Punjab-Haryana High Court
Unknown vs Modi Wellvest Private on 15 September, 2010
C.P. NO.100 OF 2007
Present: Mr.Ashwanie Kumar Bansal, Advocate, for the petitioner.
Mr.H.C. Dhull, Advocate, for the respondent.
...
The present petition is for winding up of the respondent Company for its inability to pay the amount of US$ 675,473.76 together with compound interest arising out of Arbitration Award announced by an Arbitral Tribunal at London, England.
The petitioner alleged that it entered into an agreement with the respondent i.e. Doon Valley Rice Limited on 28.12.1995. Such agreement contained arbitration clause for referring the dispute of an arbitrator in case of dispute between the parties. The dispute arose between the parties. The petitioner appointed Mr. William Packard as an arbitrator whereas respondent appointed Mr. Alexander John Kazantia to act as an arbitrator. Such appointments were under the provisions of the London Maritime Arbitrators Association Terms (1994). As per the petitioner, the parties exchanged written submissions and provided copies of the documents before the arbitrators. The Arbitration Award dated 06.07.2006 has been announced. The copy of the same is Annexure P2. The said Award is said to be enforceable and executable as a decree of the Court as a foreign Award under Sections 46 and 49 of the Arbitration and Conciliation Act, 1996.
The petitioner served a statutory notice under Sections 434 read with Section 433(e) of the Companies Act, 1956 under registered A.D. Post and also under the certificate of posting. The respondent company submitted its reply (Annexure P4). The respondent company in its reply to the notice inter alia stated that the petitioner has already filed an execution petition to C.P.No.100 of 2007 2 execute the Award dated 06.07.2006. Therefore, the petition for winding up is liable to be dismissed by this Court in its discretion. It is also pointed out that winding up petition is not a legitimate means of seeking enforcement of debt, which is bona-fide disputed by the respondent, therefore, the respondent company is not liable to be wound up. It is alleged that the Award relied upon by the petitioner is no award in the eyes of law and that respondent Company has in fact a claim of US$2,181,478.31 from the petitioner. It is also pleaded that no notice whatsoever was received from the arbitrator. Therefore, Award is liable to be set aside and not enforceable.
In the rejoinder (Annexure P5) to the reply to the notice, the petitioner relied upon the order dated 16th July, 1997 passed by High Court of Justice, Queen's Bench Division, Commercial Court, England in the matters between the parties. Vide the said order, the present respondent has undertaking not to enforce any judgment obtained by them in Suits No.26 and 32 of 1996 filed in the High Court of Bangladesh against the present petitioner. The present petitioner has undertaken to withdraw its money suit against the present respondent filed in the High Court of Bangladesh. It was also ordered and directed that the respondents are at liberty to appoint Mr. Kazantzis as second arbitrator in reference commenced by the present petitioner on 09.09.1996. Annexure P-11 is the defence and the counter claim of the respondent before the arbitrator. The arbitrator in its Award inter alia noticed to the following effect:-
"In neither case where we able to pass our message by fax to Messrs Doon Valley Rice Limited. Accordingly, Mr.Kazantzis posted his letter to their address at Outside Jundia Gate, Karnal 132001, India, which address appeared in our files and which was reconfirmed as C.P.No.100 of 2007 3 correct by an internet search conducted by the tribunal. Mr.Packard's letter was sent by registered post to ensure its safe delivery. There was no response from either side by 31 May, or at all and on 01 June Mr.Packard sent the following message:
"I refer to my fax message of 08 May, 2006 in which the tribunal invited any further submissions by 31 May, 2006. We have heard nothing from either party and accordingly, as indicated, we are not proceeding to our Arbitration Award, which we intend to publish during June 2006. We will advise when it is published and available for collection."
The message was sent to the characters by registered post.
We are confident that both sides received our messages of 08 May and 01 June 2006, are aware of our actions and have had every opportunity of submitting further submissions. Neither side took that opportunity and we have therefore proceeded to consider out file based on the considerable quantity of documents and submissions contained within it.
In this arbitration, the owners were originally represented by Stephenson Harwood & Co. of Hong Kong, and the characters by various solicitors, latterly by Messrs Zaiwallas of London, both of whom served submissions. Claim submissions were served by solicitors Stephenson Harwood & Lo. Hong Kong on behalf of the owners in September 1996 and amended claim submissions in August 1997. Defence and counterclaim submissions were served by Zaiwalla & Co.London on behalf of the characters in September 1997 and reply and defence to C.P.No.100 of 2007 4 counterclaim submissions were served by Stephenson Harwood & Lo in April 1998."
It may be noticed the expression 'owners' in the Award relates to the present petitioner and the expression 'characters' mentioned in the award relates to the respondent herein.
In a petition for winding up, the pleadings of the parties are almost the same as are contained in notice, reply and rejoinder. The learned counsel appearing for the parties sought an opportunity to settle the dispute outside the Court after arguments were heard in the present petition on 25.08.2010. Learned counsel for the petitioner has stated that none from the respondent has contacted the petitioner for settling the dispute outside the Court. Today, Mr. H.C. Dhull, Advocate has put in appearance on behalf of the respondents. The primary argument of the learned counsel for the respondent is that the arbitrator has announced its Award without giving any opportunity to the respondent to present its point of view before the arbitral Tribunal.
The reference to an Arbitral Tribunal was with consent of the parties before High Court of Justice, Queen's Bench Division, Commercial Court, London. It is apparent from the recitals in the Award and the proceedings preceding arbitration that the respondent company was all through aware of the arbitration proceedings. It had participated before the Tribunal and has taken effective steps before the Arbitral Tribunal as well. It was for the respondent to appear in terms of the notices issued. It cannot be said that the Award has been announced by the Tribunal without giving an opportunity of hearing to the respondent, if the respondent has not chosen to appear on certain hearings. Still further, the legality and validity C.P.No.100 of 2007 5 of Such Award cannot be examined in these proceedings as this court is not seized of such question in this petition for winding up. This court is to examine whether, the respondent company is unable to pay its liability exceeding statutory limits and whether, the defense of the company is bona- fide and the amount claimed by the petitioner is disputed.
Learned counsel for the petitioner has relied upon the judgment of Delhi High Court, reported as Motorola Inc. Vs. Modi Wellvest Private Limited 2004(3) Arb.LR 650 and of Calcutta High Court, reported as Dalhousie Jute Co. Ltd. Vs. Mulchand Lakshmi Chand (1983) 53 Company cases 607 to contend that foreign award is akin to decree and, therefore, its non-satisfaction is a ground to seek winding up of a company.
On the other hand, learned counsel for the respondent relied upon judgment of Delhi High Court reported as Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd. 1999(1) Arb.LR 571 wherein it has been held that without foreign award being made Rule of the Court, Award is not executable. Another judgment, which has been relied upon by the learned counsel for the respondent is B.Vishwanathan Vs. Seshasayee Paper and Boards Ltd. 1992 Company cases 136 wherein it has been held that the jurisdiction of the Court under Section 433 of the Companies Act, 1956, is not that of a Court which is essentially meant for settling money disputes between parties, but is to subserve the object of winding up of companies which have not paid their debts or which are enable to pay their debts.
