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Oriental Machinery and Civil Construction Ltd. Vs. Vikrant Tyres Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration;Company
CourtKarnataka High Court
Decided On
Case NumberCompany Petition No. 47 of 1982
Judge
Reported in1985(1)KarLJ35
ActsCompanies Act 1956 - Sections 433
AppellantOriental Machinery and Civil Construction Ltd.
RespondentVikrant Tyres Ltd.
Appellant AdvocateUdaya Holla, Adv.
Respondent AdvocateKing
Excerpt:
.....and questioned the counsel for the respondent of the propriety of making an application before the civil judge and why proceedings should not be taken for contempt both against the respondent and the civil judge. i can well understand if an order under o. 39 granting ex parte injunction, what the civil judge has done is, he has effectively prevented the petitioner-company from even moving his application for withdrawal of the amount in deposit in this court. normally, a company like the respondent-company with competent legal advice available at all times would have enforced its claim for damages for the faulty goods supplied as soon as goods were found to be faulty. 24. whatever claims the petitioners may have in regard to interest as well as damages claimed by the respondent-company..........be disposed of by this court, strangely enough, the respondent-company approached the court of the civil judge, mysore, under the provisions of the arbitration act and obtained an ad interim ex parte injunction against the petitioner-company restraining it from withdrawing the deposit made earlier pursuant to the directions of this court. this has, indeed, complicated the issues in this case considerably and i propose to deal with it first before i decide the merits of the claim and counter-claim of the petitioner and respondent companies. 10. a certified copy of the ad interim order passed by the first additional civil judge, mysore, in o.s. no. 349 of 1983 has been made available to me by the counsel for the respondent. from that i see that an order is made under o. 39, r. 2 of the cpc.....
Judgment:

Chandrakantaraj Urs, J.

1. This petition under s. 433(e) of the Companies Act, 1956 (hereinafter referred to as 'the Act'), is made by the petitioner-company which is duly incorporated under the Act, praying for an order of this court winding-up the respondent, Vikrant Tyres Ltd., also a company incorporated under the aforementioned Act.

2. The ground for winding up is that the respondent-company is unable to pay its debts inasmuch as the respondent-company has not paid a sum of Rs. 5,47,443.03 being the principal amount due under the contract together with interest at the prevailing bank rates from March, 1980, till March 31, 1982, and interest from May 1, 1982, to November 1, 1982 at the same rate. The petitioner-company issued a statutory notice demanding the above amount dated May 20, 1982. Despite that, the respondent-company did not pay the amount but instead issued a reply dated notice stating that the respondent-company has counter-claims against the petitioner-company and, therefore, the question of payment does not arise to the respondent-company. But nevertheless they have stated in the same reply that a full and adequate reply will be given within three week's time. Both the notice and the reply thereto are issued through their respective solicitors. The amount demanded in the statutory notice has not been paid and, therefore, on November 12, 1982, the petition was presented in this court.

3. After a notice respondents on December 17, 1982, the respondent-company entered appearance and filed its objections. Before stating the salient points raised in the objections, it is useful to briefly mention the manner in which the amount has become due to the petitioner-company in regard to which there is no dispute.

4. By a letter dated February 12, 1975, the respondent-company placed or order with the petitioner-company for supply of roll mills required by them of certain specifications and of agreed sizes which are enumerated in the letter itself. A true copy of that letter placing the order is at annexure B to the petition. Pursuant to the placement of the order, the petitioner-company supplied the mills. The mills were installed by the petitioner-company in terms of the contract at the premises of the respondent-company. Some time thereafter, the mills appeared to have developed some trouble regarding functioning of some of its parts like motor, gear, etc. In that behalf there has been considerable correspondence between the respondent-company and the petitioner-company. While the petitioner-company claims that it has no further obligations under the terms of the contract to meet the repeated demands of breach of warranty. There have been meetings between the representatives of the two companies on more than one occasion to which I will advert to a little later in the course of this order. On the other hand, the stand taken by the respondent-company was that one of the mills supplied was defective and had stopped functioning and caused considerable damage to the respondent-company and, therefore, on a close examination of all factors discussed at the meetings of the representatives, the amount of money the respondent-company may realise by way of damages was far in excess of the amount claimed to be due by the respondent-company to the petitioner-company.

