Tata Advanced Materials Ltd vs M/S. Tooltech Global Engineering ...
2013 Latest Caselaw 64 Bom

    DSS                                                                          app 181.13.doc




              IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                  ORDINARY ORIGINAL CIVIL JURISDICTION
                         APPEAL NO.181 OF 2013




                                                                                 
                                  IN
                    COMPANY PETITION NO.198 OF 2012




                                                         
    Tata Advanced Materials Ltd.                         ...Appellant
          Vs.
    M/s. Tooltech Global Engineering Pvt. Ltd.           .. Respondent




                                                        
                                           ....
    Mr. Pankaj Vijayan i/b. Intralegal for the Appellant
    Mr. Ajit Kulkarni i/b. Mr. Hitesh Vyas for the Respondent.
                                           ....




                                            
                               CORAM :
                                ig          DR.D.Y.CHANDRACHUD, AND
                                            M.S.SONAK, JJ.

Judgment reserved on : 15 October 2013

Judgment pronounced on: 21 October 2013

JUDGMENT : (PER M.S.SONAK,J.)

1. Admit. With the consent of the learned Counsel, the appeal is taken

up for hearing and final disposal.

2. The Appellant (original Petitioner) appeals against the judgment and

order dated 17 October 2012, by which the learned Company Judge has

dismissed the petition for winding up of the Respondent company.

3. The Appellant instituted Company Petition No.198 of 2012 seeking

winding up of the Respondent company on the ground that the company is

'unable to pay its debts' towards the Appellant quantified at

Rs.99,74,784/-.

DSS app 181.13.doc

4. The case of the Appellant as set out in the company petition is as

follows:

(a) During the period 2007 to 2009, the Respondent

company placed purchase orders in respect of some

engineering items upon the Appellant;

(b) The Appellant thereupon supplied the items and from

time to time raised invoices aggregating to Rs.2,16,64,437/-

upon the Respondent company;

(c) The Respondent company made payments to the extent

of Rs.1,31,44,778/- upto July 2009; on 29 July 2009, the

Respondent company executed a writing acknowledging and

undertaking to pay the balance amount of Rs.81,94,426/- then

due and payable to the Appellant. The undertaking provided

for a payment schedule within which the Respondent

company agreed and undertook to make payments to the

Appellant;

(d) As there was no compliance, the Appellant by Lawyer's

notices dated 6 July 2010 and 12 October 2010, called upon

the Respondent company to pay the amount of Rs.85,40,220/-

as undertaken by the Respondent company;

(e) Despite receipt of the notices, the Respondent Company

neither furnished any response, nor paid the amounts as

DSS app 181.13.doc

demanded;

(f) On 20 April 2011, the Respondent company addressed

an E-mail promising to pay Rs.25 Lakhs and expressing

difficulties in payment of the balance. There was no dispute

raised with regard to payments of the balance amounts in the

said E-mail;

(g) An amount of Rs.25 Lakhs was infact paid by the

Respondent company to the Appellant in the month of April

2011;

(h) On 25 March 2010 and 7 March 2011 the Respondent

company, in response to balance confirmation letters,

confirmed to the Appellant that an amount of Rs.85,40,219.80

was receivable by the Appellant as on 28 February 2010 and

28 February 2011 respectively;

(i) As no further payments were forthcoming, the Appellant

after adjustment of Rs.25 Lakhs sent a statutory notice dated

25 January 2012, calling upon the Respondent company to

pay an amount of Rs.60,40,220/- alongwith interest thereon

within 21 days from the receipt of the notice;

(j) The Respondent company replied to the statutory notice

(undated). Although there was no outright denial of debt, the

Respondent company contended that the undertaking dated

DSS app 181.13.doc

29 July 2009 was subject to 'reconciliation'; That payment of

Rs.25 Lakhs effected in April 2011 was in 'full and final

settlement'; and that the contract between the parties

stipulated that the Respondent company shall pay the

Appellant only after receipt of payments from HAL, for whom

the Appellant was executing engineering contracts and the

items purchased by the Respondent company from the

Appellant, were for the purposes of such contract;

(k) The Appellant thereupon instituted Company Petition

No.198 of 2012 seeking winding up of the Respondent

company under Section 433 (e) and Section 434 of the

Companies Act,1956; and

(l) The Respondent company filed a reply reiterating

substantially the defences raised in its reply.

5. The learned Company Judge vide judgment and order dated 17

October 2012 has dismissed the petition. In dismissing the company

petition, the learned Company Judge has held as under:

(i) The defence that amount of Rs.25 Lakhs was paid in 'full

and final settlement' is contradictory, inconsistent, without any

basis and cannot be accepted.

