Gujarat High Court
Industrial X-Ray And Allied ... vs Jaihind Projects Ltd on 11 August, 2015
Author: Vipul M. Pancholi
Bench: Vipul M. Pancholi
O/COMP/1/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION NO. 1 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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INDUSTRIAL X-RAY AND ALLIED RADIOGRAPHERS (I) PVT.
LTD....Petitioner(s)
Versus
JAIHIND PROJECTS LTD....Respondent(s)
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Appearance:
MR NAVIN K PAHWA, ADVOCATE for the Petitioner(s) No. 1
MR RAVISH D BHATT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
Date : 11/08/2015
ORAL JUDGMENT
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1. This petition is filed by the petitioner-company under the provisions of Sections 433 and 434 of the Companies Act, 1956 wherein the petitioner has prayed that the respondent-company be wound up by and under the order of this Court and the Official Liquidator attached to this Court be appointed as Liquidator of the respondent-company to take over all the assets and books of accounts and affairs of the company under the provisions of the Companies Act.
2. Heard learned advocates Mr.Navin Pahwa for the petitioner and Mr.Ravish Bhatt for the respondent-company.
3. Learned advocate Mr.Pahwa for the petitioner has submitted that the respondent- company is incorporated under the provisions of the Companies Act of 1956 for the main objects which are stated in paragraph 4 of the petition. He submitted that the respondent-company had issued four work orders on behalf of M/s GAIL which the petitioner has duly executed and completed the said work at the respective locations which have been accepted by the respondent without demur. The details of the said work orders are referred by the learned advocate for the petitioner which are annexed at Annexure Page 2 of 39 HC-NIC Page 2 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT `B' collectively with the compilation. It is the case of the petitioner that it has completed all the projects/work orders issued by the respondent and therefore the petitioner raised several invoices for the said work orders which have been duly received and acknowledged by the respondent. Learned advocate Mr.Pahwa would contend that even as per the books of accounts of the respondent, dues of the petitioners are shown as outstanding and payable. It is the grievance of the petitioner that even after acknowledgment of completion of the four work orders, the petitioner has not received payments from the respondent. The petitioner has, therefore, sent repeated reminders to the respondent for the payment of the said outstanding dues. However, respondent has failed and neglected to make the said payment.
3.1 Learned advocate Mr.Pahwa thereafter contended that so far as the work order for carrying out NDT works at Bawana Nangpal Pipeline Project of M/s GAIL at Ahmedabad dated 8.12.2009 is concerned, the petitioner has sent ten invoices from July 2011 to April 2012 totalling to Rs.33,99,057/-. The said invoices are duly received and acknowledged by the respondent. However, the respondent has failed and neglected to make the payment against the said invoices.
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Learned advocate has referred to the said
invoices which are produced at Annexure `C'
collectively with the compilation. Similarly,
learned advocate has referred to the other
invoices and job sheets which are annexed at
Annexure `E' collectively as well as Annexure `F' collectively with the compilation. Similar such documents are annexed for different works carried out by the petitioner for the respondent-company at Annexure `G' to Annexure `J' collectively. Learned counsel Mr.Pahwa thus submitted that along with the invoices, the petitioner has also provided the details of the work carried out by the petitioner from time to time in the form of job summary submitted to the respondent. The said details have also been duly signed and acknowledged by the authorized representative of the respondent without any objection. Thus, learned advocate for the petitioner would contend that the respondent has admitted and acknowledged its liability to pay the outstanding amounts against the invoices submitted by the petitioner. The outstanding amount is not paid by the respondent and, therefore, the petitioner was constrained to issue statutory notice under the provisions of the Companies Act to the respondent on 5.8.2013 whereby the respondent-company was called upon to pay the amount of Rs.67,26,456/- along with interest. Learned advocate submitted Page 4 of 39 HC-NIC Page 4 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT that the said notice was duly served to the respondent. However, the respondent has not given any reply to the said notice nor made any payment. Learned advocate Mr.Pahwa would submit that there are various other creditors of the respondent whose debts are outstanding and other winding up petitions are also filed against the respondent and the same are pending before this Court. Thus, he contended that in view of the provisions of the Companies Act, the respondent- company is unable to pay its debts as and when they arise. The respondent-company has lost its substratum and has become commercially insolvent and, therefore, this Court may admit this petition and pass an order of publication of an advertisement in the concerned newspaper.
4. On the other hand, learned advocate Mr.Ravish Bhatt appearing for the respondent- company has taken preliminary objection with regard to the maintainability of the present petition mainly on the ground that the Board of Directors of the petitioner-company have not given specific authority to Shri Sandeep Mangesh Desai, Sr.Manager (Liason) for institution of the petition and the affidavit filed by the officer of the petitioner is defective. He would further contend that the institution of petition against the respondent is a matter within general powers Page 5 of 39 HC-NIC Page 5 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT of Board of Directors of petitioning company and not within the powers of any individual unless specifically conferred with powers for said purpose. The Board Resolution dated 16.12.2013 produced by the petitioner along with the petition is general in nature and authorizes the said officer to appear, sign, verify, declare, affirm, make, present, submit and file necessary notices, declarations, appeals etc. in connection with any suits filed by or against the company. However, there is nothing on record to suggest that the said officer Mr.Desai has been authorized to take decision on his own to institute the present petition. He, therefore, contended that this petition is required to be dismissed only on this ground.
