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Nuziveedu Seeds Private Limited v/s Metahelix Life Sciences Private Limited

    Company Petition No. 190 of 2010
    Decided On, 01 March 2014
    At, High Court of Karnataka
    For the Petitioner: Aditya Sondhi, Advocate. For the Respondent: Dhyan Chinnappa for M/s. Crest Law Partners, Advocates.

Judgment Text
(Prayer: This Company Petition filed under Seciion 433(e) and (f) read with Section 434 of the Companies Act, 1956, praying to wind up the respondent - Methahelix Life Sciences Private Limited, having its registered office at Plot No.3,KIADB, 4th Phase, Bommasandra, Bangalore - 560 009 and grant such other and further reliefs as are just and etc;)

1. The petitioner, a company incorporated under the Companies Act 1956 (Hereinafter referred to as the 'Act', for brevity), has its registered office at Hyderabad. It is said that it was earlier known as M/s Nuziveedu Seeds Limited and thereafter as M/s Nuziveedu Seeds Private Limited and had further changed its name as M/s NSL Renewable Power Private Limited. 

The respondent is a company incorporated under the Act, having its registered office at Bangalore.

2. It is stated that the petitioner and the respondent had entered into a contract dated 3.12,2001, whereby the respondent was to develop certain transgenic cotton lines carrying the genes indicated therein called " Suraksha". A dispute having arisen in the performance of the contract, the same was referred to arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as the "AC Act", for brevity), before a sole arbitrator. There was an Award, dated 30.3.2009, upholding the petitioner's counter-claim in part, directing the respondent to pay to the petitioner a sum of Rs.15 lakh with interesi at 12% from the date of the Award. The petitioner being aggrieved by the denial of its entire claim, has to that extent, challenged the Award in proceedings before the competent civil court and the matter is said to be pending .

The petitioner has sought to execute the award against the respondent as it had failed to satisfy the Award. It is the petitioner's case as the respondent is deliberately avoiding process in those proceedings and has failed to make payment - it would indicate its insolvency. It is in that background a statutory notice had been issued under Section 434 of the Act.

The respondent having failed to pay the petitioner, despite a lapse of over 21 days from the leceipt of the statutory notice, notwithstanding a reply denying the petitioner's claim, the present petition is filed seeking an order, winding up the respondent, as it is deemed to be commercially insolvent, unable to meet its current demands.

3. The respondent has resisted the petition and it is contended that the petition is not maintainable as the amount claimed as due and payable under the Award is not an enforceable award. It is claimed that the same is under challenge in an Arbitration Suit. Hence, during the pendency of the same, it is contended, that the arbitral award is not capable of enforcement. That, until and unless the challenge to the award is disposed of, it would not partake the character of a decree. It is also pointed out that the petitioner itself having challenged a portion of the award is hardly enabled to enforce the same.

The respondent further contends that it has a substantial claim for Rs.50.20 lakh against the petitioner, m)der the terms of the above said contract. It is also stated that as against a claim for over Rs.80 crore, the arbitrator had awarded Rs.15 lakh in favour of the petitioner. It is hence contended that unless the challenge to the award is disposed of, it cannot be said that there is any debt due to the petitioner by virtue of tht award.

Incidentally, during the pendency of the present petition, it is claimed that the business of M/s Nuziveedu Seeds Private Limited stood transferred in favour of M/s NSL Seeds Private Limited. And subsequently, the name of M/s NSL Seeds Private limited was . changed and the company was renamed as M/s Nuziveedu Seeds Private limited. Hence, an application was filed to seek that the name of the petitioner shown as M/s NSL Renewable Power Private Limited be struck off. 

The respondent has raised serious objection to the above circumstance. It is sought to be demonstrated that each incorporated company is assigned a unique corporate identity number (CIN), which is a permanent number and would not change even if the entity should change its name from time to time. It is therefore contended that there are two different companies namely, Nuziveedu Seeds Private Limited and the present petitioner, then known as NSL Renewable Energy Limited, as seen from their respective CIN identity, who had initiated proceedings before tne civil court, in challenging the above referred award and the present petition before this court, respectively. It is hence urged that the change of name now sought would not alter the CIN and it is thus untenable for two different entities to prosecute the respondent as if they are one and the same entity. This would also render the notice issued under Section 434 of the Act, on behalf of one M/s Nuziveedu Seeds Limited, defective and fraudulent, as there was no such company in existence on the date of the notice. 

4. The petitioner has in turn, filed a memo to produce a certificate of incorporation of the petitioner upon a change of name on conversion to a public limited company. The name now is said to be M/s Nuziveedu Seeds limited.

5. The question for determination at this stage, of admission of the petition to file, is whether the petition for winding-up could be admitted by the company court on the basis of an arbitration award which is under challenge in proceedings under Section 34 of ihe AC Act. It is contended that in order to constitute a "debt" within the meaning of Sections 433 and 434 of the Act, the same must be immediately payable by the company, in that, if the company should refuse payment on demand - the same should be capable of immediate enforcement.

It is not disputed that the petitioner was held entitled to be paid a sum of Rs.15 lakh, by the respondent in terms of the award. The petitioner, who had laid a counter claim for a much larger sum, has itself questioned the award in so far as the denial of the larger sum claimed - in pending proceedings. The respondent has also challenged the award in so far as the denial of its claim against the petitioner. Section 36 of the AC Act lays down as follows

"36. Enforcement - where the lime for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Piocedure, -1908 (5 of 1908) in the same manner as if it were a decree of the Court. "

It is thus evident that the award is not capable of enforcement till the pending proceedings questioning the award are disposed of. This is indeed the defence sought to be pleaded by the respondent - namely, as long as the application under Section 34 is alive and not refused, there is no debt that is immediately due to the petitioner.

The question that would then arise is whether the application for winding -up, on the basis of the award passed in tne arbitration proceedings between the parties, would amount to an enforcement of the award. 

It is to be kept in view that the prayer in the winding up petition is that the company be wound up. There is no prayer for payment of money which may be due to the petitioner. Eyen though in a creditor's petition the company is directed to be wound up, yet such a creditor has still to prove his claim before the Official Liquidator and can possibly expect to obtain payment of his dues on a pro-rata basis to the extent the funds would permit. Such a creditor, in enforcing his claim, is required to wait his turn along with others of his class.

The principles, which should guide the Company court in dealing with an application for winding up are well settled. The question whether the company has raised a bona fide dispute or not, is considered from the prima facie point of view and is not finally decided. In coming to its finding, the Company Court does not finally decide or adjudicate the said dispute but decides from a prima facie point of view in order to satisfy itself from the materials placed before it whether the company was likely to succeed against the petitioning creditor if the same should be put in issue in a suit or proceeding in the regular manner ]f the company is directed to be wound up such a question would be decided by the liquidator in liquidation proceedings.

The whole object of the winding up proceedings is based on public policy. The winding up application is a representative action as if all the creditors have joined together in one action and hence cannot be characterized as a petition seeking enforcement of an award. The most material consideration is the inability of the company to pay its debts which is actually due and is presently payable. It is not the claim of the creditors but it is the liability of the company which is the prime consideration in a winding up proceeding.

It is not denied by the respondent that it has squarely refused to pay any amount to the petitioner as against the demand made in th

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e notice issued under Section 434 of the Act. The r espondent could in law afford to refuse such payment, seeking refuge under Section 36 of the AC Act, which renders the Award unenforceable, unless the pending application under Section 434 of the AC Act, is rejected. This "automatic suspension" of the execution of the award, the moment an application challenging the said award is filed, would postpone the enforcement of the payment of the debt. This is certainly an unfair advantage the respondent gains in legitimately denying payment of the said debt. In the result the petitioner is not in a position to contend that the case would fall under any of ihe clauses under Sub-section (1) of Section 434 of the Act, The further question as to whether the notice issued under Section 434 of ihe Act, 1956 was valid, since it was issued in the name of a company which is alleged to be one which is not the petitioner, etc., is not gone into and is left open. In the light, of the above, the petition is rejected.