(ii) The undertaking dated 29 July 2009 furnished by the

Respondent company was subject to 'reconciliation of invoice

DSS app 181.13.doc

amount' and further subject to receipt of corresponding

payments from HAL. As such the debt was not yet due and

the petition as filed was premature.

(iii) The Appellant has failed to establish that the Respondent

company has "deliberately and intentionally" neglected to pay

the amount due. Merely because, in the present case, the

amount is due and payable and/or though acknowledged is

not paid, that by itself is not a sufficient ground to wind up the

Respondent company.

6. Mr. Pankaj Vijayan, learned Counsel appearing for the Appellant

questioned the impugned judgment and order on the ground that the

learned Company Judge had failed to apply the correct principles in

determining whether the case had been made out for winding up of the

Respondent company. In this regard, Mr. Vijayan made the following

submissions:

(i) The undertaking dated 29 July 2009, not only clearly and

unambiguously records acknowledgment of debt, but further

records a promise on the part of the Respondent company to

pay an amount of Rs.81,84,426/- stated therein as per the

schedule of installments. The undertaking records that in case

of default, the Appellant shall be entitled to initiate legal

DSS app 181.13.doc

proceeding, including but not restricted to a petition for

winding up of the company under Section 433 and 434 of the

Companies Act, 1956;

(ii) There is a clear and unambiguous acknowledgment of

debt/liability in the balance confirmation letters dated 25

March 2010 and 7 March 2011. When it recorded to

endorsement upon such letters, the Respondent company

neither contended that the amounts were subject to

'reconciliation' nor that the amounts were payable subject to

proportionate receipts from HAL;

(iii) The defence that the payment of Rs.25 Lakhs was made

in 'full and final settlement' has already been found by the

learned Company Judge to be baseless. In such

circumstances, the learned Company Judge ought to have

accepted the Appellant's contention that the defences raised

by the Respondent Company are neither substantial, nor bona

fide;

(iv) Even otherwise, the defences raised by the Respondent

Company are neither substantial nor bona fide. The debt is

virtually admitted. No payments are forthcoming. Clearly,

therefore, the Respondent company is "unable to pay its

debts".

DSS app 181.13.doc

For all the aforesaid reasons, it was submitted that a case has been made

out for admission of the petition for winding up of the company.

7. Mr. Ajit Kulkarni appearing on behalf of the Respondent company

defended the impugned judgment and order by reiterating and elaborating

upon the grounds/defences raised in the reply to the statutory notice and

reply filed in response to the company petition.

8.

Before, we advert to the rival contentions, reference can be usefully

made to the judgment of the Supreme Court in case of M/s. Madhusudan

Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd. 1, which lays

down the principle to be applied in entertaining the petitions for winding up

of companies. In paragraphs 20 and 21, the Supreme Court has observed

as follows:

20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will

not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. See London and Paris Banking

Corporations.2 Again a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been properly done was not allowed. See Re. Brighton Club and Horfold Hotel Co. Ltd.3

21. Where the debt is undisputed the court will not act upon a

1 1971 (3) Supreme Court Cases 632 2 (1874) LR 19 Eq 444 3 (1865) 35 Beav 204.

DSS app 181.13.doc

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.4 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. 5 . The principles 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."

9. Applying aforesaid principles to the facts and circumstances of the

present case, we have to determine whether the debt is bona fide disputed

and whether the defence is a substantial one.

10. The undertaking executed by the Respondent company on 29 July

209 and the unequivocal endorsement made upon the balance

confirmation letters dated 25 March 2010 and 7 March 2011 establishes

that the dispute regarding the debt payable by the Respondent company

to the Appellant is neither bona fide, nor substantial. There is no dispute

that the Respondent company placed purchase orders upon the Appellant

and the Appellant supplied goods in pursuance of the same. There is no

dispute that the Appellant raised invoices from time to time aggregating to

Rs.2,16,64,437/- out of which an amount of Rs.1,31,49,778/- was paid by

the Respondent company to the Appellant without any demur. Even with

4 94 SJ 369 5 1962 Ch 406

DSS app 181.13.doc

regard to the balance, there was never any serious demur. In these

circumstances, we are of the opinion that the dispute as regards the debt,

belatedly raised is an afterthought and is neither bona fide, nor substantial.

11. Mr. Kulkarni, however, submitted that the undertaking dated 29 July

2009 itself states that the amount stated therein is "subject to

reconciliation". Therefore, he submitted that the undertaking cannot be

relied upon to establish any debt. We are unable to accept this contention

for the following reasons:

(i) The undertaking, which otherwise, clearly and

unequivocally acknowledges the liability and assures

payments as per stipulated schedule, very vaguely states:

"this amount due includes certain invoices which are

under reconciliation for material cost".

