Gleason Works vs Punjab Tractors Ltd.

Ashok Bhan, J.—The present petition u/s 434(1) read with sections 438 and 439 of the Companies Act, 1956 (''the Act''), has been filed seeking winding up of the company Punjab Tractors Ltd. (as respondent No. 1) which arises out of the following facts:

The petitioner is a creditor of the company by assignment from the Gleason Works, S.A., Pare Industrial De Ghlin, Bandour, Belgium. The amount due to the said the Gleason Works S.A. of Belgium was assigned by the said Gleason Works S.A. to the petitioner by deed dated 12-1-1994, a photostat copy of which has been attached as annexure A to the petition. It is stated that the name of the Gleason Works S.A. of Belgium has now been changed to Thenson Works S.A. of Belgium which has been added as respondent No. 2 in this petition. The Gleason Works S.A. is a joint stock company registered in Belgium and a wholly-owned subsidiary of the petitioner. The petitioner was controlling and managing its affairs and acting on its behalf till 10-11-1993, when the shares held by the petitioner the Gleason Works were transferred; that in accordance with the negotiations carried on between the petitioner and the respondent-company through Hypoids (India) (P.) Ltd., the respondent-company placed an order with the petitioner for three machines and tooling on 17-7-1990, for a total price of 20,232,105 Belgium francs equivalent to 6,00,000 US dollars; that in the indent dated 17-7-1990, the following terms were stipulated :

"(i) Machinery was to be supplied free on board port of shipping in seaworthy packing. All other charges up to the port of loading were to be borne by the petitioner.

(ii) An irrevocable letter of credit was to be opened by Punjab Tractors Ltd. for full FOB payment. Payment of commission to Hypoids (India) (P.) Ltd. was to be paid in Indian currency 30 days after the receipt, inspection and acceptance of the material at the works of Punjab Tractors Ltd.

(iii) The items ordered were against import licence set out in the indent. Mode of despatch by sea."

The order was placed by respondent No. 1 through Hypoids (India) (P.) Ltd. who forwarded the same to the petitioner. The Gleason Works S.A. acknowledged the receipt of the order of the respondent-company. There was a written contract in which there was a cancellation clause which reads as under:

"3. Cancellation.--This contract shall not be subject to cancellation by buyer without the consent in writing of the seller. No such consent will be given where the work is 90 per cent complete or scheduled for completion within 30 days. In all other cases such consent will be granted, if at all, only upon the condition that buyer shall compensate seller for such cancellation by paying to the seller that percentage of the total price of the contract that the work done and raw material or supplies used or for which commitments have been made bears to the total of the contract as the same may be determined by seller."

That the equipment ordered by respondent No. 1 was to be specifically manufactured by the petitioner in accordance with the specifications and indent placed by respondent No. 1 and were to be shipped by the petitioner in June, 1991, FOB port of shipment provided the letter of credit three months before the date of shipment, i.e., 3-2-1991, was opened by the respondent-company in favour of the petitioner; that in breach of agreement the letter of credit was not opened by February, 1991, and instead the respondent-company sought various extensions which were agreed to by the petitioner; that on 27-4-1992, respondent No. 1 illegally cancelled the said order on the ground that after the placement of the orders, the prices of the machines due to drastic changes in economic policy of the country have increased exorbitantly which makes the operation of the machines for their applications totally uneconomic and unviable for them. Respondent No. 1 showed its inability to pick the machines and cancelled the orders. It is stated in the petition that the machinery was transferred to a warehouse in Antwerp (Belgium); that statutory notices were issued to respondent No. 1 by the petitioner to which reply was received which was vague in nature; that respondent No. 1 was liable to pay 6,00,000 US dollars as damages which comes to be an admitted debt; that respondent No. 1 having failed to make the payment is liable to be wound up.

Notice of this petition was issued to which reply has been filed. In the written statement, it has been averred that the petition is misconceived and misdirected and liable to be dismissed as a bona fide dispute exists between the parties which requires detailed investigation into the facts; that respondent No. 1 is a solvent and flourishing company and cannot by any stretch of imagination be said to be a company unable to pay its debts; that respondent No. 1 is a profit-making organisation and the machinery for winding up should not be allowed to be used by the petitioner as a means for realising the amount from the respondent-company. The annual reports of the respondent-company have been attached to show that respondent No. 1 is a profit-earning company.

