IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15TH DAY OF FEBRUARY, 2019 BEFORE:
THE HON’BLE MRS. JUSTICE S.SUJATHA COMPANY PETITON No.224/2013 BETWEEN:
M/s AIRTROPOLIS GSA SERVICES (S) PTE LTD., A COMPANY INCORPORATED UNDER THE LAWS OF SINGAPORE, HAVING ITS OFFICES AT 119, AIRPORT CARGO ROAD, #01-02, CHANGI CARGO AGENTS MEGAPLEX 1, SINGAPORE-918108 REP. BY ITS COO Mr. KWAN YUE ... PETITIONER [BY SRI K.S.PONNAPPA, ADV. FOR SRI S.SIMHADUTTA, ADV.] AND:
M/s CHARTERED AIR FREIGHTS PRIVATE LIMITED, A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT # 637/1, ASHWIN MANOR, AIRPORT ROAD-HAL POST, BANGALORE-560017. …RESPONDENT [BY SRI VIVEK YAVAGAL, ADV.] THIS COMPANY PETITION IS FILED UNDER SECTION 433[E] AND [F], R/W SECTION 434[1][A] AND 439[1][B] OF THE COMPANIES ACT, 1956, PRAYING TO THAT THE RESPONDENT BE DIRECTED TO BE WOUND UP BY THIS HON'BLE COURT UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND ETC.
THIS PETITION COMING ON FOR ADMISSION, THIS DAY, THE COURT MADE THE FOLLOWING:-
O R D E R This company petition is filed under Section 433 (e) and (f) r/w Section 434 (1)(a) and 439 (1)(b) of the Companies Act, 1956 (for short ‘the Act’). The petitioner company had entered into an agreement on 15.6.2011 with the respondent company wherein the respondent company was appointed as its Cargo General Sales and Service Agent (CGSA) for the territories namely Trivandrum (TRV) to Singapore (SIN), Tiruchirapplay (TRZ) to Singapore (SIN) and Chennai (MAA) to Singapore (SIN). In consideration of the CGSA, the respondent had agreed to pay the petitioner the rates for the monthly minimum tonnage (MMT). It is the contention of the petitioner that as per the terms of the agreement, the petitioner provided the cargo and raised invoices. The respondent after a period of time sought for revision of rates which the petitioner has refused. The petitioner had issued a legal notice on 18.10.2012 through its counsel demanding for payment of money. Further, the petitioner issued a statutory notice under Section 434 of the Companies Act, 1956 on the respondent and the same has been duly served but in vain. Hence, this petition.
2. Learned counsel Sri.K.S.Ponnappa appearing for the petitioner submitted that in terms of the agreement entered into between the parties, MMT was required to be paid by the respondent in terms of the attachment 2 to the agreement, operating Routes were three. The respondent had come out with a defence in the reply notice that the petitioner had not allowed the respondent to carry out the cargo business in Tiruchinapalli and appointed another agency for Tiruchinapalli which resulted in great loss to the respondent and the same defence is taken before this court which indeed is untenable.
3. The respondent company sought for revision of the MMT subsequent to the invoices raised and finally the contract was terminated. However, the amount due in terms of the invoices raised from 14.12.2011 to 14.7.2012 partakes the character of debt due under Section 433(e) of the Act. The said outstanding amount of SGD (Singapore Dollars) 368868.75 is an acknowledged debt in terms of the agreement and the respondent company is commercially insolvent rather incapable of repaying the debit amount to the petitioners. In view of the same, the respondent company has to be wound up in terms of both Sections 433 (e)and (f) of the Act.
4. Learned counsel Sri. Vivek Yavagal for the respondent referring to the statement of objections filed by the respondent company submitted that there is absolutely no basis for the claim. The MMT rates are only indicative figures that the respondent has to achieve. There was no financial liability on the respondent for allegedly not achieving the stipulated MMT rates. The petitioner has not satisfied the preliminary requirement of proving financial liability on the respondent. The existence of the liability being disputed by the respondent, the petitioner cannot seek to initiate winding up proceedings against the respondent. No question of admitted debt arises. The petitioner refused the respondent to operate from Tiruchirapally to Singapore which caused loss to the petitioner. On the default committed by the petitioner in complying with its obligations, filing of this company petition is wholly unjustifiable. At most, the claim made by the petitioner could be considered as damages, no winding up petition is maintainable to seek recovery of the damages. The respondent has the ability to pay its debts. The loss quantified by the petitioner does not become debt due to initiation of winding up proceedings.
