TaxTMI 
TaxTMI 
2009 (12) TMI 1013
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....erim injunction restraining the Company-Kothari Industrial Corporation Ltd., from alienating, disposing of the shares of Glenworth Estate Ltd., and Adderley Estate Ltd., or in any manner encumbering its movable and immovable assets, and (ii) a direction to the Company not to place any agenda in the Annual General Body meeting, regarding the transfer of any of the fixed assets of the Company to any third party. I have heard Mr. P.L. Narayanan, learned counsel appearing for the petitioning creditor Kotak Mahindra Bank Ltd., Mr. T.K. Seshadri, learned Senior Counsel appearing for the Kothari Industrial Corporation Ltd., which is the Company sought to be wound up, Mr. P.H. Arvind Pandian, learned counsel appearing for the third party prospective purchaser, who is the applicant in C.A. No. 1000 of 2009. 2. Though the Application C.A. No. 1000 of 2009 filed by the agreement holder (prospective buyer) seeking permission to complete the deal relating to the purchase of 3 properties of the Company in question, came up earlier for hearing and orders were reserved on 23.11.2009 and the other two Applications filed by the petitioning creditor came up later, all of them are disposed of in co....
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....a stood settled to the extent of Rs. 287.37 lakhs out of the OTS amount of Rs. 300 lakhs. 5. The Appeal O.S.A. No. 89 of 2009 filed by the first respondent Company, was allowed by the Division Bench on 10.7.2009 and the Petition for winding up was remanded back to the Company Court to proceed in accordance with law. 6. After the order of the Division Bench, the applicant K. Periasamy Gounder entered into a supplementary MOU on 14.7.2009 with the Company in question, for the purchase of the office premises bearing door Nos. 144 and 145, measuring about 1,895 sq. ft., in Mittal Court, Nariman Point, Mumbai, for a total consideration of Rs. 3 crores. According to the applicant, he was forced to enter into this supplementary MOU, to safeguard the payments already made to the extent of Rs. 9.37 crores under the first MOU. 7. Apart from entering into a supplementary MOU purportedly for safeguarding the payment of Rs. 9.37 crores made under the first MOU, the applicant also got a Sale Deed executed and registered in favour of his nominee, on 16.7.2009 in respect of one properly at Coimbatore, measuring an extent of about 70 cents in T.S. No. 481/1, Uppilipalayam village, Singanal....
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....ordering notice in the Special Leave Petition, the Supreme Court passed an interim order on 9.11.2009, restraining the first respondent-Company from alienating its assets, without the prior permission of the Company Court. Therefore, according to the petitioning creditor, the permission sought for by the agreement holder K. Periasamy Gounder cannot at all be granted since both the applicant as well as the Company in question, lack bona fides. Pleadings and Prayer in C.A. Nos. 1740 and 1741 of 2009: 11. As stated earlier, Kotak Mahindra Bank has come up with these applications praying for (i) an interim injunction restraining the Company in question viz., Kothari Industrial Corporation Ltd., from alienating or disposing of the shares of Glenworth Estate Ltd., and Adderley Estate Ltd., and from encumbering its movable and immovable assets and (ii) an interim direction to the Company not to place any agenda before the AGM, relating to the transfer of shares. 12. It is the case of the Bank that ICICI Bank extended two rupee term loans and two foreign currency loans to the Company in question and the Company mortgaged two Estates known as Glendale Tea Estate and Adderley Estate....
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....s. Therefore, according to the Company, the prayer for an injunction restraining the transfer of shares, does not survive for adjudication. In so far as the prayer relating to the agenda for the 39th AGM is concerned, it is the contention of the Company that the notice for the AGM had already been issued. The notice does not contain an agenda for transfer of the shares, since the transfer had already taken place. Therefore, in the absence of an agenda, the prayer in the second Application cannot also be granted. 16. Before considering the rival contentions of the parties in these Applications, it is necessary to place on record certain background facts, without which, any appreciation may not be fruitful. Therefore, they are advanced to as follows: Background Facts; 17. ICICI Bank Ltd. filed an Application in O.A. No. 23 of 2005 on the file of the Debts Recovery Tribunal-I, Chennai, under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 against Kothari Industrial Corporation Ltd. and Kothari (Madras) International Ltd., seeking recovery of a sum of Rs. 8,18,80,538/-, allegedly due as on 30.9.2004 together with future interest and other ....
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....n in February 2006 in I.A. No. 67 of 2006 in I.A. No. 586 of 2005 in O.A. No. 23 of 2005. The prayer of Kothari Industrial Corporation in that I.A. No. 67 of 2006, read as follows: For the reasons stated it is therefore prayed, that this Hon'ble Tribunal may be pleased to permit the petitioner to complete the transfer of the Adderley Estate to and in favour of its wholly owned subsidiary Company i.e., M/s. Adderley Estate Ltd., and pass such further or other orders as this Hon'ble Tribunal may deem fit and proper and thus render justice. 21. In the affidavit in support of I.A. No. 67 of 2006, Kothari Industrial Corporation claimed (i) that they had offered their plantation properties described in Schedule 'A' to O.A. No. 23 of 2005 as collateral security for the financial assistance rendered by ICICI Bank Ltd.; (ii) that in order to avoid various legal entanglements, they had decided to transfer an estate owned by them in Coonoor and known as Adderley Estate to a wholly owned subsidiary Company by name M/s. Adderley Estate Ltd., which was specifically incorporated for the purpose; (iii) that the Company had already resolved to transfer the estate as a go....
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....n the Estate. 24. On 2.5.2006, the DRT-I, Chennai, passed an order in I.A. No. 122 of 2006, directing the Company and its managerial personnel to file an affidavit before the Tribunal, disclosing the present status of the affairs of the Company, its shares and its various assets, within two weeks. 25. Subsequently, Kotak Mahindra Bank filed two more Applications in I.A. Nos. 135 and 136 of 2006 in O.A. No. 23 of 2005, praying inter alia for (i) setting aside the transaction relating to the transfer of Adderley Estate in favour of Adderley Estates Ltd., under the Deed of Transfer presented for registration on 15.3.2006 and pending registration with the Sub-Registrar, Coonoor as pending document No. 5 of 2006, and (ii) directing Sub-Registrar to deposit the document pending with him, into the Tribunal. These two Applications were filed by Kotak Mahindra Bank in the third week of May 2006. 26. In the meantime, the DRT-I, Chennai, passed orders on 2.2.2006, showing the Application I.A. No. 559 of 2005 for substitution of the name of Kotak Mahindra Bank in the place of ICICI Bank. As against the said order, the Company filed an Appeal in M.A. No. 138 of 2006 before the Debts Re....
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....s to maintain status quo. 30. After filing a Review before the Appellate Tribunal and losing the same, Kotak Mahindra Bank filed a Revision Petition under Article 227 of the Constitution, before the Division Bench of this Court in C.R.P.(PD) No. 1953 of 2008. This Revision Petition was disposed of by the Division Bench, by an order dated 15.7.2008. By the said order, the Division Bench set aside the orders of the Appellate Tribunal and remitted the matter, for a determination of the question relating to substitution and thereafter for a determination of the legality and propriety of the transfer of the mortgaged property in question. However, the Division Bench also directed both parties to maintain status quo in the meantime. 31. On 11.9.2008, the Bank of Baroda, along with other creditors viz., Central Bank of India, Kotak Mahindra Bank, State Bank of Travancore and Punjab National Bank, issued 2 statutory notices under Section 13(2) of the SARFAESI Act, to Kothari Industrial Corporation and to the guarantor Pradip D. Kothari, calling upon them to pay the amounts due to each of the secured creditors, including the Kotak Mahindra Bank, within 60 days. Two more notices were i....
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....nk of Baroda, State Bank of Travancore and Punjab National Bank expires today i.e., on 30.4.2009 and yet another one time settlement entered with Central Bank of India also expires on 20.5.2009, pending further order in this Application and keeping the last date for honouring the one time settlement we permit the payment of the said amount. 2. The respondents shall file counter, post the matter on 16.6.2009. 35. Ultimately, by an order dated 10.7.2009, the Division Bench allowed the Appeal O.S.A. No. 89 of 2009 and set aside the order of winding up passed on 8.4.2009 in C.P. No. 51 of 2007 and remitted the matter back to the Company Court, for proceeding afresh in accordance with the statutory provisions. While doing so, the Division Bench dismissed M.P. No. 2 of 2009, whereby permission was sought by the Company to transfer the properties in favour of K. Periasamy Gounder in terms of the MOU dated 16.3.2009. The last para of the order of the Division Bench dated 10.7.2009 in O.S.A. No. 89 of 2009, reads as follows: The Appeal stands disposed of in the above terms. However, there will be no order as to costs. The application in M.P. No. 2 of 2009 is taken out s....
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.... 2009. Pending hearing and final disposal of the Special Leave Petitions, on furnishing undertakings, both by the assignor Banks and assignee Banks, the assignee Banks shall be permitted to participate in proceedings held by Asset Sales Committee, as also proceedings before the Company Court, without prejudice to the rights and contentions of the parties before us. It is made clear that in the event of dismissal of these Special Leave Petitions, the assignor Banks and the assignee Banks will reverse the transactions which they enter into during the interim period within the period to be stipulated by this Court at the final hearing of the matters. This order is required to be passed in order to see that the secured debts do not go unrepresented. Pending hearing and final disposal of the Special Leave Petitions, we further direct that any disbursement to secured creditors shall, where the debt stands assigned, be made to the assignees. This order will not be construed as an acceptance of the assignments pending the present Special Leave Petitions. Parties to complete their pleadings within three weeks from today. Liberty to file documents, if so advised. ....
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....t: Petition praying that in the circumstances stated therein and in the affidavit filed therewith the High Court will be pleased to pass an order of stay of all further proceedings in O.A. No. 23 of 2005 before the Honourable Debt Recovery Tribunal-I at Chennai (in M.P. No. 1 of 2009) pending disposal of the above C.R.P.PD. No. 3331 of 2009. Therefore, there is only a stay of further proceedings before the Debts Recovery Tribunal-I, Chennai, in O.A. No. 23 of 2005 and there is no interim suspension of the order of injunction granted on 30.3.2007 in I.A. No. 586 of 2005 in O.A. No. 23 of 2005. Consequently, the original order of status quo granted on 15.12.2005 remained unaltered till it merged with the order of interim injunction granted on 30.3.2007 and the order of interim injunction granted on 30.3.2007 still remains in force. However, the Company has complied with the conditional order and hence further proceedings in O.A. No. 23 of 2005 remain stayed, though the interim injunction continues to remain in force. In the light of the above background facts, let me now take up the applications on hand, for consideration. C.A. No. 1000 of 2007: 41. The Applicati....
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....005, the State Bank of India had filed O.A. No. 48 of 2004 on the file of the Debts Recovery Tribunal. Therefore, the Company claims in para-10 of their counter affidavit that they are also prepared to deposit the balance consideration of Rs. 3 crores, received from the applicant, into a no-lien account with the State Bank of India, till the conclusion of O.A. No. 48 of 2004 filed by State Bank of India. 45. All the above averments contained in the counter affidavit filed by Kothari Industrial Corporation, on their face, would give an impression to any one that their intentions are noble and highly commendable. But if we carefully scan the background facts that I have extracted earlier in the preceding section of this order, it may not be difficult to find out what is hidden behind the sweet words contained in the counter affidavit. 46. Admittedly, the properties described in Schedules 1, 2 and 3 to the Judges Summons in this Application C.A. No. 1000 of 2009, are mortgaged to the State Bank of India, who have already filed O.A. No. 48 of 2004 on the file of the Debts Recovery Tribunal. No one time settlement has been reached: by the Company with the State Bank of India. The ....
