2014 (6) TMI 1003 - HC - Companies Law

Court admits Company Petition for winding up, petitioner to issue advertisements, winding up process initiated.

The court admitted the Company Petition for winding up the respondent, allowing the petitioner to issue advertisements in newspapers and initiating the ... Winding up for inability to pay debts - bona fide dispute as bar to winding up - effect of amalgamation under sanctioned scheme - overriding effect of SARFAESI Act - arbitrability of winding up and insolvency disputesEffect of amalgamation under sanctioned scheme - winding up for inability to pay debts - Whether the petitioner, as the amalgamated transferee under the scheme sanctioned by the Delhi High Court, is entitled to maintain the winding up petition in respect of debts originally owed to the amalgamating company. - HELD THAT: - The Court held that the scheme of arrangement sanctioned by the Delhi High Court transferred all undertaking, properties, rights, powers and liabilities of the amalgamating company to the amalgamated company without any further act or deed, and consequently the petitioner has stepped into the shoes of IFSL. The remedy under the Companies Act (Sections 433 and 434) was available to IFSL prior to amalgamation and therefore the respondent has not suffered any additional disadvantage by reason of the sanctioned amalgamation; the petitioner is accordingly legally entitled to maintain the winding up petition. The Division Bench decision relied upon by the respondent was held inapposite on the facts and the Court rejected the submission that lack of privity absolved the petitioner from maintaining the petition. [Paras 36, 39, 40]Petitioner entitled to maintain the winding up petition as successor in interest under the sanctioned scheme of amalgamation.Bona fide dispute as bar to winding up - overriding effect of SARFAESI Act - arbitrability of winding up and insolvency disputes - winding up for inability to pay debts - Whether initiation or pendency of proceedings under the SARFAESI Act, arbitration or criminal proceedings bars or renders the winding up petition non-maintainable. - HELD THAT: - Applying settled principles, the Court reiterated that a winding up petition should be dismissed where the debt is bona fide disputed on substantial grounds or the petition is a device to exert pressure; conversely, where the debt is undisputed or admitted, remedies invoked under other statutes do not by themselves bar a winding up petition. The Court found the debt in this case was not disputed. There was no inconsistency between the SARFAESI Act and Sections 433/434 of the Companies Act that would invoke Section 35 of the SARFAESI Act to bar pursuit of winding up: both enactments operate in their respective fields and do not preclude a creditor from invoking the Companies Act to seek winding up. Further, winding up and insolvency matters fall within the exclusive jurisdiction of the High Court and are not referable to arbitration; initiation of arbitration or other recovery measures does not automatically render a winding up petition non-maintainable. The Court also noted that solvency may assist in assessing bona fides of a dispute but is not a standalone bar where liability is undisputed. [Paras 43, 48, 50, 52, 53]Pendency of SARFAESI, arbitration or criminal proceedings does not automatically bar the winding up petition; because the debt was not bona fide disputed and no inconsistency was shown under Section 35, the petition is maintainable.Winding up for inability to pay debts - bona fide dispute as bar to winding up - Whether, on the material before the Court, the petition ought to be admitted for commencement of winding up proceedings. - HELD THAT: - The Court observed that admission of a company petition has serious consequences and must consider whether a prima facie case of inability to pay has been made out and whether admission is desirable. The respondent's liability to the petitioner was not in dispute and the Form-A filed before BIFR disclosed substantial accumulated losses, supporting the view that the respondent was running into heavy losses and its prospects of revival appeared remote. Balancing the relevant considerations and applying the established tests regarding bona fide dispute and commercial insolvency, the Court concluded that the petition should be admitted and winding up proceedings commenced, while leaving the eventual liquidation decision to the full consideration of stakeholders. [Paras 35, 50, 54, 55]Company petition admitted and winding up process ordered to commence; directions given for publication of statutory notices.Final Conclusion: The High Court admitted the company petition and directed commencement of winding up proceedings: the amalgamated petitioner may maintain the petition as successor to IFSL; invocation or pendency of SARFAESI, arbitration or related proceedings did not bar the petition because the debt was not found to be bona fide disputed and no inconsistency was shown under the SARFAESI Act. Issues Involved:1. Non-payment of alleged debt and winding up petition under Sections 433 and 434 of the Companies Act, 1956.2. Jurisdiction and privity of contract between the petitioner and respondent.3. Initiation of proceedings under SARFAESI Act, Arbitration and Conciliation Act, and Negotiable Instruments Act.4. Commercial insolvency and inability to pay debts.5. Legal principles governing winding up proceedings.Issue-wise Detailed Analysis:1. Non-payment of Alleged Debt and Winding Up Petition:The petitioner filed a Company Petition under Sections 433 and 434 of the Companies Act, 1956, seeking the winding up of the respondent for non-payment of an alleged debt. The respondent had defaulted on loan repayments to IFSL, which later amalgamated with the petitioner company. The petitioner issued notices under the SARFAESI Act and the Arbitration and Conciliation Act to recover the debt but the respondent failed to comply, leading to the filing of the winding up petition.2. Jurisdiction and Privity of Contract:The respondent argued that there was no privity of contract between it and the petitioner, as the loan was originally sanctioned by IFSL. The petitioner countered that the Delhi High Court had sanctioned the amalgamation scheme, transferring all rights and liabilities of IFSL to the petitioner. The court held that the petitioner, having stepped into the shoes of IFSL under the statutory scheme, was legally entitled to maintain the winding up petition.3. Initiation of Proceedings under SARFAESI Act, Arbitration and Conciliation Act, and Negotiable Instruments Act:The respondent contended that the petitioner, having initiated proceedings under the SARFAESI Act and the Arbitration and Conciliation Act, was estopped from invoking the jurisdiction of the court under the Companies Act. The court rejected this argument, stating that mere initiation of other statutory proceedings does not constitute a ground for rejecting the winding up petition if the debt is undisputed.4. Commercial Insolvency and Inability to Pay Debts:The petitioner argued that the respondent was commercially insolvent, as evidenced by its balance sheet showing accumulated losses of Rs. 5296 lakhs as of 31-3-2012. The court noted that the respondent's inability to pay its debts was evident from its financial statements and ongoing legal battles, making it a fit case for winding up.5. Legal Principles Governing Winding Up Proceedings:The court discussed the legal principles governing winding up proceedings, emphasizing that a company may be wound up if it is unable to pay its debts. The court cited various judgments to highlight that a winding up petition is maintainable if the debt is undisputed and the company is unable to pay. The court also noted that the proceedings under Sections 433 and 434 of the Companies Act are not merely recovery proceedings but aim to protect creditors and shareholders from a company's inability to meet its obligations.Conclusion:The court admitted the Company Petition for winding up the respondent, allowing the petitioner to issue advertisements in newspapers and initiating the winding up process. The court held that the petitioner had made a prima facie case for the respondent's inability to pay its debts and that it was desirable to commence the winding up process. The case was posted for further proceedings on 28-7-2014.