Bombay High Court
Premier Road Carriers Limited vs Siemens Limited Cin ... on 8 December, 2015
Bench: K.R. Sriram
1 CP864.14
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY PETITION NO.864 OF 2014
Premier Road Carriers Limited ....Petitioner
V/s.
Siemens Limited ....Respondent
----
Mr.Pravin Samdani Sr. Advocate a/w Mr.Paritosh Jaiswal,
Mr.N.Mehta, Mr.Parag Sharma i/by Udwadia & Co. for the petitioner.
Mr.Venkatesh Dhond, Sr.Advocate and Mr.Shyam Kapadia a/w
Mr.Gaurav Shah, Ms.Smruti Kanade and Ms.Heena Daulat i/by
M/s.Negandhi Shah & Himayatullah for the respondent.
ig ----
CORAM : K.R.SHRIRAM,J
DATE : 8.12.2015
P.C.:-
1 The petitioner has approached this court alleging that the
company is indebted to the petitioner a sum of Rs.4,69,42,986/- on
account of outstanding dues payable for services provided by the
petitioner for transportation of the company's equipments from one
place to another in India. Since 2006 the company has been availing
the petitioners' services for the purpose of transportation of its
equipments and in this regard from time to time entered into several
contracts with the petitioner. The claim relates to 770 invoices which
are unpaid. Admittedly, 67 invoices equivalent to principal amount of
Rs.33,44,185/- is time barred though it is the case of the company
that 97 invoices are time barred.
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2 It is the case of the petitioner that they repeatedly called
upon the company to make the payment including by sending a
statutory notice to the company but the company failed and
neglected to pay the outstanding amount. The petitioner states that
the company vide its e-mail dated 2.9.2014 acknowledged and
confirmed that invoices listed therein for an aggregate amount of
Rs.1,42,84,471/- were outstanding. The petitioner therefore, has
alleged that the company is unable to pay its debts in the normal and
ordinary course of its business and hence is liable to be wound up.
3 The company's defence is that the petition is filed as a
counter-blast to the respondents' claim in arbitration where the
respondent had claimed a sum of Rs.5,55,62,526.30 along with
interest @ 18% from 19.12.2010 until payment and/or realization.
The facts leading to the arbitration is that one of the consignment that
the petitioner carried on 19.12.2010 met with an accident and the
cargo got damaged resulting in loss amounting to Rs.5,55,62,526/-.
The respondents' insurance claim was rejected and hence the
respondent demanded the amount from the petitioner which was not
paid. The company therefore had to commence arbitration. The
petitioner fearing the outcome of the arbitration and apprehending
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that it will suffer an award against it, filed this petition belatedly as a
pressure tactic to try and force the respondent not to pursue the
claim in arbitration.
At this stage, it is necessary to note that the notice
invoking arbitration was sent by the company to the petitioner on
21.11.2013, whereas the first statutory notice was sent only on
25.6.2014. It is necessary also to note that the petitioner has chosen
not to disclose the fact that the company had already commenced
arbitration and there was a dispute between the petitioner and the
company for which the company was making a claim for an amount
much more than what the petitioner's claim was. The status of this
arbitration is, there is an award against the petitioner wherein the
petitioner has been directed to pay to the company a sum of
Rs.3,61,83,472/- plus interests and cost of Rs.30,00,000/-.
4 The counsel for the company submitted that in view of
this, the defence of the company that they have to recover monies
from the petitioner is a bonafide defence and on this ground alone
the petition shall stand dismissed.
5 The counsel for the company also submitted that even
assuming for the sake of argument that they have admitted, as
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alleged by the counsel for the petitioner, that the amounts claimed as
invoice charges are payable to the petitioner still this cannot be used
as a forum to recover amounts and it is not a case requiring winding
up of the company.
6 The company also took a defence that the statutory notice
is defective in as much as the notice issued states that the petitioner
would take action against the company under Section 271 of the
Companies Act 2013 and not under Sections 433 & 434 of the
Companies Act 1956. The counsel also submitted that the
Corrigendum sent by the company to the statutory notice vide their
Advocate's letter dated 4.8.2014 again was defective in as much as it
was addressed to the company's Advocate and not to the company
at their registered office.
