9911796707
TMI Blog2009 (10) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... ster cotton yarn, synthetic yarn and polyester yarn in all range of counts and hosiery goods, readymade garments manufactured from cotton, wool, silk, jute, etc. 3. The respondent-company with an intention to develop its existing set of patterns and building and functioning had called for quotations from various individuals and construction companies. The petitioner submitted its quotation for carrying out the building construction and for its operations. The respondent appointed the petitioner as construction agent/ builder for carrying out the construction of the proposed textile building at the respondent's premises situated at Dharapuram, Ottanchathiram Road, Erode District. According to the petitioner it executed the work of construction of spinning mill at Dharapuram in terms of the agreement and specifications for construction and fulfilled its obligations under the construction agreement. 4. The petitioner states that certain additional works were also agreed to be carried out by the petitioner and the extra/additional work done by the petitioner was duly ratified/certified by the architect, named in the agreement. For carrying out the construction work, the petitioner wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no debt payable by the respondent to the petitioner. The legal notice issued by the petitioner to the respondent on December 1, 2008 ; the reply notice issued by the respondent to the petitioner on December 13, 2008 ; and filing of O. P. No. 229 of 2009 before this court under section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator are suppressed in the company petition. It is stated in the counter affidavit that the construction agreement was executed and the amount payable as per the construction agreement is a sum of Rs. 4,84,49,674 and the entire amount has already been paid and after receiving the said amount, petitioner falsely raised a claim for Rs. 1,37,68,025.73 towards the additional work alleged to have been carried out. According to the respondent no such additional construction has been made by the petitioner and for the first time the claim was raised in the legal notice dated December 1, 2008, stating that one Mr. S. Kanagaraj of M/s. Creators was appointed as the arbitrator to adjudicate upon the claim. The said claim made by the petitioner was refuted by the respondent by reply notice dated December 13, 2008. The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, for appointment of an arbitrator and the said filing of the petition will not be an embargo to maintain this petition seeking winding up. Learned counsel relied upon the judgment of this court reported in [1971] 41 Comp. Cas. 548 (Hind Mercantile Corporation (P.) Ltd. v. J. H. Rayner and Co. Ltd.), for the proposition that mere filing of an application for appointment of arbitration will not abate the company petition. He has also cited the judgment of the Supreme Court reported in [1999] 97 Comp. Cas. 683 ; [1999] 5 SCC 688 {Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.) and contended that the arbitrator has no power to order winding up of the company and winding up petition cannot be referred to arbitrator. 8. Learned counsel for the respondent on the other hand submitted that the petitioner has approached this court by not stating the correct facts, particularly with regard to issuance of notice by the petitioner on December 1, 2008, reply issued by the respondent on December 13, 2008, disagreeing with the proposal to nominate an arbitrator, viz., Sri. S. Kanagaraj of M/s. Creators and the consequential filing of arbitration O. P. No. 229 of 2009 under section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion agreement to adjudicate upon the claim made in the bill dated February 22, 2008, by a named arbitrator. The respondent through its counsel sent reply dated December 13, 2008 and stated that the entire amount payable as claimed in the first bill for a sum of Rs. 4,84,49,674 has already been paid and the second bill dated February 22, 2008, claiming the disputed sum has no basis and there is no prior agreement for that amount. The suggestion made by the petitioner for appointment of a named arbitrator was not accepted. It is also stated in the reply notice that no additional construction work is made by the petitioner and the cost for the entire construction made has been fully paid, as the estimated amount is Rs. 3,25,00,740 and the actual amount paid was Rs. 4,84,49,674. From the above said pleadings it is clear that there is genuine dispute with regard to the claim made by the petitioner by bill dated February 22, 2008. 12. The petitioner having understood the said dispute has chosen to nominate the arbitrator and the name proposed by the petitioner for appointing the arbitrator having not been accepted by the respondent, the petitioner filed O. P. No.229 of 2009 under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has applied the meaning given to the expression 'commencement of the arbitral proceeding7 as contained in sectional of the 1996 Act for the purpose of applicability of the 1940 Act having regard to section 85 (2) (a) thereof, we have no hesitation in holding that in this case also, service of a notice for appointment of an arbitrator would be the relevant date for the purpose of commencement of the arbitration proceeding." 15. The said position is reiterated by the Supreme Court in the decision reported in [2004] 122 Comp. Cas. 145 ; [2004] 7 SCC 332 (If. P. State Sugar Corporation Ltd. v. Jain Construction Co.) and in paragraph 9 it is held thus (page 149 of 122 Comp Cas) : "The only question which survives consideration is the applicability of the 1996 Act in the facts of the present case. Disputes and differences between the parties arose in the year 1991. The respondent filed an application under section 20 of the 1940 Act on May 1,1991. It invoked the arbitration agreement as contained in clause 34 of the contract. The arbitral proceeding was, therefore, set in motion. In terms of section 21 of the 1996 Act, the arbitral proceedings in respect of a particular dispute com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to non-payment is a bona fide defence. Whatever it may be, the liability of the appellant is yet to be determined. It is in this factual background that we will deal with the legal aspect of the matter. Section 433 of the Act says : 'A company may be wound up by the court,-. . . (e) if the company is unable to pay its debts ; . . .' From the above, it follows : (1)there must be a debt ; and (2)the company must be unable to pay the same. An order under clause (e) is discretionary. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date. What then is inability when the section says 'unable to pay its dues' ? That should be taken in the commercial sense, in that, it is unable to meet current demands. As stated by William James, V. C. ; it is 'plainly and commercially insolvent-that is to say, that its assets are such, and its existing liabilities are such, as to make it reasonably certain-as to make the court feel satisfied-that the existing and probable assets would be insufficient to meet the existing liabilities. (European Life Assurance Society, In re [1869] L. R. 9 Eq. 122, 128 ; V. V. Krishna Iyer Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... views of the creditors. The law on this point is stated in Palmer's Company Law, 21st edition, page 742, as follows : 'This right to a winding up order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and if, for some good reason, they object to a winding up order, the court in its discretion may refuse the order.' The wishes of the creditors will, however, be tested by the court on the grounds as to whether the case of the persons opposing the winding up is reasonable ; secondly, whether there are matters which should be inquired into and investigated if a winding up order is made. It is also well-settled that a winding up order will not be made on a creditor's petition if it would not benefit him or the company's creditors generally. The grounds furnished by the creditors opposing the winding up will have an important bearing on the reasonableness of the case (see P. and J. Macrae Ltd., In re [1961] 31 Comp. Cas. 424 (CA). It is beyond dispute that the machinery for winding up will not be allowed to be utilised merely as a means for realising its debts due from a company. In Amalgamated Commercial Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s far as the appellant is concerned." 18. A Division Bench of this court in O. S. A. No. 319 of 2003 (Rediffusion-Dentsu, Young and Rubicam (P.) Ltd. v. Solidaire India Ltd. (dated September 4, 2008) [2008] 145 Comp. Cas. 693, considered similar issue with regard to the pendency of the suit between the parties and whether winding up petition can be maintained. In paragraph 15 the Division Bench held as follows (page 701) : "15. Whenever a company petition is filed seeking winding up, the court must consider the circumstances in every case and come to a necessary conclusion. Needless to say that granting of the relief of winding up is a discretionary relief; but, the court when exercise this discretionary power, it must be governed by justice and equity. The court must exercise its discretion judiciously also. It is well-settled principle of law that if there is any substantial defence put forth by the respondent, the same has got to be decided by the court only on appreciation of evidence. Having filed a suit calling the respondent, the third defendant therein, as the agent of the first defendant and necessary issues having been framed touching the liability of all the defendants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which the court acts are :' (i)that the defence of the company is in good faith and one of substance ; (ii)the defence is likely to succeed in point of law ; and (iii)the company adduces, prima facie proof of the facts on which the defence depends. In view of the judgment now passed, the appellant will be entitled for refund of the sum of Rs. 2 lakhs deposited by them in compliance with the direction given by the High Court when the matter was pending before it. The High Court is directed to refund the same to the appellant on production of a certified copy of this judgment. In view of all these, there is no prima facie dispute as to the debt. Thus we find no justification whatsoever for admitting the winding up petition. Accordingly, the judgment passed by the learned single judge and of the Division Bench are set aside. The civil appeal stands allowed. No costs." 20. The Bombay High Court in the decision reported in [2001] 107 Comp Cas 288 (Manipal Finance Corporation Ltd. v. CRC Carrier Ltd.), held that when arbitration proceedings are pending, no company petition can be admitted. 21. When the dispute is pending with regard to payment of debt no winding up can be ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to hide its inability to pay debts. Further we are satisfied that the question whether the declaration of dividend dated December 30, 1959, is valid or not raises a substantial question as to the interpretation of section 207 of the Companies Act. Further, whether the declaration dated December 30,1959, is severable or not is also a substantial question. We do not propose to decide whether the declaration of dividend was valid or not or whether it was severable or not, because in these proceedings we are only concerned with the question whether the debt was bona fide disputed by the company on substantial grounds. If the debt was bona fide disputed, as we hold it was, there cannot be 'neglect to pay' within section 434(1)(a) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated." (d)In [2002] 108 Comp. Cas. 715 (Mad) (Rajearajeszvari Packaging Products v. Dev Fasteners Ltd.), this court held that specific plea of inability to pay the admitted debt is to be proved for maintaining winding up petition. (e)Same is the view taken by this court ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
