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TMI Blog2009 (12) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... , resulting in sales of recycled commodities. 3. The respondent M/s. Blue Engineering Ltd., having its registered office at 46, Shardanand Marg, Delhi - 110 046, is a company that was incorporated under the Companies Act, 1956 on or around 3-1-2007. 4. According to the petitioner, various Cost and Freight contracts were entered into by it with the respondent company for the sale and purchase of non-ferrous scrap. Details of the-relevant invoices are given below: Sl. No. Invoice No., stated to be evidence of debt Amount supplied (MT) Price quoted by petitioner (in USD) Total value of sale to respondent Price quoted by petitioner to 3rd party (in USD) Total value of sale to 3rd party Price differential 1. 24876/01 25.75 2200 56,650 1000 25,750 30,900 2. 25375/03 28.68 2500 71,700 1305 37,427.40 34,272.6 3. 25671/01 16.95 2000 33,900 1000 16,950 16,950 4. 25671/02 16.9 2000 33,800 1000 16,900 16,900 5. 25671/03 16.54 2000 33,080 1000 16,540 16,540 6. 25671/04 15.68 2000 31,360 1000 15,680 15,680 7. 25671/05 19.16 2000 38,320 1000 19,160 19,160 8. 25743/01 16.84 2030 34,185.20 1000 16,840 17,345.20 Sl. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, i.e., 'Blue Engineering Pvt. Ltd.' 7. On receiving no reply to the said, the Petitioner contracted to sell the goods to a third party buyer, i.e., M/s Century Metal Recycling Private Limited on 14-1-2009 and issued invoices No. 25375/03, 25936/01, 25935/02, 25935/03, 25935/04, 25935/05, 25743/01, 25743/02, 25743/03, 25743/04, 25743/05, 26063/01, 26063/02, 26063/03, 26063/04, 25671/01, 25671/02, 25671/03, 25671/04, 25671/05, 24876/01 and 40477 in respect of the same. 8. Thereafter, the petitioner issued a notice of winding up dated 12-3-2009 under section 433 and section 434 of the Companies Act, 1956, again calling upon the respondent to make a payment of USD 477,606.35, which was the amount due to the petitioner, within three weeks of the deemed receipt of the notice of winding up. By way of this notice, the petitioner informed the respondent that the goods had been sold to a new buyer/third party, in order to mitigate the petitioner's loss and to avoid paying further demurrage and warehousing charges, and that the amount claimed in the said notice by the petitioner was the total differential price of the goods, i.e., the difference between the purchase price, as per the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted his liability to pay the damages. 13. Since there has also been no appearance on behalf of the respondent, the petitioner's averments remain unrebutted. The respondent's failure to respond to the statutory notice of winding up sent on 12-3-2009 does not mean that winding up orders must invariably be passed, as this Court has held in Resham Singh & Co. (P.) Ltd. v. Daewoo Motors India Ltd. [2003] 116 Comp. Cas. 529, that "where no response had been made to the statutory notice the respondent company runs the risk of a winding up petition being admitted for hearing at the threshold stage itself." It has further been held, in the same case, that "Normally, the Company Judge considers it prudent in the first instance to issue notice to the respondent so that its defence to the possible far-reaching and fatal winding up orders can be considered. The admission of the petition at its first hearing is possible because, by virtue of section 434 of the Companies Act, a presumption of the indebtness can be legitimately drawn by the Court where no reply to the statutory notice is forthcoming. The risk of the admission of the petition, as well as the appointment of a provisional liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al one, the Court will not wind up the company. The decisions in Pradeshiya Industrial & Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 3 SCC 348; and in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp. Cas. 456 (SC) support the same proposition. 17. The parties entered into a contract for the sale of certain goods, which were procured and shipped. Tie buyer, i.e., the respondent herein, did not take delivery of the goods, for reasons unknown as there has been no appearance on behalf of the respondent in the present proceedings. The petitioner then sold the goods to a third party. In essence, the petitioner has tried to mitigate the damages to which he is entitled, by selling the goods in the open market and then deducting the price from the contracted amount due to him. What remains to be seen is whether an action under contract law, i.e., the claim of the petitioner if entitled to sue, which may be a claim for unpaid principal towards the sale of goods, or a claim for unrealized damages after having resorted to the sale of goods whose delivery wasn't taken towards mitigation of damage, would amount to 'debt' in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant." (p. 1273) 20. McGregor on Damages (13th Edition, 1972, Sweet and Maxwell) says that : "the principal meaning of the term 'mitigation' comprises three different, although closely interrelated, rules : (1) The first and most important rule is that the plaintiff must take all reasonable steps to mitigate the loss to him consequent upon the defendant's wrong and cannot recover damages for any such loss which he could thus have avoided, but has failed, though unreasonable action or inaction, to avoid. Put shortly, the plai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loss does not give any right to the defaulting party, but the concept has to be borne in mind by the Court while awarding damages." In the facts of that case, the court did not accept the contention of the defendant that the auctioneer had deliberately resold at a lower price. 