4.1 Learned advocate Mr.Bhatt thereafter contended that even a Director has no power to act on behalf of the company and he is only one of the body of Directors i.e. Board of Directors. Thus, even one of the directors has no power except such as may be delegated by the board or given to him by the Articles of Association. Thus, in absence of board resolution giving specific authority to Mr.Sandeep Desai to institute the present petition, this petition is not tenable. He has placed reliance upon the decision rendered by the High Court of Delhi in Page 6 of 39 HC-NIC Page 6 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT the case of M/s Nibro Limited V/s National Insurance Company Limited, reported in AIR 1991 Delhi 25, more particularly, he has relied upon paragraphs 25 and 26 which read as under:
"25. It is well-settled that under Section 291 of the Companies Act except where express provision is made that the powers of a company in respect of a particular matter are to be exercised by the company in general meeting in all other cases the Board of Directors are entitled to exercise all its powers. Individual directors have such powers only as are vested in them by the Memorandum and Articles. It is true that ordinarily the court will not unsuit a person on account of technicalities. However, the question of authority to institute a suit on behalf of a company is not a technical matter. It has far reaching effects. It often affects policy and finances of the company. Thus, unless a power to institute a suit is specifically conferred on a particular director, he has no authority to institute a suit on behalf of the company. Needless to say that such a power can be conferred by the Board of Directors only by passing a resolution in that regard.
26. Chapter IV of the Delhi High Court (Original Side) Rules deal with the question of presentation of suits. Under this Rule, suit can be presented by a duly authorised agent or by an advocate duly appointed by him for the purpose. This authorization, in my view, in the case of a company can be given only after a decision to institute a suit is taken by the Board of Directors of the Page 7 of 39 HC-NIC Page 7 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT company. The Board of Directors may in turn authorise a particular director, principal officer or the secretary to institute a suit."
4.2 Learned advocate Mr.Bhatt thereafter has placed reliance upon the decision rendered by the Himachal Pradesh High Court in the case of Apple Valley Resort V/s Himachal Pradesh State Electricity Board reported in 2004(118)CC 328(HP). Paragraphs 7,8,26 and 27 read as under:
"7. A bare reading of the above provisions shows that except where express provision is made that the powers of a company in respect of a particular matter are to be exercised by the company in general meetings, in all other cases the board of directors are entitled to exercise all its powers. Individual directs have only such powers as are vested in them by the memorandum and articles.
8. It was contended by learned counsel for the petitioner-company that under Order 29, rule 1 of the Code of Civil Procedure, the pleadings can be signed and verified on behalf of the corporation/company by the secretary or by any directors or other principal officer of the corporation/company, who is able to depose to the facts of the case. According to learned counsel, since Shri Arun Sharma is the director of the petitioner-company, he was authorised to sign and verify the petition on behalf of the petitioner- company and no separate resolution of the petitioner-company was necessary authorising him to institute the present Page 8 of 39 HC-NIC Page 8 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT petition. In support of his contention, learned counsel has placed reliance on the decision of the hon'ble Supreme Court in United Bank of India v. Naresh Kumar [1997]90 Comp Cas 329 ; AIR 1997 SC 3.
26. The irresistible conclusion is that Section 291 of the Companies Act, 1956, provides that except where express provisions is made that the powers of a company in respect of a particular matter are to be exercised by the company in general meeting, in all other cases the board of directors are entitled to exercise all its powers. Individual directors have only such powers as are vested in them by the memorandum and articles.
27. In the absence of a specific resolution of the board of directors authorising Shri Arun Sharma to institute the present petition for and on behalf of the petitioner-company or the power conferred on the director by the memorandum and articles of association, the present petition cannot be said to have been laid by a duly authorised and competent person for and on behalf of the petitioner-company. The same is bad and liable to be dismissed on this short ground alone."
4.3 Learned advocate then placed reliance upon the order dated 19.3.2009 passed by the High Court of Bombay in Chamber Summons No.1705 of 2008 in Suit No.3382 of 2207. In the said order, the Bombay High Court has observed in paragraph 11 as under:
Page 9 of 39HC-NIC Page 9 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT "11. The essential requirement of this provision is that the Company which is a juristic person must itself decide to sue. Once that is done, it would authorise one of its Directors who is the agent of the Company or its principal officers the Secretary of the Company or the Managing Director to file the Suit. The suing in each case is a separate act. The Company acts only through its meetings. Hence the Board of Directors in the day to day management of the company must decide and resolve to sue or not to sue. A blanket authority cannot be given to a particular Managing Director or Director to sign the papers and documents, including the power to sue. The power to sue requires application of mind upon the particular cause of action. It requires the Company to pay the requisite Court fee. It requires the Company to be represented by a legal officer being an Advocate of the Court.
