2009 (12) TMI 522 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - In the instant case, the petitioner had deposited a certain amount of money as a security deposit, in terms of the Agreement between the parties. On the respondent s failure to fulfil its obligations under the said Agreement, the petitioner chose to terminate the Agreement by a written notice, and called for refund of the security deposit. In view of the fact that the Agreement to Lease was an unregistered document, as well as the fact that month-to-month leases may be terminable by 15 days notice, it is clear that the said Agreement was terminated unambiguously by the petitioner, once it became apparent that the respondent was unable to hand over possession of the Demised Premises within the stipulated time. It is within the discretion of the Company Court to entertain the company petition, even if there is an arbitration clause in the Agreement between the parties.Thus prima facie, that the claims raised by the respondent in reply to the legal notice are not within the domain of bona fide and substantial defences. In that view of the matter, let notice issue to the respondents to show cause why the company be not wound up, returnable for 4-5-2010.

Issues:
Petition for winding up under section 433 of the Companies Act, 1956 and appointment of a Provisional Liquidator due to non-completion of construction by respondent company as per Agreement to Lease.

Analysis:
1. Agreement to Lease and Non-Completion of Construction:
The petitioner entered into an Agreement to Lease with the respondent for a showroom in a mall to be constructed by the respondent. The agreement specified the construction timeline and conditions for lease renewal. However, the respondent failed to complete the construction within the stipulated time, leading the petitioner to terminate the agreement and demand a refund of the security deposit.

2. Legal Notices and Replies:
The petitioner sent a legal notice to the respondent regarding the default in fulfilling obligations under the agreement and termination of the lease. The respondent claimed delays due to force majeure circumstances and ongoing construction progress. The respondent also argued that the agreement could not be terminated as it provided for arbitration to resolve disputes.

3. Winding Up Notice and Response:
Upon the respondent's failure to reply to the winding-up notice demanding refund of the security deposit and interest, the petitioner sought winding up of the respondent company. The court noted that failure to respond to a winding-up notice can lead to the admission of a winding-up petition for hearing.

4. Unregistered Agreement and Termination:
The agreement to lease was unregistered, with provisions for execution of a lease deed post-completion of construction. As construction was incomplete, the court found the termination of the agreement by the petitioner justified, especially considering the respondent's inability to hand over possession as per the agreement.

5. Discretionary Winding Up Remedy:
The court highlighted that winding up on the ground of inability to pay debts is a discretionary remedy. The petitioner's termination of the agreement and demand for refund of the security deposit were deemed valid, especially in the absence of a denial by the respondent regarding the deposit.

6. Arbitration and Winding Up Proceedings:
The court clarified that the remedy of arbitration does not preclude the initiation of winding-up proceedings. Even with an arbitration clause in the agreement, the court has the discretion to entertain a winding-up petition if deemed necessary.

7. Prima Facie Case for Winding Up:
Based on the facts presented, the court found that the respondent's defenses were not substantial, leading to the issuance of a notice to show cause why the company should not be wound up. The returnable date for the show cause was set for a specific future date.

In conclusion, the judgment addressed the issues surrounding the non-completion of construction, termination of the agreement, responses to legal notices, and the discretion of the court in entertaining winding-up proceedings despite arbitration clauses.

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