Uco Bank vs Electrotherm (India) Ltd.

K.M. Thaker, J.—The petitioner, a bank has taken out present petition under Sections 433 and 434 of Companies Act, 1956 (hereinafter referred to as the ''Act'') against the respondent company and has prayed for below mentioned relief/directions:-

"21(A) The company M/s. Electrotherm (India) Ltd. having its Registered office at situated at A-1, Skylark Apartment, Satellite Road, Satellite, Ahmedabad - 380 015 (Gujarat) be ordered and directed to be wound up by an order and/or direction of this Hon''ble High Court under the provisions of the Companies Act, 1956.

(B) That the official liquidator of this Hon''ble Court or some other fit and proper person be appointed as a liquidator of the company with all necessary powers under the provisions of the Companies Act, 1956 to take over the complete charge of all the assets of the company including all its properties and records and to conduct its affairs in the course of winding up and to distribute its assets in accordance with the law."

In support of the request for winding up order against the respondent company, the petitioner bank has claimed that at the request of the respondent company, the petitioner bank had granted loan to the respondent bank so as to meet with the need of the respondent company for working capital. The loan was granted against collateral security by way of post dated cheque issued by the respondent company as well as personal guarantee of the Directors of the respondent company. The respondent company failed to repay the loan of the petitioner bank and despite requests and reminders the respondent company failed and neglected to make payment,

1.1 The petitioner bank has also claimed that when the post dated cheque given by the respondent company, was deposited for clearance, the same was dishonoured. Since despite the requests and reminders the respondent company failed to repay the loan amount the petitioner company issued statutory notice dated 10.8.2011 which was served at the Registered office of the respondent company. The said notice was responded by the respondent company by an evasive reply dated 5.9.2011 and even the said exercise did not yield the payment. Hence present petition.

In such background of facts the petitioner bank has alleged that the respondent company has failed as well as neglected to make repayment of the loan amount. It is also claimed that the said fact coupled with the fact that the cheque issued by the respondent company was dishonoured when deposited for clearance, establishes that the respondent company has lost its capacity to, discharge its debts and fulfil its financial obligation. On such premise the bank has claimed that the respondent company deserves to be wound up.

2.1 So as to support and justify its submission and request the petitioner bank has stated in the petition memo that:-

"8. The respondent company approached the petitioner to avail credit facility of short term loan for an amount of Rs. 50 Crores for the tenure of six months (maximum) to meet the shortfall of the working capital need. Whereupon the petitioner sanctioned a credit facility of short term loan of Rs. 50 Crores by sanction letter No. ADM/MC/318/2010-11 dated 4.9.2010 for the tenure of six months (maximum) to meet the shortfall of the working capital need of the respondent company. The rate of interest is to be charged at base rate + 2.50 p.a. i.e. 10.50% p.a. With monthly rest. It also provided penal interest @ 2% p.a. over and above the applicable rate in case of failure and timely repayment and/or servicing of interest. The said loan facility is collaterally secured by post dated cheque as well as personal guarantee of Shri Mukesh Bhandari Director as well as Shri Shailesh Bhandari, Director of the respondent company. The respondent company has agreed to and accepted the terms and condition of sanction letter and acknowledged the same by executing the sanction letter showing their acceptance of the terms and conditions of the sanctioned letter. The Board of Directors of the respondent company passed appropriate resolution in the meeting held on 13.8.2010 resolving for borrowing the short term loan of Rs. 50 Crores from the petitioner and for execution of necessary loan documents/agreements/deeds and authorizing the concerned Directors to execute the required documents and do the needful with regard to availing of the said facility and also requesting Shri Mukesh Bhandari as well as Shri Shailesh Bhandari, Directors of the respondent company to execute the deed of guarantee in favour of the petitioner.

The respondent company and the guarantors have executed necessary loan documents/deeds/agreements on 27.9.2010 and the respondent company wrote a letter in favour of the petitioner dated 28.9.2010 confirming execution of the documents for the loan of Rs. 50 Crores and requested for disbursement of the amount and accordingly the amount has been disbursed on 29.9.2010 which was duly received and acknowledged by the respondent company. The respondent company and the guarantors have agreed to and accepted all the terms and conditions of various deeds/ agreements as well as sanction letter executed the respondent company as well as the personal guarantors/directors of the respondent company which, among other things, provided that the said short term loan facility was for a maximum period of 6 months. The said six months period has come to an end on 28.3.2011. Inspite of the agreements and acknowledgement that the said short term facility of Rs. 50 Crores was due for payment on 29.3.2011, the respondent company wrote a letter to the petitioner dated 18.5.2011 requesting for grace period of one month time for payment of the said short term loan facility, even though on the said date, as per acceptance and agreement, the one month period was already over. In the said letter the respondent company has assured that the respondent company will pay the short term loan on or before 18.6.2011.

