M/S Ritika Pvt. Ltd. vs M/S Omaxe Construction Ltd.
2009 Latest Caselaw 5344 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI


+                     COMPANY PETITION NO. 469 OF 2009

                                         AND

            COMPANY APPLICATION NOS.1549-1550/2009



                                            Reserved on : November 23, 2009
                                         Date of Decision : December 22, 2009


M/S RITIKA PVT. LTD.
                                                                 ........Petitioner

                                Through Mr. Dinesh Agnani, Advocate




                                        Versus



M/S OMAXE CONSTRUCTION LTD.
                                                                ......Respondent
                          Through :   None.


CORAM :
HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA


1.     Whether Reporters of local papers may be allowed to see the
       judgment?

2.     To be referred to the Reporter or not ?

3.     Whether the judgment should be reported in the Digest ?


SUDERSHAN KUMAR MISRA, J.

1. This is a petition under S.433 of the Companies Act, 1956

for winding up of M/s Omaxe Construction Ltd, along with

CA.No.1549/09 for appointment of a Provisional Liquidator. The

respondent company carries on the business of construction and is

stated to have been incorporated under the Companies Act, 1956 in

1989 and has its registered office in New Delhi.

2. On 23rd June, 2006, the petitioner company/Intending

Lessee entered into an unregistered Agreement to Lease with the

respondent company/Intending Lessor for opening a showroom in

premises bearing No. GF 37, located on the Ground Floor at Plot

No.3/26, Bye-pass Road, Ward Hari Parwat, Agra, Uttar Pradesh, having

a super area of approximately 204.51 square metres. The said

Agreement has been annexed to the petition as "Annexure B". Clause

3 thereof states that the lease was initially for a period of 3 years, to

be calculated from the date of the grant of a Completion Certificate by

the concerned authorities, to be renewed for a further 2 terms of 3

years each at the option of the Intending Lessee, on terms and

conditions to be mutually decided as per the Agreement. The

respondent company was to undertake the construction of a Mall at

the Demised Premises, which would thereafter enable the Intending

Lessee to carry on the business of garments and apparel under the

brand/trade name of „Ritu Kumar‟. Clause 2 of the Agreement states

that the said Mall was to be constructed by the Intending Lessor by 31st

March, 2008, which would be extended in the case of force majeure

circumstances and/or reasons beyond the control of the Intending

Lessor.

3. The petitioner company, as per its obligations under Clause

6 of the Agreement, paid the respondent a total sum of Rs. 4,62,276/-

vide Cheque Nos. 788104 and 412218, drawn on Citi Bank, Delhi,

towards an interest-free security deposit equivalent to three months‟

rent. Part of this payment was made prior to the signing of the

Agreement, and the balance was paid at the time of signing of the

Agreement. The petitioner states that the second cheque was

encashed on 1st June, 2006, and that the said deposit was subject to

compliance with the terms and conditions stipulated in the Agreement

to Lease dated 23rd June, 2006.

4. The respondent company did not complete the

construction of the Demised Premises/Mall by the stipulated time.

Consequently, the petitioner company sent a registered legal notice

dated 8th December, 2008 to the respondent company, a copy of which

has been annexed to the petition as "Annexure C", stating that the

respondent company had defaulted in fulfilling its obligations under the

Agreement, and that the petitioner company was no longer interested

in taking possession of the Demised Premises. By that notice, it was

also stated that the petitioner company terminated the Agreement to

Lease, and asked for a refund of the security deposit from the

respondent within 15 days of receipt of the notice by the respondent.

Proof of service of this notice is also on record.

5. It is the case of the petitioner that more than 17 months

have lapsed since the date on which the Mall was supposed to be

constructed and that, till date, the petitioner has not been handed over

possession of the Demised Premises. A personal inspection of the

construction site by officers of the petitioner company, photographic

evidence of which has been annexed as "Annexure D" to this petition,

reveals, according to the petitioner, the fact that the said Mall is

nowhere near completion.

6. In reply dated 2nd March, 2009 to the aforesaid legal notice,

the respondent claimed that there had been a short delay in the

completion of the project on account of reasons beyond its control.

Clause 2 of the Agreement to Lease is relied on by the respondent in

support of the contention that the stipulated time to complete the

project is extended on account of these „force majeure‟ circumstances

and/or reasons beyond the control of the respondent. However, the

respondent has not given any specific reasons in the reply dated 2 nd

March, 2009 in support of this contention. It is also claimed by the

respondent that the construction is on in full swing, and is very nearly

completed. Further, the respondent admits that the payment made by

the petitioner towards the security deposit is a matter of record, and

that after completion of the construction, will be utilized in obtaining a

number of approvals from the concerned authorities.

