Case Law Details

Case Name : Coal India Ltd. Vs. Nicco Corporation Ltd. (Calcutta High Court)
Appeal Number : Appeal No: C.P. No. 483 of 2009
Date of Judgement/Order : 18/06/2010
Related Assessment Year :
Courts : All High Courts (3994) Calcutta High Court (156)

There is discretion available to the Company Judge in a creditor’s winding-up petition, both at the time of admission and at the post-advertisement stage; the Company Court may refuse to admit a winding-up petition founded on an ex parte decree if it finds the original claim or cause of action to be substantially mired in doubt.

CASE LAWS DETAILS

DECIDED BY: HIGH COURT OF CALCUTTA, IN THE CASE OF: Coal India Ltd. Vs. Nicco Corporation Ltd., APPEAL NO: C.P. No. 483 of 2009, DECIDED ON June 18, 2010

FACTS

The petitioner has carried an ex parte decree of the City Civil Court and says that upon the company’s failure to discharge such decretal debt, the company is liable to be wound up. A notice under Section 434 of the Companies Act has been issued on behalf of the petitioner and received by the company.

The company asserts that it is a mining company within the meaning of Section 2(j) of the 1973 Act. The company insists that since the mines ultimately controlled by the company are vested in the Central Government, the company is entitled to the special protection under Section 32 of the 1973 Act. In addition, the company claims that as it is engaged in a vital business of public importance, the provisions of the 1973 Act should be construed for its benefit. In its affidavit the company has contended that the petition is not maintainable. At paragraph 3(iii) of such affidavit the company says that there are seven subsidiary coal producing companies under the company and the “company, inter alia (is) engaged in the business of coal mining.”

The company has also disclosed that the company has applied for setting aside the ex parte decree of May 6, 2008. A copy of the application under Order IX Rule 13 of the Civil Procedure Code has been appended to the company’s affidavit. The affidavit does not disclose when such application was made or as to the subsequent steps taken to prosecute the same. The petitioner has averred in its affidavit-in-reply that the application for setting aside the decree has not even been served on it and the company has not been able to demonstrate that such application has been served on the petitioner. Though there is a paragraph where the merits of the petitioner’s claim in the suit have been referred to by the company, not much is said on such aspect at the hearing.

HELD

The preliminary objection raised by the company is utterly unmeritorious and is rejected.

That there is a decree outstanding against the company is indisputable. Ordinarily, a Company Court may adjourn a petition for winding-up of a company founded on an ex parte decree against it on the prayer of the company to afford it an opportunity to have the decree set aside. No prayer for adjournment has been made in this case. In any event, it is evident that an application for setting aside the decree was officiously filed in the year 2008 without the company so much as serving a copy thereof on the decree-holder petitioner or taking any meaningful steps to prosecute the same. The company has dealt with the merits of the petitioner’s claim in a perfunctory manner and has not attempted to demonstrate that the original claim was entirely bogus or was one that would, more likely than not, have failed if the company had been present to contest it in the City Civil Court.

A creditor is entitled to use this forum as an equitable mode of execution. The fetter on an executing court to not go behind the decree is not placed on a Company Judge assessing a creditor’s winding-up petition founded on a decree. There is discretion available to the Company Judge in a creditor’s winding-up petition, both at the time of admission and at the post-advertisement stage. The Company Court may refuse to admit a winding-up petition founded on an ex parte decree if it finds the original claim or cause of action to be substantially mired in doubt. The company in this case has not been able, or even attempted, to establish that the petitioner’s claim in its action was bereft of merit.

JUDGEMENT
SANJIB BANERJEE, J. : –

A preliminary point has been taken by the company to ward off admission of this creditor’s winding-up petition. The company says that Section 32 of the Coal Mines (Nationalisation) Act, 1973 gives the company a special status and such provision, by virtue of Section 28 of the said Act, has overriding effect over the provisions of the Companies Act, 1956 which is the general statute. The company maintains that without previous leave being obtained from the Central Government under Section 32 of the 1973 Act, the petitioner could not have launched the present proceedings.

The petitioner has carried an ex parte decree of the City Civil Court and says that upon the company’s failure to discharge such decretal debt, the company is liable to be wound up. A notice under Section 434 of the Companies Act has been issued on behalf of the petitioner and received by the company. The company asserts that it is a mining company within the meaning of Section 2(j) of the 1973 Act. The company insists that since the mines ultimately controlled by the company are vested in the Central Government, the company is entitled to the special protection under Section 32 of the 1973 Act. In addition, the company claims that as it is engaged in a vital business of public importance, the provisions of the 1973 Act should be construed for its benefit. In its affidavit the company has contended that the petition is not maintainable. At paragraph 3(iii) of such affidavit the company says that there are seven subsidiary coal producing companies under the company and the “company, inter alia (is) engaged in the business of coal mining.”

