2014 (3) TMI 206 - HC - Companies Law

Winding up of Company - Inability to pay its debts - Whether the debt is bona fide disputed - Held that - The first part of the Clause 5.2 of the purchase order does make reference to payment within 3 to 5 working days from the company receiving payment from HAL on back to back basis. However, the second part provides that the Respondent company would do the best possible to release the payment within 45 days from the date of receipt of certified bills from the Appellant. The use of the word however makes it clear that though the Respondent company was bound to effect the payments within 3 to 5 working days upon receipt of payments from HAL, nevertheless if such payments were not forthcoming from HAL, the Respondent company would do the best possible to release payments within 45 days from the date of receipt of certified bills from the Appellant. The payments of amounts to the Appellant was therefore not dependant upon the Respondent company receiving payments from HAL. In fact, there was no privity of contract between the Appellant and HAL. Such defence was never raised by the Respondent company either at the stage of executing the undertaking dated 29 July 2009 or at the stage of acknowledging the amount due in pursuance of the balance confirmation letters dated 25 March 2010 and 7 March 2011 - a claim in a petition for winding up is not for money. The petition filed under the Companies Act in a matter like this, is to the effect, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the Court. An Arbitrator, notwithstanding, any agreement between the parties, would have no jurisdiction to order winding up of a company - Decided in favour of applicant.

Summary

Issues Involved:
1. Whether the Respondent company is "unable to pay its debts" and thus liable for winding up under Section 433(e) and Section 434 of the Companies Act, 1956.
2. Whether the debt claimed by the Appellant is bona fide disputed and whether the defence raised by the Respondent is substantial.
3. The impact of an arbitration clause in the purchase orders on the maintainability of the winding-up petition.

Issue-wise Detailed Analysis:

1. Inability to Pay Debts:
The Appellant sought the winding up of the Respondent company on the grounds of its inability to pay debts amounting to Rs. 99,74,784/-. The Appellant supplied engineering items to the Respondent, raising invoices totaling Rs. 2,16,64,437/-, out of which Rs. 1,31,44,778/- was paid. The Respondent acknowledged the remaining debt of Rs. 81,94,426/- through a written undertaking dated 29 July 2009. Despite repeated notices and partial payment of Rs. 25 Lakhs, the balance remained unpaid, leading the Appellant to seek winding up under Sections 433(e) and 434 of the Companies Act, 1956.

2. Bona Fide Dispute and Substantial Defence:
The learned Company Judge initially dismissed the petition, citing that the defence of full and final settlement was baseless and that the debt was subject to reconciliation and payments from HAL. However, the higher court found that the Respondent's acknowledgments in the balance confirmation letters and the undertaking indicated no substantial or bona fide dispute over the debt. The Respondent's claim of reconciliation was deemed vague and unsupported by any material evidence. Additionally, the defence that payments were contingent upon receipts from HAL was not raised in initial communications and thus was considered an afterthought.

3. Arbitration Clause:
The Respondent contended that the existence of an arbitration clause in the purchase orders precluded the winding-up petition. However, the court referenced the Supreme Court judgment in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., which clarified that a winding-up petition is not a claim for money but a declaration of commercial insolvency. Therefore, an arbitrator cannot order the winding up of a company, and the arbitration clause does not bar the maintainability of the winding-up petition.

Conclusion:
The court concluded that the Respondent company's defences were neither bona fide nor substantial. The acknowledgments of debt and the lack of material evidence for reconciliation or conditional payments from HAL led to the admission of the winding-up petition. The arbitration clause did not affect the maintainability of the petition. Consequently, the impugned judgment dismissing the petition was set aside, and the Company Petition No.198 of 2012 was admitted for further proceedings. The appeal was allowed without any order as to costs.