M/s.Gujarat Industrial InvestmentCorporation Limited v. Sterling Holiday Resorts (India) Ltd.

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE : 11.02.2008CORAMTHE HONOURABLE MR. JUSTICE S.J.MUKHOPADHAYAANDTHE HONOURABLE MR. JUSTICE M.VENUGOPALO.S.A. NO. 382 OF 2006M/s.Gujarat Industrial InvestmentCorporation Limitedrep. by its Corporate Law OfficerRegd. Office at Udyog Bhavan5th Floor, Block No.11 & 12, Sector 11Gandhi Nagar, Gujarat 382 011... Appellant/Petitioner - Vs -Sterling Holiday Resorts (India) Ltd.No.154, Eldams RoadTeynampetChennai 600 018... Respondent/Respondent.Appeal filed against the order dated 22nd Dec., 2006, passed bylearned single Judge in C.P. No.213 of 2001.For Petitioner : Mr. T.K.Seshadri, SC, for Mr. V.RamakrishnanFor Respondent: Mr. P.S.Raman, SC, for Mr. G.SundaramJUDGMENTS.J.MUKHOPADHAYA, J.This appeal has been preferred by Gujarat Industrial InvestmentCorporation Ltd. (hereinafter referred to as 'Corporation') againstorder dated 22nd Dec., 2006, passed by learned Company Judge in C.P.No.213/01. By the said order, learned Judge closed and rejected thecompany petition preferred by the appellant u/s 433 (e), (f), 434 (1)(a) and 439 (1) (b) of the Companies Act r/w Rule 11 (a) of theCompanies (Court) Rules, 1959.2. The facts as appears from the pleadings shows that SterlingHoliday Resorts India Ltd., (hereinafter referred to as 'Company')approached the appellant for a sum of Rs.500 lakhs. As per loanagreement dated 6th Nov., 1996, loan amount was to be repaid within aperiod of two years in six equal quarterly instalments with interest@ 24% p.a., and additional interest of 3% p.a., on the total amountdefaulted. The loan was acquired by personal guarantees of some ofthe Directors of the company and the shares of some of the https://hcservices.ecourts.gov.in/hcservices/ shareholders were pledged by the company. A promissory note wasexecuted by the company in favour of the appellant for Rs.5 Crores.The company was disbursed with a sum of Rs.1 Crore on 8th Nov., 1996,followed by Rs.50 lakhs on 13th Nov., 1996 and Rs.3 Crores on 1st Nov.,1997. The company accepted the liability of total amount of Rs.4.5Crores, the loan amount as disbursed.The company could pay a sum of Rs.2,04,411/= towards interest on11th Dec., 1996, but failed to pay the rest amount and could not keepits obligation. According to appellant, inspite of repeatedrequisition and reminders, the respondent neglected to pay theamount. As on 31st May, 2001, a sum of Rs.18,04,13,083/= comprisingof Rs.4,50,00,000/= towards principal and Rs.13,54,13,083/= towardsinterest was due from the company. The security given by pledging ofthe shares and personal guarantees were inadequate to secure theamount and, therefore, a statutory notice u/s 434 of the CompaniesAct was issued on 28th June, 2001, which was received by the companyon 29th June, 2001, but having received no reply, a petition forwinding up the company was preferred.3. The case of the appellant is that the financial status of thecompany is not good; it is not in a position to pay back its dues.The debt has been admitted by them and, thereby, prayed for windingup.4. Learned Judge noticed other facts as brought on record that asuit, C.S. No.577/99 was filed by the appellant against the Directorsof the Company in the City Civil Court, Ahmedabad for a judgment anddecree of a sum of Rs.7,75,64,563/= together with interest thereon @36% p.a., from 1st Dec., 1998 and that the said suit is pending. Theborrowing under the terms of the loan agreement dated 6th Nov., 1996,was guaranteed by defendants 4 to 6 in the said suit, apart from8,39,800 equity shares of Rs.10/= each under the unattested documentdated 6th Nov., 1996, alongwith blank transfer deeds in favour of therespondent. On 28th Jan., 1997, further 17,53,000 shares of thecompany were pledged in favour of the corporation. Thus, thecompany's shares, totalling to 25,92,800 were placed with thecorporation as security for the amount advanced. It was also noticedby learned Judge that in view of difficult financial situationbetween 1998 and 2003, fifteen company petitions were filed byvarious creditors before the court. A number of suits were preferredby financial institutions against the company before the DebtsRecovery Tribunal. Counsel for the company brought to the noticethat in all such cases, on negotiation, one time settlements weremade with all creditors except the corporation, which had refused theone time settlement. It was specifically stated that the companyhaving made profit since 2004, i.e., Rs.17.3 Crores for the yearending 31st March, 2004, and the same having gone up to Rs.44.18Crores during the current year, such profit facilitated one timesettlement with all the creditors. It was also brought to the noticeof the learned Judge that in view of interim order passed by CityCivil Court, Ahmedabad in C.S. No.577/99, the company has alreadydeposited a sum of Rs.7.50 Crores and the suit is pending. https://hcservices.ecourts.gov.in/hcservices/

