Delhi High Court
Guangdong Fuwa Engineering ... vs Ang Auto Limited on 15 November, 2010
Author: Sudershan Kumar Misra
Bench: Sudershan Kumar Misra
IN THE HIGH COURT OF DELHI AT NEW DELHI
COMPANY JURISDICTION
COMPANY PETITION NO. 409 OF 2009
Reserved on: 16-08-2010
Date of pronouncement : 15-11-2010
Guangdong Fuwa Engineering Manufacturing Co. Ltd.
...........Petitioner
Through : Mr. Manoj K. Singh and Mr. Nilava
Banerjee, Advocates
Versus
ANG Auto Limited
.........Respondent
Through : Mr. Arun Bhardwaj, Sr. Advocate,
Mr. Arvind Biswal, Mr. D.K.Thakur,
Mr. N.N.Aggarwal & Mr. Aashish
Mahajan, Advocates
CORAM :
HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA
1. Whether Reporters of local papers may be allowed to see the
judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
SUDERSHAN KUMAR MISRA, J.
1. This petition under S.433(e) and 434 of the Companies Act, 1956 for the winding up of M/s ANG Auto Ltd. (hereinafter referred to as the "respondent") has been filed by M/s Guangdong Fuwa Engineering Manufacturing Ltd. (hereinafter referred to as the "petitioner") on the ground that an amount of USD 582,095.40 is due and payable by the respondent to the petitioner. CA No. 1262/2009 CP No. 409 of 2009 Page 1 of 14 has also been filed by the petitioner, praying for the appointment of a provisional liquidator.
2. The respondent is a public company limited by shares and is incorporated under the Companies Act, 1956. The registered office of the respondent company is within the jurisdiction of this Court. The respondent is stated to be in the business of assembling and manufacturing various automobile components.
3. The petitioner is a company registered in Guangdong, China, and is stated to be a manufacturer and supplier of automobile components.
4. According to the petitioner, the parties executed an Exclusive Collaboration Agreement (hereinafter referred to as the "Agreement") on 21st May, 2005, whereby the petitioner was to supply certain goods to the respondent on the terms contained therein. The duration of the Agreement was for an initial period of 5 years. As per the Agreement, the petitioner had to exclusively supply its products in India to the respondent, and to no other buyer, company or individual, either directly or indirectly, for export from or usage in India. Further, Article 2 of the Agreement, which governed supply and purchase, stipulated that the payment for the goods supplied by the petitioner was to be according to the prices determined in accordance with, and subject to, the terms and conditions of the purchase orders placed from time to time by the respondent with the petitioner. Provisions for the termination of the Agreement were also specified in Article 7 thereof.
CP No. 409 of 2009 Page 2 of 14
5. By a letter dated 18th December, 2007, addressed to the Managing Director of the respondent, the petitioner terminated the Agreement with effect from 1st January, 2008 due to, "non performance of ANG‟s agreement of purchase of Fuwa‟s products over the last three years". However, by the same letter, the petitioner offered, "exclusivity of the proprietary design of AX 30/20 Axle Tube to ANG Group", but, "withdrew all exclusivity of Fuwa‟s products".
6. Admittedly, even after the termination of the Agreement by the petitioner, as aforementioned, the respondent continued to place purchase orders with the petitioner. The petitioner supplied the goods in respect of these purchase orders, which fact is not disputed by the respondent. Invoices were raised by the petitioner in respect of these goods, with a specific term contained therein that the respondent was required to make the payment for those goods within 75 days of the date of issue of each invoice. The details of the invoices are as under :
S.No Invoice Date of Due Date Amount due
Number Invoice (in USD)
1. FW080224 16th April, 2008 30th June, 139,120.00
2008
2. FW080214 17th April, 2008 1st July, 79,131.00
2008
3. FW080256 30th April, 2008 14th July, 171,524.40
2008
4. FW080277 7th May, 2008 21st July, 148,691.00
2008
CP No. 409 of 2009 Page 3 of 14
5. FW080308 21st May, 2008 4th August, 122,760.00
2008
The total amount due on these invoices comes to USD 661, 226.40. On 18th July, 2008, the petitioner sent a statement of account to the respondent showing this amount as due from it.
7. Repeated emails were sent by the petitioner to the respondent in respect of the aforesaid amount, copies of which have been placed on record. In response to the petitioner‟s email dated 6th August, 2008, which mentioned the overdue balance due to the petitioner as being USD 661, 226.4, the respondent categorically stated on 17th August, 2008 that;
"Dear Mingming, I have spoken to my bank and they informed us that all the payments mentioned in your list would be done roughly in the next ten days time.
