Rajasthan High Court - Jaipur
M/S New Swan Autocomp Pvt Ltd vs M/S Incopac Parts Pvt Ltd on 23 February, 2024
Author: Sameer Jain
Bench: Sameer Jain
(1 of 11) [COP-2/2016]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
S.B. Company Petition No. 2/2016
M/s New Swan Autocomp Pvt Ltd
A company duly incorporated under the provisions of the
Companies Act, 1956 having its registered office at C-124,
Naraina Industrial Area, Phase-1, Road No. 12, Naraina, New
Delhi-110027
----Petitioner
Versus
M/s Incopac Parts Pvt Ltd
A company duly incorporated under the provisions of the
Companies Act, 1956 having its registered office at 422-423,
Village Kehrani, Tehsil Tijara, Bhiwadi, Rajasthan-301019
----Respondent
Connected With S.B. Company Application No. 4/2016 M/s New Swan Autocomp Pvt Ltd
----Petitioner Versus M/s Incopac Parts Pvt Ltd
----Respondent For Petitioner(s) : Mr. Sandeep Taneja For Respondent(s) : Mr. Sunil Kumar Singh, through VC HON'BLE MR. JUSTICE SAMEER JAIN Order RESERVED ON : 05/01/2024 PRONOUNCED ON : 23 /02/2024
1. The present company petition was filed in the year 2016 by the petitioner seeking winding up of the respondent-company on account of the outstanding debt of approximately Rs. 61.50 lakhs. (Downloaded on 28/02/2024 at 08:42:18 PM)
(2 of 11) [COP-2/2016] FACTS/BACKGROUND
2. This case has a chequered history. The undisputed principal due amount was for the goods supplied by the petitioner to the respondent-company during the period 01.04.2014 to 31.03.2015. When the statutory notice dated 17.09.2015 under Section 433(e) read with Section 434 of the Companies Act, 1956, demanding payment of the outstanding dues was not complied with, and looking to the fact that the respondent company was running into losses and had an accumulated loss of about Rs. 2.01 crores as on 31.03.2014, the instant winding up petition was filed in 2015, and notices were issued on 22.01.2016. The petition was admitted vide order dated 06.01.2017 after affording several opportunities to the respondent-company to file reply or to amicable settle the dues. However, the application for appointing provisional liquidator was kept pending to be considered on the next date.
3. An interim order was passed on 05.10.2017, again after affording several opportunities to the respondent-company, restraining the respondents from alienating any movable or immovable property of the respondent-company. Thereafter, the matter was listed several times wherein respondents sought time to clear the outstanding dues and therefore the matter had to be adjourned on respondent's behest. Vide order dated 24.01.2019, the application of the respondent-company seeking partial vacation of stay was dismissed and the interim stay order dated 05.10.2017 was made absolute. Against the said orders, the respondent-company preferred an appeal before the Division Bench but the application seeking stay of orders of this Court was dismissed by Division Bench of this Court vide order dated (Downloaded on 28/02/2024 at 08:42:18 PM) (3 of 11) [COP-2/2016] 13.05.2019 in D.B. Special Appeal (Civil) No. 4/2019. Thereafter, the special appeal was ultimately dismissed as withdrawn vide order dated 11.11.2019.
4. By 21.01.2020, after seeking several opportunities from this Court, the respondent-company had repaid the principal outstanding amount, albeit in instalments. However, the interest amount of about Rs. 28 lakhs, calculated at 18% per annum was still pending. The respondent sought modification of the stay order with an undertaking that they would deposit a bank guarantee of the due amount of interest. Therefore, an order to this effect was passed on 21.01.2020 vacating the interim order dated 05.10.2017 subject to the condition that the respondent-company deposits bank guarantee in lieu of interest amount.
5. The matter was listed for several times thereafter but the order dated 21.01.2020 was not complied with by the respondent- company. When the matter was listed on 12.08.2021, learned counsel for the respondent had objected to the high rate of interest and the matter was adjourned with directions to parties to seek necessary instructions. When the matter was listed on 14.07.2022, the respondent-company expressed disinclination to even pay interest @ 9% and the matter was therefore directed to be listed on the prayer so made in the company petition. After this, an application was moved by the respondent under Section 151 of CPC read with Section 433(e) of the Companies Act, 1956 seeking amendment of order dated 21.01.2020 and argued that there was no liability on behalf of the respondent-company to pay any amount towards interest as the principal amount was already paid. The said application was dismissed on merits vide detailed (Downloaded on 28/02/2024 at 08:42:18 PM) (4 of 11) [COP-2/2016] order dated 17.02.2023 and the interim order dated 05.10.2017 was directed to be continued.
