Section 634
ENFORCEMENT
OF ORDERS OF COURTS
[2002]
37 SCL 531 (Bom.)
B.N.
Srikrishna and S.A. Bobde, JJ.
Appeal
No. 758 of 1999
in
Application No. N/5 of 1999
Section 634, read with sections 443, 531 and
536 of the Companies Act, 1956 and section 145 of the Code of Civil Procedure,
1908 - Winding up - Enforcement of orders of Courts - Whether company court
trying a winding-up petition is entitled to pass an order directing company to
make payment of money to petitioning creditor - Held, yes - Whether such an
order for payment of money, when passed, will have same force as a decree of a Court passed in a suit and
shall be executable as such and in accordance with provisions of Code of Civil
Procedure - Held, yes
Section 443 of the Companies Act, 1956 -
Winding up - Powers of Court on hearing petition - Whether company court trying
a winding-up petition is entitled to pass an order directing company to make
payment of money to petitioning creditor - Held, yes
The respondent was the managing director of a
finance company. The appellant was a creditor of the finance company. In the
appellant’s petition for the winding up of the company consent terms were
recorded and an order was made in terms thereof. The appellant contended that
she was entitled to serve an insolvency notice under section 9 of the
Presidency Towns Insolvency Act, 1909. According to the appellant, the consent
order of the company Court amounted to a decree and was executable against the
respondent by virtue of section 634 of the Companies Act read with section 145
of the Code of Civil Procedure. Upon the Insolvency Registrar raising an
objection to the issue of insolvency notice, the appellant applied to Single
judge of the court, who rejected the application and upheld the objections of
the Insolvency Registrar.
On appeal :
On a consideration of the intent and purpose
of the consent order, it was clear that though clause 3 contained a direction
to the respondent-company to pay, a plain reading of the order as a whole
required payment to the appellant. Clause 10 did not merely accept that the
respondent guaranteed and stood surety for the payment of all the amounts due,
but read properly, contained an order accepting the respondent’s offer and
further directing the performance of the terms by the respondent-company. This
obviously included all the clauses of the consent order under which the company
had admitted the liability and had been ordered to pay. The circumstances in
which this order was passed suggested that the liability having been admitted
by the company, and the appellant having agreed to withdraw her complaint under
section 138 of the Negotiable Instruments Act, the appellant would not be drawn
to any subsequent proceedings such as a suit for the purpose of realising the
dues. It was in this context that clause 10 was inserted whereby the respondent
agreed to guarantee sums payable by the company and to stand surety for the
same. He further categorically accepted that he would ensure performance of the
consent terms.
Accordingly, the respondent had been
personally ordered to ensure performance of clause 3 also. Having read the
consent order as above, it was clear that the respondent was a person who had
given a guarantee for the performance of a decree.
If an order passed by a company court can be
said to have the force of a decree, then the order binding the respondent, in
the present case, would be executable under section 145 of the Code of Civil
Procedure; the order would, therefore, be a decree or order for payment of
money within the meaning of section 9(1) of the Presidency Towns Insolvency
Act.
On the question whether the company court does
have powers to direct a party to make payment of an admitted liability, the
court must decide this question on the scope of the power of the company court
under section 443.
The appellant submitted that apart from the
inherent power, section 443 expressly grants the power to order a company to
make the payment of ‘just debt’ and there can be no debt more just “than that
which is admitted by the company but which is not paid.” Reliance was placed on
section 443(1)(d) which provides that on hearing a winding up petition, the
Court may make an order for winding up the company or any other order it thinks
fit. The respondent submitted that the phrase “or any other order that it
thinks fit” must be read ejusdem generis, having regard to the various types of
orders enumerated in the preceding clauses such as the dismissal of the
petition, adjournment of the petition or making of an interim order.
The contention on behalf of the respondent
could not be accepted since the other orders referred to in section 443(1) do
not define or form a genus or a class of which the clause in question was a
species. It is well-settled that it is only when the preceding words define an
established genus or a class the residuary words can be held to cover the
remainder of the species so as to make up the genus. The type of orders
enumerated in clauses (a), (b), (c) and (d) of section 443(1) do not form a
genus or a class at all. They are very different from each other. It is,
therefore, difficult to apply the principles of ejusdem generis even if one
takes only clause (d) into consideration. Clause (d) enables the court to make
an order for winding up the company, or make any other order that it thinks
fit. It is clear that an order for winding up may be said to be in a class of
its own and, therefore, the words following it, i.e., “or any other order that
it thinks fit” do not contemplate a variant of a winding up order. On the other
hand, it appears that the other orders contemplated are orders other than those
related to winding up and would include orders such as, an order for purchase
of shares belonging to the petitioner.
The width of the power of the company court
has come up before several courts and the courts have interpreted section
443(1) so as to preserve sufficient plenitude of the courts while dealing with
winding up petitions. It would be unduly restrictive to say that while dealing
with a petition for winding up the court can do nothing short of ordering the
winding up of the company nor is it a case of ‘all or none.’
In a winding
up petition, it is not possible for a company court to assess evidence and to
draw up a decree in favour of the petitioner and then to proceed to wind up the
company. It is well-settled that where a debt is bona fide, a company court will not entertain a winding up
petition. However, that where a company admits its liability in a certain sum
towards the petitioner, the situation must be viewed differently. In such a
situation, there is no need for a court to fold its hands and consider itself
powerless to make an appropriate order for payment of money.
The respondent submitted that the court would
not be entitled to direct payment of money to the petitioning creditor and
submitted that the consent order directing payment to the appellant would amount
to a fraudulent preference under sections 531 and 536(2). This contention
appeared to be ex facie untenable.
Section 536(2) itself avoids any disposition
of the property of the company, etc., “unless the Court otherwise orders”.
Section 531 would also have no application to such payment since what is deemed
to be a fraudulent preference under that section is any transfer of property,
whether movable or immovable, payment, etc., taken or done by or against a
company within six months before the commencement of its winding up. Since a winding up of a company relates back to
the date of the presentation of the winding up petition, consent order, in the
present case, would not be covered by that section since it must be taken to
have been made after the commencement of the winding up petition.
The power to direct payment of money to a
petitioning creditor in a winding up petition is not a power which is outside
the purview of a company court; the exercise of such a power is also proper
where the debt is admitted and the debtor-company solemnly agrees to discharge
it. In fact, winding up proceedings have long been held to be a proper remedy
for enforcing payment of just debt and a mode of execution. Having regard to
the settled position that a petition for winding up is a proper remedy for
enforcing a just debt and mode of realisation of such a debt, a company court,
trying such petition is entitled to pass an order directing the company to make
payment of money to the petitioning creditor. Where the debt is bona fide
disputed and the defence is a substantial one, and is likely to succeed, it is
well-settled that the court will not wind up the company but will relegate the
petitioner to the power to a suit. An order for payment of money when passed
will have the same force as a decree of a court passed in a suit and shall be
executable as such and in accordance with the provisions of the Code of Civil
Procedure.
