M.ABDUL RAUF v. VINTAGE HOTELS (P.) LTD. [2000] 26 SCL 17 (Kar.)

Estimated Reading Time: 10 minutes

In this case[1], an application was filed by the company M/s. Vintage Hotels Private Ltd. praying for setting aside of the winding up order dated 04-12-1998 The application has been hotly contested and a large number of documents have been filed by the respective parties but many of the disputes are required to be examined by the other forum, so the Court gave its order on that point which came under its examination and order.

FACTS OF THE CASE

The admitted position is that the original winding up petition was filed by the company by the name of M/s. B. P. L. Telecom Ltd. A notice was published in the papers when the petition came to be admitted and as far as this public notice is concerned, the petitioner-company admits it came to its attention. They pointed out that after the notice was received that the company negotiated with the creditor and arrived at a complete settlement and it is contended on behalf of the company that on payment of the settled amount the original petitioner being discharged, informed the company that an application would be filed before the court for withdrawal of the petition. Pursuant to the publication of the notice, five other creditors approached this court. they contended that notices under Section 434[2] of the Companies Act, 1956[3] had been served but the company had denied the liability and since the debt was outstanding they were entitled to pray for an order of winding up.

 What happened was that in the month of November, 1998, when B. P. L. Telecom who were the original petitioners applied to the court for withdrawal of the petition,there were already before the court five other creditors and consequently, this court permitted B. P. L. Telecom to withdraw from the proceedings as their claim had been discharged and kept the proceedings pending since there were other undischarged creditors.

This is within the framework of the law because the object of advertising is in order to bring all the creditors before the court in that very proceeding. This is specifically indicated in the notice itself. The respondent-company against whom the public notice is published is, therefore, put on specific notice of the fact that the High Court has virtually summoned all creditors in the winding up proceedings and that it is not confined only to the original creditor. This is an important aspect of the law which one needs to take into account because Mr. Krishnamurthy, learned counsel who represents the applicants advanced the submission that his clients genuinely and bona- fide believed that the proceeding had come to an end because the party who had approached the High Court namely B. P. L. Telecom Ltd. had settled the dispute and has been paid up and that the original petitioner had also shown to the representatives of the company an application which they would file before the High Court for withdrawal of the proceedings. Learned counsel submitted that in this background, the company proceeded under the assumption that the winding up proceedings had been withdrawn and had come to an end and that the company need not appear before the High Court as there was no outstanding dispute. His submission is that the non-appearance before the High Court was for a valid and a bonafide reason and this was not a case of default nor had the company ignored the High Court notice.

ISSUE

Whether the grounds of non-appearance of the Company during the proceedings are genuine and valid?

COURT’S STATEMENT

The Court stated that:-

“Public notice that is issued emanates from the High Court and it is directed specifically to the respondent-company against whom the relief has been asked for and that if the respondent-company had any valid defence, it was legally obliged to appear before the High Court and plead that defence and if the company has discharged the debt and there is nothing outstanding it is still equally obliged, and this is a requirement of law, that the company must appear before the High Court and pointed out to the satisfaction of the High Court that all debts have been discharged or disputed, or that the disputes have been settled. If this is not done, the company cannot be said to have acted bona fide or in good faith because the notice published clearly indicates to the company that all outstanding creditors will be before the High Court and if the company has settled with one of them, the company will still have to face the proceeding vis-a-vis the others. The correct position in law in this background is that it cannot be said that the company had acted bona fide or that the conduct of the company can be condoned for having not appeared before the High Court. On the other hand I take note of the fact that we are dealing with a corporate body and not an individual. In the case of individuals where genuine and bona fide problems arise and the individual commits a default. The consideration would be entirely different but in the case of a corporate body which is aware of the publication of the notice and which does not appear before the High Court at any stage between June when the notice was published and December when the order was passed, this court would be doing injustice if any such grounds are to be upheld. As I have repeatedly had to point out in several such proceedings, there are two or more parties before the court and if a court bends over backwards showing indulgence to one of them the court is doing injustice to the opposite party which is at the receiving end. This is a consideration which no court can overlook-Mr. Krishnamurthy submitted that we have before the court a peculiar position whereby the original institutor of the winding up proceeding has moved out by way of the settlement with the company and that we are left with another set of creditors who were never in the picture when the original proceedings was filed and his submission is that in such a situation the court ought to have directed the newly impleaded petitioners to issue fresh notice to the company so that the company could have been on guard or so that the company could have had specific notice of the claims which have now come before the court. I do not see the justification for such a plea because I have already pointed out that the original advertisement makes it more than explicit that the proceeding is not confined to the original petitioner but that the sole purpose of advertising is in order to bring before the court all persons who claim to be creditors and in this background the company is more than aware of the fact that all other outstanding creditors irrespective of whether the company accepts their claims or not will appear before the court and if the company chooses in such a situation, still not to appear it is not obligatory for the High Court to dilate the litigation by directing fresh notice because the scheme of the law does not provide for such multiplicity of proceedings. A submission was canvassed on behalf of the applicants that non-issuance of fresh notice at this point of time in the changed circumstances could be construed as being in breach of the principles of natural justice but I am afraid that this is really a misreading of the legal position because the original notice is a composite notice and does not require to be repeated.”

