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TMI Blog2016 (7) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... Convergence Corporation Ltd. had filed winding-up petition no. 292/2004 against M/s. Data Access India Ltd. (hereafter "DAIL") under Section 433(e) read with 434 of the Companies Act ("the Act") to pay the debt due. The Petition was admitted by Order/Judgment dated 18th November, 2005 and the Official Liquidator attached to the Court was appointed as the Provisional Liquidator. The order held DAIL had lost its substratum and it would be just and equitable to wind it up, as it was not engaging in any business activity and there was no prospect of revival. 3. One Siddhartha Ray, his group of companies and SPIL initially promoted DAIL. Its share holding pattern underwent a change later. This is evidenced in the Minutes of meeting, reflecting record of negotiations and decisions, dated 25th February, 2004 and letter dated 26th February, 2004; as well as the Shareholders' Agreement dated 26th August, 2004. These were signed between (i) CHPL (ii) KCP Associates Holdings Pvt. Ltd (hereinafter referred to as "KCPAHPL", for short) (iii) SPIL (iv) Pacific Net Invest Ltd (v) DAIL (vi) Mr. Sidhartha Ray and (vii) Stracon (India) Ltd. Mr. Sidhartha Ray, DAIL's promoter divested his stakes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 17/18th November 2004 to DAIL and ABN Amro. DAIL replied on 19th November, 2004 through DUA Associates, not denying receipt of the said money. ABN Amro did not reveal details of the accounts to which the amounts were transferred. In these circumstances, Canara Bank filed C.A. No. 1409/2004. By order dated 25.11.2004, in C.A. No. 1409/2004 the respondent company (DAIL) was "restrained from dealing with the amount received from Data Access America in bank account No.1130826 of respondent company maintained by ABN Amro Bank Chennai or any other account of the associates or agents of the respondent company in the aforesaid branch or any other branch office of ABN Amro Bank in India." ABN Amro was directed, additionally to furnish complete particulars of remittances received from DAAI. In another application, (C.A. No.1582/2004) the Court noticed, by order dated 17.12.2004, that the "Income-Tax authorities have confirmed that a sum of Rs. 78.45 crores was credited to the account of the respondent company with ABN Amro Bank in account No. 1014374 on 19th August 2004 and on the same date Rs. 78.45 crores was transferred to account No. 1103945 of M/s. Cheran Holdings Pvt. Ltd. mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid amounts deposited in their bank account. Hamblin Watsa Investment Council Ltd filed CA 677/2005, for vacation of the stay order dated 17th December 2004 attaching US $17 million. It was alleged that they had acted as investment advisors of Odyssey. 7. Canara Bank contended to the contrary. Its stand was reproduced in paras 63- 66 of the judgment dated 18th November, 2005. It stated that the consortium of banks had to receive substantial amounts, on 9th July, 2004. DAIL informed it (the Bank) by a letter stating that it was arranging a sum of Rs. 75 crores to Rs. 125 from an investor in order to augment the working capital and improve the cash flow. Later, by letter dated 23rd July, 2004 the company requested the bank to open a no lien escrow account in the name of the company for repayment of proposed loan of Rs. 75 crores to the investors in 60 monthly installments. The Bank accepted this request and opened an escrow account in the name of the company on 24th July 2004. The Bank received two letters dated 12.08.2014, from Mr. Ray and Mr. R. Karunanidhi and other signed by Mr. K.C. Palaniswamy concerning investors' fund of Rs. 75 crores. These showed that KCPAHL and CHPL were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember, 2004 and in the said letters also there is no mention of the receipt of any loan amount of Rs. 75 crore from the investors. Infact, in para 2 of the letter dated 21/7/2004, the Bank was informed that a sum of Rs. 83.81 crore is due from Data Access America to the Respondent Company as on 31/8/2004, which was not correct and was contrary to remittance of 17 Millions USD by Data Access America to Data Access India Ltd. on 19/8/2004 along with a swift message that the said payment was on account of the outstanding liability towards services rendered. It is relevant to mention that during this period i.e. in November, 2004, the Bank received copies of the letters addressed by the Chairman of the Respondent Company to Enforcement Directorate and to the Revenue Authorities, stating therein that the new management had fraudulently transferred funds of 'DAIL' to their own Companies. The said letter also mentioned that the amount of 17 Million US Dollars received in the account of DAIL with ABN AMRO Bank, Chennai were receivables to be deposited with Canara Bank. In fact, after receiving the amount of 17 Million US Dollars on 19.8.2004, ABN AMRO Bank