In the present case, it was clear that the
respondent got the company petition disposed of by going so far as to guarantee
performance of the consent terms which involved payment of the amount admitted
by the company and also invited the order against itself to do so and had then
chosen to oppose even the issue of an insolvency notice on grounds discussed, including
the ground that the court had no jurisdiction to pass an order in accordance
with the consent of parties.
The Single Judge had committed an error in
holding that the only remedy which the appellant had was to file a suit and was
not entitled to issue a notice of insolvency under section 9(1) of the
Presidency Towns Insolvency Act. Therefore, the appeal was allowed and it was
directed that the notice of insolvency be issued to the respondent as prayed
for by the appellant.
Lyallpur Bank Ltd. v. Ramji Das AIR 1945 PC
60, Radheshyam Beopar Co. Ltd. v. Karam Chand AIR 1941 Lahore 273, Sindhu Chits
& Trading (P.) Ltd. v. Smt. Khayirunnissa AIR 1992 Kar. 281, Pushpabai
Shankerlal Sura v. Official Liquidator, Sholapur Oil Mills Ltd. AIR 1970 Bom.
271, Techno Metal India (P.) Ltd. v. Prem Nath Anand [1973] 43 Comp. Cas. 556
(Cal.), Deutsche Bank v. S.P. Kala [1992] 74 Comp. Cas. 577 (Bom.), Collector
of Aurangabad v. Central Bank of India
AIR 1967 SC 1831, Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. AIR
1999 SC 2354/22 SCL 156,T. Srinivasa v. Flemming (India) Apotheke (P.) Ltd.
[1990] 68 Comp. Cas. 506 (Kar.), Madhusudan Gordhandas & Co. v. Madhu
Woollen Industries (P.) Ltd. [1972] 42 Comp. Cas. 125 (SC), Maharashtra Distilleries
Ltd. v. Kalyani Forge Ltd. [Appeal No. 1292 of 1998 in Company Petition No. 409
of 1997 dated 21-12-1998], Bombay Castwell Engg. (P.) Ltd., In re [1984] 55
Comp. Cas. 75 (Bom.), Jyoti Bhushan Gupta v. Banaras Bank Ltd. AIR 1962 SC 403,
Shakuntala Rajpal v. Mckenzie Philip (India) (P.) Ltd. [1988] 64 Comp. Cas. 585
(Delhi), G.T. Swamy v. Goodluck Agencies [1989] 1 Comp. LJ 212 (Kar.), Smt.
Usha R. Shetty v. Radeesh Rubber (P.) Ltd. [1995] 84 Comp. Cas. 602 (Kar.),
NEPC Agro Food Ltd. v. Hindustan Thompson Associates Ltd. [2001] 1 Comp. LJ
104/33 SCL 15 (Mad.), Ramakrishna Industries (P.) Ltd. v. P.R. Ramakrishnan
[1988] 64 Comp. Cas. 425 (Mad.), Ramakrishnan Industries (P.) Ltd. v. P.R.
Ramakrishnan [1983] 2 Mad. LJ. 227, Gujarat State Financial Services Ltd. v.
Amar Polyester Ltd. [1998] 5 CLJ 95 (Guj.) and Harinagar Sugar Mills Co. Ltd.
v. M.W. Pradhan, Court Receiver, High Court AIR 1966 SC 1707.
D.J. Khambatta and Shyam Mehta for the Appellant. Virag
Tulzapurkar, P.K. Samdhani and S. Shetye for the Respondent.
S.A. Bobde, J. - This appeal is preferred by a creditor of
Enarai Finance Ltd. of which the respondent is the managing director. In the
appellant’s petition for winding up, consent terms dated 23-5-1998 were
recorded and an order was made in terms thereof. Upon the company admitting its
liability and agreeing to pay certain instalments, the respondent, who was the
managing director of the company, agreed to an order guaranteeing the payment
of the amounts due. He further agreed for the performance of the consent terms.
Upon failure of the company to make payment in accordance with the order of the
company court recording the consent terms, the appellant applied to this court
on 15-4-1999 for issue of an insolvency notice to the respondent. Upon the
Insolvency Registrar raising an objection to the issue of insolvency notice,
the appellant applied on 11-6-1999 to the learned Single judge of this court,
who rejected the application and upheld the objections of the Insolvency
Registrar by an order dated 11-6-1999. This appeal is preferred against that
order. Since the original application is for permission to issue a notice of
Insolvency against the respondent, normally, the proceedings would have been ex
parte. However, in this case, the respondent has chosen to appear before the
learned Single judge of this court to oppose the application for issue of
insolvency notice and has been heard there. Likewise, the respondent has also
appeared before us. These proceedings are, therefore, not ex parte.
2. The
appellant contends that under the consent order of this Court, there is an
unequivocal admission of the company of its liability in the sum of Rs. 50.00
lakhs and that, inter alia, this Court has ordered the company to pay an amount
of (sic) the balance having been paid. Further, the respondent has, in the
event of any default by the company guaranteed payment of all amounts due by
the company and also the performance of the consent order. The appellant’s
contention is, therefore, that she is entitled to have an insolvency notice
under section 9 of the Presidency Towns Insolvency Act, 1909 issued to the
respondent. Section 9 reads as follows :
“Acts of insolvency.—(1) A debtor commits an
act of insolvency in each of the following cases, namely :—
|
(a) to (h) |
** |
** |
** |
State
Amendment
Maharashtra :
In its application to the State of
Maharashtra, after clause (h) of section 9, insert the following, namely :—
‘(i) if after a creditor has served an insolvency notice on him under
this Act in respect of a decree or an order for the payment of any amount due
to such creditor, the execution of which is not stayed, he does not, within the
period specified in the notice which shall not be less than one month, either
comply with the requirements of the notice or satisfy the Court that he has a
counter claim or set off which equals or exceeds the decretal amount or the
amount ordered to be paid by him and which he could not lawfully set up in the
suit or proceeding in which the decree or order was made against him.’”
[Emphasis
supplied]
According to the appellant, the consent order
of this Court amounts to a decree and is executable against the respondent by
virtue of section 634 of the Companies Act, 1956 read with section 145 of the
Code of Civil Procedure, 1908. Section 634 reads as follows :
“Enforcement of orders of Courts.—Any order
made by a Court under this Act may be enforced in the same manner as a decree
made by the Court in a suit pending therein.”