It is an act which, therefore, is not a part of the day to day management of the Company. A Company would decide in a given case upon legal advice or otherwise whether or not it would sue upon a given cause of action. Such exercise is imperatively required to be performed if the intention of the Company, which is only a juristic person, is to be deciphered. That act, of course, may be undertaken even after the filing of the Suit and ratified by the Board as all other acts of management. However, the seminal requirement is to see the act of the Company though its Board or members (dependent upon whether the resolution is passed in the Board meeting or a general meeting) or is given by the Page 10 of 39 HC-NIC Page 10 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT Company itself (under its Articles of Association)."
4.4 Learned advocate Mr.Bhatt thereafter contended that even assuming without admitting that Mr.Sandeep Desai was empowered to institute the present petition, affidavit accompanying the petition indicates that no proper affidavit in support of the petition has been filed and changes have been made in the affidavit after getting it notarized inasmuch as the copy of the petition served upon the respondent-company contains notarized affidavit page containing blanks therein in respect of number of paragraphs. Thus, the petitioner has either filled up the blanks after getting the same notarized or has filed improper affidavit containing blanks in the Hon'ble Court. Therefore, only on this ground, the petition is liable to be dismissed. In support of the said contention, learned advocate has placed reliance upon the order passed by this Court in Company Petition No.160 of 2006 passed on 26.12.2006. This Court in the said order observed that prima facie it appears that some corrections were made in the affidavit and/or blanks are filled in after the petition was affirmed before the Notary which is prima facie not permissible. This Court, therefore, permitted the learned advocate to Page 11 of 39 HC-NIC Page 11 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT withdraw the said petition with liberty to file a fresh company petition. The cost was also imposed. Learned advocate, therefore, submitted that the present petition is also liable to be dismissed on this ground.
4.5 Learned advocate for the respondent thereafter referred to Rule 95 of the Company (Court) Rules of 1959 which provides that the petition for winding up the company shall be in Form No.45,46 or 47, as the case may be, with such variations as the circumstances may require and shall be presented in duplicate. Learned advocate contended that the present petition is not as per the said Rule and the Forms prescribed under the Rules. Therefore, the same may be dismissed. In support of the said contention, learned advocate has placed reliance on the order dated 1.8.2003 passed by this Court in Company Petition No.180 of 2003 wherein this Court observed that the petition is not presented in consonance with Rule 95 of the Company (Court) Rules, 1959. Hence, the petition is rejected. He, thus, submitted that the present petition may also be dismissed.
4.6 Learned advocate Mr.Bhatt thereafter
contended that the affidavit along with the
petition has not been filed by the Director,
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Secretary or the Principal Officer of the Company and, therefore, the said affidavit is not as per Rule 21 of the Companies (Court) Rules, 1959. Mr.Sandeep Desai who has filed the affidavit cannot be said to be a Secretary or Principal Officer of the petitioner-company and, therefore, this petition is liable to be dismissed on this count also.
4.7 Learned advocate Mr.Bhatt thereafter contended that the decision rendered by coordinate Bench of this Court is binding to this Court. Therefore, this Court cannot take different view than the view taken by the Coordinate Bench of this Court earlier. In support of the said contention, he placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of Sri Venkaeswara Rice, Ginning and Groundnut Oil Mill Contractors Co.etc. v/s The State of A.P. and others, reported in AIR 1972 SC 51. In the said decision, the Hon'ble Supreme Court has held that one co-ordinate Bench of the same High Court cannot take a view contrary to the decision given earlier by another Bench of that Court. That one is bound by such decision. Similarly, the Hon'ble Supreme Court in the case of Safiya Bee V.Mohd.Vajahath Hussain alias Fasi, reported in AIR 2011 SC 421 held that statement of law by Page 13 of 39 HC-NIC Page 13 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT Bench is binding on Bench of same or lesser number of Judges. In case of doubt or disagreement about the decision of earlier Bench, well accepted and desirable practice is that later Bench would refer case to larger Bench but later Bench cannot overrule statement of law by co-ordinate Bench of co-equal strength. Similar view is taken by the Hon'ble the Supreme Court in yet another decision rendered in the case of U.P.Power Corporation Ltd. v/s Rajesh Kumar and Ors., reported in AIR 2012 SC 2728.
4.8 In view of the aforesaid decision rendered by the Hon'ble Supreme Court on the point of precedent, learned advocate Mr.Bhatt submitted that this Court is bound by the view taken by earlier Coordinate Bench and, therefore, this petition be dismissed in view of the order passed by this Court in Company Petition Nos.180 of 2003 and 160 of 2006.
