Andhra HC (Pre-Telangana)
Ramdas And Co. vs Kitti Steels Ltd. on 1 September, 1998
Equivalent citations: [2001]103COMPCAS199(AP), (1999)2COMPLJ398(AP)
JUDGMENT
Krishna Saran Shrivastav, J
1. This is an application under Sections 433(e) and 433(f) read with Sections 434(1) and 439(1)(b) of the Indian Companies Act, 1956, (for short "the Act"), for winding up the respondent-company.
2. The admitted facts of the case, in brief, are that in answer to the invitation of tenders for construction of fabrication shed and ancillary building required for the purposes of the respondent-company's factory, the petitioner had given its offer, vide letter dated July 2, 1994. After exchange of letters and negotiations, the contract was finalised on September 28, 1994, and the price of the contract was settled approximately at Rs. 2.50 crores. The work was completed between the month of December, 1995, and April. 1996.
3. The case of the petitioner-company is that the tenders were called for and accepted as item rate contract. Besides the work at Ghatkesar, where the construction of fabrication shed and ancillary building" was required to be completed, the respondent-company had also entrusted the work at Nacharam project and Somajiguda project described as Integrated Engineers and Rajwant Hotels. 14 running bills were submitted and were duly certified by the project architect and/or owner's representative so far as the work at Ghatkesar site was concerned. The petitioner has also submitted running bills for Nacharam project from May 25, 1995, to December 16, 1995, as also running bills for Somajiguda site from November 15, 1994, to April 4, 1996, duly certified by the authorised persons. The petitioner was entitled to claim Rs. 1,33,67,428 against the work done as per the contract and in addition to that it was entitled to other amounts withheld by the respondent-company against excise, provident fund contributions and value of the materials purchased but not utilised. The petitioner is thus entitled to an additional amount of Rs. 1.07,60,772, totalling Rs. 2,41,28,200. This amount has not been paid by the respondent-company in spite of demands. The amounts deducted under TDS have neither been paid to the income-tax authority nor released by the respondent-company to the petitioner. The respondent-company is heavily indebted to other companies also. In spite of statutory notice, it has not paid the amount and, therefore, the company should be wound up.
4. The respondent-company through the counter has denied the allegations of the petitioner-firm. It is alleged that, in the letter dated September 28, 1994, which has been filed by the petitioner-firm at Sl. No, 11 with respect to section H, items 1(a) and 1(b) at page 28, quantity of 10,000 units M2, rate of Rs. 150 is missing. This is because the petitioner-firm has falsely claimed the rates of Rs. 182 and Rs. 188 in the bills submitted to the respondent-company. The respondent-company has denied that the tenders were item rate-contracts or the contract was settled on the basis of the rate contract, but the consolidated contract value has been determined at Rs. 2.50 crores, on September 28, 1994. After negotiations, the basis of the quantity of work originally agreed upon, the contract value had been scaled down to Rs. 2.50 crores resulting in bulk discount to the respondent. In collusion with the architect, the petitioner-firm had procured the letter dated August 30, 1996, which does not reflect the true state of affairs. The petitioner-firm was engaged by the respondent-company only for the works in Ghatkesar site. At Nacharam, an associate concern of the respondent, Integrated Engineers, had engaged the services of the petitioner-firm for the purposes of constructions of sheds. Similarly, at Somajiguda, a distinct company, Rajwant Hotels Pvt. Ltd., engaged the services of the petitioner-firm for construction of hotel/office space. Therefore, the respondent-company is not liable for the alleged debts of those companies. It is true that the petitioner-firm has submitted 14 running bills up to April 10, 1996, but out of the 14 running bills, only 6 bills had been certified by the architect for the value of Rs. 1,16,41,359.51. The remaining eight running bills have not been certified at all by the architect. Even the six bills certified by the architect, were only for the partial payment and none of these bills had been accepted for full payment. The first running bill of Rs. 20,42,027.30 is a fabricated document. It was certified only for Rs. 14,94,894.40. The respondent-company shall take action for the recovery of Rs. 1,05,48,876. The claim of Rs. 1,33,67,428 has been denied. Similarly, the claim of Rs. 1,07,60,772 has also been denied. The annual account for the year ending March 31, 1996, shows that the respondent-company is a profit-making company and is proposing a dividend of 15 per cent, to its shareholders. The notice dated July 14, 1996, has been suitably replied on August 14, 1996. No oral evidence can be let in because the written agreement was executed showing the cost of work at Rs. 2.50 crores. The application is liable to be dismissed.
