2010 (12) TMI 1051 - HC - Companies Law

Winding up unable to discharge the admitted liability - held that - it is not open to the Company at this stage to assert that the claim of the creditors is mala fide, vexatious and is not bona fide keeping in view the judicial propriety and the principle that there should not be multiple proceedings in respect of the same question. Though it is open to the Company to resist the order of winding up on other grounds such as that it will not be fair to wind up the Company for the reason that it is a running concern or that the interest of the workmen is involved, but the plea that the debt of the creditor is disputed, cannot be permitted to be raised again. The defence of the Company is not bona fide. The amount is due and payable by the company. The Balance Sheets of the Company also reflects large sum of money as due and payable to the secured creditors. Therefore, it would be just and equitable to order winding up of the Company, which has failed to discharge its admitted liabilities. Notice u/s 13(4) of the SARFAESI Act - held that - It is not a case where the Company has approached this Court after the notice under section 13(2) was issued. The Company challenged the action under section 13(2) only after the notice under section 13(4) was issued and that too after reasons for raising demand were communicated. The Company cannot be permitted to challenge part of the action when the financial institutions have proceeded ahead to recover possession of the secured assets in terms of section 13(4) of the SARFAESI Act. In terms of the judgments aforesaid, the remedy of the Company is to approach DRT in terms of section 17 of the SARFAESI Act. The Government of India has enacted The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on June 16, 2006 which was notified on 2-10-2006. The MSMED Act, 2006 has modified the definition of micro, small and medium enterprises engaged in manufacturing or production and providing or rendering of services. As per the said Act, a small enterprise is an enterprise where the investment in plant and machinery is more than ₹ 25 lakhs but does not exceed ₹ 5 crore; and a medium enterprise is an enterprise where the investment in plant and machinery is more than ₹ 5 crore but does not exceed ₹ 10 crore. In fact, such was the conditions even prior to the enactment of the said Act. - The company has not produced any document to show that its investment in plant and machinery was less than ₹ 10 crores at the time of starting industry. It is asserted by the secured creditor that one time settlement guidelines are not applicable to the Company. Such stand of the secured creditors that the Company is not small and medium enterprise has not been controverted. - the company cannot avail the benefit of One Time Settlement Scheme notified and circulated on 3-9-2005 and 22-11-2005.

Summary

Issues Involved:
1. Winding up petition by a secured creditor.
2. Proceedings under SARFAESI Act.
3. Declaration of the company as a sick company.
4. Financial obligations and repayments.
5. Assignment of debts.
6. One Time Settlement (OTS) guidelines applicability.
7. Bona fide dispute of debt.
8. Employment and public interest considerations.

Detailed Analysis:

1. Winding Up Petition by a Secured Creditor:
The ICICI Bank Limited (now Kotak Mahindra Bank Limited) filed CP No. 129 of 2004 seeking the winding up of M/s Coventry Coil-O-Matic (Haryana) Limited due to unpaid dues. The company had received financial assistance from a consortium of banks, including ICICI, IDBI, and IFCI, amounting to Rs. 9.25 crores. Despite various payments, the company failed to meet its obligations, leading to the filing of the winding-up petition. The court found that the company had not discharged its liabilities and ordered its winding up, appointing the Official Liquidator to take over the assets and liabilities.

2. Proceedings Under SARFAESI Act:
The company challenged the proceedings initiated under section 13 of the SARFAESI Act by the assignees of IDBI and IFCI. The court held that once a notice under section 13(4) of the SARFAESI Act is issued, the remedy lies with the Debts Recovery Tribunal (DRT). The company's writ petition challenging the SARFAESI proceedings was dismissed, as the appropriate forum for such disputes is the DRT.

3. Declaration of the Company as a Sick Company:
The company was declared sick by the BIFR on 2-1-1998 and was directed to submit a revival package. The BIFR approved a settlement scheme on 27-12-1999, which envisaged the payment of the principal amount and 20% simple interest. However, the company failed to adhere to the payment schedule, leading to the closure of BIFR proceedings on 4-10-2001 after the company's net worth turned positive.

4. Financial Obligations and Repayments:
The company claimed to have paid Rs. 12.80 crores against the loan of Rs. 9.25 crores, including Rs. 11.01 crores after the BIFR settlement. However, the financial institutions argued that the company still owed substantial amounts, including interest. The court found that the company's payments were insufficient to discharge its liabilities, considering the interest and principal amounts due.

5. Assignment of Debts:
The debts of ICICI, IDBI, and IFCI were assigned to Kotak Mahindra Bank and Alchemist Asset Reconstruction Company Ltd. The company argued that the assignments were not properly stamped and inflated the claims. The court held that the registration of the assignment deeds was prima facie proof of proper stamp duty and that the assignees had the right to enforce the debts as per the original agreements.

6. One Time Settlement (OTS) Guidelines Applicability:
The company sought to settle its dues under the RBI's OTS guidelines. However, the court found that the OTS guidelines were not applicable to the company, as its investment in plant and machinery exceeded Rs. 10 crores, and it was not classified as a small or medium enterprise. The court also noted that the company had not made any valid OTS proposal to the financial institutions.

7. Bona Fide Dispute of Debt:
The company argued that the debt claimed by the financial institutions was disputed and that the winding-up petition was not maintainable. The court rejected this argument, stating that the company's defence was not bona fide. The company had failed to provide substantial evidence of discharging its liabilities and had repeatedly delayed proceedings through various litigations.

8. Employment and Public Interest Considerations:
The company contended that winding up would affect 250 employees and its contributions to the state exchequer. The court acknowledged the interests of the workmen but emphasized the need to balance these with public interest and the financial institutions' right to recover public money. The court found that the company's failure to repay its debts was not justified by its employment contributions and ordered the winding up.

Conclusion:
The court ordered the winding up of M/s Coventry Coil-O-Matic (Haryana) Limited due to its failure to discharge its financial obligations and dismissed the company's writ petition challenging the SARFAESI proceedings. The court emphasized the need for financial discipline and the importance of recovering public money from defaulting borrowers.