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2011 Supreme(P&H) 572
PUNJAB & HARYANA HIGH COURT
Adarsh Kumar Goel and Ajay Kumar Mittal JJ.
M/s.Aar Kay Concast Ltd.
Versus
M/s.Reliance Capital Limited
C.A.P.P. No. 21 of 2010,
Decided On : FEBRUARY 16, 2011
The central legal point established in the judgment is that the pendency of recovery proceedings before the Debt Recovery Tribunal does not preclude the initiation of winding up proceedings under the Companies Act. Additionally, the validity of the assignment of debt and the impact of the Banking Regulation Act, 1949 on the assignment of debt were key legal principles established.
Headnote:
Companies Act - Deemed Inability to Pay Debts - Sections 433/434 - Summary of Acts and Sections: Companies Act, 1956, Sections 433, 434; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The court discussed the provisions of the Companies Act, 1956, particularly Sections 433 and 434, and the Securitisation Act. It interpreted the legal implications of the assignment of debt, the validity of the assignment deed, and the impact of the Banking Regulation Act, 1949 on the assignment of debt. The court also considered the issue of time-barred debt and the interplay between the Companies Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Fact of the Case:
The respondent, an assignee of the State Bank of India, filed a petition under Sections 433/434 of the Companies Act, 1956, claiming that the appellant company was unable to pay its debts. The appellant contested the petition, arguing that the jurisdiction of the Company Court could not be invoked due to pending recovery proceedings before the Debt Recovery Tribunal.
Finding of the Court:
The court held that the company petition was maintainable as it pertained to the inability of the company to pay its debts and its liability for winding up, distinct from the issue of recovery. The court also found that the assignment of debt was valid and that the appellant's debt was not time-barred.
Issues: The issues involved the maintainability of the company petition, the validity of the assignment of debt, the impact of the Banking Regulation Act, 1949, and the interplay between the Companies Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Ratio Decidendi: The court determined that the pendency of proceedings before the Debt Recovery Tribunal did not bar the initiation of winding up proceedings. It also held that the assignment of debt was valid, the debt was not time-barred, and the Banking Regulation Act, 1949 governed the assignment of debt.
Final Decision: The appeal was dismissed, and the court emphasized that the appellant's unreasonable attitude in refusing to pay the admitted principal amount provided no ground for interference with the impugned order.
Adarsh Kumar Goel, J.
1. This appeal has been preferred against order of learned Single Judge admitting the petition under Sections 433/434 of the Companies Act, 1956 for the deemed inability of the appellant company to pay its debts.
2. Case of the respondent-original petitioner before the learned Company Judge is that it is an assignee of the State Bank of India who had granted various loans to the appellant. The loans were assigned to the respondent vide assignment agreement dated 30.3.2007. The appellant was in arrears of more than Rs.2.66 crores as on 1.10.1998. The respondent issued legal notice to the appellant on 31.12.1998 followed by another notice dated 15.3.2000. The State Bank of India filed application for recovery before the Debt Recovery Tribunal (DRT) on 5.2.2001 which was still pending. Proceedings have also been initiated under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the Securitisation Act). The respondent also issued notice dated 12.9.2007 under Section 434 of the Companies Act claiming that sum of more than Rs.13.30 crores was due as on 31.8.2007. The appellant gave reply, disputing assignment of the debt in favour of the respondent. According to the respondent, the Company was unable to pay its debts and was, thus, liable to be wound up.
3. The appellant contested the company petition on the ground that since recovery proceedings were pending before the DRT, the jurisdiction of the Company Court could not be invoked. The appellant did not deny advancement of loans by the State Bank of India. The admitted debt of the appellant was more than Rs.500/-.
4. Learned Company Judge after going through the pleadings and documents and considering the rival contentions held that the company petition was maintainable, as the issue therein was not of recovery but of inability of the company to pay its debts and its liability for being wound up.
5. We have heard learned counsel for the parties.
6. Learned counsel for the appellant submitted that the company was not liable to pay anything to the respondent as the respondent had no privity of contrart with the appellant. It claimed right under an assignment deed to which the appellant was not a party and which was not valid being not in accordance with the provisions of the Transfer of Property Act, 1882 and Registration Act, 1908. The issues raised in the company petition were complicated questions and the petition was merely a device to recover the amount. The debt sought to be recovered was barred by limitation and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the "RDB Act") was a special Act. Learned counsel relies upon following judgments:-
1. Allahabad Bank v. Canara Bank and another, 1 A.I.R. 2000 S.C. 1535
To submit that RDB Act. overrides the provisions of the Companies Act and leave of the Company Court was not necessary for continuing proceedings under the said Act.
2. Mediquip Systems Pvt. Ltd. v. Proximo Medical System G.M.B.H.2 2005(7) S.C.C. 42
To submit that debt recovered under Section 433 of the Companies Act must be a definite sum of money.
3. Shri Sham Lal Gupta v. Hamco Industries (Pvt.) Limited? (1994-2)107 P.L.R. 685 (P&H)
To submit that the company petition cannot be filed under Section 433 of the Companies Act if the debt was barred by limitation.
7. Learned counsel for the respondent opposed the above submissions and supported the impugned order by submitting that the RDB Act did not debar a petition for winding up. The assignment deed could not be held to be illegal as the same was permissible as per Banking Regulations Act, 1949. Company Petition did not relate to time barred debt. Reliance has been placed on following:-
1. ICICI Bank Limited v. Official Liquidator of APS Star Industries Ltd. and others, 4 2010(10) S.C.C. 1.
To submit that the Banking Regulation Act, 1949 will govern the assignment of deb