(ii) In the schedule of repayment contained in the

undertaking, as against the amount of Rs.41,84,426/-

repayable by 15 September 2009, there is the following

endorsement:

"due after material cost reconciliation".

(iii) Pitted against such vague endorsements are clear and

unambiguous acknowledgements of debt and undertaking to

DSS app 181.13.doc

pay total amount of Rs.81,84,426/- to the Appellant.

(iv) The Respondent company, neither in its reply to the

statutory notice, nor in its reply to the petition for winding up

has placed any material on record to suggest that any

reconciliation was in fact carried out and that upon such

reconciliation any amount was found as not due and payable

to the Appellant.

(v) Much after the execution of the undertaking dated 29 July

2009, the Respondent company has made endorsements

upon the balance confirmation letters dated 25 March 2010

and 7 March 2011 confirming that the Appellant is to receive

from the Respondent company an amount of Rs.85,41,219.80

as on 28 February 2010 and 28 February 2011.

12. Mr. Kulkarni, then contended that as per the agreement between the

parties, payments were to be effected by the Respondent company within

3 to 5 working days on receipt of payment from Hindustan Aeronautical

Limited (HAL) on a back to back basis. In this regard, Mr. Kulkarni referred

to Clause 5.2 of the purchase order dated 17 July 2009, which reads as

follows:

"5.2 Tooltech shall release to TAML all payments due to them (and provide all Reasonable documentation as proof, if required), within 3 to 5 working days on receipt of their (Tooltech's) payment from HAL on a back to back basis.

However, Tooltech would do the best possible to release the

DSS app 181.13.doc

payment within 45 days from the date of receipt of certified bills from TAML".

The first part of the Clause 5.2 of the purchase order does make reference

to payment within 3 to 5 working days from the company receiving

payment from HAL on back to back basis. However, the second part

provides that the Respondent company would do the best possible to

release the payment within 45 days from the date of receipt of certified

bills from the Appellant. The use of the word "however" makes it clear that

though the Respondent company was bound to effect the payments within

3 to 5 working days upon receipt of payments from HAL, nevertheless if

such payments were not forthcoming from HAL, the Respondent company

would do the best possible to release payments within 45 days from the

date of receipt of certified bills from the Appellant. The payments of

amounts to the Appellant was therefore not dependant upon the

Respondent company receiving payments from HAL. Further this is not a

case where there was any form of tripartite agreement between the

Appellant, Respondent company and HAL. In fact, there was no privity of

contract between the Appellant and HAL. Such defence was never raised

by the Respondent company either at the stage of executing the

undertaking dated 29 July 2009 or at the stage of acknowledging the

amount due in pursuance of the balance confirmation letters dated 25

March 2010 and 7 March 2011. In the circumstances, we find that the

defence raised is neither a bona fide nor a substantial one.

DSS app 181.13.doc

13. The third defence that an amount of Rs.25 Lakhs was paid in full

and final settlement by the Respondent company has not been accepted

by the learned Company Judge. Even otherwise the same is not at all

borne from the records. The E-mail communication does not support any

such conclusion.

14. Mr. Kulkarni, finally submitted that the purchase orders which

constitute a "contract" between the parties contained an arbitration clause

and in view of the existence of such a clause a petition for winding up was

not maintainable or in any case was rightly not entertained. This does not

appear to be a defence raised by the Respondent company before the

learned Company Judge.

15. In any case, as observed by the Supreme Court in Haryana Telecom

Ltd. Vs. Sterlite Industries (India) Ltd.6, a claim in a petition for winding up

is not for money. The petition filed under the Companies Act in a matter

like this, is to the effect, that the company has become commercially

insolvent and, therefore, should be wound up. The power to order winding

up of a company is contained under the Companies Act and is conferred

on the Court. An Arbitrator, notwithstanding, any agreement between the

parties, would have no jurisdiction to order winding up of a company.

6 (1999) 5 Supreme Court Cases 688

DSS app 181.13.doc

16. In the aforesaid circumstances, the objections as to maintainability

of a petition for winding up on the ground that the contract between the

parties contains an arbitration clause is liable to be rejected.

17. In our judgment, therefore, the Appellant has made out a case for

admission of Company Petition No.198 of 2012.

18. Accordingly, the impugned judgment and order dated 17 October

2012 passed by the learned Company Judge, dismissing Company

Petition No.198 of 2012 is set aside. The Company Petition No.198 of

2012 shall stand admitted and is required to be advertised in usual terms.

The Appellant shall deposit costs, charges and expenses of the Company

Registrar for the purpose of advertisements. Company Petition NO.198 of

2012 is made returnable after 12 weeks before the learned Company

Judge.

19. The Appeal is allowed in the aforesaid terms. However, there shall

be no order as to costs.

(Dr. D.Y. Chandrachud, J.)

(M.S.Sonak, J.)