Equivalent Citation: [2005]127CompCas66(AP), [2006]68SCL353(AP)
IN THE HIGH COURT OF ANDHRA PRADESH
Company Petition No. 116 of 2004
Decided On: 20.04.2005

Appellants: K.C.P. Ltd.
Vs.
Respondent: Prudential Sugar Corporation Ltd.

Hon'ble Judges:
S. Ananda Reddy, J.

Counsels:
For Appellant/Petitioner/Plaintiff: L. Ravichander, Adv.

For Respondents/Defendant: Milind G. Gokhale, Adv.

Subject: Company

Acts/Rules/Orders:
Companies Act, 1956 - 433, 434, 434(1)and 439(1); Sale of Goods Act, 1930 - Section 2(8); Insolvency Act; Indian Contract Act - Section 73; Central Act, 1965 - Section 4; General Clauses Act, 1897 - Section 6; Indian Railways Act - Section 46A; Civil Procedure Code (CPC) - Sections 2(2), 96 and 100; Constitution of India - Article 136

Cases Referred:
Seethai Mills Ltd. v. N. Perumalsamy, [1980] 50 Comp Cas 422 (Mad); California Pacific Trading Corporation v. Kitply Industries Ltd., [2004] 118 Comp Cas 580 (Gauhati); Suvarn Rajaram Bandekar v. Rajaram Bandekar (Sirigao) Mines Pvt. Ltd., [1997] 88 Comp Cas 673 (Bom); Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan, [1966] 36 Comp Cas 426 (SC); PSM Spinning Ltd. v. A.P. State Financial Corporation, [1999] 98 Comp Cas 303 (AP); Bharat Overseas Bank Ltd. v. Saritha Synthetic and Industries Ltd., [2004] 120 Comp Cas 419 (AP) : [2004] 4 ALD 205; State Trading Corporation of India Ltd. v. Punjab Tanneries Ltd., [1989] 66 Comp Cas 634 (P & H); Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd., AIR 1971 SC 2600 : [1972] 42 Comp Cas 125; Pradeshiya Industrial and Investment Corporation of U.P. v. North India Petro Chemical Ltd., [1994] 79 Comp Cas 835 : [1994] 3 SCC 348; Garikapati Veeraya v. N. Subbiah Choudhry, AIR 1957 SC 540; Maria Christine De Souza Soddar v. Maria Zurna Pareira Pinto, AIR 1979 SC 1352; Union of India v. West Coast Paper Mills Ltd., [2004] 2 SCC 747; Chandi Prasad v. Jagdish Prasad, [2004] 6 ALD 75 (SC); Vallabhaneni Lakshmana Swamy v. Valluru Basavaiah, [2004] 5 ALD 807; National Conduits P. Ltd. v. S.S. Arora, [1967] 37 Comp Cas 786 : AIR 1968 SC 279; Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla, [1976] 46 Comp Cas 91 : AIR 1976 SC 565; National Research Development Corporation v. Electro Flux (P.) Ltd., [2005] 127 Comp Cas 23 (AP); Aluminium Corporation of India Ltd. v. Lakshmi Rattan Cotton Mills Co. Ltd., [1970] 40 Comp Cas 259 : 636 of 66 Comp Cas

Disposition:
Petition dismissed

JUDGMENT

S. Ananda Reddy, J.

1. This company petition is filed by the petitioner-company under Section 433(e), (f), read with Sections 434 and 439(1)(b) of the Companies Act, 1956 (for brevity "the Act"), praying the following reliefs :

(a) to appoint a provisional liquidator during the pendency of the winding up petition ;

(b) to wind up the respondent-company under the provisions of the Companies Act, 1956 ;

(c) award costs ; and

(d) pass such other order or orders as this hon'ble court deems fit and proper in the interests of justice.

2. It is stated that the petitioner is a public limited company and is carrying on the business of manufacture, among others, of sugar machinery, equipment and also in providing technology for the manufacture of sugar. The petitioner is one of the leading companies in India undertaking such projects for sugar factories in the country and abroad. It also stated that the petitioner has developed considerable reputation and has a large and versatile engineering unit at Tiruvothiyur, Chennai, employing large number of technically skilled personnel, and carrying on the business for over 63 years.

3. According to the petitioner-company, the respondent-company was incorporated as "Sugantham Sugars Limited" on December 3, 1990, under the provisions of the Act as a public limited company with its registered office in the State of Tamil Nadu. The name of the respondent-company was changed to "Mouli Sugars Limited" on December 14, 1992, and again to "Prudential Mouli Sugars Limited" on December 13, 1993, and further changed to the present name of "Prudential Sugar Corporation Limited" with effect from December 28, 1996. The registered office of the respondent-company was subsequently shifted to Prudential Nagar, Koppedu Post, Nindra Mandal, Chittoor District in Andhra Pradesh State. The authorised share capital of the respondent-company is Rs. 75,00,00,000 divided into 50,00,000 equity shares of Rs. 10 each and 50,00,000--16 per cent. cumulative redeemable preference shares of Rs. 50 each. The issued, subscribed and paid up share capital of the respondent-company is as under.

