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Cites 3 docs
Gopalakrishna Pillai vs K.M. Mani on 21 November, 1983
Section 12 in The Sale of Goods Act, 1930
Madhusudan Gordhandas & Co vs Madhu Woollen Industries Pvt. Ltd on 29 October, 1971

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Delhi High Court
J.K. Corporation Limited vs Digipulse India (P) Limited on 26 August, 2002
Author: V Sen
Bench: V Sen

JUDGMENT Vikramajit Sen, J.

1. The Petitioner's contention is that it had entered into a contract with the Respondent for the supply of audio magnetic tapes in strict compliance with the specification and requirements of Messers Philips India Limited (hereinafter referred to as 'PIL'). The supplies were to be made between December 99 and June 2000, and were so done. In May 2000 a 'balance confirmation' was arrived at. Although the Petitioner's letter dated 19.5.2002 to the Respondent contained a request for a confirmation of dues of Rs. 41,20,049/-, since further supplies had been made in that very month for a value of Rs. 3,07,344/-, the Respondent confirmed on that very letter that as on 31st May, 2000 a total sum of Rs. 44,27.393 was outstanding against the Petitioner. Copies of the Purchase Orders placed by the Respondent on the Petitioner together with corresponding Invoices have been filed along with the Petition. On the failure of the Respondent to meet its financial commitments, a statutory notice dated 28th May, 2001 was served on the Respondent in which a demand was record for Rs. 45,78.228 along with interest at the rate of 21 per cent per annum calculated from July 1, 2000. In reply to the said notice the Respondent Company stated, inter alia, that it had confirmed the balance of Rs. 44,27,393 payable by them as on 31.5.2002 although a Debit Note for Rs. 5,92,960/- had already been raised; the officials of the Petitioner including Mr. Y.K. Bhardwaj had admitted and agreed to take the Debit Note into account and had also agreed to reduce the price of further supplies. Significantly, the Respondent had expressed its intentions to clear the balance in due course, and that they had still "not come out of financial crises being suffered". In a subsequent letter dated 20.6.2001 the Respondent had once again stated that they were "making serious and honest efforts to clear your account and we will keep making payments on regular basis as we are hopeful that our company's financial position will improve". In the same letter it had also been stated that "regarding starting business again please give us your best price for regular grade C-60 & C-90 that we can issue purchase order along with full payment in advance as well as partly old payment."

2. In opposition to the petition the Respondent has submitted that the audio magnetic tapes that had been supplied to it by the Petitioner did not conform to the 'Philips grade' and that it was for this reason that there were widespread rejections of the consignment when it was supplied by the Respondent to PIL. In respect of the confirmation of the balance dues it has pleaded as follows:

"On or about 19.5.2002, the Petitioner requested the Respondent to sign the balance confirmation which was required for audit purpose. The Respondent Company singed the same, however, had made it clear to the Petitioner that the Debit Note issued to the Petitioner should be taken into account and in case of any rejection of cassettes in respect of Magnetic Tapes supplied by the Petitioner, appropriate adjustment should be given. Hereto annexed and marked Annexure R-5 is the copy of the letter dated 19.5.2001 issued by the Respondent and accepted by Mr. Y.K.

Bharadwaj, AGM, Marketing on behalf of the Petitioner Company."

3. Reliance has been placed by Respondent's learned counsel on Section 12 of the Sale of Goods Act, 1930. The argument is that since the purchase order had itself indicated that the audio magnetic tapes must be of 'Philips grade', there was an implied warranty to this effect, the breach of which invested the Respondent with the right to treat the contract as repudiated. This very Section, it will be noted, draws a distinction between a 'condition' and a 'warranty' and its determination will depend on the construction of the contract. It is the Respondent's case that the rejections took place in or about September 2001. It has been explained that since the tapes were supplied by the Respondent to PIL and thereafter for onward sale to the latter's customers, it took almost one year for the defects to be noticed and the consequent rejections to be made.

4. In winding-up proceedings it is necessary to keep the following conditions in perspective -

(i) If there is a bona fide dispute and the defense is a substantial one, the Court will not wind-up the company.

(ii) Where the debt is undisputed the Court will not act upon a defense that the company has the ability to pay the debt but the company chooses not to pay it.

