SICAL-CWT Distriparks LimitedNo.32, Rajaji SalaiChennai 600 001 v. Besser Concrete Systems LimitedNo.10, Lynwood AvenueMahalingampuramChennai 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 12-8-2009CORAMTHE HONOURABLE MR.JUSTICE M.CHOCKALINGAMANDTHE HONOURABLE MR.JUSTICE R.SUBBIAHOSA No.166 of 2003SICAL-CWT Distriparks LimitedNo.32, Rajaji SalaiChennai 600 001.(Address of the sole appellantamended vide order of Courtdt.22.9.2004 made in CMPNos.14979 to 14981/2004).. AppellantvsBesser Concrete Systems LimitedNo.10, Lynwood AvenueMahalingampuramChennai 600 034... Respondent Original side appeal preferred under Sec.483 of the CompaniesAct against the order of this Court dated 11.10.2002 in C.P.No.242of 1998.For Appellant: Mr.D.Ramesh RaiFor Respondent: Mr.R.Thiagarajan Senior Counsel for Mr.S.K.SrinivasanJUDGMENT(Judgment of the Court was delivered by M.CHOCKALINGAM, J.)Challenge is made to an order of dismissal of C.P.No.242 of1998 filed under Sec.433(e) and 433(c) of the Companies Act, forwinding up of the respondent company, made by the learned SingleJudge of this Court.2.The said petition was filed with the following averments:(a) The appellant placed a work order dated 2.8.1996 withM/s.Vibrant Investment and Properties Limited (VIPL) for laying andpaving heavy duty pavement for 4.50 lakh sq.ft. using heavy dutypavers as per specifications for a total value of Rs.5,23,87,500/-.They paid a mobilisation advance of Rs.10 lakhs with a conditionthat the said company would perform all obligations in this regard.The respondent company stood guarantee for the said company, and aguarantee deed was executed on 25.7.1997. Since some defects inthe work were noticed by the appellant, the said company was https://hcservices.ecourts.gov.in/hcservices/ requested to rectify the same. But, they failed to rectify thesame, and hence the appellant intended to take legal action againstthem. However, after several discussions, a revised design wasmade by the said Company for the work to be done. The appellantconsidered the request of the said company and issued a revisedwork order for Rs.4,13,30,168/- after getting indemnity bond andguarantee from the respondent. The mobilisation advance of Rs.31.33lakhs was paid after adjusting the advance already paid. Theappellant also paid Rs.35.12 lakhs towards 75% of the cost of 10lakh pavers as requested by the said company. In spite of thesame, the said Company failed to perform any of its obligations. (b) In the review meeting held, the said company expressed itsinability to do work due to financial crisis and requested towithdraw from the contract. A huge stock of appellant's paverslying in the respondent company was sold without the consent of theappellant. Thus both the respondent and the said company delayedthe appellant's project. The mobilisation advance was also notreturned by the said company. A sum of Rs.41.33 lakhs was due byway of mobilisation advance and Rs.21.62 lakhs being the balance inpavers account after adjusting the value of the work done andrecovery by way of retention and mobilisation advance. Since therespondent company stood as guarantor and admitted its liability byentering into an agreement dated 1.4.97, the respondent is liableto pay the balance amount. Despite repeated letters dated 9.8.97and 10.9.97, the said company did not pay the sum. Under thecircumstances, the respondent is jointly and severally liable alongwith the said company to the extent of Rs.41,32,631/-. Therespondent is also liable to pay Rs.62.95 lakhs as it had agreed toindemnify the appellant for any loss, damage, cost etc. Even afterissuance of statutory notice dated 27.9.1997, the respondent didnot pay the amount. Thus the said company have become commerciallyinsolvent and are unable to pay its debts. Therefore, therespondent 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 afiduciary relationship with the respondent; that one R.Ramakrishna,the Managing Director of VIPL, was also the Managing Director ofthe respondent company from 26.2.96 to 17.6.1997; that he was alsothe Chairman of the Board of Directors of the respondent companyfrom 20.3.1995 till 11.12.1997; that he and his associates abusedtheir fiduciary relationship with the respondent and had doneseveral acts of misfeasance and malfeasance; that he entered intoan ante-dated guarantee and an agreement involving the respondent;that the deeds of guarantee and agreement are not genuine, and theyare fabricated and perpetrated by him in collusion with theappellant for obvious purpose; that VIPL is simply attempting tobring this respondent into the dispute; that copies of certaindocuments have not been furnished to the respondent; that in theagreement dated 1.4.1997, a reference has been made about an eventwhich took place on 2.4.1997, namely the amended work and it is nota typographical error; that the performance guarantee has beencontemplated well before the work order dated 2.8.1996; that therespondent was not the guarantor of the said company and theagreement in question is not enforceable against them, and hencethe petition lacks bonafide and is liable to be dismissed. https://hcservices.ecourts.gov.in/hcservices/

