Madras High Court
The Hongkong & Shanghai Banking vs M/S.Agnite Education Limited on 25 July, 2012
Author: R.S.Ramanathan
Bench: R.S.Ramanathan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 25.07.2012 CORAM: THE HONOURABLE MR.JUSTICE R.S.RAMANATHAN Company Petition No.180 of 2009 The Hongkong & Shanghai Banking Corporation Limited., Nagabrahma Towers, 76, Cathedral Road, Chennai 600 086. Represented by their constituted attorney Harish Agarwal ... Petitioner Vs. M/s.Agnite Education Limited, "Teledata Tower" 37/1, Velachery Tambaram Main Road, Velachery, Chennai - 600 042. ... Respondent Name of the respondent amended as per order in C.A.No.506/2011, dated 27.07.2011. PRAYER: This Company Petition is filed under Section 433 (e) and (f) r/w Sections 434 (i) (a) and Section 439(i) and (b) of the Companies Act 1956 for winding up of the respondent company. For Petitioner : Mr.A.L.Somayaji, Senior Counsel For Respondents : Mr. A.L.Somayathy, Senior Counsel. ORDER
This petition is filed under Section 433 (e) and (f) r/w Sections 434 (i) (a) and Section 439(i) and (b) of the Companies Act 1956 for winding up of the respondent company.
2. It is stated in the company petition that the respondent company approached the petitioner for advancing advance, performance and financial guarantee favouring one Bunge SA. The petitioner granted the facility upto the limit of Rs.40,54,50,000/-.
3. The petitioner states that the said Bunge S.A to whom it had issued guarantee favouring the respondent assigned the guarantee to ICICI BANK, Canada and the guarantee was also duly invoked by the ICICI Bank, Canada in September, 2008. In pursuance to the invocation of the guarantee by ICICI Bank, Canada, the petitioner paid a sum of USD 9,900,000 equivalent to Rs.45,87,68,821.12 to ICICI Bank, Canada on 19.09.2008. The respondent company is bound to pay the said amount to the petitioner company as per the terms of Omnibus guarantee dated 28.08.2007. As the respondent company failed to make the repayment, the petitioner company by its recall notice dated 26.12.2008, recalled the guarantee facility granted to the respondent and called upon the respondent to repay the outstanding including the interest accrued thereon. The respondent did not come forward to repay the outstanding and therefore, the petitioner forced to appropriated a sum of Rs.24,50,000/- along with the accrued interest of Rs.1,34,84,099/- as part satisfaction of the dues outstanding from the respondent company's deposit account lying with the petitioner.
4. The petitioner also presented a cheque for a sum of Rs.40,54,50,000/- drawn on State Bank of India, Overseas Branch, Chennai issued by the respondent for its obligations to repay the amount when the same because due and the cheque was returned unpaid with an endorsement Exceeds Arrangements. Therefore, a notice under Section 138 of Negotiable Instrument Act, 1881 was issued dated 02.01.2009 calling upon the respondent to pay the sum due and the respondent also admitted their liability to the tune of Rs.20,02,84,721.93 along with interest in its reply notice dated 16.01.2009 and prayed for further time for settlement of the outstanding amount. As the respondent did not pay the amount, a statutory notice was issued by the petitioner on 04.05.2009 calling upon the respondent to make the payment of Rs.20,02,84,721.93 with interest at the rate of 35% p.a. from the date of invocation of the bank guarantee to the date of payment, within 21 days from the date of receipt of this notice and despite the statutory notice issued by the petitioner, the respondent has not made any payment and therefore, it is proved that the respondent is unable to pay its dues to the petitioner.
5. It is further stated that the credit worthiness of the respondent has also gone down and ICRA, an independent credit rating agency, revised its rating of long term bank limits of the respondent company to LC meaning poor credit quality rating and the rating assigned to short term bank limits of the respondent company has been revised to A5 which means lowest credit quality rating. It is further stated that the respondent has been listed as willful defaulters published by Reserve Bank of India for an outstanding amount of Rs.24,27,00,000/- to the Chennai Prime Corporate Bank of Canara Bank and therefore, the respondent Company is commercial insolvent and is not in a position to pay its debts and therefore, the respondent company is liable to be wound up.