6. Thereafter, the matter was listed for final arguments on at- least 5 occasions and each time the matter had to be adjourned either on request of the respondent-company or on account of non-appearance by the respondents or their counsel. SUBMISSIONS OF PETITIONER
7. Supporting the claim of interest, learned counsel for the petitioner submits that as per Hon'ble Supreme Court judgment of Aditya Mass Communications (P) Ltd. vs. A.P.S.R.T.C.:
(2003) 11 SCC 17, if the Court comes to the conclusion that a party has been wrongly denied the use of its own money, it is the duty of the courts to see that the said party is appropriately compensated. Learned counsel for the petitioner contends that if the liability to pay principal amount had not been disputed by the respondent-company, the Company Court is the appropriate forum for determining as to whether the creditor was entitled to interest.
In this regard, reliance is placed on the following judgments:
(a) Stephen Chemical Limited vs. Innosearch Limited:
[1986] 60 CompCas 702 (P&H);
(b) Rashid Leathers (P.) Ltd. vs. Super Fine Skin Traders:
[1990] 68 CompCas 684 (Mad);
(c) Devendra Kumar Jain vs. Polar Forgings & Tools Ltd.:
[1995] 84 CompCas 766 (Delhi);
(d) Munshi Ram Om Prakash vs. Arti Food and Fats Pvt. Ltd.
and Ors.: [2008] 142 CompCas 678 (P&H).
8. Learned counsel for the petitioner submits that interest is also payable by way of restitution and also in terms of Section (Downloaded on 28/02/2024 at 08:42:18 PM) (5 of 11) [COP-2/2016] 61(2)(a) of the Sale of Goods Act, 1930 and Section 3 of the Interest Act, 1978. In this regard, reliance is placed on Hon'ble Supreme Court judgment of Vijay Industries vs. NATL Technologies Limited: (2009) 3 SCC 527.
SUBMISSIONS OF RESPONDENT
9. Learned counsel for the respondent-company merely submitted that neither the respondent-company nor its directors are in a capacity to clear the dues qua interest. It is highlighted that the director had settled the principal outstanding amount from his personal property and in such circumstances, a sympathetic view should be taken.
ANALYSIS
10. Heard the arguments advanced by both the sides, scanned the record and considered the judgments cited at Bar.
11. In the instant case, the respondent-company has not filed any reply to the petition. After conclusion of arguments, opportunity was also granted to file written submissions, but the same were also not filed on behalf of the respondent-company. The respondent-company has rather admitted the liability and has paid the principal debt during the pendency of the petition. Therefore, at this stage, the only issue which requires consideration of this Court is with regard to imposition of interest on delayed payment of principal debt.
12. Before proceeding of adjudication of the claim on merit, this Court must take note of the meaning of the word 'interest'. As per Hon'ble Supreme Court judgments of Pratibha Processors v. Union of India: (1996) 11 SCC 101, Consolidated Coffee Ltd. v. Agricultural ITO: (2001) 1 SCC 278, Union of India (Downloaded on 28/02/2024 at 08:42:18 PM) (6 of 11) [COP-2/2016] vs. Tata Chemicals: (2014) 6 SCC 335, Oriental Structural Engineers Pvt. Ltd.vs. State of Kerala: (2021) 6 SCC 150, Lachmandas Mathuradas v. CIT: (2002) 254 ITR 799, and Indodan Industries Ltd. vs. State of U.P. and Ors.: 2009 (13) SCALE 421, interest is compensatory in nature and is intended to balance the equities between the creditor and debtor and serves as a compensation to loss suffered by the creditor to due to delay in payment by the debtor. In other words, interest is payable by way of restitution. Recourse may also be taken to Hon'ble Supreme Court judgment of Vijay Industries (supra), the relevant portion of which is reproduced as under:
"45. This brings us to the question as to why an interest is payable. An interest is inter alia payable by way of restitution.
