Allowed

M/S Sheela Rani Textiles Ltd. v. Sri Anjaneya Cotton Mills

Madras HC19 Sept 2011OSA/357/2010

Case brief

AI extract

What is this about?

The High Court set aside the lower court's order admitting a winding-up petition and appointing a provisional liquidator. The court held that the judge failed to hold a mandatory summary enquiry to assess prima facie debt and bona fides before admitting the petition, despite the debtor raising a bona fide dispute over the debt quantum and cross-claims.

What did the court decide?

The order admitting the petition, directing advertisement, and appointing a provisional liquidator was set aside; matter remanded for summary enquiry.

M/S Sheela Rani Textiles Ltd. Vs Sri Anjaneya Cotton… — Company and Corporate | Madras HC (2011)

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED: 19.09.2011

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CORAM

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THE HON'BLE MRS. JUSTICE R.BANUMATHI and THE HON'BLE MR. JUSTICE B.RAJENDRAN

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O.S.A.NO.357 OF 2010 and M.P.Nos.1 of 2010 and 1 to 3 of 2011

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M/s.Sheela Rani Textiles Limited Thennur, Samayanallur Post Madurai. ... Appellant Vs.

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1.Sri Anjaneya Cotton Mills Private Limited rep.by its Director having its Registered Office at "Jayalakshmi", Pune-Bangalore Road Devangeri-577 002, State of Karnataka Branch Office at NMS Compound, Erode.

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2.Industrial Development Bank of India rep.by its Manager, Coimbatore – 683 686. ... Respondent Original Side Appeal is filed under Order XXXVI Rule 9 of the Original Side Rules read with Clause 15 of the Letters Patent against the order of this court dated 25.10.2010 made in C.P.No.132 of 2008. For Appellant : Mr.AR.L.Sundaresan, Sr.Counsel for Mr.G.Ethirajulu For Respondents: Mr.K.Rajasekaran for R.1 Mr.K.Moorthy for R.2 Mr.SrinivasaMoorthy for M/s.Row and Reddy for implead petitioner in M.P.No.1 of 2011 Mr.K.Jaichandran for implead petitioners in M.P.Nos.2 and 3 of 2011

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JUDGMENT

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R.BANUMATHI,J.

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Being aggrieved by the order passed by the learned single Judge dated 25.10.2010 admitting C.P.No.132 of 2008 and ordering notice of publication of the Company Petition in two dailies, viz., Business Line (English edition) and Daily Thanthi (Tamil edition) and also in the Government Gazette in accordance with the Companies (Court) Rules, 1959 and appointment of the Official Liquidator as the Provsional Liquidator of the appellant Company with a direction to take over all assets and records of the appellant company, the present appeal is filed.

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Factual background of the appeal is as follows:-

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The 1st respondent herein filed company petition under Sections 433(1)(e) and 434 read with section 439 (1)(b) of the Companies Act,1956 seeking for a direction to wind up the appellant company and to appoint the Official Liquidator as the Liquidator. Case of the 1st respondent is that the appellant is a limited company with authorized share capital of Rs.5 crores divided into 50 lakhs shares of Rs.10/- each and its main object is to carry on the business of manufacturing, bleaching, dyeing, printing and selling yarn, cotton and/or staple fibre, cloth and other fabrics made from raw cotton, jute, wool and other suitable materials and generally to carry on the business of cotton spinning and as weaving mill proprietors in all branches. One M/s.Sivakami Textiles Ltd. borrowed loans from various banks including the Industrial Development Bank of India - 2^nd respondent Bank to the tune of Rs.4,49,63,000/- and it was unable to repay the loan because of recession and the matter was referred to BIFR and by the Order dated 26.5.2000, Sivakami Mills Limited was declared as a sick mill. Aggrieved by the order of BIFR, an appeal was preferred by Sivakami Mills before AAIFR. Appellant – Sheela Rani Textiles Limited negotiated with M/s.Sivakami Textiles and submitted a rehabilitation proposal. AAIFR approved the rehabilitation proposal. Under the Rehabilitation scheme, the appellant has to pay a sum of Rs.677 lakhs to IDBI on or before November 15, 2006 as against the total due of Rs.744 lakhs to be paid by the appellant for the revival scheme of OTS (One time settlement) to IDBI. By its order dated 24.9.2001, AAIFR sanctioned the rehabilitation proposal and set aside the order of winding up passed by BIFR. The appellant took over the management and ownership of Sivakami Mills on 24.09.2001.

