Bombay High Court

Horizon Flora India Limited vs Assets Reconstruction Co. India ... on 27 October, 2010

Bench: P. B. Majmudar, Anoop V.Mohta

                                                  -1-

                                                     




                                                                                          
                        IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                           ORDINARY ORIGINAL CIVIL JURISDICTION 




                                                                  
                                APPEAL (L) NO. 559 OF 2010
                                            IN 
                             COMPANY PETITION NO. 189 OF 2008




                                                                 
    Horizon Flora India Limited                                           )
    having its registered office at Horizon House,                        )
    Village Induri, Taluka Maval, Dist. Pune-410 507                      )...Appellant




                                                   
           versus
                                 
    Assets Reconstruction Co. India Ltd.
    having its registered office at 17th floor, Express Towers,
                                                                          )
                                                                          )
    Nariman Point, Mumbai-400 021                                         )...Respondent 
                                
    Mr. Yogesh Mehta,  instructed by Mr. Sachin S. Punde, for the appellant. 
    Mr. D.D. Madon, Senior Advocate, with  Mr. Vinod Kothari and Mr. Sahil Saiyed, 
    instructed by M/s. Apex Law Partners, for the respondent. 
      
          


                                                            CORAM:  P.B. MAJMUDAR  &
                                                                            ANOOP V. MOHTA, JJ.

DATE: OCTOBER 27, 2010.

ORAL JUDGMENT: (Per P.B. Majmudar, J.)

This appeal is directed against the order of the learned single Judge

dated 16th July, 2010 in Company Petition No. 189 of 2008 by which the

Company in question is ordered to be wound up.

2. The learned counsel for the appellant vehemently submitted that

since the original petitioner, Asset Reconstruction Company (India) Ltd.

(ARCIL) is an assignee of the debt, Company Petition at the instance of ARCIL

for winding up is not maintainable. It is further submitted that ARCIL has been

assigned the debt by the Dena Bank. The Bank also instituted proceedings

before the Debts Recovery Tribunal (DRT). He submits that since the

proceedings are pending before the DRT, winding up petition is not

maintainable. He further submits that even otherwise the assignment in favour

of ARCIL is not a valid assignment under the SARFAESI Act as ARCIL is also a

sole trustee.

3. Mr. Madon, learned senior counsel appearing for the respondent, on

the other hand, submitted that the company is totally insolvent for which he has

relied upon the report of the Chartered Accountant. In view of the said report,

he submits that the Company is required to be wound up under the provisions of

the Companies Act. So far as the point regarding ARCIL being a sole trustee

and whether it has right to proceed under the Act is concerned, a Division Bench

of this Court in Writ Petition No. 1268 of 2010 ( Alpha and Omega Diagnostics

India Ltd. vs. Asset Reconstruction Company (I) Ltd. and others) dated 9th

August, 2010 has decided the said point and it has been observed in paragraph

30 of the said judgment thus:

"30. In the view that we have taken and fin ding that the law laid down in Krishna Filaments cannot be said to be any longer valid and good in the light of the statutory provisions that the further issue, about correctness of the conclusions recorded by

Division Bench in paras 25 and 26 and the interpretation placed

on the definition of the word "debt" need to be considered. Now, the Bank or financial institution as an assignee can proceed under the Securitization Act, so also under the RDB Act. The

term "debt" as appearing in Section 2 (g) would have to be considered in the light of the broad interpretation that we have placed on the provisions of the Securitisation Act. The distinction that is drawn by Mr. Samdani is no longer valid. Even if the bank or financial institution is acting as a Trustee as

suggested, it can take recourse to the RDB Act. This is clear from a reading of the definition of the term "secured creditor" as defined in Section 2 (zd) of the Securitization Act. That term includes debenture trustee appointed by the Bank or financial

institution or securitisation company or reconstruction company, where acting as such or managing a trust set up by such

securitization company or reconstruction company for securitisation or reconstruction company as the case may be or any other trustee as contemplated by section 2 (zd) (iii). The term security interest is defined in Section 2 (zf) of the

