TMI Blog2005 (4) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... ts name has been changed to EnerNorth Industries Inc., as per the amendment dated February 11, 2003, issued by the Ministry of Consumer and Business Services, Ontario, Canada. The respondent-company was incorporated under the Act on October 3, 1981, as a limited company and having its registered office at Progressive Towers, 3rd floor, 6-2-913/9/4, Khairatabad, Hyderabad. The authorised share capital of the respondent-company is Rs. 20,00,00,000 divided into two crores equity shares of Rs. 10 each. The issued, subscribed and paid up capital of the respondent-company is Rs. 4,04,43,000 divided into 40,44,300 equity shares of Rs. 10 each. The respondent-company was incorporated mainly with an object to take over the registrations and licenses obtained and to be obtained by M/s. Vizag Bottling Co. Pvt. Ltd., for the establishment of Ferro Silicon Factory and doing all such other things as are incidental or conducive to the attainment of the above object. The other objects of the company are more specifically stated in para. 4 of the company petition. It is stated that in and around 1995, one Oakwell Engineering Ltd., No. 8, Aluunid Ave, 3, Oakwell Building, Singapore 389933, participa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner, the respondent shall be liable to pay interest on the said amount at the rate of 12 per cent, per annum. According to the petitioner, after the said arbitral award, a letter dated February 28, 2004, had addressed to the respondent intimating the fast approaching of deadline and that the petitioner is ready and willing to lodge the shares referred to in the arbitral award, which are to be purchased by the respondent and Mrs. Rita Mukerji, has been authorised by the petitioner to take all and or any such actions as may be needed for the purpose, and the petitioner was asked to contact the said person for the purpose of getting the shares transferred while effecting the payment for the shares as per the award. However, it is stated that the respondent did not fulfil the terms of the arbitral award. Therefore, the petitioner issued a legal notice dated August 17, 2004, demanding the payment. But the respondent though received the said notice neglected and failed to pay the amount due to the petitioner, within the period of three weeks from the date of the receipt of the said notice. Therefore, it is stated that the respondent is unable to pay the amount due to the petitioner. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said Oakwell initiated legal proceedings in the Singapore High Court, which resulted in judgment and decree against the petitioner for a sum in excess of US$ five million. The petitioner challenged the same in the appellate court, unsuccessfully. Therefore, Oakwell initiated proceedings in the Superior Court of Ontario, Canada, to enforce the judgment of the Singapore court against the petitioner, which is pending. The respondent apprehends that the Oakwell is still seeking attachment of the properties of the petitioner in execution of the decree, in which case the petitioner would not be in a position to satisfy the condition imposed under the award. It is also stated that Oakwell has filed an execution petition before the Delhi High Court vide E. P. No. 22 of 2005, for enforcing the judgment dated October 16, 2003 passed by the High Court of Singapore, along with an application for attachment of the shares of the petitioner, which are to be transferred to the respondent, and also for a direction to the respondent herein to pay a sum of Rs. 11.85 crores to Oakwell, instead of the petitioner. Therefore, the property, i.e ., the shares required to be transferred by the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioner that the respondent has become insolvent or owed number of debts to other parties, and filed a copy of the balance-sheet for the year ended by March 31, 2004, and also the profit and loss account showing that the company has been earning profits and is in a sound financial position and the allegations made by the petitioner are incorrect and intended only for the purpose of the present petition. A reply is filed on behalf of the petitioner reiterating that the petitioner is, and has always been ready and willing to transfer 1,13,48,200 equity shares of KEOPL to the respondent, on the purchase price being fully paid. It is stated that the shares are unencumbered and are not the subject-matter of any attachment order or order of stay or injunction, thereby imposing restriction on the petitioner s rights to transfer the said shares. The petitioner has repeatedly offered to lodge the shares with the transfer deeds with the respondent on payment of the debt due from the respondent. The petitioner had, by letter dated February 28, 2004, notified the respondent that it was ready and willing to lodge the said shares for the purpose of transfer. Therefore, there is no mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not affected on or before the said date, the respondent was also obligated to pay interest at the rate of 12 per cent per annum on the entire sale consideration. In fact the respondent has even paid interest on the unpaid consideration for the two quarters ending with June 31, 2004,, and September 30, 2004, which clearly shows that there was no ambiguity or doubt in the mind of the respondent that the shares that are being held by the petitioner are not in a transferable form or is