2013 (1) TMI 54 - HC - Companies Law

Court upholds decision allowing company to secure claim with bank guarantee in joint venture dispute.

The court upheld the decision to allow the company to secure the claim with a bank guarantee in a case involving a failed joint venture agreement and a ... Joint venture - Concept of bona fide dispute - Winding up petition - Winding up proceeding at the instance of an unsecured creditor - Section 434(1)(b) of the Companies Act, 1956 Appellant agreed to sell its P&M, vehicles and all other equipments arranged for the said project to the respondent – Respondent defaults - Appellant issued a statutory notice of demand – Respondent contended that in absence of “No Objection Certificate” being issued by the appropriate authorities enabling to register the vehicles in their name – In first appeal held that company was unable to disclose any bonafide defense therefore giving opportunity to the company to secure the claim by way of a Bank Guarantee – Respondent furnished bank guarantee Issue:- Whether the Judge was right in relegating the parties to suit even after holding that the company could not demonstrate a bona fide defence Held that:- The statutory notice of demand was replied to by the company. The company put up a defence. Learned Judge was not satisfied, even then he wanted to give an opportunity to the company to show their bona fide. It is rather an extension of the benefit which the company could otherwise avail under the statutory provisions. The company duly availed such benefit and secured the claim. Any unsecured claim as soon as it is secured, would debar a winding up proceeding being brought by the creditor, no matter whether the claim was bona fide or not. The duty of the Court of Appeal is to see whether discretion is properly and judiciously exercised by the Learned Judge. If the result of the test is positive interference is not warranted. We cannot substitute our independent views on the controversy sitting in a Court of Appeal. It is nobody’s case that the discretion was used perversely or de hors the Statute. Appeal decides against appellant Issues:1. Joint venture agreement for project in Mizoram not materializing.2. Sale of plant, machinery, vehicles, and equipment to respondent.3. Default in payment by respondent leading to winding-up petition.4. Company's defense and claim of non-liability.5. Appellant's appeal challenging relegation to suit despite lack of defense.6. Company furnishing bank guarantee and subsequent appeal by appellant.7. Interpretation of Companies Act, 1956 regarding winding-up petition.8. Dispute over 'No Objection Certificate' and other issues raised by the company.9. Application of precedent cases and legal guidelines.10. Consideration of bona fide dispute and claim security.Analysis:1. The parties had a joint venture agreement for a project in Mizoram that did not materialize, leading to the sale of plant, machinery, vehicles, and equipment by the appellant to the respondent. A payment schedule was agreed upon, with defaults by the respondent resulting in a winding-up petition by the appellant.2. The company raised defenses, including the absence of a 'No Objection Certificate' for vehicle registration, and other disputes, leading to a contested winding-up petition. The learned Judge found the company unable to disclose a bona fide defense, prompting the company to secure the claim with a bank guarantee.3. The appellant's appeal challenged the decision to relegate the parties to a suit despite the lack of a bona fide defense by the company. Legal arguments were presented, citing past judgments and provisions of the Companies Act, 1956 regarding winding-up petitions and claim security.4. The company's counsel contended that the company's defense, though weak, should prevent the winding-up petition, especially after securing the claim and citing delays in obtaining necessary certificates and other disputes.5. The court analyzed the concept of a bona fide dispute, considering past judgments and statutory provisions. The court emphasized that once a claim is secured, a winding-up petition by an unsecured creditor would be barred, regardless of the bona fides of the claim.6. The court upheld the learned Judge's exercise of discretion in allowing the company to secure the claim and dismissed the appeal, stating that the discretion was properly exercised and not perverse. The court declined to interfere, as the discretion was in line with the statutory provisions.7. The judgment was agreed upon by both judges, with an unconditional stay of operation granted for a month. The appeal was dismissed, with no order as to costs, and certified copies of the order were to be provided to the parties upon request.