4.The appellant also filed a rejoinder.5.The learned Single Judge on scrutiny of the materialsavailable and hearing the submissions made, took the view that theappropriate remedy for the appellant/petitioner was not seeking towind up by approaching the Company Court and dismissed thepetition. Aggrieved, the appellant/petitioner has brought forththis appeal.6.Advancing arguments on behalf of the appellant, the learnedCounsel would submit that the impugned order was erroneous sincethe learned Single Judge has neither considered the factual nor thelegal position; that the Court should have considered thegenuineness of the deed of guarantee dated 25.7.1997, executed bythe respondent company for the due performance of the terms andconditions in the letter of intent dated 25.3.1997 and the workorder dated 2.4.1997 to VIPL; that the fact that in the balancesheet of the respondent company for the years 1997-98 and 1998-99the respondent has well admitted that it had given a corporateguarantee to the appellant; that the fact of execution of theguarantee was not disputed in the balance sheets 1997-98 and 1998-99; that it was also executed by Mr.Ramakrishna, who was theChairman and Managing Director of the respondent company and alsothe Chairman and Managing Director of VIPL; that the very sameDirector of the respondent one Mr.Steven Weed, who signed thepreliminary counter statement, had also signed the balance sheetfor the years 1997-98 and 1998-99 wherein it has been categoricallystated "The company guaranteed satisfactory performance of thesepavers"; that the learned Single Judge has erroneously taken a viewas to the non-production of the letters dated 29.2.1996, 26.6.1996and 25.7.1996 since it formed part of list of dates filed in theCourt; that the non-production of the same will not give rise toany cause of action; that the letters would clearly establish thecorrespondence between the petitioner/appellant and also VIPL; thatthe same was not disputed by the respondent; that an erroneous viewthat in the work order dated 2.8.1996, there is a clause statingthat VIPL should give clear performance guarantee and there is noclause enabling the third party guarantee was taken by the Court;that the unsatisfactory work done by VIPL necessitated to issue afresh work order on 2.4.1997, and procurement of fresh guaranteefrom the respondent on 25.3.1997, and the same was duly approved bythe resolution passed by the respondent company on 18.9.1996.7.Added further the learned Counsel that the learned SingleJudge has arrived at a wrong conclusion that in the guaranteeagreement dated 25.3.1997, there is a mention about a sum ofRs.41,32,631/- being paid to VIPL based on the letter of intentdated 25.3.1997; that the above amount was admittedly paid on26.3.1997 and 27.3.1997; that the payment of money to VIPL wasadmitted and the same was paid to VIPL at the request of theguarantor; that apart from that, there was no discrepancy withregard to the payments made to and received by VIPL; that the non-mention about the manufacture of the pavers by the respondentcompany cannot be given any importance; that equally, the non-mention of the guarantee dated 25.3.1997, in the fresh work order https://hcservices.ecourts.gov.in/hcservices/ dated 2.4.1997 and the non-mention of the guarantee agreement inthe work order will not in any way absolve the liability of therespondent guarantor since as per the respondent's balance sheetsfor two consecutive years, the guarantee was issued; that there wasno legal necessity to mention the guarantee in the work order; thatit is not correct to state that neither at the time of enteringinto the contract by the appellant with VIPL nor at the time of thefirst work order dated 2.3.1997, the parties have nevercontemplated any third party guarantee for the performance of thework by VIPL; that the non-mention of the execution of theguarantee agreement in the subsequent work orders andcorrespondence may not in law help the respondent to avoid itslegal obligations and thus the non-production of the documents andthe non-mention of the guarantee were all not necessary to come toa conclusion or be taken as a basis to take a decision that therewas a bonafide dispute in respect of the guarantee dated 25.3.1997executed by the respondent company; that it is pertinent to pointout that there was a categorical admission about the execution ofthe guarantee in the respondent's balance sheets of the years 1997-98 and 1998-99; that the fact which remained to be considered isthat there was a debt due by VIPL for which the respondent gaveguarantee, and the same was duly acknowledged by them; that theappellant has established a prima facie case on the admissions madeby the respondent; that there is no genuine dispute about the deedof guarantee, and there cannot be any dispute much less genuinedispute, about the deed of guarantee; that the mala fide on thepart of the respondent company which was sought to be wound up wasdemonstrated by its own admission; that the learned Single Judgeshould have exercised the jurisdiction with respect to the windingup and should have ordered winding up, and hence the order of thelearned Single Judge has got to be set aside. 