Bombay High Court
Jai Hind Finance (India) Limited vs Kotak Mahindra Bank Ltd on 25 January, 2018
Bench: Naresh H. Patil
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO. 337 OF 2017
WITH
NOTICE OF MOTION (ST) NO. 1740 OF 2017
IN
APPEAL (L) NO. 337 OF 2017
Jai Hind Finance (India) Limited ... Appellants
V/s.
Kotak Mahindra Bank Ltd. ... Respondents
ALONGWITH
APPEAL (L) NO. 339 OF 2017
WITH
NOTICE OF MOTION (ST) NO. 1744 OF 2017
IN
APPEAL (L) NO. 339 OF 2017
Swaraj Infrastructure Pvt. Ltd. ... Appellants
v/s.
Kotak Mahindra Bank Ltd. ... Respondents
ALONGWITH
APPEAL (L) NO. 338 OF 2017
WITH
NOTICE OF MOTION (ST) NO. 1742 OF 2017
IN
APPEAL (L) NO. 338 OF 2017
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BUL-MSK Infrastructure Pvt. Ltd. ... Appellants
v/s.
Kotak Mahindra Bank Limited ... Respondent
ALONGWITH
APPEAL (L) NO. 336 OF 2017
WITH
NOTICE OF MOTION (ST) NO. 1741 OF 2017
IN
APPEAL (L) NO.336 OF 2017
Bharat Udyog Private Ltd. ... Appellants
v/s.
Kotak Mahindra Bank Ltd. ... Respondents
Ms. Jennifer Michael i/b. Anil D'Souza for appellants.
Mr. Rohit Gupta a/w. Mr. Nikhil Rajani i/b. M/s. V. Deshpande & co. for
respondents.
CORAM : NARESH H. PATIL AND
NITIN W. SAMBRE, JJ.
25th January, 2018.
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ORAL ORDER (PER NARESH H. PATIL,J)
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.
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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 BUL-MSK
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
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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
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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.1 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
1 2000 (Bom.) 419
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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."
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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
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meaning of clause (b) of sub-section (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.2 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:
2 2001 Company Cases (Bom.) page 53
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" 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 creditor's 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
Goyal3, 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,
3 2013(3) ALL MR 379
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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 sub-section (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
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Rajamannar, C.J. & Rajagopala Ayyangar, J., it was
held that it was well-established 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
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1973 (43) Com 556. In Bharat Overseas Bank Ltd. v.
Shree Arcee Steels P. Ltd., a Division Bench of this
Court followed these well-settled 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 creditor's 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
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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 respondent's 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
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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
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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.
19. We are informed by the Counsel appearing for the respondent
that so far nothing has been paid to the respondents against the loan
advanced to these appellants by the respondents. In the facts, we find
that the learned Single Judge exercised reasonable discretion. The
view adopted by the learned Single Judge is probable one. We do not
find any perversity in the view. There is no merit in the appeals. The
appeals are dismissed.
20. In view of dismissal of appeals, nothing survives for
consideration in the pending Notices of Motion for stay being NM
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No.1740/17, 1741/17, 1742/17 and 1744/17. The same are disposed of
accordingly.
(NITIN W. SAMBRE, J) (NARESH H. PATIL, J.)
L.S. Panjwani, P.S.
