Delhi High Court
M/S. Hdfc Bank Ltd. vs M/S Prem Power Construction Pvt. ... on 8 January, 2018
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CO. APP. 84/2013
Reserved on : 13th November, 2017
Date of decision : 8th January, 2018
M/S. HDFC BANK LTD. ..... Appellant
Through: Mr. Kunal Tandon, Advocate with
Mr. Anirudh Bhargava, Manager,
HDFC Bank.
versus
M/S PREM POWER CONSTRUCTION
PVT. LTD. & ANR. ..... Respondents
Through: Mr. A.P. Singh & Mr. Aman
Agarwal, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MS. JUSTICE PRATHIBA M. SINGH
JUDGMENT
Prathiba M. Singh J.,
The short question that arises in this case is as to whether the notice of
winding up under Sections 433/434 of Companies Act, 1956 (for short 'the
Act') was duly served upon the Respondent or not.
2. The present appeal arises out of the judgement of the learned Single
Judge dated 6th December, 2013 by which the company petition filed by the
appellant/HDFC bank ('appellant', for short) was dismissed on the ground
that the winding up notice was not properly served on the Respondent.
Brief Background
3. It is the case of the appellant that on 25th October, 2007 the
respondent Company was sanctioned fund based credit facility to the extent
of Rs.150 lakhs and non-fund based credit facilities to the extent of Rs.950
lakhs and foreign exchange ('FOREX', for short) cover limit of Rs.95 lakhs,
with an aggregate limit of Rs.1100 lakhs. In order to avail these facilities,
the respondent executed security documents, including a master credit
facility agreement dated 30th October 2007, demand promissory notes for the
sum of Rs.4 crores, Rs.9.5 crores, Rs.1.5 crores, Rs.1.10 crores and Rs.95
lakhs, letter giving a lien on fixed deposit receipts ('FDRs', for short) of
Rs.60 lakhs and Rs.95 lakhs and the hypothecation agreement of goods,
vehicle, plant and machinery and book debts for Rs.1100 lakhs. The
directors of the respondent Company also executed a deed of guarantee and
another deed of corporate guarantee was executed by M/s Prem Softech Pvt.
Ltd. Various properties belonging to the company M/s Prem Softech Pvt.
Ltd., which is a group company of the respondent, were also mortgaged.
From time to time various other securities including reiteration of creation of
mortgage, assignments of lease, rentals etc. were executed.
4. The respondent defaulted in its repayments to the appellant and
according to the appellant it was unable to pay its debts. The account of the
respondent was declared as a Non Performing Asset ('NPA') by the
appellant. On 15th September 2010, the Appellant issued a recall notice
calling upon the respondent to pay a sum of Rs. 6,01,35,890.68 together
with future interest and costs and further sum of Rs.19,17,841 and Euros
2,65,427.30. All these amounts were due and payable according to the
appellant. Since the payments were not forthcoming, the appellant
approached the Debt Recovery Tribunal ('DRT'), which case is pending
adjudication. It is the case of the appellant that on 3rd May, 2010 the
respondent admitted its liability in a proposed onetime settlement letter. The
settlement proposal was, however, rejected by the appellant. The appellant
treated this onetime settlement offer as an admission of liability by the
respondent. It issued a winding up notice dated 1st October, 2012 which was
followed up with another winding up notice dated 11th December, 2012.
Having elicited no response to the said notices, the appellant filed the
winding up petition before this Court registered as Company Petition No. 63
of 2013 on 28th January, 2013. An interim order was passed in the Company
Petition No. 63 of 2013 on 15th February, 2013, restraining the respondent
from creating any charge, alienating, transferring, parting of possession of
any of the immovable assets and certain other directions were also passed
directing the filing of affidavit by the Managing Director of the respondent.
On 1st May 2013, despite the respondent being served, since there was no
appearance, the Company Court proceeded further and appointed
Provisional Liquidator. This order was challenged in appeal by the
Respondent and the matter was remanded to the Company Judge by the
Division Bench on 11th September, 2013.
