Symphony Services Corp(India) ... vs M.G Flo2Go Technology Private Ltd
2013 Latest Caselaw 5648 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

                                    Reserved on: 28th November, 2013
%                                  Date of Decision: 6th December, 2013

+  CO.PET. 457/2010
   SYMPHONY SERVICES CORP(INDIA) PRIVATE LTD
                                                ..... Petitioner
                  Through: Mr. Nikhil A. Menon, Adv.
                  versus
   M.G FLO2GO TECHNOLOGY PRIVATE LTD..... Respondent
                  Through: Mr. Naveen Kumar and Mr. Ankit
                          Kumar, Advs.
CORAM:
HON'BLE MR. JUSTICE R.V.EASWAR

                               JUDGMENT

R.V. EASWAR, J.:

This is a petition filed by the petitioner under Section 433(e) of

the Companies Act, 1956 seeking winding up of the respondent-

company.

2. The petitioner is a private limited company providing software

products, engineering outsourcing services to independent software

vendors, software enabled businesses and companies whose products

contain embedded software. It entered into a Master Services

Agreement (MSA) with the respondent-company on 21.9.2009. Under

the MSA, the petitioner agreed to provide commercial software

development for a product which the respondent-company intended to

market. There are only three clauses of the MSA which need to be

noticed. The first is clause 7.2 which provides for payment of invoices.

According to this clause, the respondent shall pay all the undisputed

amounts within 30 calendar days from the date of receipt of the invoice.

In case of delay, interest at 1.5% per month will be charged and added

to the outstanding unpaid amount. Clause 4 of the MSA provided for

the payment of the fees by the respondent as set forth in Exhibit B to the

MSA to be calculated on time and material/expenses based, using the

man-month as the unit for the applicable month. Under clause 21.4 of

the MSA any notice or other communication which had to be given by

either party to the other side, shall be given to the addresses mentioned

below the said clause. It is also necessary to refer to Exhibit A to the

MSA which contains the "statement of work No.1". This exhibit

provided for the scope of the software services and the deliverables and

under the head "deliverables" described in detail the features of phase-I

and phase-II.

3. In terms of the MSA, the petitioner raised and sent invoices to the

respondent-company between 30.11.2009 and 1.7.2010 and copies of

these invoices have been filed at page 50 to 79 of the petition (annexure

P-4 colly); the aggregate amount of the invoices came to

Rs.1,43,30,815/-. The amount mentioned in the company petition as

being due from the respondent-company is Rs.2,28,82,418/-, which

includes the aggregate amount of the above invoices and the interest

thereon in accordance with the terms of the MSA.

4. Since the amount of the invoices was not paid by the respondent-

company, the petitioner sent an e-mail on 25.5.2010 to the respondent

drawing its attention to the outstanding amount and requesting for

payment by the end of the week. This mail is actually in response to the

mail sent by the respondent-company on 5.5.2010 on the subject

"outstanding payments". In this mail, Mr.Pradeep Shankar of the

respondent-company regretted the delay in settling the outstanding

payment to the petitioner on account of year end problems with the

bankers and the annual audit of accounts and assured the petitioner that

the dues will be cleared as soon as possible.

5. On 11.6.2010 the respondent-company sent a mail to the

petitioner intimating that that there were some delay in getting certain

credit facilities from the State Bank of Travancore which were to be

utilised for making the payment to the petitioner and assuring the

petitioner that the overdue bills upto February, 2010 shall be paid

initially and the subsequent bills shall be taken up for payment soon

thereafter. The respondent-company also requested for waiver of the

interest on the overdue bills. It was also requested that the petitioner

should not stop providing the services with effect from 16.6.2010. In

response to this e-mail, the petitioner wrote to the respondent-company

on 14.6.2010 stating that the payments in respect of the invoices for

November, 2009, January and February, 2010 should be made on or

before 5 p.m. on 18.6.2010 and the payments in respect of the invoices

for the months of March, April, and May, 2010 should be made on or

before 5 p.m. on 25.6.2010 and upon payments being made as above,

the question of waiving the interest may be considered. The petitioner

also informed the respondent that on 25.6.2010, the respondent shall

also pay security of one month. It was categorically stated by the

petitioner that in case of any further delay in the payment schedule as

stated above, it would be constrained to pursue "other options".

