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TMI Blog2012 (8) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with section 439 of the Companies Act, 1956 (for short "the Act") and rule 95 of the Companies (Court) Rules, 1959. 2. The petitioner is a subsidiary of the State Bank of India (SBI) and is a company incorporated under the Act. On its amalgamation with the SBI Factors and Commercial Services P. Ltd., a fresh certificate of incorporation was issued by the Registrar of Companies on March 18, 2010, certifying that the name of the petitioner-company was changed to SBI Global Factors Ltd. The respondent is a company incorporated under the Act on February 8, 1995, with its registered office at Hyderabad. The authorised share capital of the respondent-company is Rs. 90 crores divided into nine crores equity shares of Rs. 10 each. The main objects of the respondent-company is to generate, harness, develop, accumulate, distribute and supply electricity by setting up thermal power plants by use of liquid, gaseous or solid fuels for the purpose of light, heat, power and for all other purposes for which electrical energy can be employed. 3. The petitioner accorded the respondent-company a Trade Finance Facility by its sanction letter dated December 21, 2006, for a maximum amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n September 11, 2009. They would state that they were utilising the limits since the sanction of the facility, and had been regular in payment of the principal and interest till last year. It is their case, that, due to non-finalisation of pending, issues with the Andaman and Nicobar administration, there had been a huge gap in cash flow amounting to Rs. 45 crores which had resulted in the facility turning irregular ; they had several meetings with the officials of the petitioner on the possible closure of the facility ; in the midst of such talks and negotiations, a notice under section 138 of the NI Act as well as a statutory notice under section 434 of the Act was issued though a compromise/settlement was being worked out ; post dated cheques were issued, for the availed facility of Rs. 5 crores, during 2010-11 for repayment of the loan to the petitioner ; in November, 2010, the petitioner had renewed the sanctioned facility for a further period of one year subject to reduction of a substantial part of the loan, in relation to the domestic factoring facility and reverse factoring facility, in different intervals, and to close the loan by the end of December, 2011 ; the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was wholly unnecessary. 6. In their additional counter-affidavit, the respondent-company admits that the petitioner had sanctioned a loan of Rs. 5 crores on December 21, 2006, under factoring facility, and Rs. 20 crores on September 11, 2009, under silent factoring facility. It is their case that these loan facilities cannot be treated as a debt as the concept of reverse and silent factoring is such, that all receivables are routed through the petitioner itself ; the petitioner is well aware of the net worth of the respondent-company ; the petitioner was also aware that, due to non-finalisation of pending issues with the Andaman and Nicobar administration, there was a huge gap in cash flow amounting to Rs. 45 crores which had resulted in the facility turning irregular ; and they had several meetings with the officials of the petitioner on the possible closure of the facility. They would reiterate that they had brought to the notice of the petitioner that the cost of the project at Andaman and Nicobar would exceed Rs. 80 crores ; if the said amount is released, it would be first utilised for repayment of the outstanding amount of Rs. 27 crores due to the petitioner and, despit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than Rs. 45 crores are the receivables from the Andaman and Nicobar administration where they are implementing a project whose cost exceeds Rs. 80 crores ; and, on receipt of money from the Andaman and Nicobar administration, the amounts so received would be paid to the petitioner. They would also assert that they are a running company with a positive net worth, and it cannot be deemed that they are unable to pay their debts. They would dispute that the amount payable to the petitioner is a "debt", as all receivables due and payable to the respondent is to be routed through the petitioner itself. 9. Section 433(e) of the Act empowers the court to direct winding up of a company if it is unable to pay its debt. Section 434 of the Act creates a legal fiction and, if the conditions stipulated in clauses (a) to (c) of sub-section (1) thereunder are satisfied, the legal fiction under section 434 of the Act would require the company to be deemed to be unable to pay its debts. Under section 434(1)(a) of the Act if a creditor, to whom the company is indebted a sum exceeding Rs. 500 has served on the company, by causing it to be delivered at its registered office by registered post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of "debt", contained in section 434(1)(a), is a definite sum, viz., exceeding Rs. 500 ( Newfinds (India) v. Vorion Chemical and Distilleries Ltd. [1976] 46 Comp Cas 87 (Mad)). It is not in dispute that the amount claimed by the petitioner, in the statutory notice issued by them on May 26, 2011, is for a sum exceeding Rs. 26 crores. The respondent-company admits that they owe the said amount to the petitioner. Whatever be the nomenclature, whether it be a loan or a facility, once it is accepted that the amount is owed by the respondent-company to the petitioner, it would amount to a "debt". 11. A company can be wound up on a petition of a creditor only if it is unable to pay its just debts. The inability is indicated by its neglect to pay after a proper demand and the lapse of three weeks. Such neglect must be judged by the facts of each case. Where the defence is that the debt is disputed all that the court has to see is whether the dispute, on the face of it, is genuine or merely a cloak for the company's real inability to pay just debts ( British India General Insurance Co. Ltd., In re [1970] 40 Comp Cas 554 (Bom)). It is not enough that the company has the abil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up petition as a means of forcing the company to pay a bona fide disputed debt ( IBA Health (I) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd. [2010] 8 taxmann.com/104 SCL 367 (SC)/159 Comp Cas 369/[2010] 10 SCC 553). As the respondent-company did not pay the debt due within three weeks of receipt of the statutory notice, their failure to pay the said "debt" amounts to "neglect" to pay resulting in the legal fiction under section 434(1)(a) of the Act being attracted. Once the legal fiction, comes into operation, and there is no dispute much less a bona fide dispute regarding the debt due from the respondent-company to the petitioner, it matters little that the net worth of the respondent-company is positive. An examination of the company's solvency may be a useful aid in determining whether the refusal to pay the debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. If there is no dispute as to the company's liability, it is difficult to hold that the company should be able to pay its debts merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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