8.The learned Senior Counsel Mr.R.Thiagarajan for therespondent in his sincere attempt of sustaining the order of thelearned Single Judge denying the prayer for winding up, took theCourt to different documents relied on by the parties and would addthat there exists a real bona fide dispute as to the genuineness ofthe guarantee; that under the circumstances, the remedy for theappellant was not before the Company Court seeking winding up, butelsewhere, and hence the appeal has got to be dismissed.9.The Court made a scrutiny of the available materials andpaid its anxious consideration on the submissions made.10.As could be seen above, the case of the appellant in shortis that the appellant placed a work order dated 2.8.1996 withM/s.Vibrant Investment and Properties Limited (VIPL) for laying andpaving heavy duty pavement for 4.50 lakh sq.ft. using heavy dutypapers as per specifications for a total value of Rs.5,23,87,500/-for its container yard and paid a mobilisation advance of Rs.10lakhs; that the respondent company which is sought to be wound upstood guarantee for the said company and also executed a guaranteedeed dated 25.7.1997 for the due performance of the terms andconditions in respect of the work entrusted to the said company;that there was exchange of notices and discussions following thecomplaint made by the appellant company that part of the work done https://hcservices.ecourts.gov.in/hcservices/ was defective; that on the request of the VIPL a revised work orderwas issued for Rs.4,13,30,168/- after getting indemnity bond andguarantee from the respondent in lieu of bank guarantee for thepayment of mobilisation advance of Rs.41.33 lakhs for the dueperformance of the work by the said company; that the appellantpaid a mobilisation advance of Rs.31.33 lakhs after adjusting theadvance already paid; that the appellant company has made partpayment of Rs.35.12 lakhs as requested by the company; but thecompany failed to perform any of its obligations under the workorder; that a sum of Rs.41.33 lakhs was due by way of mobilisationadvance paid to the said company and Rs.21.62 lakhs being thebalance in pavers account after adjusting the value of the workdone and recovery by way of retention and mobilisation advance;that the respondent admitting its liability has entered into anagreement dated 1.4.1997, and thus the respondent is liable to paythe balance amount, and despite many letters of demand, the amountswere not paid, and therefore, the respondent is liable to payRs.62.95 lakhs as it has agreed to indemnify the appellant for thedamage caused. The respondent contested the petition inter alia byfiling a preliminary counter questioning the maintainability of thepetition itself mainly contending that one Mr.Ramakrishna was theManaging Director of VIPL; that he was also the Managing Directorof the respondent company from 26.2.1996 to 17.6.1997; that he wasalso the Chairman of the Board of Directors of the respondentcompany from 20.3.1995 till 11.12.1997; that the said Ramakrishnaand his associates abused their fiduciary relationship with therespondent; that the said Ramakrishna had entered into an ante-dated guarantee and an agreement involving the respondent; thatthese two documents were not genuine, and they were only fabricatedon the strength of which no liability could be fastened on therespondent, and thus the petition for winding up lacked bonafide,and it was to be dismissed.11.The prime contention of the appellant was that therespondent company has to be wound up in view of the allegedliability on the respondent as a guarantor as shown in theguarantee letter dated 25.7.1997 and also an agreement dated1.4.1997. Contrarily, the respondent's plea before the learnedSingle Judge and equally here also is that these documents wereactually ante-dated and fabricated in order fasten the liabilitywhile it was not so. On perusal of the materials available, thisCourt is afraid whether it could agree with the case of theappellant. According to the appellant, VIPL submitted a quotationalong with its offer for the work to be done. But, the lettersdated 29.2.1996 and 25.3.1996, were not produced before the Court.Though the appellant placed reliance on a letter of intent issuedby VIPL dated 26.6.1996, it was also not produced before the Court.Equally, the letter alleged to have been issued by VIPL on25.7.1996, was also not produced. A perusal of the work orderdated 2.8.1996, issued by the appellant to VIPL does not make anyreference to a third party guarantee. That apart, though theappellant relied on a meeting held on 26.11.1996, and alsocontended that the General Manager of the respondent company alsoparticipated, nowhere the minutes refer to the third partyguarantee. Even the revised proposal submitted by VIPL on21.3.1997, was not produced before the Court. In the letter of https://hcservices.ecourts.gov.in/hcservices/ intent issued by the appellant on 25.3.1997, there is no referenceas to the third party guarantee. 