7 The Apex court in 1IBA Health (India) Private Limited Vs.
Info-Drive Systems Sdn. Bhd., has analyzed the provisions of
Sections 433 and 434. The Apex court has held that if there is a
substantial dispute as to liability, the creditor cannot prefer an
application for winding up for discharge of that liability. The court has
to first examine whether the company has a genuine dispute to the
claimed debt. A dispute would be substantial and genuine if it is
1 2010 (10) SCC 553
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bonafide and not spurious, speculative, illusory or mis-conceived. It
is also stated that the company court is not expected to hold a full
trial of the matter. It must decide whether the grounds appeared to be
substantial. Certainly the court would also consider whether the
grounds of dispute is a clever mask invented to deprive the creditor
of a just and honest entitlement. Therefore, if the creditors' debt is
bonafide disputed on substantial ground, the court should dismiss the
petition and leave the creditor first to establish its claim in action, less
there is danger of abuse of winding up procedure.
8 Let us examine the petition. In the petition there is not
even a whisper that the company had raised the issue of damage to
cargo and denied their liability to pay the invoices. There is not a
whisper that the company had already initiated arbitration on
25.11.2013, that is almost 11 months prior to filing the present
petition. In fact, in the reply to the notice dated 25.6.2014 the
respondent had made it clear that the petition was merely a counter
blast to the pending arbitration proceedings.
9 A party coming to the court should come with clean hands
and it was the bounden duty of the petitioner to disclose all facts
relating to damage to cargo and the arbitration proceedings pending
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between the parties. The petitioner chose not to disclose perhaps
because they felt that might be construed as bona fide defence. The
non-disclosure was deliberate. On this very ground of non-disclosure
of these important facts, the petition requires to be dismissed.
10 In any event, the admitted position is that there is an
award in favour of the company. The counsel for the petitioner stated
that they have lodged a petition challenging the award and if the
award is set aside, there will be no amount payable to the company
and the entire amount claimed herein would become payable. The
counsel wanted this court to club the present petition with the
arbitration petition and wanted both the matters to be heard together.
In my opinion, this request of the petitioner has to be rejected. The
arbitration proceedings has nothing to do with the present company
petition. This company petition is not a forum for the petitioner to
recover its amount. It is the case of the petitioner that the company
has failed and neglected to pay the amounts claimed and hence the
company requires to be wound up. The parameters to be considered
while hearing a company petition is totally different from the
parameters while hearing an arbitration petition challenging an
award. Therefore, I was not inclined to tag this petition along with the
arbitration petition but decided to proceed with hearing of this
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petition.
11 Moreover, the pendency of the arbitration petition is
irrelevant to examine whether the company is unable to pay its debts
or not. In 2Federal Chemical Works Ltd., decided by a single Judge
of the Allahabad High Court, the company had opposed the petition
pleading that there were bonafide dispute with regard to the claims of
the petitioner. The stand taken was that the amounts claimed by the
petitioner as due to them would get cancelled out because the
company had counter claims in excess of the claims of the petitioner.
The court concluded that the counter claim set up by the company
was prima facie valid and the company has raised bonafide dispute
regarding its liability to pay the debts claimed by the petitioner and
hence cannot be deemed unable to pay its debts on account of any
legal presumption arising under Section 434. The relevant passages
from the judgment are quoted as under :-
"It is well settled that in order to raise the presumption
under section 434(I) as to a company's inability to pay
its debts, it is not sufficient to show merely that the
company has omitted to pay the debt due to the
petitioner despite service of the statutory notice : it must
be shown that the company has omitted to pay without
reasonable excuse. The existence of valid counter
claims would clearly constitute reasonable excuse for
non-payment. What has to be seen in the present case
therefore is whether the counter-claims set up by the
company are prima facie valid and bona fide.
2 1964 Company Cases Vol-xxxiv 963
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....................
....................
I am satisfied that the company has a bona fide counter-
claim against petitioner No. I for rent ( or damages for
use and occupation) of the premises which he continues
to occupy in spite of a notice to quit. If the company
were to take legal proceedings for his eviction, some
years would presumably elapse before possession
could be obtained and by that time the accumulated rent
would be equal to the entire amount standing to his
credit in the books of the company. In such
circumstances, it seems to me that the company has a
reasonable excuse for not paying anything to petitioner
No.I unless he agrees to vacate the premises."
