2002(1) ALL MR 465
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
R.J. KOCHAR, J.
H. Q. Chemicals Ltd. Vs. Care Formulators Pvt. Ltd.
Company Petition No.514 of 2000
27th April, 2001
Companies Act (1956), Ss.433,434 - Winding up - Recovery of debt - Invocation of provisions of Ss.433,434 - Extra ordinary provisions under Ss.433 and 434 of Companies Act cannot be invoked as a substitute for a civil suit for recovery of debt.
The extra ordinary provisions under sections 433 and 434 of the Companies Act cannot be invoked as a substitute for a civil suit for recovery of alleged debt. If the liability is an admitted one in that case they can very easily pray for a decree under Order 37 Rule 2 of the Code of Civil Procedure. The petitioners need not wait for decades to realise their alleged debt. The court of summary proceedings would consider their plea and if there is no triable issue the petitioners would perhaps get their suit decreed on the threshold.
2001 Company cases Vol.103 Page 195 and 1995 Company cases Vol.84 page 670 - Referred. [Para 4]
Amalgamated Commercial Traders (P) Ltd. vs. A.C.K.Krishnaswami, 1965 Company Cases Vol.XXX 456 [Para 3]
P.G.Bhatia & Co. vs. Softsule Private Ltd., 1977 Company Cases Vol.47 438 [Para 3]
B.Vishwanathan vs. Seshasayee Paper and Boards Ltd., 1992 Company Cases vol.73 page 136 [Para 3]
K.Appa Rao vs. Sarkar Chemicals Pvt.Ltd., 1995 Company Cases Vol.84 670 [Para 3]
Smt.Vijayalakshmi vs. Hari Hara Ginning & Pressing Pvt.Ltd., 2001 Company Cases Vol.103 195 [Para 3]
JUDGMENT :- On the plea and averments made in the petition, that in spite of repeated demands the respondent company has failed and neglected to pay to the petitioners to complete the outstanding debt to the tune of U.S. $ 73,738.06 equivalent to Indian Rupees 32,07,605.60 with interest thereon, the petitioners have prayed for an order of winding up of the respondent company and appointment of official liquidator under the provisions of the Companies Act,1956. It is the case of the petitioners that the petitioners had entered into a contract with the respondent company for supply of 100 Kg. of 2.3 - Dideoxycyrtidine (thereafter referred to as chemicals) by the respondent company to the petitioners for a sum of U.S. $ 560,000/-. Pursuant to the said contract certain transactions and dealings took place between the parties, the details of which are not material for our purpose. According to the petitioners, the respondents did not honour the commitment of supply of the aforesaid chemicals in full. It is an admitted position, however, that the respondents had supplied the ordered chemicals to the tune of about 25 Kg. It is further contended by the respondents that they had supplied additional 6 Kgs. of chemicals but the same was wrongly rejected by the petitioners. The respondents further pleaded that as a part of contract the respondents had purchased raw materials from the market to supply 4.5 Kg. of the chemicals to the petitioners and that the raw material was being processed to supply the chemicals to the petitioners, which could not be supplied to any other buyer under the exclusivity contract with the petitioners. According to the petitioners, since the respondents had failed to supply the chemicals in accordance with the contract, they became entitled to get the refund of their advance money given to the respondents for supply of the material as the part of contract. According to the petitioners, the respondents have failed to honour their contract to supply the chemicals and have also failed to refund or return the amount advanced by the petitioners to the respondents. The petitioners have pointed out that it is an admitted position in the correspondence that the respondents had also failed to refund the amount. In these circumstances, the petitioners have sought winding up of the respondent company under sections 433 and 434 of the Companies Act, 1956 on the plea that the respondents have failed to pay the debt of the petitioners.
2. Shri Rajiv Kumar, the learned Counsel for the petitioners pointed out from the record that the facts were more or less admitted and, therefore, the petitioners are entitled to get an order from this court of winding up of the respondent company. It was further submitted by the learned Counsel that in view of the failure on the part of the respondents, they had terminated the contract and they had also allowed the respondents to adjust the amount equivalent to the price of the chemicals already supplied by them and return the balance amount. The learned Counsel, therefore, submitted that in spite of the repeated requests the respondents failed to return the amount and, therefore, a notice under section 433 read with section 434 of the Companies Act was issued by the petitioners to the respondents.
