TMI Blog2016 (7) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... etition on this ground. If in fact, it was the case of the Respondent Company that it was not a signatory to the Deal Confirmation which in turn did not give rise to any liability, such a fundamental defence would have been taken up by the Respondent Company at the very first instance and would not find place for the first time only in the affidavit in reply filed to contest the contentions raised by the petitioner Bank. This being the position, unhesitatingly reject this argument. For all the aforesaid reasons, find that there is no bonafide defence that has been raised by the Respondent Company. The liability incurred by the Respondent Company to the Petitioner – Bank is on the basis of a written contract (the Deal Confirmation) entered into between them which the Respondent Company has, without sufficient cause, failed to honour. The liabilities are far in excess of an amount of ₹ 500/- as contemplated under section 434(1)(a) of the Companies Act, 1956. This, to my mind, would entitle the Petitioner to seek an order of admission of this Company Petition. In these circumstances, the following order is passed :- (i) The Company Petition is admitted and made returnable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptember, 2015 dismissed this Company Petition. Being aggrieved by this order, the Petitioner Bank preferred an Appeal before the Division Bench of this Court, who by its order dated 4 February, 2016 set aside the order dated 7 September, 2015 and remanded the matter back to this Court for a fresh hearing. It is in these circumstances that the present Company Petition has come up for admission before me once again. 3. The brief facts giving rise to the controversy in the present Petition are as follows:- (a) It is the case of the Petitioner that the Respondent Company during the course of its business, export large quantities of products and have a large annual turnover. Apart from this, the Respondent Company also has a substantial amount of imports. By virtue of this business (Import and Export), according to the Petitioner, the Company is therefore exposed to fluctuation risks in the foreign currency market. (b) With a view to hedge its foreign exchange fluctuation risks, the Respondent Company approached the Centurion Bank of Punjab ( CBOP ), in the year 2007 in order to enter into certain derivative transactions. It must be mentioned here that there is no dispute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 May, 2008. Under the said scheme, the Petitioner took over all the rights and liabilities of CBOP and stepped into the shoes of CBOP in respect of all pending transactions entered into by CBOP, one of which was under the ISDA Agreement and all derivative transactions entered into by the parties thereunder. (g) After the aforesaid merger of CBOP with the Petitioner Bank, on 26 June, 2008 a deal confirmation was entered into between the Petitioner Bank and the Respondent Company for the purposes of entering into USD/INR options transaction comprising of a series of options, the expiry / maturity of which, were spread over a period of one year from 27 June, 2012 to 29 May, 2013. This deal confirmation was entered into for modifying and hedging certain other derivative transactions entered into by CBOP with the Respondent Company on 20 November, 2007; 23 November, 2007; 19 December, 2007 and 22 January, 2008. This deal confirmation records that it evidenced a complete and binding agreement between the Petitioner and the Respondent Company as per the terms of the transaction to which the confirmation related. The particular options transactions to which the deal confirmation rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86235HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 26SEP-12 28SEP-12 43.1500 86236HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 29OCT-12 31OCT-12 43.1500 86237HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 290CT-12 31OCT-12 43.1500 86238HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 28NOV-12 3ONOV-12 43.1500 86239HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 28NOV-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HDFC BANK LTD USD 800,000 INR 34,520,000 26APR-13 30APR-13 43.1500 86250HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 29MAY-13 31MAY-13 43.1500 86251HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 29MAY-13 31MAY-13 43.1500 (h) The counter party referred to above is the Respondent Company and HDFC Bank Ltd is the Petitioner before me. The strike price agreed to was ₹ 43.150000. To put it simply, as per this deal confirmation, on the relevant expiry dates, if the USD traded below ₹ 43.15 per US Dollar then the Respondent Company would sell US$500,000/- to the Petitioner Bank @ ₹ 43.15 per US Dollar. Similarly, on the relevant expiry dates, if the USD traded above ₹ 43.15 per US Dollar, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the margin call made by the Petitioner Bank citing the reason that due to cash constraints, global slowdown in the market and prior business commitments, it was unable to cater to the margin call made by the Petitioner Bank. However, what is important to note is that in this very letter the Respondent Company expressed its intention to continue with the