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Cheran Enterprises Pvt. Ltd. Versus Data Access India Ltd. And Ors.

2016 (7) TMI 1155 - DELHI HIGH COURT

Winding up proceedings - Held that:- 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. - In the opinion of this Court, the learned Single Judge cannot be faulted for refusing to vary the .....

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lect the merits of the contentions made there. Their relevance in determining whether the amounts received in DAIL’s no lien escrow account, which was permitted with the secured creditor’s permission (on the representation that it would be used to receive investor’s contributions) from its subsidiary for services rendered are not really so. As noticed earlier, all indications are to the contrary. The explanation now sought to be given, i.e. that Odyssey made over the amounts to DAAI, as part of .....

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e, for Canara Bank. Sh. Kanwal Chaudhary, Advocate, for Official Liquidator. MR. JUSTICE S. RAVINDRA BHAT 1. The present appeal is directed against a judgment of the Company Judge, dismissing two applications (CA Nos. 1459/2006 and 1061/2010). Those applications were filed by the appellant Cheran Enterprises Pvt. Ltd ( CEPL hereafter) essentially to relieve it of the obligation to remit the said sum of Rs.35,30,46,482/- (Rupees Thirty Five Crores Thirty Lakhs Forty Six Thousand Four Hundred Eigh .....

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onal 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 th .....

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ses Ltd. 13.75% Pacific Net Invest Ltd. 51.00% Employees & Associates 0.84% Cheran Holdings Pvt. Ltd. 11.01% TOTAL : 100.00% 4. Canara Bank had financed DAIL s business in consortium with Syndicate Bank and was its secured creditor. DAIL had executed a Deed of Hypothecation dated 15th April, 2004 in favour of Canara Bank; It owed about Rs. 92 crores to Canara Bank and about Rs. 17 crores to Syndicate Bank. Canara Bank initiated proceedings before the Debts Recovery Tribunal. It also claimed .....

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iary of DAIL. Canara Bank alleged that this amount was paid by DAAI on account of debt due to DAIL, which is charged/hypothecated with it (the Bank) and was contrary to the understanding permitting bank account opening with ABN Amro for the limited purpose of receiving investors money. Indisputably, DAAI was liable to pay and was indebted to DAIL on account of services rendered. 5. The said US $17 million, deposited in ABN Amro on 18th August, 2004, was converted into ₹ 78.45 crores. The n .....

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h November, 2004 Canara Bank was informed about the transfer of the funds to several accounts and that only ₹ 48,000/- was available in DAIL s account. Immediately thereafter, Canara Bank issued notices 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 .....

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AAI. 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 ₹ 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 ₹ 78.45 crores was transferred to account No. 1103945 of M/s. Cheran Holdings Pvt. Ltd. maintained with ABN Amro Bank, Chennai. It is also disclosed that from account No.1103945 of .....

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8377; 18.03 crores was transferred to Syndicate Bank, Delhi-A/c. KCP on 20.8.2004. From the aforesaid averment it is prima facie established that attempt is made by the respondent to transfer these funds to other accounts so as to go out of the reach of the petitioner or the Canara Bank. ABN Amro Bank, Chennai and Syndicate Bank, Delhi would ensure that minimum balance, as mentioned in sub-paras (a), (c) and (d) is maintained in those accounts, namely, in account No. 922322 of M/s. Cheran Enterp .....

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r." 6. Odyssey thereafter preferred CA 35/2005 alleging that it had advanced US $17 million to DAAI subject to the condition that the amount would be further lent to DAIL on two conditions, namely, rollover of all loans and bank guarantees with Canara Bank and Syndicate Bank for a period of atleast 12 months and secondly, reinstatement of all points of interconnect with BSNL and extension by BSNL of all outstanding dues. According to Odyssey, as these conditions were not satisfied, the mone .....

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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 ₹ 75 crores to ₹ 125 from an investor in order to augment the working capital and improve the cash flo .....

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crores. These showed that KCPAHL and CHPL were the notified investors and the amount receivable from M/s DAAI on account of services rendered had no connection with them. This was followed by letter dated 18th August, 2004 from DAIL seeking permission for opening a current account with ABN AMRO Bank, Chennai to facilitate the smooth transfer of funds in the minimum possible time. It was also mentioned that the funds need to be transferred immediately to the bank. These investors, viz. CHPL and .....

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was sought for depositing the investor' money with Canara Bank (and for which escrow account was opened by the bank). That permission for opening of the account was granted. On 26.08.2004, a shareholder s agreement was signed by the concerned parties- however, the Bank was not consulted and had no role to play in the signing of the said earlier Agreement or the agreement of 26th August, 2004. This Agreement was given to the Bank sometime in October, 2004 and as per Clause 8 of the said Agre .....