        
                  Issued                                        Subscribed           Paid up
                                                                      (Rs. )                (Rs. )

(a) 1,54,06,400 equity shares of Rs. 10 each  15,40,64,000       15,40,64,000
(b) 1,00,00,000 equity shares of Rs. 10 each 
    issued at  a premium of Rs. 10 each          10,00,00,000        2,50,00,000
(c) 26,06,400 -- 16 per cent. cum. redeemable 
    preference shares of Rs. 50 each 
   (Rs. 10 converted into equity)                     10,42,56,000       10,42,56,000
                                                                         
(d) 10,00,000 -- 16 per cent. cum. 
    redeemable preference shares of 
    Rs. 50 each                                             5,00,00,000        4,00,00,000
                                          
              Total                                              40,83,20,000      32,33,20,000

4. The main objects of the respondent-company as set out in the memorandum of association are to manufacture sugar and allied products from beetroot, sugarcane, gur molasses and other substance or produce chemicals whatsoever; to establish, erect, operate, manage and run factories for manufacture of sugar and by-products.

5. It is stated that in the process of establishing a sugar factory at Prudential Nagar, the respondent-company entered into an agreement with the petitioner-company for the supply and erection of the machinery relating to the sugar factory. The contract value of the said transaction is about Rs. 23.60 crores. The mode of payment is provided in the terms of agreement apart from the fact that the petitioner had agreed to provide deferred payment facility to the extent of Rs. 2.50 crores. In the process of execution of the contract, disputes arose between the parties. According to the petitioner, the respondent-company failed to pay the amounts that are payable under the terms of the contract, and therefore, the petitioner-company filed C. S. No. 573 of 1998 on the file of the High Court of judicature at Madras, seeking decree in a sum of Rs. 5,28,39,897.26 with further interest at 18 per cent. per annum on Rs. 2,50,00,000 from the date of decree till the date of payment. It is also stated that the respondent-company filed a suit in C. S. No. 78 of 1998 claiming an amount of Rs. 5,00,16,000 from the petitioner-company towards damages for non-performance of the contract for the supply of machinery and equipment and commissioning of the sugar factory of the respondent. It is also stated that in both the suits filed by the petitioner and the respondent companies, decrees have been passed. With reference to the suit filed by the petitioner-company, the suit was decreed as prayed for, while the suit filed by the respondent-company was decreed only for a sum of Rs. 1,02,12,676.89 with further interest at 24 per cent. on Rs. 48,72,970 from the date of the decree till the date of realization. It is further stated that both the petitioner as well as the respondent-company filed appeals against the decrees passed in the respective suits. The petitioner's appeal is numbered as O. S. A. No. 426 of 2002 in which the petitioner had obtained stay in C. M. P. No. 17693 of 2002, dated March 10, 2003, on condition of the petitioner depositing 50 per cent. of the decretal amount within a period of eight weeks and accordingly complied with the said condition. In the appeal filed by the respondent in O. S. A. No. 399 of 2002, the hon'ble High Court of Madras passed a conditional stay order in C. M. P. No. 15813 of 2002, dated November 11, 2002, directing the respondent-company herein to deposit 50 per cent. of the decretal amount within a period of twelve weeks. The respondent-company did not comply with the said order, but filed C. M. P. No. 2882 of 2003 seeking extension of time by eight weeks, which was also granted by an order dated March 10, 2003. In spite of it, the respondent-company did not comply with the said order, on the other hand filed another petition being C. M. P. No. 2579 of 2004 to waive the condition of deposit of 50 per cent. of the decretal amount, which was rejected by the hon'ble High Court of Madras on March 10, 2004. Therefore, it is stated that though a conditional stay was granted by the court, the respondent-company was unable to comply with the said order.

6. In the meanwhile, it is stated that the decree got transferred to the court of III Additional District Judge, Tirupati, for execution of the said decree as the stay granted was vacated for non-compliance with the conditions imposed. In the execution petition, it is stated that the land, buildings, plant and machinery of the sugar factory were got attached including the movable properties of the respondent-company lying in the premises of the sugar factory. In spite of it, the respondent-company was not in a position to pay the amount. It is further stated that the other financial institutions and the suppliers of sugarcane, who were also the creditors of the respondent-company have even filed applications in the execution petition objecting to the attachment of the assets of the respondent-company. Therefore, it is claimed that the non-compliance with the conditional order passed by the High Court of Madras indicates the commercial insolvency of the respondent-company, therefore, the present application seeking for an order of winding up of the respondent-company.