The petitioner submits that the cheque No. 016479 issued by the respondent company in favour of the petitioner dated 29.3.2011 for Rs. 50 Crore drawn on A/c No. 203530100001232 of Bank of India, Ahmedabad Corporate Banking Branch, Ahmedabad when presented by the petitioner to the respondent company''s bankers on 29.6.2011 the same was dishonoured by the said Bank of India for the reason "exceeds arrangements". Thereupon, the petitioner issued a notice to the respondent company under the provisions of the Negotiable Instruments Act, 1881 on 2.7.2011 calling upon the respondent company to make good the amount of returned unpaid cheque. The said notice was served to the respondent company on or about 4.7.2011. Inspite of the said notice, the respondent company has failed and neglected to honour their commitment and make good the amount as well as failed to make payment of the admitted liability in terms of the acceptance of the terms and conditions of the agreements/deeds/documents executed for the said loan facility in favour of the petitioner as well as assurance given by the respondent company from time to time. The petitioner was, therefore, constrained to file a complaint u/s 138 read with Section 141 of the Negotiable Instrument Act, 1881 before the Hon. Metropolitan Magistrate, Ahmedabad.

The petitioner submits that in response to petitioner''s notice dated 2.7.2011 issued under the provisions of the Negotiable Instruments Act, the learned advocate on behalf of the respondent company replied by taking false and frivolous plea amongst other that Rs. 50 Crore was never due and payable to the petitioner. The same is nothing but dishonest action on the part of the respondent company inspite of the admitted fact that there is acceptance of terms and conditions of various deeds/agreements/documents and also assurance given by the respondent company earlier.

The petitioner submits that the petitioner was therefore, constrained to issue legal notice dated 10.8.2011 under the provision of Companies Act, 1956, particularly u/s 434 read with Section 433 to the respondent company at its regd. Office calling upon the respondent company to make payment of the entire outstanding amount under the said loan together with interest, further interest, penal interest, indicating that the amount due and payable as on 31.3.2011 is Rs. 50,44,94,820/- and that the respondent company is also liable to make payment of the said outstanding amount along with further interest from 1.4.2011 till realization at the base rate which was at the relevant time @ 17.90% p.a. monthly rests further appropriate base rate + 8.40 % p.a. monthly rests as may be changed from time to time thereafter along with penal interest @ 2% p.a. (less whatever amount has been paid by the respondent company from 1.4.2011), till realization within a period of 21 days from the date of receipt of this notice, indicating that if the same is not satisfied it will constitute the respondent company''s inability to pay its debt to the petitioner and that the petitioner shall initiate action for winding up proceedings of the respondent company under the provisions of sections 433 and 434 read with other applicable provisions of the Companies Act, 1956 as well as any other legal remedy available solely at the risk, responsibility, cost and consequences of the respondent company. Copy of the statutory notice dated 10.8.2011 is enclosed herewith as annexure-G.

The petitioner submits that the statutory notice was received by the respondent company on 17.8.2011 and instead of honouring the admitted commitments and liability the respondent company has taken totally dishonest, false and frivolous stand by replying to the statutory notice through the learned advocate vide reply dated 5.9.2011 raising false, frivolous and baseless averments and allegations knowing that the same are false to their knowledge and they have taken dishonest and not bona fide stand in not honouring their admitted liability. Copy of the said reply of the learned advocate of the respondent company dated 5.9.2011 is enclosed herewith as annexure-H. The petitioner gave reply dated 17.9.2011 to the said reply of the learned advocate of the respondent company through the learned advocate of the petitioner dealing with the averments, allegations and contentions raised in the said reply. Copy of the reply of the petitioner dated 17.9.2011 is enclosed herewith as annexure-1"

2.2 Thus, it emerges that the respondent company has not paid its debt in the sum of Rs. 50,44,94,820/- and the interest thereon to the petitioner bank. The petitioner bank has also submitted that the respondent company has under its communication dated 18.5.2011 and 17.6.2011 had admitted its liability to repay the due and outstanding amount. It is also claimed that actually the respondent company not only admitted its liability to repay the due and outstanding amount but it had, in the said two communications, also given assurance and specified the time limit by which the amount would be repaid by it and that despite such assurance the respondent company neglected to discharge its liability which establishes the factum of neglect as well as its incapacity to pay its debt.

2.3 After hearing the parties the direction to issue notice to the respondent company was passed. In response to the notice the respondent company has entered appearance and filed reply affidavit. In reply affidavit the respondent company has stated, inter alia, that:-

"5. As regards what is stated in paragraph 9 of the petition it is submitted that it true that a loan agreement dated 27.9.2010 was entered into between the parties. It is true that the respondent company wrote letter dated 18.5.2011 requesting for an extension of one month for repayment of the loan."

2.4 Having admitted that the petitioner bank granted loan at its requests, the respondent company came out with a contention that the said cheque was not given in discharge of any liability but was given only as a security and the petitioner bank ought not have deposited the cheque. Thus, with reference to the said cheque the respondent company raised dispute however it did not dispute the fact that loan facility was availed by it and despite demands it has not repaid the due and payable amount. The respondent company, in the reply affidavit has mentioned the details of its financial position and has also mentioned details about the proceedings taken out by the bank before the Debt Recovery Tribunal. The respondent company has, on the strength of such details, contended that the petition does not deserve to be entertained and may not be entertained since there is no substance in petitioner''s claim that it (i.e. the respondent company) has lost its financial stability and is unable to pay its debt. It is also claimed that the petitioner bank has already taken out proceedings before the Debt Recovery Tribunal and therefore present proceedings may not be entertained. The respondent company has alleged that the petition is in nature of harassment and therefore also it does not deserve to be entertained. It is also claimed by the respondent company that the statutory notice did not mention a definite sum/ascertained amount as alleged dues though the statutory provisions and the deeming fiction under the relevant section require that the amount of alleged dues should be specific and definite and claim for any uncertain amount may not be treated as debt for which petition can be maintained under Sections 433 and 434 of the Act. In addition to the details about its financial position the respondent company has also claimed that it employs around 2250 employees on regular basis and other about 1000 workmen on contract basis and it has large turn over to the tune of about Rs. 2290 Crores and it has about 4096 market shares in the industry. On the basis of such details the respondent company has claimed that the respondent company and its operation may not be brought to halt at the request of the petitioner bank merely because at present the respondent company is facing temporary financial and liquidity difficulties. The respondent company has also questioned the legal capacity of the constituted attorney of the petitioner bank who has made the affidavit in the petition and filed the petition in name of and on behalf of the petitioner bank.

