TaxTMI 
TaxTMI 
2014 (12) TMI 1430
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..................... 9 C. The Supreme Court Judgment of 2008.............................................. 11 D. The amendment of 2008 ..................................................................13 III. QUESTIONS FOR DETERMINATION ................................................15 IV. RIVAL SUBMISSIONS & FINDINGS ..................................................16 A. Maintainability & Sufficiency of Pleadings.......................................16 B. Limitation.....................................................................................23 C. Admissions & Indebtedness; Financials ........................................23 D. Premature Publication .................................................................33 V. CONCLUSIONS.............................................................................35 ANNEXURE (Public Notice) ..............................................................38 I. PRELIMINARY 1. In the ten years since disputes began, the litigations between the parties have already, though in separate proceedings, twice reached the Supreme Court. The first of these was in relation to this Company Petition itself. The ....
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....is made only to establish the company's bona fides. But that seems not to have been the case here, especially when that statement is read with the clear admissions of liability in legal correspondence and, in particular, the 1st Respondent's advocates' reply to the Petitioners' advocates' statutory notice. There are, too, categorical statements even in the Affidavit in Reply. On an overall assessment, I have not found it possible to agree with Mr. Khandeparkar when he says that there is a bona fide and substantial defence. There are, in my view, sufficient grounds to warrant an order of admission. II. BACKGROUND & HISTORY OF THE PETITION A. The Original Petition 4. The Petitioner, Severn Trent Water Purification Inc. ("Severn Trent"), is a US-based corporation. It is incorporated under American Law. It has its headquarters in Delaware, USA. Severn Trent was formerly Capital Controls (Delaware) Company Inc. Sometime in 1990, Severn Trent's group acquired another company called Capital Controls Company Inc. The name of that company was then changed to Severn Trent Water Purification Inc. with effect from 1st April 2002. On 31st March 2003, Capital Controls (Delaware) Company....
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....7 of 2004 on 22nd September 2004 under Section 433(f) of the Companies Act, 1956. It sought the winding-up of Capital Controls India on the just and equitable ground, the appointment of an Official Liquidator and various interim reliefs. 9. Capital Controls India and Chloro Controls both opposed the admission of Severn Trent's winding-up petition. Both Capital Controls India and Chloro Controls were represented by Kocha. Capital Controls India contended that the petition was itself not maintainable. It alleged that since Severn Trent was not itself a shareholder on the register of Capital Controls India, it had no locus to maintain this petition for winding-up. The registered holder of 50% of the equity share capital of the joint venture, Capital Controls India, was not Severn Trent but was Capital Controls (Delaware) Corporation Inc. The merger of Capital Controls (Delaware) Company Inc. into Severn Trent had never been intimated to Capital Controls India before Severn Trent filed an Arbitration Petition No.121 of 2004 invoking the dispute resolution provisions of the Joint Venture Agreement. Capital Controls India also contended that there was no application at any time for tr....
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....reference to it is in the 2008 decision of the Supreme Court. B. Admission of the Petition, and appeals 13. On 21st April 2005, a learned Single Judge of this Court admitted the Company Petition. On a prima facie assessment of the petition, the learned Single Judge held: (a) that the shareholding of Capital Controls (Delaware) Company Inc. in Capital Controls India vested in Severn Trent pursuant to the amalgamation / merger of those two companies; (b) that there was no breach of the Shareholders' Agreement since the agreement did not prevent the merger of the two equity shareholding corporations; (c) that the provisions of Section 439(iv)(b) of the Companies Act pertaining to devolution through debt of a former holder were applicable to a case of merger or amalgamation; and finally (d) that there was a complete deadlock in the functioning of the business of Capital Controls India as there were only two shareholders, each with an equal equity shareholding, and that since those shareholders evidently could not agree in the manner in which the business of Capital Controls India was to be conducted, the Company could not do any business, nor s....
