M/S. Data Access (India) Ltd. vs ..
2011 Latest Caselaw 358 Del

*         IN THE HIGH COURT OF DELHI AT NEW DELHI

+
             Company Petition No. 292/2004 &
             Company    Appln.   Nos.   1459/2006,
             221/2007,  688/2010,   1061/2010   &
             989/2007 in Company Petition No.
             292/2004, CCP (CO.) Nos. 31/2005 &
             16/2007


                              Reserved on : .22nd November, 2010.
%                       Date of Decision:   21st January, 2011.

In the matter of :

M/S. DATA ACCESS (INDIA) LTD.


CANARA BANK                       .... Applicant in C.A. nos.221/2007,
                                      688/2010 & CCP. No.31/2005.


                              versus

DATA ACCESS (INDIA) LTD.               .... Respondent.

MR. K.C. PALANISAMY

M/S. CHERAN ENTERPRISES PVT. LTD. ...Applicant in C.A.

Nos. 1459/2006 & 1061/2010.

MR. SIDHARATHA RAY ....Applicant in CCP. No.16/2007.

STATE BANK OF INDIA, ERODE BRANCH.

ODYSSEY AMERICA REINSURANCE CORPORATION ....Applicant in C.A.989/2007.

M/S CHERAN HOLDINGS PVT. LTD.

M/S SPORTING PASTIME INDIA LTD. ...Applicant in C.A.1138/2010

ABN AMRO BANK

M/S KCP ASSOCIATES HOLDINGS PVT LTD Through Mr. Tejas Karia for the petitioner in CP No. 292/2004.

Mr. Y.P. Narula, Sr. Advocate with Mr. Aniruddha Choudhury for Canara Bank in CP No. 292/2004 & CCP(CO.) No. 31/2005.

Mr. Rajiv Nayar, Sr. Advocate with Mr. Aditya Bhatt for Odessey Infra.

Mr. A.S. Chandhiok, Sr. Advocate with Mr. Dhruv Wahi, Ms. Reeta Mishra & Mr. Aashish Gupta for

C.P.No.292/2004 Page 1 Cheran Enterprises Private Limited.

Mr. Anuj Aggarwal & Mr. Gaurav Khanna for the respondent in CP No. 292/2004.

Mr. Rajiv K. Garg for M/s Sporting Pastime India Limited in CP No. 292/2004 & CCP (CO) No. 31/2005. Mr. Nikhil Nayyar for the respondent in CP No. 292/2004 & CCP (CO.) Nos. 31/2005 & 16/2007. Ms. Manisha Tyagi for the Official Liquidator.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether Reporters of local papers may be allowed to see the Judgment?

2. To be referred to the Reporter or not ?

3. Whether the Judgment should be reported in the Digest ?

SANJIV KHANNA, J.:

Company Application nos. 1459/2006, 1061/2010 have been filed by

M/s. Cheran Enterprises Pvt. Ltd. (hereinafter referred to as CEPL, for

short), Company Application nos. 221/2007, 688/2010 and CCP No.

31/2005 have been filed by Canara Bank, CCP No. 16/2007 has been filed

by Mr. Sidharatha Ray, Company Application No.989/2007 has been filed

by Odyssey America Reinsurance Corporation (hereinafter referred to as

Odyssey, for short), Company Application No. 1138/2010 has been filed by

counsel of M/s. Sporting Past-time India Ltd. (hereinafter referred to as

SPIL, for short) for discharge of the counsel.

2. CEPL has made the following prayers in the Application nos.

1459/2006 and 1061/2010:

C.A. No. 1459/2006 "(a) the Applicant Company and its shareholders and directors, other than KCP and CG, may not be directed to remit back the said sum of Rs.35,30,46,482/- (Rupees Thirty Five Crores Thirty Lacs Forty Six Thousand Four Hundred Eighty Two Only) with ABN Amro;

(b) the order dated 18th November, 2005 be modified and the Applicant Company and its shareholders and directors, other than KCP and CG,

C.P.No.292/2004 Page 2 be relieved of the obligation to remit back the sum of Rs.35 crores received by it from CHPL;

(c) such other further orders as may be deemed fit and proper in the facts and circumstances of the present case be passed.