Heard Mr. Desai, learned Counsel for the petitioner bank and Mr. A.L. Shah, learned advocate for the respondent company and also considered the documents and pleadings on record.

Mr. Desai, learned Counsel for the petitioner bank heavily relied on the factual aspects mentioned in the memo of petition and the above referred two communications addressed by the respondent company as well as further admission by the respondent company in para 5 of its reply affidavit, and he submitted that the respondent company is unable to pay its debts and has lost its substratum as well as capacity to discharge its financial obligation. He also submitted that the failure to pay is coupled with neglect to pay and that therefore various figures about alleged turnover of the respondent company and the so called profit allegedly earned by the respondent company are not of any avail or assistance in face of the fact that after seeking extension of time on two occasions the respondent company has not paid and could not pay the due and payable amount. He submitted that in view of the fact that the debt is not disputed and the fact that the due amount has not been repaid, the petition deserves to be admitted and the petitioner company is entitled for order of admissions of the petition.

4.1 Per contra Mr. Shah emphasized the details regarding turnover and profit said to have been earned by the company and he submitted that the respondent company is a going concern and that therefore there is no case for admitting the petition since the Court would not order winding up of a running concern. He also submitted that the petitioner bank has already initiated proceedings before the Debt Recovery Tribunal and therefore also winding up proceeding does not deserve to be entertained. He also reiterated submissions that the cheque was deposited only as security and it was not supposed to be deposited and/or encahsed by the bank and that therefore the request for winding up order cannot be supported on the basis of the submission that the said cheque has not been honoured. Mr. Shah, also submitted that in case where the statutory notice and/or the petition does not make claim for a definite and certain amount, then court would not entertain such petition. He also submitted that there is no justification to bring to halt the entire company and its manufacturing and business activity which would result into termination of number of workman. He also submitted that merely because respondent company is facing temporary financial and liquidity the difficulty, such temporary difficulty cannot justify for winding up and admission of petition under sections 433 and 434 of the Act. Mr. Shah, learned advocate for the respondent company has relied on the decision in case of American Express Bank Ltd. v. Core Health Care Ltd 1998 15 SCL 363(Guj.).

In present case it is not in dispute that the respondent company availed loan facility in the sum of Rs. 50 Crores from the petitioner bank. It is also not in dispute that the said amount was granted by way of Short Term Loan for tenure of six months so as to meet with the shortfall in the working capital. It is also not in dispute that the said facility was availed by the respondent company from the petitioner bank pursuant to and on the strength of a resolution passed by the Board of Director of the respondent company in the meeting held on 13.8.2010. It is also not in dispute that two Directors of the respondent company are guarantor for the petitioner bank for the said loan. It is also not in dispute that the respondent company as well as the guarantors have executed necessary loan documents/deeds on 27.9.2010 and subsequently on 28.9.2010 the respondent company vide its letter dated 28.9.2010 has confirmed the execution of the documents for the said loan in the sum of Rs. 50 Crores. The respondent company, vide the said communication dated 28.9.2010 also requested the petitioner bank to disburse the amount. Accordingly on 29.9.2010 the petitioner bank disbursed the said amount of Rs. 50 Crores as loan to the respondent company. It is also not in dispute that the six months'' period expired on 28.3.2011. Consequently the said amount of Rs. 50 Crores became due for payment on 29.3.2011. It is not in dispute that either on 29.3.2011 or even subsequently the respondent company did not make and has not made payment of the said amount (except payment a sum of Rs. 1 Crore only).

In background of such undisputed facts the petitioner bank has demanded repayment of the said loan amount. The respondent company, in response to the demand, addressed a letter dated 18.5.2011 to the petitioner bank and requested for grace period/extension of time up to one month for making payment. It is claimed by the petitioner bank that even after expiry of such extended period, the respondent company did not make the payment. Instead the respondent company addressed communication dated 17.6.2011 assuring that the outstanding amount shall be paid on or before 25.6.2011.

6.1 In the facts of the case the two communications addressed by the respondent company to the petitioner bank i.e. letter dated 16.5.2011 and 17.6.2011 are vital and the contention raised by the respondent company are, in the facts and circumstances of the present case required to be examined in light of the said two communications and the loan agreement as well as the guarantee deed executed by the company and the two directors. The said letters read thus:-

"Date: 18th May, 2011 To, The Asst. Gen. Manager UCO Bank UCO Bhavan, Ashram Road Br., Nr. Sanyas Ashram, Ahmedabad 380 009 Ref: STL of Rs. 50 Cr. Dear Sir, We are having the Short Term Loan facility of Rs. 50 Cr. With your branch, which was due for payment on 29.3.2011. We request you to grace another one month time for payment of STL. We assure you that we will pay the STL on or before 18.6.2011.

