2012 (12) TMI 620 - HC - Companies Law

Right of the creditors for winding up petition - held that - There is no dispute as to the claim of the petitioning creditor against the company. The claim is founded on dishonored cheques and even the primary basis of the claim stands admitted. The company did not reply to the statutory notice and has not indicated anything that would make the debt disputed or that would detract from the presumption of the company s inability to pay that arises under Section 434(1)(a) of the Companies Act. That the company has suffered an injunction in the Bombay High Court is of no consequence since the company cannot demonstrate that the injunction amounts to a security of value equal to or in excess of the petitioner s unimpeachable money claim. The order of injunction subsisting on the guarantors and the undertakings furnished by the guarantors pursuant to the order of the Bombay High Court are matters not relevant for assessing the company s inability to pay. As to the decisions cited by the company that a petitioning creditor s claim must be quantified, it must be appreciated that the petitioner has quantified its claim both in the statuary notice and in the petition; and it is only the company s assertion that since the value of the properties covered by the Bombay injunction against the company cannot be conveniently made, the quantified claim put forth by the petitioner should be regarded as an unascertained claim. Such argument does not appeal and is rejected. If the company pays off the entire amount, inclusive of interest and costs assessed at 3000 GM, within six weeks from date, the petition will remain permanently stayed.

Issues Involved:
1. Prolonged hearing and procedural delays.
2. Credit facilities and loan agreement details.
3. Disbursement of loan amounts and dishonored cheques.
4. Company's affidavit-in-opposition and alleged arbitral reference.
5. Admissions and statutory notice under Section 434(1)(a) of the Companies Act, 1956.
6. Invocation of arbitration clause and orders from Bombay High Court.
7. Legal fiction under Section 434 of the Companies Act.
8. Commercial insolvency and inability to pay debts.
9. Secured creditor's right to seek winding-up.
10. Quantification of the petitioning creditor's claim.
11. Discretionary power of the court in winding-up petitions.

Detailed Analysis:

1. Prolonged Hearing and Procedural Delays:
The court noted that the creditor's winding-up petition had lingered unnecessarily due to an observation that led to the matter being blown out of proportion. The creditor had applied for an attachment before judgment against the company and its guarantors in a subsequent proceeding, which initially influenced the court's perspective.

2. Credit Facilities and Loan Agreement Details:
The petitioning creditor, a non-banking financial company, granted credit facilities exceeding Rs. 4 crore to the company under a sanction letter dated September 17, 2009, and a subsequent loan agreement dated October 5, 2009. The agreement allowed a maximum credit of Rs. 5 crore at an interest rate of 12.50% per annum, with an additional 3% interest for delayed payments. The loan was secured by personal guarantees from two directors and partly by a fixed deposit of Rs. 75 lakh.

3. Disbursement of Loan Amounts and Dishonored Cheques:
The creditor disbursed amounts in three tranches in February and March 2011. Cheques issued by the company for repayment were dishonored in June and July 2011. The company requested the liquidation of the fixed deposit to adjust against the outstanding amount. The creditor claimed a balance principal sum of Rs. 4,07,05,062 with interest at 15.50% per annum.

4. Company's Affidavit-in-Opposition and Alleged Arbitral Reference:
The company's affidavit admitted to the payments and dishonored cheques but contended an unwritten arrangement that cheques would not be presented without prior intimation. The company argued that the petition was improper due to pending arbitral proceedings and substantial security provided by guarantor-directors.

5. Admissions and Statutory Notice Under Section 434(1)(a) of the Companies Act, 1956:
The company admitted to the payments in a letter dated July 14, 2011, but claimed it was forced to issue the letter. The company did not reply to the statutory notice dated August 19, 2011, leading to the presumption under Section 434(1)(a) of the Companies Act, 1956, that the company was unable to pay its debts.

6. Invocation of Arbitration Clause and Orders from Bombay High Court:
After filing the petition, the creditor invoked the arbitration clause and obtained orders from the Bombay High Court under Section 9 of the Arbitration and Conciliation Act, 1996. The company argued that substantial security was provided, making the continuation of the petition inequitable.

7. Legal Fiction Under Section 434 of the Companies Act:
The court discussed the legal fiction in Section 434, which deems a company unable to pay its debts if it fails to pay or secure the debt to the creditor's reasonable satisfaction. The court emphasized that commercial insolvency is the relevant criterion, not the actual insolvency or the company's net worth.

8. Commercial Insolvency and Inability to Pay Debts:
The court reiterated that the inability to pay debts implies commercial insolvency, where the company lacks liquid assets to meet its liabilities. The court is not required to assess the company's assets but only its liabilities and the ability to pay debts as they fall due.

9. Secured Creditor's Right to Seek Winding-Up:
The court acknowledged that a secured creditor could seek winding-up without giving up or valuing its security. The petitioner's claim was not secured by the company's assets but by orders from the Bombay High Court, which did not preclude the winding-up petition.

10. Quantification of the Petitioning Creditor's Claim:
The court found the petitioning creditor's claim to be quantified and rejected the company's argument that the claim should be reduced by the value of the security provided in the Bombay proceedings.

11. Discretionary Power of the Court in Winding-Up Petitions:
The court exercised its discretion to admit the winding-up petition, emphasizing that the company's failure to pay or secure the debt justified the petition's continuation. The court dismissed the company's application to dismiss the petition and directed the petition to be advertised if the company failed to pay the amount within six weeks.

Conclusion:
The winding-up petition was admitted for the principal sum of Rs. 4,07,05,062 with interest at 15.50% per annum. The company was given six weeks to pay the amount, failing which the petition would be advertised. The company's application to dismiss the petition was dismissed.

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