Rashid Leathers (P.) Ltd. vs Super Fine Skin Traders

Srinivasan

These two appeals arise out of a petition for winding up filed u/s 433(e) of the Companies Act. The appellant in OSA No. 116 of 19987 was

the respondent in Company Petition No. 87 of 1985 and the appellant in OSA No. 174 of 1987 was the petitioner in the company petition. The

parties will be referred to hereinafter by their rank in the company petition.

It is not a matter in dispute that the petitioner supplied skins of sheep and goats to the respondent from January, 1981, to July, 1982, under 17

bills marked as exhibits P-2 to P-18. There was no time limit fixed for payment of the price of the goods, nor was there any agreement to pay

interest on delayed payments. It is admitted that a sum of Rs. 1,24,752.88 was due to the petitioner, and it was making demands on the

respondent to pay the same. It issued a notice through a lawyer on December 8, 1982, and the notice is marked as exhibit P- 45. In that notice, it

had but only demanded the payment of the principal, but also the payment of interest at the rate of 18 per cent per annum. There was no reply to

the notice by the respondent. Thereafter, there was correspondence between the parties. On the one hand, the petitioner was demanding payment

of money due to it ; and on the other, the respondent was repeatedly assuring the petitioner that it will settle the accounts shortly. Ultimate, a

telegram was sent by the petitioner on NOvember 1, 1985, demanding payment of principal and interest. Finding that it did not produce the

desired result, the petitioner filed the company petition as stated above for winding-up the respondent company.

The respondent, while admitting that the principal amount was due, was raising a dispute with regard to its liability to pay interest thereon. During

the tendency of the petition, the respondent made payments as follows:

Rs.

7 - 1 - 1986 10,000

6 - 2 - 1986 10,000

19 - 2 - 1986 30,000

19 - 2 - 1986 20,000

2 - 2 - 1987 20,000

17 - 2 - 1987 20,000

Finally, it paid the balance due on April 29, 1987.

At the time when the petition was heard by the company court, the respondent contended that the liability to pay interest was in dispute and,

therefore, it fell outside the purview of section 433 of the Companies Act. The contention on behalf of the petitioner was that the matter of interest

was also covered by the provisions of section 433 of the Companies Act as the liability to pay the principal amount was not in dispute ; and the

demand for interest had been made long prior to the filling of the petition.

The learned judge accepted the contention of the petitioner and relying upon the decision of the Punjab and Haryana High Court in Stephen

Chemical Ltd. v. Innosearch Ltd. [1986] 60 Comp Cas 702 held that the matter of interest fell within the scope of the company petition. With

regard to the rate of interest, the learned judge directed the respondent to pay interest at the rate of 9 per cent per annum on the principal amount

and granted three month time to the respondent to pay the same. The learned judge directed the petition to be called on July 29, 1987.

The petitioner has filed OSA No. 174 of 1987 contending that it will be entitled to interest at the rate of 18per cent. annum as claimed by it in

the notice dated December 8, 1982. The respondent has filed OSA No. 116 of 1987 contending that it is not liable to pay any interest and, in any

event, the question of liability to pay interest cannot be gone into in the proceedings for winding up.

Learned counsel for the petitioner referred to the decision of the Punjab and Haryana High Court in Stephen Chemical Ltd. v. Innosearch Ltd.

[1986] 60 Comp Cas 702 and in Delhi Cloth and General Mills Co. Ltd. v. Stephen Chemical Ltd. [1986 60 comp Cas 1046. The proposition

laid down in both the cases is that the question of payment of interest is a matter to be considered by the company court in the winding up

proceedings and the creditor cannot be permitted to file a civil suit with regard to payment of interest alone. It is useful to refer to the following

passage in the judgment in Stephen Chemical Ltd. v. Innosearch Ltd. [1986] 60 Comp Cas 702:

In our opinion, where the company judge was seized of the matter, and when the liability to pay the principal debt had not been disputed by the

company sought to be wound up and, in fact, paid up the debt in order to avoid winding up, the forum of the company judge is the appropriate

forum for determining as to whether the creditor was entitled to interest on the amount in question or not. The basic policy of law is to avoid

multiplicity of litigation.

Learned counsel for the appellant also referred us to the order of Goyal J. in Unisystems (P.) Ltd. v. Stephen Chemical Ltd. [1985] 58 Comp Ca.

875 wherein Goyal had observed that where no agreement for the payment of interest existed, and the creditor had claimed interest, no winding-up

order could be passed.

