2014 (6) TMI 748 - HC - Companies Law

Winding up of company - Inability to pay debts - Bonafide defence - Held that - Respondent has seriously disputed its liability, only with reference to any undertaking to pay a certain amount of money, in the face of other attendant circumstances and the negation of the very basis for any such liability in the first instance being in the nature of a debt. - It is well settled that a creditor may seek the assistance of the company court under dection 433 of the Act, to compel payment of monies due to him. But, where a debt is bona fide disputed and where the claim appears to the court as not just, it is open to the court to refuse the request for a winding up order and to leave the parties to their remedies, to have their claims adjudicated before the appropriate forum. - prima facie, that the defence raised is bona fide and is likely to succeed in a civil court. Hence the petition is rejected - Decided against Petitioner.

Issues Involved:
1. Validity of the contract between the petitioner and the respondent.
2. Alleged default by the respondent in repayment under the Invoice Discounting/Factoring Agreement.
3. Respondent's claims of being misled and coerced into agreements and payments.
4. Petitioner's right to recourse under the Factoring Agreement.
5. Dispute over the amount claimed by the petitioner.
6. Jurisdiction and appropriateness of winding up proceedings under Section 433 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Validity of the contract between the petitioner and the respondent:
The petitioner, a global bank registered under the Companies Ordinance of Hong Kong, and functioning in India, provided banking and factoring services. The respondent, a company engaged in garment manufacturing, entered into an Invoice Discounting/Factoring Agreement with the petitioner on 27.3.2008, initially for Rs.5 crore, later enhanced to Rs.10 crore. The respondent alleged that it was misled into the agreement, believing the petitioner would buy debts from its customers at 85% of the invoice value, with factoring charges set off against the 15% margin. The respondent claimed the petitioner deviated from the agreement terms and used extra-legal methods to demand payments.

2. Alleged default by the respondent in repayment under the Invoice Discounting/Factoring Agreement:
The petitioner issued a legal notice on 22.4.2009 demanding Rs.8,66,28,184.86 with interest, which the respondent denied. A Memorandum of Agreement was executed on 2.7.2009 for settlement, but the respondent allegedly failed to comply, leading to a statutory notice on 11.5.2012 for Rs.5,59,50,149.49. The respondent challenged the transaction in a civil suit, which led to interlocutory applications and appeals, ultimately dismissed by the apex court.

3. Respondent's claims of being misled and coerced into agreements and payments:
The respondent contended that the factoring facility was an assignment of debt, not a loan, with insurance cover for defaults. The petitioner allegedly continued purchasing debts despite defaults and pressured the respondent with threats of NPA status and blacklisting. The respondent lodged a complaint with the banking ombudsman and claimed it was compelled to enter into the Memorandum of Agreement and provide collateral security under duress.

4. Petitioner's right to recourse under the Factoring Agreement:
The Factoring Agreement provided the petitioner a Right of Recourse under specific conditions, including non-payment by the due date, termination events, and amounts exceeding credit cover. The respondent argued that the petitioner was responsible for managing assigned debts and had no right to demand repayments from the respondent without fulfilling the agreement's conditions.

5. Dispute over the amount claimed by the petitioner:
The respondent disputed the petitioner's claim of Rs.8,68,54,150.27, alleging the petitioner did not fund corresponding bills and failed to return unpaid bills worth Rs.8,39,03,170. The respondent accused the petitioner of misleading the Supreme Court and filing false affidavits. The petitioner also lodged recovery proceedings before the DRT for Rs.5.60 crore, treating it as a loan amount.

6. Jurisdiction and appropriateness of winding up proceedings under Section 433 of the Companies Act, 1956:
The court noted that a creditor may seek winding up under Section 433 of the Act for unpaid debts. However, if the debt is bona fide disputed, the court can refuse a winding up order and leave the parties to resolve their claims in the appropriate forum. The court found the respondent's defense bona fide and likely to succeed in a civil court, thus rejecting the petition without prejudice to the petitioner's case, which is yet to be adjudicated.

Conclusion:
The court rejected the petition for winding up, recognizing the respondent's bona fide dispute and directing the parties to resolve their claims in the appropriate forum.

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