Venkatesh Coke And Power Ltd. vs Simplex Concrete Pils (India) ...
2004 Latest Caselaw 1189 Del

JUDGMENT

Mukundakam Sharma, J.

1. The present appeal arises out of the judgment dated 13th August, 2004 passed by the learned Company Judge in Company Petition No. 255/2003 whereby the learned Company Judge has arrived at a finding that the defense of the appellant herein to the winding up action was incredulous, raised belatedly and an after thought, taken up for the first time in reply to the statutory notice issued by the present respondent as a sham ground of defense to the winding up action.

2. There is no dispute to the factual matrix except to the conclusions arrived thereupon. It is an admitted case of the parties that the appellant company invited tenders for execution and setting up of civil piles foundation work at Chennai, Tamil Nadu and the present respondent made its offer on 13th March, 1997 for the job which was described as 675.000 T.P.A. Plant with 60 M.W. Power Plant. The appellant company had accepted the offer of the respondent and had issued a Letter of Intent dated 17th June, 1997 in favor of the present respondent in the following terms:-

''We are pleased to issue a letter of indent for executing the pile foundations as per your offer dated 13th March, 1997, for the 675.000 TPA Coke Plant with 60 MW Power Plant for Rs. 9.75 crores.

The detailed L.O.I. Indicating the BOQ and terms and conditions will be sent to you after finalization of design and drawings with M/s Raytheon Engineers and Constructions and after Govt. approvals.

You are requested to remit Earnest Money Deposit amounting to 1 of the contract value by Demand Draft. This amount will be refunded back in the event of the non-execution of the Project.''

3. Thus the value of the work was fixed for Rs. 9.75 crores and the respondent was required to remit Earnest Money Deposit (hereinafter referred to as EMD for brevity) amounting to 1% of the contract value by demand draft. Consequently, the respondent had furnished the EMD for the sum of Rs. 9,75,000/- on 24th June, 1997 by demand draft.

4. The appellant company, however, issued an amendment to the Letter of Intent dated 2nd September, 1997 assigning additional work to the respondent at the cost of Rs. 13,85,98,000/-. The respondent was required to furnish an additional demand draft towards EMD to the tune of Rs. 15,00,000/- by the appellant vide a communication dated 23rd September, 1997.

5. In compliance thereto, the respondent herein had furnished a demand draft for Rs. 15,00,000/- to the appellant company dated 23rd September, 1997. Thus the respondent claims that it had complied with the entire contractual obligations attributable to it and they are merely waiting for reciprocal compliance on the part of the appellant company.

6. The receipt of the demand draft of Rs. 9.75 lakhs and Rs. 15.00 lakhs totaling Rs. 24.75 lakhs was admitted by the appellant company in its communication on 20th August, 1988. Again on 25th October, 1999, the appellant company had confirmed the credit balance in their books for a sum of Rs. 24,75,000/-. Further communication admitting the same amount was issued on 1st August, 2001.

7. It seems that after waiting for almost four years, seeing no progress in the matter and in view of the fact that the appellant company had not issued even a formal letter of intent, drawings or the bill of quantities, the respondent had addressed a communication of 27th December, 2001 requesting the appellant company to return the amount of the EMD along with interest at the nationalised bank rate. In reply, on 18th April, 2002 the appellant company confirmed that the EMD was lying with it and it was payable to the respondent. However, the appellant appears to have dragged its feet in the matter and consequently, the respondent addressed yet another reminder dated 18th October, 2002 calling upon the present appellant to make payment.

8. In reply to the afore-stated, the appellant company unequivocally and unconditionally reiterated its liability to pay back the EMD amount. However, time was sought to make the payment on the ground that the appellant was attempting to effect the payment from the proceeds of a land sale. For an effective appreciation of the stand of the appellant, it would be useful to examine its communication dated 28th September, 2002 which reads hereunder:

''It has been sometime since we communicated with regard to the development of VCPL Coke oven cum power plant project. I wish to inform you as follows:

We are determinedly following through on the project. There has been some delays by about an year due reasons beyond our control.

I am pleased to inform you that the entire debt funding for the project has been agreed to. The primary lenders to the project are IFC, Washington who were willing to take up 20% stake in the project cost.

We are responsibly confident that due diligence by the lenders to the project will start by the end of the year 2002.

Meanwhile, we are trying to sell about 60 acres of land which is surplus to our requirement. We wish to return the EMD from the proceeds of the land sale.

