Holding

Interest payable on delayed payments, whether agreed or statutory, is a debt under s.433 of the Companies Act, 1956, and a winding‑up petition is maintainable even if the precise amount of interest is disputed, provided the debt is ascertained and the company has failed to pay it.

Summary

Vijay Industries, a small‑scale supplier of castor oil, sued Natl Technologies for non‑payment of invoices and for interest on delayed payments, filing a winding‑up petition under Sections 433(e), 433(f) and 434 of the Companies Act, 1956. The respondent argued that interest was not a debt because there was no explicit agreement to pay it and that the amount was disputed. The Supreme Court held that failure to pay agreed or statutory interest falls within the meaning of "debt" under s.433, and a winding‑up petition is maintainable even if the exact quantum of interest is contested, provided the debt is ascertained and the company has neglected to pay it. The Court set aside the High Court’s reversal, allowed the appeal and directed the respondent to pay simple interest at 12% per annum on the balance amount within eight weeks. The decision clarifies that interest is payable by way of restitution and may be awarded under the Sale of Goods Act, the Interest Act, 1978 and the Interest on Delayed Payments Act, 1993.

Issues considered

Whether interest payable on delayed payments constitutes a "debt" within the ambit of Sections 433 and 434 of the Companies Act, 1956.
Whether a winding‑up petition is maintainable when the liability to pay interest is disputed or not expressly agreed.
Whether the entire sum (principal plus interest) must be undisputed for a petition under s.433 to be admitted.
Whether the company court can determine the liability and quantum of interest in winding‑up proceedings.

Legislation cited

Companies Act, 1956s. 433, s. 434, s. 439
Income Tax Act, 1961s. 226(3)
Interest Act, 1978s. 3
Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993s. 5, s. 6
Sale of Goods Act, 1930s. 62(1)(a)

Subjects

winding upCompanies Actdebtintereststatutory interestcorporate insolvencySection 433Section 434interest on delayed paymentscreditor's rights

Judgment

[2008] 17 S.C.R. 972

A MIS. VIJAY INDUSTRIES
v.
M/S. NATL TECHNOLOGIES LTD.
(Civil Appeal No. 7352 of 2008)
DECEMBER 17, 2008
B
[S.B. SINHA AND CYRIAC JOSEPH,. JJ.]

. Companies Act, 1956 - ss. 433 and 434 - Winding up
petition under - Maintainability of - Interest payable on the
c sum due whether debt to attract ss. 433 and 434 - Held:
Failure to pay agreed interest or statutory interest would be
'debt' - s.433 does not state that debt must be a definite sum
- On facts, failure of purchaser to pay price for the goods to
supplier on presentation of invoices - Credit bill signed by
purchaser's representative contained clause for payment of
D
interest on delayed payments - Purchaser agreed to
compensate supplier for delay in payment and never denied
demand of interest - Supplier issued notices that payments
had been adjusted towards interest first and balance would be ,r·
'
adjusted towards principal, thus, a prima face case was 1J7ade
E out - On receipt of legal notice also purchaser did not make
payment to liquidate debt - More so, when application for
winding up filed, dues were more than the amount specified
in s.433 - Thus, High Court not justified in setting aside
application for winding up admitted by Company Judge - In
F the interest of justice, purchaser directed to pay simple
interest on admitted sum @ 12% pa on the balance amount
instead of 24% pa within the specified period. .,
Interest - Grant of - Held: Interest is infer alia payable
by way of restitution - It is also payable in terms of s.62(1)(a)
G of Sale of Goods Act; s.3 of Interest Act, 1978 as also ss.5
and 6 of Interest on Delayed Payments to Small Scale and
Ancillary Industrial Undertakings Act, 1993.
Appellant-small scale unit was supplying Castor Oil
to the respondent-company. The invoices of credit bills ')'--
H 972
-, M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 973
• LTD .
- contained a clause that the amount was to be paid within A
seven days, else buyer would be liable to pay 2% interest
.... ...
._:.; per month. The representative of the respondent_signed
the credit bill. Respondent did not pay the complete price
of the said supplies on presentation of the invoices.
Appellant adjusted the amount first towards interest at the B
stipulated rate and balance against the principal amount.
Appellant raised the demand but the respondent did not
make the payment. Parties negotiated as regard the
manner of.making payment. Appellant agreed to restore
~
supply of Castor Oil provided the ,respondent deposited
the outstanding dues. Certain sum was paid and the
c
appellant refused to make further supplies. A meeting
took place. Respondent agreed to square up the old
dues and also agreed to compensate respondent for the
delay in payment on account of earlier supplies. The said
agreement was not adhered to. Appellant issued a notice D
u/s. 434 of the Companies Act, 1956 to the respondent
) that if payment is not paid after availing the credit period,
~ respondent would be liable to pay interest @ 2% pm.
Respondent was to pay Rs. 65, 15,947 with interest @ 2%
pm. Respondent did not deny or dispute demand of E
interest and according to it Rs. 16,80,468/ was due. But
the said amount was not paid. Appellant filed a winding
c up petition u/s. 433(e) and 433(f) r/w s. 439 of the Act.
' Single Judge admitted the company petition and held
that a prima facie case was made out therefor h~ving
F
regard to the correspondences passed between the
~ parties, the credit bills and also the minutes of the
meeting. Respondent filed an appeal. Division Bench of
High Court allowed the same. Hence the present appeal.
Allowing the appeal, the Court
G
HELD: 1.1 Circumstances in which a company may
be wound up by the court are contained in s. 433 of the
Companies Act, 1956. If a company is unable to pay its
-\
debts as contained in Clause (e) thereof, it would be one
of the grounds therefor. Section 434 raises a legal fiction
/
H
974 SUPREME COURT REPORTS (2008]. 17 S.·G.R r

A as to when the company would be deemed to be unable
to pay its debts. On a plain reading of clause (a) of sub- e-,
section (1) of s.434, it is evident that/ what is necessary ~
.
for invoking the said provision is that despite service of
notice, company which was indebted i.n a sum exceeding ~

B one lakh rupees then due failed and/or neglected to paY- ....-
the same within three weeks thereafter or to secure or ...
~
compound for it to the reasonable satisfaction of the- ,_

creditor. [Paras 28 and 29] [989-D, E, H; 990-C-D]
'"
1.2. Section 433 of the Act does not state that the ~· >-
'r
c debt must be precisely a definite sum. Failure to pay '
agreed interest or the statutory interest would come
within the purview of the word.'debt'. It is one thing to say
that the amount of debt is not definite or ascertainable
because of the bona fide dispute raised thereabout or
there exists a dispute as regards quantity or quality <>f
D supply or such other defences which are available to the
purchaser; but it is another thing to say that although the
\.
due as regards the principal amount resulting from the
quantity or quality of supply of the goods stands r
'
admitted but a question is raised as to whether any ~
E agreement had been entered into for payment of interest
or whether the rate of interestI would be applicable or not..
In the latter case, the application for winding up cannot •
I
be dismissed. [Para 33] [992-D-G]
1.3. In the instant case, despite receipt of a legal
F notice dated 23.12.2003, no payment was made to
liquidate the .debt on the part of the company. Appellant
had been supplying Castor Oil to the respondent.
,
Respondent did not pay the price of the said. supplies,
on presentation of the invoices. It also stands admitted
G that the parties negotiated as regards the manner in
which the payments could be 'fhade. In a meeting held on
25.11.2003, promises were made to square up the old
outstanding dues and bring it into the system for the ,>-
purpose of rotation. The agreement sp~ke of payment of
compensation to the appellant for the delay in payment .,.
H
•
M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 975
LTD.

