9911796707
TMI Blog1980 (9) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... n unfiled award. Is the sum involved in the award immediately payable by the company to the award holder even prior to its filing and a decree being passed thereon ? In this case after a money award had been passed on December 8, 1975 by the Bengal Chamber of Commerce and Industry against the company, inter alia , for a sum of Rs. 44,255.29 the respondent Mulchand Lakshmi Chand, served a notice under section 434 of the Companies Act, 1956 on the company requiring it to pay the sum awarded. On receipt of such notice, the appellant company expressed its intention to apply for setting aside the said award and called upon the petitioning creditor to cause the said award to be filed. Instead of filing the said award or taking any step in that regard, the petitioning creditor allowed the time covered by the said notice to pass and upon the expiry thereof, made the petition for winding up on the basis of the amount so awarded. It is contended on behalf of the company that the original claim had merged in the award with the result that on the basis of the original cause of action the petitioning creditor could not have made an application for the winding-up of the company. The only co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due' followed by a reference to payment of the sum 'so due ' are not, in my judgment, appropriate to a debt which is not yet due". Clause ( e ) of section 433 of the Companies Act, 1956, provides that the company may be wound up by the court if the company is unable to pay its debts. The expression "unable to pay its debts" is governed by the deeming clause in section 434 which postulates some situations on the happening of which the court may hold that the company is unable to pay its debts. Sub-section (1) of section 434 is set out as follows : "A company shall be deemed to be unable to pay its debts ( a )if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks there after neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; ( b )if execution or other process issued on a decree or order of any court in favour of a creditor of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd where it was not made a rule of the court. It was held that if such an award effected a partition of immovable property worth more than Rs. 100, it would be compulsorily registrable under section 17(1)( b ) of the Registration Act, 1908, in so far as such an award purported or operated to create or declare, assign, etc ., any right, title or interest in the immovable properties. In deciding that case, the Supreme Court, inter alia , dealt with the binding effect of the award on the parties. In dealing with the principle involved in the case before the Supreme Court, the Supreme Court relied on its previous un-reported decision in Uttam Singh Dugal Co. v. Union of India, Civil Appeal No. 162 of 1962, judgment delivered on October 11, 1962, which was decided by following the observation of Mookerjee J. (later on Sir Ashutosh Mookerjee) in the case of Bhajahari Saha Banikya v. Behary Lal Basak [1906] ILR 33 Cal. 881 at page 888 wherein it was held. "The award is in fact, a final adjudication by a Court of the parties' own choice, and until impeached upon sufficient grounds in an appropriate proceeding, an award, which is on the face of it regular, is conclusive upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties and persons claiming under them respectively'. Therefore, it is not possible to agree with the Full Bench decisions of the Patna High Court and that of the Punjab and Haryana High Court that an award which is not made a decree of the Court has no existence in law. The learned Judges who decided those cases appear to have proceeded on the basis that an award which cannot be enforced is not a valid award and the same does not create any rights in the property which is the subject-matter of the award. This in my opinion is not a correct approach. The award does create rights in that property but those rights cannot be enforced until the award is made a decree of the Court, It is one thing to say that a right is not created, it is an entirely different thing to say that the right created cannot be enforced without further steps". It has been contended before us that the reasons given by Hegde J. in the above case are quite different from and not in conformity with the reasons which have been given by the other two learned judges. In my opinion, that contention cannot be accepted. To my mind, Hegde J. only stated expressly in his reasons what were implicit in the reasons gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old that the company is unable to pay its debts, because, the debt which is evidenced by the said award remains unsatisfied after the expiry of the notice. It is no doubt a debt which is presently payable and cannot be called a contingent debt payable only upon the passing of the judgment upon the award and the decree following thereon under the provisions of the Arbitration Act. The award debt is a debt which is presently payable though it might not be enforceable by the creditor until the decree