TMI Blog2014 (2) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ctness of the decree of Turin Court does not arise. Winding-up proceedings and a suit for recovery of money are not one and the same. It is also established that the right to move a petition for winding-up is a statutory right of a creditor - The position that when a suit is filed for recovery of the amount a petition for winding-up is also simultaneously maintainable is well settled - merely because a decree is obtained the creditor it does not cease to be creditor of a Company - Bare perusal of the Patronage Letter shows that the Respondent had in unequivocal terms guaranteed to pay the amount upon default. The Patronage Letter lists events that will trigger the enforcement of guarantee. Nowhere in the correspondence the Patronage Letter is referred to as a comfort letter. The loan agreement executed between the parties is conditional upon execution of the Patronage Letter cum guarantee. Thus the loan agreement is based on the guarantee given by the Respondent and makes it clear that if there was to be no guarantee by the respondent, the loan agreement would not have been executed. In the reply a stand is taken by the respondent that the Patronage letter violates provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. 3 The main object of the Respondent Company is to carry on business of trading, manufacturing, fabrication, alteration etc. in India and abroad, dealing in electronic and consumer durables and home appliance, all kinds of electrical and electronic goods, conductors, capacitors, micro processors, computers, software, household items, television sets and other allied products and activities. 4 Grievance of the Petitioner is that the Respondent Company has not paid the Petitioner a sum of Euros 38,000,000 (Euros Thirty Eight Million) approximately equivalent to Rs. 259,73,00,000/- (Rupees Two Hundred Fifty Nine Crores Seventy Three Lakhs only), due under a letter of guarantee -Patronage Letter dated 5 June 2007. 5 Before the facts are adverted to, various companies that involved need to be specified : first is the Petitioner : Intesa Sanpaolo S.P.A, an Italian Bank incorporated under the laws of Italy, Second is the Respondent -Videocon Industries Ltd., third : VDC Technologies S.p.A (VDC), having registered office at Localita Fratta Rotonda, 03012 Anagni (FR), Italy and the fourth : EAGLE Corporation Limited (EAGLE) is a Company incorporated under the laws of Cayman Islands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EAGLE would not dispose of its shareholding in the VDC, without giving a prior notice to the Petitioner. 8 Since the Patronage Letter is an important document in this matter, it will be useful to reproduce the same in entirety as under : VIDEOCON INDSUTRIES LIMITED Patronage Letter Dated: 5th June 2007 To : Intesa Sanpaolo Spa Centro Corporate Roma Val del Corso, 226, 00186-ROMA (RM), ITALIA Place and date We the undersigned Videocon Industries Ltd., a company incorporated under the Companies Act, 1956 with registered office at Auto Cars Compound, Adalat Road, Aurangabad, Maharashtra, India having an Authorized share capital of Rs. Six Thousand Million registered with the Registrar of Companies at Mumbai, under number 11-103624 listed at the regulated stock market of BSE, Mumbai, National Stock Exchange of India Limited, Luxembourg Stock Exchange (GDRs) and Singapore Stock Exchange (Bonds), represented by Mr. Venugopal N. Dhoot born in India on 30th September 1951 pursuant to a resolution passed in the meeting of Board of Directors of the Company held on 27th April 2006 as evidenced by a copy of the authorization deed enclosed herewith certified by Mr. V. K. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay you forthwith, upon your first written demand and without raising any exception any amount due to your Bank by the Borrowing Company for principal, interest, expenses, taxes and ancillary costs in connection with the Secured Credit Line made available to the same up to the maximum amount of 38,000,000.00 (Euro Thirty Eight Million). Any notice or communication hereunder, including any claim for repayment, shall be made in writing to the following address : Mr. Venugopal N. Dhoot Chairman Managing Director, Videocon Industries Limited, Fort House, 2nd Floor, Dr. D.N. Road, Fort, Mumbai 400 001. Fax : 91 22- 66550580 It is understood that this letter shall be governed by and construed in accordance with the Italian law and shall be subject to the Italian jurisdiction. In particular, any dispute arising out of or in connection with this patronage letter shall be referred to the exclusive jurisdiction of the Courts of Turin. For the service of any deed or summons we the undersigned elect our domicile at the registered office of the Borrowing Company in Anagni (FR), Localita Fratta Rotonda, Italy. Sincerely yours, Company name Place and date Signature Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at interest would be paid at the expiration of each interest period of six month. Under clause 14 of the loan agreement it was agreed that amongst other events, VDC's complete failure to perform any one of the obligations, would constitute a cause for loss of the benefit of any term, as per the Article 1353 of the Italian Civil Code, without waiting a decision of the court. Clause 14.3 (g) of the loan agreement provided that in case of Respondent Company's direct and/or indirect investment in VDC is reduced below a 51% without the prior approval of the Petitioner-lenders, Petitioner would be entitled to terminate or to withdraw from the agreement. 