             C.A. No. 1061/2010
                     a)    Recall the order dated 20.04.2010 and
             vacate the interim order;
                     b)    Dismiss CA 688/2010 filed by Canara
             Bank; and
                     c)    Pass such other and further order as the

Hon‟ble Court may deem fit and proper in the facts and circumstances of the present case, in the interest of justice."

3. Canara Bank has made the following prayers in the Application nos.

221/2007 and 688/2010:

"C.A. No. 221/2007

i) the State Bank of India, Erode Branch may be directed to release the amount of Rs.17,56,86,781/- kept as fixed deposit by Cheran Enterprises Pvt. Ltd. to the Applicant with interest.

ii) Pass any other order or orders as this Hon‟ble Court may deem fit and proper in the facts of the case.

C.A. No. 688/2010

(a) that directions be issued to State Bank of India, Erode Branch to deposit with the Applicant Bank a sum of Rs.18.34 crores with interest deposited in the name of Cheran Enterprises Pvt. Ltd. with its Erode Branch.

(b) Any other order or direction, which this Hon‟ble may deem fit and proper in the facts and circumstances of the case may also be passed in favour of the Applicant Bank."

4. Odyssey has made the following prayers in the Application no.

989/2007:

"C.A. No.989/2007 A. Direct DAIL, CHPL, KCPAHPL, SPIL and KCP jointly and severally pay to the applicant a sum of Rs.78,45,00,000 (Rupees seventy eight crores forty five lakhs) being the Rupee equivalent of the loan proceeds together with interest thereon at 12.5% from the due date till date of payment.

B. Pending the adjudication of this application, direct the State Bank of India, Adyar Branch, Chennai and Assistant Commissioner of

C.P.No.292/2004 Page 3 Income Tax, Company Circle 1, to transfer and deposit in an FDR in the name of the Registrar of this Hon‟ble Court with a nationalized bank (other than Canara Bank) to be nominated by this Hon‟ble Court, the sum of Rs.25,00,00,000 (Rupees twenty five crores) lying within their control.

C. Pending the adjudication of this application, direct such further amounts that may be remitted back to DAIL in accordance with this Hon‟ble Court‟s order dated 18.11.2005 be deposited in an FDR in the name of the Registrar of this Hon‟ble Court with a nationalized bank (other than Canara Bank) to be nominated by this Hon‟ble Court.

                     D.    Declare that Canara Bank has no right
             and/or claim to the loan proceeds.
                     E.    Award costs of the present application.
                     F.    Grant such other and further relief that

this Hon‟ble Court may be pleased to in the facts and circumstances of the case and in the interests of justice and equity."

5. CCP No. 31/2005 has been filed by Canara Bank and CCP No.

16/2007 has been filed by Mr. Sidharatha Ray. These Contempt Petitions

are for non-compliance of the Order/Judgment dated 18th November, 2005

passed by this Court while disposing of C.A. Nos. 1409/2004, 1582/2004,

35, 36, 287, 288 and 677/2005. The other applications mentioned above

are also connected with the aforesaid Order/Judgment.

6. M/s. Pacific Convergence Corporation Ltd. had filed winding up

petition no. 292/2004 against M/s. Data Access India Ltd. (hereinafter

referred to as DAIL, for short) under Section 433(e) read with 434 of the

Companies Act, 1956 (hereinafter referred to as Act, for short). The

allegation was that DAIL had neglected and failed to pay the debt due. The

Company Petition was admitted vide Order/Judgment dated 18th

November, 2005 and the Official Liquidator attached to this Court was

appointed as the Provisional Liquidator. It was recorded that the company-

DAIL had lost its substratum and it would be just and equitable to wind up

the company as there was no business activity and there was no prospect of

revival.

C.P.No.292/2004 Page 4

7. DAIL was originally floated by Mr. Sidharatha Ray and his group of

companies and SPIL. Subsequently, it entered into negotiations as recorded

in the Minutes dated 25th February, 2004 and letter dated 26th February,

2004; and shareholders agreement dated 26th August, 2004, which was

signed between the (i) CHPL (ii) KCP Associates Holdings Pvt. Ltd

(hereinafter referred to as KCPAHPL, for short) (iii) SPIL (iv) Pacific Net

Invest Ltd (v) DAIL (vi) Mr. Sidharatha Ray and (vii) Stracon (India) Ltd.

