Case: Jai Hind Finance (India) Limited & Others Vs. Kotak Mahindra Bank Limited

Oral Order: (Naresh H. Patil, J.)1. Admit. Heard finally by consent of the parties.2. The appellants challenge the order passed by learned Single Judge of this Court (Coram:A.S.Gadkari,J) in Company Petition No.938/2015 dated 26th July, 2017.3. Briefly stated the facts are that respondent Kotak Mahindra Bank Ltd. advanced loan to the appellants for carrying out business on personal and corporate guarantees and also by hypothecation and mortgage of properties. The appellants further submit that they have offered corporate guarantee to the facility sanctioned by the guarantors. There are four appeals which are being decided by this common order.4. In Appeal (l) No.337/2017 appellant Jai Hind Finance (India) Limited happens to be a corporate guarantor to Swaraj Infrastructure Pvt. Ltd.5. In Second Appeal i.e. Appeal (l) No.339/2017, appellant Swaraj Infrastructure Pvt. Ltd. is borrower of Kotak Mahindra Bank Ltd.6. In third appeal i.e. Appeal No.338/2017, appellant BULMSK Infrastructure Pvt. Ltd. is a borrower in its own capacity and guarantor to Swaraj Infrastructure Pvt. Ltd.7. In the 4th appeal i.e. Appeal (l) No.336/2017 appellant Bharat Udyog Pvt. Ltd. again is a borrower and a corporate guarantor for Swaraj Infrastructure Pvt. Ltd.8. The respondent Kotak Mahindra Bank Ltd. advanced separate loans to these companies. According to learned Counsel the outstanding amount against company as on date is nearly Rs.25 Crores. The respondent Kotak Mahindra Bank approached the Debts Recovery Tribunal (II), Mumbai by filing three separate Original Applications being OA No.172/2013, 173/2013 and 174/2013. Three separate judgments were delivered by Debt Recovery Tribunal, II, Mumbai on 16th January, 2015. The DRT allowed the applications filed by Kotak Mahindra Bank Ltd. and directed the defendants to jointly and severally pay respective amount as mentioned in the order.9. Across the bar it was submitted that so far none of the parties have preferred any appeal to the DRAT, Mumbai.10. The respondent Kotak Mahindra Bank issued a statutory notice under Section 433 and 434 of the Indian Companies Act, 1956 in the month of April to June 2015. In and around the month of July, 2015 four petitions were filed before the Company Court, Mumbai praying for winding up of the appellants before this Court.11. The orders passed by the learned Single Judge are impugned herein by the appellants.12. The Counsel appearing for the appellants submit that in the facts of the case respondent Kotak Mahindra Bank is a secured creditor and in that capacity secured respondents would not be entitled to resort to proceedings under the provisions of Section 433 and 434 of the Companies Act. In the submissions of the Counsel a harmonious reading of the provisions of Section 434 (a) and (b) is required to be done which would advance the purpose and object of these provisions. This is necessary in view of the fact that winding up order is a harsh order against an ongoing company/business concern and in case the secured assets are at the disposal of the creditor to be enforced then in such a fact situation the creditor ought not to be permitted to file a company petition and the Courts in such a situation be very slow in entertaining the winding up petition. Learned Counsel placed reliance on the judgment in the case of Salem Stainless Steel Suppliers v/s. Sumeet Machines Ltd. (2000 (Bom.) 419) and referred to observations made by the Court in Paragraph 4 which reads as under:4. That leaves the only other contention that in so far as the admitted amount is concerned, the company has failed to make payment or secure the Petitioner in an amount of Rs.14,18,407. The amounts as claimed by the Petitioner in terms of the particulars of the claim includes both principal and interest calculated at 24% p.a. The amounts as claimed in paragraph 5 of the notice was to the extent of Rs.1,14,72,084 which was the value of the goods supplied. As against this the Company has made direct payment to the Petitioner of Rs.5 lakhs and there is a further adjustment to the tune of Rs.23,20,141 and Rs.23,99,487. On the other hand in so far as the principal is concerned, pursuant to the order of the Madras High Court the Petitioner has been secured in a further sum of Rs.75 lakhs. Considering the above in so far as the principal amount is concerned, there has been either payment or security by the company in favour of the Petitioner. Once the Petitioner is secured for the admitted amount, the company has made out a bonafide defence in so far as the winding up petition is concerned.13. In the submission of the Counsel, the judgment cited supra lays down principle which supports the proposition propounded by the Counsel that in case of secured creditor, a winding up petition is not an appropriate remedy while referring to the provisions of Section 434(b). The Counsel submits that if execution or other process issued on decree or order of any Court or Tribunal in favour