2011 (8) TMI 966 - HC - Companies Law

Winding up - appellant contended that a decree of the Court, which includes a consent decree, cannot be overlooked by an executing Court and cannot be questioned in collateral proceedings, including winding up proceedings Held that - Company Judge that the Company Court in the course of the winding up proceedings is not bound by a decree of the Court when it has to determine as to whether there exists a real debt or not was to be agreed with.while the debtor company may be estopped from resiling from its commitments under compromise decree it may not enable the creditor to seek winding up of the company on this ground alone

Summary

Issues Involved:
1. Whether the company court can go behind a compromise decree to ascertain the legal enforceability of a debt and whether a bona fide dispute regarding the debt can be raised despite the existence of a compromise decree.
2. Whether the recurring maintenance charges agreed to in the compromise decree are contrary to the provisions of the Delhi Apartment Ownership Act, 1986.
3. Whether the impugned judgment of the learned Company Judge is binding on the civil court in the suits pending between the parties.

Issue-wise Detailed Analysis:

Issue (a):
The primary question was whether the company court can go behind a compromise decree to ascertain if a debt based on the decree is legally enforceable and if a bona fide dispute can be raised despite the decree. The appellants argued that a decree passed by a competent court is binding and cannot be challenged in collateral proceedings, including winding-up proceedings. They cited Supreme Court decisions such as *Rafique Bibi v. Sayed Waliuddin* and *Balvant N. Viswamitra v. Yadav Sadashiv Mule*, which establish that a decree, even if erroneous, is binding unless set aside by appropriate proceedings. The respondents, however, contended that a company court in winding-up proceedings can go behind the decree to determine the existence of a real debt, especially when the decree might have been obtained in ignorance of overriding statutory provisions. They relied on decisions such as *Bajrangbali Engineering Co. Ltd. v. Amar Nath Sircar* and *State of Punjab v. S. Rattan Singh*, which support the view that insolvency and winding-up courts can scrutinize the debts, even if based on a decree. The court concluded that the company court is not bound by a decree when determining the existence of a real debt in winding-up proceedings. The court emphasized that the winding-up jurisdiction involves the survival of the company, affecting the rights of several parties, and thus, the company court can examine if there is a bona fide dispute regarding the debt.

Issue (b):
The second issue concerned whether the recurring maintenance charges agreed to in the compromise decree were contrary to the Delhi Apartment Ownership Act, 1986. The court noted that this question cannot be definitively answered in winding-up proceedings, as it requires a full-fledged trial before an appropriate forum. The company court's role is to determine if the dispute raised by the respondents is substantial and genuine, not illusory or misconceived. The court found that the respondents had raised a bona fide dispute based on the provisions of the Delhi Apartment Ownership Act, 1986, which warranted a detailed examination in a civil suit rather than in winding-up proceedings. The court clarified that its observations were tentative and did not constitute a final determination of the legality of the maintenance charges under the said Act.

Issue (c):
The third issue was whether the impugned judgment of the learned Company Judge is binding on the civil court in the pending suits. The court held that the winding-up jurisdiction is discretionary and does not adjudicate the civil rights between a debtor and a creditor. Therefore, the observations made by the Company Judge regarding the compromise decree and the Delhi Apartment Ownership Act, 1986, are not binding on the civil court. The court reiterated that the company court's decision was limited to determining the existence of a bona fide dispute regarding the debt and did not constitute a final adjudication of the parties' rights under the compromise decree or the said Act.

Conclusion:
The appeals were dismissed, but the directions given by the Company Judge regarding the payment of maintenance charges were deleted, as similar directions had already been issued in the pending civil suit. The court emphasized that the company court's role in winding-up proceedings is to determine the existence of a bona fide dispute regarding the debt, and any detailed examination of the legality of the maintenance charges under the Delhi Apartment Ownership Act, 1986, should be conducted in a civil court.