Section 145 of the Code of Civil Procedure
reads as follows :
“Enforcement of liability of surety.—Where any
person has furnished security or given a guarantee—
(a) for the performance of any decree or any
part thereof, or
|
(b) |
** |
** |
** |
(c) for the payment of any money, or for the fulfilment of any
condition imposed on any person, under an order of the Court in any suit or in
any proceeding consequent thereon,
the
decree or order may be executed in the manner herein provided for the execution
of decrees, namely :—
(i) if he has rendered himself personally
liable, against him to that extent;
(ii) if he has furnished any property as security, by sale of
such property to the extent of the security;
(iii) if the case falls both under clauses
(i) and (ii), then to the extent specified in those clauses, and such person shall be deemed to
be a party within the meaning of section 47 :
Provided that such notice as the Court in each case thinks sufficient has been
given to the surety.”
In short, the appellant contends that she is entitled to serve an insolvency notice under section 9 of the Presidency Towns Insolvency Act, on the respondent in respect of a consent order which has the force of a decree or an order for payment of an amount due to her as a creditor. The consent order, according to the applicant, is enforceable by virtue of section 634 of the Companies Act in the same manner as a decree in a suit. Since under the said consent order the respondent has become liable as a guarantor for the amount ordered to be paid thereunder, and for the performance of the terms of payment of the sum made payable under the order which has the force of a decree, the consent order is enforceable under section 145 of the Code of Civil Procedure.
3. In
the contention of the respondent that the consent order does not contain any
direction or order to the respondent to pay any sum of money to the appellant.
Such an order, if any, is only against the company. Even if it is against him,
it is in his capacity as the managing director and not in his personal
capacity. The respondent further contends that there is no jurisdiction vested
in the High Court while entertaining a company petition for winding up, and, in
any case, prior to the commencement of the winding up process, to pass any
order directing the company to make payment to a petitioning creditor. Section
634 of the Companies Act does not confer the status of a decree on an order passed
by the company court and, therefore, such an order cannot be executed in
accordance with section 145 of the Code of Civil Procedure.
4. It is, therefore,
necessary to refer to certain clauses of the consent order. Under the consent
order :
(i) The company admitted its liability to the appellant in the
sum of Rs. 50 lakhs towards principal and Rs. 5,29,315 towards interest.
(ii) The appellant confirmed receipt of Rs. 26,57,000 leaving a
balance of Rs. 28,72,315 with interest at 21 per cent from the date of the
order till payment.
(iii) Clause 3 reads as follows :
“3.
The respondent-company do pay the aforesaid amount of Rs. 28,72,315 (Rupees
Twenty-Eight lacs Seventy-two thousand Three Hundred Fifteen only) along with
interest along with each instalment calculated from the date hereof as
expeditiously as possible and in any event in the following instalments on or
before the respective due dates by bank pay-slip or demand draft.”
The
amount was made payable in eight instalments.
(iv) In clause 4, it was provided that in the event of any two
defaults in payment, the winding up petition would stand admitted and the
Official Liquidator of this Court would stand appointed as provisional
liquidator of the company. Since the default in payment has occurred, company
petition stood admitted and the Official Liquidator has been appointed as
provisional Liquidator of the company on 26-4-1999.
(v) In clause 5 it was provided that the appellant would withdraw
the criminal case filed by her under section 138 of the Negotiable Instruments
Act, 1881 against the respondent. This has been duly complied with.
(vi) Clause 10 reads as follows :
“10.
Agreed, ordered and recorded that Mr. Nilesh Lalit Parekh, the managing
director of the respondent-company herein do hereby guarantee and stand surety
for the payment of all the amounts due and the performance of this consent
terms by the respondent company.”
5. The
first question on which the parties have joined issue before us is whether the
consent order contains an order directing the respondent to pay a sum set out
in clause 3 of the consent order. Mr. Khambatta, the learned counsel appearing
to the appellant, submitted that clause 3 of
the order crystallises the amount payable by the company. Clause 3 of
the consent order, according to the learned counsel, does not merely constitute
a guarantee by the respondent to stand surety for the payment of the amount but
contains an order for the purpose of the consent terms by the
respondent-company. Mr. Tulzapurkar, the learned counsel for the respondent,
submits that clause 3 of the consent terms is directed only against the company
and not against the respondent personally and cannot be construed to be an
order against the respondent personally to make any payment to the appellant.
According to the learned counsel for the respondent, clause 10 ranks for all
relevant purposes on the same basis as a separate guarantee executed by the
respondent in favour of the appellant and nothing more.
6. On
a consideration of the intent and purpose of the consent order, we are of view
that though clause 3 contains a direction to the respondent-company to pay,
since it use the term ‘do pay’, a plain
reading of the order as a whole requires payment to the appellant. Clause 10 does
not merely accept that the respondent guarantees and stands surety for the
payment of all the amounts due, but read properly, contains an order accepting
the respondent’s offer and further directing the performance of the terms by
the respondent-company. This obviously includes all the foregoing clauses of
the consent order under which the company has admitted the liability and has
been ordered to pay. The circumstances in which this order was passed suggests
that the liability having been admitted by the company, and the appellant
having agreed to withdraw her complaint under section 138 of the Negotiable
Instruments Act, the appellant would not be drawn to any subsequent proceedings
such as a suit for the purpose of realising the dues. It is in this context
that clause 10 was inserted whereby the respondent agreed to guarantee sums
payable by the company and to stand surety for the same. He further
categorically accepted that he would ensure performance of the consent terms.
This clause, according to us, relates to performance of all preceding clauses
of the consent terms, including clause 3 by which the company admitted having
admitted its liability in the sum of Rs. 50 lakhs vide clause 1 and further
acknowledged balance due in the sum of Rs. 28,72,315 with interest at 21 per
cent, accepted vide clause 3 that it would pay the aforesaid balance of Rs,.
28,72,315 in instalments. It is in this context that clause 3 provides that
‘Respondent-company do pay the aforesaid amount’. Accordingly, we find that respondent
No. 3 has been personally ordered to ensure performance of clause 3 also.
7. The
learned counsel for the respondent also submitted that even though the company
has admitted its liability and has been ordered to pay the balance of Rs. 28,72,315
under clause 3 of the consent order, the only consequence of its non-compliance
can be that the company petition stands admitted as provided in clause 4 of the
order. We are of the view that, apart from the fact that this would be an
unjust and inequitable construction of the order, the consequence of default
cannot be limited to those expressly provided, particularly since other
consequences that might flow from it, have not been expressly prohibited.