5. An application being Co. Appl. 2126/2013, seeking vacation of the
orders dated 15th February, 2013 and 1st May, 2013, was filed before the
learned Company Judge. On hearing this application, the learned Single
Judge passed the impugned order dismissing the company petition, on the
ground of failure and non-service of the winding up notice.
6. In the present appeal, orders have been passed from time to time.
Initially, a restraint order to secure the assets of the company was passed and
the Official Liquidator ('OL', for short) was also directed to maintain status
quo on 20th December, 2013. Thereafter, the Division Bench had directed
the parties to explore mediation, which failed. The OL had prepared a full
inventory of the assets of the company and the OL was directed to hand over
the physical possession of the factory premises to the Managing Director of
the respondent. Further, maintenance of status quo of title and possession of
the properties of the company was also directed. On 17th February 2016, the
OL and Registrar of Companies were also directed to rectify the status on
the website and delete the reference that the company was facing
liquidation.
7. Arguments have been heard in the matter. During the course of
arguments some proposals were also exchanged between the parties for
exploring settlement, however, the same have not fructified. Thus, the
matter has been decided on merits.
Appellant's submissions
8. The stand of Mr. Kunal Tandon, Advocate for the Appellant is that
the impugned order wrongly records that service of the winding up notice
was not properly effected on the Respondent. In support of his submission,
he relies upon the winding up notice dated 1st October 2012, courier receipts,
speed post receipts, tracking reports, and the original envelopes for the
same. The original envelopes were also produced in the Court at the time of
the hearing.
9. Learned Counsel for the Appellant also relies on the notice dated 11th
December, 2012 along with its supporting documents. The submission of the
learned counsel is that the record demonstrates that there was proper service
and that a pedantic approach by the Court was not warranted. It was further
submitted that the Court ought to bear in mind the realities as it was
perfectly certain that the respondent was avoiding service of the notice,
despite all the efforts and attempts. He relies on the provisions of the Act to
submit that whenever notices are sent by registered post they are deemed to
be served. He specially relies upon the following cases:
Kotak Mahindra Bank Ltd. v. Hermonite Associates Ltd. 2011 (161)
CompCas 214 (hereinafter 'Kotak Mahindra Bank')
Global Infosystem Ltd. v. Lunar Finance Ltd. 2012 (130) DRJ 307
(hereinafter 'Global Infosystem')
State of M.P. v Hiralal & Ors. (1996) 7 SCC 523 (hereinafter
'Hiralal')
N. Parameswaran Unni v. G. Kannan & Anr. (2017) 5 SCC 737
(hereinafter 'Parameswaran Unni')
Submissions of the Respondent
10. The respondent submits that it is a financially sound company with a
turnover of about Rs. 40-50 crores. As per section 434 of the Act, the notice
of winding up ought to be delivered at the registered office and reliance on
Section 51 of the Act, by the appellant, is misplaced. According to the
respondent, since the provision has very serious consequences, the deeming
fiction as contained in Section 27 of the General Clauses Act, 1897 ought
not to be made applicable. According to the respondent, because of the
unreasonable conduct of the bank for recalling the loan facility, it has
suffered huge losses. The respondent employs more than 500 persons in its
business in the field of power transmission and construction of distribution
systems. It has successfully settled with other banks such as ICICI bank, Yes
bank and ABN Amro bank. Thus, it is only HDFC bank i.e. the appellant,
which is refusing to agree to any reasonable terms as per the respondent.
11. Respondent further submits that the winding up notice was never
served upon it as per the provisions of the Act and hence the petition itself
was not maintainable. In fact, it has suffered immensely because of the steps
taken by the bank.
