SANJIB BANERJEE,J. - (1.) THE parties are not to blame for this creditor 's winding-up petition having lingered for an unnecessary length of time and there being a more protracted hearing than is ordinarily called for in a matter of this kind. It was only an observation of the court that led to a relatively innocuous matter being blown out of proportion upon the court considering it to be significant that subsequent to the present petition being instituted the creditor applied elsewhere for an order in the nature of attachment before judgment against the company and the persons who guaranteed repayment of company 's dues to the petitioner. Further, the fact that the petitioning creditor obtained a substantial order in its favour in the subsequent proceedings also weighed with the court at the initial stage of the final hearing. The cobwebs have, hopefully, now been cleared and the matter seen in proper perspective.
(2.) THE petitioning creditor is a non-banking financial company which claims to have granted credit facilities in excess of Rs.4 crore to the company in terms of a sanction letter of September 17, 2009 and the subsequent loan agreement of October 5, 2009. The agreement recognised a maximum credit of Rs.5 crore being granted by the petitioning creditor to the company at an interest of 12.50 per cent per annum with 3 per cent per annum additional interest being payable in case of delayed payment of instalments. The agreement was backed by the personal guarantees executed by two directors of the company and the purpose of the loan was to enable the company to meet its working capital requirements. The loan was partly secured by the company by a pledge of a fixed deposit held in the name of the company in HDFC Bank Limited for a sum of Rs. 75 lakh. The tenure of the loan was extended on September 28, 2010 and in January, 2011 the company requested the petitioning creditor to renew the facility for a further period of six months to which the petitioning creditor acceded by its letter of January 27, 2011. The petitioning creditor claims to have disbursed the sums of Rs.1,08,38,891, Rs.1,65,83,561 and Rs.2,25,37,125 in three tranches. The payments are said to have been made in February and March, 2011 to creditors of the company on the written instructions of the company. Cheques issued by the company in purported repayment of such sums and the interest thereon were dishonoured upon presentation in June and July, 2011. In July, 2011 the company requested the petitioning creditor to liquidate the fixed deposit and adjust the proceeds therefrom against the amount outstanding from the company to the petitioner. The company has adjusted such sum of Rs.92.54 lakh from the amount disbursed of Rs.4,99,59,577 and claims the balance principal sum of Rs.4,07,05,062 and the interest thereon at the rate of 15.50 per cent per annum. In the company 's affidavit-in-opposition to the petition, there is an admission of the payments made by the petitioning creditor to the other creditors of the company on the company 's instructions. There is also an admission of the cheques issued by the company being dishonoured on presentation, though the company has contended, in an apparent show of desperation on its part, that there was some unwritten arrangement between the parties that the cheques would not be presented without prior intimation to the company. The company has also alleged that the presentation of the cheques by the petitioning creditor was "incorrect and illegal " but it has, understandably, not been able to elaborate on such assertion. There is, indeed, no shred of defence to the claim of the petitioning creditor indicated in the company 's affidavit. The company, however, proclaims that since there is an arbitral reference which is pending and since the petitioning creditor has obtained orders in respect of properties belonging to both the company and its guarantor-directors, the present unabashed attempt by the petitioner to reduce the machinery of winding-up to extract its pound of flesh is improper and should be repelled. The company says that the petitioner enjoys substantial security upon affidavits of undertaking being filed by the guarantordirectors, binding their properties to discharge any debt that may be found due and owing from the company to the petitioning creditor at the conclusion of the arbitral reference. The company suggests that the present petition is scandalous in that it seeks to extract money from the company or subject the company to the humiliation of the petition being advertised. The company claims that if the petition is received and directed to be advertised, all other creditors of the company who have otherwise not pressed for immediate payment would jump in and cause irreparable prejudice to the company. The petitioner has also relied on a letter of dated July 14, 2011, wherein the company appears to have unequivocally admitted the three lots of payments having been made by the petitioner to the company or to its order. The company has merely glossed over such admission and says that the petitioner forced the company to issue the letter. The company has not denied the receipt of the statutory notice of August 19, 2011 by which the petitioning creditor claimed the principal sum of Rs.4,07,05,062 together with interest thereon at the rate 15.50 per cent per annum. The company did not reply to the statutory notice and the presumption under Section 434(1)(a) of the Companies Act, 1956 has arisen. It is such presumption that the