With respect, if the said observations are intended to cover cases of the present kind, we find ourselves unable to concur with that view. The said

observations may be correctly applicable to a case where winding up initially is sought by a party on the ground that a certain amount by way of

interest due to one from the other party which the other party had failed to pay up despite demand notice, and the other party raises a bona fide

dispute as to right of the creditor to claim interest in the absence of any agreement regarding payment of interest or any other plausible ground, but

the position would be entirely different where the amount alleged to be due from the company sought to be wound up included the principal

amount of debt and the liability to the principal amount has been accepted before the company judge ; and the creditor is sought to be relegated to

a civil remedy for getting the interest on the said principal amount.

We are entirely in agreement with the proposition set out above.

Learned counsel draws our attention to the provisions of section 2(b) and section 3(1)(b) of the interest Act, 1978. Section 2(b) of the Interest

Act defines ""current rate of interest"" as the highest of the maximum rates at which interest may be paid on different classes of deposits (other than

those maintained by charitable or religious institutions ) by different classes of scheduled banks in accordance with the directions given or issued to

banking companies generally by the Reserve Bank of India under the Banking Regulation Act, 1949.

Section 3(1)(b) provides that if the proceedings in a court do not relate to any debt discharged by virtue of a written instrument, then interest is

to be awarded from the date mentioned in this regard in a written notice give buy the person entitled or the person making the claim to the person

liable that interest will be claimed, to the date of institution of the proceedings.

It is argued by learned counsel for the petitioner that the rate of interest payable on deposits by scheduled banks is 15 per cent. We do not find

any record in support of the submission made by learned counsel for the petitioner. To our knowledge,the maximum rate of interest payable on

deposits by scheduled banks does not exceed 12 per cent. per annum. Learned counsel also relies on section 34, civil Procedure Code. The

relevant portion of section 34 is found in the proviso t the section which reads as follows :

Provided that where the liability in relation to the sum so adjudged has arisen our of a commercial transaction, the rate of such further interest may

exceed six per cent, per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys

are lent or advanced by nationalised banks in relation to commercial transactions.

It is, therefore, submitted by learned counsel for the petitioner that interest could be awarded at the rate prescribed by the CPC after the date

of the filling of the petition till the date of payment.

As against this, learned counsel for the respondent relies upon the decision of the Karnataka High Court in Southern Industrial Polymers (P.)

Ltd. v. Amar Formulators and Electronics (P) Ltd. [1984] 56 Comp Cas 77. In that case, the respondent therein had certain transactions with the

petitioner-Company ; and in respect of those transactions, the respondent-company was due and payable to the petitioner a sum of Rs.

2,69,308.38 as on march 31, 1981. When the petition for winding-up was filed on September 10, 1981 the claim was raised to Rs.3,16072.37

should be paid by the respondent to the petitioner-company by instalments as mentioned in the joint memo of agreement. In terms of the joint

memo, the petitioners had also agreed to withdraw the company petition. However, the memo of agreement was not acted upon strictly in terms

thereof. On April 12, 1982, the respondent paid a sum of Rs. 40,000 in court and on June 2, 1982, it had paid rs. 15,390.64 and a further sum of

Rs. 17,064.75 was paid on Jump 18, 1982, With the last payment mentioned, it was submitted that the entire claim against the company had been

satisfied except the interest claimed at 20% though interest has been worked out at 12% and paid. In that situation, the karnataka High Court

made the following observations (at page 78) :

But all outstanding claims except the amount arising out of the difference in the rate of interest calculated is outstanding. In may view, the scope of

an inquiry u/s 433 cannot be extended o an enforcement of the memorandum of an agreement entered into during the tendency of the proceedings.

The payment made by the respondent- company is clearly indicative that the respondent-company is commercially solvent. Therefore, an exercise

of the jurisdiction u/s 433 of the Act, admitting the petition merely because the rate of interest agreed to between the parties in regard to the

transactions is disputed, would be unjust.

The Karnataka High Court has not laid down any proposition of law that whenever a dispute is raised by the respondent as regards payment

of interest. that would fall outside the scope of section 433. On the facts of that case, the court found that the petitioner in the company petition

was trying to enforce a memorandum of agreement which was entered into after the filing of the petition. That could not be done.

The decision in the above case will not help the respondent herein to contend that the claim for interest cannot be made in these proceedings.

