K.A. Puj, J.
1. Company Petition No. 60/03 is filed by UTI Bank Ltd., under Section 433(e) read with Section 434 of Companies Act, 1956 for winding up the respondent-company.
2. Similarly Company Petition No. 197/03 is filed by the Karnataka Bank Ltd. for winding up of the respondent-company.
3. The case of the petitioner in the Company Petition No. 60/03 is that pursuant to the request made by the respondent-Company for financial assistance for short term capital requirements, the petitioner had, vide its letter dated 23rd July, 2001, conveyed its approval for sanction of short term loan of Rs. 15 crores. In view of the said sanction, the Company executed a loan agreement dated 23rd July, 2001, in favour of the petitioner interalia agreeing to repay the principal amount at the end of nine month from the date of disbursement and to pay to the petitioner interest on the principal amount of the loan outstanding from time to time at the rate of 13% p.a. with quarterly rests and to bear all dues and taxes as may be levied from time to time by the Government or any other authority and to secure repayment of the said loan by executing a Demand Promissory Note in favour of the petitioner.
4. On execution of the loan agreement as well as the Demand Promissory Note in favour of the petitioner, the petitioner had fully disbursed the loan amount of Rs. 15 crores in favour of the respondent on 24th July, 2001. The said amount was to be repaid by the respondent-company to the petitioner on or before 24th April, 2002 and the said period was extended for three months. The respondent-company, therefore issued a cheque dated 25th July, 2002 for Rs. 15 crores towards the repayment of the said Short Term Loan. However, upon presentation of the above cheque in the Bank the same was returned dishonoured and hence the petitioner has issued a statutory notice dated 8th August, 2002. The petitioner thereafter also initiated Criminal Proceedings u/s. 138 of the Negotiable Instrument Act, 1881 by filing Criminal Complaint bearing No. 812 of 2002, before the Chief Metropolitan Magistrate at Ahmedabad and the said criminal complaint is still pending.
5. Since the respondent-company has failed and neglected to pay and discharge the liability, the petitioner was constrained to issue a statutory notice to the respondent-company u/s. 434 of the Companies Act, 1956 demanding an amount of Rs. 17,89,53,527/being the amount outstanding as on 31st October, 2002 together with interest at the contractual rates and other charges thereon till the date of the realisation. The respondent-company has neither given any reply to the said statutory notice nor it has made any payment towards the outstanding dues of the petitioner. It is also stated in the petition that the outstanding dues of the petitioner as on 31st January, 2003 was to the extent of Rs. 18,58,05,109/-. It is also stated that the respondent-company has not given any reply to the statutory notice issued u/s. 434 of the Companies Act, 1956 on 18/11/2002. However, in its reply dated 23rd August, 2002 to an earlier Statutory Notice dated 8th August, 2002, issued u/s. 138 under Negotiable Instrument Act, 1881, the respondent-company through its advocate had shown its willingness to pay the amount covered by the dishonored cheque. Therefore, it becomes very obvious that the respondent-company has not raised any dispute to the claim of the petitioner. Since the amount has not been paid even after receipt of the statutory notice, the petitioner has filed the present petition before this Court on 28/2/2003.
6. As far as Company Petition No. 197/03 is concerned, it is the case of the petitioner that pursuant to the request of the respondent-company, the petitioner has sanctioned and granted credit facility being a Cash Credit loan for an amount of Rs. 5 crores with interest at 11.5% vide its sanction letter dated 28/9/2001. The said Cash Credit loan was to be repaid by the respondent-company in six equal installments commencing after expiry of six months, whereas interest was paid quarterly. The respondent-company delivered six cheques for due repayment of Cash Credit loan for an amount of Rs. 5 crores towards principal amount and five other cheques towards interest. The respondent-company thereafter informed the petitioner that the company was in financial crunch and requested the petitioner for debt restructuring plan. The petitioner has considered the said request and rescheduled the installments vide its letter dated 3/6/2002. The respondent-company had accordingly replaced the six cheques given towards the repayment of the principal amount by issuing three new cheques. The said cheques were presented by the petitioner for realisation. The said cheques however, remained unpaid since long. The respondent-company has not paid any outstanding amount and interest thereon. The petitioner through its advocate sent a legal notice dated 17/2/2003 u/s. 433 read with Section 434 of the Act to the respondent-company calling upon to pay the outstanding amount of Rs. 5,48,17,330/together with further interest thereon from 10/1/2003, till the payment or realisation at 11.5%. Despite the service of statutory notice, the respondent-company has not made any payment to the petitioner and hence the petitioner had reasons to believe that the respondent-company was going through financial crises and was unable to pay its debts. The petitioner, therefore, filed the present petition before this Court on 4/8/2003.