Having heard learned counsel for the parties, I do not find any merit in the argument raised by the learned counsel for the respondent. The judgment of Delhi High Court in Fuerst Day Lawson Ltd. case (supra) C.P.No.100 of 2007 6 arises out of an Award prior to commencement of Arbitration and Conciliation Act, 1996. The Award in the aforesaid case was passed on 13.08.1996, which was sought to be executed. It has been held therein that in terms of the Foreign Awards (Recognition and Enforcement) Act, 1961, such Award shall become enforceable in terms of the Act. It was held to the following effect :
"8. .....With the coming into force of the Arbitration and Conciliation Act, 1996 the provisions of the FARE Act, 1961 stood repealed subject to the saving clause. The new provisions which have been enacted for enforcing an award in India would indicate that before the said foreign award could be enforced there is a necessity for a party to obtain a foreign award which is defined under the provisions of Section 44 of the Arbitration and Conciliation Act, 1996. After a foreign award is made the same could be enforced in India when the court is satisfied that the foreign award is enforceable. The said satisfaction is arrived at when the party in whose favour the award is made apply for its enforcement. Thus, a party has to apply for under Sections 46 and 47 of the Arbitration Act seeking for enforcement of the foreign award. A foreign award becomes binding between the persons as against whom the same is made for all practical purposes when the same is enforceable under the provisions of Sections 46 to 49 of the Arbitration and Conciliation Act."
However, the said judgment was considered by the Hon'ble Supreme Court in a judgment reported as M/s Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd. AIR 2001 SC 2293, wherein it has been held that under the old Act after making award and prior to execution, there was a procedure for filing and making an award a rule of Court i.e. a decree, but under the new Act, a party holding foreign award can apply for enforcement C.P.No.100 of 2007 7 of it but the Court before taking further effective steps for the execution of the award has to proceed in accordance with Sections 47 to 49 of the new Act. In one proceedings there may be different stages. In the first stage the Court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the Court decides that foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award as a rule of court/decree again. Therefore, the argument raised by the learned counsel for the respondent that the foreign award which has not been made rule of the Court is not executable, is not available under the provisions of Arbitration and Conciliation Act, 1996.
The another Bench of Delhi High Court in a judgment reported as Motorola Inc. Vs. Modi Wellvest Private Limited 2004 (3) Arb. LR 650 (Delhi) has held to the following effect :
"12. In my view the plea relating to non-executability of an Award without obtaining a decree under Section 49 of the Act from a competent Court and the further plea that such execution can only be done after such a Court is satisfied that there are no objection to the enforcement of the Award under Section 48 is covered by the judgment of the Hon'ble Supreme Court in Fuerest Day Lawson (supra) and the Supreme Court had clearly rejected a similar plea to the effect that a party holding a Foreign Award has to file a separate application and produce evidence as contemplated under Section 49 of the Act and also satisfy conditions stipulated under Section 48 and an Award would only be deemed to be a decree under Section 49 after available for execution. The Supreme Court in negativing such a plea held that in order not to frustrate and defeat the object of the 1996 Act, the Foreign Award under the 1996 Act was stamped as a decree. Consequently since the Foreign C.P.No.100 of 2007 8 Award has been held by the Supreme Court to be akin to the decree and is executable as a decree, this plea is, therefore, wholly lacking in merit and is thus rejected."
The Division Bench of Calcutta High Court in Dalhousie Jute Co. Ltd. case (supra) was considering a case, where a creditor has sought winding up of the Company on the basis of unfilled Award for money payable to the award-holder by the Company. The Court considered the judgment of Hon'ble Supreme Court reported as Satish Kumar Vs. Surinder Kumar AIR 1970 SC 833, wherein a Full Bench judgment of this Court was reversed. The Court considered an argument that such an Award is not a mere waste paper and it remains effective as additional piece of evidence showing the existence of valid debt and there could not be any bar in winding up Court treating it as such and satisfying itself about the existence of the debt which remained unsatisfied after the expiry of the period of the notice under Section 434 of the Companies Act, 1956. The Court held to the following effect :
"In my opinion, the winding-up petition based on an unfilled award has its special significance. The gist of the petition is that the company is indebted to the petitioner to the extent exceeding a sum of Rs.500 and in spite of a notice under Section 434 of the Companies Act, 1956, the company is unable to pay its debt. The prayer simply is that the company be wound up. If the award is analysed, its effect is that it has created a right in property in favour of the award-holder. By reason of the agreement between the parties, the company is obliged to abide by the result of the award which is to remain binding on the company. On the basis of such an agreement, the company is bound to honour its agreement whereby it agreed to pay the amount to be awarded. The court entertaining the winding-up application does not decide any of C.P.No.100 of 2007 9 the grounds for setting aside the award, which are to be decided by the court entertaining an application for setting aside such an award under the Arbitration Act. The winding up court does not enforce the award. It merely goes into the question as to whether a debt is presently payable and then to find out whether the dispute raised on behalf of the company, in respect of the claim of the creditor, is prima facie a bona fide one or not. The debt is not finally decided nor is the defence, raising the bona fide dispute finally adjudicated upon by the Company Court except that a prima facie view is taken by the Company Court on the basis of the materials placed before it. The winding-up application is a representative action as if all the creditors are joined together in one action and as such cannot be said to be in enforcement of the award. The award is relied on by way of an additional piece of evidence of the debt due to the party. It is a debt which is absolutely due and is presently payable on the basis of the award and on the basis of the agreement between the parties. It is a valid document and is not a mere waste paper. It creates some rights and such rights exist until the same are set aside. There is no obstacle or fetter on the part of the company to pay its dues in accordance with the award."
