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2016 (8) TMI 872 - KARNATAKA HIGH COURT

2016 (8) TMI 872 - KARNATAKA HIGH COURT - TMI - Winding up petition - ex-Director of the respondent company seeking winding up of the respondent company on account of the alleged failure to pay interest at 24% p.a. on the admitted liability of ₹ 75.50 lakhs due by the respondent company to the petitioner, against the loan advanced by the petitioner to the respondent company - Held that:- This Court is of the clear opinion that no ground as is set out in S. 433(e) of the Act viz., the inabi .....

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an ex-Director of the respondent company Sri Gururaja Enterprises Pvt Ltd seeking winding up of the respondent company on account of the alleged failure to pay interest at 24% p.a. on the admitted liability of ₹ 75.50 lakhs due by the respondent company to the petitioner, against the loan advanced by the petitioner to the respondent company. 2. The case set up by the petitioner in the present petition is that the petitioner Director advanced a sum of ₹ 1,41,00,000/- to the responden .....

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, the balance sum of ₹ 75.50 lakhs remained outstanding which was duly reflected in the books of account of the respondent company and despite service of legal notice under S. 434 of the Act by the petitioner vide Annexure G dated 20.9.2013 calling upon the respondent company to pay the balance amount of ₹ 75.50 lakhs along with interest at the rate of 24% p.a., the outstanding dues were not cleared by the company and the company therefore, deserves to be wound up under S. 433 (e) re .....

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ctual matrix of the matter. Our client is a company incorporated under the provision of Companies Act, 1956. Your client was one of the Directors of our client. Your client without any reason unnecessarily used to initiate proceedings before the various courts/forum. All the proceedings initiated by your clients were baseless, misconceived and abuse of process of law. Your client filed a Company Petition No. 494/2008 before the Hon'ble Company Law Board at Chennai against our client and othe .....

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er viz., Andhra Bank initiated the proceedings under SARFAESI Act, against our client. Non co-operation from your client with the Company, indifferent approach towards our client, putting spokes in day-to-day affairs of our client by your client were the reasons for financial problems of our client and ultimately this lead to initiation of recovery proceedings by M/s. Andhra Bank. Your client deliberately was not allowing to hold lawful meetings of our client to deprive our client from carrying .....

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the parties, the Hon'ble Company Law Board passed an order dated 5.5.2009 in CA 13/2009 directing your client to cooperate with Director of our client to reopen the North Block premises. With an intention to overcome order dated 5.5.2009 passed in CA 13/2009 and to deprive our client from opening the North Block, your client illegally took away keys of the North Block from the custody of our client, handed over the keys of North Block to one M/s. Cimec Enterprises and set up M/s. Cimec Enter .....

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h cots, confirming order dated 30.7.2009 passed by the Hon'ble Company Law Board in Company Petition 494/2008. Our client instructs us to state that your client is the reason for depriving our client from running the hotel business in North Block premises. Your client's action of committing illegalities further continued. Your client with an ulterior motive created documents against the interest of the company and also misused seal of the Company against the interest of our client. To de .....

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s instituted a suit in OS 6942/2011 seeking recovery of ₹ 2,33,17,790/- (Rupees two crores thirty three lakh seventeen thousand seven hundred ninety only) against your client and M/s. Cimec Enterprises who was set up by your client. Our client further instructs us to state that your client and your client HUF i.e., M/s. Sudarshan Silks is illegally occupying a portion of the premises belonging to our client and our client has initiated appropriate proceedings against M/s. Sudarshan Silks t .....

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s, illegal and misconceived. Our client instructs us to state that, it is not liable to pay any amount to your client much less the amount demanded in your legal notice. Our client further instructs us to state that as your client acted against the interest of the Company, misused the position of director of the company, did not adhere to the orders passed by the competent forum and did not allow the company to carry on its business in the north block premises, your client is not entitled for am .....

