@JUDGMENTTAG-ORDER
A.S. Bopanna
1. The petitioner is before this Court in this petition filed under Sections 433 (e) and (f) of the Companies Act praying that the respondent company ordered to he wound up so as to realise the amount due according to petitioner, from the assets of the company. Though the petitioner contends that he has other claims also against the respondent company, he has restricted his claim in the instant petition for a sum of Rs. 1,12,50,000/- towards annua) bonus with 15% interest and for the sum of 700.000 US Dollars (''USD'' for short) towards balance of Consultancy fee. The said amount claimed are according to the petitioner admittedly due as it is payable notwithstanding the termination of agreement. In respect of the other claims the petitioner has initiated Arbitration proceedings as per the terms of the agreement. The respondent company has filed its objection statement and disputed the claim made in the instant petition and have put forth their grounds of defence. The petitioner has filed his rejoinder. Heard Sri Srinivas Raghavan, learned counsel far Indus Law on behalf of the petitioner and Sri Aravind Kamath, learned counsel for ALMT Legal appearing on behalf of respondents. Perused the materials on record.
2. The undisputed facts are that the respondent company which was incorporated on 20.12.2006 as ''Paprikaas Interactive Services Private Limited'' has thereafter changed its name to the one indicated in the cause title. The respondent company is engaged in the business of providing services to global animation, video games, visual effects and its objects and services are detailed in the Memorandum and Articles of Association. The petitioner was a Director of the respondent Company and also employed as Chief Executive Officer (CEO) in the respondent company. The terms of employment was agreed under an agreement dated 13.02.2007 which was for the initial period of three years. On mutual terms, the employment as CEO was terminated during September 2009 i.e., before the completion of the initial period of three years. Thereafter the petitioner, his wife and two other shareholders of the respondent company sold the shares held by them in the respondent company to the holding company under a Share Purchase Agreement dated 29.12.2009. Further, a Consultancy Agreement dated 31.12.2009 was entered into between the petitioner and the respondent company whereunder the Consultancy fee of 900,000 USD and Commission was agreed on the terms indicated therein.
3. The grey area regarding which the petitioner and the respondent company are litigating is that the petitioner contends that the bonus due under the Employment Agreement which is assured is not paid. Further, since the Consultancy fee was agreed in the context of the valuation and sale of the shares of the respondent, the amount agreed under the Consultancy Agreement is payable for the period of three years irrespective of whether the agreement is terminated or not. According to the petitioner, the said amount having been agreed to be paid under the said agreements and not being paid are to be construed as admitted debt. Since they have neglected to pay the same, the respondent company is liable to be wound up. The shelter taken under clause 12 of the Consultancy Agreement is only a moonshine defence and not a bonafide one.
4. On the other hand, the respondent company contends that the payment of bonus depends on the circumstance indicated in the Employment Agreement which not only requires an assessment of the performance, but also the other criteria. They contend that even with regard to the Consultancy fee also, the payment was circumscribed by the compliance of the terms of the agreement. Since the petitioner has contravened clause 12 and entered into competing business though it is prohibited therein, he would not be entitled to the amount when the agreement is terminated on that basis. There is an arbitration clause and the notice itself shows that they should raise a dispute and in any event, a reference is already pending before the Arbitrator. Hence, no case is made out for seeking winding up.
5. The learned counsel for the petitioner while contending that the Arbitration proceedings is initiated with regard to aspects wherein there is a dispute and regarding the claim made herein it cannot he disputed, relied on the decision of the Hon''ble Division Bench of this Court in the case Hegde & Golay Ltd., -vs- State Bank of India ILR 1987(3) Kar 2673 for the proposition that the pendency of a suit is no bar to the maintainability of winding up petition when the company tails to show that the debt is bonofide disputed. On the other hand the learned counsel for the respondent relied on the decision of the Hon''ble Supreme Court in the Case of
29. If is beyond dispute that the machinery for winding-up will not be allowed to be utilized merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami (1965) 85 Comp Cas 456 (SC) this Court quoted with approval the following passage from Buckley on the Companies Acts. (13th Edn., p. 45 I):
It is well-settled that ''a winding-up petition is nor a legitimate means of seeking to enforce payment of the debt, which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court''.
30. Examined in the light of the above, we are unable to uphold the judgments of the courts below on the facts narrated above. Our reasons are as under:
(1) The basis of the claim of the first respondent for Rs. 72.50 lakhs to the promoters agreement dated July 1, 1988. This agreement has been cancelled by the appellant by notice dated October 31, 1992. Though the learned Single Judge of the High Court referred to this aspect he had not pursued it further. He has not considered as to what would be the consequence. Unfortunately, the Division Bench has overlooked this aspect when it held thus:
In the present case, there is an allegation in the petition that there was an agreement between the Company and Dalmia Dairy industries for promoting the petitioner Company and that under the terms of that agreement of the Company had to pay certain amounts. There is nothing on record to suggest that, such an agreement was not entered into.
