2017 (2) TMI 703 - HC - Companies Law

Winding up - whether the IDBI Bank Limited, a Consortium Leader representing the consortium of 21 banks who have lent and advanced huge amounts to the respondent company can be allowed to intervene in this company petition at the stage of admission of the company petition or can be allowed to intervene only after the company petition is admitted and notice is issued for final hearing of the company petition? - Held that - A perusal of the company application filed by the intervenor indicates that the working capital consortium and term loan dues of the term lenders outstanding is ₹ 8593.00 crore and ₹ 945.00 crore respectively. It is thus clear that insofar as the petitioner is concerned, the alleged liability of the petitioner recoverable from the respondent company is hardly 2% of the total debts of the other lenders and is at 1% of the debts of the total creditors. In my view, the intervenors are thus entitled to oppose this petition and are entitled to be heard at the admission stage of this petition. Any order of admission of this petition will seriously hamper the interest of large number of lenders which are participating in the process of restructuring of the respondent company. I am thus inclined to allow the intervention application filed by the IDBI Bank Limited and permit them to intervene in the present proceedings at the admission stage. Scope of revival - rectification and restructuring actions - Held that - When 98% of the creditors in value of the total debts of the respondent have agreed to oppose this petition for winding up and have been participating in the JLF s meetings to take steps for rectification and restructuring of the respondent and some decisions taken by the said JLF are under implementation, in view, the petition at the instance of the petitioner who claims about 1% of the total debts of the respondent cannot be entertained. An order of winding up in favour of the petitioner would not benefit the petitioner or the creditors of the respondent generally. Even if there are any chances of revival of the respondent-company which are attempted by the creditors of more than 98% in value, any adverse order passed in this petition at this stage would hamper the chances of revival of the respondent. Powers of the Company Court under Section 539 of the Companies Act, 1956 are discretionary and have to be exercised cautiously and judiciously. In the facts of this case, we are satisfied that the respondent-company which has a temporary set back and is making a sincere attempt of its revival with the assistance of large number of the creditors, it would not be desirable and in the interest of all the creditors including the petitioner to pass any order of winding up against the respondent-company at this stage.

Issues Involved:
1. Maintainability of the company petition for winding up.
2. Binding nature of RBI circulars on banks.
3. Rights of creditors and their locus standi at the admission stage of the winding-up petition.
4. Discretionary powers of the Company Court in winding-up petitions.

Issue-wise Analysis:

1. Maintainability of the Company Petition for Winding Up:
The petitioner sought the winding up of the respondent company under the Companies Act, 1956, due to the respondent's failure to repay substantial debts. The petitioner argued that the respondent's inability to pay its debts was evident from multiple defaults and non-compliance with repayment schedules. However, the respondent contended that the petition was not maintainable, emphasizing that the Reserve Bank of India (RBI) had formulated a scheme for resolving distressed accounts, mandating the formation of a Joint Lenders Forum (JLF) for accounts with dues over ?100 crores. The respondent further argued that the petitioner, being part of the JLF, was bound by the decisions of the forum, which included exploring options like rectification and restructuring before resorting to recovery.

2. Binding Nature of RBI Circulars on Banks:
The petitioner contended that the circulars issued by the RBI were not binding unless the petitioner signed the Inter Creditor Agreement (ICA) and Debtor Creditor Agreement (DCA). The respondent, however, argued that the circulars issued under Sections 21 and 35 of the Banking Regulation Act, 1949, were statutory in nature and binding on all banks. The court agreed with the respondent, citing the Supreme Court's judgment in Canara Bank Vs. P.R.N. Upadhyaya, which held that RBI circulars issued under these sections are statutory and must be complied with by banks. The court noted that the petitioner had participated in JLF meetings and made suggestions, indicating its acknowledgment of the circulars' binding nature.

3. Rights of Creditors and Their Locus Standi at the Admission Stage of the Winding-Up Petition:
The petitioner argued that creditors should not be allowed to intervene at the admission stage of the winding-up petition. However, the court referred to the Supreme Court's judgment in National Textile Workers' Union Vs. P.R. Ramakrishnan, which established that workers and creditors have the right to be heard at the admission stage of a winding-up petition. The court also cited its own judgment in Bharat Petroleum Corporation Limited, which held that the wishes of creditors must be considered even at the admission stage. The court concluded that the IDBI Bank, representing a consortium of 21 banks, had the right to intervene and oppose the winding-up petition at the admission stage.

4. Discretionary Powers of the Company Court in Winding-Up Petitions:
The court emphasized that its powers under Section 539 of the Companies Act, 1956, are discretionary and must be exercised judiciously. The court referred to the Supreme Court's judgment in M/s. Madhusudan Gordhandas & Co., which stated that the court must consider the wishes of creditors and may decline to make a winding-up order if it would not benefit the creditors generally. The court noted that 98% of the creditors in value opposed the winding-up petition and were participating in the JLF's efforts to restructure the respondent. The court concluded that admitting the winding-up petition would hamper the chances of the respondent's revival and would not benefit the petitioner or the creditors generally.

Conclusion:
The court dismissed the company petition for winding up, allowing the intervention application filed by IDBI Bank Limited. The court emphasized that the observations made were specific to the winding-up petition and would not influence any future recovery proceedings initiated by the petitioner in accordance with the JLF's decisions. The court granted ad-interim protection for four weeks to allow the petitioner to file an appeal.

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