2010 (3) TMI 674 - HC - Companies Law

Whether Kalyani Gerdau Steels Ltd. (formerly known as SJK Steel Plant Ltd.) (for short the respondent-company ), a company incorporated under the Act, be wound up as it is unable to pay its debts? Held that - The respondent-company prima facie established that the liability to pay the basic facility charges for the shut down period is a bona fide dispute raised by it. The liability of the respondent-company to pay the basic facility charge for the shut down period cannot be adjudicated by this court in a proceeding, which is summary in nature. Hence, found that the petitioner failed to make out a prima facie case for admission of the petition. Company petition dismissed

Summary

Issues Involved:
1. Whether the respondent-company is liable to pay the basic facility charges for the shutdown period.
2. Whether the winding-up petition against the respondent-company is maintainable given the ongoing arbitration proceedings.

Detailed Analysis:

1. Liability to Pay Basic Facility Charges for the Shutdown Period:
The petitioner-company entered into a supply agreement with the respondent-company on September 4, 2003, for the continuous supply of gas. The agreement was later modified on January 15, 2008, where the respondent-company agreed to pay a basic facility charge of Rs. 2,01,915 per day from April 8, 2008, to July 31, 2010. The respondent-company defaulted on these payments, accumulating a debt of Rs. 3,91,69,885 by March 31, 2009. The petitioner issued a statutory notice under Section 434 of the Companies Act, 1956, demanding payment, which the respondent neither paid nor replied to. The respondent argued that the payment of basic facility charges during the shutdown period was disputed and was subject to arbitration. The respondent's counter-affidavit stated that due to economic slowdown, they had to shut down manufacturing activities and thus, disputed the liability for the basic facility charges during this period. The petitioner argued that the respondent was bound to pay these charges as per the agreement, and their failure to do so amounted to neglect, justifying a winding-up petition.

2. Maintainability of the Winding-Up Petition Given the Ongoing Arbitration Proceedings:
The petitioner-company filed a claim before the sole arbitrator, Justice B. N. Srikrishna, for the outstanding amount, which included the basic facility charges. The respondent-company disputed this liability before the arbitrator, claiming that the petitioner had breached the terms of the agreement. The petitioner contended that the arbitration proceedings were independent of the winding-up petition and that the respondent's failure to pay the undisputed debt justified the winding-up. The respondent argued that the dispute over the basic facility charges was bona fide and should be resolved through arbitration, not in a summary winding-up proceeding. The court noted that the arbitration was appointed to resolve the disputes, including the liability for the basic facility charges, and thus, the winding-up petition could not proceed until the arbitration was resolved.

Judgment:
The court concluded that the respondent-company had raised a bona fide dispute regarding the liability to pay the basic facility charges for the shutdown period. Given the ongoing arbitration, the court could not adjudicate this issue in a summary winding-up proceeding. The court emphasized that where a bona fide dispute exists, the winding-up petition should not automatically proceed. Therefore, the petition for winding up the respondent-company was dismissed, with no costs awarded.