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TMI Blog2010 (9) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 in terms of the Deed of Settlement entered into by the parties on 19-12-2003 towards the fees for the marketing services undertaken by the respondent for the appellant. 3. Prior to the filing of the company petition, a legal notice dated 16-8-2008 was served on the appellant under section 434(1)( a ) of the Companies Act, 1956, calling upon the company to pay the amount within twenty one days from the date of the receipt of that notice, failing which the appellant was informed that appropriate legal proceedings would be initiated. Specific reference was also made to the deed of settlement dated 19-12-2003 and the terms of the Compromise entered into by the parties on 18-3-2006 in O.S. No. 9655 of 2005 before the City Civil Court at Bangalore. 4. The appellant replied to the said notice vide its letter dated 28-8-2008 stating that it had not violated any of the terms and conditions of the said deed of settlement or the compromise entered into by the parties and that whatever amount received by the appellant prior to 31-12-2006 from M/s. Solutions Protocol Sdn. Bhd., a company incorporated in Malaysia, was paid to the respondent. The appellant also denied the liability t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to comply with the terms and conditions of the deed of settlement dated 19-12-2003 and the compromise entered into by the parties dated 18-3-2006. Learned counsel submitted that the appellant company is not in a position to pay off its debts and it is just and equitable that the appellant company be wound up. Facts in Brief 8. The appellant [M/s. IBA Health (India) Private Limited] was originally incorporated as Medicom Solutions Private Limited. The name of the appellant company was changed to M/s. IBA Health (India) Private Limited in December 2005 following its acquisition by IBA Health (Asia) Holding Pte. Limited and IBA Health (Singapore) Pte. Limited, both of which are entities incorporated in Singapore. The paid up capital of the appellant company was in excess of Rs. 10.06 crores at the end of 31-3-2009 and its fixed assets and investments were in excess of Rs. 23.83 crores. At the end of 31-3-2009, it had made a profit of over Rs. 15 crores and there were over 300 employees working in the appellant company. The respondent is a company incorporated in Malaysia which was originally incorporated as Bhari Information Technology Systems Sdn. Bhd. and subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted any of the terms and conditions of the deed of settlement dated 19-12-2003 and pointed out that whatever amounts received by the appellant from M/s. Solutions Protocol Sdn. Bhd. were paid over to the respondent. It was stated that the appellant company had received no other payments till 31-12-2006 after they made payment to the respondent on 20-3-2006. Further, it was pointed out that the invoice dated 2-2-2007 had no basis as it has been issued to M/s. IBA Health Limited, a company incorporated in Australia and was not a party to the Corporation agreement or the deed of settlement. The respondent company was advised not to indulge in any frivolous proceedings against the appellant, which it was stated would be at their risk and costs. The respondent company then issued a legal notice dated 16-8-2008 under section 434 of the Companies Act calling upon the appellant to pay the amount demanded within twenty one days from the date of receipt of notice, failing which the appellant was informed that appropriate legal proceedings would be initiated. The notice was replied by the appellant company vide letter dated 28-8-2008 denying its liability. Further, it was also pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other items of deliverables not specified in clause 2( i ) or clause 2( ii ) above, howsoever designated, including Software Maintenance, Annual Maintenance Charges (AMC), customization, per diem charges, local expenses, airfare travel expenses, accommodation expenses and the like. (3)The Settlement Sum shall be valid for payments received by Medicom from SP and/or SP/JV under the HICT Package I Contract and/or the HIS software applications modules contracted for the HICT Package I Contract with SP/JV only and it is conclusively agreed to that Bitech shall not in any circumstances whatsoever be entitled in law or otherwise for any payment for any other contracts including contracts involving. Medicom and Solutions Protocol from the Government of Malaysia or otherwise, whether in Malaysia or any other country. (4)The Parties hereto hereby acknowledge that the obligation of Medicom to pay Bitech the Settlement Sum shall always be subject to Medicom (or its representatives or nominees) having received payments of sufficient value from SP and/or SP/JV to enable the payment of up to the maximum amount of the Settlement Sum to be made on or before 31st December, 2006 (hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff as per Plaintiff s entitlement and as per the defendant s obligation under the Deed of Settlement. (4)The Defendant, based on transactions pertaining to the Deed of Settlement has paid the amount having become due and payable to the Plaintiff as on date. The Plaintiff accepts that it has received all payments due to it as on date from the defendant as per the terms of the deed of settlement. (5)The Defendant has already disclosed the right of the Plaintiff in respect of Deed of Settlement mentioned in the suit, to M/s. IBA Health Limited, Australia in the understanding entered with them. (6)This compromise shall be binding on the parties and shall not be construed as creating an executable decree. ******" 15. The respondent company in company petition alleged that the appellant had failed to comply with the terms and conditions of the deed of settlement and since no payment was forthcoming from the appellant company and, it was under such circumstances, that a legal notice dated 16-8-2008 was issued on the appellant reminding of its obligations under the deed of settlement. Further, it is also stated that the respondent had reliably learnt that substantial payment h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st not be a mere wrangle. It is settled law that if the creditor s debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt. 18. In this connection, reference may be made to the judgment of this Court in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp. Cas. 456 , in which this Court held that : "It is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court." 19. The above mentioned decision was later followed by this Court in Madhusudan Gordhandas Co. v. Madhu Woollen Industries (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of course will have an opportunity on the liquidation application to rebut that presumption. 22. An examination of the company s solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company s liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterized as a stand alone ground. 23. We have gone through various terms and conditions of the deed of settlement as also the compromise agreement and the allegations raised in the company petition and the objections filed by the appellant company. Both the parties are in agreement that they are boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt while exercising its powers under sections 433 and 434 of the Companies Act, 1956 would not be in a position to decide who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed which calls for detailed investigation of facts and examination of evidence and calls for interpretation of the various terms and conditions of the deed of settlement and the compromise entered into between the parties. A company petition cannot be pursued in respect of contingent debt unless the contingency has happened and it has become actually due. In the absence of any evidence, it is not possible to conclude that M/s. Solutions Protocol Sdn. Bhd. had in fact paid any amount to the appellant company towards commission charges due to the respondent company before the cut-off date. A legal notice prior to the institution of the company petition could be served on the company only in respect of a debt (then due) and a company could be wound up only if it was unable to pay its debts. In this case, there is a bona fide dispute as to whether the amount claimed is presently due and if, at all, it is due, whether the appellant company is liable to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthiness or its financial standing with its creditors or customers and even among the public. Public policy considerations 26. A creditor s winding up petition, in certain situations, implies insol- vency or financial position with other creditors, banking institutions, customers and so on. Publication in the Newspaper of the filing of winding up petition may damage the creditworthiness or financial standing of the company and which may also have other economic and social ramifica- tions. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross-defaults, and may further push the company into a state of acute insolvency much more than what it was when the petition was filed. The Company Court, at times, has not only to look into the interest of the creditors, but also the interests of public at large. 27. We have referred to the above aspects at some length to impress upon the Company Courts to be more vigilant so that its medium would not be misused. A Company Court, therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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