Karnataka High Court
Itd Cementation India Limited vs Ssjv Projects Private Limited on 9 October, 2012
Author: L.Narayana Swamy
Bench: L. Narayana Swamy
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 09TH DAY OF OCTOBER, 2012
BEFORE
THE HON'BLE MR. JUSTICE L. NARAYANA SWAMY
COMPANY PETITION NO.124 OF 2011
BETWEEN:
ITD CEMENTATION INDIA LIMITED,
A COMPANY REGISTERED UNDER THE
INDIAN COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE
AT 1ST FLOOR, DANI WOOLTEX COMPOUND,
158, VIDYANAGARI MARG,
KALINA, SANTACRUZ (EAST),
MUMBAI-400 098.
...PETITIONER
(BY SRI.K.G.RAGHAVAN, SR.ADV. FOR M/S.UDWADIA & UDESHI
, ADVS.)
AND:
SSJV PROJECTS PRIVATE LIMITED,
A COMPANY REGISTERED UNDER
THE COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
25/2, 12TH FLOOR, S N TOWERS,
M.G.ROAD, BANGALORE-560 001.
... RESPONDENT
(BY SRI.SHREYAS JAYASIMHA, Advocate. FOR M/S.A2B &
PARTNER, ADV.)
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THIS PETITION FILED UNDER SECTION 433(e) AND 434
OF THE COMPANIES ACT, 1956, PRAYING TO WIND UP THE
RESPONDENT VIZ.SSJV PROJECTS PRIVATE LIMITED UNDER
THE DIRECTIONS OF THIS HON'BLE COURT UNDER THE
PROVISIONS OF SECION 433(e) AND 434 OF THE COMPANIES
ACT, 1956 AND THE OFFICIAL LIQUIDATOR ATTACHED TO THIS
HON'BLE COURT BE APPOINTED AS A LIQUIDATOR OF THE
RESPONDENT WITH ALL THE POWERS UNDER THE COMPANIES
ACT, 1956 AND ETC.,
THIS PETITION COMING ON FOR ORDERS THIS DAY, THE
COURT MADE THE FOLLOWING:-
ORDER
This petition is filed under Section 433(e) and 434 of the Companies Act with a prayer to windup the respondent company and to appoint an official liquidator to take charge of the assets, bank accounts etc.,
2. SSJV Projects Private Ltd., is a Private Limited Company incorporated under the provisions of the Companies Act having its head office at M G Road, Bangalore. The Company is carrying on business of all types of civil contractors, consultants, fabricators, electrical and mechanical works and construction of projects, dams, 3 roads, bridges, airports, runways, ports, supply works, etc., The authorized share capital of the respondent company is Rs.30 crores divided into 300 lakhs equity shares of Rs.10 each and 2,70,000 equity shares of Rs.1000/- each. The issued, subscribed and paid up capital of the respondent is Rs.28,42,00,000.00 divided into 3,00,000 equity shares of Rs.10/- each and 2,54,200 equity shares of Rs.1000/- each.
3. The petitioner is a registered company under the provisions of the Act having its head office at Mumbai and it is carrying on business on civil, mining, highway, bridges, tunneling marine works, specialized and other engineering works. The company is a joint venture with Zarubezhvodstoy (ZVS), a company incorporated under the laws of Russia with SSJV.
