TaxTMI 
TaxTMI 
2017 (1) TMI 270
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.... private limited company on or about 3rd November, 2009. The company requested a Rupee Term Loan of Rs. 50 crores from the petitioner for general corporate purposes. A sum of Rs. 50 crores was sanctioned by the petitioner on or about 24th November, 2009. In order to secure the repayment of the said loan, the company proposed to pledge 21,182 equity shares of Rs. 100/- each held by the company in Khatau Industries Pvt. Ltd. along with right to occupy the use, possess and enjoy in certain premises situated at Laxmi Building, 6, Shoorji Vallabhdas Marg, Ballard Estate, Mumbai-1, which was leased to the said Khatau Industries Pvt. Ltd by the Bombay Port Trust on or about 2nd March, 1920 ("Leasehold premises"). 2. At the material time the leasehold premises was proposed to be mortgaged to secure the loan and it was valued at Rs. 62.24 crores. The loan sanctioned was reduced to Rs. 45 crores as recorded in the letter dated 2nd February, 2010. The term loan was to be repaid in 17 equal quarterly installments of Rs. 2.25 crores each followed by a bullet repayment by Rs. 6.75 crores due and payable as the 18th quarterly installment. In order to secure the aforesaid loan the company execu....
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.... upon the company to clear their outstanding dues failing which the petitioner would be constrained to declare the company as a "Willful defaulter" in accordance with the RBI Guidelines. The company meanwhile had issued cheques amounting to Rs. 20,67,73,464/-. to the petitioner which were delivered to the petitioner's custodian (Stock Holding Corporation of India Ltd.) These cheques were dishonored resulting in criminal complaints being filed under the provisions of Negotiable Instruments Act, 1883. 5. On or about 30th April, 2014 the petitioner served on the company a statutory notice under Section 433 and 434 of the Companies Act calling upon to pay the amount of Rs. 54,57,08,778/- although the notice was received the company failed to reply and thereby is deemed to have committed an act of insolvency. The petition therefore came to be presented on or about 15th July, 2014. According to the petitioner as on 31st May, 2014 a total sum of Rs. 55,78,77,508 was payable to the petitioner along with further interest thereon at 12% p.a. The petitioner also claims costs and charges set out in the particulars of claim as follows:- Principal Bank/Lega l charges Simple Interest Int....
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....ing. It is contended that the action of the petitioner was in violation of Articles 14 and 19(1)(g) of the Constitution of India and jeopardizes various other public institutions forming part of the JLF who were all supporting the restructuring effort. The deponent relied upon Minutes of Meeting held on 16th February, 2015, 26th February, 2015 and 13th March, 2015 extracts of which have been reproduced in the affidavit in reply. It was suggested that the amount due to be paid to the petitioner would be kept with SBI in a No Lien Account with an undertaking that it would be paid to the petitioner. The SBI on behalf of the lenders was to take up the matter with the petitioner and assure the petitioner that the amount deposited by the company would be utilized for the purposes of settling the petitioner's dues. In view of the fact that the company had been declared as willful defaulter at a meeting of the JLF held on 13th March, 2015, they resolved that the company would advise the promoters to bring in their contribution of Rs. 33.87 crores along with amount to be paid to the petitioner immediately and deposit the same with SBI with a view to expedite resolution of the issue on re....
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.... State Bank of India on 27th March, 2015 which has since been transferred into a "No Lien" Account. The petitioner is stated to be entitled to receive the same upon the respondent's name being removed from the list of willful defaulters and upon agreeing to receive incomes under the restructuring package. The respondent has denied the contents of the petition and questioned the appropriation of Rs. 2.25 crores towards payment of interest resulting in a sum of Rs. 1.39 crores being shown as outstanding towards the principal sum due under the first installment. It is contended that despite payment the petitioner company had been declared as a Non- Performing Asset. 12. In paragraph 18 of the affidavit in reply, the deponent admits having received the statutory notice and states that the notice was not replied to as the petitioner and VSCL were in talks inter alia regarding payment of interest upto 4th July, 2014 with the hope that the petitioner would agree to delete the name of VSCL as a willful defaulter and convey their no objection to the restructuring package. The computation of the amount claimed in the Petition has been disputed and it is contended accounts are required to ....
