Gujarat High Court
State vs Shreeji on 15 September, 2008
Author: K.M.Thaker
Bench: K.M.Thaker
COMP/33/2011 47/ 47 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY PETITION No. 33 of 2011 ========================================================= STATE TRADING CORPORATION OF INDIA LTD - Petitioner(s) Versus SHREEJI OVERSEAS INDIA PVT.LTD - Respondent(s) ========================================================= Appearance : MR PR NANAVATI for Petitioner(s) : 1, MRS SWATI SOPARKAR for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.M.THAKER Date : 16/11/2011 ORAL ORDER
1. The petitioner, State Trading Corporation of India Ltd. has taken out present proceedings seeking below mentioned relief/s.
(A) That M/s. Shreeji Overseas India Pvt. Ltd., the company abovenamed be wound up under the orders and directions of this Hon'ble Court under the Companies Act, 1956.
(B) That the Official Liquidator, High Court of Gujarat or some other fit and proper person be appointed as the Liquidator of the Company with appropriate powers under the Companies Act, 1956.
2. The factual background as summarized herein below:-
2.1. The petitioner corporation acts as a canalizing agency for facilitating export-import of various goods/material. The respondent company had requested the petitioner to arrange for importing 1250 Mt. Ton of "Bright Yellow Colour Sulphur" (hereinafter referred to as "the said goods" or "sulphur" on its behalf which the respondent would lift on arrival. For the said purpose the parties executed two agreements, both dated 15.09.2008, which prescribed the relevant terms and respective obligations. By the time the goods in question arrived, the market toppled and the prices crashed. The respondent, citing the said reason and pleading inability, did not lift the entire quantity but removed only 250 mt.
tons of the said goods and the respondent also did not make payment in accordance with the agreements. Subsequently the respondent approached the petitioner with alternative suggestion which involved deferment of "Letter of Credit" (L.C. for short) and payment of the due amount in installments. The petitioner granted indulgence, however the cheques given by the respondent towards Equalized Monthly Installments (EMIs for sake of brevity) were not honoured and the petitioner's dues remain unpaid. The petitioner has also instituted proceedings under Section 138 of Negotiable Instruments Act. The statutory notice under Sections 434 and 433 of Companies Act, 1956 (hereinafter referred to as the Act) merely brought denial of its obligation by the respondent which according to petitioner is unjust. The petitioner claims that the respondent is intentionally neglecting to make payment towards its outstanding and unpaid invoice for a sum of Rs.1,69,89,221 (as on 31.12.2010) and that it has lost its substratum.
3. Mr. Nanavati, learned Counsel has appeared for the petitioner and Mr. Saurabh Soparkar, learned Senior Counsel has appeared with Mrs. Soparkar, learned Advocate for the respondent company.
3.1. I have heard the learned counsel for the contesting parties and have considered their submissions. I have also carefully considered the documents placed on record by both the sides.
4. The learned counsel for petitioner reiterated the factual backdrop. He claimed that the respondent failed to entirely perform the contract and instead of lifting and removing entire quantity of the said goods and making payment the respondent lifted only 250 mt. ton. Mr. Nanavati submitted that even after statutory notice the respondent has not paid the dues and instead it has raised incorrect and baseless excuses. He further submitted that the contentions raised by the respondent company are afterthought and have been raised only to claim that the petition involves disputed questions of fact, however, actually any disputed questions of fact are not involved in the case in view of the relevant documents. Mr. Nanavati has reiterated the details mentioned in the petition and submitted that the petitioner is entitled to claim, receive and be paid the claim amount. Mr. Nanavati, learned counsel for the petitioner heavily relied on the letter - undertaking dated 24.07.2009 and 07.12.2009 addressed by the respondent company and submitted that even after having admitted the liability to pay, the respondent company has neglected to make payment and it has lost its ability to pay and it has knowingly and consciously neglected to make the payment and the reply to its notice is evasive and contrary to its own correspondence and the undertaking, stipulation and assurance made by it to make the payment and that therefore the petitioner is justified in invoking the provision under Section 434 of the Act and the respondent company deserves to be wound up. Opposing the defence based on the ground of the arbitration agreement/clause contained in the HSS agreement, Mr. Nanavati submitted that the said provision would not cover in its sweep the remedy of winding up of company. He submitted that the respondent company has by its own stand abandoned the said arbitration agreement/clause and that therefore now it is not justified in invoking the said provision which does not, in any manner, affect the remedy under Section 433 and 434 of the Act.
4.1. Per contra, the learned senior counsel for the respondent company has vehemently resisted and opposed the petition. It is also claimed that actually the respondent has a counter claim against the petitioner, for damages. It is also claimed that the petition is filed as an arm twisting method and as a tool for recovery of the alleged dues against which it has bonafide dispute. Mr. Soparkar referred to Clause 12 of the Agreement between the parties and contended that the dispute between the parties are required to be resolved through Arbitration and that therefore the petitioner may be relegated to Arbitration process and that the respondent does not insist that the proceedings of arbitration may be conducted before the arbitrator mentioned by it in its letter dated 28.07.2010. The respondent company has also claimed that the petitioner has breached its own promise and assurance viz. to not to include Trading Commission and that in view of the delay caused in issuing the release order after the undertaking was given by the respondent, the goods got contaminated resulting into loss. The respondent company has also claimed that it has bonafide defence and there are disputed and triable issues and that it has not lost the capacity to pay as alleged but the amount claimed by the petitioner company is not due and payable, and that even if there is any claim or dispute, it is required to be resolved through arbitration.