5. Annexure B to the petitioner is the document which is relied upon by the petitioners to pinpoint their claim, that is, 'confirmation of balance' issued by the respondent-company bearing the date May 6, 1981, wherein it is admitted that it owes to the petitioner-company the sum of Rs. 3,37,395.16 as on March 31, 1981. That was sent in duplicate requiring the petitioner-company to confirm the same. Whether that has been so confirmed or the duplicate sent back to the respondent-company is not clear. But, from the Bar it is stated that it is safe to assume that it has been done. Therefore, in regard to the claim to an extent of Rs. 3,37,395.16, there is no dispute in regard to the quantum. The dispute is only raised in the statement of objections in regard to the claim of interest in two different sums for two different periods in the sum of Rs. 1,61,414 and Rs. 48,633.81. The respondent-company contends that it is not liable to pay interest as there is no agreement in that behalf to do so. The petitioner-company, on the other hand, contends that it is entitled to interest under the provisions of the Interest Act read with the Sale of Goods Act.

6. When this matter had been heard for some time, in the light of the objections raised, the court was apprised by the petitioner-company that the respondent-company was in a bad state financially and had showed liabilities in excess of rupees eight crores in its balance-sheet as on March 31, 1981, and therefore, this court should reasonably infer that the company was unable to pay its debts and, therefore, was liable to be wound up as prayed for in the petition.

7. As against that submission, learned counsel for the respondent-company submitted that the respondent-company is a viable unit; that the liability as shown in the balance-sheet was a normal liability shown in the normal course of business and the company could not be said to be unable to pay its debts merely because the balance-sheet shows a large sum as its liability. The liability should be seen alongside the assets and the ability of the company or the financial ability of the company should be viewed from that angle and not from the liability shown in the balance-sheet. He has further submitted that it is entitled to recover damages for the loss sustained by it for the supply of faulty machinery under the contract as per annexure B to the petition, and in that respect the respondent-company had counter-claims to make.

8. In these circumstances, it was pointed out to the respondent-company that under s. 433 of the Act cause of action for counter-claim is not permissible and the respondent-company may file a suit for damages for what is claimed to be due to it. Having regard to the submission made in regard to the admitted liability of the respondent-company, the court permitted the respondent-company to deposit the amount as per annexure D to the petition in a court to demonstrate its solvency position. Accordingly, a sum of Rs. 3,37,395.16 was deposited in the court and an application was also made by the respondent-company in respect of which the office had raised objection regarding maintainability. It is alleged that in that application the respondent-company had prayed that this court may not allow of the respondent-company was duly adjudicated, failing which the respondent-company would not be in a position to recover whatever may be adjudicated in its favour on account of the very poor financial position of the petitioner-company. After the deposit was made, the petitioner-company also made an application in C.A. No. 240 of 1983 praying for an order of this court permitting the petitioner to withdraw the amount deposited without prejudice to its right to claim interest.

9. It is necessary to state the dates of the applications. The application by the respondent-company was made on July 4, 1983, while the application by the petitioner-company for withdrawal of the amount was made on July 27, 1983. Before these two applications could be disposed of by this court, strangely enough, the respondent-company approached the court of the Civil Judge, Mysore, under the provisions of the Arbitration Act and obtained an ad interim ex parte injunction against the petitioner-company restraining it from withdrawing the deposit made earlier pursuant to the directions of this court. This has, indeed, complicated the issues in this case considerably and I propose to deal with it first before I decide the merits of the claim and counter-claim of the petitioner and respondent companies.

10. A certified copy of the ad interim order passed by the First Additional Civil Judge, Mysore, in O.S. No. 349 of 1983 has been made available to me by the counsel for the respondent. From that I see that an order is made under O. 39, r. 2 of the CPC restraining the petitioner-company from withdrawing the money deposited in this court as per the direction of this court. The operative portion of the order reads as follows :

'Heard Sri M. A. S. Since Sri M. A. S. submits that if the defendants withdrew the amounts deposited in the High Court, the plaintiff would be put to hardship as the matter is still to be referred to arbitration. This is a fit case when ex parte orders are to be passed. Hence, issue ad interim injunction as prayed pending disposal of this I.A. Issue summons and notice on this I.A.I. to defendant by December 5, 1983.'

11. The above order, in my opinion, has definitely obstructed the course of justice in this court. An identical prayer made by the respondent-company was pending adjudication as on October 24, 1983, the date on which the interim order was passed by the Civil Judge, Mysore. The application made by the petitioner-company was also pending in this court when that order came to be made. This court took strong exception to it and questioned the counsel for the respondent of the propriety of making an application before the Civil Judge and why proceedings should not be taken for contempt both against the respondent and the Civil Judge. The counsel stated from the Bar that he mistook the observations made by this court on an earlier date of hearing in regard to the counter-claim which had to be adjudicated in a civil court and, therefore, according to the terms contained in the contract between the petitioner-company and the respondent-company, as per annexure B to the petition, he was forced to move the court of the Civil Judge, Mysore, for reference to arbitration, the dispute between the petitioner-company and the respondent-company in regard to the claim and counter-claim as a matter arising out of obligations under the contract, and that he had no intention of showing any disrespect or disregard to this court by doing so.

