JUDGMENT Sunil Ambwani, J.
1. Heard Shri Amit Prasad assisted by Shri Manoj Kumar Singh for the petitioner and Shri Bharat Ji Agarwal assisted by Shri Piyush Agarwal for the respondent Company.
2. By an order dated 15.2.2005 a counter affidavit, after overruling the objection by the counsel for the petitioner Company, was taken on record on imposition of costs, on the respondent Company and the matter was directed to be listed for hearing on the admission of the petitioner, for consideration whether the Company Petition should be advertised under Rule 24 of the Companies (Court) Rules, 1959.
3. These creditors' winding up petition has been filed by M/s Melvin Powell Vanaspati and Engineering Industries Ltd., with its registered office at 8/1/B, Diamond Harbour Road, Calcutta and M/s Paharpur Cooling Towers Ltd. with its registered office at 8/1/B, Diamond Harbour Road, Calcutta under Section 439 read with Section 433 and 434 of the Companies Act 1956 read with Rule 9 of the Companies (Court) Rules 1956 to wind up M/s Oswal Chemicals and Fertilizers Ltd. with its registered office at Village and Post Office, Piprola, Shahjahanpur.
4. Brief facts leading to the filing of the Company Petition No. 5/2004 in the matter of M/s Paharpur Cooling Towers Ltd., stated in paragraph 7 (a) to (h) are stated as below:
"(a) M/s Humphreys & Glasgow Consultants Ltd. having its office at Oberoi Complex, Saki Vihar Road, Sakinaka, Mumbai floated an enquiry on behalf of Company being inquiry No. OEFL:BC2517:3HC:R401 dated 18th August 1997 for Paradeep Phosphatic Fertilizers Complex.
(b) Pursuant to the floating of the enquiry, the Petitioner made offers bearing No. S217 dated 16th September 1997; S217A dated 22nd December 1997 and DT-97222 dated 26th December 1997 and thereafter had technical and commercial discussions with the Company with regard to the same.
(c) On the basis of the Letter of Intent/Notification of Award dated January 7, 1998 being No. OEP/PP/98/05 and the subsequent discussions that the Petitioner had with the Company, the company awarded the petitioner the following order on lump sum basis:-
i. SAP Cooling Tower Order No. BC2517: 3 HC: R401/1998/9 dated April 8 1999 issued under NOA-BC2517:3HC:R401: 1998/9 dated January 6, 1998 ii. PAP Cooling Tower Order No. BC2517: 3HC:R401/1998/9 dated April 8 1999 issued under NOA-BC2517:3HC;R401:1998/9 dated January 6, 1998 iii. Order No. OCFL/ BC/2517/3 HC/R401/ 1998 dated February 18, 1999 and amend Order No. OCFL/BC/2517/3HC/R401/1998/12/Amnd-I dated March 17, 1999 iv. Order No. OCFL/ BC/2517/ 3HC/R401/ 1998 and OCFL/CYC/1999/579 dated November 15, 1999
(d) The Petitioner thereafter executed the order as per the terms and conditions of the contract as the same was duly signed and executed, thereby making the said contract binding on both the parties.
(e) The work under the contract/order were executed by the Petitioner in accordance with the terms and conditions of the contract and to the complete satisfaction of the Company, which is evident from the Minutes of Meeting held on 13th April 2001 between the company and the Petitioner which was duly represented by the concerned executives namely Mr. U.S. Mullick and Mr.S.Pal of the Petitioner and Mr. Dubey, Sr. Manager (M) and Mr. B.K. Mishra, Plant manager of the Company.
(f) The Petitioner herein completed and executed the contract, strictly in accordance with the terms and conditions of the contract and the Company as aforesaid duly accepted the same and accordingly, the Petitioner raised invoices on the company with respect to the completion and commissioning of the project, which have not been settled by the Company in totality till date. The total amount, which became due and payable upon completion of the contract for which invoices have been duly raised was the contract amount of Rs. 5,99,64,050/- (Rs. Five Crores Ninty Lakhs Sixty Four Thousand and Fifty only), however, the outstanding amount of Rs. 21,02,998/- (Rupees Twenty One Lacs, Two Thousand Nine Hundred and Ninety Eight only) is due and payable by the Company to the Petitioner.
