TaxTMI 
TaxTMI 
2019 (7) TMI 1519
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....y fully convertible debentures of face value of Rs. 10,00,000/- (Rupees Ten Lakhs) each (Debentures). The respondent, promoter and petitioner entered into an Investment Agreement dated 23.02.2013. 3. As per the said Investment Agreement, the First Tranche Debentures were required to be redeemed at an agreed repurchase price within thirty business days upon the expiry of twenty four months from the First Tranche Completion date (as defined under the Investment Agreement) and the Second Tranche Debentures were required to be redeemed at the agreed repurchase price within seven business days upon expiry of thirty months from the First Tranche Completion date. The debentures were also secured by the respondent through first exclusive charges on lands as described in the Investment Agreement and other securities. Pursuant to the creation of the securities in favour of the petitioner, other agreements were also entered into between the respondent and the petitioner along with other relevant parties. Multiple letters and reminders were issued by the petitioner for the default committed by the respondent - Company in not complying with the terms of the Investment Agreement. In view of t....
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....the respondent/orders of the Court: [a] In the statement of objections, the respondent has not denied or disputed the debt owed by it to the petitioner in any manner whatsoever. On the contrary, the respondent has in paragraph 1[f] of its statement of objections admitted that it had approached the petitioner for monies as it wanted funds to pay off certain other loans that had been incurred by it. As such, the averments made by the respondent itself are indicative of the state of its commercial affairs and its inability to pay its debts. [b] In the course of proceedings in the present company petition, the respondent failed to provide any concrete proof to substantiate its alleged ability to pay its debts and instead, made repeated assertions that it has sufficient assets to meet its liabilities and hence, cannot be regarded as an insolvent company. [c] This Court vide order dated 27.07.2017 had directed the respondent to deposit the amount of Rs. 5,00,00,000/- [Rupees Five Crores only] . This was prior to the admission of the petition on November 22, 2017. However, the respondent has failed to pay the said amount. In view of the continuous lapses o....
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....mpleading applicant seeking transfer of the present proceedings to the National Company Law Tribunal (NCLT) or to dismiss the winding up petition. The questions raised by the impleading applicant for consideration before this Court are as under:- a) Whether Company Petition in the present form is maintainable and can be proceeded further for the winding up of the Company on the ground of Inability/unable to pay its debt? b) Whether winding up proceedings is maintainable on coming into force of the Insolvency Bankruptcy Code, 2016? and Whether any pending winding up proceeding before the Hon'ble High Court wherein the application made by the Financial creditor is required to be transferred to the National Company Law Tribunal in exercise of its Power under Section 434 of the Companies Act, 2013? c) Whether Section 238 of the Insolvency Bankruptcy Code, 2016 would bar any proceedings for winding up in derogation of the procedure prescribed therein? The said application has been objected by the petitioner on the following grounds: 1) No impleading application is maintainable in the Company Petition. 2) Second proviso to Sect....
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....ence of the definition of the 'party' or 'other parties' under the Act, 2013 and the Companies (Transfer of Pending Proceedings) Rules, 2016 ('Transfer Rules, 2016'), the definition provided under Rule 2(16) of the National Company Law Tribunal Rules, 2016 requires to be adopted. Reference was made to Section 238 of the Code, 2016 in support of the submission that the said provision would override other laws. Thus, it was argued that winding up of the corporate entity for 'unable to pay its debts' is no longer available in the statute under the changed scenario. In terms of Section 434 of the Act, 2013, the proceedings be transferred to the Tribunal or the company petition has to be dismissed. 9. Arguments of the learned Senior counsel for the petitioner: i) During the course of proceedings in the present company petition, the respondent has failed to substantiate its alleged ability to pay its debts and made repeated assertions to contend that it cannot be regarded as an insolvent company. If a debt is undisputedly owing, then it has to be paid. If the company refuses to pay such admitted debts, liquidation proceedings requires to be con....
