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2009 (12) TMI 524
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....ucts, industry and construction/demolition, resulting in sales of recycled commodities. 3. The respondent M/s. Blue Engineering Ltd., having its registered office at 46, Shardanand Marg, Delhi - 110 046, is a company that was incorporated under the Companies Act, 1956 on or around 3-1-2007. 4. According to the petitioner, various Cost and Freight contracts were entered into by it with the respondent company for the sale and purchase of non-ferrous scrap. Details of the-relevant invoices are given below: Sl. No. Invoice No., stated to be evidence of debt Amount supplied (MT) Price quoted by petitioner (in USD) Total value of sale to respondent Price quoted by petitioner to 3^rd party (in USD) Total value of sale to 3rd party Price differential 1. 24876/01 25.75 2200 56,650 1000 25,750 30,900 2. 25375/03 28.68 2500 71,700 1305 37,427.40 34,272.6 3. 25671/01 16.95 2000 33,900 1000 16,950 16,950 4. 25671/02 16.9 2000 33,800 1000 16,900 16,900 5. 25671/03 16.54 2000 33,080 1000 16,540 16,540 6. 25671/04 15.68 2000 31,360 ....
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.... days of receipt of the legal notice and informing them that the petitioner had taken delivery of the goods and was storing them at a warehouse close to the port in order to avoid paying port detention fines. However, it is noticed that the copy of this notice, annexed as "Annexure LL" to this petition, is in the name of 'Blue Precision Ltd.' and not in the name of the respondent in the present proceedings, i.e., 'Blue Engineering Pvt. Ltd.' 7. On receiving no reply to the said, the Petitioner contracted to sell the goods to a third party buyer, i.e., M/s Century Metal Recycling Private Limited on 14-1-2009 and issued invoices No. 25375/03, 25936/01, 25935/02, 25935/03, 25935/04, 25935/05, 25743/01, 25743/02, 25743/03, 25743/04, 25743/05, 26063/01, 26063/02, 26063/03, 26063/04, 25671/01, 25671/02, 25671/03, 25671/04, 25671/05, 24876/01 and 40477 in respect of the same. 8. Thereafter, the petitioner issued a notice of winding up dated 12-3-2009 under section 433 and section 434 of the Companies Act, 1956, again calling upon the respondent to make a payment of USD 477,606.35, which was the amount due to the petitioner, within three weeks of the deemed receipt of the notice of w....
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.... party on account of breach by the other party? If it is the latter, then the liability to pay can only arise once there is a judicial determination of the quantum. The only instances in which the Company Court would exercise jurisdiction are where damages can be said to be quantified without the need for a trial. For example, where the contract itself provides for liquidated damages, or where the party in breach has admitted his liability to pay the damages. 13. Since there has also been no appearance on behalf of the respondent, the petitioner's averments remain unrebutted. The respondent's failure to respond to the statutory notice of winding up sent on 12-3-2009 does not mean that winding up orders must invariably be passed, as this Court has held in Resham Singh & Co. (P.) Ltd. v. Daewoo Motors India Ltd. [2003] 116 Comp. Cas. 529, that "where no response had been made to the statutory notice the respondent company runs the risk of a winding up petition being admitted for hearing at the threshold stage itself." It has further been held, in the same case, that "Normally, the Company Judge considers it prudent in the first instance to issue notice to the respondent so that it....
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....ng of a petition for winding up of the company." (p. 326) 16. These principles have been reiterated in Vijay Industries v. NATL Technologies Ltd. [2009] 89 SCL 205 (SC). In the landmark decision of Madhu Sudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. [1972] 2 SCR 201, regarding a petition for winding up that dealt with a disputed debt, it was held that if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. The decisions in Pradeshiya Industrial & Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 3 SCC 348; and in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp. Cas. 456 (SC) support the same proposition. 17. The parties entered into a contract for the sale of certain goods, which were procured and shipped. Tie buyer, i.e., the respondent herein, did not take delivery of the goods, for reasons unknown as there has been no appearance on behalf of the respondent in the present proceedings. The petitioner then sold the goods to a third party. In essence, the petitioner has tried to mitigate the damages to which he is entitled, by selling the goods ....