Mr. Soparkar, learned Senior Counsel for the respondent company has submitted that the so-called undertaking dated 7th December 2009 was obtained per force and under coercion and that therefore the petitioner cannot rely upon the such agreement. He submitted that after the respondent company made proposal in July 2009, the petitioner company sat over the said proposal for almost 5 months and when the goods were lifted and removed, it came to the notice of the respondent company that the material was already contaminated as a result of which the respondent company has suffered damages. It is, however, admitted that until now the respondent company has not raised any counter claim or demand on account of damages or otherwise, against the petitioner. Mr. Soparkar submitted that the communication dated 24.07.2009 is merely a proposal and it cannot be construed as an admission on the part of the respondent company. He submitted that in breach of the promise to claim Trading Margin @ 1.25% the petitioner has charged the trading margin at enhanced rate. Mr. Soparkar also submitted that the complexity of the disputed issues would necessitate trial and that therefore the petition may not be entertained.
5. So as to consider and appreciate the basis of the claim and contention of the petitioner as well as the defence of the respondent company, it is necessary to take into account some of the relevant provisions in the aforesaid agreement dated 15.09.2008.
5.1. The said agreement inter alia provides that at the request of the respondent company the petitioner had agreed to import 1250 Metric Tones (MTs) of Sulphur in bulk.
5.2. The petitioner company was supposed to, as per the agreement, import the said goods against the import contract dated 17.07.2008 (duly amended vide amendment dated 15.09.2008) which was already signed by the respondent with its foreign supplier and though the shipment was to be made in the name of petitioner STC and all documents were to be marked as such, actually all obligations including the obligation for clearance of goods were of the respondent company.
5.3. According to the agreement the price of the said goods was fixed at US $ 850 per MT. However, since the agreement was in the nature of High Seas Agreement, the amount payable in Indian currency was fixed only tentatively. The Clause No.9 in the agreement provides that the inspection of quality of goods was to be carried out by the nationally reputed surveyor at the loading port and that such inspection would be final and binding. The other relevant clause of the agreement is Clause No.6 which inter alia provides that the STC will issue delivery order after getting full payment.
5.4. Besides the aforesaid provisions, the other relevant provision is Clause 11 of the agreement which inter alia provides that the obligation and responsibilities of receiving the goods and transfer for storage at Bonded Warehouse and to take delivery and consequences of default or delay in taking delivery were of the respondent.
6. According to the agreement, the petitioner was to import, at the request and on behalf of respondent company, 1250 MTs of Sulphur and on payment of the agreed amount the respondent was to lift and remove the entire quantity of said goods. However, after the said goods arrived at the Kandla Port, the respondent company lifted only 250 MTs of the said goods and the balance 1000 mt. tons of the goods was not lifted.
6.1. It is claimed that the respondent company did not lift the balance 1000 MTs of Sulphur and thereafter on its own came out with a proposal dated 24.07.2009 for lifting the balance quantity of 1000 MTs of "Sulphur" as per and subject to the course of action suggested by the respondent in its said letter dated 24.07.2009.
6.2. There is no dispute about the fact that until then the respondent had not lifted the other 1,000 MTs of the said goods. According to the respondent's claim, it did not lift the goods allegedly because of the fall in the market price. On the said ground the respondent could not have denied or delayed fulfillment of its part of obligation. Despite such position, the respondent committed default.
6.3. Obviously, the petitioner cannot be blamed for the fluctuation in market price of the said goods.
6.4. The said reason, even otherwise, cannot wipe out the breach and would not absolve the respondent or will not protect it from the consequences of the breach and non-fulfillment of its own obligations (under the two agreements) committed by the respondent (viz. of not lifting the entire quantity of goods and of not making the payment) 6.5. The said event or cause cannot be made an excuse for not fulfilling the contractual obligations viz. to make the payment to the petitioner at the contractual rate and to lift and remove the goods.
6.6. Not only this but it was the respondent, as the correspondence reveal, who had even asked for certain accommodation or help i.e. to roll over the letter of credit. It also comes out from the affidavit of the respondent that the respondent company itself had again repeated its request for further roll over in May 2009.
6.7. Furthermore it was the respondent company who proposed to renegotiate the terms of the agreement in question to avoid the commercial loss and financial crises.
6.8. As a result of the negotiations an agreement was arrived at in pursuance of which the respondent company had issued EMI Cheques aggregating the value of the said goods.
6.9. In the aforesaid backdrop of its own submissions and admissions, the respondent company has now, alleged that the petitioner company has gone back on its commitment. Per contra the petitioner has claimed that when the cheques were deposited, the same were dishonored and that therefore the petitioner has instituted proceedings under Section 138 of the Negotiable Instrument Act.
7. The respective obligations of the petitioner and the respondent were streamlined, agreed upon and settled under the said two agreements dated 15.09.2008.
7.1. It is not the case of the respondent company that the petitioner company has committed any breach in respect of the terms contained in the agreement/s dated 15.09.2008.
7.2. In view of the aforesaid facts and in light of the agreement dated 15.09.2008, which imposes certain obligations on it, the respondent company is not justified in putting the blame at the doorstep of the petitioner company because the petitioner cannot be blamed for the respondent's action of not lifting the entire quantity of sulphur and not making the payment.
7.3. The foregoing discussion, which is based on the respondent's affidavit and its own correspondence, establishes that:-
(a) according to the said 2 agreements the obligation of the petitioner was to extend its L.C. Facility, so as to import, on behalf of the respondent, 1250 mt. Tons of the said goods and bring it to the port of destination.
(b) the obligation to receive at the destination port and transfer and store the goods in bonded warehouse and customs clearance was of the respondent.
(c) the goods were duly imported and brought to the port of destination by the petitioner accordingly the petitioner had duly discharged its part of the obligation.
