M/S. Shubham Constructions vs M/S. Mvd Autocomponents Pvt. Ltd. ...
2013 Latest Caselaw 4155 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

                                       Reserved on:5th September, 2013
%                                Date of Decision: 13th September, 2013

+       CO.PET. 322/2012 & Co.Appl.1538/2013
        M/S. SHUBHAM CONSTRUCTIONS                    ..... Petitioner
                        Through: Mr. Sunil Satyarthi with Mr.
                                   Raman Gandhi and Mr. Rahul
                                   Gola, Advocates.
                        versus
        M/S. MVD AUTOCOMPONENTS
        PVT. LTD. &ANR.                          ..... Respondents
                        Through: Mr. Sumit Bansal with Ms. Sumi
                                   Anand, Advocates.

CORAM:
MR. JUSTICE R.V. EASWAR

                              JUDGMENT

R.V. EASWAR, J.:

This is a petition filed by M/s Shubham Constructions hereinafter

referred to as "the petitioner", under section 433(e) read with section

434 of the Companies Act, 1956 seeking winding up of M/s MVD

Autocomponents Pvt. Ltd., hereinafter referred to as "the respondent".

2. The petitioner is a proprietary firm engaged in the business of

construction. The respondent is a company incorporated under the

Companies Act. It manufactures and exports auto electrical switches,

sensors, plugs etc. for passenger cars, commercial vehicles, earthmoving

machinery etc.

3. The respondent approached the petitioner to construct its factory

premises. An agreement was entered into between the petitioner and the

respondent on 22.11.2007 setting out the terms and conditions. Clause 9

of the agreement provided that the respondent shall pay a sum of `1.20

crores to the petitioner for the construction and that the bills as per

approved quotation presented by the petitioner shall be cleared as per

the schedule attached to the agreement. Clause 13 provided that the

respondent can reduce or extend the covered area of the building, in

which case the rate will be calculated at `700 per sq.ft for civil

construction, `60 per sq.ft for electrical work and `75 for sanitary and

plumb work. Another agreement was entered into between the

petitioner and the respondent on 4.6.2008. The terms and conditions of

this agreement were substantially the same as in the earlier agreement.

However, clause 9 provided that the respondent shall pay a sum of `60

lakhs to the petitioner for the construction. Clause 13 provided that the

respondent can reduce or extend the cover area of the building and in

such a case the rate for the construction will be `450 per sq.ft for civil

works, `35 per sq.ft for electrical work and `75 for sanitary and

plumbing work.

4. On 27.4.2012 the petitioner sent a statutory notice under section

433/434 of the Act to the respondent. In this notice the petitioner stated

that according to both the agreements, the total work was for `1.80

crores and that as per the final bill given by the petitioner, the amount

payable by the respondent was `96,33,752/-. It was stated that the

aforesaid amount has not been paid despite repeated demands and even

after the possession of the premises, after construction, was handed over

to the respondent after receiving the consent and the certificate issued by

the architect namely S K Sami. It was pointed out that the amount as

aforesaid was payable to the petitioner along with simple interest at 24%

per annum from June, 2010. The notice was duly served on the

respondent who filed a reply to the same vide letter dated 7.5.2012. In

its letter, the respondent stated as under :

"That without admitting the contents of your notice dated 27/4/2012 you are hereby informed that your client should provide the "Statement of Accounts" on the basis of which the figure of `96,33,752/- (Ninety Six Lacs Thirty Three Thousand Seven Hundred Fifty Two Rupees only) is arrived at as mentioned in your above notice along with the proofs/receipts of WCT, Service tax, Power Installation Challan, Fire NOC and Labour Cess Challans with Copy

of registration with Labour Department, proof of payment with ESI and EPF, Daily deployment Labour Report and also Annexure - A and Annexure - B as mentioned in your notice but the copy of the same not annexed with the same within 3 working days from the receipt of this intimation at the address mentioned herein above of my client. Furthermore, my client reserves their rights to reply upon your notice dated 27/4/2012 after receiving statement of accounts and other auxiliary documents as mentioned herein above from your client."

5. A reminder was also sent by the respondent to the petitioner

stating that the petitioner had not sent the statement of accounts as

demanded by the respondent and calling upon the petitioner to send the

statement of accounts within 3 working days from the receipt of the

letter. It was stated that the respondent would reply to the petitioner's

notice in detail after getting the statement of accounts.

6. Since the respondent did not clear the dues to the petitioner, the

petitioner filed the present winding up petition on 12.7.2012. On

16.7.2012 it sought permission of this Court to file an additional

affidavit along with the statement of account. Permission was granted

and the additional affidavit was filed along with the statement of

account.

