IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6TH DAY OF DECEMBER, 2019 BEFORE:
THE HON’BLE MRS. JUSTICE S.SUJATHA COMPANY PETITION No.120/2014 BETWEEN:
HINDALCO INDUSTRIES LIMITED A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT CENTURY BHAVAN, 3RD FLOOR Dr. ANNIE BESANT ROAD, MUMBAI-40025 REP. BY ITS REGIONAL MANAGER [FINANCE] Mr.V.SRISHA. ... PETITIONER (BY Ms. TAMARRA SEQUERIA, ADV. FOR SMT.GAYATHRI BALU, ADV.) AND:
BHORUKA ALUMINUM LIMITED A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES AC,T 1956 HAVING ITS REGISTERED OFFICE AT:
# No.427E, 2ND FLOOR, HEBBAL INDUSTRIAL AREA MYSORE, KARNATAKA-570016 REP. BY ITS DIRECTOR. …RESPONDENT (BY SRI ARUN SRIKUMAR, ADV.) THIS COMPANY PETITION FILED UNDER SECTION 433(e) & (f) AND 434 [1] READ WITH SECTION 439 OF THE COMPANIES ACT, 1956, PRAYING TO ORDER THAT THE RESPONDENT COMPANY HEREIN BHORUKA ALUMINIUM LIMITED, BE WOUND UP BY ORDER AND DIRECTIONS OF THIS HON’BLE COURT UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956; AND ETC., THIS PETITION COMING ON FOR ADMISSION, THIS DAY, THE COURT MADE THE FOLLOWING:-
O R D E R This petition is filed by the petitioner under Sections 433 (e) and (f) and 434 of the Companies Act, 1956 seeking for an order of winding up of the respondent – Company – Bhoruka Aluminum Limited and to appoint the Official Liquidator attached to this Court as the Liquidator of the respondent – Company.
2. The petitioner as well as the respondent are Public Limited Companies incorporated under the provisions of the Companies Act, 1956 (‘Act’ for short). The respondent - Company was initially incorporated as “Karnataka Aluminum Limited” and subsequently changed its name to “Bhoruka Aluminum Limited” with effect from 02.07.1987.
3. It is the contention of the petitioner that aluminum material was supplied to the respondent – Company on a regular basis and the same was used by the respondent – Company for its day to day manufacturing activity of converting aluminum ingots to extruded products. The respondent used to make the payment as and when the supply was received from the petitioner. This mutual trading activity was carried on well till the time the respondent’s financial position started deteriorating from the year 2009-10 and from then onwards the payment against petitioner’s supply got derailed leading to an accumulated outstanding amount of Rs.17,23,491.90.
4. It is submitted that the respondent vide its e-mail dated 25.01.2013 enquired about its outstanding dues and the petitioner in response thereto confirmed the liability of Rs.17,23,491.90. Some settlement proceedings were initiated to resolve the dispute inasmuch as to clear the liability of the respondent - Company. However, the respondent expressing its inability to repay its debts, offered two payment options;
1) the petitioner could accept the repayment of the outstanding dues of Rs.17,23,491/- in 30 equal interest free monthly installments commencing from two months of the investment being made in the respondent - Company or effecting of full/partial sale of respondent’s business to the intending investors, YKK Holdings Asia Pvt. Limited; 2) payment of lumpsum consideration of Rs.8,00,000/- in full and final settlement of the petitioner’s dues. The petitioner having opted for the first option, agreed to accept the offer of the respondent, requested the respondent - Company to comply with the same.
5. It is the contention of the petitioner that the request made to clear the outstanding dues under the terms of the settlement as acknowledged by the respondent has not acted upon. As a result, the petitioner served the statutory notice dated 25.06.2013 under Sections 433 and 434 of the Act, requesting the respondent to pay the outstanding dues along with interest at 12% per annum.
