pay 40% of the amount as advance; 25 % on commencement of work with material and 25% on completion of 50% of the work and the balance amount on completion of the work. That despite completion of the work, no amount was paid by the respondent; that the petitioner caused statutory notice dated 6-5-2010 on the respondent for Rs.22,62,547/- along with interest @ 24% per annum from the due date till the date of realization; and that the said notice having been received by the respondent on 10-5-2010, it has failed and neglected to pay the said amount. The petitioner has therefore filed the Company Petition for winding up the respondent for non-payment of Rs.28,05,558/- which includes interest @ 24% per annum on Rs.22,62,547/- as on 24-6-2010.
On 18-8-2010, this Court has ordered notice to the respondent. Despite service of notice on the respondent, it has not entered appearance. By order dated 29-11-2010, this Court has admitted the Company Petition and the petitioner was directed to take out publication of advertisement of admission of the petition in two newspapers. Accordingly, publication was carried out. As no one appeared for the respondent even at that stage, the petitioner was permitted to adduce evidence. Accordingly, PW-1 filed affidavit in lieu of his chief-examination and Exs.A-1 to A-11 were marked through him. Based on the uncontroverted pleadings and evidence, this Court has passed an order on 12-6-2012 ordering winding up of the respondent, with the direction to advertise the winding up order in Form-53 in two newspapers. It is at this stage that the respondent has filed Company Application No.833 of 2012 to set-aside the exparte winding up order and permit the it to file counter-affidavit. This Court has also taken note of the fact that by order dated 6-8-2012 stay of winding up order was granted subject to the respondent depositing a sum of Rs.5 lakhs within two weeks with the Official Liquidator and that the said amount was already deposited by the respondent and set-aside the winding up order dated 12-6-2012 on 21-8-2012 permitting the respondent to file counter-affidavit. Accordingly, the respondent has filed a detailed counter-affidavit denying and disputing its liability.
The petitioner has got the Company Petition amended under order dated 21-11-2013 passed by this Court whereunder it has got its cause-title amended. Additional counter-affidavit was filed by the respondent with the leave of the Court. The petitioner has filed a rejoinder. The petitioner has also filed additional documents along with the rejoinder. Though evidence affidavit was filed by PW-1 as far back as March 2014, he has not presented himself for cross- examination. On 15-4-2014, on the ground of his illness, the case was adjourned to 16-6-2014 for cross-examination of PW-1. Even on that day also, PW-1 was not present. This Court, by order dated 16-6- 2014 eschewed his evidence from consideration and posted the case for further evidence. Company Application No.748 of 2014 filed for setting aside order dated 16-6-2014 was dismissed on 24-6-2014. Thereafter, affidavits in lieu of chief-examination of PW-2 and PW-3 were filed. Exs.A-1 to A-18 were marked through PW-1. On behalf of the respondent, RW-1 and RW-2 were examined and Exs.B-1 to B- 49 were marked.
The respondent has filed Company Application No.908 of 2014 for permitting its nominee to lead evidence. The learned counsel for the petitioner conveyed no objection. By order dated 12-8-2014 the said application was allowed by this Court. By a separate order passed on the same day, Company Application Nos.909 and 972 of 2014 filed by the respondent to receive Ex.B-38 to B-49 and also to receive additional Board Resolution and authorization letter dated 6- 8-2014 and to permit the applicant to mark the proposed Exs.B-50 and B-51, were allowed by a detailed order passed by this Court. Thereafter, RW-1 and RW-2 were cross-examined and arguments were heard.
Based on the respective pleadings and evidence, the following Issues arise for consideration :
1. Whether the counter-affidavit filed by Mr. K. Vamshidhar Reddy, one of the Directors of the respondent, and the evidence of RW-1 are liable to be eschewed from consideration due to alleged lack of proper authorization from the respondent?
2. Whether the denial of debt by the respondent is bonafide, and if not, whether the respondent is liable for being wound up?
Issue No.1: Sri Ch. Ramesh Babu, learned counsel for the petitioner, has made a strong bid to impress upon this Court that the deponent of the counter-affidavit as well as RW-1 lack proper authority from the respondent for filing counter-affidavit and giving evidence respectively and that therefore they are liable to be eschewed from consideration. On a close scrutiny of this submission with reference to the statutory provisions, this Court finds the submission of the learned counsel wholly meritless. The learned counsel for the petitioner conceded that there is no specific provision in the Act or in the Companies (Court) Rules 1959 (for short “the Rules”) which prescribe authorization to be filed by the representatives of the respondent in a Company Petition either for filing pleadings or for giving evidence.
