BGR Energy Systems Ltd v. Sanghvi Movers Limited

What happened

BGR Energy Systems Ltd. issued a service order on 27 February 2012 to Sanghvi Movers Ltd. for a 600 MT crawler crane on hire for five months for ₹2,40,00,000, with ₹30,00,000 for mobilisation and ₹30,00,000 for demobilisation. BGR paid the mobilisation charges but declined the demobilisation charges, saying that under its trade practice with customers it does not pay them if the contract runs beyond the initial period. In its counter before the Single Judge BGR produced a service order dated 6 December 2012 extending the hire, which it said excluded demobilisation charges; Sanghvi said that order was never communicated and relied on an email of 3 January 2013 and an internal note put up for management approval on 18 December 2012 seeking an extension of 0.84 months for ₹55,00,500. The Single Judge admitted the Company Petition and directed publication in two daily newspapers. BGR appealed, arguing that the dispute was bona fide, that it was solvent, and that, if the dispute is not bona fide, the petition is still not maintainable where the amount is deposited, leaving the creditor to a civil suit, relying on Nishal Enterprises v. Apte Amalgamations.

Questions before the court

• Was the Single Judge right to admit the winding-up petition on the finding that there was no bona fide dispute?

Why the court ruled this way

The only question before the Bench was whether admission was justified solely because there was no bona fide dispute, and it set out the tests: the defence must be in good faith and one of substance, likely to succeed in law, and supported by prima facie proof of the facts on which it depends (paragraph 5). The Single Judge found that the service order of 6 December 2012 was not communicated and no proof of communication of the amended order was produced; the internal note and email of 3 January 2013 showed the proposal for extension was only put up for approval on 18 December 2012, so the existence of an order of 6 December 2012 raised serious doubt (paragraph 5). Sanghvi submitted that solvency is neither an embargo nor a sole ground to dismiss, since it may help to decide whether refusal to pay is bona fide, and that a civil suit (in personam) and winding up (in rem) are neither exclusive nor inconsistent (paragraph 4). The Bench held that the order admitting the petition suffered from no illegality, was based on reasonable findings and was not perverse (paragraph 6).

Controlling point

There was no scope to interfere with the order admitting the petition.

Order and next steps

The original side appeal was dismissed with no costs, and miscellaneous petitions pending in the appeal were closed.

Practical implications

A company resisting a winding-up petition on a debt should produce contemporaneous proof, such as communication of an amended order, to show a genuine dispute; bare solvency or a later-produced document is unlikely to succeed.

Limits of this ruling

• The ruling rests on the factual finding that the dispute was not bona fide; it does not decide that solvency is irrelevant or that every disputed debt can be wound up.