TMI Blog2013 (2) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... if sold to pay off the bank dues, would amount to complete closure of the business of the company as without land, building, machinery and other fixtures the company would be left hardly with anything to run its day to day affairs. The company could not pay off the dues of the bank. The bank assigned their claim and/or the right as a secured creditor to M/s. Kotak Mahindra Bank Ltd., who stepped into the shoes of the State Bank of India. Kotak Mahindra Bank initiated recovery proceedings by taking measures under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act). They however could not take physical possession of the assets giving rise to protracted litigations that may not be relevant for the present purpose. The fact would remain, they are yet to take possession of the assets. However, the official liquidator could make an inventory of the assets after great effort. 2. The company became sick. Its networth became negative that compelled them to make a reference to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The BIFR acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish to dispose of by this common judgment pronounced herein. 4. Mr. Debangshu Basak, learned counsel appearing for the appellant placed the appeal. According to him, as per the balance-sheet the liability towards the secured creditor as on September 30, 2004, was ₹ 19 crores as admitted by the company appearing at page 174 of the paper book whereas the amount became ₹ 21 crores as on September 30, 2003. Mr. Basak would also contend, the company in the said balance-sheet did not take into account the overdue interest that had accrued in the meantime. He also placed the relevant correspondence including the statutory notice of demand. According to him, the notice was never replied to. However, the company sought to rely upon a copy of the reply said to have been served upon the company appearing at page 292 of the paper book. 5. Taking it over from Mr. Basak, the learned Advocate General also appearing for the appellant contended, the company's refusal to pay would itself amount to neglect to pay attracting the jurisdiction of the winding up court. The learned Advocate General would contend, learned judge fell in grave error in observing, the creditor was oblige ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y upheld the right of a secured creditor to maintain a winding up petition. He relied on the following decisions on this issue : (1) [1971] 41 Comp Cas 1063 : AIR 1971 Cal 78 (Calcutta Safe Deposit Co. Ltd. v. Ranjit Mathuradas Sampat). (2) [2012] 174 Comp Cas 22 (Cal) (Rajiv Tandon v. Dena Bank). (3) [1985] 58 Comp Cas 174 (Bom) (Bharat Overseas Bank Ltd. v. Shree Arcee Steels P. Ltd.). (4) [1954] 24 Comp Cas 249 : AIR 1955 Mad 582 (Karnatak Vegetable Oils and Refineries Ltd. v. Madras Industrial Investment Corporation Ltd.). 7. According to him, to maintain a winding up petition by a secured creditor, the security need not be given up as held by the Karnataka High Court in the case of Hegde and Golay Ltd. v. State Bank of India reported in ILR 1987 Karn 2673 and by our court in the case of Canfin Homes Ltd. v. Lloyds Steel Industries Ltd. reported in [2001] 106 Comp Cas 52 (Bom). 8. Per contra, Mr. Subhankar Nag, learned counsel appearing for the company raised the issue of parallel proceeding. According to Mr. Nag, the secured creditor could opt for winding up proceeding once they would give up their right to proceed with the other proceedings under the SAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing for the respondent placed reliance on the decision in the case of V. V. Krishna Iyer Sons v. New Era Manufacturing Co. Ltd. [1965] 35 Comp Cas 410 (Ker) cited by the learned Advocate General. According to him, since the appellant did not have any interest in the company, it was not entitled to maintain the petition. He referred to decision in the case of Davco Products Ltd. v. Rameswarlal Sadhani reported in AIR 1954 Cal 195. 12. Distinguishing the decision in the case of Sri Shanmugar Mills Ltd. v. S. K. Dharmaraja Nadar [1969] 39 Comp Cas 297 : AIR 1970 Mad 203 cited by the learned Advocate General, he referred to paragraph 3 of the report to say, land, machinery and other assets should be taken note of as security. According to him, the Madras High Court decision would be contrary to the decision in the case of V. V. Krishna Iyer Sons v. New Era Manufacturing Co. Ltd. [1965] 35 Comp Cas 410 (Ker). 