Himachal Pradesh High Court
Essar Steel India Ltd. (Esil) vs Jaiprakash Power Ventures Ltd on 28 July, 2017
Author: Sandeep Sharma
Bench: Sandeep Sharma
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Company Petition No. 1 of 2016 Reserved on: June 30, 2017 .
Decided on: July 28, 2017
---------------------------------------------------------------------------- Essar Steel India Ltd. (ESIL) .....Petitioner Versus Jaiprakash Power Ventures Ltd. .....Respondent
---------------------------------------------------------------------------- Coram:
Hon'ble Mr. Justice Sandeep Sharma, Judge Whether approved for reporting?1 Yes.
----------------------------------------------------------------------------
For the petitioner: Mr. R.K. Gautam, Senior
Advocate with Ms. Radhika
r Gautam and Mr. Gaurav
Gautam, Advocates.
For the respondent: Mr. Vinay Kuthiala, Senior
Advocate with Ms. Vandana
Kuthiala, Advocate.
---------------------------------------------------------------------------- Sandeep Sharma, Judge By way of instant company petition having been preferred by the petitioner under Sections 433, 434 and 439 of the Companies Act, 1956 (for short, 'Act'), prayer has been made for winding up of company namely M/s Jaiprakash Power Ventures Limited, a company registered under Companies Act, 1956. It is averred in the petition that since the petitioner is engaged in the business of manufacture of steel and steel products, it was in requirement of electricity power for its manufacturing activities. Accordingly, the 1 Whether reporters of the local papers may be allowed to see the judgment?::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 2
petitioner company floated tender bearing No. ESIL/Power Purchase /2012-13/RTC/1 dated 15.3.2012 (Annexure-A), for .
procurement of 150 MW power on monthly basis for short term on open access basis. In response to aforesaid tender floated by petitioner-company, M/s Jaiprakash Power Ventures Limited (hereinafter, 'Company'), submitted its offer/bid on 17.5.2012, which was further amended on 27.5.2012, where under the Company promised and assured supply of 150 MW Round the Clock (RTC) power per month from 1.7.2012 to 30.9.2012 from Karcham Wangtoo Hydro Electric Plant in Himachal Pradesh. Since aforesaid financial offer was found to be acceptable by the petitioner company, same was accepted and acceptance was conveyed by the petitioner company vide Letter of Intent (for short, 'LoI') dated 7.6.2012. Petitioner has also placed on record offer of the company dated 17.5.2012 and 27.5.2012 (Annexure-B collectively). LoI referred to above, contained terms and conditions regarding supply of power by the company to the petitioner company, its quantum, delivery period, delivery point and price. It was a condition precedent in LoI that if the terms and conditions as contained in Letter of Intent are acceptable to the company, it should confirm the same vide acceptance letter, within twenty four hours of receipt of Letter of Intent. Company, after having fully known and understood, ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 3 requirement of the petitioner-company and having accepted terms and conditions of Letter of Intent, furnished acceptance .
letter dated 8.6.2012(Annexure D), specifically and categorically accepting Clause 7 being the condition for 'Compensation for Default in Scheduling', which is commonly known as 'take or pay' liability. Since, requirement of the petitioner was 150 MW per month, aforesaid tender was issued in order to secure and procure such power uninterruptedly, during tenure of the contract. As per petitioner company, availability of 150 MW of RTC power was the very essence of the tender and subsequently, upon such understanding, agreement came to be executed between the parties. Vide communication dated 7.6.2012, annexure C, petitioner company confirmed acceptance of offer of Jaiprakash Power Ventures Limited and further vide communication dated 17.5.2012 amended on 27.5.2012, for supply of power pursuant to tender dated 15.3.2012, and agreed to purchase quantity of power as detailed in communication dated 8.6.2012. M/s Jaiprakash Power Ventures Limited (JPVL) consented to the terms and conditions as elucidated in annexure I annexed with communication dated 7.6.2012. Vide aforesaid consent letter, M/s Jaiprakash Power Ventures Limited conveyed to the petitioner that supply of power by it under the agreement ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 4 shall only commence once payment mechanism is finalized and all the formalities under this agreement are completed. As .
per terms and conditions contained in LoI, company was required to furnish Standby Letter of Credit/Bank Guarantee of Rs.18.41 Crore in favour of petitioner company, but, Company, vide letter of acceptance dated 8.6.2012, conveyed to the petitioner company that, "As a company policy, we don't offer any Letter of Credit/Bank Guarantee for the power to be supplied by us at Seller's periphery. Since, JPVL will be applying for open access from July 2012 to September 2012, in the month of June 2012 itself; JPVL will be bearing the entire open access charges (around Rs.8 Crores) upfront. This in itself is a guarantee from JPVL towards its commitment for supply of power." As per petitioner-company, it forms condition of acceptance that Letter of Credit/Bank Guarantee from the company in view of aforesaid promise and assurance given by company, whereby it had promised that it will apply for open access from July to September, 2012, in the month of June 2012 and will be spending around Rs.8 Crore for such application. Vide letter dated 8.6.2012, it suggested certain modifications to general terms and conditions, which are reproduced as under:
"Point (7) - Condition Precedent For open access approval from Gujarat SLDC, if required, the entire coordination shall be handled by ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 5 ESTL, such that the approval is obtained well before the deadline for submitting advance open access application of each month.
.
"Point (4) - Payment The payment mechanism of energy bills as suggested by ESTL is to be further discussed and frozen with mutual agreement and to complete satisfaction of JPVL.
The supply of power by JPVL under this agreement shall only commence once the payment mechanism has been finalized and all the formalities required under this mechanism are completed."
2. In the aforesaid background, petitioner-company has submitted that under terms of agreement contract/agreement, arrived inter se parties, Company was required to apply for open access for 150 MW RTC power supply so as to ensure RTC power supply of 150 MW to the petitioner-company with effect from 1.7.2012. However, on account of liquidity crisis, Company could not liquidate funds for required 150 MW open access power for three months in advance in the month of June 2012. It has been further submitted on behalf of the petitioner company that upon the request of the Company, petitioner company undertook process for obtaining open access NOC on behalf of the Company from Gujarat SLDC, in advance for the months of July to September, 2012 for 150 MW power. It is further stated that thereafter, it was incumbent upon the Company to have undertaken process of payment of requisite open access charges in order to get the approval for 150 MW power ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 6 from open access for three months as aforesaid. At this stage, Company started demanding Letter of Credit/Standby Letter .
of Credit as a condition precedent for applying for open access power for 150 MW power, which Letter of Credit/Standby Letter of Credit was to be issued by the petitioner company as performance bank guarantee to ensure payment of regular bills and it had nothing to do with applying for 150 MW open access power. As per petitioner, unequivocal promise and assurance was given by the respondent to the petitioner-
company it shall be responsible for all costs, permission and open access approvals required for delivery of power.
Petitioner-company solely relying upon promise and assurance given by Company had not only accepted the bid but also entered into agreement for purchase of power with the Company. Company commenced supply of power with effect from 1.7.2012 and initially billing cycle was weekly, which was further reduced to three days at the request of the Company. Company was issuing invoices for the supplies made, which were duly paid by the petitioner company.
Considering the billing cycle of three days, average bill raised by the company was for Rs.5.00 Crore (approximately). It is further averred that against the same, under the terms of agreement, in order to secure such payments, the petitioner company had already submitted LC of Rs.15 Crore, which was ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 7 sufficient enough to honour /secure payment of more than three billing cycles. In the month of August, 2012, petitioner-
.
company came to know that instead of applying for 150 MW power through open access, company had only applied for 75 MW power from open access causing shortfall of 50% of the power required by the petitioner company and thereby committed breach of agreed terms and conditions as well as subsequent promise and assurance given by the Company. As per petitioner-company, only 75 MW power came to be applied even in the month of August, 2012 and was supplied by the company, resulting in shortfall of 50% of required demand of the petitioner. In view of aforesaid breach, petitioner company raised debit note/ claim of Rs.5,16,00,858/- on 10.9.2012 for the month of August, 2012 and it was asked to remit aforesaid amount within seven days from the receipt of such letter. In response to said claim, Company gave an evasive reply on 17.9.2012, whereby company had tried to twist the facts and to interpret and change the agreed terms of contract by referring to emails exchanged between the parties. Since no satisfactory reply to the aforesaid debit note was received from the Company, petitioner-company, vide email dated 20.9.2012, again reminded the Company for payment under debit note and informed that upon default in payment, amount would be ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 8 adjusted against payments of invoice, which would be raised by the company. Petitioner-company further submitted that .
even for the month of September, 2012, power supply was curtailed to 50% and company had only applied for 75 MW through open access. Subsequently, company vide communication dated 21.9.2012 demanded a sum of Rs.
1,81,61,114/- being the amount of power supplied and due on 20.9.2012. Upon receipt of such intimation from the Bank, petitioner company also wrote a letter to the Bank on the said day, informing that in the circumstances as mentioned above, in fact, petitioner company had to receive an amount of Rs.5,16,00,858/- from the company, and therefore, until the company clears the dues against the said debit note, Company's claim on Bank Guarantees /Standby Letter of Credit may not be entertained. Since, there was further default in supply required and contracted quantity of power on the part of the company, petitioner-company served a debit note of Rs.3,31,20,000/- towards compensation for default in scheduling power between 1.9.2012 to 23.9.2012.
Simultaneously, petitioner-company, on the other hand, also raised another debit note on 3.10.2012 for Rs.43,20,000/-, for short supply of power between 24.9.2012 and 26.9.2012, totaling to Rs.8,90,40,858/-. It also emerges from the record that petitioner-company had filed an injunctive suit before ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 9 competent Court of law at Surat (Gujarat) with the prayer to restrain the petitioner-company from encashing Standby .
