M/S Nehru Place Hotels Limited vs M/S Bhushan Limited
2011 Latest Caselaw 3816 Del

            THE HIGH COURT OF DELHI AT NEW DELHI
%                                  Judgment delivered on: 09.08.2011

+             CO. APP. 61/2005

M/S NEHRU PLACE HOTELS LIMITED                            ... Appellant


                                   Versus


M/S BHUSHAN LIMITED                                       ... Respondent

WITH

+ CO. APP. 62/2005

M/S NEHRU PLACE HOTELS LIMITED ... Appellant

Versus

M/S BHUSHAN STEEL & STRIPS LIMITED ... Respondent

Advocates who appeared in this case:

For the Appellants : Mr Akhil Sibal with Ms Vidhi Goel and Mr Deepak Khurana For the Respondents : Mr N.K. Kaul, Sr Advocate with Mr Anil Airi and Mr Ravi Krishan Chandan, Ms Sadhna Sharma and Ms Srishti Jaisingh

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in Digest? Yes

BADAR DURREZ AHMED, J

1. These appeals arise out of a common judgment dated

09.05.2005 delivered by the learned Company Judge in C.P. Nos.40/2004

and 41/2004, whereby the appellants' petitions seeking winding up of

the respondents (Bhushan Limited in C.P. No.40/2004 and Bhushan Steel

and Stripes Limited in C.P. No.41/2004) on the ground that the

respondent companies were unable to pay their debts, were dismissed.

The company petitions were founded on the basis of a compromise

decree dated 19.12.1997 passed by a learned single Judge of this court,

whereunder the respondents had agreed to make payments of recurring

charges which included maintenance charges in respect of the common

areas and common facilities. The plea of the appellant was that since the

charges specified in the decree were not being paid by the respondents, it

was apparent that they were unable or had neglected to pay their debts.

2. On the other hand, the respondents had taken the plea that

though they had initially made payments of recurring charges in terms of

the compromise decree, they had stopped making the payments at the

rates demanded by the appellant inasmuch as the maintenance charges

were contrary to the provisions of the Delhi Apartment Ownership Act,

1986 as well as against public policy. It was claimed by the respondent

companies that the compromise decree was a nullity and could not be

enforced and, therefore, the non-payment of any amount thereunder

could not be regarded as a debt payable by the respondent companies.

3. The learned Company Judge dismissed the winding up

petitions after concluding that the respondent companies had raised a

bona fide dispute with regard to the so-called debt, particularly in view

of the mandatory provisions of the Delhi Apartment Ownership Act,

1986. The learned Company Judge has also taken the view that even

though there was a compromise decree, the company court was entitled

to go into the question as to whether there was or was not a bona fide

dispute with regard to the debt which had allegedly remained unpaid.

The learned Company Judge, thus, held that these were not cases where

discretionary jurisdiction of winding up ought to be exercised. However,

at the same time, it was observed that:-

"... to balance the equities it would be proper to give certain directions to the company inasmuch the company cannot be allowed to create a situation where it does not pay any maintenance charges at all. No doubt the petitioner is to render the accounts as well."

Consequently, the learned Company Judge disposed of the company

petitions as under:-

"42. These petitions are, therefore, disposed of with the following directions:

(i) The company shall pay maintenance charges at the rate of Rs.29.03 per sq.ft. which were the charges agreed to in July, 1997. I am conscious of the fact that the company even thereafter paid increased maintenance charges after adding 8% / 9% every year till 2003, still I am restricting the payments, for time being, at Rs.29.03 per sq.ft. as the company claims that it has already paid huge amount in excess and the accounts are to be rendered by the petitioner.

(ii) The petitioner, if rendition of accounts, is able to show that amount payable is more than Rs.29.03 per sq.ft.it would be entitled to make claim of further maintenance charges for the period in question.

(iii) Both the parties would be at liberty to seek their civil remedies, namely, the petitioner for claiming the maintenance charges at enhanced rate, if justified on actual basis and the company for claiming rendition of accounts."

