ORDER
N.K. Sodhi, J.
1. This is a creditor’s petition filed under Sections 433, 434 and 439 of the Companies Act. 1956 (hereinafter called ‘the Act’) for the winding up of Steel Strips Limited, a public limited company
incorporated under the provisions of the Act with its registered and head office at SCC 49-50, Sector 26, Madhya Margf Chandigarh (for short, ‘the Company”) on the ground that it is unable to pay its debts.
2. The Company gave two contracts 10 Davy Ashmore India Limited which was taken over by the petitioner herein, for detailed engineering and consultancy services and also for the supply of equipments and initial spare parts for the project of Bar and Section Rolling Mill Complex at village Rampur Banjaran, District Sirmour (HP). The first order that was placed on the petitioner on March 3, 1987 was for detailed engineering and consultancy services for the project of Bar and Section Rolling Mill Complex valuing Rs.45 lacs (hereinafter called ‘the first contract’). Another order was placed on March 4, 1987 for the supply of equipment and initial spare pans for the Bar and Section Mill valuing Rs. 2,93,50,000/-(referred to hereinafter as ‘the second contract’). Rs. 284.5 lacs was the contract price and the spare parts to be supplied were worth Rs. 9 lacs. The scope of work under the first contract was to cover (a) rendering detailed engineering and consultancy services for the aforesaid project as per the details mentioned in the order and (b) supervision of erection and commissioning at site of the mechanical equipment for the Bar and Section
Mill Project. It may be mentioned that a mini steel plant was being set up by the company at its works in village Ram Banjaran District Sirmour (HP). The time schedule for the completion of the project was to be furnished by the petitioner within two months from the date of the order and that was to extend over a period of 18 months from the date of the order and all possible efforts were to be made to commission the project by September 30, 1988. Under the second contract the petitioner was to supply mechanical and other equipment as per the details mentioned therein. The complete equipment was required to be delivered progressively within 15 months from the date of the order and the company was entitled to recover liquidated damages from the petitioner for failure to deliver the goods within the above said period or wilhin such extensions subsequently agreed to. In clause 7 of the second contract liquidated damages were ascertained to be 0.25% of the contract price for each completed week of delay subject to a maximum of 7.5% of the contract value. As per the terms and conditions of the contract, the company was to release stagewise payments as per the work carried out by the petitioner. It is not in dispute that the work at site was finally completed in September, 1989 though according to the Company it was not as per the specifications agreed to between the parties and underlaken by the petitioner.
3. According to the averments made in the petition, the petitioner claimed an extra sum of Rs. 6.71 lacs on account of the over stay of its engineers in terms of clause 15 of the first contract and, therefore, the total amount payable to the petitioner under the first contract came to Rs. 45 lacs + Rs. 6.71 lacs -Rs. 51.71 lacs. It is admitted by the petitioner that a sum of Rs. 40.5 lacs was paid to it under this contract. Thus, according to the petitioner a sum of Rs. 11.21 lacs still remains to be paid under the first contract. It is alleged that under the second contract total goods supplied by the petitioner to the company were worth Rs. 2,96,06,690/- whereas it has received only an amount of Rupees 2,54,47,276.45 ps. The petitioner claims that a sum of Rs. 41,59,413/- is due to tt under the second contract which represents about 15% of the total price of the goods supplied- It is
further stated in the petition that after the work was completed in September, 1989 the petitioner made several requests to the company for the release of its pending payments the details of which have been mentioned by the petitioner in para 7 of the petition. According to the petitioner the company failed to release the balance payment due to it and consequently a statutory notice under Sections 433 and 434 of the Act was sent to the Company for the release of the pending amounts. Despite the notice the Company failed and neglected to make the payment and it is alleged that the company raised frivolous counter claims against the petitioner which were never brought to the notice of the petitioner during the execution of the contracts. The total amount claimed by the petitioner from the company under both the contracts comes to Rs. 52,80,413;-. Hence, the present petition for the winding up of the company on the ground that it has failed/ neglected to meet its admitted liability.