6. Since no payments were received from the respondent-company,

on or before 18.6.2010, the petitioner wrote to the respondent-company

on 23.6.2010 pointing out to the lapse in meeting the first deadline for

the payment and calling upon the respondent-company to pay the entire

amount along with interest on or before 5.00 p.m. on 25.6.2010 and

stated that in case payments were not received by the said date, the

petitioner will cease working on all the activities pertaining to the

deliverables.

7. Despite the aforesaid e-mail, it appears that the respondent-

company did not make any payment by 5.p.m. on 25.6.2010. Therefore

at 5.56 p.m. on 25.6.2010, the petitioner sent an e-mail to the

respondent-company on the subject "non-payment of fees under the

MSA". It was pointed out to the respondent that since the deadline had

expired, there was no option left with it than to cease working with

immediate effect on the following activities pertaining to the

deliverables:-

 Shutting down of the managed Flo2Go demo server located at the Symphony premises.

 Stopping the analyses and related activities for the Phase-2 requirements

 Withholding of releases

 Withholding of source codes/executables

 The software license purchased on behalf of Flo2Go will not be transferred to Flo2Go unless the payments are made over

 Re-deployment of the team from July 01, 2010 onwards.

8. On 7.7.2010 a legal notice was sent by the Advocates for the

petitioner to the respondent-company. This was addressed to the

registered office of the respondent-company at G-15, 5th Floor,

Technopolis, Sector-54, Gurgaon, Haryana. This is the address to which

the notices were to be sent in terms of clause 21.4 of the MSA. It was

stated in this notice that since the respondent-company had failed to

make payment of the amount of Rs.2,21,03,962.43, the same shall be

paid with future interest at 1.5% per month on each of the relevant

invoices till the date of payment and in case the amount is not so paid

within 21 days from the date of receipt of the notice, proceedings for

winding up will be initiated against the respondent-company under

Section 433(e) and (f) of the Companies Act, 1956. The respondent-

company was requested to treat the notice as a notice under Section 434

of the Act.

9. The statutory notice was returned unserved on 12.7.2010, to the

office of the petitioner. This is supported by the status report issued by

the India Post in response to the complaint filed by the petitioner.

10. On 12.7.2010 the petitioner's advocate wrote an e-mail to the

respondent-company stating that they had issued a legal notice by

registered post A.D. on 7.7.2010 and attaching a scanned copy of the

said notice to the e-mail and asked the respondent-company of confirm

receipt of the same.

11. Since there was no response from the respondent-company to the

e-mail, on 11.8.2010 the petitioner sent the statutory notice to the

respondent-company at its registered office at Block-A, 500, ITL

Towers, Netaji Subhash Place, New Delhi-110034. This was sent by

speed post acknowledgement due. Reference was made to the earlier

notice issued on 7.7.2010 to the address which was the address given in

the MSA as the registered office of the respondent. It was further stated

that since the petitioner later came to know that the registered office of

the respondent-company, as per the website of the Registrar of

Companies, is the address given as Block-A, 500, ITL Towers, Netaji

Subhash Place, New Delhi-110034, the notice is being sent to the

respondent at that address. In the notice the petitioner called upon the

respondent to make payment of Rs.2,24,29,426/- with further interest at

1.5.% per month within 21 days of the receipt of the notice failing which

action would be taken to initiate winding up proceedings. The learned

counsel for the petitioner has filed a copy of the company master data

available in the website of the ROC to show that as per the details in the

website, the registered office of the company is at Block-A, 500, ITL

Towers, Netaji Subhash Place, New Delhi-110034. However, even this

statutory notice sent to the address of the registered office of the

respondent-company, as shown in the website of the ROC was returned

unserved with the postal remark "left without address" on 17.8.2010. A

copy of the envelope along with the postal remark endorsed therein has

been placed as Annexure P-15 of the company petition.

12. In the above circumstances the petitioner has filed the present

petition under Section 433(e) of the Companies Act, 1956 on

21.10.2010.

