2017 (6) TMI 301 - HC - Companies Law

Winding up petition - respondent is unable to pay its debts - allotment of shares to the petitioner in lieu of debt - Held that - A perusal of all the documents clearly indicates that the respondent had passed an appropriate resolution in the meeting held by the respondent resolving to allot 41300 equity shares to the petitioner in lieu of the outstanding loan of ₹ 4,13,00,000/-. The respondent had also filed various returns from time to time informing the authority such as Ministry of Company Affairs about the resolution passed by the respondent and allotting 41300 equity shares to the petitioner which returns and forms were filed immediately after making such allotment to the petitioner. In my view, filing of such returns and forms immediately after allotment of those 41300 equity shares to the petitioner clearly indicates that the respondent had alloted such shares to the petitioner and had informed the petitioner about such allotment by letter dated 30th September 2006. A perusal of the record further indicates that even in the balance sheet of the respondent for the relevant years, the share capital of the respondent was increased in view of the allotment of 41300 equity shares to the petitioner and simultaneously the loan amount reflected in the balance sheet of the respondent taken from various parties was correspondingly reduced in view of the conversion of the loan amount of ₹ 4,13,00,000/- given by the petitioner. None of such balance-sheets of the respondent are disputed by the petitioner. A perusal of the record indicates that the relationship of the petitioner with the Pankaj Extrusion Ltd. which is denied initially has been accepted by the petitioner belatedly in the rejoinder. The case of the petitioner is totally inconsistent and contradictory. There are several disputed facts. Various triable issues are raised by the parties in this company petition and the affidavits. In my view, the defence raised by the respondent is bonafide and not moonshine and is supported by various documentary and circumstantial evidence. There is no merit in the submission of the learned counsel for the petitioner that the documents relied upon by the respondent which are alleged to have been filed by the Registrar of Companies are unilateral documents and cannot be considered by this Court. Those documents relied upon by the respondent are statutory records demonstrating that the respondent had complied with various provisions of law for allotting equity shares to the petitioner, for converting the loan amount into equity shares and for charging premium. This Court is empowered to consider such statutory documents to consider the allegation of the petitioner that the shares were not allotted to the petitioner with its consent or with the knowledge of the petitioner. There is no legal bar under Section 81(1A) of the Companies Act, 1956 for making allotment of any shares. The jurisdiction of the Company Court while deciding the company petition for winding up is a discretionary jurisdiction. The disputed facts and the allegations of fraud, forgery and fabrication cannot be considered in the winding up petition. Be that as it may, the respondent has produced sufficient documents on record to controvert the allegations made by the petitioner. Thus not inclined to exercise the discretion in favour of the petitioner and against the respondent. - Petition dismissed.

Issues Involved:
1. Whether the respondent company is unable to pay its debts.
2. The legality of the alleged conversion of the loan into equity shares.
3. Compliance with statutory requirements under the Companies Act, 1956.
4. The authenticity and timing of the communication regarding the conversion of the loan into shares.
5. The validity of the respondent's defense against the winding-up petition.

Detailed Analysis:

1. Whether the respondent company is unable to pay its debts:
The petitioner, a non-banking financial company, sought the winding up of the respondent company under Section 433 of the Companies Act, 1956, on grounds of inability to pay debts. The petitioner had lent ?300 lakh to the respondent between March 2003 and March 2004, repayable with interest at 18% per annum. The respondent paid interest until March 31, 2006, but failed to pay any interest thereafter. The petitioner claimed the respondent owed ?4.13 crore, including principal and interest.

2. The legality of the alleged conversion of the loan into equity shares:
The respondent claimed to have converted the loan into 41,300 equity shares at ?1,000 per share (?10 face value + ?990 premium) through a board resolution on September 29, 2006, communicated to the petitioner via a letter dated September 30, 2006. The petitioner disputed this conversion, alleging it was unauthorized and fraudulent, and claimed to have received the communication only in February 2008.

3. Compliance with statutory requirements under the Companies Act, 1956:
The respondent produced several documents to support its claim of lawful conversion, including:
- A board resolution dated September 29, 2006.
- Filing of Form 2 with the Ministry of Company Affairs on October 19, 2006, showing the issuance of 41,300 shares.
- Balance sheets for the years ending March 31, 2006, and March 31, 2007, reflecting the increased share capital and reduced loan amount.
- Form 20B filed on November 17, 2007, showing the petitioner's name as a shareholder.

The petitioner argued that the respondent violated Sections 81(1A) and 81(3)(b) of the Companies Act, 1956, by not obtaining the necessary approvals for the share allotment. However, the court found no such violations were sufficiently pleaded in the petition.

4. The authenticity and timing of the communication regarding the conversion of the loan into shares:
The petitioner provided inconsistent statements regarding the receipt of the letter dated September 30, 2006. The respondent supported its claim with:
- A courier receipt and fax activity report showing the letter was sent on October 16, 2006.
- The petitioner’s own documents indicating the fax number used by the respondent was associated with Pankaj Extrusion Ltd., a group company of the petitioner.

The court found the respondent's evidence credible and consistent, indicating the petitioner received timely communication about the share allotment.

5. The validity of the respondent's defense against the winding-up petition:
The respondent's defense was deemed bona fide and supported by substantial documentary evidence. The court noted the petitioner’s failure to demand interest between April 1, 2006, and February 5, 2008, as indicative of its awareness of the share allotment. The court also found the petitioner’s allegations of fraud and forgery unsubstantiated.

Conclusion:
The court dismissed the winding-up petition, finding the respondent's defense credible and supported by statutory filings and other documentary evidence. The court held that the conversion of the loan into equity shares was lawful and communicated to the petitioner in a timely manner. The allegations of fraud and forgery were not substantiated, and the court declined to exercise its discretion to wind up the respondent company. The observations made were specific to this case and did not affect other proceedings.

← Previous Next →