2011 (7) TMI 1007 - HC - Companies Law

Winding up company unable to pay its debt - agreement was entered agreeing thereunder to pay a licence fee, it was agreed between the parties that in the event of increase in municipal tax rate at a future date, the Licensee shall, subject to production of documentary proof by the licensor, reimburse the licensor the amount equivalent to the difference between the tax as applicable at present and the enhanced rate - cause of action for the licensor to claim the said amount as debt receivable from the respondent is based on the notice issued by Municipal Corporation - it is a notice issued to respondent herein under section 155 of the Mumbai Municipal Corporation Act to determine rateable value of the premises and as such respondent has been called upon to furnish a written return giving the dimension, rent of the premises, copy of the Agreement and Licensor has not produced before this court any order passed by Mumbai Municipal Corporation, or an order of Municipal Corporation determining rateable value and rate of tax and payment thereon as determined by it on the basis or on the strength of leave and licence agreement or immediately preceding the said date Held that - Petitioner cannot now contend that by virtue of any order passed by Municipal Corporation determining property tax due to assessment on account of its either suppression of facts or non-furnishing of information, respondent/licensee has to pay said tax. Under what circumstances and under what terms and conditions, said order determining tax liability came to be passed has to be demonstrated by petitioner to prove that it amounts to a admitted debt and it is for the petitioner to establish the same before appropriate forum in accordance with law. company which is solvent having a surplus and reserves to the extent of Rs. 350 crores and having a total turnover of Rs. 547 crores for the year ending 31.03.2010 and without there being any claim against respondent company, it cannot be construed or held that the respondent company is not solvent or incapable of paying any amount due to its creditors. petition dismissed.

Summary

Issues:
Petition for winding up under Sections 433(e) and (f) and Section 434 (1)(a) and (c) read with Section 439 of The Companies Act, 1956 based on a Leave and Licence Agreement for payment of enhanced property tax.

Analysis:
1. Petitioner's Contentions: The petitioner, the licensor, sought winding up of the respondent-company based on a Leave and Licence Agreement entered into on 5.10.2005, where the respondent, as a licensee, was required to pay any increase in property tax by the Municipal Corporation of Greater Mumbai. The petitioner claimed that the respondent failed to comply with this obligation, leading to the demand for enhanced property tax amounting to Rs. 15,33,304/-.

2. Respondent's Defense: The respondent, a US-based company, contended that it had a sound financial standing with a net worth of Rs. 95,56,26,000/- as of 31.03.2010 and an annual turnover of Rs. 517,13,13,000/-. The respondent argued that the Leave and Licence Agreement did not make it liable for increased tax liability due to assessment changes, but only for an increase in the municipal tax rate by the statutory authority.

3. Clause Interpretation: The key clause in the Leave and Licence Agreement, clause 7.1, outlined the obligations regarding taxes and future increases in municipal tax rates. The clause specified that the licensee was liable to pay the difference in tax rates only in the event of an increase by the municipal body, subject to documentary proof provided by the licensor.

4. Legal Analysis: The court observed that the petitioner failed to demonstrate an admitted enforceable debt by not producing relevant documents before the statutory authorities. Without evidence of an order determining tax liability based on the agreement, the court found no basis for the petitioner's claim for winding up the respondent-company under Sections 433(e) and (f) of The Companies Act, 1956.

5. Financial Standing: The respondent's financial stability, with reserves of Rs. 350 crores and a turnover of Rs. 547 crores, further weakened the petitioner's argument for winding up the company. The court concluded that the petitioner did not establish just and equitable grounds for the winding-up order.

Conclusion:
The court dismissed the petition for winding up the respondent-company, citing the lack of evidence for an admitted debt and the respondent's solvent financial position. The petitioner was unable to prove the existence of a debt enforceable under the agreement, and the respondent's financial stability further negated the grounds for winding up. The court's decision highlighted the importance of providing necessary documentation and evidence to support claims in legal proceedings.