2015 (2) TMI 867 - HC - Companies Law

Admissibility of Winding up application - Non payment to bond holder on maturity - Interest of public - Held that - As far as the issue as to whether in the facts and circumstances of the case, the petition against the respondent-company should be admitted or not is concerned, the plea raised by the petitioner is that once the debt is admitted and there is default in payment thereof, the only inescapable conclusion is that the company is unable to pay its debt and deserves to be wound up, the first step in the process being admission of the petition. The event of default having been admitted in the present case, the petition deserves to be admitted, whereas the respondent-company has raised the issue that even if there is admission of debt, it is still the discretion of the court, which is to be exercised considering many factors, namely, whether the company is functional, number of employees working, contribution to the State etc. Hon'ble the Supreme Court in M/s IBA Health (India) Private Limited 2010 (9) TMI 229 - SUPREME COURT OF INDIA , while making observations regarding public policy to be kept in mind by the Company Court, observed that publication of an admission notice may damage creditworthiness or financial standing of the company, which may also have other economic and social ramifications. The Company Court, at times, has not only to look into the interest of the creditors, but also the interests of the public at large. In Canara Bank's case 2000 (4) TMI 757 - SUPREME COURT OF INDIA , this court opined that despite the debt being admitted, still considering the fact that the company was employing about 3,000 workmen and officers and paying their salaries regularly; honouring its tax liability; as there were number of shareholders and dealers, who were having indirect financial nexus with the company and it was established that the company was progressing towards revival, the petition was not admitted. It was opined that admission would be a loss to one and all, though debt of the petitioning-creditor may be paid of. Considering the aforesaid factual matrix, in my opinion, it would not be in the fitness of things to admit the petition for winding up against the respondent-company. However, it is expected that the respondent-company will make all out efforts to generate funds either out of cash profits or by sale of non-core assets to pay of the petitioner or get the debt restructured to maintain its creditworthiness. 25% of the amount due to the balance bond holders be arranged to be paid within a period of six months and balance thereafter, unless re-scheduled. The respondent company is restrained from creating any further charge on its assets, which may prejudice the right of the petitioner, being un-secured creditor.- Petition for winding up application not accepted.

Issues Involved:
1. Applications under Order 1 Rule 10 CPC by Consortium of Banks and Workers' Union.
2. Preliminary objection regarding the power of attorney.
3. Preliminary objection regarding maintainability of the petition.
4. On merits of the winding-up petition.

Issue-wise Detailed Analysis:

1. Applications Under Order 1 Rule 10 CPC by Consortium of Banks and Workers' Union:
The Consortium of Banks, represented by Allahabad Bank, sought to be impleaded as a respondent to object to the admission of the winding-up petition. The argument was based on the premise that winding-up proceedings affect various stakeholders, including creditors and employees, and thus, they should have the right to be heard before the petition is admitted. The court, however, rejected this application, stating that the secured creditors do not have a right to be heard before the admission of the petition. The court relied on precedents such as the National Textile Workers' Union case and Chemical Enterprises case, emphasizing that the right to object comes after the petition is admitted.

Similarly, the Workers' Union applied for impleadment, arguing that the winding-up would adversely affect the livelihood of over 6,000 employees. The court accepted this application, citing the National Textile Workers' Union case, which grants workers the right to be heard before and after the admission of the winding-up petition due to the significant impact on their interests.

2. Preliminary Objection Regarding the Power of Attorney:
The respondent raised an objection regarding the power of attorney annexed with the petition, claiming it was inadmissible as it was not stamped per the Indian Stamp Act. The court considered the objection and directed the petitioner to pay the requisite stamp duty and penalty. Upon compliance, the power of attorney was admitted, and the preliminary objection was dismissed.

3. Preliminary Objection Regarding Maintainability of the Petition:
The respondent argued that the petitioner, being a trustee and not a creditor, had no locus standi to file the winding-up petition. They contended that the Trust Deed was governed by English law, and the courts of England had exclusive jurisdiction over disputes. The court rejected this argument, stating that the petitioner, as a trustee for the bondholders, is deemed a creditor under Section 439(2) of the Companies Act, 1956. The court emphasized that the right to file a winding-up petition is a statutory right that cannot be ousted by contractual terms. The court also noted that the Trust Deed allowed for proceedings to be initiated in any competent court, not exclusively in English courts.

4. On Merits of the Winding-Up Petition:
The petitioner argued for the admission of the winding-up petition based on the admitted debt and default by the respondent. The respondent countered that despite the default, the court should exercise its discretion considering the company's ongoing operations, employment of over 6,000 workers, and contributions to the state. The court noted that the respondent had started generating operating profits and had assets exceeding liabilities. Citing public interest and the potential adverse impact of winding-up on employees and the company's creditworthiness, the court decided not to admit the petition. Instead, the court directed the respondent to make efforts to pay 25% of the amount due to bondholders within six months and restrained the respondent from creating further charges on its assets.

Conclusion:
The court's judgment balanced the interests of the petitioner, the respondent, and the public, ultimately deciding against admitting the winding-up petition while ensuring steps towards debt repayment and protecting the interests of unsecured creditors.

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