Delhi High Court
Symphony Services Corp(India) Private ... vs M.G Flo2Go Technology Private Ltd on 6 December, 2013
Author: R.V. Easwar
Bench: R.V.Easwar
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 28th November, 2013
% Date of Decision: 6th December, 2013
+ CO.PET. 457/2010
SYMPHONY SERVICES CORP(INDIA) PRIVATE LTD
..... Petitioner
Through: Mr. Nikhil A. Menon, Adv.
versus
M.G FLO2GO TECHNOLOGY PRIVATE LTD..... Respondent
Through: Mr. Naveen Kumar and Mr. Ankit
Kumar, Advs.
CORAM:
HON'BLE MR. JUSTICE R.V.EASWAR
JUDGMENT
R.V. EASWAR, J.:
This is a petition filed by the petitioner under Section 433(e) of the Companies Act, 1956 seeking winding up of the respondent- company.
2. The petitioner is a private limited company providing software products, engineering outsourcing services to independent software vendors, software enabled businesses and companies whose products contain embedded software. It entered into a Master Services Agreement (MSA) with the respondent-company on 21.9.2009. Under the MSA, the petitioner agreed to provide commercial software Co.Pet.457/2010 Page 1 of 21 development for a product which the respondent-company intended to market. There are only three clauses of the MSA which need to be noticed. The first is clause 7.2 which provides for payment of invoices. According to this clause, the respondent shall pay all the undisputed amounts within 30 calendar days from the date of receipt of the invoice. In case of delay, interest at 1.5% per month will be charged and added to the outstanding unpaid amount. Clause 4 of the MSA provided for the payment of the fees by the respondent as set forth in Exhibit B to the MSA to be calculated on time and material/expenses based, using the man-month as the unit for the applicable month. Under clause 21.4 of the MSA any notice or other communication which had to be given by either party to the other side, shall be given to the addresses mentioned below the said clause. It is also necessary to refer to Exhibit A to the MSA which contains the "statement of work No.1". This exhibit provided for the scope of the software services and the deliverables and under the head "deliverables" described in detail the features of phase-I and phase-II.
3. In terms of the MSA, the petitioner raised and sent invoices to the respondent-company between 30.11.2009 and 1.7.2010 and copies of Co.Pet.457/2010 Page 2 of 21 these invoices have been filed at page 50 to 79 of the petition (annexure P-4 colly); the aggregate amount of the invoices came to Rs.1,43,30,815/-. The amount mentioned in the company petition as being due from the respondent-company is Rs.2,28,82,418/-, which includes the aggregate amount of the above invoices and the interest thereon in accordance with the terms of the MSA.
4. Since the amount of the invoices was not paid by the respondent- company, the petitioner sent an e-mail on 25.5.2010 to the respondent drawing its attention to the outstanding amount and requesting for payment by the end of the week. This mail is actually in response to the mail sent by the respondent-company on 5.5.2010 on the subject "outstanding payments". In this mail, Mr.Pradeep Shankar of the respondent-company regretted the delay in settling the outstanding payment to the petitioner on account of year end problems with the bankers and the annual audit of accounts and assured the petitioner that the dues will be cleared as soon as possible.
5. On 11.6.2010 the respondent-company sent a mail to the petitioner intimating that that there were some delay in getting certain credit facilities from the State Bank of Travancore which were to be Co.Pet.457/2010 Page 3 of 21 utilised for making the payment to the petitioner and assuring the petitioner that the overdue bills upto February, 2010 shall be paid initially and the subsequent bills shall be taken up for payment soon thereafter. The respondent-company also requested for waiver of the interest on the overdue bills. It was also requested that the petitioner should not stop providing the services with effect from 16.6.2010. In response to this e-mail, the petitioner wrote to the respondent-company on 14.6.2010 stating that the payments in respect of the invoices for November, 2009, January and February, 2010 should be made on or before 5 p.m. on 18.6.2010 and the payments in respect of the invoices for the months of March, April, and May, 2010 should be made on or before 5 p.m. on 25.6.2010 and upon payments being made as above, the question of waiving the interest may be considered. The petitioner also informed the respondent that on 25.6.2010, the respondent shall also pay security of one month. It was categorically stated by the petitioner that in case of any further delay in the payment schedule as stated above, it would be constrained to pursue "other options".
