2017 (2) TMI 563 - HC - Companies Law

United Breweries (Holdings) Limited Faces Winding Up Order

The court ordered the winding up of United Breweries (Holdings) Limited due to its financial insolvency, failure to meet obligations, lack of valid ... Winding up petitions - Held that:- There has been no opposition as such to the present winding up petition and such of other winding up petitions against the respondent-company. The alleged defences of pendency of civil suit filed by holding company against the manufacturers but not against petitioner- Aerotron Ltd., locus standi of petitioner company to file this winding up petition, there being chance of revival of the business etc., are all, moonshine and sham defences raised without any material basis for them. On the basis of summary of the aforesaid Financial Reports and constant increase in the losses and complete erosion of net worth and reticent refusal of the Respondent – Company, UBHL to square up its Guarantee obligations and raising sham and moonshine defences to avoid winding up of the Respondent Company, this Court comes to a fair, reasonable and firm conclusion that the Respondent – Company, UBHL is a commercially insolvent Company and is unable to meet its admitted financial obligations and square up its admitted liability towards the petitioning creditors. The petitioners are not seeking execution of any decree passed by English Courts or other Foreign jurisdiction against the Respondent – Company. They have invoked the winding up of Respondent- Company before this Court under Section 433 read with Sections 434 and 439 of the Companies Act, 1956 and have been able to satisfy this Court with the relevant and cogent material that the specified amounts of debts are due to be recovered by them from the Respondent – Company and the Respondent - UBHL under its contractual Guarantee obligations incurred by it for the financial obligations of the KFAL, which it has failed to discharge, despite due notice without any cogent reasons. It is neither a question of treating these winding up petitions as civil Suits for recovery of monies but it is a matter of forming a reasonable and fair opinion that whether from the facts and figures, contentions and defences, this Court can form a reasonable opinion about the commercial insolvency and erosion of its net worth and inability of the Respondent Company, UBHL, to pay-off its admitted dues or not. This Court does hold this opinion against the Respondent - Company, UBHL. Therefore, the contention that the applicability of the English law was required to be pleaded and proved as a fact, as if in the realm of trial of a Civil Suit, does not merit acceptance of such a contention by this Court. Another contention about the petitioning Companies other than the secured creditors like SBI and consortium of Banks and others that such Foreign Companies ought to have obtained due permissions from Registrar of Companies (ROC) or Reserve Bank of India (RBI) in terms of Sections 592 and 599 of the companies Act, 1956, also is equally devoid of merit. If the Respondent – Company wanted to challenge the locus standi of the petitioners, it was for them to establish before the Court that such Companies had a ‘permanent establishment’ of business in India so as to fall within the definition of a Foreign Company, requiring registration and permissions in terms of Sections 592 and 599 of the Act. No such material has been placed by them before this Court to question the locus standi of the petitioning creditors. Mere presence of some sales representatives while undertaking business of supply of Aero Engines and Allied Equipments does not establish in any manner that such Companies had their permanent establishment in India so as to attract rigor of Sections 592 and 599 of the Companies Act. The said contention also is therefore liable to be rejected and is accordingly hereby rejected. The contentions raised against locus standi of petitioner, BNP Paribas are also equally devoid of any merit. The assignment of debt by KF Aero in favour of BNP Paribas has never been questioned by KF Aero itself. The Deed of Assignment and its due Notice to UBHL are on record. The RBI approval for Corporate Guarantee in favour of KF Aero will be equally good for BNP Paribas also. RBI has never objected to the execution of Corporate Guartntee by UBHL in favour of BNP Paribas. No additional approval could be insisted upon by the Respondent, UBHL itself. The contention that multiplicity of the proceedings has been initiated by the petitioning creditors and therefore the winding up petitions should not be entertained, is also equally devoid of any merit. The petitioning creditors are entitled in law to take all suitable measures and remedies for not only to recover their just debts but if on the basis of that material they can establish the commercial insolvency of the Respondent- Company in terms of the provisions of the Companies Act for winding up, there is no legal bar in the institution and pursuing of two or more remedies against the Respondent – Company, UBHL, while the effect of the relief granted upon such institution of legal proceedings is bound to