Judgment:
Kochar, J.
1. The petitioners have prayed for an order of winding up of the respondent-company under Sections 433 and 434 of the Companies Act, 1956 ('the Act'), alleging failure and inability on the part of the company to pay the debts due to the petitioners being the redemption amount of the debentures held by the petitioners. The petitioners were holding two series of debentures of the respondent-company, one being 1,98,687--19.5 per cent debentures of the face value of Rs. 100 at a premium of Rs. 5 and the other being 2,00,000--14 per cent debentures of the face value of Rs. 100 at a premium of Rs. 5.
2. It is alleged by the petitioners that the respondent-company failed to pay the redemption value of the shares on maturity. There is correspondence on record to indicate that the petitioners extended the time for payment from time to time and even conditionally agreed to a reduction in the interest rate. It is the contention of the petitioners that despite accommodation, the respondent-company could not pay amounts aggregating to Rs. 9,63,582.65 under the first series of debentures and Rs. 1,70,25,975 under the second series of debentures, which are still outstanding and payable.
3. However, the genuine attempts on the part of the company to pay the redemption value of the debentures is apparent from the petition itself. The respondent-company paid 50 per cent of the redemption amount of the first series debentures in the year 1997. Under a letter dated 25-8-1997, certain instalments were fixed and between August and December, 1998, an amount to Rs. 25 lakhs was paid. Further instalments of Rs. 24.29 lakhs, Rs. 10 lakhs and Rs. 49.31 lakhs were paid in 1999.
4. It has been contended on behalf of the respondent-company that the company is solvent going concern. The annual turnover of the company for the year 1998-99 was Rs. 2,838.62 lakhs and for the year 1997-98 was Rs. 3,874.47 lakhs. The amounts paid by way of the revenue to the treasury during the year 1998-99 was Rs. 22,698 lakhs as per the last audited balance-sheet. The company was paying dividend for 37 years up to the financial year 1996-97. Further, the petitioners as debenture-holders are secured under a debenture trust deed executed in favour of the debenture trustees being the ICICI. The petitioners hold a second charge on the properties of the company as set out in the trust deed. The company has around 3,000 workmen employed. The monthly wage bill is Rs. 5 crorcs. As per an agreement with the workmen, the company is paying Rs. 1.25 crores per month to the workmen towards arrears of wages. The gross value of the fixed assets as on 30-6-1999, is Rs. 22,698 lakhs. The non-payment of the amounts, it is asserted, is due to a temporary cash crunch which is nothing but a result of the market conditions and the general slack in the economy. It is contended that this is not a fit case where a winding up petition ought to be admitted and that the winding of the company or even an order of admission of the company petition would result in serious repercussions and may bring the entire company to a grinding halt.
5. The learned counsel for the company has relied upon the following decisions in support of his contention that in these circumstances, a company petition deserves to be dismissed.
(i) Rishi Enterprises, In re [1992] 73 C. C 271 :
'The section itself confers judicial discretion upon the courts. In the present case, it seems that the intention of the petitioners in insisting on admission of these matters is only to coerce the company and extract from it immediately by any means the amount which is payable to the petitioners. There is no such law that a company which is a running company employing about 500 employees who are paid their wages regularly and which is having a business of crores of rupees every year should be brought to a grinding halt by admitting these petitions merely because it is in some financial difficulty at the moment. On the contrary even in those cases where the company is closed, it has been laid down that it is the duty of the court to welcome revival rather than affirm the death of the company. It has been also held that it would not be right to say that creditors can insist on winding up of the company by the court as a matter of right if the position of the company is such that it would be unable to pay its debts to them even if the company can be resurrected. The petitioning creditor cannot be permitted to insist on his pound of flesh from the company which may be a death blow to the company only on the ground that for a temporary period a running company is not in a position to pay the debt. This would be clear from the following decision of this court.' (it) New Swadeshi Mills of Ahmedahad Ltd. v.Dye-chem Corpn.[1986]59 C. C. 183 :
'It is the case of the creditors that the company is unable to pay its debts and that it is just and equitable that the company should be wound up. The circumstances call for no proof of inability on the part of the company to pay its debts as such inability is self-evident on the admitted facts. There are huge debts, secured as well as unsecured, which, as matters stand, are far beyond the means of the company to meet. Even so, a court will exercise a sound discretion in deciding whether to wind up a company or not and in doing so consider many relevant factors. It may be that despite the inability to pay its debts, a company has still prospects of coming back to life and if the court is told of any specific proposal, which in the opinion of the court is likely to materialise, the court will be inclined to give a chance to resurrect the company. It should be the policy of the court to attempt to revive though at the moment the company may not be solvent and may not be able to meet its obligations to its creditors. But this should be only if it is shown that there is reasonable prospect for resurrection and survival. It may be easy for a court when once it is shown that the company is unable to pay its debts to bury it deep, and distribute whatever is available as distributable surplus. But it is the duty of the court to welcome revival rather than affirm the death of the company and for that purpose the court is called upon to make a discreet exercise.' (p. 186) (Hi) American Express Bank Ltd. v. Core Health Care Ltd. [1999] 96 C. C. 841 :
'A claim to an order of winding up is not a matter of right but is in thediscretion of the court on one or more of the grounds having beenestablished as mentioned in Section 433 of the Companies Act, 1956.However, there is no warrant to assume that the stage for exercise ofsuch discretion arises only after the petition is admitted and that thecourt cannot exercise that discretion even if on considering the totalityof the materials as are made available on record by the petitioner it issatisfied that no order of winding up be made at the time of consideringadmission of the petition.