7. A counter affidavit is filed by the respondent-company disputing and denying the allegations made by the petitioner-company. It is stated that the present petition filed under Sections 433 and 434 of the Act is not maintainable either on the facts or in law. It is stated that the respondent-company is a solvent running company, having a turnover of Rs. 52.76 crores. The company is one of the major sugar producing companies in Andhra Pradesh and has established its name in the industry. The company, being an agriculture related industry, has been supporting nearly 6,000 farmers living in the vicinity and employing around 400 employees. It is stated that the respondent-company does not fulfil the criteria required to attract the provisions of Sections 433 and 434 of the Act, therefore, seeking an order of winding up against such a company is not only uncalled for, but also abuse of the process of law. It is also further stated that the petition filed by the petitioner-company deserves to be dismissed in limine for the reason that the claim upon which the present petition has been filed is the subject-matter of appeal in O. S. A. No. 399 of 2002 pending before the Hon'ble High Court of Madras. The decree granted by the learned single judge of the said High Court in favour of the petitioner has been challenged and the said appeal is pending, which was fixed for final disposal.

8. It is further stated that the suit filed by the petitioner-company in C. S. No. 573 of 1998 is a counter-blast to the suit filed by the respondent-company in C. S. No. 78 of 1998 wherein the respondent-company had made a claim for a sum of Rs. 5,00,16,000 on account of the losses and damages incurred by the respondent-company due to failure on the part of the petitioner-company to execute the agreement entered into between the parties. It is admitted that the petitioner-company is in the business of undertaking manufacturing and supplying of machinery, erecting and commissioning of equipments for sugar factories. But, however, the claim of the petitioner-company that it had earned reputation for its quality of work was denied. It is also stated that there is an understanding between the parties that the petitioner-company would extend the facility of deferred payment for Rs. 2.50 crores, which is evident even from the letter dated August 4, 1993, addressed by the petitioner-company to I.F.C.I., where it was intimated to the said financial institution that in case the projected cash flow does not permit repayment of the same, it will not be recovered from the respondent-company and it shall not do any act that would hamper the operations of the company and are prejudicial to the interests of the financial institutions. Further, it is stated that contrary to the said letter and understanding between the parties, the petitioner-company had come up with the present petition seeking for an order of winding up. It is stated that the present action of the petitioner-company is nothing but applying pressure tactics on the respondent-company for recovery of the alleged claim.

9. It is stated that when the respective claims of the parties are still in the adjudicatory process, which is yet to attain finality, it is not just and proper for the petitioner-company to seek winding up of the respondent-company. It is also stated that the respondent-company is a sound company having a net worth of Rs. 35,97,41,998. It has been regularly paying all its dues to all its sugarcane growers and suppliers and there is no outstanding to them. It is further stated that during the financial year 2003-04 the respondent-company had made a payment of about Rs. 32 crores to the sugarcane growers and Rs. 3 crores to the suppliers. The company has been regularly servicing the interests of the funding banks and the bank accounts are absolutely regular. In fact, none of the banks have any grievance against the respondent-company. Therefore, the company petition filed by the petitioner-company is liable to be dismissed in limine.

10. Learned counsel for the petitioner-company while reiterating the averments made in the petition sought to contend that a decree had been passed against the respondent-company and even though a conditional order has been passed by the appellate court, the said conditional order was not complied with by the respondent-company. Therefore, non-compliance with the order of the court proves the insolvency of the respondent-company. Learned counsel also admitted that the petitioner-company has already filed execution proceedings before the executing court and even got attached the movable and immovable properties of the respondent-company. But, however, the contention of counsel for the petitioner is that in spite of the execution petition being filed for recovery of the decretal amount, the present petition is maintainable and the respondent-company is liable to suffer an order of winding up. Learned counsel further contended that though the respondent-company obtained extension of time for compliance with the order, even thereafter, it failed to comply with the said order and made an application seeking modification of the conditional order, which was rejected. Therefore, non-compliance with the conditional order itself is sufficient to prove the insolvency of the respondent-company, and as such, it is liable to be wound up by an order of the court. In support of his contentions, learned counsel relied upon the following decisions :

Seethai Mills Ltd. v. N. Perumalsamy [1980] 50 Comp Cas 422 (Mad) ; California Pacific Trading Corporation v. Kitply Industries Ltd. [2004] 118 Comp Cas 580 (Gauhati); Suvarn Rajaram Bandekar v. Rajaram Bandekar (Sirigao) Mines Pvt. Ltd. [1997] 88 Comp Cas 673 (Bom); Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan [1966] 36 Comp Cas 426 (SC); PSM Spinning Ltd. v. A.P. State Financial Corporation [1999] 98 Comp Cas 303 (AP) and Bharat Overseas Bank Ltd. v. Saritha Synthetic and Industries Ltd. MANU/AP/0146/2004.

