SHITAL FIBERS LTD. versus INDIAN ACRYLICS LIMITED

Citation: [2021] 4 S.C.R. 203 · Decided: 06-04-2021 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Dismissed

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Judgment (excerpt)

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SHITAL FIBERS LTD.
v.
INDIAN ACRYLICS LIMITED
(Civil Appeal No. 1105 of 2021)
APRIL 06, 2021
[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
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
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
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
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
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
   [2021] 4 S.C.R. 203
203
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
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
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