Date: June 17, 2011

Dy. General Manager UCO Bank Mid Corporate Branch Ashram Road Branch, Ahmedabad- 380 009 Dear Sir, Reference: Request for short term loan of Rs. 50 Crs. This is in continuation to our yesterday''s letter for short term loan of Rs. 50 Crs to meet working capital requirement of company. We would like to assure you that the outstanding repayment of Rs. 48.75 Crs. in reference to existing STL of Rs. 50 Crs will be made by 25th June 2011, further please note that we have already paid Rs. 1.25 Crs and remaining balance amount will be paid on or before 25th June 2011."

6.2 When the response of the respondent company in reply to the statutory notice is considered and examined in the background of and in light of the said letters then it comes out that the respondent company is not able to meet with its financial obligation and seems to be incurring new and more debt to clear the past liability and debts and in the process it has incurred more and more financial burden which it is not able to sustain and discharge. This is also evident from the financial report of the company which shows that the liabilities of the company has virtually wiped out or eaten away into the so - called reserve and capital of the company.

6.3 It is pertinent that the respondent company vide its letter dated 18.5.2011 admitted that :-

"we are having the short term loan facility of Rs. 50 Crores with your branch, which was due for payment on 29.3.2011, we request you to grace another one month time for payment of STL. We assure you that we will pay the STL on or before 18.6.2011".

The said communication is signed by a director of the respondent company and it admits "(a) that the company availed the loan facility and (b) that the loan amount was due and payable on 29.3.2011 and (c) the amount was not paid on the due date and (d) the respondent asked for extension of time and (e) the respondent also assured that it will pay the loan amount on or before 18.6.2011.

6.4 It is also an undisputed fact that even after the said communication the respondent company did not make the payment of the dues and payable amount on 18.6.2011 or even thereafter.

6.5 Instead, on 17.6.2011 the respondent company addressed another letter stating inter alia that:

"This is in continuation to our yesterday''s letter for short term loan of Rs. 50 Crs to meet working capital requirement of company. We would like to assure you that the outstanding repayment of Rs. 48.75 Crs. in reference to existing STL of Rs. 50 Crs will be made by 25th June 2011, further please note that we have already paid Rs. 1.25 Crs and remaining balance amount will be paid on or before 25th June 2011."

Even after the said communication the loan amount has not been paid.

6.6 The important and relevant aspect is that after having availed the loan facility and after having agreed to repay the loan amount on or before 29.3.2011 and then after having asked for extension of time until 18.6.2011 to repay the loan amount and then having again asked for further extension until 25.6.2011, the respondent company not only failed to keep its promise and fulfil its assurance and the respondent company not only went back on its written assurance in the loan agreement as well as the said two communication dated 18.5.2011 and 17.6.2011, but it actually raised dispute in its reply dated 5.9.2011 in response to the petitioner''s statutory notice dated 10.8.2011 (demanding the repayment) and tried to turn the tables by alleging and claiming, in para 12 of its said reply dated 5.9.2011 that:-

"... there is no substance in the say of your client and so far as calling upon my client of pay sum of Rs. 50,44,94,820/- and initiating legal actions against my client based on such notice is concerned, it is without any substance, mala fide and vexatious inasmuch as there was no existence of debt or liability against my client and your client has illegally dishonestly and unlawfully charged the interest at the rate of 17.90% per annum on monthly rates along with penal interest @ of 2% per annum which is against the norms and guidelines issued by RBI...."

Thus, it transpires that initially the respondent company tried to gain as much time and latitude as possible and then it raised such dispute. In the facts of the case, the said action and conduct indicate failure and/or inability and neglect to discharge its financial obligations.

6.7 It can be seen from the respondent''s said reply that despite or even after the said two letters and after having incurred the obligation to repay the loan amount with agreed rate of interest and after having gained as much time as possible the respondent company alleged that petitioner''s statutory notice is "without any substance, malafide and vexatious".

6.8 In this background, it is, to say the least, the conduct of the respondent company (who after availing the loan and after having signed the loan agreement prescribing terms and condition of the loan including the condition prescribing time limit for repayment and after having failed to repay the loan amount on the due date and having not paid the amount even after seeking two extensions) which is questionable and its attempt of indulgence in self praise on the basis of past performance docs not shield its failure to discharge its financial obligation of repaying the Joan amount which became due and payable in March, 2011.

Since the respondent company has tried to rely on the financial position, at this stage it would be appropriate to have a glance at the balancesheet for the period ending 31.3.2011 which would show that against the share capital to the tune of Rs. 234.76 million and reserve and surplus to the tune of 7,0590 million (i.e. totalling to Rs. 7294.66 millions) the respondent company has burden of secured loans to the tune of Rs. 13,545.60 and unsecured loans to the tune of Rs. 9,097.00 i.e. totalling to Rs. 22,642.60 (which, in the past financial year which ended on 31.3.2010 was to the tune of 15,157.31 millions). Thus, not only the respondent''s liability towards secure and unsecured loan has increased from Rs. 15,157 in 2010, by more than Rs. 7 million to the tune of Rs. 22,642.60, its said liabilities are almost three times more than its share capital and reserve and surplus put together inasmuch as the sum total of respondent''s share capital and reserve and surplus is about Rs. 7,294.66 whereas its loan burden (unsecured and secured) is to the tune of Rs. 22,642.60. Besides the said liability the respondent company has differed tax liability of Rs. 865.30 millions.