5. I have heard learned counsel of both sides on admission.
6. It is too well settled that a winding up petition is not a legitimate means of seeking recovery of debt which is bona fide disputed by the company. If the debt is bona fide disputed, there cannot be neglect to pay within the meaning of Section 434(1)(a) of the Act. If there is no neglect, the deeming provision does not come into play and the ground for winding up, namely that the company is unable to pay its debt, is not substantiated. The principles on which the court acts are, firstly that the defence of the company is in good faith and one of substance, and secondly the defence is likely to succeed in point of law, and thirdly the company adduces prima facie proof of facts on which the defence depends.
7. The question, therefore, is whether the respondent-company is indebted to the petitioner-firm and whether the defence set up by the respondent-company is a probable one and bona fide ?
8. The petitioner-firm has claimed an amount of Rs. 2,16,741 and Rs. 2,33,207 as the amounts due to be recovered from the respondent-company for the civil works done by it at Somajiguda site and Nacharam site at the instance of the respondent-company who had paid the running bills also for these works. The respondent-company in its counter has pleaded that Integrated Engineers and Rajwant Hotels are distinct companies, though they are associate concerns of the respondent-company. The said concerns engaged the services of the petitioner-firm for the purposes of construction of shed and hotel and office space at Somajiguda and Nacharam sites, respectively. Thus, there is no denying the fact that the petitioner-firm had done the civil works at Nacharam and Somajiguda sites for Integrated Engineers and Rajwant Hotels which are the associate concerns of the respondent-company. It is also not denied by the respondent-company that the aforesaid amount is due to be recovered by the petitioner-firm for the civil works done by it at the said sites.
9. It has been urged on behalf of the respondent-company that there is no documentary evidence on record which indicates that the respondent-company had ever undertaken to pay the bills of Integrated Engineers and Rajwant Hotels for the civil works done by the petitioner-firm. Therefore, the respondent-company is not at all liable to pay the dues of those concerns.
10. On February 8, 1995, the petitioner-firm had quoted rates for the civil work to be done for Rajwant Hotels. This quotation was sent to the respondent-company. In answer to this, the respondent-company vide its letter dated March 23, 1995 had finalised and accepted the rates. The President, Corporate Affairs, of the respondent-company had informed the petitioner-firm on June 12, 1995 that the respondent-company had decided to inaugurate the factories at Ghatkesar and Nacharam and also one floor of the hotel site on August 3, 1995 and had requested the petitioner-firm to complete the civil works accordingly. The petitioner-firm had submitted its final bill for the civil work done at Nacharam site with its covering letter dated December 16, 1995. In this bill, the payments made by the respondent-company against the work done at Nacharam site have been mentioned. On February 3, 1996, the Deputy Manager (Projects) of the respondent-company had certified this final bill for construction of shed and allied works at Nacharam. Similarly, on May 21, 1996, the petitioner-firm had submitted final bill for the work done at Rajwant Hotels at Somajiguda. In this bill, the payments made by the respondent-company against the running bills have been shown. On May 21, 1996, the Deputy Manager (Projects) of the respondent-company had certified this bill for construction of the Hotel at Somajiguda. On May 22, 1996, the petitioner-firm had written a letter to the respondent-company informing it about the civil works done, payments made by the respondent-company and the deductions of TDS. On June 4, 1996, the Deputy Manager (Projects) of the respondent-company had signed the certified abstract of the bill.
