John Smedly Ltd. vs Blues Clothing Company Pvt. Ltd.
2013 Latest Caselaw 5907 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

                                   Reserved on: 9th December, 2013
%                                 Date of Decision: 20th December, 2013

+      CO.PET. 294/2012

       JOHN SMEDLY LTD.                               ..... Petitioner
                    Through:         Mr. Uttam Dutt, Advocate.

                         versus

    BLUES CLOTHING COMPANY PVT. LTD.         ..... Respondent
                  Through: Mr. Siddharth Dutta, Advocate.
CORAM:
HON'BLE MR. JUSTICE R.V.EASWAR

                             JUDGMENT

R.V. EASWAR, J.:

1. This is a petition filed by M/s. John Smedly Ltd. of Derbyshire,

England under section 433(e) of the Companies Act, 1956 seeking

winding up of Blues Clothing Company Pvt. Ltd. of New Delhi, India for

non-payment of GBP 87,240 as per its accounts, for supply of ready-

made garments.

2. The petitioner (UK company) which is in the business of

manufacture of knitted garments supplied garments to the respondent-

company (Indian company) under an agreement dated 23-10-2009, valid

for one year. The UK company supplied garments to the Indian company

during the period from 12-11-2009 to 25-11-2010 under six invoices for a

total sum of GBP 114,999. The goods were undisputedly received by the

Indian company, which made a part payment of GBP 27,759 towards the

invoice dated 12-11-2009, which was for GBP 30,420. The balance

amount of GBP 87,240 was, as per the accounts of the UK company, due

and payable.

3. Despite several demands, the balance amount was not paid. A

series of e-mails were exchanged between the two companies, in one of

which (i.e., 19-8-2011) it was proposed on behalf of the UK company

that the outstanding dues can be settled by payment of GBP 32,240 in

three equal instalments of GBP 10,746 each, payable on 15-9-2011, 15-

10-2011 and 15-11-2011. The e-mail sent by Mr. Jamie Tunnicliffe on

behalf of the UK company is as follows:

"Dear Rajni,

Thank you for the response.

Please do not let me down because I truthfully take a great risk in my own position at JS by supporting you internally if you let me down again.

Based on BCC adhering to your proposed schedule above I will honour the agreement made with Abhay when I was in India as below.

Outstanding balance £87,240.12

Markdown contribution £30,000.00 Marketing support £25,000.00 Balance to pay £32,240.12

This means that I am expecting 3 x payments of £10,746.71 on sept15, oct15 and nov15.

If John Smedley do not receive payment by the said dates they will immediately proceed with legal action for the total outstanding balance.

I will liaise internally and inform the solicitor of your response today.

Thank you and look forward to resolving this situation very soon.

Regards,

Jamie"

The Indian company sent a reply e-mail thanking Mr. Jamie Tunnicliffe

for the support and assuring him of honouring the payment. However no

payment was made as accepted by the Indian company and hence the

present petition.

4. The main contention of the Indian company, respondent herein, is

three-fold. It first contends that as per the terms and conditions of the

contract, the UK company can have recourse only under the English law

in case of disputes and the Indian courts have no jurisdiction. The

following clause in the contract is relied upon:

"20.8. The formation, existence, construction, performance, validity and all aspects of the contract shall be governed by English law and any disputes shall be resolved exclusively in the English Courts".

The second contention is that under the Indian Contract Act, 1872, in case

of breach of settlement, the UK company can only file a suit for specific

performance and cannot have recourse to winding-up proceedings. It is

finally contended that the demand notice required to be served under

section 434(1)(a) of the Act was not served.

6. None of the three contentions can be accepted.

7. So far as service of notice is concerned, the same was addressed to

the registered office of the Indian company under registered post

acknowledgement due on 9-4-2012. Neither the acknowledgment card

nor the registered cover is stated to have been received by the UK

company. It is not denied that the notice was addressed to the registered

office of the Indian company which is G-9, South Extension-I, New Delhi

110049. If neither the acknowledgement card nor the registered cover is

received back by the UK company, the provisions of section 27 of the

General Clauses Act come to the aid of the petitioner. In such a case,

there is a presumption of service. It was however pointed out on behalf of

the respondent-company that in CA No.715/2013 this court had recalled

the order of admission of the winding-up petition on the ground that

"there does appear some merit in the contention regarding service of

notice on the Respondent". I have gone through the order dated 24-5-

2013 passed by this court in CA No.715/2013. I am inclined to hold that

it was only a prima facie or tentative view of this court, limited only for

the purpose of recalling the order of admission and not a final view,

which would be taken when the winding-up petition is taken up again for

hearing after recall. This court did not categorically rule that there was no

service of the demand notice on the respondent-company; had that been

the case, the winding-up petition would have in all probability been

dismissed at that stage. I therefore see no merit in the argument that the

demand notice was not served.