4. The petitioner made offer to put up an upstream cut off wall for Tapovan-Vishnugad Hydroelectric Project as per Annexure-A and having considered the same, the 4 respondent company had accepted the same and entered into an agreement as per Annexure-B. The work of construction of cut off wall was negotiated for Rs.16,81,80,400/- and terms and conditions have been set out therein. Clause 14 of the terms and conditions stipulates the arbitration clause in the event of dispute between the parties. Within the time stipulated by the respondent company, the petitioner has completed the work and to that effect Annexure-D dated 12.2.2011 has been issued by the NTPC Ltd., In the endorsement, it has been stated that M/s.ITD Cementation India Ltd., completed the above work. This letter has been issued pursuant to the correspondence made to the respondents by September, 2010 intimating the respondent about completion of the said work. Even after completion of the same, the respondent not paid the agreed amount as per Annexure-B agreement. The same according to the petitioner is a debt payable to the petitioner. The 5 correspondence letter to the respondent dated 13.3.2010 wherein it has been stated that despite binding understanding between the petitioner and respondent as per the agreement a sum of Rs.7,86,82,655.00 is an outstanding and payable to the petitioner. The respondent by referring the said letter as per Annexure-J dated 17.3.2010 stated that non payment is because of cash flow mismatches faced by the respondent due to the cascading effect of non handing over of work fronts for very long period in the initial stages of this Tapovan Project, they were constrained in honouring some of the financial assurances and it has requested the petitioner to grant some time and further promised that the petitioner would be honoured all the financial commitments. Similarly, further letter dated 13.10.2010 and e-mail dated 1.2.2011 assured that the pending contract amount would be paid at the earliest. Since the respondent not paid the due, legal notice dated 25.4.2011 has been issued as per Annexure-K 6 for which it has been replied as per Annexure-L dated 13.5.2011 for the first the first time the respondent stated that there was no contract between the respondent company with the petitioner and there cannot be demand and due cannot be paid and the respondent is not liable to pay the amount. The respondent is an entity known as SSJV-ZVS a joint venture had secured the contract from NTPC and if at all any claim is to be addressed to the SSJV Russian Company and demand made by the petitioner has been denied stating that it is not maintainable and the respondent is not liable to pay the debts. Hence this petition filed for winding up of the respondent company.
5. The respondent company files statement of objections contending that the company petition is not maintainable in view of clause 14 of the agreement which provides for arbitration clause. Though the agreement has not been disputed but as per the terms and conditions, the petitioner has not completed the work which resulted in 7 termination of the contract which was given to the respondent Joint Venture company. By virtue of non performance of the contract on behalf of the petitioner which caused huge loss more than what claimed by the petitioner. A notice to that effect has been issued as per Annexure-R5 dated 25.5.2011 for invoking clause 14 of the Arbitration Agreement. It has been stated in the arbitration notice that the petitioner failed to complete the project work within the stipulated time frame and considerably delayed to complete the project causing cumulative effect of termination of works.
6. The learned counsel submits that non completion of the said work and termination was communicated to the petitioner by its letter dated 25.5.2011 and it has been stated therein that the abnormal delay has caused an extreme damages which ultimately culminated in termination of package of works awarded to the company, a change in program deprived the respondent of the cash 8 flow and in turn affected the cash flow of M/s.ITD Cementation Pvt. Ltd., also causing equal predicament of stoppage of work for very precious time of two months. The petitioner company failed to achieve the targets and went on blackmailing the respondent by threats which culminated in stoppage of works. It is further resulting in NTPC invoking bank guarantee of both Canara Bank and Allahabad Bank. Under these circumstances, this dispute between both is bona fide one for which the petitioner should not have filed this company petition and could have invoked clause 14 of the arbitration agreement. The learned counsel submitted that in this regard, CMP has been filed before this Court in CMP No.118/2011 in which the petitioner herein has not filed statement of objections.
7. The respondent has filed a memo for production of additional documents after service of the same to the petitioner and the same is taken on record. It is submitted that it is not the first time expressing not liable to pay to 9 the petitioner in the arbitration notice dated 25.5.2011. Even much earlier from the date of service of statutory notice u/s 434 of the Companies Act, any number of communications have been exchanged between the respondent and NTPC. In the letter dated 25.5.2009 addressed to the respondent by the NTPC wherein they have stated the slow progress of work in excavation, slow production and cut of wall are in a very slow phase. In another communication dated 31.7.2009 it is requested to respondent to resume cut of wall progress immediately and it has been referred in the said letter by the NTPC that the cut of wall has been suspended by the contractor, the petitioner herein since 30.7.2009 and they have withdrawn all machines and equipments from cut of wall location. The learned counsel also referred to other letters dated 28.8.2009 addressed to the respondent by the NTPC where similar complaints were made against the petitioner. The said lacunas and lapses were brought to the notice of the 10 petitioner by the respondent in its letter dated 2.9.2009 where progress was mentioned as 21.52% and not up to the mark. Hence the learned counsel disowns the submission made by the petitioner's counsel that till issuance of statutory notice the respondent made a promise to pay the entire due. It is submitted that in view of the lapses on the part of the petitioner, the respondent a reputed company at international level got termination letter dated 29.10.2010 along with memo filed on 9.10.2012.
8. The learned senior counsel on behalf of the petitioner submits that if there is any claim by the respondent with the petitioner, it is not a debt and it cannot be a due for the purpose of recovery right to the respondent. The agreement came into being as per Annexure-B and due payable as it is agreed as per Annexure-J, J1, J2, even today they are due and the respondent has not taken steps to repay the same. 11 Accordingly, it is a case for the purpose of Section 434(e) of the Companies Act.
9. In support of his submission, the learned counsel referred the judgment of the Supreme Court in Union of India v. Raman Iron Foundry reported in AIR 1974 SC 1265 where it has been held that "unliquidated damages is not a debt till judgment has been signed. It was held that a claim for damages does not become the debt even after the Jury has written a verdict in favour of the plaintiff till the judgment is actually delivered". In view of the same, the learned senior counsel submitted that damage if any caused by the petitioner, that cannot be termed as a debt and it cannot be set off against the claim made by the petitioner.
10. He also referred the judgment reported in (1995) 1 SCC 478 (New Horizons Ltd., & another vs., Union of India & another) with a proposition that the grounds taken 12 in the statement of objections by the respondent about non liability to pay the amount since the petitioner entered into agreement with the joint venture company, all the correspondences have been made on behalf of the respondent company and arbitration clause notice is also issued and the respondent has got 70% shares in the joint venture and the agreement itself is joint and several liability. Under these circumstances, in order to find out the liability to pay the debt has referred Para-27 of the said judgment which says that "By the process, commonly described as "lifting the veil", the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by a group of associated companies".
11. The respondent has referred judgments in IBA HEALTH (INDIA) PRIVATE Ltd., v. INFO-DRIVE SYSTEMS SDN. BHD. Reported in (2010) 10 SCC 553, PRADESHIYA 13 INDUSTRIAL & INVESTMENT CORPORATION OF U.P. vs. NORTH INDIA PETROCHEMICALS LTD., & ANOTHR, reported in (1994) 3 SCC 348, STATE BANK OF TRAVANCORE VS., KINDGSTON COMPUTERS INDIA PRIVATE LIMITED, reported in (2011) 11 SCC 524 and another judgment of this Court in (2001) 6 KLJ 467.
12. The joint venture company for which the respondent is having 70% of the share capital entered into agreement with the petitioner as per Annexure-B and the terms and conditions narrated therein are to put up a cut off wall for Tapovan-Vishnugad Hydroelectric Project and the time stipulated was about four months. The total amount agreed between the parties was Rs.16,81,80,400/- in which though some amount has been paid remaining Rs.7,22,15,800/- is the actual dispute between the parties. The correspondences reveal as per Annexure-J, J1 & J2 wherein the respondent repeatedly replied to the petitioner that the amount due would be paid soon after the same is 14 realized and paid by the NTPC principal contractor. At any point of time, there is no whisper on behalf of the respondent about the termination of contract or non performance of contract in carrying out contract by the petitioner. The wordings employed therein at Para No.7 in Annxure-J that some time if it is granted, it is assured that they will honour the entire financial commitment to the petitioner. Similarly, in subsequent correspondence in J1 & J2 are replied by the respondent. The respondent proceeded to explain that the delay caused in remitting the amount as agreed would be fulfilled at an earliest. In view of these correspondences between the respondent and the petitioner would reveal that there was no complaints about non performance of contract by the petitioner in putting up cut off wall construction. This has been taken as a ground by the petitioner, if really the petitioner had committed breach, they could have stated in correspondence made on 17.3.2010, 13.10.2010 and 1.2.2011. When the statutory 15 notice issued on 25.4.2011 as per Annexure-K, the respondent replied stating that the respondent is not liable to pay the amount since the contract was entered into with JV for which Russia Company is a party. The said objection raised by the respondent is uncalled for. In the agreement itself, they stated that they are jointly and severally to pay the agreed amount. More importantly, in all these correspondences referred as Annexures-J, J1 & J2, it is the authorized person on behalf of the respondent company who corresponded. Accordingly, the said ground urged on behalf of the respondent is uncalled for.
