2010 (7) TMI 813 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - in fact the interest of the workers would also be gravely prejudiced and jeopardised if the respondent is permitted to continue incurring huge liabilities. It is always open for the appropriate parties to make applications to revive the respondent-company. This would be in the greater interest of the workmen and other employees. In the circumstances the company petition is made absolute in terms of prayer clauses (a) and (b). The operative part of this order is stayed up to October 31 2010. However till the official liquidator takes possession of the property the respondent-company shall not dispose of alienate encumber part with possession of or create any third party right title or interest in respect of the assets of the company except payment of wages of the employees and workers of the company and statutory dues

Summary

Issues:
Petition for winding up on ground of inability to pay debts, Locus standi of petitioner, Counter-claim by respondent, Excessive interest rate charged, Company's financial position, Workers' interest, Stay on order.

Analysis:
1. Winding up Petition: The petitioner sought winding up of the respondent-company due to its inability to pay debts. The petitioner, as an assignee from Dena Bank, established the respondent's admission of substantial dues through various documents, indicating a liability exceeding Rs. 20 crores. The respondent did not contest the debt repayment issue, leading to the court's consideration of the winding-up petition.

2. Locus Standi of Petitioner: The respondent argued that the petitioner lacked locus standi based on a deed of assignment. However, the court relied on relevant sections of the Securitisation and Reconstruction Financial Assets and Enforcement of Security Interest Act, 2002, to establish the petitioner's status as a securitisation company with the right to maintain the petition as a secured creditor and trustee.

3. Counter-claim: The respondent presented a counter-claim of over Rs. 120 crores, alleging damages and losses. The court dismissed this claim, noting the lack of substantial evidence or legal basis for such a significant counter-claim, which included vague elements like mental torture and loss of reputation.

4. Excessive Interest Rate: The respondent challenged the interest rate charged by the petitioner, claiming it to be excessive. Despite the contention that a lower interest rate should apply, the court found that even at the reduced rate, the respondent's dues would exceed Rs. 10 crores. The lack of legal provisions supporting the respondent's interest rate argument further weakened this claim.

5. Company's Financial Position: The court highlighted the respondent's poor financial position, as evidenced by rejections from the Board for Industrial and Financial Reconstruction (BIFR) and the respondent's failure to propose any measures for financial improvement. This financial instability posed a risk to the workers' interests and justified the winding-up order.

6. Workers' Interest: Considering the impact on over 100 workers in the respondent-company, the court emphasized the need to protect their interests by preventing the company from incurring further liabilities. The court suggested the possibility of reviving the company for the benefit of the workers and employees.

7. Stay on Order: The court granted a stay on the operative part of the order until October 31, 2010, barring the respondent from dealing with company assets except for paying employee wages and statutory dues. This temporary stay aimed to facilitate the official liquidator's actions while safeguarding essential payments.