1. Appellant is a body corporate established under the Technology Development Board Act, 1995 for granting assistance in the form of equity capital or any other financial assistance to industrial concerns and other agencies attempting development and commercial applications of indigenous or adapting imported technology to wider domestic applications. Before the constitution of the appellant, the Venture Capital Fund (VCF) formed under the Research & Development Cess Act, 1986 (R & D Act) was part of the fund established by Industrial Development Bank of India (IDBI), than a statutory corporation established under the Industrial Developments Bank of India Act, 1964 (18 of 1964) (IDBI Act)(Since repealed) with the central government holding majority shares. The business and undertaking of IDBI has been transferred to, and vested In, IDBI Ltd.(a company registered and incorporated under the Companies Act, 1956(1 of 1956) and banking company within the meaning of Section 5(c) of the Banking Regulation Act, 1949 (10 of 1949) pursuant to the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003) (IDBI Repeal Act). Pursuant to the IDBI Repeal Act, IDBI LTD is permitted to carry on the banking business in accordance with the Banking Regulation Act, 1949 in addition to the business, which was already transacted by IDBI. IDBI, as erstwhile statutory corporation/ or IDBI LTD as a company, as presently constituted, was / is a separate legal entity, capable of suing and be sued. Based on the request made by the respondent IDBI granted financial assistance to respondent during 1988. A loan agreement be entered into between the parties. After taking over of the Venture Capital Fund by the appellant and appointment of IDBI as it a agent, appellant in view of the defaults committed by the respondent in its payment obligations, preferred company petition NO. 301/2000 against the respondent. The respondent had defaulted to the tune of Rs. 1,84,36,422/- as on 31/10/2000. Notice was issued. Matter was heard. After hearing, the learned company Judge has chosen to pass an order on 17-6-2004. In the said order, the learned Judge would hold that the present situation is not one which compels this Court to exercise its jurisdiction under Section 433(e) of the Act for passing an order to windup the affairs of the company, unless the Board itself has shown such awareness and was keen that the affairs of the company should have been wound-up. Learned Judge has however granted two weeks time to the appellant to place such material as it considers proper. By a subsequent order dtd 3-3-2005, another learned Judge has chosen to reject the petition for the reason set out in the order dtd 17-6-2004. Appellant has challenged these two orders in this appeal before us.
4. After noticing the huge arrears to a public body, we directed the parties to argue the matter itself in the light of the agreement of loan. Matter is heard for some time and thereafter the matter was adjourned to consider any acceptable proposal at the hands of the respondent. However, we noticed on 9-8-2005 that the company has no funds for payment. Subsequently, the matter was posted for further hearing.
5. Smt. Gayathri Balu, learned Counsel would take us through the material on record to say that there exists an admitted liability in the case on hand. She says that appellant is a public authority and public funds are involved in the case on hand. Huge sums of money is due fairly for a long time. She says that despite the admitted liability, learned Judge has chosen to reject the petition on the ground that the present facts do not come within Section 433(3) of the Act for the purpose of winding up of the company. She wants an interference.
6. Per contra, learned Counsel for the respondent would argue that certain duties were cast on the appellant and those duties in terms of the agreement were not acted upon by the appellant. He says that the present state of affairs is directly attributable to the acts of the appellant. He would therefore say that any winding up of respondent would not be in the interest of the company. He would say that the object of the Technology Development Board would go waste if the company ordered to be is wound up by this Court. He would plead that the appeal be dismissed.
7. After hearing, we have carefully seen the material on record.
8. Admitted facts would reveal of an agreement between the parties by way of loan agreement. Loan amount was made available to the company and the same is not repaid. A statutory notice was issued seeking settlement of a sum of Rs. 1,84,36,422/-, being the amount due as on 31-10-2000. A reply was sent on 27-11-2000. In the said reply, it is stated that the matter is being looked into and that reply would be sent in detail in due course. In the absence of any acceptable reply and in the absence of any payment, company application was filed in the matter of winding up of the respondent company. Notice was issued. Objections were obtained.
On 12-9-2003, a learned Judge of this Court after noticing the various material facts has admitted the petition and ordered advertisement in the Times of India. Initially an affidavit was filed opposing winding up. Thereafter, the said affidavit was withdrawn in terms of an order dtd 3-3-2005. In these circumstances, what is clear to us is that there is no opposition from anybody in the matter of opposing the winding up process in terms of the advertisement.
Thereafter the matter was heard from time to time. After hearing, the learned Judge in the impugned order was of the view that the present circumstance is not the one which compels this Court to exercise its jurisdiction under Section 433 of the Act on the facts of this case. He further holds in para 19 that the company has to place material to support the stand that the Board has evinced its awareness for the purpose for which this petition is filed before this Court. Two weeks time was granted.
Thereafter no material was placed. Hence on 3-3-2005, petition stood dismissed.
