Karnataka High Court
A.V. Krishna And Others vs Karnataka Leasing And Commercial ... on 10 December, 1992
Equivalent citations: [1995]82COMPCAS493(KAR), ILR1993KAR338, 1993(2)KARLJ185
JUDGMENT K. Shivashankar Bhat, J.
1. The learned company judge referred the matter for consideration of the question by a Division Bench in view of certain conflict of opinions expressed earlier in another similar matter.
2. This is a company petition under section 433(e) and (f), read with sections 434(1)(e) and 439 of the Companies Act, 1956 (for short "the Act"). All the petitioners are the creditors of the first respondent company is unable to pay its debts and that the company is commercially insolvent.
3. The office raised an objection that though a joint petition by 40 petitioners is maintainable, separate sets of court-fee shall be paid in respect of each of the creditors.
4. In another matter, earlier in Srikantaiah (K. S.) v. Manjog Consultancy Service P. Ltd. (C. P. No. 54 of 1989, decided on May 11, 1989) initially several creditors field a company petition under section 433(e) of the Act. The office raised an objection that several creditors cannot file a single petition. This objection was overruled by the learned company judge on May 11, 1989. The learned judge [N. Venkatachala] on the said date held that:
"So far as the first objection relating to non-filing of separate petitions by each of the petitioners seeking winding up of the first respondent-company is concerned, it has to be said that law permits the filing of a common creditor's petition for winding up of a company (vide section 439(1)(b)). In so far as the other objection is concerned, as rightly pointed out by learned counsel for the petitioners, non-compliance with issue of notice as required under section 434 of the Companies Act will only disable the petitioners from taking advantage of the statutory presumption relating to the inability of the company to pay debts as provided for in that section and nothing else. In this view of the matter, the second objection also would be unsustainable."
5. However, subsequently, on June 5, 1989, another learned judge of this court took a different view in the matter of paying the court-fee. It was observed that:
"It is clear each one of them had a separate and individual transaction with the respondent-company, the winding up of which, each one of them has prayed for on the ground that amounts due to them have not been paid and whereas it has been paid by cheque, the cheque has not been honoured by the concerned bank."
6. Thereafter, it was observed that "the court-fee paid as per the earlier order was inadequate and that each of the creditors who had a distinct and separate cause of action shall have to pay separate court-fee of Rs. 100 each." It seems subsequently in the said matter, the petition was confined to one of the creditors. However, the two opinions quoted above prima facie reflect two divergent views and accordingly, this matter was referred to the Division Bench.
7. We directed the learned Government advocate to take notice, since the question of court-fee is involved and we have heard the learned Government advocate also.
8. According to the learned Government advocate, section 6 of the Karnataka Court-fees and Suits Valuation Act, 1958, governed the case under which the plaint shall be chargeable with a fee on the aggregate value of the reliefs in any suit in which separate and distinct reliefs based on the same cause of action are sought. It was contended that the cause of action for each creditor was distinct in fact, though ultimately the court may direct the winding up of the company in which case the benefit may accrue to the entire class of creditors and contributories. By way of analogy, Mota Singh v. State of Haryana, was cited. It was a case where independent truck owners having no relationship with each other either as partners or under any another legally subsisting jural relationship of association of persons filed a single writ petition in respect of impugned tax. The Supreme Court pointed out that every one of the petitioners would have an independent cause of action and, therefore, separate court-fee shall have to be paid.
9. In Ramesh Pande v. State of Karnataka [1982] 1 Kar LJ 466, a Division Bench of this court applied the same principle. It was a case where certain provisions of the Karnataka Sales Tax Act were challenged by several liquor dealers. It was held that separate court-fee shall have to be paid on the ground that the relief sought by each of the petitioners was distinct and separate constituting an independent cause of action in each of the petitions.
10. Both the above cases pertain to the levy of tax which was challenged. Each of the petitioners was interested in getting rid of the tax burden. The relied that would be given ultimately in those proceedings also would be that of the individual petitioner. A proceeding under article 226 is normally invoked by a person whose individual legal right is sought to be infringed. In fact, the courts have entertained a single writ petition with single court-fee as and when the proceedings are initiated by way of public interest litigation. In the case of public interest litigation, none of the petitioners is expected to pay separate court-fee.
11. The concept of cause of action shall have to be understood by reference to the nature of the proceedings that could be initiated consequent upon such a cause of action. When a company is sought to be wound up because the company is unable to pay its debts, the cause of action arises as and when the company's commercial insolvency is disclosed or it is realised that the company is commercially insolvent or it is unable to pay its debts. This cause of action can be taken advantage of by any one of the creditors or the entire body of creditors. Section 439(1)(b) of the Act clearly discloses this principle which says that an application for the winding up of the company shall be by petition presented by any creditor or creditors, including any contingent or prospective creditors or creditors (other provisions are not necessary here). Thus, the Act itself recognises the right of any creditor or creditors to invoke the jurisdiction of the court seeking the winding up of a company by a single petition.
12. The effect of a winding up order is brought out by section 447 which says:
"An order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if it had been made on the joint petition of a creditor and of a contributory."
13. Therefore, when a winding up petition is entertained and considered, the order made by the court ultimately would enure to the benefit of all the creditors and contributories. In fact, the procedure contemplated before making such an order includes a mandatory procedure of an advertisement of the company petition so that other creditors or contributories may participate in the proceedings. A petition for winding up under section 433(e) of the Act certainly is a petition by and on behalf of the class of creditors having regard to the nature of the proceedings and the effect of the ultimate order that may be made by the court. The nature of the proceedings is brought out by the Chancery Division in Crigglestone Coal Co. Ltd., In re [1906] 2 Ch 327 (Ch D) (at page 331):
"A creditor who obtains judgment, and issues execution at law, has a legal right to the means of satisfying his judgment. Subject to qualifications, one of which rests in the fact that the language of the Act is 'may' and not 'shall', and to the reservation which Lord Cranworth made, and subject to what I shall presently say as to the representative position of the petitioner, it seems to me that the petitioning creditor has, as between himself and his debtor, a similar right ex debito justitiae to seize his debtor's assets by the hand of a liquidator and administer them for the benefit of his class. There are cases in which such an order has been refused on the ground that there were no asses to seize. In may judgment this is no exception to or qualification of the right. It is only affirming that if there are no assets the rule does not apply. If the right is to seize the debtor's assets by the hand of a liquidator, it is no exception to say that there is no such right when there are no assets. There cannot be a right to seize nothing. This so-called exception, therefore, is not an exception to the rule, but a statement that under these circumstances there is nothing upon which the rue can operate. Subject to the foregoing, I think that, as between the creditor and the company as his debtor, the creditor who proves insolvency is, without exception, entitled ex debito justitiae to a winding-up order.
But then comes another consideration, viz., that the order which the petitioners seeks is not an order for his benefit, but an order for the benefit of a class of which he is a member. The right ex debito justitiae is not his individual right, but his representative right. If a majority of the class are opposed to his view, and consider that they have a better chance of getting payment by abstaining from seizing the assets, then, upon general grounds and upon section 91 of the Companies Act, 1862, the court gives effect to such right as the majority of the class desire to exercise. This is no exception. It is a recognition of the right, but affirms that it is the right not of the individual, but of the class; that it is for the majority to seek or to decline the order as best serves the interest of their class. It is a matter upon which the majority of the unsecured creditors are entitled to prevail, but on which the debtor has no voice."
14. Therefore, a company petition is more in the nature of a class interest litigation and not in the nature of a litigation between an individual and the company.
15. Order 1, rule 1 of the Code of Civil Procedure which is applicable provides for joinder of several persons as plaintiffs in one suit. However, Mr. Sunder Kumar pointed out that it is not the question of maintainability of a single petition. His contention is based on section 6 of the Court-fees Act. This aspect we have already considered and we are not able to subscribe to the view propounded by the learned Government advocate, since, the cause of action invoked by the creditor is the same for all, viz., the commercial insolvency of the company and the benefit of the winding up order enures to the benefit of all the creditors.
16. In Gupta (B. P.) v. Standard Enamel Works (P.) Ltd. [1987] 62 Comp Cas 36, the learned company judge of the Delhi High Court held that a company petition by several creditors and directors or shareholders, for the winding up of the company under sections 433 and 434 of the Act was not maintainable because the petition of the creditor was founded on the commercial insolvency of the company while the petition of the shareholder/director was based on acts of mismanagement and oppression. The causes of action were quite distinct and separate.
17. For the reasons stated above, we are of the considered view that a single court-fee on a joint company petition by the creditors is maintainable. The objection raised by the office is overruled.