2004 (6) TMI 330 - HC - Companies Law

Summary

Issues Involved:
1. Maintainability of the winding-up petition under sections 433(e) and 434 read with section 439(b) of the Companies Act, 1956.
2. Enforceability of the arbitration award under section 34 of the Arbitration and Conciliation Act, 1996.
3. Presumption of inability to pay debts under section 434 of the Companies Act, 1956.
4. Jurisdiction of the Company Court in relation to arbitration proceedings.

Detailed Analysis:

1. Maintainability of the Winding-Up Petition:
The petitioner, M/s. Maharashtra Apex Corporation, filed a petition for winding up of the respondent-company, M/s. Sparten Ceramics India Limited, under sections 433(e) and 434 read with section 439(b) of the Companies Act, 1956. The respondent opposed the petition, arguing that the matter is already under arbitration and hence the petition is not maintainable. The respondent also contended that the arbitration award is under challenge and has not attained finality, making the winding-up petition an inappropriate remedy.

2. Enforceability of the Arbitration Award:
The respondent-company argued that the arbitration award dated 17-2-2002, which awarded an amount of Rs. 3,17,04,600 with future interest at the rate of 24% per annum, is under challenge in the Court of Principal District Judge, Chittoor, under section 34 of the Arbitration and Conciliation Act, 1996. Therefore, as per section 36 of the Arbitration Act, the award is not enforceable until the application under section 34 is finally decided.

3. Presumption of Inability to Pay Debts:
The petitioner claimed that the respondent-company is unable to pay its debts, citing the arbitration award and the respondent's failure to pay the demanded amount. However, the court noted that the presumption under section 434 of the Companies Act, 1956, cannot be drawn when the arbitration award is under challenge and has not attained enforceability. The court emphasized that the award presupposes a dispute regarding the amount claimed, and its enforceability is in question.

4. Jurisdiction of the Company Court:
The court referred to various judgments to conclude that a winding-up petition cannot be used as an alternative to recover debts that are subject to arbitration proceedings. The court cited decisions from the Punjab and Haryana High Court, Bombay High Court, Madras High Court, and Delhi High Court, which consistently held that when arbitration proceedings are initiated or when the arbitration award is under challenge, a company petition for winding up is not maintainable. The court reiterated that the jurisdiction of the Company Court is distinct and should not interfere with ongoing arbitration or civil proceedings.

Conclusion:
The court dismissed the winding-up petition, stating that since the arbitration award is under challenge and has not attained enforceability, the petition is misconceived. The petitioner must await the outcome of the arbitration challenge before seeking any further legal remedy for debt recovery.