Companies Act Case Law DCM Financial Services Ltd Vs Neel Kamal Plastics Ltd

Companies Act Case Law

DCM Financial Services Ltd  Vs Neel Kamal Plastics Ltd

 

REPORTABLE
IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2801 OF 2002
DCM Financial Services Ltd. … Appellant

Versus

Neel Kamal Plastics Ltd. & Anr. … Respondents
JUDGMENT

AFTAB ALAM,J.
1. This appeal is directed against the orders passed by the Punjab &

Haryana High Court asking the appellant to deposit in court the sum of Rs.

one crore that it had received in connection with the sale of the property of
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M/s. Pure Drinks (New Delhi) Ltd. (respondent no.2), for the liquidation of

which a proceeding remains pending in the High Court. The first order in

this regard was passed by a learned Single Judge on 14 March, 2000 on an

application made by Neel Kamal Plastics Ltd. (respondent no.1), one of the

several creditors of the second respondent, M/s.Pure Drinks (New Delhi)

Ltd. (hereinafter referred to as `the Debtor Company’). By this order the

appellant was directed to deposit the aforesaid amount in twelve equal

monthly installments of Rs.8.5 lakhs beginning 15 April, 2000. Against the

order passed by the learned Single, the appellant preferred an appeal before

the Division Bench of the Court under Section 483 read with Section 466 of

the Companies Act, 1956. The Division Bench affirmed the order of the

Single Judge and dismissed the appeal vide order dated 3 December, 2001

in Company Appeal No.12 of 2000. The present appeal is directed against

the order passed by the Division Bench.

2. The Debtor Company has a number of creditors. Some of its

creditors instituted proceedings for recovery of their dues before different

courts and authorities, including the Punjab & Haryana High Court, the

Delhi High Court and the Debts Recovery Tribunal, Delhi. The Debtor

Company and the other parties to those proceedings, apparently guided by

expediency and motivated by self interest did not consider it their duty to

report to the concerned Court/Tribunal about the analogous proceedings
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before other Courts. As a result, orders came to be passed by courts that do

not seem to be harmonious or completely consistent with each other. The

overall picture, therefore, appears to be somewhat murky and confused. For

disposing of this appeal, however, it is not necessary to go into all the

details and we shall take note of only certain facts which are admitted by the

parties or are, in any event, undeniable.

3. The appellant, not being successful in recovering its dues from the

Debtor Company, moved the Punjab & Haryana High Court in Company

Petition No. 16 of 1997 for putting M/s. Pure Drinks (New Delhi) Ltd. to

liquidation in terms of Sections 433 and 434 of the Companies Act. On 20

February, 1997, the Court passed the following order in that case:

“Notice to show as to why the petition for winding up be
not admitted.

To come up on April 3, 1997

The respondents shall not alienate or dispose of nay
property except in the regular course of business without
the permission of the Court.”
(emphasis added)
4. On August 28, 1997 the court admitted the Company Petition and

directed for its advertisement in the Official Gazette of the State of Punjab

besides two newspapers. The Debtor Company, after unsuccessfully seeking

review took the order in appeal before a Division Bench. It is significant to
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note that in that appeal (Company Appeal N. 25 of 1997), the Debtor

Company, also filed an application (CM No. 11 of 1998) seeking

permission to dispose of its assets at A-30, Mohan Cooperative Industrial

Area, Mathura Road, New Delhi. The appeal, along with the application

for permission to sell was dismissed by order dated 21 December, 1998.

The Debtor Company then brought the matter to this Court in SLP No.1032

of 1999. The SLP was dismissed as withdrawn by order dated 3 February,

1998.

5. While the matter in the Punjab & Haryana High Court rested at this

stage, in another proceeding instituted before the Debts Recovery Tribunal,

Delhi at the instance of Punjab & Sind Bank the Debtor Company was able

to sell its property A-30, Mohan Cooperative Industrial Estate, Mathura

Road, New Delhi to one Motor and General Finance Ltd. (hereinafter

referred to as `MGF’ Ltd.) on certain terms as to the disbursement of the

sale proceeds as directed by the DRT. The sale of the property by the

Debtor Company was objected to by some interested persons and the matter

went to the Delhi High Court and in due course the Company Petition

pending before the Punjab & Haryana High Court and the orders restraining

the Debtor Company from alienating any of its properties also came to light.

