1973 (11) TMI 61 - HC - Companies Law

Summary

Issues Involved:
1. Termination of the agreement between the company and the Gujarat Electricity Board.
2. Liability for minimum charges during the period of discontinued electricity supply.
3. Validity of delayed payment charges post winding-up order.
4. Applicability of section 74 of the Indian Contract Act regarding penalty.
5. Official liquidator's disclaimer of liability.

Issue-wise Detailed Analysis:

1. Termination of the Agreement:
The company contended that the disconnection of electricity supply by the Gujarat Electricity Board (the Board) on September 28 or 29, 1966, amounted to a summary termination of the agreement dated January 8, 1962. However, the court held that the discontinuance of supply under section 24 of the Indian Electricity Act, 1910, does not equate to the termination of the agreement. The agreement could only be terminated by giving a six-month notice expiring at the end of March of any year, or by the Board exercising its right under clause 12 after the company was ordered to be wound up on June 26, 1967. The company's letter dated December 31, 1966, was treated as a notice terminating the agreement effective from March 31, 1968.

2. Liability for Minimum Charges:
The court upheld the Board's claim for minimum charges during the period of discontinued supply from September 29, 1966, to March 31, 1968. The agreement explicitly provided for the payment of minimum charges even during discontinuance of supply (Clause 11). The court referenced multiple precedents, including Saila Bala Roy v. Darjeeling Municipality and Watkins Mayor & Co. v. Jullundur Electric Supply Co., which supported the rationale that minimum charges are intended to provide a reasonable return on the licensee's capital expenditure.

3. Validity of Delayed Payment Charges:
The court disallowed the claim for delayed payment charges amounting to Rs. 1,999 for the period from July 1, 1967, to March 31, 1968. It was noted that delayed payment charges function similarly to interest on outstanding amounts, and under rule 156 of the Companies (Court) Rules, interest on outstanding amounts post winding-up cannot be allowed. Therefore, the Board's claim for delayed payment charges was not admissible as a debt provable in winding-up.

4. Applicability of Section 74 of the Indian Contract Act:
The court rejected the argument that the minimum charges constituted a penalty under section 74 of the Indian Contract Act. It clarified that the discontinuance of supply was not a breach of contract, but an exercise of the Board's statutory right under section 24 of the 1910 Act. Hence, the provision for minimum charges during discontinuance was not a penalty but a legitimate contractual term.

5. Official Liquidator's Disclaimer of Liability:
The court found that the official liquidator's letter dated August 24, 1967, disclaiming liability for minimum charges was ineffective. Section 535 of the Companies Act requires the liquidator to obtain the court's leave to disclaim unprofitable contracts, which was not done in this case. Therefore, the disclaimer was not valid.

Conclusion:
The appeal was allowed in part. The court upheld the Board's claim for minimum charges amounting to Rs. 38,295 but disallowed the delayed payment charges of Rs. 1,999. The official liquidator was ordered to pay the costs of the Company Application No. 76 of 1972 and the appeal.