4. The questions which arise for consideration in these appeals

are:-

a) Whether the company court can go behind a

compromise decree in order to ascertain as to

whether a debt based on the same is legally

enforceable or not and whether a bona fide dispute

in respect of the debt can be raised

notwithstanding the existence of a compromise

decree ?

b) Whether the recurring maintenance charges agreed

to be paid by the respondent companies to the

appellant in terms of the compromise decree are

contrary to the provisions of the Delhi Apartment

Ownership Act, 1986 ?

c) Whether the impugned judgment of the learned

Company Judge, particularly with regard to the

nature of the debt and also the compromise decree,

is binding on the civil court in the suits pending

between the parties ?

5. Before we examine these questions, it would be appropriate to

set out the necessary facts. The appellant is in the hotel business and one

of its hotels is located at Nehru Place, New Delhi adjacent to which the

appellant has also built up an International Trade Tower which houses

several commercial establishments. The space has been sold to such

establishments by the appellant. The respondent companies also entered

into 'lease' agreements dated 16.04.1993 and dated 17.04.1993, whereby

the appellants were to eventually sell, transfer and convey the title of Flat

Nos.109, 110, 111 and 112 altogether measuring 4000 sq. ft, situated in

Block-F of the First Floor of the said Trade Tower to the respondent

(Bhushan Limited). A similar arrangement was made with Bhushan

Steel and Strips Limited in respect of Flat Nos.101, 102, 103, 104, 105,

106, 107 and 108 altogether measuring 8000 sq. ft., including the super

built-up area situated in Block-F, First Floor of the said International

Trade Tower, Nehru Place, New Delhi. The respondent companies had

raised some disputes in 1994 and had instituted a suit against the

appellant being CS(OS) No.1639/1994. The appellant had also filed a

suit against the respondents being CS(OS) 1513/1995. Both the suits

were compromised in terms of a compromise deed dated 17.12.1997. On

17.12.1997, the appellant entered into space buyer agreements with the

respondent companies in respect of the said flats mentioned above,

whereby the respondent companies purchased their respective flats and

also acquired an irrevocable right to use certain parking spaces in terms

of the said agreements.

6. By virtue of the space buyers agreements, the respondent

companies were to make payments of the total sale price as also the

recurring charges, such as car parking, insurance, sinking fund, ground

rent, electricity and water charges, etc. The space buyers agreements

required the respondent companies to pay recurring charges. The

recurring charge was defined in clause 2(c) as follows:-

"2(c) Recurring Charge shall mean those amounts which are agreed to be paid and borne by the Space Buyer in future, that is, after the date of handing over possession and shall include:

(v) consideration for any common area, common facility, amenity or advantage not herein specified but subsequently agreed in writing to be made available to the Space Buyer by the Company to which the Space Buyer may be found to be entitled or may become entitled under any law, rule, judgment or decree of any court;

(vi) further agreed maintenance charges and contribution to sinking / capital replacement fund;

(vii) further agreed maintenance charges for running & maintenance of the Air-conditioning plant and contribution to sinking / capital replacement fund. (this would be applicable for such spaces where the air-conditioning facility is also agreed to be provided).

(viii) amount due from Space in lieu of Ground Rent as specified in this Agreement from the date of execution of this Agreement."

7. Clause 14 of the said agreement sets out all the payments

which are to be made by the respondent companies in the following

terms:-

"Clause 14 (a). From the date of this Agreement, the Space Buyer would be liable to pay regularly maintenance and service charges for common areas and for the consumption of electricity and water in the common area.

(b) in respect the spaces which are air- conditioned, the Space Buyer would be liable to pay the Company all charges such as for the consumption of electric and water and other consumables for the running of air-conditioning, plant, as well as for its repairs, maintenance, administrative expenses and management charges of the Company which are included in the Maintenance charges stipulated in Annexure.

(c) The Space Buyer would be liable to pay annually the sinking fund for the replacement of capital goods like air-conditioning plant, generators, machinery, electrical equipments, cables ducting, transformers, pumping-sets, fire fighting equipment, water-mains, toilets, ventilation equipments, lifts, escalators, etc.etc., the rates of sinking fund as payable would be worked out separately for air-conditioned areas and non air-conditioned areas.