7.1 In present case when the above mentioned financial position which is reflected from the respondent company''s balancesheet for the year ending 31.3.2011 reflects that its financial liability and obligation are three times more than its capital and reserves/surplus then such details cannot be overlooked by the court in a petition brought before it with a request for order of winding up (against the company which has failed and neglected to pay the due and payable amounts).

It is necessary to note that while trying to paint and present a bright picture about its financial position and capacity by mentioning some convenient and selected figures (which are mentioned in paras 12 to 17 of its reply affidavit) the respondent company has conveniently not made reference of the above mentioned details which reflect the financial health of the respondent company.

Besides the above mentioned facts and even if the said facts are not to be taken into account then also the fact that the respondent company has failed to make payment and has made default in making payment of the debt i.e. the due and payable amount even after seeking two extensions and despite twice assuring the petitioner bank that the payment will be made, it again failed to make the payment, brings out the situation that the respondent company has neglected to pay and discharge its debt i.e. neglected to make the payment of the due and payable amounts.

The petition brought by the petitioner bank does not involve and/or does not raise any question of disputed facts. The fact that the respondent company has availed the loan and also the fact that it has not repaid the loan amount, (except paying a sum of about Rs. 1 crore) are not in dispute. In background of the above mentioned facts, the defence raised by and the conduct of the respondent company amounts to not making payment of the debt/the due and payable amount after availing loan from bank/financial institutions and taking up stand that though it has the capacity to pay the due amount it does not intend to and it will not pay the due and payable amount. Even if a company which undisputedly has good and solid financial foundation and it also undisputedly has capacity to pay cannot avoid its obligation to pay and be allowed to neglect its financial obligations and when a company which is really financially healthy does not make and neglects to make payment of the amount due and payable by it then the court cannot fail in its duty to take note of such intentional neglect and the court cannot deny the petitioner - creditor an order of winding up against the company which neglects rather will fully neglects to discharge its financial obligation/debt.

The learned counsel for the respondent company heavily relied on the decision of this Court in case of American Express Bank Ltd. (supra) however, conjoint reading of the respondent''s reply dated 5.9.2011 in response to petitioner''s statutory notice dated 10.8.2011 along with the respondents reply affidavit filed in present petition demonstrate the striking distinction between the response and conduct of the respondent in the cited case and present respondent company as well as the vast distinction as regards the facts of the cited case and the facts of present case as well as. In the cited decision the court has taken note, in paras 2 and 3 (and also at various stages in the other part of the text of the judgment of the decision cited by the learned counsel for respondent) that in the said case the respondent had appeared before the court and submitted, inter alia, that it was in the process of restructuring its debts and entire finances and the process for restructuring and arrangement with all financial institutions/secured creditors was in progress.

11.1 The more important and relevant aspect in the cited case was that the respondent in the said case also brought before the court the fact that the majority of the creditor were ready and willing to restructure their loans as per the respondent''s proposal provided proper and sufficient checks and balances, to ensure the commitment, were provided. These aspects are recorded by the Court in the said paragraphs 2 and 3 in the cited decision read thus:-

"2. In response to notice for admission, reply affidavit has been filed. The company by furnishing details which shall be referred to presently pleaded that the company which has incorporated in 1986 has in a short span acquired a prime position in the field of manufacture of intravenous fluids in the country and almost accounts for 90% of the exports of the total country in respect of the articles manufactured by it. In the circumstances narrated in the reply, it referred to multifold reasons leading to the present financial crises which according to it is of a temporary character and is making effort to tide over the same with the assistance of the other financial institutions to whom company owes about Rs. 850.00 crores, all secured creditors, and they are considering the replacement of the entire credit structure of the company to enable it to survive the present crisis rather than on insisting on the spot payment right now and allow the company to die. In the sum and substance, the pleading of the respondent company is that though amount claimed by the petitioner is payable by it, as of others but it is not in a position to pay that sum immediately though company has net assets worth paying all the debts. If entire dues are to be paid up, simultaneously, the same will result in end of the company. However, with some patience and restructuring of credit facility the entire sum can be paid. In the circumstances, it would not be in the interest of creditors, its employees and public in general nor it will be just and equitable to order winding up of the company.

An additional affidavit in response to reply has been filed by the petitioner company placing on record a copy of the background note for restructuring proposal of Core Healthcare Limited prepared by ICICI, one of the creditor financial institution of the respondent company, and the minutes of the joint meetings of secured creditors held as on 21.8.1997 to which the petitioner company was also the participant. The minutes of meeting of secured creditors show that in spite of concern expressed by the creditors, majority of the creditors were ready to restructure their loans as per the proposal, provided checks and balances are put to ensure commitment for which certain proposals made by the company through its representative Mr. Sushil Handa were noticed. A sub committee of the lenders, was formed to further discuss the proposal in detail."

