@JUDGMENTTAG-ORDER
B. Manohar, J.@mdashThis Company petition is filed under Sections 433(e) and 434 read with Section 439 of Companies Act, 1956 seeking for winding up of the Respondent-company for non-payment of its debts.
2. The Petitioner is a company incorporated under the Companies Act having registered office at ITBP Road, Whitefield, Bangalore. The Petitioner-company is involved in the business of information technology, product and services.
3. The Respondent-company was incorporated under the Companies Act, having its registered office at No. 18/11B, Roopena Agrahara, Begur Hobli, Madiwala, Bangalore-68. The main objects for which, the Company is incorporated are to engage in the business of designing, development, production, managing advising, importing, exporting and marketing of telecommunication and internet related equipments, industry specific software and hardware solutions. The personal training and other kind of services or facilities relating to telecommunication and internet hardware, software and technology, programming, software developing, internet and digital media and any other electronic communication devices.
4. The Respondent-Company approached the Petitioner-company with certain information technology Products and Services in the nature of WiMAX MAC software, WiMAX PHY software and Switch Over Software for Single Sector and Three Sector base Station Solution" ("software"). In pursuance of the same, the parties entered into a Software License Agreement dated 12-11-2009("SLA"). In terms of the SLA, the Petitioner licensed the Software to the Respondent-company on "Non-Exclusive" basis. The Petitioner duly provided the services as required by the Respondent-company.
5. Subsequently, the Respondent-company once again approached the Petitioner and induced the Petitioner to agree and convert the license granted to the Respondent-company under the SLA from "Non-Exclusive License" to an "Exclusive License" for an additional license fees of USD 2,325,000 (Two Million Three Hundred Twenty Five Thousand United States Dollars.). The parties entered into a Memorandum of understanding dated 18-12-2009 (MOU)whereby, the Respondent-company agreed to make payment of USD 2,325,300 (Two Million Three Twenty Five Thousand United States Dollars) towards the Exclusive License rights provided to the Respondent-company for the software. The copies of SLA and MOU are produced at Annexures-A and B in this company petition.
6. In terms of MOU, the Respondent-company is required to make payment of USD 2,325,000 towards the Exclusive License granted to Respondent-company. The said amount was payable in addition to the consideration payable under the terms of SLA. The MOU was valid for a period of six months. However, with the mutual consent of the parties the MOU was extended to 31st December 2010. Thereafter, once again extended to 15th February 2011. The Petitioner has performed its part of obligations by grant of Exclusive License to the Respondent-company for the software. The Petitioner-company had supplied the deliveries to the Respondent-company. Some of the doubts raised by the Respondent-company were cleared and clarified by the Petitioner-Company. Emails and letters have been exchanged between the parties regarding delivery of deliverables. In spite of supply of all the deliverables, the Respondent-company issued notice dated 1-10-2010 pointing out the delay in performance of obligations under SLA. The Petitioner-company clarified all the aspects as per the letter dated 14-11-2010 stating that the Petitioner could not be fastened with the responsibilities/liabilities for the delay as stated in their letter dated 1-10-2010. The reasons for delay inter alia being that the Respondent-company changed the scope of work under the SLA; the Respondent-company delayed in providing dependencies (inputs); failure of the Respondent-company to promptly approve the deliverables provided by the Petitioner-company and defects in the third party software, hardware provided by the Respondent-company. Further, the Petitioner company also sent an invoice dated 31-12-2010 for a sum of Rs. 11,56,83,467/- (Rupees Eleven Crores Fifty Six Lakhs, Eighty Three Thousand Four Hundred Sixty Seven) which is equivalent to USD 2,325,000. The Respondent-company failed to pay the said amount. However, the Respondent-company raised certain issues in relation to the release of delivery of the Software as per its letter dated 17-2-2011. The Petitioner-company has clarified all the aspects as per the letter dated 22-2-2011. In spite of the repeated reminders, the Respondent-company failed to pay the said amount. In view of that, a legal notice dated 26-2-2011 was issued to the Respondent-company u/s 434 of the Companies Act calling upon the Respondent to pay the dues within a period of 21 days as per Annexure- L. The Respondent-company submitted its reply on 14-8-2011 denying their liability to pay the said amount. Further, the Respondent-company also issued a legal notice dated 23-3-2011 as per Annexure P, calling upon the Petitioner to pay a huge amount of USD 66,389,426.67 within fifteen days as a counter claim. The reply to the legal notice issued by the Petitioner as well as the counter claim by the Respondent-company clearly disclose that with a dishonest intention the Respondent has issued legal notice to escape the liability to make payment. In view of that, the Petitioner has filed this petition seeking for winding up of the Respondent-company.
