TMI Blog2013 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... real and is raised bona fide and whether the refusal to pay is for genuine reason and dispute or to hide inability to pay, is to direct the respondent to pay-deposit the amount. In view of the facts of this case and the findings of the Court and in light of the above quoted observations and on judgment of it appears appropriate and necessary to direct the respondent, to deposit the amount in question within 4 weeks from the date of present order. If the directions are complied with by the respondent, then further and appropriate order shall be passed by the Court after hearing the petitioner and the respondent. During the said time limit the petitioner shall also take appropriate steps to remove the defects of which reference is made hereinabove earlier. The petitioner shall, inter alia, place on record the resolution by the company which might have been passed resolving to institute winding up petition against the respondent and authorizing Mr. Uto Baader to take necessary steps for the said purpose including appointing a Constituted Attorney and to make proper affirmation of the petition and file affidavit in accordance with Rule 21 read with Form 3. So far as the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the respondent company has not refunded the said amount. Even after statutory notice demanding refund of the amount, the respondent company has allegedly failed and neglected to make the payment. According to the petitioner, the respondent is unable to discharge its debts. Hence, present petition. 3.1 The petitioner has averred, in support of its case, in the petition that: "6. In or about February 2008, the Respondents and its promoters Mr. Zafar Sareshwala and Mr. Uves Sareshwala approached the Petitioners with a request to invest in the Respondent Company by way of equity, and assured the petitioners that they will obtain the necessary regulatory approvals including approval from the Foreign Investment Promotion Board (FIPB) for this. As advised and insisted by the Respondents, the Petitioners sent a sum of Rs. 5,96,57,383 towards Share Application Money from 51% equity capital in the Respondent Company, in two stages as under: a. Rs. 1,01,22,312/- (Rupees One Crore One Lakh Twenty Two Thousand Three Hundred and Twelve only) on February 25, 2008. b. Rs. 4,95,35,071.20/- (Rupees Four Crores Ninety Five Lakh Thirty-Five Thousand and Seventy One and Twent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h other funds and also specify the bank account where this was deposited and the corresponding evidence of the same. The petitioners' lawyers further called upon the Respondents to provide copies of the Application made to the RBI for reimbursement of the amount together all follow-up correspondence exchanged in this regard. A copy of the letter dated May 20, 2010 is annexed as Annexure P-13. 18. Despite having admitted their liability to refund the aforesaid amount of 5,96,57,383/- and receipt of several requests and reminders from the Petitioners and their lawyers, the Respondents have neither paid the aforesaid amount nor have they deposited the same in Indian rupees with the Petitioners' lawyers pending the RBI permission, nor have they provided copies of the application, if any, made to the RBI. It is thus clear that no application has been made to the RBI, and the Respondents are unable to pay their debt. 19. The petitioner further states that the company is commercially insolvent and is unable to discharge its debts in normal course of business. It is, therefore, not in the interest of the creditors of the Company to allow the Company to function. It would be therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent's application was rejected. It was pointed out that the Respondent Company was seeking approval of the Reserve Bank of India for refund of share application money to the foreign investor and requested Axis Bank Ltd. to forward the Respondent's application for refund to regional office of the Reserve Bank of India. The Reserve Bank of India has put forth condition of compounding of the offence/wrong. The violation of the Rules and laws while bringing the foreign funds into the Company was entirely on account of defaults of the Petitioners and Mr. Uto Baader. If the petitioners and Mr. Uto Baader are ready and willing to deposit upfront with the Respondent Company the penalty amount that the Reserve Bank of India may impose while compounding the offence, the Respondent Company is ready to go for compounding and the share application money can be refunded to the Petitioners." 4.2 The respondent company has then mentioned the details about its profit and loss account, the sales figures, its funds position etc. and it has claimed that it is not an insolvent company and/or that it is also incorrect that it is unable to discharge its debt. 5. The details mentioned by the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the requirements prescribed under the Act and the Rules, the petition is not maintainable. Mr. Shah, learned counsel for the respondent would concede to the fact that the alleged defects cannot be said to be fatal, but since they are not cured the petition is not maintainable and should be rejected. He has also submitted that the facts stated by the petitioner and respondent company brings out the position that the matter involves disputed facts and the debt is disputed and therefore, instead of entertaining the petition, the petitioner should be relegated to the ordinary civil remedy before the trial court. It is also claimed that the representative of the petitioner company were on the Board of the respondent company and that therefore, they were aware about all facts. Hence, they now cannot claim that the defect about the permission was not known to the petitioner and/or was not informed to it before the amounts came to be invested. 