7. Mr. Bijal Chhatrapati, the learned advocate from Singhi and Co. appearing for the petitioner has submitted that the petitioner is a Bank dealing with public monies and have a fiduciary duty to safeguard the money received by way of deposit from a large cross section of the society. The petitioner is further answerable to various statutory bodies including the Reserve Bank of India and the Ministry of Finance for its affai Rs. He has further submitted that the monies lent to borrowers cannot be left unrecovered and the company which has lost its substratum should not be allowed to continue its affairs as the same would only prove to be injurious to the economy as a whole. He has further submitted that the respondent-company is indebted to various creditors in large sums including secured creditors of the company and the activities of the company has almost come to a stand still. He has further submitted that the management of the respondent-company is likely to squander away the assets and misappropriate the proceeds to the benefits of its Directo Rs. He has, therefore, submitted that the petition is required to be admitted and advertised and till it is finally decided and disposed off, the interim relief which is prayed for in the petition is required to be granted.
8. In support of his submission, Mr. Chhatrapati has relied on the decision of the Bombay High Court in the case of ADVENT CORPORATION PVT. LTD., 30 Company Cases 436, wherein it is held that 'If a company fails to comply with a notice under section 434(1)(a) for payment of a debt the court has no discretion to refuse to make a winding up order. Section 434(1)(a) does not merely lay down a presumption which can be rebutted but uses the word 'shall' and enacts a deeming provision which comes into play once the company neglects to pay the sum demanded. The creditor is then entitled to a winding up order ex debito justitiae. In such a case the commercial insolvency of the company need not be established. The fact that the creditor has the alternative means of filing a suit to recover the debt is irrelevant.'
9. Mr. Chhatrapati has further relied upon the decision of the Bombay High Court in the matter of SEKSARIA COTTON MILLS LTD., 39 Company Cases 475, wherein it is held that 'If a company fails to comply with a statutory notice u/s. 434(1)(a) and the Court comes to the conclusion that there is no bona fide dispute in regard to the petitioner's debt, the creditor is entitled to a winding-up order ex debito justitiae. The fact that the company is not commercially insolvent is immaterial.
10. Mr. Chhatrapati has further relied upon the decision of the Bombay High court in the matter of FOCUS ADVERTISING PVT. LTD., 44 Company Cases 567, wherein it is held that once there is non-compliance with a statutory notice given by a creditor under section 434(1) of the Companies Act, 1956, demanding payment of a debt owing by the company and the court is satisfied that there is no bona fide dispute in regard to the petitioner's debt, the creditor is entitled to a winding up order ex debito justitia, and the court will not listen to a defence on the part of the company that it is not commercially insolvent or that its financial position is not such as to be unable to pay its debts. The right to a winding up order is, however, qualified by another rule. viz., that the court will regard the wishes of the majority in value of the creditors, and, if, for some good reasons, they object to a winding up order, the court in its discretion may refuse the order.
11. Mr. Chhatrapati has further relied upon the decision of Patna High Court in the case of CENTRAL BANK OF INDIA V/s. SUKHANI MINING AND ENGINEERING INDUSTRIES PVT. LTD. AND ORS. 47 Company Cases 1, wherein it is held that 'there is no provision in the Companies Act, 1956,, nor is there any decision of any court to show that the mere fact that a creditor files a suit for the realisation of the debt would debar him from proceeding with his petition for winding up the company which is already pending. There is nothing either to show that the court in such circumstances has no jurisdiction to proceed with the winding up proceeding or that it would be even proper to stay the winding up proceeding itself or dismiss it for that reason alone. The Act has provided for the stay of a suit against the company when there is a winding up order against the company. If the legislature had intended that on account of the fact that a suit or proceeding has been filed in another court, the court in seisin of the winding up application will stay that proceeding on that ground alone, there would have been a provision to that effect in the Companies Act. There is no such provision, the reason being that a winding up proceeding is not merely for the benefit of the petitioner but of all shareholders, creditors or contributories of the company. Therefore, winding up proceedings could not be stayed merely because the creditor has filed a suit against the company.
