2018 (3) TMI 277 - HC - Companies Law

Secured creditor entitled to prefer a company petition for winding up - whether respondent Kotak Mahindra Bank shall wait till they exhaust their attempts to auction the properties mortgaged with them, recover the amount in question partly or wholly and then decide as to whether to file a company petition for winding up? - Held that - After having a comprehensive view of the provisions and the judgments dealing with this issue, we are of the considered opinion that the secured creditors need not wait till the final outcome of the proceedings in case financier decides to proceed to enforce and realise the secured assets. The relevant provisions of the Companies Act are clear to state that to recover loan/amount advanced, the secured or unsecured creditors are entitled to approach Company Court under the provisions of the Companies Act by preferring a winding up petition. We are informed by the Counsel appearing for the respondent that so far nothing has been paid to the respondents against the loan advanced to these appellants by the respondents. In the facts, we find that the learned Single Judge exercised reasonable discretion. The view adopted by the learned Single Judge is probable one. We do not find any perversity in the view. There is no merit in the appeals.

Summary

Issues Involved:
1. Whether a secured creditor is entitled to file a winding-up petition under Sections 433 and 434 of the Companies Act, 1956.
2. Whether the learned Single Judge erred in admitting the winding-up petitions without adequate reasoning.

Issue-wise Detailed Analysis:

1. Entitlement of Secured Creditor to File Winding-Up Petition:
The appellants challenged the order of the learned Single Judge admitting the winding-up petitions filed by Kotak Mahindra Bank Ltd. The appellants argued that as a secured creditor, Kotak Mahindra Bank should not resort to winding-up proceedings under Sections 433 and 434 of the Companies Act, 1956. They contended that a harmonious reading of Section 434(a) and (b) is necessary, as a winding-up order is harsh against an ongoing business. The appellants relied on the judgment in Salem Stainless Steel Suppliers v/s. Sumeet Machines Ltd. to support their position that secured creditors should not file winding-up petitions if they can enforce secured assets.

In contrast, the Counsel for Kotak Mahindra Bank argued that the law allows secured creditors to file winding-up petitions. They cited judgments, including Canfin Homes Ltd. v/s. Lloyds Steel Industries Ltd. and M/s. Asian Power Controls Ltd. v/s. Mrs. Bubbles Goyal, which held that secured creditors have the right to file winding-up petitions. The Court noted that the provisions of Sections 434 and 439 of the Companies Act explicitly allow secured creditors to prefer winding-up petitions. The Court concluded that secured creditors need not wait until they exhaust attempts to auction mortgaged properties before filing for winding-up.

2. Adequacy of Reasoning by Learned Single Judge:
The appellants argued that the learned Single Judge did not provide adequate reasoning for admitting the winding-up petitions. They contended that the orders lacked proper reasoning to ascertain the basis for admitting the petitions.

The Court reviewed the record and submissions and found that the learned Single Judge exercised reasonable discretion in admitting the winding-up petitions. The Court emphasized that the appellants had not repaid the loan advanced by Kotak Mahindra Bank, and the appellants had faced adverse orders from the Debt Recovery Tribunal (DRT). The Court held that the relevant provisions of the Companies Act allow creditors, whether secured or unsecured, to approach the Company Court for winding-up petitions to recover loans. The Court found no perversity in the view adopted by the learned Single Judge and dismissed the appeals, affirming that the learned Single Judge's decision was probable and reasonable.

Conclusion:
The Court concluded that secured creditors are entitled to file winding-up petitions under the Companies Act. The learned Single Judge's decision to admit the winding-up petitions was upheld, and the appeals were dismissed. The Court found no merit in the appellants' arguments and determined that the learned Single Judge exercised reasonable discretion in admitting the petitions. Consequently, the pending Notices of Motion for stay were also disposed of accordingly.