2009 (3) TMI 573 - HC - Companies Law

Court orders respondent to pay Rs. 4 crores trade deposit, dismisses fraud claims.

The court determined that the respondent company was obligated to pay the petitioner a sum of Rs. 4 crores, established as a trade deposit. Allegations of ... Trade deposit versus security deposit - ability to pay debts - bona fide dispute - statutory notice under section 434 - interest on debt - winding up petition and deposit orderTrade deposit versus security deposit - undertaking to refund by instalments - The sums advanced by the petitioner to the company totalling Rs. 4 crores constituted an interest free trade deposit (advance) and not a security deposit. - HELD THAT: - The Court relied on the letters sent by the company which expressly requested the petitioner to place interest free trade deposits to tide over working capital requirements and to be refunded within specified periods. Those communications, being the company's own statements, contradicted the company's later contention that the amounts were security deposits. The company furnished no explanation to counter what it had itself written. A subsequent letter of the company undertaking refund of the deposit in 48 equal monthly instalments commencing after twelve months further established the character of the transaction as a trade deposit repayable by the company. Having regard to these documents and the undisputed receipts, the petitioner's case that the amounts were advanced as a trade deposit was held to be clearly established. [Paras 7, 8]The Court held the advances to be trade deposits repayable by the company.Bona fide dispute - investigative audit report - There was no bona fide dispute to defeat the petitioner's claim in respect of the Rs. 4 crores trade deposit. - HELD THAT: - The company's allegations of large fraudulent over recovery by the petitioner were not supported by contemporaneous particulars or reliable material. The purported basis for those allegations post dated the statutory notice and the audit said to support them was prepared much later, was based on limited records, contained hypothetical observations and did not quantify the alleged claims. The Court observed that allowing unparticularised and belated allegations to be pleaded at this stage would render the statutory winding up provisions ineffective. The undisputed receipt by the company and its failure to establish a genuine factual defence meant there was no bona fide dispute as to the obligation to repay the trade deposit. [Paras 15, 16, 17, 21, 28]The Court found no bona fide dispute capable of defeating the petitioner's claim for repayment of the trade deposit.Interest on debt - particulars of claim - The petitioner was entitled to interest but only from the date claimed in the particulars of claim tendered with the petition. - HELD THAT: - Although the company would have been liable for interest from the date of the first statutory notice, the petition's particulars claimed interest from a later date. The Court therefore restricted the award of interest to the date from which it was expressly claimed in Exhibit 'A' to the petition. [Paras 28]Interest awarded limited to the period claimed in the petition's particulars (from 7 5 2008).Winding up petition and deposit order - transfer to pending suit - The winding up petition would be admitted unless the company deposited the adjudicated amount by a specified date; if deposited, the sum would be transferred to the petitioner's pending suit. - HELD THAT: - The Court directed that if the company deposited the specified amount on or before the date ordered, the funds would be transferred to the credit of the petitioner's suit in the City Civil Court at Bangalore and an application for investment could be made in that suit. Failure to deposit would result in admission of the petition and publication of the winding up notice; ancillary directions regarding a deposit by the petitioner in the event of default were also given. [Paras 29]Company ordered to deposit the specified amount by the stated date failing which the petition shall be admitted and advertised; if deposited, funds to be transferred to the pending suit.Final Conclusion: The High Court held that the Rs. 4 crores advanced to the company were trade deposits repayable by the company, found no bona fide dispute capable of defeating the petitioner's claim in respect of that deposit, awarded interest limited to the period pleaded in the petition's particulars, and directed the company to deposit the adjudicated amount by the stipulated date failing which the winding up petition would be admitted (with provision for transfer of deposited funds to the pending suit if payment is made). Issues Involved:1. Whether the respondent company is unable to pay its debts.2. Whether the sum of Rs. 4 crores was paid as a trade deposit or a security deposit.3. Whether there are bona fide disputes between the petitioner and the respondent company regarding the alleged fraudulent activities and overcharges by the petitioner.4. Whether the filing of a suit by the petitioner affects the winding-up petition.5. Whether the respondent company's allegations of fraud and overcharging are substantiated.Detailed Analysis:1. Whether the respondent company is unable to pay its debts:The petitioner sought an order to wind up the respondent company on the grounds of its inability to pay debts, specifically a sum of Rs. 4,21,00,000. The respondent did not dispute the payment of Rs. 4 crores by the petitioner but argued it was a security deposit, not a trade deposit. The court found that the respondent's letters and other documents clearly established that the amount was a trade deposit, not a security deposit, and the company had agreed to refund this amount within twelve months.2. Whether the sum of Rs. 4 crores was paid as a trade deposit or a security deposit:The court examined the circumstances and manner of payment. Letters from the respondent to the petitioner referred to the amounts as 'unsecured interest-free trade deposits' meant to assist the company in procuring molasses and meeting liabilities. These letters contradicted the respondent's claim that the amounts were security deposits. The court concluded that the petitioner's case of the amounts being advanced as trade deposits was clearly established.3. Whether there are bona fide disputes between the petitioner and the respondent company regarding the alleged fraudulent activities and overcharges by the petitioner:The respondent alleged that the petitioner had fraudulently overcharged and duped the company, causing significant financial loss. However, these allegations lacked substantiation and were raised only after the petitioner issued a statutory notice. The court noted the absence of supporting documents and particulars regarding how and when the company discovered the alleged fraud. An audit report prepared by the respondent's chartered accountants was found to be based on limited details and did not inspire confidence. The court found these allegations to be unsubstantiated and likely raised to deny the petitioner's claim.4. Whether the filing of a suit by the petitioner affects the winding-up petition:The respondent argued that the petitioner's earlier filing of a suit to recover the amounts indicated bona fide disputes. The court disagreed, stating that filing a suit does not imply an admission of bona fide disputes. It is common for parties to file suits to protect their claims from being barred by limitation. The court held that the filing of a suit does not affect the winding-up petition.5. Whether the respondent company's allegations of fraud and overcharging are substantiated:The court found no evidence to support the respondent's allegations of fraud and overcharging by the petitioner. The audit report relied upon by the respondent was prepared by its own chartered accountants and lacked independent verification. The report's findings were based on limited documentation and hypothetical scenarios. The court noted that the respondent had not taken any action against its internal and statutory auditors for failing to detect the alleged fraudulent activities, further weakening the credibility of these allegations.Conclusion:The court concluded that there was no bona fide dispute regarding the sum of Rs. 4 crores, which was established as a trade deposit. The respondent's allegations of fraud and overcharging were unsubstantiated and appeared to be raised to deny the petitioner's claim. The court ordered the respondent to deposit Rs. 4,21,00,000 by a specified date, failing which the winding-up petition would be admitted and advertised.