on account of earlier supplies after clearing the entire old A
. ~
dues. There cannot be any doubt whatsoever that when,
~ in principle, the respondent had agreed to compensate
""' the appellant for the delay in payment, the same must be
by way of interest payable on the principal amount or
otherwise. Respondent never denied the demand of B
interest as such, but in its reply dated 30.12.2003 merely
stated that a sum of Rs. 16,80,468 was due. [Paras 30 and
31] [990-D; 991-A]
~ 1.4. On the date of filing of th~ application, dues in
respect of at least a part of the debt which was more than c
the amount specified in Section 433 of the Companies Act
was not denied. It is not a requirement of the law that the
entire debt must be definite and certain. Division Bench
of the High Court proceeded on the basis that the entire
sum covering both the principal and the interest must be
undisputed. Division Bench upon noticing the fact of the D
matter formulated the question "as to whether
.> respondent is liable to pay interest at 2% pm on delayed
-"I payments and what that is being disputed would it
constitute prima facie a valid ground for admission of the
company petition". It held that it cannot be presumed E
prima facie that the respondent is unable to pay its debt..
[Paras 37 and 38] [996-998-F-G; D, E]
1.5. The findings of the High Court are not correct for
more than one reason; firstly, because the Division Bench
did not hold that the invoices were not proved by cogent F
evidence; secondly, question of leading evidence would
l arise only after the company petition is admitted and,
thirdly, issuance of invoices and signature of the
respondent thereon is not disputed. The judgment of the
Division Bench also contains a legal flaw insofar as it G
failed to take into consideration that the appellant had in
fact issued three notices dated 6.01.2003, 8.09.2003 and
~.
legal notice dated 23.12.2003 specifically mentioning that
the payments had been adjusted towards interest first
-< and balance, if any, shall be adjusted towards the
H
976 SUPREME COURT REPORTS [2008] 17 S.C.R.

,,
A principal. Thus, a prima face case was made out. [Paras
39 and 40] (998-F-H; 999-A] ..
~
~

Stephen Chemical Limited v. lnnosearch Limited (1986)
60 CC 702; Rashid Leathers (P) Ltd. v. Super Fine Skin
,Traders (1990) 68 CC 684; Devendra Kumar Jain v. Polar
8 Forgings and Tools Ltd. (1995) 84 CC 766; Multimetals Ltd.
v. Suryatronics Pvt. Ltd. (1997) 89 CC 259; Bombay Glass
Blowing Industries v. Bio Vaccines Pvt. Ltd. (1999) 98 CC
174; Ultimate Advertising and Marketing v. G.B. Laboratories
Ltd. (1989) 66 CC 232; Mis. Ultimate Advertising and
c Marketing New Delhi v. G.B. Laboratories Ltd., Kanpur AIR
1998 Allahaba.d 320; Kitply Industries Ltd. v. Hari Narain and
Sons Pvt. Ltd. (1998) 91 CC 715; Jyothi Limited v. Boving
Fouress Limited (2001) 3 Comp LJ 413 (Karn); Southern
Industrial Polymers (P) Ltd. v. Amar Formulators and
Electronics (P) Ltd. (1984) 56 CC 77 (Karn); Anand Steel v.
D Bharat Earth Movers Ltd. (1987) 3 Comp LJ 175 (Karn);
Unisystems (P) Ltd. v. Stepan Chemical Ltd. (1985) CC 875
..
(P&H); Gangadhar Narsinghdas Agrawal v. Timble (P) Ltd.
(1996) 5 Comp LJ 342 (Born); Unisystems P. Ltd. v. Stepan
,
Chemical Ltd. (1986) 60 CC 753; Universal Bearing Agency
E v. Wpil Limited 2006 (2) ·cHN 530; Amalgamated
Commercial Traders (P.) Ltd. v. A. C.J<. Krishnaswami and Anr.
(1965) 35 CC 456; Mis. Madhusudan Gordhandas & Co. v.
Madhu Woollen Industries Pvt. Ltd. (1971) 3 SCC 632; Pfizer
Ltd. v. Usan Laboratories P. Ltd. (1985) 57 CC 236; /spat
.
F Industries Ltd., in RE (2005) 2. Comp LJ 235; · Mediquip
Systems (P) Ltd. v. Proxima Medical System GMBH (2005)
7 SCC 42 and Tube (nvestments of India Ltd. v. Rim and
Accessories (P) Ltd. (1990) 3 Comp LJ 322, referred to.
Re. Tweeds Garages Ltd. 1962 Ch 406, referred to.'
G 2. An interest is inter alia payable by way of
restitution. Interest is also payable in terms of the
provisions of Section 62(1 )(a) of the Sale of Goods Act.
Interest may be held to be payable in terms of Section 3 >-
of the Interest Act, 1978 as also in terms of Sections 5 and ~

~
H "·
M/S. VIJA Y INDUSTRIES v. MIS. NATL TECHNOLOGIES 977
... LTD .
6 of the Interest on Delayed Payments to Small Scale and A
Ancillary Industrial Undertakings Act, 1993. [Paras 41 and
1 42] [999-B; 1000-A-H]
~·

Clariant International Ltd. and Another v. Securities &
Exchange Board of India (2004) 8 SCC 524; Alok Shanker
Pandey v. Union of India and Ors. (2007) 3 SCC 545; Meka B
Venkatadri Appa Rao Bahadur Zamindar Garu and Ors. v.
Raja Parthasarathy Appa Rao Bahadur Zamindar Garu AIR
1922 PC 233; Meghraj and Ors. v. Mst. Bayabai and Ors.
1969 (2) SCC 27 4; Gurpreet Singh v. Union of India (2006)
8 SCC 457; Krishna Chemicals v. Orient Paper and c
Industries Ltd. (2005) 128 CC 72 and Assam Small Scale
Industries Development Corpn. Ltd. and Others v. J.D.
Pharmaceuticals and Anr. (2005) 13 SCC 19, referred to.
3. The judgment of the High Court is set aside.
Interest of justice would be subserved if in exercise of D
jurisdiction under Article 142 of the Constitution of l!:ldia
the respondent is directed to pay simple interest on the
) .
admitted sum at the rate of 12% per annum on the
balance amount instead of 24% per annum Within eight
" weeks from the date of amount became due till it is paid
failing which the consequences provided in law shall E
ensue. [Para 43] [1001-G-H; 1002-A-B]
Case Law Reference:
(1986) 60 cc 702 •
Referred to. Para 18
(1990) 68 cc 684 Referred to. Para 18
F
(1995) 84 cc 766 Referred to. Para 18
(1997) 89 cc 259 Referred to. Para 20
(1999) 98 cc 174 Referred to. Para 20
(1989) 66 cc 232 Referred to. Para 21
AIR 1998 Allahabad 320 Referred to. Para 23 G
(1998) 91 cc 715 Referred to. Para 24
(2001) 3 Comp LJ 413,(Karn) Referred to. Para 25
-( (1984) 56 CC 77 (Karn) Referred to. Para 25
-
~
(1987) 3 Comp LJ 175 (Karn) Referred to. ·Para 25
H
978 SUPREME COURT REPORTS [2008] 17 S.C.R.

