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HDFC Bank Ltd. Versus Rohan Dyes & Intermediates Ltd.

2016 (7) TMI 1191 - BOMBAY HIGH COURT

Winding up petition - Respondent Company is unable to pay debts - Held that:- As carefully gone through the deal confirmation annexed at Exh.'K' to the Petition as well as Exh.'F' to the affidavit in rejoinder dated 24 March, 2014. 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) whe .....

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s 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 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 .....

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8377; 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 on 3rd October, 2016. - (ii) The admission of this Company Petition shall be advertised in two local newspapers viz. (i) Free Press Journal (in English) and (ii) Navshaktti (in Marathi) as also .....

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under intimation to the Company Registrar, failing which the Petition shall stand dismissed for non-prosecution without further reference to the Court. After the advertisements are issued, the balance, if any, shall be refunded to the Petitioner. - COMPANY PETITION NO. 320 OF 2013 - Dated:- 19-7-2016 - B.P. COLABAWALLA, J. ..... Mr. Zubin Behramkamdin a/w Ms F Behramkamdin, Ms Slesha Sheth, Mr. Saahil Bijliwala i/b FZB & Associates for the Petitioner. Mr. Rohan Cama a/w Ms Sapna Raichure i/ .....

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of ₹ 54.96 Lacs. The claim in the present Petition arises out of certain derivative transactions that were entered into between the Petitioner Bank and the Respondent Company, the details of which are narrated hereinafter. I must mention here at the outset that it is not in dispute that the Petitioner Bank is an authorised dealer in foreign exchange and is in fact listed as an authorised dealer in Category - I as per the Reserve Bank of India Guidelines. 2. Before dealing with the facts of .....

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rcumstances 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 th .....

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itioner - Bank. (c) Consequent to the discussions and negotiations between CBOP and the Respondent Company, CBOP issued a sanction letter dated 8 November, 2007 containing the terms and conditions on which certain derivative transactions between CBOP and the Respondent Company were to take place. Pursuant to this, the Board of Directors of the Company passed a resolution on 14 November, 2007 inter alia authorizing the Company to enter into an agreement with CBOP to transact spot and forwards in .....

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and on behalf of the Respondent Company and execute all necessary documentation in that regard. (d) Accordingly, and as prescribed by the Reserve Bank of India guidelines, CBOP and the Respondent Company entered into an ISDA Master Agreement dated 15 November, 2007 along with the schedule thereto also dated 15 November, 2007 ( ISDA Agreementt ). Under this Agreement, CBOP and the Respondent Company agreed to enter into various derivative transactions each to be evidenced by a deal confirmation w .....

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that regard as per the board resolution dated 14 November, 2007. (f) As mentioned earlier, on 23 May, 2008 CBOP merged with the Petitioner Bank under a Scheme of Amalgamation duly sanctioned by the Reserve Bank of India vide its letter dated 20 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 .....

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ain 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 relates were as follows:- Option Reference No. 86228HM The Counter .....

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UN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 27JUL-12 31JUL-12 43.1500 86232HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 29AUG-12 31AUG-12 43.1500 86233HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 29AUG-12 31AUG-12 43.1500 86234HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 26SEP-12 28SEP-12 43.1500 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 8 .....

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43.1500 86243HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 29JAN-13 31JAN-13 43.1500 86244HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 26FEB-13 28FEB-13 43.1500 86245HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 26FEB-13 28FEB-13 43.1500 86246HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 27MAR-13 29MAR-13 43.1500 86247HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 27MAR-13 29MAR-13 43.1500 86248HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 50 .....

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n 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 it was agreed that the Respondent Company would sell US$800,000/- to the Petitioner @ ₹ 43.15 per US Dollar. After entering into the aforesaid deal confirmation, the Respondent Company on 16 July, 2008 also p .....

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be entitled to make a margin call on the Company for excess of the negative MTM over the amount of ₹ 5 Crores. In accordance with this agreement the Company also furnished a post-dated cheque for an amount of ₹ 5 Crores that was to be encashed by the Petitioner Bank only after the margin call arising under the aforesaid options transactions was not complied with and the Respondent Company failed to make alternative arrangements within 30 days from the date of demand. It is the case o .....

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ions in the foreign currency exchange rates. The MTM value in respect of said options transaction exceeded its limits of ₹ 5 Crores and touched the value of ₹ 10 Crores. In this view of the matter, the Petitioner, vide their letter dated 30 December, 2008 issued a margin call in terms of the deal confirmation. Since, there was no reply, the Petitioner Bank addressed another letter dated 13 May, 2009 to the Respondent Company, once again making a margin call and requested the Responde .....

