Calcutta High Court
Hindustan Development Corporation ... vs Shaw Wallace & Co. Ltd. on 10 January, 2001
Equivalent citations: (2001)1CALLT519(HC), [2001]107COMPCAS30(CAL)
JUDGMENT
The Court
1. This application was moved on December 15, 1999, by counsels on behalf of Capsulation Services Ltd. a creditor of Shaw Wallace & Co. Ltd., which hereinafter shall be referred to as the "Company". The prayers in the petition included a direction for the payment of the claims of the intercorporate deposit holders and bill discounting creditors, of the Company out of a fund being held by Joint special-officers, in terms of an order of the Court. The Company was agreeable to payment being made to all intercorporate deposit holders and bill discounting creditors, who were represented in Court or whose petitions for winding-up of the Company were pending before this Court. As regards Interest, the Company was agreeable to pay at the agreed rates till December 23, 1996, and thereafter at the rate of 10% per annum. It is significant, that the claim of Hindustan Development Corporation Limited, an intercorporate deposit holder of the Company. had been admitted by an order of the Court made on September 30th, 1997. the Company failed to pay its dues, inspite of an opportunity afforded to it. and the petition was advertised by publication in the local news papers. In the process, the matter acquired a representative character. According to the Company, since this was the only petition which had been advertised, the Company agreed to pay in terms of the order dated September 30, 1997. The reason why the Company had proposed to pay the agreed interest from December 23, 1996. according to counsel for the Company, was because that was the date of the presentation of the petition by Hindustan Development Corporation. In a further application made in this application. an order was made on October 12, 1999, directing the parties to file their respective affidavits, and all winding-up petitions were adjourned till the disposal of the application. The application had been moved upon notice, and all creditors who participated in the instant application had been represented in Court. In the order, liberty was given to other creditors, whose application for winding-up of the Company were pending before the Court, to file their respective affidavits in the matter, and the application was adjourned till December 14, 1999. This application was moved on December 12. 1999. by Capsulation Services Ltd. upon notice to the parties concerned. Court gave directions to file affidavits and adjourned the matter till January 12. 2000. The matter was taken up for hearing on April 12. 2000. and the following order was made ;
"It was submitted by counsel appearing for the Company, that the Company, was ready and willing to pay its creditors in terms of the order dated September 30. 1997. Counsel appearing for Hindustan Development Corporation Limited submitted in Court, that if payment was made in terms of the orders dated September 30, 1997, his client was agreeable to accept in full and final satisfaction of its claim, and counsel appearing for Kirloskar Investment and Finance Limited submitted, that he would furnish full particulars of his claim in hoping with the spirit of the order dated September, 30, 1997, with the advocate-on-record for the Company. The appearing parties are directed to furnish their respective claims to the advocate for the Company, In terms of the order dated September 30. 1997, by April 20, 2000 and the matter shall appear In the cause list marked as "Specially Fixed Matter", on May 3, 2000 at 2 p.m. It is made clear that the creditors shall furnish particulars of claims after adjustment of monies already received by them. It was pointed out by counsel for the Company that the date of presentation in the order dated September 30, 1997, was December 23, 1996.
Parties shall act on a xerox of the signed copy of this dictated order on the usual undertaking.
2. Large number of creditors, including Hindustan Development Corporation Limited and Kirloskar Investment and Finance limited, opposed the prayer when the matter was taken up for hearing, and counsels on their behalf were heard at length on affidavits. Of course, some of the creditors chose not to file affidavits. Arguments on behalf of those creditors who opposed the prayer made by Capsulation Services Limited, and which had been agreed to by the Company, were principally forwarded by counsels representing Hindustan Development corporation Limited and Kirloskar Investment and Finance Limited. In fact, their submissions had been adopted by counsels appearing for the other opposing creditors. By way of additions, it had been submitted that the Company had incorrectly computed the dues, by adjusting the amounts paid out of the principal instead of the interest, and that the petitions of some creditors had been admitted by Court and interest from the date of presentation of their petitions had been allowed at the rate of 18% per annum and that thus an order in this application would in effect amount to variation of the earlier orders of this Court, which this Court was not empowered to do.