11. The above correspondence indicates that the works at Nacharam and Somajiguda sites were done by the petitioner-company on the rates finalised by the respondent-company. Running bills were also paid by the respondent-company for these works as the allegation of the petitioner-company made in the reply affidavit has not been denied by the respondent-company. It appears, that in the report of the auditor on which the respondent-company relies, about which I shall discuss later, the auditor has also included the payments made by the respondent-company against the running bills of the petitioner-firm for the civil works done at Nacharam and Somajiguda sites in the sum of Rs. 3,54,39,090 shown against the head "recover" at page 20 of the report. Although these two companies may be separate legal entities, but the fact remains that there is no material on record which shows that these two associate concerns of the respondent-company had directly entrusted the works of Nacharam and Somajiguda sites to the petitioner-firm. On the other hand, as noted above, the rates for these works were finalised by the respondent-company, it had paid the running bills, deducted the TDS and had also included the payment under the head "recoveries". And at the top of it, it had asked the petitioner to complete the works before the date of inauguration, that is, August 3, 1996. A comparison of the bill of the petitioner-firm in respect of the work done for Integrated Engineers and Rajwant Hotels with the details of the payments made by the respondent-company td the petitioner-firm, as shown in page 23 of the report of the auditor, shows that the amount of Rs. 63,89,049 was paid for the work done for Integrated Engineers and Rajwant Hotels. If the respondent-company was not liable for the dues of its associate concerns, Rajwant Hotels and Integrated Engineers, the auditor should not have included this amount in the amount of Rs. 3,54,39,040. Therefore, the only reasonable conclusion that can be drawn is that the respondent-company had entered into the contract with the petitioner-firm for civil works at Nacharam and Somajiguda sites. Therefore, it is liable to pay the outstanding dues of the petitioner-firm for the works done by it at Nacharam and Somajiguda sites, amounting to Rs. 4,49,948 (Rs. 2,33,207 + Rs. 2,16,741).
12. On a perusal of the letter dated June 19, 1994, it appears that the respondent-company had awarded the work to the petitioner-firm for a total value of Rs. 2.50 crores against the quotation of Rs. 3,25,30,212. Thus, there appears to be a deduction of Rs. 75,30,212. It has also been mentioned in this letter that, the award of the contract shall be in accordance with the terms and conditions of the tender as stated in volumes I and II of the documents submitted to the petitioner-firm and the subsequent amendments/changes discussed thereafter. The petitioner-firm, vide its letter dated July 25, 1994, had written to the respondent-company that as per the oral discussions held, only the rates of five items as mentioned in para. 2 of this letter were revised. Then, on September 28, 1994, the architect of the respondent-company had informed the petitioner-firm that the responr dent-company had confirmed the award of the contract to it for the work defined in the schedule enclosed thereto for the approximate contract value and had mentioned the figure of Rs. 2.50 crores against the construction of fabrication shed with foundation and superstructure including finishing, cladding, roofing, etc. It has also been mentioned specifically at page 2, clause 1, that this shall be an item rate contract and the petitioner-firm shall be paid on the quantum of work carried out at the accepted rates. Again, in the agreement executed on September 29, 1994, it has been mentioned that the respondent-company shall pay to the petitioner-firm a sum of Rs. 2.50 crores or such other sum as shall become payable at the times and the manner specified in the said conditions (see para. 2, page 2 of the agreement). True that the amount of the contract was reduced by Rs. 75,30,212, but the reason for this deduction appears to be the reduction of rates in five items as a result of the oral discussions between the parties. Later, when a clarification was sought, the architect through its letter dated August 30, 1996, had informed the petitioner-firm that the tenders were called on the basis of the shed area of 6, 100M2 but it was reduced to 4.794M2, that is 102M X 47M, and, accordingly, the contract amount was reduced from Rs. 3,25,30,212.40 to Rs. 2,50,00,000 as also the RCC-H frames were changed to structure steel column for faster phase work. Subsequently, the shed was increased to accommodate the machine foundations and the gantry was increased from 18.50 mtrs. to 25 mtrs. and the shed size was, therefore, finally revised to 126M X 53.5M and this was done after the petitioner-firm had started the civil work. Due to the aforesaid reasons, there appears to be reduction of amount of the contract which was settled on account of the approximate contract work, but later the work order was modified.
13. It is also pertinent to note that the work awarded was for the approximate value of the construction of fabrication shed. A reading of Clause 27(1) of the tender documents shows that the contract was not a lump sum contract. Clause 3 speaks that the contract shall be item rate contract and the contractor shall be paid for the actual quantity of the work done as measured at site at the rates quoted by him in the contract bills. Measurement was to be done, vide Clause 3 of the contract and certified by the engineer/owner's representative and payments would be made on that basis.
14. From the aforesaid discussion of the material on record, it is evident that the value of the approximate contract was settled at Rs. 2.50 crores, but the work was later increased and the work was to be done on item rate contract for which the respondent-company had agreed to pay on quantum of the work carried out at the agreed rates.