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Case of 1st respondent that the 1st respondent is a company incorporated under the Companies Act, carrying on the

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business in running textile mills and the appellant requested the 1st respondent to run the textile mill by providing the required raw materials for conversion and stated that it would convert the raw cotton into yarn and deliver the same to the 1st respondent for consideration and the appellant also requested to give an advance of Rs.75 lakhs for the said purpose and the agreement was entered into on 19.1.2006 based on which the 1st respondent paid an amount of Rs.30 lakhs towards interest free conversion deposit and Rs.45 lakhs towards deposit repayable in 10 instalments together with interest at the rate of 12% p.a. On 19.1.2006 the appellant executed a deed of hypothecation hypothecating four generator sets in favour of the 1st respondent as security for the sum of Rs.45 lakhs and therefore, the 1st respondent has a charge over the said properties. Against the appellant company, one M/s.Dipalee Traders, Mumbai filed C.P.No.295 of 2003 for winding up and the same is pending in this Court.

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It is the further case of the 1st respondent that after doing conversion work for some time, the appellant failed to continue the same due to electricity disconnection and requested the 1st respondent to advance further amount of Rs.32.32 lakhs towards electricity bills and the same was also paid by the 1st respondent under a supplementary agreement dated 17.4.2007 under which the appellant agreed to repay the said amount at the rate of Rs.5 lakhs per month on 25^th of every month. At the request of the appellant, the 1st respondent also gave a further amount of Rs.68,79,261/- for the purpose of electricity payment and other liabilities and a simple mortgage deed was executed by Mrs.J.S.P.Jeyarani wife of R.John Sundara Pandian, who is one of the Directors of the appellant in favour of the 1st respondent on 12.7.2006 and the said document was registered as document No.2679 of 2006. A further advance of Rs.16,68,000/- was paid towards electricity charges to the appellant and for that, the said Mrs.J.S.P.Jeyarani, one of the Directors of the appellant company executed another simple mortgage deed dated 8.9.2006 mortgaging further extent of property. It is stated that till September, 2006, the total advance amount paid by the 1st respondent to the appellant was Rs.1.92 crores. At the request of the appellant, for the purpose of making payment of Deepavali advance to the workers, the 1st respondent made a further payment of Rs.16.62 lakhs by way of two cheques drawn in UTI Bank for Rs.9.62 lakhs and Rs.7 lakhs. A total amount of Rs.1,92,79,092/- was advanced by the first respondent to the appellant apart from the excess conversion charges paid by the 1st respondent to which the 1st respondent is entitled to receive a sum of Rs.4,67,492/- and therefore, totally a sum of Rs.1,97,46,584/- is liable to be paid by the appellant with interest as per the agreement.

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The 1st respondent filed O.S.No.139 of 2007 on the file of III Additional Sub Judge, Madurai against the mill in liquidation for a permanent injunction and obtained an order of injunction in I.A.No.168 of 2007. A criminal complaint was also filed against the Appellant mill for hypothecating the already hypothecated assets. The first respondent also filed a suit in O.S.No.39 of 2007 on the file of I Additional District Judge, Madurai for recovery of Rs.34,67,492/- with interest and the said suit is pending. In I.A.No.132 of 2007, by order dated 19.12.2007, Court has directed Appellant mill to furnish security for the suit claim failing which to attach the properties.

