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TMI Blog2004 (9) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to repay the principal amount at the end of nine months from the date of disbursement and to pay to the petitioner interest on the principal amount of the loan outstanding from time to time at the rate of 13% p.a. with quarterly rests and to bear all dues and taxes as may be levied from time to time by the Government or any other authority and to secure repayment of the said loan by executing a Demand Promissory Note in favour of the petitioner. 4. On execution of the loan agreement as well as the Demand Promissory Note in favour of the petitioner, the petitioner had fully disbursed the loan amount of Rs. 15 crores in favour of the respondent on 24th July, 2001. The said amount was to be repaid by the respondent-company to the petitioner on or before 24th April, 2002 and the said period was extended for three months. The respondent-company, therefore, issued a cheque dated 25th July, 2002 for Rs. 15 crores towards the repayment of the said Short-Term Loan. However, upon presentation of the above cheque in the Bank the same was returned dishonoured and hence the petitioner has issued a statutory notice dated 8th August, 2002. The petitioner, thereafter, also initiated Crimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormed the petitioner that the company was in financial crunch and requested the petitioner for debt restructuring plan. The petitioner has considered the said request and rescheduled the instalments vide its letter dated 3-6-2002. The respondent-company had accordingly replaced the six cheques given towards the repayment of the principal amount by issuing three new cheques. The said cheques were presented by the petitioner for realisation. The said cheques, however, remained unpaid since long. The respondent-company has not paid any outstanding amount and interest thereon. The petitioner through its advocate sent a legal notice dated 17-2-2003 under section 433 read with section 434 of the Act to the respondent-company calling upon to pay the outstanding amount of Rs. 5,48,17,330 together with further interest thereon from 10-1-2003, till the payment or realisation at 11.5%. Despite the service of statutory notice, the respondent-company has not made any payment to the petitioner and hence, the petitioner had reasons to believe that the respondent-company was going through financial crisis and was unable to pay its debts. The petitioner, therefore, filed the present petition befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34(1)( a ) and the Court comes to the conclusion that there is no bona fide dispute in regard to the petitioner s debt, the creditor is entitled to a winding-up order ex debito justitiae . The fact that the company is not commercially insolvent is immaterial. 10. Mr. Chhatrapati has further relied upon the decision of the Bombay High Court in the matter of Focus Advertising (P.) Ltd., In re [1974] 44 Comp. Cas. 567, wherein it is held that once there is non-compliance with a statutory notice given by a creditor under section 434(1) of the Companies Act, 1956, demanding payment of a debt owing by the company and the court is satisfied that there is no bona fide dispute in regard to the petitioner s debt, the creditor is entitled to a winding up order ex debito justitiae , and the court will not listen to a defence on the part of the company that it is not commercially insolvent or that its financial position is not such as to be unable to pay its debts. The right to a winding up order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and, if, for some good reasons, they object to a winding up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRT under the provisions of the RDB Act, the petition for winding up would not be maintainable". The Court has further held that "the admission of petition for winding up under section 433( e ) need not be preceded by an adjudicated liability of the company. It proceeds upon the inability of the company to pay its debts. Section 434(1)( a ) prescribes a statutory presumption of such inability on the part of the company if the conditions prescribed therein are fulfilled". 14. Mr. Chhatrapati has further relied on the decision of the Allahabad High Court in the matter of Khaitain Overseas and Finance Ltd., In re [2004] CLC 223, wherein it is held that "the remedy of recovery of money through civil suit, is distinct from winding up of company for non-payment of debt under section 434 of the Companies Act. Winding up order is not only beneficial to applicant-company but to all shareholders. The purpose of filing suit for recovery and winding up petition are distinct and thus even where a civil suit is filed, there is no bar for the creditors to file a petition for winding up of the defaulting company". 15. Mr. Chhatrapati has further relied on the decision of Andhra Pradesh H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry phenomenon, which has affected the company s ability to pay its dues immediately. He has submitted that the operational and final performance of the company has been adversely affected during the financial year 2001-2002. The company reported drop in sales and incurred losses. The decline in the sales and the losses is due to general slowdown faced by the FMCG Industry, lower price realisation due to sale deliberate price war initiated by the competitors, lower contribution margin and loss of business due to communal riots in Gujarat. The losses and decline in sales have resulted in marginal cash generation, which has been insufficient for servicing the interest and other capital liabilities. He has further submitted that in addition to the marginal cash generation from operation and utilisation of existing cash reserves towards capital expenditure, a large amount of repayment of short-term loans and long-term loans were bundled during the same period. This resulted in the company not being able to service its terms liabilities due to losses and deficit cash balance. As a result of the same the company could only service a term obligation of Rs. 320 Mn against the total dues of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons. The company is ready and willing to fulfil its liability and make the payments of the amount that is lawfully due and payable as per its books of account. The company has good track records in terms of growth prospects and the payments of its liabilities. He has, therefore, submitted that considering the present trend towards Indian economy in general and industries in particular, the company is affected in terms of the liquidity of funds. It suffers, like others, from the liquidity crunch. However it has not lost its substratum and, therefore, the company may be given some time to clear the dues. 21. Mr. Soparkar has further submitted that both the petitioners in these two different petitions have already filed their applications before the Debts Recovery Tribunal and even on this ground also the present petitions are not maintainable. 