Letter of Credit. But since no interim order was passed by Civil Judge, matter was taken to Gujarat High Court by way of filing a petition as well as appeal. However, the fact remains that same came to be disposed of without relief in favour of the petitioner company, as a result of which, company encashed Standby Letter of Credit of Rs.10,43,71,183 Crore out of Standby Letter of Credit amount. Thereafter, petitioner company moved an application to the Civil Court seeking return of the plaint to be presented before the Court having competence and territorial jurisdiction to try and entertain the suit, which was granted by the Civil Judge and thereafter, petitioner filed a substantive suit against company before Bombay High Court, which is still pending. In the aforesaid background, petitioner-company submits that since the Company failed to pay amount in terms of debit note issued by petitioner company within due dates, as well as legal notice issued under Sections 433 and 434 of Companies Act, whereby Company was called upon to make payment of Rs.8,90,40,858/- being the amount of debit notes raised by the petitioner company as per Clause 7 of the contract agreement plus interest thereon at the rate of 18% p.a. from the respective debit notes till its realization and as such, it is ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 10 abundantly clear that the Company is not in a position to discharge its debts and liable to pay dues to the petitioner .
company. Hence, Company appears to have lost its substratum and is liable to be wound up.
3. Pursuant to notice issued to the respondent-company, it filed a detailed reply specifically denying therein the contents of company petition. Company submitted that petitioner has not come to this Court, with clean hands and instant petition has been filed with malafide attempt to cause prejudice in the mind of this Court that Company is not in a position to discharge its debts and is unable to pay the legitimate dues of the petitioner. Company claimed that claim of the petitioner is disputed and vexatious, as such, present petition is sheer abuse of process of law. It has been further stated in reply that winding up proceedings can not be used as a tool to recover money, especially money in disputed claim. It has been further submitted on behalf of the company that this Court has already sanctioned scheme of arrangement between company and Himachal Baspa Power Company Limited vide order dated 25.6.2015, whereby Company's 300 MW Baspa-II Hydro-electric Plant and 1091 MW Karcham Wangtoo Hydro-
Electric Plant were transferred and vested to Himachal Baspa Power Company Limited with effect from effective date i.e. 1.9.2015 and securities of Himachal Baspa Power Company ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 11 Limited have been transferred and sold to M/s JSW Energy Limited against consideration. As per Company, no objection, .
whatsoever was ever raised by the petitioner company to the scheme of arrangement, in the meeting of creditors convened by High Court of Himachal Pradesh at Shimla, when notice was published in the newspaper and, subsequently, it also never raised objection before this Court on 25.6.2015, when matter was taken up by this Court for sanction of scheme.
Company further submitted that Company's Registered Office stands shifted from Waknaghat, HP to Nigrie in the State of Madhya Pradesh vide order dated 2.12.2015 of Regional Director (NR), Ministry of Corporate Affairs, Delhi. As such, present petition filed in respect of claim before this Court in January, 2016, is not maintainable since this Court does not have territorial jurisdiction to entertain the same. While terming proceedings to be sheer abuse of process of law, it has been further submitted on behalf of the Company that petitioner has moved Civil Courts in India i.e. from Civil Court of Gujarat to High Court of Gujarat and thereafter High Court of Bombay. At present, petitioner's suit with regard to same claim is pending before the High Court of Bombay, which suggests that claim of the petitioner is disputed and no petition under Sections 433 and 434 of the Companies Act can be filed in respect of disputed and inadmissible claim.
::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 12Company further submitted that according to balance sheet of the respondent company for the year 2014-15, total assets of .
the company are worth around Rs.32,000 Crore and profit after tax for the year is around Rs.137 Crore, hence, seeking winding up of Company for a disputed amount of Rs.8.90 Crore is nothing but abuse of process of law. Apart from above, Company raised objections in respect of contractual obligations of the petitioner and stated that there is breach of Letter of Intent by the petitioner, first in point of time, whereby, vide Letter of Intent dated 7.6.2012, Company was required to confirm acceptance of Letter of Intent and terms and conditions, within twenty four hours by signing and returning a copy of same to the petitioner. Accordingly, on 8.6.2012, Letter of Intent dated 7.6.2012 as well as terms and conditions were confirmed by the Company with certain conditions. Clause 6(a) of Letter of Intent stipulated that petitioner company would submit Standby Letter of Credit/Bank Guarantee of Rs.22.10 Crore within seven days of acceptance of Letter of Intent, valid upto 15.10.2012, but petitioner did not furnish said Standby Letter of Credit/ Bank Guarantee within stipulated time as such, breached the contract. Though, as per one of the conditions contained in acceptance letter dated 8.6.2012, Company was required to submit Standby Letter of Credit/Bank Guarantee of Rs.18. 41 ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 13 Crore, in favour of the petitioner valid upto 15.10.2012 and same was to be submitted within seven days of acceptance of .
Letter of Intent dated 7.6.2012. It was conveyed by the Company in its acceptance letter dated 8.6.2012 that as a policy decision, Company was not required to offer any Letter of Credit/Bank Guarantee for the power to be supplied since the Company would be applying for open access from July, 2012 to September, 2012, in June 2012 itself and that the Company will be bearing the entire open access charges of around Rs.8,00,00,000/- upfront, which in itself, would be a guarantee from Company towards commitment for power supply. It is further submitted by Company that since petitioner had failed to fulfil its obligation to submit Standby Letter of Credit, the Company, in the first instance applied for open access for the month of July, 2012 only, in June, 2012 for 150 MW and supplied 150 MW of power to the petitioner during the month of July, 2012, even under Clause 9(b) of the Letter of Intent, the Company would have been within its right not to supply any power to the petitioner. It is further averred on behalf of the Company that petitioner continued breach and did not provide Standby Letter of Credit to the Company for Rs.22,10,00,000/-. Company reminded the petitioner several times orally and telephonically to submit the Standby Letter of Credit during July, 2012 and finally wrote a mail on ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 14 13.7.2012 requesting to submit Standby Letter of Credit by 14.7.2012. Vide mail dated 25.7.2012, Company informed .
petitioner that it had still not received the Standby Letter of Credit. In this mail, the company clearly stated that in the absence of payment security mechanism (PSM), it would not be able to commit the quantum of power as agreed in the Letter of Intent. It was also informed that even when PSM is made available, the open access shall be applied only for a quantum that will be available with the Company at that time.
It is further stated in the reply that on 26.7.2012, Company received a letter of credit for Rs.15,00,00,000/- from the petitioner, which was a bill discounting letter of credit. This letter of credit was not acceptable to the company, as it was not as per the terms of Letter of Intent, to provide Standby Letter of Credit. This was clarified by the Company vide its email dated 27.7.2012. Further, it was also informed in the said mail that Standby Letter of Credit of Rs.10,00,00,000/-
is also inadequate for a period of eleven days, of which only a scanned copy was received. It was only on 27.7.2012 that a Standby Letter of Credit for Rs.10,00,00,000/- was delivered to the Company, which was in any case, inadequate and a breach of agreement. The above facts have been admitted by the petitioner and true copies of emails exchanged between the petitioner and the company have been annexed to the ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 15 reply as Annexure R-2/A (Collectively). As per Company, there was a breach by the petitioner in not providing Standby .
Letter of Credit within stipulated time, as such, it was not fair on the part of the petitioner to expect the Company to expose itself to an expenditure of Rs.8.00 Crore by applying for open access for three months, when petitioner itself was in continued breach of Letter of Intent. As per prescribed procedure, last date for applying for open access for the month of August, 2012, was 20.7.2012 and till that date, petitioner had not furnished any Standby Letter of Credit.
Company, in its reply also, submitted that there was an understanding between petitioner and Company with regard to reduction in quantum of power from 150 MW to 75 MW for the months of August and September, 2012, on 27.7.2012.
Various emails were exchanged between petitioner and respondent Company, whereby it was informed by the Company to the petitioner that it was only committed to 150 MW power for the month of August, 2012 and 75 MW for the month of September 2012, which was objected to by the petitioner. However, thereafter discussion took place between CFO of the Petitioner-Company and Managing Director of the Company on 27.7.2012, wherein it was unequivocally informed to the petitioner that the Company could only commit 75 MW supply of power for August and September, ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 16 2012, ince petitioner had not fulfilled the terms of the Letter of Intent. Petitioner agreed to the said reduction in power .
supply. Said understanding/revised agreement arrived at between the petitioner and Company on 27.7.2012 was recorded in Company's mail dated 28.7.2012. As per Company, petitioner's consent to revise agreement is apparent from the fact that the petitioner did not object/protest to the mail nor did it raise this issue during entire month of August, 2012 and until 10.9.2012. Moreover, subsequent conduct of the petitioner of receiving 75 MW for August and September 2012, also indicates acceptance by petitioner of revised understanding between the parties. In the instant case, Company claims that since petitioner failed to furnish Standby Letter of Credit, Company was well within its right to curtail power supply to the petitioner. Clause 9(b) of the Letter of Intent, reserves right to company to regulate/stop power supply by giving two days notice, in case payment security is inadequate. It has been submitted on behalf of the Company that it denied the claim as raised by the petitioner by invoking clause 7 of the general terms and conditions of Letter of Intent, vide letter dated 17.9.2012, wherein it is stated as under:
"(i) ESTL was liable to submit LC/BG by the 15th June, 2012 as per terms of LOI issued by ESTL and accepted by JPVL but ESTL did not submit the same by ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 17 the due date. Even in absence of required LC/BG we continued to supply power to ESTL during the month of July, 2012 giving due weightage to the relationship initiated with this transaction.