filed the Inward Remitta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged that the money was to be given by way of loan by CHPL/Odyssey with certain conditions, even when this money was received on 18th August, 2004, the correspondence on record which is highlighted by the bank shows that much after this date also there were discussions about the investors infusing Rs. 75 crores indicating that such a money has yet to come. (d) This can be inferred from the shareholder's agreement dated 26th August, 2004, consortium meeting dated 7th September, 2004 and follow up letters dated 16th , 17th and 21st September, 2004 received by the bank. Even in reply dated 19th November, 2004 counsel for company M/s Dua Associates did not refute the allegation of the bank that money was received from Data Access America Inc. in the account of the company. (e) Although as per the representations made, investors were to infuse Rs. 75 crores, money received is US $ 17 million i.e. Rs. 78.45 crores. (f) After receiving the amount, the ABN AMRO filed inward remittance certificate with RBI on 19th August, 2004 i.e. the same date declaring that the remittance was received in the account of the company against the outstanding bills of services rendered. (g) No permiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons attained finality. 10. After noticing all the above sequence of events and orders, the Company Judge, by the impugned order, refused to entertain and consider the claim for modification of the previous orders in the two applications CA Nos. 1459/2006 and 1061/2010 and accordingly dismissed them. It was observed that: "18. Order/Judgment dated 18th November, 2005 was made subject matter of appeal by CHPL, KCPAHPL and SPIL. These appeals have been dismissed vide order dated 20th November, 2009 by the Division Bench. While dismissing the appeals filed by CHPL and SPIL, the Division Bench specifically noticed the contention raised and challenge to the prima facie findings recorded by the Company Judge in the Order dated 18th November, 2005 as incorrect and one that required interference. The said contentions were rejected. The request of the appellants therein that the contempt proceedings should be kept in abeyance was also rejected. Before the appellate court, it was stated that KCPAHPL had transferred 18.03 lacs to Syndicate Bank and the Income Tax Department had appropriated 17,40,29,511/- and 7,59,70,489/- on 23rd February, 2005 and 19th August, 2005 respectively from the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. Benefits acquired by fraud, breach of confidence, breach of fiduciary relationships or by other wrong doings therefore do not get benefit under the defence of change of position. Further change of position as a defence has to be causally linked to the receipt that makes it inequitable for the recipient to make restitution. Mere fact that the recipient has spend the money whole or in part, does not make it inequitable because expenditure might have been incurred by him in any event in ordinary course of things. But a bonafide recipient is entitled to establish the defence that he had increased his outgoings as a result of the receipt. [See, para 168, Halsbury's Law of England, Vol. 40(1), 4th Edition] 30. As noticed above, in the present case, serious allegations have been made and as recorded in the Order/Judgment dated 18th November, 2005, these allegations have been found to be prima facie correct. Several aspects have been noticed and doubts about the bonafides of the transactions relating transfer of money from the account with ABN Amro Bank have been noticed. The said observations and findings have been upheld by the Division bench in appeal. As observed above, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties to the CLB litigations but cannot be ground to not to comply with the order dated 18th November, 2005. 32. W.P. No. 32444-50 of 2006 has been filed by CEPL in the Madras High Court against the Income Tax Department. Interim application has been made in said writ petitions for directing the Income Tax Authorities to place the amount appropriated in a fixed deposit with a nationalized bank and restraining Income Tax Authorities from making any refund to Mr. K.C. Palainsamy and CHPL. The Madras High Court has passed an interim order dated 23rd November, 2006 directing the Income Tax Authorities not to refund the amounts till further orders. 33. By interim order dated 26th September, 2006 in C.A.No. 1156/2006 this Court has directed that in case Income Tax Authorities releases payment of Rs. 32,43,31,290/- to CHPL, the same after deposit will not be withdrawn and the said company will maintain minimum of balance equal to amount received. This order is subject to order of Madras High Court. The said restriction was placed on account of principle of comity between Courts. The said interim direction shall continue till further order. 