(d) the obligation of the respondent was to lift and remove the entire quantity (1250 mt. Tons) of the goods - after its arrival (which was duly brought to the port) at the port - after making full payment to the respondent.
(e) however, the respondent did not lift the entire quantity i.e.1250 mt.tons and/or did not make the payment of the entire quantity but it lifted only 250 mt. tons and saddled the petitioner with unwanted 1000 mt.
tons of the goods and loss of the value/price of the said quantity of goods.
(f) the respondent alleged the so-called disturbance in the market as the reason for not discharging its obligation of lifting entire quantity (and not making payment for the entire quantity).
(g) after having failed to lift the goods the respondent also failed in making the payment and then the respondent also asked for petitioner's favour viz. to roll-over the L.C. for further period of 180 days and after expiry of such extension the respondent requested for second roll-over also.
7.4. Before proceeding further, some of the provisions in the second (i.e. what is described as Back to Back agreement by the petitioner) agreement dated 15.09.2008 are also required to be taken into account.
7.5. The back to back agreement said to have been executed between the parties clarifies the arrangement made between the parties as per which the obligation of the petitioner company was to open the Letter of Credit. However, the margin money i.e. 15% of CIF value was to be deposited by the respondent company for the purpose of getting the LC opened. The other relevant provisions which need to be taken into account are to be found in Sub-clause Nos. 4, 5, 7, 9, 11(a), 15, 16(b) of the said back to back agreement dated 15.09.2008. A glance at the aforesaid provisions clarifies and demonstrates that:
(a) dispute with regard to the goods with the foreign supplier was to be directly handled/settled by the respondent company.
(b) demurrage charges, if any which may be claimed by the foreign seller or the shipper were to be paid by the respondent company.
(c) even the storage/handling losses in the godown were to be borne by the respondent company.
(d) more important is the provision contained in para 9, which prescribes that the said good/cargo was to be pledged in favour of the petitioner company and such pledged/hypothecated good/cargo was to remain in custody/control of the petitioner company or its nominee at the cost and risk of the respondent.
(e) The said good/cargo was to be purchased by the respondent company on High Seas Basis and the Bill of Entry was to be filed by the respondent company.
(f) The respondent was obliged to furnish Post Dated Cheques equivalent to the full CIF value to the petitioner company.
(g) all obligations for the clearance of the imported goods were of the respondent company; and that
(h)the petitioner was supposed to issue delivery order only after getting full payment; and that
(i)the arrangement for clearance and all claims towards godown charges, etc. were to be borne by the respondent; and that
(j) in the event of default by the respondent company in taking the delivery of the goods, the entire additional expenditure was to be borne by the respondent company.
8. When the aforesaid aspects and the correspondence on which the respondent company has placed reliance are examined in light of the provisions of the agreement then it emerges that the defence of the respondent company lacks in bonafide and they are raised by way of afterthoughts and are contrary to the terms of agreement and respondent's own correspondence.
8.1. The below mentioned aspects, in addition to the points noted hereinabove, will demonstrate and fortify the aforesaid conclusion.
(a) It is pertinent to note that it was the respondent company, who, on 2nd February 2009 (i.e. long time after the goods was brought/imported at the port of destination by the petitioner on behalf of the respondent) addressed the letter to the petitioner company (page 58) requesting it to roll-over the letter of credit for a further period of 180 days alleging fluctuation in market price, global slowdown etc. In the said communication it is the respondent company who in clear terms stated that:
"In lieu of the same, we are ready to bear your charges and terms and conditions for required by STC and Bank involved. We undertake that we shall lift the material before the due date of this Buyer's Credit and pay STC the full amount along with the necessary interest and banking costs"
(emphasis supplied).
(b) A similar request for further roll-over of the L.C. on the same ground as mentioned in the previous communication dated 2nd February 2009 was again made by the respondent company on 28.04.2009 and for the said purpose it declared its readiness and willingness to abide by the condition that:
"(a) It will pay Bank's applicable additional LC Roll Over charges and interest for the usance period.
(b) All other terms and condition of the petitioner's approval against the transaction shall remain unchanged."
(c) Despite such facts the respondent company has raised a dispute with regard to the communication dated 24.07.2009 and the undertaking dated 07.12.2009. However, its own (i.e. the respondent's) letter dated 16.06.2009 (Annexure 3 Page 62), which is signed by the Director of the respondent company, is required to be taken into account wherein it is stated that:
"a) We agree that a trading margin of 1.25% on the High Sea Sale agreement is payable to you over and above the CIF price of Sulphur arrived vide MV Luck Star.
b) ........
c) We agree that we have to pay the Bank Commission, Bank's Usance Interest etc. at actual to STC. So far as we have rolled over the L/C.
d) As regards to the balance payment of 1000 MT, we would like to make the balance payment by way of EMI (Equated Monthly Installment) for a span of 24 months payable against PDC (Post Dated Cheques) in favour of STC. We shall also give our company's undertaking to honour the cheques on presentation as a guarantee towards the cheques being given to you. (emphasis supplied)
f) Regarding the guarantee towards this, we have already given you in point no. d) that we shall give you our company's undertaking to honour the cheques as guarantee"
8.2. Thus, the said letter makes it clear that it is the respondent who had asked for time/instalment to make payment in respect of the balance 1000 MTs. quantity of the said goods over a period of 24 months by way of EMIs and it is the respondent who, on its own volition and for its own purpose and its own interest, had voluntarily offered to give corporate (company's) undertaking.
