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Dalhousie Jute Co. Ltd. Vs. Mulchand Lakshmi Chand - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberAppeal From Original Order No. 400 of 1976 against C.P. No. 166 of 1976
Judge
Reported in[1983]53CompCas607(Cal)
ActsCompanies Act, 1956 - Sections 433 and 434; ;Arbitration Act, 1940 - Section 32
AppellantDalhousie Jute Co. Ltd.
RespondentMulchand Lakshmi Chand
Appellant AdvocateS. Tebriwal, ;L.K. Murarka and ;Dilip Sharma, Advs.
Respondent AdvocateS.K. Gupta and ;B.L. Jain, Advs.
DispositionAppeal dismissed
Cases ReferredDalhousie Jute Mills v. Mulchand Lakshmi Chand
Excerpt:
- dutta, j.1. the main point for determination in this appeal is whether a petition for winding-up could be admitted by the company court on the basis of an unfiled award for money payable to -the award holder by the company. it is contended before us that in order to constitute a ' debt'' within the meaning of sections 433 and 434 of the companies act, 1956, the same must be immediately payable by the company in the sense that the creditor can come and claim the sum and, if refused, can immediately enforce payment thereof. that is not possible in the case of an unfiled award which can be enforced for payment only by the passing of a decree. that leads us to the determination of the question as to what is the effect of an unfiled award. is the sum involved in the award immediately payable.....
Judgment:

Dutta, J.

1. The main point for determination in this appeal is whether a petition for winding-up could be admitted by the company court on the basis of an unfiled award for money payable to -the award holder by the company. It is contended before us that in order to constitute a ' debt'' within the meaning of Sections 433 and 434 of the Companies Act, 1956, the same must be immediately payable by the company in the sense that the creditor can come and claim the sum and, if refused, can immediately enforce payment thereof. That is not possible in the case of an unfiled award which can be enforced for payment only by the passing of a decree. That leads us to the determination of the question as to what is the effect of an unfiled award. Is the sum involved in the award immediately payable by the company to the award holder even prior to its filing and a decree being passed thereon ?

2. In this case after a money award had been passed on December 8, 1975, by the Bengal Chamber of Commerce and Industry against the company, inter alia, for a sum of Rs. 44,255.29 the respondent, Mulchand Lakshmi Chand, served a notice under Section 434 of the Companies Act, 1956, on the company requiring it to pay the sum awarded. On receipt of such notice, the appellant company expressed its intention to apply for setting aside the said award and called upon the petitioning creditor to cause the said award to be filed. Instead of filing the said award or taking any step in that regard, the petitioning creditor allowed the time covered by the said ' notice to pass and upon the expiry thereof, made the petition for winding up on the basis of the amount so awarded.

3. It is contended on behalf of the company that the original claim had merged in the award with the result that on the basis of the original cause of action the petitioning creditor could not have made an application for the winding-up of the company. The only course left open was to get a decree passed on the said award after filing the same and then to enforce it. The debt due, if any, is not immediately payable and the same would become payable after the decree would be passed under the provision of Section 17 of the Arbitration Act. Until that stage would arrive, the petitioning creditor could not have brought forward its claim against the company, nor could they have made a valid demand on the company under the provisions of Sections 433 and 434 of the Companies Act, 1956. It is also contended that if the award holder would be allowed to take recourse to the winding-up proceedings at that stage, then the company would hardly get any opportunity to get the award set aside after the same would be filed. At the same time the winding-up court would not be inclined to go into the question or examine the grounds for setting aside the award. All that the winding-up court could examine is whether the petition for winding-up is an abuse of the process of the court or whether the company has raised a bona fide dispute on the basis whereof an order for winding-up might be refused.

4. In my opinion, much would depend on the interpretation of the words such as, ' a company shall be deemed to be unable to pay its debts ' as also the expression ' the sum so due ' and the expression 'the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it' as provided in s, 434 of the Companies Act, 1956.

5. In the case of In re: European Lije Assurance Society [1869] LR 9 Eq 122, Sir W. M. James, V. C. at page 127 observed:

' I think that the petitioners have not made out a case at all in any sense of inability to pay debts within the meaning of the Act of Parliament. I apprehend that Mr. Glasse is right in his construction, that inability to pay debts must refer to debts absolutely due that is to say, debts for which a creditor may go at once to the company's office and demand payment.'

6. In the case of In re Bryant Investment Co. Ltd. [1974] 2 All ER 683 ; [1974] 1 WLR 826, Plowman J., while referring to the similar provisions under Sections 222 and 223 of the Companies Act, 1949 (UK), observed at page 685 (at p. 828 of 1 WLR):

'In my judgment, that paragraph is only consistent with the view that it is confined to the case of a debt presently payable, The words, ' is indebted ' and ' then due' followed by a reference to payment of the sum ' so due ' are not, in my judgment, appropriate to a debt which is not yet due.'

7. Clause (e) of Section 433 of the Companies Act, 1956, provides that the company may be wound up by the court if the company is unable to pay its debts. 'The expression ' unable to pay its debts ' is governed by the deeming clause in Section 434 which postulates some situations on the happening of which the court may hold that the company is unable to pay its debts.

8. Sub-section (1) of Section 434 is set out as follows :

' 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 it 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. '

9. In order to attract the deeming Clause (a) above, it is incumbent on the petitioning creditor to show that sums exceeding Rs. 500 is presently payable and for failure whereof the notice has been sought to be served demanding payment thereof. The expression ' the sum so due ' and the expression ' neglected to pay the sum ' as also the expression ' to secure or compound for it', would no doubt definitely suggest that the sum which is presently payable has not been paid or no provision for payment has been made by securing or compounding for the same.

