2005 (10) TMI 574 - HC - Indian Laws

Karnataka High Court dismisses company appeals over margin money claim, emphasizes winding-up not for disputed debt

Mysore Sales International Limited Versus United Breweries Limited

The Karnataka High Court dismissed the company appeals filed by MSIL, ruling that the claim for margin money was not considered a debt under Section ... - Issues Involved:1. Validity of MSIL's claim for margin money from the respondent companies.2. Interpretation of the Supreme Court's interim and final orders.3. Determination of whether the claim constitutes a debt under Section 433(e) of the Companies Act.4. Applicability of the 'just and equitable' clause under Section 433(f) for winding up.Issue-wise Detailed Analysis:1. Validity of MSIL's Claim for Margin Money:The Karnataka High Court examined the claim made by Mysore Sales International Limited (MSIL) for margin money from various respondent companies. MSIL argued that as the sole distributor of liquor in Karnataka, it was entitled to a margin of 5% on sales within the state and 0.5% on exports, as per a government letter dated 13-11-1989. The respondent companies, however, disputed this claim, stating that MSIL could only collect the margin from wholesalers and not from manufacturers. The court found that the claim made by MSIL was based on a misinterpretation of the government letter and that any margin money could only be collected from wholesalers, not manufacturers.2. Interpretation of the Supreme Court's Interim and Final Orders:MSIL contended that the interim and final orders of the Supreme Court in the Khoday Distilleries case were orders in rem, binding on all manufacturers, including those not party to the case. The Supreme Court had directed manufacturers to maintain accounts and pay compensation to MSIL if they lost the appeal. The High Court, however, held that these orders were in personam, binding only on the parties before the Supreme Court. Thus, the respondent companies, not being parties to the Supreme Court case, were not bound by these orders.3. Determination of Whether the Claim Constitutes a Debt Under Section 433(e) of the Companies Act:The court examined whether MSIL's claim for margin money constituted a 'debt' under Section 433(e) of the Companies Act, which allows for winding up if a company is unable to pay its debts. The court concluded that MSIL's claim was for compensation for alleged losses, which did not constitute a debt. A debt must be a definite sum of money payable immediately or at a future date, not a claim for unliquidated damages. Since the claim had not been adjudicated by any court or authority, it remained a disputed amount and could not form the basis for a winding-up petition.4. Applicability of the 'Just and Equitable' Clause Under Section 433(f) for Winding Up:MSIL argued that it was just and equitable to wind up the respondent companies under Section 433(f) of the Companies Act, as they owed public money to a government company. The court rejected this argument, noting that no such plea had been raised in the company petition. Moreover, the 'just and equitable' clause is a remedy of last resort, applicable only when a strong case is made out. The court found that the respondent companies were solvent, making profits, and the claim was bona fide disputed on valid grounds. Therefore, it was not just and equitable to wind up the companies.Conclusion:The Karnataka High Court dismissed the company appeals filed by MSIL, holding that the claim for margin money was not a debt under Section 433(e) and that the 'just and equitable' clause under Section 433(f) did not apply. The court emphasized that a winding-up petition is not a legitimate means to enforce payment of a disputed debt and that the respondent companies' defense was bona fide and likely to succeed. The appeals were dismissed with costs.