TMI Blog2023 (9) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of considering the dispute raised before this Court. The Respondent Company was incorporated under the Companies Act, 1956 somewhere in January 1998. There was some joint venture agreement executed between the Directors of the Respondent with that of the Appellant. The memorandum refers to a meeting dated 19.12.1997 concerning joint venture agreement. It thus shows that the Respondent Company was in existence prior to the joint venture agreement between its Directors and the Appellant somewhere in December, 1997 - It is a matter of record that the Appellant initially refused to produce the annexures on the precise ground that such enclosure is a confidential document and that same is not required for the purpose of deciding the petition. The question remains as to how in the enclosure to the bank guarantee dated 20.12.2004 reference to advance/loan of ₹6 crores of the Respondent by the branch of the same bank at Mumbai appears. Admittedly, on 20.12.2004, there was no sanction letter issued by the Mumbai branch of the said bank offering loan of ₹6 crores to the Respondent. Thus, the annexure wherein reference to the Respondent appears as on 20.12.2004 and in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 433 of the Companies Act, 1956, which was decided by the learned Single Judge of this Court vide impugned order dated 30.07.2010. By the said impugned order, the learned Single Judge rejected the said Company Petition and refused to admit it for winding up of the Respondent Company. 3. The petition was admitted vide order dated 16.03.2011 and thereafter, it was taken up for final disposal. 4. Heard Mr Parag Rao appearing with Mr Rohin Dubey, Mr Akhil Parrikar, Ms S. Drago and Mr Ajay Manon for the Appellant and Mr Akshay Patil appearing with Mr Rajesh Vaidhya, Mr H.D. Naik and Mr A. Naik for the Respondent. 5. Mr Parag Rao, learned Counsel for the Appellant, strongly urged that the Appellant provided bank guarantee to the C.C. limit for the Respondent Company. However, subsequently, Respondent defaulted in paying the instalments. The bank recalled the said facility and directed Respondent Company to repay the entire loan. Since the Respondent Company failed to repay the entire loan within the stipulated period, the bank invoked bank guarantee given by the Appellant and accordingly, the loan account was closed. Thereafter, the Appellant Company issued letter to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear admission on the part of Respondent. He would submit that once the payment is made by the Appellant, discharging the entire liability of the Respondent, on the basis of invoking bank guarantee, the Appellant stepped into the shoes of the bank and therefore, Respondent is liable to pay such amount which was recovered from the Appellant by the said bank. 9. Mr Rao would submit that as per Section 210 of the Companies Act, the balance sheet of Respondent is a document wherein there is an admission on the part of Respondent about the liability which is secured on the basis of bank guarantee. He would submit that as per the Companies Act, the balance sheet requires authorisation and the same has to be filed before the Registrar. There is also an audit report which shows that such loan was secured by a bank guarantee. On this count, he would submit that the defence raised by the Respondent is only a moonshine defence and not bona fide defence and there is absolutely no suspicion about the bank guarantee, which the learned Single Judge of this Court failed to consider. 10. Mr Rao would then submit that the bank guarantee was produced along with the petition, however, annexures w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n submit that such sanction letter nowhere refers to the bank guarantee furnished by the Appellant in the year 2004 to the concerned bank. 15. Mr Patil would then submit that annexures produced on record subsequently by the Appellant creates suspicion which has been expressed by the learned Single Judge in the impugned Judgment which cannot be faulted with. In this respect, he would submit that the bank guarantee was of the year 2004 whereas loan issued in favour of the Respondent Company was of the year 2005 and hence, there was no possibility of mentioning the account number, the amount of loan, etc., in such annexure which was allegedly executed in the year 2004 itself. According to him, such annexure was a fabricated document and therefore, the learned Single Judge has rightly rejected such document. 16. Mr Patil would then submit that the guarantee is a tripartite agreement and it cannot be a guarantee of future loan. He then submits that there is no document placed on record by the Appellant to show that the Respondent, Appellant and the concerned bank executed any such agreement thereby agreeing to guarantee the loan issued in favour of Respondent. 17. Mr Patil woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no subrogation and therefore, the Appellant is not entitled to recover such amount from the Respondent. 22. Mr Patil would then submit that the balance sheet and other documents which the Appellant is claiming as having admissions, are not the admissions with regard to the bank guarantee produced by the Appellant on record. He submits that it is for the Appellant to show that there is an agreement between the Appellant, Respondent and the bank wherein the Appellant executed such guarantee for the fulfilment of the loan amount issued to the Respondent. According to him, there is no admission qua the bank guarantee produced by the Appellant and therefore, observations of the learned Single Judge in the impugned Judgment cannot be faulted with. 23. Finally, Mr Patil would submit that the Companies Act, 1956 is now repealed. The Respondent Company is flourishing and is having turnover of ₹140 crores. The Respondent is a solvent company whereas proceedings filed against it are malicious and therefore, no purpose would be served by remanding the matter. 24. Mr Patil placed reliance on the following decisions:- Neelkanth Devansh Developers Private Limited vs. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to these principles Gajendragadkar, J. in Printers (Mysore) Private Ltd. v. Pothan Joseph, (1960) 3 SCR 713 : AIR 1960 SC 1156 : SCR 721). ... These principles are well established, but as has been observed by Viscount Simon in Charles Osenton Co. v. Jhanaton, ([1942] A.C. 130) . the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles in an individual case. 36. This Court therefore while exercising its appellate jurisdiction under Clause 15 of the Letters Patent Act is not expected to interfere with the order passed by the learned Single Judge, unless it comes to the conclusion that the finding is perverse or is based on material which is not part of the record. As mentioned hereinabove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gordhandas (supra), the Supreme Court while dealing with the application for winding up under Section 433 (c) of the Companies Act, 1956, observed in para Nos. 20 and 21 as under:- 20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation; (1874) LR 19 Eq 444 ). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See Re. Brighton Club and Horfold Hotel Co. Ltd.; (1865) 35 Beav 204 ) 21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company; 94 SJ 369). Where however there is no doubt that the company owes the creditor a debt entitlin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 stigmatised as a scandalous abuse of the process of the court . 22. The abovementioned decision was later followed by this Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd. [(1971) 3 SCC 632] The principles laid down in the abovementioned judgment have again been reiterated by this Court in Mediquip Systems (P) Ltd. v. Proxima Medical System GmbH [(2005) 7 SCC 42] wherein this Court held that the defence raised by the appellant Company was a substantial one and not mere moonshine and had to be finally adjudicated upon on the merits before the appropriate forum. The abovementioned judgments were later followed by this Court in Vijay Industries v. NATL Technologies Ltd. [(2009) 3 SCC 527] 23. The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be neglect to pay within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances where the jurisdiction of the Company Court is being abused by filing winding-up petitions to pressurise the companies to pay the debts which are substantially disputed and the courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor's winding- up petition implies insolvency and is likely to damage the company's creditworthiness or its financial standing with its creditors or customers and even among the public. Public policy considerations 34. A creditor's winding-up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the newspaper of the filing of winding-up petition may damage the creditwor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees, etc. securing the repayment of the said loans; favouring the banks concerned. Similarly, upon execution of guarantees, as aforesaid, the guarantees, etc. already concluded by the IGP in respect of existing loans of the Respondent, etc, shall stand liquidated. 36. The above clause clearly goes to show that the Appellant undertook to take over entire responsibility for the loans and other financial assets of the Respondent and was supposed to sign and conclude appropriate guarantees securing repayment of such loans favouring the banks concerned. It further shows that the Respondent had already obtained loan/finances from their bankers for the purpose of running of their business, which the Appellant undertook to guarantee by separately signing guarantee agreements in favour of the concerned bankers. In this joint venture agreement, there is absolutely no reference to the loan which Respondent availed from the concerned bank and were supposed to repay it as per the terms and conditions. 37. The Appellant heavily placed reliance on the bank guarantee dated 20.12.2004 which is claimed to be an umbrella guarantee executed by the Appellant in favour of the said bank wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed that subsequently they were able to locate such document and accordingly they are tendering it in the Court. 42. At this stage, it is pertinent to note that the Appellant as well as the concerned bank flatly refused to hand over such bank guarantee to the Respondent when demanded. The Appellant though placed on record the bank guarantee dated 20.12.2004 but without enclosures. When the Appellant was directed, it was claimed that such annexure was confidential in nature and that the same cannot be produced in the interest of the Appellant s business. Another stand was taken that such annexure was not relevant for the present proceedings. 43. Subsequently, by additional affidavit, another story was put forth while producing translated copies of such annexure that the Appellant somehow was able to locate the document. These stances taken by the Appellant are contrary to each other. First of all, it is claimed that such annexure is confidential and that the same is not relevant for deciding the petition. However, subsequently, such stand was given up and the copy of annexures in a translated manner was produced along with additional affidavit thereby claiming that the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e common seal in bank s prescribed form on ₹300/- stamp paper. f. Kredirsufung of Putzmeister AG, Germany in the format acceptable to the bank to secure the entire facility to remain valid during the entire tenor of the facility (on hand) . g. Consent Letter in the format prescribed by Reserve Bank of India for the disclosure by the bank of information and date relating to you or the facilities. h. Such other documents as we may reasonably consider to be relevant. 46. Clause 3 of such letter further refers to the security of Putzmeister AG, Germany in the format acceptable to the bank to secure entire facility to remain valid during the entire tenure of the facility. Thus it is clear that the sanction letter issued by concerned bank is subsequent to the bank guarantee given by the Appellant to the German bank. The branch at Bombay in their sanction letter did not specifically refer to the bank guarantee given by the Appellant to the German bank dated 20.12.2004, as the guarantee for such loan. 47. The question remains as to how in the enclosure to the bank guarantee dated 20.12.2004 reference to advance/loan of ₹6 crores of the Respondent by the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as referred by Mr Rao containing admissions on the part of Respondent, we also find that though there is some reference to the guarantee issued by the Appellant for the said loan, it does not specifically refer to the guarantee dated 20.12.2004. The Appellant approached the Court with a specific case that the loan issued in favour of Respondent was secured by a bank guarantee dated 20.12.2004 and therefore, it was incumbent upon them to satisfy this Court that such bank guarantee in fact refers to the loan issued in favour of Respondent on 10.01.2005. 52. Thus, the defence raised by the Respondent cannot be considered as moonshine defence and there appears to be substantial defence raised with regard to claim of the Appellant for recovery of the amount of more than ₹2 crores which the Mumbai branch allegedly recovered from the Appellant on the basis of bank guarantee dated 20.12.2004. 53. Though Respondent raised other aspects with regard to malicious attempt on the part of Appellant, collusion between the Appellant and the bank, such aspects were not raised before the learned Single Judge and further, such aspects were not considered and decided in the impugned order. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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