4.9 Learned advocate Mr.Bhatt thereafter contended that if this Court is not inclined to dismiss the petition in view of the preliminary objections taken by the respondent, the respondent-company has also filed an affidavit on merits opposing the claim of the petitioner and therefore learned advocate has referred to the further affidavit in reply filed by the Page 14 of 39 HC-NIC Page 14 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT respondent-company and submitted on the merits of the present case. He submitted that it is true that the respondent had issued various work orders for executing of work as stipulated therein. However, each separate work order is an independent contract. Learned advocate referred the tabular format given in paragraph 7 of the further affidavit filed by the respondent. By way of the said tabular format, the respondent has summarized the work orders and corresponding invoices for rendering of services in terms of the work order with corresponding dates. He further contended that from the said tabular format, it is clear that many invoices are time barred and as per the settled law, time barred debt would not be a debt and cannot form basis of a winding up petition. Thus, when out of the several separate claims in the present petition, some of the claims are time barred or barred by law of limitation, the petition which is based on combined separate claims is not maintainable. He further submitted by referring to the invoices produced at page nos.19,99,101 and 103 of the compilation that the petitioner had not rendered any services for the said invoices and, therefore, the respondent-company is having a dispute with regard to the amount reflected in the said invoices i.e. approximately Rs.27 lacs.
He further contended that such claims
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corresponding to the said invoices with false
description would not be covered within the ambit of debts.
4.10 Learned advocate Mr.Bhatt thereafter contended that as per the conditions of work orders, the petitioner was to provide for food and accommdation for the work force to be deployed by it and also for diesel, lubricants and any other consumables required for completion of the work. He submitted that on various occasions, the respondent has provided for food, accommodation and other necessary items and thereby has spent an amount of approximately Rs.7,50,000/- for the said items. Therefore, the respondent is not liable to make the payment of Rs.7,50,000/- to the petitioner. Thus, there is a dispute with regard to the said amount.
4.11 Learned advocate Mr.Bhatt thereafter has heavily placed reliance upon condition no.5,6 and 26 of General Terms and Conditions of the work order. After referring to the said conditions, he submitted that the amount claimed by the petitioner in the invoices which are produced at page nos.99,101 and 103 of the compilation are in reality the claim of the penalty/damages of the petitioner for stay of period after 1.12.2011. He submitted no idling charges are to be paid to the Page 16 of 39 HC-NIC Page 16 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT petitioner for stay up to 180 days and for stay beyond 180 days, idling charges would be paid only and only in the event that the corresponding implication had been provided to the respondent by GAIL. The amount claimed in the said invoices constitutes damages and, therefore, would not be covered within the ambit of debt. He would contend that amount stipulated in Clause 26 of work order dated 11.5.2011 could only be a upper cap of what could be paid to the petitioner. Thus, the amount stipulated in clause 26 is manifestly intended to be in excess of the amount it would fully compensate to the petitioner for loss (if any) sustained. He further contended that for entitlement of damages, the petitioner would have to show that the petitioner substantially altered his decision, took all steps to minimize the loss and refrained from taking steps which would increase the loss and that the petitioner actually suffered loss. However, this Court may not undertake such exercise of assessing such loss in company jurisdiction.
4.12 Learned advocate Mr.Bhatt has placed reliance on the decision of the Bombay High Court in the case of Agarwal Industries v/s Golden Oil Industries (P) Ltd., reported in AIR 1999 Bombay 362 and submitted that the Bombay High Court Page 17 of 39 HC-NIC Page 17 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT refused injunction to the petitioner on the ground of suppression of material fact. He, therefore, submitted that when the petitioner has misled this Court by producing the aforesaid invoices, this Court may dismiss the petition.
4.13 Learned advocate Mr.Bhatt thereafter referred to Section 74 of the Indian Contract Act, 1872 which provides that :
"74. Compensation for breach of contract where penalty stipulated for- When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for."
4.14 Learned advocate Mr.Bhatt thereafter has placed reliance on the decision rendered by the Hon'ble the Supreme Court of India in the case of Maya Devi v/s Lalta Prasad, reported in AIR 2014 SC 1356 wherein the Hon'ble Supreme Court has held that the imposition and the recovery of penalty on breach of a contract is legally impermissible under the Indian Contract Act. As regards liquidated damages, the Court would have Page 18 of 39 HC-NIC Page 18 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT to scrutinize the pleadings as well as evidence in proof thereof, in order to determine that they are not in the nature of a penalty, but rather as a fair pre-estimate of what the damages are likely to arise in case of breach of the contract. When no evidence whatsoever has been led by he plaintiff to prove that the claim for twice the amount of earnest money was a fair measure or pre-estimate of damages, the claim could not have been decreed.
