Tata Elxsi Limited vs Pointred Telecom Limited on 15 July, 2011

[Cites 3, Cited by 2]

Karnataka High Court

Tata Elxsi Limited vs Pointred Telecom Limited on 15 July, 2011

Bench: B.Manohar

MADIWALA  
BANGALORE) ----~ 550 068. ...RESPONI_3EZNT:E§vV

[BY SRI.K.C}.RAGHAVAN, SENIOR 
SRIYUTHS NARASAPPA, DORASWAeMY;»..V Vf.:RAJA;  

ADVOCATES}

Counsel for the Petjiioner has fi1ed'fth:e aE)oVe 

Petition under Sections 433(e}""e»e;f:»d 434"  439
of the Companies AC1; 1p956;."«th.g=.t-'ygfor the
reasons stated  '-Court may be
pleased to win.<1 up...  Company in

accordance w_iith }f;he .Co1rip2inie's.gAet' vaod ete.,

T been heard and
Reseﬁéed -.a'n<:1V  Pronouncement of Order
this day!  following:

ORDER

' iffompany petition is filed under Sections 43i3'{e) read with Section 439 of Companies Act, 1956 seeking for winding up of the respondeni:--CompaI1y A ":L:"fo:7f1~on-payment of its debtsk ;

2, The petitioner is a eornpany »incjorporat--e:i--.Vzindgeri' the Companies Aet having -._registe_r'e'd offiee. Road, Whitefield, Bangalore. The petiti'oner§cornpany is involved in the "._of;_'i.nii*oriiriation technology? Product and setfviﬁesg.-"~ . '

3. herespoiidentsieonipany was incorporated under the its registered office at No. 18/ l "Ag:*ahara, Begur Hobli, Madiwala, A' main objects for which, the ' C.d1i1p'a_r1y incorporated are to engage in the business of development, production? managing advising, importing, exporting and marketing of teletéommunieation and internet related equipments, industry specific software and hardware solutions. The personal training and other kind of services or facilities relating to telecoinniunieation and internet hardware, software and technology, prograrnrning, software Exclusive License" to an "Exeiusive Lieense"<,..fe:j'0~an etdditionai license fees of USD 2,325,000 Three Hundred Twenty Five 0"

Dollars). The parties entered i;'n't01'_'_'a~ understanding dated 18-- A(M:(_3U)V the respondent-eompany ;.agreedt---id" I.3'é?'}}I'h.s'f3I.1.11i§ Of USD 2,325,300 (Two Mi11idn:ﬂE'iVe Thousand United State$..I§<ﬂj1arfs0)V' hfﬁelusive License rights 1=eVe*;5:0:h:d(ifﬁ't;qeompany for the s0ftw.a1'et;"e' MOU are produced at AnneXt:re's.;A veempany petition.

6. _In ,Qf the respondent-company is teA.'mahe""p'aVyInent of USD 2,325,000 towards e,_.the License granted to respendenbeompany. The__Vs;3.id:1a:hount was payable in addition to the eonsidefétion payable under the terms of SLA. The " was Vahd for a period ef six months. However, ..,.%.x}ith the mutuai consent 0f the parties the MOU was

-< M mﬁw 6 extended :0 315* December 2010. Thereafter, once 'again extended to 159* February 2011. The petitiQ1i.e:'r«._'dhas performed its part of Qbiigatione by grant A License to the respondentwcompany fe-fv"the'_';Sdftware."

The petitionepcempany had sdppiﬁed the respondentmeompany. ofdhthe by-L' the resp0nde11t~e0mp--a;f1y xazeredeleared.'af1*d...c1.:irified by the petitioner~Compa'dy';_h*ﬁjinaiisu have been exchanged delivery of deIiverab1ee."d::_'«.. all the deﬁverables, the ieediieddvdnotiee dated 1-10~2010 pointiifigdd eerformance of obligations under The Ap.efi'd<3ner~c0mpany Clarified all the 'd V. - aeeects'. as ._per H'd:e"'1etter dated 14% 1~201O stating that ' could not be fastened with the re'ep0:;veibﬁities/liabilities for the delay as stated in their .ie':te1;'dated 140-2010. The reasons for delay inter alia

--..V'%;%ei.dg that the respondeneeempany Changed the scope = work under the SLA; the respondenteompany A K J. delayed in providing dependencies (inputs): failure of the respondenteompahy to promptly appr_::>V:€~.._:»_l:.he deliverables provided by the petitionereoxllgalahiﬁ defects in the third party softwjare,.__4ha:'d§i%a:;e;v.}ai"oﬁ2'§.de-dld' by the responder1t~oompany.

