2002(1) ALL MR 443
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
B.N. SRIKRISHNA AND S.A. BOBDE, JJ.
Re.: Nilesh Lalit Parekh, Managing Director Of M/S. Enarai Finance Ltd.
Appeal No. 758 of 1999,Application No.N/50 of 1999
23rd July, 2001
Petitioner Counsel: Mr. D. J. KHAMBATTA, SHYAM MEHTA, M/s. FEDERAL & RASHMIKANT
Respondent Counsel: Mr. VIRAG TULZAPURKAR, Mr. P. K. SAMDHANI & S. SHETYE, PRAKASH & CO.
Companies Act (1956), S.443(1) - Winding up petition - Power of Company Court - Admitted liability - Company Court has powers to direct a party to make payment of an admitted liability.
The width of the power of the Company Court has come up before several Courts and the Courts have interpreted section 443(1) of the Companies Act so as to preserve sufficient plenitude of the Court's powers 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. Where a debt is bona fide, a Company Court will not entertain a winding up petition. 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.(1988) 64 Company Cases 585, (1995) 84 Company Cases 602 and (2001) Company Law Journal 104 - Referred. [Para 29]
Lyallpur Bank Vs. Ramji Das, (1945) 15 Company Cases 57 [Para 10,13]
Radhesham Beopar Co. Ltd. Vs. Karam Chand, AIR 1941 Lahore 273 [Para 10]
M/s. Sindhu Chits and Trading Pvt. Ltd. Vs. S. Khayirunnissa, AIR 1992 Karnataka 281 [Para 13]
Pushpabai Vs. Official Liquidator, Sholapur Oil Mills Ltd., AIR 1970 Bom. 271 [Para 13]
Techno Metal India Pvt. Ltd. Vs. Premnath Anand, (1973) 43 Company Cases 556 [Para 14]
Deutsche Bank Vs. S. P. Kala, (1992) 74 Company Cases 577 [Para 15]
Collector of Aurangabad Vs. Central Bank of India, AIR 1967 SC 1831 [Para 16]
Haryana Telecom Ltd. Vs. Sterlite Industries Ltd., JT 1999(4) SC 545 [Para 18]
T. Srinivasa Vs. Fleming (India) Apotheke Pvt. Ltd., (68) Company Cases 506 [Para 20]
Madhusudan Gordhandas and Co. Vs. Madhu Woollen Industries Pvt. Ltd., (1972) 42 Company Cases 125 [Para 20]
Maharashtra Distilleries Ltd. Vs. Kalyani Forge Ltd., delivered on 21.12.1998 in Appeal No.1292 of 1998 in Company Petition No.409 of 1997 [Para 21]
Re. Bombay Castwell Engineering Pvt. Ltd., (1984) 55 Company Cases 75 [Para 22]
Jyoti Bhushan Gupta Vs. Banaras Bank Ltd., AIR 1962 SC 403 [Para 24]
Shakuntala Rajpal Vs. Mackenzie Philip (India) P. Ltd., (1988) 64 Company Cases 585 [Para 26]
G. T. Swamy Vs. Goodluck Agencies, (1989) 1 Company Law Journal 212 [Para 26]
Smt. Usha R. Shetty Vs. Radeesh Rubber Pvt. Ltd., (1995) 84 Company Cases 602 [Para 26]
NEPC Agro Food Ltd. Vs. Hindustan Thompson Associates Ltd., (2001) Company Law Journal 104 [Para 26]
Ramkrishna Industries (P) Ltd. Vs. P. R. Ramakrishnan, (1988) 6 Comp. Cases 425 [Para 28]
Ramakrisha Industries Pvt. Ltd. vs. P. R. Ramakrishan, (1983) II L.J. 227 [Para 28]
Gujarat State Financial Services Ltd. Vs. Amar Polyester Ltd., (1998) 5 C.L.J. 95 [Para 31]
Harinagar Sugar Mills Co. Ltd., Bombay Vs. M. W. Pradhan, Court Receiver, High Court, Bombay, AIR 1966 SC 707 [Para 34]
Madhusudhan Gordhandas Vs. Madhu Woollen Industries, AIR 1972 SC 2600 [Para 35]
BOBDE, J. :- This appeal is preferred by a creditor of M/s. Enarai Finance Limited 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 installments, 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 exparte. 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 Rs.28,72,315/-, 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 (hereinafter referred to as the "Act") issued to the respondent. Section 9 of the Act reads as follows :-
"9. Acts of insolvency. -(1) A debtor commits an act of insolvency in each of the following cases, namely :-
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 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 of the Companies Act reads as follows :-
"634. 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 :-
"145. 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
(c) for the payment of any money, or for the fulfillment 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 clause (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, 1909 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 C.P.C.
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.
(i) The company admitted its liability to the appellant in the sum of Rs. 50,00,000/- 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% 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 alongwith each installment calculated from the date hereof as expeditiously as possible and in any event in the following installments on or before the respective due dates by Bank pay-slip or Demand Draft."
The amount was made payable in eight installments.
(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, learned counsel appearing for the appellant, submitted that clause 3 of the order crystalises 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, 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 uses 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 driven 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.50,00,000/- vide clause 1 and further acknowledged balance due in the sum of Rs. 28,72,315/- with interest at 21%, accepted vide clause 3 that it would pay the aforesaid balance of Rs. 28,72,315/- in installments. 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 consequences 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 consequences 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, 1908 to such a consent order passed by a Company Court in exercise of its jurisdiction under section 443 of the Companies Act, 1956. 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 Insolvency Act.
