2013 (1) TMI 1036 - HC - Companies Law

Summary

Issues involved:
The issues involved in this case are the legality of a contract between a partnership firm and a company, the requirement of consent from the Board of Directors and Central Government u/s 297 of the Companies Act, 1956, and the implications of an illegal contract on the claim for winding up the company u/s 433(e) of the Act.

Issue 1: Legality of Contract

The petitioner firm filed a petition seeking the winding up of the respondent company, claiming unpaid service charges. The respondent company contended that the contract was invalid u/s 297 of the Act as the required consents were not obtained from the Board of Directors and the Central Government before entering into the contract.

Issue 2: Consent Requirement u/s 297 of the Act

The respondent company argued that the contract between the parties was in violation of Section 297 of the Act as three partners of the petitioner firm were also directors of the respondent company, necessitating prior consent from the Board of Directors and the Central Government, which was not obtained.

Issue 3: Implications of Illegal Contract on Winding Up Claim

The Court found that the contract was indeed illegal due to non-compliance with the provisions of Section 297 of the Act. It held that a debt based on an illegal contract cannot be considered legally recoverable, rendering the claim for winding up the company on the grounds of non-payment of such debt invalid u/s 433(e) of the Act.

The Court emphasized that the proviso to Section 297(1) mandates prior approval from the Central Government for contracts involving companies with a paid-up share capital of over Rupees One Crore. The absence of such approval rendered the contract void and the debt claimed by the petitioner firm as unrecoverable.

In light of the illegality of the contract, the Court dismissed the company petition for winding up the respondent company, citing the Bombay High Court's decision that a debt must be legally recoverable for such a petition to be considered valid under the Act.

Therefore, the Court concluded that the company petition lacked merit as the debt claimed was based on an illegal contract, and hence, the petition for winding up the respondent company was dismissed.