(2) The first respondent is not a creditor. The appellant is not a debtor because it is a financial institution for an amount which is agreed to be subscribed. Neither the learned Single Judge nor the Division Bench has decided this important question whether there is a debt, and the company has either neglected or is unable to pay.
(3) The same claim is the subject-matter of arbitration which is pending adjudication. Therefore, there is no definiteness about it.
(4) In view of all these, there is no prima facie dispute as to the debt.
(5) The defence raised is a substantial one and not mere moonshine. We find it difficult to appreciate the reasoning of the learned Single Judge when he holds that, there are arguable issues and, therefore, the winding-up petition has to be admitted. On this aspect the courts, below failed to nose that the admission of the winding-up petition is fraught with serious consequence as far as the appellant is concerned.
6. It is contended that there is reference to pending arbitration in the said decision and in such case, winding up is not the remedy. The thrust of both the above noticed decisions is that, to avoid winding up petition there should exist a bonafide dispute. The learned counsel for the petitioner in that context relied on the decision of the Hon''ble Supreme Court in the case of
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.
This decision in fact has been referred to in the subsequent decision rendered by the Hon''ble Supreme Court relied on by the learned counsel for the respondent; in the case
20. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? in such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor''s debt is bona fide disputed on substantial grounds, the Court, should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure, The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt.
21. In this connection, reference may be made to the judgment of this Court in
It is well-settled that ''a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the Court''.
22. The abovementioned decision was later followed by this Court in
23. The principles laid down in the abovementioned cases indicate that if the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433 (1) (a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non�payment of the amount of such a bona fide disputed debt cannot be termed as "neglect to pay" so as to incur the liability u/s 433 (e) read with Section 434 (1) (a) of the Companies Act. 1956.
7. Therefore, the settled position of law is that the dispute would be substantial and genuine, if it is bonafide and not spurious, speculative, illusory or misconceived. It is also the position that the company Court at that stage is not expected to hold a full trial of the matter and it must decide whether the grounds appear to he substantial. In my view, one of the surest, ways to determine that aspect would be to notice whether such defence had been an issue between the parties even before the matter ended up in the Company Court. In any event it should he disputed before issue of statutory notice and not the one raised for the first time when the statutory notice is issued or in the objection statement filed before this Court. In that perspective, the case on hand needs to be examined and the materials on record are to be appreciated without doing it in the nature of trial to determine the right of the parties, except to arrive at the prima facie opinion as to whether it needs determination elsewhere or as to whether it is so clinching and indisputable that the company petition is to be entertained
8. The first claim relates to the Bonus payable which is stated to have been agreed under the Employment Agreement dated 01.02.2007 (Annexure-C) and it is the case of the petitioner that it is due to be paid for the period agreed therein. Clause 3 of the agreement refers to the compensation and benefits which include Bonus. Apart from the said clause indicating the manner of determination, it refers to Exhibit-A of the same agreement wherein the Bonus criteria is made more explicit. The respondents therefore pointing out the contingencies indicated therein have also relied on the minutes of the meeting of the Board of Directors dated 03.03.2009 (Annexure-C to objection statement). The petitioner herein was also one of the Directors who attended the meeting. Item No. 11 considered was to review the salary and annual Bonus payable to the CEO i.e., the petitioner herein, the decision was unanimous to the effect that there would be no salary increase for 2009 and no bonus for 2008. It is no doubt recorded that the petitioner did not vote due to conflict and this was stressed by the learned counsel for the petitioner in his reply. But, the fact remains that there-was certain decision at that period itself which has not been protested by the petitioner in any other manner. Further, admittedly the Employment Agreement was terminated thereafter during September 2009 and Share Purchase Agreement dated 29.12.2009 (Annexure-D) and Consultancy Agreement dated 31.12.2009 (Annexure-E) were entered into between the parties containing the terms regulating the rights and obligations of the parties which did not protect the accrual of the earlier benefits. Therefore, the amount claimed as due under the Employment Agreement cannot be considered as an admitted debt at this stage which would have to be adjudicated in an appropriate proceedings between the parties.