7. The contention of the learned counsel for the petitioner is that the

respondent was due to pay `1.80 crores under both the agreement, that

the total cover area built was 13,498.85 sq.ft @ `1285 per sq.ft and the

total work done amounted to `2,23,34,998/-. Out of this amount the

respondent had paid `50,76,246/- by cheques and `76,25,000/- in cash,

leaving a balance of `96,33,752/-. It was submitted that the respondent

itself admitted liability of `1,27,00,246/- which it actually paid and this

fact was also recorded in the architect's certificate and therefore it is not

open to the respondent to contend that the total value of the contract was

only `1.20 crores. It was further submitted that whatever defects in the

work that were pointed out by the respondent were removed by the

petitioner between October, 2009 and June, 2010 and the respondent

had also occupied the premises and the petitioner cannot be held liable

for the defects which arose due to wear and tear and lack of maintenance

on the part of the respondent and that too for an indefinite period,

contrary to the normal practice of holding the contractor liable only for a

period of six months to one year from the date on which the possession

is handed over after construction. It was further argued that the defects

were pointed on 24.10.2009 in a joint meeting between the petitioner

and the respondent and all these defects were removed by the petitioner

and thus the amount claimed by the petitioner was payable. My

attention was drawn to a series of mails exchanged between the parties

and it was submitted that the respondent kept on making more and more

demands and pointing out to more and more defects in the construction

only with a view to delaying the payment due to the petitioner, even

though these defects were not for the petitioner to remove as per the

agreements entered into between the parties. It was contended, relying

on section 92 of the Evidence Act, that no oral testimony is permissible

against the terms and conditions which are reduced into writing and it is

not therefore open to the respondent-company to point out alleged

defects in the construction and keep increasing them for an indefinite

period after taking over possession. It was submitted that the defence

set up by the respondent was not substantial and amounted to

moonshine. It was accordingly contended that the winding up petition

should be admitted.

8. On the other hand the learned counsel for the respondent

contended that the defence set up by the respondent was substantive and

did not amount to moonshine. He pointed out that clause 3 of both the

agreements defining the scope of the work was identical and it is

inconceivable that there can be two agreements for the same work. He

submitted that the petitioner was not even clear as to how much is due to

it by the respondent. It is pointed out that as per the statutory notice, the

petitioner demanded a sum of `96,33,752/- with simple interest at 24%

per annum from June, 2010. However, in the petitioner's letter dated

6.7.2011 the amount demanded was `38,10,760/-; in the earlier e-mail

dated 17.1.2011 the amount demanded was "approx 35 lacs". It was

pointed out that when the petitioner does not know as to how much is

due and payable to it by the respondent, there is no ground for filing the

winding up petition. It was submitted that there were disputes with

reference to all aspects of the contract. Moreover, the petitioner itself

has admitted that there is a provision for arbitration in clause 12 of the

agreements dated 22.11.2007 and 4.6.2008 under which the architect S

K Sami was the sole arbitrator and even in the letter written by it to the

arbitrator on 29.12.2012 it has not been made clear by the petitioner as

to what is the liability of the respondent. Reliance was also placed on

the certificate issued by the arbitrator S K Sami who proceeded on the

basis that the total value of the contract was only `1.20 crores; even as

per the arbitrator (Annexure R8) the total work done by the petitioner

was of the value of `1,45,31,295/- and deducting the payment of

`1,27,00,246 made by the respondent, the respondent was liable to pay

only `18,31,049/- to the petitioner that too after removal of defects in

building construction, receipt of fire-NOC challan, receipt of WCT and

service tax and power installation challan etc. It is thus submitted that

complicated questions of fact and law arise in this case which cannot be

gone into by the Company Court and would be outside the scope of

section 433(e) of the Act.

9. In his brief rejoinder, the learned counsel for the petitioner

reiterated that after 4 years and after handing over possession, the

defects cannot be allowed to linger and that the liability of the petitioner

to rectify the defects cannot extend beyond a period of 6 months or one

year from the date on which the possession is handed over, which is the

normal practice. It is pointed that there is no proof that the defects were

not because of the operations carried out in the factory by the

respondent.

10. I have carefully considered the facts and the rival contentions. In

Amalgamated Commercial Traders Pvt. Ltd. vs A.C.K. Krishnaswami

And Anr (1965) 35 Company Cases 456, the Supreme Court held that a

winding up petition is not a legitimate means of seeking to enforce

payment of the debt which is bona fide disputed by the company. It was

further held that a petition presented ostensibly for a winding up order

but really to exercise pressure on the company will be dismissed and

under certain circumstances may even be stigmatised as a scandalous

abuse of the process of the Court. This judgment was followed in

Madhusudan Gordhandas v. Madhu Woollen Industries Pvt. Ltd.

