Andhra HC (Pre-Telangana)
M/S. Mytri Projects vs M/S. Il&Fs Engineering And ... on 25 October, 2016
Author: Challa Kodanda Ram
Bench: Challa Kodanda Ram
HONBLE SRI JUSTICE CHALLA KODANDA RAM
COMPANY PETITION No.197 of 2015
25T-10-2016
m/S. Mytri Projects Petitioner
M/s. IL&FS Engineering and Construction Company Limited Respondent
Counsel for the Petitioner:Sri S. Ravi, Learned Senior Counsel.Sri Rajesh
Maddy.
Counsel for the respondent:Sri Rusheek Reddy
<Gist:
>Head Note:
? Cases referred:
1) 2012 SCC OnLine AP 1049; (2013) 176 Comp Cas 483
2) 1995 (82) Comp Cas 447 Kar
3) (2015) 124 Cla 179 (AP)
4) 2005 (4) ALD 737
5) (2010) 10 Supreme Court Cases 553
6) (1967) 37 Comp Case 786 (SC)
7) (1995) 1 Comp LJ 172 (AP)
HONBLE SRI JUSTICE CHALLA KODANDA RAM
COMPANY PETITION No.197 OF 2015
ORDER:
This Company Petition is filed invoking the provisions of Sections 433(e), 434 and 439 of the Companies Act, 1956 r/w Rule 95 of the Company (Court) Rules, 1959, seeking winding up of the respondent company, alleging that the respondent company has neglected to pay the debts due to the petitioner company without there being a reasonable cause.
2) At the outset, we may record the undisputed facts. The respondent company is a public listed company engaged in the business of development and construction of infrastructure projects including roads, express ways / highways, buildings, industrial structures, irrigation canals, dams etcetera. The respondent company is promoted by the Central Bank of India, UTI and HDFC and later inducted LIC, SBI, Abu Dhabi Investment Authority and Orix Corporation of Japan. In the course of its business, the respondent company was awarded with work of Four Laning of Kiratpur Ner-Chowk Section of NH-21 (From Km 21.55 to Km 154.000) in the State of Punjab and Himachal Pradesh by IL & FS Transportation Networks Limited. From out of the work allotted to the respondent company, petitioner company was initially awarded the work execution of construction and of Earth Work upto GSB from Km 145.00 to Km 152.00 and later the same was enhanced to from 145 Kms to 148.450 (Tunnel-4, Portal-1) and from Km-16.325 (Tunnel-2, Portal-2) to Km-17.235. Initially the value of the work order dated 25.11.2013 is of Rs.19,05,72,140/-. On receipt of the Letter of Intent (LOI) dated 22.08.2013 followed with work order dated 25.11.2013 and the modified work order dated 10.01.2014, the petitioner commenced the work and submitted Running Account Bills (in short R.A. Bills) for a total sum of Rs.17,57,28,732/-. As against the R.A. Bills raised by the petitioner between 29.04.2014 and 31.01.2015 (total 27 bills), a sum of Rs.6,31,44,732/- was claimed to have been paid to the petitioner. (Petitioner claimed payment of Rs.5,74,17,225/-). As can be seen from the statement furnished by the respondent, the payments were made on ad hoc basis for various sums varying from Rs.44,646/- to Rs. 74,77,832/-. Petitioner had intimated its inability to complete the work citing non-payment of the R.A. Bills by the respondent and thereby not completed the contract awarded. A notice under Section 433 read with 434 of the Companies Act, 1956 (in short the Act) was issued to the respondent company demanding payment of Rs.10,96,25,072/- with interest at the rate of 24% per annum, the same was responded by the respondent company denying the liability and disputing the claim of the petitioner company. Therefore, in the undisputed fact situation as above, the company petition is filed invoking the provisions under Section 433 (e) of the Act, alleging the respondent company had failed and neglected to pay the amounts due to the petitioner without there being a reasonable cause.
3) The fact that an amount of Rs.10,96,25,072/- has not been paid, is not disputed.
4) The reasons set out by the respondent in its counter as well as in the written arguments and the petitioners reply for the same can be set out below in the tabular form. Sl.
No. Contention of the Respondent Reply of the Petitioner.
