2005 (6) TMI 298 - HC - Companies Law

Winding up - loan transaction - Circumstances in which company may be wound up by Tribunal - HELD THAT - It is not the case of the appellant that certain goods were insured and in lieu of the goods, the money has been paid by the insurance company to the principal creditor. In fact, the loan amount/loan transaction was insured. The petitioner cannot say that once the insurance company has paid the money to the principal creditor, then the appellant-company is not answerable to anybody. The appellant-company is still liable and applying the principle of subrogation, the insurance company can always recover the money from the appellant and in any case, if the money is received by the creditor-company then, to the extent of the receipts, the creditor-company would refund the money to the insurance company. That would be a matter between the insurance company and the creditor-company. The debtor is not entitled to take any benefits out of the said transaction. Taking into consideration the totality of the circumstances and the manner in which the present company has behaved and as on today the liability of the appellant-company qua the creditor-company is more than Rs. 65 crores, we are of the opinion that the learned single judge was absolutely justified in admitting the company petition. The appeal is dismissed. In view of the dismissal of the appeal, the civil application stands disposed of.

Summary

Issues:
Appeal against winding up petition admission under Companies Act - Loan transaction dispute - Court's discretion in admitting petition - Net worth of company - Profit making company - Legal principles for admitting company petitions - Application of judgments - Company's liability and behavior - Dismissal of appeal.

Analysis:
1. The judgment dealt with an appeal under section 483 of the Companies Act against the admission of a winding up petition. The dispute arose from a loan transaction between the appellant-company and the creditor, where the creditor received payment from an insurance company after the appellant failed to make payment. The appellant argued against the court's discretion in admitting the petition due to a delay in filing the suit after the winding up petition.

2. The appellant contended that as the creditor had received 95% of the loan amount from the insurance company, they were only liable for the remaining 5%. The appellant emphasized the positive net worth and profitability of the company, citing judgments supporting the non-admission of company petitions in such cases. The appellant argued that the court should not hinder the functioning of a profitable company.

3. The court examined previous judgments, including the American Express Bank Ltd. case and the Tata Iron and Steel Co. case, to determine the applicability of legal principles in the present matter. The court noted that the positive net worth and readiness of the company to discharge liabilities were crucial factors in deciding the admission of a company petition.

4. The court rejected the appellant's argument that the insurance payment absolved them of liability, emphasizing that the appellant remained accountable for the loan transaction. The court highlighted the principle of subrogation, stating that the insurance company could recover the amount from the appellant. The court dismissed the argument of frustration presented by the appellant.

5. Referring to the Dolphin International Ltd. case, the court emphasized that a company showing profitability on paper may still face insolvency issues in reality. Despite the appellant's claims of readiness to pay, the court found no evidence of actual payment. Considering the company's behavior and the substantial liability owed to the creditor, the court upheld the decision to admit the winding up petition.

6. In conclusion, the court dismissed the appeal, affirming the decision to admit the company petition based on the company's financial status and behavior. The court found the appellant's arguments insufficient to overturn the lower court's decision. The civil application was disposed of in view of the appeal dismissal.