12. Mr. Chhatrapati has further relied on Division Bench Judgment of the Madras High Court in the case of RAMAKRISHNA INDUSTRIES (P) LTD AND ORS. V/S. P.R. RAMAKRISHNAN AND O RS. , 64 Company Cases 425, wherein it, interalia, held that 'the filing of certain suits did not preclude the filing of the present petition for winding up as the relief sought in the present petition could not be obtained in the suits instituted and, therefore, no question of election arose.
13. Mr. Chhatrapati has further relied on the Division Bench Judgement of the Bombay High Court in the case of VIRAL FILAMENTS LTD. V/S. INDUSIND BANK LTD., [2001] 33 SCL 132 (BOM.), wherein it is held that 'there was no merit in contention that merely because the petitioning creditor before the Company Court was a bank/financial institution or because an application had already been filed before the DRT under the provisions of the RDB Act, the petition for winding up would not be maintainable'. The Court has further held that 'the admission of petition for winding up under section 433(e) need not be preceded by an adjudicated liability of the company. It proceeds upon the inability of the company to pay its debts. Section 434(1)(a) prescribes a statutory presumption of such inability on the part of the company if the conditions prescribed therein are fulfilled.'
14. Mr. Chhatrapati has further relied on the decision of the Allahabad High Court in the matter of KHAITAIN OVERSEAS AND FINANCE LTD., 2004 C L C 223, wherein it is held that 'the remedy of recovery of money through civil suit, is distinct from winding up of company for non-payment of debt under Section 434 of the Companies Act. Winding up order is not only beneficial to applicant-company but to all share holde Rs. The purpose of filing suit for recovery and winding up petition are distinct and thus even where a civil suit is filed, there is no bar for the creditors to file a petition for winding up of the defaulting company.
15. Mr. Chhatrapati has further relied on the decision of Andhra Pradesh High Court in the case of BHARATH OVERSEAS BANK LTD. V/S. M/s. SARITHA SYNTHETIC AND INDUSTRIES LTD., 2004 CLC 725, wherein it is held that 'the scope of enquiry and the reliefs to be claimed and allowed under the Debts Recovery Act and the Companies Act, are entirely different, distinct and independent of each other and have no connection whatsoever. While under S. 19 of the Debts Recovery Act, the Debts Recovery Tribunal is required to adjudicate only the liability of the defaulting company and ascertain the debt due to the financial institution or bank and issue certificate of recovery to the Recovery Officer, to enable him to execute the same in accordance with the procedure prescribed therefor. There is no power vested in the Debts Recovery Tribunal to wind up a defaulting company for recovery of the dues of the financial institution or bank. The power to wind up a defaulting company is vested in the Company Court under S. 433(e) of the Companies Act, when it is proved by the creditor that the defaulting company is unable to pay its debts.'
16. On the basis of the above statutory obligation on the part of the respondent-Company to pay its debts due to the petitioner and its inability to discharge the said liability which gave rise to the presumption u/S. 434 of the Act and having regard to the decided case law on the subject, and despite the fact that the petitioner has filed the recovery suit before the Debt Recovery Tribunal, Mr. Chhatrapati has strongly urged that the present petition is required to be admitted and advertised.
17. Mr. Gopesh J. Soni, the learned advocate appearing for the petitioner in Company Petition No. 197/03 has more or less adopted the arguments of Mr. Chhatrapati and urged before the Court that the respondent-company is required to be wind up and for that purpose this Court should admit the petition and pass the order with regard to the advertisement of the said petition.
