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TMI Blog2023 (9) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Respondent to repay the said amount, however, the Respondent refused on one or the other ground and deliberately avoided paying the said amount and hence notice was issued to the Respondent Company for winding up. Inspite of this, the Respondent Company failed to repay the entire amount. The Appellant was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 were subsequently produced and the same were genuine. Reasons were disclosed for non-production of such annexures to the bank guarantee which were not at all considered by the learned Single Judge. He would submit that suspicion was raised on such annexures without any sufficient material though such annexures to the bank guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not 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 would then submit that there was a collusion between Appellant and the bank in recalling the loan. According to him, relationship between the Appellant and the Respondent was in the form of joint venture and when differences arose, the Appellant sought to withdraw from the joint venture in June, 2005. The Respondent even invoked arbitration clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs.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. Urban Infrastructure Venture Capital Limited; 2016 SCC OnLine Bom 399, Ramchandra B. Loyalka vs. Shapoorji N. Bhownagree; 1940 SCC OnLine Bom 21 and Wander Ltd. and Another vs. Antox India P. Ltd.; 1990 (Supp) SCC 727. 25. In rejoinder, learned Counsel Mr Rao first of all claimed that there are no findings in the impugned order regarding malicious prosecution. He s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 we are of the view that finding of the learned Single Judge is neither perverse nor is based on the material which is not there on record. The question No. (iv) is therefore answered in the negative." 28. Keeping in mind such settled proposition while dealing with appeal thereby assailing the order of learned Single Judge in Company Petition, the limited aspect which we are required to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantity the debt precisely (See Re. Tweeds Garages Ltd.; 1962 Ch 406). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples 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 not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non- payment of the amount of such a bona fide disputed debt cannot be termed as "neglect to pay" so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956. Commercially solvent 24. The appellant Company raised a contention that it is commercially solvent and, in such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 creditworthiness or financial standing of the company and which may also have other economic and social ramifications. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross-defaults, and may further push the company into a state of acute insolvency much more than what it was when the petition was filed. The Company Court, at times, has not only to look into the interest of the creditors, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate 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 is mentioned that the Appellant issues this guarantee as security for all existing, future and conditional claims resulting from the respective banking business relation and in order to ensure that the Lender shall receive payment of all amounts expressed to be payable by the Borrower under the agreement ("the indebtedness") up to the amount of EUR 48,000,000 in the currency and at the place provided therein. Such guarantee is considered to be irrevocable and unconditional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 Appellant somehow located it. Thus, the earlier contention that such document is confidential and that it is not required for deciding the petition was totally given up. 44. Perusal of such annexure and more specifically the translation would go to show that it was translated somewhere on 03.09.2007. The annexure is to the guarantee of 20.12.2004 totalling to EUR 48,000,000 given by the Appellant in connection with the promise of loan dated 20.12.2004 regarding facilities totalling to EUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs.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 Rs.6 crores to the Respondent. Thus, the annexure wherein reference to the Respondent appears as on 20.12.2004 and in connection with loan of Rs.6 crores appears to be seriously doubtful. The same aspect has been considered by the learned Single Judge in the impugned judgment. We do not consider that such observations of the learned Single Judge are in any way arbitrary or pervers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs.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. We, therefore, are unable to consider such aspects raised on behalf of Respondent in this appeal. 54. However, one thing we have to observe is the timing of the recalling of the entire loan by the Mumbai branch without any default being committed by the Respondent. Such timing is very close to cancellation of joint venture by the Appellant with the Respondent Company. We do not want to deliberate upon such aspects since we are convinced that observations of the learned Single Judge cannot be faulted with on the grounds which have been raised in the present appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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