M/S A.V. THOMAS & CO. LTD. v. M/S COCHIN INTERNATIONAL AIRPORT LTD.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE V.CHITAMBARESH & THE HONOURABLE MR. JUSTICE SATHISH NINAN TUESDAY, THE 31ST DAY OF JULY 2018 / 9TH SRAVANA, 1940 **Co.Appeal.No. 6 of 2017** AGAINST THE JUDGMENT DT. 17.11.16 IN COMPANY PETITION NO.35/2013 ----------- ## APPELLANT/PETITIONER M/S.A.V. THOMAS & CO. LTD. POST BOX NO. 520, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN - 682 003. REPRESENTED BY ITS CHIEF FINANCIAL OFFICER, MR. VENUGOPALAN. R BY ADVS.SRI.JOY THATTIL ITTOOP SRI.BIJISH B.TOM SMT.BABY SONIA SRI.JACOB TOMLIN VARGHESE SMT.NEVIS CASSANDRA L CAXTON LORETTA ## RESPONDENT/RESPONDENT: M/S.COCHIN INTERNATIONAL AIRPORT LTD. (CIAL) GCDA COMMERCIAL COMPLEX, MARINE DRIVE, COCHIN - 682 031. KERALA, INDIA. REPRESENTED BY ITS MANAGING DIRECTOR. R1 BY ADV. SRI.M.PATHROSE MATTHAI (SR.) R1 BY ADV. SRI.SAJI VARGHESE R1 BY ADV. SMT.MARIAM MATHAI THIS COMPANY APPEAL HAVING BEEN FINALLY HEARD ON 26-07-2018, THE COURT ON **31-07-2018** , DELIVERED THE FOLLOWING: ## **V. CHITAMBARESH & SATHISH NINAN, JJ.** **= = = = = = = = = = = = = = = = = = Company Appeal No.6 of 2017 = = = = = = = = = = = = = = = = = = Dated this the 31[st] day of July, 2018** ## **J U D G M E N T** ## **Sathish Ninan, J.** The company petition was filed by the appellant herein for winding up of the respondent Company, alleging “inability to pay debt” due to the petitioner in terms of Section 433(e) and Section 434(1)(a) of the Companies Act, 1956, hereinafter referred to as “the Act”. 2. The appellant is a freight forwarding agent of M/s Energy Freight Forwarding Ltd. The respondent company used to place orders through the appellant and there had been business transactions between them for the past several years. It appears to be not in dispute that with respect to the transactions, there is a running account between the parties. The winding-up petition is filed on the averment that, in respect of the past Company Appeal No.6 of 2017 :- 2 :- transactions, an amount of `66,69,113/- with interest thereon is due to the appellant from the respondent, which the respondent is evading payment. Under Section 433(e) of the Act, a company could be wound up on its inability to pay debt; in terms of Section 434(1)(a) of the Act, “inability to pay debt” is presumed when there is a neglect to pay. The appellant prays that in view of the refusal to pay, an order of winding up of the respondent company is to be passed. 3. The respondent contended that they had purchased foreign liquor from M/s ALDESA SA, Spain, the consignee of which was the appellant. The consignment was to be delivered at the Cochin Port on or before 13.09.2010. The goods were discharged at Cochin Port only on 04.03.2013. It was found that the goods were damaged and unfit for human consumption. It was destroyed under orders of the Customs Authority. It is claimed that the respondent suffered damages thereby and they are entitled to realise the same from the appellant. They have appropriated the amounts that were Company Appeal No.6 of 2017 :- 3 :- outstanding to the appellant towards part of the damages, and for the balance amount steps for recovery have been initiated. Thus, the respondent sets up a defence that there has been no neglect to pay the demand of the appellant. The learned Company Judge found that there was a bona fide dispute which is substantial in nature and therefore, it could not be considered as a case of neglect to pay under Section 434(1)(a) of the Act. 4. The relevant provisions of the Act are extracted hereunder for the sake of convenience:- “ **433.** A company may be wound up by the Court,─ (a) xxxxx xxxxx xxxxx (b) xxxxx xxxxx xxxxx (c) xxxxx xxxxx xxxxx (d) xxxxx xxxxx xxxxx (e) if the company is unable to pay its debts; (f) xxxxx xxxxx xxxxx **434** (1) A company shall be deemed to be unable to pay its debts─ (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding Company Appeal No.6 of 2017 :- 4 :- five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; (b) xxxxx xxxxx xxxxx (c) xxxxx xxxxx xxxxx, ” Going by Section 433(e) of the Act, a company may be wound up if it is unable to pay its debts. In terms of Section 434(1)(a) of the Act, a company shall be deemed to be unable to pay its debts if the company neglects to pay the debt in spite of a demand. Therefore, essentially the question for determination is whether there has been “neglect to pay a debt” by the respondent. If there is a bona fide dispute regarding the very existence of the debt itself, it could not be said that there is neglect to pay. 5. In _**Amalgamated Commercial Traders Pte. Ltd. v. Krishnaswami [(1965) 35 Comp Case 456 (SC)]**_ , the Apex Court Company Appeal No.6 of 2017 :- 5 :- held that it is well settled that a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. It was held that, “If the debt was bona fide disputed, as we hold it was, there cannot be “neglect to pay” within Section 434(1)(a) of the Act. If there is no neglect the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated”. In _**M.Gordhandas & Co. v. Madhu Woollen Indus. P. Ltd. [(1972) 42 Comp Case 125 (SC)]**_ , the Apex Court held that, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The Apex Court held thus:- “..... 