8. Mr. Sidharatha Ray, the main promoter of DAIL divested his stakes

in the company-DAIL in favour of new investors and the shareholding

pattern of the company-DAIL became as under:

      Pacific Convergence                       23.40%
      (Mauritius) Ltd.
      SPA Enterprises Ltd.                      13.75%

      Pacific Net Invest Ltd.                   51.00%

      Employees & Associates                    0.84%

      Cheran Holdings Pvt. Ltd.                 11.01%

      TOTAL               :          100.00%

9. Canara Bank is a secured creditor of the company-DAIL and had

financed the business in consortium with Syndicate Bank vide Deed of

Hypothecation dated 15th April, 2004. The company-DAIL owed about 92

crores to Canara Bank and about 17 crores to Syndicate Bank. Canara

Bank has initiated proceedings before the Debts Recovery Tribunal. Canara

Bank claims that it has lien over all book debts of the company-DAIL and as

per the terms of the loan, the company-DAIL was required to maintain

account and deposit debt payments in the account of DAIL maintained in

the Canara Bank.

10. The company-DAIL was granted permission to open an account with

ABN Amro Bank, Chennai for the limited purpose of receiving investors

C.P.No.292/2004 Page 5 money. Account No. 1130826 was opened and an amount of US $ 17 million

was received on 18th August, 2004 in the said account from Data Access

America Inc. (hereinafter referred to as DAAI, for short) which is a 100%

subsidiary of DAIL. The case made out by Canara Bank is that this amount

was paid by DAAI on account of debt due to DAIL which is

charged/hypothecated with the said Bank and was contrary to the

understanding permitting opening of a bank account with ABN Amro Bank

with limited purpose of receiving investors‟ money. There is no dispute that

DAAI was liable to pay and indebted to DAIL on account of services

rendered.

11. After US $ 17 million was deposited in ABN Amro Bank on 18th

August, 2004, the same was converted into corresponding Indian Rupees

78.45 crores. On the very next date, i.e. 19th August, 2004 sum of 78.45

crores was transferred to the account of CHPL in ABN Amro Bank.

Instantaneously, CHPL transferred 35,30,46,482.68/- to CEPL which

also had an account in ABN Amro Bank, 18,05,00,000/- was transferred

to KCPAHPL in ABN Amro Bank and on 28th October, 2004

25,00,00,000/- was transferred to SPIL in their account in ABN Amro

Bank.

12. Canara Bank on 13th November, 2004 called upon ABN Amro Bank

to remit the amounts received in the account of DAIL. On 16 th November,

2004 the Manager of ABN Amro Bank spoke to his counterpart in Canara

Bank and informed about the transfer of the said funds to several accounts

and that only 48,000/- was available in the account of DAIL.

Immediately thereafter, Canara Bank issued notices dated 17/18th

November, 2004 to DAIL and ABN Amro Bank. DAIL replied to this notice

by letter dated 19th November, 2004 written by DUA Associates, advocates

not denying receipt of the said money. It may be noted that ABN Amro

C.P.No.292/2004 Page 6 Bank had not revealed the details of the accounts to which the money was

transferred. In these circumstances, on 23rd November, 2004, Canara Bank

filed C.A. No. 1409/2004. Order dated 25th November, 2004 passed in C.A.

No. 1409/2004 reads:-

"CA No. 1409/2004 Notice which is accepted by Ms.Ritu Bhalla, learned counsel for the petitioner and Ms.Tyagi, learned counsel for the Official Liquidator. Notice shall also be issued to ABN Amro Bank, 19/1 Haddows Road, Branch Chennai and the respondents for the next date.

Notice be served DASTI.

List on 3rd December, 2004.

The respondent company is restrained from dealing with the amount received from Data Access America in bank account No.1130826 of respondent company maintained by ABN Amro Bank Chennai or any other account of the associates or agents of the respondent company in the aforesaid branch or any other branch office of ABN Amro Bank in India.

The ABN Amro Bank shall also give complete particulars of such remittances received from the aforesaid firm Data Access America.

Dasti under the signatures of the Court Master of this court."

