Madras High Court
*** vs Texmaco Rail & Engineering Limited on 25 July, 2014
Author: M.Venugopal
Bench: M.Jaichandren, M.Venugopal
THE HIGH COURT OF JUDICATURE AT MADRAS Dated:25.07.2014 Coram THE HONOURABLE Mr. JUSTICE M.JAICHANDREN AND THE HONOURABLE Mr. JUSTICE M.VENUGOPAL O.S.A.No.134 of 2014 and M.P.No.1 of 2014 *** ETA Engineering Private Limited, No.5, Moores Road, Chennai 600 006. Tamil Nadu ... Appellant/Respondent V. Texmaco Rail & Engineering Limited, Belgharia, Kolkata 700 056, West Bengal, India, Rep. By Mr.R.K.Jain, Manager Law ... Respondent/Petitioner Prayer: Appeal filed under Order XXXVI Rule 1 of the Original Side Rules and under Clause 15 of the Letters Patent as against the Order passed by the learned Single Judge in Company Petition No.52 of 2014 dated 25.04.2014. For Appellant : Mr.P.S.Raman Senior Counsel for Mr.P.Ranganatha Reddy and Mr.Jose John for M/s.King & Partridge For Respondent : Mr.Arvind P. Datar Senior Counsel for Mr.Arun Karthick Mohan JUDGMENT
M.VENUGOPAL, J.
The Appellant/Respondent has preferred the instant Original Side Appeal as against the order dated 25.04.2014, in Company Petition No.52 of 2014, passed by the Learned Single Judge.
2.The Learned Single Judge, while passing the order, in Company Petition No.52 of 2014, filed by the Respondent/Petitioner, on 25.04.2014, in paragraph Nos.16 to 18, had observed the following:
16.The plea of the learned counsel for the respondent is that the case of the petitioner involves interpretation of the NAAC and, therefore, there is a clear case of dispute. The interpretation as urged by the learned counsel for the respondent is as to whether the liability would stand as against VLMS or the respondent. Here is a clear case of goods sold and delivered and debt acknowledged prior to 15.3.13 by the respondent. The question is whether the respondent herein, viz., ETA, or the transferee VLMS is liable. The agreement of transfer slump sale by the respondent to VLMS does not in any way affect the rights of the petitioner, governed by the terms of NAAC. Clause (3) of the NAAC agreement very clearly provides that the parties agree that the respondent ETA's obligation is not discharged and an indemnity is also provided by the respondent and there is nothing in the agreement, which discharges ETA of its obligations. In such view of the matter, I do not find any justification to non-suit the petitioner on the ground that they have filed a petition before the High Court of Karnataka as against VLMS.
17.In view of the reasons as stated above, all the plea taken by the respondents appears to be a mirage. In view of the clear admission of liability by acknowledgement of debts on various dates as stated above and the NAAC dated 15.3.13, the non-response to the statutory notice, goes to show that the petitioner has made out a prima facie case for admission.
18.Accordingly, this Court, for the aforesaid reasons, is satisfied that a prima facie case has been made out for proceeding against the respondent under Section 433 (e) of the Companies Act. and admitted the Company Petition, by ordering issuance of notices on the Court Notice Board, to the Registrar of Companies, Madras etc.
3.Also that, the Learned Single Judge had directed the publication of the Company Petition in one issue of Tamil Daily Malai Murasu and in one issue of English Daily New Indian Express and in the Tamil Nadu Government Gazette fixing the date of hearing on 16.06.2014 and directed the publication of the Company Petition giving atleast 14 days clear advance notice.
4.Added further, the Learned Single Judge appointed the Official Liquidator as Provisional Liquidator and directed him to take charge of the assets of the Appellant/Respondent Company. That apart, the ex Directors of the Appellant/Respondent Company were directed to file their statement of affairs before the Official Liquidator within a period of 21 days and directed the company to deposit a sum of Rs.10,000/- towards initial expenses before the Official Liquidator.
Appellant/Respondent's Contentions:
5.The Learned Senior Counsel for the Appellant contends that the amounts claimed by the Respondent/Petitioner are due from Vikram Logistic and Maritime Services Private Limited and the said debtors company is registered at Bangalore and that the Respondent/ Petitioner filed a winding up petition, in C.P.No.10 of 2014, on the file of the Hon'ble High Court of Karnataka against Vikram Logistics for the dues claimed in present Company Petition No.52 of 2014 filed by the Respondent/ Petitioner on the file of this Court.
6.The Learned Senior Counsel for the Appellant submits that a purchase order dated 07.06.2008 was placed by the Appellant on the Respondent/Petitioner for supply of 8 Rakes of BLC Wagons/Rail Wagons (45 wagons per rake) by the Respondent to the Appellant and that the supply of 3 rakes were duly effected by the Respondent on 02.01.2010, 25.05.2010 and 24.06.2010 respectively based on the invoices raised by the Respondent.
7.According to the Learned Senior Counsel for the Appellant/ Respondent, the liability of the Appellant towards balance consideration for the purchase of three rakes between December 2009 and June 2010 amounted to Rs.26,42,69,343/- stood lawfully extinguished on account of the Novation and Transfer Agreement dated 16.05.2012 and the subsequent Business Transfer Agreement and Novation Agreement dated 15.03.2013.
8.The Learned Senior Counsel for the Appellant contends that by virtue of Clause 3 of the first Novation Agreement dated 16.05.2012, the liability got extinguished and added further, a similar clause for extinguishment of liability is also contained in the second agreement dated 15.03.2013.
9.At this stage, the Learned Senior Counsel for the Appellant projects a plea that Clause 1.2 of the second agreement dated 15.03.2013 cannot be interpreted as constituting a continuing liability and in fact, Clause 1.2 of the second Novation Agreement dated 15.03.2013 became redundant because both the Business Transfer Agreement as well as Novation Agreement got executed on the same day viz., 15.03.2013 which was the Closing Date as per the agreement.
10.The Learned Senior Counsel for the Appellant submits that Clause 3 of the Business Transfer Agreement dated 15.03.2013 providing that the Appellant (ETA) had not discharged any of its obligations cannot reintroduce the liability because Clause 1.1 provides for novation of the purchase order and on that date, the Appellant had no subsisting liability, the same having been taken over by Freightstar as per the First Agreement dated 16.05.2012.
11.The Learned Senior Counsel for the Appellant vehemently contends that the Respondent/Petitioner had understood the position as if the liability is only to be borne by the purchaser viz., Vikram Logistic Maritime Services and the correspondence was mainly with VLMS only and discussions for settlement were also with VLMS only vide E-mails dated 07.11.2013, 15,11.2013 and 02.12.2013 respectively.
12.The Learned Senior Counsel for the Appellant submits that the Respondent/Petitioner had acted on the aforesaid understanding and filed C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka seeking to wind up the purchaser viz., VLMS.