7. It is also averred by the respondent that the said

Agreement to Lease could not be terminated by the legal notice dated

8th December, 2008 sent by the petitioner, since, according to the

respondent, the Agreement to Lease specifically provided for

arbitration to resolve any disputes and differences arising between the

parties, in Clause 20 thereof. Therefore, the respondent alleges that,

as the Agreement to Lease could not be terminated by a legal notice,

there is no question of refund of the aforesaid security deposit.

8. The petitioner then delivered a notice of winding up dated

2nd May, 2009 at the registered office of the respondent company in

Delhi, proof of which is annexed to the petition as "Annexure F", calling

upon the respondent to refund the amount of Rs.4,62,276/-, and

interest @ 1.5% from the date of the notice, as well as costs of sending

the legal notices, which amounted to Rs.11,000/-. The respondent did

not reply to the said notice of winding up.

9. At the outset, it is a well-known principle that the

respondent‟s failure to reply to the notice of winding up does not mean

that winding up orders must invariably be passed. This Court has held

in Resham Singh & Co Pvt Ltd v Daewoo Motors India Ltd,

[2003] 116 CompCas 529 (Delhi), that "where no response had been

made to the statutory notice the Respondent Company runs the risk of

a winding-up petition being admitted for hearing at the threshold stage

itself." It has further been held, in the same case, that "Normally, the

Company Judge considers it prudent in the first instance to issue notice

to the Respondent so that its defense to the possible far-reaching and

fatal winding-up orders can be considered. The admission of the

Petition at its first hearing is possible because, by virtue of Section 434

of the Companies Act, a presumption of the indebtness can be

legitimately drawn by the Court where no Reply to the statutory notice

is forthcoming. The risk of the admission of the Petition, as well as the

appointment of a Provisional Liquidator is thus broodingly and

ominously present in all those cases where the Respondent Company

neglects to send any Reply to the winding-up notice. But this is as far

as the danger extends."

10. The Agreement to Lease is an unregistered document. As

per Clause 19 of the Agreement to Lease, it is clear that the

Agreement is to be treated as a binding contract enforceable between

the parties till the execution of the Lease Deed. Clause 16 of the

aforesaid Agreement also stipulates that the Intending Lessor and the

Intending Lessee undertook to execute the Lease Deed after the grant

of a Completion Certification from the authorities concerned. However,

as construction of the Mall is yet incomplete, therefore, there is no

question of grant of a Completion Certificate or the consequent

execution of the Lease Deed.

11. An order of winding up on the ground that a company is

unable to pay its debts is a discretionary remedy. In the instant case,

the petitioner had deposited a certain amount of money as a security

deposit, in terms of the Agreement between the parties. On the

respondent‟s failure to fulfill its obligations under the said Agreement,

the petitioner chose to terminate the Agreement by a written notice,

and called for refund of the security deposit. In view of the fact that the

Agreement to Lease was an unregistered document, as well as the fact

that month-to-month leases may be terminable by 15 days‟ notice, it is

clear that the said Agreement was terminated unambiguously by the

petitioner, once it became apparent that the respondent was unable to

hand over possession of the Demised Premises within the stipulated

time. Further, in reply to the legal notice, the respondent has not

denied the fact of the payment of the security deposit by the

petitioner.

12. In Polaroid India Pvt Ltd. v Nav Nirman Co & Ors,

[2001] 105 Comp Cas 683 (Bom), the Bombay High Court admitted a

winding up petition on the ground of non-payment of a security deposit

in consideration of a leave and license agreement, despite termination

of the same by a written notice.

13. The remedy of arbitration is not an alternative to the

initiation of winding up proceedings. In Haryana Telecom v Sterlite

Industries India Ltd, AIR 1999 SC 2354, it has been held, in

paragraph 6 thereof;

„The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be 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.‟

14. Therefore, it is within the discretion of the Company Court

to entertain the company petition, even if there is an arbitration clause

in the Agreement between the parties.

15. I therefore feel, prima facie, that the claims raised by the

respondent in reply to the legal notice are not within the domain of

bona fide and substantial defences. In that view of the matter, let

notice issue to the respondents to show cause why the company be

not wound up, returnable for 4th May, 2010.

SUDERSHAN KUMAR MISRA, J.

December 22, 2009 sl