(d) That the raids (sic) of general Maintenance charges for common services, insurance and sinking fund for replacement of capital goods for the calendar year 1997 have been fixed on the basis of Living Index Points as issued by Delhi Administration in December, 1996. The above charges will be subject to annual increase in proportion to the rate of inflation to cover the increased cost of maintenance / materials expenses etc. The annual inflation / increase will be assessed on

the basis of the increase in points of Living Index as regularly issued by the Delhi Administration from time to lime. The percentage of increase will be the same as the percentage of increase in the points of Living Index. Minimum increase annually would be 9 percent on the last paid charges. The charges will be revised in the month of July every year on the basis of Living Index as issued by Delhi Administration 31st December of previous year and would normally be applicable for one year.

(e) The payments towards the sinking fund would be payable annually in advance and charges for maintenance of the common services and for Air conditioning plant (wherever applicable) would be payable within six monthly in advance.

(0) The company at no point of time has to render any account to the Space Buyer for the actual expenses incurred by the Company."

8. In the compromise deed, which formed the basis of the

compromise decree, the following clauses with regard to recurring

charges / maintenance charges were incorporated:-

"7. At the time of recording of this Compromise Agreement in Court BIL shall pay to NPHL a' sum of Rs.22,47,302/- (Rupees twenty two lakhs fourty seven thousand three hundred and two only) in full and final settlement of NPHL's claim, for maintenance charges, car parking charges, electricity and water charges in respect of the Apartments for the period prior to 30.6.97 and advance for the period 1.7.97 to 31.12.97.

8. With effect from 1st July, 1997 BIL shall be liable to pay to NPHL maintenance charges for the Apartments at the rate of Rs.29.03 (Rupees Twenty Nine and paise Three only) per square foot i.e.

Rs.1,16,120/- (Rupees one lac sixteen thousand one hundred twenty only) per month.

9. On every 1st July commencing 1st July, 1998 the rate of Rs.29.03 per square foot shall be revised upwards according to the living index as on that date subject, however, to a minimum increase of 9% each year.

10. With effect from the date of recording of this Compromise Agreement in Court, NPHL shall be bound and obliged to supply back-up power (one kilowatt per one hundred square feet) to 131L. 13IL shall be liable to pay to NPHL @ Rs.8 (rupees Eight only) per unit. The reading of units supplied by NPHL and consumed by BIL will be recorded in sub-meter which will be installed by NPHL at the Apartments for that purpose.

11. On every 1st July commencing 1st July, 1998 the rate of Rs.8 per unit shall be revised upwards according to the living index as on that date subject, however, to a minimum increase of 9% each year."

9. On a joint application under Order 23 Rule 3 read with

Section 151 of the Code of Civil Procedure, 1908, and after the

statements of the learned counsel for the parties were recorded, the order

recording the compromise on 19.12.1997, was passed by the learned

single Judge in the following manner:-

"7. In view of the above statement made by the learned counsel for the parties and the contents of the documents (Ex. C-1, C-11, C-11.1), compromise arrived at between the parties, which is lawful, is hereby accepted. The present suit filed by the plaintiff

is decreed in terms of compromise arrived at between the parties and as reflected in documents (Ex.0-t, C-11 and C-111) that form pan of the decree sheet. Decree sheet be drawn up accordingly."

