# MIS. VIJAY INDUSTRIES v. M/S. NATL TECHNOLOGIES LTD - **Citation:** [2008] 17 S.C.R. 972 - **Court:** Supreme Court of India - **Decided:** 2008-12-17 - **Case number:** Civil Appeal No. 7352 of 2008 - **Bench:** S.B. Sinha, Cyriac Joseph - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-vijay-industries-v-m-s-natl-technologies-ltd-24083 - **Pages:** 31 ## Headnote . Companies Act, 1956 - ss. 433 and 434 - Winding up petition under - Maintainability of - Interest payable on the c sum due whether debt to attract ss. 433 and 434 - Held: Failure to pay agreed interest or statutory interest would be 'debt' - s.433 does not state that debt must be a definite sum - On facts, failure of purchaser to pay price for the goods to supplier on presentation of invoices - Credit bill signed by D purchaser's representative contained clause for payment of interest on delayed payments - Purchaser agreed to compensate supplier for delay in payment and never denied demand of interest - Supplier issued notices that payments ' had been adjusted towards interest first and balance would be ,r· adjusted towards principal, thus, a prima face case was 1J7ade E out - On receipt of legal notice also purchaser did not make payment to liquidate debt - More so, when application for winding up filed, dues were more than the amount specified in s.433 - Thus, High Court not justified in setting aside application for winding up admitted by Company Judge - In F the interest of justice, purchaser directed to pay simple interest on admitted sum @ 12% pa on the balance amount instead of 24% pa within the specified period. ., Interest - Grant of - Held: Interest is infer alia payable by way of restitution - It is also payable in terms of s.62(1)(a) G of Sale of Goods Act; s.3 of Interest Act, 1978 as also ss.5 and 6 of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. Appellant-small scale unit was supplying Castor Oil ')'-- to the respondent-company. The invoices of credit bills H 972 M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 973 -, • LTD . - contained a clause that the amount was to be paid within A .... seven days, else buyer would be liable to pay 2% interest ... per month. The representative of the respondent_signed ._:.; the credit bill. Respondent did not pay the complete price of the said supplies on presentation of the invoices. Appellant adjusted the amount first towards interest at the B stipulated rate and balance against the principal amount. Appellant raised the demand but the respondent did not make the payment. Parties negotiated as regard the ~ manner of.making payment. Appellant agreed to restore supply of Castor Oil provided the ,respondent deposited c the outstanding dues. Certain sum was paid and the appellant refused to make further supplies. A meeting took place. Respondent agreed to square up the old dues and also agreed to compensate respondent for the delay in payment on account of earlier supplies. The said agreement was not adhered to. Appellant issued a notice D u/s. 434 of the Companies Act, 1956 to the respondent ) that if payment is not paid after availing the credit period, ~ respondent would be liable to pay interest @ 2% pm. Respondent was to pay Rs. 65, 15,947 with interest @ 2% pm. Respondent did not deny or dispute demand of E interest and according to it Rs. 16,80,468/ was due. But the said amount was not paid. Appellant filed a winding c up petition u/s. 433(e) and 433(f) r/w s. 439 of the Act. ' Single Judge admitted the company petition and held that a prima facie case was made out therefor h~ving F regard to the correspondences passed between the ~ parties, the credit bills and also the minutes of the meeting. Respondent filed an appeal. Division Bench of High Court allowed the same. Hence the present appeal. Allowing the appeal, the Court G HELD: 1.1 Circumstances in which a company may be wound up by the court are contained in s. 433 of the -\ Companies Act, 1956. If a company is unable to pay its debts as contained in Clause (e) thereof, it would be one / of the grounds therefor. Section 434 raises a legal fiction H 974 SUPREME COURT REPORTS (2008]. 17 S.