Life Insurance Corporation of India vs Varun Global Limited

Sri A.K. Menon, J. - This Company Petition filed under Section 433(e) and 434 of the Companies Act, 1956 seeks winding up of the respondent company. The petitioner is the Life Insurance Corporation of India. The respondent is a company registered under the Companies Act engaged in the business of Shipping. The main objects of the company are to purchase, charter, hire or otherwise sell and exchange and deal with steam ships and other ships. It also is empowered by its objects clause to establish and maintain shipping lines between various ports. It was incorporated as a private limited company on or about 3rd November, 2009. The company requested a Rupee Term Loan of Rs.50 crores from the petitioner for general corporate purposes. A sum of Rs.50 crores was sanctioned by the petitioner on or about 24th November, 2009. In order to secure the repayment of the said loan, the company proposed to pledge 21,182 equity shares of Rs.100/- each held by the company in Khatau Industries Pvt. Ltd. along with right to occupy the use, possess and enjoy in certain premises situated at Laxmi Building, 6, Shoorji Vallabhdas Marg, Ballard Estate, Mumbai-1, which was leased to the said Khatau Industries Pvt. Ltd. by the Bombay Port Trust on or about 2nd March, 1920 ("Leasehold premises").

At the material time the leasehold premises was proposed to be mortgaged to secure the loan and it was valued at Rs.62.24 crores. The loan sanctioned was reduced to Rs.45 crores as recorded in the letter dated 2nd February, 2010. The term loan was to be repaid in 17 equal quarterly instalments of Rs.2.25 crores each followed by a bullet repayment by Rs.6.75 crores due and payable as the 18th quarterly instalment. In order to secure the aforesaid loan the company executed the following security documents in favour of the petitioner:-

"(i) Loan agreement dated 12th April, 2010 for the Rupee Term Loan for an amount of Rs.45 crores;

(ii) Undertaking for creation of the permanent security dated 12th April, 2010;

(iii) Undertaking for non-receipt of Commission dated 12th April, 2010; and

(iv) Undertaking for Non-disposal of Shareholding dated 12th April, 2010.

An amount of Rs.45 crores was disbursed on 13th April, 2010 at 12% interest payable on a monthly basis as set out in the terms of Loan Agreement. The company created an exclusive charge and mortgage in respect of the aforesaid leased premises and complied with the provisions of the Companies Act. In this respect a copy of the certificate of registration of mortgage has been relied upon by the petitioner as evidence in creation of the charge in favour of the petitioner. As the company had also pledged 21182 equity shares of Khatau Industries Pvt. Ltd.

The company allegedly defaulted in payment of the very first instalment which was due on 15th June, 2011. Interest was paid till July 2010 and the Company failed to pay the interest from August 2012. Since no payments were forthcoming, the petitioner vide an email dated 21st July, 2011 called upon the company to make payments of the amounts due. Meanwhile, it appears that the performance of the company was spiraling downward. As a result, the term loan was classified as a Non Performing Asset (NPA). Vide letter dated 25th November, 2011 the company admitted its liability to repay the term loan but failed and neglected to repay the same or any part thereof. Further demands dated 28/29th March, 2012 were made calling upon the company to pay their outstanding debt. The respondent company scheduled an Annual General Meeting on 4th February, 2013 whereby the respondent declared dividend for the 18 months period ended 30th September, 2012 at 5%. The petitioner vide their letter dated 29th January, 2013 objected to the declaration of the dividend considering the deteriorating financial condition and also the fact that declaration of said dividend was in contravention of Article 6.17(B)(4) of the Loan Agreement dated 12th April, 2010 whereby the company agreed not declare or pay any dividend to its shareholders unless it had first paid all the dues to the petitioner. The petitioner then called upon the company to clear their outstanding dues failing which the petitioner would be constrained to declare the company as a "Wilful defaulter" in accordance with the RBI Guidelines. The company meanwhile had issued cheques amounting to Rs.20,67,73,464/-. to the petitioner which were delivered to the petitioner''s custodian (Stock Holding Corporation of India Ltd.) These cheques were dishonored resulting in criminal complaints being filed under the provisions of Negotiable Instruments Act, 1883.

On or about 30th April, 2014 the petitioner served on the company a statutory notice under Section 433 and 434 of the Companies Act calling upon to pay the amount of Rs.54,57,08,778/- although the notice was received the company failed to reply and thereby is deemed to have committed an act of insolvency. The petition therefore came to be presented on or about 15th July, 2014. According to the petitioner as on 31st May, 2014 a total sum of Rs.55,78,77,508 was payable to the petitioner along with further interest thereon at 12% p.a. The petitioner also claims costs and charges set out in the particulars of claim as follows:-

Principal Bank/Legal charges Simple Interest Interest on Delayed Principal Compound Interest Liquidated dated Damages Total

43,68,32,924 1,56,130 5,56,03,031 4,38,73,761 1,16,46,523 97,65,139 55,78,77,508

The company filed an affidavit in reply of a Director of the Company specifically empowered by a Board Resolution to file the reply. The name of the company underwent to change pursuant to a composite scheme of arrangement and amalgamation was sanctioned by this Court vide order dated 9th May, 2014 resulting in the ship management and shipping investment business of Varun Shipping Company Limited (VSCL) being demerged from VSCL was transferred to and vested in the respondent Varun Global Ltd. The shipping business of VSCL along with group companies were amalgamated with Varun Resources Ltd. (VRL) The demerger resulted in all legal proceedings filed by and against VSCL being continued by or against the respondent. In the circumstances, vide order dated 19th March, 2015 the name of the respondent was brought on record.

It is contended that with the global economic slowdown in 2009 the shipping industry was badly affected but the Respondent and its group companies have successfully beaten the recessionary trend and "have enough assets to cover all liabilities". The lenders of VRL agreed to restructure the loans and formed the Joint Lender''s Forum mechanism (JLF). The additional disbursement by banks amounted to Rs.425 crores and the promoter''s equity contribution was Rs.75 crores. The aggregate restructured loan disbursement was about Rs.2500 crores.

It is the case of the company that the JLF regularly held meetings held by State Bank of India (SBI )and they framed a corrective action plan in the form of a restructuring package to restructure the loan of VRL. The JLF resolved that a Core Committee of the JLF members would take up the issue pertaining to repayment of the petitioner''s dues so as to assure the petitioner that its dues will be paid. The petitioner was invited to the JLF meetings and to cooperate in formulating the restructuring package but the petitioner only obstructed further progress contending that the company had been declared a wilful defaulter. According to the Respondent Company, the Petitioner had acted with "oblique motive" to obstruct the financial restructuring and thereby gain undue advantage despite the majority of members of the JLF supporting the restructuring. It is contended that the action of the petitioner was in violation of Articles 14 and 19(1)(g) of the Constitution of India and jeopardizes various other public institutions forming part of the JLF who were all supporting the restructuring effort. The deponent relied upon Minutes of Meeting held on 16th February, 2015, 26th February, 2015 and 13th March, 2015 extracts of which have been reproduced in the affidavit in reply. It was suggested that the amount due to be paid to the petitioner would be kept with SBI in a No Lien Account with an undertaking that it would be paid to the petitioner. The SBI on behalf of the lenders was to take up the matter with the petitioner and assure the petitioner that the amount deposited by the company would be utilized for the purposes of settling the petitioner''s dues. In view of the fact that the company had been declared as wilful defaulter at a meeting of the JLF held on 13th March, 2015, they resolved that the company would advise the promoters to bring in their contribution of Rs.33.87 crores along with amount to be paid to the petitioner immediately and deposit the same with SBI with a view to expedite resolution of the issue on receipt of the promoters contribution.

Upon this resolution being made the promoters requested the JLF to advise the steps for implementation of the same. Mr. Khatau, the Director of the respondent company had then assured the JLF that his contribution would be brought in by 18th March, 2015. It appears that the company then signed a Master Restructuring Agreement with the lender banks on 31st March, 2015 and the banks have approved the restructuring package approved by the JLF and the loan facility extended by the petitioner was proposed to be paid by June 2023 in the manner provided therein. It is contended that the restructuring package approved by the JLF provides for the payment of the Petitioner''s claim even though Varun Global Ltd. is independent of VRL and the MRA operate between the landlord and VRL. The MRA provided that in consideration of the respondent undertaking the crew and technical management of the vessels of VRL, the respondent would receive management fees at an "agreed rate" to be paid out of the cash flows of VRL.

