The Bombay High Court has held that a company court is not justified in dismissing a winding up petition at the stage of admission on the sole ground that the petitioning creditor is a secured creditor.
A division bench of Justice AS Oka and Justice MS Sonak dismissed an appeal filed by Stonemann Royale Limited against an order of a company judge admitting a winding up petition filed against them.
The said winding up petition was filed by the respondent Asset Reconstruction Company (India) Ltd which had entered into a one-time settlement (OTS) agreement with Stonemann under which the latter had to pay an amount of Rs.25.25 crores to the respondent.
Admittedly, Rs.19.10 crores have been paid, but according to Stonemann there was some dispute regarding the remaining Rs. 5.34 crores.
Stonemann’s counsel Vishal Kanade submitted that the appellant company has been making profits since 2015 and had sufficient security in the form of immovable properties. He relied on a judgment of a single judge of the Calcutta High Court in Eastern Spinning Mills and Industries Limited 2012, and said the company judge ought not to have admitted petition for winding up of Stonemann as it was in a position to secure the claim or the demand made by the respondent creditor.
Mayur Khandeparkar appeared on behalf of the respondent, he argued that the outstanding amount of Rs.5.34 crores was undisputed and simply stating that the appellant company had sufficient assets to secure the amount owed is not enough to ward off a winding up petition as no specific security has been offered.
Khandeparkar also submitted that the judgment of Calcutta High Court was distinguishable from the present case and relied on two judgments of the Bombay High Court in SICOM Ltd. Vs. Entertainment World Developers Pvt. Ltd. and Bharat Overseas Bank Ltd. Vs. Shree Arcee Steels Pvt Ltd.
The court dismissed Kanade’s contention that the winding up petition is not maintainable unless remedies available to the respondent under the SARFAESI Act are exhausted and noted: “Division Bench of this Court in Bharat Overseas Bank Ltd. (supra) has clearly held that the Company Court will not be justified in dismissing a petition for winding up at the stage of admission merely on the ground that the petitioning creditor is a secured creditor.”
The court further explained-
“The complete and clear position of the assets and liabilities of the company can then be assessed not just qua the petitioning creditor, but also either creditors, if any, as reflected in the balance sheet. This is not to say that the issue of securities offered by the company is some irrelevant issue. All that we say that such an issue can be better appreciated once the complete and clear picture of the company's financial health is before the Company Court, once the petition is admitted and advertised in accordance with law. This is the reason why the Division Bench of this Court in Bharat Overseas Bank Ltd. (supra) has held that the Company Court would not be justified in dismissing a petition for winding up at the stage of admission on the sole ground that the petitioning creditor is a secured creditor or that the claim raised by the creditor is sufficiently secured, even though, there may be no serious dispute that the debt is clearly owing and payable.”
Thus, the appeal was dismissed.