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TMI Blog2005 (4) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... rojects for sugar factories in the country and abroad. It also stated that the petitioner has developed considerable reputation and has a large and versatile engineering unit at Tiruvothiyur, Chennai, employing large number of technically skilled personnel, and carrying on the business for over 63 years. 3. According to the petitioner-company, the respondent-company was incorporated as "Sugantham Sugars Limited" on December 3, 1990, under the provisions of the Act as a public limited company with its registered office in the State of Tamil Nadu. The name of the respondent-company was changed to "Mouli Sugars Limited" on December 14, 1992, and again to "Prudential Mouli Sugars Limited" on December 13, 1993, and further changed to the present name of "Prudential Sugar Corporation Limited" with effect from December 28, 1996. The registered office of the respondent-company was subsequently shifted to Prudential Nagar, Koppedu Post, Nindra Mandal, Chittoor District in Andhra Pradesh State. The authorised share capital of the respondent-company is Rs. 75,00,00,000 divided into 50,00,000 equity shares of Rs. 10 each and 50,00,000 - 16 per cent cumulative redeemable preference shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suits filed by the petitioner and the respondent companies, decrees have been passed. With reference to the suit filed by the petitioner-company, the suit was decreed as prayed for, while the suit filed by the respondent-company was decreed only for a sum of Rs. 1,02,12,676.89 with further interest at 24 per cent on Rs. 48,72,970 from the date of the decree till the date of realization. It is further stated that both the petitioner as well as the respondent-company filed appeals against the decrees passed in the respective suits. The petitioner s appeal is numbered as O. S. A. No. 426 of 2002 in which the petitioner had obtained stay in C. M. P. No. 17693 of 2002, dated March 10, 2003, on condition of the petitioner depositing 50 per cent of the decretal amount within a period of eight weeks and accordingly complied with the said condition. In the appeal filed by the respondent in O. S. A. No. 399 of 2002, the hon ble High Court of Madras passed a conditional stay order in C. M. P. No. 15813 of 2002, dated November 11, 2002, directing the respondent-company herein to deposit 50 per cent of the decretal amount within a period of twelve weeks. The respondent-company did not comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teria required to attract the provisions of sections 433 and 434 of the Act, therefore, seeking an order of winding up against such a company is not only uncalled for, but also abuse of the process of law. It is also further stated that the petition filed by the petitioner-company deserves to be dismissed in limine for the reason that the claim upon which the present petition has been filed is the subject-matter of appeal in O. S. A. No. 399 of 2002 pending before the Hon ble High Court of Madras. The decree granted by the learned single judge of the said High Court in favour of the petitioner has been challenged and the said appeal is pending, which was fixed for final disposal. 8. It is further stated that the suit filed by the petitioner-company in C. S. No. 573 of 1998 is a counter-blast to the suit filed by the respondent-company in C. S. No. 78 of 1998 wherein the respondent-company had made a claim for a sum of Rs. 5,00,16,000 on account of the losses and damages incurred by the respondent-company due to failure on the part of the petitioner-company to execute the agreement entered into between the parties. It is admitted that the petitioner-company is in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court, the said conditional order was not complied with by the respondent-company. Therefore, non-compliance with the order of the court proves the insolvency of the respondent-company. Learned counsel also admitted that the petitioner-company has already filed execution proceedings before the executing court and even got attached the movable and immovable properties of the respondent-company. But, however, the contention of counsel for the petitioner is that in spite of the execution petition being filed for recovery of the decretal amount, the present petition is maintainable and the respondent-company is liable to suffer an order of winding up. Learned counsel further contended that though the respondent-company obtained extension of time for compliance with the order, even thereafter, it failed to comply with the said order and made an application seeking modification of the conditional order, which was rejected. Therefore, non-compliance with the conditional order itself is sufficient to prove the insolvency of the respondent-company, and as such, it is liable to be wound up by an order of the court. In support of his contentions, learned counsel relied upon the following deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 634 (Punj. Har.), Madhusudan Gordhandas Co. v. Madhu Woollen Industries (P.) Ltd. AIR 1971 SC 2600; [1972] 42 Comp. Cas. 125 , Pradeshiya Industrial Investment Corporation of U.P. v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 ; [1994] 3 SCC 348, Garikapati Veeraya v. N. Subbiah Choudhury AIR 1957 SC 540, Maria Christina De Souza Soddar v. Maria Zurana Pareira Pinto AIR 1979 SC 1352, Union of India v. West Coast Paper Mills Ltd. [2004] 2 SCC 747, Chandi Prasad v. Jagdish Prasad [2004] 6 ALD 75 (SC), Vallabhaneni Lakshmana Swamy v. Valluru Basavaiah [2004] 5 ALD 807 (LB), National Conduits (P.) Ltd. v. S.S. Arora [1967] 37 Comp. Cas. 786 ; AIR 1968 SC 279, Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp. Cas. 91 ; AIR 1976 SC 565 and National Research Development Corporation v. Electro Flux (P.) Ltd. [2005] 127 Comp. Cas. 23 (AP). 13. In reply to the contentions of the respondent s counsel, learned counsel for the petitioner referred to section 2(8) of the Sale of Goods Act, 1930 and contended that he respondent is said to be an insolvent which ceased to pay its debts in the ordinary course of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent, the respondent failed to comply with the condition of deposit of half of the decretal amount. Therefore, the petitioner-company got the decree transferred to the court of the III Additional District Judge, Chittoor, initiated execution proceedings and got attached the movable and immovable properties of the respondent-company. 16. At this juncture, the petitioner-company has come up with the present company petition alleging that the respondent-company failed to comply with the conditional order passed by the High Court of judicature at Madras and, therefore, it is an indication of its insolvency and hence an order of winding up is to be passed against the respondent-company. The contention of the respondent-company, on the other hand, is that though the conditional order was not complied with, the same may give a right to the petitioner-company to execute the decree as there is no stay, the same cannot be a ground for filing a petition for winding up of the respondent- company, inasmuch as, the dispute as to the liability is still to reach finality as the appeals are very much pending before the appellate court. Therefore, according to the respondent counsel there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceed only under section 434(1)( b ) and that consequently the company petition filed by the respondent was held maintainable. When the said order was appealed by the unsuccessful respondent-company therein, against which the order of winding up was passed, the Division Bench held as under: " . . . We are of the opinion that there is no warrant for such a contention. A creditor, who has instituted a suit and obtained a decree against the company, will still be a creditor of the company to whom money is due by the company. It may be that the original debt had merged in the decree and the person who was originally a creditor had become a decree-holder afterwards, but that does not in any way destroy his character as a creditor or the character of the money due to him from the company as a debt. As a matter of fact, section 434 (1)( a ) does not even use the word debt and it merely states to whom the company is indebted in a sum exceeding five hundred rupees then due. Consequently, all that is necessary to be satisfied under section 434(1)( a ) is that there must be a creditor and to that creditor the company must be indebted in a sum exceeding Rs. 500 then due and that creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at was passed was not on the merits and, therefore, it cannot be said to be a decision on the merits. Similarly, the claim that section 73 of the Indian Contract Act was not taken into account before passing a decree for awarding damages. With reference to the present financial position is concerned, the court deferred the consideration to the final hearing of the winding up proceedings and, therefore, the company petition was admitted. 20. In Suvarn Rajaram Bandekar s case ( supra ), a consent decree was passed by the civil court in a suit filed by the petitioner for recovery of money from the respondent-company, granting specified instalments. The respondent-company committed default in paying the instalments. The petitioner-company, therefore, issued a statutory notice of demand under section 434 of the Act, but the respondent-company did not comply. The petitioner, therefore, filed a petition for winding up of the respondent-company. The respondent-company applied to the court, which had passed the decree, for extension of time in which to pay the instalments and a declaration that there had been no default in terms of the consent decree. The said application was dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany the advertisement of the said petition was deferred as it was represented that the applicant-company would go in appeal against the order of admission of the company petition. The applicant-company was unsuccessful in the appeal and, therefore, after the dismissal of the appeal, filed the present application for revoking of the order of admission or in the alternative to defer the order of advertisement of admission of the petition as contemplated under the Rules. The said application was contested by the. respondent corporation. The court after considering elaborately the contentions held that where the High Court admits the petition and thereafter