TaxTMI 
TaxTMI 
2016 (7) TMI 1191
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....at the outset that it is not in dispute that the Petitioner Bank is an authorised dealer in foreign exchange and is in fact listed as an authorised dealer in Category - I as per the Reserve Bank of India Guidelines. 2. Before dealing with the facts of this case, it would be necessary to mention here that this Company Petition was originally heard by another Judge of this Court ( S. C. Gupte J. ), who by his order dated 7 September, 2015 dismissed this Company Petition. Being aggrieved by this order, the Petitioner Bank preferred an Appeal before the Division Bench of this Court, who by its order dated 4 February, 2016 set aside the order dated 7 September, 2015 and remanded the matter back to this Court for a fresh hearing. It is in these circumstances that the present Company Petition has come up for admission before me once again. 3. The brief facts giving rise to the controversy in the present Petition are as follows:- (a) It is the case of the Petitioner that the Respondent Company during the course of its business, export large quantities of products and have a large annual turnover. Apart from this, the Respondent Company also has a substantial amount of im....
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....transactions. It is not in dispute that the ISDA Agreement as well as the Risk Disclosure Statement were signed on behalf of the Respondent Company by persons who were authorized in that regard as per the board resolution dated 14 November, 2007. (f) As mentioned earlier, on 23 May, 2008 CBOP merged with the Petitioner Bank under a Scheme of Amalgamation duly sanctioned by the Reserve Bank of India vide its letter dated 20 May, 2008. Under the said scheme, the Petitioner took over all the rights and liabilities of CBOP and stepped into the shoes of CBOP in respect of all pending transactions entered into by CBOP, one of which was under the ISDA Agreement and all derivative transactions entered into by the parties thereunder. (g) After the aforesaid merger of CBOP with the Petitioner Bank, on 26 June, 2008 a deal confirmation was entered into between the Petitioner Bank and the Respondent Company for the purposes of entering into USD/INR options transaction comprising of a series of options, the expiry / maturity of which, were spread over a period of one year from 27 June, 2012 to 29 May, 2013. This deal confirmation was entered into for modifying and hedging certain other de....
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....,000 27DEC-12 31DEC-12 43.1500 86242HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 29JAN-13 31JAN-13 43.1500 86243HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 29JAN-13 31JAN-13 43.1500 86244HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 26FEB-13 28FEB-13 43.1500 86245HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 26FEB-13 28FEB-13 43.1500 86246HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 27MAR-13 29MAR-13 43.1500 86247HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 27MAR-13 29MAR-13 43.1500 86248HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 26APR-13 30APR-13 43.1500 86249HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520,000 26APR-13 30APR-13 43.1500 86250HM 25JUN- 08 COUNTER PARTY INR 21,575,000 USD 500,000 29MAY-13 31MAY-13 43.1500 86251HM 25JUN- 08 HDFC BANK LTD USD 800,000 INR 34,520....
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....Rs. 10 Crores. In this view of the matter, the Petitioner, vide their letter dated 30 December, 2008 issued a margin call in terms of the deal confirmation. Since, there was no reply, the Petitioner Bank addressed another letter dated 13 May, 2009 to the Respondent Company, once again making a margin call and requested the Respondent Company to comply with its obligations under the deal confirmation. (k) The Respondent Company vide its letter dated 20 May, 2009 expressed its inability to comply with the margin call made by the Petitioner Bank citing the reason that due to cash constraints, global slowdown in the market and prior business commitments, it was unable to cater to the margin call made by the Petitioner Bank. However, what is important to note is that in this very letter the Respondent Company expressed its intention to continue with the options transaction entered into with the Petitioner Bank and expressed its commitment to clear all dues and outstanding at the relevant expiry - settlement dates under the deal confirmation. I must mention here that the Respondent Company has raised a dispute with reference to this letter dated 20 May, 2009 inter alia contending that....