4.15 Learned advocate Mr.Bhatt therefore contended that clause 26 of general terms and conditions provides for the penalty or damages and, therefore, the invoices for which the respondent has raised the dispute for such amount which is in the nature of damages cannot be termed as debt. Such damages are to be determined by the competent civil Court after the evidence is led. The Company Court, therefore, has no jurisdiction to determine the said damages. Thereafter, learned advocate has placed reliance upon the decision rendered by the High Court of Delhi in the case of Tower Vision India Pvt.Ltd. v/s Procall Private Limited in Company Petition No.458 of 2010, more particularly, on paragraphs 16,18 and 24 which read as under:
"16. Consequences for breach of the contract are provided in Chapter VI of Page 19 of 39 HC-NIC Page 19 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT the Contract Act which contains three sections, namely, Section 73 to Section
75. As per Section 73 of the Contract Act, the party who suffers by the breach of contract is entitled to receive from the defaulting party, compensation for any loss or damage caused to him by such breach, which naturally arose in usual course of things from such breach, or which the two parties knew when they make the contract to be likely the result of the breach of contract. This provision makes it clear that such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. The underlying principle enshrined in this Section is that a mere breach of contract by a defaulting party would not entitle other side to claim damages unless the said party has in fact suffered damages because of such breach.
Loss or damage which is actually suffered as a result of breach has to be proved and the plaintiff is to be compensated to the extent of actual loss or damage suffered. When there is a breach of contract, the party who commits the breach does not eo instant i.e. at the instant incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. No pecuniary liability thus arises till the Court has determined that the party complaining of the breach is entitled to damages. The Court in the first place must decide that the defendant is liable and then it should proceed to asses what the liability is. But, till that determination, there is no liability at Page 20 of 39 HC-NIC Page 20 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT all upon the defendant. Courts will give damages for breach of contract only by way of compensation for loss suffered and not by way of punishment. The rule applicable for determining the amount of damages for the breach of contract to perform a specified work is that the damages are to be assessed at the pecuniary amount of difference between the state of the plaintiff upon the breach of the contract and what it would have been if the contract had been performed and not the sum which it would cost to perform the contract, though in particular cases the result of either mode of calculation may be the same. The measure of compensation depends upon the circumstances of the case. The complained loss or claimed damage must be fairly attributed to the breach as a natural result or consequence of the same. The loss must be a real loss or actual damage and not merely a probable or a possible one. When it is not possible to calculate accurately or in a reasonable manner, the actual amount of loss incurred or when the plaintiff has not been able to prove the actual loss suffered, he will be, all the same, entitled to recover nominal damages for breach of contract. Where nominal damages only are to be awarded, the extent of the same should be estimated with reference to the facts and circumstances involved. The general principle to be borne in mind is that the injured party may be put in the same position as that he would have been if he had not sustained the wrong.
18. Thus, while on one hand, damages as a result of breach are to be proved to claim the same from the person who has broken the contract and actual loss Page 21 of 39 HC-NIC Page 21 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT suffered can be claimed, on the other hand, Section 74 of the Act entitles a party to claim reasonable compensation from the party who has broken the contract which compensation can be pre- determined compensation stipulated at the time of entering into the contract itself. Thus, this section provides for pre-estimate of the damage or loss which a party is likely to suffer if the other party breaks the contract entered into between the two of them. If the sum named in the contract is found to be reasonable compensation, the party is entitled to receive that sum from the party who has broken the contract. Interpreting this provision, the Courts have held that such liquidated damages must be the result of a "genuine pre- estimate of damages". If they are penal in nature, then a penal stipulation cannot be enforced, that is, it should not be a sum fixed in terrarium or interrarium. This action, therefore, merely dispenses with proof of "actual loss or damage". However, it does not justify the award of compensation when in consequence of breach, no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach.
24. What follows from the above is that even if there is a clause of liquidated damages, in a given case, it is for the Court to determine as to whether it represents genuine pre-estimate of damages. In that eventuality, this provision only dispenses with the proof of "actual loss or damage". However, the Page 22 of 39 HC-NIC Page 22 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT person claiming the liquidated damages is still to prove that the legal injury resulted because of breach and he suffered some loss. In the process, he may also be called upon to show that he took all reasonable steps to mitigate the loss. It is only after proper enquiry into these aspects that the Court in a given case would rule as to whether liquidated damages as prescribed in the contract are to be awarded or not. Even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him and what is stipulated in the contract is the outer limit beyond which he cannot claim. Unless this kind of determination is done by the Court, it does not result into "debt"."
4.16 Learned advocate Mr.Bhatt thereafter referred to the decision rendered by House of Lords in the case of Dunlop Pneumatic Tyre Company Limited V/s New Garage and Motor Company Limited, reported in [1914]UKHL 1, wherein the Court has laid down the test for penalty or liquidated damages. It has been observed as under:
"My Lords, we had the benefit of a full and satisfactory argument, and a citation of the very numerous cases which have been decided on this branch of the law. The matter has been handled, and at no distant date, in the Courts of highest resort. I particularly refer to the Clydebank Case in your Lordships' Page 23 of 39 HC-NIC Page 23 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT House and the cases of Public Works Commissioner V.Hills and Webster V. Bosanquet in the Privy Council. In both of these cases may of the previous cases were considered. In view of that fact, and of the number of the authorities available, I do not think it advisable to attempt any detailed review of the various cases, but I shall content myself with stating succinctly the various propositions which I think are deducible from the decisions which rank as authoritative:-
1. Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case."
