Gauhati High Court
California Pacific Trading ... vs Kitply Industries Ltd. on 18 November, 2003
Equivalent citations: [2004]118COMPCAS580(GAUHATI), [2004]52SCL621(GAU)
Author: Ranjan Gogoi
Bench: Ranjan Gogoi
JUDGMENT Ranjan Gogoi, J.
1. The winding up of the respondent-company, on the ground of its inability to pay its debts within the meaning of Section 433(e) of the Companies Act, 1956, has been prayed for by means of the present company petition. The debt, in respect of which the alleged default has occurred, is claimed to be due under a decree passed by the District Court of the United States of America, on a claim made by the company petitioner, as the plaintiff, against the respondent-company, as the 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. While the facts of the claim adjudicated by the District Court in the United States of America need not be recited, it must be noticed that in the proceeding before the United States Court, leading to the decree, the defendant, i.e., the respondent-company appeared pursuant to the summons received and filed an application asserting lack of jurisdiction of the court. No written statement setting up any particular defence was filed by the respondent-company, i.e., the defendant in the suit, who had subsequently withdrawn from the said proceeding by filing an application to that effect. It must also be noticed, at this stage, that the decree in respect of which the default, is alleged to have occurred, has attained finality, inasmuch as, no appeal against the said decree has been filed by the respondent-company. At the same time, it must be noted that no proceeding for execution of the decree, passed by the District Court of the United States of America, has been initiated by the petitioner-company, i.e., the decree holder either in the United States or in the courts in India.
2. Arguing for the winding up of the respondent-company, Dr. A. K. Saraf, learned counsel for the petitioner, has submitted that the decree passed by the District Court of the United States of America, under which the amount has been claimed to be due, is a valid decree which has attained finality in law. The amount due, in terms of the decree is a debt within the meaning of section 433(e) of the Companies Act, 1956, and the respondent-company is a debtor whereas the petitioner-company is the creditor in respect of the amount covered by the decree. The statutory notice under Section 434 of the Companies Act, 1956, has been served on the respondent-company and default in the matter of payment of the dues having occurred, the respondent-company is liable to be wound up and at the first instance, the present winding up petition is required to be advertised, argues learned counsel for the petitioner.
3. Mrs. M. Hazarika, learned counsel appearing for the respondent-company does not dispute and for good reasons that the amount decreed would amount to a debt under Section 433(e) of the Companies Act. However, learned counsel for the respondent-company has submitted that the remedy of the petitioner-company lies in execution of the decree and admittedly, as no execution proceedings have been initiated by the petitioner-company, the instant company petition would not be maintainable. Learned counsel for the respondent has further submitted that the petitioner-company ought not be allowed to pursue the instant company application as there is a veiled attempt to pressurise the respondent-company to pay the amount due under the decree, by means of the present company application for winding up. Learned counsel for the respondent-company has further argued that the decree passed by the United States District Court cannot be said to be conclusive of the adjudication made on the ground that the decree in question has not been passed by a court of competent jurisdiction. It is not a decree on the merits of the case and that apart, the award of damages in the decree is contrary to the law in India as contained in Section 73 of the Indian Contract Act. On the aforesaid broad basis, learned counsel for the respondent-company submits that the decree passed by the United States District Court would not be conclusive of the matter, in view of the provision of Section 13 of the Code of Civil Procedure.