""-
.
A (1985) CC 875 (P&H) Referred to. Para 25
(1996) 5 Comp LJ 342 (Bom) Referred to. Para 25
(1986) 60 cc 753 Referred to. Para 26 ~
(2006) 2 CHN 530 Referred to.· Para 27
(1965) 35 cc 456 Referred to. Para 31
B (1971) 3 sec 632 Referred to. Para 32
1962.Ch 406 Referred to. Para 34
(-1985) 57 cc 236 Referred to. Para 34
(2005) 2 Comp LJ 235 Referred to. Para 34
~-
c (2005) 1 sec 42 Referred to. Para 35
(1990) 3 Comp LJ 322 Referred to. Para 36
(2004) s sec 524 Referred to. Para 41
(2007) 3 sec 545 Referred to. Para 41
AIR 1922 PC 233 Referred to. Para 41
D (1969) 2 sec 274 Referred to. Para 41
(2006) 8 sec 457 Referred to. Para 41
(2005) 128 cc 72 Referred to. Para 42 .
(2005) 13 sec 19 Referred to. Para 42 f
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
E
7352 of 2008.
From the final Judgment and Order dated 14.3.2005 of the
High Court of Andhr'a Pr~desh at Hyderabad in Origin~I Side
Appeal No. 64 of 2004.
F Gourab Banerji, Saurav Agrawal, Gautam Jha and Ruby
Singh Ahuja for the Appellant
P.S. Narsimaha, P. Nagesh, L. Roshmani and Sudhir
Nandrajog for the Respondent.
"
G The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
2. Whether interest payaole on the sum due would be a
debt s9 as to attract the provisions of Sections 433 and 434 ,>-
of the Companies Act, 1956 is the question involved herein. "!9
H
M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 979
LTD. [S.B. SINHA, J.]
3. Before, however, adverting to the said question, we may A
notice the fact of the matter.
~ Appellant is a small scale unit registered with the District
~
Industries Centre. Admittedly, it suppiied Castor Oil to the
respondent valued at Rs. 89, 13,589/-. A sum of Rs. 49,99,000/
- had been paid by the respondent. The invoices of the credit B
bills attached with each of the supply contained a clause relating
· to payment of interest in the following terms:
"amount must be paid within seven days or you are liable
to pay 2% interest per month."
• 4. ·it is not in dispute that_,... at the foot of each .credit bill an c
officer of the respondent - company had put its signatures as
a token of acceptance:
5. Appellant is said to have adjusted the amount first
towards interest at the stipulated rate and balance against the
principal amount. As despite demand the amount due and D
owed to it was not paid by the respondent, a legal notice was
;
served upon it claiming interest on the said sum. It was stated
that the appellant had appropriated account of payments made
-~

by it against the interest and balance, if any, against the
principal amount. On the basis thereof, a demand for a sum of E
Rs. 64,58,457/- together with future interest at the rate of 2%
per month was raised. The said legal notice was replied by the
respondents, stating:
"We have received a legal notice from Sri Rao
Raghunandan, Advocate dt. 06.01.2003. You are aware F
_that after making payment of Rs. 10.00 lakhs towards
Castor Oil Supplies to our plant, we have received a notice
under. Section 226 (3) of the Income Tax, 1961 from the
Income Tax Department. As per the notice, we are directed
to pay the amounts due to you on account of Castor Oil G
supplied directly to the department in view of your dues to
the department to an extent of Rs. 25,43,737/-.
Subsequently, we have paid by way of cheques to Income

- --{
Tax Officer Ward-8(3) on account of supply of castor oil as
H
980 SUPREME COURT REPORTS [2008] 17 S.C.R.

A detailed below:-
Cheque No. Bank Dated Amount (Rs.~
074013 Allahabad Bank 09.08.02 2,00,000/-
100313 S.B.H. 09.09.02' 3,34,868/-
5,,34,868/-
B
After adjusting the above amounts and our earlier
payment of Rs.10.00 lakhs, the balance amount due to
your company on account of oil supplies is only Rs~
27,40,882/-.

c In view of the notice served by the Income Tax
Department, we could not arrange any payment directly to
your company. This matter was brought to your notice and
also advised you to obtain a direction from the Income Tax
Department to pay the dues directly to your company. In
the circumstances, we have not intentionally defaulted in
D making ai:rangements for the payment of your dues on
account of Castor Oil Supplies from time to time.
We request you kindJy to obtain the clearance, so as
to enable us to arrange payment of the outstanding amount
due to you amounting to Rs. 27, 40,882/-. In the
E circumstances, we request you to kindly advice your
advocate to withdraw the legal notice served on us
forthwith."
6. Without disputing its liability, however, in view of the
correspondence that exchanged between the parties, the
F · respondent offered to pay a sum of Rs. 2,00,000/~ per week
to the appellant beginning from April, 2003. It is on that
assurance the appellant is said to have agreed to restore supply
of Castor Oil provided it deposited 50% of the outstanding dues
and remaining 50% at the rate of Rs. 2,00,000/- per Week.
G 7. In its lett~r dated 8.09.2003, the respondent stated:
" ... We have accounted your payments against the interest
and balances against Castor Oil Supplies approximately.
On such account being taken the balance of Rs. 64,

H
58,457/- upto November, 2002. Accordingly, the balance -
MIS. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 981
LTD. [S.B. SINHA, J.]

upto 31st March, 2003 stands Rs. 69, 75, 134/-. This A
amount carries interest@ 2 % per month."
8. A sum of Rs. 8 lakhs was paid in between the period
19.04.2003 to 11.07.2003. As evidently, the appellant refused
to make further supplies, a meeting took place, the minutes
whereof reads, thus: B
"As per the discussion regarding the old outstanding
and for the continuity of the Business at present, Vijaya
Industries is rotataing, One Tanker load for the payment
arrangement towards old outstanding. The
Representatives of NATL Technologies Ltd. have agreed C
to arrange payment for the values of 2 truck loads of Castor
Oil in the month of December. Against the above payment,
the Company representative Sri Jagadish Prasad agreed
for supply of Three Tanker loads including the existing One
Tanker load which is already supplying. o
Basing on the convenience and as per the
discussions from time to time NATL have agreed to square
up the old outstandings and bring in to the system for the
rotation. Also in principle agreed to compensate Vijaya
Industries for the delay in payment on account of earlier E
supplies after clearing the entire old dues."
9. As the said agreement between the parties arrived at
in the said meeting was not adhered to, on 23.12.2003 a legal
notice under Section 434 of the Companies Act, 1956 was
served on the respondent, stating: F·
" ... My client states that as per the invoices raised l:>y
it, you are laible to pay interest at 2% per ll}Onth if payment
is not paid after availing the credit period ... "
It was further stated:
"In view of the above, my client calls upon you to pay G
an amount of Rs. 65, 15,947/-with further interest thereon
at 2% per month within three weeks from the date of
receipt of this notice ... "
10. In its reply to the said legal notice, the respondent did
H
982 SUPREME COURT REPORTS [2008] 17 S.C.R.

