2013 (5) TMI 1074 - HC - Companies Law

Issues Involved:

1. Inability of the Respondent to pay debts.
2. Validity of statutory notice under Section 434 of the Companies Act, 1956.
3. Admission of liability by the Respondent.
4. Appointment of a Provisional Liquidator.

Issue-wise Detailed Analysis:

1. Inability of the Respondent to Pay Debts:

The petitioner, Bibby Financial Services India Pvt. Ltd., sought the winding up of the Respondent, Ecotech Apparels Pvt. Ltd. (EAPL), under Section 439 read with Sections 433(e) and 434 of the Companies Act, 1956, on the grounds of EAPL's inability to pay its debts. The factoring agreement between Bibby and EAPL involved the assignment of receivables from EAPL to Bibby, with EAPL agreeing to repay Bibby in case of default by the purchaser. EAPL defaulted on payments, and post-dated cheques issued by EAPL were dishonored due to insufficient funds. As of 2nd July 2011, EAPL owed Bibby Rs. 8,98,80,162. Despite a statutory notice of demand issued on 30th June 2011, EAPL failed to respond, leading to the filing of the winding-up petition.

2. Validity of Statutory Notice Under Section 434:

EAPL raised a preliminary objection regarding the statutory notice under Section 434, arguing it was not served at their registered office. The Court examined Section 433(e) and Section 434 of the Act, noting that the conditions in Section 434(1)(a) and 434(1)(c) are disjunctive. Even if the notice was not served at the registered office, the petition could proceed if the company was unable to pay its debts as per Section 434(1)(c). The Court found that the petition satisfied the requirements of Section 433(e) read with Section 434(1)(c), as EAPL's failure to respond to the demand notice indicated an inability to pay its debts.

3. Admission of Liability by the Respondent:

EAPL's balance sheets for the years ending 31st March 2010, 31st March 2011, and 31st March 2012 showed substantial amounts owed to Bibby under 'secured loans,' with personal guarantees from directors. This was deemed a clear admission of liability. The Court referenced Supreme Court judgments, emphasizing that the inability to pay debts should be assessed in a commercial sense, where the company cannot meet current demands. EAPL's failure to provide a bona fide defense for non-payment further supported the admission of liability.

4. Appointment of a Provisional Liquidator:

The Court admitted the petition and appointed the Official Liquidator (OL) as the Provisional Liquidator (PL) of EAPL. The OL was directed to take over EAPL's assets, books of accounts, and records, and prepare an inventory of all assets. The Court ordered the publication of the petition's citation in newspapers and the Official Gazette. EAPL was given eight weeks to pay the liability to Bibby, failing which the order would become effective, and the OL would proceed with further actions. The Directors of EAPL were directed to comply with Section 454 of the Companies Act, 1956, and furnish a statement of affairs to the OL.

In conclusion, the Court found EAPL unable to pay its debts, admitted the petition for winding up, and appointed a Provisional Liquidator, while providing EAPL an opportunity to settle its liabilities within a specified period.

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