6. Since no payments were received from the respondent-company, on or before 18.6.2010, the petitioner wrote to the respondent-company Co.Pet.457/2010 Page 4 of 21 on 23.6.2010 pointing out to the lapse in meeting the first deadline for the payment and calling upon the respondent-company to pay the entire amount along with interest on or before 5.00 p.m. on 25.6.2010 and stated that in case payments were not received by the said date, the petitioner will cease working on all the activities pertaining to the deliverables.
7. Despite the aforesaid e-mail, it appears that the respondent- company did not make any payment by 5.p.m. on 25.6.2010. Therefore at 5.56 p.m. on 25.6.2010, the petitioner sent an e-mail to the respondent-company on the subject "non-payment of fees under the MSA". It was pointed out to the respondent that since the deadline had expired, there was no option left with it than to cease working with immediate effect on the following activities pertaining to the deliverables:-
Shutting down of the managed Flo2Go demo server located at the Symphony premises.
Stopping the analyses and related activities for the Phase-2 requirements Withholding of releases Withholding of source codes/executables Co.Pet.457/2010 Page 5 of 21 The software license purchased on behalf of Flo2Go will not be transferred to Flo2Go unless the payments are made over Re-deployment of the team from July 01, 2010 onwards.
8. On 7.7.2010 a legal notice was sent by the Advocates for the petitioner to the respondent-company. This was addressed to the registered office of the respondent-company at G-15, 5th Floor, Technopolis, Sector-54, Gurgaon, Haryana. This is the address to which the notices were to be sent in terms of clause 21.4 of the MSA. It was stated in this notice that since the respondent-company had failed to make payment of the amount of Rs.2,21,03,962.43, the same shall be paid with future interest at 1.5% per month on each of the relevant invoices till the date of payment and in case the amount is not so paid within 21 days from the date of receipt of the notice, proceedings for winding up will be initiated against the respondent-company under Section 433(e) and (f) of the Companies Act, 1956. The respondent- company was requested to treat the notice as a notice under Section 434 of the Act.
Co.Pet.457/2010 Page 6 of 21
9. The statutory notice was returned unserved on 12.7.2010, to the office of the petitioner. This is supported by the status report issued by the India Post in response to the complaint filed by the petitioner.
10. On 12.7.2010 the petitioner's advocate wrote an e-mail to the respondent-company stating that they had issued a legal notice by registered post A.D. on 7.7.2010 and attaching a scanned copy of the said notice to the e-mail and asked the respondent-company of confirm receipt of the same.
11. Since there was no response from the respondent-company to the e-mail, on 11.8.2010 the petitioner sent the statutory notice to the respondent-company at its registered office at Block-A, 500, ITL Towers, Netaji Subhash Place, New Delhi-110034. This was sent by speed post acknowledgement due. Reference was made to the earlier notice issued on 7.7.2010 to the address which was the address given in the MSA as the registered office of the respondent. It was further stated that since the petitioner later came to know that the registered office of the respondent-company, as per the website of the Registrar of Companies, is the address given as Block-A, 500, ITL Towers, Netaji Subhash Place, New Delhi-110034, the notice is being sent to the Co.Pet.457/2010 Page 7 of 21 respondent at that address. In the notice the petitioner called upon the respondent to make payment of Rs.2,24,29,426/- with further interest at 1.5.% per month within 21 days of the receipt of the notice failing which action would be taken to initiate winding up proceedings. The learned counsel for the petitioner has filed a copy of the company master data available in the website of the ROC to show that as per the details in the website, the registered office of the company is at Block-A, 500, ITL Towers, Netaji Subhash Place, New Delhi-110034. However, even this statutory notice sent to the address of the registered office of the respondent-company, as shown in the website of the ROC was returned unserved with the postal remark "left without address" on 17.8.2010. A copy of the envelope along with the postal remark endorsed therein has been placed as Annexure P-15 of the company petition.
12. In the above circumstances the petitioner has filed the present petition under Section 433(e) of the Companies Act, 1956 on 21.10.2010.