.
(ii) LC was submitted by ESTL on 27th July, 2012 after lot of reminders through email and telephone, thereby breaching the terms of the LOI by ESTL.
(iii) We vide our email dated 13th July and 25th July 2012 made it clear to ESTL that when the LC (PSM) will be made available to us, the open access shall be applied only for the quantum that will be available with us at that time.
(iv) We vide our email dated 28th July, 2012 (after exchange of lot of emails and telephonic discussions) made it clear to ESTL that we will be applying open access application for 75 MW power for the month of August 2012 and September, 2012 which was accepted and not objected by ESTL.
(v) ESTL continued to receive 75 MW power during the months of August, 2012 and September 2012 without any demur or objection as the said supply was in line with the revised agreement/ understanding arrived between ESTL and JPVL on 27.07.2012.
(vi) JPVL is only obliged to supply 75 MW power to ESTL for the months of August 2012 and September, 2012 as per the revised agreement/ understanding arrived at between ESTL and JPVL on 27.07.2012 and has not defaulted in such supply.
4. Clause 7 of the Compensation Claim provides for supply of 90% power of open access quantum approved. Since the open access was obtained for 75 MW for the month of August and September, 2012, as per the revised understanding between the petitioner and Company on 27.7.2012 the supply of power was within 90% of the open access quantum approved in the month. It was pointed out that thus there was no default on the part of the Company.
::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 185. Mr. R.K. Gautam, learned Senior Advocate, duly assisted by Ms. Radhika Gautam, learned counsel .
representing the petitioner, while inviting attention of this Court to Section 433 (e), vehemently argued that since company has omitted to pay the outstanding demand of the petitioner, without any reason or excuse, even, after having received demand notice in terms of Section 434 (1)(a), Company i.e. Jaiprakash Power Ventures Limited be wound up by this Court, under Section 433 of the Companies Act.
Mr. Gautam, learned Senior Advocate, while inviting attention of this Court to the petition having been filed by the petitioner, stated that it stands duly proved on record that the liabilities of the Company have exceeded its earning and substratum of the company has been totally/substantially eroded and as such, continued existence of the company is threat to commercial world and as such it would be just and equitable that Company be wound up by this Court by resorting to the provisions of the Companies Act. Learned counsel for the petitioner, further contended that when company failed to pay the amount under debit notes issued by the petitioner, within due date, legal notice dated 12.3.2014, under Sections 433 and 434 of the Companies Act was served upon the company calling upon it to make payment of Rs.8,90,40,858/-, being the amount of debit ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 19 notes, in terms of Clause 7 of the contract agreement plus interest thereupon at the rate of 18% per annum, from the .
receipt of debit notes till its realization, but after expiry of twenty days, from the receipt of the same, company failed to discharge its liability and as such it is liable to be wound up by this Court under Section 433 (e) of the Act ibid. Mr. Gautam, learned Senior Advocate, while specifically placing reliance upon reply dated 5.4.2014, (Annexure M), stated that the Company has neither raised any genuine dispute with regard to liability arising against it nor controverted the fact, especially of 50% cut in power supply and as such Petitioner company rightly raised demand of Rs.8,90,40,858 plus interest in terms of clause 7 of the contract agreement.
Learned counsel, for the petitioner further contended that it clearly emerges from the reply of the Company that Company has sold its power plant alongwith all assets to JSW Energy Limited and this whole process has been done to overcome the debt-ridden condition of the Company, which further strengthens the stand of the petitioner that at present company is burdened with huge debts and proceeds, which certainly suggests that financial stability and substratum of the Company has been lost. While concluding his arguments, Mr. Gautam, learned Senior Advocate, contended that bare perusal of the documents placed on record would go to show ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 20 that petitioner company has not committed any breach of agreed terms of contract, in any manner, causing any .
inconvenience to the company or resulting into frustration of contract or giving rise to necessity to invoke Standby Letter of Credit, rather, it is apparent from the documents adduced on record by respective parties that company has committed fraud with the petitioner company by not complying with most essential part of the contract namely procuring 150 MW power from Open Access, which was the essence of the contract. Mr. Gautam, learned Senior Advocate, strenuously argued that letter of acceptance suggests that company accepted Clause 7 without any condition and thereafter, by giving such unequivocal promise and assurance, the company has committed breach of promise and breach of trust of the petitioner company, amounting to fraud, by applying for and getting approval of only 75 MW of power from Open Access, when under the agreement, company was obliged to apply for 150 MW power. Claim of the petitioner under Clause 7 of the agreement /contract is an undisputed and a valid claim, which has not been objected to at all by the company, as such, company may be wound up and Official Liquidator may be appointed to take over possession of the properties, plant and machineries and other assets of the Company under the supervision and control of this Court.
::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 216. While refuting aforesaid submissions having been made by the learned counsel representing the petitioner, Mr. Vinay .
Kuthiala, learned Senior Advocate duly assisted by Ms. Vandana Kuthiala, Advocate, contended that claim of the petitioner is disputed and vexatious and present petition is sheer abuse of process of law, as such, same deserves to be dismissed with heavy costs. Mr. Kuthiala, further contended that it is settled position of law that winding-up petition can not be used to recover money, especially the money in disputed claim. Mr. Vinay Kuthiala, Learned Senior Advocate, while inviting attention of this Court to the notice issued under Sections 433 and 434 of the Companies Act, strenuously argued that falsity and non-maintainability of the proceedings is apparent from the fact that petition was filed after a period of one year and nine months of issuance of notice under Sections 433 and 434 of the Companies Act and, more than three years, after raising claim. Mr. Kuthiala, learned Senior Advocate, further contended that before approaching this Court by way of instant proceedings, petitioner preferred civil suit in various Courts in the Country, i.e. Civil Court of Gujarat, High Court of Gujarat and High Court of Bombay on several occasions. Learned Senior Advocate while drawing attention of this Court to the petition having been filed by the petitioner, stated that it is ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 22 undisputed that civil suit having been filed by petitioner company on the same cause of action is still pending in the .
High Court of Bombay, which itself suggests that the claim of the petitioner is disputed and present petition is nothing but sheer abuse of process of law. Learned Senior Advocate, while inviting attention of this Court to Annexure R-1/A, i.e. balance sheet, further contended that as per balance sheet, assets of the respondent company for the year 20014-15 are worth Rs.32,000 Crore and profit after deduction for the year is Rs.137 Crore, as such, instant petition for winding up of Company for a disputed amount of Rs.8.90 Crore is nothing but sheer abuse of process of law. While referring to Letter of Intent dated 7.6.2012, learned Senior Advocate contended that on 8.6.2012, Company affirmed acceptance of Letter of Intent dated 7.6.2012, subject to certain conditions. Clause 6
(a) of the Letter of Intent stipulated petitioner to submit Standby Letter of Credit/Bank Guarantee for Rs.22.10 Crore, within seven days of acceptance of Letter of Intent by the Company i.e. by 15.6.2012, which petitioner failed to furnish within stipulated time, as such, it is breach of contract.
Though the petitioner had failed to fulfill the condition of Letter of Intent, despite that, respondent, in the first instance, applied for open access for July 2012 , in June 2012 for 150 MW and supplied 150 MW to the petitioner, for the month of ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 23 July, 2012. Even under Clause 9(b) of the Letter of Intent, the Company would have been within its right not to supply any .
power to the petitioner. Learned Senior Advocate, while referring to several mails exchanged inter se parties, stated that the petitioner continued breach and failed to provide Standby Letter of Credit to the Company for Rs.22.10 Crore, as such, finally company vide mail dated 13.7.2012 requested the petitioner to submit Standby Letter of Credit by 14.7.2012. While referring to the mail dated 25.7.2012, learned counsel representing the Company contended that Company again sent a mail to the petitioner observing that it did not receive Standby Letter of Credit and in the absence of payment security mechanism, it may not be possible to commit quantum of power agreed under Letter of Intent. On 26.7.2012, Company received Letter of Credit for Rs.15 Crore from the petitioner, which was a bill discounting letter of credit. Since Letter of Intent was not acceptable to the Company, as it was not as per terms of Letter of Intent to provide Standby Letter of Credit, Company, vide mail dated 27.7.2012, clarified to the petitioner that Standby Letter of Credit for Rs.10 Crore is inadequate for 11 days, of which only scanned copy was received. While concluding his arguments, Mr. Kuthiala, contended that bare perusal of pleadings as well as documents adduced on record by the ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 24 respective parties suggest that there is breach on the part of the petitioner by not providing Standby Letter of Credit within .
stipulated time frame, as such, there was no occasion for the company to expose itself to expenditure of Rs.8.00 Crore, by applying for open access for three months, especially when petitioner itself was in continuous breach of Letter of Intent.
While referring to letter dated 27.7.2012, learned counsel contended that Company had informed petitioner that it can only commit 150 MW for the month of August, 2012 and 75 MW for September, 2012. Though it was objected to by the petitioner but ultimately discussions took place between the between CFO of the Company and Managing Director of the Company on 27.7.2012, wherein it was unequivocally informed to the petitioner that the Company could only commit 75 MW supply of power for August and September, 2012, since petitioner had not fulfilled the terms of the Letter of Intent. Petitioner agreed to the said reduction in power supply. Said understanding/revised agreement arrived at between the petitioner and Company on 27.7.2012 was recorded in Company's mail dated 28.7.2012. Petitioner did not object to the aforesaid mail, nor raised issue during entire month of August, 2012 till 10.9.2012. While referring to the clause 9 of Letter of Intent, learned counsel for the respondent contended that Company has a right to ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 25 regulate/stop power giving two days notice, in case payment security is inadequate and, in case of deficit in supply of .
power on account of stoppage/regulation of power, on account of such regulation/stopping of power, the respondent was not subject to any liability on account of compensation.
