Calcutta High Court
Metalogic Systems Private Limited vs Ultimate Digital Solutions Private ... on 13 March, 2014
Author: Ashim Kumar Banerjee
Bench: Ashim Kumar Banerjee
ssForm No. J.(2)
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present :
The Hon'ble Mr. Justice Ashim Kumar Banerjee
And
The Hon'ble Mr. Justice Arijit Banerjee
A.C.O. No. 175 of 2013
A.P.O. No. 23 of 2014
C.P. 324 of 2013
Metalogic Systems Private Limited
-Vs.-
Ultimate Digital Solutions Private Limited
For the Appellant : Mr. Anindya Mitra, Senior Advocate,
Mr. Nirmalya Mohan Bhattacharya, Advocate
For the Respondent : Mr. Moloy Ghosh, Advocate,
Mr. Aniruddha Mitra, Advocate
Mr. Gobinda Chowdhury, Advocate
Heard On : January 6, 7,17,27,28, and
February 20, 21, 2014
Judgment On : March 13, 2014
ASHIM KUMAR BANERJEE, J.
FACTS:
The Life Insurance Corporation of India entrusted a project to Hewlett Packard Limited an IT company for appropriate software programme to be uploaded at all LIC locations within the country. Hewlett Packard in turn entrusted the job to Metalogic Systems Private Limited. Metalogic in turn entrusted a part of it to Ultimate Solutions an unregistered partnership firm. Accordingly, Ultimate Solutions executed the work. Since it was an ongoing process, they time to time raised bills on Metalogic and Metalogic also paid diverse sums to Ultimate Solutions, leaving a balance sum of Rs.4511691 when the subject dispute arose. Metaogic claimed, a sum of Rs.1 lac and odd only would be due and payable, the balance part would not be payable in absence of appropriate supporting documents including appropriate certificate of performance from the ultimate users which are called UAT and ATP certificates that Ultimate failed to obtain from Hewlett Packard. There was one more hurdle in getting the issue resolved. In course of time, the partners of Ultimate Solutions incorporated a corporate entity being Ultimate Digital Solutions Private Limited the respondent above named. The Memorandum and Articles of Association would suggest, all the three partners of Ultimate Solutions were the promoter directors having majority of the shareholding taking the forth director who admittedly did not have any connection with the partnership firm. The new company issued a statutory notice of demand followed by a petition for winding up against Metalogic. The learned Judge vide judgment and order dated July 6, 2012 declined to admit the winding up petition. The relevant extracts are quoted below:
"There is an arguable case made out by the company that the petitioner may not be entitled to make the claim. In view of such stand taken by the company, the merits of the matter have not been gone into. The petitioning creditor claims that services were rendered by a partnership firm to the company and bills raised by such firm on the company. According to the petitioning creditor, the partnership firm was thereafter acquired as a going concern by a company. Alternatively, it is suggested on behalf of the petitioning creditor that a company was incorporated to take over the business, assets and goodwill of the partnership firm as a going concern.
The company has disclosed two sets of memorandum of association apparently of the petitioning creditor. In the first memorandum of association, appearing as Annexure-D to the company's affidavit, the first principal object of such company is as follows: "To take over/acquire the business, trade name and goodwill of the partnership firm Ultimate Solutions situated at Sahebbagan, Samabay Pally, Bally, Howrah-711205."
In the second memorandum of association of the same company, the first principal object reads otherwise:
"To take over trade name and goodwill of the partnership firm Ultimate Solutions situated at Sahebbagan, Samabay Pally, Bally, Howrah-711205."
The petitioning creditor cannot explain why a company has two memoranda of association or as to why the contents of the two memoranda are different. On the basis of the second memorandum of association, it does not appear that the business of the partnership firm was taken over by the petitioning creditor company. Though the petitioning creditor relies on an agreement for such purpose, it is evident that there is considerable doubt as to the petitioning creditor's right to claim the amount on behalf of the partnership firm.
Since the dispute cannot be conveniently assessed on affidavit of evidence in summary proceedings, CP No. 114 of 2012 is permanently stayed with liberty to the petitioning creditor to pursue the claim by way of a regular action."
