2015 (8) TMI 1589 - HC - Companies Law

Petition under Section 433 and 434 of the Companies Act of 1956 for winding up of company - privity of contract between the petitioner and respondent - Acknowledgment of Debt - HELD THAT - It is clear that the respondent was not agreeable for the Deed of Assignment which the Samsung was inclined to execute in favour of the petitioner. The Managing Director of the respondent has specifically objected for such arrangement in May 2005. The Samsung therefore issued the notice to the respondent and the respondent has paid an amount of Rs. 30, 90, 136/- to the Samsung. However thereafter in December 2005 the Deed of Assignment was executed between the Samsung and the petitioner. The present petition is filed on the basis of the said Deed of Assignment executed by the Samsung in favour of the petitioner - it is clear that there was no privity of contract between the petitioner and respondent. The respondent is not liable to make any payment to the petitioner as there was no privity of contract between them. Thus only on this count the present petition is required to be dismissed. The Managing Director has specifically stated that Deed of Assignment is not feasible in May 2005. Therefore it is surprising that Manager of the respondent-company has informed the petitioner that they are agreeable for the principal amount of USD 1, 65, 493 if interest is waived. However when the authority to write such letter by the Manager is disputed by the respondent the petitioner cannot rely upon the said communication and more particularly when the other communications are from Managing Director of the respondent. Thus it cannot be said that the respondent has acknowledged its debt and was agreeable for the payment of USD 1, 65, 493 to the petitioner. The last communication is in March 2008 and the petition is filed even after approximately a period of three years i.e. on 18.3.2011. Thus it is also clear that the petition is liable to be dismissed on the ground that it is filed after the period of limitation. The Hon ble Division Bench in Tata Iron Steel Company Ltd. V/s Micro Forge (India) Ltd. 2000 (3) TMI 920 - HIGH COURT OF GUJARAT has laid down various guidelines which are required to be considered by the Company Court while deciding the winding up petition. It is clear from the said guidelines that remedy under Section 433(e) is not a matter of right and it is the discretion of the Company Court. It does not confer any right on any person to seek order that the company must be wound up. However it gives power to the Company Court to pass an order of winding up in appropriate cases. The Court is not bound to order winding up of the company merely because any one of the circumstances enumerated in Section 433 of the Companies Act exists. It is possible that at times there may be a cash crunch or temporary cash crisis despite heavy turnover. Therefore mere disability or inability to pay in such case would not constitute a ground for winding up of the company. Even when the company is an on-going concern having regular business and employment of employees the Court would not consider the request to wind up the company. Course of filing of winding up petition cannot be a recourse of recovery of debt. The discretion is not required to be exercised in favour of the petitioner. Hence the present petition fails. Accordingly it is dismissed.

Issues Involved:

1. Privity of Contract
2. Delay and Laches
3. Acknowledgment of Debt
4. Financial Status of the Respondent
5. Legitimacy of Winding Up Petition as a Debt Recovery Tool

Detailed Analysis:

1. Privity of Contract:

The primary issue revolves around whether there was a privity of contract between the petitioner and the respondent. The petitioner argued that a Deed of Assignment was executed between Samsung and the petitioner, allowing the petitioner to recover a specified amount from the respondent. However, the respondent contended that there was no direct contractual relationship with the petitioner, as the original contract was between the respondent and Samsung. The court found that the respondent had explicitly communicated its non-acceptance of the Deed of Assignment, thus establishing that there was no privity of contract between the petitioner and the respondent. Consequently, the petition was dismissed on this ground alone.

2. Delay and Laches:

The issue of delay and laches was significant, as the Deed of Assignment was executed on December 30, 2005, but the petition was filed in 2011. The respondent argued that the petition was time-barred as it was filed beyond the prescribed limitation period. The petitioner claimed that the debt was acknowledged within the limitation period, thus extending the deadline. However, the court noted that the acknowledgment purportedly made by a manager was not authorized, and the petition was indeed filed after the limitation period had expired. Therefore, the petition was also liable to be dismissed on the grounds of delay and laches.

3. Acknowledgment of Debt:

The petitioner argued that there was an acknowledgment of debt by the respondent, which extended the limitation period. The court examined the communications between the parties and found that the acknowledgment relied upon by the petitioner was made by an unauthorized individual, namely a manager of the respondent, who did not have the authority to acknowledge such debt. Thus, the court concluded that there was no valid acknowledgment of debt that could extend the limitation period.

4. Financial Status of the Respondent:

The financial status of the respondent was examined to determine if it was a going concern. The petitioner argued that the respondent was incurring significant losses and had lost its substratum. However, the court found that despite financial difficulties, the respondent was a joint venture promoted by major companies and was still operational. The court emphasized that mere financial losses do not justify winding up if the company is still a going concern.

5. Legitimacy of Winding Up Petition as a Debt Recovery Tool:

The court reiterated the principle that a winding-up petition is not a legitimate means of enforcing payment of a debt that is bona fide disputed by the company. The petition should not be used as a tool to exert pressure on the company to pay a disputed debt. The court cited various precedents to emphasize that winding-up proceedings are not a substitute for a civil suit to recover debts. The court concluded that the petition was filed primarily to enforce a disputed debt and was therefore dismissed.

In conclusion, the court dismissed the petition on multiple grounds, including the absence of privity of contract, the petition being time-barred, lack of valid acknowledgment of debt, and the misuse of winding-up proceedings as a debt recovery tool. The financial status of the respondent was not deemed sufficient to warrant winding up, as the company was still operational despite incurring losses.

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