2014 (4) TMI 1321 - HC - Companies Law

Company ordered into winding up proceedings for non-payment of acknowledged debt under Section 433(e)

Texmaco Rail & Engineering Limited Versus Eta Engineering Private Ltd., Chennai

The Madras HC ordered winding up proceedings against a company for non-payment of acknowledged debt. The court rejected the respondent's arguments ... Winding up of company - Non-payment of acknowledged debt by the respondent - Validity and interpretation of the Novation and Transfer Agreement (NAAC) - Applicability of Rule 21 of the Companies Court Rules, 1959 - HELD THAT:- Prima facie, from the admission of debt prior to the agreement dated 15.3.13 and going through the terms of the NAAC dated 15.3.13, coupled with the statutory notice dated 20.11.13, which has not been denied by the respondent, it is clear that the respondent is a beneficiary of goods sold and delivered for value and debt, which is acknowledged and the liability having been accepted, despite the agreement dated 15.3.13 to pay the debt, a clear case of inability to pay has been established by the petitioner. From a plain reading of Sub-section (24) of Section 2 of the Companies Act, 1956, it is clear that the said term is an inclusive definition and, therefore, Manager (Law) of the petitioner company, who has signed the petition is duly authorised by the Board and, therefore, he would come within the definition of 'officer' within the meaning of Rule 21. There are no reason to accept the respondent's plea that Manager, as defined in sub-section 24 of Section 2, would exclude Manager (Law). Therefore, this plea is also rejected. The plea of the learned counsel for the respondent is that the case of the petitioner involves interpretation of the NAAC and, therefore, there is a clear case of dispute. The interpretation as urged by the learned counsel for the respondent is as to whether the liability would stand as against VLMS or the respondent. Here is a clear case of goods sold and delivered and debt acknowledged prior to 15.3.13 by the respondent. The question is whether the respondent herein, viz., ETA, or the transferee VLMS is liable - there are no justification to non-suit the petitioner on the ground that they have filed a petition before the High Court of Karnataka as against VLMS. All the plea taken by the respondents appears to be a mirage. In view of the clear admission of liability by acknowledgement of debts on various dates as stated above and the NAAC dated 15.3.13, the non-response to the statutory notice, goes to show that the petitioner has made out a prima facie case for admission - this Court is satisfied that a prima facie case has been made out for proceeding against the respondent under Section 433(e) of the Companies Act. Call the company petition on 16th June, 2014. Issues Involved:1. Non-payment of acknowledged debt by the respondent.2. Validity and interpretation of the Novation and Transfer Agreement (NAAC) dated 15.3.13.3. Applicability of Rule 21 of the Companies Court Rules, 1959.4. Whether the respondent company is in a financially sound position to avoid winding up.5. The effect of prior winding up petition filed against VLMS in Karnataka High Court.Detailed Analysis:1. Non-payment of Acknowledged Debt:The petitioner entered into a contract with the respondent for the supply of BLC wagons based on a purchase order dated 7.6.08. The respondent supplied three rakes for a value of Rs. 30.83 Crores, but failed to make payment despite repeated requests. The petitioner presented evidence of the respondent acknowledging the debt through various correspondences, including letters and emails. The respondent's failure to pay the acknowledged debt, despite admission and several correspondences, led to the petitioner filing the winding-up petition under Section 433(e) of the Companies Act.2. Validity and Interpretation of the Novation and Transfer Agreement (NAAC) dated 15.3.13:The NAAC dated 15.3.13 involved the transfer of the logistics business and liabilities from the respondent (ETA) to VLMS. The agreement included clauses ensuring that ETA's liabilities prior to the closing date remained intact, with ETA agreeing to indemnify VLMS and the petitioner. The court found that the agreement did not absolve ETA of its obligations, and the liability for the debt continued with ETA, despite the transfer to VLMS. The court rejected the respondent's argument that the NAAC required interpretation, affirming that the agreement did not discharge ETA from its obligations.3. Applicability of Rule 21 of the Companies Court Rules, 1959:The respondent argued that the petition was defective under Rule 21, which requires the petition to be verified by an affidavit from a principal officer. The court examined the definition of 'Principal Officer' and concluded that the Manager (Law) of the petitioner company, who signed the petition, was duly authorized by the Board Resolution, thus fulfilling the requirements of Rule 21. The court dismissed the respondent's claim that the petition was defective.4. Whether the Respondent Company is in a Financially Sound Position to Avoid Winding Up:The respondent claimed to be a profit-making company and opposed the winding-up petition on the grounds of commercial solvency. The court referred to a Supreme Court decision, which stated that commercial solvency is not a standalone ground to reject a winding-up petition if the debt is undisputed. The court found that the respondent's financial position, including a net loss of Rs. 70 Crores as per the annual report dated 31.3.12, indicated an inability to pay the debt, supporting the petitioner's case for winding up.5. Effect of Prior Winding Up Petition Filed Against VLMS in Karnataka High Court:The respondent argued that the petitioner had suppressed the fact of filing a winding-up petition against VLMS in Karnataka High Court. The court held that the filing of a petition against VLMS did not affect the petition against ETA, as the liability of ETA was not discharged under the NAAC. The court found no merit in the respondent's argument and allowed the petition to proceed.Conclusion:The court found a prima facie case for the winding up of the respondent company under Section 433(e) of the Companies Act due to the clear admission of liability and inability to pay the debt. The court ordered the admission of the petition, directed notices to be issued, and appointed the Official Liquidator as Provisional Liquidator to take charge of the respondent company's assets. The case was scheduled for further hearing on 16th June 2014.