Lastly, Mr. Kuthiala, contended that since petitioner failed to furnish payment security including Standby Letter of Credit of Rs.22.10 Crore, respondent Company was within its right to curtail the power supply to the petitioner and as such, there is no question of raising demand i.e. compensation in terms of clause 7 of the general terms and conditions of Letter of Intent. Learned counsel further contended that the petitioner raised a claim of ` Rs.5.16 Crore against the Company to escape from is liability to make payments against power supply bills to be raised by the company for the period.
Company specifically denied the claim of petitioner vide letter dated 17.9.2012.
7. I have heard the learned counsel for the parties and gone through the record carefully.
8. Before ascertaining the correctness and genuineness of the submissions having been made by the learned counsel for the parties, vis-à-vis pleadings, this Court deems it necessary to go into the relevant provisions of law, which may be applicable in the present case.
::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 26[433. CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP BY TRIBUNAL A company may be wound up by the Tribunal, -
(a) if the company has, by special resolution, .
resolved that the company be wound up by the Tribunal;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting ;
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year ;
(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;
(e) if the company is unable to pay its debts ;
(f) if the Tribunal is of opinion that it is just and equitable that the company should be wound up ;
(g) if the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years ;
(h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality ;
(i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G :
Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government.]
434. COMPANY WHEN DEEMED UNABLE TO PAY ITS DEBTS (1) A company shall be deemed to be unable to pay its debts -
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding 1 [one lakh] rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 27 weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree .
or order of any Court [or Tribunal] in favour of a creditor of the company is returned unsatisfied in whole or in part ; or
(c) if it is proved to the satisfaction of the 3 [Tribunal] that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the [Tribunal] shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.
439. PROVISIONS AS TO APPLICATIONS FOR WINDING UP (1) An application to the [Tribunal] for the winding up of a company shall be by petition presented, subject to the provisions of this section, -
(a) by the company ; or
(b) by any creditor or creditors, including any contingent or prospective creditor or creditors ; or
(c) by any contributory or contributories ; or
(d) by all or any of the parties specified in clauses (a), (b) and (c), whether together or separately ; or
(e) by the Registrar ; or
(f) in a case falling under section 243, by any person authorised by the Central Government in that behalf ; or [(g) In a case falling under clause (h) of section 433, by the Central Government or a State Government.] (2) A secured creditor, the holder of any debentures (including debenture stock), whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and the trustee for the holders of debentures, shall be ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 28 deemed to be creditors within the meaning of clause (b) of sub-section (1).
(3) A contributory shall be entitled to present a .
petition for winding up a company, notwithstanding that he may be the holder of fully paid-up shares, or that the company may have no assets at all, or may have no surplus assets left for distribution among the shareholders after the satisfaction of its liabilities.
(4) A contributory shall not be entitled to present a petition for winding up a company unless -
(a) either the number of members is reduced, in the case of a public company, below seven, and, in the case of a private company, below two ; or
(b) the shares in respect of which he is a r contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up or have devolved on him through the death of a former holder.
(5) Except, in the case where he is authorised in pursuance of clause (f) of sub-section (1), the Registrar shall be entitled to present a petition for winding up a company only on the grounds specified in clauses (b), (c), (d), (e) [(f) and (g)] of section 433 :
Provided that the Registrar shall not present a petition on the ground specified in clause (e) aforesaid, unless it appears to him either from the financial condition of the company as disclosed in its balance sheet or from the report of a special auditor appointed under section 233A or an inspector appointed under section 235 or 237, that the company is unable to pay its debts :
Provided further that the Registrar shall obtain the previous sanction of the Central Government to the presentation of the petition on any of the grounds aforesaid.::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 29
(6) The Central Government shall not accord its sanction in pursuance of the foregoing proviso, unless the company has first been afforded an opportunity of making its representations, if any.
.
(7) A petition for winding up a company on the ground specified in clause (b) of section 433 shall not be presented-
(a) except by the Registrar or by a contributory ; or
(b) before the expiration of fourteen days after the last day on which the statutory meeting referred to in clause (b) aforesaid ought to have been held.
(8) Before a petition for winding up a company presented by a contingent or prospective creditor is admitted, the leave of the [Tribunal] shall be obtained for the admission of the petition and such leave shall not be granted -
(a) unless, in the opinion of the [Tribunal], there is a prima facie case for winding up the company ; and
(b) until such security for costs has been given as the [Tribunal] thinks reasonable.
9. One of the conditions as contained in Section 433 (e) provides that a company can be wound up by a Company Court, if the company is unable to pay its debts.
10. Section 434 (1)(a) provides that a company would be deemed to be unable to pay its debts, if it neglects to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditors for three weeks, after having received demand notice, delivered at its registered office by registered post or otherwise.
11. Section 439 provides for moving an application to the Company Court for winding up of a company by the company ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 30 or by any creditor or creditors, including any contingent or prospective creditor or creditors.
.
12. After, having taken note of the submissions having been made by the learned counsel for the parties, as well as provisions of law, relevant for the adjudication of the present case, it would be profitable to take note of the some of the factors, to be kept in mind before reaching any conclusion in a winding up petition.
13. Hon'ble Apex Court in M. Gordhandas & Co. v. M.W. Industries, AIR 1971 SC 2600, has held as under:
21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company 94 S.J. 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely (See Re. Tweeds Garages Ltd. (3) The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends.
22. Another rule which the court follows is that if there is opposition to the making of the winding up order by the creditors the court will consider their wishes and may decline to make the winding up order. Under section 557 of the Companies Act 1956 in all matters relating to the winding up of the company the court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered though perhaps the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer's Company Law, 21st Edition page 742 as follows :
"This right to a winding up order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and if, for some good reason, they object to a winding up order, the court in its discretion may refuse the order'.::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 31
The wishes of the creditors will however be tested by the court on the grounds as to whether the case of the persons opposing the winding up is reasonable; secondly, whether there are matters which should be inquired into and investigated if a winding up .
order is made. It is also well settled that a winding up order will not be made on a creditor's petition if it would not benefit him or the company's creditors generally. The grounds furnished by the creditors opposing the winding up will have an. important bearing on the reasonableness of the case (See Re. P. & J. Wacrae Ltd.(1).
29. The appellants contended that the- shortfall in the assets of the company by about Rs. 2,50,000 after the sale of the machinery would indicate first that the substratum of the company was gone and secondly that the company was insolvent. An allegation that the substratum of the company is gone is to be alleged and proved as a fact. The sale of the machinery was alleged in the petition for winding up to indicate that the substratum of the company had disappeared. It was also said that there was no possibility of the company doing business at a profit. In determining whether or not the substratum of the company has gone, the objects of the company and the case of the company on that question will have to be looked into. In the present case the company alleged that with the proceeds of sale the company intended to enter into some other profitable business. The mere fact that the company has suffered trading losses will not destroy its substratum unless there is no reasonable prospect of it ever making a profit in the future, and the court is reluctant to hold that it has no such prospect. (See Re. Suburban Hotel Co.(1); and Davis & Co. v. Brunswick (Australia) Ltd. (2 ) The company alleged that out of the proceeds of sale of the machinery the company would have sufficient money for carrying on export business even if the company were to take into consideration the amount of Rs 1,45,000 alleged to be due on account of rent. Export business, buying and selling yarn and commission agency are some of the businesses which the company can carry on within its objects. One of the Directors of the Company is Kishore Nandlal Shah who carries on export business under the name and style of M/s. Nandkishore & Co. in partnership with others. Nandkishore & Co. are creditors 'of the company to the extent of Rs. 4,92,000. The company will not have to meet that claim now. On the contrary, the Nandkishore group will bring in money to the company. This Nandkishore group is alleged by the company to help the company in the export business. The company has not abandoned objects of business. There is no such allegation or proof. It cannot in the facts and circumstances of the present case be held that the substratum of the company is gone. Nor can it be held in the facts and circumstances of the present case that the company is unable to meet the outstandings of any of its admitted creditors. The company has deposited in court the disputed claims of the appellants. The company has not ceased carrying on its business. Therefore, the company will meet the dues as and when they fall due. The company has reasonable prospect of business and resources."::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 32
14. Hon'ble Apex Court in M/S IBA Health(I) (P)Ltd vs M/S Info-Drive Systems SDN.BHD, (2010) 10 SCC 553, has held .
as under:
"19. Further, it was pointed out that the allegations raised by the respondent company are totally frivolous which would require detailed investigation, recording of evidence and adjudication of the rights and obligations of third-party entities and would fall beyond the scope of enquiry to be conducted by the Company Court under Sections 433, 434 and 439 of the Companies Act, 1956 and if, at all, the respondent is aggrieved, the remedy open is to approach the Civil Court for adjudication of its claims.
SUBSTANTIAL DISPUTE - AS TO LIABILITY
20. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt.
21. In this connection, reference may be made to the judgment of this Court in Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami and another (1965) 35 Company Cases 456 (SC), in which this Court held that:
"It is well-settled that 'a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court."
22. The above mentioned decision was later followed by this Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt.
::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 33Ltd. (1971) 3 SCC 632. The principles laid down in the above mentioned judgment have again been reiterated by this Court in Mediquip Systems (P) Ltd. v. Proxima Medical Systems (GMBH) (2005) 7 SCC 42, wherein this Court held that the defence raised by the .
appellant-company was a substantial one and not mere moonshine and had to be finally adjudicated upon on the merits before the appropriate forum. The above mentioned judgments were later followed by this Court in Vijay Industries v. NATL Technologies Ltd. (2009) 3 SCC 527.