A not deny or.dispute demand of interest. According to it, the total
sum due was Rs. 16,80,468/ (sic for Rs. 15, 80,460/-), stating:
"In the circumstances, we advice you kindly withdraw the .. ..,
)--
legal notice dated 23rd December, 2003 so as to enable
us to arrange payment for full and final settlement of your
B dues amounting to of Rs. 16,80,468/- within two months
from the date of this letter."
Even that amount was not paid.
11. Appellant filed a winding up petition under Section
433(e) and 433(f) read with Section 439 of the Companies Act -~
c on 23.01.2004. '

12. Respondent in its counter-affidavit before the learned
Company Judge denied its liability to pay its interest for the first
time, stating that it was not liable to pay any interest nor it
entered into any agreement in connection therewith.
D ~

13. Appellant in its rejoinder contended that the credit bills
mentioned that the respondent was liable to pay interest at the
rate of 2% per month on delay~d payment.
14. An interim order was passed on 17.02.2004 directing: .,,
E "Both the learned counsel agree that the matter can
be settled out of Court having regard to the commercial
relations between petitioner and respondent for long
duration. Sri V.S. Raju, learned counse.1 _for respondent has
given a Demand Draft bearing No. 097852, dt. 14.06.2004
for an amount of Rs. 2,00,000/- (Rupees two lakhs only)
F
drawn on Punjab National Bank, Bank Street, Hyderabad,
and six post-dated cheques- five cheques bearing Nos.
j
,..
216948~ 216949, 216950, 216951, 216952
dt.25.07.2004, 25.08.2004, 25.09.2004, 25.10.2004 and
25.11.2004 respectively, each for an amount of Rs.
G 2,30,000/- (Rupees two lakhs thirty thousand only), and
another cheque bearing No. 216953 dt.25.12.2004 for an
amount of Rs. 2,30,468/- (Rupees two lakhs thirty thousand.
four hundred and sixty eight only), drawn on State Bank of
India, Commercial Branch, Secunderabad, in favour of the >-
H petitioner company in Court today. Learned counsel for
M/S. VIJAY INDUSTRIES v. M/S. NATL TECHNOLOGIES 983
LTD. [S.B. SINHA, J.]
petitioner has received the Demand Drafts, witho~t A
prejudice to the claim of the petitioner for interest and
,
~
--..(
seeks time for getting instructions from his client regarding
cheques.
Post on 09.07.2004."
15. The learned Single Judge, in view of the stand taken B
by the parties, while admitting the company petition by an order
dated 10.11.2004 held that a prima facie case has been made
out therefor having regard to the corresponqences passed
between the parties, the credit bills and also the minutes,-of th~
meeting. c
16. Aggrieved by and dissatisfied therewith, the respondent
preferred an appeal. By reaS'on of the impugned judgment, the
Division Bench has allowed the said appeal.
17. Mr. Gourab Banerji, learned senior counsel appearing
on behalf of the appellant, would at the outset bring to _our notice D
that there is a difference of opinion on the issue amongst the
~ different High Courts; one taking a liberal view and another C!l ..c
"'
.
strict view.
We have noticed hereinbefore that the defence of the
respondent was: E
(t) there has been no agreement between the parties
to pay interest;
•
"" (ii) it had not been informed about the adjustment of
payments made by it towards interest.
F
Mr. Banerji would submit that th~ High Court committed a
serious error in accepting the aforementioned contentions of
the respondent as each of the credit bill was signed by the
representative of the respondent - compa~y.
18. The Punjab and Haryana High Court in Stephen .G
Chemical Limited. v. lnnosearch Limited ((1986) 60 CC 702],
the Madras High Court in Rashid Lea.thers P) Ltd. v. Super
-{
Fine Skin Traders ((1990) 68 CC 684] and the Delhi High Court,
in Devendra Kumar Jain v. Polar Forgings and Tools Ltd.
[(1995) 84 CC 766] took a liberal view of the matter opining·
H
984 SUPREME COURT REPORTS [2008] 17 S.C.R.

A that even if interest is not payable by way of an agreement,
usage or custom, the Company Court will have the requisite
jurisdiction to go into such a question and admit a company
petition for non-payment of interest on the admitted dues.
19. In Devendra Kumar Jain (supra), a Division Bench of
8 the Delhi High Court, opined:
· "My conclusion is that in a case where the liability to pay
the principal amount is not disputed by the company the
creditor need not be forced to initiate separate litigation
for recovery of the interest amount and the interest amount
c can be determined by the Company Judge in the winding
up proceedings and on failure of the company to pay that
amount the Company can,be ordered to be wound up on
the ground that it is unable to pay its debts. Interest at
the rate of 12% per annum was granted in stead and place
of stipulated rate of interest."
20. We may notice the two decisions of the Andhra
Pradesh High Court in Multimetals Ltd. v. Suryatronics Pvt.
Ltd. [(1997) 89 CC 259] and Bombay Glass Blowing Industries
v. Bio Vaccines Pvt. Ltd. [( 1999) 98 CC 174] wherein after the
E company petition w~s admitted, the parties adduced
evidences. A finding of fact was arrived at that there was no
written agreement except the printed clause for payment of
interest in the invoices. The court did not rely upon the evidence
adduced on behalf of the appellant. It was in the
•....
aforementioned situation, the said Court in Bombay Glass
F Blowing Industries (supra) held that the provisions contained
in Section 3 of the Interest Act, 1978 or Section 62(1 )(a) of the
Sale of Goods Act, 1930 would not be attracted, stating:
"From a reading of Section 61 (2)(a) of the Sale of Goods
Act, ft is revealed that it is the discretion of the Court to
G award interest at such rate as it thinks fit on the amount of
/
price to the seller from date of tender of goods or from the
date en which the price was payable and under Section 3
of the Interest Act, at a rate not exceeding the current rate
of interest. If the proceedings relate to a debt payable by
H virtue of a written "instrument at a certain time from the date
M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 985
LTD. [S.B. SINHA, J.]

when the debt is payable to the date of institution of the

- -- -<I
proceedings and if the proceedings do not relate to any
such debt, then, from the date mentioned in this regard in
the written notice given by the person entitled to the date
of institution of the proceedings. These provisions refer to
the sole discretion of the Civil Court to award interest in a A
suit for recovery of money. Therefore, the concerned
creditor is not at all entitled to interest until the Court so
orders. In other words, it cannot be said that the creditor
is entitled to interest as a matter of right before the
institution of the proceedings in the Court. Before that, the
B
alleged amount of interest or damages is unascertained.
The creditor cannot claim interest at any particular rate,
in the absence of any agreement to pay the same, prior
to the institution of the proceedings. He cannot claim that
from the person liable to pay the price of goods he is
entitled to, in addition to the unpaid price of goods, the c ••Y.
interest claimed and calculated according to his- ~
,, unilateral act and, therefore, the concerned person ..,;
cannot be said to be indebted to a certain extent so far
" as the claim of interest is concerned. This being the
position, how can it be said that at the time of issuance of D
the statutory notice, the respondent-company was indebted
to the petitioner-company to pay the interest at any rate,
;
much less at the rate of 21 per cent per annum ? and,
therefore, on account of default in making payment of
interest as claimed by the petitioner-company, it is liable
E
to be declared as commercially insolvent The same
,_
~ position continues even during the pendency of the
proceedings."
[Emphasis supplied]
21. The Division Bench of the High Court, in its impugned F
judgment, not only relied upon the aforementioned two binding
precedents but also a judgment of the Allahabad High Court in
Ultimate-Advertising and Marketing v. G.B. Laboratories Ltd.
~
-;.
[( 1989) 66cc 232].
22. We may at the outset notice that Ultimate Advertising iG
986 SUPREME COURT REPORTS [2008] 17 S.C.R.

