TaxTMI 
TaxTMI 
TaxTMI 
2010 (8) TMI 169
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..... In view of the defence taken on the ground that the facility is illegal and contrary to public policy it is necessary to note only a few aspects thereof. 3. One of the covenants/conditions is that the derivatives/forward contract would be booked only against a request letter from the respondent detailing the amount and currency in which the derivatives/forward contract has to be booked. The respondent is required to settle the negative Mark to Market within 15 days by deposits of cash margin. The letter required certain documents to be executed by the parties. 3A. The respondent executed two identical risk disclosure statements dated 12-3-2008 and 9-7-2008. The statement is prefaced with a declaration that it does not purport to disclose all the risks and other relevant considerations of entering into derivative transactions; that the Petitioner does not act as a financial adviser in relation to any derivative transactions; that the respondent intends entering into such transaction and that, it has obtained independent confirmation that the deal price is according to market levels. The declaration then sets out details regarding certain risks including market risk, basic risk, ....
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....particulars of the facility. 4. Pursuant to the above facilities and in accordance therewith the Respondent entered into two forward contract transactions with the Petitioner dated 20-2-2008 and 17-3-2008. The respondent executed the forward contract booking confirmation notes. It is not necessary to furnish details of the quantum of each transaction in view of the admissions by the respondent as to its liability which I will refer to shortly. Suffice it to state that the respondent has not denied the execution of the documents I have referred to thus far. Nor has it denied having been granted and having availed of the said facilities. 5. By a letter dated 9-2-2009 (wrongly mentioned as 6-2-2009) addressed to the petitioner the respondent confirmed having entered into the said transaction dated 20-2-2008; that the same had been cancelled by it on 6-2-2009 and that as a result thereof it was liable to pay the Petitioner a sum of Rs. 1,68,55,000. It further stated that after certain adjustments, the balance payable by the respondent to the petitioner was Rs. 1,40,57,265. The letter stated that the respondents Board of Directors had been kept appraised of the said liability and that....
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....imilar matters pending before various courts all over the country and that therefore this company petition ought to be dismissed and the Petitioner ought to be relegated to a civil suit where this aspect of the matter could be more appropriately decided. 11. Mr. Madon, however, did not furnish any details as to these proceedings which he stated were pending all over the country. Mr. Chadarana, the learned senior counsel appearing on behalf of the petitioner, submitted that the proceedings referred to by Mr. Madon were not on the same issue. 12. As the details of these proceedings were not furnished I find it unnecessary to consider this aspect. Moreover even assuming that there are proceedings pending before various other courts it makes no difference. I am bound to decide the issue in the present matter. The submission based merely on the fact that similar issues are pending all over India does not constitute a bona fide defence. The company court is not prevented from deciding the question of law. 13. In fact the only decision to which my attention has been invited is the judgment of a learned single judge of the Madras High Court in Rajshree Sugars & Chemicals Ltd. v. AXIS Ba....
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....5V the transaction would be valid. 16. The Master Circular on Risk Management and Inter-Banking Dealings consolidates the existing instructions on the subject at one place. The same lists the circulars/notifications. It is issued with a sunset clause of one-year but is apparently renewed from year to year. One of the circulars pertains to: "Facilities for Persons Resident in India and other Authorized Dealers Category-I". The first item in this category pertains to "Forward Contracts". It provides that a person resident in India may enter into forward contracts with an Authorized Dealer Category-I bank (Authorized Dealer Category-I bank) in India to hedge an exposure to exchange risk in respect of a transaction for which sale and/or purchase of foreign exchange is permitted under the Foreign Exchange Management Act, 1999 or rules or regulations or directions or order is made or issued thereunder subject to the terms and conditions mentioned therein. 17. It was not disputed that the petitioner is an authorized dealer within the meaning of sections 2(c) and 10(1) of the FEMA which read as under:- "2. Definitions.-In this Act, unless the context otherwise requires,- (c )"Authorize....
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....dertaking the transactions that it had considered the regulatory approval that may be needed. The respondent has not stated anywhere that it has made any misrepresentations to the petitioner regarding its entitlement to enter into the said transactions. Nor has it contended that it has violated any law by entering into the said transactions. The respondent has not contended that the above statutes, regulations and circulars do not apply to the said transactions or that the same are in violation thereof or at least not in conformity therewith. 20. It is clear, therefore, that the transactions entered into between the petitioner and the respondent were permissible in law. 21. There is no challenge to the above provisions of law on any ground. The said transactions were, therefore, legal, valid and binding on the parties. 22. Mr. Madon submitted that in any event this is not a fit case for winding up the respondent or even admitting the petition. I have for more than one reason, came to the conclusion that this is not a fit case to even admit the petition without first giving the respondent an opportunity of making payment in a phased manner. 23. The respondent employs about 2,50....
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.... halt of realisation for the respondent. The note further states that this has been the trend in the diamond industry. It is for these reasons that the amounts due by the respondent to the various banks and financial institutions had increased only in the past about two years. 26. Both the learned counsel placed considerable reliance upon the following observations in the note:- "As substantial funds of the company are blocked in receivables, realisation, therefore, is expected to be delayed beyond a period of one year, the company has requested for restructuring its consortium working capital advances. We have weighed out company's request taking into consideration the following facts (based on the audited Balance sheet for the year ending 31-3-2009) : (i )The company reported a net loss of Rs. 90.62 crores. (ii )Resultantly, the company's net worth is eroded by Rs. 40.62 crores. (iii)The company has incurred cash losses to the tune of Rs. 130.17 crores, thereby putting a strain on its liquidity position. (iv)As on 31-3-2009, Rs. 521.21 crores of debtors were outstanding for more than 6 months. (v )Out of the total debtors of Rs. 1,122.98 crores, around 52 per cent are due ....
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....nd next fiscal in a phased manner. To enable the company to run its business operations smoothly and tide over the present financial crisis, the regular FBWC limit of Rs. 625 crores (outstanding credit limits less proposed WCT L) is being proposed for the company for the current year. Primary assumptions underlying the present proposal are listed on Page No. 25. Analysis of receivables outstanding as on 31-3-2009 As on 31-3-2009, the receivables outstanding was approx. 84 per cent of the total sales, of which the receivables to the tune of Rs. 59.48 crores were outstanding for more than 9 months. The major party-wise receivables outstanding as on 31-3-2009 and subsequent realisations from there till date are listed hereunder:" There follows a tabular statement of the amount outstanding as on 31-3-2009 from various entities most of which admittedly are family companies/sister concerns of the respondent. The amount outstanding as on 31-3-2009 from these entities is Rs. 871.58 crores. The amount realised during the period 1-4-2009 to 17-9-2009 was only Rs. 206.44 crores. After the table the statement continues as follows:- "As evident from the above, the company is realising the....
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....t repaying its dues whether of the Petitioner or of the members of the consortium, immediately thereafter. If what is stated in the assessment note is correct, and the respondents indeed maintain that it is, there can be no objection on the respondent's part to commence payment after a few months and to continue paying the petitioner's debts in reasonable instalments thereafter. At the cost of repetition, it is the respondent's case that it is and in any event will shortly be, in a position to do so. I proceed therefore on the justifiable assumption at least so far as the Respondent is concerned that no prejudice can be caused to the Respondent by an order to this effect. 31. I would therefore consider a moratorium on the repayment of the petitioner's dues for a reasonable time and also grant the petitioner instalments liberally for repaying the petitioner's dues. Having made the representation that about 52 per cent of the respondents dues are from subsidiary companies/firms and related parties; that there are no debts and all the receivables would be realised within September this year and that the Respondent operations are expected to generate profits from the financial year 20....