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TMI Blog2013 (6) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank dues, would amount to complete closure of the business of the company as without land, building, machineries and other fixtures the company would be left hardly with anything to run its day-to-day affairs. 3. The Company could not pay off the dues of the bank. The bank assigned their claim and/or the right as a secured creditor to M/s Kotak Mahindra Bank Ltd. who stepped into the shoes of the State Bank of India. Kotak Mahindra Bank initiated recovery proceedings by taking measures under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002). They however could not take physical possession of the assets giving rise to protracted litigations that may not be relevant for the present purpose. Fact would remain, they are yet to take possession of the assets. However, Official Liquidator could make an inventory of the assets after great effort. 4. The Company became sick. Its networth became negative that compelled them to make a reference to the Board of Industrial and Financial Reconstruction (BIFR) under the Sick industrial Companies Act, 1987. BIFR accepted the reference and declared the company, a sick comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability towards the secured creditor as on September 30, 2004 was Rs. 19 crores as admitted by the company appearing at page-174 of the paper book whereas the amount became Rs. 21 crores as on September 30, 2003. Mr. Basak would also contend, the company in the said balance-sheet did not take into account the overdue interest that had accrued in the meantime. He also placed the relevant correspondence including the statutory notice of demand. According to him, the notice was never replied to. However, the company sought to rely upon a copy of the reply said to have been served upon the company appearing at page-292 of the paper book. 7. Taking it over from Mr. Basak, the learned Advocate General also appearing for the appellant contended, the company's refusal to pay would itself amount to neglect to pay attracting the jurisdiction of the winding up Court. The learned Advocate General would contend, learned Judge fell in grave error in observing, the creditor was obliged to prove insufficiency of the assets to maintain a petition for winding up. He placed Sections 433, 434 and 439 of the said Act of 1956. According to him, on a combined reading of the said three sections the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank [2012] 174 Comp. Cas. 22 (Cal.) 3. Bharat Overseas Bank Ltd. v. Shree Arcee Steels (P.) Ltd. [1985] 58 Comp. Cas. 174 (Bom.) 4. Karnatak Vegetable Oils and Refineries Ltd.v. Madras Industrial Investment Corpn. Ltd. AIR 1955 Mad. 582. According to him, to maintain a winding up petition by a secured creditor, the security need not be given up as held by the Karnataka High Court in the case of Hegde & Golay Ltd. v. State Bank of India ILR 1987 Kar. 2673 and by our Court in the case of Confin Homes Ltd. v. Lloyds Steel Industries [2001] 32 SCL 283 (Bom.). 9. Per contra, Mr. Subhankar Nag, learned counsel appearing for the company raised the issue of parallel proceeding. According to Mr. Nag, the secured creditor could opt for winding up proceeding once they would give up their right to proceed with the other proceedings under the SARFAESI Act. 10. He also referred to the proceeding before the Debt Recovery Tribunal that was initiated by State Bank of India and continued by Kotak upon substitution being made in their favour. He referred to Section 13(13) of the SARFAESI Act to show, that once the secured creditor gave noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR 1954 Cal. 195. 13. Distinguishing the decision in the case of Shanmugar Mills Ltd (supra) cited by the learned Advocate General, he referred to paragraph-3 of the report to say, land, machinery and other assets should be taken note of as security. According to him, the Madras High Court decision would be contrary to the decision in the case of V.V. Krishna Iyer (supra). 14. According to Mr. Mookherjee, the appellants must restrict themselves on the issue raised before the Single Bench. They maintained their winding up petition before the learned Single Judge only on the issue of deemed insolvency relying on the notice issued under Section 434 (1)(a). Hence, they would not be entitled to urge the issue of the commercial insolvency at the appellate stage. In this regard he referred to Section 114 of the Evidence Act. He also relied upon the decision in the case of State of Maharashtra v. Ramdas Shrinivas Nayak AIR 1982 SC 1249 to support his contention, the points not urged before the learned Single Judge could not be raised at the appellate stage. He referred to the pleadings to show, no pleadings as to insolvency were made. He referred to two Calcutta High Court decisions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all aspects including the mala fide conduct of the appellant who came in unclean hand, very rightly rejected the winding up petition that would deserve no interference by this Court. 