options transaction entered into with the Petitioner Bank and expressed its commitment to clear all dues and outstanding at the relevant expiry settlement dates under the deal confirmation. I must mention here that the Respondent Company has raised a dispute with reference to this letter dated 20 May, 2009 inter alia contending that the same has not been issued by the Respondent Company and the same is not signed by its authorized signatory. I will deal with this contention later in the judgment. (l) Be that as it may, the Petitioner once again, by its letter dated 15 July, 2009 called upon the Respondent Company to comply with the margin call made by the Petitioner, which at that point of time was ₹ 4.03 Crores. In reply thereto, the Respondent Company once again vide its letter dated 22 July, 2009 reiterated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal confirmation options transaction was only a paper contract so that the accounts of the Petitioner Bank could be squared up. An identical reply was given by the Respondent Company when the Petitioner exercised their second option which expired on 27 July, 2012. Similar replies have been given by the Respondent Company for all the options exercised by the Petitioner Bank on their respective expiry dates as more particularly set out in the deal confirmation. (p) It is not in dispute that all the options have been duly exercised by the Petitioner in view of the fact that the US Dollar rate on the date of exercising the options was higher than ₹ 43.15. It is the Petitioner's case that since the Company refused to honour its obligations under the options transaction as envisaged by the deal confirmation, the Petitioner was forced to procure US$800,000 from the open market on 29 June, 2012 (in relation to the first option) and crystallized the said options transaction thereby incurring a loss of ₹ 1,07,68,000/-. Similarly, it is pleaded in the Petition that for all the other options also the Petitioner had to procure US$800,000 from the open market to crystalliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the Petitioner through their Advocate's notice dated 18 January, 2013 and delivered at the registered office of the Company, called upon the Respondent Company to pay a sum of ₹ 6,86,00,436.15 as on 31 December, 2012, within a period of 21 days from the date of receipt of the notice failing which the Petitioner would be constrained to initiate legal proceedings against the Respondent Company including initiating winding up proceedings contemplated under Section 433 read with Section 434 of the Companies Act, 1956. Despite receipt of this notice, no reply was given to the said notice and hence the present Company Petition. It would be pertinent to mention that the amount claimed in this notice was for a lesser amount than what is claimed in the Company Petition, because options 8 and 9 (expiring in January, 2013 and February, 2013 respectively) had not yet expired when the said notice was issued. Since the Petition is filed after the expiry of even options 8 9 and payments thereunder have not been made by the Respondent Company, the same are included in the claim made in the present Company Petition. I must also mention here that by the time I heard this Petition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Disclosure Statement executed by the Respondent (Page 73 of the paperbook), the deal could be fulfilled in two manners set out above i.e. either by delivering US$800,000 under each option at the pre-agreed / strike price of ₹ 43.15 per US Dollar or pay the difference between the Dollar rate on the date of the expiry of the respective option and the strike price agreed to between the parties, namely ₹ 43.15. According to Mr. Kamdin this is also further borne out by the Master Circular No./6/2007-08 dated 2 July, 2007 issued by the Reserve Bank of India, and more particularly Annexure VII thereof which stipulates that option contracts could be settled on maturity either by delivery on spot basis or by net cash settlement in Rupees on spot basis as specified in the contract. 6. On the other hand, despite several contentions being raised in the Affidavit in Reply, Mr Cama, learned Counsel appearing on behalf of the Respondent Company, resisted this Petition only on the following grounds:- (i) the aforesaid Deal Confirmation was entered into to square off the old contracts/deals dated 20 November, 2007; 23 November, 2007; 19 December, 2007; 19 December, 2007 and 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Petition and the same ought to be dismissed. He submitted that, in any event all these issues would give rise to a bonafide defence to the Company Petition, and therefore, this Court ought not to entertain the same and leave the Petitioner to recover its dues in the Original Application filed before the Debt Recovery Tribunal. 