2013 (2) TMI 842 - HC - Companies Law

Secured creditor's appeal allowed, judgment set aside. Creditor can maintain winding-up petition if claim > Rs. 500.

Kotak Mahindra Bank Ltd. Versus Eastern Spinning Mills and Industries Ltd.

The appeal was allowed, and the judgment dismissing the winding-up petition was set aside. The court held that a secured creditor can maintain a ... - Issues Involved:1. Whether a secured creditor can maintain a petition for winding up without giving up its security and without pleading the insufficiency of the security.2. The effect of parallel proceedings under the SARFAESI Act and the Companies Act.3. The necessity of proving commercial insolvency for winding up petitions.Summary of Judgment:Issue 1: Secured Creditor's Right to Winding Up PetitionThe court deliberated whether a secured creditor must give up its security or prove the insufficiency of its security to maintain a winding-up petition. The judgment concluded that a secured creditor could maintain a winding-up petition without giving up its security. The creditor must show a claim of more than Rs. 500, and if the demand notice is not satisfied, they can claim deemed insolvency. The court found that the creditor in this case had a valid claim and the company did not raise a bona fide dispute. The court also noted that the balance-sheet demonstrated the company's commercial insolvency.Issue 2: Parallel Proceedings under SARFAESI Act and Companies ActThe respondents argued that the secured creditor could not pursue winding-up proceedings while also taking actions under the SARFAESI Act. The court rejected this argument, stating that there is no law preventing a creditor from applying for winding up while also pursuing other civil actions to realize their dues. The creditor's right to maintain a winding-up petition is supported by sections 433, 434, and 439 of the Companies Act, 1956.Issue 3: Necessity of Proving Commercial InsolvencyThe court examined whether the creditor needed to prove commercial insolvency to maintain the winding-up petition. The judgment emphasized that the creditor's petition was maintainable on grounds of both statutory notice and the company's inability to pay. The court found enough material to hold that the company was commercially insolvent, as evidenced by its balance-sheet and the fact that the company's fixed assets would be insufficient to continue its business if sold to pay off the dues.Conclusion:The appeal was allowed, and the judgment of the single judge, which had dismissed the winding-up petition, was set aside. The case was remanded back for necessary directions regarding admission and advertisement of the winding-up petition. The court concluded that the petition by a creditor is maintainable on both statutory notice and commercial insolvency grounds.