TMI Blog2015 (7) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... tted debt. This point is accordingly answered against the respondent. - COMPANY PETITION NO. 235 OF 2012 - - - Dated:- 26-8-2014 - C.V. NAGARJUNA REDDY, J. For The Petitioner : R. Raghunandan, Sr. Counsel and Shireen Sethna Baria For The Respondent : S. Ravi, Sr. Counsel and P. Roy Reddy JUDGMENT 1. This company petition is filed under sections 439(1)(b) and 433(e) read with section 434(1)(a) of the Companies Act, 1956 (for short the Act ) for an order to wind up the respondent for non-payment of the alleged debt due to the petitioner. 2. The averments, based on which the company petition is filed, briefly stated are as under : That the petitioner which entered into a joint venture vide agreement dated July 28, 2008, nominated M/s. The Indian Hume Pipe Co. Ltd. (IHPCL), as its lawful attorney on behalf of the joint venture to perform all acts and deeds as mentioned in the general power of attorney (GPA). That the IHPCL, partner in charge of the petitioner, is a leading construction company engaged in the business of manufacturing, laying, joining, testing, commissioning, etc., of BWSC, MS, PCCP and PSC and other types of pipes in execution of water sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be done was ₹ 267,38,71,778 and that the stipulated period for completion of project was 12 months as per the tender conditions. That an agreement was executed between the petitioner and the respondent vide agreement bond No. 25/ADVI/APIIC/08-09, dated September 24, 2008, for Somasila Drinking Water Supply Scheme. Under the said scheme, the petitioner was to undertake manufacturing, supplying, lowering, laying, joining, testing and commissioning of 2200 mm Dia MS pumping main with cement mortar factory in-lining and out-coating and other appurtenance from the proposed intake well near old Madhavaram on the foreshore of Somasila Reservoir to the proposed sump at Kanumalonipalli on Kadapa-Rajampet Highway, including maintenance and operation for a period of 24 months (defect liability period) under Package-I. That the petitioner furnished five numbers of bank guarantees, equivalent to 2A per cent. of the contract price, valid till completion of the original defect liability period. That to avail mobilisation advance, the petitioner has submitted various bank guarantees for a total mobilisation advance of ₹ 26,75,03,538 ; that as the respondent failed to pay the mobilis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner ; and that as no further response was received from the respondent, the petitioner has sent reminder letters dated August 1, 2011, August 22, 2011, September 2, 2011, December 20, 2011 and January 3, 2012, demanding the respondent to release the outstanding dues to the petitioner. 5. That though the petitioner was maintaining good progress of execution of work, in the month of December 2009 the officials of the respondent asked the petitioner to abruptly stop and not to proceed with the further work in the project ; and that due to the sudden stoppage of payments, the work was forced to be stopped, as a result of which the men and machinery of the respondent were left idle and therefore the petitioner was constrained to leave the work midway. That in response to letter dated January 3, 2012, of the petitioner, the managing director of the respondent addressed letter bearing No. CE/1/APIIC/SMS/WS/Package-1/2007, dated January 18, 2012, to the petitioner acknowledging and confirming the respondent's liability with regard to the outstanding amount and further informed the petitioner that upon receipt of funds from the Government of Andhra Pradesh, the outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event of delays in commencement or progress or neglect of work ; that under clause 61 of the contract, the respondent is empowered to recover such amount from the contractor that would become necessary to be recovered by virtue of default of the contractor to complete the work as per the schedule and that the present petition has been filed by the petitioner to escape from its liability under the contract and to wriggle out of its obligations arising in relation thereto. That it is open to the respondent to invoke the terms of contract to recover from the petitioner the amounts which would be spent by it for completion of the work on account of abandonment and non-completion of the work by the petitioner. Referring to letter dated January 18, 2012, issued by the Chief Engineer-I of the respondent, it has averred that the said letter only refers to the stand of the petitioner on the cause for stoppage of work as non-payment of bills for the work done and that the said letter is neither admission of the alleged liability of the respondent nor would it act as a buffer to protect the petitioner for its failure to adhere to its commitments under the contract. Evidently, referring to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Photo Film Mfg. Co. Ltd. [2002] 35 SCL 536 (Mad.) and Videocon Industries Ltd. v. Intesa Sanpaolo S. P. A.[ APPEAL (L) NO. 29 OF 2014 In COMPANY PETITION NO. 528 OF 2012, Dated:- 19-07-2014 Bombay High Court]. 