13. It is not that the respondent for the first time has stated in the arbitration notice dated 25.5.2011 about the non performance of the contract or breach of contract by the petitioner. In the memo filed on 5.10.2012 the correspondence dated 21.5.2009, 30.7.2009, 27.8.2009 have been addressed to the respondent company by the NTPC stating that the petitioner has not completed the work 16 which resulted in paralyzing the work and it was requested the respondent to resume the construction of cut off wall immediately. This correspondence resulting in issuing a communication to the petitioner by letter dated 2.9.2009. These correspondences are much earlier to the statutory notice issued by the petitioner. In view of this, it cannot be said that the petitioner was not aware about the breach of contract or whatever it may be. The respondent addressed one more letter dated 21.3.2011 to the petitioner which was sent by RPAD and acknowledgements have been produced. Though the petitioner has stated that on 20.5.2011 they have received blank sheet, that cannot be accepted. In the arbitration notice issued, they have referred this letter. In the letter dated 21.3.2011 it has been informed to the petitioner "this abnormal delay has caused so extreme damages which ultimately culminated in termination of the package of works awarded". Again in para-8 it is further stated that "this change in program 17 deprived their cash flow and in turn affected cash flow of M/s.ITD Cement also caused equal predicament of stoppage of work for a period of two months. This has concluded by terminating the contract which was given to the joint venture company. When these facts have been communicated to the petitioner, the presumption to be drawn that the petitioner was aware about the developments. Without bringing to the notice of all these correspondences entered into between the respondent and the petitioner and NTPC with the respondent, the petitioner has produced only two documents with which it is not possible to allow this petition for initiating winding up proceedings against the respondent company.
14. The submission of the petitioner that the claim made by the respondent against the petitioner cannot be termed as a debt in view of the judgment reported in AIR 1974 SC 1265. In the said judgment, in respect of the due payable to the respondent in respect of other contracts 18 entered into between the parties and apprehension of the respondent that the appellant would appropriate these amounts towards damages claimed by it even though the claim of damages was disputed by the respondent. It has been held by this Court that unless the claim is adjudicated and held as due, the claim remains the claim and it cannot be allowed for set off. In support of this, the learned counsel submission is that whatever damages claimed by the respondent against the petitioner, that cannot be set off against the due of the petitioner unless that is adjudicated and decreed by the competent court. Para-9 therefore makes no difference in the present case that the claim of the respondent is for liquidated damages. It stands on the same footing as claimed for unliquidated damages. Now the law is well settled that the claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages is assessed by a decree or order of a court or other adjudicatory authority. When there is 19 breach of contract, the party who commits the breach does not instantly incur any pecuniary obligation nor does a party complaining of breach become creditor. The only right which the party accrues by breach of the contract is his right to sue for damages. By referring the judgment reported in Jones v. Thompson, (1858) 27 LJQB 234 that "Ex parte Charles and several other cases decide that the amount of a verdict in an action for unliquidated damages is not a debt till judgment has been signed." It was held that the claim that damages does not become a debt even after Jury has written a verdict in favour of the plaintiff till the judgment is actually delivered. This judgment has been examined where it suits the case of the petitioner. In the light of Annexure-B agreement entered into between the parties. Annexure-B at Para No.14 and Para 6 & 7 it provides for an arbitration clause, which reads thus:
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"In any event on any question or dispute arising in connection with this contract, the matter in dispute shall be referred to a single arbitrator who shall be mutually acceptable to both the parties. The decision of the arbitrator shall be final, conclusive and binding on the parties as per provisions of Arbitration and Conciliation Act, 1996 and Rules therein and any statutory modifications shall be deemed to apply and be incorporated in the contract."
15. When this specific Para-14 has been admitted by both the parties and when undisputedly there is contract between the parties, whether the petitioner has committed breach that has to be sorted out before the arbitrator. When there is mutually agreed arbitration clause, normally the company proceedings is not an appropriate remedy. In the light of the correspondence made between the respondent company with the NTPC about the breach of contract in carrying out the work within four months, delay 21 caused and finally resulted in termination of contract with the respondent. But this matter has to be gone into by the arbitrator and decide as to who is responsible for terminating the contract. Unless that is sorted out, it is not proper to allow this petition for winding up.
16. In view of these circumstances, it is not a fit case to allow this petition for winding up. Petition stands dismissed. Liberty is reserved to both the parties to invoke clause No.14 of Annexure-B to sort out their disputes.
Sd/-
JUDGE AKD