·G.R r A as to when the company would be deemed to be unable to pay its debts. On a plain reading of clause (a) of sub- ~ e-, section (1) of s.434, it is evident that what is necessa ## Text _Characters 0–39,901 of 61,487. This is a partial read: ask again with offset=39901 for what follows._ [2008] 17 S.C.R. 972 A MIS. VIJAY INDUSTRIES v. M/S. NATL TECHNOLOGIES LTD. (Civil Appeal No. 7352 of 2008) B DECEMBER 17, 2008 [S.B. SINHA AND CYRIAC JOSEPH,. JJ.] . Companies Act, 1956 - ss. 433 and 434 - Winding up petition under - Maintainability of - Interest payable on the c sum due whether debt to attract ss. 433 and 434 - Held: Failure to pay agreed interest or statutory interest would be 'debt' - s.433 does not state that debt must be a definite sum - On facts, failure of purchaser to pay price for the goods to supplier on presentation of invoices - Credit bill signed by D purchaser's representative contained clause for payment of interest on delayed payments - Purchaser agreed to compensate supplier for delay in payment and never denied demand of interest - Supplier issued notices that payments ' had been adjusted towards interest first and balance would be ,r· adjusted towards principal, thus, a prima face case was 1J7ade E out - On receipt of legal notice also purchaser did not make payment to liquidate debt - More so, when application for winding up filed, dues were more than the amount specified in s.433 - Thus, High Court not justified in setting aside application for winding up admitted by Company Judge - In F the interest of justice, purchaser directed to pay simple interest on admitted sum @ 12% pa on the balance amount instead of 24% pa within the specified period. ., Interest - Grant of - Held: Interest is infer alia payable by way of restitution - It is also payable in terms of s.62(1)(a) G of Sale of Goods Act; s.3 of Interest Act, 1978 as also ss.5 and 6 of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. Appellant-small scale unit was supplying Castor Oil ')'-- to the respondent-company. The invoices of credit bills H 972 M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 973 -, • LTD . - contained a clause that the amount was to be paid within A .... seven days, else buyer would be liable to pay 2% interest ... per month. The representative of the respondent_signed ._:.; the credit bill. Respondent did not pay the complete price of the said supplies on presentation of the invoices. Appellant adjusted the amount first towards interest at the B stipulated rate and balance against the principal amount. Appellant raised the demand but the respondent did not make the payment. Parties negotiated as regard the ~ manner of.making payment. Appellant agreed to restore supply of Castor Oil provided the ,respondent deposited c the outstanding dues. Certain sum was paid and the appellant refused to make further supplies. A meeting took place. Respondent agreed to square up the old dues and also agreed to compensate respondent for the delay in payment on account of earlier supplies. The said agreement was not adhered to. Appellant issued a notice D u/s. 434 of the Companies Act, 1956 to the respondent ) that if payment is not paid after availing the credit period, ~ respondent would be liable to pay interest @ 2% pm. Respondent was to pay Rs. 65, 15,947 with interest @ 2% pm. Respondent did not deny or dispute demand of E interest and according to it Rs. 16,80,468/ was due. But the said amount was not paid. Appellant filed a winding c up petition u/s. 433(e) and 433(f) r/w s. 439 of the Act. ' Single Judge admitted the company petition and held that a prima facie case was made out therefor h~ving F regard to the correspondences passed between the ~ parties, the credit bills and also the minutes of the meeting. Respondent filed an appeal. Division Bench of High Court allowed the same. Hence the present appeal. Allowing the appeal, the Court G HELD: 1.1 Circumstances in which a company may be wound up by the court are contained in s. 433 of the -\ Companies Act, 1956. If a company is unable to pay its debts as contained in Clause (e) thereof, it would be one / of the grounds therefor. Section 434 raises a legal fiction H 974 SUPREME COURT REPORTS (2008]. 17 S.·G.R r A as to when the company would be deemed to be unable to pay its debts. On a plain reading of clause (a) of sub- ~ e-, section (1) of s.434, it is evident that what is necessary . / for invoking the said provision is that despite service of notice, company which was indebted i.n a sum exceeding ~ B one lakh rupees then due failed and/or neglected to paY- ....