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Action by IDBI:- As per OTS, the appellant is to pay a sum of Rs.677 lakhs to IDBI on or before November 15, 2006. As per the request of the appellant, there was a fresh OTS for Rs.677 lakhs extending the time till 26.12.2006. The appellant did not honour the OTS payment. IDBI, being a secured creditor, initiated proceedings under SARFAESI Act and issued notice under Section 13 (2) of the SARFAESI Act on 7.12.2006. As there was no response from the appellant, IDBI issued notice under Section 13(4) of SARFAESI Act and also took physical possession of the properties of the appellant on 12.2.2007. IDBI issued SARFAESI Act notice for auctioning the properties and the same was published fixing the auction on 21.3.2007. Challenging that notice issued by IDBI, appellant filed writ petition and obtained an order of stay against the auction proceedings. On petition filed by IDBI, the Madurai Bench directed the parties to work out the possibility of settlement. In pursuance of the same, a meeting was convened and no settlement could be arrived at. However, the High Court, Madurai Bench by order dated 25.7.2007 allowed the writ petition.

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After the disposal of the Writ Petition, IDBI fixed auction sale of the secured properties of the appellant on 26.12.2007. Challenging the same, the appellant preferred SARFAESI Appeal before DRT, Madurai in S.A.No.140 of 2007 and obtained order of stay and the same is stated to be pending. Again the appellant approached IDBI with a revised OTS proposal and OTS was approved for an amount of Rs.890 lakhs envisaging payment of entire principal before 31.3.2009. The same was accepted by the appellant and the appellant paid only Rs.270 lakhs against Rs.890 lakhs. Thereafter, there was re-revised OTS and the due date for paying the amount was fixed as 26.3.2011. The appellant paid only Rs.50 lakhs against Rs.380.01 lakhs and failed to pay the balance of Rs.330.01 lakhs within the stipulated period.

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Before the learned single Judge, the Company Petition was resisted by the appellant contending that the mandatory requirement under Section 434(1)(a) of the Companies Act - the statutory notice

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was not served at the registered office of the appellant Company and since the mandatory requirement was not complied with, the Company application itself is not maintainable. Raising the plea that the maintainability of the Company Petition has to be determined as a preliminary issue, in the counter statement, appellant inter alia averred that the original accounts are in the registered office located in the mill premises at Thenur and the entire mill premises was taken possession by IDBI Bank under SARFAESI Act and thus the mill premises is under the custody of the Bank. It was further averred that the 1st respondent is liable to pay several crores to the appellant towards conversion charges and therefore the alleged claim in the Company Petition has to be adjusted from the conversion charges payable to the appellant. It was further averred that there are several disputes between the parties and the terms and conditions of obligations arising between the parties cannot be resolved in a Company Petition and therefore the Company Petition for winding up is not maintainable. The appellant also referred to the mortgage deeds executed by J.S.P.Jayarani and that the amount advanced under the mortgage deeds are also unjustly included in the claim made in the winding up petition. According to the appellant, winding up petition was filed as a ruse to recover the alleged amount due which is otherwise enforceable under due process of law and the appellant prayed for deciding the maintainability of the Company Petition as preliminary issue.

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Upon considering the contentions and material adduced on either side, the learned single Judge held that notice had been received by the appellant and that appellant had also sent reply and in such circumstances, non-serving of statutory notice in the registered office of the Company would not stand in the way of proceeding further and on that ground the Company Petition cannot be thrown out. The learned Judge further held that the ledger account produced by the first respondent would show that as on 8.9.2006, an amount of Rs.1.62 crores is payable by the appellant and that the appellant has also acknowledged his liability, the learned Judge held that the objection raised regarding the maintainability of the Company Petition is not sustainable. Observing that there are clinching documents to show the liability the learned Judge admitted the Company Petition and directed the effecting of notice of publication of the Petition in two dailies and also in the Government Gazette. The learned Judge also appointed the Official Liquidator as the provisional liquidator of the Company and directed the Official Liquidator to file the report within two months of taking over possession of the assets and records of the company.

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We have heard Mr.AR.L.Sundaresan, learned Counsel appearing for the appellant and Mr.K.Rajasekaran, learned Counsel appearing for the 1st respondent and Mr.K.Moorthy, learned Counsel appearing for the 2nd respondent.

