TaxTMI 
TaxTMI 
2013 (4) TMI 31
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.... company is engaged in the business of asset and wealth management and has invested funds in companies situated in various countries including India. The respondent company is a private limited company incorporated in India under the provisions of the Act and has its registered office at B-7, 4th Floor, Shalimar Complex, Paldi, Ahmedabad and is engaged in business of retail sales of high-end cars and is authorized dealer of BMW Cars for the State of Gujarat. 3. It is claimed by the petitioner that in two stages it invested, by way of share application money, a sum of Rs. 5,96,57,383/- towards 51% equity capital in the respondent company. The said funds, according to the petitioner, were invested on respondent's stipulation and assurance that it will obtain the requisite approvals including the approval from Foreign Investment Promotion Board ('FIPB' for short). According to the petitioner, the said assurance and stipulation turned out to be incorrect and misleading representation and approval from FIPB was not obtained. The petitioner, therefore, demanded refund of the amount paid by it. It is claimed that the respondent company has not refunded the said amount. Even after statu....
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....e and neglect, compelled to issue and serve statutory notice dated 13.3.2010 at the registered office of the respondent company. It is also claimed that the respondent company initially forwarded an interim reply dated 25.3.2010 stating, inter alia, that the claim was false and baseless. Subsequently, the respondent forwarded detailed reply to the statutory notice vide its communication dated 13.4.2010. The notice and the replies were forwarded by the petitioner and respondent through their respective lawyers. 3.3 It is the case of the petitioner that in its reply dated 13.4.2010, the respondent company admitted the liability to refund the said amount to the petitioner, but simultaneously expressed inability to do so by citing absence of necessary permission from the Reserve Bank of India ('RBI' for short). In this background, the petitioner has further averred in the petition that: "17. The Petitioners' lawyers by their letter dated May 20, 2010 once again called upon the Respondents to deposit the amount in Indian rupees with them, or in the alternative to specify and confirm that this amount was not combined with other funds and also specify the bank account where this was....
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.... the power of attorney in favour of the deponent who has made the affidavit in support of the petition, is not proper and effective in law. Besides the said objections against the maintainability of the petition, the respondent company has claimed that the petitioner was aware about the requirements of Indian laws applicable in case of transfer of Foreign Funds and Investments in Indian companies and that the amount brought by the petitioner was under the Foreign Direct Investment Scheme and not under FIPB Scheme. It is also claimed by the respondent company that while injecting the funds the petitioner was aware about the fact that the prior permission for bringing funds into the respondent company was not received. 4.1 As regard the details about the correspondence which ensued between the petitioner and the respondent and petitioner with RBI and between the respondent and RBI, the respondent company has further stated in its reply affidavit that: "18. ........It was pointed out that in spite of efforts by the Respondent Company for getting the approval of the Government of India for allotment of shares, the Respondent's application was rejected. It was pointed out that the....
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....record of the petition so as to substantiate the submission that it was on the representation by the respondent company and in light of the respondent's stipulations and assurances that the petitioner company invested a sum of about Rs.95 crores and although, the RBI has in clear terms directed the respondent company to refer the amount deposited/invested by the petitioner, a foreign company, the respondent has stead fastly neglected and failed and refused to refund the amount and is unathorizedly holding back the amount in question. On the premise that despite repeated request and in spite of the instruction by RBI, the respondent company has not returned the amount, the petitioner has claimed that the circumstances and eventuality contemplated and provided for under sub-clauses (e) and (f) of Section 433 exist in present case. Consequently, the petitioner is entitled for the order of admission of petition and then, order of winding up against the company. 6.2 Per contra, Mr. Shah, learned counsel for respondent company would contend that in view of the defects in the presentation of the petition and non-compliance of the requirements prescribed under the Act and the Rules, the....
