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TMI Blog2012 (6) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... le amount - respondents contention that the petitioner bank has not claimed definite and exact sum/amount which relevant to take into account the details mentioned in the statutory notice as para 1 of the statutory notice clearly mentions the amount - as the respondent's contention that the petition is filed without authority and the resolution is not acceptable as the Act, Rules or forms do not require any resolution to be passed for the purpose of initiating winding up proceedings, even where the petitioning-creditor is a Company with a Board of Directors - the legal consequence of a petition not being properly signed by the petitioner is a mere irregularity which can be cured at any time - accept and admit this petition - The petitioner is allowed time to place on record resolution of the petitioner bank to file the petition and authorizing Chief Manager to file the petition. - CO. PETITION NO. 136 OF 2011 - - - Dated:- 7-3-2012 - K.M. THAKER, J. Pranav G. Desai for the Petitioner. Dharmesh V. Shah and Lalit M. Patel for the Respondent. ORDER 1. The petitioner, a bank has taken out present petition under Sections 433 and 434 of Companies Act, 1956 (hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishes that the respondent company has lost its capacity to discharge its debts and fulfill its financial obligation. On such premise the bank has claimed that the respondent company deserves to be wound up. 3.1 So as to support and justify its submission and request the petitioner bank has stated in the petition memo that:- "8. The respondent company approached the petitioner to avail credit facility of short term loan for an amount of Rs.50 Crores for the tenure of six months (maximum) to meet the shortfall of the working capital need. Whereupon the petitioner sanctioned a credit facility of short term loan of Rs. 50 Crores by sanction letter No.ADM/MC/318/2010-11 dated 4.9.2010 for the tenure of six months (maximum) to meet the shortfall of the working capital need of the respondent company. The rate of interest is to be charged at base rate + 2.50 p.a. i.e. 10.50% p.a. With monthly rest. It also provided penal interest @ 2% p.a. over and above the applicable rate in case of failure and timely repayment and/or servicing of interest. The said loan facility is collaterally secured by post dated cheque as well as personal guarantee of Shri Mukesh Bhandari Director as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 for Rs.50 Crore drawn on A/c No.203530100001232 of Bank of India, Ahmedabad Corporate Banking Branch, Ahmedabad when presented by the petitioner to the respondent company's bankers on 29.6.2011 the same was dishonoured by the said Bank of India for the reason "exceeds arrangements". Thereupon, the petitioner issued a notice to the respondent company under the provisions of the Negotiable Instruments Act 1881 on 2.7.2011 calling upon the respondent company to make good the amount of returned unpaid cheque. The said notice was served to the respondent company on or about 4.7.2011. Inspite of the said notice, the respondent company has failed and neglected to honour their commitment and make good the amount as well as failed to make payment of the admitted liability in terms of the acceptance of the terms and conditions of the agreements/deeds/documents executed for the said loan facility in favour of the petitioner as well as assurance given by the respondent company from time to time. The petitioner was, therefore, constrained to file a complaint under Section 138 read with Section 141 of the Negotiable Instrument Act, 1881 before the Hon. Metropolitan Magistrate, Ahmedabad. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand by replying to the statutory notice through the learned advocate vide reply dated 5.9.2011 raising false, frivolous and baseless averments and allegations knowing that the same are false to their knowledge and they have taken dishonest and not bonafide stand in not honouring their admitted liability. Copy of the said reply of the learned advocate of the respondent company dated 5.9.2011 is enclosed herewith as annexure-H. The petitioner gave reply dated 17.9.2011 to the said reply of the learned advocate of the respondent company through the learned advocate of the petitioner dealing with the averments, allegations and contentions raised in the said reply. Copy of the reply of the petitioner dated 17.9.2011 is enclosed herewith as annexure-I" 3.2 Thus, it emerges that the respondent company has not paid its debt in the sum of Rs. 50,44,94,820/- and the interest thereon to the petitioner bank. The petitioner bank has also submitted that the respondent company has under its communication dated 18.5.2011 and 17.6.2011 had admitted its liability to repay the due and outstanding amount. It is also claimed that actually the respondent company not only admitted its liability to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory provisions and the deeming fiction under the relevant section require that the amount of alleged dues should be specific and definite and claim for any uncertain amount may not be treated as debt for which petition can be maintained under Sections 433 and 434 of the Act. In addition to the details about its financial position the respondent company has also claimed that it employs around 2250 employees on regular basis and other about 1000 workmen on contract basis and it has large turn over to the tune of about Rs.2290 Crores and it has about 40% market shares in the industry. On the basis of such details the respondent company has claimed that the respondent company and its operation may not be brought to halt at the request of the petitioner bank merely because at present the respondent company is facing temporary financial and liquidity difficulties. The respondent company has also questioned the legal capacity of the constituted attorney of the petitioner bank who has made the affidavit in the petition and filed the petition in name of and on behalf of the petitioner bank. 4. Heard Mr. Desai, learned Counsel for the petitioner bank and Mr. A.L. Shah, learned advoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause respondent company is facing temporary financial and liquidity the difficulty, such temporary difficulty cannot justify for winding up and admission of petition under Section 433 and 434 of the Act. Mr. Shah, learned advocate for the respondent company has relied on the decision in case of American Express Bank Ltd. v. Core Health Care Ltd. [1998] 15 SCL 363 (Guj.). 