TaxTMI 
TaxTMI 
2016 (8) TMI 1
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....July, 2015, a sum of Rs. 58.24 Crores and Rs. 36.13 Crores (aggregating to Rs. 94.37 Crores) is due and payable by the Respondent Company to the Petitioner. It is the case of the Petitioner that these amounts have not been paid and/or secured to the satisfaction of the Petitioner and therefore the present Company Petition. 2 The brief facts giving rise to the present controversy are that, the Petitioner had sanctioned financial assistance to one Nanded Treasure Bazaar Private Limited (hereinafter referred to as "Borrower No.1") and Treasure World Developers Private Limited (hereinafter referred to as "Borrower No.2") from time to time and as per the terms and conditions of the respective loan documents. As far as this Petition is concerned, the Respondent Company is sued in its capacity as a Guarantor to the loans given by the Petitioner to the said Borrower Nos.1 and 2. THE TERM LOAN OF Rs. 35 CRORES SANCTIONED AND DISBURSED TO BORROWER NO.1:- 3 On 30th July, 2009, the Petitioner sanctioned a Term Loan for Rs. 35 Crores to Borrower No.1. This loan was disbursed on 28th August, 2009. It is the case of the Petitioner that this Term Loan was availed of by Borrower No.1....
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....ether with interest, costs, charges and expenses. 9. The Guarantee herein contained shall be enforceable against the Guarantor notwithstanding that no action of any kind has been taken by SICOM against the Company and an intimation in writing sent to the Company and/or the Guarantor by SICOM that a default or breach has occurred, shall be treated as final and conclusive proof as to the facts stated herein. 10. The Guarantee herein contained is a continuing one for all amounts lent and advanced and/or to be lent and advanced by SICOM to the Company under the said Mortgage as also for all interest, costs, charges and expenses and all other moneys which may from time to time become due and payable and remain unpaid for the time being to SICOM under the said Mortgage and shall remain in force until the said loan shall be paid off in full with interest and all costs, charges and expenses and all other moneys as aforesaid. 16. The Guarantor further declares that as between SICOM and the Guarantor, the Guarantor will be treated as principal debtor jointly with the Company and accordingly the Guarantor shall not be entitled to and the Guarantor hereby waives all the costs conferre....
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.... liable as Guarantors only for the dues that are payable under the Term Loan of Rs. 35 Crores, which on the date of the notices came to approximately Rs. 36.35 Crores. 7 In view of the fact that the Respondent Company as well as Borrower No.1 failed to pay the outstanding amounts, the Petitioner initiated recovery proceedings against Borrower No.1 as well as the Respondent Company in the Mumbai Debts Recovery Tribunal by filing Original Application No.206 of 2013. In this Original Application, the claim made against the Respondent Company is only with reference to the Term Loan of Rs. 35 Crores. This Original Application is pending before the DRT. 8 In addition thereto, on account of the failure of the Respondent Company to pay the outstanding amount under the Term Loan of 35 Crores, on 31st January, 2013, the Petitioner issued a statutory notice to the Respondent Company calling upon it to pay its outstanding dues. The Respondent Company replied to the same by their letter dated 2nd February, 2013 and refuted the claim of the Petitioner on the grounds more particularly set out therein. As mentioned earlier, according to the Petitioner, as on 31st July, 2015, an amount of Rs.....
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....ay, 2012. Since this requisition was not complied with, the Petitioner thereafter issued a recall notice dated 31st May, 2012 to Borrower No.2 recalling the entire outstanding amount of Rs. 20.82 Crores (as on 29th May, 2012). In view of the fact that Borrower No.2 did not pay the outstanding dues, the Petitioner by its notice dated 16th July, 2012, invoked the Guarantee given by the Respondent Company (dated 26th June, 2010) and called upon the Respondent to pay the outstanding amount to the Petitioner. 13 It is the case of the Petitioner that since the Respondent Company failed to make payment under the Guarantee that was executed by them, the Petitioner on 24th January, 2013, issued a statutory notice under Sections 433 and 434 of the Companies Act, 1956 to the Respondent calling upon them to pay the outstanding amount. As far as this loan is concerned, it is the case of the Petitioner that as on 31st July, 2015, an amount of Rs. 36.13 Crores is outstanding and which is due and payable by the Respondent Company to the Petitioner. It is in these circumstances that the present Company Petition has been filed. 14 In this factual background, Mr. Rajadhyaksha, the learned couns....