8. The
next question is as to the applicability of section 145 of the Code of Civil
Procedure, to such a consent order passed by a company court in exercise of its
jurisdiction under section 443 of the Companies Act. We are of view that having
read the consent order as above, the respondent is a person who has given a
guarantee for the performance of a decree. It seems, clear enough that if an
order passed by a company court can be said to have the force of a decree then
the order binding the respondent in the present case would be executable under
section 145 of the Code of Civil Procedure, the order would therefore be a
decree or order for payment of money within the meaning of section 9(1) of the
Presidency Towns Insolvency Act.
9. In
order to resolve this, it is necessary to construe section 634. At the outset,
the section applies to any order made by a court under this Act. It is the
subsequent part of the section on which rival submissions have been advanced.
According to the learned counsel for the appellant, for the purpose of
enforcement, every order passed by this Court in exercise of its jurisdiction
under the Companies Act is deemed to be a decree. According to the learned
counsel for the respondent, section 634 merely provides for the manner in which
an order made by a company court can be enforced. The section, according to the
learned counsel for the respondent, does not convert an order made by a company
court into a decree. In other words, the section only means that the mode of
execution of a decree of a civil court will be employed for executing an order
made by the company court which is far from saying that the order of the
company is a decree.
10. This
question does not seem to us to be res integra. It is well-settled by a
decision of the Privy Council in the case of Lyallpur Bank Ltd. v. Ramji Das
AIR 1945 PC 60 in which the effect of section 199 of the Indian Companies Act,
1913, which was identical to section 634 of the Companies Act, 1956, fell for
consideration. The appellant-bank had put in execution, an order in its favour,
passed under section 186 of the Companies Act. This application was considered
under section 73 of the Code of Civil Procedure which provides that where the
assets are held by a court and more persons than one have before receipt of
such assets made an application for execution of decrees for payment of money
passed against the same judgment debtor, the asset shall be rateably
distributed amongst all such persons. The Courts in India had held that an
order made under section 186 which, inter alia, enables the court to direct a
contributory to make payment of money due from him to the company, did not come
within the definition of the word ‘decree’. Therefore, a holder of such an
order does not fulfil the requirement of section 73 which only enables persons who
have “made application to the court for the execution of decree” to apply for
rateable distribution. Construing section 199 of the Indian Companies Act which
is identical in terms with section 634 of the Companies Act, 1956 the Privy
Council observed as follows :
“The effect of this section is, in their
Lordships’ opinion, that a company which holds an order made under section
186(1), may report to any procedure for its enforcement which would be open to
it if the order had been a decree made in a suit; with the result that the
method of enforcement provided by section 73 of the Code is open to the
company, and an application by the company for its execution must rank as an
application for the execution of a decree for the purposes of that section.
Section 36 of the Code operates in the same way. By that section it is enacted
:
‘The provisions of this Code relating to the
execution of decrees shall, so far as applicable, be deemed to apply to the
execution of orders.’
This section appears to their Lordships to
enact that section 73 is to be deemed to apply to the execution of an order
made under section 186 of the Companies Act; and if this be so, an application
made to a Court for its execution must their Lordships think, be treated as, or
deemed to be, an application for the execution of a decree, notwithstanding the
somewhat curious fact that, although the company is a ‘decree-holder’ as
defined by the Code, it would appear not to hold a ‘decree’ as so defined.
While there appears to have been a divergence of view in India upon this
question, their Lordships find themselves in agreement with the views expressed
by Young, CJ., and Blacker, J., in Radhesham Beopar Co. Ltd. v. Karam Chand AIR
1941 Lahore 273.” (p. 61)
The Privy Council approved the judgment of the
Lahore High Court in Radhesham Beopar Co. Ltd. v. Karam Chand AIR 1941 Lahore
273, in which the Lahore High Court had observed :-
“...It does not appear to us to matter whether
the order is or is not a decree and the discussion on that point appears to us
to be purely academic. Section 199, as was pointed out in AIR 1918 Lahore 211
puts the order on the same footing as the decree as far as the execution goes
and rateable distribution under section 73 is clearly a method of enforcement of a decree or of an
order in the nature of a decree...” (p. 274)
11. Mr.
Tulzapurkar, the learned counsel appearing for the respondent in an attempt to
distinguish the aforesaid judgment, submitted that the case before the Privy
Council was one in which, what was put into execution was an order for payment
against a contributory made under section 186(1) after the passing of a winding
up order and he submitted that it is in that context that the Privy Council
held that the holder of such an order may resort to any procedure for
enforcement which would be open to him if the order had been a decree made in a
suit. That judgment does not proceed on that basis. We are unable to accept
this distinction between orders passed prior to and subsequent to winding up,
for construing section 634 since section 634 has the effect of conferring the
force of a decree on any order passed by the company court. Further, the
distinction whether an order is passed prior to the order of winding up of the
company or subsequent thereupon is not of much consequence as long as the order
is one made within jurisdiction, by the Court. Moreover, it is clear that the
decision of the Privy Council was rendered in regard to an application for
execution albeit under section 73. We feel that the ratio of that judgment
would apply whether the application for execution is made under section 73 or
section 145.
12. Mr.
Tulzapurkar submitted that there is no jurisdiction in the company court to
pass an order for payment of money. We will consider this submission later in
the judgment.
13. Mr.
Khambatta, the learned counsel for the appellant, also relied on the decision
of the Karnataka High Court in Sindhu Chits & Trading (P.) Ltd. v. Smt.
Khayirunnissa AIR 1992 Kar. 281, in which
that High Court has observed as follows :-
“...The orders of the company court are not
decrees in the strict sense of the word. But it may be enforced in the same
manner as a decree. It means, that though an order passed by the company court
does not amount to a decree for the purpose of execution, they will be treated
as though they are a decrees and all the provisions of the Code of Civil
Procedure relating to the execution of the decree will then apply. . . .” (p.
