2005 (10) TMI 286 - HC - Companies Law

Issues Involved:
1. Whether the respondent-company was justified in retaining amounts due to the petitioner-companies.
2. Whether the respondent-company's defense of delays and defects in the execution of the contract is bona fide.
3. Whether the petitioner-companies are entitled to the winding-up of the respondent-company under section 433(e) of the Companies Act, 1956.
4. Whether the disputes should be referred to arbitration as per the contract.

Issue-wise Detailed Analysis:

1. Justification of Retaining Amounts:
The petitioners, M/s. Melvin Powell Vanaspati and Engineering Industries Ltd. and M/s. Paharpur Cooling Towers Ltd., filed winding-up petitions against Oswal Chemicals and Fertilizers Ltd. for unpaid dues. The respondent-company retained Rs. 11,49,655 and Rs. 13,07,964, respectively, claiming delays and defects in the execution of contracts. The court examined the detailed correspondence and concluded that the delays were attributable to the respondent-company, which failed to complete necessary civil works on time. Therefore, the respondent-company was not justified in making any deductions from the bills.

2. Defense of Delays and Defects:
The respondent-company argued that the delays in the erection and completion of the cooling towers were due to the petitioner-companies' failure to adhere to the agreed schedule. However, the court found that the delays were caused by the respondent-company's failure to complete civil construction works, such as RCC basins and MCC rooms, on time. The court noted that the correspondence and minutes of meetings between the parties clearly demonstrated that the petitioner-companies were not at fault. Therefore, the defense of delays and defects was not bona fide.

3. Entitlement to Winding-Up:
Under section 433(e) of the Companies Act, 1956, a company that is unable to pay its debts may be wound up. The court emphasized that the proceedings under this section are not for enforcing an agreement or recovering amounts but to determine if the company is commercially insolvent. The court found that the respondent-company's refusal to pay the admitted dues of Rs. 21,02,998 and Rs. 14,85,950, respectively, was without reasonable excuse. The court concluded that the respondent-company was unable to pay its debts and, therefore, the petitioner-companies were entitled to the winding-up of the respondent-company.

4. Arbitration Clause:
The respondent-company argued that the disputes should be referred to arbitration as per the contract. However, the court found that there was no unresolved dispute requiring arbitration. The court noted that the correspondence and admissions made by the respondent-company during the execution of the contract clearly demonstrated that the delays were attributable to the respondent-company. Therefore, the court rejected the argument for arbitration.

Conclusion:
The court concluded that the respondent-company had unjustifiably withheld payments due to the petitioner-companies and had failed to pay the dues despite statutory notices. The court directed that the company petitions be advertised under rule 24 of the Companies (Court) Rules, 1959, and restrained the respondent-company from transferring, alienating, or encumbering its fixed assets except for the purposes of its ordinary business.

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