1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.703 OF 2009 WITH COMPANY APPLICATION NO.852 OF 2009 Kulkarni Power Tools Ltd. ....Petitioner V/s. Kraft Sales & Services (India) Ltd. ....Respondent Mr.Pheroze Palkiwala with Mr.Gaurang Mehta for the Petitioner. Mr.Z. Kamdin with Mr.S. Bharucha and Ms.A.B. Kapadia i/b Daphtary Ferreira & Divan for the Respondent. CORAM : S.J. VAZIFDAR, J. DATE : 21ST JUNE, 2010. P.C. :- 1. This is a Petition for winding up of the Respondent Company inter-alia on the ground that the company is unable to pay its debts. 2. The dispute between the parties in this petition also form the subject matter of a pending arbitration. It is however, not the Respondent’s case that the same affects the maintainability of this Company Petition. It is however a factor to be taken into consideration. 3. According to the Petitioner, the companies liability as of date is over Rs.10.00 crores. Dealership agreements have been entered into between the Petitioner and the company from time to time from 1.12.2000 onwards. The last agreement is dated 8.10.2005. By the dealership agreement, the Petitioner appointed the Respondent as its dealer for 2 selling all types of portable electric power tools and spare parts manufactured by it. It is admitted however, that the supplies by the Petitioner to the company under this agreement on a principal to principal basis. Clauses 2 and 10 of the agreement read as under :- “2. This agreement between The Company and The Dealer shall be valid for a period of one year beginning from 1st April, 2005, and will be deemed to have been renewed on an annual basis. Unless, terminated by either party by giving to the other three months notice without assigning any reason. In such an event, the Company shall not be liable to take back any stock lying with the Dealer or give the Dealer any sort of compensation. 10. That the account between the parties will be reconciled on a continuous basis and specially at half year and at end also.” Pursuant to the dealership agreement, the Petitioner sold and delivered to the Respondent material on the terms and conditions contained in and evidence by several invoices. The receipt of the material and the invoices is not disputed. The Respondent by a letter dated 19.5.2009 confirmed that as on 31.12.2009 an amount of Rs.10,56,466=08 was due and payable by it to the Petitioner. 4. Correspondence thereafter ensued between the parties for terminating the dealership agreement. By an e-mail message dated 28.3.2009, the Respondent stated that the Petitioner had suggested that the agreement be terminated and that it was reconciled to the fact that this was the best option. The Respondent therefore requested the Petitioner for three months prior notice if the Petitioner wanted to take over the distributorship itself. 5. The Respondent by a further e-mail message dated 31.3.2009 3 inter-alia stated “you are free to do/advertise/declare anything and I don’t wish to stop you from anything.” It was further stated that the Respondent would start returning the Petitioner’s stocks. This, however the Respondent was not entitled to do as is evident from the last sentence in clause 2 of the dealership agreement. 6. By a letter dated 18.4.2009, the Petitioner confirmed that it would take over the distributorship from 1.10.2009. As Mr.Behram-Kamdin, the learned counsel appearing on behalf of the Respondent place considerable importance on this letter, I will set it out in extenso. It reads as under :- Referring to our disengagement, we write to say that KPT will take over distribution from 1st October, 2009. . We expect entire monthly collection from sale of KPT products to be paid to KPT. . We agree not to take Kraft marketing team members in our service until 31-12-2009. . KPT has asked Kraft for inventory of KPT products as at 31-03-2009. Assuming this information is available, KPT will consider taking back, favourably, any slow moving/ non-moving inventory of KPT products as at 30-09-2009, which will be adjusted towards receivables as at 30-09-2009. . We understand that such an inventory as at 31-03-2009 is approximately Rs.70.00 lacs. The Accounts Dept. will communicate the modalities to take back this inventory. . Gap between payable to KPT as at 30-09-2009 by Kraft-inventory as at 30-09-2009 of KPT products will be paid by Kraft latest by 31-12-2009. . We also agree not to supply any material to those parties who have defaulted Kraft receivables. To be able to do this, Kraft should let know KPT such dealer’s names. 4 . Until the disengagement is completed, no other distributor like Kraft will be appointed by KPT.” I will refer to the letter in greater detail later. Suffice it to note at this stage the Petitioner’s contention is that the offer contained in the e- mail message dated 18.4.2009 was not accepted by the Respondent. ‘ 7. In the circumstances, the Petitioner by a further e-mail message dated 20.5.2009 terminated the dealership agreement in accordance with clause 2 thereof and called upon the Respondent to pay the said sum of Rs.10,56,466=08. 8. The Respondent by its advocate’s letter dated 1.6.2009 denied its liability and raised certain contentions which I will refer to while dealing with Mr.Behram-Kamdin’s submissions. 9. Further correspondence ensued between the parties. Ultimately, the Petitioner by its advocate’s letter dated 3.7.2009, served a statutory notice. The notice enclosed an annexure containing the details of the said invoices. 10. Mr.Behram-Kamdin disputed a part of the claim and submitted that as regards the balance, nothing is due and payable as the Respondent had a counter claim for a sum in excess thereof. 11. Mr.Behram-Kamdin submitted that the Petitioner was liable to repay the Respondent a sum of Rs.1,43,00,000/- albeit in kind towards the defective material supplied by the Petitioner. He submitted that as the promoters of the Petitioner and the Respondent were closely related, it was agreed that instead of refunding the amounts in respect of the 5 defective material in cash, the Petitioner would supply material in the future free of cost. He submitted that this was evident by the correspondence between the parties. For instance by a letter dated 2.7.2005, the Petitioner confirmed that it owed the Respondent a sum of Rs.2,06,62,228/- and that steps were being taken to expedite the process for settling the claims “in kind”. He submitted that similarly the goods supplied by the Petitioner and in turn sold by the Respondent to its customers of the value of Rs.87,00,000/- were rejected by the customers. A similar arrangement was agreed upon between the parties to reimburse the Respondent the value of such goods. Here again, he submitted that an understanding of this nature is evident from the correspondence. He also relied upon an M.O.U. between the parties in this regard. He submitted that as the adjustment in respect of these amounts was to be made in kind, it could not have been recorded in the balance confirmation letter referred to earlier. 12. I will assume that there is a bona-fide dispute as regards a sum of Rs.1,43,00,000/- and Rs.87,00,000/-. In view of the said correspondence this dispute must be left to the decision of the learned Arbitrator. 13. Mr.Behram-Kamdin submitted that the Petitioner owed the Respondent a sum of Rs.2,81,00,000/- towards the turnover discount. For this he, relied upon an M.O.U. dated 22.3.2006. The same records that the Petitioner had decided to offer the Respondent a sales promotion subsidy in consideration of the Respondent in turn agreeing to purchase a minimum quantity of the material. The Petitioner agreed to offer 1% and 6 1.5% extra if the Respondent purchased material exceeding the stipulated qualities by 10% and 20% respectively. The statement of the extra account was to be done at the end of the current financial year. The Respondent has annexed to his affidavit in reply the figures for the period from April,- June,2007 to January-March, 2009. 14. It is not possible in this Petition to ascertain this aspect with any certainty either as to the existence of such an agreement or as to the extent thereof. I will presume therefore that there is a bona-fide dispute as regards the same as well. 15. Mr.Behram-Kamdin further submitted that in view of the Petitioner’s e-mail message dated 18.4.2009, the Respondent was entitled to credit in the sum of Rs.70,00,000/- towards the balance stock. This submission is not well founded. Firstly, in terms of the dealership agreement in clause 2, the Respondent is not entitled to the same. Further the offer contained in the e-mail message dated 18.4.2009 was never accepted. The e-mail message itself does not contain an unconditional offer to accept the inventory lying with the Respondent. The Petitioner merely stated that it would consider taking back, favourably, any slow moving/non-moving inventory of KPT products as at 30.9.2009 and adjust the value thereof towards the receivable as on 20.9.2009. The Respondent therefore is not entitled to credit on this ground. 16. Mr.Behram-Kamdin relied upon ten debit notes issued by the Respondent to the Petitioner of an aggregate sum of Rs.10,00,00,000/-. 17. These debit notes were raised on the same day which is obvious from the fact that they are numbered consecutively from 1 to 10. 7 Mr.Behram-Kamdin admitted that was so. The same were forwarded for the first time to the Petitioner only on 3.10.2009 i.e. after the Petition was filed. The Petition was filed on 7.8.2009. He referred to the claim prior to the balance confirmation letter. Thus the mere fact that the debit notes were issued is of no assistance to the Petitioner. 18. This leaves for consideration the Respondent’s claim for damages in the sum of Rs.10.00 crores. According to the Respondent, the Petitioner had defamed it by having addressed two messages dated 12.4.2009 and 8.5.2009 to various third parties/distributors. The same were in fact annexed to the Company Petition itself. As considerable reliance been placed on these letters and the Company Petition is sought to be defended to a large extent by these two e-mail messages, I will set- out them in extenso. “Dear Sir, April 12, 2009 Distribution of power tools in India. As the new financial year has begun, I would like to share with you some of the developments in your Company. KPT has been privileged to have you as our channel partner; and several of you have been with us for several decades. KPT has grown from strength over the years, and is now poised for even greater achievements. None of these would have been possible without your active involvement and support, and the support and involvement of my colleagues (working and retired) in the organization – and our customers, suppliers bankers etc. A heartfelt thanks to all of you from me, and KPT. It has been a pleasure to build this dream. My brother, Ashok, who has been main architect and who worked all these years to build KPT, has expressed his desire to take it easy after nearly 33 8 years hard work. We respect his desire and wish him health and happiness in his life. His wise counsel is always available to all of us for which we are grateful. His Son Sahil Kulkarni, Vice President-Operations, will take over Ashok’s role. As I mentioned, your company is poised for greater future. We have installed further state-of-the –art machinery and today. I can proudly say that KPT will be, perhaps, potentially, the largest single location Indian manufacturer of portable electric tools in our range. We were able to achieve this only because in the past seven to eight years we concentrated only on improving our productivity and engineering skills. To be able to do