Delhi High Court
Empire Industries Ltd. vs Wigan And Leigh College (India) Ltd. on 28 February, 2005
Equivalent citations: 122(2005)DLT406
Author: A.K. Sikri
Bench: A.K. Sikri
JUDGMENT A.K. Sikri, J.
1. The respondent, i.e. Wigan & Leigh College (India) Ltd. [hereinafter referred to as 'the company'] inter alia, carries out the business of running educational institutions/college for imparting training and education. Various courses are undertaken by it. It also appoints franchise and agents for running these courses. An agreement dated 21st July, 2000 was entered into between the petitioner and the company. Under this agreement, courses in (a) fashion technology, (b) advertising and graphic design, and (c) business management awarded by Wigan and Leigh College, UK were to be conducted by the petitioner under the license from the company. This agreement was for a period of one year on revenue share basis. The agreement also provided for resolution of disputes by means of arbitration between the parties. It may be mentioned that Wigan & Leigh College, UK had entered into an arrangement with the company by virtue of which the company had been given the license to set up training centres for undertaking the courses and do some other similar activities of Wigan and Leigh College, UK in India. By virtue of this arrangement between the UK company and Indian company, the agreement in question was entered into between the petitioner and the company. The petitioner commenced the courses under the agreement for 332 students who had enrolled for these courses till 20th July, 2001. When this agreement was still in force, the company placed an advertisement in the Times of India dated 7th December, 2000 inviting organisations to team up with the company for such courses. According to the petitioner, this amounted to breach of the agreement with it and, therefore, it invoked arbitration Clause 31 and also filed arbitration petition No. 453/2000 under Section 9 of the Arbitration and Conciliation Act, 1996 (for short 'the Arbitration Act') in the High Court of Bombay. Order dated 11th December, 2000 was passed by the High Court of Bombay restraining the company from commencing courses covered under the agreement. On 12th December, 2000 the company appeared in those proceedings through its Counsel and made a statement that it would not offer courses covered under the agreement, to any third party and in this view of the statement, petition under Section 9 was disposed of.
2. Thereafter, the petitioner displayed notice dated 29th December, 2000 stating that second semester courses of the Wigan and Leigh College programme would be completed to the entire satisfaction of the students. In the meantime, the petitioner also invoked arbitration clause on 20th December, 2000, as according to the petitioner, there were certain disputes and differences between the parties. On 23rd March, 2001 there was a preliminary meeting of the Arbitrators. These proceedings are still pending.
3. The petitioner had also deposited a sum of Rs. 18 lacs with the company as license fee, 4/5th of this license fee, i.e. Rs. 14,40,000/-. This amount was to be refunded within one month of the date of elapsing agreement. The amount was to be refunded within thirty days of elapsing. This is so provided in Clause 26 of the agreement. According to the petitioner, since the agreement elapsed on 20th July, 2001, i.e. after completion of one year period for which the agreement was valid, the company became liable to refund the aforesaid amount which was to be paid within thirty days i.e. by 20th August, 2001. The petitioner sent letter dated 10th August, 2001 by registered post demanding this amount within thirty days of the elapse of the agreement. The company did not reply to this notice. On the other hand, letter dated 20th August, 2001 was sent by the company to the petitioner alleging that the petitioner had failed and neglected to perform its responsibilities and obligations under the agreement, as a result of which certain amounts had become due and payable by the petitioner to the company. The company thus invoked arbitration clause to refer its claim to the arbitration. This dispute of the company is also pending before the Arbitrators.
4. The case of the petitioner is that the aforesaid refundable license fee had, in any case, become payable and since no response was received to the demand notice dated 10th August, 2001, statutory notice dated 5th September, 2001 under Sections 433 & 434 of the Companies Act, 1956 was sent to the company. The company replied vide letter 28th September, 2001 refuting this liability and, therefore, this petition has been filed seeking winding up of the company on the ground that company is indebted to the petitioner and is unable to pay the debts as the amount is not paid by taking frivolous grounds and without any justification.