According to the deponent of the affidavit in reply the petitioner''s loan is secured by mortgage of office premises on the ground floor, 1st and 3rd floor, Laxmi Building, 6, Shoorji Vallabhdas Marg, Ballard Estate, Mumbai-1 admeasuring 11976 sq. ft approximately. The said Laxmi building was incidentally the registered office of the company and the market value of the said property said to be in excess of Rs.55 crores. According to the deponent the petitioner being a secured creditor which has not surrendered its security such a petition is not maintainable.

In May 2013 the petitioner company had declared VSCL a wilful defaulter. The petitioner was requested to reverse this upon receiving overdue interest as per the restructuring package. It is further contended that even as late as November, 2014, the petitioner company was offered a sum of Rs.12.85 crores but the petitioner did not provide any written acceptance nor did they refuse the same. According to the deponent the petition is also not maintainable since the debt is bona fide disputed. The petitioner has always shown willingness to pay the loan amount upon reconciliation of accounts and as per the restructuring in package. It is further submitted that an amount of Rs.16.80 crores towards interest overdue has been in fact deposited with the State Bank of India on 27th March, 2015 which has since been transferred into a "No Lien" Account. The petitioner is stated to be entitled to receive the same upon the respondent''s name being removed from the list of wilful defaulters and upon agreeing to receive incomes under the restructuring package. The respondent has denied the contents of the petition and questioned the appropriation of Rs.2.25 crores towards payment of interest resulting in a sum of Rs.1.39 crores being shown as outstanding towards the principal sum due under the first instalment. It is contended that despite payment the petitioner company had been declared as a Non- Performing Asset.

In paragraph 18 of the affidavit in reply, the deponent admits having received the statutory notice and states that the notice was not replied to as the petitioner and VSCL were in talks inter alia regarding payment of interest upto 4th July, 2014 with the hope that the petitioner would agree to delete the name of VSCL as a wilful defaulter and convey their no objection to the restructuring package. The computation of the amount claimed in the Petition has been disputed and it is contended accounts are required to be reconciled. According to the deponent the petitioner''s apprehensions are baseless and this is evident from the fact that when the company''s scheme petition for amalgamation was filed, the petitioner did not object to the scheme and which came to be approved by this Court vide order dated 9th May, 2014.

According to Mr. Dhond the learned Senior Advocate appearing for the respondent, the petitioner is attempting to disrupt the implementation of the scheme by seeking an injunction and despite being fully secured, the petitioner has not disclosed that VSCL was always ready to repay the loan. Mr. Dhond relied upon an additional affidavit dated 30th August, 2016 by which the respondent has sought to place on record further facts which according to them have a critical bearing on the petitioner''s entitlement to the reliefs claimed. This affidavit has been affirmed after this Petition was partly argued for admission but with the leave of the Court. Mr. Dhond submitted that the respondent has since had urgent consultations with the lenders and the affidavit records that the respondent is willing to propose a financial solution to the disputes forming the subject matter of the petition. Mr. Dhond submitted that the shipping business of the Varun Group is vested in VRL has eight ships all of which are LPG carriers. The total debt sought to be restructured was approximately Rs.2300 crores. The liability of VRL as of June 2016 was approximately Rs.2100 crores and the Respondent company is only engaged in ship management business and its lone source of revenue is the management fees paid by VRL being USD 1500 per vessel per day.

According to Mr. Dhond almost the entire amount earned i.e. about Rs.10 crores is used to defray expenses such as salary and other administrative expenses of the respondent. Therefore the respondent is a revenue neutral company. The Respondent has admitted that there has been a global economic downturn in the shipping industry which has severely impacted various shipping companies, many of whom have shut down but the Varun Group has managed to survive.

Mr. Dhond submitted that other lenders have accepted the restructuring proposals and if the petitioner were not to agree, it would only demonstrate the petitioner''s unreasonable behaviour. The State Bank of India had informed the petitioner that the respondent had deposited 16.80 crores with SBI towards overdue interest and that all receivables from the vessels would be routed to a Trust and Retention Account from which proportionate payments will be made to all the lenders including the petitioner. The petitioner was requested to delete the name of the respondent from the list of wilful defaulter. Unfortunately, the petitioner has not responded and has refused to delete the wilful defaulter tag. Ultimately after waiting for 5 months the joint lenders forum decided to proceed without the petitioners. The sum of Rs.16.80 crores was employed for operational requirements of VRL vessels. It is further contended that the Joint Lenders Forum has now refused to make provisional payments to the petitioner. It is submitted that apart from merely agreeing restructuring the existing debt the members of the JLF have gone out of pocket and provided fresh funding of Rs.425 crores. On a query from the Court as to whether VRL was willing to cede a pari passu charge along with other lenders, Mr. Dhond on instructions replied in the negative.

According to Mr. Dhond and per the additional affidavit the respondent is "well placed to ride out" the economic storm which has affected the shipping industry a contention canvassed by Mr. Dhond. The respondent itself has approximately 80,000 shareholders and ironically the petitioner itself has a substantial shareholding in the respondent. The petitioner had chosen to mindlessly pursue and agitate the winding up of the respondent and after commencement of the restructuring scheme and as of 30th August, 2016 a sum of Rs.441.30 crores will be paid out. The scheme has been evolved after much effort by lenders and is presently functioning smoothly. The additional affidavit also relied upon the MRA between the JLF and executed on or about 29th June, 2015. On the other hand the petitioner has done nothing and it has not even filed a recovery application. Serious prejudice it is claimed will be caused to VRL and the respondent and its employees of the petitioner is admitted but no prejudice will be caused to the petitioner since the amount as per the scheme will continue to be deposited. Mr. Dhond further submitted that the respondent was a going concern to the regularly receiving income for VRL as fees and admission of the petition would cause enormous disruption of business and affairs of not only of the respondent company but also of VRL which owns a fleet of ships which are managed by the respondent herein.

Mr. Dhond had made reference to Exhibit C to the additional affidavit which sets out the proposed repayment schedule from which he pointed out that by March 2024 all amounts due will be paid. Mr. Dhond therefore submitted that the entire effort of the respondent company to arrive at amicable settlement is frustrated by the impractical stand adopted by the petitioner corporation. Mr. Dhond then submitted that the existing Rupee Term Loan of the petitioner company was duly considered in the MRA. He drew my attention to the fact on page 82 of the additional affidavit Schedule- II part A consists of the particulars of the existing Rupee Term Loan which is still shown as outstanding. Mr. Dhond submitted that the respondent company was not in a position to pay the Petitioner in a bullet payment and it is necessary for the petitioner to join the Lenders'' Forum in order that the petitioner may receive the proceeds under the MRA. According to Mr. Dhond nothing will be achieved by winding up the respondent Company since it is revenue neutral in nature and has virtually no assets and the purpose of enforcement of an order of winding will not be useful. He also invited my attention to the fact that the petition proceeds on the basis that the respondent company is unable to pay its debts, however, the fact that the respondent is a going concern and is able to pay debts as and when they arise and has settled many claims amicably and therefore issuance of an order of winding up is not the solution. Mr. Dhond further pointed out that although the Petitioner was a party to the company petition proposing the scheme for amalgamation it had failed to appear and also not filed any explanation as to why it did not oppose the application for amalgamation. In the circumstances, he submitted that the present petition is abuse of process ought not to be entertained. Dhond relied upon the following Judgments in support of his defence :

1) Arbitration Petition No.800 of 2014 a/w connected petitions dated 6th July, 2015 Tata Capital Financial Services Ltd. v. Unity Infraprojects Ltd. & Ors.

2) 1971 (3) SCC 632 M/s. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd.

