1973 (8) TMI 65 - HC - Companies Law

Company when deemed unable to pay its debts, Winding up Application for, Suits stayed on winding-up order, Cost and expenses payable out of assets in a winding-up by Court , Power of Supreme Court to make rules

Issues Involved:
1. Competency of a secured creditor to file a winding-up petition.
2. Limitation period for filing a winding-up petition.
3. Applicability of Article 137 of the Limitation Act to winding-up petitions.
4. Validity of the consent order and its enforceability.
5. Allegations of vexatious and mala fide proceedings.

Detailed Analysis:

1. Competency of a Secured Creditor to File a Winding-Up Petition:
The appellant argued that a secured creditor is not competent to file a winding-up petition unless the security is shown to be insufficient. The court held that a secured creditor is entitled to file a winding-up petition without proving the inadequacy of the security. This is supported by Section 439(2) of the Companies Act, 1956, and judicial precedents, including cases like Karnatak Vegetable Oils and Refineries Ltd. v. Madras Industrial Investment Corporation Ltd., In the matter of India Electric Works Ltd., and Calcutta Safe Deposit Co. Ltd. v. Ranjit Mathuradas Sampat. The court concluded that the respondent, being a secured creditor, was entitled to apply for winding up.

2. Limitation Period for Filing a Winding-Up Petition:
The appellant contended that the claim was barred by limitation. The court referred to Article 136 of the Limitation Act, which provides a 12-year limitation period for executing any decree or order of a civil court. The court noted that the consent order dated April 4, 1966, was enforceable like any decree, and the default occurred in October 1966. Therefore, the winding-up petition filed in January 1971 was within the limitation period. The court held that the respondent's claim was not barred by limitation.

3. Applicability of Article 137 of the Limitation Act to Winding-Up Petitions:
The appellant argued that the winding-up petition was barred by Article 137 of the Limitation Act, which prescribes a three-year limitation period for applications for which no period of limitation is provided elsewhere. The court examined the legislative history and judicial interpretations of Article 137 and concluded that it does not apply to applications for winding up under the Companies Act. The court referred to the Supreme Court decision in Town Municipal Council, Athani v. Presiding Officer, Labour Court, which held that Article 137 applies only to applications under the Code of Civil Procedure. Consequently, the court held that the winding-up petition was not barred by Article 137.

4. Validity of the Consent Order and Its Enforceability:
The appellant argued that the consent order for payment did not relate to the winding-up proceedings and was therefore outside the scope of Order 23, Rule 3 of the Code of Civil Procedure. The court disagreed, stating that the order for payment was related to the winding-up proceedings as it was made in the context of staying the winding-up application. The court held that the consent order was fully enforceable like any decree or order for payment made by a civil court and was not outside the scope of Order 23, Rule 3.

5. Allegations of Vexatious and Mala Fide Proceedings:
The appellant contended that the winding-up proceedings were vexatious and mala fide because similar applications had been withdrawn previously and the respondent should have executed the order for payment in the usual course. The court rejected this argument, stating that the respondent had the choice to pursue winding-up proceedings and that the previous withdrawals did not render the current application mala fide. The court found no merit in the appellant's contention and upheld the dismissal of the application for stay of winding up.

Conclusion:
The appeal was dismissed with costs, and all ad interim orders were dissolved. The court held that the secured creditor was entitled to file a winding-up petition, the claim was not barred by limitation, Article 137 of the Limitation Act did not apply, the consent order was enforceable, and the proceedings were not vexatious or mala fide.

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