Analysis and Findings
12. The facts that emerge from the record, at this stage, are that the
appellant has extended various credit facilities to the respondent, which have
been availed of by the respondent. It is the position of the appellant that
there were several outstanding dues to be paid by the respondent to the
appellant. Despite long drawn proceedings, the appellant had been unable to
recover its dues from the respondent. Under such circumstances, the
appellant had issued the winding up notice dated 1st October, 2012. This
notice was addressed by the Solicitors of the appellant to the registered
office of the respondent being Khasra No.261/1, Village Ghitorni, New
Delhi-110030 (hereinafter `Ghitorni address') as also at the alternate
addresses of the respondent at Udhyog Vihar, Gurgaon, MIDC Bhandara,
Nagpur, Maharashtra and to four directors of the respondent and one to the
guarantee company M/s. Prem Softech Pvt. Ltd. There is no dispute that the
Ghitorni address was the registered office of the respondent. The documents
which have been placed on record include copies of 8 courier receipts, 8
speed post receipts, which clearly show that the notices have been
dispatched to the said addresses. The tracking reports have been placed on
record in respect of some of the notices. The original envelope addressed to
the registered office, was returned unserved by courier, and has also been
placed on record. The notice sent by speed post, however, was not returned
to the Solicitors.
13. The second notice dated 11th December, 2012 was sent to the
Respondent at the new registered office at B-1/2065, Vasant Kunj, which
address was obtained from the Ministry of Corporate Affairs (MCA)
website. This notice was sent by speed post and by courier for which
receipts have been placed on record. The original envelope sent by speed
post had been received back by the Appellant with the noting "बी-1 Ʌयह
नंबर ¡ ȣȲहै " ("B-1 mein ye number nahi hai".)
14. The winding up petition came to be filed on 28th January, 2013. Thus,
there is merit in the contention of the appellant that prior to the said filing,
two notices dated 1st October, 2012 and 11th December, 2012 were sent to
the respondent through all possible modes i.e. by courier and speed post
registered A.D. The question is as to whether this satisfies the requirement
under law that the notices were delivered.
15. Section 433 (e) and 434 of the Act reads as under:
"433. Circumstances in which company may be wound
up by Tribunal.--A company may be wound up by the
Tribunal,--
XXXXXXXXX
(e) if the company is unable to pay its debts;
XXXXXXXXX
434. Company when deemed unable to pay its debts
(1) A company shall be deemed to be unable to pay its
debts -
(a) if a creditor, by assignment or otherwise, to
whom the company is indebted in a sum exceeding
[one lakh] rupees then due, has served on the
company, by causing it to be delivered at its
registered office, by registered post or otherwise, a
demand under his hand requiring the company to
pay the sum so due and the company has for three
weeks thereafter neglected to pay the sum, or to
secure or compound for it to the reasonable
satisfaction of the creditor;
(b) if execution or other process issued on a decree
or order of any Court [or Tribunal] in favour of a
creditor of the company is returned unsatisfied in
whole or in part ; or
(c) if it is proved to the satisfaction of the [Tribunal]
that the company is unable to pay its debts, and, in
determining whether a company is unable to pay its
debts, the [Tribunal] shall take into account the
contingent and prospective liabilities of the
company.
(2) The demand referred to in clause (a) of sub-section
(1) shall be deemed to have been duly given under the
hand of the creditor if it is signed by any agent or legal
adviser duly authorised on his behalf, or in the case of
a firm, if it is signed by any such agent or legal adviser
or by any member of the firm."
16. As per clause (e) to Section 433, a company can be wound up if it is
unable to pay its debt. Sub-section (1) to Section 433 refers to three
different clauses, when a company is deemed to be unable to pay its debt.
As per clause (a), a company is deemed to be unable to pay its debt if it
neglects to pay the sum exceeding Rs.1 lac or to secure or compound it to
the satisfaction of the creditor, after it is served with a notice demanding the
said payment by causing the said notice to be delivered at the registered
office by registered post or otherwise. The object behind the provision is
that the company, which is a limited liability and a juristic person, must pay
its creditors or secure them to their satisfaction. Refusal and failure to pay,
in spite of demand, vide notice, results in deemed inability to pay debt.
Thus, the contention that the petitioner company had paid dues to other
creditors and continues to be in operation and employs 500 employees, etc.,
are all aspects, which will be taken into consideration by the Company Court
while passing orders on the winding up petition, albeit will not be a ground
to reject the petition at the threshold as not maintainable and bad in law.
The deeming fiction under Section 434(1)(a) is not exhaustive of the power
of the Company Court.
17. In case the contention of the respondent has to be accepted, then a
company may refuse to accept notice on one pretext or the other and ensure
that the notice sought to be served is returned. It is, in this context that the
Bombay High Court in Cavendish Shipping Limited versus Poaris Marine
Management Private Limited and Others, [2010] 156 Company Cases 108
(Bom.) had referred to an earlier decision of the Delhi High Court in Hotline
Teletubes and Components Limited versus A.S. Impex Limited, [2004] 119
Company Cases 98 to observe and hold as under:-
33. Before concluding, it would be necessary to advert
to the submission that service of the statutory notice
was not effected at the Registered Office of the
Company. The requirement of serving a statutory
notice under Section 434(1)(a) arises when the
deeming fiction that is created by the provision is
sought to be pressed in aid. The deeming fiction under
Section 434(1)(a) is, however, not exhaustive of the
power of the Company Court if a Company is unable to
pay its debts within the meaning of clause (e) of
Section 433. The effect of Section 434(1)(a) is to create
a deeming fiction that the Company is unable to pay its
debts if a creditor has served upon the Company by
registered post or otherwise a demand under his hand
requiring the Company to pay the sum due and the
Company has neglected to pay the sum or to secure or
to compound it for a period of three weeks. In Tailors
Industrial Flooring Ltd. v. M&H Plant Hire
(Manchester) Ltd. the Court of Appeal in the U.K held:
"There is no requirement that a creditor
must serve a statutory demand. The practice
for a long time has been that the vast
majority of creditors who seek to petition for
the winding up of companies do not serve
statutory demands. The practical reason for
that is that if a statutory demand is served,
three weeks have to pass until a winding up
petition can be presented. If, after the
petition has been presented, a winding up
order is made, the winding up is only treated
as commencing at the date of the
presentation of the petition; thus, if the
creditor takes the course of serving a
statutory demand, it would be giving the
company an extra three weeks' grace in
which such assets as the company may have
may be dissipated in attempting to keep an
insolvent business afloat, or may be
absorbed into the security of a debenture
holder bank. So there are practical reasons
for not allowing extra time, particularly
where commercial conditions and
competition require promptness in the
payment of companies' debts so that the
creditor companies can manage their own
cash flow and keep their own costs down. ...
The first limb is that if a debt is due and an
invoice sent and the debt is not disputed,
then the failure of the debtor company to pay
the debt is itself evidence of inability to pay."
34. That apart, in the present case, it has been averred
in the Company Petition that the statutory notice was
addressed to the Registered Office of the Company as
stated in the records of the Registrar of Companies,
Maharashtra (ROC). The Petitioner obtained a
certified copy from the record of the ROC with regard
to the registered office address of the Company.
However, the notices having been remitted on the
address of the Registered Office as shown in the record
of the ROC, all notices came back with the remark
"not known". The affidavit in reply does not proceed
on the basis that the address mentioned in the statutory
notice is not the Registered Office of the Company. In a
judgment of the Delhi High Court in Hotline Teletubes
& Components Ltd. v. A.S Impex Ltd., Dr. Justice
Mukundakam Sharma (as he then was) dealt with a
case where a statutory notice addressed to the
Registered Office of the Company was returned with
the remark that the addressee had left the premises.
The Delhi High Court held that the documents which
were placed on the record indicated that the Petitioner
had sent the statutory notices to the Company at the
address at which the Registered Office was located. In
the meantime, the Company changed the address of its
Registered Office as a result of which the statutory
notices were not served. The Court held that sending of
the notices by the Petitioner at the Registered Office of
the Company in terms of the official records had to be
regarded as legal and valid and the proceedings could
not be held to be not maintainable because the
Company had, in the meantime, changed its office.
There is, therefore, no merit in the submission in
regard to the maintainability of the Petition for want of
a statutory notice under Section 434(1)(a).
18. The Supreme Court in Parameswaran Unni (supra) referring to
Section 27 of the General Clauses Act and Section 114 of the Evidence Act
observed that once notice is sent by registered post by correctly addressing it
to the drawer, the service of notice should be deemed to be affected. In the
said case, this it was observed that the attempt would satisfy the
requirements of proviso (b) to Section 138 of the Negotiable Instruments
Act, 1881. The Supreme Court elucidated that notice sent by registered post
returned with postal endorsement 'refusal, not available, house locked or
addressee not in station' would be sufficient for the Court to presume due
service. The Supreme Court held as under:-
"13. It is clear from Section 27 of the General
Clauses Act, 1897 and Section 114 of the Evidence
Act, 1872, that once notice is sent by registered post
by correctly addressing to the drawer of the cheque,
the service of notice is deemed to have been effected.
Then requirements under proviso (b) of Section 138
stand complied, if notice is sent in the prescribed
manner. However, the drawer is at liberty to rebut
this presumption.
14. It is well settled that interpretation of a statue
should be based on the object which the intended
legislation sought to achieve."
In this judgment, reference was also made to Jagdish Singh v. Natthu
Singh, (1992) 1 SCC 647 and V. Raja Kumari v. P. Subbarama Naidu,
(2004) 8 SCC 774.
19. Thus, the notice under Section 434 has to be served on the company
"by causing it to be delivered at its registered office by registered post or
otherwise". The term "causing it to be delivered" has been interpreted in
several judgements. In Kotak Mahindra Bank (supra), this Court had the
occasion to deal with a case where the registered office of the company was
lying closed as the operation of the company was shut down on account of
severe losses. After discussing the entire case law, this Court held that the
sending of the notice at the registered office of the respondent ought to be
held as legal and valid "delivery". The words "causing to be delivered" are
significant and important, in the context of a company, a juristic person. The
sending of the notice at the registered office, as per the official records, was
held to be duly delivered and served even though the registered office was
lying closed. A similar view has been taken in Global Infosystem (supra).
20. In the present case, apart from the fact that the notice was sent by the
appellant at several addresses of the respondent, an effort was also made to
send the said notice even at the new registered office address. Thus, it is
obvious that the appellant left no stone unturned in sending the notices by
various modes to the registered office of the respondent. Moreover, under
Section 51 of the Act a document could be served on a company by sending
it to the company at the registered office. Section 51 of the Act reads as
under:
"51. Service of documents on company
A document may be served on a company or an
officer thereof by sending it to the company or
officer at the registered office of the company by
post under a certificate of posting or by registered
post, or by leaving it at its registered office.
Provided that where the securities are held in a
depository, the records of the beneficial ownership
may be served by such depository on the company
by means of electronic mode or by delivery of
floppies or discs."
21. A conjoint reading of Section 434 and Section 51 of the Act leaves no
doubt that the appellant had made repeated efforts to serve the winding up
notices to the respondent. There are certain other facts which go to show that
the respondent may, in fact, have been avoiding service in this case. Such
other facts are as follows:
a. Service of the notice dated 1st October, 2012 at various offices of the
company and also the directors of the respondent. The notice sent by
speed post to the respondent Company was not returned undelivered
dated 11th December, 2012.
b. Service of the second winding up notice at the new registered office
as available on the MCA website by courier and speed post. Notice
sent by courier was not received back, whereas notice sent by speed
post was received back with the report "addressee left without
address". Thus, the notice was tendered and served.
c. The service of the recall letter dated 15th September, 2010 which is
admitted, after which a one-time settlement was proposed by the
respondent.
22. The observations of the Supreme Court in Parameswaran Unni
(supra) are apt in the present case. Several attempts were made by the
appellant to serve the winding up notices on the respondent and the mere
fact that it was not specifically mentioned in the company petition that the
winding up notice sent by speed post was not returned unserved, would not
be a ground to dismiss the company petition.
23. In view of the above discussion, the winding up notice dated 1st
October, 2012 and 11th December, 2012 are held to be in compliance with
the requirement under Section 434 read with Section 51 of the Act as also
under Section 27 of the General Clauses Act, 1897. The company petition is
restored to its original position. The petition shall be listed before the
Company Judge for further proceedings. The respondent shall maintain
status quo of all its assets and properties, subject to further orders that may
be passed in the company petition.
24. This Court has not gone into the merits or examined the issue of
"winding up". These aspects and issues would be examined by the Single
Judge.
25. The appeal is allowed with costs of Rs.25,000/-.
PRATHIBA M. SINGH, J
SANJIV KHANNA, J
JANUARY 8, 2017/dk
