2017 (1) TMI 270 - HC - Companies Law

Winding up petition - the company admitted its liability to repay the term loan but failed and neglected to repay the same or any part thereof - Willful defaulter - Held that - Having considered the fact that the respondent is revenue neutral it appears that respondent company is unable to pay the debt owing to the petitioner. As seen from the Company s response and the submission made in the Company Application filed on behalf of the workers the respondent s business of shipping management is wholly dependent upon the fortunes of its group companies VRL and VSCL. It is VSCL that is funding operation of the respondent Company and it is this fact that is being sought to be leveraged by the respondent and its group Company in order to seek the petitioners consent to agree to the terms proposed by VSCL. Given the factual contours of the dispute, the ambit of a winding up petition and the discretion vesting in this Court cannot be influenced by the decisions of VSCL and the JLF. The respondents have contended that they have enough assets to cover all liabilities. It is also a matter of record that the promoters were required to bring their own contribution and deposit the same with the State Bank of India to enable payment to the petitioner. The outstanding dues were to be paid subject to restructuring and the promoters contribution. In my view, the respondents have miserably failed in keeping up the promises held out and the same does not appear to be unintentional. The revenues are deliberately kept on a leash, being controlled by its group companies. The respondent will be unable to sustain itself on its own steam. Prima facie, it would have to be shown that Company is plainly commercially insolvent and its existing and probable assets would be insufficient to meet the existing liability. This I believe has been established by the Petitioner in this case ably assisted by the Respondent s admission of being revenue neutral. The respondent company is clearly unable to pay its debts as and when they arise. They have willfully omitted to even service this debt. In my view this is a fit case for admission. Considering the fact that it is a group company presently operating the respondent must be put to terms.

Summary

Issues Involved:
1. Winding up of the respondent company.
2. Default in repayment of a loan.
3. Classification as a Non-Performing Asset (NPA).
4. Declaration of the respondent as a willful defaulter.
5. Restructuring of loans and the Joint Lender’s Forum (JLF) mechanism.
6. Maintainability of the winding-up petition.
7. Impact on employees and other stakeholders.

Issue-wise Detailed Analysis:

1. Winding up of the respondent company:
The petitioner, Life Insurance Corporation of India, filed a Company Petition under Sections 433(e) and 434 of the Companies Act, 1956, seeking the winding up of the respondent company, which is engaged in the shipping business. The petition was based on the respondent's failure to repay a Rupee Term Loan of ?45 crores, which was initially sanctioned as ?50 crores but later reduced.

2. Default in repayment of a loan:
The respondent company defaulted on the very first installment due on 15th June 2011 and failed to pay interest from August 2012. Despite several demands and statutory notices, the company failed to repay the loan, leading to the petitioner's claim of ?55,78,77,508 as of 31st May 2014.

3. Classification as a Non-Performing Asset (NPA):
Due to the non-repayment, the term loan was classified as an NPA. The respondent company admitted its liability but failed to clear the dues, leading to further demands and the eventual filing of the winding-up petition.

4. Declaration of the respondent as a willful defaulter:
The petitioner objected to the declaration of dividends by the respondent and threatened to declare the company as a "willful defaulter" under RBI Guidelines. The respondent issued cheques amounting to ?20,67,73,464, which were dishonored, resulting in criminal complaints under the Negotiable Instruments Act, 1883.

5. Restructuring of loans and the Joint Lender’s Forum (JLF) mechanism:
The respondent contended that the global economic slowdown affected the shipping industry and that the JLF, led by SBI, had agreed to restructure the loans. The restructuring package included a phased repayment plan and additional disbursement by banks amounting to ?425 crores. However, the petitioner was not willing to cooperate with the JLF's restructuring plan and demanded the removal of the willful defaulter tag as a precondition for accepting the restructuring package.

6. Maintainability of the winding-up petition:
The respondent argued that the petition was not maintainable as the petitioner was a secured creditor and the company had enough assets to cover all liabilities. The court, however, found that the security (leasehold rights) was not practically realizable as the lease had expired, making the petition maintainable.

7. Impact on employees and other stakeholders:
An application was filed by some employees of the respondent company, highlighting the potential adverse impact on their livelihoods if the company was wound up. The court acknowledged the employees' concerns but emphasized the petitioner's duty to protect public funds and policyholders' interests.

Judgment:
The court found that the respondent company was unable to pay its debts and had willfully omitted to service the debt. The petition was admitted with specific directions:
- The respondent company was ordered to deposit ?60,48,32,924 within six months.
- If the amount was deposited, the petitioner could file a suit or other proceedings, and the amount would be transferred to the suit account.
- If the amount was not deposited, the petition would be advertised, and the company petition would stand admitted.
- The petitioner was directed to deposit ?10,000 towards publication charges and forward a copy of the order to the company.

The court concluded that the petition was maintainable and that the respondent company's defenses lacked merit. The restructuring proposals and the JLF's support did not absolve the respondent of its liability to the petitioner.