2008 (1) TMI 616 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - Admittedly, respondent company stopped its business for various reasons and there is not even a whisper in the counter that it is ongoing company. In such a situation, there cannot be a take over of management of business of respondent company nor it is shown that management is taken over by ARCIL as provided under section 15(1) of SARFAESI Act. The difference between the SFC Act and SARFAESI Act is section 13(4)(a ) and ( b) and section 15(1) of SARFAESI Act. Such provisions are absent in SFC Act. It is always presumed that Parliament was aware of the provisions of SFC Act and other cognate laws when sections 13(4) and 15(1) and (3) were enacted in SARFAESI Act. The difference, therefore, is very glaring and the decisions under SFC Act cannot furnish any guidance for interpreting provisions of SARFAESI Act. In the result, for the above reasons, the company petition is admitted. This Court directs that the petition shall be advertised in New Indian Express published from Hyderabad, and Eenadu telugu daily, Hyderabad Edition, having circulation in Nalgonda in the manner provided by rule 24 of Companies (Court) Rules, 1959. The advertisement shall be made within a period of three weeks from the date of receipt of copy of this order.

Issues Involved:
1. Petition for winding up under sections 433(e), 434(1)(a) & (c), and 439(1)(b) of the Companies Act, 1956.
2. Respondent's inability to pay debts and the arbitration award.
3. Action by financial institutions and secured creditors under SARFAESI Act.
4. Statutory notice and respondent's reply.
5. Objection regarding the bar on winding up proceedings under section 15(3)(c) of SARFAESI Act.

Issue-wise Detailed Analysis:

1. Petition for winding up under sections 433(e), 434(1)(a) & (c), and 439(1)(b) of the Companies Act, 1956:
The petitioner filed a company petition for winding up of the respondent company, alleging that the respondent is unable to pay its dues amounting to Rs. 5,35,99,090 within three months from the date of receipt of the demand notice. The petition was filed under sections 433(e), 434(1)(a) & (c), and 439(1)(b) of the Companies Act, 1956.

2. Respondent's inability to pay debts and the arbitration award:
The petitioner, M/s. LPL Infrastructures Limited (LPL), claimed that the respondent, M/s. Kumar Metallurgical Corporation Limited (KMC), failed to pay for executed works as per two work orders. The matter was referred to arbitration, resulting in awards totaling Rs. 5,35,17,380. The respondent's applications to set aside the awards were partially allowed, reducing the interest. Despite court orders to deposit amounts, the respondent failed to comply, leading to an outstanding due of Rs. 5,35,99,090.

3. Action by financial institutions and secured creditors under SARFAESI Act:
Financial institutions declared the respondent's loan account as a non-performing asset (NPA) and transferred it to Asset Reconstruction Company (India) Limited (ARCIL). ARCIL invoked section 13(2) of the SARFAESI Act to take over the respondent's assets. The Debts Recovery Tribunal (DRT) set aside this action, but the Debts Recovery Appellate Tribunal (DRAT) reversed the order. The DRT appointed a Receiver for the respondent company. Additionally, the respondent defaulted on statutory taxes, leading to notices and complaints by the Deputy Commercial Tax Officer and the Registrar of Companies.

4. Statutory notice and respondent's reply:
LPL issued a statutory notice on 9-2-2007, demanding payment of Rs. 5,35,99,090, failing which a winding-up petition would be filed. The respondent replied, stating that ARCIL had claimed possession of the company's assets and that ongoing litigation prevented LPL from proceeding against the respondent's assets. The respondent denied liability to pay LPL and cited ARCIL's actions under the SARFAESI Act as reasons for non-payment.

5. Objection regarding the bar on winding up proceedings under section 15(3)(c) of SARFAESI Act:
The respondent raised an objection, arguing that under section 15(3)(c) of the SARFAESI Act, no winding-up proceedings could be initiated when the management of the company is taken over by a secured creditor. The petitioner countered that section 15(3)(c) does not bar winding-up petitions when only possession, not management, is taken over. The court examined the provisions of the SARFAESI Act and the State Financial Corporations Act (SFC Act), noting differences in their application. The court concluded that mere possession by ARCIL did not equate to taking over management, and thus, section 15(3)(c) did not bar the winding-up petition.

Conclusion:
The court admitted the company petition for winding up, directing that it be advertised in specified newspapers within three weeks. The court held that the respondent's inability to pay its debts, the statutory notice, and the lack of evidence that ARCIL took over management justified the admission of the petition. The court distinguished between possession and management under the SARFAESI Act, emphasizing that the provisions of the SFC Act did not apply to the SARFAESI Act in this context.

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