The Bank Of Nova Scotia vs Rpg Transmission Limited
2002 Latest Caselaw 1912 Del

JUDGMENT

Vikramajit Sen, J.

1. Two questions arise for consideration. Firstly, whether the Power of Attorney executed in favor of the person who has signed the petition conforms with the requirements of law and if found not to be so, what are the proper and appropriate orders that should be passed. Secondly, whether the Company Court should entertain a winding-up petition despite the fact that the petitioning creditor has already instituted proceedings under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the RDB Act').

(A) Power of Attorney issue.

2. In this context, Mr. Rajiv Nayar, learned Senior counsel appearing on behalf of the Respondent, has contended that the document had not been sufficiently stamped. It has, however, been shown that the Power of Attorney in favor of Mr. David A. Tait has been adjudicated for payment of Stamp Duty of Rs. 110/- which has been deposited in the office of the Collector of Stamps, New Delhi. The objection, therefore, has no merit.

3. Mr. Nayar has thereafter contended that on a perusal of its sundry clauses, the Power of Attorney does not empower or authorise Mr. Tait to file a suit or application or petition. It is his contention that there ought to have been a clause which specifically empowers the Attorney to institute a winding-up petition, in contradistinction to other acts such as defending such actions. In this regard Mr. Nayar has relied on the decision in Shantilal Khushaldas and Bros. Pvt. Ltd. v. Smt. Chandanbala Sughir Shah and Anr., [1993] 77 Comp. Cas. 253. In that case the Learned Single Judge has rejected the argument that the class of persons who can file a petition under Section 439 cannot be represented by their authorised agents or duly constituted attorneys. In the opinion of the Learned Judged, the reference to 'court' in Rule 1 of Order III of the Code of Civil Procedure includes the Company Court. Having held so, it was held that proceedings under Section 433 of the Companies Act cannot be equated to suits for recovery of money, for the reason that the lis in winding-up proceedings is not between the petitioning party and the company sought to be wound up, and that once the petition is admitted, the creditors, contributors, shareholders etc. may seek redress in the proceedings and can even oppose a winding-up. However, since no specific empowerment to file a winding-up petition had been conferred by the power of attorney relied upon in that case, the Learned Judge dismissed the petition. Mr. Nayar has further referred to Western India Theatres Ltd. v. Ishwarbhai Somabhai Patel, , which, however, is not of much assistance to the resolution of the objection. The observations are essentially in respect of what can be termed as general and specific powers. The learned Division Bench, speaking through Chief Justice Chagla, after holding that the Power of Attorney was inadequate, viewed it as a mere irregularity, which could be cured at any time. It permitted the Petitioner to sign the petition in Court, which had hitherto fore been signed by his constituted attorney. This very approach has been followed by the Hon'ble Supreme Court in United Bank of India v. Naresh Kumar and Ors., relied upon by learned counsel for the Petitioner. Mr. Nayar had sought to distinguish the case by drawing attention to the fact that the Plaintiff was a 'Public Corporation', and that the Court was persuaded by the pragmatic considerations that public interest should not be permitted to be defeated on a mere technicality. The Hon'ble Court opined that procedural defects which do not go to the root of the matter should not be permitted to overwhelm an otherwise just cause and that as far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable. The following extract is relevant:

"10. It cannot be disputed that a company like the appellant can sue and be sued in its own name. Under Order 6 Rule 14 of the Code of Civil Procedure a pleading is required to be signed by the party and its pleader, if any. As a company is a juristic entity it is obvious that some person has to sign the pleadings on behalf of the company. Order 29 Rule 1 of the Code of Civil Procedure, therefore, provides that in a suit by or against a corporation the Secretary or any Director or other Principal Officer of the corporation who is able to depose to the facts of the case might sign and verify on behalf of the company. Reading Order 6 Rule 14 together with Order 29 Rule 1 of the Code of Civil Procedure it would appear that even in the absence of any formal letter of authority or power of attorney having been execute a person referred to in Rule 1 of Order 29 can, by virtue of the office which he holds, sign and verify the pleadings on behalf of the corporation. In addition thereto an de hors Order 29 Rule 1 of the Code of Civil Procedure, as a company is a juristic entity, it can duly authorise any person to sign the plaint or the written statement on its behalf and this would be regarded as a sufficient compliance with the provisions of Order 6 Rule 14 of the Code of Civil Procedure. A person may be expressly authorised to sign the pleadings on behalf of the company, of example by the Board of Directors passing a resolution to that effect or by a power of attorney being executed in favor of any individual. In absence thereof and in cases where pleadings have been signed by one of its officers a corporation can ratify the said action of its officer in signing the pleadings. Such ratification can be express or implied. The court can, on the basis of the evidence on record, and after taking all the circumstances of the case, specially with regard to the conduct of the trial, come to the conclusion that the corporation had ratified the act of signing of the pleading by its officer."

