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Tata Capital Financial Services Ltd. v/s Sea Rock Investments Limited & Others

    Company Petition No. 211 of 2009 c/w Company Petition No. 212 of 2009 c/w Company Petition No. 159/2009

    Decided On, 01 September 2014

    At, High Court of Karnataka

    By, THE HONOURABLE MR. JUSTICE A.S. BOPANNA

    For the Petitioner: Uday Holla, Sr. Counsel For C.K. Nandakumar For M/S. Mgc & Co., Advocates. For the Respondent: G. Krishna Murthy, Sr. Counsel for R. Puroshotham For M/S.G.K.M. Associates, Advocates.



Judgment Text

(Prayer: This Petition Filed Under Section 433(E) And (F) R/W Section 434 Of The Companies Act, 1956, Praying To Wind Up The Respondent, Namely Sea Rock Investment Limited, Having Its Registered Office At Syndicate House, Manipal, Udupi- 576104, Under The Directions Of This Court, Under The Provisions Of The Companies Act, 1956 And Etc.,)

1. TATA Capital Financial Services Limited is the petitioner in all these petitions. The three different petitions are filed against the three different respondent companies. Since the petitioner contends that the respondents in all these petitions have guaranteed the repayment of loan obtained by M/s. Manipal Motors Private Limited (hereinafter referred as 'Borrower' for short ) from the petitioner, the contentions being common to all these petitions, they were heard together at the stage of admission and is being considered by this common order.

2. For the sake of convenience, Co.P. No. 159/2009 is taken as the lead case for noticing the rival contentions. The case of the 5petitioner is that the Borrower obtained revolving finance facility from the petitioner. Sri. Balakrishna Rao, the director of the Borrower company stood as personal guarantor while the respondents herein namely CCI Ltd., Chitrakala Investment, Trade and Business Finance Ltd., and Sea Rock Ltd. offered corporate guarantee (hereinafter referred jointly as 'Corporate Guarantors'). The channel finance agreement is said to be dated 12.09.2007 and a power of attorney dated 12.09.2007 to sell, assign and transfer the goods specified was also executed. The deed of guarantees are stated to be dated 03.11.2008 and 20.10.2008. The limit of revolving loan facility which was initially to the extent of Rs.2,50,00,000/- was enhanced to Rs.9,00,00,000/- and as such another agreement dated 17.07.2008 was executed. In addition to the Corporate guarantee dated 03.11.2008, a deed of pledge of even date and power of attorney was executed. The additional documents executed pursuant to sanctioned letter dated 14.10.2008 is also referred. Thereafter by sanction letter dated 01.08.2008, granted a channel finance facility of Rs.15,00,00,000/- to enable the Borrower company to purchase vehicles. Hence another channel finance facility agreement dated 01.08.2008 was executed.

3. It is contended that the petitioner released the amount to the supplier of goods, but the Borrower company committed defaults in repayment of amounts with interest. The Borrower company by their correspondence dated 05.11.2008, 18.11.2008, 19.11.2008, 06.01.2009 and 08.01.2009 are stated to have admitted the liability but the payments were not made. The details of the cheques issued by the Borrower company and the same being dishonored for want of funds is stated in the petition. The petitioner therefore addressed a letter through their Advocate dated 26.02.2009 to the Borrower company, Sri. Balakrishna Rao and the respondents herein who are stated to be the corporate guarantors to pay the outstanding amount of Rs.5,59,17,189/- which was due as on that day with interest at 12.5% p.a. The petitioner in order to protect its other right also filed Arbitration Petition (L) No.310/2009 in the High Court of Mumbai under Sec.9 of the Arbitration and Conciliation Act for appointment of Court Receiver. The Borrower company thereafter sought to have requested for rescheduling the repayment by its letter dated 31.03.2009. Thereafter the minutes of understanding is stated to have been drawn and was filed in the proceedings wherein it was agreed by the Borrower company, Sri. Rao and the respondents not to create charge. It was also agreed that the value of the property after sale is to be deposited with the petitioner to be kept in the escrow account. In the said process a sum of Rs.34,35,234/- was recovered. Further the pledged shares were sold on 29.04.2009 and another sum of Rs.97,28,782/- was recovered after informing the respondents by the letter dated 07.05.2009. The further steps taken has not yielded results.