10. It is relevant to note that after the said compromise decree, the

respondent companies made payments in accordance therewith towards

maintenance charges for car parking till 31.12.2002 and the recurring

charges till 30.06.2003. Thereafter, the respondent companies had

stopped making payments. According to the appellant, the payments

were due to it under the compromise deed and the compromise decree

and an outstanding amount of Rs 30,78,371/-, including interest upto

10.11.2003, was shown to be due from the respondent companies. Since

the said amount was not paid by the respondent companies in spite of the

statutory notice of demand dated 18.11.2003 served upon the

respondents under Sections 433 and 434 of the Companies Act, 1956, the

said company petitions were filed seeking winding up of the companies

on the ground that it be deemed that the respondent companies were

unable to pay their admitted debts. However, the respondent companies

had replied to the statutory notice rejecting the claim of the appellant and

disputing the factum of the respondents' liabilities to pay the said amount

on the ground that the same was against the provisions of Delhi

Apartment Ownership Act, 1986, which, according to them, was

applicable on multi-storey buildings in Delhi, including the flats in

question. A reference was made to Section 24 of the said Act, which

specifically stipulated that "the provisions of the Delhi Apartment

Ownership Act would have effect notwithstanding anything inconsistent

therewith in any other law for the time being in force or in any contract,

undertaking or other instruments and all apartment owners, tenants of

owners, employees of owners and tenants, or any other person, who may,

in any manner, use the property or any part thereof to which the said Act

applied, would be subject to the provisions of the said Act and the bye-

laws and the rules made thereunder". As noted in the impugned

judgment, according to the respondents, the demand raised by the

appellant is illegal and contrary to the provisions of the said Act and it

was submitted that the company petitions were filed to coerce the

respondent companies to pay staggering amounts which would not

otherwise be the liabilities of the respondents in terms of the said Act. In

fact, the respondents had paid to the appellant, between 1997 and 2003,

an amount of more than Rs 2.25 crores towards maintenance charges and

it was claimed that despite this, the appellant was not rendering true

account of maintenance and it was alleged that the appellant would not

have spent more than Rs 40 lakhs towards maintenance during this

period while it had charged Rs 2.25 crores from the respondents. The

plea taken by the respondents was that the appellant could clear the

maintenance charges on actual basis and could not claim such charges by

adding undue profits.

11. The learned Company Judge, after examining the rival

contentions of the parties, came to the conclusion that although there was

a compromise decree, it was still founded on an agreement between the

parties which was evidenced by the compromise deed. He also took the

view that Section 24 of the said Act gave primacy to the provisions of the

same over, inter alia, any contract which may have been entered into

between the parties and, therefore, the statutory provisions of the said

Act would override the agreement between the parties. Consequently,

according to the learned Company Judge, the appellant was only entitled

to what was permitted by the said Act and not what they had agreed

upon. The learned Company Judge also held that notwithstanding the

existence of a court decree (albeit a compromise decree), the Company

court was entitled to examine the question as to whether, in reality, a debt

existed and in doing so, the company court was entitled to go behind the

decree. Consequently, the learned Company Judge came to the

conclusion that the stand adopted by the respondent companies in their

refusal to pay the maintenance charges in terms of the compromise

decree could be regarded as a bona fide dispute with regard to the

payment of debt. The result would be that a winding up petition would

not be permissible in these circumstances. Consequently, the winding up

petitions filed by the appellant were dismissed. However, as noticed

above, in an attempt to balance the equities, the learned Company Judge

made certain directions with regard to payment of maintenance charges.

12. We may also point out that after the filing of the company

petitions, the respondents filed a suit being CS(OS) 211/2005 entitled

Bhushan Steel and Strips Limited and Another v. Nehru Place Hotels

Limited, inter alia, for a declaration against the appellant stating that the

appellant was not entitled to claim maintenance charges as fixed by the

appellant and could only charge actual maintenance charges and also

prayed for a decree for rendition of true and fair accounts of all the

maintenance and other charges collected by the appellant with effect

from December 1997. A learned single Judge by an ex parte order dated

18.02.2005, injuncted the appellant from disturbing the facilities

provided to the respondent companies. On 18.02.2005, the learned

single Judge passed an order in the said suit, wherein it was recorded that

the appellant would not cause any disturbance to the facilities provided.

The respondents would pay for maintenance and other facilities at the

rate of Rs 29.03 per sq. ft. Thereafter, the appellant filed a clarification

application being IA No.5031/2005, wherein the appellant sought a

clarification of an earlier order and prayed that the respondents be

directed to pay the arrears of maintenance with effect from 01.01.2003

till 30.04.2005 and further sought a clarification that the rate of Rs 29.03

per sq. ft. did not include in it other charges, such as car parking and

back-up charges. By an order dated 19.03.2007, the learned single Judge

directed the respondents to pay the arrears of maintenance with effect

from 01.01.2003 till 30.04.2005 totalling to a sum of Rs 97,54,080/-, but

dismissed the application on other aspects relating to car parking, sinking

fund and ground rent. That part of the order is subject matter of FAO

(OS) No.256/2007, which is pending before a Division Bench of this

court.

