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TMI Blog2010 (12) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... in the reply has taken the defence that they had entered into a contract with Ludhiana Improvement Trust (LIT, for short) under a concession agreement dated 24th May, 2005 to develop and market the project Ludhiana City Centre . It is further stated that a tripartite agreement dated 25th August, 2005 was entered among the Respondent company, LIT and HDFC Limited and in terms of which an escrow account is opened in HDFC Bank. 30% of the sale proceeds from the said account were to be credited to LIT and balance 70% to the Respondent company. The Respondent company has alleged that amount was paid through one Mr. Rajesh Arora and the Respondent company had no direct dealing with the Petitioner. It is stated that there are disputes and differences between the Respondent company and LIT/Government of Punjab and the later have illegally revoked power of attorney issued in favour of the Respondent company and have frozen the escrow account by virtue of communication dated 5th October, 2006. It is further alleged that LIT has withdrawn ₹ 23,48,28,128/- representing 30% of the amount received in the escrow account. In the reply, the Respondent has pointed out that litigation between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale consideration comes to ₹ 185.06 Crores (Rupees one hundred eighty five crores six lacs only). 3) The Company shall satisfy the Purchaser in all respects of its title. The Purchaser shall after complete satisfaction and due diligence within 10 working days from the date of signing of this MOU, enter into a specific Agreement for Sale/Joint Development of the respective areas in the L.C.C. which shall be leased to the Anchor or Non Anchor as the case may be. XXXXX XXXXX Whereas the Company is a Developer of various real estate projects and is in the business of development. Whereas the Purchaser is a company in the business of properties and investments and is interested for investments/buying some of its properties which are under development and the Company has intended to enter into an arrangement for selling its properties on the basis of the understanding which the parties are desirous to bring them in writing. The Company is a Developer of City Centre at Ludhiana known as Ludhiana City Center (LCC). The Company has already started entering into leasing arrangements with the retailers for the developed areas in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Punjab. 8. During the course of hearing, Mr. Arvind Nigam, Sr. Advocate has tried to contend that the Respondent had acted as an agent of LIT and an agent is not liable. The agreement/memorandum of understanding executed by the Respondent was as an agent and Respondent had disclosed the identity of the principal, i.e., the LIT, therefore, in case of non-payment, the agent is not responsible and payment should be recovered by the Petitioner from LIT, i.e., the principal. This defence has to be rejected for the following reasons: (1) This defence is not specifically pleaded in the reply filed to the company petition on 18th August, 2009. The defence is clearly an afterthought and as a result of legal opinion or advice. This was not what was the intention of the parties when they had entered into a transaction and even when the reply was filed to the company petition. (2) Secondly, the agreement/memorandum of understanding does not state/record that the Respondent was merely acting as an agent and was not responsible and liable for the money received from the Petitioner. Several clauses of the agreement/memorandum of understanding between the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal agreement and not an agreement with the Respondent, acting as an agent of a third party with no personal rights and liabilities. The Respondent has expressly accepted personal liability and has agreed to refund the amounts paid. (4) Fourthly, the Respondent in their letter dated 27th September, 2006 have admitted that they had received ₹ 4,02,00,000/- from the Petitioner, Mr. Sunil Kothari. The letter talks of revised understanding under which the Petitioner was liable to pay further sum of ₹ 25.98 crores within 21 days of the sale of the property being confirmed in their favour by LIT and necessary documents provided in this respect by the Respondent to the Petitioner. It further states that save and except above modification, other terms and conditions, including payment plan would remain in force and binding on the parties. This letter is an admission by the Respondent to the Petitioner about the payment. It establishes and proves that the Respondent had taken the obligation to get confirmation of allotment from LIT in favour of the Petitioner and furnish the said document from LIT to the Petitioner. It confirms and reiterates that the agreement betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication for liquidation is filed under Section 439 in reliance of the presumption under Section 434(1)(a) that the company is unable to pay its debts, the law should take its own course and the company 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 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 along ground. 