13. It was pointed out at the outset by the learned counsel for the

petitioner that the respondent-company has not complied with the

directions of this Court issued on 1.11.2010. These directions are as

follows:-

"1. Name and addresses of the Directors of the respondent- company.

2. Location and place where statutory records and books of account of the respondent company are kept.

3. Details of immovable assets and their location along with details of secured creditors.

4. Whether they are filing annual returns and the balance sheets with the Registrar of Companies and with the Income Tax Department. The Income Tax circle and Pan Card number of the respondent company will be stated

5.The details of bank accounts of the respondent company."

14. On 8.2.2011 on the basis of an affidavit of service filed by the

petitioner stating that at the address of the respondent mentioned in the

company petition, the respondent-company could not be found, this

Court directed service of notice at the e-mail address of the respondent

mentioned in the master data obtained from the website of the ROC.

The petitioner was also given liberty to file an application for substituted

service under Order 5 Rule 20 of the CPC.

15. It would appear that initially before the Registrar on 16.8.2011 the

petitioner took time to seek instructions whether the winding up petition

should be pressed or not. On 26.8.2011, however, the learned counsel

for the petitioner submitted before this Court that he has instructions to

press the winding up petition. Since this was contrary to the earlier

stance taken by the petitioner before the Registrar on 16.8.2011, this

Court directed the petitioner to file an affidavit explaining the change of

stance. Accordingly, an additional affidavit was filed before this Court

by the petitioner. On 2.12.2011, this Court found that the petitioner has

given sufficient reasons for the change of stance and accordingly

directed the respondent to file its reply to the main petition within six

weeks. Accordingly the respondent filed its reply.

16. The learned counsel for the petitioner submitted, on the question

of service of notice under Section 434(1)(a) on the respondent-company

at its registered office, that since the respondent did not inform the

petitioner about the change, if any, of its registered office, the service of

the notice at the registered office as mentioned in the website of the

ROC was proper service. In support of this contention reliance was

placed on the judgment of this Court in Hotline Teletubes &

Components Ltd. vs. A.S. Impex Ltd. (2004) 119 Comp. Cas. 98. In this

case the statutory notice was sent by the petitioner to the respondent at

the address of the registered office. But in the meantime, the respondent

changed the registered office and therefore the statutory notice could not

be served on the respondent. This Court found that the intimation about

the change of address was filed with the ROC on 7.11.2001. The

statutory notice was sent by the petitioner before the said date. The

respondent did not also inform the petitioner about the change of the

registered office. The petitioner could not therefore have had any

knowledge about the change in the official records. In these

circumstances this Court held that sending notices by the petitioner at

the registered office of the respondent in terms of the official records

has to be held to be legal and valid and the winding up proceedings

could not be held to be not maintainable due to non-service of the notice

on the respondent-company at its registered office. The case of the

petitioner before me stands on a better footing than the cited case.

Herein, the first notice was sent by the petitioner to the registered

office of the respondent at the address shown in the MSA. This notice

was returned undelivered to the respondent. The second notice dated

11.8.2010 was however sent to the registered office of the respondent as

shown in the website of the ROC. Thus the petitioner did send the notice

to the proper address of the registered office. However even this notice

was not served but was returned to the petitioner with the postal remark

"left without address". In these circumstances there is no violation of

the provisions of Section 434(1)(a) of the Act.

17. The learned counsel for the petitioner contended that the debt is

admitted by the respondent-company in the e-mails to which reference

has been made earlier and that despite acknowledging the debt and even

seeking time to pay the same, the same was not cleared. It is submitted

that this is a clear case of inability of the company to pay the debts. My

attention was drawn to the judgments of the Supreme Court in M/s

Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd.

(1971) 3 SCC 632 & The Pradeshiya Industrial and Investment

Corporation of Uttar Pradesh vs. North India Petro Chemical Ltd.

(1994) 3SCC 348. The learned counsel for the petitioner also drew my

attention to clause 21.6 of the MSA which provided for "dispute

resolution" and submitted that the existence of this clause is not an

impediment to the winding up proceedings as held by this Court in

Prime Century City Developments Pvt. Ltd. vs. Ansal Buildwell Ltd.