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lea on behalf of the respondent that there is a possibility of settlement if there is a concession shown by the petitioner, therefore, the matter was referred to the Mediation Centre at Bangalore. However, on 27.11.2015, it was recorded that the mediation talks have failed but the respondent company expressed its readiness and willingness to pay the amount claimed in the statutory notice on installment basis and a sum of ₹ 10,50,000/- was thus assured to be paid on the next date of hearing .....

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g part of the debt, viz., the interest claimed by the petitioner at the rate of 24% p.a. and on account of the failure to pay the interest part of the debt of the petitioner, the company petition deserves to be admitted now and advertised, in accordance with the rules. She has relied upon the judgment of the Delhi High Court in the case of Devendra Kumar Jain v. Polar Forgings & Tools Ltd. [1995] 84 Comp. Cas. 766 and also the Hon'ble Supreme Court decision in the case of Vijay Industrie .....

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ny and has instituted a large number of cases against the respondent company and has caused loss and damage to the company and has prevented it from peacefully carrying on its hotel business and he not only set up a firm to institute an eviction case against the respondent company but also filed petition under S. 397 and 398 of the Companies Act for alleged oppression and mismanagement by the majority against him as a minority shareholder before the Company Law Board. He also submitted that the .....

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it viz., OS No. 6942/2011 Sri. Gururaja Enterprises (P.) Ltd. v. Cimec Enterprises including the present petitioner J S Srinivasa as the 6th defendant for claiming damages for the sum of ₹ 2.33 crores against the defendants including the present petitioner and that suit is still pending trial in the competent civil court. 6. Learned counsel for the respondent company also submitted that in any case, in the absence of any written agreement to pay the interest on the said claim of ₹ 75 .....

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ompany law Board vide Annexure R7 in which, when a cheque for ₹ 2.50 lakhs dated 18.6.2011 was offered to the petitioner in part repayment of his loan, but he did not encash the same and on the contrary, raised it as a ground of oppression against the respondent company. Learned counsel for respondent company, therefore, urged that even if the liability of interest could be assumed against the petitioner, while denying the same, such a liability ceased after the said date of 18.6.2011 when .....

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nding up order. Lastly, he urged that the respondent company is a going concern and profitable company and therefore, the substratum of the company has not been lost and winding up proceedings not being a money recovery proceeding akin to a civil suit filed for such purpose, as such the liability of interest cannot be determined and directed to be paid by this Court and such payment made by the respondent company to buy peace during the pendency of this winding up petition in the face of the ear .....

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he Hon'ble Supreme Court in the case of IBA Health (India) (P.) Ltd. v. Info-Drive Systems Sdn, Bhd [2010] 104 SCL 367 wherein in para 25, the Hon'ble Supreme Court laid down that an examination of the company's solvency may be a useful aid in determining whether the refusal to pay the debt is a result of bonafide dispute as to the liability or whether it reflects the inability to pay. 8. I have heard the learned counsel at length and perused the record and judgments cited at the Bar .....

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ute about the debt claimed to be due to the petitioner creditor, the court should refuse to exercise this wide jurisdiction which can result in the death of a juristic person viz., a limited company. The case laws on this proposition are umpteen in number and one need not multiply such authorities except by making a brief reference to para 25 of the recent judgment in the case of IBA Health (India) (P.) Ltd. (supra) referred by the learned counsel for respondent, which would be enough to support .....

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g, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterized as a stand alone ground." 10. A learned Single Judge of this Court (Hon'ble R V Raveendran, J as His Lordship then was) in .....

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r, by wrongfully withholding the money. These provisions are invoked only when there is no contract to pay interest. Thus a claim for interest based on S. 61(2)(a) of the Sale of Goods Act or under S. 3 of the Interest Act. Nor can this Court hold that non-payment of such interest granted and computed in winding up proceedings amounts to inability to pay a 'debt'. Let me consider whether non-payment of interest by the respondent, in this case, amounts to inability to pay its debts. The c .....

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r dated July 10, 1997, by saying that "I will be constrained to charge you interest for the delayed payment', thereby making it clear that there was no earlier agreement for payment of interest. If that is so, the demand for interest is not in pursuance of any contract or agreement. There is no admission by the respondent to pay interest. On the other hand, the respondent has denied its liability to pay interest. Interest cannot be claimed or awarded under S. 62(1)(a) of the Sale of goo .....

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the Sale of Goods Act and/or S. 3 of the Interest Act, I am satisfied that the petitioner has not made out any admitted or undisputed liability to pay interest, in these proceedings. Having regard to the fact that the respondent has paid the entire principal amount during the pendency of this petition and thereby established its financial and commercial solvency and in view of the bonafide dispute regarding interest, there is no liability to pay any debt and consequently this petition for windin .....

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multiply the litigation and therefore, the company court sitting in a winding up proceeding can determine such interest amount and direct the payment thereof. The relevant portion of judgment of the Delhi High Court is quoted below for ready reference: "(6) The question to be determined is, whether in absence of specific contract for payment of interest even where the price of the goods is not paid admittedly by the due date, can the liability to pay interest and rate thereof be adjudicated .....

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t cited any decision of this Court. In my opinion, it is the duty of the court to adopt that approach which would result in avoiding multiplicity of litigation. When the Company Court is seized of the matter and liability to pay the principal amount is not only admitted by the company but that amount is in fact paid in the winding up proceedings so as to avoid an order for the winding up, the Company Court will be fully competent to determine whether the creditor is also entitled to interest and .....

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ned by the company court in exercise of the power under the provisions of the Sale of Goods Act or on the principles underlying the said provisions. Learned counsel for the Company relies upon a decision of Allahabad High Court in Ultimate Advertising and Marketing v. G.B. Laboratories Ltd., 66, Company Cases Page 232 holding that the winding up court could not investigate into the question of rate and quantum of interest and unless it was established that the amount claimed was either agreed up .....

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e price of the goods was payable have also been specified. The rest is a matter of mathematical calculation and the petition for winding up cannot be dismissed on the ground that mathematical calculation as to the amount of interest have not been stated. The exact amount of interest payable is likely to change depending upon the time when the payment of the principal amount is made. The court in its discretion, on consideration of all the facts and circumstances of the case and the financial mar .....

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om the date on which the price was payable to the seller. Unlike the facts of the cited decision the petitioner has been writing to the company that in case the outstanding balance is not released the petitioner will be constrained to charge overdue interest at 18% p.a. from the due dates of payment till realisation. With utmost respect, I am unable to concur with the opinion expressed by learned single Judge in the cited decision to the effect that winding up court cannot investigate into a que .....

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ct that the forum of the Company Judge is the appropriate forum for determining as to whether the creditor is entitled to interest where the company admits its liability and, in fact, pays the amount." 12. The aforesaid judgment of the Delhi High Court is not only distinguishable on facts where a case of inability to pay the company was established on the basis of supply of certain goods by the petitioner and invoices raised against the respondent company and taking resort to S. 61(2) of th .....

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ore, for such unascertained liability of interest for which there exists admittedly no specific contract, the winding up proceedings is not only the least suited but an absolutely ill-suited remedy, in the considered opinion of this Court. Since the principal loan itself has been disputed and denied by the respondent company in the present case, the mere fact that it had to pay the same under the threat of winding up petition being pending in this Court, does not convert an un-admitted and dispu .....

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dent company itself, in a matter arising against transfer of shares under S. 111 of the Companies Act, dismissed the said company application of the present petitioner with costs of ₹ 6,000/- with the following observations: "There is a great distinction between the first appellant being a member of company and having locus to maintain a petition for rectification within the scope of S. 111 of the Act and the first appellant being entitled to challenge the legality of the claim for ow .....

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oard within the scope of a petition under S. 111 of the Act and the Company Law Board has rightly dismissed such a petition and even assuming that it had ventured into make certain observations not really necessary, the conclusion being a proper conclusion, we are not inclined to disturb the order of the Company Law Board and accordingly this appeal is dismissed at the admission stage and as we had issued notices to the respondents and certain respondents are represented by counsel, the appeal i .....

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