Bombay High Court
M/S Diwakar Enterprises vs Elder Pharmaceuticals Ltd on 29 October, 2015
Bench: R.D. Dhanuka
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vai
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.864 OF 2015
M/s.Caps & Tabs Trading Company,
Office at "Olive" 35/1G,
Ponneith Road, Opposite
Kavitha Theatre, Kannur - 670 001,
Kerla. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.847 OF 2015
Vijetha Pharmaceuticals
Office at Sai Lakshmi Venkatesha Nilayam
Door No.1-3-183-40/A/5, Gandhi Nagar
P & T Colony, Hyderabad - 560 080,
Telangana. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.848 OF 2015
Empee Distributors
80/1, New Timber Yard Layout,
Mysore Road Cross,
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Bangalore - 560 026, State - Karnataka ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.850 OF 2015
M/s.P.R. Enterprises,
Office at 150/B,
Arya Kumar Road,
Rajendra Nagar, Patna - 800 016,
Bihar. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.851 OF 2015
M/s.Sindh Pharma Distributors,
Office at 58-B, Green Park,
Opposite Sabzi Mandi,
Niranjanpur, Deharandum,
Uttaranchal. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
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WITH
ARBITRATION PETITION NO.853 OF 2015
M/s.Cheminova,
Office at Prabhu Kripa,
120 S.R. Compound,
Lasudia Mori, Dewas Naka,
Indore, Madhya Pradesh. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053.
ig ....Respondent
WITH
ARBITRATION PETITION NO.854 OF 2015
Modern Distributors,
Office at 42-A,
Lal Bahadur Shastri Road,
Allahabad - 211 001,
Uttar Pradesh. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.855 OF 2015
M/s.Pharma Traders,
Office at 3-A Celler,
S.K. Medicine Centre,
Neptune Tower, Opp. Nehru Bridge,
Asharam Road, Ahmedabad - 380 009,
Gujarat. ....Petitioner
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....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.861 OF 2015
M/s.Sindh Pharma Private Limited,
201-B, Begum Bridge,
Meerut, Uttar Pradesh. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.1211 OF 2015
M/s.Capital Enterprises,
Office at 87, Kharavela Nagar,
Unit-3, Bhubanswar,
Orissa - 751 001 ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.1212 OF 2015
M/s.Medichem,
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Office at Prabhu Kripa,
120 S.R. Compound,
Lasudia Mori, Dewar Naka,
Indore, Madhya Pradesh. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.1256 OF 2015
M/s.Zeezest Enterprises Private Limited,
Office at Vinayaka Agarbatti Factory,
Opp. Chutia Thana, Chutia,
Ranchi - 834 001, Jharkand. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited.
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.849 OF 2015
M/s.Yamuna Sales.
Office at 35, Havelock Road,
Lucknow - 226 001, Uttar Pradesh ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
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WITH
ARBITRATION PETITION NO.856 OF 2015
M/s.Diwakar Enterprises,
Office at "Manoram",
2 Ambeshwar Colony,
New Sanganer Road,
Jaipur - 302 019,
Rajasthan. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
WITH
ARBITRATION PETITION NO.860 OF 2015
M/s.Exim Distributors Private Limited,
4B, Dr.Rajendra Road,
Bhawanipur, 2nd Floor,
Kolkata - 700 020,
West Bengal. ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
AND
ARBITRATION PETITION NO.1209 OF 2015
Sai Uma Agencies,
Office at 1-3/27-3/3,
Muvvalavari Street,
Near Venkateswara Swami Temple,
Quarry Centre, Vidyadharapuram,
Vijayawada - 520 012,
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Andhra Pradesh ....Petitioner
....Versus....
Elder Pharmaceuticals Limited,
"Elder House", Plot No.C-9,
Dalia Industrial Estate,
Off Veera Desai Road,
Andheri (West), Mumbai - 400 053. ....Respondent
Mr.A.M. Kulkarni with Mr.Sarthak Diwan for the Petitioner.
Mr.Ali Abbas Delhiwala with Ms.Nidhi Singh i/b Joy Legal Consultant
for the Respondent.
CORAM
RESERVED ON
: R.D. DHANUKA, J.
: 15TH OCTOBER, 2015
PRONOUNCED ON : 29TH OCTOBER, 2015.