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.... 16.80 crores with SBI towards overdue interest and that all receivables from the vessels would be routed to a Trust and Retention Account from which proportionate payments will be made to all the lenders including the petitioner. The petitioner was requested to delete the name of the respondent from the list of willful defaulter. Unfortunately, the petitioner has not responded and has refused to delete the willful defaulter tag. Ultimately after waiting for 5 months the joint lenders forum decided to proceed without the petitioners. The sum of Rs. 16.80 crores was employed for operational requirements of VRL vessels. It is further contended that the Joint Lenders Forum has now refused to make provisional payments to the petitioner. It is submitted that apart from merely agreeing restructuring the existing debt the members of the JLF have gone out of pocket and provided fresh funding of Rs. 425 crores. On a query from the Court as to whether VRL was willing to cede a pari passu charge along with other lenders, Mr. Dhond on instructions replied in the negative. 16. According to Mr. Dhond and per the additional affidavit the respondent is "well placed to ride out" the econom....
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.... virtually no assets and the purpose of enforcement of an order of winding will not be useful. He also invited my attention to the fact that the petition proceeds on the basis that the respondent company is unable to pay its debts, however, the fact that the respondent is a going concern and is able to pay debts as and when they arise and has settled many claims amicably and therefore issuance of an order of winding up is not the solution. Mr. Dhond further pointed out that although the Petitioner was a party to the company petition proposing the scheme for amalgamation it had failed to appear and also not filed any explanation as to why it did not oppose the application for amalgamation. In the circumstances, he submitted that the present petition is abuse of process ought not to be entertained. Dhond relied upon the following Judgments in support of his defence : 1) Arbitration Petition No.800 of 2014 a/w connected petitions dated 6th July, 2015 Tata Capital Financial Services Ltd. v/s. Unity Infraprojects Ltd. & Ors. 2) 1971 (3) SCC 632 M/s.Madhusudan Gordhandas & Co. v/s. Madhu Woollen Industries Pvt. Ltd. 3) (1999) 96 Comp Cas 841 (Gujarat) American Express Bank Ltd. ....
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.... submitted that since September 2015 the petitioner has been consistently requesting the respondent to furnish a detailed proposal but the respondents have failed to do so. As of August, 2016, the total amount due was Rs. 74.88 crores and the figure of Rs. 67.85 crores admitted in the additional affidavit is incorrect. 20. According to Ms. Saheed the respondent had indicated that the lenders of VRL had proposed a pari-passu charge in favour of the petitioner as well the JLF refused to cede their securities in favour of the petitioner which is a deviation from the earlier offer made by the company. For the aforesaid reasons, the petitioners have declined to exclude the respondent from the list of willful defaulters which can only be done on arriving at a settlement as aforesaid. Ms. Saheed further submitted that the offer made by the respondent is unfair and impractical inasmuch as offers to pay overdue interest on further amount but only after the willful defaulter tag is removed. As far as the repayment is concerned, it is contended that the balance amount proposed to be paid was over a stretched period of 8-10 years. The suggestion that funds towards overdue interest would ....
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....dent has never shown its readiness and willingness to repay the amounts on reconciliation of accounts and admittedly only a sum of Rs. 16.80 crores towards interest overdue was deposited with the SBI on 27th March, 2015 in a No-Lien Account that to be conditionally transferred upon withdrawal of the willful defaulters' tag. Ms. Saheed reiterated that although the respondent claims to have paid the first installment due on 15th June, 2011 the fact remains that the payment was made only on 29th September, 2011 clearly beyond the due date and the delay in making the payment as per due date sets out under the amortization schedule entitled the petitioner to charge further interest on delayed payments. Accordingly the petitioner has correctly appropriated the amount towards interest and thereafter towards the principal sum of the installment leaving a balance of Rs. 1.39 crores outstanding against the first installment. The petitioner reiterated that the respondents account has correctly been declared as 'Non-Performing Asset' and it is denied that the petitioners and the original respondent VSCL were in talks for payment of interest upto 4th July, 2014 and for removal of....
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....s including interest till June 2014 consisting of principal sum of Rs. 43.68 crores and that VSCL intends that the loan should be part of the CDR package and it shall be restructured subject to approval of the Petitioner's. The outstanding is to be paid subject to restructuring from promoters and the equity. This has been signed by 11 banks including SBI as the leader and is also signed by the borrower. 25. (a) Mr. Dhond relied upon the observation of the single Judge of this Court in Tata Capital (Supra) to the effect that restructuring of the Company involves substantial financial sacrifice on the part of the secured creditors which also envisages infusion of substantial funds into the Company by the secured creditors so as to bring the ailing company back on the rails and it is not advisable in the facts of that case to admit the winding up petition. The Court observed that it was neither in the interest of the Company nor its workman or even its creditors. There was a need to allow the CDR scheme in that case to have full play in the interests of all stake holders. The private interest of the petitioner who is not without a security and whose interests are sought to be p....
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....bts even if the company can be resurrected. The petitioning creditors cannot be permitted to insist upon its pound of flesh from the Company which may be a death blow to the Company only on the ground that for a temporary period a running Company was not in position to pay its debts. (d) In Rishi Enterprises the Court relied upon a Division bench decision of the Gujarat High Court in New Swadeshi Mills of Ahmedabad Ltd. v. Dye-Chem Corporation [1986] 59 Comp Cas 183. Passing reference was made also to Madhusudan Gordhandas and the need to consider wishes of other creditors and shareholders before passing a winding up order. In my view facts of this case do not entitle the respondent to the benefit of the observations of the Gujarat High Court. (e) Mr. Dhond then relied upon decision of Gujarat High Court in case of American Express Bank Ltd. (supra) which observed that on principles, it is not a matter of right to claim a winding up order but the discretion vests in the Court. Even if one or more grounds are established under section 433, there is no warrant to assume that the stage for exercise of such discretion arises only after petition is admitted. In matters of winding ....
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....ployed about 3000 employees who have been paid their salaries regularly. The company has been honouring its tax liabilities and there were no arrears on account of tax and also considering the fact that large number of shareholders between 85000 to 90000 and 120 dealers associated to the Company. All the employees and also their families have been deemed to be surviving on the respondent company. The said shareholders and dealers were also losers if the claim of the petitioner is accepted and the winding operation of the Company would be undoubtedly be a loss for all of them. In that case it was established that the Company was progressing towards revival. The Court declined to admit that petition. (g) In yet another judgment of the Punjab and Haryana High Court in the case of Bank of New York (Supra) the Court after considering the factual matrix observed that it would not be in the fitness of things to admit the petition for winding up but it is expected that respondent Company would make efforts to generate funds either out of cash profits or sale of non-core .assets to pay of the petitioner or get the debt restructured to maintain its credit worthiness. The respondent Com....
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....ercise pressure will be dismissed and may be stigmatized as a scandalous abuse of the process of the Court. The decision in Amalgamated Commercial Traders (supra) was later followed even in M/s.Madhusudan Gordhandas & Co (supra) even though the Court in M/s.IBA Health (I) P.Ltd.(supra) considered what bonafide disputed should encompass. It also observed on the aspect of commercial insolvency that if a Company refuses to pay on genuine and substantial grounds it should not be able to avoid the statutory demand and that the law should be allowed to proceed and if the demand is not met, the company will have an opportunity on the liquidation application to rebut that presumption. An examination of the company's solvency was indicated as a useful aid in determining whether the refusal to pay is the result of a bonafide dispute as to liability or whether it reflects inability to pay. 28. In support of her contention Ms. Saheed sought to distinguish the various decision relied upon. In the course of doing so she made specific reference to the decision of the Gujarat High Court in American Express Bank (supra) wherein the case Mr. Dhond had sought to contend that in the discretion ....
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....sited Rs. 16.80 crores in State Bank of India towards payment of "overdues", presumably of interest. It is not in dispute on what basis this deposit was made instead of paying over to the petitioner. Paragraph 3 highlights the real motive behind depositing the said sum of Rs. 16.80 crores. State Bank of India were acting on instructions of and co-operating with respondent Company in order to facilitate removal of the "Willful defaulter" tag. Paragraph 3 makes the proposed payment of Rs. 16.80 conditional upon petitioner's willingness to delete the respondent's name from the willful defaulters list. Admittedly the amount of Rs. 16.80 crores as seen from contemporaneous correspondence was due towards overdue interest. 31. Ms. Saheed had relied upon observation of single Judge in the case of BNY Corporate Trustee Services Ltd. Vs Wockhardt Limited wherein it was observed while admitting the Company petition, maintainability of the petition cannot be questioned merely because a CDR scheme was proposed by the company and its other creditors and the petitioner had declined to join a the package. The Court observed that there is no absolute right in the creditors to insist that....
