Prime Century City Developments ... vs Ansal Buildwell Limited
2002 Latest Caselaw 1911 Del

JUDGMENT

Vikramajit Sen, J.

1. This winding-up Petition has been filed with the grievance that the Petitioner's advance payment of Rs. 10,00,000/- has not been returned to it despite its several requests. The parties had entered into an Agreement dated 26.12.2000 for the development of a residential Complex in Moradabad. Ninety Three plots of various dimensions were to be carved out and sold from a planned area of approximately 1,00,000 Square Meters. However, some portions of the proposed meterage are owned by third parties who could not be persuaded to participate in the envisaged project called "Century City". It is alleged that considerable delay occurred causing a sharp increase in the project costs. Since time to resolve the dispute according to the Agreement had expired and due to the alleged willful failure of the Respondent to provide necessary basic services, the entire plan got dislocated and disrupted, thereby frustrating the project itself. The Agreement contained the following Arbitration Clause, which has generated considerable arguments:-

"Any dispute which may arise during the course of this, OA (within 12 months from the date of signing of this MOA) efforts will be made to resolve it amicably by having meeting between Mr. Gopal Ansal and mr. Mohammed Mansoor. However, in the event the amicable resolution is not arrived at the dispute shall be referable to Arbitration as per Indian Arbitration and Re-conciliation Act, 1996. The jurisdiction of the Arbitration and/or the Court of law shall be at New Delhi."

2. In its Reply in opposition to the Petition, it has been disclosed that the Respondent had already moved the Civil Court for interim orders under Section 9 of the Arbitration and Conciliation Act, 1996 and for the appointment of an Arbitrator or for settlement of disputes before such an appointment. It has been further pleaded that payment of certain cheques in favor of the Respondent had been stopped by the Petitioner thus raising disputes between the parties. It is the Respondent's case that winding-up proceedings cannot be maintained for recovery of bona fie disputed sums of money. The Respondents had already undertaken various activities immediately after the execution of the said Agreement, for which it is entitled to monetary compensation. It has been pleaded that - "the question of Rs. 10,00,000/- paid in the Memorandum of Agreement becomes adjustable at the final accounting which will be taken note of at the time of accounts are settled between the parties". It is categorically denied that the Respondents induced the Petitioner to pay the said advance of Rs. 10,00,000/-. With regard to the project, it is stated that all the activities could not be undertaken without possession of the entire land. It has been categorically denied that there was any agreement to the effect that even if the Contract was unilaterally terminated, the said amount of Rs. 10,00,000/- would be refundable.

3. The first question to be answered is whether the existence of an Arbitration Clause would invariably have the effect of closing the doors of the Company Court to the Petitioner. Learned Counsel for the Petitioner has predicated his arguments that the Company Judge retains jurisdiction regardless of such a clause on the decision of the Hon'ble Supreme Court in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., in which it has been observed as follows:-

"Section 8(1) (of the Arbitration and Conciliation Act, 1996) provides that the judicial authority before whom an action is brought in a matter will refer the parties to arbitration the said matter in accordance with the arbitration agreement. This, however, postulates that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide.

The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, 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."

The presence of an arbitration clause was found not to preclude the jurisdiction of the Company Court, it being statutory relief. This is not to say that in ever case the Company Judge will proceed to adjudicate,, till the very end, the disputes brought before him, even though on further reflection and cogitation, it appears to him to be apposite and expedient to refer the parties to arbitration, where the issues would be considered threadbare.