(1971) 3 SCC 632. In Mediquip Systems (P) Ltd. Vs Proxima Medical

system GMBH (2005) 7 SCC 42 the Supreme Court held that the

defence raised, if it is a substantial one and not mere moonshine should

be adjudicated upon by the proper forum on merits and not by the

Company Court. After noticing these judgments, the Supreme Court in

IBA Health (India) Private Limited Vs. Info-Drive Systems SDN.

BHD. (2010) 10 SCC 553 held as under : (Para 20)

"The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court,

at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt."

Again in para 31 it was held as under :

"Where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purpose of winding up. "Bona fide dispute" implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt upon which a petition is founded is a hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the company to pay before coming to that conclusion. The Company Court is expected to ascertain that the company's refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil Court."

11. The principles laid down in the aforesaid cases have to be applied

to the present case. The facts narrated above lead to the crystallisation

of the following issues :

A. Was there only one agreement for construction or more than one?

B. Is it possible that there can be two agreements in respect of the

same construction?

C. If there, in fact, were two agreements, did they relate to the same

work or different works?

D. If the agreements relate to different construction works, what is

the effect of clause 3 which defines the scope of the work?

E. If there were, in fact, two agreements aggregating to `1.80 crores,

why is it that the arbitrator directed the respondent to pay only

`18,31,049/- (subject to removal of the defects) to the petitioner

on the basis that the value of the contract was only `1.20 crores?

F. Why did the petitioner make different claims upon the respondent

at different times - `96,33,752/-, `35 lakhs (approx.) and

`38,10,760?

G. If there was an arbitration clause in the agreements and the

arbitrator had directed the respondent to pay `18,31,049/-, is it not

binding on the petitioner also?

H. What is the basis for arriving at the total covered area at

13,498.85 sq.ft in the final bill raised by the petitioner?

I. Are the defects mentioned in the defect list prepared jointly on

24.10.2009 due to construction or defects in the maintenance and

upkeep after it was handed over to the respondent?

J. Were these defects removed and if so, when? Was the petitioner

liable to remove the defects, and if so, upto what period?

12. Each of the above issues is a substantive issue touching upon the

liability of the parties in relation to the construction. The defence put up

by the respondent is not mere moonshine or of such nature as to be

thrown out at the threshold itself as being without merit. It appears to

me that these are issues which have to be examined in depth and that the

Company Court cannot do so in proceedings under section 433(e) of the

Companies Act. This is a hotly contested debt.

13. The learned counsel for the petitioner relied on three judgments

of which two are of this Court. In J. K. Corporation Limited Vs.

Digipulse India (P) Ltd. (2002) 6 Company LJ 246, which is a

judgment of Vikramajit Sen, J (as he then was), it was observed that the

respondent was not entitled to any reduction in the price payable to the

petitioner as he rejected the goods supplied by the petitioner after a long

period of one year. This is a factual finding and per se does not support

the stand of the petitioner before me. In the present case, there are

several other issues along with the issue whether the respondent can

point out to the defects in the construction after a lapse of long period,

and withhold payment. The other judgment of this Court is that of the

Division Bench in Joti Prasad Bala Prasad Vs. A.C.T. Developers (P.)

Ltd. (1990) 68 Company Cases 601. I do not see how this judgment is

relevant to the present case. In the cited case, the company judge had

found that the defence raised by the respondent was without any merit,

but still the winding up petition was dismissed. This decision of the

company judge was reversed by the Division Bench. This case has

nothing to do with the case before me. Lastly a judgment of the learned

Single Judge of the Bombay High Court In The Matter of Ispat

Industries Ltd. (2005) 2 Company LJ 235 was cited in support of the

contention that a mere discrepancy between the amounts claimed in the

statutory notice and the amount actually due would not entitle the

company court to dismiss the petition. The Bombay High Court held

that a notice under section 434 of the Companies Act will not be

rendered invalid merely because of the fact that the amount of debt

mentioned in the notice may not be exactly the correct amount of the

debt due, provided the amount mentioned in the notice includes the debt

due and exceeds monetary limit prescribed in the section. In this case

after the issue of the statutory notice, certain payments would appear to

have been made by the respondent. After taking note of these amounts,

a company petition was filed for the winding up of the respondent

company and in this petition the reduced amount was mentioned. The

respondent-company contended that there being a difference between

the amount mentioned in the statutory notice and the amount mentioned

in the petition filed under section 433(e), the petition was not

maintainable. It was this contention that was rejected. The Bombay

judgment does not deal with the situation where a defence is taken to the

effect that the petitioner itself is not clear as to the amount of debt which

is due by the respondent, in view of the complicated nature of the facts

and the issues involved. This judgment is also therefore, not applicable

to the present case.

14. In the aforesaid view of the matter I do not think I will be justified in admitting the company petition. I accordingly, dismiss the petition with no order as to costs.

(R.V. EASWAR) JUDGE SEPTEMBER 13, 2013 vld