9911796707
TMI Blog2000 (12) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. Respondent made some payments, leaving a balance of Rs. 1,24,42,460.00. The petitioner filed this company petition for winding up on 15-4-1998 alleging that respondent was unable to pay its debts that is Rs. 1,24,42,460.00 towards the supplies and Rs. 37,77,159.00 towards interest. 2. Subsequent to the filing of this petition, the respondent has, from time to time, made several payments aggregating to Rs. 1,24,42,460.00. Thus the entire principal is discharged. The respondent has not, however, paid the sum of Rs. 37,77,159.00 claimed by the petitioner in the petition as interest, nor the interest which accrued due from the date of the petition till date of payment. 3. Petitioner contends that in view of the delay in payment, it claimed interest at 24 per cent p.a. on the outstanding, by its letter dated 24-7-1997 and notice dated 27-9-1997. It is pointed out that respondent did not deny its liability to pay interest in the reply notice and, therefore, respondent is liable to pay interest at the market rate of 24 per cent p.a. from the expiry of 45 days from the date of invoices. Alternatively it is contended that having regard to section 3 the Interest Act, 1978 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to inability to pay debts and, therefore, afford a ground for winding up. 5.1 In Stephen Chemicals case ( supra ) the Punjab and Haryana High Court held that when the liability to pay the principal is not disputed by the company and in fact the company pays the debt in order to avoid winding up, the company court is the appropriate forum to determine as to whether the creditor is entitled to interest or not. It held that basic policy of law is to avoid multiplicity of proceedings and there was no need to drive the petitioner in the company petition to file a suit for the interest amount. 5.2 The Madras High Court in Rashid Leathers (P.) Ltd. s case ( supra ) held that where the liability to pay interest was never in dispute and the respondent-company disputed liability to pay interest for the first time before the company court and it was evident that such dispute was raised only to delay the proceedings, the dispute regarding interest was not a bona fide dispute and, therefore, the company court can examine the liability to pay interest in a winding up proceedings. In Tube Investments of India Ltd. s case ( supra ) High Court held that a dispute relating to inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de and substantial defence denying the liability. In that case there was no contract to pay interest on overdue Bills. Reliance was placed on section 61(2)( a ) of the Sale of Goods Act, 1930 and section 3 of the Interest Act, 1978 in support of the claim for interest. The Court held that those provisions cannot be invoked in proceedings for winding up to contend that non-payment of interest that may be awarded under those provisions amounted to inability of the company to pay its debts. It was held that section 61(2)( a ) of the Sale of Goods Act, gave discretion to the Civil Court to award interest in the absence of any stipulation of interest in the contract, that too in a suit for recovery of money or damages; and as winding up proceedings were not in the nature of a suit for recovery of money, the petitioner seeking winding up of a company cannot invoke section 61(2)( a ) of the Sale of Goods Act. It also held that the provisions of the Interest Act gives a discretion to a Court to award interest only in a suit or proceedings for recovery of money (that is, suit for recovery of debt, or damages or interest) and cannot be invoked to establish a claim for interest in a winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examining or deciding bona fide disputed claims relating to interest. Such dispute may either relate to liability to pay interest or relate to the rate of interest or the date from which the interest is to be charged. The reason is not far to seek. 7. It is now well-settled that winding up petition is not an alternative forum for enforcing recovery of a debt nor is it a legitimate means of enforcing payment of a debt which is bona fide disputed and, therefore, a winding up petition presented with the intention of exercising pressure upon a company to pay a disputed debt should be dismissed. The proceedings for winding up should not be used as a tool to realise debts due from the company, without initiating proceedings for recovery of the debt. See the decision of the Supreme Court in Harinagar Sugar Mills Company Ltd. v. M.W. Pradhan, AIR 1966 SC 1707 and Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami, [1965] 35 Comp. Cas. 456 and Madhusudan Gordhandas Co. v. Madhu Woollen Industries Pvt. Ltd., AIR 1971 SC 2600. In proceedings for winding up, the Court considers the question whether a company is unable to pay its debts (whether principal and/o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows a profitable functioning or demonstrates financial solvency by discharging the entire admitted liability, and puts forth a bona fide defence or raises a bona fide dispute in regard to the balance of the claim (which may partly or wholly consist of interest), the Court considering a winding up petition under section 433( e ) will have to relegate the creditor to the Civil Court to pursue his remedy by way of a suit, instead of converting every winding up petition into a suit for recovery, with a mini-trial. 8.3 I, therefore, respectfully disagree with the view of the Madras and Delhi High Courts, that even where there is no agreement to pay interest, the company Court should determine whether interest, is payable and if so the rate of interest by exercising power under section 61(2)( a ) of Sale of Goods Act, 1930 and/or section 3 of Interest Act, 1978 and that non-payment of interest so determined would amount to inability on the part of the company to pay its debts. 9. I may now summarize the legal position as to claims for interest in a proceeding for winding up under section 433( e ) of the Act: ( a )The term debt refers to an ascertained and definite amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition under section 433( e ) should not decide the issue, merely to avoid multiplicity of proceedings. The purpose of a winding up proceedings being completely different from the purpose of a proceedings for recovery of a debt, winding up proceedings is not substitute for a civil suit and, therefore, relegating parties to a civil suit, cannot be considered as resulting in multiplicity of proceedings. ( e )Interest under section 61(2)( a ) can be awarded by a court in a suit for recovery of the price of goods. Interest under section 3 can be awarded in any proceedings for recovery of any debt or damages or in any proceedings for interest (on any debt or damages already paid). Both these provisions specifically provide that interest can be awarded only in proceedings to recover money. They do not contemplate award of interest in proceedings which is not for recovery of money. The proceedings for winding up being proceedings not for recovery of money, no interest can be permitted or granted under section 61(2)( a ), or section 3 of Interest Act. ( f )Award of interest either under section 61(2)( a ) of or under section 3 of Interest Act, is by way of damages, that is, making good ..... X X X X Extracts X X X X X X X X Extracts X X X X
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