23. Chitty on Contracts, 30th Edition, 2008, Vol. I, pp. 26-110, says that : "In contracts for the sale of goods, the normal rule for the measure of damages assumes that the innocent party should act immediately upon the breach, and buy and sell in the market, if there is an available market. The market price rule is fundamental to the sale of goods... An instance of mitigation arises where the defendant in breach of contract refuses to accept goods which he has agreed to buy, but (where) the claimant is able to sell the goods at the same price to a third person, if the state of the market is such that demand exceeds supply, so that the claimant can always finds a purchaser, he is entitled to only nominal damages, not his loss of profit on the repudiated sale, as he sold the same number of articles and made the same amount of fixed profits as he would have done if the defendant had duly performed his c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty in the goods has not passed, the seller has no right of resale under section 54(2) and the claim to recover the deficiency on resale would not be sustainable..." 27. The Supreme Court has affirmed this position in P.S.N.S. Ambalavana Chettiar & Co. v. Express Newspapers Ltd. AIR 1968 SC 741. 28. Further, as per the provisions of section 54(2) of the Sale of Goods Act, 1940, the petitioner's statutory right to resale would arise only when a notice of resale was served on the buyer, as per section 54(2) of the Sale of Goods Act. This has not been done in the present case. 29. In the instant case, there is also nothing on record to indicate the financial position of the respondent company. Admission of the petition, as prayed for, and the consequent advertisement itself does not amount to a direction regarding liquidation. Yet, as a Division Bench of the Madras High Court has held in NEPC India Ltd. v. Atlantic Bridge Aviation Ltd. [2009] 94 SCL 296, it is an "initial, albeit an important step." In the same case, it has further been held that "At the stage of considering these aspects, obviously, the Court is only required to come to a prima facie conclusion regarding the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d-of-life vehicles/consumer products, industry and construction/demolition, resulting in sales of recycled commodities. 3. The respondent M/s. Blue Precision Limited, having its registered office at 46, Shardanand Marg, Delhi - 110046, is a company that was incorporated under the Companies Act, 1956 on or around 21-3-1995. 4. According to the petitioner, various Cost and Freight contracts were entered into by it with the respondent company for the sale and purchase of non-ferrous scrap. The contracts in question are Contract No. 25442 and Contract No. 25716, details of whose invoices are given as under, annexed as Annexure N to the petition : Sl. No. Invoice No., stated to be evidence of debt Amount supplied (in MT) Price quoted by petitioner (in USD) Total value of sale to respondent Price quoted by petitioner to 3rd party (in USD) Total value of sale to 3rd party Price differential 1. 25442/01 45 2450 110,250 1305 58,725 51,525 2. 25442/02 15 2450 36,750 1305 19,575 17,175 3. 25716/01 11.64 2550 29,682 1305 15,190.20 14,491.80 4. 25716/02 15.76 2550 40,188 1305 20,566.80 19,621.20 5. 25716/03 15.09 2550 38,479.50 1305 19,692.45 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old to the third party buyer. 8. This petition was filed on 6-4-2009, praying for an order of winding up to be passed in respect of the respondent, along with an application under section 450 of the Companies Act, 1956 for the appointment of a provisional liquidator. A further prayer for costs amounting to USD 140,324.85 is also made, this being equal to the total price differential of the contracted goods, as calculated by the Petitioner. 9. Notice was issued to the respondent to show cause as to why winding up proceedings be not initiated on 15-4-2009 and is stated to have been served on 18-9-2009. The affidavit of service in this regard is also on record. There has been no appearance on behalf of the respondent. 