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....he RBI has instructed the petitioner to refund the amount as well as the fact that (e) even after RBI's instruction the respondent company has withheld the amount and not refunded the amount in question to the petitioner. The aforesaid aspects are not in dispute. 8. It would be appropriate to examine the respondent's defence in light of the factual backdrop. 8.1 It emerges from the record that in February, 2008 the respondent company in its extraordinary general meeting passed resolution to increase its authorized share capital from Rs. 1 lac to Rs. 1 crore and also to amend its memorandum. Thereafter, on or about 25th February, 2008, the petitioner company paid a sum of Rs. 1,01,22,312/- towards share application money to the respondent company. The respondent company has, vide its letter dated 27.2.2008 (Annexure-R-I, Page-115) addressed to FIPB, acknowledged the receipt of said amount from the petitioner company. Subsequently, on or around 24th March, 2008 the petitioner company paid further sum of Rs. 4,95,35,071/- to the respondent company towards share application money and the respondent company, vide its letter dated 4th April, 2008 (Annexure-R-I, Page-116), informed ....
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....aid communication dated 27th January, 2009. The said information was not intimated to the petitioner by the said chartered accountant or the respondent company for considerably long time. It is also claimed that it was somewhere in June, 2009 that the petitioner company, after having learnt about the rejection of the application, requested (through its advocate) the respondent's chartered accountant to provide copy of FIPB's letter rejecting the application and also to explain the reason for not intimating the said fact to the petitioner. The respondent company claimed that it did not know about rejection of the application. The respondent company claimed that:- "3. You have stated that you have recently come to learn that the said application rejected by Department of Industrial Policy and Promotion on January 2009. However, till date we have not received any formal communication for either approval or rejection of the application, therefore we sincerely request you to kindly provide us rejection letter if possible. We now understand that certain fax communication is received by company's consultant on it being requested by your lawyer to him in a direct communication. We certa....
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....of the necessary regulatory authorities for sending back our monies. 4. We have been advised that the Company is required to make the application to the Reserve Bank of India for approval to repatriate the monies to us. We are therefore writing to you to urgently file the application and to take timely steps for obtaining the necessary permission/approval. In the meantime, please confirm to us that the monies sent by us are still available in full with the company for repatriation to us. 5. Please note that at this stage it is not relevant to go into whether or not there was any delay on our part in sending the information or details to the Company in connection with the Application to be filed, and what is relevant is that at the advice of the company we sent the monies into India although the approval of the Government of India had not been obtained. We are therefore not commenting on the contents of your letter in this regard, but once again call upon the Company to take all steps required to remit back the entire said amount to us at the earliest." 8.9 In reply to the petitioner's request for refund of the share application money, the respondent company informed the pe....
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....is pertinent that the RBI, vide its letter dated 8th July, 2010, permitted the respondent company to refund the share application money, of course without interest. The said communication dated 8th July, 2010 by RBI, reads thus : "Dear Sir, Approval for refund of Share Application Money M/s. Parsoli Motor Works Pvt. Ltd., Ahmedabad Please refer to your letter No. AXIS/AHM/Forex/2010-11/7503 dated May 10, 2010 on the captioned subject. 2. In this connection, you may allow M/s. Parsoli Motor Works Pvt. Ltd., Ahmedabad to refund the share application money without interest to non-resident investor M/s. Baader Betelligungs GmbH, Germany, subject to the captioned company applying for compounding of contravention of para 3 of Schedule-1 to Notification No. FEMA-20/2000-RB dated May 3, 2000 read with Para 6 of our A.P. (DIR Series) Circular No. 20 dated December 14, 2007, to the Compounding Authority, CEFA, Mumbai as per guidelines contained in our A.P. (DIR Series) Circular No. 56 dated June 28, 2010 under advice to us." 8.15 Even after the said communication by RBI, the respondent company did not make the payment to the petitioner. The respondent company also did not m....
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....ended that the application for compounding has not been decided and therefore, it has not refunded the amount. After raising objections on ground of maintainability of the petition and other objections including those related to defects in submission of the petition, the respondent company has in the end, in one of its affidavits, also come out with the submission that if the petitioner company agrees to pay the fine/penalty for compounding, it may make the payment of the amount in question. 9.2 It is in light of such facts that the Court has to examine, as observed by the Apex Court, as to whether the respondent's defence and dispute can be said to be bonafide, substantial and genuine or not and as to whether it is merely ingenuous masks for defeating petitioner's claim. 10. Before considering the said aspect, it is appropriate to consider the objections raised by the respondent company on the ground of defects in the petition. 11. On this count, it is necessary to take note of and to mention the fact that in view of the objections raised by the respondent company with reference to the power of attorney and absence of resolution by the petitioner company, the petitioner c....
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...., Sand Plast (India) Ltd. v. I.T.C. Bhadrachalam Finance & Investment Ltd. [2002] 111 Comp. Cas. 471 (Raj.) and Suvran Rajaram Bandekar v. Rajaram Bandekar (Sirigao) Mines (P.) Ltd. [1997] 88 Comp. Cas. 673 (Bom.), so as to support the submission that even if it is established that there are defects in submission of the petition and/or in the affidavit in support of the petition, then also such defects are not fatal, but are curable and for such reason, petitioner ought not be dismissed. 11.6 In light of the said decisions, the objections raised by the respondent may now be considered. 11.7 One of the objections is that the petition is not supported by proper affidavit as required under the Companies (Court) Rules, 1959 and the Gujarat High Court Rules, 1993. Reliance is placed on the provisions contained under Rule 21 of the Company (Court) Rules, 1959. The opponent has contended that the affidavit should categorically delineate as to which are true to knowledge and which paragraphs are true to the information of the deponent. 11.8 Section 643 of the Act prescribes that the Supreme Court shall, after consulting the High Courts, make the rules. Accordingly, the Apex Court ....
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....o my knowledge derived from the records available with the Petitioners and nothing is false." 11.11 The defect, if any, in making the affidavit of its verification amounts to irregularity and irregularity is not fatal. It can be cured at any stage of the proceedings. For such purpose, the petitioner may make a request by submitting proper application or, for doing substantial justice, the Court may in exercise of inherent power and in light of Rule 9 of the Company (Court) Rules, 1959, itself allow the petitioner to cure the defects. 11.12 In light of the above provisions, if the objection is considered, then it emerges that the allegation by the respondent is that the paragraphs are not properly delineated in accordance with Form No. 3 read with Rule 21. Having regard to the said provisions and what is actually stated in the affidavit attached to the petition, it comes out that the deponent has stated in the affidavit that: 'the contents of the accompanying petition filed under Section 433 (e) and (f) read with Sections 434 and 439 (1)(b) of the Companies Act are true and correct to my knowledge derived from the records available with the petitioners and nothing is false'....
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....opportunity to the petitioner to cure the defect. In present case, as the discussion which follows would demonstrate that the petitioner has made out a case for order of admission and that, therefore, the Court is inclined to grant opportunity to the petitioner to remove and cure the defects. 12. Another objection which is raised by the respondent, is that the petition is not made and verified by a person competent to make and verify the affidavit on behalf of the petitioner company. 12.1 It is claimed that the affidavit can be made and verified by the Director, Secretary or Principal Officer whereas, in present case, the deponent (viz. Mr. Sudershan Pradhan) who has made the affidavit is neither Director nor Secretary nor Principal Officer of the company and that, therefore, the affidavit cannot be considered as affidavit made by a person competent to make the affidavit. It is also claimed that the power of attorney is granted by Mr. Baader and not by the company. 12.2 In this context, when the record is examined, it emerges that said Mr. Pradhan who has made the affidavit, is a constituted attorney of the petitioner. The power of attorney in favour of said Mr. Pradhan is....
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.... Mr. Baader in his personal or individual capacity. Thus, in present case, the affidavit is made and verified by "other person who is duly authorized by the petitioner" as contemplated and permitted in view of the proviso of Rule 21 and that, therefore, the said objection should not detain the Court from examining the petition on merits. 13. The respondent has then contended that an individual or one of the Directors of the company will have no power to act on behalf of a body corporate because a company acts through resolutions of its Board of Directors. It is contended that any resolution resolving to file the petition and/or authorizing Mr. Uto Baader to appoint a constituted attorney and/or to initiate the proceedings is not placed on record and such resolution does not accompany the petition. It is also contended that the power of attorney is not duly stamped and the petition is signed by Mr. Pradhan in his individual capacity without stating that he is signing the same for and on behalf of the company. It is also claimed that the power of attorney (at page 48 of the petition) does not state the place where it has been executed. 13.1 In this context, it is necessary to m....
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....s that it was executed on 3.9.2010 at Munich, Germany before a Notary and that subsequently, it has also been stamped in the office of Collector of Stamps, New Delhi and stamp duty of Rs.50/- seems to have been deposited. 13.4 It, therefore, emerges that this power of attorney is stamped in India and requisite stamp duty has been paid thereon. It also transpires that the said power of attorney was executed on 2.9.2010 and the affidavit in the petition is made by the constituted attorney on 22.9.2010 and the petition appears to have been admitted to the file by the Registry on 27.9.2010. 13.5 However, from the stamp of the office of Collector of Stamps, it seems that the stamp duty has been paid vide challan dated 2.12.2010. The said detail demonstrates that there is some anomaly inasmuch as from the power of attorney it appears that it was not duly stamped on the date on which the petition came to be instituted, although it was executed on 2.9.2010, i.e. before the petition was instituted. This anomaly may also give rise to the issue about the date of institution of the petition. The said issue can be considered when the stage of considering the date of institution of peti....
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....avit are true and correct tot eh knowledge of the appellant. We do not think that the affidavit can be described as defective in any respect. But that apart, we are of the opinion that even if there is some slight defect or irregularity in the filing of the affidavit, the appellant should have been given an opportunity to rectify the same. 3. We are, therefore, of the opinion that the Division Bench was in error in dismissing the appeal on the short ground that the affidavit filed in support of the petition was not in proper form and that the petition could not be entertained. We, therefore, set aside the order of the Division Bench dated August 21, 1991." 13.11 Rule 9 of the Company (Court) Rules deserves a reference at this stage. The said rule reads thus: "9. Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court." 13.12 It can be seen from the said rule that the Company Court has inherent power to make such orders as are considered necessary and are appropriate for the ends of justice. ....
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....of Rs. 1,01,22,312/- (on 25.02.2008) and a sum of Rs. 4,95,35,071/- (on 24.03.2008) as share application money for allotment of shares of the respondent company. It is also claimed that since the payment by the petitioner company for purchase of shares of the respondent company would amount to foreign investment, approval of investment by petitioner from the Foreign Investment Promotion Board (FIPB for short) was necessary and the respondent was supposed to make necessary application for the said purpose. 14.2 It is further claimed that the respondent delayed the said application beyond the prescribed time limit and that the application belatedly made by the respondent company came to be rejected by the FIPB on or around 14th January 2009. 14.3 Since the respondent did not return its share application money despite rejection of the application by FIPB and even after requests for returning the amount was not accepted, the petitioner, through its lawyer, served, at the Regd. Office of the respondent, statutory notice dated 13.03.2010 calling upon the petitioner to repay/return the entire amount paid by it as share application money, i.e. Rs. 5,96,57,383/-, within 21 days. 14....
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.... the respondent company to return the amount paid towards share application money, within 180 days if allotment of shares (as applied for) is not made. Despite such provision and statutory obligation the respondent has not returned the amount in question to the petitioner. 14.13 Now, in its reply affidavit the respondent has come out with altogether new submission viz. that if the petitioner deposits, beforehand, the amount which may have to be paid by way of penalty for compounding the contravention then it would make the payment of the amount in question. Before making such submission, the respondent has, as mentioned earlier, resisted the petition on diverse grounds against maintainability of petition in view of certain defects in submission of the petition and then aforesaid submission i.e. the petitioner should deposit, beforehand (i.e. even before RBI passes an order actually imposing penalty and quantifying the amount of penalty) the amount towards penalty which may be imposed by RBI. 15. In view of the rival submissions it has to be considered as to whether the dispute sought to be raised by the respondent is bond fide, substantial and genuine or not or as to whether ....