JUDGMENT :-
1. By these petitions filed under section 9 of the Arbitration &
Conciliation Act, 1996 (for short "Arbitration Act"), the petitioner seeks
an order and direction against the respondent to deposit in this Court
and/or to secure in any appropriate manner, various amounts
mentioned in each of the petition in this Court and seeks injunction
against the respondent from creating any third party rights of any
nature in any of their assets movable or immovable, until the disputes
between the petitioner and the respondent are finally adjudicated
upon by the learned arbitrator. By consent of the parties, all the
arbitration petitions were heard together and are being disposed of by
a common order.
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2. Since the facts of all these petitions are almost identical,
this Court will summarize the facts in Arbitration Petition No.864 of
2015.
3. The petitioner carries on business as clearing and
forwarding agent and provides warehousing and transportation
service in respect thereof. On 19th October, 2012, the petitioner
entered into a "Clearing and Forwarding Agent Agreement" with the
respondent thereby appointing the respondent as an agent in the city
of Kerala for warehousing, storing and onward transmission of
products manufactured / purchased / marketed by it and any other
item which the respondent would deposit with the petitioner for storing
from time to time on the terms and conditions set out therein. The
said agreement was to be valid till 31 st March, 2015 unless earlier
determined by the respondent.
4. Under clause 8 of the said agreement, the petitioner as an
agent was required to bear certain expenses. Under clause 9 of the
said agreement, certain expenses set out therein were to be borne
by the respondent. Under clause 10 of the said agreement, it was
provided that the petitioner shall be entitled to a commission as and
by way of consideration of services to be rendered to the respondent
which were to be calculated and payable on monthly basis at the rate
provided therein. Under clause 14 of the said agreement the
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petitioner was under an obligation to furnish initial advance in the form
of bank draft in favour of the respondent for an amount equal to one
month average sale. The said security deposit was refundable only
after the said agreement would come to an end and full accounts
between the petitioner and the respondent was settled. It was
provided that no interest shall be paid from the date of termination of
the agreement pending settlement of accounts.
5. Clause 17 of the said agreement provides for termination
of the said agreement by the respondent. Under clause 18 of the said
agreement, it was provided that upon termination of the said
agreement, the petitioner shall deliver to the respondent forthwith the
products which may then be remaining with it and all other goods and
property of the respondent then under its custody or under its control
and all books of accounts and other documents and other materials
relating to the agency thereby created. Under the said agreement, the
arbitration clause provides for settlement of disputes arising out of the
said agreement. It is not in dispute that the said agreement came to
an end on 31st March, 2015.
6. Learned counsel appearing for the petitioner invited my
attention to the letter addressed by the respondent to the petitioner on
15th July, 2014 informing that the account of the petitioner in the
books of the respondent showed credit balance of Rs.1,12,00,000/-
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as security deposit on 30th June, 2014 and requested the petitioner to
confirm the said figure and to return the original copy of the said form
with signature of the petitioner. It was also provided that in case the
balance as shown in the said letter did not reconcile with the books of
the petitioner, the petitioner shall send their reconciliation to the
respondent to enable to look into their books for any possible
omissions. It was stated that if the respondent did not receive
confirmation of balance of the petitioner within 15 days from the date
of the said letter, the respondent would consider the balance shown in
the said letter as confirmed by the petitioner. The petitioner confirmed
the said balance affixing their signature and rubber stamp thereby
confirming that the books of the petitioner shown a debit balance of
Rs.1,12,00,000/- as on 30th June, 2014.
7. On 27th January, 2015, the respondent sent an e-mail to
the petitioner objecting to the petitioner sending a copy of their e-mail
to all their other agents and informed them that Dr.Anuj Saxena of the
respondent was ready to meet all the agents on one basis in the next
week to discuss all the issues, including payment.
8. On 18th February, 2015, the respondent forwarded a copy
of the ledger of the petitioner as on 31 st January, 2015 in response to
the request made by the petitioner. According to the said ledger
account of the petitioner sent by the respondent, there was a credit
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balance of Rs.18,40,847/- towards interest and expenses, credit
balance of Rs.43,54,819 towards commission showing net credit
balance of Rs.61,95,666/-.
9. The petitioner vide their letter dated 3 rd July, 2015,
requested the respondent to release pending amount and informed
that since the dues of the petitioner were not paid by the respondent,
staff members of the petitioner were not doing any job in the office
and that the petitioner was incurring expenses for past six months
without any revenue and could not run the office any more without
any business.
10. On 3rd November, 2014, the respondent sent an e-mail to
all the agents of the respondent including the petitioner regarding that
all such agents were admitted that the respondent would start to clear
all pending dues at the earliest and had already initiated process and
cleared some dues but unfortunately could not pay the amount
anticipated by all the agents. By the said e-mail, all the agents are
informed that the respondent would clear all the dues and there was
no intention of not paying any agent and sought some more time. The
respondent informed that all the agents shall be paid by the
respondent and sought their help and co-operation to ensure that
their activities were smooth and un-hindered so that they would be in
a position to pay to the petitioner back at the earliest.
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11. By their e-mail dated 30th December, 2014 to all the
clearing and forwarding agents, including the petitioner the
respondent informed that the last two years had been tough and post
their transaction with Torrent, the respondent had spent past few
months and was trying to work options on how to revive the
organization and turn it around. The respondent informed that it had
been tough time for everybody and the respondent was trying all
options and solutions to revive and bring the company back on track
from January. The respondent tendered apologies to all the agents for
hardships and difficulties that they had been enduring. Similar e-mail
was sent by the respondent to all the clearing and forwarding agents,
including the petitioner on 21st January, 2015 and tendered apology
for putting all the clearing and forwarding agents in difficult times. The
respondent sent another e-mail dated 28th January, 2015 to all the
agents including the petitioner to bear with the respondent and re-
assure their endeavour to get out of these issues at the earliest.
12. On 20th March, 2015, the petitioner through their advocate
sent a notice to the respondent placing various facts on record and
also informed about the details of the outstanding dues recoverable
by the petitioner from the respondent and invoked arbitration
agreement. By the said notice, the petitioner suggested three names
of the advocate practicing in this Court and called upon the
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respondent to give their consent to the appointment of any one of
them as the sole arbitrator. There was no response to the said notice
from the respondent to the petitioner. The petitioner therefore filed the
present petition inter-alia praying for interim measures. Learned
counsel for the petitioner invited my attention to various provisions of
the agreement and also the correspondence exchanged between the
parties. My attention is also invited to various allegations made by the
respondent in their affidavit in reply and rejoinder of the petitioner
thereto.
13.
It is submitted by learned counsel that the agreement has
come to an end as far back as on 31 st March, 2015. The respondent
had though assured the petitioner several times to repay their dues,
the respondent has neither returned the security deposit nor paid over
the legitimate dues of the petitioner. He submits that the financial
condition of the respondent is very precarious. Several company
petitions are filed against the respondent for winding up of the
respondent. Several other proceedings by various creditors are also
filed for recovery of their dues. Learned counsel also invited my
attention to the letter dated 20th April, 2015 from the respondent to
the petitioner informing that the account of the petitioner in the books
of the respondent showed a credit balance of Rs.1,12,00,000/- as
security deposit as on 31st March, 2015 and requested the petitioner
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to confirm the said balance and return the original copy of the said
form with their signature. He submits that the petitioner has confirmed
that their books showed the debit balance of the said amount as a
security deposit as on 31st March, 2015.
14. The respondent also forwarded a copy of the ledger
account of the petitioner for the period 1st April, 2014 to 31st March,
2015 showing credit balance insofar as interest and expenses are
concerned and credit balance of Rs.43,60,075/- insofar as
commission is concerned.
15.
Learned counsel for the petitioner invited my attention to
the order passed by this Court on 1st October, 2015 in Company
Petition No.961 of 2014 along with other companion matters. By the
said order passed by this Court, all company petitions filed by various
creditors against the respondent have been admitted and made
returnable on 23rd November, 2015. This Court has also granted an
injunction against the respondent from disposing of any of its assets
and properties or creating any third party rights otherwise than in due
course of its business, without the leave of this Court. Learned
counsel invited my attention to various observations made by this
Court and prima-facie findings rendered by this Court against the
respondent about their precarious financial condition. He submits that
this Court has already taken a view that the respondent is clearly
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unable to pay its debts and such inability to pay does not appear to be
a temporary phenomenon, due to transient liquidity problems and
even as of this date there is no concrete plan for payment of these
liabilities.
16. Learned counsel for the petitioner also invited my attention
to various financial documents of the respondent which were relied
upon by the respondent and would submit that even those documents
would clearly reflect that the liabilities of the respondent is much more
than their assets. He submits that the respondent has not disputed
the liability of the petitioner and even today in their books of account
various amounts due and payable to the petitioner by the respondent
are reflected as due and payable. He submits that the petitioner has
good chances of succeeding in arbitration proceedings and if the
respondent is not directed to secure the claim of the petitioner by
appropriate order and directions of this Court, the petitioner would not
be able to recover any amounts from the respondent. It is submitted
that the respondent is heavily indebted and is likely to create third
party rights in respect of all their properties and thus reliefs as prayed
in the arbitration petition be granted by this Court.
17. Learned counsel for the respondent on the other hand
submits that though the respondent had forwarded the letter seeking
confirmation of the petitioner of the credit balance shown in their
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books of account, insofar as security deposit is concerned, the said
amount of security deposit is subject to adjudication of various
amounts recoverable by the respondent from the petitioner. It is
submitted that the petitioner has not disclosed various e-mails
exchanged between the parties, by which the petitioner had admitted
that the petitioner had retained some of the materials with them and
had misappropriated. He submits that the petitioner has not come to
this Court with clean hands. He submits that though various stocks
had been returned, worth lacs of rupees to the petitioner, the
petitioner had failed and neglected to issue credit notes in respect of
such goods to the respondent which are to be accounted for and
appropriated by the respondent against the security deposit. He
submits that since the accounts are not finally drawn by the parties,
the petitioner cannot ask the respondent to deposit the amount of
security deposit or to secure the disputed claim of the petitioner.
18. It is submitted by learned counsel for the respondent that
the respondent company has 1357 number of employees all over
India as on 31st March, 2015. The assets of the respondent company
excluding brands are approximately Rs.640 crores. The liability of the
respondent company is only Rs.586/- crores and thus the respondent
company is fundamentally strong company. He submits that the
petitioner has not given inspection of all the documents demanded by
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the respondent.
19. It is submitted by learned counsel for the respondent that
the petitioner has failed and neglected to deposit the cheques
encashed by the respondent company and has withheld various
cheques. He submits that even the claim of the petitioner for payment
of commission is also disputed. The petitioner has committed various
breaches of the agreement dated 19th October, 2012. The respondent
has also disputed the claim of the petitioner towards interest on
security deposit. It is submitted that Exhibit "B" annexed to the petition
is the ledger of the respondent company which was subject to
reconciliation and settlement of account and thus there was no
admission of liability as canvassed by the learned counsel for the
petitioner.
20. Insofar as the e-mails dated 3rd November, 2014, 6th
November, 2014 and 21st January, 2015 are concerned, it is
submitted that these three e-mails were common e-mails and were
sent by the Director of the respondent to all their C & F Agents
without verifying accounts of each C & F Agents and therefore, the
same cannot be construed as any admission of liability on the part of
the respondent.
21. Learned counsel for the respondent placed reliance on the
following judgments of this Court in support of his submission that the
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liability of the petitioner having been disputed by the respondent, no
order as prayed by the petitioner for furnishing security against the
respondent which is in the nature of order of attachment before
judgment under Order 38 Rule 5 of the Code of Civil Procedure, 1908
can be passed by this Court. It is submitted that this Court cannot
convert an unsecured debt of the petitioner into a secured debt.
1). Judgment of this Court in case of Tata
Capital Financial Service Ltd. & Ors. vs. Deccan
Chronicle Holdings
ig Limited & Ors., 2013(3)
Bom.C.R. 205,
2). Judgment of this Court in case of Herald
Engineers vs. Wonderpack Industries Pvt. Ltd. &
Anr. 2013(4) Mh.L.J. 217,
3). Judgment of Supreme Court in case of
Raman Tech. & Process Engg. Co. & Anr. vs.
