2009 (11) TMI 517 - HC - Companies Law

Novation of contract - suits for recovery - winding up - Held that - This appeal is liable to be dismissed. The appellant-company has made much hue and cry about novation of contract in pursuance of e-mails exchanged between the parties on 9-5-2006, 10-10-2006, 11-10-2006 and 6-12-2006 (R2 to R4) but the e-mails cannot constitute any concluded contract and could not be accepted as novation of the written loan agreement dated 15-4-2005 and memorandum of understanding dated 31-8-2006 (R3), especially when in the loan agreement dated 15-4-2005, which is accompanied by an agreement of pledge, dated 15-4-2005 (P5) and the deed of guarantee, dated 15-4-2005 (P6), there is a specific clause 12.5, which reads as under 12.5 Variation. No variation of this agreement shall be binding on any party unless such variation is in writing and signed by each party. (emphasis added). In view of the aforesaid prohibition, the appellant-company cannot assign their obligation by substituting the shares of another company for discharge of its liability. Moreover, it is not firstly possible to record a finding that a concluded contract had ever come into being because there is no acceptance of proposal to substitute the loan in consideration of allotment of shares. No concluded contract by the managing director or the directors of the company could come into being unless resolution of the company on that score was passed. No such resolution having been placed on record, no conclusion could be reached that a concluded contract has come into being. Appeal dismissed.

Issues Involved:
1. Novation of Contract
2. Bona Fide Dispute
3. Commercial Insolvency
4. Issuance of Post-Dated Cheques
5. Legal Proceedings and Injunctions

Detailed Analysis:

1. Novation of Contract:
The appellant argued that a novation of contract occurred through various e-mails exchanged between the parties, replacing the original loan agreement dated 15-4-2005. The court examined the e-mails dated 9-5-2006, 10-10-2006, 11-10-2006, and 6-12-2006, which were claimed to constitute a new agreement. However, the court found that these e-mails did not amount to a concluded contract substituting the original loan agreement. The court emphasized that clause 12.5 of the loan agreement required any variation to be in writing and signed by each party, which was not the case here. Therefore, the argument of novation was rejected.

2. Bona Fide Dispute:
The appellant contended that there was a bona fide dispute regarding the payment of the debt, which should be adjudicated in a regular suit rather than through winding-up proceedings. The court noted that the appellant had acknowledged the loan amount and issued post-dated cheques for repayment. The defense of novation was found to be unsubstantial and not raising any triable issues. The court concluded that the defense was not bona fide, and thus, the winding-up petition was maintainable.

3. Commercial Insolvency:
The court considered whether the appellant-company was commercially insolvent and unable to pay its debts. The appellant failed to provide any material evidence to show that its worth was equal to or more than its liabilities or that it had substantial resources to pay its debts. The court noted that the appellant's business had come to a standstill, and there was a huge outstanding debt. Therefore, the court concluded that the appellant-company was commercially insolvent.

4. Issuance of Post-Dated Cheques:
The appellant had issued various post-dated cheques towards the repayment of the loan amount. The court observed that these cheques were not issued as collateral security but were meant for repayment of the loan. The covering letters accompanying the cheques did not suggest that they were not to be encashed. The court found that the issuance of these cheques acknowledged the debt and the appellant's liability to repay the loan.

5. Legal Proceedings and Injunctions:
The appellant had sought an injunction from the Delhi High Court to restrain the respondent from encashing the cheques. The injunction was initially granted but later vacated by the Division Bench of the Delhi High Court. The appellant's special leave petition to the Supreme Court was also dismissed. The court noted that the appellant's attempt to seek an injunction had failed, and the suit filed by the appellant was withdrawn. The court concluded that the appellant's defense was not substantial, and the winding-up petition was rightly admitted.

Conclusion:
The court upheld the order admitting the winding-up petition and directing its advertisement. The appellant's arguments of novation and bona fide dispute were rejected. The court found that the appellant was commercially insolvent and unable to pay its debts. The issuance of post-dated cheques acknowledged the debt, and the appellant's attempt to seek an injunction had failed. Therefore, the appeal was dismissed.

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