SICAL-CWT Distriparks Limited vs Besser Concrete Systems Limited

M. Chockalingam, J.—Challenge is made to an order of dismissal of C.P. No. 242 of 1998 filed u/s 433(e) and 433(c) of the Companies

Act, for winding up of the respondent company, made by the learned Single Judge of this Court.

2.The said petition was filed with the following averments:

(a) The appellant placed a work order dated 2.8.1996 with M/s. Vibrant Investment and Properties Limited (VIPL) for laying and paving heavy

duty pavement for 4.50 lakh sq.ft. using heavy duty pavers as per specifications for a total value of Rs. 5,23,87,500/-. They paid a mobilisation

advance of Rs. 10 lakhs with a condition that the said company would perform all obligations in this regard. The respondent company stood

guarantee for the said company, and a guarantee deed was executed on 25.7.1997. Since some defects in the work were noticed by the appellant,

the said company was requested to rectify the same. But, they failed to rectify the same, and hence the appellant intended to take legal action

against them. However, after several discussions, a revised design was made by the said Company for the work to be done. The appellant

considered the request of the said company and issued a revised work order for Rs. 4,13,30,168/- after getting indemnity bond and guarantee

from the respondent. The mobilisation advance of Rs. 31.33 lakhs was paid after adjusting the advance already paid. The appellant also paid Rs.

35.12 lakhs towards 75% of the cost of 10 lakh pavers as requested by the said company. In spite of the same, the said Company failed to

perform any of its obligations.

(b) In the review meeting held, the said company expressed its inability to do work due to financial crisis and requested to withdraw from the

contract. A huge stock of appellant''s pavers lying in the respondent company was sold without the consent of the appellant. Thus both the

respondent and the said company delayed the appellant''s project. The mobilisation advance was also not returned by the said company. A sum of

Rs. 41.33 lakhs was due by way of mobilisation advance and Rs. 21.62 lakhs being the balance in pavers account after adjusting the value of the

work done and recovery by way of retention and mobilisation advance. Since the respondent company stood as guarantor and admitted its liability

by entering into an agreement dated 1.4.97, the respondent is liable to pay the balance amount. Despite repeated letters dated 9.8.97 and 10.9.97,

the said company did not pay the sum. Under the circumstances, the respondent is jointly and severally liable along with the said company to the

extent of Rs. 41,32,631/-. The respondent is also liable to pay Rs. 62.95 lakhs as it had agreed to indemnify the appellant for any loss, damage,

cost etc. Even after issuance of statutory notice dated 27.9.1997, the respondent did not pay the amount. Thus the said company have become

commercially insolvent and are unable to pay its debts. Therefore, the respondent company should be wound up.

3.The respondent filed a counter stating inter alia that VIPL, one of the promoters of the respondent company, was enjoying a fiduciary

relationship with the respondent; that one R.Ramakrishna, the Managing Director of VIPL, was also the Managing Director of the respondent

company from 26.2.96 to 17.6.1997; that he was also the Chairman of the Board of Directors of the respondent company from 20.3.1995 till

11.12.1997; that he and his associates abused their fiduciary relationship with the respondent and had done several acts of misfeasance and

malfeasance; that he entered into an ante-dated guarantee and an agreement involving the respondent; that the deeds of guarantee and agreement

are not genuine, and they are fabricated and perpetrated by him in collusion with the appellant for obvious purpose; that VIPL is simply attempting

to bring this respondent into the dispute; that copies of certain documents have not been furnished to the respondent; that in the agreement dated

1.4.1997, a reference has been made about an event which took place on 2.4.1997, namely the amended work and it is not a typographical error;

that the performance guarantee has been contemplated well before the work order dated 2.8.1996; that the respondent was not the guarantor of

the said company and the agreement in question is not enforceable against them, and hence the petition lacks bonafide and is liable to be dismissed.

The appellant also filed a rejoinder.

