TMI Blog2016 (8) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... number of issues and unless and until some decision is taken and thereafter conveyed to the opposite party (respondent herein), these would only remain and can only be considered as proposals or at best the internal matters of the company and can by no legitimate or even legal standards be termed to be admissions or acknowledgments of debt. 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. 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 this, the request was thereafter again reiterated by the respondent in its letter dated 31.08.2012. In such circumstances, it is not only difficult but impossible to hold that the appellant had infact admitted or acknowledged the debt much less a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 660,61,00,000, whereas, the original value of Contract No. 2.1 was ₹ 517,98,00,000 which was revised from time to time and completed at ₹ 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 . After due deliberations, the learned Tribunal gave its awards for both the contracts. Insofar as the Contract No. 1.0 is concerned, the extension of time for 37 months out of 75 months was allowed with cost to be paid at the rate of ₹ 1,28,11,971/- per month and in addition thereto the interest at the rate of 10% from the date of dispute to the date of award and thereafter 14% from the date of award till the date of payment was also awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 officials of respondent on 11.04.2011 and confirmed to pay the interest amount due to the respondent by way of one time settlement and as per the internal decision of the appellant an amount of ₹ 14.50/- crores was proposed to be paid by the appellant towards this one time settlement . 14. It was then averred that since time wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract 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 face of apposite Clause guiding the terms and conditions inter se the parties, with a view to extract extra money had resolved to institute the instant proceedings ostensibly with a view to pressurize and arm twist the appellant company to shell out extra amount which is an ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting 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 ₹ 25.72/- crores, as alleged. 26. As regards letters dated 01.03.2011 and 03.03.2011, it was averred that these were issued in the background that the respondent was not providing the information as sought regarding its claim. As such, a final letter was written by the appellant on 01.03.2011 asking for their co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 appellant by filing Company Appeal No. 3 of 2015 and when the same came up for consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent, 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 reiterated its aforesaid stand. 36. It is furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nability 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 433 exist, it is not obligatory for the court 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (21) It is a settled proposition of law that a winding up petition isnot a legitimate means of seeking to enforce the payment of a debt which is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and the grounds furnished by the creditors opposing winding up will have an impact on the reasonableness of the case. 40. Having considered the rival submissions, we are of the considered view that in order to resolve and determine 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board also directed that in all future proposals to be brought before the Board should contain specific recommendations of the Management. 41. The 206th meeting of the Board of Directors was held on 26.08.2011, the relevant portion whereof reads thus:-- On the above subject matter, the Board was informed that Chief Vigilance Officer, SJVN Ltd., called for detailed information 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As of March 31 2014 2013 Short Tenn Borrowi (Note 2.6) -- -- Trade Paybles (Note 2.7) 23.35 26.86 Other Current Liabilities (Note 2.8) 725.54 576.77 Short Term Provisions (Note 2.9) 609.49 594.31 Total 1358.38 1197.94 The Current Liabilities as at March 31, 2014 and 2013 were ₹ 1358.38 crore and ₹ 1197.94 crore respectively. The Current Liabilities have increased by 13.39% mainly due to increase in Other Current Liabilities. Trade Payables Trade payables includes liabilities in respect 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 curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o '9995.93 crore as compared to ₹ 9124.73 crore as on March 31, 2013. 50. No doubt, the interest on arbitration awards has been duly reflected in the current liabilities and short term provisions, but then nowhere are these amounts shown as due towards the respondent. Even otherwise, there is no material available on the record to infer that these amounts were actually acknowledged by the appellant as debt due towards the respondent. 51. That apart, the amount reflected in the balance sheet does not even tally with the amount claimed by the respondent in its winding up petition. Thus, in such circumstances, the entries can at best be termed to be contingent provisional liabilities and, therefore, would fall under para 10.4 of the accountancy standards which reads thus:-- 10.4 A contingent liability is: (a) a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) a present obligation that arises from past events but is not recognized because: (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 25.05.2012 had informed the appellant that in case of non release of due payments within 30 days from this letter, the letter dated 25.05.2012 itself be treated as notice under Clause 67 of the GCC. It is apt to reproduce this letter in its entirety and the same reads thus:-- Continental-Foundation JOINT VENTURE SJVN/401/cc/1544 25th May 2012 Without Prejudice The Chairman Managing Director Satluj Jal Vidyut Nigam Limited Nathpa Jhakri Hydroelectric Project Himfed Building New Shimla 171 009 (H.P) Sub: Release of agreed payment in full settlement of all claims against Contract # 1.0 and 2.1 for construction of Nathpa Jhakri Hydroelectric Project. Ref: Our letter No. SJVN/401/1537 dated 25.5.2011 and SJVN/401/539 dated 14.12.11. Dear Sir, With reference to the above, we would like to draw your attention towards non-payment of the amount as agreed by SJVN against settlement of all claims of contract 1.0 and 2.1 since 25.5.2011. Finally CFJV agreed to settle the claim with a clear understanding that the settlement is being made just to avoid further litigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to resolve the dispute by invoking modified Clause 67 of the GCC which stand was reiterated vide its letter dated 31.08.2012. This shift-in stand of the respondent is quite contrary and antithetical to its earlier stand wherein it was categorically claimed that the debt due had been admitted/acknowledged by the appellant. Obviously, the respondent opted for latter stand knowing fully well that there infact exists 'disputeRs.within the meaning of GCC. 57. 'DisputeRs.in normal parlance would mean difference over an issue . Black's Law Dictionary defines 'disputeRs.to mean a conflict or controversy , esp. one that has given rise to a particular lawsuit. 'Arbitral disputeRs.has been defined to mean a dispute that can properly be resolved by arbitration . 58. The term 'disputeRs.means a controversy having both positive and negative aspects . It postulates the assertion of claim by one party and its denial by the other. (Refer: Gujarat State Cooperative Land Development Bank Ltd. vs. P.R. Mankad AIR 1979 SC 1203, Canara Bank vs. National Thermal Power Corporation 2001 (1) SCC 43, ANZ Grindlays Bank Ltd. vs Union of India ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son. 64. It is beyond dispute that the machinery for winding up will not be allowed to be utilized merely as a means to realizing its debt due from a company. In case, there exists a bona fide dispute and the dues are not admitted, the winding up petition is required to be dismissed. 65. This Court cannot remain oblivious to the fact that a creditor's winding up petition in certain situations would give rise to speculation and may rather imply insolvency or bad financial position of the company sought to be wound up and would damage the creditworthiness or the financial standing of the company and may also lead to other economic and social ramifications. In such situations, the competitors would rejoice and the same in turn would adversely affect its reputations and shares in the market and thereby push the company into a state of acute insolvency. In such situations, the Company Courts are required to be more vigilant and ensure that its process is not misused. 66. A Company Court is required to act with circumspection, care and caution and ensure that any attempt made to pressurize the company to pay a debt which is seriously and substantially dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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