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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 ..... nd to conduct its affairs in the course of winding up and to distribute its assets in accordance with the law" 2. In support of the request for winding up order against the respondent company, the petitioner bank has claimed that at the request of the respondent company, the petitioner bank had granted loan to the respondent bank so as to meet with the need of the respondent company for working capital. The loan was granted against collateral security by way of post dated cheque issued by the respondent company as well as personal guarantee of the Directors of the respondent company. The respondent company failed to repay the loan of the petitioner bank and despite requests and reminders the respondent company failed and neglected to make payment. 2.1 The petitioner bank has also claimed that when the post dated cheque given by the respondent company, was deposited for clearance, the same was dishonoured. Since despite the requests and reminders the respondent company failed to repay the loan amount the petitioner company issued statutory notice dated 10.8.2011 which was served at the Registered office of the respondent company. The said notice was responded by the respondent com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors of the respondent company to execute the deed of guarantee in favour of the petitioner. 9. The respondent company and the guarantors have executed necessary loan documents/deeds/agreements on 27.9.2010 and the respondent company wrote a letter in favour of the petitioner dated 28.9.2010 confirming execution of the documents for the loan of Rs.50 Crores and requested for disbursement of the amount and accordingly the amount has been disbursed on 29.9.2010 which was duly received and acknowledged by the respondent company. The respondent company and the guarantors have agreed to and accepted all the terms and conditions of various deeds/agreements as well as sanction letter executed the respondent company as well as the personal guarantors/directors of the respondent company which, among other things, provided that the said short term loan facility was for a maximum period of 6 months. The said six months period has come to an end on 28.3.2011. Inspite of the agreements and acknowledgement that the said short term facility of Rs.50 Crores was due for payment on 29.3.2011, the respondent company wrote a letter to the petitioner dated 18.5.2011 requesting for grace period of on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 433 to the respondent company at its regd. Office calling upon the respondent company to make payment of the entire outstanding amount under the said loan together with interest, further interest, penal interest, indicating that the amount due and payable as on 31.3.2011 is Rs.50,44,94,820/- and that the respondent company is also 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 @ 17.90% p.a. monthly rests further appropriate base rate + 8.40 % p.a. monthly rests as may be changed from time to time thereafter along with penal interest @ 2% p.a. (less whatever amount has been paid by the respondent company from 1.4.2011), till realization within a period of 21 days from the date of receipt of this notice, indicating that if the same is not satisfied it will constitute the respondent company's inability to pay its dab to the petitioner and that the petitioner shall initiate action for winding up proceedings of the respondent company under the provisions of Section 433 and 434 read with other applicable provisions of the Companies Act, 1956 as well as any other legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. It is true that the respondent company wrote letter dated 18.5.2011 requesting for an extension of one month for repayment of the loan" 3.4 Having admitted that the petitioner bank granted loan at its requests, the respondent company came out with a contention that the said cheque was not given in discharge of any liability but was given only as a security and the petitioner bank ought not have deposited the cheque. Thus, with reference to the said cheque the respondent company raised dispute however it did not dispute the fact that loan facility was availed by it and despite demands it has not repaid the due and payable amount. The respondent company, in the reply affidavit has mentioned the details of its financial position and has also mentioned details about the proceedings taken out by the bank before the Debt Recovery Tribunal. The respondent company has, on the strength of such details, contended that the petition does not deserve to be entertained and may not be entertained since there is no substance in petitioner's claim that it (i.e. the respondent company) has lost its financial stability and is unable to pay its debt. It is also claimed that the petitioner ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assistance in face of the fact that after seeking extension of time on two occasions the respondent company has not paid and could not pay the due and payable amount. He submitted that in view of the fact that the debt is not disputed and the fact that the due amount has not been repaid, the petition deserves to be admitted and the petitioner company is entitled for order of admissions of the petition. 5.1 Per contra Mr. Shah emphasized the details regarding turnover and profit said to have been earned by the company and he submitted that the respondent company is a going concern and that therefore there is no case for admitting the petition since the Court would not order winding up of a running concern. He also submitted that the petitioner bank has already initiated proceedings before the Debt Recovery Tribunal and therefore also winding up proceeding does not deserve to be entertained. He also reiterated submissions that the cheque was deposited only as security and it was not supposed to be deposited and/or encahsed by the bank and that therefore the request for winding up order cannot be supported on the basis of the submission that the said cheque has not been honoured. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of such undisputed facts the petitioner bank has demanded repayment of the said loan amount. The respondent company, in response to the demand, addressed a letter dated 18.5.2011 to the petitioner bank and requested for grace period/extension of time up to one month for making payment. It is claimed by the petitioner bank that even after expiry of such extended period, the respondent company did not make the payment. Instead the respondent company addressed communication dated 17.6.2011 assuring that the outstanding amount shall be paid on or before 25.6.2011. 7.1 In the facts of the case the two communications addressed by the respondent company to the petitioner bank i.e. letter dated 16.5.2011 and 17.6.2011 are vital and the contention raised by the respondent company are, in the facts and circumstances of the present case required to be examined in light of the said two communications and the loan agreement as well as the guarantee deed executed by the company and the two directors. The said letters read thus:- "Date:18th May, 2011 To, The Asst. Gen. Manager UCO Bank UCO Bhavan, Ashram Road Br., Nr. Sanyas Ashram, Ahmedabad 380 009 Ref: STL of Rs.50 Cr. Dear Sir, W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or even thereafter. 7.5 Instead, on 17.6.2011 the respondent company addressed another letter stating inter alia that: "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." Even after the said communication the loan amount has not been paid. 7.6 The important and relevant aspect is that after having availed the loan facility and after having agreed to repay the loan amount on or before 29.3.2011 and then after having asked for extension of time until 18.6.2011 to repay the loan amount and then having again asked for further extension until 25.6.2011, the respondent company not only failed to keep its promise and fulfill its assurance and the respondent company not only went back on its written assurance in the loan agreement as well as the said two communication dated 18.5.2011 and 17.6.2011, but it actually raised dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling to Rs.7294.66 millions) the respondent company has burden of secured loans to the tune of Rs.13,545.60 and unsecured loans to the tune of Rs.9,097.00 i.e. totalling to Rs.22,642.60 (which, in the past financial year which ended on 31.3.2010 was to the tune of 15,157.31 millions). Thus, not only the respondent's liability towards secure and unsecured loan has increased from Rs.15,157 in 2010, by more than Rs. 7 million to the tune of Rs. 22,642.60, its said liabilities are almost three times more than its share capital and reserve and surplus put together inasmuch as the sum total of respondent's share capital and reserve and surplus is about Rs.7,294.66 whereas its loan burden (unsecured and secured) is to the tune of Rs.22,642.60. Besides the said liability the respondent company has differed tax liability of Rs.865.30 millions. 8.1 In present case when the above mentioned financial position which is reflected from the respondent company's balancesheet for the year ending 31.3.2011 reflects that its financial liability and obligation are three times more than its capital and reserves/surplus then such details cannot be overlooked by the court in a petition brought before it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent company heavily relied on the decision of this Court in case of American Express Bank Ltd. (supra) however, conjoint reading of the respondent's reply dated 5.9.2011 in response to petitioner's statutory notice dated 10.8.2011 along with the respondents reply affidavit filed in present petition demonstrate the striking distinction between the response and conduct of the respondent in the cited case and present respondent company as well as the vast distinction as regards the facts of the cited case and the facts of present case as well as. In the cited decision the court has taken note, in para 2 and 3 (and also at various stages in the other part of the text of the judgment of the decision cited by the learned counsel for respondent) that in the said case the respondent had appeared before the court and submitted, inter alia, that it was in the process of restructuring its debts and entire finances and the process for restructuring and arrangement with all financial institutions/secured creditors was in progress. 12.1 The more important and relevant aspect in the cited case was that the respondent in the said case also brought before the court the fact that the majority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors, majority of of the creditors were ready to restructure their loans as per the proposal, provided checks and balances are put to ensure commitment for which certain proposals made by the company through its representative Mr. Sushil Handa were noticed. A sub committee of the lenders, was formed to further discuss the proposal in detail." 12.2 In the aforesaid context, as against the said set of facts in the cited case, the respondent in present case has not only not said anything about the process of "restructuring - of - left" and the willingness of the financial institutions/banks to accept the restructuring but it has committed breach of its own undertaking and assurances and then it has came out with allegations against the petitioner and against the claim/demand for repayment of debt/due and payable amount. Thus, the said decision would not and does not help the case of the petitioner in present case. In the said case the court was satisfied that the defence was bonafide and all other secured creditors had agreed for restructuring the finances and their loans and more important is the fact that substantial majority of the secured creditors were not in favour of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 of the Companies Act is special statutory remedy available to the creditors of the company besides ordinary suit/civil remedy for recovery of due amount. The remedy under section 433 and 434 of the Act is not meant for enforcing recovery of due amount and that therefore it is required to be distinguished from the action taken by the creditor bank before debt recovery tribunal either under RDB Act or SARFAESI Act for recovery of the amount and merely because the petitioner bank has, to ensure recovery of the due amount in accordance with law, instituted proceedings before DRT, the petition taken out by it under section 433 and 434 of the Act cannot be branded as "malafide intention" of the bank or as misuse of the machinery of court and tribunal and/or abuse of process of law and the petition would not be barred because of the proceedings before the learned tribunal. 