Case Law Details
HIGH COURT OF CALCUTTA
Vikash Metal and Power Ltd.
versus
Corporation Bank
A.P.O. NOS. 373 & 374 OF 2012
C.P. NOS. 164 & 165 OF 2012
OCTOBER 16, 2012
JUDGMENT
Ashim Kumar Banerjee, J.
The appeals would relate to claim in a winding up proceeding made by Corporation Bank for Rs.10.8 crores for Sahyogi Distributorship Ltd. and Rs.8 crores against Vikas Metal and Power Ltd. amounting to Rs.18.8 crores. The learned Single Judge admitted the winding up petitions and directed advertisement to be published.
2. Being aggrieved, both the companies being Vikas and Sahyogi filed two separate appeals. The appellants failed to obtain any order of stay, resulting advertisement published in the newspaper. It is yet to be disposed of finally. The appeals were heard by us on the above-mentioned dates.
3. If we bring the facts in a short campus, it would be as follows:
Facts would depict, the parties entered into a financial arrangement by which the appellants being constituent of the respondent Bank used to enjoy credit facilities against the cheques being deposited in the Bank without waiting for their clearance. As per the arrangement the moment cheques were deposited, Bank would be allowing them to enjoy the amount covered by the cheques and would credit the account by adjustment as soon as the Bank would realize the amount from the drawee. According to the agreement, in case of dishonour of any cheque, the amount would be deposited by the constituent immediately on the next day. The subject matter involved herein would show, both the companies under the same management deposited several cheques worth Rs. 8 crores in Vikash Metal and Power Limited and Rs.10.8 crores in Sahyogi Distributors Limited. Needless to say, all the cheques were dishonoured. By the time the cheques were placed and got dishonoured the constituent availed the amount covered by the said cheques. In this backdrop, the Bank issued a demand notice under Section 434 of the Companies Act, 1956 upon both the companies followed by winding-up proceeding that were admitted by the learned single Judge. Hence, these appeals by the appellant.
4. Mr. Kalyan Bandopadhyay, learned senior counsel appearing for the appellants attacked the judgment and order impugned raising the following issues :
(i) The agreement appearing at page-88 did not mention anywhere that the outstanding sum would have to be cleared immediately on the asking of the Bank.
(ii) The sanction letter appearing at page-89 would provide for interest at the base rate plus 4.25% per annum that would clearly show, the Bank would be entitled to interest on expiry of one year period. Hence, the money would not become immediately payable.
(iii) The company already offered collateral security to secure the claim. Hence, the Bank should fall back upon the security instead of pressing the claim through winding up petition.
(iv) To make a winding up petition admissible, the creditor must have a quantified realizable debt against the company. Such prerequisite was absent in the present case.
5. Elaborating his argument, Mr. Bandopadhyay referred to Sections 433 and 434 of the Companies Act of 1956 as well as the relevant provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred as ‘SARFAESI Act’). According to him, any creditor having a claim against the company would be entitled to approach the learned Company Judge for its winding up whereas the SARFAESI Act would have a specialized procedure available only to the financial institutions for realization of their debt. SARFAESI Act being the special statute would prevail upon the Companies Act, 1956 that being a general statute. He also referred to various provisions of the SARFAESI Act to show, it was a complete code by itself. He also referred to Section 35 of the Negotiable Instrument Act, 1935 wherein an endorsee of a cheque was made liable for dishonour of cheque by the drawee. According to Mr. Bandopadhyay, although the principal amount was not in dispute payability was very much in dispute that would make the winding up petition not maintainable. He referred to the following decisions to support his contention:
1. United Bank of India v. Satyawati Tondon [2010] 8 SCC 110.
2. IBA Health (India) (P.) Ltd. v. Info-Drive Systems SDN. BHD. [2010] 104 SCL 367
3. Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp. Cas. 456 (SC).
4. Mediqup Systems (P.) Ltd. v. Proxima Medical Systems GmhB [2005] 59 SCL 255 (SC).
5. Uniplas India Ltd. v. State (Govt. of NCT of Delhi) [2002] 35 SCL 609 (SC).
6. Suresh Nanda v. C.B.I. AIR 2008 SC 898.
6. He lastly referred to civil suit filed by the companies in this Court being C.S. No. 57 of 2012 wherein the companies were successful in getting an interim order as against the Bank appearing at page-97A of the paper book. The said order was time to time continued.
7. Per contra, Mr. Joy Saha, learned counsel for the Bank took us to the correspondence exchanged between the parties. Page-107 would show, the appellants themselves wanted to buy time by giving proposal to clear off the dues in phases. He would refer to page 109-110 wherein the appellants unequivocally admitted their debt and assured re-payment. Mr. Saha further contended, the LIC policies offered through the letter appearing at page-112 would hardly cover Rs.20-22 lacs against the principal claim of Rs.18.8 crores. Mr. Saha further contended, the intention to create mortgage in respect of an immovable property at Howrah never materialized as the appellants never created any mortgage in favour of the Bank.
8. Resuming his argument on the next day, Mr. Saha contended, through inadvertence in the notice of demand, it was stated, the Bank purchased the cheque that was a bona fide mistake and in any event did not have any factual support. He further contended, the notice of demand was duly raised, indicating the fixed amount that was lent an advanced by the Bank through the mechanism of instant clearing. The company was supposed to meet such demand. Having failed to do so, the winding up petition was maintainable.
9. To counter-act the argument advanced by Mr. Bandopadhyay on SARFAESI Act, Mr. Saha would contend, the said Act was a special Act suggesting a complete mode for realization of secured debt. The present claim of the Bank was an unsecured claim. The LIC Policies so submitted by the appellants would hardly cover Rs.20-22 lacs. Hence, the Bank could not be said to be a secured creditor within the meaning of the SARFAESI Act, 2002. In any event, Section 37 of the said Act of 2002 would specifically suggest, the provisions of the said Act of 2002 or the rules made thereunder would be in addition to and not in derogation of the Companies Act, 1956 or any other law for the time being in force. According to Mr. Saha, the object of the Companies Act and the SARFAESI Act would operate on a different premise and would have no conflict with each other. Hence, question of special law being prevalent over a general law as suggested by Mr. Bandopadhyay, would have no basis. He distinguished the cases cited by Mr. Bandopadhyay to say, the decisions cited at the Bar on the winding up proceeding would predominantly suggest, in case company could raise bona fide dispute to the claim of the creditor, winding up petition would automatically fail. According to Mr. Saha, such settled proposition of law would still exist. However, the ratio would not render any assistance to the appellants in absence of any dispute being raised bona fide by the appellants’ company to the just claim of the respondent. He cited two decisions in the case of Techno Metal India (P.) Ltd. v. Prem Nath Anand [1973] 43 Comp. Cas. 556 (Cal.) and in the case of Bharat Overseas Bank Ltd. v. Shree Arcee Steels (P.) Ltd. [1985] 58 Comp. Cas. 174 (Bom.) to contend, even a secured creditor could file winding up petition without giving up its security. Mr. Saha relied on a decision in the case of Pandam Tea Co. Ltd. v. Darjeeling Commercial Co. Ltd. [1977] 47 Comp. Cas. 15 (Cal.) to contend, it was the content and not the form of the notice that would make the winding up proceeding maintainable.
10. Replying to the submissions made by Mr. Saha, Mr. Bandopadhyay drew our attention to the definition of “debt” as defined in Section 2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein any money payable to the Bank would be termed as “debt” within the meaning of the said Act of 1993. Hence, it would come under the mischief of SARFAESI Act particularly Section 2(ha) and Section 13(2) thereof. Mr. Bandopadhyay contended, the conduct of the parties would depict, the Bank was interested in collecting the security to the claim to protect its interest not otherwise. Hence, the winding up proceeding was nothing but a malicious attempt to put undue pressure upon the company to accede to the unreasonable and sudden demand of the Bank that would itself make the winding up proceeding not maintainable. The Bank already proceeded under the Negotiable Instrument Act on the self-same cause of action. They were not entitled to proceed with winding up proceeding. He lastly contended, the learned Judge did not adjudicate the actual amount payable by the company. The order of admission was vague as it would direct payment of interest at a certain rate without a fixed amount being calculated on that count. Unless quantum was not adjudicated, there could not be any order of admission. Mr. Bandopadhyay referred to the judgment and order impugned to say, His Lordship did not decide to the Company’s solvency. There was no finding that the company was insolvent. The process was only to recover the dues. The learned Judge directed, payment to be made that would be contrary to the provisions relevant to winding up of a company.
11. We have considered the rival contentions.
12. The decision in the case of Suresh Nanda (supra) was relied upon wherein the Apex Court held that the Passport Act being a special Act would prevail over the Section 104 of the Criminal Procedure Code being a general Act. The decision in the case of United Bank of India (supra) was cited to support the contention that SARFAESI Act would prevail over the general law. In the said case, the High Court interfered with the proceeding initiated under the SARFAESI Act under Article 226 of the Constitution of India that was deprecated by the Apex Court.
13. Mr. Bandopadhyay cited rest four decisions on winding up. If we chronologically deal with the said decisions we would find that in Amalgamated Commercial Traders (P.) Ltd. (supra), the Apex Court deprecated the tendency of filing winding up petition as a pressure tactics to release debt that was bona fide disputed by the company. In the case of Uniplas India Ltd. (supra), the notice was given under Section 138 of the Negotiable Instrument Act that was not pursued. Subsequent proceeding for winding up was deprecated. The Apex Court observed, “if dishonour of a cheque has once snowballed into cause of action it is not permissible for payee to create any cause of action with the same cheque”. In the case of Mediqup Systems (P) Ltd. (supra) the Apex Court once again dealt with winding up proceeding on a debt that was bona fide disputed by the company. Similar was the case before the Apex Court in IBA Health (India) (P.) Ltd. (supra). Our former Chief Justice once again cautioned about malicious winding up proceeding that was based on a bona fide disputed debt. All the four decisions would consistently hold, a claim, if bona fide disputed by the company, would automatically resist a winding up proceeding. Hence, to admit a winding petition, the Court has come to a conclusion that the claim was quantified and the company failed to dispute the same. Once the test is positive, the order of admission would follow as a consequence.
14. Thus at the end of the day the law as we understand is, a creditor can maintain a winding up petition if he complies with the provisions of Sections 433, 434 and 439 of the said Act of 1956. In the present case, the respondent-Bank was admittedly a creditor of the company. The company did not dispute such relationship. The company did not dispute receipt of the notice, hence, the winding up petition was maintainable. We are unable to agree with Mr. Bandopadhyay when he says, Bank as a creditor was not entitled to maintain a winding up petition in view of SARFAESI Act and the Debt Recovery Act coming into force. Section 37 of the SARFAESI Act would make it clear as discussed hereinabove. Moreover, from the facts so discussed above, we are unable to hold, the Bank was a secured creditor. In any event, a secured creditor can also apply for winding up. His second contention is also not maintainable when he says, winding up petition was not maintainable in view of other proceedings being had. The proceeding under Section 138 of the Negotiable Instrument Act is a quasi-criminal action that a drawee of a cheque is entitled to initiate against the drawer that would have penal consequence. The winding up proceeding is not for recovery of debt. We fully agree with Mr. Bandopadhyay on that score. A creditor, if could prove a just claim before the learned Company Judge, would make his winding up petition maintainable. His status as a just creditor was relevant to maintain a winding up proceeding. It would have no further consequence as the winding up Court could not be used as a process of debt collection. If a creditor makes a claim and informs the company that he would apply for winding up in case such demand is not made, the company would have two options, either to secure or compound or defend such action by disputing the claim bona fide. Once the company is successful on either score, the winding up petition would automatically fall. Otherwise, the Court would proceed to wind up the corporate entity and in such case there would be no occasion for the petitioner to realize his debt. He would at best be ranked as a creditor and would have to wait for his turn to have his dividend in case declared by the Official Liquidator after disposal of the assets of the company in liquidation under Section 529, 529A and 530 of the said Act of 1956.