4.17 Learned advocate Mr.Bhatt thereafter referred to the provision of Section 18 of the Limitation Act and submitted that as per the provision contained in the said section, the statement of account has to be signed by a person against whom it is sought to be proved. If the statement is not signed, it cannot be said to be an acknowledgment of debt under Section 18 of the Limitation Act. In support of the said contention, learned advocate has placed reliance upon the decision rendered by the High Court of Delhi in the case of M/s Lalit Associates V/s Page 24 of 39 HC-NIC Page 24 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT Reckkit and Benkiser (India) Ltd., reported in AIR 2012 Delhi 108.
4.18 Learned advocate Mr.Bhatt thereafter relied upon the decision rendered by Allahabad High Court in the case of Chaubey Sushil Chandra V/s Raj Bahadur, reported in AIR 1977 Allahabad 259 and decision rendered by Andhra Pradesh High Court in the case of M/s Sumeet Steel Traders V/s M/s Surendra Enterprises and another, reported in AIR 2005 AP 345 and submitted that period of limitation be counted for each invoices separately.
4.19 Learned advocate thereafter submitted that the respondent is having dispute with regard to amount of Rs.7.50 lacs as stated in paragraph 12 of further affidavit in reply in which it has been specifically pointed out that as per the conditions of work order, the petitioner was to provide for food and accommodation for the work force to be deployed by it. At various points of time, respondent has provided the said facilities and spent an amount of Rs.7.50 lacs approximately which is deductible from the claims of the petitioner. He further submitted that Rs.67 lacs as claimed by the petitioner is not ascertained amount. However, the respondent is ready and willing to deposit Rs.30 lacs within 36 months.
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He, therefore, submitted that this petition be dismissed as the respondent is having reasonable and bonafide dispute with regard to the claim of the petitioner.
5. Learned advocate Mr.Pahwa, in rejoinder, mainly submitted that when the debt is undisputed, the Court will not act upon the defence that the company has inability to pay the debt but the company choses not to pay that particular debt. In support of his contention, learned advocate Mr.Pahwa for the petitioner has placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of M/s Madhusudan Gordhandas & Co., V/s Madhu Woollen Industries Pvt.Ltd., reported in 1971(3) SCC 632, more particularly, paragraph 21 of the said decision which reads as under:
"21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, see Re. A Company. Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely see Re.Tweeds Garages Ltd. The principles which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the Page 26 of 39 HC-NIC Page 26 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends."
5.1 Learned advocate Mr.Pahwa thereafter referred to and relied upon the decision rendered by the Hon'ble Supreme Court in the case of IBA Health (India) Private Limited V/s Info-Drive Systems SDN.BHD., reported in (2010)10 SCC 553, more particularly, paragraphs 24 and 25 which read as under:
"24. The appellant Company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company's insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is relevant not as a separate ground. If there is no dispute as to the company's liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. The law should be allowed to proceed and if demand is not met and an application for Page 27 of 39 HC-NIC Page 27 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT liquidation is filed under Section 439 in reliance of the presumption under Section 434(1)(a) that the company is unable to pay it debts, the law should take its own course and the company of course will have an opportunity on the liquidation application to rebut that presumption.
25. An examination of the company's solvency may be useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company's liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterised as a stand alone ground."
5.2 In reply to the preliminary objection taken by the learned advocate for the respondent, learned advocate Mr.Pahwa has submitted that the petitioner has now produced on record the resolution passed by the Board of Directors in the meeting of the Board of Directors whereby in continuation of the resolution passed in the Page 28 of 39 HC-NIC Page 28 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT meeting held on 16.12.2013, the Board of Directors has clarified that the said resolution also authorized the officers named in the said resolution to institute the proceedings of winding up on behalf of the petitioner-company. It is further resolved by the Board that the institution of winding up petition being Company Petition No.1 of 2015 by the company, the affidavit of which petition is affirmed by Shri Sandeep Desai, Sr.Manager and Principal Officer of the company is deemed to be under the authorization of the Board.
5.3 Learned advocate Mr.Pahwa thereafter referred to the affidavit-in-rejoinder filed by Mr.Sandeep Desai wherein he has also specifically stated that he is the Principal Officer of the petitioner-company and duly authorized by the Board of Directors. Therefore, he is competent to file the petition and to swear the affidavit verifying the petition.
5.4 Learned advocate Mr.Pahwa thereafter submitted that affidavit of verifying the petition has been filed once again by Mr.Sandeep Desai which is duly notarized and the same is produced at page 301 of the compilation. Thus, the defect is already cured by the petitioner.
