THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.169 of 2010 (Dated :26-12-2011) Between; M/s. Land Form rep. by is Partner Smt. Bharathi 2nd Block, HBR Layout, Bangalore-43. …Petitioner A n d Country Club India Limited Opp. Secretariat, Hyderabad …Respondent THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.169 of 2010 ORDER: This company petition has been taken out under Section 433(c ) read with Section 434(1)(a) and 439 of the Companies Act, 1956 seeking an order of winding up of the respondent company- M/s. Country Club India Limited. 2. The petition averments, in brief, are:- The petitioner is a registered firm under the provisions of the Indian Partnership Act, 1932 and it is engaged in the business of designing and detailing of Landscape work and execution of the same. The respondent is a company incorporated under the provisions of the Indian Companies Act. It’s registered office is situated at Amrutha Castle, Saifabad, Opposite Secretariat, Hyderabad. It is engaged in the business of hotels, resorts, clubs, amusement parks, entertainment and leisure and other related activities. The respondent approached the petitioner for designing and detailing of land scaping work and swimming pool work at Country Club International, Sarjapur Road at Bangalore in Karnataka State. The petitioner gave project estimation at Rs.2,07,72,750/-. A work order dated 10-12-2007 was issued by the respondent. The respondent also agreed to pay Rs.2,50,000/- towards designing, detailing and for site visits for the entire work as professional fee besides 10% of the actual project execution cost as commission for identifying the vendors and for getting project executed by them including the construction, commissioning and erection which will be calculated on the actual market cost of the standard quality material used for the construction of Landscaping and swimming pool. The respondent paid an advance of Rs.50,000/- and agreed to pay balance on running bills basis. After completion of the work contract, the petitioner sent a final bill dated 16.6.2008 to the respondent, which amounts to Rs.45,75,000/-. The respondent made payment of Rs.42,30,000/- leaving a balance of Rs.3,45,000/-. With regard to artistic work at Country Club International , the applicant raised a final bill dated 23-4-2008 for Rs.10,80,150/- after giving 5% discount. The respondent accepted the bill and made part payment of Rs.9,50,000/- (Rs.5,00,000 as advance and Rs.4,50,000/- on acceptance of bill) leaving a balance of Rs.1,30,150/-. With regard to pool plumbing, supply and execution of all plumbing work , the respondent released an amount of Rs.3,00,000/- towards advance amount. After completion of the said work, the petitioner issued final bill dated 16.6.2008 to the respondent for an amount of Rs.4,63,294/-. The respondent accepted the bill , but failed to pay balance amount of of Rs.1,36,406/-. With regard to Soft Land Scape (soil filling and Planting) , the respondent released Rs.5,00,000/- towards advance. After completion of the said work , the petitioner issued a final dated 9.7.2008 for total amount of Rs.15, 18, 896/-. The respondent accepted the bill and failed to pay the balance amount of Rs.10,18,896/-. With regard to consultation fee, the respondent agreed to pay Rs.2,74,720/- towards designing, detailing and for site visits for the entire work. The respondent made payment of Rs.1,06,000/- leaving a balance of Rs.1,68,720/-. With regard to Project Execution Fee, the respondent has made part payments of Rs.7,43,000/- and Rs.9,90,000/- by way of cheques. The petitioner has to get total amount of Rs.97,59,131/- towards work contract. The respondent paid a sum of Rs.78,19,000/- leaving a balance of Rs.19,40,131/-. The petitioner issued a notice to the respondent under Section 434 read with Sec. 433 (e) of the Companies Act calling upon the respondent to pay Rs.19,40,131/-. The respondent despite receipt of statutory notice, neither paid the amount demanded nor issued any reply. The respondent company is evading its obligations by making frivolous excuses. Hence, this petition seeking the relief stated supra. 3. Notice to the respondent came to be ordered on 21-9-2010. The respondent entered appearance and filed counter. Entrustment of the work by the respondent to the petitioner is not disputed. According to the respondent, the work done by the petitioner was of poor quality and the work executed by him is un-professional and of bad workmanship. The petitioner sought for extension of time for executing the work and in spite of extending the time for executing the work, the petitioner totally failed to fulfill its obligations and thereby, caused damage to the respondent’s reputation and caused huge business loss. Even after the receipt of the legal notice, several discussions went on between the petitioner in respect of the pending work. Since the work carried out by the petitioner is not satisfactory, the amount could not be paid. The dispute raised by the respondent is bona fide and therefore, the petition is not maintainable. The respondent company is financially sound, and as per the annual accounts for the year ending 31-3- 2010, the turn over of the company is Rs.308.58 crores and earned profit is Rs.39.68 crores. There are number of employees working in various units of the respondent company besides employees of contractors. Therefore, it cannot be said that the respondent-company is unable to pay its debts. 