Securitization Act and it means right, title and interest of any kind whatsoever of property created in favour of any secured creditor and includes any mortgage, charge, hypothecation and assignment. Therefore, when the bank or financial institution as

in the case of Krishna Filaments is acting as a debenture Trustee, then, it will not be required to approach the ordinary civil court but can take recourse to the Securitization Act and consequently,

as permissible therein, the RDB Act as well. If the arguments to the contrary are accepted that would mean ignoring and brushing aside the inclusive definitions as noticed by us. Therefore, we are of the view that in the present case,

considering the definition of the term "debt" and "financial institution" appearing in the RDB Act, 1993 and the relevant provisions of Securitization Act so also to give full effect to the same, it will have to be held that it was permissible for parties such as Arcil to apply for amendments to the Original

Application No. 89 of 2005."

4. So far as assignment of debt is concerned, recently the Hon'ble

Supreme Court of India in the case if ICICI Bank Limited vs. Official Liquidator of

APS Star Industries Ltd. and others, decided on 30th September, 2010, has upheld

such assignment. It, therefore, cannot be said that ARCIL has no locus standi to

move the Company Judge for winding up of the Company by virtue of such

assignment.

5. It is not in dispute that the Company's financial position is absolutely

bad. In that behalf, we have perused the balance-sheet and the report of the

Chartered Accountant. The learned counsel for the appellant is unable to make

out any points in this behalf.

6. The question as to whether the proceedings for winding up of the

Company before the Company Court is maintainable on the ground that the

principal creditor i.e. Dena Bank has already moved DRT to recover the debt

wherein ARCIL is also substituted as an assignee. ARCIL has also moved an

application to join as a party to the said proceedings as it has taken over the

assets and not liabilities by way of assignment.

7. Mr. Madon has also relied upon the judgment of the Supreme

Court in the case of Viral Filaments Limited vs. Indusind Bank Limited1, wherein it

has been held as under.

"19. Mr. Shah then made an argument which appears to us to be one of desperation. He contends that an order of winding up is a discretionary order and where it is possible to ascertain that a large number of employees are likely to be rendered jobless as a result of the order, or where there are other circumstances

1 (2001) 4 Com LJ 44 (Bom)

indicating that the financial stringency is a temporary phase and

the company is able to get out of it, there is no need for the Company Court to make an order for winding up. He relied on the judgment of the Company Court of the Gujarat High Court in

Rishi Enterprises in re (1992) 73 Comp Cas 634 (P&H). What has been held in these two judgments is unexceptionable. If there is a silver lining, then the dark clouds need not impel the Company Court into admitting the petition for winding up the company. But is there a silver lining at all in the appellant's case is the

crucial question. We have already referred to the gist of the affidavit in reply filed to oppose admission of the winding up petition. One would have expected the argument to be based on surer foundation. If there was any material presented before the

Company Court to indicate that the company's assets far exceeded its liabilities, or that the cash crunch was only a

temporary phase, and given a little breathing time, the company would soon come out of straits, the argument could have been considered. After anxiously scanning the affidavit in reply, we find neither any pleading, nor any material particulars which

could have satisfied the learned Company Judge on this issue. Thus, the learned Company Judge had nothing but the statutory presumption to fall upon, which he rightly followed up with an order or admission of the petition. Hence, we are unable to say

that the learned Company Judge in any way erred in admitting the petition for winding up."

8. Considering the said fact, it cannot be said that ARCIL has no locus

to move winding up petition before the Company Court as it is an admitted fact

that the debt is assigned by Dena Bank in favour of ARCIL and by virtue of such

assignment, winding up petition is filed. As pointed out above, since the

Company is unable to pay its debts and since considering the report of the

Chartered Accountant and the balance-sheet, the Company is totally insolvent

which, in our view, has rightly been ordered to be wound up by the learned

single Judge by giving cogent reasons. The learned counsel for the appellant is

unable to point out that the Company's financial position is sound to meet the

liabilities. In fact, looking to the facts and circumstances and considering the

report of the Chartered Accountant, in our view, the Company in question

deserves to be wound up as it is totally in an insolvent position.