of creditor is returned unsatisfied, the creditor may proceed to take appropriate steps or prefer a winding up petition. The Counsel has also referred to Section 439(b) while advancing submission in respect of the provisions as to applications for winding up. Sections 439(b) and 439 (2) read as under:439(b) by any creditor or creditors, including any contingent or prospective creditor or creditors; or 439(2) A secured creditor, the holder of any debentures (including debenture stock), whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and the trustee for the holders of debentures, shall be deemed to be creditors within the meaning of clause (b) of subsection (1).14. The Counsel appearing for Kotak Mahindra Bank Ltd. submits that principle of law enunciated and canvassed by the Counsel appearing for the appellant is not the correct position of law. In the submission of the Counsel, the position in fact in law is reverse. On reading of provisions of Sections 433, 434 and 439, it is explicitly clear that a secured creditor too is entitled to file a winding up petition. There is no restraint on exercise of power on secured creditor, neither any provisions of Sections 434, 439 puts an embargo on the secured creditor like the respondents herein in preferring winding up petition.15. In support of the submission, the Counsel has referred to two judgments delivered by learned Single Judge of this Court (i) Canfin Homes Ltd. v/s. Lloyds Steel Industries Ltd. (2001 Company Cases (Bom.) page 53)wherein learned Single Judge of this Court has referred to observations of the Division Bench of this Court in the case of Bharat Overseas Bank Ltd. v/s. Shri Shree Arcee Steels pvt. Ltd. which reads as under:We are of the opinion that bearing in mind the clear provisions of the Companies Act and the principles which have been discussed in detail in the Madras High Court and the Calcutta High Court judgments above cited, the rejection of the petition in this case at the stage of admission was not at all justified. The petition was required to be admitted and advertised and it is at that stage that the court could go into the question as to whether the security is sufficient or not and exercise its discretion to accept the petitioning creditors claims and request for winding up or to reject the same on judicial consideration.In the case of M/s. Asian Power Controls Ltd. v/s. Mrs. Bubbles Goyal (2013(3) ALL MR 379), in Paragraph 9 the Court observed as under:9. The submission in support of the Appeal is that as a secured creditor, it was the obligation of the Respondent to disclose before the Company Court, when the Petition for winding up came up for final hearing as to whether the Respondent chose to enforce her security by standing outside the winding up proceedings or, whether the Respondent wished to stand together with the general body of creditors for realisation of her dues. Now in considering the submission, it must be noted at the outset that a Petition for winding up can be maintained at the behest of a creditor, whether secured or unsecured. This is evident from the provisions of section 439(1)(d). Under sub-section (2) of section 439, among others, a secured creditor is to be deemed to be a creditor within the meaning of clause (b) of subsection (1). This position has been enunciated in a judgment of the Company Judge of this Court in Canfin Homes Ltd. v. Lloyds Steel Industries Ltd. 2001 (4) Bom.C.R. 84 : [2002(1) ALL MR 901]. In a judgment of a Division Bench of the Madras High Court in Karnatak Vegetable Oils and Refineries Ltd. v. Madras Industrial Investment Corporation Ltd., AIR 1955 Mad 582 . consisting of Rajamannar, C.J. & Rajagopala Ayyangar, J., it was held that it was wellestablished that a secured creditor is as much entitled as of right to file a petition for winding up as an unsecured creditor. The judgment of the Madras High Court is also authority for the proposition that the rule in bankruptcy that before a secured creditor can file a petition for insolvency he has to abandon his security or to value the security and aver that after giving credit to such value there would be a balance due and payable to him, does not apply in winding up. The Madras High Court held that the general rule is that a creditor who cannot get paid has a right to a winding up order, whether he be a secured or an unsecured creditor. However, this right of the creditor is always subject to the discretion of the Court and the Court may in an appropriate case refuse to make a winding up order, having regard to the wishes of a majority of the creditors. A similar view has been taken by a Division Bench of the Calcutta High Court in Techno Metal India (P.) Ltd. v. Prem Nath Anand 1973 (43) Com 556. In Bharat Overseas Bank Ltd. v. Shree Arcee Steels P. Ltd., a Division Bench of this Court followed these wellsettled principles by observing as follows:We are of the opinion that bearing in mind the clear provisions of the Companies Act and the principles which have been discussed in detail in the Madras High Court and the Calcutta High Court judgments above-cited, the rejection of the petition in this case at the stage of admission was not at all justified. The petition was required to be admitted and advertised and it is at that stage that the Court could go into the question as to whether the security is sufficient or not and exercise its discretion to accept the petitioning creditors claims and request for winding up or to reject the same on judicial consideration.The judgment in Bharat Overseas Bank Ltd. does not lay down any principle to the contrary. In fact, the judgment of the Division Bench in Bharat Overseas Bank Ltd.s case follows the consistent principle of law which has been laid down by the Madras and Calcutta High Courts as noted earlier.16. The learned Counsel submits that thrice attempts to auction the mortgaged property of the appellants was made but efforts failed. The secured creditors will be making attempt for the 4th time. The purpose of admission of winding up petitions, according to Counsel is that if there are other creditors, they may approach the Company Court and lodge their claims and in case during pendency of winding up petitions if the advanced loan amount is reimbursed to respondent Kotak Mahindra Bank atleast to the extent of respondents claim, the appellants would not face any harsh orders. This being the object and purpose of the law, the appeals filed against the orders passed by the learned Single Judge must fail.17. The Counsel for the appellant submitted that the learned Single Judge ought to have elaborately dealt with the issues raised by the parties. The impugned orders passed by the learned Single Judge lacks proper reasoning for ascertaining as to what weighed with learned Single Judge in admitting the winding up petition.18. We have perused the record placed before us, considered the submissions advanced, perused the judgments cited supra. The reading of provisions of Sections 434, 439 of the Companies Act is itself clear to indicate that even a secured creditor would be entitled to prefer a company petition for winding up. In the facts of the case, amount advanced as a loan by a financial company to the appellants was not repaid so the proceedings were initiated. In the Tribunal, the appellants suffered adverse judgments and orders though it is informed during the course of hearing that none of the parties is reported to have approached the higher forum. The fact remains that the appellants are faced with adverse orders on merits passed by the DRT in respect of the claim made by the respondent Kotak Mahindra Bank. The question is whether respondent Kotak Mahindra Bank shall wait till they exhaust their attempts to auction the properties mortgaged with them, recover the amount in question partly or wholly and then decide as to whether to file a company petition for winding up. After having a comprehensive view of the provisions and the judgments dealing with this issue, we are of the considered opinion that the secured creditors need not wait till the final outcome of the proceedings in case financier decides to proceed to enforce and realise the secured assets. The relevant provisions of the Companies Act are clear to state that to recover loan/amount advanced, the secured or unsecured creditors are entitled to approach Company Court under the provisions of the Companies Act by preferring a winding up petition.

Decision:
0[ds]18. We have perused the record placed before us, considered the submissions advanced, perused the judgments cited supra. The reading of provisions of Sections 434, 439 of the Companies Act is itself clear to indicate that even a secured creditor would be entitled to prefer a company petition for winding up. In the facts of the case, amount advanced as a loan by a financial company to the appellants was not repaid so the proceedings were initiated. In the Tribunal, the appellants suffered adverse judgments and orders though it is informed during the course of hearing that none of the parties is reported to have approached the higher forum. The fact remains that the appellants are faced with adverse orders on merits passed by the DRT in respect of the claim made by the respondent Kotak Mahindra Bank. The question is whether respondent Kotak Mahindra Bank shall wait till they exhaust their attempts to auction the properties mortgaged with them, recover the amount in question partly or wholly and then decide as to whether to file a company petition for winding up. After having a comprehensive view of the provisions and the judgments dealing with this issue, we are of the considered opinion that the secured creditors need not wait till the final outcome of the proceedings in case financier decides to proceed to enforce and realise the secured assets. The relevant provisions of the Companies Act are clear to state that to recover loan/amount advanced, the secured or unsecured creditors are entitled to approach Company Court under the provisions of the Companies Act by preferring a winding up petition.