4. The petitioner filed reply affidavit. It is stated in the reply affidavit that whenever the petitioner demanded the amount through e-mails the respondent has been promising to pay the amount in a short period. The defect pointed out by the respondent with regard to loosening of two tiles outside the swimming pool has been rectified as per the e-mail messages addressed by the respondent dated 27.6.2008 and 30.6.2008. No other complaints have been brought to the notice of the petitioner by the respondent regarding execution of work. Para (12) of the reply affidavit need to be noted and it is thus:- “Para (d), (e) and (f) : the contentions made thereunder are false and contrary to the conclusive proof on record of this Hon’ble Court produced as annexures to the petition i.e., work orders and the certification of execution of work by the respondent company. Without prejudice, it is submitted that though the artificial rockery work order issued on 12.12.2007, the payments were never released in time to purchase the work materials. Work orders regarding Artistic work was issued only on 10.03.2008, poll plumbing work order was issued only on 08.03.2008 and soft land scaping work order was issued only on 13.06.2008 by the respondent company. It is submitted that the work order Ref. No.CCI/PD/SYS/852/06-07 dated 10/12/2007 clearly shows that as per the work order the Respondent also agreed under the said contract to pay 10% of the actual project execution cost for the project execution including the construction, commissioning and erection, which will be calculated on the actual market cost of the standard quality material used for the construction of Landscaping and swimming pool. That the vendors were identified by the petitioner; subsequently appointed by the Respondent and the work was executed through the Vendors by the petitioners based on the designs of the petitioner. The said project was accomplished by the Petitioner through these vendors and the Respondent has also settled the Bills of all the Vendors. The list of Vendors and the details of the payment made by the Respondent towards the final bills issued by the said vendors for the work executed by them and the confirmation of payment received by the Vendors are produced with the petition as Annexure-P & Q (a) to (f). (For payment details refer SCHEDULE A) of the petition. It is submitted that the vendors who have executed the work have been already paid by the respondent company and therefore it is very clear from the above fact that there is no work related disputes or any issues pending between the petitioner and the respondent company and on this ground alone this Hon’ble Court may be pleased to allow the above petition. “ 5. Heard learned counsel appearing for the petitioner and learned counsel appearing for the respondent. 6. Learned counsel appearing for the petitioner submits that the petitioner issued notice dated 4-9-2009 calling upon the respondent to pay the balance amount of Rs.19,40,131/- and the respondent having received the notice neither made payment nor issued reply disputing the claim. The details of the amount due under various heads have been stated in the said notice. The petitioner issued another registered notice dated 29-01-2010 demanding the payment of balance amount of Rs.19,40,131/-. The respondent having received the notice, neither paid the money nor issued reply disputing the claim. A further submission has been made that the defence pleaded by the respondent as to deficiency in service rendered by the petitioner has no substance since the respondent has not raised objection regarding deficiency of service or substandard material used in the construction during the maintenance period from 01.7.2008 to 31.12.2008 and that the said plea has been advanced by the respondent as an afterthought to escape the liability. He would also contend that the defect pointed out by the respondent during the maintenance period is in respect of two tiles outside the swimming pool and the said defect has been rectified by the vendor and as such the works have been completed to the satisfaction of the respondent. Learned counsel refers payment receipts issued by the vendor whereunder the respondent paid Rs.1,87,39,596/- to various vendors. In support of his submissions, reliance has been placed on the judgment of Supreme Court in IBA Health (I) P. Ltd. v. Info-Drive Systems SDN. BHD[1] wherein, it has been held that if a debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, , at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterized as a stand alone ground. 7. Learned counsel appearing for the respondent submits that the petitioner has not completed the work within the stipulated time and thereby, caused substantial loss to the respondent in which case, the dispute raised by the respondent with regard to the claim of the petitioner cannot be ignored on the ground of it being not bona fide. He would further submit that the material used in the construction of swimming pool is not of standard quality. There are various disputes raised by the respondent as to the quality of material used in the construction and standard of construction and these disputes are required to be resolved by a Civil Court and a company petition for winding up, in the given facts and circumstances, cannot be used as a means of enforcing the company to pay a bona fide disputed debt. 8. In support of his submissions, learned counsel placed reliance on the decision of Supreme Court in Mediquip Systems (P) Ltd. v.Proxima Medical System GMBH[2], wherein it has been held that the machinery for winding up will not be allowed to be utilized merely as a means for realizing debts due from a company. If the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. Para (18) of the cited judgment needs to be noted and it is thus:- “ This Court in a catena of decisions has held that an order under Section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression “unable to pay its debts” in Section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilized merely as a means for realizing debts due from a company. “ 9. The point for determination is : Whether the petitioner has made out valid ground for admission of this company petition against the respondent company? 