3. Shri D.Vitre, the learned Counsel for the respondents has seriously contested the admission of the petition as there are number of disputed questions of facts and the net amount payable to the petitioners would be nil if the accounts are properly settled on the basis of the evidence. Shri D.Vitre pointed out that there was no dispute about the contract between the parties for the supply of chemicals and there was also no dispute that the respondents had made certain supplies to the petitioners. He further pointed out that the petitioners had wrongly rejected the supply of chemicals to the tune of 6.5 Kgs. He also pointed out that pursuant to the contract, the respondents had purchased raw material from the market to complete the contract and the said raw material was under process, which was of no use as under the contract, the respondents were bound to supply the said chemicals only to the petitioners and that there was no other buyer for the specific material ordered by the petitioners. The respondents have, therefore, suffered a huge loss in that respect. According to Shri D.Vitre, no amount is payable to the petitioners but on the contrary they have to recover certain amounts from the petitioners as damages. He further pointed out that the respondent is a solvent company and they do not owe any amount to any other creditor. Shri D.Vitre has submitted that the petitioners have resorted to the extra ordinary remedy provided under the Companies Act in certain extra ordinary situation as a substitute to civil remedy by way of suit to be filed in the court of law. The respondents in their reply to the petitioners have explained how they were not liable to be wound up and have questioned the legality and validity of the notice issued by the petitioners. He further pointed out from the affidavit in reply that there are number of question of facts which would require not only documentary but also oral evidence. The claim of the petitioners was not an admitted or a liquidated claim as debt which the petitioners claim, they are entitled to recover by this extra ordinary process under the provisions of the Companies Act. Shri D.Vitre has relied upon the following judgments in support of his case that the present petition should not be admitted.
1. 1965 Company Cases Vol.XXX page 456 [Amalgamated Commercial Traders (P) Ltd. vs. A.C.K.Krishnaswami and Anr.]
2. 1977 Company Cases Vol.47 page 458 [P.G.Bhatia & Co. vs. Softsule Private Ltd.]
3. 1992 Company Cases Vol.73 page 136 [B.Vishwanathan vs. Seshasayee Paper and Boards Ltd.]
4. 1995 Company Cases Vol.84 page 670 [K.Appa Rao and Ors. vs. Sarkar Chemicals Pvt.Ltd.]
5. 2001 Company Cases Vol.103 page 195 [Smt.Vijayalakshmi vs. Hari Hara Ginning & Pressing Pvt.Ltd.]
4. At the outset I am of the opinion that the extra ordinary provisions under sections 433 and 434 of the Companies Act cannot be invoked as a substitute for a civil suit for recovery of alleged debt. If according to the petitioners, the liability is an admitted one in that case they can very easily pray for a decree under Order 37 Rule 2 of the Code of Civil Procedure. The petitioners need not wait for decades to realise their alleged debt. The court of summary proceedings would consider their plea and if there is no triable issue the petitioners would perhaps get their suit decreed on the threshold. It is crystal clear from the record and submissions of both the learned Counsel that the contentions regarding legality of termination of the contract by the petitioner will be required to be finally decided in a regular trial. The second contention whether the petitioners had wrongly rejected the supply of material will also have to be gone into after both the parties adduce their evidence. The third question which the respondents have raised is also equally important that on the basis of the contract between the respondent and petitioners, the respondent had purchased from the market raw material required for the supply of chemicals as per the exclusivity agreement between the parties. The respondents claim that the raw material was purchased by them to meet the contract and under the exclusivity agreement they could not have supplied the final product of the said raw material to anyone else in the market. It was submitted by Shri D.Vitre that nobody else could have purchased the said material and therefore the respondents have suffered a huge loss on that count. In my opinion this and other points cannot be decided in the present company petition under section 433 and 434 of the Companies Act, which is an extreme remedy to be sparingly invoked only in the extra ordinary circumstances such as the company which cannot even pay sum of Rs.500/- to its creditors in that case it has absolutely no right to exist or survive in the eyes of law. In my opinion, the Legislature has deliberately put the figure of Rs.500/- as debt which a company is unable to pay in that case, such a company should get itself extinguished in the eyes of law to spare the public from the obvious danger of dealing with such companies which cannot pay the smallest debt of Rs.500/- to its creditors. The Legislature could have provided for a ceiling of much higher amount but according to me it has not been done as the Legislature does not want this remedy to be used for recovery of debts which are required to be recovered by filing the ordinary civil suits.
5. I need not discuss the above case law which is clear and well established. In the aforesaid circumstances, there is no substance in the company petition and the same is rejected at the admission stage itself. It is needless to mention that the petitioners would have liberty to institute suitable proceedings for recovery of their alleged debt from the respondents in accordance with law.