Guangdong Fuwa Engineering ... vs Ang Auto Limited
2010 Latest Caselaw 5185 Del

               IN THE HIGH COURT OF DELHI AT NEW DELHI

                           COMPANY JURISDICTION

                     COMPANY PETITION NO. 409 OF 2009

                                                Reserved on: 16-08-2010
                                    Date of pronouncement : 15-11-2010

Guangdong Fuwa Engineering Manufacturing Co. Ltd.
                                                          ...........Petitioner
                            Through :   Mr. Manoj K. Singh and Mr. Nilava
                                        Banerjee, Advocates

                                   Versus

ANG Auto Limited
                                                          .........Respondent
                            Through :   Mr. Arun Bhardwaj, Sr. Advocate,
                                        Mr. Arvind Biswal, Mr. D.K.Thakur,
                                        Mr. N.N.Aggarwal & Mr. Aashish
                                        Mahajan, Advocates
CORAM :

       HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA

1.     Whether Reporters of local papers may be allowed to see the
       judgment? Yes
2.     To be referred to the Reporter or not? Yes
3.     Whether the judgment should be reported in the Digest? Yes


SUDERSHAN KUMAR MISRA, J.

1. This petition under S.433(e) and 434 of the Companies

Act, 1956 for the winding up of M/s ANG Auto Ltd. (hereinafter

referred to as the "respondent") has been filed by M/s Guangdong

Fuwa Engineering Manufacturing Ltd. (hereinafter referred to as the

"petitioner") on the ground that an amount of USD 582,095.40 is due

and payable by the respondent to the petitioner. CA No. 1262/2009

has also been filed by the petitioner, praying for the appointment of a

provisional liquidator.

2. The respondent is a public company limited by shares and

is incorporated under the Companies Act, 1956. The registered office

of the respondent company is within the jurisdiction of this Court. The

respondent is stated to be in the business of assembling and

manufacturing various automobile components.

3. The petitioner is a company registered in Guangdong,

China, and is stated to be a manufacturer and supplier of automobile

components.

4. According to the petitioner, the parties executed an

Exclusive Collaboration Agreement (hereinafter referred to as the

"Agreement") on 21st May, 2005, whereby the petitioner was to supply

certain goods to the respondent on the terms contained therein. The

duration of the Agreement was for an initial period of 5 years. As per

the Agreement, the petitioner had to exclusively supply its products in

India to the respondent, and to no other buyer, company or individual,

either directly or indirectly, for export from or usage in India. Further,

Article 2 of the Agreement, which governed supply and purchase,

stipulated that the payment for the goods supplied by the petitioner

was to be according to the prices determined in accordance with, and

subject to, the terms and conditions of the purchase orders placed

from time to time by the respondent with the petitioner. Provisions for

the termination of the Agreement were also specified in Article 7

thereof.

5. By a letter dated 18th December, 2007, addressed to the

Managing Director of the respondent, the petitioner terminated the

Agreement with effect from 1st January, 2008 due to, "non

performance of ANG‟s agreement of purchase of Fuwa‟s products over

the last three years". However, by the same letter, the petitioner

offered, "exclusivity of the proprietary design of AX 30/20 Axle Tube to

ANG Group", but, "withdrew all exclusivity of Fuwa‟s products".

6. Admittedly, even after the termination of the Agreement

by the petitioner, as aforementioned, the respondent continued to

place purchase orders with the petitioner. The petitioner supplied the

goods in respect of these purchase orders, which fact is not disputed

by the respondent. Invoices were raised by the petitioner in respect of

these goods, with a specific term contained therein that the

respondent was required to make the payment for those goods within

75 days of the date of issue of each invoice. The details of the invoices

are as under :

S.No        Invoice         Date                  of Due Date       Amount        due
            Number          Invoice                                 (in USD)

1.          FW080224        16th April, 2008         30th    June, 139,120.00


2.          FW080214        17th April, 2008         1st     July, 79,131.00


3.          FW080256        30th April, 2008         14th    July, 171,524.40


4.          FW080277        7th May, 2008            21st    July, 148,691.00





 5.          FW080308      21st May, 2008        4th    August, 122,760.00

The total amount due on these invoices comes to USD 661, 226.40.

On 18th July, 2008, the petitioner sent a statement of account to the

respondent showing this amount as due from it.

7. Repeated emails were sent by the petitioner to the

respondent in respect of the aforesaid amount, copies of which have

been placed on record. In response to the petitioner‟s email dated 6th

August, 2008, which mentioned the overdue balance due to the

petitioner as being USD 661, 226.4, the respondent categorically

stated on 17th August, 2008 that;

"Dear Mingming,

I have spoken to my bank and they informed us that all the payments mentioned in your list would be done roughly in the next ten days time.