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.... on 30.3.2007 and an order of injunction was granted in favour of Kotak Mahindra Bank restraining the Company from alienating, encumbering or transferring their assets and shares pending disposal of the O.A. No. 23 of 2005; (c) that in a Revision filed under Article 227 of the Constitution in C.R.P. No. 3331 of 2009, the Company merely sought for and obtained an interim stay of further proceedings in O.A. No. 23 of 2005, but did not either challenge the order of injunction granted on 30.3.2007 or seek interim suspension of the order of injunction; (d) that by a separate order dated 30.3.2007 passed in I.A. No. 135 of 2006 filed by Kotak Mahindra Bank and I.A. No. 67 of 2006 filed by the Company itself, the DRT directed both parties to maintain status quo; (e) that the DRAT, by its order dated 12.11.2007 passed in M.A. No. 83 of 2007 also directed both parties to maintain status quo; (f) that by an order dated 15.7.2008 passed in C.R.P.PD. No. 1953 of 2008, the Division Bench of this Court also directed both parties to maintain status quo; and (g) that admittedly the notices under Section 13(2) and the possession notices under Section 13(....
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...., DRAT and the Division Bench of this Court (ii) the order of injunction passed by the Tribunal on 30.3.2007 which continues to be in force till date, and (iii) the possession notices issued on behalf of 5 Banks under the SARFAESI Act. 52. As a matter of fact, the present Petition for winding up C.P. No. 51 of 2007, out of which the above applications arise, was filed by Kotak Mahindra Bank as an assignee of ICICI Bank Ltd., in whose favour the Company gave corporate guarantee for the dues of another Company by name Dayanand Mills Ltd. (formerly known as D.C. Kothari Textiles Ltd.), now under liquidation. Thus ICICI Bank had made two sets of claims against Kothari Industrial Corporation, one in respect of the corporate guarantee executed by them for the dues of Dayanand Mills Ltd., and another in respect of their own borrowings. In respect of the dues arising out of the corporate guarantee, the Bank has come up with the winding up Petition. In respect of the dues arising out of their own borrowings, the Bank has already gone before the Debts Recovery Tribunal, seeking to enforce the security. Neither ICICI Bank nor Kotak Mahindra Bank (claiming to be an assignee of ICICI Bank) h....
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....(ii) Altos India Ltd. v. Bharti Telecom Ltd., 2001 (30) SEBI & Corporate Laws Reports 347 (P & H). Similarly, the learned Senior Counsel appearing for the Company also relied upon the following decisions: (i) J. Sen Gupta (Pvt) Ltd., In re,1962 (32) Comp. Cases 876 (Cal); (ii) Navjivan Mills Ltd., In re, 1986 (59) Comp. Cases 201 (Guj.); (iii) Travancore Rayons Ltd. v. Registrar of Companies, 1988 (64) Comp. Cases 819 (Ker.). 57. I have carefully considered the principles of law laid down in the above decisions. I have no doubt about the power of the Company Court under Section 536(2) of the Act, either to validate a transfer of the Company's assets made after the commencement of the winding up proceedings or to permit the Company to go ahead with a transaction. In J. Sen Gupta Pvt. Ltd., the Calcutta High Court;, after referring to various English decisions, elicited the following principles, governing the exercise of discretion under Section 536(2) of the Act: (a) The Court has an absolute discretion to validate a transaction. (b) This discretion is controlled only by the general principles which apply to every kind of judici....