- the same within three weeks thereafter or to secure or ... compound for it to the reasonable satisfaction of the- ~ ,_ creditor. [Paras 28 and 29] [989-D, E, H; 990-C-D] '" 1.2. Section 433 of the Act does not state that the ~· >- debt must be precisely a definite sum. Failure to pay 'r c ' agreed interest or the statutory interest would come within the purview of the word.'debt'. It is one thing to say that the amount of debt is not definite or ascertainable because of the bona fide dispute raised thereabout or D there exists a dispute as regards quantity or quality <>f supply or such other defences which are available to the purchaser; but it is another thing to say that although the \. due as regards the principal amount resulting from the quantity or quality of supply of the goods stands r ' admitted but a question is raised as to whether any ~ E agreement had been entered into for payment of interest or whether the rate of interest would be applicable or not. I . In the latter case, the application for winding up cannot • be dismissed. [Para 33] [992-D-G] I 1.3. In the instant case, despite receipt of a legal F notice dated 23.12.2003, no payment was made to liquidate the .debt on the part of the company. Appellant , had been supplying Castor Oil to the respondent. Respondent did not pay the price of the said. supplies, on presentation of the invoices. It also stands admitted G that the parties negotiated as regards the manner in which the payments could be 'fhade. In a meeting held on 25.11.2003, promises were made to square up the old outstanding dues and bring it into the system for the >-, purpose of rotation. The agreement sp~ke of payment of compensation to the appellant for the delay in payment .,. H • M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 975 LTD. on account of earlier supplies after clearing the entire old A .. dues. There cannot be any doubt whatsoever that when, ~ in principle, the respondent had agreed to compensate ""' ~ the appellant for the delay in payment, the same must be by way of interest payable on the principal amount or otherwise. Respondent never denied the demand of B interest as such, but in its reply dated 30.12.2003 merely stated that a sum of Rs. 16,80,468 was due. [Paras 30 and 31] [990-D; 991-A] ~ 1.4. On the date of filing of th~ application, dues in respect of at least a part of the debt which was more than c the amount specified in Section 433 of the Companies Act was not denied. It is not a requirement of the law that the entire debt must be definite and certain. Division Bench of the High Court proceeded on the basis that the entire sum covering both the principal and the interest must be D undisputed. Division Bench upon noticing the fact of the matter formulated the question "as to whether .> respondent is liable to pay interest at 2% pm on delayed -"I payments and what that is being disputed would it constitute prima facie a valid ground for admission of the company petition". It held that it cannot be presumed E prima facie that the respondent is unable to pay its debt .. [Paras 37 and 38] [996-998-F-G; D, E] 1.5. The findings of the High Court are not correct for more than one reason; firstly, because the Division Bench did not hold that the invoices were not proved by cogent F l evidence; secondly, question of leading evidence would arise only after the company petition is admitted and, thirdly, issuance of invoices and signature of the respondent thereon is not disputed. The judgment of the Division Bench also contains a legal flaw insofar as it G failed to take into consideration that the appellant had in fact issued three notices dated 6.01.2003, 8.09.2003 and ~. legal notice dated 23.12.2003 specifically mentioning that the payments had been adjusted towards interest first -< and balance, if any, shall be adjusted towards the H 976 SUPREME COURT REPORTS [2008] 17 S.C.R. ,, A principal. Thus, a prima face case was made out. [Paras 39 and 40] (998-F-H; 999-A] .. ~ Stephen Chemical Limited v. lnnosearch Limited (1986) ~ 60 CC 702; Rashid Leathers (P) Ltd. v. Super Fine Skin ,Traders (1990) 68 CC 684; Devendra Kumar Jain v. Polar 8 Forgings and Tools Ltd. (1995) 84 CC 766; Multimetals Ltd. v. Suryatronics Pvt. Ltd. (1997) 89 CC 259; Bombay Glass Blowing Industries v. Bio Vaccines Pvt. Ltd. (1999) 98 CC 17 4; Ultimate Advertising and Marketing v. G.B. Laboratories Ltd. (1989) 66 CC 232; Mis. Ultimate Advertising and c Marketing New Delhi v. G.B. Laboratories Ltd., Kanpur AIR 1998 Allahaba.d 320; Kitply Industries Ltd. v. Hari Narain and Sons Pvt. Ltd. (1998) 91 CC 715; Jyothi Limited v. Boving Fouress Limited (2001) 3 Comp LJ 413 (Karn); Southern Industrial Polymers (P) Ltd. v. Amar Formulators and D Electronics (P) Ltd. (1984) 56 CC 77 (Karn); Anand Steel v. Bharat Earth Movers Ltd. (1987) 3 Comp LJ 175 (Karn); Unisystems (P) Ltd. v. Stepan Chemical Ltd. (1985) CC 875 (P&H); Gangadhar Narsinghdas Agrawal v. Timble (P) Ltd. .. (1996) 5 Comp LJ 342 (Born); Unisystems P. Ltd. v. Stepan , Chemical Ltd. (1986) 60 CC 753; Universal Bearing Agency E v. Wpil Limited 2006 (2) ·cHN 530; Amalgamated Commercial Traders (P.) Ltd. v. A. C.J<. Krishnaswami and Anr. (1965) 35 CC 456; Mis. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. (1971) 3 SCC 632; Pfizer .. Ltd. v. Usan Laboratories P. Ltd. (1985) 57 CC 236; /spat F Industries Ltd., in RE (2005) 2. Comp LJ 235; · Mediquip Systems (P) Ltd. v. Proxima Medical System GMBH (2005) 7 SCC 42 and Tube (nvestments of India Ltd. v. Rim and Accessories (P) Ltd. (1990) 3 Comp LJ 322, referred to. Re. Tweeds Garages Ltd. 1962 Ch 406, referred to.' G 2. An interest is inter alia payable by way of restitution. Interest is also payable in terms of the provisions of Section 62(1 )(a) of the Sale of Goods Act. >- Interest may be held to be payable in terms of Section 3 of the Interest Act, 1978 as also in terms of Sections 5 and ~ ~ H "· M/S. VIJA Y INDUSTRIES v. MIS. NATL TECHNOLOGIES 977 LTD . ... 6 of the Interest on Delayed Payments to Small Scale and A Ancillary Industrial Undertakings Act, 1993. [Paras 41 and 1 42] [999-B; 1000-A-H] ~· Clariant International Ltd. and Another v. Securities & Exchange Board of India (2004) 8 SCC 524; Alok Shanker Pandey v. Union of India and Ors. (2007) 3 SCC 545; Meka B Venkatadri Appa Rao Bahadur Zamindar Garu and Ors. v. Raja Parthasarathy Appa Rao Bahadur Zamindar Garu AIR 1922 PC 233; Meghraj and Ors. v. Mst. Bayabai and Ors. 1969 (2) SCC 27 4; Gurpreet Singh v. Union of India (2006) 8 SCC 457; Krishna Chemicals v. Orient Paper and c Industries Ltd. (2005) 128 CC 72 and Assam Small Scale Industries Development Corpn. Ltd. and Others v. J.D. Pharmaceuticals and Anr. (2005) 13 SCC 19, referred to. 3. The judgment of the High Court is set aside. Interest of justice would be subserved if in exercise of D jurisdiction under Article 142 of the Constitution of l!:ldia the respondent is directed to pay simple interest on the ) . admitted sum at the rate of 12% per annum on the " balance amount instead of 24% per annum Within eight weeks from the date of amount became due till it is paid E failing which the consequences provided in law shall ensue. [Para 43] [1001-G-H; 1002-A-B] Case Law Reference: • (1986) 60 cc 702 Referred to. Para 18 (1990) 68 cc 684 Referred to. Para 18 F (1995) 84 cc 766 Referred to. Para 18 (1997) 89 cc 259 Referred to. Para 20 (1999) 98 cc 174 Referred to. Para 20 (1989) 66 cc 232 Referred to. Para 21 AIR 1998 Allahabad 320 Referred to. Para 23 G (1998) 91 cc 715 Referred to. Para 24 (2001) 3 Comp LJ 413,(Karn) Referred to. Para 25 -( (1984) 56 CC 77 (Karn) Referred to. Para 25 - (1987) 3 Comp LJ 175 (Karn) Referred to. ·Para 25 ~ H 978 SUPREME COURT REPORTS [2008] 17 S.C.R. "" . - A (1985) CC 875 (P&H) Referred to. Para 25 (1996) 5 Comp LJ 342 (Bom) Referred to. Para 25 (1986) 60 cc 753 Referred to. Para 26 ~ (2006) 2 CHN 530 Referred to.· Para 27 (1965) 35 cc 456 Referred to. Para 31 B (1971) 3 sec 632 Referred to. Para 32 1962.Ch 406 Referred to. Para 34 (-1985) 57 cc 236 Referred to. Para 34 (2005) 2 Comp LJ 235 Referred to. Para 34 ~- c (2005) 1 sec 42 Referred to. Para 35 (1990) 3 Comp LJ 322 Referred to. Para 36 (2004) s sec 524 Referred to. Para 41 (2007) 3 sec 545 Referred to. Para 41 AIR 1922 PC 233 Referred to. Para 41 D (1969) 2 sec 274 Referred to. Para 41 (2006) 8 sec 457 Referred to. Para 41 (2005) 128 cc 72 Referred to. Para 42 .. (2005) 13 sec 19 Referred to. Para 42 f E CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7352 of 2008. From the final Judgment and Order dated 14.3.2005 of the High Court of Andhr'a Pr~desh at Hyderabad in Origin~I Side Appeal No. 64 of 2004. F Gourab Banerji, Saurav Agrawal, Gautam Jha and Ruby Singh Ahuja for the Appellant P.S. Narsimaha, P. Nagesh, L. Roshmani and Sudhir " Nandrajog for the Respondent. G The Judgment of the Court was delivered by S.B. SINHA, J. 1. Leave granted. 