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Delhi High CourtIndian Cases

Hansa Industries (P) Limited vs Mmtc Ltd. on 30 July 2004

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Delhi High Court
Hansa Industries (P) Limited vs Mmtc Ltd. on 30 July, 2004
Equivalent citations: [2005]124COMPCAS314(DELHI), 113(2004)DLT474, 2004(76)DRJ269
Author: A.K. Sikri
Bench: A.K. Sikri
JUDGMENT

A.K. Sikri, J.

1. The petitioner herein has filed this winding up petition under Sections 433(e), 434 and 439 of the Indian Companies Act, 1956 (hereinafter referred to as `the Act’) seeking winding up of the respondent company, namely, The Minerals and Metals Trading Corporation of India Limited (`hereinafter referred to as `the respondent company’). It is a public sector undertaking. The cause for filing the present petition has arisen in the following circumstances:

2. The petitioner is the agent of M/s Thyssen Stahlunion GmbH, Germany ((hereinafter called `the principals’). For the relevant period i.e. in the year 1990, MMTC Ltd. was the canalising agency for import of steel etc. Any party in India seeking import of goods of this kind had to move through the respondent company. Another public sector undertaking, Hindustan Petroleum Corporation Limited (HPCL) was in need of such material. In order to facilitate this import for HPCL, the respondent company placed an order dated 11th January, 1990 on the principals. The purchase order also specifies the HPCL as the consignee and the port of discharge of goods was Bombay whereas the port of loading was North Sea Port. In fact before placing this order, the respondent company had floated Tenders Enquiry No.MMTC/99/Tender-262 A/HRSH/89 dated 1st November, 1989, and accepting the tender of the principals, the order in question was placed.

3. Total quantity ordered was 4000 M.T. deep drawing quality H.R. Steel sheets as per IS: 6240-1976 Grade B specification for manufacture of low pressure gas cylinders for a price of DM 37,52,000. In Column 8 of the purchase order name of the petitioner company is stated as an authorised representative of the principals. In column 18 it is mentioned that the agency commission would be DM 18,760 i.e. at the rate of 0.5% of C&F value.

4. The purchase order was duly executed with the petitioner company providing agency services in India, representing the principals. The consignee, namely, HPCL had opened the Letter of Credit (LoC) for a total value of DM 37,52,000 through State Bank of India, Commercial Branch, Bombay. It has come on record that after the first consignment, the respondent company wrote letter dated 13th July, 1990 to the Manager, State Bank of India authorising the said Bank to arrange remittance of agency commission to the petitioner company in Indian rupees equivalent to DM 4,678.09 (0.5% of the gross invoice value of that shipment being DM 935617.48). It was also stated that this agency commission as well as charges of the Bank would be debited to account of HPCL Bombay and a copy of this letter was marked to the petitioner company. When subsequent Installments of shipments were dispatched, similar letters dated 9th November, 1990 and 19th April, 1991 were written asking the Bank to remit the petitioner company its agency commission. All these letters are identically worded. It would be useful to reproduce the language contained in one such letter i.e. letter dated 13th July, 1990:

“In terms of Clauses 16 and 17 of the said LA, we hereby authorise you to arrange remittance of the Agency Commission to Indian Agents in Indian Rupees equivalent of DM 4678.09 at the rate of exchange prevailing on the date of negotiation of documents of the rate of exchange prevailing on the date of Bill of Lading in respect if ICs established on DA/Credit terms as the case may, at the following address, if not already paid:-
*(DM Four thousand six hundred seventy eight point zero nine only) M/s Hansa Industries Pvt. Ltd.
440, Mathura Road, New Delhi The details of the shipment are as under:
Vessel B/L Date Invoice No. Gross Invoice value
BEATE 30.1.90 0372725 DM 935617.48

