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SIMS Metal Management Limited Versus Sabari Exim Private Limited

2015 (10) TMI 411 - MADRAS HIGH COURT

Approval of Winding Up Petition for non-satisfaction of the award Petitioner holds that the Respondent failed to satisfy the award and the objections so raised by them are untenable and the claim needs a fresh arbitration proceeding to be filed Petitioner contends that Respondents were unable to clear the liability and after finalisation of the award Petitioner has the right to secure its payment by all means available under law and the Respondent cannot assail the award after its finalisati .....

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> Held That:- Winding up petition is a perfectly proper remedy as it is the mode of execution given by Court to a creditor against a company unable to pay its debts Any creditor has a right to approach the Court pointing out that its admitted debt is not paid on which the Court then considers company needs to wind up or not - There is no warrant to deprive a creditor with a decree of foreign Court and the same can also file a winding up petition it is clear that Respondent is unable to clea .....

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eign award against the Respondent for non-payment of the consideration for supply of scrap. The Petitioner had also filed an Original Petition in O.P.No.56/2014 under Part II of the Arbitration and Conciliation Act 1996 to record satisfaction that the foreign award, dated 28.02.2013 is enforceable in India. The said original petition was allowed by this Court by order dated 26.06.2014, rejecting the objections of the Respondent. Since, the award has not been satisfied by the respondent, the Peti .....

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as not been done by the respondent till date and in any case, the same cannot be a reason to defeat the claim based on a decree. The learned counsel also contended that the respondent Company is unable to clear its liabilities and the defence of counter claim is only an afterthought. The learned counsel also contended that once the award against the respondent has become final and held to be enforceable, it is open to the Petitioner to exercise all the remedies available under the law to secure .....

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ries P Limited) 4. 1978 (48) CC 604-Cal (All India General Transport Corporation Limited Vs. Raj Kumar Mittal) 5. 1980 1 MLJ 443 (Seethai Mills Limited Vs. N.Perumalsamy and another) 6. 2011 (8) SCC 333 (Fuerst Day Lawson Limited Vs. Jindal Exports Limited) 7. 2014 183 CC 395 (Bom) (Intesa Sanpaolo SPA Vs. Videocon Industries Limited) 8. 2014 (2) SCC (LS) 804 (Balwant Rai Saluja Vs. Air India Limited) 3. Per contra, the learned senior counsel for the Respondent, relying upon the notice dated 23. .....

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le. The learned senior counsel also contended that to enforce the award, it is incumbent upon the Petitioner to only file an execution petition and no permission was granted by this Court to file a winding up petition. The learned senior counsel also contended that the order in O.P.No.56/2014 has not become final and that the appeal in O.S.A SR.No 69044/14 has been preferred. The learned senior counsel, contending that there is no accepted liability, relied upon the decision of athe Honourable S .....

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plication is not maintainable. Per contra, the learned counsel for the Petitioner has contended that it is for the Petitioner to decide the course of action. 7. In the decision of the Honourable Supreme Court reported in AIR 1966 SC 1707 (Harinagar Sugar Mills Limited Vs. M.W.Pradhan) relied on by the learned counsel for the Petitioner, it is held as under:- Under this order, all the necessary powers under O.XL, R.1, of the Code of Civil Procedure were conferred upon the Receiver, including the .....

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Company Precedents, Part 11, 1960 Edn., at P.25, the following passage appears:- "A winding up petition is a perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution, which the Court gives to a creditor against a company unable to pay its debts." This view is supported by the decisions in Bowes v. Hope Life Insurance and Guarantee Co., Re General Company for Promotion of Land Credit and Re National Permanent Building Society. It is true that "a win .....

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pointed as the Receiver. In this view, the respondent had power to file the petition in the Court for winding up of the Company. 8. In yet another decision reported in 1978 (48) CC 604-Cal (All India General Transport Corporation Limited Vs. Raj Kumar Mittal), relied on by the learned counsel for the Petitioner, it is held as under:- 8. ... The Calcutta decisions cited by Mr.Sen, which I have mentioned above are all cases, where notice under Section 434(1)(a) has been served on the basis of a de .....

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ns of Section 434(1)(b) or can serve a notice on the decretal debtor under Section 434(1)(a), at any stage, after the decree is obtained, whether the decree is put into execution and remains unsatisfied or without putting the decree in execution or at any intermediate stage. 9. In yet another decision reported in 1980 1 MLJ 443 (Seethai Mills Limited Vs. N.Perumalsamy and another), relied on by the learned counsel for the Petitioner, it is held as under:- 5. It is true that Section 434(1)(a) dea .....

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any is returned unsatisfied in whole or in part, the company shall be deemed to be unable to pay its debts. The question for consideration, therefore, is whether, simply because a creditor has instituted a suit against a company and obtained a decree, he has no remedy under Section 434(1)(a) and he has to confine his remedy only under Section 434(1)(b) of the Act. We are of the opinion that there is no such mutually exclusive dichotomy between Section 434(1)(a) and Section 434(1)(b) of the Act. .....

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, what we have to concentrate on is, whether a person who had obtained a decree for money against a company will cease to be a creditor because of that fact, so as to take his case out of Section 434(1)(a) of the Act. We are of the opinion that there is no warrant for such a contention. A creditor, who has instituted a suit and obtained a decree against the company, will still be a creditor of the company to whom money is due by the company. It may be that the original debt had merged in the dec .....

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be a creditor and to that creditor the company must be indebted in a sum exceeding ₹ 500 then due and that creditor must have served a notice on the company and the company had not complied with the demand within three weeks from the date of the service of the notice. Even a judgement debtor in respect of a money decree can be said to be indebted to the decree-holder, who would be a creditor. Consequently, in our opinion, there is no mutual exclusion between Section 434(1)(a) and 434(1)(b .....

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urged before the learned judge and the same was rejected. 7. It was stated therein as follows (p. 692) :- "The learned counsel submitted that it was not necessary in the case of a creditor holding a decree against the company to serve a notice. Specific provision, on the other hand, was made for taking out execution of the decree in such a case, which was not done in this case. The argument, of the learned counsel, however, is without any merits. Clauses (a) and (b) provide two alternative .....

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pany shall be deemed to be unable to pay its debts, does not mean that the effect of Clause (a) is negatived in the case of a decree-holder creditor. The object of the two clauses is the same, that is, to show that the company concerned is unable to pay its debts. Action can be taken under either of them." 8. Thus, it will be seen that the view taken by the learned judge of the Delhi High Court is on the same lines as we ourselves have taken in the present case. 10. In yet another decision .....

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overy of the amount, a petition for winding-up is also simultaneously maintainable, is well settled. In Seethai Mills Ltd. Vs. N. Perumalsamy and Another, the Division Bench of the Madras High Court has held as under :- The question for consideration, therefore, is whether, simply because a creditor has instituted a suit against a Company and obtained a decree, he has no remedy under Section 434(1)(a) and he has to confine his remedy only under Section 434(1)(b) of the Act. We are of the opinion .....

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d only to a money decree or an order for payment of money. On the other hand, it is general in nature. However, what we have to concentrate on is, whether a person who had obtained a decree for money against a Company will cease to be a creditor because of that fact, so as to take his case out of Section 434(1)(a) of the Act. We are of the opinion that there is no warrant for such a contention. A creditor, who has instituted a suit and obtained a decree against the Company, will still be a credi .....

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need to be noticed. First is the decision of the learned Single Judge of this court in case of China Shipping Development Company Ltd. Vs. Lanyard Foods Limited. In this case, the respondent had, pursuant to the contract of affreightment, had executed four letters of indemnity. The indemnity bonds executed by the Respondent indemnified the Petitioner in respect of loss, damages, expenses that the Petitioner would suffer. The Petitioner delivered the cargo in compliance with the request made by t .....

