Skip to content


Seethai Mills Ltd. Vs. N. Perumalswamy, a Registered Firm by Its Managing Partner, N.V. Perumalsamy, Rajapalayam and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Reported in(1980)1MLJ444
AppellantSeethai Mills Ltd.
RespondentN. Perumalswamy, a Registered Firm by Its Managing Partner, N.V. Perumalsamy, Rajapalayam and anr.
Cases ReferredMadhuban Private Ltd. v. Naraindas Gokal
Excerpt:
- .....from the very language of section 434(1)(b) it may be stated that it does not even contemplate a money decree or order for payment of money and it generally uses the expression 'if execution or other process issued on a decree or order of any court in favour of a creditor of the company'. therefore, the decree or order that is contemplated by section 434(1)(b) is not confined only to a money decree or an order for payment of money. on the other hand, it is general in nature. however, what we have to concentrate on is, whether a person who had obtained a decree for money against a company will cease to be a creditor because of that fact, so as to take his case out of section 434(1)(a) of the act. we are of the opinion that there is no warrant for such a contention. a creditor who has.....
Judgment:

M.M. Ismail, J.

1. This is an appeal against the order of Ramaprasada Rao, J. as he then was, dated 6th October, 1977 made in C.P. No. 96 of 1974, directing the winding up of the appellant company under the provisions of the Companies Act, 1956 hereinafter referred to as the Act.

2. The facts are not in controversy. The first respondent herein obtained a decree in the City Civil Court, Madras, against the appellant herein O.S. No. 3032 of 1966 for a sum of Rs. 17,093.06 with further interest. The first respondent issued a notice as contemplated in Section 434(1) of the Act. The first notice was returned as 'left' and to a second notice issued to the appellant there was a reply that the original decree under Exhibit P-1, was only an ex parte decree and that efforts were being made to have the same set aside. However, at the time when the matter came to be disposed of by the learned Judge, it was not in dispute that the attempt to have the ex parte decree set aside had failed and that the said decree had become final and effective. In view of this, the point that was urged before the learned Judge was that since the first respondent had obtained a decree, it had to proceed under Section 434(1)(b) of the Act and not under Section 434(1)(a) of the Act and that in this case the requirements of Section 434(1)(b) had not been satisfied, since the decree had not been put into execution. The learned Judge held that even a person who had obtained a decree against a company can take proceedings under Section 434(1)(a) of the Act, that he was not constrained to proceed only under Section 434(1)(b) and that consequently, the company petition filed by the first respondent under Section 434(1)(a) of the Act was maintainable. It is the correctness of this conclusion of the learned Judge that is challenged in the present appeal.

3. Section 433 of the Act states that a company may be wound up by the Court in the circumstances enumerated in clauses (a) to (f). One of the circumstances mentioned therein is 'if the company is unable to pay its debts'-Section 433(f). Section 434 deals with the question as to when a company shall be deemed to be unable to pay its debts. In this context, the language of Section 434(1) which is relevant is as follows:

434(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 five hundred 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 due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for to the reasonable satisfaction of the creditor;

(b) if execution or other process issued on a decree or order of any Court, in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.

4. The controversy that had to be considered in this case was whether the first respondent herein, since it happened to be a decree-holder against the appellant, should be compelled to proceed under Section 434(1)(b) and should not be permitted to avail itself of the provisions contained in Section 434(1)(a) of the Act or not. The learned Judge, as we have already pointed out, has held that even a person who has obtained a decree, in the present case the first respondent herein, can take proceedings under Section 434(1)(a) of the Act.

5. It is true that Section 434(1)(a) deals with the case of a creditor to whom the company is indebted in a sum exceeding Rs. 500 then due and his serving on the company a demand under his hand requiring the company to pay the sum so due and the company neglecting to pay the sum or to make satisfactory arrangement to secure the same within a period of three weeks thereafter. As against this, Section 434(1)(b) states that if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part, the company shall be deemed to be unable to pay its debts. The question for consideration, therefore is, whether, simply because a creditor has instituted a suit against a company and obtained a decree, he has no remedy under Section 434(1)(a) and he has to confine his remedy only under Section 434(1)(b) of the Act. We are of the opinion that there is no such mutually exclusive dichotomy between Section 434(1)(a) and Section 434(1)(b) of the Act. From the very language of Section 434(1)(b) it may be stated that it does not even contemplate a money decree or order for payment of money and it generally uses the expression 'if execution or other process issued on a decree or order of any Court in favour of a creditor of the company'. Therefore, the decree or order that is contemplated by Section 434(1)(b) is not confined only to a money decree or an order for payment of money. On the other hand, it is general in nature. However, what we have to concentrate on is, whether a person who had obtained a decree for money against a company will cease to be a creditor because of that fact, so as to take his case out of Section 434(1)(a) of the Act. 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 after-wards, but that does not in any way destroy his character as a creditor or 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 must have served a notice on the company and the company had not complied with the demand within three weeks from the date of the service of the notice. Even a judgment-debtor in respect of a money decree can be said to be indebted to the decree-holder, who would be a creditor. Consequently, in our opinion, there is no mutual exclusion of Section 434(1)(a) and Section 434(1)(b) of the Act and there is a region common to both, which may be said to overlap. Hence we are of the opinion that even a decree-holder in respect of a money decree can institute proceedings under Section 434(1)(a) if the other requirements of that provision are satisfied.

6. Our attention was drawn to a decision of a single Judge of the Delhi High Court in Madhuban Private Ltd. v. Naraindas Gokal chand (1971) 41 C.C. 685. It would appear that in that case a similar argument was urged before the learned Judge and the same was rejected. It was stated therein as follows:

The learned Counsel submitted that it was not necessary in the case of a creditor holding a decree against the company to serve a notice. Specific provision, on the other hand, was made for taking out execution of the decree in such a case, which was not done in this case. The argument of the learned Counsel, however, is without any merits. Clauses (a) and (b) provide two alternative methods of showing that the company is unable to pay its debts. A creditor does not cease to be a creditor, if he obtains a decree in his favour against the company. Clause (a) becomes applicable when a creditor has served on the company a demand under his hand requiring it to pay the sum due and the company has neglected to pay the same. The provision in Clause (b) that if the creditor has a decree of a Court in his favour and the execution is returned unsatisfied in whole or in part, the company shall be deemed to be unable to pay its debts, does not mean that the effect of Clause (a) is negatived in the case of a decree-holder-creditor. The object of the two clauses is the same that is, to show that the company concerned is unable to pay its debts. Action can be taken under either of them.

Thus, it will be seen that the view taken by the learned Judge of the Delhi High Court is on the same lines as we ourselves have taken in the present case. No other decision of any Court taking- a contrary view has been brought to our notice.

7. Under these circumstances, we hold that the conclusion of the learned Judge is correct. Hence the appeal fails and is dismissed. There will be no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //