2014 (5) TMI 50 - HC - Companies Law

Winding up of company - Respondent not made payment of its dues even after statutory notice - Petitioner had placed the Fixed Deposit Receipts with the Corporation Bank - Respondent approached the Corporation Bank for Term loan - Bank required that the respondent company should tender security for the Term loan and therefore, the respondent company requested the petitioner, to give security on its behalf and also requested that the fixed deposits which the petitioner had placed with the Bank may be offered towards security for the loan to the respondent by Bank - therefore, petitioner agreed to allow the Bank to mark lien on the said two fixed deposits so that the respondent company can avail loan from the Bank to the extent of 90% of the value of the said two fixed deposits - Respondent failed to make payment of loan taken - Due to the respondent s default, the bank appropriated the fixed deposits towards outstanding loan against the respondent - Respondent contends that its Board of Directors had not sanctioned/approved decision to avail loan and/or to request the petitioner to allow its FDRs as collateral security and it was said Mr. Khurana who had on his own and without sanction/approval of respondent company / its Board of Directors entered into and executed said transaction by taking disadvantage of the position that he alongwith others (most of them were associate of petitioner / Mr. Khurana) was promoter of said MSK Projects (India) Ltd., i.e. the respondent and was also one of the Directors in the petitioner company. Held that - In light of the said two letters dated 25.2.2011 and 9.3.2011 by the petitioner company and the respondent company respectively (and from other material / documents which are placed on record by the contesting parties), relevant fact which emerges is that when the petitioner company directly approached / communicated with the respondent company vide its said letter dated 25.2.2011, the respondent company forwarded its reply to the petitioner vide its letter dated 9.3.2011 (wherein the respondent company raised the issue about sanction in respect of the term loan by the company / its Board of Directors). controversy between the parties involve factual disputes, i.e. disputed facts and the said disputed facts are such which would necessitate documentary oral evidence by both sides. Ordinarily, Company Court would not entertain and maintain petitions invoking provisions under Sections 433 and 434 of the Act when the petition involves disputed facts which would oblige the parties to lead oral evidence. Such process would be feasible and practicable in ordinary civil remedy, i.e. suit proceedings before appropriate Court - Court is not inclined to entertain present petition and would rather relegate the parties to ordinary civil remedy with the clarification that the observations made in the order are only for the purpose of deciding maintainability of the petition and do not reflect views of the Court on the merits of the dispute or controversy, much less about the merits of the claim of the petitioner or defence of the respondent - Decided against appellant.

Issues Involved:
1. Non-payment of dues by the respondent company.
2. Appropriation of fixed deposits by the bank.
3. Dispute over the authorization of the loan and collateral security.
4. Allegations of collusion and unauthorized transactions.
5. Maintainability of the winding-up petition under Sections 433 and 434 of the Companies Act, 1956.
6. Existence of arbitration proceedings and their impact on the petition.

Detailed Analysis:

1. Non-payment of dues by the respondent company:
The petitioner claimed that the respondent company failed to repay dues despite statutory notice, indicating an inability to discharge its debts. The petitioner had placed three fixed deposits with Corporation Bank, which were appropriated by the bank towards the respondent's loan due to non-payment.

2. Appropriation of fixed deposits by the bank:
The petitioner alleged that the respondent company requested the petitioner to offer its fixed deposits as security for a term loan from Corporation Bank. Despite repeated requests, the respondent did not repay the loan, leading the bank to appropriate the fixed deposits towards the outstanding loan.

3. Dispute over the authorization of the loan and collateral security:
The respondent company contested the petition, claiming that the loan and the use of fixed deposits as collateral were unauthorized by the Board of Directors. The respondent alleged that Mr. Ashok Khurana, acting without the Board's approval, colluded with the petitioner to execute the transaction.

4. Allegations of collusion and unauthorized transactions:
The respondent argued that the transactions were fraudulent and collusive, executed without the Board's knowledge or approval. The petitioner, represented by Mr. Khurana, allegedly acted in collusion with the respondent's former management to secure the loan and collateral.

5. Maintainability of the winding-up petition under Sections 433 and 434 of the Companies Act, 1956:
The respondent contended that the petition involved disputed facts requiring oral evidence, which is not suitable for a winding-up petition. The court agreed, noting that the factual disputes necessitated documentary and oral evidence, making ordinary civil remedy more appropriate.

6. Existence of arbitration proceedings and their impact on the petition:
The respondent highlighted ongoing arbitration proceedings related to the Share Purchase Agreement dated 18.3.2010, involving Mr. Khurana and Welspun Infratech Limited. The court acknowledged that arbitration was already invoked to resolve disputes, further supporting the decision to relegate the parties to ordinary civil remedy.

Conclusion:
The court concluded that the petition involved complex factual disputes requiring detailed examination and evidence, which is more suitable for ordinary civil proceedings rather than a winding-up petition. Consequently, the court dismissed the petition, directing the parties to seek resolution through civil remedy, without reflecting on the merits of the claims or defenses.

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