11. Learned counsel for the respondent-company on the other hand opposed the contentions of counsel for the petitioner. He contended that the proceedings under the Companies Act are not a substitute for execution and winding up proceedings cannot be resorted to for recovery of the money allegedly due. According to learned counsel, the company has been working in a sound position. It has been making payments to the parties where it is due. Reiterating the financial position and about the employees working in the respondent-company, learned counsel contended that if the respondent-company is ordered to be wound up, apart from the entire machinery would become useless, all the 400 employees working in the respondent-company and about 6,000 farmers are dependent on the respondent-company would lose their livelihood. Therefore, he contended that it is not just and proper, in the present facts and circumstances, even to admit the company petition as it would have serious repercussions on the functioning of the respondent-company as well as its relations with the financial institutions. Learned counsel also contended that though decrees were passed in the suits filed by both the petitioner and the respondent companies, further appeals are filed by both sides and the matters are yet to reach finality. He also contended that when the dispute is still continuing it is not proper and just to conclude that the liability has been fastened against the respondent-company and the respondent was unable to satisfy the alleged liability. Therefore, learned counsel sought to dismiss the company petition.

12. In support of his contentions, learned counsel for the respondent-company relied upon the following decisions :

State Trading Corporation of India Ltd. v. Punjab Tanneries Ltd. [1989] 66 Comp Cas 634 (P & H), Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd. MANU/SC/0033/1971, Pradeshiya Industrial and Investment Corporation of U. P. v. North India Petro Chemical Ltd. MANU/SC/0679/1994, Garikapati Veeraya v. N. Subbiah Choudhry MANU/SC/0008/1957, Maria Christine De Souza Soddar v. Maria Zurna Pareira Pinto, MANU/SC/0013/1978, Union of India v. West Coast Paper Mills Ltd. MANU/SC/0098/2004, Chandi Prasad v. Jagdish Prasad [2004] 6 ALD 75 (SC), Vallabhaneni Lakshmana Swamy v. Valluru Basavaiah MANU/AP/0669/2004 (LB), National Conduits P. Ltd. v. S. S. Arora MANU/SC/0026/1967, Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla MANU/SC/0050/1975 and National Research Development Corporation v. Electro Flux (P.) Ltd. [2005] 127 Comp Cas 23 (AP).

13. In reply to the contentions of the respondent's counsel, learned counsel for the petitioner referred to Section 2(8) of the Sale of Goods Act, 1930 and contended that the respondent is said to be an insolvent which ceased to pay its debts in the ordinary course of business, or cannot pay its debts as they become due, and therefore, the act of non-payment makes the respondent-company insolvent. The refusal on the part of the respondent to pay the debt is not bona fide and not for valid reasons, and therefore, in such a situation the provisions of the Insolvency Act are applicable.

14. From the above rival contentions, the issue to be considered is whether the company petition merits admission.

15. The admitted facts are that the petitioner and the respondent companies have entered into a contract, as per which the petitioner-company had to supply plant and machinery, erect and commission the same as specified under the terms of the contract. The grievance of the petitioner-company is that though it had supplied the machinery, erected and commissioned the same, the respondent-company failed to pay the amounts that are due and payable as per the terms of the contract. On the other hand, the respondent-company disputed the claim and made a counter-claim stating that in view of the failure on the part of the petitioner-company in performing its part of the contract, the respondent-company had suffered losses and damages, and therefore, it filed C. S. No. 78 of 1998 claiming a sum of Rs. 5,00,16,000 before the High Court of judicature at Madras. Similarly, the petitioner-company also filed C. S. No. 573 of 1998, which is stated to have been filed subsequent to the suit filed by the respondent-company, seeking recovery of a sum of Rs. 5,28,39,897.26. In both the suits, decrees have been passed and both the parties are aggrieved against the said judgments and decrees, and therefore, preferred appeals and the appeals filed by both the parties are pending before the Division Bench of the High Court of Madras. While the appeal filed by the respondent-company is numbered as O. S. A. No. 399 of 2002, the appeal filed by the petitioner-company is numbered as O. S. A. No. 426 of 2002. It appears, even in the suit filed by the respondent-company, which was partially decreed, an appeal in O. S. A. No. 400 of 2002 was filed claiming decree for the entire sum. The further facts disclosed that in both the appeals conditional orders of stay were passed. Though the petitioner-company complied with the conditional order of deposit of 50 per cent. of the decretal amount, in the appeal filed against the decree granted in favour of the respondent, the respondent failed to comply with the condition of deposit of half of the decretal amount. Therefore, the petitioner-company got the decree transferred to the court of the III Additional District Judge, Chittoor, initiated execution proceedings and got attached the movable and immovable properties of the respondent-company.