(g) Despite proper execution of the contract/order handing over of the cooling tower to the Company to its complete satisfaction, the Company failed to settle the outstanding dues payable to the petitioner amounting to Rs. 21,02,998/- (Rupees Twenty One Lacs, Two Thousand Nine Hundred and Ninety Eight Only) which amount is admittedly due and payable as per the terms of the contract and the same has been reconciled, confirmed and admitted by the company.
(h) The Petitioner sent numerous reminders and even made personal visits to the Company's office but to no avail. It is pertinent to mention here that every time the representatives of the Petitioner made visits to the office of the Company, the representatives were made to wait for long hours and even after long hours of wait, the representatives used to come back either without meeting any of the Respondent Company's Representative as they would refuse to meet or come up with some lame excuse and refuse to pay the admitted amount on baseless, flimsy and whimsical grounds, thereby harassing the Petitioner and denying to pay the aforesaid amount to the Petitioner."
5. Brief facts leading to the filing of the Company Petition No. 4/2004 in the matter of M/s Melvin Powell Vanasapati and Engineering Industries Ltd., stated in paragraph 7 (a) to (h) are stated as below:
"(a) M/s Humphreys & Glasgow Consultants Ltd. having its office at Oberoi Complex, Saki Vihar Road, Sakinaka, Mumbai floated an enquiry on behalf of Company being inquiry No. OEFL:BC2517:3HC:R401 dated 18th August 1997 for Paradeep Phosphatic Fertilizers Complex.
(b) Pursuant to the floating of the enquiry, the Petitioner made offers bearing No. S217 dated 16th September 1997; S217A dated 22nd December 1997 and DT-97222 dated 26th December 1997 and thereafter had technical and commercial discussions with the Company with regard to the same.
(c) On the basis of the Letter of Intent/Notification of Award dated January 7, 1998 being No. OEP/PP/98/05 and the subsequent discussions that the Petitioner had with the Company, the company awarded the petitioner the following order on lump sum basis:-
i. NOA/Order No. OCFL: BC: 2517:3HC: R401: 1999/251 dated January 1, 1999.
ii. NOA/Order No. OCFL:BC:2517:3HC:R401:1999/271 dated January 1, 1999.
iii. NOA/Order No. OCFL/CYC/1999/580 dated November 15, 1999
(d) The Petitioner thereafter executed the order as per the terms and conditions of the contract as the same was duly signed and executed, thereby making the said contract binding on both the parties.
(e) The work under the contract/order were executed by the Petitioner in accordance with the terms and conditions of the contract and to the complete satisfaction of the Company, which is evident from the Minutes of Meeting held on 13th April 2001 between the company and the Petitioner which was duly represented by the concerned executives namely Mr. U.S. Mullick and Mr.S.Pal of the Petitioner and Mr. Dubey, Sr. Manager (M) and Mr. B.K. Mishra, Plant manager of the Company.
(f) The Petitioner herein completed and executed the contract, strictly in accordance with the terms and conditions of the contract and the Company as aforesaid duly accepted the same and accordingly, the Petitioner raised invoices on the company with respect to the completion and commissioning of the project, which have not been settled by the Company in totality till date. The total amount, which became due and payable upon completion of the contract for which invoices have been duly raised was the contract amount of Rs. 37,85,950(Rs. Thirty Seven Lakhs Eighty Five Thousand Nine Hundred Fifty Only), however, the outstanding amount of Rs. 14,85,950/- (Rs. Fourteen Lakhs Eighty Five Thousand Nine Hundred and Fifty Only) is still due and payable by the Company to the Petitioner.
(g) Despite proper execution of the contract/order handing over of the cooling tower to the Company to its complete satisfaction, the Company failed to settle the outstanding dues payable to the petitioner amounting to Rs. 14,85,950/- (Rs. Fourteen Lacs Eighty Five Thousand Nine Hundred and Fifty Only) which amount is admittedly due and payable as per the terms of the contract and the same has been reconciled, confirmed and admitted by the company.
(h) The Petitioner sent numerous reminders and even made personal visits to the Company's office but to no avail. It is pertinent to mention here that every time the representatives of the Petitioner made visits to the office of the Company, the representatives were made to wait for long hours and even after long hours of wait, the representatives used to come back either without meeting any of the Respondent Company's Representative as they would refuse to meet or come up with some lame excuse and refuse to pay the admitted amount on baseless, flimsy and whimsical grounds, thereby harassing the Petitioner and denying to pay the aforesaid amount to the Petitioner."