13.Continuing further, the Learned Senior Counsel for the Appellant refers to the averments made in paragraph Nos.50 and 51 of the Company Petition No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, to the following effect:
50.On 15.03.2013, the Petitioner, ETA and the Respondent Company importantly executed an agreement titled as the Novation Agreement for Assumed Contracts. As per this agreement, with effect from the close of business hours of 15.03.2013, the rights and obligations of ETA under the Purchase Order stood novated to the Respondent Company. The following were the key covenants of the said Novation Agreement:
That with effect from the close of business hours on 15.03.2013, the Respondent Company would be responsible for performing and discharging all obligations and liabilities of ETA, arising under the Purchase Order; and That the Respondent Company will comply with the terms and conditions of the Purchase Order if not already complied with.
51.It is respectfully submitted that from the terms of the aforesaid Novation Agreement for Assumed Contracts as also the background of facts introduced herein above, it becomes abundantly clear that:
With effect from the Closing Date being 15.03.2013, the Respondent Company is liable to perform and duly discharge all obligations of ETA arising under and pursuant to the terms of the Purchase Order;
the Respondent Company is accordingly liable to fulfil all obligations towards the purchase of the rakes by ETA from the Petitioner;
The various instances of acknowledgement by ETA as regards the non-payment of debt due to the Petitioner are additionally fastened upon the Respondent Company as being obligations subject to full and effective discharge in favour of the Petitioner; and Absence of payment of the outstandings by the Respondent Company to the Petitioner results in a breach by the Respondent of the express covenants of the Novation Agreement for Assumed Contracts, for which the Respondent alone is liable. and contends that the Respondent/Petitioner had sought to mulct the whole liability on VLMS alone.
14.Further, the Learned Senior Counsel for the Appellant takes a stand that the pleadings of the Respondent/Petitioner, in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, categorically points out that the Respondent/Petitioner believed that the liability of the Appellant (ETA) stood extinguished and legally transferred to the buyer viz., VLMS and that the said Company Petition was to enforce that debt only.
15.The Learned Senior Counsel for the Appellant/Respondent contends that the C.P.No.52 of 2014 on the file of this Court deserves to be dismissed in view of the fact that there was a suppression of C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka.
16.The prime submission of the Learned Senior Counsel for the Appellant is that by filing the C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka against VLMS earlier, and even assuming without admitting that there could have been any joint and several liability, the Respondent/Petitioner had elected to seek recourse against one party and cannot now maintain a parallel proceeding against the Appellant (ETA) in C.P.No.52 of 2014 on the file of this Court.
17.The Learned Senior Counsel for the Appellant forcefully submits that in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, it was clearly mentioned that the purchase order stood completely novated.
18.The Learned Senior Counsel for the Appellant contends that the Learned Single Judge rendered a finding that the Appellant (ETA) had acknowledged the debt through its employee Satyanathan (E-mail dated 02.12.2013) was wholly incorrect in view of the fact that as per Clause 6.6 of the Business Transfer Agreement dated 15.03.2013, all the employees of ETA (Logistics Division) stood transferred and absorbed by the buyer (VLMS) with effect from 01.01.2013 and further that, the Respondent/Petitioner had pleaded before the High Court of Karnataka in C.P.No.10 of 2014 that Satyanathan was the representative of VLMS.
19.At this stage, the Learned Senior Counsel for the Appellant/ Respondent strenuously submits that there was no acknowledgement of this debt at all either prior to the filing of Company Petition and indeed, in the demand made prior to the statutory notice, the Appellant (ETA) had replied, through Email dated 21.06.2013, clearly directing the Respondent/Petitioner to seek for the payment from VLMS.
20.Apart from the above, the Learned Senior Counsel for the Appellant/Respondent contends that the Email dated 02.12.2013 exchanged between VLMS and the Respondent/Petitioner goes to show that the parties had entered into some kind of settlement of the out standings through a sale and lease back arrangement and this was asserted by VLMS and not denied by the Respondent.
21.However, it is the submission of the Learned Senior Counsel for the Appellant that in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, the Respondent/Petitioner admits that there was a settlement which failed and this transaction between VLMS and the Respondent/Petitioner without involving the Appellant (ETA) in any manner further extinguishes any joint and several liability even assuming without admitting the same.
22.The Learned Senior Counsel for the Appellant contends that the non-issuance of any reply to the statutory notice cannot be a ground for admitting a Company Petition or winding up a company. In this regard, it is the stand of the Appellant/Respondent that non furnishing of reply cannot ipso facto lead to any adverse conclusions if the party otherwise provides a bona fide defence to the liability as in the instant case of the Appellant/Respondent.
23.The Learned Senior Counsel for the Appellant proceeds to submit that the ingredients of Sections 433 and 434 of the Companies Act, 1956 speak of a 'Summary Proceeding', as it is not intended to substitute a trial and in fact, the Appellant/Respondent is required to show only a reasonable defence to the liability.
24.The Learned Senior Counsel for the Appellant contends that the Company Petition can be compared with that of a summary suit and if Leave to Sue is granted on an examination of the defence projected by a party, then, the Company Petition ought to be dismissed and that the parties are relegated to regular recovery proceedings before the competent judicial forum.
25.Yet another contention of the Learned Senior Counsel for the Appellant is that the Appellant is a running business establishment with 1226 employees and had a business turnover of Rs.681.23 crore approximately as per Profit and Loss Account for the year ending 31.03.2014 with a profit of Rs.36,72,10,132.00 and as such, the Company is not a commercially insolvent but in a bona fide manner disputes the liability claim made by the Respondent/Petitioner.
26.Lastly, it is the contention of the Learned Senior Counsel for the Appellant that admitting C.P.No.52 of 2014 on the file of this Court and seeking for the creditors to make claims before the Company Court or appointing a Provisional Liquidator to take over the company would be against justice and equity and certainly this would cause untold and irreparable damage to the reputation of the Appellant Company and its operations.
27.The Learned Senior Counsel for the Appellant cites the decision in Focus Management Consultants Private Limited V. Second Foundation India Private Limited, reported in MANU/ DE/7983/2007 : (2007) 3 CompLJ 127 (Del), wherein, it is observed as follows:
In a petition for winding up of company the debt must be definite sum of money payable immediately or at a future date but if the disputes raised by the company are bona fide and not based on concluded contract between the parties then winding up petition cannot be legitimate means to enforce payment of debt for which the remedy is a civil suit.
28.He also relies on the decision of the Hon'ble Supreme Court in IBA Health (India) Private Limited V. Info-Drive Systems SDN, BHD, (2010) 10 Supreme Court Cases 553 at page 554, wherein it is held as under:
It is settled that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the winding-up 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. A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at the stage of a winding-up petition is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial.
29.Further, in the aforesaid decision, at page 554 and at special page 555, it is observed as follows:
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.
30.That apart, in the aforesaid decision, at page 555, it is laid down as follows:
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 to a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere.