8.3. In that view of the matter it emerges that the allegations or the defence of the respondent that the petitioner had compelled and pressurized it (i.e. the respondent) to give the undertaking and/or to enter into the compromise and to agree to the said terms, are, apparently contrary to its own communication and the relevant documents and they are in nature of afterthoughts and appear to have been raised only upon and in view of presentation of the petition.
8.4. Since, the respondent company has, at certain stage, made allegations that the petitioner had compelled it to give corporate guarantee it is necessary to note that in Clause (d) of its own letter dated 16.06.2009, it was the respondent company who had on its own and voluntarily offered, for its own purpose and in clear terms, that, "we shall also give our company's undertaking to honour the cheques on presentation as a guarantee towards the cheques being given to you." Thus, the allegation that the petitioner had compelled it to give corporate guarantee is not justified and is contrary to record, rather contrary to respondent's own correspondence.
8.5. Furthermore, it is necessary to take note of the fact that it is only after the petitioner came out with present petition that the respondent has, after almost 2 years, come out with such allegation and it also brings out that such allegations by the respondent are afterthoughts.
8.6. It is pertinent to note that until this stage the respondent had not lifted the balance 1000 mt.tons of the said goods and/or had not paid the price for the said balance quantity.
9. In the aforesaid backdrop of facts and developments came the respondent's letter dated 24.07.2009 wherein the respondent, inter alia, proposed that:
"1. We shall pay to STC towards cost of balance 1000 MTs @ Rs.3400/- PMT and STC shall issue Release Order on receipt of such payments. For your kind information, present local market for sale of Sulphur is around $ 42/- i.e. Rs.2000/- PMT.
2. We will bear all other expenses viz. Warehouse charges, CHA/CMA charges, Survey Fees, Customs Duty, Port Charges etc. as applicable and STC shall stand indemnified/absolved from all such liabilities.
3. On receipt of Release Order from STC against payment as at 1 above, the material shall be moved out of Port Area at our cost and responsibility for further sale. Hence, STC shall have no reason for any liability on deterioration in quality etc. (emphasis supplied)
4. Balance amount after adjusting Margin Money, payment made by us, interest accrued on Margin Money shall be paid by us in 12 equal EMIs against Post Dated Cheques with an Undertaking/Guarantee to honour the said cheques on its due date.
6. Under this arrangement, STC shall become out of pocket immediately on remittance for part amount till such full amount of LC value has been remitted by us along with applicable penal rate of interest. In order to avoid burden of penal rate payable by us on balance outstanding as well as to become STC out of pocket to such extent, request was made to STC to allow us to apply for permission from RBI to arrange for ECB for 360 days (12 months).
7. As regards interest on EMD/Margin Money and payment made by us to STC, we request you to kindly reconsider the decision and allow interest on same as per STC's existing procedure i.e. at SBI's Short Term Domestic deposit rates and oblige, which shall alight our loss to some extent."
9.1. Even as per the said letter the release order was to be issued after payment and STC had no liability for deterioration of goods.
9.2. It is pertinent that the said letter dated 24.07.2009 was written/signed by the same Director of the respondent company who addressed the earlier letters dated 07.05.2009 and 16.06.2009 and the proposal contained therein has emanated also from the respondent company.
9.3. In that view of the matter, the respondent is not justified in making the allegation that it was compelled to make that proposal.
The aforesaid aspects cumulatively, make it clear that the allegations and defence are afterthoughts raised after presentation of the petition.
10. If the rates were disturbed due to the market economy, the petitioner cannot be blamed and the respondent company cannot expect the petitioner to make any concession and/or it cannot blame the petitioner nor it can wriggle out of the liability of fulfilling its obligation as per the terms and conditions in the binding agreements dated 15.09.2008.
11. It is also pertinent to recall that after the said goods arrived at the port of destination, the respondent company (though it was obliged to lift the entire quantity of 1250 MTs) initially lifted only 250 MTs of the said goods and had requested the petitioner company to grant roll over of the Letter of Credit until it could lift the balance quantity.
11.1.In this context, it is necessary and appropriate to revert to the provisions contained in the agreement dated 15.09.2008, particularly Clause 6 which pertains to the payment aspect and, inter alia provides that, STC will issue delivery order after getting full payment. (emphasis supplied) 11.2.Thus, the respondent company was well aware, right from the inception, that in view of the terms of the agreements the petitioner can be asked to issue the release order only if and only after full payment is made.
11.3.Instead, as noticed hereinabove, after the arrival of the goods at the port the respondent company initially had twice asked for roll over and then proposed to make the payment by way of EMIs and so long as the terms/details for making the payment were not finalized between them, it was the respondent who was not lifting, and who did not lift, the said goods whereas in view of the agreed terms of the agreements (clause No.6) the petitioner was not obliged or even supposed to, issue the release order until getting the full payment.
11.4.Thus, in absence of payment the respondent is not justified in making allegations either about pressure or alleged delay in issuing the release order. It is pertinent that in response to the issue related to payment, the respondent interestingly relies on the settlement/understanding and claims that the amount was to be paid in installment (by way of EMIs) as per the settlement/understanding and then it also alleges that the settlement/understanding were brought about by coercion/force and its own correspondence dated 02.02.2009, 28.04.2009, 16.06.2009 and 24.07.2009 are being ignored and overlooked by the respondent while revising the defence. Thus, the defence not only appears to be in nature of afterthoughts raised after and only because of the presentation of petition, but also appear to be infected by contradictions and is contrary to its own correspondence.
12. In this context it is necessary to note also that it is the case of the petitioner that when the EMI cheques which had - as per the dates - become due were presented, they were dishonoured (and the petitioner has instituted proceedings under Section 138 against the respondent).
12.1.The petitioner has clarified that only 4 cheques have been honoured/cleared and the full amount, even as per the said MOU has not been paid/realized.
