IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD FRIDAY, THE EIGHTH DAY OF OCTOBER TWO THOUSAND AND TEN HON’BLE SRI JUSTICE G. BHAVANI PRASAD Company Petition No.6 of 2010 Between: M/s. G.K. Associates, represented by G. Devadanam, Having registered office at Hyderabad. ..Petitioner AND The Andhra Pradesh Rajiv Swagruha Corporation, Limited, represented by Managing Director. .. Respondent ORDER: The Company Petition is under Sections 433 (e) & (f), 434 (1) (a) and (c) and 439 of the Companies Act, 1956 read with Rule 95 of the Companies (Court) Rules, 1959 for winding up the respondent Company and to appoint the Official Liquidator as the Provisional Liquidator of the Company during the pendency of the main Company Petition. The petitioner’s case is that the respondent Company is a Public Limited Company incorporated on 09-08-2007 with its registered office at Domalguda, Hyderabad. The authorized share capital of the Company is Rs.5,00,00,000/- divided into 50,00,000/- equity shares of Rs.10/- each with a minimum paid up share capital of Rs.5,00,000/-. The main objects of the Company as per the Memorandum and Articles of Association are implementation of Rajiv Swagruha Programme of the State Government by undertaking and developing integrated townships in urban areas to provide housing at affordable cost to the urban middle class and low income groups; to undertake such activity through public and private partnerships and take up any other activities with the approval of the State Government etc. The petitioner is a firm providing Consultancy Services for construction of residential houses and the respondent and the petitioner entered into a Consultancy Agreement dated 18-01-2008 with various terms and conditions regarding the services to be rendered by the petitioner to the respondent and the terms of payment to be made by the respondent etc., for providing consultancy services in respect of residential housing project at Kokat village, Tanduru Mandal, Ranga Reddy District, in two sites admeasuring 97.2 acres and 220.38 acres respectively. For the specified services, the respondent agreed to pay the petitioner 0.80% on the estimated contracted value inclusive of all taxes and the mode of payment at different stages was described as detailed in the petition. The petitioner commenced the work and furnished the respondent with the drawings along with letter dated 19-03- 2008 acknowledged on 20-3-2008. When the petitioner raised invoice for Rs.36,24,000/- on 11-03-2008, it was not paid by the respondent. The petitioner completed the work up to uploading stage and as per the terms of the agreement, it raised invoice for Rs.47,39,000/- on 01-03-2009, but the respondent did not pay the same in spite of five reminders ending with 29-07-2009. The respondent Company thus, failed and neglected to pay the amounts legitimately due to the petitioner and a legal notice dated 18-08-2009 to the respondent was given a reply dated 16-09-2009 with false allegations. The figure arrived at by the respondent is baseless and contrary to the terms of the agreement. The petitioner issued a rejoinder dated 29-09-2009 and the respondent gave another reply dated 21-10-2009. A cheque for Rs.20,023/- dated 23-10-2009 was also sent by the respondent claiming that amount to be alone due to the petitioner. The respondent cannot deny the claim of the petitioner and as the respondent is not in a position to clear its debts and became insolvent being not in a position to carry on its business, the petition is filed under Sections 433 (e) & (f), 434 (1) (a) and (c) and 439 of the Companies Act, 1956 read with Rule 95 of the Companies (Court) Rules, 1959. The respondent in its counter affidavit denied the allegations of the petitioner and contended that the Government of Andhra Pradesh completely owns the respondent Company with all pervasive control over the same with the main object of implementing Rajiv Swagruha Programme and the obligations of the petitioner under the agreement were not fulfilled by it. The petitioner’s claim for Rs.47,39,000/- is unsustainable and the agreement dated 18-01-2008 is limited only to 85 acres. The petitioner is unconnected with the second site and in respect of first site, the payment was limited to Rs.5,33,702/-. The petitioner is making claim in respect of the second site, for which there is no agreement and the correspondence was built up only to make a false claim. The estimated amounts as per the calculations of the parties differed and the lay out plans for the preliminary drawings of the site area of 87 acres as against 85 acres given by the petitioner were returned because of several mistakes. The total station survey was earlier conducted by M/s. S4 Projects, Hyderabad, for which Rs.59,525/- was paid. The drawings submitted by the petitioner were not approved and the contractor failed to submit correct calculations so far. The State Government being unable to discharge the alleged dues or having neglected to pay the dues does not arise and the respondent refused to pay the amount demanded by the petitioner as it was not entitled to the same. In respect of the disputed claims, the Company Petition is not maintainable and hence, the respondent desired the petition to be dismissed. The petitioner filed a reply affidavit contending that the respondent cannot seek any special status merely on the ground of being promoted and run by the Government of Andhra Pradesh and even if it were a Government Company under Section 617 of the Companies Act, it is governed by the same provisions of the statute. The actual extent of the land was found to be 97 acres in the second survey