TaxTMI 
TaxTMI 
2003 (12) TMI 331
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....he official liquidator has been directed to submit the statement of accounts and other necessary statements, within three months, and also to chalk out a plan for repayment of the creditors' dues in a just and reasonable manner. Further direction has been issued that Director, Central Bureau of Investigation and the Additional/Joint Directors, Central Bureau of Investigation stationed at Lucknow shall register a case for investigation and submit the report in accordance with law as the Company Judge found it to be a case of cheating and misappropriation of the public funds with evil designs and further large sums collected on behalf of M/s. Incan Mutual Fund Benefit Limited have been siphoned off by the Directors, by way of loans or otherwise. 2. The other set of Company Appeals challenging the order passed by the Company Judge filed by M/s. Incan Fertilizers and Chemicals Limited, arises out of the order dated 30-7-2003, by means of which permission was granted to the official liquidator to auction the property of M/s. Incan Fertilizers & Chemicals Ltd., which permission was objected by M/s. Incan Mutual Fund Benefit Ltd. on the ground that the said property belongs to M/s. Inc....
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....he Company Petition itself was not framed in accordance with Company (Court) Rules, in as much as the affidavit accompanying the petition was not in conformity with Rule 21 of the aforesaid rules; the Company petition was filed against Incan Group of Companies even though no such Company is in existence nor is registered under the Companies Act; and the Incan Fertilizers and Chemicals Limited was not at all impleaded as a party to the Company Petition. (d)The statutory notice under section 434 is not a notice either framed in accordance with the statutory provisions nor was addressed or served at the registered office of the Company. (e)Since the proceedings under section 186 of the Companies Act were pending before the Company Law Board, therefore, the winding up petition is not maintainable; and (f)Under the circumstances including the circumstance that under the order of the Company Law Board, a scheme was approved for repayment of the amount to the creditors and for implementing the scheme, effective steps were also taken, the winding up could not have been ordered as other modes were available for making the payment of the debts and winding up should not be resorted t....
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.... provisions of Chapter III-B of Reserve Bank of India Act and Chapter II of the Companies Act which chapter deals with winding up of the Company by the Court namely the cases in which the Company may be wound up by the Court. 9. The Reserve Bank of India Act, 1934 (Act No. 2 of 1934) was enacted by the Parliament for constituting the Reserve Bank of India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency any credit system of the country to its advantage. Chapter III-B of the Act, contains the provisions relating to non-banking institutions receiving deposits and financial institutions and the appellant Company is a non banking institution which term has been defined in section 45-I in the following manner: "non-banking institution" means a company, corporation or co-operative society. 10. Section 45-K invests the Reserve Bank of India with such power to collect information from non-banking institutions as to deposits and to give directions. The Bank at any time can direct any non-banking institution to furnish information asked for and can also issue directions either gener....
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....thing consistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 12. On the strength of the aforesaid non obstante clause in section 45-Q, a submission has been made that provisions of winding up of a Company by the Court as given in section 433 of the Companies Act, would stand abrogated as they stand superseded by virtue of the aforesaid provision of section 45-Q as against the provisions of Chapter III-B of the Act. According to the appellant, the winding up petition in the matter of the non-banking financial institution can be filed only by the Reserve Bank of India as given under section 45-MC on the grounds mentioned therein and not under section 433. Reliance has been placed upon the case of K.P. Chackochan v. Federal Bank [1989] Comp. Cas. 953 in support of the submission. The aforesaid case was not in relation to the non-banking financial institution but it related to a banking Company wherein the Kerala High Court held that a banking company can be wound up only under the provisions of Part III of the Banking Regulation Act, 1949, and not under section 433 read with the allied sections of the ....
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....hapter III-B of the Reserve Bank of India Act in relation to the right of the creditors to apply for winding up of a Company through Court under section 433 of the Companies Act. In the absence of any provision or any right being given to the creditor for moving the petition for winding up of the Company, under Chapter III-B of the Reserve Bank of India Act, the question of inconsistency is far from being attracted and if the interpretation given by the counsel is accepted, it would mean completely depriving a creditor from filing a Company Petition for winding up though case for winding up may be made out on the behest of the creditor. Such an interpretation would mean the divesting or deprivation of the statutory legal right of the creditor to ask for winding up of the Company wherein winding up can be ordered by the Court under any of the clauses (a ) to (f) mentioned in section 433. 16. The scope of section 45-QA cannot be enlarged beyond the limits for which it has been enacted Chapter III-B, undoubtedly would allow the creditors to have recourse to section 45-QA namely for asking the Company Law Board to order repayment of deposits but this would not in itself mean that th....