15. The counter-claim of the respondent-company of Rs. 1,05,48,876 is based on the report of the auditor. The auditor had granted, a rebate of 20.976 per cent, on the ground that the tender amount of Rs. 3,25,30,212 was reduced to Rs. 2,50,00,000, therefore, the bill for the work done by the petitioner-firm amounting to Rs. 7,32,18,000 should also be reduced. This reasoning, on the face of it, appears to be incorrect. The reason is that, at no point of time, the parties had agreed that for the work to be done in addition to the work done for the amount of Rs. 2.50 crores, the petitioner-firm shall give rebate at the rate of 20.976 per cent. This appears to be a wrong allowance given to the respondent-company even if it is held to be so entitled, because, the amount of Rs. 7,32,18,000 is inclusive of the price of material supplied by the respondent-company to the petitioner-firm for utilising the same in the construction work. The value of this material, etc., comes to Rs.3,84,45,882. Therefore, even if the contention of the auditor is to be accepted, for the sake of arguments, the respondent-company would be entitled to rebate at the rate of 20.976 per cent, on Rs. 3,47,72,118 (Rs.7,32,18,000 -- Rs. 3,84,45,882) which comes to Rs. 72,93,799.40 only and not Rs. 1,53,58,207. As discussed above, the auditor was wrong in not making the respondent-company liable for the amount of Rs. 4,49,948.
16. On perusal of pages 70, 72, 73, 77 to 79 and 93 of volume I of the material papers filed by the petitioner-firm, where schedule of quantities and rates for civil work for the proposed fabrication shed and ancillary building for the respondent-company have been shown along with its letter, dated July 25, 1994, it is crystal clear that only the rates of items Nos. 4, 6, 8, 9 and 10 were revised while the quantities of items Nos. 1 to 3, 5 and 7 as mentioned in para. 12 of the letter dated September 28, 1994, were not revised. There was no revision of item no. 11 of section H of the tender document. Under these circumstances, there appears to be substance in the statement of the petitioner-firm that by mistake the architect of the respondent-company has mentioned in its letter dated September 28, 1994, about the revised rate regarding the work of section H, item No. 11 at Rs. 150. It appears that the rate of Rs. 182 and Rs. 186 as originally quoted by the petitioner-firm was neither discussed nor revised and, therefore, it had remained unchanged. This fact, when brought to the notice of the architect, he had erased this by putting whitener on item No. 11 and this appears to be the reason for omission of item No. 11 in the copy of the letter dated September 28, 1984, which is at page 19 of volume I of the material papers supplied by the petitioner-firm. The auditor without applying his mind and without asking the architect of the petitioner had wrongly reduced the claim of the petitioner-firm by Rs. 4,79,053 for the work done for section H of the works contract.
17. Before I proceed further, I would like to dispose of two objections of learned counsel of the respondent.
18. It has been urged on behalf of the respondent-company that the running bill No- 1 is a fabricated document because in the computerised bill which the architect prepared and certified, the amount of Rs. 14,94,894.40 has been mentioned (see pages 103 and 104 of the material papers supplied by the respondent-company) whereas in pages 105 and 106, the certified amount has been shown as Rs. 20,42,207.30 which is a typed bill. A look at the certificate of payment shown at page 103 shows that the total is Rs. 36,83,902.50. When this amount has been carried forward to page 104, the certified amount has been shown as Rs. 31,35,368.40 which appears to be a mistake by inadvertence. If the correct figure is shown against the certified amount at page 104, after deducting the total deductions of Rs. 16,40,474, the certified amount comes to Rs. 20,42,027.30 as correctly shown in the page 106. Thus, it is apparent that the bill is not a fabricated document, but due to a mistake by inadvertence in carrying forward the correct figure from pages 103 to 104. This mistake had occurred which has been corrected by the architect when brought to its notice by the petitioner-firm.
19. The second objection is that only six bills have been certified by the contractor amounting to Rs. 1,16,41,359.51 and the remaining bills remained uncertified by him. This objection has also no force. The reason is that, as per the terms of the contract, as referred to above, the bills were either to be certified by the architect or the owner's representative and the representative of the owner has certified the remaining eight bills. Had it not been so, the auditor would not have shown the total bill value at Rs. 7,91,73,306 at page 20 of the material papers supplied on which the respondent-company relies.