23. The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non-payment of the amount of such a bona fide disputed debt cannot be termed as "neglect to pay" so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956.
COMMERCIALLY SOLVENT
24. Appellant company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company's insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is relevant not as a separate ground. If there is no dispute as to the company's liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434 (1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. The law should be allowed to proceed and if demand is not met and an application for liquidation is filed under Section 439 in reliance of the presumption under Section 434(1)(a) that the company is unable to pay it debts, the law should take its own course and the company of course will have an opportunity on the liquidation application to rebut that presumption.
25. An examination of the company's solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company's liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 34 as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterized as a stand alone ground.
.
26. We have gone through various terms and conditions of the deed of settlement as also the compromise agreement and the allegations raised in the company petition and the objections filed by the appellant company. Both the parties are in agreement that they are bound by the terms and conditions of the deed of settlement. The respondent maintained the stand that substantial payments have been released by M/s Solutions Protocol Sdn. Bhd. in respect of various invoices raised by the appellant on or before 31.12.2006, this is the cut off date mentioned in the deed of settlement. The appellant company categorically denied that it had received payments on or before 31.12.2006, except the amount already received from M/s Solutions Protocol Sdn. Bhd. which had been paid over to the respondent.
27. Clause (2) of the deed of settlement states that the parties had agreed that the settlement sum was formulated based on the following proportions of the total amounts of MEDICOM produce license fee and/or all other payments received by MEDICOM from SP and/or SP/JV by virtue of the HICT Package I Contract. Further, it is stated therein that the settlement sum shall be valid for payments received by MEDICOM from SP and/or SP/JV under the HICT Package I Contract and/or the HIS Software applications modules contracted for the HICT Package I Contract with SP/JV only and it was conclusively agreed to that BITECH shall not in any circumstances whatsoever be entitled in law or otherwise for any payment for any other contracts including contracts involving MEDICOM and Solutions Protocol from the Government of Malaysia or otherwise, whether in Malaysia or any other country.
28. Further, Clause (4) also stipulated that the parties have acknowledged that the obligation of MEDICOM to pay BITECH the settlement sum shall always be subject to MEDICOM (or its representatives or nominees) having received payments of sufficient value from SP and/or SP/JV to enable the payment of upto the maximum amount of the settlement sum to be made on or before 31.12.2006, which is the Cut-off date. Further, it is seen that one of the terms of the compromise was that the respondent would make reasonable efforts to persuade M/s. Solutions Protocol to settle the invoices of the appellant at the earliest.
29. On a detailed analysis of the various terms and conditions incorporated in the deed of settlement as well as the compromise deed and the averments made by the parties, we are of the considered view that there is a bona fide dispute with regard to the amount of claim made by the respondent company in the company petition which is substantial in nature. The Company Court while exercising its powers under Sections 433 and 434 of the Companies Act, 1956 would not be in a position to decide who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed which calls for detailed investigation of facts and examination of evidence and calls for ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 35 interpretation of the various terms and conditions of the deed of settlement and the compromise entered into between the parties.
30. A company petition cannot be pursued in respect of .
contingent debt unless the contingency has happened and it has become actually due. In the absence of any evidence, it is not possible to conclude that M/s. Solutions Protocol Sdn. Bhd. had in fact paid any amount to the appellant company towards commission charges due to the respondent company before the cut off date. A legal notice prior to the institution of the company petition could be served on the company only in respect of a debt (then due) and a company could be wound up only if it was unable to pay its debts. In this case, there is a bona fide dispute as to whether the amount claimed is presently due and if, at all, it is due, whether the appellant company is liable to pay the sum unless they have received the same from M/s. Solutions Protocol Sdn. Bhd.
31. Where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purposes of winding up. "Bona fide dispute" implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt upon which a petition is founded is a hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the company to pay before coming to that conclusion. The Company Court is expected to ascertain that the company's refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil court.
32. In the instant case, the Company Court was very casual in its approach and did not make any endeavour to ascertain as to whether the company sought to be wound up for non-payment of debt has a defence which is substantial in nature and if not adjudicated in a proper forum, would cause serious prejudice to the company.
MALICIOUS PROCEEDINGS FOR WINDING UP
33. We may notice, so far as this case is concerned, there has been an attempt by the respondent company to force the payment of a debt which the respondent company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay a bona fide disputed debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances, where the jurisdiction of the Company Court is being abused by filing winding up petitions to pressurize the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate Court in respect of the injury to reputation caused by ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 36 maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor's winding up petition implies insolvency and is likely to damage the .
company's creditworthiness or its financial standing with its creditors or customers and even among the public.
PUBLIC POLICY CONSIDERATIONS
34. A creditor's winding up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the Newspaper of the filing of winding up petition may damage the creditworthiness or financial standing of the company and which may also have other economic and social ramifications. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross-defaults, and may further push the company into a state of acute insolvency much more than what it was when the petition was filed. The Company Court, at times, has not only to look into the interest of the creditors, but also the interests of public at large.
35. We have referred to the above aspects at some length to impress upon the Company Courts to be more vigilant so that its medium would not be misused. A Company Court, therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the company to pay a debt which is substantially disputed. A Company Court, therefore, should be guarded from such vexatious abuse of the process and cannot function as a Debt Collecting Agency and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere."
15. A Division Bench of Gujarat High Court in Tata Iron and Steel Co. v. Micro Forge (India) Ltd., (2001) 104 Com.
Cases 533 (Guj.), has held as under:
"20. Certain important chronicles and contours to be kept in the mental radar, before reaching the conclusion in a winding up petition can be articulated as under :
(1) The remedy under section 433 in general and under clause (e) in particular is not a matter of right; as such, and it is the discretion of the company court. It does not confer any right on any person to seek order that the company should be wound up. It is a provision empowering the court by a statutory provision to pass an order of winding up in an appropriate case.::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 37
(2) Merely because any one of the circumstances enumerated in section 433 of the Companies Act exists, the court is not bound to order winding up of the company.
Nobody can aspire to wind up the company as a matter of .
course. The court has wide power and discretion. In this connection, inability to pay debts is required to be judged from various sets of facts and circumstances. It may also be stated that inability to pay debts in all cases, ipso facto, could not be construed as an appropriate case for winding up.
(3) A debt is money which is payable or will be payable in future by reason of a person's obligation. The expression "debt" would refer to liability to pay and it rests on certain contingencies, conditions and causalities. Even if the debt is proved and even if the inability to pay the debt is also shown, it is not a launching pad, in all cases, for a successful winding up order. Inability may arise for a variety of reasons and the court is obliged to consider whether the inability is the outcome of any deliberate or designed action or mere temporary shock and effect of economy and market. In a given case, it may happen that a party may become unable to pay its debts for a while, but that by itself is not a criterion for exercise of the power to wind up, ipso facto.
(4) It is necessary for the company court to consider the financial status, strength and substratum of the company, in the overall context. It is possible, at times, that there may be a cash crunch. It may be also, possible, at times, that there is temporary cash crisis despite high sales and heavy turnover and, therefore, in such a situation, mere disability or only on the ground of inability to pay would not constitute a ground empowering the court to wind up the company.
(5) If the company is an ongoing concern having regular business and employment of employees, the court cannot remain oblivious to this aspect. The effect of winding up would be of putting an end to the business or an industry or an entrepreneurship and, in turn, resulting in loss of employment to several employees and loss of production and effect on the larger interest of the society.
(6) Even dividend declared by the company regularly and having profit in the light of the profit and loss account, though temporarily, there may be inability to pay the debt or in the case of any eventuality, the company is unable to make the payment of dues and that by itself could not be construed as a ground to wind it up.
(7) Winding up of a company, as such, is nothing but a commercial death or insolvency and, therefore, the company court is obliged to take into consideration not only the temporary inability, or disability to make the payment of ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 38 debts, but the entire status and position of the company in the market.
(8) When the grounds on which the winding up order can be .
denied, upon an evaluation of the facts of the case, after admission, exist from the record already placed before the court, it would be a sound exercise of discretion to reject the petition instead of admitting it. This view is very much celebrated.
(9) Inability to pay debts in terms of section 433(e) read with section 434(1)(a), demand of the debt would raise a presumption as to inability to pay its debts. But such a presumption is rebuttable. Such a presumption may be rebutted on existing material and what evidence is sufficient depends on the facts and circumstances of the case.
(10) If the company has shown considerable growth in a reasonable span and is a growth oriented enterprise, even in a case of temporary inability would not be sufficient to drive it to winding up.
(11) Though, ordinarily, an unpaid creditor may aspire for an order of winding up, the "ex debito justitiae" rule is not of inflexible mandate, but is, as such a matter of discretion of the court.
(12) Section 433 is also indicative of the fact that even if one or more grounds mentioned in section 433 exist, it is not obligatory for the court to make an order of winding up. The court has discretionary power. The court must in each case exercise its discretion in deciding whether in the circumstances of the case, it would be in the interest of justice to wind up the company. It is a well known rule of prudence that even in a case where indebtedness to the petitioning person is undisputed, the court does not pass an order for winding up where it is satisfied that it would not be in the larger interest of justice to wind up the company.
(13) It is also well settled that a winding up order shall not be made on a creditor's petition, if it would not benefit him or the company's creditors in general.
(14) The court is also obliged to consider that it would be in the interest of justice to give the company some time to come out of the momentary financial crisis or any other temporary difficulty as winding up is a measure of last resort.