4. Reliance has also been placed in Tirlok Chand Jain and Ors. v. Swastika Strips (P) Ltd. and Ors., [1991] 70 Company Cases 197, in which the Company had filed an application for stay of proceedings and for reference of the disputes to arbitration. A single Judge of the Punjab and Haryana High Court dismissed the application holding that the proceedings under Section 434 read with Section 439 of the Companies Act operate in a completely different sphere and jurisdiction from that under which relief can be sought in arbitration. The Court observed that winding-up proceedings are not for the recovery of any amount and that none of the dispute referred to in the arbitration clause could be co-related to the relief of the Company Petition. These observations were made in relation to the Arbitration Act 1940, the provisions of which are far less stringent than those of the Arbitration and Conciliation Act 1996, as will presently be seen. In Maruti Ltd. v. Shirke and Co. Private Ltd. and Ors., 1981 [51] Company Cases 11, a Division Bench of that very Court observed that the jurisdiction of the Company Court will not be taken away by the mere existence of an Arbitration Clause. The Division Bench held that such a Clause does not impinge upon the jurisdiction of the Court which would have to decide whether to try the dispute which has been brought before it or to stay the action and refer the parties to arbitration. In a recent decision, a Single Judge of that very Court in J.G. Finance Ltd. v. Jamna Auto Industries Ltd., (2000) 1 Comp. LJ 139, after relying on the Judgments of its Division Bench in the Haryana Telecom Ltd. (which case which was subsequently affirmed by the Apex Court as mentioned above) had opined that "an arbitration agreement per se would not oust the jurisdiction of the Company Court to entertain a petition for winding up. It is only upon examination of the dispute on merits that court would be required to decide whether such a petition should be entertained by the Company Court or the party should be directed to take recourse to the arbitration proceedings." The Learned Judge observed that the matter was no longer res integra since two Division Benches of that Court had taken this view. The Learned Single Judge's use of the words 'per se' is not incidental or accidental. In Viral Filament Ltd. v. Indusind Bank Ltd. [2001] 44 CLA (Snr.) 7 (Bombay) the Division Bench had meaningfully employed the phrase "on first principles" before making similar observations.

5. Reference has also been made to William Jacks & Company (India) Limited v. Saraswati Industrial Syndicate Limited, [Vol. 59 1986] Company Cases 876; In re: Shree Gouri Shankar Jute Mills Ltd., (Vol1. II 1982) Company Law Journal 607 and Thakur Paper Mills Ltd. Samastipur In re. Kailash Chand Jain, AIR 1968 Patna 289, where it was held that if there is no dispute in that the defense raised is found not to be bona fide, there is no question of the arbitration clause coming into operation; Hind Mercantile Corporation Pvt. Ltd. v. J.H. Payner & Co. Ltd., [Vol.41, 1971] Company Cases 548 to the effect that since a Winding up petition cannot be said to arise out of or under the contract so as to be referred to arbitration, and since under Section 34 of the 1940 Act, only proceedings in respect of any matter agreed to be referred can be stayed, a winding-up petition cannot be stayed; Wimco Ltd. v. Sidvink Properties (P) Ltd., [Vol. 86 1996] Company Cases 610; and In re: Care P. Ltd.: Surendra Kumar Dhawan and Anr. v. R. Vir and Ors. [Vol.47 1997] Company Cases 276 in which D.K. Kapur J. held that the Court will not stay a petition under Section 397 or 398 on a application under Section 34 of the 1940 Act, predicated on the arbitration clause.

6. Counsel for the Respondents have cited Kalpana Kothari (Smt.) v. Sudha Yadav (Smt.) and Ors. with Parasnath Builders Pvt. Ltd. v. Sudha Yadav (Smt.) and Ors. which was decided without reference to the decision of the coordinate Bench of the Apex Court in Haryana Telecom Case (supra). Paragraph 8 of the later case has been relied upon by the Learned Counsel for the Respondents to highlight the difference between the old and the present arbitration statute and to contend that the Court must now perforce halt proceeding and refer the parties to arbitration.

"8. The first respondent herein has filed the civil suit for dissolution of the partnership and for accounts and also filed applications for the appointment of Receiver and for injunction. The defendants have initially filed applications in the suit before the trial court invoking the provisions contained in Section 34 of the Arbitration Act, 1940 and not only the applications file by the first respondent before the trial court were rejected but the applications under Section 34 of the Arbitration Act by the appellants came to be allowed and further proceedings in the suit filed by the first respondent came to be stayed. No doubt, at the appellate stage, after filing a written application for dismissal of the applications filed by the appellants under Section 34 of the Arbitration Act, 1940, as not pressed in view of the repeal of the 1940 Act and coming into force of the 1996 Act an getting orders thereon, the appellants herein have once again moved the High Court under Section 8 of the Act, with a request for stay of proceedings before the High Court as well as the trial court, but the application came to be rejected by the learned Judge in the High Court hat no such application could be filed, once the application earlier filed under 1940 Act was got dismissed as not pressed and also on the ground of estoppel, based on the very fact. We are of the view that the High Court did not properly appreciate the relevant and respective scope, object and purpose as also the considerations necessary for dealing with and disposing of the respective applications envisaged under Section 34 of the 1940 Act and Section 8 of the 1996 Act. Section 34 of the 1940 Act provided for filing an application to stay legal proceedings instituted by any party to an arbitration agreement against any other party to such agreement, in derogation of the arbitration clause and attempts for settlement of disputes otherwise than in accordance with the arbitration clause by substantiating the existence of an arbitration clause an the judicial authority concerned may stay such proceedings on being satisfied that there is no sufficient reason as to why the matter should not be referred to for decision in accordance with the arbitration agreement, and that the applicant seeking for stay was at the time when the proceedings were commenced and still remained ready and willing to do all things necessary to the proper conduct of the arbitration. This provision under the 1940 Act had nothing to do with actual reference to the arbitration of the disputes and that was left to be taken care of under Sections 8 and 20 of the 1940 Act. In striking contrast to the said scheme underlying the provisions of the 1940 Act, in the new 1996 Act, there is no provision corresponding to Section 34 of the old Act and Section 8 of the 1996 Act mandates that the judicial authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting 8(3) his first statement. The provisions of the 1996 Act do not envisage the specific obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but notwithstanding the pendency of the proceedings before the judicial authority or the making of an application under Section 8(1) of the 1996 Act, the arbitration proceedings are enabled, under Section 8(1) of the 1996 Act to be commenced or continued and an arbitral award also made unhampered by such pendency. We have to rest the order under appeal on this basis."