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....an order of the Court as required by law? 17. In its decision, the Supreme Court held that the petition, as filed, was not maintainable by Severn Trent as a contributory (paras 43 to 52 of the SCC report). The first question, noted above, was thus answered in the negative and against Severn Trent. However, the Supreme Court left open the question of whether the petition was maintainable by Severn Trent in its capacity as a creditor of the 1st Respondent-Company, Capital Controls India. The second question was, therefore, answered in the affirmative. Paragraphs 73 and 74 of the order of the Supreme Court read as follows: "73. It is thus clear that though the case put forward by Severn Trent in the winding-up petition was as a "contributory", the factum of the Company being debtor and Severn Trent being creditor and in spite of dues being admitted by the Company, there was non-payment on the part of the Company had been mentioned in the petition. The learned counsel for Severn Trent appears to be right that in view of the finding by the learned Company Judge that the petition instituted by Severn Trent as a "contributory" was maintainable, it was no more necessary for the....
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....the Company. According to the Petitioner, as set out hereinabove, the Company is indebted to the Petitioner in the sum USD 575,113.29 as on 31.07.2004 as per the particulars of claim, hereto annexed and marked as "Exhibit XX". The Petitioner states that the notice demanding payment of outstanding amounts dated August 4, 2004 was issued by the Petitioner's advocates under Sections 433 and 434 of the Companies Act, 1956. The Company replied to the winding up notice vide its letter dated September 1, 2004 and admitted and acknowledged therein that the Company indeed owed monies to the Petitioner, however disputed the total amount that was due and payable to the Petitioner. The Petitioner further states that in the minutes of the various meetings of the Board of Directors, the Company was acknowledged that monies are due and payable to the Petitioner against equipment supplied by the Petitioner to the Company. The details of the same are as under: (i) Minutes of board of directions meeting held on 28 and 29.9.2002; (ii) Minutes of board of directors meeting held on 27.6.2003 (Kocha's Version); (iii) Minutes of board of directors meeting held on 27.6.2003 (Sev....
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....any case, there is in Severn Trent's notice a claim for interest at 18% per annum (1.5% per month), a rate that is without disclosed basis. The Petition was filed on 22nd September 2004. What it did not disclose was the Respondents' reply of 1st September 2004 to Severn Trent's statutory notice dated 4th August 2004. It is Severn Trent that has not dealt with the response to the statutory notice. 24. Paragraph 16 of the original, unamended petition reads thus: 16. One of the other reasons for discord between the parties in the non-payment of admitted sums owed by the Company to the Petitioner. Pursuant to the Joint Venture Agreements, the Petitioner supplied water purification and filtration products, components and equipments [sic] to the Company. The Petitioner has till date not paid for the same. The Board of Directors of the Company and the Managing Director have acknowledged the Company's liability to the Petitioner in various communications and in various Board Meetings. In the circumstances, the Petitioner was constrained to issue a legal notice dated August 4, 2004 to the Company demanding payment of all outstanding dues. A copy of the demand letter is annexed h....
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.... a learned single Judge of this Court in M. Gordhandas & Co. v D. Arvind Mills 1974 (76) Bom. L.R. 119 to say that pleadings on the original side of this Court must be strictly construed. First, those observations in Badat & Co were by Subba Rao J in his dissenting judgment, and though they were nonetheless approved by Vimadalal J in M. Gordhandas, they must, I think, be viewed in context. In both cases, the courts were concerned with pleadings in civil actions, i.e., suits governed entirely by the Code of Civil Procedure, 1908. Those are matters that are subjected to the rigour of a trial. A petition for winding up is not. It is decided on affidavit, not evidence properly so-called. The reason for the insistence on strictness in pleadings is plain: to ensure that there is no impermissible divergence between pleadings and proof. Only what is pleaded can be proved, and there can be no proof without a supporting pleading. Although Rule 6 of the Companies (Court) Rules 1959 ("the Rules") says that the provisions of the Code of Civil Procedure, 1908 ("CPC") are "so far as applicable", I do not believe that the rigour of proof vis-à-vis pleadings is something that can be imported....