6.3 The respondent has also claimed that RBI has informed that there will be order of penalty and that therefore the petitioner is not justified in claiming repayment of its investment before the said issue of penalty is finally decided an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vide its letter dated 4th April, 2008 (Annexure-R-I, Page-116), informed FIPB about receipt of the said amount from the petitioner company. 8.2 The respondent company, thereafter, vide E-mail dated 8th May, 2008 informed the petitioner that the issue about the allotment of shares will be considered and decided in the Board's meeting scheduled to be convened on 14th May, 2008. The petitioner has also claimed that in June, 2008 the respondent company allotted 4,38,543 equity shares in favour of Uves Sareshwala, Talha Sareshwala and Zafar Sareshwala, at a premium of Rs. 115/- per share. It appears from the record that on or about 25th June, 2008 the petitioner's lawyer requested the respondent's chartered accountant to confirm as to whether the application for approval of investment by petitioner was submitted to the FIPB or not. 8.3 It also emerges from the record that on or around 4th November, 2008 the respondent company made application to RBI seeking extension of time for allotment of shares to the petitioner because it did not issue and allot shares to the petitioner company within 180 days of the receipt of the remittance from the petitioner company and accordingly, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it being requested by your lawyer to him in a direct communication. We certainly do not have any deliberate intention of not informing you on the subject. 4. Moreover during the personal meeting of your good self and Mr. Zafar Sareshwala along with Mr. Mahesh Bhatt in Mumbai you had told us that you wanted to repatriate the money back to Germany and you were informed that it was a simple procedure wherein the present application had to be withdrawn first. You had then informed us that you would start the withdrawal procedure immediately after speaking with your lawyers and would inform us about it. However, till date we have not received any intimation about the same till date." 8.7 It appears from the record that having learnt about the rejection of the application for approval of investment, the petitioner company addressed communication to the respondent that since the respondent cannot allot shares to the petitioner, the amount paid/invested by it may be refunded. "4. We have recently come to learn that in fact in January 2009 the Application was rejected by Department of Industrial Policy and Promotion. However, inspite of regular follow-up from our side on the status ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of the share application money, the respondent company informed the petitioner vide its letter dated 2nd September, 2009 that it will obtain appropriate legal advice and will do the needful. 8.10 Since the amounts in question were not being repaid by the respondent company to the petitioner, despite requests, the petitioner company through its lawyer, served the statutory notice dated 13th March, 2010 and demanded re-payment/refund of the amounts in question within 21 days. The respondent did not make the payment, instead it forwarded its interim reply, through its lawyer, vide communication dated 25th March, 2010 which was followed by further reply dated 13th April, 2010. In Paragraph No. 5 of the said reply dated 25th March, 2010, it is stated by the lawyer on behalf of the respondent company, that:- "5. With reference to paragraphs 3 and 4 of the said notice, our clients state that they have not been able to refund the said amount to your client as they have yet not received the requisite permission from RBI. It is denied that my clients have used or continue to use the said amount or any part thereof, as alleged or at all." 8.11 Thus, the respondent company tried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t make the payment to the petitioner. The respondent company also did not make any application for compounding the contravention, as intimated by RBI vide its letter dated 8th July, 2010. It was after delay of almost 4 months since the intimation from RBI, the respondent company made application on or around 10th November, 2010 for compounding of contravention. 8.16 It appears that somewhere in May, 2010, SEBI found and held that the respondent company had committed fraud of worst kind in the matter of its public issue. 8.17 It appears that on 15th March, 2011 RBI had given its response to the above mentioned application dated 10th November, 2010 made by the respondent company. 