31.The Learned Senior Counsel for the Appellant invites the attention of this Court to the decision of the Hon'ble Supreme Court in Mediquip Systems (P) Limited V. Proxima Medical System GMBH, (2005) 7 Supreme Court Cases 42, at special page 43, wherein it is held thus:
An order under Section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and the inability referred to in the expression unable to pay its debts in Section 433(e) of the Companies Act should be taken in the commercial sense. The machinery for winding up will not be allowed to be utilised merely as a means for realising debts due from a company. If the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The principles on which the court acts are:
(i)that the defence of the company is in good faith and one of substance;
(ii)the defence is likely to succeed in point of law; and
(iii)the company adduces prima facie proof of the facts on which the defence depends.
32.The Learned Senior Counsel for the Appellant seeks in aid of the decision reported in MANU/DE/1191/2002 (between NEPC India Limited V. Indian Airlines Limited), wherein, in paragraph 3, it is held as follows:
3.In winding-up proceedings it is necessary to keep the following conditions in perspective -
(i) If there is a bona fide dispute and the defense is a substantial one, the Court will not wind-up the company.
(ii) Where the debt is undisputed the Court will not act upon a defense that the company has the ability to pay the debt but the company chooses not to pay it.
(iii) Where the defense of the company is in good faith and one of substance, and the defense is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defense depends, the petition should be rejected.
(iv) The Court may consider the wishes of creditors so long as these appear to be justified.
(v) The machinery of winding-up should not be allowed to be utilised merely as a means of Realizing its debts.
[For the above propositions see Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Another, (1994) 2 Comp LJ 50 (SC) in which the observation in Amalgamated Commercial Traders (P) Ltd. v. Krishnaswami, [1965] 35 Comp. Case 456 (SC) and Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Cas. 125 (SC) have been paraphrased].
(vi)If the stance of the adversaries hangs in balance it is always open to the Company Court to order the Respondent Company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any. [see Civil Appeal No. 720 of 1999 arising out of SLP (C)No. 14096 of1998 - M/s. Nishal Enterprises v. Apte Amalgamations Ltd., decided on February 5, 1999]. It appears to me that the following point may be added to the foregoing considerations.
(vii) Generally speaking, an admission of debt should be available and/or the defense that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favour of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order xxxvII of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding-up petition.
33.He also cites the decision reported in Shadow Communications V. Prince Gutka Limited, reported in MANU/DE /1858/2002 : (2003) 116 CompCas536 (Delhi), wherein, in paragraph 6, it is observed as follows:
6.Apart from the undebatable principle that winding-up proceedings are not surrogate for the ordinary civil proceedings, it is also a well entrenched tenant of Company law jurisprudence that if a bona fide defense has been disclosed, the Court ought not to proceed under Sections 434 & 439 of the Companies Act. In this regard, the first question which must be answered is the importance to be attributed to the neglect or failure to respond to the statutory notice. This question has already received the attention of this Court in Vimco Ltd. v. Sidvink Properties (P) Ltd., 1996 Vol. 86 Company Cases 610, GKW Ltd. v. Shriram Bearings Ltd., and Mayar Traders Ltd. v. Akhil Services Ltd. 52(1993) DLT 577 and Indo American Electricals Ltd. v. Capital Meters Pvt. Ltd., 1999 IV AD(Delhi) 517. In the last judgment, my learned brother had been satisfied with a defense which had been disclosed, not in reply to the statutory notice, but by way of reply to the Petition itself. I have favored the view that the neglect to respond to the statutory notice is per se not fatal. Quite often the defense can be gathered from other correspondence exchanged between the parties. The implication and consequences of such inaction have been considered in some detail by me in CW 147/99 entitled Resham Singh & Co. P. Ltd. v. Daewoo Motors India Ltd. in these words:
2. On behalf of the Petitioner the following cases have been relied upon.
1. . GKW Ltd. v. Shriram Bearings Ltd.
2. 52 (1993) DLT 577. Mayar Traders Ltd. v. Akhil Services Ltd.
3. . Rishi Pal Gupta v. S.J. Knitting and Finishing Mills Pvt. Ltd.
4. 1982 (52) Company Cases 479. Westinghouse Saxby Farmer Ltd.
5. 1978 (48) Company Cases 378. (Bombay) United Western Bank Ltd.,
6. Goodwill India Ltd. v. P.S.B. Paper Mills Pvt. Ltd.
3. I shall first deal with the consequences of the Respondent's failure to send a Rely to the Statutory Notice. The reliance of Mr. Valmiki Mehta, learned Senior Advocate appearing for the Petitioner on the above-mentioned decisions of my Learned Sister Usha Mehra, J. is somewhat exaggerated. The decisions do not inexorably lead to the conclusion that Winding-up orders must unvariably be passed where no response to a Statutory Notice has been made. From my understanding of the judgment my Learned Sister had taken the failure to reply to the notice as an important factor in determining whether a bona fide defense had been put forward. In the circumstances of both the cases, she preferred to view the defense as an afterthought and as being bereft bona fide. In CP 220/2001 entitled H.B. Stock Holdings Ltd. v. Associated Infotech Ltd., I have favored the opinion that where no response had been made to the statutory notice the Respondent Company runs the risk of a winding-up petition being admitted for hearing at the threshold stage itself. Normally, the Company Judge would consider it prudent in the first instance to issue notice to the Respondent so that its defense to the possible far-reaching and fatal winding-up orders can be considered. The admission of the Petition at its first hearing is possible because, by virtue of Section 434 of the Companies Act, a presumption of the indebtedness can be legitimately drawn by the Court where no Reply to the statutory notice is forthcoming. The risk of the admission of the Petition, as well as the appointment of a provisional Liquidator is thus broodingly and ominously present in all those cases where the Respondent Company neglects to send any Reply to the winding-up notice. But this is as far as the danger extends. My attention has been justifiably drawn to the decision of the Single Judge of this Court in Vimco Ltd. v. Sidvink Properties (P) Ltd., 1996 Vol. 86 Company Cases 610, where it has been held by P.K. Bahri, J. that where a bona fide dispute had been shown to the Court, the question of applying the deeming provision should not automatically arise. I continue to be in respectful agreement with this view. Applying this ratio to the facts of the present case, without in any manner diluting or undermining the significance of the failure of the Respondent Company to respond to the statutory notice, this factor will be duly dept in perspective when the conspectus of facts is considered. Respondent/Petitioner's Submissions:
34.Conversely, it is the submission of the Learned Senior Counsel for the Respondent that a Purchase Order, dated 07.06.2008, was placed by the Appellant on the Respondent/Petitioner for supply of 8 Rakes of BLC Wagons/Rail Wagons (45 wagons per rake) by the Respondent to the Appellant and that the Respondent/Petitioner effected the supply of 3 rakes and accordingly raised invoices on the Appellant/ETA Engineering Private Limited with the payment terms under the Purchase Order.
