2018 (1) TMI 1181 - HC - Companies Law

Court emphasizes winding up as last resort, dismisses Company Petition.

The Court dismissed the Company Petition seeking the winding up of the Respondent Company, emphasizing that winding up should be a last resort and not a ... Winding up petition - Held that:- Though the solvency of the company is not a standalone defense in the winding up proceedings, it is still a relevant criterion to be considered along with other factors which are in favor of the company. It is not the case that the Respondent Company has lost substratum or has become commercially insolvent. The Respondent had alleged breach of the agreement on the part of the Petitioner and raised its own claim. The Respondent had sought for restoration of the supply of power and is ready to comply with the conditions and deposited necessary amount. The Petitioner has sought to segregate the dispute and is calling upon the Court not to look into any other aspect of the matter, but only to focus only on one aspect , that is for some period there was supply for which there is no payment. The request of the Respondent for reconciliation of accounts has gone unheeded. The request of the Respondent to restart the power has not been acceded to, in spite of receiving the amount of ₹ 1 crore on 18 December 2013 and subsequently ₹ 3.25 crore in this Court. The Company Court cannot be oblivious to all these factors which go into the exercise of discretion. The Apex Court in the case of IBA Health (India) Private Limited [2010 (9) TMI 229 - SUPREME COURT OF INDIA] has held that the primary test that to be applied by the Company Court is see that the Respondent Company has 'no good reason' to withhold the debt. It appears to me that the Petitioner is taking advantage of dominant position to engage in an arm-twisting tactic to try to recover a disputed amount. It cannot be said that the Respondent Company has no legitimate claim against the Petitioner. If this petition is admitted, it will have devastating effect on the Respondent Company, and will trigger various consequences and push the Respondent Company towards bankruptcy, which as of today is far from it. Considering the totality of the circumstances, Iit is of opinion that no case is made out for admission of the Company Petition. Issues Involved:1. Winding up of the Respondent Company.2. Non-payment of dues by the Respondent.3. Shortfall in power supply by the Petitioner.4. Invocation of the force majeure clause.5. Admission of liability by the Respondent.6. Financial status and solvency of the Respondent Company.7. Reconciliation of accounts and settlement efforts.Issue-wise Detailed Analysis:1. Winding up of the Respondent Company:The Petitioner sought the winding up of the Respondent Company, Global Energy Private Ltd., on the grounds of failure and neglect to pay outstanding dues. The Petitioner argued that the Respondent was unable to pay its debt, thus necessitating the winding up. The Respondent contested this, stating that the dispute was a complex civil matter and not grounds for winding up.2. Non-payment of dues by the Respondent:The Petitioner supplied power to the Respondent and raised invoices for the period from 16 May 2013 to 15 August 2013. The Respondent paid most invoices but left an outstanding amount of Rs. 10,90,22,458.92 unpaid. The Petitioner issued statutory notices under Section 434 of the Companies Act, demanding payment, which the Respondent disputed.3. Shortfall in power supply by the Petitioner:The Respondent claimed that the Petitioner failed to supply the agreed quantum of power, causing significant business losses. The Petitioner admitted to a shortfall but attributed it to a force majeure event. The Respondent argued that the shortfall was not justified and impacted their business commitments.4. Invocation of the force majeure clause:The Petitioner invoked the force majeure clause, citing a directive from the Executive Engineer of the Hirakud Reservoir to stop drawing water due to low levels. The Respondent disputed this, arguing that the Petitioner had prior notice and could have made alternate arrangements. The Court found merit in the Respondent's contention that the force majeure event was not justified.5. Admission of liability by the Respondent:The Petitioner argued that the Respondent admitted liability through email correspondence and partial payments. The Respondent countered, stating that the payments and emails were part of efforts to restart power supply and did not constitute an admission of specific liability. The Court found that there was no clear admission of liability by the Respondent.6. Financial status and solvency of the Respondent Company:The Respondent demonstrated its financial soundness, with substantial assets and investments. The Court noted that solvency is a relevant factor in winding up proceedings and found that the Respondent was not commercially insolvent.7. Reconciliation of accounts and settlement efforts:The Respondent repeatedly sought reconciliation of accounts and settlement of disputes, including making partial payments and filing a civil suit for specific performance and damages. The Petitioner did not accede to these requests. The Court emphasized the need to consider the totality of circumstances, including the Respondent's efforts to resolve the dispute amicably.Conclusion:The Court dismissed the Company Petition, concluding that the Respondent had legitimate claims and disputes that needed resolution through appropriate forums. The Court emphasized that winding up should be a last resort and not a means to enforce disputed debts. The Petitioner's conduct and the Respondent's financial stability were significant factors in the decision.