issue notices to the company before giving direction for advertisement of the petition or where the High Court admits the petition and simultaneously orders that the petition be advertised, the respondent-company is competent to move the court and in the interest of justice or to prevent the abuse of the process of court, the petition should not be advertised. But where the court hears both sides and prima facie a case being made out admits the company petition, the same has to be advertised before the petition for winding up c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court to order winding up of the company as the discretion to pass such an order, even in the case of the inability of a company to pay its debts is, by section 433, vested in the court." (p. 636) 27. After referring the observations in the above case, the court further held as under: "That being the legal position, I cannot accept the particular contention that the petitioner is absolutely entitled to an order of winding up the company ex debito justitiae on the mere plea that the debt was not paid. The petitioner has already resorted to a civil suit for recovery of the disputed debt. The machinery for winding up will not be allowed merely as a means for realizing a debt due from the company." (p. 636) 28. Learned counsel also relied upon the decision in the case of Madhusudan Gordhandas Co. ( supra ) where the Apex Court in a petition under section 433( e ) of the Act for winding up, held that the principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is open to the litigant to adopt notwithstanding the repeal but this provision has nothing to do with the forum where the remedy or legal proceeding has to be pursued. If the repealing Act provides new forum where the remedy or the legal proceeding in respect of such vested right can be pursued after the repeal, the forum must be as provided in the repealing Act." (p. 1355) 32. In West Coast Paper Mills Ltd. s case ( supra ) the Apex Court while considering the effect of appeal observed as under : "It may be true that by reason of section 46A of the Indian Railways Act the judgment of the Tribunal was final but by reason thereof the jurisdiction of this Court to exercise its power under article 136 of the Constitution of India was not and could not have been excluded. Article 136 of the Constitution of India confers a special power upon this Court in terms whereof an appeal shall lie against any order passed by a court or Tribunal. Once a special leave is granted and the appeal is admitted, the correctness or otherwise of the judgment of the Tribunal becomes wide open. In such an appeal, the court is entitled to go into both questions of fact as well as law. In such an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. In National Research Development Corporation s case ( supra ), the petitioner filed the company petition under section 433( e ) of the Act seeking for an order of winding up of the respondent-company on the ground that the dispute between the parties was referred to an arbitrator and the arbitrator passed an award in favour of the petitioner, which was also made the rule of the court later. Thereafter, as the respondent-company failed to pay the amount, a statutory notice was issued and on the ground that the respondent-company was unable to pay the said amount of debt to the petitioner, a company petition was filed seeking an order of winding up. The court rejected the claim of the petitioner observing that the petitioner has got an effective alternative remedy and merely the amount was not paid in spite of initiation of execution proceedings, the respondent-company cannot be deemed to have become commercially insolvent. The court further observed that merely because the respondent has not paid the amount under the award in spite of receipt of the demand notice, it cannot be said that the company has become commercially insolvent warranting exercise of discretionary power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and against the respondent and, hence, the respondent could not be considered as a defaulter in payment of any debt, as admittedly, the debt itself is yet to be finally determined. 40. Further, as already observed by the Apex Court, admission of a company petition for winding up would result in serious consequences and, therefore, it could not be easily inferred that there is a prima facie case in favour of the petitioner for admission of a winding up petition. 41. It is also an admitted fact that the petitioner-company filed E.P. in view of the absence of any stay of execution of the decree passed by the learned single judge of the High Court of Madras and got the movable and immovable assets of the company attached, and in fact, it is the case of the respondent-company that the absence of stay by the appellate court may, at the best, allow the petitioner to file an execution petition but not a petition for winding up especially the claims are yet to be finally adjudicated and determined. In view of the pendency of civil disputes between the parties as to the adjudication of the claims and liabilities, it could not be inferred that a prima facie case has been made ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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