18. While giving reply, the learned Advocate General contended, the plea of parallel proceeding was never argued before His Lordship. Even in the cross-objection, this plea was not taken. Hence, the submission made on that score must be rejected. The learned Judge accepted the status of the creditor. The learned Judge also accepted the plea of assignment. His Lordship also recorded the inability of the appellant to take possession by reason of resistance put up by the company. Having held so, His Lordship should not have declined to admit the winding up petition. The learned Advocate General relied on the report of the Official Liquidator that would show, the total area mentioned in the appropriate deed of conveyance would not match the physical verification. The land was found short by the Official Liquidator. He also referred to the order of the Court of appeal that dismissed an attempt to challenge the order for inventory dated September 19, 2011. 19. Commenting on the argument raised by the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt as "doubtful". In the present case learned judge never expressed any doubt with regard to the claim of the appellant. In the case of Cambarian Mining Co. (Supra), the court exercised discretion, no law was decided. In the case of State Trading Corpn. (Supra), it was not clear whether the decision was rendered before or after admission of the winding up petition. He lastly contended, once the learned Judge considered the plea of commercial insolvency, His Lordship should not have dismissed the same only on the ground of deemed insolvency in terms of section 434 (1) (a). 22. Learned judge heard analogous matters where the common issue of section 434 (1) (a) was involved. In the present case, the petition was maintainable not only on the statutory notice but also on inability to pay. The learned Advocate General also demonstrated the pleading in this regard. Hence even if the notice of demand was not sufficient to maintain the winding up petition the plea of commercial insolvency would fill in the gap or short comings, if any. 23. In the SARFAESI Act they would be in deemed symbolic possession of asset once they invoked the provisions of said Act by serving the notice of dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim for Rs. 500 and above. The creditor also pleaded, the company was insolvent and unable to pay its debts. The appellant also claimed, it was just and equitable that the company should be wound up. The above pleas could only be resisted by the company once they would raise the bona fide dispute meaning there by, if the creditor has an admitted claim it must be paid, in default that could only be resisted by raising a bona fide dispute. In the present case, creditor could prove that it had a claim. The learned judge observed that there was little dispute that too, with regard to interest, the relevant observation as appearing in page 463 is as follows: "It is beyond dispute that the original creditor had granted substantial credit facilities to the company. Despite the company's proclamation to the contrary, it is evident that the petitioner is a creditor of the company, as the amount due and owing from the company to the original creditor and the securities furnished by the company to the original creditor have all been assigned to the petitioner." 25. From the pleading, it would hardly appear that the company could dispute, far to speak of bona fide, that could resist a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have admitted the winding up petition and directed advertisement of notice making the said proceeding a representative action. 29. Emphasis was placed on the advertisement of notice of demand. The petitioning creditor claimed, they did not receive back the acknowledgement due card. It would have been proper, if the appellant would enquire from the postal authorities about the fate of such undelivered packet, or the acknowledgement due card. They took no step in this regard. However, this ground alone would not be sufficient to deny admission of petition. This irregularity could not be presumed as mala fide as erroneously held by his Lordship. 30. If we go by His Lordship's views per se on section 434 (1) (a) we might agree with the ultimate result. However, the right of a creditor, secured or unsecured, to maintain the winding up petition would lie both under section 434 (1) (a) as well as 433 (e) and (f). Mr. Mookherjee contended, it was not argued. The learned judge however mentioned about the other aspect particularly the issue of commercial insolvency and such recording, unless confronted before His Lordship, must be taken as sacrosanct. 31. We thus conclude, the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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