35.The Learned Senior Counsel for the Respondent/Petitioner submits that as against the repeated demands made by the Respondent/Petitioner for payments to an extent of Rs.30.84 crores due under the aforesaid invoices, the Appellant/Respondent time and again acknowledged its liability and assured the Respondent of early payment as per letter dated 02.09.2010 and response on behalf of the Appellant vide letter dated 13.09.2010, letter dated 28.12.2010 of the Respondent and letter dated 20.01.2011 of the Appellant, emails of the Appellant dated 28.22.2011, 08.03.2012, 22.08.2012, 27.04.2013, 30.05.2013 and 21.06.2013 respectively.
36.The Learned Senior Counsel for the Respondent/Petitioner brings it to the notice of this Court that pursuant to a restructuring plan made by the Appellant/ETA Group, it was proposed that the Appellant's logistics business, being conducted under the tradename 'Freightstar' be hived off to a separate entity, M/s Freightstar Private Limited, which a third party investor, M/s.Vikram Logistic and Maritime Services Private Limited (VLMS) would take over, which would enable payment of the Respondent's debt. Accordingly, a Novation and Transfer Agreement dated 16.05.2012 was entered into between the Appellant, Respondent and Frieghtstar Private Limited which reflected clearly the acknowledgement of the outstandings due to the Respondent.
37.The Learned Senior Counsel for the Respondent submits that the restructuring scheme based on the aforesaid Novation and Transfer Agreement, dated 16.05.2012, could not be implemented and that the parties had agreed to change certain terms of the proposed transfer of the Logistics Business of ETA to VLMS and the same parties to the above mentioned substitution agreement entered into a 'Recission Agreement', dated 15.03.2013, and that the backdrop to the recission was made mention of in the recitals of clause C thereof.
38.The Learned Senior Counsel for the Respondent contends that on 15.03.2013 the Appellant Frieghtstar Private Limited and Vikram Logistic and Maritime Services entered into a Business Transfer Agreement [to which the Respondent/Petitioner was not a party], thereby transferring the Logistic Business of the Appellant, along with its assets and liabilities to VLMS/Vikram Logistics on a slump sale basis.
39.At this stage, the Learned Senior Counsel for the Respondent submits that by virtue of the said transaction/sale, which included the rakes supplied by the Respondent, the Appellant was to receive a total sum of Rs.728,423,562 (approximately 72 crores) out of which it had already received Rs.646,365,957 (approximately 64 crores) and inspite of the Appellant receiving the said amounts, it had not taken steps to discharge the Respondent's liability.
40.The Learned Senior Counsel for the Respondent contends that in terms of Clause 4.2.1(b) of Closing Deliverables under the Business Transfer Agreement, the Appellant was required to execute a novation agreement substantially in the form set out at Ex.C. and which specifically provides that the Appellant/Respondent (ETA) shall continue to be responsible for any and all liabilities under the Contract prior to the closing date.
41.Continuing further, the Learned Senior Counsel for the Respondent forcefully submits that the 'Novation Agreement For Assumed Contracts' dated 15.03.2013 was also executed between the Appellant, Respondent and M/s.VLMS with the additional insertion of Clause 3 therein under the caption 'Further Assurances' in and by which the Novation would in any manner discharge of ETA from its obligations under the Purchase Order. Accordingly, Vikram Logistics and/or the Appellant (ETA) were obligated to comply with the terms and conditions of the Purchase Order if not already complied with.
42.The Learned Senior Counsel for the Respondent brings it to the notice of this Court that the Novation Agreement For Assumed Contract was signed by one Karunakaran and Sathianathan, on behalf of the ETA as well as VLMS.
43.As a matter of fact, the Learned Senior Counsel for the Respondent proceeds to add that correspondence was exchanged with Sathianathan post on 15.03.2013 with regard to the outstanding liability both on his ETA email address ([email protected]) and his VLMS email address ('[email protected]) which, along with the content of the mails shown that notwithstanding the business transfer agreement, he held dual capacities both with ETA and VLMS.
44.The Learned Senior Counsel for the Respondent submits that because of the continued defalut in payment both by VLMS and ETA, a statutory notice in terms of Section 434(1)(a) of the Companies Act, 1956 was issued by the Respondent on 20.11.2013 both to the Appellant and also to VLMS calling for payment of the outstanding dues of Rs.47,09,66,236 (inclusive of interest as of 16.10.2013), together with additional interest at the rate of 13.75% till date of payment. There was no response for the statutory notice issued and even after issuance of the statutory notice, the liability was once again acknowledged through email dated 02.12.2013 and the email was addressed from Sathianathan's ETA emal id [email protected].
45.The Learned Senior Counsel for the Respondent contends that a reading of the contents of the email makes it clear that it speaks of the liability of both ETA and VLMS. In fact, while the email speaks of a proposed mode or repayment by VLMS which itself never came through, the same does not discharges ETA in any manner and per contra, it only recognises the continued liability of ETA.
46.The Learned Senior Counsel for the Respondent strenuously contends that the precarious financial position of the Appellant was borne out by its annual report from the year ending 31.03.2012 reflected a Net Loss of over Rs.70 crores and also that, there was a serious erosion of the net worth of the Appellant Company in terms of depletion of Revenue and Surplus from 77.97 crores to 7.33 crores.
47.Therefore, the Respondent/Petitioner was perforced to project the C.P.No.52 of 2014 on the file of this Court on account of the Appellant/Respondent's inability to pay the debts and on account of the joint and several liability of both ETA and VLMS, a similar winding up petition C.P.No.10 of 2014 was filed against VLMS before the Hon'ble High Court of Karnataka.
48.The Learned Senior Counsel for the Respondent submits that the reference and reliance sought to be placed on the Novation and Transfer of Agreement dated 16.05.2012 is incorrect inasmuch as the same was not acted upon by the parties and further, it stood cancelled by means of recission agreement dated 15.03.2013.
49.The Learned Senior Counsel for the Respondent contends that amended and restated Business Transfer Agreement dated 15.03.2013 [to which the Respondent/Petitioner is not a party] is to be read subject to the terms of Novation Agreement For Assumed Contracts dated 15.03.2013 between the Appellant, Respondent and VLMS. Also that, Clause 3 of the aforesaid Agreement provides that the Appellant and/or VLMS will remain liable for the debt due in pursuance of the Purchase Order.
50.The Learned Senior Counsel for the Respondent proceeds to submit that as per Clause 3 of the Novation Agreement For Assumed Contract dated 15.03.2013, a special protection is extended to the Respondent, in terms of the Appellant/ETA continuing to remain liable for the debt notwithstanding the Novation of the Purchase Order in favour of VLMS, in lieu of the consent extended by it to the Transfer of the Logistics Business by the Appellant to VLMS. Further, this is borne out by the fact that Ex.C. to the amended and restated Business Transfer Agreement executed between the Appellant, VLMS and freightstar which provided the general format for such Novation Agreements to be executed with different vendors/suppliers. As such, the contention of the Appellant that it cannot be held liable for the debt pursuant to the business transfer in favour of VLMS is contrary to the contractual terms and the principles embodied in Section 43 of the Contract Act, 1872 which rendered both ETA and VLMS jointly and severally liable for repayment of the debt due to the Respondent (Vide Pollock & Mulla, the Indian Contract and Specific Relief Act, 14th edn., Pgs 805-807).
51.The Learned Senior Counsel for the Respondent contends that apart from the joint cause of action both Appellant and VLMS the Respondent/Petitioner has independent causes of action against each of VLMS and the Appellant to the entire extent of an admitted and unpaid amount. In effect, the stand of the Respondent/Petitioner is that the Respondent/Petitioner is well within its rights to initiate separate winding up proceedings before the Appellant and VLMS before this Court and the Karnataka High Court respectfully. Further, the Respondent has no other option in view of the jurisdiction in respect of each winding up petition being restricted to the Court within whose jurisdiction the registered office of the Respondent/Company situated.
52.The Learned Senior Counsel for the Respondent submits that because of the joint and several liability of the Appellant and VLMS towards repayment of the debt due, C.P.No.10 of 2014 on the file of Hon'ble High Court of Karnataka filed against VLMS and C.P.No.52 of 2014 filed before this Court against the Appellant proceed on the legal premise that both independently responsible for the inability to pay the debt due to the Respondent.
53.Accordingly, the Learned Senior Counsel for the Respondent puts forward an argument that the non reference to the filing of winding up petition in C.P.No.10 of 2014 against VLMS before the High Court of Karnataka in C.P.No.52 of 2014 on the file of this Court is irrelevant inasmuch as the filing of C.P.No.10 of 2014 has no appearing on the maintainability of the C.P.No.52 of 2014 filed before this Court.
54.The Learned Senior Counsel for the Respondent contends that the filing of C.P.No.10 of 2014 on the file of High Court of Karnataka was specifically brought to the attention of the Learned Single Judge at the first hearing of the Company Petition C.P.No.52 of 2014 on the file of this Court and this Court, while taking note of the Respondent's apprehension in regard to disposal of asset base, was not inclined to grant any ex parte interim orders and issued notice to the Appellant. Thereafter, on account of the continued failure on the part of the Appellant to enter appearance, this Court passed a protective order dated 27.02.2014 against alienation of assets by the Appellant and as such, the stand of the Appellant in regard to the suppression of filing of C.P.No.10 of 2014 on the file of Hob'ble High Court of Karnataka by the Respondent is an argument of prejudice without any merits.
55.The Learned Senior Counsel for the Respondent submits that the reliance placed on the Appellant side to the averments made in paragraph No.51 of the Company Petition No.10 of 2014 on the file of Hon'ble High Court of Karnataka filed by the Respondent (Texmaco) against VLMS, inter alia, to the effect that 'Absence of payment of the outstandings by the Respondent Company to the Petitioner results in a breach by the Respondent of the express covenants of the Novation Agreement for Assumed Contracts, for which the Respondent alone is liable', is a misplaced one and meant only to mislead this Court. Furthermore, the said point was neither specifically raised in the counter to the winding up petition nor argued by the Appellant before the Learned Single Judge in C.P.No.52 of 2014 on the file of this Court. Moreover, the same is to be read and understood in conjunction with the averments of paragraph 55 in C.P.No.52 of 2014 on the file of this Court and a reading of the aforesaid contents of paragraphs in two Company Petitions mentioned supra are quite in tune with the understanding of the joint and several liability created by the terms of the Novation Agreement For Agreed Contracts dated 15.03.2013 whereby the VLMS assumes the liability under the said agreement and the Appellant/ETA remains liable under the terms of the Purchase Order. As such, there is no contradiction in the stand taken by the Respondent.
56.The Learned Senior Counsel for the Respondent vehemently contends that the company petition is to be read as a whole and a reference to a solitary line in the petition out of context cannot nullify the clear-cut position emanating from the contractual provisions and as reflected in the contemporaneous conduct of the parties.
57.The Learned Senior Counsel for the Respondent submits that in paragraph No.51 of C.P.No.10 of 2014 on the file of Hon'ble High Court of Karnataka, it is mentioned that by virtue of the Novation Agreement for Assumed Contract, the liability of the debt stands additionally fastened upon VLMS which clearly shows that the Appellant was not discharged of its liability. Also that, even after the agreement dated 15.03.2013, the Respondent continued to write to the Appellant recording its understanding of the Appellant continuing to remain liable for repayment which was never contemporaneously questioned by the Appellant.
58.The Learned Senior Counsel for the Respodnent submits that Clause 1 and 3 of the Novation Agreement For Assumed Contracts dated 15.03.2013 undoubtedly recognise the continued liability of the Appellant for debts due under the Purchase Order dated 07.06.2008 prior to 15.03.2013 (i.e. Closing date) as one of the terms subject to which the rights and obligations of the Appellant under the Purchase Order stand novated in favour of VLMS, thereby making the liability of both of them to be joint and several. Therefore, the stand of the Appellant that pursuant to the NAAC, the liability of the Appellant arising under the Purchase Order ceases is, on the face of it, wholly untenable and would render the Clause 3 of NAAC as wholly redundant.
59.The Learned Senior Counsel for the Respondent contends that the Learned Single Judge in C.P.No.52 of 2014 after hearing both sides and analysing the facts and documents on record, came to the conclusion that a prima facie case was made out in favour of the Respondent for the purposes of admission and advertisement of the Company Petition. That apart, inasmuch as the order of admission is a discretionary one, the scope of interference in this regard at the appellate stage is extremely a narrow and limited one where the impugned order is demonstrably an arbitrary, capricious or perverse one.
60.The Learned Senior Counsel for the Respondent, during the last leg of arguments, submits that pursuant to the admission in C.P.No.52 of 2014 and advertisement, the Learned Single Judge will necessarily consider the other creditors' views etc. and the larger public interest considerations in determining whether or not the Appellant Company deserves to be wound up or not and the said considerations therefore, do not mandate any interference with the impugned order.
61.The Learned Senior Counsel for the Respondent cites the decision of the Hon'ble Supreme Court in Wander Limited and another V. Antox India P. Limited, 1990 (Supp) Supreme Court Cases 727, at special page 728 & 729, whereby and whereunder, it is observed and held as follows:
The appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutary injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial Court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial Court's exercise of discretion.