The company has also disclosed that the company has applied for setting aside the ex parte decree of May 6, 2008. A copy of the application under Order IX Rule 13 of the Civil Procedure Code has been appended to the company’s affidavit. The affidavit does not disclose when such application was made or as to the subsequent steps taken to prosecute the same. The petitioner has averred in its affidavit-in-reply that the application for setting aside the decree has not even been served on it and the company has not been able to demonstrate that such application has been served on the petitioner. Though there is a paragraph where the merits of the petitioner’s claim in the suit have been referred to by the company, not much is said on such aspect at the hearing.

In addition to Section 28 and 32 of the said Act of 1973, the company has relied on Section 20 and Section 5(2) thereof. The petitioner has referred to Sections 8, 17 and 20 to 23 of the said Act and the provisions of the Coal India (Regulation of Transfers and Validation) Act, 2000.

In the said Act of 1973, a “mining company” has been defined as follows:

“2. Definitions. – …

(j) “mining company” means a company owning a coal mine, and in relation to a foreign company within the meaning of section 591 of the Companies Act, 1956, the undertaking of that company in India:” For some time at the hearing the company pursued Section 20 of the 1973 Act, suggesting that a creditor of the company seeking to assert a claim against it had to approach the commissioner of payments under such Act. Thankfully, however, such line of argument was subsequently abandoned. Sections 5(2), 28 and 32 of the said Act of 1973 have also to be noticed in the context of the preliminary challenge presented by the company:

“5. Power of Central Government to direct vesting of rights in a Government company. – …

(2) Where the right, title and interest of an owner in relation to a coal mine vest in a Government company under sub-section (1), the Government company shall, on and from the date of such vesting, be deemed to have become the lessee in relation to such coal mine as if a mining lease in relation to the coal mine had been granted to the Government company and the period of such lease shall be the entire period for which such lease could have been granted under the Mineral Concession Rules; and all the rights and liabilities of the Central Government in relation to such coal mine shall, on and from the date of such vesting, be deemed to have become the rights and liabilities, respectively, of the Government company.”

“28. Effect of this Act on other laws. – The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act, or in any decree or order of any court, tribunal or other authority.”

“32. Mining companies not to be wound up by the court. – No proceeding for the winding up of a mining company, the right, title and interest in relation to the coal mine owned by which have vested in the Central Government or a Government company under this Act or for the appointment of a receiver in respect of the business of the company, shall lie in any court except with the consent of the Central Government.” The company has referred to a judgment reported at AIR 1986 Raj 40 (Punjab National Bank v. Official Liquidator). In that case a petition for winding up a privately-owned company was moved and the company was directed to be wound up in August, 1978 with the official liquidator attached to the Rajasthan High Court appointed as liquidator of the company. Such official liquidator issued, inter alia, a notice under Section 446 of the Companies Act to the commissioner of payments appointed under the 1973 Act and a further notice on the commissioner of payments under the Coking Coal Mines (Nationalization) Act, 1972 requesting such commissioners to refrain from settling the claims of, or making payment to, the creditors or contributories of the company (in liquidation) without obtaining leave of the Rajasthan High Court under Section 446 of the Companies Act. A bank which was a creditor of the company (in liquidation) applied in 1981 to the Rajasthan High Court for the official liquidator’s notice to the commissioner under the 1972 Act to be annulled. Similar applications by an employee and other creditors who had petitioned either commissioner for payment were also dealt with in the judgment. The Court found that the name of the company figured in the first schedule to the 1972 Act and in the schedule to the 1973 Act and concluded that such company was a “mining company” within the meaning of either Act. The Court noticed that Section 28 in both the 1972 Act and in the 1973 Act was identical and held that Section 446 of the Companies Act could not be invoked to restrain the commissioner appointed under either Act from exercising the powers conferred by the special statutes. The Court recorded a submission of the applicants that the order of winding-up itself was liable to be set aside as the same was in derogation of Section 32 of either Act, but declined to deal with the same since, by allowing the applications and permitting the commissioner under either Act to perform his functions without any fetter, the Court had effectively negated the impact of the winding-up order on the steps required to be taken under the said special statutes.