We put up on record our great appreciation for your patience and support in helping us putting this exciting project together.''

9. Matters, however, do not appear to have ended here and the appellant miserably failed to address the issue of return of the EMD despite its admissions and commitment. Consequently, the respondent was constrained to get issued a legal notice dated 4th March, 2003 calling upon the respondent to pay the notice demand which included the EMD as well as interest.

10. In its reply on 17th March, 2003, however, after a lapse of almost six years from the date of issuance of the LOI on 17th June, 1997 and after repeatedly accepting its liability as well as making the solemn commitment to refund the amount due and payable to the respondent, the appellant company took up a wholly malafide defense setting up ''zero date'' and stating that they have forfeited the amount of the EMD.

11. Faced with such a situation, the respondent was left with no option but to issue yet another notice dated 7th May, 2003 purporting to be a statutory notice under Section 433 of the Companies Act notifying the appellant that in the event of its failure to abide by the notice demand, it would be constrained to file a winding up action against the present appellant. It was clearly stated in the notice that the appellant had failed to discharge their obligations and also failed to even commence execution of the project. According to the respondent, the appellant had not only indicated bills of quantities, final drawings, designs to the respondent but had not even permitted access to the site despite lapse of several years from the date of issue of the etter of intent. The appellant company was clearly noticed of the fact that on account of the inordinate delay caused by it, it could not be said that the contract subsided and further that all the circumstances contemplated while making the offer and the acceptance of the letter of intent in 1997 had changed. The concept of ''zero date'' mooted by the appellant was vehemently disputed by the respondent.

12. In reply, the appellant got issued a communication dated 22nd May, 2003 merely stating that the averments made in the notice were erroneous.

13. In these circumstances, the respondent herein filed the winding up petition notices whereof were issued to the appellant who filed its reply and contested the same principally on the grounds set out in the reply dated 17th March, 2003.

14. After considering the entire matter, the learned Company Judge made the order dated 13th August, 2004 finding the defense laid before it by the appellant company to be wholly incredulous and issuing a direction to it for deposit of the sum of Rs. 24.77 lakhs being the principal amount together with interest at the rate of 6% per annum within 60 days of the date of order of the the Court. It was further directed that in the event of failure to make the deposit as directed, citation was directed to be published in the `Statesman' (English) `Jan Satta' (Hindi) as well as Delhi Gazette, returnable on 16th November, 2004 The question of propriety of appointment of the Provisional Liquidator was also postponed upon occurrence of the aforestated eventuality.

15. This judgment has been impugned before us principally on the contention that the matter related to examination of the terms of the contract and there was no debt which remained unpaid, which would have entitled invocation of the powers of the Company Court under Section 433 on the grounds of applicability of Section 433(e) of the Companies Act, 1956. It has been vehemently contended that the learned Company Judge has fallen into error inasmuch as according to the appellant the ''zero date'', as agree to and understood by the parties, was yet to arrive and as such there was no occasion for the appellant company to be owing any amount to the respondent. It has been contended that for this reason, it was not possible to hold that in the instant case he appellant company was unable to pay its debt.

16. We have heard learned counsel appearing for the appellant who has submitted that all records necessary for adjudication of the matters in issue, are forthcoming in the appeal paper book. Careful consideration of the factual matrix along with the judicial pronouncements relied upon and perusal of the impugned judgment bears out the fallacy in the contentions raised before us on behalf of the appellant. The learned Company Judge has considered the matter at length and in great detail and has passed a extremely well reasoned judgment. In fact, the directions made by the Company Judge fairly balanced equities between both the parties and cannot be faulted for any reason.

17. We may note yet another material fact appearing out of the arrogance of the appellant company. It is not disputed before us that the transaction in the instant case was a commercial transaction and was a result of tenders and offers running into several crores of rupees. Much was argued before us about the stakes involved and the importance of the project. Learned counsel for the appellant company fairly submitted that the money received by it had been invested in acquiring land by it. Financial and commercial discipline by both parties to a commercial contract are essential to ensure that contractual commitments are duly given effect to keeping in view the stakes involved. Notice can be taken of the fact that the parties would have made project ons only after effecting due diligence and evaluation by technical and financial experts. It is not disputed before us even at the time of hearing the appeal today, that the project has not moved an inch and the appellant has not indicated the bill of quantities nor has prepared or forwarded any final designs or drawings to the respondent.

