TaxTMI 
TaxTMI 
2014 (7) TMI 1392
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..... 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. The agreement of transfer slump sale by the respondent to VLMS does not in any way affect the rights of the petitioner, governed by the terms of NAAC. Clause (3) of the NAAC agreement very clearly provides that the parties agree that the respondent - ETA's obligation is not discharged and an indemnity is also provided by the respondent and there is nothing in the agreement, which discharges ETA of its obligations. In such view of the matter, I do not find any justification to non-suit the petitioner on the ground that they have filed a petition before the High Court of Karnataka as against VLMS. 17. In view of the reasons as stated above, 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.....
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....liability of the Appellant towards balance consideration for the purchase of three rakes between December 2009 and June 2010 amounted to Rs. 26,42,69,343/- stood lawfully extinguished on account of the Novation and Transfer Agreement dated 16.05.2012 and the subsequent Business Transfer Agreement and Novation Agreement dated 15.03.2013. 8. The Learned Senior Counsel for the Appellant contends that by virtue of Clause 3 of the first Novation Agreement dated 16.05.2012, the liability got extinguished and added further, a similar clause for extinguishment of liability is also contained in the second agreement dated 15.03.2013. 9. At this stage, the Learned Senior Counsel for the Appellant projects a plea that Clause 1.2 of the second agreement dated 15.03.2013 cannot be interpreted as constituting a continuing liability and in fact, Clause 1.2 of the second Novation Agreement dated 15.03.2013 became redundant because both the Business Transfer Agreement as well as Novation Agreement got executed on the same day viz., 15.03.2013 which was the "Closing Date" as per the agreement. 10. The Learned Senior Counsel for the Appellant submits that Clause 3 of the Business Transfer Agr....
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....A arising under and pursuant to the terms of the Purchase Order; - the Respondent Company is accordingly liable to fulfil all obligations towards the purchase of the rakes by ETA from the Petitioner; - The various instances of acknowledgement by ETA as regards the non-payment of debt due to the Petitioner are additionally fastened upon the Respondent Company as being obligations subject to full and effective discharge in favour of the Petitioner; and - Absence of payment of the outstandings by the Respondent Company to the Petitioner results in a breach by the Respondent of the express covenants of the Novation Agreement for Assumed Contracts, for which the Respondent alone is liable." and contends that the Respondent/Petitioner had sought to mulct the whole liability on VLMS alone. 14. Further, the Learned Senior Counsel for the Appellant takes a stand that the pleadings of the Respondent/Petitioner, in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, categorically points out that the Respondent/Petitioner believed that the liability of the Appellant (ETA) stood extinguished and legally transferred to the buyer viz., VLMS a....
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....his was asserted by VLMS and not denied by the Respondent. 21. However, it is the submission of the Learned Senior Counsel for the Appellant that in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, the Respondent/Petitioner admits that there was a settlement which failed and this transaction between VLMS and the Respondent/Petitioner without involving the Appellant (ETA) in any manner further extinguishes any joint and several liability even assuming without admitting the same. 22. The Learned Senior Counsel for the Appellant contends that the non-issuance of any reply to the statutory notice cannot be a ground for admitting a Company Petition or winding up a company. In this regard, it is the stand of the Appellant/Respondent that non furnishing of reply cannot ipso facto lead to any adverse conclusions if the party otherwise provides a bona fide defence to the liability as in the instant case of the Appellant/Respondent. 23. The Learned Senior Counsel for the Appellant proceeds to submit that the ingredients of Sections 433 and 434 of the Companies Act, 1956 speak of a 'Summary Proceeding', as it is not intended to substitute a trial and ....
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.... claim in an action, lest there is danger of abuse of winding-up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding-up petition as a means of forcing the company to pay a bona fide disputed debt. A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at the stage of a winding-up petition is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial." 29. Further, in the aforesaid decision, at page 554 and at special page 555, it is observed as follows: "If the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non-payment of the amount of such a bona fide disputed debt cannot be termed as "neglect to pay" so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956." ....
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.... defense of the company is in good faith and one of substance, and the defense is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defense depends, the petition should be rejected. (iv) The Court may consider the wishes of creditors so long as these appear to be justified. (v) The machinery of winding-up should not be allowed to be utilised merely as a means of Realizing its debts. [For the above propositions see Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Another, (1994) 2 Comp LJ 50 (SC) in which the observation in Amalgamated Commercial Traders (P) Ltd. v. Krishnaswami, [1965] 35 Comp. Case 456 (SC) and Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Cas. 125 (SC) have been paraphrased]. (vi) If the stance of the adversaries hangs in balance it is always open to the Company Court to order the Respondent Company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any. [see Civil Appeal No. 720 of 1999 arising out of SLP (C)No. 14096 of1998 - M/s....