Please bear with us till then.

Thanks

Nidhi"

8. Thereafter, on 21st August, 2008, payment of an amount

of USD 79,131 was admittedly made by the respondent in respect of

Invoice No.FW080214 dated 17th April, 2008, i.e. at S.No.2 of the

abovementioned table, leaving a balance of USD 582,095.40 payable

to the petitioner. In this context, and on the same day, the respondent

had sent the following email to the petitioner;

"Dear Mingming,

We have already made the payment of USD 79131=00 today.

Regarding other payments, you will have to wait for another 6-8 weeks as there is hue recession in the market worldwide.

Therefore, we request you to kindly bear with us for a few more weeks.

Thanks

Nidhi"

9. The petitioner sent another email on 25th August, 2008,

stating that it was unable to accept a further delay in payment, and

requested the respondent to clear the outstanding payment as soon as

possible. To this, respondent replied on the same day, stating "...Donot

worry yr money is totally safe."

10. Ultimately, since no payment was forthcoming, the

petitioner sent a communication dated 8th October, 2008, which stated

as follows:

"Dear Mr. Premjit Singh,

With reference to the overdue payment owed to Fuwa amount USD $ 582,095.40 since July 3, 2008. For our years of relationship, we have tolerated 3 months delay by now although with repeated reminders from Fuwa and numerous commitments made from ANG. Now, the dragging of the overdue payment has offended the People's Republic of China's Foreign Exchange Regulations. Therefore, we request ANG to settle the outstanding balance amount of USD $ 582,095.40 within 10 days from this letter. If not, we will seek all legal means and will exhaust all possible avenues to recover the long overdue payment.

An immediate and positive action is required!!!!"

11. In response to the aforesaid communication dated 8th

October, 2008, the respondent sent an email on 25 th, October, 2008,

stating, inter alia, as follows:

"To solve this issue, we request you to issue us a Credit Note @5% on all payments made to you amounting to USD 274607=21 and also a credit Note for USD 109900=00 for the 785 defective beams supplied by you. We can also deliver these beams at actual cost i.e. C&F plus expenses and duties paid to any of your dealers who were appointed illegally by you during the pendency of our exclusive contract

The above would resolve all issues rather than going in any legal issues.

The balance payments after issue of these Credit Notes, would be made immediately once we receive these credit notes."

12. Thereafter, petitioner issued a notice of demand dated 28 th

November, 2008 for the recovery of USD 582,095.40, stating, inter

alia, that the respondent‟s allegations of unfair practices were false

and that the respondent had never previously objected to the quality

of the components/goods supplied by the petitioner. The petitioner

further categorically stated that the respondent‟s proposal of issue of

Credit Notes was unacceptable to it.

13. To this notice of demand, the respondent replied on 7 th

January, 2009, stating, inter alia, as follows;

"In reply to the contents of para No.10 of your notice, it is submitted that my client is still prepared to make the payment of the outstanding dues subject to the adjustment, setoff and discounts as claimed by my client in the correspondence exchanged between the parties i.e. of USD 384,507.21, however it is your client who is trying to extract the amount which is not legally due to it."

14. The petitioner then issued a statutory notice of winding up

dated 5th March, 2009 under Sections 433 and 434 of the Companies

Act, 1956 for recovery of the aforesaid amount of USD 582, 095.40

from the respondent. In its reply dated 27th March, 2009, the

respondent referred to its earlier communication dated 7 th January,

2009 and stated, inter alia, that in view of the serious disputes and

differences that had arisen between the parties, the matter be referred

to arbitration as per Article 9 of the Exclusive Supply Agreement dated

21st May, 2005. To this, the petitioner responded via a communication

dated 25th April, 2009, stating that it had been made clear after the

termination of the Agreement vide letter dated 18th December, 2007

that all future business transactions between the parties would be

individual transactions and would not be administered by the

Agreement, and therefore, disputes in respect of the goods supplied by

the petitioner after 1st January, 2008 were beyond the ambit of the

arbitration clause in the Agreement.

15. Ultimately, this winding up petition was filed on 23 rd

September, 2009, predicated on the non-payment by the respondent

of the aforesaid USD 582, 095.40. Reply and rejoinder to the petition

have been filed.