7. Learned Counsel for the Respondent has also sought support from the decision of H.L. Anand J. in Agrob Anlagewbau Gambh v. Orient Ceramics and Industries Ltd., [Vol. 60 1986] Company Case 691 in which the petitioning creditor had issued a statutory notice as the Respondent-Company had not paid the third and last installment envisaged in their collaboration agreement, and had followed it up by the filing of a winding-up petition. The Respondent Company had opposed the petition on the ground that it was not bona fide and had also made a claim for refund of the amounts already paid and for damages and this claim had been referred to arbitration. The Learned Judge followed a course which still commends itself, despite the changes in the law, in observing:-

"It appears to me that even though the petition is prima facie not mala fide and its dismissal in liming would not be justified, particularly, having regard to the fact that the liability of the company was unreservedly admitted at one stage, even though by the previous management, the admission of the petition and any further proceedings on that basis would be equally unjustified having regard to the disputes raised by the new management which could not be thrown out of hand on the existing material. Winding up jurisdiction is intended to deal with companies, which are liable to be wound up. It should not, however, be allowed to deteriorate into an instrument of arm-twisting of a corporate body to compel it to meet a claim, which it would not otherwise pay for legitimate, reasons, even though the reasons way not eventually be able to survive a close judicial scrutiny. Moreover, the admission of the petition and any direction of the nature sought, even without an order of admission, are likely to adversely affect the prospect of a newly set up industrial unit and be capable of destabilising it. One of the parties has already taken the matter to the arbitral forum and the other party is likely to follow suit. The safeguards which the German company seeks to protect its interests by the preservation of the assets of the company, inter alia, by restraint on alienating of any part of its assets, could be sought by the German company from a court of competent jurisdiction in view of the pendency of arbitral proceedings. Any such direction by this court could be misconstrued and have an adverse effect on the financial institutions.

Having regard to all the circumstances, it is a fit case in which the petition should be adjourned sine die, as it is, with liberty to the German company to seek its revival, and to the company to seek its dismissal, on the outcome of the proceedings in arbitration between the parties. I direct accordingly."

This very approach was also favored by Justice R.J. kolchar in Manipal Finance Corporation Ltd. v. Cre Carrier Ltd., 2001-(107)-Company Case -288 -Bom, decided on 11.7.2001. The winding-up petition was rejected inter alia for the reasons that it appeared to be a pressure tactic and that there was sufficient security for the debts even if the Award in the pending arbitration would be in favor of the Petitioning creditor. The Learned Judge was of the view that the verdict in Haryana Telecom Case (supra) was of no assistance to the petitioner.

8. Learned counsel for the Respondents have also placed reliance on K.S. Satyanarayana v. V.R. Narayana Rao, ; Trans World Finance & Real Estate Co. Pvt. Ltd. v. Union of India, 97 (2002) Delhi Law Times 767 to buttress the contention that reference to arbitration is now mandatory in view of Section 8 of the Arbitration and Conciliation Act; and Raj Sarogi v. American Express (I) Pvt. Ltd. 2001 1 AD (Delhi) 143.