4. Mr. Nayar has also drawn my attention to the decision of a Learned Single Judge in Nibro Limited v. National Insurance Co. Ltd., , which is, however, not reconcilable with the pronouncements of the Hon'ble Supreme Court. The proper course which should be adopted by the Court in cases where the Power of Attorney in favor of the signatory to the plaint/petition is found to be inadequate, is to afford an opportunity to the Petitioner to rectify the defect or to cure it by any other means including ratification of the action already taken. The objection is rejected.

(B) Whether a winding-up petition is maintainable?

5. The Bank of Nova Scotia is the only petitioning creditor in the winding-up petition. The admitted case is that O.A. No. 154/2001 is pending adjudication before the Debt Recovery Tribunal-II, Delhi between the parties hereto. These proceedings had been initiated prior to the filing of the present winding-up petition. I do not propose to go into the merits of the petition and the defense raised thereto since it appears to me that the petition should be dismissed for the reason that the petitioner has already chosen a forum of recovery, that is before the Debt Recovery Tribunal.

6. Reliance by Mr. Chandhoke on the decision of a Learned Single Judge of this Court in Karam Chand Thapar and Bros. (Coal) Sales Ltd. v. Acme Paper Limited, , is of little avail. The Learned Judge distinguished the decision of the Hon'ble Supreme Court in Amalgamated Commercial Traders Pvt. Ltd. v. A.C.K. Krishnaswami, (1965) 35 Comp. Cas. 456, by observing that the admission of debt had been made by the Respondent in several places. The following lucid opinion is self explanatory:

"5. The second plea raised in defense is that the petitioner has since filed a civil suit and the amount due to the petitioner is yet to be ascertained after proper trial of the suit and that the winding up petition cannot go on after the suit is instituted. Counsel for respondent has cited in support of this contention an authority of this Court in the case of Traders Bank Limited v. Kwick Travels Pvt. Ltd. reported as (1988) 2 Com L.J. 56, that case does not help the respondent. That was a case where the suit had been filed earlier and during the pendency of the suit the petition for winding up was filed by the petitioner. In fact the Court itself had acknowledged as correct the views expressed in the case of Central Bank of India v. Sukhani Mining and Engineering Industries Pvt. Ltd., reported as (1977) 47 Com Case 1 wherein Patna High Court had come to the conclusion that the winding up petition which had already been filed would not be stayed merely because the creditor had filed a suit against the company. It was observed in that case as under:

There is no provision in the Act which ousts the jurisdiction of the Court in continuing and deciding the winding up proceeding in spite of the fact that there is a suit by creditor for the realisation of his debt. If the Legislature had intended that on account of the fact that a suit or proceeding has been filed in another Court, the court in seisin of the winding up application will stay the winding up proceeding on that ground alone, there would have been a provision to that effect in the Companies Act. However, there is no such provision because a winding up proceeding is not merely for the benefit of the petitioner but of all its shareholders, creditors or contributories, therefore, merely because a creditor has filed a suit against the company the winding up proceedings cannot be stayed."

7. It must, at the outset, be noticed that the special remedy under the RDB Act did not come into contemplation in that case. It is trite to state that a party may file a civil suit in order to protect itself from the rigours of the laws of limitation and yet continue to other action. Whether a suit has been filed prior to or subsequent to the winding-up would, therefore, not make any material difference. However, where a party takes recourse to action which is not calculated or intended to save itself from the possibility of the relief being foreclosed on the expiry of limitation, the position would be altogether different. There is no warrant to needlessly subject a party to multiple litigation. Mr. Chandhoke has further relied on Viral Filaments Ltd. v. Indusind Bank Ltd. [2001] 44 CLA (Snr.) 7 (Bom.) in which it was observed that winding up orders can be passed only by the Company Court and such a petition cannot be filed before a Tribunal constituted under the RDB Act. The facts of Andhra Steel Corporation Ltd. v. Bank of Baroda, , however, are not easily forthcoming or discernible.

