Madhya Pradesh High Court
Citibank N.A.London Branch ... vs M/S Plethico Pharmaceuticals Ltd. on 1 October, 2014
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HIGH COURT OF MADHYA PRADESH
BENCH AT INDORE
(SB: HON. SHRI JUSTICE PRAKASH SHRIVASTAVA)
Company Petition No.35/2013
In the matter of Companies Act, 1956;
&
In the matter of Section 433 (e), (f) read with Sections 434 and 439
of the Companies Act, 1956;
&
In the matter of winding up of M/s. Plethico Pharmaceuticals Limited.
Citibank N.A. London Branch, .... Petitioner
a US National banking corporation
incorporated under the laws of New York and
acting through its London Branch having its
principal office at
14th Floor, Citigroup center, Canada Square,
Canary Wharf, London E14 5LB,
United Kingdon;
Through its authorized signatory,
V.K. Gogia S/o Late Shri S.L. Gogia,
R/o - D-111, Panscheel Enclave,
New Delhi.
Versus
M/s. Plethico Pharmaceuticals Limited .... Respondent
a company registered under the Companies
Act, 1956 having its registered office at :-
A.B. Road, Manglia, Indore-453771 (M.P.),
India; CIN 24232MP1991PLC006801
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Shri B.L. Pavecha, learned senior counsel with Shri
Aditya Thakkar and Shri Nitin Phadke, learned counsel for the
petitioner.
Shri J.P. Kama, learned senior counsel with Shri B.
Somani and Shri Ajay Bagadiya, learned counsel for the
respondent.
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Whether approved for reporting :
ORDER
(Passed on 01st October, 2014)
1/ This petition under Section 433 (e) & (f) read with
Section 434 and 439 of the Companies Act, 1956 is at the instance of City Bank seeking winding up of the respondent M/s Plethico Pharmaceuticals Ltd (for short "Company").
2/ The case of the petitioner in brief is that by Offering Circular dated 18.10.2007, the Company had offered USD 75,000,000 (United States Dollar - Seventy Five Million only) Zero coupon convertible bonds due 2012. The Company had entered into an agency agreement on 22.10.2007 with, the petitioner and others, thereafter appointing the Principal Paying Agent to act for and on behalf of the Trustees in respect of the bonds in accordance with the provisions of the conditions and the Agreement. The Company had also entered into the trust deed dated 22.10.2007 with the petitioner in respect of the bonds, appointing the petitioner as Trustee to act for and on behalf of the bondholders. As per the trust deed, the Company had covenanted to unconditionally pay or procure to be paid to or to the order of the petitioner at London in US Dollar in immediately available freely transferable funds, the principal amount of the bonds outstanding and becoming due for redemption or repayment, one New York business day prior to any date when the bonds or any of them become due to be redeemed or repaid in accordance with the terms and conditions together with any applicable premium and interest. As per the Offering Circular and the condition, the bonds were issued at 100 per cent of the principal amount on 22.10.2007 3 with a maturity date of 23.10.2012 and each bond was to be redeemed in US Dollars on maturity date at 145.9339 per cent of its principal amount. Accordingly the Company was required to pay an amount of USD 109,450,425 one business day before the maturity date. The Company had failed to pay the amount on the maturity date, instead it had convened a general body meeting on 5.4.2013 of its shareholders inter alia for increasing the borrowing limits of the company and accordingly the resolution was passed. Since the default had occurred in repayment, therefore, on the instructions of the bondholders holding not less than 25% of the aggregate principal amount outstanding of the bonds dated 7.5.2013 (First Noteholder Direction), the petitioner sent a notice of event of default dated 17.5.2013 to the Company but inspite of the receipt of notice, the Company did not make payment of the outstanding amounts. The attempt of the Company to modify the trust deed and the condition, inter alia, to extend the maturity date by convening a meeting of the bondholders had remained unsuccessful. The Company in its annual report for the financial year 2011-12 under the caption 'Unsecured Borrowing' has set out an aggregate figure of INR 4,81,25,20,000/- representing an amount due under the bonds as on 31.12.2012, showing the admission of liability by the respondent-Company. The petitioner had called upon the Company to repay the debts through the notice of demand dated 17.5.2013 in terms of Section 434 of the Act. The statutory demand notice was duly served on the Company at its registered office by registered post, by courier and also by Fax. The Company had sent the reply through its advocate on 12.6.2013 raising several objections, which was duly responded by the petitioner by sending their Advocate's letter dated 4 13.7.2013. Some further exchange of letters had taken place. The Securities Exchange Board of India (SEBI) on 4.6.2013 had passed a restraining order against the Company for failing to comply with the requirement of minimum public shareholders. As per the petitioner, the Company is liable to pay to the petitioner, on behalf of the bondholders, in aggregate a sum of USD 118,206,459 under the Bonds which includes default interest @ 9% per annum till repayment. Accordingly the petitioner in its capacity as Trustee on behalf of the bondholders, has filed the present winding up petition.
3/ The respondent has filed reply to the winding up petition raising the plea that the Company is a profit making company as per the accounts of last five years of the Company. The consolidated value of assets as per the Book Value is Rs.1713 Crores and the consolidated liability is Rs.1145 Crores, which leaves a consolidated surplus of Rs.568 Crores. The company is involved in pharmaceutical business. It is a running concern employing approximately 3000 peoples in all over the world. The stand of the Company is that on account of the global recession in last few years, the equity market had performed poorly and due to the economic downturn the company did not redeem the FCCBs on its maturity dates and had initiated steps to restructure the bond. It had also started the process of seeking approval from RBI for extension of six months to come out with a FCCBs restructuring package. As per the reply of the Company, some of the bondholders were willing to restructure the FCCbs but before issuing winding up notice, the petitioner did not bother to take consent of such bondholders. The aggregate debt of USD 118,206,459 has been denied by the Company. Further stand of the Company is that the winding up of the Company would 5 cause scarcity of wide range of products manufactured by the respondent as well as loss of revenue to the State by way of collection of taxes, which otherwise would have been collected and that the Company is not commercially insolvent and the presumption that the Company is unable to pay the debt does not arise in the matter. The parties have also filed rejoinder and sur-rejoinder to reiterate their respective stand and disclosing further material to strengthen the same.
4/ The I.A. No.6708/2013 has been filed by some of the employees of the Company opposing the winding up petition taking the stand that the Company has approximately 3000 employees working all over the world and order of winding up will adversely affect its employees.
5/ Learned counsel appearing for the petitioner submits that the petitioner has locus to file petition and in this regard he has referred to various clauses of the trust deed. He further submits that as per the conditions of bond, there is unconditional liability to pay and the maturity date has expired, therefore, liability can not be disputed and that the liability has been admitted by the respondent. He has also submitted that the mere fact that the Company is commercially solvent, is not sufficient to deny the order of winding up if the liability is established and the Company's inability to pay the due debt is proved.
6/ Learned counsel for the respondent has questioned the locus of the petitioner to file the winding up petition submitting that there is no material to show that the petitioner is representing 25% of the bondholders. He further submits that there is no unequivocal admission of the liability and that in fact no liability exist since the redemption is not to be done, if there is no enough cash flow. He has further submitted that the 6 restructuring plan is in the offering and that the respondent is a profit making company and has approached the RBI seeking time to make the payment, and that the Company is employing about 3000 workers. His submission is that though the Company is able to pay the debts but the differment has been planned to meet out the crisis and to survive.
7/ Counsel for the proposed intervener has opposed the petition submitting that the workers employed in the Company will suffer on account of winding up of the Company.
8/ I have heard the learned counsel for the parties on the question of admission and perused the record.