Rule 21 of the Rules deals with the petition to be filed by the persons authorized thereunder in case of a body corporate. Under this provision, a Director, Secretary, or other principal Officer of a body corporate, shall file an affidavit verifying the petition filed by such body corporate. However, the Judge/Registrar may for sufficient reasons grant leave to any other duly authorized person to make and file a petition. Admittedly, such a restriction as contained in Rule 21 of the Rules for filing petitions, has not been prescribed for filing pleadings and adducing evidence on behalf of the respondent. At any rate, the counter-affidavit is filed by one of the Directors of the respondent-company. Even if the analogy of Rule 21 of the Rules is extended to the counter-affidavits also, the respondent has satisfied the requirement under the said Rule.
The learned counsel for the petitioner placed heavy reliance on the Judgment of the Supreme Court in State Bank of Travancore Vs. Kingston Computers (I)(P) Ltd. I have carefully considered the facts of the said case decided by the Supreme Court. In that case, one Ashok K. Shukla, who is described as a Director filed verification affidavit on behalf of the plaintiff-company in a suit filed for recovery of certain amount. The trial Court has framed an issue as to whether the suit was signed, verified and filed by a duly authorized person? The trial Court has found the said issue against the plaintiff therein and dismissed the suit. The Division Bench of the Delhi High Court however reversed the said Judgment accepting the plea of the plaintiff that Ashok K. Shukla was duly authorized by Raj K. Shukla, the Chief Executive Officer (CEO) of the company. While reversing the said Judgment the Supreme Court held that the plaintiff has not produced any evidence to prove that Ashok K. Shukla was appointed as a Director of the company and that a resolution was passed by the Board of Directors of the company to file the suit against the appellant and authorized Ashok K. Shukla to do so. The Supreme Court further held that the letter of authority issued by Sri Raj K. Shukla, who described himself as the CEO of the plaintiff-company was nothing but a scrap of a paper in the absence of resolution by the Board of Directors delegating its powers to Raj K. Shukla to authorize another person to file the suit on behalf of the company.
I do not really understand as to how the Judgment in State Bank of Travancore (1-supra) bears any relevance on the present case because, in the first place, the status of Mr. K. Vamsidhar Reddy as a Director of the respondent-company has not been seriously disputed. Therefore, even in the absence of any authorization, a Director is always entitled to represent the company and such acts are recognized as legal and valid under Section 290 of the Act. Moreover, as noted hereinbefore in State Bank of Travancore (1- supra), the objection was relating to institution of the suit and not with regard to filing of pleadings by the opposite parties as in the present case. Therefore, I do not find any reason to eschew the counter- affidavit filed by one of the Directors of the respondent-company.
As regards the objection to the evidence given by RW-1, he is also one of the Directors of the respondent-company. In order to avoid further controversy, the respondent has filed Exs.B-50 and B-51. Ex.B-50 is an extract of the minutes of the Board of Directors meeting of the respondent held on 6-8-2014 and signed by its Managing Director wherein the Board has resolved to authorize Mr.S.V.N. Reddy, a Director of the company to sign and file affidavits, company petitions, company applications, represent in C.P.No.147/2010 by filing of documents along with chief-affidavit etc. Ex.B-51 is the authorization letter given by the Managing Director in favour of Mr.
S.V.N. Reddy. In the face of Ex.B-50, Ex.B-51 is made redundant. In my opinion, in his capacity as a Director, RW-1 is entitled to represent the company even in the absence of specific authorization in the same way as another Director of the respondent Mr. K. Vamsidhar Reddy was entitled to file his counter-affidavit. Thus, strictly speaking, there was no need for the Board of Directors to pass even a resolution. At any rate, RW-1 is duly authorized by the resolution of the Board of Directors of the respondent-company as evident from the extract of the minutes signed by its Managing Director.
The learned counsel for the petitioner submitted that the respondent has not produced the Minutes Book of the meeting of the Board of Directors held on 6-8-2014 in order to establish the authenticity of the resolution. In my opinion, when the Managing Director has signed the extract of the resolution as certified true copy, it is unnecessary for the respondent to produce the entire Minutes Book. This issue is accordingly held against the petitioner.
