Ritika Pvt. Ltd. vs Omaxe Construction Ltd.

Sudershan Kumar Misra, J.—This is a petition u/s 433 of the Companies Act, 1956 for winding up of M/s Omaxe Construction Ltd, along with CA. No. 1553/09 for appointment of a Provisional Liquidator. The respondent company carries on the business of construction and is stated to have been incorporated under the Companies Act, 1956 in 1989 and has its registered office in New Delhi.

On 14th December, 2005, the petitioner company/Intending Lessee entered into an unregistered Agreement to Lease with the respondent company/Intending Lessor for opening a showroom in premises bearing No. FF-02, Omaxe Mall, Lawrence Road, Amritsar, Punjab, located on the First Floor, having a super area of approximately 220.306 square metres. The said Agreement has been annexed to the petition as "Annexure B". Clause 3 thereof states that the lease was initially for a period of 3 years, to be calculated from the date of the grant of a Completion Certificate by the concerned authorities, to be renewed for a further 2 terms of 3 years each at the option of the Intending Lessee, on terms and conditions to be mutually decided as per the Agreement. The respondent company was to undertake the construction of a Mall at the Demised Premises, which would thereafter enable the Intending Lessee to carry on the business of garments and apparel under the brand/trade name of ''Ritu Kumar''. Clause 2 of the Agreement states that the said Mall was to be constructed by the Intending Lessor by 31st December, 2007, which would be extended in the case of force majeure circumstances and/or reasons beyond the control of the Intending Lessor.

The petitioner company, as per its obligations under Clause 6 of the Agreement, paid the respondent a total sum of Rs. 4,97,991/- vide Cheque Nos. 599742 and 412065, drawn on Citi Bank, Delhi towards an interest-free security deposit equivalent to three months. rent. Part of this payment was made prior to the signing of the Agreement, and the balance was paid at the time of signing of the Agreement. The petitioner states that the second cheque was encashed on 2nd January, 2006, and that the said deposit was subject to compliance with the terms and conditions stipulated in the Agreement to Lease dated 14th December, 2005.

The respondent company did not complete the construction of the Demised Premises/Mall by the stipulated time. Consequently, the petitioner company alleges that it sent a registered legal notice dated 8th December, 2008 to the respondent company, a copy of which has been annexed to the petition as "Annexure C", stating that the respondent company had defaulted in fulfilling its obligations under the Agreement, and that the petitioner company was no longer interested in taking possession of the Demised Premises. By that notice, it was also stated that the petitioner company terminated the Agreement to Lease, and asked for a refund of the security deposit from the respondent within 15 days of receipt of the notice by the respondent. Proof of service of this notice is also on record.

It is the case of the petitioner that more than 20 months have lapsed since the date on which the Mall was supposed to be constructed and that, till date, the petitioner has not been handed over possession of the Demised Premises. A personal inspection of the construction site by officers of the petitioner company, photographic evidence of which has been annexed as "Annexure D" to this petition, reveals, according to the petitioner, the fact that the said Mall is nowhere near completion.

In reply dated 2nd March, 2009 to the aforesaid legal notice, the respondent claimed that there had been a short delay in the completion of the project on account of reasons beyond its control. Clause 2 of the Agreement to Lease is relied on by the respondent in support of the contention that the stipulated time to complete the project is extended on account of these ''force majeure'' circumstances and/or reasons beyond the control of the respondent. However, the respondent has not given any specific reasons in the reply dated 2nd March, 2009 in support of this contention. It is also claimed by the respondent that the construction is on in full swing, and is very nearly completed. Further, the respondent admits that the payment made by the petitioner towards the security deposit is a matter of record, and that after completion of the construction, will be utilized in obtaining a number of approvals from the concerned authorities.

It is also averred by the respondent that the said Agreement to Lease could not be terminated by the legal notice dated 8th December, 2008 sent by the petitioner, since, according to the respondent, the Agreement to Lease specifically provided for arbitration to resolve any disputes and differences arising between the parties, in Clause 20 thereof. Therefore, the respondent alleges that, as the Agreement to Lease could not be terminated by a legal notice, there is no question of refund of the aforesaid security deposit.

The petitioner then delivered a notice of winding up dated 2nd May, 2009 at the registered office of the respondent company in Delhi, proof of which is annexed to the petition as "Annexure F", calling upon the respondent to refund the amount of Rs. 4,97,991/- and interest @ 1.5% from the date of the notice, as well as costs of sending the legal notices, which amounted to Rs. 11,000/-. The respondent did not reply to the said notice of winding up.

At the outset, it is a well-known principle that the respondent''s failure to reply to the notice of winding up does not mean that winding up orders must invariably be passed. This Court has held in Resham Singh and Co. P. Ltd. Vs. Daewoo Motors India Ltd., , that "where no response had been made to the statutory notice the Respondent Company runs the risk of a winding-up petition being admitted for hearing at the threshold stage itself." It has further been held, in the same case, that "Normally, the Company Judge considers it prudent in the first instance to issue notice to the Respondent so that its defense to the possible far-reaching and fatal winding-up orders can be considered. The admission of the Petition at its first hearing is possible because, by virtue of Section 434 of the Companies Act, a presumption of the indebtness can be legitimately drawn by the Court where no Reply to the statutory notice is forthcoming. The risk of the admission of the Petition, as well as the appointment of a Provisional Liquidator is thus broodingly and ominously present in all those cases where the Respondent Company neglects to send any Reply to the winding-up notice. But this is as far as the danger extends."

The Agreement to Lease is an unregistered document. As per Clause 19 of the Agreement to Lease, it is clear that the Agreement is to be treated as a binding contract enforceable between the parties till the execution of the Lease Deed. Clause 16 of the aforesaid Agreement also stipulates that the Intending Lessor and the Intending Lessee undertook to execute the Lease Deed after the grant of a Completion Certification from the authorities concerned. However, as construction of the Mall is yet incomplete, therefore, there is no question of grant of a Completion Certificate or the consequent execution of the Lease Deed.

An order of winding up on the ground that a company is unable to pay its debts is a discretionary remedy. In the instant case, the petitioner had deposited a certain amount of money as a security deposit, in terms of the Agreement between the parties. On the respondent''s failure to fulfill its obligations under the said Agreement, the petitioner chose to terminate the Agreement by a written notice, and called for refund of the security deposit. In view of the fact that the Agreement to Lease was an unregistered document, as well as the fact that month-to-month leases may be terminable by 15 days. notice, it is clear that the said Agreement was terminated unambiguously by the petitioner, once it became apparent that the respondent was unable to hand over possession of the Demised Premises within the stipulated time. Further, in reply to the legal notice, the respondent has not denied the fact of the payment of the security deposit by the petitioner.

In Polaroid India Pvt. Ltd. Vs. Nav Nirman Co. and Others (No. 1), , the Bombay High Court admitted a winding up petition on the ground of non-payment of a security deposit in consideration of a leave and license agreement, despite termination of the same by a written notice.

The remedy of arbitration is not an alternative to the initiation of winding up proceedings. In Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd., , it has been held, in paragraph 6 thereof;

The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be 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.

Therefore, it is within the discretion of the Company Court to entertain the company petition, even if there is an arbitration clause in the Agreement between the parties.

I therefore feel, prima facie, that the claims raised by the respondent in reply to the legal notice are not within the domain of bona fide and substantial defences. In that view of the matter, let notice issue to the respondents to show cause why the company be not wound up, returnable for 4th May, 2010.