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...., 2012 for the first time disputed the options transaction. It was stated in the said email that the said options transaction was entered into only to square off all old contracts / deals dated 20 November, 2007; 23 November, 2007; 19 December, 2007; 19 December, 2007; and 22 January, 2008 that were entered into with CBOP. The Respondent Company stated that the options transaction was entered into to square off the old dues which were not enforceable in law and that this deal confirmation - options transaction was only a paper contract so that the accounts of the Petitioner Bank could be squared up. An identical reply was given by the Respondent Company when the Petitioner exercised their second option which expired on 27 July, 2012. Similar replies have been given by the Respondent Company for all the options exercised by the Petitioner Bank on their respective expiry dates as more particularly set out in the deal confirmation. (p) It is not in dispute that all the options have been duly exercised by the Petitioner in view of the fact that the US Dollar rate on the date of exercising the options was higher than Rs. 43.15. It is the Petitioner's case that since the Company r....
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....hich the Respondent Company now seeks to disown. A reference to these letters can be found in paragraph 4 (page 142 of the paper book). There is no dispute that this letter dated 4 September, 2012 has been received by the Respondent Company and yet it chose not to reply to the same or controvert the allegations and the contentions raised therein. (s) Since the Respondent Company failed to honour its commitments under the deal confirmation, the Petitioner through their Advocate's notice dated 18 January, 2013 and delivered at the registered office of the Company, called upon the Respondent Company to pay a sum of Rs. 6,86,00,436.15 as on 31 December, 2012, within a period of 21 days from the date of receipt of the notice failing which the Petitioner would be constrained to initiate legal proceedings against the Respondent Company including initiating winding up proceedings contemplated under Section 433 read with Section 434 of the Companies Act, 1956. Despite receipt of this notice, no reply was given to the said notice and hence the present Company Petition. It would be pertinent to mention that the amount claimed in this notice was for a lesser amount than what is claimed ....
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..... Since the Respondent - Company failed to do either, the present Company Petition has been filed seeking to wind up the Respondent Company on the ground that it is unable to pay its debts. 5. According to Mr Kamdin, this liability of the Respondent Company arises on account of the contract entered into between the parties and was payable as per the terms of the contract. He submitted that as per the Risk Disclosure Statement executed by the Respondent (Page 73 of the paperbook), the deal could be fulfilled in two manners set out above i.e. either by delivering US$800,000 under each option at the pre-agreed / strike price of Rs. 43.15 per US Dollar or pay the difference between the Dollar rate on the date of the expiry of the respective option and the strike price agreed to between the parties, namely Rs. 43.15. According to Mr. Kamdin this is also further borne out by the Master Circular No./6/2007-08 dated 2 July, 2007 issued by the Reserve Bank of India, and more particularly Annexure VII thereof which stipulates that option contracts could be settled on maturity either by delivery on spot basis or by net cash settlement in Rupees on spot basis as specified in the contract. ....
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....mation that was stamped, was not signed by the Respondent Company, but the signature of the Respondent Company can be found only on a duplicate of the Deal Confirmation. Therefore there was a variance in the primary document itself which has given rise to a bonafide dispute between the parties. 7. For all the aforesaid reasons, Mr Cama submitted that there is no merit in this Company Petition and the same ought to be dismissed. He submitted that, in any event all these issues would give rise to a bonafide defence to the Company Petition, and therefore, this Court ought not to entertain the same and leave the Petitioner to recover its dues in the Original Application filed before the Debt Recovery Tribunal. 8. I have heard the learned counsel for the parties at length and perused the papers and proceedings in the Company Petition as well as the annexures thereto. The first defence raised by Mr Cama was that the Deal Confirmation dated 26 June, 2008 entered into with the Petitioner Bank, was only for the purpose of squaring off the old transactions entered into by the Respondent Company with CBOP which were unenforceable in law. According to Mr Cama, it was the understanding be....
