Yehuda Silberberg Ltd. vs Premier Polyweaves P. Ltd.

Chitra Venkataraman, J.—This company petition is filed under Sections 433(e) and (f), 434(1)(a) and 439(1)(b) of the Companies Act, 1956, seeking winding up of the respondent-company on the strength of the decree obtained before the court in Israel.

The case of the petitioner is that under the agreement dated January 22, 2001, the petitioner herein placed orders on the respondent-company for the supply of certain fabrics of the quality mentioned therein. The contract specified the type of fabric, the weaving method, density of the weave, resistance to tearing and absence of unusual fibres. The letter of credit indicated the minimum standards for reach of the criteria.

The case of the petitioner was that during the year 2001, the respondent supplied fabrics, which were found to be defective and in spite of repeated requests and reminders, it failed to replace the same with proper fabrics. The defective supply resulted in the cancellation of the contract that the petitioner had with its overseas buyers. This according to the petitioner, resulted in a loss of profit to the petitioner. In respect of unpaid money on the supplied material, the respondent initiated proceedings before the magistrate court of Tel-Aviv-Jafa. The petitioner also made counter claim on the respondent in respect of the loss said to have resulted on account of cancellation of the contract with its overseas buyers. By judgment dated May 4, 2005, the magistrate court of Tel-Aviv-Jafa passed a decree in respect of a counter claim made by the petitioner that the respondent was bound to pay a sum of 993,883 NIS plus linkage differences and interest as per the Israel law from the date of the claim, viz., August 28, 2002, to the date of actual payment. The court in Israel granted relief under the head "Loss of profit" in respect of the petitioner''s contract with the US buyers, cost of finishing and expenses incurred in respect of shipment to the petitioner''s foreign buyers. The court in Israel rejected the plea of the respondent for a decree on the supplies made. The petitioner contends that by reason of the decree so far not paid, it is entitled to interest at 5 per cent. per annum. Accordingly, the total amount payable by the respondent is to the tune of 342,623.11 USD equivalent to Rs. 1,38,76,235.95 as on July 18, 2008, with further interest on the said sum until the date of realisation. The petitioner issued notice to the respondent on July 18, 2006. The respondent replied through a reply notice dated August 8, 2006, refuting the claim. In the circumstances, the present petition is made before this Court.

Learned senior counsel appearing for the petitioner referred to the decision of the court in Israel as to the certificate issued regarding the defective character of the goods supplied leading to the cancellation of the contract that the petitioner had with the overseas buyers, thus leading to a loss of profit. He pointed out that the learned judge of the court in Israel pointed out that this is a case of a contributory negligence whereby the petitioner shall bear 40 per cent. of the amount and 60 per cent. payable by the respondent herein. It also quantified the loss of profit.

Referring to the efficacy of foreign court decision, learned senior counsel pointed out that the respondent sought the assistance of the Israel Judicial Forum for the purpose of adjudicating its claim. In the circumstances, having thus opted for the jurisdiction of the foreign court, the decree passed thereon is binding on the respondent and is no more open to the respondent herein to say that by reason of Section 44A of the Code of Civil Procedure, the decision is not a judgment to bind on the rights of the parties to give rise to the debt enforceable under the Indian law. He made a particular reference to the decisions reported in [1980] 50 Comp Cas 422 (Mad) (Seethai Mills Ltd. v. N. Perumalsamy) and China Shipping Development Co. Ltd. Vs. Lanyard Foods Ltd., , apart from ILR [1879] 400 (Nallatambi Mudaliar v. Ponnusami Pillai) and Badat and Co. Vs. East India Trading Co., , as to the effect of the foreign judgment to sustain the petition.

In the above circumstances, learned senior counsel submits that when the foreign judgment created a liability and the respondent had not chosen to rely on the Indian law either in support of its claim or even as to submit the defence as against the counter claim made by the petitioner for damages, it is no longer open to the respondent to rely on the provisions of Section 73 of the Indian Contract Act as a defence available to counter the claim made by the petitioner. Considering the scope of Section 433(1)(a) and (b) of the Companies Act as had been interpreted in [1980] 50 Comp Cas 422 (Mad) (Seethai Mills Ltd. v. N. Perumalsamy), he prays that the company petition be ordered.

Per contra, learned senior counsel appearing for the respondent made a detailed reference to Sections 13(c) and 44A of the CPC to submit that Israel is not a reciprocal State to have the binding effect of the foreign decree, the proper course for the petitioner would be to go before the Indian court to establish its right under the Indian law. He submits that the decree obtained under the foreign judgment, hence, would not come under "debt" by reason of Section 13(c) and the provision of Section 44A of the CPC read along with Article 101 of the Limitation Act, 1963, for the petitioner to proceed under the provisions of the Companies Act, 1956. When the petitioner had not filed any suit within the three year period of its claim, there could be no debt to result in a winding up proceeding. Even otherwise, he submitted that in the absence of any contract between the respondent and the petitioner''s foreign buyer or any reference thereon in the contract between the petitioner and the respondent, the question of claiming damages on account of a claim by the foreign buyer of the petitioner as against the petitioner would not arise. He pointed out that there was no reference to the petitioner''s foreign buyer''s contract in the transaction between the petitioner and the respondent. Quite apart from the fact that, Israel is not a reciprocal State to have the decree obtained to be considered as a debt, learned senior counsel also pointed out that even on merits, the company petition itself is not maintainable.