11 On 6 June 2007, VDC addressed a letter to the Petitioner, accepting agency fees of Euros 10,000 (Euros ten thousand) to be paid on the draw down date in respect of the first year and thereafter each year. The amount of Agency Fees was to be debited from the current account of the VDC. As per clause 5.1(d) of the loan agreement, VDC sent a notice dated 2 August, 2007 to the Petitioner, indicating its irrevocable willingness to utilize the loan amount. On 6 August 2007 an amount of Euros 35,000,000/- (Euros Thirty Five Million) was cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that it was no more subsidiary of Respondent Company. The Respondent Company proposed the terms and conditions of restructuring. In the term sheet also the Patronage Letter was mentioned and outstanding indebtedness of VDC of 39,349,187/- Euros was acknowledged. Under the Patronage Letter, an obligation of EAGLE, including undertaking of the Respondent Company was reintroduced. It was also stated that EAGLE's shareholding in VDC had changed to 83.8% and Respondent Company's shareholders holding in EAGLE was changed to 10%. 15 In the meanwhile, the VDC defaulted in repayment of loan installments due on 7 December 2009, 7 June 2010 and 7 December 2010. On 11 February 2011 the Petitioner addressed a letter to VDC and the Respondent Company in respect of the defaults committed by VDC and drew attention of the Respondent Company to the terms of the Patronage Letter. The Petitioner withdrew the credit facilities given under the loan agreement with effect from 11 February 2011 and called upon VDC and Respondent Company, as guarantors, to clear the outstanding amount. Again an e-mail was sent by Respondent Company on 3 March 2011, forwarding another proposal for restructuring of indebt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an amount of 38,000,000 Euros (Euros Thirty Eight Million), approximately equivalent to Rs.259, 73,00,000/- (Rupees Two hundred fifty nine crores seventy three lakhs only), as due and payable. The notice was served on the Respondent Company. Respondent Company replied on 28 July 2012. Reply inter alia stated that since a payment injunction was issued by the Turin Court, till the Petitioners complies with the provisions of Indian Law and independently obtains a decree from the competent court, the Respondent Company is not legally liable to pay. The Respondent Company also raised several other defences. Thereafter, the Petitioner filed the present petition for winding up. A reply affidavit has been filed and also a rejoinder by the Petitioner. 19 I have heard Mr. Haresh Jagtiani, learned Senior Advocate for the Petitioner and Mr. Dinyar Madon, learned Senior Advocate with Mr.R.D.Soni, learned Advocate for the Respondent. 20 Mr. Jagtiani, learned Senior Advocate for the Petitioner contended as under : a) The petition is based on the Patronage Letter dated 5 June 2007. The loan given to VDC by the Petitioner was in consideration of the fact that the Respondent Company held 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd taken in the reply to the winding up notice and in a affidavit in reply. In any event, violation of any provisions of FEMA would entail penalties on the Respondent Company and in no manner affect the liability under the provisions of the Patronage Letter. g) There is no substance in the contention that the Petitioner has filed a suit for enforcement of the order of the Turin Court and that the Patronage Letter has merged into the said order and therefore the petition is not maintainable. The doctrine of merger of the original cause of action does not apply in case of a foreign judgment. h) The suit for enforcement of a foreign decree and the winding up proceedings can be maintained simultaneously. The court seized of the suit for enforcement cannot pass an order for winding up , which only this court is competent to do. i) The suit filed in Calcutta is a collusive suit. The plaintiff therein has admitted that he has no privity of contract with the petitioner and is not concerned with the interse disputes between the Petitioner and the Respondent Company. No orders are passed in the Calcutta suit affecting the validity or enforceability of the Patronage Letter. j) The con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andalone ground to reject the winding up petition. 