6. The respondent admitted the guarantee furnished by the petitioner to Bunge SA and the invocation of the guarantee by ICICI Bank. Nevertheless, the respondent stated that due to recession in the global economy, the respondent was not in a position to repay the amount and the respondent company is getting orders and it is not commercially insolvent as contended by the petitioner and considering the business turnover of the respondent it cannot be stated that the respondent company is not in a position to repay its debt. It is further stated that the interest claim at the rate of 35% is usurious and the amount claimed by the petitioner is also disputed and the petitioner has already initiated proceedings before the Debts Recovery Tribunal for the recovery of amount due and also initiated proceedings under the provision of Negotiable Instrument Act, 1881 and hence, the present petition for winding up is not maintainable.
7. It is further stated that the respondent has credit facilities with State Bank of India, Chennai for about Rs.310 Crores and that shows the credit worthiness of the respondent and also listed various datas in paragraph 14 of the reply statement to prove the credit worthiness of the respondent.
8. In the Additional reply statement, the respondent company further stated that it has taken all steps for his revival and 50% of the process was also got completed and respondent company is now getting various projects across the globe and therefore, there is every possibility of the respondent getting more income from those office and the turn over of 3rd quarter of the respondent company is estimated around 20 Crores, which ends up to December 2010 and it is comparatively much higher than 2009-10 and the respondent company is not commercially insolvent. Further, the petitioner obtained the order dated 11.01.2011 from the Debts Recovery Tribunal-II, Chennai for a sum of Rs.20,02,84,721.93 and the petitioner company has also filed execution petition to recover the said amount and hence, the present petitioner to wind up the respondent company is not maintainable.
9. In a rejoinder, the petitioner denied various averments made in the reply statement and additional reply statement and submitted that State Bank of India, Chennai is a secured creditor and therefore, it is not bothered about the liability of the respondent company, whereas the petitioner is an unsecured creditor left with no assets to realise its debts and therefore, if the company is allowed to function, the petitioner may not be in a position to realise any amount and the working of the company is also not sound as projected by the respondent and as per the Audit Annual Report as on 31.03.2010 submitted to the Bombay Stock Exchange by the respondent company, its profit after tax is Rs.2.23 crores and it will not be able to pay off its creditors when the secured loans itself will be around Rs.340 crores and as against the profit of Rs.2.23 crores, the generated loss is around Rs.5.33 cores for the year ending March 2011. It is further stated that there is no dispute regarding the amount payable by the respondent and in the statutory notice it has been specifically stated the amount payable by the respondent and hence, the respondent company is liable to be wound up.
10. Mr.A.L.Somayaji, learned Senior Counsel appearing for the petitioner submitted that the filing of application before the Debts Recovery Tribunal-II, Chennai, for the recovery of the amount and initiation of criminal prosecution under Section 138 of the Negotiable Instruments Act will not be a bar for filing the present application for winding up, when the petitioner is able to prove that the respondent company is not able to pay its due when demanded. He further submitted that there is no bonofide dispute regarding the amount payable by the respondent to the petitioner company and in the statutory notice, the petitioner demanded a sum of Rs.20,02,84,721.93 with interest at the rate of 35% p.a. from the date of invocation of Bank guarantee and that amount was arrived at after giving credit to the amount adjusted from the deposits of the respondent company and that amount cannot be said to be a disputed amount and when the amount is not disputed and when the respondent company is not in a position to repay the amount when demanded, even after the issuance of statutory notice, a presumption can be raised that the company is unable to pay its dues and therefore, the respondent company is liable to be wound up and no document has been placed by the respondent company to prove its credit worthiness and the respondent gave a proposal on 24.03.2011 agreed to discharge the admitted amount payable to the petitioner in installment and as per the offer, the respondent agreed to dispose of the dues payable by the respondent for a period of five years and as per the schedule of payment, the respondent agreed to pay Rs.5 lakhs per quarter starting from the second quarter of 2011-2012 and Rs.15 lakhs for the first and second quarter of 2012-13 and Rs.35 Lakhs for third and fourth quarter of 2012-13 and thereafter, Rs.50 lakhs per quarter from 2013-14 and 2014-15 and even after giving the proposal, the respondent revised the proposal by its letter dated 19.04.2011 and offered to pay 2.5 lakhs for the first quarter of 2011-12, Rs.5 lakhs for the second and third quarter and Rs.10 lakhs for the 4th quarter and for the years 2012-13 offered to pay Rs.15 lakhs for first and second quarter and Rs.35 lakhs for 3rd and 4th quarters and though the offer was given, no payment was made to show the bonofide and therefore, it cannot be contended by the respondent that the respondent company is financially sound and as an un-secured creditor, the petitioner has no other remedy and the petitioner has also obtained recovery certificate from the Debts Recovery Tribunal-II, Chennai and even after that the respondent company has not paid any sum and therefore, the petitioner company has proved that the respondent company is not commercially sound and therefore, it is liable to wind up.
