NAVEEN GENERAL STORE Vs. STEPAN CHEMICALS LTD

JUDGEMENT

(1.) THIS petition has been filed under Sections 433 (e) and (f), 434 and 439 of the Companies Act for winding up the respondent company on the grounds that the company is unable to pay its debts and that as many similar petitions have been filed against the respondent, it would be just and equitable to wind it up. As regards the first ground, the allegations made were that the petitioner-firm was appointed as agent by the respondent for the sale of the articles manufactured by the latter and that under the agency agreement signed between the parties, the petitioner deposited Rs. 15,000 on November 16, 1979, as security which was to carry interest at the rate of 12 per cent, per annum. On account of the security amount and the interest, an amount of Rs. 24,725 was alleged to be due till December 31, 1984. Another amount of Rs. 11,254. 81 was alleged to be due from the respondent on account of the deductions in respect of damaged goods, freight paid and expenses incurred on incentives and display prizes. A demand notice under Section 434 of the Act qua the said amount was served through registered cover on the respondent on December 19, 1984, but neither was the claim refuted nor any payment made.

(2.) THE respondent-company in its written statement controverted the claim arid pleaded, inter alia, that the claim was barred by time and that the security amount stood adjusted against the amount of Rs. 16,495. 78, which was due to the respondent from the petitioner on account of the goods supplied to the latter. Along with the written statement, it also produced a cheque in the amount of Rs. 35,979. 81 to demonstrate its financial stability and capacity to discharge any claim which may be established in a regular suit.

(3.) THE principal contention raised on behalf of the learned counsel for the petitioner was that, as the respondent has neglected to pay the sum due or to secure or compound it to the reasonable satisfaction of the creditor within three weeks of the service of the demand notice through registered post, it shall be deemed to be unable to pay its debt by virtue of the provisions of Section 434 (1) (a) and the financial soundness of the company would not be available to the respondent as a defence to the present petition. Reliance for this contention was placed on Bangeswari Cotton Mills Ltd. v. Dhanraj Govindram [1974] 78 CWN 414, Gulamhussein Ahmedalli and Co. v. Canhag P. Ltd. [1972] 42 Comp Cas 136 (Bom), Focus Advertising P. Ltd. , In re [1974] 44 Comp Cas 567 (Bom) and United Western Bank Ltd. , In re [1978] 48 Comp Cas 378 (Bom ). None of the decisions cited, however, supports the proposition of law put forward by learned counsel. In all these decisions, the liability to pay the alleged debt was admitted by the respondent-company. So, there was no dispute regarding the liability of the company and as it was not discharged even after the service of the demand notice, it was inferred that the company was unable to pay its debt. As held by the Supreme Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. [1972] 42 Comp Cas 125 (SC), it is only where the debt is undisputed that the court will not act upon a defence that the company has ability to pay the debt, and in a case where the liability is disputed, the principles on which the court acts are that the defence is in good faith and one of substance, that the defence is likely to succeed in point of law and that the company adduces prima facie proof of the facts on which the defence depends. In a case as the present one where the respondent has vigorously contested its liability, the question of its discharge on the service of the demand notice would not arise nor would the non-reply of the demand notice refuting the liability by itself entitle the petitioner to claim an order of winding up the company. In such a situation, as ruled by the Supreme Court in Madhusudan Gordhandas' case, [1972] 42 Comp Cas 125, the case has to be decided on the merits of the defence set up by the respondent-company. The contention raised by the learned counsel for the petitioner, therefore, has to be overruled. The respondent has contested its liability mainly on the grounds of limitation and set off, as noticed above. The bar of limitation has been set up against the amount of Rs. 11,254. 81 alleged to be. due on account of the deductions in respect of damaged goods, freight paid and the expenses incurred on the incentives and display prizes. The principal amount under this head became due on June 30, 1980, whereas the present petition was filed long after the expiry of three years, the prescribed period of limitation, to claim this amount. On the date of the petition, the claim was obviously barred by time. However, the learned counsel for the petitioner relied on the alleged acknowledgment contained in annexure P-1 to claim a fresh start of limitation from December 4, 1982, the date of that letter. All that is said in that letter is that "your outstanding old payments, if any, will be adjusted in the consignments after two months". The said words, obviously, contain no acknowledgment of any liability and, as such, would furnish no ground to claim a fresh period of limitation from December 4, 1982. The bar of limitation against this claim set up by the respondent is prima facie well merited. .