Solanki Traders, (2008) 2 SCC 302,
4) Judgment of Madras High Court in case of
L.V. Bhujanga Rao vs. Ch.Venkateswara Rao &
Ors. AIR 1993, Madras 246, and
5) The judgment of the Division Bench of this
Court in case of Deccan Chronicle Holdings
Limited vs. L & T finance Limited in Appeal
(Lodging) No.130 of 2013 in Arbitration Petition
No.1095 of 2012, delivered on 8th August, 2013.
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22. Learned counsel appearing for the respondent states that
since the petitioner has not come to his Court with clear hands and
has suppressed some of the e-mails exchanged between the parties
and had accepted the fact that some of the goods were lying with the
petitioner and the same was misappropriated by the petitioner, this
Court cannot grant any interim measures in favour of the petitioner.
He submits that the petitioner has actually committed fraud on this
Court and thus no relief can be granted in favour of the petitioner. He
placed reliance on the judgment of the Supreme Court in support of
this submissin :-
i). S.P. Chengal Varaya Naidu (Dead) By L.Rs. vs.
Jagannath (Dead) by L.Rs. & Ors. (1994) 1SCC 1 and
ii) Badami (Deceased) By Her L.Rs. vs. Bhali, (2012) 11
SCC 574.
23. Insofar as Arbitration Petition No.1209 of 2015 is
concerned, learned counsel appearing for the respondent submits
that the petitioner in this case has committed breach of clauses 7(d)
and 7(f) which stipulate that all the cheques / demand drafts received
from the stockist should be in the name of the respondent company
and shall be deposited in the account operated by the respondent and
the petitioner shall not accept any cash payment. Reliance is also
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placed on e-mail of the respondent to the petitioner alleging certain
breaches on the part of the petitioner insofar as dispatch of the goods
is concerned. He submits that the petitioner has only denied these
averments of the respondent vaguely.
24. Insofar as Arbitration Petition No.847 of 2015 is
concerned, learned counsel placed reliance on e-mail dated 4 th
October, 2014 to the petitioner in which it was alleged that the
petitioner had Rs.10.00 lacs worth of cheques which they had not
deposited in the account. He submits that the petitioner had withheld
the cheques of Rs.47.00 lacs with them and thus had committed
breach of the agreement entered into between the parties. He
submits that e-mail dated 10th March, 2015 from the petitioner to the
respondent is fabricated.
25. Insofar as Arbitration Petition No.856 of 2015 is
concerned, it is submitted by learned counsel for the respondent that
the petitioner had admittedly deposited security amount with Elder
Health Care Limited and not with the respondent. In support of this
submission, learned counsel placed reliance on Exhibit "B" to the
petition which is dated 17th July, 2014 from the said Elder Health Care
Limited to the petitioner. He submits that the petitioner thus cannot
seek reliefs against the respondent to secure the claim of the
petitioner or cannot pray for depositing the said amount in this Court.
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26. It is submitted by the learned counsel that the petitioner
has fabricated the document dated 1st July, 2015, which is annexed at
Exhibit "AR-1" to the affidavit in rejoinder filed by the petitioner. He
also placed reliance on the averments made in the petition and in
particular paragraph 3(f) and submits that the contentions of the
petitioner that all the business and security deposit of Elder Health
Care Limited was transferred to the respondent is disputed by the
respondent. He submits that Elder Health Care Limited is not a party
to the present proceedings. The respondent has also disputed the
alleged confirmation letter dated 1st July, 2015. He submits that
though the respondent has not disputed the ledger account annexed
at Exhibit "AR-2", the said document does not pertain to the security
deposit, it shows credit balance only of Rs.4,47,935/-.
27. Insofar as Arbitration Petition No.850 of 2015 is
concerned, it is submitted by learned counsel that the respondent
vide their e-mail dated 27th February, 2015 had called upon the
petitioner to pass necessary entry in books of account to deduct a
sum of Rs.10.00 lacs regarding stock of Eldervit Injection,which was
given to Patna Clearing and Forwarding Agent. He submits that this
amount was not reflected in the ledger account of the petitioner
contrary to clauses 7(d) and 24(f) of the agreement. The petitioner
has suppressed this e-mail from this Court.
