2008 (11) TMI 402 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - the defence offered by the respondent-company cannot be said to be one of any real substance which is likely to succeed as held by the Apex Court in Pradeshiya Industrial & Investment Corpn. of U.P. (1994 (2) TMI 267 - SUPREME COURT OF INDIA ). This Court, therefore, cannot hold that the dispute raised by the respondent with regard to the debt due is a bona fide dispute so as to warrant refusal of the prayer for winding up. This company petition has to succeed. It is, therefore, allowed. However, having regard to the stand taken that the respondent-company is a going concern and is presently engaged in business, the Court is of the view that the order for winding up of the respondent-company should follow only after its failure to pay the amount due to the petitioner within a period of three months from today or in accordance with such instalment plans as may be agreed upon by and between the parties. It is ordered accordingly.

Issues Involved:

1. Maintainability of the company petition for winding up.
2. Jurisdiction of the U.S. court to pass the decree.
3. Nature of the decree (ex parte and on merits).
4. Proximity of the damages awarded.
5. Applicability of section 434(1) of the Companies Act regarding the execution of the decree.

Issue-wise Detailed Analysis:

1. Maintainability of the Company Petition for Winding Up:

The company petition is founded on the alleged failure of the respondent to pay its debts within the meaning of section 433(e) of the Companies Act, 1956. The debt arises from a decree dated 12-4-2001 by the District Court for the Middle District of North Carolina, USA, for a sum of U.S. $ 2,257,147.58 with interest. The respondent argued that the petition is an attempt to recover money under the decree and is not maintainable as the petitioner did not execute the decree. However, the appellate Bench held that the amount due under a decree is a debt within section 433(e) and that execution of the decree and a petition for winding up are alternate remedies. Thus, the company petition was deemed maintainable.

2. Jurisdiction of the U.S. Court to Pass the Decree:

The respondent contended that the U.S. court lacked jurisdiction as the contract was concluded in Kolkata and no part of the cause of action arose within the U.S. jurisdiction. The petitioner argued that the U.S. court assumed jurisdiction after recording facts giving rise to a cause of action within its jurisdiction. The court noted that the U.S. court recorded facts conferring jurisdiction and that contrary facts presented by the respondent could not be tested in the current proceedings. Therefore, the objection regarding jurisdiction was not sustained.

3. Nature of the Decree (Ex Parte and on Merits):

The respondent claimed the decree was ex parte and not on merits. The petitioner argued that the decree was passed after due consideration of evidence and materials. The court found that the U.S. court did not decree the claim merely due to the respondent's failure to defend but after considering the evidence. Thus, the decree could not be said to be unconnected with the merits of the case.

4. Proximity of the Damages Awarded:

The respondent contended that the damages awarded were remote and not contemplated by section 73 of the Indian Contract Act, 1872. The petitioner argued that the damages were proximate to the loss of business suffered. The court noted that the U.S. court found the damages to be proximate and ordered payment accordingly. It was deemed inappropriate for the Company Court to scrutinize this aspect further.

5. Applicability of Section 434(1) of the Companies Act Regarding the Execution of the Decree:

The respondent argued that under section 434(1), a company is deemed unable to pay its debts arising under a decree only if the decree remains unsatisfied upon execution. The court interpreted that the sub-clauses (a), (b), and (c) of section 434(1) are in the alternative, and the deeming provision in sub-clause (b) does not mandate execution before a company can be deemed unable to pay its debts.

Conclusion:

The court concluded that the defences offered by the respondent did not constitute a bona fide dispute. The petition for winding up was allowed, with the order for winding up to follow if the respondent failed to pay the amount due within three months or as per any agreed instalment plan.

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