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Calcutta High Court · body

2010 DIGILAW 892 (CAL)

Kamlapur Sugar & Industries Limited v. Dena Bank

2010-07-30

I.P.MUKERJI

body2010
Judgment :- I.P. MUKERJI, J. FACTS AND ARGUMENTS: This is a winding up application coming up for final judgment. Only the petitioning creditor and the company have appeared. No other person either supporting or opposing the winding up has appeared. The company had borrowed substantial sums of money from the petitioning creditor from 1997. A legal notice was served by the petitioning creditor upon the company on 18th September, 2003 asking them to pay up the outstanding. Proceedings were taken by them before the Debt Recovery Tribunal, Lucknow. The said tribunal issued a certificate on 14th February 2008 to the effect that the petitioning creditor was entitled to recover a sum of a little more than Rs.17,00,00,000/-from the company. The company preferred an appeal against such order before the Debt Recovery Appellate Tribunal at Allahabad, which, on 15th December 2008 affirmed the said final order of the said tribunal while dismissing the appeal for default. This winding up application has been filed on the ground that the company is unable to pay the said sum mentioned in the certificate of the said tribunal. The company has taken no point regarding the merits of the claim. It has taken two technical points. The first is that the claim on which the winding up application is founded is barred by the laws of limitation on the ground that the claim of the petitioning creditor necessarily arose before the notice dated 18th September 2003. Since the winding up application had been filed in 2009, the debt had become barred by limitation. The certificate or decree by the Debt Recovery Tribunal should not be the basis of the claim. The underlying debt should be the basis. When the period of limitation for a right to sue is computed, the time when the right first arose has to be taken into account and not any later event. Secondly, the winding up application is founded on a decree. Since no execution process is returned unsatisfied under Section 434 (1) (b), the winding up application is incompetent. Thirdly, reliance was placed on section 34 of the Recovery of Debts due to Banks and Financial Institutions Act 1993 to argue that this Act had over-riding effect. When recourse was taken to this Act, recourse could not have been taken to filing of a winding up application under the Companies Act 1956. Thirdly, reliance was placed on section 34 of the Recovery of Debts due to Banks and Financial Institutions Act 1993 to argue that this Act had over-riding effect. When recourse was taken to this Act, recourse could not have been taken to filing of a winding up application under the Companies Act 1956. The learned Senior Advocate appearing for the petitioning creditor on the other hand contended that prosecution of its claim before the Debt Recovery Tribunal did not prevent them from filing this winding up application. Filing of a winding up application is availing of a statutory remedy provided to a creditor to apply for winding up of a company for non-payment of a debt. Secondly, the winding up application was competently filed on the certificate issued by the Debt Recovery Tribunal as affirmed by the appellate authority. The arguments on behalf of the petitioning creditor and on behalf of the company are dealt with in detail under the heading, “Discussion and Findings”. DISCUSSION AND FINDINGS: Let us assume, for there is no contradiction of this, that a certificate issued by the Debt Recovery Tribunal is like a decree. Section 433 (e) of the Companies Act enacts that a company may be wound up if it is unable to pay its debts. Now, the question is whether this certificate or decree of the tribunal is to be considered as a debt. There is absolutely no dispute that the company has not paid any part of this decree. Considerable confusion has been created by the interpretation given by the company to the language employed by section 434 of the Companies Act, which specifies the situations when a company would be ‘deemed’ to be unable to pay debts. Two paragraphs of that section are brought to my notice. The first paragraph being (a) is that the company would be so deemed if a creditor has given notice to the company to pay a debt and the company has neglected to pay such amount. Second, being paragraph (b), that the company will be deemed to be so when execution or other process is returned unsatisfied. The first paragraph being (a) is that the company would be so deemed if a creditor has given notice to the company to pay a debt and the company has neglected to pay such amount. Second, being paragraph (b), that the company will be deemed to be so when execution or other process is returned unsatisfied. It is sought to be contended that when there is a provision that a company would be deemed to be unable to pay its debts when an execution process has been returned unsatisfied, then without taking recourse to execution and without an unsatisfied decree in execution this winding up application could not have been filed. Hence the company is not to be deemed to be unable to pay its debts. I am unable to accept this contention. In my opinion, sub-section (a) refers to a general class of creditors and sub-section (b) refers to a special class, being the judgment creditor. The general includes the special. Further, sub-section (a) also refers to a particular creditor’s right in that general category of creditors. Sub-section (c) refers to a larger body or the entire body of creditors of the company. The only difference is that while a general creditor making a winding up application has to give notice to the company of such debt and make a demand for payment and wait for three weeks before filing a winding up application, the special creditor, being the judgment creditor is not required to give any such notice. In the case of Re: Unique Cardboard Box Mfg. Co. P. Ltd. reported in 48 Company Cases 599 cited by the petitioner a learned Single Judge of our Court held that the provisions of section 434(1)(a) and (b) are disjunctive. After having obtained a decree a creditor may issue the required statutory notice and present the winding up petition irrespective of the provisions of section 434(1)(b.) It said that a winding up petition is an equitable mode of execution in respect of the claim of a creditor of a company. My classification of general class of creditors and special class of creditors is supported by the decision in Seethai Mills Ltd. – v – N. Perumalsamy and another, reported in 50 Company Cases 422, cited by the learned counsel for the petitioner creditor. My classification of general class of creditors and special class of creditors is supported by the decision in Seethai Mills Ltd. – v – N. Perumalsamy and another, reported in 50 Company Cases 422, cited by the learned counsel for the petitioner creditor. I am unable to ascribe any other meaning to sub-section (a) and (b) than what is given by me above. A company was wound up for non payment of a judgment debt In the matter of Kokula reported in AIR 1953 Cal 387 cited by the petitioner. Now, the question is whether this decree or certificate is to be treated as a debt and whether this application is made within the period of limitation. Debt usually signifies sum owed. We usually find in the balance-sheet of a company that a company is entitled to debts. Sometimes the debts are shown as ‘doubtful’. Sometimes these are written off. If a particular debt is recoverable, it is shown as good. If it is irrecoverable it is shown as a bad debt and often written off. When a debt can be recovered but may not be recoverable it is often shown as a ‘doubtful’ debt. The debtor company may show this as a deferred liability in its balance sheet. The Limitation Act provides the time period within which claims have to be instituted in a court of law. Now, if that claim is filed within such time period there is a possibility of the claimant recovering such claim. Let us assume that the claimant is the company seeking to recover its debt. Now, if the time prescribed by the Limitation Act to file the claim has expired the suit would be barred by limitation. There would be no possibility of recovery of the claim. Therefore, that would be a bad debt and hence irrecoverable. Now if the suit is filed within limitation but it is not absolutely clear whether a decree can be obtained, even then that debt is treated in the books of account as a good debt. Conversely in the book of the debtor company it would be treated as a liability in the same way. It would only be treated as a bad debt if the suit was dismissed. A judgment debt which has been obtained by a creditor is always a good debt. Conversely in the book of the debtor company it would be treated as a liability in the same way. It would only be treated as a bad debt if the suit was dismissed. A judgment debt which has been obtained by a creditor is always a good debt. It would become a bad debt if no steps are taken to execute the decree. The period for filing an execution application is twelve years. Therefore such debt is good if the execution application is filed within 12 years and would be good for the entire twelve years. It would become bad if the application is not filed by such time or such application dismissed after filing. Therefore, a judgment debt would continue to be good debt as long as it is recoverable. After having obtained a judgment or decree, there is no question of obtaining a further judgment or decree. Therefore, the winding up application should not be treated as if it was a suit and had to be filed within a period of limitation to obtain another judgment or decree on the existing judgment or decree. That would be a wholly illogical state of affairs. The court has only to see that the judgment debt is a good debt, on the above principle. But since a winding up proceeding is made by application, Article 137 of the Limitation Act will apply. It has to be filed within three years of the decree. Otherwise although the debt may remain good, the application will be barred under the said Act. A decision which has given rise to considerable contention is Rameswar Prosad Kejriwal & Sons Ltd. – v – M/s. Garodia Hardware Stores reported in (2002)2 CLT 59 (HC) cited by the respondent company. There, the winding up application was founded on a decree of the Assistant District Judge Kolaghat (Assam.) The date of the decree was 10th February 1997. The statutory notice was dated 26th February 2001. In that particular case the learned judge pronouncing the decision held that since the winding up application was filed in 2001 it was barred by the law of limitation. The learned judge did not decide whether the period of limitation was to be calculated from the date money become payable or from the date of the decree. The following was said in paragraph 16 of that judgment. “16. The learned judge did not decide whether the period of limitation was to be calculated from the date money become payable or from the date of the decree. The following was said in paragraph 16 of that judgment. “16. This Court goes by the same principle and holds that period of limitation should be counted from 1992. But assuming it is not counted from 1992, it has to be counted from 1997. Therefore, considering the matter from all possible angles, this Court is of the view that instant winding up petition has become barred on the date on which it is presented. It cannot be held that in case of winding up petition, limitation period will be 12 years which may be the case in matters of execution of a decree.” Further, the decision referred to in Rameswar Prosad Kejriwal & Sons Ltd. – v – M/s. Garodia Hardware Stores reported in (2002)2 CLT 59, that is, Hari Mohan Dalal –v-Parmeshwar Shaw reported in 56 ILR 61 has been cited in support of the argument that the period of limitation, according to the residuary article is the time “from the moment at which the applicant first had the right to make it.” Let us examine the language of article 113 or 137 of the Limitation Act. The period of limitation for a suit or application for which no period of limitation is provided is three years from the time “the right to sue or apply accrues.” I am afraid that this old decision of our court had not contemplated the situation where a right accrues in a particular form at one point of time, that is, the right to institute a suit or proceeding to obtain judgment for a particular debt and subsequently there is accrual of new rights to realise such debt as confirmed in a decree or certificate of a competent court. A fresh period of limitation is to run from the date of accrual of such subsequent right. For the reasons given by me above, on the date of filing the application the debt was a realizable debt. Since it was a realizable debt the winding up application was competent. Recourse has been taken by learned counsel for the respondent company to section 34 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. For the reasons given by me above, on the date of filing the application the debt was a realizable debt. Since it was a realizable debt the winding up application was competent. Recourse has been taken by learned counsel for the respondent company to section 34 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. That section says that the Act will have overriding effect over all Acts except the Acts mentioned in sub section 2. The Supreme Court in Unique Butyle Tube Industries (P) Ltd. – v – U.P. Financial Corporation and others reported in (2003)2 Supreme Court Cases 455 held that after coming into force of the above act of 1993 recourse could not be taken for recovery of debts, to the provisions of U.P. Public Moneys (Recovery of Dues) Act, 1972 because the U.P. Act does not find mention in section 34(2) of the 1993 Act, which has overriding effect. This decision was followed in M/s. A.P.T. Ispat Pvt. Ltd. – v – U.P. Small Industrial Corporation Ltd. Anr. reported in AIR 2010 SC 2095 . The above argument is completely flawed. What the above Supreme Court decisions have said is that after enactment of the 1993 Act, parallel proceedings for recovery of debt cannot be taken under any other Act or under common law. The debt which is recoverable under that Act has to be recovered under that Act alone. Winding up application cannot be called an additional remedy or a parallel remedy to the one contemplated by the 1993 Act. In fact, recovery of debt by taking recourse to Section 433, 434, 439 of the Companies Act 1956 is contrary to the principles of the Act. Those provisions provide a remedy resulting in winding up of the company, if the applicant be successful in proving that the company is unable to pay its debts. Thus, asking for winding up a company is certainly not identical to seeking recovery of debts under the 1993 Act. Such remedy by way of winding up is a special statutory remedy. [See Maxlux Glass Private Limited – v- ICICI Limited Company, reported in (2001)2 CAL LT 539(HC)] Now, the decision Re: Unique Cardboard Box Mfg. Co. Thus, asking for winding up a company is certainly not identical to seeking recovery of debts under the 1993 Act. Such remedy by way of winding up is a special statutory remedy. [See Maxlux Glass Private Limited – v- ICICI Limited Company, reported in (2001)2 CAL LT 539(HC)] Now, the decision Re: Unique Cardboard Box Mfg. Co. P. Ltd. (Supra) was referred to by the respondent company to argue that since it has been held that a winding up application is an equitable mode of execution, winding up is akin to recovery of debts and that the winding up application is not competent by virtue of section 34 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. Employment of the expression equitable mode of execution to describe a winding up application does not necessarily convert a winding up application in a proceeding for collection of debts. It is well settled that a winding up court is not to be treated as a debt collecting court. When the said decision said that a winding up petition is an equitable mode of execution, what was implied was that as a consequence of winding up of the company a creditor may be able to recover the whole, if not a part of the debt. That is an indirect consequence of a successful winding up application. But on such premise a winding up application never loses its character as a remedy provided by statute to interalia a creditor to apply for liquidation of a company on the ground inter alia of its inability to pay its debts. Therefore, the petitioner is perfectly justified in filing this application and the arguments made on the basis section 34of the 1993 Act and the interpretation of the said two Supreme Courts judgments are totally untenable. For the above reasons, this winding application is allowed. I pass orders in terms of prayers (a), (b) and (c) of the petition. Urgent certified photocopy of this judgment and order, if applied for, to be provided upon complying with all formalities.