Gujarat High Court
Oswal Machinery Ltd vs Pipavav Shipyard Ltd on 9 March, 2012
Author: K.M.Thaker
Bench: K.M.Thaker
COMP/170/2010 1/31 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION No. 170 of 2010
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OSWAL MACHINERY LTD Petitioner(s)
Versus
PIPAVAV SHIPYARD LTD Respondent(s)
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Appearance :
MR ASHWIN L SHAH for Petitioner(s) : 1,
NANAVATI ASSOCIATES for Respondent(s) : 1,
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CORAM : HONOURABLE MR.JUSTICE K.M.THAKER
Date : 09/03/2012
ORAL ORDER
1. The petitioner company has taken out present petition under Sections 433 and 434 of the Companies Act seeking below mentioned relief and order against the respondent company:
"(a) Pipavav Shipyard Ltd. be ordered to be wound up under the provisions of the Companies Act, 1956;
(b) The Official Liquidator attached to the Hon'ble High Court be appointed as the Liquidator of the respondent company;"
2. So as to support and justify the orders and directions as prayed for, the petitioner has stated, inter alia, that:
"4. The respondent had approached the petitioner for repairs and overhauling of 2 nos. Gantry cranes purchased by the Respondent from third parties which cranes were parked in its open yard erected, for several years under the vagaries of nature without any protection against rain, sun, storm, etc. At that time, the said cranes were not in operation at all.
6. In response to the said quotation of the Petitioner, the Respondent had issued a Letter of Intent (LOI) dated 3 rd December, 2007 to the COMP/170/2010 2/31 ORDER Petitioner for 7 (seven) out of 12 (twelve) operational aspects identified and quoted by the Petitioner in the above quotation submitted by it to the Respondent clearly quoting the specific item rate for each of the above 7 items. The total amount of all these items came to Rs.14,24,000/ excluding various levies like excise duty, VAT, service tax, etc. to the extent they were leviable for which the said LOI provided a sum of Rs.1,12,640/. It also provided for a sum of Rs.1,08,620/ towards the labour cost of erection and commissioning of the said equipments. The aggregate of all these amounts came to Rs.16,44,666/......... The work of erection and commissioning of the equipments was beyond the scope of the item rate contract. However, it was mutually agreed to be paid by the Respondent to the Petitioner calculated on the basis of the mandays likely to be involved in it. The petitioner agreed to carry out the said work only by way of a good gesture with the hope of having long term business relations with the Respondent. The above amount was only by way of reimbursement of the actual labour cost that may be incurred in erection and commissioning of the said equipments. The petitioner was not to get any amount by way of consideration for getting the said equipments erected and commissioned. Thereafter, the petitioner carried out certain aspects of the said item work contract like dismantling 2 cranes, repacking parts, assemblies, etc. at the Respondent site.............After repairs and overhauling of the said materials, the Respondent's inspection team consisting of two persons visited the works of the petitioner in midFebruary 2008 and stayed there for 5 days and supervised each and every aspect of repairs, overhaul and replacement etc. as per the LOI and expressed their satisfaction in that connection and approved the same for dispatch to the Respondent's site. Thereafter only, the said materials were dispatched to the Respondent's site. The entire rate contract work could have been completed within the time limit but for the respondent intervention for inspection as above which was not necessary.
12. In view of the above facts and circumstances, it is submitted that the Respondent has failed and neglected to pay the amount due to the Petitioner in spite of the above referred statutory notice and as such is presumed to be unable to pay its debts under Section 434 of the Act. Even otherwise, it is not able to pay its debts. For all this, it is liable to be wound up by an order of the Hon'ble Court under the provisions of the Act."
3. After issuing and serving, at the registered office of the respondent company, statutory notice in compliance of Section 433 read with Section 434 of the Act, the petitioner has preferred present petition for the reasons and on the grounds stated in the petition, some of which are extracted hereinabove. It is necessary to note that the statutory notice was replied by the respondent vide its response dated 04.05.2010.
COMP/170/2010 3/31 ORDER
4. In response to the notice issued under the order passed by the Court after hearing the petitioner the respondent company entered appearance and resisted the petition by filing reply affidavit. In its reply affidavit the respondent company has, while dealing with the assertions and allegations of the petitioner company, stated, inter alia, that:
12. ........the respondent was desirous of getting repair, erection and commissioning of Gantry cranes - 2 nos., which were lying unused at its factory premises. The prime concern of the respondent was to bring to use the said cranes for its manufacturing activities. On the other hand, the petitioner was desirous of starting business relations with the respondent, as the respondent company enjoys good name and fame in the market of shipbuilding. Accordingly, after discussions, the respondent company placed a LOI envisaging the exact details of work to be undertaken by the petitioner, which was agreed and accepted by the petitioner without any dispute or demur. The LOI clearly envisaged the job description which was "repair and erection and commissioning" of the cranes. It is empathetically submitted that the prime object of the respondent was to put the cranes in use, and therefore, the work of erection and commissioning of the cranes was as important and integral part of LOI as that of the work of repairs. The petitioner had agreed to undertake the job which was clearly described in the LOI. It is submitted that as per LOI, the petitioner was supposed to complete the work of first crane within 6 weeks from the date of start of the work and thereafter, the second crane in 2 weeks. Therefore, time was the essence of the contract, as the functioning of the cranes had direct nexus with the manufacturing activities of the respondent Company.
