1 cp1182-01.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.1182 OF 2001 In the matter of the Companies Act, 1956; and In the matter of Sections 433 and 434 of the Companies Act, 1956; and In the matter of Milestone Entertainment Private Ltd., EMI Music International Services Limited .. Petitioner WITH COMPANY PETITION NO.1006 OF 2003 WITH COMPANY PETITION NO.268 OF 2003 Mr.Naushad Engineer with Rishikesh Soni i/b. DSK Legal for petitioner in CP1182 of 2001 Mr.Bharat Deshpande i/b. Thakore Jariwala & Associates for petitioner in C.P.1006 of 2003 Mr.Vipul Bilwe i/b. Mulla & Mulla for respondent in W.P.1182 of 2001 and C.P.268 of 2003. CORAM : S.C.DHARMADHIKARI, J. 8th December 2011. P.C.: 1] This is a petition seeking winding up of the respondent company. 2 cp1182-01.sxw The petition proceeds on the basis that the company is unable to pay its debts and, therefore, has failed to rebut the presumption which has to be raised under section 434(1)(a) of the Companies Act, 1956 (for short Act). 2] In para 6 of this petition it is stated that the company is indebted to the petitioners in the sum of Rs.30,46,578 and Rs.25,18,851 as set out in the particulars of claim under a license agreement dated 3rd September 1998. That was an agreement executed between the parties under which the petitioners granted to the company, right to distribute records and/or videos as defined in the Agreement for a term of two years and the right to manufacture or have manufactured, records in cassette format only. The company in return of these rights agreed to pay to the petitioners royalty at 20% of the maximum retail price less the appropriate packaging deductions and taxes on all net sales of the records and videos made pursuant to the agreement. It is stated that this agreement came to an end by efflux of time on 2nd September 2000 and as on the date of termination the sum claimed in the statutory notice is due and payable. It is stated that this is a confirmed amount and figures are taken from the statement of accounts which has been prepared and forwarded by the respondent company itself. Thereafter, there is a reference to certain oral negotiations but the petitioner having clarified that they are ready and willing only to 3 cp1182-01.sxw accept the sums which are due and payable as per the accounts forwarded by the respondents, that nothing could materialise from these oral discussions and negotiations. The notice claiming to be a statutory notice has been duly sent and forwarded by the petitioners to the respondents' registered office and there is no dispute, according to petitioner's Advocate, of the same having been received. Respondents replied to this letter and stated that the correspondence between parties has been ignored. Secondly, certain assurances have been relied upon claiming that the agreement would be renewed. There is also an arrangement which is pleaded, according to respondents of taking over of respondents' operations by the petitioners. These contentions have been raised in the letter dated 29th November 2000 which is a reply to the statutory notice. It is also alleged that the delay in payment of royalty was due to fault of the petitioner in not sending the invoices on time. Certain clauses of the agreement are also referred to and relied upon. 3] There is a reference to some e.mails wherein the respondents have asked the petitioner for waiver of clause 9 of the option agreement so that the options could be raised by selling the shares of the company to a third party. 4 cp1182-01.sxw 4] It is then stated that some amount was agreed to be accepted in full and final settlement and talks in that behalf with Mr.Sharma and Encliff are referred to in para 9 of the reply to the statutory notice. 5] Mr.Engineer, learned Counsel appearing for petitioner contended that each of these objections and issues raised in the reply to the statutory notice have been considered by this Court. The Court found no substance in any of them and proceeded to pass a reasoned order admitting this petition for winding up. My attention is invited to the reasons assigned by the learned Single Judge in his ten page order delivered at the stage of admission on 22nd November 2002. It is argued on behalf of the petitioners that nothing different or in addition to what has been argued at the stage of admission has been pointed out and in fact on most of the occasions when the petition was placed for final hearing it was stated that respondent had ceased to carry on any business operations and beyond an offer of Rs.5 lakhs, which sum should be accepted in full and final settlement, nothing was stated. For all these reasons, it is submitted that this is a fit case where allowing the respondent to continue to incur debts and liabilities in addition to its commercial insolvency till date would prejudice the interest of all creditors, shareholders and general public and, therefore, this is a fit case for exercising jurisdiction under the Companies Act, 1956 and wind 5 cp1182-01.sxw up the respondent company. 6] On the other hand, my attention is invited by the learned Advocate for respondents to the affidavit in reply and it is submitted that this affidavit in reply which has been filed on 15th June 2002 and 12th August 2002 would summarise the stand taken by the respondents. The respondents had struck the deal and executed subject agreement with clear understanding that ultimately the petitioners would take over the operations of respondent. Prior thereto this arrangement was agreed and all that the petitioner was exploring was a possibility of the venture succeeding in the market. That is how the terms and clauses of the agreement must read and they should receive an interpretation with that intent. This is not a case where any liability to pay any sum on the basis of any creditor-debtor relationship would arise. In such circumstances, this petition for winding up should not be entertained. 7] With the assistance of the learned Advocate for parties, I have perused the petition and the annexures thereto so also the reply to the statutory notice and affidavits placed on record. 8] After perusing the same I am of the opinion that each of the 6 cp1182-01.sxw objections that have been raised in the reply to the statutory notice essentially revolve around the same understanding other than what is stated in the agreement and in any event, there is no denial of liability to pay the sum as set out in the statement of accounts at Exh.A-1 and B of the petition paperbook. The correctness of the entries in the statement of accounts have never been denied or disputed by the respondent. If at all there was some arrangement which was thought of by parties and they intended that operations would be taken over or that the shares would be offered to the petitioner, it is clear that the agreement must be read as a whole. If so read, there are certain options given to the petitioner and if they failed to exercise the same, there may be other remedies available to the respondent. However, if any breach of the agreement or the obligations thereunder on the part of the petitioners are alleged then, nothing prevented respondents from proceeding against the petitioners in an appropriate forum and seeking appropriate reliefs, including damages or monetary compensation. That having not been done and the reliance on the order passed on 22nd November 2002 being appropriate, that I am of the opinion that there is no merit in the contentions of the respondents. The very same pleas that have been stated and reiterated before me were raised before the learned Single Judge. In para 2 of the order dated 22nd November 2002, there is a reference to these objections and statements in 7 cp1182-01.sxw the affidavits. Learned Judge has adverted to the rival contentions and has in fact quoted the relevant clauses. He has observed that “ ... When the respondent company submits a statement, the number of records that have been returned would be taken into consideration. Even assuming that the respondents were entitled to the number of records returned to be deducted, then also the records would be returned to the respondent company and therefore, it would be for the respondent company to inform the petitioners that after submission of the statement by it, that due adjustments and credit should have been given for such return from the amount claimed. Till the date of demand notice, the number of records returned on the basis of which the royalty was claimed was never communicated. Even in the reply to the statutory notice there is no reference to the number of records allegedly returned. Thus, the claim has not been disputed or denied”. The Court was of the opinion that there is no bonafide defence raised to the claim of the petitioner nor the debt due has been satisfied or compounded to the petitioner's satisfaction. There has been absolutely no denial with regard to the entries in the statement of account. Therefore, for the reasons that have been assigned by this Court while admitting the petition and which still hold good, that I am of the opinion that a case for winding up of respondent company has been made out. That, it would not be proper and rather commercially inexpedient to 8 cp1182-01.sxw allow the respondent company to continue, for it is stated that the business operations have come to an end and even otherwise, its liabilities far exceed the assets. The offer made of payment of a paltry sum of Rs.5 lakhs in full and final settlement has been rejected. In these circumstances, the petition is allowed and it is made absolute in terms of prayer clauses (a) and (b). The Registry to comply with the rules by communicating this order to the concerned Authorities. Equally, the Official Liquidator shall take note of this order passed to wind up the respondent company, upon receipt of communication in that behalf from the petitioner's Advocate, enclosing therewith authenticated copy of this order. Petition is allowed in terms of the above. 9] For the reasons that have been assigned in C.P.1182 of 2001 and since the same company has been sought to be wound up, no separate orders are necessary in Company Petition No.268 of 2003 and Company Petition No.1006 of 2003. Each of the petitioners in these petitions would be entitled to place their claim before, the Official Liquidator and the Official Liquidator shall duly consider them in accordance with law. (S.C. Dharmadhikari, J)