2010 (7) TMI 282 - HC - Companies Law

Winding up application - Held that - The petitioner is perfectly justified in filing this application and the arguments made on the basis of section 34 of the 1993 Act are totally untenable. Thus this winding application is allowed.

Issues Involved:
1. Whether the winding up application is barred by the laws of limitation.
2. Whether the winding up application is incompetent due to lack of execution process returned unsatisfied under section 434(1)(b) of the Companies Act, 1956.
3. Whether the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, has an overriding effect on the winding up application under the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Limitation Period for Winding Up Application:
The company argued that the claim on which the winding up application is founded is barred by the laws of limitation, asserting that the claim arose before the notice dated September 18, 2003, and since the application was filed in 2009, the debt had become time-barred. The court discussed the nature of a debt and the applicability of the Limitation Act, 1963. It was clarified that a judgment debt, which has been obtained by a creditor, remains a good debt as long as it is recoverable within the period prescribed for execution applications, which is twelve years. However, since a winding up proceeding is an application, Article 137 of the Limitation Act applies, necessitating filing within three years from the date of the decree. The court concluded that the winding up application was filed within the limitation period and was therefore competent.

2. Execution Process and Section 434(1)(b) of the Companies Act, 1956:
The company contended that the winding up application is incompetent because no execution process was returned unsatisfied under section 434(1)(b) of the Companies Act, 1956. The court distinguished between general creditors and judgment creditors, explaining that sub-section (a) refers to a general class of creditors who must give notice and wait before filing a winding up application, while sub-section (b) refers to judgment creditors who do not need to give such notice. The court supported this interpretation with precedents, including Unique Cardboard Box Mfg. Co. (P.) Ltd., In re [1978] 48 Comp Cas 599 (Cal) and Seethai Mills Ltd. v. N. Perumalsamy [1980] 50 Comp Cas 422 (Mad). It was held that the winding up application could proceed without the need for an unsatisfied execution process.

3. Overriding Effect of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993:
The company argued that the 1993 Act had an overriding effect, precluding the filing of a winding up application under the Companies Act, 1956. The court examined section 34 of the 1993 Act and relevant Supreme Court decisions, including Unique Butyle Tube Industries (P.) Ltd. v. U. P. Financial Corporation [2003] 113 Comp Cas 374 ; [2003] 2 SCC 455, and concluded that the 1993 Act prevents parallel proceedings for debt recovery but does not preclude a winding up application. The court clarified that a winding up application is not a debt recovery proceeding but a statutory remedy for liquidation of a company unable to pay its debts. The court found the company's argument based on section 34 of the 1993 Act and the interpretation of Supreme Court judgments to be untenable.

Conclusion:
The court allowed the winding up application, passing orders in terms of prayers (a), (b), and (c) of the petition. The petitioning creditor was justified in filing the application, and the arguments regarding limitation, execution process, and the overriding effect of the 1993 Act were dismissed. The judgment emphasized that a winding up application is a statutory remedy distinct from debt recovery proceedings.

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