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Challenging the impugned order, learned Senior Counsel for the appellant Mr.AR.L.Sundaresan appearing along with Mr.G.Ethirajulu has submitted that the appellant as well as the 1st respondent had argued only the limited point of maintainability of the Company Petition, but by the impugned order, the learned Judge has decided the entire Company Petition and appointed the Official Liquidator to take over the entire Company and the impugned order is in violation of the principles of natural justice. The learned Senior Counsel would further submit that in respect of the quantum of the amount received and conversion charges payable by the 1st respondent to the appellant, the 1st respondent has sufficient security for the alleged debt and therefore the learned Judge ought to have considered the maintainability of the Company Petition by considering the questions of “existence of debt” and “bonafide dispute raised by the appellant”. The learned Senior Counsel would further submit that the non-compliance of mandatory procedure in admitting the Company Petition vitiates the order and prayed for setting aside the order and remitting the matter back to single Judge for considering the matter afresh.

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Taking us through various materials, Mr.Rajasekaran, learned Counsel for 1st respondent has contended that the statement of accounts of the appellant and ledger account of the 1st respondent would clearly show that the appellant is due to pay the amount to the 1st respondent. It was further submitted that notwithstanding the filing of the mortgage suit (O.S.No.39 of 2007), the 1st respondent can file the winding up petition and the learned Judge has rightly admitted the Company Petition by directing paper publication.

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We have heard Mr.Moorthy, learned Counsel appearing for IDBI. Taking us through the various OTS, the learned counsel submitted that as per the re-revised OTS, the appellant has to pay Rs.380.01 lakhs in addition to the already paid amount of Rs.270 lakhs in the previous failed OTS scheme before 26.03.2011 but the appellant paid only Rs.50 lakhs as against Rs.380.01 lakhs and failed to pay the balance of Rs.330.01 lakhs within the stipulated period. The learned Counsel for IDBI would further submit that the IDBI has been incurring huge expenses for securing assets, which are taken possession in pursuance of the initiation of action under SARFAESI Act and prayed for issuance of direction giving liberty to IDBI to proceed under SARFAESI Act.

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In the counter affidavit, regarding maintainability of the company petition, appellant primarily raised three objections:- (i) that the statutory notice under Section 434(1)(a) of the Companies Act was not served in the registered office; and (ii) that there are many disputes between the parties and that the 1st respondent is liable to pay several crores to the appellant towards the conversion charges and the same cannot be resolved in a Company Petition; (iii) the amount advanced by the 1st respondent is sufficiently safeguarded by security by way of mortgage executed by Jayarani.

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The grievance of the appellant is that before the learned single Judge both appellant as well as the 1st respondent argued only the limited point of maintainability of the Company Petition to decide the question whether statutory notice was issued to the registered address of the Company before filing of the company Petition as a preliminary issue and without giving an opportunity to the appellant to put forth its defence on merits, learned single Judge has appointed the Official Liquidator.

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By perusal of the affidavit, it is seen that in paragraph No.9 of the counter, appellant has raised the plea of noncompliance of mandatory requirement under Section 434(1)(a) of the Companies Act. Section 434(1)(a) of the Companies Act contemplates a demand notice to be served on the Company by causing it to be delivered at its registered notice or otherwise a demand under his hand requiring the Company to pay the sum so due and the Company has for three weeks and thereafter neglected to pay the sum or to secure and then only the Company Petition could be entertained. The requirement of service at Registered Office of the Company cannot be avoided just by saying it is a technical formality. Mandatory requirement must be fully complied with. With effect from 7.5.2002, the Registered office of the appellant is

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“M/s.Sheelarani Textiles Limited Thenur, Samayanallur post,

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Madurai.”

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The said address is reflected even in Form 23AC. As seen from the materials, the statutory notice dated 29.2.2008 claimed by the 1st respondent as statutory notice under Section 434(1)(a) of the Companies Act was sent to the premises

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“No.2,

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Kriba Nagar, Thiruppalai, Madurai” and

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“No.61, Meng'les Road, Nagal Nagar, Dindugul- 624 003”.