8.18 It is alleged by the petitioner company that while the respondent company filed its reply affidavit on 23rd June, 2011, it suppressed the said fact and documents from the Court. RBI had also addressed a communication dated 31st March, 2011 to the respondent company with reference to the application dated 10th November, 2011 and according to the petitioner's allegation, the said fact and document is also suppressed from the Court by the respondent while it filed the affidavit dated 23rd June, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of attorney and absence of resolution by the petitioner company, the petitioner company has taken out Judges Summons dated 28th July, 2011 seeking below mentioned permission and direction: "( a ) to permit the duly authorized attorney of the petitioner company to affirm the petition on behalf of the company 11.1 The said summons is registered as COMA 406 of 2011. In support of the summons, the petitioner - applicant has filed affidavit dated 13th July, 2011 wherein it is stated, inter alia, that:- "2. I, being the sole Director of the Petitioner Company have given authority through a validly executed Power of Attorney in favour of Mr. Sudarshan Pradhan and Mr. Parminder Singh Dadhwal to do, execute and perform all and any of the acts mentioned in the said Power of Attorney. Annexed hereto and marked as Annexure-A is a copy of deed of Power of Attorney issued by the Petitioner Company. 3. I state that being a German citizen and as advised by the local Counsel, the above Petition was filed through the local Attorneys for expeditious disposal of the Petition. 4. In the instant Petition filed under Sec 433 and 434 of the Companies Act, an objection is raised that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that the Supreme Court shall, after consulting the High Courts, make the rules. Accordingly, the Apex Court has framed the said rules in exercise of power under Section 643. Rule 6 of the said Rules provides as to how the affidavit shall be drawn and Rule 21 prescribes as to how the affidavit shall be verified. Rule 21 of the Company (Court) Rules, 1959 reads thus: "21. Every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners, where there are more than one, and in case the petition is presented by a body corporate, by a director, secretary or other principal officer thereof; such affidavit shall be filed along with the petition and shall be in Form No. 3: Provided that the Judge or Registrar may, for sufficient reason, grant leave to any other person duly authorised by the petitioner to make and file the affidavit." 11.9 According to the said provision, the affidavit should be in Form No. 3. The said Form 3 reads thus:- "I, A.B., son of _________, aged________residing at________, do solemnly affirm and say as follows:- 1. I am a director/secretary/_________/of______ Ltd., the petitioner in the above matter [* and am duly au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and correct to my knowledge derived from the records available with the petitioners and nothing is false'. 11.13 Thus, the deponent has expressly stated that the entire contents of the petition are made on the basis of the record and the details mentioned in the petition are derived from the record. When a person derives all information, from relevant record and he neither claims nor he possesses personal knowledge, then all that he, as a deponent, would and could say, in the affidavit, would be that what is stated is on the basis of information or knowledge derived from record but he cannot claim and say, that the details stated in the affidavit are stated on (basis of) personal knowledge. In such circumstances the prescribed format have to be construed practically and pragmatically and not in mechanical and verbatim manner more so when the Rule and/or the Act do not prohibit affidavit by "any other person" duly authorized by the company. The value and veracity of the assertions and statements made in the affidavit can be tested, in accordance with law and well settled tenets of law of evidence, at the relevant time and stage. 11.14 True it is that even procedural requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e affidavit, is a constituted attorney of the petitioner. The power of attorney in favour of said Mr. Pradhan is placed on record, along with the petition (at Annexure-P13, pages 48 to 50). 12.3 Rule 21 requires that the affidavit should be made, in case the petitioner is body corporate, by Director or Secretary or Principal Officer. 12.4 The proviso of the said Rule 21 confers power on the Judge or the Registrar to permit "any other person duly authorized by the petitioner" to make and file the affidavit. Thus, power is conferred to permit any other person to make and file affidavit. By the application dated 13.7.2011, the applicant-petitioner company has prayed for order permitting the duly authorized attorney to affirm the petition. If such permission is granted then it would, subject to the compliance of other aspects comply the requirement. 12.5 The power of attorney declares that:- "by this power of attorney Baader Beteiligungs GmbH, a company incorporated and organized under the Laws of Germany and having its registered office at Weihenstephanner Strasse 4, 85716, Unterschleissheim, Germany (the company), hereby appoints and constitutes Mr. Parmindersingh Ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 48 of the petition) does not state the place where it has been executed. 13.1 In this context, it is necessary to mention that pursuant to the respondent's affidavit raising such objections, the petitioner has taken out Judge's summons dated 28.7.2011 and an affidavit in support of said summons is filed wherein, it is stated, inter-alia that: "2. I, being the sole Director of the Petitioner Company have given authority through a validly executed Power of Attorney in favour of Mr Sudarshan Pradhan and Mr. Parminder Singh Dadhwal to do, execute and perform all and any of the acts mentioned in the said Power of Attorney. Annexed hereto and marked as Annexure-A is a copy of deed of Power of Attorney issued by the Petitioner Company. 