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TMI Blog2013 (3) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... date viz., 10.5.2006 with the petitioner herein; (ii) that all the 4 contracts were towards the project of setting up a coal based power plant of 3,600 MW Capacity; (iii) that the total contract price of all the 4 contracts dated 10.5.2006 was fixed at USD 943,978,215.00 and INR 15,602,886,878.00; (iv) that as per the terms and conditions of the contracts, the petitioner not only started executing works, but also issued Performance Bank Guarantees to the total tune of USD 123,599,998.10, all of which are valid and subsisting till 31.10.2013; (v) that the petitioner completed all its obligations under all the 4 contracts and all the 4 Units (4 x 600 MW), were set up except that the Reliability Run and Performance Guarantee Test for Unit No.4 was pending; (vi) that all the 4 Units are complete in all respects and are already operating commercially and generating revenue, with the respondent selling power from all the 4 Units to various Government and Non-Governmental Agencies; (vii) that despite the petitioner fulfilling and performing all their obligations, the respondent delayed payment of even the admitted milestone payments, especially after 2010; (viii) that in several letters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 125 crores on or before 15.10.2012; (xxi) that after making payment of only a sum of Rs. 100 crores, out of the total payment agreed to be made viz., Rs. 475 crores, the respondent failed to make any further payment; (xxii) that the respondent thus defaulted in making payment of even the amount admitted and acknowledged under the Minutes of the meeting dated 10.7.2012; (xxiii) that when the petitioner issued a letter dated 6.8.2012, demanding payment, the respondent started making all kinds of objections; (xxiv) that in the meantime, it came to be known that the respondent initiated a process of merger and amalgamation with Sesa Goa Limited; (xxv) that upon coming to know of the petition of the respondent for approving a Scheme of Amalgamation pending in this Court in C.P.No.166 of 2012, the petitioner filed objections on 24.9.2012, on the ground that the petitioner is one of the largest unsecured creditor of the Company, whose interest will be jeopardised if the Scheme was sanctioned; (xxvi) that the financial position of the respondent is highly leveraged, as seen from its statements of financial affairs; (xxvii) that even as per the Annual Report for the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in accordance with the MOM dated 10.7.2012, the respondent paid Rs. 100/- crores to the petitioner, but the petitioner failed to fulfil their reciprocal obligations under the said MOM; (xii) that the petitioner failed to hand over Unit No.3 by 11.7.2012 and also failed to provide solution to generic defects affecting the plant performance; (xiii) that the petitioner failed to act upon 56 items agreed to between them; (xiv) that the petitioner failed to replace the Generator Transformer of Unit No.4 and also to resolve various other issues; (xv) that the question whether the respondent is liable to pay any amount to the petitioner, has become a disputed question; (xvi) that since the liability is disputed, a petition for winding up is not maintainable; (xvii) that to sustain their claim that Unit Nos.1, 2 and 3 were handed over on 5.4.2011, 7.11.2010 and 10.10.2011 respectively, the petitioner ought to have completed all punch points/pending items; (xviii) that in view of the Minutes of the meeting dated 10.7.2012, all prior correspondence between the parties, cannot be relied upon by the petitioner to fasten any liability upon the respondent; (xix) that the obligation to make p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted that the respondent withdrew the Letter of Invocation of Bank Guarantee and also undertook not to invoke the Performance Bank Guarantee till 11.6.2012. The petitioner agreed not to discontinue the work till 11.6.2012. Thereafter the parties nominated their respective Arbitrators to the Arbitral Tribunal on 19.5.2012 and 16.6.2012. But thereafter the parties had a meeting on 10.7.2012 and arrived at some understanding. Consequently, the Arbitral Tribunal was dissolved. Therefore, it is clear that what transpired upto 10.7.2012 is only a matter of academic importance and whatever had happened till then had to be taken only as a broad canvas, on which the latter events got painted. Hence, it is not necessary for me to deal with the spate of correspondence dated 25.5.2011, 12.8.2011, 2.1.2012, 17.1.2012 and 3.2.2012, to which the learned Senior Counsel for the petitioner drew my attention, to highlight the admission of liability on the part of the respondent. The admission of liability contained in these correspondence, eventually led to the petitioner suspending the operations by a notice dated 18.4.2012 and the respondent invoking the Bank Guarantee on 20.4.2012. The invocation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcept where it is clearly established that the defects are attributable to SEL or its O M agency. SEPCOIII reiterated its commitment to provide a long term solution for the generic defects which have been seriously affecting the plant availability. A list of 10 major items affecting the plant performance was handed over to SEPCO III for study and action. This is in addition to a list of 56 items on which agreement was reached earlier and which will form part of this MOM along with the list of 10 major items referred above. (c) On BCW pumps, SEPCO III proposed its plan to send the pumps to China in batches of two for repair. SEL urged SEPCO III to take it up at appropriate level of Harbin and explore the possibility of making available two pumps from some other projects in India where Harbin is the supplier of the pumps and commissioning has not started. SEPCO III also requested SEL to expedite delivery of the two pumps ordered from KSB. It was pointed out by SEL that even after servicing of two pumps in KSB, Germany, the pumps are still not performing to its requirements. SEPCO III assured that in case rewinding/servicing in China does not give the desired result, SEPCOIII would re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would sit together to find out a suitable mechanism reasonably acceptable to SEL, so that the potential entry tax liability on SEL is secured. 8. After the meeting held on 10.7.2012, the respondent had made payment of a sum of Rs. 100/- crores. This includes a sum of Rs. 30/- crores paid on 7.7.2012, as indicated in paragraph 2(a)(i) of the Minutes of the meeting. 9. The balance amount of Rs. 275/- crores, as per the other clauses of paragraph 2(a) of the MOM is not paid, giving rise to a fresh dispute after 10.7.2012. 10. In the above background of facts, the main ground on which the petitioner has come up with the above petition under Section 433(e) and 433(f) of the Companies Act, 1956, is that even the liability as admitted in the Minutes of the meeting dated 10.7.2012 has not been paid; that the Scheme of Amalgamation with which the petitioner has come to this Court for approval in a different proceeding, shows the financial crisis into which the respondent has plunged and that therefore a Company, which is unable to pay even its admitted liability, has no justification to survive. 11. The main defence of the respondent to the above claim of the petitioner is that the obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set up by the respondent is only moonshine, fabricated for the purpose of depriving the lawful dues of the petitioner, then such a defence should be rejected as not in good faith and not one of substance. This question as to whether the dispute is bona fide and one of substance, has to be seen only in the light of the documents produced before me. 16. As I have pointed out earlier, what happened before 10.7.2012 may not have a serious bearing upon the question on hand. What happened on 10.7.2012 and thereafter, are of greater relevance. 17. I have already extracted paragraph 2 of the Minutes of the meeting dated 10.7.2012. The first part of paragraph 2, incorporated under Clause (a) relates to the payments due by the respondent. These payments are termed as current due payments , meaning thereby that they were already due for payment. But Clauses (b) to (f) of paragraph 2 contains the obligations on the part of the petitioner. According to the respondent, these obligations have not been performed by the petitioner. Therefore, the respondent contends that they would not make payment unless the obligations indicated in Clauses (b) to (f) are also performed. 18. In response to the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 21. If the petitioner had actually filed a civil suit for recovery of money in terms of paragraph 2(a) of the MOM dated 10.7.2012, it would have been open to the respondent to lodge a counter claim, due to the non-fulfilment of the obligations on the part of the petitioner, even without denying the liability. In such an event, the counter claim could not have been rejected either as devoid of substance or as a defence not raised bona fide. I doubt whether the petitioner could have succeeded in obtaining an interim degree on admission in terms of Order XXII, Rule 6, CPC, on the basis of paragraph 2(a) of the MOM, even in a civil suit for recovery of money. Therefore, the fact that the payments were not made conditional and the fact that the payments had no correlation to the obligations imposed under the MOM, cannot be a ground to conclude that the defence is not bona fide or that it is not one of substance. 22. On the contention that certain items of work in respect of which a dispute is raised, have either been settled already or agreed to be adjusted in terms of monetary compensation or undertaken to be completed before March/April 2013, it is seen from paragraph 2(b) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent to make payment of the amount agreed in the Minutes of the meeting, appears to be, on the face of it, unfair. But, unfortunately for the petitioner, I am not dealing with a civil suit. I am dealing with a company petition for winding up. The question whether the refusal of the respondent to pay money to the petitioner in a winding up petition is fair or unfair, cannot determine whether the Company is liable to be wound up or not. What is important is whether the refusal of the respondent to pay, is on the basis of a bona fide dispute, which has some substance or not. 27. To test whether a dispute is bona fide or not, there are two tests that could be applied by a Court. They are (i) whether the issues raised by way of disputes, have always existed between the parties or they were invented for the purpose of manufacturing a defence in response to a winding up notice and (ii) whether the issues raised by way of disputes are actually non-existent issues, deserve to be rejected outright. 28. If both the above tests are applied, the petitioner is bound to fail. As seen from the entire correspondence and the conduct of the parties, even prior to 10.7.2012, the respondent has be ..... 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