Sunil Ambwani, J. - (1.) THIS company petition filed under Section 433(e) and (f) of the Companies Act, 1956, seeks an order to wind up M/s. Modi Tele Fibres Ltd., Modi Nagar, Ghaziabad, U.P. (previously known as Modi Threads Ltd., Hem Kunt Tower, 1st Floor, Nehru Place, New Delhi), (hereinafter referred to as "the respondent -company"). It is alleged that the respondent -company placed various orders for supply of cotton bales on various dates through M/s. Sampat and Co., Cotton Merchant and Commission Agent, 4481, Dau Bazar, 2nd Floor, Cloth Market, Delhi. The goods were supplied from January 1, 1995, to April 1, 1995. The invoice numbers, quantity and price of bales are given in paragraph 5. These figured for a total amount of Rs. 72,11,934. The agreed mode of financial transaction was to raise a letter of credit in State Bank of India, Indore, and allowed the petitioner to draw the bills under letter of credit and get the payment from the bank against hundi. It is alleged in paragraph 8 that part payment was made by the respondent -company. It paid Rs. 59,97,129 leaving an outstanding balance of Rs. 12,14,805. The respondent -company made unreasonably delay in making payment of the outstanding on which a registered notice addressed to M/s. Modi Tele Fibre Ltd., U.P., was sent vide receipt No. 2984 dated April 8,1997, which was returned with the endorsement that the "company is closed, hence returned". The petitioner raised a demand of Rs. 24,19,984 as due to the petitioner from the respondent -company.
(2.) IN the counter -affidavit the transactions and supplies are admitted. However, in paragraph 10 it is contended that substantial part of consignment supplied by the petitioner was of very inferior and bad quality and as such the petitioner -company was requested to take back the consignment. In paragraph 13 it is reiterated that the goods of the value of Rs. 59,979 were supplied as per specification. Apart from this no other goods were accepted by the answering respondent as the same were sub -standard and not according to specifications and as such no amount, much less the amount of Rs. 12,14,505 is due and payable by the answering respondent. In paragraph 19 it is contended that the goods referred in pages 16 and 17 were returned because of the inferior quality and being sub -standard. The receipt of notice has also been denied. During the pendency of this winding up petition, the respondent -company made a reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act 1985, which was considered and rejected by the Board for Industrial and Financial Reconstruction as non -maintainable, with following findings: 21. Considering the facts of the case and submissions made at the hearing by secured creditors, SIA along with CA and the company, the Bench noted that SIA had explained in its report that the company had not provided for doubtful debts, advances given in earlier years to Modi group companies declared sick and directed to be wound up, provisions for sales tax demand for 1991 -92 and 1992 -93, advances in the nature of loans not recoverable, arrears of PF/ESI not been deposited, demand for arrears of electricity raised and others. All these non provisions had been pointed out by the auditors of the company. The SIA had also stated that the entries pertaining to sale of shares and tenancy rights were not in accordance with the Accounting Standards. SIA had specifically said that the company was not allowed to book profits on sale of shares as per Accounting Standards. SIA had pointed out that the net worth of the company had become negative as on December 31, 1995, if the provisions as pointed out by their own auditors were made. However, the company had opted to ignore the observations of their own auditors. The representative of the company had pointed out that they had routed the sale of shares and tenancy rights through one of the sister companies to protect the name of Modis. The Bench was not convinced by the explanations given by the company especially because the company to whom these shares and tenancy rights were sold, had no financial strength to complete these tenancy transactions. The Bench failed to understand as to why the company ignored the Accounting Standards and norms while passing the transaction entered into with KFPL. The Bench also noted that the company made a reference to the BIFR only after a decree was issued by the DRT against them. In view of the above, the Bench came to the conclusion that the company had come to BIFR with unclean hands and with the sole purpose of getting protection against execution of the decree. Such a company cannot be allowed to avail of the benevolent provisions of the SICA which it had all along ignored the observations of the auditors and failed to file the statutory reference when the net worth of the company stood eroded from as early as 1995, ostensibly on the ground that the fair name of the promoters would be sullied. Erosion of net worth is not the only criteria for claiming sickness. The conduct and actions of the management as well as faithful observance of Accounting Standards and policies are equally important. The company has singularly failed to come clear on these accounts. We accordingly dismiss the reference filed by the company as non -maintainable. 22. The Bench further directs that the balance SIA fee be borne by the secured creditors on pro rata basis.
(3.) THE proceedings before the BIFR establish that the respondent -company has completely lost its substratum. Shri B.K. Deb, AGM, Punjab National Bank made submissions before the BIFR that the accounts of the company did not reflect true and fair picture of the company. The company was deceiving everybody and the bank doubted the integrity of the company. The ulterior motive of the company was to get itself registered with the BIFR and to enjoy the umbrella of protection available under the Act. The company did not even pay a sum of Rs. 2 lakhs for SIP, until the BIFR insisted for making the payment. These proceedings clearly show that the net worth of the respondent -company was negative and that it has completely become insolvent and was not financially viable any more in the year 2000 when the reference was rejected. It has not brought any material on record to show any improvement in its financial condition.;