M/S Crb Capital Markets Ltd. vs M/S Arcon Engineering Co. Ltd. & ...
2010 Latest Caselaw 4331 Del

               IN THE HIGH COURT OF DELHI AT NEW DELHI

                          COMPANY JURISDICTION

                   COMPANY APPLICATION (C) NO. 7/2010
     (Previously numbered as Company Application (M) No. 54/2002)

                                       IN

                    COMPANY PETITION NO. 191 OF 1997

                                                Reserved on: 03-08-2010
                                    Date of pronouncement : 15-09-2010

M/s CRB Capital Markets Ltd.
                                                         ...........Petitioner
                           Through :    Mr. Bhuvan Gugnani, Advocate

                                  Versus

M/s Arcon Engineering Co. Ltd. & Anr.
                                                         .........Respondent
                           Through :    Mr. N.K.Kantawala, Advocate

                                        Mr. Rajiv Bahl & Ms. Manisha
                                        Tyagi, Advocates for the Official
                                        Liquidator.

CORAM :
    HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA

1.      Whether Reporters of local papers may be allowed to see the
        judgment? Yes
2.      To be referred to the Reporter or not? Yes
3.      Whether the judgment should be reported in the Digest? Yes


SUDERSHAN KUMAR MISRA, J.

1. This is an application by the Official Liquidator under S.446

of the Companies Act, 1956 for the recovery of an amount of

` 56,51,107 with interest @ 24% per annum, from the respondent M/s

Arcon Engineering Co. Ltd.

2. Pursuant to a petition filed on 21st May, 1997, M/s CRB

Capital Markets Ltd. was directed to be provisionally wound up on 22 nd

May, 1997. The Official Liquidator attached to this Court was appointed

as its provisional liquidator.

3. The company in provisional liquidation was in the business of

finance, hire-purchase, leasing, advancing loans and accepting

deposits under various Schemes.

4. On an examination of the records available with his office, the

applicant/Official Liquidator discovered that the respondent company

had taken an inter-corporate loan of ` 50 lakhs on 14th September,

1996 from the company in provisional liquidation. It was further

discovered that, for the purpose of payment of the aforesaid amount

to the respondent, the company in provisional liquidation had issued a

demand draft No. 9248 drawn on Bank of Baroda for an amount of `

50,03,000, in favour of the respondent. This amount of ` 50 lakhs is

also reflected in the trial balance of the Ahmedabad office of the

company in provisional liquidation, for the period 1st April, 1996 to 31st

December, 1996. It is further submitted by the applicant that the

respondent company reimbursed a sum of ` 3,000/- to the company in

provisional liquidation by way of a demand draft bearing No.366764

dated 28th November, 1996, in respect of the bank charges incurred by

the company in provisional liquidation. In addition, it is also submitted

by the applicant that the respondent company paid interest @ 24%

from 14th September, 1996 to 31st March, 1997 against the aforesaid

loan, which amounted to ` 6,51,107, and that, consequently, the trial

balance of the company in provisional liquidation for the period 1 st

April, 1996 to 31st March, 1997 reflects an amount of ` 56,51,107,

which includes the debited interest. A notice of demand dated 25 th

April, 2001 was issued by the applicant on behalf of the company in

provisional liquidation, calling upon the respondent to pay the

outstanding amount within 15 days of receipt of the aforesaid notice.

This notice was followed by communications dated 8th June, 2001 and

24th September, 2001, reminding the respondent of its liability to pay

the outstanding amount. It is submitted that despite service of the

aforesaid communications, the respondent failed to make any

payment. The applicant has, therefore, moved this application praying

for an order of recovery of the aforesaid amount, along with interest

@18% per annum till its realization, in favour of the applicant and

against the respondent.

5. In the reply filed on 14th January, 2003, the respondent

denied having taken an inter-corporate loan, as alleged, or at all.

Instead, the respondent contended that this amount of ` 50 lakhs was

a payment made by the company in provisional liquidation to purchase

shares in the respondent company and was, therefore, share

application money. It is also alleged by the respondent that equity

shares were subsequently allotted to the company in provisional

liquidation. However, at the time of filing the reply, no document in

support of this contention was filed by the respondent along with the

reply. In July 2007, counsel for the respondent sought time to file an

appropriate application for production of certain documents on which

he was relying. Subsequently, CA No.135/2008 was filed by the

respondent on 13th December, 2007, seeking to place on record a

photocopy of a share application form dated 14th September, 1996,

purported to have been duly executed by the company in provisional

liquidation, which had allegedly accompanied the demand draft for

Rs.50 lakhs.

6. CA No.1266/2009 was thereafter filed by the ex-

management of the company in provisional liquidation, which, inter

alia, sought directions to the respondent to place on record the original

share application form, on the ground that the photocopy that had

been filed by the respondent was indecipherable in certain material

particulars, with regard to the signature of the person who allegedly

signed the form, as also the authority of that person to do so on behalf

of the company in provisional liquidation. Further, as regards the

respondent's contention that equity shares were also issued to the

company in provisional liquidation pursuant to the alleged application,

details of the share certificates issued by the company in provisional

liquidation and particulars of the delivery thereof, were also sought. No

reply was filed to CA No.1266/2009. However, on 18 th May, 2010, an

opportunity was granted to Mr. Kantawala, counsel for the respondent,

to place on record the original share application form, or any other

covering letter or document sent by the company in provisional

liquidation to the respondent, in support of his contention. This was

not done. On 3rd August, 2010, counsel for the respondent stated that

he had no further instructions from his client in this regard. On the

same date, arguments were completed and orders reserved.

7. An affidavit of Shri Dinesh Chand, Deputy Official

Liquidator, was filed on 3rd March, 2004 by way of evidence in support

of this application. Ex.P-1 is a copy of the bank statement issued by

Bank of Baroda, as on 10th September, 1996, evidencing the issue of

demand draft No. 9248 for an amount of ` 50,03,000 by the company

in provisional liquidation. Ex.P-2 are copies of the trial balance of the

Ahmedabad office of the company in provisional liquidation for the

period 1st April, 1996 to 31st December, 1996, indicating

reimbursement of an amount of ` 3,000 against the loan amount, and

the trial balance for the period 1st April, 1996 to 31st March, 1997,

indicating the total amount owed by the respondent company as

` 56,51,107. Ex.P-3 are copies of the demand notice dated 25th April,

2001, calling upon the respondent to pay the outstanding amount, and

of the communications dated 8th June, 2001 and 24th September, 2001

reminding the respondent of its outstanding liability. Ex.P-4 are copies

of the AD receipts for the abovementioned communications,

evidencing that they were duly served on the respondent. Ex.P-5 is a

copy of the ledger maintained by the company in provisional

liquidation pertaining to the account in respect of the respondent, that

indicates the principal amount that is due and payable by the

respondent, as on 31st March, 1997.

8. Share application money is the money an investor is

asked to pay with an application for a new issue of shares. On the

basis of the prospectus issued by the company concerned, i.e. the

offer document, investors may decide whether they wish to apply for

shares in the company. The prospective investor is to submit the

prescribed application form, as well as the appropriate share

application money. This money is usually paid by cheque. It is not

necessary that a demand draft should be tendered. In the present

case, a demand draft for an amount of Rs.50 lakhs was tendered by

the company in provisional liquidation. The company in provisional

liquidation spent an amount of ` 3,000 in having the demand draft

prepared in favour of the respondent company. However, the

respondent then reimbursed this amount of `3,000 to the company in

provisional liquidation. The fact that, in this case, a demand draft was

tendered and that the company in provisional liquidation had taken the

trouble and expense of having the demand draft made, can only mean

that the purpose for which that draft was prepared was not a mere

application to purchase shares. Normally, when shares are applied for,

the reason why a simple cheque is accepted by companies intending to

allot shares is that the allotment comes to be made only after the

cheque is duly encashed. This method of completing such a transaction

is universally accepted and is reasonably sound, both from the point of

view of the company issuing the shares as well as the person applying

for allotment of the same. To my mind, if this was merely a

transaction for the purchase and allotment of shares, then, in that

case, there would have been no requirement for the respondent to

refund the additional expense incurred by the company in provisional

liquidation in having the draft prepared. This is because in a

transaction for the purchase of shares, as far as the company issuing

the shares is concerned, the purchaser is obliged to pay the full

amount to the company, and the company thereafter allots the shares

after the purchaser's application is processed. It is inconceivable that

the expenses of the purchaser, in making the share application money

available to the company, are refunded by the company issuing the

shares. The only defence that the respondent has raised in these

proceedings, apart from denying that a loan was taken from the

company in provisional liquidation at any date whatsoever, is that the

aforesaid money received from the company in provisional liquidation

is in the nature of share application money, pursuant to which shares

were allotted to the company in provisional liquidation. There is no

credible reason why, in the instant case, the parties would have

wanted to put the company in provisional liquidation to extra cost in

firstly getting a demand draft prepared and then putting the

respondent company who is to allot the shares, to the trouble and

expense of refunding the money spent by the company in provisional

liquidation in having the draft prepared. To my mind, the explanation

sought to be given by the respondent with regard to the receipt of the

aforesaid amount of ` 50 lakh does not hold water for all the above

reasons. Furthermore, as noted above, despite an opportunity to do

so, the respondent has failed to produce the original share application

form. Nor has he disclosed any details of the shares allegedly allotted

by it to the company in provisional liquidation. He has also failed to

produce any other document, such as a covering letter or other

communication from the company in provisional liquidation that would

bear out its stand. The amount claimed, therefore, stands proved.

9. Consequently, the respondent is directed to pay an amount

of ` 56,51,107 to the applicant, along with interest @ 6% per annum

from the date of the application till the date of realization of the

amount in favour of the applicant.

10. The application is disposed of in the above terms.

SUDERSHAN KUMAR MISRA, J.

SEPTEMBER 15, 2010.