Allowed

Electronics and Controls Power Systems Private Limited v. Wep Peripherals Limited

Karnataka HC27 Feb 2020OSA/15/2012

Case brief

AI extract

What is this about?

An appeal against the admission of a winding up petition. The High Court held that the Company Judge failed to adjudicate whether the disputed sum was 'debt' under the Act, as it may be share application money. The appeal is allowed and the petition remanded for fresh adjudication.

What did the court decide?

Order dated 08.02.2011 passed in CO.P.No.166/2010 set aside and matter remanded to Company Judge for adjudication afresh.

Electronics and Controls Power Systems Private… — Company and Corporate | Karnataka HC (2020)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 27^TH DAY OF FEBRUARY, 2020

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PRESENT

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THE HON’BLE MR. JUSTICE ARAVIND KUMAR

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AND

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THE HON’BLE MR. JUSTICE E.S. INDIRESH

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O.S.A.NO.15/2012

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BETWEEN:

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ELECTRONICS & CONTROLS POWER SYSTEMS PRIVATE LIMITED A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT NO.29/A, 2^ND PHASE, PEENYA INDUSTRIAL AREA, BANGALORE – 560 058 REPRESENTED HEREIN BY ITS MANAGING DIRECTOR SRI. RAJARAM RAMAMOORTHY.

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...APPELLANT

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(BY SRI. SIVARAMAKRISHNAN M.S, ADVOCATE)

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AND:

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WEP PERIPHERALS LIMITED A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT NO.40/1A, BASAPPA COMPLEX, LAVELLE ROAD BANGALORE - 560 001 REPRESENTED HEREIN BY ITS

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MANAGING DIRECTOR SRI. RAM AGARWAL.

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…RESPONDENT

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(BY SRI. K.V. SATISH, ADVOCATE)

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THIS APPEAL IS FILED UNDER SECTION 483 OF COMPANIES ACT, 1956 READ WITH SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961 PRAYING TO SET ASIDE THE ORDER DATED:08.02.2012 IN CO P NO.166/2010 AND DISMISS THE SAID COMPANY PETITION WITH COSTS, IN THE INTERESTS OF JUSTICE; AND ETC.

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THIS APPEAL COMING ON FOR ORDERS THIS DAY, ARAVIND KUMAR J, DELIVERED THE FOLLOWING:

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JUDGMENT

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This original side appeal is directed against the order of the learned Company Judge dated 08.02.2011 passed in CO.P.No.166/2010, whereunder company petition filed under Companies Act, 1956 (for short ‘Act’) under section 434 has been admitted and advertisement has been ordered to be taken out within 30 days from the date of receipt of copy of said order.

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Facts in brief which has been lead to filing of this appeal can be crystallized as under and parties are referred to as per their rank before the Company Court:

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Petitioner filed a company petition under Section 434 of the Act contending interalia that an amount of `4,23,20,000/- was paid to the respondent as a share capital investment which is duly acknowledged by the respondent company and said amount on demand having not been paid, on account of shares having not been allotted, respondent company is liable to be wound up as it was unable to pay debt owed to petitioner company. In fact, said petition also came to be filed under Section 433(f) alleging the respondent company had adopted unethical practices, violated the provisions of the Act and has become commercially insolvent amongst other grounds as morefully enumerated in the petition. On service of notice on the company petition, respondent appeared and filed its statement of objections raising several grounds contending interalia that amount paid towards share application money is neither a ‘loan’ nor ‘advance’ and therefore it would not partake the character of “debt” as contemplated under the provisions of Act. It was also contended that petitioner is neither a

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creditor nor a contributory for the respondent –company and persons seeking allotment of shares can never be treated as a creditor of the company and cannot have locus as a creditor to file a petition under Section 433 (e) and (f) r/w section 434 (1)(a) and section 439 of the Act. Amongst other pleas put forward in the statement of objections, it was also contended that alleged debt paid by petitioner was also sought for stave off by contending that disputed debt would not be a ground on which the winding up petition can be filed. On these grounds and on the ground more specifically pleaded in the statement of objections filed before Company Judge, the respondent sought for dismissal of the company petition.