3. I state that being a German citizen and as advised by the local Counsel, the above Petition was filed through the local Attorneys for expeditious disposal of the Petition. 4. In the instant Petition filed under Sec 433 and 434 of the Companies Act, an objection is raised that there is no affidavit, as the leave which is required to be taken has not been taken from this Hon'ble Court under Rule 21 of Companies (Court) Rules. 5. I say that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution of the petition. The said issue can be considered when the stage of considering the date of institution of petition arises. For the present purpose and so far as the objection raised by the respondent is concerned, what is relevant is the fact that a power of attorney duly executed and granted by the company i.e. the petitioner on 2.9.2010 authorizing Mr. Parmindersingh Dadhwal and Mr. Sudershan Pradhan as constituted attorneys is placed on record. 13.6 Thus, even if the permission as requested for is granted, it would still leave behind the issue related to the resolution by the company resolving to institute winding up petition and authorizing Mr. Uto Baader to appoint constituted attorney for the said purpose since such resolution is not placed on record. 13.7 The respondent has also alleged that the copy of the petition, which was served to the respondent and particularly the affidavit attached to the memo of petition, reflects that the affidavit was made on 18.9.2010 whereas, the affidavit, which is attached to the petition filed in the Court, reflects 22.9.2010 as the date of attestation. 13.8 As mentioned above, the defects in the format of affidavit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company Court has inherent power to make such orders as are considered necessary and are appropriate for the ends of justice. 13.13 Of course, the Court would not mechanically permit the petitioner to cure/remove and rectify the defects and before granting permission or before allowing/requiring the petitioner to make rectification or to cure defects, the Court would take into account relevant facts, attending circumstances as well as conduct of the parties. 13.14 In present case, earlier narration of factual aspects and the discussion to follow would demonstrate that despite the requirement of law (the provision under the Act prescribes that if allotment of share is not made, then the money should be returned within 180 days) and despite instructions by R.B.I. (vide letter dated 8.7.2010 and thereafter vide letter dated 31.3.2011) and even after admitting, in principle, the liability to refund the amount paid by the petitioner for allotment of shares (in the letter dated 13.4.2010 and the letter dated 15.5.2010), the respondent has not returned the amount paid by the petitioner for allotment of shares. 13.15 In such circumstances, it appears appropriate and reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2010 calling upon the petitioner to repay/return the entire amount paid by it as share application money, i.e. Rs. 5,96,57,383/-, within 21 days. 14.4 In the aforesaid background it is relevant to note that even the said excuse or the reason given by the respondent did not survive after 8.07.2010 inasmuch as RBI granted approval vide its letter dated 8th July 2010 and permitted the respondent to return the share application money to the petitioner, however, without payment of any interest thereon and subject to the respondent company making application for compounding the contravention. 14.5 Despite such approval by RBI the respondent neither returned the amount to the petitioner nor made the application for compounding the contravention. It was only on or around 10th November 2010 i.e. 4 months after the RBI's approval vide letter dated 8th July 2010, that the respondent submitted the application for compounding the contravention. 14.6 In the meanwhile, on or around 24th May 2010, Security Exchange Board of India (SEBI for short) held that the promoters of the respondent company had committed fraud of worst kind in its public issue and the respondent company and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions it has to be considered as to whether the dispute sought to be raised by the respondent is bond fide, substantial and genuine or not or as to whether it is an afterthought or, a fa ade to avoid its obligation to discharge the debt. 15.1 Recently, in the decision in case of IBA Health (I) (P.) Ltd. v. Info-Drive System Sdn. Bhd. [2010] 104 SCL 367/8 taxmann.com 1 the Apex Court has observed that: "20. The question that arises for consideration is that when there is a substantial dispute as to liability can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B and the application came to be rejected as back as in January 2009, (iii) It is also not in dispute that RBI has instructed and directed the respondent company (vide its letters dated 15.03.2011, 31.03.2011 and 26.09.2011) to return the amount in question to the petitioner, (iv) and yet the respondent has, despite such directions and even after service of statutory notice, not returned the amount in question to the petitioner, (v) It is also not in dispute that the relevant provision under the Act obliges the respondent to return such amount to the applicant within 180 days after the allotment is declined/not made in favour of the applicant, and yet the respondent did not pay the amount in question, (vi) the petitioner served a statutory notice dated 13.03.2010 and the petitioner did not make the payment within statutory time limit, or even thereafter. There is, thus, no dispute about relevant factual aspects. 