6. In yet another suit instituted before the Delhi High Court (Civil Suit

No.2311/93) M/s. Pure Drinks (Calcutta) Limited, a sister concern of the
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Debtor Company sold its property A-31, Mohan Cooperative Industrial

Estate, New Delhi to the common vendor MGF Ltd. At this stage it appears

that the Debtor Company, MGF Ltd. and the present appellant came to some

sort of an arrangement and MGF Ltd. agreed to pay to the appellant a sum

of Rs.1.95 crores out of the consideration money for A-31, Mohan

Cooperative Industrial Estate. It does not need much imagination to see that

the Debtor Company and MGF Ltd. agreed to pay the large amount to the

appellant simply in order to ward off the consequences that might arise from

the breach of the restraint order passed by the Punjab & Haryana High Court

on 20 February, 1997. This arrangement was reported to the Company

Judge in the Punjab & Haryana High Court and it finds mention in the order

passed in Company Petition No.16 of 1997 on 28 January, 1997.

7. On 17 March, 1999, the Punjab & Haryana High Court was told that

the Delhi High Court had permitted sale of the properties of the Debtor

Company and its sister concern, namely Pure Drinks (Calcutta) Ltd. on

condition that out of the sale proceeds payment would first be made to the

Income Tax Department and the balance would be disbursed following the

directions of the Delhi Court. It was further stated that a request was made

to the Delhi Court for permission for payment of Rs.1.95 crores from the

sale proceeds to the appellant towards its dues against the Debtor Company

and the matter was to come before that Court on 24 March 1999. The
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Punjab and Haryana High Court recorded the statements made before it in

the order passed on that date and the adjourned the matter as prayed on

behalf of the parties.

8. Later on the Debtor Company filed applications both before the

Punjab and Haryana High Court and the Delhi High Court seeking a

direction allowing MGF Ltd. to pay the sum of Rs. 1.95 crores directly to

the appellant. The appellant filed another application (Company Application

No.441/99) before the Punjab and Haryana High Court for vacating the

restraint order dated 20 February, 1997. On hearing the parties and taking

note of the fact that out of the sale proceeds of the property A-31, Mohan

Cooperative Industrial Estate, New Delhi, two post dated cheques of Rs.

one crore and Rs.95 lakhs respectively had been handed over to the

appellant’s counsel the Company Judge vacated the interim order dated 20

February, 1997. On 1 September, 1999 the following order was passed in

Company Petition No. 16 of 1997:

“In Company Petition No.16 of 1999 an order had
already been passed for winding up of the Respondent
but it was deferred for final publication. This court had
stayed the sale of property including No.A-30, Mohan
Cooperative Industrial Estate, Mathura Road, New
Delhi. It appears that despite the said order the property
had been sold and the sale had since been confirmed by
Delhi High Court. M/s. Motor and General Finance is
the purchaser of the property.
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Out of the total sale proceeds from A-31, Mohan
Cooperative Industrial Estate, Mathura Road, New
Delhi, two post dated cheques of Rs. one crore dated
3.9.1999 (No.719854) and the other dated 2.11.1999 for
Rs.95 lacs (No.719855) has been handed over to the
applicant’s counsel in Court. The applicant’s counsel
has accepted the said cheques without prejudice to its
contentions against M/s. Pure Drinks Limited, New
Delhi-Respondent.

Keeping in view the above said fact and the events
referred to above that the sale has been confirmed by the
Delhi High Court and that the parties namely the
applicant, M/s Motor General Finance Ltd. and the
Respondent have no objection, it is directed that the stay
that had been granted against the Respondent would
stand vacated as against the above said property only in
CP No.16 of 1997. In view of the confirmation by the
Delhi High Court, of the sale, there is no need thus to
pass any order.”
(emphasis added)
9. It is significant to note here that the Delhi High Court declined the

request to allow MGF Ltd to make any payment to any one else other than

the Income Tax Department and insisted that after payment to the Income

Tax Department the balance amount of Rs.3,66,64,995/- be deposited with

the Registrar of that Court within two weeks from its order dated 7 October,

1999. Against the order dated 7 October, 1999 MGF Ltd. filed an appeal

before the Division Bench of the Delhi High Court and by an interim order

it was directed to deposit Rs.2,66,69,995/- apparently because Rs.one crore
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was already paid to the appellant. It is not clear from the records what final

order was passed in the appeal by the Division Bench.