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.... shows- (i) that the disposition made or sought to be made, must be honest and bona fide; (ii) that the transaction is in furtherance of the Company's business/interest and in the interest of the creditors; and (iii) that no creditor should obtain an advantage over his fellow creditors. 61. In Andhra Bank v. Provisional Liquidator, Godavari Sugars and Refineries Ltd. 1954 (24) Comp. Cases 149, this Court, after referring to the observations of Lord Cairns In Re Wiltshire Iron Co., 1868 L.R. 3 Ch. App. 443, and after pointing out the provisions of Section 227 of the English Act of 1948, held that the transactions that would be validated by the Court are transactions which are bona fide entered into. This Court also referred to the observations of Marten C.J. in Tulsidas Jasraj v. Industrial Bank of Western India, 1930 ILR (54) Bom 718, to the effect that the fundamental principle in a winding up is that all unsecured creditors are to be paid pari passu, the object being to prevent the injustice and scrambles and intrigues which would arise if the Company were to be at liberty to prefer one creditor to another. This Court also observed that the funda....
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....dri, learned Senior Counsel for the Company and assume that Kotak Mahindra Bank is a poacher and their assignment is wholly invalid, there is no bar for the State Bank of India or the ICICI Bank to proceed further in their Applications before DRT. The present Company Petition for winding up was filed on 20.12.2006. As a matter of fact, the Authorised Officer of the Bank of Baroda, initiated proceedings under the SARFAESI Act, in September 2008, not only on behalf of the Bank of Baroda but also on behalf of Kotak Mahindra Bank, describing them as the assignee of State Bank of India. Despite the pendency of the Application of the State Bank of India in O.A. No. 48 of 2004, despite the pendency of the Application of the ICICI Bank in O.A. No. 23 of 2005, despite the pendency of the present Petition for winding up in C.P. No. 51 of 2007 and despite the issuance of the notices under the SARFAESI Act, 2002 in September 2008, the Company entered into a Memorandum of Understanding on 16.3.2009. (b) After this Court ordered winding up on 8.4.2009 and the same was set aside by the Division Bench on 10.7.2009, a Supplementary MOU is entered into on 14.7.2009. No application seeking a....
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....tered into the Supplementary MOU on 14.7.2009 and they have taken a stand now that the transfer of the 2 unencumbered assets described in Schedules 'C' and 'D' of the first MOU is complete. It means that in the opinion of the Company, they did not require the permission of this Court in respect of those 2 assets. (d) Fortunately, the Apex Court issued a mandate, while issuing notice in the Special Leave Petition that the Company shall not alienate its assets, except with the permission of this Court. But for this mandate, the applicant and the Company would have proceeded to complete the transaction, as they have done in respect of 2 assets covered by the first MOU dated 16.3.2009. Therefore, I am clearly of the view from the above sequence of events that the applicant and the Company have not acted in a bona fide and honest manner, so as to enable this Court to grant approval for the transfer. (e) If we really look at the sequence of events narrated above, it will be clear that the approval of this Court is sought in respect of 3 secured assets, 2 covered by the first MOU dated 16.3.2009 and one covered by the Supplementary MOU dated 14.7.2009. In....
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....f these two Banks is contested vehemently by the Company. Once the Company has chosen not to recognise Kotak Mahindra Bank's very existence, the Company should have at least put the State Bank of India and ICICI Bank on notice of these two Memorandum of Understanding. Even this the Company has not chosen to do. 63. Admittedly, the State Bank of India filed O.A. No. 48 of 2004 before the DRT in the year 2004. The alleged assignment by State Bank of India in favour of Kotak Mahindra Bank is dated 23.3.2006. The application C.A. No. 1000 of 2009 was filed in July 2009. Thereafter, the Company Kothari Industrial Corporation has filed a Suit in C.S. No. 938 of 2009 against the State Bank of India and Kotak Mahindra Bank, seeking various relief's. Pending the Suit, the Company had also moved an Application in O.A. No. 1077 of 2009, seeking an interim injunction restraining the State Bank and Kotak Mahindra Bank from dealing with or acting on the properties of the Company. On 21.10.2009, an ex parte order of interim injunction has been granted by a learned Judge, on the original side of this Court, restraining the State Bank and Kotak Mahindra Bank from taking any further proce....