14. It is further submitted that in its letter dated 4.5.2010, the respondent had stated that though after carrying out the repairs, it was incumbent upon the petitioner to depute service engineers at the site of the respondent company to complete the remaining work and to make the cranes commissioned and operational but the petitioner miserably failed in doing so. It was also informed that power supply was never restricted and/or refused or not made available to the petitioner. As a manner of fact, since the petitioner did not carry out proper repairs of the cranes and did not bring the same to operational state, the respondent company had to get the incomplete work completed by appointing other agency named Hebenkraft, to which, the respondent company had to pay an amount of approximately Rs.23,00,000/ excluding taxes for the work, which otherwise was to be completed by the petitioner."
5. Subsequently the respondent company filed additional affidavit, particularly to place on record certain documents and COMP/170/2010 4/31 ORDER details in support of the factual aspects mentioned in its earlier affidavit. In para 2 of the said additional affidavit the respondent company mentioned that:
"2. I state that I am filing the present affidavit only for the limited purpose of placing on record of the petition the documents related to the entrustment of work of repair and erection of two Gantry cranes to a third party viz. M/s. Hebankraft, Thane, Maharashtra. The said work was required to be entrusted to the said agency, as the petitioner, who was entrusted the said work, did not complete the work of repairs, erection and commissioning of the cranes successfully and to the satisfaction of the respondent."
6. The petitioner, thereafter, filed a composite affidavit in rejoinder dealing with the two affidavits filed by the respondent. Thereafter also further affidavits, additional affidavits and rejoinders have been filed by the contesting parties.
7. Mr. A.L.Shah, learned counsel has appeared for the petitioner company and submitted, inter alia, that the respondent company had approached the petitioner company for getting certain work executed. The petitioner company had, in response to the inquiry, forwarded its quotation which, upon being finalized after negotiations, culminated into work order/contract. He submitted that the petitioner company executed the work awarded to it, as per the agreement/work contract. However, the respondent company has failed to make the payment as per the agreed terms. The learned counsel for the petitioner also claimed that when the invoices remained unpaid, the petitioner company made repeated requests. However, the letters and reminders forwarded by the company were not responded to by the respondent company. He claimed that it was only after the petitioner company made demand COMP/170/2010 5/31 ORDER for payment of interest in view of inordinate delay caused in making the payment towards the invoices raised by the petitioner company, that the respondent company for the first time came out with its reply and at that stage, for the first time the respondent company raised dispute regarding execution of the work carried out by the petitioner company. The learned counsel for the petitioner has submitted that without any justification and even after complete execution of the work awarded by the respondent company, the invoices raised by the petitioner have not been cleared by the respondent company and its claim amount has remained unpaid. With background of such facts the learned counsel for the petitioner alleged and submitted that the respondent company has lost capacity to discharge its financial obligations and is unable to pay its debts. The learned counsel for the petitioner has also submitted that the respondent company has also neglected to make the payment even after due service of statutory notice at its registered office. On such premise, the learned counsel for the petitioner claimed that the respondent company is entitled for order of admission of the petition and the respondent company deserves to be wound up. The learned counsel for the petitioner relied on following judgments:
(1) The decision of the Calcutta High Court in the case of Hind Hosiery Mills Pvt. Ltd. v. Anand Chemicals Co.[(2003) 115 Company Cases 739].
(2) The decision of the Patna High Court in the case of Central Bank of India v.Sukhani Mining and Engineering Industries Pvt. Ltd. [(1977) 47 Company Cases 1].
COMP/170/2010 6/31 ORDER (3) The decision by the Madras High Court in case of Hoe Leong
Corporation Ltd. v. Vaishnovi Infrastructure Engineering P. Ltd. [(2011) 167 Company Cases 324.
(4) The decision of the Apex Court in the case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd.
[(1972) 42 Company Cases 125].
(5) The decision by the High Court of Delhi in case of Hotline Teletubes and Components Ltd. v. A.S.Impex Ltd. [(2004) 1 Company Law Journal 412].
(6) The decision by the High Court of Delhi in the case of Karam Chand Thapar & Bros. (Coal) Sales Ltd. v. Acme Paper Limited [(1994) 1 Company Law Journal 274.
(7) The decision by the Apex Court in the case of Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [(1999) 97 Company Cases 683.
(8) The decision by the Andhra Pradesh High Court in the case between Fibex Inc. v. A.B.K. Publications Ltd. [(1999) 97 Company Cases 947].
(9) The decision by the High Court of Delhi in the case of V.K.Jain v. Richa Laboratories (P.) Ltd. [(1993) 78 Company Cases 283 Delhi.