there any hindrance or obstruction to the petitioner for the transfer of the above said shares. In fact, according to learned counsel a letter was sent on February 28, 2004, before the deadline fixed in the award intimating the respondent of the fast approaching deadline for effecting the payment, and also expressing the readiness and willingness of the petitioner for effecting the transfer as per the award, and in fact specified the name of the representative of the petitioner, i.e ., Mrs. Rita Mukerji, along with her address even to contact for effecting the transfer of the shares. It is also stated by learned counsel that as the shares are in demat form, they could be transferred immediately by exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDICI Ltd. v. Neptune Inflatables Ltd. [1999] 1 Comp. LJ 240 (Mad.) and Bank of Nova Scotia v. RPG Transmission Ltd. [2005] 1 Apex Decisions (Delhi) 5 ; [2006] 133 Comp. Cas. 172 ( infra ) . Learned counsel for the respondent Sri A. Sanjay Kishore, on the other hand, reiterated the stand of the respondent as pleaded in the counter. According to learned counsel, as per the terms of the award, there is no unilateral liability on the respondent to pay any amount. On the other hand, the obligations are bilateral. The petitioner has to transfer the shares upon which the respondent is liable to pay the amounts as stipulated. According to learned counsel, the petitioner did not transfer the shares or at least offered even before this court the shares along with the transfer deeds for effecting transfer, and the petitioner failed to perform or discharge its obligation. Therefore, it cannot make a claim against the respondent that the respondent failed to discharge its obligation. Learned counsel also contended that there is no relationship of debtor and creditor between the petitioner and the respondent in view of the bilateral obligations provided under the terms of the award. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be admitted or not. The facts, which are not in dispute, are that one Oakwell Engineering Ltd. was the successful tenderer to establish two barge mounted power projects of 100 mw each at Kakinada in Andhra Pradesh. The said successful tenderer incorporated a company EPS Oakwell Power Ltd. with 100 per cent, foreign equity to establish, control and manage the said two power projects. Thereafter, the said Oakwell Engineering Ltd. entered into a number of agreements with the petitioner and as per the agreement the total control and management of EPS Oakwell Power Ltd. was acquired by the petitioner. Later the petitioner entered into agreements with the respondent and its group companies, which have acquired controlling interests in KEOPL. However, certain disputes arose between the petitioner and the respondent-company with reference to the transfer of shares and payment of the amounts, which were referred to an arbitral tribunal, which passed an award on October 11, 2003. The relevant portion of the said award is as under : "D. Other than the fulfilment of all the terms of this award, EnerNorth/EPS unconditionally confirms mat there are no known or current disputes between EnerNo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the unredeemed shares for the period from the 'due date', till the date of actual payment thereof. Except for the right to obtain payment for the shares on buy back by VBC and any interest that may become due in terms hereof, EnerNorth/EPS shall have no other right to take any action against VBC/KEOPL. VBC hereby undertakes to abide by the terms of this arbitral award and shall meet the payment obligations hereunder. H. The entire purchase consideration or INR 118,482,000 (Indian rupees one hundred eighteen million four hundred eighty-two thousand only) for 11,848,200 shares of KEOPL presently held by EnerNorth/EPS, and those required to be transferred with reference to sub-clause C above, together with any interest due thereon in terms hereof shall, after deduction of taxes, if any, and subject to applicable laws and consents/permissions from Government and statutory authorities. I. VBC shall have the sole responsibility to obtain necessary permissions/consents/clearances from Government, Reserve Bank of India, Income-tax Department, etc ., as may be required under law for VBC to remit the money to EnerNorth/EPS." Thereafter, in pursuance of the award as the deadli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ) seeking for a winding up order. The claim of the appellants was disputed by the respondent-company. The company court directed the respondent-company to deposit an amount of Rs. 72,556.01 being the admitted amount into the court while directing the appellants to file a civil suit for recovery of its claim, and if no suit is filed by the appellant the amount was ordered to be withdrawn by the respondent-company. On the other hand, if a suit is filed the amount was ordered to be transferred to the credit of the said suit. The said order was upheld on appeal. Hence, further appeal to the apex court. The apex court while dismissing the appeal laid down the following (page 131) : "Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, (see In re A Company [1894] 2 Ch. 349 (Ch. D.)). Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantity the debt precisely, (see In re Tweeds Garage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omp. Cas. 546 (MP) the bank has filed the petition for winding up of the respondent-company, as the respondent-company did not pay the amount due in response to a statutory notice under section 434 of the Act. According to the petitioner-bank, some of the bills (cheques) of the respondent in the bills purchase account were dishonoured on presentation. The bills purchase account of the company shows a debit of Rs. 10,50,000 plus interest at the rate of 20 per cent, per annum from January 25, 1990. Likewise, the company's current account shows a debit balance of Rs. 13,17,550 (inclusive of interest). Thus, the company is indebted to the petitioner in the sum of Rs. 23,67,550 plus interest thereon. The said petition was opposed by the company on the ground that it is not tenable under law because there is a bona fide dispute as to the liability to pay the dues as mentioned in the petition under reply. Since there is a dispute, it cannot be said that there is any negligence to pay the same under the relevant provisions of the Companies Act, 1956. Negativing the said contention of the respondent-company, the Madhya Pradesh High Court observed (page 548) : "After going through the do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to the filing of the written statement did the company dispute its liability to pay the amount. Even in the written statement, liability to pay the amount is admitted but the only defence, as already noticed, is that it is liable to pay after the lapse of ten years and that too, without interest, which plea has not been accepted being not supported by any material at all. Nothing has been shown, even prima facie to suggest that the amount was paid to respondent No. 1 as interest free loan for a period of ten years. Notice under section 434 of the Act was not even replied to. Thus it can safely be presumed that the plea sought to be raised by the company is only an afterthought and a convenient way to wriggle out of its liability to pay the admitted amount. It appears that the company has no intention to pay the huge amount due to the petitioner and the present pleas have been taken in the written statement only with a view to avoid its liability to pay the amount. The defence raised by the company cannot, therefore, be said to be bona fide and for these reasons I hold that the respondent-company is unable to pay its admitted debts. The amount advanced by the petitioner has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount due to the petitioner, but neglected to pay the same within the period prescribed in the statutory notice exhibit P1. Subsequently, after a lapse of one year, though compromise was entered, the respondent did not honour its commitment in making the instalment payments, except making a nominal payment of Rs. 50,000 and thereby, the matter was successfully dragged for a period of six years without any reasonable excuse. In such circumstances, the respondent must be deemed to be unable to pay its debts under section 434(1) of the Act and consequently liable to be wound up." In TDICI Ltd. v. Neptune Inflatables Ltd. [1999] 1 Comp. LJ 240 (Mad.), the Madras High Court while admitting the company petition approved the observations of the Bombay High Court in United Western Bank Ltd., In re [1978] 48 Comp. Cas. 378 , and the relevant portion of the said decision is as under (page 241) : "In United Western Bank Ltd., In re [1978] 48 Comp. Cas. 378 the Bombay High Court held that where the debt is disputed, the court has to see, first, whether the dispute on the face of it is genuine or merely a cloak for the company's real inability to pay the just debts. Here the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Mr. Tripathi are misconceived and are accordingly rejected. The contention that the petitioner could choose one of the remedies available in case where two or more than two remedies are available is applicable when the remedy provided for is one and the same but when two different remedies are provided for two different reliefs, in that event the plea of election of remedies is not applicable. We, therefore, hold that the winding up court is concerned with the issue as to whether or not a company could be declared as commercially insolvent and, therefore, comes within the ambit of the provisions of section 433 of the Companies Act. The Debts Recovery Tribunal does not have any jurisdiction to entertain any such application for winding up of a company whether the same is by any bank and/or other financial institution. We also hold that both the remedies and jurisdictions are mutually exclusive of each other and, therefore, there cannot be any inconsistency between the two different remedies provided for in two different legislations." Coming to the decisions relied upon by the respondent, in Amalgamated Commercial Traders P. Ltd. v . A. C. K. Krishnaswami [1965] 35 Comp. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner, a detailed investigation was required before the dispute could be settled ; that the petitioner had not established that the respondent-company was unable to pay its debts ; and that finally, the respondent-company having a monthly turnover of about Rs. 6.5 crores and having over 2,000 employees, it was not in public interest to wind up the respondent-company." In American Express Bank v. Core Health Care Ltd, [1999] 96 Comp. Cas. 841 (Guj.) when the petitioner bank filed the petition for winding up of the respondent-company, the Gujarat High Court while dismissing the company petition observed (headnote) : "As against the creditor's right to get an order of winding up ex debito justitiae, where, from the materials it appears that the company is commercially solvent and the present state of affairs is the result of a temporary set back in business, or where the court is satisfied that the petitioner holds security for his debt and that security is sufficient to pay the debt by realisation of security, and he has a right even after the winding up order is made to remain outside the winding up and realize his dues directly, the court may be satisfied that a winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s point of view; from the marketability point of view, no less injurious than winding up. A petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the court and should be dismissed with costs. When the petitioner is forcing payment of a debt, which it knows to be in substantial dispute the evidence may support an action by the company against the petitioner for the tort of malicious prosecution. No monetary loss or special damage to the company need be proved, for the presentation of the petition is, from its very nature, calculated to injure the credit of the company." In Manipal Finance Corporation Ltd. v. CRC Carrier Ltd. [2001] 107 Comp. Cas. 288 (Bom.) the petitioner was a finance company, which entered into a hire purchase agreement with the respondent-company for the supply of certain machinery on hire. As the respondent-company failed to pay the sum of Rs. 1,77,43,273 in addition to the compensation towards value of the machinery to the petitioner, a notice under section 434 was issued and filed the company petition. The company in its defence stated that the petitioner had also referred the dispute to arbitration c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the security, and where the winding up order is not in the interest of the petitioner as well as the company, the winding up order can be refused. It was also held that it is a settled proposition of law that in a case of disputed debt-or disputed question of fact, the company court would stay its hands and it would be for the parties to get the dispute adjudicated in a competent civil court, as it would require leading of evidence, documentary as well as oral and appreciation of the same, which is the domain of the original civil court. It was also held that where there was a dispute and difference between the parties, and the matter was referred to arbitration for adjudication, and in such case, the winding up order would not be passed. In the light of the above principles laid down in various decisions, the facts of the present case have to be considered. Admittedly, there were certain agreements between the petitioner and the respondent, and there were also disputes between the parties and ultimately the disputes were in fact referred to arbitration, and the arbitral tribunal passed a consent award as early as on October 11, 2003, as per which the respondent-company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to the notice of the court that the shares are in demat form, and the petitioner had even communicated the fact of the petitioner's readiness for transfer of the shares. The respondent never disputed or communicated to the petitioner about the petitioner's unwillingness to transfer the shares. In fact, such a doubt or objection was never raised, except for the first time in the counter filed in the present company petition. However, on behalf of the respondent, one of the contentions advanced is that the shares held by the petitioner are not free and unencumbered and they are liable for attachment in the proceedings that were initiated by one Oakwell Engineering Ltd., and the respondent has cited the instance of filing proceedings by the Oakwell Engineering Ltd. in the Superior Court of Canada, and also filing of E. P. No. 22 of 2004 before the Delhi High Court, and in the said execution petition filed by the Oakwell Engineering Ltd. the shares are sought to be attached, and there is apprehension of litigation, and therefore, the respondent-company declines to get involved in a disputed transfer, and therefore, the petitioner is not in a position to transfer the unencumbere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o objection raised at any point of time till the filing of the counter, the objection raised, would at best be considered as an oblique excuse for compliance with the obligation for effecting the payment. Further, under the terms of the award, it is mandatory for the respondent to pay the amount and purchase the shares, there is no provision either to the petitioner or to the respondent to go back on the transaction of transfer of shares, and paying/receiving the consideration. Therefore, there is no question of any enforcement of bilateral contract under the present company petition. Apart from that the payment of interest, as stipulated in the award, for the quarter ending with June 30,2004, and for the second quarter ending with September 30, 2004, clearly shows that the respondent admitted its liability to pay the sale consideration of Rs. 11,34,82,000. Another contention advanced by the respondent was that the petitioner filed an execution petition for execution of the award, and when he has resorted to the alternative remedy that is available under law, the present company petition is not maintainable, and is liable to be dismissed. This contention is also devoid of merit. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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