From the judgment and order quoted supra we would find, His Lordship categorically made it clear at the outset, "Merits of the matter have not been gone into". His Lordship recorded the facts however, did not go into the merits, as observed above. His Lordship was confused as Ultimate Digital annexed two sets of Memorandum of Association, one would suggest, it would take over the business of Ultimate Solutions while the other would suggest, it would take over the trade name and goodwill of the partnership. His Lordship was confused as one corporate entity could not have two different Memorandums. This prompted His Lordship to permanently stay the winding up petition however, His Lordship observed, since the dispute could not be conveniently "assessed on affidavit of evidence in summary proceedings", the winding up petition would remain permanently stayed with liberty to the petitioning creditor to initiate a "regular action". Ultimate Digital preferred an appeal. The appellant contended, as we find from the judgment and order dated October 11, 2012, since the learned Judge did not go into the merits, the liberty granted by His Lordship should also be extended to filing of a fresh winding up petition with the correct Memorandum of Association. The learned Counsel informed the Court of appeal, out of two Memoranda filed earlier, the first one was correct whereas second one was mistakenly filed along with Form No. 5 submitted by Ultimate Digital informing the Registrar of Companies about increase of share capital. The Division Bench allowed the appeal in part. The relevant observation of the Division Bench is quoted below:
"The learned Judge declined to receive the winding up petition in the backdrop as discussed above. The learned Judge, however, observed that parties should approach by initiating "regular action". In our view, since the learned Judge did not go into the merits of the matter, such observation would rather foreclose the right of the lawful claimant to initiate another winding up proceeding. Such observation is set aside."
Armed with the said order dated October 11, 2012 Ultimate Digital Solutions filed a second winding up petition that the learned Single Judge admitted, giving rise to the present appeal. The learned Single Judge vide judgment and order dated August 6, 2013 admitted the winding up petition by observing, the Court of appeal granted liberty by setting aside the observation of the earlier Single Bench decision hence, the principle of res judicata would not be applicable. On merit, His Lordship was satisfied, the winding up petition was maintainable. The company failed to raise any bona fide defence that would lead to admission of the winding up petition. CONTENTIONS:
Mr. Anindya Kumar Mitra learned Senior Counsel while appearing for the appellant, would raise the following issues:
i) The learned Judge permanently stayed the first winding up petition.
The Court of appeal did not set aside the said order of permanent stay hence; the second winding up petition on the selfsame cause would not be maintainable.
ii) The claim, if any, would arise from a commercial transaction between the company Metalogic System on the one hand and the partnership firm Ultimate Solution on the other. The new company did not have any privity of contract with Metalogic. Hence, they could not be said to be a creditor of the company making the winding up petition maintainable.
iii) On merit, the claim was disputed barring a sum of Rs.1 lac and odd that too, would be payable to the partnership firm and not the company. Since the status of the appellant was very much in dispute the winding up petition would not be maintainable.
iv) The balance claim, if any, would not be payable in absence of UAT and ATP certificates.
While elaborating his submissions on the issue raised above, Mr. Mitra would suggest, the Court of appeal specifically set aside the observation but not the Order that would permanently stay the winding up petition. Hence, the Order of permanent stay would still remain that would preclude the second petition on the selfsame cause to come up for consideration. Although he did not specifically raise the issue of res judicata in effect he would suggest so.
On the status of the creditor Mr. Mitra would suggest, Ultimate Solution had the privity of contract, there was no evidence as to their dissolution, even if the first Memorandum would be taken as correct that would suggest takeover of the business of the partnership firm. Such takeover would require some overt act. He would refer to the agreement annexed to the petition that would suggest, the partners of the firm agreed to assign the rights and liabilities of the firm to the company. If the said document could be treated as a Deed of Assignment, it would be hit by the provisions of the Stamp Act in absence of stamp duty being payable on Deed of Assignment. The Memorandum of Association did not suggest change of the status of the firm that would only suggest takeover of the business. Such takeover, unless proved to be lawful, would not permit the company to raise the claim. In any event, the company never denied payment to Ultimate solutions. A sum of Rs.1 Lac and odd would still be payable by Metalogic that they could not pay in view of the confusion as discussed above. For the balance claim, he would suggest, unless and until UAT and ATP certificates were submitted Metalogic would not be in a position to process their bill for payment. He would lastly contend, the transaction was huge, substantial payments were made that would prove the bonafide intention of Metalogic.