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Learned Company Judge by order, which is under challenge in this appeal having noticed rival contentions, has arrived at a conclusion that memorandum of understanding (for short ‘MOU’) dated 28.12.2007 which had been entered into between petitioner and respondent, whereunder earlier agreements was agreed to be cancelled and the

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documents which has been relied upon by the parties disclosed receipt of a sum of `4,23,20,000/- by the respondent as share application money from petitioner which is admitted to be in the hands of respondent. It was also held that balance sheet of the respondent company reflected this amount and stand taken, before the company court is a clear repudiation on behalf of respondent company, to the effect that amount would not be refunded to the petitioner and as such there is clear denial of repayment of the amount to the petitioner by respondent. It was also held that parties did not opt to lead any evidence at that stage. Hence, learned Company Judge arrived at a conclusion that petitioner has made out a prima facie case and also held adjudicating the quantum does not arise as receipt of money is admitted by respondent. On these grounds as indicated in paragraphs 14 and 15 of the order under challenge company petition was admitted and advertisement came to be ordered. Hence, this appeal.

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We have heard the arguments of

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Sri.Shivaramakrishnan M.S, learned counsel appearing for respondent/appellant and Sri.K.V.Sathish, learned counsel appearing for petitioner/respondent.

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Petitioner and respondent on 29.09.2006 entered into a “Business Participation Agreement” (for short ‘BPA’) to achieve the objectives of participating and enhancing business growth of each other. On the same day, yet another agreement was entered into by the same parties which agreement was styled as “Distributorship Agreement” (for short ‘DA’) in terms whereof petitioner agreed to concentrate on the designing and manufacture of UPS in the online segment and respondent agreed to concentrate on marketing, sales and service of online UPS and said agreement was to be in force for a period of three years commencing from 29.09.2006. Subsequently, certain differences having arisen between parties resulted in exchange of communications, mails etc., and parties were ad-idem on the issue of resolving said issue. Hence, they entered into an MOU on

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28.12.2007 whereunder the parties have agreed for

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certain reciprocal acts to be done by each other.

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Petitioner relying upon the clause No.32 in

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BPA and clause No.10.9 of DA contended that a sum of `4,23,20,000/- had been paid to respondent and same had to be refunded on account of shares having not been allotted to petitioner and contending MOU dated 28.12.2007 being a non-starter, parties were governed by the BPA and DA and respondent having failed to repay the amount inspite of demand made under notice dated 23.08.2011, arbitration clause as found in clause 32 of BPA dated 29.09.2006 was invoked and petitioner sought for appointment of an arbitrator which petition came to be dismissed by order dated 20.11.2012 and said order was affirmed by the Hon’ble Apex Court by dismissing the Special Leave Petition filed by the petitioner in SLP.(C) No.36986/2012 by order dated 12.07.2016. Subsequently, petitioner got issued a legal notice on 14.10.2009 raising several grounds including the grounds which were subject matter of CMP

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No.15/2012 and raised a demand on respondent for repayment of sum of `4,23,20,000/- and respondent was notified thereunder that non compliance of demand made under said notice, it is to be treated as statutory notice of demand under Section 434 r/w Section 433 (e) and (f) of the Act. Said notice was not replied to by the respondent and as such the petitioner filed a petition under Section 434 of Companies Act before the Company Court, which was numbered as CO.P.No.166/2010. On respondent being notified as already noticed hereinabove respondent appeared and filed its statement of objection. Learned Company Judge heard the matter for admission and by impugned order has admitted the petition and had ordered for Advertisement being taken out by petitioner.

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Perusal of the statement of objections filed by the respondent would clearly indicate that respondent has seriously disputed the debt essentially on three grounds.

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(i) The promises which were required to be fulfilled by the petitioner under BPA/DA as well as MOU was not adhered to;

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(ii) The petitioner has already filed a suit O.S.No.8994/2011 for recovery of the amount of `4,23,20,000/- and this fact was not brought to the notice of the Company Judge; and

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(iii) Petitioner company itself had committed breach of the agreement/s and it would not be in the scope of admitted debt.

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A plain reading of the MOU dated 28.12.2007

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would prima faice indicate that BPA and DA which had been entered in the year 2006 under which the petitioner had paid a sum of `200 Lakhs was not operationalised for various reasons and as such this necessitated the parties to entered into MOU and in the said MOU both parties have agreed to perform certain obligations. Though arguments have been canvassed by the learned counsel appearing for parties and on such

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reciprocal obligation required to be performed by contending the breach was not from their side, we are not delving upon the said issue for the simple reason that learned Company Judge while examining the plea for petition being admitted has opined that there is no dispute with regard to the debt. This would be a finding contrary to the plea raised by the respondent in the statement of objections filed to the company petition whereunder respondent has raised serious dispute with regard to quantum of `4,23,20,000/- claimed by petitioner contending interalia that it is an amount paid by way of allotment of shares and said amount would not partake the character of “debt” as contemplated under the Companies Act. A further plea as noticed herein supra has been raised by the respondent that potential allottee of the share cannot be classified or termed as a creditor and as such petition under Section 433 (e) & (f) r/w Section 434 (1)(a) and Section 439 of the Act would not be maintainable. On this ground respondent has sought for dismissal of the petition. This

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aspect namely, as to whether the respondent would be a creditor or otherwise has not been addressed to or adjudicated by the learned Company Judge.