281)
This question, i.e., whether an order made
under the Companies Act has the force of a decree also came up for decision
before a Division Bench of this Court in Pushpabai Shankerlal Sura
v. Official Liquidator, Sholapur Oil Mills Ltd. AIR 1970 Bom. 271. In
that case, the appellant sought to invoke the provisions of articles 18
Schedule II of the Indian Court Fees Act, 1870 which applied to a memorandum of appeal “when the appeal is
not from a decree or an order having the force of a decree . . . .” The order
in question was passed by a company court in the course of winding up. Relying
on the judgment of the Privy Council in Lyallpur Bank Ltd.’s case (supra), this
Court observed as follows :-
“...When an order is made it is enforceable in
exactly the same manner as a decree and it is appealable in the same manner and
to the same extent as a decree. Moreover, as in the case of a decree, such
order of the Court in winding up proceedings is binding, which means that the
question decided therein cannot be re-agitated. Under these circumstances, it
is possible to say that such an order made by the Court has not the force of a
decree, and if the answer is in the affirmative, the further question that will
have to be answered is, why? Neither Mr. Albal Nor Mr. Lalit has been able to
point out in what manner such order of the Court is any the different from a
decree of the Civil Court except that one is rendered in winding up proceedings
of a company and the other in suit by the civil court. That, however, cannot take away the effect
of such order made and in our view, it is impossible to say that such order
made in winding up proceedings has not the force of a decree.” (p. 273)
14. A
similar view has been taken by the Calcutta High Court in Techno Metal India
(P.) Ltd. v. Prem Nath Anand [1973] 43 Comp. Cas. 556. That was a case for a
consent order passed in a winding up petition. On the company having defaulted,
a second winding up petition was filed and was resisted on the ground that it
was barred by limitation. In the second petition, the petitioner claimed the
benefit of the 12-year period of limitation provided by article 136 of the
Limitation Act which provided limitation of 12 years “for the execution of any
decree (other than a decree granting a mandatory injunction) or order of any civil
court”. The Calcutta High Court held that the consent order is an order for
payment of money and as such is enforceable in law. It further held that the
order in question though an order by consent “is fully enforceable like any
decree or order for payment made by a civil court.” The order was made in winding up proceedings under the Companies
Act. Section 634 provides that any order made by the court under that Act may
be enforced in the same manner as a decree made by the court in a suit pending
therein. The order is, therefore, as we have indicated, fully enforceable by
execution at any time within a period of 12 years from the date of default.
15. Mr.
Khambatta further brought to our notice a Division Bench Judgment of this Court
in Deutsche Bank v. S.P. Kala [1992] 74 Comp. Cas. 577. The Division Bench
of this Court held that an order for payment against a director of a company
who had guaranteed the payment was within the powers of the court and the
orders are enforceable under section 634 though these observations were made in
the context of a suit entertained and tried by a company court.
16. Mr.
Tulzapurkar relied on a decision in Collector of Aurangabad v. Central Bank of
India AIR 1967 SC 1831, where the Supreme Court held that certain taxes or dues
recoverable under the Hyderabad Land Revenue Act (other than land revenue) may
be recoverable as if they were an arrear of land revenue. This, however, did
not convert the other taxes or the sales tax into a land revenue. It would only
be the procedure for its recovery of land revenue that would be applicable. The
Supreme Court rejected the arguments that sales tax dues should be given the
same priority that was given to arrears of land revenue under the Hyderabad
Land Revenue Act since all that was applicable was the procedure for recovery
of land revenue. We are unable to apply the ratio of that case to the present
case since here there is no question of the nature of a tax retaining its
character even though the procedure for recovery is separately provided as in
the case before the Supreme Court. The question in the case before us is
whether an order passed under the Companies Act can be enforced under section
145 of the Code of Civil Procedure as if it were a decree.
17. In
order to support the contention that an order of the company court does not
have the force of a decree, the learned counsel for the respondent relied on
section 634A of the Companies Act which provides for the enforcement of orders
of the CLB. The learned counsel submitted that for the purposes of enforcing an
order made by the CLB. Section 634A provides that such orders may be enforced
by that Board “in the same manner as if it were a decree made by a Court in a
suit pending therein,....” There is no doubt that the phraseology used in the
two sections is similar. We, however, find that there are two important
distinctions. Firstly, section 634 provides that the orders may be enforced ‘by
that Court’ and section 634 provides for enforcement by the CLB thereby
referring to the CLB which does not have any inherent power to pass a decree.
Significantly, therefore, that section further provides that if the CLB is
unable to execute its order, then it may send its order for execution to the
court within the local limits of whose jurisdiction the registered office of
the company situates or the person concerned voluntarily resides or carries on
business, etc. Section 634 deals with orders passed by a court which has
jurisdiction to pass decrees vide section 10 of the Companies Act. It would,
therefore, not be permissible to treat the two provisions as identical.
18. The
next submission on behalf of the respondent is one which goes to the root of
the matter. According to the learned counsel for the respondent, assuming that
the consent terms, in the instant case, are construed to be an order for
payment, such an order for payment cannot be passed under section 443 wherein
the only relief that can be sought is the winding up of the company. According
to the respondent, the company court has no power to pass any decree or order
for payment against a company. Thus, notwithstanding the words ‘do pay’ in the
order, the order cannot be construed, or given effect to, as an order or a
command against the company to make payment. In this regard, the learned
counsel for the respondent relied on a decision of the Supreme Court in Haryana
Telecom Ltd. v. Sterlite Industries (India) Ltd. AIR 1999 SC 235. That was a
case in which the company against which a winding up petition had been filed,
applied for dismissal of the petition on the ground that the winding up
petition cannot be entertained in view of section 8 of the Arbitration and
Conciliation Act, 1996. The application was dismissed by the company judge who
held that the power to pass a winding up order against the company is vested
with the company court and it cannot be exercised by the arbitrator. There was
no dispute that the appellant-company was bound to pay the amount due to the
respondent in lieu of the goods supplied by him. The Supreme Court observed
that the proceedings for winding up in a company petition cannot be taken as
proceedings regarding settlement of disputes arising out of rights and liabilities of the parties. A winding up
petition is a petition which is not essentially for the benefit of the
petitioner-creditors alone as it is undisputedly for the benefit of all
concerned, i.e., creditors, shareholders, debtors and contributories, etc. It
is, in fact, a representative petition on behalf of all for bringing it to the
notice of the court that either the company is unable to pay its debts as
envisaged in section 433(e) of the Companies Act or it is just and fair in the
facts and circumstances of the case to wind up a company. It was observed that
an arbitration agreement may bind the parties to the agreement, but the same
cannot affect the rights and liabilities of the other creditors,
contributories, debtors, etc., who were not privy to the arbitration agreement
but have got a right to seek the winding up of the company. In conclusion, the
Supreme Court held that it must be treated as a settled proposition of law that
the arbitration clause does not ipso facto oust the jurisdiction of the company
court to entertain a winding up petition and the party invoking the arbitration
clause making a request to the company court to refer the matter to arbitration
must satisfy the said court that there is a bona fide dispute between the
parties to the agreement which requires reference to the arbitrator, and it is
not sufficient for the applicant to say that the court should refer the matter
to the arbitration because there is a clause in the agreement for making
reference to the arbitrator.
19. We
are unable to accept that this case is an authority for the proposition that
there is no jurisdiction or power in a company court to pass an order or decree
against a company for payment of money.