21 On the other hand, Mr. Madon, the learned Senior Advocate and Mr. Soni, learned Advocate appearing for the Respondent contended as under : (a) The Petitioner is not a creditor of the Respondent within the meaning of section 439 of the Companies Act, and therefore, the petition is not maintainable. (b) The Petitioner has based its claim in the petition on the decree passed by the Turin Court. That the petition is founded upon the decree of Turin Court is clear from the perusal of the petition and the statutory notice. (c) All foreign judgments and decrees are subject to the rules of Private International Law of the State in which they are presented for enforcement. The Petitioner has sought to enforce the decree by way of Suit in this court, therefore, conclusiveness of the decree dated 8 July 2011 is being scrutinized by the Indian Courts. (d) The question of Respondent Company being unable to pay the debts, will arise only if the execution or other process issued in favour of a creditor of the Company is returned unsatisfied. Unless the decree is granted to the Petitioner, the petition for winding up will not be maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and enforceability of the Patronage Letter is the subject matter of the suit where the Petitioner is a party. (k) The Respondent Company is commercially solvent. The net profit of the Respondent Company from 1 January 2012 to 30 June 2012 is Rs. 100.43 crores. The revenue for the last six months ended on 30 June 2012 is Rs.5,294.324/- crores, whereas from the crude oil and natural gas the same is Rs. 718.39 crores. The profit before tax from consumer electronic and home appliances is Rs. 544.89/- crores. The Respondent Company has various branches and large work force is employed, therefore, the Respondent Company is not liable to be wound up. (l) The Petition is filed only to extract money from the Respondent Company and in view of the bonafide dispute raised by the Respondent Company, the present Company petition is liable to be dismissed. 22 Both the learned counsel have cited various decisions in support of their contentions which will be referred to along with the discussion at the relevant place. 23 Before the rival contentions are considered, certain admitted facts need to be noted. The Patronage Letter is executed by the Respondent Company. Clauses of the Patron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btedness under the Patronage Letter having been adjudicated and upheld by the Turin Court. Thereafter, the Petitioner specified in the statutory notice that the Respondent Company is called upon to pay the Petitioner a sum of Euros 38,000,000/- under the Patronage Letter. 25 A contention sought to be raised by the Respondent Company that when the Petitioner invoked Patronage Letter on 7 April 2011 an amount of Euros 36,6665,760/- was stated to be due and payable,however, the Petitioner has claimed Euros 38,000,000/- which shows that the claim is not based on the Patronage Letter. The learned counsel for the Petitioner submitted that at the time of statutory notice, the Petitioner had incurred expenses and costs, provision for which was made under the Patronage Letter itself. He submitted that the claim under the order dated 8 July 2011 of Turin Court was in excess of Euros 38,000,000/- however the claim in the petition is restricted to Euros 38,000,000/-as per the limit in the Patronage Letter. There is merit in this submission. Patronage letter does provide for a limit. All these averments in the statutory notice clearly indicate that the claim made by the Petitioner is based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any exception, to the Petitioner for principal, interest, expenses, taxes and ancillary costs. There is no dispute about this Patronage Letter. This is the first reference of the Respondent Company's liability to pay the Petitioner. 28 On 14 December 2009, the VDC had written a letter to the Petitioner, seeking an extension on deferred repayment till 6 December 2010. The letter head of this letter show that the VDC is a part of the Videocon Group. This letter was rejected by the Petitioner and VDC was called upon to make the payment. The VDC by letter dated 19 January 2010 requested the Petitioner not to invoke the bank guarantee. The letter head of this letter shows the logo of the Videocon group . In this letter the VDC had drawn attention of the Petitioner to the commercial viability of the Respondent Company. It was pointed out that the Respondent Company is one of the oldest and most well known Company in India, having network of a group of companies around US$ 2,000,000/- million. After pointing out towards the commercial viability of the Respondent Company, the VDC requested the Petitioner for absorption of the debt by special purpose vehicle. Thus the VDC itself relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 June and 5 June 2007. Thereafter, in the reply to the statutory notice, the Respondent admitted the fact there has been a default on the part of VDC,however, it was stated that the Patronage Letter was only an accommodation letter apart from taking other defences. 