Question (a):

Whether the company court can go behind a compromise decree in order to ascertain as to whether a debt based on the same is legally enforceable or not and whether a bona fide dispute in respect of the debt can be raised notwithstanding the existence of a compromise decree ?

13. It was submitted on behalf of the appellant that a decree

passed by a competent court can only be set aside in competent

proceedings and cannot be attacked in collateral proceedings. Reliance

was placed on the decision of the Supreme Court in the case of Rafique

Bibi (D) by Lrs. v. Sayed Waliuddin (D) by Lrs. and Ors: 2004 (1) SCC

287. It was contended that the compromise decree dated 19.12.1997, in

the present case, had not been challenged by the respondents and had,

therefore, attained finality. It was also contended that the decree was

binding between the parties and could not be challenged in collateral

proceedings, including winding up proceedings before a Company Court.

The decision in the case of Balvant N. Viswamitra and Ors v. Yadav

Sadashiv Mule (dead) through Lrs. and Ors: 2004 (8) SCC 706 was

also referred to by the learned counsel for the appellant to contend that

even an erroneous and illegal decision, which is not void, cannot be

objected to in execution or collateral proceedings. It was also contended

on the strength of the Supreme Court decision in the case of Vasudev

Dhanjibhai Modi v. Rajabhai Abdul Rehman and Ors: 1970 (1) SCC

670 that an executing court cannot go behind the decree between the

parties or representatives and must take the decree according to its tenor

and cannot entertain any objection that the decree was incorrect in law or

on facts. It was further contended that unless and until a decree is set

aside by appropriate proceedings in appeal or revision, a decree, even if

it be erroneous, was still binding between the parties. It was contended

on behalf of the appellant that the learned Company Judge had failed to

consider that the obligation of one party under the compromise decree

could not be invalidated without setting aside the advantage derived by

that party under the said decree. It was contended that it is only under

the said decree that the appellant had provided maintenance and it could

not now be said that the agreement between the parties was bad in law

and, that too, in a winding up petition, which, according to the learned

counsel for the appellant, was not the competent court to deal with the

said issue. It was also contended that the learned Single Judge at the

time of passing of the compromise decree had specifically noted that he

was satisfied that the agreement between the parties was lawful. Thus, it

was not open to the company court to re-examine that issue, particularly,

when the parties were represented by their counsel and their statements

had also been recorded and, therefore, ignorance of law could not be

pleaded as an excuse.

14. The learned counsel for the appellant also submitted that with

regard to the amendment in Rule 3A of Order 23, which came into effect

from 01.02.1997, no suit could be filed to set aside the compromise

decree on the ground that it was unlawful. This also lent support to the

contention of the appellant that the compromise decree could not be

permitted to be overlooked. Reference was also made to the Supreme

Court decision in the case of Banwari Lal v. Smt. Chando Devi

(through L.R.) and Another: 1993 (1) SCC 581, wherein on the plea

that a challenge to a compromise decree could only be made with regard

to the factum of compromise. It was also contended that sanctity must be

accorded to court orders and that even a consent decree has the same

value as a decree upon adjudication. Reliance was placed on Rama

Narang v. Ramesh Narang and Anr: 2006 (11) SCC 114. It was also

contended that the learned Company Judge had misinterpreted the ratio

of the decision of the Supreme Court in the case of Dhurandhar Prasad

Singh v. Jai Prakash University and Ors: 2001 (6) SCC 534 while

observing that "in the case of Dhurandhar Prasad Singh (supra), the

Supreme Court had gone to the extent of holding that if a decree is

passed in ignorance of the provisions of law, such a decree would be

inexecutable". With reference to paragraph 24 of the Supreme Court

decision, the learned counsel for the appellant submitted that the

Supreme Court decision specifically talked of "in ignorance of such a

provision of law" referring to a provision which made a decree incapable

of execution under law. He contended that this observation of the

Supreme Court cannot be generalized to mean that any decree passed in

ignorance of the provisions of law would be inexecutable. It was

contended that the Supreme Court used the expression specifically in

connection with the law relating to capability of execution and not as a

general proposition. In any event, it was contended by the learned

counsel for the appellant that the decision in the case of Dhurandhar

Prasad Singh (supra) was in connection of a decree having become

inexecutbale due to change in law and did not relate to a question where

the validity of the decree itself was in issue.