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....nother argument has been raised that the Reserve Bank of India Act being special Act, it would override the provisions of the general Act namely the Companies Act, 1956. Reference has been made to the case of Ram Krishna Verma v. State of UP AIR 1992 SC 1888. This was a case where the Apex Court held that 'by operation of section 98 of the Act, Chapter VI overrides Chapter V and other law and shall have effect notwithstanding anything inconsistent therewith contained in Chapter V or any other law for the time being in force or any instrument having effect by virtue of such law. The result in that even under the Act the existing scheme under the repealed Act or made under Chapter VI of the Act shall have overriding effect on Chapter V notwithstanding any right given to private operators in Chapter V of the Act. No corridor protection to private operators is permissible.' 22. The point in issue does not call for any further discussion on the principle that the provisions of the special Act override the general Act as the said principle would be attracted in a case where on the same subject-matter there may be two inconsistent or conflicting provisions under the Special Act as well....
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....Company Law Board as decree of the Civil Court, that would also not be a ground to reject the Company petition for winding up, more so in a case where the Company of its own is having no assets and that despite the scheme being framed and approved by the Company Law Board, the payment was not being made. In view of the fact that despite the scheme being approved by the Company Law Board, the payment is not made by the Company, the winding up of the Company can be ordered, as the Company would be said to be unable to pay its debts. In a case where no properties of the Company are available, and the Company had not taken any steps worth being effective for making the payment for a considerable period, despite the order of the Company Law Board, the Company Petition for winding up would not be either not maintainable nor it can be rejected on this ground. 26. The aforesaid argument further raises two points of consideration, one is the legal aspect of the defence taken by the appellant, namely, regarding the filing of the winding up petition after the Company Law Board has approved the scheme for repayment, and the other is the factual aspect in this regard which would differ from ....
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....Thereafter various dates were fixed by the Company Law Board in which the Company absented though representatives of the depositors and a large number of depositors attended the proceedings. The Company Law Board, therefore, after observing that due opportunity has been given to the company to make its submission on the suggestions given by the depositor but none is present on behalf of the Company and directors have also chosen to remain absent whereas large number of depositors are involved who have put in their hard earned money with the Company, found that the matter could not be allowed to be dragged. The Company Law Board on going through the revised scheme submitted by the Company and suggestions made by the Advocate on behalf of the depositors, and with a view to balance the interest of the Company and the depositors and also the public interest at large, ordered as follows : (i)The interest payable will be at the contracted rates up to the date of maturity and thereafter at the rate of 12.5 per cent per annum till the date of payment to be paid along with the last instalments in respect of all categories of deposits, after the date of maturity. (ii)All deposits upto ....
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....ation furnished by the Registrar of Companies, shall file an affidavit of undertaking that the aforesaid scheme shall be implemented without fail, to the Reserve Bank of India, Department of Supervision (Financial Companies), New Delhi within ten days from the receipt of the order, with a copy to Bench Officer, Company Law Board, Northern Region, New Delhi. The order of the Company Law Board is dated 31-8-99. 30. Despite the aforesaid order, the record reveals that not a single penny was paid nor any effective steps was taken by the Company or its Directors for making any payment to the depositors. Since the Company failed to make the repayment even as per the directions and the scheme and the Company did not take any interest in the proceedings nor the directors attended the proceedings despite themselves having come to the Board for getting the scheme approved for payment, the investors were well within their right to approach the Court for winding up of the Company on the ground that the Company has failed to make the payment and it is unable to pay its debts. 31. For allowing the winding up petition, it essentially requires that there are dues of the creditors against the....