8. No scope for speculation subsists in regard to the operation of the Companies Act where the RDB Act is also found to have application, after the perspicuous judgment of the Apex Court in Allahabad Bank v. Canara Bank and Anr., AIR 2000 SC 1535. The Court had kept in perspective the following Sections of the RDB Act.

"17. Jurisdiction, powers and authority of Tribunals.--(1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.

(2) An appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act.

18. Bar of Jurisdiction.--On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under Article 226 and 227 of the Constitution) in relation to the matters specified in Section 17. .....

34. Act to have over-riding effect.--(1) Save as otherwise provided in Sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

(2) The provisions of this Act or the rules made there under shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)."

9. The facts in Allahabad Bank's case (supra) were that the claim of Allahabad Bank against M.S. Shoes (East) Company Limited had been decreed by the Debt Recovery Tribunal under Section 19 of the RDB Act, in respect of which it initiated recovery proceedings before the Recovery Officer. The Canara Bank also filed an application before the Tribunal as a Secured Creditor for the recovery of its debts from the same company, namely, M.S. Shoes (East) Company Limited. In winding-up proceedings against M.S. Shoes (East) Private Limited an Order under Sections 442 and 537 of the Companies Act was passed by the Company Judge staying the sale of that Company's assets and also restraining the disbursements of the process realised pursuant to other sales. The Hon'ble Supreme Court made the following observations:

"23. In out opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) [formally under Section 19(7)] to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word 'recovery' in Section 17 of the Act. It appears to us that basically, the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction, but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not, however, apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act.

24. We hold that the provisions of Sections 17 and 18 of the RDB are exclusive so far as the question of adjudication of the liability of the defendant to the appellant bank is concerned. .....

26. The provisions of Section 34(1) clearly state that the RDB Act overrides other laws to the extent of 'inconsistency'. In our opinion, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. .....

28. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other court or authority, much less, the civil court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decided accordingly."

10. The Hon'ble Supreme Court reiterated the view expressed by it earlier in Damji Valji Shah and Anr. v. Life Insurance Corporation of India and Ors., . In that case it had observed that "in view of Section 41 of the Life Insurance Corporation of India's Act, the Company Court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act". This finding was recorded even though there is no provision in the Life Insurance of India Act akin to Section 34 of the RDB Act giving overriding effect to those statutory provisions. The Hon'ble Supreme Court gave its imprimature to the view of some High Courts, which had treated the Companies Act as a general statute, and the RDB Act as a special statute overriding the general statute. The Apex Court overruled the decision of this Court in Mayur Syntex Limited v. Punjab & Sind Bank etc., and of the Calcutta High Court in UCO Bank v. Concast Products Ltd. (in liquidation) (1996) 2 Comp LJ 449. In the former case a Learned Single Judge of this Court had observed that winding-up procedure was unique in itself, one of the facets being the recovery from a common pool. My learned Brother had favored the adoption of harmonious construction between the Companies Act and the RDB Act and had opined that no straight jacket formula can be adhered to. It had been held that the Company Court has full power and jurisdiction to consider the best interests of secured and unsecured creditors, as also the workmen and other attending circumstances and then pass necessary orders under the provisions of Section 446 of the Companies Act. As has been mentioned this view did not find favor with the Apex Court. In the matter case a suit had been filed in the High Court by the Bank which stood transferred to the Tribunal under the RDB Act. The Company subsequently went into liquidation and the Court took the view that by operation of Section 446 of the Companies Act the suit ought to be transferred to the Company Court. The diametrically opposite view taken by the Kerala High Court in The Industrial Credit and Investment Corporation of India Limited and etc. v. Vanjinad Leathers Ltd. and etc., was affirmed by the Supreme Court.