6. The respondent vide reply dated 15.07.2013 initially sought for extension of 30 days time to settle all the outstanding dues. Further, vide communication dated 30.07.2013, the respondent offered to settle all the liabilities with one stroke payment of Rs.8,00,000/-. A cheque for the aforesaid amount of Rs.8,00,000/- was also sent. The said cheque was retained by the petitioner without prejudice to their rights and contentions and further instructed the respondent to pay the balance amount of Rs.9,23,491/-.
7. Learned counsel Smt. Tamarra Sequeira representing the learned counsel for the petitioner narrating the aforesaid factual aspects would submit that the respondent has failed/neglected to pay a sum of Rs.17,23,492/- and is unable to pay the said admitted debts having lost its economic viability. The continued existence of the respondent - Company would pose a threat to the commercial morality and also not in the interest of the public.
8. Learned counsel has referred to the running account statement of the ledger extract maintained by it – Annexure – L wherein the last payment of Rs.16,00,000/- was made on 14.08.2012. Last invoice raised by the petitioner dated 14.08.2012 at Annexure – J was also referred to. Thus, it was argued that the claim of the petitioner is well within the limitation period. The respondent - Company being unable to pay its admitted debts within the meaning of Section 434 of the Act is liable to be wound up.
9. Learned counsel has placed reliance on the judgment of the Hon’ble High Court of Madras in the case of Mishael Hart vs. Ninestars Information Technologies Ltd., reported in (2013) 179 Comp Cas 187 (Mad).
10. The respondent has filed the reply/objections to the Company Petition disputing the liability of debts claimed by the petitioner. It was argued that the claim is time barred, running account has no consequence and the account being disputed denying the debt of Rs.17,23,491.90 claimed by the petitioner, no provisions of Sections 433 and 434 of the Act are attracted. It was contended that the ledger account indeed indicates no transaction made from 29.12.2009 to 14.8.2012. An amount of Rs.16,00,000/-
was made against the invoice No.12002471 amounting to Rs.14,76642.99. The balance amount of Rs.1,23,356.81 was adjusted by the petitioner on 10.01.2013 towards the TRX No. IUI/739086. From December 2009 till August 2012 there being no transactions made by the respondent – Company, the claim of alleged debt of Rs.17,23,491.90 is barred by limitation. It was submitted that, no specific claim was made by the petitioner. On the note issued by the respondent - Company calling for claims from all the creditors in order to produce a clear/crystallize statement of liability to be shared with the professional agencies working towards closing the possible transaction with the intending investor, the petitioner has submitted the claim.
11. Learned counsel argued that the statement of account/ledger account maintained by the petitioner was not an open mutual and current account and being time barred, deserves to be rejected. Reference was made to the judgment of the Hon’ble High Court of Delhi in the case of Videocon International Ltd., V/s. City Palace Electronics Pvt. Ltd., reported in ILR [2012] V Delhi 14 and the judgment of the Hon’ble Delhi High Court in the case of M/s. Alliance Paints and Varnish Works Pvt Ltd., V/s. Hari Kishan Gupta [Deceased] Through LRs., reported in 2010 SCC OnLine Del 571.
12. I have carefully considered the rival submissions of learned counsel appearing for the respective parties and perused the material on record.