8. Mr. Chudgar, learned Advocate has appeared for respondent company. The learned counsel for the respondent company reiterated the factual details mentioned in the reply affidavit and additional affidavits filed on behalf of the respondent company and in that background the learned counsel for the respondent company submitted that the claim raised by the petitioner company is disputed claim and that therefore petition COMP/170/2010 7/31 ORDER seeking order of winding up against the respondent company is not maintainable. He also submitted that the respondent company has already filed a civil suit for the same claim which is pending and therefore also the petitioner is not entitled to and/or justified in maintaining present petition and it does not deserve to be entertained. Mr. Chudgar, learned counsel further submitted that the present petition has been filed only with a view to causing harassment and enforcing recovery of the claim which is disputed. He submitted that the petitioner has not executed the work which was awarded to it by the respondent company and has left the work incomplete and abandoned the work/contract without completely executing the work awarded to it and that therefore the petitioner is not entitled to claim or receive any amount and the respondent company is not obliged to make any payment. He submitted that actually the respondent company has a counter claim against the petitioner for loss and damages caused to the respondent company on account of the petitioner's action of not completing and abandoning the job awarded to it. Mr. Chudgar further submitted that because of the action of the petitioner company the respondent company had to award contract to another company and the respondent company was compelled to get the work done and executed by another agency for which the respondent company had to incur additional expenses and that the said loss and financial burden is attributable to the petitioner company. Mr. Chudgar further submitted that the agreement under which the work was awarded to the petitioner company contains provision for arbitration in case disputes arise between the parties and that therefore also the petition does not deserve to be entertained. He COMP/170/2010 8/31 ORDER submitted that the petitioner is not justified in seeking order of winding up against the respondent which is a going concern and at present has ship building orders of more than 900 million US$ and employs large number of employees, whereas the petitioner has failed to demonstrate that the respondent company is unable to pay the dues. The learned counsel for the respondent company relied on the below mentioned decisions in support of his contention:
(1) The decision in case of IBA Health (India) Pvt. Ltd. v. Info -
Drive Systems Sdn.Bhd. [(2010) 10 SCC 553] (2) The decision in case of Pradeshiya Industrial & Investment Corp. of U.P. v. North India Petro Chemicals Ltd. [1994 (79) Company Cases 835] (3) The decision in case of Amalgamated Commercial Traders P. Ltd. v. ACK Krishnaswami [1965 (35) Company Cases 456] (4) The decision in case of Tata Iron and Steel Co. v. Micro Forge (India) Ltd. [2001 (104) Company Cases 533] (5) The decision in case of Rishi Enterprises, in Re. [1992 (73) Company Cases 271].
(6) The decision in case of Shadi Lal Ent. Ltd. v. Cooperative Ltd.
[2001(103) Company Cases 863].
(7) The decision in case of Juneja Chemical Ind. Pvt. Ltd. v. Alam Tannery Pvt. Ltd. [2007 (140) Company Cases 833].
(8) The decision in case of ICICI Bank Ltd. v. Saurav Chemicals Ltd. [2010 (153) Company Cases 429].
(9) The decision in case of Gautam Electric Motors v. Firm Shantilal & Bros. [MANU/DE/0086/1969].
(10) The decision in case of Madhusudan Gordhandas & Co. v.
COMP/170/2010 9/31 ORDER Madhu Woollen Ind. Pvt. Ltd. [1972(42) Company Cases 125].
9. So as to consider and appreciate the contentions raised by the contesting parties, it is necessary to take into account the relevant factual backdrop as well. It emerges from the record of present petition that:
9.1. In response to the query by respondent company, the petitioner had submitted its quotation dated 24.12.2007 (Annexure P1 Page 16). After considering the said quotation, the respondent company issued, in favour of the petitioner, Letter of Intent dated 03.12.2007, which describe, inter alia, the scope of work, under the heading 'Job Description'. The 'Job Description' as per the Letter of Intent reads thus:
"The scope of work as per the said Letter of Intent dated 3.12.2007 was, 'repair of Gantry cranes (consolidated rate of work given in annexure 0I)."
9.2. The annexure 1 annexed to the said Letter of Intent enlisted 7 different items forming the scope of work which was individually described along with the details of unit rate and total price payable in respect of each of said 7 items.
"Job Description Repair of Gantry cranes 2 nos.
(i) rate of central excise on supply items is 16.48 percent and VAT is 4% service tax.
(ii) erection and commissioning (labour cost)"
9.3. Clause 2 of the said Letter of Intent made provision for COMP/170/2010 10/31 ORDER the payment terms and conditions, whereas clause 3 thereof prescribed other terms and conditions. One of the clauses, particularly, clause (i) under Clause 3 prescribing other terms and conditions was regarding time frame to complete the work. The said clause 3A reads thus:
"Completion of the first crane will be six weeks from the date of start of the work and thereafter one crane in every two weeks."