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The above said first address is stated to be the residential house of the Director of the Company and the second address is stated to be the address of previous owner. The Registered office of the appellant Company is not located in both the said addresses, but only at Thenur, Samayanallur Post, Madurai.

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As rightly contended by the learned Senior Counsel for appellant, the registered statutory notice was not sent to the Registered Office of the appellant. Even though notice under Section 434(1)(a) was not sent to the registered office, as pointed out by the learned single judge, the appellant chose to send reply through their counsel. Considering the reply notice sent by the appellant, the learned single Judge held that there is no point in harping upon the hyper technicality. The learned single Judge further observed that it is not as if the registered notice was sent to an unknown place, but only sent to the residence of the Director and on receipt of the said notice the appellant has chosen to send reply. Referring to the decision of RAJARAJESWARI PACKAGING PRODUCTS VS. DEV FASTENERS LIMITED, ((2002) 108 Comp.Cases 715), the learned single Judge held that even if the statutory notice issued by the 1st respondent was not sent to the registered office of the appellant Company, the same shall not stand in the way of considering the Company Petition and the Company Petition cannot be thrown out.

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Though there is a mandatory requirement to serve the statutory notice in the registered office, in the facts and circumstances of the case, and considering the fact that the appellant had sent the reply through their counsel the learned single Judge held that the non-service of notice at the registered office cannot be a ground to throw out the company petition and we do not find any reason to interfere with the said finding.

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Re.Contention Non-compliance of Rule 96:- Referring to ledger account of appellant Company as produced by the 1^st respondent, learned single Judge held that the appellant was due to pay to the respondent an extent of Rs.1,62,79,092/- and that appellant had also acknowledged its liability and the objection raised by the appellant regarding the amount is not sustainable and on those findings, the learned single Judge ordered the Company Petition to be admitted and ordered publication of the Company Petition be effected in two dailies. The learned Senior Counsel for appellant Mr.AR.L.Sundaresan submitted that there is a bonafide dispute between the parties in respect of the quantum of the amount

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received and conversion charges payable by the 1st respondent to the appellant and the statutory provisions have not been strictly complied with. The learned Senior Counsel would further submit that even at the time of admitting the Winding up Petition, the learned single Judge ordered publication of the Petition be effected in two dailies and no opportunity was given to the appellant to make submission on the bonafide of the Petition. The learned Senior Counsel would further submit that the learned single judge ought to have given sufficient opportunity to the appellant to show that winding up petition has been filed only to pressurize the appellant Company to pay the amount and the learned single Judge did not properly appreciate that the amount borrowed is sufficiently secured by way of mortgage and that the 1^st respondent has also filed mortgage suit for recovery of the amount and if sufficient opportunity had been given, the appellant would have been able to convince the Court that there is lack of bonafide in filing of the winding up petition.

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Taking us through the materials, the learned counsel for 1st respondent Mr.Rajasekaran would submit that on being satisfied of the amount due from the appellant from the ledger account produced by the 1st respondent and statement of accounts of appellant Company, the learned single Judge rightly held that the objection raised by the appellant is not sustainable and rightly ordered admission of Company Petition and also publication of the Company Petition be effected in two dailies. The learned counsel for 1st respondent would further submit that as contemplated under the statutory rules, a summary enquiry was made and on being satisfied that the petitioning creditor/ 1st respondent has made out prima facie case, the learned single Judge admitted the Company Petition and also directed advertisement of the Petition.

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Submitting that the appellant Company was already defunct and that the summary enquiry held by the learned single Judge is sufficient compliance of the statutory rules, the learned counsel for 1st respondent placed reliance upon a Division Bench Judgment of Karnataka High Court in the case of AIRWINGS PRIVATE LIMITED VS. VIKTORIA AIR CARGO GMBH LANGER KORNWEG, (CDJ 1994 KAR HC 156).