5. I have carefully considered the arguments of the learned counsel appearing for the parties and perused the material on record.
6. On the basis of the factual foundation pleaded by the parties, the points that arise for my consideration before this court are:
1. Whether there is a debt due and the respondent company has failed or unable to pay the debt?
2. Whether there is prima facie dispute as to the debt and whether the defence raised is bonafide and substantial defence ?
The important ingredients of Section 433(e) of the Act are that:
1. There must be a debt 2. The company must be unable to pay the same.
7. It is well settled law that the expression should be taken in the commercial sense. Its financial conditions should make the court feel satisfied that the existing and probable assets would be insufficient to meet the existing liabilities. The respondent company in its defence asserts that the debt due claimed by the petitioner company is towards the MMT short fall which according to them is in the nature of damages for breach of the agreement. Much emphasis is made on the conduct of the petitioner in not allowing the respondent to start the work at Tiruchirapally Airport to which the petitioner has replied that the Tiruchirapally Airport was not operational since it did not meet operational standards of Airways; Irrespective of the same, the rates and MMT have been mutually discussed independent of each sector. These allegations and counter allegations made by the parties clearly establishes that there is a dispute regarding the transaction involved in question.
8. In the case of Madhusudan Gordhandas and Co. Vs. Madhu Woollen Industries Pvt. Limited1, the Hon'ble Apex Court while considering the scope of Section 443 (e) of the Act has observed thus:
"Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition 1 1971 AIR 2600 for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation, In re [1874] LR 19 Eq. 444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See Brighton Club and Norfolk Hotel Co. Ltd., In re [1865] 35 Beav. 204).
Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. (See A Company, In re [1894] 94 S. J. 369; [1894] 2 Ch. 349 (Ch. D)). Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely. (See Tweeds Garages Ltd., In re [1962] Ch. 406 ; [1962] 32 Comp Cas 795 (Ch D). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof of the facts on which the defence depends.
Another Rule which the court follows is that if there is opposition to the making of the winding-up order by the creditors the court will consider their wishes and may decline to make the winding-up order. Under Section 557 of the Companies Act, 1956, in all matters relating to the winding-up of the company the court may ascertain the wishes of the creditors, the wishes of the shareholders are also considered, though, perhaps, the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer's Company Law, 21st edition, page 742, as follows :
'This right to a winding-up order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and if, for some good reason, they object to a winding-up order, the court in its discretion may refuse the order.' The wishes of the creditors will however be tested by the court on the grounds as to whether the case of the persons opposing the winding-up is reasonable ; secondly, whether there are matters which should be inquired into and investigated if a winding-up order is made. It is also well settled that a winding-up order will not be made on a creditor's petition if it would not benefit him or the company's creditors generally. The grounds furnished by the creditors opposing the winding-up will have an important bearing on the reasonableness of the case. (See P and ) Macrae Ltd., In re [1961] 31 Comp Cas 424 (CA))."
9. In the light of the said judgment, it is clear that the disputed questions of fact cannot be decided in the company petition. It is trite law that if the debt is bonafide disputed and the defence taken is not a moon shine defence, there cannot be neglect to pay within the meaning of 433 (1)(a) of the Act. In such cases, the deemed provision does not come into play and the relevant factor of the company unable to pay its debts would not be held to be substantiated.
10. In the case of Amalgamated Commercial Traders (P) Limited Vs. A.C.K.Krishnaswami (1965)35 Composite Cases 456, the Hon'ble Apex Court observed thus:
"It is well-settled that a winding up petition is not a legtimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition presented ostensibly for winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court."
11. The short fall of MMT, the objective to be achieved in terms of the agreement entered into between the parties, cannot be construed as debt due and such disputes cannot be decided in the winding up proceedings. The defence raised by the company is bonafide. It is not a fit case to permit the petitioner company to take out advertisement in this company petition.
Accordingly company petition stands rejected.
Sd/- JUDGE Dvr: