TaxTMI 
TaxTMI 
TaxTMI 
2013 (4) TMI 31
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....set 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 statutory notice demanding refund of the amount,....
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....otice 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 deposited and the corresponding evidence of the same. The ....
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....ffidavit 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 Respondent Company was seeking approval of the Reserve Bank of India f....
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....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 petition is not maintainable. Mr. Shah, learned counsel for the respondent would....
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....en 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 FIPB about receipt of the said amount from the petitioner company. 8.2 The respondent compan....
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.... 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 certainly do not have any deliberate intention of not informing you on the subject. 4. Moreover during the person....
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....d 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 petitioner vide its letter dated 2nd September, 2009 that it will obtain appropriate legal advice and will do the needful. 8.10 ....
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....ourse 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 make any application for compounding the contravention, as intimated by RBI vide its letter dated 8th July, 2010. It was after delay of almost 4 months si....
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....etition 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 company has taken out Judges Summons dated 28th July, 2011 seeking below mentioned permission and direction: "(a) to permit the duly authorized attorney of the petitioner co....
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.... 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 has framed the said rules in exercise of power under Section 643. Rule 6 of the said Rules provides as to how the affidavit shall be drawn and Rule 21 prescribes as to how the affidavit shall be verified....
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.... 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'. 11.13 Thus, the deponent has expressly stated that the entire contents of the petition are made on the basis of the record and the details mentioned in the petition are derived from the record. When a person derives all information,....
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....nity 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 placed on record, along with the petition (at Annexure-P13, pages 48 to 50). 12.3 Rule 21 requires that the affidavit should be made, in case the petitioner is body corporate, by Director or Secretary or Principal Officer. 12.4 The proviso of....
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....n 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 mention that pursuant to the respondent's affidavit raising such objections, the petitioner has taken out Judge's summons dated 28.7.2011 and an affidavit in support of said summons is filed wherein, it is stated, inter-alia that: "2. I, being the sole Director of the Petiti....
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.... 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 petition arises. For the present purpose and so far as the objection raised by the respondent is concerned, what is relevant is the fact that a power of attorney duly executed and granted by the company i.e. the petitioner on 2.9.2010 authorizing Mr. Parmindersingh Dadhwal and Mr. Sudershan Pradhan....
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....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. 13.13 Of course, the Court would not mechanically permit the petitioner to cure/remove and rectify the defects and before granting permission or before allowing/requiring the petitioner to make rectification or to cure defects, the Court would take into account relevant facts, attending circumstances as well as cond....
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....ment 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. 14.4 In the aforesaid background it is relevant to note that even the said excuse or the reason given by the respondent did not survive after 8.07.2010 inasmuch as RBI granted approval vide its letter dated 8th July 2010 and permitted the respondent to return the share application money to the petitioner, however, without payment of any in....
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....w 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 it is an afterthought or, a façade to avoid its obligation to discharge the debt. 15.1 Recently, in the decision in case of IBA Health (I) (P.) Ltd. v. Info-Drive System Sdn. Bhd. [2010] 104 SCL 367/8 taxmann.com 1 the Apex Court has observed that: "20. The question that arises for consideration is that when there is a substantial dispute as to lia....
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....nable 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 (vide its letters dated 15.03.2011, 31.03.2011 and 26.09.2011) to return the amount in question to the petitioner, (iv) and yet the respondent has, despite such directions and even after service of statutory notice, not returned the amount in question to the petitioner, (v) It is also not in dispute that the relevant provision under the Act obliges the respondent to retu....
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.... 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 of winding up against the respondent. 15.11 In this context, it is relevant to mention that the respondent has tried to rely on the claim that it is a going concern and has mentioned details about its financial position so as to contend that order of winding up does not deserve to be and may not be passed. The said defence raised by the respondent company and its conduct amounts to not making payment....
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....cept 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 while deciding as to whether the refusal to pay the debt is result of bona fide dispute as to the debt or liability or whether it reflects inability to pay. In former situation the respondent's solvency may be relevant consideration but not as a separate ground to reject the petition seeking order of winding up. Differently put, when there is no bona fide dispute as to the respondent's obligation and liability....
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....n 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/are dishonoured. For determining whether a debt is disputed bona fide or not, the conduct of the parties in relation to the transaction in question, the character of the pleas and the circumstances which will be peculiar to each case will have to be considered. IV. Court's findings on bona fides of company's defence and orders which may be passed upon such findings: (1) After considering the material on record, if the Co....