The main legal point established is the application of the factoring agreement, admission of liability, and the company's demonstrated inability to make payment under the Companies Act, 1956.

Dr. S. Muralidhar, J.

1. IFCI Factors Ltd. (‘IFL’) has filed this petition under Section 439 read with Sections 433(e) and 434 read with Section 439 of the Companies Act, 1956 (‘Act’) seeking the winding up of the Respondent, Krish International Pvt. Ltd. (‘KIPL’).

2. The background facts are that in 2010, KIPL approached IFL to avail of sales bill factoring facility to the tune of Rs. 5,00,00,000/-. In the petition, the nature of a factoring transaction is explained as under:

“Essentially, in a factoring transaction what occurs is that in consideration of finance provided by the Factor (which in this case is the petitioner), the borrower (which in this case is the respondent) assigns its receivables to the Factor under its commercial transaction with a debtor approved by the Factor, and also specifically makes itself liable for rendering all outstanding amounts to the Factor, in the event of the purchaser of goods (approved debtor) defaulting in making payment of the borrower’s receivables to the Factor. Effectively, what the respondent would do in this transaction is to sell goods to its purchaser, and in consideration of its executing the relevant factoring documents, the respondent company, as borrower, would then be paid the contracted value of the said goods by the petitioner, i.e., the Factor, against assignment of receivables in favour of the Factor. On the due date as per the agreement, the payment would then be made by the approved debtor to the Factor; and in the event of default of payment by the debtor, the borrower (which, in the present case, is the respondent hereto) would be liable to make the said payment.”

3. Pursuant to the negotiations between the parties, an agreement of factoring of receivables (hereafter ‘factoring agreement’) was executed on 18th February 2010. Mr. Aok Aggarwal, the Managing Director (‘MD’) of KIPL, gave an undertaking to the effect, inter alia, that the cheques issued by KIPL would be honoured on presentation. Additionally, Mr. Aggarwal also executed a guarantee deed, by which he guaranteed repayment of IFL’s dues under the factoring agreement. A separate guarantee deed was executed by Mrs. Kiran Aggarwal, Director of KIPL, whereby she guaranteed payment of IFL’s dues under the factoring agreement. A letter dated 18th February 2010 was issued by KIPL along with a promissory note. There was also a notice of assignment of debts dated 16th February 2010 issued by KIPL and counter-signed by KRIL. This was accepted by KRIL by a separate letter dated 17th February 2010 written to IFL.

4. In terms of factoring agreement, the ‘Approved Debtor’ was Koutons Retail India Ltd. (‘KRIL’) with a funds-in-use (‘FIU’) limit of Rs. 4,00,00,000/-. KIPL was described as ‘Client’. IFL was described as ‘Factor’. Under Clause 3 of the factoring agreement, the expression ‘recourse’ was defined as “The right of the Factor to require the Client to repurchase a notified receivable at a price equal to the amount remaining unpaid by the Debtor in respect thereof.” Clause 9 of the factoring agreement spelt out warranties and undertakings by the ‘Client’, i.e. KIPL. Clause 11 dealt with ‘recourse and set-off’. Clause 14 of the Schedule to the factoring agreement noted that recourse to the Client will be automatic on the expiry of thirty days from the due date of payment by the Debtor, or earlier, as advised by IFL for each debtor from time to time. Clause 19 of the Schedule specifies the documents which have to be furnished and these include “security cheques for facility amount along with stamped letter of undertaking.

5. The case of IFL is that both the approved debtor, i.e. KRIL as well as KIPL committed defaults. It is stated that on 30th September 2011, KIPL was liable to pay IFL Rs. 3,32,82,472.47/-. IFL also relies upon the correspondence between the parties, and in particular, the letter dated 17th March 2011 written by KIPL to IFL acknowledging its liability and enclosing two cheques for Rs.