2015 (5) TMI 798 - HC - Companies Law

Modification of Repayment Schedule for Maheswari Ispat Limited with Enforcement Consequences

The Division Bench allowed Maheswari Ispat Limited some relief by modifying the repayment schedule to continue payments of Rs. 10 lacs per month for six ... Default in repayment of financial assistance - Winding up application filed - Company praying for modification of the order of disposal - Court said that the Order of admission of winding up is hanging as a sword on their shoulder. Little respite, they would seek, should, in our view, be acceded to that would meet the ends of justice - Held that:- Ordinarily we would have disposed of the application of the like nature upon re-scheduling the payment that would meet the substantial justice. However, because of the vociferous objection raised by Tata, the high mighty multi-national, questioning the competence of the Court in entertaining the present application, we felt it necessary to reserve our judgment so that we could deal with all the contentions that Tata raised before us including the question of law. The Division Bench was approached with the principal issue as to whether the appellant was entitled to upset the order of admission of winding up. We did not accept the contention of the appellant and rejected the same. However, we re-scheduled the payment that was within the power of the Company Court and the Division Bench being an extension of the Company Court under Section 483, was competent to give such direction in a petition for winding up that would meet the substantial justice as recognized by Section 443 of the Companies Act, 1956. Accordingly, the Division Bench granted installments. When the company paid installments to a substantial extent and prayed for some respite the Division Bench, in our view, would be within its right to consider such prayer and examine as to whether the applicant would deserve such treatment and the Court would not be so powerless to entertain such application. Even if we entertain such application and grant relief that would not in any way hit the provisions of Order XX Rule 11(2) of the Civil Procedure Code as it would not affect the ultimate decision. Company (Court) Rules 1959 is having a statutory force. These rules of 1959 would take care of the procedural part of the company proceedings before the Company Court. Rule 6 would inter-alia provide, while the said rule is silent, the provisions of Civil Procedure Code would apply. Rule 9 would extend inherent power to the Company Court to pass any Order to do substantial Justice in the matter. If we read these two provisions we would find, Rule 6 might make the code applicable in Company proceedings however, Rule 9 would have a dominant role and cannot be set at not by virtue of direct application of any of the provisions of the Code. In short, the principles relating to the statutory provisions of the Code might apply in Company proceeding where there was no conflict however, any of the provisions of the Code, if comes in conflict with any of the provisions of the said rules of 1959, the provision of the said rules of 1959 would be applicable and rule 9 is no exception thereof. With deepest regard, we have for Mr. Bose, and with all humility, may we say, his argument on the issue was totally without any basis. Neither of the decisions cited at the bar would support his contention in the present scenario. We reject the same. With this mind set, let us now deal with the case on merits. Out of ₹ 4.12 crores the applicant paid ₹ 2.95 crores, the balance is due. If we reject the application and the company would not be in a position to pay and clear off the installments the Order of winding up would come into effect taking away the means of livelihood of hundreds or thousands. Moreover, interest of share-holders and creditors would be in jeopardy. The respondent would carry on business of extending financial support that would have a tremendous risk. Keeping it in view, they advanced money to the applicant. The applicant already paid a substantial part of it. The Order of admission of winding up is hanging as a sword on their shoulder. Little respite, they would seek, should, in our view, be acceded to that would meet the ends of justice. We however, do not agree with the schedule that Maheswari would suggest. We would consider their prayer for re-scheduling after six months. In the mean-time, they should continue to make payment at the rate ₹ 10 lacs per month. In case they do so they would be at liberty to approach the learned Company Judge for re-scheduling the installment and the learned Company Judge would be free to deal with such application in accordance of law. We make it clear, in case of a single default during the six months this Order would stand recalled and Tata would be at liberty to approach the learned Company Judge to proceed for winding up of Maheswari, the applicant above named. - Decided partly in favour of appellant. Issues Involved:1. Winding up petition filed by Tata Capital Finance Limited against Maheswari Ispat Limited.2. Modification of the repayment schedule ordered by the Division Bench.3. Competence of the Division Bench to entertain the application post-disposal of the appeal.4. Legal precedents and statutory provisions relevant to the modification of decrees and installment payments.Detailed Analysis:1. Winding Up Petition:Tata Capital Finance Limited filed a winding up petition against Maheswari Ispat Limited for failing to repay financial assistance amounting to approximately Rs. 5 crore. Maheswari partially secured the claim with a fixed deposit receipt for Rs. 75 lacs, which Tata encashed, recovering Rs. 92.54 lacs. Despite this, a sum of Rs. 2,27,57,975 remained due as confirmed by Maheswari on July 14, 2011. Including interest at 15.5% per annum, the total due at the time of filing the petition was Rs. 4,12,98,703.81. Tata also initiated arbitration proceedings under the Arbitration and Conciliation Act, 1996. The winding up proceeding was admitted, and Maheswari appealed, leading to a re-scheduled repayment program by the Division Bench.2. Modification of Repayment Schedule:Maheswari sought modification of the repayment terms, proposing a phased payment plan starting with Rs. 5 lacs per month for six months, increasing incrementally. Tata contested this application, highlighting Maheswari's irregular payments and non-compliance with statutory returns. The Division Bench had initially ordered a structured repayment plan, which Maheswari partially complied with but defaulted subsequently.3. Competence of the Division Bench:Tata's counsel argued that the Division Bench became functus officio after disposing of the appeal and thus lacked competence to entertain the modification application. This contention was supported by four legal precedents:- Chandra Nath & another Vs. Sahadabia Kumarin: A decree for rent payable in installments requires the decree holder's consent.- Piyaratana Unnanse and another Vs. Wahareke Sonuttara Unnanse and others: A court becomes functus officio post-decree, except for clerical errors.- Central Bank of India & Ors. Vs. Ashoke Kumar Bose: Amendment of a decree to include interest requires an appeal.- Badri Prasad Vs. Bhartiya State Bank and others: Installment payments require the decree holder's express consent.4. Legal Precedents and Statutory Provisions:The Division Bench analyzed the cited cases, noting that altering a decree's nature and character or granting installments without consent is generally impermissible. However, the High Court, as a Court of record, has inherent powers under Section 151 of the Code of Civil Procedure to correct its records and do substantial justice. The Company (Court) Rules, 1959, particularly Rule 6 and Rule 9, allow the Company Court to apply the Civil Procedure Code where not in conflict and to exercise inherent powers to ensure justice.The Division Bench concluded that it retained the competence to modify the repayment schedule to meet substantial justice, as recognized under Section 443 of the Companies Act, 1956. The Court emphasized that the re-scheduling of payments did not alter the ultimate decision and was within its jurisdiction.Conclusion:The Division Bench decided to allow Maheswari some respite by ordering continued payments of Rs. 10 lacs per month for six months, after which Maheswari could request further re-scheduling. Any default would result in the recall of this order, allowing Tata to proceed with the winding up. The application was disposed of without costs.Separate Judgments:Both judges agreed on the judgment, with no separate opinions delivered.