On the legal issue Mr. Mitra would cite the decision in the case of Ram Kumar Agarwala and Anr. Vs. Buxar Oil and Rice Mills Limited reported in All India Reporter 1960 Calcutta Page-764 to suggest, in absence of any privity of contract, the winding up petition would not be maintainable. He would also refer to various provisions of the Transfer of Property Act to show, in absence of appropriate Deed of Assignment, the claim could not be pursued by the assignee particularly, without complying with the provisions of Section 130 thereof. He would rely on the decision in the case of Kalinga Mining Corporation Vs. Union of India and others reported in 2013 Volume-V Supreme Court Cases Page- 252 in this regard.
On the issue of maintainability of winding up petition at the instance of creditor, he would rely on one Apex Court decision and two High Court decisions, one of Calcutta and the other of Andhra Pradesh. Citations are:
1. Union of India Vs. Raman Iron Foundry reported in All India Reporter 1974 Supreme Court Page-1265.
2. Kisen Gopal Bogree Vs. L.J. Bavin reported in All India Reporter 1926 Calcutta Page-447.
3. Achanta Subbaraju Vs. Cherukuri Suryanarayana Murthy and Others reported in All India Reporter 1967 Andhra Pradesh Page-
11.
He would lastly rely on the Apex Court decision in the case of Amalgamated Commercial Traders Private Limited Vs. A.C.K. Krishnaswami and Another (Volume-35 Company Cases Page-456). He would rely upon the observation of the Apex Court to the extent, once the Court was satisfied that the debt, in respect of which notice was given under Section 434, was bona fide disputed the winding up petition could not be received for admission. He would pray for setting aside of the judgment and order of admission passed by the learned Single Judge. Per contra, Mr. Moloy Ghosh learned Counsel appearing for Ultimate Digital would hand over a detailed calculation to show, even on the strength of the dispute raised by Metalogic on the merits of the claim, a sum of Rs.1092168 would still become payable. He would be prepared to wait for a decision from the Civil Court on the rest of the claim however; the balance claim could not be resisted in absence of any bona fide defence.
Commenting on the judgment and Order of the Court of appeal, on the first petition, Mr. Ghosh would suggest, the Division Bench allowed the appeal and set aside the observation to the effect, the claim should be effectively gone into through a regular action, the second winding up petition would be maintainable in view of the express liberty being granted. Mr. Ghosh distinguished the Apex Court decision in the case of Kalinga Mining Corporation (supra), he would refer to paragraph 11 to contend, the observation of the Apex Court contained in paragraph 43 was rendered in a different situation.
On merit, Mr. Ghosh would further suggest, Metalogic deducted income tax from four bills including the second bill. Once they deducted tax from the amount covered by those four bills, those would immediately become payable in view of the implied admission. He would refer to Section 194 J (1) and Section 204 of the Income Tax Act in this regard. He would also refer to an unreported decision of the Division Bench in the case of Dolly Mazumder & Ors. Vs. Zee Telefilms Limited in A.P.O. No.74 of 2013 dated June 7, 2013 so clarified by subsequent Order dated August 8, 2013 and the Apex Court Order dismissing the Special Leave Petition on November 29, 2013. Pertinent to note, the Division Bench in the unreported decision allowed a claim on the strength of the tax deduction certificate. The Apex Court dismissed the Special Leave Petition from the said judgment and Order of the Division Bench.
On the issue of status Mr. Ghosh would rely upon the Memorandum of Association showing, all the three partners of the unregistered firm became the founder directors. They relinquished their claim in favour of Ultimate Digital by letter dated January 16, 2013 appearing at page-476. Even if the agreement dated March 31, 2011 could be said to be an insufficient document suggesting assignment, the letter of allotment of shares dated April 1, 2011 allotting shares to those three partners by way of adjustment of the amount payable by Metalogic System to the firm, would dispel all doubts as to the right of the Ultimate Digital to claim such amount. In any event, Metalogic never disputed the authority of the company contemporaneously.
As and by way of alternative submissions, Mr. Ghosh would invite this Court to have a decision on the status so that in future they would be in a position to pursue their claim.