Please bear with us till then.
Thanks Nidhi"
8. Thereafter, on 21st August, 2008, payment of an amount of USD 79,131 was admittedly made by the respondent in respect of Invoice No.FW080214 dated 17th April, 2008, i.e. at S.No.2 of the abovementioned table, leaving a balance of USD 582,095.40 payable to the petitioner. In this context, and on the same day, the respondent had sent the following email to the petitioner;
"Dear Mingming, CP No. 409 of 2009 Page 4 of 14 We have already made the payment of USD 79131=00 today.
Regarding other payments, you will have to wait for another 6-8 weeks as there is hue recession in the market worldwide.
Therefore, we request you to kindly bear with us for a few more weeks.
Thanks Nidhi"
9. The petitioner sent another email on 25th August, 2008, stating that it was unable to accept a further delay in payment, and requested the respondent to clear the outstanding payment as soon as possible. To this, respondent replied on the same day, stating "...Donot worry yr money is totally safe."
10. Ultimately, since no payment was forthcoming, the petitioner sent a communication dated 8th October, 2008, which stated as follows:
"Dear Mr. Premjit Singh, With reference to the overdue payment owed to Fuwa amount USD $ 582,095.40 since July 3, 2008. For our years of relationship, we have tolerated 3 months delay by now although with repeated reminders from Fuwa and numerous commitments made from ANG. Now, the dragging of the overdue payment has offended the People's Republic of China's Foreign Exchange Regulations. Therefore, we request ANG to settle the outstanding balance amount of USD $ 582,095.40 within 10 days from this letter. If not, we will seek all legal means and will exhaust all possible avenues to recover the long overdue payment.
An immediate and positive action is required!!!!"CP No. 409 of 2009 Page 5 of 14
11. In response to the aforesaid communication dated 8th October, 2008, the respondent sent an email on 25 th, October, 2008, stating, inter alia, as follows:
"To solve this issue, we request you to issue us a Credit Note @5% on all payments made to you amounting to USD 274607=21 and also a credit Note for USD 109900=00 for the 785 defective beams supplied by you. We can also deliver these beams at actual cost i.e. C&F plus expenses and duties paid to any of your dealers who were appointed illegally by you during the pendency of our exclusive contract The above would resolve all issues rather than going in any legal issues.
The balance payments after issue of these Credit Notes, would be made immediately once we receive these credit notes."
12. Thereafter, petitioner issued a notice of demand dated 28 th November, 2008 for the recovery of USD 582,095.40, stating, inter alia, that the respondent‟s allegations of unfair practices were false and that the respondent had never previously objected to the quality of the components/goods supplied by the petitioner. The petitioner further categorically stated that the respondent‟s proposal of issue of Credit Notes was unacceptable to it.
13. To this notice of demand, the respondent replied on 7 th January, 2009, stating, inter alia, as follows;
"In reply to the contents of para No.10 of your notice, it is submitted that my client is still prepared to make the payment of the outstanding dues subject to the adjustment, setoff and discounts as claimed by my client in the correspondence exchanged between the parties i.e. of USD 384,507.21, however it is your client who is trying to extract the amount which is not legally due to it."CP No. 409 of 2009 Page 6 of 14
14. The petitioner then issued a statutory notice of winding up dated 5th March, 2009 under Sections 433 and 434 of the Companies Act, 1956 for recovery of the aforesaid amount of USD 582, 095.40 from the respondent. In its reply dated 27th March, 2009, the respondent referred to its earlier communication dated 7 th January, 2009 and stated, inter alia, that in view of the serious disputes and differences that had arisen between the parties, the matter be referred to arbitration as per Article 9 of the Exclusive Supply Agreement dated 21st May, 2005. To this, the petitioner responded via a communication dated 25th April, 2009, stating that it had been made clear after the termination of the Agreement vide letter dated 18th December, 2007 that all future business transactions between the parties would be individual transactions and would not be administered by the Agreement, and therefore, disputes in respect of the goods supplied by the petitioner after 1st January, 2008 were beyond the ambit of the arbitration clause in the Agreement.
15. Ultimately, this winding up petition was filed on 23 rd September, 2009, predicated on the non-payment by the respondent of the aforesaid USD 582, 095.40. Reply and rejoinder to the petition have been filed.
16. The respondent‟s preliminary contention that this Court has no jurisdiction to entertain this petition and that it should be dismissed due to the pendency of a civil suit whose subject matter is identical to that of the present proceedings and also because the respondent has invoked arbitration in that suit, has no force for the reason that the issue before this Court in exercise of company CP No. 409 of 2009 Page 7 of 14 jurisdiction is whether the respondent company ought to be wound up or not, which issue is not available either to the Civil Court or to the arbitrator for decision. The issue of whether the pendency of a civil suit or arbitration would bar winding up proceedings is no longer res integra. See, Resham Singh & Co. Pvt. Ltd. Vs. Daewoo Motors India Ltd., (2003) 116 Comp. Cases 529(Del.).
17. The other defence raised by the respondent is that some of the goods supplied by the petitioner were not as per specifications. However, the respondent raised allegations regarding the supply of defective goods by the petitioner, as well as allegations of a possible breach of the Exclusive Supply Agreement by the petitioner for the first time in its letter dated 25th October, 2008. The respondent stated therein that it, "took strong objections", to some goods allegedly being sold in the open market by the petitioner to third parties and that it had, "detected various defects and short comings in the products supplied", by the petitioner, which were, "brought to the knowledge of FUWA", as soon as they were noticed. These allegations have been reiterated by the respondent in the reply to the petition.
18. It was put to counsel for the respondent that if indeed there were disputes with regard to the quality, or the specifications, of the goods supplied by the petitioner, because of which the respondent is allegedly owed USD 384,507, then there was no reason for the respondent to issue a specific acknowledgment of liability thrice, i.e. on 18th August, 2008, 21st August, 2008 and yet again on 25th August, 2008. Admittedly, the first communication claiming that the respondent was entitled to receive certain payments on the account of CP No. 409 of 2009 Page 8 of 14 supply of defective goods was sent by the respondent only on 25 th October, 2008. Except from claiming USD 384, 507.21, no further particulars or proof of any demands for payment that were raised either contemporaneously, or at the relevant time, on the petitioner by the respondent, in respect of the aforesaid amount, have been placed on record by the respondent. Apart from stating that his client objected to the petitioner‟s demands on 25th October, 2008, as aforesaid, the respondent‟s counsel had nothing further to say on this aspect.
19. Counsel for the respondent also sought to assail the termination of the Agreement, submitting that his client had not agreed to the same and that the petitioner‟s letter dated 18 th December, 2007 did not bind his client because it was written in violation of the principal contract between the parties, i.e. the Exclusive Supply Agreement dated 21st May, 2005, which stipulated that either party was obliged to terminate the Agreement at least 90 days before the expiry of the Agreement. Two communications dated 18th January, 2008 and 14th July, 2008 have been annexed to the reply, in support of this contention.
20. In the email dated 18th January, 2008, the respondent stated, inter alia, as follows;
"2. Regarding the Exclusive Agreement, our board has not approved the termination of our agreement as we see no reason to do this. Therefore, we request you to continue this exclusive arrangement till the time mentioned in the afreement as you would appreciate that inspite of your not maintaining the exclusivity clause, by supplying material to KKTC and some other people also, who are very minor CP No. 409 of 2009 Page 9 of 14 players as compared to us, we still want to continue with the Agreement."
It is significant that there is no mention of any defective goods being supplied by the petitioner in the aforesaid communication.
21. Another communication dated 14th July, 2008 was sent by the respondent to the petitioner, stating as follows;
"Dear Amy We had a Board Meeting last week and our management had agreed to your request of signing off the exclusivity clause of our Agreement on my insistence. However, I would like to continue business with Brother Woo and you, as my daughter, on a continuous basis.
Kindly send us your request so that we can release you from exclusivity, with immediate effect.
Thanking You & With Kindest regards K.S. Chadha"
22. The Agreement was, admittedly, for a duration of five years. Since it was executed on 21st May, 2005, it should have, therefore, ended on 20th May, 2010. Article 7.2 thereof is reproduced as under;
"7.2 Termination. This Agreement may be terminated only in accordance with the following provisions:
7.2.1 This Agreement may be terminated at any time upon the mutual written consent of the parties hereto; or 7.2.2 Written notice to be given by one party to the other party of its desire not to renew the agreement, atleast ninety (90) days prior to the expiration of the initial term of agreement or any renewal term of the agreement."CP No. 409 of 2009 Page 10 of 14
23. There were two ways in which the Agreement could be terminated. The first method was by the mutual written consent of both the parties at any time, which is admittedly not the case here. The second method was by written notice given by one party to the other of its desire to terminate the Agreement, at least 90 days prior to the expiry of the initial term. Since the contract was to expire on 20th May, 2010, the petitioner‟s letter dated 18th December, 2007 was, clearly, sent much more than 90 days prior to the expiry of the Agreement. There is no mention of any acceptance required by the other party to effectuate the termination. Significantly, the respondent continued to place purchase orders with the petitioner. The invoices in question are in respect of goods which were supplied between April 2008 - May 2008, and on 17th August, 2008, the respondent clearly stated, without reservation, that a sum of USD 661, 226.40, demanded by the petitioner against these invoices, would be paid, "roughly in the next ten days‟ time", and even went ahead and paid USD 79, 131 on that account on 21 st August, 2008. The respondent‟s conduct only demonstrates that the Agreement either continued between the parties subject to the variation introduced by the petitioner‟s aforesaid letter dated 18 th December, 2007 or, in any case, a fresh contract came into existence between the parties which did not have any such exclusivity clause in favour of the respondent. For all the above reasons, I do not find force in this contention of the respondent either.