15. If this is the scheme of the Act, would it be right for the learned Company Judge to direct payment. Mr. Bandopadhyay made serious grievance on that score. His grievance is, however, mis-placed if we look to Section 443 of the said Act of 1956. Section 443 gives ample power to the Court to pass any order that would be beneficial for the company and its existence. It would provide, on hearing a winding up petition, the Court may a) dismiss it with or without cost or (b) adjourn the hearing conditionally or unconditionally or (c) make any interim order that it thinks fit or (d) make an order for winding up the company with or without cost or any other order that it thinks fit.
The combined effect of these four options would give wide power to the Company Court to pass any order that would be beneficial to the company as also the creditor. Section 443 would arm the learned Company Judge to postpone the process of winding up by testing the substratum of the Company and its sincere intention to clear off its just debt. Hence, the learned Judge did not commit any illegality in directing payment. If we give a close look to the order particularly the operative portion, we would find, the learned Judge admitted the winding up petition for the exact amount that was found to be due and payable by the company to the creditor and asked the company to make payment of the said sum together with interest at that rate of 10% per annum on and from a date that would commensurate with the date of dishonour of relevant cheques along with costs as a condition precedent to stall the advertisement process that would make the winding up petition a representative one. In case the company would pay the amount they would be entitled to resist the process otherwise the process would continue which might culminate in a final order of winding up.
16. If we give a close look to Section 434 a creditor having a claim more than a minimum amount prescribed therein would be entitled to maintain his petition. The test is whether the company would be able to resist the same by disputing the claim bona fide.
17. Coming to the factual matrix, we would find umpteen number of letters written by the company admitting their liability that would foreclose the scope of the company to dispute the claim. If we refer to page-107 onwards we would find, the company from time to time suggested repayment proposals. The correspondence predominantly suggests, the claim was never disputed. Some of the contents being apt are quoted below :
(i) Letter dated December 27, 2011 :
“As discussed we confirm that by 6th of the next month i.e. 6th January, 2012. We will submit you the repayment programme after discussing the same with our debtors. We will provide you with security for the outstanding amount till its liquidation”.
(ii) Letter dated January 9, 2012 :
“while we appreciate and very much acknowledge we have a liability to you arose out of the cheque returned but hope you will appreciate in turn the present difficult situation we are passing…..”
“…………..providing you the repayment programme of our accepted liability”.
(iii) Letter dated January 10, 2012:
I do hereby furnish security against your due of Rs.18.80 crores……”.
(iv) Letter dated March 24, 2012 :
“The liability with you is admitted and to be paid with applicability rate of interest”.
18. The extracts as above, would predominently suggest, the company did not have any defence to the just claim of the respondent-Bank. Mr. Bandopadhyay feebly tried to contend, the clause for interest payable at the base rate plus 4.25% per annum would infer payment of interest at the end of the year that would make the claim payable after expiry of one year period. Despite our best efforts, we could not appreciate such submission. Such interpretation is absurd. The provisions for payment additional interest of 4.25% per annum were nothing but a prescribed rate that would be applicable in case of staggered and/or delayed payment. We fail to appreciate, how it could suggest that the claim would never be in force before expiry of one year. We reject such contention.
19. Lot was said on security. Mr. Saha, in course of his submission, informed us, the proposal to create equitable mortgage of immovable property did not materialise as the promoters did not execute any mortgage in favour of the Bank.
20. Mr. Saha relied on a statement showing the LIC Policies that were sought to be submitted as collateral security appearing at page-120 that would hardly recover Rs.20-22 lacs whereas the principal claim on account of dishonoured cheques would be Rs.18.8 crores. We are unable to accept the contention of the appellant. Bank was a secured creditor. Even if the provisions of Debt Recovery Act or SARFAESI Act would empower the Bank to recover their dues through special mode prescribed therein that would not operate as a bar to apply for winding up. The provisions of Section 37 of the SARFAESI Act would make it clear.
21. We do not find any scope of interference.
22. The appeals thus fail and are hereby dismissed. There will be no order as to costs.
23. We are told, the Bank already advertised the notice in newspaper and the winding up petition has already taken its representative character. Dismissal of these appeals would not preclude the company to make any proposal for the payment before the learned Company Judge and in case such proposal is made the learned Company Judge would be at liberty to deal with the same.
Shukla Kabir Sinha, J:
I agree.