7. The Respondent entered appearance and filed detailed statement of objections denying the averments made in the Company Petition and contended that the Respondent-company is the only leading Indian Company engaged in designing, manufacturing and supplying broadband wireless service, including WiMAX, LTE (Long Term Evolution) and 4G products, in terms of both software and hardware to various telecom operators in India and across the world. The Respondent''s products are accredited by the International Organization for Standardization with quality management standard Certified to ISO 9001:2000 standards. The Respondent-company also has the distinction of having received the maximum number of products certified by the WiMAX Forum, an International nonprofit certification agency based in the United States which sets the Industry standard for products such as those manufactured by the Respondent. The Respondent''s products are deployed across various global telecom operators such as BSNL, Tata Teleservices Limited, Tata Communications Limited, the United Nations amongst others. The profit of the Company stood at Rs. 41,37,92,000/- (Rupees Forty One Crores Thirty Seven Lakhs Ninety Two Thousand only) as on 30th September 2010. The consolidated profit and loss account for the half-year ended 30th March 2010 was at Rs. 189,808,582/-.
8. The Respondent is promoted by Gemini Communications Limited, a leading network integrator in India with a global presence. It has a national wide presence in over 194 locations and employees over 2500 persons and is also a profit making entity. Gemini Communications Limited is a leading player in the field of Network, Network Security, E-Governance, ITeS, IT Strategic, IT consulting Wireless and telecom domains and caters to the numerous small and middle-size businesses worldwide.
9. The Respondent with a view to procure certain basic software from the Petitioner which was already available with the Petitioner requested for further features and development to the said software in order to utilize it as part of the abovementioned product. The Respondent-company entered into Software License Agreement with the Petitioner-company on 12th November 2009. Under the terms of SLA the Petitioner-company was to provide certain software licenses as defined in SLA and related documents and as described in the statement of work ("SOW"). The SOW is Annexure-C to the SLA. The tenure of the SOW was terminable on 31st December 2009 or earlier unless extended by writing. The SOW provides that Customerised Software was to be developed by the Petitioner as per the requirement of the Respondent on a base station made by the Petitioner. As per clauses 1.2 and 1.3 of SOW, the product has to be in accordance with the specifications set out in SOW. Further Clause 1.1 of SLA clearly provides that the nature of licensed program would be as identified in SOW. Further, the very definition of the licensed program clearly sets out that Licensed Program is to be in accordance with the specifications in the SOW.
10. The Respondent alleges that despite complete and full co-operation extended by the Respondent, the Petitioner has failed to comply with the terms of SLA and the related documents and has been unable to provide desired final product to the Respondent-company. In spite of extension given by the Respondent for MOU to complete the deliverables within the said period the Petitioner-company has failed to fulfill their obligations. The correspondence between the Petitioner and the Respondent companies clearly demonstrate that at the instance of the Petitioner the MOU was extended till 15th February 2011. In spite of the same the Petitioner in their communication dated 14th February 2011 stated as follows:
We, (TATA ELXSI Ltd) are pleased to inform you (PointRed) that we have completed and released all features of TEL BS ver 7.0 on 15th day of October 2010. We further wish to inform you that from 15th day of October 2010 onwards, our Engineers are working on the priority set by you on fixing of bugs (JIRAs) in TEL BS ver 7.0. We further wish to inform you that we are fixing the bugs as and when the same is reported by you. We are also fine-tuning the performance based upon your inputs.
11. This letter was issued one day prior to the last date. They themselves admitted that they are also doing fine-tuning performance. Hence it. is clear that as on the last date also they have failed to fulfill their liabilities. This correspondence between the Petitioner and Respondent clearly demonstrates the delay in execution of various commitments by the Petitioner. Due to the delay in fulfillment of commitment, the Respondent suffered huge loss in the business. The Petitioner was unable to provide the Respondent with a stable fully functional and complaint software to be used by the Respondent in its final product. The Respondent had made substantial investment into the project, but the Petitioner has failed to complete their part of obligation in spite of repeated extension of the time. The terms of extension of MOU clearly demonstrate that the Petitioner has failed to provide delivery of a full, working stable performance product even as late as 17th January 2011.