12.The specific case of the appellant was that the guaranteeagreement was executed on 25.3.1997 by the respondent company. Areading of Clause 2 of the agreement would indicate that theappellant has paid an advance of Rs.41.33 lakhs following therespondent's letter of intent dated 25.3.1997. It is a matter ofsurprise to note that in the agreement dated 1.4.1997, much reliedon by the appellant, there was a reference to the subsequent workorder dated 2.4.1997. It cannot be taken to be a typographicalerror since it has been mentioned in number of places. It isadmitted by the appellant that there was a fresh work order issuedby VIPL on 2.4.1997. Even in that work order also, there was noreference to the third party guarantee. The minutes of the meetingdated 20.8.1997, was relied on by the appellant to state thatMr.Ramakrishna had assured reimbursement and also the return of themobilisation advance. But even in that minutes of the meetingalso, there was no reference to the third party guarantee. Thatapart, in the subsequent letter dated 10.9.1997, addressed by theappellant to VIPL, the third party guarantee is not referred to.Thus number of documents which, according to the appellant, werematerial, were not placed. The documents which were placed beforethe Court though have arisen at a different point of time, nowhereindicate that the parties contemplated a third party guarantee. 13.The learned Counsel for the appellant brought to the noticeof the Court the agreement dated 1.4.1997 wherein under the caption"Advance Payment for Pavers", there was no reference to third partyguarantee. It remains to be stated that so far as that agreementwas concerned, the respondent was not a party. Even the work orderdated 2.4.1997 in favour of VIPL, third party guarantee is notspelt out. As rightly pointed out by the learned Counsel for therespondent, in the guarantee agreement dated 25.3.1997 alleged tohave been executed and much relied on by the respondent, theagreements of subsequent dates 26.3.1997 and 27.3.1997 are shown asif the payments were made on the date of agreement. 14.The learned Counsel for the appellant pointing to thebalance sheet of the years 1997-98 and 1998-99 would submit thatthere was an admission of the respondent company as to theexistence of the guarantee, and in such circumstances, it shouldnot be allowed to go back and say that there was no guarantee atall. But this contention has been rightly rejected by the learnedSingle Judge. The balance sheet for the year 1997-98 was signed inJune 1999. It remains to be stated that Mr.Ramakrishna was not aDirector during the relevant period. It is pertinent to point outthat there is a reference in those balance sheets to the guaranteeregarding the satisfactory performance of the pavers; but there isno reference to the guarantee for repayment of the advance. Thusno reliance could be placed on those balance sheets. All would goto show that it is highly doubtful whether these documents could berelied and acted upon for fastening a liability on the respondent.On the contrary the respondent company was able to show that therewas a bonafide dispute regarding the genuineness of the twodocuments namely guarantee agreement dated 25.3.1997 and also the https://hcservices.ecourts.gov.in/hcservices/ agreement dated 1.4.1997. It is well settled proposition of lawthat when the respondent who was sought to be wound up was able toshow that there was a bonafide dispute with regard to the liabilityin question, the winding up proceeding is not the proper remedy toresolve the dispute. Apart from that, the appellant was unable toshow that there was a debt due and payable by the respondentcompany. It is true that two documents were produced before theCourt; but the execution, validity and genuineness of the documentshave been questioned by the respondent. In such circumstances, itwould not be fit or proper to place reliance on those documents tofasten any liability on the respondent or to hold that there was adebt due and payable by the respondent. Hence the learned SingleJudge has taken a correct view that the remedy for the appellant isnot to approach the Company Court for winding up, and hence theimpugned order is sustained. 15.In the result, this original side appeal is dismissedleaving the parties to bear their costs. NsvSd/-Asst. Registrar//True Copy//Sub Asst. RegistrarToThe Sub Assistant Registrar,Original Side,High Court, Madras.•1 cc to Mr. S. K. Srinivasan, Advocate SR No.38074OSA No.166 of 2003PUR(CO)SR/25.8.2009