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

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 (1 = appeal accepted, 0 = rejected): 0

Explanation:
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.