Karnataka High Court
M/S Arrow Electronics India Private Ltd vs Sem India Systems Private Limited on 3 December, 2013
Author: Anand Byrareddy
Bench: Anand Byrareddy
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 03rd DAY OF DECEMBER 2013
BEFORE:
THE HON'BLE MR. JUSTICE ANAND BYRAREDDY
COMPANY PETITION No.222 OF 2011
CONNECTED WITH
COMPANY PETITION No.103 OF 2012
COMPANY PETITION No.127 OF 2011
IN COMPANY PETITION No.222 of 2011
BETWEEN:
M/s. Arrow Electronics India Private
Limited, a Company registered
Under the Companies Act, 1956,
Having its registered office at No.909,
A Wing, Sagar Tech Plaza Andheri,
Kurla Road,
Saki Naka, Andheri East,
Mumbai - 400 072,
Represented by its Senior Finance Manager
And Authorised Signatory,
Mr. Suresh Arumugam.
...PETITIONER
(By Shri. Pradeep Naik, Advocate)
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AND:
Sem India Systems Private Limited,
A Company registered under the
Companies Act, 1956
Having its registered office at No.1106/9,
A.M. Industrial Estate,
Grebhavi Palya,
7th Mile, Hosur Road,
Bangalore - 560 068
Represented by its
Managing Director.
...RESPONDENT
(By Shri. Dhyan Chinnappa, Advocate for M/s. Crestla Partners,
Advocates)
*****
This Company Petition filed under Section 433(3) and (f)
read with Section 434 (1)(a) and Section 439(1)(b) of the
Companies Act, 1956, praying that the respondent company be
ordered to be wound by an under the orders and directions of this
Hon'ble Court and etc;
IN COMPANY PETITION No.103 of 2012
BETWEEN:
M/s. Kenplus Plastic SDN, BHD,
No.6, Jalan Bangsar Utama 9,
Bangsar Utama,
Kuala Lumpur,
Wilayah Persekutuan,
Malaysia,
3
(represented by its
Authorized Representative
Mr. A. Baskaran)
...PETITIONER
(By Shri. Anandarama, Advocate)
AND:
M/s. Sem India Systems Private Limited,
Having its registered office at No.1106/9,
A.M. Industrial Estate,
Garvebavi Palya,
Kudlu Gate,
Bengaluru - 560 068,
Karnataka, India.
...RESPONDENT
(By Shri. Dhyan Chinnappa, Advocate for Smt. Annapoorna,
Advocate for M/s. Crestlaw Partners, Advocates)
*****
This Company Petition filed under Section 433(4)(e),
434(1)(a) and 439(1)(b) of the Companies Act, 1956, praying to
pass an order directing that the respondent Company, M/s. Sem
India Private Limited, be wound up under the provisions of the
Companies At 1956, and etc;
IN COMPANY PETITION No.127 of 2011
BETWEEN:
1. Flextronics International Asia
Pacific Limited,
Having its registered office at
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Level 3, Alexandar House,
35 Cybercity, Ebene,
Mauritius.
2. Flextronics Technologis (I)
Private Limited, having
Its registered office at Plot
No.3, Phase II, Sipcot
Industrial Park, Sriperumbudur Taluk,
Sandavellure C Village,
Tamil Nadu 602 106,
India
Both represented by Mr. Neelkantha Karinje
The authorized signatory of the
Petitioners.
...PETITIONERS
(By Shri. G. Shivadas, Advocate for Smt. Lakshmi Kumaran and
Shri. Sridharan, Advocate)
AND:
Sem India Systems Private Limited,
Having its registered office at
No.1106/9, A.M. Industrial Estate,
Garebhavi Palya,
7th Mile, Hosur Road,
Bangalore - 560 068,
Represented by its
Managing Director.
...RESPONDENT
(By Shri. Dhyan Chinnappa, Advocate for M/s. Crest Law
Partners, Advocates)
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This Company Petition filed under Section 433(e) and (f)
read with Section 434 of the Companies Act, 1956, praying to
Wind up the respondent-SemIndia Systems Private Limited,
having its registered office at No.1106/9, A.M. Industrial Estate,
Garebhavi Palya, 7th Mile, Hosur Road, Bangalore - 560 068 in
accordance with the provisions of the Companies Act, 1956 and
etc;
These Company Petitions having been heard and reserved
on 29.11.2013 and coming on for Pronouncement of Orders this
day, the Court delivered the following:-
ORDER
These petitions are heard and disposed of by this common Order, as they are directed against the same respondent company, in almost identical circumstances and are filed seeking the winding up of the respondent - company.