OLDENDROFF
Ag.Commn. Qty.
DM 4678.09 997.460

The agency commission as well as your charges will be debited to account of M/s Hindustan Petroleum Corporation Ltd., Bombay.”
5. It is clear from the above that the respondent company recognised the right of the petitioner to receive the agency commission on the basis of purchase order and even instructed the bankers of the HPCL to make the payment. However, this payment was not made for want of instructions from the HPCL to its Bankers. In these circumstances, the respondent company wrote another letter 1st July, 1991 to the Bank expressing its surprise over the stand of the bank in asking the petitioner to receive the amount directly from HPCL. However, still the needful was not done. Even the principals wrote letter dated 20th January, 1992 to the respondent company requesting it to make the payment of the agency commission to the petitioner company. Interestingly, in the last paragraph of this letter the principals also stated that if the respondent company fails to make the payment, the principals would be constrained to ask for refund of DM 18,760 deducted from its total price of material for agency commission to enable it to discharge its financial obligation towards the petitioner company. This shows that the total price which was payable for the material, including this agency commission as well and principals had agreed that the amount of agency commission should be paid to the petitioner and for this reason it had reduced this amount from the total price received by the principals. This is so stated by the petitioner in its letter dated 27th August, 1992 to the respondent company as well while reminding the respondent company to make their payment of commission.

6. It appears that although the respondent company was acknowledging the payment to be made to the petitioner on this count, it wanted this payment to be made by HPCL. It may be because of the reason that goods were imported on behalf of HPCL and even the payment which was made to the principals LOC was opened by HPCL. The respondent company, therefore, did not intend to assume the liability to pay this agency commission and was insisting HPCL to make this payment. However, the HPCL was not willing to pay up this commission apprehending that by doing so it would be violating some Government’s guidelines as per which payment of such commissions to Indian agents was prohibited. This becomes obvious from letter dated 18th July, 1994 written by the respondent company to HPCL copy of which was marked to the petitioner company.

7. However, the requests of the respondent company could not yield any positive response from HPCL and a consequence was that the petitioner company remained unpaid. It kept on writing letters even thereafter which were placed on record and ultimately legal notice dated 8th March, 1997 was served upon the respondent company calling up the respondent to make the payment of DM 42,421.68 equivalent to Rs. 8,90,855.28 paise In fact commission payable was DM 18,647.53 and interest of DM 23,774.15 was calculated therein at the rate of 20% per annum. This was also a demand under Section 434 of the Companies Act giving three weeks’ time to the respondent company to make the payment failing which it would be deemed that the respondent company was unable to pay its debts. This notice though duly served did not evoke in response even. This is the background leading to filing of the present petition in this court.

8. On receiving the notice of this petition, the respondent company filed its reply. A perusal of the reply would show that it has taken following defense while opposing this petition:

(i) Claim of the petitioner is time barred.
(ii) It was never the liability of the respondent company to pay the agency commission. If the petitioner had any such claim, it was against HPCL and not against the respondent company as the respondent company only acted as the agent of HPCL and the petitioner was all along aware of this fact. IN the purchase order also HPCL was shown as consignee of the goods and therefore being beneficiary it was the liability of HPCL. Supplementary affidavit is filed by the respondent company making an attempt to demonstrate that how HPCL was concerned with making the payment and the petitioner was made aware of the same by series of correspondence.
(iii) HPCL seems to have relied on some guidelines of the Finance Ministry of the Government of India which requires Public sector undertakings/corporation/enterprises to stop payment of agency commission to Indian agents unless for reasons it was unavoidable. It was for this reason the HPCL had instructed State Bank of India to delete the clause regarding payment of agency commission to the Indian agents and accordingly LoC dated 10th January, 1990 shows the said deletion.
(iv) The winding up petition was, in any case, not maintainable as it was used as `arm-twisting tactics’ to effect recovery of debts, more so when the date itself was in dispute. The respondent company was solvent company earning crores of rupees in foreign exchange for the country and it could not be wound up for a paltry claim of Rs.3.96 lacs.
9. In view of the stand taken by the respondent company fastening the liability, if any, with HPCL, the court deemed it proper to issue notice to HPCL. HPCL appeared pursuant to said notice and has filed its reply. A perusal of this reply would show that apart from raising a preliminary objection about the maintainability of such petition; claim being time barred; no liability to pay any such commission as LOC was opened in favor of the principals deleting agency commission; no liability was ever admitted by HPCL for payment for any such commission, it is also stated that there is no privity of contract between HPCL and the petitioner and HPCL never dealt with the petitioner.