20. The
next decision relied upon by the learned counsel for the respondent is T.
Srinivasa v. Flemming (India) Apotheke
(P.) Ltd. [1990] 68 Comp. Cas. 506, rendered by the Karnataka High Court. That
Court while dealing with the petition for winding up observed as under :—
“. . . But it is not for this Court to assess
that evidence and refuse a decree or draw up a decree in favour of the
petitioner and then proceed to wind up the company. In summary procedure which
this Court, as a company court must follow, these things cannot be investigated
in depth. The Court is satisfied that the defence raised in the circumstances
of the case is bona fide and likely to succeed in a civil Court. If that prima facie case is found, that would
constitute sufficient reason for this Court to reject the petition relegating
the parties to the civil court. . . . .” (p. 509)
The Karnataka High Court has relied on the
decision of the Supreme Court in Madhusadan Gordhandas & Co. v. Madhu
Woollen Industries (P.) Ltd. [1972] 42 Comp. Cas. 125 at page 131 and held that
even though a winding up petition is rejected, the question as to whether the
money is owed to the petitioner or not is left open to be agitated and decided
by a civil court if the petitioner files a suit. The learned counsel for the
respondent, therefore, submits that a company court hearing a petition for
winding up does not conclusively adjudicate upon the merits of the claim or the
defence, and does not pass any final order or decrees, one way or the other. We
consider it of significance that the case cited above does not deal with a
situation where the company admits its liability and consents to an order under
which it becomes liable to pay the admitted amount. In such a case, there can
be no question of the company court having to decide or adjudicate any claim
whatsoever, but would merely have to pass a decree on admission.
21. The
next decision relied upon by the learned counsel for the respondent is an
unreported decision of a Division Bench of this Court in Maharashtra
Distilleries Ltd. v. Kalyani Forge Ltd.
[Appeal No. 1292 of 1998 in Company Petition No. 409 of 1997 dated
21-12-1998]. In that case, the company court, i.e., the learned Single Judge,
had directed the company in a petition for winding up to deposit a sum of Rs.
28.00 lakhs in the Court, the amount being an admitted amount of the company’s
liability to the petitioning creditor. The learned Single Judge had relegated
the petitioner to a suit to establish its claim, but, however, permitted the
petitioner to withdraw the said sum of Rs. 28.00 lakhs which had been deposited
by the company. This order allowing the petitioner to withdraw the amount deposited
by the company was set aside by the Division Bench holding that the order
virtually amounts to passing of a decree as also execution thereof by the
company court, which is not justified in a company petition. The Division Bench
observed that this is not permissible since if the amount is not disputed or is
an amount which is admittedly due from the appellant to the respondent, the
same can at best entitle the respondent to claim a decree on admission, but it
would not justify the passing of an order permitting withdrawal of the amount
by the petitioning creditor. it
is obvious that this case turned on its own facts since the learned Single
Judge had dismissed the winding up petition but had ordered that the amount of
Rs. 28.00 lakhs deposited in the Court be permitted to be withdrawn by the
petitioning creditor, in spite of the fact that the parties were relegated to
filing a civil suit. It is in these circumstances that the Division Bench in
that case held that the learned Single Judge was not justified in doing so. We
are of view that the Division Bench set aside the order on the grounds of
propriety and not because of any lack of inherent power.
22. Another
decision relied upon by the learned counsel for the respondent in Bombay
Castwell Engg. (P.) Ltd., In re [1984] 55 Comp. Cas. 75 (Bom.). That was a case
where a company petition stood admitted because the company defaulted in paying
the instalments under the consent terms filed before the company court. When
the petition came up for final hearing, the company court directed the
petitioning creditors to bring back and deposit in the court the amount which
had till then been paid by the company to the petitioning creditor. The company
court, i.e., the learned Single Judge rejected the contention of the
petitioning creditor that after the passing of the winding up order, it would
be for the liquidator to proceed under section 531 of the Companies Act to
require the petitioning creditor to bring back the amounts paid to it by the
company. Taking the view that an order for winding up does not enure for the
benefit of the individual creditor who obtains the order but for all creditors,
the court held that an individual creditor is not entitled to enrich himself by
collecting payment on the strength of the consent terms, but he must be
relegated to the same position in which he was when he presented the petition
for winding up.
23. The court
held that the petitioning creditor who had received certain amounts under the
consent terms must bring back the amount and cannot use section 531 as a shield
to retain the money since that section is one of the sections which deals with
the effect of antecedent transactions and makes any payment made by the company
six months before the commencement of its winding up a ‘deemed’ fraudulent
preference of its creditors and further invalidates such transactions. This
decision obviously dealt with payments which were not antecedent. Firstly,
while rendering this decision, the extent of jurisdiction of the civil court
was not considered and moreover, the court was of the view that the payments
received under the consent terms should be brought back since they were not
antecedent to the winding up order only transactions antecedent to the winding
up order capable of being dealt with by the Official Liquidator on proof of
fraudulent preference.
24. It
does not appear to us that any of the decisions relied upon by the learned
counsel for the respondent takes the view that the company court does not have
powers to direct a party to make payment of an admitted liability. We must
decide this question on the scope of the power of the company court under
section 443 which reads as follows :-
“4. Powers of Court on hearing petition.—(1)
On hearing a winding up petition, the Court may—
(a) dismiss it, with or without cost; or
(b) adjourn the hearing conditionally or
unconditionally; or
(c) make any interim order that it thinks fit;
or
(d) make an order for winding up the company with
or without costs, or any other order that it thinks fit :
Provided that the Court shall not refuse to make a winding up order on the ground
only that the assets of the company have been mortgaged to an amount equal to
or in excess of those assets, or that the company has no assets.
(2) Where the petition is presented on the ground that it is just and
equitable that the company should be wound up, the Court may refuse to make an
order of winding up, if it is of opinion that some other remedy is available to
the petitioners and that they are acting unreasonably in seeking to have the
company wound up instead of pursuing that other remedy.
(3) Where the petition is presented on the ground of default in
delivering the statutory report to the Registrar, or in holding the statutory
meeting, the Court may—
(a) instead of making a winding up order,
direct that the statutory report shall be delivered or that a meeting shall be
held; and
(b) order the costs to be paid by any persons
who, in the opinion of the Court, are responsible for the default.”
This section must be read along with rule 9 of
the Companies (Court) Rules, 1959 framed by the Supreme Court under the
provisions of section 643 of the Companies Act which reads as follows :
“Nothing in these rules shall be deemed to
limit or otherwise affect the inherent powers of the Court to give such
directions or pass such orders as may be necessary for the ends of justice or
to prevent abuse of the process of the Court.”