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In fact, parties have contended as per their pleadings laid before the Company Judge that there was failure by each of the parties in performing their obligation as agreed to under the MOU and allegations have been made by both the parties against one another. In fact, respondent in this process has denied the debt and as contended money paid by petitioner to respondent for allotment of shares of the respondent company would not partake the character of “debt” as defined under Section 434 of the Act. In fact, respondent has contended that it is a disputed question of fact. In this background, learned Company Judge ought to have recorded a findings as to whether claim made by the petitioner would be a debt or otherwise before petition being admitted or ordering for advertisement being taken out.

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In order to buttress the plea of debt being a disputed debt, it has now contended by the respondent that petitioner has filed a suit O.S.No.8994/2011 for recovery of the amount due i.e., `4,23,20,000/- and this fact of suit having been filed was not brought to the notice of the Company Judge. From the order of the Company Judge, which is under challenge, we notice there is no reference or mention of civil suit pending before Civil Court. In the said suit the respondent claims to have been served with the suit summons during September, 2012 and order under challenge came to be passed much earlier i.e., on 08.02.2011. Thus, respondent could not have brought to the notice of learned Company Judge about pending of said suit. However, we are not expressing any opinion in that regard, since no material is available before this Court to ascertain the actual date of service of suit summons.

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Be that as it may. The fact that pendency of the suit was not brought to the notice of the learned Single Judge is clear. Petitioner being the plaintiff in the

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suit could have brought to the notice of the Company Judge, without suppressing the subsequent development which had taken place after filing of the company petition. However, we are not attributing anything to the petitioner in that regard, except to hold that learned Company Judge was not appraised of pendency of the suit O.S.No.8994/2011.

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Thus, the issue relating to the debt being a disputed debt or otherwise and amount alleged to be due by the respondent to the petitioner is an issue, which was required to adjudicated by the Company Judge and this exercise having not been undertaken, admission of the company petition without recording said finding was not called for. Though, it has been recorded that none of the parties have choose to lead evidence, we do not have any material before us to affirm said finding, since there is no specific admission by the respondent that evidence would not be tendered. In fact the larger issue, as to whether the share amount, namely the amount paid by petitioner to respondent for allotment of shares would

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partake the character of a debt as defined under Section 433 (e) of the Act, so as to give right or cause of action for filing of the petition for winding up under Section 434 of the Act was required to be considered, adjudicated and answered by the Company Judge. This exercise has not been undertaken by the Company Judge and as such order under challenge would not stand the test of law.

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Though a feeble attempt has been made by

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the learned counsel appearing for respondent to contend that notice caused by petitioner under Section 434 is contrary to Section 433(1)(a), we are neither impressed by the said argument nor inclined to accept it for the simple reason that clause (a) of sub-Section (1) of Section 434 of the Act mandates issuance of notice to the debtor and petition for winding up has to be filed after the expiry of three weeks period as provided thereunder, which has been done in the instant case. It is not the case of the respondent that company petition under Section 434 had been filed even before expiry of

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said three weeks period as stipulated under clause (a) of sub-Section(1) of Section 434 of the Act. As such, plea raised in that regard is considered and stands rejected.

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For myriad reason aforestated, we proceed to pass

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the following;

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(i) Original Second Appeal is hereby allowed.

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(ii) Order dated 08.02.2011 passed in CO.P.No.166/2010 by the Company Judge is set aside and matter is remanded back to Company Judge for adjudication of the claim afresh in the light of observations made hereinabove.

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(iii) It is made clear that observation made by us hereinabove is for the limited purpose of disposal of the appeal and Company Judge shall not be influenced by same in any manner

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except to the extent it may have bearing on the issue involved.

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All pending applications stands consigned to records.

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SD/JUDGE

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SD/JUDGE

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Electronics and Controls Power Systems Private Limited v. Wep Peripherals Limited

Case brief

What is this about?

What did the court decide?

Electronics and Controls Power Systems Private Limited v. Wep Peripherals Limited

Case brief

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