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Case Number

Company Petition No. 24 of 1994.

Attorney(S)

Mr. Hemant Sarin
Advocate.
Mr. M.L. Satin
Senior Advocate
Mr. Deepak Suri
Advocates.
Mr. P.C. Khanna

Judges

Ashok Bhan, J.

Acts

section 434 (1) read with sections 438 and 439 of the Companies Act, 1956 (hereinafter referred to as the Act)
SECTION 74 CONTRACT ACT

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Smart Summary

Structured Summary of the Court's Opinion

Factual and Procedural Background

The petition, filed under section 434(1) read with sections 438 and 439 of the Companies Act, 1956, sought winding up of Punjab Tractors Limited (respondent No. 1). The petitioner is a creditor by assignment from M/s. Gleason Works S.A. (a Belgian joint-stock company, later changed to Thenson Works S.A.), by a deed dated 12 January 1994 (Annexure A). The dispute arises from an order placed by Punjab Tractors Limited on 17 July 1990 for three machines and tooling for a total price of 20,232,105 Belgium Francs (equivalent to USD 600,000). Terms included FOB shipment, opening of an irrevocable Letter of Credit (to be opened three months before shipment), and a cancellation clause specifying conditions for cancellation and compensation based on percentage of work done and commitments made.

The petitioner alleges that the respondent failed to open the Letter of Credit by February 1991 and later, on 27 April 1992, cancelled the order, claiming economic unviability. The petitioner contends the machines were completed and stored in Antwerp and that respondent owes USD 600,000 as damages (an admitted debt), entitling the petitioner to seek winding up. The petitioner also filed a civil suit prior to this petition (counsel admitted that the suit was filed to save limitation).

The respondent filed a written statement opposing the petition, asserting that a bona fide dispute exists requiring factual investigation, that the company is solvent and profit-making (supported by annual reports attached as Annexures R2–R6), and that no debt as envisaged under sections 433/434 of the Companies Act is due because the claim is for unascertained damages and there was no privity of contract with the petitioner.

Legal Issues Presented

Whether the amount claimed by the petitioner constitutes a debt as envisaged under sections 433 and 434 of the Companies Act, 1956 (i.e., an ascertained sum recoverable to justify winding up).
Whether a bona fide dispute as to liability and the need for factual investigation precludes a winding up petition under the Act.
Whether Punjab Tractors Limited can be considered "unable to pay its debts" for purposes of winding up proceedings, in view of the respondent's claimed solvency and profit-making status.

Arguments of the Parties

Petitioner's Arguments

The petitioner is a creditor by assignment from M/s. Gleason Works S.A., and the debt (USD 600,000) arises from repudiation/cancellation of the contract by Punjab Tractors Limited.
The machinery was specifically manufactured for respondent and was ready/held in Antwerp; respondent's cancellation makes it liable to pay damages equivalent to the contract price.
Counsel for the petitioner relied on Chunilal v. Mehta V.C.S & M. Co. Limited (A.I.R. 1962 S.C. 1314) to support the proposition that courts can order payment of liquidated damages under the Act where the contract specifies a sum.
Counsel admitted that a civil suit had been filed prior to the winding up petition (stated that it was filed to save limitation), but this fact was not included in the petition.

Respondent's Arguments

The petition is misconceived and misdirected because a bona fide dispute exists between the parties which requires detailed investigation of facts.
Respondent No. 1 is solvent and profit-making; winding up is not an appropriate method for realizing a disputed claim.
The claim is for unascertained damages and thus does not constitute a debt under sections 433/434 of the Companies Act.
The petitioner allegedly suppressed the prior filing of a civil suit and there is no privity of contract between the petitioner and respondent, making the petition not maintainable.
On merits, respondent denied liability to pay any amount to the petitioner.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Chunilal v. Mehta V.C.S & M. Co. Limited, A.I.R. 1962 S.C. 1314	The principle that where parties have named in a contract a sum of money to be paid as liquidated damages, that sum is enforceable (under section 74 of the Contract Act) and there is no need to ascertain unliquidated damages; i.e., an agreed liquidated sum excludes a claim for unascertained damages.	The Court distinguished Chunilal because in that case the damages were ascertained; in the present case the Court found the amount claimed was not an ascertained sum and therefore Chunilal did not support the petitioner's position that the debt was an admitted/ascertained debt enforceable in winding up proceedings.