9. The Restatement of the law pertaining to the winding-up jurisdiction is contained in Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Anr, (1994) 2 Comp LJ 50 (SC). A summary of the judgments yields the following propositions, and stated in NEPC India Ltd. v. Indian Airlines, :

4. 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 Anr., (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 Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Case. 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 is pending, or likely to be filed in the immediate future. [see Civil Appeal No. 720 of 1999 arising out of SLP (C) NO. 14096 of 1998 -- Nishal Enterprises v. Apte Amalgamations Ltd., decided by the Hon'ble Supreme Court 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 bee adopted should appear to the Court not to be dishonest and/or a moonshine, for proceeding to continue. If there is insufficient material in favor 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.

10. It is my understanding that the present disputes have to be resolved by the application of the dicta in the PICUP case and in the Haryana Telecom, case (supra). It must be kept in mind that the decision in the case of Kalpana Kothari (supra) was not given in the context of the Companies Act, otherwise the Hon'ble Court would have referred to its earlier decision. The judgment prescribes that Section 8 of the Current Arbitration Act demands mandatory adherence, so much that even if a previous application has been withdrawn, a subsequent supplication on similar lines must be allowed. Owing to the brevity of the judgment in the Haryana Telecom case (supra), an attempt has been made to waterdown its applicability by arguing that the arbitrator had been vested with the power to order even the winding-up of the Company. In order to dispel doubts I had called for the records and I find that this is not so. The Arbitration Clause in that case reads as follows:-

"14. Arbitration: Any dispute, questions of difference whatever shall arise between the suppliers and the purchaser in relation to or in connection with this order, the same shall be referred to arbitration within the meaning to Indian Arbitration Act or any Statutory Mediatorial Act.":

The Hon'ble Supreme Court was of the unequivocal view that the power of ordering winding-up, being strictly a statutory power, could not be exercised by an arbitrator whose source of power emanates from the contractual agreement of the parties concerned. It is trite to state that it is not legally permissible for parties to opt out of the operation of a statute. The existence of an arbitration clause therefore cannot oust the jurisdiction of the Company Court exercising its discretionary powers under Section 433 and 434 of the Companies Act. However, this does not lead to the only conclusion that in every case the Company Court must invariably exercise jurisdiction even though it would appear to it expedient and appropriate to refer the parties to arbitration. In my analysis of the modus, there is hardly any scope of a clash to occur between the rights to seek arbitration and for the other party to enforce winding-up. This is for the reason that if there is an admission of debt, or a moonshine and mala fide defense to the petition has been presented, an Award would be a foregone conclusion and procrastinating and deferring the inevitable end to the dispute would be contrary to and in negation of the expectation of law. Where a bona fide defense to the winding-up petition has been disclosed the petition ought to be dismissed in any case by the Company Court. It cannot enter upon disputed questions, which would either have to be adjudicated upon by means of an ordinary and regular civil suit, or by making Reference, where the parties have contracted with each other to resolve their differences through arbitration. Therefore, in actuality, the Company Judge will in no circumstances substitute himself for or assume the role of the arbitrator. There is no merit or substance in the submission that, as in the case of a civil court, as soon as the arbitration clause is shown to him, the Company Judge must dismiss or adjourn sine die the action before him.

11. I cannot also appreciate the argument that a drastic change has been brought about by Section 8 of the Arbitration and Conciliation Act in respect of the jurisdiction of the Company Judge. The Apex Court perceived no change in the legal position in the Haryana Telecom case (supra). There is no gainsaying that the Companies Act is the earlier statute and would therefore be regulated by the new Arbitration statute. It will nonetheless also have to be borne in mind that the general legal provisions must give way to special enactments, in case of inconsistency between them. The Apex Court have been quick to clarify that the winding-up powers are not akin to recovery proceedings since an arbitration agreement cannot confer the right to seeking winding-up, as the arbitral authoirty does not possess this statutory power. The later Arbitration and Conciliation Act 1996 ought to have made a specific reference to the Companies Act by the convenient and easy use of a non-obstante clause in the first sub-section of Section 8 has been done in the third sub-section in a different context. Withdrawal of a statutory relief should not be gathered by mere implication. If the argument advanced on behalf of the Respondent Company is to be accepted, the consequence would inexorably be an automatic ouster of the relief of winding-up in every instance were an arbitration clause is found to exist. What the parties intended to record is their resolve to have future disputes settled through arbitration rather than taking recourse to ordinary civil recovery of money proceedings. At the point in time of entering into compact the thought of 'winding-up' would be farthest in their minds; that is the only reality. If this were not so, they could quite easily expressly record that the relief of winding-up will not be available to them; but even if this were to be specifically mentioned it would have no legal efficacy for the simple reason that parties cannot contract out of a statute. In any event the relief of winding-up is not intended to be available to the contracting parties alone, but on the contrary, it has the interests of the general public in perspective. The Company Court can decline to wind-up a Company if other creditors object to this; or it may give its imprimatur to a Scheme which may even reduce the Respondent Company's liability to an extent not entirely acceptable to the petitioning creditors. Winding-up is an equitable relief which is not strictly dictated by the rights of a creditor; that right is available in the ordinary civil jurisdiction of a court of law where discretionary or equitable Powers of the Court are missing. Where contracts have to be construed the Court must consider only what the parties have in contemplation, and should steer clear from the ingenuous arguments contrived by counsel solely to side-track and frustrate the initial resolve of the parties when dispute were not in their horizon. It is in this analysis of the law that I must consider the facts presented in this petition.