A and Marketing (supra) has also been noticed in Devendra
Kumar Jain (supra) to hold that the Company Judge is the
appropriate forum for determining as to whether the creditor is
entitled to interest, where the company admits its liability.
'~
;..
-
23. It may, however be placed on record that the
B aforementioned decision of the learned Single Judge of the
Allahabad High Court in Ultimate Advertising and Marketing
(supra) came up for consideration before a Division Bench
thereof in Mis. Ultimate Advertising and Marketing New Delhi

'
v. G.B. Laboratories Ltd., Kanpur [AIR 1998 Allahabad 320]
c wherein inter alia it was held:
"From the cases referred to above by various High Courts,
it seems that the company Judge has· a power to direct
the respondent-company to pay the amount of interest but
in each case, the facts are to be examined as to whether
D there is bona fide dispute regarding the claim of the interest
and if the Court finds that there is bona fide dispute, the
petitioner-company cannot make a grievance that the
~
company Judge failed to allow the company petition for
winding up the company for payment of the Interest..." f

E However, on the facts of that case, there was nothing to
show that prior to the issuance of the statutory notice by the
appellant, any claim was made in respect of the payment of
interest and furthermore the respondent had filed a counter #

affidavit to the said petition denying and disputing the said
assertion of the appellant that an order of winding up of the
F company was not passed only for payment of the interest which
had been disputed bonefide. ...
I
24. We may furthermore notice that even in Kitply
Industries Ltd. v. Hari Narain and Sons Pvt. Ltd. [(1998) 91
CC 715] a similar view was taken by the Rajasthan High Court.
G The learned Judge upon holding that the principles enumerated
in various decisions referred to therein must be applied in each
and every case having regard to the facts thereof, reje~ted the
claim for payment of interest, stating:
" ... In my opinion, in the absence of any agreement between
H
M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 987
LTD. [S.S. SINHA, J.]

the parties, the dispute which the respondent has raised A
.... regarding its liability to pay interest cannot be treated as
-d a fictitious or frivolous dispute. There is sufficient
justification in the claim of the respondent that the dispute
is a bona fide dispute. It is also to be noted that the
petitioner has not even said that the parties had agreed B
for payment within a particular time period ... "
The said decision was rendered after trial.
25. We may notice an elaborate judgment of a learned
1 Single Judge of the Karnataka High Court in Jyothi Limited v.
Boving Fouress Limited [(2001) 3 Comp LJ 413 (Karn)] c
wherein the learned Judge from paragraphs 5 to 8 of the
judgment considered Stephen Chemical Limited (supra),
Rashid Leathers P) Ltd. (supra) and Devendra Kumar Jain
(supra), on the one hand aRd from paragraphs 10 to 16
considered Southern Industrial Polymers (P) Ltd. v. Amar
D
Formulators and Electronics (P) Ltd. [(1984) 56 CC 77 (Karn)],
Anand Steel v. Bharat Earth Movers Ltd. [(1987) 3 Comp LJ
~
175 (Karn)], Multimetals Ltd. (supra), Unisystems (P) Ltd. v.
"""". Stepan Chemical Ltd. [(1985) CC 875 (P&H)], Gangadhar:
Narsinghdas Agrawal v. Timble (P) Ltd. [(1996) 5 Comp LJ
342 (Born)], Ultimate Advertising and Marketing v. G.B. E'
Laboratories Ltd. [(1989) 66 CC 232] and Kitply Industries Ltd.
(supra).
26. We have noticed hereinbefore that the decision of the
Allahabad High Court in Ultimate Advertising and Marketing
v. Cf.B. Laboratories Ltd. [(1989) 66 CC 232] was 'reversed by F
thei Division Bench. The said fact was not brought to the notice
of the learned Single Judge~ It was furthermore not brought to
the notice of the High Court that Unisystems (P) Ltd. (supra)
has also been overruled in Unisystems P. Ltd. v. Stepan
Chemical. Ltd. [(1986) 60 CC 753]. G
The learned Judge opined that the word "debt" refers to
an ascertained and definite amount due to the creditor and not
~ a disputed amount. However, it was furthermore held:
"(a) The term 'debt' refers to an ascertai11ed and definite
amount 'due' and does not refer to a claim for H
988 SUPREME COURT REPORTS [2008] 17 S.C.R.
)--

A compensation/ damages or a claim which requires
assessment by a court before it becomes due and payable.
...
'::-;.... r._
(b) The term 'debt' may refer not only to 'principal' (value
of goods or amount advanced), but ,also to interest due i-

· thereon, where there is a contract to pay interest. Where
B the contract specifically provides for payment of interest,
or where there is an admission or promise to pay interest
by the company or where in proceedings for recovery of
money, a competent court or arbitrator has determined the
liability to· pay interest, then non-payment of interest ~·
c (whether with principal or interest alone) may amount to
'r
inability to pay debts. ,_
•,
(c) Interest cannot be awarded merely on the basis of a ~

term in a bill or invoice, unless the creditor proves that such I
r
provision is based on a contract or agreement on the part '
D of the purchaser to pay interest. This is because a credit
bill or an invoice is a unilateral demand by the supplier and
is neither a bilateral agreement nor a promise by the
-' '
purchaser to pay interest. Interest can be awarded on the
basis of a provision in a bill/ invoice, if it is supported by
-r
an agreement or promise to pay interest by the purchaser.
E Such agreement may be established with reference to
correspondence, or by countersigning of the bill by the
purchaser, or by acceptance by the purchaser of the term ;>
in the bill relating to interest. Where in the absence of an
agreement or contract for payment of interest on the value
F of goods supplied, a notice of demand is sent by the
-supplier requiring payment of the value of goods supplied
)
with interest thereon and a rep1y is sent by the purchaser
in general terms seeking time to pay the bill amount, such
reply cannot be construed as an admission to pay interest.
~

._

G Either an agreement to pay interest or a specific
admission or promise to pay interest or an order or decree >-
granting interest by a court or tribunal empowered to award
interest. is a condition precedent to hold that interest is a )-
debt due, for the purpose of a winding up petition . In the
absence of a contractual or legal liability, nor act as an
H1
M/S. VUAY INDUSTRIES v. M/S. NATL TECHNOLOGIES 989
LTD. [S.B. SINHA, J.] .

estoppel in regard to a subsequent denial by the company A
in legal proceedings.
(d) Where there is a bona fide dispute in regard to interest,
the court considering a petition under section 433(e) should
not decide the issue, merely to avoid multiplicity
proceedings. The purpose of winding up proceedings B
being completely different from the purpose of proceedings
for recovery of a debt, winding up proceedings are not a
substitute for a civil suit, and, therefore, relegating parties
to a civil suit cannot be considered as resulting in
multiplicity of proceedings." c
27. We may also notice that a Division Bench of the
Calcutta High Court in Universal Bearing Agency v. Wpil
Limited [2006 (2) CHN 530] followed the decision of the Punjab
and Haryana High Court in Stephen Chemical Limited (supra).
28. Keeping in view the aforementioned divergence in the D
opinions of the different High Courts, let us consider relevant
provisions of the Companies Act.
~ Circumstances in which a company may be wound up by
the court are contained in Section 433 of the Companies Act.
If a company is unable to pay its debts as contained in Clause E
(e) thereof, it' would be one of the grounds therefor.
Section 433 (f) of the Companies Act reads as under:
"A company may be wound up by the Tribunal, --
(a) *** ***'
F
(b) *** ***
(cY *** ***
(d) *** ***
(e) *** **"'
G
(f) if the Tribunal is of the opinion that it is just and equitable
that the company should be wound up;"
Section 434 raises a legal fiction as to when the company
would be deemed to be unable to pc.y its debts: Clause (a) of
Sub-section (1) whereof reads as under: H
990 SUPREME C0URT REPORTS [2008] 17 S.C.R.
•
A "(1) A company shall be deemed to be unable to pay its
debts-- ;.. ~