11. Mr. Chandhoke's reliance on the Allahabad Bank's case (supra) is thus in vain. He has also referred to a decision of the Division Bench of the High Court of Bombay in Viral Filaments Ltd. v. Indusind Bank Ltd. [2001] 44 CLA (Snr.) 7 (Bom.) in which, however, there is a strong and significant distinguishing feature. The learned Company Judge had admitted the petition under Section 433(e) of the Companies Act, which was found to be justified by the Division Bench. The facts were that the Bank had advanced a total sum of Rs. 5,17,46,623.96 to the Company. It issued a statutory notice for repayment of the aforesaid amount on 8.3.2000. In opposition to the winding-up petition it had been averred that the Respondent was not commercially insolvent, that it engaged a large number of workers and that winding up of the company would cause hardship to the workers and their families. In addition it was submitted that the Bank had already initiated recovery proceedings before the Debt Recovery Tribunal constituted under the RDB Act. The Court had found that Section 434 of the Companies Act was attracted and a statutory presumption of inability to pay its debts could be drawn against the Company. After holding that Allahabad Bank's case (supra) could not be understood to have held that merely because the petitioning creditor before the Company Court is a financial institution or because an application has already been filed before the Debt Recovery Tribunal under the provisions of the RDB Act, the petition for winding up would not be maintainable. Section 434 of the Companies Act would not have been mentioned had the Court not come to the conclusion, after a preliminary adjudication or consideration of the facts of the case, that the Respondent Company was unable to pay its debts (See Wimco Ltd. v. Widvink Properties (P) Ltd. [1996] 86 Comp. Cases 610). A Division Bench of this Court in Gautam Electric Motors v. Firm Shantilal and Bros., 2nd 1969 Delhi 708, has opined "that the word 'neglected' used in Section 434(1)(e) is not necessarily equivalent to 'omitted'. It really means 'omitted' to pay without reasonable cause".

12. The following observations in Amalgamated Commercial Traders case (supra) are apposite:

"It is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide dispute by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order". (Vide Buckley on Companies Act, 135th Edition, P. 451).

"If the debt was bona fide disputed, there cannot be "neglected to pay" within Section 434(1)(a) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated."

13. The Division Bench in Viral Filaments case (supra) made the following observations:

"5. Section 18 of the RDB Act provides that, on and from the appointed day, jurisdiction of Courts and other authorities in relation to matters specified in Section 17 is barred. Section 17 provides that on and from the appointed day, a Tribunal constituted under the RDB Act shall exercise the jurisdiction, powers and authority 'to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions'. Thus, it is obvious that the exclusion of the jurisdiction of all other Courts and authorities is only to the extent the jurisdiction is specifically vested in the DRI. That jurisdiction under Section 17 is only the jurisdiction to entertain and decide applications from banks and financial institutions for recovery of debts due to them. On first principles, we are unable to agree with the learned counsel that a petition presented under Section 433(e) for winding up of a company is or equivalent to an application seeking recovery of a debt due to the petitioning creditor. In the first place, Section 433 is not intended to supplant the jurisdiction of a Civil Court to adjudicate a money suit. Section 433(e) vests in the Company Court the jurisdiction to wind up a company, inter alia, under Clause (e), if the company is unable to pay its debts. Section 434 creates a statutory fiction that if the creditor has issued a prescribed notice to the company to pay up the debt and the company falls to do so or fails to secure the said debt within the prescribed time, the company shall be deemed to be unable to pay its debt. Once such a contingency has arisen, and the statutory fiction has come into play, it is perfectly open to the Company Court to entertain the petition under Section 433(e).

6. The argument of Mr. Shah that what could be done by the Company Court can equally be done by the DRT under the RDB Act is erroneous. There is no provision in the RDB Act empowering the Tribunal to wind up a company which owes the debt to the applicant financial institution. The jurisdiction of the Tribunal under the RDB Act is only to adjudicate the liability of the respondent before it, ascertained the 'debt' due to the bank/financial institution and issue a certificate for recovery thereof. Once such a certificate of recovery is issued to the Recovery Officer, the Recovery Officer is empowered to execute the same in the manner prescribed under the RDB Act. We find that the jurisdiction to wind up the company is wholly unavailable to the DRT. Hence, what could be done by the Company Court under Section 433(e) could obviously not be done by DRT."