2. Whether interest payaole on the sum due would be a ,>- debt s9 as to attract the provisions of Sections 433 and 434 of the Companies Act, 1956 is the question involved herein. "!9 H M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 979 LTD. [S.B. SINHA, J.] 3. Before, however, adverting to the said question, we may A notice the fact of the matter. ~ Appellant is a small scale unit registered with the District ~ Industries Centre. Admittedly, it suppiied Castor Oil to the respondent valued at Rs. 89, 13,589/-. A sum of Rs. 49,99,000/ - had been paid by the respondent. The invoices of the credit B bills attached with each of the supply contained a clause relating · to payment of interest in the following terms: "amount must be paid within seven days or you are liable • to pay 2% interest per month." 4. ·it is not in dispute that at the foot of each credit bill an c _,... . officer of the respondent - company had put its signatures as a token of acceptance: 5. Appellant is said to have adjusted the amount first towards interest at the stipulated rate and balance against the D principal amount. As despite demand the amount due and owed to it was not paid by the respondent, a legal notice was ; served upon it claiming interest on the said sum. It was stated that the appellant had appropriated account of payments made -~ by it against the interest and balance, if any, against the principal amount. On the basis thereof, a demand for a sum of E Rs. 64,58,457/- together with future interest at the rate of 2% per month was raised. The said legal notice was replied by the respondents, stating: "We have received a legal notice from Sri Rao Raghunandan, Advocate dt. 06.01.2003. You are aware F _that after making payment of Rs. 10.00 lakhs towards Castor Oil Supplies to our plant, we have received a notice under. Section 226 (3) of the Income Tax, 1961 from the Income Tax Department. As per the notice, we are directed to pay the amounts due to you on account of Castor Oil G supplied directly to the department in view of your dues to the department to an extent of Rs. 25,43,737/-. Subsequently, we have paid by way of cheques to Income --{ Tax Officer Ward-8(3) on account of supply of castor oil as - H A B c D E 980 SUPREME COURT REPORTS [2008] 17 S.C.R. detailed below:- Cheque No. Bank Dated 09.08.02 09.09.02' Amount (Rs.~ 2,00,000/- 3,34,868/- 5,,34,868/- 074013 Allahabad Bank 100313 S.B.H. After adjusting the above amounts and our earlier payment of Rs.10.00 lakhs, the balance amount due to your company on account of oil supplies is only Rs~ 27,40,882/-. In view of the notice served by the Income Tax Department, we could not arrange any payment directly to your company. This matter was brought to your notice and also advised you to obtain a direction from the Income Tax Department to pay the dues directly to your company. In the circumstances, we have not intentionally defaulted in making ai:rangements for the payment of your dues on account of Castor Oil Supplies from time to time. We request you kindJy to obtain the clearance, so as to enable us to arrange payment of the outstanding amount due to you amounting to Rs. 27, 40,882/-. In the circumstances, we request you to kindly advice your advocate to withdraw the legal notice served on us forthwith." 6. Without disputing its liability, however, in view of the correspondence that exchanged between the parties, the F · respondent offered to pay a sum of Rs. 2,00,000/~ per week to the appellant beginning from April, 2003. It is on that assurance the appellant is said to have agreed to restore supply of Castor Oil provided it deposited 50% of the outstanding dues G H and remaining 50% at the rate of Rs. 2,00,000/- per Week. 7. In its lett~r dated 8.09.2003, the respondent stated: " ... We have accounted your payments against the interest and balances against Castor Oil Supplies approximately. On such account being taken the balance of Rs. 64, 58,457/- upto November, 2002. Accordingly, the balance - MIS. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 981 LTD. [S.B. SINHA, J.] upto 31st March, 2003 stands Rs. 69, 75, 134/-. This A amount carries interest@ 2 % per month." 