9.4. Before proceeding further, one of the contentions by the petitioner can be considered at this stage. The petitioner has claimed that any time limit was not fixed. The said contention cannot survive and cannot be accepted in light of the above quoted clause 3A incorporated in the LOI.
9.5. On the strength of the said quotation and the LOI the petitioner company raised its 3 invoice which, according to the petitioner, has not been paid by the respondent company.
9.6. The respondent company did not pay the invoice amounts despite reminders by the petitioner company. Therefore, the petitioner served notice dated 30.08.2009 which was followed by notice dated 27.02.2010 and yet another notice dated 23.04.2010.
9.7. It appears that ultimately the respondent company responded to the notice dated 27.02.2010, vide its reply dated 04.05.2010 denying its obligation to make payment and claiming that it was due to the fault of the petitioner that the respondent had COMP/170/2010 11/31 ORDER to assign the contract work to another agency. It was also alleged that the petitioner did not completely execute the job even after causing delay, and abandoned the work without completing it as per the Letter of Intent. The respondent company also alleged in its reply dated 04.05.2010 that the petitioner did not complete the erection and commissioning of the cranes and its actions also resulted into (i) missing of crane component (ii) worsening of components kept in the open yard and (iii) delay in testing and commissioning of cranes as per schedule which was very critical and resulted into loss of production.
9.8. The petitioner forwarded its reply dated 17.05.2010 which was followed by another letter dated 31.05.2010. It is claimed by the petitioner that since the payment was not received even after the said letter dated 31.05.2010, the petitioner forwarded the statutory notice dated 15.07.2010 at the respondent's registered office (Annexure PA page 47). The respondent company forwarded its reply dated 06.08.2010 in response to the statutory notice dated 15.07.2010.
10. In its rejoinder affidavit dated 9 th June 2011, the petitioner company has also claimed that the respondent company has already availed benefit of CENVAT and VAT credits to the tune of Rs.2,30,438/ on the basis of the work carried out by the petitioner company. It is claimed that by taking CENVAT and VAT credit, the respondent has admitted and approved the said transaction and admitted its liability to pay the amounts.
COMP/170/2010 12/31 ORDER
11. Before proceeding further it is necessary to mention at this stage that with reference to the contention by the learned counsel for the respondent that due to the action of the petitioner company the respondent company had to incur loss and damages and it had to get the work executed through another agency and that therefore the respondent company has a claim against the petitioner, it was inquired from the respondent company as to whether any counter claim in the suit proceeding has been filed or not and/or any claim of any definite amount or certain amount or quantified amount has been raised against the petitioner company or not.
11.1. At the relevant time during the submission, the learned counsel for the respondent had submitted that until now the respondent company has not raised such counter claim. Even during the dictation of the order when the said fact was again inquired for the purpose of confirmation, the learned counsel for the petitioner submitted that even until now the respondent company has not filed any counter claim in the said suit proceedings and/or has not raised any quantified demand against the petitioner company.
12. It emerges from the above referred record that the petitioner has claimed that the work of erection and commissioning was beyond the scope of its contract which was restricted to the work of repairs and overhauling of the cranes which included the task of dismantling, identifying and removing the parts and assembling etc. for repairing and fabricating and overhauling and COMP/170/2010 13/31 ORDER transporting the parts and assemblies i.e. the 12 operational aspects of repairs, overhauls, supply and transport of the equipments.
12.1. The respondent on the other hand asserted that according to 'LOI' the petitioner was also obliged to undertake and completing the work of erection and commissioning as well.
13. The respondent company has resisted the petition on the ground that since the petition involves and raises disputed question of facts the petition ought not be entertained as the issues of facts involved in the matter would require regular trial.
13.1. On the other hand, the learned counsel for the petitioner has opposed such submission and claimed that the dispute against the debt have been raised only as an afterthought and at the relevant time, when the petitioner company completed the work and handed over the cranes to the respondent, any dispute of the nature raised in the reply affidavit were never raised and that therefore the entire defence is an afterthought. The learned counsel for the petitioner relied on the decision in the case of Hotline Teletubes And Components Ltd.(supra) so as to claim that if the dispute is not bonafide or is an afterthought then petition may not be rejected. On the same issue the learned counsel for the petitioner also relied on the decision by the High Court of Delhi in case of Karam Chand Thapar & Bros. (Coal) Sales Ltd. (supra).
14. The position with reference to the disputed claim is considered by the Apex Court in case of IBA Health (India) Private COMP/170/2010 14/31 ORDER Limited reported in (2010) 10 SCC 553. The Apex Court has, observed thus:
"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." (emphasis supplied) 14.1. The Apex Court has, in the aforesaid case of IBA Health (India) Private Limited (supra) also observed that: "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."
(emphasis supplied) 14.2. Thus, the Court is required to decide whether the grounds of defence are substantial or not and they do not "consist of some ingenious mask invented to deprive a creditor and is not a mere wrangle".
