2003 (9) TMI 547 - HC - Companies Law

Issues Involved:
1. Failure to discharge debt.
2. Arbitration proceedings and withdrawal.
3. Nature of debt (secured vs. unsecured).
4. Impact of winding up on employees and secured creditors.
5. Maintainability of application under Section 557 of the Companies Act, 1956.
6. Requirement to ascertain wishes of creditors or contributories.
7. Discretionary power of the Court under Section 557 of the Companies Act.

Issue-wise Detailed Analysis:

1. Failure to discharge debt:
The respondent filed a company petition for winding up the applicant on the ground that the applicant failed to discharge a debt amounting to Rs. 1,75,867.00, which with interest totaled Rs. 3,51,86,792.00. The applicant contested the matter, stating that there were disputes regarding the work awarded to the respondent, which led to arbitration proceedings.

2. Arbitration proceedings and withdrawal:
The applicant initiated arbitration proceedings, and both parties appointed their arbitrators. However, the respondent's nominee vacated his office, leading to the respondent's withdrawal from the arbitration proceedings. The applicant argued that the debt claimed by the respondent was unsecured and that there were other unsecured creditors to whom the applicant owed Rs. 13.30 crores.

3. Nature of debt (secured vs. unsecured):
The applicant highlighted that it had taken loans amounting to Rs. 356.86 crores from six secured creditors and had fixed assets worth Rs. 354.10 crores. The applicant argued that the debt claimed by the respondent was minuscule compared to its assets and that it could clear its debts if given time.

4. Impact of winding up on employees and secured creditors:
The applicant emphasized that winding up would adversely affect around 1000 employees and the secured creditors. The applicant argued that the respondent was using the winding-up petition as an arm-twisting method to recover its dues and that the disputed debt should be adjudicated by an arbitrator or a competent civil court.

5. Maintainability of application under Section 557 of the Companies Act, 1956:
The respondent contended that the application under Section 557 was not maintainable as it should be filed by creditors or contributories, not by the company itself. The respondent argued that since no secured creditors appeared to contest the petition, the question of convening a meeting to ascertain their wishes did not arise.

6. Requirement to ascertain wishes of creditors or contributories:
The Court examined whether it was mandatory to ascertain the wishes of creditors or contributories before adjudicating a winding-up petition. Section 557 provides that the Court may have regard to the wishes of creditors or contributories as proved by sufficient evidence and may direct meetings for this purpose. However, the Court noted that no secured or unsecured creditors had come forward to express their wishes.

7. Discretionary power of the Court under Section 557 of the Companies Act:
The Court emphasized that the power under Section 557 is discretionary and should be exercised judiciously. The Court referred to various judgments, including those of the Apex Court, which stated that the discretion must be exercised in the interest of justice. The Court concluded that since no creditor or contributory had proved their wishes by sufficient evidence, the application to convene a meeting was not maintainable.

Conclusion:
The Court dismissed the application, stating that there was no merit in it. The Court noted that the issues regarding the small debt claimed by the respondent compared to the applicant's assets, the disputed nature of the debt, and the impact on employees would be considered during the hearing of the company petition. The application was dismissed with no costs.

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