4. It is further contended that in that view, as on 20.07.2009 the amount due and payable by the Borrower company was the sum of Rs.4,30,41,501/- along with interest. The petitioner accordingly is stated to have got issued the legal notice dated 10.08.2009 and 18.08.2009 to the respective respondents as per the statutory compliance under the Companies Act. No response was received to the notice. It is averred that the respondents are unable to pay their debts and being the Corporate guarantors, they are liable to be wound up. Hence these petitions are filed.

5. The respondents have filed their objection statement. The case of the petitioner that the respondents are the Corporate guarantors is denied. It is contended that Sri. Ramachandra Rao who is stated to have executed the guarantee dated 03.11.2008 had no authority to execute documents on behalf of the respondent companies. That Sri.Balakrishna Rao, who is stated to have executed the personal guarantee and Sri. Ramachandra Rao are brothers and are also the Directors of M/s.Manipal Motors Pvt. Ltd. It is contended that Sri. Balakrishna Rao is not concerned with the respondent companies in all these cases. His brother Sri. Ramachandra Rao was the Director of the respondent companies and was the Chief Executive Officer ('CEO' for short ) in the respondent companies. Hence in collusion with his brother has fabricated the resolution and furnished the alleged guarantee. It is contended that the Board of Directors of the respondent has not authorized Sri. Ramachandra Rao to execute the guarantee. He has misused the position and is not binding on the respondent companies. Hence the claim made in the petition is not sustainable.

6. It is their further contention that the said M/s. Manipal Motors Pvt Ltd., to whom the financial facility was allegedly extended is not made a party to the petition. The claim cannot be made against the guarantor without initiating the proceedings against the borrower is the contention. Without the adjudication of the debt against the borrower there is no ascertained debt. The petitioner can initiate proceedings only against Sri. Balakrishna Rao and the Borrower, not against the respondents herein is the contention. The entire case of the respondents is that the assurance if any given by the said Sri. Ramachandra Rao, the same is without authority and would not bind the respondents. It is contended that on these aspects it is already being contended before the High Court of Mumbai and in arbitration proceedings. With regard to the sale of shares and appropriation of the amount to the account of the borrower is also contended to be illegal. Since there is dispute with regard to the validity of the documents relied upon, this Court cannot consider the same in a company petition as the arbitration proceedings are pending in that regard. The alleged debt is not ascertained debt and the necessary parties are also not impleaded and as such the petition is not maintainable. It is stated that the notice was received on 12.11.2009, by which time the instant petition was already filed and also the stand of the respondents was already disclosed in the Arbitration case and as such non issue of reply to the notice is not material. The further case of the respondents is that they are profit making companies and Sri. Ramachandra Rao who was the CEO had been removed during July 2009 and in such event fabricated documents cannot be relied on to wind up a going concern. In fact the respondents on coming to know of the misdeeds have already initiated criminal proceedings before the CJM, Udupi.

7. The petitioner has filed the rejoinder. Apart from reiterating the contentions in the petition, the contention put forth on behalf of the respondents about Sri. Ramachandra Rao having no authority to execute the documents is denied and it is contended the Board of Directors on 28.04.2008 had authorized. It is contended the respondents being the sister concerns of the Borrower Company has taken a false and specious plea at this stage. When the shares of Videocon Industries Ltd., standing in the name of the respondents was in the possession of the petitioner, it could not have come to their possession without pledge being made and therefore the documents executed guaranteeing the repayment cannot be disputed at this stage, that too when the shares have been sold and the proceeds have been adjusted toward part of the amount due. The debt in any event has not been disputed by the Borrower company. The profits of all the companies including the Borrower and the Guarantors would not be sufficient to pay the amount and as such they are liable to be wound up.

8. The respondents have filed the additional objection statement in reply to the rejoinder. It is contended that the petitioner company having resorted to the arbitration proceedings they have to secure the adjudication therein. The validity of the alleged Corporate guarantee should also be adjudicated in the arbitration proceedings since there is a serious dispute in that regard. It is sought to be explained that since Sri. Ramachandra Rao has colluded with the petitioner to fabricate the documents to create the liability of the respondent companies, he is likely to have handed over the shares. The non reply of the notice is also sought to be explained. Details of the criminal proceedings initiated against Sri. Ramachandra Rao and Sri.Balakrishna Rao is also referred and it is stated that Sri. Ramachandra Rao has withdrawn the amount payable from the Employees Provident Fund since he has resigned from the service on 31.10.2008 which will establish that he was not in service. The petitioner has filed the additional rejoinder wherein a reference is also made to a suit in O.S.No.2963/2011 said to have been filed by the respondent for declaration and injunction.