20. When certificates Nos. 10, 11 and 13 given by the site engineer of the respondent-company are compared with the figures adopted by the auditor and shown at page 22 of the material paper supplied by the respondent-company, it is apparent that as against the amount of Rs. 8,13,153 the auditor has shown this amount as Rs. 16,90,091, thus enhancing this amount by Rs. 9,05,000 for no reason for whatever worth.
21. Admittedly, the respondent-company has withheld substantial amount under TDS. But this amount has neither been paid to the concerned income-tax authorities nor to the petitioner-firm. Therefore, the amount deducted under TDS is also payable to the petitioner-firm. The contention of learned counsel of the respondent-company that actually the amount was kept under the head of ad hoc payment, is not acceptable, because, deductions had been made clearly under the head TDS.
22. I may make it clear that the report of the auditor has been perused only for the limited purpose of ascertaining whether the dispute as raised by the respondent-company is bona fide and probable or not, because the respondent-company has based its defence solely on the report of the auditor.
23. The facts floating on the surface of the record and as pointed out above establish that the report of the auditor is incorrect and not worthy of reliance. In the first place, the respondent-company does not appear to be entitled to the reduction of Rs. 1,53,58,207 at the imaginary rate of rebate at 20.976 per cent. It is also not entitled to claim the reduction of Rs. 4,79,053. Thus, as against the total bill value as shown by the auditor in his report comes to Rs. 7,91,73,306. The respondent-company is entitled only to a reduction of Rs. 7,38,84,922 and, therefore, is liable to pay, even according to this auditor's report, an amount of Rs. 52,88,384 for the construction of the factory of the respondent-company at Ghatkesar. It is to be pointed out that the claim of the petitioner-firm for the time being has not been considered for refund of TDS amount and the other claims as shown in the bill on which the petitioner-firm relies. In addition to this, the petitioner-firm prima facie appears to be entitled to Rs. 4,49,948 for doing civil works at Somajiguda and Nacharam sites for Rajwant Hotels and Integrated Engineers, respectively.
24. For the foregoing reasons, the respondent-company appears to be indebted to the petitioner-firm at least to the extent of Rs. 57,38,332 even on the basis of the report of the auditor as corrected and shown in the preceding paragraphs. Thus, the dispute raised by the respondent-company neither appears to be a bona fide dispute nor a probable defence. The upshot of the aforementioned discussion is that the respondent-company has failed to establish that it has got a valid defence to make on the facts and in law in the civil court.
25. It is an admitted fact that notice under Section 434(1)(a) of the Act was not served on the respondent-company on its registered address. Therefore, the presumption of inability to pay the debts may not be drawn against it under this section. Under Clause (b) ibid, the company shall be deemed to be unable to pay its debts when a decree remains unsatisfied while under Clause (c), if it is proved to the satisfaction of the court that the company is unable to pay its debts. And in determining whether the company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company. Thus, it appears that even in the absence of notice under Section 434(i)(a) of the Act, if the applicant proves to the satisfaction of the court that the company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company. A creditor can claim winding up of the company under Section 433(e) of the Act with the aid of Section 434(1)(a) and/or 434(1)(c) of the Act. If the case under Section 434(1)(a) is not proved, he can prove his case under Section 434(1)(c). Under these circumstances, merely because notice under Section 434(1)(a) of the Act was not validly served on the respondent-company, the application for winding up cannot be thrown out, because, as noted above, the petitioner-firm has proved the indebtedness of the respondent-company as also its failure and/or negligence to pay the debt in question. The question whether the respondent-company is unable to meet its current liabilities as also the contingent and prospective liabilities is a question to be decided after advertisement of the petition and during the enquiry.
26. In the result, the petition is admitted. The admission of the petition be advertised in one issue of the English daily, Deccan Chronicle, and one issue of the Telugu daily, Andhra Jyothi, as per rules.
27. After the above order is pronounced and signed the following :
ORDER
28. Learned counsel for the respondent states that his client intends to prefer an appeal against the order of admission of the petition. Therefore, the impugned order be suspended for a period of two weeks. The operation of the impugned order is suspended for a period of two weeks.
29. For further proceedings, call on October 16, 1998.