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TMI Blog2017 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... as extended until further orders on 18.12.2014. Application No.7 of 2015 was filed by the respondent, the petitioner in C.P.No.235 of 2012, to vacate the interim order dated 06.11.2014. Thereupon, this Court was informed on 22.06.2015 that the APIIC was attempting to make payment of the admitted amount due and the case was accordingly adjourned. Again, on 07.12.2015, the learned Advocate General appearing for the APIIC sought time to secure instructions as to deposit of the money due to the respondent. On a similar plea, the case was again adjourned on 29.12.2015. However, as no amicable settlement materialized between the parties and comprehensive arguments were advanced by both sides, the appeal is taken up for final disposal. The case of the respondent herein, M/s. IHP-MEIL-KEEP- BRCPL-TAIPPL, a joint venture, represented by its partner in-charge, M/s.Indian Hume Pipe Company Limited, Mumbai, the petitioner in C.P.No.235 of 2012, was as under: The APIIC, a company incorporated under the provisions of the Companies Act, 1956 (for brevity, the Act of 1956), with its registered office at Parishrama Bhavan, Fateh Maidan Road, Hyderabad, invited tenders for implementing the Somasil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts and attempts on its part to secure the balance amount, the APIIC failed to discharge the same. Reliance was placed upon the letter dated nil-7-2011 of the Zonal Manager, APIIC, Kadapa, admitting liability in this regard. The company petitioner claimed that though it maintained good progress in execution of the work, officials of the APIIC asked it to stop and not to proceed further in December, 2009. The company petitioner claimed that due to this sudden stoppage of payments and the work, its men and machinery were left idle and it was constrained to leave the work midway. The Managing Director of the APIIC addressed letter dated 18.01.2012 to the company petitioner acknowledging and confirming liability as to the amount outstanding and informing it that upon receipt of funds from the Government, the bills would be cleared and a decision would be taken on the subject scheme. Statutory notice dated 11.09.2012 was issued to the APIIC under Section 434 of the Act of 1956 calling upon it to pay the outstanding balance of Rs. 8,18,36,584/- within 21 days. The APIIC, having received the said notice, did not choose to either pay the amount or respond thereto. Thereupon, the company pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties reflected in no uncertain terms that the debt due to the company petitioner from the APIIC was a genuine one and was also admitted. The learned Judge also took note of the fact that though reliance was placed on Clauses 60 and 61 of the agreement by the APIIC, it had not initiated any action thereunder against the company petitioner and that could be only because the company petitioner had stopped the work owing to the APIIC itself being unable to pay the bills for the work already executed. As regards the arbitration clause contained in Clause 73 of the agreement, the learned Judge rejected the plea of the APIIC in this regard as there was no dispute to be resolved with regard to payment of admitted bills and as the special jurisdiction of the Company Court under Sections 433 and 434 of the Act of 1956 could not be barred by such an arbitration clause. The learned Judge therefore concluded that the debt of the company petitioner was an undisputed one and the denial thereof by the APIIC could be characterized as mere moonshine. However, taking note of the fact that the APIIC would have to be proceeded against for winding up owing to what was principally the default commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily have to be resolved through the contemplated alternate dispute resolution mechanism of arbitration or by recourse to the civil Court. Learned Advocate General would therefore pray that the order of admission of the company petition made by the learned Company Judge be set aside. Per contra, Sri R.Raghunandan, learned senior counsel representing Ms.Shireen Sethna Baria, learned counsel for the respondent/company petitioner, would contend that though the company petitioner was required to complete the work entrusted to it under the agreement dated 24.09.2008 within 12 months, there was failure on the part of the APIIC to live up to its initial obligations thereunder which contributed to the slow rate of progress and thereafter, to complete stoppage of the work. Learned senior counsel would draw our attention to Clause 85 of the contract which dealt with the mobilization advance. Thereunder, the APIIC was required, if it considered necessary, to facilitate mobilization advance up to 10% of the value of the contract towards labour and material against bank guarantees. He would point out that the company petitioner offered bank guarantees in this regard but despite the same, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit and other amounts due to the contractor. Under Clause 61, if the Zonal Manager is of the opinion that the contractor neglected or failed to proceed with the work with due diligence in terms of the scheduled rate of progress or committed default in any manner, he is empowered to give notice in writing to the contractor requiring that the work be proceeded with in accordance with the terms of the contract. Learned senior counsel would point out that at no point of time, the APIIC resorted to give any such notice, be it under Clause 60 or Clause 61. He would further point out that it is not the case of the APIIC that it took steps to get the work completed through any other agency after stoppage of the work by the company petitioner, whereby it could claim that it had incurred losses owing to extra expenditure incurred. He would therefore assert that the APIIC was resorting to illusory grounds which amounted to mere moonshine to ward off the attack of the company petitioner. Learned senior counsel would lay emphasis upon the letter dated 03.01.2012 addressed by the company petitioner to the APIIC, wherein it stated that Rs. 10.00 crore payment due to it was still pending for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake up the head works (intake well, installation of pumps, electrical sub station etc.) and laying of MS pipeline from Somasila Reservoir to bring 4 TMC of water to Kadapa under Phase-I at a cost of about Rs. 500.00 crore. Under Phase-I, the work of laying 2200 millimetre dia MS pipe from Somasila to Kanumalonipally-Package-I, being a distance of 28 kilo metres at a cost of Rs. 300.00 crore was awarded to the company petitioner, while the laying of 1500 millimetre dia MS pipe from Kanumalonipally to Kadapa-Package-II, involving a length of 24 kilometres at a cost of Rs. 115.00 crore, was awarded to another agency. The Managing Director stated that both the packages were grounded in September, 2008, without receipt of funds from the Government and reported the existing status of the works. As regards the company petitioner, he informed the Government that 2.19 kilometres length of pipe had been fabricated and supplied at site under Package-I. As regards the financial progress, he noted that a sum of Rs. 6.00 crore had been paid to the company petitioner as against the value of the work done, viz., Rs. 15,43,03,122/- and that the balance amount due was Rs. 9,43,03,122/-. He also info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was still unpaid, the APIIC had no grounds to say that there was any dispute in relation thereto. Learned senior counsel would point out that if the argument of the learned Advocate General was to be accepted, the company petitioner had to complete the entire work costing about Rs. 260.00 crore without receiving any payment, which would be wholly unrealistic. Learned senior counsel would point out that the Supreme Court, in IBA HEALTH (INDIA) PRIVATE LIMITED V/s. INFO-DRIVE SYSTEMS SDN. BHD. , observed that merely because a company is commercially solvent, it cannot claim immunity from winding up. He would therefore justify the order of admission of the company petition and pray that the appeal be dismissed. In reply, the learned Advocate General would contend that the company petitioner unilaterally stopped the work and non-payment of bills was not cited by it as the reason for such stoppage at any point of time. He would further contend that, this being the situation, the company petitioner could have sued for damages for the delay in such payment and that Section 434 of the Act of 1956 was not the remedy. He would also point out that no remedial measures were taken recourse to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate General by stating that these should not be taken to be admissions of the amount due to the company petitioner. This Court, however, is not impressed with this wishful thinking. These letters put it beyond doubt that the APIIC was not on the offensive but clearly on the defensive. These letters also bring out the fact that the APIIC itself accepted that the company petitioner had stopped the work owing to non-payment of the bills. Though the learned Advocate General would argue otherwise, this Court is not impressed by his argument that the company petitioner should have completed the project within 12 months irrespective of whether it was paid for the work already executed. Being a business venture for the company petitioner, it could not be expected to plod ahead with work of such a huge magnitude unmindful of payment being made for the work done. This argument lacks commercial sensibility. The last letter dated 02.04.2012, having been addressed by no less than the Managing Director of the APIIC, completely settles the issue. This letter brings out discomfiting details of what really went on and for which the learned Advocate General has no answer. It is clear therefro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... biased treatment is not meted out by political bosses of the moment and ensure uniform growth of all regions of the State. The case on hand presents a shocking instance of how public money is wastefully depleted without care or conscience to suit vested political interests. In his article, Public Accountability: A framework for the analysis and assessment of accountability arrangements in the public domain , Professor Mark Bovens states that the word accountability is Anglo-Norman in origin and semantically, it is closely related to accounting in its literal sense of bookkeeping, but in contemporary political discourse, accountability and accountable no longer convey a stuffy image of bookkeeping and financial administration, but hold strong promises of fair and equitable governance. According to the Professor, the most concise description of accountability would be: the obligation to explain and justify conduct. He asserts that political accountability is an extremely important type of public accountability within democracies. Bimal Jalan, economist and former Governor of the Reserve Bank of India, in his The Future of India Politics, Economics and Governance stresses upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on having ever been initiated by the APIIC to raise a dispute as to its liability to pay the amount aforestated or as to delayed discharge of contractual obligations by the company petitioner, it is too late in the day for it to now raise the ruse of a bonafide dispute to ward off the summary proceedings initiated under the Act of 1956 for its winding up. As pointed out by the Supreme Court in IBA HEALTH (INDIA) PRIVATE LIMITED1, mere commercial solvency of the APIIC is of no avail in the present situation as the same would only be a useful aid in deciding whether the refusal to pay the debt is a result of a bonafide dispute as to the liability or whether it reflects an inability to pay. The Supreme Court further observed that if there is no dispute as to the companys liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid and if the company refuses to pay without genuine and substantial grounds, it should not be able to avoid the statutory demand. M/S. MADHUSUDAN GORDHANDAS AND CO. V/s. MADHU WOOLEN INDUSTRIES PRIVATE LTD. relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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