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28. Insofar as Arbitration Petition No.1212 of 2015 is
concerned, learned counsel for the respondent placed reliance on e-
mail dated 9th December, 2014 from the respondent to the petitioner
giving their no objection to the petitioner to their proposal of billing
eldervit injection of 85000 vials to Medichem stockist which is owned
by the petitioner. He submits that the petitioner has misappropriated
the said injection of huge quantity. The respondent sent reminder to
the petitioner vide their e-mail dated 10 th January, 2015. By an e-mail
dated 12th February, 2015 the respondent called upon the petitioner to
clarify till which month the petitioner had paid VAT.
29. Insofar as Arbitration Petition No.854 of 2015 is
concerned, the respondent submits that the petitioner had stopped
the work under the agreement entered into between the parties in the
month of August, 2014 itself. Reliance is placed on an e-mail dated
14th August, 2014 from the respondent to the petitioner and e-mail
dated 16th August, 2014 from the petitioner to the respondent calling
upon to the petitioner to return the stock. He submits that denial of
the petitioner in paragraph 8 of the affidavit in re-joinder is totally
vague. Insofar as the letter dated 1st July, 2015 annexed at Exhibit
"AR-1" to the re-joinder is concerned, he submits that the said letter is
fabricated by the petitioner.
30. Learned counsel appearing for the petitioner in re-joinder
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invited my attention to the letter addressed by the respondent
requesting the petitioner to confirm the credit balance of the
petitioner in the books of account of the respondent insofar as the
security deposit is concerned in the month of July, 2015, which was
for the period ending March, 2015. The petitioner has confirmed the
said credit balance of the petitioner in the books of account of the
respondent. He submits that the respondent had also sent ledger
account of the petitioner in the year 2014-2015 showing various credit
balance in the account of the petitioner in the books of account of the
respondent. He submits that the respondent has not denied such
letters sent by the respondent asking the petitioner to confirm the
credit balance and the letter of the petitioner confirming the said
balance insofar as the security deposit is concerned and also towards
interest, expenses and commission charges.
31. Insofar as Arbitration Petition No.856 of 2015 is
concerned, it is submitted by the learned counsel for the petitioner
that though initially the security deposit amount was with M/s.Elder
Health Care Limited which is a sister concern of the respondent, the
said amount was subsequently transferred to the account of the
respondent. The respondent has acknowledged the said amount in
their books of account and had sent similar confirmation of account
thereby calling the petitioner to confirm the credit balance of the said
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security deposit in the name of the petitioner in the books of account
of the respondent. He submits that the respondent thus cannot now
allege that the security deposit in respect of Arbitration Petition
No.856 of 2015 was not with the respondent.
32. Learned counsel appearing for the petitioner submits that
insofar as some of the e-mails referred by the respondent in their
argument is concerned, the petitioner has not suppressed any of
these e-mails. He submits that even after exchanging such e-mails in
few matters, the fact remains that the respondent has admitted their
liability in the letters sent by the respondent on 1 st July, 2015 asking
the petitioner to confirm the credit balance of the petitioner in their
books of account. He submits that exchange of few e-mails in few
cases would not assist the case of the respondent. Learned counsel
for the petitioner distinguished the judgments relied by learned
counsel for the respondent.
33. A perusal of the record clearly indicates that there is no
dispute that the petitioner had made security deposit with the
respondent in each petition. The respondent has not disputed the
receipt of such security deposit from the petitioner and that the same
were reflected in the accounts of the petitioner in the books of the
respondent. The respondent has also not disputed that the
respondent had asked the petitioner to confirm the said credit balance
arbp864-15g
of the petitioner in the account of the respondent even till 1 st July,
2015. Though various proceedings are filed by the respondent, the
factum of such confirmation of the credit balance has not been
disputed by the respondent. The only submission of the learned
counsel for the respondent in this respect is that the said confirmation
was for the audit purposes and in any event was subject to the final
accounts being prepared. I am not inclined to accept this submission
of the learned counsel for the respondent. Though in most of the
cases the contracts have come to an end on 31st March, 2015, till
date the respondent has not finalized the accounts of the petitioner.
The respondent thus in my view, could not have withheld the amount
of security deposit, which were liable to be returned by the
respondent to the petitioner upon completion of the contract.