8. A sum of Rs. 8 lakhs was paid in between the period 19.04.2003 to 11.07.2003. As evidently, the appellant refused to make further supplies, a meeting took place, the minutes whereof reads, thus: B "As per the discussion regarding the old outstanding and for the continuity of the Business at present, Vijaya Industries is rotataing, One Tanker load for the payment arrangement towards old outstanding. The Representatives of NATL Technologies Ltd. have agreed C to arrange payment for the values of 2 truck loads of Castor Oil in the month of December. Against the above payment, the Company representative Sri Jagadish Prasad agreed for supply of Three Tanker loads including the existing One Tanker load which is already supplying. o Basing on the convenience and as per the discussions from time to time NATL have agreed to square up the old outstandings and bring in to the system for the rotation. Also in principle agreed to compensate Vijaya Industries for the delay in payment on account of earlier E supplies after clearing the entire old dues." 9. As the said agreement between the parties arrived at in the said meeting was not adhered to, on 23.12.2003 a legal notice under Section 434 of the Companies Act, 1956 was served on the respondent, stating: F · " ... My client states that as per the invoices raised l:>y it, you are laible to pay interest at 2% per ll}Onth if payment is not paid after availing the credit period ... " It was further stated: "In view of the above, my client calls upon you to pay G an amount of Rs. 65, 15,947/-with further interest thereon at 2% per month within three weeks from the date of receipt of this notice ... " 10. In its reply to the said legal notice, the respondent did H 982 SUPREME COURT REPORTS [2008] 17 S.C.R. A not deny or.dispute demand of interest. According to it, the total sum due was Rs. 16,80,468/ (sic for Rs. 15, 80,460/-), stating: "In the circumstances, we advice you kindly withdraw the .. )-- .., legal notice dated 23rd December, 2003 so as to enable us to arrange payment for full and final settlement of your B dues amounting to of Rs. 16,80,468/- within two months from the date of this letter." Even that amount was not paid. 11. Appellant filed a winding up petition under Section c 433(e) and 433(f) read with Section 439 of the Companies Act -~ on 23.01.2004. ' 12. Respondent in its counter-affidavit before the learned Company Judge denied its liability to pay its interest for the first time, stating that it was not liable to pay any interest nor it D entered into any agreement in connection therewith. ~ 13. Appellant in its rejoinder contended that the credit bills mentioned that the respondent was liable to pay interest at the rate of 2% per month on delay~d payment. 14. An interim order was passed on 17.02.2004 directing: .,, E "Both the learned counsel agree that the matter can be settled out of Court having regard to the commercial relations between petitioner and respondent for long duration. Sri V.S. Raju, learned counse.1 _for respondent has given a Demand Draft bearing No. 097852, dt. 14.06.2004 F for an amount of Rs. 2,00,000/- (Rupees two lakhs only) drawn on Punjab National Bank, Bank Street, Hyderabad, and six post-dated cheques- five cheques bearing Nos. j ,.. 216948~ 216949, 216950, 216951, 216952 dt.25.07.2004, 25.08.2004, 25.09.2004, 25.10.2004 and G 25.11.2004 respectively, each for an amount of Rs. 2,30,000/- (Rupees two lakhs thirty thousand only), and another cheque bearing No. 216953 dt.25.12.2004 for an amount of Rs. 2,30,468/- (Rupees two lakhs thirty thousand. four hundred and sixty eight only), drawn on State Bank of >- India, Commercial Branch, Secunderabad, in favour of the H petitioner company in Court today. Learned counsel for M/S. VIJAY INDUSTRIES v. M/S. NATL TECHNOLOGIES 983 LTD. [S.B. SINHA, J.] petitioner has received the Demand Drafts, witho~t A prejudice to the claim of the petitioner for interest and ~ seeks time for getting instructions from his client regarding , --..( cheques. Post on 09.07.2004." 15. The learned Single Judge, in view of the stand taken B by the parties, while admitting the company petition by an order dated 10.11.2004 held that a prima facie case has been made out therefor having regard to the corresponqences passed between the parties, the credit bills and also the minutes,-of th~ meeting. c 16. Aggrieved by and dissatisfied therewith, the respondent preferred an appeal. By reaS'on of the impugned judgment, the Division Bench has allowed the said appeal. 