2012 (6) TMI 643 - HC - Companies Law

Court orders respondent to pay invoices within 4 weeks or face winding-up petition. Disputes found lacking bona fides.

Oswal Machinery Ltd. Versus Pipavav Shipyard Ltd.

Oswal Machinery Ltd. Versus Pipavav Shipyard Ltd. - [2012] 113 SCL 434 (GUJ.) , [2012] 173 COMP. CAS. 211 (GUJ.) Issues Involved:1. Whether the respondent company should be wound up under Sections 433 and 434 of the Companies Act.2. Whether the respondent company has failed and neglected to pay the amount due to the petitioner.3. Whether the dispute raised by the respondent regarding the execution of the work by the petitioner is bona fide.4. Whether the petition is maintainable despite the existence of an arbitration clause and a pending civil suit.5. Whether the respondent's financial solvency and ongoing business operations can be a ground to dismiss the winding-up petition.Detailed Analysis:1. Winding Up Under Sections 433 and 434 of the Companies Act:The petitioner sought the winding up of the respondent company under Sections 433 and 434 of the Companies Act, 1956, claiming that the respondent failed to pay the dues for the repair and overhauling of two gantry cranes. The petitioner argued that the respondent's failure to pay indicated an inability to pay its debts, justifying the winding-up order. The court considered whether the respondent's financial obligations were neglected and whether the company was unable to pay its debts.2. Non-Payment of Amount Due:The petitioner claimed that the respondent approached them for repairs and overhauling of gantry cranes and issued a Letter of Intent (LOI) specifying the work and payment terms. The petitioner completed the work and raised invoices, but the respondent failed to make the payment despite repeated reminders and statutory notices. The respondent countered that the petitioner did not complete the work, specifically the erection and commissioning of the cranes, and thus, they were not obligated to pay. The court examined the sequence of events, including the issuance of invoices and the respondent's delayed response, to determine if the payment was unjustly withheld.3. Bona Fide Dispute:The court scrutinized whether the dispute raised by the respondent was genuine and substantial. The respondent argued that the petitioner failed to complete the work, leading them to hire another agency, Hebankraft, to finish the job. The court noted that the respondent did not raise any grievances contemporaneously with the petitioner's work or invoices but only after repeated demands for payment. This delay in raising disputes suggested that the respondent's objections were an afterthought, lacking bona fides. The court emphasized the importance of timely raising disputes to establish their genuineness.4. Maintainability of Petition Despite Arbitration Clause and Pending Civil Suit:The respondent contended that the petition was not maintainable due to an existing arbitration clause in the contract and a pending civil suit filed by the petitioner. The court clarified that the remedy under Sections 433 and 434 is a special statutory remedy available to creditors, independent of other civil remedies. The existence of an arbitration clause or a pending civil suit does not bar the petition for winding up if the debt is undisputed or the dispute is not bona fide. The court referred to the Supreme Court's decision in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited, which stated that certain disputes, including insolvency and winding-up matters, are reserved for public fora and not subject to private arbitration.5. Financial Solvency and Ongoing Business Operations:The respondent argued that it was a financially solvent and operational company with significant ongoing contracts, suggesting that it should not be wound up. The court noted that financial solvency alone is not a sufficient defense if the debt is undisputed or the dispute is not genuine. The court cited the decision in Madhusudan Gordhandas & Co., emphasizing that a company cannot refuse to pay an undisputed debt merely because it has sufficient funds. The court found that the respondent's defense was an afterthought and lacked bona fides, thus not warranting dismissal of the petition on the grounds of financial solvency.Conclusion:The court concluded that the petitioner had made a prima facie case for the winding up of the respondent company. The disputes raised by the respondent were not bona fide and were raised as an afterthought. The court granted the respondent four weeks to deposit the invoice amounts in the court, failing which the petition for winding up would be admitted, and the advertisement for winding up would be published. The matter was adjourned to 30th April 2012 for further consideration.