Rule 6 of the said Rules reads as follows :
“Practice and procedure of the Court and
provisions of Code to apply. Save as provided by the Act or by these Rules the
practice and procedure of the Court and the provisions of the Code so far as
applicable shall apply to all proceedings under the Act and these Rules. The
Registrar may decline to accept any document which is presented otherwise than
in accordance with these Rules or the practice and procedure of the Court.”
The submission of the learned counsel for the
appellant, apart from section 443, is that full plenitude of the inherent
powers of the court is narrowed down or restricted by any provisions of the
Companies Act. Thus, the commonly used expression ‘company court’ is only a
convenient way of describing the seat of a High Court Judge dealing with
matters under the Companies Act. It does not deny the special or pecuniary
jurisdiction or remove the ordinary original jurisdiction of this Court.
Therefore, the orders passed by this Court under the Companies Act,
nevertheless remain orders passed in exercise of its ordinary original civil
jurisdiction, vested in this Court not by virtue of the Companies Act, but
generally under the Letters Patent and the Constitution of India. In this
regard, the learned counsel for the appellant relied upon the decision of the
Supreme Court in Jyoti Bhushan Gupta v.
Banaras Bank Ltd. AIR 1962 SC 403, where the Supreme Court has observed as
follows :—
“...The jurisdiction to deal with the claims
of companies ordered to be wound up is conferred by the Indian Companies Act
and to that extent the Letters Patent are modified. There is, however, no
difference in the character of the original civil jurisdiction which is
conferred upon the High Court by Letters Patent and the jurisdiction conferred
by special Acts. When in exercise of its authority conferred by a special
statute the High Court in an application presented to it as a Court of first
instance declares liability to pay a debt, the jurisdiction exercised is
original and civil and if the exercise of that jurisdiction does not depend
upon any preliminary step invoking exercise of discretion of the High Court,
the jurisdiction is ordinary.” (p. 406)
25. In
the submission of the learned counsel for the appellant, apart from the
inherent power, section 443 expressly grants the power to order a company to
make the payment of ‘just debt’ and there can be no debt more just ‘than that
which is admitted by the company but which is not paid.’ Reliance is placed on
section 443(1)(d) which provides that on hearing a winding up petition, the
court may make an order for winding up the company or any other order it thinks
fit. M. Tulzapurkar, the learned counsel for the respondent, submitted that the
phrase “or any other order that it thinks fit” must be read ejusdem generis, have
regard to the various types of orders enumerated in the preceding clauses such
as the dismissal of the petition, adjournment of the petition or making of an
interim order.
26. We
are, however, unable to accept the contention on behalf of the respondent since
the other orders referred to in section 443(1) do not define or form a genus or
a class of which the clause in question is a species. It is well-settled that
it is only when the preceding words define an established genus or a class so
that the residuary words can be held to cover the remainder of the species so
as to make up the genus. We find that the type of orders enumerated in clauses
(a), (b), (c) and (d) do not form a genus or a class at all. They are very
different from each other. It is, therefore, difficult to apply the principles
of ejusdem generis is even if one takes only clause (d) into consideration.
Clause (d) enables the court to make an order for winding up the company, or
make any other order that it thinks fit. According to us, it is clear that an
order for winding up may be said to be in a class of its own and, therefore,
the words following it, i.e., “or any other order that it thinks fit” do not
contemplate a variant of a winding up order. On the other hand, it appears that
the other orders contemplated are orders other than those related to winding up
and would include orders such as, an order for purchase of shares belonging to
the petitioner; vide Shankuntala Rajpal v. Mckenzie Philip (India) (P.) Ltd.
[1988] 64 Comp. Cas. 585 (Delhi); the power to issue an order for recall of a
winding up order; vide G.T. Swami v. Goodluck Agencies [1989] 1 Comp. LJ 212
(Kar.); an order for sale of the
company’s assets and to have the sale proceeds deposited in the court for the
purpose of making payment to one of the creditors vide Smt. Usha R. Shetty v.
Radeesh Rubber (P.) Ltd. [1995] 84 Comp. Cas. 602 (Kar.); to order the
appointment of a chartered accountant to verify the exact amount payable by the
company vide NEPC Agro Food Ltd. v. Hindustan Thompson Associates Ltd. [2001] 1
Comp. LJ 104 (Mad.); and any such order that the court may think fit for doing
complete justice.
27. It
appears that the width of the power of the company court has come up before
several courts and the courts have interpreted section 443(1) so as to preserve
sufficient plenitude of the Court’s while dealing with winding up petitions. We
are of the view that it would be unduly restrictive to say that while dealing
with a petition for winding up the
Court can do nothing short of ordering the winding up of the company nor is it
a case of ‘all or none’.
28. In
Ramakrishna Industries (P.) Ltd. v. P.R. Ramakrishnan [1988] 64 Comp. Cas. 425,
a Division Bench of the Madras High Court, relying on its earlier decision in
Ramakrishnan Industries (P.) Ltd. v. P.R. Ramakrishnan [1983] 2 Mad. LJ 227
quoted the following passage from its earlier decision :
“In our judgment, the investiture of the Court
with the winding up jurisdiction, as of other powers, must be interpreted as adding
to the gamut of the Court’s existing jurisdiction. It would be a mistake to
interpret the statute as stripping the Court of all its powers first, and then
conferring on it only such powers as are permitted, say by section 443(1) and
other related provisions. We are satisfied that having regard to the scheme of
the Companies Act, we cannot read any provision in the statute which relates to
jurisdiction of Courts, as being in derogation of the full plenitude of the
Court’s powers under the common law, unless we can find it in a clearly expressed, or equally clearly
implicit, bar of restriction of the Court’s jurisdiction.” (p. 431).
and held as follows :
“These are clear authorities for the position
that even at the stage of admitting the winding-up petition, or entertaining
the winding-up petition, the Court has also an inherent power to do that which
is necessary to prevent the abuse of the process of the Court or to advance the
cause of justice or make such orders which are necessary to meet the ends of
justice. That inherent power of the court is not taken away or in any way
restricted by section 443(1) of the Companies Act. We are, therefore, unable to
agree with the contention of learned counsel for the appellants that till the
date set for hearing of the petition, the hearing of the company petition had
not commenced and that the Court had no jurisdiction to pass any interim orders.” (p. 433)
29. Undoubtedly
no decision has been cited before us in which it is clearly held that a company
court has power to pass an order having force of a decree to pay money to a
party before it. We are also conscious of the position that in a winding up
petition, it is not possible for a company court to assess evidence and to draw
up a decree in favour of the petitioner and then to proceed to wind up the
company. It is well-settled that where a debt is bona fide, a company court
will not entertain a winding up petition. We are, however, of view that where a
company admits its liability in a certain sum towards the petitioner, the
situation must be viewed differently. In such a situation, there is no need for
a court to fold its hands and consider itself powerless to make an appropriate
order for payment of money.
