2013 (7) TMI 160 - HC - Companies Law

Winding up petition - dishonoring of cheques - Admissibility of winding petition - Held that - The Court is satisfied that IFL has made out a case for admission of the petition and for appointing a provisional liquidator ( PL ) for KIPL. The defence of KIPL is not bona fide. It is a case of an admission of liability and the demonstrated inability of KIPL to make good the liability. On behalf of IFL it was submitted that to the extent that KIPL is able to pay the amount owing to IFL, the claims against KRIL to that extent would stand abated. In any event, that is contingent upon KIPL being able to make good the entire amount together with interest owing to IFL. Thus the petition is admitted. The Official Liquidator ( OL ) is appointed as a PL of KIPL. The OL is directed to take over all the assets, books of accounts and records of the Respondent from the date this order is made effective as indicated hereafter. A complete set of the paper book be served on the OL. The OL shall also prepare a complete inventory of all the assets of the Respondent before sealing the premises in which they are kept. He may also seek the assistance of a valuer to value the assets. He is permitted to take the assistance of the local police authorities, if required. Publication of the citation of the petition be effected in the Official Gazette, The Times of India (English) and Jansatta (Hindi), cost of publication shall be borne by IFL. The Directors of KIPL are directed to strictly comply with the requirements of Section 454 of the Companies Act, 1956 and Rule 130 and furnish to the OL a statement of affairs in the prescribed form verified by an affidavit within a period of 21 days from the date the order & also file affidavits in this Court, with advance copies to the OL, within four weeks thereafter setting out the details of all the assets, both movable and immovable of KIPL However, this order is kept in abeyance for eight weeks to enable KIPL to make payment of the sum as set out in the petition, failing which this order will be made operational and further steps will be taken by the OL in terms of this order.

Issues Involved:
1. Whether the Respondent, Krish International Pvt. Ltd. (KIPL), is liable for the outstanding amount under the factoring agreement with IFCI Factors Ltd. (IFL).
2. Whether the petition for winding up KIPL is maintainable.
3. Whether KIPL admitted its liability and demonstrated an inability to pay.
4. Whether the defense raised by KIPL is bona fide and substantial.
5. Whether the appointment of a provisional liquidator for KIPL is justified.

Detailed Analysis:

1. Liability Under Factoring Agreement:
The court analyzed the nature of the factoring transaction, where KIPL assigned its receivables to IFL in exchange for finance. If the approved debtor (KRIL) defaulted, KIPL was liable to pay IFL. The factoring agreement, executed on 18th February 2010, included clauses that specified KIPL's obligations in case of default by KRIL. KIPL's Managing Director and another director provided guarantees for repayment. The agreement clearly stated that KIPL would be liable if KRIL defaulted.

2. Maintainability of the Petition:
KIPL argued that since IFL had filed a separate winding-up petition against KRIL, the present petition was not maintainable. However, the court found that the factoring agreement made KIPL liable regardless of KRIL's default. The court also noted that the cheques issued by KIPL were dishonored, indicating KIPL's inability to pay, and criminal proceedings under the Negotiable Instruments Act were pending against KIPL.

3. Admission of Liability and Inability to Pay:
The court noted several correspondences from KIPL acknowledging its liability and promising payments, which were not fulfilled. Letters dated 17th March 2011, 8th July 2011, and 12th August 2011 from KIPL to IFL contained admissions of liability and requests to hold legal action, citing KRIL's defaults. The dishonored cheques further demonstrated KIPL's inability to pay.

4. Bona Fide and Substantial Defense:
The court referred to precedents, including *Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P.) Ltd.* and *IBA Health (India) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd.*, to determine that a bona fide and substantial defense could prevent winding up. KIPL's defense was not found to be bona fide or substantial. The court emphasized that if a debt is undisputedly owing, it must be paid, and commercial solvency alone is not sufficient to reject a winding-up petition.

5. Appointment of Provisional Liquidator:
Given the clear admission of liability and demonstrated inability to pay, the court found it justified to appoint a provisional liquidator (PL) for KIPL. The Official Liquidator (OL) was directed to take over KIPL's assets, books, and records, and prepare an inventory. The court also ordered publication of the citation of the petition and compliance with statutory requirements by KIPL's directors.

Conclusion:
The petition for winding up KIPL was admitted. The court appointed the OL as the PL of KIPL, directing the OL to take necessary steps to secure KIPL's assets. The order was kept in abeyance for eight weeks to allow KIPL to make the payment, failing which the order would become operational. The case was listed for further hearing on 25th September 2013.

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