Learned senior counsel for the respondent pointed out to the healthy finances of the company and placed reliance on a series of decisions reported in Tata Iron and Steel Co. Vs. Micro Forge (India) Ltd., ; Registrar of Companies Vs. Atlas Transport Private Ltd. and Others, and [1964] 34 Comp Cas 6 (Mad) (A.C.K. Krishna-swami v. Stressed Concrete Constructions P. Ltd.), particularly to Tata Iron and Steel Co. Vs. Micro Forge (India) Ltd., , to show that the respondent''s case does not fall under any of those clauses narrated therein to seek winding up of the company. He stated that when the debt is denied and the defence is bona fide, this Court may not exercise its discretionary jurisdiction under the Companies Act, 1956. Learned senior counsel submits that in the light of the various decisions relied on, the petition filed merited to be rejected both on the question of law as well as on points of fact. Referring to the balance sheet and the CRISIL ratings, he placed reliance on the decision reported in Narsey Brothers Vs. Nithyalakshmi Textiles Mills Pvt. Ltd., , and prayed for rejection of the company petition.

Heard learned senior counsel on either side.

I agree with the submissions of learned senior counsel for the respondent. The remedy sought for by the petitioner in the form of a winding up petition contemplates a situation as provided u/s 433 of the Companies Act, 1956, when the respondent is unable to pay its debts. In the decision reported in [1972] 42 Comp Cas 125 (Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd.), the apex court pointed out that where the debt is undisputed the court will not act upon the defence that the company has the ability to pay but the company chooses not to pay that particular debt. The apex court pointed out that (page 131): "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."

Even assuming for a moment that the decision of the court in Israel created a decreetal debt as held in the decision of the apex court reported in [1972] 42 Comp Cas 125 (Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd.), the jurisdiction of this Court being a discretionary one, even in respect of the admitted liability, the court may still refuse to order winding up so long as the articles of association still has relevance to have the company a going company. Hence, on the strength of the very law declared by the apex court, I do not find any justification to order winding up in this matter. In the decision reported in [1964] 34 Comp Cas 6 (Mad) (A. C. K. Krishnaswami v. Stressed Concrete Constructions P. Ltd.), rejecting the plea holding that the mere fact that the liabilities of the company exceeded its assets is not a ground for ordering winding up. Guided by the principles of the apex court formulated and summarised in the decision reported in Tata Iron and Steel Co. Vs. Micro Forge (India) Ltd., and in the decision of this Court reported in [2008] 144 Comp Cas 446 : [2008] 3 LW 719 (Narsey Brothers v. Nithyalakshmi Textiles Mills P. Ltd.), on a mere look of the balance-sheet and the fact that the company is a going company, I reject the plea of the petitioner to order winding up in this case.

There are other reasons to reject this petition, namely, bona fides of the defence. As rightly pointed out by learned senior counsel for the respondent, serious disputes are raised as regards the binding nature of the court in Israel decision by placing reliance on Sections 13(c) and 44A of the Code of Civil Procedure. A reading of Section 13(c) of the CPC shows that the foreign judgment shall be conclusive except as regards the instances referred to u/s 13(a) to (f). Learned senior counsel for the respondent pointed out that where a decision rested on an incorrect view of the international law or a refusal to recognise the law of India in cases in which such law is applicable, there is no conclusiveness attached to the foreign judgment. Learned senior counsel for the respondent pointed out that the petitioner had not laid any suit within three years as provided for under Article 101 of the Limitation Act, 1963. Referring to Sections 73 and 74 of the Indian Contract Act, 1872, learned senior counsel pointed out that in the absence of specific material to quantify the damage and loss suffered, the judgment under that head is not maintainable. In the face of the provisions of the Indian Contract Act, the theory of closest and most real connection would have relevance for the purposes of deciding the issue. He pointed out that when the respondent is entitled to have a defence placed u/s 73 of the Indian Contract Act, 1872, the reasoning of the court in Israel is open for challenge. In this regard, the claim made by the respondent on the strength of Sections 13(c) and 44A is a substantial defence taken by the respondent. Admittedly, Israel is not one of those reciprocating States recognised in terms of Section 44A of the Civil Procedure Code.

Considering the defence made, which cannot be rejected as lacking in bona fides, the criteria for ordering winding up not thus satisfied, I do not find any justification in ordering winding up of the respondent-company. It is open to the parties herein to have their contentions as regards the binding character to the Israel judgment considered in an appropriate forum, if and when they choose to exercise their rights.

In the circumstances, for the purpose of considering the winding up petition, it is not necessary for this Court to get into the binding nature of the foreign judgment with reference to Section 44A or 13(c) of the Code of Civil Procedure. I feel it is suffice for me to make this reference for the purpose of completion of the narration of the submissions made by learned senior counsel on either side. Considering the fact that grounds do not exist factually as required u/s 433 of the Companies Act, I do not find any ground to admit the company petition. The petitioner has not proved the inability of the respondent-company to pay the alleged debt.

In the circumstances, with the dispute raised as to the enforceability of the debt, I do not find any justification to order this petition. Hence, I reject this company petition. Accordingly, this company petition is dismissed. No costs. Consequently, all the connected applications are also dismissed.