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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 ..... 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 Rs. 5 crores. The respondent-company accepted the terms and conditions thereof by a resolution of its board of directors dated December 23, 2006. Thereafter the respondent-company executed certain documents in favour of the petitioner for availing the said credit facility. At the respondent-company's request, a revised sanction letter dated January 17, 2007, was issued. It was made clear therein that, except to the extent of the amendment, the original terms and conditions remained in force. Thereafter another sanction letter dated April 18, 2007, was issued amending the terms and conditions of the earlier sanction letter for Import Factoring Facility. The credit facility sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpromise/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 respondent-company had brought to the notice of the petitioner that, with reference to renewal of the sanctioned facility, they had agreed to close the factoring facility limits of Rs. 25 crores vide letter dated December 8, 2010 ; unfortunately due to liquidity pressures, they were unable to pay the instalments of Rs. 5 crores each due at the end of January-March, 2011 ; they had paid Rs. 77,61,800 vide cheque dated May 3, 2011, as part of the commitment given to the petitioner ; in the meantime, the petitioner had, presented the post dated cheque on April 15, 2011, to the bank for payment ; the same was dishonoured due to insufficient funds ; even though talks were still going on, and the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh 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, despite these facts being brought to their notice, the petitioner has proceeded to file a petition for winding up. They would also contend that the amount liable to be paid is not a debt for the purpose of section 433 of the Act, and it is a loan acquired under reverse and silent factoring facility ; the respondent-company was running, and was fully operational and hence could not be brought either under the Sick Industrial Companies (Special Provisions) Act, 1985, or under sections 433, 434 and 439 of the Act. 7. It is evident from the statutory notice dated May 26, 2011, that a sum of Rs. 26,56,21,205.23 with further interest at 18 per cent. per annum was due and payable by the respondent-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable 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, a demand requiring the company to pay the sum due and the company has, for three weeks thereafter, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, then the company must be deemed to be unable to pay its debts. 10. The fact that a notice was issued to the respondent and delivered at its registered office by registered post demanding that a sum exceeding Rs. 26 crores be paid within three weeks, is not in dispute. It is also not in dispute that the amount due and payable to the petitioner exceeds Rs. 26 crores, and the respondent neither paid the said amount within three weeks of receipt of the statutory notice nor did it secure or compound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icated 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 ability to pay the debt. If the company chooses not to pay a particular debt, the court would have no choice but to pass an order of winding up (Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. [1972] 42 Comp Cas 125 ; [1972] 2 SCR 201, Shantilal Khushaldas & Bros. (P.) Ltd., In re and Smt. Manulaben Bapalal Gosalia v. Shantilal Khushaldas & Bros. (P.) Ltd. [1991] 70 Comp Cas 195 (Bom)). If the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order (Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp Cas 456 (SC) ; Buckley on the Companies Acts, 13th edition, page 451). 12. In order to determine whether there is a bona fide dispute or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, without good reason, it should not be able to avoid the statutory demand by proving at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterised as a stand alone ground - IBA Health (I) (P.) Ltd. (supra). Once the legal fiction under section 434(1)(a) of the Act operates, and there is no bona fide dispute regarding the debt due, the necessary consequence is that the respondent-company must be deemed to be unable to pay its debt necessitating, ordinarily, the company petition filed for winding up, being admitted. 14. The company petition is admitted. 15. Let advertisement of admission of the company peti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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