Philips India Ltd. vs Miot Hospital

E. Padmanabhan, J.—The petitioner, Philips India Ltd., has filed the present company petition u/s 433(e) and (f) of the Companies Act,

1956, seeking for winding up of the respondent, MIOT Hospitals.

Heard Mr. John, for Ramasubramaniam Associates, learned counsel appearing for the petitioner, and Mr. B.S. Jothiraman, learned counsel

appearing for the respondent.

The only point that arises for consideration is whether a prima facie case has been made out to admit and proceed further in this winding up

petition ?

According to the petitioner, the respondent placed orders for wiring and fire fighting system valued at Rs. 3,63,394 and Rs. 3,64,880,

respectively, and for fire detection system, with intelligent signature series and public address system, valued at Rs. 15,41,455 (fire fighting system)

and Rs. 44,21,250 (public address system), respectively. The work entrusted by the respondent-company was diligently executed by the

petitioner, to the respondent''s full satisfaction. The petitioner has submitted bills till 14 December, 1998, for Rs. 14,20,363, for which the

respondent has paid an ad hoc amount of Rs. 4 lakhs on 22 February, 1999, leaving a balance of Rs. 10,20,363. The petitioner had submitted

further bills for Rs. 7,74,682 on 31 August, 1999. There was a meeting between the senior executives of the petitioner-company and the managing

director as well as the senior executives of the respondent-company, wherein it was agreed that the pending issues will be resolved and the

outstanding amounts will be settled.

The petitioner on 27 October, 1999, addressed the respondent, highlighted the terms of payment and called upon the respondent to adhere to

the agreement and pointed out [that] there shall be no deviation. On 13 March, 2000, the petitioner further drew the attention of the respondent to

the fact that after all adjustments, a sum of Rs. 16,61,073 is due and payable by the respondent to the petitioner and a demand was made in that

respect. The petitioner followed it with other reminders. The respondent admitted and acknowledged its liability in a sum of Rs. 16,61,073 and

failed to liquidate the same. The respondent is unable to pay its debts, and it has rendered itself to be wound up u/s 433(e) of the Companies Act.

The petitioner caused a legal notice on 19 April, 2000, calling upon the respondent to pay the entire outstanding, failing compliance, the

respondent was put to notice that a winding up petition will be instituted. The respondent admitted its liability, but yet failed to discharge the same

and, hence, [is] deemed to be unable to pay its debts. The respondent is heavily indebted to many creditors, and it is not functioning smoothly. It is

just and equitable that the respondent-company should be wound up. Despite notice, the respondent had not made the payments and, therefore, it

is clear that the respondent is unable to pay its debts. The respondent has become commercially insolvent and, being unable to pay its debts, it is

liable to be wound up.

The respondent had filed a counter contending that the winding up petition has been filed with ulterior motives and it is an abuse of process of

this court. The winding up petition is neither maintainable in law nor on facts. The respondent refuted the liability and further pleaded that at no

point of time had it admitted or acknowledged the liability, much less to the tune of Rs. 16,61,073 as alleged. The petitioner caused a notice on 19

April, 2000, to which a reply had been sent to the effect that it is the petitioner who is liable to pay the sum of Rs. 17.29 lakhs to the respondent

on various heads. Further, the respondent had referred the dispute between them to the project engineer under Clause 67.1 of the conditions of the

contract. The petitioner had failed to take part in the inquire before the said engineer. Ultimately, the engineer rendered his decision on 18 August,

2000, holding that the petitioner violated the terms and conditions of the contract and allowed the claims of the respondent-company as detailed in

his order. The said decision or award had been communicated to either [of the] parties.

The decision of the engineer has become final as it has not been challenged by way of proceedings. The petitioner had not raised any arbitration

proceedings. There is a bona fide dispute and the respondent is not liable to pay any amount, and the entire claim of the petitioner is denied and

disputed. The respondent, further, contends that the entire claim of the petitioner is false and the petitioner had failed to adhere to the conditions of

the contract, delayed the execution of the work as well as had not performed even a portion of the work to the satisfaction of the respondent. It is

further pointed out that the respondent had made payments agreed to by paying 10 per cent as advance and 70 per cent on supply of materials at

site as per letter dated 1 November, 1999. The statutory notice has been replied suitably contending that no amount is due and it is the petitioner

who is liable to pay a substantial sum to the respondent.

