2010 (4) TMI 1186 - HC - Companies Law

Summary

Issues Involved:
1. Whether the respondent company is liable to be wound up u/s 433(e) of the Companies Act, 1956.
2. Whether the petitioner bank's initiation of proceedings before the Debt Recovery Tribunal (DRT) precludes it from seeking winding up of the respondent company.
3. Whether the respondent company's defense against the winding up petition is bona fide.

Issue-wise Comprehensive Details:

1. Liability for Winding Up u/s 433(e):
The petitioner, Indian Overseas Bank, sought the winding up of M/s. Sanghi Polyesters Limited u/s 433(e), 434(a), and 439(b) of the Companies Act, 1956, due to the respondent's failure to repay Rs. 2468.45 lakhs under various credit facilities. Despite a statutory notice u/s 434, the respondent neither replied nor paid the amount, indicating an inability to pay debts within the meaning of Section 434 of the Companies Act.

2. Proceedings Before Debt Recovery Tribunal:
The respondent argued that the petitioner bank's filing of a recovery application before the DRT precludes it from invoking Section 434 of the Companies Act. The respondent cited several judgments, including Kitti Steels Limited Vs. Sanghi Industries Limited and Kapil N.Mehta vs. Shree Laxmi Motors Limited, to support that winding up should not be used as a pressure tactic and that the court has discretion to refuse winding up if other remedies are available.

3. Bona Fide Defense:
The respondent contended that the petitioner bank did not provide need-based finance and charged higher interest rates, leading to financial difficulties. The respondent also highlighted that it is a running industry with thousands of employees, and winding up would affect their livelihood. The court noted that the petitioner bank did not disclose the filing of the O.A before the DRT in the petition and failed to provide details about the securities offered by the respondent company.

Judgment:
The court dismissed the petition at the admission stage, citing suppression of material facts by the petitioner bank and the absence of particulars regarding the worth of the property offered as security. The court emphasized that winding up proceedings should not be used as an alternative to debt recovery and should be pursued with absolute candor. The petition was dismissed with no costs.