2011 (12) TMI 420 - HC - Companies Law

Winding up company unable to pay its debts winding up petition by Bank power of attorney - Atulya Sharma and Kaushik Chandrakant Shaparia are the power of attorney holders and they are authorised to initiate all legal proceedings including bankruptcy or insolvency of any person or firm on behalf of the petitioner - they authorised Mr. Sudarshan Sreedharan and Damodaran Sreenivasan by duly executing power of attorney Power of attorney basing on which the winding up proceedings have been initiated by Mr. Sudarsan Sridharan and Mr. Damodaran Sreenivasan on behalf of the petitioner-bank against the respondent-company - Held that - It is nowhere indicated in the power of attorney that they are authorised to initiate winding up proceedings against the respondent-company - When the signatories to the petition had no proper authorisation to initiate winding up proceedings, it cannot be said that the petition has been validly instituted Petition dismissed

Summary

Issues Involved:
1. Validity of the Company Petition.
2. Admission of Liability by the Respondent.
3. Misjoinder of Transactions.
4. Arbitration Clause and Jurisdiction.
5. Bona Fide Dispute and Commercial Insolvency.
6. Authority to Initiate Winding Up Proceedings.

Detailed Analysis:

1. Validity of the Company Petition:
The petitioner, Deutsche Bank AG, filed a company petition under sections 433, 434, and 439 of the Companies Act, 1956, seeking an order of winding up against the respondent-company, Prithvi Information Solutions Ltd. The respondent argued that the petition is liable to be dismissed for non-compliance with rules 21 and 95 of the Companies (Court) Rules, 1959. The respondent also contended that there was no board resolution authorizing the signatories to institute winding up proceedings, thus questioning the validity of the petition.

2. Admission of Liability by the Respondent:
The petitioner claimed that the respondent-company availed various credit facilities and subsequently defaulted. The petitioner issued notices calling for payment of dues, to which the respondent admitted liability and requested time to clear the dues. The petitioner emphasized the admission of liability in the respondent's reply dated May 14, 2009, which acknowledged the outstanding dues and requested three months to clear them.

3. Misjoinder of Transactions:
The respondent argued that the petition is bad for misjoinder of two different transactions relating to two separate banks. The post-shipment facility was provided by Deutsche Bank AG, a banking company registered in India, while the FX and derivative transactions were entered into with Deutsche Bank AG, Germany, governed by English laws. The respondent contended that clubbing these transactions amounts to misjoinder, warranting the dismissal of the petition.

4. Arbitration Clause and Jurisdiction:
The respondent contended that the company petition is not maintainable due to the arbitration clause in the contract between the parties, which conferred jurisdiction on courts at Mumbai for dispute resolution. The respondent also highlighted that the petitioner had already initiated recovery proceedings before the Debts Recovery Tribunal, Bangalore, and that the issues between the parties are triable and cannot be decided in summary proceedings.

5. Bona Fide Dispute and Commercial Insolvency:
The petitioner argued that the respondent's failure to pay the dues despite admitting liability amounts to commercial insolvency, warranting the winding up of the company. The petitioner cited Supreme Court judgments in Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. and Vijay Industries v. NATL Technologies Ltd. to support their claim that the respondent's defense is neither bona fide nor substantial.

6. Authority to Initiate Winding Up Proceedings:
The respondent questioned the authority of the signatories, Mr. Sudarshan Sreedharan and Mr. Damodaran Sreenivasan, to initiate winding up proceedings on behalf of the petitioner. The respondent argued that there was no proper authorization, as required under section 291 of the Companies Act, 1956. The petitioner countered that section 291 does not apply to them as they are not a company under the Act. The court examined the power of attorney documents and found that the signatories were not explicitly authorized to initiate winding up proceedings.

Conclusion:
The court concluded that the signatories did not have the proper authorization to initiate winding up proceedings on behalf of the petitioner. The absence of authority to institute the proceedings was not a technical matter but a significant issue with far-reaching consequences. Consequently, the company petition was dismissed with no order as to costs.