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ention 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 co .....

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he Petitioner Bank and the Respondent Company. The Respondent Company further stated that they were hopeful that the Rupee was going to appreciate in the short term as well as in the long term and, therefore, in a short while, the MTM would be below the sanction limit of ₹ 5 Crores. Looking to the longstanding and healthy relationship of the Respondent Company with the Bank, the Company urged the Petitioner Bank to kindly not insist for further margin call against the options transaction. .....

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it may, as per the deal confirmation dated 26 June, 2008, on the expiry of the first option (i.e. on 27 June, 2012), since the US Dollar was trading above ₹ 43.15 per Dollar, the first option was exercised by the Petitioner on the expiry date of the said option. As per the said option, the Company was obliged to sell US$800,000/- to the Petitioner at the pre - agreed USD/INR rate of ₹ 43.15 (the strike price). Hence the Petitioner addressed an email dated 27 June, 2012 to the Compan .....

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December, 2007; 19 December, 2007; and 22 January, 2008 that were entered into with CBOP. The Respondent Company stated that the options transaction was entered into to square off the old dues which were not enforceable in law and that this deal 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 Jul .....

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nder 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 crystallize the said options transactions which resulted in a loss that w .....

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Dollar traded at ₹ 44.15, the Respondent Company was bound to sell US$800,000 to the Petitioner Bank @ ₹ 43.15 per US Dollar. If it did not do so then the Respondent Company had to make good the difference in the Dollar rate being ₹ 1.00 per US Dollar for US$800,000 (being ₹ 8 Lacs). Though the Petitioner has termed the word loss in a very loose manner, it is the case of the Petitioner that these amounts were payable under the contract (namely the deal confirmation read .....

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it may, on 4 September, 2012 the Petitioner's Advocate addressed a notice to the Respondent Company and its guarantors placing on record all the facts and called upon the Respondent Company to honour its obligations under the deal confirmation. It is pertinent to note that in this letter, specific references have been made to the letters dated 20 May, 2009 and 22 July, 2009 which the Respondent Company now seeks to disown. A reference to these letters can be found in paragraph 4 (page 142 of .....

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um 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 t .....

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I heard this Petition, all the options have expired (namely options 10, 11 & 12) and no payments thereunder have been made by the Respondent Company to the Petitioner - Bank. (t) For the sake of completeness, I must also mention here that to recover its dues under the very same transaction as pleaded in the Company Petition, the Petitioner - Bank has also filed an Original Application before the Debts Recovery Tribunal at Ahmedabad ( DRT ), being Original Application No.163 of 2012 and whic .....

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tion was entered into on 26 June, 2008. Under the said deal confirmation it was agreed between the parties that if on the expiry date of the relevant option the US Dollar was traded at a rate higher than ₹ 43.15 then the Respondent Company would to either deliver US$800,000 to the Petitioner Bank at the rate of ₹ 43.15 per US Dollar or pay the difference between the US Dollar rate on the date of the expiry of the option and the strike price agreed to between the parties, namely ͅ .....

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77; 43.15. Since the Respondent - Company failed to do either, the present Company Petition has been filed seeking to wind up the Respondent Company on the ground that it is unable to pay its debts. 5. According to Mr Kamdin, this liability of the Respondent Company arises on account of the contract entered into between the parties and was payable as per the terms of the contract. He submitted that as per the Risk Disclosure Statement executed by the Respondent (Page 73 of the paperbook), the de .....

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rticularly 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 .....

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case, there was no liability on the Respondent Company to make payment of any amount whatsoever under the aforesaid Deal Confirmation dated 26 June, 2008; (ii) in any event, the Deal Confirmation dated 26 June, 2008 does not caste any obligation on the Respondent Company to make any payment. Under the Deal Confirmation, if the US Dollar traded above ₹ 43.15 per Dollar, then, the Respondent Company was to sell US$800,000 to the Petitioner at the price of ₹ 43.15 per US Dollar. If the .....

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0 of the Contract Act, 1872; (iii) the claim made in the present 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, the Company Petition could not be maintained on the basis of a claim in damages; (iv) 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 .....

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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 rai .....