9. In the light of the rival pleadings I have heard Sri. Udaya Holla, learned Senior Counsel on behalf of Sri. C.K.Nandakumar, learned Counsel for petitioner and Sri. G. Krishnamurthy, learned Senior Counsel on behalf of Sri.Purushotham, learned Counsel for the respondents at the stage of admission and perused the petition papers.

10. At the outset, it would be appropriate to notice the decisions relied upon by the learned Senior Counsel for the parties. On behalf of the petitioner, the following decisions are relied:

(i) The case of L&T Finance Ltd. -vs-

International Hometex Ltd. (2010(1) BomCR 196) wherein it is held that a statutory fiction is created when a notice under Sec.434 of Companies Act and the company fails to pay the amount. Hence even if a arbitration proceeding has been initiated for recovery of the amount, the same will not foreclose institution of winding up petition. On facts therein it was noticed that apart from there being no reply to the statutory notice, the respondent company therein, in their reply statement in the proceeding under Sec.9 of Arbitration Act had admitted that they could not make payment due to temporary liquidity problems faced by them.

(ii) The case of Hegde & Golay Ltd. -vs- State Bank of India (ILR 1987 Karn. 2673 (DB) wherein it is held that the pendency of a suit is no bar to the maintainability of a winding up petition. If the company fails to show that the debt is bonafide disputed it would not render the claim to be disputed merely because the Creditor is driven to file suits for its recovery. Hence it was held that the incidents of Order II Rule 2 are not attracted.

11. The learned Senior Counsel for the respondent, on this aspect has relied on the following decisions:

(i) The case of Divya Export Enterprises -vs- Producin Private Ltd. (ILR 1990 Karn.1610) wherein it is held that Sec. 433(e) of the Companies Act vests a discretion in the Court which has to be exercised in the manner any other judicial discretion is to be exercised. If the respondent company pleads a defense in good faith and puts forth a substantial case against the petitioner's claim the petition for winding up will be rejected. A mere assertion of debt payable by the respondent company is not sufficient to attract the discretion in favour of the petitioner. The guidance to find out whether the defense is bonafide and one of substance, reference to the principles enunciated under Order 37 Rule 3 CPC is to be kept in view. A plea which is frivolous, mere moonshine and which on the face of it is false, cannot be accepted.

(ii) The case of Hariom Firestock Ltd. -vs- M/s. Sunjal Engineering Pvt. Ltd. ( KCCR 1999(1) 731 ) wherein it is held, the test that is required to be applied for purposes of ascertaining whether the debt is in existence at a particular point of time is the simple question as to whether it would have been permissible to institute a normal recovery proceeding before the Civil Court in respect of the debt at that point of time. When the suit is already filed within time, it does not give the party a legal right to institute any other proceedings on that basis.

(iii) The case of Euro Containers -vs- Morepen Laboratories Ltd. (2007(138) Comp. Cases 422 (HP)(DB), wherein it is held, when the liability is disputed and based on that when a suit is filed for recovery and when the same is pending adjudication, a winding up application would not lie. If the liability is not disputed it would lie.

(iv) The case of Mediqup Systems Pvt. Ltd. -vs- Proxima Medical System G.M.B.H (AIR 2005 SC 4175 ) is relied to the extent wherein it is held that the debt under Sec. 433 of the Companies Act must be a determined or a definite sum of money payable immediately or at a future date.

(v) The case of SCIAL-CWT Distriparks Ltd. -vs- Besser Concrete System Ltd. (2003 Comp. Cases Vol.113 383- Mad.) wherein it is held that since the respondent company was questioning the agreement and its genuineness and raised bonafide grounds leading to suspicious circumstance surrounding the execution of the agreement, it was not open to the petitioner to claim on the basis of the authority of the company. The question whether the agreement was valid or not would depend upon facts. If the respondent was the guarantor, on the failure of the principal debtor to repay, the guarantor would be liable to repay, but when the very existence of the guarantee agreement was disputed, the petitioner should establish the agreement in question in a civil Court as a genuine one. If the substantial defense is established, the fact that it was raised for the first time in the preliminary counter affidavit will not make any difference. The winding up proceedings would not be proper remedy to resolve the dispute.