No debt as envisaged u/s 433/434 is due from respondent No. 1 to the petitioner as the petitioner''s entire case is based upon a claim for unascertained damages which under any circumstances cannot be equated with debt; that the petitioner has suppressed the material fact regarding filing of civil suit prior to the filing of the present petition in which the claim made is the same as in the present case; that there was no privity of contract between the petitioner and respondent No. 1 and, therefore, this petition was not maintainable. On the merits, the averments made in the petition have been denied. It has been stated that respondent No. 1 is not liable to pay any amount to the petitioner.

The counsels for the parties have been heard. The counsel appearing for the petitioner admitted that a civil suit was filed prior to the filing of the present petition but the same had been done in order to save limitation. Even if the suit had been filed to save limitation, the fact of having filed the suit should have been mentioned in the petition but unfortunately this fact does not find mention in the petition from which it is assumed that the petitioner has tried to suppress the same. Be that as it may, I find substance in the preliminary objection raised by respondent No. 1 regarding maintainability of the present petition because it involves disputed questions of facts. Undoubtedly, the amount claimed in this petition as due from the respondent-company is on account of contract entered between respondent No. 1 and Gleason Works S.A. This amount is an ascertained sum of money which can be said to be an admitted debt payable by respondent No. 1 to the petitioner. The amount claimed is in the nature of liquidated damages for repudiating the contract. In the case of repudiation of a contract, two courses are open to a party, i.e., either to get it specifically enforced or to claim liquidated damages. It is not a case of specific performance. For ascertaining the liquidated damages, detailed investigation into facts has to be gone into and for that the petitioner has already filed a civil suit. Investigation of facts as in the present case cannot be made in these proceedings. In the proceedings under the Act, the company can be ordered to be wound up regarding ascertained sums of money due from the respondent to the petitioner when the respondent-company is unable to pay its debts. In the present case, it cannot be held that the respondent-company is unable to pay its debt because it is a profit-earning company which fact is evident from the averments made in the written statement and the copies of annual reports of the respondent-company which have been attached as annexures R-2 to R-6. The dispute raised by the respondent-company is a bona fide dispute which can only be decided by the civil court. The dispute being contentious which needs determination of facts, the petitioner is relegated to its remedy of filing a civil suit for redressal of its grievance.

The counsel for the petitioner relied upon Sir Chunilal V. Mehta and Sons, Ltd. Vs. The Century Spinning and Manufacturing Co., Ltd., , to say that this Court under the Act can order payment of damages. Specific reliance was placed on para 11 which reads as under:

"Where parties name in a contract reduced to writing a sum of money to be paid as liquidated damages they must be deemed to exclude the right to claim an unascertained sum of money as damages. The right to claim liquidated damages is enforceable u/s 74 of the Contract Act and where such a right is found to exist no question of ascertaining damages really arises. Where the parties have deliberately specified the amount of liquidated damages there can be no presumption that they at the same time, intended to allow the party who has suffered by the breach to give a go-by to the sum specified and claim instead a sum of money which was not ascertained or ascertainable at the date of the breach." (p. 1315)

A perusal of this paragraph shows that in Sir Chunilal V. Mehta & Sons Ltd.''s case (supra), the amount of damages was ascertained whereas the amount of damages is not certain in the present case. The counsel for the petitioner argued that in the cancellation clause which has been reproduced in the earlier part of this judgment, it is clear that damages for cancellation of contract were 100 per cent where the work had been completed; that in the present case, work had already been completed by the petitioner and the respondent-company has refused to lift the machinery which has been specifically manufactured for the use of the respondent-company; and, therefore, the same is liable to pay 100 per cent price of the contract. I do not find any substance in this submission as well. The amount of damages in the present case is not certain. The case of the respondent is that the machinery could not be lifted because of certain unavoidable circumstances for which the respondent was not responsible. A civil suit has already been filed for claiming damages. As to what would be the effect of cancellation of the contract and how much damages under these circumstances may/can be awarded to the petitioner shall have to be adjudicated upon which cannot be said to be an admitted debt for which the respondent-company can be ordered to be wound up. As observed in the earlier part of this judgment respondent No. 1 is a profit-earning company and it cannot be said that it is unable to pay its debt.

For the reasons recorded above, I refuse to entertain this petition and relegate the parties to their remedy of filing the civil suit which has already been filed. This petition stands disposed of with no order as to costs.