While giving reply Mr. Mitra reiterated what he had argued in support of his appeal. He would remind us by contending, the finding of the learned Judge on the first winding up petition having not been upset by the Division Bench in relation to the Order of permanent stay, this Court should not entertain the winding up petition on the self same cause of action. Even if the liberty could be exercised, in absence of any improvement on merit taking the allotment papers in confidence (the allotment paper had not been before the Court, before Mr. Ghosh handed it over in course of hearing) the winding up petition would not be maintainable. He would refer to various clauses of the agreement that would speak of immovable property attracting appropriate provisions of the Stamp Act. Even if the registered office was situated in tenanted premises, such tenancy must be assigned in favour of the new company. Simple incorporation of the new company suggesting takeover of the business of the partnership would not ipso facto help them to have rights and liabilities of the firm when the firm was still not dissolved, as submitted by him.
On the tax deduction Mr. Mitra would suggest, the document should be read as a whole. On the unreported decision Mr. Mitra would suggest, question of law was still kept open by the Apex Court. He would once again suggest setting aside of the Order of the learned Single Judge and pray for return of the cash security that he deposited in deference to the desire of the Court of Appeal.
OUR VIEW:
From the rival contentions, principally three issues would emerge :
i) Is the second winding up petition maintainable?
ii) Is Ultimate Digital entitled to pursue the claim of United Solution in
the facts and circumstances discussed above?
iii) Is there any bona fide dispute on merit that would resist admission of winding up?
It is well-settled principle of law, a winding up petition at the instance of creditor could only be resisted by the company by raising a bona fide dispute. It is also held, legal dispute is a bona fide dispute. The yardstick followed to measure a dispute as to whether it is bona fide or not, is, one would have to examine the facts so brought by the petitioner and the defence raised by the company to find out as to whether the defence, if put to trial, would be sustainable, all that is necessary is, to find out whether there is any likelihood of such defence being ultimately sustained or not. It is not necessary, at least at the admission stage, whether the defence was full proof or not. Petitioner would have to discharge its onus to prove, he is a creditor of the company having a just claim on the strength of the evidence that he has and then if the defence, even on a cursory glance, does not impress the Court, the Order of admission would be a matter of course. In short, the Court is to find out at the admission stage as to whether the petitioner is a creditor of the company and on the strength of the pleadings in the petition itself, there was a just claim that the company failed or neglected to pay. If this hurdle is crossed, the company would have to raise a bona fide defence to resist the admission. Such bona fide defence should rebut the presumption that the Court was impressed upon, with the pleadings of the creditor. With this mind set may we proceed to decide the issues as framed by us above.
On the first issue, Mr. Mitra appearing for the appellant argued at length. He commented on the judgment and Order of the Division Bench referred to above. We are however, not impressed with his argument on the issue. The learned Judge, while disposing of the first petition, was confused by two Memorandums. Hence, His Lordship dismissed the petition. There was no occasion for His Lordship to go into the merits of the matter. His Lordship recorded so in the first part of the Order. However, in the concluding part His Lordship observed, the issue could not be effectively gone into on affidavit evidence. This conflict was resolved by the Division Bench. The Division Bench observed, when His Lordship did not go into the merits, the dismissal of first petition should be restricted to the confusion raised in His Lordship's mind on the Memorandum. Once His Lordship dismissed the same and the appellant would contend, by mistake a wrong copy was annexed causing confusion; they should be given another opportunity to approach His Lordship. The Division Bench gave them liberty by setting aside the part of the Order referred to above. Mr. Mitra was too technical in his submission. He would contend, the Division Bench set aside the observation but not the Order of permanent stay. With deepest regard, we have for him and with all humility may we join issue. If we look at the penultimate paragraph of the Order one would immediately observe, it was inseparable, in fact it was a complete sentence. How the Court could set aside a part of the sentence leaving the other part that is affirmed? We reject the contention of Mr. Mitra on the issue.