Court's Reasoning and Analysis

The Court proceeded by examining maintainability and whether the claim amounted to an ascertained debt that could ground a winding up order:

The Court noted the petitioner's admission (via counsel) that a civil suit was filed prior to the winding up petition to save limitation, and observed that this fact was not disclosed in the petition — suggesting suppression — but treated the point in light of the other objections.
The Court accepted respondent's preliminary objection that the petition involved disputed questions of fact which required detailed investigation and therefore were not appropriate for resolution in winding up proceedings under the Companies Act.
The Court analysed the nature of the claim: it is for damages arising from repudiation/cancellation of the contract. The Court emphasised the distinction between an ascertained, admitted debt and a claim for liquidated or unascertained damages requiring factual enquiry.
Relying on the distinction drawn from Chunilal (as relied upon by the petitioner), the Court concluded that Chunilal addressed situations where damages were ascertained by the contract. In contrast, in the present case the amount of damages was not certain or admitted: the cancellation clause required assessment of the percentage of work done and commitments — matters necessitating detailed factual determination.
The Court observed that the petitioner had already instituted a civil suit to obtain damages, confirming that the appropriate forum for resolution of the disputed factual and valuation issues was the civil court, not winding up proceedings.
The Court further observed that respondent No. 1 had produced material (annual reports annexed as R2–R6) showing it to be a profit-earning company; therefore, the Court could not treat respondent as "unable to pay its debts" under the Act.
Given the bona fide dispute on substantial questions of fact and the absence of an ascertained debt, the Court held that the winding up remedy was not available and that the petitioner should pursue its civil suit remedy.

Holding and Implications

Holding: The petition for winding up is refused and stands disposed of. The Court expressly dismissed the petition and relegated the parties to the civil suit already filed; there was no order as to costs.

Implications:

Direct effect on the parties: The petitioner is not permitted to use winding up proceedings to recover the disputed claim; the petitioner must pursue its civil suit to obtain damages. The petition is dismissed and the parties are relegated to the civil court remedy already initiated by the petitioner.
No broader legal change or new precedent was announced by the Court in this opinion beyond applying established distinctions (as illustrated by reference to Chunilal) between ascertained debts and disputed/unascertained damage claims for purposes of winding up petitions.

This summary is prepared exclusively from the text of the provided opinion; no facts or conclusions beyond that text have been added.

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Gleason Works v. Punjab Tractors Limited .

Ashok Bhan, J. — Present petition under section 434 (1) read with sections 438 and 439 of the Companies Act, 1956 (hereinafter referred to as the Act) has been filed for seeking winding up of the company Punjab Tractors Limited (hereinafter referred to as respondent No. 1) which arises out of the following facts:

2. Petitioner is a creditor of the company by assignment from M/s. Gleason Works, S.A Pare Industrial De Chlin, Bandour, Belgium. The amount due to the said the Gleason works, S.A of Belgium was assigned by the said Gleason Works, S.A to the petitioner by deed dated 12th January, 1994, a photostat copy of which has been attached as Annexure A to the petition. It is stated that the name of the Gleason works, S.A of Belgium has now been changed to Thenson Works S.A of Belgium which has been added as respondent No. 2 in this petition. The Gleason Works, S.A is a joint stock company registered in Belgium and a wholly owned subsidiary of the petitioner. The petitioner was controlling and managing its affairs and acting on its behalf till 10th November, 1993. When the shares held by the petitioner the Gleason Works were transferred, that in accordance with the negotiations carried on between the petitioner and the respondent company through M/s. Hypoids (India) Private Limited, the respondent company placed an order with the petitioner for three machines and tooling on 17th July, 1990 for a total price of 20,232,105 Belgium Francs equivalent to 600,000 US Dollars; that in the indent dated 17th July, 1990 following terms were stipulated:—

(i) Machinery was to be supplied free on Board Port of Shipping in sea worthy packing. All other charges upto the port of loading were to become by the petitioner.