CONTENTION OF THE COMPANY

The petitioner submitted that  the number of documents that have been produced by both the parties would itself indicate to the court that there is a serious contest between the parties and his submission was that where an application is made for the setting aside of an ex parte order one of the considerations before the court is as to whether it is a vexatious application only to play for time or whether it is a genuine application asking for an opportunity to place before the court a valid defence.

The petitioner further submitted that there is a serious dispute with regard to not only the liability but also the genuineness of some of the documents which the respondents/claimants are relying upon and in this background, his submission was that it is only fair that the applicants be afforded an opportunity even if they are to be put to terms and penalized for their non-appearance.

DECISION

The Court[4] stated that:-

“As far as the merits aspect of the case goes, I do not propose to say a single word because this is not the stage at which a court can enter into any form of evaluation on the merits with regard to the respective claims. I am precluded from going into that aspect of the matter on the legal ground that the stage for this exercise has already passed. I have held that where the company consciously remains absent from the proceedings it virtually means that the company leaves it to the court to pass whatever orders the court finds necessary and once those orders are passed, it is not open to the applicant to ask for any post mortems. This being the position, there is no warrant for an argument to be put forward that the company has a valid defence because learned counsel who represents the respondents vehemently submitted that the sole purpose of filing a set of counter documents was in order to satisfy this court that there is no substance in the plea canvassed by the company that it has a valid defence. I am only recording the pleas put forward by the two sides in order to indicate that the application for setting aside on these grounds has been vehemently opposed on the plea that this head of argument is baseless.

 The basic tenet that I need to apply in this proceeding is the question as to whether the company has put forward valid and genuine grounds for non-appearance and for the reasons that have been set out in this order, that question is required to be answered in the negative. That being the factual position, the legal consequences are that this court would be doing violence to the law if discretion is wrongly exercised and the order in question is recalled or set aside. It is for this reason that Company Application No. 684 of 1998 fails and stands dismissed. I need to add here that the doctrine of finality applies to judicial proceedings but that maxim seems to have been long since forgotten by the legal profession, judging from the casualness with which applications for review and remand are addressed to the court. This judgment is a firm reminder that parties will have to function in a time-bound and professional manner.

 The petitioners therefore had been directed to deposit a sum of Rs. 5,000 with the official liquidator. The time period for depositing the amount both as far as the petitioners and the K. S. F. C. are concerned is extended by a period of three weeks from the date of receipt of this order. The petitioners to advertise the petition in the local edition of The Hindu within a period of two weeks from that date. Copies of the order to be furnished to the learned advocates forthwith.”

ANALYSIS

This case basically dealt with the non-appearance of party which is a company, from the proceedings. In this case, the winding-up of company was prayed by the petitioner-company to set aside. The original winding-up petition was filed by a company which was named as M/s B.P.L Telecom Ltd.. A notice relted to it was published in the papers which came into notice of the petitioner-company and then they negotiated with the creditors and arrived at a settlement related to this. But after that notice, 5 more creditors  approached the court showing the recklessness of the company where the company had denied its liability even when the notices under Section 434[5] of the Companies Act, 1956 had served to it.  And as the debt was outstanding of the company, therefore, the creditors asked for winding up of the company. The original petitioner B.P.L Telecoms withdrew its petition for winding up, but the other creditors demanded for it , therefore, the company was put on a specific notice of the fact that High Court summoned virtually all creditors in the winding up proceedings of the company. However, the company remained absent from the proceedings. The company when appeared before the Court to set aside the winding-up, the company contended that it genuinely believed that the petition had withdrawn and there is no case going on related to the company in the Court. The Court after considering every point and statement of the company dismissed the application of the company and stated that the grounds which company put for non-appearance is not genuine and valid and the Court by giving this judgement tried to set up a firm reminder that “ the parties will have to function in a time-bound and professional manner”.

CONCLUSION

This case is a remarkable one where the Court after hearing every aspect of the Company tried to know the reason of non-appearance of the company from the proceedings even after the specific notice. The Court gave this judgement to make clear to the people that there should not be the wastage of the time of the Court and the parties are required to function in a time-bound and professional manner. This case was really remarkable and important one because of its judgement.


[1] M.Abdul Rauf v. Vintage Hotels Pvt. Ltd., 2000 102 CompCas 175 b Kar.

[2] The Companies Act, 1956, s. 434.

[3] The Companies Act, 1956 (Act  No. 1 of 1956).

[4] The Karnataka High Court

[5] The Companies Act, 1956, s. 434.

Hey there!

come here often?

Login To Come In