10. POINT: Section 433 of the Companies Act says : “433. A company may be wound up by the Court.--- (a) – (d) * * * (e) if the company is unable to pay its debts; (f) From the above it follows: (1) there must be a debt; and (2) the company must be unable to pay the same An order under clause (e) is discretionary” 10. The debt under Section 433 of the Companies Act must be a determined or a definite sum of money payable immediately or at a future date. The respondent company placed work order dated 10-12-2007 for designing, detailing of land scaping work and swimming pool work at Country Club International, Sarjapur Road at Bangalore in Karnataka State. Under the work order, the respondent agreed to pay Rs.2,50,000/- towards designing, detailing and for site visits for the entire work as professional fees besides 10% of the actual project execution cost as commission. The respondent also issued work order dated 21-12- 2007 for Landscape works (Artificial Rockery & Civil works) at Country Club International, Sarjapur Road, Bangalore. Under the said work order, the respondent agreed to pay Rs.650/- per square feet for 6000 sft approximately. The value of the work has been estimated at Rs.36,60,000/- inclusive of all taxes. Details of payment are also indicated in the work order. According to the petitioner, the amounts due under these two work orders are as hereunder:- SCHEDULE A DETAILS OF PAYMENT Summary Sl.No. Particulars Bill Amount Cheque details Payment received Balance 1 Consultancy fee 274720 Chq.No.036224 106000 168720 Chq.No.293706 2 Rockery 4575000 Chq.no.235225 4230000 345000 Chq.no.275587 Chq.no.275497 Chq.no.241797/19.3.08 Chq.no.275367 Chq.no.275301/21.3.08 Chq.no.292324/12.4.08 Chq.no.275385/15.5.08 3 Artistic work 1080150 Ch. No.275694/25.2.08 950000 130150 Chq.No.275385/15.5.08 4 P o o l Plumbing work 436406 Chq. No.294537/28.5.08 300000 136406 5 Softlandscape works 1171661 500000 671661 6 Additional Planting 347235 347235 7 Pay ment received by vendors (10% of 18739596) 1873959 743000 1130959 Chq no.275575/14.2.08 Chq.no.292305/11.4.08 Chq.no.292325/12/4/08 2930131 Chq.no.997455/4/4/08 500000 Chq.no.292213/31/5/08 900000 Chq.294523/26.5.08 400000 8 Total 9759131 7819000 1940131 11. The defence pleaded by the respondent is that the petitioner has not rectified the defects in floor layer of swimming pool and therefore, there is no obligation on the part of the respondent to pay the amount demanded by the petitioner. 12. E-mails exchanged between the parties have been filed along with the counter affidavit. On 26.06.2008, the respondent pointed out the defects in the swimming pool. The copy of the e-mail finds place at page. 17 of the material papers filed along with the counter- affidavit. The petitioner undertook to rectify the same without removing the water from the swimming pool. The respondent pointed out under e-mail, dated 30.06.2008, that relaying of tiles without removing the water is not possible and requested the petitioner to share the technology as to how relaying of tiles would be possible without removing the water. The petitioner under e-mail, dated 01.07.2008, undertook to rectify the defective laying of tiles in the swimming pool. The respondent under e-mail, dated 03.02.2009, requested the petitioner to visit Leela Palace to have a look at the landscape and then go to CCIL, Sarjapur and compare the two locations. Initially, the petitioner disputed of developing landscape in CCIL, Sarjapur in line with landscape in Leela Palace. However, the petitioner admits of landscape at Leela Palace is a model for landscaping at CCIL, Sarjapur. The e-mail sent to the petitioner by the respondent on 13.02.2009 reads as hereunder: “Dear Sir, I am very clear that nothing like that was mentioned when we met Mr.Karthikeyan took the accounts statement from me because I wanted to know the final certified bill statement. All along till we completed the follow up maintenance for 6 months spending our money, everybody including you and Mr.Subbareddy promised that the payments will be cleared. The scene is pretty much clear who is getting the bronze. As far as the design part is considered we have tried and incorporated the features in Leela Palace. We have had the restrictions of loading on the podium slab here to add more trees or palms. Moreover the palms and trees planted on the podium will take a year or two to look like a fully grown plants. The lawn area was supposed to accommodate 1000 people. The design has been evolved at the site considering so many factors. Sir, it is you who promised things have changed in Country Club after you joined, based on that we pulled all our vendors. We have taken the pain in coordinating and convincing our vendors. Now we feel we are cheated.” 13. The correspondence between the parties through e-mail clearly indicates that the respondent pointed out the defects in laying tiles in swimming pool and also design of landscape. In that view of the matter, I find that the respondent has raised a bona fide dispute in respect of the amounts claimed by the petitioner. It is well settled that the procedure under Section 433 of the Indian Companies Act, 1956, is summary. When the company produces prima facie proof of facts on which the defence depends and which is probable and there is likelihood to succeed in point of law, it cannot be said that the company has neglected to pay within the meaning of Section 434(1)(a) of the Companies Act. 14. In view of the above discussion, I find that the dispute raised by the respondent with regard to the claim of the petitioner is bona fide and therefore, the Company Petition does not warrant admission. 15. Accordingly, the Company Petition is dismissed. No costs. ______________________ B.SESHASAYANA REDDY, J. Date:26th December, 2011. RAR/CS [1] [2010] 159 Comp Cas 369 (SC) [2] (2005) 7 Supreme Court Cases 42