2015 (5) TMI 485 - HC - Companies Law

Company Unable to Pay Debts, Directors Restricted from Asset Disposal

The court concluded that the Company was unable to pay its debts and had raised false and dishonest defenses. The petition was admitted, and the Company ... Application for Winding up of the Company - Company is unable to pay its debts - Tripartite Transaction in which oral understanding between the parties that payments would only be made once monies received from third party i.e. Powerwave - Supression of facts that Money received by petitioner from insurer in settlement of its claim against the said invoices - Commercial solvency of a company cannot be a sole ground to reject the admission of a Company Petition - Held that:- The Company has, at the outset, submitted that there was an oral understanding between the Petitioner and the Company that payments to the Petitioner would only be made once monies are received from Powerwave. As correctly submitted by the Petitioner, the said argument is an afterthought and a belated attempt to avoid making payment of the Petitioner's lawful dues. There is not even a whisper of such an arrangement/understanding in the e-mails of the Company admitting liability and assuring prompt payment. The Company has produced no contemporaneous correspondence to suggest that such an understanding existed. There is not even a reply to the statutory notice, which could have pointed out such an alleged oral understanding. The next contention raised by the Company is that the Petition deserves to be dismissed on the basis that the Petitioner has suppressed the fact that its insurance company has paid US$ 181,026.72 to the Petitioner in settlement of its claim against the said invoices. As correctly submitted by the Petitioner, the Company has, in its written submissions, admitted that the fact that the Petitioner received US$ 181,026.72 from the insurance company was brought to the knowledge of the Company by the Petitioner itself. If the Petitioner had any intention of suppressing the said fact as alleged, the Petitioner would not have mentioned the same to the representative of the Company. The next contention urged by the Company is that the Petitioner has received monies from its insurer in lieu of its claim and it is therefore unable to maintain the present proceedings vis-a-vis the Company. In my view, this contention is without merit. The principles of subrogation with respect to insurance contracts have been considered and discussed in various judgments and are well established. The assured is entitled to proceed against the third party and its only obligation is to make good the amount paid by the insurer after having accounted for its own claim, i.e. to ensure that the assured is not paid in excess of its claim. A third party cannot be seen to take the defence that the claimant has already been paid out by the insurer and, consequently, avoid making payment on that ground. Strictly speaking, that is a matter between the insurer and the assured. The Company’s following submission was that the claim under the Petition was not a 'debt' but 'damages' and there was no ascertained liability. Therefore, it was submitted, the claim of the Petitioner can only be proved in a Civil Court. In my view, there is no question of the claim being in respect of damages or being unascertained in any manner whatsoever. On the contrary, there is no dispute in respect of the admitted outstanding of US$ 226,283.40 payable by the Respondent. Therefore, the present Company Petition, which is in respect of an admitted debt and an ascertained liability is unaffected by the judgments relied upon by the Company which relate to the non-maintainability of a winding up petition in cases where there is an unascertained sum payable to the Petitioner. Now turning to the last contention of the Company regarding its solvency and employees, since the Company is not making payment of the legitimate dues of the Petitioner without there being any bona fide defence raised by the Company, the Company cannot be heard to say that since it has a large number of workers and is making profits the Company Petition ought not to be admitted. This position, i.e. that the commercial solvency of a company cannot be a sole ground to reject the admission of a Company Petition, particularly when the debt is admitted and there is no bona fide dispute, is well established and has been enunciated by the Supreme Court in IBA Health (India) Pvt. Ltd. [2010 (9) TMI 229 - SUPREME COURT OF INDIA] and has been repeatedly followed by this Court. Similarly, this Court in Global Trust Bank Ltd. [2004 (5) TMI 307 - HIGH COURT OF BOMBAY ] has taken the view that merely because the Respondent Company is a running concern and has employees working, cannot be a reason to reject a winding up petition when the other ingredients of Section 433 and 434 are present. Therefore, I see no reason to refuse admission of the present Company Petition on these grounds. - Winding up petition allowed. Issues Involved:1. Winding up of the Company due to inability to pay debts.2. Alleged tripartite transaction and oral agreement.3. Suppression of facts regarding insurance payment.4. Maintainability of the petition post insurance payment.5. Nature of the claim: debt or damages.6. Solvency and operational status of the Company.Detailed Analysis:1. Winding up of the Company due to inability to pay debtsThe petitioner sought the winding up of the Company on the grounds that it was unable to pay its debts. The Company had placed seven purchase orders, and the corresponding invoices remained unpaid. The Company admitted its liability via emails but failed to remit the dues. The petitioner issued a statutory notice, which went unanswered, leading to the filing of the winding-up petition.2. Alleged tripartite transaction and oral agreementThe Company argued that the purchase was part of a tripartite transaction involving a third party, Powerwave Technologies Inc., and claimed an oral understanding that payments would be made only after receiving money from Powerwave. The court found this argument to be an afterthought, unsupported by any contemporaneous correspondence or response to the statutory notice.3. Suppression of facts regarding insurance paymentThe Company contended that the petitioner suppressed the fact that it received $181,026.72 from its insurer, Sinosure. The court noted that this information was disclosed by the petitioner to the Company and was not suppressed. The case of Agarwal Industries Ltd. was distinguished as it involved deliberate withholding of information, which was not the case here.4. Maintainability of the petition post insurance paymentThe Company argued that since the petitioner received payment from the insurer, it could not maintain the proceedings. The court rejected this, citing well-established principles of subrogation in insurance contracts, which allow the assured to proceed against third parties. The court referred to multiple judgments, including Mason vs. Sainbury and Yorkshire Insurance vs. Nisbet Shipping Co. Ltd., to support this view.5. Nature of the claim: debt or damagesThe Company claimed that the petition was for damages, not a debt, and thus not maintainable. The court found that the claim was for an ascertained and admitted sum, not damages. The decisions cited by the Company were distinguished as they involved unascertained claims or damages, unlike the present case where the debt was clear and admitted.6. Solvency and operational status of the CompanyThe Company argued that it was a solvent and profitable entity employing 1200 people, and thus should not be wound up. The court held that solvency and profitability are irrelevant if the Company consciously avoids paying an admitted debt. The court cited the Companies Act, 1956, and relevant case law to support this position.Conclusion:The court concluded that the Company was unable to pay its debts and had raised false and dishonest defenses. The petition was admitted, and the Company was directed to advertise the petition in specified newspapers and the Maharashtra Government Gazette. The Directors were restrained from disposing of any fixed assets without court permission.