5. In the reply filed by the company, the company had dubbed the petition as mala fide and misuse and abuse of the process of law. It is also stated that there are disputes between the parties which had arisen during the currency of the agreement i.e. much prior to the alleged termination of the agreement and are being adjudicated upon in the arbitration proceedings. It is also stated that as per Clause 23 of the agreement, 4/5th of the license fee was refundable only upon the petitioner performing its obligations as set out in the agreement. It is also the case of the respondent that the petitioner having obtained the technical know-how for the purposes of conducting the courses and the company having given to the petitioner other technical and non-technical material like books, etc. for which the company had got the publishing rights and faculty training, etc. and since the petitioner had used and continued to use all the above without any compensation being paid therefore to the company, the company is not liable to make any payment referred to in Clause 23 of the agreement. It is also stated that the petitioner has deliberately violated the covenants contained in paras 15, 17 & 18 of the agreement by issuing letters dated 29th December, 2000 to the students, whereby they had attempted to persuade the students not to continue with the company and this has caused loss of revenue to the company. The company has already preferred a claim of Rs. 1,29,12,839/- on this count which is also pending before the Arbitrators. It is, therefore, stated that no amount is payable to the petitioner in any case.
6. Certain events which are not stated in the petition but can be gathered from the reply filed by the company may be taken note of at this stage. The company had sent letter dated 25th May, 2001 asking the petitioner to give assignment sheets/assignment marks as the petitioner did not forward the assignment. It was followed by reminder dated 6th June, 2001. In between another letter dated 31st May, 2001 was written by the company to the petitioner stating that certain complaints were received from the students to the effect that they were not being allowed to utilise the facilities for finishing their projects. Thereafter, letter dated 20th July, 2001 was written by the company to the petitioner reiterating that the petitioner had cajoled the students to join the campus of the company. Statement of loss/damages suffered on this count was also enclosed. The petitioner sent reply dated 8th August, 2001 and denied having cajoled any student to join their courses. The students also sent notices dated 2nd August, 2001 and 11th August, 2001 alleging that courses had not been completed which were replied by the company. Thus, according to the company, not only these facts are not disclosed in the petition, these events would indicate that disputes had arisen between the parties during the currency of the agreement itself and the company had lodged its claim with the petitioner as early as on 29th December, 2000 and again on 20th July, 2001. It is only thereafter that for the first time, notice dated 10th August, 2001 was sent by the petitioner to the company demanding the refund of the license fee. The company has also narrated some subsequent events. It is, inter alia, stated that some of the prominent defaults committed by the petitioner in violation of the agreement were communicated to the petitioner on 16th August, 2001. The faculty who was teaching at the Mumbai centre wrote various letters dated 20th August and 30th August, 2001. The company, therefore, sent notice dated 20th August, 2001 invoking arbitration. It is only thereafter the petitioner sent legal notice dated 5th September, 2001.
7. In the petition the petitioner has not stated all these facts. No events prior to the company's demand dated 10th August, 2001 for refund of 4/5th of the license fee are mentioned except the petitioner's action of invoking arbitration and filing of the petition under Section 9 of the Arbitration and Conciliation Act, 1996 in the Mumbai High Court. The invocation of arbitration clause by the company is also stated in perfunctory manner in para 13. The petition, therefore, suffers from this lacunae.
8. That apart, from the sequence of events narrated above, it is clear that there are disputes between the parties which are already subject matter of arbitration. No doubt merely when the party invokes arbitration clause for reference of disputes, that would not debar other party from filing the petition and in such proceedings company has to satisfy the Court that there exists a bona fide dispute [Refer: Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., 111 (1999) CLT 181 (SC) : 1999 (3) Comp.L.J. 91].
9. On the other hand, it was the submission of the company that disputes raised were bona fides and there was no admitted debt which the company was liable to pay to the petitioner and in such case the winding up order should not be passed. Reliance was placed on the following judgments:
(i) Mazboot Packers and Engineers Company v. Himachal Pradesh Horticultural Produce Marketing and Processing Corporation Ltd., 1999 (95) Comp. Cases 579.
(ii) Azeet International Pvt. Ltd. v. Himachal Pradesh Horticultural Produce Marketing and Processing Corporation Ltd., 1998 (92) Comp. Cases 356.
(iii) Globe Detective Agency P. Ltd. v. Subbiah Machine Tools P. Ltd. and Ors., 1985 (58) Comp. Cases 271.