4. Elaborating, Mrs. Hazarika, learned counsel for the respondent-company, has argued that the assumption of jurisdiction by the United States Court of the Middle District of North Carolina is evidently erroneous inasmuch as the mere visits of the representatives of the respondent-company to a place within the jurisdiction of the said District Court for discussions with regard to the transaction in question and the availability of an internet website of the respondent-company to advertise and promote its products in the middle district of North Carolina would not be sufficient to clothe the court with the necessary jurisdiction. Learned counsel has further argued that the decree passed is an ex parte decree, based on a consideration of the case of the plaintiff alone and that on the ratio of the law laid down by the Privy Council in the case of D. T. Keymer v. P. Visvanatham Reddi, AIR 1916 PC 121, as well as in view of the law laid down by the apex court in the case of International Woollen Mills v. Standard Wool (U. K.) Ltd. [2001] 5 SCC 265, the decree in question would not be one on the merits of the case. Learned counsel has further argued that in determining the entitlement of the plaintiff, i.e., the petitioner-company to damages, Section 73 of the Indian Contract Act has been ignored and brushed aside by the United States Court ; major head of the damages awarded is on account of loss disclosed by the plaintiff which has no reasonable proximity with the alleged breach of the contract by the defendant. Learned counsel, therefore, argues that under Section 13(a)(b)(c) of the Code of Civil Procedure, the decree of the United States Court would not be conclusive of the matter. It is, therefore, argued that the decree in question cannot be construed to be a debt and, therefore, on the alleged failure of the respondent-company to pay the amount covered by the decree, no winding up ought to be ordered by this court.
5. The arguments advanced by the parties have been duly considered. In view of the almost settled position in law that the execution of a decree and a winding up petition are separate remedies, simultaneously available to a creditor, not much elaboration is required to overrule the objection raised in this regard and proceed to the other contentions advanced as noted above. A perusal of the judgment passed by the United States District Court in the middle District of North Carolina in Civil Action No. 1 : 98 CVO1041 dated April 12, 2001, would go to show that the assumption of jurisdiction by the United States District Court was on the basis that Mr. Banka and Gupta, high ranking officers of the respondent-company had visited the North Carolina District for the purpose of discussing the transactions that subsequently became the subject matter of the suit and also on account of the use of a website by the respondent-company in the Middle District of North Carolina. By the aforesaid web site, the respondent-company had promoted its products including marine teak plywood, which was the subject matter of the suit, to persons residing in the Middle District of the State of North Carolina. The assumption of jurisdiction by the US District Court on the basis indicated in its judgment, by no stretch of reasoning, can be said to be unwarranted. No fault, therefore, can be found with the jurisdiction exercised by the US court.
6. In so far as the next ground urged on behalf of the respondent, i.e., that the judgment and decree of the US court is not based on the merits of the case, is concerned, a perusal of the judgment dated April 12, 2001, amply reveals that the US court had elaborately considered and discussed the case set up by the plaintiff in the law suit in question including the evidence and materials produced by the plaintiff in support of its case. As already noted, the defendant in the suit, i.e., the respondent company had not filed any written statement setting up any positive defence, the only stand taken by the defendant is the one relating to the lack of jurisdiction of the US court. The question, therefore, that would arise is whether the judgment and decree passed in the ex parte proceeding would be the judgment and decree on the merits of the case within the meaning of Clause (b) of Section 13 of the Code of Civil Procedure. The law laid down by the Privy Council in the case of D. T. Keymer v. P, Visvanatham Reddi, AIR 1916 PC 121, must be understood in the facts and circumstances of the case before the Privy Council. In the aforesaid case, the claim for the money made by the plaintiff was denied by the defendant by asserting that he was not a partner of the firm in question and further that no amount of money was due by him. The defence having been put, the plaintiff prayed for liberty to exhibit certain interrogatories and liberty being granted, the interrogatories were exhibited and the defendant was called upon to reply to the same. The defendant having failed to answer the interrogatories, the defence was struck off and, thereafter, the judgment and decree was passed in favour of the plaintiff. As the judgment and the decree founded thereon proceeded on the aforesaid basis, the Privy Council took the view that the judgment and decree in question cannot be said to be one on the merits of the case.
