2014 (6) TMI 1003 - HC - Companies Law

Winding up the respondent for non-payment of the alleged debt - invocation of other remedies such as arbitration and the SARFAESI Act for recovery of the debt - Held that - No Judgment was cited before this Court in which it was held in absolute terms as a proposition of law that invocation of other remedies such as arbitration and the SARFAESI Act for recovery of the debt due as a ground to dismiss a petition for winding up of a debtor-company. Following the legal propositions deducible from the various authoritative pronouncements referred to above, a petition filed for winding up can be dismissed on one or more of the following grounds, namely, (a) where the debt is bona fide disputed and the defence is a substantial one; (b) where the winding up petition is presented ostensibly for winding up order but really to exert pressure to pay the bona fide disputed debt; and (c) where even the company s inability to pay the debt is proved, but such winding up is not in the interests of its shareholders and creditors. In the instant cases, the debt is not disputed, nay, admitted. Therefore, mere reference of the dispute to arbitration or initiation of proceedings under the SARFAESI Act do not mean that the debt is disputed. Thus, where the debt is not disputed, the present company petitions for winding of the principal borrower and the co-borrower are very much maintainable and the same cannot be thrown out merely on the ground of the petitioner invoking other remedies for recovery of the debt. the respondent is unable to point out any inconsistency between the provisions of Sections 433 and 434 of the Act and any of the provisions of the SARFAESI Act. The provisions of these two enactments operate in their designated fields, in that, while the SARFAESI Act enables the borrowers and other financial institutions registered under the said Act to initiate various measures for recovery of the loans advanced to the debtors, as noted above, Sections 433 r/w. Section 434 of the Act, vested a right in a creditor to seek winding up of a company for non-payment of an undisputed debt. Therefore, there is no scope for any inconsistency between the provisions of these two enactments. Indeed, no such inconsistency exists, as a fact. The only occasion on which such inconsistency may arise is when the property is sought to be liquidated by way of sale. Such a situation would not arise till the measures for sale of the property are initiated either by the Official Liquidator or by the creditor under the SARFAESI Act. Therefore hold that Section 35 of the SARFAESI Act does not bar the petitioner to institute and pursue the present winding up petitions. For the above mentioned reasons, the Company Petition is admitted. The petitioner is permitted to issue advertisement in The Hindu and Saakshi , the English and Telugu Daily Newspapers, respectively, of Hyderabad edition.

Summary

Issues Involved:
1. Non-payment of alleged debt and winding up petition under Sections 433 and 434 of the Companies Act, 1956.
2. Jurisdiction and privity of contract between the petitioner and respondent.
3. Initiation of proceedings under SARFAESI Act, Arbitration and Conciliation Act, and Negotiable Instruments Act.
4. Commercial insolvency and inability to pay debts.
5. Legal principles governing winding up proceedings.

Issue-wise Detailed Analysis:

1. Non-payment of Alleged Debt and Winding Up Petition:
The petitioner filed a Company Petition under Sections 433 and 434 of the Companies Act, 1956, seeking the winding up of the respondent for non-payment of an alleged debt. The respondent had defaulted on loan repayments to IFSL, which later amalgamated with the petitioner company. The petitioner issued notices under the SARFAESI Act and the Arbitration and Conciliation Act to recover the debt but the respondent failed to comply, leading to the filing of the winding up petition.

2. Jurisdiction and Privity of Contract:
The respondent argued that there was no privity of contract between it and the petitioner, as the loan was originally sanctioned by IFSL. The petitioner countered that the Delhi High Court had sanctioned the amalgamation scheme, transferring all rights and liabilities of IFSL to the petitioner. The court held that the petitioner, having stepped into the shoes of IFSL under the statutory scheme, was legally entitled to maintain the winding up petition.

3. Initiation of Proceedings under SARFAESI Act, Arbitration and Conciliation Act, and Negotiable Instruments Act:
The respondent contended that the petitioner, having initiated proceedings under the SARFAESI Act and the Arbitration and Conciliation Act, was estopped from invoking the jurisdiction of the court under the Companies Act. The court rejected this argument, stating that mere initiation of other statutory proceedings does not constitute a ground for rejecting the winding up petition if the debt is undisputed.

4. Commercial Insolvency and Inability to Pay Debts:
The petitioner argued that the respondent was commercially insolvent, as evidenced by its balance sheet showing accumulated losses of Rs. 5296 lakhs as of 31-3-2012. The court noted that the respondent's inability to pay its debts was evident from its financial statements and ongoing legal battles, making it a fit case for winding up.

5. Legal Principles Governing Winding Up Proceedings:
The court discussed the legal principles governing winding up proceedings, emphasizing that a company may be wound up if it is unable to pay its debts. The court cited various judgments to highlight that a winding up petition is maintainable if the debt is undisputed and the company is unable to pay. The court also noted that the proceedings under Sections 433 and 434 of the Companies Act are not merely recovery proceedings but aim to protect creditors and shareholders from a company's inability to meet its obligations.

Conclusion:
The court admitted the Company Petition for winding up the respondent, allowing the petitioner to issue advertisements in newspapers and initiating the winding up process. The court held that the petitioner had made a prima facie case for the respondent's inability to pay its debts and that it was desirable to commence the winding up process. The case was posted for further proceedings on 28-7-2014.