15. The learned counsel for the appellant also submitted that the

reliance placed by the learned Company Judge on the Supreme Court

decision in the cases of Kaushalya Devi and Ors v. Shri K.L. Bansal:

1969 (1) SCC 59 was also misplaced as that case was clearly

distinguishable. In the case before the Supreme Court, the satisfaction of

the court had not been recorded at the time of the making of the

compromise decree. But, in the present case, the order dated 19.12.1997

specifically records the satisfaction with regard to the compromise being

in accordance with law.

16. On the other hand, Mr Neeraj Kaul, the learned senior

advocate appearing on behalf of the respondents, submitted that a

company court examining the question of winding up can always go

behind the decree to ascertain whether in reality there is a debt or not.

He submitted that it does not follow as a matter of routine that the

company court is to act upon a decree treating it as a debt. Reliance was

placed on the decision of the Calcutta High Court in the case of

Bajrangbali Engineering Co. Ltd. v. Amar Nath Sircar and Ors: 1995

(83) Comp Cas 435 (Cal), wherein it was observed as under:-

"It is an undeniable proposition of law which emerges from these cases that the civil court granting the decree does not thereby bind either a court in bankruptcy or a winding-up court. The rationale is that a debt, which succeeds in the causing of a declaration of bankruptcy, or in the causing of initiation of the process of winding- up of a company, enures to the benefit or prejudice of not only the creditor in question, but of all other creditors and contributories, as the case might be, and at the same time causes civil death of the individual bankrupt or the wound up company, again, as the case might be, third parties are involved. Thus, the winding up court goes behind the decree wherever serious questions are raised about the decree having been obtained by fraud or collusion, or where there is a serious allegation about the lack of jurisdiction of the court passing the decree, or where a serious miscarriage of justice might, according to the winding-up court, occur, if the decretal debts were permitted to be used as a tool for winding up."

It was further held in the Calcutta High Court decision that:-

"The position at law well settled both in England and in India, therefore, is that a winding-up court on its own goes behind the decree in the aforesaid serious

circumstances, and if it is itself dissatisfied, then it does not permit a winding-up application to proceed, leaving the parties to work out their rights in execution proceedings in the ordinary civil courts. ..."

17. On the strength of the aforesaid observations, Mr Kaul

submitted that the compromise deed was entered into by the parties in

ignorance of the provisions of the said Act which had an overriding

effect. The compromise decree was also passed in these circumstances.

According to Mr Kaul, the learned Company Judge has taken a plausible

view in coming to a conclusion that the respondents have a bona fide

dispute with regard to the debt and, in thereby not proceeding further

with the winding up petitions.

18. Reliance was also placed on the decision of the Supreme

Court in the case of The State of Punjab v. S. Rattan Singh: AIR 1964

SC 1223, wherein the Supreme Court, with regard to insolvency

proceedings, observed that "it is the duty of the Insolvency Court

therefore to determine itself the alleged debts owed by the debtor

irrespective of whether those debts are based on a contract or under a

decree of court". The learned counsel referred to Harshad Shantilal

Mehta v. Custodian & Ors: 1998 (5) SCC 1, wherein the Supreme Court

observed as under:-

"30. It is on behalf of all these creditors that the Insolvency Court or the Official Receiver scrutinises the debts, whether claimed under a decree or otherwise. The same is the position of a company in winding up because the rules of insolvency apply to winding up proceedings as well. ..."

19. The learned counsel also placed reliance on the decision of

the Supreme Court in the case of Official Receiver, Kanpur and Another

v. Abdul Shakur and Others: AIR 1965 SC 920, wherein the Supreme

Court, again, in connection with insolvency proceedings, observed as

under:-

"... The Insolvency Court has, it must be remembered, to ascertain whether a debt is due by the insolvent, whether the debt is provable in insolvency, and the quantum of the debt due at the material date. In making this enquiry in its three aspects even the judgment of a court against the debtor may not be regarded as binding upon the Court. ..."

