Case: Spedag East Africa Limited Vs. Surendra Engineering Corporation Private Limited

Oral Judgment: (Dr. D.Y. Chandrachud, J.)This appeal arises from an order of the Learned Company Judge dated 11 February 2011, by which a Petition for winding up under Section 433(e) of the Companies Act, 1956 was dismissed.2. The Respondent entered into an agreement on 10 February 2006 with a Company based in Uganda, by the name of Kakira Sugar Works (1985) Ltd., (Kakira) under which the Respondent sold and supplied machinery and equipment. The case of the Appellant is that it was providing regular freight forwarding services to Kakira. Kakira had suggested that the Respondent use the services of the Appellant for shipment of the goods from India to Uganda. The Respondent requested that Shark Logistics Pvt. Ltd. (Shark Logistics) be appointed as its agent. According to the Appellant, the Respondent requested the Appellants office in Switzerland to raise invoices on Shark Logistics for expediency, to which the Appellant agreed. Accordingly, invoices in the sum of U.S. $ 438,377.34 were raised upon Shark Logistics for goods shipped and delivered to Kakira. Shark Logistics failed to make payment upon which invoices were raised upon the Respondent. By an e-mail dated 26 October 2007, the Respondent confirmed to the Appellant that a balance of U.S.$ 206,403.67 was due and payable to it (and not U.S.$ 397,143.67 as claimed by the Appellant). The e-mail was addressed by a partner of an erstwhile partnership firm, who became a Director of the Respondent, after the partnership was converted into a corporate body. Subsequently, notices of winding up were addressed to the Respondent to which there was no reply.3. The defence before the Company Judge was that there was no privity of contract between the Appellant and the Respondent. This defence has been accepted in the impugned order dated 11 February 2011 as a ground for holding that the Company Petition for winding up raises a bona fide dispute which could not be resolved in that jurisdiction.4. Counsel appearing on behalf of the Appellant submitted that: (i) It has not been in dispute that goods were shipped by the Appellant; that the Respondent was the consignor and that the goods were received by Kakira in Uganda; (ii) The case of the Appellant as reflected in a letter dated 21 April 2008 is that invoices were raised on Shark Logistics on the instructions of the Respondent: there was no reply to the letter; (iii) In paragraph 10 of the reply filed to the Company Petition for winding up, there was a specific admission that an amount of US $ 206,403.67 was due and payable. However, in paragraph 11(i), it was sought to be explained that this acknowledgement of payment due was based on bills received and authorised for payment by Shark Logistics. If the relationship between the Respondent and Shark Logistics was on a principal to principal basis, there would be no occasion for the latter to authorise payment by the Respondent to the Appellant; (iv) The clear acknowledgement of liability by the Respondent in the e-mail dated 26 October 2007 must be coupled with the fact that at no stage did the Respondent raise a defence to the effect that it had no privity of contract with the Appellant. If there was no privity of contract, there would be no occasion for the Respondent to address a communication to the Appellant admitting a liability to make payment in the amount of U.S.$ 206,403.67. In these circumstances, it has been urged that the Learned Single Judge has ex-facie erred in coming to the conclusion that a bona fide dispute arises. In order to allow an opportunity to the Company to establish its bona fides, an order of deposit of at least the admitted amount of U.S.$ 206,403.67 to the credit of the Summary Suit which has been filed by the Appellant and which is pending in this Court, would have been appropriate.5. On the other hand, it has been urged on behalf of the Respondent that: (i) The Respondent is a solvent Company which has a bona fide dispute based on an absence of privity of contract with the Appellant and that consequently, the Petition for winding up would not be maintainable; (ii) The Appellant had raised invoices upon Shark Logistics and had a contract of 10 February 2006 with that Company which was not disclosed; (iii) The Bill of Lading was also endorsed by Shark Logistics; (iv) There was no contract between the Appellant and the Respondent.6. The rival submissions fall for consideration.7. The parameters of the jurisdiction of the Company Court in a petition for winding up are well settled. At the stage when it considers whether a Company Petition should be admitted, the Company Court is not expected to hold a full trial. The test is whether there is a substantial dispute as to liability which the Company in defence has raised. As the Supreme Court held in IBA Health (I) Pvt. Ltd. vs. Info-Drive Systems SDN.BHD, (2010) 159 Comp Cas 369 (SC)a dispute is substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. Yet, as the Supreme Court has held the grounds of dispute must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. The Company Court wields a measure of discretion, but it is settled that the procedure of a Petition for winding up should not be allowed to be used as a means of forcing the Company to pay a debt which is bona fide disputed.8. In the present case, it is on the basis of the settled exposition of the law that the facts would have to be considered. What is not in dispute in the present case is that: (i) The Respondent was the consignor of a shipment of plant and machinery to Kakira, a consignee based in Uganda; (ii) The consignment was shipped by the Appellant; and (iii) The shipment was received by the consignee. At the time of the transaction, the predecessor-in-interest of the Respondent was a partnership firm; the Respondent having been constituted on or about 8 September 2008. The case of the Appellant was that the invoices which it initially raised on Shark Logistics was on the instructions of the Respondent. This was specifically noted in a communication dated 21 April 2008 addressed by the Appellant to the Respondent. Originally, the invoices were raised on Shark Logistics and upon its failure to honour them, the Appellant demanded payment from the Respondent on 21 April 2008. The Respondent did not address any communication in response to this letter. Significantly, on 4 October 2007 an e-mail was addressed to Brijen Parikh by the Appellant asking for payment of an outstanding amount of U.S.$ 438,377.34. This was followed by a further communication dated 19 October 2007 rectifying the amount claimed to U.S.$ 397,443.67. On 26 October 2007, Brijen Parikh, who was a partner in the erstwhile partnership and is admittedly a Director of the Respondent, addressed an e-mail to the Appellant. The subject in the e-mail is stated in the reference as Payment to Spedag East Africa (the Appellant before the Court). The e-mail is in the following terms:RE: Payment to Spedag East AfricaDear Sir,With reference to the below mail, please be informed that as per our record, the balance payment is Amount U.S.$206,403.67 not U.S.D 397,143.67.We will remit Amount: U.S.$206,403.67 as per our record.Thanks & Regards,BrijenParikh. (emphasis supplied)The e-mail contains a clear admission of liability on the part of the Respondent. The admission of liability is clearly of the payment due to the Appellant because the subject of the e-mail is not an amount which is due in the abstract, but a specified amount (US$ 206,403.67) which was due and owing to the Appellant. The Respondent clearly stated that it would remit that amount as per our record. This admission of liability displaces the defence which was sought to be raised to the effect that there was no privity of contract between the Respondent and the Appellant and that there was an outstanding due by the Respondent to Shark Logistics with which the Respondent dealt on a principal to principal basis. If there was no privity of contract between the Respondent and the Appellant, there would have been no occasion for the Respondent to address an e-mail to the Appellant specifically confirming the amount outstanding in the sum of U.S.$ 206,403.67 and to state that the amount would be remitted. It may be noted that the communication dated 26 October 2007 was addressed by the Respondent in response to an e-mail of the Appellant seeking a confirmation of liability.9. In the affidavit in reply that was filed to the Company Petition for winding up, the Respondent stated that prior to its incorporation on 8 September 2008, the Respondent was a partnership firm constituted under a Deed of Partnership dated 2 April 1994 in the name and style of Surendra Engineering Corporation. Upon the incorporation of the Company, the assets and liabilities of the partnership firm, it is stated, were to the tune of U.S.$ 206,403.67. The Respondent has stated that this is on account of the Respondents contract dated 8 March 2006 with Shark Logistics. The Respondent has specifically averred that in correspondence, it had brought to the notice of the Appellant that the amount due and payable, according to its books of account, was only U.S.$ 206,403.67 and hence, a larger claim of the Appellant in the amount of U.S.$ 453,838.05 against the Company was denied. The acknowledgement dated 26 October 2007 was sought to be explained by stating that it was based on bills received by and authorised for payment by Shark Logistics. If as is now submitted before the Court, the dealings between the Respondent and Shark Logistics were on a principal to principal basis, there would have been no occasion for Shark Logistics to authorise the payment of the aforesaid sum to the Appellant.10. Considering the matter in its entirety and after having examined the documents upon which the rival submissions have been founded, we are of the view that there is a debt due and payable by the Respondent to the Appellant in the amount of U.S.$ 206,403.67. The defence of Respondent that there was no privity of contract with the Appellant was thoroughly lacking in bona fides and was spurious, speculative, illusory and misconceived as explained in the judgment of the Supreme Court in IBA Health (supra). The defence clearly runs in the teeth of a clear admission of liability contained in the Respondents e-mail dated 26 October 2007. This, as noted earlier, must also be weighed together with other contemporaneous material on record. That includes the fact that there was no denial of liability when the Appellant addressed a communication to the Respondent on 21 April 2008 specifically stating that the invoices which were initially raised on Shark Logistics were on the instructions of the Respondent. Admittedly, there was no reply to the statutory notice for winding up. The Learned Single Judge was, with respect, in error in accepting the defence that there was no privity of contract between the Appellant and the Respondent and in holding that a bona fide dispute arose.11. In these circumstances, an order for the admission of the Petition for winding up would have been warranted. However, it would be appropriate to furnish an opportunity to the Respondent to deposit an amount equivalent to U.S.$ 206,403.67 to the credit of the Summary Suit which has been instituted in this Court by the Appellant, to establish its bona fides. Such an opportunity should, in our view, be granted in the interests of justice in order to obviate the consequence of the admission of a Company Petition for winding up. The amount upon deposit would lie to the credit of the suit and abide by such further order that may be passed by the Learned Single Judge at the hearing of the Summons for Judgment. The Court has been informed that the Summons for Judgment has been adjourned by the Learned Single Judge on the Original Side, in view of the admission of this appeal.

Decision reasoning: 0[ds]10. Considering the matter in its entirety and after having examined the documents upon which the rival submissions have been founded, we are of the view that there is a debt due and payable by the Respondent to the Appellant in the amount of U.S.$ 206,403.67. The defence of Respondent that there was no privity of contract with the Appellant was thoroughly lacking in bona fides and was spurious, speculative, illusory and misconceived as explained in the judgment of the Supreme Court in IBA Health (supra). The defence clearly runs in the teeth of a clear admission of liability contained in the Respondentsdated 26 October 2007. This, as noted earlier, must also be weighed together with other contemporaneous material on record. That includes the fact that there was no denial of liability when the Appellant addressed a communication to the Respondent on 21 April 2008 specifically stating that the invoices which were initially raised on Shark Logistics were on the instructions of the Respondent. Admittedly, there was no reply to the statutory notice for winding up. The Learned Single Judge was, with respect, in error in accepting the defence that there was no privity of contract between the Appellant and the Respondent and in holding that a bona fide dispute arose.11. In these circumstances, an order for the admission of the Petition for winding up would have been warranted. However, it would be appropriate to furnish an opportunity to the Respondent to deposit an amount equivalent to U.S.$ 206,403.67 to the credit of the Summary Suit which has been instituted in this Court by the Appellant, to establish its bona fides. Such an opportunity should, in our view, be granted in the interests of justice in order to obviate the consequence of the admission of a Company Petition for winding up.