2014 (3) TMI 11 - HC - Companies Law

Winding up of Company - Inability to pay debts - Held that - Indian company (respondent), having received the goods and perhaps also turned them into profit, seeks to wriggle out of the liability to pay the dues to the UK company by taking specious pleas and also by placing an untenable interpretation on the settlement proposal by which the original dues of GBP 87,240 was brought down generously to GBP 32,240. It also appears to me to be a case where the respondent has the ability to pay, but does not choose to pay; in such a case, the court will not come to its defence - Following decision of Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. 1971 (10) TMI 49 - SUPREME COURT OF INDIA - Decided in favour of appellant.

Summary

Issues:
- Jurisdiction of Indian courts in the matter
- Validity of the demand notice served
- Applicability of winding-up proceedings for breach of settlement

Jurisdiction of Indian Courts:
The respondent argued that the contract stipulated English law and courts for dispute resolution. However, the court found this clause was not part of the contract between the parties. The respondent failed to provide the contract governing its transactions with the UK company, which would have clarified the jurisdiction issue. As the clause regarding English law was not proven to be part of the contract, the objection to the jurisdiction of Indian courts was dismissed.

Validity of Demand Notice:
The respondent claimed that the demand notice required under section 434(1)(a) of the Companies Act, 1956 was not served properly. The court noted that the notice was sent via registered post acknowledgment due to the registered office of the respondent. Although the acknowledgment card or registered cover was not received by the UK company, the court invoked the presumption of service under section 27 of the General Clauses Act. The court rejected the respondent's argument based on a previous case where the issue of service of notice was tentatively considered and not conclusively decided.

Applicability of Winding-up Proceedings:
The respondent contended that the UK company could only sue for specific performance and not initiate winding-up proceedings for breach of settlement. The court disagreed, citing an email exchange where it was clear that failure to adhere to the settlement terms would lead to legal action for the total outstanding balance. The court referenced a Bombay High Court case to support the view that failure to comply with restructuring terms justified initiating winding-up proceedings. The court concluded that the respondent's attempts to avoid payment were unfounded, and the winding-up petition was admitted. The Official Liquidator was appointed as the Provisional Liquidator, and various directives were issued for the management of the respondent's assets and financial disclosures.

This detailed analysis of the judgment highlights the key legal issues addressed by the court in the matter involving a petition for winding up of a company due to non-payment of dues.