Punjab National Bank vs Vedsons Steel and Wires (P.) Ltd. and Others

V.K. Bali, J.—Way back in 1983, the Punjab National Bank, Sector 22D Branch, Chandigarh, filed petition No. 3 of 1983 against Vedsons Steel and Wires (P.) Ltd. under Sections 433, 434 and 439 of the Companies Act, 1956, for winding up of Vedsons Steel and Wires (P.) Ltd., Mohali. It has, inter alia, been pleaded in the petition aforesaid that respondent No. 1-company through its managing director, Shri Ashok Anand, approached the Sector 22D Branch, Chandigarh, of the petitioner bank with a request for sanction of cash credit, packing credit, foreign outward bills, negotiated foreign letter of credit facilities on various dates to and in the name of respondent-company to meet the working capital requirements, etc., of the respondent-company. The said company also requested the petitioner-bank to grant facility of foreign letter of credit which request initially was for Rs. 11 lakhs which was later requested to be enhanced from Rs. 11 lakhs to Rs. 25 lakhs and then from Rs. 25 lakhs to Rs. 40 lakhs and for conversion of the cash credit pledge limit into cash credit hypothecation to the tune of Rs. 2 lakhs. The respondents as a security for the repayment of the above credit facilities offered to pledge and hypothecate the assets and other movable property of the company and also to pledge the goods and merchandise, the security stores in godowns and or goods in process to which the petitioner-bank will have free and independent access and also offered the guarantee of respondent No. 3, Subhash Anand. After considering the request of the company, the petitioner-bank granted the following facilities :

Rs.

(i)

Cash credit pledge

15,00,000

(ii)

Packing credit

15,00,000

(iii)

Foreign Outward bills negotiated under letter or credit/advance against bills for collection

15,00,000

(iv)

Foreign letter of credit, irrevocable, confirmed, non-revolving foreign letter of credit

40,00,000

At the time when the petition was filed, it is the case of the petitioner-bank that an amount of Rs. 21,09,248.70 was due and the company was liable to pay interest on the aforesaid amount which it had not paid despite issuing legal notices. It is also pleaded in the petition aforesaid that the respondent-company was unable to pay back the money not only to the petitioner-bank but to many others and so it is just and equitable to wind up the respondent-company.

In response to the notice issued in the company petition referred to above, the respondents have filed a reply. The matter was adjourned from time to time and when, it came up for hearing on January 30, 1985, before a learned single judge of this court, the following order was passed ;

"It has been agreed between the parties that the respondents shall pay Rs. 5,00,000 by February 15, 1985, and the balance amount with interest at the agreed rate by April 30, 1986, and in case they fail to pay either of the instalments, the petition shall be advertised. It is further agreed that after the whole amount is paid, the petitioner shall issue ''no due certificate'' to the respondents. I order accordingly.

The petition be filed subject to the condition that in case the respondents fails to pay any of the instalments, the petitioner shall be entitled to get the petition revived."

It appears that the respondent-company did not pay the amount agreed to and, therefore, the petition was revived, vide orders dated November 7, 1985.

After the petition was revived, it appears, the matter has since been adjourned from time to time mostly on the request of the respondent-company. A period of more than a decade has gone by since the petition was revived and Mr. Mittal informs me that the amount due from the respondent-company has swelled to the tune of over Rs. 77 lakhs by 1992. He also informs the court that inasmuch as the respondent company did not abide by its agreement recorded by the court, in its order dated January 30, 1985, and since no money was forthcoming to the petitioner bank, it was constrained to file a civil suit in which the respondent company did not appear despite service. After recording evidence, the civil court decreed the suit filed by the petitioner bank. For all this while, when the civil suit was going on, none appeared on behalf of the respondent-company but surprisingly when the decree was passed, within ten days an application for setting aside the ex parte decree was filed before the civil court. These facts are being mentioned only with a view to show the conduct of the respondent-company, which, it appears to this court, has left no stone unturned to withhold the payment legitimately due to the petitioner bank.

Mr. Mittal, learned counsel for the petitioner, forcefully and rightly contends that it is a case of proved liability of the respondent-company which it has neglected to pay manifesting beyond doubt that the company is unable to pay its debts. He further contends that in this case no further proof is required for returning a finding that the respondent company is unable to pay its debts but to refer to the order passed by this court on January 30, 1985, extract whereof has been reproduced in the earlier part of this judgment.