13. During the pendency of the said application, another C.A.

No.1582/2004 was filed and was listed on 17th December, 2004, when the

following Order was passed :

"In para 5 of this application it is stated by the applicant that Income-Tax authorities have confirmed that a sum of Rs.78.45 crores was credited to the account of the respondent company with ABN Amro Bank in account No. 1014374 on 19th August 2004 and on the same date Rs.78.45 crores was transferred to account No. 1103945 of M/s. Cheran Holdings Pvt. Ltd. maintained with ABN Amro Bank, Chennai. It is also disclosed that from account No.1103945 of M/s. Cheran Holdings Pvt. Ltd. amounts were further transferred in the following manner:

(a) On 19.8.2004, Rs.35,30,46,482/- to Account No.922322 of M/s. Cheran Enterprises with ABN Amro Bank.

(b) On 19.8.2004 Rs. 18,05,00,000/- to Account No.94444 of M/s. KCP Associates Holdings with ABN Amro Bank.

C.P.No.292/2004 Page 7

(c) On 28.10.2004, Rs.25,00,00,000/- to Account No. 912277 of Sporting Pastime India Ltd with ABN Amro Bank.

(d) From the account No.994444 of M/s. KCP Associates Holdings, a sum of Rs.18.03 crores was transferred to Syndicate Bank, Delhi-A/c. KCP on 20.8.2004.

From the aforesaid averment it is prima facie established that attempt is made by the respondent to transfer these funds to other accounts so as to go out of the reach of the petitioner or the Canara Bank. ABN Amro Bank, Chennai and Syndicate Bank, Delhi would ensure that minimum balance, as mentioned in sub-paras (a), (c) and (d) is maintained in those accounts, namely, in account No. 922322 of M/s. Cheran Enterprises - Rs.35,30,482/- (sic); in account No. 912277 of Sporting Pastime India Ltd - Rs.25 crores and in account of KCP Associates Holding with Syndicate Bank, Delhi - 18.05 crores. As the applicant is not aware of the branch office of Syndicate Bank where this account is maintained, the order shall be served upon the zonal office of Syndicate Bank at Delhi.

Notice for 7th January, 2005, dasti through counsel.

Copy of the order be also given dasti under the signatures of the Court Master."

14. Company Application No. 35/2005 was filed by Odyssey. They had

alleged that they had given loan of US $ 17 million to DAAI subject to the

condition that the said loan would be further lent to DAIL on two

conditions, namely, rollover of all loans and bank guarantees with Canara

Bank and Syndicate Bank for a period of atleast 12 months and secondly,

reinstatement of all points of interconnect with BSNL and extension by

BSNL of all outstanding dues. As these conditions were not satisfied,

according to Odyssey, the money did not belong to DAIL or DAAI and

Canara Bank had/has no right over the same. Company Application

no.36/2005 was filed by CHPL for modification of the stay Order dated 17th

December, 2004. Company Application No. 288/2005 was filed by SPIL for

vacation of the stay Order dated 17th December, 2004 on various grounds

including rights of these companies to appropriate the said amounts

C.P.No.292/2004 Page 8 deposited in their bank account. Company Application no. 677/2005 was

filed by Hamblin Watsa Investment Council Ltd for vacation of the stay

Order dated 17th December, 2004 attaching US $ 17 million. It was their

case that they had acted as investment advisors of Odyssey.

15. Canara Bank on the other hand contended to the contrary and their

stand is recorded in para 63 to 66 of the Order/Judgment dated 18th

November, 2005 which for the sake of convenience are reproduced below:

"63. Admitted facts are that since the bank/consortium had to receive substantial amount, on 9th July, 2004, the company sent a letter to the bank informing that it was arranging a sum of Rs.75 crores to Rs.125 crores from an investor in order to augment the working capital and improve the cash flow. Thereafter, vide letter dated 23rd July, 2004 the company requested the bank to open a no lien escrow account in the name of the company for repayment of proposed loan of Rs.75 crores to the investors in 60 monthly installments. Accepting this request the bank opened an escrow account in the name of the company on 24th July, 2004.