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.... claim of the Petitioner; (b) The Petitioner is guilty of suppression, and therefore, is not entitled to any equitable orders from this Court in company jurisdiction. To elaborate this point further, Mr. Cama submitted the following instances of suppression:- (i) Despite the fact that the Respondent Company has not executed any Guarantee for the Term Loan of Rs. 12 Crores sanctioned to Borrower No.1, this fact has been suppressed in the Petition and a claim with reference to this loan has also been made against the Respondent Company despite them not being Guarantors in relation to this loan; (ii) the Petition proceeds on the basis that the Term Loan sanctioned to Borrower No.2 was for Rs. 25 Crores whereas in fact only a sum of Rs. 20 Crores was disbursed to Borrower No.2; (iii) a sum of Rs. 9 Crores was paid by Borrower No.2 on/about March, 2013 which fact is suppressed in the Petition and no credit for the same is given to the Respondent Company; (iv) even though the Petitioner has filed proceedings in the DRT for recovery of their dues in respect of both these loans, the same is suppressed in the Company Petition. (c) Since a substantia....
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.... the Companies Act, 1956, and therefore, this Company Petition was not maintainable because the deeming fiction as set out in the said Section was not attracted. 18 I am unable to agree with this submission for more than one reason. Firstly, this property wasn't mortgaged by the Respondent Company. It was mortgaged by Borrower No.1. Section 434 stipulates that the Company shall be deemed to be unable to pay its debts if inter alia, a creditor to whom the company is indebted in a sum exceeding one lakh rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor. It is undisputed that the Petitioner qua the Respondent Company is an unsecured creditor. The Respondent Company has not given any security by way of mortgage or otherwise to secure the dues of the Petitioner. Section 434 contemplates that the Company who is called upon to pay pursuant to the notice issued thereunder has to either pay....
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....e ARCEE Steels Pvt Ltd. (1985) 58 Company Cases 174 The relevant portion of the said decision reads thus: " We are of the opinion that bearing in mind the clear provisions of the Companies Act and the principles which have been discussed in detail in the Madras High Court and the Calcutta High Court judgments above-cited, the rejection of the petition in this case at the stage of admission was not at all justified. The petition was required to be admitted and advertised and it is at that stage that the court could go into the question as to whether the security is sufficient or not and exercise its discretion to accept the petitioning creditor's claims and request for winding up or to reject the same on judicial consideration." 19 This being the position, I am unable to accept the submission of Mr. Cama that the claim of the Petitioner is adequately secured, and therefore, the Company Petition ought to be dismissed. 20 The next argument canvassed by Mr. Cama was that the Petitioner was guilty of suppression, and therefore, not entitled to any equitable reliefs in company jurisdiction. The instances of suppression narrated by Mr. Cama have been set out by me earlier. In....
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.... Company Petition despite the fact that the Respondent Company is not liable as a Guarantor to the said loan. What is important to note is that the notice invoking the Guarantee (in relation to the loans given to Borrower No.1) specifically sets out the dues that are payable with reference to the Term Loan of Rs. 35 Crores as well as the Term Loan of Rs. 12 Crores. Since the said letter was addressed to both Guarantors and one of them being liable for both the loans, is why this mistake has crept in. I do not think that every mistake would amount to suppression. It is also important to note that all these facts have been specifically disclosed in the further affidavit dated 2nd February, 2016. The Respondent Company was given an opportunity to respond to the said affidavit, if it so chose. However, it chose not to controvert any of the contents made in the said further affidavit. I therefore do not find that the Petitioner is guilty of suppression on this count. 21 As far as the issue of not giving credit of Rs. 9 Crores is concerned (even though the same was paid before filing of the Company Petition), Mr. Rajadhyaksha submitted that this mistake occurred because the claim made....
