HIGH COURT OF ANDHRA PRADESH
SBI Global Factors Ltd.
Suryachakra Power Corporation Ltd.
Co. Petition No. 154 of 2011
March 5, 2012
1. This petition, seeking winding up of the respondent-company, is filed under section 433(e) and (f) read with section 439 of the Companies Act, 1956 (for short “the Act”) and rule 95 of the Companies (Court) Rules, 1959.
2. The petitioner is a subsidiary of the State Bank of India (SBI) and is a company incorporated under the Act. On its amalgamation with the SBI Factors and Commercial Services P. Ltd., a fresh certificate of incorporation was issued by the Registrar of Companies on March 18, 2010, certifying that the name of the petitioner-company was changed to SBI Global Factors Ltd. The respondent is a company incorporated under the Act on February 8, 1995, with its registered office at Hyderabad. The authorised share capital of the respondent-company is Rs. 90 crores divided into nine crores equity shares of Rs. 10 each. The main objects of the respondent-company is to generate, harness, develop, accumulate, distribute and supply electricity by setting up thermal power plants by use of liquid, gaseous or solid fuels for the purpose of light, heat, power and for all other purposes for which electrical energy can be employed.
3. The petitioner accorded the respondent-company a Trade Finance Facility by its sanction letter dated December 21, 2006, for a maximum amount of Rs. 5 crores. The respondent-company accepted the terms and conditions thereof by a resolution of its board of directors dated December 23, 2006. Thereafter the respondent-company executed certain documents in favour of the petitioner for availing the said credit facility. At the respondent-company’s request, a revised sanction letter dated January 17, 2007, was issued. It was made clear therein that, except to the extent of the amendment, the original terms and conditions remained in force. Thereafter another sanction letter dated April 18, 2007, was issued amending the terms and conditions of the earlier sanction letter for Import Factoring Facility. The credit facility sanctioned to the respondent-company was realigned on June 28, 2007, as set out in the sanction letter dated June 28, 2007, which the respondent-company accepted by the resolution of its board of directors dated July 2, 2007. The credit facilities were modified and realigned thereafter also, and the modified terms and conditions were accepted by the respondent-company. At the request of the respondent-company, the facility was renewed by sanction letter dated November 26, 2010 and the limits were reduced to Rs. 25 crores. Despite reduction in the overall facility, the respondent-company did not make the payments due under the aforesaid facility. The cheques issued by the respondent-company, towards part payment of the dues, were also dishonoured on presentation, resulting in the petitioner filing a complaint under section 142 read with section 138 of the Negotiable Instruments Act, 1881 (“the NI Act”).
4. The petitioner would assert that the respondent-company had acknowledged the debt from time to time and the liability was subsisting as on date ; a statutory notice was issued on May 26, 2011, which was received by the respondent-company’s managing director on May 30, 2011 ; and the respondent-company had replied denying their obligation. According to the petitioner, a sum of Rs. 27,10,23,233.15 was due and payable by the respondent-company as on July 6, 2011, with further interest at 18 per cent. per annum till the date of full and final payment.