62.He also relies on the decision of the Hon'ble Supreme Court in Harihar Nath and others V. State Bank of India and others, (2006) 4 SCC 457, wherein, in paragraph 16, it is observed as follows:
16.The object of Section 446 of the Act is not to cancel, nullify or abate any claim against the company. Its object is to save the company which has been ordered to be wound up, from unnecessary litigation and from multiplicity of proceedings and protect the assets for equitable distribution among its creditors and shareholders. This object is achieved by compelling the creditors and others to come to the court which is winding up the company and prove their claims in the winding up. For this purpose, all suits and proceedings pending against the company are also stayed subject to the discretion of the winding up court to allow such suits and proceedings to proceed. When a winding up order is passed, the effect is that all the affairs pertaining to the company in liquidation, including all suits/proceedings by or against the company, come within the control and supervision of the winding up court. The winding up court has to decide whether it will let the suit/proceeding to continue in the court where it is pending, or it will itself adjudicate the suit/proceeding. Thus, under Section 446(1), the winding up court only decides about the forum where the suit has to be tried and disposed of. The Limitation Act which prescribes the periods within which a party can approach a court seeking remedies for various causes of action, is not attracted to such applications under Section 446(1) of the Act.
63.The Learned Senior Counsel for the Respondent refers to the decision in Punjab Co-operative Bank Limited V. Official Liquidator, Punjab and Haryana High Court, (1984) 55 Comp. Cases 1 (P & H), wherein, in paragraph Nos.7,8 & 10, it is observed and held as follows:
7.Similar view was taken by the Madras High Court in B.R. Nagendra Iyer v. R. V. Subburamachari, AIR 1935 Mad 1055, and T. Radhakrishna Chettiar v. K. V. Muthukrishnan Chettiar, AIR 1970 Mad 337. The learned Chief Justice in B. R. Nagendra Iyer's case observed that a promisee has a cause of action against all the joint promisors. He can, if he chooses, file a suit impleading all the joint and several promisors as co-defendants or he can file a suit against any one of them and obtain judgment against him. It is further observed that unless that judgment is satisfied it does not operate as a bar to his claim against the other joint promisors and he has his right of action against them. To the same effect are the observations in T. Radhakrishna Chettiar's case. Further, the Patna High court has also taken the same view in Traders Cooperative Bank Ltd. v. A. K. Mallick, AIR 1934 Pat 2.
8. Pollock and Mulla in their commentary on the Indian Contract Act (9th edn.), while dealing with Section 43 of the Act, at page 364, noticed the conflict between the views of the Indian and English authorities and observed as follows :
"We think it the better opinion that the enactment should be carried out to its natural consequences, and that notwithstanding the English authorities founded on a different substantive rule, such a judgment, remaining unsatisfied, ought not, in India, to be held a bar to a subsequent action against the other promisor or promisors. "
10. The filing of a claim before the official liquidator in the case of a company in liquidation stands on the same footing as instituting a suit. I am, therefore, of the opinion that if a suit is filed for recovery of a debt against some of the joint debtors and the amount is not recovered from them, a claim can be filed before an official liquidator against another joint debtor- a company in liquidation. In the circumstances, the order of the official liquidator in rejecting the claim of the appellant on the ground that the suit filed by it against the directors bars its claim against the company is erroneous and liable to be set aside.
64.He also invites the attention of this Court to the decision in The New Red Bank Tea Company Private Limited V. Jahar Roy, (2003) 45 SCL 429 (Cal), wherein, in paragraph 15, it is observed as follows:
15.We do not agree with the proposition that in reply to statutory notice under Section 434 of the Companies Act, 1956, the company is not obliged to disclose all its points of defence. The notice is a statutory step by the creditor; it calls upon the company to act. The negligence to act creates a legal fiction against the company. Such negligence can be inferred: first, from the company's total silence; and secondly, from its giving up the defence taken in reply to the statutory notice, when the creditor approaches the Company Court. The opportunity given to the company to file opposition the company petition cannot be seized by the company to set the clock back for replying to the statutory notice. Defence not taken in the reply to the statutory notice, but taken for the first time in the affidavit-in-opposition filed in Court, cannot be accepted for holding that the company's refusal to pay being based on bona fide defence, the non-payment of the debt did not amount to its neglect to pay. Therefore, we are of the view that the company is under an obligation to disclose all its points of defence in its reply to the statutory notice. The service of the statutory notice is not an empty formality; it conveys the message of consequences. The provisions of Section 434 of the Companies Act ensure settlement of disputes to curb avoidable litigations. The appellant-company's contention, if accepted, will be contrary to the legislative intent. Its proposition just encourages litigation.
65.The Learned Senior Counsel for the Respondent seeks in aid of the decision of this Court in NEPC India Limited (Formerly NEPC Micon Limited V. Atlantic Bridge Aviation Limited, (2008) 1 MLJ 76, wherein, it is held as follows:
Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt and stay the company petition.
Company proceedings could be initiated if Court prima facie comes to the conclusion regarding the existence of debt and neglect on the part of the company to pay such amount in spite of the statutory notice. Discussions:
66.At the outset, it is to be pertinently pointed out by this Court in C.P.No.52 of 2014 (filed by the Respondent/Petitioner against the Appellant/Respondent before this Court), the Respondent/Petitioner had averred that the Purchase Order dated 07.06.2008 and the subsequent amendments thereto along with the Novation Agreement For Assumed Contracts constitute a valid subsisting and binding contract between the Respondent/Petitioner and the Appellant/ Respondent Company. Further, it is the stand of the Respondent/ Petitioner that it dispatched 3 rakes of BLC Wagons to the Appellant/ Respondent Company on 29.12.2009, 22.05.2010 and 19.06.2010 as per the Purchase Order and amendments thereto and in fact, the Appellant/Respondent categorically acknowledged on several occasions the factum of due has been outstanding to the Respondent/Petitioner.
67.That apart, it is represented on behalf of the Respondent/ Petitioner that admittedly no payments were extended in respect of successful dispatch of the concerned Rakes to the Respondent/ Petitioner by the Appellant/Respondent Company in terms of the Purchase Order and since the Appellant/Respondent had ignored and defaulted of its contractual obligations, the Respondent/Petitioner perforced to file the present Company Petition before this Court seeking an order of winding up of the Appellant/Respondent Company under the provisions of the Companies Act, 1956 and for an appointment of the Official Liquidator, High Court, Madras, as the liquidator of the Appellant/Respondent Company to take charge of the assets, properties etc.
68.The stand of the Appellant/Respondent is that pursuant of the Novation and Transfer Agreement dated 16.05.2012 as modified by the amended and restated business Transfer Agreement and Novation for Assumed Contracts both dated 15.03.2013, it stood unconditionally and irrevocably released and discharged from all liabilities and obligations under the Purchase Order. Moreover, when once there was a transfer of liability in favour of VLMS, then, the Appellant/ Respondent is not liable for the debt in question.
69.Furthermore, it is the specific plea of the Appellant/ Respondent that the Respondent/Petitioner filed C.P.No.10 of 2014 on the file of High Court of Karnataka for winding up of VLMS on the very same cause of action and that fact was suppressed before this Court, as a result of which, C.P.No.52 of 2014 on the file of this Court filed by the Respondent/Petitioner ought to be dismissed.