(15) Winding up course cannot be adopted as a recourse to recovery of the debt.
(16) The court must bear in mind one more celebrated principle and consider whether the company has reached a ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 39 stage where it is obviously and plainly and commercially insolvent, that is to say, that its assets are such and its existing liabilities are such as to make the court feel clearly satisfied that current assets would be insufficient to meet .
the current liabilities, along with other principles.
(17) It is also necessary to consider whether the respondent- company has become defunct or has closed its business, for quite some time, whether it is commercially insolvent. For the purpose of finding commercial insolvency, a mere look into the financial data is relevant to examine about its soundness. In all matters relating to winding up, the court may have regard to the wishes of the creditors and contributories and may, if necessary, ascertain their wishes appropriately. If the company is solvent, the wishes of the contributories would carry more weight as they are persons, mainly, interested in the assets.
(18) The element of public policy in regard to commercial morality has, likewise, to be taken into account before determining the winding up issue. The court has also to consider the purpose and policy behind sections 443 and 557 of the Companies Act.
(19) Winding up is the last thing the court would do and not the first thing to do having regard to its impact and consequences. Winding up of a company would ensue :
(a) closing down of a company which is engaged in production or manufacture or which provides some services;
(b) it would throw out of employment numerous persons and result in gross hardship to the members of families of the employees;
(c) loss of revenue to the State by way of collection of taxes which otherwise should have been collected, on account of customs, excise duties, sales tax, income-
tax, etc.;
(d) scarcity of goods and diminishing of employment opportunities (20) A winding up petition has to be submitted in the prescribed form highlighting all the facts and emphasising the inability of the company to pay its debts. The form prescribed under the Companies (Court) Rules, clearly, indicates that the petitioner should, provide all the necessary material particulars. The petitioner is obliged to show that the financial status or the monetary substratum or the commercial viability of the company has gone so low and down that winding up is obviously, and evidently, unavoidable.
::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 40(21) It is a settled proposition of law that a winding up petition is not a legitimate means of seeking to enforce the payment of a debt which is disputed by the company, bona fide. A winding up petition ought not to be aimed at .
pressurising the company to pay the money. Such an attempt would be nothing but tantamount to blackmailing or stigmatizing the concerned company by abusing the process of the court.
(22) A winding up petition is not an appropriate mode enforcing bona fide disputed debts and it is nothing but misuse and abuse of the process of the court.
(23) A winding up petition is not an alternative form for resolving the debt dispute. In certain cases disputes are such that they are fit for resolving through the civil court rather than through the company court.
(24) What is bona fide and what is not is a question of fact. The expression "bona fide" would mean genuine, in good faith and when a dispute is based on substantial grounds or when a defence is probable and with some substance, it is a bona fide dispute. It must be strictly noted that a winding up petition is not an alternative to a civil suit.
16. This court in M/s Azeet International Pvt. Ltd. versus Himachal Pradesh Horticultural Produce Marketing & Processing Corporation Limited, 1998(2) Shim. L.C. 10, has held as under:
"12. The dispute between the parties with regard to the disputed claims pertains to the interpretation of various terms of the supply order against which the supplies of cartons were made by the petitioner-company. Such a dispute cannot be possibly decided in the present summary proceedings. The same can be appropriately decided in a properly framed suit. The defences raised by the respondent-company on the face of it appear to be bonafide and such defences are likely to succeed. Therefore, following the principles, detailed above, it is not a fit case for the exercise of powers of winding-up under Section 433 of the Act."
17. This court in Tata Iron and Steel Co. versus M/s. Him Ispat Ltd., 2002(1) Shim. L.C. 361, has held as under:
"16. In case an order of winding up is passed, it leads to the financial ruination of a company incorporated under the Act. Besides this, a winding up petition is not an alternative mode for ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 41 effecting recovery of its dues by a creditor. In any case before passing an order under Section 433, of the Companies Act, the court is to see that one of the grounds enumerated in it exists. Then only an order of winding up can be passed. The provision .
being stringent strict compliance with law has to be insisted upon. The effect of non-compliance with Section 434(1)(a) of the Act, in my view will make the petition under Section 433 of the Act not maintainable
22. After having considered the respective submissions on behalf of the parties, as also the provisions of the Act, as well as the law cited at the Bar, I am satisfied that notice was not issued to the company and its endorsement to the company having not been made at its registered address, as such, the contention urged by the learned senior counsel deserves to be upheld and it is ordered accordingly.
26. Faced with this situation, the learned counsel for the petitioner-company persisted that after the decision of the BIFR this objection of Him Ispat Ltd. does not hold good, therefore, deserves to be rejected. This argument has been raised simply to be rejected. The reason being that jurisdiction of the court was to be seen on the day when the winding up petition was filed. A bare perusal of Section 22(1) prohibits maintaining of the petition itself. Therefore, subsequent orders will not ratify what was initially prohibited by law. For taking this view, reference can be made to C.J. Gelatine Products Ltd., In re [1994] 81 Comp. Cas. 890 (Bom.) wherein it was held as under :
"Held accordingly, dismissing the petition for winding up the company,
(i) That since the petition had been filed after the inquiry in relation to the company under Section 16 had commenced, without the consent of the BIFR, it was held void ab initio, the court having no jurisdiction to entertain it.
(ii) That since the filing of the petition was itself void, the pendency of the petitioners' application before the BIFR for consent at that stage was not relevant, nor was the fact that the petitioners had no knowledge till much later of the company being declared sick.
(iii) That when the petition could not in law be entertained, the question of the company being estopped from challenging the maintainability of the petition did not arise."
Thus, the plea urged on behalf of Him Ispat Ltd. that Company Petition No. 1 of 1998 did not lie, is upheld.
28. At this stage another submission urged by the learned senior counsel needs to be noted. That both the orders of the AAIFR and the BIFR are the subject-matter of Civil Writ Petition ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 42 No. 604 of 2001. It was not disputed that prayer for stay of operation of both these orders was made, but no orders have been passed yet. Only notices have been issued. In this behalf suffice it to observe that mere filing of appeal or any other lis does not .
operate as stay unless directed otherwise by the court concerned. Since Company Petition No. 7 of 2001 and Company Petition No. 1 of 1998, both were being taken up together, on 19-10-2001, when following order was passed by the court:
"Adjourned at the request of Mr. Bimal Gupta, advocate. To be listed in the week commencing from November 5, 2001.
A longer date was given on September 14, 2001, so as to enable the respondent-company to pray for the grant of interim relief in the writ petition that was stated to have been filed before the Division Bench challenging the order of the AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985. Admittedly, no order of stay against the said order of AAIFR has been granted in favour of the company. Therefore, the matter will be taken up on the next date of hearing for disposal in accordance with law unless the Division Bench orders otherwise."
30. After going through the materials on record as well as the orders passed by the AAIFR as well the copy of the order passed by the BIFR in the case of Him Ispat Ltd., this court is of the opinion that it would be just and equitable if Him Ispat Ltd., is wound up. How the opinion of the BIFR and the AAIFR is to be dealt with is being now taken up."
18. This Court in M/S. Ranbaxy Laboratories Limited versus Jerath Electronics and Allied Industries, 2000(2) Shim. L.C. 342, has held as under:
"16. It may be stated that the petitioner-company has not produced any written agreement which the parties had entered into either before or at the time of placing the supply order or at any time thereafter making the time to be the essence of the supply order. There is also nothing on the record to show that on the failure of the respondent-company to supply the Analyser by 8.8.1997, the respondent-company was liable to pay damages for the delayed period and/or interest as claimed by the petitioner- company.
19. In my opinion, in the absence of any agreement between the parties, the disputes which the respondent-company has raised, as detailed above, cannot be treated and termed as fictitious or frivolous. There appears to be sufficient justification in the claim of the respondent-company that the disputes raised are bona fide disputes. Therefore, it cannot be held that the respondent- company has failed to pay the debt due from it."
::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 4319. Recently, our own High court, in Company Petition No. 15 of 2014, titled M/S Oswal Alloys Private Limited versus .
M/S Gilvert Ispat Private Limited and others, decided on 6th January, 2017, taking into consideration comprehensive law laid down by the Hon'ble Apex Court, deduced following broad principles, which are required to be borne in mind, while adjudicating petition for winding up:
"1.
If the debt is bonafide disputed and the defense is a substantial one, the Court will not wind up the company.
Conversely, if the plea of denial of debit is moonshine or a cloak, spurious, speculative, illusory or misconceived, the Court can exercise the discretion to order the Company to be wound up.
2. A petition presented ostensibly for winding up order, but in reality to exert pressure to pay the bonafide disputed debt is liable to be dismissed.
3. Solvency is not a stand alone ground. It is relevant to test whether denial of debt is bonafide.
4. Where the debt is undisputed and the company does not choose to pay the particular debt, its defence that it has the ability to pay the debt will not be acted upon by the Court.
5. Where there is no dispute regarding the liability, but the dispute is confined only to the exact amount of the debt, the Court will make the winding up order.
6. An order to wind up a company is discretionary. Even in a case where the company's liability to pay the debt was proved, order to wind up the company is not automatic. The Court will consider the wishes of shareholders and creditors and it may attach greater weight to the views of the creditors.
7. A winding up order will not be made on a creditors petition if it would not benefit him or the company's creditors ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 44 generally and the grounds furnished by the creditors opposing winding up will have an impact on the reasonableness of the case.
.
20. It clearly emerges from law referred to herein above that winding up is not a legitimate means of seeking to enforce payment of debt, which is bona fide disputed by the company.
