INSTALMENT SUPPLY LIMITED Vs. C E C LIMITED

JUDGEMENT

(1.) The Instalment Supply Limited filed a petition for winding up against C.E.C. Limited, (formerly Chahal Engineering and Construction (P) Ltd.) (hereinafter called the 'company'). In substance the grounds taken by the petitioner for winding up are that an agreement was arrived at between the petitioner and the company pursuant to which the company took delivery of the equipments on hire/rental basis as per the said agreement. However, the company paid lease rental only up to March 1988, but thereafter, failed to pay any further sum. As on April, 1989, according to the petitioner, the company owed a sum of Rs.29,00,589.00. A statutory notice was also issued to the company but no payment has been made. However, vide letter dated 10th May, 1989, the company admitted its liability and requested the petitioner for time to make the payment. According to the petitioner, since the issuance of the registered notice a further sum of Rs.6,54,520.00 towards hire charges/rental under the agreement have become due beside a sum of Rs.2,39,752.00 towards interest on delayed payments. When the hire charge's/rentals were not paid, the present petition has been filed.

(2.) On this petition, a show cause notice was issued to the respondent. No reply has been filed by the company. However, on 23rd August, 1990, counsel appearing for the respondent company, on instructions from one Mr. G.N. Vajpai stated that the company was not disputing the claim of the petitioner. That the company was willing to repay the amount; but due to temporary financial stringency the company was not in a position to pay the debt in lump sum but would pay the same in instalment of Rs.50,000.00 each payable every month commencing from 1st November, 1990. This offer of instalments was not acceptable to the counsel for the petitioner. On 3rd September, 1990, Mr. H.D. Singh, Managing Director of the company appeared. On 29th October, 1990, counsel for the company agreed to reschedule the payment. According to him the amount would be paid in monthly instalment of Rs.1,30,000.00 instead of Rs.50,000.00 earlier offered, payable from 26th November, 1990. Parties sought time to put the terms of settlement in writing. The terms regarding rescheduling of payment and rate of interest was discussed with the counsel for the parties as well as with the Managing Director of the company, Sh. H.D. Singh. Pursuance to this discussion, the terms of settlement was arrived at between the parties which was filed in the court beside Mr. H.D. Singh, Managing Director of the Company, made a statement in this court on 21st November, 1990 giving an undertaking that the terms settled between the parties would be binding on the company and further undertook to this court that the company shall pay to the petitioner a sum of Rs.75,26,319.00 in monthly instalments detailed in the application annexure 'A' which was exhibited as Ex.'B.' He further stated that the terms stated in Ex.'B' shall also be binding on the respondent company. These terms of compromise were also acceptable to the petitioner, on whose behalf one Sh. Sidharth Bahadur appeared in this court and made a statement on 21st November, 1990. This court accepted the undertaking given by Sh. H.D. Singh and held that the parties shall be bound by the terms of settlement Ex.'B' and the statement made in the court. Accordingly compromise decree of Rs.75,26,319.00 was passed. However this amount was to be paid by the company in instalment as per the terms of settlement. Counsel for the company has now raised an objection that this compromise decree and the undertaking given by the Managing Director are not binding. It is in the form of penalty and therefore cannot be executed by this court.

