2016 (6) TMI 1380 - HC - Companies Law

Winding up petition - inability on the part of respondent company to pay its debts - sale of shares - debt due and payable by the Respondent Company to the Petitioner - according to the Respondent Company even though the Petitioner had informed the Respondent Company that they would sell all 20, 00, 000 shares of Gitanjali which were pledged with the Petitioner the same was not done. HELD THAT - A set off or a counter claim can be considered as a bonafide defense to a winding up Petition if firstly the defense is in is in good faith and one of substance secondly the defense is likely to succeed on the point of law and thirdly that the Company adduces prima facie proof of the facts on which the defense depends. Where the debt is undisputed the Court will not act upon a defense that the Company has the ability to pay the debt but it chooses not to pay that particular debt. Where there is no doubt that the Company owes a debt to the creditor entitling him to a winding up order but the exact amount is disputed the Court will make a winding up order without requiring the creditor to quantify the debt precisely. The counter claim made by the Respondent Company is one for damages mainly on account of the failure of the Petitioner to sell all 20, 00, 000 shares of Gitanjali between the period 19th March 2013 to 27th April 2013 (the date on which freezing order was passed by the EOW). What is pertinent to note here is that these shares of Gitanjali were pledged with the Petitioner to meet the margin requirements as per the Circulars issued by the Petitioner from time to time in that regard. Since there was a margin short fall the Petitioner in a meeting held on 14th March 2013 informed the Respondent Company that they would proceed to sell the shares of Gitanjai pledged with them - In contrast to this the claim made in the present Petition is with reference to the trades that expired / matured in June 2013. The fact that the claim in the Petition is with reference to the trades that expired / matured in June 2013 is undisputed. In fact the admission of liability by the Respondent Company is also with reference to these very same trades. A pledgee has the discretion to decide whether he wants to sell the pledge security; when to sell it; and how much of it to sell. The pledgor cannot dictate terms to the pledgee on how he is to exercise his right. If this is the correct position in law and that is how I understand it then I find at least prima facie that the claim for damages on account of the Petitioner failing to sell all 20, 00, 000 Gitanjali shares between 19th March 2013 and 27th April 2013 cannot succeed in law - In fact on a perusal of the Plaint filed in Suit (L) No.939 of 2013 at least to my mind it is clear that the claim for damages is made on account of the Petitioners failure to sell all 20, 00, 000 shares of Gitanjali between the period 19th March 2013 and 27th April 2013. As part of the prudent system of Risk Management vide circular dated 13th December 2011 the Petitioner notified the prudential norms relating to acceptance of securities as collateral towards margin requirements. All the members of the Petitioner were notified (including the Respondent Company) that there shall be market wide limits across all segments and member specific limits for each segment. It was stated in this circular that a list of approved securities for the month would be announced and the date of implementation would be intimated subsequently. Further the criteria for member specific limits were expressly provided in the said circular dated 13th December 2011. In fact the Respondent Company vide its email dated 12th September 2012 addressed to the Petitioner noted its understanding of the circular dated 13th December 2011 and the effect of its implementation. Thereafter several other circulars dated 18th June 2012; 20th July 2012; 22nd August 2012; 26th September 2012; 19th October 2012; 20th November 2012; 20th December 2012 and 21st January 2013 were issued by the Petitioner for the purposes of implementing the revised prudential norms in a phase-wise manner. The defences raised by the Respondent Company are neither one of the substance likely to succeed in a point of law and nor has the Respondent Company adduced prima facie proof of the facts on which the defense is made. In these circumstances the following order is passed (i) The Company Petition is admitted and made returnable on 8th August 2016; (ii) Learned counsel appearing on behalf of the Respondent Company waives service of the notice under Rule 28 of the Companies (Court) Rules 1959; (iii) The Company Petition shall be advertised in two local newspapers viz. (i) Free Press Journal (in English) and (ii) Navshakti (in Marathi) as also in (iii) Maharashtra Government Gazette . Any delay in publication of the advertisement in the Maharashtra Government Gazette and any resultant inadequacy of notice shall not invalidate such advertisement or notice and shall not constitute non compliance with this direction or with the Companies (Court) Rules 1959; (iv) The Petitioner shall on or before 7th July 2016 deposit a sum of Rs. 10, 000/- towards publication charges with the Prothonotary and Senior Master of this Court under intimation to the Company Registrar failing which the Company Petition shall stand dismissed for non-prosecution without further reference to the Court. After the advertisements are issued the balance if any shall be refunded to the Petitioner. AS PER B. P. Colabawalla J. After the Judgement was pronounced Mr. Andhyarujina learned counsel appearing on behalf of the Respondent Company prays for a stay of this order. Dr. Saraf learned counsel appearing on behalf of the Petitioner vehemently opposes the said request. In order to enable the Respondent Company to test this order in Appeal the Petitioner is directed not to advertise the admission of the Company Petition for a period of three weeks from today.

