TaxTMI 
TaxTMI 
2016 (8) TMI 1480
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.... executing major civil works of the Nathpa Jhakri Hydro Electric Project (now SJVNL). In response to such global tenders, the respondent company also made its bid staking claim qua few civil components of the project. Two contracts i.e. Contract No. 1.0 and Contract No. 2.1 came to be awarded in its favour and two separate agreements qua the same were entered on 05.08.1993 and 27.09.1993, respectively. 3. The original value of the Contract No. 1.0 was Rs. 439,38,00,000 which was revised from time to time and completed at Rs. 660,61,00,000, whereas, the original value of Contract No. 2.1 was Rs. 517,98,00,000 which was revised from time to time and completed at Rs. 506,45,00,000. 4. The work in respect of Contract No. 1.0 was completed and handed over by the respondent to the appellant on 20.06.2004 and work of Contract No. 2.1 was completed and handed over to the appellant on 09.06.2003. 5 . However, in both the contracts, dispute arose between the appellant and the respondent regarding Extension of Time (EOT) under Clause 44 of the General Conditions of Contract (GCC) and the respondent invoked the arbitration clause of the agreement and Arbitration Tribunal was constitut....
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....d that outstanding amount of Rs. 25,72,18,342/- as claimed by the respondent vide its letters dated 20.10.2010 and 29.11.2010 was not denied by the appellant and instead the appellant wrote letters dated 01.12.2010 and 15.12.2010 admitting these amounts and sought further confirmation from the respondent to the effect that only aforesaid amount was pending payments in respect of the aforesaid contracts. 12. It was claimed that the appellant also sought further details/break up in respect of the said amount. The respondent thereafter vide its letters dated 18.12.2010 and 11.01.2011 provided item wise break up of the undisputed outstanding amount alongwith calculations, back up proofs and other details. 13. It was averred that the respondent was given to understand that the appellant in its Board meeting No. 201 dated 02.02.2011 had deliberated and agreed for further action to resolve the matter of settlement of the dues of the respondent. Thereafter, the appellant again vide its letter dated 01.03.2011 sought confirmation from the respondent that only an amount of Rs. 25.72/- crores was pending in respect of the aforesaid contracts and this confirmation was duly supplied to th....
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....e to the respondent. The parties had attempted to resolve the issue and as a consequence of the negotiations held between the parties, it was agreed to make and receive the payment with regard to both the awards and for such purpose an agreement was arrived at between the parties which was reduced into writing on 21.09.2008 in respect of Contract No. 1.0 and on 31.03.2010 in respect of Contract No. 2.1. The payment as agreed to between the parties included 10% interest on the amount payable as per the agreements and the same was paid by the appellant to the respondent within the time as stipulated under the said agreements. Thus, by entering into these agreements, the parties had put final lid with regard to any dispute which had surfaced from the above said contracts. 19. It was further averred that the matter with regard to above said contracts having come to a final end was reopened by the respondent only after it had received the complete agreed amount in question dehors Clause 60 of the GCC which expressly provided without any ambivalence that no interest will be payable to the contractor on account of delayed payment against the claim/head of Contractor's Draft Final A....
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....4. In respect of Contract No. 2.1, the parties arrived at a out of Court settlement which was signed by both the parties on 31.03.2010 and thus once full and final settlement qua both the contracts i.e. Contract No. 1.0 and Contract No. 2.1 was arrived at, then no amount whatsoever is due to the respondent. The respondent instead of resorting to necessary action under the Contract provisions had illegally served a legal notice for "winding up". 25. As regards the letters dated 01.12.2010 and 15.12.2010, it was averred that since the respondent had been raising the issue of their outstanding due payments in parts from time to time that too despite having arrived at a settlement, the respondent was only called upon to "confirm/certify as to the facts that the present details of the pending issues/amounts provided as per details shall signify the end of outstanding issues and to be treated complete in all respect of their all pending claims/dispute, other dues, unpaid bills etc. and shall not in-future raise any old, new or further disputes/issues/omissions/errors in whatsoever manner". But, the aforesaid contents could not be construed to be an acknowledgement of outstanding amoun....
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.... the following orders:- "Co. Application No. 3 of 2015. Heard. Applicant has made out a prima facie case and the balance of convenience is also in its favour. Applicant has sought a direction in the main petition filed under section 433 and 434 read with section 439 of the Companies Act for winding up of the respondent-company. Petitioner-company has already issued statutory winding up notice on 12.6.2013. Respondent-company has failed to pay its debt to the petitioner-company as per the averments made in the main petition and in this application. 2. Since the petitioner has prayed for immediate appointment of Provisional Liquidator, the Court deems it fit and proper to appoint Mr. Neeraj Gupta, Advocate, as Provisional Liquidator, who will be assisted by Ms. Seema Guleria, Advocate by dispensing with notice under sub-section (2) of section 450 of the Companies Act, 1956. The fee of Mr. Neeraj Gupta is assessed at Rs. four lakhs and Ms. Seema Guleria at Rs. Two lakhs provisionally to be paid by the petitioner-company within a period of two weeks from today to the Provisional Liquidator and assisting provisional liquidator. The Provisional Liquida....
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.... vehemently argued that when the final settlement pursuant to the arbitration awards had been arrived at and acted upon by withdrawing the petition under Section 34 of the Arbitration Act, then no amount whatsoever could be said to be due towards the respondent, but despite the settlement, it is the respondent, who for some strange reasons continued to claim further amounts. Whereas, the appellant vide letter dated 25.05.2011 had in unequivocal terms informed the respondent that in case it was dissatisfied with any of its actions, then it should follow the dispute resolution procedure as required by the contract under modified Clause 67 of the General Conditions of the respective contract agreements. This stand of the appellant was reiterated in its letter dated 14.12.2011 and in response to this, the respondent itself had clearly mentioned that in case of non release of due payments within 30 days, from the date of letter, the letter dated 25.05.2012 by the respondent be treated as notice under Clause 67 of the GCC. Not only this, the respondent in this letter had requested the appellant to initiate the process of constituting Arbitral Tribunal in accordance with the terms of the ....
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....an aspire to wind up the company as a matter of course. The court has wide power and discretion. In this connection, inability to pay debts is required to be judged from various sets of facts and circumstances. It may also be stated that inability to pay debts in all cases, ipso facto, could not be construed as an appropriate case for winding up. (3) A debt is money which is payable or will be payable in future byreason of a person's obligation. The expression "debt" would refer to liability to pay and it rests on certain contingencies, conditions and causalities. Even if the debt is proved and even if the inability to pay the debt is also shown, it is not a launching pad, in all cases, for a successful winding up order. Inability may arise for a variety of reasons and the court is obliged to consider whether the inability is the outcome of any deliberate or designed action or mere temporary shock and effect of economy and market. In a given case, it may happen that a party may become unable to pay its debts for a while, but that by itself is not a criterion for exercise of the power to wind up, ipso facto. (4) It is necessary for the company court to consider....
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.... for an orderof winding up, the "ex debito justitiae" rule is not of inflexible mandate, but is, as such a matter of discretion of the court. (12) Section 433 is also indicative of the fact that even if one or more grounds mentioned in section 433 exist, it is not obligatory for the court to make an order of winding up. The court has discretionary power. The court must in each case exercise its discretion in deciding whether in the circumstances of the case, it would be in the interest of justice to wind up the company. It is a well known rule of prudence that even in a case where indebtedness to the petitioning person is undisputed, the court does not pass an order for winding up where it is satisfied that it would not be in the larger interest of justice to wind up the company. (13) It is also well settled that a winding up order shall not be madeon a creditor's petition, if it would not benefit him or the company's creditors in general. (14) The court is also obliged to consider that it would be in theinterest of justice to give the company some time to come out of the momentary financial crisis or any other temporary difficulty as winding up i....
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.... material particulars. The petitioner is obliged to show that the financial status or the monetary substratum or the commercial viability of the company has gone so low and down that winding up is obviously, and evidently, unavoidable. (21) It is a settled proposition of law that a winding up petition isnot a legitimate means of seeking to enforce the payment of a debt which is disputed by the company, bona fide. A winding up petition ought not to be aimed at pressurising the company to pay the money. Such an attempt would be nothing but tantamount to blackmailing or stigmatizing the concerned company by abusing the process of the court. (22) A winding up petition is not an appropriate mode enforcing bona fide disputed debts and it is nothing but misuse and abuse of the process of the court. (23) A winding up petition is not an alternative form for resolvingthe debt dispute. In certain cases disputes are such that they are fit for resolving through the civil court rather than through the company court. (24) What is bona fide and what is not is a question of fact. Theexpression "bona fide" would mean genuine, in good faith and when a dispute is ba....
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....f shareholders and creditors and it may attach greater weight to the views of the creditors. 7. A winding up order will not be made on a creditors petition if it would not benefit him or the company's creditors generally and the grounds furnished by the creditors opposing winding up will have an impact on the reasonableness of the case. 40. Having considered the rival submissions, we are of the considered view that in order to resolve and determine the issue in question, it is absolutely necessary that we first advert to the various board meetings of the appellant, commencing from 205th meeting held on 14.07.2011 which reads thus:-- "EXTRACT OF MINUTES OF 205TH MEETING OF THE BOARD OF DIRECTORS HELD ON 14TH JULY 2011 ITEM No. 205/5 PENDING ISSUES OF CONTRACT No. 1.0 AND 2.1 OF NJHEP AWARDED TO M/S. CONTINENTAL FOUNDATION JOINT VENTURE Recalling the earlier discussions on the proposal, the Board was informed that there were 10 claims for an aggregate amount of Rs. 25.72 crore under both the contracts, pending for settlement and these claims were not referred to any dispute resolution body. On noticing these claims require settlemen....