12. The supreme court in Madhusudan Gordhandas Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (I) Private Limited (supra). The Respondent has pleaded that they have started new projects and persons/third parties who have invested in the new projects will be adversely affected. This cannot be a ground to deny and refuse payment to creditors. Earlier Creditors cannot suffer and denied amounts due and payable because the Respondent has made investments in new projects and third parties have made investments. The Act and the law require that a company with limited liability should pay the dues of the creditors and not avoid payment on sham or unsustainable grounds. A company cannot be permitted to withhold payment and deny payment, which is due to a creditor merely because the Directors/management does not want that the payment should be made. A company under law is required to make payment to the creditor once the creditor demands payment by issue of notice under Section 434(1)(a) of the Act. This is the statutory obligation of the company otherwise consequences flow from the presumption or the deeming effect created by the said Section. However suitable directions have been given below to protect interest of the Respondent and third parties at the same time ensuring that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. It is stated that as per the policy of the Respondent, the persons who had booked spaces were entitled to refund after deduction of upto 10% of the basic sale price of the office/space constituting earnest money but the balance amount was refundable. The Respondent in their letter dated 10th May, 2007 have again stated that the Petitioner had booked a unit bearing tentative No. 829, saleable area 1239.24 square feet on 8th Floor, of the office tower in Ludhiana City Centre, Ludhiana. It is stated that the total sale consideration as per the agreed terms was ₹ 42,44,397/-, out of which the Respondent had received ₹ 10,03,000/- . 16. In view of the aforesaid documentation on record, it is apparent that the Petitioner had booked office space in the complex in Ludhiana and because of the disputes between the Respondent and LIT/Government of Punjab, the Respondent is unable to complete the said complex/project. The Petitioner is asking for refund of the amount paid by him. The Petitioner is entitled to the said refund. There is no document or any other paper to show and suggest that the Respondent had ever collected the said payment merely acting as an agent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tranger. It has long been an axiom of the common law that a contract between A and B cannot impose a liability upon C. 20. The Doctrine of Privity of Contract has been explained in L. Shiv Dayal Kapoor and Ors. Union of India (UOI), New Delhi and Anr AIR 1963 P H 538 as under: 16. I may now consider the implications of the rule underlying the doctrine of privity of contract, which means the relationship subsisting between two contracting parties. Privity in this context implies a mutuality of will and is an interaction of parties and their successors. It creates a legal bond or tie or a vinculum juris. The rule of privity of contract is that no one but the parties to a contract can be bound by it or entitled finder it. In the words of Pollock, A third person cannot become entitled by the contract itself to demand performance of any duty under the contract, Salmond and Winfield put in thus: No man can enforce a contract to which he is not a party, even though he has. direct interest in the performance of it. 17. The doctrine of 'privity of contract', as above stated, is well settled in England, but it has certain except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivy to the contract. It is the counter-part of the principle that a third party cannot acquire rights under a contract.... 21. The Petitioners in the present cases are not concerned with disputes and differences between the Respondent and a third party. The Petitioners are not parties to the dispute between the Respondent and LIT or the Government of Punjab. The Petitioners are not responsible for the said dispute. The Petitioners have entered into an agreement with the Respondent and this is for the Respondent to adhere and act upon the said agreement. The Respondent company is bound by the terms of the contract between them and the Petitioners and cannot wriggle out of the said terms, because it has disputes with a third party . 22. In these circumstances, I am inclined to admit Co. Pet. No. 8/2009, Sunil Kothari Today Homes and Infrastructure Private Limited and Co. Pet. No. 107/2009, Balwant Singh Today Homes and Infrastructure Private Limited. However, I defer order on admission, appointment of Provisional Liquidator and publication of citations for a period of six weeks in order to enable the Respondent to negotiate with the Petitioners or deposit the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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