Summary

Issues Involved:
1. Whether the Respondent Company is unable to pay its debts.
2. Whether the Respondent Company's defenses against the winding-up petition are bona fide.
3. Whether the Respondent Company's cross-claim for damages can be set off against the admitted debt.
4. Whether the Petitioner’s actions in selling pledged shares were proper and in accordance with the law.

Detailed Analysis:

1. Whether the Respondent Company is unable to pay its debts:
The Petitioner seeks winding up of the Respondent Company on the ground of inability to pay its debts, particularly a sum of Rs. 103.73 Crores. The Respondent Company has admitted a debt of Rs. 90.90 Crores, but disputes the remaining amount and has raised a counter-claim for damages.

2. Whether the Respondent Company's defenses against the winding-up petition are bona fide:
The Petitioner argues that the Respondent Company has admitted its debt of Rs. 90.90 Crores and has failed to pay it. The Respondent Company, however, claims that its counter-claim for damages, arising from the Petitioner’s alleged negligence in selling pledged shares, constitutes a bona fide defense. The Court examined whether the defenses raised by the Respondent Company were in good faith, substantial, likely to succeed in law, and supported by prima facie proof.

3. Whether the Respondent Company's cross-claim for damages can be set off against the admitted debt:
The Respondent Company contends that its claim for damages due to the Petitioner’s failure to sell all 20,00,000 shares of Gitanjali constitutes a legitimate set-off against the admitted debt. The Court assessed whether this counter-claim was bona fide and substantial enough to be considered a valid defense in the winding-up petition.

4. Whether the Petitioner’s actions in selling pledged shares were proper and in accordance with the law:
The Respondent Company argues that the Petitioner acted negligently by not selling all 20,00,000 shares of Gitanjali between 19th March 2013 and 27th April 2013, which allegedly resulted in significant losses. The Petitioner contends that it acted within its rights and in accordance with the law, particularly under Section 176 of the Contract Act, 1872, which allows a pawnee to sell pledged goods only after the pawnor defaults on the debt.

Court’s Findings:

1. Admission of Debt:
The Court found that the Respondent Company admitted a debt of Rs. 90.90 Crores, which was undisputed. This admission was evident from the Respondent Company's own communications and legal filings.

2. Bona Fide Defense:
The Court held that the defenses raised by the Respondent Company were not bona fide. The claim for damages was not substantial, likely to succeed in law, or supported by prima facie proof. The Respondent Company’s argument that the Petitioner should have sold all 20,00,000 shares of Gitanjali was found to be without merit, as the Petitioner had no legal obligation to sell the shares in the manner suggested by the Respondent Company.

3. Set-off and Cross-Claim:
The Court rejected the Respondent Company's claim for damages as a valid set-off against the admitted debt. The Court noted that a counter-claim for damages, especially one that is not bona fide, cannot be used as a defense in a winding-up petition.

4. Petitioner’s Actions:
The Court found that the Petitioner acted within its rights under Section 176 of the Contract Act. The Petitioner’s decision to sell only a portion of the pledged shares and to withhold further sales upon receiving a letter from the Economic Offences Wing (EOW) was deemed appropriate and lawful. The Court noted that the Petitioner could not have sold the shares to recover a debt that had not yet crystallized.

Conclusion:
The Court admitted the winding-up petition, finding that the Respondent Company was unable to pay its admitted debt of Rs. 90.90 Crores and that the defenses and counter-claims raised were not bona fide. The Petitioner was directed to advertise the admission of the petition, subject to a stay of three weeks to allow the Respondent Company to appeal the decision.

Order:
1. The Company Petition is admitted and returnable on 8th August 2016.
2. The Respondent Company waived service of notice under Rule 28 of the Companies (Court) Rules, 1959.
3. The Petition shall be advertised in specified newspapers and the Maharashtra Government Gazette.
4. The Petitioner must deposit Rs. 10,000 towards publication charges by 7th July 2016, failing which the petition will be dismissed for non-prosecution.
5. The observations made are prima facie and will not influence the pending suit (Suit (L) No.939 of 2013).

The Court granted a stay on the advertisement of the petition for three weeks to allow the Respondent Company to appeal.