Supreme Court of India
SHITAL FIBERS LTD.versusINDIAN ACRYLICS LIMITED
- Citation
- 2021 INSC 228
- Decided
- 6 April 2021
- Disposal
- Dismissed
- Bench
- R F NARIMAN
Holding
The appellant's defence was not bona‑fide, not of substance and lacked prima facie proof, so the winding‑up petition stands and the appeal is dismissed.
Summary
Shital Fibers Ltd. (appellant) sought to avoid a winding‑up petition filed by Indian Acrylics Ltd. (respondent) under Sections 433 and 434 of the Companies Act, 1956, alleging inability to pay an admitted debt of Rs 8,92,723. The respondent claimed the debt arose from supply of raw material, while the appellant contended the material was defective and that it was entitled to set‑off and damages. The Company Judge admitted the petition but gave the appellant time to settle; the High Court stayed the publication of the admission notice after the appellant paid the amount and dismissed the appeal. On appeal, the Supreme Court held that the appellant’s defence was not bona‑fide, not of substance and lacked prima facie proof, and therefore the winding‑up petition could not be set aside. The Court also clarified that a company court cannot adjudicate disputes over quality or interest in such proceedings. The appeal was dismissed.
Issues considered
- The appellant's defence of defective material – whether it constitutes a bona‑fide, substantial dispute that would bar winding‑up under Sections 433/434.
- Whether the company court can decide on the default or on the claim for interest in a winding‑up petition.
- Whether the High Court was correct in staying the publication of the admission notice and dismissing the appeal.
- Whether the debt claimed is undisputed and if the appellant's ability to pay negates the winding‑up ground.
Legislation cited
- Companies Act, 1956s. 433, s. 434
Subjects
winding upCompanies ActSection 433Section 434bona fide disputedefence of substancecompany court jurisdictioninterest claiminsolvency
Judgment
[2021] 4 S.C.R. 203 203
SHITAL FIBERS LTD. A
v.
INDIAN ACRYLICS LIMITED
(Civil Appeal No. 1105 of 2021)
APRIL 06, 2021 B
[R.F. NARIMAN, B.R. GAVAI AND HRISHIKESH ROY, JJ.]
Companies Act, 1956: ss. 433, 434 – Circumstances in which
company may be wound up by the court – On facts, company petition
seeking winding up of the appellant-defaulter company for its
C
inability to pay admitted debts – Company tribunal however gave
another opportunity to the appellant to settle the accounts with
respect to the respondent and in case of failure, citation was to be
published – In appeal, the High Court stayed the publication of the
admission notice subject to the appellant paying the outstanding
amounts to the respondent and appellant paid the outstanding D
amounts, and there being no bona fide dispute persisting, dismissed
the appeal, however, held that the respondent’s claim towards any
interest payments can be made to the Company Judge – On appeal
held: Company court cannot decide on default in a winding up
proceedings – If the debt is bona fide disputed and the defence is a
E
substantial one, the court will not wind up the company – 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 – Furthermore, the principles on
which the court acts are that the defence of the company is in good
faith and one of substance, the defence is likely to succeed in point F
of law and the company adduces prima facie proof of the facts on
which the defence depends, and all this would depend upon the
facts of the case – In the instant case, Company Judge as well as
the High Court found that the defence of the appellant could not be
said to be bona fide, in good faith and of substance – Order passed
G
by the High Court upheld.
Dismissing the appeal, the Court
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
H
203
204 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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
C 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
D 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
E 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
F 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
G 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
H
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 205
adduce prima facie proof of facts contended by it. [Para 19, A
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] B
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 C
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]
D
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 E
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 F
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 G
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.
H
206 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Madhusudan Gordhandas & Co. vs. Madhu Woollen
Industries Pvt. Ltd. (1971) 3 SCC 632: [1972] 2
SCR 201 – referred to.