13. The invoice placed on record by the petitioner is dated 14.08.2012 for an amount of Rs.14,76,642.99/- [Annexure-J]. The ledger account statement placed at Annexure-L shows the transaction up to December 2009 which is continuous relating to several transactions on different dates from April 2009 to December 2009. However, it is depicted that the last two transactions relates to 14.08.2012 and 10.01.2013. Summary of transactions against the invoices and the amount paid by the respondent company as per Annexure-L is as under:
GI Date 17-
Apr- 09 14-
Jul- 09 14-
Jul- 09 17-
Jul- 09 17-
Jul- 09 17-
Jul- 09 21-
July- 09 21-
July- 09 21-
July- 09 Tr Type REC INV INV INV INV INV INV INV INV Source Trx Number Trx Date
STH Ord STH Ord STH Ord STH Ord STH Ord STH Ord STH Ord STH Ord Ex Inv No. Dr Amt. Cr Amt 21-
July- 09 31-
INV STH Ord HIL-
July- 09 06-
Aug- 09 10-
Aug- 09 10-
Aug- 09 CM INV INV INV CM-
STH Ord STH Ord STH Ord 10-
Aug- 09 10-
INV STH Ord STH Aug- 09 INV Ord 13-
Aug- 09 INV STH
Ord 18-
Aug- 09 31-
INV STH Ord STH Aug- 09 31-
Aug- 09 01-
Sep- 09 02-
Sep- 09 INV CM CM INV Ord HIL- CM-
AR_WO _W STH Ord 02-
Sep- 09 02-
INV STH Ord STH Sep- 09 04-
Sep- 09 04-
Sep- 09 05-
Sep- 09 INV INV INV INV Ord STH Ord STH Ord STH Ord 30-
Sep- 09 30-
INV STH Ord STH Sep- 09 30-
Sep- 09 30-
Sep- 09 30-
Sep- 09 30-
Sep- 09 12-
INV INV INV CM CM Ord STH Ord STH Ord HIL- CM-
HIL- CM-
Oct- 09 REC RTGS/KKBKH0928662128 Oct- 09 0.00 1829728.00
2897058.00 3856555.00 1138479.00 3267146.26 1930773.49 1199496.00 1963445.00 2837649.00 1829673.00 1900657.00 3739258.19 14-
Aug- 12 10-
INV STH 330102459 Ord 14-
Aug- 12 10-
1600000.00 12002471 1476642.99 0.00 Jan- 13 INV HIL-AP- IUI/739086 Jan- 13 123356.81 0.00 1138988072.92 1137264580.72 1723492.20 14. The main thrust of the argument of the learned counsel for the petitioner is that the petitioner has maintained running account and the last transaction being of the year January 2013, the company petition filed before this Court on 31st May, 2014 is within the period of limitation. It would be apposite to refer to Articles 1 and 14 of the Schedule to the Limitation Act, 1963 which reads thus:
“1. For the balance due on a mutual, open and current account, where there have been reciprocal demand between the parties.
Three years.
The close of the year in which the last item admitted or proved is entered in the account; such year to be computed as in the account.”
“14. For the price of goods sold and delivered where no fixed period of credit is agreed upon.
Three years.
The date of the delivery of the goods.”
15. Thus, in terms of the aforesaid articles in respect of balance due on a mutual, open and current account where there have been reciprocal demands between the parties, the period of limitation prescribed is three years from the close of the year in which the last item admitted or proved is entered in the account and such year is to be computed as in the account. However, the existence of a mutual account between the parties has to be established by the petitioner.
16. In the case of Kesharichand Jaisukhlal V/s. The Shillong Banking Corporation [1965] 3 SCR 110, after referring to the case of Hirada Basappa V/s. Gadigi Muddappa [1871] VI MHCR 142, it is observed thus:
“To be mutual there must be transactions on each side creating independent obligations on the other, and not merely transactions which create obligations those on the other side, those on the other being merely complete or partial discharges of such obligations.”
17. Division Bench of the Delhi High Court in the case of Manish Garg V/s. East India Udyog Ltd., 2001 III AD [Delhi] 493, has held thus:
“8. Thus for an account properly to be called mutual account there must be mutual dealing in the sense that both the parties come under liability under each other. In this case, this ingredient is not satisfied. It was simply a case of debtor and creditor only and not a case of mutual obligations which will in the ordinary way result in enforceable liabilities on each side. Mutual account is when each has a demand or right of action against the other.”