10. From the aforesaid pleadings, it is clear that following two issues need to be determined as preliminary issues:

(i) Whether the claim of the petitioner is time barred?
(ii) Whether winding up petition is maintainable or the appropriate course for the petitioner was to file suit for recovery of the amount?
(i) Whether the claim of the petitioner is time barred?
11. The respondent company as well as HPCL have taken the plea that the claim is time barred on the ground that purchase order is of 11th January, 1990 and supplies under the same were effected by the principals between 30th January, 1990 and 12th September, 1990. As per the purchase order agency commission ought to have been within a period of ninety days on the arrival of consignment at the dispatch port in India. The said period expired on 30th April, 1990/12th December, 1990. The purported claim of the petitioner could be enforced within three years thereof. However, the petition was filed only on 21st May, 1997 and is therefore clearly time barred.

12. If the aforesaid dates are to be taken into consideration, it could not be disputed that such a claim would be time barred. However, the petitioner has made an endeavor to demonstrate that the claim of the petitioner was duly acknowledged and admitted from time to time and this acknowledgment extended the limitation period by virtue of provisions contained in Section 18 of the Limitation Act. Learned counsel for the petitioner submitted that last such acknowledgment was letter dated 18th July, 1994 and if three years’ period is to be reckoned from that date petition filed in May, 1997 is clearly within limitation as having been filed before the expiry of three years from 18th July, 1994. Therefore, this issue hinges on the determination of the question as to whether letter dated 18th July, 1994 constitutes acknowledgment of debt of the petitioner within the meaning of Section 19 of the Limitation Act. It would, therefore, be apposite to reproduce this letter in its entirety:

“Please ref D.O. letter No. MMTC/DIR(RK)/209/93 dated 21st September ’93 from our Director to Shri Zutshi your Director Marketing. We are yet to receive a reply to this letter.
You are aware that this letter has been written by our Director in connection with payment of agency commission to M/s Hansa Industries Ltd., Agents of M/s Thyssen Sahlunion GmbH.
We had imported HR sheets for Hindustan Petroleum in Dec.’89/Jan.’90 vide our Purchase Order No.MMTC/Steel/HRSH/7345/2669/89 dated 1/1/90. For payment of agency commission we also received a letter from HPCL Bearing No. PUR : HN dated 20th December ’89 undertaking to authorise your bankers to release the agency commission amount to the Indian agents in equivalent rupees immediately on issue of the letter of authorisation by MMTC in this regard to their bankers. We had thereafter provided the necessary letter of authority for payment of this agency commission.
You are quite aware the value of the material was inclusive of the commission, however, it seems that HPCL has restricted the amount to be remitted against the letter of credit to the net value of the material. M/s Hansa Industries Ltd., the Agents for M/s Thyssen Stahlunion GmbH have been constantly in correspondence with us reminding us about the payment of the agency commission. We have also been reminding HPCL about the release/payment of the amount of the agency commission in equivalent Indian rupees to this firm. We have been receiving Notices of demand from the Advocate of Hansa Industries Ltd. advising us to payment of the commission and interest thereon at 20% per annum. I would, therefore, request to consider the entire matter once again and go through the records and arrange to make the payment of the Indian Agent’s commission so as to avoid any legal proceedings by them against MMTC and/or HPCL. I shall be grateful for an early reply in the matter.”
13. A perusal of the aforesaid letter brings out the following admissions:

(a) Transaction in question whereby the respondent company had imported HR sheet for HPCL.
(b) For payment of agency commission to the petitioner, the respondent company had received a letter dated 20th December, 1989 from HPCL undertaking to authorise HPCL’s bankers to release the agency commission to the petitioner.
(c) On the basis of aforesaid authorisation, the respondent company had provided the necessary letter of authority for payment of this agency commission.
(d) Value of the material was inclusive of the agency commission. However, HPCL had restricted the amount to be remitted against the LoC to the net value of the material.
(e) The petitioner as well as its principals have been constantly in correspondence with the respondent company reminding about the payment of agency commission. In turn the respondent company has been reminding HPCL about the release/demand of the amount of agency commission in equivalent Indian rupees to the petitioner.
(f) Notice of demand from the Advocates of the petitioner has been received for payment of this commission along with interest.
(g) Request is made to HPCL to arrange making payment of the amount of the petitioner’s commission so as to avoid any legal proceedings by the petitioner against MMTC and/or HPCL.
14. Whether this amounts to acknowledgment of debt within the meaning of Section 18 of the Limitation Act? Section 18 is in the following terms:

“18(1) Effect of acknowledgment in writing- (1) Where, before the expiration period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.”
15. In the case of Shapoor Freedom Mazda Vs. Durga Prosad Chamaria and others the Apex Court while interpreting corresponding Section 19 of Limitation Act, 1908 which was identically worded, held that the relevant essential requirement of valid acknowledgment are: (a) It must be before the relevant period of limitation has expired, (b) it must be in regard to the liability and respect of the right in question and (c) it must be in writing and must be signed by the party against whom such right is claimed. In paras 6 to 8 of the said judgment law on acknowledgment was formulated in the following words:

“Para 6: It is thus clear that acknowledgment as prescribed by S.19 merely renews debt; it does not create a new right of action. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledgment is based must relate to a present subsisting liability though the exact nature or the specific character of the said liability may not be indicated in words. Words used in the acknowledgment must, however, indicate the existence of jural relationship between the parties such as that of debtor and creditor, and it must appear that the statement is made with the intention to admit such jural relationship. Such intention can be inferred by implication from the nature of the admission, and need not be expressed in words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement. In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly excluded but surrounding circumstances can always be considered. Stated generally courts lean in favor of a liberal construction of such statements though it does not mean that where no admission is made one should be inferred, or where a statement was made clearly without intending to admit the existence of jural relationship such intention could be fastened on the maker of the statement by an involved or far-fetched process of reasoning. Broadly stated that is the effect of the relevant provisions contained in S.19, and there is really no substantial difference between the parties as to the true legal position in this matter.
Para 7: It is often said that in deciding the question as to whether any particular writing amounts to an acknowledgment as in construing wills, for instance, it is not very useful to refer to judicial decisions on the point. The effect of the words used in a particular document must inevitably depend upon the context in which the words are used and would always be conditioned by the tenor of the said document, and so unless words used in a given document are identical with words used in a document judicially considered it would not serve any useful purpose to refer to judicial precedents in the matter. However, since decisions have been cited before us both by the learned Attorney General and Mr. Viswanatha Sastri we propose to refer to them very briefly before turning to the document in question.
Para 8: The question as to what is an acknowledgment has been answered by Fry, L.J. as early as 1884 A.D. in Green v. Humphreys, 1884-26 Ch D 474 at p.481. This answer is often quoted with approval, “What is an acknowledgment”, asked Fry, L.J., and he proceeded, “in my view an acknowledgment is an admission by the writer that there is a debt owing by him, either to the receiver of the letter or to some other person on whose behalf the letter is received but it is not enough that he refers to a debt as being due from somebody. In order to take the case out of the statute there must upon the fair construction of the letter, read by the light of the surrounding circumstances, be an admission that the writer owes the debt.” With respect, it may be added, that this statement succinctly and tersely gives the substance of the provisions contained in S.19 of the Limitation Act.”
16. Interpretation of this provision came up before the Supreme Court again in Tilak Ram and others Vs. Nathu and others and after taking note of number of decisions of various High Courts relied upon by either of the parties, the court opined that it was not necessary to go into the details of the said decisions or decide as to which of the two views expressed in those decisions were correct as the law was succinctly stated in Shapoor Freedom Mazda (supra) . Explaining as to what the said decision laid down, the court applied the principle in the case in hand wherein action for redemption of mortgages was brought before the court. In order to bring action within limitation the petitioners had relied on certain statements in some documents alleging that they constitute acknowledgments by the predecessor in title of the defendants and which gave them a fresh start of limitation saving their suit from being time barred. The court observed:

“Para 10: The right of redemption no doubt is of the essence of and inherent in a transaction of mortgage. But the statement in question must relate to the subsisting liability or the right claimed. Where the statement is relied on as expressing jural relationship it must show that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. It follows that where a statement setting out jural relationship is made clearly without intending to admit its existence an intention to admit cannot be imposed on its maker by an involved or a far-fetched process of reasoning.”
17. Thereafter, reading the documents, the court concluded that these statements were clearly made for the purpose of describing his own rights which he was selling under this deed. But there is nothing in this document to show that he referred to the said mortgages with the intention of admitting his jural relationship with his mortgagors and, therefore, of his subsisting liability as the mortgagee there under of being redeemed.

18. Elaborating further the principle contained in Shapoor Freedom Mazda (supra) , the Supreme Court in the case of M/s Lakshmiratan Cotton Mills Co. Ltd. Vs. The Aluminium Corporation of India Ltd. while acknowledging that a liberal construction of the statement contained alleged acknowledgment, is to be given, the court held that that would not mean where a statement is made without intending to admit the existence jural relationship such intention should be fastened on the person in the case of making the statement by an involved and far-fetched reasoning.

19. We can deduce the following principles from the aforesaid judgments which shall have to be applied in a given case to ascertain as to whether writing constitutes an acknowledgment or not:

(a) Acknowledgment means an admission by the writer that there is a debt owed by him either to the receiver of the letter or to some other person on whose behalf it is received. It is not enough he refers to a debt as being due from somebody. He must admit that he owes the debt.
(b) The statement on which a plea of acknowledgment is based must relate to a present subsisting liability though the exact nature of the specific character of the said liability may not be indicated in words.
(c) Words used in the acknowledgment indicate the circumstances of jural relationship between the parties such as that of debtor and creditors.
(d) It must appear that statement is made with the intention to admit such jural relationship.
(e) Such intention can be implied and need not be expressed in words. In construing the words used in the statement, surrounding circumstances can be considered although oral evidence is excluded.
(f) Although liberal construction is to be given to such statement but where a statement was made without intending to admit the existence of jural relationship, the court cannot fasten such intention on the maker by an involved or far-fetched process of reasoning.
(g) In deciding the question in a particular case, it is not useful to refer to judicial decision and one has to inevitably depend upon the context in which words are used.
20. In the light of the aforesaid provision we may now come back to the language of letter dated 18th July, 1994 written by the respondent company to the petitioner. No doubt, there are many admissions in the said letter as pointed out in para 13 above. However, it falls short of acknowledging the debt in so far as the maker of the letter i.e. respondent company is concerned.