13. It was pointed out at the outset by the learned counsel for the petitioner that the respondent-company has not complied with the Co.Pet.457/2010 Page 8 of 21 directions of this Court issued on 1.11.2010. These directions are as follows:-
"1. Name and addresses of the Directors of the respondent- company.
2. Location and place where statutory records and books of account of the respondent company are kept.
3. Details of immovable assets and their location along with details of secured creditors.
4. Whether they are filing annual returns and the balance sheets with the Registrar of Companies and with the Income Tax Department. The Income Tax circle and Pan Card number of the respondent company will be stated
5.The details of bank accounts of the respondent company."
14. On 8.2.2011 on the basis of an affidavit of service filed by the petitioner stating that at the address of the respondent mentioned in the company petition, the respondent-company could not be found, this Court directed service of notice at the e-mail address of the respondent mentioned in the master data obtained from the website of the ROC. The petitioner was also given liberty to file an application for substituted service under Order 5 Rule 20 of the CPC.
15. It would appear that initially before the Registrar on 16.8.2011 the petitioner took time to seek instructions whether the winding up petition Co.Pet.457/2010 Page 9 of 21 should be pressed or not. On 26.8.2011, however, the learned counsel for the petitioner submitted before this Court that he has instructions to press the winding up petition. Since this was contrary to the earlier stance taken by the petitioner before the Registrar on 16.8.2011, this Court directed the petitioner to file an affidavit explaining the change of stance. Accordingly, an additional affidavit was filed before this Court by the petitioner. On 2.12.2011, this Court found that the petitioner has given sufficient reasons for the change of stance and accordingly directed the respondent to file its reply to the main petition within six weeks. Accordingly the respondent filed its reply.
16. The learned counsel for the petitioner submitted, on the question of service of notice under Section 434(1)(a) on the respondent-company at its registered office, that since the respondent did not inform the petitioner about the change, if any, of its registered office, the service of the notice at the registered office as mentioned in the website of the ROC was proper service. In support of this contention reliance was placed on the judgment of this Court in Hotline Teletubes & Components Ltd. vs. A.S. Impex Ltd. (2004) 119 Comp. Cas. 98. In this case the statutory notice was sent by the petitioner to the respondent at Co.Pet.457/2010 Page 10 of 21 the address of the registered office. But in the meantime, the respondent changed the registered office and therefore the statutory notice could not be served on the respondent. This Court found that the intimation about the change of address was filed with the ROC on 7.11.2001. The statutory notice was sent by the petitioner before the said date. The respondent did not also inform the petitioner about the change of the registered office. The petitioner could not therefore have had any knowledge about the change in the official records. In these circumstances this Court held that sending notices by the petitioner at the registered office of the respondent in terms of the official records has to be held to be legal and valid and the winding up proceedings could not be held to be not maintainable due to non-service of the notice on the respondent-company at its registered office. The case of the petitioner before me stands on a better footing than the cited case. Herein, the first notice was sent by the petitioner to the registered office of the respondent at the address shown in the MSA. This notice was returned undelivered to the respondent. The second notice dated 11.8.2010 was however sent to the registered office of the respondent as shown in the website of the ROC. Thus the petitioner did send the notice Co.Pet.457/2010 Page 11 of 21 to the proper address of the registered office. However even this notice was not served but was returned to the petitioner with the postal remark "left without address". In these circumstances there is no violation of the provisions of Section 434(1)(a) of the Act.
17. The learned counsel for the petitioner contended that the debt is admitted by the respondent-company in the e-mails to which reference has been made earlier and that despite acknowledging the debt and even seeking time to pay the same, the same was not cleared. It is submitted that this is a clear case of inability of the company to pay the debts. My attention was drawn to the judgments of the Supreme Court in M/s Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd. (1971) 3 SCC 632 & The Pradeshiya Industrial and Investment Corporation of Uttar Pradesh vs. North India Petro Chemical Ltd. (1994) 3SCC 348. The learned counsel for the petitioner also drew my attention to clause 21.6 of the MSA which provided for "dispute resolution" and submitted that the existence of this clause is not an impediment to the winding up proceedings as held by this Court in Prime Century City Developments Pvt. Ltd. vs. Ansal Buildwell Ltd. (2003) 113 Comp. Cas. 68 and a judgment of the Supreme Court in Co.Pet.457/2010 Page 12 of 21 Haryana Telecom Ltd. vs. Sterlite Industries (India) Ltd. (1999) 5SCC
688.
