ORDER
P. Sathasivam, J.
1. The petitioning creditor has filed the above Company Petition under Section 433(e) , 434 and 439 of the Companies Act for winding up of the respondent company namely Aruna Sugars and Enterprises Limited, Chennai-34.
2. The case of the petitioner is briefly, stated hereunder: The respondent company was incorporated on 9.9.60 under the Companies Act, 1956. The nominal capital of the company is Rs. 24,00,00,000 comprising of 2,40,00,000 equity shares of Rs. 10 each. The amount of paid-up capital is Rs. 9,00,00,00. The main objects for which the company was set up are to carry on the business of sugar boilers, manufacturers, and refiners and dealers in sugar of all varieties and kinds and its by-products, distillers and spirit-merchants and other connected business combined with the above said objects. The petitioners are SEBI-registered Cateogory-1 Merchant Bankers, who have adequate experience and expertise to advise parties on investments, takeovers, mergers, spin-offs and other related activities. When the respondent herein had the requirements of such advice, they had sought the petitioner's services in 1996, in the matter of evolving a restructuring proposal for the respondent company. The respondent and petitioner had entered into an agreement, vide their letters dated 11.10.96 and 25.3.97, in respect of the quantum of fees payable. This agreement also provided for an abortion fee, i.e., a fee payable upon the deal evolved by the petitioner not going through. The respondent engaged the petitioner's services for the sale of the respondent's controlling stake in Aruna Sugar Finance Ltd., the Sugar and Distillery Division of the respondent, and the Hotel Division of the respondent. In pursuance of the aforesaid mandate given by the respondent to the petitioner on 25.3.97, the petitioner evolved a restructuring proposal for the respondent. Presentations were prepared and made to be given to lending institutions, banks for the reschedulement and one-time settlement of the respondent's dues. Legal advice on various issues related to the restructuring and spin-off was obtained from legal practitioners. After several negotiations and at the efforts of the petitioner, on 30.8.97, a final offer was received from Nagarjuna Group for the said purchase at Rs. 90 crores. The respondent seemed to agree to the same and accordingly wrote to the lending and financial institutions, indicating its intention to sell the said divisions for Rs. 90 crores, without mentioning the name of the buyer. Thus, all the hard work had been done by the petitioner, and all that remained to be done was the completion of the sale formalities. At this stage, the respondent mysteriously backed out of the negotiations without offering any reason therefore. Thus, the entire deal arranged by the petitioner, between the respondent and Thiru Arooran Sugars Limited, at one end, and Nagarjuna Group, at the other, fell through, for no fault of the petitioner. Thus, the petitioner having done all the work as agreed between the parties, and having brought the entire matter to the stage of completion, called upon the respondent to make payment of its professional charges. The petitioner became entitled to claim the abortion fees of Rs. 35 lakhs from the respondent, in respect of which there was an agreement in terms of the respondent's letter dated 25.3.97. This was claimed by the petitioner, by letter dated 14.7.98 and finally it was downwardly revised by the petitioner, to Rs. 30 lakhs. Pursuant to the meeting held on 29.12.98, the petitioner and respondent arrived at a settlement, whereby the petitioner agreed to waive over half their entitlement to their professional fees, by agreeing to receive a sum of Rs. 17 lakhs in full quit, on the condition that such payment be made as per the agreed schedule. In the event of the respondent's failure to adhere to the payment schedule, the petitioner would become ipso facto, entitled to receive full payment of the original fee of Rs. 30 lakhs before 31st March, 1999 together with interest at the rate of 20 per cent with effect from 1st April, 1998. The respondent failed to honour their commitment. The respondent sent a registered notice through their counsel on 17.8.99 calling upon them to pay the entire amount. The respondent sent a reply through their counsel on 30.9.99, denying their liability altogether, notwithstanding the respondent's own letters dated 22.7.98 and 30.12.98. The respondent is admittedly liable to pay a sum of Rs. 30,00,000 towards the petitioner's professional charges. The respondent is unable to discharge its liabilities as and when they become due, and is liable to be wound up in accordance with the provisions of the Companies Act.
