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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Venkatachaliah and Vithal Rao, JJ.]Hegde and Golay Limited —Appellant
Vs.
State Bank of India —Respondent
Original Side Appeal No. 18 of 1985
Decided on : 20-11-1985
The High Court of Karnataka, in this case, adjudicated on a creditor's winding-up petition brought by the State Bank of India (SBI) against Hegde and Golay Limited (HGL), a company incorporated under the Companies Act, 1956. The petition alleged that HGL was unable to pay its debts and that it was just and equitable that the company be wound up. The court examined various issues, including the existence and extent of the debt, the company's ability to pay, and the just and equitable grounds for winding up. The court held that the petitioning creditor had established a substantial part of the debt claimed, that the company was unable to pay its debts, and that it was just and equitable to wind up the company. The court rejected the company's defenses, including the argument that the secured creditor could not maintain a winding-up petition without valuing its security, the challenge to the maintainability of the petition on the ground that the documents relied upon by the bank were forged, and the contention that the winding-up order was not permissible in view of the subsequent suits filed by the bank. The court also found that the company's assets were not secured to the bank and that there was nothing to be administered in winding up. The court concluded that the winding-up order was justified under Section 433(e) of the Companies Act, 1956, and dismissed the appeal filed by the company.
Fact of the Case:
The State Bank of India (SBI) filed a creditor's winding-up petition against Hegde and Golay Limited (HGL), a company incorporated under the Companies Act, 1956. SBI claimed that HGL was unable to pay its debts and that it was just and equitable that the company be wound up. HGL contested the petition, denying the existence and extent of the debt, asserting its ability to pay, and challenging the just and equitable grounds for winding up.
Finding of the Court:
The court held that SBI had established a substantial part of the debt claimed, that HGL was unable to pay its debts, and that it was just and equitable to wind up the company. The court rejected HGL's defenses, including the argument that the secured creditor could not maintain a winding-up petition without valuing its security, the challenge to the maintainability of the petition on the ground that the documents relied upon by the bank were forged, and the contention that the winding-up order was not permissible in view of the subsequent suits filed by the bank. The court also found that HGL's assets were not secured to the bank and that there was nothing to be administered in winding up. The court concluded that the winding-up order was justified under Section 433(e) of the Companies Act, 1956, and dismissed the appeal filed by HGL.
Issues: 1. Whether the secured creditor could maintain a winding-up petition without valuing its security? 2. Whether the company had disputed the existence and extent of the liability and whether there was a bona fide dispute about it? 3. Whether the company was unable to pay its debts? 4. Whether the company was liable to be wound up as an insolvent company? 5. Whether the discretion to wind-up was properly exercised? 6. Whether the acknowledgments of liability contained in the balance-sheets of a company furnished a fresh starting point of limitation? 7. Whether the balance-sheets and the Revival Letters in these cases were vitiated by a clear infirmity? 8. Whether the effect of filing of suits barred the maintainability of the winding-up petition? 9. Whether the Bank had virtually forged material documents and whether this conduct on the part of the Bank would disentitle it to the equitable relief of winding-up? 10. Whether all the assets of the Company were secured to the Bank and whether a winding up order, in the circumstances, will not do good to any-body and will be to no purpose as there is virtually nothing to be administered in winding up? 11. Whether the finding of the Learned Company Judge on the 'just and equitable' ground was justified?
Ratio Decidendi: 1. A secured creditor can maintain a winding-up petition without valuing its security. 2. The company had not disputed the existence and extent of the liability and there was no bona fide dispute about it. 3. The company was unable to pay its debts. 4. The company was liable to be wound up as an insolvent company. 5. The discretion to wind-up was properly exercised. 6. The acknowledgments of liability contained in the balance-sheets of a company furnish a fresh starting point of limitation. 7. The balance-sheets and the Revival Letters in these cases were not vitiated by a clear infirmity. 8. The effect of filing of suits did not bar the maintainability of the winding-up petition. 9. The Bank had not virtually forged material documents and this conduct on the part of the Bank did not disentitle it to the equitable relief of winding-up. 10. All the assets of the Company were not secured to the Bank and a winding up order, in the circumstances, would not be futile. 11. The finding of the Learned Company Judge on the 'just and equitable' ground was justified.
