2017 (1) TMI 1167 - HC - Companies Law

Winding up petition - existence of any agreement - Held that - Normally, in a petition seeking winding up on the ground of inability to pay debts, the dispute is with regard to the very liability for the payment of such debt. The question which normally arises is whether such dispute, to the very existence of the debt or the liability to pay the debt, is bona fide and one of substance. In this case, as we have noted earlier, there is no dispute whatsoever with regard to the debt of ₹ 90.90 crores which is due and payable by the company to the petitioning creditor. However, even if we were to proceed on the basis that the institution of a suit for damages against the petitioning creditor, in a given case, constitutes valid defence, it is necessary for the company to further establish that such defence is bona fide, one of substance, likely to succeed in point of law and finally backed by prima facie proof of the facts upon which such defence depends. In the present case, we agree with the learned Company Judge that none of these matters have been established by the company and therefore, there is really no warrant to interfere with the impugned order. There is no material on record to establish even the prima facie existence of any agreement between the company and the petitioning creditor in the matter of sale of the pledged Gitanjali sharers. The minutes of the meeting dated 14 March 2013 do not even remotely spell out any such agreement. Mr. Andhyarujina, was not at all clear as to whether it is the case of the company that there exists any such agreement between the parties. In this case, even if we were to proceed on the basis that there was some obligation upon the petitioning creditor to sell the pledged Gitanjali shares and to adjust the proceeds against the dues payable by the company, such obligation, at the highest, would arise only after the trades matured or debt was actually crystalised some time in June 2013. Admittedly, the trades matured or the debt was crystalised in the present case only in June 2013. By this date, there was already a freeze order made by EOW under section 102 of Cr.P.C. disabling the petitioning creditor from dealing with the pledged Gitanjali shares. There was no legal obligation whatsoever upon the petitioning creditor to sell the pledged shares in order to maintain the margins. Again, even if maximum latitude is extended to the company, we find no unreasonability in the petitioning creditor suspending sales from 25 March 2013, no sooner, they were served with EOW s letter dated 23 March 2013, requiring them not to deal with the Gitanjali shares since EOW was examining complaints made by certain clients of the company in relation to these very shares.There is no dispute that the petitioning creditor did sell almost 2,97,000 Gitanjali shares between 19 March 2013 and 22 March 2013. We completely agree with the reasoning of the learned Single Judge that the petitioning creditor acted quite reasonably in the matter, as otherwise, the possibility of the petitioning creditor or it s directors/officers being proceeded with criminally, could not have been ruled out. There are absolutely no malafides in the action of the petitioning creditor, particularly, when the record indicates that the petitioning creditor immediately took up the matter with the EOW, urging the EOW to withdraw such directions.

Issues Involved:
1. Admittance of the winding-up petition.
2. Bona fide and substantial defense by the company.
3. Legal obligation of the petitioning creditor regarding the sale of pledged shares.
4. Equitable set-off claim by the company.
5. Reasonableness of the petitioning creditor's actions in response to EOW's letter.

Issue-wise Detailed Analysis:

1. Admittance of the Winding-Up Petition:
The appellant company appealed against the order dated 28 June 2016 made by the Company Judge, which admitted the petition for winding up of the company and ordered the advertisement thereof. The company admitted its indebtedness to the respondent (petitioning creditor) to the extent of ?90.90 crores but contended that it had a claim against the petitioning creditor for ?152.57 crores by way of damages. The court emphasized that if the debt is bona fide disputed and the defense is substantial, the court will not wind up the company. However, if the debt is undisputed, the court will not act upon a defense that the company has the ability to pay but chooses not to.

2. Bona Fide and Substantial Defense by the Company:
The company argued that it had instituted Suit (L) No. 939 of 2013 claiming damages of ?152.57 crores against the petitioning creditor for acts of omission and commission. The company claimed this constituted a bona fide and substantial defense. The court, however, found that the defense raised by the company did not directly concern its liability to pay the admitted amount of ?90.90 crores. The court held that the company failed to establish that its defense was bona fide, substantial, likely to succeed in law, and backed by prima facie proof.

3. Legal Obligation of the Petitioning Creditor Regarding the Sale of Pledged Shares:
The company contended that the petitioning creditor was legally obliged to sell the pledged Gitanjali shares expeditiously. The court referred to section 176 of the Contract Act and several decisions, including S. L. Ramaswamy Chetty and State Bank of India vs. Neela Ashok Naik, which held that the pledgor cannot compel the pledgee to sell the pledged goods to discharge any debt. The court found no legal obligation on the petitioning creditor to sell the pledged shares to maintain margins and deemed the petitioning creditor's actions reasonable.

4. Equitable Set-Off Claim by the Company:
The company claimed that its suit for damages should be regarded as an "equitable set-off" against its liability. The court referred to the decision in Portman Provincial Cinemas Ltd., which held that a cross claim must be substantial and genuine to constitute a valid defense. The court found no substance in the company's claim and held that the defense raised was neither bona fide nor substantial.

5. Reasonableness of the Petitioning Creditor's Actions in Response to EOW's Letter:
The company argued that the petitioning creditor should have disregarded the EOW's letter dated 23 March 2013 and proceeded with the sale of Gitanjali shares. The court found that the petitioning creditor acted reasonably by suspending sales upon receiving the EOW's letter, which directed them to refrain from dealing with the shares due to an ongoing investigation. The court noted that the petitioning creditor's actions were reasonable and lacked malafides, especially since the petitioning creditor challenged the EOW's freeze order while the company did not.

Conclusion:
The court dismissed the appeal, endorsing the reasoning of the Company Judge that the defense raised by the company lacked bona fides and substance. The court emphasized that the petitioning creditor's actions were reasonable and in compliance with legal obligations. The application for a stay on the advertisement of the petition was also rejected.

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