34. A perusal of the correspondence exchanged between the
parties placed on record by both the parties clearly indicates that the
respondent had not disputed its liability towards security deposit,
commission charges, interest etc. The Director of the respondent had
addressed several letters to all the clearing and forwarding agents of
their company placing their financial difficulties on record and
assuring the clearing and forwarding agents, including the petitioner
in the aforesaid petitions that the dues of each of the petitioner would
be paid, but sought some time. The respondent also tendered
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apology in several of such letters for delayed payment and placing the
the petitioner in the aforesaid cases and other clearing and forwarding
agents in great difficulty due to the respondent not realizing their
payment including return of security deposit. I am not inclined to
accept the submission of learned counsel for the respondent that
those letters sent by e-mails by the respondents to all their clearing
and forwarding agents do not disclose any admission of liability. A
plain reading of these correspondence clearly indicates that the
35.
respondent has not disputed their liability.
Insofar as the submission of learned counsel for the
respondent that the assets of the respondent company are much
more than the liability and that the respondent company is in sound
financial condition is concerned, a perusal of the order passed by this
Court in Company Petition No.961 of 2014 and other companion
matters on 1st October, 2015 which were filed by several creditors of
the respondent inter-alia praying for winding up of the respondent
company clearly indicates that after considering the latest financial
documents submitted by the respondent including the audit report,
this Court has rendered a prima-facie finding that far from presenting
a picture of a fundamentally strong company, these financials present
a rather poor prospect of the company's viability. The auditors have in
terms observed that the various events noted by them "cast
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significant doubt on the ability of the company to continue as a going
concern".
36. This Court has also observed that the audited balance
sheet at the end of 30 th June, 2014 puts the total liability of the
company (consolidated) at Rs.1514.84 crores. It is also observed that
despite seeking numerous extensions from this Court, meager sum of
Rs.2.00 crores to the petitioner in Company Petition No.691 of 2014
could not be paid by the respondent in toto. The Company Court has
also granted injunction against the respondent from disposing of any
of its assets and properties or creating any third party rights otherwise
in due course of its business without the leave of the Court. By the
said order the said Company Petition No.961 of 2014 along with
other company petitions are admitted. I am thus not inclined to accept
the submission of learned counsel for the respondent that the
financial condition of the respondent company is sound and / or that
the assets of the respondent company are more than the liability of
the respondent.
37. Insofar as the submission of learned counsel for the
respondent that the petitioner has suppressed various e-mails from
this Court and have thus committed fraud upon this Court and in
support of this submission reliance on two judgments of the Supreme
Court i.e. in case of S.P. Chengal Varaya Naidu and Badami
arbp864-15g
(Deceased) By Her L.Rs. (supra) is concerned, in my prima-facie
view, there is no suppression of any facts by the petitioner and no
fraud is committed by the petitioner upon the Court. The respondent
on the contrary has not come to this Court with clear hands and has
suppressed its true and correct financial position from this Court.
Reliance thus placed by the respondent on the judgments of the
Supreme Court in the aforesaid two judgments is totally misplaced.
38. Insofar as the judgment of the Supreme Court in case of
Raman Tech. & Process Engg. Co. & Anr., judgment of this Court
in case of Herald Engineers (supra), the judgment of the Madras
High Court in case of L.V. Bhujanga Rao (supra) relied upon by the
respondent in support of the submission that this Court cannot
convert unsecured debt into secured debt by directing the respondent
to secure the claim of the petitioner is concerned, a perusal of the
three judgments indicates that all such judgments were delivered
considering the provisions of Order 38 Rule 5 of the Code of Civil
Procedure, 1908. It is held by the Supreme Court, this Court as well
as Madras High Court that before exercising power under order 38
Rule 5 of the Code of Civil Procedure, the Court should be satisfied
that there are reasonable chances of the decree being passed in the
suit against the defendant and the plaintiff has a prima-facie case. It is
also held that purpose of order 38 rule 5 of the Code of Civil
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Procedure is not to confirm the unsecured debt into secured debt.
39. This Court in case of Nimbus Communications Limited
vs. Board of Control for Cricket in India & Anr. delivered on 27th
February, 2012 in Appeal (Lodging) No.90 of 2012 and other
companion matters has adverted to the judgment of the Supreme
Court in case of Adhunik Steels Limited vs. Orissa Manganese &
Minerals (P) Ltd. (2007) 7 SCC 125 and has interpreted section 9 of
the Arbitration & Conciliation Act, 1996. It is held that the object
underlying the conferment of the power upon the Court is to ensure
that the fruits of an arbitral award which may eventually be passed
against the defendant to the claim are not lost to the claimant by a
dissipation of the property in the meantime. It is also held that the
power under section 9(ii)(b) has not been made subject to the
stringent provisions of Order 38 Rule 5, the exercise of the power is
guided by the paramount consideration that the claimant who obtains
an award in his favour before the arbitrator ultimately is able to derive
the fruits of the adjudication in executing the award.
