Shital Fibers Ltd. vs Indian Acrylics Limited

HELD: 1.1 If the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. It is equally well settled, that where the debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. It is equally settled, that the principles on 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 adduces prima facie proof of the facts on which the defence depends. As to whether the defence of a Company is in good faith or as to whether it is of a substance and as to whether it is likely to succeed in point of law and as to whether the company adduces prima facie proof of the facts on which defence depends, would depend upon the facts of each case. [Para 9, 10][209-G-H; 210-A-C]

1.2 It is amply clear, that both the Company Judge as well as the Division Bench upon appreciation of the materials placed on record have found, that the defence as sought to be raised by the appellant with regard to the quality of the material supplied by the respondent being defective was by way of an after-thought. The Division Bench found, that when the appellant raised a dispute about the quality, the same was acknowledged by the respondent and it was reflected in its conduct by the grant of credit. It observed, that the respondent had fairly acknowledged the defects when there were any and it was reasonable to presume, that if there were any other defects, it would have recorded the same in some manner or the other. The Division Bench further found, that it was difficult to accept the case of the appellant, that the discussions with regard to defective material were only oral. It further found, that in the reply to the statutory notice there were no mention at all with regard to oral agreement. The Division Bench further found, that the contention of the appellant, that the goods manufactured utilizing the defective raw material supplied by the respondent being returned by the dealers and thereby the appellant suffered any damages, was also not supported by any document. It was concurrently found, that the defence of the appellant was not bona fide one nor a substantial one. On facts, it was also found, that the appellant had taken contradictory stand in order to defeat the claim of the respondent. It was also concurrently found, that the appellant had failed to adduce prima facie proof of facts contended by it. [Para 19, 20][215-F-H; 216-A-D]

1.3 Insofar as the contention of the appellant, that the appellant was an on-going Company running into profits and that the claim of the respondent was not admitted by it, is concerned, it is not a requirement in law. [Para 21][216-D-E]

1.4 In the instant case, the Division Bench has not issued a direction to grant the interest as claimed by the respondent. On the contrary, it has declined to enter into the question, as to whether the appellant was also liable to pay the interest since the company judge had not referred to the said issue. The Division Bench therefore, while dismissing the appeal, has done so without prejudice to the respondent’s contention regarding interest which may be claimed either by way of an application for clarification before the learned judge or by way of an appeal or by any other proceeding. [Para 25][219-C-E]

1.5 The company court while exercising its powers under sections 433 and 434 of the Companies Act would not be in a position to decide, as to who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed. A detailed investigation of facts and examination of evidence and interpretation of various terms and conditions of the deed of settlement and the compromise entered into between the parties was necessary in adjudicating the claim, which could not be done in the proceedings under Section 434. [Para 27][220-D]

1.6 The Company Judge as well as the Division bench have found, that the defence of the appellant could not be said to be bona fide, in good faith and of substance. [Para 28][220-C-D] Mediquip Systems (P) Ltd. vs. Proxima Medical System Gmbh (2005) 7 SCC 42 : [2005] 2 SCR 1015; Vijay Industries vs. NATL Technologies Ltd. (2009) 3 SCC

527 : [2008] 17 SCR 972; IBA Health (India) Private Limited vs. Info-Drive Systems Sdn. Bhd. (2010) 10 SCC

553 : [2010] 12 SCR 137 – distinguished.

Madhusudan Gordhandas & Co. vs. Madhu Woollen

Industries Pvt. Ltd. (1971) 3 SCC 632: [1972] 2 SCR 201 – referred to.