5. Similar plea has been taken by the parties before this Court.While according to learned senior counsel for the appellant, there isno dispute relating to liability of debt amount, as the company isunable to pay the total debt. On the other hand, according tolearned senior counsel for the company, the admitted liability hasbeen paid and dispute, if any, relates to pendente lite interest,which is pending for determination before the City Civil Court,Ahmedabad. There being bona fide dispute with regard to interest,the petition for winding up was uncalled for. Both the partiesrelied on almost same judgments rendered by Supreme Court or thisCourt.6. We have noticed the relevant facts and the rival contentionsand also gone through the judgments as referred to by the parties.7. The only question that requires determination in this case iswhether there is a bona fide dispute and the petition for winding upshould proceed or not.8. The question relating to winding up of company fell forconsideration before the Supreme Court in Pradeshiya Industrial andInvestment Corporation of U.P. - Vs – North India Petrochemicals Ltd.& Anr. reported in (1994) 3 SCC 348 :: (1994) Vol. 79 Comp. Cases835. In the said case, having noticed Section 433 of the CompaniesAct, the Supreme Court held that a company could be wound up underclause (e) of the said section, if the company is unable to pay itsdebts, that means -(i) there must be a debt; and(ii) the company must be unable to pay the same.In the said case, the Supreme Court further observed that sub-section (e) to Section 433 is discretionary and a debt under the saidsection must be determined or a definite sum of money payableimmediately or at a future date.Earlier in the case of Madhusudan Gordhandas & Co. - Vs – MadhuWoollen Industries Pvt. Ltd. Reported in (1972) 42 Comp. Cases 125(SC), the Supreme court, while dealing with the scope of Section 433(e), the Supreme Court held :-"....... that if the debt is bona fide disputed and thedefence is a substantial one, court will not wind upthe company."In the case of Amalgamated Commercial Traders (P) Ltd. - Vs –V.Krishnaswami & Anr. reported in (1965) 35 Comp. Cases 456, theSupreme Court held that a winding up petition is not a legitimatemeans of seeking to enforce payment of a debt, which is bona fidedisputed by the company. A petition presented ostensibly for awinding up order, but really to exercise pressure will be dismissedand in circumstances may be stigmatised as a scandalous abuse ofprocess of the court.Similar was the view expressed by the Supreme Court in the caseof Mediqup Systems Pvt. Ltd. - Vs – Proxima Medical System GmbHreported in (2005) Vol. 125 Comp. Cases 473 (SC) : 2005 (4) LW 475(SC). https://hcservices.ecourts.gov.in/hcservices/

9. In the present case, as evident from the pleading made by theparties and the facts noticed by learned Judge, the respondentcompany is running smoothly and earning profit. Its sale had gone upas back as in the year 2005 to the tune of Rs.44.18 Crores. Though anumber of suits, etc., were preferred by other financialinstitutions, except the appellant-Corporation, the company was in aposition to make settlement with all the creditors and paid back itsliability. It is not in dispute that the Corporation has alreadypreferred a suit against the company and its Directors, C.S.No.577/99, before the City Civil Court, Ahmedabad, and prayed for ajudgment and decree for a sum of Rs.7,75,64,563/= together withinterest thereon @ 36% p.a., from 1st Dec., 1998. In the said suit,in view of the interim order of the City Civil Court, Ahmedabad, thecompany has already deposited a sum of Rs.7.50 Crores, almost theamount claimed in the suit with interest. It has not been disputedthat apart from 8,39,800 equity shares of Rs.10/= each pledged underan unattested document dated 6th Nov., 1996 along with a blanktransfer deed in favour of the corporation on 28th Jan., 1997, another17,53,000 shares of the company were pledged in favour of thecorporation. Thus, a total of 25,92,800 shares were pledged with thecorporation as security for the amount advanced.10. Learned counsel appearing on behalf of the company rightlypointed out that the claim amount in the winding up petition is tothe tune of Rs.4.50 Crores towards principal and another sum ofRs.13.50 Crores towards interest, i.e., Rs.18,04,13,083/=, which isthe amount equal to interest pendente lite in the suit before theCity Civil Court, Ahmedabad. Thus, there is a genuine dispute ofinterest, particularly with regard to pendente lite interest, whichhas to be determined in the suit aforesaid.11. From the records it will be evident that even before thisCourt the company gave a better offer in favour of the appellantcorporation to settle the dispute, but the Corporation did not chooseto accept the same. Thereby, it will be evident that the company isin a position to pay the debts and whatever amount not agreed upon isa disputed amount between the parties.12. In the aforesaid background, we hold that the learned Judgerightly dismissed the petition for winding up as was preferred by theappellant, being not maintainable. There being no merit, the appealis dismissed. But there shall be no order as to costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.GLN https://hcservices.ecourts.gov.in/hcservices/ ToThe Sub Assistant Registrar,Original Side,High Court, Madras.+ 1 CC To Mr.G.Sundaram, Advocate SR NO.6608+ 1 CC To Mr. V.Ramakrishnan, Advocate SR NO.6578 O.S.A. NO. 382 OF 2006 ng[co]gp/5.3.