be different. The deposits of ₹ 1280.00 crores made in the Court under Interim Orders of the Court will of course be utilized for distribution, if the Respondent – Company, UBHL is to be wound up. The argument that such deposit being in excess of claims of unsecured creditors or suppliers and therefore the Respondent –Company does not deserve winding up ignores the much larger claim of Secured Creditors, Banks led by SBI, whose dues are far in excess of said deposits and their preferential claim cannot be ignored. It is that huge gap which renders the Respondent – Company, UBHL commercially insolvent and a mere skeleton of some assets and liquidity. The presentation of the same as a Going Concern in Annual Reports by skewed, distorted and misleading presentation of facts and figures in Balanace Sheets leads one to draw an adverse inference against the Respondent – Company, UBHL rather than being swayed by false picture sought to be projected by Company itself and its Supporting Creditors. All these contentions are, not bona fide and are therefore rejected. Issues Involved:1. Winding up petitions filed by creditors.2. Existence and validity of Corporate Guarantees.3. Financial status and solvency of the Respondent Company.4. Legal proceedings and defenses raised by the Respondent Company.5. Multiple recovery proceedings by creditors.6. Impact on employees and other stakeholders.7. Compliance with legal requirements by foreign creditors.8. Settlement proposals and negotiations.Detailed Analysis:1. Winding Up Petitions Filed by Creditors:The winding up petitions were filed by a consortium of secured and unsecured creditors against United Breweries (Holdings) Limited (UBHL) for failing to discharge its obligations under Corporate Guarantees provided to secure loans and advances to Kingfisher Airlines Limited (KFAL). The creditors included banks, suppliers, and lessors who sought the winding up of UBHL due to its inability to pay its debts.2. Existence and Validity of Corporate Guarantees:The Corporate Guarantees provided by UBHL to secure the financial obligations of KFAL were scrutinized. The Debt Recovery Tribunal (DRT) held UBHL liable for Rs. 6203.35 crores due to defaults by KFAL. The Respondent's contention that these guarantees were obtained under duress was rejected by the DRT, which emphasized that obtaining guarantees is a standard banking practice and not coercion.3. Financial Status and Solvency of the Respondent Company:The financial statements and audit reports from 2011-2016 indicated severe financial distress, with accumulated losses exceeding the net worth of UBHL. The company consistently failed to make provisions for its guarantee obligations and showed significant cash losses. The court concluded that UBHL was commercially insolvent and unable to meet its financial obligations.4. Legal Proceedings and Defenses Raised by the Respondent Company:UBHL filed suits in the Bombay High Court and Bangalore City Civil Court challenging the validity of the Corporate Guarantees and claiming damages for defective supplies. However, the court found these defenses to be flimsy and moonshine, lacking any substantial basis. The court also noted that the mere pendency of these suits did not justify delaying the winding up petitions.5. Multiple Recovery Proceedings by Creditors:The court rejected the argument that multiple recovery proceedings by creditors (such as DRT actions and SARFAESI proceedings) barred the winding up petitions. It held that creditors are entitled to pursue all available legal remedies to recover their dues, and the winding up process serves a different purpose of addressing the company's insolvency.6. Impact on Employees and Other Stakeholders:The court considered the objections raised by some creditors and employees who opposed the winding up, arguing that UBHL was a going concern and winding it up would adversely affect employment and business operations. However, the court found that UBHL's financial distress and inability to pay its debts outweighed these concerns, and winding up was necessary to protect the interests of all stakeholders.7. Compliance with Legal Requirements by Foreign Creditors:The court dismissed the contention that foreign creditors needed to comply with Sections 592 and 599 of the Companies Act, 1956, for maintaining winding up petitions. It found no evidence that these creditors had a permanent establishment in India requiring such compliance.8. Settlement Proposals and Negotiations:The court noted that UBHL had proposed a settlement offer to the consortium of banks, which was not accepted. The proposal was found to lack bona fides and was not considered a viable alternative to winding up. The court emphasized that UBHL failed to present any concrete and reasonable settlement plan during the proceedings.Conclusion:The court ordered the winding up of United Breweries (Holdings) Limited due to its failure to meet its financial obligations, commercial insolvency, and the lack of any substantial defense or viable settlement proposal. The Official Liquidator was appointed to take control of UBHL's assets and proceed with the winding up process in accordance with the law.