5. In its counter affidavit, the respondent-company would admit that the petitioner had sanctioned a loan of Rs. 5 crores under the factoring facility on December 21, 2006 and a further Rs. 20 crores under the silent factoring facility on September 11, 2009. They would state that they were utilising the limits since the sanction of the facility, and had been regular in payment of the principal and interest till last year. It is their case, that, due to non-finalisation of pending, issues with the Andaman and Nicobar administration, there had been a huge gap in cash flow amounting to Rs. 45 crores which had resulted in the facility turning irregular ; they had several meetings with the officials of the petitioner on the possible closure of the facility ; in the midst of such talks and negotiations, a notice under section 138 of the NI Act as well as a statutory notice under section 434 of the Act was issued though a compromise/settlement was being worked out ; post dated cheques were issued, for the availed facility of Rs. 5 crores, during 2010-11 for repayment of the loan to the petitioner ; in November, 2010, the petitioner had renewed the sanctioned facility for a further period of one year subject to reduction of a substantial part of the loan, in relation to the domestic factoring facility and reverse factoring facility, in different intervals, and to close the loan by the end of December, 2011 ; the respondent-company had brought to the notice of the petitioner that, with reference to renewal of the sanctioned facility, they had agreed to close the factoring facility limits of Rs. 25 crores vide letter dated December 8, 2010 ; unfortunately due to liquidity pressures, they were unable to pay the instalments of Rs. 5 crores each due at the end of January-March, 2011 ; they had paid Rs. 77,61,800 vide cheque dated May 3, 2011, as part of the commitment given to the petitioner ; in the meantime, the petitioner had, presented the post dated cheque on April 15, 2011, to the bank for payment ; the same was dishonoured due to insufficient funds ; even though talks were still going on, and the transactions were being carried out, the petitioner has chosen to serve a notice under section 138 of the NI Act which was an unnecessary and uncalled for strong arm tactics ; the statutory notice for winding up dated May 26, 2011, was not applicable to the respondent which had a fully secure and substantial asset base ; their solvency could not be doubted ; they had submitted a proposal for securitisation of the term loan, and regularisation of bank accounts on June 4, 2011, to S. B. I. Industrial Finance Branch, Kolkata ; under the said proposal, at item No. 4(d), they had proposed to liquidate the loans of the petitioner which was to a tune of Rs. 27 crores ; they had also informed that Rs. 50 crores was held up with the Andaman and Nicobar administration on account of withholding of dues and tariff revision linked to the project cost ; S. B. I., did not provide any financial help to them ; and, therefore, they had approached the Global Trade Finance Ltd., and had been provided with a loan for Rs. 25 crores ; they had never denied the liability due to the petitioner, and had made their best efforts to liquidate the liability ; their net worth was Rs. 242 crores as on June 30, 2011, which showed that the company was solvent, and was in a position to clear the liability ; they had brought to the notice of the petitioner that the project at Andaman and Nicobar would exceed Rs. 80 crores ; any amount received on these accounts would be released to the petitioner on priority basis for repayment of the outstanding amount of Rs. 27 crores ; the total amount of receivables greatly exceeded the amount to be paid to the petitioner ; and winding up of the respondent-company, at this stage, was wholly unnecessary.
6. In their additional counter-affidavit, the respondent-company admits that the petitioner had sanctioned a loan of Rs. 5 crores on December 21, 2006, under factoring facility, and Rs. 20 crores on September 11, 2009, under silent factoring facility. It is their case that these loan facilities cannot be treated as a debt as the concept of reverse and silent factoring is such, that all receivables are routed through the petitioner itself ; the petitioner is well aware of the net worth of the respondent-company ; the petitioner was also aware that, due to non-finalisation of pending issues with the Andaman and Nicobar administration, there was a huge gap in cash flow amounting to Rs. 45 crores which had resulted in the facility turning irregular ; and they had several meetings with the officials of the petitioner on the possible closure of the facility. They would reiterate that they had brought to the notice of the petitioner that the cost of the project at Andaman and Nicobar would exceed Rs. 80 crores ; if the said amount is released, it would be first utilised for repayment of the outstanding amount of Rs. 27 crores due to the petitioner and, despite these facts being brought to their notice, the petitioner has proceeded to file a petition for winding up. They would also contend that the amount liable to be paid is not a debt for the purpose of section 433 of the Act, and it is a loan acquired under reverse and silent factoring facility ; the respondent-company was running, and was fully operational and hence could not be brought either under the Sick Industrial Companies (Special Provisions) Act, 1985, or under sections 433, 434 and 439 of the Act.