3) (1999) 96 Comp Cas 841 (Gujarat) American Express Bank Ltd. v. Core Health Care Ltd.

4) (2002) 110 CompCas 70 (P & H) Canara Bank v. Arihant Industries Ltd.

5) (2015) 127 CLA 223( Punj & Har) Bank of New York Mellon v. JCT Ltd.

6) (1992) 73 Comp Cas 271 (Guj) In Re: Rishi Enterprises.

Ms. Saheed the learned counsel appearing on behalf of the petitioner relied upon an additional affidavit of one Sanjay Johari in which the petitioner categorically states that the restructuring proposal is not acceptable to the petitioner since it seeks to convert outstanding interest into a funded interest term loan and the security in terms of the lease in favour of Khatau on behalf of the provided for the respondent to the petitioner at the time of sanction and disbursement of the loan has not yet been renewed. It is stated that the petitioners have set out in detail the fact that the respondent company has availed Rupee Term Loan of Rs.45 crores repayable in 17 equal quarterly instalments and it is also executed security documents as set out in the petition including mortgage of the property owned by Khatau Industries Ltd. However, the property was leased out to Khatau Industries Ltd. by the Bombay Port Trust but the lease has expired in March 2016. Although the respondent agreed to pay 16.80 crores upfront, nothing has been paid to it.

Furthermore, Ms. Saheed pointed out that the affidavit of Mr. Johari records that the respondent had at a point in time agreed to convince the JLF to create a pari-passu charge of assets of VRL in favour of the petitioners. It is further submitted by Ms. Saheed that the restructuring package involves a phased repayment over a period of 8 to 10 years and sharing of securities and these reduction of interest and waiver of the principal sum which is neither applicable nor acceptable to the petitioner in respect of their claim. Several attempts have been made to arrive at a bilateral settlement since June 2015 however, the petitioner had not received any workable proposal. Counsel denied that the respondent approached the petitioner to arrive at a settlement similar to the restructured credit of the joint lenders and the respondents have failed to submit any such bilateral proposal. The petitioner on the other hand has been addressing various emails seeking clarifications and requirements on the restructuring proposal submitted by the State Bank of India. It is further submitted that since September 2015 the petitioner has been consistently requesting the respondent to furnish a detailed proposal but the respondents have failed to do so. As of August, 2016, the total amount due was Rs.74.88 crores and the figure of Rs.67.85 crores admitted in the additional affidavit is incorrect.

According to Ms. Saheed the respondent had indicated that the lenders of VRL had proposed a pari-passu charge in favour of the petitioner as well the JLF refused to cede their securities in favour of the petitioner which is a deviation from the earlier offer made by the company. For the aforesaid reasons, the petitioners have declined to exclude the respondent from the list of wilful defaulters which can only be done on arriving at a settlement as aforesaid. Ms. Saheed further submitted that the offer made by the respondent is unfair and impractical inasmuch as offers to pay overdue interest on further amount but only after the wilful defaulter tag is removed. As far as the repayment is concerned, it is contended that the balance amount proposed to be paid was over a stretched period of 8-10 years. The suggestion that funds towards overdue interest would be released as a pre-condition is not acceptable to the petitioner.

The petitioner also relied upon the clause 4.3.7 of the Reserve Bank of India Circular DBOD B.P.B.C. No.97/2014.132/2013-14 dated 26th February, 2014 which provides that wilful defaulters are not normally entitled to restructuring. However, the JLF was to review the reasons for classification of the borrower as wilful defaulter and satisfy itself that the borrower was in a position to rectify the wilful default. It is also made clear that the decision to restructure should be taken subject to the approval of the Board of Directors or individual banks within the JLF. The petitioners contend that on 19th December, 2014 the Chairman of the company was in the final stages of resolving the issues pertaining to the claim of the petitioner and that then, it was expected to be resolved within a fortnight. Several JLF meetings were held but the petitioner was invited only to some of them. The company has been advised to bring in the amounts but they failed to do so. The petitioner has admitted to have received a letter on 4th April, 2015 from SBI informing them that the restructuring package was being implemented by the JLF to revive operations of the company and to ensure that the operations of the company become profitable.

Ms. Saheed further submitted that the financial arrangements proposed by the respondent and VRL qua the petitioner are not sanctioned by any Court and the contents of the restructuring package cannot be imposed upon the petitioners. At the time of sanction of the loan itself the respondent had declared that the property sought to be mortgaged was leased by the Port of Bombay for a period of 99 years commencing from 28th March, 1917 to 27th March, 2016. In view of the promises made at the time of disbursement of anticipated growth, performance and profits the petitioners had agreed to sanction the loan. However, as it transpires the lease of the property has not been renewed as yet and in the light of the deteriorating financial condition of the respondent the petitioner''s security is in jeopardy. In the circumstances, Ms. Saheed submitted that the petition is maintainable.

It is further contended that the outstanding debt has not been disputed and the respondent was making payments to some of the bankers to the exclusion of the petitioners. The respondent has never shown its readiness and willingness to repay the amounts on reconciliation of accounts and admittedly only a sum of Rs.16.80 crores towards interest overdue was deposited with the SBI on 27th March, 2015 in a No-Lien Account that to be conditionally transferred upon withdrawal of the wilful defaulters'' tag. Ms. Saheed reiterated that although the respondent claims to have paid the first instalment due on 15th June, 2011 the fact remains that the payment was made only on 29th September, 2011 clearly beyond the due date and the delay in making the payment as per due date sets out under the amortization schedule entitled the petitioner to charge further interest on delayed payments. Accordingly the petitioner has correctly appropriated the amount towards interest and thereafter towards the principal sum of the instalment leaving a balance of Rs.1.39 crores outstanding against the first instalment. The petitioner reiterated that the respondents account has correctly been declared as ''Non-Performing Asset'' and it is denied that the petitioners and the original respondent VSCL were in talks for payment of interest upto 4th July, 2014 and for removal of the name of VSCL from the list of wilful defaulters nor is the petitioner obliged to grant any no objection to the restructuring package. For the aforesaid reasons, the petitioner has reiterated its case and refuted the respondent''s contention. Ms. Saheed relied upon the following judgments in support of her case :-

i) Judgement in Company Petition no.971 of 2009 dated 11th March, 2011 BNY Corporate Trustee Services Ltd. v. Wockhardt Limited;

ii) Judgement in Civil Appeal no.8230 of 2010 Supreme Court M/s. IBA Health (I) P. Ltd. v. M/s. Info-Drive Systems Sdn. Bhd.

I have heard counsel at length and with their assistance have considered the pleadings and documents and case law cited. Mr. Dhond opposed the petition upon the following basis;

(a) Firstly the petitioner was secured by the pledged shares as well as the mortgaged. The lease would be renewed and the security will subsist in favour of the petitioner. The petition is therefore not maintainable since the petitioner is a secured creditor.

(b) Secondly, the JLF is willing to cooperate and secure the petitioners claim and despite this the petitioner had failed to agree to the restructuring. It is submitted that almost all other lenders have joined the JLF recognizing the state of the shipping industry which was reeling under the recession and accordingly it was not proper for the petitioner not to agree with the terms proposed by the JLF.

(c) Thirdly, the petitioner was made aware of the fact that Rs.16.80 crores had been deposited in a No Lien Account to be paid over to the petitioner upon the petitioner agreeing to relieve the respondent of the wilful defaulter tag. However, the petitioner was not willing to do so. The attitude of the petitioner was unreasonable and the continuing the defaulter tag was harming the respondent in business and image. It is for this reason the petitioner had offered to secure the overdue interest amount. However, the petitioner has refused such an offer.

(d) Fourthly, the respondents had included the petitioner in the restructuring package so that it would receive its dues in the manner set out in the MRA. The MRA also took into consideration this winding up petition in the annexure at page 98 of the additional affidavit where a reference is made by the respondent to the effect that the total outstanding of the Petitioner is Rs.55.50 crores including interest till June 2014 consisting of principal sum of Rs.43.68 crores and that VSCL intends that the loan should be part of the CDR package and it shall be restructured subject to approval of the Petitioner''s. The outstanding is to be paid subject to restructuring from promoters and the equity. This has been signed by 11 banks including SBI as the leader and is also signed by the borrower.