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....r 15th May, 1999. 34. Despite the aforesaid assurance and proposal made, not a single penny was paid to any of depositors and even a petty amount of refund of Rs. 500 was not made. Since money of the depositors was not being paid and the Company admitted its liability in proceedings under section 45-QA which were taken suo motu by the Company Law Board, a scheme was formulated regarding the payment to the creditors with interest but the said scheme was also not followed nor was implemented by the Company. The Company having thus failed to make the payment on demand either on maturity of the deposit or under the scheme, it can safely be presumed that the Company was unable to pay its debts. 35. The order passed by the Company Law Board dated 31-8-1999 was not implemented for more than a period of one and half years despite the appointment of two Hon'ble Judges of High Court namely, Justice S.N. Sapra, reitred Judge Delhi High Court and thereafter Justice Ujagar Singh. 36. Manjit Singh Aujla, Chairman of the Incan Group of Companies and Director of M/s. Incan Mutual Fund Benefit Ltd. admitted that the Company mobilized the deposits from its members in accordance with the ter....
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....f the Company in the hands of other sister concerns. 41. The view taken by the Company Judge regarding conduct of the Company and its Director in collecting huge amount from the depositors and not paying it back, and deliberate attempt to misguide and mislead the depositors by giving false assurance of making repayment on future dates, coupled by the failure on the part of the Company to make payment as per the scheme approved by the Company Law Board, gave full jurisdiction to the Company Judge to entertain the petition for winding up and to order for winding up of the company. 42. So far the validity of the statutory notice under section 434 issued by the investors to the Company is concerned, we would like to observe at the outset that though we do not find any substantial defect in the notice so as to make it invalid, the invalidity of the notice even if any in the instant case, would not effect the order of the Company Judge allowing winding up of the Company. It is not being disputed by the learned counsel for the appellant that the issuance or service of notice under section 434 of the Companies Act is not a condition precedent for filing a winding up petition against ....
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....to the Managing Director of M/s. Incan Mutual Benefit Ltd. by advocate on behalf of his clients namely the registered association whose members had invested money in the aforesaid Company under different schemes. The notice gives total membership of the association as 43,432 who have invested an amount of Rs. 51.99 crores for which a certificate issued by the authorized signatory of the Company has also been annexed. In all there are three certificates attached therein mentioning the money invested by the members of the association in the Company which certificates have been annexed as Schedules-A, B and C to the notice. The certificates relate to Northern Region, Chandigarh, whose branches are located mainly in Punjab and Haryana and one branch in Himachal Pradesh, Jallandhar region comprising of offices in districts of Jallandhar, Kapurthala, Hoshiarpur, Nawanshar and Amritsar, and Ludhiana Region of Punjab. The three certificates were sent to the Managing Director of the Company alongwith the notice. The notice calls upon the addressee to make payment of the matured amount with interest at the earliest. 46. Making challenge to the aforesaid notice it has been stated that noti....
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....e is found to be addressed to the Managing Director and not to the Company, the same will not affect the merits of the present case, as even in the absence of statutory notice, the evidence on record was sufficient to order winding up of the Company. 48. Reliance has been placed on the case of Alliance Credit & Investments Ltd. v. Khaitan Hostombe Spinels Ltd. [1999] 95 Comp. Cas. 436 (All.) in support of his submissions that statutory notice if not served at the registered office but at the branch office, the benefit of deeming fiction under section 434 would not be available. Reliance has also been placed on the case of Paramjit Lal Badhwar v. Prem Spg. & Wvg. Mills Co. Ltd. [1986] 60 Comp. Cas. 420 (All.) in this regard. The case of B. Vishwanathan v. Seshasayee Paper & Board Ltd. [1992] 73 Comp. Cas. 136 (Mad.) was also cited. In this case the Court found that there was a bona fide dispute about the debt and that the notice was addressed only to the Managing Director and not to the Company. 49. In the case of Registrar of Cos. v. Navjivan Trading Finance (P.) Ltd. [1977] 48 Comp. Cas. 402 , the Gujarat High Court has observed that if on assessment of financial position of....