6. In present case it is not in dispute that the respondent company availed loan facility in the sum of Rs.50 Crores from the petitioner bank. It is also not in dispute that the said amount was granted by way of Short Term Loan for tenure of six months so as to meet with the shortfall in the working capital. It is also not in dispute that the said facility was availed by the respondent company from the petitioner bank pursuant to and on the strength of a resolution passed by the Board of Director of the respondent company in the meeting held on 13.8.2010. It is also not in dispute that two Directors of the respondent company are guarantor for the petitioner bank for the said loan. It is also not in dispute that the respondent company as well as the guarantors have executed necessary loan documents/deeds on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce: Request for short term loan of Rs.50 Crs. This is in continuation to our yesterday's letter for short term loan of Rs.50 Crs to meet working capital requirement of company. We would like to assure you that the outstanding repayment of Rs. 48.75 Crs. in reference to existing STL of Rs. 50 Crs will be made by 25th June 2011, further please note that we have already paid Rs. 1.25 Crs and remaining balance amount will be paid on or before 25th June 2011." 7.2 When the response of the respondent company in reply to the statutory notice is considered and examined in the background of and in light of the said letters then it comes out that the respondent company is not able to meet with its financial obligation and seems to be incurring new and more debt to clear the past liability and debts and in the process it has incurred more and more financial burden which it is not able to sustain and discharge. This is also evident from the financial report of the company which shows that the liabilities of the company has virtually wiped out or eaten away into the so - called reserve and capital of the company. 7.3 It is pertinent that the respondent company vide its letter dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating legal actions against my client based on such notice is concerned, it is without any substance, malafide and vexatious inasmuch as there was no existence of debt or liability against my client and your client has illegally dishonestly and unlawfully charged the interest at the rate of 17.90% per annum on monthly rates along with penal interest @ of 2% per annum which is against the norms and guidelines issued by RBI ." Thus, it transpires that initially the respondent company tried to gain as much time and latitude as possible and then it raised such dispute. In the facts of the case, the said action and conduct indicate failure and/or inability and neglect to discharge its financial obligations. 7.7 It can be seen from the respondent's said reply that despite or even after the said two letters and after having incurred the obligation to repay the loan amount with agreed rate of interest and after having gained as much time as possible the respondent company alleged that petitioner's statutory notice is "without any substance, malafide and vexatious". 7.8 In this background, it is, to say the least, the conduct of the respondent company (who after availing the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its reply affidavit) the respondent company has conveniently not made reference of the above mentioned details which reflect the financial health of the respondent company. 10. Besides the above mentioned facts and even if the said facts are not to be taken into account then also the fact that the respondent company has failed to make payment and has made default in making payment of the debt i.e. the due and payable amount even after seeking two extensions and despite twice assuring the petitioner bank that the payment will be made, it again failed to make the payment, brings out the situation that the respondent company has neglected to pay and discharge its debt i.e. neglected to make the payment of the due and payable amounts. 11. The petition brought by the petitioner bank does not involve and/or does not raise any question of disputed facts. The fact that the respondent company has availed the loan and also the fact that it has not repaid the loan amount, (except paying a sum of about Rs.1 crore) are not in dispute. In background of the above mentioned facts, the defence raised by and the conduct of the respondent company amounts to not making payment of the debt/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admission, reply affidavit has been filed. The company by furnishing details which shall be referred to presently pleaded that the company which has incorporated in 1986 has in a short span acquired a prime position in the field of manufacture of intravenous fluids in the country and almost accounts for 90% of the exports of the total country in respect of the articles manufactured by it. In the circumstances narrated in the reply, it referred to multifold reasons leading to the present financial crises which according to it is of a temporary character and is making effort to tide over the same with the assistance of the other financial institutions to whom company owes about Rs. 850.00 crores, all secured creditors, and they are considering the replacement of the entire credit structure of the company to enable it to survive the present crisis rather than on insisting on the spot payment right now and allow the company to die. In the sum and substance, the pleading of the respondent company is that though amount claimed by the petitioner is payable by it, as of others but it is not in a position to pay that sum immediately though company has net assets worth paying all the debts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to deprive a creditor of just and honest claim". 