1997 (12) TMI 587 - HC - Companies Law

Summary

Issues:
Revival and restoration of Company Petition, Consent terms enforcement, Financial crisis and BIFR approach, Validity of reviving proceedings post withdrawal, Impact on third parties due to revival.

Analysis:
The Gujarat State Financial Services Ltd. filed an application seeking the revival and restoration of Company Petition No. 245 of 1996 against Amar Polyesters Ltd. The original petition was disposed of after the parties entered into consent terms, agreeing on payment schedules and withdrawal of legal actions. However, the applicant claimed that the respondent failed to make payments as per the consent terms, except for the first instalment, and sought to revive the proceedings based on the liberty granted in the consent terms.

The respondent opposed the revival, arguing that once a Company Petition is withdrawn, the revival is not permissible under the Companies Act. They contended that reviving the petition would render transactions post the original disposal invalid and cause prejudice to third parties. Additionally, the respondent highlighted their approach to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985, which could prevent winding-up proceedings.

The court emphasized that the purpose of a Company Petition is not debt recovery but winding up a company due to its inability to pay debts. The court noted that entering into consent terms and accepting instalment payments indicates the creditor's belief in the debtor's ability to settle debts, negating the original cause of action. The court held that reviving the petition based on default in instalment payments does not change this principle.

Furthermore, the court acknowledged that transactions post the original petition's disposal could be affected by reviving the proceedings, causing prejudice to third parties unaware of the legal actions. Considering these factors, the court rejected the application for revival, stating it was not tenable in law and could harm innocent third parties. The court emphasized that once parties act upon consent terms, the contract's validity should not be questioned, further supporting the rejection of the revival application.