Issue No.2: The jurisdiction of the Company Court under Sections 433 and 439 of the Act is not meant to be exercised for recovery of money. A Company Petition stands on the analogy of an insolvency petition and where the Court finds that a company is unable to pay an admitted/undisputed debt, or if it finds that it is just and equitable to wind up a company, it will order winding up of the company to ensure rateable distribution of the debts among the creditors applying Sections 528 to 530 of the Act and also the provisions of the Provincial Insolvency Act, 1920 as made applicable under Section 529 of the Act. While exercising jurisdiction under the Act, the Company Court will not force a debtor to pay a bonafide disputed debt. But, if the Court is convinced that denial of debt is not bonafide or the same is a cloak or moonshine to evade payment of legally enforceable debt, the Court will order winding up of a company after taking into consideration the objections, if any, raised by its creditors and shareholders.
The main ingredients to be satisfied for ordering winding up of a company for inability to pay its debts are:
i. that the company is indebted in a sum exceeding Rs.500/ (The Companies Second (Amendment) Act, 2002, enhancing the amount from Rs.500/- to Rs.1 lakh has not been notified); and that despite service of notice on it by a creditor, by assignment or otherwise, the company has neglected to pay the same for more than three weeks after such service, or to secure or compound for it to the reasonable satisfaction of the creditor; and
ii. that if execution or other process issued on a decree or order of any Court or Tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part.
The scope of these provisions is well explained in a catena of Judgments of the Apex Court (See: Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries (P) Ltd. , Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami , Pradeshiya Industrial & Investment Corporation of U.P. Vs. North India Petrochemicals Ltd.; Tweeds Garages Ltd., Re, Mediquip Systems (P) Ltd. Vs. Proxima Medical System GmbH, Vijaya Industries Vs. NATL Technologies and IBA Health (India) Pvt. Ltd.(1-supra). Having analysed the essence of the above Judgments, this Court in M/s. Indiabulls Housing Finance Limited Vs. South Asian Agro Industries Ltd., deduced the following legal principles :
1. If the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. Conversely, if the plea of denial of debt is a moonshine or a cloak, spurious, speculative, illusory or misconceived, the Court can exercise the discretion to order the company to be wound up.
2. A petition presented ostensibly for winding up order, but in reality to exert pressure to pay the bona fide disputed debt is liable to be dismissed.
3. Solvency is not a stand alone ground. It is relevant to test whether denial of debt is bonafide.
4. Where the debt is undisputed and the company does not choose to pay the particular debt, its defence that it has the ability to pay the debt will not be acted upon by the Court.
5. Where there is no dispute regarding the liability, but the dispute is confined only to the exact amount of the debt, the Court will make the winding up order.
6. An order to wind up a company is discretionary. Even in a case where the company’s liability to pay the debt was proved, order to wind up the company is not automatic. The Court will consider the wishes of shareholders and creditors and it may attach greater weight to the views of the creditors.
7. A winding up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally and the grounds furnished by the creditors opposing winding up will have an impact on the reasonableness of the case.
In the light of the settled legal principles, the endeavour of this Court must be to find out whether the debt claimed by the petitioner is a bonafide disputed debt or not and in this process this Court will not dwell into the intricate disputed questions of fact like a Civil Court exercising its jurisdiction in a suit filed for recovery of money. Let me now consider whether the debt claimed by the petitioner is a bonafide disputed debt or not.
Under three separate purchase orders, the respondent has entrusted certain work to the petitioner. The present case is however concerned with Ex.B-1 purchase order dated 7-1-2009 for a total value of Rs.35,39,100/-. A perusal of this purchase order would show that items Nos.1, 3 and 4 thereof pertain to supplies. Item No.5 relates to supply and fabrication; and item No.2 pertains to labour charges. Under item No.1, the colour and thickness of ACP sheets are stipulated as per which the minimum thickness is 4.25 mm and maximum thickness is 4.50 mm. Item No.3 deals with supply of Aluminium Extrusion in KG’s basis; item No.4 relates to supply of Silicon in Unit’s basis; and item No.5 relates to supply and fabrication of M.S. Steels in KG’s basis. While it is the pleaded case of the petitioner that it has executed the entire work under this purchase order, including erection of building signage boards at Ranchi, Jarkhand State, the respondent has denied the said claim and pleaded that the petitioner has supplied sub-standard material with thickness of ACP sheets much lower than the prescribed thickness and that as the quality of the work executed by the petitioner was highly unsatisfactory, the respondent had to entrust the work to another agency by name M/s. Sai Karthik Enterprises under Ex.B-32 purchase order for a sum of Rs.11,50,000/-.