that KPT separated the marketing activities M/s. Kraft Sales & Service (India) Ltd., ensured that we concentrated our efforts unaudited in production alone. We will also be introducing many new products such as range of 2 Kg Rotary Hammer, Planer, 4” new Angle Grinder, Circular Saw, new 2 Speed 13/16 mm Drills, etc. Hence, we need now to focus on marketing and have a pulse of the market direct in our hands. As I write this, we have made a decision to revert the marketing activities back to KPT. For the time being, however there will be a period of transition – transition of marketing activities from Kraft to KPT – just as, when we at KPT decided to delink marketing – there was a transition of marketing from KPT to Kraft. We will make sure that – a) the transition time is kept to the bare minimum b) there are no inconveniences to you during transition. The Company policies and programmes, which have stood the test of time, will continue, and changes, if any, will be communicated. In the meantime, please feel free to get in touch with me directly in case you have any specific need or seek any specific clarifications. 9 8 May 2009 Dear Sir, In continuation with my earlier communication of 12th April 2009 and my subsequent meetings with some of you, I am pleased to inform you that KPT has set up following email ids to assist you during the transition time to take over the marketing function directly. Customercare sbm@kpt.co.on You shall get in touch with Mr. Sudhir Marathe Mr. Marathe’s cell no. is – 9225838944 Customercare ssr@kpt.co.in You shall get in touch with Mr. Surendra Ranade Mr. Ranade’s Cell no. is – 9225838948 KPT does appreciate that you may face problems of not getting material during the transition period. We are making all efforts to have a minimum disruption during this period. We shall come back to you to let you know when the direct supplies from KPT will start. Meanwhile, the existing arrangement of M/s. Kraft Sales & Services (I) Ltd. of supplying KPT material to market continues. KPT has deployed the above two gentlemen to help you to tide over the current situation. We are aware of the disruption and sincerely request you to bare with us. You have been always an essential part of the Company and are confident that you do understand the situation.” 19. It is difficult to accept the Respondent’s contention that it has been defamed by these two letters or that its business has been adversely affected thereby. These messages certainly have not defamed either the Respondent or its promoters. Indeed, it speaks well of them as is evident from the third paragraph of the e-mail message dated 12.4.2009. Moreover, the Respondent had itself by its e-mail message dated 10 31.3.2009 expressly stated that the Petitioner was free to do/advertise/declare anything and that it did not wish to stop the Petitioner from anything. The reference was obviously about the termination of the dealership agreement. The e-mail message was in furtherance of the earlier e-mail message dated 28.3.2009 which referred to the termination. The Respondent can hardly be therefore make any grievance in respect of the said e-mail messages dated 12.4.2009 and 8.5.2009. Nor is there anything to indicate that the Respondent’s business was affected by the said e-mail messages dated 12.4.2009 and 8.5.2009 per-se. Mr.Behram- Kamdin stated that the fact of informing the third parties regarding the termination of the dealership agreement itself adversely affected the Respondent’s business. There is nothing to indicate the same. Even assuming that there was a fall in the Respondent’s turn over as alleged in the affidavit in reply, Mr.Behram-Kamdin has been unable to establish any relationship between the same and the said e-mail messages. In any event, as stated earlier, the Respondent itself permitted the Petitioner to do so. While I appreciate that the matter is pending in arbitration, it would be unfair to deny the Petitioner any relief merely on the basis thereof on such allegations. 20. Mr.Behram-Kamdin then submitted that contrary to the e-mail message dated 18.4.2009, the Petitioner had taken it one its marketing team members in service before 31.12.2009. 21. Firstly, as noted earlier, the e-mail message dated 18.4.2009 was not binding between the parties. It was neither acted upon nor accepted by the Petitioner. Secondly, there is nothing to indicate that the 11 same caused any loss to the Respondents. Thirdly, there was not even an attempt at suggesting the extent of loss on this ground. 22. In the circumstances, I will presume that there is a bona-fide dispute about a sum of Rs.5,10,00,000/-. I will speculate in favour of the Respondent that there may be something to be said as regards the claim for damages to the extent of Rs.2.00 crores. I must in fairness to the Petitioner confess that I do so as the matter is pending in arbitration. 23. In the circumstances, the following order is passed :- i). In the event of the company depositing an amount of Rs. 2,05,00,000/- on or before 30.9.2010, the Company Petition shall stand dismissed. ii). In the event of the company depositing the amount, the Prothonotary & Senior Maser shall invest the same in fixed deposit of a nationalised bank initially for a period of one year and thereafter for like periods of one year each. The aid amount and interest shall abide by the award to be passed by the learned Arbitrator. iii). In case of failure on the part of the Company to deposit the amount as aforesaid, the Petition shall stand admitted and to be advertised in Free Press Journal, Maharashtra Times and Maharashtra Government Gazette. The Petitioner to deposit an amount of Rs. 10,000/- with the Prothonotary and Senior Master of this Court within four weeks from the date of default. 24. Liberty to apply in the event of the Company Petition being admitted.