Case: M/S.Corporate Couriers Limited & Others Vs. M/S.Wall Street Finance Limited

ORAL JUDGMENT: (FERDINO I. REBELLO, J.) The Appellants were the Respondents, in a Company Petition filed by the Respondent herein, who were the original Petitioners. It was the case of the Petitioners that the Company owed to them a sum of Rs.77,50,800/-. Inspite of the statutory notice the amount was not paid and, therefore, the company stood justly indebted, being unable to pay its debts. The Company Petition No.298 of 1997 came to be filed. The Company Petition was admitted on 12th April, 1999, but not advertised. 2. Before the petition could be advertised, consent terms came to be filed between the Company and the Applicant on 8th November, 1999. The Company admitted and acknowledged its liability to pay to the applicant a sum of Rs. 77,50,800/-. Clause 4 of the consent terms reads as under:- In the event of the Respondents committing default in payment of any two consecutive installments on the date as agreed, the Official Liquidator stands appointed and will take forthwith possession of the companies properties registered office, books of account, book debts and bank accounts as the Petition is already admitted by the order dated 12/4/99 passed by His Lordship Mr. Justice S.S. Nijjar in the above matter. The Petitioner shall be entitled to the entire amount of Rs.77,50,800/- as mentioned in Clause(2) herein above after deducting the amount paid if any by the Respondents with further interest on the balance amount @ 24% p.a., and/or realization. The petitioners shall thereupon advertise the notice of winding up of the company in the news paper (i) Bombay Samachar, Bombay (ii) Free Press Journal, Bombay and (iii) Maharashtra Government Gazette. Thus Clause 4 itself provided that in the event the company committed default in payment of any two consecutive installments on the date as agreed, the Official Liquidator stands appointed and will take forthwith possession of the companys properties, etc., and the petitioner would advertise the notice of winding up as set out in the clause. 3. It is the case of the appellants herein that there was breach on the part of the company in complying with the consent terms and an amount of Rs.33,93,501/- was still due and payable. A Memorandum of Understanding (MoU) was entered into on 21st August, 2005 under which it was recorded that the amount of Rs.33,93,501/- was still due and payable. The Appellants, however, agreed to settle the matter for a sum of Rs.15.00 lacs. The company gave a cheque in the sum of Rs.15.00 lacs in terms of the MoU. The cheque when deposited was dishonoured and the respondents were constrained to file Criminal Complaint against the Appellants.4. The learned Company Judge after considering all these aspects and considering Clause 4 of the consent terms held that Company Application (Lodging) No.1280 of 2009 has been taken out for restoration of the Company Petition and that it was evident on the construction of Clause 4 of the consent terms, that if there were two consecutive defaults the Official Liquidator shall stand appointed and the Company Petition was to be advertised. Moreover, under Clause 7 the Company had agreed not to dispose of its properties until the entire payment was made under the consent terms. The Court noted that the order of 8th July, 1999 records that the petition was disposed of in terms of the consent terms. Considering all these provisions the Court made the Company Application absolute in terms of prayer clause (a) and accordingly restored the Company Petition. The Court also considered the Company Application No.723 of 2009 which was for appointment of the provisional Liquidator and considering Clause 4 made the Company Application No. 723 of 2009 absolute in terms of prayer (a). It is this order in Company Application (Lodging) No.1280 of 2009 which is the subject matter of the present Appeal. 5. On behalf of the Appellants it is submitted that once the Company Petition was disposed of by consent terms the question of the Company being indebted would not arise and consequently no application for restoration of the Company Petition would lie. A Company Petition is not a means to recover money and such an application would not be maintainable. It is further submitted that after the consent terms there was a MoU between the Appellants and Respondents whereby the Respondents inter alia agreed to accept from the Appellant a sum of Rs.15.00 lacs as full and final settlement. It is, therefore, submitted that the cause of action no longer survives and in these circumstances the Company Court could not have allowed the application for restoration of the Company Petition and consequently for appointment of Liquidator. In support of his contention learned Counsel for the Appellants has firstly relied on the Judgment of a single Judge of the Karnataka High Court in the case of Indo Swiss Jewels Ltd. vs. HMT Watches Ltd. I.L.R. 2010 Kar.215. In that case what the learned single Judge of the Karnatka High Court amongst others was considering was the effect of a suit filed and which was pending and independently maintenance of the Company Petition. The learned Judge held that pendency of a suit is not a bar to the maintainability of a winding up