2012 (8) TMI 1096 - HC - Companies Law

Court allows implead applications, recognizes stakeholder interest, admits inadequately stamped agreements, finds prima facie case for winding-up petition

The court allowed implead applications from various stakeholders, including IL&FS Engineering and Construction Company Limited, recognizing their ... Winding up petition - breach of contract - Held that:- What is important in a case of winding up of a company is not the interest of the applicant but the interest of the stakeholders of the company as a whole - Winding up is the last thing the Court would do and not the first thing to do having regard to its impact and consequences In the light of the order of the CLB, and M/s IL & FS being inducted into the management of the respondent company and, as they are said to have 80% of the share capital and are said to have invested more than ₹ 150 in the respondent company, it might be inappropriate to exercise discretion at this stage to admit the company petitions filed for winding up of the respondent company. On the other hand this Court cannot also ignore the fact that the net worth of the respondent company has completely eroded, and its exercise of discretion not to entertain the company petitions may well result in further increase of the total debt due to banks and financial institutions, and their inability later to recover the debt, even in part. Issues Involved:1. Implead Applications2. Preliminary Objections3. Admission of the Petition for Winding Up - Scope of Enquiry4. Agreement of Sale: Its Terms and Conditions5. Is the Dispute Raised by the Respondent BonafideRs.6. Commercial Insolvency7. Should the Company Petitions be Admitted and the Petitioners Permitted to Issue AdvertisementRs.Detailed Analysis:I. Implead Applications:- IL&FS Engineering and Construction Company Limited filed an application to be impleaded as a respondent, claiming significant involvement and investment in the respondent company.- Hill County Home Owners Welfare Association and Maytas Hill County Apartment Buyers Association also filed applications to be impleaded to represent their interests.- The court allowed these applications, recognizing the stakeholders' interest and the necessity for them to be heard.II. Preliminary Objections:(a) Stamp Duty and Registration:- The respondent argued that the agreements of sale were not adequately stamped or registered, making them inadmissible.- The court found that the agreements were indeed insufficiently stamped and unregistered but noted that the respondent had admitted the agreements' existence and acted upon them.- The court held that admitted facts need not be proved and that the respondent could not resile from its admissions.(b) Alternative Remedy:- The respondent contended that arbitration proceedings had already been instituted, making the winding-up petitions inappropriate.- The court ruled that the existence of an arbitration clause does not preclude the court's jurisdiction to entertain winding-up petitions, especially when the defense is not bona fide.III. Admission of the Petition for Winding Up - Scope of Enquiry:- The court must determine whether a prima facie case for admission is made out, considering factors like the creditor's status, the debt's limitation, the company's defense, and commercial insolvency.- The court found that the petitioners had made a prima facie case for admission.IV. Agreement of Sale: Its Terms and Conditions:- The court examined the agreement's terms, noting the stipulated time frames for construction and penalties for delays.- The court found that the respondent had failed to notify the petitioners of any force majeure events and had admitted the agreements' existence and terms.V. Is the Dispute Raised by the Respondent BonafideRs.:- The court found that the respondent's defenses were neither bona fide nor substantial and were merely moonshine.- The court held that the respondent had neglected to pay its debts, satisfying the conditions for winding up under Section 433(e) read with Section 434(1)(a).VI. Commercial Insolvency:- The court examined the respondent's financial statements, noting significant accumulated losses and complete erosion of net worth.- The court found that the respondent was commercially insolvent and unable to pay its debts.VII. Should the Company Petitions be Admitted and the Petitioners Permitted to Issue AdvertisementRs.:(a) Exercise of Power by the Court Under Section 433:- The court emphasized that winding up is a discretionary remedy, to be exercised judiciously and in the interest of justice.(b) Winding Up: Remedy of the Last Resort:- The court noted that winding up is an extreme remedy, to be used sparingly and only when revival is not possible.(c) Admission of a Company Petition: Its Effect:- The court acknowledged the serious implications of admitting a winding-up petition, including potential damage to the company's creditworthiness and financial standing.(d) Should the Company Petitions in This Batch Be Admitted:- The court deferred the hearing of the company petitions, allowing the respondent time to complete the project and improve its financial position.- The court directed the respondent to file half-yearly financial statements and audited financial statements for the years 2011-12 and 2012-13.- The court stipulated that if the respondent's financial position did not improve, the petitions would be automatically admitted and advertised.Conclusion:- The court deferred further hearing of the company petitions until June 21, 2013, subject to the respondent meeting specified conditions.- The court required the respondent to file financial statements and complete the project as promised, failing which the petitions would be admitted and advertised.