Bank's winding up petition admitted after company fails to pay Rs. 15 crores despite multiple settlement opportunities under Section 433(e)

The Delhi HC admitted a winding up petition filed by a bank against a company under Section 433(e) of the Companies Act, 1956. Despite the company owing over Rs. 15 crores and multiple opportunities for settlement, the respondent failed to pay even an initial Rs. 1 crore or subsequent reduced installments of Rs. 27 lacs. The court noted that while winding up is discretionary and courts may accommodate financially distressed companies, the respondent's repeated failures to honor payment commitments and absence of a concrete repayment scheme warranted admission of the petition without further extensions.

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Issues Involved:

1. Petition for winding up under Section 433(e) of the Companies Act, 1956.
2. Failure to repay the loan and dishonor of financial commitments.
3. Admission of debt and inability to pay.
4. Discretionary nature of winding up orders.
5. Appointment of Provisional Liquidator.

Detailed Analysis:

1. Petition for Winding Up under Section 433(e) of the Companies Act, 1956:

The petitioner bank filed a petition under Section 433(e) of the Companies Act, 1956, seeking the winding up of the respondent company due to its failure to repay the debts owed to the petitioner. The respondent had availed a Working Capital Demand facility amounting to Rs. 15 crores, which was disbursed in October 2011. The respondent defaulted on the repayment schedule, prompting the petitioner to issue a legal notice demanding payment along with interest.

2. Failure to Repay the Loan and Dishonor of Financial Commitments:

The respondent company was irregular in interest payments and failed to repay the principal amount. A cheque for Rs. 15 crores issued by the respondent was dishonored, and subsequent legal notices demanding payment were ignored. Despite multiple opportunities and extensions granted by the court, the respondent failed to honor its commitments, including a specific undertaking to pay Rs. 1 crore to each creditor by a stipulated date.

3. Admission of Debt and Inability to Pay:

The respondent admitted the debt owed to the petitioner and acknowledged its inability to pay. The court noted that the respondent's failure to discharge its financial obligations justified a winding up order. Despite the respondent's admission of liability, it sought further time to restructure its debts and settle with creditors, which was not fulfilled.

4. Discretionary Nature of Winding Up Orders:

The court emphasized that the remedy under Section 433(e) is discretionary and not automatic. While the court can accommodate companies facing temporary financial difficulties, the discretion must be exercised judicially. In this case, the respondent's repeated failures to meet its commitments and lack of a concrete repayment plan led the court to conclude that no further time should be granted.

5. Appointment of Provisional Liquidator:

Given the respondent's inability to repay even a fraction of its debt and selective payment to certain creditors, the court found it equitable to appoint a Provisional Liquidator. The court highlighted the necessity of equitable asset distribution among creditors and the respondent's awareness of the consequences of non-payment. Consequently, the Official Liquidator was appointed as the Provisional Liquidator to take charge of the respondent company's assets.

Conclusion:

The court admitted the winding up petition, directing the petitioner to publish the citation as per the Companies (Court) Rules, 1959. The directors of the respondent company were ordered to comply with statutory requirements and furnish a statement of affairs to the Official Liquidator. The application for winding up was disposed of, with the case scheduled for further proceedings.

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