2013 (5) TMI 7 - HC - Companies Law

Maintainability of Winding up petition Petition for winding up was filed before the Company Court on the ground that the company(appellant) was unable to pay its debts - In affidavit opposing admission was filed contending that since the Respondent was a secured creditor, a Company Petition for winding up at its behest was not maintainable. This defense was rejected by the Company Judge, while relying upon a judgment of a Division Bench of this Court in Bharat Overseas Bank Ltd. v. Shree Arcee Steels P. Ltd. 1985 (3) TMI 191 . Held that - Having regard to the position in law as consistently followed in the judgments of the Madras High Court in Karnatak Vegetable Oils and Refineries Ltd. v. Madras Industrial Investment Corpn. 1953 (12) TMI 14 and in Calcutta High Court in Techno Metal India (P.) Ltd. v. Prem Nath Anand 1973 (8) TMI 65 and as reiterated in the judgment of the Company Court in Canfin Homes Ltd. v. Lloyds Steel Industries Ltd. 2001 (3) TMI 933 .,it is not possible to accept the submission which was urged on behalf of the Appellant. The law does not impose an unreasonable condition of requiring a secured creditor to forsake his security before he asserts a right to urge that a company which is unable to pay its debts should be wound up. The Respondent has stated before the learned Company Judge, when the petition for winding up came up for hearing that it was not possible for the Respondent to recover her dues by the sale of the land in respect of which a security has been created in favour of the Respondent. The claim of the Respondent is still to be proved in the course of the winding up proceedings. A secured creditor who has a mortgage, charge or lien on the property of the company as security for her debt may either (a) enforce the security and prove in the winding up for the balance of the debt after deducting the amount realised; or (b) surrender the security to the Liquidator and prove for the whole of the debt as an unsecured creditor; or (c) estimate the value of the property subject to her security, and prove for the balance of the debt after deducting the estimated value; or (d) rely on the security and not prove in the winding up proceedings. A secured creditor has the option of relinquishing his security and/or proving the entirety of his debt in the course of winding up. If the secured creditor does so in the course of winding up proceedings, the security will ensure for the benefit of the body of creditors. On the other hand, it is open to a secured creditor to prove in the course of winding up proceedings to the extent of his debt which has not been realised outside proceedings for winding up by either accounting for the amount that has been so realised or by estimating the value of the property subject to security so as to enable him to prove in respect of the balance of the debt. On either view of the matter, that stage is still to arrive. For these reasons, we are of the view that the learned Company Judge was not in error in initially admitting the Petition and thereafter making the Company Petition for winding up absolute. No case for interference in appeal.

Summary

Issues Involved:
1. Admissibility of the Company Petition for winding up.
2. Obligations of a secured creditor in winding up proceedings.
3. Compliance with the mediated settlement.
4. Company's inability to pay its debts.

Issue-wise Detailed Analysis:

1. Admissibility of the Company Petition for Winding Up:
The Appeals arose from orders admitting and allowing a Company Petition for winding up. The Respondent advanced a loan of Rs. 50 lakhs to the Appellant, secured by a mortgage of immovable property and post-dated cheques. When the cheques were dishonored, a statutory notice of winding up was issued, and the Company Petition was filed on the grounds of the company's inability to pay its debts. The Company Judge admitted the petition, citing a precedent that a Company Petition for winding up could not be dismissed at the admission stage merely because the debt was secured.

2. Obligations of a Secured Creditor in Winding Up Proceedings:
The Appellant contended that the Respondent, as a secured creditor, needed to disclose whether she wished to stand outside the winding up proceedings and realize her security or specify the extent of the claim not covered by the security. However, it was established that a Petition for winding up is maintainable by both secured and unsecured creditors. The secured creditor has the option to enforce the security outside the winding up proceedings or prove the balance of the debt in the winding up. The Court noted that the Respondent had stated that her dues could not be fully recovered by the sale of the secured property, and the claim would be proved during the winding up proceedings.

3. Compliance with the Mediated Settlement:
A mediated settlement was reached in the Delhi High Court, where the Appellant agreed to pay Rs. 60 lakhs within 120 days. The Respondent fulfilled her obligation by depositing the title deeds with the Registrar General of the Delhi High Court. However, the Appellant failed to make the payment within the stipulated time. Despite multiple opportunities and adjournments, the Appellant did not comply with the settlement terms or present a bona fide offer to settle the dues.

4. Company's Inability to Pay Its Debts:
The Company Judge concluded that the company was unable to pay its debts, noting the consistent refusal to adhere to the repayment schedule and the cessation of business operations. The Appellant's modus operandi was to seek adjournments, and there were several other petitions against the company. The Court emphasized that the law does not require a secured creditor to forsake their security before asserting the right to wind up a company unable to pay its debts.

Conclusion:
The learned Company Judge was not in error in admitting the Petition and making the winding up order absolute. The Appeals were dismissed, affirming that the Respondent's claim would be proved in the course of the winding up proceedings, and the secured creditor's rights were appropriately considered. The company's inability to pay its debts justified the winding up order.