Winding up due to settlement terms not the same as winding up passed on merits: Bombay High Court

Winding up due to settlement terms not the same as winding up passed on merits: Bombay High Court

The Bombay High Court, while quashing complaints under section 138 of the Negotiable Instruments Act, 1881 (NI Act) held that a winding up order due to settlement terms is not the same as winding up order passed on merits.

"If the submission on behalf of the applicants is readily acceded to, then M/s. Rangara would get a long leash to avoid the liability by taking undue advantage of its own default", the court observed.

A total of five applications were dismissed by Justice NJ Jamadar under section 482 CrPC for quashing of complaints under section 138 NI Act against a company in liquidation.

M/s. Rangara Industries Private Limited (M/s. Rangara) owed a certain liability towards M/s. Surajbhan Rajkumar Private Limited (M/s. Surajbhan). Alleging that M/s. Rangara could not repay the debt, M/s. Surajbhan filed a Company Petition for winding up of M/s. Rangara.

M/s. Rangara and M/s. Surajbhan entered into a settlement which included a schedule for payment in monthly instalments from 15.06.2015 to 15.11.2017. The parties agreed that the Company Petition would stand allowed in case of default in payment. M/s. Rangara defaulted in payments according to the settlement. M/s. Surajbhan deposited the cheques given by M/s. Rangara which were dishonoured. M/s. Surajbhan lodged five complaints under section 138 read with 141 of the NI Act. The applicants approached the High Court under section 482 of Cr.P.C. praying for quashing of the complaints.

Placing reliance on Firth (India) Steel Co. Ltd. v. Bombay Leasing Company Pvt Ltd., the Court held that leave of the company court under section 446 is not required to institute a complaint under section 138 of NI Act.

Addressing whether the complaint under section 138 can be entertained when the company is in the process of winding up, the court relied on Apex Court judgments in Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. and Pankaj Mehra v. State of Maharashtra. The court concluded that it needs to be determined based on the fact and circumstance of each case. The question cannot be considered without the facts especially to "insulate a company and its ex-directors from the rigors of law where it appears that they profess to take advantage of their own wrong".

It observed,

"An order of winding-up which automatically comes into force upon a default in compliance with the consent terms executed on behalf of the company, and its directors cannot be placed on the same pedestal as an order passed on merits, especially in a case like the one at hand where it appears to be in the nature of a device to obviate the liability at that moment...conduct of the applicants deserves to be taken into account."

The court dismissed the applications on account of the facts of the case and the advanced stage of the trial.