31 Thus the above mentioned correspondence clearly shows that the fact that the VDC had defaulted in payment to the Petitioner has been clearly admitted by the Respondent Company. Even the execution of the Patronage Letter is not denied. 32 The other event leading to breach of Patronage Letter is the dilution of the shareholding of the respondent in EAGLE and dilution of EAGLE's shareholding in VDC. In letter dated 9 December 2010, the Respondent indicated that as on that date the Respondent owned 10% share capital of EAGLE and EAGLE owned 83.8% in VDC. Thus the shareholding of the Respondent and the EAGLE was diluted. Under the Patronage Letter it is considered as one of the triggers for invocation of the guarantee contained therein. The basic premise on which the Patronage Letter was issued was that the Respondent owned 100% shareholding in EAGLE and EAGLE owned 100% shareholding in VDC, making it step down subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position have been advanced by Respondent Company. Those will be considered one by one in detail. Before I proceed to do so, it must be clarified that I am examining the question on the foundation of two basic facts. First that the petition is filed by the petitioner on the patronage letter and second on admissions of liabilities. The Petitioner has chosen to base its case on these two aspects. The Petition is not based on the right of the petitioner under a decree. There may be cases of petitions are presented purely on a foreign decree. There could be cases that there are no admissions of liabilities and the entire liability is seriously disputed or at least a semblance of defence as regards the liability is placed on record. 35 The first submission of the Respondent Company is that the petition is based on a decree of the Turin court dated 8 July 201 and not on a Patronage Letter and since the claim is based on the decree of the Turin court it is subject to the Rules of Private International Laws as all the Foreign Judgment and Decrees are. Reliance is place on section 13 and Section 44A of the Code of Civil Procedure. It is submitted by the Respondent that the validity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Ltd. AIR 1995 P H 29 relied upon by the Respondent Company, the petition their in was solely based on the award which is not the present case. Further more there is a distinction between suit and winding up petition and in the following discussion I have dealt with this distinction. 38 Next question is whether patronage letter has merged into the decree of the Turin Court. According to the Respondent, since Patronage Letter has merged with the decree of Turin Court and the suit has been filed in this Court for executing the decree, the Petitioner must await the decision of the suit where conclusiveness of the foreign decree will be determined. According to the Petitioner, there is no merger in respect of foreign judgment. A view is taken in the decisions cited by the Petitioner referred below that doctrine of merger of the original cause of action in the judgment, does not apply in a case of a foreign judgment. It is held that the original cause of action does not merge in a foreign judgment and the judgment debtor can maintain action in either in original cause of action or foreign judgment or in both. Even otherwise as stated earlier what we are concerned with in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork Supreme Court and the award. The judgment furnishes an independent cause of action. The question would be whether the cause of action furnished by it arose within the limits of the original jurisdiction of the High Court. The judgment was rendered in New York and, therefore, the cause of action furnished by it arose at that place and not anywhere else. This cause of action is really independent of the cause of action afforded by the contract and, therefore, if advantage was sought to be taken of it, the suit would not lie at Bombay. This point does not appear to have come up for a direct decision in any case. 66. We may, however, refer to the decision in East India Trading Co., v. Carmel Exporters Importers Ltd . There, an action was brought in England to enforce a foreign judgment awarding damages for breach of contract and the question for consideration was the relevant date for converting the amount of damages into sterling. After considering the relevant decisions on the point Sellers J., held that the relevant date would be the date of the foreign judgment. The ground given by him was that the plaintiff's cause of action was the foreign judgment and it is that judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed upon this question. No