3. The respondent company filed a counter statement disputing various averments made by the petitioner. It is stated that though the petitioner had taken steps to bring the parties like Nagarjuna, their representations nor the presentation was effective to make them agree for purchase of the sugar and distillery divisions. The petitioner could not complete the assignment successfully within the expected time period. Because of the ineffectiveness of the petitioner, the respondent was constrained to appoint an alternative agency for sale of sugar and distillery divisions. The re-structuring programme submitted by the petitioner was so ineffective to persuade prospective buyers to buy the assets of the company at their real value. Buyers quoted very low consideration and the petitioner could not do anything to move further. Therefore, the respondent company had to appoint M/s. Rathi Global Finance Limited in the place of the petitioner. For the services rendered by the new agency, the respondent company had to pay their service charges. The respondent company had already paid the petitioner a sum of Rs. 24.88 lakhs. Out of this, a sum of Rs. 24 lakhs was paid towards fees and the remaining amount of Rs. 0.88 lakhs was paid towards out of picket expenses. However, the petitioner could not do anything to complete the assignment of restructuring. The only part of assignment done by the petitioner is selling of the respondent's holdings in Aruna Sugars Finance Ltd. Even in this, part of the work was actually done by the respondent. In respect of the statutory notice dated 17.8.99 sent by the petitioner, the respondent has duly replied denying their liability. There is no recoverable debt in terms of Section 433(e) of the Act, hence the petition is not maintainable. The amount claimed is disputed one. The remedy is to file a civil suit. All other claims then settled by the company in the last 3 years. The respondent had not neglected to pay the alleged debt of the petitioner, but on the other hand has disputed the demand raised by the petitioner. This petition is only a pressure tactic and it is a substitute for civil suit and hence not maintainable.
4. In the light of the above pleadings, I have heard Mr. Srinath Sridevan, learned counsel for the petitioner and Mr. Arvind P. Dattar, learned senior counsel for respondent.
5. It is the specific case of the petitioner that the respondent and the petitioner had entered into an agreement as per their letters dated 11.10.96 (Document No. 1) and 25.3.97 (Document No. 2) for evolving a restructuring proposal for the respondent company. The said agreement also provided for an abortion fee, i.e. a fee payable upon the deal evolved by the petitioner not going through. The letter dated 25.3.97 written by the respondent to the petitioner confirms the above and embodies the terms of the agreement between the parties. It is also the case of the petitioner that pursuant to the aforesaid agreement, the petitioner evolved a restructuring proposal for the respondent. It is stated that this involved the preparation of a comprehensive restructuring plan outlining the various options, their chances of success, and the merits of each option based on the strength/weakness of each division and the respective industry outlook. It is also the case of the petitioner that various representations and discussions were held with local and various investors. Legal advice on various issues relating to the restructuring the spin-off was obtained from legal practitioners. It is also the case of the petitioners that because of their efforts, there was a response from Nagarjuna Group for buying the respondent's sugar and distillery divisions, and negotiations were carried on by the petitioner with them in July and August, 1997. It is also the grievance of the petitioner that at the stage of completion, the respondent backed out of the negotiations without offering any reason therefore and that the entire deal arranged by them, between the respondent and Thiru Arooran Sugars Limited at one end, and Nagarjuna Group, at the other, fell through, for no fault of the petitioner. In this regard, learned counsel for the petitioner very much relied on a letter of the respondent dated 22.7.98 wherein the following passage was pressed into service:
'...I confirm having received your final bill for Rs. 30 lakhs.
(a) xx xx
(b) Aruna did not reap any benefit out of this exercise as the various proposals considered could not be completed for some reason or other, of course, not due to any fault of imperial.'