(ii) An irrevocable Letter of Credit was to be opened by Punjab Tractors Limited for Full FOB. payment. Payment of Commission of Hypoids (India) Private Limited was to be paid in Indian currency 30 days after the receipt, inspection and acceptance of the material at the works of Punjab Tractors Limited.

(iii) The items were against import license set out in the indent:

Mode of despatch by sea.”

The order was placed by respondent No. 1 through M/s. Hypoids (India) Private Limited who forwarded the same to the petitioner. The Gleason Works, S.A acknowledged the receipt of the order of the respondent-company. There was a written contract in which there was a cancellation clause which reads as under:—

“3. Cancellation: This contract shall not be subject to cancellation by buyer without the consent in writing of the seller. No such consent will be given where the work is 90 per cent complete or scheduled for completion within 30 days. In all other cases such consent will be granted, if at all, only upon the condition that buyer shall compensate seller for such cancellation by paying to the seller that percentage of the total price of the contract that the work done and raw material or supplies used or for which commitments have been made bear to the total of the contract as the same may be determined by Seller.”

That the equipment ordered by the respondent No. 1 was to be specifically manufactured by the petitioner in accordance with the specifications and indent placed by respondent No. 1 and were to be shipped by the petitioner in June 1991 FOB Port of Shipment provided Letter of Credit three months before the date of shipment i.e 3rd February, 1991 opened by the respondent company in favour of the petitioner; in breach of agreement Letter of Credit was not opened by February 1991 and instead respondent company sought various extensions which were agreed to by the petitioner; that on 27th April, 1992 respondent No. 1 illegally cancelled the said order on the ground that after the placement of the orders the prices of the machines due to drastic changes in economic policy of the country have increased exorbitantly which makes the operation of the machines for their applications totally uneconomic and unviable for them. Respondent No. 1 showed its inability to pick the machines and cancelled the orders. It is Page: 636stated in the petition that the machineries were transferred to warehouse in Antwerp (Belgium); that statutory notices were issued to respondent No. 1 by the petitioner to which reply was received which was vague in nature; that respondent No. 1 was liable to pay 6,00,000 US Dollars as damages which comes to be an admitted debt; that respondent No. 1 having failed to make the payment is liable to be wound up.

3. Notice of this petition was issued to which reply has been filed. In the written statement, it has been averred that the petition is misconceived and misdirected and liable to be dismissed as bonafide dispute exists between the parties which requires detailed investigation into facts; that respondent No. 1 is a solvent and flourishing company and cannot by any stretch of imagination said to be a company unable to pay its debts; that respondent No. 1 is a profit making organisation the machinery for winding up should not be allowed to be used by the petitioner as means for realising amount from the respondent company. Annual reports of the respondent-company have been attached to show that respondent No. 1 is a profit earning company.

4. No debt as envisaged under sections 433/434 of the Act is due from respondent No. 1 to the petitioner as the petitioner's entire case is based upon a claim for unascertained damages which under any circumstances cannot be equated with debt; that petitioner has suppressed the material facts regarding filing of civil suit prior to the filling of the present petition in which the claim made is the same as in the present case; that there was no privity of contract between the petitioner and respondent No. 1 and, therefore, this petition was not maintainable. On merits, the averments made in the petition have been denied. It has been stated that respondent No. 1 is not liable to pay any amount to the petitioner.