15.4 On overall consideration of the relevant factual aspects particularly the events/developments (mentioned earlier) and their dates and chronology as well as the conduct of respondent emerging from the relevant facts and events the Court has found, and the Court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exists and the petitioner is justified in claiming order of admission of petition. 15.10 The petitioner has also prayed for order of winding up against the respondent. 15.11 In this context, it is relevant to mention that the respondent has tried to rely on the claim that it is a going concern and has mentioned details about its financial position so as to contend that order of winding up does not deserve to be and may not be passed. The said defence raised by the respondent company and its conduct amounts to not making payment of the debt/the due and payable amount and taking up a stand that though it has the capacity to pay the due amount it does not intend to and it will not pay the due and payable amount. If at all the said submissions by the respondent company were to be taken into consideration for the sake of examining such contention and testing the respondent's intention and conduct then also such submission would amount to a submission to the effect that it (i.e. the respondent company) has its pocket full of money but it will not discharge its financial obligations. 15.12 Even if a company which has good and solid financial foundation and it also has capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons - grounds specified under Section 433(a) to (i) exists in the given case. Consideration of respondent's solvency would be useful while deciding as to whether the refusal to pay the debt is result of bona fide dispute as to the debt or liability or whether it reflects inability to pay. In former situation the respondent's solvency may be relevant consideration but not as a separate ground to reject the petition seeking order of winding up. Differently put, when there is no bona fide dispute as to the respondent's obligation and liability to pay the debt and such liability is not disputed on any bona fide, genuine, real and substantial ground then the defence on the ground of solvency or on the ground that it is a financially sound establishment would not be available to the respondent as an independent or a stand alone defence to support the request to reject the petition. The proceedings under Section 434 of the Act is not legitimate means to enforce payment of debt and cannot be permitted to be converted into proceedings which are ostensibly for winding up but actually are meant to enforce payment of debt therefore the Court would also not allow the petitioner - claimant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efusal to pay. Adverse inference may also have to be drawn where the cheque/s issued by the Company for the debt in question or a part thereof is/are dishonoured. For determining whether a debt is disputed bona fide or not, the conduct of the parties in relation to the transaction in question, the character of the pleas and the circumstances which will be peculiar to each case will have to be considered. IV. Court's findings on bona fides of company's defence and orders which may be passed upon such findings: (1) After considering the material on record, if the Court comes to the conclusion that the defence raised by the Company is not only not bona fide, but the defence is reeking with mala fides or the company's conduct leading to the dispute (in respect of which the Company's defence is found to be not bona fide) was dishonest, the Court would admit the petition and pass an order for advertisement. (2) Where the Court comes to the conclusion that the defence is not bona fide (as distinguished from the conclusion that the defence is mala fide), the Court may give the Company an opportunity to pay the debt to the petitioner within the stipulated time limit. If the debt is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the Court after hearing the petitioner and the respondent. For the said purpose, the petition may be posted for hearing on 20.07.2012. 15.21 During the said time limit the petitioner shall also take appropriate steps to remove the defects of which reference is made hereinabove earlier. The petitioner shall, inter alia, place on record the resolution by the company which might have been passed resolving to institute winding up petition against the respondent and authorizing Mr. Uto Baader to take necessary steps for the said purpose including appointing a Constituted Attorney and to make proper affirmation of the petition and file affidavit in accordance with Rule 21 read with Form 3. 15.22 In view of this order and the said directions, the cause for application No. 406 of 2011 would not survive and that therefore the said application is accordingly disposed of. 15.23 So far as the respondent's allegation that petitioner has subsequently made corrections or additions in the affidavit (i.e. after the affidavit was duly verified/sworn and notarized) which constitutes contempt, are concerned, it is clarified that the said aspect will be considered by the Court at th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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