18. Mr. S.N. Soparkar, the learned Senior Counsel appearing for the respondent-company in both these petitions has strongly opposed both these petitions. He has submitted that the winding up petition is maintainable only when the company is unable to pay its debts and / or lost is substratum. In the present case, the company is neither unable to pay its debts nor has lost its substratum. The present liquidity crunch is a temporary phenomenon, which has affected the Company's ability to pay its dues immediately. He has submitted that the operational and final performance of the company has been adversely affected during the financial year 2001-2002. The company reported drop in sales and incurred losses. The decline in the sales and the losses is due to general slowdown faced by the FMCG Industry, lower price realisation due to sale deliberate price war initiated by the competitors, lower contribution margin and loss of business due to communal riots in Gujarat. The losses and decline in sales have resulted in marginal cash generation, which has been insufficient for servicing the interest and other capital liabilities. He has further submitted that in addition to the marginal cash generation from operation and utilisation of existing cash reserves towards capital expenditure, a large amount of repayment of short-term loans and long-term loans were bundled during the same period. This resulted in the company not being able to service its terms liabilities due to losses and deficit cash balance. As a result of the same the company could only service a term obligation of Rs. 320 Mn against the total dues of Rs. 1150 Mn, thereby resulting in default of Rs. 845 Mn as on March 31, 2002.
19. Mr. Soparkar has further submitted that the respondent-company has availed in past, various financial facilities and repaid them in time. The statement clearly indicates that the track record of the company with all the banks and financial institutions including the petitioner was exceptionally good. The company has all the time made payment of principal and interest in time. The company has availed various kinds of financial assistance from various banks/financial institutions of the company as already embarked on to a major restructuring exercise for revival of the company's business/fortune. The company has submitted a business restructure plan to the banks/financial institutions and the negotiations for the restructure of the entire debts consisting of working capital facilities and the term loan facilities are progressing with the banks/financial institutions. The company is very keen to settle the dues of all the lenders and as a demonstration of interest it had submitted proof of having separately earmarked Rs. 100 lakhs for appropriation by the lende Rs. He has further submitted that the company has also made a commitment to increase this amount gradually. He has further submitted that the company has pursued the matter with IDBI, the lead lender, and after a series of meetings, IDBI had initiated the process of convening a meeting of the lenders on 20th December, 2002. At the said meeting a detailed presentation was made by AIA Capital India Ltd. (an independent agency appointed to review the business model and evaluate the financial viability of the company).
20. Mr. Soparkar has further submitted that the company has branches and corporate offices at Ahmedabad, Bangalore, Delhi and Bombay and the total number of persons employed by the company including the workers/officers is 458. The company is making payment of Rs. 30 lakhs approx. p.m. towards the wages/salaries of the said 458 employees. He has further submitted that the company has got pending domestic and export orders exceeding Rs. 5.7/- crores p.m. and material to be supplied pursuant to the said orders is in the process of being manufactured at the aforesaid various plants of the company. He has, therefore, submitted that the company is a going concern providing employment to a substantial number of persons. The company is ready and willing to fulfill its liability and make the payments of the amount that is lawfully due and payable as per its books of accounts. The company has good track records in terms of growth prospects and the payments of its liabilities. He has, therefore, submitted that considering the present trend towards Indian Economy in general and industries in particular, the company is affected in terms of the liquidity of funds. It suffers, like others, from the liquidity crunch. However it has not lost its substratum and, therefore, the company may be given some time to clear the dues.
21. Mr. Soparkar has further submitted that both the petitioners in these two different petitions have already filed their applications before the Debt Recovery Tribunal and even on this ground also the present petitions are not maintainable.