doubt, the English doctrine of merger has been consistently held in English not in England not to apply to a foreign judgment with the result that despite the fact that a plaintiff has obtained a foreign judgment he may nevertheless sue in an English court upon the original cause of action instead upon the judgment. When he sues upon the original cause of action, no doubt, the court within whose jurisdiction the cause of action arose would be entitled to entertain the suit. But, if on the other hand, he chooses to sue upon the judgment, he cannot found jurisdiction for the institution of the suit on the basis of the original cause of action because once he chooses to rest himself on the judgment obtained by him in a foreign court, the original cause of action will have no relevance whatsoever even though it may not have merged in that judgment. 41 The Apex court in Badat6 case referred to the English doctrine of merger and made a distinction on a suit based on a decree and the original cause of action. The Apex court held that once a party sues upon the original cause of action,the court within whose jurisdiction the cause of action arose would be en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34(1)(a) and Section 434(1)(b) of the Act. From the very language of Section 434(1)(b), it may be stated that it does not even contemplate a money decree or order for payment of money and it generally uses the expression "if execution or other process issued on a decree or order of any court in favour of a creditor of the Company". Therefore, the decree or order that is contemplated by Section 434(1)(b) is not confined only to a money decree or an order for payment of money. On the other hand, it is general in nature. However, what we have to concentrate on is, whether a person who had obtained a decree for money against a Company will cease to be a creditor because of that fact, so as to take his case out of Section 434(1)(a) of the Act. We are of the opinion that there is no warrant for such a contention, A creditor, who has instituted a suit and obtained a decree against the Company, will still be a creditor of the Company to whom money is due by the Company. It may be that the original debt had merged in the decree and the person who was originally a creditor had become a decree-holder afterwards, but that does not in any way destroy his character as a creditor or the character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se contentions. The learned Judge held that obligation to obtain permission of the RBI, if it was required to be obtained, was upon the company and the company cannot take this as a ground to avoid to discharge its obligation. The learned Single Judge also held that non-executability of the decree of the Court in UK would be at the most considered in the execution proceedings and it cannot be a ground to refuse to entertain a petition for winding up. The learned Single Judge held that in view of clear liability the defences taken were not genuine. The relevant passages from the judgment are reproduced below : 9. It was lastly contended by Mr.Sanjanwala, learned counsel appearing for the Respondent Company that the decree of Court of England is non-enforceable in India as per the provisions of Section 13B and 13D of CPC and it was submitted that the remedy for enforcement for execution of such decree of the Courts of UK is as per Section 44A of CPC since the UK being a country of reciprocating territory, but in view of the fact that such decree is non-executable as per Section 13 of CPC, and if such decree is non-enforceable, there is no valid claim which can be made as the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinction between creditors on the basis of decree of which Court they hold. The Apex court in the case of Rajah of Vizianagaram vs. Official Receiver and Official Liquidator of Vizianagaram Mining Co. Ltd., 1962 Supp (1)SCR 344 observed as under: 11. Section 166 provides for an application to the court for the winding up of a Company. Any creditor or contributory is entitled to apply for the winding up of the Company. No distinction is made between the creditors resident in India or outside India. Section 167 specifically states that an order for winding up of a Company shall operate in favour of all the creditors and of all the contributories of the Company as if made on the joint petition of a creditor and of a contributory. It is not possible therefore, to urge successfully, that the order of windingup of an unregistered Company does not operate in favour of all the creditors and of all the contributories of the Company. All the creditors of the Company can take advantage of the winding up of the Company as operating in India when it has ceased to carry on business there. There is no reasonable basis for depriving them from participating in the distribution of the assets c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company. 49 It was further contended by the Respondent in the Patronage Letter that the decree of Turin Court was an ex-parte decree and obtained by fraud and is opposed to principles of natural justice. In view above discussion this point does not have much relevance. Even other wise there is no substance in this grievance. It was submitted that the notice was not given to the Respondent at its registered address but at the address of VDC even after knowing that VDC had ceased to be a step down subsidiary. The Patronage Letter clearly provides that the address for summons to be served on the Respondent was the address of VDC. The Respondent selected this address for court summons. The Respondent Company never informed the Petitioner that this address is changed. If that be so, the Petitioner cannot be faulted for serving the Respondent with the summons at the said address. If the summons would have been served on any other address opposite grievance would have been made by the respondent Company. The Turin Court issued a payment injunction on 8 July 2011. The order provided a 60 days period to the Respondent Company to contest the payment injunction. It was open for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the court of Turin. It was submitted that the Petitioner has in fact accepted this position and has filed proceedings before the Turin Court which passed a decree in favour of the Petitioner. Reliance is placed on the decision of the Apex Court in the case of M/s. Swastik Gases Pvt. Ltd., vs. Indian Oil Corporation Ltd., 2013 (8) Scale SC 433 which lays down that the intention of the parties is determinant in reading exclusion clauses regarding jurisdiction of the courts. 52 Though the Patronage letter does make a reference to jurisdiction of the Turin court, reliance on the decision in Swastik Gases is misplaced. The decision in Swastik Gases was not rendered in the context of a winding up petition. The petition for winding can be filed by the Petitioner only in this court. For the purpose of entertaining a petition for winding up only this court will have jurisdiction. It will be absurd to suggest that the petition for winding up can be filed in the Turin Court. From the correspondence which is referred to above, the existence of the Patronage Letter is not disputed. The fact that there has been default on the part of the VDC, which is a ground for invocation of the guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be affected by question of permission of the RBI. It was also held that if the permission of RBI was necessary then if the Company made no application and it cannot take this up as a defence. The learned Single Judge held that the defences raised by the Respondent Company therein was lacking in commercial morality and involved a question of international commercial transactions and upholding the national prestige in the international commercial transactions. In the present case even though a contention was taken in the reply that the patronage letter is in violation of Foreign Exchange Management Act, this point was abandoned during the arguments. As stated earlier there is no ground raised whatsoever that the patronage letter was in violation of any law much less Italian law. The Respondent cannot raise academic questions, it must indicate which are the questions of fact the court of Turin had an exclusive jurisdiction to decide. Even assuming the question of service of summons was a question of fact, the knowledge of service of summons has been established in the pending suit in Calcutta, which will be referred to later on. 55 One defence that has been raised by the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the Respondent that in the suit bearing no. 319 of 2012 the Civil Court at Calcutta has passed an interim order of temporary injunction, restraining the parties therein from giving effect to the letters of 16 December 2011 and 20 January 2012 for consideration of event of default. It is contended that the default mentioned under condition 10.1.5 (iii) of the Bond Term relates to the claim made on the basis of the Patronage Letter which is subject matter of this petition. It is argued on behalf of the Respondent that the Petitioner has made an application for impleadment and also for vacating the ex-parte adinterim order. Since the question as regards validity or otherwise of the Patronage Letter is sub-judice, the petition should not be proceeded with. The Petitioner has countered this submission by stating that the suit filed in Calcutta is collusive suit. It is urged that one more suit bearing number 3972 of 2012 has been filed in Calcutta and both these suits having filed through same Advocate, with similar pleadings. It is submitted that both the proceedings are unconnected with the subject matter of this petition. 58 The copy of the plaint and other documents rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08) 143 Company cases 122 and Osnar Paints And Contractors Pvt. Ltd. vs Western India Shipyard Limited 2008 (1) BomCR 879. There is no dispute about the legal proposition that if seriously disputed questions of fact exist, a winding petition need not be entertained. It is to be noted however that a spacious stand is taken that arguments on merits will be tested in the suit. When a petition for winding is presented the respondent was under obligation to indicate what is its' so called stand on merits. Throughout the correspondence there is no denial of liability. Restructuring has been proposed. Before the parties commenced litigation what was the stand of the respondent is most material. After the litigation has commenced all types of stands are taken. This itself raises doubts about the veracity of the defence 61 In this context case of Bangasri Ice and Cold Storage Ltd. Vs. Kali Charan Banerjee AIR 1962 Calcutta 613 is illustrative. Division bench of the Calcutta High Court cited with approval observations from Palmer's Companies Precedence 17th Edn. Part II at page 27 that the conduct of the Company after again and again requesting for time of payment of debts springs on Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s naturally open to great suspicion, and meets with no favour from the court" 62 The observations from Palmer's Companies Precedence above aptly applies to the Respondent's conduct. After repeatedly requesting for restructuring and time for repayment, once notice for winding up was received respondent has conjured up all sorts of defences. Before the notice for winding-up, the response of the Respondent Company was only of acknowledging the debts, acknowledging the default, seeking time giving fresh proposals. The learned counsel for the Petitioner has rightly made a grievance about the deponent of the affidavit in reply. While denying all the admissions in the correspondence, the deponent has not disclosed the source of his knowledge. The Respondent Company has put forward an officer, who has no personal knowledge, to deny the facts and the person who is aware of the discussions and meetings, has avoided to take a stand on oath. This factor is crucial while considering the bonafides of the defence. The conduct of the Respondent in denying even the meetings and admissions which are part of the correspondence by putting forward an officer with no knowledge is to say the least is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhushan Steel and Strips Ltd., (2003) 2 Comp LJ 269 (Del) an argument was advanced to reject the winding-up proceedings on the ground that the Respondent is commercially solvent. The learned Single Judge held that in view of the resolute refusal to pay the admitted debts solvency of Company alone would not be a relevant factor for rejecting a petition presented by a creditor. Decision of the Andhra Pradesh High Court in Mittal Iron Foundry (P) Ltd. Vs. Elektro Flame Limited (2000) 1 Comp LJ 192 (AP) was followed. The Apex Court in the decision of Madhusudan Gordhandas and Co. Vs. Madhu Woollen Industries (P) Ltd. AIR 1971 SC 2600 held that where the debt is undisputed the Court will not act upon a defence that the Company has ability to pay the debts but chooses not to pay the particular debt. Thus the Company cannot take a defence that it is commercially solvent and has ability to pay the debts, but will not pay the debt, by putting forward commercial solvency as a defence to a winding-up petition. If such defence is accepted it will mean that any Company which is commercially solvent can choose which creditor it will pay with complete impunity, and if an unsatisfied creditor choo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the petition. 67 Before I conclude, I must state, shorn of all legal niceties, that there is no manner of doubt that amounts were guaranteed to be repaid to the Petitioner by the respondent company. Respondent has resolutely refused to pay it back inspite of assuring to do so many times earlier. Absolutely nothing is placed on record to even hint that the Respondent Company does not owe the money to the Petitioner. Any other creditor would be as a right entitled to ask for admission of the petition against such a company. If so then why the Petitioner be kept away from this right, its only fault being that it lent the monies outside India and filed a suit for recovery of the same in the Court where the transaction took place. To deprive the Petitioner will encourage Indian companies to be dishonest in their international dealings. With globalisation of trade and investments, cross border flow of capital and the dependence of the country's economy on international commerce, the company court needs to be alive to the changing commercial and economic realities, and exercise its discretionary powers accordingly. 68 To sum up : the petition is based on the guarantee containe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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