2016 (8) TMI 1480 - HC - Companies Law

Winding up of appellant company - Extension of Time (EOT) under Clause 44 of the General Conditions of Contract (GCC) - admittance of outstanding payments - existence of debt and dispute - HELD THAT - The deliberations of the Board of Directors in its various meetings were only proposals which definitely were required to be looked into and final decision thereupon came to be taken only on 30.07.2015 when the minutes of 205th meeting stood superseded. Therefore no benefit whatsoever can be claimed by the respondent on the basis of 205th meeting particularly when the final settlement thereupon was arrived at much later. As regards the contention of the respondent that the appellant had in the aforesaid meeting admitted and acknowledged the debt due in favour of the respondent we find the submission to be far-fetched. An acknowledgement of liability has to be clear unambiguous unequivocal and unconditional which is not the fact situation obtaining in the instant case. A company may deliberate on a number of issues and unless and until some decision is taken and thereafter conveyed to the opposite party (respondent herein) these would only remain and can only be considered as proposals or at best the internal matters of the company and can by no legitimate or even legal standards be termed to be admissions or acknowledgments of debt. It is more than settled that the presumptions are always rebuttable and therefore the question is whether the appellant company has been able to rebut the presumption. It would be evident from a perusal of the aforesaid letter that nowhere is it the case of the respondent that the appellant had acknowledged or even admitted any specific amount due rather the respondent itself asked the appellant to treat the letter as a notice of arbitration under Clause 67 of the GCC and initiate the process of constituting Arbitral Tribunal in accordance with the provisions of the contract. Not only this the request was thereafter again reiterated by the respondent in its letter dated 31.08.2012. In such circumstances it is not only difficult but impossible to hold that the appellant had infact admitted or acknowledged the debt much less a specific debt. Thus the so-called debts were never infact acknowledged or admitted but were rather disputed by the appellant and that is why the respondent itself chose to invoke the modified Clause 67 of the GCC to have the matter referred to the Arbitral Tribunal - It is beyond dispute that the machinery for winding up will not be allowed to be utilized merely as a means to realizing its debt due from a company. In case there exists a bona fide dispute and the dues are not admitted the winding up petition is required to be dismissed. The debt is not admitted debt and the dispute raised by the appellant is not only a substantial but a bona fide one and it cannot be held that the appellant has neglected to pay. Therefore the case would not fall under Sections 433(e) 433(1)(a) and 439 of the Act - no case for winding up of the appellant company is made out - Appeal allowed.

Summary

Issues involved:
1. Winding up of the appellant company.
2. Dispute regarding payments under Contract No. 1.0 and Contract No. 2.1.
3. Arbitration awards and settlement agreements.
4. Alleged acknowledgment of debt by the appellant.
5. Financial status and solvency of the appellant company.
6. Bona fide dispute and misuse of winding up proceedings.

Detailed Analysis:

1. Winding up of the appellant company:
The respondent initiated proceedings for the winding up of the appellant company, claiming outstanding dues. The High Court ruled that the machinery for winding up should not be used merely as a means to realize a debt, especially when there is a bona fide dispute. The court emphasized that winding up is a measure of last resort and should not be used to pressurize a company to pay a disputed debt.

2. Dispute regarding payments under Contract No. 1.0 and Contract No. 2.1:
The dispute arose over the Extension of Time (EOT) under Clause 44 of the General Conditions of Contract (GCC). The respondent invoked the arbitration clause, and the Arbitration Tribunal awarded costs and interest for both contracts. The appellant made partial payments but did not pay the interest on these payments, leading to the respondent's claim of outstanding dues.

3. Arbitration awards and settlement agreements:
The Arbitration Tribunal's awards were partially settled through agreements dated 21.09.2008 and 31.03.2010. The appellant made some payments, but disputes continued regarding the interest on these payments. The respondent claimed additional amounts, which the appellant disputed, leading to further negotiations and internal deliberations within the appellant company.

4. Alleged acknowledgment of debt by the appellant:
The respondent claimed that the appellant had acknowledged its debt through various documents, including Board meeting minutes and audited financial statements. However, the court found that these documents did not constitute clear, unambiguous, unequivocal, and unconditional acknowledgment of debt. The internal deliberations were considered proposals, not final decisions.

5. Financial status and solvency of the appellant company:
The appellant argued that it was a robust company with a substantial annual turnover and diversified business interests. The court noted that the appellant was a commercially solvent government company and a 'Mini Ratna' company of the Government of India. The court emphasized that temporary inability to pay debts does not necessarily indicate insolvency.

6. Bona fide dispute and misuse of winding up proceedings:
The court concluded that the respondent's petition for winding up was an attempt to pressurize the appellant to pay a disputed debt. The court highlighted that the appellant's defense was substantial and bona fide, and the dispute should be resolved through appropriate legal channels, not through winding up proceedings. The court also noted that the respondent had previously agreed to resolve the dispute through arbitration, indicating the existence of a bona fide dispute.

Conclusion:
The court dismissed the winding up petition, stating that the appellant company had not neglected to pay an admitted debt and that the dispute was bona fide and substantial. The court emphasized the need for caution in winding up proceedings and the importance of resolving bona fide disputes through appropriate legal channels.