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....e words: 2. On behalf of the Petitioner the following cases have been relied upon. 1. GKW Ltd. v. Shriram Bearings Ltd. 2. 52 (1993) DLT 577. Mayar Traders Ltd. v. Akhil Services Ltd. 3. Rishi Pal Gupta v. S.J. Knitting and Finishing Mills Pvt. Ltd. 4. 1982 (52) Company Cases 479. Westinghouse Saxby Farmer Ltd. 5. 1978 (48) Company Cases 378. (Bombay) United Western Bank Ltd., 6. Goodwill India Ltd. v. P.S.B. Paper Mills Pvt. Ltd. 3. I shall first deal with the consequences of the Respondent's failure to send a Rely to the Statutory Notice. The reliance of Mr. Valmiki Mehta, learned Senior Advocate appearing for the Petitioner on the above-mentioned decisions of my Learned Sister Usha Mehra, J. is somewhat exaggerated. The decisions do not inexorably lead to the conclusion that Winding-up orders must unvariably be passed where no response to a Statutory Notice has been made. From my understanding of the judgment my Learned Sister had taken the failure to reply to the notice as an important factor in determining whether a bona fide defense had been put forward. In the circumstances of both the cases, she pre....
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....st the repeated demands made by the Respondent/Petitioner for payments to an extent of Rs. 30.84 crores due under the aforesaid invoices, the Appellant/Respondent time and again acknowledged its liability and assured the Respondent of early payment as per letter dated 02.09.2010 and response on behalf of the Appellant vide letter dated 13.09.2010, letter dated 28.12.2010 of the Respondent and letter dated 20.01.2011 of the Appellant, emails of the Appellant dated 28.22.2011, 08.03.2012, 22.08.2012, 27.04.2013, 30.05.2013 and 21.06.2013 respectively. 36. The Learned Senior Counsel for the Respondent/Petitioner brings it to the notice of this Court that pursuant to a restructuring plan made by the Appellant/ETA Group, it was proposed that the Appellant's logistics business, being conducted under the tradename 'Freightstar' be hived off to a separate entity, M/s Freightstar Private Limited, which a third party investor, M/s. Vikram Logistic and Maritime Services Private Limited (VLMS) would take over, which would enable payment of the Respondent's debt. Accordingly, a "Novation and Transfer Agreement" dated 16.05.2012 was entered into between the Appellant, Responde....
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....chase Order. Accordingly, Vikram Logistics and/or the Appellant (ETA) were obligated to comply with the terms and conditions of the Purchase Order if not already complied with. 42. The Learned Senior Counsel for the Respondent brings it to the notice of this Court that the Novation Agreement For Assumed Contract was signed by one Karunakaran and Sathianathan, on behalf of the ETA as well as VLMS. 43. As a matter of fact, the Learned Senior Counsel for the Respondent proceeds to add that correspondence was exchanged with Sathianathan post on 15.03.2013 with regard to the outstanding liability both on his ETA email address ([email protected]) and his VLMS email address ('[email protected]) which, along with the content of the mails shown that notwithstanding the business transfer agreement, he held dual capacities both with ETA and VLMS. 44. The Learned Senior Counsel for the Respondent submits that because of the continued defalut in payment both by VLMS and ETA, a statutory notice in terms of Section 434(1)(a) of the Companies Act, 1956 was issued by the Respondent on 20.11.2013 both to the Appellant and also to VLMS calling for payment of the outstanding dues....
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....earned Senior Counsel for the Respondent proceeds to submit that as per Clause 3 of the Novation Agreement For Assumed Contract dated 15.03.2013, a special protection is extended to the Respondent, in terms of the Appellant/ETA continuing to remain liable for the debt notwithstanding the Novation of the Purchase Order in favour of VLMS, in lieu of the consent extended by it to the Transfer of the Logistics Business by the Appellant to VLMS. Further, this is borne out by the fact that Ex.C. to the amended and restated Business Transfer Agreement executed between the Appellant, VLMS and freightstar which provided the general format for such Novation Agreements to be executed with different vendors/suppliers. As such, the contention of the Appellant that it cannot be held liable for the debt pursuant to the business transfer in favour of VLMS is contrary to the contractual terms and the principles embodied in Section 43 of the Contract Act, 1872 which rendered both ETA and VLMS jointly and severally liable for repayment of the debt due to the Respondent (Vide Pollock & Mulla, the Indian Contract and Specific Relief Act, 14th edn., Pgs 805-807). 51. The Learned Senior Counsel for th....
