2014 (7) TMI 1392 - HC - Companies Law

Winding up of company - breach of the express covenants of the Novation Agreement For Assumed Contracts - Section 433 and 434 of the Companies Act 1956 - HELD THAT - It is to be borne in mind that a debt is a sum of money which is now payable or will be payable in future by reason of a present obligation debitum in prasenti solvendum in futuro. Furthermore a debt must be a determined or definite sum of money payable immediately or at a future date. A contingent debt or a conditional liability is not a debt when the contingency or condition has already happened. It may not be out of place for this Court to point out that if a Court of Law is satisfied that a debt upon which a petition to wind up is founded is a hotly contested debt and also doubtful then it should not make up a winding up order based upon such debt. Bona fide dispute implies the existence of a substantial ground for the dispute raised. Where the company has a bona fide/genuine dispute the Petitioner cannot be regarded as a creditor of the company for the purposes of winding up - the power of winding up is to be exercised judicially and with most circumspection. No wonder the proceedings under Section 433 and 434 are not the proceedings to recover debts due from any particular company. It is to be noted that the ingredients of Section 434 of the Companies Act 1956 enjoins that when a notice is served in that Section in the manner specified and if the payment is not made within a period of three weeks it will be presumed that the company is unable to pay its debts but in the considered opinion of this Court this gives only a presumption that the company is unable to pay debts. However the said presumption is a rebuttable one in the manner known to law and in accordance with law. As such the nonissuance of reply to a statutory notice of the Respondent by the Appellant cannot be considered as an adverse circumstance against the Appellant when it has raised defences which are substantial and one of substance in so far as the present case is concerned. This Court holds that the Appellant/Respondent has raised a substantial and tangible defences by raising contentious factual and legal issues which required detail investigation. Also that the defences raised by the Appellant/ Respondent are not a mere cover or empty disputes with a view to cover up its real inability. In short this Court is subjectively satisfied that the defences raised by the Appellant/Respondent in the present case are bona fide and genuine one. As a matter of fact these contested mixed questions of Facts and Law are to be adjudicated only by a Civil Court. As such the proper remedy for the Respondent/ Petitioner is to approach the competent Civil Court for resolving the mixed questions of Facts and Law in regard to the bona fide dispute of Debt and its liability. Further in a summary proceedings under Section 433 of the Companies Act 1956 the divergent stand taken by the respective parties cannot be gone into and bona fide disputes being raised by them. Therefore this Court directs the Respondent/ Petitioner to approach the competent civil forum for recovery of the amount/debt from the concerned parties. Appeal allowed.

Issues Involved:

1. Interpretation of the Novation and Transfer Agreements.
2. Liability of the Appellant and VLMS under the Purchase Order.
3. Bona fide dispute regarding the debt and its liability.
4. The impact of parallel proceedings in different courts.
5. The appropriateness of winding-up proceedings in the context of disputed debts.

Issue-wise Detailed Analysis:

1. Interpretation of the Novation and Transfer Agreements:

The primary issue revolves around the interpretation of the Novation and Transfer Agreements dated 16.05.2012 and 15.03.2013. The Appellant contends that these agreements extinguished its liability, transferring it to VLMS. The Respondent argues that the agreements did not discharge the Appellant's obligations, citing Clause 3 of the NAAC, which maintains the Appellant's liability. The court notes that the interpretation of these agreements involves complex legal and factual questions, which are not suitable for determination in summary winding-up proceedings.

2. Liability of the Appellant and VLMS under the Purchase Order:

The Appellant claims that its liability under the Purchase Order was transferred to VLMS, and thus, it is not responsible for the debt. Conversely, the Respondent maintains that both the Appellant and VLMS are jointly and severally liable. The court finds that there is a bona fide dispute regarding the liability, as the agreements and the conduct of parties suggest differing interpretations. This dispute necessitates a detailed investigation, which is beyond the scope of winding-up proceedings.

3. Bona fide Dispute Regarding the Debt and its Liability:

The court emphasizes that a winding-up petition is not a legitimate means to enforce payment of a debt that is bona fide disputed. The Appellant has raised substantial defenses, including the interpretation of contractual terms and the existence of parallel proceedings, indicating a genuine dispute. The court concludes that these defenses are not mere cover-ups but require adjudication in a civil court.

4. The Impact of Parallel Proceedings in Different Courts:

The Respondent filed a winding-up petition against VLMS in the Karnataka High Court, which the Appellant argues was suppressed in the present proceedings. The court acknowledges the existence of parallel proceedings but does not find it a ground to dismiss the petition outright. However, it highlights that the issues raised in both petitions are interconnected and should be resolved comprehensively in a civil forum.

5. The Appropriateness of Winding-Up Proceedings in the Context of Disputed Debts:

The court reiterates that winding-up proceedings are not intended to resolve complex disputes over debt liability. Given the bona fide disputes and the substantial defenses raised, the court directs the parties to resolve their issues through a civil suit. It concludes that the winding-up petition is not maintainable in the present case due to the genuine disputes involved.

Conclusion:

The court allows the appeal, setting aside the order admitting the winding-up petition. It directs the Respondent to pursue its claims in a competent civil court, emphasizing that the issues at hand require detailed examination and adjudication beyond the scope of summary proceedings. The court's decision underscores the importance of resolving bona fide disputes through appropriate legal channels rather than winding-up petitions.

← Previous Next →