11.The learned senior counsel Mr.A.L.Somayathy relied upon the judgments reported in MANU/0467/2002 in the matter of Small Industries Development Bank of India Vs. Shri Niranjan Ayurved Bhawan Ltd., and MANU/MH/0478/2004 equivalent to 128CompCas1007(Bom) in the matter of Global Trust Bank Ltd. Vs. Kullici Nixon Ltd, in support of his contention that initiation of proceedings before the Debts Recovery Tribunal will not be a bar for filing an application for winding up the company.
12. Further the learned Senior Counsel appearing for the petitioner relied upon the judgments reported in 126 company cases 15 (Gujarat) in the matter of Uti Bank Ltd. Vs. Shree Rama-Multitech Ltd., and MANU/GJ/0002/2003 (Gujarat) in the matter of Board Opinion Vs. Hathising Mfg. Co. Ltd., in support of his contention that the Banks are advancing in loans from the public money and if the recovery is stopped that would affect the functioning of the Bank and therefore, the amounts payable to the Bank are liable to be recovered.
13. Mr.T.V.Ramanujan, learned Senior counsel appearing for the respondent submitted that the petition for winding up is not maintainable as the petitioner has got alternate remedy and the petitioner has also availed the alternate remedy by filling application before the Debts Recovery Tribunal-II Chennai for recovery of the amount. He further submitted that the respondent did not admit the amount payable by it and respondent bonofidly disputed the claim of the petitioner and the interest claimed at the rate of 35% is also usurious and therefore, the petitioner is not entitled to claim that the amount.
14. He further submitted that the Hon'ble Supreme Court and other High Courts have held that the provision under Section 433 of the Companies Act cannot be invoked to exert pressure on the companies to collect the amount which are disputed and considering the financial credibility of the company and considering the number of employees, share holders and other secured creditors, it is not in the interest of the company to be wound up and even assuming that the company is not able to pay its dues, on that ground the company cannot be wound up and as per the provisions of Section 433 of the Companies Act even after satisfying the requirements as stated in the section, the company can be ordered to be wound up only when it is just equitable and therefore, the petitioner cannot claim wind up of the company as of right and he relied upon the judgments reported in 128 CompCas 402 (Madras) in the matter of Allahabad Bank Vs. Kothari Petrochemicals Ltd., (2011) 1 MLJ 745 (SC) in the matter of IBA Health (I) P. Ltd. Vs. Info-Drive Systems Sdn. Bhd. and Vol. 112 ComCas314 (Bombay) in the matter of Dalmia Cement (Bharat) Ltd. Vs. Indian Seamless Steels and Alloys Limited.
15. The learned Senior Counsel for the respondent therefore submitted that in view of the above said judgments no case has been made out by the petitioner for winding up of the respondent company and it is a going concern and the respondent has also proved its potentials and having availed other remedies for recovery of the amount, the present petition for winding up is not legally sustainable.
16. Having regard to the submissions made on both the learned Senior counsel, we will have to see whether the present petition for winding up is maintainable as the petitioner has already initiated proceedings before the Debts Recovery Tribunal-II Chennai for the recovery of the amount.
17. It is not in dispute that the petitioner filed O.A.No.70 of 2009 on the file of the Debts Recovery Tribunal-II Chennai for the recovery of Rs.23,63,71,358.33 with interest at the rate of 35% p.a. from 31.03.2009. The above claim was placed on the invocation of Bank guarantee by ICICI Bank, Canada against the petitioner and the above sum was claimed after giving credit to the amount adjusted from the deposits of the respondent company with the petitioner. It is also admitted that the Tribunal found that the petitioner proved the claim against the respondent and interim recovery certificate for a sum of Rs.20,02,84,721.93 was issued and the respondent company did not pay that amount within 30 days from the date of the order and therefore, the order dated 06.10.2009 for the issuance of interim recovery certificate for the above said sum has become final. Thereafter, the Debts Recovery Tribunal-II Chennai issued another recovery certificate for the balance amount of Rs.3,60,86,636.40 by an order dated 11.01.2011. Even after the issuance of recovery certificate, no amount was paid by the respondent.
18. In the judgment reported in MANU/MH/0478/2004 equivalent to 128CompCas1007(Bom) in the matter of Global Trust Bank Ltd. Vs. Kullici Nixon Ltd it has been held that the proceeding before the Debts Recovery Tribunal and the proceedings initiated under the Companies Act are distinguish and separate remedies and invocation of one remedy will not bar the invocation of other remedy and if a case is made out for winding up the company even though the creditor company has initiated proceedings for recovery of the amount, winding up can be ordered.
19. The same principle is reiterated in the judgment reported in MANU/0467/2002 in the matter of Small Industries Development Bank of India Vs. Shri Niranjan Ayurved Bhawan Ltd. Therefore, it cannot be contended that the invocation of recovery proceedings under the Recovery Act before the Debts Recovery Tribunal is a bar to initiate proceedings under the companies act for winding up the company.
20. The next contention of the learned Senior Counsel appearing for the respondent is that when there is a bonofide dispute, the company cannot be ordered to be wound up and for that proposition the learned Senior Counsel for the respondent relied upon the judgments reported in (2011) 1 MLJ 745 (SC) in the matter of IBA Health (I) P. Ltd. Vs. Info-Drive Systems Sdn. Bhd. and Vol. 112 ComCas314 (Bombay) in the matter Dalmia Cement (Bharat) Ltd. Vs. Indian Seamless Steels and Alloys Limited as stated supra. In the statutory notice issued by the petitioner dated 04.05.2009, the petitioner called upon the respondent to pay a sum of Rs.20,02,84,721.93 with the interest at the rate of 35% p.a. The petitioner company also issued a notice under Section 138 of Negotiable Instrument Act when the respondent company failed to honour the cheque issued in favour of the petitioner company. While sending reply to that notice, the respondent in its reply dated 16.01.2009 clearly admitted that the respondent company is liable to pay the said sum and assured that the said sum would be paid with interest as per Reserve Bank of India guidelines and prayed for three months time to pay the said amount. Therefore, it cannot be stated that the amount claimed by the petitioner is disputed by the respondent.
21. Further the learned Senior Counsel for the respondent submitted that the claim of interest at the rate of 35% p.a. is also usurious and the petitioner cannot claim that interest and therefore, the amount is disputed and on that ground the company cannot be wound up. The said argument also cannot be accepted having regard to the fact that the transaction between the respondent and petitioner is a commercial transaction and as per the contract agreed by the respondent, the respondent agreed to pay interest at the rate of 35% p.a. and that amount was also accepted by the Debts Recovery Tribunal-II Chennai while passing an award in O.A.No.70 of 2009. Therefore, in respect of commercial transaction when the parties agreed for a certain rate of interest, the parties cannot be heard to say at a later point of time that they are not liable to pay the interest on the ground that the interest is usurious.
