THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.57 of 2006 (Dated :21-09-2011) Between: M/s. Metro Steel Rolling Mills Pvt. Limited Rep. by its Managing Director Mr.Mahender Kumar Jain, Chennai-3 …Petitioner A n d M/s. Bhagyanagar Solvent Extractions Pvt. Limited Rep. by its Chief Executive Officer Padmarao Nagar, Secunderabad …Respondent THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Petition No.57 of 2006 ORDER: This company petition has been taken out by M/s.Metro Steel Rolling Mills Private Limited under Sections 433(e) and (f) read with Section 434 of the Companies Act, 1956 seeking an order of winding up of M/s.Bhagyanagar Solvent Extractions Private Limited, on the ground that it has become commercially insolvent and is unable to pay the debt due by it. 2. M/s. Metro Steel Rolling Mills Private Limited (“petitioner”, in short) is a company registered under the Companies Act, 1956 (“the Act”, in short) having its registered office at No.18, Kesava Iyer Street, Chennai-600 003, represented by its Managing Director Mr. Mahender Kumar Jain. M/s.Bhagyanagar Solvent Extractions Private Limited ( “the respondent-company”, in short) is a company registered under the provisions of the Act having its registered office Flat No.203, Adarsh Apartments, 6-1-132, 62/64, Skandagiri, Padmarao Nagar, Secunderabad- 500 061, and it is represented by its Chief Executive Officer Mr. A.Subramanyan. 3. The objects of the respondent-company, as set out in the Articles of Association and Memorandum of Association, are to acquire, promote, establish and carry on business of manufacture of oils from groundnut, rice bran, cotton seed, line seed, sunflower and other types of edible and non-edible oil seeds, cakes, pulses, plantations or similar produce by any type of processing viz., ordinary crushing solvent extraction refining of oils and to utilize, sell the oils and cakes to be produced or acquired for edible or non-edible purpose, and to manufacture, buy, sell, import and export and to carry on any business in machines, spares and accessories used in the industry. 4. The petition averments, in brief, are:- The respondent-company approached the petitioner for financial assistance for the purpose of running its Biomass Power Plant at Raichur. The petitioner considered the request of the respondent-company and sanctioned loan of Rs.200 lakhs on 11-6- 2004 and disbursed the same to the respondent-company. The Directors namely, Mr.S.Williams, Mr. M.R.Babu and Mr. M.Sriraj; and the Chief Executive Officer, namely, Mr. A.Subramanyan of the respondent-company stood as guarantors. The respondent-company also executed a Memorandum of Understanding (“MoU”) dated 11-6-2004 agreeing to pay a sum of Rs.125/- per day, as service charge for every Rs.1,00,000/- availed by the respondent- company and to effect payment by the end of every month. The respondent-company had also agreed for a charge over the properties such as the stocks, inventories, spares, jigs, fixtures etcetera, as security towards the loan availed from the petitioner. On 17-06-2005, a MoU was entered into between the petitioner and the respondent-company, whereunder the respondent-company had furnished additional security of Mercedes Benz car owned by M/s. Orthogan Informatrix Private Limited and also the title deeds of Rajasthan Power Plant to the petitioner. As per the terms of the MoU dated 17-6-2005, the respondent-company agreed to pay Rs.50 lakhs on or before 10th July 2005 and to pay the balance amount of Rs.225 lakhs on or before 21st October 2005. A clause has been incorporated in the MoU that in the event of the respondent-company failing to pay the amounts stated therein on or before the 31st October 2005, the entire balance of Rs.2,81,99,540.84 paise shall become due. The respondent-company failed to liquidate the liability and thereupon, the petitioner issued a statutory notice dated 17-01- 2006 under Sections 433(e) and (f) of the Act calling upon the respondent-company to pay the outstanding amount of Rs.2,74,52,259-44 paise within 21 days. The respondent-company failed to pay the amount demanded by the petitioner within the stipulated time. Hence, this petition seeking the relief stated supra. 