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2014 Supreme(Bom) 1895
High Court of Judicature at Bombay
G.S. PATEL, J.
Severn Trent Water Purification Inc.
Versus
Capital Controls India Private Limited & Another
Company Petition No. 857 of 2004
Decided On : 18-12-2014
For the Petitioner:Z.T. Andhyarujina, a/w Neerav Merchant, Chakrapani Misra, Meghna Rajadhyaksha, i/by Khaitan & Co., Advocates.
For the Respondents:M.R. Khandeparkar, a/w Gauraj Shah i/by Kanga & Co., Advocates.
Headnote:
COMPANY PETITION - WINDING UP - ADMISSION - MAINTAINABILITY - SEVERN TRENT WATER PURIFICATION INC. V. CHLORO CONTROLS (INDIA) PRIVATE LIMITED - SUIT AND ARBITRATION PROCEEDINGS - SUPREME COURT - AMENDMENT OF PETITION - ADMISSIONS OF LIABILITY - INABILITY TO PAY DEBTS - FINANCIAL POSITION - PREMATURE PUBLICATION - PUBLIC NOTICE - COMPANY PETITION ADMITTED AND MADE RETURNABLE.
Fact of the Case:
Severn Trent Water Purification Inc. (Severn Trent), a US-based corporation, filed a company petition under Section 433(f) of the Companies Act, 1956, seeking the winding up of Capital Controls (India) Private Limited (Capital Controls India), a joint venture between Severn Trent and Chloro Controls (India) Private Limited (Chloro Controls). The petition was initially admitted but later set aside by the appellate court. The Supreme Court, in a 2008 decision, held that the petition was not maintainable as a contributory but left open the question of whether it could be maintained as a creditor. Severn Trent amended the petition to introduce a new paragraph alleging its status as a creditor and acknowledging Capital Controls India's indebtedness. The company opposed the admission of the amended petition, raising various objections, including maintainability, limitation, and premature publication of a public notice.
Finding of the Court:
The court held that the petition was maintainable as a creditor's petition. It found that the admissions of liability made by Capital Controls India, including in the reply to the statutory notice and in the minutes of board meetings, were clear, unequivocal, and unqualified. The court also considered the financial position of Capital Controls India and found that it was in dire financial straits and unable to pay its debts. The court rejected the company's defense of a set-off or counter-claim, finding it to be unsubstantiated and lacking in merit. The court also held that the public notice issued by Severn Trent did not constitute an abuse of the process of the court and was not a ground for dismissing the petition.
Issues: 1. Whether the petition is maintainable by Severn Trent as a creditor of the company, Capital Controls India? 2. Whether the petition is barred by limitation? 3. If the petition is maintainable by Severn Trent as creditor, whether any case has been made out for winding-up on the ground of the inability of Capital Controls India to pay its debts within the meaning of Section 434(1)(a) of the Companies Act, 1956? 4. Whether the petition is liable to be dismissed in limine on the ground of premature publication, Severn Trent having published an advertisement about the filing of the petition before any order was made on it?
Ratio Decidendi: 1. A creditor's petition for winding up is maintainable even if the company's inability to pay its debts is not established under Section 434(1)(a) of the Companies Act, 1956, as long as it is established to the satisfaction of the court under Section 434(1)(c). 2. Admissions of liability made by a company, if clear, unequivocal, and unqualified, can be sufficient to establish the company's indebtedness and support a winding-up petition. 3. A company's financial position, including its inability to pay its debts, can be considered in determining whether a winding-up petition should be admitted. 4. A defense of set-off or counter-claim must be substantiated and supported by evidence to be effective in opposing a winding-up petition. 5. The publication of a public notice by a petitioner, informing the public of pending winding-up proceedings and cautioning them against dealing with the company, does not constitute an abuse of the process of the court and is not a ground for dismissing the petition.
Final Decision: The court admitted the company petition and made it returnable. However, the court directed that the petition should not be advertised until further orders of the court.
G.S. PATEL, J.
(i) Preliminary
1. In the ten years since disputes began, the litigations between the parties have already, though in separate proceedings, twice reached the Supreme Court. The first of these was in relation to this Company Petition itself. The second arose out of parallel proceedings in a suit and under the Arbitration and Conciliation Act, 1996. In that time, this petition has undergone a metamorphosis of sorts: originally filed as a winding up petition by a contributory, it was admitted on that basis. That order of admission was set aside. The question whether the petition was maintainable as one brought by a creditor was left open. The petition was amended. It has remained pending admission in that state. The result, today, is that there are a large number of issues raised, many of which travel well beyond those common in a petition under Sections 433 and 434 of the Companies Act, 1956 by a petitioning-creditor.
2. In this judgment, I have divided the discussion into several parts. This preliminary section (Part I) provides an overview, and a short statement of my final conclusion. Part II traces the history of the litigation till 2008, when the first round of litigation reached the Supreme Court. Here, I also deal with the subsequent amendment of mid 2008 and consider the petition as it stands after that amendment and the affidavit in reply. Part III outlines the four issues that remain for consideration. In Part IV, I have noted the rival submissions under distinct heads of Mr. Andhyarujina, learned counsel for the Petitioner, and Mr. Khandeparkar, learned counsel for the Respondent, respectively. My conclusions are in Part V.
Summary of Final Conclusion
3. For the reasons that follow, and despite the most valiant efforts by Mr. Khandeparkar, I am not convinced that the petition is not maintainable, or that no ground has been made out for admission at the instance of the Petitioner qua a creditor of the 1st Respondent. There is, I think, an admitted debt due. The admissions on which Mr. Andhyarujina relies are clear, unequivocal and unqualified. They are not general. They refer to a very specific amount said to be due to the Petitioner. I must in particular note the emphasis on a statement made by Senior Counsel on behalf of the 1st Respondent before the Supreme Court offering to deposit that specific amount in court. As I have noted later, counsel are often instructed to make a statement of this kind. Sometimes, it is to dislodge the argument that the company in question has a deemed inability to pay its debts, or that it is commercially insolvent. Often, a statement of this kind is made only to establish the company’s bona fides. But that seems not to have been the case here, especially when that statement is read with the clear admissions of liability in legal correspondence and, in particular, the 1st Respondents advocates reply to the Petitioners advocates statutory notice. There are, too, categorical statements even in the Affidavit in Reply. On an overall assessment, I have not found it possible to agree with Mr. Khandeparkar when he says that there is a bona fide and substantial defence. There are, in my view, sufficient grounds to warrant an order of admission.
(ii) Background & History of the Petition
(a) The Original Petition
4. The Petitioner, Severn Trent Water Purification Inc. (Severn Trent), is a US-based corporation. It is incorporated under American Law. It has its headquarters in Delaware, USA. Severn Trent was formerly Capital Controls (Delaware) Company Inc. Sometime in 1990, Severn Trents group acquired another company called Capital Controls Company Inc. The name of that company was then changed to Severn Trent Water Purification Inc. with effect from 1st April 2002. On 31st March 2003, Capital Controls (Delaware) Company Inc. amalgamated with Severn Trent. Thus, Severn Trent, the present Petitioner, has all the rights and benefits of both Capital Controls Company Inc. as al