4. The company in its written statement has controverted the allegations made by the petitioner. It is stated that the petitioner committed so many irregularitcs like delayed supply of material, the material being defective and the same being not of proper rating. According to the company it had been making payments to the petitioner regularly though supply was being made after a great delay. The stand taken by the company is that its project had not only been delayed but the plant as set up cannot produce Rounds & Squares and Hats of the sizes beyond 63 mm thickness as the motor advised to be installed in the Hot Bar and Section Mill was of underrated capacity and gets heated up which requires to be changed if the plant is to run to its full capacity and produce items of required specifications as undertaken at the time when the contracts were awarded. It is also the stand of the Company that the steel plant set up by it though functional is not up to the level agreed to between the parlies in the time when the contracts were awarded to the petitioner. It is averred that the Company has made an excess payment of Rs. 11.18 lacs which it is entitled to recover from the petitioner.
5. I have heard counsel for the parties at
length. On the contentions raised before me, the question that requires consideration is whether the amount as claimed by the petitioner is admittedly due to it or whether the Company is bona fide disputing the same. In other words, is the Company disputing the amount claimed by the petitioner only to hide its inability to pay or is it that it is raising disputes which are bona fide. There is no doitb! that after the work was completed in Sepiember, 1989 the petitioner had been demanding the payment of the amount due to it. In response to its letter dated 17-9-1990 the Managing Director of the Company wrote a D.O. letter to the Executive Director of the petitioner on November 15, 1990 (An-nexure R4 with the written statement). It was pointed out to the petitioner that after checking the record nothing was payable to it. Since the petitioner also placed reliance on the figures mentioned in this letter to contend that uncalled for deductions were sought to be made from the amount due to it, it is necessary to reproduce this letter in extenso.
15-11-1990
D.O. No.SSL/MD/2650
Dear
This is to acknowledge the receipt of your letter dt. 17-9-90. I have gone through the contents of your letter in detail and I express my sincere gratitude for your taking personal interest in all our problems to try to overcome them, I have checked up the matter and as per the records, nothing is payable to Tata Davy Ltd. as on date. The position of accounts is as under.
a)
Contract Value:
(Rs. in Lakhs)
– -Mill Mechanical
Equipment
284.50
–Spares
9.00
Consultancy and
Engineering
45.00
b)
Cost of Additional
SupplyLess : Amount to be Deducted :
2.57
341.07
Cost of modification
made by SSL as agreed by TDL in the minutes of Meeting held on 11-5-90.
13.00
Cost of Motor, Gear
Box of underrated capacity which are to be changed.
18.00
Cost of Rolls of Wrong Specifications
which are of no use.
3.50
Improper requirement
of Cables.
1.15
Liquidity damages for
delay in supply of equipment.
21.34
56.99
Amount already paid by
SSL
295.26
352.25
Thus, you will observe that we have already made excess payment of TDL. You will appreciate that SSL had agreed to pay bonus to TDL for timely completion of the schedule and there was no limit for the earning of the bonus. I may bring to your kind notice that commissioning of the mill has been delayed by 21 months and the delay has resulted in increase of interest charges by Rs. 144.00 Lakhs in addition to the increase in cost of operative expenses and production losses. SSL has always helped TDL in financing purchases of the equipmenls from their suppliers and even after making such payments, the timely delivery of the equipments was not made and your kind intervention was sought. It has never been our intention to withhold any payment SSL has been put to great loss by TDL which has jeopardised our liquidity position and endangered our existence.
Also, please note that we have already returned the Original Bank Guarantee to TDL. Regarding the motor being under-rated, please refer to the minutes of meeting dated 11-5-90 held between SSL and your Mr. D. Gadh and Mr. A. Uppal. Refer para I, vide which Mr. Gadh confirmed that the present motor of the Finishing Mill is under-rated and for rolling thicket sections, Stand No. 4 & 5 would have to be coupled for which cost of spindles and couplings shall be borne by TDL. This you would agree, clearly indicates that the motor supplied is of under-rated capacity and
This is only time gap arrangement. After receipt of couplings and spindles and instalation of the same, we shall be able to guage the performance of the mill for rolling heavier sections. We had relied on the technical expertise of TDL for the supply of the mill for rolling of structural and flats as mentioned in the order and certainly, the mill is not capable of rolling the required sections.
We have already released the payments, which are much more than what was due and request you to make good our loss.
With best regards.
Yours sincerely,
Sd/-.
(R. K. Garg)
Shri K. C. Mehra,
Executive Director (Operations)
The Tata Iron & Steel Co. Ltd.,
Tisco Nagar, Jamshedpur.