'\.- \
(a) if a creditor, by assignment or otherwise, to whom the
company is indebted in a sum exceeding one lakh rupees
then due, has served on the company, by causing it to be
B delivered at its registered office, by registered post or
otherwise, a demand under his hand requiring the
company to pay the sum so due and the company has for
·three weeks thereafter neglected to pay the sum, or to
secure or compound for it to the reasonable satisfaction r.
c of the creditor;"
29. On a plain reading of the aforementioned provisions, ..
it is evident that what is necessary for invoking the said provision
is that despite service of notice, the company which was
indebted in a sum exceeding one lakh rupees then due failed
D and/ or neglected to pay the same within three weeks thereafter
or to secure or compound for it to the reasonable satisfaction
of the creditor. ...
30. The fact that despite receipt of a legal notice dated --Jr
23.12.2003, no payment has been made to liquidate the debt
E on the part of the company is not in dispute. Admittedly,
appellant had been supplying Castor Oil to the respondent. The
fact that the respondent did not pay the price of the said
supplies, on presentation of the invoices, is also not in dispute.
It also stands admitted that the parties negotiated as regards
the manner in which the payments could be made. In a meeting
F held on 25.11.2003, promises were made to square up the old
outstanding dues and bring it into the system for the purpose
of rotation. The agreement spoke of payment of compensation
to the appellant for the delay in payment on account of earlier
supplies after clearing the entire old dues. There cannot be any
G doubt whatsoever that when,.. in"--. principle, the respondent had
agreed to compensate the appellar:tt for the delay in payment,
the same must be by way of interest payable on the principal
>-

f
amount or otherwise.
31. Respondent never denied the demand of interest as
H such, but in its reply dated 12.2003 merely stated that a sum

t
- M/S. VIJAY INDUSTRIES v. M/S. NATL TECHNOLOGIES
LTD. [S.B. SINHA, J.]

of Rs. 16,80,468 (sic for Rs. 15, 18,460) was due.
991

A
-"\ Construction of the aforementioned provision came up for
r ....;
consideration before this Court in Amalgamated Commercial
Traders (P.) Ltd. v. A.C.K. Krishnaswami and Another[(1965)
35 CC 456], wherein it was held:
"It is well-settled that "a winding up petition is not a 8
legitimate means of seeking to enforce payment of the
debt which is bona fide disputed by the company. A petition
presented ostensibly for a winding up order but really to
exercise pressure will be dismissed, and under
circumstances may be stigmatized as a scandalous abuse c
of the process of the court. At one time petitions founded
• on disputed debt were directed to stand over till the debt
was established by action. If, however, there was no reason
to believe that the debt, if established, would not be paid,
the petition was dismissed. The modern practice has been D
to dismiss such, petitions. But, of course, if the debt is not
,. disputed on some substantial ground, the court may decide
~
it on the petition and make the order.""
32. Yet again in Mis. Madhusudan Gordhandas & Co. v.
Madhu Woollen Industries Pvt. Ltd. [(19711) 3 SCC 632], this E
Court upon considering Amalgamated Commercial Traders
(P.) Ltd. (supra) and various other English cases opined as
under:
"20. Two rules are well settled. First, if the debt is bona
fide disputed and the defence is a substantial one, the F
court will not wind up the company. The court has
\ dismissed a petition for winding up where the creditor
ciaimed a sum for goods sold to the company and the
company contended that no price had been agreed upon
and the sum demanded by the creditor was unreasonable.
(See London and Paris Banking Corporation) Again, a
G
petition for winding up by a creditor who claimed payment
of an agreed sum for work done for the company when the .
..J..
.... company contended that the work had not Qeen properly
was not allowed. (See Re. Brighton Club and Horfold
Hotel Co. Ltd.)" H
992 SUPREME COURT REPORTS [2008) 17 S:C.R.
\

A The court furthermore opined:
(i) Where the debt is undisputed, the court will not act
upon a defence that the company has the ability to
pay the debt but did not choose to pay. that
particular debt.
B (ii) · Where, however, there is no dispute that the
company passed the creditor a debt entitled him to
a winding up order but the exact amount of the debt
is disputed, the court will make a winding up order
without requiring the creditor to quantify the debt
c precisely.
(iii) The principles which the court acts are first thafthe
defence of the company is in good faith and one
of substance, secondly, the defence is likely to
succeed in point of law and, thirdly, the company
D adduced prima facie proof of the facts on which the
defence depends.
33. Section 433 of the Companies Act does not state that
the debt must be precisely a definite sum. It has not been
disputed before us that failure to pay agreed· interest or the
E statutory interest would come within the purview of the word
'debt.. It is one thing to say that the amount of debt is not definite
or ascertainable because of the bona fide dispute raised
thereabout or there exists a dispute as regards quantity or
quality of supply or such other defe_nces which are available to
F the purchaser; but it is another thing to say that although the
due as regards the principal amount resulting from the quantity
or quality of supply of the goods stands admitted but a question ; .

is raised as to whether any agreement had been entered into
for payment of interest or whethe.r the rate of interest would be
applicable or not. In the latter case, jn ·our opinion, the
G application for winding up cannot be dismissed.
34. In Mis. Madhusudan Gordhandas & Co. (supra), this
Court referred to the decisions of the Chancery Division in Re.
Tweeds Garages Ltd. [1962 Ch•406], holding:.·
H "From those sections it appears that the only qualification
MIS. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 993
LTD. [S.B. SINHA, J.]
•
which is required of the petitioners in this case is that they A
are creditors and about that, as I have said, there is really
...
... ~
no dispute. Moreover, it seems to me that it would, in many
cases, be quite unjust to refuse a winding-up order to a
petitioner who is admittedly owed moneys which have not
been paid merely because there is a dispute as to the B
precise amount owing. If I may refer to an example which
I suggested in the course of argument, suppose that a
creditor obtains judgment against a company for £10,000
and after the date of the judgment something is paid off.
There is a genuine bona fide dispute whether the sum paid
off is £10 or £20. The creditor then presents a petition to
c
have the company wound up. Is the company to be entitled
to say: "It is not disputed that you are a creditor but "the ·
amount of your debt is disputed and you are not, therefore,
"entitled to an order''? I think not. In my judgment, where
there is no doubt (and there is none here) that the D
petitioner is a creditor for a sum which would otherwise
!>
entitle him to a winding-up order, a dispute as to the
precise sum which is owed to him is not of itself a
~
sufficient answer to his petition."
Re. Tweeds Garages Ltd. (supra), apart from Mis. E
Madhusudan Gordhandas & Co. (supra), has inter alia been
followed by the Bombay High Court in Pfizer Ltd. v. Usan
Laboratories P. Ltd. [(1985) 57 CC 236] holding that only
because there is a dispute in regard to the rate of interest, the
winding up petition cannot be tnrown out on that ground alone. F
Pfizer Ltd. (supra) has been followed by the Bombay High Court
in lsp!Jt Industries Ltd., in RE [(2005) 2 Comp LJ 235]. Pfizer

' Ltd. (supra) was a case of principal plus interest.
35. Our attention, however, has also been drawn to a
recent decision of this Court in Mediquip Systems (P) Ltd. v. G
Proxima Medical System GMBH [(2005) 7 SCC 42] wherein
the questions of law which fell for consideration before this Court
inter alia were:
~
,, "(i) Whether the Division Bench of the High Court at
Calcutta was justified in dismissing the appellant's appeal H·
..
994 SUPREME COURT REPORTS , [2008] 17 S.C.R.