Learned counsel for the respondent relied upon a decision of the Supreme Court in Union of India (UOI) Vs. Watkins Mayor and Co., . In

that case, it was held that interest may be awarded for the period prior to the date of the suit when there is an agreement for the payment of interest

at a fixed rate or when interest is payable by the usage of trade having the force of law, or under the provisions of any substantive law : as for

instance, u/s 80 of the Negotiable Instruments Act, 1881, when no rate of interest is specified in the promissory note or bill of exchange, and the

court may award interest at the rate f 6 per cent per annum.

The above decision was rendered long prior to the amendment of the CPC in 1976. That case does not help the respondent to contend that it

has no liability to pay interest. If at all, it could rely on that decision only for the purpose of contending that the rate of interest should be fixed at 6

per cent. In view of the law as it then existed, the Supreme Court held that the rate of interest should be 6 per cent. The law has since changed.

Learned counsel for the respondent has cited another decision of the Supreme Court in Hirachand Kothari v. State of Rajasthan. AIR 1985

SC 998. In that case, the Supreme Court had to consider the powers of court to award interest on equitable grounds on the compensation

awarded. The court held that interest should be awarded on the compensation granted from the date of dispossession till the date of judgment of

the trial court at 6 per cent. and, thereafter, at 9 per cent. till realisation. We do not see how this decision will help the respondent.

In this case, admittedly, the mount due was out of the transactions of sale of goods. Goods were supplied to the respondent and price was due

from the respondent u/s 61 of the Sale of Goods Act, the court is empowered to award interest at such rate as it thinks fit on the amount of the

price to the seller from the date of the tender of the goods or from the date on which the price was payable.

Apart from the provisions of the Sale of Goods Act, 1930, the Interest Act, 1978, and the Civil Procedure Code, 1908, provided for payment

of interest in this case ; it cannot be said that there is a bona fide dispute with regard to payment of interest. The liability to pay the principal was

never in dispute. The claim for interest was ade for the first time on December 8, 1982, byt a lawyer''s notice. Admittedly, the respondent did not

send any reply to that notice. Thereafter, the petitioner has been repeatedly making demands for interest as well as the principal by several letters.

In all the replies sent by the respondent, it had been assuring thepetitioner that it would settle the claim. It had never demurred that it was not liable

to pay interest on the amount due. For the first time, the respondent raised the contention in the proceedings before the companya court that it was

not liable to pay interest. If a dispute is raised just for the purpose of evading payment and elaying the proceedings, it cannot be considered to be a

bona fide dispute. Unless there is a bona fide dispute with regard to the liability to pay the amount, the company court was entitled to consider the

matter u/s 433. In that view,we hold that the conclusion of the learned judge that the respondent islaable to pay interest and that that is a matter

which has to be gone into in these proceedings, is correct.

With regard to the rate of interest, we think that it isjust and equitable in this case to award 12 per cent. per annum. The petitioner will be

entitled to interest at the unifornm rate of 12 per cent. per annum from Decmber 8, 1982, till the date ofpayment.

22.It is contended by learned counsel for the petitioner that the rate of interest should be fixed at 18 per cent. per annum ; and it should be payavle

from the date which was mentioned in the notice dated December 8, 1982, issued by its lawyer to the respondent. As we have pointed out

already, there isno material on record to show that the prevailing rate of interest payable on bank deposits is 18 per cent. per annum. while the

interest Act refers to the interest payable on deposits in scheduled banks, the CPC refers to the rate of interest charged by banks on loans

advanced. This is not a proceeding for winding up the company. In the exercise of our equitable jurisdiction, we are directing the respondent-

company topay to thepetitioner the amount due with interest thereon in orderto avoid winding-up of the company. Hence , we consider that the

interests of justice require fixation of rate ofinterest at 12 per cent. per annum as stated above.

Learned counsel for the respondent contendedthat the court should not fix more than 6 per can. He relied upon the decision of the Supreme

Court in Hirachand Kothari v. State of Rajasthan, AIR 1985 SC 998 in support of that proportion, WE have already referred to that decision and

we find that that decision does to lay down any principle oflaw that interest granted by the court should not exceed 6 per cent. per annum. Hence,

we reject this contention advanced on behalf of the respondent.

The payments made by the respondent on the various dates will be given credit on the respective dates ; and on the balance due on those

dates, interest will be calculated. The parties are directed to file a calculation memo before the company court. The respondent will have four

month''s tome from this date to pay the amount. It shall pay the entire amount on or before the expire of four months. The company petition will be

called before the company court on June 13, 1988.

OSA NO. 174 of 1987 is allowed to the extent indicated above. OSA NO. 116 of 1987 is dismissed. There will be no order as to costs.