In this case also the respondent has set up a very
reasonable excuse for non payment. In fact reason for non payment
has been justified by the award given by the learned Arbitrator. The
Bombay High Court in the matter of 3C.A. Galiakotwala & Co. Pvt.
Ltd. has held that merely because an appeal was pending and
perhaps the award might be set aside, it was not a good reason for
the court to hold, as on the date of disposal of the petition, that the
dispute raised by the company was not a bonafide dispute. The
court concluded that it must be held that the company had a
reasonable excuse for not making payment of the decree to the
petitioners and that the company was not negligent. The court held
that the word "neglected" used in Section 434 (1) (a) would mean that
if there is a refusal to pay without any reasonable cause then it could
3 1984 Company Cases Vol-55 746
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9 CP864.14
be said that the company had neglected to pay the amount. Mere
omission to pay is not a neglect to pay and if the company bona fide
disputes its liability to pay the amount, even though the amount may
be a decretal amount, then in that case it cannot be said that the
company has neglected to pay within the meaning of Section 434(1)
(a). If there is a genuine cross-claim then it amounts to this that the
claim of the petitioner is a disputed claim. The disputed claim would
never be a good subject matter of a winding up petition. The
following passages from C.A.Galiakotwala (supra) will be useful.
"In the present case, I have been saved the trouble of
going through the materials to find out whether the claim is
a bona fide claim. The reason is that it is an admitted fact
that there is already an award in favour of the company
and against the petitioners for Rs.55,000. Both these
awards on the different contracts were made and
published on one and the same day, viz., November 30,
1978. The arbitrators to the two awards were the same
arbitrators, Mr.Shah and Mr.Tejkumar Sethi. Ordinarily,
what the arbitrators would have done would be to set off
the amount found to be due and owing by the company to
the petitioner as against the larger amount found to be due
and owing by the petitioners to the company and after
deducting that amount an award in favour of the company
would have been passed. But, it appears that, since there
were two separate references, the arbitrators found it
difficult to adopt this procedure and, therefore, these two
awards have been passed. Undoubtedly, in the present
case, there is an award decree in favour of the petitioning
creditor. That award decree has not been challenged and
it has become final. Even before me in this winding up
petition, the company has not challenged that there is a
decree for Rs.26,083.83 in favour of the petitioners, but
what the company states is that the company has an
award against the petitioners for a much larger amount,
and that is of Rs.55,000. Therefore, it cannot be said that
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the company has not a bona fide claim against the
petitioners. What is required to be seen is whether the
company is liable to pay and in considering the liability to
pay, the court must also necessarily consider the liability of
the petitioners to pay to the company. It is after all a
question of liability of the one to the other and in
considering the bona fide dispute to a winding-up petition
on the basis of the liability of the company to pay to the
petitioners, the court cannot shut its eyes to the fact that
the petitioners also are liable to pay to the company, a
much larger amount than the amount of the decree they
hold. Merely because an appeal is pending and perhaps
the award may be set aside, it is not a good reason for me
not to hold today that the dispute raised by the company is
not a bona fide dispute to the liability of the company.
Since it is an admitted fact that there is already an award in
favour of the company, the dispute must be held to be a
bona fide dispute and, consequently, it must be held that
the company had a reasonable cause for not making
payment of the decree to the petitioners and further that
the company was not negligent within the meaning of
s.434(1)(a) of the Companies Act, 1956, in not making
payment of the amount on receipt of statutory notice."
(emphasis supplied)
13 The Delhi High Court in 4Jubilant Organosys Ltd. Vs. DCM
Shriram Industries Ltd. has held that where there are claims and
cross claims between a creditor seeking the winding up and a
company sought to be wound up, the debt can be said to be bona
fide disputed and the court will not order the winding up of the
company. It is for the petitioner to show that the company has
omitted to pay without a reasonable excuse and winding up
proceedings are not intended to exploit as a normal alternative to the
4 (2004) 114 DLT 52
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ordinary mode of debt realization. Paras-7, 9, 12 & 13 are read as
under :-
"7 On the basis of aforesaid admitted position, the
question that falls for consideration is as to whether the
respondent can raise counter-claim on the basis of the
Award ? To put it differently, whether such a
counterclaim would be a legitimate ground to deny the
petitioner payment which the respondent is to make in
respect of the transaction on the basis of which present
petition is filed.