A summarily holding, inter alia, that the appellant was not
entitled to stay of operation of the order passed by the
Company Judge under appeal or, in other words, whether r
dismissal of connecting stay petition could be justified >----- ~

reason alone for dismissing appeal summarily which was
8 based on cogent grounds?
(ii) Whether the appellant Company can be said to be
indebted to the respondent petitioning creditor in respect
of US$ 11,000 equivalent to INR 4,69,480 when the said
sum was not remitted by 1the said petitioning creditor,
c namely, Proxima Medical System GmbH? f-·
(iii) Whether the winding-up proceedings under the relevant
provisions of the Companies Act are maintainable against
the Company by the said respondent petitioning creditor
when it is evident from the document issued by Deutsche
D Bank (remitter's banker) and foreign inland remittance
certificate (issued by the Company's banker) that US $
11,000 was remitted by anothe-r company, namely,
Pameda Medizinische Systems GmbH and not by the ..
petitioning creditor?
r
E (iv) Whether the Division Bench as we.II as the Company
Judge, in exercise of their jurisdiction under the
Companies Act, erred in directing the Company to deposit
. Rs 4,69,480 to secure the alleged claim of the petitioning
creditor when the petitioning creditor-was not the remitter
of the said amount and such was seriously disputed before
F the Company Judge and the Company Judge did not
adjud,icate the disputes at controversy and directed the
petitioning creditor to file suit in respect thereof?
(v) Whether the Division Bench in passing the order under
"appeal was justified ~ direct the Company to deposit the
G balance amount wh'en an earlier Division Bench by an
interim order r~ced the quantum of deposit from Rs.
4,69,480 as directed by the Company Judge to Rs ...2 lakhs
in compliance whereof the Company had duly d~posited
Rs. 2 lakhs on 11-11-2002 and the petitioning creditor >-
H failed to present any suit within three months thereof as per
....
M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 995
LTD. [S.S. SINHA, J.]

direction of the Company:---Judge? A
(vi) Whether the Division Bench was justified in passing
the order under appeal by dismissing the stay application,
on extraneous considerations, when an earlier Division
Bench by an interim order granted stay of advertisement
subject to the appellant's depositing Rs. 2 lakhs which was B
duly deposited by the Company to the satisfaction of the
Court?".
In that case, on the premise that no clear cut finding had
been arrived at by the Company Judge that the debt was prima
facie due and payable by the company to the creditor and the C
impugned order had been passed in purported exercise of
jurisdiction not vested in the Company Court for an application
for winding up of the Company, it had no jurisdiction to direct
the company to deposit the amount payable to a third party or
to a party other than the petitioning creditor. Thus, what was in 0
question was whether the Company Judge could issue a
direction to the company to make payment to a third party.
Holding that such a jurisdiction is not vested in the company
court, it was held:
"18. This Court in a catena of decisions has held that an
E I
order under Section 433(e) of the Companies Act is
discretionary. There must be a debt due and the company
must be unable to pay the same. A debt under this section
must be a determined or a definite sum of money payable
immediately or at a future date and that the inability
referred to in the expression "unable to pay its debts" in F
Section 433(e) of the Companies Act should be taken in
the commercial sense and that the machinery for winding
up will not be allowed to be utilised merely as a means
for realising debts due from a compa!lY·
*** *** *** G
21. The debt under Section 433 of the Companies Act
must be a determined or a definite sum of money payable
immediately or at a future date ... "
36. It is, however, of some interest to note that the Division H

-
996 SUPREME COURT REPORTS [2008] 17 S.C.R.
~·

A Bench referred to a decision of the Madras High Court in Tube
Investments of India Ltd. v. Rim and Accessories (P) Ltd.
[(1990) 3 Comp LJ 322) where the follpwing principles relating r· , _
lo.-
. to bona fide dispute had been evolvea:
"( 1) If there is a dispute as regards the payment of the sum
B .towards principal, however small that sum may be, a
petition of winding up is not maintainable and the
necessary forum for determination of such a dispute
existing between the parties ·is the Civil Court;
(2) The existence of a dispute with regard to payment of
c interest cannot at all be construed as existence of a bona
fide dispute relegating the parties to decide such a dispute
~"
before the Civil Court and in such an eventuality, the
Company Court itself is competent to decide such a
;i.l'"
dispute in the winding-up proceedings; and
D (3) If there is no bona fide dispute with regard to the sum
payable towards the principal, it is open to the creditor to
resort to both the remedies of filing of a civil suit as well ...,
as filing of a petition for winding-up of the com!Jany."
I 1-
In that case also a-bona fide dispute was raised by the
E company.
It was furthermore found that there was no general
allegation or averment that the company was unable to pay its
dues and other obligati.ons in the sense of its innumerable
creditors. It was in the a'forementioned situation that Section
F 433(f) of the Companies Act was found to be not applicable.
37. In this case, on the date of filing of the application, dues
in respect of at least a part of the debt which was more than
the amount specified in Section 433 of the Companies Act was
not denied. It is not a requirement of the law that the entire debt
G must be definite and certain. The Division Bench of the High
Court proceeded on the basis that the entire sum covering both
the principal and the interest must be undisputed, holding:

H
"Except making a bald allegation in the company petition
that the petitioner· had come to know that the respondent
company owes large sums of money to its creditors and
>-
..
M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 997
LTD. [S.B. SINHA, J.]

it is not in a position to meet its debt obligations and as, A
therefore, become commercially insolvent, the petitioner ·
l has not taken necessary care to prima facie establish the
-J
same. The only piece of evidence available on the side of
the petitioner is that the respondent is indebted to the
petitioner a sum which is claimed towards interest on the B.
delayed payment. Assuming for a moment that the
respondent company is liable to pay interest on the
delayed payments and it has not paid the said a·mount to
., the petitioner, could it be said that the .respondent
neglected to pay the debt particularly when the\respondenf
is disputing the liability of payment of interest on the
c
delayed payments and when there is no such written
agreement in between the parties for such payment of
interest."
38. The Division Bench upon noticing the fact of the matter
D
formulated the question "as to· whether the respondent is liable
to pay interest at 2% per month on delayed payments and what
that is being disputed would it constitute prima facie a valid.

'
ground for admission of the company petition?" It was held:
" ... The petitioner seeks to rely upon the invoices which
according to him contain at the foot a clause for payment
E
of interest on delayed payments. SL1ch. a clause, even
assuming is there, since it has not been placed by means
of any cogent evidence in this case, in view of the
judgment of the Rajasthan High Court in Kitp/y Industries
case (supra), cannot constitute an agreement between the -F
parties for payment of interest. The legal position, thus,
seems to be obvious. Before seeking a company to be
wound up on the ground that it is unable to pay its debts,
it must be shown before the Court that the debt claimed
against the company is ascertained and definite and that G
the company failed to pay the same. Mere failure to pay
the amount would not constitute the requisite 'neglect to
pay' as envisaged under Clause (a) of Sub-section (1) of
~ Section 434 of the Act when the company bona -fide
disputes the very liability and hence the defence taken up
H
998 SUPREME COURT REPORTS (2008] 17 S.C.R.