21. The respondent company/MMTC has not admitted the jural relationship of debtor and creditor. Although it is admitted that the commission is due, however case of the respondent company here is that this has to be paid by the HPCL. One may at this stage take note of some surrounding circumstances under which this letter was written. This letter is not addressed to the petitioner. It is written to the HPCL by the respondent company. The respondent company is reminding the HPCL to make the payment as the petitioner is demanding the same. No doubt the order was placed upon the petitioner by the respondent company. However, case of the respondent company is that it was placed on behalf of the HPCL. Admittedly, it is the HPCL which had opened LOC and had made payment of goods to the seller in Germany. Therefore, as far as the respondent company is concerned it is maintaining that the agency commission was also to be paid by the HPCL. I may hasten to add at this stage that whether this stand of the respondent company is legally sound or not is not the issue which we are examining here. We cannot drift away from the context. The issue is as to whether letter dated 18th July, 1994 constitutes acknowledgment of debt by the respondent company. The relevant consideration therefore would be to examine as to whether the respondent company is assuming its liability to pay. If it is not admitting this liability, for the purpose of Section 18 of the Limited Act, we cannot determine the justification of such a stand. That enquiry would have been relevant had the issue in hand be as to whether the commission is payable by the respondent company or the HPCL. However, fact remains that in so far as letter dated 18th July, 1994 is concerned, the respondent company has not admitted any liability on its part and has tried to fasten the liability on the HPCL and therefore such a letter cannot be treated as acknowledgment of debt by the respondent company as there is no admission on its part that it owes the debt to the petitioner. In order to constitute an acknowledgment under Section 18 of the Limitation Act, it was necessary to establish that the respondent company accepted expressly or impliedly its liability to pay the debt. Learned counsel for the petitioner wanted this court to take into consideration the admissions contained in the said letter as pointed in para 13 and give a finding to the effect that stand of the respondent company denying its liability was not legally tenable and therefore the letter constitutes acknowledgment. Such an exercise would involve a far-fetched process of reasoning which is not permissible as what we read from the letter in question is that statement was made by the respondent company clearly without intending to admit its liability. If one was adjudicating upon the claim of the petitioner on merits in a civil suit and not the issue of limitation , one would have definitely gone into the issue as to whether the attempt on the part of the respondent company to avoid its liability is legally permissible or not. However, that is not the scope of enquiry under Section 19 of the Limitation Act when what is to be examined is a pure simple question as to whether the writer of the letter is acknowledging its debt.

22. The facts narrated above would show that the transaction in question is of the year 1990. Order was placed on 11th January, 1990 and was also executed in parts in 1990 and in early 1991. The three letters by which agency commission was demanded are dated 13th July, 9th November, 1990 and 19th April, 1991. The HPCL, however, did not make the payment as it fell handicapped in doing so because of some purported guidelines of the Government. However, even when the petitioner had come to know of this, it did not take any legal action but indulged in correspondence only. This petition was filed in the year 1997. It clearly shows that either the petitioner had reconciled to the position and abandoned the claim or slept over the matter depicting lackadaisical attitude. It may be mentioned here that even the seller in Germany had written in one of the letters that if the commission is not paid to the petitioner by the buyer, seller may have to pay the same to the agent. It is not known as to what happened between the seller and its agent, i.e. the petitioner in this behalf because of which the petitioner took unduly long period in filing the present petition. This petition is, therefore, time barred and is liable to the dismissed on this ground.

(ii) Re: Maintainability

23. That apart, such a winding up petition would not be maintainable against the respondent company/MMTC which is a profit making company and wholly owned Government of India enterprise. The respondent company has stated that it had a gross profit before tax in excess of Rs.86 crores; reserves to the tune of Rs.578.52 crores; annual turn over of Rs.6224.00 crores and was on going solvent company with number of work force. In a petition filed under Section 433(e) of the Act, not only it is required to be proved that there must be a debt, but one has also to come to a finding that the respondent company must be unable to pay the said debt. Even if these two conditions are satisfied, still it is not necessary that the winding up order has to be passed as an order under Clause (e) of Section 433 is discretionary. [See Pradeshiya Industrial & Investment Corporation of U.P. Vs. North India PetroChemicals Ltd. and another, ]

24. The respondent company disputed its liability to pay the debt on the ground that it was payable by HPCL. The HPCL is disputing on the ground that the payment of such agency commission is not permissible by a Government of India undertaking having regard to the Government guidelines in this behalf. In these circumstances, the proper course for the petitioner was to file a civil suit as it is trite law that machinery for winding up will not be allowed to be utilised merely as a means of Realizing its debts due from a company. This is so held by a series of judgments of the Supreme Court and while laying down this principle almost forty years ago in the case of Amalgamated commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami, (1965) 35 Comp Case 456 (SC), the Supreme Court quoted with approval the following passage from Backley on the Companies Acts, (13th Edn., P.451):

“It is well-settled that `a winding-up petition is not a 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 stigmatised as a scandalous abuse of the process of the court'”.
25. This petition being bereft of any merit, is hereby dismissed.