Case: M/S.Asian Power Controls Limited Vs. Mrs. Bubbles Goyal

2. The Respondent advanced a loan in the amount of Rs.50 lakhs to the Appellant by a cheque dated 5 August 2008. A loan agreement was entered into between the company and the Respondent. A promissory note dated 5 August 2008 was executed by the Appellant agreeing torepay the loanof Rs.50 lakhs together with interest. The company, as security for theof the loan, pledged the title deeds of certain immovable property belonging to it and situate at Pondicherry with the Respondent. Acheque in the amount of Rs.50 lakhs was issued in favour of the Respondent. Sixcheques each in the amount of Rs.1,33,005/towards interest payable on the loan were honoured on presentation. Interest on the loan was paid until October 2009. On 14 August 2009 the company addressed a letter to the Respondent seeking an extension of time torepay the loanuntil 25 December 2009. Acheque dated 25 December 2009 in the amount of Rs.50 lakhs was handed over. The cheque was deposited on 9 April 2010, but was returned by the bankers of the company on the ground that funds were insufficient.3. A statutory notice of winding up was addressed to the company on 1 May 2010. In a reply dated 13 May 2010, the company contended that it was not liable to pay any amount inter alia on the ground that the Respondent did not hold a licence from the Reserve Bank and the documents were fabricated. A Petition for winding up was filed before the Company Court on the ground that the company was unable to pay its debts. An affidavit opposing admission was filed on 13 April 2011 contending that since the Respondent was a secured creditor, a Company Petition for winding up at its behest was not maintainable. This defence was rejected by the Company Judge, while relying upon a judgement of a Division Bench of this Court in Bharat Overseas Bank Ltd. v. Shree Arcee Steels P. Ltd. (1985 Vol.58 Company Cases 174).The Division Bench had held in that case, relying upon judgements of the Madras and Calcutta High Courts, that a Company Petition for winding up could not be dismissed at the stage of admission on the ground that the debt was secured. The Company Petition was admitted and advertised.4. Prior to the filing of the petition for winding up, proceedings under section 138 of the Negotiable Instruments Act, 1888 were instituted before the Court of the Metropolitan Magistrate at New Delhi. A criminal complaint was also filed by the Appellant. A reference to mediation was made before the Delhi High Court Mediation and Conciliation Centre. During the course of the mediation proceedings, a settlement was arrived at between the parties on 22 October 2011. The terms of settlement were asThat M/s.Asian Power Controls Ltd. undertakes to pay Mrs.Bubbles Goyal a sum of Rs.60,00,000/(Rupees sixty lacs) in full and final settlement of all liabilities, dues and claims under the Loan Agreement dated 5th August 2008 within 120 days of the date of signing of the present Settlement Deed by means of demand draft(s) drawn in favour of Mrs.Bubbles Goyal.B. That at the time of signing of loan agreement dated 5th August 2008, as stated in para 2 of the Loan Agreement, the company had hypothecated the title papers of the land owned by the Company at PlotMettupalayam Industrial Estate, P.I.P.D.I.C. Thattanchavady Revenue, Oulgaret Commune, Pondicherry in favour of Mrs.Bubbles Goyal. On receipt of the complete amount of Rs.60,00,000/(Rupees sixty lacs) within 120 days of the date of signing of the present Settlement Deed, Mrs.Bubbles Goyal undertakes to return thedocument to the company.C. Mrs.Bubbles Goyal further undertakes to deposit the hypothecated title papers of the land owned by the Company at PlotMettupalayam Industrial Estate, P.I.P.D.I.C. Thattanchavady Revenue, Oulgaret Commune, Pondicherry with the Registrar General of the Honble High Court of Delhi. That after such deposit, Mr.Munesh Kumar, the authorized representative of M/s.Asian Power Controls Ltd., may take into his possession the said document on superdari basis for a fixed time period by giving an undertaking in this regard. The said documents shall be deposited back again by Mr.Munesh Kumar with the Registrar General after the expiry of the fixed time period. In case M/s.Asian Power Controls Ltd. has made the payment of Rs.60,00,000/(Rupees sixty lacs) before the expiry of the fixed time period Mr.Munesh Kumar would not be required to deposit back the hypothecated title papers with Registrar General of the Honble High Court of Delhi.D. On receipt of the complete amount of Rs.60,00,000/(Rupees sixty lacs) by Mrs.Bubbles Goyal within 120 days of the signing of the present settlement deed, Mrs.Goyal further undertakes to withdraw Complaint Case No.2034 of 2010 u/s. 138 NIA before the Court of Ld. M.M. Shri Dhiraj Mittal (Court room No.509), District Courts, Saket, New Delhi and Company Petition No.455 of 2010 u/s 433 of the Companies Act, 1956 before the Honble High Court of Bombay. Mr.Monish Mukkar undertakes to withdraw the Criminal Misc. (Main) No.1835 of 2011 filed before the Delhi High Court u/s. 482 CrPC and Mrs.Bubbles Goel undertakes to withdraw the counter affidavit filed by her on 22.10.2011 in the Criminal Misc. (Main) No.1835 of 2011 before the Honble High Court.E. Further, Mrs.Bubbles Goyal and Mr.Munesh Kumar undertake to make a statement to the Honble High Court of Delhi in accordance with the terms of the present settlement deed in Criminal Misc. (Main) No.1835 of 2011 immediately on the signing of the present settlement deed.9. By signing this Agreement the parties hereto state and admit that they have no further claims or demands against each other of any nature whatsoever and all the disputes and differences have been amicably settled by the Parties hereto through the process of Mediation.10. That the parties declare before the Honble Court that they are bound by this