10. The petitioner has also relied on various communications that were exchanged between the petitioner and the respondent company, with regard to the contracts in question. It is further submitted that there is no bona fide dispute with regard to the liability of the respondent company to pay the amount due to the petitioner, and its non-payment raises a statutory presumption that the respondent Company is commercially insolvent and is unable to repay its debt to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 15 in Annexure 32928 (stated incorrectly as 36,750 in 17539.20 (stated incorrectly as 19,575 15,388.8 (incorrectly (stated as 17,175 in Annexure N to the petition) Invoice No. Amount supplied (as per copy of invoice annexed to petition) Total value of sale to respondent (in USD) Total value of sale to 3rd party (in USD) Price differential (in USD) E and N to the petition) Annexure N to the petition) in Annexure N to the petition 25716/04 15.09 38,479.50 (stated incorrectly as 38,352 in Annexure N) 19627.20 18,852.30 (stated incorrectly as 18,724.80 in Annexure N to the petition) 13. Furthermore, while both Contract Nos. 25442 and 25716 are in the name of 'Blue Precision Ltd., Plot No. 111, Sector 59, HSIDC Industrial Area, Faridabad, Haryana'; only one invoice No. 25716/03 is in the name of 'Blue Precision Ltd.'. All the other invoices, namely, Nos. 25442/01, 25442/02, 25716/01, 25716/02 and 25716/04, are in the name of 'Blue Engineering (P.) Ltd.' All the Bills of Lading with regard to all the abovementioned invoices, are in the name of 'Blue Engineering (P.) Ltd.' 14. The only invoice in the name of the respondent 'Blue Precisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans for realising debts due from a company." 17. The court in the Mediquip Systems (P.) Ltd.'s case (supra ) also referred to a decision of the Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories (P.) Ltd. [1990] 3 Comp. LJ 322 , where the following principles relating to bona fide dispute had been evolved : "(1) If there is a dispute as regards the payment of the sum towards principal, however small that sum may be, a petition of winding up is not maintainable and the necessary forum for determination of such a dispute existing between the parties is the Civil Court; (2) The existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the parties to decide such a dispute before the Civil Court and in such an eventuality, the Company Court itself is competent to decide such a dispute in the winding up proceedings; and (3) If there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the creditor to resort to both the remedies of filing of a civil suit as well as filing of a petition for winding up of the company." 18. These principles have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brings out the essential characteristics of a debt: 'Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is debt due.' This passage indicates that when there is an obligation to pay a sum of money at a future date, it is a debt owing but when the obligation is to pay a sum of money in praesenti, it is a debt due. A sum due would, therefore, mean a sum for which there is an existing obligation to pay in praesenti or in other words, which is presently payable." 21. It was further held, in paragraph 9 of the Raman Iron Foundry's case (supra), that: "The law is well-settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being the ones which were required of him under the first rule. Put shortly, the plaintiff cannot recover for avoided loss." 23. Two principles with regard to compensation for loss of damage caused by breach of contract, as envisaged by section 73 of the Indian Contract Act, 1872 have been explained by the Supreme Court in Murlidhar Chiranjilal v. Harishchandra Dwarkadas AIR 1962 SC 366, as follows : "(i)As far as possible he who has proved a breach of bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed, but (ii)that there is a duty on him of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part of the damage which is due to his neglect to take such steps." Following this decision, the Delhi High Court in Highway Engineering (P.) Ltd. v. Union of India (1996) 63 DLT 833, held that the non-defaulting party was required to show that it not only suffered loss due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Maharashtra State Electricity Distribution v. DSL Enterprises (P.) Ltd. 2009 (111) Bom. LR 1246, has held that the onus of proof, of mitigation is on the Defendant, and that "if he fails to show that the claimant ought reasonably to have taken certain mitigating steps, then the normal measure will apply." 27. The other question that arises but is not answered in this petition is as follows : (a )If the Sale of Goods Act, 1940 applies to the contracts in question, whether the petitioner/seller had a statutory right to resell at all, in view of not having given a notice of resale to the respondent/buyer, which is statutorily required by section 54(2) of the Sale of Goods Act, 1940 in order to claim the difference between the purchase price and the price at which the goods were resold? 28. The petition and its annexures do not indicate the terms of the contracts, or the intention of the parties, to the effect that the Sale of Goods Act, 1940 does not apply to the contracts in question. Thus, if the Sale of Goods Act, 1940 were held applicable to the contracts in question, then section 54 of the said Act would deal with the rights of an unpaid seller against the goods. Mulla on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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