2013 (6) TMI 345 - HC - Companies Law

Winding up petition - whether a secured creditor was within its right to maintain a petition for winding up without giving up its security and without pleading that the security they had, would be insufficient to satisfy their claim. - held that - A creditor who has unpaid dues could only be reasonably satisfied if company has means to pay. When the creditor serves the notice upon the company asking them to pay off the dues the company has option either to pay off or dispute the same. Even if the company has means to pay and does not pay without any reasonable cause it would be liable to be wound up. However, this question may not be relevant here as the record shows, the company was in involved circumstances due to its precarious financial condition. The right of a creditor, secured or unsecured, to maintain the winding up petition would lie both under section 434 (1) (a) as well as 433 (e) and (f). The petition by a creditor would be maintainable on both counts. Once the creditor established his right to claim the amount more than Rs 500/- the onus would shift on the company to rebut such claim by raising bona fide dispute. Once the bona fide dispute is raised it would weaken the chance to have admission of the winding up petition, otherwise admission is an obvious consequence. - The judgement and order of His Lordship to the extent it declined to admit the winding up petition, is set aside. Winding up petition is remanded back to His Lordship for necessary direction with regard to admission and advertisement.

Summary

Issues Involved:
1. Whether a secured creditor can maintain a petition for winding up without giving up its security and without pleading the insufficiency of the security.
2. The implications of the company's financial insolvency and its impact on the winding-up petition.
3. The role of parallel proceedings under the SARFAESI Act and the Debt Recovery Tribunal in the context of a winding-up petition.
4. The discretionary nature of the winding-up remedy and the conduct of the petitioning creditor.

Detailed Analysis:

1. Whether a secured creditor can maintain a petition for winding up without giving up its security and without pleading the insufficiency of the security:

The core issue was whether a secured creditor is entitled to file a winding-up petition without relinquishing its security and without proving that the security held is insufficient to satisfy its claim. The court observed that a secured creditor does not need to prove the insufficiency of the security to maintain a winding-up petition. The court stated, "A secured creditor is also a creditor to maintain a winding-up petition." The creditor must show a claim of more than Rs. 500 and serve a notice of demand. If the demand is unmet, the creditor can claim deemed insolvency. The court concluded that the petition was maintainable under Sections 433(e) and (f) read with Sections 439(1)(b) and 439(2) of the Companies Act, 1956.

2. The implications of the company's financial insolvency and its impact on the winding-up petition:

The company admitted its liability towards the secured creditor, and its balance sheet indicated a negative net worth, proving commercial insolvency. The court noted, "The company was insolvent and unable to pay its debts." The creditor argued that the company's refusal to pay amounted to neglect to pay, attracting the jurisdiction of the winding-up court. The court held that the company's financial condition justified the winding-up petition, emphasizing that "the balance sheet would clearly demonstrate such insolvency."

3. The role of parallel proceedings under the SARFAESI Act and the Debt Recovery Tribunal in the context of a winding-up petition:

The respondent argued that the secured creditor must choose between winding-up proceedings and actions under the SARFAESI Act and the Debt Recovery Tribunal. However, the court found no law preventing a creditor from applying for winding up while pursuing other civil actions to realize its dues. The court stated, "We are not aware of any law that would debar the creditor from applying for winding up although they have taken recourse to other civil actions to realize their dues."

4. The discretionary nature of the winding-up remedy and the conduct of the petitioning creditor:

The company argued that the winding-up petition was a mala fide attempt to malign the company, citing the publication of the statutory notice of demand in the newspaper. The court acknowledged that winding-up is a discretionary remedy but found no evidence of mala fide conduct by the creditor. The court noted, "This irregularity could not be presumed as mala fide as erroneously held by His Lordship." The court emphasized that the creditor's right to maintain a winding-up petition lies under both Section 434(1)(a) and Sections 433(e) and (f).

Conclusion:

The appeal succeeded, and the judgment and order of the Single Judge, which declined to admit the winding-up petition, were set aside. The court remanded the winding-up petition back to the Single Judge for necessary directions regarding admission and advertisement, concluding that the petition was maintainable on both counts of deemed insolvency and commercial insolvency. The court stated, "The appeal thus succeeds and is allowed. The judgment and order of His Lordship to the extent it declined to admit the winding-up petition is set aside."