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sons that the investor's money of ₹ 75 crore was yet to come. In fact, the consortium's views recorded in the minutes of the said meeting stated as under: The Company officials shall arrange for infusion of ₹ 75 crore by the investors money to set right the irregularities. 65. As a follow up of the consortium meeting of 7th September, 2004, Canara Bank received letters dated 16th September, 2004, 17th September, 2004 and 21st September, 2004 and in the said letters also there .....

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rds 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 wer .....

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was to receive any loan in foreign exchange from abroad, prior permission of the RBI was required. It is, therefore, the case of the Bank that the entire story of the Respondent Company that the said amount of 17 Million US Dollars was received as loan by the Respondent Company from its 100% subsidiary is false. In fact, as per the letter dated 18.8.2004, written by the Respondent Company, seeking no objection from the Bank for opening a current account with ABN AMRO Bank, Chennai, the investor .....

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. The said story is neither plausible nor possible. " The court then concluded its prima facie determination: "69. No doubt the company has tried to give its own version and hue to the entire transaction and dubbing the receipt of funds in the company's account as an error. However, the admitted facts are : (a) The amount was received in the account of the company maintained with ABN AMRO Bank. (b) The amount was received through its subsidiary Data Access America Inc. Whether it w .....

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e bank shows that much after this date also there were discussions about the investors infusing ₹ 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 .....

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rmission of RBI has been obtained by any party for lending foreign exchange to an Indian company." The Court noticed Canara Bank s plea that ₹ 78.45 crores was held by DAIL as trust and such trust money cannot be intermingled with debt amounts but rather should be maintained separately. The Court also relied on several decisions in this regard. New Bank of India versus Pearey Lal (1962) 32 Comp Cas 91, Barclay Bank v Quistclose Investments Ltd. (1968) 3 All.E.R. 651, P.V. Narain v Aar .....

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unt the ABN AMRO Bank shall remit this amount to Canara bank. It is because of the admitted liability of the bank and charge of the bank over this money. Furthermore, in case it is found ultimately that the money is to be refunded to Odyssey Re etc., appropriate orders can be passed directing Canara Bank to refund the amount and the bank has sufficient means to carry out such directions. Appropriate orders shall be passed in the company petition as to how this amount is to be dealt with dependin .....

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the contempt proceedings should be kept in abeyance too was rejected. It was stated before the Division Bench that KCPAHPL had transferred Rs. 18.03 lakhs to Syndicate Bank and the Income Tax Department had appropriated Rs. 17,40,29,511/- and Rs. 7,59,70,489/- on 23rd February, 2005 and 19th August, 2005 respectively from SPIL s account. Both these contentions too were rejected. These directions attained finality. 10. After noticing all the above sequence of events and orders, the Company Judge .....

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lly 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, .....

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of the Order/Judgment dated 18th November, 2005 which has attained finality. The prayer made for modification of the interim order dated 12th November, 2004 passed on an application is misconceived as the said Order has merged in the Order/Judgment dated 18th November, 2005. 19. It is apparent from the facts stated above that CEPL, SPIL and KCPAHPL and CHPL have been all dragging, prolonging the matter and trying to stall the implementation of the directions given in paras 70 to 72 in the Order .....

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e of trust. He also referred to the principle of tracing and the observations of the House of Lords in its decision. Lipkin Gorman versus Karpnale (1992) 4 All.ER 512. The impugned judgment also cites restitution and the decisions reported as Orton v Butler (1822) 5 B. & Ald. 652, Foster v. Green (1862) 7 H. & N. 881; Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C. 32; Hudson v Robinson 1816 (4) MNS 475; Bainbrigge v. Browne (1881) 18 Ch.D. 188; the decision of .....

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fits 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 .....

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elating 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 apparent that there is consorted and a deliberate desire is to stall and not comply with the Order/Judgment dated 18th November, 2005. Even after more than five years, the directions given in the said Order/Judgment have not been complied with. In this connection, it is noticed that CEPL is a joint venture o .....

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is a holding company of SPIL. Similarly, CHPL is a subsidiary of CEPL and KCPAHL is a subsidiary of CHPL. Prima facie, it does appear that all the companies were fully aware and conscious of the transfer of the money in ABN Amro Bank and the claim of Canara Bank. 31. C.P.No. 65/2005 has been filed by the CHPL represented by Mr. K.C. Palanisamy under 397, 398, 402 and 403 of the Act on account of certain purported acts of oppression and mismanagement in affairs of CEPL and other respondent. C.P. .....

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ons filed by the Canara Bank to be impleaded as a party in C.P. No. 65/2005 & C.P. No. 76/2005 was dismissed by the CLB vide order dated 18th July, 2007. Aforesaid orders do not affect and negate the effect of the order dated 18th November, 2005, which has been upheld by the Division Bench vide order dated 20th November, 2009. The findings and observations made in the order dated 13th August, 2008 passed by CLB do not operate as res judicata, viz., Canara Bank or DIAL. The findings and obser .....