(a) Mr. Dhond relied upon the observation of the single Judge of this Court in Tata Capital (Supra) to the effect that restructuring of the Company involves substantial financial sacrifice on the part of the secured creditors which also envisages infusion of substantial funds into the Company by the secured creditors so as to bring the ailing company back on the rails and it is not advisable in the facts of that case to admit the winding up petition. The Court observed that it was neither in the interest of the Company nor its workman or even its creditors. There was a need to allow the CDR scheme in that case to have full play in the interests of all stake holders. The private interest of the petitioner who is not without a security and whose interests are sought to be protected in that case in separate arbitration proceeding the State Bank of India being the monitoring institution under the CDR Package was to allow the petitioner therein to participate in the CDR package if it so chooses. By amending the provisions of the package and petitioner chooses not to participate, State Bank of India was directed to keep that petitioner informed of the progress of the CDR scheme and not to allow any disposal of assets of the Company without intimation to the petitioner who was granted liberty to apply for appropriate reliefs in relation to such disposal. The Court Receiver had already been appointed as receiver in respect of hypothecated assets in that case. The Petition was dismissed granting liberty to the petitioner to apply for winding up of the Company on the same facts in the event CDR package fails or cannot be implemented. Mr. Dhond submitted that a situation contemplated in Tata Capital (supra) is very similar to the present case and the petitioner should not disrupt the process of restructuring since it would completely disrupt the other members'' recovery in accordance with the suggested scheme.

(b) In Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. [1972] 42 Comp Cas 125 (SC) Mr. Dhond relied upon paragraph 22 in support of the submission that the wishes of shareholders are to be considered though perhaps the Court may attach greater weight to the views of the creditors. It quoted with approval an extract from Palmer''s Company Law 21st Edition to the effect that the right to a winding up order, is, qualified by another rule, viz. that the Court will regard the wishes of the majority in value of creditors, and if, for some good reason, they object to winding up order, the Court in its discretion may refuse this order. The wishes of the creditors will have to be viewed keeping in mind the overall scenario.

(c) Mr. Dhond then relied upon two decisions of Gujarat High Court in Rishi Enterprises, In re [1992] 73 Comp Cas 271 (Guj) and the observation therein that in exercise of judicial discretion a running company employing about 500 employees who are paid their wages regularly and had business of crores of rupees should not be brought to grinding halt because it is in some financial difficulty at that given moment. It would not be right to say that creditors can insist on winding up of a company by the Court as matter of right if the position of the Company is such that it would be unable to pay its debts even if the company can be resurrected. The petitioning creditors cannot be permitted to insist upon its pound of flesh from the Company which may be a death blow to the Company only on the ground that for a temporary period a running Company was not in position to pay its debts.

(d) In Rishi Enterprises, In re [1992] 73 Comp Cas 271 (Guj) the Court relied upon a Division bench decision of the Gujarat High Court in New Swadeshi Mills of Ahmedabad Ltd. v. Dye-Chem Corporation [1986] 59 Comp Cas 183. Passing reference was made also to Madhusudan Gordhandas and Co. Madhu Woollen Industries P. Ltd. [1972] 42 the need to consider wishes of other creditors and shareholders before passing a winding up order. In my view facts of this case do not entitle the respondent to the benefit of the observations of the Gujarat High Court.

(e) Mr. Dhond then relied upon decision of Gujarat High Court in case of American Express Bank Ltd. v. Core Health Care Ltd. [1999] 96 Comp Cas 841 (supra) which observed that on principles, it is not a matter of right to claim a winding up order but the discretion vests in the Court. Even if one or more grounds are established under section 433, there is no warrant to assume that the stage for exercise of such discretion arises only after petition is admitted. In matters of winding up on the ground of inability to pay its debts the Court has to bear in mind that a winding up petition is not an alternative to the ordinary procedure for realisation of the debts. Even in case where indebtedness of the petitioner is not in dispute or doubt, Courts do not order winding up where it is satisfied that it would not be in the interest of justice to wind up the Company or whether the majority in value of the creditors do not favor the winding up. It is also to be noted that a winding up order will not be made on a creditor''s petition if it does not benefit the Company''s creditors generally. At the stage of admission one factor that needs to be considered is whether from the material before the Court it appears that the Company is commercially solvent and the present state of affairs is the result of temporary setback in business operations, In that case the court came to the conclusion that the petitioner being a secured creditors to a very small extent and on considering the entire gamut of the respondent company''s business the petitioner had recourse to an appropriate remedy for recovery and he could remain outside winding up and recover his debt by realising the securities unaffected by the winding up petition. The Gujarat High Court also relied upon the case of Airwings (P) Ltd. v. Viktoria Air Cargo Gmbh [1995]84 Comp Cas 688 which noticed the Karnataka High Court''s observation in Pradeshiya Industrial Corporation of U.P''s v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 (SC) case reproducing a portion of the Supreme Court''s observation that puts the controversy beyond any pale of doubt viz, in the case of Company which is going concern and which is actually functioning, even an order of admission may prove disastrous let alone the advertisement of the order which would be still more pernicious.

(f) In Canara Bank v. Arihant Industries Ltd [2002] 110 Comp Cas 70 (p & H) the Punjab and Haryana High Court observed that since filing of the Company petition not a single penny had been released to the petitioners. Mr. Dhond had relied upon observation in paragraph 22 to buttress his submission that the respondent Company was moving towards revival and the facts needs to be noticed and the basis of the fact that affidavit filed expressly suggested that Company is recovering from its losses and moving towards profitability. There was no denial of this. However, although the debt was admitted, the Company employed about 3000 employees who have been paid their salaries regularly . The company has been honouring its tax liabilities and there were no arrears on account of tax and also considering the fact that large number of shareholders between 85000 to 90000 and 120 dealers associated to the Company. All the employees and also their families have been deemed to be surviving on the respondent company. The said shareholders and dealers were also losers if the claim of the petitioner is accepted and the winding operation of the Company would be undoubtedly be a loss for all of them. In that case it was established that the Company was progressing towards revival. The Court declined to admit that petition.

(g) In yet another judgment of the Punjab and Haryana High Court in the case of Bank of New York v. JCT Ltd. [2015] 190 Comp Cas 396 (Supra) the Court after considering the factual matrix observed that it would not be in the fitness of things to admit the petition for winding up but it is expected that respondent Company would make efforts to generate funds either out of cash profits or sale of non-core .assets to pay of the petitioner or get the debt restructured to maintain its credit worthiness. The respondent Company was restrained from creating further charge on its assets, which may prejudice the right of the petitioner who was an unsecured creditor in that case.

In my view, none of these decisions come to the assistance of Mr. Dhond inasmuch as in each of these cases, the emphasis has been on considering the pros and cons of admission of the petition, after taking into consideration the interest of the General body of creditors as well as the shareholders In the leading case of M/s. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd (1972) 42 Comp Cas 125 (SC) paragraph 20 clearly sets out as follows:-

"Two rules are well established. Firstly, if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the Company. Secondly where the debt is undisputed Court will not act upon a defence that the company will have ability to pay the debt, but the company chooses not to pay that particular debt and where there is no doubt that the company owes the creditors a debt entitling him to a winding up order but the exact amount of the debt is disputed. The Court will make a winding up order without requiring the creditor to quantify the debt precisely."

