2009 (9) TMI 579 - HC - Companies Law

Winding up petition - Held that - The respondent-company has placed on record its balance-sheet for the year 2006-07 (annexure R5) which is a clear indicative of its sound financial position. It is a profit yielding company and this Court, therefore, would in larger public interest, be reluctant to proceed with the winding up proceedings which will result into adverse publicity against the respondent-company as an insolvent. Contrary to it, the petitioner-bank can proceed with the recovery suit before a civil court and prove that it has always performed and/or had been willing to perform its part of the contract under the ISDA agreement and breach, if any, has been committed by the respondent-company only. Thus do not find any merit in this winding up petition and dismiss the same, however, with liberty to the petitioner to file a civil suit for recovery, if so advised.

Issues Involved:
1. Validity of the ISDA Agreement.
2. Disputed questions of fact regarding the winding up petition.
3. Allegations of misrepresentation and concealment of material facts by the petitioner-bank.
4. Respondent-company's liability to pay the outstanding amount.
5. Applicability of winding up provisions under the Companies Act, 1956.

Detailed Analysis:

1. Validity of the ISDA Agreement:
The respondent-company raised a preliminary objection that the ISDA agreement was void ab initio. They argued that the agreement was procured through misrepresentation and by concealing material facts. The petitioner-bank, however, maintained that the agreement was valid and binding, as evidenced by the respondent-company's acceptance and signature on the letter of confirmation. The court noted that the validity of the agreement was a contentious issue that required evidence to resolve.

2. Disputed Questions of Fact Regarding the Winding Up Petition:
The respondent-company contended that the issues raised in the petition involved disputed questions of fact, making the winding up petition not maintainable. The court acknowledged that where there is a bona fide dispute over liability involving serious contest on questions of fact, a winding up petition cannot be entertained as a tool of arm twisting. The court emphasized that such disputes necessitate evidence and are better resolved in a civil court.

3. Allegations of Misrepresentation and Concealment of Material Facts by the Petitioner-Bank:
The respondent-company alleged that the petitioner-bank failed to disclose true risk factors and did not provide specified information as required under the ISDA agreement. They claimed that the bank did not keep its promise to provide reports on the LIBOR curve, USD/CHF trend, USD/INR trend, and forward premium trend. The court noted that these allegations constituted a breach of agreement, which is a question of fact requiring evidence.

4. Respondent-Company's Liability to Pay the Outstanding Amount:
The petitioner-bank claimed that the respondent-company had failed to make the outstanding payment of Rs. 34,24,437 as on 7-8-2006, along with interest. The respondent-company disputed this liability, arguing that the petitioner-bank did not perform its contractual obligations. The court found that the respondent-company's communication dated 7-12-2005, which accused the petitioner-bank of not performing its part of the contractual obligation, was a key piece of evidence. The court concluded that the liability and breach of contract were contentious issues that required a civil court's intervention.

5. Applicability of Winding Up Provisions Under the Companies Act, 1956:
The petitioner-bank sought the winding up of the respondent-company under sections 433(e) and (f) of the Companies Act, 1956, which allows for winding up if a company is unable to pay its debts or if it is just and equitable to do so. The court explained that an order of winding up can be passed if the company neglects to pay a debt exceeding rupees one lakh despite notice served through registered post. However, the court emphasized that where there is a bona fide dispute over liability, the winding up petition cannot be used as a punitive action. The court noted that the respondent-company's balance sheet indicated a sound financial position, and winding up proceedings would result in adverse publicity against the company.

Conclusion:
The court dismissed the winding up petition, granting liberty to the petitioner-bank to file a civil suit for recovery. The court highlighted that the issues involved required evidence and were better suited for resolution in a civil court. The court also noted that the financial condition of the respondent-company did not warrant winding up in the larger public interest.

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