(3.) - I have heard Mr. Shashi Vans Bahadur, for the petitioner, and Mr. Shiv Khurana, for the company. I have also perused the record, and the proceedings of this case. Admittedly parties entired into a compromise which was exhibited as Ex.'B'. The said Ex.'B' contains' the terms of compromise. I have also perused the undertaking given to this court by the Managing Director of the company, Sh. H.D. Singh, dated 21st November, 1990 pursuance to which the company paid an amount of Rs.6.00 lakhs. Mr. Shiv Khurana, appearing for the company had undertaken to pay another sum of Rs.4.00 lakhs vide proceedings dated 5th January, 1993. However, on 29th January, 1993, Col. C.M.Bajpai, Director of the company appeared and stated that the company was not in a position to pay Rs.4.00 lakhs which was undertaken to be paid on 5th January, 1993. He requested that the case be adjourned because in another case objections against the award which was in favour of the company are pending in the Supreme Court and there is every chance that the company would succeed. Hence as soon as award is made a rule of the court the company would pay the entire amount of the petitioner as agreed. On this request, the case was adjourned from time to time. The objection now raised by Mr. Khurana that the compromise decree is in the form of a penalty, to my mind, has no force in the eye of law. The judgements relied by Mr. Khurana in the cases of Mefiru Vs. Mohan Lal and others reported in AIR 1985, Punjab & Haryana page 143, K.P. Subarama Sastri and others Vs. K.S. Raghavan and others reported in AIR 1987 Supreme Court page 1257 and in the case of Prithvichand Ramchand Sablok, Vs. S. Y. Shinde reported'in AIR 1993 Supreme Court page 1929 are of no help to the company. In the case of Mehru VS. Mohan Lal (supra), the point at issue -was whether pursuance to compromise decree regarding the payment of instalment of rent, the landlord could recover possession of the tenanted premises from the tenant by inserting a clause in such an agreement? The answer was in the negative. The relief sought by the landlord was non payment of the instalments of the rent. The tenant in that case had substantially complied with the terms of the compromise and for the late payment of rent, the court opined that the relief" could he given by extending the time fixed for the payment of the instalments under Section 148 of the Code of Civil Procedure. But the clause regarding recovery of possession of the disputed land for non payment of the rent was held to he in the nature of penalty and forfeiture, and therefore, could not have a binding force. It was observed that the court is empowered to relieve the judgement debtor of the rigours of penal clause which provides the forfeiture of property and other valuable rights in case of default of payment according to the time. stipulated in the consent decree. But that is not the case in hand. Similarly, in the case of K.P. Subharama Sastri (supra) the Supreme Court was dealing with a question as to whether a particular stipulation in a contractual agreement is in nature of a penalty has to be determined by the court against the background of various relevant factors, such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties incorporating in the contract the particular stipulation which is contended to be penal in nature.' It was further observed that if the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terrorem over the promiser so as to drive him to fulfil the contract, then the provision will be held to be one by way of penalty. The true test for determining whether the said condition is in the nature of a penalty is to find out whether the amounts referred to in the agreement were debitum in presents although solvendum in futuro or whether they were to become due to the promisee only on the respective dates when the instalments were payable. If on a proper construction of a contract it is found that the real agreement between the parties was to the effect that the whole amount was on the date of the bond a debt due but the creditor for the convenience of the debtor allowed it to be paid by instalments intimating that if default should be made in the payment of any instalment he would withdraw the concession, then the stipulation as to the whole amount of the balance becoming payable would not be penal. If, on the other hand, the intention was that debt to become due and payable by the debtor only on the respective dates fixed for the instalments the stipulation that on default being made in the payment of any instalment the whole of the balance should become due and payable would be in the nature of a penalty. -Mr. Khurana contended that since the instalments were to be paid in future as stipulated in Ex.'B' as wel-1 as in the undertaking given by Mr. H.D. Singh, therefore, this payment would be in the nature of penalty. I am afraid this argument has no force. There is no quarrel with the proposition of law as laid down and relied by Mr. Khurana but unfortunately this judgement of Supreme Court does not help him. Rather it supports the case of the petitioner. There is consent decree for Rs.75,26,319.00 and the Managing Director, Mr. H.D. Singh of the company also admitted that this amount was due and payable on the day he made the statement in the court and the terms of settlement were arrived at. It was due to financial constraints of the company and looking to its convenience that the instalments were fixed by way of compromise, therefore, by no stretch of imagination it can be called a penalty. Therefore as on 21st November, 1990 when the compromise decree was passed the debt was due and payable by the company to the petitioner. It was because of the financial hardship expressed by the respondent that the petitioner- agreed to receive this amount in instalments. Therefore relying'on the case of K.P. Subharama Sastri (supra) it can be easily concluded that the agreement Ex.'B' and the undertaking given by Mr. H.D. Singh to this court vide his statement dated 21st November, 1990 and the compromise arrived and the decree passed thereon cannot be described in the nature of a penalty.