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Section 433 of the Companies Act sets out the circumstances inwhich the Company may be wound up by the Court, one such being Section 433(e) “inability to pay debts”. Section 434 sets out the circumstances and situations in which a Company may be deemed to be be unable to pay its debts. The Company Court Rules envisage (i) presentation of application for winding up in the manner prescribed in Rule 95; (ii) admission of the winding up petition after such presentation under Rule 96 and (iii) the direction as to advertisement, which is also under Rule 96. These

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are three distinct steps. Rule 96 envisages the 4^th step, namely the hearing. The Form of the Advertisement is set out in Form No.48 to the Rules.

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Rule 96 of the Companies (Court) Rules, 1959 reads as under :

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“Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisement to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition.”

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Rule 24, which refers to advertisement of petition, provides :

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“(1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these Rules otherwise provide, be advertised not less than fourteen days before the date fixed for hearing, in one issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily newspaper in the English language and a daily newspaper in the regional language circulating in the State or the Union Territory concerned, as may be fixed by the Judge.

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(2) Except in the case of a petition to wind up a company, the Judge may, if he thinks fit, dispense with any advertisement required by these Rules.”

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Invariably notice has to be given in a winding up petition. Normally, an opportunity is given to the Company to file an affidavit in answer to the winding up petition. All this takes place before the admission stage. If the Court comes to a conclusion that the petitioner has made out a ground as mentioned in Section 433, then Court directs admission. If the Petition is admitted upon the inability of the Company to pay its debts, the Court normally gives an opportunity to the Company to pay off the debt of the Petitioning Creditor as determined by the Court and only in default Court directs advertisement.

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Rule 96 confers a discretion on the Judge not to give any direction at the initial stage; if after receipt of notice the Company appears and satisfy that the debt is bonafide disputed, or the presentation of the Petition is malafide, or abuse of process of Court, certainly, the Judge may decline to admit the Petition and may direct the party presenting the winding up petition to prove its claim by a suit or in any other manner.

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In NATIONAL CONDUITS (P) LIMITED VS. S.S.ARORA, AIR 1968 SC 279, the Hon'ble Supreme Court considered the question of admission of the Company Petition and the circumstances in which the advertisement to be made and held as under:

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“... (2) Except in the case of a petition to wind up a company, the Judge may, if he thinks fit, dispense with any advertisement required by these Rules.”

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When a petition is filed before the High Court for winding up of a company under the order of the Court, the High Court (i) may issue notice to the Company to show cause why the petition should not be admitted; (ii) may admit the petition and fix a date for hearing, and issue a notice to the Company before giving directions about advertisement of the petition; or (iii) may admit the petition, fix the date of hearing of the petition, and order that the petition be advertised and direct that the petition be served upon persons specified in the order. A petition for winding up cannot be placed for hearing before the Court, unless the petition is advertised: that is clear from the terms of Rule 24(2). But that is not to say that as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding up be not admitted, the Company may show cause and contend that the filing of the petition amounts to an abuse of the process of the Court. If the petition is admitted, it is still open to the Company to move the Court that in the interest of justice or to prevent abuse of the process of Court, the petition be not advertised....”

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From the above decision of the Supreme Court, it is evident that the admission of the Company Petition and advertisement of the same as provided in the rules are mandatory and in the absence of its admission, the Company Petition was bound to be rejected. Rule 96 confers a discretionary power on the Judge not to give any direction at the initial stage but if after receipt of the notice the Company appears and satisfies that there is a bonafide dispute as to the debt and that the presentation of the Petition is an abuse of process of the Court, certainly the Judge may decline to admit the Petition and may direct the authority presenting the winding up petition to prove its claim by a suit or any other manner.

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In AIRWINGS PRIVATE LIMITED VS. VIKTORIA AIR CARGO GMBH LANGER KORNWEG, (CDJ 1994 KAR HC 156), the Division Bench of the Karnataka High Court considered the two questions:- (i) what is the scope of enquiry under Rule 96 or hearing; (ii) the nature or

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contents of Order and the usual practice of the Court when matters are admitted and interim orders are granted. Referring to the decision of the Supreme Court in NATIONAL CONDUITS (P) LIMITED VS. S.S.ARORA, AIR 1968 SC 279 and PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF U.P. VS. NORTH INDIA PETRO CHEMICAL LTD., (1994 AIR SCW 2495), the Division Bench of Karnataka High Court held as under:-

