2015 (10) TMI 543 - HC - Companies Law

Approval for Petition of Winding Up under Section 433 & 434 Petitioner contends that Respondent committed a default in payment of its instalment and other debenture holders Further contended that notice of Petitioner was cryptically replied by a bare denial of liability and as such Petitioner finds no concrete plan for payment of liabilities Respondent contested that winding up petition against a company, which is in temporary financial difficulties, ought not to be admitted Further held that creditors have no absolute right to insist on winding up on grounds of inability to pay debts and instead give time to come out of the momentary financial crisis. Held That - Delaying the admission of these petitions would not serve the interest of any of the stakeholders as well as the public - Workmen s dues should be provided for and protected - Resultant prospect of not acting in a timely manner in the face of serious doubts as to commercial viability of the Company and several critical unexplained financial matters - Company petitions are admitted and Respondent is restrained by a temporary order and injunction from disposing of any of its assets and properties or creating any third party rights otherwise than in due course of its business - The Respondent Company is directed to place on record the latest financials of the Company Allowed and decided in favour of the Petitioner.

Issues Involved:

1. Inability of the Respondent Company to pay its debts.
2. Common defense of the Respondent Company.
3. Financial status and viability of the Respondent Company.
4. Judicial discretion in admitting winding-up petitions.

Issue-wise Analysis:

1. Inability of the Respondent Company to pay its debts:

The petitions seek winding up of the Respondent Company under Sections 433 and 434 of the Companies Act, 1956, due to its inability to pay its debts. The debts of the respective petitioners are detailed, with significant sums owed by the Respondent. For instance, Tata Capital Financial Services Ltd. subscribed to 150 Non-Convertible Debentures (NCDs) issued by the Respondent, amounting to Rs. 15 Crores. The Respondent defaulted on the payment schedule, leading to a statutory demand notice and subsequent petitions. Similar defaults and uncontested claims are noted in other petitions, with amounts ranging from Rs. 5.89 Lacs to Rs. 1.11 Crores.

2. Common defense of the Respondent Company:

The Respondent generally denies the dues, citing temporary financial crises and management reshuffling. The defense primarily relies on the potential agreement with a financial institution, indicated by a confidential term sheet. Despite multiple extensions and assurances, no definitive agreement or concrete proposal has been placed on record. The Court finds this defense insufficient and a dishonest attempt to delay proceedings.

3. Financial status and viability of the Respondent Company:

The Respondent claims to have substantial assets, including fixed assets worth over Rs. 667 Crores and brand value. However, these claims are based on unilateral valuations. For example, Elder House, initially valued at Rs. 170 Crores, was later valued at Rs. 113 Crores by a Court-appointed valuer. The latest financials indicate significant losses, with an operating loss of Rs. 103.76 Crores and a net loss of Rs. 171.11 Crores for nine months ending 31 March 2015. The independent auditors have raised concerns about the Company's ability to continue as a going concern, highlighting significant write-offs and unverified trade advances and receivables.

4. Judicial discretion in admitting winding-up petitions:

The Court acknowledges the discretion in ordering winding up, emphasizing the need to consider the overall financial status and potential for revival. However, in this case, the Court finds no reasonable prospect of the Company's revival. The financial statements, auditor's qualifications, and lack of a concrete repayment plan indicate a dire financial situation. The Court decides to admit the petitions, noting that delaying the admission would not serve the interest of any stakeholders, including workmen.

Conclusion:

The Court admits the winding-up petitions, directing the advertisement of the admission order and restraining the Respondent from disposing of its assets without leave of the Court. The Respondent is also directed to place the latest financials on record. The advertisement of the admission order is stayed for three weeks, but the injunction order continues. The Court emphasizes the need to protect the interests of all stakeholders, including workmen, before a final decision on winding up is made.

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