9. Let us see as to whether the dismissal of the petition in terms of the impugned order is in accordance with Section 433 of the Act. As we mentioned earlier the liability is admitted. No cause is shown for non-payment. It is seen from Annexure-R3, this very respondent has chosen to admit the liability and has chosen to place two proposals in the matter of discharge of admitted liability. Annexure-R-3 is dtd 22-11-1997. Even after 9 long years, no payment is forthcoming. Public money is involved and it has to be safe guarded as otherwise the very survival of the Board would be affected financially. It is no doubt true that discretion is available under Section 433, but that discretion has to be exercised cautiously and carefully depending upon the facts of each case. Courts cannot forget that public money is to be protected in the larger interest of public finance to other similar industries. Unless the admitted loan amount is returned in terms of the loan agreement finance/financial institutions suffer. Law is also clear that in the event of non-payment, Section 433 can certainly be invoked for winding up of the company. In the light of admitted liability and in the light of nonpayment, fairly for a long time, we are of the view that rejection of the application on the ground of discretion by the learned Judge, in our view requires our interference.
10. At this stage, we must also notice the famous judgment of the Supreme Court in the case of State Finance Corporation v. Jagadamba Oil Mills : 1SCR621 . Though it was delivered in different circumstance, the court has considered the financial interest of financial institutions. The Supreme Court noticed that where the borrower has no genuine intention to repay and adopts pretexts and ploys to avoid payment, he cannot make the grievance that Corporation was not acting fairly, even if requisite procedures have been followed. The fairness required of the Corporations cannot be carried to the extent of disabling them from recovering what is due to them. The Supreme Court has further noticed that the Corporation is an instrumentality of the State dealing with public money. There can be no doubt that the approach has to be public oriented. It can operate effectively if there is regular realisation of the installments. While the Corporation is expected to act fairly in the matter of disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the installments in time, unless prevented by unsurmountable difficulties. Regular payment is the rule and non-payment due to extenuating circumstances is the exception. If the repayments are not received as per the scheduled time frame, it will disturb the equilibrium of the financial arrangements of the corporation. They do not have at their disposal unlimited funds. They have to cater to the needs of the intended borrower with the available finance. Non-payment of the installment by a defaulter may stand on the way of a deserving borrower getting financial assistance.
The Supreme Court further ruled that though the Corporation is not like an ordinary money lender or a bank which lends money, there is purpose in its lending i.e., to promote small and medium industries. The relationship between the Corporation and the borrower is that of creditor and debtor. That basic feature cannot be lost sight of. A Corporation is not supposed to give loan and then to write it off as a bad debt and ultimately to go out of business. It has to recover the amounts due so that fresh loans can be given. In that way industrialization which is intended object can be promoted. It certainly is not and cannot be called upon to pump in more money to revive and resurrect each and every sick industrial unit irrespective of the cost involved. That would be throwing good money after bad money.
In the light of the judgment of the Supreme Court, what is clear to us is that the Apex court has chosen to say in unmistakable terms that the loan amount has to be repaid in terms of the schedule as otherwise it will disturb the equilibrium of the financial arrangements of the corporation. The judgment of the Supreme Court supports the appellant.
11. In so far as the argument of wastage of the efforts made by the company is concerned, we find it very difficult to accept the same. In fact, this plea is not available to the respondent in the light of the order passed by this Court at the time of admission of the petitioner. At the time of admission, a learned Judge of this Court has noticed in his order that the company's product has not come out even on 12-9-2003 on which the date the company petition was admitted. Learned Judge also has noticed that the product is yet to hit the market, though the agreed period within which the product should have been come out was within twelve months. In the given circumstances and in the light of no acceptable material placed on record we are not inclined to blindly accept the argument of destruction of hard efforts on (sic) of winding up of the company. This argument is rejected.
12. We in these circumstances, accept this appeal in the larger interest of public revenue and in terms of Section 433(e) of the Act. The impugned orders are set aside. In the absence of any opposition to the company petition in terms of the pleadings, we deem it proper to order winding up of the company in terms of the prayer made by the appellant.
ORDER ON FOR BEING SPOKEN TO
03-7-2006 OSA. 23/2005
We have by our order dtd 29-6-2006 allowed the petition filed under Section 433E of the Act. We have ordered winding up of the company in terms of the prayer made by the appellant.
Matter is listed for being spoken to.
Heard the learned Counsel on either side.
Perused the material on record. In the light of our order with regard to winding up of the company, we further deem it proper to direct the appellant-petitioner to take out advertisements in Hindu - Bangalore Edition, and Samyukta Karnataka - Bangalore Edition within 14 days from the date of receipt of a copy of this order. The provisional liquidator is appointed as official liquidator for the respondent-company. Petitioner is to serve a copy of this order to the Registrar of Companies in Karnataka. In the light of this order we further deem it proper to direct the appellant-petitioner to deposit the necessary amount for further action before the official liquidator for the purpose of liquidation expenses.