CHINATRUST COMMERCIAL BANK v. LILIPUT KIDSWEAR LIMITED
2014-01-06
VIBHU BAKHRU
body2014
DigiLaw.ai
JUDGMENT VIBHU BAKHRU, J 1. The present petition has been filed by the petitioner bank under Section 433(e) of the Companies Act, 1956, inter alia, praying for winding up of the respondent company as the respondent has failed and neglected to pay the amounts due and payable to the petitioner bank. The petitioner has also filed an application (CA No.2333/2013) praying for winding up the respondent company. 2. Briefly stated, the respondent had approached the petitioner bank for financial assistance by way of a Working Capital Demand facility of a sum of Rs.15 crores. The petitioner bank agreed to grant such facility and after obtaining the necessary corporate authority, the loan documents were duly executed between the respondent company and the petitioner bank. It is stated that an aggregate sum of Rs.15 crores was disbursed by the petitioner bank to the respondent in the month of October, 2011 as under:- Date of Request/ Amount (Rs in crores) Date of repayment Loan Account No. Disbursal 03.10.2011 2.90 31.12.2011 1101043 04.10.2011 2.10 01.01.2012 1101045 04.10.2011 2.50 01.01.2012 1101044 05.10.2011 2.50 02.01.2012 1101047 08.10.2011 3.00 05.01.2012 1101048 10.10.2011 2.00 07.01.2012 1101049 3. It is alleged that the respondent was irregular in making payments of interest and also failed to repay the loans on the respective due dates. The petitioner bank served a legal notice dated 09.01.2012 calling upon the respondent to pay a sum of Rs.15 crores alongwith interest @ 13.50% p.a. w.e.f. 08.01.2012 and other charges etc. It is stated that subsequent to the said notice, the respondent company paid the interest due till the month of November, 2011 but failed to repay the loans as well as the interest for the period subsequent to November, 2011. The cheque for a sum of Rs.15 crores, which had been earlier furnished by the respondent company to the petitioner, was also dishonoured on the presentation. 4. The petitioner company filed the present petition alleging that a sum of Rs.15,15,39,623.81 (Rupees Fifteen Crores Fifteen Lakhs Thirty Nine Thousand Six Hundred Twenty Three and Eighty One paisa) was due and payable by the petitioner as on 17.01.2012. The present petition was taken up for hearing by this Court on 10.02.2012 and the Court while issuing notice, restrained the respondent company from selling, transferring or in any manner alienating its fixed assets till further orders.
The present petition was taken up for hearing by this Court on 10.02.2012 and the Court while issuing notice, restrained the respondent company from selling, transferring or in any manner alienating its fixed assets till further orders. It is relevant to note that at that stage the petitioner had also filed an application being CA No.283/2012 for appointment of the Official Liquidator as the Provisional Liquidator. However, the said application was not pressed at that stage and was, accordingly, disposed of on 10.02.2012. On the next date of hearing i.e. 13.04.2012, the learned counsel for the respondent sought time to file its reply affidavit and was granted eight weeks time to do so. However, the respondent chose not to file any reply to contest the petition and on the next date of hearing, which was held on 05.09.2012, it was submitted that the respondent company was in the process of restructuring its affairs and the dues of the petitioner as well as other creditors would be considered and worked out by amicable settlements between the respondent company and its creditors. On the basis of the statement made on behalf of the respondent, the petition was re-notified on 17.12.2012 and it was further directed that a proposal to pay all the creditors would be made by the respondent and would be filed in the Court within a period of eight weeks with an advance copy to the learned counsel for the petitioner. 5. Although the respondent had initially sought time to file a reply to the petition and thereafter, sought time to submit a proposal to pay off the debts due to the petitioner as well as other petitioning creditors, the respondent neither filed a reply nor submitted a proposal within the specified time. 6. On 17.12.2012, when this petition was taken up for hearing by this Court, the Managing Director of the respondent company was present and he undertook that a sum of Rs.1 crore would be paid to each of the creditors who had filed petitions for winding up of the respondent company including the petitioner in the present case, on or before 15.03.2013. It is on the basis of the aforesaid undertaking by the Managing Director of the respondent company that this Court did not consider the prayer for winding up of the respondent company on that date and passed the following order:- “CO.PET.No.36/2012, CO.PET.