Where debt is undisputed, Court will not act upon defence that company is able to pay debt but company chose not to pay the debt. Where there is no dispute regarding the liability but the dispute is confined only to the exact amount of the debt, the Court will make the winding up order, without requiring the creditor to quantify the debt precisely.
21. In this regard, principles, on which Court acts are, firstly, that the defence of the Company is in good faith and one of substance, and, secondly, defence is likely to succeed in law and, thirdly, company adduces prima facie proof of facts, on which defence depends. Dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or mis-conceived. Hon'ble Apex Court, in M/s IBA Health (India) Private Limited v. INFO-Drive Systems SDN.BHD., (2010) 10 SCC 553, has specifically held that 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 ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 45 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. Hon'ble Apex Court in Tata Iron and Steel Co. v. Micro Forge (India) Ltd., (2001) 104 Comp. Cases 533 (Guj), has held that, "bona fide" expression would mean genuine, in good faith and when a dispute is based on substantial grounds or when a defence is probable and with some substance, it is a bona fide dispute. It must be strictly noted that a winding up petition is not an alternative to a civil suit.
22. It has been repeatedly held by Hon'ble Apex Court that winding up petition is not an appropriate mode to enforce bona fide disputed debt. It is nothing but misuse and abuse of process of court. Winding up is the last thing the court would do and not the first thing to do having regard to its impact ::: Downloaded on - 01/08/2017 23:56:56 :::HCHP 46 and consequences. Winding up petition ought not be aimed at pressuring the company to pay money, because such an .
attempt would be nothing but tantamount to blackmailing or stigmatizing the concerned company by abusing process of court.
23. Hon'ble Apex Court, in M/s IBA Health (India) Private Limited v. INFO-Drive Systems SDN.BHD. (supra), has specifically held that "bona fide dispute" implies existence of substantial grounds for the dispute raised. It has been held that where a company court is satisfied that the debt upon which petition is founded, is hotly contested debt and also doubtful, company court should not entertain such 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.
24. Now, this Court taking note of the aforesaid observations and law laid down by the Hon'ble Apex Court would proceed further to examine whether Company has a genuine dispute to claim debt or not. Similarly, this Court would make an attempt to explore whether petition presented ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 47 for winding up order is only to exert pressure to pay bona fide disputed debt or not?
.
25. In the instant case, as has been taken note above, since only 75 MW power came to be applied in the month of August, 2012 and there was a short fall of 50% of the required demand of petitioner, petitioner-company raised debit notes/claim of Rs.5,16,08,058 and Rs. 3,31,20,000/-, towards compensation for default in supply of power from 1.9.2012 to 23.9.2012. Since, Company failed to pay the amount in terms of debit notes issued by petitioner company, within due dates in terms of legal notice issued under Sections 433 and 434 of the Companies Act, petitioner preferred instant petition for winding up. Respondent-
Company specifically claimed that claim of the petitioner company is fictitious and vexatious and present petition is sheer abuse of process of law. It is not in dispute that petitioner company before approaching this Court has already filed civil suit in the High Court of Bombay, qua the same claim, which is pending there.
26. Similarly, respondent-company while placing on record balance sheet for the years 2014-15, made an attempt to prove on record that company has financial assets of worth Rs.32,000 Crore and profit after deduction of tax is Rs.137 Crore and as such seeking winding up of the Company for ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 48 disputed amount of Rs.8.90 Crore is nothing but abuse of process of law.
.
27. Similarly, Company, while refuting the claim of the petitioner company has contended that as per one of the conditions of the acceptance letter dated 8.6.2012, company was required to submit Standby Letter of Credit/Bank Guarantee of Rs.18,41,00,000/- in favour of petitioner valid till 15.10.2012 and same was to be submitted within seven days from acceptance of Letter of Intent dated 7.6.2012. Since petitioner failed to fulfill its obligation to submit Standby Letter of Credit, Company, in the first instance applied for open access with effect from July, 2012 only and then subsequently in June 2012 for 150 MW and supplied 150 MW to the petitioner from July, 2012. Company further claimed that even under Clause 9(b) of Letter of Intent, Company was well within its right not to supply any power to the petitioner, since petitioner company continued breach and did not provide Standby Letter of Credit to the petitioner company amounting to Rs.22,10,00,000/-, respondent Company informed the petitioner that it would not be possible for it to commit quantum of power as agreed in Letter of Intent and even if PSM (Payment Security Mechanism) is made available, open access shall be applied only for a quantum that will be available with the company at the first instance. As per ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 49 Company, it received Letter of Credit for Rs.15.00 Crore from the petitioner on 26.7.2012, which was bill discounting letter .
of credit. This letter of credit was not acceptable to the Company since it was not as per terms and conditions of the Letter of Intent. Accordingly, it was clarified by the company that said Standby Letter of Credit of Rs.10.00 Crore is also inadequate for a period of 11 days. Company has also placed on record certain e-mails suggestive of the fact that certain emails were exchanged between petitioner and company, on the issue at hand and finally, there was an understanding between the petitioner and respondent with regard to reduction in quantum of power from 150 MW to 75 MW for the months of August and September, 2012 on 27.7.2012.
28. It is also emerges from record that various mails were exchanged between petitioner and respondent, wherein it was communicated to the petitioner company by the respondent that it was only committed to supply 150 MW of power, for the month of August, 2012 and 75 MW from the month of September, 2012, which was undoubtedly objected by the petitioner.
29. Further, it emerges from the record that pursuant to aforesaid mails having been exchanged between the petitioner and respondent, some discussion took place between CFO of the petitioner and Managing Director of respondent, on ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 50 27.7.2012, wherein it was informed to the petitioner that the company could only commit 75 MW supply of power for the .
months of August and September, 2012. Admittedly, there is no communication placed on record by petitioner suggestive of the fact that aforesaid proposal sent by respondent was ever objected to by the petitioner.
30. Vide letter dated 17.9.2012, which has been taken note above, petitioner was required to submit Standby Letter of Credit /Bank Guarantee in terms of Letter of Intent, issued by petitioner r and accepted by respondent, but, since petitioner did not submit the same by due date, it was made clear by the respondent that open access shall be applied only for the quantum that will be available with them at the relevant time. Without going into details of aforesaid letter dated 17.9.2012, it clearly emerges from the record that there was clear dispute between petitioner and respondent.
31. In nutshell, case of the petitioner is that company accepted clause 7 of the Letter of Intent, without any condition and thereafter by giving such unequivocal promise and assurance, Company has committed breach of promise and breach of trust of petitioner, amounting to fraud by applying for and getting approval of only 75 MW of power from open access, whereas, under agreement, Company was obliged to apply for 150 MW of power. As per petitioner-
::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 51Company, its claim in terms of clause 7 of agreement is undisputed and valid claim.
.
32. At this stage, it would be apt to take note of clause 7 of the general terms and conditions of the agreement entered inter se parties:
"7. COMPENSATION FOR DEFAULT IN SCHEDULING Without prejudice to the provisions of Force Majeure, JVPL shall supply full quantum of the power to ESTL and in no case it shall be less than 90% of Open Access quantum approved in energy terms in a month. In case the JVPL supplies less than 90%, then, JVPL shall pay compensation @ Rs.1.00 per KWH for the quantum which falls short of 90% of the approved quantum in energy terms in a month.
Similarly if the power scheduled by ESTL is less than 90% of the Open Access capacity approved for the concerned month in energy terms, the ESTL shall pay compensation @ Rs.1.00 / KWH for the quantum which falls short of 90% of open access quantum in energy terms in a month. In addition, in case of revision / cancellation of approved open access corridor, the party seeking revision/ cancellation of open access corridor shall bear all the open access charges as applicable under inter-State Open Access Regulations from the injection point till the point of drawl applicable due to such surrender/cancellation.":
33. Though, it emerges from aforesaid Clause that respondent Company was under obligation to supply full quantum of power to petitioner-Company and, in no case, it was to be less than 90% of open access quantum of approved energy in a month.
34. Similarly, this Clause suggests that in case respondent-
company supplies less than 90% of power, then it shall pay ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 52 compensation of Rs.1.00 per KWH, for the quantum which falls short of 90% of the approved quantum in terms of energy .
in a month. Similarly, compensation of Rs.1.00 /KWH would be payable by petitioner company, if power scheduled by it is less than 90% of the open access capacity approved for the concerned month in energy terms.
35. At this stage, it would be apt to take note of clause 9 of the agreement:
"9. TERMINATION CLAUSE
a) ESTL reserves the full right to terminate the contract, if JVPL fails to abide by the terms and conditions as stipulated for selling the power.
b) In case payments are not made by ESTL by due date and payment security is inadequate, then JVPL shall have the right to regulate/stop the power supply by giving a 2 days notice to ESTL. It is further made clear that any deficit in supply of power on account such regulation/stopping of power shall not be subject to any liability on account of compensation. Further, the corridor charges, as forfeited by RLDC on account of such regulation of supply, shall be to the account of ESTL."
36. Clause 9 (b) clearly suggest that in case payments are not made by petitioner company, by due date and payment security is inadequate, respondent Company i.e. JPVL shall have right to regulate/ stop the power supply by giving two days' notice to ESTL. This clause further provides that for any deficit in power supply on account of such ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 53 regulation/stopping of power, respondent Company shall not be subject to any liability on account of compensation.
.
37. Annexure-I of LoI, dated 7.6.2012, (Annexure C), further provides as under:
"6. Performance Bank Guarantee
a) Buyer: ESTL shall submit a Standby Letter of Credit /Bank Guarantee of Rs.22.10 Crores in favour of JPVL valid till 15th October, 2012. ESTL shall submit such LC/BG within 7 days from the date of acceptance of LOI.
b) Seller : JP'VL shall submit a Standby Letter of Credit/Bank Guarantee of Rs.18.41 Crores in favour of ESTL valid till 15th October 2012. JVPL shall submit such LC/BG within 7 days from acceptance of LOI."