5. The respondent-company filed counter contending that though an amount of Rs.200 lakhs was sanctioned on 11-6-2004, the amount utilized by the respondent-company was only Rs.90 lakhs. The service charges indicated at Rs.125/- per day for every one lakh rupee is nothing but exorbitant and is violative of the provisions of the Tamilnadu Prohibition of charge of exorbitant Interest Act, 2003, dated 9-6-2003 (hereinafter referred to as “T.P.Act, 2003”). The petitioner obtained MoU dated 17-6-2005 from the respondent- company by force, duress and undue pressure. The securities offered towards sanctioned loan are worth of Rs.8.64 crores. The respondent-company offered an amount of Rs.25 lakhs by way of D.D.bearing No.419408 dated 25-11-2005 issued by DCB Bank, Chennai towards part payment. But the petitioner refused to accept the said amount. Instead, the petitioner resorted to addressing defamatory letters to all banks and financial institutions with an intention to take over the respondent-company, which is worth more than Rs.55 crores. The respondent-company is a solvent company with good labour strength and the entire assets of the company worth around Rs.55 crores and when compared to its liability towards the petitioner, it cannot be construed that the respondent-company has become commercially insolvent. Therefore, the company petition is liable to be dismissed with exemplary costs. 6. The petitioner filed rejoinder on 12-2-2007. It is stated in the rejoinder that the respondent-company admitted its liability to a tune of Rs.2,74,52,259-44 paise, as on 17-6-2005 and the same is evident from clause (7) of the MoU dated 11-6-2004. 7. The company petition came to be admitted on 22-8-2007. The petitioner was directed to take out publication of the admission of the company petition as required under the Companies (Court) Rules, 1959, in VAARTHA Telugu daily and DECCAN CHRONICLE English daily of local edition. Accordingly, the petitioner took out publication and filed proof of the same. 8. On behalf of the petitioner, Mahendra Kumar Jain, Managing Director of the petitioner was examined as PW-1 and six documents were marked as Exs.A-1 to A-6. Ex.A-1 is the Loan Agreement dated 11-6-2004, Ex.A-2 is the MoU dated 17-6-2005, Ex.A-3 is the Statutory notice dated 17-01-2006, Ex.A-4 is the balance sheet of the respondent-company as on 31st March, 2003, Ex.A-5 is the provisional balance sheet of the respondent-company as on 31st March, 2004, Ex.A-6 is the Memorandum of Association and Articles of Association. On behalf of the respondent-company, three witnesses were examined and 13 documents were marked. RW-1 R.V.Baranitharan is the Manager (Commercial) of the respondent- company. RW-2- V.Naveen is the Purchase Manager of the respondent-company and RW-3-B.Srikanth is the General Manager (Operations) of the respondent-company. Ex.B-1 is the letter of authorization dated 6-3-2009 issued by the respondent-company to RW-1 to give evidence, Ex.B-2 is the supplementary Memorandum of Understanding dated 17-7-2004, Ex.B-3 is the statement of Account, Indian Bank, Egmore Branch, Chennai, relatable to the respondent-company, Ex.B-4 is the statement of account of Indian Bank , Egmore Branch, Chennai, Ex.B-5 is the Photostat copy of the demand draft bearing No.419408, dated 25-11-2005 for Rs.25 lakhs, Ex.B-6 is the Photostat copy of the ledger extract maintained by the petitioner for the period from 1-4-2004 to 30-6-2005, Ex.B-7 is the statement of account of State Bank of India, Raichur Branch, Ex.B-8 is ledger extract for the period 18.2.2004 to 31.8.2004, Ex.B-9 is the authorization given to RW-3-P.Naveen to give evidence on behalf of the respondent-company. Ex.B-10 is the letter of authorization to RW-3-B.Srikanth, Ex.B-11 is the balance sheet and profit and loss account of the respondent-company for the year ending March 31, 2007, Ex.B-12 is the balance sheet and profit and loss account of the respondent-company for the year ending March 31, 2008 and Ex.B-13 is the balance sheet and profit and loss account of the respondent-company for the year ending March 31, 2009. 9. Heard Sri A.Sudershan Reddy, learned counsel appearing for the petitioner and Sri S.Ravi, learned senior counsel appearing for the respondent-company. 10. Learned counsel appearing for the petitioner submits that the respondent-company availed the loan facility to a limit of Rs.200 lakhs for running a power plant and to clear the dues to its sundry creditors and offered the stocks in trade as security for the loan. A further submission has been made that the respondent-company acknowledged the outstanding liability of Rs.2,74,52,259-44 as on 31-5-2005 under MoU dated 17-06-2005 and agreed to pay Rs.50 lakhs on or before 10th July 2005 and balance amount on or before 31-10-2005. He would also submit that the service charges at the rate of Rs.125/- per day for every Rs.1 lakh of the outstanding amount has been charged, as per the terms and