Corporate Updates – Saturday Case Law Special

Case Law

There can be no presumption of inability to pay debts where the same are not accepted as such. Proceedings before a company court are not recovery proceedings.

In the matter of M/s Nakshatra Steel Sales & Services Limited V/s. M/s Radlay Metal Products Private Limited, the Hon’ble High Court of Delhi has decided the matter with regard to the delayed payment charges claimed by the petitioner, the same can by no stretch be considered to be a debt admitted by the respondent. Mere mentioning a stipulation with regard to delayed payment interest in a bill or invoice would not per se constitute agreement for payment of interest. The Court did not accept that the respondent company was unable to pay its debts and is liable to be wound up by virtue of Section 433(e) of the Act.

Facts of the Case

1. The petitioner company supplied various iron and steel products to the respondent company as per agreed specifications. The petitioner had raised various bills for the materials supplied and the petitioner had provided the details of the invoices which have remained unpaid.

2. The respondent company had failed to make the payment of the bills amounting to Rs. 1,18,11,927/- despite receiving the delivery of products.

3. The petitioner had further stated that the respondent is liable to pay interest at the rate of 4% per month on the delayed payment. The said rate of interest had been agreed and specifically mentioned in the invoices raised by the petitioner.

4. The late payment charges were not claimed as penalty but as pre-determined assessment of loss suffered by the supplier petitioner on account of any delay in the payment. Therefore, the petitioner has claimed and is entitled for an amount of Rs. 43,14,976/- as late payment charges.

5. The respondent issued various cheques for an amount aggregating to Rs. 81,46,886/- in discharge of its liabilities, however, the said cheques were dishonoured.

6. The respondent failed to pay the said amounts within the time specified in the notices therefore, the petitioner initiated proceedings under section 138 of NI Act and filed Criminal Complaint.

7. The respondent replied to the said notices, by its separate repliesand raised the issue of the inferiorquality of goods being supplied by the petitioner and non-adjustment of a debit note.

8. The petitioner also sent a statutory notice under section 434(1)(a) of the Act, demanding the amount of Rs. 1,18,11,927/- along with late payment charges.

9. The said statutory notice elicited no response from the respondent company and therefore, the petitioner filed the present winding up petition.

10. Subsequently, the respondent company filed applications in the proceedings initiated under section 138 of the NI Act before the Metropolitan Magistrate, Saket, Delhi, for making the payments of the amounts reflected in the dishonored cheques.

11. Magistrate rejected the said application as the petitioner had declined to accept the said amount.

12. The respondent filed a reply to the petition, raising disputes regarding the quality of goods supplied by the petitioner and further stated that the amount claimed by the petitioner did not account for a debit note.


After hearing the learned councils of both the parties the high court held.

1. A petition for the winding up of the company under Section 433(e) of the Act is maintainable if the company is unable to pay its debt. In the present case the substantial parts of the amount claimed by the petitioner is undisputedly payable by the respondent which indicates that the respondent company is able to pay its debts and could not be considered as commercially insolvent.

2. It is trite law that the proceedings before a company court are not recovery proceedings and the company court cannot be used as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt.

3. Relying on the Judgment of the Supreme Court in the case of IBA Health (I) (P) Ltd. v. Info-Drive Systems Sdn. Bhd.: (2010) 10 SCC 553. A company court should not exercise its discretionary power provided under Section 433 of the Act where there is ample material on record to substantiate the fact that there are substantial and bona fide disputes against the amount claimed by the creditor of the company.

4. The present petitions and the pending applications are dismissed with cost quantified at Rs. 5,000.


In the present case, Petitioner had raised a claim towards the supplies made to the respondent. The respondent, disputed the claim of the petitioners on the ground that the petitionersupplied inferior quality material due to which the respondent alleged that it had suffered huge lose which the petitioners were liable to make good. Dispute existed before issuance of statutory notice u/s 433(1) A of the Companies Act, 1956.

Therefore it was strongly advisable that a Company Court, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the company to pay a debt which is substantially disputed. A Company Court, therefore, should be guarded from such vexatious abuse of the process and cannot function as a debt collecting agency and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere.

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