7. It is evident from the statutory notice dated May 26, 2011, that a sum of Rs. 26,56,21,205.23 with further interest at 18 per cent. per annum was due and payable by the respondent-company to the petitioner in respect of the trade finance facility as on May 26, 2011 and the respondent-company was informed that, if the said sum with further interest was not paid within 21 days, the petitioner would exercise its discretion to file a winding up petition. The respondent-company was further informed that the notice be treated as a statutory notice under sections 433 and 434 of the Act. In reply thereto the petitioner was informed by the respondent-company, vide letter dated June 10, 2011, that they had been sanctioned a loan of Rs. 5 crores under the factoring facility on December 21, 2006 and Rs. 20 crores under the silent factoring facility on September 11, 2009 ; they had been utilising the limits ever since these facilities were sanctioned ; due to non-finalisation of pending issues with the Andaman and Nicobar administration there was a huge gap in cash flow of Rs. 45 crores which had resulted in the facility turning irregular ; due to liquidity pressures they were unable to pay the instalment of Rs. 5 crores each at the end of January-March, 2011 ; however they had paid Rs. 77,61,800 by cheque dated May 3, 2011, as part of their commitment ; the cost of the project at Andaman and Nicobar would exceed Rs. 80 crores ; any amount received on this account in the near future would be released to the petitioner for repayment of the outstanding dues of Rs. 27 crores ; the respondent was a running company with large number of talented employees joining periodically ; and they would not fall within the ambit of sections 433 and 434 of the Act.
8. The respondent does not dispute that they owe nearly Rs. 27 crores to the petitioner. They merely contend that more than Rs. 45 crores are the receivables from the Andaman and Nicobar administration where they are implementing a project whose cost exceeds Rs. 80 crores ; and, on receipt of money from the Andaman and Nicobar administration, the amounts so received would be paid to the petitioner. They would also assert that they are a running company with a positive net worth, and it cannot be deemed that they are unable to pay their debts. They would dispute that the amount payable to the petitioner is a “debt”, as all receivables due and payable to the respondent is to be routed through the petitioner itself.
9. Section 433(e) of the Act empowers the court to direct winding up of a company if it is unable to pay its debt. Section 434 of the Act creates a legal fiction and, if the conditions stipulated in clauses (a) to (c) of sub-section (1) thereunder are satisfied, the legal fiction under section 434 of the Act would require the company to be deemed to be unable to pay its debts. Under section 434(1)(a) of the Act if a creditor, to whom the company is indebted a sum exceeding Rs. 500 has served on the company, by causing it to be delivered at its registered office by registered post, a demand requiring the company to pay the sum due and the company has, for three weeks thereafter, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, then the company must be deemed to be unable to pay its debts.
10. The fact that a notice was issued to the respondent and delivered at its registered office by registered post demanding that a sum exceeding Rs. 26 crores be paid within three weeks, is not in dispute. It is also not in dispute that the amount due and payable to the petitioner exceeds Rs. 26 crores, and the respondent neither paid the said amount within three weeks of receipt of the statutory notice nor did it secure or compound the sum due to the satisfaction of the petitioner. The legal fiction under section 434(1)(a) of the Act operates, and the respondent-company must be deemed to be unable to pay its debts. The contention urged on behalf of the respondent-company, that what was payable by them to the petitioner is a loan and not a debt, is only noted to be rejected. The Chambers Dictionary defines “debt” to mean “an amount owed by one person to another ; a state of obligation or indebtedness”. A debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti solvendum in futuro (Webb v. Stenton  11 QBD 518 (CA) ; Kudremukh Iron Ore Co. Ltd. v. Kooky Roadways (P.) Ltd.  69 Comp Cas 178 (Kar.) and Banchharam Majumdar v. Adyanath Bhattacharjee  36 ILR Cal 936 [FB]). A liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency has happened. But if there is a debt, the fact that the amount is to be ascertained does not make it any less a debt if the liability is certain and what remains is only the quantification of the amount (Kesoram Industries & Cotton Mills Ltd. v. CWT  59 ITR 767 (SC) and Kudremukh Iron Ore Co. Ltd. v. Kooky Roadways (P.) Ltd.  69 Comp Cas 178 (Karn)). The meaning of the expression “debt” may take colour from the provisions of the concerned Act. It may have different shades of meaning. But the following definition is unanimously accepted (page 182 of 69 Comp Cas) : “. . . a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation”. The statutory definition of “debt”, contained in section 434(1)(a), is a definite sum, viz., exceeding Rs. 500 (Newfinds (India) v. Vorion Chemical and Distilleries Ltd.  46 Comp Cas 87 (Mad)). It is not in dispute that the amount claimed by the petitioner, in the statutory notice issued by them on May 26, 2011, is for a sum exceeding Rs. 26 crores. The respondent-company admits that they owe the said amount to the petitioner. Whatever be the nomenclature, whether it be a loan or a facility, once it is accepted that the amount is owed by the respondent-company to the petitioner, it would amount to a “debt”.