46. In Clariant International Ltd. v. SEBI [(2004) 8 SCC 524] this Court held:
"25. A direction in terms of Regulation 44 which was in the interest of securities market indisputably would have caused civil or evil consequences on the defaulters. Clause (i) of Regulation 44, however, does not provide for any penal consequence. It provides for only civil consequences. By reason of the said provision, the power of the Board to issue directions is sought to be restricted to pay the amount of consideration together with interest at a rate not less than the interest payable by banks on fixed deposits. Both the Board and the Tribunal have proceeded on the basis that the interest is to be paid with a view to recompense the shareholders and not by way of penalty or damages. Such a direction, therefore, was for the purpose of protecting the interest of investors and not 'in the interest of the securities market'. The transactions in the market are not thereby affected one way or the other. The Board, as noticed hereinbefore, has a discretion in the matter and, thus, it may or may not issue such a direction. The shareholders do not (Downloaded on 28/02/2024 at 08:42:18 PM) (7 of 11) [COP-2/2016] have any say in the matter. As a necessary concomitant, they have no legal right."
47. Yet again, this Court in Alok Shanker Pandey v. Union of India (2007) 3 SCC 545 has held that interest is payable by way of accretion on capital.
48. The question came up for consideration in Venkatadri Appa Row v. Parthasarathi Appa Row [AIR 1922 PC 233] wherein it was held:
"... There is a debt due that carries interest. There are moneys that are received without a definite appropriation on the one side or on the other, and the rule which is well established in ordinary cases is that in those circumstances the money is first applied in payment of interest and then when that is satisfied in payment of the capital. That rule is referred to by Rigby, L.J. in Parr's Banking Co. v. Yates [(1898) 2 QB 460 : (1895-99) All ER Rep Ext 1592 (CA)] in these words : (QB p. 466) '... The defendant's counsel relied on the old rule that does, no doubt, apply to many cases, namely, that, where both principal and interest are due, the sums paid on account must be applied first to interest. That rule, where it is applicable, is only common justice. To apply the sums paid to principal where interest has accrued upon the debt, and is not paid, would be depriving the creditor of the benefit to which he is entitled under his contract....' "
The said decision has been followed by this Court in Meghraj v. Bayabai [(1969) 2 SCC 274] and a Constitution Bench of this Court in Gurpreet Singh v. Union of India [(2006) 8 SCC 457] (SCC p. 470, para
19).
49. In Alok Shanker Pandey v. Union of India [(2007) 3 SCC 545] this Court held : (SCC p. 547, para 8) "8. We are of the opinion that there is no hard-and- fast rule about how much interest should be granted and it all depends on the facts and circumstances of each case. We are of the opinion that the grant of interest of 12% per annum is appropriate in the facts of this particular case. However, we are also of the opinion that since interest was not granted to the appellant along with the principal amount, the respondent should then in addition to the interest at the rate of 12% per annum also pay to the appellant interest at the same rate on the aforesaid (Downloaded on 28/02/2024 at 08:42:18 PM) (8 of 11) [COP-2/2016] interest from the date of payment of instalments by the appellant to the respondent till the date of refund of this amount, and the entire amount mentioned above must be paid to the appellant within two months from the date of this judgment."
50. Interest is also payable in terms of the provisions of Section 61(2)(a) of the Sale of Goods Act. Interest may be held to be payable in terms of Section 3 of the Interest Act, 1978 as also in terms of Sections 5 and 6 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
51. In Krishna Chemicals v. Orient Paper and Industries Ltd. [(2005) 128 Comp Cas 412 (Ori)] the Orissa High Court held : (Comp Cas p. 420, para 17) "17. The interest amounts as claimed by the petitioners in the two cases against the Company however may not be in accordance with the provisions of Sections 4 and 5 of the Act, 1993 [Ed. : The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.] . The fact that the exact amount of interest claimed by the petitioners against the Company is disputed can be no ground to dismiss the petition for winding up for non-payment of the interest so long as the liability to pay interest of the Company to the petitioners exists under Sections 4 and 5 of the Act, 1993 [Ed.: The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.] and admittedly such liability has not been discharged by the Company. As has been held by the Supreme Court in Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd. [(1971) 3 SCC 632] in the portion of the judgment quoted above (SCC p. 638, para 21), where 'there is no doubt that the company owes the creditor a debt entitling him to a winding-up order but the exact amount of the debt is disputed the court will make a winding-up order without requiring the creditor to quantify the debt precisely'."
52. The provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 were applied in Assam Small Scale Industries Development Corpn. Ltd. v. J.D. Pharmaceuticals [(2005) 13 SCC 19]."
