Voltas Limited vs Amethyst Hospitality Private Limited

Anand Byrareddy, J—Heard the learned counsel for the petitioner and the learned counsel for the respondent.

The petitioner and the respondent had entered into an agreement whereby the petitioner was to execute certain works titled as "HVAC work for Park Inn Suits (sic.) at Bangalore" in terms of the petitioner''s final offer dated 5/6/2008. The letter confirmed that the contracted works were for a total value of Rs. 2,42,22,678/-. The final offer made by the petitioner was, however, for a total sum of Rs. 3,36,00,000/-, which included high-side works and the low-side works. The respondent chose to award only the low-side works to the petitioner and payment was to be made against running bills. Running bills were said to have been raised from time to time, by the petitioner in respect of the works completed and an agency namely, M/s. Fusion India Project Management Private Limited, were certifying the works to the extent of the invoice raised, being properly and duly completed.

The respondent had paid full amount due under the RA Bill No. 1, subject to appropriate statutory deductions. The petitioner claims that it had received, apart from that, a mobilization advance of Rs. 23,45,616/- from the respondent towards the commencement of the work. The petitioner, after deduction of tax at source, had received a total sum of Rs. 1,73,45,864/-. This was accepted by the petitioner as an ad hoc payment on the representation by the respondent that they were suffering from cash flow issues. However, thereafter the respondent having defaulted in making payments, there were delays in carrying out the works which was totally attributable to the respondent. The petitioner claims that it, however, completed the works by March 2012 and there was a joint commissioning report executed by the parties, confirming that the works had been commissioned.

The pending payments, however, were not cleared and after substantial discussions, at a meeting held on 1/9/2012, it was agreed that the total value of the works executed by the petitioner including the works executed under the contract and the additional works which were non-tender works, was finalized at Rs. 3,84,00,000/-, which was on further discussions, agreed that a sum of Rs. 50,00,000/- was attributed to the 7th floor works, which were yet to be completed on that date. The balance amount, after deduction of moneys already received, would be paid in installments of Rs. 25,00,000/- to Rs. 30,00,000/- each month, up to December 2012 and the final amount including for the 7th floor works would be paid by January 2013 and that there would be no deductions from the bills raised, including towards retention moneys and that the petitioner would submit invoices for the moneys payable, in accordance with the terms of the minutes of meeting.

It is after the execution of the minutes of meeting, the petitioner is said to have taken up and completed the 7th floor works as it was capable of completion without any supplies being made available by the respondent. However, certain works on the 7th floor which were contingent upon supplies being made available by the respondent, were not capable of being completed since the respondent had failed to make supplies. The works executed by the petitioner, however, resulted in substantial completion of the 7th floor works and the works that remained incomplete due to respondent''s default, were marginal works. This is also evident from the fact that the respondent had executed an Annual Maintenance Contract on 20/9/2012, which would logically indicate that the works had been completed, for otherwise, the question of maintenance contract, did not arise.

After repeated follow-ups, the respondent is said to have issued a cheque dated 15/2/2013 towards balance outstanding for a sum of Rs. 24,50,000/- with a request that the petitioner not deposit the same, till arrangements were made for funds and that notice would be given as to the date on which the cheque could be presented. When it was pointed out that the cheque dated 15/2/2013 was becoming stale on account of passage of time, the respondent had replaced the same by a cheque dated 19/6/2013 for the very amount. However, the cheque when presented, was said to have been dishonored and on request by the respondent, it was re-presented. It was, however, encashed on such re-presentation.

After reckoning for the aforesaid payment of Rs. 24,50,000/-, it is claimed that the respondent remains liable to pay the petitioner, a sum of Rs. 1,86,04,135/-. The respondent is said to have issued a further cheque for a sum of Rs. 10,00,000/- dated 12/12/2013 in partial discharge of the liability. On the request of the respondent, the petitioner withheld depositing the said cheque until March 2014. The petitioner had then informed the respondent that the cheque had become stale and they were constrained to deposit the same, since they could not postpone recoveries of the moneys due. The said cheque was dishonored and the petitioner demanded that the respondent make good the payment. It is only then that the respondent had raised several untenable grounds and disputed their liability to make any payment. It is in this background that the petitioner had issued statutory notice under Section 433(e) read with 434(1)(a) of the Companies Act, 1956, to which there was no reply from the respondent and therefore the present petition was filed.

The respondent having entered appearance in this proceedings, has now filed statement of objections refuting the petition averments and has stated the background in which the engagement of the petitioner was occasioned and has sought to raise a defence that the total contract value included both low-side works and direct orders. The consideration for low-side works was agreed at Rs. 2,42,22,678/- and the direct orders were valued at Rs. 93,77,322/-. Since the hotel industry in which the respondent was engaged, was entitled for concessional duty for imported capital goods as per the Export Promotion Capital Goods Scheme and they were liable to pay only 3.3% duty, whereas a contractor had to pay around 30%, if imported by them. In view of the same, the petitioner had agreed to bear 3.3% duty under low-side works. The scheme provided for easy adjustment of differential customs duty and surcharge by way of earning foreign exchange as a deemed export, up to eight times of the duty saved within a period of eight years. Therefore, the total value of the goods imported as per the shop drawings furnished, was included and termed as total contract value. It was hence agreed that the respondent would make direct payments for supply of items. These items were collectively called as "direct items". Certain items were also indigenous ones. The total value of the items to be imported or purchased by the respondent under the direct orders was about Rs. 93,77,322/- depending upon the exchange value. The petitioner having made certain modifications to the shop drawings and having demanded with the respondent to get the items over and above the items mentioned in the work order, the respondent was compelled to incur cost of Rs. 1,36,91,521/- towards value of imported indigenous goods.

