Punjab-Haryana High Court
Talwar Brothers (P) Ltd. vs Punjab State Industrial Development ... on 13 May, 1999
Author: Swatanter Kumar
Bench: Swatanter Kumar
JUDGMENT Swatanter Kumar, J.
1. This petition under section 433(e) read with sections 434 and 439 of the Companies Act preferred by M/s. Talwar Brothers (P) Limited (hereinafter referred to as the petitioner company) raises interesting question of law, though based on simple facts.
2. The petitioner company entered into a lease agreement, dated 28.10.1993 with the respondent company for leasing second floor of the premises of the petitioner company at A-1/26, Safdarjang Enclave, New Delhi. Registered lease deed was executed granting initially lease for a period of three years with effect from 1.11.1993. Copy of the lease agreement is annexed as Annexure III to the petition. It is contended that the respondent company which is a statutory corporation, i.e., Punjab State Industrial Development Corporation Limited (hereinafter referred to as the respondent company) was obliged to hand over the vacant and peaceful possession of the premises to the petitioner company in case no fresh lease deed was agreed to be executed between the parties. In terms of the lease deed if the respondent company failed to hand over the vacant possession of the premises to the petitioner company, the respondent company is stated to be liable to pay the market rent prevailing at time, which was to be decided by the Government approved valuer and in the event of dispute, matter was to be referred to an arbitrator, whose decision was final on the parties.
3. According to the petitioner company, as the respondent company failed to hand over the vacant possession of the premises on 31.10.1996, there being no extension of lease agreement, between the parties, the petitioner company invoked the arbitration clause contained in the lease agreement, dated 28.10.1993. The arbitrator is stated to have entered upon the reference and published his award dated 28.4.1997. A copy of the award is annexed as Annexure IV to the petitioner. The award was served upon the respondent company. Some corrections were made in the award published by the arbitrator on the application of the petitioner company. Learned arbitrator awarded damages at the rite of Rs. 97,410 per month or part thereof with effect from 1.11.1996 instead of Rs. 25,000 per month, which was agreed rate of rent payable by the respondent company to the petitioner company. The arbitrator also allowed interest at the rate of 2% per month on the unpaid arrears and also directed the eviction of the respondent company from the premises in question. Vide notices, dated 13.4.1998 and 8.5.1998, the petitioner company called upon the respondent company to pay the amount awarded by the arbitrator. Despite receipt of the aforestated notices neither the amount was paid nor respondent company offered to make any payment in furtherance to the award. Thereafter notice, dated 17.5.1998, as required under the provisions of section 434 of the Companies Act, was served vide registered acknowledgement due upon the respondent company. This notice was replied to by the respondent company vide its reply, dated 30.5.1998 and denied its liability. The respondent company requested the petitioner company to withdraw the notice and not to enforce the award, as it was ineffective and unforceable in law. Based on these facts, the petitioner company has filed the present winding up petition with a prayer that the respondent company should be ordered to be wound up.
4. Upon notice, the respondent company contested this petition. The basic facts are not disputed but it is averred that the matter is already sub judice before the Hon'ble Delhi High Court in execution proceedings, and the parties have even gone upto the Hon'ble Supreme Court of India in this regard. The basic case of the respondent company is that the award is the nullity in the eyes of law and it imposes no obligation upon them to pay the amount. The liability to pay the amount is disputed in law as well as, as a matter of fact. According to the respondent company, they have a bona fide dispute and keeping in view the specific legal proceedings being pending before the courts of competent jurisdiction, the petition for winding up is not maintainable. In the rejoinder filed on behalf of the petitioner company pendency of the proceedings before the High Court as well as Hon'ble Supreme Court of India was not disputed, and it was reiterated that winding up petition is maintainable.