company seeks to rebut by referring to the pendency of the arbitral proceedings and the order obtained by the petitioning creditor from the Bombay High Court on a petition under Section 9 of the Arbitration and Conciliation Act, 1996. Indeed, the company has filed CA No. 1084 of 2011 seeking dismissal of the creditor 's winding-up petition on the ground that there are disputes between the parties and it cannot be said that the company has neglected to pay the sum due or to secure or compound for it to the reasonable satisfaction of the petitioning creditor. After the present petition was filed in or about September, 2011, the petitioning creditor invoked the arbitration clause contained in the agreement of October 5, 2011 and applied to the Bombay High Court under Section 9 of the 1996 Act. It is not necessary to notice the ad interim order of November 22, 2011 since the petition under Section 9 of the 1996 Act has been disposed of by an order of March 12, 2012. The order of the Bombay High Court was effective till June 13, 2012, but pursuant to the liberty granted by the court, the arbitral tribunal has continued the order till the disposal of the reference. The company refers to the affidavits filed by the guarantor-directors before the Bombay High Court and says that there is substantial security furnished by the company and the guarantors which would make the continuation of the present petition inequitable. The petitioning creditor has, however, referred to the balance-sheet of the company for the year ended March 31, 2011 and, in particular, to Schedule III to the said balance-sheet to demonstrate that the company 's immovable properties in respect of its two units in West Bengal and in Odisha have been mortgaged to banks and other financial institutions, its moveable assets are hypothecated to such banks and financial institutions and its current assets are also hypothecated. The petitioner says that the company is unable to pay its debts in the sense that its present liabilities are in excess of the funds available to it and insinuates that even the value of the company 's assets would fall short of its liabilities. The final aspect of the petitioner 's submission cannot be gone into in the absence of relevant material, but it is otherwise unnecessary to embark on such exercise since it is only the commercial insolvency of a company that has to be assessed in proceedings of this kind and the fact that the company may have blocked assets or investments which are not immediately available to be encashed to liquidate the company 's present debts may be of no relevance at all.
(3.) THERE is a bit of wild goose chase that appears to have been undertaken in the petitioning creditor 's anxiety to disabuse the court of what was perceived to be an impression that the petitioner had exposed the company to double jeopardy in instituting seemingly parallel proceedings for realising its claim and in the petitioning creditor apprehending that its obtaining orders in the Bombay High Court during the pendency of the present petition may weigh heavily with the court to dismiss the petition or adjourn the matter till after the conclusion of the arbitral reference. Though the petitioner has referred to several authoritative judicial pronouncements on matters where the creditors had invoked the jurisdiction on grounds other than what is recognised in Section 434(1)(a) of the Act, the petitioner concedes that its prayer for winding-up is based exclusively on such provision. The petitioner endeavours to demonstrate that even a secured creditor can seek winding-up of a company by invoking the legal fiction recognised in Section 434 of the Act on grounds other than the one under clause (a) of sub-section (1) thereof. The petitioner argues that even if it enjoyed substantial security and even if the value of the security was in excess of the petitioner 's claim, it would not preclude the petitioner from seeking an order for the debtor company being wound up. The issue does not squarely arise in this petition and the petitioner may have been inspired to address the court on the larger issue since this matter has been heard analogously with another creditor 's winding-up petition where the right of a secured creditor to seek an order of winding up against a debtor company, relying only on the legal fiction in Section 434(1)(a) of the Act, was involved. Since the judgment in the other matter (Eastern Spinning Mills and Industries Ltd and Kotak Mahindra Bank Ltd) has been delivered immediately prior to this judgment, it is unnecessary to dwell on the larger issue in course of this judgment; but a key aspect of a petitioner 's submission has to be noticed here since the creditor in the other matter has not alluded to the same. The petitioner says that high authorities have held that the legal fiction contained in Section 434 of the Act is only a red herring. The petitioner suggests that nothing in the Act, or in the comparable English Acts which contained similar provisions as Sections 433, 434 and 439 of the Indian Act of 1956, precludes a creditor from applying for winding up a company on the ground of its inability to pay its debts even if the claim of the creditor does not exceed Rs. 500 (in England, �50 at one time and �750 now) and even without serving a written demand at the registered office of the company affording the company an opportunity to pay off or secure or compound for the claim within a period of three weeks from the date of receipt thereof. The petitioner is right and there can be no argument on such score. Section 439 of the Act expansively indicates the classes of persons who may present a petition for winding up a company and Section 433 of the Act comprehensively specifies the circumstances in which a registered company may be wound up by court. Both Section 433 and Section 439 of the Act are exhaustive; in the sense that a registered company may not be wound up by court on any ground not included in Section 433 of the Act and no person other than those recognised by Section 439 of the Act, and subject to the qualifications therein, may present a petition for winding up a registered company. Section 434 of the Act is only a deeming provision and how the legal fiction of the inability of a company to pay its debts within the meaning of the expression "unable to pay its debts " in Section 433(e) of the Act arises. At first blush, there appears to be an anomaly in Section 434 of the Act. A deeming provision, in the context of the meaning of a word or a provision in a statute, facilitates the fulfillment of the condition embodied in the relevant word or expression or circumstance in the statute and, generally, sets a lesser test for the inference relevant for the word or the expression or the circumstance to be drawn than the word or the expression or the circumstance may otherwise demand. Section 434(1)(c) of the Act, however, requires the inability of the company to pay its debts to be proved to the satisfaction of the court. It is not usual for a deeming provision, in the context of the meaning of a relevant word or expression in the statute, to require such condition to be complied with as the ordinary meaning of the relevant word or expression would also demand. The anomaly may be resolved by referring to the words "it is proved to the satisfaction of the court " and understanding such expression to imply to confer a discretion on the court to arrive at a subjective satisfaction � obviously on objective and judicially recognised criteria � that the company is unable to pay its debts whether or not it actually is unable to pay its debts. It is in the understanding of such expression and the element of subjectivity on the court 's part involved therein that may be a key to some of the decisions cited on behalf of the petitioner. It is not difficult to gauge why courts have over the years regarded the expression "unable to pay its debts " that appears in the relevant provisions relating to winding-up of companies by the court to imply commercial insolvency. There is a clue to such understanding in Section 434(1)(c) of the Act which, in one form or the other, has adorned both the English and the Indian statutes for more than a century and a half. While Section 433(e) of the Act when it refers to a company being unable to pay its debts may appear to imply actual insolvency and not merely commercial insolvency and there may be myriad ways of establishing the inability of a company to pay its debts other than the company 's admission thereof, the legal fiction envisaged in Section 434(1)(c) of the Act is established upon it being proved to the satisfaction of the court that the company is unable to pay its debts. The statutory history of such clause would reveal that in the earlier times the matter was left completely to the court as to how it would be satisfied that a company was unable to pay its debts; but for the most part in the last hundred and fifty years, the law-makers imposed a condition as to how the satisfaction of the court on a company 's inability to pay its debts could be arrived at. Significantly, the expression "and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company " does not refer to the court being required to weigh the liabilities of the company against its assets. It is, thus, evident that the company court is not required to set off the liabilities of a company against its assets in ascertaining whether it is unable to pay its debts; the inability has to be determined only with reference to the liabilities of the company. Hence, the inability of a company to pay its debts has been understood and interpreted as the company 's commercial insolvency rather than its actual insolvency. But the relevant expression in Section 434(1)(c) of the Act does not altogether preclude the court from assessing the company 's ability to pay its debts upon the concerned company asserting and establishing the availability of worthwhile assets that may be efficaciously and immediately liquidated to meet the liabilities of the company. But the statutory manner of determination of a company 's inability to pay its debts, pointedly, does not make any reference to the assets of the company since, ordinarily, the assets would be deployed in the company 's business activities and would not be available for being liquidated for the purpose of discharging the company 's debts. A company could be the owner of vast tracts of land on which its manufacturing facility stands, but neither the book value nor the market value of the land may of any relevance in considering whether the company is unable to pay its debts since the business of the company would have to be stopped if the land were to be sold in discharge of the company 's debts. The inference of commercial insolvency is based on facts; the manner in which such inference is arrived at will depend on the facts asserted by the parties; and, the basis for asserting a company 's commercial insolvency must be there in the creditor 's winding-up petition itself.;