8. I have heard the learned counsel for the parties at length and perused the papers and proceedings in the Company Petition as well as the annexures thereto. The first defence raised by Mr Cama was that the Deal Confirmation dated 26 June, 2008 entered into with the Petitioner Bank, was only for the purpose of squaring off the old transactions entered into by the Respondent Company with CBOP which were unenforceable in law. According to Mr Cama, it was the understanding between the Petitioner Bank and the Respondent Company that this Deal Confirmation was entered into only to accommodate the Petitioner Bank and allow it to square off old transactions that were entered into with CBOP and who was subsequently taken over by the Petitioner Bank. 9. After carefully considering the argument canvassed by Mr Cama, I am unable to agree with the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with this situation, Mr Cama contended that the letters dated 20 May, 2009 and 22 July, 2009 did not emanate from the Respondent Company and were not signed by a person authorized by the Respondent Company as per its resolution dated 14 November, 2007. According to Mr Cama this resolution (Exh B to the Petition) only authorized Mr. Radheshyam Agarwal and/or Mr. Rohan Agarwal to transact in spot and forward any foreign exchange and enter into interest rate and foreign currency swap options and any other derivative transactions that may from time to time be used to hedge the Company's interest and foreign exchange exposure risk. He submitted that admittedly these letters have not been signed by either Mr. Radheshyam Agarwal or Mr. Rohan Agarwal, and therefore, the same are not binding on the Respondent Company. 11. I am unable to accept this submission of Mr Cama for multiple reasons. Firstly, the board resolution, and on which reliance was placed by Mr. Cama, only authorized Mr. Radheshyam Agarwal and/or Mr. Rohan Agarwal to enter into derivative contracts. This does not mean that all correspondence that is subsequently exchanged between the Respondent Company and the Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him. Admittedly, no such reply was ever given. This alone speaks volumes about the conduct of the Respondent Company and how it treated the Deal Confirmation as a valid and binding transaction between the Respondent Company and the Petitioner. I must mention here that this defence was raised for the first time only when the Respondent Company was called upon to honour its commitments under the first option that expired on 27 June, 2012. Looking to all these facts, I am clearly of the view that this defence has been put up only as an afterthought to somehow wriggle out of the liability that the Respondent Company had incurred under the said Deal Confirmation. For all the aforesaid reasons, I have no hesitation in rejecting the argument of Mr Cama that the Deal Confirmation dated 26 June, 2008 entered into between the Petitioner Bank and the Respondent Company was not a real transaction that could be enforced against the Respondent Company. 13. The next argument canvassed by Mr Cama was that the Deal Confirmation dated 26 June, 2008 does not cast any obligation on the Respondent Company to make any payment. He submitted that the Deal Confirmation itself contemplated that on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable by it, not later than the due date for value on that date in the place of the account specified below, in the freely transferable funds and in the manner customary for payments in the required currency. If on any date amounts would otherwise be payable in the same currency by each party to the other, then on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. (emphasis supplied) 17. Looking to all these facts, I am unable to accept the submission of Mr Cama that on expiry of the relevant option, if the Respondent failed to sell/ deliver US$800,000 to the Petitioner, then the only remedy available to the Petitioner was to sue for specific performance. The Master Circular issued by the Reserve Bank of India as well as other documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out. 19. In terms of the said deal, the Defendant paid to the Plaintiff US$100,000 which was received by the Plaintiff. However, after six months, the Plaintiff sent a letter dated 12 December, 2007 claiming that the entire structure as per the contract dated 22 June, 2007 got knocked out with no liability to either of the parties. By a reply dated 7 January, 2008, the Bank challenged this claim and contended that the contract was still alive and that the Bank was prepared to work out suitable risk mitigation structures. Not satisfied with the stand taken by the Bank, the Plaintiff filed a suit before the Madras High Court inter alia seeking a declaration that the Deal Confirmation in Contract No. OPT 727 purportedly made by the Plaintiff was void ab-initio, illegal, violative of RBI Guidelines, opposed to public policy and unenforceable and not binding on the Plaintiff. One of the issues raised before the Madras High Court for challenging the said Contract No.OPT 727 was that the same amounted to a wagering contract and therefore hit by Section 30 of the Indian Contract Act, 1872. Dealing with this contention as to what is a contract of wagering, the observations of the Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hackett, 1929 (1) K.B. 321 and Ellesmere v.Wallace, 1929 (2) Ch. 1. 