(emphasis supplied)

Now coming to the contentions of the petitioner, Ms. Saheed has relied upon observation in paragraph 17 of the Supreme Court''s judgment in Civil Appeal 8230 of 2010 in M/s.IBA Health (I) P.Ltd. v. M/s. Info-Drive Systems Sdn. Bhd (2010) 159 Comp Cas 369 (SC). The question that arose for consideration was as follows:- When there is a substantial dispute as to liability, can a creditor prefer an application for winding up? The Court observed that while it is the duty of the Company Court to examine whether the Company has a genuine dispute to the claimed debt, the dispute should be substantial, genuine & bona fide, not spurious, speculative, illusory or misconceived and that it was settled law that if the creditor''s debt is bona fide disputed on substantial grounds the Court should dismiss the petition. The Court relied upon observation in judgment of Supreme Court in Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami and another (1965) 35 Company Cases 456 which reiterated the well settled principle that a winding up petition is not a legitimate means of seeking debts which are bona fide disputed and that a petition presented ostensibly for winding up order but really to exercise pressure will be dismissed and may be stigmatized as a scandalous abuse of the process of the Court. The decision in Amalgamated Commercial Traders (supra) was later followed even in M/s. Madhusudan Gordhandas & Co (1972) 42 Comp Cas 125 (SC) (supra) even though the Court in M/s. IBA Health (I) P. Ltd v. Info-Drive Systems Sdn. Bhd. [2010] 159 Comp Cas 369 (SC)(supra) considered what bona fide disputed should encompass. It also observed on the aspect of commercial insolvency that if a Company refuses to pay on genuine and substantial grounds it should not be able to avoid the statutory demand and that the law should be allowed to proceed and if the demand is not met, the company will have an opportunity on the liquidation application to rebut that presumption. An examination of the company''s solvency was indicated as a useful aid in determining whether the refusal to pay is the result of a bona fide dispute as to liability or whether it reflects inability to pay.

In support of her contention Ms. Saheed sought to distinguish the various decision relied upon. In the course of doing so she made specific reference to the decision of the Gujarat High Court in American Express Bank v. Core Health Care Ltd. [1996] 96 Comp Cas 841 (Guj) (supra) wherein the case Mr. Dhond had sought to contend that in the discretion of the court the Court ought not to proceed in winding up and the Court has to bear in mind interests of the majority of creditors. Ms. Saheed pointed out that the judgment of the single Judge of the Gujarat High Court was subject to an appeal by the Bank challenging the dismissal of the petition by a single Judge. The Appeal came to be admitted on 18/2/1988 and thereafter on 27/8/1999 the appeal bearing OJ/55/1997 came to be withdrawn since the parties settled the dispute.

In the present case, both the petitioner and the respondent company were ad-idem that the loan agreement prevails. The fact that there is a debt owing is not in dispute. However computation of additional interest and liquidated damages may have been called into question. What is pertinent to note is that the principal sum due is not in dispute nor is overdue interest. It is case of the Company that it offered to secure the amount of overdue interest. Mr. Dhond had relied upon a copy of the letter from State Bank of India addressed to the petitioner dated 1st April, 2015 on the subject of classification of VSCL as a wilful defaulter. The contents of the letter are reproduced below:

"We refer to the restructuring package being implemented by the Joint Lenders Forum (JLF) led by SBI to revive operations of Varun Shipping Company Ltd, and to ensure that the operations of the company become profitable. In this connection, we write to you on behalf of the JLF regarding 2 points related to LIC.

(a) The company has deposited Rs.16.80 crores with SBI towards payment of over dues to LIC.

(b) The restructuring package envisages pooling of receivables of all LPG Vessels in a Trust and Retention Account from which proportionate payments would be made to all lenders including LIC.

Since Company has been classified as Wilful Defaulter by LIC, you are requested to initiate the process for removal of the company from the list.

Post your revert confirming your willingness to the above, we undertake to release the funds to LIC parked with us by the company for the purpose of clearing your over dues.

It is in the best interest of the lenders and the company to revive the company by successful implementation of the restructuring package. You are requested to do the needful at the earliest."

(emphasis supplied).

From the letter it is evident that the company had deposited Rs.16.80 crores in State Bank of India towards payment of "overdues", presumably of interest. It is not in dispute on what basis this deposit was made instead of paying over to the petitioner. Paragraph 3 highlights the real motive behind depositing the said sum of Rs.16.80 crores. State Bank of India were acting on instructions of and co-operating with respondent Company in order to facilitate removal of the "Wilful defaulter" tag. Paragraph 3 makes the proposed payment of Rs.16.80 conditional upon petitioner''s willingness to delete the respondent''s name from the wilful defaulters list. Admittedly the amount of Rs.16.80 crores as seen from contemporaneous correspondence was due towards overdue interest.

Ms. Saheed had relied upon observation of single Judge in the case of BNY Corporate Trustee Services Ltd. v. Wockhardt Limited [2014] 187 Comp Cas 301 (Bom) wherein it was observed while admitting the Company petition, maintainability of the petition cannot be questioned merely because a CDR scheme was proposed by the company and its other creditors and the petitioner had declined to join a the package. The Court observed that there is no absolute right in the creditors to insist that a winding up order be passed and the Court cannot refuse to entertain the petition mainly because the CDR scheme for settlement of dues is proposed by the Company and proposal of the scheme itself cannot be ground to refuse admission of winding up petition.

I am in agreement with the observations in the said judgment that the petition cannot be dismissed because a scheme is proposed and the operation of such a scheme cannot be ground to question maintainability of the petition or not to admit the petition since there is no dispute about liability. The petitioner is statutory corporation seeking to secure interest of lakhs of policy holders. Its interests lie in protecting these assets and its investments. The lease of the building by Bombay Port Trust to the respondent company had admittedly expired in March, 2016 and the ''security'' in favour of the petitioner would only be of some value if the lease was valid and subject to the conditions of the lease. As of date there is no enforceable security in favour of the petitioner and the contention of the respondent that the petition is not maintainable on this ground is no defence at all. Liability being admitted in terms of principal and overdue interest, the deposit with SBI I believe, was merely an attempt to induce the petitioner into accepting the respondent demand that the wilful defaulter tag be deleted. In its attempt to do so the company sought help of the Joint Lenders Forum led by State Bank of India. In my view this was merely a ruse to get the petitioner to agree to VRL''s terms. The deposit was merely intended to lead the Petitioner to believe that its dues will be paid in future provided it agreed to the condition of the JLF''s proposal entailing payment of the debt over a period of 8-10 years.

Merely by relying upon the fact that the JLF was advancing more funds to support VRL is of no avail. No funds were being provided to the Respondent Company. The conduct of the Company in not paying over 16.80 crores to the Petitioner in my view is a clear indication of the fact that the offer to pay was not bona fide one and was sought to be made conditional in the view to extract the commitment from the petitioner that it would agree to the restructuring package. The petitioner had clearly indicated that it was not willing to agree and in such situation if indeed the respondent company was seriously intending to clear the petitioner''s dues, the least they could have done is to pay over sum of Rs.16.80 crores unconditionally.

Mr. Dhond was at pains to highlight the fact that the Company is engaged in the management of fleet of vessels owned by it and since transferred to VSCL which operates in the offshore, oil and gas sector. It owns and operates a fleet of 20 vessels owned by the said Varun Shipping Company Limited (VSCL) depends on the respondent company for their management and that letter dated 21st February 2013 VSCL had sought the Consent of the petitioner for Composite Scheme of Arrangement and Amalgamation. It was thus forming subject matter of Company petition seeking approval of the scheme in or around 15th March, 2013. Although initially the petitioner contended that the said letter seeking their consent was not received, it appears that the company has since filed evidence of dispatch of the notice of the Court Convened meeting of equity share holders or about 13th December, 2012 and amongst this is one addressed to the petitioner Corporation. It is a fact that the petitioner did not consent to the scheme it did not oppose the scheme either. Although it was open to the petitioner to appear before this Court at the hearing of the amalgamation petition, the petitioner made no such effort. However, this alone in my view cannot be held against the petitioner in facts of the present case and in ordinary circumstances the conduct of the petitioner could have been questioned for not having opposed the scheme for amalgamation. However, in the present case I find no justification to hold this against the Petitioner.

The principal submission on behalf of the respondent as to maintainability in my view has no merit. Merely because the security was created by way of leasehold rights will not entitle the respondent to avoid depending on this petition. The security as presently seems worthless since the lease granted to lessee Khatau Industries has expired in March 2016, and presently the petitioner cannot enforce its security. On this ground alone the contention as to maintainability is unsustainable. The petition is clearly maintainable in the facts of the case since admittedly the lease has expired. Security if any should be practically realisable and in this case the security is disembodied to put it figuratively.