conditions of the loan agreement and the transaction being a commercial transaction, the agreed term with regard to the payment of service charges cannot be categorized as excessive and at any cost, it is not the rate of interest but, it is towards service charges. In support of his submissions, reliance has been placed on clause (7) of the Loan Agreement dated 11-6-2004, which has been exhibited as Ex.A-1 and Clauses (4) and (5) of the MoU, which has been exhibited as Ex.A-2. It is nextly contended by the learned counsel that the respondent-company neglected to liquidate the undisputed amount without there being any substantial defence in which case, the respondent-company is liable to be wound up. Learned counsel submits that the plea of the respondent-company that an amount of Rs.25 lakhs has been offered towards part payment of its liability is invented for the purpose of the case and at no point of time, the respondent tendered the amount of Rs.25 lakhs to the petitioner. Learned counsel refers the cross-examination of RW-1 in support of his submissions. RW-1 states in cross-examination as hereunder:- “ The loan agreement is for Rs.200.00 lakhs. Ex.A-2-MoU dated 17.06.2005 is signed by A.Subramanyan, M.R.Babu and I am not able to get the third signatory who signed on behalf of the respondent company. Ex.B6 is filed by the respondent company. Ex.B6 is signed by A.Subramanyam, M.R.Babu and a third signatory on behalf of the respondent company. The total outstanding as per Ex.B6 is Rs.3,06,99,540.84 It is not true to suggest that the averments in para 5 are false. It is not true to suggest that what is charged under the agreement is service charges”. 11. Sri S.Ravi, learned Senior Counsel appearing for the respondent-company submits that though the petitioner sanctioned the credit limit up to Rs.200 lakhs, the respondent-company availed only Rs.87,15,500/- and the same has been withdrawn by the petitioner on different names from the account of the respondent- company maintained in the State Bank of Raichur. The MoU dated 17-6-2005 is not out of free will and consent of the respondent- company and therefore, the terms of the MoU cannot be given effect to. He would also submit that the rate of interest charged by the petitioner works out to 72% per annum, which is hit by the provisions of T.P.Act, 2003. According to the learned senior counsel, the amount claimed by the petitioner against the respondent-company is about Rs.2 crores and whereas the assets of the respondent-company are worth around Rs.53 crores, which is far in excess of the liability in which case, the respondent-company cannot be categorized as commercially insolvent. It is nextly contended by the learned senior counsel that the petitioner has not placed on record any primary documents to prove the disbursement of the loan amount nor there is any pleading in the petition, as to how the amounts have been disbursed and in the absence of such material, it cannot be inferred that the respondent availed the entire sanctioned limit. In a way, his contention is that the respondent-company availed only Rs.87,15,500/- out of the sanctioned limit and the said amount has been withdrawn by the petitioner on different names from the bank account maintained (State Bank of Raichur) by the respondent- company. In support of his submissions, learned counsel placed reliance on the judgments of Supreme Court in Chandradhar Goswami and ors. v. The Gauhati Bank Ltd.[1] and Madison Communications Pvt. Ltd. v. Som Distilleries and Breweries Ltd.[2]. In Chandradhar Goswami’s case ( 1 supra), the Supreme Court held that a party could not be made liable to pay merely on the basis of the entry in the accounts, as the same was not a valid evidence under Section 72 of the Indian Evidence Act. The Supreme Court further held that the entries in the bank’s books of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability. In Madison Communications case (2nd supra), the Delhi High Court held that in the absence of any averment in the petition that the company is not running its business profitably or it has lost its substratum, petition for winding up cannot be entertained. 12. Before discussing the evidence brought on record, I deem it appropriate to note the decision of the Supreme Court in Madhusudan Gordhandas and Co. vs. Madhu Woolem Industries Private Ltd.[3] case. In the said case, the Supreme Court held that where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. The principles on which the Court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly, the company adduces prima facie proof of facts on which defence depends. 