10. In order to attract Clause (b) of Section 434(1), the petitioning creditor cannot succeed merely by obtaining a decree or order for payment. Ordinarily it would mean that the decretal debt is presently payable but the statute requires, that the execution proceedings would have to be taken in respect of such decree or order and such execution proceedings must be returned unsatisfied in whole or in part. Then only, for the purpose of the wind-ing-up of a company, the company would be deemed to be unable to pay its decretal dues and not earlier. It is to be noticed that nothing had been provided as to what would happen to a creditor who would obtain an award for money in his favour.

11. Regarding Clause (c) of Section 434(1), it would appear that wide powers have been given to the court to determine the inability on the part of the company to pay its debts. In forming its satisfaction, the court has to look into the various factors concerning the company's financial position including its contingent and prospective liabilities.

12. In the above back ground, what is necessary here, is first to consider whether the award for money against the company can be utilised as a debt due within the meaning of Sections 433 and 434 of the Companies Act, 1956, and, secondly, if there is otherwise no hindrance to that, whether Section 32 of the Arbitration Act is a bar in pursuing such claim in winding up.

13. The Supreme Court in the case of Satish Kumar v. Surinder Kumar, : [1969]2SCR244 , considered the effect of an award where it was not made a rule of the court. It was held that if such an award effected a partition of immovable property worth more than Rs; 100, it would be compul-sorily registrable under Section 17(1)(b) of the Registration Act, 1908, in so far as such an award purported or operated to create or declare, assign, etc., any right, title or interest in the immovable properties. In deciding that case, the Supreme Court, inter alia, dealt with the binding effect of the award on the parties. In dealing with the principle involved in the case before the Supreme Court, the Supreme Court relied on its previous un-reported decision in Uttam Singh Dugal & Co. v. Union of India, Civil Appeal No. 162 of 1962, judgment delivered on October 11, 1962, which was decided by following the observation of Mookerjee J. (later on Sir Ashutosh Mookerjee) in the case of Bhajahari Saha Banikya v. Behary Lal Basak [1906] ILR 33 Cal 881 at page 888 wherein it was held :

' The award is in fact, a final adjudication by a court of the parties' own choice, and until impeached upon sufficient grounds in an appropriate proceeding, an award, which is on the face of it regular, is conclusive upon the merits of the controversy submitt ed, unless possibly the parties have intended that the award shall not be final and conclusive...... ; in reality, it possesses all the elements of vitality even though it has not been formally enforced, and it may be relied upon in a litigation between the parties relating to the same subject-matter : '

14. The Supreme Court in the said unreported decision in Uttam Singh Dugal & Co. (supra) while referring to the said passage in the case of Bhajahari Saha Banikya (supra) observed :

' This conclusion, according to the learned Judge, is based upon the elementary principle that, as between the parties and their privies, an award is entitled to that respect which is due to judgment of a court of last resort.'

15. The above passage of the unreported decision of the Supreme Court in Uttam Singh Dugal & Co. has been quoted at page 836, in the case of Satish Kumar v. Surinder Kumar : [1969]2SCR244 .

16. In Satish Kumar's case (supra), the Supreme Court observed that the position in this respect under the Arbitration Act, 940, was in no way different from what it was before the Act came into force, and that an award would have some legal force and was not a mere waste paper. The Supreme Court in dealing with Satish Kumar's case (supra) considered the provisions of para. 7 of Sch. I to the Act which provides :

' The award shall be final and binding on the parties and persons claiming under them respectively.'

17. Commenting on that, the Supreme Court observed in the case of Satish Kumar (supra) that if the award was final and binding on the parties, it could hardly be said that it was a waste paper unless it was made a rule of the court.

18. It would be useful to set out hereunder a few observations of Hegde J., who, while agreeing with the other two learned judges of the Supreme Court, added a few words of his own in his separate judgment. The learned judge; at page 837, while overruling the two Full Bench decisions of the Patna and the Punjab and Haryana High Courts, observed :

' Arbitration proceedings, broadly speaking may be divided into two stages. The first stage commences with arbitration agreement and ends with the making of the award. And the second stage relates to the enforcement of the award. Paragraph 7 of the First Schedule to the Arbitration Act lays down that ' the award shall be final and binding on the parties and persons claiming under them respectively'. Therefore, it is not possible to agree with the Full Bench decisions of the Patna High Court and that of the Punjab and Haryana High Court that an award which is not made a decree of the Court has no existence in law. The learned Judges who decided those cases appear to have proceeded on the basis that an award which cannot be enforced is not a valid award and the same does not create any rights in the property which is the subject-matter of the award. This in my opinion is not a correct approach. The award does create rights in that property but those rights cannot be enforced until the award is made a decree of the Court. It is one thing to say that a right is not created, it is an entirely different thing to say that the right created cannot be enforced without further steps. '

19. It has been contended before us that the reasons given by Hegde J. in the above case are quite different from and riot in conformity with the reasons which have been given by the other two learned judges. In my opinion, that contention cannot be accepted. To my mind, Hegde J. only stated expressly in his reasons what were implicit in the reasons given. by the other two learned judges and the reasons given by Hegde J. were in no way inconsistent with the view of the other two learned judges.

20. It follows from the above that an unfiled award has some legal force and effect and cannot be treated as a mere waste paper. It has further to be noted that when the award is pronounced, the original claim which was the subject-matter of the reference resulting in the award became merged in the award and no separate action could be started in enforcing the same, save and except by enforcing the award itself. When the award is passed, the original cause of action to enforce the claim could not again be separately pursued except through the award itself for the purpose of enforcement thereof. It follows, therefore, that if the award is not filed as a decree of court, the claim involved in the award cannot be enforced, although such an unfiled award for some other purpose might remain a good piece of evidence as between the parties which evidence can be utilised in any other litigation as between such parties. Such an unfiled award can be utilised by way of defence in an action involving the rights of parties which formed the subject-matter of the claim sought to be adjudicated upon. In short, the rights involved in the award remained effective as between the parties for some purpose, and, can neither be called an invalid document nor a mere waste paper.