Mr. Suri, learned senior advocate, representing the respondent-company could not urge anything with regard to liability of the respondent company to pay the debt incurred by it to the petitioner-bank. However, he has endeavoured to deny the relief to the petitioner asked for on three technical grounds. The first contention of learned counsel is that the petitioner is a secured creditor and, therefore, the property of the company, which was mortgaged in favour of the bank at the time of securing loan, could be sold and the sale proceeds thereof, could easily be appropriated by the bank towards its debt. I need not go into this issue as Mr. Mittal informs this court that this objection was taken by way of preliminary issue before the learned company judge, earlier dealing with the matter and, vide orders dated October 29, 1987, the aforesaid point was rejected. It is next contended by learned counsel representating the company that it will not be in the interest of the shareholders, creditors and the employees to wind up this company as, obviously, in so far as shareholders and creditors are concerned, they will not stand to gain as also that the employees of the company would be rendered jobless. The argument seems to be made more in frustration than having any semblance of substance therein. The court, while dealing with the winding up petition, is not concerned with what might happen to the shareholders, creditors and employees. The sole question that needs determination is as to whether the concerned company is in debt and is unable to discharge the same. If on that count a finding is returned against the company, there remains nothing in favour of the company and the winding up order has to be passed. That apart, in the facts and circumstances that are available in the present case, it may be in the interest of the shareholders, creditors and the employees to wind up this company as, apparently, in the hands of the present directors, the company has miserably failed.

Before I part with this order, I would like to mention that the matter came up for final arguments on February 9, 1996. Since none had appeared on behalf of the respondent-company, after hearing the arguments of Mr. Mittal, I had started dictating the order. When, however, only the facts had been recorded, Mr. Suri appeared and requested for an adjournment. In the interest of justice, the same was allowed. The matter then came up for hearing before me on February 16, 1996, when Mr. Suri, with a view to show the bona fides of the company, presented two cheques for Rs. 1 lakh each and further stated that a repayment scheme to the satisfaction of the bank, shall be prepared and presented to the court for amicable settlement between the parties. He further stated that the cheques would be honoured and in case, it might happen somehow otherwise, the respondents were prepared to suffer the consequences as envisaged under the law. Mr. Mittal informs me that whereas one cheque was honoured, the other had bounced. He has placed on record an endorsement, of the bank showing that the respondent-company did not have sufficient funds. The same be placed on the record of the case. Mr. Mittal further informs the court that a truncated kind of scheme which was wholly inadequate to meet the loan was presented by the respondent-company but the same was not at all accepted.

Having gone through the facts and circumstances of the case this court was prima facie of the view that the amount claimed in the petition is due to the petitioner from the respondent-company and that company has failed/neglected to pay the same nor has it been able to compound for the same to the satisfaction of the petitioner herein. The respondent-company was, therefore, unable to pay its due debts. Accordingly, this court vide its order dated December 13, 1985, admitted the petition and the same was ordered to be advertised under Rule 96 read with Rule 24, of the Companies (Court) Rules, 1959, in The Tribune (English) and the Daily Ajit, Jalandhar, and also in the Punjab Government Gazette. Pursuant to orders dated December 13, 1985, the petition had been advertised "as directed. Counsel has also filed an affidavit in this regard as is clear from orders dated September 18, 1986. Objections have also been filed against the publication of the petition.

For what has been stated above, this petition is allowed with costs which are quantified at Rs. 10,000. It is held that the respondent-company is uhable to pay its due debts and is, therefore, ordered to be wound up. The official liquidator attached to this court is appointed as liquidator of the respondent-company and he is directed to take charge of the company and its assets into his custody forthwith or under his control all the properties and effects and the books and papers of the company and it shall be the duty of all the persons having custody of any of the properties, books and papers of the company to deliver possession thereof, to the official liquidator. The petitioner is directed to advertise the notice of the order for winding-up in The Tribune (English) and the Daily Ajit (Punjabi), Jalandhar, and also in the Punjab Government Gazette as contemplated by Rule 113 of the said Rules. The petitioner is further directed to file a certified copy of this order with the Registrar of Companies at Jalandhar within thirty days from today. A formal order of winding-up be drawn up in accordance with law.