14.3. The company Court is also expected to go into the causes of refusal by the company and to also ascertain that the COMP/170/2010 15/31 ORDER refusal is supported by a reasonable cause or a bonafide dispute.
15. When the question of examining the defence on the ground that the claim is disputed arises and it becomes necessary to determine whether the dispute is bonafide and substantial or not, then, in view of this Court, one of the tests is to find out as to whether the dispute was raised contemporaneously (i.e. immediately when the ground or cause of dispute allegedly arose)or not; or the dispute came to be raised only when the demand for payment came to be made or the statutory notice came to be served and whether it is in nature of afterthought?
15.1. If it emerges from the facts that the grounds on which the defence is raised and the claim is being disputed were never raised at the relevant point of time and/or until the demand came to be raised or statutory notice came to be served and then suddenly the dispute is raised for the first time upon claim being pressed and upon service of notice, then such belated dispute may, in the facts of the case and in light of the conduct of the parties, lead the Court to the belief that the dispute and defence which are raised for resisting the petition and the order of admission are raised by way of afterthought.
15.2. The grounds of dispute should not, as observed by the Apex Court, "consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle".
COMP/170/2010 16/31 ORDER
16. In this view of the matter, it becomes necessary to examine in present case as to whether the dispute raised by the respondent is genuine, substantial and bonafide dispute and it is not spurious.
16.1. As mentioned hereinabove earlier the respondent has disputed the claim mainly on the ground that the petitioner delayed the execution and denied to complete the entire work awarded to it, inasmuch as it did not complete the job related to erection and commissioning.
16.2. In present case so as to address the said aspect it is necessary to recall certain relevant dates. It s noticed from the record that:
1 24.11.2007 The petitioner submitted its quotation to the respondent.
2 03.12.2007 The respondent issued Letter of Intent 3 26.02.2008 & The petitioner raised three invoices in the 27.02.2008 sum of Rs.
4 March, August & The petitioner forwarded letters/reminders October, 2009 & raising demand for payment of the invoices Feb & April, 2010 amount.
5 04.05.2010 The respondent forwarded its first reply to the petitioner.
6 15.07.2010 The respondent issued statutory notice.
16.3. Besides the above mentioned dates other two dates are also relevant to note viz. 26.09.2009 and 20.10.2009. On 26.09.2009 a company named Hebankraft submitted its revised COMP/170/2010 17/31 ORDER quotation to the respondent and on 20.10.2009 the respondent issued work order in favour of the said company i.e. Hebankraft.
16.4. In light of the abovementioned chronology the test of contemporaneously raised disputed is required to be applied to ascertain as to whether the defence and dispute raised by the respondent for resisting present petition can be considered to be bonafide dispute or not.
16.5. If we look at the dates and events then it emerges that the petitioner raised invoices on 26th and 27th February 2008. Since the amounts were not paid, the petitioner addressed letters dated 20.03.2009 and 30.08.2009.
16.6. It is pertinent to note that until the said period i.e. 30.08.2009 any grievance with regard to the petitioner's performance of contract work does not appear to have been raised by the respondent company. The respondent company has not placed any material, not even a single letter, making any remark or grievance about any alleged delay in executing the work or unsatisfactory performance of work or of any nature whatsoever.
16.7. The said two letters appear to have been followed by petitioner's third letter dated 4th October 2009. Until the said date also the respondent company does not appear to have raised any type of grievance or does not appear to have sent any intimation to the petitioner in respect of the contract work and its execution. The said three letters are followed by subsequent two letters from the COMP/170/2010 18/31 ORDER side of petitioner i.e. letter dated 27.02.2010 and 23.04.2010. The respondent has not brought on record any material to demonstrate that during the aforesaid period i.e. starting from 26.02.2008 when the first invoice was issued until 23.04.2010 when the last of the aforesaid communications was forwarded by the petitioner to it i.e. the respondent, any intimation of whatsoever nature, particularly raising grievance about alleged delay and/or unsatisfactory performance of work or of such nature connected with the execution of the work was ever issued by the respondent company.
16.8. It is pertinent to note that though in the interregnum, important events occurred, viz. the respondent company invited quotation from the said other agency and the said other agency submitted its quotation somewhere on or around 26 th September 2009 and in pursuant to the said quotation the respondent also issued work order in favour of the said agency on 20 th October, 2009, the respondent company does not appear to have given any notice or any intimation to the petitioner about the said development. Ordinarily, before assigning work to any other agency during operation of the contract, the principal/employer would intimate the contractor that because of its default or negligence or delay or such other reason it is compelled to award contract to other agency. However, in present case, any intimation of such nature or of like nature does not appear to have been forwarded by the respondent company to the petitioner. The respondent has not placed any material on record to demonstrate that it had, before inviting quotation from the said other agency and/or before issuing work order in favour of the said other agency, issued any notice or COMP/170/2010 19/31 ORDER intimation to the petitioner company.
16.9. It was only on 4th May 2010 that the respondent company, for the first time forwarded its response/reply to the petitioner stating, inter alia, that the said reply dated 4 th May 2010 was in response to the petitioner's letter dated 27th February 2010.
