TMI Blog2002 (10) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... Since time to resolve the dispute according to the agreement had expired and due to the alleged wilful failure of the Respondent to provide necessary basic services, the entire plan got dislocated and disrupted, thereby frustrating the project itself. The agreement contained the following Arbitration clause, which has generated considerable argument : "Any dispute which may arise during the course of this, OA (within 12 months from the date of signing of this MOA) efforts will be made to resolve it amicably by having meeting between Mr. Gopal Ansal and Mr. Mohammed Mansoor. However, in the event the amicable resolution is not arrived at the dispute shall be referable to Arbitration as per Indian Arbitration and Reconciliation Act, 1996. The jurisdiction of the Arbitration and/or the Court of law shall be at New Delhi." 2. In its reply in opposition to the petition, it has been disclosed that the respondent had already moved the Civil Court for interim orders under section 9 of the Arbitration and Conciliation Act, 1996 and for the appointment of an Arbitrator or for settlement of disputes before such an appointment. It has been further pleaded that payment of certain cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding-up of a company." (p. 688) The presence of an arbitration clause was found not to preclude the jurisdiction of the Company Court, it being statutory relief. This is not to say that in every case the Company Judge will proceed to adjudicate, till the very end, the disputes brought before him, even though on further reflection and cogitation, it appears to him to be apposite and expedient to refer the parties to arbitration, where the issues would be considered threadbare. 4. Reliance has also been placed on Tirlok Chand Jain v. Swastika Strips (P.) Ltd. [1991] 70 Comp. Cas. 197 (Punj. Har.), in which the Company had filed an application for stay of proceedings and for reference of the disputes to arbitration. A Single Judge of the Punjab and Haryana High Court dismissed the application holding that the proceedings under section 434 read with section 439 of the Companies Act operate in a completely different sphere and jurisdiction from that under which relief can be sought in arbitration. The Court observed that winding-up proceedings are not for the recovery of any amount and that none of the disputes referred to in the arbitration clause could be co-related to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince a winding-up petition cannot be said to arise out of or under the contract so as to be referred to arbitration, and since under section 34 of the 1940 Act, only proceedings in respect of any matter agreed to be referred can be stayed, a winding-up petition cannot be stayed; Wimco Ltd. v. Sidvink Properties (P.) Ltd. [1996] 86 Comp. Cas. 610 (Delhi); and Kare (P.) Ltd., In re [1977] 47 Comp. Cas. 276 (Delhi) in which D.K. Kapur J. held that the Court will not stay a petition under section 397 or 398 on an application under section 34 of the 1940 Act, predicated on the arbitration clause. 6. Counsel for the Respondents have cited Smt. Kalpana Kothari v. Sudha Yadav (Smt.) [2002] 1 SCC 203 which was decided without reference to the decision of the coordinate bench of the Apex Court in Haryana Telecom Ltd. s case ( supra ). Paragraph 8 of the later case has been relied upon by the Learned Counsel for the Respondents to highlight the difference between the old and the present arbitration statute and to contend that the Court must now perforce halt proceeding and refer the parties to arbitration. "8. The first respondent herein has filed the civil suit for dissolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the 1940 Act had nothing to do with actual reference to the arbitration of the disputes and that was left to be taken care of under sections 8 and 20 of the 1940 Act. In striking contrast to the said scheme underling the provisions of the 1940 Act, in the new 1996 Act, there is no provision corresponding to section 34 of the old Act and section 8 of the 1996 Act mandates that the judicial authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The provisions of the 1996 Act do not envisage the specific obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but notwithstanding the pendency of the proceedings before the judicial authority or the making of an application under section 8(1) of the 1996 Act, the arbitration proceedings are enabled, under section 8(3) of the 1996 Act to be commenced or continued and an arbitral award also made unhampered by such pendency. We have to rest the order under appeal on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave an adverse effect on the financial arrangement that the company may have had with the financial institutions. Having regard to all the circumstances, it is a fit case in which the petition should be adjourned sine die , as it is, with liberty to the German company to seek its revival, and to the company to seek its dismissal, on the outcome of the proceedings in arbitration between the parties. I direct accordingly." (p. 695) This very approach was also favoured by Justice R.J. Kolchar in Manipal Finance Corpn. Ltd. v. Cre Carrier Ltd. [2001] 107 Comp. Cas. 288 (Bom.), decided on 11-7-2001. The winding up petition was rejected inter alia for the reasons that it appeared to be a pressure tactic and that there was sufficient security for the debts even if the award in the pending arbitration would be in favour of the petitioning creditor. The Learned Judge was of the view that the verdict in Haryana Telecom Ltd. s case ( supra ) was of no assistance to the petitioner. 