(vi) The case of IBA Health(India) Private Ltd. - vs- Info-Drive Systems Sdn.Bhd. (2010(10) SCC 553) wherein it is held that if the creditors' debt is bonafide disputed on substantial grounds, the Court should dismiss the winding up petition and leave the creditor to establish his claim in an action, lest there is danger of abuse of winding up procedure. A dispute would be substantial and genuine if it is bonafide and not spurious, speculative, illusory or misconceived. The company Court at the stage of winding up petition is not expected to hold a full trial of the matter. It must decide whether grounds appear to be substantial. The grounds of dispute 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.

12. The decisions noticed above clearly sums up the position that what is of utmost importance is to take note of the nature of the claim and the defense set up to repudiate the claim. Keeping in view the scope of the winding up proceedings it would not be appropriate to hold trial and adjudicate that dispute. All that is necessary to be noticed is as to whether a substantial issue has been raised which would require adjudication and not a frivolous defense raised only to defeat the winding up petition. Though the suit instituted prior is not an absolute bar for entertaining the winding up petition in cases where the liability is not disputed, in cases where the liability is disputed and a substantial defense is raised, the adjudication in the suit is the appropriate course to be adopted.

13. In the light of the above, the facts herein will disclose that the respondent Companies in these petitions are not the Borrower company in so far as the financial assistance provided by the petitioner. The petitioner contends that the respondents have offered corporate guarantee for repayment of the loan by the Borrower company. Though the respondents contend that the liability of the borrower itself has not been adjudicated as yet, the petitioner has contended that a winding up petition has already been instituted, the respondent therein i.e., the borrower has not chosen to defend the same. It has been admitted and is pending before this Court. It is contended, even otherwise the documents relied on indicates that the Borrower company has not disputed the liability. Be that as it may, the legal position that the creditor can choose to proceed against the guarantor on establishing the debt cannot be in doubt. Therefore, the question herein is as to whether the defense raised by the respondent to the effect that the corporate guarantee claimed not being genuine is substantial which would require adjudication in an appropriate proceedings. To consider this aspect, the reference in that regard is made to the material relied on in the lead case as the consideration is similar in the other cases.

14. To the extent of the transaction of the Borrower the document dated 03.11.2008 (Annexure-B) is relied. To contend that the respondent companies have offered themselves as the guarantors, the guarantee agreement dated 20.10.2008 and the memorandum for mortgage by deposit of title deeds dated 04.11.2008 (Annexure-C) are relied. The said documents relied on by the petitioner indicates that on behalf of the respondents it is shown to be executed by their authorized signatory Sri. Ramachandra Rao. Apart from contending with regard to the contents of the dates and the stamp paper having been purchased at Mandya, where the parties have no business nor residents, the basic contention urged to dispute the liability under the agreement is that Sri. Ramachandra Rao had no authority to represent the respondent companies and execute the document even if it is executed by him. The deed of pledge dated 03.11.2008 is also disputed for the same reason. In the objection statement herein it is contended that Sri. Ramachandra Rao was the CEO of the respondent company till he was removed in July 2009 because of illegal activities and unauthorized dealings, fabrication of documents and misuse of funds. It is further contended that he has colluded with his brother Sri. Balakrishna Rao and created the corporate guarantee without the authority of the company. It is also the case that the resolutions of the company relied on to contend about the Board authorizing have been fabricated. In that regard criminal proceedings have been initiated. The copy of the criminal complaint in P.C.No.1/2010 in the Court of the Chief Judicial Magistrate & Civil Judge (Sr.Dvn.) Udupi is produced as Annexure-R6 to the additional objection statement. A perusal of the same will disclose that such allegation has been made against Sri. Ramachandra Rao. The document at Annexure-R7 discloses that the learned Magistrate has referred the complaint to the Police under Sec.156(3) of Cr.P.C for investigation, pursuant to which the F.I.R has been registered as at Annexure-R8. The documents at Annexure-R9 to 11 are relied upon to establish that the said Sri. Ramachandra Rao had left the service of the respondent company on 30.12.2008 and had in that regard submitted the relevant documents to withdraw the accumulated provident fund amount.