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.... of the options. In view of these two categorical letters, I am unable to accept the submissions of Mr Cama that the Deal Confirmation dated 26 June, 2008 was entered into only to accommodate the Petitioner Bank to square off the old transactions entered into by the Respondent Bank with CBOP and which was not to give rise to any liability to either party. 10. Faced with this situation, Mr Cama contended that the letters dated 20 May, 2009 and 22 July, 2009 did not emanate from the Respondent Company and were not signed by a person authorized by the Respondent Company as per its resolution dated 14 November, 2007. According to Mr Cama this resolution (Exh B to the Petition) only authorized Mr. Radheshyam Agarwal and/or Mr. Rohan Agarwal to transact in spot and forward any foreign exchange and enter into interest rate and foreign currency swap options and any other derivative transactions that may from time to time be used to hedge the Company's interest and foreign exchange exposure risk. He submitted that admittedly these letters have not been signed by either Mr. Radheshyam Agarwal or Mr. Rohan Agarwal, and therefore, the same are not binding on the Respondent Company. 1....
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....nk and the Respondent Company was only a paper transaction and was not to be enforced and or acted upon. To my mind, any prudent person, after receiving these letters calling upon him to provide a short fall in the margin, would have immediately replied to the same and refuted the entire transaction thereby denying that any margin shortfall ought to have been made up by him. Admittedly, no such reply was ever given. This alone speaks volumes about the conduct of the Respondent Company and how it treated the Deal Confirmation as a valid and binding transaction between the Respondent Company and the Petitioner. I must mention here that this defence was raised for the first time only when the Respondent Company was called upon to honour its commitments under the first option that expired on 27 June, 2012. Looking to all these facts, I am clearly of the view that this defence has been put up only as an afterthought to somehow wriggle out of the liability that the Respondent Company had incurred under the said Deal Confirmation. For all the aforesaid reasons, I have no hesitation in rejecting the argument of Mr Cama that the Deal Confirmation dated 26 June, 2008 entered into between the....
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.... on the market value of an identical offsetting option." (emphasis supplied) 16. In fact, the Deal Confirmation dated 26 June, 2008 itself contemplates payment being made on the expiry of the relevant option. The relevant portion of the Deal Confirmation reads thus: "Each party will make each payment specified in this Confirmation as being payable by it, not later than the due date for value on that date in the place of the account specified below, in the freely transferable funds and in the manner customary for payments in the required currency. If on any date amounts would otherwise be payable in the same currency by each party to the other, then on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount." (emphasis supplied) 17. ....
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....5 ever during the period starting from 22.6.2007 to 15.6.2009, then the entire structure gets knocked out with no subsequent liability and the plaintiff would receive USD 100,000 on the spot date of touch. However if spot touches 1.2325, then the plaintiff would receive instant payment of USD 100,000, though the structure will not get knocked out." 19. In terms of the said deal, the Defendant paid to the Plaintiff US$100,000 which was received by the Plaintiff. However, after six months, the Plaintiff sent a letter dated 12 December, 2007 claiming that the entire structure as per the contract dated 22 June, 2007 got knocked out with no liability to either of the parties. By a reply dated 7 January, 2008, the Bank challenged this claim and contended that the contract was still alive and that the Bank was prepared to work out suitable risk mitigation structures. Not satisfied with the stand taken by the Bank, the Plaintiff filed a suit before the Madras High Court inter alia seeking a declaration that the Deal Confirmation in Contract No. OPT 727 purportedly made by the Plaintiff was void ab-initio, illegal, violative of RBI Guidelines, opposed to public policy and unenforceable a....
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....ther, and that other shall pay or hand over to him, a sum or money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties." in Weddle Beck & Co. v. Hackett, 1929 (1) K.B. 321 and Ellesmere v.Wallace, 1929 (2) Ch. 1. 55. The essential features of a Wagering Contract as formulated by the English Courts are as follows: (1) There must be 2 persons or 2 sets of or 2 groups of persons holding opposite views touching a future uncertain event. It may even concern a past or present fact or event. (2) In a Wagering Contract, one party is to win and the other to lose upon the determination of the event. Each party must stand either to win or lose under the terms of the contract. It will not be a Wagering Contract if one party may win but cannot lose or if he may lose but cannot win or if he can neither win or lose. (3) The parties have no actual interest in the occurrence or non- occurrence of the event, but have an interest only on the stake. 56. Applying the above essential features, contracts ....