18. The relevant paragraphs of the judgment in the case of Hindustan Forest Company V/s. Lal Chand and Others, reported in AIR 1959 SC 1349 reads thus:
"7. The question what is a mutual account, has been considered by the courts frequently and the test to determine it is well settled. The case of the Tea Financing Syndicate Ltd. v. Chandrakamal Bezbaruah I.L.R (1930) Cal. 649, may be referred to. There a company had been advancing monies by way of loans to the proprietor of a tea estate and the proprietor had been sending tea to the company for sale and realisation of the price. In a suit brought by the company against the proprietor of the tea estate for recovery of the balance of the advances made after giving credit for the price realised from the sale of tea, the question arose as to whether the case was one of reciprocal demands resulting in the account between the parties being mutual so as to be governed by art. 85 of the Indian Limitation Act. Rankin, C.J., laid down at p. 668 the test to be applied for deciding the question in these words :
"There can, I think, be no doubt that the requirement of reciprocal demands involves, as all the Indian cases have decided following Halloway, A.C.J., transactions on each side creating independent obligations on the other and not merely transactions which create obligations on one side, those on the other being merely complete or partial discharges of such obligations. It is further clear that goods as well as money may be sent by way of payment. We have therefore to see whether under the deed the tea, sent by the defendant to the plaintiff for sale, was sent merely by way of discharge of the defendant's debt or whether it was sent in the course of dealings designed to create a credit to the defendant as the owner of the tea sold, which credit when brought into the account would operate by way of set-off to reduce the defendant's liability."
8. The observation of Rankin, C.J., has never been dissented from in our courts and we think it lays down the law correctly. The learned Judges of the appellate bench of the High Court also appear to have applied the same test as that laid down by Rankin, C.J. They however came to the conclusion that the account between the parties was mutual for the following reasons :
"The point then reduces itself to the fact that the defendant company had advanced a certain amounts of money to the plaintiffs for the supply of grains. This excludes the question of monthly payments being made to the plaintiffs. The plaintiffs having received a certain amount of money, they became debtors to the defendant company to this extent, and when the supplies exceeded Rs. 13,000 the defendant company became debtors to the plaintiff and later on when again the plaintiff's supplies exceeded the amount paid to them, the defendants again became the debtors. This would show that there were reciprocity of dealings and transactions on each side creating independent obligations on the other."
9. The reasoning is clearly erroneous. On the facts stated by the learned Judges there was no reciprocity of dealings; there were no independent obligations. What in fact had happened was that the sellers had undertaken to make delivery of goods and the buyer had agreed to pay for them and had in part made the payment in advance. There can be no question that in so far as the payments had been made after the goods had been delivered, they had been made towards the price due. Such payments were in discharge of the obligation created in the buyer by the deliveries made to it to pay the price of the goods delivered and did not create any obligation on the sellers in favour of the buyer. The learned Judges do not appear to have taken a contrary view of the result of these payments.
10. The learned Judges however held that the payment of Rs. 13,000 by the buyer in advance before delivery had started, made the sellers the debtor of the buyer and had created an obligation on the sellers in favour of the buyer. This apparently was the reason which led them to the view that there were reciprocal demands and that the transactions had created independent obligations on each of the parties. This view is unfounded. The sum of Rs. 13,000 had been paid as and by way of advance payment of price of goods to be delivered. It was paid in discharge of obligations to arise under the contract. It was paid under the terms of the contract which was to buy goods and pay for them. It did not itself create any obligation on the sellers in favour of the buyer; it was not intended to be and did not amount to an independent transaction detached from the rest of the contract. The sellers were under an obligation to deliver the goods but that obligation arose from the contract and not from the payment of the advance alone. If the sellers had failed to deliver goods, they would have been liable to refund the monies advanced on account of the price and might also have been liable in damages but such liability would then have arisen from the contract and not from the fact of the advances having been made. Apart from such failure, the buyer could not recover the monies paid in advance. No question has, however been raised as to any default on the part of the sellers to deliver goods. This case therefore involved no reciprocity of demands. Article 115 of the Jammu and Kashmir Limitation Act cannot be applied to the suit."
