JUDGMENT
A.M. Khanwilkar, J.
Page 0660
1. This suit is filed for recovery of a sum of Rs.1,49,805=91 Ps. with further interest on Rs.1,13,747=87 Ps. @ 21% per annum till repayment of the amount. An incidental relief is claimed by the plaintiff that the plaintiff be permitted to withdraw the amounts deposited by the defendant with the Prothonotary & Senior Master of this Court with interest accrued thereon towards the decree that may be passed in the present suit.
2. The plaintiff asserts that between 19th April 1978 and 6th November 1978 the plaintiff sold, delivered and supplied goods to the defendant under eighteen different invoices from time to time as per the orders placed by the defendant in that behalf. According to the plaintiff, the value of the goods supplied to the defendant was in the sum of Rs.4,34,510=87 Ps. It is the case of the plaintiff that the defendant, did not raise any dispute regarding quality, quantity or price of the goods supplied. In fact, the defendant made part payment from time to time aggregating to Rs.3,20,763, Page 0661 leaving an amount of Rs.1,13,747=87 Ps. which according to the plaintiff is still due and payable by the defendant to the plaintiff. It is the further case of the plaintiff that the defendant agreed to pay interest @ 21% p.a. on the outstanding amount and/or late payment. That was an oral agreement between the parties. On the basis of the said agreement, the plaintiff sent debit notes in respect of such interest component to be paid by the defendant from time to time. It is also the case of the plaintiff that the defendant made payment of such interest amount after deducting tax therefrom which presupposes that the defendant admitted the liability to pay interest as claimed by the plaintiff. According to the plaintiff, the defendant was liable to pay aggregate sum of Rs.1,29,733=31 Ps. as on April 1979.
3. As payment was not received from the defendant, the plaintiff sent legal notice to the defendant calling upon the defendant to pay the outstanding amount forthwith, failing which the plaintiff would take recourse to the remedy of winding-up proceedings against the defendant company.
4. To this statutory notice, reply was sent on behalf of the defendant stating that the Chairman Mr.G.B.Poddar was out of Mumbai at the relevant time and detailed reply would be sent on his return. However, no further response was received by the plaintiff any time thereafter. Eventually, the plaintiff filed Company Petition in this Court being Company Petition No. 2871 of 1979 against the defendant company. In the said Petition, for the first time, the defendant asserted that the plaintiff supplied defective goods. That claim was, however, denied by the plaintiff by filing rejoinder. Upon considering the rival claim, the Company Judge was pleased to admit the Company Petition on 5th December 1979. Against the said decision, the defendant company took the matter in appeal. The Division Bench of this Court by order dated 5th February 1980 passed a conditional order requiring the defendant to deposit a sum of Rs.1.20 lakh on or before 7th March 1980 and giving liberty to the plaintiff to file suit in this Court for recovery of outstanding dues by 30th April 1980. It was further ordered that in case of failure of defendant company to deposit the amount in time, the company petition was to stand admitted. It was also ordered that in the event the plaintiff was to file suit in this Court, the amount deposited by the defendant would stand transferred to the suit account to remain security towards the decree that may be passed in that suit. As per the said order passed by the Division Bench, the defendant deposited the amount of Rs.1.20 lakh within the specified time. Similarly, the plaintiff instituted present suit in this Court for recovery of the outstanding dues from the defendant company. As per the order passed by the Division Bench, the amount deposited by the defendant stood transferred to the present suit account which, in turn, has been invested by the Prothonotary and Senior Master in fixed deposit scheme. Accordingly, the present suit is filed for the following reliefs:
(a) that the Defendant be ordered and decreed to pay to the Plaintiff a sum of Rs.1,49,805.91 with further interest on Rs.1,13,747.87 at the rate of 21% per annum from the date hereof till payment;
Page 0662
(b) that the plaintiff may be permitted to withdraw the amounts deposited by the Defendant with the Prothonotary and Senior Master of this Honble Court with interest accrued thereon towards the decree that may be passed herein;
(c) for costs of the suit;
(d) for such further and other reliefs as the nature and circumstances of the case may require.
5. During the pendency of the present suit, another company petition filed against the defendant company being Company Petition No. 308 of 1978 came to be allowed, on 21st January 1981. By that order, the defendant company has been ordered to be wound up and the Official Liquidator, High Court, Bombay has been appointed as liquidator of the defendant company. In view of this development the plaintiff sought leave of the Company Court under Section 446 of the Companies Act to continue to prosecute the present suit against the defendant. The said leave came to be granted on 6th August 1981 in Company Application No. 164 of 1981 filed by the plaintiff. As per the said leave, the plaintiff amended the present suit and brought on record the Official Liquidator, High Court, Bombay to espouse the cause of the defendant company.