17. Mr. Gourab Banerji, learned senior counsel appearing D on behalf of the appellant, would at the outset bring to _our notice that there is a difference of opinion on the issue amongst the ~ different High Courts; one taking a liberal view and another C!l .. strict view . c . "' We have noticed hereinbefore that the defence of the respondent was: E (t) there has been no agreement between the parties • to pay interest; "" (ii) it had not been informed about the adjustment of payments made by it towards interest. F Mr. Banerji would submit that th~ High Court committed a serious error in accepting the aforementioned contentions of the respondent as each of the credit bill was signed by the representative of the respondent - compa~y. 18. The Punjab and Haryana High Court in Stephen .G Chemical Limited. v. lnnosearch Limited ((1986) 60 CC 702], the Madras High Court in Rashid Lea.thers P) Ltd. v. Super -{ Fine Skin Traders ((1990) 68 CC 684] and the Delhi High Court, in Devendra Kumar Jain v. Polar Forgings and Tools Ltd. [(1995) 84 CC 766] took a liberal view of the matter opining· H 984 SUPREME COURT REPORTS [2008] 17 S.C.R. A that even if interest is not payable by way of an agreement, usage or custom, the Company Court will have the requisite jurisdiction to go into such a question and admit a company petition for non-payment of interest on the admitted dues. 19. In Devendra Kumar Jain (supra), a Division Bench of 8 the Delhi High Court, opined: c · "My conclusion is that in a case where the liability to pay the principal amount is not disputed by the company the creditor need not be forced to initiate separate litigation for recovery of the interest amount and the interest amount can be determined by the Company Judge in the winding up proceedings and on failure of the company to pay that amount the Company can,be ordered to be wound up on the ground that it is unable to pay its debts. Interest at the rate of 12% per annum was granted in stead and place of stipulated rate of interest." 20. We may notice the two decisions of the Andhra Pradesh High Court in Multimetals Ltd. v. Suryatronics Pvt. Ltd. [(1997) 89 CC 259] and Bombay Glass Blowing Industries v. Bio Vaccines Pvt. Ltd. [( 1999) 98 CC 17 4] wherein after the E company petition w~s admitted, the parties adduced evidences. A finding of fact was arrived at that there was no written agreement except the printed clause for payment of interest in the invoices. The court did not rely upon the evidence adduced on behalf of the appellant. It was in the aforementioned situation, the said Court in Bombay Glass F Blowing Industries (supra) held that the provisions contained in Section 3 of the Interest Act, 1978 or Section 62(1 )(a) of the Sale of Goods Act, 1930 would not be attracted, stating: G / H "From a reading of Section 61 (2)(a) of the Sale of Goods Act, ft is revealed that it is the discretion of the Court to award interest at such rate as it thinks fit on the amount of price to the seller from date of tender of goods or from the date en which the price was payable and under Section 3 of the Interest Act, at a rate not exceeding the current rate of interest. If the proceedings relate to a debt payable by virtue of a written "instrument at a certain time from the date • .... M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 985 LTD. [S.B. SINHA, J.] when the debt is payable to the date of institution of the - - in the bill relating to interest. Where in the absence of an agreement or contract for payment of interest on the value F of goods supplied, a notice of demand is sent by the -supplier requiring payment of the value of goods supplied ) with interest thereon and a rep1y is sent by the purchaser in general terms seeking time to pay the bill amount, such reply cannot be construed as an admission to pay interest. ~ ._ G Either an agreement to pay interest or a specific admission or promise to pay interest or an order or decree >- granting interest by a court or tribunal empowered to award interest. is a condition precedent to hold that interest is a )- debt due, for the purpose of a winding up petition .. In the H1 absence of a contractual or legal liability, nor act as an M/S. VUAY INDUSTRIES v. M/S. NATL TECHNOLOGIES 989 LTD. [S.B. SINHA, J.] . estoppel in regard to a subsequent denial by the company A in legal proceedings. (d) Where there is a bona fide dispute in regard to interest, the court considering a petition under section 433(e) should not decide the issue, merely to avoid multiplicity proceedings. The purpose of winding up proceedings B being completely different from the purpose of proceedings for recovery of a debt, winding up proceedings are not a substitute for a civil suit, and, therefore, relegating parties to a civil suit cannot be considered as resulting in multiplicity of proceedings." c 27. We may also notice that a Division Bench of the Calcutta High Court in Universal Bearing Agency v. Wpil Limited [2006 (2) CHN 530] followed the decision of the Punjab and Haryana High Court in Stephen Chemical Limited (supra). 