Krishna Texport Industries ... vs Dcm Limited
2004 Latest Caselaw 820 Del

JUDGMENT

A.K. Sikri, J.

1. The factual background in which the aforesaid two applications are filed may first be noted.

2. Winding up petition (CP No. 11/1999) was filed by the petitioner against the respondent company under Sections 433(e) and 439 of the Companies Act, 1956 (for short 'the Act') on the allegations that it had advanced a sum of Rs. 2,50,00,000/- by two cheques dated 26th September, 1997 and 3rd October, 1997 of Rs. 1,25,00,000/- each being Inter Corporate Deposits (ICDs). The respondent company executed two promissory notes dated 26th September, 1997 and 3rd October, 1997 representing the aforesaid amounts. At the request of the respondent company, M/s. DCM International Limited, a sister concern of the respondent company, also pledged with the petitioner 7 lac shares of Rs. 10/- each of M/s. DCM Daewoo Motors Limited under share certificate No. 124708 to 124710 with distinctive number of shares as 20020231-20720230 as security towards the aforesaid two deposits. The said ICDs were for a period of 120 days and the respondent company was to repay the same together with interest at the rate of 25.5 per cent per annum and in case of default, the rate of interest was to be enhanced by additional 11 per cent per annum. Certain cheques were issued which were dishonoured. Thereafter, only a sum of Rs. 5 lacs was paid to the petitioner on 1st August, 1998. The petitioner made demand for the balance amount together with interest, thus demanding a total sum of Rs. 3,15,02,226/- as on 10th August, 1998. Even statutory notice was issued. Since no amount was paid, the petition for winding up has been filed.

3. The respondent company appeared after service of notice and filed the reply. However, during arguments, the aforesaid loan transaction was not disputed and what was stated that the company had run into financial difficulties and therefore not in a position to pay the contractual rate of interest. Order dated 5th October, 1999, reflective of this position, was passed and reproduction thereof would be apposite at this stage:

"There is no dispute that the petitioner paid Rs. 1.25 crores on 26.9.1997 and Rs. 1.25 crores on 3.10.1997 making the total amount of Rs. 2.5 crores. The respondent had agreed to pay interest at the rate of 25.5% p.a. and in case of default an additional interest of 11% p.a.

The counsel for the respondent submits that the company has run into financial difficulty and not in a position to pay the contractual rate of interest. However, learned counsel undertakes to pay 50% of the principal amount, i.e. Rs. 1.25 crores on or before 3rd November, 1999.

List this matter again on 3rd November, 1999. On that date, the petitioner shall bring his shares in court."

4. The amount of Rs. 1.25 crores as undertaken was not paid by 3rd November, 1999, when the matter came up on 3rd November, 1999 following order was passed:

"Mr. Kapur, learned senior counsel for the respondent-DCM shall hand over a bank draft of Rs. 25 lacs to counsel for the petitioner during the course of the day. Mr. Kapur undertakes to hand over another bank draft of Rs. 20 lacs by the next date of hearing i.e. 21st December, 1999. Learned counsel for the petitioner has brought 7 lakhs shares in the Court. The share scrips which are with the petitioner shall remain with the petitioner for the time being. On the request of the parties, I appoint the Joint Registrar attached to the Company Court, shall be associated with the sale of the shares.

It is stated that larger de-nomination shares will have to be converted into small denomination and that exercise shall be conducted by the J.R. in consultation with the petitioner and the respondent. The J.R. shall be paid a fee of Rs, 10,000/- by the respondent."

5. It is clear from the aforesaid order that the respondent company had agreed to hand over bank draft of Rs. 25 lacs and also undertaken to hand over bank draft of Rs. 20 lacs by 21st December, 1999. What is significant is that share scrips of 7 lac shares of DCM Daewoo Motors which were kept with the petitioner were brought to the court and the court permitted the petitioner to retain those scrips. It appears that there was also an agreement that these shares should be sold and on the request of the parties, the court also appointed the Joint Registrar attached to this court to be associated, with the sale of shares. The Joint Registrar was asked to convert the larger denomination shares into small denomination in consultation with the petitioner and the respondent. The order sheet of the case reveals that the matter was listed before the Joint Registrar thereafter from time to time and this exercise of converting the share scrips into smaller denomination was carried out. This exercise took considerable time and the progress was noted by the Joint Registrar on various dates in his orders. On 23rd May, 2000, the Company Secretary of Daewoo Motors appeared before the Joint Registrar and handed over 12000 shares certificates in the lot of 50 shares each (i.e. 6 lacs shares) to the Advocate, of the petitioner company. Counsel for the respondent sought time to explore the possibility of getting best price of the. shares and the matter was adjourned for this purpose. On 12th July, 2000, counsel for the petitioner was directed by the Joint Registrar to Contact counsel for the respondent to find out if he has got any offer for the shares.

