2003 (2) TMI 413 - HC - Companies Law

Summary

Issues Involved:

1. Whether the petitioner had made out a case to admit the company petition?
2. Whether the objections raised by the respondent are sustainable?
3. To what relief?

Issue-wise Detailed Analysis:

1. Whether the petitioner had made out a case to admit the company petition?

The petitioner, Allahabad Bank, filed a petition to wind up the respondent-company under sections 433(e) and 434 of the Companies Act, 1956, on the grounds of inability to pay debts. The respondent had approached the petitioner for a term loan of Rs. 400 lakhs to repay a high-interest loan from M/s. Reliance Capital Limited. Despite the loan being sanctioned and disbursed, the respondent defaulted on repayments and sought multiple deferments and reductions in interest rates. The petitioner rescheduled the loan and reduced the interest rate, but the respondent continued to default. The respondent proposed a one-time settlement which was not accepted by the petitioner. Statutory notice was issued, and the respondent admitted liability but denied rescheduling benefits.

2. Whether the objections raised by the respondent are sustainable?

The respondent contended that due to market recession, it could not meet the repayment schedule. It had borrowed significantly from ICICI and South Indian Bank, which accepted a settlement package involving reduced principal repayment without interest. The respondent argued that the petitioner-bank should also accept this settlement. The respondent claimed to have assets worth Rs. 46.35 crores and employed 79 staff, asserting that winding up would disrupt its recovery and affect employees. The respondent suggested that the petitioner-bank, being a secured creditor, could seek remedies through the Debt Recovery Tribunal rather than winding up the company.

3. To what relief?

The court considered the arguments and relevant case laws. It noted that while the petitioner-bank could not be compelled to accept the settlement agreed upon by other creditors, the existence of an alternative remedy through the Debt Recovery Tribunal was significant. The court emphasized that winding up should not be pursued if it would unjustly harm the company and its employees, especially when the company was showing signs of recovery and had substantial assets. The court referred to section 443(2) of the Companies Act, which allows refusal of winding up if another remedy is available and the petitioner is acting unreasonably.

Conclusion:

The court concluded that the petitioner-bank had not made out a prima facie case for admitting the company petition. Given the alternative remedy available through the Debt Recovery Tribunal and the potential adverse impact on the company's recovery and employees, it was not just and equitable to wind up the company. Consequently, the company petition was dismissed, and no costs were awarded.