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.... scheme of the Company Law Board Company's failure to make the payments, the argument that the Company Judge erred in ordering winding up of the Company without giving any weight to the provisions of section 443(2) of the Companies Act, also has no substance. Section 443 deals with power of the Court on hearing petition. Sub-section (2) of section 443, which reads as under : '443(2) Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the Court may refuse to make any order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy'. This would be a consideration for the Company Judge where a petition for winding up has been presented on the ground that it is 'just and equitable' that the Company should be wound up. 54. Section 433 gives six circumstances, namely (a) to (f ) which give power to the Court to order winding up of the Company if any one or more circumstances mentioned in the aforesaid provision are pleaded, proved and established to the satisfaction of t....
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....y collected amounts from the public and the huge amounts collected were not retained in the Company's accounts but to the detriment of the investors and without protecting their rights, almost the entire money was transferred in the accounts of the sister concerns leaving no money for return to the investors in the Company. The Company carved out a device of entering into loan agreements with other sister concerns, namely, Incan Group of Companies, which loan agreement provided for advance of the money but did not postulate any effective clause for refund of the money, except that in the agreements, period of the loan was mentioned but neither the rates of interest on which the loan was advanced were mentioned nor mode of repayment was mentioned. 58. The loan agreements entered into separately with M/s. Incan Mutual Fund Benefit Ltd. by the other Companies of Incan Group of Companies, namely, M/s. Incan Fertilizers & Chemicals Ltd. dated 30-11-1995, M/s. Incan Sales Private Limited dated 5-8-1992, M/s. Incan Consultancy Services Limited dated 30-11-1995, M/s. Deva Investments & Leasing Limited dated 29-11-1995, M/s. Incan Construction Limited dated 5-8-1992, M/s. Merit Developme....
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....nvestor including those investors who were to be refunded only an amount of Rs. 500 or less. 62. The newly appointed Directors of the Board were also interested in winding up of the Company. The Company issued a circular dated 1-2-1999 informing its members to collect deposits matured in October and November 1998 and take 30% of the maturity amount along with upto date interest, till the date of payment, at contracted rate mentioned in certificate/Pass Book and reinvest 70% of the amount for a period of six months. The same circular further recited that members, whose deposits have matured in December, 1998 could contact their branches for payments after 15th March, 1999 and members, whose deposits have matured in January 1999 could contact their branches for payments after 15th April, 1999. 63. The aforesaid plan has been found a total fraud by the Company Judge and he has taken note of the fact that the Company has not paid even to those creditors, whose credit balance in the Savings Bank Account was even less than Rs. 500. 64. The order of the Company Law Board dated 31-8-1999 was thus not at all taken seriously nor was there any intention at any point of time for follo....
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....r approach to the Company Law Board either by the investors, or the Company itself or suo motu exercise of power by the Company Law Board would in any way restrict the right of the creditors to file winding up petition under section 433, which is an independent provision under the Companies Act. 66. The Company Petition as framed shows that it has been filed by Incan Employees Welfare Association which is a registered association duly registered with the Registrar of Firms and Societies, Punjab, Chandigarh and by some other office bearers of the association including individual investors. The members of the association and the other petitioners had deposited their money with M/s. Incan Mutual Fund Benefit Ltd. The total amount so invested by the members of the association in Chandigarh, Jalandhar and Ludhiana is approximately Rs. 51.99 crores. The Company also opened many branches in the States of Uttar Pradesh, Haryana, Punjab, Himachal Pradesh, and Union Territory of Chandigarh. It had deposits worth Rs. 7,200 lakhs as on 31-12-1998 and the maturity amount was approximately Rs. 8,200 lakhs. M/s. Incan Group of Companies, which was impleaded as opposite party No. 1 and M/s. Inc....
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....er of October 25, 1999. Mr. B.D. Sharma clearly indicates by virtue of the said notice that the Incan Group of Companies shall not be responsible for the individual decision of senior executives of the Incan Group of Companies who had been mischievously misrepresenting for their own benefit. Though the Incan Group of Companies comprises Incan Fertilizers and Chemicals Limited, Ratan Micronutrients Limited, Vinayak Trading Pvt. Limited, Incan Construction Limited, Incan Consultancy Services Limited, Deva Investment & Leasing Limited, Incan International Limited, Merit Pharmaceuticals Limited and Incan Mutual Benefit Limited, the petitioners claimed relief against the opposite party No. 2 with whom they had invested their money. The Company Judge, therefore, found that M/s. Incan Group of Companies was not a legal entity and there cannot be winding up of such a Company, but accepted the plea of the investors that they were mislead by the publicity which was made on behalf of M/s. Incan Group of Companies that this Company was managing the affairs of all the above mentioned nine companies. The company Judge, under the circumstances, directed that the Company petition shall remain conf....