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....ikely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends." (emphasis supplied) 22 Therefore, even if one was to reduce the claim of the Petitioner by Rs. 9 Crores in view of the fact that no credit of the same was given in the Company Petition, I find that a substantial sum is due and payable by the Respondent Company to the Petitioner. This would entitle the Petitioner to seek a winding up order from this Court. In this view of the matter, the argument of Mr. Cama that payment of Rs. 9 Crores is suppressed in the Petition pales into insignificance. 23 In view of what I have held, I find that the reliance placed by Mr. Cama on the decision of the Supreme Court in the case of S. P. Chengalvaraya Naidu ( Dead) by LRS v/s Jagannath (Dead) by LRS and Others(1994) 1 SCC 1 is wholly misplaced. The facts of this case would reveal that a partition decree was obtained from the Court by suppressing a vital document, namely the "release deed." It is in these circumstances, that the observations of the Supreme Court as set out in paragraphs 5 and 6 have to be read and understood. In fact, the short question before the....
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....p Systems (P) Ltd v/s Proxima Medical System GMBH. (2005) 7 SCC 42 Mr. Cama relying upon the aforesaid decision, contended that if there is a dispute as regards the payment of the principal sum, however, small that sum may be, a Petition for winding up is not maintainable and the necessary forum for determination of such a dispute is a Civil Court. I will deal with this decision of the Supreme Court a little later in this Judgement. 25 It is true that in the Company Petition as originally filed, the claim made against the Respondent Company was also with reference to the Term Loan of Rs. 12 Crores for which admittedly the Respondent Company was not a Guarantor. However, as far as the Term Loan of Rs. 35 Crorers is concerned, Mr. Cama has not raised any defense in relation to the same. The fact that the Guarantee was executed by the Respondent Company in relation to the Term Loan of Rs. 35 Crores has been very fairly admitted by Mr. Cama before me. In the further affidavit, a specific statement has been made on behalf of the Petitioner that the Respondent Company is not a Guarantor in relation to the Term Loan of Rs. 12 Crores that was sanctioned by Borrower No.1. After excluding....
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...., [(1962) 1 Chancery 406.] The relevant observations are to be found at pages 413 and 414 of the report. An opinion has been expressed in the said judgment that it would be quite unjust to refuse a winding-up order to a petitioner who is admittedly owed moneys which have not been paid merely because there is a dispute as to the precise amount owing. 8. Almost to the same effect are the observations in Cardiff Preserved Coal and Coke Company v. Norton, [(1866-1867) 2 Law Reports Chancery Appeals 405.] . A contention had been advanced before the appellate Court that the winding-up order which was being considered was bad because the creditor had demanded a sum of GBP628, and it appeared that he was entitled only to GBP411 7s. 9d. This argument has been decisively rejected by Lord Chelmsfore, L.C. speaking for the Bench at page 410 of the report. It has been observed that even if the creditor has made a demand upon the company for payment of more than was due, that per se will not make the notice or the consequential winding up order bad or invalid, provided that there was a debt in exeess of GBP50 due to the creditor. 9. Both the above decisions have been cited and followed by ....
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.... a winding up petition should not be allowed to be taken as a means to recover debt from the company. It is not a legitimate way to enforce payment of debts which are bona fide disputed by the company and cannot be used as a weapon to pressurise and coerce the company to make payments. But it is also equally well settled that when the debt is undisputed and the defence is not bona fide and genuine, the Court will not act upon a defence that the company has liability to pay but chooses not to pay and the creditors will, in such case, be entitled to a winding-up order. This is clear from the following observations of the Supreme Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries, (1972) 42 Comp Cases 125: "Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. The Court has dismissed a petition for winding-up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corpn., Re. 4) Again, a petition for winding-up by a cr....
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....pute about the claim of enhanced lease rentals on account of disallowance of claim of depreciation by the Income Tax department. There is, however, absolutely no dispute for the outstanding lease rentals which are in the range of nearly Rupees Thirty Lakhs. The terms of agreement are also very clear and in case of default, the company is liable to pay the service charges. When a part of claim made by the creditor is seriously disputed but the remaining portion is prima facie appear to exceed the limit of Rs. 500/- indicated in section 434 of the Act, it would be unjust to refuse wind up order on the ground that there is dispute as to precise amount owned.In re Tweeds Garages Ltd., (1962) 1 Ch. 406: it was clearly held that it would be unjust to refuse a winding up order to the petitioner who has admittedly owned moneys which have not been paid merely because there is a dispute as to the precise amount owning. Almost to the same effect are the observations in Cardiff Preserved Coal and Coke Co. v. Norton, (1867) 2 Ch. App. 405. 12. The learned single judge of Calcutta High Court in Ofu Lynx Ltd. v. Simon Carves India Ltd., (1971) 41 Comp Cas 174 has observed: "I, therefo....