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nding-up is not moved for execution of decree. The learned Single Judge accepted the locus of the Petitioner as a creditor of the Company. The learned Single Judge did not refuse to entertain the petition on the ground that the Petitioner therein was a holder of a foreign decree. 44. Second is the decision of the learned Single Judge of Gujarat High Court in the case of Vanguard Textiles Limited Vs GHCL Ltd., In this case, deed of guarantee was executed by the Respondent Company in United Kingdo .....

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of the RBI under the provisions of Foreign Exchange Regulation Act (FERA). The learned Single Judge negatived these contentions. The learned Judge held that obligation to obtain permission of the RBI, if it was required to be obtained, was upon the company and the company cannot take this as a ground to avoid to discharge its obligation. The learned Single Judge also held that non-executability of the decree of the Court in UK would be at the most considered in the execution proceedings and it .....

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for execution of such decree of the Courts of UK is as per Section 44A of CPC since the UK being a country of reciprocating territory, but in view of the fact that such decree is non-executable as per Section 13 of CPC, and if such decree is nonenforceable, there is no valid claim which can be made as the basis for invoking the power of this Court for winding up of the Respondent Company. 10. It deserves to be recorded that as per the Decree of the Court of UK, the process is served, but the Re .....

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judgement of a foreign Court for fastening the liability, it cannot be prima facie said that their would not be any liability at all of the Respondent. In any case, the aspects of non-enforceability may be required to be considered in execution proceedings, if resorted to, but such cannot be a sole ground to deny the entertainment of the petition for winding up of the Company, on the basis of such liability. The reference may be made to the decision of the Andhra Pradesh High Court in the case o .....

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e two decisions there was a decree of the foreign court in favour of the petitioner and the Courts still considered the petition for winding up. The law is that any creditor has a right to approach the Company court pointing out that its admitted debt is not paid. The Company Court then considers whether the company needs to continue, or be wound up and the assets be distributed. The considerations for entertaining a petition for winding up are thus different from entertaining a suit. The jurisd .....

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for the winding up of a Company. Any creditor or contributory is entitled to apply for the winding up of the Company. No distinction is made between the creditors resident in India or outside India. Section 167 specifically states that an order for winding up of a Company shall operate in favour of all the creditors and of all the contributories of the Company as if made on the joint petition of a creditor and of a contributory. It is not possible, therefore, to urge successfully, that the order .....

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creditors will get rateably out of the assets of the Company which have been collected. When that Company itself is wound up, all of them would be entitled to similar rateable share in the assets collected during the winding up proceedings of the Company in the country where it is incorporated. Though these observations were made interpreting the Companies Act, 1913, there is no change in the position under the 1956 Act, that any creditor is entitled to bring a petition for winding up. What thi .....

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mplate such exclusion. To deprive a creditor with a decree of foreign court of this statutory right, will also not be in larger public interest. If a foreign creditor with decree of foreign Court is barred from presenting a petition for winding up on the original course of action and till the decree by Indian Court is passed in its favour, it will make a distinction between two classes of creditors. This will lead to the Indian companies adopting unhealthy practices of borrowing capital abroad a .....

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into the decree. The admissions as regards the liability given in the correspondence is sufficient to form basis of the petition for winding up. Even assuming that there is a suit filed for enforcement of a foreign decree, it cannot be said that the petitioner has ceased to become a creditor of the Company. 11. The consensus of judicial decisions is that the decree holder can also file a winding up petition, despite having the option of enforcing the decree by filing an execution petition. 12. .....

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filed an appeal against the order in O.P.No.56/2014. The learned counsel for the petitioner has relied upon the judgement of the Honourable Supreme Court reported in 2011 (8) SCC 333 cited supra to contend that the appeal under the Letters Patent Act is not maintainable. 14. Upon perusal of the records, it can be seen that the Respondent has raised all the defences available to them under Section 48 before this Court in O.P.No.56/2014 and the same was negatived. The Respondent has not challenged .....