12. The parties have entered into a development/building agreement which, because of the inherently detailed reciprocal obligations, is seldom specifically enforced by the Court, as can be gathered inter alia from a reading of Section 14 of the Specific Relief Act, 1963. The Respondent's case is that they were approached by the Petitioner because of the former's expertise in real estate development; that the Respondent had undertaken various activities immediately after the execution of the Agreement, including Artwork; had engaged specialists and incurred expenses in this regard; made preparations for a Press Conference which was delayed because of the Petitioner; the Petitioner's cheques were dishonoured; that the sum of Rs. 10 lakhs was to be adjusted after final accounts were settled and that as and when this exercise is completed, amounts would be found due to the Respondent Company; that the Petitioner had breached the Agreement and had terminated it on 2.5.2001, within four months of its execution whereas the Project was for a period of twelve months; and that no response was made to the statutory notice because the Respondent had already initiated steps under the Arbitration and Conciliation Act 1996 by way of OMP 137/2001.

13. Substantial defense have been raised as narrated in paragraph 2 above, and it is not possible to view them as moonshine or as lacking bona fides. These defense can be properly adjudicated upon in regular and not summary proceedings. In these premises, it would be inappropriate to entertain this petition; the parties must seek their remedy in arbitration, to which they have expressly agreed. This conclusion also vindicates the theory that there is no likelihood of a conflict between the statutory relief of winding-up and of the contractual right to have disputes settled by arbitration. Once a bona fide defense is shown to exists, arbitration will be the efficacious and proper remedy; where the defense is male fide and moonshine, arbitrable disputes would not exist in actuality.

C.P. 399/1999.

Since it has also been contended that this petition should be dismissed and the petitioning creditor should be relegated to seek his remedy in arbitration, it is being dealt with together with CP 303/2001 so that it needless repetition is avoided.

2. The Petitioner had purchased/financed a helicopter at the instance and request of the Respondent Company for US. $2, 595, 000/=. An Agreement for 'Lease of Equipment' was executed by them on 23.11.1994, but for a sum of Rs. 8.5 crores. In this case also, the parties had agreed to forward and resolve their disputes through arbitration, as is manifest from the following clause of the Agreement, which in my considered view would not oust the jurisdiction of the Company Court.

"20. Arbitration

Any question dispute or difference that arrives between parties or any of them touching or concerning this agreement or any condition herein contained or as to the rights, duties or liabilities of parties hereto or any of them either during the continuance of the agreement or after termination or purported termination hereof it shall be referred to arbitration of the BCCI Bombay in accordance with the rules of the Indian Arbitration Act, 1940 for the time being in force and decision of the arbitration whether on question of law or of fact shall be final and binding on the parties."

3. Although the cost of the asset was shown at Rs. 10,67,65,995/- (Rs. ten crore sixty seven lakhs sixty five thousand nine hundred ninety five only) (equivalent to as $ 2, 595,000), the financed amount was clearly specified at Rs. 8,50,00,000/- (Rs. eight crore fifty lakhs only) and the value of the Lease at Rs. 12,31,65.00/- (Rupees twelve crore thirty one lakhs sixty five thousands only). The Schedule to the Agreement envisaged that payments would commence on 23.11.1994 and would end with the 20th and Final Installment on 23.8.1999. A Supplementary lease Agreement, stated to be forming part of the Lease Agreement dated 23.11.1994, was thereafter executed between the parties on 25.8.1997. The salient features were that the Respondent firstly admitted, confirmed and acknowledged that a sum of Rs. 8,50,51,452/- (Rupees eight crore fifty lakhs fifty one thousand four hundred fifty two only) was then due and outstanding to the Petitioner, which would be immediately payable in the event that the revised Repayment Schedule was not adhered to by the Respondent Company. Interest at the rate of 36% per annum with effect from 1.7.1997 was also expressly agreed to. This Agreement further recorded that although the Respondent had paid the first six quarterly lease rental, thereafter, "due to bad market conditions and liquidity problems, the lessee was unable to make timely payment of Lease rentals to the Lesser and the account had fallen into arrears." A Demand Promissory Note for the afore-mentioned sum of Rs. 8,50,51,452/- was jointly executed in favor of the Petitioner by Mesco Airlines Ltd. as well as Mideast (India) Limited, which was styled as the co-lessee.