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....company was seriously intending to clear the petitioner's dues, the least they could have done is to pay over sum of Rs. 16.80 crores unconditionally. 34. Mr. Dhond was at pains to highlight the fact that the Company is engaged in the management of fleet of vessels owned by it and since transferred to VSCL which operates in the offshore, oil and gas sector. It owns and operates a fleet of 20 vessels owned by the said Varun Shipping Company Limited (VSCL) depends on the respondent company for their management and that letter dated 21st February 2013 VSCL had sought the Consent of the petitioner for Composite Scheme of Arrangement and Amalgamation. It was thus forming subject matter of Company petition seeking approval of the scheme in or around 15th March, 2013. Although initially the petitioner contended that the said letter seeking their consent was not received, it appears that the company has since filed evidence of dispatch of the notice of the Court Convened meeting of equity share holders or about 13th December, 2012 and amongst this is one addressed to the petitioner Corporation. It is a fact that the petitioner did not consent to the scheme it did not oppose the sche....
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.... one of this affidavit had promised that his contribution would be brought on 18th March, 2010 and it is on this basis that VRL signed the MRA with lenders banks on 31st March 2010. The promoters' contribution has apparently not been made over, had it been made, the amounts would be clearly provide from and out of said contribution. In the circumstances there is no merit in the company's contention that all arrangements have been made. This argument must be therefore rejected straightway. 37. It was the case of the company that had the willful defaulter tag been deleted the amount of Rs. 16.8 crores would have been paid. If indeed their intentions were bonafide the amount of overdue interest would have been paid over straightway. On the other hand the amount deposited with SBI was then deployed towards operations of VRL. In my view the banks have acted in their own interest. They refused to make provisional payments. The fact that they may have extended further funds to VRL offers no solace to the petitioner. In fact nothing whatsoever, apart from actual operational costs, have been paid to the respondent company. The respondent company is admittedly revenue neutral and as Mr. D....
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....heoretically speaking it may not be possible for the respondent - company to insist that all vessels of VRL and group companies must be managed by the respondents situation may arise whereby the respondent is deprived of the revenue that it currently earns. The respondent has no back up plans even for management, generally, of third party's vessels. But for captive management of vessels of the group companies it has no other source of revenue. Given the fact that the respondent does employ substantial number of persons and apprehension of the employees were obviously supporting the respondent companies' case of which no doubt is at the instance of respondent's management. If indeed the group companies of Varun Resources Ltd. and the respondent included are interested in welfare of these employees the respondents will ensure that interests of the petitioners are duly protected independent of any restructuring package. It is material to note that JLF members have refused to accede pari passu charge in favour of the petitioner and in view of the facts and circumstances of the case that the order that I propose to be pass must sufficiently safeguard interest of those see....
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.... made by the respondent only restricted to payment of overdue interest and that too subject to removal of the name of the respondent from the defaulters list. No mention as to when the principal sum of Rs. 43.68 crores would be paid become overdue and on 9th February, 2016 the total amount payable was Rs. 69.72 crores. 41. The petitioners also reiterated the fact that they are not party to the MRA executed between lenders and VRL and effectively not concerned with the same. The agreement arrived at between the lenders and the aforesaid VRL cannot in any manner affect repayment by the Respondent Company of the petitioner's loans. The provisions of the aforesaid MRA do not bind the petitioners. 42. I find that Madhusudan Gordhandas (supra) also reiterates two other well settled rules. Firstly if debt is bonafide disputed, the Court will not wind up a Company. Secondly where the debt is undisputed the Court will not act upon a defence that the Company has the liability to pay the debt but the Company chooses not to pay that particular debt. Reference was made in paragraph 21 of Madhusudan Gordhandas to Re :A Company [94 SJ 6369] he further adds where there is no doubt that the C....
