TMI Blog2013 (1) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent company. It is the case of the petitioner firm that the respondent company entered into a trade contract with it under letter dated 08.04.2010, whereby it agreed to pay 1% on its net turnover (excluding taxes, duties, etc.) towards charges for the services rendered by it to the company. These services allegedly pertained to dealing with trade, import/export of pharmaceutical intermediaries, chemicals and allied products/services. The petitioner firm claims that, pursuant to the letter dated 08.04.2010, it had provided services to the respondent company by procuring raw-materials and selling the products of the company. These services were said to have been provided till 31.03.2011. The respondent company, by letter dated 09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearance for the respondent company and filed a counter. Apart from other aspects raised therein on the merits of the matter, the crucial issue highlighted in the counter is that three out of the four partners of the petitioner firm, viz., Sri. R. Muralidhar, Smt. V. Srilakshmi and Dr. K. Sridhar, served as the whole time Technical Director, Finance Director and Executive Director respectively of the respondent company at the relevant point of time. They were stated to have worked for the respondent company in that capacity during the financial year 2010-11. Pertinent to note, the Managing Partner of the petitioner firm, Smt. Rambathri Hema, is the wife of Sri. R. Muralidhar, the whole time Technical Director of the respondent company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 297(1) further states that in the case of a company having a paid up share capital of not less than Rupees One Crore, no such contract shall be entered into except with the previous approval of the Central Government. 6. In the present case, the issued, subscribed and paid up share capital of the respondent company was ₹ 15,00,00,000/- during the financial year 2010-11, as is evident from its audited balance sheet. Therefore, not only was the prior consent of the Board of Directors required but the previous approval of the Central Government was also mandatory. Admittedly, both these requirements were not complied with in so far as the subject contract is concerned. 7. Dr. P. Bhaskara Mohan, learned counsel, fairly conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined from the Board within three months of the entering into the contract. Further, as the paid up share capital of the respondent company is far in excess of Rupees One Crore, the proviso to Section 297(1) of the Act of 1956 would be attracted and the previous approval of the Central Government becomes essential to validate the contract. This being the case, Section 297(5) of the Act of 1956 would not come to the rescue of this contract. Had it been a case of mere failure to obtain the consent of the Board of Directors, the petitioner firm may perhaps have relied upon Section 297(5) of the Act of 1956. But in the light of the application of the proviso to Section 297(1) of the Act of 1956 to the case on hand, the previous approval of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of the Act or of any condition, limitation or restriction, which formed the basis of any approval or sanction given or granted in relation to any matter, would constitute an independent offence for which provision is made under Section 629-A, in the event such contravention is not penalized elsewhere in the Act. This provision does not have the effect of wiping out the illegality of the contravening action. It is only supplementary in nature and visits penal consequences on the offender. The explicit language used in Section 297(1) proviso that no such contract as detailed in Section 297(1) 'shall' be entered into except with the previous approval of the Central Government, in the event the paid-up share capital of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 434 of the Act of 1956, the petitioner must establish that the debt alleged against the company is a debt which is legally recoverable. It was further held that if the remedy of the creditor was barred under any law it would render the debt unrecoverable and the same could not be considered a 'debt' for the purpose of a company petition for winding up under Section 434 of the Act of 1956. 12. Viewed thus, the very foundation of this company petition stands demolished as the debt claimed by the petitioner firm as due and payable by the respondent company is rendered illegal owing to contravention of the proviso to Section 297(1) of the Act of 1956. The company petition filed for winding up of the respondent company on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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