Thereafter, two letters dated 12th August, 2004 were received by the bank from Mr.Ray and Mr.R.Karunanidhi and other signed by Mr.K.C.Palaniswamy. These were with regard to investors fund of Rs.75 crores and it is clear from these letters that the companies, namely, KCPAHL and CHPL were the notified investors and the amount receivables from M/s Data Access America on account of services rendered had no connection with the same. It was followed by letter dated 18th August, 2004 from the company seeking permission for opening a current account with ABN AMRO Bank, Chennai to facilitate the smooth transfer of funds in the minimum possible time. It was also mentioned that the funds need to be transferred immediately to the bank. From the said letter it is apparent that the investors viz. CHPL and KCPL were having an account with ABN AMRO, Chennai and that the money was to be transferred from one account to the other in the same branch. The said letter never indicated that the investor money was to be received from a foreign party in foreign exchange by the company. The letter dated 18th August, 2004 only indicated that the transaction was within India and was obviously in Indian rupees and there was no indication or mention of any remittance of foreign exchange by any foreign company. It is clear from the letter that the investor' money was to be

C.P.No.292/2004 Page 9 deposited with Canara Bank and for which escrow account was opened by the bank. The bank accordingly granted permission for opening of the account.

64. On 26th August, 2004, another shareholder's Agreement was signed between the concerned parties stipulating various conditions interse the Share Holders. The Bank was, however, never consulted and had no role to play in the signing of the said earlier Agreement or the agreement of 26th August, 2004. In fact, this Agreement was given to the Bank sometime in October, 2004 and as per Clause 8 of the said Agreement the investor was to bring in the amount of Rs. 75 crore on certain conditions mentioned in the said clause. From the said Share Holder's Agreement, it is clear that as on 26th August, 2004, the investor's money had not been received by the Respondent Company. Thereafter, on 7th September, 2004 a consortium meeting was held in which Mr. Siddharth Ray and Mr. K.C. Palanisami participated on behalf of the Respondent Company. In the said meeting also, it was represented by the said persons that the investor's money of Rs. 75 crore was yet to come. In fact, the consortium's views recorded in the minutes of the said meeting stated as under:

„„The Company officials shall arrange for infusion of Rs. 75 crore by the investors money to set right the irregularities.‟„

65. As a follow up of the consortium meeting of 7th September, 2004, Canara Bank received letters dated 16th September, 2004, 17th September, 2004 and 21st September, 2004 and in the said letters also there is no mention of the receipt of any loan amount of Rs. 75 crore from the investors. Infact, in para 2 of the letter dated 21/7/2004, the Bank was informed that a sum of Rs. 83.81 crore is due from Data Access America to the Respondent Company as on 31/8/2004, which was not correct and was contrary to remittance of 17 Millions USD by Data Access America to Data Access India Ltd. on 19/8/2004 along with a swift message that the said payment was on account of the outstanding liability towards services rendered. It is relevant to mention that during this period i.e. in November, 2004, the Bank received copies of the letters addressed by the Chairman of the Respondent Company to Enforcement Directorate and to the Revenue Authorities, stating therein that the new management had fraudulently transferred funds of 'DAIL' to their own Companies. The said letter also mentioned that the amount of 17 Million US Dollars received in the account of „„DAIL' with ABN AMRO

C.P.No.292/2004 Page 10 Bank, Chennai were receivables to be deposited with Canara Bank. In fact, after receiving the amount of 17 Million US Dollars on 19.8.2004, ABN AMRO Bank filed the Inward Remittance Certificate with the Reserve Bank of India the same day, i.e. on 19.8.2004, declaring that the remittance was received on the account of the respondent Company against outstanding bills of services rendered. It is further submitted that under the provisions of Section 6 read with Section 47(2) of FEMA, read with Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations 2000, there is a prohibition to borrow or lend any foreign exchange. The Relevant Regulation 3 framed under the said Act reads as under:-

„„Regulation 3. Prohibition to borrow or lend in foreign exchange â€" Save as otherwise provided in the Act, rules or regulations made there under, no person resident in India shall borrow or lend in foreign exchange from or to persons resident in or outside India.

Provided that the Reserve Bank may, for sufficient reasons, permit a person to borrow or lend in foreign exchange from or to a person resident outside India‟„.