30. The
learned counsel for the respondent relied on the decision in T. Srinivasa’s
case (supra) in which the Karnataka High Court has observed that in a petition
for winding up the court will not investigate the matter in depth; if there is
a bona fide defence the court will
relegate the parties to a civil suit. These observations reflect a well-settled
position in law and we are in agreement with them. As indicated earlier we are
concerned here with a case where the liability is undisputed and the company
agrees to discharge its liability and submits to a consent order being passed.
31. The
learned counsel for the respondent also relied on the decision in Gujarat State
Financial Services Ltd. v. Amar Polyester Ltd. [1998] 5 CLJ 95, where the
Gujarat High Court refused to allow the restoration of a company petition which
had already been disposed of on the basis of consent terms, a default having
been committed by the company. The High Court held that in that case the
original power of action could not be revived merely because subsequently the company defaulted and the default might give rise to
a fresh cause of action. It, however, appears that the issue raised before us
was not raised before the Gujarat High Court and, therefore, not considered by
it.
32. The
learned counsel for the respondent lastly submitted that the court would not be
entitled to direct payment of money to the petitioning creditor and submitted
that the consent order directing payment to the appellant would amount to a
fraudulent preference under sections 531 and 536(2). This contention appears ex
facie untenable. Section 536(2) reads as follows :-
“(2) In the case of a winding up by or subject
to the supervision of the Court, any disposition of the property (including
actionable claims) of the company, and any transfer of shares in the company or
alteration in the status of its members, made after the commencement of the
winding up, shall, unless the Court otherwise orders, be void.”
The section itself avoids any disposition of
the property of the company, etc., “unless the Court otherwise orders”. Section
531 would also have no application to such payment since what is deemed to be a
fraudulent preference under that section is any transfer of property, whether
movable or immovable, payment, etc., taken or done by or against a company
within six months before the commencement of its winding up. Since a winding up
of a company relates back to the date of the presentation of the winding up
petition, consent orders, in the present case, would not be covered by that
section since it must be taken to have been made after the commencement of the
winding up petition.
33. On
this issue, we are of view that the power to direct payment of money to a
petitioning creditor in a winding up petition is not a power which is outside
the purview of a company court. That the exercise of such a power is also
proper where the debt is admitted and the debtor-company solemnly agrees to
discharge it. In fact, winding up proceedings have long been held to be a
proper remedy for enforcing payment of just debt and a mode of execution.
34. In Harinagar
Sugar Mills Co. Ltd. v. M.W. Pradhan, Court Receiver, High Court AIR 1966 SC
1707 where the right of a Court Receiver to maintain a winding up petition was
questioned, the Supreme Court held that a Receiver’s power under rule 41, rule
1 of the Code of Civil Procedure did not extend only to bringing a suit. It was
held that the power of a Receiver under Order 40, Rule 1 intended to preferring
petition for winding up of a company which was another mode of realisation of
the debt due. The Supreme court has observed as follows :
“Under this order, all the necessary powers
under O. XI, R. 1 of the C.P.C. were conferred upon the receiver, including the
right to file suits. Assuming that a petition for winding-up of a company is
not a suit within the meaning of O. XI, R 1 (d) of the said Code, the other
powers mentioned therein are comprehensive enough to enable the Receiver to
take necessary proceedings to realise the property of and debts due to the
joint family. Can it be said that the petition filed by the receiver for
winding up of the company is not a mode of realisation of the debt due to the
joint family from the company in Palmer’s Company Precedents, Part II, 1960
edn. at p. 25, the following passage appears :
‘A winding up petition is a perfectly proper
remedy for enforcing payment of a just debt. It is the mode of execution which
the Court gives to a creditor against a company unable to pay its debts.’
This view is supported by the decisions in
Bowes v. Hokpe Life Insurance & Guarantee Co. [1865] 11 HLC 389; Re :
General Company for Promotion of Land Credit [1870] 5 Ch. A 363 (380) and Re :
National Permanent Building Society [1869] 5 Ch A. 309. It is true that a
‘winding up order is not a normal alternative in the case of a company to the
ordinary procedure for the realisation of the debts due to it’ but, nonetheless
it is a form of equitable execution. Propriety does not affect the power but
only its exercise. If so, it follows that in terms of clause (d) of r. 1 of O.
XL of the Code of Civil Procedure, a Receiver can file a petition for winding
up of a company for the realisation of the properties movable and immovable,
including debts, of which he was appointed the Receiver. In this view, the
respondent had power to file the petition in the Court for winding up of the
company.” (p. 1709).
35. We,
therefore, hold that having regard to the settled position that a petition for
winding up is a proper remedy for enforcing a just debt and mode of realisation
of such a debt, a company court, trying such petition is entitled to pass an
order directing the company to make payment of money to the petitioning
creditor. That where the debt is bona fide disputed and the defence is a
substantial one, and is likely to succeed, it is well-settled that the court
will not wind up the company but will relegate the petitioner to the power to a
suit vide Madhusudan Gordhandas & Co.’s case (supra).
36. We
further hold that such an order for payment of money when passed will have the
same force as a decree of a court passed in a suit and shall be executable as
such and in accordance with the provisions of the Code of Civil Procedure.
37. We
have taken this view also a matter of public policy. According to us, it would constitute
a serious abuse of the process of law if a debtor-company is allowed to
ward-off a company petition filed against it by one of its creditors by simply
signing on the consent terms and inviting the court to pass a decree in terms
thereof and then raise pleas which defeat
the very purpose of the consent order. In the present case it is clear
that the respondent got the company petition disposed of by going so far as to
guarantee performance of the consent terms which involved payment of the amount
admitted by the company and also invited the order against itself to do so and
has been chosen to oppose even the issue of an insolvency notice on the grounds
discussed above, including the ground that the court had no jurisdiction to
pass an order in accordance with the consent of parties. We have, therefore, no
hesitation in allowing the appeal.
38. In
the present case, we are of view that the learned Single judge has committed an
error in holding that the only remedy which the appellant had, was to file a
suit and was not entitled to issue a notice of insolvency under section 9(1).
39. We,
therefore, allow the appeal and direct that notice of insolvency be issued to
the respondent as prayed for by the appellant in her Application No. N/50 of
1999 dated 21-5-1999.
Appeal allowed.