SANJIB BANERJEE,J. - (1.) DESPITE the provision remaining effectively unchanged in the statute for more than a century and it apparently having been interpreted in favour of the secured creditors, the statutory right has once again been questioned as to whether a secured creditor of a registered company enjoys equal rights as an unsecured of a company to have its winding-up petition cross the initial threshold and be admitted without, in any circumstances, it being assessed whether the claim exceeds the value of the security that it holds. The legal issue has arisen in the context of the petitioning creditor having proceeded against the securities it holds under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. As a consequence, some age-old principles which have come to be accepted as axiomatic have also been called into question.
(2.) THE petitioning creditor has previously invoked the said Act of 2002 and has thereby not only evinced an interest to not give up the securities that it holds, but has actually enforced its claim against the securities. The question that arises upon such conduct of the petitioning creditor � of proceeding against both the securities held by it and seeking to have the company wound up - relates not so much to the double jeopardy faced by the company as it pertains to the propriety of a secured creditor seeking to have a company wound up only on the basis of the legal fiction of the company 's inability to pay its debts under Section 434(1)(a) of the Companies Act, 1956 without demonstrating that the value of its securities is less than its claim or establishing that the securities are inefficacious or spurious. The ancillary issue that arises is as to whether, in the context of the legal fiction under Section 434(1)(a) of the Act, even a creditor which holds adequate security covering the debt due from the company can insist on its petition being admitted and a winding-up order passed thereon; or, the provision only contemplates the admissibility of a claim of a secured creditor as an unsecured creditor to the extent that its claim exceeds the value of its securities. It is an oft-trodden path which needs be negotiated with care and trepidation for high authorities of persuasive and binding value stare down from every nook and cranny. But first, the applicable provisions need to be noticed, since the key lies in the Companies Act itself; as any misplaced sympathy for a company subjected to the vagaries of the 2002 Act � despite the perceived confiscatory nature of that statute or the apparent abuse in the application thereof � can scarcely be an aid for the construction of the parent statute, for such external influence in statutory interpretation militates against the wellestablished and unquestionable canons set down for such purpose. Section 433 of the Companies Act confers discretion on the company judge whether or not to wind up a company despite one or more grounds enumerated thereunder having been made out. The element of discretion that the word "may " in the opening limb of Section 433 of the Act brings into play is no different from the settled principles involved in the exercise of judicial discretion generally. The company judge is robbed of the discretion otherwise accorded by Section 433 of the Act only in one of the nine cases: the proviso to the section commands that an order of winding up the company shall be made if the Central government or a State government applies to the company court under sub-section (h) that a company has acted against the interests of the sovereignty and integrity of the country, the security of the State, friendly relations with foreign States, public order, decency or morality. The exercise of the discretion in the eight other cases is only hedged by the time-honoured judicial principles. But a company judge 's everyday association with Section 433 of the Act primarily involves sub-section (e) thereof; the next, by a long distance, is the just and equitable clause in subsection (f). It would do well, however, to bear in mind that a company may be wound up not only because of its inability to pay its debts or it being perceived to be just and equitable for the company to be wound up, but also on the sundry other little-used limbs of that section. As to when a company is deemed to be unable to pay its debts � the statutory presumption � is defined in Section 434 of the Act. Again, it is the first clause of Section 434(1) of the Act that is more often pressed into service before the company court than the two other. It is also such first clause which is exclusively relevant for the present purpose as the petitioning creditor here relies thereon for the court to draw an inference in these proceedings of the inability of the company to pay its debts. Section 439 of the Act exhaustively enumerates the classes of persons who may carry a petition for winding up a company. Section 439(1)(b) of the Act contemplates a winding-up petition to be presented by any creditor or creditors of the concerned company, including any contingent or prospective creditor or creditors. The other clauses of Section 439(1) of the Act are not relevant in the present context. Section 439(2) of the Act pertains to clause (b) of sub-section (1) and provides, inter alia, that a secured creditor shall be deemed to be a creditor within the meaning of the relevant clause. It, therefore, follows that a secured creditor of a company may apply for winding up the company under Section 433(e) of the Companies Act by citing the company 's inability to pay its debts.