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.... means of which permission was given to the official liquidator for auctioning the property named as M/s. Govind Garh Fertilizers which belonged to M/s. Incan Fertilizers and Chemicals Ltd. namely, appellant in the present appeal on the ground that there is no order of winding up of M/s. Incan Fertilizers and Chemicals Ltd. nor the said Company is party in the Company Petition and, therefore, even if M/s. Incan Mutual Fund Benefit Ltd. is to be wound up under the orders of the Court, no property or asset of any other Company including that of M/s. Incan Fertilizers and Chemicals Ltd. can be taken possession of or can be put to auction. 72. So far as it has been asserted that the appellant has not been impleaded as a party in the Company Petition, it is on record that opposite party No. 4 in the Company Petition has been impleaded in the following manner : R.P. Gupta, Managing Director, M/s. Incan Fertilisers and Chemicals Ltd., Incan Bhawan, Kapoorthala, Aliganj, Lucknow. The opposite parties which have been impleaded in the Company Petition are : (1) M/s. Incan Group of Companies, Incan Bhawan, B-1/37, Sector-F, Kapoorthala, Aliganj, Lucknow. Through its Chairman Manjit Singh A....
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....Incan Mutual Fund Benefit Limited in the various loan agreements, reference of which has already been made in the earlier part of the judgment and, therefore, the said properties/assets of these companies would be liable to be proceeded with as in substance and in reality they not only belong to the company M/s. Incan Mutual Fund Benefit Limited in view of the fact that they have been purchased and acquired from the funds given by the Company M/s. Incan Mutual Fund Benefit Limited but also since they have been hypothecated under the terms of the agreement for securing financial interest of the lender, namely, M/s. Incan Mutual Fund Benefit Limited. Apart from the hypothecation of the fixed assets created by the loan fund the borrower company also agreed to provide such other securities as may be required by the lender company. The argument, therefore, is that in view of the aforesaid factual and legal position, there cannot be any objection from proceeding with, with the fixed assets and other securities of the appellant Company. Reliance has been placed upon the case of Life Insurance Corpn. of India v. Escorts Ltd. AIR 1986 SC 1370 wherein the Apex Court has observed as under : ....
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....lomon v. Solomon the Supreme Court held that 'lifting of veil of incorporation under statutes and decisions of the Courts is equally settled position of law'. The Apex Court further observed. '......To look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the courts have pierced the veil of incorporation. Where a transaction of sale of its immovable property by a Company in favour of the wives of the directors is alleged to be sham and collusive, as in the instant case, the Court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and the wives behind the facade of separate entity of the Company. 76. In the case of Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622, the Supreme Court observed that lifting or piercing the corporate veil can be done to see the real men behind the veil who are involved in defrauding others by corrupt and illegal means in deliberate defiance of Court's order.....
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....s can be proceeded with for realization of the amount of creditors of M/s. Incan Mutual Fund Benefit Ltd. The loan agreements which are verbatim copy of each other having same terms and conditions wherein M/s. Incan Mutual Fund Benefit Ltd. is the lending Company and M/s. Incan Fertilizers and Chemicals Ltd. and all other 7 companies are borrowing Companies, stipulated the same conditions of agreement and for the sake of convenience, the conditions mentioned in the agreement are being quoted below : (1)Whereas the first party a public limited company would require Rs. 15 crores for the period of three years from December, 1995 to December, 1998 to implement corporate plan of capital expenditure requirements. (2)Whereas the second party - a public limited non-banking company have adequate funds to meet fully the above requirements during the period of December, 1995 to December 1998 by sanctioning the loans with reasonable rates of interest which shall always be higher than the Bank rates of interest on term loans be decided by mutual consent of the borrower and lending companies. Therefore, this deed written at Lucknow between the first party hereinafter known as borrower ....