40. It is also held by the Division Bench that though Arbitration
& Conciliation Act, 1996 is a special statute, section 9 does not either
attach a special condition for the exercise of power nor does it
embody a special form of procedure for the exercise of the power by
the Court. It is also held that just as on the one hand the exercise of
arbp864-15g
the power under section 9 cannot be carried out in an unchartered
territory ignoring the basic principles of procedural law contained in
the Code of Civil Procedure, 1908, the rigors of every procedural
provision in the Code of Civil Procedure, 1908 cannot be put into
place to defeat the grant of relief which would sub serve the
paramount interests of justice. A balance has to be drawn between
the two considerations in the facts of each case. The Division Bench
of this Court in the said judgment upheld the judgment of the single
Judge directing the appellant to secure the claim of the respondent in
the petition filed under section 9 of the Arbitration Act. In my view, the
principles laid down by the Division Bench of this Court after adverting
to the judgment of the Supreme Court squarely applies to the facts of
this case. I am respectfully bound by the judgment of the Division
Bench of this Court.
41. This Court in case of Tata Capital Financial Service Ltd.
& Ors. vs. Deccan Chronicle Holdings Limited & Ors., (supra) has
taken a similar view and after adverting to the judgment of the
Division Bench in case of Nimbus Communications (supra) has
directed the respondent to the said petition to secure the claim of the
lender. An appeal against the said judgment filed by the borrower has
been rejected by the Division Bench of this Court.
42. Insofar as the submission of learned counsel for the
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respondent that in few matters the petitioner had not returned the
goods to the respondent or had not issued credit notes in respect of
the goods withheld or had not deposited the cheques is concerned,
the petitioner has disputed these allegations. A perusal of the record
indicates that even after exchanging few such correspondence, the
fact remains that the respondent has confirmed the credit balance of
the petitioner in their books of account insofar as security deposit and
even in respect of interest, commission charges and expenses also in
their books of account. In my view, at least there is no dispute insofar
as refund of security deposit is concerned.
43. Insofar as the submission of the respondent in Arbitration
petition No.856 of 2015 is concerned, a perusal of the record prima-
facie indicates that though initially the said amount was deposited as
and by way of security by the petitioner with M/s.Elder Health Care
Limited, the said amount was subsequently transferred to the account
of the respondent. The respondent has acknowledged the credit
balance in their account of the said deposit due to the petitioner. The
respondent thus now cannot be allowed to take a stand that no such
amount of security deposit was given to the respondent by the
petitioner.
44. A perusal of the financial documents produced on record
by the respondent clearly indicates that the respondent would not be
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able to pay any amount to the petitioner even if it succeeds in the
arbitral proceedings. The petitioner has good chances of succeeding
in the arbitral proceedings. Various company petitions inter-alia
praying for winding up of the respondent company are also admitted
against the respondent. The liabilities of the respondent are much
more than the assets of the respondent. In my view, the petitioner has
thus made out a case for securing their claim at least insofar as
refund of the security deposit is concerned.
45.
i).
I therefore pass the following order :-
The respondent is directed to secure the claim of the
petitioner in each of the aforesaid petitions by furnishing bank
guarantee of a nationalized bank in favour of the Prothonotary &
Senior Master to the extent of the amount of security deposit which
shall be initially for a period of two years and shall be renewed if the
arbitral proceedings are not disposed of by the learned arbitrator
within a period of two years or till disposal of the arbitral proceedings.
Such security should be furnished within four weeks from today.
ii). The aforesaid arbitration petitions are disposed of in
aforesaid terms. There shall be no order as to costs.
(R.D. DHANUKA, J.)
Oral application of the learned counsel for the respondent
in aforesaid petitions for stay of the operation of this order is rejected.
The respondent has been already granted four weeks' time to furnish
security.
(R.D. DHANUKA, J.)