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to 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 aforesaid submissions. As noted earlier, under the Deal Confirmation, it was agreed between the parties that any time after six months from the trade date (25 June, 2008) till the expiry / maturity of the deal, if negative MTM of the options transaction exceeded ₹ 5 Crores, the Petitioner Bank would be entitled to make a ma .....

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ll citing the reason that due to cash constraint, global slow down in the market and prior business commitments, the Respondent Company was unable to cater to the margin call made by the Petitioner Bank. However, in this very letter, the Respondent Company expressed its intention to continue with the options transaction (as set out in the Deal Confirmation) and committed itself to clearing all the dues and outstandings on the relevant expiry / settlement dates as set out in the Deal Confirmation .....

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tion dated 26 June, 2008 and represented to the Petitioner Bank not to insist on any margin call as they would honour their commitments under the Deal Confirmation on the relevant expiry/ settlement dates of the options. In view of these two categorical letters, I am unable to accept the submissions of Mr Cama that the Deal Confirmation dated 26 June, 2008 was entered into only to accommodate the Petitioner Bank to square off the old transactions entered into by the Respondent Bank with CBOP and .....

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ge 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 resolutio .....

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exchanged with reference to that very transaction, was not signed by a person authorized to do so. I, therefore, find that the reliance placed by Mr Cama on the board resolution to further this argument is wholly misplaced. Secondly, I find that the Deal Confirmation dated 26 June, 2008 (Exh K to the Petition), apart from being signed by a person authorized by the board resolution dated 14 November, 2007, is also signed by the gentleman who has signed the letter dated 20 May, 2009. The Deal Con .....

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the submissions of Mr. Cama. As noted earlier, since the incident of negative MTM took place on 26 December, 2008, the Petitioner vide their letters dated 30 December, 2008 as well as 13 May, 2009 issued a margin call in terms of the Deal Confirmation. Thereafter, by several other letters dated 15 July, 2009; 6 July, 2010; 5 August, 2010; 1 September, 2010 and 14 March, 2012 issued further margin calls on the Respondent Company in terms of the Deal Confirmation. Even if I were to ignore the let .....

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ll in the margin, would have immediately replied to the same and refuted the entire transaction thereby denying that any margin shortfall ought to have been made up 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 Respon .....

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tioner 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 date of the expiry of the relevant option, if the US Dollar traded above ₹ 43.15, then the Respondent Company was to sell US$800,00 .....

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hat any derivative transactions, essentially of the nature like in the present case, the market practice is that when there is no delivery, there is a nett cash settlement. In fact the Risk Disclosure Statement executed by the Respondent Company (at page 73 of the paper book ) itself contemplates that the deal can be settled either by a cash settlement or the purchaser of the option acquiring or delivering the underline asset. The relevant portion of the said Risk Disclosure Agreement reads as u .....

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of the Master Circular No./6/2007-08 dated 2 July, 2007, (which deals with Foreign Currency - Rupee Options) states as under: g) Option contracts may 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. In case of unwinding of a transaction prior to maturity, the contract may be cash settled based on the market value of an identical offsetting option. (emphasis supplied) 16. In fact, the Deal Confirmation dated 2 .....

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ncy 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 o .....

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ere to be settled either by delivery of the US Dollars or by a nett cash settlement. This being the position, I have no hesitation in rejecting this argument. 18. As far as the argument of Mr Cama on this contract being a wagering contract is concerned, I find this argument to be without any basis. The issue whether a transaction like in the present case, is a wagering contract has been dealt with extensively in a leading decision of the Madras High Court in the case of Rajshree Sugars & Che .....

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a USD-CHF (U.S.Dollar- Swiss Franc) Option Structure, entered into by the Plaintiff with UTI Bank. The structure of the said deal was as follows: (i) The plaintiff would receive USD 100,000 on 23.6.2008 if spot never trades at 1.2385 from trade date namely, 22.6.2007 till fixing date 1 namely, 19.6.2008. (ii) During the reference period from 22.6.2007 to 19.6.2008, if USD-CHF never touches 1.1250 and 1.2385 and if it ever touches 1.2385, there is no exchange of principal, but if it ever touches .....

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009, then the entire structure gets knocked out with no subsequent liability and the plaintiff would receive USD 100,000 on the spot date of touch. However if spot touches 1.2325, then the plaintiff would receive instant payment of USD 100,000, though the structure will not get knocked 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 .....

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7 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 Madras High Court (at p .....