10. This bilateral arrangement between the parties was thus formalized by

the Punjab and Haryana High Court and the appellant, at whose instance the

proceedings for liquidation of the Debtor Company had commenced was

able to secure from it a very substantial amount under a private

arrangement, involving the breach of the Court’s order and at the expense of

the creditors of the Debtor Company. At this stage, however, M/s.

Neelkamal Plastics, respondent No.1, put a spanner in the neat arrangement

arrived at between the appellant and the Debtor Company. It filed an

application (Company Application No.459/99) under Section 433 of the

Companies Act seeking a direction to restrain the Debtor Company from

making any payment to any creditor in preference to the creditor making the

application. It also sought a direction to the appellant to refund the amount

of Rs.1.95 crore paid to it for and on behalf of the Debtor Company and

further to restrain the appellant from encashing the cheques received by it

from MGF Ltd. In its application respondent no. 1 tried to point out to the

Court that the payment of Rs.1.95 crore by MGF Ltd. to the appellant was

not sanctioned by the Delhi High Court and it was in fact contrary to the

Delhi High Court order dated 4 March, 1999. On notice being issued both

the Debtor Company and the appellant filed their rejoinders resisting the
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prayers made by respondent no. 1 on all conceivable grounds. On hearing

the parties the Company Judge first passed order dated 26 October, 1999.

By this order the Company Judge directed that the appellant would encash

the cheque of Rs.95 lakhs only on the condition that the money would be

immediately deposited in the Delhi High Court. (The other cheque of Rs.1

crore had already been encashed by then). The Court also issued notice to

the parties in Company Petition no. 16 of 1997 and MGF Ltd. to show cause

why order dated 1 September, 1999, lifting the earlier restraint order, be not

recalled; parties were permitted to file supplementary replies. As an interim

measure MGF Ltd. was restrained from selling, alienating or creating any

charge on A-30 Mohan Cooperative, Industrial Estate, Mathura Road, New

Delhi. The order dated 26 October, 1999 makes it clear that the Punjab &

Haryana High Court, on being apprised of all the facts, took the view that

the order dated 1 September, 1999 was obtained from it on a complete

misrepresentation of the orders passed by the Delhi High Court. On 14

March 2000 the Company Judge passed the final order in the matter. The

relevant extract from the order is as follows:

“As regards the rest of the amount of Rs. One crore, it is
abundantly clear from reproduced paragraph above that
when Company Application 441 of 1999 was preferred
in this Court, reference was made to the statement made
by the learned Senior Counsel for MGF. It only
conveyed that Delhi High Court has no (sic) conveyed
otherwise. The order of Delhi High Court has been
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reproduced above. It reveals otherwise. There was a
clear direction by Delhi High Court that entire amount
has to be deposited with the Registrar of Delhi High
Court. The same had not to be paid to DCM Company.
A copy of order passed by Delhi High Court dated
2.9.1999 has also been appended. It indicates that before
the Delhi High Court it was stated on behalf of MGF that
order dated 4.3.1999 had not been correctly understood
by MGF. The Delhi High Court recorded that it is
difficult to accept the submission. These facts clearly
show that the payment that was made to DCM Company
was contrary to the direction of the Court. It was undue
preference given to one creditor.

***** ***** ***** *****

The position that emerges is that the amount of Rs. One
crore has been utilized. Obviously correct facts were not
brought to the notice of the Court. The result is that
DCM company cannot take/advantage and retain the
amount. It is true that the amount is stated to have been
utilized for clearing certain liabilities. But while striking
a balance, direction has to be issued to deposit the said
amount in this Court. Keeping in view the difficulty, it is
directed that w.e.f. 15.4.2000 DCM Company will
deposit the entire amount in twelve equal installments of
Rs.8.5 lacs. It should continue to deposit the said
installments month by month till the entire amount is
deposited with the Registrar of the Court.”
The order was taken in appeal. The Division Bench examined the whole

matter in all its myriad detail and by order dated 3 December, 2001 firmly

affirmed the order passed by the Company judge.

11. We have before us the appeal against this order of the Punjab and

Haryana High Court.
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12. Mr. Rajesh Srivastava, learned counsel appearing for the appellant,

submitted that the direction asking the appellant to deposit the amount of

Rs.one crore in Court was quite illegal, unjust and unreasonable. Learned

counsel assailed the High Court’s direction mainly on two grounds. He first

submitted that under a private arrangement between the two, the appellant

had received the amount from MGF Ltd. which was not even a party to the

Company Petition pending before the Punjab & Haryana High Court.