19. It is thus clear that the transaction to be proved as mutual, there must be independent obligations on both sides, not merely transactions which creates obligations on the one side. On the touchstone of this mutuality test, if the ledger account placed on record by the petitioner if examined, it could be construed as only the debit and credit statement not the mutual account to construe the same as running account. A running account has to be open, mutual and current. From 29.08.2009 to 14.08.2012, there was not a single transaction. Hence, there can be no extension of limitation on the ground of running account in view of two transactions made in the month of August 2012 and January 2013.
20. It is the specific stand of the respondent– company that a cheque for a sum of Rs.8,00,000/- was sent to the petitioner-company to avoid any lengthy and costly litigation in order to discharge all liabilities to vendors by way of settlement and the same cannot be implied as an admission of a debt owed to the petitioner. The reply dated 15.07.2013 to the statutory notice dated 25.06.2013 issued by the petitioner- company discloses as under:
“We acknowledge the receipt of your notice dated 25th June 2013 sent through your advocates Dave & Co.
In light of the long standing and healthy relationship between Bhoruka Aluminum and Hindalco Industries, we would request Hindalco Industries to grant us an extension of a period of 30 days from the date of this Letter, to settle, any and all outstanding dues towards Hindalco, if any.
Nothing in this Letter should be interpreted or deemed to amount to Bhoruka Aluminium admitting the allegations made in your Notice dated 25th June 2013. Bhoruka Aluminium reserves its rights to deny the allegations and averments made therein, and this Letter should not be deemed to be a waiver of our right to defend ourselves against any and all legal claims.”
21. The Hon’ble Apex Court in the case of Madusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd., reported in 1971 AIR 2600 has enunciated that the rules for winding up on a creditor’s petition. It is held that if there is a bonafide dispute about a debt and the defence is a substantial one, the Court would not order winding up. The defence of the respondent Company should be in good faith and one of substance, if the defence is likely to succeed on a point of law and the respondent Company adduced prima facie proof of the facts on which the defence depends, no order of winding up would be made by the Court.
22. It is well settled that winding up of a company is a process in which the lifespan of the company is cut short and if property is administered for the benefit of its creditors, contributories and shareholders – members by the Official Liquidator to be appointed by the Court, the winding up order can be passed only on any of the grounds under Section 433 of the Act which would result in serious consequences as far as the respondent company is concerned like the death of the company. An order admitting a winding up petition and the resultant order for publication of an advertisement is no less injurious than winding up. Closing down a company which is functioning is the last resort, having regard to its impact and consequences. The judgment referred to by the learned counsel for the petitioner is not applicable to the facts and circumstances of the present case.
23. It is clear from the catena of judgments, that a winding up petition is not an appropriate mode to enforce the disputed debts pressurizing the company to pay the money. The expression in Section 433[e] is “inability to pay its debts” has to be considered and examined even at the stage of admitting the petition, as the remedy under Section 433 could not confer any right on any person/company as a matter of right to seek that the company should be wound up. Inability to pay debt may arise for various reasons. The company intending to get the assistance of an investor by itself is not a criteria for exercise of the power of winding up. The financial status, strength and substratum of the company in the overall context requires to be examined not the temporary crisis. As aforesaid, winding up of the company being a commercial death, though ordinarily, an unpaid creditor may invoke the provisions of the Companies Act seeking for winding up of the company, such course cannot be adopted as a recourse to recovery of the debt. It is needless to observe that Court should refrain from admitting the winding up petition in cases of disputed debt barred by limitation. In the circumstances, the defence of the respondent company cannot be held to be a moonshine defence. The disputed facts and questions cannot be agitated in the company proceedings.
For the aforesaid facts an circumstances, the admission of winding up petition and the resultant directions are not warranted and justified. Hence, the company petition is dismissed.
Sd/- JUDGE PMR/NC