12. It is possible that the counsel made such mistake in not understanding the true mind of the court when the observations were made regarding the adjudication of claim and counter-claim in a civil court. In that view of the matter, the court has no hesitation to come to the conclusion that the counsel had no intention to show disrespect to this court or abuse the process of this court.

13. That leaves the question of dealing with the learned Civil Judge who purports to have acted under s. 41 read with Entries II and IV of Sch. II to the Arbitration Act.

14. The learned counsel for the respondent-company has submitted that he was present before the learned Civil Judge when the local counsel made his submissions to that court and he has stated from the Bar that all facts in regard to the pendency of the matter before this court were indeed brought to the notice of the learned Civil Judge, and it was only thereafter he came to pass the order.

15. Section 41 of the Arbitration Act merely provides for the application of the provisions of the CPC to all proceedings before the court and to all appeals under the Arbitration Act. Schedule II has five items : securing the difference of amount in dispute in the reference, is what item II provides for and that remedy is available only under O. 39, rr. 1, and 2 and 5 of the CPC. Item IV provides for interim injunction or appointment of a receiver and O. 39, rr. 1 and 2 and O. 40, r. 1 of the CPC are also made applicable. From the above, it is clear that a civil court entertaining proceedings under the Arbitration Act can press into service the provisions of O. 39 or O. 38 as the case may be, or even O. 40 provided the occasion arises to do so.

16. In the instant case, the prayer before the civil court was for an injunction which has been granted which necessarily means that the order was passed under O. 39 of the CPC. But, according to Mr. Iyengar, learned counsel for the respondent-company, the pleadings in the proceedings were in the nature of securing the payment of such damages the respondent-company may establish before the arbitrator, on reference. Therefore, it was a question of securing the amount in dispute in the reference, if any. This court has not the advantage of the pleadings before the learned Civil Judge. What can be secured is only the difference between the claim and counter-claim. If the claim ultimately adjudicated by the arbitrator in favour of the plaintiff in the civil court is in excess of deposit in court, the security would be inadequate to the extent of the shortfall. But what the Civil Judge has overlooked is that there was no claim for damages before him. Possibly the suit was an order for reference to the arbitrator of the alleged dispute under the contract without quantification of the damages awarded; how the learned Civil Judge arrived at the amount of difference which was required to be secured is beyond my comprehension. If that is so, then he did not have jurisdiction under O. 39 of the CPC at all. The injunction granted apparently had no relation to the main relief prayed for in the suit and, therefore, totally unwarranted and without jurisdiction. I can well understand if an order under O. 38, r. 1 had been made issuing prohibitory order against the respondent from withdrawing that amount if the suit itself was for damages. Even that would not be a proper order having regard to the fact that the amount in deposit in this court was subject to the directions of this court or a court superior to this court and to none other. By passing an order under O. 39 granting ex parte injunction, what the Civil Judge has done is, he has effectively prevented the petitioner-company from even moving his application for withdrawal of the amount in deposit in this court. If he was apprised of all the facts, he ought not to have done it. I think this should be attributed to the callousness with which he has acted in utter ignorance of law and he was totally misguided by the counsel for the respondent-company. The effect of passing the order of injunction is a clear interference with the process of this court in discharging its duties and functions under the Companies Act, even though the injunction is direct against the petitioner-company. In these circumstances, this court being a superior court would disregard the injunction issued against the petitioner-company. But the learned Civil Judge concerned is hereby warned to exercise greater caution in dealing with matters which arise under special enactments and where complicated questions of law are before him. If that caution is not exercised, then God help those who seek justice before such judges. A copy of this order shall be communicated to the Civil Judge, Mysore, for his guidance and as a measure of admonition. The Registrar of this court will also call for his explanation forthwith.

17. Now, coming back to the problem of the petitioner-company and the respondent-company, strenuous efforts have been made by both sides to sustain their respective stands to which I have briefly adverted to earlier.