13. According to Mr. Mookherjee, the appellants must restrict themselves on the issue raised before the Single Bench. They maintained their winding up petition before the learned single judge only on the issue of deemed insolvency relying on the notice issued under section 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summed up his argument by contending as follows (i) In view of the provisions of section 13(1) and (4) of the SARFAESI Act, the winding up petition would not be maintainable. (ii) The right of a secured creditor under the SARFAESI Act was inconsistent with others connected with the company. Hence, the winding up at the instance of a secured creditor would run contrary to the SARFAESI proceeding and as such would not be maintainable. (iii) The appellant based their petition for winding up on a notice of demand issued under section 434(1) (a) and not beyond. Hence, the learned judge was right in not admitting the same after observing, the appellant failed to prove insufficiency of security. (iv) Reliance on the balance-sheet as an annexure in absence of appropriate pleading would not help the creditor to take the plea of commercial insolvency. (v) Admission of winding up is a discretionary remedy. The learned judge, considering all aspects including the mala fide conduct of the appellant who came with unclean hand, very rightly rejected the winding up petition that would deserve no interference by this court. 17. While giving reply, the learned Advocate General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f State of Maharashtra v. Ramdas Shrinivas Nayak, AIR 1982 SC 1249, in this regard. He referred to the judgment and the order impugned to say, the plea of commercial insolvency was duly taken as would be appearing from the judgment and order impugned. In this regard he referred to pages 403 and 430 of paper book. He also referred to page 427 wherein the learned judge considered decision in the case of Bukhtiarpur Bihar Light Railway Co. Ltd. v. Union of India reported in [1954] 24 Comp Cas 507 : AIR 1954 Cal 499. 20. Distinguishing the decision in the case of Bengal Flying Club Ltd., In re [1967] 71 Cal WN 38, the learned Advocate General contended, the facts would differ in the said case where substratum of the company was gone whereas such plea was never taken in this case. Distinguishing the decision in the case of Mica Export Promotion Council v. G. C. L. Joneja [1968] 38 Comp Cas 371 : 72 Cal WN 117, he contended, the plea taken therein was never pleaded nor argued whereas in the present case such averment was made. Hence this decision would be of no assistance. In the case of Manipal Finance Corporation Ltd. v. CRC Carrier Ltd. [2001] 107 Comp Cas 288 (Bom) claim was dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provisions could be invoked by the creditor as we find from section 439. Section 439(1)(b) would permit any creditor to maintain the winding up petition. Sub-section (2) would also include a secured creditor as a creditor within the meaning of sub-section (1)(b). Section 434(1)(a) would give right to a creditor by assignment or otherwise having a claim more than ₹ 500 to serve the notice of remand and if the demand is not satisfied he would be entitled to claim deemed insolvency as per sub-section (2). From the analysis as above, we would find as follows : (i) A creditor could maintain the winding up petition. (ii) A secured creditor is also creditor to maintain winding up petition. (iii) A creditor should have the claim for ₹ 500 and above. (iv) He would serve the notice of demand, that demand, if unattended and/or unsatisfied, would permit the creditor to claim deemed insolvency. (v) The creditor would maintain the winding up petition on the ground of inability to pay. (vi) He would have to prove, it is otherwise just and equitable that the company should be wound up. 24. In the present case, the appellant was a secured creditor. It had th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r maintained the petition exclusively under this provision. There were enough material to hold, the company was commercially insolvent. We asked Mr. Mookherjee in vain, how he would propose to clear off the dues. He was unable to give any suitable reply. The entire fixed assets were mortgaged. The company did not have sufficient funds to pay off the dues. The balance-sheet would clearly demonstrate such insolvency. Even if we hold, their fixed assets were sufficient enough to pay off the dues, that could only be possible upon sale of those assets and the company would hardly have anything left to carry out the day to day business. The learned judge possibly overlooked this aspect. 28. A creditor who has unpaid dues could only be reasonably satisfied if company has the means to pay. When the creditor serves the notice upon the company asking them to pay off the dues the company has option either to pay off or dispute the same. Even if the company has means to pay and does not pay without any reasonable cause it would be liable to be wound up. However, this question may not be relevant here as the record shows, the company was involved in circumstances due to its precarious financ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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