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.... of Karnataka by the Respondent is an argument of prejudice without any merits. 55. The Learned Senior Counsel for the Respondent submits that the reliance placed on the Appellant side to the averments made in paragraph No.51 of the Company Petition No.10 of 2014 on the file of Hon'ble High Court of Karnataka filed by the Respondent (Texmaco) against VLMS, inter alia, to the effect that 'Absence of payment of the outstandings by the Respondent Company to the Petitioner results in a breach by the Respondent of the express covenants of the Novation Agreement for Assumed Contracts, for which the Respondent alone is liable', is a misplaced one and meant only to mislead this Court. Furthermore, the said point was neither specifically raised in the counter to the winding up petition nor argued by the Appellant before the Learned Single Judge in C.P.No.52 of 2014 on the file of this Court. Moreover, the same is to be read and understood in conjunction with the averments of paragraph 55 in C.P.No.52 of 2014 on the file of this Court and a reading of the aforesaid contents of paragraphs in two Company Petitions mentioned supra are quite in tune with the understanding of the j....
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.... inasmuch as the order of admission is a discretionary one, the scope of interference in this regard at the appellate stage is extremely a narrow and limited one where the impugned order is demonstrably an arbitrary, capricious or perverse one. 60. The Learned Senior Counsel for the Respondent, during the last leg of arguments, submits that pursuant to the admission in C.P.No.52 of 2014 and advertisement, the Learned Single Judge will necessarily consider the other creditors' views etc. and the larger public interest considerations in determining whether or not the Appellant Company deserves to be wound up or not and the said considerations therefore, do not mandate any interference with the impugned order. 61. The Learned Senior Counsel for the Respondent cites the decision of the Hon'ble Supreme Court in Wander Limited and another V. Antox India P. Limited, 1990 (Supp) Supreme Court Cases 727, at special page 728 & 729, whereby and whereunder, it is observed and held as follows: "The appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown t....
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....arned Senior Counsel for the Respondent refers to the decision in Punjab Co-operative Bank Limited V. Official Liquidator, Punjab and Haryana High Court, (1984) 55 Comp. Cases 1 (P & H), wherein, in paragraph Nos.7,8 & 10, it is observed and held as follows: "7. Similar view was taken by the Madras High Court in B.R. Nagendra Iyer v. R. V. Subburamachari, AIR 1935 Mad 1055, and T. Radhakrishna Chettiar v. K. V. Muthukrishnan Chettiar, AIR 1970 Mad 337. The learned Chief Justice in B. R. Nagendra Iyer's case observed that a promisee has a cause of action against all the joint promisors. He can, if he chooses, file a suit impleading all the joint and several promisors as co-defendants or he can file a suit against any one of them and obtain judgment against him. It is further observed that unless that judgment is satisfied it does not operate as a bar to his claim against the other joint promisors and he has his right of action against them. To the same effect are the observations in T. Radhakrishna Chettiar's case. Further, the Patna High court has also taken the same view in Traders Cooperative Bank Ltd. v. A. K. Mallick, AIR 1934 Pat 2. 8. Pollock and Mul....
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....ment of the debt did not amount to its neglect to pay. Therefore, we are of the view that the company is under an obligation to disclose all its points of defence in its reply to the statutory notice. The service of the statutory notice is not an empty formality; it conveys the message of consequences. The provisions of Section 434 of the Companies Act ensure settlement of disputes to curb avoidable litigations. The appellant-company's contention, if accepted, will be contrary to the legislative intent. Its proposition just encourages litigation." 65. The Learned Senior Counsel for the Respondent seeks in aid of the decision of this Court in NEPC India Limited (Formerly NEPC Micon Limited V. Atlantic Bridge Aviation Limited, (2008) 1 MLJ 76, wherein, it is held as follows: "Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt and stay the company petition. Company proceedings could be initiated if Court prima facie comes to the conclusion regarding the existence of debt and neglect on the part of the company to pay such amount in spite of the statutory notice." Discussions: 66. At the outs....