In view of the above, I am of the opinion that the argument raised by the learned counsel for the respondent that the foreign award cannot be looked into to determine the debt payable by the respondent is not tenable.
There is no dispute with the proposition of law laid down by the Hon'ble Madras High Court in B. Viswanathan Vs. Seshasayee Paper and Boards Ltd. 1992 Vol. 73 Company Cases 136, laying down principles required to be kept in view by the Company Court before passing an order of winding up. However, none of the principles laid down in the aforesaid C.P.No.100 of 2007 10 case can be said to be applicable to the facts of the present case to the advantage of the respondent. Similarly the judgment of this Court in case of Punjab Ceramics Ltd. Vs. Punjab State Industrial Development Corporation Ltd. 1991 Vol. 70 Company Cases 415, wherein the Court found that the defence of the Company was bona fide and one of substance which was likely to succeed on a point of law, is again not helpful to the respondent. There are no such circumstances in the present case.
The amount has been found due and payable by the Arbitral Tribunal appointed with the consent of the parties. The non satisfaction of the Award, in terms of Sections 46 and 49 of the Arbitration and Conciliation Act, 1996 gives right to the petitioner under Section 433, 434 (1)(d) read with Section 433 (e) to seek winding up of the respondent, as the respondent (Company) has not been able to satisfy its admitted liability. Such inability is on account of non-satisfaction of the decree i.e. Award of the competent Court. It may be mentioned that the respondent has not disputed the amount or the violation of contractual conditions in these proceedings nor the company has disputed the amount Awarded by the Arbitral Tribunal in terms of the provisions of the Act.
The argument that the petitioner has sought execution of the award from the Civil Court and, therefore, winding up proceedings should not be continued against the respondent, is not tenable in law.
There is no dispute with the proposition that the object of winding up petition is not for recovery of money. A company under the Companies Act has a right to continue its business, if such company is able to pay its creditors. It is a matter of public policy that a company unable to pay its admitted liabilities should not be permitted to continue. The C.P.No.100 of 2007 11 respondent company has failed to pay its debt recognized by foreign award amounting to US$ 675,473.76. In view of the inability to pay the said amount, it is just and equitable to wind up the respondent-Company.
It may be noticed that in C.P.No.55 of 2008, a secured creditor i.e. Kotak Mahindra Bank an assignee of State Bank of India, has sought winding up of the respondent company for its inability to pay Rs.8,37,46,752.97. Therefore, it is apparent that not only the company is not able to make the payment in presence of a foreign award, but also the payment to secured creditors.
Therefore, the present petition is ordered to be admitted. Let the factum of notice of admission be published in the daily newspapers i.e. "The Tribune (Chandigarh Edition) and "Dainik Bhaskar" as well as in the Official Gazette of the State of Haryana.
List for further proceedings on 25.11.2010.
September 15, 2010 (HEMANT GUPTA)
jt/vimal JUDGE