2010 (12) TMI 1064 - HC - Companies Law

Whether the company through Shri Bhailalbhai Patel has got any prima facie evidence of the involvement of the petitioning creditor in the matter of siphoning off the fund of the company during the period of May, 2007? Held that - The petition, at the instance of the petitioning creditor appears to have been instituted mala fide at the behest of Shri Ushakant Patel and Dipen Patel with a view to circumvent the orders of the apex court, this court as well as the Company Law Board. It might also be instituted mala fide with a view to frustrate the various proceedings pending either before the apex court, this court and the Company Law Board. The object of the petition might be to upset and disturb the working and the growth of the company, at the instance of the directors who are alleged to have siphoned off huge monies of the company under the umbrella of the orders that may be passed in the present petition. Apart from this, the company is undoubtedly making profits and in fact, the profits have increased manifold since January, 2007 when the day-to-day management and control came in the hands of Shri Bhailalbhai Patel.The petition, therefore, filed by the present petitioning creditor, who is alleged to be prima facie involved in siphoning off of the funds of the company, in collusion and connivance with the former management and also alleged to have drained the company of its finances, is, therefore, liable to be dismissed. Accordingly, the petition is dismissed. Notice discharged without any order as to costs.

Summary

Issues Involved:
1. Petition for winding up under Sections 433 and 434 of the Companies Act, 1956.
2. Alleged failure of the respondent-company to discharge its liability.
3. Allegations of mismanagement and siphoning off of funds by directors.
4. Bona fide dispute regarding the debt claimed by the petitioner.
5. Counterclaims and allegations of collusion and mala fide intentions.

Detailed Analysis:

1. Petition for Winding Up under Sections 433 and 434 of the Companies Act, 1956:
The petitioning creditor sought the winding up of the respondent-company on the grounds of its inability to pay debts amounting to Rs. 60,35,985. The court noted that the power to wind up a company is discretionary and must consider whether the defense raised by the company is bona fide and acceptable.

2. Alleged Failure of the Respondent-Company to Discharge its Liability:
The petitioner claimed that the respondent-company failed to discharge its liability of Rs. 46,84,094 (principal) and Rs. 13,51,891 (interest). The petitioner maintained that the respondent-company acknowledged the debt in its audited balance-sheet as of March 31, 2007. Despite repeated reminders and a statutory notice, the respondent-company did not make the payment, leading the petitioner to believe the company was commercially insolvent.

3. Allegations of Mismanagement and Siphoning Off of Funds by Directors:
The respondent-company, in its defense, alleged that former directors Ushakant Patel and Dipen Patel, in collusion with the petitioner, siphoned off funds and engaged in fraudulent activities. Reports by chartered accountants M/s. Mulani Kajrekar and Co. and M/s. G.M. Choksi and Co. indicated significant financial irregularities and siphoning off of funds. The company argued that the petition was collusive and filed with mala fide intentions.

4. Bona Fide Dispute Regarding the Debt Claimed by the Petitioner:
The court examined whether the dispute over the debt was bona fide. The respondent-company presented a substantial defense, including counterclaims and allegations of collusion between the petitioner and former directors. The court cited several precedents, emphasizing that a winding-up petition cannot be allowed if there is a bona fide dispute regarding the debt.

5. Counterclaims and Allegations of Collusion and Mala Fide Intentions:
The respondent-company claimed that payments were made for invoices without actual delivery of materials, amounting to Rs. 53,13,543. The company argued that it had a counterclaim against the petitioner and that the petition was an abuse of the court process. The court noted that the petition appeared to be instituted mala fide to circumvent ongoing legal proceedings and disrupt the company's operations.

Conclusion:
The court concluded that the respondent-company raised a bona fide dispute regarding the debt and had a substantial defense, including counterclaims. The petition was dismissed, with the court emphasizing that the dismissal did not mean acceptance of the respondent-company's defense but was based on the prima facie nature of the dispute. The observations made were not conclusive and were limited to the context of not exercising the court's discretion for winding up the respondent-company.