(iii) Where the defense of the company is in good faith and one of substance, and the defense is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defense depends, the petition should be rejected.

(iv) The Court may consider the wishes of creditors so long as these appear to be justified.

(v) The machinery of winding-up should not be allowed to be utilised merely as a means of Realizing its debts.

[For the above propositions see Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Anr., (1994) 2 Comp LJ 50 (SC) in which the observation in Amalgamated Commercial Traders (P) Ltd. v.

Krishnaswami, [1965] 35 Comp. Case 456 (SC) and Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Cas. 125 (SC) have been paraphrased].

(vi) If the stance of the adversaries hangs in balance it is always open to the Company Court to order the Respondent Company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any. [see Civil Appeal No. 720 of 1999 arising out of SLP (C) No. 14096 of 1998 - Nishal Enterprises v. Apte Amalagamations Ltd., decided on February 5, 1999].

It appears to me that the following point may be added to the foregoing consideration.

(vii) Generally speaking, an admission of debt should be available and the defense that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favor of the petitioners, such disputes can be properly adjudicated only in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order xxxvII of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction, it would have granted unconditional leave to defend, it must dismiss the winding-up petition.

5. Applying the above considerations to the facts of the present case it cannot be lost sight of that the Respondent had confirmed a balance of Rs. 44,27,393 as on 31.5.2000. The only contemporaneous and ascertained amount which the Respondent can be given benefit of in these proceedings is the Debit Note for Rs. 5,92,960/-. Mr. Jay Salva, learned counsel appearing on behalf of Respondent, had argued that audio tapes for a total value of Rs. 28,50,000/- have been returned by PIL for the reason of their being sub-standard and not of Philips grade.

6. The Hon'ble Supreme Court has clarified in Gopalakrishna Pillai v. K.M. Mani, , that a breach of warranty does not entitle a buyer to reject the goods and his only remedy would be to set up against the seller the breach of warranty in diminution or extinction of the price, or to sue the seller for damages for breach of warranty. It has also been contended that because of the rejection of the goods by PIL the Respondent has incurred heavy damages and that these contracts have now been placed on other parties. Since a considerably long period of almost one year has elapsed between the supply of the goods and their rejection it may be impermissible to allow the Respondent a diminution of price in these proceedings since delivery of the goods would be treated as having been accepted. The Court cannot also close its eyes to the fact that while making the payment of Rs. 50,000/- as late as in June 2001, the Respondent did not state that any further audio magmatic tapes supplies by the Petitioner had been rejected by PIL. The fact that the Respondent had confirmed the balance due as on 31.5.2000 cannot be ignored since it sets up not just a prima facie case but a preponderant claim in the Petitioner's favor. Had the balance confirmation not been available in favor of the Petitioner, the Company Court may have considered it expedient to insist that the Petitioner should avail of the ordinary remedy of filing a civil suit. The delay in setting up the defense or rejection of goods makes it lose credibility.

7. In these circumstances the winding-up petition is admitted. The Respondent is directed to deposit with the Registrar of this Court, within four weeks from today, a sum of Rs. 39,35,268/- calculated in the following manner :

   Principal Amount              Rs. 45,28,228/-
Less Debit Note               Rs.  5,92,960/-
                Total         Rs. 39,35,268/-

From the above amount a sum of Rs. 17,00,000/-, which counsel for the Respondent has stated is admittedly due to the Petitioner, shall be released forthwith. The balance amount shall be invested by the Registrar of this court on the most favorable terms available. The parties may initiate legal proceedings as it may find appropriate including a civil suit etc. within four weeks from today. If this is done, the balance amount shall lie to the credit of the suit. The Petitioner may seek appropriate orders for the release of the amount or part thereof, as the case may be, in those proceedings. The Respondent would be entitled to set-up any defense available to it in those proceedings.

8. On the failure of the Respondent to make compliance the citation shall be published in the Indian Express (English), Nav Bharat (Hindi) and Delhi Gazette, returnable for 25.9.2002. It is made clear that in such an event a Provisional Liquidator is likely to be appointed on the next date of hearing keeping in view the fact that the Respondent has itself mentioned in its letters that it is undergoing financial problems.

9. Renotify the matter on 1.11.2002.