Learned counsel for the petitioner admitted the contract value as mentioned in the aforesaid letter. Similarly the amount of Rs. 295.26 lacs shown to have been paid by the Company to the petitioner is also admitted. What is contended on behalf of the petitioner is that the amount of Rs. 56.99 lacs which is sought to be deducted from the amount payable to the petitioner is wholly uncalled for and that the company is deliberately withholding this amount for no justifiable reasons. The argument is that a dispute is being raised only to deprive the petitioner of its legitimate dues
and to oust the jurisdiction of this Court under Sections 433, 434 and 439 of the Act. Mr. M. L. Sarin, learned Senior Advocate appearing for the company also relying on the figures mentioned in the letter strenuously urged that an excess payment of Rs. 11.18 lacs (Rs. 352.25 lacs Rs. 341.07 lacs) had been made which the company is entitled to recover from the petitioner. From the contents of the aforesaid letter (Annexure R 4) it becomes clear that if the deduction of Rs. 56.99 lacs by the company is justified then obviously an excess payment of Rs. 11.18 lacs as alleged by it has been made. However, if the deduction of this amount is not called (or as alleged by the petitioner than a large sum of money would certainly be due to it which the company can be said to be disputing without any justification. There are five items of deductions and I will deal with each of them separately:
(i) Cost of modification made by SSL as agreed by TDL in the Minutes of Meeting held on 11-5-1990.
6. A sum of Rs. 13 lacs is sought to be deducted on this account. It appears that the company had to make some modifications of the cooling bed when 80% of the job had been completed and the balance was in progress. A new cooling bed was fabricated and in a meeting of the representatives of the petitioner and the company held at site on May 11, 1990 the petitioner agreed that the entire cost of revamping of the cooling bed will be borne by the petitioner and that the company will give the complete break up of the cost. Proceedings of this meeting were recorded and duly signed by the parties and a copy thereof is Annexure R2 with the written statement. Again, in his letter dated 6-1-J99I (Anncxure R5 with the written statement) addressed to the Managing Director of the Company, the Executive Director of the petitioner has admitted that the cost of modification made by the company and agreed to by the petitioner has to be deducted. In view of this admission by the petitioner, it cannot be said that the deduction of Rs. 13 lacs is not justified.
(iii) & (iv) — Cost of Rolls of Wrong Specifications which are of no use and Improper requirement of Cables.
7. A sum of Rs. 3.50 lacs and Rs. 1.15 lacs is sought to be deducted under the aforesaid two heads from the amount payable to the petitioner. Mr. Sarin, learned counsel for the respondent-company did not seriously contest these items and conceded for the purposes of this petition that even if a credit of these amounts is given to the petitioner, there would still be excess payment by the company to it. Thus, if these amounts are credited to the account of the petitioner it would not be entitl:d to claim a winding up order because the company is alleging an excels payment of Rs. 11.18 lacs.
(v) Liquidity damages for delay in supply of equipment.
8. A sum of Rs. 21.34 lacs is not being paid to the petitioner as according to the Company this amount is due to it as liquidated damages in terms of Clause 7 of the second contract. Both sides admitted that there has been delay in completion of the project and the company puts the blame in this regard on the petitioner. The petitioner is obviously denying the same but in the letter dated January 5, 1991 (Annexure R5) addressed to the company, the Executive Director of the petitioner had stated as under:–
“As far as LD is concerned, you would agree the project delay of 21 months was not entirely because of TDS and a substantial delay was because finances and site conditions were not ready. Inadequacy of man power and delay of over 12 months in receipt of mill motors also added to the overall delay for which TDL cannot be held responsible.”
In view of the aforesaid letter and the conflicting claims of the parties it is not for this Court to decide as to which party was responsible for the delay and in the circumstances, the Company would be justified in withholding the amount calculated in terms of Cl. 7 of the second contract until it is proved that the Company was at fault which can only be done in a proper forum like a civil Court. 1 am informed that the petitioner has already filed a civil suit after the recovery of the amount claimed by it and the trial Court will obviously decide the issue on the basis of the evidence that will be led before it.