Final Decision: The court dismissed the appeal filed by HGL and upheld the winding-up order passed by the Company Court.
Venkatachaliah, J.—This appeal is by Hegde and Golay Limited ('Company'), a company incorporated under the Companies Act, 1956, (the 'Act') and is directed against the order dated 26-7-1985 made by Bopanna, J., allowing a Creditor's winding-up petition brought by the State Bank of India (the 'Bank') and ordering the winding-up of the Company on grounds that the Company is unable to pay its debts within the meaning of Section 433(e) of the Act and that it is also otherwise "Just and Equitable" that the Company be wound-up.
The Bank claimed that as on 31-3-1980 a sum of Rs. 2,93,62,036 09 (exclusive of interest accruing subsequent to 1-4-1980) stood due and owing by the Company and that the Company was in fact, and must also be deemed to be, unable to pay its debts ; and that in view of the several circumstances alleged by the Bank it was also, otherwise, just and equitable that the Company be wound-up.
This creditor's winding-up petition which was the unfortunate culmination of a greatly strained Banker Constituent relationship was pending for over 5 years.
2. We have heard Sri Shekhar Shetty, learned Counsel for the appellant. The petitioning creditor having filed a Caveat, Sri S. G. Sundaraswamy and Sri S. Ramaswamy Iyengar, appeared for the Bank.
We have been taken through the order under appeal and the evidence on record. We are satisfied that the findings of the learned Company Judge that the petitioning-creditor has established the existence of a substantial part of the debt claimed by it and that the defence of the Company is not substantial nor in good faith do not call for interference. They are supportable even on the undisputed documentary evidence, leaving out altogether the other evidence which might admit of some debase on certain legal technicalities.
We will state the reasons that weigh with us for our inability to accept the several contentions which Sri Shekhar Shetty ably... and at great length presented at the hearing on admission.
3. We may, however, briefly set-out the circumstances leading-up to the winding-up petition :
The Company was incorporated in the year 1965 as a Private Limited Company with the object, in collaboration with Golay S.A. of Switzerland, of promoting an industry for the manufacture and sale of 'Horological instruments' and 'Printed Circuit-Boards'. The Company has its registered offices and its factory-establishment in Bangalore. The share-capital or the Company is Rs. 50 lakhs consisting of 50 thousand snares of Rs. 100/-fully paid-up. The enterprise as conceived by the promoter Sri B.T. Shankar Hegde, the Chairman and Managing Director, envisaged the Company as the mam coordinating unit and 18 ancillary units, each of which was a separate company. The shares of the Company were closely held between Sri B.T.S. Hegde and his wife Smt. Shaila S. Hegde. Between them they originally held 51 per cent of the shares and the Swiss collaborators 49 per cent. Upon the said Swiss Company having itself gone into liquidation, its share-holding also came into the hands of Sri Shankar Hegde.
The Company became a public company from 27-6-1974. The Banking relations of the company with the State Bank of India commenced in the year 19/3, the Bank having in principle agreed to finance the Company's ventures and to look after its banking-requirements and transactions. The Bank provided funds, fairly on a large scale, both for the capital needs of the Company and also towards working capital. The working relationship between the Bank and the Company appeared to be (sic) fairly satisfactory till 1976, whereafter troubles started each party accusing me other of non-performance of its obligations.
Several attempts appeared to have been made to sort-out the differences ; but they failed. Matters came to a head in 1979. On 12-7-1979 (Exhibit-P. 98) the Bank called-up the accounts and demanded repayment of the sums found due under foot of the several accounts. This demand was followed-up by the statutory demand (
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