5. Counsel for the parties have been heard. Counsel appearing for the petitioner admitted that civil suit was filed prior to the filing of the present petition but the same had been done in order to save limitation. Even if the suit had been filed to save the limitation, the fact of having filed the suit should have been mentioned in the petition but unfortunately this fact does not find mention in the petition from which it is assumed that the petitioner has tried to suppress the same. Be that as it may, I find substance in the preliminary objection raised by respondent No. 1 regarding maintainability of the present petition because it involves disputed questions of facts. Undoubtedly, the amount claimed in this petition is due from the respondent company is on account of contract entered between the respondent No. 1 and with M/s. Gleason Works, S.A This amount is not an ascertained sum of money which can be said to be an admitted debt payable by respondent No. 1 to the petitioner. Amount claimed is in the nature of liquidated damages for repudiating the contract. In the case of repudiation of a contract, two courses are open to a party i.e either to get it specifically enforced or claim liquidated damages. It is not a case of specific performance. For ascertaining the liquidated damages, the detailed investigation into tacts has to be gone into and for that the petitioner has already filed a civil suit. Investigation of facts as in the present case cannot be made in these proceedings. In the proceedings under the Act, the company can be ordered to be wound up regarding ascertained sums of money due from the respondent to the petitioner when the respondent company unable to pay its debts. In the present case, it cannot be held that respondent company is unable to pay its debt because it is a profit earning company which fact is evident from the averments made in the written statement and the copies of annual reports of the respondent-company which have been attached as Annexures R2 to R6. The dispute raised by the respondent company is a bona fide dispute which can only be decided by the civil Court. The dispute being contentious which needs determination of facts, petitioner is relegated to its remedy of filing a civil suit for redressal of its grievance.

6. Counsel for the petitioner relied upon Chunilal v. Mehta V.C.S & M. Co. Limited, A.I.R 1962 S.C 1314, to say that this Court under the Act can order payment of damages. Specific reliance was placed on para 11 of this judgment which reads as under:—

“Where parties name in a contract reduced to writing a sum of money to be paid as liquidated damages they must be deemed to exclude the right to claim an unascertained sum of money as damages. The right to claim liquidated damages is enforceable under section 74 of the Contract Act and where such a right is found to exist no question of ascertaining damages really arises. Where the parties have deliberately specified the amount of liquidated damages there can be no presumption that they, at the same time, intended to allow the party who has suffered by the breach to give a go by to the sum specified and claim instead a sum of money which was not ascertained or ascertainable at the date of the breach.”

7. A perusal of this paragraph shows that in Chunilal's case (supra), the amount of damages was ascertained whereas the amount of damages is not certain in the present case. Counsel for the petitioner argued that in the cancellation clause Page: 637which has been reproduced in the earlier part of this judgment, it is clear that damages for cancellation of contract were 100 per cent where the work had been completed; that in the present case, work had already been completed by the petitioner and the respondent-company has refused to lift the machinery which has been specifically manufactured for the use of respondent company; and therefore, the same is liable to pay 100 per cent price of the contract. I do not find any substance in this submission as well. Amount of damages in the present case is not certain. The case of the respondent is that machinery could not be lifted because of certain unavoidable circumstances for which the respondent was not responsible. A Civil suit has already been filed for claiming damages. As to what would be the effect of cancellation of the contract and how much damages under these circumstances may/can be awarded to the petitioner shall have to be adjudicated upon which cannot be said to be an admitted debt for which the respondent company can be ordered to be wound up. As observed in the earlier part of this judgment respondent No. 1 is a profit earning company and it cannot be said that it is unable to pay its debt.

8. For the reasons recorded above, I refuse to entertain this petition and relegate the parties to their remedy of filing the civil suit which has already been filed. This petition stands disposed of with no order as to costs.

Petition dismissed.

Gleason Works v. Punjab Tractors Limited .

Structured Summary of the Court's Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Gleason Works v. Punjab Tractors Limited .

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