16. The respondent‟s preliminary contention that this Court

has no jurisdiction to entertain this petition and that it should be

dismissed due to the pendency of a civil suit whose subject matter is

identical to that of the present proceedings and also because the

respondent has invoked arbitration in that suit, has no force for the

reason that the issue before this Court in exercise of company

jurisdiction is whether the respondent company ought to be wound up

or not, which issue is not available either to the Civil Court or to the

arbitrator for decision. The issue of whether the pendency of a civil suit

or arbitration would bar winding up proceedings is no longer res

integra. See, Resham Singh & Co. Pvt. Ltd. Vs. Daewoo Motors

India Ltd., (2003) 116 Comp. Cases 529(Del.).

17. The other defence raised by the respondent is that some of

the goods supplied by the petitioner were not as per specifications.

However, the respondent raised allegations regarding the supply of

defective goods by the petitioner, as well as allegations of a possible

breach of the Exclusive Supply Agreement by the petitioner for the

first time in its letter dated 25th October, 2008. The respondent stated

therein that it, "took strong objections", to some goods allegedly being

sold in the open market by the petitioner to third parties and that it

had, "detected various defects and short comings in the products

supplied", by the petitioner, which were, "brought to the knowledge of

FUWA", as soon as they were noticed. These allegations have been

reiterated by the respondent in the reply to the petition.

18. It was put to counsel for the respondent that if indeed

there were disputes with regard to the quality, or the specifications, of

the goods supplied by the petitioner, because of which the respondent

is allegedly owed USD 384,507, then there was no reason for the

respondent to issue a specific acknowledgment of liability thrice, i.e.

on 18th August, 2008, 21st August, 2008 and yet again on 25th August,

2008. Admittedly, the first communication claiming that the

respondent was entitled to receive certain payments on the account of

supply of defective goods was sent by the respondent only on 25 th

October, 2008. Except from claiming USD 384, 507.21, no further

particulars or proof of any demands for payment that were raised

either contemporaneously, or at the relevant time, on the petitioner by

the respondent, in respect of the aforesaid amount, have been placed

on record by the respondent. Apart from stating that his client

objected to the petitioner‟s demands on 25th October, 2008, as

aforesaid, the respondent‟s counsel had nothing further to say on this

aspect.

19. Counsel for the respondent also sought to assail the

termination of the Agreement, submitting that his client had not

agreed to the same and that the petitioner‟s letter dated 18 th

December, 2007 did not bind his client because it was written in

violation of the principal contract between the parties, i.e. the

Exclusive Supply Agreement dated 21st May, 2005, which stipulated

that either party was obliged to terminate the Agreement at least 90

days before the expiry of the Agreement. Two communications dated

18th January, 2008 and 14th July, 2008 have been annexed to the

reply, in support of this contention.

20. In the email dated 18th January, 2008, the respondent

stated, inter alia, as follows;

"2. Regarding the Exclusive Agreement, our board has not approved the termination of our agreement as we see no reason to do this. Therefore, we request you to continue this exclusive arrangement till the time mentioned in the afreement as you would appreciate that inspite of your not maintaining the exclusivity clause, by supplying material to KKTC and some other people also, who are very minor

players as compared to us, we still want to continue with the Agreement."

It is significant that there is no mention of any defective goods being

supplied by the petitioner in the aforesaid communication.

21. Another communication dated 14th July, 2008 was sent by

the respondent to the petitioner, stating as follows;

"Dear Amy

We had a Board Meeting last week and our management had agreed to your request of signing off the exclusivity clause of our Agreement on my insistence. However, I would like to continue business with Brother Woo and you, as my daughter, on a continuous basis.

Kindly send us your request so that we can release you from exclusivity, with immediate effect.

Thanking You & With Kindest regards

K.S. Chadha"

22. The Agreement was, admittedly, for a duration of five

years. Since it was executed on 21st May, 2005, it should have,

therefore, ended on 20th May, 2010. Article 7.2 thereof is reproduced

as under;

"7.2 Termination. This Agreement may be terminated only in accordance with the following provisions:

7.2.1 This Agreement may be terminated at any time upon the mutual written consent of the parties hereto; or

7.2.2 Written notice to be given by one party to the other party of its desire not to renew the agreement, atleast ninety (90) days prior to the expiration of the initial term of agreement or any renewal term of the agreement."

23. There were two ways in which the Agreement could be

terminated. The first method was by the mutual written consent of

both the parties at any time, which is admittedly not the case here.

The second method was by written notice given by one party to the

other of its desire to terminate the Agreement, at least 90 days prior

to the expiry of the initial term. Since the contract was to expire on

20th May, 2010, the petitioner‟s letter dated 18th December, 2007 was,

clearly, sent much more than 90 days prior to the expiry of the

Agreement. There is no mention of any acceptance required by the

other party to effectuate the termination. Significantly, the

respondent continued to place purchase orders with the petitioner. The

invoices in question are in respect of goods which were supplied

between April 2008 - May 2008, and on 17th August, 2008, the

respondent clearly stated, without reservation, that a sum of

USD 661, 226.40, demanded by the petitioner against these invoices,

would be paid, "roughly in the next ten days‟ time", and even went

ahead and paid USD 79, 131 on that account on 21 st August, 2008.