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r contention of the plaintiff that since there was no underlying exposure, the contract was, per se, speculative and a wagering contract, hit by Section 30 of the Contract Act. Therefore, it is necessary to analyse whether the contract in question is hit by Section 23 and/or Section 30 of the Contract Act. 54. Though the Indian Contract Act, 1872 defines a Contingent Contract under Section 31, it does not define what a Wagering Contract is. But the consequences of a Wagering Contract are indicat .....

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, made or entered into for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse-race. In Carlill v. Carbolic Smoke Ball Co., 1892 (2) Q.B. 484, 490, Hawkins J., defined a wager as follows: A wagering contract is one by which two persons professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent upon the determination of that event, one shall w .....

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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 .....

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or paid for, on the settlement day, but that on that day, one party should pay to the other, the difference between the market price on that day and the price on the day of the contract. Thus where a series of contracts for the sale and purchase of shares gave the buyer an option to demand delivery on payment of an extra sum, it was held that they were wagers, since it was only if the option was exercised that they would become genuine transactions of sale and purchase. But if one party to the t .....

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d purchases of stocks and shares are not wagering transactions unless there is an agreement between the parties to them that they shall not be actually carried out but shall end only in the payment of differences. If there is an agreement to this effect, the transaction will be a wager notwithstanding the fact that the ostensible terms of business give a right to insist on delivery (Chitty on Contracts, Volume II − 29th Edition Page 1119). 57. Until the enactment of the Gaming Act, 1845, w .....

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ts. For example, contracts for differences or bets on stock market indices, City Index Ltd. v. Leslie, 1992 (1) Q.B. 92. 58. Though every wagering contract is speculative in nature, every speculation need not necessarily be a wager. In Bhagwandas Parasram v. Burjori Ruttonji Bomanji, AIR 1917 PC 101, it was held that speculation does not necessarily involve a contract by way of wager and that to constitute a Wagering Contract, a common intention to wager is essential. It was further held therein .....

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smail 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 .....

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cuments show an ordinary commercial transaction, and, in conformity with them, one of the parties incurs personal obligations on a genuine transaction with third parties so that he himself is not a winner or loser by the alteration of price, but can only benefit by his commission, the inference of betting is irresistibly destroyed. In such cases the fact that no delivery is required or tendered is of practically no value. 20. Thereafter, applying the aforesaid principles, the Madras High Court e .....

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to seek actual delivery. In other words, the performance of the contract can always be compelled by the Petitioner insisting on actual delivery of US$ 800,000 on the expiry of the relevant option, provided the US Dollar, on the date of expiry / maturity, traded higher than ₹ 43.15. If actual delivery can be compelled, then this particular contract can never be termed as wagering contract. In any event, the records do not show or in any manner indicate any intention between the Petitioner B .....

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nvassed 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 un .....

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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 Confirmation dated 26 June, 2008. The options mentioned in this Deal Confirmation could be settled by two methods. The first method was the actual delivery of US$800,000 on the date of expiry of the relevant option. If this was not done, then the same had to be settled on a nett cash settlement basis. Since admitte .....

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parties dated 26 June, 2008. I am therefore unimpressed with the argument of Mr Cama that the claim of the Petitioner is one in damages. If I was to accept the submission of Mr Cama that the present claim made by the Petitioner under the option transactions entered into with the Respondent Company is in damages, then effectively, non-fulfillment of all derivative transactions, would be a claim in damages. I am unable to accept this submission. In fact, the Madras High Court in the case of Rajsh .....

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cludes any liability claimed as due from any person, by a Bank, during the course of any business activity undertaken by the Bank. Therefore, if the claim of the Bank has arisen during the course of any business activity undertaken by the Bank, then the amount so claimed by the Bank would certainly come within the meaning of the word debt as defined in Section 2(g). Section 6(1) of the Banking Regulation Act, 1949, enables a Banking Company to engage in any one or more of the forms of business e .....

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rtaken 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 provi .....

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m by the Bank, the Bank has to go before the Debts Recovery Tribunal. 23. This being the position, I am unable to accept the submission of Mr Cama that the present claim is in the nature of damages and therefore the present Company Petition would not be maintainable. 24. As far as the decisions relied upon by Mr Cama are concerned, there is no dispute with the propositions laid down therein. In Raman Iron Foundry AIR 1974 SC 1265 the Supreme Court inter alia held that the law is well settled tha .....

