Madhya Pradesh High Court
Senior Manager,Uco Bank vs M/S Zoom Developers (Pvt) Ltd. on 20 November, 2014
1
HIGH COURT OF MADHYA PRADESH BENCH AT
INDORE
Company Petition No. 9 of 2011
In the matter of the Companies Act, 1956;
AND
In the matter of petition for Winding up of
M/s Zoom Developers (Pvt.) Ltd.,
AND
In the matter of:
UCO Bank,
Flagship Corporate Branch,
1st Floor, Mafatlal Centre
Nariman Point,
Mumbai-400021.
Through Senior Manager,
UCO Bank, Zonal Office
380-381, Saket Nagar, Indore
PETITIONER
V/s.
M/s Zoom Developers (Pvt.) Ltd.,
Having Its Registered Office
situated at 12/2, R.N.T. Marg
Indore, (MP)-452001
RESPONDENT
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Shri D.S. Panwar learned counsel for the petitioner.
Shri S.C. Bagadiya, learned senior counsel with Shri
Dharmendra Jain learned counsel for respondent.
Shri V.P. Khare, learned counsel for the proposed
intervenor Punjab National Bank.
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ORDER
(Passed on 20th Day of November, 2014) 1/ The petitioner UCO Bank has filed the present company petition under Sections 433 (e) and 434 of Companies Act.
2/ The case of petitioner is that respondent/company had availed of credit facilities from consortium of banks led 2 by the Punjab National Bank and the petitioner bank is one of the member of the consortium. The charge on the fixed assets and current assets of the company was created as security for loan. The respondent company had committed default of repayment of sum of Rs. 379,39,57,450.89/- as on 10/7/2011. The accounts of the respondent company have been identified as non-performing assets. Inspite of the notice for repayment, the amount was not paid by respondent company therefore, the petitioner bank had initiated proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) by issuing notice under Section 13(2) of the Act and also issuing notice of possession. In the search report dated 5/1/2011, from the statutory record maintained by Registrar of Companies Gwalior, it was found that the respondent is indebted to the tune of Rs. 2,51,000/- lakhs to 26 banks. In addition, the respondent also had unsecured creditors. The statutory notice under Section 434 of the Companies Act dated 12/9/04 was sent to respondent by the petitioner by registered post which was duly served and replied by respondent. Thereafter on account of non payment of debts by the respondent, the present winding up petition alongwith IA No. 421/13 has been filed by the petitioner Bank with a prayer for appointment of Official Liquidator as provisional Liquidator.
3/ The respondent had filed reply dated 22/2/2013 to the winding up petition opposing the petition and alleging that the consortium of the bank had abruptly and without any reason had decided to exit from Corporate Debt Restructuring (CDR) and had left the respondent company in lurch and out of business. Further, it has been alleged 3 that the respondent had repeatedly requested the petitioner and other secured creditors to accept the restructuring package and that there was delay on the part of the bank in releasing the facility during the execution of the project therefore, the respondent company cannot be blamed for not repaying the debt. It is also alleged that the petitioner has filed OA before the Debts Recovery Tribunal and has also taken steps under SARFAESI Act and at the same time he has filed winding up the petition.
4/ Rejoinder has been filed by petitioner raising the plea that respondent had submitted CDR proposal only to defer the recovery proceedings and since the banks were not convinced with CDR proposal hence, they decided to exit from CDR. It is reiterated in the rejoinder that on account of outstanding debts the petitioner bank is entitled to file the present winding up petition.
5/ IA No. 5895/13 is an application filed by Punjab National Bank, one of the secured creditor, seeking permission to intervene raising the plea that Punjab National Bank is the leader of the consortium banks and it had sanctioned the credit facilities of 2920 crores (working capital under the consortium agreements dated 26/10/09, 16/10/09 and 17/7/07) and that UCO Bank is one of the members of the consortium.
6/ Learned counsel for the petitioner referring to various documents has submitted that the debt is not in dispute in the present case and inspite of the statutory notice, the respondent has not repaid the debt, therefore, the inability to pay the debt is clear. He has submitted that inspite of the pendency of the proceedings before the DRT and taking 4 of action under SARFAESI Act against the respondent company, the present petition at the instance of petitioner bank who is one of the secured creditor, is maintainable. He has further submitted that provisional liquidator be appointed after admitting the company petition so that remaining assets of the company, the possession of which has not been taken over by the banks, can be taken in custody by the official liquidator.
7/ Learned counsel for the respondent has submitted that provisions of SARFAESI Act have already been invoked by the secured creditor banks and possession of the assets of the company in liquidation has been taken over. Since the actual possession of assets of the company has been taken over therefore, the petitioner cannot alleged that the company is unable to pay the debt because inability is caused by petitioner by its own act. He has further submitted that at this stage passing of the winding up order is meaningless.
8/ Learned counsel for the intervenor has submitted that petitioner bank has already taken action against the company in liquidation under SARFAESI Act by issuing notice under Section 13(2) of the Act and taking symbolic possession. He has further submitted that petitioner bank has approached DRT for recovery of its due therefore, the present winding up petition is not maintainable in view of the judgments of the Supreme court in the matter of Allahabad Bank Vs. Canara Bank and another reported in AIR 2000 SC 1535, Official Liquidator, UP and Uttarakhand Vs. Allahabad Bank & others, reported in AIR 2013 SC 1823 and United Bank of India Vs. Satyawati Tondon & others, reported in AIR 2010 SC 5 3413.
9/ I have heard the learned counsel for the parties and perused the record.
10/ Following factual position emerges from the record.
a/ The documents filed alongwith the winding up petition reflect that the petitioner is one of the secured creditor and respondent has created charge on its assets and the petitioner has to recover an outstanding debt of Rs.379,39,57,450.89/- from the respondent company.
b/ The petitioner had given statutory notice dated 12th July, 2011 for winding up of respondent company, which was duly served upon the respondent company and replied on 9th August, 2011.
c/ The affidavit dated 17/2/2014 filed by one of the directors of respondent company, reflects that respondent company has suffered huge losses and business of respondent company has seized and work has stopped since November 2009 and all its employees have left the company for want of payment of salary. The office and infrastructure facilities were confiscated by the landlords due to non payment of rent and other assets of the company have been taken away by the employees/landlords.
d/ In IA No. 4259/13 filed by one of the directors of the company before this court, it is stated that there is no activity at all in the respondent company after February 2010 and no balance sheet and profit loss accounts have been prepared after 30th September 2011 after the provisional accounts unaudited were prepared on 30th 6 September 2011.
e/ The reply filed by intervenor Punjab National Bank reveals that the petitioner UCO Bank is one of the member of the consortium banks and that the Punjab National Bank has filed original application in DRT III Mumbai against respondent Zoom Developers (Pvt.) Ltd. on 5/9/2011 for recovery of Rs. 484.78 crores.
f/ The fact that petitioner bank has initiated action under the SARFAESI Act and has approached the DRT Mumbai is not in dispute before this Court.
11/ In the above factual background, two issues arise for consideration at this stage:
I) Whether the petitioner can invoke jurisdiction of this Court under Sections 433 and 434 of Companies Act to pass order of winding up when the petitioner bank has already invoked the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and approached the Debts Recovery Tribunal under the provisions of The Recovery of Debts due to Banks and Financial Institutions Act (RDBI Act) for recovery of its debt?
II) Whether the petitioner has made out a case for admitting the winding up petition?
12/ So far as the first issue is concerned, it is undisputed before this court that petitioner bank has invoked the provisions of SARFAESI Act and has also approached the DRT under the RDBI Act for recovery of its dues.
713/ The fact that petitioner bank has invoked the provisions of SARFAESI Act and has approached DRT under the RDBI Act for recovery of its dues will not preclude the petitioner bank from approaching this court under Sections 433 and 434 of Companies Act for winding up of company in liquidation because the scope of two proceedings is different. The proceeding before DRT are for recovery of debt of secured creditors whereas the proceedings before the Company Court under Section 433 are for winding up of the company.
14/ The Supreme court in the matter of Allahabad Bank (supra) has held that the jurisdiction of the tribunal in regard to the adjudication is exclusive. The RDBI Act requires the tribunal alone to decide application for recovery of debts due to banks or financial institutions. It has further been held that provisions of Sections 17 & 18 of RDBI Act are exclusive in respect of adjudication of the liability of the debtor company to the bank and that it is not the intendment of the Act that while basic liability of a party is to be decided by the tribunal under Section 17 of the Act, the banks/financial institutions should go to the civil court or company court or some other authority outside the Act for actual realisation of the amount and Section 34(1) of RDBI Act overrides the other laws to the extent of inconsistency. There is no need for the creditor bank to seek leave of the company court to proceed with its claim before the Debts Recovery Tribunal or in respect of execution proceedings before the Recovery Officer. Nor can they be transferred to the company court and that Sections 442, 446 and 537 of the Companies Act cannot be applied against the tribunal. The RDBI Act overrides the Companies Act to the extent there is anything inconsistent 8 between the Acts.
15/ The Supreme court in the matter of Official Liquidator, UP and Uttarakhand Vs. Allahabad Bank & others, reported in (2013) 4 SCC 381 while taking the view that RDBI Act is a complete Code in itself and the DRT has the exclusive jurisdiction for purpose of sale of the properties for realization of the dues of the banks and financial institutions has expressed the sale has to be conducted by DRT with the association of official liquidator and once official liquidator is associated he has role to see that there is no irregularity in conducting the auction and ensuring fetching of fair price. Official liquidator has a role under the Companies Act and he protects the interests of the workmen and the creditors and, hence his association at the time of auction and sale is necessary.
16/ In the matter of Rajasthan State Financial Corpn. & Anr. Vs. Official Liquidator & Anr. reported in (2005) 8 SCC 190 also it has been held that:-
"17. Thus, on the authorities what emerges is that once a winding up proceeding has commenced and the liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the Official Liquidator and under the supervision of the Company Court. The right of a financial institution or of the Recovery Tribunal or that of a financial corporation or the Court which has been approached under Section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the Official Liquidator being associated with it, giving the company Court the right to ensure that the distribution of the assets in terms of Section 529-A of the Companies Act takes 9 place."
Thus even after RDB Act right of the company court to ensure that distribution assets in terms of Section 529A takes place is not lost.
17/ It has also been settled that if the secured creditor has approached DRT and debtor company is not in liquidation nor any provisional liquidator is appointed then the sale proceeds need not be distributed in the manner prescribed in Section 19(19) of RDB Act. The workman of the company in winding up acquire the standing of secured creditor on and from the date of the winding up order and they become entitled to distribution of sale proceeds in the ratio as explained in the illustration appended to Section 529(3)(c) of the Companies Act. It is also settled that the claim of workmen who claim to be entitled to payment pari passu is to be considered and adjudicated by liquidator of the debtor company and not by DRT (See: Bank of Maharashtra Vs. Pandurang Keshav Gorwardkar and others, reported in (2013) 7 SCC 754). Therefore, the interest of the workman can be better protected by passing the winding up order and appointing provisional liquidator.
18/ Similar issue had come up before the Division Bench of the Bombay High court in the matter of Viral Filaments Limited Vs. Indusind Bank Limited, reported in 113, Company Cases Bombay 84, wherein in similar circumstances when the bank after moving the application before the DRT for recovery of debts had filed the winding up petition, the Bombay High court after considering the judgment of the Supreme court in the matter of Allahabad Bank (supra) has held that the petition for winding up 10 under the Companies Act is not equivalent to an application seeking recovery of debts due and that Section 433 of the Companies Act is not intended to supplant the jurisdiction of a civil court to adjudicate a money suit but it provides for winding up of the petition, if company is unable to pay its debts. If the deeming fiction under Section 434 come into play, it is open to the Company Court to entertain the petition under Section 433(4) of the Act. The Bombay High court has accordingly rejected the objection to the maintainability of winding up petition raised on the ground that bank or financial institution had already filed application before the DRT under the provisions of RDBI Act. The Division Bench in the said judgment by affirming the order of admission of winding up petition passed by the learned Single Judge has dismissed the appeal.
19/ The Bombay High court in another case in the matter of Global Trust Bank Limited Vs. Killick Nixon Limited, reported in [2005] 128 Company Cases 1007 has also taken the same view that the pendency of the matter before the DRT would not deter the company court from passing an order for winding up in the event of a case being made out.
20/ The Madras High court in the matter of Hongkong and Shanghai Banking Corporation Ltd. Vs. Agnite Education Ltd. reported in [2013] 176 Company Case 313 (Madras) has held that the invocation of recovery proceedings under the RDBI Act before the DRT is not a bar to initiate proceeding under the Companies Act for winding up of the petition.
1121/ The Karnataka High court also in the matter of Kingfisher Airlines Ltd. Vs. State Bank of India and others, reported in AIR 2014 Karnataka 25 has also after considering the judgment of the Supreme court in Allahabad Bank (supra) taken the view that a secured creditor bank can simultaneously prefer company petition seeking winding up of company, in respect of such debts which are not covered by the security.
22/ Keeping in view the above aspect of the matter, I am of the opinion that the petitioner is entitled to file an application before this court for winding up of the petition under Section 433 of the Act even after approaching the DRT for recovery of its debts. Though such an application is maintainable but while conducting the proceedings of winding up this Court will exercise the power keeping in view the provisions of RDBI Act which have the overriding effect in terms of the judgment of the Supreme court in the matter of Allahabad Bank (supra).
23/ The second issue is if the petitioner has made out a case on merit for admitting the present winding up petition.
24/ It is settled position in law that 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. It is also settled that where 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 quantify the debt precisely. The principles on which the court acts are first that the defence of the company is in good faith 12 and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. (See: M/s Madhusudan Gordhandas & Co., Vs. Madhu Woolen Industries Private Ltd., reported in AIR 1971 SC 2600).
25/ This court also in the matter of Sungrace Finvest Pvt.Ltd. Kolkata Vs. Maikaal Fibres Ltd. Bheelgaon And Maikaal Fibres Shramik Kalyan Sangathan, Bheelgaon, reported in 2010(2) MPLJ 333 has held that when the petitioner has proved to the satisfaction of the Court that the respondent company is unable to pay its debts, the petitioner cannot be denied the winding up of the respondent company by directing it to avail alternate remedy.
26/ The petitioner's case is that the respondent has committed a default of repayment of a sum of Rs. 379,39,57,450.89/- as on 10/7/2011. The respondent has not disputed the debt. On the contrary the plea of respondent is that restructuring package was not accepted and that there was delay in extending the facility and facility was called of intermittently and there was sincere effort to repay to the creditors. The defence which the respondent company is taking does not appear to be bonafide defence. The petitioner had sent the statutory notice dated 12th July, 2011 which was duly served upon the respondent company on 9th August, 2011. Inspite of that repayment has not been done. The company is indebted to a sum exceeding the amount provided under Section 434 (1)(a) of the Companies Act and inspite of the service of notice of demand, the company has neglected to 13 pay the sum, therefore, the company is deemed to be unable to pay its debts. The undisputed facts on record also reveal that there is no activity at all in the respondent company. The respondent has suffered huge losses and business of respondent company has seized and work has stopped since November 2009 and all its employees have left the company for want of payment of salary.
27/ Thus, a case is made out for admitting the petition and passing an order of winding up.
28/ Accordingly it is directed that:-
(1) In view of the above analysis, Company petition is admitted. Let the petition be advertised in accordance with the Rules.
(2) Considering the above circumstances, it is found that the petition has been presented on the ground that is just and equitable for passing an appropriate order of winding up. Accordingly I order winding up of the respondent company in accordance with the provisions of the Act read with the Company Court Rules, 1949.
(3) Accordingly, and with a view to enable this Court to pass a final winding up order as contemplated under Rule 282 of the Rules, Official Liquidator of this Court who becomes a Liquidator of the Company by virtue of Section 449 of the Act, is appointed as Liquidator of the Company.
The Registrar of this Court to take steps as provided under Rule 109 of the Rules so that necessary orders as required under Rule 112 onwards can be passed by this Court, on the next date of hearing.
List on 26/2/2015.
(PRAKASH SHRIVASTAVA) COMPANY JUDGE BDJ