Icici Bank Ltd. vs Minerva Telelink Ltd.
2004 Latest Caselaw 819 Del

JUDGMENT

A.K. Sikri, J.

1. ICICI Bank Ltd. is the petitioner, which has filed this company petition seeking winding up of the respondent company. This petition is filed under Section 439 read with Sections 433(e) and 434 of the Companies Act, 1956 (hereinafter referred to as the 'Act'). The primary allegation is that the respondent company owes a sum of Rs. 4,20,97,018 (inclusive of interest calculated at agreed rate of 16.98% per annum) as on 8 July 2003 and the respondent has not paid this amount to the petitioner in spite of various demands as well as statutory notice issued under Sections 433 and 434 of the Act.

2. The transaction unfolded in the petition relates in grant of loan in the sum of Rs. 3,00,00,000 which petitioner agreed to disburse to the respondent company for purchasing equipment for the advancement of the business of the respondent company. It was agreed that this loan shall be repayable within 12 months from disbursement and the equipments purchased would be hypothecated with the petitioner by way of security for the repayment of the loan. The managing director of the respondent company late Shri Ajay S. Bhartia had agreed to stand guarantee for the repayment of the loan amount. Property of respondent's sister concerns, viz., Minerva Holdings Ltd. and International Industries Ltd., were also offered as mortgage by way of collateral security. An equipment-cum-hypothecation agreement dated 30 November, 2001 was executed between the parties.

3. In the month of June 2002-the respondent company as well as Minerva Holdings Ltd. again approached the petitioner and sought a term loan of Rs. 4,50,00,000. Request was also made to re-schedule the earlier loan as a sum of Rs, 1,00,30,000 remained outstanding in the said account. The petitioner agreed to disburse the term loan of Rs. 4,50,00,000 inclusive of the payments pending under the earlier agreement between the parties. Accordingly, another equipment loan cum hypothecation agreement dated 28 June 2002 was executed between the petitioner as lender and the respondent company as well as Minerva Moldings Ltd., as borrowers. Guarantee and other loan documents were executed between the parties.

4. The equipment purchased by the respondent out of the money advanced by the petitioner was hypothecated with the petitioner creating first charge in its favor which was duly registered with the register of charges maintained by the Registrar of Companies. The amount was also duly disbursed in 13 tranches (Specified parts of a larger loan transaction. For instance, in this case, each tranche comprised of a sum of Rs. 34,61,539-Editor.) by the petitioner details whereof are given in para 13 of the petition. Each tranche comprised of a sum of Rs. 34,61,539.

5. The petitioner alleges that despite all undertakings and commitments rendered by the respondent, the respondent company committed default under agreement dated 28 June 2002 and the outstanding due as on 8 July 2003 inclusive of interest was Rs. 4,20,97,018. The cheques that had been tendered by the respondent in purported repayment of dues under the agreement were also dishonored upon presentation. Notice of demand dated 15 July 2003 %vas issued followed by additional notice dated 29 July 2003 containing corrections of one or two errors that had crept in the former notice. However, the respondent company failed to respond to the said notice. The petitioner, in these circumstances filed O.A. No. 68/2003 for recovery of amount against the respondent company as well as Minerva Holdings Ltd. (the co-borrower). International Industrial Ltd., the mortgagor and the legal heirs of late Shri Ajay S. Bhartia, the guarantor. This petition is pending before the Debt Recovery Tribunal-Ill, Delhi. It is averred by the petitioner that after the service of notice in this OA on 5 September 2003 respondent addressed communication dated 15 September 2003 acknowledging that respondent owed a sum of about Rs. 3.50 crores to the petitioner. Copy of this letter is filed as Annexure K to the petitioner. On the basis of this letter-the petitioner contends that the respondent admits the liability to pay the debts and prayer is made that it should be wound up.

6. The respondent has not filed reply to this petition. Instead, present application is filed by the respondent for dismissal of the winding up petition on the solitary ground that as the petitioner has already filed original application being OA No. 68/2003 before the Debt Recovery Tribunal-Ill, Delhi, which is pending adjudication, the present winding-up petition is not maintainable. The question of maintainability of this petition is, therefore, required to be considered in the aforesaid background.

7. Mr. Prag Tripathy, learned senior counsel appearing for the applicant (respondent company submitted that the issue is no more res Integra and stands concluded by the judgment of a Single Judge of this court in the case of Bank of Nova Scotia v. RPG Transmission Ltd. (2002) 101 DLT 154. He argued that in the aforesaid case, precisely this very issue was considered, and it was held that when the bank takes recourse to filing the recovery proceedings in the Debt Recovery Tribunal, winding up petition would not be maintainable. It was also submitted that the sound principle based on public policy is that two parallel proceedings for same cause of action were not maintainable; and as petitioner had taken recourse to the proceedings under the Recovery of Debts due to Bank and Financial Institutions Act, 1973 (hereinafter referred to as the 'Debts Recovery Act') by filing OA No. 68/2003 before the Debt Recovery Tribunal-III, Delhi, second proceedings for the same purpose in this court by means of present winding up petition was ill-conceived and in support, reliance was placed on the judgment in the case of Awadh Bihari Yadav and Ors. v. State of Bihar and Ors. (1995) 6 SCC 31. He also submitted that the Debt Recovery Act was a special statute and the petitioner bank's case was based on the allegation that it was a secured creditor and therefore, it was necessarily outside the winding-up proceedings as held by the Supreme Court in the case of Allahabad Bank v. Canara Bank and Anr. (2000) 4 SCC 406 and relying on this judgment, this court in the case of Nora Scotia (2003) 2 Comp LJ 129 (Del), supra, had rightly held that the winding-up petition would not be maintained [maintainable].