petition. However, the decision in the suit is a matter to be taken into consideration before an order of winding can be made in the Company Petition since filing of the suit for recovery of money due from the company in which adjudication takes place after recording of evidence would also be the very basis of filing of the Petition seeking winding upon on account of inability to pay debt of a just and reason. In our opinion, this judgment would not be applicable as in the instant case by the consent terms the company itself admitted the liability to the petitioner, the appellant herein. The learned Judge also noted that the petition for winding up with a view to enforcing payment of disputed debt is an abuse of the process of the Court and it cannot be gainsaid that an order admitting a winding up petition and resultant order for inviting claims from the respective parties by public notice, is in many cases from commercial point of view, the business point of view, from the marketability point of view and also taking into consideration the interest of the work force not less injurious than an order of winding up. In the instant case, however, we are clearly of the opinion that the principle would not apply as the company petition had already been admitted. 9. Strong reliance was placed on the judgment of a learned single Judge of the Gujarat High Court in the case of Gujarat State Financial Services Ltd. vs. Amar Polyester Ltd., 1998 (1) G.L.R. 734. In that case also consent terms were filed and there was a breach. Amongst others the question before the Court, was whether in a case where consent terms were filed and there was a breach of payment of instalment and considering the clause for revival, whether the Company Petition could be restored. In that case the company was also before the B.I.F.R. The learned Judge held that when a creditor enters into an agreement with the debtor and accepts to receive its debt in installments, then that conduct of creditor itself shows that the claim of the creditor that the debtor is not in a position to satisfy its debts is not correct and that the conduct of the debtor may amount to fresh cause of action. The learned Judge further observed that the foundation for the proceedings under the Companies Act is the inability of debtor to pay its debt. Therefore, when the creditor by his own conduct accepts the position that the debtor will be in a position to satisfy its debt by entering into consent terms by his own conduct, shows that no cause of action survives. The moment the creditor enters into consent terms there is nothing to proceed within the Company Petition. In the circumstances the Court held that merely because there is a term in the consent terms giving liberty to revive the proceedings it will not change the law and will not give right to the creditor to ask the Court to revive the proceeding. It will not be possible for us to accept the proposition of law as set out by the learned Judge of the Gujarat High Court. No doubt the consent terms are an agreement between the parties on which is superimposed the seal of the Court and to that extent it is not a judgment of the Court. The Agreement, however, is not one sided. Both parties mutually agreed that the petition will not be proceeded with as the company is given an opportunity to pay its debts. The Creditor accepts the offer of the company on the condition that if the installments are not paid within time the proceedings would continue. In other words both parties are aware that the proceedings are not closed and that the company petition would revive in the event there is a default in terms of the consent terms. In our opinion, the company cannot take advantage of its own wrong, more so as in this case where the creditor went out of its way even to reduce its claim. A cheque which was issued by the company was dishonoured, thus clearly indicating the companys inability to pay. In our opinion, in such a case, there is no change of cause of action. The cause of action is the cause based upon which the Company Petition was filed and the company petition admitted. Only further proceedings were not taken in view of the consent terms. Once a company petition is admitted and consent terms were filed, on failure to comply with the consent terms the company petition has to be proceeded with. 10. Reliance is also placed on the judgment of the Full Bench of the Allahabad High Court in the case of Mohiuddin vs. Mt. Kashmiro Bibi, AIR 1933 Allahabad 252. The learned Full Bench was considering an issue arising in a proceeding in execution and the effect of an agreement which contains a penal clause and whether that can be gone into by the Executing Court. The learned Counsel sought to contend that the clause of default is penal clause and in these circumstances that clause shall not be given effect to. In our opinion, it is not possible to apply that proposition to the Company Petition. The clause for revival of the petition cannot be said to be penal clause. In that context the judgment in Mohiuddin (supra) is clearly distinguishable. 11. On the facts and circumstances of the case, we are clearly of the opinion that the learned Judge was within jurisdiction in restoring the company petition and appointing Official Liquidator.