6. The defendant company had already by then filed written statement before this Court in the present suit on 18th November 1980. The fact that the plaintiff sold and delivered the goods under eighteen different invoices in the sum of Rs.4,34,510=87 Ps. has been admitted. The only dispute raised by the defendant company was that the goods supplied by the plaintiff were of inferior quality, for which reason denied the liability to pay a sum of Rs.1,13,744=87 Ps. According to the defendant, the defendant has already made payment aggregating to Rs.3,20,763/ from time to time and as the quality of the goods supplied by the plaintiff was of inferior quality, the defendant was not liable to pay the remaining amount of Rs.1,13,744=87 Ps. In the said written statement, the defendant denied that it had ever agreed with the plaintiff to pay interest @ 21% p.a. as alleged by the plaintiff. The defendant also denied that there was any usage or custom for payment of interest @ 21% p.a. as alleged by the plaintiff. In other words, the defendant disputed the liability to pay any interest on the outstanding amount. The defendant has asserted that the plaintiff has had supplied goods to the defendant since February 1977. That between April 1977 and March 1978 the defendant made diverse payments to the plaintiff aggregating to Rs.7,99,413=98 Ps. In relation to the goods supplied by the plaintiff during April 1978 and November 1978, it is the case of the defendant that the same was found to be defective which fact was brought to the notice of the plaintiff forthwith. It is the case of the defendant that the plaintiff assured the defendant that the plaintiff would make good any loss that would be caused to the defendant on account of defective goods. It is further stated that by letter dated 31st October 1978, the defendant recorded that 80D Polytex Yarn supplied by the plaintiff under bill No. 826 dated 28th October 1978 and bill No. 830 dated 30th October 1978 were defective as there was filamentation in the yarn. In the said communication the defendant also placed on record that even the previous Page 0663 supplies made by the plaintiff were also found to be defective. The description about the nature of defect is also highlighted in the said communication.
7. In paragraph 4(c) of the written statement it is stated that one R.S.Samaria, the Financial Controller of the defendant, had contacted the plaintiff and had informed about the defective quality of the goods and the nature of loss caused to the defendant on that account. The plaintiff had assured that any loss caused to the defendant on account of defective goods would be made good. In paragraph 4(d) the defendant has referred to letter dated 6th November 1978 sent to the plaintiff informing about the defective goods sent under bill nos.831 and 832, both dated 4th November 1978 and bill nos.834 and 837, both dated 6th November 1978 and reiterating the position stated in the previous letter dated 31st October 1978. In paragraph 4(e) of the written statement, it is mentioned that the defendant wrote letter dated 15th March 1978 to the plaintiff and recorded the nature of loss caused to the defendant on account of defective goods which was to the extent of about Rs.1.05 lakh. According to the defendant, the plaintiff had agreed to pay the said amount of Rs.1.05 lakh to be adjusted by the defendant. On the above basis the defendant asserts that the defendant is not liable to pay any amount to the plaintiff.
8. After the Official Liquidator has been brought on record in the present suit, written statement has been filed on behalf of the Official Liquidator on 4th October 2001. The Official Liquidator not only adopted the written statement filed by the defendant company but has additionally stated that the plaintiff cannot succeed in appropriating the amount of Rs.1.20 lakh deposited with the Prothonotary and Senior Master by the ex-management of the company prior to the order of winding-up was made. According to the Official Liquidator, the present suit has been filed by the plaintiff in April 1980; whereas, the order of winding-up would relate back to the date of institution of Company Petition No. 308 of 1978. For that reason, after the date of winding-up order is passed, the amount deposited by the ex-management of the defendant company will be part of the assets of the defendant company to be disbursed as per the preferential order stipulated by the provisions of Companies Act. It is further stated in this written statement that there is no charge created on the said amount merely because the amount has been deposited in the present suit, as there was no decree in favour of the plaintiff as on the date of the winding-up order was passed in relation to the defendant company.
9. On the basis of the pleadings following issues came to be framed by my predecessor:
1. Whether the Plaintiffs prove that an amount of Rs.1,49,805.91 with further interest on Rs.1,13,747.87 (at the rate of 21% p.a.) is due and payable by the Defendants?
2. Whether the Defendants prove that the goods sold and supplied by the plaintiffs was of inferior quality as more particularly set out in para 4(a) to 4(d) of the Written Statement?