12.2.Hence, the aforesaid Clause No.6 of the agreement would be applicable and would govern the field and the respondent's attempt to put the blame (for not issuing the Chalan) at the petitioner's door-step is not sustainable.
12.3.Even as per the para No.3 of the letter dated 24.07.2009 the petitioner was supposed to issue release order, only upon payment.
13. So far as the dispute raised by the respondent company regarding alleged deterioration in the quality of goods is concerned, it is pertinent to note that besides the relevant terms and conditions in the agreements dated 15.09.2008 as per which the quality of the goods was not the responsibility of the petitioner company, the respondent company itself has in its own letter dated 24.07.2009 clearly stipulated that, "Hence, STC shall have no reason for any liability for deterioration of quality etc."
13.1.Having said thus, now, the respondent company would not be and is not justified in opposing the claim of the petitioner on the ground that due to delay allegedly caused by the petitioner the quality of the goods got deteriorated and goods were contaminated.
13.2.The abovementioned stipulation by the respondent in its letter dated 24.07.2009 render the said submission as an afterthought raised by ignoring its own stipulation. The respondent has raised submissions which are contrary to its own correspondence.
13.3.This fact shows that the allegation has been made only after the petition came to be filed and to oppose the petition. Any document evidencing that the said allegation/claim was made immediately and contemporaneously (i.e. immediately after removal of goods) is not placed on record.
13.4.This aspect becomes clear also from the fact that though the learned senior counsel for the respondent contended that the respondent has suffered loss, in response to Court's query it is admitted that the respondent has until now not lodged any quantified demand/claim/counter claim against the respondent in respect of the alleged loss/damage allegedly caused to it supposedly on account of the delay claimed to have been caused in issuing the release order.
The fact that until the petition came to be filed or rather statutory notice was served, the respondent had not raised such allegations or any action on the strength of such allegations and even now any quantified demand/counterclaim is not raised, provides additional support to the said view.
13.5.Even if it is assumed that the quality of the goods was, as alleged by the respondent, contaminated, then also the said contention would not help the respondent in resisting the petition because (a) even after its letter dated 07.12.2009, the respondent caused delay in tendering the corporate undertaking; and (b)the cheques tendered by it towards EMIs were, on presentation, dishonoured, (c) petitioner's obligation to issue release order would arise only on full payment and (d) the obligation to make full payment was not discharged and has not been discharged. These facts are besides the fact that on earlier occasion the respondent had twice requested for roll-over of the L.C.
14. The other allegations made by the respondent company, which is also made ground or defence against the claim of the petitioner and also a ground to contend that there are disputed questions of fact involved in the petition, is the allegation that though the respondent company had given an undertaking dated 7.12.2009 and prior to that had made a proposal dated 24.07.2009, the petitioner company consumed unreasonably long time in issuing the release order which was issued in March 2010.
14.1.In this context, it is necessary to recall that it was the respondent company who had, in its communications, offered and assured to furnish corporate undertaking/guarantee. The petitioner company has, in its rejoinder, averred that:
"In fact as per the revised terms the respondent company was required to pay an amount of Rs.34 lakhs towards adhoc payment and on such payment being made, the petitioner has agreed to release the goods in favour of the respondent company and accordingly on payment of Rs.34 lakhs the petitioner has allowed the respondent company to lift the entire quantity of remaining goods vide delivery order dated 08.03.2010 and accordingly on payment of such amount the respondent company actually lifted the goods from the custody of the petitioner.
In fact as stated herein above, after the respondent approached the petitioner for relaxed terms of payment because of the financial crisis faced by them and after giving undertaking to pay through installments the respondent has never raised any dispute until the goods were allowed to be lifted vide delivery order dated 08.03.2010 and even after lifting the goods, no dispute was raised and therefore when the petitioner has scrupulously followed the terms of agreement and revised agreement of receiving the amount through installments revised agreement in receiving payment through installments regarding waiving of trading margin/commission etc, and waiving of interest and roll over charges etc. are absolutely false and false to the knowledge of the petitioner."
Such averments are made as if the respondent has obliged the petitioner and as if inspite of that the petitioner is making false claim. The delivery order was issued on 08.03.2010 only because the respondent did not complete formality of giving necessary corporate guarantee as per the revised terms of agreement for which no fault can be attributed to the present petitioner." (emphasis supplied) 14.2.Thus, what transpires from the said assertion by the petitioner company in its affidavit is that the formality of submitting corporate undertaking/guarantee was not completed until March 2010 and the cheques, therefore were deposited only after completion of the formality in March 2010. Hence, the release orders could not be and were not issued before March 2010.
14.3.It is pertinent to note that the respondent has further stated that by the time the corporate undertaking/guarantee was submitted, four installments/EMI had already become overdue and that therefore in view of the understanding/undertaking by the respondent company, the four cheques towards the overdue installments/EMI were deposited with the Bankers of the petitioner. However, the said cheques came to be dishonoured and at the end i.e. until now in all only four cheques have been honoured.
14.4.It is necessary to note that any counter affidavit/sur-rejoinder affidavit dealing with the assertions made by the petitioner company in its rejoinder has not been filed and the details mentioned by the petitioner in its rejoinder affidavit, particularly in para 5 i.e. on Page 95 to 97, para 9 on page 100 and para 11 on page 101 and 102 have not been disputed or denied.
14.5.In view of the fact that the full payment towards the value of the said goods though required to be paid by the respondent was not paid to the petitioner, the defence raised by the respondent company on the ground that the petitioner company did not issue the release order immediately after the understanding/undertaking dated 07.12.2009 does not hold good and it runs counter to clause 6 of the agreement and is also contrary to its letter dated 16.06.2009 and 24.07.2009 read with letters dated 02.02.2009 and 24.08.2009.