16.10. When the said communication dated 4th May 2010 from the respondent company is examined, it emerges that in para (c) of the said letter the respondent company has alleged that "...............there was no work progress at your end on the subject cranes...............". However, as mentioned hereinabove, prior to the said letter dated 4th May 2010 the respondent company does not appear to have ever raised any grievance about alleged "no work progress or about the pace of work" alleging that there was very slow or negligible progress. Any material, much less any written communication raising such grievance, at the relevant time, against the petitioner's conduct is not placed on record.
16.11. Then in para (e) of the same letter the respondent has also alleged that, ".......However, in spite of repeated followup no service engineers were deputed by you...." With reference to the said allegation also, though it is alleged therein that there was repeated followup, any material to support the said allegation and/or to establish that such grievance was raised at the relevant time is not placed on record by the respondent company. There is complete absence of any material - evidence to support the allegations that the respondent company was taking any "follow COMP/170/2010 20/31 ORDER up" actions and/or that at the relevant time any grievance was raised.
16.12. Ordinarily, in course of execution of any contract if the contractor does not work as per the schedule, particularly when the work, which; as alleged and claimed by the principal (in present case the respondent), is of critical importance to it and time was matter of essence, then written intimation raising grievance would be forwarded by the principal/employer to the contractor. However, in present case no material or single communication of a date prior to the subject reply dated 4th May 2010 and particularly of relevant period is placed on record by the respondent to support its allegations and submissions.
16.13. Similarly, as mentioned hereinabove, before allegedly awarding the work order to the other agency viz. M/s. Hebankraft, surprisingly the respondent company never raised any grievance or expressed any concern to the petitioner company and did not ever intimate the petitioner company that because of its (i.e. petitioner's) conduct it was compelled to, and therefore it had decided to, award the contract work to other agency.
16.14. The respondent, not only did not inform anything to the petitioner before allegedly awarding contract to the said other agency but even after awarding the contract to other agency the respondent company did not inform the petitioner about the said fact until 04.05.2010.
COMP/170/2010 21/31 ORDER 16.15. From the record it appears that it was only vide its letter dated 04.05.2010 that the respondent company for the first time informed the petitioner, as mentioned in para (f) of said letter, the fact about the said other agency.
16.16. Another important and relevant aspect which emerges from the record is that even in the said communication dated 04.05.2010 or any subsequent correspondence or even in its reply to the statutory notice, the respondent company has not mentioned the details about the extent of work executed by the petitioner and the extent of the work left out/left incomplete.
16.17. In this context it is relevant to mention that according to the petitioner it had given quotation to carry out the work specified by it at Sr. No. 1.0 to 1.12 and 2.0 to 2.6 mentioned in its quotation (Annexure "P1" page 16) and according to the respondent the petitioner was obliged to execute the work as enlisted at serial nos. 1 to 7 shown at Annexure 01 (page 21 and 22) to its Letter of Intent dated 03.12.2007.
16.18. The respondent company has nowhere mentioned that out of the said items how much work or which work was completed and which work (except the work related to erection and commissioning) was not executed by the petitioner. It is also pertinent to note that as per the details mentioned in its LOI (page
19), the consideration which was to be paid by the respondent company was to be paid in two parts viz. (i) Rs.14,24,000/ for repair of Gantry Cranes 2 Nos. and Rs.1,12,640/ as central excise COMP/170/2010 22/31 ORDER components for the first part and Rs.1,08,026/ towards labour cost of erection and commissioning. The aforesaid amount of Rs.14,24,000/ was further bifurcated by unitwise rates mentioned against the said 7 items enlisted in Annexure01 (page 21).
16.19. Now, what is relevant is that despite the fact that payment of consideration was bifurcated itemwise, and although it is not the case of the respondent company that any work of whatsoever nature and to any extent was not executed by the petitioner, payment towards any item is not made by the respondent company. The allegations of the respondent company are concentrated qua the second item i.e. erection and commissioning, inasmuch as it is alleged that the petitioner company did not execute the work related to erection and commissioning. On this count the respondent company would now, in response to the query, submit that payment was to be made only on completion of the work and therefore payment were not and have not been made. However, until the petitioner's communication dated 23.04.2010 the respondent does not appear to have taken such a stand. In ordinary course, if such is the reason for not making payment the Principal would in the first instance put the contractor to notice or atleast immediately on receipt of the invoice and in any case on receipt of the demand notice, inform the contractor about its decision and reason for the decision.
16.20. If the work was critical and was required to be completed in prescribed time frame, then ordinarily the principal/employer would immediately draw attention of the COMP/170/2010 23/31 ORDER contractor, in writing, for the delay being caused or for non performance. However, as mentioned hereinabove earlier, any material prior to the date on which the respondent addressed the letter dated 04.05.2010 is not placed on record by respondent to demonstrate that such dispute and grievance were raised by it at the relevant time and its concern for nonperformance was expressed by it at the relevant time to the petitioner.