8. Learned counsel for the respondents have also placed reliance on K.S. Satyanarayana v. V.R. Narayana Rao AIR 1999 SC 2544; Trans World Finance Real Estate Co. (P.) Ltd. v. Union of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going considerations. ( vii )Generally speaking, an admission of debt should be available and/or the defence that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favour of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under order XXXVII of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding-up petition. 10. It is my understanding that the present disputes have to be resolved by the application of the dicta in the Pradeshiya Industrial Investment Corpn. of Uttar Pradesh s case ( supra ) and in the Haryana Telecom Ltd. s case ( supra ). It must be keep in mind that the decision in the case of Kalpana Kothari ( supra ) was not given in the context of the Companies Act, otherwise the Hon ble Court would have referred to its earlier decision. The judgment prescribes that section 8 of the Current Arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties have contracted with each other to resolve their differences through arbitration. Therefore, in actuality, the Company Judge will in no circumstances substitute himself for or assume the role of the arbitrator. There is no merit or substance in the submission that, as in the case of a civil court, as soon as the arbitration clause is shown to him, the Company Judge must dismiss or adjourn sine die the action before him. 11. I cannot also appreciate the argument that a drastic change has been brought about by section 8 of the Arbitration and Conciliation Act in respect of the jurisdiction of the Company Judge. The Apex Court perceived no change in the legal position in the Haryana Telecom Ltd. s case ( supra ). There is no gainsaying that the Companies Act is the earlier statute and would therefore be regulated by the new Arbitration statute. It will nonetheless also have to be borne in mind that the general legal provisions must give way to special enactments, in case of inconsistency between them. The Apex Court have been quick to clarify that the winding-up powers are not akin to recovery proceedings since an arbitration agreement cannot confer the right to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inherently detailed reciprocal obligations, is seldom specifically enforced by the Court, as can be gathered inter alia, from a reading of section 14 of the Specific Relief Act, 1963. The Respondent s case is that they were approached by the Petitioner because of the former s expertise in real estate development; that the Respondent had undertaken various activities immediately after the execution of the Agreement, including Artwork; had engaged specialists and incurred expenses in this regard; made preparations for a Press Conference which was delayed because of the Petitioner; the Petitioner s cheques were dishonoured; that the sum of Rs. 10 lakhs was to be adjusted after final accounts were settled and that as and when this exercise is completed, amounts would be found due to the respondent company; that the Petitioner had breached the Agreement and had terminated it on 2-5-2001, within four months of its execution whereas the Project was for a period of twelve months; and that no response was made to the statutory notice because the Respondent had already initiated steps under the Arbitration and Conciliation Act, 1996 by way of OMP 137/2001. 13. Substantial defences hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs only) and the value of the lease at Rs. 12,31,65,000 - (Rupees twelve crore thirty one lakhs sixty five thousands only). The Schedule to the Agreement envisaged that payment would commence on 23-11-1994 and would end with the 20th and final instalment on 23-8-1999. A Supplementary Lease Agreement, stated to be forming part of the Lease Agreement dated 23-11-1994, was thereafter executed between the parties on 25-8-1997. The salient features were that the Respondent firstly admitted, confirmed and acknowledged that a sum of Rs. 8,50,51,452 (Rupees eight crore fifty lakhs fifty-one thousand four hundred fifty-two only) was then due and outstanding to the Petitioner, which would be immediately payable in the event that the revised Repayment Schedule was not adhered to by the Respondent Company. Interest at the rate of 36 per cent per annum with effect from 1-7-1997 was also expressly agreed to. This Agreement further recorded that although the Respondent had paid the first six quarterly lease rental, thereafter, "due to bad