A by it is of substance."
It was furthermore held:
"Having regard to the facts and circumstances of the
instant case, we are of the considered view that the claim
of the. petitioner towards interest on delayed payments
B since not covered by any specific agreement between the
parties inter se is a contentious issue and the dispute as
regards the payment of interest is bona fide and it cannot,
therefore, legitimately be concluded that the respondent
has neglected to pay. The petitioner, who pleaded inter alia
c in his petition that as per the trade practice payments
made shall be adjusted towards interest first and balance,
if any, shall be adjusted towards principal later, failed to
establish the same by any prima facie evidence. In the
absence of any such trade practice, appropriating the
D amounts towards interest first and the balance, if any
towards principal next becomes inappropriate, in which
event the claim of the petitioner that the respondent is liable
to pay Rs. 65,15,947/- basing upon such calculations
cannot be accurate. The total amount claimed by the
petitioner as due in that view of the matter becomes
E doubtful and not definite. It is still got to be ascertained if
the claim of the respondent were to be considered that
there has been no agreement for payment of interest on
delayed payments. For the above reasons, it cannot be
presumed prima facie that the respondent is unable to pay
F its debts."
39. The findings of the High Court, with respect, are not
correct for more than one reason; firstly, because the Division
Bench did not hold that the invoices were not proved by cogent
evidence; secondly, question of leading evidence would arise
G only after the company petition is admitted-and, thirdly, issuance
of invoices and signature of the respondent thereon is not
disputed.
40. The judgment of the Division Bench also contains a
legal flaw insofar as it failed to take into consideration that the
H appellant had in fact issued three notices being dated
MIS. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 999
LTD. [S.B. SINHA, J.]

6.01.2003, 8.09.2003 and legal notice d~ted 23.12.2003 A
specifically mentioning that the payments had been adjusted
towards interest first and balance, if any, shall be adjusted
towards the principal. Thus, a prima face case was made out.
41. This brings us to the question as to why an interest is
payable. An interest is inter alia payable.by way of restitution. 0
In Clariant International Ltd. and Another v. Securities &
Exchange Board of India [(2'~04) 8 SCC 524], this Court held:
"25. A direction in terms of\Regulation 44 which was in the
interest of securities market indisputably would have caused
civil or evil consequences on .the defaulters. Clause (i) of C
Regulation 44, however, does not provide for any penal
' consequence. It provides for only civil consequences. By reason
of the said provision, the power of the Board to issue directions
is sought to be restricted to pay the amount of consideration
together with interest at a rate not less than the interest payable D,
by banks on fixed deposits. Both the Board and the Tribunal
have proceeded on the basis that the interest is to be paid with
a view to recompense the shareholders and not by way of
penalty or damages. Suell a direction, therefore, was for the ·
purpose of protecting the interest of investors and not "in the E,
interest of the securities market". The transactions in the market
are not thereby affected one way or the other. The Board, as
noticed hereinbefore, has a discretion in the matter and, thus,
it may or may not issue such a direction. The shareholders do
not have any say in the matter. As a necessary concomjtant,
they have no legal right." F
Yet again, this Court in Alok Shanker Pandey v. Union of
India and Others [(2007) 3 SCC 545] ~s held that interest is
payable by way of accretion on capital.
The question came up for consideration in Meka G
Venkatadri Appa Rao Bahadur Zamindar Garu and others v.
Raja Parthasarathy Appa Rao Bahadur Zamindar Garu [AIR
1922 PC 233] wherein it was held:
" ... There is a debt due that carries interest. There are
moneys that are received without a definite appropriation H
1000 SUPREME COURT REPORTS [2008] 17 S.C.R.

A on the one side or on the other, and the rule which is well
established in ordinary cases is that in those
circumstances the ,money is first applied in payment of ,.
)..-
interest and then when that is satisfied in payment of the
· capital. That rule is referred to by Rigby, L.J., in Parr's
B Banking Co. v. Yates in these words:
"The defendant's counsel relied on the old rule that does,
no doubt, apply to many cases, namely, that, where both
principal and interest are due, the sums paid on account
must be applied first to interest. That rule, where it is ~-
c applicable, is only common justice. To apply the sums paid
I •

to principal where ipterest has accrued upon the debt, and
is not paid, would ~e depriving the creditor of the benefit
to which he is entitled under his contract."
The said decision has been followed by this Court in
D .Meghraj and Others v. Mst. Bayabai and others [(1969) 2 SCC
274, para 5] and a Constitution Bench of this Court in Gurpreet
Singh v. Union of India [(2006) 8 SCC 457, para 19].
In Alok Shanker fandey v. Union of India and Others
[(2007) 3 SCC 545], t~is Court held: f- ,
'
E · "8. We are of the opinion that there is no hard-and-
fast rule about how much interest should be granted and
it all depends on the facts and circumstances of each
case. We are of the opinion that the grant of interest of
•
....
12% per annum is appropriate in the facts of this particular
F case. However, we are also of the opinion that since
interest was not granted to the appellant along with the
principal amount, 'the respondent should then in addition
to the interest at the rate of 12% per annum also pay to
the appellant int~rest at the same rate on the aforesaid
-
>-
interest from the date of payment of instalments by the
G appellant to the respondent till the date of refund of this
amount, and the entire amount mentioned above must be
paid to the appellant within two months from the date of

H
. this judgment."
42. Interest is also payable in terms of the provisions of
r
,.
""
}

..,
M/S. VIJAY INDUSTRIES v. MIS. NATL TECHNOLOGIES 1001
LTD. [S.B. SINHA, J.]

Section 62(1 )(a) of the Sale of Goods Act. Interest may be held A
to be payable in terms of Section 3 of the Interest Act, 1978
....
---'- as also in terms of Sections 5 and 6 of the Interest on Delayed
Payments to Small Scale and Ancillary Industrial Undertakings
Act, 1993.
In Krishna Chemicals v. Orient Paper and Industries Ltd. B.
[(2005) 128 CC 72], the Orissa High Court held:
"The interest amounts as claimed by the petitioners in the
two cases against the Company however may not be in
accordance with the provisions of Sections 4 and 5 of the
Act, 1993. The fact that the exact amount of interest c
claimed by the petitioners against the Company is
disputed can be no ground to dismiss the petition for
winding up for non-payment of the interest so long as the
liability to pay interest of the Company to the petitioners
exists under Sections 4 and 5 of the Act, 1993 and D.
admittedly such liability has not been discharged by the
}
Company. As has been held by the Supreme Court in
Madhusudan Gordhandas and Co. v. Madhu Woollen
-\.
Industries Pvt. Ltd. (supra) in the portion of the judgment
quoted above, where there is no doubt that the Company
owes the creditor a debt entitling him to a winding up order E
but the exact amount of the debt is disputed the Court will
make a winding up order without requiring the creditor to
quantify the debt precisely."
The provisions of the Interest on Delayed Payments to
Small Scale and Ancillary Industrial Undertakings Act, 1993 F
were applied in Assam Small Scale Industries Development
Corpn. Ltd. and Others v. J.D. Pharmaceuticals and Another
[(2005) 13 sec 191
43. For the reasons aforementioned, we have no other
option but to set aside the judgment of the High Court. The G '

question, however, which arises for consideration is whether at
this stage we shall remit the matter back to the learned Single
Judge to admit the company petition or dispose of the matter
ourselves. We choose to adopt the latter course. But, we are
of the opinion that interest of justice would be subserved if we H
1002 SUPREME COURT REPORTS [2008) 17 S.C.R.

A in exercise of our jurisdiction under Article 142 of the
Constitution of India direct that the respondent shall pay simple
interest on the admitted sum at the rate of 12% per annum on
the balance amount instead of 24% per annum within eight
·weeks from the date of amount became due till it is paid failing
8 which the consequences provided in law shall ensue.
44. We have passed this order with a view to avoid
.multiplicity of proceedings and for the purpose of avoiding
unnecessary delay in the interest of parties.
45. The appeal is allowed. No costs.
-
C N.J. Appeal allowed.