6. Order sheet, therefore, is silent on this aspect as in the meantime compromise talks between the parties started again and orders were passed in regard thereto. In fact the respondent company moved petition under Section 391(2) of the Act for sanction of reconstruction. However, talks of settlement were still going on between the parties. The settlement was arrived at in the month of June, 2000 as per which the respondent agreed to pay Rs. 4.10 crores to the petitioner in full and final settlement towards principal as well as interest. On 23rd March, 2001, counsel for the respondent made a statement that payment had been made to the petitioner. Counsel for the petitioner took time to verify this fact. On 26th March, 2001, again counsel for the respondent No. 1 made a statement that the entire amount had been paid to the petitioner in terms of settlement arrived at between the parties and he wanted the petitioner company to return the shares back to it. Counsel for the respondent although agreed that some payment was made but he stated that he was not in a position to say as to how much amount was received and how much was still due. In these circumstances, counsel for. the respondent company sought time to file appropriate application for return of the shares.

7. It appears that some dispute remained as to whether full amount was paid by the respondent company to the petitioner or not and case was adjourned from time to time by the Joint Registrar when it was listed before him on this issue. Ultimately, on 28th November, 2001, counsel for the respondent made a statement that entire amount which was due to the petitioner i.e. a sum of Rs. 4.10 crores Was paid and nothing further survived in this case. Again, counsel for the petitioner showed his inability to verify this. Thereafter, the respondent company filed an affidavit deposing that Rs. 4.10 crores had been paid.

8. An application being CA No. 1312/2002 was filed in December, 2002 pointing out to the settlement arrived at between the parties in June, 2000 whereby the respondent company had agreed to pay a total sum of Rs. 4.10 crores in full and final settlement. In this application, the respondent company also stated that understanding between the parties was that the petitioner would withdraw, the winding up proceedings, criminal proceedings and would also release personal guarantee given by Dr. Vinay Bharat Ram and also release 7 lacs shares of Daewoo Motors India Limited. The grievance made in the application was that even when the amount had already been paid, winding up petition was not withdrawn and the petitioner had not released the said 7 lacs shares. It was also stated that value of these shares was dwindling and there was an apprehension that if the shares are not disposed of immediately, value of the same would become negligible in near future. A prayer was made to get the shares dematerialized, if not already done and appoint an officer of the court to dispose of these shares and collect the proceeds and keep the said proceeds in the court.

9. On this application, order dated 16th December, 2002 was passed by this court directing the Joint Registrar, who was appointed pursuant to the orders dated 3rd November, 1999, to take necessary steps for sale of the said shares in association with the petitioner. The order was passed after taking note of the statement of the petitioner to the effect that it had no objection to the sale of the said shares. The court also directed that the proceeds of the sale be deposited with the Registrar of this court. On 20th December, 2002, the court further directed that the said sale should be carried out within thirty days. When the matter came up for hearing on 31st January, 2003, the petitioner was directed to file an affidavit regarding the sale within two weeks. Pursuant to this direction, an affidavit dated 26th March, 2003 was filed, although belatedly in July, 2003, by the petitioner wherein reference was made to orders dated 16th December and 20th December, 2002 and in paras 5 and 6 following averments are made;

"Para 5 : That I say that as per the order of this Hon'ble Court dated 3rd November, 1999, the shares were transferred in the name of the petitioner. It is further stated that the shares were sold in the market and an amount of Rs. 34,50,903.43/- were recovered with the sale of the shares of the Daewoo Motors Ltd. for which due credit was given to the respondent in their outstanding statement, annexre herewith and marked as annexure A is a copy of the outstanding statement of amount due and payable by the respondent company to the petitioner.

Para 6: That I say that the statement of sale of 7 lakh shares of Daewoo Motors Ltd., which were given as collateral security to the petitioner are annexed hereto and marked as annexure.-B."

10. On coming to know that the shares were sold by the petitioner in the aforesaid manner, the respondent company has filed CA No. 346/2003 seeking directions/action for contempt against the petitioner company and its officers and such other persons Who may be held guilty of the contempt. Referring to the aforesaid orders, the grievances of the respondent are as under:

(a) The shares were to be disposed of by the Joint Registrar who was appointed for this purpose, in association with the petitioner. However, the petitioner sold the shares of its own thereby violating the orders passed in this behalf.

