ASHIM KUMAR BANERJEE.J - (1.) SHORT question would involve in these appeals as to whether a secured creditor was within its right to maintain a petition for winding up without giving up its security and without pleading that the security they had, would be insufficient to satisfy their claim. Eastern Spinning Mills and Industries Ltd., a company incorporated under the provisions of the Companies Act, 1956 availed credit facilities from State Bank of India against securities being mortgaged to the bank that would include land assets, plant, machineries and all other fixed assets belonging to the company. One would not dispute if someone would say, the assets that were kept as security, if sold to pay off the bank dues, would amount to complete closure of the business of the company as without land, building, machineries and other fixtures the company would be left hardly with anything to run its day-to-day affairs.
(2.) THE Company could not pay off the dues of the bank. The bank assigned their claim and/or the right as a secured creditor to M/s Kotak Mahindra Bank Ltd. who stepped into the shoes of the State Bank of India. Kotak Mahindra Bank initiated recovery proceedings by taking measures under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002). They however could not take physical possession of the assets giving rise to protracted litigations that may not be relevant for the present purpose. Fact would remain, they are yet to take possession of the assets. However, Official Liquidator could make an inventory of the assets after great effort. The Company became sick. Its networth became negative that compelled them to make a reference to the Board of Industrial and Financial Reconstruction (BIFR) under the Sick industrial Companies Act, 1987. BIFR accepted the reference and declared the company, a sick company within the meaning of Section 3(1)(o) of the said Act of 1987. However, at the instance of the Kotak Mahindra, the reference stood resolved without a logical conclusion in view of the provisions of the SARFAESI Act that would not permit the reference to continue once the secured creditor took steps for sale of the assets to realize their dues. Kotak also gave notice to the company under Section 434 of the Companies Act 1956 inter alia praying for winding up of the company in case the company would not meet their dues. The learned Single Judge initially asked the Official Liquidator to make inventory. Official Liquidator did so after a great deal of obstruction referred to above. However, the learned Judge ultimately dismissed the winding up petition by holding it not maintainable in law. The principal reason for dismissal would appear from two paragraphs of the judgment and order that are quoted below: "It is, thus, the inevitable conclusion from the discussion herein that a secured creditor of a company which has not established the inefficacy or the inadequacy of the security held by it may maintain a petition for winding up the company but such petition, if founded solely on the legal fiction under Section 434(1)(a) of the Act, will not qualify either to be admitted or for any order of winding up to be passed thereon. Since the petitioning creditor here has neither averred nor otherwise established that the security that it enjoys is inefficacious or inadequate to meet its claim against the company, the petition cannot be admitted. In any event, even if the petitioning creditor had crossed that hurdle and had established that a debt was due which was unmatched by any efficacious security, its conduct in advertising the statutory notice prior to instituting this petition is a good ground for exercising the limited discretion available to the company court to refuse to admit a creditor's petition even if the debt were unimpeachably established."
(3.) BEING aggrieved, Kotak filed two appeals, one for dismissal of the winding up and the other for not entertaining the application for provisional liquidator. We heard both the appeals on the abovementioned dates and wish to dispose of by this common judgment pronounced herein.;