22. In support of these submissions, he relied on the decision of this Court in the case of AMERICAN EXPRESS BANK LTD. V/S. CORE HEALTH CARE LTD., 96 Company Cases 841, wherein it is held that ' a claim to an order of winding up is not a matter of right but is in the discretion of the court on one or more of the grounds having been established as mentioned in section 433 of the Companies Act, 1956. However, there is no warrant to assume that the stage for exercise of such discretion arises only after the petition is admitted and that the court cannot exercise that discretion even if on considering the totality of the materials as are made available on record by the petitioner it is satisfied that no order of winding up be made at the time of considering admission of the petition'. The Court has further held that 'by complying with the provisions of section 434 of the Companies Act, 1956, the issuance of notice is not a matter of course. If from the material disclosed in the petition and reply to the notice, a prima facie case of existence of a bona fide and reasonable dispute is spelt out, the court would be justified in dismissing the petition in limine at the threshold'. The Court has further held that ' 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'. The Court has further held that 'as against the creditor's right to get an order of winding up ex debito justitiae, where, from the materials it appears that the company is commercially solvent and the present state of affairs is the result of a temporary set back in business, or where the court is satisfied that the petitioner holds security for his debt and that security is sufficient to pay the debt by realisation of security, and he has a right even after the winding up order is made to remain outside the winding up and realise his dues directly, the court may be satisfied that a winding up order is not envisaged in a situation, where, on principle the order would not benefit the petitioner, nor the company's creditors generally'. The Court further observed that ' the grounds on which a winding up order can be refused while considering the petition after admission appear to exist from the material already before the court it would be a sound exercise of discretion not to admit the petition'. The Court has further observed that 'neglecting to pay in terms of section 434(1)(a), the specified demand of a creditor raises a presumption as to inability to pay its debts. Thus, mere inability to pay a particular debt by itself cannot be held to be sufficient to an order of winding up ex debito justitiae. With the aid of the presumption the court may be satisfied that the company is unable to meet the current liabilities in the commercial sense which include the debt due to the petitioning creditor as well as other debts. But the presumption is a rebuttable one. The presumption may be rebutted on existing material. What evidence is sufficient, depends on the facts and circumstances of the case. The course of admitting and advertising the petition is commenced in the circumstances if and only if the court had a tentative prima facie finding about commercial insolvency of the company, in the case of a company which has not become a defunct company which has not closed its activities for quite some time for its commercial and manufacturing activities, but is a going concern employing a large number of workmen'. The Court has ultimately held in this case that 'it was not possible to accede to the petitioner's prayer that either the petition be admitted and advertisement of notice be deferred or in the alternative the petition be ordered to stand over for a sufficiently long period and be considered after obtaining the report about the outcome of the revival efforts'.
23. Mr. Soparkar has strongly urged that the decision in Core Health Care Ltd., is a complete answer to the present petition. The ratio laid down in the said case squarely applies to the present petition. He has further submitted that the decision of the learned Single Judge in Core Health Care Ltd., was approved by the Division Bench of this Court in the case of TATA IRON & STEEL CO. V/S. MICRO FORGE (INDIAN) LTD., 41 (2) GLR 1594, wherein the Court has observed that 'certain chronicles and contours are kept in the mental radar before reaching to the conclusion for winding up petition. The Court has articulated about 24 points which are to be taken into consideration. Mr. Soparkar has submitted that some of the points are very relevant so far as the present petitions are concerned. The Court has held that 'if the Company is an ongoing concern having regular business and employment of employees, the Court cannot remain oblivious to this aspect. The effect of winding up would be of putting an end of the business or an industry or an entrepreneurship, and in turn, resulting into loss of employment to the several employees and loss of production and effect on the larger interest of the society'. The Court has further observed that 'the winding up of the Company, as such, is nothing but a commercial death or insolvency, and therefore, the Company Court is obliged to take into consideration not only the temporary inability, or disability to make the payment of debts, but the entire status and position of the company in the market'. The Court has further observed, that 'though ordinarily, an unpaid creditor may aspire for an order of winding up, then 'ex debito justiciae' rule is not of inflexible mandate, but is, as such a matter of discretion of the Court. It is also well settled that a winding up order shall not be made on a creditor's petition, if it would not benefit him or the company's creditors in general. The Court is also obliged to consider that, it would be in the interest of justice to give the Company some time to come out of the momentary financial crisis or any other temporary difficulty as winding up is a measure of last resort. The element of public policy in regard to commercial morality has, likewise, to be taken into account before determining the winding up issue. The winding up is the last thing the Court would do and not the first thing to do having regard to its impact and consequences. The winding up of a Company would ensue:
(a) closing down of a company which is engaged in production or manufacture or which provides some services;
(b) it would throw out of employment numerous persons and result in gross hardship to the members of families of the employees;
(c) loss of revenue to the State by way of collection of taxes which otherwise should have been collected, on account of customs, excise duties, sale tax, income tax etc.
(d) scarcity of goods and diminishing of employment opportunities.
24. In light of the observations of Division Bench Mr. Soparkar has urged that winding up of the Company is not at all desirable and the present petitions should be dismissed at the very threshold.
