2016 (11) TMI 1444 - HC - Indian Laws

Karnataka High Court Orders Winding Up of Kingfisher Airlines

Aerotron Limited Versus Kingfisher Airlines Limited

The Karnataka High Court ordered the winding up of Kingfisher Airlines Limited (KFA Ltd.) under Sections 433(e) and (f) read with 439 of the Companies ... Winding up proceedings - commercially insolvent situation - Held that:- The alleged defences of pendency of civil suit filed by holding company against the manufacturers but not against petitioner-Aerotron Ltd., locus standi of petitioner company to file this winding up petition, there being chance of revival of the business etc., are all, moonshine and sham defences raised without any material basis for them. The respondent-company is commercially insolvent and is unable to pay its huge debts and there appears to be no useful purpose to keep this company out of the process of winding up or to keep these winding up petitions pending unnecessarily waiting for some magic to happen for a turnaround of this company, which has been left to fend for itself even by its own holding company, even though UBHL facing similar winding up petitions against itself filed allegedly for not discharging its own guarantee obligations for discharging the debts of its own subsidiary-the Respondent company, and UBHL is hotly contesting winding up petitions filed against itself. This is nothing but self serving suicidal contradiction of these two companies. The failure of the respondent- company even to make any alternative arrangement to argue and oppose the present case and other such petitions on behalf of the respondent-company against the petitioning creditors also shows that the Company is not interested in seriously opposing these winding up petitions against it. The objections raised in the statement of objection though not pressed again were considered but are found to be unsustainable and flimsy. There is no bona fide dispute against the admitted liability of the respondent-company and no substantial defence has been put-forth by it to show that it is not commercially insolvent. Therefore, this Court, considers it just and proper to wind up the respondent-company for failure to pay the admitted liability and accordingly, the said respondent, Company-Kingfisher Airlines Limited deserves to be wound-up. Therefore, this Court is of the considered opinion that respondent-company, KFA Ltd., deserves to be wound up under the provisions of 433 (e) and (f) read with 439 of the Companies Act, 1956. Accordingly, the respondent-company, Kingfisher Airlines Limited having its registered office at U.B. Tower, Level-12, U.B. City, No. 24, Vittal Malya Road, Bangalore-560 001, is ordered to be wound up. This winding up order be published in 'The Hindu' and 'Udayavani' having circulation in Karnataka in terms of Rule 114 of Companies (Court) Rules, 1959, read with relevant provisions and notice of this order may also be sent to Official Liquidator, Regional Director and the Registrar of Companies, Karnataka, the respondent company itself and the petitioner company. Issues Involved:1. Withdrawal of representation by respondent's counsel.2. Multiple winding-up petitions against the respondent and its holding company.3. Admission order and subsequent intra-court appeal.4. Respondent's financial inability to pay admitted debts.5. Pendency of civil suits and their impact on the winding-up petition.6. Respondent's objections and defenses.7. Legal principles regarding bona fide disputes and commercial solvency.8. Final order for winding up the respondent company.Issue-wise Detailed Analysis:1. Withdrawal of representation by respondent's counsel:The respondent's counsel, Mr. S.V. Rajesh, withdrew his representation, indicating no further instructions to appear on behalf of the respondent-company, Kingfisher Airlines Limited (KFA Ltd.).2. Multiple winding-up petitions against the respondent and its holding company:Several creditors filed winding-up petitions against KFA Ltd. for failing to pay admitted debts. Similar petitions were filed against its holding company, United Breweries (Holdings) Ltd. (UBHL), which had guaranteed KFA Ltd.'s debts. UBHL contested these petitions, but KFA Ltd. did not defend against the winding-up petitions.3. Admission order and subsequent intra-court appeal:A detailed admission order was passed on 6.12.2013, and KFA Ltd. appealed to the Division Bench, which dismissed the appeal on 15th July 2015. Despite this, KFA Ltd. did not pay any creditors or make alternative arrangements for payment or legal representation.4. Respondent's financial inability to pay admitted debts:The petitioner, a supplier of aircraft components, claimed KFA Ltd. defaulted on payments, resulting in a debt of US $5,616,024.12 as of 31.1.2012. Despite an agreement to pay in installments, KFA Ltd. failed to make any payments. Notices under Sections 433 and 434 of the Companies Act, 1956, were issued, but KFA Ltd. did not respond or pay.5. Pendency of civil suits and their impact on the winding-up petition:KFA Ltd. contended that a civil suit against International Aero Engines AG for defective engines impacted its financial condition. However, the court noted that the suit was filed by UBHL, not KFA Ltd., and did not absolve KFA Ltd. of its admitted debt.6. Respondent's objections and defenses:KFA Ltd. raised objections, including defective supplies and the petitioner's non-compliance with Sections 592 to 594 of the Companies Act, 1956. The court found these objections unsubstantial, noting that KFA Ltd. admitted its financial woes and inability to pay debts.7. Legal principles regarding bona fide disputes and commercial solvency:The court referred to established principles that if a debt is bona fide disputed, the court will not wind up the company. However, if the debt is undisputed and the company is unable to pay, the court will order winding up. The court found no substantial defense from KFA Ltd. and determined it was commercially insolvent.8. Final order for winding up the respondent company:The court ordered KFA Ltd. to be wound up under Sections 433(e) and (f) read with 439 of the Companies Act, 1956, due to its failure to pay admitted debts. The Official Liquidator was appointed to take control of the company's assets and proceed with the winding-up process. The order was to be published in 'The Hindu' and 'Udayavani' newspapers, and notices were to be sent to relevant authorities and parties.Conclusion:The Karnataka High Court concluded that KFA Ltd. was commercially insolvent and unable to pay its admitted debts, warranting its winding up. The court dismissed the respondent's defenses as unsubstantial and appointed the Official Liquidator to manage the winding-up process.