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TMI Blog2008 (12) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... est of justice would be subserved if we in exercise of our jurisdiction under Article 142 of the Constitution of India direct that the respondent to pay simple interest on the admitted sum at the rate of 12 per cent p.a. on the balance amount instead of 24 per cent per annum within eight weeks from the date of amount became due till it is paid failing which the consequences provided in law shall ensue. - CIVIL APPEAL NO. 7352 OF 2008 - - - Dated:- 17-12-2008 - S.B. SINHA AND CYRIAC JOSEPH, JJ. Gaurab Banerji for the Appellant. JUDGMENT S.B. Sinha, J. - Leave granted. 2. Whether interest payable on the sum due would be a debt so as to attract the provisions of sections 433 and 434 of the Companies Act, 1956 is the question involved herein. 3. Before, however, adverting to the said question, we may notice the facts of the matter. Appellant is a small scale unit registered with the District Industries Centre. Admittedly, it supplied Castor Oil to the respondent valued at Rs. 89,13,589. A sum of Rs. 49,99,000 had been paid by the respondent. The invoices of the credit bills attached with each of the supply contained a clause relating to payment of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Supplies from time to time. We request you kindly to obtain the clearance, so as to enable us to arrange payment of the outstanding amount due to you amounting to Rs. 27, 40,882. In the circumstances, we request you to kindly advice your advocate to withdraw the legal notice served on us forthwith." 6. Without disputing its liability, however, in view of the correspondence that exchanged between the parties, the respondent offered to pay a sum of Rs. 2,00,000 per week to the appellant beginning from April, 2003. It is on that assurance the appellant is said to have agreed to restore supply of Castor Oil provided it deposited 50 per cent of the outstanding dues and remaining 50 per cent at the rate of Rs. 2,00,000 per week. 7. In its letter dated 8-9-2003, the respondent stated : "...We have accounted your payments against the interest and balances against Castor Oil Supplies approximately. On such account being taken the balance of Rs. 64,58,457 up to November, 2002. Accordingly, the balance up to 31-3-2003 stands Rs. 69,75,134. This amount carries interest at the rate of 2 per cent per month." 8. A sum of Rs. 8 lakhs was paid in between the period 19-4-2003 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to pay any interest nor it entered into any agreement in connection therewith. 13. Appellant in its rejoinder contended that the credit bills mentioned that the respondent was liable to pay interest at the rate of 2 per cent per month on delayed payment. 14. An interim order was passed on 17-2-2004 directing : "Both the learned counsel agree that the matter can be settled out of Court having regard to the commercial relations between petitioner and respondent for long duration. Sri V.S. Raju, learned counsel for respondent has given a Demand Draft bearing No. 097852, dated 14-6-2004 for an amount of Rs. 2,00,000 (Rupees two lakhs only) drawn on Punjab National Bank, Bank Street, Hyderabad, and six post-dated cheques - five cheques bearing Nos. 216948, 216949, 216950, 216951, 216952 dated 25-7-2004, 25-8-2004, 25-9-2004, 25-10-2004 and 25-11-2004 respectively, each for an amount of Rs. 2,30,000 (Rupees two lakhs thirty thousand only), and another cheque bearing No. 216953 dated 25-12-2004 for an amount of Rs. 2,30,468 (Rupees two lakhs thirty thousand four hundred and sixty eight only), drawn on State Bank of India, Commercial Branch, Secunderabad, in favour of the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the interest amount can be determined by the Company Judge in the winding up proceedings and on failure of the company to pay that amount the company can be ordered to be wound up on the ground that it is unable to pay its debts. [Interest at the rate of 12 per cent per annum was granted instead and place of stipulated rate of interest]." (p. 772) 20. We may notice the two decisions of the Andhra Pradesh High Court in Multimetals Ltd. v. Suryatronics (P.) Ltd. [1997] 89 Comp. Cas. 259 and Bombay Glass Blowing Industries v. Bio Vaccines (P.) Ltd. [1999] 98 Comp. Cas. 174 wherein after the company petition was admitted, the parties adduced evidences. A finding of fact was arrived at that there was no written agreement except the printed clause for payment of interest in the invoices. The court did not rely upon the evidence adduced on behalf of the appellant. It was in the aforementioned situation, the said Court in Bombay Glass Blowing Industries case ( supra ) held that the provisions contained in section 3 of the Interest Act, 1978 or section 62(1)( a ) of the Sale of Goods Act, 1930 would not be attracted, stating : "From a reading of section 61(2)( a ) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 22. We may at the outset notice that Ultimate Advertising Marketing s case ( supra ) has also been noticed in Devendra Kumar Jain s case ( supra ) to hold that the Company Judge is the appropriate forum for determining as to whether the creditor is entitled to interest, where the company admits its liability. 23. It may, however be placed on record that the aforementioned decision of the learned Single Judge of the Allahabad High Court in Ultimate Advertising Marketing s case ( supra ) came up for consideration before a Division Bench thereof in Ultimate Advertising Marketing New Delhi v. G.B. Laboratories Ltd. AIR 1998 All. 320 wherein inter alia it was held : "From the cases referred to above by various High Courts, it seems that the Company Judge has a power to direct the respondent-company to pay the amount of interest but in each case, the facts are to be examined as to whether there is bona fide dispute regarding the claim of the interest and if the Court finds that there is bona fide dispute, the petitioner-company cannot make a grievance that the Company Judge failed to allow the company petition for winding up the company for payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Allahabad High Court in Ultimate Advertising Marketing s case ( supra ) was reversed by the Division Bench. The said fact was not brought to the notice of the learned Single Judge. It was furthermore not brought to the notice of the High Court that Unisystems (P.) Ltd. s case ( supra ) has also been overruled in Unisystems (P.) Ltd. v. Stepan Chemical Ltd. [1986] 60 Comp. Cas. 753 (Punj. Har.). The learned Judge opined that the word "debt" refers to an ascertained and definite amount due to the creditor and not a disputed amount. However, it was furthermore held : "( a )The term debt refers to an ascertained and definite amount due and does not refer to a claim for compensation/damages or a claim which requires assessment by a court before it becomes due and payable. ( b )The term debt may refer not only to principal (value of goods or amount advanced), but also to interest due thereon, where there is a contract to pay interest. Where the contract specifically provides for payment of interest, or where there is an admission or promise to pay interest by the company or where in proceedings for recovery of money, a competent court or arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemical Ltd. s case ( supra ). 28. Keeping in view the aforementioned divergence in the opinions of the different High Courts, let us consider relevant provisions of the Companies Act. Circumstances in which a company may be wound up by the court are contained in section 433 of the Companies Act. If a company is unable to pay its debts as contained in clause ( e ) thereof, it would be one of the grounds therefor. Section 433( f ) of the Companies Act reads as under : "A company may be wound up by the Tribunal, ( a )to ( e )****** ( f )if the Tribunal is of the opinion that it is just and equitable that the company should be wound up;" Section 434 raises a legal fiction as to when the company would be deemed to be unable to pay its debts; clause ( a ) of sub-section (1) whereof reads as under : "(1) 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 one lakh 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablished by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such, petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order." (p. 463) 32. Yet again in Madhusudan Gordhandas Co. v. Madhu Woollen Industries (P.) Ltd. [1971] 3 SCC 632, this Court upon considering Amalgamated Commercial Traders (P.) Ltd. s case ( supra ) and various other English cases opined as under : "20. Two rules are well-settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. ( See London Paris Banking Corporation [1874] LR 19 EQ 444. Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precise amount owing. If I may refer to an example which I suggested in the course of argument, suppose that a creditor obtains judgment against a company for 10,000 and after the date of the judgment something is paid off. There is a genuine bona fide dispute whether the sum paid off is 10 or 20. The creditor then presents a petition to have the company wound up. Is the company to be entitled to say : It is not disputed that you are a creditor but the amount of your debt is disputed and you are not, therefore, entitled to an order ? I think not. In my judgment, where there is no doubt (and there is none here) that the petitioner is a creditor for a sum which would otherwise entitle him to a winding up order, a dispute as to the precise sum which is owed to him is not of itself a sufficient answer to his petition." (p. 800) Re. Tweeds Garages Ltd. s case ( supra ), apart from Madhusudan Gordhandas Co. s case ( supra ), has inter alia been followed by the Bombay High Court in Pfizer Ltd. v. Usan Laboratories (P.) Ltd. [1985] 57 Comp. Cas. 236 holding that only because there is a dispute in regard to the rate of interest, the winding up petition cannot be throw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Judge to Rs. 2 lakhs in compliance whereof the Company had duly deposited Rs. 2 lakhs on 11-11-2002 and the petitioning creditor failed to present any suit within three months thereof as per direction of the Company Judge? ( vi )Whether the Division Bench was justified in passing the order under appeal by dismissing the stay application, on extraneous considerations, when an earlier Division Bench by an interim order granted stay of advertisement subject to the appellant s depositing Rs. 2 lakhs which was duly deposited by the company to the satisfaction of the Court?" (p. 47) In that case, on the premise that no clear cut finding had been arrived at by the Company Judge that the debt was prima facie due and payable by the company to the creditor and the impugned order had been passed in purported exercise of jurisdiction not vested in the Company Court for an application for winding up of the Company, it had no jurisdiction to direct the company to deposit the amount payable to a third party or to a party other than the petitioning creditor. Thus, what was in question was whether the Company Judge could issue a direction to the company to make payment to a third party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the application, dues in respect of at least a part of the debt which was more than the amount specified in section 433 of the Companies Act was not denied. It is not a requirement of the law that the entire debt must be definite and certain. The Division Bench of the High Court proceeded on the basis that the entire sum covering both the principal and the interest must be undisputed, holding: "Except making a bald allegation in the company petition that the petitioner had come to know that the respondent company owes large sums of money to its creditors and it is not in a position to meet its debt obligations and as, therefore, become commercially insolvent, the petitioner has not taken necessary care to prima facie establish the same. The only piece of evidence available on the side of the petitioner is that the respondent is indebted to the petitioner a sum which is claimed towards interest on the delayed payment. Assuming for a moment that the respondent company is liable to pay interest on the delayed payments and it has not paid the said amount to the petitioner, could it be said that the respondent neglected to pay the debt particularly when the respondent is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner that the respondent is liable to pay Rs. 65,15,947 basing upon such calculations cannot be accurate. The total amount claimed by the petitioner as due in that view of the matter becomes doubtful and not definite. It is still got to be ascertained if the claim of the respondent were to be considered that there has been no agreement for payment of interest on delayed payments. For the above reasons, it cannot be presumed prima facie that the respondent is unable to pay its debts." 39. The findings of the High Court, with respect, are not correct for more than one reason; firstly, because the Division Bench did not hold that the invoices were not proved by cogent evidence; secondly, question of leading evidence would arise only after the company petition is admitted and, thirdly, issuance of invoices and signature of the respondent thereon is not disputed. 40. The judgment of the Division Bench also contains a legal flaw insofar as it failed to take into consideration that the appellant had in fact issued three notices being dated 6-1-2003, 8-9-2003 and legal notice dated 23-12-2003 specifically mentioning that the payments had been adjusted towards interest first a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both principal and interest are due, the sums paid on account must be applied first to interest. That rule, where it is applicable, is only common justice. To apply the sums paid to principal where interest has accrued upon the debt, and is not paid, would be depriving the creditor of the benefit to which he is entitled under his contract ." (p. 234) The said decision has been followed by this Court in Meghraj v. Mst. Bayabai [1969] 2 SCC 274, para 5, and a Constitution Bench of this Court in Gurpreet Singh v. Union of India [2006] 8 SCC 457, para 19. In Alok Shanker Pandey s case ( supra ) this Court held : "8. We are of the opinion that there is no hard and fast rule about how much interest should be granted and it all depends on the facts and circumstances of each case. We are of the opinion that the grant of interest of 12 per cent per annum is appropriate in the facts of this particular case. However, we are also of the opinion that since interest was not granted to the appellant along with the principal amount, the respondent should then in addition to the interest at the rate of 12 per cent per annum also pay to the appellant interest at the same rate on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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