2015 (3) TMI 726 - HC - Companies Law

Winding up application - Liability of Corporate guarantors in case of default by borrower - Director was not authorised by board of directors to execute the guarantee - Held that - The respondent Companies in these petitions are not the Borrower company in so far as the financial assistance provided by the petitioner. The petitioner contends that the respondents have offered corporate guarantee for repayment of the loan by the Borrower company. Though the respondents contend that the liability of the borrower itself has not been adjudicated as yet, the petitioner has contended that a winding up petition has already been instituted, the respondent therein i.e., the borrower has not chosen to defend the same. It has been admitted and is pending before this Court. It is contended, even otherwise the documents relied on indicates that the Borrower company has not disputed the liability.Be that as it may, the legal position that the creditor can choose to proceed against the guarantor on establishing the debt cannot be in doubt. Therefore, the question herein is as to whether the defense raised by the respondent to the effect that the corporate guarantee claimed not being genuine is substantial which would require adjudication in an appropriate proceedings. To consider this aspect, the reference in that regard is made to the material relied on in the lead case as the consideration is similar in the other cases. In the instant case, in any event the parties are already before the appropriate forum raising the same issues and the adjudication therein will settle these issues, which if held against the respondent company and at that stage if it is shown that they are unable to repay their debts, certainly the petition can be entertained at that stage, but as of now, the substantial issues raised will weigh in favour of the respondent to secure adjudication of the same in the forum where it is pending and that aspect cannot be decided at this stage based on the averments made in the petition and the objection statement. - Petition disposed of.

Summary

Issues Involved:
1. Validity of Corporate Guarantees
2. Authority of Sri. Ramachandra Rao to Execute Guarantees
3. Adjudication of Debt Against Borrower
4. Pendency of Arbitration Proceedings
5. Maintainability of Winding Up Petitions

Issue-wise Detailed Analysis:

1. Validity of Corporate Guarantees:
The petitioner contends that the respondents guaranteed the repayment of loans obtained by the Borrower company. The respondents dispute the genuineness of the corporate guarantees, arguing that they were not authorized and were fabricated by Sri. Ramachandra Rao in collusion with his brother. The court acknowledges that the validity of these guarantees is a substantial issue requiring adjudication in an appropriate forum, not in the winding-up proceedings.

2. Authority of Sri. Ramachandra Rao to Execute Guarantees:
The respondents argue that Sri. Ramachandra Rao had no authority to execute the guarantees on behalf of the respondent companies. They claim that he misused his position and acted without the Board's authorization. Criminal proceedings have been initiated against him for these alleged unauthorized actions. The court notes that this contention is substantial and must be resolved through proper adjudication, not in the winding-up petition.

3. Adjudication of Debt Against Borrower:
The respondents assert that the debt against the Borrower company has not been adjudicated and that the Borrower company is not a party to the petition. The petitioner, however, contends that the Borrower company has admitted the liability and that a winding-up petition against the Borrower is pending. The court recognizes the legal position that a creditor can proceed against a guarantor but emphasizes that the debt's validity and the guarantees' authenticity must be established first.

4. Pendency of Arbitration Proceedings:
The court highlights that the parties are already involved in arbitration proceedings concerning the same transaction. The respondents have raised the issue of the guarantees' validity in the arbitration, and the court finds it appropriate to let the arbitration resolve these substantial disputes. The court emphasizes that the pendency of arbitration does not bar the winding-up petition but underscores the need for the arbitration to settle the issues first.

5. Maintainability of Winding Up Petitions:
The court examines whether the defense raised by the respondents is substantial or merely a tactic to delay the winding-up petition. It concludes that the issues raised are substantial and require proper adjudication. The court decides not to admit the winding-up petitions at this stage, granting the parties the liberty to resolve the dispute in the pending arbitration. The court dismisses the petitions, allowing the arbitration to determine the validity of the guarantees and the debt.

Conclusion:
The court dismisses the winding-up petitions, emphasizing the need for the arbitration to resolve the substantial issues concerning the validity of the corporate guarantees and the authority of Sri. Ramachandra Rao. The court grants the parties the liberty to pursue the arbitration and reserves the right to entertain the petitions if the arbitration results in findings against the respondent companies.