16. At this juncture, the petitioner-company has come up with the present company petition alleging that the respondent-company failed to comply with the conditional order passed by the High Court of judicature at Madras, and therefore, it is an indication of its insolvency and hence an order of winding up is to be passed against the respondent-company. The contention of the respondent-company, on the other hand, is that though the conditional order was not complied with, the same may give a right to the petitioner-company to execute the decree as there is no stay, the same cannot be a ground for filing a petition for winding up of the respondent-company, inasmuch as, the dispute as to the liability is still to reach finality as the appeals are very much pending before the appellate court. Therefore, according to the respondent counsel there is no ground for ordering winding up of the respondent-company. It is also the claim of the respondent-company that about 6,000 farmers are dependent upon the respondent-company, who are the regular growers and suppliers of sugarcane and there are 400 employees in the respondent-company, who would be affected seriously and would be deprived of their livelihood, if an order of winding up is passed. On the other hand, no prejudice would be caused to the petitioner-company if the company petition is dismissed. The petitioner-company has filed an execution petition, which it can pursue. Further, according to learned counsel, winding up proceedings could not be resorted to as a means for recovery or realization of the disputed amount, and hence, sought for dismissal of the company petition.

17. At this stage it would be appropriate to refer to the decisions relied upon by both sides.

18. The petitioner-company relied upon the decision in Seethai Mills Ltd. v. N. Perumalsamy [1980] 50 Comp Cas 422 (Mad) in which a Division Bench of the Madras High Court considered the scope of the provisions while hearing an appeal against the order of winding up passed by the learned single judge. In that case, the first respondent obtained a decree against the appellant 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 said notice was returned as "left" and to a second notice issued to the appellant, there was a reply that the original decree under exhibit P1 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 single judge was that since the first respondent had obtained a decree, it had to proceed under Section 434(1)(b) of the Act and not under Section 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 single judge held that even a person who had obtained a decree against a company can take proceedings under Section 434(1)(a) of the Act, that he was not constrained to proceed only under Section 434(1)(b) and that consequently the company petition filed by the respondent was held maintainable. When the said order was appealed by the unsuccessful respondent-company therein, against which the order of winding up was passed, the Division Bench held as under (page 424) :

"... 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 under Section 434(1) (a) is that there must be a creditor and to that creditor the company must be indebted in a sum exceeding Rs. 500 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 Sections 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 under Section 434(1) (a) if the other requirements of that provision are satisfied."

19. In California Pacific Trading Corporation v. Kitply Industries Ltd. [2004] 118 Comp Cas 580 (Gauhati), the company petition was filed under Section 433(e) of the Act on the ground that the respondent-company was unable to pay its debts. The debt alleged in that case is under a decree passed by the District Court of the United States of America on a claim made by the petitioner; as plaintiff, against the respondent-company, as defendant. The claim, which has been decreed, is on account of a breach of an implied warranty as to the quality of goods supplied by the respondent-company to the petitioner, thereby causing loss and damage to the petitioner-company. In the suit filed by the petitioner-company, no written statement, setting up any particular defence, was filed by the respondent-company and the decree that was passed has attained finality, inasmuch as, no appeal against the said decree has been filed by the respondent-company. At the same time no proceeding for execution of the decree has been initiated by the petitioner-company either in the United States of America or in the courts in India. But, however, it moved a petition for winding up. In the company petition, it was contended that the petitioner-company has the remedy of execution of the decree, which was not resorted to. Therefore, the present company petition was not maintainable. It was also contended that the decree passed by the District Court of the United States of America cannot be said to be conclusive of adjudication on the ground that the decree in question has not been passed by the court of competent jurisdiction. The court rejected all the contentions that the District Court of the United States of America has no jurisdiction and also the ex parte decree that was passed was not on the merits, and therefore, it cannot be said to be a decision on the merits. Similarly, the claim that Section 73 of the Indian Contract Act was not taken into account before passing a decree for awarding damages. With reference to the present financial position is concerned, the court deferred the consideration to the final hearing of the winding up proceedings, and therefore, the company petition was admitted.

