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Winding up

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Saranraj S
Saranraj S

This document summarizes a court case in India regarding a winding up petition. M/s. Narsey Brothers supplied cotton bales to M/s. Nithyalakshmi Textiles Mills but was not fully paid. Narsey Brothers filed a winding up petition, which was dismissed by a single judge. Narsey Brothers appealed. The key issues were whether the quality of cotton was as agreed and whether a rebate amount was owed. The court upheld the single judge's decision, finding the winding up petition was an attempt to pressure for payment rather than a legitimate claim, so it was dismissed without costs.

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COMPANIES ACT 1956 WINDING UP APPELLANT/PETITIONER - M/S.Narsey Brothers Emgeen Chambers RESPONDENT - M/S.Nithyalakshmi Textiles Mills Pvt. Ltd., CORAM - THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM
Definition of ‘Winding Up’ A process that involves selling all the assets of a business entity, paying off creditors, distributing any remaining assets to the principals, and then dissolving the business.
• The petitioner is a registered Partnership Firm having its business at Mumbai. Engaged in the business of sale of cotton bales. • The respondent is the Company registered under the Companies Act and is having its business at Coimbatore.
FACTS • As per the orders placed by the respondent for the supply of cotton, it was supplied to respondent on credit basis on 30th Nov 1999, 75 bales for a total price of Rs.6,66,450/ • The respondent paid the amount on various dates totaling to Rs.3,75,000/-. The last payment was made on 11.2.2000 and still there was balance of Rs.2,91,450/- • The respondent is liable to pay Rs.2,91,450 along with interest.
• Many demands, requests and reminders made were of no avail and whenever notices were issued, they were replied with false allegations. • On 11.2.2000 a statutory notice was issued through a Lawyer, calling upon the respondent to pay the balance of Rs.2,91,450/- along with interest, which would amount to Rs.61,200/-. It was also replied with false and untenable allegations. • Petitioner understand that the respondent is unable to pay the debts and hence a necessity arose to file petition for ordering winding up.
RESPONDENT'S EXPLANATION It is true, the petitioner supplied 75 bales of cotton, but it was found to be inferior quality; that immediately, the matter was brought to the notice of the broker; that the broker also made an inspection and also appraised the situation and he also brought the same to the knowledge of the petitioner and the petitioner also agreed to give rebate therefor, but the rebate of Rs.2,51,996/- was not given; that since as per the understanding, the petitioner did not send the credit note to that amount, the respondent raised a debit note and under these circumstances, there is dispute as to the quality and also the payments to be made; that there is substantial defense for the respondent and therefore, there is no liability at all and the petition is only the device invented for pressuring the respondent to make a demand illegally and hence the petition was to be dismissed.
On enquiry, the learned Single Judge thought it fit to take a view that the petitioner has not come with a case, which would require for ordering winding up and hence it has dismissed the same. Under these circumstances, this appeal has been brought forth by the petitioner directed against the order of the learned Single Judge made in company petition No.27 of 2002, whereby a petition made by the appellant herein under Section 433(e) r/w Section 434(1) and 439(2f) of the Companies Act, 1956, seeking winding up the company of the respondent, was dismissed.
ADVANCING ARGUMENTS ON BEHALF OF THE APPELLANT The learned counsel would submit that in the instant case, 75 bales of cotton was supplied to the respondent was an admitted fact and in the original invoice, which was also raised, the quantum is also mentioned. The payment of Rs.3,75,000/- was also an admitted fact and thus, the respondent is liable to pay Rs.2,91,450/- together with interest and therefore, originally there was a demand made, which was of no avail and reminders were also made by way of notices. Finally, statutory notice was also issued through the Lawyer, which resulted in a false reply. A rejoinder was also issued on 14.3.2001, which was of no avail. In the instant case, the respondent, who was liable to pay the specific amount, has failed to pay and the respondent was unable to make the payment and under these circumstances, winding up proceedings should have been ordered, but failed to do so. In the instant case, balance sheet, which was actually filed by the respondent, would clearly reveal the amount what is now put forth by the petitioner's side as liability and under these circumstances, it should have been taken into account. Once liability is an admitted fact, the petitioner is able to show that the respondent was unable to make payment and hence winding up proceedings should have been ordered.
ADVANCING ARGUMENTS ON BEHALF OF THE RESPONDENT The petitioner has neither shown the definite liability nor shown any circumstance which noted for ordering winding up; that there were originally notices issued, which were replied suitably; that it was also agreed to make rebate, but the petitioner has failed to keep the promise and came with the false case, though the matter was suitably replied when notices were issued and under these circumstances, the matter has got to be adjudicated before the Court of Civil Law and it is not a fit case for ordering winding up and hence the order of the learned Single Judge has got to be sustained.
After heard the learned counsel on either side, the Court is of the considered opinion that the order of the learned Single Judge does not require for any disturbance. It is not in controversy that the petitioner Firm is dealing with cotton supply. According to the appellant/petitioner, the total amount, which the respondent was liable to pay as per the debit order, was to the tune of Rs.6,66,450/-. It is also admitted that a sum of Rs.3,75,000/- was paid by the respondent and that the balance was Rs.2,91,450/- along with interest. Immediately after the supply was made by the petitioner to the respondent, the respondent found inferior quality of cotton. Immediately, the broker was informed, who made an inspection and also found inferior quality of cotton and it is also brought to the notice of the appellant/petitioner. Further, there was an understanding to make rebate, but not done so. Subsequently, statutory notice was also sent by the petitioner through the Lawyer on 11.2.2000, which was also replied. Thus, the question as to whether the supply made was as per the quality as understood between the parties or they were inferior quality was the matter to be decided on fact. Apart from that, according to the respondent, as understood between the parties, a sum of Rs.2 lakhs and odd was to be given credit by way of rebate, but not done and it is also made mentioning in the reply notice.
JUDGEMENT The petition filed by the petitioner, though ostensibly looks like a winding up petition, it is not so. This device, in the opinion of the Court, is to pressurize for payment even before thrashing out the liability to be decided by the Court of Civil Law. Under these circumstances, it is well settled that winding up petition cannot be made as a device to pressurize the respondent to make payment as per the demand made by the petitioner. Hence the learned Single Judge was perfectly correct in rejecting the petition. Accordingly, it is sustained and this O.S.A. is dismissed. No costs. (M.C., J.) (R.P.S., J.)
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Winding up

  • 1. COMPANIES ACT 1956 WINDING UP APPELLANT/PETITIONER - M/S.Narsey Brothers Emgeen Chambers RESPONDENT - M/S.Nithyalakshmi Textiles Mills Pvt. Ltd., CORAM - THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM
  • 2. Definition of ‘Winding Up’ A process that involves selling all the assets of a business entity, paying off creditors, distributing any remaining assets to the principals, and then dissolving the business.
  • 3. • The petitioner is a registered Partnership Firm having its business at Mumbai. Engaged in the business of sale of cotton bales. • The respondent is the Company registered under the Companies Act and is having its business at Coimbatore.
  • 4. FACTS • As per the orders placed by the respondent for the supply of cotton, it was supplied to respondent on credit basis on 30th Nov 1999, 75 bales for a total price of Rs.6,66,450/ • The respondent paid the amount on various dates totaling to Rs.3,75,000/-. The last payment was made on 11.2.2000 and still there was balance of Rs.2,91,450/- • The respondent is liable to pay Rs.2,91,450 along with interest.
  • 5. • Many demands, requests and reminders made were of no avail and whenever notices were issued, they were replied with false allegations. • On 11.2.2000 a statutory notice was issued through a Lawyer, calling upon the respondent to pay the balance of Rs.2,91,450/- along with interest, which would amount to Rs.61,200/-. It was also replied with false and untenable allegations. • Petitioner understand that the respondent is unable to pay the debts and hence a necessity arose to file petition for ordering winding up.