25. Mr. Soparkar has further submitted that none of these petitions are maintainable as the petitioners have already filed Recovery Applications before D.R.T. and for this purpose, he relied on the decision of the Delhi High Court in the case of BANK OF NOVA SCOTIA V/S. RPG TRANSMISSION LTD., 114 Company Cases 764, wherein it is held that ' Where admittedly, proceedings had been initiated by the petitioner-bank before the Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 prior to the filing of the winding up petition, the petition deserves to be dismissed as the petitioner had already chosen a forum of recovery, that is, before the Debt Recovery Tribunal, it was not appropriate to exercise the summary and equitable jurisdiction available under section 433 and 434 of the Companies Act.
26. Mr. Soparkar has further relied on the decision of learned Single Judge of this Court (Mr. P.B. Majmudar, J.) in Company Petition No. 197 of 2000 in the case of VIDEOCON LEASING & INDUSTRIAL FINANCE LTD. V/S. AKAR LAMINATORS LTD., decided on 9/10/2000, wherein the Court has held that ' the claim of the present petitioner is not required to be entertained in this petition on merits as before coming to this Court, the petitioner has already approached to the Civil Court to proceed further with the alternative remedy which he has already availed off. The Court has, therefore, dismissed the petition. Mr. Soparkar has further submitted that the said order of the learned Single Judge was challenged before the Division bench of this Court in O.J.Appeal No. 27/2000 and the said Appeal was dismissed by the Division Bench of this Court.
27. Mr. Soparkar has further relied on the decision of the Hon'ble Supreme Court in the case of DOLPHIN INTERNATIONAL LTD. V/s. GAVS LABORATORIES (P) LTD., [2003 (96) FLR 304], wherein the Hon'ble Supreme Court has taken into consideration the fact regarding filing of the suit for recovery of the dues in question, wherein while granting leave the Hon'ble Supreme Court has passed an interim order calling upon the appellant to furnish a bank guarantee to the tune of Rs. 8 lakhs pursuant to which a bank guarantee has been furnished and the same is continuing. The Court has, therefore, held that considering the materials on record and the materials placed before the Court during the Course of the argument, the case for winding up in accordance with Section 433(e) has not been made out and the Judgement of the Division Bench of admitting and advertisement of the petition was set aside.
28. Mr. Soparkar has, therefore, submitted that the present petitions are not maintainable on any count and the same should summarily be dismissed at the very threshold.
29. After having heard learned advocates appearing for the respective parties and after having gone through the various submissions made and the issues raised before the Court, and after having given serious thoughts to the authorities cited before the Court, the Court is of the view that both these petitions deserve to be admitted and the order of advertisement is required to be passed in Company Petition No. 60 of 2003. While arriving at this conclusion, the Court has taken into consideration the two binding decisions of this Court in the case of AMERICAN EXPRESS BANK LIMITED V/S. CORE HEALTH CARE LIMITED 1999 (96) COMPANY CASES 841 and in the case of TATA IRON AND STEEL COMPANY LIMITED V/S. MICRO FORGE (INDIA) LIMITED, 41 (2) G.L.R. 1594. This Court is, however, of the view that the facts of the present case are distinguishable from the facts of the above referred two cases. In Core Laboratory's case, the Court has specifically come to the conclusion that there was temporary liquidity crunch and that the Company was commercially solvent. The state of affairs of the company at the relevant point of time was the result of temporary setback and the Company was holding sufficient security to discharge its debts. Again the petition was filed by the Secured Creditor against the said Company.
30. It is difficult to give such findings so far as the present two cases are concerned. In UTI Bank's case, the loan of Rs. 15 Crore was sanctioned on 23.07.2001 and it was repayable after 9 months. The disbursement was made on 24.07.2001 and the said amount was to be repaid on 24.04.2002. Subsequently, the period was extended upto 24.07.2002. The respondent Company has given cheques for repayment of the said amount and on presentation of the said cheques, the same were bounced for insufficiency of funds. Similar was the position in the case of Karnataka Bank. Cash credit facility of Rs. 5 Crore was given. It was repayable in six equal installments. The Company has failed to discharge its liability. Even the Company has not acted as per the debt restructuring plan and repayment schedule was not adhered to. It has come on record that there are other Secured, unsecured and statutory Creditors against the Company. There was also a very serious dispute about the networth of the Company, more particularly, as to whether it is sufficient to take care of its liabilities. From the detailed statements, accounts and explanations submitted before the Court during the course of arguments, it can hardly be said that the financial crunch sustained or suffered by the Company is of temporary nature. More than three years have gone and still the Company has not come out of its financial difficulties. On the contrary, company's financial position has become worst over the years and whatever activities that have been carried out by the Company are nothing but they are carried out for incurring and accumulating losses. The ratio of the aforesaid two decisions, therefore, cannot be applied to the facts of the present case for contending that the winding up petitions are not maintainable and the same deserve to be dismissed at the threshold. There is enough material before the Court for the purpose of admission and to arrive at the conclusion that the Company has failed to discharge its liabilities towards the petitioners and that the financial crunch suffered or sustained by the Company is not of a temporary nature.
