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

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 (1 = appeal accepted, 0 = rejected): 0

Explanation:
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.