TaxTMI 
TaxTMI 
2009 (11) TMI 517
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.... appellant-company has claimed that it had invented a new technology, namely, "versatile system on chip", which overcomes the limitations of traditional microprocessors. In 1999, when the said invention was at a conceptual stage, ICICI Venture Funds Management Co. Ltd. (ICICI) had shown its interest and agreed to give financial support for the development of new technology. However, in 2001 there was a change in the funding policy of the ICICI and it withdrew the financial support from the appellant-company. This led the appellant-company to borrow the funds from the market. 3. In 2003, Mr. Pradip Burman, who is one of the two directors of M/s. Ratna Commercial Enterprises Ltd., the respondent-company, agreed to give financial support to the appellant-company. At the first instance, an intercorporate deposit of Rs. 2 crores in three instalments with interest at 12 per cent per annum was advanced by the respondent-company to the appellant-company. It has come on record that the respondent-company had advanced a total loan of Rs. 540,893,273 to the appellant-company from time to time and these short term loans were to be repaid after one year or at least with the close of the fina....
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....part of those shares, which were to be transferred by Vasucorp Inc. to Vasu Tech. Ltd., the appellant-company, by way of transfer in adjustment of the loans given to the appellant-company. Since the proposal of Mr. Pradip Burman was acceptable to Vasucorp Inc., accordingly, in June 2005, a request was made to treat the advances as interest free or to defer the payment of interest for two years. The request was accepted by the respondent-company and on 31-8-2006, a memorandum of understanding was executed for deferring the payment of interest till 31-3-2007. 7. On 9-5-2006, Mr. Dhruv Varma of the appellant-company sent an e-mail to Mr. Pradip Burman informing him as under :- "This refers to our discussions regarding allotment of shares for the loans that you have given to Vasu Tech. till date :- (1)You will subscribe to an additional 4mn shares of Vasucorp. (2)I will subscribe to an additional 1mn shares of Vasucorp. (3)For the loans that you give beyond those existing as on date, for every Rs. 1 crore an additional 350,000 shares in Vasucorp will be transferred to you by me. This transfer will be restricted to 1.45 mn shares, beyond which the shares will be given by ....
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....-10-2006, Mr. Pradip Burman sent an e-mail with regard to conversion of shares intimating current outstanding of the appellant-company and shares due as on 30-9-2006. It was disclosed that outstanding loans of about Rs. 60 crores were to be converted into 8.885 million shares of Vasucorp Inc. Mr. Dhruv Varma of the appellant-company was called upon to accept and confirm the said position, which he had done vide e-mail dated 11-10-2006, by accepting the proposal of Mr. Burman. It has been claimed that once the offer and acceptance between the parties has taken place, novation of contract took place for the amount advanced by the respondent-company. On 6-12-2006, final confirmation was received from Mr. Burman through e-mail. It has been asserted that between 27-9-2006 to 11-10-2006, post dated cheques were issued by the appellant-company under various covering letters stating the amount of loans along with furnished calculation of interest and break up of principal amount and interest being paid as also the amount of tax deducted at source. However, after 10-10-2006, no cheques/covering letters were issued to the respondent-company for the amount advanced till 10-10-2006. It has bee....
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....tand that issuance of share capital in the Vasucorp Inc. was independent of the loan transaction and was not in lieu of the loan amount advanced by it. It was also stated that Mr. Pradip Burman, managing director of the respondent-company separately paid the share money for purchase of the share in Vasucorp Inc. and it has nothing to do with the loan transaction. It was further averred that the appellant-company issued various post dated cheques for payment of outstanding loan amount and some cheques were replaced by some fresh cheques because on the dates the said cheques matured, the appellant-company did not have adequate funds and request was made to the respondent-company to accept fresh cheque in lieu of the outstanding amounts. A list of such cheques issued by the appellant-company was also placed on record as annexure P10. 12. In the company petition it was also pleaded by the respondent-company that some of the cheques were presented for clearance and two cheques were returned dishonoured for insufficiency of funds in the account and after issuing statutory notice under section 138 read with section 142 of the Negotiable Instruments Act, 1881, proceedings under section ....
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....t a mode of recovery of debt or amount payable by the company; (2) It is the discretion of the court to order winding up which should be the last resort; (3) It is the inability of the company to pay its debts which attracts the provisions of section 433(e) of the Companies Act. Inability is in the nature of commercial insolvency; (4) If there is a bona fide dispute regarding the payment of the debt, there cannot be neglect to pay within the meaning of section 434(1)(a) of the Companies Act. The bona fide dispute means the defence of the company is substantial and raises triable issues which can be more conveniently adjudicated upon in a regular forum in a civil suit; and (5) The creditor has both the remedies of filing a civil suit as well as a winding up petition, if there is no bona fide dispute with regard to the sum payable. It is prudent to apply the aforenoted principles to the facts of the present case. It has come on record that the petitioner-company has advanced loan amount of more than Rs. 54 crores as principal carrying interest at the rate of 12 per cent. Various post dated cheques were issued by the respondent-company towards the re-payment of the loan....
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....ioning and has substantial and sufficient resources to pay its debts. Even the balance-sheet for the relevant period has not been placed on record to rebut the specific allegations made in the winding up petition that the company is unable to pay its debts. There is huge outstanding against the respondent-company. Its substratum, the financial health and functionality has not been disclosed. In view of the totality of the circumstances, I am of the considered view that this is a fit case where this petition is to be admitted. Petition is admitted. The factum of admission be published in the Indian Express, The Times of India (Delhi edition) and Dainik Bhaskar (Haryana edition) as also in the Official Gazette of the State of Haryana." 16. On 4-5-2009, while issuing notice of motion, the Division Bench stayed publication of the petition as directed by the learned company judge vide his order dated 22-4-2009. 17. Mr. Ashwani Kumar Chopra, learned senior counsel has vehemently argued that there is a novation of contract which was entered into between the appellant-company with the petitioner-respondent-company on 15-4-2005. In that regard he has referred to various e-mails, wh....
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.... Please find enclosed herewith the following cheques towards repayment of short term loan of Rs. 50,00,000 (rupees fifty lakhs only) along with interest at 12 per cent per annum for the period : 1. 381120 1-1-2007 42,074 Interest at 12% per annum for the period 29-11-2006 to 31-12-2006 on Rs. 50,00,000 less TDS at 22.44%, i.e., Rs. 12173 2. 381121 1-4-2007 1,14,746 Interest @ 12% per annum for the period 1-1-2007 to 31-3-2007 on Rs. 50,00,000 less TDS @ 22.44%, i.e., Rs. 33,199 3. 381122 1-4-2007 50,00,000 Repayment of loan We hope you will find the above in order. We shall be grateful if you can provide us with your income-tax PAN number for our records and for issue of TDS certificates. Thanking you, for Vasu Tech Ltd., (Aruna Varma), Director." 20. Mr. Makkar has argued that none of these letters have even remotely suggested that the cheques were not expected to be encashed or that they were being issued as collateral in lieu of the equity shares which were to be allotted to the petitioner-respondent in the appellant-company. Our attention has been drawn to various letters dated 27-9-2006, 11-10-2006, 19-10-2006, ....
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....m. (2) The borrower further confirms that the aforesaid loan amount carry interest at the rate of 12 per cent per annum payable by the borrower on quarterly basis on or before 15th of the month immediately succeeding the close of every quarter. (3) The borrower confirms that the interest on the aforesaid amount stand paid up to March 31, 2005. It is agreed between the parties that payment of interest for the financial year 2005-06 shall be made on deferred payment basis by the borrower and the said payment of interest shall stand deferred for a period of 12 months from the date on which the payment of interest would otherwise have become payable. Consequently, it is agreed that the borrower shall not be liable to make payment of interest in the financial year 2005-06 of the interest payable for this period shall be paid by the borrower to the lender in the financial year 2007-08, which payment shall be in addition to the interest payable during that financial year. (4) The parties further agree that the borrower has made payment of a sum of Rs. 1,15,06,727 (rupees one crore fifteen lakhs six thousand seven hundred twenty seven) during the financial year 2005-06 and further....
