VEE BEE INDUSTRIES Vs. SANGHI SPINNERS (INDIA) LTD.

JUDGEMENT

(1.) This Company Petition is filed by Vee Bee Industries seeking winding up of the respondent under Section 433(e) & (f) and Section 439 of the Companies Act, 1956 (hereinafter called the "Act") read with Rule 95 of the Companies (Court) Rules, 1959 ("the Rules" for short). Sri. G. Arun, Learned Counsel for the petitioner, submits that it would suffice if this Court were to examine the petitioner's contention that the respondent should be wound up under Section 433(e) read with Section 434(1)(a) of the Act; and this Court need not adjudicate their plea that the respondent is also liable to be wound up under Section 433(f) of the Act. The petitioner is a partnership firm engaged in fabrication of pressure vessels, boilers, process and steam piping, and in executing turnkey projects. The respondent is a company registered under the Act on 19.1.1992 with its registered office at Hyderabad. The authorized share capital of the respondent is Rs. 60.00 crores divided into 6.00 crore equity shares of Rs. 10/- each. Its issued, subscribed and paid up capital is Rs. 38,83,75,000/- divided into 3,88,37,500 equity shares of Rs. 10/- each. The main objects, for which the respondent was incorporated, are to carry on business of spinning cotton, viscose, synthetics and blended yarn cone and hank form; to carry on liaison work, act as agents, distributors, stockists and to represent manufacturers, producers, mills, power-looms, handlooms, exporters and importers of cotton yarn and cotton waste, viscose, synthetic textiles, textile goods, various allied items, ready made garments, colours and chemicals, various machineries, electrical items, equipment, spare parts or allied products to be marketed in India for both Indian and foreign companies, firms, merchants and individuals.

(2.) For the spinning mill, then being set up at Sanghinagar, the respondent requested the petitioner to install and commission piping etc., for compressed air, cooling water, etc., for its factory. The respondent placed an order with M/s. Albaj Engineering Corporation, Mumbai for supply of material, and an order with the petitioner on 01.09.1995 for erection and commissioning of piping and utilities for compressed air pipe work, cooling water for compressing air, air dryer pipe work, chilled water pipe work, condenser water pipe work, drain pipe work etc., The said order dated 01.09.1995 contains the terms and conditions of supply of material, technical, financial and commercial matters with regard to installation and commissioning of piping work for the plant. It is the petitioner's case that they completed erection work at the respondent's factory site by December, 1996, but did not receive payment in time for the work done; the respondent made part-payment from time to time, despite which they completed the work believing the assurances and promises made by the respondent's management that payment would be promptly made after the work was completed; they completed the job of installation, testing and commissioning of the plant entrusted to them at the factory site to the satisfaction of the respondent; they raised final invoice dated 30.10.1998 for Rs. 48,53,443.65 ps; the said invoice was accepted by the respondent, and their consultants M/s. Gherzi Eastern Ltd. by their certificate dated 28.12.1998, the consultants confirmed the value of the work done by the petitioner as Rs. 48,53,443.65 ps; the respondent failed to make the payment due and outstanding; after deducting the payments received of Rs. 5,39,058/-, the outstanding dues were for Rs. 43,14,386/-; the last part-payment made by the respondent to the petitioner was on 16.4.1999; and, for belated payment, they are entitled for interest at 18% per annum from the due date till the date of realization. The petitioner claims to have addressed letter dated 27.7.2000 requesting the respondent to make payment and, as there was no response, they issued legal notice dated 29.8.2000 claiming Rs. 43,14,385.65 towards the debt due, with interest at 18% per annum; and, in their reply thereto, the respondent is said to have raised false, frivolous and untenable pleas to avoid the payment due to the petitioner, and to have tried to set up a defence which was neither bonafide nor borne out by the facts on record. The petitioner would contend that the respondent had failed and neglected to pay the amounts admittedly due and payable to them in the ordinary course of business, and had rendered itself liable for being wound up; the respondent was in a bad financial position, and was unable to pay its admitted dues; the respondent was unable to pay its debts generally, and was commercially insolvent; and it would, therefore, be in the interests of the creditors to have the respondent wound up.

(3.) In their counter affidavit, the respondent would contend that the petitioner's sister concern M/s. Albaj Engineering Corporation was required to supply material which the petitioner was required to install, test, and render other services; as M/s. Albaz Engineering Corporation failed to supply material, no work was executed and the entire work was incomplete; there was no assurance or promise to make payment; merely because final invoice dated 30.10.1998 was raised did not mean that the respondent was liable to make payment; the respondent and its consultants did not agree on the certificate dated 28.12.1998 regarding the value of the work; the said certificate shows that it is only a running bill, and only a payment of Rs. 21.00 lakhs and odd was recommended; this payment certificate cannot be relied upon as it is only a part payment certificate of the completed work, whereas the terms of agreement provided for completion of the entire work; as the work was half done and incomplete, the respondent was not liable to pay any amount as there was breach of the contract; the petitioner was put to strict proof regarding the payment made on 16.4.1999; they were not entitled for payment of either the principal or interest as claimed; the respondent is financially sound, and is able to pay its debts; the agreement dated 1.9.1995 has a default liability period; the petitioner had supplied sub-standard material such as the air dryer; they failed to supply proper drawings of even the material supplied; the agreement clauses show the petitioner's liability to complete the work as per the terms; the petitioner had failed to act according to the terms of the agreement; the respondent is a world class hundred percent export oriented unit having one lakh spindles under a single roof with latest machinery from Germany, Japan, Switzerland, France and USA; all the machines are computerized and fully automated with minimum handling of products so as to maximise the quality of the product, and make them suitable for the export market; the respondent had, with a view to provide atmospheric conditions i.e., temperature and humidity suitable for spinning, ordered for a chiller plant to work at 27 degrees of relative humidity levels varying from 55% in spinning and 65% in winding; the computerized controls require standard atmospheric and humidification conditions to function satisfactorily, failing which the results would be highly erratic; the entire product, and its quality parameters, depend upon standard atmospheric conditions; failure of the petitioner to execute the contract was evident from the correspondence undertaken by the respondent from the date of the agreement, more particularly the letter dated 24.11.1995 wherein it is stated that, even after two months of payment of the advance, work had not been started; there were various defaults by the petitioner; the letter dated 23.4.1996 also showed the petitioner's failure to execute the work properly; several other works, required to be executed by the petitioner, were not completed; the works required to be completed included establishment of transformers, construction of water tanks, purchase of highly sophisticated equipment such as computers, and other civil works for Rs. 1.00 crore; the respondent had entered into a contract with L & T for construction of a part of the chiller plant; L & T had completed the work, and the respondent had to pay them for the work done; the petitioner had breached the contract necessitating the respondent to complete all the work incidental to the work required to be executed by the petitioner; the petitioner had abandoned the project in 1996, and was now pressurising them for payment; the petitioner's claims are barred by limitation as the agreement was entered into on 1.9.1995 and, while they claim that the work was completed in 1996, the Section 434 notice was issued only on 29.8.2000; and the company petition has been filed only to harass the respondent.