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....2 of 2014 on the file of this Court filed by the Respondent/Petitioner ought to be dismissed. 70. The core contention advanced on behalf of the Appellant/ Respondent is that the issues raised by the Respondent/Petitioner forms part of interpretation of NAAC dated 15.03.2013 and in proceedings in C.P.No.52 of 2014 which are summary in nature, these aspects are not to be gone into because of the bona fide defence raised by the Appellant/Respondent in regard to the liability and debt in issue. 71. The pivotal contention of the Appellant/Respondent is that in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, the Respondent/Petitioner sought a relief of winding up the VLMS and in fact, in para 50 & 51 of the aforesaid Company Petition, the Respondent had clearly averred for the breach of the express covenants of the Novation Agreement For Assumed Contracts, the Respondent (VLMS) alone is liable. 72. At this stage, this Court worth recalls and recollects the decision in T.Srinivasa V. Flemming (India) Apotheke Private Limited, (1990) Vol.68 Comp. Cases 506, wherein it is held as follows: "It is well-settled that a creditor may seek the assistance....
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....hat 'the winding up petition filed by the firm for winding up of the respondent-company on the ground of inability to pay the amount due to it was misconceived. It was evident from the documents produced by the respondent-company that the firm had supplied substandard goods and the company had issued a debit note to the firm which substantial that the debt was disputed. Therefore, the winding up of the respondent-company could not be ordered.' 76. Also, this Court cites the decision of the Hon'ble Supreme Court in Madhusudan Gordhandas and Company V. Madhu Woollen Industries P. Ltd., AIR 1971 SC 2600; [1972] 42 Comp Cas 125, it is held as follows: 'If the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The principles on which the court acts are: (i) that the defence of the company is in good faith and one of substance; (ii) the defence is likely to succeed in point of law; and (iii) the company adduces, prima facie proof of the facts on which the defence depends." 77. Further, in the decision of the Hon'ble Supreme Court in Mediqup Systems P. Ltd. V. Proxima Medica....
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....that the defence was based on forged documents. The respondent-company denied the contentions of the petitioner and stated that from the stage of reply to the statutory notice the respondent-company had disputed the claim of the petitioner, the respondent-company had called upon the petitioner to provide the interest clause proviso agreed between both the parties and submitted that the claim of interest was absolutely false and was not legal, that whatever payment was made had been adjusted by the petitioner against interest and not against the principal amount, that it was a profitable concern, which employed over 95 persons and relied upon its statement of account as well as balance-sheet and profit and loss accounts and that the claims of the petitioner were disputed and exaggerated:" Further, while dismissing the petition, it is also held that 'a genuine and bona fide dispute had been raised by the respondent-company. The petitioner's claim merely consisted of interest charged at the rate of 24 per cent. Per annum and for some period even at 30 per cent. Per annum. The claim also consisted of higher commission charges. There was no agreement with regard to char....
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....osal of the present Appeal. 83. It is to be borne in mind that a debt is a sum of money which is now payable or will be payable in future by reason of a present obligation debitum in prasenti solvendum in futuro. Furthermore, a debt must be a determined or definite sum of money payable immediately or at a future date. A contingent debt or a conditional liability is not a debt when the contingency or condition has already happened. 84. It may not be out of place for this Court to point out that if a Court of Law is satisfied that a debt upon which a petition to wind up is founded is a hotly contested debt and also doubtful, then, it should not make up a winding up order based upon such debt. 'Bona fide' dispute implies the existence of a substantial ground for the dispute raised. Where the company has a bona fide/genuine dispute, the Petitioner cannot be regarded as a creditor of the company for the purposes of winding up. 85. Indeed, the power of winding up is to be exercised judicially and with most circumspection. No wonder, the proceedings under Section 433 and 434 are not the proceedings to recover debts due from any particular company. 86. It is to be noted....
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....rd to the interpretation of NAAC dated 15.03.2013 centering around the liability of Debt (whether VLMS is liable or VLMS and Appellant both are jointly and severally liable), which forms part of the subject matter of winding up proceedings. Furthermore, the plea taken on behalf of the Appellant/ Respondent is that in C.P.No.10 of 2014 on the file of the Hon'ble High Court of Karnataka, the claim was made against VLMS founded on the Novation Agreement, but in the present C.P.No.52 of 2014 on the file of this Court, the plea taken by the Respondent/Petitioner is based on the Original Purchase Order dated 07.06.2008 and that apart, in C.P.No.10 of 2014, it was clearly mentioned that the Purchase Order stood completely novated. Therefore, this Court holds that the Appellant/Respondent has raised a substantial and tangible defences by raising contentious factual and legal issues which required detail investigation. Also that, the defences raised by the Appellant/ Respondent are not a mere cover or empty disputes with a view to cover up its real inability. In short, this Court is subjectively satisfied that the defences raised by the Appellant/Respondent in the present case are bona ....