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....rma to the petitioner-respondent-company from Mr. Pradip Burman. There is some talk of transfer of additional 3,50,000 shares for every Rs. 1 crore for the loan that was to be given beyond the one existing as on that date. On 9-5-2006, itself at 3.15 p.m., Mr. Pradip Burman sent back an e-mail to Mr. Dhruv Varma stating that the outstanding loan as on 1-5-2006, against the appellant-company was Rs. 48.87 crores, which included Rs. 2.25 crores paid to ICICI Ventures for release of 7,38,234 shares of Vasu Tech Ltd., lying with him. The calculations of shares has then been given. Another e-mail was again sent by Mr. Pradip Burman on 10-10-2006, at 6.04 p.m. giving current outstanding of Vasu Tech Ltd., and shares due as on 30-9-2006, which was confirmed by the e-mail sent by Mr. Dhruv Varma on 11-10-2006, at 3.15 a.m., stating that the calculation in the e-mail sent by him were "okay and confirmed". The parties were negotiating and a draft agreement (R5), which is undated, was prepared and the same has never been signed. The e-mails dated 9-5-2006, 10-10-2006, 11-10-2006 and 6-12-2006 (R2 and R4) cannot constitute any concluded contract and could not be accepted as novation of the wri....
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....ng contract and its "communication" within the meaning of section 3 has to be satisfied by "acceptance" of such proposal without any condition. On the acceptance of the proposal a "concluded contract" may come into being. 27. It is well known that novation is of two kinds-(a) novation involving change of parties; and (b) novation involving substitution of new contract in place of the old one. In their treatise Law of Contract (Tenth edition), Cheshire and Fifoot have discussed the concept of "novation" and "assignment" in Chapter 16 under the heading of "The voluntary assignment of contractual rights and liabilities". Insofar as novation is concerned, the learned authors have defined the same in the following words :- "Novation, therefore, is the only method by which the original obligor can be effectively replaced by another. A, B and C must make a new contract by which in consideration of A releasing B from his obligation, C agrees that he will assume responsibility for its performance. This transaction is frequently required upon the retirement of one of the partners of a firm. B, the retiring partner, remains liable at law for partnership debts contracted while he was a m....
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.... by Vasu Tech out of the shares it holds in Vasucorp." 31. The aforesaid clause does not suggest that the loans existing at that stage were to be substituted for subscribing to the shares of Vasucorp Inc. The proposal at best can be stated to be at the nebulous stage. The subsequent e-mails giving details of the dues of the petitioner-respondent-company do not state anything which may lead to a conclusion that the proposal has in terms been accepted. Moreover, the parties had drawn a draft agreement/memorandum of understanding (R5), which has never been signed. The aforesaid course was required to be taken on account of the fact that under clause 12.5 of the loan agreement dated 15-4-2005 (P4), there is clear stipulation that no variation of the agreement was to be binding on any of the parties unless such variation was in writing and signed by each party. Therefore, no complete new contract substituting the earlier contract had come into being. The argument is wholly imaginary and the same is, thus, liable to be rejected. The view taken by the learned Company Judge in the order under appeal is, thus, upheld. The other argument that there were triable issues and the substantial ....
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....he factual as well as the legal position. It is pertinent to mention that the appellant-company had earlier filed Civil Suit (O.S.) No. 570 of 2007 seeking an injunction in their favour restraining the petitioner-respondent-company from encashing 16 cheques which were issued by it. The learned Single Judge of the Delhi High Court had granted injunction vide order dated 28-3-2007 and the view taken by the learned Single Judge was reversed by the Division Bench in F.Assessing Officer (O.S.) No. 206 of 2007. The Division Bench of the Delhi High Court after referring to the letter dated 29-11-2006 (supra), vide its order dated 15-6-2007 (A2) has concluded as under :- "Each of the covering letters, copies of which have been placed on record by the defendants, is identically worded. There is no explanation at all why these letters were not produced by the plaintiff along with the plaint. On the other hand, it can be seen that the plaintiff does not deny these covering letters. Paragraph 41 of the plaint states that 'purely with a view to give comfort to the defendants as collateral security, till the shares were transferred, post-dated cheques were given from time to time . . .'. In p....