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TMI Blog2016 (8) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... akri Hydro Electric Project (now SJVNL). In response to such global tenders, the respondent company also made its bid staking claim qua few civil components of the project. Two contracts i.e. Contract No. 1.0 and Contract No. 2.1 came to be awarded in its favour and two separate agreements qua the same were entered on 05.08.1993 and 27.09.1993, respectively. 3. The original value of the Contract No. 1.0 was Rs. 439,38,00,000 which was revised from time to time and completed at Rs. 660,61,00,000, whereas, the original value of Contract No. 2.1 was Rs. 517,98,00,000 which was revised from time to time and completed at Rs. 506,45,00,000. 4. The work in respect of Contract No. 1.0 was completed and handed over by the respondent to the appellant on 20.06.2004 and work of Contract No. 2.1 was completed and handed over to the appellant on 09.06.2003. 5 . However, in both the contracts, dispute arose between the appellant and the respondent regarding Extension of Time (EOT) under Clause 44 of the General Conditions of Contract (GCC) and the respondent invoked the arbitration clause of the agreement and Arbitration Tribunal was constituted on 16.11.2005 under Clause 67 of the GCC. 6 . A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs dated 20.10.2010 and 29.11.2010 was not denied by the appellant and instead the appellant wrote letters dated 01.12.2010 and 15.12.2010 admitting these amounts and sought further confirmation from the respondent to the effect that only aforesaid amount was pending payments in respect of the aforesaid contracts. 12. It was claimed that the appellant also sought further details/break up in respect of the said amount. The respondent thereafter vide its letters dated 18.12.2010 and 11.01.2011 provided item wise break up of the undisputed outstanding amount alongwith calculations, back up proofs and other details. 13. It was averred that the respondent was given to understand that the appellant in its Board meeting No. 201 dated 02.02.2011 had deliberated and agreed for further action to resolve the matter of settlement of the dues of the respondent. Thereafter, the appellant again vide its letter dated 01.03.2011 sought confirmation from the respondent that only an amount of Rs. 25.72/- crores was pending in respect of the aforesaid contracts and this confirmation was duly supplied to the appellant vide letter dated 03.03.2011. The Committee of the Board of Directors met the offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons held between the parties, it was agreed to make and receive the payment with regard to both the awards and for such purpose an agreement was arrived at between the parties which was reduced into writing on 21.09.2008 in respect of Contract No. 1.0 and on 31.03.2010 in respect of Contract No. 2.1. The payment as agreed to between the parties included 10% interest on the amount payable as per the agreements and the same was paid by the appellant to the respondent within the time as stipulated under the said agreements. Thus, by entering into these agreements, the parties had put final lid with regard to any dispute which had surfaced from the above said contracts. 19. It was further averred that the matter with regard to above said contracts having come to a final end was reopened by the respondent only after it had received the complete agreed amount in question dehors Clause 60 of the GCC which expressly provided without any ambivalence that no interest will be payable to the contractor on account of delayed payment against the claim/head of Contractor's Draft Final Account (CDFA). The respondent company after having a golden handshake with the appellant company and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies on 31.03.2010 and thus once full and final settlement qua both the contracts i.e. Contract No. 1.0 and Contract No. 2.1 was arrived at, then no amount whatsoever is due to the respondent. The respondent instead of resorting to necessary action under the Contract provisions had illegally served a legal notice for "winding up". 25. As regards the letters dated 01.12.2010 and 15.12.2010, it was averred that since the respondent had been raising the issue of their outstanding due payments in parts from time to time that too despite having arrived at a settlement, the respondent was only called upon to "confirm/certify as to the facts that the present details of the pending issues/amounts provided as per details shall signify the end of outstanding issues and to be treated complete in all respect of their all pending claims/dispute, other dues, unpaid bills etc. and shall not in-future raise any old, new or further disputes/issues/omissions/errors in whatsoever manner". But, the aforesaid contents could not be construed to be an acknowledgement of outstanding amount of Rs. 25.72/- crores, as alleged. 26. As regards letters dated 01.03.2011 and 03.03.2011, it was averred that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its favour. Applicant has sought a direction in the main petition filed under section 433 and 434 read with section 439 of the Companies Act for winding up of the respondent-company. Petitioner-company has already issued statutory winding up notice on 12.6.2013. Respondent-company has failed to pay its debt to the petitioner-company as per the averments made in the main petition and in this application. 2. Since the petitioner has prayed for immediate appointment of Provisional Liquidator, the Court deems it fit and proper to appoint Mr. Neeraj Gupta, Advocate, as Provisional Liquidator, who will be assisted by Ms. Seema Guleria, Advocate by dispensing with notice under sub-section (2) of section 450 of the Companies Act, 1956. The fee of Mr. Neeraj Gupta is assessed at Rs. four lakhs and Ms. Seema Guleria at Rs. Two lakhs provisionally to be paid by the petitioner-company within a period of two weeks from today to the Provisional Liquidator and assisting provisional liquidator. The Provisional Liquidator shall exercise all the powers under section 457 of the Companies Act, 1956. Co. Petition No. 4/2015 List on 16.6.2015." 31. The aforesaid order was assailed by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whatsoever could be said to be due towards the respondent, but despite the settlement, it is the respondent, who for some strange reasons continued to claim further amounts. Whereas, the appellant vide letter dated 25.05.2011 had in unequivocal terms informed the respondent that in case it was dissatisfied with any of its actions, then it should follow the dispute resolution procedure as required by the contract under modified Clause 67 of the General Conditions of the respective contract agreements. This stand of the appellant was reiterated in its letter dated 14.12.2011 and in response to this, the respondent itself had clearly mentioned that in case of non release of due payments within 30 days, from the date of letter, the letter dated 25.05.2012 by the respondent be treated as notice under Clause 67 of the GCC. Not only this, the respondent in this letter had requested the appellant to initiate the process of constituting Arbitral Tribunal in accordance with the terms of the contract and the appellant was asked to appoint an Arbitrator within 60 days of its letter in accordance with Clause 67. Still further, the respondent even thereafter vide letter dated 31.08.2012 again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that inability to pay debts in all cases, ipso facto, could not be construed as an appropriate case for winding up. (3) A debt is money which is payable or will be payable in future byreason of a person's obligation. The expression "debt" would refer to liability to pay and it rests on certain contingencies, conditions and causalities. Even if the debt is proved and even if the inability to pay the debt is also shown, it is not a launching pad, in all cases, for a successful winding up order. Inability may arise for a variety of reasons and the court is obliged to consider whether the inability is the outcome of any deliberate or designed action or mere temporary shock and effect of economy and market. In a given case, it may happen that a party may become unable to pay its debts for a while, but that by itself is not a criterion for exercise of the power to wind up, ipso facto. (4) It is necessary for the company court to consider the financialstatus, strength and substratum of the company, in the overall context. It is possible, at times, that there may be a cash crunch. It may be also, possible, at times, that there is temporary cash crisis despite high sales and hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make an order of winding up. The court has discretionary power. The court must in each case exercise its discretion in deciding whether in the circumstances of the case, it would be in the interest of justice to wind up the company. It is a well known rule of prudence that even in a case where indebtedness to the petitioning person is undisputed, the court does not pass an order for winding up where it is satisfied that it would not be in the larger interest of justice to wind up the company. (13) It is also well settled that a winding up order shall not be madeon a creditor's petition, if it would not benefit him or the company's creditors in general. (14) The court is also obliged to consider that it would be in theinterest of justice to give the company some time to come out of the momentary financial crisis or any other temporary difficulty as winding up is a measure of last resort. (15) Winding up course cannot be adopted as a recourse to recoveryof the debt. (16) The court must bear in mind one more celebrated principle andconsider whether the company has reached a stage where it is obviously and plainly and commercially insolvent, that is to say, that its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed by the company, bona fide. A winding up petition ought not to be aimed at pressurising the company to pay the money. Such an attempt would be nothing but tantamount to blackmailing or stigmatizing the concerned company by abusing the process of the court. (22) A winding up petition is not an appropriate mode enforcing bona fide disputed debts and it is nothing but misuse and abuse of the process of the court. (23) A winding up petition is not an alternative form for resolvingthe debt dispute. In certain cases disputes are such that they are fit for resolving through the civil court rather than through the company court. (24) What is bona fide and what is not is a question of fact. Theexpression "bona fide" would mean genuine, in good faith and when a dispute is based on substantial grounds or when a defence is probable and with some substance, it is a bona fide dispute. It must be strictly noted that a winding up petition is not an alternative to a civil suit." 39. In Soni Gulati & Co. vs. JHS Svendgaard Laboratories Limited, Company Petition No. 8 of 2009, decided on 07.05.2015, one of us (Justice Tarlok Singh Chauhan, Judge), after taking into consideration the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the issue in question, it is absolutely necessary that we first advert to the various board meetings of the appellant, commencing from 205th meeting held on 14.07.2011 which reads thus:-- "EXTRACT OF MINUTES OF 205TH MEETING OF THE BOARD OF DIRECTORS HELD ON 14TH JULY 2011 ITEM No. 205/5 PENDING ISSUES OF CONTRACT No. 1.0 AND 2.1 OF NJHEP AWARDED TO M/S. CONTINENTAL FOUNDATION JOINT VENTURE Recalling the earlier discussions on the proposal, the Board was informed that there were 10 claims for an aggregate amount of Rs. 25.72 crore under both the contracts, pending for settlement and these claims were not referred to any dispute resolution body. On noticing these claims require settlement, the Board constituted a Committee consisting of Director (Civil), Director (F) and two Independent Directors, namely, Shri K.S. Sarma and Shri S.M. Lodha. The Recommendations of the Functional Directors of the Committee and correspondence of the Independent Directors were placed before the Board. According to the Independent Directors, the aggregate claim of Rs. 25.72 crore could be settled up to Rs. 15 crore and whereas the Functional Directors are of the view that the aggregate cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide his letter dated 08th August 2011 which is being furnished. The Board noted the contents of the letter and desired the management to furnish the information without any delay. The Board also desired that before implementing the decision, the views of CVO, if any, may be secured." 