6. The petitioners in both these Company Petitioners served a legal notice dated 13.3.2003 raising demand of the dues. The respondent Company gave its replies on 21.8.2003. Thereafter, statutory notices under Section 433/434 of the Companies Act, 1956 dated 1.11,2003 were sent and were duly received by the respondent Companies on 7.11.2003.
7. In the counter affidavits of Shri J.P. Unny filed in both the Company Petitioners, the Legal Executive of the respondent Company has denied the liabilities.
8. In Company Petition No. 4/2004 it is stated that the contract was awarded on 1.1.99 for a sum of Rs. 30 lacs. The time was the essence of the contract. As per clause (D) of the notification of award, the last date of successful erection testing and completing of SAP cooling tower was 15.5.99 and for PAP cooling tower was 30.5.99. Clause "D' completion Date and LD of contract given in paragraph 4 is reproduced below:
"Cooling Towers for SAP & PAP should be successfully erected, tested and commissioned by 15th and 30th May, 99 respectively. However LD should be applicable from 1.7.99.
Timely completion of the services is the essence of this agreement. You will strictly adhere to the detailed milestone/bar chart showing all the critical activities as per agreed schedule. You will also submit to us/our consultants the actual progress periodically as per agreed milestone chart. The liquidated damages for delay in completion is 1/2 % per week of delay subject to a maximum of 5 % of contract prices for incomplete part of contract and the same shall be reduced from the payment due to you. Warranty period 12 months from commissioning or 24 months from completion of work whichever is earlier."
9. In paragraph 5 it is alleged that cooling towers were completed much after the delivery date i.e. on 13.4.2001. Even after the erection and commissioning the cooling towers were not functioning properly and their defects were removed only by 13.4.2001.
10. Paragraph 6 of the Counter Affidavit, giving justification of retaining Rs. l 1,49,655/-, is quoted as below:
"That out of the total value of the main and subsequent contract amount of Rs. 34,65,475/- a sum of Rs. 23,15,820/- were paid to the petitioner and only a sum of Rs. l 1,49,655/- was retained by the deponent company. As per the contract a sum of Rs. l,50,000/- being 5% of Rs. 30 lacs and Rs. 23,273/- having 5% of basic value of Rs. 4,65,4757- became due from the petitioners to the deponent-company for late execution of the contract and after deducting the amount due and the amount payable the net amount which is due to the petitioner company by the deponent company comes to Rs. 9,76,382/-. However, since the petitioner in this case and M/s Paharpur Cooling Towers Limited (Petitioner in Company petition No. 5 of 2004) are group company which is also evident from the below-mentioned annexures attached with this petition.
"1. Annexure P-2: Quotation No. Ref.5217 dated 16.9.97 of Paharpur Cooling Towers Limited in response to which this notification of award was awarded to M/s Melwin Powell Vanaspoati Engg. Industries Limited."
11. In Company Petition No. 5 of 2004 it is stated in paragraph 4 that award was notified on 6.1.98 for a sum of Rs. 541 lacs. The time was essence of the contract.
12. Relevant clause of the contract in para 5 is quoted as below:
"Liquidated Damages:
In case you fail to deliver as per agreed delivery schedule you shall be penalized at rate of 1/2 % of the price of undelivered goods per week of delay or part thereof, subject to a maximum of 5% of order value (Also see clause 30 of standard conditions of order) and the same shall be reduced from payment due to you."
13. It is stated in paragraph 6 that the cooling tower was completed much after the delivery date. Even after the supply and erection the cooling towers were not functioning properly and their defects were removed only by 13.4.2001.
14. The defence is taken in para 7 for retaining amount of Rs. 13,07,9647-. Para 7 is quoted as below:
"That out of the total basic value of the main purchase order amount of Rs. 5,41,00,0007-plus taxes a sum of Rs. 6,27,68,068/-, were paid to the petitioners and only a sum of Rs. 13,07,964/- was retained by the deponent company. As per the contract a sum of Rs. 28,58,000/- being 5% of Rs. 571.60 lacs and Rs. 1,70,476/- having 5% of basic value of Rs. 34,09,525/- became due from the petitioners to the deponent-company for late execution of the contract and after deducting the amount due and the amount payable the net amount which is due from the petitioners to the respondents comes to Rs. 17,20,512/-, meaning thereby that there is no debt or amount due/payable by the deponent company to the petitioner company."
