Delhi High Court
Parnami Credits Ltd. vs Aks International Limited on 17 December, 2004
Author: A Sikri
Bench: A Sikri
JUDGMENT
A.K. Sikri, J.
1. The petitioner has approached this court through this petition under sub-section (e) of Section 433 of the Companies Act, 1956 (for short `the Act') and prayer made is for winding up of the respondent company (hereinafter referred to as `the company'). The ground, is obvious, as is clear from the provision itself under which the petition is filed, viz. the company is unable to pay the debts. However, before this aspect is examined, namely, whether the company is unable to pay the debts, the petitioner has also to establish another pre-requisite i.e. the company owes some debt to the petitioner.
2. Averments made in the petition by the petitioner are that the company through its Managing Director, Mr.Krishan Chawla, had approached the petitioner in the month of October, 1996 and to meet its financial requirements, requested for financial assistance by way of loan to the tune of Rs. 90 lacs. This request of the company was acceded to and the petitioner granted a loan in the sum of Rs. 65 lacs which was to be repaid within a period of one year along with interest at the rate of 30% per annum compouned quarterly. This money was received by the company in the following manner:
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Cheque No. Amount (Rs. Date of credit
in lakhs)
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340508 20.00 14.10.96
340534 5.00 08.02.97
340532 10.00 08.02.97
528767 20.00 13.02.97
340535 5.00 14.02.97
340536 5.00 14.02.97
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Total 65.00
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3. However, the company failed to repay the said short term loan even when several requests were made in this behalf. Ultimately, the petitioner served a legal notice dated 5th December, 1998 upon the company under Sections 433, 434 and 439 of the Act calling it to pay a sum of Rs. 76,05,333/- (inclusive of interest calculated from 1st July, 1997) at the rate of 30% per annum compounded quarterly. This notice was duly served upon the company but no payments were made even when the company assured that the money would be paid within one month. Left with no other alternative, the petitioner in these circumstances filed the present petition.
4. In the reply, the company has denied any such dues payable to the petitioner. It is alleged that the present petition is a gross abuse of process of law and has been filed to put undue pressure on the company. There is no ascertained liability. The receipt of Rs. 65 lacs is not denied. However, according to the company, the money was not given by way of term loan as alleged by the petitioner. The company has come out with its own version of the transaction. According to the company, it came out with a public issue in the year 1996 which opened on 16th October, 1996. This public issue was for Rs. 5 crores ( 50,00,000 equity shares at the rate of Rs. 10 each). Out of the above, Rs. 3.50 crores of equity was open for subscription to the general public whereas the balance Rs. 1.50 crores constituted the promoters quota as is mandatory under SEBI guidelines. In this promoters quota, the petitioner had applied for 6,50,000 equity shares by giving six cheques for a total sum of Rs. 65. These cheques were learned on different dates. On receipt of this amount, the company issued corresponding shares to the petitioner. In support of this version, the company has annexed Auditor's certificate with the reply which was filed with Securities Exchange Board of India as well as the Delhi Stock Exchange. Therefore, according to the company, the amount represented share application money against the aforesaid public issue and was not the loan amount. In order to demonstrate that the money given was not as loanut share application money, the company has endeavored to show that although all these cheques were dated 14th October, 1996, they were credited on different dates between 15th October, 1996 to 24th January, 1997. The submission which is made is that it was loan transaction on which the company was to pay 30 % per annum interest as alleged, it would have encashed these cheques instantaneously to utilize this money which was attracting such a huge interest, rather than getting the same encashed on different dates. Some cheques were encashed more than three months from the date of the cheques. The receipt of legal notice dated 5th December, 1998 is admitted but it is denied that the company after the receipt of this notice, approached the petitioner assured that it would be making the payment within one month. It is, thus, the case of the company that no such money is due and payable.
5. In the rejoinder filed by the petitioner, averments made in the petition are reiterated and it is impressed that the story weaved now is fabricated and is an after thought move as no such defense was taken by giving any reply to the statutory notice. It is stated that if the petitioner wanted shares to be issued, it would have made the application in this behalf in writing as without any such application for issuance of shares no shares can be allotted. This is not only a requirement under the Act, it is also mandated by the guidelines issued by the SEBI. Under the SEBI Act, these guidelines give the definition of word `promoter' and `promoters group'. The petitioner does not fall in either of the categories and, therefore, there was no question of issuing any shares to the petitioner in promoters quota. The SEBI guidelines also state that no securities forming part of promoters contribution shall consist of any private placement made by solicitation from unrelated persons either directly orthrough an intermediary. Therefore, even assuming the petitioner had applied for shares, it is not a promoter or in the category of promoters group and its shares being shares of an unrelated person could not form part of promoters contribution. This aerment is being made to show the falsity of the story now put up in the reply by the respondent. It is further stated that the SEBI guidelines mandate that the securities for which specific written consent has not been obtained from the respective applicant for inclusion of its subscription in the promoters contribution subject to lock in shall not be eligible for promoters contribution. No document has been filed showing the written consent. No application for shares and no written consent for it being included in the promoters contribution has been shown by the company to substantiate its bald averment that the money was advanced towards purchase of shares in the promoters quota.
6. It is also contended that there is no proof of dispatch of these share certificates to the petitioner although the company issuing the share certificate is obliged to dispatch the said certificates to the shareholders within the stipulated time prescribed by the Act and these share certificates are to be sent by the registered post. Not only this, the petitioner never received any notices of meetings of the shareholders and had the petitioner been a shareholder, it would have received such notices according to the petitioner, no such supporting evidence of dispatching the share certificates or issuing notice for shareholders' meetings are given by the company.
7. At the time of arguments, both the parties highlighted their respective submissions as contained in the pleadings and noted above.
8. Mr.Sanjeev Sindhwarni, learned counsel for the petitioner after highlighting the factual aspects of its case, submitted, on legal front, that such a plea of the company which was an after thought could not be taken into consideration at this stage inasmuch as the company had failed to comply with the notice issued under Section 434 of the Act demanding the aforesaid payment and relied upon the following judgments on this proposition:
(i) In Re. Advent Corporation Pvt. Ltd. (1969) 39 Company Cases 463.
(ii) In Re Seksaria Cotton Mills Ltd. (1969) 39 Company Cases 475
9. In support of the submission that if the petitioner was a shareholder, it would have received requisite notices as this is right of a shareholder, he relied upon the judgment of the Supreme Court in the case of Balkrishan Gupta and Ors. v. Swadeshi Polytex Ltd. and another . On the proposition that without any share application money and Resolution of the Board of Directors to allot shares, there could not have been any allotment of the shares and there was no question oacquiring title to become a shareholder, learned counsel referred to the judgment of Kerala High Court in the case of Kumaran Potty v. Venda Pharmaceuticals and Chemicals Ltd. and other reported in (1989) 65 Company Cases 246 and that of the Supreme Cort in the case of Rahul Subodh Windoors Ltd. v. A.K. Menon and another as well as of this court in the case of H.H.Manabendra Shah v. Official Liquidator, Indian Electric Tools Corporation Ltd. (In Liquidation), and others reorted in (1977) 47 Company Cases 356.
10. Mr.Sachdeva, learned counsel for the company, on the other hand, submitted that neither the petitioner had established that their existed a debt payable by the company to the petitioner nor the company was unable to pay the debt. His submission was that it was a viable and solvent company making goods profits and having sound financial health. It had net worth of over Rs. 6 crores with a paid up capital of Rs. 5.6 crores and free reserves of Rs. 0.66 crores backed by current assets/inventory of Rs. 6.2crores and fixed assets of Rs. 0.21 crores as on 31st March, 2004 He relied upon the judgment of Calcutta High Court in the case of Ram Kumar Agarwala and Anr v. Buxar Oil and Rice Mills Ltd. and another to buttrss his submission that court will not pass a winding up order unless the petitioner proves that it is in fact a creditor. Referring to the judgment of this court in the case of Wimco Ltd. v. Sidvink Properties (P) Ltd. reported in (86) 1996 Company Cass 610 (Delhi), he submitted that merely because the company did not reply to the communication or the statutory notice, it would not amount to admission of liability and it was still obligatory on the part of the petitioner to establish that the debt exits.
11. I have considered the submissions of both the parties with reference to pleadings and documents filed by them.
12. In order to substantiate its averments that shares were in fact allotted to the petitioner in the promoters quota, the company has placed on record the certificate dated 16th November, 1996 of the Chartered Accountants A.Makhija and Company. First certificate reads as under:'' We have examined the relevant documents and records produced to us of AKS INTERNATIONAL LIMITED having its registered office at 707, Vishwa Sadan, 9, District Centre, Janak Puri, New Delhi-110058. On the basis of aforesaid examination and informatioand explanation given to us, we hereby certify that the Equity Share Certificate issued pursuant to the allotment of equity shares in the Promoters quota are locked in as per details given below:
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S.No. Name of No. of shares Date of Lock-in Distinctive Date up to
applicant allotment period No.from-to which transferrestricted
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1. PARNAMI 650000 13.11.96 5 yrs. 0850701-1500700 12.11.2001 CREDIT LTD.
2. A K S 600700 13.11.96 5 yrs. 0250001-0850700 12.11.2001 CREDIT LTD.
3. A K S 69300 13.11.96 3 yrs. 0180701-0250000 12.11.1999 CREDIT LTD.
4. KRISHAN 102500 13.11.96 3 yrs. 0000701-0103000 12.11.1999 CHAWLA
5. O.P.PAHUJA 75000 13.11.96 3 yrs. 0105701-0180700 12.11.1999
6. KIRAN 2500 13.11.96 3 yrs 0103201-0105700 12.11.1999 CHAWLA
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We further certify on the basis of information and explanation given to us that the share certificates issued in respect of the above equity shares have been prominently stamped with an enfacement as under:
"Not to be sold/transferred/ hypothecated up to .................(respective dates as mentioned above)."
13. As per this certificate, it is shown that the petitioner is allotted 6,50,000 shares on 13th November, 1996 and the distinctive numbers of these shares are 0850701-1500700. Second certificate is in the following words:
"On the basis of relevant documents and records of AKS INTERNATIONAL LIMITED having its registered office at 707, Vishawa Sadan, 9, Distt. Centre, Janak Puri, New Delhi-110058 produced to us and information and explanation given to us, we hereby certifthat the allotment of 50,02,500 Equity Shares for the Public Issue of Rs. 5,00,25,000 (Rupees Five Crores Twenty Five Thousand Only) made by the AKS INTERNATIONAL LIMITED on 13.11.96 is as per and according to the basis of allotment approved by THE DELHISTOCK EXCHANGE ASSOCIATION LIMITED vide its letter No. 9291 dated 13.11.96. For A. Makhija and Company Chartered Accountants
Sd/-New Delhi (ASHISH MAKHIJA)Dated 16.11.96 Partner"
14.This certificate relates to the entire public issue certifying that 50,02,500 equity shares were allotted by the company on 13th November, 1996 and this was according to the basis of allotment approved by the Delhi Stock Exchange Association Limitedvide its letter No. 9291 dated 13th November, 1996. Both these certificates are dated 16th November, 1996., i.e., immediately after the public issue. The aforesaid certificates of the Chartered Accountants, according to the company, were submitted withthe Delhi Stock Exchange as well as SEBI. As per these certificates, the petitioner was issued the shares which were allotted on 13th November, 1996. However, apart from these certificates of the Chartered Accountants, no document worth the name is produced to show that shares were allotted to the petitioner.15. We cannot lose sight of the glaring circumstances brought out by the petitioner which create suspicion about the version of the company. These are:
(a) There is no application for allotment of these shares produced on record by the company. Sub-section (2) of Section 41 of the Act provides that there should be such an application in writing. In Balkrishan Gupta (supra), the Supreme Court held that for any other person, who becomes a member, two conditions must be fulfillled. (1)There is an agreement to become a member; and (2) that his name is entered in the register of members of the company. Both the conditions are cumulative. The word `inriting' which were added in sub-section (2) of Section 41 by amendment Act of 1960 indicate, by necessary implication, that an application for allotment of shares should be made in writing. That is the interpretation given by this court as well in the case of H.H.Manabendra Shah (supra). Clause 4.6.7 of SEBI guidelines also provides that security for which a specific written consent has not been obtained from the respective shareholders for inclusion of their subscription in the minimum promoters contribution subject to lock-in shall not be eligible for promoters contribution.
(b)The public issue was opened on 16th October, 1996. As per Clause 4.9.1 of SEBI guidelines, the promoters contribution including premium has to be brought in full at least one day prior to issue of opening date. No doubt all the cheques given by the petitioner to company are dated 14th October, 1996. It is intriguing as to why these cheques were encashed on different dates and two cheques as late as in January, 1997. The company had tried to project that it cannot be a loan transaction as nobody would keep the cheques for such a long period for getting it encashed if one has to pay 30% interest. However, this can be answered by stating that the interest would accrue only from the date of encashment of the cheques. Rather it is intriguing as to wy these cheques were not immediately encashed if that was the consideration for issuance of shares in favor of the petitioner. Not only these cheques were not encahsed immediately, but two cheques are encashed much after 13th November, 1996 on whichate, according to the company, shares were allotted to the petitioner as per the certificate of the Chartered Accountants. Why these cheques were encashed only in January, 1997 is not explained by the company.
(c) No documentary evidence is produced to the effect that share allotment certificates were dispatched by the company to the petitioner in accordance with law.
(d) No documents are produced on record to show that notices were sent by the company to the petitioner for Annual General Meeting or shareholders' meetings.
(e) No documentary evidence is produced to support the plea that the two certificates of the Chartered Accountants were submitted with the Delhi Stock Exchange or the SEBI.
16. In the light of these circumstances appearing against the company, no credence can be given to the two certificates of the Chartered Accountants produced by the respondent company at this stage and, therefore, I am of the prima facie view that the company is indebted to the petitioner. The defense of the company to the effect that it is a solvent company will also be no assistance to it at this stage in view of the judgment of this court in the case of Resham Singh and Co. Pvt. Ltd. v. Daewoo MotorsIndia Ltd., 102 (2003) DLT 188 wherein it was held as under :
"4. The law on the subject has been largely distilled in Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Another, (1994) 2 Comp. L.J. 50. I have observed in NEPC India Limited v. Indian Airlines Limited, 100 (2002) Delhi Law Times 14, that in winding-up proceedings it is necessary to keep the following conditions in perspective--
i. xxx
ii. Where the debt is undisputed the Court will not act upon a defense that the company has the ability to pay the debt but the company chooses not o pay it.
iii. xxx
iv. xxx
v. xxx
vi. xxx
vii. xxx"
17. This petition is, therefore, admitted to hearing. Let citations be published in the 'Statesman' (English), 'Jan Satta' (Hindi) as well as Delhi Gazette, returnable on 11th April 2005. The question of appointment of Provisional Liquidator is deferred at this stage. However, the order for publication of citation is kept in abeyance for a period of six weeks to enable the company to deposit a sum of Rs. 65 lacs with the Registrar General of this Court. In case the amount is not deposited withinix weeks, the petitioner shall be entitled to get the citations published.
18. List for further orders on 11th April, 2005.