and the petitioner was shown an alternative site as part of the original project itself as the particular site originally shown was found to be not feasible in terms of the selling price. The respondent never raised any dispute about over billing and its attempts to reduce the estimate from Rs.81crores to Rs.51crores are baseless. As the accepted process could not be complied with due to the attitude of the respondent, estimates could not be made and the claim that only preliminary drawings were made is denied. Having realized their mistake in selecting a particular site, the respondent apparently appeared to have decided to abandon the project and to avoid the payments lawfully due to the petitioner even after receiving statutory notice under Section 434 of the Companies Act and therefore, cannot wriggle out from the genuine claim. Sri R. Raghunandan, learned counsel for the petitioner and Sri J. Prabhakar, learned standing counsel for the respondent are heard. The point for consideration is whether the respondent Corporation should be ordered to be wound up. Point: Under Section 433 (e) and (f) of the Companies Act, 1956, a company may be wound up by the Tribunal, if the company is unable to pay its debts or if the Tribunal is of the opinion that it is just and equitable that the Company should be wound up. Section 434 (1) (a) of the Act provides for deeming a company to be unable to pay its debts if a creditor to whom the company is indebted in a sum exceeding Rs.1,00,000/- has served the statutory demand on the company and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor. Under Section 434 (1) (c), a company shall be deemed to be unable to pay its debts if it is proved to the satisfaction of the Company Court that the company is unable to pay its debts, for which purpose the contingent and prospective liabilities of the company will be taken into account. As such, it is clear that for favourably responding to a creditor’s request for winding up of a company, the existence of a debt, the inability of the company to pay such debt in spite of statutory demand till after expiry of the prescribed period and the overall situation of the company with reference to its contingent and prospective liabilities will be the relevant factors for coming to an appropriate conclusion. In the present case, it is seen from the material on record that the consultancy agreement between the parties dated 18-1-2008 and the terms and conditions thereof are not in dispute. However, the notices exchanged between the parties on 18-08-2009 and 16-09-2009 show that the parties were at dispute about the tentative project estimated cost, which was estimated at Rs.81.3660crores by the petitioner and Rs.51.3175crores by the respondent. The consequential differences between the parties are about the quantum of consultancy, claimed at Rs.65.088 lakhs by the petitioner and assessed at Rs.41.054 lakhs by the respondent. The notices exchanged also show that there was dispute about the submission or non-submission of the drawings specified at S.Nos.III to VI of the notice from the petitioner dated 18-08-2009 and also about the respondent being due Rs.47.39 lakhs as claimed by the petitioner in its notice dated 18-8-2009 or only Rs.22,585/- as claimed in the reply notice of the respondent dated 16-09-2009. Therefore, it is clear that while the petitioner is claiming a debt to be due to it from the respondent, the respondent is denying the existence of any such debt due to the petitioner. The claims of the respondent in this regard cannot be, ex facie, rejected without a comprehensive probe and enquiry into all the questions in controversy between the parties and consequential determination of the questions in issue on merits. The petition itself shows that the respondent company with an authorized share capital of Rs.5,00,00,000/- was incorporated with the main object of facilitating the implementation of Rajiv Swagruha Programme of the State Government and the counter affidavit clearly stated that the public limited company is wholly owned by the Government of Andhra Pradesh with all pervasive control over the company for the State Government only. The company, thus, wholly owned by the State Government cannot possibly be considered to be in a state of insolvency or to be in a state of inability to pay its debts, in the absence of any positive material and the petitioner did not allege or prove that the overall contingent and prospective liabilities of the company are such that can satisfy the company Court about the inability of the company to pay the debts. Winding up of the company incorporated for achieving a laudable public purpose for providing housing to urban middleclass and urban lower income groups cannot be considered to be just or reasonable or proper and the disputed questions of fact as to what happened during the alleged execution of the consultancy agreement cannot form the basis for passing any order of winding up of the company. Under such circumstances, the basic ingredients to be established for invoking the jurisdiction of the Company Court for ordering winding up cannot be considered to have been satisfactorily probablised and the petition has to fail. However, any observations made herein shall not operate to the prejudice of either party in any proceedings to which the parties may take recourse to for enforcement of the rights and liabilities under the consultancy agreement dated 18-01-2008. The parties can be directed to bear their own costs in this petition. Accordingly, the Company Petition is dismissed without costs. _____________________ G. BHAVANI PRASAD, J Date: 08-10-2010 Ksn