In the same letter, the Managing Director of the respondent-Aruna Sugars has concluded that 'Hence, I would appreciate if you could reconsider the matter in the light of overall situation taking into account all the relevant aspects, and agree to scale down your demand to a lesser figure, say Rs. 20 lakhs.' In their reply dated 23.11.98, the petitioner reiterated their demand of Rs. 30 lakhs and requested them to pay the same before the end of first week of December, 1998. For the said letter, the respondent-Managing Director of Aruna Sugars and Enterprises Limited sent a reply dated 30.12.98 wherein they agreed to pay a sum of Rs. 17 lakhs against full quit and also agreed to pay the said amount before 31st March, 1999. Inasmuch as the petitioner is very much relying on the said letter and the admission of their liability, the same is extracted hereunder:
'December 30, 1998
Mr. R. Kannan, Managing Director, Imperial Corporate Finance & Services Pvt. Ltd. 706, Challa Mall, 11, Sir Thiagaraya Road, Pondy Bazaar, T.Nagar, Chennai-600 017.
Dear Mr. Kannan,
Sub: Settlement of your fees..
This has reference to the discussion we had with your Mr. V.R. Srinivasan regarding settlement of fees due to you.
We have mutually agreed that you will accept a sum of Rs. 17 lakhs against all your entitlements. We also agree that this payment will be made by us before 31st March 1999.
However, we shall endeavour to clear the dues depending on our cash flow at the earliest.
We hope this settlement is acceptable to you and request you to kindly sign a copy of this letter as a token of your acceptance.
With regards,
Yours sincerely,
(sd) x x M. SIVARAM Managing Director).'
With reference to the said letter of the respondent accepting to pay Rs. 17 lakhs on or before 31.3.1999, the petitioner in their letter dated 31.12.1998 conveyed their acceptance of the said term and requested the respondent to pay the amount of Rs. 17 lakhs immediately.
Since the respondent failed to pay the amount in spite of repeated demands, the petitioner finally sent a statutory notice through their counsel on 17.8.99, calling upon them (respondent) to pay Rs. 30 lakhs, together with interest thereon at 20% per annum from 1.4.98 till the date of actual payment. For the said notice, the respondent company sent a reply through their counsel on 30.9.99. Only in this notice the respondent raised an objection that the petitioner did not complete the assignment which was given to them, to their satisfaction, within the stipulated time and at acceptable consideration. It is further stated that since the respondent has already paid a sum of Rs. 20.34 lakhs, no question of paying any further amount will arise as claimed. As rightly contended by the learned counsel for the petitioner, for the first time, that is in the reply notice dated 30.9.99, the respondent has raised the plea that the petitioner did not complete the assignment to their satisfaction. I have already referred to the letters dated 22.7.98 and 30.12.98 written by the Managing Director of the respondent, more particularly in the letter dated 30.12.98, the Managing Director has agreed to pay a sum of Rs. 17 lakhs in full quit of all claims. In the light of those letters and in the absence of any acceptable explanation for the admission, the statement made in the reply notice dated 30.9.99 is not a bona fide denial and it is an after thought.
6. Mr. Arvind P. Dattar, learned senior counsel for the respondent, has contended that there is no concluded contract between the petitioner and the respondent. He further contended that in view of the fact that the work itself has not completed through the petitioner and of the dispute raised by the respondent, no debt is due. He very much relied on a constitutional Bench judgment of the Supreme Court in Madhav Rao Scindia v. Union of India, . By pointing out that a debt or a liability to pay money passes through four stages as observed by Their Lordships in para 59 of this decision, he contended that the present claim of the petitioner has not fulfilled those stages. He also very much relied on a Division Bench decision of this Court in Neg Micon A/S.Alsvoj 21 DK 8900 Randewrs, Denmark v. NEPC India Limited, 2000 (3) M.L.J. 1, wherein the Division Bench has held: (para 8 and 11)
'8. The word 'debt' used in Clause (e) of Section 433 has to be understood in a practical and pragmatic sense. It is only when a debt becomes absolutely due in the sense that the creditor is entitled to its payment present, there is a relationship of a debtor and creditor....
