TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1223
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....assed in C.A.2934 of 2009. 2.1. This order was passed by the Supreme Court based on an application filed by an entity known as Assets Reconstructions Company (India) Limited i.e. respondent No.2. Respondent No.2 stepped into the matter upon an assignment being executed in its favour by the Indian Bank. 2.2. Indian Bank, at the relevant point in time, was one of the creditors of the company in liquidation. 3. For the sake of discussion, we would be referring to the appellant i.e. VGP Finances Limited as "VGP", while the company in liquidation, which is Neptune Inflatables Limited would be referred to as "Neptune". 3.1. Similarly, respondent No.1 i.e. the Official Liquidator will be referred to as "OL"; while respondent No.2 Assets Reconstructions Company (India ) Limited, would be referred to as "ARCIL". 3.2. Collectively, the appellant and the respondents would be referred to as parties. 4. With this preface in place, it would help adjudication of the issues raised before us if the broad contours of the case are set forth hereafter: 4.1. On 29.09.1995, a special resolution was passed at the twelfth Annual General Body Meeting of the company in liquidation i.e Neptune. By vir....
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....d conditions of this agreement were no different from that of the first loan agreement. 4.8. In so far as the third loan agreement was concerned, which is dated 07.02.1996, once again, a sum of Rs. 25,00,000/- was advanced by VGP to Neptune. The terms of this loan agreement were identical to the earlier two loan agreements. 4.9. In so far as the fourth agreement was concerned, which is dated 10.01.1997, VGP advanced a sum of Rs. 5,20,901/- by way of a short term loan, to Neptune. The peculiarity of this loan agreement was that it set out the date when the principal amount would be lent, it quantified the interest payable and the sum total of the principal and interest that Neptune was required to repay. Furthermore, clause 2 of the agreement provided that the loan amount would carry an interest rate of 36% p.a. to be paid at the end of the loan period. 5. Since, the aforementioned details with regard to the principal amount and the interest are reflected in the body of the loan agreement, for the sake of convenience, the same are extracted hereafter: "Principal Interest Total a. 12.2.97 Rs.2,08,131 12,933 2,21,064 b. 12.3.97 Rs.3,12,770 28,072....
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....;s Managing Director and Director i.e. Mr.Pradeep Ranganathan and S.N.Natarajan respectively. This mortgage deed which is numbered as: 393 of 1997 was executed in favour of VGP. 6.7. The mortgage was created vis-a-vis the subject property and the consideration for execution of the mortgage deed was apparently a loan in the sum of Rs. 5,00,000/-, received on 10.01.1997. What is to be borne in mind at this stage, is that, 10.01.1997, is the date when the 4th loan agreement was executed between VGP and Neptune. Under this agreement, Neptune was to receive from VGP, not Rs. 5,00,000/- but a sum of Rs. 5,20,901/- that to in two tranches. The first tranche of Rs. 2,08,131/- was required to be disbursed to Neptune on 12.02.1997, while the second tranche in the sum of Rs. 3,12,770/- was to be disbursed by VGP in favour of Neptune on 12.03.1997. 6.8. Therefore, the so called mortgage deed gave particulars which were inaccurate both with regard to the date as to when moneys were lent and the amount that was purportedly disbursed by VGP in favour of Neptune. It is an admitted position before us that, apart from the loan agreement dated 10.01.1997, there was no other transaction entered into....
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....Property situated at Door No.135, Moottaikaran Chavadi Okkaim Thoraipakkam Village, Saidapet Taluk, Chengalpattu, MGR Dist. Interest: @28% Period: 24 months VGP Finances Ltd, No.6, Dharmarajar Koil Street, Saidapet, Chennai - 600 015. 8. The creation of charge by Neptune in favour of VGP was followed by execution of two sale deeds by the latter in favour of the former. These sale deeds were executed on 11.02.1999 and 16.02.1999. These are registered sale deeds. By virtue of these two sale deeds, two parcels of land were sold to VGP. 8.1. Via sale deed dated 11.02.1999, item No.2 and 3, adverted to as Schedule 'A' property, ad measuring 4359 Sq.ft., located at Old No.148/New No.135, Mootaikaran Chavadi, Okkiam Thoraipakkam Village, Tambaram Taluk, Kancheepuram District, were sold for Rs. 2,37,180/-. Item No.2 and 3 of Schedule 'A' property have been morefully described in Schedule 'B' of the very same sale deed. It is important to note that Schedule 'A' comprises of item No.1, 2 and 3, out of which, only that part of the property, which is described in item No.2 and 3 were sold. Therefore, in effect, what was sold under sale deed dated 11.02.1999,....
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.... Rs. 5,00,000/-, but also to accrued interest, and therefore, amount mentioned in the sale deed would more or less tally with the figure given in the 4th loan agreement i.e. Rs. 5,20,901/-. 8.8. Whether this explanation by itself will have any impact will be known in the course of our discussion hereafter. 9. Suffice it to say, that since the learned Single Judge had passed a winding up order on 10.03.1999, the OL took possession of the assets of Neptune on 01.06.1999, which was prior to the date when the Division Bench confirmed the order of winding up passed by the learned Single Judge. 9.1. Given these circumstances, VGP felt emboldened, and thus, moved an application for issuance of direction to the OL to deliver the possession of the properties which it had bought vide sale deed dated 11.02.1999 and 16.02.1999. This application was filed on 14.09.1999 and, it was numbered as: C.A.No.1275 of 1999. 9.2. Unfortunately, for VGP, the learned Single Judge dismissed its application vide order dated 29.11.2004. 9.3. In an appeal preferred against the said order, the Division Bench vide order dated 07.03.2005, allowed the appeal and remanded the matter to the learned Single Judge.....
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....eld by Neptune. 9.9. The learned Company Judge was directed by the Supreme Court to decide the validation application de novo without being influenced by observations made in the judgement impugned before it. Having regard to the fact the subject property was in possession of VGP, the Supreme Court directed parties to maintain status quo till the validation application was decided. VGP was restrained from alienating or creating any third party interest in the subject property. This order, as noted by us, was passed on 24.04.2009. 10. It is in this background, that the learned Single Judge in third round, by virtue of the impugned judgement dated 20.09.2003, disposed of the validation application, being C.A.No.1324 of 2009. 10.1. As observed by us at the outset, C.A.No.1324 of 2009 was dismissed by the learned Single Judge. Submissions of Counsels 11. The decision of the learned Single Judge has been assailed before us by VGP and in a manner of speech, the charge in this behalf has been led by Mr.T.V.Seshadri, learned senior counsel instructed by Mr.M.V.Suresh, Advocate. In so far as the OL is concerned, he was represented by Mr.S.R.Sundar, Advocate while submissions on behalf....
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....y qua the subject sale deeds and therefore, the statement made by Neptune would not bind VGP. In any case, the value mentioned in the said statement was only a guideline value, which cannot be taken as the market value of the subject property. (vii) The learned Single Judge ought to have taken note of the fact that the loan agreement deed dated 27.01.1997, was executed for a small amount of Rs. 5,00,000/-, which was part of a larger amount loaned by VGP to Neptune and that with regard to the rest, security was created by VGP by deposit of title deeds. (viii) This fact was put in public realm by registration of charge, with the ROC. Form-8 and Form-13 is reflective of this fact. Furthermore, in the declaration filed by the Managing Director of Neptune, there is a reference to all four loan agreements qua which equitable mortgage was created in favour of VGP. (ix) VGP acquired possession of the subject properties pursuant to the execution of two registered sale deeds dated 11.02.1999 and 16.02.1999, given the fact that Neptune was unable to repay its debt. Therefore, for the learned Single Judge to hold that the execution of the aforementioned sale deeds happened under suspicio....
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....d by Neptune and a charge was registered on the subject property; an act which lent transparency to the transaction. (xviii) The learned Single Judge could not have been swayed by the fact that the stamp paper on which the mortgage deed was executed did not bear the name of the purchaser of the stamp paper. As per the Rules framed under the Tamil Nadu Supply and Distribution of Stamps Rules, a document does not become invalid only on account of the fact that the stamp vendor omits to write the name of the purchaser on the stamp paper. (xix) The learned Single Judge has returned a finding of fact that the impugned sale transactions, lacks honesty, without any material evidence. The error made in this behalf becomes even more evident as the learned Single Judge has not returned a finding of fact that VGP had knowledge of institution of the winding up petition. (xx) The learned Single Judge failed to appreciate that VGP had not sought validation of the mortgage created in its favour, but, it had sought, on the other hand, validation of the sale transaction. Validation of mortgage was not sought since it had merged with the sale transaction as provided for in the Master Loan Agre....
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....int that the learned counsel sought to highlight was that despite this figure having been mentioned in the document in issue, adjustment was made of a loan amount equivalent to only a sum of Rs. 3,16,080/-. It was further submitted that the figures with regard to the value of the subject property could not be relied upon since in the mortgage deed dated 27.01.1997 (document No.393/1997) the market value was set out as Rs. 4,80,000/-. 14.3. This apart, our attention was drawn to the fact that even as on 31.03.1995, ARCIL's predecessor-in-interest was shown as secured creditor and that on the said date outstanding sum payable by Neptune was Rs. 55,82,538/-. This figure, according to the counsel, as on 10.03.1999, rose to Rs. 57,70,640/-. 14.4. Furthermore, it was submitted that in so far as the purported exposure of VGP was concerned, it had been reflected only in the balance sheet for the year ending 10.03.1999. It was emphasised that the amount outstanding in favour of VGP was shown as Rs. 54,71,000/-, with security in the form of mortgage created on the machinery and not on the subject property. 14.5. The learned counsel, thus highlights the fact that prior to the financial....
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....n so far as the first sale deed was concerned, i.e. 11.02.1999, according to Mr.Sundar, the rate per sq.ft. worked out to Rs. 54.41, whereas, in respect of the second sale deed dated 16.02.1999, the price per sq.ft., using the same measure, worked out to Rs. 20 per sq.ft. 15.7. The learned counsel submitted that there was no reasonable explanation tendered by VGP as to how the price of a property which was co-located differed so vastly. 15.8. Mr.S.R.Sundar stressed the fact that the impugned sale transaction was dishonestly executed only to defeat the interest of other creditors. 15.9. Furthermore, learned counsel submitted that the manner in which the transaction was configured resulted in loss of revenue to the State in the form of stamp duty. 16. In support of his submissions, the learned counsel relied on the following judgements: (i).Sunita Vasudeo Warke Vs. Official Liquidator and others (2013) 2 Mah LJ 777 (ii).BNP Paribas, France Vs. UB (Holdings) Ltd., Bangalore and Others (ILR 2014 KAR 779) (iii).ICICI Ltd. Vs. Ahmedabad Manufacturing & Calico Printing Co. Ltd. and another (2004) 9 SCC 747 (iv).NGEF Ltd. Vs. Chandra Developers (P) Ltd. and Another (2005) 8 SCC....
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....fact that a company in order to generate funds needs at times to furnish security in the form of assets owned by it so that the company has the leeway to raise debts according to its commercial wisdom. (iv)(b) However, after the winding up petition is presented, the circumstances take a different colour. The unsecured creditors, will, necessarily, have a pari passu charge over its assets. It is, thus, not ordinary course of business, if, one creditor is paid in full or in entirety to the detriment of the interests of other creditors. (v) The fact that the transactions have been entered into by the creditor in ignorance of institution of a winding up petition would be rare. Therefore, the knowledge of presentation of a petition is a factor which is required to be considered in determining as to whether or not the transaction is bonafide, even though, that by itself may not be conclusive. [See: Tulsidas Jasraj Parekh Vs. Industrial Bank of Western India (AIR 1931 Bombay 2)] (vi) The transactions which are honest and bonafide, and are carried out in the ordinary course of business, can be validated by the Court. In examining the bonafides of a transaction, what should be kept in....
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....ture, did not specifically refer to immovable assets. 20.2. A perusal of the balance sheets of Neptune for the period spanning between 1994-1995 and 1998-1999, would show that in 1994-1995 (as on 01.04.1994) it had a gross block of assets worth Rs. 1,42,76,625/-. This figure included plant and machinery worth Rs. 39,29,441/-. Besides this, after taking into account depreciation, even on 31.03.1994, it had gross block assets worth Rs. 1,25,61,956/-. As on 31.03.1995, the gross block of assets of Neptune was pegged at Rs. 1,69,62,611/-. Likewise, as on 30.06.1996, the gross block value of assets rose to Rs. 4,93,95,461/-. 20.3. It appears Neptune made additions in the form of land and building, to the extent of Rs. 72,62,900/-. This addition was, evidently, made during the financial year 01.04.1995 and 31.03.1996. This fact, as it appears, accounted for the enhancement of the general block of assets to the tune of Rs. 4,93,95,461/- as on 30.06.1996. 20.4. The fact of the matter, is that, by the time, the first three loan agreements were executed i.e. on 01.01.1996, 31.01.1996, 07.02.1996, VGP had loaned a total sum of Rs. 50,00,000/- to Neptune. Therefore, if, the intention was bo....
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.... on machinery. There is no correspondence on record which would show that VGP had ever contested the fact that the financial statements of Neptune did not disclose the debt owed by it to VGP or that even as on 10.03.1999, the nature of security was wrongly reflected in the financial statements of Neptune. The reason we advert to this aspect of the matter is that when this query was put to the learned counsel for VGP, he responded by saying that VGP was not responsible for the manner in which Neptune prepared its financial statements. 21.1. While this stand is correct, albeit, partially. It would stretch credulity if one were to accept that a hard nosed creditor, such as VGP, which is in the business of finance would not raise a red flag with its debtor qua such grave anomalies in its financial statements. 22. This brings us to the other aspect which is as to whether or not one could rely upon on the documents which have been placed before the Court to secure validation of the impugned sale transactions. As rightly argued by the learned counsel for ARCIL, in so far as the second sale deed is concerned, i.e., sale deed dated 16.02.1999, the market value of the property referred to ....
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....to place the same on record as more than eight (8) years had passed and therefore, the financial statements for the aforementioned period had been destroyed in the ordinary course of events. 23.3. According to us, qua the non-production of the balance sheet for the periods referred to above VGP may have had some basis in law, however, there was, in our view, no basis for failure to place on record the personal guarantees of the Managing Director and Director of Neptune. 24. This apart what has clearly emerged upon perusal of the mortgage deed, Form-8, Form-13 and the sale deeds, is that, VGP and Neptune have both colluded and collaborated in depriving the State of valuable revenue. As per the declaration made by the Managing Director of Neptune, charge was created on the subject property in the sum of Rs. 65,20,000/-. The sum total of the loan granted above by VGP to Neptune under the four (4) loan agreements, does in fact come to a figure of Rs. 65,20,901/-. 24.1. In the books of Neptune, the book value of land and building during the relevant period is shown as Rs. 72,60,900/-. Therefore, it is inexplicable as to how the market value of the subject property, even in the regist....