2013 (4) TMI 31 - HC - Companies Law

Winding up petition Inability to pay debt - The petitioner has alleged that the respondent Company has despite repeated reminders and even after statutory notice failed and neglected to discharge its financial liabilities and obligations and has not made payment and that the respondent s failure to make the payment establishes its inability to discharge its debts. The petitioner has preferred present petition and prayed for order of winding up against the respondent Company. Held that - Court before taking the decision made reliance on following judgement of Conart Engineers Ltd. v. Laffans Petrochemicals Ltd. 1998 (10) TMI 395 - HIGH COURT OF GUJARAT where court considers it appropriate to allow an opportunity to the respondent company to deposit the amount in question and on the judgment of Supreme Court in IBA Health (I) (P.) Ltd. v. Info-Drive System Sdn. 2010 (9) TMI 229 - SUPREME COURT OF INDIA , where it was decided that what possible ground is there in which a company may wound up. One of the tests to determine whether the dispute is genuine, and real and is raised bona fide and whether the refusal to pay is for genuine reason and dispute or to hide inability to pay, is to direct the respondent to pay-deposit the amount. In view of the facts of this case and the findings of the Court and in light of the above quoted observations and on judgment of it appears appropriate and necessary to direct the respondent, to deposit the amount in question within 4 weeks from the date of present order. If the directions are complied with by the respondent, then further and appropriate order shall be passed by the Court after hearing the petitioner and the respondent. During the said time limit the petitioner shall also take appropriate steps to remove the defects of which reference is made hereinabove earlier. The petitioner shall, inter alia, place on record the resolution by the company which might have been passed resolving to institute winding up petition against the respondent and authorizing Mr. Uto Baader to take necessary steps for the said purpose including appointing a Constituted Attorney and to make proper affirmation of the petition and file affidavit in accordance with Rule 21 read with Form 3. So far as the respondent s allegation that petitioner has subsequently made corrections or additions in the affidavit which constitutes contempt, are concerned, it is clarified that the said aspect will be considered by the Court at the time when the petition is heard and adjudicated on merits.

Issues Involved:
1. Maintainability of the petition.
2. Compliance with procedural requirements under the Companies Act and Company Court Rules.
3. Bona fide nature of the dispute regarding the debt.
4. Respondent's financial ability and willingness to repay the debt.
5. Justification for winding up the respondent company.

Issue-wise Detailed Analysis:

1. Maintainability of the Petition:
The respondent raised objections on the maintainability of the petition, arguing that the petition was filed without complying with the requirements prescribed under the Company Court Rules, 1956. They contended that there was no proper authorization or resolution passed by the petitioner company to institute the petition, and the accompanying affidavit did not comply with Rule 21 read with Form-3. The court examined these objections and noted that defects in the affidavit and verification are curable and not fatal. The petitioner was granted 30 days to cure the defects, including placing the resolution on record and providing a duly stamped power of attorney.

2. Compliance with Procedural Requirements:
The respondent argued that the affidavit attached to the petition was not made by a person competent to do so, as required by Rule 21 of the Company (Court) Rules, 1959. The court noted that the affidavit was made by a constituted attorney of the petitioner, which is permissible under the proviso of Rule 21. The petitioner subsequently filed a Judge's Summons seeking permission for the duly authorized attorney to affirm the petition. The court allowed this request, subject to the petitioner curing the defects within the stipulated time.

3. Bona Fide Nature of the Dispute:
The court examined whether the dispute raised by the respondent was bona fide, substantial, and genuine, or merely a facade to avoid its obligation. The court found that the respondent's defense was not bona fide but an afterthought, speculative, and illusory. The court noted that the petitioner had invested Rs. 5.97 crores as share application money, which the respondent failed to refund despite the rejection of the application by the Foreign Investment Promotion Board (FIPB) and instructions from the Reserve Bank of India (RBI) to do so. The respondent's refusal to repay the amount was not supported by any genuine or substantial ground.

4. Respondent's Financial Ability and Willingness to Repay:
The respondent claimed that it was a going concern with a good financial position and that the petition should be rejected on this ground. The court noted that the respondent's conduct indicated a willful neglect to discharge its financial obligations, despite having the capacity to pay. The court emphasized that even a financially sound company cannot avoid its obligations and that the solvency of the respondent was not a standalone defense to reject the petition.

5. Justification for Winding Up:
The court found that the eventuality contemplated under Section 433(e) and (f) of the Companies Act, 1956 existed in the present case. The respondent's failure to repay the debt within the statutory time limit and despite RBI's instructions indicated its inability to pay its debts. The court directed the respondent to deposit the amount of Rs. 5,96,57,383/- within four weeks in the Registry by Demand Draft issued by a Nationalized Bank. The court also allowed the petitioner time to cure the defects in the petition. The petition was scheduled for further hearing on 20.07.2012.

Conclusion:
The court concluded that the petition was maintainable, provided the petitioner cured the procedural defects within the stipulated time. The dispute raised by the respondent was not bona fide, and the respondent's financial position did not justify its refusal to repay the debt. The court directed the respondent to deposit the amount in question and scheduled the petition for further hearing.

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