Reddy Construction Company Ltd v Reddy [2015] FJHC 10; HBC006.2014S (21 January 2015)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

Civil Action No. HBC 006 of 2014S

BETWEEN:

REDDY CONSTRUCTION COMPANY LIMITED a company incorporated in Fiji and having its registered office at 35 Ravouvou Street, Lautoka
Plaintiff

AND:

ROSY REDDY of Auckland, New Zealand, Process Worker as Administratrix and Trustee of the Estate of Narayan Reddy
Defendant

Appearance : Mr S. Parshotam, Counsel for the Plaintiff
Mr I Fa, Counsel for the Defendant

Date of Judgment : 21 January 2015

INTER-LOCUTORY JUDGMENT

1. Inter-parte summons filed on 10 January 2014 together with Affidavit in Support dated 10 January 2014 and the following Orders were sought:
   
   1. That the Defendant by herself or by her servants or agents or otherwise howsoever be restrained from taking any action threatened in her Notice issued pursuant to Section 221 of the Companies Act of Fiji, dated 20 December 2014 and served on 23 December 2013:
      
      • (i) To any Winding – up Petition in the High Court of Fiji;
        
      • (ii) And if filed, to advertise such Winding – up proceedings in the newspapers circulating in Fiji or the Fiji Republic Gazette.
        
   2. That the Defendant pay the costs of and occasioned by this application.
      
   100. The time for serve of these documents be abridged to 24 hours.
        

This application is made pursuant to Order 29 Rule 1(2) and Order 3 Rule 4 of the High Court Rules 1988 and the inherent jurisdiction of the High Court.

The Plaintiff intends to and relies upon the Affidavit of Giyananand Naidu filed herewith and other affidavit filed before the date of hearing of this Application, during the hearing of this Application.

2. Having heard the parties the following Orders were made by this court on 14 January 2014:
   

"A. The Defendant to file and serve an Affidavit in Opposition within 14 days.

B. The Plaintiff filed and served any reply within 7 days.

C. The Defendant by herself or by her servants or agents or otherwise, however, be restrained from taking any action threatened in her Notice issued pursuant to Section 221 of the Companies Act of Fiji; dated 20 December 2014 and served on 23 December 2013:

(i) to prevent any winding up Petition in the High Court of Fiji;

(ii) and if filed to advertise such Winding up Proceedings in the newspapers circulating in Fiji or Fiji Republic Gazette.

4. Order on whether the monies is deposited in the trust account of the Plaintiff's Solicitors to be brought into the court is reserved and the Plaintiff's Solicitors should not deal with the said monies in any manner until an order being made by this court."
   

3. Background
   

3.1 The Plaintiff in this matter is a limited liability company and there are 2 shareholders namely Y.P. Reddy and Finegrand Limited.

3.2 Y.P. Reddy holds the shares of Narayan Reddy pursuant to a trust deed dated 13 December 1990 (Annexure "A" to the Plaintiff's Affidavit dated 10 January 2014). In terms of the Trust Deed Reddy Construction is the beneficiary of the Trust Deed. The Defendant claims that Y P Reddy the Trustee appointed by the Trust Deed is Se Son Tort Trustee; as pleaded in the paragraph 6 of the Defendant's Affidavit. In reply, the Plaintiff stated:

(a) Y P Reddy is registered as the shareholder of the shares of Finegrand Limited;

(b) The Defendant is not a shareholder in respect of the said shares or taken the necessary steps to become the shareholder;

(c) Y P Reddy is not a Trustee Se Son Tort and he is the holder of the shares under an express trust.

3.3 The Defendant's position is that she is the Administratrix of the Estate of Narayan Reddy and she was granted Letters of Administration on 15 December 1995.

3.4 The Defendant also claims that she received dividends during the periods 1996-2009 over $300,000.00 from the Plaintiff. However, the position of the Plaintiff is that the said dividends were paid by Mr Y P Reddy and not by the Plaintiff in this case. Further the said issue being one of the matters raised in Case No. 133 of 2011 which is pending before another Judge of the High Court. The amended Statement of Claim by Rosy Reddy, the Defendant in this case was annexed to the Affidavit in Support dated 10 January 2014 sworn by Giyananand Naidu on behalf of the Plaintiff. Marked as (Annexure 'B') Statement of Defence to the amended Statement of Claim was annexed to the Affidavit marked 'C'. On perusal of the said documents, I find that the dividend issue is one of the subject matters of the said matter which has to be taken up at the proper trial in Case No. 33 of 2011. Accordingly, the issues raised by the Defendant in this matter carry no merits and I further find the issues to be decided by this court is limited to the issues i.e.:

(i) As to whether the Defendant is entitled to a winding up order against the Plaintiff in terms of Section 221 of the Companies Act?