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....sk the rights of the substantial creditors of the respondent. The secured creditor is entitled to move for winding up petition since it would be inappropriate to exercise the action of relinquishing the security, when the company petition is filed, that stage would arise only when the debt is to be proved. Learned senior counsel has placed reliance on host of judgments of the Hon'ble Apex Court as well as this Court in support of his contentions. 10. Analysis: Sections 433(e) and (f) of the Companies Act, 1956 ('Act 1956') contemplates the circumstances in which company may be wound up by the Court i.e., (e) if the company is unable to pay its debts; (f) if the court is of the opinion that it is just and equitable that the company should be wound up. Section 434 of the Act, 1956 envisages when a company shall be deemed to be unable to pay its debts. 11. Section 434(1)(c) and the proviso thereof of the Act, 2013 reads thus:- "434(1)(c). all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately ....
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....959 reads as follows:- "Rule 26. Service of petition - Every petition shall be served on the respondent, if any, named in the petition and on such other persons as the Act or these rules may require or as the Judge of the Registrar may direct. Unless otherwise ordered, a copy of the petition shall be served along with the notice of the petition. Rule 27. Notice of petition and time of service - Notice of every petition required to be served upon any person shall be in Form No.6, and shall, unless otherwise ordered by Court or provided by these rules, be served not less than 14 days before the date of hearing. Provided always that such notice when by the Act or under these Rules is required to be served on the Central Government, the same shall, unless otherwise ordered by the Court, be served not less than 28 clear days before the date of hearing." 15. In Forech India Ltd., vs. Edelweiss Assets Reconstruction Co. Ltd., in Civil Appeal No.818/2018 (D.D. 22.01.2019), a winding up petition was filed by the appellant therein before the High Court of Delhi on 10.01.2014, against respondent No.2 - Company therein alleging inability to pay debts under Section....
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....urt dated 12.12.2018." Finally, the Hon'ble Apex Court declined to interfere with the order passed by the Appellate Tribunal observing that the financial creditor's application which has been admitted by the Tribunal is clearly an independent proceeding which must be decided in accordance with the provisions of the Code. However, liberty was reserved to the appellant therein to apply under the proviso to Section 434 of the Companies Amendment Act, 2018 to transfer the winding up proceeding pending before the High Court of Delhi to the NCLT, which can then be treated as a proceeding under Section 9 of the Code. 16. In Reserve Bank of India vs. Sahara India Financial Corporation Ltd., the Hon'ble High Court of Allahabad has held that it is no doubt correct that the power under the second proviso to Section 434 is given to the Court to transfer any winding up proceedings which is pending before the High Court on 06.06.2018 The proviso no doubt be applicable to such proceedings which are not transferred under the Transfer Rules 2016. However, the proviso does not say that these proceedings would automatically stand transferred. Rather it leaves the discretion with ....
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....the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends." 19. In Hegde and Golay Limited, V/s. State bank of India, ILR 1987 KAR 2673, the Division Bench of this Court has observed thus: "41. But it appears to us that it is not necessary to examine the question whether the Company is insolvent in this larger sense, which in turn depends on the correctness of the Valuation Reports Exhibits R- 4 and R-ll. It is unnecessary to be gone into it as, even assuming that the Company was not insolvent in the larger sense, the finding that it was unable to repay its current liabilities and demands on which we entirely agree with the Learned Company Judge - would itself be sufficient to support the conclusion that the Company is unable to pay its debts. We, therefore, find no substance in the challenge to this finding." 20. In the light of these judgments and the relevant provisions referred to above vis-à-vis as well as the submissions of the respondent company, it can be held that the respondent company undisput....
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....103 any affidavit intended to be used in opposition to the petitioner shall be filed not less than five days before the date fixed for hearing of the petition and a copy of the affidavit shall be served on the petitioner or his advocate forthwith. Copies of the affidavit shall also be given to any creditor or contributory appearing in support of the petition who may required the same, on payment of the prescribed charges. It is settled law that when something is required to be done in particular manner under the statue, then it must be done in that particular manner and not in any other manner. Thus, the procedure prescribed for issuing and serving notice of intendment who wants to oppose or support winding up petition, has to be exercised in terms of Rules 34 and 103 only and not by way of an impleading application. Hence, the impleading application deserves to be rejected. If so, the application of the applicant to seek for transfer of the proceedings to NCLT would not survive for consideration. No winding up power exercisable under Section 433 [e] and [f] of the Act, 1956 is taken away subsequent to the Code, 2016 coming into force inasmuch as the pending company petitions are c....