66. In the present case, no permission of RBI has been obtained by any party. In case the company was to receive any loan in foreign exchange from abroad, prior permission of the RBI was required. It is, therefore, the case of the Bank that the entire story of the Respondent Company that the said amount of 17 Million US Dollars was received as loan by the Respondent Company from its 100% subsidiary is false. In fact, as per the letter dated 18.8.2004, written by the Respondent Company, seeking no objection from the Bank for opening a current account with ABN AMRO Bank, Chennai, the investor was to infuse funds in to the Respondent Company by transferring amount in Indian Repees from its account with ABN AMRO Bank, Chennai to the account of the Respondent Company in Indian Rupees. The investor was 'CHPL' and 'K.C.P.' and not 'DAA'. The swift message of 'DAA' received with the remittance of 17 Million US Dollars cannot be changed. The Respondent Company has fabricated the story of unsecured loan by 'CHPL' to 'DAIL' through 'DAA'. The said story is neither plausible nor possible. "

16. After noticing the respective stand of the parties, the Court recorded

the following prima facie findings in para 69 of the Order/Judgment dated

18th November, 2005 that reads :

C.P.No.292/2004 Page 11 "69. No doubt the company has tried to give its own version and hue to the entire transaction and dubbing the receipt of funds in the company's account as an error. However, the admitted facts are :

(a) The amount was received in the account of the company maintained with ABN AMRO Bank.

(b) The amount was received through its subsidiary Data Access America Inc. Whether it was a loan given by Odyssey Re, that too with conditions, is a matter which needs a thorough probe. It is also possible that as Data Access America has to make substantial payments to the company, it borrowed the money from the said parties for making payment to the company.

(c) Although it is alleged that the money was to be given by way of loan by CHPL/Odyssey with certain conditions, even when this money was received on 18th August, 2004, the correspondence on record which is highlighted by the bank shows that much after this date also there were discussions about the investors infusing Rs.75 crores indicating that such a money has yet to come.

(d) This can be inferred from the shareholder's agreement dated 26th August, 2004, consortium meeting dated 7th September, 2004 and follow up letters dated 16th , 17th and 21st September, 2004 received by the bank. Even in reply dated 19th November, 2004 counsel for company M/s Dua Associates did not refute the allegation of the bank that money was received from Data Access America Inc.in the account of the company.

(e) Although as per the representations made, investors were to infuse Rs.75 crores, money received is US $ 17 million i.e. Rs.78.45 crores.

(f) After receiving the amount, the ABN AMRO filed inward remittance certificate with RBI on 19th August, 2004 i.e. the same date declaring that the remittance was received in the account of the company against the outstanding bills of services rendered.

(g) No permission of RBI has been obtained by any party for lending foreign exchange to an Indian company."

17. In the said Order/Judgment, the Court noticed the provisions of

Section 531 of the Act and observed that at that stage only prima facie view

C.P.No.292/2004 Page 12 was to be made whether essential ingredients of fraudulent preference were

made out. The court noticed that the stand of the Canara Bank that 78.45

crores was held by DAIL as Trust and such Trust money cannot be

intermingled with other non trust money and has to be given separate

treatment and in this connection reference was made to decisions relied

upon by Canara Bank in the case of New Bank of India versus Pearey

Lal (1962) 32 Comp Cas 91, Barclay Bank verus Quistclose

Investments Ltd. (1968) 3 All.E.R. 651, P.V. Narain versus Aaron

Spinning and Weaving Mill Ltd. (1961) 31 Comp Cas 261 and Official

Liquidator versus V. Chandranarayan (1973) 43 Comp Cas 245. In

view of the facts found and the aforesaid legal contentions, the Court issued

the following directions in the Order/Judgment dated 18th November,

2005:

"70. That apart, allegations of the bank need serious consideration that pursuant to the orders of this Court, ABN AMRO Bank had filed its affidavit which clearly shows that after receiving the amount in accounts of the respondent company, the same were transferred on different dates in to the account of Cheran Holding Pvt. Ltd. and on its sister concerns. On the filing of C.A. 36/05 by CHPL, it became apparent that the present management of the Company is fraudulently and illegally keeping the amount with its other companies, which is the security of the Bank and which was received in the account of the Company from Data Access America towards payment of its dues. Further serious allegation made by the bank is that the company has tried to fabricate further documentation to fill in lacunas in the false story set up in CAs No.35 & 36/2005 and in order to place the said documents on record, affidavit was filed in CA No.179/2005.