market conditions and liquidity problems, the lessee was unable to make timely payment of Lease rentals to the Lessor and the account had fallen into arrears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priced anywhere between US$ 300,000 to US$ 400,000. As you may be aware Mesco Airlines is functioning without working capital limits. Therefore, we have to fall back on our own resources to get through this bad phase. At this stage, we would like to make a request to you to give us a supporting hand as you have always done in the past and allow us relief for two months, i.e., for April and May 98 at the rate of 10 lakhs per month. We would continue the payment from June 98 onwards and will make up for this intervening period in the subsequent months. We hope you understand our financial position at this point of time. We therefore, most humbly request you to grant us this relief. It would be in our mutual interest to resume flying as soon as possible so as to continue generating revenue and achieve customer satisfaction with our client ONGC. I understand from your local Delhi office that you will be visiting Delhi sometime next week. The undersigned is planning to be in Mumbai on 23rd and 24th of April. I would appreciate if you could give me some time either in Mumbai or in Delhi next week at your convenience, so that in person I can explain to you in greater detail the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of employees; it has huge fixed assets and has financial capacity to pay any creditor; that it has nine helicopters and two fixed Wings Aircrafts; that the Petition ought to be dismissed in view of the arbitration clause; that there is no debt due and payable by the Respondent; that Schedule-I and Schedule-II of the Agreement is wrong and are liable to be set aside on account of the serious mistake committed by both the parties and that the Lease is also liable to be nullified. It has also been asserted that the Respondent is entitled to a credit of over Rs. 5,88,37,981; the helicopters were imported at Rs. 10,67,65,995 out of which the Respondent was entitled to a credit of Rs. 2,17,65,995 since only a sum of Rs. 8,50,00,000 was to be paid to the Petitioner. It has also been pleaded that a sum of Rs. 4,00,00,000 has not been taken into account and, accordingly, a total credit of Rs. 6,17,65,995 has mistakenly not been credited. It has also been averred that Rs. 1,02,49,736 has been paid by the Respondent on account of insurance, which is the liability of the Petitioner. It has been further pleaded that the Respondent incurred a sum of Rs. 2,68,22,250 for replacement of parts caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, on the lessee s own requirements and judgment. Clause 6.9 clarifies that the Lessee was obliged to pay lease rentals punctually during the contracted period regardless of whether the Equipment requires repairs or are otherwise not in working condition. Clause 6.10 states that the Lessor/Petitioner shall not be liable or responsible in any way for the non-performance, if any, of the Equipment and further that the Lessee shall look solely to the Manufacturer/Supplier or its selling agents for the performance of guarantees and warrantees with respect to the equipment. In the letters mentioned hereinabove, the Respondent has itself admitted that the helicopter had been put to unusual use which caused its breakdown. Therefore, the petitioner is not bound either contractually or equitably for any loss which may have been caused to the Respondent during the alleged breakdown period. Clause 7.3 is important inasmuch as it records the Respondent s liability to punctually pay for all servicing of and repair and other work done to the Equipment and for spare parts and accessories thereof and keep the Equipment free from distress, execution or any other legal process and further to rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be paid by the Respondent without demur or objection, if there was any doubt or ambivalence as to whether the liability rested solely with the Respondent. These are all afterthoughts raised at this late juncture in order to defeat the Petition. The Respondent is a commercial entity transacting business of several crores, which would be fully aware of its contractual obligations, and the legal implications of a written contract. 11. It is also not open to the Respondent to contend that it is a going concern earning profits and with a large asset-base, in view of its numerous pleas to the Petitioner for repeated accommodation in payment of instalments. In my opinion, where the liability is itself denied in reply to the Petition, stringent measures are called for since the defence is palpably false and mala fide. Equitable consideration would dictate taking steps to secure payment of the Respondent s dues. A dishonest defence is only a precursor of dissipation of assets. The Petitioner s interests call to be protected. I am not convinced that the truth will emerge only after the parties arbitrate. The facts are already manifest. 12. In these circumstances, the Petition is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