70.The core contention advanced on behalf of the Appellant/ Respondent is that the issues raised by the Respondent/Petitioner forms part of interpretation of NAAC dated 15.03.2013 and in proceedings in C.P.No.52 of 2014 which are summary in nature, these aspects are not to be gone into because of the bona fide defence raised by the Appellant/Respondent in regard to the liability and debt in issue.
71.The pivotal contention of the Appellant/Respondent is that in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, the Respondent/Petitioner sought a relief of winding up the VLMS and in fact, in para 50 & 51 of the aforesaid Company Petition, the Respondent had clearly averred for the breach of the express covenants of the Novation Agreement For Assumed Contracts, the Respondent (VLMS) alone is liable.
72.At this stage, this Court worth recalls and recollects the decision in T.Srinivasa V. Flemming (India) Apotheke Private Limited, (1990) Vol.68 Comp. Cases 506, wherein it is held as follows:
It is well-settled that a creditor may seek the assistance of the company court under section 433 of the Companies Act, 1956, to compel payment of moneys due to him. But, where a debt is bona fide disputed and where the claim appears to the court as not just, it is open to the court to refuse the request for a winding up order and refer the parties to a competent civil court having jurisdiction, to have their claims adjudicated.
It is not for the court hearing a petition for winding up under Section 433(e) of the Companies Act, 1956, to assess evidence and refuse a decree or to draw up a decree in favour of the petitioner and then proceed to wind up the company. In the summary procedure which the company court must follow, if the court is satisfied, prima facie, that the defence raised in the circumstances of the case is bona fide and is likely to succeed in a civil court, that would constitute sufficient reasons for the court to reject the petition, relegating the parties to the civil court.
73.This Court aptly points out the decision in ICICI Bank Limited V. Saurav Chemicals Limited, (2010) 153 Comp. Cases 429 (P & H) at page 430, wherein it is observed as follows:
The acknowledgment of debt and inability to pay the debts by the company are sine qua non for the court to invoke the winding up jurisdiction under section 433(e) and (f) read with section 434 of the Act. Where there is a bona fide dispute over liability between the claimant/creditors and the company which involves serious contest on questions of facts, the winding up petition cannot be entertained as a tool of arm twisting, especially when the financial condition of the company sought to be wound up does not warrant such a punitive action in public interest.
74.In the decision Sical-CWT Distriparks Limited V. Besser Concrete Systems Limited, (2010) 155 Comp. Cases 242 (Mad.), it is observed and held as follows:
When the company which is sought to be wound up was able to show that there is a bona fide dispute with regard to the liability in question, the winding up proceeding is not the proper remedy to resolve the dispute.
75.That apart, if a debt in question is required a detail investigation, it is desirable for the parties to get their claim adjudicated by a Civil forum. Also that, in the decision Thirukumara Trading Agency V. Sleek Textiles Industries Limited, (2008) 146 Comp. Cases 4 (Mad), it is held that 'the winding up petition filed by the firm for winding up of the respondent-company on the ground of inability to pay the amount due to it was misconceived. It was evident from the documents produced by the respondent-company that the firm had supplied substandard goods and the company had issued a debit note to the firm which substantial that the debt was disputed. Therefore, the winding up of the respondent-company could not be ordered.'
76.Also, this Court cites the decision of the Hon'ble Supreme Court in Madhusudan Gordhandas and Company V. Madhu Woollen Industries P. Ltd., AIR 1971 SC 2600; [1972] 42 Comp Cas 125, it is held as follows:
'If the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The principles on which the court acts are:
(i)that the defence of the company is in good faith and one of substance;
(ii)the defence is likely to succeed in point of law; and
(iii)the company adduces, prima facie proof of the facts on which the defence depends.
77.Further, in the decision of the Hon'ble Supreme Court in Mediqup Systems P. Ltd. V. Proxima Medical System GmbH [2005] 124 Comp Cas 473, at special page 481 to 483, the Hon'ble Supreme Court has held thus:
This court in catena of decisions held that an order under Section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression 'unable to pay its dues' in section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilized merely as a means for realising debts due from a company ...
The debt under section 433 of the Companies Act must be a determined or a definite sum of money payable immediately or at a future date. We are informed that the financial position of the appellant is sound. ..
78.In the decision Amalgamated Commercial Traders P. Ltd. V. A.C.K. Krishnaswami, (1965) 35 Comp Cas 456, 463, this Court quoted with approval the following observations from Buckley on the Companies Act, 13th edition, page 451, which runs as under:
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 stigmatised as a scandalous abuse of the process of the court.
79.In the decision New India Coal Corporation V. Millennium Forging P. Limited, (2009) 148 Comp. Cases 85 (Guj.), it is observed as under:
Mere acceptance of letters or accounts cannot be treated as the acknowledgement or as acceptance of the contents of the accounts.
In a petition filed under Sections 433,434 and 439 of the Companies Act, 1956, the petitioner sought an order winding up the respondent-company for its inability to pay debts. The petitioner, inter alia, contended that the respondent-company had accepted and acknowledged the statement of accounts supplied to the respondent-company and had never disputed/controverted the various letters of the petitioner, despite issue of statutory notice, in reply to which the respondent-company had not disputed the transaction, no payment was made and that the defence was based on forged documents. The respondent-company denied the contentions of the petitioner and stated that from the stage of reply to the statutory notice the respondent-company had disputed the claim of the petitioner, the respondent-company had called upon the petitioner to provide the interest clause proviso agreed between both the parties and submitted that the claim of interest was absolutely false and was not legal, that whatever payment was made had been adjusted by the petitioner against interest and not against the principal amount, that it was a profitable concern, which employed over 95 persons and relied upon its statement of account as well as balance-sheet and profit and loss accounts and that the claims of the petitioner were disputed and exaggerated: Further, while dismissing the petition, it is also held that 'a genuine and bona fide dispute had been raised by the respondent-company. The petitioner's claim merely consisted of interest charged at the rate of 24 per cent. Per annum and for some period even at 30 per cent. Per annum. The claim also consisted of higher commission charges. There was no agreement with regard to charging of interest between the parties. The figure of outstanding amount increased only because of the interest charged at the rate of 24 per cent. and 30 per cent. The petitioner had not been able to establish its case before the court that the debt was undisputed and that there was no genuine or bona fide dispute or defence available to the respondent-company. The determination of the issue required a full-fledged trial. (The respondent-company was directed to pay the amount due to the petitioner as per its account within one month from the date of receipt of the order and the petitioner was at liberty to file a civil suit for the balance amount claimed by it.)'
80.In regard to the plea of suppression of material fact about the non-mentioning of filing of C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka in C.P.No.52 of 2014 on the file of this Court, since it is represented on behalf of the Respondent/Petitioner that at the time of first hearing of C.P.No.52 of 2014 before this Court, it was specifically mentioned about the filing of C.P.No.10 of 2014 and as such, the Court was not inclined to pass any ex parte interim orders and issued notice to the Appellant, this Court is not proceeding any further, inasmuch as the said plea relegates to the background, in view of the controversies/genuine/bona fide disputes that had arisen between the parties centering on contentious mixed Question of Facts and Law involved in the present case.