38. By way of aforesaid condition, buyer (petitioner company) was required to submit Standby Letter of Credit /Bank Guarantee of Rs.22.10 Crore, in favour of JPVL valid till 15th October, 2012 and as such, LC/BG was required to be submitted within 7 days from the date of acceptance of Letter of Intent.
39. Similarly, it suggest that Seller (respondent company) was required to submit a standby letter of credit /bank guarantee of Rs.18.41 Crore in favour of petitioner valid till 15.10.2012. This was also required to be done by respondent company within 7 days from the date of acceptance of Letter of Intent. It is not in dispute that aforesaid Letter of Intent as well as conditions therein were accepted by the parties. It is also not in dispute that respondent company vide ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 54 communication dated 8.6.2012 conveyed to the petitioner as under:
.
"JAYPEE KARCHAM WANGTOO HYDRO-ELECTRIC PLANT A DIVISION OF JAIPRAKASH POWER VENTURES LIMITED JPVL/STPS/OL/ESTL/0052 Date: 8th June 2012 Shri Alok Singh General Manager Essar Steel India Ltd.
Essar House 11, K.K.Marg Mahalaxmi, Mumbai-400034 Sub.: Purchase of power by Essar Steel India Ltd. (ESTL) from Jaiprakash Power Venture Ltd.(JPVL) for the period 01.07.2012 to 30.09.2012;
Ref:
r LOI/ESTL/Power Purchase/2012-13/RTC/1/JPVL dated 07.06.12.
Dear Sir, This is in reference to your referred letter regarding purchase of power by ESTL from JPVL under short term open access. The quantum and rate will be as mentioned below:
Contract Quantu Duration Delivery Point Tariff payable
Period m (MW) (Hours) at Delivery
Point
(Rs./kWh)
01.07.12 150 00:00 to Gujarat State 3.41
to 24.00 Periphery i.e.
30.09.12 interconnection
of Gujarat STU
with CTU in WR
Our point wise consent to the Terms & Conditions as listed in Annexure-I and as well to the General Terms and Conditions, of your letter under reference is as under:
Point (1) to Point (5)-OK Point (6) - Performance Bank Guarantee As a company policy, we don't offer any Letter of Credit/ Bank Guarantee for the power to be supplied by us at Seller's periphery. Since, JPVL will be applying for open access from July 2012 to September 2012, in the month of June 2012 itself; JPVL will be bearing the entire open access charges (around Rs.8 Crores) upfront. This in itself is a guarantee from JPVL towards its commitment for supply of power."
40. It is also not in dispute that the petitioner company relying upon the promise and assurances given by the ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 55 Company, not only accepted the bid, but also entered into agreement for purchase of power with the Company.
.
Company commenced supply of power from 1.7.2012. It is also not in dispute that company issued invoices for the supplies made, which were duly paid by the petitioner company. Dispute arose in the month of August, 2012, when petitioner came to know that instead of supply of 150 MW, respondent has applied for supply of 75 MW of open access, causing short fall of 50% power required by the petitioner company.
41. Debit note, whereby amount of Rs. 8,90,40,858/- plus interest has been claimed by the petitioner company is in terms of clause 7 of the contract agreement as reproduced above. True it is, that clause 7 as taken note above, provides for compensation for default in scheduling and it is also not in dispute that fixed amount i.e. Rs.1 per KWH for the quantum which falls short of 90% of the approved quantum in energy terms in a month, is prescribed in aforesaid clause, but, since claim as referred to above is purely based upon clause 7 of the general terms and conditions of the agreement arrived at between the parties, respondent company is also well within its right to dispute the same by invoking other clauses as contained in agreement stated herein above. As per clause 9, respondent is/had right to regulate/ stop power supply by ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 56 giving two days' notice to the petitioner in case payments are not made by it by due date and payment security is .
inadequate.
42. Similarly, condition contained in letter dated 8.6.2012, whereby terms and conditions as contained in annexure I to communication dated 7.6.2012, were consented to by respondent, suggests that supply of power by respondent JPVL under this agreement had to commence only once payment mechanism was finalized and all the formalities required under the mechanism were completed.
43. There is nothing on record suggestive of the fact that aforesaid condition put forth by the respondent was not accepted by the petitioner company, rather, there is ample material on record suggestive of the fact despite aforesaid condition, formal agreement was executed inter se parties and power supply was commenced.
44. This Court, after having carefully perused claims/counter claims, vis-à-vis material available on record sees substantial force in the arguments of Mr. Vinay Kuthiala, learned Senior Advocate that claim of the petitioner is disputed and vexatious. Since entire claim of the petitioner is based upon clause 7 of the agreement, which has been seriously disputed by the respondent, this Court sees no justification in accepting prayer of the petitioner Company for ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 57 winding up of Company. There appears to be sufficient justification in the claim of respondent that disputes of .
respondent are bona fide and as such it can not be held that respondent has failed to pay debt due from it.
45. Undisputedly, clause 7 of the agreement, as has been taken note above, suggests that respondent shall be liable to pay compensation at the rate of Rs. 1 per KWH, for quantum which falls short of 90% of the approved quantum in terms of energy in a month, but as has been observed above, compliance of aforesaid condition as contained in clause 7, is subject to other necessary compliances as are/were required to be done by the parties to the agreement. Since dispute qua same amount is pending adjudication before High Court of Bombay, this Court deems it proper not to make observations, if any, at this stage, with regard to genuineness of claim/counter-claim of the parties in light of terms and conditions contained in the agreement arrived inter se parties.
46. Decided on touchstone of the exposition of law, as referred to above, as well as material adduced on record by respective parties, it may be noticed that respondent Company has placed on record ample documents suggestive of the fact that dispute raised by respondent is bona fide dispute. There is nothing on record, from where it can be inferred that plea of denial of debt is moonshine or cloak, ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 58 spurious, speculative, illusory or misconceived. Rather, petition filed on behalf of the petitioner appears to be an .
attempt to exert pressure upon respondent to pay bona fide disputed debt.
47. Though, solvency, if any, of the respondent is not a ground to test whether denial of debt is bona fide, but, Hon'ble Apex Court in M/s IBA Health (India) Private Limited (Supra) held that an examination of the company's solvency may be a useful aid in determining whether the refusal to pay debt is the result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company's liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself.
48. In the instant case, as has been taken note above, respondent company has placed on record balance sheet for the year 2014-15, suggestive of the fact that its assets are worth Rs.32,000/- Crore and nothing has been placed on ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 59 record by the petitioner to controvert the aforesaid claim of the company. Company court, while exercising its power .
under Sections 433 and 434 of the Companies Act, can not decide, who was at fault in complying with the terms and conditions of the deed of settlement/ agreement, which calls for detailed examination of facts and also calls for examination of various terms and conditions of the agreement/ settlement arrived inter se parties. Legal notice prior to institution of company petition can be served on company only with respect to debt and company can be wound up only if it was unable to pay its debt, but, in the instant case, as has been taken note above, there is bona fide dispute as to whether claim is payable and if at all it is due, whether respondent is liable to pay the sum in terms of agreement executed inter se parties.
49. It clearly emerges from the law laid down by the Hon'ble Apex Court in the judgments referred to above that, where a company has bona fide dispute, petitioner can not be regarded as a creditor of the company for the purpose of winding up, as has been held in IBA Health (India) Private Limited (Supra), that "bona fide dispute" implies existence of substantial grounds for the dispute raised and where company court is satisfied that debt upon which petition is founded, is hotly contested debt and also doubtful, it should ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 60 not entertain such petition. This Court after having carefully perused claims/counter claims having been filed by respective .
parties, has no hesitation to conclude that respondent has a bona fide dispute and same can only be adjudicated by trial in a civil court.
50. In the instant case, it clearly emerges from the record that petitioner-company has already filed civil suit in the High Court of Bombay, qua the same claim, which is being hotly contested by the respondent Company and as such, there appears to be some force in the arguments of the learned counsel representing respondent company, that the present proceedings have been filed to compel the respondent to make payment in terms of debit note. It has been repeatedly held by Hon'ble Apex Court as well as High Courts that a party to dispute should not be allowed to use threat of winding up petition as a means to compel the company to pay bona fide disputed debt.
51. Needless to say that creditors' winding up petition implies insolvency and it causes great damage to the company's creditworthiness and financial stand with its creditors and customers and even amongst the public. The Hon'ble Apex Court in the judgments refereed to above, has cautioned company courts to be more vigilant so that its medium is not misused. Company court can not be allowed to ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP 61 be used as a debt collecting agency by the company seeking winding up, merely for realization of amount, which is bona .
fide disputed debt.
52. It is also well settled that winding up is the last thing a Court would do and not the first thing, having regard to its impact and consequences. Similarly, it is settled proposition of law that winding up petition is not a legitimate means to seek payment of debt, which is bona fide disputed by the company.
53. Consequently, in view of detailed discussion made hereinabove, this Court has no hesitation to conclude that company has bona fide dispute and petitioner can not be regarded as creditor of the company for the purpose of winding up.
54. Accordingly, in view of detailed discussion made herein above, material adduced on record and law laid down by Hon'ble Apex Court, there is no merit in the present petition and the same is dismissed. Pending applications, if any, are also disposed of.
(Sandeep Sharma) Judge July 28, 2017 (VIKRANT) ::: Downloaded on - 01/08/2017 23:56:57 :::HCHP