Seethai Mills Ltd. vs N. Perumalsamy and Another

Ismail, J.—This is an appeal against the order of Ramaprasada Rao J., as he then was, dated 6th October, 1977, made in Company Petition

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.

The facts are not in controversy. The first respondent herein obtained a decree in the City Civil Court, Madras, against the appellant herein in 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 Ex.

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 u/s 434(1)(b) of the Act and not u/s 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 u/s 434(1)(a) of the Act, that he was not constrained to proceed only u/s 434(1)(b) and that consequently the

company petition filed by the first respondent u/s 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.

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(e)]. 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 :

(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 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.

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 u/s 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 u/s 434(1)(a) of the Act.

It is true that Section 434(1)(a) deals with the case of a creditor to whom the company is indebted in a sum of 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 u/s 434(1)(a) and he has to confine his remedy only u/s 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 afterwards, but that does not in any way destroy his character as a creditor or the character

of 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 u/s

434(1)(a) is that there must be a creditor and to that creditor the company must be indebted in a sum exceeding Rs. 600 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 between Section 434(1)(a) and 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

u/s 434(1)(a)if the other requirements of that provision are satisfied.

Our attention was drawn to the decision of a single Judge of the Delhi High Court in Madhuban Pvt. Ltd. v. Narain Dass 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 (p. 692) :

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.

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.