21. The question that now assumes importance for consideration, first, is whether the application for winding up on the basis of the award passed by the Bengal Chamber of Commerce and Industry would amount to an enforcement of the award in the manner as described above. The next question which is involved is whether under such circumstances, Section 32 of the Arbitration Act, 1940, would be a bar to such an action in winding up.

22. Mr. Gupta contends, that if the award is not a mere waste paper and if it is not invalid or, in other words, if it remains effective as an additional piece of evidence showing the existence of a valid debt, there could be no bar in the winding-up court treating it as such and satisfying itself about the existence of the debt which remained unsatisfied after the expiry of the period of the notice under Section 434 of the Companies Act, 1956. The company court, under such circumstances, cannot find itself incompetent to satisfy itself and to hold that the company is unable to pay its debts, because, the debt which is evidenced by the said award remains unsatisfied after the expiry of the notice. It is no doubt a debt which is presently payable and cannot be called a contingent debt payable only upon the passing of the judgment upon the award and the decree following thereon under the provisions of the Arbitration Act. The award debt is a debt which is presently payable though it might not be enforceable by the creditor until the decree would be passed on the award. It is a debt for which the creditor may go to the company's office and get himself paid. The company under such circumstances cannot be heard to say that it is not possible to pay until that decree is passed. The company can of course dispute the validity of the award, but that is a matter concerning the award itself. Thereby the award does not cease to be an award. It remains an effective award until the same is set aside. The parties to the award agreed that the same would be binding and effective upon them. The statute has provided for the machinery for the awardholder to enforce the same if it is challenged. The Company Court as a bankruptcy court is competent to go behind the award and examine for itself whether the disputes sought to be raised in respect of the award are bona fide or not. If it finds that such disputes have been bona fide raised, then it may at once stay the winding up proceedings so that the parties could go through the formalities which are prescribed under the Arbitration Act, 1940. In appropriate cases, it might also order security to be furnished until the formalities prescribed under the Arbitration Act were followed and decided ; but it cannot be urged that the petition for winding up would not He, because, that would be in enforcement of the arbitration award and the enforcement thereof is barred by Section 32 of the Arbitration Act, 1940.

23. Mr. Tibrewal, on behalf of the appellant contends that Section 32 of the Arbitration Act, 1940, bars any suit for the purposes mentioned in the said section. The expression ' suit ' must include ' a winding up proceeding '. Secondly, the learned advocate contends that to bring a winding up proceeding on an unfiled award would tantamount to the enforcement of the award. Section 32 of the Arbitration Act, 1940, reads:

' 32. Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be enforced, set aside, amended, modified or any way affected otherwise than as provided in this Act. '

24. That being so it is contended that in order that the award might be enforced the only course left open for the awardholder is to have the award filed, to get the notice issued and served upon the other party to the award and, therefore, to obtain a judgment and a decree under Section 17 of the Arbitration Act and then to execute the same.

25. It is contended that the expression ' no suit shall lie on any ground whatsoever ' in Section 32 should be considered in its broader sense and should be read to include any proceeding initiated either by the presentation of a plaint or by any appropriate proceeding including a winding-up proceeding. That brings us to the question, what is the true nature of the winding-up proceeding Is it akin to that of a suit What reliefs are prayed for in the two and what decree or orders are made in either Are the same identical or are they entirely different In this connection reliance has been placed on Sections 433, 434, 436, 439, 447, 456, 457, 474, 528 and 529 of the Companies Act, 1956, and, also on the Companies Court rules 96, 100, 101, 109 to 114, 147 to 165 and also on the forms prescribed in Forms Nos. 45 to 48, 52, 63 to 66.

26. The above provisions have been relied on for the purpose of showing in what way the winding-up proceedings are different from suit proceedings. Then again, our attention has been drawn to the prayers in a winding up petition wherein all that is prayed for is that the company be wound up. There is no prayer for a payment of the money which is due to the petitioning creditor in the winding-up petition. If the order is made, the same enures to the benefit of the general classes of creditors and contri-butories. It is a representative action. It is contended that the whole object of the winding-up proceedings is based on public policy. The most significant part is that even though in a creditor's petition the company is directed to be wound up, yet such a creditor has still to prove his claim before the official liquidator and may only hope to obtain payment of his dues on a pro rata basis to the extent the funds would permit. Such a creditor has no special privilege or opportunity to enforce his claim and has to wait his turn along with others of equal standing or class. That being so, it cannot be contemplated that the presentation of a winding-up petition amounts to the institution of a suit within the meaning of Section 32 of the Arbitration Act, 1940.

27. In the case of Official Receiver, Kanpur v. Abdul Shakoor, : [1965]1SCR254 , the Supreme Court in dealing with an insolvency proceeding, decided the question of the jurisdiction and duties of the insolvency court. At page 923, the Supreme Court observed :

'A proceeding under Section 33 of the Provincial Insolvency Act is not a proceeding between the insolvent and the proving creditor. The proceeding is between the creditors represented by the Official Receiver and the insolvent.'

28. Then again at page 924, the Supreme Court observed :

' A judgment against a debtor which is sought to be relied upon in proving a debt does not necessarily establish the existence of a real debt for the judgment may have gone by default, it may have gone by consent or it may have been procured for any other reason. In a proceeding relating to proof of debts the question which arises being not one between the insolvent and the proving creditor alone, the rights of other creditors of the insolvent have of necessity to be considered.'

' The court has power, however to insist upon proof of the debt apart from the judgment or the negotiable or other instrument. The reason is that the Insolvency Court with a view to effectively distribute the estate of the insolvent among the creditors is entitled to go behind outward forms of transactions and to ascertain the truth of the debts sought to be proved, and the estoppel to which the insolvent may have subjected himself will not prevail against the Receiver.'

29. In the case of In re: 'A ' Company, reported in [1915] LR 1 Ch 520, Lord Cozens Hardy, M.R. in his judgment in the Court of Appeal considered the special characteristics of a winding up order vis-a-vis the petitioning creditor. Was it in effect ' giving the petitioner equitable execution ' That was the question before the Master of the Rolls. At page 525, the learned Master of the Rolls observed :

' Now ' execution on the judgment' is a technical term. It is a legal process by which the judgment creditor, in that character and for his sole benefit, by a proceeding in the same action seeks to satisfy his judgment wholly or partially. I think it is plain that a winding-up petition is not execution on a judgment. It lacks almost every element of such an execution.'

30. Then at page 526 the Master of the Rolls observed :

'The winding-up order secures that all the assets of the company shall be applied for the benefit of all the creditors, and that is all that was intended.'

31. At page 528 Phillimore, learned judge observed:

'In the particular case she is a creditor because her damages have been liquidated by a judgment. But it would be the same if she were a single contract creditor whose debt was merged in a judgment. She is not therefore seeking to enforce her judgment. She is proceeding to a new alternative mode of recovering her debt, a mode by which she no longer seeks to recover for herself alone but for the (benefit of all the creditors, as in a creditor's suit for the administration of the estate of a deceased debtor or in a bankruptcy.'

32. Mr, Tibrewal has referred to a Supreme Court decision in the case of Harinagar Sugar Mills Co. Ltd. v. M. W. Pradhan, Court Receiver, High Court of Bombay : [1966]60ITR508(SC) , where, according to the learned advocate, the Supreme Court observed that a winding up order in effect is a form of equitable execution and that being so, it is in enforcement of a private person's claim against the company to recover his dues.

33. That was a case where two questions arose, first, whether the Court Receiver-had any power to file a petition for the winding-up of the company and, secondly, whether the Court Receiver was a creditor within the meaning of Sections 433 and 434 of the Companies Act, 1956. That was a case where, in a partition suit, the Court Receiver was appointed the Receiver over certain joint Hindu family properties. The karta of the said joint family purchased a large block of shares in the company named Harinagar Sugar Mills Co. Ltd., out of the funds of the joint family. The said shares were sold by the said joint family to the company whereby the company agreed to pay the price in instalments. A large instalment amount remained due and owing to the said joint family by the company. Under such circumstances, the family partition suit was filed and the Court Receiver was appointed as the Receiver of all the joint properties including the said claim payable by the company. Thereupon, the said Receiver issued a notice under Section 434 of the Companies Act, 1956. The Receiver moved the High Court for a direction and obtained an order authorising him to file a petition for the winding-up of the company and on the basis thereof filed the petition for winding up. The petition was admitted and directions for advertisements were given. The company preferred an appeal against that order of the court below. But the Appeal Court dismissed the appeal.

34. Reliance was placed on the provisions of Order 40, Rule 1 of the CPC, whereunder all necessary powers were conferred upon the Receiver including the right to file suits. There the Supreme Court at page 430 (of 36 Comp Cas) observed:

' Assuming that a petition for winding-up of a company is not a suit within the meaning of Order 40, Rule 1(d) of the said Code, the other powers mentioned therein are comprehensive enough to enable the Receiver to take necessary proceedings to realise the property of and debts due to the joint family. Can it be said that the petition filed by the Receiver for winding-up of the company is not a mode of realisation of the debt due to the joint family from the Company ?'

35. The Supreme Court also observed at the same page of the report:

'It is true that 'a winding-up order is not a normal alternative, in the case of a company, to the ordinary procedure for the realisation of the debts due to it'; but none the less it is a form of equitable execution. Propriety does not affect the power but only its exercise. If so, it follows that in terms of Clause (d) of Rule 1 of Order 40 of the Code of Civil Procedure, a Receiver can file a petition for winding-up of a company for the realisation of the properties, movable and immovable, including debts, of which he was appointed the Receiver. In this view, the respondent had power to file the petition in the court for the winding-up of the Company. '

36. Mr, Tibrewal has argued that in view of the above observations made by the Supreme Court, there is ho scope for the argument that the winding-up order is not a form of equitable execution.

37. In my opinion, the above observations were made in a different context altogether. There the Supreme Court was deciding the point whether the Receiver had or had not the power to file the petition for a winding-up of the company. There the argument advanced was that such powers have not been expressly conferred by the provision of Order 40, Rule 1 of the CPC. The Supreme Court assumed that a petition for winding-up was not a suit within the meaning of Order 40, Rule 1 of the Code and proceeded to examine the above point before it. We are, however, not concerned with that point. We are concerned in this matter about the difference between a suit proceeding and a winding-up proceeding. It is true that in effect, on various occasions the company is forced to pay up the dues to the creditors by this process. Such a situation very often arises when a winding-up petition'is made for submission thereof by the court. Under such circumstances, under pressure of the petitioning-creditor, the company very often pays up the dues included in the petition, sometimes even without any context, so that the company might not have to face a more serious embarrassing position, where it might have to face a large number of creditors, who might otherwise have accommodated the company, in paying up their respective dues. But that does not mean that the order for the winding-up of the company becomes an order in persona in respect of the particular creditor who got himself paid in that process. The order so passed by the winding-up court loses its character of an order in rein and becomes an order in persona in the sense, it becomes a debt collecting court. But all this might so happen before the winding-up petition is advertised and not afterwards,

38. In the above Supreme Court case, one of the points to be decided was whether the Receiver who was appointed under Order 40, Rule 1 of the CPC could be conferred a power to bring a petition for winding-up. Under the said provision of the Code, the court can only confer upon the Receiver the power to bring a suit and it was contended that the expression ' suit' did not take within its ambit a petition for a winding-up of the company. In that context, the Supreme Court examined the proposition from different aspects; It was assumed that a petition for winding-up was not a suit within the meaning of Order 40, Rule 1(d) of the Code, but on the basis of the other powers mentioned in the said provision, the Supreme Court concluded that such other powers were comprehensive enough to enable the Receiver to realise the property in the debts due to the joint family. In that context, the Supreme Court observed that the petition filed by the Receiver for a winding-up of the company was made for the realisation of the debt due to the joint family from the company. But we are not concerned with that proposition. Broadly speaking, when a petition for winding-up is made, the creditor who makes it has no doubt in his mind that his debt might be recovered from out of the company's assets. That must be his ultimate object. He does not do it for doing any good to the public. But the procedure he adopts ;in filing the winding-up petition is a very round about way of enforcing his claim. He might ultimately succeed in realising his claim or he might not. But, vis-a-vis the court, which deals with the winding-up petition and the order which is made in respect thereof, the position becomes different. It then does not consider the question of winding-up with an eye to look to the interest of the particular creditor whose petition for winding-up is sought to be admitted. The court looks to the interest of the shareholders and contributories in general on the basis of public policy which is involved therein, to determine, whether under the circumstances in respect of a particular case, it should function in the regular manner or on those terms or whether it should be wound, up.