9. Opposing the above submissions, Sri S. Ravi, learned senior counsel appearing for Sri P. Roy Reddy, mainly advanced four submissions, namely : (i) that though the respondent has entered into agreement with the petitioner, it is only a facilitator on behalf of the Andhra Pradesh Government and that it cannot be saddled with the consequences of non-payment of the alleged debt; (ii) that the amount claimed by the petitioner is seriously disputed by the respondent and that as there is a bona fide dispute relating to the claim of the petitioner, no winding up of the respondent could be ordered ; (iii) that ordering winding up of the respondent will seriously affect public interest ; and (iv) that in case of NCC-IVRCL-SMS (JV), a learned single judge dismissed a writ petition and the same was confirmed by a Division Bench. 10. In support of this submission, learned senior counsel has placed reliance on the judgments in NCC-IVRCL-SMS (JV) v. APIIC, W.P. No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, but in reality to exert pressure to pay the bona fide disputed debt is liable to be dismissed. 3. Solvency is not a stand alone ground. It is relevant to test whether denial of debt is bona fide. 4. Where the debt is undisputed and the company does not choose to pay the particular debt, its defence that it has the ability to pay the debt will not be acted upon by the court. 5. Where there is no dispute regarding the liability, but the dispute is confined only to the exact amount of the debt, the court will make the winding up order. 6. An order to wind up a company is discretionary. Even in a case where the company's liability to pay the debt was proved, order to wind up the company is not automatic. The court will consider the wishes of the shareholders and creditors and it may attach greater weight to the views of the creditors. 7. 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 and the grounds furnished by the creditors opposing winding up will have an impact on the reasonableness of the case. 14. From the respective pleadings of the parties and in the light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the respondent wherein it was informed that the petitioner has started excavation of trenches for laying and joining of 2200 mm Dia MS Pipes from June 26, 2009. The letter requested for blasting permission and also for fixing the rate of jungle clearance. A request was also made to release the outstanding net payment of ₹ 819.13 lakhs so as to start the manufacturing of balance quantity of MS Pipes. Vide letter dated January 18, 2010, the authorised signatory of the petitioner addressed Chief Engineer-I of the respondent wherein the latter was informed that the petitioner has fabricated and supplied 2186.5 mts. of 2200 mm Dia MS Pipe for which bills for ₹ 13,339.13 lakhs were submitted, out of which only a sum of ₹ 520 lakhs was released. The respondent was therefore requested to arrange to release the balance payment of ₹ 18,879.13 lakhs at the earliest. While reminding Chief Engineer-I of the previous letters addressed by the petitioner, in letter dated June 28, 2010, the authorised signatory of the petitioner requested him to pay the balance amount of ₹ 8,18,34,678. As no payments were forthcoming, IHPCL addressed letter dated September 10, 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued the work assuming that payments will be made, hoping that the financial crisis suffered by the respondent was temporary and that on such assumption the petitioner also started the civil work and executed the same to the tune of ₹ 23,85,639.73 by excavating trench of 840 mts. length and carting of 8296.03 cu.m. of earth. The Zonal Manager was informed that keeping silent or failure to reply shall be treated as acceptance. Another reminder letter was issued to the Zonal Manager (E) of the respondent on July 25, 2011, by the petitioner. 21. In the letter dated August 1, 2011, addressed to the Engineer-in-Chief of the respondent, the petitioner's authorised signatory had referred to the meeting held on July 29, 2011, between the Engineer-in-Chief and A. K. Johari, the petitioner's representative and stated that during the said meeting the said person informed the Engineer-in-Chief that in the absence of a decision from the respondent's side and due to the failure of release of payments by the respondent for the last 2A years, the work has come to a stand still and that a sum of ₹ 10,32,06,755 is due for payment for the last more than 2A years. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the respondent. In a way, the Chief Engineer has also revealed the guilty conscience of the respondent in not persuading the agencies (there is another agency called NCC-IVRCL-SMC (JV) which was entrusted with another reach under Package-II) for resumption of work in the absence of funds. The Chief Engineer has also assured the petitioner that soon after receipt of funds from the State Government, the outstanding bills will be cleared and a decision will be taken on the subject scheme. 24. Along with the reply affidavit, the petitioner has filed a copy of letter dated April 2, 2012, of the vice-chairman and managing director of the respondent addressed to the Principal Secretary and CIP, Industries and Commerce Department, Government of Andhra Pradesh wherein he has informed the latter, inter alia, that the works were granted in September 2008 without receipt of funds from the Government ; that under Package-I, the petitioner has executed the work of the value of ₹ 15,43,03,122 against which payment of ₹ 6 crores was made and the balance amount payable was ₹ 9,43,03,122. With regard to the quantum of work and the amounts payable, the vice chairman and mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly frequent intervals by the Zonal Manager and that within 14 days of the date of each certificate an intermediate payment will be made by the Zonal Manager of a sum equal to 92 per cent. of the value of the work as so certified and the balance of 7 per cent. will be withheld and retained as a security for the due fulfilment of the contractor. It is indubitable that in a commercial contract, payment of bills is a fundamental obligation on the part of the employer, in that, a contractor cannot be expected to execute the further works and maintain the progress of work as per the schedule without payment of the running bills. In realisation of this stark reality, clause 68 provided for payment of a sum equal to 92 per cent. of the value of the work within 14 days of issue of certificate by the Zonal Manager. The fact that the RA bills raised by the petitioner were certified by the Zonal Manager of the respondent is not in dispute. On the contrary, no less a person than the vice chairman and managing director, in his letter referred to above, has himself admitted the execution of work and the payment dues. In the face of this fundamental breach, the respondent has come out with a be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resume the work as it was unable to pay for the bills for the works already executed. This is the obvious reason why no action was envisaged by the respondent under clauses 60 and 61 of the contract against the petitioner. 30. The respondent has referred to the arbitration clause (clause 73) and pleaded that in view of availability of this remedy, the company petition is not an appropriate remedy. This plea has no merit for two reasons, namely, (i) that as regards the payment of bills, there is no dispute to be resolved by way of arbitration; and (ii) that the jurisdiction of this court under section 433 read with section 434 of the Act being a special jurisdiction, the availability of other remedies, is not a bar for seeking winding up of the respondent for non-payment of the undisputed debt. 31. In Mediqup Systems (P.) Ltd. (supra), the Supreme Court, while referring the judgment of the Madras High Court Tube Investments of India Ltd. v. Rim and Accessories (P.) Ltd. [1990] 3 Comp LJ 322 (Mad), with approval held at paragraph 24 as under (page 483 of 124 Comp Cas) : If there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swered against the respondent. 35. Re Point No. 3 : In the counter-affidavit, it is pleaded that the respondent is an undertaking wholly owned by the Government of Andhra Pradesh. But, clause (4) of the articles of association of the respondent-company describes it as a private company under the provisions of the Act. Even assuming that the respondent is a fully owned Government company, it falls under section 617 of the Act. The Act does not distinguish between a Government company and a non-Government company on the aspect of winding up for non-payment of the admitted debts. The respondent cannot therefore claim any special privilege. Evidently, realising this position in law well, Sri S. Ravi, learned senior counsel, has not advanced such contention. However, all that he has argued is that it will be a travesty of justice if the respondent, for no fault on its part, is proceeded against for its winding up for the default committed by the State Government. Under Point No. 2, supra, this aspect has already been dealt with and it needs no reiteration that it is the respondent which incurred the debt de jure. 36. As regards the argument that public interest will be defeated if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, the entitlement of the petitioner for the outstanding amounts against the running account bills is also in dispute. Admittedly, the petitioner's representation dated November 11, 2010, is for release of payments against the bills submitted by it. Thus, it is nothing but a money claim. Since the very entitlement of the petitioner for the amounts claimed is in dispute, no mandamus can be issued as prayed for. The agreement entered into between the parties contained various provisions for settlement of disputes and therefore, if aggrieved, it is for the petitioner to avail the said remedies for redressal of its grievance. 40. This order was upheld by the Division Bench in the judgment referred to NCC-IVRCL-SMS (supra), a perusal of which would show that the main emphasis was laid in dismissing the writ appeal on the settled legal position that a dispute arising under a concluded contract is not ordinarily entertained by the High Court under article 226 of the Constitution of India. On a careful consideration of these two judgments, I am of the opinion that the same would not be of any help to the respondent for the following reasons : First, no discussion was undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X
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