The other contention taken up on behalf of the respondent by Mr. Dhond is to the effect that the JLF had agreed to provide for the petitioner''s dues but it was due to non-co-operation of this petitioner viz in declining to declassify the respondent as wilful defaulter, that the amounts of overdue interest has arisen. In this respect it is material to note that the SBI on behalf of lenders had assured the petitioner that the amount deposited by VRL would be utilised for payment of settling the petitioner''s dues including overdue interest. This was apparently decided at the meeting of JLF held on 13th March, 2010. JLF led by State Bank of India had informed the petitioner that company/VRL would be advised to bring in promoters contribution of Rs.33.87 crores along with amount to be paid to the petitioner "immediately" and deposit the same with the State Bank of India so that the petitioner''s dues would be paid over. The company has been silent on this aspect. This proposal was not taken further and it appears that the promoter''s contribution was never made. The meeting apparently recorded that Mr. Khatau, Director of the respondent company and deponent of one of this affidavit had promised that his contribution would be brought on 18th March, 2010 and it is on this basis that VRL signed the MRA with lenders banks on 31st March 2010. The promoters'' contribution has apparently not been made over, had it been made, the amounts would be clearly provide from and out of said contribution. In the circumstances there is no merit in the company''s contention that all arrangements have been made. This argument must be therefore rejected straightway.

It was the case of the company that had the wilful defaulter tag been deleted the amount of Rs.16.8 crores would have been paid. If indeed their intentions were bona fide the amount of overdue interest would have been paid over straightway. On the other hand the amount deposited with SBI was then deployed towards operations of VRL. In my view the banks have acted in their own interest. They refused to make provisional payments. The fact that they may have extended further funds to VRL offers no solace to the petitioner. In fact nothing whatsoever, apart from actual operational costs, have been paid to the respondent company. The respondent company is admittedly revenue neutral and as Mr. Dhond has submitted it has no other assets to pay over sums due to the petitioner. The respondent company is quite obviously controlled by Varun Resources Ltd. and other group companies. The additional affidavit filed on behalf of the petitioner makes it clear that the group companies being given interest free loans and advances. References to the auditor''s report of the company has revealed that even Varun Resources Ltd. has a negative net worth. The respondent has given Varun Maritime Ltd. interest free advance although company has negative net worth of Rs.1088.55 lakhs. The respondent has given deposits of Rs.7.73 lakhs to Varun Corporation Ltd. (its holding company) in respect of residential premises and has given interest free advance of Rs.200 lakhs to Varun Corporation Ltd. which has net worth of Rs.55.30 lakhs. All this does not augur well for the company''s defence. Mr. Dhond''s explanation regarding Note No.26 of report does not alleviate the petitioner''s position. The other submission on behalf of Mr. Dhond that the petitioner did not object amalgamation is of no use. In my view the petitioner''s claim is far from protected, the respondent being admittedly and designedly revenue neutral. The fund inflow of the respondent company is controlled by Varun Resources Ltd. and Varun group companies. If the said group companies and other bankers decided it is possible for them to infuse sufficient funds to pay over petitioner''s debts. While the JLF proudly claims to have infused Rs.425 crores for operational requirement of Varun Resources Ltd. nothing whatsoever has been provided to the respondent company to pay over the debt of the petitioners. If indeed JLF members had bona fide intentions for securing petitioner''s interest they would have ensured that the petitioners dues were paid, in the first instance and the petitioners would probably have been even less demanding as far as interest on delayed payment and liquidated damages are concerned. Given the attitude of respondent and its group companies, in my view, the revenue neutral nature of the respondent company''s financial, the petitioner is presented with a fait-accompli. In matters such as these and given the fact that the respondent-company is managing shipping operations it is obvious that the management of these ships can also be entrusted to other companies.

Theoretically speaking it may not be possible for the respondent � company to insist that all vessels of VRL and group companies must be managed by the respondents situation may arise whereby the respondent is deprived of the revenue that it currently earns. The respondent has no back up plans even for management, generally, of third party''s vessels. But for captive management of vessels of the group companies it has no other source of revenue. Given the fact that the respondent does employ substantial number of persons and apprehension of the employees were obviously supporting the respondent companies'' case of which no doubt is at the instance of respondent''s management. If indeed the group companies of Varun Resources Ltd. and the respondent included are interested in welfare of these employees the respondents will ensure that interests of the petitioners are duly protected independent of any restructuring package. It is material to note that JLF members have refused to accede pari passu charge in favour of the petitioner and in view of the facts and circumstances of the case that the order that I propose to be pass must sufficiently safeguard interest of those seeking to protect the respondent company and its employees. It is always open to the respondent to safeguard the petitioner''s claim and the Court will be entitled to draw adverse inference in the event of any resistance.

The restructuring proposals of loans involves reduction in the principal sum and if the petitioner accepts the restructuring the respondent is willing to make payment in accordance with the proposed schedule or by depositing the same or depositing the same in an account designated by this Court. The suggestion made was as follows:-

".The outstanding amount to the petitioner would stand capitalized as on 1st September, 2016. As per the scheme this works out to Rs.67.85 crores.

This amount would earn interest @ 12% and would be repaid as per the repayment schedule applicable to all other lenders, by 30th June, 2023. A copy of the schedule of repayment of the petitioner''s debt is annexed hereto and marked as Exhibit C.

The first instalment of approximately Rs.2 crores would be paid to the petitioner on 1st October, 2016.

The last instalment to clear all outstanding of the petitioner would be paid by 30th June, 2023.

Interest would be continued to be paid to the petitioner at the contractual rate of 12% per annum. The respondent would continue to enjoy the same security which it currently holds. "

The JLF has not consented extend pari-passu charge over the assets presumably of VRL. Since the company has committed defaults from inception, and repeatedly committed defaults as a result of which a total sum of Rs.55.78 crores due as on 31st March, 2014. It is submitted that various cheques towards repayment have been dishonored. In this background, it is clear that liability of the Varun Group is approximately 2100 crores the respondent company to which is the only resource is the management fees paid by VRL. Admittedly, the respondent company is presently revenue neutral in nature. Apart from contending that the company is revenue neutral and that JLF has in the restructuring package agreed to provide for stage-wise payments the respondent had nothing to offer and was evidently unable to pay its debts. The petitioner meanwhile filed an affidavit in rejoinder dated 9th February, 2016 in which Mr. Johari states that the petitioner''s claim was admitted and undisputed. It is reiterated that the statement made by the respondent only restricted to payment of overdue interest and that too subject to removal of the name of the respondent from the defaulters list. No mention as to when the principal sum of Rs.43.68 crores would be paid become overdue and on 9th February, 2016 the total amount payable was Rs.69.72 crores.

The petitioners also reiterated the fact that they are not party to the MRA executed between lenders and VRL and effectively not concerned with the same. The agreement arrived at between the lenders and the aforesaid VRL cannot in any manner affect repayment by the Respondent Company of the petitioner''s loans. The provisions of the aforesaid MRA do not bind the petitioners.

I find that Madhusudan Gordhandas and Co. v. Madhu Woollen industries P. Ltd. [1972] 42 Comp Cas 125 (SC) (supra) also reiterates two other well settled rules. Firstly if debt is bona fide disputed, the Court will not wind up a Company. Secondly where the debt is undisputed the Court will not act upon a defence that the Company has the liability to pay the debt but the Company chooses not to pay that particular debt. Reference was made in paragraph 21 of Madhusudan Gordhandas to Re :A Company [94 SJ 6369] he further adds where there is no doubt that the Company owes the creditors a debt entitling him to make a winding up order but the exact amount of the debt is disputed the Court will make a winding up order without requiring the creditor to quantify the debt precisely. This was decided in Tweeds Garages Limited., In re [1962 Ch 406] 32 Comp Cas 795 (Ch D) [1962] Ch D 406.. The principles on which Court acts are first that the defence of the Company is in good faith and one of substance and secondly the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which defence depends. To my mind paragraphs 20 and 21 of Madhusudan Gordhandas (supra) lays down fundamental aspects to be considered when court is presented with a winding up petition. The contents of paragraph 22 no doubt exhorts the court to consider the wishes of other creditors trying to arrive at a conclusion opposing the winding up order. But in my view principles enunciated in these two judgments Tweeds Garages Limited (supra) which are relied upon by the Supreme Court in Madhusudan Gordhandas (supra) will in my view prevail.