1) The petitioner failed to execute the work confirming to the technical specifications and the need and necessity to confirm to the quality was noticed to the petitioner through the respondent letters dated 19.06.2014 (Annexure-R4).
No dispute.
2) By letter dated 04.08.2014 (Annexure-R7) petitioner was requested to furnish all documents relating to payment of royalty charges as per the work order, failing which the amounts would be recovered from the R.A. Bills. In all a royalty payment of Rs.95,65,054/- is recoverable from the petitioner as intimated to the petitioner through respondents letter dated 04.08.2014 (Annexure-R7 at page No.304) and Statement (Annexure-R8 at page No.305).
Petitioner denied the receipt of letter dated 04.08.2014 or the quantification of the royalty payment. The royalty payment receipts enclosed by the respondent is for a total sum of Rs.2,60,00,900/- (Annexure-R8 along with payment challans) do not in any way linked the petitioner.
Further in the sur-rejoinder the stand taken by the respondent is that the payments are made for the project and the amount that is to be apportioned to the petitioner is to the expenditure of Rs.95,65,054/-. As per the terms of the contract the royalty has to be deducted from the running bills and as the earth excavation used captively, the question of payment of royalty does not arise. Further this royalty amount was never deducted in the R.A. Bills. For the first time this issue is being made in the counter and before this Court.
3) Petitioner had failed to take reasonable steps for providing protection walls at the muck dumping sites, which was a requirement as per the Clause 22 of the Standard Condition of the Subcontract / Work Order, and as the petitioner had failed to take necessary steps, in fact the petitioner warned through letter dated 24.09.2014 (Annexure-R12) that the respondent would be forced to take up the same at the risk and cost of the petitioner and the expenditure incurred shall be deducted from their bills. As a matter of fact, as the petitioner failed to take necessary steps, respondent had incurred an expenditure of Rs.90,21,269/- which is liable to be deducted from the amounts payable to the petitioner. Annexures R12 and R13 are evidencing the details of the expenditure incurred A letter dated 24.09.2014 was never received by the petitioner and the same is created document.
Annexure R13 consists of seven bills out of which four bills are prior to 24.09.2014, the total value of the invoice is only Rs.29 lakhs. In the sur-rejoinder, respondent taken a stand that this relating to only labour charges, which is false. As evidenced from Annexure R13, the description of the work is providing and construction of gabion structure. Hence the claim itself is a false claim.
4) There was tardiness in execution of work by the petitioner and as a matter of fact, petitioner was warned about the slow progress of the work through letter dated 18.02.2015 (Annexure-R2) and petitioner vide e- mail dated 03.05.2015 had intimated his unwillingness to continue the work and as a matter of fact abandoned the site, and in terms of the contract the petitioner is liable for liquidated damages at the rate of 0.5% of the sub-contract value for the delay of ever week or part thereof until the date of such payment of till completing the balance work. Apart from that respondent is also entitled for an additional amount of Rs.5,00,00,000/- for the loss of reputation suffered on account of the omissions and commissions and the delay in execution of work by the petitioner.
This being a claim of liquidated damages, unless and until a determination is made by the appropriate forum that the petitioner was at fault in not executing the contract, the same is not admissible.
5) An amount of Rs.36,49,352/-
(Annexure-R5) is recoverable from the petitioner for their failure to take protection measures by construction of breast wall, retaining wall etc., petitioner was warned about the same in the letter dated 19.06.2014 (Annexure-R4).
The receipt of Annexures R4 and R5 are specifically denied. The scope of construction of retaining wall is beyond the scope of the petitioners work. The same is evident from Annexure P25 e-mail addressed to another contractor from the respondent company (forwarded mail dated 08.12.2013). Even assuming the same is within the scope, the total of the enclosed bills is only Rs.8,27,483/- (Annexure R5 from Page Nos. 277 to 285). The concerned bills of some third party sub contractors are wrongfully used for the purpose of justifying the wrongful claims of respondent.
6) Petitioner was leased out various machinery / equipment like excavator, dozer, motor grader, soil compactor, water tanker, tipper etc., and the lease amount to a tune of Rs.4,05,08,780/- (as detailed in Annexure-R6), are recoverable from the petitioner.