The judgment is not an authority for the proposition that Coal India Ltd is a mining company within the meaning of the 1973 Act or that such company is entitled to the special status under Section 32 of the 1973 Act accorded to a mining company whose coal mine had vested in the Central Government. What is in issue in the present proceedings is as to whether the company in the present case can cite Section 32 of the 1973 Act as a bar to the receipt of a winding-up petition against it without the consent of the Central Government. The company has also placed a judgment reported at (2001) 2 SCC 19 (Pradyut Bordoloi v. Swapan Roy). In that case, in the context of whether the respondent held an office of profit under the Government of India and thereby was disqualified under the Representation of People Act, 1951, the Supreme Court observed, at paragraph 4, that certain important matters “including winding up of the company must be reserved for the decision of the President.” The company in that case was also Coal India Ltd. It is such solitary sentence from paragraph 4 of the report that the company quotes to buttress its reliance on the provisions of the 1973 Act and its assertion that Coal India Ltd cannot be dragged to the Company Court on a creditor’s winding-up petition as it required the consent of the Central Government or the assent of the President of the Union of India for such earth-shattering matter. With respect, that such a point has been taken seriously and urged in earnest is in itself startling. Without going into any other aspect or even the context of the 1973 Act, on a reading of Section 32 of the 1973 Act the company would not qualify to urge its applicability in the present case. Section 32 of the 1973 Act requires two primary conditions to be fulfilled: the company must be a mining company within the meaning of the said Act; and, at least one coal mine of such company ought to have vested in the Central Government or a government company under the said Act of 1973. The company here has not claimed that it owns, or ever owned, a coal mine. The averments in paragraph 3(iii) do not even come close to the company branding itself as a mining company within the meaning of the said Act of 1973. At the heart of the said Act of 1973 is Section 3 by which, on the appointed day, the right, title and interest of the owners in relation to the coal mines specified in the schedule to the Act were to stand transferred to, and absolutely vested in, the Central Government free from all incumbrances. Thus, Section 32 of the 1973 Act would only apply to a mining company within the meaning of the said Act whose coal mine had vested in the Central Government or a government company under the 1973 Act. It would be best to see the 1973 Act and Sections 28 and 32 thereof in perspective. The said Act of 1973, as its long title suggests, was enacted to provide for the acquisition and transfer of the right, title and interest of the owners of the coal mines specified in the schedule thereto with a view to reorganizing and reconstructing such coal mines so as to ensure the rational, coordinated and scientific development and utilization of coal resources consistent with the growing requirements of the country. The legislature felt that the ownership and control of such resources should be vested in the State and so distributed as to best sub serve the common good. The said Act of 1973 was preceded by the Coal Mines (Taking over of Management) Act that came into force about two months prior to the Nationalization Act. The Taking over of Management Act replaced an ordinance that had been introduced some time earlier. The statement of objects and reasons of the Taking over of Management Act recorded that coal was the most important indigenous source of commercial energy in the country and though it was available in adequate quantity the reserves were unevenly distributed among the different regions. It noticed that coking coal mines had been nationalized (under the 1972 Act) and that non coking coal collieries were small in size, financially weak and worked on unscientific lines with the colliery owners’ primary object being to earn quick profits without any regard to the conservation or safety of mines or the protection of the rights of the workers. The Nationalization Act of 1973 provided for compensation to the coal mine owners that were to be disbursed by the commissioner appointed there under and the commissioner was also authorized, under Section 20 of the Act, to receive claims from all persons against the owner of a coal mine that was included in the schedule to the said Act. It is, therefore, evident that only the mining companies which owned the specified coal mines were subject to the authority of the commissioner of payments under the 1973 Act and Section 28 and Section 32 make room, inter alia, for the commissioner to have primacy in respect of such matters in preference to any other authority empowered to discharge similar functions under the general statute. Section 8 of the 1973 Act provides for payment to be made to owners of coal mines that stood vested in the Central Government or a government company under the said Act of 1973. Chapter VI of the 1973 Act relates to the commissioner of payments and covers Sections 17 to 27. Though some of the sections have been subsequently incorporated by amendments to the 1973 Act, Chapter VI relates to the appointment of the commissioner of payments, his exclusive authority to deal with claims against owners of coal mines which stood vested in the Central Government or a government company under the said Act and his right to adjudicate upon such claims, decide on priorities and make disbursements. Chapter VI of the 1973 Act is, loosely speaking, similar to the general powers of an official liquidator presiding over the liquidation of a company under the Companies Act, at least insofar as the authority extends to entertaining claims against a company in liquidation, adjudicating thereupon, deciding priorities among st creditors and making disbursements. There is good reason for Section 32 to have found place in the 1973 Act. If a mining company whose coal mine had been taken over by the Central Government under the 1973 Act was subsequently wound up by any High Court, there would be a conflict of authority between the official liquidator presiding over the liquidation proceedings and the commissioner of payments under the 1973 Act. It is precisely for such purpose that Section 32 was included in the special Act to obviate the conflict and, subject the Central Government’s sanction to do otherwise, retain the primacy of the commissioner of payments in respect of the matters covered under Chapter VI of the 1973 Act which would otherwise have fallen squarely in the domain of the official liquidator. Section 28 of the 1973 Act also achieves the same purpose in that the procedure recognized under the said Act, which is undoubtedly a special statute qua the Companies Act which is a general statute, has to be given preference to the ordinary process in respect of matters covered thereby.