Before I consider the order to be passed in the present petition, I must also deal with Company Application no 559 of 2016 filed on 5th October, 2016. Even as this matter was partly heard, an application has been filed apparently on behalf of some 20 employees of the respondent Company. The application seeks impleadment in the Company petition. It is supported by an affidavit of one Anita Poojary claiming to be employee of the respondent company along with others. The deponent has been employed in the Company since February, 1997 and is presently an Assistant Manager. The affidavit proceeds on the basis that she has "recently" received knowledge about the pendency of the Company petition through the management of the Company which has apprised the employees of the consequences if the Company petition was to be admitted. The affidavit proceeds to support the Company''s case dealing in general with the plight of the shipping industry, the unlikely event of her finding employment elsewhere etc. It further states that the livelihood of all employees would be effected if the Company petition is admitted. A total of 77 persons are dependent on respondent company and its sister concerns for livelihood. It however states that all the group companies are functioning and running smoothly as evident from the fact that only the Respondent company is sought to be wound up alludes to the respondent company and its sister concerns having weathered all storms and are recovering satisfactorily. According to the deponent, the licenses of various companies of respondent company''s group are intrinsically intertwined and any orders in which the present petition will directly and adversely affect all group companies. After the global economic slowdown most of the companies had laid off employees but respondent Company has protected it employees. An amount of Rs.66,36,465/- was being paid towards monthly salary of its employees. This application in my view is made at the instance of the management especially it is given its timing (5th October, 2016) when the petition is being taken up for admission and two years after it was filed.

In reply to the said application the petitioner has through the affidavit of one Mr. Sanjay Johari highlighted the fact that it is that the shipping business is in doldrums, a fact repeated by company and echoed by its employees. According to the said affidavit there are statutory dues which have remain unpaid for more than six months as income tax dues amounting to Rs.271.88 lakhs. This is for the period April, 2014 to September, 2015 has not been paid. Interest on delayed payment of tax amounting to Rs. 39.29 lakhs overdue for period of April, 2014 to September, 2015. In the circumstances it is submitted that there is no substance in the present application on behalf of the employees and that merely because employees may be effected is no reason to decline an order of admission. The affidavit on behalf of the petitioner also annexes thereto a copy of the Sixth Annual Report for the period 2015-16 in which case Ms. Saheed highlighted the fact that note no 26 made by the independent Audit Report to highlight the fact that from amongst long term investment and other exposures in holding and associated companies there has inadequate disclosure for instance in Varun Cyprus Ltd an Associate Company as on 31st March, 2015, the auditors have observed that they have not been able to obtain sufficient audited evidence to provide an opinion and that the Associate Company has negative net worth of USD 98.136 million. The current liability of that company exceeded its assets by USD 239.658 million. Furthermore, as of 31st March, 2016 the respondent company has an investment of about 8.94 lakhs in its associated company and Rs. 51.62 lakhs have been paid by the respondent company on behalf of Varun Asia during the current financial year.

Alluding to the poor financial condition of Varun Resources Ltd., note 26 reveals that the respondent holds equity shares excess of Rs.2,129.62 lakhs in Varun Resources limited and as per audited books as on 31st March, 2016, the company has a negative net worth of Rs.43,046.04 lakhs. As far as the company''s holding in Varun Maritime Limited is concerned, the respondent has given Varun Maritime Limited(VML) as interest free advance of Rs.55.24 lakhs and all along VML had a negative net worth of Rs.10815.55 lakhs. Furthermore the respondent company has given deposit of Rs.773.57 lakhs to Varun Corporation Limited, its holding Company, for residential premises. The respondent has also given an interest free advance of Rs.200 lakhs to Varun Corporation Limited which has a negative net worth of Rs.5330.84 lakhs. Furthermore a note in the Auditors report indicates that during the year the respondent company has granted an interest free unsecured loan to two Companies aggregating to Rs.255.24 lakhs as reflected in the register maintained under Section 189 of the Companies Act.

Mr. Dhond was quick to respond to the submissions based on the Annual Report by stating that Company has made "long term investments" in associated Companies where there has been temporary reduction in revenue due to lack of working capital and the management is in the process of raising resources to streamline operations. In my view the explanation provided by the Company in relation to the observations in the said note do not in any manner assist the company in avoiding its liability to the petitioner. The figures speak for themselves. The explanations to the effect that temporary reduction in revenue are due to lack of working capital and the like are merely a facade. In my view the application for impleadment will be relevant only if the company petition is admitted.

Ms. Mehta in support of her application also relied upon the decision of the statutory bench of the Supreme Court in National Textile Workers Union and Others v. P.R. Ramakrishna and Ors (1983)1 SCC 228 and relied upon observation of the Supreme Court in paragraph no. 15, 18 and 20 in as much as observation of Chinnappa Reddy and Baharul Islam Bhagwati J in that Company does not prohibit hearing to the workers and in all situation there are special provisions in the Act which take element of public interest. The Company used discretion in the light of the new situation arising as a result of socio economic changes and accept all of the workers'' interest in the Company. It is also observed that an imaginative Company Judge may help to restructure and infuse new life in the Company whose life is ebbing out, within the four corners of the statute and keeping in view the interests not merely of the creditors and the contributories but also the interests of the workers. While in respectful agreement with the said observations, I am afraid I am unable to find any scope for such infusion given the designedly revenue neutral structure of the business.

In making this observation the Supreme Court relied upon Brighton Club and Harfolo Hotel Co. Ltd (1865) 35 Beav 204 the muster of the rolls observed that it is not sufficient for a company to say "we dispute the debt" and they must show some reasonable ground for doing so. In that case it was debt which was bona fide contested and case of such bona fide contested there was in action for the company to wound up. Far from being insolvent the Company was carrying on business which was sought to be stopped merely because there was a quarrel between the Company and their Director as to the amount due to the Company. The petition was therefore dismissed.

In Tweeds Garages Limited [1962 Ch 406] there was a dispute as to the amount of debt and it was sufficient to answer the petition seeking compulsory liquidation of the Company. The Company had admitted the existence of debt, the disputed amount of the debt and it was held that the only qualification required of the petitioner was that it was a creditor and where there was no doubt that the petitioner was creditor it would entitle the petitioner to an order of winding up. A dispute as to the precise sum owed was not sufficient defence to the petition. The Court found that the company was insolvent and decided not to impose upon the petitioner the trouble and expense of quantifying the precise amount owing to the other proceeding.

In Re:London and Paris Banking Corporation case [1874 LR 19 Eq 444] a petition seeking winding up of the Bank was filed by a dealer of furniture supplying goods for fitting out the office of the Bank. The petition came to be dismissed since according to the Court the claim was contested on amount and there was no evidence other than non-compliance of Statutory notice to show that the Company is insolvent. In that case it was found that the winding up petition was not bona fide but merely to put pressure on the Company to compel payment. These are the very matters which are relied upon by the Supreme Court in Madhusudan Gordhandas & Co.

Applying these very principles, I am of the view that in the present case there is no dispute that the debt is owed from the respondent to the petitioner. There is indeed relatively small portion of the debt which is sought to be disputed. The dispute is restricted to whether the petitioner is entitled to claim interest at the rate claimed and as to liquidated damages. There is however no doubt that the principal sum and the admitted portion of interest is overdue. Moreover interest of Rs.16.80 crores on the overdue payment was already offered to be paid if the "wilful defaulter" tag was deleted. In fact this amount was also paid over to the SBI to be kept in deposit with them. This course adopted by the respondent not only indicates an attempt to avoid payment of an admitted debt but in my view it amounts to refusal to pay an admitted debt. When the petitioner offered to deposit the amount with SBI to be retained with them in deposit, SBI addressed a letter to the petitioner from which it became obvious that the amount was part of the debt due over and above the principal sum. The principal sum and the overdue interest not being dispute at the material time, the respondent chose not to pay overdue amounts to the petitioner. Instead the respondent along with the assistance of SBI utilised the said amount of Rs.16.80 crores for purposes of VRL. This was clearly not a bona fide act on the part of the respondent and certainly does not support the respondent case for rejection of the petition.