Further, the amount that was paid to the appellant was a part of the

consideration money that MGF Ltd. was to pay to M/s. Pure Drinks

(Calcutta) Ltd. which too was not a party before the Punjab & Haryana High

Court. Thus, the whole transaction had taken place outside the purview of

proceedings before the Punjab and Haryana High Court. It was, therefore,

not open to the High Court to ask the appellant to deposit in Court the

money received by it from MGF Ltd. Learned counsel next submitted that in

any event such a direction could not be made on an application by

respondent No.1 because M/S Neelkamal Plastics Ltd. had received over

Rs.13 lakhs from the Debtor Company and it was thus itself extended a

fraudulent preference by the Debtor Company.

13. We see no substance or merit in either of the two submissions. The

submissions made by Mr. Srivastava tend to present the matter in an over

simplified way and completely overlook the provisions of the Companies
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Act. It is misconceived and fallacious to suggest that the appellant received

a sum of Rs.1.95 crores from MGF Ltd. in a transaction falling outside the

purview of the Company Petition pending before the Punjab & Haryana

High Court. It is misleading to say that the money received by the appellant

was part of the consideration money payable to M/s. Pure Drinks (Calcutta)

Ltd. and it had no connection with the Debtor Company. In the facts and

circumstances of the case, it is not the source of money that is important but

what is important is the cause on the basis of which the appellant was able

to get the money from MGF Ltd. The payment of the large sum by MFG

Ltd. to the appellant was not gratuitous. It was evidently intended to patch

up the brazen breach of the Court’s orders committed by the Debtor

Company and MGF Ltd. in effecting the sale of A-30, Mohan Cooperative

Industrial Estate, Mathura Road, New Delhi. The payment was thus directly

within the purview of the Company Petition pending before the Punjab &

Haryana High Court.

14. In this connection it should also be borne in mind that the

proceedings for liquidation of a company under the Companies Act not are

not the same as a intra-party suit for recovery of money. In a money suit it

may indeed be open to the plaintiff to accept any money outside the court

from or on behalf of the defendant towards the full or partial satisfaction of

his claim in the suit and to report the payment to the court for passing
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appropriate orders. But such is not the position in a proceeding for

liquidation of the company. Once a proceeding gets underway under the

Companies Act, the party at whose instance the proceeding is initiated does

not enjoy any preferential claim and any proceeds from the sale of the assets

of the company must be disposed of in terms of the scheme as provided

under Sections 529A and 530 of the Companies Act.

15. Having regard to the provisions of the Companies Act it is plain and

clear to us that the money received by the appellant from MGF Ltd. was

legally bound to come to the court. The Court was in error in allowing the

payment to the appellant by its earlier order dated 1 September, 1999 and

later it rightly recalled that order and directed the appellant to deposit the

money in court.

16. As to the other point that respondent No.2, the applicant, had itself

received over Rs.13 lakhs from the Debtor Company and it was, therefore,

not open to it to object to the appellant too getting its due from the Debtor

Company, the obvious answer is that one wrong would not justify another

of the same kind. But the submission does not even appear to be factually

correct. In the order coming under appeal the High Court dealt with the

point and made the following observation :

“The argument of Shri Ranjit Kumar that Respondent
No.1 could not have questioned the payment made by
M/s. MGF Ltd. to the appellant because it had received
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Rs.13.20 lakhs from Respondent No.2 after filing of
winding up petition sounds attractive but does not merit
acceptance because perusal of the record shows that
Respondent No.1 had received payment from
Respondent No.1 (sic Respondent No. 2) between
November 1998 and 19.7.1999 amounting to
Rs.10,95,000/- (last cheque dated 11.8.1989) of
Rs.2,25,000/- was not encashed by Respondent No.1
before the passing of the second order of advertisement.
We are further of the view that the acceptance of
payment of Respondent No.1 from Respondent No.2 is
not sufficient to preclude it from bringing to the notice of
the learned Company Judge that order dated 1.9.1999
had been obtained by the parties by suppressing material
facts and playing fraud with the Court.”
17. This is the complete answer to the submission made on behalf of the

appellant.

18. We thus find no substance or merit in this appeal. It is accordingly

dismissed. In the facts and circumstances of the case, there shall be no

order as to costs.

 

………………………………J.
[P. Sathasivam]

 

……………………………..J.
[Aftab Alam]

New Delhi,
August 13, 2008.
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