13. In Vijay Industries vs. NATL Technologies Ltd.[4], the Supreme Court held that for invoking the relevant provisions i.e., Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956 in relation to winding up of a company on the ground of its inability to pay its debt, what is necessary is that despite service of notice by the creditor, the company which was indebted in a sum exceeding one lakh rupees then due, failed and/or neglected to pay the same within three weeks thereafter or to secure or compound for it to the reasonable satisfaction of the creditor. Failure of the company to pay the agreed interest or the statutory interest would come within the purview of the word “debt”. Further, Section 433(e) of the Companies Act does not state that the debt must be precisely a definite sum. It is not a requirement of law that the entire debt must be a definite and certain. 14. It is well settled that the procedure under Section 433 of the Indian Companies Act is summary. When the company produces prima facie proof of facts on which the defence depends and which is probable and there is likelihood to succeed in point of law, it cannot be said that the company has neglected to pay within the meaning of Section 434(1)(a) of the Companies Act. Bona fide disputes implies substantial ground for the dispute raised. 15. Ex.A-2 MoU dated 17-6-2005 has been marked through PW-1. The statutory notice dated 17-1-2006 has also been marked through him as Ex.A-3. There is a gap of nearly one year between the date of MoU and the statutory notice. At no point of time, the respondent- company, during this period of one year, raised disputes with regard to the term of the MoU. Indeed, the authorized persons of the respondent-company participated in the negotiations and signed on Ex.A-2-MoU. Nothing is elicited from PW-1 in the cross-examination as to in what way, the petitioner prevailed over the respondent- company to agree the terms which are to its disadvantage. Indeed, it is elicited from RW-2 in the cross-examination that the petitioner provided service to the respondent-company for procurement of machinery, raw material, appointing labour for running plant successfully etcetera. When once the execution of Ex.A-2 MoU has been accepted as true, there is no further material required to place on record by the petitioner to prove that the respondent-company accepted the liability of Rs.2,74,52,259-44 as on 17-6-2005. None of the witnesses examined on behalf of the respondent-company disputed Ex.A-2 MoU. The plea of the respondent-company is that the petitioner prevailed over the respondent-company to agree to the terms and conditions stated therein. There is no material on record as to in what way the petitioner prevailed upon the respondent- company to agree to the terms and conditions incorporated in the MoU, which are to its disadvantage. Having accepted its liability to a tune of Rs.2,74,52,259-44, it is impermissible for the respondent- company to dispute its liability. Not even a single document has been placed on record that during one year period from the date of MoU Ex.A-2 to the issuance of statutory notice Ex.A-3, the respondent-company raised its voice at any point of time that the terms and conditions incorporated in the MoU are not out of its free will. The respondent-company having agreed to discharge the liability as per the schedule indicated in the MoU, cannot be permitted to disown its liability. The evidence of PW-1 and the documents placed on record clearly establish that the respondent-company availed the loan facility and became indebted to a tune of Rs.2,74,52,259-44 as on 31-5-2005. 16. The plea advanced by the respondent-company is that the rate of interest charged by the petitioner on the loan amount is in violation of the T.P.Act, 2003. The petitioner explained that what is charged is service charge and it is not an interest component. The loan agreement specifies the same. Therefore, the plea of the respondent-company, in this regard, has no basis. 17. Learned Senior Counsel submits that in Ex.B-6, there are unauthorized debts to the account of the respondent-company to a tune of Rs.75 lakhs and therefore, those unauthorized debts are required to be deducted. He would further submit that the petitioner has withdrawn an amount of Rs.1,21,69,340/- as per the entries in Ex.B-8 and this amount is required to be given due credit towards the liability, which the respondent-company is required to discharge. The next contention urged by the learned senior counsel is that the interest portion alone from 31-8-2004 to 30-6-2005 comes to Rs.85,47,340/- and that itself is sufficient to infer that the interest charged by the petitioner is excessive and exorbitant. 