The site supervisor of the petitioner- PW-2, in his cross- examination stated as under :
“It is true that the petitioner has supplied material of thinkness 3 mm or 4 mm. It is not true to suggest that the material supplied by the petitioner does not conform to the thickness and size prescribed by the purchase order”.
There is thus clear admission by PW-2 that the thickness of the material supplied by the petitioner is between 3 mm and 4 mm, whereas as noted above, under Ex.B-1 purchase order, the minimum thickness of the ACP sheets is 4.25 mm and maximum is 4.50 mm. This evidence prima facie supports the case of the respondent that the material supplied by the petitioner is inferior in quality to that prescribed under the purchase order.
The petitioner has filed Exs.A-6 to A-8 photographs to buttress its plea that it has fabricated and erected building signage boards to different buildings of the stadium. It has also given a suggestion to RW-2, the proprietor of M/s. Sai Karthik Enterprises, to whom the respondent has entrusted the work under Ex.B-32, that the work done by the said agency relates to ground signage boards as shown in Ex.B-48. Sri Ch. Ramaesh Babu, learned counsel for the petitioner, has strongly relied upon the following part of RW-2’s deposition:
“ … It is true that the photographs vide Ex.B-48 show that the signage boards shown therein relate to ground signage b o a rd s . It is true that the work shown in Ex.B-48 photographs was the work executed by me. Exs.A-6 to A-8 photographs relate to building signage boards not done by me and Ex.B-48 photographs pertain to ground signage boards executed by me…”
From the above extract of the evidence of RW-2, the learned counsel for the petitioner asserted that his client has executed the part of the work entrusted to it, namely, only erection of building signage boards and that therefore the scope of the work entrusted to M/s. Sai Karthik Enterprises is different from that given to the petitioner. No doubt, if the above extracted deposition is considered in isolation, the submission of the learned counsel for the petitioner may appear convincing. But RW-2 has denied certain crucial suggestions put to him on behalf of the petitioner as under :
“ …. It is not true to suggest that the job entrusted by the respondent to me was only to cut the boards already erected by the petitioner to required sizes only to insert the letters on the boards for illumination. (The witness adds that the entire work which was entrusted to the petitioner was re-entrusted to them as the execution of the works by the petitioner was not satisfactory). Ex.B-32 is the purchase order given to us by the respondent. It is true that Item No.1 in Ex.B-32 pertains to erection of Acrylic sheet for illumination purpose. It is also true that item No.2 in Ex.B-32 relates to illumination work. It is not true to suggest that the entire scope of work in Ex.B-32 does not show that the signage boards already raised by the petitioner have to be removed. (The witness adds that the scope of the work in relation to item No.2 in Ex.B-32 involves aluminium sheets of 8’ x 4’, 2 mm size which indicate that I was required to erect fresh signage boards also.)…”
If we read the deposition of RW-2 in its entirety, it may lead us to conclude that while the petitioner has erected certain boards, RW-2 was entrusted with the work of re-doing the works executed by the petitioner, at least partially, if not fully.
RW-1, in his chief-examination specifically asserted that the petitioner has supplied ACP sheets of 4 mm to 3 mm thickness as against the prescribed specification of 4.25 and 4.50 mm prescribed by the Executive Engineer of the Mega Sports Complex as per the directions of NGOC and that as the said works were not acceptable and the petitioner has failed to rectify the defects and abandoned the works entrusted to it without notice, the same necessitated the re- entrustment of the work to M/s. Sai Karthik Enterprises by issuing Ex.B-32 purchase order. RW-1 denied the suggestion that the work entrusted in Ex.B-32 is not the same as was entrusted to the petitioner under Ex.B-1 purchase order and that the petitioner was entrusted with the work of building signage board alone. The witness volunteered that the work relating to building signage and location signage (ground signage) is an integrated one covered by the same contract. While admitting that Ex.A-6 to A-8 photographs show that the petitioner has erected the boards, RW-1 volunteered that the work relating to writing of names on the boards was not executed by the petitioner.