It is alleged that the petitioner had only partially implemented the work of HVAC from 4th floor to 6th floor and not within the agreed period and that there was negligence in the work executed and therefore in order to mitigate the losses, the respondent had purchased some of the items and handed over to the petitioner and that there was an inordinate delay in completion of the works.

It is claimed that the petitioner and the respondent had realized that the original total contract value which was at Rs. 3,36,00,000/- did not include the subsequent non-tendered works and after calculating the above said non-tendered works, the total contract value was further increased to Rs. 3,84,00,000/-. The petitioner acknowledged that they had not completed the work of 7th floor worth Rs. 50,00,000/- and it was relevant to note, in the minutes of meeting, it was agreed that the respondent would pay Rs. 25,00,000/- to 30,00,000/- per month starting from the month of October 2012 to December 2012, subject to reconciliation of accounts and completion of 7th floor work.

The petitioner claims that they had sent several e-mails to the respondent making demand. Therefore in view of the petitioner categorically indicating that the work of 7th floor had not been completed, the accounts could not be reconciled and even before reconciling the accounts, a sum of Rs. 24,50,000/- was paid by way of cheque and a sum of Rs. 10,00,000/- was paid by way of cheque as security for completion of 7th floor and which was to be presented only on satisfactory completion of the work. The petitioner having abandoned the work without any justification, the respondent was required to engage other agencies to complete the works.

Insofar as the dishonor of cheques in respect of which proceedings have been initiated, notice had been issued on 5/4/2014, making a demand in terms of Section 138 of the Negotiable Instruments Act, 1881, to which a suitable reply was said to have been issued on 21/4/2014. It is claimed that the petitioner caused a rejoinder, making various allegations and averments on 13/5/2014 and on the same day, the petitioner had also sent a letter making similar allegations, to the ones they had made in the rejoinder and also stated that the notice was to be treated as a statutory notice under Sections 433 and 434 of the Companies Act, 1956. Both the rejoinder and the notice were received by the respondent and due to inadvertence, they had not noticed that one of them was a statutory notice and therefore a reply was not sent. Therefore it is under this circumstance that there is a default in replying to the notice. Further the respondent has taken steps to initiate arbitration proceedings and the same is pending consideration in an application before this court under the provisions of the Arbitration Act, 1996 and therefore it has sought that the petition be dismissed.

The learned counsel for the petitioner was heard at length. The endeavour of the learned counsel for the petitioner is to point out that though a defence has been raised in the present proceedings as if to indicate that there is a serious dispute as regards the entitlement of the petitioner to payment, it is only the sum of Rs. 50,00,000/- which was attributed as the value of the works to complete in respect of 7th floor which was kept in abeyance. Insofar as the works that were completed, there was no dispute. It was in that background that in the minutes of meeting dated 1/9/2012, it is categorically indicated that the respondent would make payments commencing from October 2012 to December 2012 in instalment of Rs. 25,00,000/- to 30,00,000/- each and hence there is no dispute about the admitted debt and in view of the respondent having failed to reply to the statutory notice, the respondent is deemed to be unable to pay its debts and the further circumstance that the cheques issued by the respondent have been dishonored, is ample indication of the respondent''s inability to service its debts and hence the petition ought to be allowed.

Whereas the learned Senior Advocate Shri G. Krishnamurthy appearing for the learned counsel for the respondent, would contend that the minutes of meeting clearly indicate that there shall be a reconciliation of the accounts and this was possible only if the respondent had completed the works pertaining to the 7th floor and even though a sum of Rs. 50,00,000/- was attributed towards the value of the works of 7th floor, the reconciliation of accounts would take place only on such completion and it would hence be well within the right of the respondent to withhold payment and the respondent seriously disputes the adjustments to be made insofar as the amount outstanding and the works that have been carried out by engaging a third party and the difference in value there of, which has not been reconciled and therefore seeking to have the matter adjudicated by recourse to arbitration, would indicate that the debt is not an admitted debt and by a deeming fiction on account of the respondent not having issued a reply to the legal notice, which was not intentional, it cannot be decided on the basis of the petition averments, which nowhere indicates that the substratum of the respondent-company is taken away and merely on allegations that there is an admitted debt, the company is liable to be wound up and since the respondent in its statement of objections has annexed the balance sheet at Annexure-R16 to indicate that it has assets worth Rs. 90,04,44,000/- and is not in dire financial straits, it cannot be said that it is a fit case where the winding up proceedings could be taken forward where there is a serious dispute about the entitlement of the petitioner.

Though the learned counsel for the petitioner would vehemently seek to canvass that having regard to the admitted minutes of meeting of 1/9/2012 to claim that there is dispute insofar as the works that were already carried out and in respect of which running bills were raised, against which the respondent was required to make payment, there could not be any dispute, is not a tenable defence and ought to be rejected, would yet have to be looked into, in the face of the subsequent events whereby the respondent has incurred much larger expenses than contemplated insofar as the completion of 7th floor works were concerned and the admitted non-completion of the works by the petitioner which possibly required the respondent to engage third party services to complete the same. This would leave scope for adjudication as to the entitlement of the petitioner and therefore it cannot be said that there is an admitted debt in respect of which the respondent has no defence and since the remedy of the parties by way of adjudication on this disputed question is available in arbitration, it would be improper for this court to arrive at any finding as to the liability or otherwise of the respondent, which would, in effect, prejudice the case of the respondent. Since it is not a suit for recovery of money, such findings being given in controverted matters, such as this, would result in injustice. Therefore the petition is rejected.