18. The learned counsel for the respondent submitted as follows:-
(a) The petition raises issues which are based on disputed facts and therefore the matter should be thrashed out in a civil court and the company court is not the proper forum. The dispute is whether the petitioner rendered any work or services to the respondent at all. A sum of Rs.73.14 lacs was paid to the petitioner for which no work was done. This is also not denied in the rejoinder. My attention is drawn to the e-mail in Annexure A to the counter-
affidavit as also to paragraph 3 of the counter affidavit.
(b) The existence of a "dispute resolution" clause in the MSA bars the continuance of the winding up proceedings.
(c) The winding up proceedings is not a means of recovering the debt as held by the Supreme Court in M/s Madhusudan (supra) and Mediquip Systems (P) Ltd. vs. Proxima Medical System GMBH (2005) 7 SCC 42. Moreover if the defence is bonafide, and not mere moonshine, the winding up proceedings shall not be allowed to be proceeded with.
Co.Pet.457/2010 Page 13 of 21
(d) Since the petitioner did not deliver any software or any product to the respondent-company, the business of the respondent, which was a start-up company and whose continuance in business was dependent upon the software/product to be supplied by the petitioner, could not take off, forcing the respondent out of business. My attention was drawn to Annexures F, G & I to the counter affidavit to demonstrate how the respondent's business had suffered because of the failure of the petitioner to deliver any product/software.
(e) The service of notice on the registered office of the respondent is a matter which is seriously disputed. The postman who made the endorsement on the undelivered envelope to the effect "left without address", needs to be cross-examined by the respondent in order to establish the authenticity and the correctness of the endorsement.
19. In his rejoinder, the learned counsel for the petitioner submitted as follows:-
(a) The defence that the petitioner did not deliver any software/product or did not do any work for the respondent Co.Pet.457/2010 Page 14 of 21 was not taken at any earlier point of time and is therefore an afterthought.
(b) The work was to be done by the petitioner in phases. The first phase of the work was being rendered and the petitioner and the respondent were in discussion with regard to the same.
The phase-II was not reached at all so that any products/software could be given to the respondent. My attention was drawn to the e-mail sent by the petitioner to the respondent on 5.56 p.m. on 25.6.2010 which showed the nature and type of work done by the petitioner.
(c) If the respondent had at any earlier point of time believed that the petitioner had not done any work for it, there were good grounds to file a suit against the petitioner for specific performance. The respondent did not do so and did not avail of any statutory remedies against the petitioner. Even after receipt of invoices there was no protest by the respondent and in fact it had sought time to make the payment and had also made a request for waiver of interest.
Co.Pet.457/2010 Page 15 of 21
(d) So far as the payment of Rs.73.14 lacs is concerned there are no details in annexure E of the counter affidavit to show how much was paid to the petitioner.
20. On a careful consideration of the facts in the light of the rival contentions, I am of the view that the winding up petition should be admitted. From what has been stated above, it is clear that though the petitioner sent the statutory notice under Section 434(1)(a) of the Act to the registered office of the respondent-company, the latter was not available at the address. The notice was therefore returned unserved with the postal remark "left without address". The judgment of this Court in the case of Hotline Teletubes and Components Ltd. vs. A.S. Impex Ltd.(supra) is in favour of the petitioner in as much as it was laid down therein that the sending of the notices by the petitioner at the registered office of the respondent-company in terms of the official record (i.e. website of the ROC) has to be held to be legal and valid. I therefore hold that there was proper service of the statutory notice on the respondent.
21. The debt is also admitted as seen from the several e-mails written by the respondent-company to the petitioner, to which reference has Co.Pet.457/2010 Page 16 of 21 been made earlier. The respondent-company was actually seeking time and a schedule of payments was also intimated by the petitioner. The respondent requested the petitioner to waive the interest, which the petitioner had agreed to consider provided the payment is made as per the schedule. The debt is therefore acknowledged. So far as the inability to pay the debt is concerned, the respondent has defaulted in making the payment as requested by the petitioner. The petitioner had also offered to accept payment in two tranches. The respondent- company could not pay the amount despite this. This is a clear case of inability to pay the debts.
