2017 (5) TMI 1321 - HC - Companies Law

Dismissal of Winding-Up Petition Emphasizes Arbitration Over Debt Disputes

The court dismissed the winding-up petition due to serious disputes over the amount owed and breach of contract, which were deemed more suitable for ... Petition for winding up - Held that:- There are serious disputes between the parties with regard to their rights and liabilities, as mentioned above, the parties have already taken recourse to the arbitration proceedings, therefore, the parties should settle their disputes before the Arbitral Tribunal. The winding up petition is not the right remedy for settling the dispute between the parties. For, a winding up proceeding is a summary proceeding, wherein this court is not expected to hold a mini-trial. Therefore, for the reasons stated above, this winding up petition is devoid of any merit. It is, hereby, dismissed. Issues Involved:1. Dispute over the amount owed by the respondent to the petitioner.2. Alleged breach of contract by either party.3. Admissibility of the winding-up petition amidst ongoing arbitration proceedings.4. Bona fide dispute regarding the debt.5. Abuse of the winding-up process to pressurize the respondent.Detailed Analysis:1. Dispute over the amount owed by the respondent to the petitioner:The petitioner claimed that it supplied machinery worth Rs. 12.43 Crores, while the respondent acknowledged only Rs. 11.20 Crores. The petitioner alleged the respondent defaulted on payments and assured multiple times to clear dues, but ultimately failed to do so. In contrast, the respondent contended that after reconciling accounts, only Rs. 11.80 Lacs was owed. This discrepancy indicates a significant dispute over the exact amount due.2. Alleged breach of contract by either party:The petitioner argued that the respondent breached the contract by not paying the agreed amount. Conversely, the respondent claimed the petitioner failed to supply machinery on time, causing delays and additional costs, leading them to cancel the contract on 26.12.2012. This raised a question of which party breached the contract and who is liable for damages, a matter requiring detailed examination beyond the scope of a winding-up petition.3. Admissibility of the winding-up petition amidst ongoing arbitration proceedings:Both parties had agreed to arbitration as per the contract dated 05.05.2011. The petitioner had already initiated arbitration proceedings and filed applications under Sections 9 and 14 of the Arbitration & Conciliation Act before the District Judge, Ghaziabad. The respondent also filed a petition under Section 14 before the Madras High Court. Given the ongoing arbitration, the court noted that the petitioner should not engage in forum shopping by filing a winding-up petition.4. Bona fide dispute regarding the debt:The court referenced the Supreme Court's decision in IBA Health (I) (P) Ltd. v. Info-Drive Systems Sdn. Bhd., emphasizing that a winding-up petition should not be used to enforce payment of a bona fide disputed debt. The substantial and genuine nature of the dispute over the amount owed indicated that the winding-up petition was not the appropriate remedy. The court highlighted the need to resolve such disputes through arbitration or civil court proceedings rather than a summary winding-up process.5. Abuse of the winding-up process to pressurize the respondent:The court observed that the petitioner had changed its claims regarding the amount owed multiple times, from Rs. 15 Crores to Rs. 9,39,35,720/- and then to Rs. 6,12,66,074/-. This inconsistency, coupled with the ongoing arbitration, suggested that the winding-up petition might be a tactic to pressure the respondent. The court reiterated that winding-up petitions should not be used as a means to enforce disputed debts or pressurize companies.Conclusion:The court concluded that there were serious disputes regarding the rights and liabilities of the parties, which should be resolved through the arbitration process already underway. Given the bona fide nature of the dispute and the ongoing arbitration, the winding-up petition was deemed inappropriate and was dismissed. The court emphasized that winding-up proceedings should not be used as a debt collection mechanism or to exert undue pressure on a company.