10. It may be mentioned here that in NEPC India Ltd. (supra), this Court culled out the following principles which are to be kept in mind while dealing with the winding up proceedings (though learned Counsel for the petitioner relied on principle No. (ii) there from):
(i) If there is a bona fide dispute and the defense is a substantial one, the Court will not wind up the company.
(ii) Where the debt is undisputed the Court will not act upon a defense that the company has the ability to pay the debt but the company chooses not to pay it.
(iii) Where the defense of the company is in good faith and one of substance, and the defense is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defense depends, the petition should be rejected.
(iv) The Court may consider the wishes of creditors so long as these appear to be justified.
(v) The machinery of winding-up should not be allowed to be utilised merely as a means of Realizing its debts.
[For the above propositions see Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Anr., (1994) 2 Comp.L.J. 50 (SC), in which the observation in Amalgamated Commercial Traders (P) Ltd. v. Krishnaswami, (1965) 35 Comp. Cas. 56 (SC) and Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd., (1972) 42 Comp. Cas. 125 (SC), have been paraphrased].
(vi) If the stance of the adversaries hangs in balance it is always open to the Company Court to order the respondent company to deposit the disputed amount. This amount may be retained by the Court and he held to the credit of the suit, if any is pending, or likely to be filed in the immediate future [See Civil Appeal No. 720 of 1999 arising out of SL (C) No. 14096 of 1998--Nishal Enterprises v. Apte Amalgamations Ltd., decided by the Hon'ble Supreme Court on February 5, 1999].
It appears to me that the following point may be added to the foregoing considerations.
(vii) Generally speaking, an admission of debt should be available and/ or the defense that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favor of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order 37 of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding-up petition."
11. What is the nature of disputes between the parties? In the present case, deposit of Rs. 18 lacs by the petitioner to the company is not disputed. Further, indubitably, as per the Clause 26 of the agreement entered into between the parties 4/5 license fee i.e. an amount of Rs. 14,40,000/- was to be refunded to the petitioner. The case of the company is that the petitioner has committed serious breaches of the agreement and on account of this the alleged breaches on the part of the petitioner the company lodged the claim of Rs. 1,29,12,839/-. Thus while there are disputes between the parties, the main claim of the company is towards damages which is yet to be adjudicated upon.
12. Learned Counsel for the petitioner had submitted that liability of refund of license fee upon elapsing of the agreement is absolute and unconditional and no lien can be put on the same. Merely by raising frivolous disputes, legitimate claim of the petitioner cannot be defeated. He further submitted that the claim of damages alleged by the company is to be proved in consonance with Section 73 of the Contract Act and referring to the judgment of the Supreme Court in the case of Union of India v. Raman Iron Foundry, reported as . It was argued that the company had no right or authority to appropriate the amounts of the pending bills of the contractor in or towards satisfaction of its claims for damages. He also relied upon the judgment of this Court in the case of NEPC India Ltd. v. Indian Airlines Ltd., reported as , in support of the proposition that where the debt is undisputed, the Court will not act upon a defense that the company has the ability to pay the debt, but the company chooses not to pay it. Therefore, his submission was that merely because the company boasts about the financial health is no ground not to entertain the petition.
13. Learned Counsel for the petitioner is right when he contends that it is not an actionable claim in view of provisions of Section 6(e) of the Transfer of Property Act. The respondent cannot predicate this claim, at this stage as conclusive. This claim can be crystallized as debt only when damages are found to be payable. These are yet to be adjudicated upon by the Arbitral Tribunal. On the other hand, it cannot be disputed that 3/4th of the license fee became payable upon elapsing of the agreement. May be, if the company ultimately succeeds and is awarded damages it could be more than the claim of the petitioner in this petition. However, the outcome of the arbitration proceedings where claim for damages of the company is pending, cannot be predicted or prefigured at this stage. There is also possible that the company is not able to establish any loss on account of purported breach on the part of the petitioner. Therefore, it would be appropriate to balance the equities by directing the company to deposit the amount in this Court. This direction would be in consonance with the practice adopted in such cases by the Courts.
14. This petition is accordingly disposed of with direction to the company to deposit the sum of Rs. 14,40,000/- with the Registrar General of this Court within a period of four weeks from today. The amount shall be kept in the fixed deposit and depending upon the outcome of the arbitration proceedings, appropriate orders can be passed by the Arbitrators as to how to deal with this amount.