55. The essential features of a Wagering Contract as formulated by the English Courts are as follows: (1) There must be 2 persons or 2 sets of or 2 groups of persons holding opposite views touching a future uncertain event. It may even concern a past or present fact or event. (2) In a Wagering Contract, one party is to win and the other to lose upon the determination of the event. Each party must stand either to win or lose under the terms of the contract. It will not be a Wagering Contract if one party may win but cannot lose or if he may lose but cannot win or if he can neither win or lose. (3) The parties have no actual interest in the occurrence or non- occurrence of the event, but have an interest only on the stake. 56. Applying the above essential features, contracts for differences in stock exchange or commodity market transactions were once treated as wagers Grizewood v. Blane, 1851 (11) CB 526 and Richards v. Starck, 1911 (1) K.B. 296. They were held to be wagers because of the understanding of the parties that the subject matter should neither be transferred nor paid for, on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract, a common intention to wager is essential. It was further held therein that in a wagering contract, there has to be a mutuality in the sense that the gain of one party would be the loss of the other on the happening of the uncertain event which is the subject matter of wager. The said decision was quoted with approval by the Supreme Court in Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty Sons and Others, 1975 (2) SCC 208. 59. The mere fact that the parties never intended to take delivery at the end would not also make a transaction a wager. In Ismail Lebbe Marikar Ebrahim Lebbe Marikar v. Bartleet and Company, AIR (29) 1942 Privy Council 19, a firm of share and produce brokers entered into an arrangement with the grower of rubber in Ceylon. Under the arrangement, the broker was to buy rubber for the defendant in the London market, but there was to be no delivery. The arrangement was that the defendant should pay the differences when the market was against him and that he should be paid the differences, when the market was in his favour. Holding such a contract not to be a wager, the Privy Council held as follows: The essence of a bet is that both par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mr Cama was that the claim made in the present Company Petition was nothing but in the nature of damages. This being the case, there was no debt due and payable by the Respondent Company to the Petitioner in presenti and therefore, this Company Petition could not maintained on the basis of a claim for damages. In this regard, he was at pains to point out the averments in the Petition wherein the Petitioner has averred that since the Respondent Company did not honour its commitments under the options transactions, the Respondent Company had suffered a loss . In this regard, Mr Cama placed reliance on a decision of the Supreme Court in the case of Union of India v/s Raman Iron Foundry AIR 1974 SC 1265 , as well as a decision of a Single Judge of this Court (Dr D.Y. Chandrachud J. as he then was) in the case of E-Citty Media P.Lttd. v/s Sadhrtta Rettail Lttd. [2010] 153 Comp Cas 326 (Bom) 22. On carefully considering the arguments of Mr Cama, I am unable to accept the submission that the claim made in the present Company Petition is nothing but a claim in damages. As mentioned earlier, the amounts claimed in the present Petition arise directly under the Deal Confirmatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of Section 6 prohibits a Banking Company from engaging in any form of business other than those enumerated in sub-section (1). Therefore if a transaction falls within any one of the forms of business covered by Section 6(1) of the Banking Regulation Act, 1949, it would certainly be a business activity undertaken by the Bank. Consequently, a claim that arises during the course of such a business activity undertaken by the Bank, would come within the definition of the word debt in Section 2(g). 25. Transactions in derivatives, fall within the category of business activity undertaken by the Bank as they are covered by Section 6(1) of the Banking Regulation Act, 1949. Therefore I have no difficulty in coming to the conclusion that if the transaction in question gives rise to a claim by the Bank, of any liability, on the part of the plaintiff, the defendant-Bank may certainly be able to invoke the provisions of Act 51 of 1993. Since the word debt is defined to include any claim arising out of the business activity of the bank, it is not necessary that only in those cases where there is an act of lending and borrowing that the provisions of Act 51 of 1993 could be invoked b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges. The learned Judge held that even if the claim was in the nature of liquidated damages, the same would make no difference and therefore a winding up petition would not be maintainable. This decision is also therefore, to my mind, wholly inapplicable to the facts of the present case. 26. Mr Cama then submitted that there is a serious dispute with reference to the amounts owed to the Petitioner in view of the fact that there was nothing to indicate what was the US Dollar rate on the date of the expiry / settlement of the respective options. To counter to this argument, Mr Kamdin, and in my view correctly so, submitted that as far as the US Dollar rate is concerned, it is determined at the end of the closing business day of the expiry of the option. In fact, under the Master ISDA Agreement, the calculation agent is the Petitioner Bank, unless otherwise specified