Decision reasoning: 0[ds]In that case what the learned single Judge of the Karnatka High Court amongst others was considering was the effect of a suit filed and which was pending and independently maintenance of the Company Petition. The learned Judge held that pendency of a suit is not a bar to the maintainability of a winding up petition. However, the decision in the suit is a matter to be taken into consideration before an order of winding can be made in the Company Petition since filing of the suit for recovery of money due from the company in which adjudication takes place after recording of evidence would also be the very basis of filing of the Petition seeking winding upon on account of inability to pay debt of a just and reason. In our opinion, this judgment would not be applicable as in the instant case by the consent terms the company itself admitted the liability to the petitioner, the appellant hereinThe learned Judge also noted that the petition for winding up with a view to enforcing payment of disputed debt is an abuse of the process of the Court and it cannot be gainsaid that an order admitting a winding up petition and resultant order for inviting claims from the respective parties by public notice, is in many cases from commercial point of view, the business point of view, from the marketability point of view and also taking into consideration the interest of the work force not less injurious than an order of winding up. In the instant case, however, we are clearly of the opinion that the principle would not apply as the company petition had already been admittedIn that case also consent terms were filed and there was a breach. Amongst others the question before the Court, was whether in a case where consent terms were filed and there was a breach of payment of instalment and considering the clause for revival, whether the Company Petition could be restored. In that case the company was also before the B.I.F.RThe learned Judge held that when a creditor enters into an agreement with the debtor and accepts to receive its debt in installments, then that conduct of creditor itself shows that the claim of the creditor that the debtor is not in a position to satisfy its debts is not correct and that the conduct of the debtor may amount to fresh cause of action. The learned Judge further observed that the foundation for the proceedings under the Companies Act is the inability of debtor to pay its debt. Therefore, when the creditor by his own conduct accepts the position that the debtor will be in a position to satisfy its debt by entering into consent terms by his own conduct, shows that no cause of action survives. The moment the creditor enters into consent terms there is nothing to proceed within the Company Petition. In the circumstances the Court held that merely because there is a term in the consent terms giving liberty to revive the proceedings it will not change the law and will not give right to the creditor to ask the Court to revive the proceedingIt will not be possible for us to accept the proposition of law as set out by the learned Judge of the Gujarat High Court. No doubt the consent terms are an agreement between the parties on which is superimposed the seal of the Court and to that extent it is not a judgment of the Court. The Agreement, however, is not one sided. Both parties mutually agreed that the petition will not be proceeded with as the company is given an opportunity to pay its debts. The Creditor accepts the offer of the company on the condition that if the installments are not paid within time the proceedings would continue. In other words both parties are aware that the proceedings are not closed and that the company petition would revive in the event there is a default in terms of the consent terms. In our opinion, the company cannot take advantage of its own wrong, more so as in this case where the creditor went out of its way even to reduce its claim. A cheque which was issued by the company was dishonoured, thus clearly indicating the companys inability to pay. In our opinion, in such a case, there is no change of cause of action. The cause of action is the cause based upon which the Company Petition was filed and the company petition admitted. Only further proceedings were not taken in view of the consent terms. Once a company petition is admitted and consent terms were filed, on failure to comply with the consent terms the company petition has to be proceeded withThe clause for revival of the petition cannot be said to be penal clause. In that context the judgment in Mohiuddin (supra) is clearly distinguishable11. On the facts and circumstances of the case, we are clearly of the opinion that the learned Judge was within jurisdiction in restoring the company petition and appointing Official Liquidator.