2. The petitioner - company, in the first of these petitions, and the respondent were said to have been transacting business for several years prior to the petition. The petitioner is said to be a leading electronic component distributor and is engaged in the business of providing a range of products to suppliers worldwide. 6 The respondent was said to be engaged in the design and development of telecom and broadcasting products.
It is stated that the respondent would place purchase orders with the petitioner for the purchase of various electronic products and the petitioner would have the goods manufactured as per specifications and the same would be supplied as per terms of payment specified in the purchase order, it had been the practice for the respondent to issue post-dated cheques and in some instances, letters of credit towards payment of the supplies.
However, it transpires that the respondent began defaulting in payments from the year 2009, when the respondent was either making delayed part payments or completely defaulted in making payments which were due on invoices raised by the petitioner. It is claimed that the several cheques issued by the respondent had been returned dishonoured on presentation for collection. The respondent had repeatedly acknowledged and admitted their failure to honour commitments - while continuing to place orders for additional goods.
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It is stated that the respondent who had promised to pay a sum of Rs.7 crore by mid-September 2011, failed to do so. The Petitioner claims that it had already procured and stocked goods worth about Rs.5.72 crore towards purchase orders issued by the respondent, of which the petitioner was constrained to withhold delivery- until all payments were made.
It is stated that the respondent being unable to make payments in respect of several consignments delivered to the respondents, by December 2010, had requested the petitioner to take back a substantial quantity of goods supplied, in order to mitigate the mounting losses. It is claimed that the petitioner thus was able to take possession of goods worth Rs.5.44 crore, without prejudice to a claim for damages - by virtue of the failure of such transactions. It was thus claimed that after giving credit to the respondent for inventory returned to the petitioner, an amount of Rs.3.85 crore was due and payable by the respondent towards goods supplied.
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The petitioner having issued a statutory notice, dated 17.8.2011 calling upon the respondent to pay the outstanding amounts, the respondent had neglected to reply to the notice, after having acknowledged receipt, and failed to pay the amount under demand.
It is further stated that through out the subsistence of the business relationship with the respondent, there had been no dispute raised by the respondent of any nature as regards the terms of contract.
Hence the petition.
3. The respondent has entered appearance through counsel and has filed statement of objections to contend that the claim of the petitioner is admittedly subject to the adjustment of a substantial sum of Rs.5.44 crore, being the value of goods which the petitioner has admittedly retrieved from the custody of the respondent -the said adjustment is unilateral and does not bind the 9 respondent. The claim therefore is not certain and cannot be the subject matter of adjudication in these proceedings.
It is contended that the components supplied by the petitioner were utilized in the assembly of a finished product. The same were to be supplied to a third-party, M/s Bharat Sanchar Nigam Limited (BSNL), by the respondent. As the goods supplied by the petitioner suffered from serious defects, the products supplied were returned in large quantities by the buyer.
It is contended that the entire production schedule depended on the supply of components by the petitioner. A delay on the part of the petitioner led to imposition of liquidated damages by the buyers namely, BSNL and Indian Telephone Industries (ITI), and the collective delay on the part of the petitioner in respect of the series of Orders placed on the petitioner, had led to the imposition of liquidated damages by the said buyers, in a sum of Rs.4.37 crore. It is claimed that without there being an adjudication of these unresolved issues, the demand on the part of the petitioner for any amount is without basis. The said claim 10 cannot be set up as the basis for an allegation that the respondent is unable to pay its debts and bring this petition. Therefore, it is contended that the petition be dismissed.
4. The learned counsel for the petitioner while reiterating the contentions in the petition would submit that the plea as regards the dues from the petitioner was in two components, though the respondent claims that without there being an adjudication of the claim of adjustment of amounts recovered by way of sale of goods that were taken back by the petitioner, valued at over Rs.5.44 crore, was one of the components. The other being a claim for a sum certain of Rs.3.85 crore, in respect of which there were clear admissions on behalf of the respondent company, in the course of correspondence and as the respondent had failed to respond to the notice issued in the first instance, the respondent is certainly unable to pay its debts and is only seeking to raise disputes where none existed, in so far as the performance of the contract on the part of the petitioner. It is pointed out that 11 though the respondent has sought to swamp the proceedings with voluminous documents, which have little relevance in seeking to make out a defence against the petitioner, it is contended that the respondent is precluded from setting up any such defences as an after thought and without any basis.
