2012 (8) TMI 110 - HC - Companies Law

Winding up - respondent-company became indebted to the petitioner-company and, despite service of statutory notice, it did not liquidate the liability Held that - Even if the amount claimed in the statutory notice is higher than the admitted amount, as long as the admitted amount exceeds the minimum amount stipulated under section 434(1)(a) of the Companies Act, and despite service of a statutory notice, the respondent-company fails to pay the lesser amount, it must be deemed that the respondent-company is unable to pay its debts in view of the legal fiction under section 434(1)(a) of the Companies Act - mere existence of an arbitration clause would not bar exercise of jurisdiction by this court under section 433(e) of the Companies Act for winding up of a company which is deemed to be unable to pay its debts

Summary

Issues Involved:
1. Application to set aside/recall the order of admission.
2. Application to reject the petition and direct arbitration.
3. Examination of the company's solvency.
4. Jurisdiction of the court despite the existence of an arbitration clause.
5. Inherent power of the court to recall its order.

Detailed Analysis:

1. Application to Set Aside/Recall the Order of Admission:
The respondent-company requested to set aside the order of admission of the winding-up petition, citing a change in management and lack of awareness about the petition. The court noted that despite the change in management, the respondent-company, as a distinct legal entity, remained in existence and was aware of the winding-up petition. The court emphasized that the company's legal personality is separate from its shareholders and management changes do not affect the winding-up proceedings.

2. Application to Reject the Petition and Direct Arbitration:
The respondent-company argued that the dispute should be resolved through arbitration as per the agreement between the parties. The court held that the existence of an arbitration clause does not bar the court's jurisdiction under Section 433(e) of the Companies Act for winding up a company deemed unable to pay its debts. The court cited precedents to assert that winding-up proceedings are distinct from arbitration and are within the court's special jurisdiction.

3. Examination of the Company's Solvency:
The respondent-company claimed commercial solvency and provided documents to support this claim. The court ruled that the company's solvency is irrelevant if it fails to pay the admitted debt, as per Section 434(1)(a) of the Companies Act. The court emphasized that the legal fiction under this section deems the company unable to pay its debts if it fails to pay the admitted amount despite statutory notice.

4. Jurisdiction of the Court Despite the Existence of an Arbitration Clause:
The court reiterated that the presence of an arbitration clause does not oust its jurisdiction to entertain or admit a winding-up petition. It cited several judgments to support this position, emphasizing that winding-up proceedings are not for debt recovery but to address the company's inability to pay its debts. The court maintained that it has unfettered powers to entertain winding-up petitions even if an arbitration clause exists.

5. Inherent Power of the Court to Recall its Order:
The court acknowledged its inherent power to recall an order if it was passed under a mistake or erroneous assumption. However, it found no such error in the initial order admitting the winding-up petition. The court noted that the respondent-company did not deny its liability to pay the admitted amount and that commercial solvency or arbitration provisions do not preclude the court from proceeding with the winding-up petition.

Conclusion:
Both applications filed by the respondent-company were dismissed. The court upheld its jurisdiction to entertain the winding-up petition despite the arbitration clause and the company's claim of solvency. The court emphasized the legal fiction under Section 434(1)(a) and the distinct nature of winding-up proceedings, affirming the initial order admitting the petition.