(b) On 16th December, 2002, counsel for the petitioner made a statement that he had no objection to sale of shares. Again order dated 20th December, 2002 was passed for carrying out this sale within thirty days. It was not even informed to the court that on these dates shares had already been sold as far back as in beginning of the year 2000 which act was revealed only in the statement filed along with affidavit 26th March, 2003 filed on 2nd July, 2003.

(c) Even after the sale the petitioner has not deposited the amount in terms of order dated 16th December, 2002.

Thus, according to the respondent company, the petitioner is guilty of repeated violations of various orders and has acted in contumacious disregard of these orders. Apart from prayer for initiating contempt action, direction is also sought against the petitioner company to forthwith deposit the proceeds of sale of the shares in this court.

11. Notice in this application was issued on 25th march, 2003. Reply to this application was filed by the petitioner on 24th September, 2003. Within one month thereafter, ire. on 29th October, 2003, the petitioner moved CA no. 1206/2003 seeking recall of orders dated 16th December and 20th December, 2002.

12. The case of the petitioner in reply to CA No. 346/2003 and in CA No. 1206/2003 is that the Joint Registrar was appointed primarily for the purpose of conversion of the shares in small denomination and the petitioner always understood that the shares were to be sold by the petitioner itself after the necessary exercise of converting the shares into small denomination was carried, out. It is also stated that even when order dated 5th October, 1999 was passed whereby the respondent company agreed to pay Rs. 1.25 cores by 3rd November, 1999 and the said amount was not paid, on 3rd November, 1999, the parties agreed for the sale of the shares. The Joint Registrar was appointed to remain associated with the sale of the shares only for conversion of it into small denomination as would be clear from reading of order dated 3rd November, 1999 in its entirety. Further proceedings before the Joint Registrar would show that only this exercise was undertaken by the Joint Registrar. It is also pointed out that even otherwise, the petitioner was not prevented in law or contract from selling these shares.

13. Explaining the circumstances in which orders dated 16th December and 20th December, 2002 were passed, it is stated that when CA No. 346/2003 came up for hearing wherein the respondent had prayed for sale of the shares, since learned counsel for the petitioner did not find anything prejudicial in the aforesaid suggestion, she made a statement that she had no objection to the sale of these shares. However, by that time the petitioner had not instructed the counsel about sale of shares i.e. the shares had already been sold and therefore this statement was made without having any such knowledge. On 20th December, 2002, counsel for the petitioner was not present and in view of order dated 16th December, 2002 the court passed the order for disposing of the shares within thirty days. It is stated that the petitioner came to know of this order much subsequently. On the basis of the aforesaid averments in reply to the CA No. 346/2003, it is stated that no contempt is made out. Certain preliminary objections about the maintainability of this application are also taken. In CA No. 1206/2003, explaining the circumstances in which orders dated 16th December and 22nd December, 2002 were made, prayer is made for recall of these orders. It is also stated that there was no settlement between the parties and affidavit to this effect had already been filed. According to the petitioner, the respondent company still owes an amount of Rs. 4,19,14,847/- and therefore there was no question of petitioner being called upon the deposit the proceeds of the sale in this court. The petitioner had never agreed to withdraw the petition either.

14. Learned counsel for both the parties have made detailed submissions highlighting their respective stands taken in their pleadings which are already noted above. I am of the view that the factors and circumstances which go against the petitioner are the following:

(i) Order dated 3rd November, 1999 was passed, which is already reproduced above, as per which the Joint Registrar was appointed who was to be associated with sale of shares. He was directed to convert large denomination into small denomination shares. I may reproduce the relevant portion of the directions once again:

"On the request of the parties, I appoint the Joint Registrar attached to the Company Court, shall be associated with the sale of the shares.

It is stated that larger ode-nomination shares will have to be converted into small denomination and that exercise shall be conducted by the J.R. in consultation with the petitioner and the respondent".

It is the contention of learned counsel for the petitioner that the appointment of Joint Registrar was for the purpose of conversion only. The portion of the order reproduced above may not indicate so. Order can be read to mean that the Joint Registrar was assigned both the functions of getting the shares converted into smaller denomination and also to be associated with the sale of shares.

(ii) Even if it is presumed that the petitioner understood the order as assigning the J.R. the job of getting the shares converted into small denomination and there was any doubt, it was for the petitioner to seek clarification of the order.