(3.) THE operative words of Section 434(1)(a) of the Companies Act for the present purpose may be reduced as follows: "434 Company when deemed unable to pay its debts. � (1) A company shall be deemed to be unable to pay its debts � (a) if a creditor ... to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company ... a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; " The consideration in the present proceedings hinges on the exact meaning of the expression "neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor ". On a creditor 's winding-up petition founded solely on Section 434(1)(a) of the Act being instituted, the company court has to assess whether the company has neglected to pay the sum; or, whether the company has neglected to secure or compound for the sum due from it to the creditor to the reasonable satisfaction of the creditor. In the first case preceding the word 'or ', the company court has to assess whether any sum is due from the company to the petitioner, for it to be able to adjudicate if there has been any negligence on the part of the company to pay off such debt. In the second case following the word 'or ', the company court has to first assess whether any sum is due from the company to the petitioner; and, if a sum in excess of Rs 500/- is found to be due, determine whether upon the company securing the sum due or compounding for it, such act ought to satisfy the creditor. The reasonableness of the creditor 's satisfaction is for the company court to ascertain. The underlying theme of Section 434 of the Act appears to be to evaluate whether a commercial entity is solvent enough to continue its business operations. The principles relating to insolvency are a fortiori incorporated in Section 434(1)(a) of the Act though the applicability of the rules relating to insolvency find express mention in Section 529 thereof, which is a provision that applies after a company has been wound up, and the rules relating to insolvency apply only to a company in liquidation to ascertain the inter se entitlement as between the creditors of a company in liquidation and such rules are otherwise of no relevance prior to a company being wound up. As a digression, it may be of some relevance that the provisions relating to the liquidation of a company have been carved out of the English statute and placed in another that deals exclusively with matters relating to insolvency. The original English Companies Act as modified over time is, of course, the one on which the Indian Companies Acts have been fashioned. While on the provisions of the Companies Act, it may be remembered that Section 447 of the Companies Act mandates that an order for winding up a company operates in favour of all creditors and all contributories of the company as if it has been made on a joint petition of a creditor and of a contributory. That would imply, as suggested by the company here, than an order for winding up a company has to be for the benefit of its body of creditors as a whole and it is thus that, notwithstanding an unimpeachable claim being established by the petitioning creditor, the company court may refuse to wind up the company if the majority in value of the creditors of the concerned company do not support the prayer or if it is perceived by the company court that the order may not enure to the benefit of the creditors of the company as a whole or other relevant considerations demand that the company not be wound up. Since the company court 's regular association with Sections 433, 434 and 439 of the Act has more to do with claims carried by the creditors, the effect of the secured creditors having been accorded the same status as unsecured creditors in Section 439(2) of the Act may understandably result in a first impression that, security or no security, every person claiming to be a creditor of the company sought to be wound up is deserving of the claim to be assessed without apparent reference to the security that it may hold. But Section 439(1) of the Companies Act merely lists the classes of the persons who may seek the winding-up of a company. Such provision, read with Section 433 of the Act, would reveal who may invoke what limb of Section 433 of the Act to seek the winding-up of a company. The apparent lack of any distinction between a secured creditor and an unsecured creditor seeking to have a company wound up on the ground of the company 's inability to pay its debts would apply to almost all the grounds that may be invoked for petitioning the court to have a company wound up; but such lack of distinction may not extend to a petition where Section 434(1)(a) of the Act is exclusively summoned in support of the prayer for winding up the company on the company 's inability to pay its debts under Section 433(e) of the Act. The discussion here is restricted to a case where the secured creditor only invokes or makes out a case on the strength of Section 434(1)(a) of the Act. The distinction between a secured creditor and an unsecured creditor is built into Section 434(1)(a) of the Act and must be seen with reference to the relevant expression in the clause which may be altered in its tense without any impact on its efficacy in the present context to read as "neglects to pay the same, or to secure or compound for it to the reasonable satisfaction of the creditor. " The past tense reflected in the word "neglected " only emphasises that a creditor 's petition for winding up a company on its deemed inability to pay its debts founded on Section 434(1)(a) of the Act may not be instituted prior to the expiry of three weeks from the date of the receipt of the written demand referred to therein by the company.;