11.2 In the aforesaid context, as against the said set of facts in the cited case, the respondent in present case has not only not said anything about the process of "restructuring - of - left" and the willingness of the financial institutions/banks to accept the restructuring but it has committed breach of its own undertaking and assurances and then it has came out with allegations against the petitioner and against the claim/demand for repayment of debt/due and payable amount. Thus, the said decision would not and does not help the case of the petitioner in present case. In the said case the court was satisfied that the defence was bona fide and all other secured creditors had agreed for restructuring the finances and their loans and more important is the fact that substantial majority of the secured creditors were not in favour of the order of winding up, whereas in present case the situation is materially and diametrically different if not, contrary and opposite and this Court prima facie believes that the dispute or defence raised by the respondent company is an afterthought and it is, as described and explained by the Apex Court, "ingenious mask invented to deprive a creditor of just and honest claim".

11.3 In present case the respondent''s reply to the statutory notice branding the petitioner banks claim and demand for repayment of the due and payable loan amount as "....without any substance mala fide and vexatious..." and the respondent''s further response and reply/stand to the statutory notice to the effect that "...inasmuch as there was no existence of debt or liability..." and the respondent''s reply affidavit raising objections as regards the alleged defects in affirmation and presentation of the petition and the two letters dated 18.5.2011 and 17.6.2011 as well as the duly executed loan agreement lead the court to the conclusion that the defence and stand taken by the respondent company and its conduct which suddenly showed 360� change in its reply, response and conduct after the issuance of statutory notice, is lacking in bona fides and there is wilful neglect to pay its debt and discharges its financial obligation, and it is coupled with the conspicuous absence of any effort by the respondent company in present case, on the similar line as was brought by the respondent in the cited case.

11.4 In present case it is not the submission of the respondent company that it is in process of restructuring its finances and loans and/or it has made any offer for restructuring and all other secured creditors have agreed for such proposal for restructuring and/or that other secured creditors are not in favour of winding up order.

11.5 In present case the respondent company has, on the contrary, branded the action of the petitioner, which is a bank/financial institution and is obliged to follow the regulations and guidelines issued by RBI, "as mala fide intention". In its reply affidavit the respondent company has averred that:-

"... this also demonstrates the malafide intention of the petitioner to pressurize the respondent company in all possible manner and to misuse the machinery of courts and tribunal and process of law...."

11.6 The statutory remedy provided under sections 433 and 434 of the Companies Act is special statutory remedy available to the creditors of the company besides ordinary suit/civil remedy for recovery of due amount. The remedy u/s 433 and 434 of the Act is not meant for enforcing recovery of due amount and that therefore it is required to be distinguished from the action taken by the creditor bank before debt recovery tribunal either under RDB Act or SARFAESI Act for recovery of the amount and merely because the petitioner bank has, to ensure recovery of the due amount in accordance with law, instituted proceedings before DRT, the petition taken out by it u/s 433 and 434 of the Act cannot be branded as "mala fide intention" of the bank or as misuse of the machinery of court and tribunal and/ or abuse of process of law and the petition would not be barred because of the proceedings before the learned tribunal.

11.7 In fact, such allegation made by the respondent company in its reply in response to the statutory notice and in the reply affidavit lead the court to believe that the said submission and allegations are respondent''s cry out of desperation and lame and feeble attempts to frustrate the action in law against it which have been initiated on account of its own default and neglect to discharge its financial obligations.

As mentioned above, in view of the facts and circumstances emerging from the record and the respondent''s reply in response to the statutory notice, which marks a 360� change in respondent''s reply as compared to its admission in above referred two communications, and its response in the reply affidavit, this court is satisfied, and of the belief that the defence and explanation by the respondent company lacks bona fides and there is also lack of readiness and willingness to honour its commitment.

Furthermore, having regard to the financial data emerging from the balancesheet for the period ended on 31.3.2011 it also appears that liabilities of the company outrun its capital and reserves /surplus and its liabilities are almost three times more than its capital and reserves/surplus. The said details also lead this Court to the further conclusion that the respondent''s neglect is also coupled with its inability to pay its debts and discharge its financial obligation.

So far as the respondent''s defence on the ground that it is a going concern and therefore it does not deserve to be wound up, it is necessary to note that such contention would be useful in determining whether the refusal to pay is result of bona fide dispute or not. The primary and relevant consideration or factor to determine as to whether petitioner deserves the order of admission of the petition seeking winding up of the debtor company or not, is as to whether there is a genuine, substantial and bonafide dispute as to the debt and respondent''s liability to pay the same. If the petitioner''s claim/respondent''s debt is not disputed or if it is disputed on unjustified or imaginary or an afterthought dispute or where the dispute raised by the respondent is, as observed by the Apex Court, spurious or speculative or illusionary or misconceived then the court may not accept such defence and hold that the petitioner''s claim and the respondent''s debt are not disputed. The dispute, if any, as to the petitioner''s claim and respondent''s debt should be bona fide and substantial and genuine. In absence of any genuine, bona fide and substantial dispute or in absence of any substantial convincing and strong reason e.g. collective and majority view of creditors that winding up order is not required or would not be justified or public interest so demands the court would, ordinarily not deny an order of admission of petition seeking winding up of a company if the petitioner - claimant/creditor makes out a case and satisfy the court that one or more reasons - grounds specified u/s 433(a) to (i) exists in the given case. The Court, at the same time would also not allow the petitioner - claimant to use the remedy as arm twisting method and pressure tactics or as a weapon or a means for enforcing recovery/payment of debt which is bona fide and substantially and genuinely disputed.

14.1 The Apex Court has observed, in Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami 1965 35 Comp. Cas. 456, that:-

"It is well-settled that ''a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court."