Company also sent an in\%o:e'e..V_datedeV_:51;l?L¢iZ_Q"lQ. for a'-L' sum of Rs.ll,56,83f4--6z7/~'VA{Rtljs:ees.._E1el/en:flrdres Fifty Six Lakhs Eighty Thtee' Sixty Seven) which a:jt§dt"i3,s25,ooo. The responderlt'¥e'o:1l";a'a:13:f said amount. HoxVej;fei'"[ raised certain issues in relatiollll to of delivery of the Software as per its lett"e:t_Vdate.d A'1_7'?2;~2Ol 13 The petitloner~company has."A:'ela.rifled all""tl'1e aspects as per the letter dated ll" spite of the repeated reminders, the 1'es;V)ondeht.--~e0mpany failed to pay the said amount. In }zle\&/sfdlithat, a legal notice dated 28-2-2011 was issued the l*espondent~eon1pany under Seetlsn 434 of the = ..---ifompanies Act calling upon the respondent to pay the MI./' ii} Party One Crores Thirty Seven Lakhs .

Theusand only) as on 30"} September».é'i§.1:Gd;::

censoiidated profit and lose aizeounifrlfrirp ended 30:}: March 2010 was ai R5.'ii.§9,8o8ri,r5esV2}{§. i 8, The respnndenif _ Gemini Communications Limited,1-.eah"v1:eadi'n§' integrator in India "idlihias a national wide presence and' employees over 2500 perso:aeWiaiid{5.v is 'A d proiidfivdniaking entity. Gemini a leading player in the field of Networki. Iﬁeﬁwnrigid Security, E~G0vernance, ITeS, IT Stifategie, _IT c'di'is.1_i_I.ting Wireless and teleeorn domains 'an'dV eaters the numerous small and middle-size bn'3ine's:é'e.s wfcsridxxridei '' The respondent with a View in prneure eertain Yaasie software from the petitioner which was already ""'avai1dab1e with the petitioner requested for further r"§""A/ E'?

that Licensed Program is tobhe in accordance.'wii;ti:'e;'t.heA specifications in the SOW.

10. The respondent alleges'_that*de'epitedeorhipletet full Cdoperation extended'V'Vi'e»hyi theV".;fé:S;":;.Vor1t}z;erit, the petitioner has failed of SLA and the related unable to provide deeir.e:d '--_~_fir1§e1H respor1der1t~ Company. by the respondent for it d'e1iverab1es within the said period"~.th'e' has failed to fulfill their obligatiorighh The .eorresj30ndenCe between the petitioner andithve"resporidehtweompanies clearly demonstrate that ' et"'the-.ivr1etatriee of the petitioner the MOU was extended 2011. In spite of the same the pet.itiorier"i'h their eornmunication dated 1411" February §21Qt1_.1 steted as follows:

We, (TATA ELXS1 Ltd] are pleased to inform you (PoihtRed} that we have completed and ;> »-

released all features of TEL BS ver ?'.O on 159% day of Cietober 2010. We further to inform you that from 15"! day of 2010 onwards, our Engineers are Worl';ingjonl' it the priority set by you Von" »fi.:>;injg glfbjugsi UIRAS) in T EL BS ver 7.03.' We ftrrther_i~'isl§*uo_"'*::T* to inform you that we are theas and when the same isl"ir.elportedl"byl"you..°;:We are also fine-taunting the'i:§'erforrnanee"r'oased upon yourinputs.' l it i

11. This prior to the last date. They,'theiihselvesll'aﬁ:ni'ttecl'that they are also doing fine--t*;inin.gl Hence it is Clear that as on the last»._Lldate have failed to fulfill their liahgilities. l"l"'l1i_sloorrespondenoe between the petitioner Clearly demonstrates the delay in H ~e§{eeutiori.__o£"'i}arious commitments by the petitioner.