8. Mr. Vinayak, learned counsel appearing for petitioner, on the other hand, submitted that the present application was misuse and abuse of the process of law; the purpose was only to delay the proceedings and for this reason, even the reply to the petition was not filed; the winding up proceedings were not in the nature of recovery suit or claim for money; and therefore, could not be treated as parallel proceedings. Taking help of the judgment of the Supreme Court in the case of Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. AIR 1999 SC 2354, as well as that of Patna High Court in the case of Central Bank of India v. Sukhani Mining and Engineering Industries (P) Ltd. and Ors. (1977) 47 Comp Case 1 (Pal), he argued that the present petition was undoubtedly maintainable. His submission was that the judgment of the Single Judge of this court in the case of Nova Scotia (2003) 2 Comp LJ 129 (Del), supra, did not lay down the law correctly against which appeal was pending before the Division Bench. He submitted that in any case, the said judgment had no application to the facts of this case.

9. After considering the rival submissions, I am of the view that at this stage, it is not necessary to decide the issue raised in the application. Admittedly, the appeal against that judgment being CA No. 2/2003 is pending before the Division Bench and I am informed that the same is coming up for hearing on 16 September 2004. Instead of awaiting the outcome in the said appeal, proper course would be to direct the respondent to file reply to the present petition so that proceedings do not stagnate in the meantime. We find that in the cases of Nova Scotia (2003) 2 Comp LJ 129 (Del)-one of the reasons which became the governing factor for the learned Judge to hold that the winding up petition would not be maintainable once proceedings are filed by the bank before the Debt Recovery Tribunal, was that the Company Judge was also to undertake the same task, namely, whether there is any debt which may amount to adjudication of the claim of the petitioning creditor. This is clear from the following observations:

"14. It is trite law to state that a winding up petition is not akin and similar to legal proceedings for the recovery of money. The jural reality is that the petitioning creditor has only one objective in mind while invoking Sections 433 of the 434 of the Companies Act, and that is for effecting a recovery of his outstandings. In the present day and age when legal proceedings are costly, cumbersome and time consuming, it would be difficult, nay well nigh impossible to find an altruistic person who initiates legal action solely with the humerous creditors of a sinking company in mind. Even at the stage of issuing notice of a winding up petition, the Company Judge is not expected to act mechanically, since winding-tip orders have wide dimensions and fatal consequences. The judge examines whether a prima facie case has been made out to disclose the respondent company's recalcitrance or inability to pay its debts. The Company Judge thereafter perforce carefully considers the defense put forward by the respondent company. Till this stage, the Judge does nothing that is contrary [to] or different [from] adjudication which according to the Concise Oxford Dictionary is to decide judicially regarding a claim, etc. After the introduction of the RDR Act, I find it difficult to accept the preservation of the jurisdiction of the Company Judge to adjudicate upon matters which fall within the purview of the Act. Experience shows that although a clear admission of debt may be absent at the stage of the issuance of notice on the winding-up petition, it may become apparent after the pleadings have been completed. Conversely, there may be an admission of debt, which proves to be palpably illusory after consideration of the defense put forward on behalf of the respondent company. In the first case, the Company Judge would admit the petition and in the second case would dismiss it. The entire activity is one of adjudication."

10. The learned Judge further observed that this may not be the position, if there is already a judicial determination and decree has been passed by the court of competent jurisdiction or by the Debt Recovery Tribunal and observed:

"A possible exception would be where a judicial determination has already taken place, such as where a decree has been passed by a court of competent jurisdiction or whereas in the Allahabad Bank's case (2000) 2 Comp LJ 170 (SC), supra, a decree has already been passed by the Debt Recovery Tribunal. In such cases, the Company Judge would immediately proceed to the second limb of his duties under Sections 433 and 434 of the Companies Act, that is post admission of the petition. At this stage, he would appoint a liquidator and decide on the distribution of the proceeds of the company. It is only in the second limb of jural activity that an actual difference between recovery proceedings and winding up proceedings becomes manifest."

11. In the present case, the petitioner bank has stated in para 23 of the petition that OA filed by the bank before the Debt Recovery Tribunal after service of notice of the said OA, the respondent addressed communication dated 15 September 2003 acknowledging therein that it owed a sum of about Rs. 3.50 crores to the petitioner bank in the following words:

"In order to hand over the 100 seat call centre to the buyer in a running condition as mentioned above, the company has to deal with the following five parties on priority without whose support the deal is not possible and make one time settlement (OTS) of their dues.

1. ICICI Bank Ltd.-The second creditors had given loan to the company and to whom the assets of the company are hypothecated As on date, the total outstanding amount of the ICICI Bank Limited is about Rs. 3.50 crores."

12. Although there is no decree passed by the Debt Recovery Tribunal so far, may be, the respondent company would be in a position to explain away this admission. However, for this purpose, it becomes necessary that respondent company files the reply to the main petition. In the said reply the question of maintainability of the present petition can be taken up as one of the preliminary objections. Issue at hand can be considered thereafter in wholeness. In the meantime, the decision of the appellate court may also become available which would clinch the issue either way. It would not be proper to allow these proceedings to stagnate till the decision of the Division Bench in the appeal. Therefore, having regard to the facts in this case, and particularly, the averments made in para 23 of the petition, I deem it proper to call upon the respondent company to file reply to the petition leaving the question of maintainability which could be decided after the reply is filed; and such an objection to the maintainability of the petition is taken up in the reply itself. The respondent to file reply to the petition within six weeks. Rejoinder be filed within four weeks thereafter.

13. List of further proceedings on 1 December 2004.