15. Shri Amit Prasad, learned counsel for the petitioner Company submits that the defence taken is not bonafide and is moonshine. He submits that the delay in erection and completion of the cooling towers was attributable only to the respondent Company.
16. He has taken the Court through the entire correspondence and the minutes of meeting held between the officers and engineers of the petitioner Company and the respondents Company from 23.9.98 onwards.
17. He has successfully demonstrated that the erection and completion of the cooling towers, depended upon the civil construction work of RCC basins, approach road, stair pad and for supply of cable from MCC to the cooling tower. These works were to be carried out under the contract by the respondent Company and were delayed unreasonably.
18. As soon as these works were completed, the towers were completed within the period stipulated in the contract. First hand report on analysis of execution of cooling tower of Oswal Chemical & Fertilizer Ltd. and Oswal Engineering Projects, giving details of the dates of RCC basin handing over, and commissioning, detailed at page 109, clearly explains that delay was caused by the petitioner Company.
19. It is contended by Shri Amit Prasad learned counsel for the petitioner Company that even if the time was the essence of contract, when the erection and completion of the Cooling towers were to be made on civil construction works and the same was not handed over within scheduled period of time, the time will only begin to run from the date when the civil construction was completed and the site was handed over to the petitioner Company. He submits that the defence taken by the respondent Company for making deduction is not bonafide.
20. Shri Bharat Ji Agarwal on the other hand submits that the civil construction works were to be carried out by the petitioner Company. Time was the essence of the contract and that the project was delayed unreasonably and that on account of delay caused by petitioner Company the respondent Company suffered loss to the extent of Rs. 6 crores. He submits that method, manner and deduction for late completion of work were laid down in the contract itself and that the respondent Company was authorized to make such deductions. No objection was raised for deductions made in the running bills at the appropriate time.
21. Lastly he submits that there is an arbitration clause in the agreement and thus the dues, which have not been admitted cannot be adjudicated by this Court. He submits that the respondent Company was justified in making deductions in the bills.
22. The Company, which is unable to pay its debts may be wound up by the Court. The discretion, however, conferred under Section 433(e) of the Companies Act, 1956 must be exercised on the settled principles of law. Where a creditor, after giving statutory demand notice under Section 434(1)(a) of the Act, applies to wind up the respondent Company, the Court has a duty to investigate and to find out whether the conditions of insolvency in the commercial sense are indicated. The proceedings under Section 433 of the Act are not to be used for the purposes of enforcement of an agreement or for recovery of the amount. The objection of the proceedings is to find out whether the Company is in a position to meet its current liabilities. If it is commercially insolvent it is liable to be wound up, though it may have very valuable assets, which are not immediately realisable.
23. In H. Dhoot Papeshwar Sales Corporation (P) Ltd. (1972 42 Company Cases 139 (Bombay) it was held that "commercially insolvent' means, unable to pay its debts or liabilities as they arise in the ordinary course of business.
24. The presumption under Section 434(1)(a) of the Companies Act, 1956, of the inability to pay, is not to be raised where the Company has omitted to pay the debt despite of service of statutory notice of demand. It must be further shown that the Company has omitted to pay, without reasonable excuse. A debt may be admitted, there may, however, be a valid counter claim or a good reason not to pay. It is only when omission to pay, is coupled with the fact that the Company is unable to meet its current demands or its assets are insufficient to meet its liabilities, and Company is heavily indebted, that the Court may deem that it is unable to pay its debts.
25. The presumption that the Company had not paid the admitted dues exceeding Rs. 500, even after expiry of three weeks of service of demand notice by registered post or otherwise at the registered office of the Company, is not sufficient to wind up the Company under Section 433(e) of the Act. The requirement of the demand notice, as for the purposes of due information with regard to the currency of the debt, the respondent Company may, given an opportunity explain the circumstances in which the demand was not met.
26. The purpose of demand, and its non-compliance gives a right to the creditor to institute proceeding for winding up of the Company. The consequences can be avoided by showing reasonable cause. There may be various circumstances, namely, that there is a bonfide dispute, the debt is time barred or was deferred with the consent of the creditor, or that there was some arrangement for payment in due course. Jt is not appropriate to lay down the circumstances in any detail, which may constitute reasonable excuse for not paying the debt. Where, however, the Court finds that the defence taking is moon shine, in that there is nothing to establish a bonfide dispute or reason or substantial ground not to pay the debt, the Court may investigate into the commercial insolvency and proceeded to take steps to wind up the Company.