It is on the basis of the aforesaid undertaking by the Managing Director of the respondent company that this Court did not consider the prayer for winding up of the respondent company on that date and passed the following order:- “CO.PET.No.36/2012, CO.PET. No.66/2012 & CO.PET.No. 297/2012 Managing Director of the respondent Mr. Sanjeev Narula is present in the Court. Learned counsel for the petitioner points out that there has been no compliance with the last directions of this Court and there is no justifiable explanation qua the same. The payment schedule which had to be given in advance to the petitioner has admittedly not been given by the respondent. The explanation furnished by the respondent is that because of a financial crunch the company is facing a crisis but there is every possibility that the company will come out of all the woods by next date. It is undertaken by the managing director of the company that a sum of Rs.1 crore shall be positively paid to each petitioner on or before 15.3.2013. Prayer of winding up is accordingly not being considered for the time being. On merits, it is pointed out by the learned counsel for the petitioners that the respondent has otherwise admitted its liability and inability on the party of the company to pay its debts is also prima facie evident and; a winding up order is called for. In this scenario in case the undertaking and the commitment given by the respondent is not honoured, learned counsel for the respondent under instructions from his client states that he shall not object to the automatic appointment of the provisional liquidator. Compliance be effected by way of an affidavit of the managing director of the respondent which shall be filed within three weeks from today with advance copy to the petitioner which shall detail the further manner and mode of the balance payment. Reply also be filed in three weeks with advance copy to the petitioner who may file rejoinder before next date. Renotify for 21.3.2013. C.A. No.2468/2012 in CO.PET. 36/2012 & C.A. No.2469/2012 in CO.PET. 66/2012 In view of the aforenoted undertaking these applications have become infructuous. They are disposed of accordingly.” 7.
Reply also be filed in three weeks with advance copy to the petitioner who may file rejoinder before next date. Renotify for 21.3.2013. C.A. No.2468/2012 in CO.PET. 36/2012 & C.A. No.2469/2012 in CO.PET. 66/2012 In view of the aforenoted undertaking these applications have become infructuous. They are disposed of accordingly.” 7. It is apparent from the above that as far as the merits of the petition is concerned, this Court had recorded that on merits the amount claimed by the petitioner was not disputed and in view of the failure of the respondent company to discharge the same, a winding up order was called for. However, an order admitting the winding up petition was not passed so as to grant further time to the respondent company to tide over its difficulties and arrive at an amicable settlement for discharge of its liabilities. This Court, however, made it clear that in the event the commitment given by the respondent (to pay a sum of Rs.1 crore on or before 15.03.2013) was not honoured, an order appointing the provisional liquidator would automatically follow. The learned counsel for the respondent, on instruction from his client, also made a statement that he would not object to the appointment of a Provisional Liquidator in the event the commitments made before this Court on 17.12.2012 were not honoured. 8. The respondent, thereafter, filed another application being CA No.76/2013 seeking to alter the commitment made on 17.12.2012 to provide for the payment of Rs.1 crore on or before 15.03.2013 and replace the same with the commitment to pay a sum of Rs.33 lacs only. It is to be noted that although this application was filed, the same was not pressed. On 05.02.2013, the respondent once again sought extension of time for making the payment as undertaken on 17.12.2012 and to place a written proposal for clearance of the balance dues to the petitioning creditors. After considering the request of the respondent and also considering the fact that several adjournments had been granted to the Managing Director of the respondent, this Court granted a last opportunity to the respondent to submit a “concrete written proposal for clearance of the balance dues”. Thereafter, it was proposed by the respondent that a sum of Rs.1 crore would be paid by 31.05.2013 in equal instalments with Rs.25 lacs being paid upfront.
