In Company Petition No.123 of 2014 (O&M)-PUNJ HC- It is duty of company Court to not allow use of threat of winding up of company as means to force it to pay bonafide disputed debt: P&H HC Justice Anil Kshetarpal [06-05-2022]

Read Order: M/s Suvidha Engineers Private Limited v. M/s Cosmas Research Lab Ltd. 

Monika Rahar

Chandigarh, May 13, 2022: The Punjab and Haryana High Court has held that before passing an order under Section 433 (e) & (f) of the Companies Act, 1956, in response to a petition filed by the creditor-company (petitioner) for the winding up of the debtor-company (respondent), the Court has to ascertain that the respondent-company neglected to pay the amount in dispute even after being served a notice in this regard by the petitioner.

The Bench of Justice Anil Kshetarpal further added,“The company Court is not expected to hold a full trial of the matter. Of course, the company Court is required to examine as to whether the grounds of dispute consist of defence, which is merely a moonshine or substantial and bonafide one. It is also the duty of the company Court not to allow the threat of winding up of the company as a means to force it to pay bonafide disputed debt.”

In the present case, the respondent company placed orders (with the petitioner company) for supplying, testing, installing and commissioning heating, ventilating and air conditioning systems at its factory in the year 2010 for a total amount of Rs. 6,25,00,000/-. The petitioner-company claimed that it has already completed its work and that out of the total amount agreed for the project, admittedly, the amount of Rs. 5,78,23,012/- was paid by the respondent to the petitioner and the petitioner was claiming the balance amount due. 

But, the respondent, on the other hand, claimed that neither the work was completed nor the material that was used was of appropriate quality. It was claimed that the petitioner company used the substandard quality material which was not as per the specification and the petitioner company also failed to provide a standard quality certification of the products used by them as per the standards mentioned in the tendered document. 

Since a dispute arose, a joint meeting between both the parties was held at the worksite of the respondent company at Ludhiana. 

The petitioner company, on the one hand, complained that since the respondent company failed to pay the amount as per the minutes of the meeting, therefore, the respondent company was liable to be wound up.

Per contra, the respondent company complained that despite providing a list of pending jobs and a final non-compliance list, the petitioner company did not start its work. It was further submitted that the respondent company did not furnish the bank guarantee as agreed in the contract with respect to 10% of the post bank guarantee. 

It is to be noted here that in 2014, the respondent company filed a suit for mandatory injunction and for recovery of damages which was pending adjudication at the Civil Court, Ludhiana.  A month later, the company petition was filed and after the removal of the objections, the petition was listed for the first time before the Court in July 2014. It was adjourned due to the absence of the counsel representing the petitioner and the notice, in the petition, came to be issued for the first time in August 2014. Thus, the suit was filed prior to the filing of the company petition.

Hence, through this petition, filed under Section 433 (e) and (f), 434 and 439 of 1956 Act read with Rule 9 of the Companies (Court) Rules, 1959 (“the 1959 Rules”), the petitioner prayed for passing an order for winding up of the respondent company for having failed to pay its debt

The Court noted at the very outset that before ordering winding of the respondent company under Section 433 (e) & (f) of the 1956 Act, the Court is required to record a finding that the respondent company has neglected to pay the amount despite notice served by the petitioner company on the respondent demanding the amount within a period of 21 days from the date of receipt of notice. 

Further, the Court added that if the respondent company put forth the substantial dispute as to liability, a petition filed by the creditor is liable to be dismissed. In these circumstances, the company Court is required to examine as to whether the company has a genuine dispute to claim debt or not, and if the defence put forth is bonafide and substantial, the company Court will be justified in dismissing the petition. 

The Court went on to observe that the company Court is not expected to hold full trial of the matter; of course, the company Court is required to examine as to whether the grounds of dispute consist of defence, which is merely a moonshine or substantial and bonafide one. It is also the duty of the company Court not to allow the threat of winding up of the company as a means to force it to pay bonafide disputed debt, the Court held. 

Coming to the facts of the case, the Court opined that there was no material to record a finding that the company was unable to pay the debt or the dispute put forth by the respondent company was neither bonafide nor substantial. The result for the Court to arrive at this conclusion was that the company had already paid approximately 92.5% of the total amount; the company is not proved to be commercially insolvent and the defence put forth by the respondent company cannot be said to be merely a moonshine; and a lack of material to record a finding that the respondent company is unable to pay the amount. 

Also, considered by the Court was the fact that the suit filed by the respondent company was prior in point of time and admittedly, the petitioner did not furnish a post bank guarantee of 10% of the amount valid for a period of one year. Thus, without expressing an opinion on the merits of the case, the petition was dismissed.