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of any existing obligation on the part of the person who has committed the breach, but the party complaining of the breach gets compensation as a result of the fiat of the Court. I fail to understand how this judgment can be of any assistance to Mr Cama in the facts of the present case. As elaborated earlier, the claim made in the present case, in my opinion, is not one that is in damages. The pecuniary liability incurred by the Respondent Company and claimed in this Petition, is under the opti .....

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26 (Bom) as wholly misplaced. The facts of this case would reveal that the Company Petition was filed admittedly on the basis of a claim for liquidated damages. 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 dispu .....

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ank, 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 of the e-mails that have been sent by the Petitioner Bank to the Respondent Company on the expiry of the relevant options, a specific US Dollar rat .....

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s that on the date of each of the expiry of options the US Dollar rate was far greater than ₹ 43.15 per US Dollar. This would clearly show that even if one were to go by the US Dollar rates as handed over by Mr Cama, huge outstandings are due and payable by the Respondent company to the Petitioner which would entitle the Petitioner to an order of admission of this Petition. In this regard, it would be apposite to refer to a decision of the Supreme Court in the case of Madhusudan Gordhandas .....

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urt will make a winding up order without requiring the creditor to quantify the debt precisely See Re Tweeds Garages Ltd.[1962 Ch 406] The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. (emphasis supplied) 27. As clearly stipulated by the Supreme Court, once there is no doubt th .....

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he 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 .....

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r who is admittedly owed moneys which have not been paid merely because there is a dispute as to the precise amount owing. 8. Almost to the same effect are the observations in Cardiff Preserved Coal and Coke Company v. Norton, [(1866-1867) 2 Law Reports Chancery Appeals 405.]. A contention had been advanced before the appellate Court that the winding-up order which was being considered was bad because the creditor had demanded a sum of £628, and it appeared that he was entitled only to &po .....

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lcutta High Court in Ofu Lynx Ltd. v. Simon Carves India Ltd. [AIR 1970 Cal. 418.] The learned Single Judge was considering the validity of a notice under section 434 of the companies Act, 1956, and the contention raised was that the notice must be deemed to be bad because a portion of the claim in respect of which notice had been given was disputed and prima facie the dispute was required to be upheld. It was observed: I, therefore, hold that notice under section 434 of the Companies Act, 1956 .....

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clearly bad and order required to be set aside. Merely because there could be a serious dispute as to the liability to pay interest at all or at the rate of 18% would not render the statutory notice invalid or result in a dismissal of the winding-up petition. The Company Judge was required to consider the claim of the 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 genui .....

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on 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 .....

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in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries, (1972) 42 Comp Cases 125: Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. The Court has dismissed a petition for winding-up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corpn. .....

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company owes the creditor a debt entitling him to a winding- up order but the exact amount of the debt is disputed the Court will make a winding-up order without requiring the creditor to quantify the debt precisely. (See Tweeds Garages 9. In United Western Bank Ltd.'s case, (1978) 48 Companies Cases 378 (Bom), Kania, J. (as he then was) observed that when the defence is that the debt is disputed, the Court has to see first whether the dispute on the face of it is genuine or merely a cloak t .....

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or 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 ca .....

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service charges. When a part of claim made by the creditor is seriously disputed but the remaining portion is prima facie appear to exceed the limit of ₹ 500/- indicated in section 434 of the Act, it would be unjust to refuse wind up order on the ground that there is dispute as to precise amount owned.In re Tweeds Garages Ltd., (1962) 1 Ch. 406: it was clearly held that it would be unjust to refuse a winding up order to the petitioner who has admittedly owned moneys which have not been pa .....

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ision Bench of this Court in Pfizer Ltd. v. Usan Laboratories P. Ltd., 1985 Mh. L.J. 554 : 1985 (57) Comp Cas 236. Therefore, merely because a part of the claim was disputed by the company, the defence cannot be said to be legitimate and bona fide. (emphasis supplied) 29. In view of this clear enunciation of the law, I find that the argument made by Mr Cama is misconceived. As stated earlier, even if one goes by the US Dollar rates as given by Mr. Cama, (which range from approximately ₹ 53 .....

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eal confirmation which was not duly stamped. In other words, it was the case of Mr Cama that there is a variance between the two Deal Confirmations and which would give rise to a bonafide dispute and hence a bonafide defence to the winding up petition. 31. To my mind, this argument is made only to be rejected. I have carefully gone through the deal confirmation annexed at Exh.'K' to the Petition (page 84 of the paper-book) as well as Exh.'F' to the affidavit in rejoinder dated 24 .....

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riance 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 w .....

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