22. In support of these submissions, he relied on the decision of this Court in the case of American Express Bank Ltd. v. Core Health Care Ltd. [1999] 96 Comp. Cas. 841, wherein it is held that "a claim to an order of winding up is not a matter of right but is in the discretion of the court on one or more of the grounds having bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that "neglecting to pay in terms of section 434(1)( a ), the specified demand of a creditor raises a presumption as to inability to pay its debts. Thus, mere inability to pay a particular debt by itself cannot be held to be sufficient to an order of winding up ex debito justitiae . With the aid of the presumption the court may be satisfied that the company is unable to meet the current liabilities in the commercial sense which include the debt due to the petitioning creditor as well as other debts. But the presumption is a rebuttable one. The presumption may be rebutted on existing material. What evidence is sufficient, depends on the facts and circumstances of the case. The course of admitting and advertising the petition is commenced in the circumstances if and only if the court had a tentative prima facie finding about commercial insolvency of the company, in the case of a company which has not become a defunct company which has not closed its activities for quite some time for its commercial and manufacturing activities, but is a going concern employing a large number of workmen". The Court has ultimately held in this case that "It was not possible to accede to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mporary difficulty as winding up is a measure of last resort. The element of public policy in regard to commercial morality has, likewise, to be taken into account before determining the winding up issue. The winding up is the last thing the Court would do and not the first thing to do having regard to its impact and consequences. The winding up of a company would ensue : ( a )closing down of a company which is engaged in production or manufacture or which provides some services; ( b )it would throw out of employment numerous persons and result in gross hardship to the members of families of the employees; ( c )loss of revenue to the State by way of collection of taxes which otherwise should have been collected, on account of customs, excise duties, sales tax, income-tax etc.; ( d )scarcity of goods and diminishing of employment opportunities. 24. In light of the observations of Division Bench Mr. Soparkar has urged that winding up of the company is not at all desirable and the present petitions should be dismissed at the very threshold. 25. Mr. Soparkar has further submitted that none of these petitions are maintainable as the petitioners have already filed Recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting and advertisement of the petition was set aside. 28. Mr. Soparkar has, therefore, submitted that the present petitions are not maintainable on any count and the same should summarily be dismissed at the very threshold. 29. After having heard learned advocates appearing for the respective parties and after having gone through the various submissions made and the issues raised before the Court, and after having given serious thoughts to the authorities cited before the Court, the Court is of the view that both these petitions deserve to be admitted and the order of advertisement is required to be passed in Company Petition No. 60 of 2003. While arriving at this conclusion, the Court has taken into consideration the two binding decisions of this Court in the case of American Express Bank Ltd. ( supra ) and in the case of Tata Iron Steel Co. Ltd. ( supra ). This Court is, however, of the view that the facts of the present case are distinguishable from the facts of the above referred two cases. In Core Laboratory s case, the Court has specifically come to the conclusion that there was temporary liquidity crunch and that the Company was commercially solvent. The state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these two petitions, Mr. S.N. Soparkar, learned Senior Counsel appearing for the respondent-company has pressed into service one more submission to the effect that the petitions are not maintainable even on the ground that the petitioners have already filed applications for recovery of their outstanding dues before the Debts Recovery Tribunal and the same are pending. Once having availed the alternative remedy for enforcement of the recovery of their dues, this Court should not entertain these petitions as the winding up proceedings are not the proceedings for recovery of the dues. In this connection, Mr. Soparkar has relied on the decision of the learned Single Judge of this Court in the case of Videocon Leasing Industrial Finance Ltd. ( supra ) which was confirmed by the Division Bench in O.J. Appeal No. 27/2000. Mr. Soparkar has further relied on the decision of the Hon ble Supreme Court in the case of Dolphin International Ltd. ( supra ). The Court is of the view that looking to the peculiar facts of those cases, the Courts have taken the view that the winding up petitions are not maintainable. In the case before the Hon ble Supreme Court, there was an interim order dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany s proposal for restructuring of outstanding debt of the Banks and institutions was under consideration and IDBI was proposing to call a joint meeting of all the lenders shortly to finalise restructuring package. Thereafter, on 12-8-2004, an additional affidavit was filed on behalf of the respondent-company wherein it was stated that a meeting of all the lenders of the Company was convened by IDBI on 6-8-2004 and it was decided by the lenders to meet again on 30-8-2004 to finalise the package. The tenor of all these affidavits and submissions are that the restructuring proposals for the payment of outstanding debts to the lenders was under consideration and the joint meeting of the lenders would be convened for finalisation of the package. All these so-called attempts are nothing but mere false promises and assurances and by resorting to such tactics, the respondent-company has been buying time. No concrete proposal was ever made by the respondent-company before the Court to make payment to the petitioners. In the first place, the respondent-company compels the lenders including the petitioners to accept the restructuring proposal for the payment of outstanding debts on its ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter, Mr. Soparkar has submitted that Company Petition No. 26/2002 filed before the Company Law Board, New Delhi by HSBC Private Equity India Fund Limited and another was dismissed on 5-2-2003 by holding that the said petition was not maintainable. It was further communicated to the Court that HSBC Private Equity India Fund Limited has also filed Company Petition No. 46 of 2003 before the Company Law Board, New Delhi under section 235(2) read with section 237( b ) of the Companies Act against the Company. The Company Law Board vide its order dated 28-1-2004 has treated the said petition as one filed under section 237( b ) of the Act. It is further informed to the Court that the said order was challenged before this Court and the petition is still pending. From the above facts coupled with the facts stated in the present proceedings, it appears to the Court that there are serious irregularities in managing the affairs of the respondent-Company. Since the proceedings are pending, this Court would not make any further probe in the matter. However, while considering the present petitions for winding up of the respondent-Company, the state of affairs of the respondent-Company which u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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