The Supreme Court further observed that:-

"13. A debt to be entered in the schedule must therefore be a real debt. A judgment against a debtor which is sought to be relied upon in proving a debt does not necessarily establish the existence of a real debt for the judgment may have gone by default it may have gone by consent or it may have been procured for any other reason. In a proceeding relating to proof of debts, the question which arises being not one between the insolvent and the proving creditor alone, the rights of other creditors of the insolvent have of necessity to be considered. Even if for some reason, the debtor himself

is estopped from denying the debt, there will be no estoppel against the Insolvency Court."

20. It is, thus, apparent that, on the one hand, the learned counsel

for the appellant contended that a decree of the court, which includes a

consent decree, cannot be overlooked by an executing court and cannot

be questioned in collateral proceedings, including winding up

proceedings. On the other hand, the learned counsel for the respondents

submitted that, while the normal rule is that an executing court or any

other court, in collateral proceedings, cannot go behind a court decree,

this general rule is not applicable to the special cases of insolvency and

winding up proceedings.

21. We agree with the view taken by the learned Company Judge

that the company court in the course of the winding up proceedings is not

bound by a decree of the court when it has to determine as to whether

there exists a real debt or not. We also agree with the submissions made

by Mr Kaul that the general rule does not apply to insolvency

proceedings or to winding up proceedings before a company court. The

logic of this is quite clear and has been amply brought out by the

Calcutta High Court in the case of Bajrangbali Engineering Co.

Ltd.(supra). While a decree of a civil court binds the parties to the

decree and to that extent neither of them can wriggle out of it unless they

are able to show that it was obtained because of fraud or collusion etc., in

a winding up proceeding, it is not only an issue between a creditor and

the company, but also involves the larger question of survival of the

company itself which effects the rights and obligations of several other

parties. Thus, while the debtor company may be estopped from resiling

from its commitments under the compromise decree, it may not enable

the creditor to seek winding up of the company on this ground alone.

22. In a recent decision of the Supreme Court in the case of IBA

Health (I) Pvt. Ltd v. Info-Drive Systems Sdn. Bhd: 2010 (10) SCC 553,

it was observed that it is the duty of the company court to examine

whether the company, whose winding up has been sought, has a genuine

dispute to a claimed debt. The Supreme Court observed that a dispute

would be substantial and genuine if it is bona fide and not spurious,

speculative, illusory or misconceived. The company court, at that stage,

is not expected to hold a full trial of the matter. It must decide whether

the grounds appear to be substantial and the grounds of dispute, on the

part of the company, must not consist of some ingenious mask invented

to deprive a creditor of a just and honest entitlement and must not be a

mere wrangle. The supreme Court observed that:-

"It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt."

23. The Supreme Court had placed reliance on its earlier decision

on the cases of Amalgamated Commercial Traders (P) Ltd v. A.C.K.

Krishnaswami and Anr: (1965) 35 CC 456 (SC), Madhusudan

Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd: 1971 (3)

SCC 632, and Mediquip Systems (P) Ltd v. Proxima Medical Systems

(GMBH): 2005 (7) SCC 42, wherein the Supreme Court held that

whether the defence raised by the company, whose winding up was

sought, was a substantial one and not a mere moonshine and had to be

finally adjudicated upon on the merits before the appropriate forum".

The Supreme Court further observed that:-

"23. The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Companies Act, 1956."

This takes us to the discussion of the next question.

Question (b):

Whether the recurring maintenance charges agreed to be paid by the respondent companies to the appellant in terms of the compromise decree are contrary to the provisions of the Delhi Apartment Ownership Act, 1986 ?