3. It was argued, by counsel, for Hindustan Development Corporation Limited, that there were orders of this Court, admitting the winding up petitions of several creditors, and that such orders would be rendered ineffective and modified to the prejudice of those creditors, in the event an order was made in the present application. He contended, that a scheme application which had been made by the Company in April 1999, was pending before this Court, and another scheme application had been prepared by Kirloskar Investment and Finance Limited. According to him. this present application was made in December, 1999 in an attempt to obtain an order without reference to any of the two scheme applications or any scheme, and that this Court was not empowered to entertain this application without disposing of the pending scheme applications. He submitted that the winding up petition, of Hindustan Development Corporation Limited, by reason of being advertised had acquired a representative character, and in that view of the matter payment must be made pari passu to all creditors and not just intercorporate deposit holders had bill discounting creditors. He contended, that an order for payment, as prayed for, would in effect, tantamount to preferential payment, especially prohibited in the Companies Act, Shutting out creditors with lawful claims but - not represented before this Court, he argued, would be unjust and in violation of the principles of law and equity. In support of his submissions he cited and relied on the decisions reported In A. .
4. After adopting the arguments and submissions made on behalf of Hindustan Development Corporation Limited, counsel for Kirloskar Investment & Finance Limited submitted, that the fund which was being held by the joint special-officers, was being held in trust for the benefit of a scheme which included all creditors of the Company, and not for the payment of the debts of a class of creditors only. He argued, that the Instant application was in abuse of the process of Court, as because all those creditors of the Company, who had been included in its scheme application pending before this Court as on date, would be denied and deprieved of their lawful dues.
and only the intercorporate deposit holders and the bill discounting creditors would be allowed to benefit. In support of his submissions he cited and relied on the decisions .
5. The Company was not insolvent, in terms of section 434 of the Companies Act, argued counsel for the Company and the petitioning creditors merely wanted reimbursement of their loan-amount, with interest. This Court, he submitted, while considering winding-up of a Company was fully empowered under section 443(d) of the Companies Act, 1956, to make "any other order that it thinks fit". He contended, that Court at the time of adjusting wlnding-up petitions, invariably afforded the Company opportunity to pay its debt. Where the Company did pay, he went on, the Court would direct the petition to remain permanently stayed. Yet such payment, he argued, was not and could not in law, be interpreted to mean, fradulent preference. According to him once a winding up petition had been advertised all creditors were deemed to have notice, and if so advised they were at liberty to come to Court, either to support the petitioning creditor or, oppose the winding-up of the Company, and those who did not choose to come to Court not expect to benefit from those proceedings. He agreed that the fund which was being held by the joint special-officers, was held initially, for the purpose of the scheme, but the scheme application had been since dismissed, and the fund thereafter become the property of the Company and remains to be so as on date. The fund being ear-marked as alleged, he submitted, was in the circumstances rendered superflous and not tenable either in fact or in law. He contended, that it would be just and equitable, that the fund should be utilised to pay the creditors who were before this Court and were agreeable to receive payment accordingly. He cited and relied on a decision and submitted, that where a debtor makes payment of the debt, mentioning in particular that the payment being made was to be appropriated towards the principal, then and in that event, the creditor would be obliged to comply with such request, unless otherwise agreed to the contrary by the parties. As regards the allegations of fradulent preference, in disbursing the money among the creditors, according to him could not and did not arise, because payment would be made in pursuance to an order of the Court. In support of his submissions he cited and relied on the decisions reported in AIR (1965) Cal. 188 and 40 Comp Cases 259. He argued, that since no winding-up order had been made, against the Company till date, nothing prevented the Court from directing payment to be made, from the funds lying in the hands of the joint special-officers, to those creditors who were however, not agreeable to receive payment, in accordance with the proposed terms, he prayed that this Court would direct, that their claims may be set aside and kept apart. He made it clear that Court would allow such interest, as it would deem reasonable, to be computed and payable to the creditors from the date of the presentation of the petition of Hindustan Development Corporation Limited, which was December 23, 1996 till the date when payment was to be made. He submitted that in the event of there being any short-fall in the fund, the Company shall provide the necessary balance amount. According to him. Hindustan Development Corporation Limited and Kirloskar Investment & Finance Limited, had agreed to accept payment of their respective dues in terms of the order dated September 30, 1997, and both had furnished their respective computations of their alleged dues, and that they did not challenge the order dated April 12, 2000 and that in that view of the matter they were estopped from refusing to receive payment in terms of the order dated September 30, 1997. He submitted, that some of the creditors who were objecting, had infact already received their principal dues from the Company, and yet such payment was not regarded by them to be fradulent preference.
6. In those circumstances it would appear, that the two scheme applications one made by the Company and the other by Kirloskar Investment Finance Ltd. respectively, were pending before this Court as on date. It would also appear that by reason of the publication of advertisements of the winding-up petition of Hindustan Development Corporation, it had acquired a representative character, and all lawful creditors of the Company became entitled to come before this Court, as and from the date of publication. The question was, would the Court in those circumstances entertain the prayer of the petitioner, and allow disbursement out of the fund, for the payment of debts of the intercorporate deposit holders and bill discounting creditors. I have already mentioned earlier in this judgment, as to the recording in the order dated April 12, 2000 that Hindustan Development Corporation Limited, was agreeable, as its counsel had submitted before this Court, "that his client was agreeable to accept in full and final satisfaction of its claim". In the same order it was also recorded that counsel, for Kirloskar Investment and Finance Ltd. had submitted that "he would furnish full particulars of his claim in keeping with the spirit of the order dated September 30, 1997, with the advocate-on-record for the Company". Clearly, therefore, both Hindustan Development Corporation Limited and Kirloskar Investment and Finance Ltd., were agreeable on April 12, 2000. to the prayer made by the petitioner Capsulation Services Ltd. Among the other creditors, who opposed the application some had contended that the payment which they had received had been wrongfully adjusted by the Company towards interest, some alleged that there were incorrect arithmatics in the computation of their lawful debt, and a few of them alleged that they had obtained an order admitting their respective claims where interest had been allowed at the rate of 18% per annum from the date of presentation. In fact none of the appearing creditors were opposed to an order being made in the petition for payment.
7. As far as the records show, all creditors of the Company had notice and were at liberty to come before the Court, from the date when the petition of Hindustan Development Corporation had been advertised in the news papers. There was no reason, nor any law to prevent the Court, from adjudicating the claims of those creditors who had come to. and were before, the Court. It would be frivolus and quite unjustifiable to assume that since some creditors did not care to come to Court, no relief could or should be given to those who did come and sought relief. None of the opposing creditors produced any evidence before the Court that, infact there were other creditors with lawful claims against the Company and that they were not before this Court, or that such creditors were not agreeable to an order being made in this application. Indeed, it would appear from the records, that the opposing creditors admittedly were of the view that the Company was a cash-rich Company, and that the Company should not be woundup. This Court was appraised that in its scheme application, Kirloskar Investment & Finance Ltd. had even proposed that the Company should allot shares in Its favour, in lieu of its dues. The records also revealed, that Kirloskar Finance & Investment Ltd. till date did not take any legal step whatsoever against the Company, for the recovery of its alleged debt. It is significant, that none of the creditors made arty objection when all the winding up petitions were adjourned, so that this application made by Capsulation Service Ltd. could be taken up by Court and heard expedi-tiously which in effect would dispose of the winding-up petitions are well.
8. I have given serious consideration to the arguments on behalf of the objecting creditors, that any payment without being approved in a sanctioned scheme, would amount to preferential payment, and in contravention of the taws of the land in that respect. In an order admitting the claim of a petitioning creditor, the Court invariably affords the Company an opportunity to pay the debt, often allowing instalments. Such payment however is not considered in law, to be preferential payment. In my view, the question whether any payment by the Company was preferential payment would and could arise only when the Company was in liquidation, of when the Company surreptitiously sought to pay some creditors to the exclusion of others, with intent to close its business. In other words, payment must necessarily be sought to made by the Company to some creditors, with intent to defaud the others, and these others would have no opportunity or remedy left to them to recover their lawful debts or any portion thereof from the Company, ever. Admittedly, the Company was a going concern, carrying on its business In various parts of the country with a work force of 7,000 strong. Payment, in this application, was being asked to be made from a fund which had been created in pursuance of an order of the Court, with deposits of diverse sums of money made by the Company. The fund, infact, had been created by an order of the Court while considering a scheme application, which had since been dismissed. The fund was initially held by the advocates for the Company, and later by an order of the Court the fund was made over to, and is now being held by. the joint special-officers, appointed by Court. Some of the objecting creditors have infact received portions of their respective claims, and yet in this application they sought to object on such grounds as, monies paid by the Company have been adjusted towards interest and not principal, or that calculation of the principal dues had not been correctly computed by the Company, or that they were entitled to interest at agreed rates, not till the date of the presentation of the winding-up petition, but until that when the entire dues would be paid by the Company.
9. In those circumstances it does not appear to me, either from the records, or from the submissions made by counsels for the parties, that if an order was made as prayed for in the application it would either be unconscionnable, illegal or unfair and onerous to any of the creditors who were represented before this Court. The facts that, the petition filed by Hindustan Development Corporation Limited had been advertised some time back, and that this application had been heard over a period of almost a year, have lead me to conclude that all those creditors of the Company.
with a lawful claim, had been represented before this Court, and that there. was no reason, in the circumstances, to presume otherwise. For the sake of argument, should there be any Indolent creditor, then such creditor would of course be at liberty to take such steps as the creditor or creditors may be entitled in law, to recover their debt, as they may be advised. The Company. I have already observed, was admittedly solvent and a going concern. There could, therefore, be no impediment in making an order as prayed for in the instant application, and allow disbursement out of the fund amongst all those creditors who were before this Court. The suggestion made by counsel for the Company, that those creditors who were not agreeable to receive payment, this Court would direct their dues to be set aside, would appear to me to bejust and fair, in the present socio-economic condition of the country, where employment was at a very low ebb, Indeed it would be sheer shortsightedness and reckless disregard to the progress of the country's trade, commerce and industry, to allow the Company to continue to remain indebted, with Interest accruing, though admittedly there was sufficient fund for the Court to make an order for payment, and especially so as none of the creditors before this Court was inclined to wind-up the Company. In my view, even if some of the creditors are paid, out of so may, the Company will be relieved of that much of its financial burden, and enjoy the liberty of running its business and conducting its affairs in a manner that much more free and Independent, hopefully, beneficially both for the Company as also the country at large. For indeed, with such enormous debt it would be near impossible to expect the Company to function and enrich the economy of the country in any manner. Merely allowing the fund to increase, without it being put to any use, either to the Company or to the creditors, does not make any sense and I have no doubt, that this could not have been the intention of the Court which had directed the fund to be created. There was no reason either, why the willing creditors ought to be made to wait indefinitely to receive payment of their lawful debts. They have, as it would appear from the records, waited for a very long time already. After all, the fund was created by an order of the Court, intending it to be utilised for the payment of the creditors. It is only fair. that such payment should be allowed to be made.
10. The contention that the creditors were entitled to Interest at the agreed rates till the entire payment was made was quite untenable. It was a settled principle of law, that as regards Interest after the date of presentation of the winding-up petition, it was the discretion of the Court as to what interest it would allow. Indeed the parties were-agreeable in the order dated April 12, 200C to accept payment in accordance with the Company's proposal. Many of them had even furnished their respective claims to the advocate for the Company. The matter had been fixed by Court, at the Instance of the parties, to appear as a "Specially Fixed Matter" In the cause list, on the understanding that it was the general consensus among the then appearing creditors, that the proposal of the Company was accepted in principle, and what remained was the computations and calculations. Thereafter, for reasons best known to them, counsels for the parties made elaborate submissions, that the proposal for payment out of the fund as made by the Company was Illegal, and with intent to defraud the creditors. This was an exercise in futility. As I see it, if each of the winding-up petitions was to be disposed of by this Court individually, surely the Company would be afforded an opportunity to pay its principal debt, with interest at the agreed rates till the filing of the petition, and thereafter at a rate to be decided by the Court, until the Company paid the entire dues. Of-course. there would be the usual default clause, and in the event of a default there would be directions for publication. The order proposed by the Company in this application was an order, identical to the form I have enumerated above. Therefore, as matters stand today, the creditors could not expect to, and would not, obtain a different order in their pending petitions. I have carefully considered the law, sought to have been relied on by counsels for the objecting creditors, and I am inclined to find that the objections were whimsical and without any force of law. Since the Company was, as at present, agreeable to pay its creditors, in a manner as they would have received payment of their debts, had their respective winding-up petitions been disposed of by an order of the Court, it is my considered view that no further interest should be allowed to accrue on their principal dues as and from the date when payment is made.
11. For those reasons, I allow this application. The creditors who are willing to accept payment of their respective principal dues together with interest, to be computed at the agreed rates till December 23, 1996, and thereafter at the rate of 12% per annuam till the date when payment is actually made, shall be paid by the Joint special-officers out of the fund which was being held by them. The Company shall within ten days from the date of this order, ascertain the names and addresses of alt its creditors who had been represented before this Court in these proceedings and/or whose petitions for winding up of the Company were pending in this Court. The advocates for the Company shall, within seven days from the date of this order, under a covering letter forward such names and addresses to the joint special-officers, clearly indicating as to those who were and those were not agreeable to receive payment of their respective dues in accordance with the terms of this order. The joint special-offices, within a week from the date of receipt of the list of the names and address of the creditors, from the advocates of the Company, shall serve notice to each of the creditors who were agreeable to accept payment, individually, and also cause a notice to be published in the Sunday editions of three Calcutta daily newspapers being, the "Statement", the "Bartaman" and the "Sanmarg". The notice shall clearly mention the date, time and venue convening a meeting to disburse payment to all creditors who were represented in Court during the hearing of this application or whose applications for winding up of the Company was pending before this Court as on date. The Joint Special-Officers are directed to give particular attention to see that there was adequate money in the fund, which could be disbursed to the creditors, whose names and addresses they had received from the advocates of the Company. If alt of them were agreeable to receive payment. In case there should be any inadequacy, they shall in writing require, and the Company shall forthwith meet the shortfall. Within a fortnight, from the date of publication of the notice in the news papers, the joint special-officers shall convene the meeting, and shall disburse the principal amounts of the debts of those creditors who would in the meeting choose to receive payment. The joint special-officers shall also pay them Interest to be calculated at the agreed rates up to December 23, 1996, and thereafter at the rate of 12% per annum till the date when payment is made. Those creditors, however, who were not agreeable to receive payment and were not present in the meeting, the Joint Special-Officers shall record the same in the minutes of the meeting, to be drawn up by them, and make over the surplus money, if any to the Registrar, Original Side of this Court, who shall hold such money till further orders of this Court. The Registrar, Original Side shall invest the monies in a short-term deposit with the Standard Chartered Grindlays Bank, Church Lane Branch, Calcutta. The Company shall continue to deposit monies with the Registrar, Original Side, as it had been depositing in pursuance of the earlier orders of this Court. The joint special-officers shall stand discharged after carrying out the above directions and filing a report in that respect in Court, as regards compliance, together with the minutes of the meeting. It is made clear, that no further interest shall accrue on the principal dues of those creditors who appeared in this application and were represented before this Court, by counsel, and were not agreeable to receive payment in terms of this order. The petition of those creditors who shall receive payment in terms of this order shall stand disposed of by an order of permanent stay. Such petitioning creditors in any event, shall be at liberty to obtain appropriate order form the Company Court, if so advised.
12. This application is accordingly disposed of. The joint special-officers, the Registrar, Original Side and the parties shall act on a xerox of the singed copy of this Judgment.
Parties shall act on a xerox of this Judgment which shall be duly signed by the Assistant Registrar of this Court and made available to the parties upon the undertaking of their advocates on record to apply for and obtain certified copy of this Judgment, upon payment of the usual charges.
On the prayer of the counsel for the Company that the joint special-officers may be paid further remuneration it is directed that the Company pay them 500 Cms. each, as their final remuneration.
Stay of operation of the Judgment and order was prayed for by counsel for Kirloskar Investment Ltd. and Hindustan Development Corporation Ltd. such prayer is not entertained.
Application disposed of