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....t only the Respondent company is sought to be wound up alludes to the respondent company and its sister concerns having weathered all storms and are recovering satisfactorily. According to the deponent, the licenses of various companies of respondent company's group are intrinsically intertwined and any orders in which the present petition will directly and adversely affect all group companies. After the global economic slowdown most of the companies had laid off employees but respondent Company has protected it employees. An amount of Rs. 66,36,465/- was being paid towards monthly salary of its employees. This application in my view is made at the instance of the management especially it is given its timing (5th October, 2016) when the petition is being taken up for admission and two years after it was filed. 44. In reply to the said application the petitioner has through the affidavit of one Mr. Sanjay Johari highlighted the fact that it is that the shipping business is in doldrums, a fact repeated by company and echoed by its employees. According to the said affidavit there are statutory dues which have remain unpaid for more than six months as income tax dues amounting t....
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....Rs. 255.24 lakhs as reflected in the register maintained under Section 189 of the Companies Act. 46. Mr. Dhond was quick to respond to the submissions based on the Annual Report by stating that Company has made "long term investments" in associated Companies where there has been temporary reduction in revenue due to lack of working capital and the management is in the process of raising resources to streamline operations. In my view the explanation provided by the Company in relation to the observations in the said note do not in any manner assist the company in avoiding its liability to the petitioner. The figures speak for themselves. The explanations to the effect that temporary reduction in revenue are due to lack of working capital and the like are merely a facade. In my view the application for impleadment will be relevant only if the company petition is admitted. 47. Ms. Mehta in support of her application also relied upon the decision of the statutory bench of the Supreme Court in National Textile Workers Union and Others vs. P.R. Ramakrishna and Ors (1983)1 SCC 228 and relied upon observation of the Supreme Court in paragraph no. 15, 18 and 20 in as much as observ....
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....dealer of furniture supplying goods for fitting out the office of the Bank. The petition came to be dismissed since according to the Court the claim was contested on amount and there was no evidence other than non-compliance of Statutory notice to show that the Company is insolvent. In that case it was found that the winding up petition was not bonafide but merely to put pressure on the Company to compel payment. These are the very matters which are relied upon by the Supreme Court in Madhusudan Gordhandas & Co. 51. Applying these very principles, I am of the view that in the present case there is no dispute that the debt is owed from the respondent to the petitioner. There is indeed relatively small portion of the debt which is sought to be disputed. The dispute is restricted to whether the petitioner is entitled to claim interest at the rate claimed and as to liquidated damages. There is however no doubt that the principal sum and the admitted portion of interest is overdue. Moreover interest of Rs. 16.80 crores on the overdue payment was already offered to be paid if the "willful defaulter" tag was deleted. In fact this amount was also paid over to the SBI to be kept in depos....
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....nt that the petitioner cannot expect to receive their original dues even the principal sum within a reasonable time. The business of the group companies all of whom are engaged in the shipping industry is admittedly passing through a difficult phase. The petitioner corporation has a duty to its stake holders including numerous policy holders and public funds are involved. The losses caused by non-payment of the sums due by the respondent Corporation will affect the public interest at large as compared to the interest of workers some of whom may be petitioner's policyholders. In the facts at hand the interests of the public at large must be given precedence over workers fears. 55. In any event, the amount of principal sum and overdue interest payable is not disputed. This however does not mean that the demerger of the shipping business to Varun Resources Limited and the retaining of the shipping management business alone with the respondent Corporation by itself resulted in the respondent being revenue neutral. Being revenue neutral in the facts and circumstances, the respondent company will have just enough funds to maintain its operation of managing the assets of Varun Reso....
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....2% and would be repaid as per the repayment schedule applicable to all other lenders, by 30th June, 2023. A copy of the schedule of repayment of the Petitioners' debt is annexed hereto and marked as Exhibit "C". The first installment of approximately Rs. 2 crores would be paid to the Petitioner on 1st October, 2016. * The last installment to clear all outstandings to the Petitioner would be paid by 30th June, 2023. * Interest would be continued to be paid to the Petitioner at the contractual rate of 12% per annum. * The Respondent would continue to enjoy the same security which it currently holds. The Joint Lenders Forum has refused to cede their security in favour of the Petitioner" 57. The petitioner may file a suit to recover its dues based on its security. However, the petitioner has made it clear that they are unable to accept the offers to receive the principal amount due to them and would pay upto June, 2023 as proposed. In the circumstances I do not find that there is sufficient material to hold that petition is not maintainable. In my view the petition is maintainable given the facts and circumstances of the case, notwithstanding the claims of the workers t....