20. In Suvarn Rajaram Bandekar v. Rajaram Bandekar (Sirigao) Mines Pvt. Ltd. [1997] 88 Comp Cas 673 (Bom), a consent decree was passed by the civil court in a suit filed by the petitioner for recovery of money from the respondent-company, granting specified instalments. The respondent-company committed default in paying the instalments. The petitioner-company, therefore, issued a statutory notice of demand under Section 434 of the Act, but the respondent-company did not comply. The petitioner, therefore, filed a petition for winding up of the respondent-company. The respondent-company applied to the court, which had passed the decree, for extension of time in which to pay the instalments and a declaration that there had been no default in terms of the consent decree. The said application was dismissed and the respondent-company filed a revision before the High Court and the High Court also dismissed the revision petition. Before the winding up petition came up for admission, the respondent-company filed an application for dismissal of the said petition in limine and objected that both the application and the petition being disposed of together. The respondent-company contended that the petition had to be dismissed for lack of proper verification and also on the ground that the decree holder had no right to file winding up petition. The company court negatived all the contentions and held as under :

"(iii) That in addition to the execution of a decree, winding up proceedings at the instance of the decree-holder are permissible and a petition by a decree-holder would fall within the ambit and scope of Section 433(e) of the Companies Act, 1956. Clause (a) of Section 434 is a general clause and applies to all sorts of debts including a judgment debt under the decree."

21. In Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan [1966] 36 Comp Cas 426, the Supreme Court while considering the scope of Section 433 of the Act and the jurisdiction of the company court approved the following passage from Palmer's Company Precedents, Part II, 1960 edition (page 430) :

"A winding up petition is a perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which the court gives to a creditor against a company unable to pay its debts."

22. The Supreme Court, however, further observed (page 430) :

"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 realization 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."

23. In PSM Spinning Ltd. v. A. P. State Financial Corporation [1999] 98 Comp Cas 303 (AP), the petitioner-company filed an application for revoking the order of admission passed in the company petition. The respondent corporation has filed the company petition under Section 433(e) of the Act for winding up of the petitioner-company on the ground that the applicant company was unable to pay of its debts due to the respondent corporation. But the court after giving show-cause notice to the applicant company and after hearing both sides admitted the company petition, but at the request of the applicant company the advertisement of the said petition was deferred as it was represented that the applicant company would go in appeal against the order of admission of the company petition. The applicant company was unsuccessful in the appeal, and therefore, after the dismissal of the appeal, filed the present application for revoking of the order of admission or in the alternative to defer the order of advertisement of admission of the petition as contemplated under the Rules. The said application was contested by the respondent corporation. The court after considering elaborately the contentions held that where the High Court admits the petition and thereafter issue notices to the company before giving directions for advertisement of the petition or where the High Court admits the petition and simultaneously orders that the petition be advertised, the respondent-company is competent to move the court and in the interest of justice or to prevent the abuse of the process of court, the petition should not be advertised. But where the court hears both sides and prima facie a case being made out admits the company petition, the same has to be advertised before the petition for winding up can be placed for hearing before the court. Therefore, the application to revoke the admission or alternatively to defer the advertisement of the admission of the petition was rejected.

24. In Bharat Overseas Bank Ltd. v. Saritha Synthetic and Industries Ltd. MANU/AP/0146/2004, a learned single judge of this court while considering the provisions of Section 433(e) of the Act with reference to the maintainability of a winding up petition whether a creditor is able to make out a prima facie case and whether the debtor has a tenable and genuine defence--the court has to cull out from the material on record whether the disputed debt is bona fide or not. If the dispute raised or the defence raised is not bona fide and if prima facie it is proved that the company was unable to discharge its debts due to the creditors, it has to be held that a prima facie case was made out for admission of the company petition.

25. On the other hand, learned counsel for the respondent relied upon the following decisions, in State Trading Corporation of India Ltd. v. Punjab Tanneries Ltd. [1989] 66 Comp Cas 634 (P & H), wherein the Punjab and Haryana High Court while considering an application under Section 433(e) of the Act seeking winding up of the respondent-company on the ground that the respondent-company was unable to pay its debts to the petitioner-company, where the petitioner-company filed a suit on the same cause of action on which the company petition was filed, where the respondent has also made a counter-claim in the suit and as the petitioner-company having availed of the alternative remedy, the court declined to proceed with the petition. The High Court after referring to the decision of the Supreme Court, in Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan [1966] 36 Comp Cas 426 observed (page 635 of 66 Comp Cas) :

"Thus, it is clear that although a winding up petition is an appropriate remedy and a mode of execution against a company unable to pay its debt, it is not an alternative to the ordinary procedure for the realization of the debt due from the company. It is also manifest that the power to wind up exists, but its exercise is governed by considerations of propriety."

26. The court also relied upon the following observations of the Allahabad High Court in Aluminium Corporation of India Ltd. v. Lakshmi Rattan Cotton Mills Co. Ltd. [1970] 40 Comp Cas 259 (page 636 of 66 Comp Cas) :

"The fact that the company is unable to pay its debts, does not necessarily entitle the court to order winding up of the company as the discretion to pass such an order, even in the case of the inability of a company to pay its debts is, by Section 433, vested in the court."

27. After referring the observations in the above case, the court further held as under (page 636 of 66 Comp Cas) :

"That being the legal position, I cannot accept the particular contention that the petitioner is absolutely entitled to an order of winding up the company ex debito justitiae on the mere plea that the debt was not paid. The petitioner has already resorted to a civil suit for recovery of the disputed debt. The machinery for winding up will not be allowed merely as a means for realizing a debt due from the company."

28. Learned counsel also relied upon the decision in the case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd., MANU/SC/0033/1971 where the apex court in a petition under Section 433(e) of the Act for winding up held that the principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends and if the facts proves that there is a bona fide defence for non-payment of the disputed debt, the court can rightly refuse a petition for winding up of the company.

29. In Pradeshiya Industrial and Investment Corporation of U.P. v. North India Petro Chemical Ltd. MANU/SC/0679/1994 the apex court held as under :

"An order under Section 433(e) is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date. The inability referred to in the expression 'unable to pay its dues' in Section 433(e) should be taken in the commercial sense. In that, it is unable to meet current demands. It is 'plainly and commercially insolvent--that is to say, that its assets are such, and its existing liabilities are such, as to make it reasonably certain--as to make the court feel satisfied--that the existing and probable assets would be insufficient to meet the existing liabilities'. The machinery for winding up will not be allowed to be utilized merely as a means for realising debts due from a company."

30. In Garikapati Veeraya v. N. Subbiah Choudhry, MANU/SC/0008/1957, the apex court while considering the maintainability of appeal to the Federal Court and whether such right is a vested right, enunciated the principles and one of the principles is that the legal pursuit of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceeding (other principles are not relevant for the purpose of the present case).

31. In Maria Christine De Souza Soddar v. Maria Zurna Pereira Pinto, MANU/SC/0013/1978, the apex court was considering the effect of extension of the Civil Procedure Code to the Union Territories of Goa, Daman and Diu and the impact of corresponding repealing provisions of the Portuguese Code and held as under (page 1355) :

"It is true that under Clause (c) of the proviso to Section 4 of the Central Act XXX of 1965 (which corresponds to Section 6(e) of the General Clauses Act, 1897) it is provided that a remedy or legal proceeding in respect of a vested right like a right to an appeal may be instituted, continued or enforced as if this Act (meaning the repealing Act) had not been passed. But this provision merely saves the remedy or legal proceeding in respect of such vested right which it is open to the litigant to adopt notwithstanding the repeal but this provision has nothing to do with the forum where the remedy or legal proceeding has to be pursued. If the repealing Act provides new forum where the remedy or the legal proceeding in respect of such vested right can be pursued after the repeal, the forum must be as provided in the repealing Act."

32. In Union of India v. West Coast Paper Mills Ltd. MANU/SC/0098/2004 the apex court while considering the effect of appeal observed as under (page 753) :

"It may be true that by reason of Section 46A of the Indian Railways Act the judgment of the Tribunal was final but by reason thereof the jurisdiction of this court to exercise its power under Article 136 of the Constitution of India was not and could not have been excluded.

Article 136 of the Constitution of India confers a special power upon this court in terms whereof an appeal shall lie against any order passed by a court or tribunal. Once a special leave is granted and the appeal is admitted, the correctness or otherwise of the judgment of the Tribunal becomes wide open. In such an appeal, the court is entitled to go into both questions of fact as well as law. In such an event the correctness of the judgment is in jeopardy."

33. In Chandi Prasad v. Jagdish Prasad [2004] 6 ALD 75 the apex court while considering the doctrine of merger for the purpose of limitation observed as under :

"A decree is defined in Section 2(2) of the Code to mean the formal expression of an adjudication which, so far as regards the court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final. As against a judgment and decree unless otherwise restricted, a first appeal would be maintainable under Section 96 of the Code and a second appeal under Section 100 thereof. A decree within the meaning of Section 2(2) of the Code would be enforceable irrespective of the fact whether it is passed by the trial court, the first appellate court or the second appellate court.

Where a statutory appeal is provided for, subject, of course to the restrictions which may be imposed, it is a continuation of suit. It is also not in dispute that when a higher forum entertains an appeal and passes an order on merit, the doctrine of merger applies."

34. In Vallabhaneni Lakshmana Swamy v. Valluru Basavaiah MANU/AP/0669/2004 the observations of a larger Bench of this court in para. 21 are relied upon with reference to the vested right of appeal and the consequences of pendency of an appeal.

35. Learned counsel also relied upon the decision of the apex court in National Conduits P. Ltd. v. S.S. Arora MANU/SC/0026/1967, in support of the contention that even if a petition for winding up is admitted, it need not be automatically be ordered to be advertised in the newspapers, which would have serious and adverse impact on the company against which the petition is filed.

36. In Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla MANU/SC/0050/1975 the apex court observed as under :

"A prima facie case has to be made out by the petitioner before the company court can order admission of the company petition. While it is true that even admission of a company petition, which will lead to advertisement of winding up proceedings, is likely to cause injury to the company, if ultimately the application is dismissed, the scope of enquiry, by the company court, for admission of a company petition, is firstly to verify whether the petitioner has made out a prima facie case for admission of the company petition."

37. In National Research Development Corporation v. Electro Flux (P.) Ltd. [2005] 127 Comp Cas 23 (AP), the petitioner filed the company petition under Section 433 (e) of the Act seeking for an order of winding up of the respondent-company on the ground that the dispute between the parties was referred to an arbitrator and the arbitrator passed an award in favour of the petitioner, which was also made the rule of the court later. Thereafter, as the respondent-company failed to pay the amount, a statutory notice was issued and on the ground that the respondent-company was unable to pay the said amount of debt to the petitioner, a company petition was filed seeking an order of winding up. The court rejected the claim of the petitioner observing that the petitioner has got an effective alternative remedy and merely the amount was not paid in spite of initiation of execution proceedings, the respondent-company cannot be deemed to have become commercially insolvent. The court further observed that merely because the respondent has not paid the amount under the award in spite of receipt of the demand notice, it cannot be said that the company has become commercially insolvent warranting exercise of discretionary power by this court and in view of the alternative remedy available to the petitioner, the company petition was dismissed.

38. From the above decisions, it is clear that a petition for winding up could be admitted only if there is an admitted debt and the respondent-company has failed to discharge the said debt even after receipt of a statutory notice contemplated under the provisions of the Act. It is also further clear that even after the respondent-company failed to discharge the debt, still on the facts of the case, the company court has to exercise its discretion and the admission of the company case or even passing of a winding up order is not automatic. In the light of the above legal position, the facts of the case are to be considered.

39. Admittedly, the parties entered into a contract under which the petitioner-company undertook to manufacture and supply of machinery, erect and commission for the manufacture of sugar. According to the petitioner, certain amount is payable by the respondent-company and as the respondent-company failed to pay the said amount, it filed a suit and obtained decree. It is also a fact that even the respondent-company filed a suit and obtained decree, may be for a lesser amount than what was decreed in favour of the petitioner. In the appeal filed against the decree passed against the petitioner, stay was obtained from the appellate court. While in respect of the decree passed against the respondent and in favour of the petitioner, the respondent-company also filed an appeal and conditional stay was obtained, but the respondent-company failed to comply the condition and thereby committed default. Therefore, according to the petitioner there is an existing debt, which the respondent is unable to discharge. Hence it sought for admission of the company petition. On the other hand, the contention of the respondent-company is that there are disputes with reference to the claims and counter-claims between the petitioner and the respondent companies. Though decrees are passed against each other, the said decrees are subject-matter of further appeals and as per the judgments relied upon by the respondent-company, there is no concluded debt, as the appeals are to be considered as continuation of the suits instituted by both the parties. Therefore, according to the respondent there is no determined debt in favour of the petitioner and against the respondent, and hence, the respondent could not be considered as a defaulter in payment of any debt, as admittedly, the debt itself is yet to be finally determined.

40. Further, as already observed by the apex court, admission of a company petition for winding up would result in serious consequences, and therefore, it could not be easily inferred that there is a prima facie case in favour of the petitioner for admission of a winding up petition.

41. It is also an admitted fact that the petitioner-company filed E.P. in view of the absence of any stay of execution of the decree passed by the learned single judge of the High Court of Madras and got the movable and immovable assets of the company attached, and in fact, it is the case of the respondent-company that the absence of stay by the appellate court may, at the best, allow the petitioner to file an execution petition but not a petition for winding up especially the claims are yet to be finally adjudicated and determined. In view of the pendency of civil disputes between the parties as to the adjudication of the claims and liabilities, it could not be inferred that a prima facie case has been made out that the respondent-company was unable to pay its debts, as there is no admitted debt. Further, if the company petition is admitted, it would result in serious consequences, destroying the normal functioning of the respondent-company as the financial institutions are likely to freeze the accounts, thereby bringing the activity of the company to a standstill, depriving the employment of the workers who are stated to be above 400, apart from affecting the interest of 6,000 agriculturists who are stated to be dependant upon the respondent-company for the supply of their agricultural produce, viz., sugarcane.

42. Under the above circumstances, this court declines to exercise its jurisdiction in favour of the petitioner for admission of the company petition and the same is accordingly dismissed. But under the circumstances no costs.