15. The most important aspect of the matter required to be mentioned at this stage is that though the cheques issued by the respondent have been dishonoured and full payment has yet not been made, the respondent has removed the entire quantity and it has already sold the entire quantity in open market.
16. From the foregoing discussion and from conjoint reading of the agreement and the above mentioned correspondence it emerges that the defence raised by the respondent company are in the nature of afterthought and contrary to its own correspondence including the letters dated 02.02.2009, 28.04.2009, 16.06.2009 and 24.07.2009 and also contrary to the clear terms of the agreement/s dated 15.09.2008. Therefore, the Court is also persuaded to believe that the said grounds of defence lack bonafide.
17. Now, so far as the contention regarding remedy by way of arbitration is concerned, Mr. Soparkar, learned Senior Counsel has submitted that the matter is required to be remitted for arbitration in view of Clause 12 of the agreement. Mr. Nanavati, on the other hand, has opposed the said contention of the respondent and submitted that the said provision is not a bar against the remedy under Section 434 of the Act.
17.1.Before considering the rival submissions on this issue it is necessary to take note of certain facts connected with the said contention. It comes out from the record that the respondent company had issued, and served on the petitioner, a notice dated 28.07.2010.
17.2.In this context what is relevant to be mentioned at this stage is that the respondent company had issued and served on the petitioner, a notice dated 28.07.2010 wherein the respondent made it clear that it was not willing to go before the arbitrator named in the agreement. In the said notice dated 28.07.2010 the respondent stated that, "the aforesaid reference of dispute to the said forum is not acceptable to my client as there is no due process and/or an opportunity is being heard is not being afforded in the Indian Council of Arbitration".
The respondent company, on the aforesaid ground, demanded that the matter may be placed before the sole arbitrator i.e. before another forum/arbitrator (for which there is no agreement between the parties, nor is there any consensus).
17.3. The petitioner company had given its response to the aforesaid notice (dated 28.07.2010) vide its reply (through advocate) dated 12.08.2010 and stated therein, inter alia, that:
"18. With reference to para-17, once your client has signed the agreement of arbitration for referring the matter in case of any dispute to the Indian Council of Arbitration, then your client is estopped from taking contentions against the Registrar of the Indian Council of Arbitration. The contentions raised in this para are amounting to deviation from the terms of agreement which is not permissible in the eye of law.
19. With reference to para 18............Thus your letter under reply is misconceived and contrary to the facts on record and the dispute what your client is raising at this stage, is baseless, afterthought and nothing but a delay tactic from making the payments of legitimate dues of my client, which should not be permitted in any manner. Thus my client does not accord consent for the appointment of Shri Atul Dutt as an Arbitrator. Without prejudice to the contention that the dispute raised by your client is not an arbitrable dispute. My client further submits that looking to the amount involved as per Rule 22(C) of the Indian Arbitration Tribunal Rules, the appointment of an Arbitrator cannot be made as your client has instructed you to mention in your letter dated 28th July, 2010."
17.4. Thus the respondent company by its own action viz. the notice dated 28.07.2010 abandoned the remedy of arbitration. Once having declared that it does not want to go before the arbitration forum named in the agreement, the respondent company cannot, now, resist the petition on the ground that the agreement provides for arbitration.
17.5. So as to avoid the rigour of such contention by the petitioner, learned Senior Counsel appearing for the respondent company submitted that now the respondent company is ready to go for arbitration before the same forum named in para No.12 of the agreement and in the facts of the case the matter may be remitted to the remedy of arbitration.
17.6. The respondent's said submission is opposed by the petitioner who has taken out present proceeding by invoking provisions under Section 434 read with Section 433 of the Act. In this context it is appropriate to note, at this stage, that in a petition taken out by invoking provision contained under Section 433 and 434 of the Act if the petitioner claims that the opponent owes ascertained amount and despite statutory demand / notice, served in accordance with the procedure prescribed by the Act, the opponent has failed to make the payment if the petitioner establishes (a) that the petition, though ostensibly presented as petition seeking winding-up order, actually and in reality it is not an arm-twisting method or presurizing measure and to enforce payment i.e. to recover the debt (against which there might be bonafide dispute) ; and (b) that such failure amounts to neglect to pay without any justifiable reason or in absence of any bonafide dispute, then the Court would, in the first instance, call upon such opponent by issuing notice to explain the failure and alleged neglect in making payment and to show cause why the petition should not be admitted. The company i.e. opponent would then be obliged to prove, atleast prima facie, the facts on which its defence, if any, is based. The inquiry, which the Court would make, as regards petitioning creditor's claim and respondent's defence would be in nature of summary inquiry wherein the explanation and defence tendered by way of affidavit with supporting documents needs be taken into account. The company would be under obligation to satisfy the Court that its defence is in good faith and there is genuine, substantial and bonafide dispute against the petitioner's claim. The defence also ought not be in the nature of afterthought where there is absence of contemporaneous material to demonstrate that the dispute existed at the relevant time i.e. it is not raised for the first time after service of statutory demand - notice and/or presentation of petition and in any case much before the statutory notice / demand. If the defence is found to be afterthought and not contemporaneous or mere moonshine and not real and genuine or if it is found to be lacking in bonafide then the Court may draw adverse inference against the opponent - company. Even in those cases where the instrument issued for discharging the obligation to pay is dishonoured by the bank, adverse inference may be drawn. The conduct of the parties and the nature of defence would also, in given case, play important role in leading the Court to proper conclusion. If after considering all such aspect the Court finds that the defence put up by the opponent is lacking bonafide or it is only set up to delay or frustrate the petition or it is raised byway of afterthought then the Court, ordinarily would not deny the petitioner an order admitting the petition. Of course when such aspects are eliminated and Court is inclined to accept the petition then at that stage also, in given set of facts, the Court may take into account the option of requiring the petitioner to go to full fledge trial, if