22. It is the further contention of the learned Senior Counsel for the respondent that the company cannot be wound up only on the ground that it is not in a position to make the payment and having regard to the fact that the petitioner has resorted to other remedies and the company has also started reviving, the company cannot be ordered to be wound up. I am also unable to accept the arguments of the learned Senior Counsel for the following reasons:
(i) During the pendency of the company proceedings the respondent offered to discharge liability for a period of 5 years and also proposed a scheme of payment. Though the petitioner did not accept the scheme of payment suggested by the respondent, the respondent did not make any payment as suggested by them for the various quarters stated in those proposals. That also would prove that the respondent company is not in a position to pay its dues and considering the accumulated losses against the profits earned, it cannot be stated that the respondent company is in a position to payoff its dues even within for a period of 5 years as suggested by the respondent. Further the amount was advanced by the petitioner, which is a bank and in this connection the observation made in the judgment reported in 126 company cases 15 (Gujarat) in the matter of Uti Bank Ltd. Vs. Shree Rama-Multitech Ltd., is relevant. It reads as follows:
"33. It is true that in the case of running concern and considering the larger interest of the employees and workmen, the Court should be very slow in entertaining the winding up petitions. The Court should equally be concerned with the interests of Banks, Financial Institutions, Creditors, Goods suppliers etc. Once having availed credit facilities, taken delivery of goods or received services for valuable consideration, the recipients of such facilities, goods or services will start making defaults in payments or fail to discharge their liabilities, then it would be improper on their part to contend that the unit is a running one and future of large number of employees or workers would be at stake if the petition is entertained and winding up order is passed. Banks Financial Institutions, Supplier of Goods or Services and trade Creditors are also the main backbones of any industry or business organisation and at their peril or disadvantage, the unscrupulous management of the companies must not be allowed to defend winding up petitions under the guise of workers' interests.
(ii) Similarly in the judgment reported in MANU/GJ/0002/2003 (Gujarat) in the matter of Board Opinion Vs. Hathising Mfg. Co. Ltd., it has been held as follows:
"23. .... The funds provided by the secured creditors to the sick unit are also public funds and if the recovery is not enforced or their funds are blocked for indefinite period, the public at large would be a sufferer. The non-performing assets of the banks and financial institutions are mounting up only because of blocking of funds mainly in the corporate sector. If the recovery is stopped and the sick companies are allowed to run, the ultimate outcome would be a closure of the banks and financial institutions."
(iii) Further the award was passed by Debts Recovery Tribunal for a sum of Rs.23,63,71,358.33 and even after the issuance of recovery certificate, the respondent company did not make any payment and that certificate can be executed by the petitioner company by bringing the properties of the respondent company which are not given a security to other secured creditors, for sale. The respondent company has not provided any material to show that the petitioner can execute the recovery certificate and realise the amount.
(iv) Further the failure to pay the amount by the respondent even after the issuance of recovery certificate by Debts Recovery Tribunal-II Chennai would also prove that the respondent is not in a position to pay its dues to the petitioner company.
23. In said circumstances, if the company is ordered to be wound up that would help all the unsecured creditors to realise the dues as a properties of the company would be brought under the control and supervision of the official liquidator. Hence, in my opinion, it is also just and equitable to order winding up the company. In the result, the following order is passed:
Admit.
(i) Notice on the Court Notice Board.
(ii) Notice to the respondent.
(iii) Notice to the Registrar of Companies, Madras.
(iv) Affixure of notice at the premises of the Registered Office of the respondent company.
(v) The petitioner is directed to publish the company petition in one issue of English Daily "The Hindu" and Indian Express and in the Tamil Nadu Government Gazette fixing the date of hearing on 06.09.2012.
(vi) The petitioner is directed to publish the company petition giving at least fourteen days clear advance notice.
(vii) The Official Liquidator, High Court, Madras is appointed as Provisional Liquidator and is directed to take charge of the assets of the respondent company. The Ex-Directors of the respondent company are directed to file their statement of affairs before the Official Liquidator within a period of 21 days. The company shall deposit a sum of Rs.15,000/- towards initial expenses before the Official Liquidator in this matter.
Call the company petition on 06.09.2012.
25.7.2012 Index: Yes.
Internet: Yes.
R.S.RAMANATHAN, J.
Company Petition No.180 of 2009 25.7.2012