18. RWs 1 to 3 are the witnesses on behalf of the respondent. None of the witnesses stated that Rs.50 lakhs and Rs.25 lakhs have been wrongly debited to their accounts and so also they did not state of unauthorized withdrawals from the account of the respondent- company to a tune of Rs.1,21,69,340/- by the petitioner. Therefore, the plea of the respondent-company with regard to unauthorized debts and withdrawals by the petitioner is not based on any material. The evidence of PW-1 and Exs.A-1 to A-6 clearly establish that the respondent-company is indebted to a tune of Rs.2,74,52,259-44 and despite the statutory notice, it failed to liquidate the liability. Therefore, the petitioner made out a case that the respondent- company has become commercially insolvent warranting an order of winding up. 19. Accordingly, the Company Petition is allowed ordering winding up of M/s.Bhagyanagar Solvent Extractions Pvt. Limited-respondent Company and the official liquidator attached to this Court is appointed as liquidator. Notice of the Order for winding up of M/s.Bhagyanagar Solvent Extractions Pvt. Limited-respondent Company shall be sent forthwith to the Official Liquidator in Form No.50 under Rule 109 of the Companies (Court) Rules, 1959, enclosing a copy of the petition and affidavit filed in support of the petition. Pursuant to Rule 114, the Official Liquidator shall forthwith take into his custody or under his control all the properties and effects and the books and papers of the company and shall take necessary steps for that purpose. The order for winding up shall be drawn up in Form No.52 and two certified copies thereof shall be sent as per Rule 111 to the Official Liquidator. The Official Liquidator shall cause a sealed copy of the order served on the company as required by sub-rule (2) of Rule 111 and also serve true copy of the order on the Managing Director of the company by pre- paid registered post. 20. Learned counsel appearing for the respondent-company seeks to defer publication of the order of winding of the respondent-company for two weeks, so as to enable the respondent to deposit the disputed amount. Accordingly, two weeks time is granted for deposit of the disputed amount. Failing to deposit the amount within two weeks from today, the order for winding up the respondent-company shall be advertised by the petitioner in “Deccan Chronicle” (English daily) of Hyderabad edition and “Andhra Prabha” (Telugu daily) of Hyderabad edition. The petitioner shall deposit a sum of Rs.25,000/- (Rupees twenty five thousand only) towards initial expenses within four weeks. No costs. _____________________ B.SESHASAYANA REDDY, J :: APPENDIX OF EVIDENCE:: :: WITNESSES EXAMINED ON BEHALF OF THE PETITIONER:: PW-1 : Mahender Kumar Jain Managing Director :: WITNESSES EXAMINED ON BEHALF OF THE RESPONDENT:: RW-1 R.V.Baranitharan Manager (Commercial) RW-2 V.Naveen Purchase Manager RW-3 B.Srikanth General Manager (Operations) :: EXHIBITS MARKED ON BEHALF OF THE PETITIONER :: Ex.A-1 Dt. 11-06-2004 Loan Agreement Ex.A-2 Dt.17-06-2005 Memorandum of Understanding Ex.A-3 Dt.17-01-2006 Statutory notice Ex.A-4 Dt. 31-05-2003 Balance sheet as on 31/3/03 Ex.A-5 Dt. 31-05-2003 Balance sheet as on 31/3/04 Ex.A-6 Dt. 10-06-2011 Memorandum of Association & Articles of Association :: EXHIBITS MARKED ON BEHALF OF THE RESPONDENT :: Ex.B-1 Dt. 06-03-2009 Authorization Letter Ex.B-2 Dt.17-07-2004 Supplementary Memorandum of Understanding Ex.B-3 Dt.27-02-2005 Statement of Account Ex.B-4 Dt.24-03-2005 Statement of Account Ex.B-5 Dt.25-11-2005 Demand Draft bearing No.419408 for Rs.25 lakhs Ex.B-6 Dt.30-06-2005 Ledger Account from 1-4-04 to 30- 6-2005 Ex.B-7 Dt. 10-09-2005 Statement of Account Ex.B-8 Dt. ----- Table showing details of petitioner’s ledger Account, amount received by respondent & Cash withdrawals by petitioner from Respondents A/c in SBI, Raichur. Ex.B-9 Dt.09-4-2010 Letter of Authorization Ex.B-10 Dt.07-07-2010 Letter of Authorization Ex.B-11 Dt.03-09-2007 Accounts for the year ended 31/3/2007 Ex.B-12 Dt.19-9-2008 Balance sheet and profit and loss statement for the year ending 2008. Ex.B-13 Dt.2/9/2009 Balance sheet and profit and loss Account for the year ending 2009. __________________________ B.SESHASAYANA REDDY, J Dt.21-09-2011 Note:- Issue CC within a week (B/o) *RAR [1] AIR 1967 SC 1058 [2] [2005]126Compcas786(Delhi) [3] AIR 1971 SC 2600 [4] (2009) 3 SCC 52