2016 (7) TMI 1155 - HC - Companies Law

Court dismisses appeal, orders Cheran Enterprises to remit Rs. 35,30,46,482 to Canara Bank. Trust, restitution, unjust enrichment principles upheld.

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

Cheran Enterprises Pvt. Ltd. Versus Data Access India Ltd. And Ors. - TMI Issues Involved:1. Obligation to remit funds as per previous court order.2. Winding-up petition and appointment of Provisional Liquidator.3. Financing and secured creditor claims by Canara Bank.4. Alleged unauthorized transfer of funds and subsequent legal actions.5. Compliance with RBI regulations and tracing of funds.6. Legal principles of trust, restitution, and unjust enrichment.7. Impact of income tax proceedings and Company Law Board orders on the case.8. Jurisdictional and procedural challenges in related legal proceedings.Detailed Analysis:1. Obligation to Remit Funds:The appellant, Cheran Enterprises Pvt. Ltd. (CEPL), appealed against a judgment dismissing their applications to relieve them from remitting Rs. 35,30,46,482/- with ABN Amro as per a previous order. The court had directed CEPL to remit the amount back to the account of Data Access India Ltd. (DAIL) maintained with ABN Amro Bank, which was to be transferred to Canara Bank due to its secured creditor status.2. Winding-up Petition and Appointment of Provisional Liquidator:The winding-up petition filed by Pacific Convergence Corporation Ltd. against DAIL under Section 433(e) read with 434 of the Companies Act was admitted, resulting in the appointment of a Provisional Liquidator. The court found that DAIL had lost its substratum, was not engaging in business activities, and had no prospect of revival, justifying the winding-up.3. Financing and Secured Creditor Claims by Canara Bank:Canara Bank, as a secured creditor, had financed DAIL’s business and claimed a lien over all of DAIL’s book debts. DAIL had executed a Deed of Hypothecation in favor of Canara Bank. The bank initiated proceedings before the Debts Recovery Tribunal and claimed that the funds received from Data Access America Inc. (DAAI) were subject to its lien.4. Alleged Unauthorized Transfer of Funds and Subsequent Legal Actions:The court observed that funds received in DAIL's account with ABN Amro were transferred to various accounts, including CEPL’s, which was contested by Canara Bank. The court found that the transfer of funds was an attempt to place them beyond the reach of creditors, specifically Canara Bank. The court confirmed the interim order restraining the transfer of these funds and directed their return to DAIL’s account.5. Compliance with RBI Regulations and Tracing of Funds:The court noted that no permission from the RBI was obtained for the foreign exchange transaction, which was required if the funds were to be considered a loan from DAAI to DAIL. The court relied on the principle of tracing and restitution, emphasizing that the funds should be returned to Canara Bank, which had a legitimate claim over them.6. Legal Principles of Trust, Restitution, and Unjust Enrichment:The court applied the principles of trust and restitution, citing several legal precedents. It held that the funds held by DAIL were trust money and could not be intermingled with other funds. The court emphasized that unjust enrichment must be restituted, and the funds should be returned to Canara Bank.7. Impact of Income Tax Proceedings and Company Law Board Orders on the Case:The court dismissed the appellant’s argument that subsequent income tax proceedings and Company Law Board orders should affect the previous judgment. It held that these proceedings did not undermine the basis of the previous judgment, which had attained finality and required compliance.8. Jurisdictional and Procedural Challenges in Related Legal Proceedings:The court addressed various jurisdictional and procedural challenges raised by the appellant, including the significance of orders from the Madras High Court and the Company Law Board. It held that these orders did not negate the effect of the previous judgment, which had been upheld by the Division Bench.Conclusion:The appeal was dismissed, and the court directed CEPL and related entities to comply with the previous order by remitting the funds to Canara Bank. The court emphasized the importance of adhering to legal principles of trust, restitution, and unjust enrichment, and rejected the appellant’s arguments based on subsequent legal proceedings.