34. Canara Bank may have filed an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order before the Madras High Court. Copy of this order will be also brought to the notice and filed with the Company Law Board by the parties appearing before the Company Law Board. 38. Mr. Nandkumar Athappan will be present in the Court on the next date of hearing. 39. The aforesaid attachment orders and restrain order shall be withdrawn on deposit of 78,45,50,000/- with the Canara Bank in terms of the order dated 18th November, 2005. The said amount must be deposited immediately in terms of the said order and latest by or before 31st March, 2011. The attachment orders in respect of the bank accounts and fixed deposits or other deposits will not come in the way of depositing payments. In case deposit is not made by 31st March, 2011, the parties concerned will be liable to pay interest @ 15% per annum with effect from the date of passing of this order. The question of payment of interest for past period is for the time being left open. List on 5th April, 2011. CA Nos. 1459/2006 and 1061/2010: Applications CA Nos. 1459/2006 and 1061/2010 filed by CEPL are dismissed in praesenti and at this stage. The contentions raised and not decided in the present order are left open and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said Shri Palaniswamy abused his fiduciary position in transferring the amount to CHPL and consequently CEPL cannot be made accountable to Canara Bank for that purpose. It is also urged that the claim in Canara Bank's application is really in the nature of a garnishee proceeding. Since the appellant, CEPL is not DIAL's debtor, no directions could have been made against it. 15. Learned senior counsel for the appellant referred to the letter addressed to the income tax authorities dated 05.02.2005 which clearly stated how Palaniswamy, anticipating the approval of CEPL, diverted Rs. 33 crores to acquire shares. This was not approved by CEPL. The observations and findings of the Commissioner (Appeals), Income Tax, in his order, dated 08-09-2006 were all relied upon. The following observations of the Company Law Board, in its order dated 13th August, 2008, are relied upon: "the admission of KCP made before the Income Tax authority, which is found reflected in the assessment order dated 23-022005 in the matter of SPIL would show that KCP had transferred in anticipation of the approval of the Board of CEPL, a sum of Rs. 33 crores as capital advance to CHPL, which was paid to DAIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of DAIL) were illegally diverted to CEPL. Learned counsel submits that DAAI's remittance to ABN Amro- particularly the instructions, clearly state that the amount of US $17 million, was paid into DAIL's account "towards outstanding Bills for services rendered". In the circumstances, the impugned judgment was justified in law. Analysis and Conclusions 19. It is evident from the factual discussion that DAIL was directed to be wound-up and a Provisional Liquidator appointed to take charge of its affairs. Canara Bank is admittedly a substantial creditor of the company under liquidation. It sought directions for deposit of Rs. 78,45,50,000/- being the equivalent of US $17 million received from DAIL's fully owned subsidiary, i.e DAAI. The amount was received in an account with ABN Amro. The account opening was expressly authorized by Canara Bank (the secured creditor) to receive investor's amounts. This was presumably to permit DAIL to receive investor's monies. However, the remittance made by DAAI was towards amounts payable to it. This Court took notice of these facts and was of the view that the Bank was justified in insisting that the said sum of Rs. 78,45,50,000/- should be pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Access America to DAIL as on 31.8.2004." These, in the opinion of the Court, are incontrovertible facts; they were noted in the earlier proceedings. No attempt has been made in the present proceeding to show how the materials now being relied upon so substantially undermine the findings in the previous orders as to justify a modification of those directions. The letters are part of the record; ABN Amro's explanation is of no consequence, given that DAAI had remitted the amount towards services rendered. 22. In the opinion of this Court, the learned Single Judge cannot be faulted for refusing to vary the directions in the previous order, because the materials - i.e. income tax orders, unrelated Company Law Board proceedings, etc. do not show that the basis or substratum of the previous judgment has eroded. The Company Law Board proceedings do not concern the viability of DAIL; they relate to the management of other companies and the alleged misfeasance of individuals including Palaniswamy; he appears to have been incarcerated for some time. The orders made in criminal proceedings, similarly reflect the merits of the contentions made there. Their relevance in determining whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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