7. The facts of the present case are entirely different and bear no resemblance to those before the Privy Council. The defendant, i.e., the respondent-company herein, did not set up any defence before the United States District Court and the only defence was one relating to lack of jurisdiction. The US court after deciding the point of jurisdiction against the defendant in the suit, proceeded to adjudicate the veracity of the plaintiff's case as set up and after considering the same in the light of the materials on record, the judgment and decree in question was passed. The law laid down by the Privy Council in the case of D. T. Keymer v. P. Visvanatham Reddi, AIR 1916 PC 121 can hardly be applicable in deciding the issue in favour of the respondent-company, as urged by learned counsel for the respondent.
8. Reliance has also been placed by learned counsel for the respondent on the judgment of the apex court in the case of International Woollen Mills v. Standard Wool (U. K.) ltd, [2001] 5 SCC 265 The elaborate consideration made by the apex court as to the circumstances in which a judgment and decree cannot be said to be on the merits of the case, has been relied upon by learned counsel in support of the contention that the decree passed by the US District Court cannot be said to be conclusive of the matter. The apex court in the case of International Woollen Mills [2001] 5 SCC 265 approved the decisions of two High Courts, i.e., the High Court of Orissa in the case of Trilochan Choudhury v. Dayanidhi Patra, AIR 1961 Orissa 158 and the decision of the Patna High Court in the case of Wazir Sahu v. Munshi Das, AIR 1941 Patna 109, laying down the correct proposition of law with regard to a judgment and decree being passed on the merits of the case. The decisions approved by the apex court and the law laid down in International Woollen Mills [2001] 5 SCC 265 clearly indicate that an ex parte decision also can be a decision on the merits of the case. The real test is not whether the decision was ex parte but whether the judgment and decree was passed as a matter of formality ; as a matter of course or by way of penalty or whether the decision was passed on consideration of the truth or otherwise of the plaintiff's claim. If the evidence adduced on behalf of the plaintiff receives consideration of the court and the judgment and decree is passed on such consideration, even if the suit is decreed in the absence of the defendant, the judgment may still be one on the merits of the case. Applying the ratio of the law laid down by the apex court in the case of International Woollen Mills [2001] 5 SCC 265, what can be found from the judgment passed by the US Court, is that there has been an elaborate consideration of the case set up by the plaintiff in the suit on the basis of the materials and evidence brought on record by the plaintiff. The damages quantified and awarded by the decree were on the basis of the projections contained in the pleadings and adequate grounds and reasons for the same are cited. The defendants not having set up any positive case in defence or in counter, no consideration of the case of the defendant could reasonably arise. In such a situation, this court is of the considered view that the decision of the US District Court cannot be said to be not a decision on the merits of the case so as to attract Section 13 of the Code of Civil Procedure so as to enable this court to hold that the judgment and decree of the US Court is not conclusive of the matter.
9. The last argument advanced on behalf of the respondent is that the US District Court in awarding damages on account of loss to the plaintiff has acted contrary to the Indian law on the subject, i.e. Section 73 of the Indian Contract Act. Section 73 of the Indian Contract Act contemplates that there must be some proximity between the act leading to the breach of the contract and the loss suffered by the plaintiff on that account. The question will always be where the line is to be drawn by the court, in assessing and quantifying the damages required to be awarded. In the instant case, the US District Court found the possible loss of business between the plaintiff and its customer McEwen Lumber Company to be a direct and proximate loss suffered on account of the breach committed by the respondent. Even if this court is to disagree with the US District Court, which, this court does not intend to, such disagreement would not render the judgment and decree contrary to the law recognised in India. The last contention advanced on behalf of the respondent-company, therefore, has to fail.
10. Though arguments have been advanced on the present financial position of the company as revealed by the annual reports and balance-sheets placed on record, I consider it appropriate to defer consideration of the aforesaid question to the final hearing on the winding up proceeding.
11. For the foregoing reasons, I am not inclined to entertain the objections of the respondent-company to the decree passed by the US District Court. This company petition, therefore, is admitted and this court now directs that the same be advertised in Form 4B under the Companies (Court) Rules and in accordance with rules 96, 99 and 24 of the said Rules.
12. Hearing be set for January 22, 2004.