would be passed on the award. It is a debt for which the creditor may go to the company's office and get himself paid. The company under such circumstances cannot be heard to say that it is not possible to pay until that decree is passed. The company can of course dispute the validity of the award, but that is a matter concerning the award itself. Thereby the award does not cease to be an award. It remains an effective award until the same is set aside. The parties to the award agreed that the same would be binding and effective upon them. The statute has provided for the machinery for the award holder to enforce the same if it is challenged. The Company Court as a bankruptcy court is com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this connection reliance has been placed on sections 433, 434, 436, 439, 447, 456, 457, 474, 528 and 529 of the Companies Act, 1956, and, also on the Companies Court rules 96, 100, 101, 109 to 114, 147 to 165 and also on the forms prescribed in Forms Nos. 45. to 48, 52, 63 to 66. The above provisions have been relied on for the purpose of showing in what way the winding-up proceedings are different from suit proceedings. Then again, our attention has been drawn to the prayers in a winding up petition wherein all that is prayed for is that the company be wound up. There is no prayer for a payment of the money which is due to the petitioning creditor in the winding-up petition. If the order is made, the same enures to the benefit of the general classes of creditors and contributories. It is a representative action. It is contended that the whole object of the winding-up proceedings is based on. public policy. The most significant part is that even though in a creditor's petition the company is directed to be wound up, yet such a creditor has still to prove his claim before the official liquidator and may only hope to obtain payment of his dues on a pro rata basis to the extent th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter and for his sole benefit, by a proceeding in the same action seeks to satisfy his judgment wholly or partially. I think it is plain that a winding-up petition is not execution on a judgment. It lacks almost every element of such an execution". Then at page 526 the Master of the Rolls observed: "The winding-up order secures that all the assets of the company shall be applied for the benefit of all the creditors, and that is all that was intended". At page 528 Phillimore, learned judge observed : "In the particular case she is a creditor because her damages have been liquidated by a judgment. But it would be the same if she were a single contract creditor whose debt was merged in a judgment. She is not therefore seeking to enforce her judgment. She is proceeding to a new alternative mode of recovering her debt, a mode by which she no longer seeks to recover for herself alone but for the benefit of all the creditors, as in a creditor's suit for the administration of the estate of a deceased debtor or in a bankruptcy". Mr. Tibrewal has referred to a Supreme Court decision in the case of Harinagar Sugar Mills Co. Ltd. v. M. W. Pradhan. Court Receiver, High Court of Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the debt due to the joint family from the Company ?" The Supreme Court also observed at the same page of the report : "It is true that 'a winding-up order is not a normal alternative, in the case of a company, to the ordinary procedure for the realisation of the debts due to it'; but nonetheless it is a form of equitable execution. Propriety does not affect the power but only its exercise. If so, it follows that in terms of clause ( d ) of rule 1 of O. 40 of the Code of Civil Procedure, a Receiver can file a petition for winding-up of a company for the realisation of the properties, movable and immovable, including debts, of which he was appointed the Receiver. In this view, the respondent had power to file the petition in the court for the winding-up of the Company". Mr. Tibrewal has argued that in view of the above observations made by the Supreme Court, there is no scope for the argument that the winding-up order is not a form of equitable execution. In my opinion, the above observations were made in a different context altogether. There the Supreme Court was deciding the point whether the Receiver had or had not the power to file the petition for a winding-up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that context, the Supreme Court observed that the petition filed by the Receiver for a winding-up of the company was made for the realisation of the debt due to the joint family from the company. But we are not concerned with that proposition. Broadly speaking, when a petition for winding-up is made, the creditor who makes it has no doubt in his mind that his debt might be recovered from out of the company's assets. That must be his ultimate object. He does not do it for doing any good to the public. But the procedure he adopts; in filing the winding-up petition is a very round about way of enforcing his claim. He might ultimately succeed in realising his claim or he might not. But, vis-a-vis the court, which deals with the winding-up petition and the order which is made in respect thereof, the position becomes different. It then does not consider the question of winding-up with an eye to look to the interest of the particular creditor whose petition for winding-up is sought to be admitted. The court looks to the interest of the shareholders and contributories in general on the basis of public policy which is involved therein, to determine, whether under the circumstances in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the said decision does not enunciate the correct legal proposition. It is contended by Mr. Tibrewal, that by virtue of the non obstante clause in section 32 of the Arbitration Act, 1940, the said provision has an overriding effect over the Companies Act, 1956, and, for that matter, the winding-up proceedings are also covered by the said clause. It is further contended, by relying on the Division Bench decision in the case of State of West Bengal v. Nandalal Dey, AIR 1975 Cal. 130, that even though the Companies Act, 1956, is a later enactment, still the same would also be governed by the said non obstante clause. Mr. Gupta disputed the correctness of the said proposition. In any event, in view of my finding that the expression "suit" in section 32 does not cover the winding-up proceedings for the reasons as set out hereinabove, we are not called upon to go into the said question and decide the same. The various principles which should guide the Company Court in dealing with an application for winding-up have been laid down in the case of Madhusudhan Gordhandas Co. v. Madhu Woollen Industries ( P. ) Ltd. AIR 1971 SC 2600; [1972] 42 Comp. Cas. 125 (SC). Such pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the parties. On the basis of such averments in the said petition, the appellant obtained an order for stay of further proceedings in the said arbitration matter pending disposal of this appeal. I shall deal with the same in detail when I deal with the subsequent conduct of the appellant hereafter. Mr. Tibrewal's contention that the winding-up application is a mode of enforcing the award which is prohibited by the Arbitration Act, 1940, cannot also be accepted by me for the reasons as discussed above. From the nature and the inherent characteristics of a winding-up application as discussed above, it will be seen that the claim involved in the award itself is sought to be enforced by making a winding-up application which stands on a different footing and such a proceeding cannot come within the meaning and scope of the expression "suit" in section 32 of the Arbitration Act, 1940. Mr. Tibrewal has referred to an observation by the Supreme Court in the case of Padmaraja v. Dhanavathi, AIR 1972 SC 2219, in which case the Supreme Court dealt with a special State Government Act concerning a particular community interested and dealing with family arrangement by petition, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, inter alia , provided that the parties would abide by and obey the award which would be binding on the parties notwithstanding the death of any of them before or after the making of the award and such death would not operate as a revocation of the submission. The learned judge, Mukharji J. (as he then was), concluded therefrom that the awards made remained binding of the parties and, until such awards were set aside, they remained binding on the parties by the express rules of arbitration and the express agreement entered into between the parties. The learned judge also relied on para. 7 of Sch. 1 to the Arbitration Act, 1940, which provided for a similar rule, making the award binding on the parties. Mr. Tibrewal contends that the appellant company has a statutory right to challenge the award. The appellant would be deprived of the opportunity to exercise such right if the appellant would be dragged to the winding-up court at that stage in respect of such an unfiled award. In my opinion, that argument is untenable and cannot be accepted, because the court, in entertaining the winding-up petition, does not in any way prevent the company from applying for setting aside such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighness Maharani Mandalsa Devi' v. M. Ramnarain ( P. ) Ltd., AIR 1965 SC 1718, Hansraj Gupta v. Dehra Dun M.E.T. Co., AIR 1933 PC 63 and Jowitt's Dictionary of English Law, 2nd edition, page 1718. Mr. Tibrewal has submitted the following principles governing interpretation of statutes, that, when a power is given in a statute to do certain things in a particular way it must be done only in that way or not at all. Here in this ease, sections 14, 15, 16 and 17 of the Arbitration Act lay down a procedure and that has to be followed in enforcement of the award. The learned advocate contends that, in any event by not following the procedure at this stage, the petitioning-creditor cannot have it enforced through some other machinery and if that is sought to be done, it would amount to a mala fide act on his part and it would be an abuse of the process of this court. Mr. Tibrewal has referred to several Supreme Court decisions in support of the above proposition and also Swarup's Legislation and Interpretation, 1974 Edn., pages 518 to 520. The Supreme Court decisions are as follows : State of Gujarat v. Shantilal Mangaldas, AIR 1969 SC 634 at p. 654, Assistant Collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the Court of Appeal in England had held that in a matter where leave to defend was granted, even though conditionally in a summary proceeding, yet the Company Court could go into the question to see for itself whether the defence was bona fide or not Mr. Gupta has also relied on the case of In re: Amalgamated Properties of Rhodesia (1913) Ltd. [1917] 2 Ch 115 (CA), where it was held that the pendency of the appeal did not destroy the debts due to the creditor and the winding-up court would make an order for winding-up on the basis that the pendency of the appeal was no defence in such an action. In my opinion, the winding-up petition based on an unfiled award has its special significance. The gist of the petition is that the company is indebted to the petitioner to the extent exceeding a sum of Rs. 500 and in spite of a notice under section 434 of the Companies Act, 1956, the company is unable to pay its debt. The prayer simply is that the company be wound up. If the award is analysed, its effect is that it has created a right in property in favour of the award-holder. By reason of the agreement between the parties, the company is obliged to abide by the result of the aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n public policy. A winding-up order is passed in rem as though the order has been made on the joint petition of all the creditors and the contributories. After the order is made, the court retains the custody and control of the assets of the company and the same are realised and distributed in the manner as provided in the Companies Act, 1956. This is entirely a different procedure, quite distinct from the procedure which is followed in an ordinary suit. The most material consideration is the inability of the company to pay its debts which is actually due and is presently payable. It is not made on the basis of the creditor's dues and for the purpose of making payment to him. It is not the claim of the creditors but it is the liability of the company which is the prime consideration in a winding-up proceeding. That is the reason why the minimum figure of Rs. 500 has been fixed for the purpose of enabling the petitioning-creditor to make the application, so that the winding-up court might test the solvency of the company; When the creditor succeeds, it matters little how big is the sum for which such petition has been made. All that matters is to consider the incapability of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sposing of the winding-up petition might be satisfied that a bona fide dispute has been raised by the company and on that basis might pass such order as the court might think proper depending on the facts and circumstances of each case. Under such circumstances, the court while considering such a petition for winding up. based on an unfiled award, does not consider the same in enforcement of the award but from the point of view of the prima facie liability of the company and its inability to pay up to the creditor or creditors, as the case may be. The court thereby does not go to decide the existence or effect or the validity of the said award or of the arbitration agreement nor proceeds in enforcement thereof for setting aside or for the purpose of amending or modifying or in any way affecting such award. Thereby, the court merely takes a prima facie view of the matter and nothing more. I shall now deal with the conduct of the parties. It appears that in spite of the Appeal Court's order dated January 18, 1977, passed by A. N. Sen J. (now the Chief Justice) and Basak J. giving leave to proceed with the application for setting aside the award pending before the City Civil Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... City Civil Court which is the appropriate court so far as the said purported award is concerned. No notice under section 14(2) of the Arbitration Act has so far been issued by the said court. The time to apply for setting aside the said award has not expired as yet. The company is taking appropriate steps to apply for setting aside the said award." In spite thereof, the appellant in the grounds Nos. 9 and 11 of the grounds of appeal stated that the said award not having been filed, the appellant was not able to assail the same making an application for setting aside the said purported award under section 30 of the said Act. The learned judge was misled and proceeded on the basis that the appellant-company did not take any step to get the said award filed. In my opinion, the conduct of the appellant, as disclosed hereinabove, would clearly show that the company has no intention to proceed with the application for setting aside the said award, but the company at the same time intends that the point raised herein be decided first so that the court might hold that the company cannot be deemed to be unable to pay its debts in connection with the said award until judgment and a decr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