The claim of Rs.4,05,08,780/- is raised for the first time before this court for the months of October, November and December, 2013, three debit notes were raised on account of deployment of machinery and these debit notes are also reflected in the ledger account of the respondent company. A total sum of Rs.25,43,173-67 ps. Is already deducted in the running account bills for the period October, 2013 to March, 2015. The other debit notes, which are produced before this Court, are produced for the first time and they were never sent to the petitioner, hence the claim is unsustainable. In terms of the Contract the deductions with respect to the supply of machinery are to be deducted with the R.A. Bills, and the R.A. Bills are prepared by respondents themselves from 2013 to 2015 do not find place the exorbitant claim of lease amount which are being made.
7) As the petitioner had abandoned the work after executing 259,277.600 cum quantity of work, as against the contracted 376,547 cum quantity of work, the remaining work was got executed by the respondent incurring a sum of Rs.1,30,76,896/- (Annexure-R15) and the same is recoverable from the petitioner.
The petitioner never claimed for the unexecuted portion of the work and it is also not the case of the respondent that the petitioner claimed for the unexecuted portion of the work. As there is a default in payment, thereby defaulting their part of the contract, petitioner cannot be compelled to complete the work and at any rate the amount that is sought to be as due in relation to unexecuted work portion, which was not claimed by the petitioner is not deductable. It is in the nature of the claim for damages.
8) A sum of Rs.1,50,00,000/- was incurred as the expenditure to pay the dues to the various vendors, which was otherwise payable by the petitioner. (Details are in Ex.R16). There is no proof of respondent having made payments to any of the vendors on account of the petitioner, as is evident from the various cases filed against the petitioner. A false plea is taken when confronted with the facts in the rejoinder they stated that only Rs.30 lakhs has been paid and the details only discloses payment of an amount of Rs.29,71,700/-. Further these payments are alleged to have been made on 19.10.2015, that is after filing of the counter affidavit in the company petition.
9) An expenditure of Rs.1,15,00,808/- was incurred towards procurement of GSB material (Annexure R10, the details are at page Nos.335-337) between 04.12.2013 to 18.02.2014.
No GSB material was supplied as the supply of any material is not contemplated under the Work Order dated 12.11.2013. There is no proof of supply of any material except the statement of truck numbers.
Further, the respondent ledger account or even in R.A.Bills these amounts are not claimed. For the first time these are being claimed before this court.
10) An amount of Rs.87,86,437/- is deductable from the payments of the petitioner towards the Employees Provident Fund, as the petitioner is failed to produce any proof of the payment of said amounts.
Therefore, the said amount is liable to be withheld. The details of amounts payable are in Ex.R9.
There is no proof of any Employees Provident Fund amount having been paid by the respondent company.
However, if any amount has been paid the same can be deducted. As of now, there is no basis for demanding a sum of Rs.87,86,437/-.
5) Sri S. Ravi, learned Senior Counsel appearing for the petitioner submits that the alleged claims made by the respondent are all imaginary and are in fact of being made for the first time in the counter and the defence raised is not bona fide and as a matter of fact it is only on account of the failure on the part of the respondent to pay the bills, petitioner was forced to stop the work and in spite of the efforts made, as the respondent was not forthcoming to pay the amounts admitted in the R.A. Bills, this Company Petition has been filed and the same deserved to be allowed.
6) On the other hand Sri S.Rusheek Reddy, learned counsel for the respondent, to support his contention that the present Company Petition is filed by abusing the provisions of Sections 433, 434 and 439 of the Act, had placed on record the following judgments of this Court:
i) Krishna Kilaru and another v Maytas Properties Ltd.,
ii) Airwings Private Ltd., v Viktoria Air Cargo Gmbh
iii) Indiabulls Housing Finance Limited v South Asian Agro Industries Ltd.,
iv) Jumgo Cotton Enterprises v Rayalaseema Mills Ltd.,
7) Learned counsel for the respondent further submits that the present Company Petition is not maintainable for the following reasons:
i) As the petitioner is trying to arm-twist the respondent for recovery of amounts arising out of unsustainable claims made by the petitioner.
ii) The Company Petition is not maintainable as the same does not satisfy the requirement of the provisions of the Act.
iii) Respondent is not the creditor of the petitioner and there are various complex, intricate disputed questions of facts, which require detailed enquiry and there is no admitted debt.
iv) There is no material placed on record that the respondent company is liable to pay the sum alleged to be due and unable to pay its debts.
v) The claims made by the petitioner are raised for the first time.
vi) As there is no crystallized liability, no ascertained and determined debt, particularly in relation to R.A. Bills without reconciliation of accounts, the Company Petition is not maintainable.
vii) The defence raised by the respondent is bona fide and there is no mechanism by way of arbitration for settlement of the disputes.