9/ The first issue is about the locus of the petitioner to file the present winding up petition. It is not in dispute that the Company had offered USD 75,000,000 Zero Coupon Convertible Bonds by the Offering Circular dated 18.10.2007. The agency agreement dated 22.10.2007 entered into by the Company with the others including the petitioner is also not in dispute. The trust deed dated 22.10.2007 executed by the Company as issuer of the bonds with the petitioner in respect of the bonds appointing the petitioner as Trustee to act for and on behalf of the bondholders, is also not in dispute. The Clause 18.4 of the Trust Deed (Ex. D) which is relevant here provides as under :-
"18.4 Enforcement
(a) At any time after the Bonds have become due and repayable, the Trustee may, at its discretion and without further notice, take such proceedings against the Company as it may think fit to enforce repayment of the Bonds together with premium (if any) and to enforce the provisions of this Trust Deed, but it shall not be bound to take any such proceedings unless (x) it shall have been so requested in writing by the holders of not less than 25 per cent. in principal 7 amount of the Bonds then outstanding or so directed by an Extraordinary Resolution and (y) it shall have indemnified and/or secured to its satisfaction. No holder of the Bonds shall be entitled to proceed directly against the Company, unless the Trustee, having become bound to do so, fails to do so and such failure shall have continued for a period of 60 days and no direction inconsistent with such written request or Extraordinary Resolution has been given to the Trustee during such 60-days period by the holders of a majority in principal amount of the outstanding Bonds.
10/ In the above clause in two conditions the trustee can take action against the company after the bonds became due and payable to enforce repayment; firstly at its own discretion and secondly at request of bond holders. In the latter case such a request is binding on the trustee if it is made in writing by the holders of not less than 25% in principle amount of bond than outstanding. Thus, in the later case on the fulfillment of the said condition, there is no discretion left with the trustee.
11/ Thus, under the above clause petitioner can exercise discretion to enforce the provisions of the trust deed at any time after the bonds become due and payable.
12/ Even otherwise under the above clause the petitioner is bound to take the proceedings in terms of the trust deed if it is requested in writing by the holders of not less than 25% in principal amount of bonds then outstanding. Under the above clause, no holder of the bond is entitled to proceed directly against the company unless the trustee inspite of the request in terms of the clause fails to take action. The condition of authorization by 25% of the debenture holder is also satisfied in the present case as is clear from Annexure-E 8 filed along with the reply of the respondent which is a letter signed by Mr. Bernie Hogel, a Senior Assistant Manager of Peter Beck and Partner stating that it is a group which owns atleast 35% of the bonds currently outstanding. This letter was sent to the company with CC to the petitioner disclosing that on account of failure to make the payment, event of default under Condition 10(i) of the Bonds has occurred. The petitioner along with the rejoinder has also filed the communication Annexure-A sent by the Company to Mr. Hogel stating its inability to arrange fund due to stressed financial state and the communication Annexure-D confirming that Peter Beck holds approximately 35% of the bonds. In the petition, it has been stated that the petitioner has duly been instructed by the bond holders of not less than 25% of the bond outstanding.
13/ Clause 11.39 of the deed provides for assumption of genuine instructions, which does not require a trustee to inquire into or investigate the validity, accuracy or content of any such document or the due signing or execution by the parties, if they are believed to be genuine. Clause 11.39 reads as under :-
11.39 Assumption of Genuine Instructions the Trustee may rely in good faith upon and shall not be liable for acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee shall be under no duty to inquire into or investigate the validity, accuracy or content of any such document or the due signing or execution by such party or parties;
14/ Thus, in any case the condition of Clause 18.4 of the Trust Deed are satisfied in the matter.
15/ That apart Under Section 439(1)(b) also an application for winding up of a company can be presented by 9 any creditor, and in terms of Section 439(2) a trustee for the holders of debentures is deemed to be a creditor within the meaning of Section 439(1)(b). Section 439 of the Act reads as under :-
"439. Provisions as to applications for winding up.-(1) An application to the [Tribunal] for the winding up of a company shall be by petition presented, subject to the provisions of this section,-
(a) by the company; or
(b) by any creditor or creditors, including any contingent or prospective creditor or creditors; or
(c) by any contributory or contributories; or
(d) by all or any of the parties specified in clauses (a), (b) and (c), whether together or separately; or
(e) by the Registrar; or
(f) in a case falling under section 243, by any person authorised by the Central Government in that behalf.