3. If answer to Issue No. 2 is in the affirmative whether the Defendants prove they had suffered a total loss of Rs.1,10,000/-on account of inferior Page 0664 quality of goods supplied by the Plaintiff and therefore are entitled to (get adjustment) to that extent as more specifically set out in para 4(c) of the Written Statement?
4. What decree? 5. Further & other relief.
10. The plaintiff has filed compilation of original documents of the relevant eighteen invoices, debit notes, form No. 19A and copy of letters, affidavit and the orders passed in the company petition by Single Judge as well as of Division Bench. Besides, the plaintiff has filed affidavit in lieu of examination in chief sworn on 19th January 2006 reiterating the case made out in the plaint. The plaintiff has also proved the relevant documents placed on record along with the compilation of original documents. The original defendant company nor the newly added defendant Official Liquidator insisted for cross examination of the plaintiffs witnesses. Besides, the defendant has neither filed any compilation of original documents nor any affidavit of any witness in lieu of examination in chief.
11. Left with this situation, it would necessarily follow that the defendants have failed to prove the matters in issue nos.2 and 3 respectively. In that sense, only issue No. 1 remains for consideration of this Court.
12. Issue No. 1 is in two parts. The first part refers to the principal amount and the latter part refers to the claim of interest. Insofar as first part is concerned, namely, outstanding principal amount of Rs.1,13,744=87 Ps., during the course of arguments, the counsel appearing for the Official Liquidator in all fairness submitted that he will not be able to resist the said claim of the plaintiff. Inasmuch as, the defendant has not produced any evidence in rebuttal or to establish the facts stated in the written statement. Thus understood, the plaintiff would be straight away entitled for a decree in relation to the principal amount being Rs.1,13,744=87 Ps.
13. The next question is: whether the plaintiff is entitled for the claim of interest @ 21% on the principal amount? According to the plaintiff, as per the prevailing custom and commercial practice, it was agreed between the parties that the defendant would pay interest @ 21% p.a. on the outstanding amount towards late payment. That fact has been reiterated by the plaintiff in his oral evidence. The plaintiff has not been cross- examined by the defendant.
Indeed, the defendant in the written statement has disputed that the defendant had agreed to pay interest @ 21% p.a. as claimed by the plaintiff. However, the defendant has not chosen to controvert the case made out by the plaintiff and has offered no explanation with regard to the strong circumstances pressed into service by the plaintiff; such as, raising of debit notes by the plaintiff from September 1977 to November 1978, which clearly records that the amount claimed was towards interest charges for the late payment in respect of the stated invoices and towards carrying charges, at pages 37 to 45 of the compilation of the original documents. The plaintiff has also relied on Form 19A issued under the signature of the authorised officer of the defendant company Mr.R.S.Samaria, Financial Controller, which concedes the position that the amount paid by Page 0665 the defendant to the plaintiff was in respect of carrying charges and interest @ 21% p.a. on the stated amount. The defendant has deducted 10% of such amount towards tax deducted at source. The said certificates are part of the compilation of the original documents at pages 46 to 52. These are strong circumstances and contemporaneous record relied by the plaintiff to establish his claim towards agreement to pay interest for delayed payment @ 21% p.a. Indeed, the plaintiff also relies on the legal notice sent to the defendant which records this position, which remained unrefuted by the defendant. Suffice it to observe that even the case made out by the plaintiff that there was an agreement between the parties that the defendant would pay interest @ 21% p.a. for delayed payment has been established by the plaintiff. On this finding the plaintiff would not only be entitled to a decree in respect of principal amount of Rs.1,13,747=87 Ps. but also towards interest amount @ 21% p.a. accrued on such outstanding amount till the same is paid by the defendant.