The respondent‟s conduct only demonstrates that the Agreement

either continued between the parties subject to the variation

introduced by the petitioner‟s aforesaid letter dated 18 th December,

2007 or, in any case, a fresh contract came into existence between the

parties which did not have any such exclusivity clause in favour of the

respondent. For all the above reasons, I do not find force in this

contention of the respondent either.

24. Significantly, counsel for the petitioner also submitted at

the Bar that, even if it were assumed for the sake of argument,

without admitting any liability on behalf of the petitioner, that the

respondent was entitled to the amount claimed, a balance amount of

USD 197,588.19 was still due to the petitioner out of the total amount

claimed. This has not been refuted.

25. From the pleadings, the following facts emerge: The

respondent raised no dispute to the statement of account dated 18 th

July, 2008 issued by the petitioner. On the contrary, it sent a number

of emails to the petitioner in the month of August 2008,

acknowledging its liability to pay while assuring the petitioner that the

payment would be forthcoming. In all those emails, which have been

reproduced above, the respondent made no mention of any defect in

the goods supplied by the petitioner nor did it call upon the petitioner

to explain any business dealings with third parties which, according to

the respondent, could have constituted a breach of the Agreement.

These points were raised, admittedly, for the first time by the

respondent only on 25th October, 2008, a considerable time after the

goods were supplied by the petitioner; its liability to pay for them duly

communicated; and after payment in respect of one invoice mentioned

in the statement of account had also been made, by the respondent.

26. Ordinary commercial prudence requires a party engaged in

business transactions to be vigilant and prompt in its dealings, since,

in the absence of the same, adverse conclusions can be legitimately

drawn based on the conduct of that party. If the respondent was

unsatisfied with the quality of the goods supplied by the petitioner, it

would not have continued business dealings with the petitioner, by

way of placing further orders and thereafter acknowledging its liability

to the amount demanded. In my view, the respondent has been

unable to establish to the satisfaction of this Court that the defence

taken is a genuine one. There is a clear acknowledgment of liability to

make payments in its emails dated 17th August, 2008, 21st August,

2008 and 25th August, 2008, which constitute an admission of debt by

the respondent with regard to the amount claimed by the petitioner in

the statement of account. Nothing the respondent has said has been

able to displace this fact or to persuade this Court that a genuine,

bona fide dispute exists with regard to this debt. Furthermore, even by

its own admission, the respondent owes at least USD 197, 588.19 to

the petitioner.

27. After conclusion of arguments by both sides, on 6th August,

2010, counsel for the respondent was granted a short adjournment to

explore a settlement with the petitioner and to take further

instructions in this regard from his client, and the matter was posted

for 16th August, 2010. On 16th August, 2010, counsel informed this

Court that no settlement was possible, consequently, orders were

reserved.

28. The petition is, therefore, admitted. The citations be

published in the Delhi editions of the newspapers „Statesman‟

(English) and „Veer Arjun‟ (Hindi), as well as in the Delhi Gazette,

returnable on 20th January, 2011. The cost of publication is to be

borne by the petitioner.

29. The Official Liquidator, attached to this Court, is appointed

as the Provisional Liquidator. He is directed to take over all the

assets, books of accounts and records of the company forthwith. The

Official Liquidator shall also prepare a complete inventory of all the

assets of the respondent company when the same are taken over and

before the premises in which they are kept are sealed by him. He

may also seek the assistance of a valuer to value the assets at the

same time, to facilitate the process of winding up. He is permitted to

take the assistance of the local police authorities if required.

30. The ex-Managing Director, other directors, Company

Secretary and other principal officers of the company to furnish a

complete statement of affairs within 21 days in terms of the

Companies Act to the Official Liquidator.

31. A status report be filed before the next date.

32. Re-notify on 28th January, 2011.

33. A copy of this order be given Dasti to counsel for the

Official Liquidator under the signatures of Court Master.

Co. Appln. No. 1262/2009 in CP NO. 409/2009

34. By a separate order passed today in CP No. 409/2009, the

winding up petition has been admitted and the Official Liquidator

attached to this Court has been appointed as the provisional liquidator

of the company. No further orders are required to be passed on this

application which is rendered infructuous and the same is disposed of

as such.

SUDERSHAN KUMAR MISRA, J.

November 15, 2010.