12. In the absence of such fully functional and complaint software, the Respondent-company has had to delay the commercial deployment of its product and has had to invest additional man power to help service its clients and end users to ensure that the software is acceptable for commercial deployment. Due to the actions of the Petitioner-company, the Respondent has had to suffer huge losses and trying its best to limit the damages. The Respondent has also put the Petitioner on notice in relation to such damages and reserves its rights to recover the same as per its letter dated 1-10-2010. In spite of the same, the Petitioner committed default in supplying the software,
13. The Respondent further submits that over a period of time, the Respondent has paid a sum of USD 533,016 and an additional sum of INR 13,635,838 for the work done under the SLA despite various non-complaint issues that have arisen in the Respondent''s share of obligations. Although the required obligation and timelines under the SOW were not met by the Petitioner, the Respondent was forced to disburse payments due under the SLA as the Petitioner threatened not to proceed further with the outstanding work. Due to the high, investments made by the Respondent into the project, of which, approximately 10% was in the software, the Respondent was forced to disburse some payments. In addition to that, various shortfalls in the nature of software supplied by the Petitioner under the SLA came to light only after the Respondent actually began to deploy the product in the field. This included interruptions in the connectivity of the product and also stability of the product to run for a continuous period of time. Both these conditions are necessary for the Respondent''s products to be successfully commercial. By this time, the Respondent had already made initial payment to the Petitioner in accordance with the terms of SLA. This payment was also not disputed by the Petitioner. This was made known to the Petitioner-company by the Respondent through Email and communication. In spire of the same, the Petitioner has not sent the deliverables. Their letter dated 14-2-2011 clearly demonstrates that they are still fine-tuning the performance, In spite of all these the Respondent sent a invoice of Rs. 11,56,83,467/- (Rupees eleven crores fifty six lakhs eighty three thousand four hundred and sixty seven only) and issued legal notice on 23rd February 2007. Even though the time extended expires on 15-2-2011, without verifying the performance of the deliverables, the Respondent has given reply pointing out the deficiencies and also denied the liabilities of the Respondent to pay the said amount. In the reply notice, it is also pointed out that in view of Clause 9.10 of SLA and MOU, provides for the dispute resolution and if there is any dispute between the parties out of the agreement, that has to be solved by the sole arbitrator appointed by the parties and sought for dismissal of the company petition.
14. Sri. Udaya Holla, learned Senior Counsel appearing for the Petitioner contended that as per the Software License Agreement (SLA) entered into between the parties, subsequently a Memorandum of Understanding entered into between the parties, the Petitioner completed, released and delivered the software to the Respondent-company as required under the contract. The software was supplied to the Respondent-company as per the schedule entered into between both the parties. The SLA was in force initially for a period of six months subsequently it was replaced by the MOU. As per the MOU, the Petitioner has to supply the deliverables on or before 31st December 2010. The Petitioner has sent all the deliverables to the Respondent as per the time schedule. However, the Respondent by its letter dated 1-10-2010, made some complaint regarding delay in supplying the software and alleges that the Petitioner has not complied with the Software License Agreement dated 12-11-2009 for delivery of milestones as per Clause 1.7 of Annexure-C. Further alleges that even after 10 months of extension of contract, contractual delivery timelines are not followed and deliveries are not stable and feature complaints are fully functional software as per the agreement.
15. The Petitioner has given reply to the said notice stating that the delay is due to the change of scope of work under the SLA by the Respondent-company and the Respondent-company has delayed in providing dependencies (inputs). Failure of the Respondent-company to promptly approve the deliverables provided by the Petitioner and defect in the 3rd party software, hardware provided by the Respondent-company, for that the Petitioner cannot be blamed. In spite of repeated reminders and requests, the Respondent-company failed to pay the amount as per the invoice issued by the Petitioner. In view of that, the Petitioner-Company has filed this petition seeking for winding of the Respondent-company. Further, the learned senior Advocate relied upon the judgment reported in 1999 97 Comp Cas 683 (Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., and contended that the arbitration clause is not a bar for filing winding up petition and also relied upon the following judgments:
AIR 1971 SC 600
(Madhusudan Gordhandas and Company v. Madhu Woolen Industries Private Ltd.)
AIR 1980 Comp Cas 50 54
(Virendrasingh Bhandari and Ors. v. Nandlal Bhandari and Sons P. Ltd.)
ILR 1974 KAR 2560
(Airwings Private Ltd. v. Viktoria Air Cargo Gmbh)
The Petitioner has contended that the winding up petition is maintainable if the Respondent-company failed to make the payment as per the invoice submitted by the Petitioner. He also contended that where the debt is undisputed, the Court will not act upon the defence of the company as the ability to pay the debt, but the company chooses not to pay the particular debt. 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 the winding up order without requiring the creditor to quantify the debt precisely. In the instant case, as per the SLA and MOU, the Respondent is bound to pay the debts and sought for passing the order of winding up of Respondent-company.