22. The defence that the service of the statutory notice is disputed and that the postman has to be cross-examined to establish the authenticity and correctness of the postal endorsement is frivolous. Once the statutory notice is dispatched to the registered office of the company as per the website of the ROC and the same is returned unserved with the postal remark "left without address", it is not open to the respondent to contend that the service of the notice is disputed. The endorsement made by the postman in the normal course of his duties cannot be called in question, as he is a servant of the government and has no axe to grind. Co.Pet.457/2010 Page 17 of 21 In the light of the authority of this Court cited by the learned counsel for the petitioner, this is no defence at all.
23. The defence that the petitioner did not work and did not supply any product/software to the respondent is an afterthought and is not bona fide taken. The scope of work is set out in Exhibit A to the MSA. It consists of services and deliverables. So far as the deliverables are concerned, the items listed in Exhibit A under the head "deliverables" are to be supplied in two phases. Before these phases are reached, there is some preliminary work to be done. I have gone through Annexures A to D to the counter affidavit filed by the respondent. It consists of a chain of e-mails exchanged between the petitioner and the respondent. These e-mails show that both the petitioner and the respondents were trying out the work done by the petitioner and trying to sort out the glitches in its application. Several suggestions are seen to have been made both by the petitioner and the respondent as to how those glitches can be removed. Several alternatives, options and technologies are seen to have been discussed between the petitioner and the respondent in order to sort out the problems faced at the preliminary work stages. There is no allegation or accusation in these e-mails that no work has Co.Pet.457/2010 Page 18 of 21 been carried out by the petitioner. In fact it cannot be so, because both the sides were discussing the means by which the problems and teething troubles could be solved. These e-mails therefore do not at all support the contention of the leaned counsel for the respondent that no work was done by the petitioner. The question of delivering any product/software would arise only after the preliminary work is done and phase-II is reached. As pointed out on behalf of the petitioner, phase-II was not reached at all and therefore there was no question of delivery of any product/software.
24. In any case, one would have expected this defence, if true, to be taken by the respondent at the earliest point of time, when the invoices were presented by the petitioner for payment in accordance with the terms of the MSA. To a query by me as to why such an objection was not taken on the receipt of invoices by the respondent-company, the learned counsel for the respondent-company simply answered that no objection was raised. No reasons or explanation were given as to why such a defence was not taken at the earliest point of time. The contention that this defence taken in the counter affidavit for the first time was not denied by the petitioner in its rejoinder is of little Co.Pet.457/2010 Page 19 of 21 relevance. Only when it is proved by the respondent-company that this defence is not an afterthought and was taken at the earliest opportunity, can it rely on the fact that the allegation is not denied by the petitioner in its rejoinder. I therefore do not see any force in the defence which appears to me to be one of despair.
25. The learned counsel for the respondent drew my attention to Madhusudan Gordhandas & Co (supra) where in paragraph 20 it has been observed that a petition for winding-up by a creditor who claimed payment of an agreed sum for work done for the company cannot be allowed when the company contends that the work had not been done properly. The difficulty in applying this principle to the present case is that, on the facts herein, it cannot be said that the petitioner did not do any work for the respondent. I have already referred to the e-mails in Annexure A to E to the counter-affidavit. Secondly, if any work had been done by the petitioner and invoices are raised, certainly at that point of time and on receipt of the invoices, the respondent would have strongly objected to the invoices and refused to pay the same on the ground that no work was done justifying the payment. Such an objection or stand was not taken by the respondent-company in the Co.Pet.457/2010 Page 20 of 21 present case; on the contrary, it took time for making the payments and also sought waiver of the interest. This shows that the petitioner had done its work as per the MSA. In the absence of any objection on the ground that no work was done by the petitioner, the contention cannot be accepted.
26. For the above reasons the company petition is admitted.
List for further proceedings on 6th March, 2014.
(R.V. EASWAR) JUDGE December 06, 2013 Bisht Co.Pet.457/2010 Page 21 of 21