2008 (12) TMI 408 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - Admission of a winding up petition is fraught with serious consequences. Hence, when the company is a going concern and it is functioning, an order of winding up may prove disastrous unless there are materials to point out that the existing and probable assets are insufficient to meet the existing liability. Thus winding up of a company is not a matter of course to be taken up whenever there is an inability to pay the debts. Going by the facts herein and the evidence, no hesitation in rejecting the petition. Hence, this company petition is dismissed. It is, however, open to the petitioner to take recourse to such remedies as are available under law to enforce its claim.

Issues Involved:
1. Petition for winding up under sections 433(e) and (f) of the Companies Act, 1956.
2. Enforceability of a foreign decree in India.
3. Validity of the corporate guarantee.
4. Allegation of novation of contract.
5. Commercial insolvency of the respondent-company.

Issue-Wise Detailed Analysis:

1. Petition for Winding Up under Sections 433(e) and (f) of the Companies Act, 1956:
The petitioner sought the winding up of the respondent-company on the grounds of inability to pay debts and on just and equitable grounds. The petition was based on a decree obtained from the High Court of Justice, Queen's Bench Division, Commercial Court, England and Wales. The petitioner alleged that the respondent-company had failed to pay the decreed amount and was commercially insolvent.

2. Enforceability of a Foreign Decree in India:
The petitioner argued that the decree from the English Court was binding and executable in India under section 13 of the Civil Procedure Code. The respondent countered that the decree was not on the merits but obtained under summary jurisdiction, and thus not enforceable under section 13(b) of the Civil Procedure Code. The court examined the decision in International Woollen Mills v. Standard Wool (U.K.) Ltd., which emphasized that a foreign decree not passed on merits is not enforceable in India. The court concluded that the judgment from the English Court was not on merits as it was a summary judgment.

3. Validity of the Corporate Guarantee:
The petitioner claimed that the respondent had furnished a corporate guarantee for the financial facility granted to Pentafour International Singapore (P.) Ltd., later known as Pentasoft Singapore (P.) Ltd. The respondent acknowledged the guarantee but argued that it was void due to non-compliance with FEMA and RBI provisions. The court found that the respondent had indeed given the guarantee and that the defence of illegality was not substantiated.

4. Allegation of Novation of Contract:
The respondent contended that the agreement with Ruby Orifice Group Inc. resulted in novation of the original contract, thereby discharging the respondent from its liability. The court rejected this argument, noting that Ruby Orifice Group Inc. was part of the respondent group, and the directors of the respondent-company were also directors of Ruby Orifice Group Inc. The court found no evidence of novation of the contract.

5. Commercial Insolvency of the Respondent-Company:
The petitioner argued that the respondent-company was commercially insolvent, unable to pay its debts, and had several creditors' claims pending. The court examined the financial status of the respondent and found that the company was still carrying on business and had not reached a stage of commercial insolvency. The court emphasized that winding up is a measure of last resort and should not be used as an alternative to debt recovery.

Conclusion:
The court dismissed the petition for winding up, concluding that the petitioner had not established that the respondent-company was commercially insolvent or that the decree from the English Court was enforceable in India. The court noted that the petitioner could pursue other legal remedies to enforce its claim. The petition was dismissed with no costs.

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