14. It is trite to state that a winding-up petition is not akin and similar to legal proceedings for the recovery of money. The jural reality is that the petitioning creditor has only one objective in mind while invoking Sections 433 and 434 of the Companies Act, and that is for effecting a recovery of his outstandings. In the present day and age when legal proceedings are costly, cumbersome and time consuming, it would be difficult, nay well nigh impossible to find an altruistic person who initiates legal action solely with the numerous creditors of a sinking company in mind. Even at the stage of issuing notice of a winding-up petition, the Company Judge is not expected to act mechanically since winding-up orders have wide dimentions and fatal consequences. The Judge examines whether a prima facie case has been made out to disclose the Respondent Company's recalcitrance or inability to pay its debts. The Company Judge thereafter perforce carefully considers the defense put forward by the Respondent Company. Till this stage the Judge does nothing that is contrary or different to 'adjudication' which, according to the Concise Oxford Dictionary is to decide judicially regarding a claim etc. After the introduction of the RDB Act, I find it difficult to accept the preservation of the jurisdiction of the Company Judge to adjudicate upon matters which fall within the purview of that Act. Experience shows that although a clear admission of debt may be absent at the stage of the issuance of notice on the winding-up petition, it may become apparent after the pleadings have been completed. Conversely, there may be an admission of debt, which proves to be palpably illusory after consideration of the defense put forward on behalf of the Respondent Company. In the first case the Company Judge would admit the petition and in the second case would dismiss it. The entire activity is one of adjudication. A possible exception would be where a judicial determination has already taken place, such as where a decree has been passed by a Court of competent jurisdiction, or where, as in the Allahabad Bank's case (supra), a decree has already been passed by the Debt Recovery Tribunal. In such cases the Company Judge would immediately proceed to the second limb of his duties under Sections 433 and 434 of the Companies Act, that is post-admission of the petition. At this stage he wold appoint a Liquidator and decide on the distribution of the proceeds of the Company. It is only in the second limb of jural activity that an actual difference between recovery proceedings and winding-up proceedings becomes manifest. In the Viral Filaments case (supra) the Division Bench had meaningfully used the phrase "on first principles" in paragraph 5 of its judgment, extracted above. Once adjudication of the disputes has been removed from the purview of Company Court and has been reposited with the Debt Recovery Tribunal, it is inappropriate, except in exceptional cases, for the Company Judge to exercise its powers under Section 433 of the Companies Act. This is the only manner in which I can understand the pronouncements of the Hon'ble Supreme Court in Allahabad Bank's case (supra). The Division Bench has also noticed the pronouncements of the Apex Court in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., , where the presence of an arbitration clause was found not to preclude the jurisdiction of the Company Court, it being statutory relief. This is not to say that in every case the Company Judge will proceed to adjudicate, till the very end, the disputes brought before him, even though further reflection and cogitation, it appears to him to be apposite and expedient to refer the parties to arbitration, where the issues would be considered threadbare.

15. There is one more aspect which needs to be articulated. There may be an abundance of legal avenues for obtaining a particular relief. Where one of them has been adopted, which is an efficacious remedy, there seems to be no justification for permitting a second one to be also traversed. The second one, if initiated, should only be viewed as vexatious and in the nature of intended harassment. In the present case, the relief under the RDB Act is far more efficacious than that in the winding-up petition. All secured creditors are equally placed in the Company Court, whereas in proceedings under the RDB Act, the concerned financial institution has the advantage of exclusively appropriating to the extent of its decree, the proceeds of its particular security. This was in essence the dispute before the Allahabad Bank's case (supra) where one Bank was seeing parity with another. Quite obviously the Bank which had exclusively demarcated the security would be reluctant to share that security with any other party. Logically, therefore, the moment a financial institution approaches the winding-up Court, a legal presumption should be drawn that it is willing to place itself in the same position that all other secured creditors are in. While a financial institution may be willing to enjoy the luxury of more than one legal remedy, it would be imprudent for it to dilute its exclusive charge over a specific debt. The factual matrix in Viral Filaments case (supra), where no substantial defense was found to exist, distinguishes that case from the present.

16. For these manifold reasons I do not consider it appropriate to exercise the summary and equitable jurisdiction available under Sections 433 and 434 of the Companies Act. The petition as well as all pending applications are accordingly dismissed. However, the parties shall bear their own costs.