On a careful appreciation of the evidence discussed above, this Court is of the opinion that there is a serious dispute with regard to the quality of work executed by the petitioner. Indeed, even as per Ex.A-18 statement, the respondent has paid Rs.21,20,000/-. The respondent has filed Exs.B-40 and B-41 invoices admittedly issued by the petitioner. Ex.B-40 dated 15-7-2009 was issued for Rs.6,34,421/- and Ex.B-41 bearing the same date was issued for Rs.2,81,661/-. However, the petitioner is placing reliance on Ex.A-12 and A-13 (Tax invoices) for, Rs.24,97,726/- and Rs.7,36,308/- respectively. Interestingly, both bear the same date, namely, 15-7- 2009. However, Ex.A-12 and A-13 mention the office address of the petitioner at Ramnagar, Baghlingampally while Ex.B-40 and B-41 bear the office address as Shah Theatre, Hyderabad. A specific suggestion was put to PW-2 that Exs.A-12 to A-15 are fabricated, which of course was denied by him. In order to overcome the discrepancy between Exs.A-12 and A-13 on one side and Exs.B-40 and B-41 on the other, the learned counsel for the petitioner submitted that after issuance of Exs.B-40 and B-41, the petitioner has realized the mistakes crept therein and thereafter issued Exs.A-12 and A-13 after duly canceling Exs.B-40 and B-41. Neither the petitioner has raised any such pleading nor its witnesses have spoken to this plea. There is nothing on record to show that Exs.A-12 and A-13 were issued after duly canceling Exs.B-40 and B-41. Interestingly, while Exs.B-40 and B-41 were issued with the petitioner’s office address at Shah Theatre, Hyderabad, Exs.A-12 and A-13 contained its office address at Ramnagar, Baghlingampally. In his cross-examination, PW-2 has stated that the petitioner has shifted its office from Rajendranagar to Baghlingampally in the year 2010. According to his memory, the shifting has taken place in the year 2010. If that be so, there was no possibility of the petitioner raising Exs.A-12 and A-13 (Tax invoices) on 15-7-2009 with its office address at Ramnagar, Baghlingampally. This circumstance would clearly support the plea of the respondent that Exs.A-12 and A-13 were subsequently fabricated with a view to claim higher amounts from the petitioner. It is the pleaded case of the respondent that as per Exs.B-40 and B-41, the Tax invoices raised by the petitioner, its liability comes to Rs.9,10,082/- only and that as the work executed by the petitioner was defective and the respondent has suffered huge damages on account of the same, it has withheld the said amount and filed O.S.No.634 of 2012 for recovery of Rs.28,35,026/- along with interest @ 18% per annum from the petitioner. Admittedly, the petitioner has filed a counter-claim for Rs.21 lakhs in the above mentioned pending civil suit. The respondent has filed Ex.B-37-copy of plaint.
PW-3 deposed that Ex.A-18 was a draft statement of account prepared by her and furnished to her husband Mr. Hitesh Samani, the proprietor of the petitioner. A suggestion was put to her that Ex.A-18 does not reflect the correct position regarding the payments. A perusal of Ex.A-18 shows that the same is inter alia prepared based on two Tax invoices dated 15-7-2009 for Rs.24,97,726/- and for Rs.7,36,308/-, Ex.A-12 and A-13, respectively, the authenticity of which is under serious cloud for the reasons already mentioned hereinbefore. Therefore, the claim of the petitioner based on Ex.A-18 cannot be accepted.
On a careful analysis of the evidence on record, this Court has no hesitation to hold that the respondent has been seriously disputing the quality of the work executed by the petitioner and the amounts claimed by it. Prima facie, this Court finds that Exs.A-12 and A-13 (Tax invoices) are fabricated by the petitioner for making a bloated up claim. Besides the fact that the respondent is seriously disputing its liability and has even gone to the extent of filing a suit for recovery of money towards damages, the claim made by the petitioner based on fabricated Tax invoices cannot be made basis by this Court for exercising its discretionary jurisdiction for ordering winding up of the respondent. In the face of the bonafide dispute raised by it, the respondent cannot be ordered to be wound up, more so when it has filed a civil suit.
For the above mentioned reasons, the Company Petition is dismissed, while making it clear that the findings rendered in this order will have no bearing on the adjudication of the suit and the counter-claim.
Justice C.V. Nagarjuna Reddy Date : 29-10-2014 L.R. copies AM