12.3 In present case the respondent's reply to the statutory notice branding the petitioner banks claim and demand for repayment of the due and payable loan amount as "....without any substance malafide and vexatious..." and the respondent's further response and reply/stand to the statutory notice to the effect that "...inasmuch as there was no existence of debt or liability " and the respondent's reply affidavit raising objections as regards the alleged defects in affirmation and presentation of the petition and the two letters dated 18.5.2011 and 17.6.2011 as well as the duly executed loan agreement lead the court to the conclusion that the defence and stand taken by the respondent company and its conduct which suddenly showed 360 change in its reply, response and conduct after the issuance of statutory notice, is lacking in bonafides and there is willful neglect to pay its debt and discharges its financial obligation, and it is coupled with the conspicuous absence of any effort by the respondent company in present case, on the similar line as was brought by the respondent in the cited case. 12.4 In present case it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared to its admission in above referred two communications, and its response in the reply affidavit, this court is satisfied, and of the belief that the defence and explanation by the respondent company lacks bonafides and there is also lack of readiness and willingness to honour its commitment. 14. Furthermore, having regard to the financial data emerging from the balancesheet for the period ended on 31.3.2011 it also appears that liabilities of the company outrun its capital and reserves/surplus and its liabilities are almost three times more than its capital and reserves/surplus. The said details also lead this Court to the further conclusion that the respondent's neglect is also coupled with its inability to pay its debts and discharge its financial obligation. 15. So far as the respondent's defence on the ground that it is a going concern and therefore it does not deserve to be wound up, it is necessary to note that such contention would be useful in determining whether the refusal to pay is result of bonafide dispute or not. The primary and relevant consideration or factor to determine as to whether petitioner deserves the order of admission of the petition seeking w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt." 15.3 When the facts of present case are examined in light of the aforesaid observations by the Apex Court and when the above noted facts and the nature and character of the dispute raised by the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a facie view that the dispute or defence of the respondent company is spurious, speculative, illusionary and an afterthought raised only with a view to resisting the petition and delaying the liability to make the payment of due and payable amount. 16. When the court reach such conclusion, then the court may not allow the petition to be frustrated on the grounds raised on the basis of the alleged defects in the format and/or submission and/or presentation of petition. 16.1 In present case the respondent has raised objection against the maintainability of the petition by pointing out certain defects in the petition. It is claimed inter alia, that (a) the affidavit verifying the petition is not filed in the prescribed form; and (b) the petition has been filed without authority and the resolution of the board deciding to institute the winding up petition is not placed on record; and (c) the petitioner has not placed on record the power of attorney authorizing Mr. S.D. Sahare, Chief Manager to file present petition; and (d) the petitioner has not claimed in the statutory notice, any exact and definite sum/amount and therefore the notice does not comply the requirement under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interest, penal interest. The amount due and payable as on 31.3.2011 is Rs.50,44,94,820/-. Your are liable to make payment of the said outstanding amount along with further interest from 1.4.2011 till realization at the base rate which was at the relevant time @ 9.50% + 8.40 % i.e. totaling 17.90% p.a. monthly rests as may be changed from time to time thereafter along with panel interest @ 2% p.a. less whatever amount has been paid by you from 1.4.2011, till realization within a period of 21 days from the date of receipt of this notice." 17.1 Thus it cannot be said that the petitioner bank has not claimed "certain and exact sum". Hence, the said contention does not hold any substance and is not accepted. 18. So far as the respondent's contention that the petition is filed without authority and the resolution is not placed on record and the power of attorney authorizing the deponent is also not placed on record and therefore the petition is defective, it would be appropriate to refer at this stage the decision of the Hon'ble Division Bench of this Court in case between Welding Rods (P.) Ltd. v. Indo Borax Chemicals Ltd. [2002] 108 Comp. Cas. 747/37 SCL 136 wherein th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winding up petition was not properly signed by the petitioner, the Court went on to make the following observations :- "16. Now, the question is, what is the legal consequence of a petition not being properly signed by the petitioner. In our opinion, this is a mere irregularity which can be cured at any time. That is the view also taken by Mr Justice Baker in the case to which reference has been made by us, and also in Lingangouda Marigouda v. Lingangouda Fakirgouda , 54 Bom LR 829 : (AIR 1953 Bom. 79). We are told that the petitioner himself is present in Court and he is prepared to sign the petition if we direct him to do so. If the petitioner signs the petition, then the flaw which rendered the petition bad or made it not maintainable disappears. The only objection to the petition is that it is signed by an agent who is not a recognized agent. But if the petitioner himself signs it, then no further question arises with regard to the maintainability of the petition. We will therefore direct that the petitioner should sign the petition in Court. 17. Now that the petitioner has signed the petition, the appeal can proceed on merits. We adjourn it to the opening day of the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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