TaxTMI 
TaxTMI 
2015 (3) TMI 726
X X X X Extracts X X X X
X X X X Extracts X X X X
....titioner. Sri. Balakrishna Rao, the director of the Borrower company stood as personal guarantor while the respondents herein namely CCI Ltd., Chitrakala Investment, Trade and Business Finance Ltd., and Sea Rock Ltd. offered corporate guarantee (hereinafter referred jointly as 'Corporate Guarantors'). The channel finance agreement is said to be dated 12.09.2007 and a power of attorney dated 12.09.2007 to sell, assign and transfer the goods specified was also executed. The deed of guarantees are stated to be dated 03.11.2008 and 20.10.2008. The limit of revolving loan facility which was initially to the extent of Rs. 2,50,00,000/-was enhanced to Rs. 9,00,00,000/- and as such another agreement dated 17.07.2008 was executed. In addition to the Corporate guarantee dated 03.11.2008, a deed of pledge of even date and power of attorney was executed. The additional documents executed pursuant to sanctioned letter dated 14.10.2008 is also referred. Thereafter by sanction letter dated 01.08.2008, granted a channel finance facility of Rs. 15,00,00,000/- to enable the Borrower company to purchase vehicles. Hence another channel finance facility agreement dated 01.08.2008 was executed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e respondents are the Corporate guarantors is denied. It is contended that Sri. Ramachandra Rao who is stated to have executed the guarantee dated 03.11.2008 had no authority to execute documents on behalf of the respondent companies. That Sri.Balakrishna Rao, who is stated to have executed the personal guarantee and Sri. Ramachandra Rao are brothers and are also the Directors of M/s.Manipal Motors Pvt. Ltd. It is contended that Sri. Balakrishna Rao is not concerned with the respondent companies in all these cases. His brother Sri. Ramachandra Rao was the Director of the respondent companies and was the Chief Executive Officer ('CEO' for short ) in the respondent companies. Hence in collusion with his brother has fabricated the resolution and furnished the alleged guarantee. It is contended that the Board of Directors of the respondent has not authorized Sri. Ramachandra Rao to execute the guarantee. He has misused the position and is not binding on the respondent companies. Hence the claim made in the petition is not sustainable. 6. It is their further contention that the said M/s. Manipal Motors Pvt Ltd., to whom the financial facility was allegedly extended is not made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de and therefore the documents executed guaranteeing the repayment cannot be disputed at this stage, that too when the shares have been sold and the proceeds have been adjusted toward part of the amount due. The debt in any event has not been disputed by the Borrower company. The profits of all the companies including the Borrower and the Guarantors would not be sufficient to pay the amount and as such they are liable to be wound up. 8. The respondents have filed the additional objection statement in reply to the rejoinder. It is contended that the petitioner company having resorted to the arbitration proceedings they have to secure the adjudication therein. The validity of the alleged Corporate guarantee should also be adjudicated in the arbitration proceedings since there is a serious dispute in that regard. It is sought to be explained that since Sri. Ramachandra Rao has colluded with the petitioner to fabricate the documents to create the liability of the respondent companies, he is likely to have handed over the shares. The non reply of the notice is also sought to be explained. Details of the criminal proceedings initiated against Sri. Ramachandra Rao and Sri.Balakrishna Rao....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion is to be exercised. If the respondent company pleads a defense in good faith and puts forth a substantial case against the petitioner's claim the petition for winding up will be rejected. A mere assertion of debt payable by the respondent company is not sufficient to attract the discretion in favour of the petitioner. The guidance to find out whether the defense is bonafide and one of substance, reference to the principles enunciated under Order 37 Rule 3 CPC is to be kept in view. A plea which is frivolous, mere moonshine and which on the face of it is false, cannot be accepted. (ii) The case of Hariom Firestock Ltd. v. Sunjal Engg. (P.) Ltd. (KCCR 1999 (1) 731) wherein it is held, the test that is required to be applied for purposes of ascertaining whether the debt is in existence at a particular point of time is the simple question as to whether it would have been permissible to institute a normal recovery proceeding before the Civil Court in respect of the debt at that point of time. When the suit is already filed within time, it does not give the party a legal right to institute any other proceedings on that basis. (iii) The case of Euro Containers v. Morepen Labora....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve clearly sums up the position that what is of utmost importance is to take note of the nature of the claim and the defense set up to repudiate the claim. Keeping in view the scope of the winding up proceedings it would not be appropriate to hold trial and adjudicate that dispute. All that is necessary to be noticed is as to whether a substantial issue has been raised which would require adjudication and not a frivolous defense raised only to defeat the winding up petition. Though the suit instituted prior is not an absolute bar for entertaining the winding up petition in cases where the liability is not disputed, in cases where the liability is disputed and a substantial defense is raised, the adjudication in the suit is the appropriate course to be adopted. 13. In the light of the above, the facts herein will disclose that the respondent Companies in these petitions are not the Borrower company in so far as the financial assistance provided by the petitioner. The petitioner contends that the respondents have offered corporate guarantee for repayment of the loan by the Borrower company. Though the respondents contend that the liability of the borrower itself has not been adjudic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proceedings have been initiated. The copy of the criminal complaint in P.C.No.1/2010 in the Court of the Chief Judicial Magistrate & Civil Judge (Sr.Dvn.) Udupi is produced as Annexure-R6 to the additional objection statement. A perusal of the same will disclose that such allegation has been made against Sri. Ramachandra Rao. The document at Annexure-R7 discloses that the learned Magistrate has referred the complaint to the Police under Sec. 156(3) of Cr.P.C for investigation, pursuant to which the F.I.R has been registered as at Annexure-R8. The documents at Annexure-R9 to 11 are relied upon to establish that the said Sri. Ramachandra Rao had left the service of the respondent company on 30.12.2008 and had in that regard submitted the relevant documents to withdraw the accumulated provident fund amount. 15. The learned senior counsel for the petitioner would however contend that the defense presently put forth by the respondent cannot be accepted. It is contended that the respondent did not choose to reply to the legal notice that had been issued by raising such issues and as such the liability to pay the debt cannot be disputed at this stage. On that aspect, a perusal of the pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Therefore it cannot be concluded that the contention put forth in the objection statement to these petitions has been urged for the first time and in such event the legal notice not being replied alone cannot be the basis to raise the presumption of inability to pay the debts in the instant facts. Hence, the decision relied upon by the learned senior counsel for the petitioner, in the case of Vijay Industries v. NATL Technologies Ltd. [(2009) 3 SCC 527] will not be of assistance to the instant facts. That apart, though after lapse of sometime, the respondents have initiated criminal complaint and the same has been referred for investigation, the fact which cannot be ignored is that the respondents herein have not barely raised the defense herein, but are pursuing their legal remedies before the appropriate forum. 18. The above noticed aspects will disclose that the defense has not been taken for the sake of defense in the objection statement so as to consider it as moonshine or frivolous defense though this Court at this stage cannot also accept the same to be correct, but there can be no denial of the fact that the issues raised are substantial and would go to the root of the mat....