2013 (9) TMI 574 - HC - Companies Law

Winding up of company - Dues not paid - Whether, winding up proceedings can be initiated for non payment of debt - Held that - winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company - petition presented ostensibly for a winding up order but really to exercise pressure on the company will be dismissed and under certain circumstances may even be stigmatised as a scandalous abuse of the process of the Court - The defence put up by the respondent is not mere moonshine or of such nature as to be thrown out at the threshold itself as being without merit. It appears to me that these are issues which have to be examined in depth and that the Company Court cannot do so in proceedings under section 433(e) of the Companies Act. This is a hotly contested debt - Following decision of Amalgamated Commercial Traders Pvt. Ltd. vs A.C.K. Krishnaswami And Anr 1965 (1) TMI 16 - IN THE SUPREME COURT OF INDIA - Decided against petitioner.

Summary

Issues Involved:
1. Number of agreements for construction.
2. Possibility of two agreements for the same construction.
3. Scope of work under the agreements.
4. Effect of clause 3 defining the scope of work.
5. Arbitrator's assessment of the contract value.
6. Variability in the petitioner's claims.
7. Binding nature of the arbitration clause.
8. Basis for the total covered area in the final bill.
9. Nature of defects in construction.
10. Responsibility and timeline for defect rectification.

Detailed Analysis:

A. Number of Agreements for Construction:
The petitioner and the respondent entered into two agreements on 22.11.2007 and 4.6.2008. The terms and conditions of both agreements were substantially similar, with variations in the payment amounts and rates for different types of work.

B. Possibility of Two Agreements for the Same Construction:
The respondent contended that it is inconceivable to have two agreements for the same work. The petitioner argued that the agreements were for different works, but the respondent questioned the clarity and necessity of having two agreements.

C. Scope of Work Under the Agreements:
Clause 3 of both agreements defined the scope of work identically. The respondent argued that this indicated a single scope of work, questioning the petitioner's claim of two separate agreements for different works.

D. Effect of Clause 3 Defining the Scope of Work:
The identical scope of work in both agreements raised doubts about the petitioner's claim of different works. The court noted that this issue needed in-depth examination, which is beyond the scope of a winding-up petition.

E. Arbitrator's Assessment of the Contract Value:
The arbitrator, S K Sami, assessed the total value of the contract as Rs. 1.20 crores and directed the respondent to pay Rs. 18,31,049/- after defect rectification. This contradicted the petitioner's claim of Rs. 1.80 crores, raising substantial questions about the petitioner's claims.

F. Variability in the Petitioner's Claims:
The petitioner demanded different amounts at different times: Rs. 96,33,752/- in the statutory notice, Rs. 38,10,760/- in a letter dated 6.7.2011, and approximately Rs. 35 lakhs in an earlier email. This inconsistency suggested a lack of clarity about the actual amount due, weakening the petitioner's position.

G. Binding Nature of the Arbitration Clause:
The agreements included an arbitration clause, making the arbitrator's decision binding. The arbitrator's directive for the respondent to pay Rs. 18,31,049/- was not contested by the petitioner, indicating that this amount should be considered binding.

H. Basis for the Total Covered Area in the Final Bill:
The petitioner claimed a total covered area of 13,498.85 sq.ft in the final bill. The basis for this calculation was not clearly explained, necessitating further examination.

I. Nature of Defects in Construction:
The defects listed in a joint meeting on 24.10.2009 were disputed. The petitioner argued that these defects were due to wear and tear, while the respondent claimed they were construction defects. The court noted that determining the nature of these defects required detailed investigation.

J. Responsibility and Timeline for Defect Rectification:
The petitioner argued that its liability to rectify defects should not extend beyond six months to a year after handing over possession. The respondent's continued pointing out of defects was seen as a tactic to delay payment. The court recognized this as a substantive issue requiring further examination.

Conclusion:
The court concluded that the issues raised were substantive and could not be resolved in a winding-up petition. The defence put up by the respondent was not mere moonshine and required detailed examination. The petition was dismissed with no order as to costs. The court emphasized that a winding-up petition is not a legitimate means to enforce payment of a bona fide disputed debt, as established in precedents like Amalgamated Commercial Traders Pvt. Ltd. vs A.C.K. Krishnaswami and others.