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“15. ..... Therefore, in view of the decision of the Supreme Court, enquiry has to be made at that stage whether prima facie case is made out by the petitioning creditor before court can take any action in the matter. Any action in the matter would cover also an action by way of admission and advertisement of the petition. Consequently, these observations of the Supreme Court imply a direction to the Company Judge that before a petition is admitted and advertised, in appropriate cases, an enquiry has to be held, of course in a summary manner, for finding out whether there is prima facie case made out by the petitioning creditor for enabling the Court to take any action by way of admission and advertisement of the petition.”

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It is fairly well settled that the winding up petition is not a recognised mode for recovery of debt. On a joint reading of Rule 96 and Rule 24 read with provisions of Section 433, it is clear that there is a need to hold a summary enquiry after issuing notice to the Company before ordering admission of the Company Petition and the advertisement of the Company Petition. Before admitting the Company Petition and directing the publication of the Company Petition, it is necessary to consider the question whether any prima facie case is made out by the Petitioning Creditor. The Court has to be convinced of prima facie grounds. Before admitting and advertising the winding up petition, under Section 433(e) of the Companies Act, Court in a summary enquiry has to arrive at a satisfaction on the aspects like:- (i) whether the petitioning creditor is a creditor to whom the Company owes an ascertained sum of money or substantially ascertained sum of money; (ii) whether the said debt is within limitation; (iii) whether the defence of the Company is valid or bonafide. The aforesaid three points will have a direct bearing on the competence of the Petitioning Creditor to maintain such a Petition.

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Learned Senior Counsel for the appellant has submitted that the appellant Company has advanced arguments only on the question of service of statutory notice to the Company and no opportunity was given to the appellant Company to argue the case on merits that there is a bonafide dispute between the parties in respect of the quantum of the amount received. The learned Senior

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Counsel would further submit that the 1st respondent himself is liable to pay several crores to the appellant towards conversion charges and therefore the alleged claim made in the Company Petition has to be adjusted from the conversion charges payable to the appellant by the 1st respondent and terms and obligations of the parties are of civil nature and the same cannot be resolved in a Company Petition. The learned Senior Counsel submitted that the 1st respondent has also included a sum of Rs.28,75,076/- and for the said amount Mrs.J.S.P.Jeyarani wife of R.John Sundara Pandian has also executed a mortgage deed dated 20.04.2006 in respect of 25 cents out of 76 cents of the land comprised in Survey No.371/2 of Naganakulam village, Tiruppalai, Madurai North Taluk and while so the 1st respondent is not justified in including the said claim also in the Company Petition. It was further submitted that Jeyarani had also executed another mortgage deed dated 8.9.2006 in favour of the 1st respondent in respect of 6 cents out of 76 cents of land comprised in Survey No.371/2 and for recovery of the amount, the 1st respondent had also filed the morgtgage suit in O.S.No.39 of 2007. The contention of appellant is that in order to avoid the ordeal of proving the claim before the Civil Court, the 1st respondent has filed the Company Petition as a ruse to recover the alleged amount due, which is otherwise enforceable as per due process of law. The learned Senior Counsel would further submit that had sufficient opportunity been afforded to the appellant, the appellant would have made submissions on the prima facie case and would have convinced the Court about the lack of bonafide in the winding up petition.

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On behalf of the appellant, it was submitted that the appellant advanced arguments only on the question of service of statutory notice to the Company to its registered office and that they prayed for taking up “maintainability of the Company Petition” as a preliminary issue. Further contention of appellant is that when the learned Judge has ordered notice of Company Petition, opportunity ought to have been afforded to the appellant to show that there is a bonafide dispute between the parties in respect of the quantum of the amount and that there are no proper and effective averments in the petition that the appellant is not able to pay off the debt as contemplated under Section 433(e) of the Companies Act.

