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

J U D G M E N T

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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