81.At this juncture, it is not out of place for this Court to make a significant mention that in M.P.No.1 of 2014 in O.S.A.No.134 of 2014 filed by the Appellant/Respondent Company, on 21.05.2014, this Court, in paragraph No.4, has observed as follows:
4.Accordingly, Clause (1) and (2) of the order dated 25.04.2014 made in Company Petition No.52 of 2014, appointing the Provisional Liquidator of the Petitioner/ appellant Company and the consequential taking charge of the assets of the petitioner/appellant Company alone are hereby stayed. However, it is made clear that the other directions given by the learned Single Judge in the order dated 25.04.2014 in the said Company Petition are not stayed.
82.Further, on 11.06.2014, this Court permitted the parties to make a request before the Learned Single Judge not to take up Company Petition No.52 of 2014 for further hearing till the disposal of the present Appeal.
83.It is to be borne in mind that a debt is a sum of money which is now payable or will be payable in future by reason of a present obligation debitum in prasenti solvendum in futuro. Furthermore, a debt must be a determined or definite sum of money payable immediately or at a future date. A contingent debt or a conditional liability is not a debt when the contingency or condition has already happened.
84.It may not be out of place for this Court to point out that if a Court of Law is satisfied that a debt upon which a petition to wind up is founded is a hotly contested debt and also doubtful, then, it should not make up a winding up order based upon such debt. 'Bona fide' dispute implies the existence of a substantial ground for the dispute raised. Where the company has a bona fide/genuine dispute, the Petitioner cannot be regarded as a creditor of the company for the purposes of winding up.
85.Indeed, the power of winding up is to be exercised judicially and with most circumspection. No wonder, the proceedings under Section 433 and 434 are not the proceedings to recover debts due from any particular company.
86.It is to be noted that the ingredients of Section 434 of the Companies Act, 1956 enjoins that when a notice is served in that Section in the manner specified and if the payment is not made within a period of three weeks, it will be presumed that the company is unable to pay its debts, but, in the considered opinion of this Court, this gives only a presumption that the company is unable to pay debts. However, the said presumption is a rebuttable one in the manner known to law and in accordance with law. As such, the non-issuance of reply to a statutory notice of the Respondent by the Appellant cannot be considered as an adverse circumstance against the Appellant, when it has raised defences, which are substantial and one of substance in so far as the present case is concerned. However, if a Company Petition is presented seeking a relief of winding up order, but mainly with a view to exert pressure, the same is to be dismissed because of the reason that winding up petition ought not to be allowed to be taken recourse of as a means to recover debts from the company. Further, it is not a legitimate way to enforce payment of a debt which is a bona fide and all the more when there is a bona fide/genuine dispute in regard to the dispute of debt and its liability alleged by the Respondent/Petitioner which required a detail investigation and adjudication before the competent civil forum.
Conclusions:
87.As far as the present case is concerned, there are contested questions of facts between the parties and in view of the fact that the Respondent/Petitioner filed C.P.No.10 of 2014 on the file of Hon'ble High Court of Karnataka, wherein, in paragraph 51, it had averred that VLMS alone is liable for the breach of the express covenants of the Novation Agreement For Assumed Contracts and also, this Court, taking note of the fact that in C.P.No.52 of 2014 filed by the Respondent/Petitioner before this Court, as against the Appellant/ Respondent, wherein, it had taken a stand that the Purchase Order dated 07.06.2008 and subsequent amendments thereto along with the NAAC constitute a valid, subsisting and binding contract between the Respondent/Petitioner and the Appellant etc., and based on the overall assessment of the facts and circumstances of the present case, in an attendant fashion, comes to an inescapable and irresistible conclusion that there are bona fide disputes with regard to the interpretation of NAAC dated 15.03.2013 centering around the liability of Debt (whether VLMS is liable or VLMS and Appellant both are jointly and severally liable), which forms part of the subject matter of winding up proceedings. Furthermore, the plea taken on behalf of the Appellant/ Respondent is that in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, the claim was made against VLMS founded on the Novation Agreement, but in the present C.P.No.52 of 2014 on the file of this Court, the plea taken by the Respondent/Petitioner is based on the Original Purchase Order dated 07.06.2008 and that apart, in C.P.No.10 of 2014, it was clearly mentioned that the Purchase Order stood completely novated. Therefore, this Court holds that the Appellant/Respondent has raised a substantial and tangible defences by raising contentious factual and legal issues which required detail investigation. Also that, the defences raised by the Appellant/ Respondent are not a mere cover or empty disputes with a view to cover up its real inability. In short, this Court is subjectively satisfied that the defences raised by the Appellant/Respondent in the present case are bona fide and genuine one. As a matter of fact, these contested mixed questions of Facts and Law are to be adjudicated only by a Civil Court. As such, the proper remedy for the Respondent/ Petitioner is to approach the competent Civil Court for resolving the mixed questions of Facts and Law in regard to the bona fide dispute of Debt and its liability. Further, in a summary proceedings, under Section 433 of the Companies Act, 1956, the divergent stand taken by the respective parties cannot be gone into and bona fide disputes being raised by them. Therefore, this Court directs the Respondent/ Petitioner to approach the competent civil forum for recovery of the amount/debt from the concerned parties. The liability of the Appellant in regard to the disputed Debt and the disputes that had arisen between the parties are to be resolved only before the competent civil forum, by way of appropriate Civil Suit. As such, this Court holds that C.P.No.52 of 2014 filed by the Respondent/Petitioner is not maintainable. Further, this Court directs the Respondent/Petitioning Creditor to file a suit for adjudication of disputes in the subject matter in issues between the parties, if it so desires/advised. Viewed in that perspective, the view taken by the Learned Single Judge, in admitting the C.P.No.52 of 2014; ordering notices on the Court Notice Board, to the Registrar of Companies, Madras; Affixture of notice at the premises of the Registered Office of the Appellant Company etc., and appointing the Official Liquidator, are not valid and tenable, in the eye of law. As such, this Court, to prevent an aberration of Justice, interferes with the said order, dated 25.04.2014 and sets aside the same, by dismissing the C.P.No.52 of 2014 filed by the Respondent/Petitioner. Also, the connected Company Applications are closed. Consequently, the Original Side Appeal succeeds.
88.In the result, the Original Side Appeal is allowed, leaving the parties to bear their own costs.
(M.J., J.) (M.V., J.)
25.07.2014
Index :Yes
Internet :Yes
Sgl
M.JAICHANDREN,J.
AND
M.VENUGOPAL,J.
Sgl
JUDGMENT IN
O.S.A.No.134 of 2014
25.07.2014