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straining 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 ₹ 32,43,31,290/- to CHPL, the same after deposit will not be withdrawn and the said company will .....

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November, 2005 is concerned. Similarly the fact that Canara Bank has abandoned or waived their rights or the Supreme Court has dismissed Special Leave Petition against order dated 24th April 2008 for impleadment does not negate, eclipse or obliterate the order dated 18th November, 2005. It may be again noted that the Division Bench has upheld order dated 18th November, 2005 in their judgment dated 20th November, 2009. The interim order passed by Madras High Court and the order dated 24th April, .....

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r, 2005 which is earlier in point of time. Canara Bank and DIAL the company under provisional liquidation are not parties to the said litigation. The order of criminal court dated 21st January, 2009 again is prior in point of time i.e. before the Company Appeals 3 & 4 of 2006 filed by CHPL and SPIL were dismissed on 29th November, 2009. 36. Keeping in view the aforesaid facts, the following directions are issued:- (1) All bank accounts and deposits of CEPL, CHPL, SPIL and KCPAHPL are hereby .....

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osits and other deposits. (b) Details of movable and immovable assets including shares. (c) Names and addresses of the directors. 37. CEPL, Mr. K.C. Palaniswamy and CHPL will file copy of this 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 .....

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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 will be decided after the money is deposited with Canara Bank in accordance with the order dated 18th November, 2005 .....

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ade subject to the orders of the Madras High Court, in the pending writ petition. Canara Bank, thus foiled in its attempt, sought impleadment in the writ petition before Madras High Court. Upon failing in that attempt, it moved the Supreme Court (SLP 1626470/2008), which was rejected on 14.12.2009. It was stated that Canara Bank filed another impleadment application and the Madras High Court was seized of the issue whether the amount was to be handed over to the Canara Bank, the Income Tax depar .....

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368/2010 was preferred against that order, which was disposed of by order dated 13.05.2010 where the Supreme Court granted liberty to CEPL, the appellant, to seek modification of the said order in CA 688/2010 dated 20.04.2010. 14. It is urged that the impugned judgment failed to consider that on 01.07.2004, K.C. Palaniswamy, without authorization of CEPL s directors, had transferred ₹ 35,30,46,482 to CHPL, entirely controlled by him. CHPL returned the said amount to CEPL on 19.08.2004. Sim .....

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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 ₹ 33 crores to acquire shares. This was not approved by CEPL. The observations and findings of the Commissioner .....

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d that CEPL Board had subsequently disapproved the said transfer of funds to CHPL for investing in DAIL. It is rather evident from the communication of KCP dated 05-02-2005 addressed to the Income Tax Authority that the investment made in DAIL does not enjoy the authority of the Board of CEPL. It is therefore, far from doubt that the investment made by CEPL in DAIL is without any authority of the Board of CEPL. Nevertheless it is required to be examined whether ORE or R. Athappan or OARC is blam .....

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rescheduling outstanding amounts due over the next 12 months. These conditions were not complied and, therefore, Odyssey recalled the amounts. ABN Amro, therefore, had sought guidance from RBI to remit the amounts to DAIL in its letter dated 16.09.2004. These according to the appellant clearly revealed that Canara Bank could not claim any part of those amounts, as they belonged to some other concern. 17. The respondents including Canara Bank argue that this court should not disturb the observat .....

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ed and controlled DAIL at the time. M/s Pacific Netinvest owned 51% of its shares; SPA Enterprises owned 12.5% (it is owned by Mr. Siddhartha Ray, the second joint MD of DAIL). CHPL owns 12.12% shares in DAIL. Pacific Netinvest, in turn is substantially owned- to the extent of 76% by Mr. Palaniswamy s CHPL and 24% with KCP Associate Holdings. The funds received from DAAI (the subsidiary of DAIL) were illegally diverted to CEPL. Learned counsel submits that DAAI s remittance to ABN Amro- particul .....

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for deposit of ₹ 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 t .....

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The case made out for variation of the orders is that on 1st July 2004, Palaniswamy transferred Rs.35,30,46,482.68 unauthorizedly from CEPL to CHPL and further that the transfer to CEPL, of the amounts received (US $17 million) was in reversal of this unauthorized earlier transfer. Now, this Court is un-persuaded by the appellant s submissions. That there were income tax proceedings, or that subsequently orders were made in Company Law Board proceedings, in no way substantiate the appellant s ar .....

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significance as to require a fresh look at the matter. The same can be said of the Company Law Board proceedings. 21. It is extremely important to notice here, that in the previous proceedings, the learned Company Judge had noted that a letter of 21.07.2004, of DAIL had informed that a sum of Rs. 83.81 crores was payable to it by DAAI. The Division Bench s appellate order, dismissing the challenge to the earlier judgment (dated 18.11.2005) notes this: 5. The learned Company Judge has duly advert .....

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