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.” In _**Mediquip systems (P) Ltd. v. Proxima Medical System Gmbh [(2005)**_ Company Appeal No.6 of 2017 :- 6 :- _**7 SCC 42]**_ while reiterating the principles above referred to, it was held that an order under Section 433(e) of the Act is discretionary. Therein the Apex Court referred to the decision of the Bombay High Court in _**Softsule (P) Ltd. [(1977) 47 Comp Case 438 (Bom)]**_ wherein it was held that if the debt is bona fide disputed, there cannot be “neglect to pay” within the meaning of Section 433(1)(a) of the Act. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated. The decision of the Madras High Court in _**Tube Investments of India Ltd. v. Rim and Accessories (P) Ltd. [(1990) 3 Comp LJ 322 Page 326]**_ holding that if there is a dispute as regards the payment of the sum towards the principal, however small that sum may be, a petition for winding up is not maintainable and the necessary forum for determination of such a dispute existing between parties is a civil court, was also relied upon. In _**IBA Health (I) (P) Ltd. v. Info-Drive Systems Sdn. Bhd. [(2010) 10 SCC 553],**_ the Apex Court held Company Appeal No.6 of 2017 :- 7 :- thus:- “..... A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding-up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding-up petition as a means of forcing the company to pay a bona fide disputed debt.” Therefore, in substance, what is to be looked into is, whether prima facie there is a bona fide dispute regarding the debt. 6. With the above legal proposition in mind, the facts need to be evaluated. Ext.R1(e) is a Company Appeal No.6 of 2017 :- 8 :- letter dated 31.03.2011 sent by the appellant to its principal M/s Energy Freight Forwarding Ltd. The said letter refers to the consignment in question. It is acknowledged therein that there has been a claim made by the respondent herein against the appellant regarding non-delivery of the consignment. It has been cautioned therein that in case of delay, the respondent herein may initiate legal proceedings against them. Ext.R1(a) is the communication by the respondent to the appellant herein dated 11.04.2011 raising concern regarding non-delivery of the cargo and making a claim for damages. It is relevant to note that the appellant herein filed Admirality Suit No.4/2011 before this Court against the vessel and its owners for recovery of the value of the consignment with interest, and on the application of the appellant herein, the respondent was impleaded therein as an additional defendant. Ext.R1(c) is a communication dated 02.02.2012 sent by the respondent to the appellant. The said letter confirms that amounts are due to the appellant, but states that the Company Appeal No.6 of 2017 :- 9 :- amount is kept as security deposit on account of the non-delivery of the consignment of liquor in question. The materials on record does not evidence any objection having been raised by the appellant regarding the same. As per Annexure-B balance confirmation letter dated 09.01.2013, the respondent acknowledged that amounts are due to the respondent. Ext.R1(d) is a communication dated 05.10.2013 by the respondent to the appellant wherein it has been stated that the respondent has suffered loss and damages on account of the nondelivery of the consignment, and raised a claim for `1,06,90,967/-. It was further noted in the communication that an amount of `66,69,113/-, which was due to the appellant, maintained as security deposit, has been adjusted towards part of the amount due and balance amount of `40,21,854/- is due to the respondent. Thereafter, O.S. No.140/2013 has been filed before the Subordinate Judge's Court, Kochi, for recovery of an amount of `40,21,854/- referred to above. The appellant herein has filed O.S. Company Appeal No.6 of 2017 :- 10 :- No.235/2015 before the Sub Court, Ernakulam, against the respondent herein as defendant for realisation of the amount of `66,69,113/- with interest thereon, which amounted to `88,44,152.36/- as on the date of the suit. The said two suits and the Admirality Suit are pending. 7. On the facts as noticed supra, it could only be concluded that there is a bona fide dispute raised by the respondent regarding the debt claimed by the appellant. The learned Company Judge has rightly held so. There is no material to arrive at a different conclusion. The appeal lacks merits and is accordingly dismissed. **Sd/V. CHITAMBARESH JUDGE** **Sd/SATHISH NINAN JUDGE** kns/- //True Copy// P.S. to Judge