9. In order to resolve this, it is necessary to construe section 634 of the Companies Act, 1956. 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 Court 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 v. Ramji Das, reported in (1945) 15 Company Cases 57, in which the effect of section 199 of the 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 assets shall be rateably distributed amongst all such persons. The Courts in India had held that an order made under section 186 of the Companies Act which, inter alia, enable 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 fulfill 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 Companies Act which is identical in terms with section 634 of the present Act, 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 resort 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, C. J., and Blacker, J., in Radhesham Beopar Co., Ltd. v. Karam Chand."
The Privy Council approved the judgment of the Lahore High Court in Radhesham Beopar Co. Ltd. v. Karam Chand, reported in A.I.R. 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 Lah. 211 puts the order on the same footing as the decree as far as the execution goes and rateable distribution under S.73 is clearly a method of enforcement of a decree or of an order in the nature of a decree."
11. Mr. Tulzapurkar, 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) of the Act 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 of the Act. We feel that the ratio of that judgment would apply whether the application for execution is made under section 73 of the C.P.C. or section 145.
13. Mr. Khambatta, learned counsel for the appellant, also relied on the decision of the Karnataka High Court in M/s. Sindhu Chits and Trading Pvt. Ltd. v. S. Khayirunnissa & Anr., reported in A.I.R. 1992 Karnataka 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, it will be treated as though it is a decree and all the provisions of the Code of Civil Procedure relating to the execution of the decree would then apply."
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 and others v. Official Liquidator, Sholapur Oil Mills Ltd., reported in A.I.R. 1970 Bom. 271. In that case, the appellant sought to invoke the provisions of Article 13 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's case (supra), this Court observed as follows :-
"9. 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."
14. A similar view has been taken by the Calcutta High Court in Techno Metal India Pvt. Ltd. v. Premnath Anand, reported in (1973) 43 Company Cases 556. That was 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, 1956. Section 634 of the Act 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, reported in (1992) 74 Company Cases 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 of the Companies Act, 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, reported in A.I.R. 1967 S.C. 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 arrears 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 Company Law Board. The learned counsel submitted that for the purpose of enforcing an order made by the Company Law Board, 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 Board thereby referring to the Board which does not have any inherent power to pass a decree. Significantly, therefore, that section further provides that if the Board 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 of the Companies Act 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 Ltd., reported in J.T. 1999(4) S.C. 545. 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, 1966. 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 the 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 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. Fleming (India) Apotheke Pvt. Ltd., reported in (68) Company Cases 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."
The Karnataka High Court has relied on the decision of the Supreme Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd., reported in (1972) 42 Comp. Cases 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 decree, 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. delivered on 21.12.1998 in Appeal No.1292 of 1998 in Company Petition No.409 of 1997. 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 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 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 is R: Bombay Castwell Engineering Pvt. Ltd., reported in (1984) 55 Company Cases 75. That was a case where a company petition stood admitted because the company defaulted in paying the installments 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 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 transaction. 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 more over, the Court was of the view that the payments received under the consent terms should be brought back since they were no 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 of the Companies Act which reads as follows :-
"443.(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 of the Companies Act, is that full plenitude of the inherent powers of the Court is not 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 the 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 a 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., reported in A.I.R. 1962 S.C. 403, where the Supreme Court has observed in para 9 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."
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. Mr. Tulzapurkar, learned counsel for 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.
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 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 Shakuntala Rajpal and Ors. v. Mackenzie Philip (India) P. Ltd. & Ors., (1988) 64 Company Cases 585); the power to issue an order for recall of a winding up order; vide G. T. Swamy v. Goodluck Agencies, (1989) 1 Company Law Journal 212); 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 creditors vide Smt. Usha R. Shetty v. Radeesh Rubber Pvt. Ltd., (1995) 84 Company Cases 602); 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) Company Law Journal 104); 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) of the Companies Act so as to preserve sufficient plenitude of the Courts' powers 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 Ramkrishna Industries (P) Ltd. and Ors. v. P. R. Ramakrishnan and Others, reported in (1988) 6 Company Cases 425, a Division Bench of the Madras High Court, relying on its earlier decision in Ramakrishnan Industries Pvt. Ltd. v. P. R. Ramakrishnan, reported in (1983) II L.J. 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 in it a clearly expressed, or equally clearly implicit, bar of restriction of the court's jurisdiction."
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 petition, the hearing of the Company Petition had not commenced and that the Court had no jurisdiction to pass any interim orders."
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 v. Flemming (India) Apotheke Pvt. Ltd. (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., reported in (1998) 5 C.L.J. 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 section 531 and 536(2) of the Companies Act. This contention appears ex facie untenable. Section 536(2) of the Act reads as follows :-
"536(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 of the Act 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.
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., Bombay v. M. W. Pradhan, Court Receiver, High Court, Bombay (A.I.R. 1966 S.C. 707) 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 41 rule 1 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 a 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.XL 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.XL 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 and Guarantee Co. (1865) II 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 Cl. (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."
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 of a suit, vide Madhusudhan Gordhandas v. Madhu Woollen Industries, reported in A.I.R. 1972 S.C. 2600.
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 as 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 then 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) of the Presidency Town Insolvency Act, 1909.