May we examine the issue from a different angle. As per the Company Court Rules and prevalent practice in many High Courts, Winding up petition at the instance of a creditor, when presented for admission, Court would receive the same, if satisfied on prima facie basis and admit the same directing public advertisement that would take a representative character. Company is still entitled to ask for stay of that proceeding at any stage after it is received and admitted by the learned Company Judge. There has been a departure from this practice by our Court and followed by some other High Courts where the learned Company Judge issues direction for service upon the Company even before the winding up petition is admitted. This practice is considered to be healthy to avoid unnecessary trouble that the company might face and the Court is not required to entertain frivolous petitions. Such practice is followed in our Court for decades. The present case is no exception. At the preadmission stage, learned Judge upon hearing both sides could not be satisfied because of the confusion as to the Articles and Memorandum of association hence, did not entertain the same. Once the winding up petition was not received or admitted, question of stay would not arise. Permanent stay of a winding up proceeding would relate to a particular cause involved in a particular proceeding. It cannot be in perpetuity. If we have to apply the logic of permanent stay in the present case, we would have to first hold, it was on the selfsame cause having already adjudicated upon, as observed hereinbefore. Learned Judge did not adjudicate the issue on merit. It was rejected on technical ground hence, such permanent stay, even if not interfered with, must not debar them to approach His Lordship again.
Hence, from all the three angles discussed above, the contention of Mr. Mitra could not be supported and hence, is rejected.
On the second issue, we are also not impressed with the argument that was advanced by Mr. Mitra. Mr. Ghosh would repeatedly say, United Solution did not have any immovable property. They carried on business from tenanted premises. Our tenancy law would not permit any transfer without the knowledge and consent of the landlord. Even if we hold, the agreement referred to above, was a Deed of Assignment that was insufficiently stamped and would be without any effect, the letter written by all the three partners of the unregistered firm permitting the new company to take up their cause, would be sufficient to pursue the claim. From the chronological events, on the issue we would only observe, the petitioners suffered for erroneous legal advice however, such sufferance could not be fatal, they could not be remediless. We are not sure, whether the partnership firm would still exist or not. Even if they would pursue the claim of their own, they would have to sue in their individual capacity. All the three partners jointly authorized the new company to pursue their claim. Assuming the transfer or assignment was unlawful or irregular the letter written by three partners authorizing the new company to pursue their claim in our view, would be sufficient. We reject the contention of Mr. Mitra on the second issue accordingly.
On merits, we would partly agree with Mr. Mitra. The dispute referred to above could not be said to be absolutely frivolous or sham, at least to the extent, barring a sum of Rs.149083 or Rs.1092168. Beyond the said sums we are convinced, the company could raise a bona fide dispute, at least the petitioner was not able to justify part of the claim that would require a regular trial.
The question would thus remain, for what amount the winding up petition should be admitted. Is it Rs.149083 or Rs.1092168? Is it first figure that was admitted by the company in their affidavit filed before the learned Single Judge particularly at page 355 of the petition or Rs.1092168 as demonstrated by Mr. Ghosh on the strength of the TDS certificates? Mr. Ghosh would contend, against four bills the Metalogic deducted tax at source. Referring to an unreported decision in the case of Zee Telefilms Limited (supra), Mr. Ghosh would contend, in view of the provisions of the Income Tax Act once Metalogic deducted tax at source those bill would become immediately payable. In our view, Mr. Ghosh was correct. Mr. Mitra would contend, the Apex Court did not go into the legal question raised in Zee Telefilms Limited (supra). Fact remains, Apex Court did not set aside the principle of law that the Division Bench decided. We do not find any scope of disagreement. Following Zee Telefilms Limited (supra) we admit the winding up petition for Rs.1092168 together with interest at the rate of 9% per annum on and from the date of receipt of the statutory notice of demand till the date of deposit of Rs.30 lacs by Metalogic in Court.
RESULT:
The appeal thus succeeds in part. We admit the winding up petition for the sum indicated above. We direct the Registrar Original Side to calculate the interest and pay the principal amount along with interest to the respondent Ultimate Digital Solutions. The Ultimate Digital Solution Private Limited would be at liberty to receive the said sum on their behalf as well as on behalf of the three partners referred to above who would also give valid discharge to those four bills.
The parties would be at liberty to approach the Civil Court for resolution of rest of the controversy. In case they do so within eight weeks from date they would be at liberty to take the plea of Section 14 of the Limitation Act, if required.
The Registrar would refund the balance sum to the Company along with interest accrued, if any.
The appeal is disposed of accordingly without any order as to costs. There would be stay of operation of this judgment and Order for a period of six weeks from date.
Arijit Banerjee, J:
I agree.
[ASHIM KUMAR BANERJEE, J.] [ARIJIT BANERJEE, J.]