TMI Blog2004 (8) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... nce then the Official Liquidator is controlling the affairs of the company. However, it may also be mentioned at this stage that the ex-Director of the company has submitted the application for revival of the company in which orders were passed on 22-3-2002 directing to convene meetings of secured creditors, unsecured creditors and shareholders. The proceedings in the company petition are going on. The Scheme for Revival has not yet been approved. However, many creditors have come forward who have lodged their claims. 2. The applicant in the present application, namely, M/s. Morepen Finance Ltd. is one of the creditors. The applicant is not lodging its claim with the Official Liquidator as a creditor. Its case rests on different footing alto-gether. According to the applicant it has given an Inter Corporate Deposit (ICD)/loan to the tune of Rs. 70 lakhs to the company on 15-1-1997. It was repayable after 90 days with 24.5% interest p.a. While taking this ICD from the applicant, the company had endorsed and delivered to the applicant an ICICI Bond (hereinafter referred to as the bond ) of the face value of Rs. 1 crore by making following endorsement pay to Morepen Finance Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest accrued on the bond in the name of Registrar of this Court. The Official Liquidator as well as ICICI filed counter-affidavits in the said writ petition taking objection to the maintainability of the said writ, inter alia, on the ground that in view of provisional winding up of the company the appropriate remedy of the applicant was to move the Company Court for appropriate reliefs. In these circumstances, present petition is filed by the applicant with the following prayers : ( a )Order that the notification issued by the RBI and the orders in the winding up matter are not applicable to the applicant and, ( b )Pass appropriate directions for registration of ICICI bond bearing No. B910287/10000 endorsed and delivered in favour of the applicant. ( c )Direct the Registrar of the Delhi High Court to release a sum of Rs. 78 lakhs deposited with him as accrued interest on the said bond in favour of the applicant. 5. It would be necessary to record at this stage that since reliefs prayed for in this application as well as in the writ petition were same, learned counsel for the petitioner at the time of arguments informed the Court that the writ petition had since been w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two post-dated cheques are of 16-4-1997. 15-4-1997 Notification dated 10-4-1997 under section 45-MB of the RBI (Amendment) Act, 1997 issued by the RBI. 16-4-1997 Two cheques on due date were presented in the bank. 19-4-1997 These cheques were returned dishonoured. 22-5-1997 In CP.191/97 show-cause notice issued and provisional liquidator appointed. 9. The relevant portion of section 531(1) of the Companies Act may be reproduced at this stage: " Fraudulent preference. (1) Any transfer of property, movable or immovable, delivery of goods, payment, execution or other Act relating to property made, taken or done by or against a company within six months before the commencement of its winding up which, had it been made, taken or done by or against an individual within three months before the presentation of an insolvency petition on which he is adjudged insolvent, would be deemed in his insolvency a fraudulent preference, shall in the event of the company being wound up, be deemed a fraudulent preference of its creditors and be invalid accordingly : Provided that, in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious provisions of the Negotiable Instruments Act, it was argued that since the applicant had become the owner on 15-1-1997 itself, it had right to get the same transferred in its name or sell the same. 12. From the arguments of the parties, as noted above, it is clear that following questions arise for consideration : A. What are the rights of the applicant qua the bond in question ? To put it differently, whether the applicant is the holder in due course of the said bond and, if so, when he became the holder in due course/owner of the bond ? B. If the poser A above is decided in favour of the applicant, then whether the transaction in question would amount to fraudulent preference and be hit by the provisions of section 531 of the Act? A: Rights of the applicant in the bond: The bond in question is an ICICI Bond No. B910287/10000 for Rs. 1 crore. It is written on this bond that it is "instrument by way of bond in the nature of promissory note". It is 20 year bond which carries 12 per cent interest p.a. payable half yearly, i.e., on 23rd June and 23rd December each year. The original owner of the bond, in whose name the bond was originally issued by ICICI, wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry thereof was also given to the applicant and the bond in question is in the possession of the applicant. The applicant would thus become holder in due course as the requirements thereof as contained in the definition of this expression in section 9 of the Negotiable Instruments Act are duly met with. For easy reference, this section is also reproduced here: " Holder in due course . Holder in due course means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee, thereof, it payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title." 18. Neither there is a dispute that the applicant came to possess the said bond for valid consideration nor there is a dispute about the endorsement. It is also not challenged by the non-applicants that there is any defect which exists in the title of the company which endorsed this bond in favour of the applicant. In Braja Kishore Dikshit v. Purna Chandra Panda AIR 1957 Ori. 153 the Court held that thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce this gloss about the nature of the bond and the nature of the transaction is clear, the right of the holder in due course of such a negotiable instrument on which there is an endorsement coupled by delivery, is to be found again, in the Negotiable Instruments Act itself. This statutory answer is contained in section 50 of the Act as would be clear from its reading : " Effect of indorsement. The indorsement of a negotiable instrument followed by delivery transfers to the indorsee the property therein with the right of further negotiation; but the indorcement may, by express words, restrict of exclude such right, or may merely constitute the indorsee and agent to indorse the instrument, or to receive its contents for the indorser, or for some other specified person." 20. Thus legal title passes to the transferee so as to enable him to demand receive or sue for money to be paid under that instrument. The aforesaid discussion sums up the legal position in favour of the applicant. 21. No doubt the company had given two post-dated cheques for repay-ment of the ICD together with interest and in the normal course, on the dishonour of these cheques, the applicant would have o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained under the Bankruptcy Law or Insolvency Law. This position has been judicially determined in number of cases and I would refer to these cases soon hereafter. I may, however, note at this stage itself that the principal laid down in these cases is that it is not enough to show that preference was shown to a particular creditor. It also must be shown that it was done with a view to give him favoured treatment. A probe into the debtors mind is thus involved. This ingredient is to be established to make out a case of fraudulent preference under section 531 of the Act. 23. In the case of Rajaram v. Ganpati AIR 1973 Bom. 269, which was case under Provincial Insolvency Act, this principal was explained by observing that : "Where one of the creditors of the insolvent takes a transfer of the insolvent s property for partly satisfying his genuine debt with full knowledge of the insolvent s indebtedness to other creditors, it is a case of preferring one creditor to the others but that in itself is no ground for annulling the transfer. The good faith or bad faith of the debtor-insolvent is immaterial. What has to be seen is whether the transferee acted in good faith in taking th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motive attending the transaction has to be ascertained and if it is tainted with an element of dishonesty, questions of fraud arise. A probe into the debtor s mind and an assessment of the various motives that animate human conduct is thus involved. Since the inference relates to dishonesty or something approaching dishonesty, there must be solid grounds for drawing it. If the circumstances proved are equally consistent with guilt or innoncence, the benefit of doubt goes to the accused. Suspicion, however, strong, will not be sufficient; if there is room for more explanations than one for the debtor s conduct, an intent to prefer cannot be inferred in the absence of direct evidence. There is no fraudulent preference if the payment or transfer is not voluntary. The payment of debts by a company under threat of legal proceedings or under reasonable apprehension of such proceedings does not amount to showing of preference. However, a payment made or benefit given to a creditor is not considered to be involuntary merely because the company had previously promised to make or give it at a time when it was solvent." (p. 88) 27. These very principals are reiterated in the case of Mon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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