2017 (4) TMI 1600 - HC - Companies Law

Dismissal of creditor's winding-up petition without reference to the company - institution of proceedings before a Debts Recovery Tribunal in respect of the claim that was made the subject-matter of the petition before the company Court - HELD THAT - When a party seeks to enforce a statutory right to approach a Court with a claim, ordinarily, the Court has no authority to refuse to entertain the claim unless such authority is conferred by the same statute or is established by judicial precedents. That does not imply that the claim must be allowed; only that the claim must be entertained for an adjudication on merits. Though creditors' petitions are carried to a company Court for the realisation of their debts, yet the realisation of the debt of a particular creditor is only incidental to a creditor's petition for winding up a company - However, as long as a petitioner claims that there is a debt due, demonstrates the service of a statutory notice on the company and asserts that the debt has not been discharged or secured or compounded for within three weeks of the receipt of such notice by the company, an adjudication on merits is called for. That a bank or financial institution has launched proceedings under Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 is not, by itself, a bar to such bank or financial institution filing a creditor's winding-up petition before the company Court on the same debt - The claim in the two sets of proceedings may be the same, but the adjudication in the company proceedings would not be confined merely to discovering whether the debt was due or the extent thereof, but also whether it would be desirable for the company to be sent into liquidation. As is evident from the order impugned, the petitioning creditor was knocked out of Court before even the company appeared to oppose the petition - the order impugned cannot be sustained and the same is set aside. Appeal allowed.

Issues: Dismissal of creditor's winding-up petition without company's involvement. Interpretation of statutory rights for approaching court. Assessment of debt and company's ability to pay debts. Consideration of winding-up petition at different stages. Filing winding-up petition despite proceedings under Recovery of Debts due to Banks and Financial Institutions Act, 1993. Consideration of securities in determining company's ability to pay debts.

Issue 1: Dismissal of creditor's winding-up petition without company's involvement
The judgment highlighted an unusual scenario where a creditor's winding-up petition was dismissed without involving the company. The Court noted that the petitioner had already approached a Debts Recovery Tribunal regarding the debt in question. The Court emphasized that while a winding-up petition can be admitted if a company is unable to pay its debts, in this case, the matter was being considered by a specialized forum, the Debts Recovery Tribunal. The Court declined to exercise discretion in favor of admitting the winding-up petition, stating that all points were left open to be decided in the pending recovery proceeding. The order impugned was set aside, and the case was restored to the company Court for proper assessment.

Issue 2: Interpretation of statutory rights for approaching court
The judgment discussed the principle that when a party seeks to enforce a statutory right by approaching a court with a claim, the court generally must entertain the claim for adjudication on merits unless specifically prohibited by law. The Court clarified that the authority to refuse to entertain a claim must be conferred by the statute or established by judicial precedents. It was emphasized that the claim should be allowed for adjudication, even if it may not ultimately succeed.

Issue 3: Assessment of debt and company's ability to pay debts
The judgment delved into the legal provisions under the Companies Act, 1956, regarding a company's inability to pay its debts. Sections 433 and 434 of the Act outline the conditions for winding up a company due to its inability to pay debts. The Court highlighted that as long as a petitioner asserts a debt due, serves a statutory notice, and demonstrates non-payment or non-security of the debt, the company Court must adjudicate on the claim. The Court noted that there is limited discretion available to shun away a creditor at the initial stage.

Issue 4: Consideration of winding-up petition at different stages
The judgment explained the two-stage process of hearing creditor's petitions in the company Court, distinguishing between the receiving stage and the post-admission stage. The receiving stage involves assessing the debt before admission, while the post-admission stage considers whether the company should be liquidated. In this case, the company petition was rejected at the receiving stage, indicating that the assessment did not proceed to the final stage of liquidation consideration.

Issue 5: Filing winding-up petition despite proceedings under Recovery of Debts due to Banks and Financial Institutions Act, 1993
The judgment addressed the scenario where a bank or financial institution initiates proceedings under the Recovery of Debts due to Banks and Financial Institutions Act, 1993, and also files a winding-up petition before the company Court for the same debt. It was clarified that such actions are not barred, as the company Court's consideration includes the desirability of liquidating the company, not just the debt amount. The adjudication in the company proceedings extends beyond debt assessment to the company's viability.

Issue 6: Consideration of securities in determining company's ability to pay debts
The judgment highlighted that if a creditor has sufficient security for the claimed debt, the company Court may not find the company unable to pay its debts. The Court noted that considerations regarding securities should be addressed when the company presents its stance. In this case, the petitioning creditor was dismissed before the company could respond, indicating a premature decision.

In conclusion, the judgment emphasized the importance of proper assessment and adjudication in creditor's winding-up petitions, ensuring that all parties have the opportunity to present their case before a decision is made.

← Previous Next →