(ii) If the above issue is answered in affirmative as to whether the restraining orders granted by this court can sustain?

(iii) As to whether the monies held by the Plaintiff's solicitor should be brought in to this court?

3.5 The Defendant is entitled to a winding up order if the Company is unable to pay its debts in terms of the Section 221 of the Companies Act. Section 221 of the Companies Act states to elaborate on what instances the company is considered that it is unable to pay the debts:

"221. A company shall be deemed to be unable to pay its debts –

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $100 then due has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due and the company has, for 3 weeks thereafter, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or

(b) if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determination whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.

The present case comes under paragraph (a) of the Section when the demand for the payment is neglected.

3.6 To obtain an order for winding up, the Defendant should establish the amount of the debt is undisputed by the company and the demand for payment is bona fide. By the letter dated 20 December 2013, the Defendant's Solicitor (which is annexed and marked as 'G' to the Affidavit of the Plaintiff) had given notice to the Plaintiff under Section 221 of the Companies Act. By letter dated 7 January 2014, the Solicitors for the Defendant had disputed the demand on the following grounds as stated in paragraph 4, 5, 6, 7, 8, 9, 10 and 11 of the said letter marked as 'H':

"Abuse of Process

4. Your client has an action pending in the High Court of Fiji, being Civil Action No. 133 of 2011 where you have sought the payment of the same monies by way of an application for summary judgment. The Notice is therefore bad in law and an abuse of Section 221 of the Companies Act.

5. You will be aware that the application for summary judgment is listed for further hearing in Court on 24 January 2014.

6. You are also aware of the grounds on which our client is disputing the alleged debt.

7. Your client has no immediate entitlement to any dividends. She is not registered as a shareholder. Once she becomes registered as a shareholder, as we have repeatedly, over a long period of time suggested she should do, our clients Reddy Construction Company Ltd and Reddy Holdings Limited will pay her the dividends declared subject to withholding taxes and any other deductions required as a matter of law.

8. As a matter of law, no interest accrues on dividends declared but not paid to shareholders unless the directors of the company have passed a resolution to this effect. Additionally, your client cannot ignore her obligation to register as shareholder so that she may be entitled to dividends and expect interest to accrue at the same time.

9. Our client is a substantial commercial enterprise, is solvent and is able to pay its legitimate debts. It has never received any Winding-up or threatened debt recovery claims against it to date.

10. This is clearly not a case for Winding-up as your client has proceedings pending in Court for exactly the same relief claimed in the Notice.

11. Any Winding up proceedings if auctioned will cause permanent damage to our client's business and goodwill, for which our client will hold you and your client responsible and accountable."

The said matters disputed by the Plaintiff were not addressed by the Defendant's solicitors. However, as stated in the preceding paragraph 3.4, there is a bona fide dispute on the debt. It is a question to be decided at a substantive hearing as to whether the Defendant can claim the dividends without becoming a shareholder of the company as the Administrator of the estate of Narayan Reddy. On the material forwarded to this court establishes the previous dividend payments were made to the Defendant by Y P Reddy and not by the Plaintiff. I hold there is a substantial dispute on the Debt and the restraining orders made by this court should remain unchanged until the final determination of this matter and Civil Case No. 133 of 2011. I also cite the following judgments in support of my determination:

(a) Offshore Oil N.Z. vs. Investment Corporation of Fiji Limited 30 FLR 90, the Court of Appeal that the court had discretion to decline to hear the petition for winding up where the debt is contested on substantial grounds.

(b) The above decision was followed in the case of President Hotel Ltd vs. Lami Town Council 36 FLR 162.

4. I conclude that the Plaintiff had disputed the Debt and as such the restraining orders should remain. Accordingly, I make the following Orders:

(1) The Orders A and B made by this court on 14 January 2014 to be in force until final determination of this matter and the Civil Case No. 133 of 2011.

(2) The monies deposited in the Trust Account of the Plaintiff's Solicitors should be deposited in an interest bearing account and the Plaintiff's Solicitors should not deal with the said monies until final determination of this matter and Civil Case No. 133 of 2011.

(3) Costs in this matter is cost in cause.

Delivered at Suva this 21st day of January 2015.

C. KOTIGALAGE
JUDGE