in the Deal Confirmation in relation to a particular transaction (See page 64 of the paper-book). In fact, even the Deal Confirmation dated 26 June, 2008 specifically states that the calculation agent shall be as per the signed Master ISDA Agreement which in term makes the Petitioner Bank the calculation agent. In each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely. Following this proposition, two Division Benches of this Court have also taken the same view. The first decision is in the case of Pfizer Limitted v/s Usan Laborattories Pvtt Lttd. (1985) Mh. L. J. 554 wherein a Division Bench of this Court held as under:- 6. The short question we are considering is the position of the notice or of the subsequent petition when a part of the claim made by the creditor is seriously in dispute, but the remaining portion which prima facie would appear to be in order exceeds the limit of ₹ 500/- indicated in section 434. Shri Tulzapurkar submitted that the position is not res integra being concluded by the decisions both of the English Courts and of the Calcutta High Court, which decisions have taken view contrary to the view which found favour with the learned Company Judge. Our attention was invited to these decisions and it becomes necessary therefore to refer to them. 7. In point of time, the first of the decisions in the decision given by Plowman J. in In re Tweeds Garages Ltd., [(1962) 1 Chancery 406.] The relevant observations are to be found at pages 413 and 414 of the report. An opinion has been expressed in the said judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners in respect of the principal amount and to come to a conclusion whether or not there was any real substantial dispute with regard to the said claim. If there was a genuine and bonafide dispute, then certainly it was within his discretion and jurisdication to dismiss the petition and relegate the petitioners to claim the amount by a regular suit. However, he did not go into this aspect but chose to dispose of the winding-up petition by dismissing the same on an erroneous basis which we have earlier indicated. If that be so, the impugned order will be required to be set aside and the petition will now go back to the Company Judge for reconsideration of the position and to decide whether it is required to be admitted and whether further directions after admission are required to be given. (emphasis supplied) 28. The second decision is in the case of Tatta Finance Lttd v/s Kanoria Sugar and General Manufactturing Company Lttd., Mumbai. (2002) 1 Mh. L. J. 617 The relevant portion reads thus:- 8. It is well settled that a winding up petition should not be allowed to be taken as a means to recover debt from the company. It is not a legitimate way to enforce payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that after the creditor establishes that the debt is clear, valid in law, unimpeachable and indisputable, the creditor is entitled to a winding up order ex debito justitiae. But if the debt is disputed and the dispute is bona fide and genuine, no winding up order can be made. He clarified that neglect to pay is not equivalent to omission to pay for it requires that such omission is without reasonable cause or valid excuse. 11. Applying now, the law as above, to the case in hand, can it be said that the defence raised by the company is legitimate and the debt of company is bona fide disputed. In the instant case, the Company's case is that the total amount of more than Rupees Two crores is payable by the company. It is true that there is some dispute about the claim of enhanced lease rentals on account of disallowance of claim of depreciation by the Income Tax department. There is, however, absolutely no dispute for the outstanding lease rentals which are in the range of nearly Rupees Thirty Lakhs. The terms of agreement are also very clear and in case of default, the company is liable to pay the service charges. When a part of claim made by the creditor is seriously dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h.'F' to the affidavit in rejoinder dated 24 March, 2014 (page 246 of the paper- book). Both the aforesaid documents are one and the same deal confirmation and are identical in its terms. The only difference between the two is that the duplicate of this deal confirmation has been signed by the Respondent Company (through its authorised signatories) whereas the stamped deal confirmation is unsigned by the Respondent Company. Reading these two documents together, I find absolutely no merit in the submission of Mr Cama that there is any variance between the two documents. In any event, this defence is taken for the first time in this Company Petition and was never raised by the Respondent Company at the time when it disputed its liability on the expiry of the relevant options under the Deal Confirmation dated 26 June, 2008. I therefore find that this defence is neither in good faith nor bonafide which would persuade me to dismiss this Company Petition on this ground. If in fact, it was the case of the Respondent Company that it was not a signatory to the Deal Confirmation which in turn did not give rise to any liability, such a fundamental defence would have been taken up by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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