LAWS(MAD)-2003-2-176

ALLAHABAD BANK Vs. KOTHARI PETROCHEMICALS LTD.

Decided On February 04, 2003
ALLAHABAD BANK Appellant
V/S
Kothari Petrochemicals Ltd. Respondents

JUDGEMENT

(1.) COMPANY petition filed under Section 433(e) read with Section 434(1a) and (1b) of the Companies Act, to wind up the respondent -company.

(2.) THE case in brief is as follows : The respondent -company is promoted by M/s. Kothari Sugars and Chemicals Limited and the group has interest in sugar, petrochemicals, industrial alcohol, bio -technology, mutual funds, financial services, international trading, safe deposits lockers, etc. The respondent set up a factory at Melavanjoore Village near Karaikal to manufacture caustic soda, chlorine and hydrogen. During October 1997, the respondent approached the applicant -bank for sanction of a term loan of Rs. 400 lakhs. The respondent had already taken a loan of Rs. 500 lakhs from M/s. Reliance Capital Limited and applied the same towards purchase of project and other fixed assets and other pre -operative expenses. The said loan had become due and carried a very high rate of interest. The purpose of applying for a loan from the applicant was to repay the said high interest loan from M/s. Reliance Capital Limited. Their plant had already commenced commercial production and the prospects for the business were very bright. The respondent offered to secure the due repayment of the principal amount of the loan, instalments and interest thereon by mortgage of their factory, land and building near Karaikal and hypothecation of all fixed assets. The security so created would rank without any preference or priority and equally with the loans granted by M/s. ICICI and South Indian Bank, which were then outstanding. The applicant considered the proposal and sanctioned term loan of Rs. 400 lakhs carrying interest at 17.5 per cent, per annum compounded quarterly. Though the loan was sanctioned on March 18, 1998, the respondent did not create the security stipulated till May, 1998. On May 15, 1998 , the petitioner disbursed the loan amount to the respondent and security documents were also executed. Right from the beginning, the petitioner was not prompt in keeping the commitments. The respondent wanted the petitioner to shift repayment of the first instalment of the loan to September, 1998. The petitioner agreed for the same ; but the respondent defaulted to pay the loan instalments due from December, 1998. The petitioner demanded payment of the instalments. Instead of clearing the dues, a letter seeking for reduction of interest to 15 per cent, and deferment of payment of loan instalments till December, 1999, was sought for.

(3.) THE respondent filed a counter -affidavit and denied the various averments. The respondent approached the petitioner for a loan of Rs. 400 lakhs and it was sanctioned. The security and the mortgage was created on May 15, 1998. The loan was to be repaid in 20 quarterly instalments of Rs. 20 lakhs spread over 60 months beginning from June 1998, as per the terms of the loan. They requested the petitioner to shift the repayment of the first loan instalment to September, 1998, and it was agreed. Due to recession in the market and low price of caustic soda, the respondent requested the petitioner by a letter dated September 28, 1999, to reduce the interest to 15 per cent, and deferment of loan till March, 2001. It was accepted by the petitioner and the payment of loan was to commence from April, 2001, at the interest of 16.5 per cent. The two instalments paid were adjusted against interest. The continued recession in the industry made its impact on the respondent -company by resulting in loss. As a result, the respondent sent a proposal for a one -time settlement on the same terms as stipulated to the other lenders such as ICICI and South Indian Bank. The one -time settlement offered was to pay 35 per cent, of the principal loan amount and the balance over a period of 36 months as monthly instalments bearing nil rate of interest. The petitioner rejected the proposal on the ground that the loan was sanctioned to replace a high interest loan and no further reduction in interest was possible. The petitioner issued a statutory notice and for which reply was sent and as per the recent circular issued by the Reserve Bank of India on Corporate Debit Restructuring if 75 per cent, of the borrower's creditors came to an agreement on the mode of settlement, the same would be binding on the remaining secured creditors. There was no misrepresentation as to the performance of the respondent -company. The respondent by its letter dated September 28, 1999, requested for a reduction of the interest rate and deferment of payment of loan instalments till December, 1999, and the same was sanctioned by the petitioner. ICICI and South Indian Bank who contribute to 85 per cent, of the respondent's creditors have accepted the settlement package. The petitioner should have also accepted the settlement as accepted by the other creditors. The petitioner has filed this company petition with the sole intention of extracting money which will upset the apple cart and thereby causing hindrance to the restructuring plan. The respondent had created proper security and there was no suppression of material facts. The petitioner has also chosen to reject the package and approached this Court for winding up the company. The company is able to sell its products and an increase in the prices would bring about a considerable improvement in the company's fiscal position. The respondents have made payments to the ICICI and the South Indian Bank in keeping with the settlement, the excise duty and sales tax. The respondent is already on the road to recovery and an order of winding up will severely hamper the progress efforts made by them. It has fixed assets worth Rs. 46.35 crores and it employs 79 staff and workmen. The company's performance is improving year by year and no case is made up to wind up as well and the application is liable to be dismissed.