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We have carefully perused the materials. As rightly contended by the learned Senior Counsel for the appellant, to secure the amount advanced, Jayarani had executed two mortgage deeds on 20.04.2006 and 8.9.2006. For recovery of the amount, the 1st respondent had already filed suit on mortgage in O.S.No.39 of 2007. The appellant also contends that the 1st respondent is liable to pay the amount towards the conversion charges. In the Writ

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Petition challenging the notice under Section 13(2) of SARFAESI Act in W.P.No.2547 of 2007, in the statement of accounts of the Appellant Company, Anjaneya Cotton Mills has been shown as one of the secured creditors to whom Rs.1,93,20,000/- is stated to be the amount due. In this regard, the learned Senior Counsel has drawn our attention to the agreements entered into between the appellant and the 1st respondent regarding the conversion of yarn and that the 1st respondent is liable to pay the amount to the appellant towards the conversion charges. The merits of the contention of the appellant could be gone into only if opportunity was afforded to the appellant before ordering advertisement in the dailies and in Official Gazette.

¶78

Normally, there is no interval between the admission of winding up and the directions as to the advertisement of the Petition. As per First Part of Rule 96, when a Petition is posted before a Company Judge for admission of the Petition, it is also simultaneously posted for direction after admission. Therefore, in the normal case, “notice before giving directions as to the advertisement of the Petition' would be given to the Company before the order of admission. In exceptional cases, the Court may postpone giving direction as to the advertisement.

¶79

The presentation of the winding up Petition seeking advertisement thereof has serious consequences on the status, standard and financial stability and operational efficiency of the Company. Where the debt is bonafide disputed, a Petition for winding up is not an alternative to the Suit to recover the same. In our considered view, when the learned Judge has held that there was sufficient compliance of Section 433 (1)(a), before ordering advertisement, the learned Judge ought to have afforded opportunity to the appellant to put forth their case so as to be convinced about the prima facie case of the 1st respondent. After holding that there is sufficient compliance of the issuance of statutory notice, in our considered view, the learned single Judge ought to have afforded opportunity to the appellant to put forth their case regarding prima faice case. In the facts and circumstances of the case, we find that the statutory provisions regarding the inbuilt safeguard under the Act has not been complied with and the impugned order directing the effecting of advertisement and the appointment of the Official Liquidator as a provisional liquidator cannot be sustained.

¶80

M.P.Nos.1 to 3 of 2011:

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M.P.No.1 of 2011 is filed by one P.Muthuraja, General Secretary, Madurai Rural District Textile Works Union (CITU), Samayanallur, madurai seeking to implead himself as a party respondent and is represented by learned counsel

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https://hcservices.ecourts.gov.in/hcservices/

¶83

Mr.K.Srinivasamurthy on behalf of M/s.Row and Reddy. M.P.No.2 of 2011 is filed by one Mothilal, Branch Secretary of INTUC-Dhesiya panchalai Thozhilar Sangam, Thenur seeking to implead himself as a party-respondent and is represented by Mr.K.Jayachandran, learned counsel. M.P.No.3 of 2011 is filed by one D.M.Athisivan, Branch Secretary of Dhiravida Panchalai Thozhilar Munnetra Sangam, Thenur seeking to implead himself as a party-respondent and is also represented by Mr.K.Jayachandran, learned counsel. Since we are remitting the matter back to the Company Judge, these applications are closed and the workmen are at liberty to work out their remedy before the Company Judge by putting forth their case at the appropriate stage.

¶84

For the foregoing reasons, the impugned order dated 25.10.2010 made in C.P.No.132 of 2008 ordering advertisement and publication of the winding up petition in the Official Gazette of Tamil Nadu and local dailies is set aside and the publications are recalled. We request the learned single Judge to afford opportunity to the appellant to put forth their case and thereafter to consider the matter afresh uninfluenced by the order impugned or by the observations made in this appeal. The Appeal is ordered accordingly. However, there is no order as to costs. Consequently, the connected M.P.No.1 of 2010 is closed.

¶85

Sd/-
Asst.Registrar.
/true copy/
Sub Asst.Registrar.
To

¶86

The Sub Assistant Registrar, Original Side, High Court, Madras.

¶87