2017 (12) TMI 636 - HC - Law of Competition

Court Upholds Order for Payment in Guar Seeds Dispute, Dismisses Unsubstantiated Appeals.

The appellate court dismissed the appeals, concluding that the Respondent's defenses were neither bona fide nor substantial. It upheld the learned Single ... Petition for winding up - statutory demand / deposit pursuant to company petition - burden of proof - bonafide defence - acceptance by conduct - evidentiary value of a preliminary DG CCI report - exercise of discretion on appealPetition for winding up - statutory demand / deposit pursuant to company petition - burden of proof - bonafide defence - Validity of the Single Judge's direction requiring the respondent to deposit the advances claimed in statutory notices as a term of disposing the company petitions - HELD THAT: - The Court examined whether the Single Judge was justified in directing deposit where petitioners produced signed sales confirmation notes and bank evidence of advances, and the respondent raised a defence that the advances were for different contracts but failed to produce the alleged alternate (Guar Seeds) contracts or other cogent material before the Single Judge. The Division Bench accepted the learned Single Judge's prima facie view that once the petitioners discharged the initial burden by producing the contracts and proof of payment, the onus shifted to the respondent to show a genuine, substantial defence. The respondent's bare denials, unexplained discrepancies and failure to produce the foundational documents for its defence were held to be not bonafide or plausible, justifying the imposition of terms (deposit) to protect the petitioners' claim pending further suit or proceedings. The court treated the Single Judge's exercise of discretion as a reasonably possible view on the material placed before it and declined to substitute its discretion. [Paras 8, 12, 14, 25]The direction to deposit the amounts claimed in the statutory notices was sustained as justified on the record and the respondent's defences were not accepted as bona fide.Acceptance by conduct - burden of proof - Whether the petitioners' payments constituted acceptance of the contracts for Soyabean Meal - HELD THAT: - The Court held that the petitioners' payment of 50% of the contract price by way of advances, together with contracts bearing the respondent's signature and rubber stamp, amounted to acceptance by conduct in terms of the contract law principle relied upon. That fact reinforced the petitioners' initial burden being discharged and militated against the respondent's contention that no Soyabean Meal contracts existed. [Paras 14, 21]The advances constituted acceptance by conduct and supported the petitioners' case that contractual liability existed.Evidentiary value of a preliminary DG CCI report - Evidentiary weight to be accorded to the DG CCI preliminary inquiry report relied upon by the respondent - HELD THAT: - The Court observed that the DG CCI report arose from a preliminary fact finding inquiry under the Competition Act and was largely based on bank statements without the benefit of the contracts, emails and admissions available to the Court. Applying the principle that such preliminary reports are not evidence unless produced and tested, the Division Bench held that no independent evidentiary value could be attached to the DG CCI findings for determining the inter se dispute between the parties. [Paras 18, 19]The DG CCI preliminary report did not advance the respondent's case and could not be treated as evidence to defeat the petitioners' claim.Exercise of discretion on appeal - Whether the appellate court should interfere with the Single Judge's exercise of discretion in directing deposit - HELD THAT: - The Bench applied the settled principle that an appellate court will not disturb a discretionary order unless shown to be arbitrary, capricious or perverse. Finding that the Single Judge's conclusion was a reasonably possible view on the material (signed contracts, bank evidence, respondent's failure to produce alleged alternate contracts and admissions of advances in respondent's books), the appellate court declined to substitute its discretion merely because it might have reached a different conclusion. [Paras 24, 25]No interference with the Single Judge's exercise of discretion; the appeals were dismissed.Final Conclusion: The Division Bench dismissed the appeals and upheld the Single Judge's directions that the respondent deposit the sums claimed in the statutory notices; the respondent's defence that the advances related to different contracts was found not to be bona fide, the DG CCI preliminary report was held not to be evidence for the inter se dispute, and the Single Judge's discretionary order was not interfered with. Issues Involved:1. Whether the learned Single Judge erred in directing the Respondent to deposit the amounts claimed in the statutory notices.2. Whether the Respondent's defense that the contracts were for Guar Seeds and not Soyabean Meal is bona fide and plausible.3. Whether the Respondent's failure to produce the alleged Guar Seeds contracts impacts the case.4. The relevance and evidentiary value of the DG CCI report.5. The impact of commercial solvency on the winding-up petition.6. Whether the appellate court should interfere with the exercise of discretion by the learned Single Judge.Detailed Analysis:1. Direction to Deposit Amounts:The learned Single Judge directed the Respondent to deposit the amounts claimed in the statutory notices due to the Respondent's failure to provide a bona fide and plausible defense. The Respondent's primary defense was that the contracts were for Guar Seeds, not Soyabean Meal, but they failed to produce any Guar Seeds contracts. The Petitioner, on the other hand, provided emails and bank statements evidencing the payment of Rs. 51,00,00,000 as an advance for Soyabean Meal. The learned Single Judge found the Respondent's defense lacking in substance and shifted the burden of proof to the Respondent, which they failed to discharge.2. Defense of Guar Seeds Contracts:The Respondent claimed that the advances were for Guar Seeds, not Soyabean Meal. However, they did not produce the alleged Guar Seeds contracts before the learned Single Judge or in the Review Petition or the instant Appeal. The Petitioner provided emails with attached Soyabean Meal contracts bearing the Respondent's signature and rubber stamp. The learned Single Judge found the Respondent's denial of the authenticity of these emails and contracts to be bare and without particulars. The Respondent's failure to produce any evidence of Guar Seeds contracts significantly weakened their defense.3. Failure to Produce Guar Seeds Contracts:The Respondent's inability to produce the alleged Guar Seeds contracts was a critical factor. The Petitioner had discharged their initial burden by providing evidence of the Soyabean Meal contracts and payments. The Respondent's failure to produce the Guar Seeds contracts or any correspondence related to them further undermined their defense. The learned Single Judge noted that the amounts paid by the Petitioners were shown as advances in the Respondent's accounts, contradicting the Respondent's claim that these were for Guar Seeds.4. DG CCI Report:The Respondent relied heavily on the DG CCI report, which suggested that the advances were for Guar Seeds. However, the court found that the DG CCI's investigation was a preliminary fact-finding inquiry and not a quasi-judicial proceeding. The DG CCI's findings were based solely on bank statements and did not consider the material facts necessary to determine the inter se disputes between the parties. The court held that the DG CCI report had no evidentiary value in this context, citing the Supreme Court's judgment in Raymond Woollen Mills Ltd. v. Director General (Investigation and Registration).5. Commercial Solvency:The Respondent argued that their commercial solvency should prevent the winding-up petition. However, the court referred to the Supreme Court's judgments in M/s. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. and IBA Health (I) Pvt. Ltd. v. InforDrive Systems SDN, BHD, which held that mere ability to pay is not a defense if the debt is undisputed. The court found that the Respondent's solvency did not constitute a stand-alone ground to avoid the statutory demand.6. Appellate Court's Interference:The appellate court emphasized that it would not interfere with the exercise of discretion by the learned Single Judge unless it was shown to be arbitrary, capricious, or perverse. The court found that the learned Single Judge's view was a possible and reasonable one based on the material facts and circumstances. Therefore, the appellate court upheld the learned Single Judge's order, dismissing the appeals and related motions for stay.Conclusion:The appellate court dismissed the appeals, finding that the Respondent's defenses were not bona fide and lacked substance. The court upheld the learned Single Judge's direction for the Respondent to deposit the amounts claimed in the statutory notices, emphasizing that the Respondent failed to produce any evidence to support their defense of Guar Seeds contracts. The DG CCI report was deemed to have no evidentiary value, and the Respondent's commercial solvency did not constitute a sufficient ground to avoid the statutory demand. The appellate court affirmed the learned Single Judge's exercise of discretion as reasonable and justified.