8. The contention that the dispute is governed by the English law and

only the English courts have jurisdiction must fail, the reason being that it

has not been shown by the Indian company that this was one of the terms

of the contract between the parties. The clause relied upon by the

respondent is actually part of the contract governing internet sales by the

UK company; this aspect has been brought out in paragraph 1 of the para-

wise reply in the rejoinder filed by the petitioner. The respondent has not

filed the contract governing its transactions with the UK company which

was available to it on demand as specifically stated in the invoice issued

to the respondent-company. Thus, the respondent-company has failed to

prove that clause 20.8, which was part of the terms and conditions of the

internet sales, was also part of its contract with the UK company. The

claim based on the said clause is specifically denied in the rejoinder,

contrary to what the learned counsel for the respondent-company

contended in the course of his arguments. Since no such clause has been

proved to have been part of the contract between the parties, the objection

to the jurisdiction of Indian courts is devoid of merit.

9. The last contention is that for breach of the settlement, the UK

company can only sue for specific performance and cannot institute

proceedings for winding-up. A close reading of the e-mail dated 19-8-

2011 of Mr. Jamie Tunnicliffe shows that the settlement was dependent

on the payments of GBP 10,746 each on 15-9-2011, 15-10-2011 and 15-

11-2011. If there was default, and "if John Smedley do not receive

payment by the said dates they will immediately proceed with legal action

for the total outstanding balance". The total outstanding balance was

GBP 87,240. There was thus no substitution of any new contract in the

place of the earlier contract; it was made clear that if the time-bound

settlement is not adhered to, the earlier contract would revive and the

whole outstanding balance would become payable. The respondent-

company defaulted in honouring the settlement and thus became liable to

pay the entire balance of GBP 87,240. There is therefore no question of

the UK company being entitled only to sue for specific performance.

10. A Division Bench of the Bombay High Court in SBI Global

Factors Ltd. v M/s. K Sera Sera Production Ltd. (2013) 4 Comp LJ 75

(Bom.) dealt with a similar contention. In that case, the consequence of

the failure to adhere to the terms and conditions of the restructuring of the

loan was made evident in the sanction letter, the consequence being that

the bank reserved its rights in relation to the original facility granted to

the company. The company defaulted in honouring the restructuring

proposal. D.Y. Chandrachud, J (as he then was), speaking for the

Division Bench, held that once there was default in complying with the

terms and conditions of the letter of sanction, the bank was justified in

recalling the amount due under the original facility granted by it and that

amount became due and payable and thus there was a debt due and

payable, fulfilling the mandatory requirement for the institution of

proceedings for winding-up. Dealing specifically with the contention of

the company, identical to the one addressed before me, the learned judge

observed:

"There is no merit in the contention that the debt of the Appellant stands replaced by a contractual settlement and that the remedy of the Appellant must lie in an action for breach of contract either by a way of a suit for specific performance or a claim for damages. In the present case, there was no discharge of the debt. What the letter of sanction dated 17 September 2009 did was to restructure the debt subject to compliance by the Respondent of the terms and conditions stipulated therein. The debt was never extinguished. On a breach by the Respondent of the terms and conditions governing the sanction for restructuring, the Appellant was entitled to institute a proceeding for winding up on the basis of the inability of the Respondent to pay the debt."

11. In view of the foregoing discussion, none of the contentions is

found to be of any merit. It seems to me to be a case where the Indian

company (respondent), having received the goods and perhaps also turned

them into profit, seeks to wriggle out of the liability to pay the dues to the

UK company by taking specious pleas and also by placing an untenable

interpretation on the settlement proposal by which the original dues of

GBP 87,240 was brought down generously to GBP 32,240. It also

appears to me to be a case where the respondent has the ability to pay, but

does not choose to pay; in such a case, the court will not come to its

defence, as held by the Supreme Court in Madhusudan Gordhandas &

Co vs Madhu Woollen Industries Pvt. Ltd 1971 AIR 2600.

12. The winding-up petition is admitted. The official liquidator ('OL')

attached to this court is appointed as the Provisional Liquidator ('PL').

Complete set of the petition and this order be served on the OL by the

petitioner within five days from today.

13. The OL is directed to take over all the assets, books of accounts

and records of the Respondent forthwith. The OL shall also prepare a

complete inventory of all the assets of the Respondent before sealing the

premises in which they are kept. He may also seek the assistance of a

valuer to value the assets. He is permitted to take the assistance of the

local police authorities, if required.

14. The Directors of the Respondent are directed to strictly comply

with the requirements of Section 454 of the Companies Act, 1956 and

Rule 130 of the Rules and furnish to the OL a statement of affairs in the

prescribed form verified by an affidavit within a period of 21 days from

today. They will also file affidavits in this Court, with advance copies to

the OL, within four weeks setting out the details (including their value

and location) of all the assets, both movable and immovable, of the

Respondent company and enclose therewith the balance sheets and profit

and loss accounts for the past three years and copies of the statements of

all the bank accounts for the last one year. The respondent is also

directed to furnish the names, address and telephone number etc. of its

directors including the Managing Director, Chairman, if any, to the

official liquidator along with the statement of affairs. The respondent

shall also furnish the name, address and telephone number of its company

secretary. It shall also file the details of its debtors and creditors with

their complete address and the details of its workmen and other

employees and the amount, if any, outstanding to them. All these shall be

filed with the OL.

15. A report be filed by the OL before the next date of hearing.

16. Renotify for further proceedings on 14th April, 2014.

(R.V. EASWAR) JUDGE DECEMBER 20, 2013 //vld