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Winding up petition cannot be admitted authenticity of complaint cannot be established

CLR Editorial Note: Petitioner, a company incorporated under the Companies Act, 1956, for short ˜Act™ carrying on business of manufacture of rubber moulded and extruded products. A payment was not made to it in one of its supplies and on further notices too there was no payment. The petitioner invoked  Section 434 r/w 433 (e) and (f) of the Act in this petition.

The Hon’ble HC of Karnataka refered to another judgement and said :

“The discretion exercisable under the Companies Act is like any other discretion (juridical) and that a mere assertion of a debt payable is not sufficient to attract the discretion of the court. The principle laid down is that a prima facie case must be made out by the petitioner by which the respondent company should shoulder the onus of disproving it, by showing that its defence is in good faith and one of substance.

Regard being had to the statement of objections the answer to the question as to whether the bearings supplied by the petitioner to the respondent were, in fact, defective or not being a pure question of fact requires an adjudication after a trial. Hence the defence is not amoonshine defence. Since a triable issue has arisen petitioner cannot but be relegated to the Civil Court for appropriate reliefs.”

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Full Case Document

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HIGH COURT OF KARNATAKA

Tricon Polymers (P.)Ltd.

v.

IDEB Projects (P.) Ltd.

CO. PETITION NO. 28 of 2011

MARCH  4, 2013

ORDER

1. Petitioner, a company incorporated under the Companies Act, 1956, for short ˜Act™ carrying on business of manufacture of rubber moulded and extruded products, entered into an agreement with the respondent company also incorporated under the Act for supply of bearings and when the respondent allegedly having failed to pay the portion of the value of the goods supplied to the extent of Rs. 35,56,576/- led to a statutory notice dt.11.11.2010 following which too no payment was made hence this petition invoking Section 434 r/w 433 (e) and (f) of the Act.

2. Petition is opposed by filing statement of objections dt. 25.2.2012 inter alia contending that 63 number of bearings supplied by the petitioner were defective and as a result petitioner was required to replace the bearings in terms of the agreement and having not done so, is liable to the respondent in a sum of Rs. 28,96,074/-. In addition to the statement of facts is an affidavit of the authorized signatory of the respondent indicating the aforesaid figure and also enclosing the report of M/s Delhi Metro Corporation Limited as also the details of defects.

3. Regard being had to the statement of objections the answer to the question as to whether the bearings supplied by the petitioner to the respondent were, in fact, defective or not being a pure question of fact requires an adjudication after a trial. Hence the defence is not a moon shine defence. Since a triable issue has arisen petitioner cannot but be relegated to the Civil Court for appropriate reliefs.

4. InDivya Export Enterprises v. Production (P.) Ltd ILR 1990 Kar1610., it is held that discretion exercisable under the Companies Act is like any other discretion (juridical) and that a mere assertion of a debt payable is not sufficient to attract the discretion of the court. The principle laid down is that a prima facie case must be made out by the petitioner by which the respondent company should shoulder the onus of disproving it, by showing that its defence is in good faith and one of substance.

5. The observations of the Apex Court in the case of Pradeshiya Industrial & Investment Corpn. of U.P. v. North India Petrochemicals Ltd. [1994] 3 SCC 348., in the circumstances is apposite:-

An order under section 433(e) is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under the Section must be a determined or a definite sum ofmoney payable immediately or at a future date. The inability referred to in the expression ˜unable to pay its dues™, in Section 433(e) should be taken in the commercial sense. In that, it is unable to meet current demands. It is plainly and commercially insolvent  i.e., to say, that its assets are such, and its existing liabilities are such, as to make it reasonably certain as to make the court feel satisfied that the existing and probable assets would be insufficient to meet its existing liabilities.

Petition is accordingly dismissed.

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