Supreme Court on admission of a winding up petition on ground of non-payment of interest on admitted dues

 

 

Failure to pay agreed interest or the statutory interest would come within the purview of the word “debt”; it is one thing to say that the amount of debt is not definite or ascertainable because of the bona fide dispute raised thereabout but it is another thing to say that although the due as regards the principal amount resulting from the quantity or quality of supply of the goods stands admitted but a question is raised as to whether any agreement had been entered into for payment of interest or whether the rate of interest would be applicable or not; in the latter case, the application for winding up cannot be dismissed.

 

 

 

 

 

SUPREME COURT OF INDIA

Vijay Industries

v

NATL Technology Ltd.

Civil Appeal No. 7352 of 2008

December 17, 2008

 

Relevant Extracts :

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30.         The fact that despite receipt of a legal notice dated 23.12.2003, no payment has been made to liquidate the debt on the part of the company is not in dispute. Admittedly, appellant had been supplying Castor Oil to the respondent. The fact that the respondent did not pay the price of the said supplies, on presentation of the invoices, is also not in dispute. It also stands admitted that the parties negotiated as regards the manner in which the payments could be made. In a meeting held on 25.11.2003, promises were made to square up the old outstanding dues and bring it into the system for the purpose of rotation. The agreement spoke of payment of compensation to the appellant for the delay in payment on account of earlier supplies after clearing the entire old dues. There cannot be any doubt whatsoever that when, in principle, the respondent had agreed to compensate the appellant for the delay in payment, the same must be by way of interest payable on the principal amount or otherwise.

31.         Respondent never denied the demand of interest as such, but in its reply dated 30.12.2003 merely stated that a sum of Rs. 16,80,468 (sic for Rs. 15,18,460) was due.

Construction of the aforementioned provision came up for consideration before this Court in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami and Another [(1965) 35 CC 456], wherein it was held:

“It is well-settled that "a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such, petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order."

32.         Yet again in M/s. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. [(1971) 3 SCC 632], this Court upon considering Amalgamated Commercial Traders (P.) Ltd. (supra) and various other English cases opined as under:

"20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation) Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work one for the company when the company contended that the work had not been properly was not allowed. (See Re.Brighton Club and Horfold Hotel Co. Ltd.)"

 

The court furthermore opined:

 

(i) Where the debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt but did not choose to pay that particular debt.

(ii) Where, however, there is no dispute that the company passed the creditor a debt entitled him to a winding up order but the exact amount of the debt is disputed, the court will make a winding up order without requiring the creditor to quantify the debt precisely.

(iii) The principles which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and, thirdly, the company adduced prima facie proof of the facts on which the defence depends.

33.         Section 433 of the Companies Act does not state that the debt must be precisely a definite sum. It has not been disputed before us that failure to pay agreed interest or the statutory interest would come within the purview of the word `debt. It is one thing to say that the amount of debt is not definite or ascertainable because of the bona fide dispute raised thereabout or there exists a dispute as regards quantity or quality of supply or such other defences which are available to the purchaser; but it is another thing to say that although the due as regards the principal amount resulting from the quantity or quality of supply of the goods stands admitted but a question is raised as to whether any agreement had been entered into for payment of interest or whether the rate of interest would be applicable or not. In the latter case, in our opinion, the application for winding up cannot be dismissed.

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