31. While opposing these two petitions, Mr. S.N. Soparkar, learned Senior counsel appearing for the respondent Company has pressed into service one more submission to the effect that the petitions are not maintainable even on the ground that the petitioners have already filed applications for recovery of their outstanding dues before the Debts Recovery Tribunal and the same are pending. Once having availed the alternative remedy for enforcement of the recovery of their dues, this Court should not entertain these petitions as the winding up proceedings are not the proceedings for recovery of the dues. In this connection, Mr. Soparkar has relied on the decision of the learned Single Judge of this Court in Company Petition No. 197 of 2000 in the case of VIDEOCON LEASING & INDUSTRIAL FINANCE LIMITED. V/S. AKAR LAMINATORS LTD., which was confirmed by the Division Bench in O.J. Appeal No. 27/2000. Mr. Soparkar has further relied on the decision of the Hon'ble Supreme Court in the case of DOLPHIN INTERNATIONAL LTD. V/S. GAVS LABORATORIES (P) LTD., [2003 (96) FLR 304]. The Court is of the view that looking to the peculiar facts of those cases, the Courts have taken the view that the winding up petitions are not maintainable. In the case before the Hon'ble Supreme Court, there was an interim order directing the Company to furnish bank guarantee to the tune of Rs. 8 lacs and by virtue of which the petitioning creditor's claim was secured to that extent. In Videocon's matter which was decided by this Court, there was appointment of the Receiver, qua some of the assets of the Company. Even otherwise, it is settled proposition of law that existence of an alternative remedy is not always a bar to entertain the petition. It is left to the discretion of the Court as to whether such petition is entertained or not despite the fact that an alternative remedy is available and it has been availed of by the petitioner. The Court has to consider the over all situation and then to exercise its judicial discretion as to whether to entertain or not such petition. Here in the present case, though the petitioners have filed the applications before D.R.T., the claim made in the present petitions is not the secured one. In absence of any security for the claims of the petitioners, they were apprehending that even if ultimately they succeed in the application, they would not be in a position to execute the Recovery Certificate against the assets of the Company. By pursuing the winding up petitions, the petitioners can take solace to the effect that after the winding up of the Company, the rule of bad management would come to an end or the Company would be placed under the supervision of Court and the assets of the Company would be liquidated and distribution thereof would be taken place in accordance with the statutory provisions.
32. It is worthwhile to mention here that even before the Court has reached to the conclusion with regard to admission and advertisement of the petition, the Court, during the course of argument and hearing of the petition, has asked Mr. S.N. Soparkar, learned Senior counsel appearing for the respondent Company as to how much amount the respondent Company was ready and willing to pay to the petitione Rs. Mr. Soparkar has submitted that he was not in a position to make any positive statement in this regard. He has, however, submitted that he would take necessary instruction from his client and make his submission in this regard on the next date of hearing. On 14.07.2004, Mr. Soparkar has placed on record a letter dated 13.07.2004 written by the Deputy General Manager, I.D.B.I. Bank to the respondent Company wherein it was stated that the respondent Company's proposal for restructuring of outstanding debt of the Banks and institutions was under consideration and I.D.B.I. was proposing to call a joint meeting of all the lenders shortly to finalise restructuring package. Thereafter, on 12.08.2004, an additional affidavit was filed on behalf of the respondent Company wherein it was stated that a meeting of all the lenders of the Company was convened by I.D.B.I. on 06.08.2004 and it was decided by the lenders to meet again on 30.08.2004 to finalise the package. The tenor of all these affidavits and submissions are that the restructuring proposals for the payment of outstanding debts to the lenders was under consideration and the joint meeting of the lenders would be convened for finalisation of the package. All these so-called attempts are nothing but mere false promises and assurances and by resorting to such tactics, the respondent Company has been buying time. No concrete proposal was ever made by the respondent Company before the Court to make payment to the petitione Rs. In the first place, the respondent Company compels the lenders including the petitioners to accept the restructuring proposal for the payment of outstanding debts on its own terms and even after its acceptance, a question would still remain as to whether the said proposals would get through looking to the fund position and financial resources of the Company. The Court is, therefore, of the clear-cut view that no fruitful result can be expected or envisaged because of such half hearted and evasive attempts under the guise of debt restructuring package.