14.2 The Apex Court, has, in the case between IBA Health (I) (P.) Ltd v. Info-Drive Systems Sdn. Bhd. 2010 104 SCL 367/8 taxmann.com 1 observed in para 20 that:-

"20. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor''s debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt."

14.3 When the facts of present case are examined in light of the aforesaid observations by the Apex Court and when the above noted facts and the nature and character of the dispute raised by the respondent are examined then it emerges that the dispute or the defence raised by the company is not genuine and bona fide but is an afterthought and falls within the category described by the Apex Court as "spurious, speculative, illusionary or misconceived" and it consists "ingenious mask" invented to deprive as an afterthought with a view to resisting the petition.

The Apex Court has, in the decision the case of IBA Health (supra) also observed that:-

"31. Where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purposes of winding up. "Bona fide dispute" implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt upon which a petition is founded is a hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the company to pay before coming to that conclusion. The Company Court is expected to ascertain that the company''s refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil court."

14.4 This Court, keeping in focus the said observations examined the case put up by the respondent company vis. a vis. the claim of the petitioner and it is noticed that there is no dispute about the fact that the respondent had availed loan facility from the petitioner bank and that the amount advanced by the petitioner to the respondent was payable along with interest at contracted/ agreed rate, on completion of specified period (six months) and the respondent company had under its two letters admitted its liability to pay the amount in accordance with the loan agreement and also asked for extension of time on two occasions and then suddenly as a bolt from blue the respondent company came out in response to the statutory notice (issued and served by the petitioner bank after couple of requests and reminders) with allegation branding the petitioner bank''s claim and the statutory notice as "without any substance, mala fide and vexatious"

14.5 On over all consideration of the aforesaid and other factual aspects recapitulated hereinabove earlier, this Court has found and the Court is satisfied that the dispute or defence raised by the petitioner is an afterthought. The Court also is of prima facie view that the dispute or defence of the respondent company is spurious, speculative, illusionary and an afterthought raised only with a view to resisting the petition and delaying the liability to make the payment of due and payable amount.

When the court reach such conclusion, then the court may not allow the petition to be frustrated on the grounds raised on the basis of the alleged defects in the format and/or submission and/or presentation of petition.

15.1 In present case the respondent has raised objection against the maintainability of the petition by pointing out certain defects in the petition. It is claimed inter alia, that (a) the affidavit verifying the petition is not filed in the prescribed form; and (b) the petition has been filed without authority and the resolution of the board deciding to institute the winding up petition is not placed on record; and (c) the petitioner has not placed on record the power of attorney authorizing Mr. S.D. Sahare, Chief Manager to file present petition; and (d) the petitioner has not claimed in the statutory notice, any exact and definite sum/amount and therefore the notice does not comply the requirement u/s 34.

15.2 As mentioned above, when the court reach a conclusion that the espondent''s defence lacks bona fides and/or is not substantial and/or is, as observed by the Apex Court, speculative or spurious or that it consists of some ingenious mask invented to frustrate just claim then the court may not deny the order of admission of the petition on the grounds raising objections against maintainability of the petition citing defects in the petition or its presentation and if the respondent satisfies the court that the defects are substantive and not merely technical or procedural, then in that event also the court would be justified in allowing the petitioner to cure the defects but the court may not frustrate the petition by accepting such objection and throwing out the petition as not maintainable in light of the grounds raised by citing the defects.

In present case so far as the respondents contention that the petitioner bank has not claimed definite and exact sum/amount, it is relevant to take into account the details mentioned in the statutory notice. In para 1 of the statutory notice it is averred that:-

" 1. My client submits that at your request my client sanctioned credit facility of short term loan of the sanctioned limit of Rs. 50 Crores by sanction letter No. ADM/MC/ 318/2010-11 dated 4.9.2010 for the tenure of six months (maximum) to meet the short fall of the working capital need..."

It is further averred in the said paragraph of the notice that:-

"The rate of interest is to be charged at base rate + 2.50 p.a. i.e. 10.50 p.a. with monthly rest. It also provided penal interest @ 2% p.a. over and above the applicable rate in case of failure and timely repayment and/or servicing of interest"

It is also averred in the notice that

"3. My client submits that you have also executed letter in favour of my client dated 28.9.2010 thanking my client for sanctioning the loan of Rs. 50 Crore and confirming execution of the documents by you and requesting for disbursement of the amount and accordingly the amount has been disbursed on 29.9.2010 which was duly received by you and acknowledged by you."

Then, in para 7 of the notice, the petitioner bank has also averred that:

"7. My client, in view of the above, by this notice call upon you to make payment of the entire outstanding amount under the said loan together with interest, further interest, penal interest. The amount due and payable as on 31.3.2011 is Rs. 50,44,94,820. Your are liable to make payment of the said outstanding amount along with further interest from 1.4.2011 till realization at the base rate which was at the relevant time @ 9.50% + 8.40 % i.e. totalling 17.90% p.a. monthly rests as may be changed from time to time thereafter along with panel interest @ 2% p.a. less whatever amount has been paid by you from 1.4.2011, till realization within a period of 21 days from the date of receipt of this notice."

16.1 Thus it cannot be said that the petitioner bank has not claimed "certain and exact sum". Hence, the said contention does not hold any substance and is not accepted.