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(9 of 11) [COP-2/2016]
13. Having established the compensatory nature of 'interest', it must also be noted that the due amount pertained to transactions carried out in the financial year 2014-2015, which was only paid in full towards the end of 2019. The petitioner was therefore deprived from gainful use of its funds for about 4-5 years and suffered opportunity losses, which are required to be compensated, as per Hon'ble Supreme Court judgment of Aditya Mass Communication (supra), the relevant portion of which is reproduced as under:
"The facts narrated hereinabove clearly shows the respondent has retained the money belonging to the appellant without authority of law and has driven the appellant to series of litigations, therefore, this fact itself should have been sufficient to refuse the request of the respondent made before the High Court for reduction of rate of interest. The quantum of interest a court may allow in a given case is governed by the facts of the case and not by any precedent law unless, of course, limited by a statue. If a court comes to the conclusion on a given set of facts, a party has been wrongly denied the use of its own money, it is the duty of the court to see that the said party is appropriately compensated. In the instant case, we are of the opinion that the respondent has deprived the appellant of its rightful use of the money. Therefore, the interest awarded by the trial court to say the least was most reasonable. We also notice that the High Court has not given any reason except referring to the judgments of this Court in the case of Sovintorg (India) Ltd. v. State Bank of India, New Delhi: AIR 1999 SC 2963 and Ghaziabad Development Authority v. Union of India and Anr.:
(2000) 6 SCC 113. As stated above, the facts of this case do not justify the application of the principle, laid down by this Court in those judgments."
14. The power of this Company Court to order on interest has also been well established by various judicial pronouncements. It (Downloaded on 28/02/2024 at 08:42:18 PM) (10 of 11) [COP-2/2016] would be apt to reproduce the relevant portion of Stephen Chemical Limited (supra) at this juncture:
"5. In our opinion, where the company judge was seized of the matter and when the liability to pay the principal debt had not been disputed by the company sought to be wound up and, in fact, paid up the debt in order to avoid winding-up, the forum of the company judge is the appropriate forum for determining as to whether the creditor was entitled to interest on the amount in question or not. The basic policy of law is to avoid multiplicity of litigation.
6. The learned counsel for the appellant also referred us to the order of Goyal J. rendered in C. P. No. 77 of 1983--decided on July 20, 1984, Unisystems (P.) Ltd. v. Stepan Chemical Ltd. [1985] 58 Comp Cas 875 (P&H), wherein Goyal J. had observed that where no agreement for the payment of interest existed and the creditor had claimed interest, no winding-up order could be passed.
7. With respect, if the said observations are intended to cover the cases of the present kind, then we find ourselves unable to concur in that view. The said observations may be correctly applicable to a case where winding-up initially is sought by a party on the ground that certain amount by way of interest was due from the other party which the other party had failed to pay up despite demand notice and the other party raises a bona fide dispute as to the right of the creditor to claim interest in the absence of any agreement regarding payment of interest or any other plausible ground, but the position would be entirely different where the amount alleged to be due from the company sought to be wound up included the principal amount of debt and the liability to the principal amount has been accepted before the company judge and the creditor is sought to be relegated to the civil remedy for getting the interest on the said principal amount."
15. This view has also been affirmed in Rashid Leathers (supra), Devendra Kumar Jain (supra), and Munshiram Omprakash (supra). Therefore, it can safely be concluded that in a case where the liability to pay the principal amount is not (Downloaded on 28/02/2024 at 08:42:18 PM) (11 of 11) [COP-2/2016] disputed by the company, the creditor need not be forced to initiate separate litigation for recovery of the interest amount and the interest amount can be determined by the Company Court in the winding up proceedings and on failure of the company to pay that amount, the company can be ordered to be wound up on the ground that it is unable to pay its debts.
16. In view of the foregoing analysis, though the petitioner has prayed for interest @18% per annum and quantified the same to be approximately Rs. 28 lakhs, this Court is inclined to impose interest @9% per annum. It is directed that the respondent- company shall pay simple interest at the rate of 9% per annum within twelve weeks from the date the amount became due till it is paid, failing which this Court would be left with no other alternate but to appoint Official Liquidator.
17. The matter be listed on 31.05.2024 to ascertain whether there is requirement to appoint Official Liquidator.
18. Interim orders passed on earlier occasions to continue.
(SAMEER JAIN),J ANIL SHARMA /12-13 (Downloaded on 28/02/2024 at 08:42:18 PM) Powered by TCPDF (www.tcpdf.org)