18. Undoubtedly, Mr. Iyengar does not dispute that a sum of Rs. 3,37,395.16 has been admittedly due as on March 31, 1981. It is also not in dispute that there has been lengthy correspondence and more than one meeting of the representatives of the two companies held in order to reach a settlement. I need only refer to one document produced by the respondent-company itself, that is, annexure 5 to the statement of objections. It purports to be the proceedings of discussion held between the petitioner and the respondent-company's representatives. The last three paragraphs of those proceedings are as follows :

'Under these circumstances, there is sufficient ground in the opinion of VTL that VTL should claim damages from OMCC which are much more than the dues claimed by OMCC.

Mr. Chandra maintained that the warranty period is over long back. However, it was pointed out to him by VTL that for heavy capital equipment, a reputable-company normally does not rely on this formal warranty periods under the circumstances which have been explained above. Mr. Chandra was informed that we shall consider the points which are raised by him in the light of the points raised by us and revert back within about 15 days.'

19. From the above, it is seen that the respondent-company continued to maintain that in its opinion, it had sufficient grounds to claim damages. But, as on date, that is, June 21, 1982, it had not made any claim for damages against the petitioner-company. On the other hand, as evidenced by paragraph 2 extracted above, the petitioner-company has denied its liability to meet any obligation under the contract beyond the period of warranty. Nothing has been placed before this court which is indicative of the date on which the warranty had or had not required. The order was placed as far back as 1975 and delivery appears to have been effected somewhere between 1976 and 1977, and it is only in the correspondence of 1979 that something is seen of the complaint made by the respondent-company. Therefore, the stand taken by the respondent-company on June 21, 1982, was more an attempt at avoidance of payment of dues and not with any serious intention of claiming damages. Normally, a company like the respondent-company with competent legal advice available at all times would have enforced its claim for damages for the faulty goods supplied as soon as goods were found to be faulty. It cannot on one hand admit its liability and, on the other hand, claim that it will not meet its liability because it proposes to make a counter-claim for damages.

20. Therefore, at an earlier stage of hearing, the court expressed that such a defence would not be bona fide or tenable and, therefore, this court would have jurisdiction to entertain and proceed with it.

21. Nothing seems to have happened after June 21, 1982, despite what is contained in para. 3 of the minutes extracted above except the reply issued to the statutory notice by the respondent-company. In these circumstances, I do not think it proper to treat the objection put forward as either bona fide or tenable. No doubt, some decisions have been cited by Mr. Iyengar to which I will make a brief reference.

22. The dictation of this order was interrupted at the request of the counsel for the respondent-company. The matter thereafter could not be taken up for further dictation. Today the matter being posted for completing the order, a memo has been filed by the counsel for the respondent-company stating that in view of the decision of the Supreme Court in Cotton Corporation of India Ltd. v. United Industrial Bank Ltd. [1984] 55 Comp Cas 423, the respondent-company has no objection for this court to pass appropriate orders in regard to the amount deposited by the respondent in these proceedings without taking into consideration the order of injunction passed by the learned Additional Civil Judge, Mysore, in O.S. No. 349 of 1983. The respondent-company has further undertaken to take steps to move the Civil Judge at Mysore to recall his order in question.

23. In the light of the memo filed, I do not think I need proceed further to examine the case put forward by the respondent-company. There is already C.A. No. 240 of 1983 pending in which the petitioner has sought permission to withdraw the amount in deposit in court. If I allow that application, then there will be no cause of action subsisting in favour of the petitioner. The other application made by the respondent-company is for directing the petitioner-company to furnish security for withdrawing the amount. When the debt has been admitted and the defence put forward is not accepted by this court, as already stated, it would be inappropriate to put the petitioner on such restraint as prayed by for the respondent-company. In the result, C.A. No. 240 of 1983 should be allowed without imposing any condition. If that is allowed and the amount is withdrawn, as already observed, there is no cause of action subsisting which necessitates this court from proceeding further in the matter of winding up the respondent-company.

24. Whatever claims the petitioners may have in regard to interest as well as damages claimed by the respondent-company are matters left open to be agitated before the appropriate forum and decided there. In the result, C.A. No. 240 of 1983 is allowed and the petitioner is allowed to withdraw the amount in deposit. In the result, this petition is liable to be closed as the debt claimed discharged subject to the observation made in regard to interest claimed.

25. Before parting with the case, I must repeat that no inferior court may pass an order of any kind that will have the effect of interfering with matters which are already in issue before a superior court. It is alien and unknown to our country's legal systems. Such an order, apart from being an order without jurisdiction, amounts to contempt of the superior court, more so when the inferior court is apprised of the issues before the superior court.

26. For the reasons given above, this company petition is closed as well as the other company applications which are not disposed of specifically by this order.


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