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e foreign award is enforceable, the award shall be deemed to be a decree of that court. Therefore, the Petitioner is deemed to have obtained a decree from this court. As this court has already held that the decree holder would still continue to be creditor, this petition for winding up is maintainable. This court is also of the view that any leave or permission need not to be obtained when the right is conferred by law. Therefore, the contention of the learned senior counsel for the rtthat the d .....

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preme Court has held as follows:- Substantial dispute: As to Liability:- 20. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine, if it is bona fide and not spurious, speculative, illu .....

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st to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt. 23. The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Com .....

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has been an attempt by the respondent company to force the payment of a debt which the respondent company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay a bona fide disputed debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances, where .....

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proper defence is made out on substantial grounds. A creditor's winding up petition implies insolvency and is likely to damage the company's creditworthiness or its financial standing with its creditors or customers and even among the public. Public Policy Considerations:- 34. A creditor's winding up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the Newspaper of the filing of .....

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ditors, but also the interests of public at large. 35. We have referred to the above aspects at some length to impress upon the Company Courts to be more vigilant so that its medium would not be misused. A Company Court, therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the company to pay a debt which is substantially disputed. A Company Court, therefore, should be guarded from such vexatious abuse of the process and cannot fun .....

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Sarkar Estates (P) Limited Vs. Kusumika Iron Works (P) Limited and others), it is held as under:- 5. It was also faintly argued that the petitioning creditors' debt is a disputed debt and so cannot form the foundation of a winding up petition. The argument is that the Appellant Company has filed a suit against the Respondent Company claiming over three lacs of rupees and if this suit, which is pending, succeeds, the Appellant Company will be entitled to set off the amount of the decree that .....

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s well settled that the mere fact that an appeal is pending does not prevent the judgement debt from being made the foundation of a winding up petition unless stay of execution of the decree is obtained pending the disposal of the appeal. So, this point also appears to be devoid of any substance. (b) In 2014 183 CC 395 (Bom) (Intesa Sanpaolo SPA Vs. Videocon Industries Limited), it is held as under:- 62. Lastly, it is sought to be argued that the Respondent Company is commercially solvent and on .....

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areholders and 78 offices in India, 4 factories and employs around 4500 employees. It has been urged that the Respondent Company is one of the leading Indian Company, having several branches and employs substantial number of workmen. It is submitted that in the circumstances, there is no warrant to wind up the Company. 63. It is no doubt true that the court will keep in mind the commercial solvency of a Company, larger public interest and repercussions of the order of admission. The commercial s .....

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ency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the Company's liability, it is difficult to hold that the Company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the Company refuses to pay, without good reason, it should not be able .....

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Page 125 (SC)}, this Court will not order winding up, if the debt is bona fide disputed and the defence is a substantial one. The test to be applied by the Court are:- (i) Whether the defence of the Company is in good faith and one of substance; (ii) Whether the defence is likely to succeed in point of law; and (iii)Whether the Company adduces prima facie proof of the facts, on which the defence depends. It was made clear by the Honourable Supreme Court in that case that when the debt is undispu .....

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of the opinion that it is just and equitable that the Company should be wound up." 19. Section 434 explains as to when a Company is deemed to be unable to pay its debts as under:- (1) A company shall be deemed to be unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand u .....

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company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company. (2) The demand referred to in clause (a) of sub- section (1) shall be deemed to have been duly given under the hand of the creditor, if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm. 20. To deny the liability and to escape from the deem .....

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ndent contract. Though there are numerous mails, a legal notice seems to have been issued only on 23.04.2013 after the award. However, no proceedings either in the form of arbitration or suit has been initiated by the Respondent. Further, the claim has nothing to do with this award. Upon perusal of the contract between the parties, there is no provision to withhold any payments for disputes under other contracts. If the claim was genuine, the Respondent would have raised a counter claim before t .....

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