8) It may be noted that the Honble Supreme Court had held in IBA Health (India) Private Limited vs. Info-Drive Systems Sdn.
Bhd that even for recovery of money a company petition is maintainable if creditors neglected to pay the amounts due and company petition is maintainable ex debito justitiae for recovery of the monies and it is no defence that the company is in sound position and has also no defence for non-payment of the amounts due and payable.
9) Taking into consideration of the above principle, this Court is satisfied that the petitioner had made out a case that there is a negligence to pay the R.A. Bills by the respondent atleast to an amount of Rs.5,30,27,834/-.
10) In the above fact situation the first question which is required to be decided by this Court is whether there is an undisputed debt due to the petitioner and the respondent had neglected to pay the same without reasonable cause.
11) As stated earlier, there is no dispute that the petitioner had executed work upto a particular point of time and made a demand by way of R.A.Bills, which have been paid only in part. The reasons for non-payment and also the counter reasoning of the petitioner how the claims made, that are being made by the respondent are not tenable, are set out in the table above. If we analyse the counter claims being made by the respondent and the petitioner, they can be classified particularly into
1) The amounts that can be withheld by the respondent on account of the contractual terms and the actual amounts paid on behalf of the contractor.
2) The Employees Provident Fund dues at the rate of 5% of the IPC, if the amounts are not claimed in the R.A. Bills as paid by the contractor (Clause IX of the sub conditions of contract).
3) The rental charges for the equipment of the respondent company requisitioned and used by the petitioner (Clause IV (3) of the Special Condition of Subcontract / Work Order).
4) The royalty payments that are payable to statutory authorities for stone, aggregate sand, gravel, earth, clay, GSB and any other material, on which royalty is applicable and also the Tax Deduction at Source.
5) (i) Actual payments, if any, made on behalf of the petitioner on account of any material supplied by the Contractor, deductions for supplies made by the respondents. (Though it is contended by the petitioner that there is an agreement whereunder the respondent had not required to supply any material, a perusal of the contract and work orders discloses that there are two views possible on this aspect. For the purpose of this company petition the view taken is that there was utilisation of material by the petitioner, which was actually supplied by the respondent, though there is no obligation to supply.).
5) ii) The payments made to various vendors, which payments were in fact were required to be made by the petitioner.
12) In the facts of the present case, in the R.A. Bills, petitioner has not claimed any Employees Provident Fund having been paid. If the payments have been made, they would have been reimbursable, as the petitioner had not made any claim in the R.A. Bills on proportionate basis at the rate of 5% of the bills that are payable, the respondent prima facie would be entitled to retain from the R.A.Bills payments. On the R.A. Bills, which have been raised by the petitioner for the works executed, an amount of Rs.87,86,436-60 ps., could have been retained.
13) Prima facie, in terms of the contractual terms the rental charges for the machineries supplied are deductable. However, it is the specific contention of the petitioner that in none of the R.A. Bills, as certified by the respondent, the rental charges as claimed by them were included and the rental charges as payable by the petitioner had already been factored into and the claim made by the respondent is only an exorbitant claim without there being any basis. The total amount of rental charges as admitted by the petitioner is Rs.25,43,173-67 ps., for the period from October, 2013 to March, 2014. Whereas, the claim of the respondent is an amount of Rs.4,05,08,777/-, and between 19.12.2013 to 27.06.2015 the respondent had made various payments totalling of about Rs.6,31,44,732/-. The contractual terms require rental charges to form part of the R.A. Bills and are to be deducted. The payment of hire charges is governed by the Plant and Machinery Hire Agreement dated 17.11.2013. In terms of said agreement, respondent is required to issue bills and the hire charges are payable on month to month basis within seven days of commencement of each succeeding month. If the rental charges are not paid by the petitioner within seven days of commencement of the each succeeding month, then the respondent is entitled to recover the dues from the R.A. Bills. In the case on hand, virtually, there is no material placed before this Court that any hire charges bills having been issued either as a Bill or as Debit note in terms of the agreement dated 17.11.2013. On one hand the respondent claimed that they have sent the hire charges bills through email, on the other hand the petitioner denies the same. Further in the R.A. Bills, respondent had approved the retention charges as claimed by the petitioner and at no point of time any objection has been raised by the respondent with respect to the equipment hire charges. In the circumstances, the rental charges, which are being claimed, appears to be exaggerated and for the purpose of this petition can be taken as Rs.25,43,173-67 ps., only.
