2013 (2) TMI 315 - HC - Companies Law

Winding up petition - Respondent were unable to pay debts owing to the Petitioner - agreement entered between the parties for the sale of design - as stated by petitioner that by an email dated 8th October 2010, the Respondent admitted and confirmed its liability towards US 350,000 being the balance consideration after deducting tax at source - Held that - Respondents in its reply dated 19th June 2012 to the notice dated 26th May 2012 has denied any liability whatsoever. It is, inter alia, stated in the reply that he is not liable to pay any sum of US 350,000 or any other amount under the Agreement dated 18.05.2008 as alleged. In fact the said sum has not even become due or payable. Even in spite of this, if petitioner initiates any winding up proceedings or any civil suit or any other proceedings, as threatened in notice, he will take all required steps to protect themselves against petitioner illegal actions besides making him responsible and liable for all consequences arising therefrom. The Petitioner has been asked to withdraw the notice and directed to extend the technical support to the Respondent pursuant to the agreement for the sale of design for the process. As decided in Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami (1965 (1) TMI 16 - IN THE SUPREME COURT OF INDIA) that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the Court. Aslo see M/s. Madhusudan Gordhandas v. Madhu Woollen Industries Pvt. Ltd. (1971 (10) TMI 49 - SUPREME COURT OF INDIA) & In Pradeshiya Industrial & Investment Corporation of U.P. v. North India Petrochemicals Ltd. (1994 (2) TMI 267 - SUPREME COURT OF INDIA). Thus in the present case, the Court is not persuaded to hold that the requirements of Sections 433 and 434 read with Section 439 are satisfied. The response of the Respondent to the legal notice issued by the Petitioner raises disputed questions of fact, which will require examination of evidence in other appropriate proceedings. It is not possible to conclude that the defence of the Respondent is a mere moonshine and not bonafide - winding up petition dismissed.

Summary

Issues:
Petition for winding up under Sections 433 and 434 of the Companies Act, 1956 based on debt owed by Respondent.

Detailed Analysis:

1. Agreement for Sale of Design: The Petitioner filed a petition seeking winding up of the Respondent due to the latter's inability to pay debts owed. The agreement between the parties involved the sale of a design for manufacturing a drug, "Atorvastatin," for a total consideration of US$ 550,000. The design was sold to facilitate the production of the drug, not the process itself.

2. Payment Terms and Disputes: The agreement outlined payment terms, including a refundable deposit and subsequent payments upon successful validation of the process developed. The Respondent failed to complete the validation process by the stipulated date, leading to disputes over the outstanding balance of US$ 350,000. Despite reminders and legal notices, the amount remained unpaid, leading to the petition for winding up.

3. Liability Dispute: The Respondent, in its reply to the legal notice, denied any liability for the outstanding amount, claiming it was not due or payable. The Respondent accused the Petitioner of illegal actions and threatened consequences if winding up proceedings were initiated.

4. Legal Precedents and Defense: Legal precedents were cited regarding winding up petitions, emphasizing that a petition should not be used as a means to enforce disputed debts. The defense of the company should be in good faith, likely to succeed in law, and supported by prima facie proof of the facts. The Court considered these principles in evaluating the present case.

5. Court Decision: The Court, after analyzing the facts and legal principles, found that the Respondent's defense raised disputed questions of fact that required examination in other proceedings. The Court was not convinced that the requirements for winding up under Sections 433 and 434 were met. As the defense was not considered mere "moonshine" and was deemed bona fide, the petition for winding up was dismissed, allowing the Petitioner to explore other legal remedies available.

In conclusion, the judgment dismissed the winding up petition, highlighting the importance of a bona fide defense and the need for thorough examination of disputed facts in legal proceedings beyond the scope of a winding up petition.