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....the dispute is sought to be raised i.e. so as to ascertain as to whether the dispute was raised contemporaneously or is raised merely as an afterthought, the Court can, rather is expected to, go into the causes of refusal by the defendant to discharge the debt. The Court is, as observed by the Apex Court, expected to ascertain that the refusal is supported by reasonable cause and to ascertain that the dispute is not spurious or speculative or illusory or misconceived and an ingenious mask invented by the defendant to avoid or delay the obligation to discharge the debt. 15.3 This Court, keeping in focus and having regard to the said observations, has examined the case put up by the respondent company and on such examination it emerged that (i) there is no dispute about the fact that the petitioner company has paid a sum of Rs. 5,96,57,383/- as share application money and for allotment of shares, (ii) It is also not in dispute that the request for foreign investment in case of respondent company is not approved by FIPB and the application came to be rejected as back as in January 2009, (iii) It is also not in dispute that RBI has instructed and directed the respondent company (vid....
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....of a public company, below seven, and in the case of a private company, below two; (e) if the company is unable to pay its debts; (f) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up; (g) if the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years; (h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G; Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government.]" 15.9 In present case, it has emerged from relevant facts that the eventuality contemplated under Clause (e) under Section 433 exists and the petitioner is justified in claiming order of admission of petition. 15.10 The petitioner has also prayed for order....
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....her there is a genuine, substantial and bonafide dispute as to the debt and respondent's liability to pay the same. If the petitioner's claim/respondent's debt is not disputed or if it is disputed on unjustified or imaginary or an afterthought dispute or where the dispute raised by the respondent is, as observed by the Apex Court, spurious or speculative or illusionary or misconceived then the court may not accept such defence and hold that the petitioner's claim and the respondent's debt are not disputed. The dispute, if any, as to the petitioner's claim and respondent's debt should be bonafide and substantial and genuine. In absence of any genuine, bonafide and substantial dispute or in absence of any substantial convincing and strong reason e.g. collective and majority view of creditors that winding up order is not required or would not be justified the court would, ordinarily, not deny an order of admission of petition seeking winding up of a company if the petitioner - claimant/creditor makes out a case and satisfy the court that one or more reasons - grounds specified under Section 433(a) to (i) exists in the given case. Consideration of respondent's solvency would be useful ....
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....s that it would be just and equitable to grant order of admission of petition and winding up. 15.18 However, before making such order the Court, having regard to the observations made in the decision in case of Conart Engineers Ltd. v. Laffans Petrochemicals Ltd. [2001] 103 Comp. Cas. 396/29 SCL 388 (Guj.), considers it appropriate to allow an opportunity to the respondent company to deposit the amount in question. In the aforesaid case the Court has observed, inter alia that: "The Court has to examine the nature of the respective cases pleaded by the parties and if a prima facie case is made out by the petitioner, the company should shoulder the onus of disproving it, by showing that its defence is in good faith and is one of substance and it is likely to succeed in point of law. The defence must be substantial and not mere moonshine. So also where the dispute is a mere after thought, an adverse inference may have to be drawn against the Company that the defence being an afterthought, is a mere cloak to cover up its inability or refusal to pay. Adverse inference may also have to be drawn where the cheque/s issued by the Company for the debt in question or a part thereof is/a....
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.... to deposit the claim amount or a part thereof in the Court and require the petitioner to prove its claim before the Civil Court to which the amount deposited will be transferred or the Court may require the Company to give security for the amount claimed." 15.19 One of the tests to determine whether the dispute is genuine, substantial and real and is raised bona fide and whether the refusal to pay is for genuine reason and dispute or to hide inability to pay, is to direct the respondent to pay-deposit the amount. In view of the facts of this case and the findings of the Court and in light of the above quoted observations, it appears appropriate and necessary to direct the respondent, to deposit the amount in question i.e. Rs. 5,96,57,383/-, within 4 weeks from the date of present order. 15.20 The respondent is, therefore, directed to deposit the said amount, within 4 weeks in the Registry by Demand Draft issued by a Nationalized Bank. If the directions are complied with by the respondent, then further and appropriate order shall be passed by the Court after hearing the petitioner and the respondent. For the said purpose, the petition may be posted for hearing on 20.07.2012. ....