17. The overall effect of conjoint consideration and the reading of the aforesaid aspects lead the Court to believe that the disputes raised by the respondent company have been raised as afterthought and that the disputes were not raised contemporaneously but have been raised only subsequently and from conjoint reading of all facts and circumstances of the present case, which are illustratively mentioned above, it comes out that the grounds of defence raised by the respondent are afterthoughts and consist of and amount to, as expressed by the Apex Court, "some ingenious mask invented to deprive a creditor (in present case the petitioner) of its bonafide claim."
17.1. The aforesaid aspect is also evident from the fact that though the petitioner issued three invoices in month of February 2008, until May 2010, the respondent company never raised any grievance with reference to the said grievance and never objected the said invoices until (the petitioner's third intimation - demand served after the service of 3 invoices) 4 th May 2010 and it is only on 4th May 2010 the petitioner company came out with the aforesaid reply. The fact that the respondent has come out with an COMP/170/2010 24/31 ORDER afterthought dispute is also evident from the fact that the respondent has availed CENVAT & VAT credit.
18. In this context it is relevant to recall at this stage the observations by the Apex Court in para 20 of the decision in the case between IBA Health (India) Private Limited (2010 [10] SCC
553) extracted hereinabove in para 14 and 14.1.
19. When the facts of present case, and in particular the defence taken or the dispute sought to be raised by the respondent company are examined in light of the observations by the Apex Court, clarifying as to what can be considered as bonafide dispute, then it emerges that the grounds of dispute which are now being urged by the respondent company were not raised contemporaneously but came to be raised after about 3 to 4 reminders and requests by the petitioner to make the payment towards its invoice.
19.1. A conjoint and overall consideration of all facts, events and circumstances lead the Court to the conclusion or belief that the dispute or defence raised by the respondent company are afterthoughts and fall into the category, which is described by the Apex Court as, "ingenious mask invented to deprive the creditor of his claim as an afterthought with a view to resisting the petition"
and that the dispute sought to be raised by the respondent company lacks bonafides.
20. Now, coming to the objections raised by the respondent COMP/170/2010 25/31 ORDER against the maintainability of petition. So far as the respondent's objections against maintainability of petition and the contention that the petitioner company has already filed a suit and that therefore the petition should not be entertained and that since the contract/LOI provides for arbitration, the petition is not maintainable are concerned, the learned counsel for the petitioner submitted that the suit has been filed for recovery of the dues and mainly to ensure that the claim of the petitioner may not become time bar and that therefore the petition under Sections 433 and 434 cannot be dismissed on the said ground. He relied on the decision in the case of Sukhani Mining and Engineering Industries Pvt. Ltd. (supra) and also on the decision of Andhra Pradesh High Court in the case of Fibex Inc. (supra) and the decision by the Delhi High Court in case of V.K.Jain v. Richa Laboratories (P.) Ltd.
21. On this count it is necessary to note that the remedy provided under Section 433 and 434 of the Act is a special statutory remedy which is made available to the creditors of a company besides the ordinary civil suit remedy for enforcing recovery of dues and payable amounts would not be eclipsed by the action of filing a suit for recovery of dues or for enforcing recovery. Actually it is a settled position that remedy under Section 433 and 434 of the Act is not available and cannot be permitted to be used for enforcing recovery of disputed debt.
21.1. The petition is not preferred for recovery of the dues. The petitioner has not claimed or prayed for a direction or declaration or order or decree against respondent for payment of its COMP/170/2010 26/31 ORDER claim amount. The relief and order prayed for are for admission of petition and order of windingup.
21.2. Therefore the submission and presentation of a suit in the civil Court by the petitioner for recovery of debt would not act as a bar against present petition.
21.3. Likewise, the arbitration clause in the LOI also would not act as a restriction or obstacle or prohibition in maintaining a winding up petition.
21.4. Accordingly, the respondent company's contention resisting the petition on the ground that the Letter of Intent / contract contains "Arbitration Clause" and that the petitioner has already instituted a civil suit for enforcing recovery of the dues, would not help the respondent in opposing the petition on the said ground.
21.5. In this context reference needs to be made to a recent decision by the Apex Court in the case between Boozallen and Hamilton Inc. v. SBI Home Finance Limited & Ors. [(2011) 5 SCC 532] the Apex Court has observed that: "........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 public fora (Courts and Tribunals), may by necessary implication stand excluded from the purview of private fora......"
21.6. In the said decision the Apex Court further observed COMP/170/2010 27/31 ORDER that: "All disputes relating to rights in rem are required to be adjudicated by Courts and Public Tribunal, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable."
21.7. Having observed thus, the Apex Court also illustratively mentioned nonarbitrable disputes which, include criminal offence, matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody, etc., guardianship matters, testamentary matters and insolvency and winding up matters. The Apex Court has also observed 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........"