39. In that view of the matter the Supreme Court decision in Harinagar Sugar Mills Co. Ltd. : [1966]60ITR508(SC) , is distinguishable.

40. I think, the law is settled on the point that the bankruptcy court could go behind the judgment decree and decide for itself whether the debt existed or not. (See: Ko-ku-la Ltd., In re : AIR1953Cal387 , and the case of Official Receiver, Kanpur v. Abdul Shakbor, : [1965]1SCR254 ). In the case of Re: Welsh Brick Industries Ltd. [1946] 2 All ER 197 (CA), it was held that the Company Court could go behind the question and see for itself whether the defence was a bona fide one or not even in case where an unconditional leave to defend was granted in a summary proceeding. In the case of In re: Amalgamated Properties of Rhodesia (1913) Ltd. [1917] 2 Ch 115 (CA), it was held that the pendency of the appeal did not destroy the credit, and the winding-up court could make an order for winding up if the facts involved in that case so permitted. The pendency of the appeal by itself cannot be put up as a defence to a winding-up petition.

41. Mr. Tibrewal has cited before us the decision in the case of Rajasthan Spinning and Weaving Mills Ltd. v. Textool Company Ltd. [1971] 41 Comp Cas 66 (Mad) and contends that a single judge of the Madras High Court held therein that the pendency of the controversies between the parties with regard to the matter having been pending in an appeal, would by itself go to show that the dispute raised by the company was a bona fide one ; and that till it was clearly established that the respondent-company was indebted to the petitioner-company, it was not just or proper to wind up the respondent-company. In my opinion, as it appears from the judgment, itself, the learned judge actually had gone into the merits of the dispute and the various documents in evidence which were placed before him and satisfied himself that the dispute was bona fide and on that basis dismissed the petition for winding up. That is how I have read the decision and if anything has been said by the learned judge contrary to the principle as enunciated in the decision immediately preceding and discussed hereinabove, I have to observe with respect that the said decision does not enunciate the correct legal proposition.

42. It is contended by Mr. Tibrewal, that by virtue of the non obstante clause in Section 32 of the Arbitration Act, 1940, the said provision has an overriding effect over the Companies Act, 1956, and, for that matter, the winding-up proceedings are also covered by the said clause. It is further contended, by relying on the Division Bench decision in the case of State of West Bengal v. Nandalal Dey, : AIR1975Cal130 , that even though the Companies Act, 1956, is a later enactment, still the same would also be governed by the said non obstante clause. Mr. Gupta disputed the correctness of the said proposition. In any event, in view of my finding that the expression ' suit ' in Section 32 does not cover the winding-up proceedings for the reasons as set out hereinabove, we are not called upon to go into the said question and decide the same.

43. The various principles which should guide the Company Court in dealing with an application for winding-up have been laid down in the case of Madhusudhan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. : [1972]2SCR201 . Such propositions have also been discussed in the Calcutta High Court in the case of Ofu Lynx Ltd. v. Simon Cabyes India Ltd., : AIR1970Cal418 . The question whether the company has raised a bona fide dispute or not, is considered from the prima facie point of view and is not finally decided. In coming to its finding, the Company Court does not finally decide or adjudicate the said dispute but decides from a prima facie point of view in order to satisfy itself from the materials placed before it whether the company was likely to succeed against the petitioning-creditor if the same would be put in issue in a suit or proceeding in the regular manner. If the company is directed to be wound up such a question would be decided by the liquidator in liquidation proceedings.

44. For all these aforesaid reasons, I cannot accept the contention of Mr. Tibrewal, that the fact that the appellant has a statutory right to apply to set aside the award is by itself a bona fide dispute. In this case, as a matter of fact, not only the grounds for setting aside the award have been set out in detail in the affidavit before the court below, filed on behalf of the company in the winding-up proceedings, but arguments were also advanced before the learned judge and the learned judge after satisfying himself from the materials placed before him that the claim was not bona fide disputed, has decided the case herein and made the order appealed from. Before us, however, Mr. Tibrewal has made it clear that he is not relying on the grounds for setting aside the award inasmuch as, according to the learned advocate, such grounds can neither be considered nor be decided by the winding-up court. We have, accordingly, not considered such grounds as set out in the affidavit filed before the court below. The appellant, however, in its petition for stay in the City Civil Court, Miscellaneous Case No. 728 of 1976, in Dalhousie Jute Co. v. Mulchand Lakshmi Chand, inter alia, pleaded that the matter in issue and/or in question in the said arbitration case was also directly and substantially in issue in the company petition pending before this appeal court. The appellant further pleaded that if the said award was proceeded with, there was the likelihood of there being a conflict of decisions over the same issue which was the subject-matter in controversy by and between the parties. On the basis of such averments in the said petition, the appellant obtained an order for stay of further proceedings in the said arbitration matter pending disposal of this appeal. I shall deal with the same in detail when I deal with the subsequent conduct of the appellant hereafter.