14) So far as the royalty payments are concerned, there is no claim made by the respondent on account of the royalty payment in the R.A. Bills. Respondent had asserted in pleadings that they had made royalty payment for the project on lump sum basis to the department and a sum of Rs.95,65,054/- is apportionable to the petitioners account. Though, it is the specific case of the petitioner that there was never any claim or deduction made with respect to the royalty, on account of the fact there was nothing to be paid on this account, as the material used is the earth and gravel captively mined and used at the site, the claim being a statutory payment to the extent of Rs.95,65,054/- is retainable by the respondent. In terms of contract if any increase in royalty rate upto Rs.20/- per MT or Rs.35/- per Cum for earthwork and Rs.40/- per MT or Rs.90/- per Cum for GSB material shall be payable by the contractor, over and above the same shall be reimbursable by the respondent. All the challans of royalties paid by the contractor shall be submitted by the Contractor along with RA Bills as otherwise the same shall be deductable from the contractors payments.
15) Though initially, respondent had claimed a sum of Rs.1,50,00,000/- was paid to clear the dues to various vendors, as a matter of fact, by way of reply affidavit the respondent had confined the same to about Rs.30,00,000/- and as per the details submitted by the petitioner it discloses only an amount of Rs.29,71,700/- as paid.
16) The only item which the respondent claimed to have supplied directly to the petitioner is the GSB material, and on account of which respondent had claimed a sum of Rs.1,00,15,808/- for the period from 04.12.2013 to 18.02.2014 (Annexure-R10). This claim is disputed by the petitioner in toto, as there being no proof whatsoever, apart from the same not being reflected in the respondents ledger account or even not forming part of R.A. Bills. So far as the GSB material is concerned, the same not being claimed at any point of time in the R.A. Bills, though 27 nos., of R.A. Bills submitted by the petitioner and approved by the respondent between 04.12.2013 and 18.02.2014, the same need not be taken into consideration at this point of time.
17) Though the claim made by the respondent towards E.P.F. is of Rs.87,86,437/- at the rate of 5% of the R.A. Bills, which the petitioner had claimed, would be deductable. As there being no material before this Court of any amount having been incurred or paid and there being no claim earlier to the counter affidavit, the claim of the respondent need not be considered.
18) So far as the payments to vendors, as the respondent itself had culled out an amount rounded to Rs.30,00,000/-, the same may be taken as deductable.
19) So far as the claims made by the respondent on account of construction of protection walls at the muck dumping sites by the respondent, prima facie, cannot be accepted on account of the discrepancy pointed out by the petitioner.
20) The claim made on account of liquidated damages is only being a claim, which is required to be determined, cannot be taken at this stage for the reason it is the specific case of the petitioner that it is only on account of non-payment of R.A. Bills as agreed to in the contract, petitioner had to abandon the work. It is an admitted and undisputed fact that the R.A. Bills have not been paid strictly in terms of the contract. In determining the aspect whether the contractor is at fault or the respondent is at fault and whether the respondent would be entitled for the damages, is the question which is required to be determined in future. At this point of time, the same cannot be taken into consideration as in realm of the contract on the principle of mutuality both the parties are required to adhere to their respective obligations and failure of one of the parties to fulfil their part of the contract would relieve the other party from performing their part of the contract. In the present case, 75% of the R.A. Bills are payable and 25% is payable at the time of settlement of final bills. Likewise, third party payments alleged to have been incurred by the respondent for completing the work, which was abandoned by the petitioner, cannot also be fastened on the petitioner at this stage, as whether the petitioner was justified in abandoning the work for non- payment of the R.A. Bills, is required to be decided in accordance with the terms of the Contract. In that view of the matter, the amounts claimed on that account cannot be considered at this stage.
21) Now, if we summarise the actual amounts that can be retained by the respondent under different heads the same would be as under:
Sl.
No. Description of payment Amount deductable from RA Bills 1 Hire Charges for machinery 25,43,173-67 2 EPF Amount (5% on total bills of Rs.17,57,28,732/-) 87,86,436-60 3 Dues paid to various vendors 30,00,000-00 4 Royalty 95,65,054-00 Total Deductions 2,38,94,664-27 Less-Hire charges (Already deducted in R.A. Bills) 25,43,173-67 Total to be deducted from R.A.Bills 2,13,51,490-60 Sl.
No. Description of payment Amount deductable from RA Bills 1 Total Amount of RA Bills (After deducting 25% from total of R.A. Bills amount i.e., 17,57,28,732/-) 13,17,96,549-00 2 Amount paid by respondent 5,74,17,225-00 3 Balance amount to pay 7,43,79,324-00 4 Less: Deductable amount 2,13,51,490-60 Total amount to pay to petitioner 5,30,27,833-40
22) The other claims which have been made by the respondent against the petitioner would come to a total sum of Rs.15,96,23,626/-. It may be noted that the total contract value itself is Rs.19,05,72,140/- and for the work done so far approved and accepted R.A. Bills is for a total value of Rs.17,57,28,732/-
leaving the balance work worth of Rs.1,48,43,408/-. In other words, the claim made by the petitioner that a major portion of the work has been completed by the time the petitioner chose to stop the work and leave the site on account of the non-payment of R.A. Bills, prima facie, cannot be brushed aside. When we look at the claims that are made, that too for the first time before this Court, other than the once which prima facie found to be acceptable, the total sum comes to Rs.15,96,23,626/-, which appears to be an exaggerated figure at this point of time. In the correspondence referred by the respondent company, though there are one or two letters written by the respondent to the petitioner about the slow progress of the work they are general in nature and they do not throw much light in any way with respect to the claims which are being made before this Court. In terms of the contract, petitioner is entitled to be paid 75% of the R.A. Bills within 5 days from the date of receipt of the amounts by the respondent from their principal. It is not the case of the respondent that it had not, in fact, received the money, whether there were any claims made on them by the principal, for whom the work is being executed by the respondent through the petitioner. The total 75% amount as payable on the R.A. Bills would come to Rs.13,17,96,549/-, out of which an amount of Rs.5,74,17,225/- (According to the respondent an amount of Rs.6,31,44,732/-) have already been made along with T.D.S. amount. Therefore, after taking into consideration of the amount of Rs.5,74,17,225/- + 31,19,967/- (TDS amount) + Rs.2,13,51,490/- (Deductable amount), still a sum of Rs.5,30,27,834/- would be prima facie payable. So far as the amounts, which are claimed by the respondent with respect to the damages etc., there is no established liability, but it is only a possible liability. In those circumstances, prima facie, at least to the extent of Rs.5,30,27,834/- would be liable to be paid by the respondent to the petitioner. It may also be noted that 25% of the R.A. Bills amount will be paid at the time of final settlement of the Bills. In the fact situation, this Court does find that there is a negligence on the part of the respondent to pay the said amount and in those circumstances, prima facie, the defence raised by the respondent does not appear to be bona fide and the petitioner has made out a case for admitting the case, the company petition deserves to be admitted.
23) Taking consideration of the principles laid down by the Supreme Court in IBA Health (India) Private Limited case (5 supra), the petitioner had made out a case that the respondent neglected to pay an amount of Rs.5,30,27,834/- to the petitioner, this Company Petition is admitted. However, considering the fact that the respondent company is a public listed company and also executing various projects of national importance and admission of company petition may affect the large number of shareholders, apart from other financial institutions, the advertisement of company petition is deferred keeping in view of the guidelines laid down in the judgments of the Supreme Court in National Conduits (P) Ltd. Vs. S.S. Arora and Soujanya Hotels (P) Limited vs. Nalla Satyanarayana Murthy and Others case.
24) Accordingly, this Company Petition is ADMITTED. ______________________________ Justice Challa Kodanda Ram Date:25.10.2016