So far as the respondent''s contention that the petition is filed without authority and the resolution is not placed on record and the power of attorney authorizing the deponent is also not placed on record and therefore the petition is defective, it would be appropriate to refer at this stage the decision of the Hon''ble Division Bench of this Court in case between Welding Rods (P.) Ltd v. Indo Borax & Chemicals Ltd 2002 108 Comp. Cas. 747/37 SCL 136 wherein the Hon''ble Division Bench has observed that:-

"13....The Act, Rules or forms do not require any resolution to be passed for the purpose of initiating winding up proceedings, even where the petitioning-creditor is a Company with a Board of Directors. Neither the Act, the Rules nor the Forms stipulate that any particular resolution should be passed by the Board of Directors for instituting a winding up petition. The resolution dated 28.6.2000 authorized Mr SL Jain to do all the acts which are required in "any legal proceedings" which did not mean only suits for recovery of money from the defaulting customers. Even if the resolution dated 28.6.2000 was lacking in particulars, all those particulars have been given with sufficient details and clarity in the clarificatory resolution dated 12.10.2001 for passing which the learned Company Judge himself had granted the permission in para 3.2 of the judgment quoted in para 9 herein above.

Western India Theaters Ltd. (supra) before the Division Bench of the Bombay High Court was a case where a winding up petition was filed and the learned Company Judge passed an order for advertising it. During the course of those proceedings, the original petitioning creditor withdrew from the petition and the learned Company Judge made an order substituting in his place Ishwarbhai Somabhai Patel. The respondent Company whose winding up was sought challenged the order in appeal. One of the grounds raised in the appeal was that the winding up petition was not properly presented by the petitioner. The petition was signed by the constituted attorney of the petitioning-creditor - one Mr Tijoriwala in whose favour the petitioner had executed a power of attorney. But the power of attorney was conferred only in respect of the five shares held by Ishwarbhai Somabhai Patel which were sold by Patel to Tijoriwala. Under the Rules of the Bombay High Court, it is only an agent who is the donee of a general power of attorney that can perform any acts or take any proceedings in Court on behalf of his principal. The Court came to the conclusion that the power of attorney executed by Patel in favour of Tijoriwala did not confer power upon the donee with regard to general litigation. Even after upholding the contention of the Company whose winding up was sought (i.e. the appellant before the Division Bench of the Bombay High Court), that the winding up petition was not properly signed by the petitioner, the Court went on to make the following observations :-

"16. Now, the question is, what is the legal consequence of a petition not being properly signed by the petitioner. In our opinion, this is a mere irregularity which can be cured at any time. That is the view also taken by Mr Justice Baker in the case to which reference has been made by us, and also in Lingangouda Marigouda Vs. Lingangouda Fakirgouda and Others, . We are told that the petitioner himself is present in Court and he is prepared to sign the petition if we direct him to do so. If the petitioner signs the petition, then the flaw which rendered the petition bad or made it not maintainable disappears. The only objection to the petition is that it is signed by an agent who is not a recognized agent. But if the petitioner himself signs it, then no further question arises with regard to the maintainability of the petition. We will therefore direct that the petitioner should sign the petition in Court.

Now that the petitioner has signed the petition, the appeal can proceed on merits. We adjourn it to the opening day of the next term."

18 "Equally clearly, prior permission of the Court appointing the Receiver is not a condition precedent to the enforcement of the cause of action. Nor it is so grave a vice that later leave sought and got before the decree has been passed will not purge it. If, before the suit terminates, the relevant Court is moved and permission to sue or to prosecute further is granted, the requirement of law is fulfilled. Of course, failure to secure such leave till the end of the lis may prove fatal.''

This, in short, is the law which has been stabilised by Indian decisions although inherited from principles of English law. In a sense Indian, English and even American jurisprudence lend support to this law."

"This infirmity does not bear upon the jurisdiction of the trying Court or the cases of action. It is peripheral."

In view of the aforesaid decisions of the Apex Court and of this Court, there is no manner of doubt that even if a specific resolution of the Board of Directors of the petitioning-credit Company was required for instituting the winding up petition against the appellant Company, subsequent resolution dated 12.10.2001 passed by the Board of Directors of the petitioning-creditor Company (the respondent herein) constitutes sufficient authority for the constituted attorney to proceed further with the winding up petition." (emphasis supplied)

Having regard to the said decision and the nature of defects alleged by the respondent company this court is of the view that the petition, in view of the foregoing discussion does not deserve to be rejected or dismissed. The petitioner has made out a case for admission of the petition and the court, as observed above, is satisfied that the defence taken by the respondent lacks bona fides and it has neglected to discharge its financial obligation.

Therefore, the court is inclined to accept and admit this petition. However it appear appropriate, in the facts of the case, to grant opportunity to the petitioner to cure the defects. Therefore this court is inclined to pass following order.

The petition is accepted and admitted.

The petitioner is allowed time till 20.4.2012 to place on record resolution of the petitioner bank to file the petition and authorizing Mr. S.D. Sahare, Chief Manager to file the petition. The respondent is also granted time until 27.4.2012 to deposit the claim amount so as to establish its bona fide and ability and willingness to pay and discharges its financial obligation and pay the debt.

For the aforesaid purposes the determination of the date of final hearing of the petition and direction to advertise the admission of the petition and date of hearing is differed.

The petition, for the said purpose and further direction shall be listed on a date after four weeks i.e. in the week beginning from 30.04.2012.a