Case Law Reference
[1972] 2 SCR 201 referred to Para 8
B
[2005] 2 SCR 1015 distinguished Para 22
[2008] 17 SCR 972 distinguished Para 24
[2010] 12 SCR 137 distinguished Para 26
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1105
C
of 2021
From the Judgment and Order dated 29.04.2016 of the High Court
of Punjab & Haryana at Chandigarh in Company Appeal No. 58 of
2015 (O&M).
D Karan Nehra, Himanshu Gupta, Manoj C. Mishra, Advs. for the
Appellant.
Tarun Gupta, Adv. for the Respondent.
The Judgment of the Court was delivered by
E B. R. GAVAI, J.
1. Leave granted.
2. The present appeal challenges the judgment and order passed
by the Division Bench of the Punjab & Haryana High Court in Company
Appeal No. 58 of 2015 dated 29.4.2016, arising out of the order passed
F by the learned Company Judge of the said Court, in Company Petition
No.106 of 2009 dated 28.9.2015.
3. The facts, in brief, giving rise to the present appeal are as under:
The respondent – M/s Indian Acrylics Limited is a manufacturer
of acrylic yarn having its manufacturing unit in village Harkrishanpura,
G District Sangrur. There was a transaction between the appellant – M/s
Shital Fibers Ltd. and the respondent - M/s Indian Acrylics Limited under
which the respondent was to supply acrylic yarn to the appellant on
credit basis. As per the said arrangement, the supply of raw material
commenced from 20.4.2007. The respondent supplied material worth
H
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 207
[B. R. GAVAI, J. ]
Rs.81,98,014.45. There were certain issues raised by the appellant with A
regard to the quality of the material supplied by the respondent. As such,
a sum of Rs. 6,22,073/- was credited by the respondent in the account of
the appellant on account of material returned and also a credit note of
Rs.5,00,000/- was given on account of some defect in quality. As per the
respondent, appellant had made a payment of Rs.61,83,218/-. However,
B
there was an outstanding balance of Rs.8,92,723/- as on 28.7.2008. Since
despite repeated requests, balance amount was not paid, the respondent
issued a statutory notice to the appellant. The same was duly responded
to. As the payment was not made despite notice being duly served on
the appellant, the respondent filed the aforesaid Company Petition seeking
winding up of the present appellant for its inability to pay admitted debts. C
The learned Company Judge vide order dated 28.9.2015 admitted the
Company Petition. However, while doing so, the learned Company Judge
observed, that since the appellant was an on-going concern, an opportunity
should be granted to it to settle the accounts with the respondent by
31.12.2015. Only in case of failure of the settlement, the citation was
D
directed to be published.
Being aggrieved thereby, the appellant preferred an appeal before
the Division Bench of the High Court. By an order dated 24.12.2015,
the Division Bench of the High Court, while issuing notice, stayed the
publication of the admission notice, subject to the appellant paying the
amount in question by 31.12.2015. Accordingly, the amount was so paid E
by the appellant.
Though the Division Bench of the High Court came to a conclusion,
that there was no bona fide dispute and as such, there was no question
of directing the respondent to repay the amount, since the appellant had
satisfied the respondent’s claim to the extent mentioned in the order F
impugned in the appeal, it dismissed the appeal.
However, insofar as the claim of the respondent with regard to
interest at the rate of 24% per annum is concerned, the Division Bench
of the High Court found it not necessary to enter into the question, as to
whether the appellant was liable to pay interest to the respondent since G
the learned Company Judge had not gone into that issue. However, the
Division Bench clarified, that the dismissal of the appeal was 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. H
208 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Being aggrieved thereby, the present appeal.
4. Shri Karan Nehra, learned counsel appearing on behalf of the
appellant submits, that the defence of the appellant was a bona fide
one. He submitted, that it was a specific case of the appellant, that on
account of the defective material supplied by the respondent, the appellant
B had suffered huge losses and as such, it was the appellant who was
entitled to receive the damages from the respondent. He submitted, that
in view of the specific defence, which could not be said to be a moonshine
defence, the learned Company Judge ought not to have admitted the
Company Petition. He submitted, that the claim of the respondent could
not stand even if it was made in summary proceedings under Order
C XXXVII of the Code of Civil Procedure, 1908. He submitted, that
requirements under Section 433(e) and (f) of the Companies Act, 1956
(hereinafter referred to as “the said Act”) stood on a much higher
pedestal and as such, the learned Company Judge has erred in admitting
the petition. He submitted, for the same reason, the Division Bench has
D also erred in not interfering with the direction of the learned Company
Judge.
5. Shri Nehra further submitted, that since there was no agreement
between the parties to pay interest on the balance/delayed payment, the
direction issued by the Division Bench of the High Court to consider the
E claim of the respondent for interest does not stand the scrutiny of law.
6. Shri Nehra relies on the judgments of this Court in Mediquip
Systems (P) Ltd. vs. Proxima Medical System Gmbh1,Vijay Industries
vs. NATL Technologies Ltd.2, and IBA Health (India) Private Limited
vs. Info-Drive Systems Sdn. Bhd.3.
F 7. Shri Tarun Gupta, learned counsel appearing on behalf of the
respondent submits, that since the appellant, in spite of various
communications sent by the respondent requesting it to pay the
outstanding amount, had failed to do so, it was required to issue statutory
demand notice under Section 434 read with Section 433 (e) of the said
G Act. It is submitted, that the said notice was duly served upon the appellant
and also replied to. Apart from making a vague denial and stating that
the claim of the respondent is a matter of record, no specific defence
was taken. He further submits, that the appellant had totally changed
1
(2005) 7 SCC 42
2
(2009) 3 SCC 527
H 3
(2010) 10 SCC 553
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 209
[B. R. GAVAI, J. ]
the stand taken by it before the learned Company Court as against the A
stand taken by it in the reply to the statutory notice. He therefore submits,
that the learned Company Judge as well as the Division Bench of the
High Court had rightly held, that the defence of the appellant was not a
bona fide one. He submitted, that no interference would be warranted
in the concurrent findings of fact.
B
8. This Court in the case of Madhusudan Gordhandas & Co.
vs. Madhu Woollen Industries Pvt. Ltd.4, observed thus:
“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 C
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
[(1874) LR 19 Eq 444] ) Again, a petition for winding up by a
creditor who claimed payment of an agreed sum for work done D
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. [(1865) 35 Beav 204])
21. 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 E
company chooses not to pay that particular debt, see Re. A
Company. [94 SJ 369] Where however there is no doubt that the
company owes the creditor a debt entitling 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 F
the debt precisely See Re Tweeds Garages Ltd. [1962 Ch 406]
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.” G
9. It is therefore well settled, that 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
4
(1971) 3 SCC 632 H
210 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
depends.
10. 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
C each case.
11. In the present case, in the statutory notice dated 25.8.2008,
the respondent – Company has specifically stated as under:
“4. That in that regard a sum of Rs.35,14,776.30 was outstanding
D against you against various bills as on 25.8.2007 against the
material supplied to you by my client, vide following invoices:
E
F 5. That after the said invoices no material has been supplied to
you by my client and the above amount of Rs.35,14,776.30 was
payable by you to my client. My client requested to you vide various
communications dated 16.11.07, 22.11.07, 23.11.07, 26.11.07,
27.11.07, 28.11.07, 26.11.07, 1.12.07, 3.12.2007, 5.12.2007,
G 6.12.2007, 7.12.2007, 8.12.2007, 10.12.2007, 11.12.2007,
12.12.2007, 13.12.2007, 15.12.2007, 17.12.2007 and 21.12.2007
to pay the above said outstanding amount.
6. That in response to the above letters/faxes no communications
have been received from you by my client rather you made
lumpsum payments of Rs.15 lac through cheques, material
H
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 211
[B. R. GAVAI, J. ]
returned by you worth Rs.6,22,073.00 and adjustment of Rs.5 lac A
was made by way of credit note. The details of which are as
follows:
B
C
D
The total amount remains recoverable by my client from you is
Rs.8,92,723.45p (8,92,703.30 + 20.15) as on 8.5.2008 after receipt/
credit of the above amounts of Rs.26,22,073.00 as mentioned
above.”
12. In reply to the said notice, the appellant has stated thus: E
“4. In reply to para no.4 of your notice, it is a matter of records
and it clearly shows about the business worth of my client.
5. In reply to para no.5 of your notice, it is a matter of record.
However, there is nothing due to your client from my client, rather F
on the contrary is true as mentioned in previous paras.
6. Para no.6 of the notice is not correct and does not depict the
correct picture, rather on the contrary your client himself had
been coming to my client and settled the amount and agreed to
return Rs. 25 Lacs out of which Rs.5 lacs returned, rest of the G
amount was not returned.
7. Para no.7 of your notice is wrong and incorrect. Detailed reply
has already been given in previous paras.”
13. It is thus clear, that in response to paragraph 4 and 5 wherein
the respondent has specified its claim, the only reply given is, that it is a H
212 SUPREME COURT REPORTS [2021] 4 S.C.R.
A matter of record and that it shows about the business worth of his client.
No doubt, that in paragraph 6, it is stated, that the respondent had himself
been coming to the appellant and settled the amount and agreed to return
Rs.25 lakh out of which only Rs. 5 lakh was returned.
14. From the perusal of the written statement filed to the Company
B Petition, it would reveal, that the main contention of the appellant was,
that it was a running company making profits and further, that the claim
of the respondent was not admitted by it. It was contended, that the
petition was filed only to pressurise the appellant to pay the dues which
were neither admitted nor legally due.
C 15. It was also stated in the written statement that till 26.6.2007
there was no issue with regard to supply of raw material by the respondent.
However, with effect from 26.6.2007 it was noticed, that raw material
supplied was defective and the goods which were sold in the market
utilizing the said raw material were received back with some complaints.
It was stated, that the goods which were supplied by the respondent
D vide invoices dated 26.6.2007 onwards were defective and the products
manufactured by the appellant – company using the said raw material
(i.e. acrylic yarn) were returned by the dealers and importers due to
defective quality. It was stated, that the appellant – Company had returned
the defective raw material to the respondent – Company, which remained
E unused. It was stated, that the respondent had acknowledged the same
and credited an amount of Rs.6,22,073/- in the account of the appellant.
It is further stated, that after various meetings and negotiations, the
respondent agreed to compensate the appellant on account of supply of
defective material by issuing a credit note of Rs.5 lakh. It was further
stated, that as per the account of the appellant, an amount of Rs.53,648/
F - was receivable from the respondent after making all the adjustments.
16. The learned Company Judge after considering the rival
contentions observed thus:
“8. There is no document referred to by learned counsel for the
G respondent – Company written by it to the petitioner – Company
regarding defect in quality. In response to the statutory notice
issued by the petitioner – Company, the stand taken by the
respondent – company in reply was that raw material worth
Rs.25,00,000/- supplied by the petitioner – Company to the
respondent – company was lying with it in poor condition and
H
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 213
[B. R. GAVAI, J. ]
could not be used in production. Against promised compensation A
of Rs.25,00,000/-, credit note of only Rs.5,00,000/- was given. As
against a claim of Rs.8,92,723/- claimed by the petitioner, a sum
of Rs.11,07,297/- is due from the petitioner – company to the
respondent – company on account of losses suffered due to poor
quality of yarn supplied. Demand of the aforesaid amount was
B
raised. In reply to the petition, the stand taken is altogether different.
No doubt, the issue regarding defective material was raised,
however, it was stated that the entire material supplied by the
petitioner – company was used, as a result of which the product
was defective, which was not marketable and on that account,
the respondent – company suffered losses. The products were C
sold in the market, which were returned back. No communication
has been referred to, which was addressed by the respondent –
company to the petitioner – company, pointing out such defects.