9. The next claim relates to the amount due according to the petitioner under the said Consultancy Agreement dated 31.12.2009. Clause 4 therein refers to the Compensation and payment. The retainership of the petitioner as Consultant is indicated at Rs. 11,62,500/- per month i.e., equivalent to USD 25000 which would amount to USD 900.000 in all since the Term agreed in clause-6 is for three years from 01.01.2010 to 31.12.2012 unless terminated in accordance with the provisions of the agreement. Clause 7, more particularly 7.1 to 7.3 regulates the Termination of agreement by the Company and the consequences, flowing therefrom. The learned counsel for the petitioner therefore placed heavy reliance on the same to contend that at best Commission may be discontinued which is also disputed and therefore, the same is claimed in Arbitration. It is however his vehement contention that the compensation/retainership fee agreed is to be paid for the entire period of three years notwithstanding the termination of agreement, and as such the balance of USD 700,000 should be treated as admittedly due. It is argued that the only exception is if there is violation of Clause 12 by the petitioner which is not the case herein. Even if the alleged violation of non-compete/solicit as contended by the respondent company is taken into consideration, it is contended that first and foremost, it is contrary to Section 27 of the Contract Act and as such cannot be enforced. Even otherwise, the petitioner is only producing an Animation movie, while the respondent company is providing services and this cannot be considered as a competing business and therefore, it is not violation, is the further contention.
10. Per contra, the learned counsel for the respondent has also laid emphasis on clause 7 and 12 of the Consultancy Agreement and contended that the agreement was terminated for violation of clause 11 thereof. The E-mail dated 21.03.2000 (Annexure-E to objection statement) is referred to point out that much earlier to termination, the respondent company has acted in a very responsible manner to bring it to the notice of the petitioner about his undesirable activities and yet continued to pay the amount thereafter as there was no concrete material at that stage. The respondent company thereafter came across a press release in Variety magazine dated 13.09.2010 and also on the Website of the petitioner, (the printout at Annexure-F to the objection statement) that the petitioner''s establishment with one ''Pelagius Entertainment'' have launched development of animated feature "Hot Dogs". Therefore, since the petitioner violated the terms and had also joined hands with a competitor of the respondent company, by the E-mail dated 13.10.2010 (Annexure-F) the respondent company terminated the agreement for violation of clause 12 and as such the amount is not payable as he is disentitled to the same.
11. The decision of the Hon''ble Supreme Court in the case of Niranjan Shankar Golikari vs. Century Spinning and Manufacturing Co. Ltd (AIR 1967 SC 1098) is relied to contend regard the validity of non-�compete clause. It is held therein that the onus is on the party supporting the contract to show that the restraint is reasonably necessary while the onus is on the party attacking the contract to show that it is injurious to public policy. It is also held therein, the negative covenant that the employee would not during the contract period, engage in trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties is not restraint of trade or business unless the contract is harsh and one sided. In the instant ease, such clause was necessary will have to be prima facie accepted since the petitioner was doing similar work for the respondent company as CEO and also as Director. Thereafter the agreement was entered which included sizeable compensation and commission for the services that would be provided to the respondent company. Keeping this in view, similar business restraint was imposed during the period of contract. The petitioner signed the contract agreeing to such condition and has also received the compensation till August 2010.
12. The petitioner in his rejoinder has no doubt sought to contend that the respondent company was aware that the petitioner had promoted ''Protein Entertainment'' and that he was desirous of developing an animation feature film but did not raise objection earlier. As noticed, it is also contended by the learned counsel for the petitioner that the petitioner had produced a movie which is not the business of the respondent company. When it is clear that the petitioner is not doing it independently but is doing with ''Pelagius Entertainment'', it does not stand explained at this stage as to why such project could not be done with the respondent company and he had chosen a competitor of the respondent company. The role of the petitioner vis-a-vis ''Pelagius Entertainment'' and in that context whether it had offended clause 12 of the Consultancy Agreement are ail questions which require determination in an appropriate proceedings before arriving at the conclusion that the amount is due as a debt and there is neglect to pay, which is to be recovered in winding up proceedings. The fact that certain issues were brewing from March 2010 and that the petitioner is admittedly doing business with a competitor will raise questions for determination. Hence, certainly it cannot be said that it is a ingenious way or mask adopted by the respondent company for making out a dispute where it does not exist. In the background of the above, the dispute raised by the respondent company will have to be considered as substantial and not spurious, illusory and misconceived. The petitioner will have to therefore establish his claim in an action. In any event, the petitioner has admittedly raised a claim before the Arbitrator wherein he can secure complete adjudication. At this stage, since it cannot be classified as an admitted debt. I see no reason to exercise the discretion vested in this Court to entertain the petition. The observations made herein are limited to that aspect only and all contentions are left open for consideration by the appropriate forum.
In the result, the petition is dismissed with no order as to costs.
