2002 (10) TMI 795 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the claim for professional fees by the petitioner.
2. Whether the respondent company is liable to be wound up under Sections 433(e), 434, and 439 of the Companies Act.
3. Bona fide dispute regarding the debt claimed by the petitioner.
4. The respondent's ability to pay its debts and the relevance of its status as a running company.

Detailed Analysis:

1. Validity of the claim for professional fees by the petitioner:

The petitioner, a SEBI-registered Category-1 Merchant Banker, claimed professional fees for services rendered to the respondent company under an agreement dated 11.10.96 and 25.3.97. The agreement included an abortion fee payable if the deal did not go through. The petitioner evolved a restructuring proposal and facilitated negotiations with the Nagarjuna Group, which offered Rs. 90 crores for the respondent's divisions. However, the respondent backed out without reason, leading the petitioner to claim an abortion fee of Rs. 35 lakhs, later revised to Rs. 30 lakhs. Despite a settlement to accept Rs. 17 lakhs, the respondent failed to pay, leading to the statutory notice and subsequent denial of liability by the respondent. The petitioner argued that the respondent's letters dated 22.7.98 and 30.12.98 confirmed the debt.

2. Whether the respondent company is liable to be wound up under Sections 433(e), 434, and 439 of the Companies Act:

The petitioner filed the winding-up petition under Sections 433(e), 434, and 439 of the Companies Act, claiming the respondent was unable to discharge its liabilities. The respondent disputed the claim, arguing the petitioner's services were ineffective and incomplete, leading them to appoint another agency. They also contended that the petitioner had already been paid Rs. 24.88 lakhs and that the claim was disputed and should be resolved through a civil suit. The court, however, found that the respondent's admission of liability in their letters and the lack of a bona fide dispute justified the winding-up petition.

3. Bona fide dispute regarding the debt claimed by the petitioner:

The respondent argued that the petitioner did not complete the assignment satisfactorily and within the stipulated time, raising this defense for the first time in their reply dated 30.9.99. The court noted that the respondent's earlier letters confirmed the debt and agreed to a settlement, indicating the defense was not bona fide but an afterthought.

4. The respondent's ability to pay its debts and the relevance of its status as a running company:

The respondent contended that it was a running company and thus should not be wound up. The court referred to a Division Bench decision stating that the test of inability to pay debts is not whether the company can convert all its assets into cash but whether it can meet its liabilities while continuing operations. The court found that the respondent's claim of being a running company did not negate its inability to pay the debt.

Conclusion:

The court concluded that the respondent's failure to pay the agreed amount and the lack of a bona fide dispute indicated its inability to discharge its liabilities. Consequently, the company petition was admitted, and it was ordered to be advertised, with the hearing date set for 08.11.2002.