21.8. Once, it is established that one or more eventuality contemplated under Section 433 of the Act exists then right to maintain winding up petition and to request for an order of admission arises and accrues to the creditors, unless it is shown or established that the debt in question is disputed bonafide and there are genuine and substantive grounds for disputing the debt.
21.9. In present case, the foregoing discussion demonstrates that the petitioner has made out case that the eventuality contemplated under Section 433(e) and/or under Section 433(f) COMP/170/2010 28/31 ORDER read with Section 434(1)(a) exists and the dispute sought to be raised by the respondent is an afterthought and lacks bonafides. In this view of the matter this Court is not convinced and inclined to reject and dismiss the petition at threshold on the ground that civil remedy and/or remedy of arbitration is available or that the claim is disputed.
22. With reference to respondent's contention - objection on the ground that it is a going concern, it is relevant to note that if the claim - debt is undisputed or the dispute sought to be raised is on spurious grounds and the dispute is not genuine, bonafide and substantial then the Court may not admit and entertain a situation or submission where the opponent chooses not to pay the debt though it has, according to its claim, sufficient funds to pay the claim - debt.
22.1. In this context it is relevant to note that if the claim - debt are not bonafide disputed then the said defence i.e. the defence on the ground that the respondent is financially solvent and able company would be available as a supplementary ground and not as the principal or substantive and solitary ground or defence. So as to put it differently, if, in the first instance, the debt is bonafide disputed and there is genuine and substantive defence (in contradistinction to spurious, speculative illusory dispute) then the ground or contention or defence that the respondent is a going concern would become available in aid of the defence that there is bonafide dispute about the debt/claim between the parties to the petition however if the claim/debt is not disputed and/or is COMP/170/2010 29/31 ORDER undisputed/undisputable then the Court would not entertain and receive in defence a contention to the effect that "I have - pocket fullof moneybutIwillnotpay the dues debtthoughIdonot dispute the debt." (please see Madhusudan Gordhandas & Co. [(1972) 42 Company Cases 125].
22.2. So as to oppose the respondent's such objection, Mr. Shah relied on the decision in the case of Hoe Leong Corporation Ltd. (supra) and he also relied on the observations made by the Court in case of LKP Merchant Financing Ltd.(supra)
23. In present case the Court has noticed that the dispute sought to be raised by the respondent is in nature of afterthought and lack bonafides and that therefore in the facts of present case the said objection and contention cannot be sustained.
24. So far as the decisions relied on by the learned counsel for the respondent are concerned, I have considered the same however, in light of the facts of this case and in view of the conclusion of this Court as to the facts of the case and respondent's contentions, the said decisions do not become applicable and do not help the respondent in taking its case further.
25. Now, the question which arises in light of the facts, circumstances, events and the legal position emerging from the decisions referred to hereinabove, is whether to grant the request for order of admission of the petition seeking order of winding up and permission for publication of the advertisement, or not.
COMP/170/2010 30/31 ORDER
26. On this count is is relevant to note that this Court has in the case between Ficom Organics Ltd. v. Laffans Petrochemicals Ltd. [(2000) 99 Company Cases 471] after reaching the conclusion that the dispute raised by the respondent company against the petitioner's claim was not bonafide, granted time to the respondent company to pay the petitioner the claim amount.
27. On over all consideration of the aforesaid and other factual aspects recapitulated hereinabove earlier, this Court has found, and the Court is satisfied, that the dispute or defence raised by the petitioner is an afterthought and the afterthought dispute or defence of the respondent company is raised with a view to resisting the petition and delaying the liability to make the payment of due and payable amount.
28. As mentioned above, when the court reaches a conclusion that the respondent's defence lacks bonafides or that it consists of some ingenious mask invented to frustrate the claim then the court may not frustrate the petition by throwing out the petition and denying the order of admission of the petition on the grounds raising objections against maintainability of the petition.
29. Having regard to the decision in case of Ficom Organics (supra), this Court is of the view that the petition, in view of the foregoing discussion, does not deserve to be rejected or dismissed. The petitioner has made out a case for admission of the petition COMP/170/2010 31/31 ORDER and the respondent company could not disprove by showing that its defence is genuine and bonafide and also substantive and the court, as observed above, is satisfied that the defence taken by the respondent are afterthoughts and lack bonafides and it has neglected to discharge its financial obligation.
30. Therefore, the court is inclined to accept and admit this petition. However, the Court considers it appropriate that before making order admitting the petition and permitting publication of advertisement it would be in fitness of things and also appropriate (having regard to the other aspects urged by the respondent e.g. pending execution of contracts and such other details) to grant an opportunity to the respondent company to deposit the invoice amounts in this Court. Hence, below mentioned order is passed.
31. The respondent company is granted time of 4 weeks from the receipt / service of a copy of this order or until 25 th April 2012 whichever is earlier to deposit the invoice amount covered by the 3 invoices raised by the petitioner.
32. The Court will consider the petitioner's request for order of admission and publication of advertisement on 30 th April 2012. S.O. to 30th April 2012.
(K.M.THAKER, J.) jani