it is found that the bonafide and genuine dispute/defence raised by the opponent has inbuilt and intrinsic issues involving disputed facts or they are such that give rise to disputed facts and may necessitate or warrant a trial. When the Court is satisfied on such aspects, the Court may not entertain the petition and relegate him to trial. However, the Court would examine the causes for denial (by the opponent) to pay before reaching such conclusion and the Court must, first, ascertain that the opponent's denial or refusal is on account of real, genuine and bonafide dispute. Differently put, the said consideration could not be the first consideration and would not be allowed primacy over the above mentioned factors and it is only if the Court finds that the defence set up is genuine and bonafide then the Court would inquire as to whether the dispute / defence can be examined in the summary inquiry or would require full fledge trial and the Court would not shut door to the petitioner only on the ground that the opponent has raised dispute/defence and it would give rise to disputed issues of facts. In the cases where the Court comes to the conclusion, after examining the case put-up by respective parties, that the defence set-up is bonafide then the non-payment of such debt cannot be treated as, and would not constitute 'neglect to pay' for the purpose of Section 434(a) and/or would not be treated as 'unable to pay the debt' for the purpose of Section 433(e). In the cases where the Court finds that defence is not bonafide or is an afterthought i.e. in contradistinction to malafide defence, the Court may consider the option of giving an opportunity to the company to pay the debt or to deposit the amount within time considered appropriate by the Court. In the event of failure even after such opportunity, the Court would usually grant order of admission of the petition to the petitioner. At such stage consequential order may also follow. However, in the cases where the opponent sets up genuine, real and bonafide defence or real and substantial counter the claim and where the defence is not found to be spurious or in the cases where the Court, while examining petition at the outset notices that the petitioner has not taken out the proceedings merely a means for recovery of dues or as execution proceedings or where the neglect to pay is not established and it is noticed that the opponent company is a going concerned, then the Court may not grant order of admission and may reject the petition, of course without prejudice to the petitioner's right to invoke and pursue ordinary civil remedy e.g. suit proceedings.
In this context, it would be appropriate to refer, at this stage, to the observation by the Apex Court in recent decision in the case between IBA Health (India) Private Limited vs. Info-Drive Systems SDN. BHD [(2010) 10 SCC 553] wherein the Apex Court has observed thus:-
"SUBSTANTIAL DISPUTE - AS TO LIABILITY
20. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt.
COMMERCIALLY SOLVENT
24. 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 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.
29. On a detailed analysis of the various terms and conditions incorporated in the deed of settlement as well as the compromise deed and the averments made by the parties, we are of the considered view that there is a bona fide dispute with regard to the amount of claim made by the respondent company in the company petition which is substantial in nature. The Company Court while exercising its powers under Sections 433 and 434 of the Companies Act, 1956 would not be in a position to decide who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed which calls for detailed investigation of facts and examination of evidence and calls for interpretation of the various terms and conditions of the deed of settlement and the compromise entered into between the parties.
30. A company petition cannot be pursued in respect of contingent debt unless the contingency has happened and it has become actually due. In the absence of any evidence, it is not possible to conclude that M/s. Solutions Protocol Sdn. Bhd. had in fact paid any amount to the appellant company towards commission charges due to the respondent company before the cut off date. A legal notice prior to the institution of the company petition could be served on the company only in respect of a debt (then due) and a company could be wound up only if it was unable to pay its debts. In this case, there is a bona fide dispute as to whether the amount claimed is presently due and if, at all, it is due, whether the appellant company is liable to pay the sum unless they have received the same from M/s. Solutions Protocol Sdn. Bhd.
31. Where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purposes of winding up. "Bona fide dispute" implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt upon which a petition is founded is a hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the company to pay before coming to that conclusion. The Company Court is expected to ascertain that the company's refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil court.
MALICIOUS PROCEEDINGS FOR WINDING UP
33. We may notice, so far as this case is concerned, there has been an attempt by the respondent company to force the payment of a debt which the respondent company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay a bona fide disputed debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances, where the jurisdiction of the Company Court is being abused by filing winding up petitions to pressurize the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate Court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor's winding up petition implies insolvency and is likely to damage the company's creditworthiness or its financial standing with its creditors or customers and even among the public."
17.7. So far as the facts of present case are concerned, it has emerged from the foregoing discussion that now, when the petitioner has come out with the petition the respondent company seeks to contend that the petitioner may be relegated to the remedy of arbitration. The learned counsel for the petitioner would, therefore, contend that the said contention of the respondent company is unjustified and also in the nature of afterthought (which is evident in light of the respondent's notice dated 28.07.2010) and has been raised only to frustrate the petition. In the facts of the case and in view of respondent's conduct, the said submission of the petitioner against the respondent's request to relegate the petitioner to arbitration forum, cannot be said to be unjustified or baseless.
18. However, the said objections against the maintainability of the petition raised by the respondents need to be examined in light of the petitioner's contention viz. the arbitration clause is not a bar against the remedy available under Section 434 of the Act.
18.1. Now, so far as the said contention is concerned, it is appropriate to take note of the legal position on this count. When a petition under Section 434 read with Section 433 seeking order of winding up of a company is preferred, the petitioner does not claim recovery of the amount due but he seeks direction for winding up of the company and the Court, upon being satisfied, can direct that the company may be wound up. However, such direction cannot be issued in arbitration proceedings by the arbitrator.
18.2. Thus, even in the case where arbitration remedy is contemplated and provided the Court would still entertain a petition under Section 434 of the Act because request - demand for winding up of a company is not an arbitrable (though the monetary claim may be arbitrable).
18.3. It would be a different matter that in a given case when the plea to not entertain a winding up petition in view of arbitration clause / agreement is coupled with and accompanied by other attending facts and circumstances which may persuade the Court to not to admit a petition for order of winding up and to not grant order of winding up and the Court may not admit such petition though remedy of arbitration, as aforesaid, is not an answer or an alternative to the right and remedy in form of / by way of winding-up petition. Illustratively speaking;
the cases where the opposite side establishes, and satisfies the Court that the dispute are not arbitrable e.g. disputes relating to rights in rem and/or where there is genuine and bonafide counter claim of the opposite side and/or where the Court is satisfied that the petition is filed as an arm-twisting method and merely as a substitute to enforce payment of debt (i.e. for recovery of claim amount) which is bonafide disputed.
19. After the short detour, I may revert to the objection on the ground of clause 12 of the agreement and the contention that arbitration remedy does not bar the remedy under Section 434 of the Act.
19.1. In present case, in furtherance of the request to relegate the petitioner to arbitration reference has been made to an order dated 8th July 2011 in Company Petition No.20 of 2010. Thus, it is necessary at this stage to refer to the said decision whereby the petition seeking order of winding up against the respondent company was not granted and the petitioner was relegated to the remedy of arbitration in view of the arbitration clause in the agreement between the parties. On examination of the said order, it immediately transpires that it was passed in light of the facts of the case. In the said case it was noticed by the Court that the defence raised by the respondent company was a bonafide defence/dispute and there was a genuine commercial dispute including a cross/counter claim of the respondent and the petition involved various disputed questions of facts which would require a trial and it was also noticed in the said case that one of the parties to the petition had, with reference to a dispute in connection with connected agreement between the same parties, already invoked arbitration and the matter was pending before the arbitrator. Therefore, the parties were relegated to the remedy of arbitration. However, in the present case, the Court has reached to the conclusion that the defence raised by the respondent company is an afterthought and contrary to its own correspondence. Thus, the said decision/order stand on a different platform.
19.2. However, in present case the submission to relegate the petitioner is opposed by the petitioner and it is claimed that in the facts of the case petitioner seeks winding-up order against the respondent hence said clause 12 would not be a bar against present petition.
19.3.
Before proceeding further, it is appropriate, at this stage, to refer to the pertinent observations by the Apex Court in recent decision in the case of Booz Allen Hamilton Inc v. SBI Home Finance Ltd.
(2011)5 SCC P. 532, wherein the Apex Court has observed in para 35 to 38 as below:
"35. The Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (Courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.
36. The well recognized examples of non-arbitrable disputes are : (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
(iii) guardianship matters; (iv) insolvency and winding up matters;
(v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and Judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide : Black's Law Dictionary).
38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration.
This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable."
19.4. A reference, in this context, may also be made to the decision in the case of Haryana Telecom Ltd. v. Sterlite Industries Ltd.(1999) 5 SCC (688) wherein the Apex Court observed that:
"5. The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is confirmed on the Court. An arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company. The matter which is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the company. That would obviously not be referred to arbitration and, therefore, the High Court, in our opinion was right in rejecting the application."
The submission by the respondent and the petitioner's contention/objection against such submission are required to be examined in light of the aforesaid observations by the Apex Court.
19.5.Now, so far as facts of present case are concerned, from the material on record it is, as recorded hereinabove earlier, noticed that the defence or dispute sought to be raised by the respondent is an afterthought and contrary to its obligation under the agreement and also contrary to its own communication. It is also noticed by the Court that though it was claimed during hearing by the respondent company that it has its own claim against the petitioner, particularly with regard to the alleged deterioration of quality of the goods, it was also clarified, in response to the query of the Court, by the learned Senior Counsel for the respondent that until now any proceedings with regard to the claim which the respondent allegedly intends to raise against the petitioner, has not been instituted/raised in any Court or before any forum. It is also submitted by learned counsel for the petitioner that the respondent company subsequently lifted the goods and has sold the said goods in open market. However, it has neglected to make the payment to the petitioner.
19.6.Having regard to the foregoing discussion and the aforesaid aspects as well as the conclusion reached by the Court with regard to the issues raised by the petitioner and the respondent and also having regard to the fact that, the petitioner has established that despite the service of statutory notice/demand, the respondent company has neglected to make the payment, it emerges that the ingredients required for the purpose of invoking Section 434 read with 433 and presenting a petition under said provision exist in present case. Thus, Court has to make appropriate order with regard to petitioner's request to accept and admit this petition and to also pass further appropriate orders.
20. However, before entertaining/admitting the petition, it appear appropriate in the facts of this case that like in the case of Ficom Organics Ltd. v. Loffans Petrochemicals Ltd. (2000 (99) Companies Cases 471), in present case also the respondent may be allowed opportunity and time to pay or deposit (in the Court) the claim amount. The learned counsel for the petitioner, in the instruction from his client, submitted that the petitioner has no objection if Court follows the said course of action. Hence, the respondent is allowed time until 21.01.2012 to pay or deposit the claim amount.
21. The matter may be listed for appropriate orders including the order, if so required, for admitting the petition and the consequential order directing/permitting the petitioner to publish the notice of admission, on 23rd January 2012 and for appointment of provisional liquidator.
(K.M.THAKER, J.) jani