11. A company can be wound up on a petition of a creditor only if it is unable to pay its just debts. The inability is indicated by its neglect to pay after a proper demand and the lapse of three weeks. Such neglect must be judged by the facts of each case. Where the defence is that the debt is disputed all that the court has to see is whether the dispute, on the face of it, is genuine or merely a cloak for the company’s real inability to pay just debts (British India General Insurance Co. Ltd., In re  40 Comp Cas 554 (Bom)). It is not enough that the company has the ability to pay the debt. If the company chooses not to pay a particular debt, the court would have no choice but to pass an order of winding up (Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd.  42 Comp Cas 125 ;  2 SCR 201, Shantilal Khushaldas & Bros. (P.) Ltd., In re and Smt. Manulaben Bapalal Gosalia v. Shantilal Khushaldas & Bros. (P.) Ltd.  70 Comp Cas 195 (Bom)). If the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order (Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami  35 Comp Cas 456 (SC) ; Buckley on the Companies Acts, 13th edition, page 451).
12. In order to determine whether there is a bona fide dispute or not, regarding the debt due, it is necessary to find out whether the dispute raised by the company is a real and substantial one or it is a mere cover or it is an empty dispute with a view to cover up its real inability (B. Viswanathan v. Seshasayee Paper & Boards Ltd.  73 Comp Cas 136 (Mad)). Whether the disputes which are raised or sought to be raised are bona fide or not, and whether the same have been manufactured for the purpose of resisting a case for winding up of the company, will have to be considered and determined by the court on the basis of the facts of each particular case and on the basis of the material that may be available to the court at the time the court is called upon to decide the question (Ofu Lynx Ltd. v. Simon Carves India Ltd.  41 Comp Cas 174 (Cal) and B. Viswanathan (supra).
13. 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. 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 the 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 a winding up petition as a means of forcing the company to pay a bona fide disputed debt (IBA Health (I) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd.  8 taxmann.com/104 SCL 367 (SC)/159 Comp Cas 369/ 10 SCC 553). As the respondent-company did not pay the debt due within three weeks of receipt of the statutory notice, their failure to pay the said “debt” amounts to “neglect” to pay resulting in the legal fiction under section 434(1)(a) of the Act being attracted. Once the legal fiction, comes into operation, and there is no dispute much less a bona fide dispute regarding the debt due from the respondent-company to the petitioner, it matters little that the net worth of the respondent-company is positive. An examination of the company’s solvency may be a useful aid in determining whether the refusal to pay the debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. If there is no dispute as to the company’s liability, it is difficult to hold that the company should be able to pay its debts merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterised as a stand alone ground – IBA Health (I) (P.) Ltd. (supra). Once the legal fiction under section 434(1)(a) of the Act operates, and there is no bona fide dispute regarding the debt due, the necessary consequence is that the respondent-company must be deemed to be unable to pay its debt necessitating, ordinarily, the company petition filed for winding up, being admitted.
14. The company petition is admitted.
15. Let advertisement of admission of the company petition, as contemplated under rule 99 read with rule 24 of the Companies (Court) Rules, 1959, be made in Form 48, in Andhra Bhoomi (Telugu daily newspaper) and Deccan Chronicle (English daily newspaper) Hyderabad editions within 21 days from today.
16. For filing proof of publication, list after four weeks.