Pawan Khaitan vs Rahul Commerce Private Limited

Ashim Kumar Banerjee, J.—This appeal would raise a short but interesting question as to whether a creditor by virtue of a decree obtained from a civil Court could apply for winding up of its judgment debtor without availing the process of execution. The learned Single Judge held, since the process of winding up was essentially discretionary in nature the creditor should approach the executing Court for execution of the decree. Being aggrieved, the creditor approached us by filing the appeal that we heard on the above mentioned date.

Mr. Prantik Garai learned Counsel appearing in support of the appeal would submit, the process of winding up was recognized as an equitable mode of execution as observed by the Apex Court in the case of Harinagar Sugar Mills Ltd. Vs. M.W. Pradhan, AIR 1966 SC 1707 : (1966) 36 CompCas 426 : (1966) 60 ITR 508 : (1966) 3 SCR 948 , the learned Judge should not have declined to admit the winding up petition.

Per contra, Mr. Rudraman Bhattacharya learned Counsel appearing for the respondent would rely upon the decision in the case of Manilal Lalubhai and Another Vs. The Bharat Spinning and Weaving Company Limited reported in Volume-LVIII Indian Law Reports Page-162 and contend, the decree holder must follow the procedural law. Once the Code of Civil Procedure would elaborately suggest the process of execution under Order XXI, the decree holder must follow the said process. Winding up was not appropriate remedy and in any event, the same being a discretionary relief, the learned Judge was right in declining to admit the winding up petition. The appeal was not maintainable and liable to be dismissed.

In the case of United Bank of India Vs. Satyawati Tondon and Others, AIR 2010 SC 3413 : (2010) 3 BC 495 : (2010) 3 CompLJ 585 : (2010) 7 SCALE 696 : (2010) 8 SCC 110 : (2010) 9 SCR 1 : (2010) 9 UJ 4395 : (2010) AIRSCW 7049 : (2010) AIRSCW 5267 , the Apex Court, while dealing with a case under SARFESI Act, held, the Bank, without making effort for recovery of dues from the borrower, could not have initiated action again the guarantor.

We have considered the rival contentions. Before we go into merits, we would first examine the provision of law. To realize a decreetal claim; one has to adopt the process of execution however, if the decree holder feels, the Company is insolvent and unable to pay its debts, it can very well apply for its winding up. The process of winding up could not be used as a tool for debt collection; it is not a debt collecting Court. The Apex Court however, distinguished this view in the case of Harinagar Sugar Mills (supra), the Apex Court observed, a creditor has an option either to execute the decree or pray for winding up as such proceeding was nothing but "equitable mode of execution." Our Court, in a Single Bench decision in the case of Unique Cardboard Box Mfg. Company Private Limited reported in Volume-48 Company Cases Page-599, while entertaining an application for winding up at the instance of the decree holder, referred to Harinagar Sugar Mills (supra) and held, the petition was maintainable.

In the case of Vinayak Oil and Fats Private Ltd. Vs. Andre (Cayman Islands) Trading Co. Ltd., (2005) 2 ARBLR 551 : (2004) 3 CALLT 380 : (2005) 2 CHN 29 : 108 CWN 995 : (2005) 64 SCL 277 , one of us (Banerjee, J) sitting singly, discussed the basic concept of a winding up proceeding at the instance of the creditor. Paragraph 7 being relevant herein is quoted below:

"BASIC CONCEPT OF A WINDING UP PROCEEDING BROUGHT BY A CREDITOR:

Under section 433 a creditor can bring an action under sub-section (e) provided he has just debt payable by the company and the company failed and neglected to pay and/or secured such claim despite statutory notice of demand. Hence, if an action is brought by a creditor for winding up of a company on account of non-payment of debt and defence is taken by the company the court is only to prima facie examine the defence of the company and if the court feels that the said defence is bona fide and there is even a possibility of success in case the dispute is relegated to a regular trial winding up is refused. Whether the defence can be sustained or not the winding up court is only to examine the same prima facie. Neither the winding up court is competent to finally adjudicate the rights of the parties on account of the claim nor it has authority in law. If a creditor has a claim against a debtor the law has prescribed its remedy. Those remedies are complete code by themselves. Merely because the debtor is a corporate entity the creditor cannot enforce his debt as a matter of a right in a winding up proceeding. It can only ask for winding up of the debtor and he becomes successful if the defence taken by the company, according to the court, prima facie not sustainable."

Learned Company Judge did not dispute such proposition. His Lordship was of the view, since the creditor could avail the remedy of execution, the Court should not exercise its discretion to admit the winding up proceeding.

It is well-settled; the status of the creditor was not qualified in the corporate law restricting his right to maintain the winding up proceeding on a decreetal claim. His Lordship however, did not indicate as to why the discretion was not being exercised.

Once the Court was within its discretion to grant or not to grant a relief, the Court must assign reason why it would decline to use its discretion in the positive way. In the present case, learned Judge did not do so. We enquired from Mr. Bhattacharya as whether there was any appeal from the decree, he could not answer in the affirmative. Once the creditor gets a decree from a competent Court of law and the decree would remain unchallenged, it was a good piece of evidence for a creditor to show, the presumption of insolvency was apparent. Since the decreetal claim in the present case is a good piece of evidence the creditor being the decree holder in the present case would be entitled to the presumption of insolvency. Up till now we did not find any plausible bona fide dispute that the respondent Company could take to resist the winding up proceeding on merit. Following the Harinagar Sugar Mills (supra) and Unique Cardboard Box Mfg. Company (supra) we feel, learned Judge was not correct in refusing to admit the winding up petition. In the case of Manilal Lalubhai (supra), the parties had several transactions. The dispute arising between the parties were referred to arbitration that culminated in an award. The award was put to execution. The plea was taken, the process of execution could not be had in case of an award published by the arbitral Tribunal. In this backdrop, the Court held, the Civil Procedure Code was a complete code for enforcement of decree. Order XXI prescribed all the modes of execution. We do not find any relevance of this decision in the present scenario. In our view, learned Judge should have admitted the winding up petition in case the Company would fail to resist the same by raising any plausible dispute on merit. To expedite the process, we repeatedly enquired from Mr. Bhattacharya whether they would have any dispute on merit, he could not answer. Merely because it was a decreetal claim per se learned Judge could not refuse to entertain the winding up petition. When there was any discretion left to the Court, the Court would have onerous duty to discharge by exercising and/or not exercising discretion judiciously. We are not able to put our seal of approval to what the learned Judge had observed in the judgment and order impugned.

The appeal succeeds and is allowed. The winding up petition is admitted for Rs. 3, 10,475 along with interest at the rate 10% per annum on and from the date when the suit was filed until realization.

We permit the Company to pay off the dues in six equal monthly installments commencing from May 7, 2015 and thereafter on the seventh day of its succeeding month. The Company would, however, be at liberty to calculate the interest on the reducing balance and pay the same as and by way of seventh installment.

In default of payment of any one installment, the winding up petition would stand admitted for the defaulted sum along with interest and the appellant would be at liberty to proceed in winding up by making necessary advertisement in terms of the direction of the learned Company Judge to be obtained for the said purpose.

So long the dues are paid, the process of winding up would remain stayed and upon payment of the full amount along with interest, the process of winding up would remain permanently stayed.

The appeal is disposed of without any order as to costs.

Shivakant Prasad, J.

I agree.