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....ainable need not detain us for long. He founds this submission on the decision of a learned single Judge of this Court in Shantilal Kushaldas & Brothers Pvt Ltd v Smt. Chandanbala Sughir Shah & Anr. 1993 (2) Bom.C.R. 651 First, this was a ground always available and at no point in its tortuous history has this been seen as a reason to unseat the petitioner. It is, I think, not possible to take this point at this stage in the proceedings. What the argument overlooks is that in this case, the authority conferred is not limited to "suits and/or proceedings" as was the case in Shantilal Kushaldas, but expressly extends to "petitions ... and/or other proceedings", as also applications. It is sufficiently widely worded to include the authority to file this petition. IFCI Factors v Koutons Retail India Ltd., [2013] 179 Comp. Cas. 235 (Del) The present action is commenced by a petition, as required by the Rules, and it is, therefore, maintainable; and the constituted attorney of Severn Trent had the necessary authority to affirm and file this petition. 31. In any case, courts have allowed amendments to winding up petitions, especially where the amendments are clarificatory or amplify a ....
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....a claims that there is not one single admission of liability on which the claim is founded. There are several, and these are repeated. They are unequivocal and they continue till as late as the reply of 1st September 2004 to the statutory notice of 4th August 2004. These several admissions, according to Mr. Andhyarujina, are sufficient to warrant an order of admission on the petition by Severn Trent as a creditor of Capital Controls India. In any event, says Mr. Andhyarujina, the record also reflects that Senior Counsel on behalf of Capital Controls India and Chloro Controls has, not once but twice, offered to make a substantial deposit in the amount of $176,640.94 in Court. No such submission could have been made absent any liability. For one thing, it is no round number as an ad-hoc demonstration of bona fides or financial capability: it is a very precise amount. The very fact that such an offer was made is, in Mr. Andhyarujina's submission, a sufficient admission of liability. It matters not why this submission was made. Finally, Mr. Andhyarujina draws attention to the financial position of the Company to submit that on any fair reading of its financial reports, Capital Controls....
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.... Authorities on the said 99 deliberately inflated invoices raised by you client, being a loss to the company admittedly attributable to you client's actions. 9. Without prejudice to the foregoing our client is in the process of carrying out a similar exercise in respect of invoices raised by your client and paid till date by our client. Undoubtedly, our client anticipates substantial overcharging by your client even in respect of these invoices, a fact repeatedly brought to the notice of your client as aforesaid, and which our client is entitled to adjust and /or set off against the aforesaid amount of US $176,640.94 (less a further sum of US $ 5,000) given the fact that the dealings between our respective clients have been and continue to be on a running account basis. 10. In the meantime, and so as not to give your client any unnecessary cause for complaint, since the aforesaid amount of US $176,640.94 (less a further sum of US $ 5,000 pertains to invoices in respect of imports where more than 6 months have lapsed from the date of the respective shipments, the Company is approaching its bankers with a request to remit such amount as is found due and payable to y....
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....ge the question as to whether the petition for winding up on the just and equitable ground could be maintained by the Petitioner as creditor, the Joint-Venture Company through its Managing Director Mr. M.B. Kocha seeks permission of this Hon'ble Court to deposit in this Hon'ble Court the rupee equivalent of US $ 176,640.94 (mentioned in paragraph 8 of the reply to the statutory notice: Volume III page 554 at page 560), within six weeks from today for payment to Severn Trent Water Purification Inc. upon requisite permission for remittance being obtained from the Reserve Bank of India. The Joint-Venture Company, through the said Mr. M.B. Kocha (Managing Director of Capital Controls India Pvt. Ltd.,) undertakes to this Hon'ble Court to apply forthwith for the requisite permission from the Reserve Bank of India intimation to Severn Trent Water Purification Inc." (Emphasis supplied) 39. Mr. Andhyarujina's submission is that this admission made by Capital Controls India before the Supreme Court is completely unqualified. It is not predicated on accounts being taken. Read with the reply to the statutory notice, this is the clearest possible admission of the Company's indebtedness to....