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....t (namely Sections 17 and 18 thereof), it is clear that the Debt Recovery Tribunal has exclusive jurisdiction to adjudicate upon the claim made by the Petitioner. The Company Court's jurisdiction therefore is clearly ousted from entering upon any such exercise. He submitted that in view of the dispute raised in relation to the claim made by the Petitioner, this Company Petition ought to be dismissed. 31 I find this argument to be wholly misconceived. It is now well settled that the Company Court does not adjudicate the claim of the Petitioner nor does it pass any decree ordering the Respondent Company to pay the sum claimed in the Company Petition. It only has to come to the conclusion that the Respondent Company is indebted to the Petitioner in a sum exceeding to Rs. 1 lakh as more particularly set out in Section 434 of the Company Act, 1956 before passing an order of winding up. Any findings given by the Company Court in relation to the indebtedness of the Respondent Company to the Petitioner would certainly not be binding on the Civil Court or the DRT whilst adjudicating the claim made by the Petitioner as to what is the exact amount due and payable by the Respondent Comp....
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....g creditor. In the first place, section 433 of the Companies Act, 1956 is not intended to supplant the jurisdiction of a Civil Court to adjudicate a money suit . Section 433(e) vests in the Company Court the jurisdiction to wind up a Company, inter alia , under Clause (e), if the Company is unable to pay its debts. Section 434 creates a statutory fiction that if the creditor has issued a prescribed notice to the Company to pay up the debt and the Company fails to do so or fails to secure the said debt within the prescribed time, the Company shall be deemed to be unable to pay its debt. Once such a contingency has arisen, and the statutory fiction has come into play, it is perfectly open to the Company Court to entertain the petition under section 433(e) of the Companies Act, 1956. 6. The argument of Mr. Shah that what could be done by the Company Court can equally be done by the DRT under the RDB Act is erroneous. There is no provision in the RDB Act empowering the Tribunal to wind up a Company which owes the debt to the applicant financial institution. The jurisdiction of the Tribunal under the RDB Act is only to adjudicate the liability of the respondent before it, ascertain t....
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....dent Company is a profit making company, an order of winding up cannot be passed. Therefore these two decisions do carry the case of the Respondent Company any further. 34 This only leaves me to deal with decision of the Supreme Court in the case of Mediquip Systems (P) Ltd . (2005) 7 SCC 42 The facts of this case would reveal that the Respondent therein (Proxima Medical System GMBH) issued a legal notice to the appellant company under Section 434 of the Companies Act, 1956, mentioning that the Appellant Company (Mediquip Systems Pvt. Ltd. ) was liable to pay to the Respondent a sum of US$ 5000 and US$ 11000 aggregating to US$ 16,000. Since, this payment was not made, the Respondent filed a winding up petition against the Appellant Company praying that the Company be wound up. The Company Judge disposed of the winding up petition holding inter alia that sofar as US$ 5000 was concerned, there was a serious dispute raised by the Appellant Company. However, in sofar as the amount of, US$ 11,000 was concerned, the learned Company Judge directed the Appellant Company to deposit US$ 11,000 in the Company Court. This order of the Company Judge was challenged before a Division Bench of ....
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....ns which may be found there are not intended to be expositions of the whole law, but are governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all." (emphasis supplied) We entirely agree with the above observations. 15. In Ambica Quarry Works v. State of Gujarat [(1987) 1 SCC 213] (vide SCC p. 221, para 18) this Court observed: "18. The ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is only an authority for what it actually decides, and not what logically follows from it." 16. In Bhavnagar University v. Palitana Sugar Mill (P) Ltd. [(2003) 2 SCC 111] (vide SCC p. 130, para 59) this Court observed: "59. ... It is also well settled that a little difference in facts or additional facts may make a lot of di....
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....re words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case.' 11. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. 12. The following words of Hidayatullah, J. in the matter of applying precedents have become locus classicus: (Abdul Kayoom v. CIT [AIR 1962 SC 680] , AIR p. 688, para 19) '19. ... Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cardozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.' *** 'Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourse....