TMI Blog2014 (6) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant cases, the debt is not disputed, nay, admitted. Therefore, mere reference of the dispute to arbitration or initiation of proceedings under the SARFAESI Act do not mean that the debt is disputed. Thus, where the debt is not disputed, the present company petitions for winding of the principal borrower and the co-borrower are very much maintainable and the same cannot be thrown out merely on the ground of the petitioner invoking other remedies for recovery of the debt. the respondent is unable to point out any inconsistency between the provisions of Sections 433 and 434 of the Act and any of the provisions of the SARFAESI Act. The provisions of these two enactments operate in their designated fields, in that, while the SARFAESI Act enables the borrowers and other financial institutions registered under the said Act to initiate various measures for recovery of the loans advanced to the debtors, as noted above, Sections 433 r/w. Section 434 of the Act, vested a right in a creditor to seek winding up of a company for non-payment of an undisputed debt. Therefore, there is no scope for any inconsistency between the provisions of these two enactments. Indeed, no such incon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promoter companies, and generally to develop, gene accumulate power at any other place or places and to transmit, distribute, sell and supply such power. To construct, establish, operate, manage power stations, boiler houses, steam turbines, switch yards, transformer yards, substations, transmission lines, accumulators, work shops and all such works necessary for generating, accumulating, distributing and supply of electricity. To construct, lay down, establish, fix, transmission lines, accumulators, fittings and apparatus in the capacity of principles, contractors or otherwise. 3. M/s. Indiabulls Infrastructure Credit Limited (IICL) sanctioned loan facility of ₹ 35 crores to the respondent for taking over the existing loans and augmenting working capital requirement. The respondent evidently approached M/s. Indiabulls Financial Services Limited (IFSL) for sanction of loan of ₹ 50 crores to facilitate repayment of the loan received from IICL and also for augmenting its working capital. IFSL has issued sanction letter dated 28-3-2012 for the loan of ₹ 50 crores to the respondent. On 29-3-2012, the Board of Directors of the respondent passed resolution for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court restrained the respondent and others from creating any third party interests in the power project located at Khajuri village, Baloda Bazar, Raipur District, Chhattisgarh , besides directing that the receivables related to the said power project be deposited with the court along with a complete statement of account. By order dated 17-7-2013, the BIFR has dismissed reference No. 61/2012. 6. A few days thereafter, i.e., on 23-7-2013, the petitioner caused notice under Section 13(2) of the SARFAESI Act on the respondent whereunder it was informed that the latter failed to repay the instalments along with interest and other charges as stipulated in clause-5 of the loan agreement dated 30-3-2012, Sr. No. 4 and Sr. No. 17 of the Schedule attached thereto, as a result of which interest and/or instalments of principal have remained overdue for a period of more than 90 days and the debt was reclassified as Non-Performing Asset (NPA) in accordance with the guidelines issued on the Assets Classification by the National Housing Bank (NHB). That as per the statement of account maintained by the petitioner in the ordinary course of business, ₹ 55,58,18,414/- by way of outstandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the court/tribunal in accordance with the law of the land. 9. On 22-10-2013', the petitioner caused statutory notice under Section 13(4) of the SARFAESI Act issued to the respondent for taking symbolic possession of the properties under mortgage. On 14-11-2013, the petitioner has put the mortgaged property to auction by causing paper publication of the auction notice. 10. The respondent has challenged the measures taken by the petitioner under the SARFAESI Act by approaching the Debt Recovery Tribunal, Hyderabad (for short the DRT ) vide S.A. No. 759/2013. By order dated 16-12-2013, the DRT directed that auction may go on but the sale shall not be finalised. On 16-12-2013, this Company Petition came to be filed. 11. On behalf of the respondent-company, Dr. S.M. Manepalli, one of its Directors, filed a counter-affidavit. The gist of the counter-affidavit is as under: 12. IICL approached the respondent and offered to take over the loans from the consortium of Banks by replacing the existing loan and augmenting the working capital. The said offer was accepted by the respondent and a sum of ₹ 35 crores was sanctioned by the IICL vide IICL letter dated 28- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession notice under Rule 8(1) of the Security Interest (Enforcement) Rules 2002 (for short the 2002 Rules ) on 28-10-2013 and issued sale notice dated 12-11-2013. 15. That the respondent assailed the legality and validity of the demand notice dated 23-7-2013, possession notice dated 28-10-2013 and sale notice dated 12-11-2013 by filing an application under Section 17(1) of the SARFAESI Act before the DRT, registered as S.A. No. 759/2013 on 11-12-2013. The petitioner appeared through its counsel on 11-12-2013 before the DRT and sought time for filing counter-affidavit. The DRT adjourned the case to 16-12-2013 and after seeking adjournment before the DRT, the petitioner filed the Company Petition on 16-12-2013. By order dated 16-12-213, the DRT directed that the sale may go on but the same shall not be confirmed. The interlocutory application is pending for passing of final order. 16. That the petitioner has raised a preliminary objection before the DRT that it does not have jurisdiction to try the application filed by the respondent as the situs of the property is not situated within the State of Andhra Pradesh, and on the same analogy the respondent is raising a preliminar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same and taken recourse to remedies under law ignoring their inaction in reviving the power plant. IICL cannot therefore be allowed to take advantage of its own mistakes. The proceedings under Section 138 of the 1881 Act are initiated by the petitioner in respect of which the respondent has approached the Punjab and Haryana High Court under Section 482 Cr.P.C. for quashing the criminal proceedings and that the same are pending. That having taken recourse to criminal law and the SARFAESI Act, the petitioner ought not to have filed the present Company Petition under the Act. The petitioner has also approached the Economic Offences Wing-1, Palam Vihar, Gurgaon by filing complaint dated 16-7-2013 and the respondent is contesting the same. On this ground also the Company Petition is liable to be dismissed. That having taken recourse to the provisions of the 1996 Act, if the petitioner is permitted to pursue the present remedy, the same would render the action under the 1996 Act, nugatory. 21. That the respondent and the petitioner agreed on a scheme of reconstruction on 30-7-2012 which contemplates that the petitioner shall infuse capital and do other things to enable the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the provisions of the said Act have overriding effect over all other Acts and therefore the petitioner's winding up petition is not maintainable in view of the pendency of the proceedings under the SARFAESI Act. (iii) That the petitioner has contemplated initiation of proceedings under the Arbitration and Conciliation Act and obtained an interim order under Section 9 of the Act from the Delhi High court and as the whole dispute is under reference to arbitration, even before an award is passed, the disputed debt cannot be enforced by taking recourse to the provisions of the Act and no petition for winding up of the company for enforcement of such debt could be filed. (iv) That the petitioner moved the jurisdiction under the Act with a mala fide intention to coerce the respondent into payment of the debt and this Court will not exercise its discretionary jurisdiction to enable the petitioner to further such malicious intentions. 26. Before considering the respective submissions of the learned Counsel for the parties, let me briefly discuss the legal position with regard to the scope of winding up proceedings under Sections 433 and 434 of the Act. 27. Section 4331 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor to quantify the debt precisely. 28. In Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami and another 1965 (35) Comp. Cases 456 (SC) the Apex Court held that a winding up petition is not a legitimate means to seek enforcement of payment of debt which is bona fide disputed by the company and that a petition presented ostensibly for a winding up order, but really to exercise pressure will be dismissed and under the circumstances may be stigmatised as a scandalous abuse of the process of Court. 29. In Pradeshiya Industrial investment Corporation of U.P. v. North India Petrochemicals Ltd. (1994) 3 SCC 348 following the Judgment in Madhusudan Gordhandas (4-supra) and Amalgamated Commercial Traders (6-supra) the Supreme Court held that the defence of plea of denial of debt must be a substantial one and not a mere moonshine. 30. In Mediquip Systems (P) Ltd. v. Proxima Medical System GmbH (2005) 7 SCC 42 and also in Vijay Industries v. NATL Technologies Ltd. (2009) 3 SCC 527 the Supreme Court reiterated the principle that the plea of denial of debt must be a substantial one and not a mere cloak or moonshine. 31. In IBA Health (India) Pvt. Ltd. v. Info-Drive S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns taking Judgment in Krishna Kilaru and another v. Maytas Properties Limited (2013) 176 Comp. Cases 483 (A.P.), Ramesh Ranganathan, J. delved into various facets of the law relating to winding up of a company for non-payment of debt. This Court does not intend to burden this Judgment by referring to all of them. From the various judicial pronouncements, some of which are referred to above, the following legal principles are deducible: 1. If the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. Conversely, if the plea of denial of debt is a moonshine or a cloak, spurious, speculative, illusory or misconceived, the Court can exercise the discretion to order the company to be wound up. 2. A petition presented ostensibly for winding up order, but in reality to exert pressure to pay the bona fide disputed debt is liable to be dismissed. 3. Solvency is not a stand alone ground. It is relevant to test whether denial of debt is bonafide. 4. Where the debt is undisputed and the company does not choose to pay the particular debt, its defence that it has the ability to pay the debt will not be acted upon by the Court. 5. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, the whole of the undertaking, properties, rights and powers of IFSL (amalgamating company) stand transferred to and vest in the petitioner (amalgamated company) without any further act or deed. Therefore, contends the learned counsel, the petitioner has stepped into the shoes of IFSL under the approved scheme of amalgamation. 37. In M/s. Deccan Chronicle Holdings (1-supra), IBFSL advanced the loan to the petitioner therein. Later, IBFSL got merged with M/s. Indiabulls Housing Finance Limited (the petitioner herein) in C.P. No. 457/2012 referred to supra, w.e.f. 8-3-2013. Respondent No. 4 therein has got itself registered under the SARFAESI Act and soon after the merger of IBFSL, the petitioner herein has initiated proceedings under the SARFAESI Act against the petitioner therein in respect of the loans that were borrowed from IBFSL. It was contended on behalf of the petitioner therein that IBFSL from which the loan was obtained was not registered as a financial company under Section 3 of the SARFAESI Act and that the mere fact that the said agency has merged with its sister concern, the petitioner therein cannot bring about any change in the relations between themselves and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suffered any additional disadvantage on account of amalgamation by being subject to winding up proceedings by the amalgamated company i.e., the petitioner herein. On the contrary, the petitioner having stepped into the shoes of IFSL under the statutory scheme sanctioned by the Delhi High Court, is legally entitled to maintain the present winding up petition. This submission is accordingly rejected. 41. The sheet anchor of the case of the respondent is that having availed the remedies under the SARFAESI Act and the 1996 Act, the petitioner is not entitled to invoke the jurisdiction of this Court under the provisions of the Act for winding up of the respondent. In support of his plea, the learned Counsel placed heavy reliance on the Judgment of a learned single Judge of this Court in Maharashtra Apex Corporation Ltd. v. Spartex Ceramics India Ltd. 2004 (5) ALD 316 and a Judgment of another t learned single Judge of this Court in Shapoorji Pallonji Finance Ltd. v. Shree Rayalaseema Alkalies and Allied Chemicals Ltd. 2005 (4) ALD 403 Taking the second referred case first, in that case, the creditor which filed the application for winding up before this Court has also initiated arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scharge its debts. The learned Judge further held that when the creditor has taken up the proceedings under the 1996 Act, a company petition for winding up would not be maintainable. With due respect to the learned Judge, the legal proposition is too broadly stated in that Judgment. 43. Mere reference of a dispute to arbitration does not always presuppose that the debt is disputed by the debtor. Even non-payment of the admitted debt may also be the subject matter of arbitration dispute, for, by mere admission of the liability by the debtor, a creditor cannot recover the money unless there is a decree or award of the Court or arbitrator, as the case may be. Therefore, for recovery of even an admitted debt, a creditor may have to seek reference of the dispute for arbitration. Whether the reference of a dispute is in relation to a disputed debt or not needs to be ascertained from the pleadings of the parties to the arbitration. 44. The Supreme Court, in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. (1999) 5 SCC 688 while rejecting an application filed under Section 8 of the 1996 Act by the debtor-company in a winding up petition held that the power to order winding up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the forum for settlement of such disputes. The well-recognised examples of non-arbitrable disputes are, (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes. 46. I had an occasion to deal with a similar issue in M/s. Empee Sugars Chemicals Limited v. M/s. Paharpur Cooling Towers Limited Company Application No. 1 190/2013 in C.P. No. 180/2013, Dt. 4-2-2014 wherein while rejecting an application for reference of the dispute to arbitration filed in a winding up petition, following the Judgments in Haryana Telecom Ltd. (15-supra) and Honeywell Automation India Ltd. v. DLF Universal Ltd (2008) 152 PLR 616, I have held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or winding up of a debtor-company. Following the legal propositions deducible from the various authoritative pronouncements referred to above, a petition filed for winding up can be dismissed on one or more of the following grounds, namely, (a) where the debt is bona fide disputed and the defence is a substantial one; (b) where the winding up petition is presented ostensibly for winding up order but really to exert pressure to pay the bona fide disputed debt; and (c) where even the company's inability to pay the debt is proved, but such winding up is not in the interests of its shareholders and creditors. 50. In the instant cases, the debt is not disputed, nay, admitted. Therefore, mere reference of the dispute to arbitration or initiation of proceedings under the SARFAESI Act do not mean that the debt is disputed. Thus, where the debt is not disputed, the present company petitions for winding of the principal borrower and the co-borrower are very much maintainable and the same cannot be thrown out merely on the ground of the petitioner invoking other remedies for recovery of the debt. 51. There is another angle from which this issue needs to be examined. Though, the caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, there is no scope for any inconsistency between the provisions of these two enactments. Indeed, no such inconsistency exists, as a fact. The only occasion on which such inconsistency may arise is when the property is sought to be liquidated by way of sale. Such a situation would not arise till the measures for sale of the property are initiated either by the Official Liquidator or by the creditor under the SARFAESI Act. I therefore hold that Section 35 of the S ARFAESI Act does not bar the petitioner to institute and pursue the present winding up petitions. 54. Lastly, the learned Counsel for the respondent submitted that due to various circumstances beyond its control, it is unable to pay its debt and that on the order passed by the Delhi High Court, all the receivables are being deposited before that Court. The learned Counsel for the petitioner stated that despite several measures undertaken by his client, it is unable to recover any part of the monies advanced to the respondent. He has invited this Court's attention to Annexure-I in Form-A filed by the respondent before the BIFR wherein it has mentioned under column No. 5(ii) that the accumulated losses of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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