2014 (1) TMI 1955 - HC - Companies Law

Prayer for winding up of the respondent company as the respondent has failed and neglected to pay the amounts due and payable to the petitioner bank - Section 433(e) of the Companies Act 1956 - HELD THAT - There is not dispute that the remedy under Section 433(e) of the Companies Act 1956 is a discretionary remedy and a winding up order need not follow in every case where a company suffers temporary inability to pay its liabilities. The Courts in several cases have accommodated companies which are in distress or which are going through financial crisis by providing reasonable time to enable them to pay their dues. However a creditor of a company is ex debito justitiae entitled to maintain a petition for winding up of the company if such company is unable to pay its debts and the discretion vested with the court is to be exercised judicially. In the facts of the present case the issue to be addressed is whether the respondent is entitled to any further time to pay its admitted dues before the petition is admitted. The respondent owes more than Rs. 15 crores to the petitioner and initial payment of Rs. 1 crore was in the given facts most reasonable. However the respondent has even failed to pay the initial amount of Rs. 1 crore for almost a year despite undertaking to do so on more than one occasion. The record of this case bears out that the respondent has been granted several opportunities to arrive at an amicable settlement to pay its dues to the petitioner bank. However despite the opportunities granted the respondent has failed to arrive at an amicable settlement. On 25.10.2012 the respondent had once again undertaken to pay a sum of Rs. 27 lacs in three installments. Admittedly the respondent has failed to make even this payment to the petitioner. Given the fact that the respondent has not placed any concrete scheme for repayment of dues by the respondent to its creditors the respondent is not entitled to any further extension of time and there is no reason to defer the admission of the present petition. The present petition is admitted.

Issues Involved:

1. Petition for winding up under Section 433(e) of the Companies Act, 1956.
2. Failure to repay the loan and dishonor of financial commitments.
3. Admission of debt and inability to pay.
4. Discretionary nature of winding up orders.
5. Appointment of Provisional Liquidator.

Detailed Analysis:

1. Petition for Winding Up under Section 433(e) of the Companies Act, 1956:

The petitioner bank filed a petition under Section 433(e) of the Companies Act, 1956, seeking the winding up of the respondent company due to its failure to repay the debts owed to the petitioner. The respondent had availed a Working Capital Demand facility amounting to Rs. 15 crores, which was disbursed in October 2011. The respondent defaulted on the repayment schedule, prompting the petitioner to issue a legal notice demanding payment along with interest.

2. Failure to Repay the Loan and Dishonor of Financial Commitments:

The respondent company was irregular in interest payments and failed to repay the principal amount. A cheque for Rs. 15 crores issued by the respondent was dishonored, and subsequent legal notices demanding payment were ignored. Despite multiple opportunities and extensions granted by the court, the respondent failed to honor its commitments, including a specific undertaking to pay Rs. 1 crore to each creditor by a stipulated date.

3. Admission of Debt and Inability to Pay:

The respondent admitted the debt owed to the petitioner and acknowledged its inability to pay. The court noted that the respondent's failure to discharge its financial obligations justified a winding up order. Despite the respondent's admission of liability, it sought further time to restructure its debts and settle with creditors, which was not fulfilled.

4. Discretionary Nature of Winding Up Orders:

The court emphasized that the remedy under Section 433(e) is discretionary and not automatic. While the court can accommodate companies facing temporary financial difficulties, the discretion must be exercised judicially. In this case, the respondent's repeated failures to meet its commitments and lack of a concrete repayment plan led the court to conclude that no further time should be granted.

5. Appointment of Provisional Liquidator:

Given the respondent's inability to repay even a fraction of its debt and selective payment to certain creditors, the court found it equitable to appoint a Provisional Liquidator. The court highlighted the necessity of equitable asset distribution among creditors and the respondent's awareness of the consequences of non-payment. Consequently, the Official Liquidator was appointed as the Provisional Liquidator to take charge of the respondent company's assets.

Conclusion:

The court admitted the winding up petition, directing the petitioner to publish the citation as per the Companies (Court) Rules, 1959. The directors of the respondent company were ordered to comply with statutory requirements and furnish a statement of affairs to the Official Liquidator. The application for winding up was disposed of, with the case scheduled for further proceedings.

← Previous Next →