1986 (10) TMI 291 - HC - Companies Law

Summary

Issues:
Petition for winding up under section 433 of the Companies Act, 1956 based on default in payment of agreed instalments. Interpretation of compromise decree terms regarding recovery amount. Applicability of section 74 of the Contract Act to compromise decrees.

Analysis:
The petitioner filed a petition seeking winding up of the respondent company due to default in payment of instalments as per a compromise agreement. The agreement stipulated that if the respondent failed to pay the agreed sum in instalments, it would be liable to pay the total amount claimed. The respondent contested the petition but admitted the decree passed in favor of the petitioner. During the proceedings, the respondent partially paid the agreed amount. The main contention was whether the petitioner could recover the full amount or only the amount already paid by the respondent.

The respondent argued that the amount claimed was a penalty and not recoverable beyond the sum already paid. The petitioner, however, contended that the decree terms were binding, and the full amount was recoverable. The judge, after considering the arguments, agreed with the respondent's counsel. It was held that the excess amount beyond what was already paid was a penalty, violating section 74 of the Contract Act. The judge referred to legal precedents, including the Full Bench of Allahabad High Court and Mysore High Court decisions, supporting the application of section 74 to compromise decrees.

The judge emphasized that stipulations by way of penalty in compromise decrees could be interfered with by the court during execution. It was concluded that the petitioner was entitled to recover only the amount already paid by the respondent as per the compromise decree. Since the respondent had paid the agreed sum during the petition's pendency, the judge dismissed the petition but ordered the respondent to bear the costs of the petition. The judgment clarified the legal principles governing compromise decrees and the application of section 74 of the Contract Act in such cases.