42. In the 207th meeting, the views of the CVO had not been received and consequently the settlement was deferred to the next meeting and the matter was ordered to be placed before the Board in its next meeting. 43. In the Board meeting held on 30.11.2011, no decision could be arrived at as the matter was under investigation with the CVO. 44. The 209th meeting of the Board was held on 27.12.2011 wherein again no decision could be arrived at as no response was received from the CVO. 45. It appears that the matter was finally put up in the 240th meeting of the Board of Directors held on 30th July, 2015 wherein it was decided as under:-- "The Board after due deliberations, decided and directed that in supersession of its earlier decision in the 205th Meeting held on 14-07-2011 and in accordance with the opinion of CVO, the claims made by the Contractor may be examined and processed strictly in lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of amount due on account of goods purchased or services received in normal course of business operations other than liability for Purchase/Construction of Fixed Assets. Trade Payables at the end of current fiscal is Rs. 23.35 crore as compared to Rs. 26.86 crore during the previous fiscal. Other Current Liabilities Other Current Liabilities mainly includes Current Maturities of Long Term Debts payable within Twelve Months, Liabilities for Employees Remuneration and Benefits, Liabilities for Purchase/Construction of Fixed Assets and Deposits, Retention Money from Contractors and others. Other Current Liabilities has increased by 25.79% to Rs. 725.54 crore as compared to Rs. 576.77 crore during the previous fiscal. The increase is mainly due to commencement of repayment of World Bank Loan of Rampur Hydro Electric Project included in Current Maturities of Long Term Debts & increase in Deposits, Retention Money from contractors and others: Short Term Provisions Short Term Provisions includes Unfunded Employees Benefits payable within Twelve Months as per Actuarial Valuation, Dividend, Dividend Tax, Income Tax and Interest on Arbitration Awards etc. Short Term Provisions has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder must invariably be passed where no response to a statutory notice has been made. 53. It is more than settled that the presumptions are always rebuttable and, therefore, the question is whether the appellant company has been able to rebut the presumption. For that purpose, we will have to fall back to the decision of the Hon'ble Supreme Court in Madhusudan Gordhandas case (supra) wherein it was observed that two rules are well settled:-- "i) In order to see the bona fide, we will have to see if the debt is bonafidely disputed and the defence is a substantial one, then this Court will not order winding up; ii) However, if the debt is undisputed the Court will not act upon a defence of the company that it has the ability to pay the debt, but chooses not to pay that particular debt." 54. The discussion so far clearly goes to indicate that the entire case of the respondent only hinges around the so-called admission/acknowledgment of the debt by the appellant. Reliance has been placed by the respondent upon the Audited Financial Statements dated 30.09.2008 and 31.03.2010 and also the Board of Directors meeting No. 205 dated 14.07.2011 (supra) wherein the debt due, accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal and/or Court of Law for the full amount plus accrued interest there against from the date it became due, till the date of payment. Accordingly, in case this payment is not released within 30 days from the date of receipt of this letter, kindly treat this letter as notice of arbitration under clause No. 67 of the General Conditions of the Contract and initiate the process of constituting Arbitral Tribunal in accordance with the provisions of the contract. Thanking you, Yours faithfully, For Continental Foundation Joint Venture, Sd/- M. Verma-DPM cc: Shri R.N. Misra, D(C), SJVNL Shri A.S. Bindra, D(F), SJVNL EIC, Contracts # 1.0& 2.1, SJVNL CONTINENTAL HOUSE, 28, NEHRU PLACE, NEW DELHI-110019 (INDIA) TEL: 011-47660900 FAX: (011)-47660920." 55. It would be evident from a perusal of the aforesaid letter that nowhere is it the case of the respondent that the appellant had acknowledged or even admitted any specific amount due, rather, the respondent itself asked the appellant to treat the letter as a notice of arbitration under Clause 67 of the GCC and initiate the process of constituting Arbitral Tribunal in accordance with the provisions of the contract. Not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter referred to the Arbitral Tribunal. 62. From the various factors, facets, contours and chronicles emerging from the facts of the case, it is clearly evident that the respondent could not have used the machinery of winding up as a means of realizing the so-called debt due from the appellant company as it is not a legitimate means of seeking enforcement of payment of debt which has bonafidely been disputed by the appellant. The petition presented by the respondent is though ostensibly for a winding up order, but in reality, it appears to have been filed in order to exercise pressure and the same is, therefore, liable to be dismissed. 63. As observed earlier, the defence raised by the appellant company is a substantial and bona fide one and not mere moonshine and has to be finally adjudicated upon merits before the appropriate forum. Even the so-called 'duesRs.have not been admitted by the appellant. The appellant company is not only a commercially solvent company, but is a government company as defined under the Act. It is a 'Mini RatnaRs.company of the Government of India. The respondent cannot gain any advantage on the basis of Board meeting No. 205 dated 14.07.2011 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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