2024 (7) TMI 1265 - HC - Companies Law

Petitioners lose investment release bid after failing FEMA compliance despite crystallized buy-back rights under Section 151 CPC

The Delhi HC dismissed petitioners' application seeking release of investment amount under Section 151 CPC. While petitioners' buy-back clause rights ... Seeking release of an amount under Section 151 of the Code of Civil Procedure, 1908 - right of the petitioners to seek refund of their investment in terms of the ‘buy-back’ clause in the contract - HELD THAT:- Although, there is merit in the plea advanced by the learned counsel for the applicants that the right of the petitioners to seek refund of their investment in terms of the ‘buy-back’ clause in the contract dated 04.04.2010 with the respondent company had crystallized on 24.04.2014, much before the winding up order was passed appointing a Provisional Liquidator on 22.07.2016. However, what turns the table against the petitioners is the fact that they neither furnished the requisite certificate from FEMA nor came out with the plea that such certificate was not required, and thereby evidently delaying the release of the amount deposited with the Registrar General of the High Court, on their own fault. It is manifest that the amount towards investment had been deposited with the Registrar General pursuant to the directions dated 24.04.2014, but the petitioners also failed to comply with the necessary formalities, and eventually waived their rights in lieu of placing a claim for the said amount before the Official Liquidator. The fact that no claim is lodged before the Official Liquidator is another story. Indeed, the amount is lying deposited in this Court out of the reach of the stakeholders. However, since much water has flown over the last ten years or so, the amount deposited should rather be utilised for satisfying the claims of the secured creditors. The amount, which has been deposited with the Registrar General, may be reclaimed by the Official Liquidator with accrued interest and the same may be brought within the corpus of the funds of the company (in liquidation) to be utilised for satisfaction of the claims of the secured stakeholders in accordance with law - Application dismissed. Issues:1. Release of amount under Section 151 of the Code of Civil Procedure, 1908.2. Interpretation of Developer-Anchor Option Agreement for commercial unit.3. Delay in release of amount due to FEMA requirements and service tax.4. Effect of winding up proceedings on the release of deposited amount.5. Claim for refund of investment and misguidance by previous counsel.6. Comparison with legal precedents regarding release of deposited amounts.Issue 1: Release of AmountThe petitioners sought release of an amount under Section 151 of the Code of Civil Procedure, 1908, based on an order dated 24.04.2014. The amount in question was Rs. 44,41,250/-, claimed by the petitioners as per a Developer-Anchor Option Agreement for a commercial unit in a Technology Park Project.Issue 2: Interpretation of AgreementThe Developer-Anchor Option Agreement allowed the petitioners to exercise the option to return the allotted unit and claim the specified amount. The agreement detailed the terms of investment, including the buy-back price and the procedure for exercising the buy-back option, which the petitioners followed by sending letters to the respondent company.Issue 3: Delay Due to FEMA and Service TaxThe delay in releasing the amount was attributed to potential issues under the Foreign Exchange Management Act (FEMA) and the recoverability of service tax. The respondent company was directed by the Court to deposit the amount, which was eventually done in two instalments after seeking more time.Issue 4: Effect of Winding Up ProceedingsWinding up proceedings against the respondent company, along with the appointment of a Provisional Liquidator, impacted the release of the deposited amount. The company petition was disposed of as withdrawn, and the parties were directed to place their claims before the Official Liquidator.Issue 5: Claim Refund and MisguidanceThe petitioners claimed they were misinformed and misguided by their previous counsel, leading to unawareness of the winding up proceedings. They argued that their claim for the amount was acknowledged earlier, and they were not informed about the need to file a claim before the Official Liquidator due to their counsel's conduct.Issue 6: Comparison with Legal PrecedentsThe judgment compared the case with legal precedents, including a Bombay High Court decision and a Supreme Court order, regarding the release of deposited amounts in the context of insolvency and liquidation proceedings. The court emphasized the need for compliance with formalities and timely actions to secure the release of amounts deposited with the Court.The Court dismissed the application for release of the amount, directing the Official Liquidator to reclaim the deposited amount with accrued interest for the satisfaction of secured creditors. The petitioners were granted thirty days to file their claim with the Official Liquidator, and any delay in filing the claim was condoned in the interest of justice.