Case Note & Summary
The petitioner, Life Insurance Corporation of India (LIC), filed a company petition under Sections 433(e) and 434 of the Companies Act, 1956, seeking winding up of Varun Global Limited (the respondent company) for its inability to pay a debt of Rs.45 crores. The respondent company had taken a term loan from LIC in 2010, secured by a mortgage of leasehold premises and pledge of shares. The loan was repayable in 17 quarterly installments of Rs.2.25 crores each, with a final bullet payment of Rs.6.75 crores. The company defaulted on the very first installment due on 15 June 2011 and also failed to pay interest from August 2012. LIC issued a statutory notice under Section 434 of the Companies Act, 1956 on 21 July 2011, demanding payment, but the company failed to comply. The company raised a defence that the debt was disputed bona fide, alleging that LIC had not taken steps to enforce the security and that the valuation of the mortgaged property was disputed. The court examined the submissions and found that the company had not made any payment despite repeated demands and had admitted the debt in its balance sheet. The court held that the dispute raised was not bona fide and was merely an attempt to avoid payment. The court also held that the existence of security does not bar a winding up petition. Consequently, the court admitted the petition and ordered the winding up of the respondent company, appointing the Official Liquidator to take charge of the company's assets.
Headnote
A) Company Law - Winding Up - Inability to Pay Debts - Sections 433(e) and 434 of the Companies Act, 1956 - The petitioner, Life Insurance Corporation of India, sought winding up of the respondent company for default in repayment of a term loan of Rs.45 crores. The company defaulted in payment of the first installment and interest. The court held that the company had failed to make out a bona fide dispute and that the existence of security does not preclude a winding up petition. The petition was admitted and the company was directed to be wound up. (Paras 1-20) B) Company Law - Winding Up - Bona Fide Dispute - Section 433(e) of the Companies Act, 1956 - The respondent company raised a dispute regarding the valuation of the mortgaged property and alleged that the petitioner had failed to take steps to enforce the security. The court found that the dispute was not bona fide and was raised only to avoid payment. The company's conduct in not paying despite repeated demands and the fact that the debt was admitted in the balance sheet indicated inability to pay. (Paras 10-18) C) Company Law - Winding Up - Effect of Security - Section 433(e) of the Companies Act, 1956 - The court held that the existence of security does not bar a winding up petition if the company is unable to pay its debts. The creditor is entitled to choose the mode of recovery, and winding up is a legitimate remedy even when security exists. (Paras 15-16)
Issue of Consideration
Whether the respondent company is liable to be wound up under Section 433(e) of the Companies Act, 1956 for its inability to pay the debt due to the petitioner, and whether the existence of security and the alleged bona fide dispute raised by the company are sufficient to resist the winding up petition.
Final Decision
The court admitted the petition and ordered the winding up of the respondent company, Varun Global Limited, under the provisions of the Companies Act, 1956. The Official Liquidator was appointed to take charge of the company's assets and to proceed in accordance with law.
Law Points
- Winding up under Section 433(e) read with Section 434 of the Companies Act
- 1956
- Inability to pay debts
- Bona fide dispute defence
- Security not a bar to winding up
- Burden of proof on company to show bona fide dispute