Learned advocate Mr.Pahwa therefore submitted
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that so called defects are now rectified and
therefore the respondent is not entitled to take such preliminary objection. Learned advocate has placed reliance upon the decision in the case of Welding Rods Pvt.Ltd. V/s Indo Borax And Chemicals Ltd., reported in 2002(108) CC 747. Learned advocate Mr.Pahwa thereafter referred to the provision contained in Section 74 of the Indian Contract Act and submitted that the provision contained in this Section is not applicable to the facts of the present case as the present is not a case of breach of contract by any of the parties. He further contended that the invoice which is produced at page 99 with the compilation is not in dispute. However, false dispute is raised with regard to the invoices which is produced at page 98, 101 and 103. Learned advocate submitted that condition stipulated in the work order at condition no.26 cannot be termed as penalty and therefore the submission of learned advocate for the respondent is misconceived. Learned advocate Mr.Pahwa thereafter referred to the documents annexed at page 302 to 306 of the compilation produced along with the affidavit-in-rejoinder and submitted that the respondent has acknowledged the dues. The statement of the account of the petitioner- company dated 5.10.2012 was sent by respondent itself. The contents thereof are not disputed by Page 30 of 39 HC-NIC Page 30 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT the respondent and from the statement, it is clearly revealed that the balance as on 25.10.2012 was Rs.78,43,009/-. He further submitted that the only explanation given by the respondent in the affidavit in sur-rejoinder that as per the Information and Technology Act of 2000 and as per the Indian Evidence Act, e-mails produced by the petitioner-company do not satisfy the requirement of proof in the said Acts. The person who is Senior Manager has no authority to send such communication and the said document is unsigned statement. However, the said dispute raised by the respondent cannot be termed as reasonable and bonafide dispute and it is nothing but a moonshine.
5.5 Learned advocate Mr.Pahwa further pointed out that against the respondent-company, approximately ten petitions are pending before this Court which are filed for winding up of the respondent-company on the ground of the respondent-company's inability to pay its debts. He, therefore, contended that the respondent- company has lost its substratum and is unable to pay its debts. Therefore, this petition be admitted and order of publication of advertisement of admission of this petition be ordered.
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6. I have considered the submissions
canvassed on behalf of learned advocates for the parties. I have also gone through the relevant provision of the Act relied upon by the learned advocates for the parties as well as decisions relied upon by the learned advocates.
7. From the record, it appears that respondent-company had issued different work orders on behalf of M/s GAIL which the petitioner has duly executed and completed at the relevant locations. The same has been accepted by the respondent, the details of which are produced on record by the petitioner. The petitioner raised several invoices for the said work orders which have been duly received and acknowledged by the respondent. The respondent-company has acknowledged the dues. However, that the petitioner has sent reminders for the payment of the outstanding dues. The respondent-company has failed and neglected to pay the same. The petitioner, therefore, issued the statutory notice to the respondent which was duly served. However, the respondent has not given any reply to the said notice nor the payment was made. After the petition is filed by the petitioner before this Court, this Court issued the notice to the respondent-company and for the first time, the respondent-company initially filed affidavit-
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in-reply raising preliminary objection and
thereafter in the second affidavit filed before this Court, a dispute is raised with regard to certain portion of the amount due to the petitioner. Thus, this Court is required to consider whether the dispute raised by the respondent-company can be said to be a reasonable and bonafide dispute or not.
8. However, before this issue is decided, the preliminary objection raised by the respondent with regard to maintainability of the present petition is to be considered. The first preliminary objection of the respondent is that the Board of Directors of the petitioner-company have not given specific authority to Shri Sandeep Desai, Sr.Manager for institution of the petition and affidavit filed by the officer of the petitioner is defective. However, with regard to the said contention, now the petitioner has filed an affidavit verifying the petition which is produced at page 320 of the compilation. By way of the said affidavit, the Managing Director of the petitioner-company has stated that the Board of Directors of the company has passed a resolution on 16.12.2013 by which Mr.Sandeep Desai, Sr.Manager of the company was authorized to file the petition. The said resolution is already placed on record when the petition is Page 33 of 39 HC-NIC Page 33 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT filed in the year December, 2014. However, thereafter also, now the Board of Directors has once again verified the said resolution and authorized Mr.Sandeep Desai, Sr.Manager to be officer of the company for the institution of the winding up petition against the respondent. It is also specifically stated that the said officer is a Principal Officer of the company. Mr.Sandeep Desai has also filed another affidavit which is produced at page 301 of the compilation. Thus, in view of the aforesaid documents on record, I am of the view that the so called defects are rectified by the petitioner and, therefore, the present petition is not required to be dismissed on this technical ground.
9. The orders relied upon by learned advocate for the respondent passed by this Court cannot be said to be decision which is binding to this Court. This Court dismissed the petition of the concerned petitioner, where he has filled in the blanks i.e. paragraphs numbers after the petition is sworn in, with a permission to the said petitioner to file a fresh petition. In present case, the petitioner has already filed another affidavit as observed hereinabove which is produced at page 301 of the compilation and, therefore, I am of the view that this petition is required to be heard on merits.