14. That takes me to the contention raised by the counsel for the Official Liquidator across the bar that after the date of winding-up order the plaintiff would be entitled only for interest @ 4% p.a. and not beyond. However, the learned Counsel was unable to point out any provision in the Companies Act or the Rules made thereunder which would support such a proposition. The learned Counsel, however, placed emphasis on Rules 156 and 179 of the Companies (Court) Rules, 1959. To buttress this submission reliance was also placed on the decision in case of Kerala Financial Corporation v. Official Liquidator, High Court of Kerala [Vol.87(1996)-Company Cases (Kerala)-183] and Anr. decision in the case of Mattoor Chits and Finance (P) Ltd. (In Liquidation) v. Mrs. Mary Baby reported in (1998)5-Company Law Journal-383 (Kerala)
15. Reverting to the case of Kerala Financial Corporation (supra), the challenge was in respect of an order passed by the Official Liquidator adjudicating the claim of interest at the contract rate up to the date of winding-up only. The Court proceeded on the premiss that there was no contract regarding payment of interest between the claimant and the company. In the backdrop of that fact, the principle stated in Rule 156 of the Companies (Court) Rules, 1959 came to be applied. Before examining this aspect any further, I think it apposite to reproduce Rule 156 of the Rules which reads thus:
156. Interest.-
On any debt or certain sum, payable at a certain time or otherwise whereon interest is not reserved or agreed for, and which is overdue at the date of the winding-up order, or the resolution as the case may be, the creditor may prove for interest at a rate not exceeding four per cent per annum up to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the Page 0666 time when a demand in writing has been made, giving notice that interest will be claimed from the date of demand until the time of payment. ”
Rule 156 of the Rules clearly stipulates that the said provision would apply where interest is not reserved or agreed for. In the present case, however, I have already found that there was an agreement between the plaintiff and the defendant company regarding interest rate payable on the outstanding dues towards late payment. In such a case, Rule 156 will have no application. Suffice it to observe that the exposition in the aforesaid two decisions pressed into service will have to be understood in the context of the fact situation of those cases.
16. Indeed, it is well established position that once a winding-up order is passed, the undertaking and the assets of the company pass on and remain under the control of the Official Liquidator, whose statutory duty is to realise them and to pay from out of the sale proceeds to its creditors. Such creditors acquire, on order of winding up being passed, a right to have the assets realised and distributed amongst them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed. For, doing so would be contrary to the creditors right to have the proceeds of the assets distributed amongst them pari passu {see J.K.(Bombay) P.Ltd. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. and Ors. reported in (1970)1-CLJ-151 (SC)}
17. Keeping in mind the above statement of law, the question is whether the plaintiff would be entitled for interest at the same rate even after the order of winding-up has been passed. The winding-up order has been passed against the defendant company on 21st January 1981. The entitlement to receive the agreed interest, which agreement was much prior to the institution of the company petition, is reinforced from the contemporaneous record relating back to September 1977 (Debit Note No. 157/1977 dated 20th October 1977 and Form No. 19A). It is not a case of any new right being created or completion of uncompleted rights as such.
18. The only other provision pressed into service on behalf of the Official Liquidator is Rule 179 of the Companies (Court) Rules, 1959, which reads thus:
R.179. Payment of subsequent interest:
In the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted shall be paid interest from the date of the winding-up order or of the resolution as the case may be, up to the date of the declaration of the final dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount of the claim, after adjusting against the said amount the dividends declared as on the date of the declaration of each dividend.
19. On plain language of this Rule it is clear that it applies to a situation where the Official Liquidator will have surplus after payment in full of all Page 0667 the claims admitted to proof. That is entirely a different situation. Indeed, the counsel for the plaintiff would contend that the amount which has been deposited in the present suit by the defendant company in the sum of Rs.1.20 lakh, which was invested in fixed deposit scheme, has now become Rs.11,79,332/-and is still lying in fixed deposit. Whereas, the claim of the plaintiff of the principal amount and the interest accrued thereon @ 21% p.a. would be approximately Rs.8,04,515=91 Ps. as on August 2007. According to the plaintiff, the surplus amount can be made over to the Official Liquidator to be disbursed in accordance with Rule 179. It is not possible to accede to this proposition. Inasmuch as, the plaintiff even if were to be treated as similar to a secured creditor standing outside the winding-up, would be entitled for disbursal of such amount which ought to be in the preferential order provided by the Companies Act. In other words, even if the plaintiff were to be paid the decretal amount, that would be subject to the plaintiff giving an undertaking that the surplus amount than the amount specified for other similarly placed secured creditors keeping in mind the parameters of Sections 529 and 529A of the Companies Act, will be brought back to be made over to the Official Liquidator so that the same can be disbursed to the eligible persons.