(2003) 113 Comp. Cas. 68 and a judgment of the Supreme Court in

Haryana Telecom Ltd. vs. Sterlite Industries (India) Ltd. (1999) 5SCC

688.

18. The learned counsel for the respondent submitted as follows:-

(a) The petition raises issues which are based on disputed facts and

therefore the matter should be thrashed out in a civil court and the

company court is not the proper forum. The dispute is whether

the petitioner rendered any work or services to the respondent at

all. A sum of Rs.73.14 lacs was paid to the petitioner for which

no work was done. This is also not denied in the rejoinder. My

attention is drawn to the e-mail in Annexure A to the counter-

affidavit as also to paragraph 3 of the counter affidavit.

(b) The existence of a "dispute resolution" clause in the MSA bars

the continuance of the winding up proceedings.

(c) The winding up proceedings is not a means of recovering the debt

as held by the Supreme Court in M/s Madhusudan (supra) and

Mediquip Systems (P) Ltd. vs. Proxima Medical System GMBH

(2005) 7 SCC 42. Moreover if the defence is bonafide, and not

mere moonshine, the winding up proceedings shall not be allowed

to be proceeded with.

(d) Since the petitioner did not deliver any software or any product

to the respondent-company, the business of the respondent, which

was a start-up company and whose continuance in business was

dependent upon the software/product to be supplied by the

petitioner, could not take off, forcing the respondent out of

business. My attention was drawn to Annexures F, G & I to the

counter affidavit to demonstrate how the respondent's business

had suffered because of the failure of the petitioner to deliver any

product/software.

(e) The service of notice on the registered office of the respondent is

a matter which is seriously disputed. The postman who made the

endorsement on the undelivered envelope to the effect "left

without address", needs to be cross-examined by the respondent

in order to establish the authenticity and the correctness of the

endorsement.

19. In his rejoinder, the learned counsel for the petitioner submitted as

follows:-

(a) The defence that the petitioner did not deliver any

software/product or did not do any work for the respondent

was not taken at any earlier point of time and is therefore an

afterthought.

(b) The work was to be done by the petitioner in phases. The first

phase of the work was being rendered and the petitioner and

the respondent were in discussion with regard to the same.

The phase-II was not reached at all so that any

products/software could be given to the respondent. My

attention was drawn to the e-mail sent by the petitioner to the

respondent on 5.56 p.m. on 25.6.2010 which showed the

nature and type of work done by the petitioner.

(c) If the respondent had at any earlier point of time believed that

the petitioner had not done any work for it, there were good

grounds to file a suit against the petitioner for specific

performance. The respondent did not do so and did not avail

of any statutory remedies against the petitioner. Even after

receipt of invoices there was no protest by the respondent and

in fact it had sought time to make the payment and had also

made a request for waiver of interest.

(d) So far as the payment of Rs.73.14 lacs is concerned there are

no details in annexure E of the counter affidavit to show how

much was paid to the petitioner.

20. On a careful consideration of the facts in the light of the rival

contentions, I am of the view that the winding up petition should be

admitted. From what has been stated above, it is clear that though the

petitioner sent the statutory notice under Section 434(1)(a) of the Act to

the registered office of the respondent-company, the latter was not

available at the address. The notice was therefore returned unserved

with the postal remark "left without address". The judgment of this

Court in the case of Hotline Teletubes and Components Ltd. vs. A.S.

Impex Ltd.(supra) is in favour of the petitioner in as much as it was laid

down therein that the sending of the notices by the petitioner at the

registered office of the respondent-company in terms of the official

record (i.e. website of the ROC) has to be held to be legal and valid. I

therefore hold that there was proper service of the statutory notice on the

respondent.

21. The debt is also admitted as seen from the several e-mails written

by the respondent-company to the petitioner, to which reference has

been made earlier. The respondent-company was actually seeking time

and a schedule of payments was also intimated by the petitioner. The

respondent requested the petitioner to waive the interest, which the

petitioner had agreed to consider provided the payment is made as per

the schedule. The debt is therefore acknowledged. So far as the

inability to pay the debt is concerned, the respondent has defaulted in

making the payment as requested by the petitioner. The petitioner had

also offered to accept payment in two tranches. The respondent-

company could not pay the amount despite this. This is a clear case of

inability to pay the debts.