33. It is true that in the case of a running concern and considering the larger interest of the employees and workmen, the Court should be very slow in entertaining the winding up petitions. The Court should equally be concerned with the interests of Banks, Financial Institutions, Creditors, Goods suppliers etc. Once having availed credit facilities, taken delivery of goods or received services for valuable consideration, the recipients of such facilities, goods or services will start making defaults in payments or fail to discharge their liabilities, then it would be improper on their part to contend that the unit is a running one and future of large number of employees or workers would be at stake if the petition is entertained and winding up order is passed. Banks, Financial Institutions, Supplier of Goods or Services and trade Creditors are also the main backbones of any industry or business organisation and at their peril or disadvantage, the unscrupulous management of the Companies must not be allowed to defend winding up petitions under the guise of workers' interests.
34. During the course of hearing of the above petitions, it has also come to the notice of the Court that the Registrar of Companies, Gujarat State, Ahmedabad has filed Criminal Case No. 450 of 2003 against the Company and its Directo Rs. The Company Petition No. 251 of 2003 with Company Application No. 519 of 2003 were filed before this Court challenging the said proceedings and the same were withdrawn on 19.07.2004 with a liberty to raise all objections before the Trial Court under Section 633(1) of the Companies Act, 1956. In the said proceedings, there was a letter addressed to the Security & Exchange Board of India making reference regarding proceedings under Section 397 & 398 of the Companies Act, 1956 initiated against the Company on the alleged substantial irregularities and misappropriation of funds by the promoters of the Company. On further inquiry, having been made by the Court in the matter, Mr. Soparkar has submitted that Company Petition No. 26/2002 filed before the Company Law Board, New Delhi by HSBC Private Equity India Fund Limited and another was dismissed on 05.02.2003 by holding that the said petition was not maintainable. It was further communicated to the Court that HSBC Private Equity India Fund Limited has also filed Company Petition No. 46 of 2003 before the Company Law Board, New Delhi under Section 235(2) read with Section 237(b) of the Companies Act against the Company. The Company Law Board vide its order dated 28.01.2004 has treated the said petition as one filed under Section 237(b) of the Act. It is further informed to the Court that the said order was challenged before this Court and the petition is still pending. From the above facts coupled with the facts stated in the present proceedings, it appears to the Court that there are serious irregularities in managing the affairs of the respondent Company. Since the proceedings are pending, this Court would not make any further probe in the matter. However, while considering the present petitions for winding up of the respondent Company, the state of affairs of the respondent Company which ultimately led to the financial crunch which is of a permanent nature by now, cannot be lost sight of. This is also one of the additional reasons which weighs with the Court to admit the present petitions filed against the respondent Company.
35. Having regard to the facts and circumstances of the case and looking to the totality of the reasons, both these petitions are hereby admitted and the petitioner in Company Petition No. 60 of 2003 i.e. U.T.I. Bank Limited is hereby directed to issue public advertisement for admission and final hearing of the present Company Petition in English Newspaper 'The Times of India' (All editions) and in Gujarati Newspaper 'Gujarat Samachar' (All editions) fixing the date of final hearing on 21.10.2004. Publication of the advertisement in Govt. Gazette is dispensed with.
36. Company Petition No. 197 of 2003 is ordered to be heard along with Company Petition No. 60 of 2003 on 21.10.2004.
37. After the pronouncement of the judgment, learned Senior advocate Mr. S.N. Soparkar appearing for the respondent Company has prayed for stay against the order of admission and advertisement at least for a period of two weeks. However, looking to the facts and circumstances of the case, the request is not accepted.