The learned Single Judge on scrutiny of the materials available and hearing the submissions made, took the view that the appropriate remedy for

the appellant/petitioner was not seeking to wind up by approaching the Company Court and dismissed the petition. Aggrieved, the

appellant/petitioner has brought forth this appeal.

Advancing arguments on behalf of the appellant, the learned Counsel would submit that the impugned order was erroneous since the learned

Single Judge has neither considered the factual nor the legal position; that the Court should have considered the genuineness of the deed of

guarantee dated 25.7.1997, executed by the respondent company for the due performance of the terms and conditions in the letter of intent dated

25.3.1997 and the work order dated 2.4.1997 to VIPL; that the fact that in the balance sheet of the respondent company for the years 1997-98

and 1998-99 the respondent has well admitted that it had given a corporate guarantee to the appellant; that the fact of execution of the guarantee

was not disputed in the balance sheets 1997-98 and 1998-99; that it was also executed by Mr. Ramakrishna, who was the Chairman and

Managing Director of the respondent company and also the Chairman and Managing Director of VIPL; that the very same Director of the

respondent one Mr. Steven Weed, who signed the preliminary counter statement, had also signed the balance sheet for the years 1997-98 and

1998-99 wherein it has been categorically stated ""The company guaranteed satisfactory performance of these pavers""; that the learned Single

Judge has erroneously taken a view as to the non-production of the letters dated 29.2.1996, 26.6.1996 and 25.7.1996 since it formed part of list

of dates filed in the Court; that the non-production of the same will not give rise to any cause of action; that the letters would clearly establish the

correspondence between the petitioner/appellant and also VIPL; that the same was not disputed by the respondent; that an erroneous view that in

the work order dated 2.8.1996, there is a clause stating that VIPL should give clear performance guarantee and there is no clause enabling the

third party guarantee was taken by the Court; that the unsatisfactory work done by VIPL necessitated to issue a fresh work order on 2.4.1997,

and procurement of fresh guarantee from the respondent on 25.3.1997, and the same was duly approved by the resolution passed by the

respondent company on 18.9.1996.

Added further the learned Counsel that the learned Single Judge has arrived at a wrong conclusion that in the guarantee agreement dated

25.3.1997, there is a mention about a sum of Rs. 41,32,631/- being paid to VIPL based on the letter of intent dated 25.3.1997; that the above

amount was admittedly paid on 26.3.1997 and 27.3.1997; that the payment of money to VIPL was admitted and the same was paid to VIPL at

the request of the guarantor; that apart from that, there was no discrepancy with regard to the payments made to and received by VIPL; that the

non-mention about the manufacture of the pavers by the respondent company cannot be given any importance; that equally, the non-mention of the

guarantee dated 25.3.1997, in the fresh work order dated 2.4.1997 and the non-mention of the guarantee agreement in the work order will not in

any way absolve the liability of the respondent guarantor since as per the respondent''s balance sheets for two consecutive years, the guarantee

was issued; that there was no legal necessity to mention the guarantee in the work order; that it is not correct to state that neither at the time of

entering into the contract by the appellant with VIPL nor at the time of the first work order dated 2.3.1997, the parties have never contemplated

any third party guarantee for the performance of the work by VIPL; that the non-mention of the execution of the guarantee agreement in the

subsequent work orders and correspondence may not in law help the respondent to avoid its legal obligations and thus the non-production of the

documents and the non-mention of the guarantee were all not necessary to come to a conclusion or be taken as a basis to take a decision that

there was a bonafide dispute in respect of the guarantee dated 25.3.1997 executed by the respondent company; that it is pertinent to point out that

there was a categorical admission about the execution of the guarantee in the respondent''s balance sheets of the years 1997-98 and 1998-99; that

the fact which remained to be considered is that there was a debt due by VIPL for which the respondent gave guarantee, and the same was duly

acknowledged by them; that the appellant has established a prima facie case on the admissions made by the respondent; that there is no genuine

dispute about the deed of guarantee, and there cannot be any dispute much less genuine dispute, about the deed of guarantee; that the mala fide on

the part of the respondent company which was sought to be wound up was demonstrated by its own admission; that the learned Single Judge

should have exercised the jurisdiction with respect to the winding up and should have ordered winding up, and hence the order of the learned

Single Judge has got to be set aside.