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....Leslie, 1992 (1) Q.B. 92. 58. Though every wagering contract is speculative in nature, every speculation need not necessarily be a wager. In Bhagwandas Parasram v. Burjori Ruttonji Bomanji, AIR 1917 PC 101, it was held that speculation does not necessarily involve a contract by way of wager and that to constitute a Wagering Contract, a common intention to wager is essential. It was further held therein that in a wagering contract, there has to be a mutuality in the sense that the gain of one party would be the loss of the other on the happening of the uncertain event which is the subject matter of wager. The said decision was quoted with approval by the Supreme Court in Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty & Sons and Others, 1975 (2) SCC 208. 59. The mere fact that the parties never intended to take delivery at the end would not also make a transaction a wager. In Ismail Lebbe Marikar Ebrahim Lebbe Marikar v. Bartleet and Company, AIR (29) 1942 Privy Council 19, a firm of share and produce brokers entered into an arrangement with the grower of rubber in Ceylon. Under the arrangement, the broker was to buy rubber for the defendant in the London market, b....
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.... Cama that the Deal Confirmation dated 26 June, 2008 entered into by the Respondent Company with the Petitioner Bank is void-ab-initio, illegal and unenforceable as it amounts to a "wagering contract", and therefore, hit by the provisions of Section 30 of the Indian Contract Act, 1872. 21. The next submission canvassed by Mr Cama was that the claim made in the present Company Petition was nothing but in the nature of damages. This being the case, there was no debt due and payable by the Respondent Company to the Petitioner in presenti and therefore, this Company Petition could not maintained on the basis of a claim for damages. In this regard, he was at pains to point out the averments in the Petition wherein the Petitioner has averred that since the Respondent Company did not honour its commitments under the options transactions, the Respondent Company had suffered a "loss". In this regard, Mr Cama placed reliance on a decision of the Supreme Court in the case of Union of India v/s Raman Iron Foundry AIR 1974 SC 1265, as well as a decision of a Single Judge of this Court (Dr D.Y. Chandrachud J. as he then was) in the case of E-Citty Media P.Lttd. v/s Sadhrtta Rettail Lttd. [201....
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.... Bank would certainly come within the meaning of the word "debt" as defined in Section 2(g). Section 6(1) of the Banking Regulation Act, 1949, enables a Banking Company to engage in any one or more of the forms of business enumerated in Clauses (a) to (o), in addition to the business of Banking. Sub-section (2) of Section 6 prohibits a Banking Company from engaging in any form of business other than those enumerated in sub-section (1). Therefore if a transaction falls within any one of the forms of business covered by Section 6(1) of the Banking Regulation Act, 1949, it would certainly be a business activity undertaken by the Bank. Consequently, a claim that arises during the course of such a business activity undertaken by the Bank, would come within the definition of the word "debt" in Section 2(g). 25. Transactions in derivatives, fall within the category of "business activity undertaken by the Bank" as they are covered by Section 6(1) of the Banking Regulation Act, 1949. Therefore I have no difficulty in coming to the conclusion that if the transaction in question gives rise to a claim by the Bank, of any liability, on the part of the plaintiff, the defendant-Bank may certai....
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....find the reliance placed by Mr Cama on the decision of a Single Judge of this Court in the case of E-Citty Media P.Lttd., [2010] 153 Comp Cas 326 (Bom) as wholly misplaced. The facts of this case would reveal that the Company Petition was filed admittedly on the basis of a claim for liquidated damages. The learned Judge held that even if the claim was in the nature of liquidated damages, the same would make no difference and therefore a winding up petition would not be maintainable. This decision is also therefore, to my mind, wholly inapplicable to the facts of the present case. 26. Mr Cama then submitted that there is a serious dispute with reference to the amounts owed to the Petitioner in view of the fact that there was nothing to indicate what was the US Dollar rate on the date of the expiry / settlement of the respective options. To counter to this argument, Mr Kamdin, and in my view correctly so, submitted that as far as the US Dollar rate is concerned, it is determined at the end of the closing business day of the expiry of the option. In fact, under the Master ISDA Agreement, the calculation agent is the Petitioner Bank, unless otherwise specified in the Deal Confirmati....
