2004 (2) TMI 349 - HC - Companies Law

Summary

Issues Involved:
1. Maintainability of the company petition for winding up under section 433(e) of the Companies Act, 1956.
2. Alleged discharge of debt by the respondent due to the transfer of pledged shares.
3. The effect of concurrent proceedings under the Debts Recovery Act, 1993.
4. Bona fide dispute of debt and substantial defense by the respondent.

Issue-wise Detailed Analysis:

1. Maintainability of the company petition for winding up under section 433(e) of the Companies Act, 1956:
The petitioner, Bharat Overseas Bank Ltd., filed a company petition under sections 433(e) and 439 of the Companies Act, 1956, read with rule 95 of the Companies (Court) Rules, 1959, seeking the winding up of the respondent, Saritha Synthetic and Industries Ltd., on the grounds of insolvency and inability to pay its debts. The respondent argued that the petition was not maintainable because the petitioner had already initiated proceedings under section 19 of the Debts Recovery Act, 1993. However, the court held that the scope of enquiry and reliefs under the Debts Recovery Act and the Companies Act are entirely different and independent of each other. The Debts Recovery Tribunal (DRT) does not have the power to wind up a company, which is vested in the company court under section 433(e) of the Companies Act. Therefore, the petition for winding up was held to be maintainable.

2. Alleged discharge of debt by the respondent due to the transfer of pledged shares:
The respondent contended that the debt was discharged when the petitioner transferred 80 lakh pledged shares into its name, arguing that the face value of each share was Rs. 8 at the time of transfer, amounting to Rs. 640 lakhs, which exceeded the loan amount of Rs. 500 lakhs. The petitioner, however, argued that the transfer of shares was done in compliance with RBI Guidelines, which required financial institutions to transfer pledged shares into their names when loans exceeded Rs. 10 lakhs. The petitioner maintained that the shares continued to remain as security until the loan was discharged and that they did not become the beneficial owner of the shares. The court noted that the respondent's own communications indicated an inability to repay the loan and did not mention the alleged discharge of debt by the transfer of shares. Therefore, the court found the respondent's plea of discharge to be not bona fide and not one of substance.

3. The effect of concurrent proceedings under the Debts Recovery Act, 1993:
The petitioner had filed an application under section 19 of the Debts Recovery Act before the Debts Recovery Tribunal, Bangalore, for recovery of the loan amount. The respondent argued that this precluded the petitioner from maintaining the winding-up petition. However, the court held that the proceedings under the Debts Recovery Act and the Companies Act are distinct and independent. The DRT adjudicates the liability and issues a certificate of recovery, but it does not have the power to wind up a company. Therefore, the concurrent proceedings did not bar the maintainability of the winding-up petition.

4. Bona fide dispute of debt and substantial defense by the respondent:
The respondent argued that the debt was bona fide disputed and that it had a substantial defense, thereby making the winding-up petition not maintainable. The court examined the nature of the defense and the facts of the case. It found that the respondent had admitted its inability to repay the loan in its communications and had not raised the plea of discharge at the time of the transfer of shares. The court held that the defense raised by the respondent was not bona fide and was not one of substance. The petitioner had made out a prima facie case for admission of the winding-up petition, as the respondent had failed and neglected to pay its debts and had become insolvent.

Conclusion:
The court admitted the company petition for winding up and directed the petitioner to take out newspaper publication of the admission of the company petition as required under rule 99 of the Companies (Court) Rules, 1959, in two daily newspapers, namely, 'Deccan Chronicle' (English) and 'Andhra Jyothi' (Telugu) of Hyderabad Edition, and file proof of service into court. The matter was listed for further hearing on 31-3-2004.