28. Keeping in view the aforementioned divergence in the D opinions of the different High Courts, let us consider relevant provisions of the Companies Act. ~ Circumstances in which a company may be wound up by the court are contained in Section 433 of the Companies Act. If a company is unable to pay its debts as contained in Clause E (e) thereof, it' would be one of the grounds therefor. Section 433 (f) of the Companies Act reads as under: "A company may be wound up by the Tribunal, -- (a) *** ***' F (b) *** *** (cY *** *** (d) *** *** (e) *** **"' G (f) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up;" Section 434 raises a legal fiction as to when the company would be deemed to be unable to pc.y its debts: Clause (a) of Sub-section (1) whereof reads as under: H ' 990 SUPREME C0URT REPORTS [2008] 17 S.C.R. • A "(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 one lakh rupees then due, has served on the company, by causing it to be B 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 r. c of the creditor;" 29. On a plain reading of the aforementioned provisions, .. it is evident that what is necessary for invoking the said provision is that despite service of notice, the company which was indebted in a sum exceeding one lakh rupees then due failed D and/ or neglected to pay the same within three weeks thereafter or to secure or compound for it to the reasonable satisfaction of the creditor. ... 30. The fact that despite receipt of a legal notice dated --Jr 23.12.2003, no payment has been made to liquidate the debt E on the part of the company is not in dispute. Admittedly, appellant had been supplying Castor Oil to the respondent. The fact that the respondent did not pay the price of the said supplies, on presentation of the invoices, is also not in dispute. It also stands admitted that the parties negotiated as regards F the manner in which the payments could be made. In a meeting held on 25.11.2003, promises were made to square up the old outstanding dues and bring it into the system for the purpose of rotation. The agreement spoke of payment of compensation to the appellant for the delay in payment on account of earlier supplies after clearing the entire old dues. There cannot be any G doubt whatsoever that when,. in principle, the respondent had . "--. agreed to compensate the appellar:tt for the delay in payment, the same must be by way of interest payable on the principal amount or otherwise. >- 31. Respondent never denied the demand of interest as H such, but in its reply dated f 12.2003 merely stated that a sum t M/S. VIJAY INDUSTRIES v. M/S. NATL TECHNOLOGIES 991 - LTD. [S.B. SINHA, J.] of Rs. 16,80,468 (sic for Rs. 15, 18,460) was due. A -"\ Construction of the aforementioned provision came up for r ....; consideration before this Court in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami and Another[(1965) 35 CC 456], wherein it was held: "It is well-settled that "a winding up petition is not a 8 legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse c • of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been D to dismiss such, petitions. But, of course, if the debt is not ,. disputed on some substantial ground, the court may decide ~ it on the petition and make the order."" 32. Yet again in Mis. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. [(19711) 3 SCC 632], this E Court upon considering Amalgamated Commercial Traders (P.) Ltd. (supra) and various other English cases opined as under: "20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the F \ court will not wind up the company. The court has dismissed a petition for winding up where the creditor ciaimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. G (See London and Paris Banking Corporation) Again, a petition for winding up by a creditor who claimed payment ..J.. of an agreed sum for work done for the company when the . .... company contended that the work had not Qeen properly was not allowed. (See Re. Brighton Club and Horfold Hotel Co.