2013 (1) TMI 149 - HC - Companies Law

Winding Up Petition Upheld: Debt Justified Under Companies Act

Rajiv Tandon & Ors. Versus Dena Bank & Anr.

Rajiv Tandon & Ors. Versus Dena Bank & Anr. - TMI Issues Involved:1. Maintainability of the winding up petition.2. Quantification and determination of debt.3. Exhaustion of remedies by the mortgage creditor.4. Applicability of limitation laws.5. Doctrine of merger.Detailed Analysis:1. Maintainability of the Winding Up Petition:The company contested the winding up petition on the ground that it was not maintainable as there was no debt due on the date of the petition. The learned Judge rejected this contention, admitting the winding up petition on December 23, 2009. The Division Bench dismissed the company's appeal as infructuous on February 23, 2010, noting that the winding up notice had already been published, making the petition a representative action. The final order of winding up was passed on July 30, 2010, with the Judge holding that there was a just claim enforceable under Section 434(1)(a) and (b) of the Companies Act, 1956. The company's appeal against this order was dismissed, affirming that the company was insolvent and unable to pay its debts.2. Quantification and Determination of Debt:Mr. Mitra, representing the company, argued that the recovery certificate issued by the Debt Recovery Tribunal was akin to a preliminary decree in a mortgage suit and did not constitute a quantified debt under Section 434(1)(a) or (b). He contended that the debt could only be determined after the mortgaged property was sold and proceeds adjusted. However, the court found that the Debt Recovery Tribunal's certificate was a quantified debt and that the company's attempts to resist the claim had failed at all levels, including the Supreme Court. The court held that the claim reached finality and was just and payable by the company, maintaining the winding up proceeding.3. Exhaustion of Remedies by the Mortgage Creditor:Mr. Mitra argued that the Bank, as a mortgage creditor, must first exhaust its remedy by selling the mortgaged assets before claiming a quantified debt. This argument was rejected, with the court referring to the Division Bench's decision in Maxlux Glass Pvt. Ltd., which held that the winding up petition was maintainable without exhausting such remedies. The court emphasized that the winding up process is an equitable mode of execution and not merely a debt collection process.4. Applicability of Limitation Laws:Mr. Mitra contended that if the Bank's claim was based on the original transaction, it would be barred by limitation laws, being beyond three years. The court referred to the decision in Rameswar Prasad Kejriwal & Sons Ltd. v. M/s. Garodia Hardware Stores, which held that the limitation period should be counted from the date of the decree. However, the court found that this argument did not apply as the recovery certificate was issued within the limitation period, and the winding up petition was based on this certificate.5. Doctrine of Merger:Mr. Mitra invoked the doctrine of merger, arguing that the cause of action merged into the recovery certificate, and the Bank could not pursue a winding up petition without first exhausting remedies under Order 34 of the Code of Civil Procedure. The court rejected this argument, stating that the winding up proceeding is a statutory remedy with wide judicial discretion. The court held that the company's failure to pay the debt despite ample opportunities justified the winding up order.Conclusion:The court concluded that the company's repeated failures to pay the debt and its unsuccessful attempts to forestall recovery justified the winding up order. The appeal was dismissed, affirming the company's insolvency and inability to pay its debts, and emphasizing the importance of maintaining commercial integrity. The judgment underscores the principle that a winding up petition is a legitimate remedy for enforcing payment of a debt against an insolvent company.