Re. Co.P.103/2012
5. It is the case of the petitioner that it is engaged in the business of manufacture and supply of precision engineering plastic parts and components including modems and has an established business. The petitioner is said to have supplied 48000 units of modems and 346 pieces of completed printed circuit boards to the respondent against a Purchase Order dated 7.3.2009, the total value of the order was US$ 1048504. The petitioner is said to have supplied the goods from time to time and by 31.3.2010, the value of the goods supplied was at US$ 1088164. The respondent, however, made no payments beyond 5.4.2010. And had, by the said date, paid only US $ 468804. 12 Thereafter, there was constant exchange of correspondence in the petitioner seeking payment of the amounts due -and though the respondent had made several assurances over the years, no payment was made, clearly establishing the inability on the part of the respondent to make any payment. It was in that background, after issuing a notice under Section 434 of the Companies Act, 1956, which was duly acknowledged, but to which there was no reply, that the present petition is filed.
6. The respondent, in its statement of objections, has sought to contend that the respondent had obtained large orders for supply of modems from ITI, which in turn had obtained Orders from BSNL. ITI had hence placed back to back orders on the respondent. To satisfy the said contract the respondent had in turn placed orders on various entities such as the petitioner, who were required to adhere to strict compliance with the time schedule for supplies. Any delay resulted in the respondent being mulcted with liquidated damages under the terms of contract with ITI and 13 BSNL. It is alleged that there were inordinate delay in supplies. It is also alleged that the goods were defective and not according to specifications. And this has resulted in the buyers claiming damages against the respondent. It is further contended that in terms of the contract payments would be made only on the complete supply against the purchase order and in the absence of compliance with the same, would justify the respondent refusing to make payment. The respondent has sought to rely on certain correspondences to substantiate its stand.
The arguments in support of the above contentions follow the same lines as in the first of these petitions. Re. Co.P.127/2011
7. The petitioners herein are said to be part of a group known as the Flextronics Group. They are said to be engaged in the business of offering manufacturing services for electronic applications.
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It is stated that under document entitled, Material Indemnification Letter dated 23.1.2007, the petitioner had agreed to supply products to the respondent against purchase orders. This arrangement though was meant to be for a period of four months, it was extended pending the execution of a further document entitled Manufacturing Services Agreement (MSA), which was eventually executed as on 27.7.2009.
It is contended that petitioner no.2 had manufactured electronic and telecom products for the respondent in terms of the purchase orders issued by the respondent and invoices were raised by petitioner no.2 on the respondent for the services and products provided. The supplies were made against each purchase order by the petitioners in a timely manner and the petitioners acted diligently under their agreements.
On supply of the said products, petitioner no.2 duly raised invoices on the respondent in terms of the purchase order and the MSA. In terms of the said purchase orders and invoices, the 15 invoices were payable within 60 days from the date of receipt of the material or within seven days from the date of the receipt of invoice. The respondent repeatedly failed to make timely payments of the invoices. Petitioner no.2 continued to provide manufacturing services to the respondent in good faith and in the belief that the respondent would comply with its contractual obligation to pay the invoices. The petitioners also made numerous requests, both written and oral, for the payment of invoices. However, the respondent failed and neglected to pay the outstanding amounts in breach of terms of the MSA, the PA and the purchase orders. In fact, in order to secure the collection from the respondent, an escrow account was set up with ABN AMRO Bank, Prestige Towers Branch, "Prestige Towers", Ground Floor, 99 and 100, Residency Road, Bangalore - 560 025, pursuant to an Escrow Agreement dated 21.11.2008. As per the escrow agreement, the respondent agreed to deposit all proceeds received from their customers including ITI only to escrow account and further agreed that ninety-five per cent of 16 the proceeds were to be remitted to petitioner no.2 from such escrow account. In the said agreement, the respondent clearly acknowledged that monies were due and payable to the petitioners. However, the respondent completely violated the escrow agreement and failed and neglected to deposit amounts in the escrow account inspite of receiving monies from their customers including ITI.
By an e-mail dated 17.12.2009, the respondent had confirmed petitioner no.2 that a balance of US$ 7977402 was outstanding as on 31.3.2009. The respondent has also admitted that it was undergoing financial difficulties and has in fact been unable to make payment to its own employees or any correspondence in this regard. Thereafter, some time in April, 2010, part payment of US$ 753713 was made to petitioner no.2 by the respondent.