16. On the other hand, Sri. K.G. Raghavan, learned Senior Counsel appearing for the Respondent contended that as per the SLA as well as MOU, the Petitioner committed default in delivering the deliverables, which was of substandard, where the Respondent cannot use the said software. As per clauses 1.2 and 1.3 of SOW, the products to be customized and developed by the Petitioner for Respondent was to be in accordance with the specifications set out in SOW. The deliverables sent by the Petitioner are not as per the specifications. Clause 3 of SLA also provides that deliverables in terms of licensed program and the Petitioner shall deliver to the Respondent the licensed program in accordance with the delivery schedule specified in the Statement of Works. The Petitioner has not fulfilled the various obligations under the SOW nor has the Petitioner met the delivery schedule specified in SOW. Despite this, the Respondent has paid total cost of the project as set out under the SOW. The Petitioner has deliberately concealed this material fact. Further, even though the Petitioner has not fulfilled the obligations, entire payment has been made as per the SLA under the threat given by the Petitioner. Further, the Petitioner by its Email dated 25-3-2011 informed the Respondent regarding release of source code 7.0, without the said source code, the software cannot be opened. Further, by a letter dated 14th February 2007 as extracted above clearly states that they have completed and released all features. In the last para they have stated that "they are fine-tuning the performance based upon your input". It clearly shows that the Petitioner is still fine-tuning the software. The letter correspondence between the parties clearly discloses that there is default on the part of the Petitioner and there is breach of agreement by the Petitioner. The Respondent denied the supply of all deliverables. The question of paying the amount does not arise. In fact, due to the action of the Petitioner, the Respondent-company has suffered huge loss due to delay in commercial deployment of final product and they had made a counter claim for USD 66,389,426.67. That apart, SLA and MOU provide for dispute resolution, Clause 10.11 provides for dispute resolution which reads as under:
In the event of a dispute, the Parties shall informally attempt to settle any claim or controversy arising out of this Agreement through consultation and negotiation in good faith and a spirit of mutual cooperation. The Parties agree that any unresolved dispute shall be submitted to binding arbitration presided over by a mutually agreed sole arbitrator. The arbitrator shall conduct the proceedings as per the Indian Arbitration and Conciliation Act, 1996. Both the parties shall participate in the arbitration proceedings in good faith and cooperate for the resolution of the dispute. The award passed by the arbitrator shall be final and binding upon both the parties. The expenses of conducting arbitration shall be borne by the Party, who initiates arbitration. The venue of arbitration shall be at Bangalore.
17. Further, he also relied upon the judgments reported in
18. I have carefully considered the arguments addressed by both the senior advocates and perused the materials on record.
19. It is not in dispute that the Respondent-company approached the Petitioner-Company for certain IT products and service in the nature of WiMAX MAC software, WiMAX PHY software and Switch Over software for single sector and three sector based solution (software). Pursuant to the same, the parties Have entered into a Software License Agreement (SLA) dated 12-11-1999. In terms of the SLA, the Petitioner licensed the software to the Respondent-company on Non-Exclusive Basis. In terms of SLA, the Petitioner duly provided the service requirement to the Respondent-company. Subsequently, the Respondent-company once again approached the Petitioner-company, seeking to convert the license granted to the Respondent-company under SLA from Non-Exclusive License to an Exclusive License. The parties have entered into a Memorandum of Understanding on 18-12-2009 with an additional License Fee for Exclusive use of software. The contention of Petitioner is that as per SLA as well as MOU entered into between the parties, the Petitioner completed, released and delivered the software to the Respondent-company as required under the contract. The confirmation letter dated 14-2-2011 was issued to the Respondent. The details regarding deliveries also mentioned in the various dates. Thereafter, they issued an invoice for Rs. 11,56,83,467/-as per the MOU. For non-payment of the said amount, notice u/s 434 has been issued and filed this petition for winding up of Respondent-company.