***** The word 'may' used in Sections 433 and 443 is indicative of the fact that even if one or more of the grounds mentioned in Section 433 is made out, and the company is unable to pay its debt, it is still not mandatory, but rests in the discretion of the court whether to make an order of winding up. The court must in each case exercise its discretion in deciding whether in the circumstances of the case, it would be in the interest of justice to wind up the company.' (p. 841)
6. In light of the rival contentions, it is crystal clear that the respondent-company is a going concern doing substantial business having a huge turnover. The respondent-company is paying huge amounts as the revenue and also has a substantial asset base. The respondent-company has also from time to time paid to the petitioners substantial amounts including an amount of Rs. 10 lakhs on 16-7-2001, and 31-7-2001, as assured before this court. The ICICI is the trustee of the petitioner as debenture-holders and charge has been created on the properties of the company in favour of the trustees. From the information furnished, the assets of the company arc much more than their liabilities. The company is engaging 3,000 workmen who are dependent on the company being functional and operative. All these facts arc relevant and have to be taken into account before an order of winding up a company or even admission of the petition is passed. The company is not commercially insolvent. It will not be in the interest of any one or even the society at large to admit the present petition or to advertise the same at this stage. In my opinion, the same would seriously prejudice the functioning of the company which is operational and striving to get over the financial crunch. The same may result in the commercial death of the company.
However, at the same time, the interest of the debenture-holders ought to be protected. The company has expressed its readiness and willingness to pay the amounts to the petitioners provided sufficient time is given to the company.
7. In the aforesaid circumstances both the learned counsels have invited this court to pass an appropriate order in the interest of justice. I therefore, pass the following order :
(1) The respondent shall make payment of the amounts set out in the third column of the schedule hereto annexed by their respective due dates set out in the first column of the schedule, each such payment to be made strictly on or before the relevant due date. On respondent paying to the petitioners the amounts on the dates as set but in the schedule annexed hereto, the petition shall stand dismissed.
(2) In the event of respondent committing any two defaults in payment of the amounts as set out in the schedule annexed hereto, the petition shall stand admitted and shall be advertised one week after written intimation to the respondent in that behalf.
(3) The learned counsel on behalf of the petitioners makes a statement on instructions from its clients that the petitioners shall grant their no objection to the release of their charge on the assets of solvent dyes business of the company having book value not exceeding Rs. 10 crores as on 31-7-2001, within two weeks of identification of the assets by the respondents and written intimation in that behalf to the petitioners. However, existing charge on the balance assets of the company shall continue till the entire dues are paid by the respondent-company as per the schedule hereto annexed. On payment of the entire amount as per Clause 1 above, the charge on the balance assets shall also stand released.
(4) Default for the purpose of Clause 2 shall be construed to be a failure on the part of the respondents to pay the full amount of any instalment as set out in the schedule annexed hereto within seven days of the date on which such instalment is payable by the respondent.
(5) On full payment being made as per the schedule hereto annexed in accordance with Clause 1 above, the petitioners shall be deemed to have accepted the same in full and final settlement of their claims against the respondent, but not otherwise.
8. The petition stands dismissed with no order as to costs. Certified copy expedited.
All concerned to act on a copy of this order duly authenticated by the company Registrar.