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.... companies by name Glenworth Estate Ltd. and Adderley Estate Ltd. Though the Company has taken a stand that this Application has become infructuous since it had already completed the transfer of the 2 estates in favour of 2 subsidiary companies and also transferred the shares in those subsidiary companies to third parties, way back in 2005 itself, I cannot turn a blind eye to the manner in which the same is claimed to have been accomplished. 68. By a Transfer Deed dated 22.10.2005, executed on plain papers, a copy of which is filed by the Company itself, Kothari Industrial Corporation Ltd., transferred, conveyed and sold, the Glendale Estate comprising of about 1,147.98 acres of land in Coonoor Taluk, Nilgris District, together with the buildings constructed thereon including hospital, canteen, workshop, officers' quarters, etc., as well as the machinery installed therein, to and in favour of Glenworth Estate Ltd., for a total sale consideration of Rs. 22 crores. 69. By a similar Transfer Deed dated 30.11.2005, executed on plain papers, a copy of which is filed by the Company itself, Kothari Industrial Corporation Ltd.. transferred, conveyed and sold, the Adderley Estate ....
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....complete the transfer of Adderley Estate. This Application was filed in February 2006. 74. Therefore, one would normally expect the borrower, who comes up with an Application in February 2006 seeking permission to transfer an estate, to make a full and true disclosure, at least before the Tribunal, of all material facts, including the transfers effected in October and November 2005. But unfortunately, the Company did not make such a true and full disclosure, in the affidavit filed in support of I.A. No. 67 of 2006. In paragraph-9 of the affidavit filed in support of I.A. No. 67 of 2006, the Company made the following averments: P. It is submitted that the petitioner for effective management and to avoid various legal entanglements and resources drained from these Estates, the petitioner-Company decided to transfer certain assets to only its wholly owned subsidiary Company, in particular the petitioner have decided to transfer the Adderley Estate to M/s. Adderley Estate Ltd., which is been specifically incorporated for this purpose. And, this Adderley Estate Ltd., is a wholly owned subsidiary Company of the petitioner-Company. This property is transferred in total along ....
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....d regular document No. 861 of 2009. Similarly, the Transfer Deed relating to Adderley Estate is said to have been presented for registration on 15.3.2006, claiming exemption from payment of stamp duty on the ground that the transfer was in favour of a subsidiary Company, though it ceased to be so on 30.11.2005 itself. This document was assigned pending document No. P. No. 5 of 2006. 78. Interestingly, the Application filed by the Company in I.A. No. 67 of 2.006 was only in respect of Adderley Estate. There is no whisper in the application about the transfer of Glendale Estate. After having filed I.A. No. 67 of 2006 in February 2006, without disclosing the fact that the transferee Companies had already ceased to be subsidiary Companies, Kothari Industrial Corporation did not even wait for an adjudication in that Application. The Company has proceeded to complete the registration in May 2009 at least in respect of Glendale Estate, despite suffering an order of status quo in their Application I.A. No. 67 of 2006, on 30.3.2007 itself. 79. Thus, there has been a total suppression as well as a violation of the order of status quo. It must be remembered that I.A. No. 67 of 2006 was ....
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....eld on 26.4.2008, by way of amendment. To put it in other words, the message conveyed to the shareholders, in the notice for the 36th AGM, sent on 28.9.2007, was that the legal transfer of the title had not been effected in view of the objections raised by financial institutions holding a pari passu charge on the estates. But in the meeting held on 26.4.2008, an amendment is introduced deleting the above portion. 82. If we take a look again at the sequence of events, it is seen from paragraph 7 of the counter affidavit filed by the Company that the transfer of the estates to the wholly owned subsidiaries was effected pursuant to a resolution of the AGM allegedly held on 27-9-2005. But in paragraph 11 of the affidavit filed in I.A. No. 67 of 2006 before the DRT, it was claimed by the Company that the approval of the shareholders was obtained through postal ballots on 8.10.2005. But in the statutory notice issued on 28.9.2007 to all the shareholders, for the 36th AGM convened on 26.4.2008, it was stated that the transfer had not been effected. Subsequently, the statement was deleted by way of amendment in the meeting on 26.4.2008. Thus contradictory statements have been made on th....