1997 (9) TMI 457 - HC - Companies Law

Petition to wind up Core Health Care Ltd. dismissed by court due to lack of commercial insolvency.

American Express Bank Ltd. Versus Core Health Care Ltd.

The court dismissed the petition for winding up filed by American Express Bank Ltd. against Core Health Care Ltd. The court found that the respondent ... Winding up - Inability to pay debts Issues Involved:1. Petition for winding up u/s 433(1)(e) read with section 434 of the Companies Act, 1956.2. Respondent company's financial crisis and its defense.3. Petitioner's argument for winding up ex debito justitiae.4. Court's discretion in admitting winding up petitions.5. Consideration of company's commercial insolvency and overall impact of winding up.Summary:1. Petition for Winding Up u/s 433(1)(e) and Section 434:The petitioner, American Express Bank Ltd., sought the winding up of the respondent company, Core Health Care Ltd., on the grounds of inability to pay its debt within the meaning of section 433(1)(e) read with section 434 of the Companies Act, 1956. The petitioner claimed default on a bridge loan of Rs. 30 crores disbursed in July 1995, with the respondent company failing to honor the repayment schedule and subsequent reschedulement.2. Respondent Company's Financial Crisis and Defense:The respondent company admitted the debt but cited financial difficulties stemming from delayed disbursement of promised finance by other financial institutions. It sought six months for repayment, highlighting that the debt was secured by a charge on immovable property worth Rs. 55 crores. The company argued that its financial crisis was temporary, and it was making efforts to restructure its credit with the assistance of other financial institutions.3. Petitioner's Argument for Winding Up Ex Debito Justitiae:The petitioner argued that having made out a case u/s 433(1)(e) read with section 434, it was entitled to an order for winding up ex debito justitiae by raising a presumption under section 434 that the company was unable to pay its debts. The petitioner contended that this was not the stage for the court to consider whether a winding up order could be made, as that could only arise after the petition had been admitted and public notice advertised.4. Court's Discretion in Admitting Winding Up Petitions:The court emphasized that the claim to an order of winding up is not a matter of right but vests in the discretion of the court. It stated that the court must consider the totality of the material available on record and exercise its discretion at every stage, from issuing notice to the company until the winding up order is made. The court highlighted that winding up petitions should not be used as a pressure tactic for enforcing debt realization, which should be pursued through ordinary legal remedies.5. Consideration of Company's Commercial Insolvency and Overall Impact of Winding Up:The court noted that the respondent company was not commercially insolvent and was a going concern with substantial assets exceeding liabilities. It emphasized that winding up orders should not be made if it would not benefit the petitioner or the company's creditors generally. The court also considered the impact on the company's employees and public interest, concluding that it would not be just and equitable to order winding up. The court dismissed the petition, stating that keeping it pending would serve no benefit and could harm the company's efforts to recover from its financial crisis.Conclusion:The petition for winding up was dismissed, with no orders as to costs, as the court found that the respondent company was not commercially insolvent, and winding up was not in the interest of justice or public policy.