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....re of the contract No. 1.0 and 2.1. The Board further directed that a detailed legal settlement by executing agreement shall be entered into before release of payment. The Board also directed that in all future proposals to be brought before the Board should contain specific recommendations of the Management." 41. The 206th meeting of the Board of Directors was held on 26.08.2011, the relevant portion whereof reads thus:-- "On the above subject matter, the Board was informed that Chief Vigilance Officer, SJVN Ltd., called for detailed information vide his letter dated 08th August 2011 which is being furnished. The Board noted the contents of the letter and desired the management to furnish the information without any delay. The Board also desired that before implementing the decision, the views of CVO, if any, may be secured." 42. In the 207th meeting, the views of the CVO had not been received and consequently the settlement was deferred to the next meeting and the matter was ordered to be placed before the Board in its next meeting. 43. In the Board meeting held on 30.11.2011, no decision could be arrived at as the matter was under inv....
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....on of the balance sheet which reads thus:-- "3. Current Liabilities (In Crores) As of March 31 2014 2013 Short Tenn Borrowi (Note 2.6) -- -- Trade Paybles (Note 2.7) 23.35 26.86 Other Current Liabilities (Note 2.8) 725.54 576.77 Short Term Provisions (Note 2.9) 609.49 594.31 Total 1358.38 1197.94 The Current Liabilities as at March 31, 2014 and 2013 were Rs. 1358.38 crore and Rs. 1197.94 crore respectively. The Current Liabilities have increased by 13.39% mainly due to increase in Other Current Liabilities. Trade Payables Trade payables includes liabilities in respect of amount due on account of goods purchased or services received in normal course of business operations other than liability for Purchase/Construction of Fixed Assets. Trade Payables at the end of current fiscal is Rs. 23.35 crore as compared to Rs. 26.86 crore during the previous fiscal. Other Current Liabilities Other Current Liabilities mainly includes Current Maturities of Long Term Debts payable within Twelve Months, Liabilities for Employees Remuneration and Benefits, Liabilities for Purchase/Construction of Fixed Ass....
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....e events not wholly within the control of the enterprise; or (b) a present obligation that arises from past events but is not recognized because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) a reliable estimate of the amount of the obligation cannot be made." 52. We may now deal with the last contention of the respondent regarding failure of the appellant to reply to the notice of winding up petition under Section 434 of the Act. Undoubtedly, failure to reply to the notice is an important factor in determining whether a bona fide defence has been put-forth, but the same does not inexorably lead to the conclusion that the winding up order must invariably be passed where no response to a statutory notice has been made. 53. It is more than settled that the presumptions are always rebuttable and, therefore, the question is whether the appellant company has been able to rebut the presumption. For that purpose, we will have to fall back to the decision of the Hon'ble Supreme Court in Madhusudan Gordhandas case (supra) wherein it was observed that two rules are well settled:--....
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....1 since 25.5.2011. Finally CFJV agreed to settle the claim with a clear understanding that the settlement is being made just to avoid further litigation and release of payments immediately by SJVN so that the contracts can be closed. During these times, whenever there is a discussion on this matter, SJVN has given the understanding that the matter is under process and the payments will be released soon. After waiting 6 months from our first letter we have reminded you in December 2011, approaching again for the payment which has not been replied so far, neither due payment, as per terms of settlement, has been released. This has resulted in CFJV incurring unexpected financial loss and cost without any valid reason. Having no other alternative left now, it appears that CFJV has been compelled to refer the matter for adjudication to Arbitral Tribunal and/or Court of Law for the full amount plus accrued interest there against from the date it became due, till the date of payment. Accordingly, in case this payment is not released within 30 days from the date of receipt of this letter, kindly treat this letter as notice of arbitration under clause No. 67 of th....
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....Power Corporation 2001 (1) SCC 43, ANZ Grindlays Bank Ltd. vs Union of India (2005) 9 Scale 174). 59. In P. Neelakanteswararaju vs. J. Mangamma AIR 1970 AP 1 at 7 (FB), the Hon'ble Full Bench of the Andhra Pradesh High Court held that the term 'disputeRs.in its wider sense may mean the wranglings or quarrels between the parties, one party asserting and the other denying the liability. 60. There can be no gainsaying that 'admission or acknowledgement of debtRs.and 'disputed debtRs.are irreconcible and are pleas which are diametrically opposed to each other. Once there is a disputed debt, then there can be no acknowledged or admitted debt. 61. Thus, we have no hesitation to conclude that the so-called debts were never infact acknowledged or admitted, but were rather disputed by the appellant and that is why the respondent itself chose to invoke the modified Clause 67 of the GCC to have the matter referred to the Arbitral Tribunal. 62. From the various factors, facets, contours and chronicles emerging from the facts of the case, it is clearly evident that the respondent could not have used the machinery of winding up as a means of realizing the so-called de....