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.... the Supreme Court, once there is no doubt that the Respondent Company owes to the Petitioner an amount which would entitle the Petitioner to a winding up order, then a winding up order can be passed by the Company Court without driving the Petitioner to quantify the debt precisely. Following this proposition, two Division Benches of this Court have also taken the same view. The first decision is in the case of Pfizer Limitted v/s Usan Laborattories Pvtt Lttd. (1985) Mh. L. J. 554 wherein a Division Bench of this Court held as under:- "6. The short question we are considering is the position of the notice or of the subsequent petition when a part of the claim made by the creditor is seriously in dispute, but the remaining portion which prima facie would appear to be in order exceeds the limit of Rs. 500/- indicated in section 434. Shri Tulzapurkar submitted that the position is not res integra being concluded by the decisions both of the English Courts and of the Calcutta High Court, which decisions have taken view contrary to the view which found favour with the learned Company Judge. Our attention was invited to these decisions and it becomes necessary therefore to refer to th....
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.... because there could be a serious dispute as to the liability to pay interest at all or at the rate of 18% would not render the statutory notice invalid or result in a dismissal of the winding-up petition. The Company Judge was required to consider the claim of the petitioners in respect of the principal amount and to come to a conclusion whether or not there was any real substantial dispute with regard to the said claim. If there was a genuine and bonafide dispute, then certainly it was within his discretion and jurisdication to dismiss the petition and relegate the petitioners to claim the amount by a regular suit. However, he did not go into this aspect but chose to dispose of the winding-up petition by dismissing the same on an erroneous basis which we have earlier indicated. If that be so, the impugned order will be required to be set aside and the petition will now go back to the Company Judge for reconsideration of the position and to decide whether it is required to be admitted and whether further directions after admission are required to be given." (emphasis supplied) 28. The second decision is in the case of Tatta Finance Lttd v/s Kanoria Sugar and General Manufact....
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....after proper demand was made. He added that neglect is to be assessed on the facts of each case. 10. In Goel Bros, and Co. Pvt. Ltd.'s case, 1979 Mh. L.J. 607 : (1980) 50 Comp Cases 356 (Bom.), another Single Judge of this Court, Agarwal, J. held that after the creditor establishes that the debt is clear, valid in law, unimpeachable and indisputable, the creditor is entitled to a winding up order ex debito justitiae. But if the debt is disputed and the dispute is bona fide and genuine, no winding up order can be made. He clarified that neglect to pay is not equivalent to omission to pay for it requires that such omission is without reasonable cause or valid excuse. 11. Applying now, the law as above, to the case in hand, can it be said that the defence raised by the company is legitimate and the debt of company is bona fide disputed. In the instant case, the Company's case is that the total amount of more than Rupees Two crores is payable by the company. It is true that there is some dispute about the claim of enhanced lease rentals on account of disallowance of claim of depreciation by the Income Tax department. There is, however, absolutely no dispute for the outsta....
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....to the winding up petition. 31. To my mind, this argument is made only to be rejected. I have carefully gone through the deal confirmation annexed at Exh.'K' to the Petition (page 84 of the paper-book) as well as Exh.'F' to the affidavit in rejoinder dated 24 March, 2014 (page 246 of the paper- book). Both the aforesaid documents are one and the same deal confirmation and are identical in its terms. The only difference between the two is that the duplicate of this deal confirmation has been signed by the Respondent - Company (through its authorised signatories) whereas the stamped deal confirmation is unsigned by the Respondent Company. Reading these two documents together, I find absolutely no merit in the submission of Mr Cama that there is any variance between the two documents. In any event, this defence is taken for the first time in this Company Petition and was never raised by the Respondent Company at the time when it disputed its liability on the expiry of the relevant options under the Deal Confirmation dated 26 June, 2008. I therefore find that this defence is neither in good faith nor bonafide which would persuade me to dismiss this Company Petition o....