20. That takes me to the next contention raised on behalf of the Official Liquidator. It was argued that as the company was already wound-up, this Court has no jurisdiction to permit the plaintiff to withdraw the amount lying deposited in this Court to the extent of his decretal claim and interest. I am in agreement with the argument canvassed on behalf of the plaintiff that, the plaintiff already having taken leave to prosecute the present suit, will not be required to go back to the Company Court for seeking leave to execute the decree to be passed by this Court. That, however, cannot authorise the plaintiff to execute the decree in its entirety irrespective of the dividend to be paid by the Official Liquidator to the other creditors who are similarly placed. I would assume that the plaintiffs case is similar to that of a secured creditor, as the Division Bench of this Court had ordered deposit of the amount to be transferred in the present suit account “as security for execution of the decree” to be passed in favour of the plaintiff. Even so, the plaintiffs claim would be as that of any other secured creditor. It is a different matter that the plaintiff stood outside the winding-up action, but that does not mean that the plaintiff would still be entitled to recover the entire decretal amount irrespective of the dividend to be declared and disbursed, to the creditors similarly placed, by the Official Liquidator. To the extent the decretal amount exceeds such declared dividend, the plaintiff would be obliged to bring back such amount to be made over to the Official Liquidator for being disbursed to the other eligible persons as per the preferential order specified in Sections 529 and 529A of the Companies Act.
21. Counsel for the plaintiff had placed reliance on the exposition in the case of Lalchand Radhakisan and Ors. v. Ramdayal Ramnarayan and Ors. reported in AIR-1939-Bom-112: in Re: Ford reported in (1900)-2-Queens Bench Division; in Sorabji Coovarji v. Kala Raghunath reported in 13-The Page 0668 Bombay Law Reporter-1193; and Reserve Bank of India v. Bank of Credit and Commerce International (Overseas) Ltd. and Anr. reported in 78-Company Cases-207. In the case of Lalchand Radhakisan and Ors. (supra), the Court went on to consider the sweep of expression “assets held by a Court” appearing in Section 73 of the CPC.
The Court took a view that the assets should be received in execution to which the restrictions of rateable distribution would apply. That restriction, to my mind, will not apply to monies paid into the Court before the date of the decree as it is not in the course of execution. On the same lines the exposition in the case of re Ford (supra) as well as Sorabji Coovarji (supra) proceeds. Insofar as the case of Reserve Bank of India (supra) is concerned, in that case, the fixed deposit receipt was issued to the customer by the bank in respect of margin money. The Court went on to observe that the amount earmarked was for specific purpose, the bank held that amount towards margin money as trustee and not part of general assets held by the bank for distribution for winding-up of bank. Even this decision is of no avail.
22. In the present case, even if the plaintiffs claim is to be treated as similar to that of a secured creditor, it is obvious that the plaintiff will be entitled to receive such amount from the company in the same proportion as would be receivable by the other secured creditors similarly placed and subject to the preferential order stipulated by Sections 529 and 529A of the Act. I am considering the claim of the plaintiff as similar to that of a secured creditor in view of the observations made by the Division Bench in the company petition while deciding the appeal arising out of Company Petition No. 287 of 1979 filed by the plaintiff praying for winding-up of the defendant company. Till that order was passed, the status of the plaintiff was one of an unsecured creditor. However, the order passed by the Division Bench on 5th February 1980 directs the amount to be transferred, deposited by the defendant company, to the present suit account, to be invested as security against the decree to be passed in the present suit. Notwithstanding that order, the amount deposited by the defendant in this Court would still belong to the defendant company. However, in view of the observations of the Division Bench, which is binding on the parties, the plaintiffs claim can be considered to be that of a secured creditor. Though the plaintiff has chosen to proceed against the defendant company, which has already been ordered to be wound-up, as a secured creditor with option of standing outside the winding-up proceedings to enforce his security, even then the plaintiff would succeed in getting only such equivalent dividend amount as would be payable to the other similarly placed secured creditors of the Company in liquidation.
23. In the peculiar facts of the present case, I am inclined to allow the Official Liquidator to withdraw the amount deposited in this Court, on behalf of the defendant company, which has been invested, along with interest accrued thereon, to be treated as assets of the defendant company available for disbursal to the eligible persons as per the preferential order under Sections 529 and 529A of the Companies Act, while treating the claim of the plaintiff as similar to that of a Secured Creditor.
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24. Accordingly, following order is passed:
(a) The Suit is decreed in terms of prayer Clause (a) ; (b) The relief claimed in terms of prayer Clause (b) is rejected. At the same time, it is ordered that the Official Liquidator, High Court, Bombay may take steps to withdraw the entire amount pending with the Registrar (O.S.)/ Prothonotary & Senior Master of this Court originally deposited by the defendant company and accrued interest thereon, which amount will be treated as an asset of the defendant company (in liquidation) to be disbursed to the eligible persons in order of preference as per Sections 529 and 529A of the Companies Act;
(c) The claim of the petitioner be treated as one of the Secured Creditor;
(d) The suit is disposed off on the above terms with no order as to costs.