4. In its letter dated 2nd April, 1998 the Respondent requested the Petitioner "to have patience for a few days delay. This is due to not receiving our cash flow on time on a few occasions like in the month of March." A fortnight later the Respondent again requested for relief of two months in making payments in accordance with the re-scheduled Agreement. This was by its letter dated April 18, 1998, which is reproduced below in its entirety as it will highlight the falsity of the defense put forwarded to the winding-up petition--

"Dear Mr. Garg,

I am writing this letter with a request for relief of two months in the rescheduled agreement entered with Lloyds Finance on 19th February, 1998.

To summarise our entire transaction, Mesco Airlines has paid to Lloyds Finance a total amount of Rs. 378 lakhs from November 1994 to August, 1996 and Rs. 66.58 lakhs from June 1997 to March, 1998. Thus, so far we have made payment of Rs. 444 lakhs to you.

In the last quarter of calender year 1997 our competitor Pawan Hans went on strike thereby causing ONGC, our customer to heavily rely on Mesco Airlines Service which led to a stressful flying rate of 200 hours per month of MI 172 fleet. These machines are not conditioned to such heavy flying in tropical climate like our country. this caused an engine failure of your machine in February 1998. We sent the defective engine immediately for repair to Russia. To our dismay we learnt that engine repair will take a long time and at a great cost. At the moment, we have no alternative now but to go in for a brand new engine for your aircraft because we cannot afford grounding it for a period of 4 months which is approximately the repair time indicated to us. A similar problem has also occurred on the helicopter owned by Sundaram Finance due to the same reasons. The problem has been brought to the notice of the engine design firm called Motro Sich, who are now working on the rectification of the same. At this point of time both machines owned by Sundaram and yours are grounded thereby curtailing our revenue and also putting us in a position of heavy expenditure of the same line. The brand new engine of MI-172 are priced anywhere between USD 300,000 to USD 400,000.

As you may be aware Mesco Airlines is functioning without working capital limits. Therefore, we have to fall back on our own resources to get through this bad phase. At this stage, we would like to make a request to your to give us a supporting hand as your have always done in the past and allow us relief for two months, i.e. for April and May 98 at the rate of 10 lakhs per month. We would continue the payment from June 98 onwards and will make up for this intervening period in the subsequent months.

We hope you understand our financial position at this point of time. We therefore, most humbly request you to grant us this relief. It would be in our mutual interest to resume flying as soon as possible so as to continue generating revenue and achieve customer satisfaction with or client ONGC.

I understand from your local Delhi office that you will be visiting Delhi Sometime next week. The undersigned is planning to be in Mumbai on 23rd and 24th of April. I would appreciate if you could give me some time either in Mumbai or in Delhi next week at your convenience, so that in person I can explain to you in greater detail the above mentioned facts.

We look forward to hearing from you on the above matter.

Thanking you in anticipation.

Best regards.

Yours sincerely,

Sd/- NATASHA SINGH

MANAGING DIRECtor."

5. By letter dated 16th January, 1999 the Respondent expressed its hope and trust that "after February 199 onwards we would be able to meet our commitment of payment of lease rentals to your goodself." Thereafter, the Respondent proposed a restructuring of the payment due by to the Petitioner, in terms of its Letter dated 7.4.1999. This in substance was "from April 1998 till April 1999 there is a sum of Rs. 125 lakhs overdue which is proposed to be paid in the next 24 months, i.e. till April 2001 along with interest at the rate of 18% per annum." All these communications indicate, firstly, that there was no denial of liability or demand from being absolved from payment of installments; and, secondly, to the extent of the liability. No counter claim was even hinted at, leave along categorically spelt out, as has belatedly been done in the Counter.

6. A Statutory Notice dated 15.9.1999 was dispatched to the Respondent containing the following demands.

"That now, a sum of Rs. 14,72,35,822/- (Rupees Fourteen Crores Seventy Two Lakhs Thirty Five Thousand Eight Hundred & Twenty Two only) is due and payable by your to our client, as per the calculations shown hereunder:-

(a) Amount outstanding under the Supplementary Lease Agreement dated 25/08/1997 Rs. 8,50,51,452.00/-

(b) Less s Payment received.

  Rs.     89,43,124,00/-

 
  (c) 
      Total   [  (a)-(b)  ]
  Rs.7,61,08,328.00/-

 
  (d) 

Add overdue interest @ 36% P.a. on (C) till 15/09/1999 (i.e. the date of this notice) Rs.7,11,27,494.00/-

(e) Amount payable :

Rs. 14,72, 35,822.00/-

(Rupees Fourteen Crores Seventy Two Lakhs Thirty Five Thousand Eight Hundred & Twenty two only)"

7. The Respondent has neglected altogether to reply to the Statutory Notice. In its affidavit-in-opposition the Respondent has pleaded that the Petition should be dismissed as it has been filed with the objective of pressurising the Company; that it is a going concern having a business turn-over of crores of rupees and has very profitable operations although it is temporarily facing a liquidity crunch on account of commercial reasons; that it is paying its debts and has given a reasonable proposal for settlement; that it has hundreds of employees; it has huge fixed assets and has financial capacity to pay any creditor; that it has nine helicopters and two fixed Wings Aircrafts; that the Petition ought to be dismissed in view of the arbitration clause; that there is no debt due and payable by the Respondent; that Schedule-I and Schedule-II of the Agreement is wrong and are liable to be set aside on account of the serious mistake committed by both the parties and that the Lease is also liable to be nullified. It has also been asserted that the Respondent is entitled to a credit of over Rs. 5,88,37,981/-; the helicopters were imported at Rs. 10,67,65,995/- out of which the Respondent was entitled to a credit of Rs. 2,17,65,995/- since only a sum of Rs. 8,50,00,000/- was to be paid to the Petitioner. It has also been pleaded that a sum of Rs. 4,00,00,000/- has not been taken into account and, accordingly, a total credit of Rs. 6,17,65,995/- has mistakenly not been credited. It has also been averred that Rs. 1,02,49,736/- has been paid by the Respondent on account of insurance, which is the liability of the Petitioner. It has been further pleaded that the Respondent incurred a sum of Rs. 2,68,22,250/- for replacement of parts caused on account of ordinary wear and tear of the equipment which the Petitioner was liable to receive. During the period when the equipment book was to be released, the Respondent was unable to use the helicopters and, therefore, suffered loss and damage amounting to Rs. 3,00,00,000/-. In these circumstances, it has been pleaded that the Respondent has a substantial Counter-Claim of Rs. 8,88,37,981/-. It has also been contended that the claim of interest at the rate of 36% per annum is contrary to the usurious loans account and that int he Promissory Note the rate of interest is 24% per annum.

8. In Rejoinder the Petitioner has reiterated the correctness of the Statement of Accounts, although at the time of arguments, Learned Counsel had submitted that there would be no objection to recalculate the dues on account of interest at the rate of 24% or any other amount found appropriate by the Court. The payment of a sum of Rs. 4,00,00,000/- has been specifically denied and my attention has been drawn to the letter dated 18.4.1998 extracted above in which it had been specifically stated that an amount of Rs. 3,78,00,000/- had been paid from November 1994 to August 1996 and Rs. 66.58 lakhs from June 1997 to 1998. As this admission has been made in the Respondent's own letter, the averment to the effect that payment of Rs. 4,00,00,000/- has not been taken into account is clearly moonshine. It appears to me to be wholly incredible that the Respondent would have forgotten to mention such a large payment "by mistake". A defense of this nature immediately places the case in the category of a mala fide and false defense. Furthermore, since the amount financed by the Petitioner was for Rs. 8.50 crores, future Installments would obviously be computed on this figure, disregarding any other indications of the price of the helicopter. The subject Lease Agreement specifically mentions that it will be the responsibility of the Respondent to take out an insurance over. Until the entire payment in Installment is made the title of the equipment/helicopter vests in the Lesser/Petitioner. On a perusal of Clause 5 of the Agreement, it would be evident that the liability of insurance premiums is that of the Lessee and this position is not unfair or inequitable. It must be borne in mind that the selection of the equipment is made by the lessee/Respondent relying inter alia, on the lessee's own requirements and judgment. Clause 6.9 clarifies that the Lessee was obliged to pay lease rentals punctually during the contracted period regardless of whether the Equipment requires repairs or are otherwise not in working condition. Clause 6.10 states that the Lesser/Petitioner shall not be liable or responsible in any way for the non-performance, if any, of the Equipment and further that the Lessee shall look solely to the Manufacturer/Supplier or its selling agents for the performance of guarantees and warrantees with respect to the equipment. In the letters mentioned hereinabove, the Respondent has itself admitted that the helicopter had been put to unusual use which caused its breakdown. Therefore, the Petitioner is not bound either contractually or equitably for any loss which may have been caused to the Respondent during the alleged breakdown period. Clause 7.3 is important inasmuch as it records the Respondent's liability to punctually pay for all servicing of and repair and other work done to the Equipment and for spare parts and accessories thereof and keep and Equipment free from distress, execution or any other legal process and further to replace all missing, damaged or broken parts with parts of equal quality and value. The use of the phrase 'fair wear and tear excepted' does not dilute this liability. In addition to these Clauses, the Lessee is also bound to indemnify the Petitioner against any loss or damage which may result from the negligence or for causes beyond the control of the Lessee.

9. In view of the written Agreement for payment of debts found in the Schedule-II of the original Agreement as well as Schedule-II of the Supplementary Agreement as also on the various letters of the Respondent, there is clear evidence of its liability which corresponds to the Schedule and the claim articulated in the petition.

10. It is specially necessary to mention Mr. Sawhney's argument that the Agreement is unlike a normal Lease Agreement of Equipment where, on the payment of all the Installments, the title to the property passes to the Lessee. He has taken pains to draw the distinction between the present Agreement and that of a Hire Purchase contract. It is his argument that since the title of the property is always retained by the Petitioner, the Respondent should not be held liable for payment of insurance and for maintenance and repair charges. No doubt, there is some merit in this legal submission. The fact, however, remains that the Respondent has failed to make the payments as agreed to by it. Clause 15 of the Agreement is of substance. It specifies that upon the termination of the Agreement, unless the Lessee has elected, to renew the lease for a further fixed period or secondary period the Lesser shall as the absolute owner of the Equipment be at liberty to sell any or all of the Equipment at a Public or private sale or otherwise dispose of it is any other manner. This, therefore, indicates that on the expiry of the lease period, the property would not be transferred to the Respondent. However, even if this be so, in view of the clear covenants contained in the Agreement, it is not open to the Respondent to contend that it should be given credit for the payments made on account of insurance and/or repair and maintenance. This is obviously how the Respondent has understood the Agreement since these objections have been raised only in response to the winding-up petition after receiving astute legal advice. As has already been mentioned, it is inconceivable that large sums of money would be paid by the Respondent without demur or objection, if there was any doubt or ambivalence as to whether the liability rested solely with the Respondent. These are all afterthoughts raised at this late juncture in order to defeat the Petition. The Respondent is a commercial entity transacting business of several crores, which would be fully aware of its contractual obligations, and the legal implication of a written contract.

11. It is also not open to the Respondent to contend that it is a going concern earning profits and with a large asset-base, in view of its numerous pleas to the Petitioner for repeated accommodation in payment of Installments. In my opinion, where the liability is itself denied in reply to the Petition, stringent measures are called for since the defense is palpably false and mala fide. Equitable consideration would dictate taking steps to secure payment of the Respondent's dues. A dishonest defense is only a precursor of dissipation of assets. The Petitioner's interests call to be protected. I am not convinced that the truth will emerge only after the parties arbitrate. The facts are already manifest.

12. In these circumstances, the Petition is admitted. The Respondent is directed to deposit an initial sum of Rs. 2,00,00,000/- inasmuch as the Respondent has pleaded that it is a growing concern and earning profits. The deposits be made with the Registrar of this Court within six weeks. I am, however, of the view that the claim of interest at the rate of 36% per annum is excessive and contrary to the Usurious Loans At. The Petitioner is directed to file a fresh Statement of Accounts showing the debts that are outstanding till date, computed on the basis of the Agreement between the parties, with interest computed at the rate of 18% per annum.

13. In the event that the afore-mentioned sum of Rs. 2,00,00,000/- is not deposited within the period of six weeks, it is likely that the Citation shall be published on the next date of hearing. It my then become expedient and appropriate for the appointment of a Provisional Liquidator specifically to take possession of the helicopter, which is the equipment in question.

14. Renotify the matter for further proceedings on 18th December, 2002.