2013 (3) TMI 887 - HC - Indian Laws

Court Dismisses Winding-Up Petition Citing Bona Fide Disputes and Lack of Insolvency Evidence.

SEPCO III Electric Power Construction Corporation Versus Sterlite Energy Limited, Tuticorin

The Court dismissed the winding-up petition filed under Section 433(e) and (f) read with Section 434 of the Companies Act, concluding that the ... - Issues Involved:1. Whether there is an unequivocal undeniable liability on the part of the respondent to make payment to the petitioner.2. Whether the disputes raised by the respondent about their liability to pay are bona fide disputes or disputes concocted and invented just for the purpose of depriving the petitioner of their legitimate dues.Issue-wise Analysis:1. Liability of the Respondent:The petitioner filed a petition under Section 433(e) and (f) read with Section 434 of the Companies Act, seeking the winding up of the respondent-Company due to non-payment of admitted liabilities. The petitioner argued that the respondent had entered into four contracts with them for setting up a coal-based power plant. Despite completing their contractual obligations, the respondent delayed payments. The petitioner highlighted that the respondent had acknowledged the liability in various correspondences and meetings, particularly in the Minutes of the meeting dated 10.7.2012, where the respondent agreed to a payment schedule but failed to adhere to it. The petitioner contended that the respondent's failure to pay even the admitted liability indicated financial instability, warranting a winding-up order.2. Bona Fide Nature of Disputes Raised by the Respondent:The respondent countered that the non-payment was due to disputes regarding the performance under the contracts. They argued that the agreements included an arbitration clause, and the petitioner had already invoked arbitration, which was subsequently settled in a meeting on 10.7.2012. The respondent asserted that the obligations under the Minutes of the meeting were reciprocal and contingent upon the petitioner fulfilling their part of the obligations, which they allegedly failed to do. The respondent maintained that the disputes were genuine and substantial, not concocted, emphasizing that the petitioner had not completed certain work items and that the performance of some equipment was subpar. They further argued that the petition for winding up was an abuse of process, as the petitioner had not exhausted alternative remedies available under the arbitration agreement.Court's Analysis:The Court examined the disputes in three stages: pre-10.7.2012 disputes, the agreement reached on 10.7.2012, and post-10.7.2012 issues. It noted that the disputes before 10.7.2012 were settled in the meeting on 10.7.2012, where a payment schedule was agreed upon. However, the Court found that the obligations under the Minutes of the meeting were not explicitly linked to the payments, but the respondent's refusal to pay was based on alleged non-performance by the petitioner. The Court applied the test from Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd, assessing whether the dispute was bona fide and substantial. The Court concluded that the respondent's dispute was bona fide, as issues had been raised consistently before and after the meeting on 10.7.2012, and the disputes were not invented merely for resisting the winding-up petition.Conclusion:The Court found that the respondent had already paid 90% of the contract value, indicating financial capability. The disputes raised were not frivolous but bona fide, and substantial, and the respondent's refusal to pay was not indicative of insolvency. Consequently, the Court dismissed the winding-up petition, finding no grounds to order the winding up of the respondent-Company.