12.7 In fact, such allegation made by the respondent company in its reply in response to the statutory notice and in the reply affidavit lead the court to believe that the said submission and allegations are respondent's cry out of desperation and lame and feeble attempts to frustrate the action in law against it wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or would not be justified or public interest so demands the court would, ordinarily not deny an order of admission of petition seeking winding up of a company if the petitioner - claimant/creditor makes out a case and satisfy the court that one or more reasons - grounds specified under Section 433(a) to (i) exists in the given case. The Court, at the same time would also not allow the petitioner - claimant to use the remedy as arm twisting method and pressure tactics or as a weapon or a means for enforcing recovery/payment of debt which is bonafide and substantially and genuinely disputed. 15.1 The Apex Court has observed, in Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp. Cas. 456, that:- "It is well-settled that 'a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court." 15.2 The Apex Court, has, in the case between IBA Health (I) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e causes of refusal by the company to pay before coming to that conclusion. The Company Court is expected to ascertain that the company's refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil court." 15.4 This Court, keeping in focus the said observations examined the case put up by the respondent company vis a vis the claim of the petitioner and it is noticed that there is no dispute about the fact that the respondent had availed loan facility from the petitioner bank and that the amount advanced by the petitioner to the respondent was payable along with interest at contracted/agreed rate, on completion of specified period (six months) and the respondent company had under its two letters admitted its liability to pay the amount in accordance with the loan agreement and also asked for extension of time on two occasions and then suddenly as a bolt from blue the respondent company came out in response to the statutory notice (issued and served by the petitioner bank after couple of requests and reminders) with allegation branding the petitioner bank's claim and the statutory notice as "without any substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the petitioner bank has not claimed definite and exact sum/amount, it is relevant to take into account the details mentioned in the statutory notice. In para 1 of the statutory notice it is averred that:- "1. My client submits that at your request my client sanctioned credit facility of short term loan of the sanctioned limit 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 short fall of the working capital need..." It is further averred in the said paragraph of the notice that:- "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" It is also averred in the notice that "3. My client submits that you have also executed letter in favour of my client dated 28.9.2010 thanking my client for sanctioning the loan of Rs.50 Crore and confirming execution of the documents by you and requesting for disbursement of the amount and accordingly the amount has been disbursed on 29.9.2010 which was duly received by you and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Western India Theaters Ltd. (supra) before the Division Bench of the Bombay High Court was a case where a winding up petition was filed and the learned Company Judge passed an order for advertising it. During the course of those proceedings, the original petitioning creditor withdrew from the petition and the learned Company Judge made an order substituting in his place Ishwarbhai Somabhai Patel. The respondent Company whose winding up was sought challenged the order in appeal. One of the grounds raised in the appeal was that the winding up petition was not properly presented by the petitioner. The petition was signed by the constituted attorney of the petitioning-creditor - one Mr Tijoriwala in whose favour the petitioner had executed a power of attorney. But the power of attorney was conferred only in respect of the five shares held by Ishwarbhai Somabhai Patel which were sold by Patel to Tijoriwala. Under the Rules of the Bombay High Court, it is only an agent who is the donee of a general power of attorney that can perform any acts or take any proceedings in Court on behalf of his principal. The Court came to the conclusion that the power of attorney executed by Patel in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even if a specific resolution of the Board of Directors of the petitioning-credit Company was required for instituting the winding up petition against the appellant Company, subsequent resolution dated 12.10.2001 passed by the Board of Directors of the petitioning-creditor Company (the respondent herein) constitutes sufficient authority for the constituted attorney to proceed further with the winding up petition." (emphasis supplied) 19. Having regard to the said decision and the nature of defects alleged by the respondent company this court is of the view that the petition, in view of the foregoing discussion does not deserve to be rejected or dismissed. The petitioner has made out a case for admission of the petition and the court, as observed above, is satisfied that the defence taken by the respondent lacks bonafides and it has neglected to discharge its financial obligation. Therefore, the court is inclined to accept and admit this petition. However it appear appropriate, in the facts of the case, to grant opportunity to the petitioner to cure the defects. Therefore this court is inclined to pass following order. 20. The petition is accepted and admitted. The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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