2015 (3) TMI 944 - HC - Companies Law

Winding up company - Respondent company had failed and neglected to pay a sum alongwith interest, which was claimed as due and payable by the respondent company on account of the loan agreements - Held that - where the respondent company has neither disputed, the debt owed to the petitioner bank nor the fact that it has been unable to discharge its debt, the present petition is liable to be admitted. The contention that the petitioner bank is liable to extend a rehabilitation package to the respondent company in terms of the RBI guidelines is disputed. I am also unable to readily accept that the petitioner bank can be compelled to provide further assistance contrary to its commercial wisdom.The question whether the respondent company ought to be finally would up would be considered at a subsequent stage. In the meanwhile, it is open for the respondent company to persuade its creditors to support a rehabilitation scheme or otherwise present a concrete plan for repayment of its debts. - Respondent company owes substantial amounts to the petitioner bank, which the respondent company has been unable to pay on account of its financial position. The claim of the respondent company, that it is entitled to be rehabilitated is an entirely separate controversy and is based on the substratal premise that the respondent company is unable to meet its current liabilities but has the potential to revive. It is implicit in this contention that the respondent company is unable to meet its liabilities and as such a substantial dispute with regard to the respondent company's liability towards the petitioner bank cannot be inferred. Disputes raised by the respondent company cannot be considered as a defence to proceedings under Section 433(e) of the Act. Undisputedly, the respondent company has been unable to meet its liabilities towards the petitioner bank. In this view, the petitioner bank is entitled to maintain the present petition. The reliance placed by respondents to the decision of the Supreme Court in IBA Health (India) (P.) Ltd.(2010 (9) TMI 229 - SUPREME COURT OF INDIA) is also mis-placed. In that case, the Supreme Court had explained that in a case where there is a bona fide dispute as to the liability, the creditor could not prefer a petition for winding up of the company. The Court further held that it is not the duty of the Company Court to hold a full trial in cases where there is a substantial dispute as to the liability owed by the company. Where the respondent company is stated to be making efforts for its revival, I am not inclined to appoint a provisional liquidator, as that may impede the respondent company in its efforts. However, the respondent company shall submit a weekly statement of receipts and expenditure to the Official Liquidaor. Further, the promoters/ directors would not draw any remuneration or incur any liability without the express consent of the petitioner bank. - Application disposed of.

Summary

Issues Involved:
1. Petition for winding up under Sections 433(e) and 434 of the Companies Act, 1956.
2. Default in repayment of loans by the respondent company.
3. Restructuring and rehabilitation of the respondent company.
4. Dispute regarding the amount payable.
5. Entitlement to rehabilitation package under RBI guidelines.
6. Allegations of arbitrary treatment by the petitioner bank.
7. Applicability of alternative remedies under Section 38 of the Small Industries Development Bank of India Act, 1989.

Detailed Analysis:

1. Petition for Winding Up under Sections 433(e) and 434 of the Companies Act, 1956:
The petitioner bank filed a petition for winding up of the respondent company on the grounds of failure to pay a sum of Rs. 6,28,31,972/- along with interest, which was claimed as due and payable under loan agreements dated 06.03.2007 and 20.02.2008.

2. Default in Repayment of Loans by the Respondent Company:
The respondent company defaulted in payment of installments from 10.03.2009 onwards and interest from 10.09.2009 onwards. Despite recall notices and legal notices, the respondent company failed to repay the outstanding loan amounts.

3. Restructuring and Rehabilitation of the Respondent Company:
The petitioner bank restructured the account by rescheduling repayment, but the respondent company did not accept the revised schedule due to conditional requirements. The respondent company contended that it had requested for proper fund infusion programs to revitalize itself, which the petitioner bank did not provide.

4. Dispute Regarding the Amount Payable:
The respondent company claimed to have regularly repaid loans as per the agreed schedule and contended that the amount claimed by the petitioner bank was substantially higher than the actual amount due.

5. Entitlement to Rehabilitation Package under RBI Guidelines:
The respondent company argued that it was entitled to a rehabilitation package from the petitioner bank as per RBI guidelines. It was supported by special audit teams and an independent expert's viability study, which recommended financial, technical, and operational support for the respondent company.

6. Allegations of Arbitrary Treatment by the Petitioner Bank:
The respondent company alleged that the petitioner bank had singled it out for hostile treatment, as other Non-Performing Assets (NPA) accounts were not subjected to winding up petitions. The respondent company also filed a writ petition in the High Court of Allahabad seeking a rehabilitation package and stay of recovery proceedings.

7. Applicability of Alternative Remedies under Section 38 of the Small Industries Development Bank of India Act, 1989:
The respondent company contended that the petitioner bank, being a secured creditor, could recover the debt under Section 38 of the Small Industries Development Bank of India Act, 1989. However, the court held that the existence of a recovery remedy does not preclude a creditor from maintaining winding up proceedings.

Judgment Analysis:

The court observed that there was no dispute regarding the respondent company's substantial debt to the petitioner bank and its inability to repay. The court noted that the respondent company's claim for rehabilitation was a separate issue and did not constitute a substantial dispute regarding its liability. The court held that the petitioner bank was not obliged to provide further assistance contrary to its commercial wisdom.

The court rejected the respondent company's contention that the petition should be dismissed due to the petitioner's recourse to Section 38 of the Small Industries Development Bank of India Act, 1989. It emphasized that proceedings under Section 433(e) of the Companies Act are not recovery proceedings.

The court admitted the petition and directed the petitioner bank to advertise the petition in specified newspapers and the official gazette for a hearing. The court also directed the respondent company to submit a weekly statement of receipts and expenditure to the Official Liquidator and restricted the promoters/directors from drawing remuneration or incurring liabilities without the petitioner bank's consent.

In conclusion, the court admitted the winding up petition while allowing the respondent company an opportunity to present a rehabilitation plan or seek support from its creditors. The application for appointing a provisional liquidator was disposed of with directions to monitor the respondent company's financial activities.