  • 6. RESPONDENT'S EXPLANATION It is true, the petitioner supplied 75 bales of cotton, but it was found to be inferior quality; that immediately, the matter was brought to the notice of the broker; that the broker also made an inspection and also appraised the situation and he also brought the same to the knowledge of the petitioner and the petitioner also agreed to give rebate therefor, but the rebate of Rs.2,51,996/- was not given; that since as per the understanding, the petitioner did not send the credit note to that amount, the respondent raised a debit note and under these circumstances, there is dispute as to the quality and also the payments to be made; that there is substantial defense for the respondent and therefore, there is no liability at all and the petition is only the device invented for pressuring the respondent to make a demand illegally and hence the petition was to be dismissed.
  • 7. On enquiry, the learned Single Judge thought it fit to take a view that the petitioner has not come with a case, which would require for ordering winding up and hence it has dismissed the same. Under these circumstances, this appeal has been brought forth by the petitioner directed against the order of the learned Single Judge made in company petition No.27 of 2002, whereby a petition made by the appellant herein under Section 433(e) r/w Section 434(1) and 439(2f) of the Companies Act, 1956, seeking winding up the company of the respondent, was dismissed.
  • 8. ADVANCING ARGUMENTS ON BEHALF OF THE APPELLANT The learned counsel would submit that in the instant case, 75 bales of cotton was supplied to the respondent was an admitted fact and in the original invoice, which was also raised, the quantum is also mentioned. The payment of Rs.3,75,000/- was also an admitted fact and thus, the respondent is liable to pay Rs.2,91,450/- together with interest and therefore, originally there was a demand made, which was of no avail and reminders were also made by way of notices. Finally, statutory notice was also issued through the Lawyer, which resulted in a false reply. A rejoinder was also issued on 14.3.2001, which was of no avail. In the instant case, the respondent, who was liable to pay the specific amount, has failed to pay and the respondent was unable to make the payment and under these circumstances, winding up proceedings should have been ordered, but failed to do so. In the instant case, balance sheet, which was actually filed by the respondent, would clearly reveal the amount what is now put forth by the petitioner's side as liability and under these circumstances, it should have been taken into account. Once liability is an admitted fact, the petitioner is able to show that the respondent was unable to make payment and hence winding up proceedings should have been ordered.
  • 9. ADVANCING ARGUMENTS ON BEHALF OF THE RESPONDENT The petitioner has neither shown the definite liability nor shown any circumstance which noted for ordering winding up; that there were originally notices issued, which were replied suitably; that it was also agreed to make rebate, but the petitioner has failed to keep the promise and came with the false case, though the matter was suitably replied when notices were issued and under these circumstances, the matter has got to be adjudicated before the Court of Civil Law and it is not a fit case for ordering winding up and hence the order of the learned Single Judge has got to be sustained.
  • 10. After heard the learned counsel on either side, the Court is of the considered opinion that the order of the learned Single Judge does not require for any disturbance. It is not in controversy that the petitioner Firm is dealing with cotton supply. According to the appellant/petitioner, the total amount, which the respondent was liable to pay as per the debit order, was to the tune of Rs.6,66,450/-. It is also admitted that a sum of Rs.3,75,000/- was paid by the respondent and that the balance was Rs.2,91,450/- along with interest. Immediately after the supply was made by the petitioner to the respondent, the respondent found inferior quality of cotton. Immediately, the broker was informed, who made an inspection and also found inferior quality of cotton and it is also brought to the notice of the appellant/petitioner. Further, there was an understanding to make rebate, but not done so. Subsequently, statutory notice was also sent by the petitioner through the Lawyer on 11.2.2000, which was also replied. Thus, the question as to whether the supply made was as per the quality as understood between the parties or they were inferior quality was the matter to be decided on fact. Apart from that, according to the respondent, as understood between the parties, a sum of Rs.2 lakhs and odd was to be given credit by way of rebate, but not done and it is also made mentioning in the reply notice.
  • 11. JUDGEMENT The petition filed by the petitioner, though ostensibly looks like a winding up petition, it is not so. This device, in the opinion of the Court, is to pressurize for payment even before thrashing out the liability to be decided by the Court of Civil Law. Under these circumstances, it is well settled that winding up petition cannot be made as a device to pressurize the respondent to make payment as per the demand made by the petitioner. Hence the learned Single Judge was perfectly correct in rejecting the petition. Accordingly, it is sustained and this O.S.A. is dismissed. No costs. (M.C., J.) (R.P.S., J.)