It is further contended that the respondent has availed of its manufacturing services and are liable and bound to repay the 17 outstanding invoices raised in that regard together with interest , costs, charges and expenses.
Despite admission of liability, the respondent made no payment whatsoever and left with no alternative, the petitioners got issued a statutory notice under Section 434 of the Companies Act, 1956 dated 1.6.2011. The notice was received on June 6, 2011 by the respondent. There has been no reply to the said notice despite lapse of 21 days and nor has the respondent discharged the liability thereunder. As such, the respondent is deemed unable to pay its debts.
The respondent seeks to negate the transactions preceding the MSA.. And further that the petitioner did not adhere to delivery schedules even under the MSA. It is also contended that the goods did not match the specifications and there were large scale rejections by the ultimate buyer, who sought to fasten a claim for liquidated damages on the respondent.
It is incidentally claimed that the petitioner has not brought to the attention of the court the fact that a substantial portion of the 18 claim of the petitioner has been resolved by conversion into equity shares of the respondent, worth US$4 million. It is in this vein that the petition is resisted.
8. By way of rejoinder, the petitioner denies that there was any privity of contract between the petitioner and any party with whom the respondent may have entered into, in respect of the goods. In any event, there was never any complaint by the respondent of delay or defect in the goods.
It is also denied that a sum of US$ 4 million had been converted into equity shares. The document sought to be relied upon by the respondent is itself contrary to the same and there is also mention of "unsecured loans" in the said document, which is not explained by the respondent. The petitioners seriously doubt the veracity of documents sought to be produced by the respondent before this court.
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9. On a consideration of the above contentions and on a perusal of the material on record, it is seen that there is no dispute as regards the fact that there were business transactions between the petitioners and the respondent under individual contracts.
It cannot also be disputed that there is exchange of correspondence ,in each instance, between the parties as regards amounts outstanding and payable towards supplies made to the respondent.
In none of the cases has the respondent been seen to have raised a dispute as regards breach of contract in relation to supplies or the quality of the products. On the other hand the respondent has categorically admitted defaults in payment of monies and has sought extension of time to make payment. This, as pleaded by the petitioners, is demonstrable in each case.
The respondent has been duly served with notices, issued by the petitioners under Section 434 of the Companies Act, 1956. The respondent has neither replied nor complied with the demand, 20 in any of the cases. The defence now sought to be raise under the Statement of objections is necessarily to be substantiated by reference to material documents. The voluminous documents produced by the respondent is hardly of any assistance in advancing the defence that is sought to be set up against each of the petitioners. The exchange of correspondence between the petitioner and its third party purchasers, which forms the bulk of the documents produced by the respondent would not have any bearing on the allegations against the petitioners, when there is apparently no privity of contract binding the petitioners ,vis-à-vis , the third-parties, whom the respondent claims have penalized it for purported failure of contract, attributable to alleged delayed supplies and defective goods.
It is not the case of the respondent that the respondent has made any payment subsequent to the demand made by any of the petitioners, of any of the admitted dues.
It may hence be said that the petitioners have independently satisfied this court that the petitions are to be allowed. 21
Hence, the Company petitions are allowed.
1. The respondent-Company is ordered to be wound-up under the provisions of the Companies Act, 1956.
2. The Official Liquidator attached to this Court shall act as the liquidator of the respondent-Company and forthwith take charge of all the property and effects of the said Company;
3. The Official Liquidator shall cause a sealed copy of this order to be served on the company by pre-paid registered post;
4. The petitioners shall advertise within 14 days form this date a notice in the prescribed form of the making of this order in 'THE HINDU', English daily newspaper and shall deposit Rs.50,000/- (Rupees Fifty Thousand) with the Official Liquidator towards initial expenses.
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5. The petitioners shall serve a certified copy of this order on the Registrar of Companies not later than one month from this date.
Sd/-
JUDGE nv* 23 ABJ: COP.222/2011 c/w. COP.103/2012, COP.127/2011 17.12.2013 ORDER ON 'FOR BEING SPOKEN TO' It is made clear that the petitioners are permitted to take out a joint advertisement in these three petitions and the expenses involved shall be shared by all the petitioners, equally.
Further extension of ten days correspondingly, is granted to take out advertisement.
Sd/-
JUDGE KS