24. We do not have to give a definitive answer to this question

because the same cannot be gone into in winding up proceedings. That is

a matter of full-fledged trial before an appropriate forum. The question

whether the respondents are right in contending that in view of the

provisions of the Delhi Apartment Ownership Act, 1986, they are not

liable to pay the amount agreed upon by them and recorded in the

compromise decree, cannot be decisively gone into by a company court

in ascertaining as to whether the respondents were unable to pay their

debts. All that the company court is required to do, as observed by the

Supreme Court in IBA Health (supra), is that whether the dispute raised

by the respondents was substantial and genuine or in other words,

whether it was bona fide and not spurious, speculative, illusory or

misconceived. We note that the learned company Judge has examined

the provisions of the Delhi Apartment Ownership Act, 1986 in great

detail and has then come to the conclusions, which according to him also,

are only tentative. All that the company court is required to do is to

examine as to whether there is a bona fide dispute with regard to the

debt, which is sought to be enforced. Once the company court comes to

the conclusion that the dispute is substantial and genuine, meaning

thereby that it is bona fide and not illusory or misconceived, then the

only course open to the company court, is that it should dismiss the

petition for winding up and leave the creditor to his civil remedies. The

Supreme Court has cautioned that winding up proceedings should not

become a substitute for recovery proceedings.

25. On going through the arguments advanced by the learned

counsel for the parties before us, as also the impugned judgment in great

detail, we are of the view that the learned company Judge was correct in

holding that there was a bona fide dispute with regard to the debt in the

backdrop of the arguments based on the Delhi Apartment Ownership

Act, 1986. We are making it clear that this does not mean that what the

respondents contended on the basis of the said Act is correct or

established in law, but only that their defence is bona fide and is not

illusory or misconceived. Whether they are right in law or not, would be

decided before some other appropriate forum and is not to be decided by

the company court in winding up proceedings.

26. Thus, we make it clear that neither this court nor the company

court was required to give any definitive finding as to whether the

agreement between the parties was contrary to the provisions of the Delhi

Apartment Ownership Act, 1986 or not. The respondents have only been

able to establish that the dispute raised by them with regard to

maintenance charges is not illusory or misconceived.

Question (c) Whether the impugned judgment of the learned Company Judge, particularly with regard to the nature of the debt and also the compromise decree, is binding on the civil court in the suits pending between the parties ?

27. The answer to this question follows from the discussion above

and, that is, that the decision of the learned company Judge with regard

to the debt in the backdrop of the Delhi Apartment Ownership Act, 1986

is not binding on the civil court in the pending suits. It is clear that the

winding up jurisdiction of a company court is a discretionary jurisdiction

and does not, in fact, adjudicate the civil rights between a debtor and a

creditor. Thus, any observations made by the learned Company Judge in

the impugned order with regard to the compromise decree or the

compromise deed entered into between the appellant and the respondents

being contrary to or inconsistent with the provisions of the Delhi

Apartment Ownership Act, 1986 would not be binding on the civil court

which is hearing the pending suits between the parties. This fact has also

been brought out by the learned Company Judge in the impugned

judgment where he has stated: "I may hasten to add that these are

tentative observations. What is highlighted is that questioning by the

respondent of such maintenance charges claimed by the petitioner

cannot be treated as arbitrary or without basis."

28. What the company court has decided is only that the winding

up petitions cannot be proceeded with further in view of the fact that the

respondent companies have been able to demonstrate that their defence is

not a moonshine defence and that there is a bona fide dispute with regard

to the debt. This does not mean that what is submitted on behalf of the

respondent companies with regard to the compromise decree and the

compromise deed being contrary to the provisions of the Delhi

Apartment Ownership Act, 1986, has been accepted by the company

court. That is not the case and, even if it were an impression which the

parties may have obtained, we dispel the same.

29. We, however, are not in agreement with the directions (i) and

(ii) in paragraph 42 of the impugned judgment. Similar directions have

already been given by the learned single Judge in the pending suit

between the parties. In any event, as the winding up petition itself was

being dismissed, we feel that it would not be appropriate if the said

directions given by the company Judge are retained. Consequently, the

appeals are dismissed, but the said directions with regard to payment are

treated as having been deleted from the impugned judgment in view of

the fact that similar directions are already in existence in the civil suit,

being CS(OS) 211/2005, pending between the parties.

30. The appeals stand disposed of accordingly. There shall be no

order as to costs.

BADAR DURREZ AHMED, J

V.K. JAIN, J

August 09, 2011 dutt