(g) in a case falling under clause (h) of section 433, by the Central Government or a State Government.
(2) A secured creditor, the holder of any debentures (including debenture stock), whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and the trustee for the holders of debentures, shall be deemed to be creditors within the meaning of clause (b) of sub-section (1).
16/ Thus, the petitioner trustee being a creditor within the meaning of Sec.439(1)(b) of the Act is also entitled to file the present winding up petition.
17/ Bombay High Court in Company Petition No.971/2009 in the matter of BNY Corporate Trustee Services Ltd Vs. Wockhardt Limited referring to Section 439(2) of the Companies Act has held that a trustee is capable 10 of presenting a winding up petition. Even on general principle it has been held that the bond holders can be represented by trustee and a deed executed in his behalf cannot be ignored by the parties and if the deed is not contrary to statutory principle recognized by Section 439(2) then the objection about maintainability of the petition by the trustee cannot be upheld.
18/ Bombay High Court in another judgment in the matter of Zenith Infotech Ltd Vs. The Bank of New York Mellon London Branch in Appeal No.344/2013 (Company Petition No.28/2012) by order dated 2/9/2013 in a similar case of issuance of convertible bonds with execution of the trust deed containing a clause similar to clause 18.4 of the trust deed of the present case, has held that the trustee for holders of debenture is deemed to be a creditor u/S.439 and the petition at his instance is maintainable. The Bombay High Court has also taking note of Sec.439(2) of the Act has held thus:-
"Consequently, the trustee for the holders of debentures is deemed to be a creditor within the meaning of Section 439(1)
(b). Hence, there can be no manner of doubt that a petition, at the behest of the Respondent for winding up, was maintainable".
19/ Keeping in view the above, the objection of the respondent about the maintainability of the petition at the instance of the petitioner trustee cannot be sustained and is hereby rejected.
20/ The next issue is if the Company has any existing liability to pay the debts to the bond holders on whose behalf the petitioner trustee is acting.
21/ The issuance of the Zero coupon convertible bonds due 2012 for USD 75000000 (US $ 75 Million only) by the 11 company is not in dispute. Company in the offer letter had stated that the bond will constitute the companies direct, unconditional, insubordinate and unsecured obligations and will mature on 23rd October, 2012. In the trust deed the company has accepted its unconditional liability to pay and redeem the bonds one New York business day prior to any date when the bonds become due to be redeemed. The company in its communication to the reserve bank dated 22/10/2012 filed along with the reply has admitted outstanding principal amount of US $ 75 million and that the FCCBs had matured and become due for redemption on October 23rd 2012. In that communication it was also admitted by the company that it did not have adequate cash balance to redeem the existing FCCBs on the current maturity date and hence it is in default of its obligations under the terms of the existing FCCBs. The Company's communication to the petitioner dated 26th October, 2012 filed along with the petition discloses the admission of the respondent that outstanding aggregate amount of bonds as on 23/10/2012 was US $ 109.45 Million and further admission that due to the adverse market conditions, depreciation of the INR and insufficient liquidity, company was unable to honour the redemption application of bonds on the maturity date and further admitting that the event of default had triggered. In the notice of meeting of bond holders Exhibit-I also the liability and the default was admitted by the company. The communication dated 15/1/2013 (Exhibit A to rejoinder) sent by the company to Mr.Hogel also reveals that the company is unable to arrange funds for redemption of bonds due to the stressed financial state of the company. In the notice dated 23/1/2013 (Exhibit K of the petition) to bond holders, company has admitted that the event of default was continuing. In the reply to the company 12 petition also Company has admitted that it did not redeem the FCCBs on its maturity date.
22/ There is nothing on record to show that the maturity date of 23/10/2012 was extended. The attempt of the company for restructuring of the bonds has also failed. The stand of the Company based upon risk factor clause and offering circular cannot be accepted since it primarily relates to the premature redemption of bond in case of change of control or de-listing of share from the BSE and NSE. Company cannot be permitted to take shelter of the risk clause to deny its absolute and unconditional liability which has accrued on maturity of the bonds.
23/ The stand of the company about consent of banks for extension of maturity date cannot be accepted because there is no cogent material about the extent of the bonds holdings of the alleged banks. Even otherwise there is no resolution on record as required by the trust deed extending the maturity date. Thus, it is held that the unconditional liability of the respondent company to redeem the bonds on their maturity is fully established and it is proved that company is in default of honouring the liability of making the payment even after maturity of bonds.
24/ The next issue is if inspite of the unconditional liability to pay the debt the company has any acceptable defence for not making the payment.
25/ The order u/S.434(e) of the Act is discretionary, on ascertaining the cause for refusal to pay the debt if it is found that the debt is bona-fidely disputed on substantial ground, the discretion in favour of the petitioner for passing the winding up order need 13 not be exercised. But once the debt is established, a company in order to avoid the winding up order is required to establish that its defence is in good faith and is of substance and the defence is likely to succeed in point of law and there is some prima-facie proof to substantiate the defence. For a winding up order a creditor need not establish the exact amount of debt in dispute but the proof of the debt to the extent of drawing the statutory presumption u/S.434-A of the Companies Act is enough.
26/ Supreme Court in the matter of Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami reported in 1965 (35) Company Cases 456 has held that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the Company but if debt is not disputed on some substantial ground, the court may decide on the petition and make the order. The Supreme Court in the matter of Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries (P) Ltd. reported in 1971(3) SCC 632 has culled out the following rules for passing the order of winding up:-
"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 pauyment of an agreed sum for work done for the company when the company contended that the work had not been properly was not allowed. See Re.14
Brighton Club and Horfold Hotel Co. Ltd (18565) 35 Beav 204.
21. Where the debit 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 quantify the debt precisely see Re. Tweeds Garages Ltd 1962 Ch 406. The principles 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 company adduces prima facie proof of the facts on which the defence depends".
27/ In the case of Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Vs. North India Petro Chemical and Another reported in 1994 (79) Company Cases 835, the Supreme Court has held that an order under Section 433(e) is discretionary and there must be a debt due and the company must be unable to pay the same and the debt must be a determined or definite sum of money payable immediately or at a further date and inability u/S.433(e) should be taken in the commercial sense.
28/ In the matter of Mediquip Systems (P) Ltd. Vs. Proxima Medical System GmbH reported in 2005(7) SCC 42 Supreme Court has reiterated the principles relevant for passing winding up order by holding as follows:-
"25. The rules as regards the disposal of winding-up petition based on disputed claims are thus stated by this Court in Madhsudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd (1971) 3 SCC 632.15
This Court has held that if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The principles on which the court acts are;
[i] that the defence of the company is in good faith and one of substance;
[ii] the defence is likely to succeed in point of law; and [ii] the company adduces prima facie proof of the facts on which the defence depends.
29/ In the matter of Vijay Industries Vs. NATL Technologies Limited reported in 2009(3) SCC 527, the Supreme Court has reiterated the prerequisites for winding up on the ground of inability to pay debt by holding that for invoking Sec.433(e) what is necessary that despite service of notice by the creditor, the company which is indebted in a sum exceeding one lakh rupees then due, failed or neglected to pay the same within three weeks thereafter or to secure or compound for it to the reasonable satisfaction of the creditor. It has further been held that Section 433(e) does not state that the debt must be precisely a definite sum and it is not a requirement of law that the entire debt must be definite and certain.
30/ In the present case the debt is not in dispute. Thus, it does not fall in the category of case where the debt can be said to be bona-fidely disputed. The defence of the respondent is that it had not been able to redeem the bond on their maturity on account of the global recession and poor performance of equity market. This defence does not relate to the dispute relating to debt but it is based upon reason for inability to pay.
31/ The further defence of the company is that it is a 16 running concern having sound finance carrying on the business profitably employing approximately 3000 employees and that the total assets of the company are worth 1713 crores and the total liability is 1145 crores. Hence, company has surplus of 568 crores which is sufficient to cover the liability.
32/ The Supreme Court in the matter of IBA health (India) Private Limited (supra) has considered the issue of commercial solvency and has held that examination of the company's solvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay and in such a situation, solvency is relevant not as a separate ground.
Supreme Court in the matter of IBA health (India) Private Limited (supra) has held as under :-
"24. The appellant Company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company's insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is relevant not as a separate ground. If there is no dispute as to the company's liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. The law should be allowed to proceed and if demand is not met and an application for liquidation is filed under Section 439 in reliance of the presumption under Section 17 434(1)(a) that the company is unable to pay it debts, the law should take its own course and the company of course will have an opportunity on the liquidation application to rebut that presumption.
25. An examination of the company's solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company's liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterised as a stand alone ground."
33/ Since in the present case also there is no dispute of unconditional liability to pay, therefore, the defence that the Company is solvent but not paying the debt on account of market conditions cannot be accepted.
34/ It is worth noting that this court at this stage is considering the issue of admission of winding up petition. Counsel for the petitioner has placed reliance upon the judgment of the Delhi High Court in the matter of M/s Bipla Chemicals Industries Vs. M/s Shree Keshariya Investment Ltd. reported in ILR (1975) II Delhi 901. In that case also a plea was raised that the company has assets worth Rs. 5 crores which was more than ample to meet the liability, but same was rejected by holding that as soon as prima facie case for winding up is made out, the petitioner ought to be admitted. Delhi High Court has held thus:-
18"16. Furthermore, even supposing that the company has sufficient assets to pay its debts, that is cold comfort to its creditors. It was said in Re Focus Advertising Pvt Ltd. (1974) 44 Company cases 567(1), that once it is established that a debt, regarding which there is no bona fide dispute, is owing to a creditor despite statutory notice of demand, he is entitled to a winding up order 'and the court will not listen to a defence on the part of the company that it is not commercially insolvent or that its financial position is not such as to be unable to pay its debts. Here, counsel for the company conceded that the amounts claimed by the petitioning creditors and also by the creditors opposed to the winding up were in fact due though there were disputes regarding some small items. It is also apparent from the allegations made by the petitioning creditors, that most of the amounts claimed by them have been due for over a year. No attempt was made to pay them either in whole or in part despite notices of demand. Hence, the petitioning creditors would seem to be entitled to a winding up order without having to show anything more.
17. I appreciate that on hearing a winding up petition, the court may, instead of making an order for winding up the company, make any of the other orders contemplated by section 443 of the Companies Act. It may even 'adjourn the hearing conditionally or unconditionally'. I accept that many considerations which would be relevant at the hearing of a winding up petition may also have some part to play at the admission stage. But, I think, that the approach at the admission stage would be rather different than that at the hearing. At the admission stage, I would have thought, that as soon as a prima facie case for winding up was made out, the petition ought to be admitted. In contrast, at the hearing, all the facts proved would have to be taken into account for deciding what was the best order to make having regard to all the circumstances of the case.
18. "xxxxxxxxxxxxxxxxxxxx"
19. Having regard to all these aspects, in my view, the only appropriate 19 order to make at this stage is to admit the petitions. No real prejudice can be caused to the company by such an order. It can still carry on its negotiations for loans and present a scheme if, and when, its position improves. At the hearing, no doubt the court will consider what is the appropriate order to make on all the facts established before it. On the other hand, to defer orders admitting the petitions would be to delay the claims of the petitioning creditors further; and, this on rather nebulous grounds. Such a course would be contrary to the interest of justice especially when it is remembered that the amounts claimed by them are admitted to be due, and have already been outstanding for a considerable period. Accordingly, I admit all these petitions. Costs will abide the event."
35/ The petitioner has also placed reliance upon the unreported judgment of the Delhi High Court dated 17.7.2013 in Company Petition No.558/2012 in the matter of Citi Bank Vs. Moser Baer India Ltd., wherein the plea was raised that the CDR scheme has been implemented and revival process has been started, the Delhi High Court while drawing distinction between admission stage and subsequent proceedings of winding up has held as under :-
"15. The more serious objection, however, is to the plea that the discretion should be exercised in favour of the respondent-company, by refusing to admit the petition for winding-up in the light of the attempts made to revive the company's business under the CDR Scheme and the infusion of further funds by the consortium of banks. In the judgment of the learned Single Judge of this court (supra), it has been held, on this aspect, that at the admission stage, "as soon as a prima facie case for winding up was made out, the petition ought to be admitted" and that "in contrast, at the hearing, all the facts proved would have to be taken into account for deciding what was the best order to make having regard to all the circumstances of 20 the case". A distinction has thus been made, as pointed out on behalf of the petitioner, between the admission stage and the later stage after citation is published and before proceeding to make a winding up order; it is at that later stage that all arguments on the merits of the rehabilitation or revival scheme can be addressed and heard and a decision can be taken as to whether the discretion to order winding up may be exercised or not on the basis of the well-settled parameters as applied to the facts brought out. That was also a case of a revival effort on the part of the company should to be wound-up which took the plea that it had applied for loans for a substantial amount and accordingly sought for an adjournment for four months; interestingly, it did not choose to plead that the petition should be dismissed. The position is not so vague in the present case as in that case where this Court found that the loan applications had been rejected and that the whole position was quite uncertain and there was no existing scheme for paying the creditors; in fact, counsel had even stated that if the loans were not forthcoming there would be no option but to submit to the winding up petition. In the present case, however, it is not in dispute that there exists a CDR scheme led by a consortium of banks, to whom an amount of Rs. 2000 crores (app.) is outstanding, which have infused a further amount of Rs. 150 crores, out of which Rs. 40 crores can be set apart for the bond- holders. The banks have also agreed to a moratorium on their dues for a period of 18 months ending in April, 2014. The workforce of about 4000 is kept intact. Nevertheless, at the stage of admission, the company court is in no position to- and there are no manageable standards for indulging in such an exercise - take a decision as to the prospects of the company in the immediate or short-term future, even accepting that a CDR Scheme is afoot and efforts are on for the revival of the company with the infusion of further funds. I cannot however help observing - it 21 is only a prima facie observation - that considering the quantum of further funds to be infused, as juxtaposed with the amount due to the secured creditors (the banks) and as further compared with the liability of around Rs. 863 crores due to the bond- holders, and even taking note of the moratorium, it seems to me to be not a case where the discretion of this court not to order winding up can be exercised at the stage of admission. I must here quote, with respect, the very pertinent observations of Chawla, J., (as he then was) in Bipla Chemical Industries (supra):
Furthermore, even supposing that the company has sufficient assets to pay its debts, that is cold comfort to its creditors. It was said in re Focus Advertising Pvt. Ltd. (1974) 44 Comp Cas 567 (Bom.), that once it is established that a debt, regarding which there is no bona fide dispute, is owing to a creditor despite statutory notice of demand, he is entitled to a winding-up order "and the court will not listen to a defence on the part of the company that it is not commercially insolvent or that its financial position is not such as to be unable to pay its debts". Here, counsel for the company conceded that the amounts claimed by the petitioning creditors and also by the creditors opposed to the winding-up were in fact due, though there were disputes regarding some small items.
It is also apparent from the allegations made by the petitioning creditors, that most of the amounts claimed by them have been due for over a year. No attempt was made to pay them either in whole or in part despite notices of demand. Hence, the petitioning creditors would seem to be entitled to a winding-up order without having to show anything more.
I appreciate that on hearing a winding-up petition, the court may instead of making an order for winding up the company, make any of the other orders contemplated by section 443 of the Companies Act. It may even "adjourn the hearing conditionally or unconditionally". I accept that many considerations which 22 would be relevant at the hearing of a winding up petition may also have some part to play at the admission stage. But, I think, that the approach at the admission stage would be rather different than that at the hearing. At the admission stage, I would have thought,that as soon as a prima facie case for winding up was made out, the petition ought to be admitted. In contrast, at the hearing, all the facts proves would have to be taken into account for deciding what was the best order to make having regard to all the circumstances of the case."
36/ In the matter of BNY Corporate Trustee Services (supra) the Bombay High Court has held that the court cannot refuse to entertain a petition merely because CDR scheme for settlement of the debt is proposed by the company.
37/ A further reliance has been placed on the judgment of the Punjab and Haryana High Court in the matter of Sound Fibre Vs. B.K. Duplex Ltd. reported in 2010(155) Company Cases 308 (P&H) wherein the Punjab & Haryana High Court taking note of the prevailing financial scams has held that the bankruptcy of a company could be concealed by a clever manoeuvres but the acid test always is that when a demand is made for recovery of sums due by a creditor and if the company is unable to pay and states in unmistakable terms that it was passing through financial crunch that makes it impossible to accommodate the request for payment, it is as clear as sunlight that the company is in financial doldrums. Even otherwise, a company that has stacked its funds in bank or in the pockets of its directors cannot deny to a creditor what is justly due and defy, if such a creditor makes his demand. A company that is unwilling to pay for no reasons and forces creditor to unviable ways of recovery, even when the liability to the creditor is an admitted fact has ethically no right to continue 23 its operations and the winding up in such cases is the only answer. A reliance has also been placed upon the judgment of the Delhi High Court in the matter of Ranbaxy Laboratories Ltd. Vs. M.S. Shoes East (I) Ltd. reported in 1998(93) Company Cases 296 (Delhi) wherein the company has not disputed its liability to pay nor has filed any scheme for consideration of the Court to show as to how the company intends to pay its admitted debts, it was found that the admission of the winding up petition cannot be validly opposed.
38/ The counsel for the Company has placed reliance upon the judgment of the Gujarat High Court in the matter of American Express Bank Ltd Vs. Core Health Care 1999(96) Company Cases 841 (Gujarat) and Tata Iron and Steel Company Vs. Micro Forge (India) Ltd. reported in 2001 (104) Company Cases 533 (Gujarat) as also the judgment of the Bombay High Court in the matter of Kesar Enterprises Ltd Vs. IDI Ltd reported in 2002 (112) Company Cases 174 (Bombay) in support of his submission that if the company is financially viable and is a running concern then the inability to pay the debt ipso facto would not lead to passing an order of winding up but the benefit of those judgments cannot be granted to the Company in view of the fact that the liability of the Company is undisputed and there is no bona fide defence.
39/ On examination of the facts of this case in the light of above judicial pronouncements, it is found that in the present case, the maturity date has not been extended, restructuring of bond has not been done. As of now almost two years have passed after the maturity date and nothing concrete has been proposed by the company to redeem the bonds which have matured as long back as on 23/10/2012. The debt is unsecured debt and the default has already triggered. The 24 petitioner in so many words has expressed inability to honour the liability and redeem the bond even after the maturity date. The Company's only defence is that it is commercially solvent. In terms of the judgment of the Supreme Court in the matter of IBA Health (India) Private Limited (supra) the solvency of the company does not constitute a stand alone ground for setting aside a notice u/S.434(1)(a). If debt is undisputed then it has to be paid and if the company has no genuine and substantial ground for refusal to pay, it should not be able to avoid the statutory demand. The company's solvency is relevant only to the limited extent to ascertain if refusal to pay debt is a result of a bona-fide dispute as to the liability or whether it reflects inability to pay. In the present case, Company's liability to honour the debt and redeem the bonds is undisputed, therefore, refusal to pay is not the result of any bona-fide dispute but it is on account of the company's inability to pay. The company is indebted to a sum more than what is provided u/S.434(a) of the Act and inspite of the service of notice of demand requiring the company to pay the amount, the company had neglected to pay the sum within the statutory period, therefore, the company is deemed to unable to pay its debt in terms of Sec.434 of the Act and the condition for invoking Section 433(e) is satisfied.
40/ In view of the above position in law, I am of the opinion that a case for admission of the present winding up petition is made out. Hence the Company petition is admitted.
41/ List for further orders on 06/01/2015.
(PRAKASH SHRIVASTAVA) Company Judge Trilok/vm