18. In these circumstances, it is absolutely appalling that the appellant company reasonably expected a tenderer before it to abide by an offer made in the year 1997 as if the projections made at that time had not changed and that seven years thereafter, in 2004, it would be bound by its terms communicated in its tender. The failure of the appellant to abide by and discharge its obligations is glaring on the face of the record. Even otherwise the very substratum on which the parties effected the initial officer and its acceptance stood completely eroded. The appellant itself was treating the contract as non-existent or as if it was not executable. For this reason, it clearly informed the respondent in its communication dated 28th September, 2002 to the following effect:-

''We are trying to sell about 60 acres of land which is surplus to our requirement. We wish to return the EMD from the proceeds of the land sold''

19. Therefore, the stand taken in the reply to the notice and in the present appeal is dishonest at the face of it.

20. There is no bona fide dispute in the defense urged on behalf of the appellant and there is no reasonable excuse for not paying the damage and acknowledged debt to the respondent. As the demand was duly made and has not been met by the appellant, no other conclusion can be arrived at other than that the appellant is unable to pay its debt within the meaning of Section 433(e) of the Companies Act, 1956.

21. In these circumstances, we are unable to agree with the appellant that the respondent was resiling any contractual commitment.

22. The appellant company would want us to ignore its admissions about its inability to discharge its obligation. The appellant company has duly admitted its liability in the communications dated 20th August, 1988, 25th October, 1998, 1st August, 2001 es pecially and also its promise in its letter dated 28th September, 2002 to return the EMD payable to the respondent from the proceeds of the land as well as which it was attempting to make. There was no mention of ''zero date'' hitherto.

23. In the face of such commitments and admissions, the appellant company cannot be permitted to effect a volteface and bring in a concept of ''zero date'' which had yet to arrive. Such a conduct is utterly reprehensible keeping in view the commercial commitment made by the appellant. No specific date which was to be the ''zero date'', assuming such a date was agreed upon by the parties, has been pointed out even in the appeal filed or in the course of arguments before us. This is a clever device to avoilits commitment on the part of the appellant.

24. To say the least, the reply to the legal notice and the company petition as well as the appeal based on such an argument is palpably false and a malafide after thought and being put forth only to avoid its commitment of repaying the amount due and pay able to the respondent herein.

25. In the face of the clear admissions made by the appellant company in its aforesaid communications, it cannot be stated that there was any dispute with the amount which the appellant company was liable to pay to the respondent and such amount was clear ly in the nature of a debt due and payable by the appellant company to the respondent. The appellant company unequivocally acknowledged its liability to pay the amount as well, yet despite its commitment to pay the respondent, which was even contained is the letter dated 28th September, 2002, no amount has been paid till date and as such it has to be held that the company was unable to pay its debts as contemplated under the provisions of Section 433(e) of the Companies Act, 1956.

26. We agree with the reasoning and conclusions given by the learned Single Judge placing reliance on the judgments of this Court and other High Courts, namely, (i) GKW Ltd. v. Shriram Bearings Ltd. ; (ii) Mayar Traders Ltd. v Akhil Services Ltd. reported at 52 (1993) DLT 577; (iii) Rishi Pal Gupta v. M/s S.L. Knitline and Finishing Mills Pvt. Ltd. ; (iv) Westinghouse Sanby Farmer Ltd. reported at 1982 (52) Comp. Cas. 479; (v) United Western Bank Ltd. reported at 1978 (48) Comp. Cas. 378 (Bombay); and (vi) M/s Goodwill India Ltd. Vs. Ms. PSB Paper Mills Pvt. Ltd. and the judgment of the learned Company Judge reported at 1002 2003(1) DLT 188 entitled Resham Singh and Company Pvt. Ltd. Vs. Daewoo Motors India Limited.

27. We also hold that the appellant company had clearly admitted the debt to the respondent company repeatedly and acknowledged its liability to pay the same. For this reason, the defense adopted was dishonest and sheer moonshine. The company is attempting to resile from binding admissions and is acting in bad faith and there is no warrant for exercise of any discretion in its favor. We hold that the learned Company Judge was fully justified in arriving at the prima facie conclusions arrived at in the impugned judgment. We may also notice here that it is admitted before us that despite the directions made in the judgment dated 13th August, 2004, the appellant company has opted not to deposit the amount directed by the learned Company Judge to deposit the amount in this Court. Consequences of the non-deposit have been provided in the judgment itself.

28. In view of the above, we find no merit in the appeal which is hereby dismissed.