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.... these board minutes in the reply to the statutory notice. This defence is raised only later. The entire claim of the Company that it has a set- off or counter-claim is ex-facie not credible. No such set-off or counter-claim has been filed. 42. What of the pleading in the Affidavit in Reply? Mr. Andhyarujina points to paragraphs 12 to 14 of that affidavit, read with Exhibit "T". Here, the Respondents justify the figure of USD 171,640.94 that they have arrived at, and claim that they have a counter-claim after adjusting this amount. Admittedly, the Respondents have at no point filed any action or proceeding to recover this amount that they claim is owed to them by Severn Trent. There is no suit, no petition, and, in arbitration, no counter- claim. It is a mere allegation and no more than that. But in the making of that allegation there is an explicit admission of a liability to Severn Trent in the amount of US$ 171,640.94 - the exact amount Capital Controls India offered to deposit in court. 43. What is also of undoubted significance, as Mr. Andhyarujina says, is that the admission comes from Kocha himself. It is he who has affirmed this Affidavit in Reply. He is in management....
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....on that I cannot accept. There are subsequent admissions in the company's advocates' reply to the statutory notice, and those admissions are utterly unambiguous. 44. Mr. Andhyarujina also disputes the position that no company petition can ever be maintained on a running account. When that running account is accompanied by an admission or liability, then such petition can be maintained. In M.X. Advertising v Surya Hot-Sip Tea Co. (P) Ltd. [2003] 115 Comp. Cas. 555 (Bom), Dr. D. Y. Chandrachud J, as he then was, considered a similar argument. There, liability was held to be admitted by the issue of a cheque, a balance confirmation and part payment. In that situation, the Court held, it could not be said that the petition would not lie because moneys were claimed at the foot of an account. In the present case, too, though there may have been cross-entries and transactions in parallel, Kocha's admissions are clear and unambiguous. It is of little assistance to the company to contend that they are in some 'context', and that all that Kocha offered was a contingent proposal for settlement not an admission of liability. It is difficult to see the admissions in any such manner. Mr. Khan....
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....1968 SC 279 48. Mr. Khandeparkar's submission is, in my view, entirely misplaced. The advertisement in Amritsar Swadeshi, reproduced in the judgment, cited and referenced an order of the learned single Judge, one that did not direct any sort of advertisement but merely issued notice on admission. What of the notice issued by Severn Trent? It did not mention any order of this, or any other, court. It only said that Severn Trent had terminated the joint venture; that Kocha had filed a suit on behalf of Capital Controls India, and that this was pending (as were applications for interim relief ); that it was Severn Trent's "intention to seek a winding up of the joint venture company ... in accordance with due process of law"; that Severn Trent had already filed the present petition for winding up; and that anyone dealing with Capital Controls India, Kocha and Chloro Controls India should bear these facts in mind and deal with them at their own risk as to consequences. I see nothing objectionable in this. There is no law that prohibits any such public notice being issued. Claiming to be a 50% equity shareholder in the joint venture, Severn Trent evidently felt need to ensure that it ....
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.... further. It says it has a counter-claim. That, in civil law, means that Capital Controls India has an independent and free-standing claim against Severn Trent, one that it could pursue and, in order to make this a valid defence, ought to have pursued. It has done nothing. The defence is just smoke and mirrors, illusion and deception. 52. On my finding that the petition by Severn Trent as a creditor of Capital Controls India is maintainable, it follows then that this petition must be admitted. 53. Hence: (a) The company petition is admitted and is made returnable on 26th March 2015; (b) Service of the petition under Rule 28 of the Companies (Court) Rules, 1959 is waived. 54. However, given the history of the matter and the length of time that it has been pending, the Petition is not to be advertised till further orders of the Court. Liberty to the Petitioner to apply. It is also because of the length of time this petition has been pending that I have granted such a long returnable date. 55. I must thank both Mr. Andhyarujina and Mr. Khandeparkar for their assistance in this matter. I do realize that the judgment in this case has been inordinately delay....