The single sentence from Pradyut Bordoloi that the company asserts as the Supreme Court’s recognition of the special status of this company has to be understood in the context in which it was expressed. To begin with, the sentence is a part of a judgment and not a statute. Without going into the canons of how a judgment has to be read, such sentence would imply that the internal decision of the company to have itself wound up would be subject to the desire of the President of India. That sentence in the judgment cannot impinge upon a statute and take the company out of the pale of the Companies Act if it otherwise is subject to such Act. The sentence has been used in course of a discussion on the memorandum and articles of association of the company and the general powers of the board of directors of this company and recognizes the exception to the general rule where the board of directors of this company would not be able to recommend its winding-up unless the President of India desired it. Incidentally, in the same paragraph 4 of the report that the company has cited, the Supreme Court noticed that the company’s memorandum and articles of association were framed in the year 1973 and the company “(came) into existence consequent upon the nationalization of the coal mines under the Coal Mines (Nationalization) Act, 1973.”

The preliminary objection raised by the company is utterly unmeritorious and is rejected. That there is a decree outstanding against the company is indisputable. Ordinarily, a Company Court may adjourn a petition for winding-up of a company founded on an ex parte decree against it on the prayer of the company to afford it an opportunity to have the decree set aside. No prayer for adjournment has been made in this case. In any event, it is evident that an application for setting aside the decree was officiously filed in the year 2008 without the company so much as serving a copy thereof on the decree-holder petitioner or taking any meaningful steps to prosecute the same. The company has dealt with the merits of the petitioner’s claim in a perfunctory manner and has not attempted to demonstrate that the original claim was entirely bogus or was one that would, more likely than not, have failed if the company had been present to contest it in the City Civil Court.

A creditor is entitled to use this forum as an equitable mode of execution. The fetter on an executing court to not go behind the decree is not placed on a Company Judge assessing a creditor’s winding-up petition founded on a decree. There is discretion available to the Company Judge in a creditor’s winding-up petition, both at the time of admission and at the post-advertisement stage. The Company Court may refuse to admit a winding-up petition founded on an ex parte decree if it finds the original claim or cause of action to be substantially mired in doubt. The company in this case has not been able, or even attempted, to establish that the petitioner’s claim in its action was bereft of merit.

The petitioner issued the statutory notice on August 6, 2009 to which there was no reply by the company. A presumption has arisen in the circumstances, which it was open to the company to rebut. But the company has altogether failed to discharge such onus having pinned its all on its outrageous preliminary objection.

The result is that the petition is entitled ex debito justitiae to have its petition admitted. CP No. 483 of 2009 is admitted in the principal sum of Rs.7,77,980.80 together with interest at the rate of 9 per cent per annum from the date of the decree till payment. If the company furnishes security for such amount, inclusive of interest, in favor of the Registrar, Original Side, and pays costs assessed at 5000 GM to the petitioner within a fortnight of the petitioner’s written demand enclosing an authenticated copy of this order, the petition will remain permanently stayed. In the event such security is presented, the Registrar will invest the same by way of a fixed deposit in a nationalized bank for a period of six months within which period the company may attempt to have the ex parte decree set aside. If the company fails to have the decree set aside within such time, the petitioner will be entitled to receive the maturity value, less the Registrar’s commission, upon notice to the company. If the decree is set aside within such time, the company will be entitled to the maturity value, less the Registrar’s commission. In default of the security being furnished or the costs being tendered within the time permitted, the petitioner will advertise the petition in The Statesman and in Aajkaal. Publication in the Official Gazette will stand dispensed with. The advertisements should indicate that the matter will appear in Court on the first available working day after the expiry of four weeks from the date of publication. Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.

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