It was further sought to be claimed that after giving credit note of
Rs.5,00,000/- in May, 2008, the petitioner – company agreed to
D
give rebate to the extent of 50% on the total invoices on account
of the defective material. The calculations were made in the
following terms.
Inv. No.162 Rs.8,55,370.65
Inv. No.177 Rs.8,66,788.29 E
Inv. No.216 Rs.9,07,891.19
Inv. No.300 Rs.8,84,726.17
Total : Rs.35,14,776.30
Less: Goods returned Rs. 6,22,073.00 F
Balance Rs.28,92,703.30
Less: 50% Rebate Rs.14,46,351.30
Balance payable Rs.14,46,352.00
Already paid Rs.15,00,000.00 G
Excess paid: Rs. 53,648.00
------------------------
9. From the aforesaid calculations, it is evident that now the stand
is that the respondent- company is to recover a sum of Rs.53,648/ H
214 SUPREME COURT REPORTS [2021] 4 S.C.R.
A - from the petitioner – company, whereas in reply to the notice,
the claim was to the tune of Rs.11,07,297/-. It is further relevant
to add here that in reply to the petition, the story that settlement
between the parties had taken place in May, 2008 regarding rebate
on the invoice value is merely an after thought just to defeat the
petition, as no such plea was taken when reply to the statutory
B
notice was given in September, 2008.
10. In view of the aforesaid discussion, I do not find that the
defence raised by the respondent – company is reasonable as the
debt cannot be said to be disputed, which has not been paid despite
statutory notice and even pendency of the present petition in this
C court for a period of about six years. Hence, the petition deserves
to be admitted. Ordered accordingly.”
17. It could thus be seen, that the learned Company Judge has
found, that the defence taken by the appellant with regard to the products
of the respondent being defective in quality was by way of an after-
D thought, inasmuch as, no document was placed on record in support of
such contention. It was further found, that whereas in reply to the notice
the appellant had claimed, that it was entitled to recover an amount of
Rs.11,07,297/-, in the calculations given in written statement, the amount
is Rs.53,648/-.
E 18. This finding of fact is affirmed by the Division Bench of the
High Court with following observations:
“7. The contention is not well-founded. We see no reason to draw
such an inference. Indeed, the grant of credit would also indicate
that the respondent fairly acknowledged the defects when there
F were any and that the rest of the consignment met with the
contractual specifications. It is necessary, therefore, to examine
the other surrounding facts and circumstances to judge the rival
contentions.
8. Firstly, when the appellant raised a dispute about the quality
G and the same was acknowledged by the respondent it was
reflected in its conduct by the grant of credit. It is reasonable to
presume that if there were any other defects and, in any event, if
the appellant’s case was that the goods were defective, it would
have recorded the same in some manner or the other. The
appellant, however, contends that the discussions in this regard
H
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 215
[B. R. GAVAI, J. ]
were only oral. In the facts of this case it is difficult to accept this A
contention. The appellant’s case has varied between its reply to
the statutory notice and its written statement.
The respondent served a statutory notice dated 25.08.2008. The
appellant’s reply dated 10.09.2008 to the statutory notice does not
refer to an oral agreement much less an agreement by the B
respondent to pay the appellant compensation for the alleged
defective goods. This belies the defence now raised in the reply.
9. There is yet another fact which clearly disentitles the appellant
to any credit in respect of the balance goods. The appellant,
admittedly, retained the goods and, in fact, used the goods, namely, C
synthetic yarn, in the manufacture of its products, such as blankets.
Having done so, the appellant cannot refuse to pay for the same.