8....................
9 The second judgment cited by learned counsel for
the respondent is the Division Bench judgment of
Calcutta High Court in the case of J.N.Roy Chowdhury
(Traders) P.Ltd. v. Jainti Enterprises, 1987 (61)
Company Cases 504. In that case the court after
taking note of number of judgments held that where
there are claims and cross-claims between a creditor
seeking the winding up and a company sought to be
wound up, the debt can be said to be bona fide
disputed and the court will not order the winding up of
the company. Whiding up proceedings are not
intended to be exploited as a normal alternative to the
ordinary mode of debt realisation. It would be
worthwhile to mention that the counter claim set up in
the said case was not an admitted amount. However,
such a claim, prima facie, was found to be bona fide
and could not be treated as frivolous and mala fide.
The court therefore, held that once there was a prima
facie case for the cross claim the winding up
proceedings were not appropriate............."
10...................
11...................
12 ................. Here, the respondents claim has already
been adjudicated in one forum i.e., before an Arbitrator
and has resulted in the Award. It is not merely a claim
pending adjudication. May be objections are filed
against this Award. But this dispute raised by the
petitioner would not make the claim of the respondent
lacking in bona fides. Further, the claim before the
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Arbitrator was not an after thought but was filed much
prior to the present petition filed by the petitioner
against the respondent. Moreover the Supreme court
has declined to grant any stay to the petitioner in the
S.L.P.
13 From the facts of this case, it is thus clear that
counter-claim can be entertained in a winding up
petition and if it is found, even prima facie, a genuine
counter-claim the same can form the basis of bona fide
dispute of the petitioner's debt on the basis of which
winding up petition is filed. When that is the legal
position, application thereof to the facts of this case
would not pose any problem. The counter-claim of the
respondent is, prima facie, established as the same is
founded on an Award made by the learned Arbitrator,
which means, the basis of counter-claim is the result of
legal proceedings. Even if the SLP is pending that
would not render the character of the counter-claim as
frivolous. On the contrary till the Award is set-aside,
the amount is payable in the said Award by the
petitioner to the respondent. This petition is therefore,
misconceived and is dismissed."
(emphasis supplied)
14 Facts in the case before us and the facts in
C.A.Galiakotwala (supra) and Jubilant Organosys Ltd. (supra) are
also similar. Here also the company's claim has already been
adjudicated before the arbitrator and has resulted in the award. It is
not merely a claim pending adjudication. Further in this case also the
claim before the arbitrator was not an ofter thought. The reference
was filed much before the present petition was filed, for that matter
much before the (statutory) notice was even issued. These two
cases therefore, squarely apply to the case in hand.
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15 It will be useful to quote the following paragraphs-20, 21,
22, 23, 31 & 33 from IBA Health (supra).
"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. Ltd. 1971) 3 SCC 632. The principles
laid down in the above mentioned judgment have again been
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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.
24........
25........
26........
27........
28........
29........
30........
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.
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
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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 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."
16 Therefore, where a 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 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. This court will go into the causes
of refusal of the company before coming to the conclusion whether the
dispute is bona fide or not. I am satisfied that the dispute raised by the
company is a bona fide dispute and not some ingenious mask invented to
deprive a creditor. I am also satisfied that the defence is not moonshine.
17 The petitioner chose not to disclose the very important fact
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of dispute between the parties and the arbitration proceedings. The
petitioner cannot be allowed to use the threat of winding up petition
as a means of enforcing a company to pay a bona fide disputed debt.
The petitioner chose to reduce this court as a debt collecting agency
or means for bringing improper pressure on the company to pay the
bona fide debts thereby abusing the jurisdiction of the company
court.
In the circumstances, the company petition requires to be
dismissed with substantial cost. The petitioner to pay to the
company, by way of cheque drawn in favour of Advocates on record
for the company, a sum of Rs.1,00,000/- as costs.
19 In view of the above, it is not necessary to go into the
details of the defence of the company that the statutory notice was
defective, though I am satisfied that the notice was valid.
20 Petition stands dismissed accordingly.
(K.R.SHRIRAM,J)
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CERTIFICATE
Certified to be true and correct copy of the original
signed Judgment/Order.
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