Thereafter, it was proposed by the respondent that a sum of Rs.1 crore would be paid by 31.05.2013 in equal instalments with Rs.25 lacs being paid upfront. The respondent also submitted a proposal for repayment of the balance amount. The said matter was considered on 19.02.2013 wherein this Court passed the following order:- “1. Mr. Sumit Bansal, learned counsel for the Petitioner, states on instructions that the Respondent’s proposal to pay the Petitioner Rs.1 crore by 31st May 2013, in equal instalments, with Rs. 25 lakhs being paid upfront, is acceptable to the Petitioner. Mr. Tanmaya Mehta, learned counsel for the Respondent, states that as already undertaken by the Respondent in the proposal made to the Petitioner, a sum of Rs. 25 lakhs will be paid to the Respondent by way of a demand draft on or before 25th February 2013. The balance amount will be paid in three equal instalments on or before 31st May 2013. 2. Mr. Sumit Bansal states that as regards balance sum, the proposal by the Respondent is under consideration by the Petitioner and he will convey the decision of the Petitioner in that regard on the next date. 3. List on 1st March 2013.” 9. Thereafter, it appears that certain settlement talks as to the manner of repaying the balance amount due to the petitioner took place between the respondent company and the petitioner. It is to be noted that although, on 19.02.2013, the respondent had undertaken that a sum of Rs.1 crore would be paid on or before 31.05.2013, this undertaking was also not complied with and, thereafter, the matter was listed for hearing and was subsequently re-notified on three occasions. On 24.07.2013, the learned counsel for the parties had submitted that there had been some headway in the talks for settlement and it was agreed that Mr. Sanjiv Narula, the Managing Director of the respondent would assign two policies with the current value of Rs.66 lacs and Rs.18 lacs approximately in favour of the petitioner bank to enable the bank to encash the same and realize Rs.70 lacs out of the initial payment of Rs.1 crore as agreed to be paid earlier. An undertaking to the above effect was recorded and accepted by this Court.
An undertaking to the above effect was recorded and accepted by this Court. The proposal made by the respondent for clearing the balance dues was also placed before this Court and the matter was held over till 24.10.2013 to enable the petitioner bank to consider the proposal made by the respondent company. It appears that while, Rs.73 lacs was realized by the petitioner company, the balance sum of Rs.27 lacs out of initial sum of Rs.1 crore still remained unpaid. On 25.10.2013, the learned counsel for the respondent company stated that the amount of Rs.27 lacs would be paid in three installments on or before 10.11.2013, on or before 10.12.2013 and on or before 10.01.2014 respectively. On this statement being made, the Court passed the following order:- “The learned counsel for the respondent-company on instructions states that the amount of Rs.27 lakhs will be paid in 3 installments on or before 10.11.2013, on or before 10.12.2013 and on or before 10.01.2014. In case, the amounts are not paid as above the statement made on 17.12.2012 to the effect that the respondent will not raise any objection to the automatic appointment of OL will come into effect. The respondent-company shall hand over all the documents to the petitioner within six weeks from today. These documents are relevant for the purpose of considering the proposal made by the respondent-company to the petitioner. Renotify on 24.02.2014.” 10. It now transpires that the respondent company has failed to pay the installments due on 10.11.2013 and 10.12.2013 and are once again in default of their commitments made before this Court. It is on the facts as stated above that the petitioner has contended that a winding up order ought to be passed and, therefore, the petitioner bank has also filed an application (C.A. No.2333/2013) under Rule 6 & 9 of the Companies (Court) Rules, 1959, inter-alia, praying for the winding up of respondent company as the respondent has failed to pay the initial payment of Rs.1 crore despite giving an undertaking before this Court. 11. The learned counsel for the petitioner submitted that no further arguments in this case were necessary since admittedly, the amounts undertaken to be paid by the respondent/Managing Director of the respondent had not been paid. 12.
11. The learned counsel for the petitioner submitted that no further arguments in this case were necessary since admittedly, the amounts undertaken to be paid by the respondent/Managing Director of the respondent had not been paid. 12. The orders passed by this Court clearly indicate that the respondent had sought time on several occasions to make the initial payment of Rs.1 crore, but had failed to honour its commitment. Although, the learned counsel for the petitioner is correct in his submission that no further arguments are necessary in view of the statement made by the learned counsel for the respondent on 17.12.2012 that he would not object to the automatic appointment of the Provisional Liquidator in the event the undertaking and commitments given by the respondent were not honoured, and, there is no dispute that the respondent had failed to honour its commitment made on several occasions as indicated above, nonetheless, in the interest of justice, I considered it appropriate to hear the learned counsel for the respondent and have heard him at length. 13. Mr. Tanmaya Mehta, learned counsel for the respondent fairly pointed out, at the outset, that the debts claimed by the petitioner were admitted and there was no dispute that the amount as claimed was due and payable by the respondent to the petitioner bank. He, however, focused his submissions on the aspect that even in cases where debts were admitted, a winding up order need not be passed. He submitted that the respondent company provided substantial employment and also had contributed to the revenue of the country by paying substantial taxes in the past several years. He further submitted that the respondent company had despite several financial constraints made payment to several creditors and was making operational profits (i.e. the Earnings Before Interest Depreciation and Taxes-EBIDT were positive). He also drew my attention to a letter dated 28.06.2012 issued to the respondent company by Allahabad Bank whereby the said Bank had accorded sanction to provide further financial facilities to the respondent company as a measure for re-structuring the debts of the respondent company. In terms of the said arrangement, Allahabad Bank had extended further facilities to the respondent company albeit with a condition that “no payment shall be made towards liquidation of the dues of other lenders viz., Tata Capital Ltd., China Trust Bank etc.” 14.
In terms of the said arrangement, Allahabad Bank had extended further facilities to the respondent company albeit with a condition that “no payment shall be made towards liquidation of the dues of other lenders viz., Tata Capital Ltd., China Trust Bank etc.” 14. The learned counsel further submitted that in view of the condition imposed by Allahabad Bank, no payments could be made by the respondent company to the petitioner and, therefore, the Managing Director was constrained to make payments to the petitioner from his personal account. He pleaded that the aforesaid mitigating circumstance ought to be considered by the Court and further time ought to be granted to the respondent company to revive and make payments to its creditors. He placed reliance on the decision of a Division Bench of the Gujarat High Court in the case of Tata Iron and Steel Co. v. Micro Forge (India) Ltd.: (2001) 104 Comp Cas 533 (Guj.) in support of his contention that the remedy under Section 433(e) of the Companies Act is not a matter of right and is at the discretion of the Court. He further emphasized that if a company had shown considerable growth then even in cases of temporary inability to pay its liability, the company would not to be driven to winding up. The learned counsel further relied upon the decision of the Orissa High Court in the case of Hindon Foods (Pvt.) Ltd. and Anr. v. Golden Dragon Sea Food Factory (Pvt.) Ltd.: (1991) 70 Comp Cas 335 (Orissa) in support of his contention that even in cases of admitted liability a company need not be wound up. 15. In my view, there is not dispute that the remedy under Section 433(e) of the Companies Act, 1956 is a discretionary remedy and a winding up order need not follow in every case where a company suffers temporary inability to pay its liabilities. The Courts in several cases have accommodated companies which are in distress or which are going through financial crisis by providing reasonable time to enable them to pay their dues. However, a creditor of a company is ex debito justitiae entitled to maintain a petition for winding up of the company, if such company is unable to pay its debts and the discretion vested with the court is to be exercised judicially.
However, a creditor of a company is ex debito justitiae entitled to maintain a petition for winding up of the company, if such company is unable to pay its debts and the discretion vested with the court is to be exercised judicially. In the facts of the present case, the issue to be addressed is whether the respondent is entitled to any further time to pay its admitted dues before the petition is admitted. 16. At the outset, the learned counsel for the respondent was asked whether the respondent was willing to pay the outstanding two installments which were payable on 10.11.2012 and 12.12.2012, within a short period. However, he stated that the respondent would require further three months time to pay this amount The respondent owes more than Rs.15 crores to the petitioner and initial payment of Rs.1 crore was in the given facts most reasonable. However the respondent has even failed to pay the initial amount of Rs.1 crore for almost a year despite undertaking to do so on more than one occasion. The record of this case bears out that the respondent has been granted several opportunities to arrive at an amicable settlement to pay its dues to the petitioner bank. However, despite the opportunities granted, the respondent has failed to arrive at an amicable settlement. On 25.10.2012, the respondent had once again undertaken to pay a sum of Rs.27 lacs in three installments. Admittedly, the respondent has failed to make even this payment to the petitioner. 17. In the facts of the present case, it cannot be disputed that: (i) This Court has granted sufficient time to the respondent for discharge of its dues but the respondent company has failed to do so. (ii) The respondent has failed to honour its commitments and undertakings on more than one occasion. (iii) The respondent company has failed to pay even a small fraction of the dues payable to the petitioner and given the agreed rate of interest, the dues payable to the petitioner as of date would be more than the amount payable to the petitioner at the time of institution of the present petition. (iv) The respondent company has in spite of sufficient time failed to even present a concrete scheme to repay the dues of its creditors. 18.
(iv) The respondent company has in spite of sufficient time failed to even present a concrete scheme to repay the dues of its creditors. 18. Given the aforesaid position and the fact that the respondent has not placed any concrete scheme for repayment of dues by the respondent to its creditors, I do not think that the respondent is entitled to any further extension of time and there is no reason to defer the admission of the present petition. 19. With respect to the decision in the case of Hindon Foods (supra), the same is inapplicable to the facts of the present case. In that case, the High Court directed winding up of the respondent company, however, the operation of the order of winding up was stayed for a period of one year to enable the respondent company to discharge its admitted debts. In the present case, the respondent company has already been granted more than a year to pay a fraction of its debt due to the petitioner and the respondent company has despite undertaking to do so failed and neglected to pay the same. 20. I am unable to appreciate why the respondent company should be given further time when the respondent company has failed to make payment of even a small fraction of the amount, which is due to the petitioner. In the aforesaid circumstances, in my view, it would not be equitable to defer the admission of the present petition. 21. I also think it apposite that the Official Liquidator be appointed as a Provisional Liquidator to take charge of the assets of the company. Although, no formal application for appointment of the Provisional Liquidator is pending, nonetheless, it is apparent that the respondent company has been making payments to creditors on a selective basis as it has been submitted by the learned counsel for the respondent that the respondent company is functional and has been effecting payments to certain unsecured creditors for the purpose of its business. In my view, a company which is prima facie liable to be wound up cannot be permitted to pick and choose the creditors whose dues they wish to discharge. The assets of the company are liable to be distributed equitably in the manner as set out in the Companies Act.
In my view, a company which is prima facie liable to be wound up cannot be permitted to pick and choose the creditors whose dues they wish to discharge. The assets of the company are liable to be distributed equitably in the manner as set out in the Companies Act. The respondent company was also aware that in the event the sum of Rs.1 crore was not paid in terms of the undertaking as recorded in the order dated 17.12.2012, the Official Liquidator would be appointed as the Provisional Liquidator. Thus, there is also no reason to delay the appointment of a provisional liquidator. 22. In view of the foregoing, the present petition is admitted. 23. The petitioner shall take steps for publication of the citation in the Official Gazette, Business Standard (English) and Jansatta (Hindi), in terms of Rule 24 of the Companies (Court) Rules, 1959. 24. The Directors of the respondent company are directed to strictly comply with the requirements of Section 454 of the Companies Act, 1956 and Rule 130 of the Rules and furnish to the OL a statement of affairs in the prescribed form, verified by an affidavit, within a period of 21 days from the date. They will also file affidavits in this Court within three weeks with advance copies to the OL, setting out the details of all the assets, both moveable and immovable, of the respondent company. 25. The Official Liquidator is appointed as the provisional liquidator to take charge of all assets of the respondent company. 26. The application being CA No.2333/2013 stands disposed of. List on 7th July 2014.