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10. Even otherwise, this Court has in the case of Welding Rods Pvt.Ltd.(supra), has held as under:
"Held, dismissing the appeal, (i) neither the Act, the rules nor the forms stipulate that any particular resolution should be passed by the board of directors for instituting a winding up petition. The resolution dated June 28, 2000, authorised S to do all the acts required in "any legal proceedings"
which did not mean only suits for recovery of money from the defaulting customers. Even if the resolution dated June 28, 2000, was lacking in particulars, all those particulars had been given with sufficient details and clarity in the clarificatory resolution dated October 12, 2001, for passing which the company judge himself had granted the permission. The resolution dated June 28, 2000, read with the resolution dated October 12, 2001, passed by the board of directors of the petitioning-creditor did authorise the filing of the winding up petition.
(ii) That permitting the petitioning- creditor to produce on record the clarificatory resolution dated October 12, 2001, was in accordance with the principle that whenever there is any doubt about the authority of the agent who instituted the legal proceedings, the principal himself or itself should be given an opportunity to remove the doubt, if any, regarding the authority of the agent.
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WESTERN INDIA THEATRES LTD. V/S
ISHWARBHAI SOMABHAI PATEL [1959]29 Comp Cas133 (Bom) applied.
(iii)That even if a specific resolution of the board of directors of the petitioning-creditor company was required for instituting the winding up petition against the appellant-company, the subsequent resolution dated October 12, 2001, passed by the board of directors of the respondent-company constituted sufficient authority for the constituted attorney to proceed further with the winding up petition.
(iv) That there was no reason why the petitioning-creditor should not be allowed to cure the vagueness, if any, in the resolution of the board of directors in such matters. The constituted attorney of the petitioning- creditor had already signed the petition by verifying the contents on affidavit. Hence, the company judge was perfectly right in giving an opportunity to the petitioning-creditor, i.e., to its constituted attorney to sign the petition above the verification clause also. Even going strictly by the forms under the Companies (Court) Rules, it was obviously a technical irregularity which had been rightly permitted to be cured by the company judge. The inherent powers of the company court, saved by rule 9 of the Companies (Court) Rules, could certainly be exercised in a case like this.
(v) That the effect of permitting such rectification was, inter alia, to relate it back to the original date of filing of the winding up petition and this had been permitted in the interests of Page 36 of 39 HC-NIC Page 36 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT justice. No prejudice was caused to the appellant-company by such permission granted by the company judge."
11. Now so far as the submission of learned advocate for the respondent-company on merits is concerned, I am of the opinion that provision of Section 74 of the Indian Contract Act would not be applicable in the facts of the present case as the petitioner is not alleging breach of contract. The respondent has acknowledged the debt and therefore when the debt is acknowledged by the respondent-company by sending the statement of account by e-mail by the concerned officer of the respondent-company, at this stage, the defence is taken by the respondent that the said officer was not authorized to send such communication or the said communication was not signed by the officer of the respondent-company cannot be termed as a reasonable and bonafide dispute. According to the opinion of this Court, it is nothing but a sham and bogus dispute raised by the respondent-company with a view to avoid its liability to make the payment. The respondent-company has not given any reply to the statutory notice issued by the petitioner-company and for the first time, in the affidavit filed before this Court, such dispute is raised. A number of other petitions are also filed against the respondent-company on the ground that the Page 37 of 39 HC-NIC Page 37 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT respondent-company has failed and neglected to pay its debts.
12. Thus, in the facts and circumstances of the present case, I am of the opinion that this petition is required to be admitted and the decisions relied upon by the learned advocate for the respondent are not applicable to the facts of the present case, therefore, the same are not dealt with in detail. Hence, the following order:
13. ADMIT.
14. However, one opportunity is given to the respondent company to deposit entire amount of claim of the petitioner before the Registry of this Court within a period of six weeks from today. Therefore, at this stage, order of publication of advertisement of the admission of the petition is deferred till the next date of hearing. The hearing of the petition shall take place on 1.10.2015. However, by way of an interim relief, the respondent-company is restrained from alienating and/or disposing off any of its property or assets in any manner whatsoever.
15. Learned advocate Mr.Ravish Bhatt appearing for the respondent, at this stage, requested that this order be stayed for a period Page 38 of 39 HC-NIC Page 38 of 39 Created On Sat Aug 15 01:00:27 IST 2015 O/COMP/1/2015 JUDGMENT of four weeks to enable the respondent-company to file appeal before the Hon'ble Division Bench. Learned advocate Mr.Pahwa appearing for the petitioner has objected to such request. However, the request of learned advocate for the respondent is accepted. This order is stayed for a period of four weeks.
(VIPUL M. PANCHOLI, J.) Srilatha Page 39 of 39 HC-NIC Page 39 of 39 Created On Sat Aug 15 01:00:27 IST 2015