Case: Tata Advanced Materials Limited Vs. M/S. Tooltech Global Engineering Private Limited

that the dispute regarding the debt payable by the Respondent company to the Appellant is neither bona fide, nor substantial. There is no dispute that the Respondent company placed purchase orders upon the Appellant and the Appellant supplied goods in pursuance of the same. There is no dispute that the Appellant raised invoices from time to time aggregating to Rs.2,16,64,437/- out of which an amount of Rs.1,31,49,778/- was paid by the Respondent company to the Appellant without any demur. Even with regard to the balance, there was never any serious demur. In these circumstances, we are of the opinion that the dispute as regards the debt, belatedly raised is an afterthought and is neither bona fide, nor substantial.11. Mr. Kulkarni, however, submitted that the undertaking dated 29 July 2009 itself states that the amount stated therein is subject to reconciliation. Therefore, he submitted that the undertaking cannot be relied upon to establish any debt. We are unable to accept this contention for the following reasons:(i) The undertaking, which otherwise, clearly and unequivocally acknowledges the liability and assures payments as per stipulated schedule, very vaguely states:this amount due includes certain invoices which are under reconciliation for material cost.(ii) In the schedule of repayment contained in the undertaking, as against the amount of Rs.41,84,426/- repayable by 15 September 2009, there is the following endorsement:due after material cost reconciliation.(iii) Pitted against such vague endorsements are clear and unambiguous acknowledgements of debt and undertaking to pay total amount of Rs.81,84,426/- to the Appellant.(iv) The Respondent company, neither in its reply to the statutory notice, nor in its reply to the petition for winding up has placed any material on record to suggest that any reconciliation was in fact carried out and that upon such reconciliation any amount was found as not due and payable to the Appellant.(v) Much after the execution of the undertaking dated 29 July 2009, the Respondent company has made endorsements upon the balance confirmation letters dated 25 March 2010 and 7 March 2011 confirming that the Appellant is to receive from the Respondent company an amount of Rs.85,41,219.80 as on 28 February 2010 and 28 February 2011.12. Mr. Kulkarni, then contended that as per the agreement between the parties, payments were to be effected by the Respondent company within 3 to 5 working days on receipt of payment from Hindustan Aeronautical Limited (HAL) on a back to back basis. In this regard, Mr. Kulkarni referred to Clause 5.2 of the purchase order dated 17 July 2009, which reads as follows:5.2 Tooltech shall release to TAML all payments due to them (and provide all Reasonable documentation as proof, if required), within 3 to 5 working days on receipt of their (Tooltechs) payment from HAL on a back to back basis. However, Tooltech would do the best possible to release the payment within 45 days from the date of receipt of certified bills from TAML.The first part of the Clause 5.2 of the purchase order does make reference to payment within 3 to 5 working days from the company receiving payment from HAL on back to back basis. However, the second part provides that the Respondent company would do the best possible to release the payment within 45 days from the date of receipt of certified bills from the Appellant. The use of the word however makes it clear that though the Respondent company was bound to effect the payments within 3 to 5 working days upon receipt of payments from HAL, nevertheless if such payments were not forthcoming from HAL, the Respondent company would do the best possible to release payments within 45 days from the date of receipt of certified bills from the Appellant. The payments of amounts to the Appellant was therefore not dependant upon the Respondent company receiving payments from HAL. Further this is not a case where there was any form of tripartite agreement between the Appellant, Respondent company and HAL. In fact, there was no privity of contract between the Appellant and HAL. Such defence was never raised by the Respondent company either at the stage of executing the undertaking dated 29 July 2009 or at the stage of acknowledging the amount due in pursuance of the balance confirmation letters dated 25 March 2010 and 7 March 2011. In the circumstances, we find that the defence raised is neither a bona fide nor a substantial one.13. The third defence that an amount of Rs.25 Lakhs was paid in full and final settlement by the Respondent company has not been accepted by the learned Company Judge. Even otherwise the same is not at all borne from the records. The E-mail communication does not support any such conclusion.14. Mr. Kulkarni, finally submitted that the purchase orders which constitute a contract between the parties contained an arbitration clause and in view of the existence of such a clause a petition for winding up was not maintainable or in any case was rightly not entertained. This does not appear to be a defence raised by the Respondent company before the learned Company Judge.15. In any case, as observed by the Supreme Court in Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd (1999) 5 Supreme Court Cases 688) ,a claim in a petition for winding up is not for money. The petition filed under the Companies Act in a matter like this, is to the effect, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the Court. An Arbitrator, notwithstanding, any agreement between the parties, would have no jurisdiction to order winding up of a company.16. In the aforesaid circumstances, the objections as to maintainability of a petition for winding up on the ground that the contract between the parties contains an arbitration clause is liable to be rejected.17. In our judgment, therefore, the Appellant has made out a case for admission of Company Petition No.198 of 2012.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, See Re. A Company (94 SJ 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely see Re. Tweeds Garages Ltd (1962 Ch 406). The principles which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends.9. Applying aforesaid principles to the facts and circumstances of the present case, we have to determine whether the debt is bona fide disputed and whether the defence is a substantial one.10. The undertaking executed by the Respondent company on 29 July 209 and the unequivocal endorsement made upon the balance confirmation letters dated 25 March 2010 and 7 March 2011 establishes that the dispute regarding the debt payable by the Respondent company to the Appellant is neither bona fide, nor substantial. There is no dispute that the Respondent company placed purchase orders upon the Appellant and the Appellant supplied goods in pursuance of the same. There is no dispute that the Appellant raised invoices from time to time aggregating to Rs.2,16,64,437/out of which an amount of Rs.1,31,49,778/was paid by the Respondent company to the Appellant without any demur. Even with regard to the balance, there was never any serious demur. In these circumstances, we are of the opinion that the dispute as regards the debt, belatedly raised is an afterthought and is neither bona fide, nor substantial.In any case, as observed by the Supreme Court in Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd (1999) 5 Supreme Court Cases 688) ,a claim in a petition for winding up is not for money. The petition filed under the Companies Act in a matter like this, is to the effect, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the Court. An Arbitrator, notwithstanding, any agreement between the parties, would have no jurisdiction to order winding up of a company.16. In the aforesaid circumstances, the objections as to maintainability of a petition for winding up on the ground that the contract between the parties contains an arbitration clause is liable to be rejected.17. In our judgment, therefore, the Appellant has made out a case for admission of Company Petition No.198 of 2012.