TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Appeal allowed: 12% simple interest ordered on admitted balance from due date until payment, invoices support prima facie claim</h1> SC allowed the appeal and held that interest on the admitted sum was payable. The High Court's findings were set aside; invoices and notices established a ... Interest on the principal amount due - invoices of the credit bills attached with each of the supply contained a clause relating to payment of interest - small scale unit registered with the District Industries Centre - Whether interest payable on the sum due would be a 'debt' so as to attract the provisions of sections 433 and 434 of the Companies Act, 1956? Held that:- The fact that despite receipt of a legal notice dated 23-12-2003, no payment has been made to liquidate the debt on the part of the company is not in dispute. Admittedly, appellant had been supplying Castor Oil to the respondent. The fact that the respondent did not pay the price of the said supplies, on presentation of the invoices, is also not in dispute. It also stands admitted that the parties negotiated as regards the manner in which the payments could be made. In a meeting held on 25-11-2003, promises were made to square up the old outstanding dues and bring it into the system for the purpose of rotation. The agreement spoke of payment of compensation to the appellant for the delay in payment on account of earlier supplies after clearing the entire old dues. There cannot be any doubt whatsoever that when, in principle, the respondent had agreed to compensate the appellant for the delay in payment, the same must be by way of interest payable on the principal amount or otherwise. The findings of the High Court, with respect, are not correct for more than one reason; firstly, because the Division Bench did not hold that the invoices were not proved by cogent evidence; secondly, question of leading evidence would arise only after the company petition is admitted and, thirdly, issuance of invoices and signature of the respondent thereon is not disputed. The judgment of the Division Bench also contains a legal flaw insofar as it failed to take into consideration that the appellant had in fact issued three notices being dated 6-1-2003, 8-9-2003 and legal notice dated 23-12-2003 specifically mentioning that the payments had been adjusted towards interest first and balance, if any, shall be adjusted towards the principal. Thus, a prima face case was made out. Interest is also payable in terms of the provisions of section 62(1)(a) of the Sale of Goods Act. Interest may be held to be payable in terms of section 3 of the Interest Act, 1978 as also in terms of sections 5 and 6 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. Interest of justice would be subserved if we in exercise of our jurisdiction under Article 142 of the Constitution of India direct that the respondent to pay simple interest on the admitted sum at the rate of 12 per cent p.a. on the balance amount instead of 24 per cent per annum within eight weeks from the date of amount became due till it is paid failing which the consequences provided in law shall ensue. Appeal is allowed Issues: (i) Whether interest payable on admitted sums constitutes a 'debt' for the purposes of sections 433 and 434 of the Companies Act, 1956 so as to sustain a winding up petition.Analysis: The statutory test in section 434(1)(a) requires that a company be indebted in a sum then due and, after service of demand, neglect to pay. Where the principal amount is admitted, a dispute limited to the existence of an agreement for interest or the rate does not necessarily defeat an application for winding up. Authorities establish that a bona fide and substantial dispute as to liability on the principal normally precludes winding up, but where liability for the principal is admitted and the only contention relates to contractual entitlement to interest or its rate, the claim to interest may be treated as part of the debt for section 433/434 purposes. The invoices bearing the respondent's signatures, prior notices specifying appropriation of payments towards interest first, and related correspondence together constituted a prima facie case that interest was payable. Equally, statutory and contractual sources (Sale of Goods Act, Interest Act and statutes concerning delayed payments to small-scale undertakings) may independently support an entitlement to interest. Considering the facts and the need to avoid multiplicity of proceedings, final determination of the quantum was not required at the admission stage where a prima facie debt including interest was shown.Conclusion: Issue (i) is answered in favour of the creditor (appellant). Interest on the admitted sum is treatable as a debt for the purposes of sections 433 and 434 of the Companies Act, 1956, and the appellant was entitled to relief. The Supreme Court allowed the appeal and directed payment of simple interest at 12% per annum on the admitted balance within the specified period under Article 142.
TaxTMI 
TaxTMI 