The respondent had pointed out various deficiencies in the discharge of the contractual obligations by the petitioner and the claim of the

petitioner is refuted. The respondent had also raised a number of disputes with respect to the execution of the contract and had demanded Rs.

17.29 lakhs as a counter-claim against the petitioner. The respondent further submits that the decision of the engineer in terms of the agreement

rendered on 18 August, 2000, is fatal to the petitioner''s claim and the petitioner cannot maintain the winding up petition at all.

A perusal of the correspondence exchanged between the parties, which has been included in the typed set of papers, would show that the

respondent had raised dispute with respect to the various works or quantity of works as well as the quality of works even at the earliest

opportunity and a detailed reply has been sent disputing the petitioner''s claim. The respondent also had made a demand of Rs. 17.29 lakhs

towards compensation for delay in execution, retention money, cost of surplus materials and performance bank guarantee.

To the statutory notice, a detailed reply had been sent denying the entire liability and pointing out that it is the petitioner who is liable to pay Rs.

17.29 lakhs. The correspondence exchanged also would show the deficiencies pointed out by the respondent. It is not within the purview of the

present winding up petition to go into the merits of the claim and counter-claim of the respective parties. It is just and sufficient to refer to the

dispute, which was referred to the project engineer, Mr. R. Krishnamoorthy.

The dispute was referred to the said project engineer under Clause 67.1 of the conditions of contract. The said dispute has been raised by the

respondent-company against the petitioner-company. The dispute arose as early as 31 May, 2000. The project engineer, who is the appropriate

authority in terms of the contract entered between the parties, had pointed out innumerable violations of various clauses to the conditions of the

contract by the petitioner, which runs to several pages.

Though Mr. John, learned counsel for the petitioner, pointed out that the deficiencies have been attended to or rectified, but is has to be

pointed out that no material has been placed before the court in this respect that subsequent to the project engineer''s a decision, the defects have

been attended to or the deficiencies have been rectified, as pointed out by the engineer.

The project engineer had, ultimately, after inspection and after considering the exchange of correspondence and after personally satisfying

himself, and in the circumstances set out in his decision, issued the following directions :

(1) The contractor may be given final notice to complete the balance work within a month''s time.

(2) If the contractor fails to do so, then the pending balance works can be executed through some third agency by fixing rates and entrusting the

job for completion and handing over to hospital in full working condition.

(3) Any balance amount out of retention money, if any, due to the first contractor, Philips India Ltd., can be released after deducting all expenditure

likely to be incurred by MIOT to complete the balance work through third party and any other losses, etc.

(4) MIOT can appropriate 10 per cent of the value of the work done towards liquidated damages.

(5) Contractor to hand over all guarantee certificates and test certificates for all equipments supplied.

14.1 The said project engineer is the person to who the disputes will be referred with respect to the execution of the project. This is not disputed

by the petitioner. Therefore, it is clear that there is a bona fide dispute between the parties and the respondent had made a counter claim against

the petitioner as well. Thus, it is clear that there is a bona fide dispute between the parties and it is not as if the claim of the petitioner had been

admitted. Therefore, is cannot be held that the respondent-company is unable to pay its debts.

It is to be pointed out that after the filing of the counter, no reply has been filed nor any material has been filed by the petitioner to show that the

petitioner-company had attended to the defects pointed out by the project engineer in terms of the final notice issued with respect to the balance of

work as indicated in his award. The petitioner had not placed any material to show that the petitioner had attended the defects or rectified the

defects or cleared the deficiencies or that it had completed the work to the satisfaction of the project engineer. In the absence of such material, this

court has to necessarily accept the stand taken by the respondent-company. This court holds that there is a bona fide dispute between the parties

and the denial of the petitioner''s claim is bona fide. Such disputes cannot be decided in the present company petition.

Further, no material has been placed before this court to show that the respondent is commercially insolvent or the substratum of the

respondent-company had been lost or the respondent is unable to pay its debts or it is equitable to order winding up.

In the circumstances, in the light of the bona fide dispute, which cannot be decided in this summary proceeding, this court makes it clear that it

is open to the parties to work out their remedies before the appropriate court or initiate proceedings as provided in terms and conditions of

agreement entered into between the parties. There are no merits and there is no prima facie case in this company petition and it deserves to be

dismissed.

In the result, the company petition is dismissed, but without costs. Consequently, C.A. No. 2294 of 2000 is also dismissed.