15. The learned senior counsel for the petitioner would however contend that the defense presently put forth by the respondent cannot be accepted. It is contended that the respondent did not choose to reply to the legal notice that had been issued by raising such issues and as such the liability to pay the debt cannot be disputed at this stage. On that aspect, a perusal of the papers would no doubt reveal that the respondent company has not relied on any document to show that the claim made in the legal notice was disputed by issuing a reply. The issue however is, whether in the absence of the reply, the other documents on record would be sufficient to come to a conclusion that the contention presently urged in the objection statement herein is only a belated moonshine defense so as to brush the same aside or as to whether it is substantial, requiring consideration in any other proceeding?

16. In order to arrive at an appropriate conclusion, what is also to be kept in perspective is that undisputedly the parties are already before the learned Arbitrator in respect of the very same transaction. The legal position, no doubt is clear that if adequate material is available on record to indicate that the respondent company is unable to pay its debts, the winding petition will not be barred merely because of the pendency of any other proceeding. In the instant case, firstly it is a winding up petition filed against the guarantor company and not against the borrower company. Even though, in law the creditor would have the option of proceeding against the guarantor, the question raised herein is as to the very validity of the guarantee said to have been executed. In fact, that is also an issue raised in the Arbitration proceedings between the same parties, to which the borrower company is also a party.

17. The claim petition filed before Hon'ble Justice Dr.B.P.Saraf is at Annexure-R1 to the objection statement and the respondents herein are the respondents No.3 to 5 therein. The same was filed during July 2009. The common written statement filed by the respondents herein to the said claim petition is at Annexure-R2. In the said written statement the contention relating to the collusion in bringing about the documents of guarantee has been exhaustively urged. The written statement is dated 11.02.2010. It is true that these winding up petitions have been filed on 05.10.2009, which is marginally prior to the date on which the written statement was filed in the Arbitration case and a stand had been taken before the learned Arbitrator, but the notice of these petitions was served only during January 2010. The stand taken in the Arbitration case is very proximate to the date when the instant petition was filed and notice herein was served. Therefore it cannot be concluded that the contention put forth in the objection statement to these petitions has been urged for the first time and in such event the legal notice not being replied alone cannot be the basis to raise the presumption of inability to pay the debts in the instant facts. Hence, the decision relied upon by the learned senior counsel for

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the petitioner, in the case of Vijay Industries -vs- NATL Technologies Ltd. [(2009) 3 SCC 527] will not be of assistance to the instant facts. That apart, though after lapse of sometime, the respondents have initiated criminal complaint and the same has been referred for investigation, the fact which cannot be ignored is that the respondents herein have not barely raised the defense herein, but are pursuing their legal remedies before the appropriate forum. 18. The above noticed aspects will disclose that the defense has not been taken for the sake of defense in the objection statement so as to consider it as moonshine or frivolous defense though this Court at this stage cannot also accept the same to be correct, but there can be no denial of the fact that the issues raised are substantial and would go to the root of the matter in so far as invoking the corporate guarantee. The nature of contentions will indicate that this Court can neither accept nor reject it on the face of it. The resolution of such disputed questions will require adjudication based on evidence, but as held by the Hon'ble Supreme Court, this Court while acting as the Company Court is not expected to hold a full trial of the matter. 19. In the instant case, in any event the parties are already before the appropriate forum raising the same issues and the adjudication therein will settle these issues, which if held against the respondent company and at that stage if it is shown that they are unable to repay their debts, certainly the petition can be entertained at that stage, but as of now, the substantial issues raised will weigh in favour of the respondent to secure adjudication of the same in the forum where it is pending and that aspect cannot be decided at this stage based on the averments made in the petition and the objection statement. In that view, the decision relied on by the learned senior counsel for the petitioner in the case of Freeman & Lockyer (A Firm) -vs- Buckhurst Park Properties (Mangal) Ltd. And another (1964 (2) W.L.R. 618) will not be of assistance herein. 20. Hence, at this stage, I see no reason to admit these petitions. The parties would have the liberty of having the dispute relating to the validity of the execution of the guarantee, adjudicated in the pending Arbitration. Observation herein, if any, touching on that aspect shall not bind the parties in the said proceedings. 21. For all the above stated reasons, these petitions are dismissed with the liberty as stated above, but with no order as to costs.
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