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.... of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages.... As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant." (p. 1273) 20. McGregor on Damages (13th Edition, 1972, Sweet and Maxwel....
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....3 DLT 833, held that the non-defaulting party was required to show that it not only suffered loss due to the failure on the part of the defaulting party to performs its obligations under the contract, but it had also to show that it had taken every possible step to mitigate the loss consequent on the breach of the contract. 22.The Supreme Court has also held in M. Lachia Setty & Sons Ltd. v. Coffee Board, Bangalore AIR 1981 SC 162, that "the principle of mitigation of loss does not give any right to the defaulting party, but the concept has to be borne in mind by the Court while awarding damages." In the facts of that case, the court did not accept the contention of the defendant that the auctioneer had deliberately resold at a lower price. 23. Chitty on Contracts, 30th Edition, 2008, Vol. I, pp. 26-110, says that : "In contracts for the sale of goods, the normal rule for the measure of damages assumes that the innocent party should act immediately upon the breach, and buy and sell in the market, if there is an available market. The market price rule is fundamental to the sale of goods... An instance of mitigation arises where the defendant in breach of contract refuses....
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....stion, then section 54 of the said Act would deal with the rights of an unpaid seller against the goods. Mulla on the Sale of Goods Act, 6th Edition, Butterworths India (2002) states that, "The statutory power for resale under sub-section (2) of section 54 arises only when property in the goods has passed to the buyer. . .The seller can claim as damages the difference between the contract price and the amount realized on resale of the goods where he has a right of resale. Where property in the goods has not passed, the seller has no right of resale under section 54(2) and the claim to recover the deficiency on resale would not be sustainable..." 27. The Supreme Court has affirmed this position in P.S.N.S. Ambalavana Chettiar & Co. v. Express Newspapers Ltd. AIR 1968 SC 741. 28. Further, as per the provisions of section 54(2) of the Sale of Goods Act, 1940, the petitioner's statutory right to resale would arise only when a notice of resale was served on the buyer, as per section 54(2) of the Sale of Goods Act. This has not been done in the present case. 29. In the instant case, there is also nothing on record to indicate the financial position of the respondent company. Adm....
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....on 450 of the Companies Act, 1956 praying for the appointment of a provisional liquidator in the matter. The petitioner's claim is based on certain invoices issued in respect of contracts stated to have been entered into with the respondent company. 2. The petitioner is a company incorporated under the laws of the United Kingdom, having its registered office at Sirius House, Delta Crescent, Westbrook, Warrington, WAS 7NS, UK. It is engaged in the business of recycling metal-rich waste streams arising from end-of-life vehicles/consumer products, industry and construction/demolition, resulting in sales of recycled commodities. 3. The respondent M/s. Blue Precision Limited, having its registered office at 46, Shardanand Marg, Delhi - 110046, is a company that was incorporated under the Companies Act, 1956 on or around 21-3-1995. 4. According to the petitioner, various Cost and Freight contracts were entered into by it with the respondent company for the sale and purchase of non-ferrous scrap. The contracts in question are Contract No. 25442 and Contract No. 25716, details of whose invoices are given as under, annexed as Annexure N to the petition : Sl. No. Invoice No., ....
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....lling upon the respondent to make a payment of USD 140,324.85, which was the amount due to the petitioner, within three weeks of the deemed receipt of the notice of winding up. By way of this notice, the petitioner informed the respondent that the goods had been sold to a new buyer/third party, in order to mitigate the petitioner's loss and to avoid paying further demurrage and warehousing charges, and the amount claimed in the said notice by the petitioner was the total differential price of the goods, i.e., the difference between the purchase price, as per the contract with the respondent, and the price at which the goods were sold to the third party buyer. 8. This petition was filed on 6-4-2009, praying for an order of winding up to be passed in respect of the respondent, along with an application under section 450 of the Companies Act, 1956 for the appointment of a provisional liquidator. A further prayer for costs amounting to USD 140,324.85 is also made, this being equal to the total price differential of the contracted goods, as calculated by the Petitioner. 9. Notice was issued to the respondent to show cause as to why winding up proceedings be not initiated on 15-4-2....
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....tion, comes to an amount of USD 149,566.55. Details of these are as follows : Invoice No. Amount supplied (as per copy of invoice annexed to petition) Total value of sale to respondent (in USD) Total value of sale to 3rd party (in USD) Price differential (in USD) 25442/01 54.52 (incorrectly stated as 45 in Annexure E and N to the petition) 133,574 (stated incorrectly as 110,250 in Annexure N to the petition) 71148.60 (stated incorrectly as 58,725 in Annexure N to the petition) 62,425.40 (stated incorrectly as 51,525 in Annexure N to the petition) 25442/02 13.44 (incorrectly stated as 15 in Annexure 32928 (stated incorrectly as 36,750 in 17539.20 (stated incorrectly as 19,575 15,388.8 (incorrectly (stated as 17,175 in Annexure N to the petition) Invoice No. Amount supplied (as per copy of invoice annexed to petition) Total value of sale to respondent (in USD) Total value of sale to 3rd party (in USD) Price differential (in USD) E and N to the petition) Annexure N to the petition) in Annexure N to the petition 2571....
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.... any Reply to the winding up notice. But this is as far as the danger extends." 16. In Mediquip Systems (P.) Ltd. v. Proxima Medical System GmBH [2005] 7 SCC 42, the Supreme Court has held in paragraph 18 thereof, as follows : "an order under section 433(e ) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression 'unable to pay its dues' in section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilized merely as a means for realising debts due from a company." 17. The court in the Mediquip Systems (P.) Ltd.'s case (supra ) also referred to a decision of the Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories (P.) Ltd. [1990] 3 Comp. LJ 322 , where the following principles relating to bona fide dispute had been evolved : "(1) If there is a dispute as regards the payment of the sum towards principal, however small that sum may be, a petition of w....
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....ron Foundry [1974] 2 SCC 231, in paras 6 and 7 thereof, the Supreme Court held as under : ". . .The classical definition of 'debt' is to be found in Webb v. Stenton [1883] 11 Q.B.D. 518 where Lindley, L.J., said :'... a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation'. There must be debitum in praesenti; solvendum may be in praesenti or in future that is immaterial. There must be an existing obligation to pay a sum of money now or in future. The following passage from the judgment of the Supreme Court of California in People v. Arguello [1869] 37 Calif. 524 which was approved by this Court in Kesoram Industries v. Commissioner of Wealth Tax [1966] 59 ITR 767 (SC) clearly brings out the essential characteristics of a debt: 'Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is debt due.' This passage indicates that when there is an obligation to pay a sum of money at a future date, it is a debt owing but whe....
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.... corollary of the first and is that where the plaintiff does take reasonable steps to mitigate the loss to him consequent upon the defendant's wrong, he can recover for loss incurred in so doing; this is so even although the resulting damage is in the event greater than it would have been had the mitigating steps not been taken. Put shortly, the plaintiff can recover for loss incurred in reasonable attempts to avoid loss. (3) The third rule is that where the plaintiff does take steps to mitigate the loss to him consequent upon the defendant's wrong and these steps are successful, the defendant is entitled to the benefit accruing from the plaintiff's action and is liable only for the loss as lessened; this is so even although the plaintiff would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being the ones which were required of him under the first rule. Put shortly, the plaintiff cannot recover for avoided loss." 23. Two principles with regard to compensation for loss of damage caused by breach of contract, as envisaged by section 73 of the Ind....
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.... the respondent company, had it put in an appearance, may well have taken the defence that the petitioner did not take 'reasonable steps' to mitigate its loss. This would have had an impact on the price differential claimed by the petitioner as due and payable by the respondent. While no such point has been raised in the present proceedings, it may well be a ground for dispute over the amount due to the petitioner. It is a fundamental principle in such cases that the petitioner is bound to try and obtain the best price for the goods in the open market. The onus of proving that this was the best price available would be on the petitioner, to be discharged in a Civil Court. Referring to McGregor on Damages, 17th Edition, 2003, (para 212 in the 13th Edition) the Bombay High Court in Maharashtra State Electricity Distribution v. DSL Enterprises (P.) Ltd. 2009 (111) Bom. LR 1246, has held that the onus of proof, of mitigation is on the Defendant, and that "if he fails to show that the claimant ought reasonably to have taken certain mitigating steps, then the normal measure will apply." 27. The other question that arises but is not answered in this petition is as follows : (a )If t....