45. Mr. Tibrewal's contention that the winding-up application is a mode of enforcing the award which is prohibited by the Arbitration Act, 1940, cannot also be accepted by me for the reasons as discussed above. From the nature and the inherent characteristics of a winding-up application as discussed above, it will be seen that the claim involved in the award itself is sought to be enforced by making a winding-up application which stands on a different footing and such a proceeding cannot come within the meaning and scope of the expression 'suit' in Section 32 of the Arbitration Act, 1940.

46. Mr. Tibrewal has referred to an observation by the Supreme Court in the case of Padmaraja v. Dhanavathi, : [1973]1SCR383 , in which case the Supreme Court dealt with a special State Government Act concerning a particular community interested and dealing with family arrangement by petition, wherein an award was made. In that background, the Supreme Court at page 2223 observed :

'After the coming into force of the Arbitration Act, 1940, all awards had to be compulsorily made decrees of the courts if they were to have any force.'

47. In my opinion, by that observation, the Supreme Court did not mean that until an award would be made a decree of the court, the same would remain an invalid document or would be a mere waste paper. In my opinion, that isolated observation was made in the context of Section 36(6) of the Madras Aliyasantana Act (2 of 1949). It did not in any manner decide anything against the principles decided in the case of Satish Kumar v. Surinder Kumar, : [1969]2SCR244 , which was a judgment of three learned judges dealing with the point directly. In any event, in this case, we are not concerned with the enforcement of the award. It would be noted that the said observation was made by a Bench of two judges of the Supreme Court without considering its own previous decision where the character of an unfiled award was elaborately discussed and it was, inter alia, held that the ' award does not create right in property '. In any event, in my opinion, the said observation should be read in that background of the said special statute which was the subject-matter of the decision in that case. In the case before us, we are only concerned with the right which is created by the award and not in respect of the enforcement thereof. In the case of Union of India v. K.S. Subramanian, : (1977)ILLJ5SC , and in the case of John Martin v. State of West Bengal, : 1975CriLJ637 , it has been held that a decision by a larger Bench should be followed in preference to the decision by a smaller Bench of the Supreme Court. The Bench which decided the above case, reported in. : [1973]1SCR383 , consisted of two learned judges and there also the judgment was delivered by Hegde J. The very same learned judge, also in the judgment in : [1969]2SCR244 , made the observation to the effect that the award created a right in property. In Pushraj Puranmal v. Clive Mills Co. Ltd., : AIR1960Cal180 , P. B. Mukharji J. (as he then was), observed that no section of the Arbitration Aet provided that an unfiled award was a nullity. In that case, as in the case before us, the rules of the Bengal Chamber of Commerce and Industry were applicable and the same, inter alia, provided that the parties would abide by and obey the award which would be binding on the parties notwithstanding the death of any of them before or after the making of the award and such death would not operate as a revocation of the submission. The learned judge, Mukharji J. (as he then was), concluded therefrom that the awards made remained binding on the parties and, until such awards were set aside, they remained binding on the parties by the express rules of arbitration and the express agreement entered into between the parties. The learned judge also relied on para. 7 of Schedule 1 to the Arbitration Act, 1940, which provided for a similar rule, making the award binding on the parties.

48. Mr. Tibrewal contends that the appellant company has a statutory right to challenge the award. The appellant would be deprived of the opportunity to exercise such right if the appellant would be dragged to the winding-up court at that stage in respect of such an unfiled award. In my opinion, that argument is untenable and cannot be accepted, because the court, in entertaining the winding-up petition, does not in any way prevent the company from applying for setting aside such an award in the regular manner as provided under the Arbitration Act. The winding-up court would undoubtedly take into consideration the fact that the appellant would have such a right to proceed in the arbitration proceedings and, under suitable circumstances, if the winding-up court would prima facie be satisfied about the same, the winding-up court would make suitable provisions for that and make the order in the manner it would think best. There cannot be any question of depriving the company of any opportunity to exercise any such right. As observed hereinabove, before the learned judge of the court below, the grounds for setting aside the award were not only set out in detail in the company's affidavit but arguments were also advanced in justification thereof on behalf of the company. The learned judge of the court below was thus persuaded to consider and to form an opinion thereon and by taking a prima facie view of the matter, the learned judge satisfied himself that the disputes sought to be raised by way of defence would hardly be of any substance. As observed hereinabove, before us, Mr. Tibrewal has not gone into the .said question nor have we considered the said grounds in deciding this appeal.

49. Various decisions have been cited at the Bar on the scope and effect of the expression 'suit' appearing in Section 32 of the Arbitration Act. The expression ' suit' has been construed differently in connection with different statutes. There are also different dictionary meanings attached to the said expression in different contexts; but, in my opinion, mostly the same would have no relevance in this case. In the view I have taken as discussed above, it is not necessary to deal with them separately. Such decisions are , Mahalinga (A.) Kudumban v. Theetharappa Mudaliar, AIR 1929 Mad 223, Peoples' Insurance Co. Ltd. v. Sardul Singh Caveeshar, , S.P. Consolidated Engineering Co. (P.) Ltd. v. Union of India, : AIR1966Cal259 , Firm Gulzarimal Gheeshalal v. Firm Ramesh Chandra Radhyeshyam, , The Merak [1965] 1 All ER 230 (CA), Assan v. Pathuma [1899] ILR 22 Mad 494 at p. 502, Narbadabai v. Natverlal Chunilal Bhalakia, : AIR1953Bom386 , H.H. the Maharana Sahib Shri Bhagwat Singh Bahadur of Udaipur v. State of Rajasthan, : (1964)ILLJ33SC , Her Highness Maharani Mandalsa Devi v. M. Ramnarain (P.) Ltd., : [1965]3SCR421 , Hansraj Gupta v. Dehra Dun M.E.T. Co., AIR 1933 PC 63 and Jowitt's Dictionary of English Law, 2nd edition, page 1718.

50. Mr. Tibrewal has submitted the following principles governing interpretation of statutes, that, when a power is given in a statute to do certain things in a particular way it must be done only in that way or not at all. Here in this case, Sections 14, 15, 16 and 17 of the Arbitration Act lay down a procedure and that has to be followed in enforcement of the award. The learned advocate contends that, in any event by not following the procedure at this stage, the petitioning-creditor cannot have it enforced through some other machinery and if that is sought to be done, it would amount to a mala fide act on his part and it would be an abuse of the process of this court. Mr. Tibrewal has referred to several Supreme Court decisions in support of the above proposition and also Swarup's Legislation and Interpretation, 1974 Edn., pages 518 to 520. The Supreme Court decisions are as follows : State of Gujarat v. Shantilal Mangaldas, : [1969]3SCR341 , Assistant Collector of Central Excise, Calcutta v. National Tobacco Co. of India Ltd., : 1978(2)ELT416(SC) , Malaichami v. M. Andi Ambalam, : [1973]3SCR1016 , N, P, Ponnuswami v. Returning Officer, Namakkal, : [1952]1SCR218 ; a decision of the Allahabad High Court in the case of W. T Henley's Telegraph Works Ltd. v. Gorakhpur Electric Supply Co. Ltd., AIR 1936 All 840 at page 845. The said principles governing the rules of construction of statutes are well-established principles but in the facts and circumstances of this case, and as discussed herein-above, the same have no application because of the simple reason that we are not concerned with the enforcement of the award. This indeed is the real distinguishing feature in this case.

51. Mr. Tibrewal has referred to an unreported decision of Roy Chowdhury J., the judgment whereof was delivered by him on July 17, 1978, in the case of Kalyani Spg. Mills Ltd. v. Shiva Trading Co., in C.P. Nos. 155 and 153 of 1978 (see p. 632 infra). In that case, the learned judge on the facts involved therein and after considering his own previous judgment, which is the subject-matter of appeal herein, came to a different conclusion and held that the winding-up petition was an abuse of the process of this court and should not be admitted and as such the learned judge directed therein that the winding-up petition be taken off the file. I have considered the decision of the learned judge and I do not find any inconsistency between the two decisions of the learned judge. Roy Chowdhury J. considered his previous decision, but distinguished the same on the facts involved in the later decision. The learned judge also considered the Supreme Court decision and applied the principles laid down therein in the case of Satish Kumar v. Surinder Kumar, : [1969]2SCR244 . In that case, the learned judge was satisfied that the company had raised the dispute in good faith and there was substance in defence of the company to the claim of the petitioning-creditor both in law and fact and on that basis held that the winding-up petition was an abuse of the process of the court and refused to admit the petition.

52. Mr. Gupta has relied on the decision in the case of In re : Welsh Brick Industries Ltd. [1946] 2 All ER 197 (CA), where the Court of Appeal in England had held that in a matter where leave to defend was granted, even though conditionally in a summary proceeding, yet the Company Court could go into the question to see for itself whether the defence was. bona fide or not Mr. Gupta has also relied on the case of In re : Amalgamated Properties of Rhodesia (1913) Ltd. [1917] 2 Ch 115 (CA), where it was held that the pendency of the appeal did not destroy the debts due to the creditor and the winding-up court would make an order for winding-up on the basts that the pendency of the appeal was no defence in such an action.

53. In my opinion, the winding-up petition based on an unfiled award has its special significance. The gist of the petition is that the company is indebted to the petitioner to the extent exceeding a sum of Rs. 500 and in spite of a notice under Section 434 of the Companies Act, 1956, the company is unable to pay its debt. The prayer simply is that the company be wound up. If the award is analysed, its effect is that it has created a right in property in favour of the award-holder. By reason of the agreement between the parties, the company is obliged to abide by the result of the award which is to remain binding on the company. On the basis of such an agreement, the company is bound to honour its agreement whereby it agreed to pay the amount to be awarded. The court entertaining the winding-up application does not decide any of the grounds for setting aside the award, which are to be decided by the court entertaining an application for setting aside such an award under the Arbitration Act; The ' winding-up court does not enforce the award. It merely goes into the question as to whether a debt is presently payable and then to find out whether the dispute raised on behalf of the company, in respect of the claim of the creditor, is prima facie a bona fide one or not. The debt is not finally decided nor is the defence, raising the bona fide dispute finally adjudicated upon by the Company Court except that a prima facie view is taken by the Company Court on the basis of the materials placed before it; The winding-up application is a representative action as if all the creditors are joined together in. one action and as such cannot be said to be in enforcement of the award. The award is relied on by way of an additional piece of evidence of the debt due to the party. It is a debt which is absolutely due and is presently payable on the basis of the award and on the basis of the agreement between the parties. It is a valid document and is not a mere waste paper. It creates some rights and such rights exist until the same are set aside. There is no obstacle or fetter on the part of the company to pay its dues in accordance with the award. If that would be done, then the same would be in compliance with the agreement to pay on the basis of the said award as entered into by and between the parties. The payment is not dependent on the passing of the judgment and decree on the award. It is only when the award is challenged that the company might apply to set aside an award in which case if the company loses, the application is dismissed and the judgment and decree follows in terms of the award. The same has nothing to do with the court dealing with a winding-up petition on the basis of the unfiled award. The award-holder does not get his money paid on the basis of such petition for winding-up even though he might succeed in the petition. The whole object in providing for the machinery by way of a winding-up of the company is to pursue a remedy based on public policy. A winding-up order is passed in rem as though the order has been made on the joint petition of all the creditors and the contributories. After the order is made, the court retains the custody and control of the assets of the company and the same are realised and distributed in the manner as provided in the Companies Act, 1956. This is entirely a different procedure, quite distinct from the procedure which is followed in an ordinary suit.

54. The most material consideration is the inability of the company to pay its debts which is actually due and is presently payable. It is not made on the basis of the creditor's dues and for the purpose of making payment to him. It is not the claim of the creditors but it is the liability of the company which is the prime consideration in a winding-up proceeding. That is the reason why the minimum figure of Rs. 500 has been fixed for the purpose of enabling the petitioning-creditor to make the application, so that the winding-up court might test the solvency of the company. When the creditor succeeds, it matters little how big is the sum for which such petition has been made. All that matters is to consider the incapability of the company to pay up its debts. Public policy demands that, under such circumstances, such a company has no right to exist or function us a going concern.

55. That being the legal position, to my mind, it is the award and tht award only and not a decree to be passed thereon which might be the real consideration for the winding-up court in deciding the question of the winding-up of the company on the basis of an unfiled award. The decree, following the judgment upon award, is obtained for the purpose of enforcing the award as provided by the Arbitration Act, 1940. When such a decree is passed it is executable as any other decree under the CPC and is a decree in personam and not in rem. It then concerns the award-holder alone and is passed in accordance with the award. If it is a money decree, it is executable as any other decree through the machinery provided by the Code. The Arbitration Act ceases to be operative any longer and the CPC takes it over for a further course of action. The Companies Act, 1956, has provided in Section 434(1)(b), that, if execution or other process issued on such a decree or order of any court in favour of a creditor of the company would be returned unsatisfied in whole or in part, then under such circumstances, the company would be deemed to be unable to pay its debts. We are, however, not concerned with such a situation and we are not called upon to decide the said question.

56. To my mind, there is hardly any conflict in this regard between the Companies Act, 1956, in respect of the winding-up petition, and, the Arbitration Act, 1940, in relation to the award made therein. Far from disputing the. award in any manner, the winding-up court, prima facie, supports the award and, unless anything is shown to the contrary, would proceed to consider the claim involved in the award from the prima facie point of view treating the award as a piece of evidence before it, evidencing the prima facie indebtedness of the company in favour of its creditor in whose favour the award, has been made. But even at that stage, it is open to the company to contend that such an award, in effect, is liable to be set aside if the matter is allowed to be proceeded with in accordance with the provisions of the Arbitration Act. If the court is prima facie satisfied that such contention of the company, from the materials placed before it, is bona fide, the court in disposing of the winding-up petition might be satisfied that a bona fide dispute has been raised by the company and on that basis might pass such order as the court might think proper depending on the facts and circumstances of each case. Under such circumstances, the court while considering such a petition for winding up based On an unfiled award, does not consider the same in enforcement of the award but from the point of view of the prima facie liability of the company and its inability to pay up to the creditor or creditors, as the case may be. The court thereby does not go to decide the existence or effect or the validity of the said award or of the arbitration agreement nor proceeds in enforcement thereof for setting aside or for the purpose of amending or modifying or in any way affecting such award. Thereby, the court merely takes a prima facie view of the matter and nothing more.

57. I shall now deal with the conduct of the parties. It appears that in spite of the Appeal Court's order dated January 18, 1977, passed by A. N. Sen J. (now the Chief Justice) and Basak J. giving leave to proceed with the application for setting aside the award pending before the City Civil Court, the appellant chose not to proceed therewith. The said order dated January 18, 1977, which has been included in the supplementary paper book filed herein with the leave of the court, inter alia, provides :

' It is, however, made clear that the interim order will not prevent the petitioning creditor from obtaining judgment on the award passed in favour of the petitioning-creditor or from taking further steps for realisation of the amount pursuant to the said judgment if and when the same is obtained...'

58. The appellant, it appears, obtained an ex parte order on July 25, 1977, from the Chief Judge, City Civil Court at Calcutta in Miscellaneous Case No. 728 of 1976 in Dalhousie Jute Mills v. Mulchand Lakshmi Chand, and obtained an order staying further proceedings in the said case pending disposal of this appeal and thereby prevented the petitioning-creditor and the award-holder in obtaining judgment upon award and a decree thereon in the said award matter. The appellant in its petition for stay of the said miscellaneous case, inter alia, pleaded that the matter in issue and/or in question in the said arbitration case was also directly and substantially in issue in the said company petition pending before the appeal court. It was further pleaded that if the said award case was proceeded with, there was likelihood of there being a conflict of decisions over the same issue which was the subject-matter in controversy by and between the same parties. It is quite evident from the aforesaid that the appellant did not want that the grounds made out in the application for setting aside the award should be considered by the winding-up court but at the same time, the appellant did not want the City Civil Court to go into the said application for setting aside the award. Moreover, the judgment of the court below which has been delivered on September 9, 1976, proceeded on the basis that the award has not been filed. The learned judge was not told about the correct position that the award was actually filed before the affidavit-in-opposition to the winding-up petition was affirmed. It would appear from para. 6 of the affidavit-in-opposition of Tarun Tapan Sinha affirmed on May 20, 1976, wherein it was stated :

' The purported award, being Award No. 128 of 1975 is bad and liable to be set aside. At the instance of the company the said award has been filed in the City Civil Court which is the appropriate court so far as the said purported award is concerned. No notice under section 14(2) of the Arbitration Act has so far been issued by the said court. The time to apply for setting aside the said award has not expired as yet. The company is taking appropriate steps to apply for setting aside the said award.'

59. In spite thereof, the appellant in the grounds Nos. 9 and 11 of the grounds of appeal stated that the said award not having been filed, the appellant was not able to assail the same making an application for setting aside the said purported award under Section 30 of the said Act. The learned judge was misled and proceeded on the basis that the appellant-company did not take any step to get the said award filed.

60. In my opinion, the conduct of the appellant, as disclosed hereinabove, would clearly show that the company has no intention to proceed with the application for setting aside the said award, but the company at the same time intends that the point raised herein be decided first so that the court might hold that the company cannot be deemed to be unable to pay its debts in connection with the said award until judgment and a decree would be passed thereon in accordance therewith.

61. For the reasons as stated above, the appellant has failed to satisfy this court about the same and the court accordingly is bound to hold that the company is unable to pay its debts and the order of the learned judge of the court below should be upheld. That being the position, the appeal is bound to be and is hereby dismissed with costs.

Basak, J.

62. I agree.


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