As to maintainability of the petition, the main fact that security was created by way of lease which had already expired. The security is now jeopardized. In my view unless lease is renewed and status quo ante restored, which facilitates the petitioner corporation to seek foreclosure in the likely event of the respondent failing to redeem the mortgage debts, it cannot be said that the petition is not maintainable. The application made by the workers for intervention in my view need not be gone into at this stage. The workers'' interest would have to be considered when an order of winding up is to be passed or once the petition is admitted. In view of the respondent''s conduct it is not open to the respondent to contend that the future of several employees would be at stake if the petition were to be admitted. If they are so concerned about the employees, the Varun Group and the respondent would not have ensured revenue neutrality.

The amount owing in principal to the JLF may be large but sum owing to the petitioner cannot and should not be judged on the basis of sums owing to the other creditors. When one views the debt due to the petitioner Corporation, uninfluenced by the sums claimed by members of the JLF, it is a large sum of money. The question therefore is whether the respondent company can be reasonably expected to pay the amount due to the petitioner and in the usual course of business. The answer to this question must be an emphatic ''No''.

From what has been placed before me, it is evident that the petitioner cannot expect to receive their original dues even the principal sum within a reasonable time. The business of the group companies all of whom are engaged in the shipping industry is admittedly passing through a difficult phase. The petitioner corporation has a duty to its stake holders including numerous policy holders and public funds are involved. The losses caused by non-payment of the sums due by the respondent Corporation will affect the public interest at large as compared to the interest of workers some of whom may be petitioner''s policyholders. In the facts at hand the interests of the public at large must be given precedence over workers fears.

In any event, the amount of principal sum and overdue interest payable is not disputed. This however does not mean that the demerger of the shipping business to Varun Resources Limited and the retaining of the shipping management business alone with the respondent Corporation by itself resulted in the respondent being revenue neutral. Being revenue neutral in the facts and circumstances, the respondent company will have just enough funds to maintain its operation of managing the assets of Varun Resources Limited. No doubt the petitioner Corporation did not object to the proposed scheme of amalgamation and demerger. Notwithstanding such inaction on the part of the petitioner the respondent cannot now contend that the petitioner ought to have been more diligent and ought to have objected to the same. Yet again, merely objecting to the scheme may not have resolved the issue. The petitioner cannot be left in the lurch and made to face the vagaries and the uncertainties of the shipping business. The petitioner is owed a debt by the respondent company. The restructuring package is not restricted to the respondent company. Under the restructured packaged monies payable to the JLF and proposed to be paid to the petitioner will be received only or mainly from Varun Resources Limited against whom the petitioner has no claim as on date.

As stated earlier the principal sum of Rs.43,68,32,924/- is not in dispute. So also the sum of overdue interest in a sum of Rs.16.80. Therefore, it cannot be disputed that the total sum of Rs.60,48,32,924/-. Varun Shipping Company Ltd. has admitted that their proposed payment of Rs.12.85 crores will be towards outstanding loan of Rs.43,68,32,924/- towards principal and then they offered a revised payment schedule restructured over ten years which was clearly not acceptable to the petitioners. The petitioners cannot be forced to accept these terms even assuming the JLF is supporting the restructuring. The JLF consists of banks which may be providing more funds to support the operations of VSCL. However, it is clear that respondent Company Varun Global Limited is revenue neutral and in the additional affidavit dated 30th August, 2016 the CEO of the respondent has admitted in para 6 as follows :

"The Respondent has repeatedly approached the Petitioner to avail of a similar adjustment in line with the restructured credit of the joint lenders. To leave no room for doubt, the broad outline of what the Respondent is willing to make in terms of payment whether to the Petitioner (should the Petitioner accept the restructuring) or deposit in a No. Lieu Account to be opened in a bank designated by this Court (should it not) is as follows:

* The outstanding amount to the Petitioner would stand capitalized as on 1st September, 2016. As per the scheme this works out to Rs.67.85 crores.

* This amount would earn interest @ 12% and would be repaid as per the repayment schedule applicable to all other lenders, by 30th June, 2023. A copy of the schedule of repayment of the Petitioners'' debt is annexed hereto and marked as Exhibit "C". The first instalment of approximately Rs. 2 crores would be paid to the Petitioner on 1st October, 2016.

* The last instalment to clear all outstandings to the Petitioner would be paid by 30th June, 2023.

* Interest would be continued to be paid to the Petitioner at the contractual rate of 12% per annum.

�The Respondent would continue to enjoy the same security which it currently holds. The Joint Lenders Forum has refused to cede their security in favour of the Petitioner"

The petitioner may file a suit to recover its dues based on its security. However, the petitioner has made it clear that they are unable to accept the offers to receive the principal amount due to them and would pay upto June, 2023 as proposed. In the circumstances I do not find that there is sufficient material to hold that petition is not maintainable. In my view the petition is maintainable given the facts and circumstances of the case, notwithstanding the claims of the workers that is being agitated to be considered at the appropriate time. The other defences taken up by the respondents dealt with above have no merit.

Having considered the fact that the respondent is revenue neutral it appears that respondent company is unable to pay the debt owing to the petitioner. As seen from the Company''s response and the submission made in the Company Application filed on behalf of the workers the respondent''s business of shipping management is wholly dependent upon the fortunes of its group companies VRL and VSCL. It is VSCL that is funding operation of the respondent Company and it is this fact that is being sought to be leveraged by the respondent and its group Company in order to seek the petitioners consent to agree to the terms proposed by VSCL. Given the factual contours of the dispute, the ambit of a winding up petition and the discretion vesting in this Court cannot be influenced by the decisions of VSCL and the JLF. The respondents have contended that they have enough assets to cover all liabilities. It is also a matter of record that the promoters were required to bring their own contribution and deposit the same with the State Bank of India to enable payment to the petitioner. The outstanding dues were to be paid subject to restructuring and the promoters contribution. In my view, the respondents have miserably failed in keeping up the promises held out and the same does not appear to be unintentional. The revenues are deliberately kept on a leash, being controlled by its group companies. The respondent will be unable to sustain itself on its own steam. Prima facie, it would have to be shown that Company is plainly commercially insolvent and its existing and probable assets would be insufficient to meet the existing liability. This I believe has been established by the Petitioner in this case ably assisted by the Respondent''s admission of being revenue neutral. The respondent company is clearly unable to pay its debts as and when they arise. They have wilfully omitted to even service this debt. In my view this is a fit case for admission. Considering the fact that it is a group company presently operating the respondent must be put to terms.

In the circumstances I pass the following order :

(a) The Respondent Company shall deposit in this Court a sum of Rs.60,48,32,924/- within a period of six months from today i.e. on or before 23rd June 2017.

(b) If the amount is so deposited and if the petitioner files a suit or other proceeding as may be advised, the amount shall be transferred to the suit account.

(c) If the amount is so deposited and no suit or other proceeding is filed, liberty to the respondent to apply.

(d) If the respondent fails to deposit the said amount of Rs.60,48,32,924/- as per clause (a) above the Company petition to stand admitted and to be returnable after six weeks. .

(e) The petition shall be advertised by the petitioner in the daily edition of two local newspapers namely ''Free Press Journal'' (in English), ''Na-Shakti'' (in Marathi) and in the Maharashtra Government Gazette.

(f) The Petitioner shall, within a period of two weeks from admission of the petition as above, deposit an amount of Rs.10,000/- with the Prothonotary and Senior Master of this Court towards publication charges with intimation to the Company Registrar, failing which the Company Petition shall stand dismissed for non-prosecution.

(g) The Advocates for the petitioner shall forthwith forward a copy of this order to the Company at its registered address.