Diie the delay in fulfillment of commitment the ':'e;~:;g}onelei1t suffered huge loss in the business. The Aipetitioner was unable to provide the respondent with a llllstable fully funetionai and complaint software to be xi"

M used by the respondent in its final pr0dueVt.Ve'.._':""}fhe respondent had made substantial investrnefrit"i»rite__V'::h_e« _ project, but the petitioner has failed to vtheiiirw part of obligation in spite of repeated-3eXtensieri:e.fAtE1_e time. The terms of 'extensieii 'of "clearly-.:i' demonstrate that the petiti_eri'e:r 'hes provide delivery of a full, product éven 35 131:6 7ti1 ' Q \' \

12. In . functional and the."resjg5emi'ent-Company has had to delaylthe of its product and has hadto iriikest man power to help service its ' Cfl'i€1;1JLE$'e;af1C.{ end""u'sers to ensure that the software is commercial depleyment. Due to the actions petitionepeernpanyg the respendent has had tesuffer huge losses and trying its best to limit the

--..V':'ieifriages. T he respehcient has also put the petitioner en ». fnetiee in relatien to such damages and reserves its 2,1; § SLA Came to Eight only after the respondent aetualiy began to deploy the product in the ﬁﬁids This interruptions in the eonrleotivity of the prod_t§etttii€i"

stability of the product to run for at gderiod dd ' time. Both these conditions tr:ecéssét:y resporxdenfs products toVbe""~sVu<:ee$sft1l}y'~._c:orri1r1ercia1."VV By this time, the respondent initial pay"mer1t to the petitiorier' the terms of SLA. disputed by the petitioneri to the petitioner--

eomp;§;rij}t' through Email and the same, the petitioner has not 'sent Vddeliveretbwldede. Their letter dated 14--«2~201 1 eleariyr,'"dernAonstrétee that they are still ﬁr1e~tuning the spite of all these the respondent sent a ir1'az.o1e§;e.t3»tﬂ;t?ieV.11,56,83,467/ ~-- (Rupees elegien crores fifty eighty three thousand four huridred and sixty '' eeéveh only} and issued legat notice on 23"? February or ...«-£1007. Even though the time extended expires on E?

15~2~2011§ Without Verifying the p€:I'f{}I'II1aI1C€:~~,V_t}ifﬂTiif1€ deiiverables, the respondent has given reply out the deficiencies and also der)ie.d.__the_'1iab'iiitie'S' o3§.Vthe""

respondent to pay the said amotintii: }1'i _i€'e;")»iy«u it is also pointed out that Viriivéi/riexv of of and MOU, provides for reeohitioiri and if there is any dispute' vt')a:*ties out of the agreement, has sole arbitrator appointed'b3t:_t.]jr%'v_ dismissal of the eompaﬁy" e t ' V

14. Senior Counsel appearing for {then petitiorier contended that as per the Software Lie'er1se* Agreemeriti (SLA) entered into between the a Memorandum of Understanding eri't.ere,s:ji' between the parties, the petitioner .eorn;i1e~ted, released and delivered the software to the "1re;~;p'onder1t~eornpany as required under the contract. " »'--"";I'he software was supplied to the resporident~eompariy gsw' léi as; per the schedule entered inte between l:oth.._:llt.he parties. T he SLA was in force initially for aﬁeriod . months subsequently it was repleeetl by'Vthe:'_§§i'Olrl'g l"

per the MOU, the petitioner-A to':

deliverables on or beforeV(l3:l'Sf._ The'-L' petitioner has sent all the to ltl1eAre.epondent as per the time SCh®ﬂ:'i/1:J':\e.'f\ Eﬁ/a.,5_¢f€spondent by its letter d§lt€éClv.._ Complaint regarding _ and alleges that with the Software Lieene'e_A l2--1l-2009 for delivery of rnile:3toneS~«.eé1s per Aclzumele 1.7 of AnneXure~C. Further alle§eg,_..rlV:thl_at eikevvyafter 10 months of extension of _ eontreiet," eontraetual delivery tirnelines are not followed a'nr__<iV delwleoriee are not stable and feature Complaints are fully ﬁrréetional software as per the agreement. ll The petitioner has given reply to the said notice '' ~.--etating that the delay is due to the change of scope of work under the SLA by the respondent--eon:p8J}y'----_ar1d the reepondenteeompany has delayed dependeneiee {inputs}. Failure of K V' company to promptly approve the (ieIi*.re'rab;e§§ by the petitioner and defeﬁétn t'f1§:"'3rci p3.f:;3rv"soft*§:;.é£;<z::;7t» hardware provided by the for that the petitioner repeated reminders and .Fequeets./.9the."reepﬁirzvoerzit-'t'eompany failed to pay the" issued by the petitior_1_€'t.E :f:»etitioner--Company has filed forfwinding of the respondent» eomparty';t:_'_' teerned senior Advocate relied the reported in 1999 (V0197) Company 9 §;ases.,V"68E3:(HARYANA TELECOM LTD; V/s STERLITE H (INDIA) LTD, and contended that the I arbitration Clause is not a bar for filing winding up 9' hf" tgetitioh and also relied upon the following judgments:

AIR 1968 SC 1707 (HARINAGAR SUGAR MILLS CO. L.TD.t BOMBAY '*4, &x"<» Ix} Ix.) of licensed program and the petitioner shall deliver to the respondent the licensed program in aeeorCiar:'ee" the delivery schedule specified in the ~ Works. The petitioner has no.t»AA»ft1_l4fill€':lcl"the;»térariena ll' obligations under the SOW nor lliasﬂlthe the delivery schedule Sp€Cll~i'%l§§~..V_jn §DX__7V; this, " it the respondent has tot.al"eo_:stl .thellpi*ojeet as set out under the SOW. deliberately concealed though the petitioner V obligations, entire the SLA under the threat Furtheri the petitioner by its Email ll'Ctaitec:l.,'.'25?.3:¥2t)11 informed the respondent . .""~regardi5ng i*eleaseVol"eource Code '70, Without the said A=.eotire'e...t:~oel.eV,f~the software cannot be opened. Further, by lettervlltiated 14?" February 2007 as extracted above vV"'elearl$r'etates that they have completed and released all it 'Afeattrres, in the last para they have stated that "they T ~~-are finetuning' the performance based upon your E; E 23 input". it clearly shows that the petitioner tuning the software. The letter eoi*respor:e:i*e:iee beitwpeeti the parties Clearly discloses that'»,thei'e..jis4"defetult"'o}e___the part of the petitioner and there ishreaieh etgreeiiieht by the petitioner. The eupply of all deliverables. the amount does not arivseg 'Jaetion of the petitioner,; suffered huge loss deployment of final produvet' éshd 21 counter claim for USD 6e,389,4:e.,67,: agjart, em and l\/IOU provide for dizéipiutgeipireeoludtion;---«"Clause 10.11 provides for dispute feSolutioh»,Whi'eh reads as under: . " In the event of a dispute, the 'Parties 'Shall informally attempt to settle any claim or Controversy arising out of this Agreement through consultation and negotiation in good faith and a spirit of mutual eooperatioii. T he Parties agree that any unresolved dispute shall be submitted to 1' V /5 to binding arbitratian presided over by a_..___ mutually agreed Sale arbitrator. arbitrator Shall conduct the pr0ceedingS"é.s'. per the Indian Arbitration and % Act, 1996. Both the partieS'Sha11, in the arbitration proceedifigs and Cooperate for t3"if3«.._.'Y€S{'§ii1;[V§lOf1 =ijf;A..':the'VV dispute. The award paSVSee:c_'1'b3_z the'-a'fbiVir21hL3i>r Shall be final axide behth the parties. The H' 3 » ebndueting arbitration' A 'Shall be' h who initiateeﬂ h é.1jrEi3:j€;rvé;1':i<)€:j:J«V Venue of arbitrhtiogi' gm E13}:?E'E£"EEa;1ga;ore."

17. upon the judgments reported ihE.._4{2O1VCi]._x1\f:)SCC 553 (IBA HEALTH (INDIA) &pRm*;TE '* V%%L1M1TE,DeS.e v/s INFO-DRIVE SYSTEMS V'V._S{:)'N.-.I3AHD)*::v'{éi9--94)3 SCC 348; ILR 1990 KAR 1810 (EIWA ENTERPRISES v/s PRODUCIN ?;éR1Vm"E*g_ LTD); AIR 1971 SC 2600 '~1%§:;i{TS;h1:xLEDHUSUEAN GORDHANDAS <3: C€)., v/s WOOLEN ENDUSTREES PRIVATE LTD.,} and Z5 sought for dismissa} of the Cen1p:a,r1y;'_Ape'tititenA"arid xdi1:§'e7*.:t.:

the petitioner to avail the reﬁﬁedy uriéier of = L' the SLA and MOU.

18. I have earefuliyttt the arguments addressed perused the materials t i t t

19. respondent~eompany approaehect for certain IT prodaets and" servviteett the nature of Wi1\/LAX MAC """ "PHY software and. Switch Over tfd'rA»t._S_;ng1e sector and three sector based s0A1t;ti0n.{s:tQf'LWare). Pursuant to the same, the parties V"-hAaT\a7e entered into a Seftware License Agreement (SLA} A 12»11~t999. In terms of the SLA, the petitioner ..._1.teensed the software to the resp0nder1t~e0rnpar1y an Nomﬁxelusive Basis. in terms of SLA§ the petitioner duly provided the service requirement to the \ )"~/X"/1 26 respondent~eornpany. Subsequently? tlii'el'lresj:;=eri5§§:'§1tr,V * company once again approaehe:Cll"'lthle~. _A"p.eiitis:ii*:.elr«l.:

company, seeking tn eonvertfne license' grante'd"'t~e»"jthe " V respondentwtornpanyv :*'i1.nder.i"'Sl.§A-- 'l'fr,o'rn' tN(3Il~E:§)(Cl11SlV'€ License to an parties have entered into. '_§fVLlifiiivderstanding on l:;li-ee.11'se Fee for Exclusive use petitioner is that as per entered into between the parties.xthepetitiener eolmpleted, released and delivered l"ihlé" sdftwaive to respondenteornpany as required 1 lleontraet. The Confirmation letter dated l4'¥*2~2.Qll,lA«:'*Was issued to the respondent. The details E'€g_aI'dVl'i1g deliveries also mentioned in theglvarious dates.

, .,,(_fhereafter, they issued an invoice for Rs. 1 1,56,83,46?/~ "as per the 'MOU. For non--payment of the said amount, notice under Section 434 has been issued and filed this petition for winding up of respondenbeernpanyi in to deprive a ::redit<>r of 2: just éifid honest entittement must be .279 mere Wrar:gie*._ . , . . . . . . . . . . . e ¢ . E s . ..

Where the Companymhas dispute, the petitioner eaftnethejj. r'egé;if{iede.vs V«V a creditor ef the Compan3}'w.fei<._the 1§t;1fpeeee=.4 of winding up. "B0n:1_ "ﬁ_de die~pute"'v:ifh3§Iies"

the existence of sgheftvQriti_a1 .g1"*e1.1_§1(Vi_i§ for dispute raised; Court is satiefied V that upiQ"'1v;,f.[t\'.:v'y§y1ieh the petitiqt1eA::; V i'_feu1§t_dee1' v_.e(}t1tested debt and "'ét1sd:.... Cempany Court shVou}r;1'V"*:1?:}t en1t'erte111. a petition. The expected to go into the xeatisee the Company to pay beforﬁ * e0:ni11g'«...-to that Conclusion and e;eCert2ti13..A that Cempéi-ir1y's refusal is "ettpp*Qrted by reasonable cause or benafide in which dispute can only be edjtitheated by trail in 3. Civil 2 z Cetjtt ............... ..

"A part}; to dispute sheuid net be aﬁeweci to use the threat ef winding up petitien as a means of enfereing the . '7 .2' ;%:»*-»"/ If at 3') ii eornpany to pay the bonafide disputed delete The Company Court eannot be reduced Debt Collecting Agency or as a 5 ;_. bringing improper pressure on the to pay the bona fide d.'ltTA>>pLi«f.€§'d"_" deldtwiv should not permit a party set the law in rnotion-,._'especially, aggrieved party has elsedwrh-ere'.;: Of late, there are" several" instaiiees the jurisdiction of is being abused by fili,rigv...§$:indi11g"Adiipiﬁdetitions to the debts which _.--are""su,b'stan"ti.al13f'--._disputed and the Cotirts. are3I:;Very_easual----in issuing notices and ';.Qr(?leri,f1§§."*-publniatioii~ in the newspapers xirliiieh adverse publicity. A ered'i'to_r's..'.'--winding up petition implies 5pi.nso_lveneyvv--------arid is likely to damage the ..Coprn,pany's creditworthiness or its financial with its ereditors or Customers and among the public and which may also * have other economic and social ramifications. The Competitors will be all the more happy and the sale of its products may go down in the market and it may also 33 trigger a series ef erase defaults? and further pueh the Company inte a -1' acute insolvency much' more was when the petition"; '{§¢é's« filed; Cempany Court, at the to look into the inte'ttets't...Qf the also interests of the }The Company are test so that its mediurxtt :do_t:.ttif;e.:v.:1h_i_sueed. A Comparzjf Ceugtt sVi"1c;t:V£'1d act with __ tC_V;1re_«-- ij'atict"'VVeaution and exa:miIieV;;§s is made to to pay the debt ist tiieilly "disputed."

21. In"--_t1*1eV ir1.e'taer1~tV:""'vc:eise, there is serious dispute regetding t}i.e"eV1:2vtt1f;ftA:a31ade by the petitioner. As could be seen latest balance sheet, the respondent~ ﬁe:-iitzaneialiy Viable. If the eempany is gating to be__ and the petitioner is not in 3. position to rece%;'e__%* the dues and the company beeemes insolvent, 'vthe§: 0:11}? the winéing up petitiez: can be entertained, the instant case, the finaneia} position of reepozzdexat

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Karnataka High Court