27. In the matters of delay, or failure to pay for the materials supplied or work carried out for the respondent Company, the Court would be slow to interfere, as there may be several reasons for nonpayment. Though the Court may not enter into a process of adjudication, the defence must be examined to exercise discretion. There may be case where the Court may on the request of the respondent Company or otherwise grant some time to the Company to satisfy the debt. But in any case the proceedings should not be substituted for the ordinary process of law for realisation of debt.
28. In all the cases the enquiry must be confined only to find out whether there is any reasonable excuse for non payment of the admitted debt. Where the refusal to pay is coupled with a false defence, dishonoured cheque or promissory note, breach of undertaking, failure to pay taxes on the transaction etc., the Court will be justified in taking strict stand and refuse to exercise its discretion in favour of the borrower.
29. In the present case a perusal of the correspondence between the parties, which has not been denied and without any doubt shows that RCC basins were not completed within time and as soon as the site was handed over, the respondent Company completed the construction within the time stipulated in the contract. The completion date of RCC basin, trial run and the date of commencing clearly demonstrates that petitioner Company, was not at fault.
30. Shri Bharat Ji Agarwal has rightly submitted that the Court should not adjudicate the disputed claims of delays and incompletion of the contract. I however find that in the present case no such dispute has arisen. The correspondence annexed with the rejoinder affidavit has not been denied. Sufficient time was granted to the respondent Company to file supplementary counter affidavit giving reply to the averments and documents annexed with the rejoinder affidavit. For reasons best known the respondent Company has not chosen to file the supplementary counter affidavit. Once this correspondence is admitted, the irresistible conclusion is that the respondent Company was not justified in making any deductions from the bills.
31. Further having gone through the entire correspondence, in which the delay in completing the RCC basin, stair pad and MCC room were admitted, I find that the reply given by the respondent Company dated 21.8.2003 to the demand notice raises non-existent pleas. The award of the contract and the period within which the cooling towers were to be erected, completed and commissioned has been admitted.
32. The contents of paragraph 4, 5, 7 and 8 of the counter affidavit are clear deviation from the admissions made by the Officers and Engineers of the respondent Company. Whereas it is stated in paragraph 4 and 5 that the petitioner Company failed to supply the material for Sulphuric Acid Plant and Phosphoric Acid Plant and that approximately 60% of the material was delivered after the stipulated delivery schedule and that Ammonia storage tank and the entire material for cooling Towers was delivered, erected and commissioned after 7-8 months, and production losses were suffered due to delay in installing cooling towers, are reasons, which are totally invariance with the admissions made during the period the execution of contract, was in progress.
33. The note of discussion between the officials of the Company dated 5.4.90 at page 38-39, letter dated 19.5.99 at page 42-43, letter dated 11.8.99 at page 50-51, are clear admissions to the delay attributable to the respondent Company.
34. Further I do not find much substance in the defence taken by Shri Bharat Ji Agrawal that the petitioner Company should have invoked arbitration clause. There was no unresolved dispute in terms of Clause 40 of the agreement, to be submitted before the Arbitrator.
35. The facts clearly demonstrate that it is a case of unjustified withholding of payment, after completion of contract. There is absolutely nothing to show that the respondent Company made any complaint with regard to delay in completion of the cooling towers. It did not make any claim for liquidated damage for delayed delivery under Clause 30 of the contract. Even after completion of the contract the respondent Company did not make any complaint of delay or claimed liquidated damage. On the contrary the performance guarantees expired and that respondent Company, acknowledged the successful completion of erection, commissioning and performance of the cooling towers.
36. For the aforesaid reasons, I find that the respondent Company has not raised any bonafide plea of defence for non-payment of the amount and has failed to pay the dues under the contract in spite of statutory notice for demand.
37. In the facts and circumstances the petitioner Company has made out a case for advertisement of the Company Petition under Rule 24 of the Companies (Court) Rules 1959.
38. Let the Company Petitions may be advertised in the "Times of India' published from New Delhi and Mumbai, and Amar Ujala published from Lucknow and Delhi within six weeks. Steps may be taken within two weeks.
39. The respondents company is restrained from transferring, alienating or encumbering its fixed assets except for the purposes of its ordinary business.