2011 (11) TMI 534 - HC - Companies Law

Court Orders Respondent to Deposit Rs. 50,00,000 or Risk Official Liquidator Appointment

Bhajan Singh Samra Versus Wimpy International Ltd.

The Court directed the respondent-company to deposit Rs. 50,00,000 with the Registry within eight weeks. Failure to comply would result in the appointment ... Winding up – company unable to pay its debt – Extended period of limitation - respondent-company instead of redeeming the loan, offered to convert it into equity shares in petitioner's favour - shares were not issued by the respondent-company - claim by the petitioner was filed after a gap of more than twelve years – Held that:- it was a loan and that the respondent-company had treated it as share application money in its balance sheets. Acknowledgement of the petitioner's loan by Chartered Accountant of respondent-company, as well as in the respondent-company's balance sheets not only extends the period of limitation but also constitutes fresh cause of action for filing a winding up petition. Accordingly, the present winding up petition is within limitation. Even after the petitioner issued a winding up notice, the respondent company did not issue any shares. once a winding up notice is issued, it is not open to the respondent to state that it is now willing to issue shares. Sum of Rs. 50,00,000/- has not been refunded by the respondent, such sum constitutes a debt in praesenti. Winding up petition allowed Issues Involved:1. Whether the respondent-company is unable to pay its debt amounting to Rs. 50,00,000/-.2. Whether the petitioner's claim is barred by limitation.3. Whether the amount in question was a loan or share application money.4. Whether the petitioning-creditor can use winding up proceedings to recover the debt.5. Whether the respondent-company's acknowledgment of the debt extends the period of limitation.6. Whether the amount in question constitutes a debt in praesenti.7. Whether the petitioner is entitled to interest on the principal amount.Detailed Analysis:1. Whether the respondent-company is unable to pay its debt amounting to Rs. 50,00,000/-:The petitioner claimed that the respondent-company was unable to pay a debt of Rs. 50,00,000/- along with interest. The petitioner had issued a cheque/draft of Rs. 50,00,000/- dated 05th December, 1994, which was acknowledged by the respondent-company on 08th December, 1994. The petitioner alleged that despite repeated requests, the loan was neither redeemed nor converted into equity shares as promised by the respondent-company.2. Whether the petitioner's claim is barred by limitation:The respondent-company argued that the petition was barred by limitation as it was filed after more than twelve years from the date of the alleged loan. The respondent also contended that the petitioner was aware of the treatment of the amount as share application money since 2002, but the petition was filed only in 2006.3. Whether the amount in question was a loan or share application money:The respondent-company asserted that the amount received was towards share application money and not a loan. The petitioner, however, maintained that it was an interest-bearing loan. The respondent-company's balance sheets and letters from its Chartered Accountant acknowledged the amount as share application money.4. Whether the petitioning-creditor can use winding up proceedings to recover the debt:The respondent-company argued that winding up proceedings cannot be used as a pressure tactic to recover an alleged debt and that the petitioner should resort to a civil suit. The Court noted that a winding up petition should not be entertained if the debt is bona fide disputed, as established in QSS Investors (P.) Ltd. v. Allied Fibres Ltd.5. Whether the respondent-company's acknowledgment of the debt extends the period of limitation:The Court held that acknowledgment of the debt in the form of letters from the respondent-company's Chartered Accountant and entries in the balance sheets extended the period of limitation under Section 18(1) of the Limitation Act, 1963. This acknowledgment constituted a fresh cause of action for filing the winding up petition.6. Whether the amount in question constitutes a debt in praesenti:The Court examined whether the share application money constituted a debt and concluded that since the sum of Rs. 50,00,000/- had not been refunded by the respondent, it constituted an unsecured debt in praesenti. The Court referred to the definition of 'debt' as money that is owed and an existing obligation to pay a certain amount.7. Whether the petitioner is entitled to interest on the principal amount:The Court noted that no agreed rate of interest was specified in any written document and, therefore, declined to direct the respondent-company to pay any sum as interest.Conclusion:The Court directed the respondent-company to deposit the amount of Rs. 50,00,000/- with the Registry within eight weeks. If the amount was not deposited within the stipulated period, the Official Liquidator attached to the Court would be appointed as Provisional Liquidator to take over possession of all records and assets of the respondent-company. The case was listed for direction on 12th March, 2012, and CA 1206/2006 was disposed of with these directions.