5. From the above narrated facts, it cannot be disputed that an award, dated 28.4.1997 has been passed against the respondent company. The award in relation to return of money had also granted the relief of eviction in favour of the petitioner company. This award had been passed ex parte against the respondent company as is clear from the copy of the award which is annexed to the petition as Annexure-IV. The petitioner company filed an execution petition before the High Court of Delhi at New Delhi being Execution Petition No. 122 of 1998. In the said execution petition, upon notice, the respondent company appeared and had filed objections. These objections related to the merits of the case as well as the very existence and validity of the award including the plea of jurisdiction. The respondent company had stated that the award passed by the arbitrator is a nullity and objections thereto could be filed at any stage. The award patently suffers from an error of jurisdiction, as the arbitrator could not pass a decree for eviction despite the terms of the agreements. The correctness of the amount awarded and the interest imposed by the award has also been challenged in addition to the fact that even the market rent for the premises has not been correctly assessed. All these grounds have been taken and alleged to have been supported by the judgment of the Hon'ble Supreme Court of India in the case of Mathalone v. Bombay Life Assurance Co. Ltd. (1954) 5 SCR 117, Sabitri Devi and others v. Sarat Chandra Rout and others (1996) 3 SCC 301 and Bahadur Singh & another v. Muni Subrat Dass & another (1969) 2 SCR 432 amongst other judgments.
6. Alongwith the objections filed by the respondent company in the execution of the said decree based on the award an application for stay of execution proceedings was granted by the High Court. Resultantly, the respondent company preferred special leave petitions before Hon'ble Apex Court. The said special leave petition were allowed by the Hon'ble Apex Court vide its order, dated 4.1.1999, which runs as under :
"Punjab State Industrial Dev. Corporation Ltd. v. Five Star Engineers & Agents (P) Ltd. With C.A. Nos. 10 & 11/1999 arising out of SLP (C) Nos. 17713 & 17714/98 ORDER Leave granted.
Learned counsel for the respondent has waived service of notice in appeals. By consent, appeals are taken up for final disposal.
The grievance of the appellants in these appeals is that the High Court has not permitted them to file any response to the execution petition of the respondent decree holder. The common order which was passed reads as under :
"Learned counsel for the judgment debtor seeks time to file reply, to the execution petition. There is no provision in the Code of Civil Procedure entitling the judgment debtor to file reply to the execution petition filed by the decree holder. Hence the said request is disallowed. Issue warrant of attachment of movable property of the judgment debtor, returnable on 11 December, 1998."
In our view, ends of justice would be served if the impugned orders are set aside and only an opportunity is given to the appellants to file response/objection to the execution petition on or before 31 January, 1999. It is made clear that no further time will be available to the appellants. As soon as the objections are filed, the learned judge taking up the matters in the High court is requested to dispose of the same considering the objections and decide the same as early as convenient.
It is made clear that the interim order passed on 23.11.1998 will continue to operate till the hearing of the objections by the High Court and subject to any further directions which the High Court may think fit to issue.
The appeals are allowed accordingly.
It is made clear that we are not making any observations on the merits of the controversy.
Signed (S. B. Majmudar, J.) N. Delhi Signed (U. C. Banerjee, J.) 4 January, 1999"
7. As it is clear from the above order of the Hon'ble Apex Court, the execution of the award, which is the very foundation of the present winding up petition, has already been stayed. Interim order, dated 23.11.1998 was continued till the hearing of the objections by the High Court and was further subject to the objections by the High Court and was further subject to the directions which the High Court may think fit to issue. The respondent company was further required to make the payments in term of the interim orders, which fully covered the question of what amounts would be paid by the respondent company to the petitioner company during the pendency of the hearing of the objections before the High Court. The order of the Hon'ble Apex Court till the disposal of the objections by the High Court has already attained finality and conclusiveness between the parties vide order, dated 4.1.1999. The order, dated 23.11.1998 reads as under :
"Hon'ble Mr. Justice S. B. Majmudar Hon'ble Mr. Justice K. T. Thomas For the petitioner (s) Mr. Arun Jaitley, Sr. Adv.
Mr. Mahabir Singh, Adv.
Mr. S. R. Sharma, Adv.
For the respondent (s) Mr. J. C. Seth, Adv.
Mr. B. K. Satija, Adv.
Upon hearing counsel, the court made the following :
ORDER Shri Arun Jaitley, the learned senior counsel stated that there is some mistake in the filing of the copy of the order under appeal. Learned counsel for the respondents has produced before as a certified copy of the order in Execution Petition No. 124/98 which is taken on record. In view of this certified copy, leave granted to the counsel for the petitioner to replace the impugned order by correct copies of orders in all the matters. They may also file copies of the execution petitions with annexures. Liberty reserve to the parties to produce all relevant documents on which they rely.
Adjourned for four weeks.
There will be ad interim stay of the impugned orders issuing warrant of the movables of the judgment debtor on the condition that the petitioner shall pay to the respondents the amount covering all the arrears upto date at the rate of Rs. 30,000 (Rupees thirty thousand only) per month, per apartment, which will be without prejudice to the rights and contentions of both the sides in the present proceedings. The petitioner should pay these amounts within three weeks from today.
(Vijay Kumar Sharma) (N. Noorjani)
Court Master Court Master"
8. The precise issue that now needs to be considered by this court is that would it be just, fair and even proper for this court to order the winding up of the respondent company for alleged default in payment of the claim ?
9. Under section 8 of the Arbitration and Reconciliation Act, 1996, the arbitration proceedings and judicial proceedings could go side by side and be taken to their logical ends. Execution proceedings are based on the award of the arbitrator and that award is the very foundation of the present winding up petition. The execution and effect of that award is fully controlled and stands stayed by the orders passed by the Hon'ble Apex Court, which are binding on all courts. It is a settled principle of law that a winding up petition cannot be treated as a mere process for recovery of money besides the company being unable to pay its debts without any bona fide dispute. The court should consider whether it is just and equitable to order the winding up of the respondent company. In this regard, reference can be made in case titled as Bukhtiarpur Bihar Light Railway Co. Ltd. v. Union of India and another AIR 1954 Cal 499 and Harinagar Sugar Mills Co. Ltd. Bombay v. M. W. Pradhan (1966) 2 Comp LJ 17 (SC) : AIR 1966 SC 1707.
10. The courts have held that winding up petition cannot be treated as an alternative to the suit or the legal process of a suit. Certain controversies can only be properly adjudicated in the proceedings other than winding up. In the present case, admittedly, the proceedings are pending before the court of competent jurisdiction and any order passed by this court would apparently be affecting the orders of Hon'ble Supreme Court of India, which is not permissible. The provisions of sections 433 and 434 of the Act do not vest any right in the petitioner, but cases have to be considered on their own merits and keeping in view the facts and circumstances of each case by the court.
11. The entire controversy in the present case, can be viewed from another angle as well. It is a settled principle of law that if the dispute raised by the respondent company in a winding up petition is bona fide and just, the winding up court would be very reluctant to pass any adverse order. I am of the considered view that the respondent company has a bona fide, reasonable and just dispute to the claim of the petitioner company. In fact, the order of Hon'ble Supreme Court of India is the complete defence of the respondent company at this stage. Furthermore, the objections relate to the very validity and legality of the impugned award. One of the grounds raised is that the arbitrator could not have passed an order of eviction in relation to the disputed property. It is not for this court to comment upon the merits or otherwise of this dispute but at least prima facie these disputes cannot be termed to be mala fide or totally unfair or unreasonable. In the case of M/s. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd. AIR 1971 SC 2600, the Hon'ble court had enunciated the principle which will regulate the fate of the winding up petition in response to which a bona fide or a valid dispute has been raised.
12. Passing any order for winding up or even ordering the admission of this petition at this stage would apparently affect the proceedings before Hon'ble High Court of Delhi and would foreclose the merits of the objections filed by the respondent company before that court, which are to be decided on merits by that court in furtherance to the orders of the Hon'ble Apex Court.
13. As a result of above discussion, I am of the considered view that this winding up petition cannot be admitted at this stage and needs to be disposed of with liberty to the petitioner company to file a fresh petition, if so advised, upon decision of the objections by the High Court of Delhi at New Delhi in Execution Petition No. 122 of 1998.
14. Resultantly, this winding up petition is disposed of with liberty to the petitioner company as aforeindicated. However, in the facts and circumstances of the case, there shall be no order as to costs.