24. Significantly, counsel for the petitioner also submitted at the Bar that, even if it were assumed for the sake of argument, CP No. 409 of 2009 Page 11 of 14 without admitting any liability on behalf of the petitioner, that the respondent was entitled to the amount claimed, a balance amount of USD 197,588.19 was still due to the petitioner out of the total amount claimed. This has not been refuted.
25. From the pleadings, the following facts emerge: The respondent raised no dispute to the statement of account dated 18 th July, 2008 issued by the petitioner. On the contrary, it sent a number of emails to the petitioner in the month of August 2008, acknowledging its liability to pay while assuring the petitioner that the payment would be forthcoming. In all those emails, which have been reproduced above, the respondent made no mention of any defect in the goods supplied by the petitioner nor did it call upon the petitioner to explain any business dealings with third parties which, according to the respondent, could have constituted a breach of the Agreement. These points were raised, admittedly, for the first time by the respondent only on 25th October, 2008, a considerable time after the goods were supplied by the petitioner; its liability to pay for them duly communicated; and after payment in respect of one invoice mentioned in the statement of account had also been made, by the respondent.
26. Ordinary commercial prudence requires a party engaged in business transactions to be vigilant and prompt in its dealings, since, in the absence of the same, adverse conclusions can be legitimately drawn based on the conduct of that party. If the respondent was unsatisfied with the quality of the goods supplied by the petitioner, it would not have continued business dealings with the petitioner, by way of placing further orders and thereafter acknowledging its liability CP No. 409 of 2009 Page 12 of 14 to the amount demanded. In my view, the respondent has been unable to establish to the satisfaction of this Court that the defence taken is a genuine one. There is a clear acknowledgment of liability to make payments in its emails dated 17th August, 2008, 21st August, 2008 and 25th August, 2008, which constitute an admission of debt by the respondent with regard to the amount claimed by the petitioner in the statement of account. Nothing the respondent has said has been able to displace this fact or to persuade this Court that a genuine, bona fide dispute exists with regard to this debt. Furthermore, even by its own admission, the respondent owes at least USD 197, 588.19 to the petitioner.
27. After conclusion of arguments by both sides, on 6th August, 2010, counsel for the respondent was granted a short adjournment to explore a settlement with the petitioner and to take further instructions in this regard from his client, and the matter was posted for 16th August, 2010. On 16th August, 2010, counsel informed this Court that no settlement was possible, consequently, orders were reserved.
28. The petition is, therefore, admitted. The citations be published in the Delhi editions of the newspapers „Statesman‟ (English) and „Veer Arjun‟ (Hindi), as well as in the Delhi Gazette, returnable on 20th January, 2011. The cost of publication is to be borne by the petitioner.
29. The Official Liquidator, attached to this Court, is appointed as the Provisional Liquidator. He is directed to take over all the assets, books of accounts and records of the company forthwith. The CP No. 409 of 2009 Page 13 of 14 Official Liquidator shall also prepare a complete inventory of all the assets of the respondent company when the same are taken over and before the premises in which they are kept are sealed by him. He may also seek the assistance of a valuer to value the assets at the same time, to facilitate the process of winding up. He is permitted to take the assistance of the local police authorities if required.
30. The ex-Managing Director, other directors, Company Secretary and other principal officers of the company to furnish a complete statement of affairs within 21 days in terms of the Companies Act to the Official Liquidator.
31. A status report be filed before the next date.
32. Re-notify on 28th January, 2011.
33. A copy of this order be given Dasti to counsel for the Official Liquidator under the signatures of Court Master. Co. Appln. No. 1262/2009 in CP NO. 409/2009
34. By a separate order passed today in CP No. 409/2009, the winding up petition has been admitted and the Official Liquidator attached to this Court has been appointed as the provisional liquidator of the company. No further orders are required to be passed on this application which is rendered infructuous and the same is disposed of as such.
SUDERSHAN KUMAR MISRA, J.
November 15, 2010.
CP No. 409 of 2009 Page 14 of 14