20. The Respondent on the other hand disputed the fact of delivery of deliverables. The Respondent has contended as per the terms of SLA, the Petitioner was to provide certain software license as provided under the SLA and related documents as described in the Statement of Works i.e. Annexure-C to the SLA. The SOW provides that Customised software was to be developed by the Petitioner as per the requirement of the Respondent on a based station made by the Petitioner as per clauses 1.2 and 1.3 of SOW. Clause 1.1 of SLA clearly provides the nature of licensed program. The very definition of Licensed Program clearly set out that licensed program is to be in accordance with the specification in SOW. The Respondent alleges that despite complete and full co-operation extended by the Respondent, the Petitioner failed to comply with the terms of SLA and related documents and has been unable to provide the desired final product to the Respondent-company. In view of delayed supply of software, MOU was forced to be extended twice. In spite of extension of time, the Petitioner-company failed to supply the deliverables. The deliverables supplied are of sub-standards, which cannot be marketable. However, on a day prior to the MOU coming to an end, a letter was addressed to the Respondent by the Petitioner staling that they have completed and released all the features of TEL BS ver 7.0 on 15th day of October 2010 and further, they also stated that they were also fine-tuning the performance based upon the inputs. However, source code was released on 25-3-2011. Further, the correspondence between the parties clearly discloses that the Petitioner has jailed to fulfill their obligations. In spite of that, invoice has been sent claiming huge sum. Within 11 days of expiry of MOU, i.e. on 26-2-2011, a legal notice was issued u/s 434 of the Companies Act threatening that proceedings will be initiated for winding up of the Respondent-Company. This petition is filed on 12-4-2011. Further, stated that in view of Clause 10.11 of the SLA and MOU, the dispute between the parties has to be resolved by negotiation or by appointment of an arbitrator. The records clearly disclose that there is a serious and genuine dispute between the parties regarding supply and service of the software. As per the MOU and SLA, the deliverables has to be released on or before 31st December 2010. The Petitioner could not release all the deliverables. The term was extended twice. During the extended period also, the Petitioner could not supply the deliverables as could be seen from the letter dated 14-2-2011. Due to non-supply of software in time, the Respondent has suffered huge loss. The serious dispute of this nature has to be resolved by the Civil Court or the Arbitrator appointed with the consent of both the parties. The question whether the Petitioner has supplied the software demanded by the Respondent within the time as specified in the SOW has to be decided by the Arbitrator constituted by the parties. The Hon''ble Supreme Court in a judgment reported in
It is settled law that if the creditors'' debt is bona fide disputed on substantial grounds, the court should dismiss the winding up petition and leave the creditor first to establish his claim in an action, lest there is a 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 bonafide disputed debt. A dispute would be substantial and genuine if it is a bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at the stage of a winding up petition is not expected to hold a full trial of the matter. It must decide whether the grounds appeared to be substantial. The grounds of dispute must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement must be a mere wrangle....
Where the Company has a bona fide dispute, the Petitioner cannot be regarded as a creditor of the Company for the purposes of winding up. "Bona fide dispute" implies the existence of substantial ground for dispute raised. Where the Company Court is satisfied that a debt upon which the Petitioner founded is hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the Company to pay before coming to that conclusion and ascertain that Company''s refusal is supported by reasonable cause or bonafide dispute in which dispute can only be adjudicated by trail in a Civil Court....
A party to dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay the bonafide disputed debt. The Company Court cannot be reduced to a Debt Collecting Agency or as a means of bringing improper pressure on the company to pay the bona fide disputed debt and should not permit a party to unreasonably set the law in motion, especially, when the aggrieved party has a remedy elsewhere. of late, there are several instances where the jurisdiction of the Company Court is being abused by filing winding up petitions to pressurize the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. A creditor''s winding up petition implies insolvency and is likely to damage the Company''s creditworthiness or its financial standing with its creditors or customers and even among the public and which may also have other economic and social ramifications. The Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross defaults, and may further push the Company into a state of acute insolvency much more than what it was when the petition was filed. The Company Court, at the times, has not only to look into the interest of the creditors, but also interests of the public at large The Company Courts are to be more vigilant so that its medium would not be misused. A Company Court therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the company to pay the debt which is substantially disputed.
21. In the instant case, there is serious dispute regarding the claim made by the Petitioner. As could be seen from the latest balance sheet, the Respondent-company is financially viable. If the company is going to be closed and the Petitioner is not in a position to recover the dues and the company becomes insolvent, then only the winding up petition can be entertained. In the instant case, the financial position of Respondent-company is very very viable and sound. That apart, the Respondent-company is promoted by the Gemini Communications Limited a leading network integrator in India with a global presence. The Respondent has shown that there is serious dispute with regard to the claim made in the petition. The Respondent also made counter claim and the said dispute cannot be resolved in this petition. The Petitioner has to agitate the same before the Competent Civil Court or Arbitrator. Hence, I found that the Petitioner has not made out a case for admission of the present Company petition and order for advertisement for winding up of the Respondent-company. Accordingly, I pass the following:
ORDER
The company petition is dismissed.
