2014 (2) TMI 1442 - HC - Companies Law

Company ordered to wind up for defaulting on guarantee agreement despite claiming RBI permission issues

Bombay HC admitted a winding up petition against respondent company for failing to discharge its liability under a guarantee agreement. The company argued ... Winding up the respondent company - respondent company has failed to discharge its liability and obligation - HELD THAT:- The respondent company has admittedly neither applied for nor obtained the permission. It is argued that it did not apply for permission because it was not in a position to pay the amount. That was the amount guaranteed and confirmed by it. That shows nothing other than a default on the part of the respondent company. Had the respondent company applied for the permission and was not granted the permission or refused the permission by the RBI, its contract of guarantee would have stood frustrated by the act of the RBI. The respondent cannot benefit from its own wrong. It is not possible to accept the contention of the respondent that it could never have performed the obligation under the agreement in view of prohibition under the notification, in the absence of making any application to the RBI because the petitioner acted under the agreement by releasing a part of the cargo upon the confirmation contained in the agreement itself. It is, therefore, rightly argued that the petitioner acted to its own detriment. After having a part of the cargo released upon the confirmation of the agreement dated 18.7.2012, it is not only an act lacking in bonafides but a dishonest act to claim that the respondent company neither applied for RBI permission nor made payment and was discharged from its liability from making payment altogether. The contention that the guarantee was not enforceable is therefore a dishonest defence which cannot be countenanced by the Court. A dishonest defence cannot be bonafide. Summons for judgment is pending adjudication. No order has been passed thereupon. A winding up order is not passed yet. At present only the petition needs to be admitted. As and when the suit is decreed or dismissed, the judgment will be considered at the time of winding up of the respondent company. Conclusion - It is seen that the respondent company has not shown a bonafide disputed debt. Consequently, the non- payment of its admitted liability would result in statutory consequences. Hence there is no bonafide defence to the petitioner's claim. Consequently the petition deserves to be admitted. Petition admitted. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the respondent company is liable for the debts of its sister concern under the agreement dated 18.7.2012.Whether the respondent company has a bona fide defense against the winding-up petition filed by the petitioner.Whether the respondent company's liability as a guarantor is enforceable given the prohibition under the Foreign Exchange Management Act, 1999.Whether the petitioner can maintain a winding-up petition despite the pending summary suit for the same claim.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Liability under the AgreementRelevant Legal Framework and Precedents: The agreement dated 18.7.2012 and the concept of guarantee under contract law were central. The court referred to the principle that a guarantor's liability is co-extensive with that of the principal debtor.Court's Interpretation and Reasoning: The court interpreted the agreement to confirm the respondent company's liability to pay the specified amounts as a guarantor. It noted the clear and absolute obligation under clauses 1 and 2 of the agreement.Key Evidence and Findings: The court found that the respondent company had confirmed its liability under the agreement and that the petitioner had acted in reliance on this confirmation.Application of Law to Facts: The court applied the principles of contract law to determine that the respondent company was liable as a guarantor for its sister concern's debts.Treatment of Competing Arguments: The respondent argued that it had no pre-existing liability and that its obligation was contingent. The court rejected this, finding the liability was confirmed and absolute.Conclusions: The court concluded that the respondent company was liable under the agreement as a guarantor.Issue 2: Bona Fide DefenseRelevant Legal Framework and Precedents: The Companies Act, 1956, particularly Section 434, which deals with the inability to pay debts, was relevant. The court referenced precedents on bona fide disputes.Court's Interpretation and Reasoning: The court found no bona fide defense as the respondent had admitted liability and failed to pay.Key Evidence and Findings: The respondent's reply to the statutory notice admitted the discussion for a payment schedule, undermining its defense.Application of Law to Facts: The court applied the statutory test for inability to pay debts and found the respondent lacked a bona fide defense.Treatment of Competing Arguments: The respondent's arguments about the release of cargo and RBI notification were dismissed as insubstantial.Conclusions: The court concluded that the respondent had no bona fide defense to the petitioner's claim.Issue 3: Enforceability under FEMARelevant Legal Framework and Precedents: The Foreign Exchange Management Act, 1999, and related RBI notifications were considered.Court's Interpretation and Reasoning: The court found that the respondent's failure to seek RBI permission did not discharge its liability.Key Evidence and Findings: The respondent did not apply for RBI permission, undermining its defense based on FEMA.Application of Law to Facts: The court applied the principles of contract frustration and found no frustration occurred.Treatment of Competing Arguments: The respondent's claim of unenforceability due to RBI notification was rejected.Conclusions: The court concluded that the liability was enforceable despite the RBI notification.Issue 4: Maintainability of Winding-Up PetitionRelevant Legal Framework and Precedents: The court considered the maintainability of winding-up petitions alongside pending suits.Court's Interpretation and Reasoning: The court held that the pending suit did not bar the winding-up petition.Key Evidence and Findings: The court noted that no order had been passed in the pending suit.Application of Law to Facts: The court applied the principle that a pending suit does not preclude a winding-up petition.Treatment of Competing Arguments: The respondent's reliance on the pending suit was dismissed as irrelevant to the petition's maintainability.Conclusions: The court concluded that the petition was maintainable.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The absolute liability in clauses 1 and 2 is unmistakable.'Core Principles Established: A guarantor's liability is co-extensive with that of the principal debtor; a pending suit does not bar a winding-up petition; a bona fide defense must be substantial.Final Determinations on Each Issue: The respondent company is liable under the agreement; there is no bona fide defense; the liability is enforceable despite FEMA; the winding-up petition is maintainable.In conclusion, the court admitted the winding-up petition, appointed a provisional liquidator, and ordered the publication of the order, staying the order for two weeks to allow for any appeals or further actions by the respondent company.