The learned Senior Counsel Mr. R.Thiagarajan for the respondent in his sincere attempt of sustaining the order of the learned Single Judge

denying the prayer for winding up, took the Court to different documents relied on by the parties and would add that there exists a real bona fide

dispute as to the genuineness of the guarantee; that under the circumstances, the remedy for the appellant was not before the Company Court

seeking winding up, but elsewhere, and hence the appeal has got to be dismissed.

The Court made a scrutiny of the available materials and paid its anxious consideration on the submissions made.

As could be seen above, the case of the appellant in short is that the appellant placed a work order dated 2.8.1996 with M/s.Vibrant

Investment and Properties Limited (VIPL) for laying and paving heavy duty pavement for 4.50 lakh sq.ft. using heavy duty papers as per

specifications for a total value of Rs. 5,23,87,500/- for its container yard and paid a mobilisation advance of Rs. 10 lakhs; that the respondent

company which is sought to be wound up stood guarantee for the said company and also executed a guarantee deed dated 25.7.1997 for the due

performance of the terms and conditions in respect of the work entrusted to the said company; that there was exchange of notices and discussions

following the complaint made by the appellant company that part of the work done was defective; that on the request of the VIPL a revised work

order was issued for Rs. 4,13,30,168/- after getting indemnity bond and guarantee from the respondent in lieu of bank guarantee for the payment

of mobilisation advance of Rs. 41.33 lakhs for the due performance of the work by the said company; that the appellant paid a mobilisation

advance of Rs. 31.33 lakhs after adjusting the advance already paid; that the appellant company has made part payment of Rs. 35.12 lakhs as

requested by the company; but the company failed to perform any of its obligations under the work order; that a sum of Rs. 41.33 lakhs was due

by way of mobilisation advance paid to the said company and Rs. 21.62 lakhs being the balance in pavers account after adjusting the value of the

work done and recovery by way of retention and mobilisation advance; that the respondent admitting its liability has entered into an agreement

dated 1.4.1997, and thus the respondent is liable to pay the balance amount, and despite many letters of demand, the amounts were not paid, and

therefore, the respondent is liable to pay Rs. 62.95 lakhs as it has agreed to indemnify the appellant for the damage caused. The respondent

contested the petition inter alia by filing a preliminary counter questioning the maintainability of the petition itself mainly contending that one Mr.

Ramakrishna was the Managing Director of VIPL; that he was also the Managing Director of the respondent company from 26.2.1996 to

17.6.1997; that he was also the Chairman of the Board of Directors of the respondent company from 20.3.1995 till 11.12.1997; that the said

Ramakrishna and his associates abused their fiduciary relationship with the respondent; that the said Ramakrishna had entered into an ante-dated

guarantee and an agreement involving the respondent; that these two documents were not genuine, and they were only fabricated on the strength of

which no liability could be fastened on the respondent, and thus the petition for winding up lacked bonafide, and it was to be dismissed.

The prime contention of the appellant was that the respondent company has to be wound up in view of the alleged liability on the respondent as

a guarantor as shown in the guarantee letter dated 25.7.1997 and also an agreement dated 1.4.1997. Contrarily, the respondent''s plea before the

learned Single Judge and equally here also is that these documents were actually ante-dated and fabricated in order fasten the liability while it was

not so. On perusal of the materials available, this Court is afraid whether it could agree with the case of the appellant. According to the appellant,

VIPL submitted a quotation along with its offer for the work to be done. But, the letters dated 29.2.1996 and 25.3.1996, were not produced

before the Court. Though the appellant placed reliance on a letter of intent issued by VIPL dated 26.6.1996, it was also not produced before the

Court. Equally, the letter alleged to have been issued by VIPL on 25.7.1996, was also not produced. A perusal of the work order dated

2.8.1996, issued by the appellant to VIPL does not make any reference to a third party guarantee. That apart, though the appellant relied on a

meeting held on 26.11.1996, and also contended that the General Manager of the respondent company also participated, nowhere the minutes

refer to the third party guarantee. Even the revised proposal submitted by VIPL on 21.3.1997, was not produced before the Court. In the letter of

intent issued by the appellant on 25.3.1997, there is no reference as to the third party guarantee.