22. The defence that the service of the statutory notice is disputed and

that the postman has to be cross-examined to establish the authenticity

and correctness of the postal endorsement is frivolous. Once the

statutory notice is dispatched to the registered office of the company as

per the website of the ROC and the same is returned unserved with the

postal remark "left without address", it is not open to the respondent to

contend that the service of the notice is disputed. The endorsement made

by the postman in the normal course of his duties cannot be called in

question, as he is a servant of the government and has no axe to grind.

In the light of the authority of this Court cited by the learned counsel for

the petitioner, this is no defence at all.

23. The defence that the petitioner did not work and did not supply

any product/software to the respondent is an afterthought and is not

bona fide taken. The scope of work is set out in Exhibit A to the MSA.

It consists of services and deliverables. So far as the deliverables are

concerned, the items listed in Exhibit A under the head "deliverables"

are to be supplied in two phases. Before these phases are reached, there

is some preliminary work to be done. I have gone through Annexures

A to D to the counter affidavit filed by the respondent. It consists of a

chain of e-mails exchanged between the petitioner and the respondent.

These e-mails show that both the petitioner and the respondents were

trying out the work done by the petitioner and trying to sort out the

glitches in its application. Several suggestions are seen to have been

made both by the petitioner and the respondent as to how those glitches

can be removed. Several alternatives, options and technologies are seen

to have been discussed between the petitioner and the respondent in

order to sort out the problems faced at the preliminary work stages.

There is no allegation or accusation in these e-mails that no work has

been carried out by the petitioner. In fact it cannot be so, because both

the sides were discussing the means by which the problems and teething

troubles could be solved. These e-mails therefore do not at all support

the contention of the leaned counsel for the respondent that no work was

done by the petitioner. The question of delivering any product/software

would arise only after the preliminary work is done and phase-II is

reached. As pointed out on behalf of the petitioner, phase-II was not

reached at all and therefore there was no question of delivery of any

product/software.

24. In any case, one would have expected this defence, if true, to be

taken by the respondent at the earliest point of time, when the invoices

were presented by the petitioner for payment in accordance with the

terms of the MSA. To a query by me as to why such an objection was

not taken on the receipt of invoices by the respondent-company, the

learned counsel for the respondent-company simply answered that no

objection was raised. No reasons or explanation were given as to why

such a defence was not taken at the earliest point of time. The

contention that this defence taken in the counter affidavit for the first

time was not denied by the petitioner in its rejoinder is of little

relevance. Only when it is proved by the respondent-company that this

defence is not an afterthought and was taken at the earliest opportunity,

can it rely on the fact that the allegation is not denied by the petitioner in

its rejoinder. I therefore do not see any force in the defence which

appears to me to be one of despair.

25. The learned counsel for the respondent drew my attention to

Madhusudan Gordhandas & Co (supra) where in paragraph 20 it has

been observed that a petition for winding-up by a creditor who claimed

payment of an agreed sum for work done for the company cannot be

allowed when the company contends that the work had not been done

properly. The difficulty in applying this principle to the present case is

that, on the facts herein, it cannot be said that the petitioner did not do

any work for the respondent. I have already referred to the e-mails in

Annexure A to E to the counter-affidavit. Secondly, if any work had

been done by the petitioner and invoices are raised, certainly at that

point of time and on receipt of the invoices, the respondent would have

strongly objected to the invoices and refused to pay the same on the

ground that no work was done justifying the payment. Such an

objection or stand was not taken by the respondent-company in the

present case; on the contrary, it took time for making the payments and

also sought waiver of the interest. This shows that the petitioner had

done its work as per the MSA. In the absence of any objection on the

ground that no work was done by the petitioner, the contention cannot

be accepted.

26. For the above reasons the company petition is admitted.

List for further proceedings on 6th March, 2014.

(R.V. EASWAR) JUDGE December 06, 2013 Bisht