Settlement Agreement and undertake to abide by the terms and conditions set out in the agreement and not to dispute the same hereinafter in future.5. In terms of the settlement between the parties, the Respondent admittedly deposited the title deeds of the immovable property at Pondicherry with the Registrar General of the Delhi High Court. The settlement was accepted by the Delhi High Court on 9 December 2011 (In Cri.M.C. 1835/2011 and Cri.M.A.6587/2011). The time for the Appellant to effect payment of a sum of Rs.60,00,000/to the Respondent expired on 21 February 2012. Admittedly, no payment was made. Even before the Court of the Metropolitan Magistrate (NIEast New Delhi), a statement was made on 21 February 2012 that the amount as settled would be paid within a period of two months. This was recorded in an order dated 30 March 2012 of the Metropolitan Magistrate, a copy of which has been placed on record. Admittedly, that statement was not complied with and no payment has been made. The Company Petition was admitted by the Company Judge on 12 March 2012. When the Company Petition came up for final disposal on 21 June 2012, a statement was made on behalf of the Respondent that the dues of the Respondent cannot be recovered by the sale of the land at Pondicherry. The learned Company Judge noted that it was also not the case of the company, in the affidavit filed at the stage of admission that the leased property was worth the claim of the Respondent as of date nor was it so contended on behalf of the Appellant even at the stage of final hearing. The learned Company Judge noted that the modus operandi of the company through out has been to have the matter adjourned on one pretext or the other; there were several other Petitions against the company which were admitted and listed for final hearing and that the company is not doing any business and has stopped its operations for quite some time. Having come to the conclusion that the company is unable to pay its debts, the learned Company Judge allowed the Company Petition by ordering the winding up of the company and directing that the Official Liquidator shall stand appointed as Liquidator.

Court's reasoning:
Having regard to the position in law as consistently followed in the judgments of the Madras, Calcutta and Karnataka High Courts and as reiterated in the judgment of the Company Court in CanfinHomes Ltd., it is not possible to accept the submission which was urged on behalf of the Appellant. The law does not impose an unreasonable condition of requiring a secured creditor to forsake his security before he asserts a right to urge that a company which is unable to pay its debts should be wound up. The Respondent has stated before the learned Company Judge, when the petition for winding up came up for hearing that it was not possible for the Respondent to recover her dues by the sale of the land in respect of which a security has been created in favour of the Respondent. The claim of the Respondent is still to be proved in the course of the winding up proceedings. A secured creditor who has a mortgage, charge or lien on the property of the company as security for her debt may either: (a) enforce the security and prove in the winding up for the balance of the debt after deducting the amount realised; or (b) surrender the security to the Liquidator and prove for the whole of the debt as an unsecured creditor; or (c) estimate the value of the property subject to her security, and prove for the balance of the debt after deducting the estimated value; or (d) rely on the security and not prove in the winding up proceedings (Penningtons Company Law (Fourth edition, page 762).A secured creditor has the option of relinquishing his security and/or proving the entirety of his debt in the course of winding up. If the secured creditor does so in the course of winding up proceedings, the security will enure for the benefit of the body of creditors. On the other hand, it is open to a secured creditor to prove in the course of winding up proceedings to the extent of his debt which has not been realised outside the proceedings for winding up by either accounting for the amount that has been so realised or by estimating the value of the property subject to security so as to enable him to prove in respect of the balance of the debt. On either view of the matter, that stage is still to arrive.11. For these reasons, we are of the view that the learned Company Judge was not in error in initially admitting the Petition and thereafter making the Company Petition for winding up absolute. No case for interference in appeal is made out.Section 529(1) of the Companies Act, 1956, provides that in the winding up of an insolvent company, the same rules shall prevail and be observed with regard to (a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. Under(2) of section 529, all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of the section. Section 529A provides an overriding preferential priority to the dues of the workmen and to the debts due to secured creditors to the extent to which such debts rank paripassu under clause (c) of the proviso to(1) of section 529 with such dues. The rules of insolvency which are attracted to proceedings of winding up are inter alia those pertaining to the proof of debts. This is after the stage of the winding up order. This principle has been enunciated in a judgment of Mr.Justice M.N.Venkatachaliah (as the learned Chief Justice then was) speaking for a Division Bench of the Karnataka High Court in Hegdeand Golay Limited v. State Bank of India (ILR 1987 Kar 2673). The judgment of the Company Judge of this Court in CanfinHomes Ltd. (supra) has also followed the principle that the scheme of the provisions relating to winding up, particularly those in sections 528 and 529 would indicate that the stage of proving a claim of a debt arises after an order of winding up is passed.