9. The only item that now remains to be considered is (ii) — (Cost of Motor, Gear Box of under-rated capacity which are to be changed). A sum of Rs. 18 lacs is being withheld as the cost of motor/gear box of under-rated capacity which are to be changed. This was the most seriously contested item of deduction and if the petitioner succeeds in showing that the Company had no basis to deduct this amount, it would be entitled to a winding up order since the Company is claiming an excess payment of Rs. 11.18 lacs only. What is contended by the petitioner is that at the time of placing orders the requirement of the Company of product-mix for its Hot Bar and Section Mill was such so as to produce Rounds & Squares and Flats of thickness varying from 25 mm. to 100 mm. size and again 80 x 11 to 120 x 16 mm. size. Keeping this requirement in view the petitioner had suggested the installation of the motor of requisite capacity and after the same had been installed, the Company changed its requirement for a motor of heavier load and for this the petitioner could not be held responsible and any deduction made on this account would be wholly unjustified. The case of the Company, on the other hand, is that the requirement of its end-products was made known to the petitioner in the contracts themselves and the different sizes of the products required to be manufactured were also stated therein. The petitioner advised it to instal a motor of 550 kw capacity. On installation when the plant was commissioned it transpired that the capacity of the motor was under-rated and when Rounds & Squares and Flats of the thickness of 63 mm. size were rolled, the motor drew heavier current as a result whereof it got over-heated. It is submitted that the end-product of 63 mm. size thickness and above cannot be rolled/ produced though such Smaller Sections can be rolled. According to the Company, this defect was pointed out to the petitioner a number of times and in the meeting held on 11-5-1990 between the representatives of the parties, it was the first item on the agenda and that the representatives of the petitioner Mr. Gadh confirmed that the capacity of the present motor of the finishing mill was underrated and he suggested an alternative of coupling stand Nos. 4 and 5 for rolling thicker size of Rounds & Squares and Flats for which
spindles and coupling would be required the cost of which would be borne by the petitioner. This alternative is stated to have been accepted by the representative of the Company. It is also contended that the alternative suggested by Mr. Gadh is only of a temporary nature and the motor cannot run for long durations by connecting stand Nos. 4 and 5. It is also submitted that the Company wanted to run the motor as per terms of the . agreement for eight hours which constitute a shift and three shifts in a day and for 300 days each year. If by connecting stand 4 and 5 the motor can be run” for a few hours to roll thicker Sections, it does not mean that the plant can be run for its optimum utilisation and at any rate, the Company had not contracted for this.
10. In view of the admission made by Mr. Gadh confirming that the motor of the finishing mill was under-rated, it cannot be said -that the Company has subsequently changed its mind for processing a different product for which it had not given the specifications at the time of giving the contracts. Again, in the meeting of the representatives of the parties held on 5-6th February, 1990 (Annexure R3 with the written statement) it was brought to the notice of the petitioner that finishing mill motor gets overloaded while rolling 63 mm. size Rounds and the current exceeds the maximum current it can take and it was agreed between the parties that the petitioner will depute its experts and design engineer to set this problem right. In view of these meetings between the parties the proceedings of which were recorded and duly signed by their representaives, the only Irresistible inference is that the Company had given its requirement to the petitioner at the time when the contracts were awarded but the petitioner advised the capacity of a motor which turned out to be under-rated as a result whereof the Company is unable to roll 63 mm. thickness size Rounds and above. The plant is functional after it was commissioned but Rounds .& Flats of smaller thickness alone can be rolled which is below the requirement of the Company as was originally agreed upon if the company is to roll the Rounds and Flats of the required thickness it has to instal a motor of higher capacity for which it claims that a sum of Rs. 17,71,952/- will have to be incurred by
it for purchasing a new mot or of the required capacity. The Company, therefore, raised a debit note for this amount against the petitioner. In this view of the matter, it cannot be said that the amount of Rs. 18 lacs sought to be deducted/withheld by the Company is in any way unjustified. This being so, no amount can be said to be due to (he petitioner if we accept the statement of account as mentioned by the Managing Director of the Company in his letter dated November 15, 1990(Annexure R4) after giving credit of the amounts under heads (iii) and (iv).
11. In view of the above discussion and the controversies involved, I am of the opinion that the amount claimed by the petitioner is bona fide disputed and the present petition for the winding up of the Company is misconceived. Winding up proceedings are not intended to be used as aj normal alternative to the ordinary mode of| debt realisation. The petition is, therefore, dismised with costs which are assessed at Rs.5,000/-.
12. Before parting with the judgment, it may be observed that the petitioner has already filed a civil suit for recovery of the amount claimed by it. It is made clear that whatever has been stated hereinabove is only for the purposes of disposing of the present petition and the Court trying the suit of the petitioner will not be influenced by any observation made by me in this order and that the suit would be decided on merits on the basis of evidence that may be led by the parties before it.
13. Petition allowed.