The specific case of the appellant was that the guarantee agreement was executed on 25.3.1997 by the respondent company. A reading of

Clause 2 of the agreement would indicate that the appellant has paid an advance of Rs. 41.33 lakhs following the respondent''s letter of intent

dated 25.3.1997. It is a matter of surprise to note that in the agreement dated 1.4.1997, much relied on by the appellant, there was a reference to

the subsequent work order dated 2.4.1997. It cannot be taken to be a typographical error since it has been mentioned in number of places. It is

admitted by the appellant that there was a fresh work order issued by VIPL on 2.4.1997. Even in that work order also, there was no reference to

the third party guarantee. The minutes of the meeting dated 20.8.1997, was relied on by the appellant to state that Mr. Ramakrishna had assured

reimbursement and also the return of the mobilisation advance. But even in that minutes of the meeting also, there was no reference to the third

party guarantee. That apart, in the subsequent letter dated 10.9.1997, addressed by the appellant to VIPL, the third party guarantee is not referred

to. Thus number of documents which, according to the appellant, were material, were not placed. The documents which were placed before the

Court though have arisen at a different point of time, nowhere indicate that the parties contemplated a third party guarantee.

The learned Counsel for the appellant brought to the notice of the Court the agreement dated 1.4.1997 wherein under the caption ""Advance

Payment for Pavers"", there was no reference to third party guarantee. It remains to be stated that so far as that agreement was concerned, the

respondent was not a party. Even the work order dated 2.4.1997 in favour of VIPL, third party guarantee is not spelt out. As rightly pointed out

by the learned Counsel for the respondent, in the guarantee agreement dated 25.3.1997 alleged to have been executed and much relied on by the

respondent, the agreements of subsequent dates 26.3.1997 and 27.3.1997 are shown as if the payments were made on the date of agreement.

The learned Counsel for the appellant pointing to the balance sheet of the years 1997-98 and 1998-99 would submit that there was an

admission of the respondent company as to the existence of the guarantee, and in such circumstances, it should not be allowed to go back and say

that there was no guarantee at all. But this contention has been rightly rejected by the learned Single Judge. The balance sheet for the year 1997-

98 was signed in June 1999. It remains to be stated that Mr. Ramakrishna was not a Director during the relevant period. It is pertinent to point out

that there is a reference in those balance sheets to the guarantee regarding the satisfactory performance of the pavers; but there is no reference to

the guarantee for repayment of the advance. Thus no reliance could be placed on those balance sheets. All would go to show that it is highly

doubtful whether these documents could be relied and acted upon for fastening a liability on the respondent. On the contrary the respondent

company was able to show that there was a bonafide dispute regarding the genuineness of the two documents namely guarantee agreement dated

25.3.1997 and also the agreement dated 1.4.1997. It is well settled proposition of law that when the respondent who was sought to be wound up

was able to show that there was a bonafide dispute with regard to the liability in question, the winding up proceeding is not the proper remedy to

resolve the dispute. Apart from that, the appellant was unable to show that there was a debt due and payable by the respondent company. It is

true that two documents were produced before the Court; but the execution, validity and genuineness of the documents have been questioned by

the respondent. In such circumstances, it would not be fit or proper to place reliance on those documents to fasten any liability on the respondent

or to hold that there was a debt due and payable by the respondent. Hence the learned Single Judge has taken a correct view that the remedy for

the appellant is not to approach the Company Court for winding up, and hence the impugned order is sustained.

In the result, this original side appeal is dismissed leaving the parties to bear their costs.