If the goods were defective, the appellant ought to have rejected
the same. Having utilised the raw material supplied by the
respondent, it is now not even possible for the appellant to return
the same to the respondent. D
Moreover, the appellant nowhere raised the contention that its
customer, who purchased the final product, raised grievance
regarding the quality of the product. Moreover, the appellant has
not furnished any details regarding its transactions with its
customers involving the sale of goods manufactured from the raw E
material supplied by the respondent. There is nothing to indicate
that the appellant suffered any damages on account thereof or
that the appellant was not paid for the same.
10. In these circumstances, the learned judge rightly rejected the
appellant’s contentions. In our opinion, there is no bona fide dispute F
raised by the appellant in respect of the respondent’s claim.”
19. It is thus amply clear, that both the learned 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 G
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
H
216 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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.
20. It was concurrently found, that the defence of the appellant
C 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 contented by it.
21. Insofar as the contention of the appellant, that the appellant
D 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. Reliance in this respect could be placed on various judgments of
this Court including the one in the case of Vijay Industries (supra).
22. Insofar as the reliance placed by the learned counsel for the
E appellant on the judgment of this Court in the case of Mediquip Systems
(P) Ltd. (supra) is concerned, in the said case this Court came to a
finding, that there was a bona fide dispute concerning the claim of the
appellant. It was also found, that there was no clear cut finding by the
learned single judge, that a debt is prima facie due and payable by the
F Company to the petitioning creditor. It was further found, that the company
court had no jurisdiction to direct the company to deposit the amount
payable to a third party or to a party other than the petitioning creditor.
As such, on facts, the said judgment would not be applicable to the facts
of the present case.
G 23. In the case of Vijay Industries (supra) relied by the appellant,the
learned single judge after finding, that a prima facie case has been made
out, admitted the company petition. However, in appeal, the Division
Bench set aside the order of the learned single judge. This Court while
setting aside the order of the Division Bench observed thus:
H
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 217
[B. R. GAVAI, J. ]
“41. In the present case, on the date of filing of the application, A
dues in respect of at least a part of the debt which was more than
the amount specified in Section 433 [sic Section 434(1)(a)] of the
Companies Act was not denied. It is not a requirement of the law
that the entire debt must be definite and certain. The Division
Bench of the High Court proceeded on the basis that the entire
B
sum covering both the principal and the interest must be undisputed,
holding:
“Except making a bald allegation in the company petition that
the petitioner had come to know that the respondent Company
owes large sums of money to its creditors and it is not in a
position to meet its debt obligations and as, therefore, become C
commercially insolvent, the petitioner has not taken necessary
care to prima facie establish the same. The only piece of
evidence available on the side of the petitioner is that the
respondent is indebted to the petitioner a sum which is claimed
towards interest on the delayed payment. Assuming for a D
moment that the respondent Company is liable to pay interest
on the delayed payments and it has not paid the said amount to
the petitioner, could it be said that the respondent neglected to
pay the debt, particularly when the respondent is disputing the
liability of payment of interest on the delayed payments and
when there is no such written agreement in between the parties E
for such payment of interest.”
42. The Division Bench upon noticing the facts of the matter
formulated the question “as to whether the respondent is liable to
pay interest at 2% per month on delayed payments and when that
is being disputed would it constitute prima facie a valid ground for F
admission of the company petition?” It was held:
“… The petitioner seeks to rely upon the invoices which
according to him contain at the foot a clause for payment of
interest on delayed payments. Such a clause, even assuming is
there, since it has not been placed by means of any cogent G
evidence in this case, in view of the judgment of the Rajasthan
High Court in Kitply Industries case [(1998) 91 Comp Cas
715 (Raj)] , cannot constitute an agreement between the parties
for payment of interest. The legal position, thus, seems to be
obvious. Before seeking a company to be wound up on the H
218 SUPREME COURT REPORTS [2021] 4 S.C.R.
A ground that it is unable to pay its debts, it must be shown before
the Court that the debt claimed against the company is
ascertained and definite and that the company failed to pay
the same. Mere failure to pay the amount would not constitute
the requisite ‘neglect to pay’ as envisaged under clause (a) of
sub-section (1) of Section 434 of the Act when the company
B
bona fide disputes the very liability and hence the defence taken
up by it is of substance.”
It was furthermore held:
“Having regard to the facts and circumstances of the instant
C case, we are of the considered view that the claim of the
petitioner towards interest on delayed payments since not
covered by any specific agreement between the parties inter
se is a contentious issue and the dispute as regards the payment
of interest is bona fide and it cannot, therefore, legitimately be
concluded that the respondent has neglected to pay. The
D petitioner, who pleaded inter alia in his petition that as per the
trade practice payments made shall be adjusted towards interest
first and balance, if any, shall be adjusted towards principal
later, failed to establish the same by any prima facie evidence.
In the absence of any such trade practice, appropriating the
E amounts towards interest first and the balance, if any towards
principal next becomes inappropriate, in which event the claim
of the petitioner that the respondent is liable to pay Rs 65,15,947
basing upon such calculations cannot be accurate. The total
amount claimed by the petitioner as due in that view of the
matter becomes doubtful and not definite. It is still got to be
F ascertained if the claim of the respondent were to be considered
that there has been no agreement for payment of interest on
delayed payments. For the above reasons, it cannot be
presumed prima facie that the respondent is unable to pay its
debts.”
G 43. The findings of the High Court, with respect, are not correct
for more than one reason; firstly, because the Division Bench
did not hold that the invoices were not proved by cogent
evidence; secondly, question of leading evidence would arise
only after the company petition is admitted and, thirdly, issuance
H
SHITAL FIBERS LTD. v. INDIAN ACRYLICS LIMITED 219
[B. R. GAVAI, J. ]
of invoices and signature of the respondent thereon is not A
disputed.”
After observing the aforesaid, this Court further held, that the
appellant was also entitled to the payment of interest.
24. It can thus clearly be seen, that this Court had clearly held,
that it is not necessary while admitting the petition to establish that the B
entire claim is undisputed. We fail to understand, as to how the said
judgment of this Court in Vijay Industries (supra) would be applicable
to the facts of the present case. As a matter of fact, in the said case, this
Court on consideration of the invoices had come to a conclusion, that the
appellant was also entitled for the interest on delayed payment. C
25. In the present 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 learned company judge had not
referred to the said issue. The Division Bench therefore, while dismissing D
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.
26. We find, that the judgment of this Court in the case of IBA E
Health (India) Private Limited (supra) would also not be applicable to
the facts of the present case. In the said case, it will be relevant to refer
to the following observations of this Court.
“29. On a detailed analysis of the various terms and conditions
incorporated in the deed of settlement as well as the compromise F
deed and the averments made by the parties, we are of the
considered view that there is a bona fide dispute with regard to
the amount of claim made by the respondent Company in the
company petition which is substantial in nature. The Company
Court while exercising its powers under Sections 433 and 434 of
the Companies Act, 1956 would not be in a position to decide who G
was at fault in not complying with the terms and conditions of the
deed of settlement and the compromise deed which calls for
detailed investigation of facts and examination of evidence and
calls for interpretation of the various terms and conditions of the
H
220 SUPREME COURT REPORTS [2021] 4 S.C.R.
A deed of settlement and the compromise entered into between the
parties.”
27. This Court held, that 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
B terms and conditions of the deed of settlement and the compromise deed.
It was found, that in the said case, 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 of the said Act. In the said case, it
C was also noticed, that the claim was in respect of contingent debt and
that the disputes between the parties had been compromised in terms of
settlement deed.
28. Such is not the case here. On facts, the learned Company
Judge as well as the Division bench have found, that the defence of the
D appellant could not be said to be bona fide, in good faith and of substance.
29. We are therefore of the considered view, that there is no
merit in the appeal. The same is accordingly dismissed. There shall be
no order as to costs. Pending applications, if any, shall stand disposed of.
E
Nidhi Jain Appeal dismissed.
F
G
H
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