11. An order under Section 433(e) is discretionary and the Court has to act on the basis of facts of each case on the available materials before exercising its-discretion and come to a decision.'
There is no dispute regarding the above proposition. I have already referred to the agreement between the parties-vide letters dated 11.10.96 and 25.3.97. No doubt, the assignment has not been completed at the instance of the petitioner. However, as per the agreed terms, the petitioner is entitled abortion fee. As a matter of fact, after correspondence, finally the Managing Director of the respondent company in their letter dated 30.12.98, agreed to pay a sum of Rs. 17 lakhs in full quit of the claim of the petitioner. As observed earlier, having agreed to pay a sum of Rs. 17 lakhs within a particular period in respect of the work done by the petitioner and in the absence of proper explanation for the said admission, except stating that 'the same were made to satisfy their auditors and bankers', I am of the view that the company is unable to pay its debt.
7. Mr. Srinath Sridevan, learned counsel for the petitioner, has very much relied on a decision of the Apex Court in M. Gordhandas and Company v. M.W. Industries, . The following statements of law of -Their Lordships are relevant: (para 20 and 21)
'20. Two rules are well settled. First if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable (See London and Paris Banking Corporation, (1874) 19 Eq.444. Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See Re.Brighton Club and Norfolk Hotel Co. Ltd., (1865) 35 Beav. 204)
21. Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company 94 SJ 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the Court will make a winding up order without requiring the creditor to quantify the debt precisely (See Re. Tweeds Garages Ltd., 1962 Ch.406). The principles on which the Court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends.'
It is clear that the principles on which the Court acts are first that the defence of the company is in good faith and one of substance; secondly, the defence is likely to succeed in point of law; and thirdly the company adduces prima facie proof of the facts on which the defence depends. I have already referred to the admission of the Managing Director of the respondent company-vide letter dated 30.12.98 and the reply by the respondent company dated 30.9.99. In such a situation absolutely there is dispute regarding the efforts and steps taken by the petitioner. On the other hand, only in the reply notice dated 30.9.99, the respondent for the first time complained about the unsatisfactory work. As rightly contended, there is no bona fide dispute and the same is not made any good faith.
8. Mr. Arvind P. Dattar, by drawing my attention to the balance sheet of the respondent company, would contend that even today it is a running company and there is no need to order winding up. In this regard, it is relevant to refer a Division Bench decision of this Court in the case of Sree S. Mitts v. Dharmaraja Nadar, wherein Their Lordships held that for determining the question as to whether the Company would be able to meet its then demands, the value of such assets without which it could not carry on business, should not be taken into account. According to them, the test of inability to pay the debt under Section 433(e) was not whether the company, if it converted all its assets into cash, would be able to discharge its debts, but whether in a commercial sense the existing liabilities could be paid by it while it continued to carry on as a company. In the light of the above observation, the claim that the respondent is a running company is not a relevant material.
9. From the above discussions, more particularly in the light of the letter of the petitioner dated 11.10.96, the confirmation letter of the respondent dated 25.3.97 and the admission of liability by the Managing Director of the respondent company in their letter dated 30.12.98, I am of the view that the stand taken by the respondent in their letter dated 30.9.99 is not a bona fide denial. I conclude that the respondent company has failed and neglected to pay the sums due to the petitioner. I am also satisfied that the respondent is unable to discharge its liability and is liable to be wound up in accordance with the provisions of the Companies Act. In the result, the Company Petition is admitted. It is ordered to be advertised not later than 14 days before, the next date of hearing in one issue of Tamil daily 'Makkal Kural', one issue of English daily 'News Today' and in the official Gazette of the state of Tamil Nadu mentioning the hearing date as 08.11.2002 and also serve Notice on the Company Petition. Call the Company Petition on 8.11.2002.