(iii) Further, order dated 16th December, 2002 refers to earlier order dated 3rd November, 1999 when direction is given that "the Joint Registrar of this Court appointed pursuant to orders dated November 3, 1999 shall take necessary steps in association with the Petitioner to sell these shares forthwith." Therefore, if it is presumed that learned counsel for the petitioner had no instructions that shares had already been sold, understanding of the order dated 3rd November, 1999 by the learned counsel for the petitioner even on 16th December, 2002 was that the Joint Registrar was to be associated with the sale of the shares.

(iv) Moreover, in the affidavit dated 26th March, 2003 filed by the petitioner, reference is made to orders dated 16th December ,and 20th December, 2002. Thus, on the date when this affidavit was sworn by the authorised representative of the petitioner, he was having knowledge of these orders. No such plea was taken therein that statement was given by learned counsel for the petitioner under mistaken belief which explanation is forthcoming only in reply to CA No. 346/2003 as well as in CA No. 1206/2003 seeking recall of these orders. It is, therefore, clear that the petitioner has committed violation of these orders.

15. What action is required to be taken in such case is the next poser. After all, the contempt is between the contemnor and the court. Role of the respondent company was only to bring the factum of the commission of contempt by the petitioner before the court,

16. Before embarking on this issue, it would be necessary to note certain mitigating circumstances which weigh in favor of the petitioner.

(i) After the order dated 3rd November, 1999 was passed, proceedings before the Joint Registrar reveal that he undertook the exercise of conversion of these shares in smaller denomination only. After the said exercise was complete, no steps were taken by the Joint Registrar for sale of the shares.

(ii) Even the respondent did not insist immediately after the conversion the shares that these shares be sold now with the help of the Joint Registrar:

(iii) Admittedly, after the conversion of the shares in small denomination from Daewoo Motors India Limited, these share scrips were transferred in the name of the petitioner. Thus, the petitioner was made owner of these shares and therefore nurturing this impression that the shares were to be sold by the petitioner now could be the bona fide impression though, as stated above, it would have been proper to seek clarification.

(iv) Then there are certain orders on record which may given an impression that the petitioner was allowed to sell these shares. The conduct of the petitioner, therefore, in selling these shares cannot be said to be contumacious or willful disobedience of the orders dated 3rd November, 1999 of the court.

(v) Most significant factor, which would govern the course of action to be adopted is the better price realised by the petitioner. From the sale of these shares, which was conducted in June, 2000, the petitioner could muster a sum of Rs. 34,50,903.43 for 7 lac shares. On this reckoning, average sale price comes to little more than Rs. 5 per share. Interestingly, when the respondent filed CA No. 1312/2002 in December, 2002, ignorant of this sale, the averment made in the application is that shares were trading at Rs. 2.5/3 per share. Apprehension was expressed that in case these shares are not disposed of immediately, the value of these shares would become negligible in near future. Thus by selling these shares in June, 2000, the petitioner could fetch much more price than what was expected by the respondent when it had moved CA No. 1312/2002 seeking order of sale of these shares.

16. In these circumstances, I do not deem it a proper case where discretion should be exercised to initiate contempt proceedings. One has also to keep in mind that in the application the respondent has named only the petitioner company and no particular officer; by name is imp leaded. Contempt proceedings cannot filed against the company,

17. With this, I come to CA No.1206/2003. filed by the petitioner and the only prayer Which now needs to be considered is the modification of direction to the petitioner to deposit the sale proceeds in court. The petitioner has not disputed that it has received a sum of Rs. 4.10 crores from the respondent company. Amount realised from sale of the shares is over and above this amount. The petition, when it was filed, the petitioner had alleged that a sum of Rs, 3,44,79,390/- was due and payable. The respondent company has also alleged that a sum of Rs. 4.10 crores was paid in full and final settlement although any such settlement is denied by the petitioner and substantial amount is still due which could be only because of interest component of alarmingly high rate. Having regard to all these facts and when these issues are yet to be adjudicated upon including the. violation of the order (though no action is deemed appropriate), it would be proper to direct the petitioner to deposit the amount Rs. 34,56,903.43 paise in this court and I do not intend to modify order dated 16th December, 2002 giving this direction. Let the petitioner deposit this amount with the Registrar General of this court within four weeks from today which would be kept in a fixed deposit. Appropriate orders would be passed when the application for the respondent alleging settlement is decided.

18. Both the applications stand disposed of with the aforesaid observations.