71. All these factors persuade me to pass interim orders to protect the interest of the secured creditors. The averments made by the company in its applications, replies to applications and affidavit about these transactions are not without suspicion and cannot be accepted at the face value.

Similar is the position in the case of CHPL and SPIL. The company has annexed a letter dated

C.P.No.292/2004 Page 13 25th November, 2004 allegedly issued by the ABN AMRO Bank to the RBI, forwarding another inward remittance certificate stating that the said remittance was towards loan to the company. The company filed another letter dated 16th September, 2004 of ABN AMRO Bank to the RBI, seeking approval for returning the amount of US $ 17 Million to Data Access America. Form the said correspondence of ABN AMRO Bank it is apparent that the amount of US $ 17 million is still under the control of the company.

72. Interim order dated 17th December, 2004 is accordingly confirmed. Consequence would be that the amount which has been transferred from ABN AMRO Account No.1014374 of the company to CHPL and other companies shall be remitted back by those parties to the account of the company maintained with ABN AMRO Bank.

Needful in this respect shall be done within two weeks. After receiving this amount the ABN AMRO Bank shall remit this amount to Canara bank. It is because of the admitted liability of the bank and charge of the bank over this money. Furthermore, in case it is found ultimately that the money is to be refunded to Odyssey Re etc., appropriate orders can be passed directing Canara Bank to refund the amount and the bank has sufficient means to carry out such directions. Appropriate orders shall be passed in the company petition as to how this amount is to be dealt with depending on the nature of the final orders passed in the company petition."

18. Order/Judgment dated 18th November, 2005 was made subject

matter of appeal by CHPL, KCPAHPL and SPIL. These appeals have been

dismissed vide order dated 20th November, 2009 by the Division Bench.

While dismissing the appeals filed by CHPL and SPIL, the Division Bench

specifically noticed the contention raised and challenge to the prima facie

findings recorded by the Company Judge in the Order dated 18th

November, 2005 as incorrect and one that required interference. The said

contentions were rejected. The request of the appellants therein that the

contempt proceedings should be kept in abeyance was also rejected. Before

the appellate court, it was stated that KCPAHPL had transferred 18.03

lacs to Syndicate Bank and the Income Tax Department had appropriated

C.P.No.292/2004 Page 14 17,40,29,511/- and 7,59,70,489/- on 23rd February, 2005 and 19th August,

2005 respectively from the account of SPIL. Both these contentions did not

find favour with the Division Bench and were rejected. Accordingly, the

directions given by the learned single Judge quoted above in paras 70 to 72

of the Order/Judgment dated 18th November, 2005 have become final and

have to be complied with. In these circumstances, I do not see any reason

why I should entertain and consider the applications for modification of the

Order/Judgment dated 18th November, 2005 which has attained finality.

The prayer made for modification of the interim order dated 12 th

November, 2004 passed on an application is misconceived as the said

Order has merged in the Order/Judgment dated 18th November, 2005.

19. It is apparent from the facts stated above that CEPL, SPIL and

KCPAHPL and CHPL have been all dragging, prolonging the matter and

trying to stall the implementation of the directions given in paras 70 to 72

in the Order/Judgment dated 18th November, 2005. In terms of the

directions issued in the said Order/Judgment, money i.e. 78.45 crores

must come into the bank account in Canara Bank. Inspite of more than five

years, this has not happened. The said companies cannot be permitted and

allowed to stall compliance of the directions issued and must abide by the

said Order/Judgment.

20. Learned single Judge in the Order/Judgment dated 18th November,

2005 has referred to Section 531 and the principle of trust. It may be

appropriate in this connection to also refer to the principle of tracing. The

said principle was applied by the House of Lords in Lipkin Gorman

versus Karpnale (1992) 4 All.ER 512. The said decision, it was held,

that the law of restitution is not based upon implied or quasi contract

theories but based upon the principle that unjust enrichment must be

restituted. In Lipkin (supra), one Cass, partner of solicitors‟ firm had

C.P.No.292/2004 Page 15 withdrawn money and gambled at the defendant‟s casino and had lost £

154695 out of the funds/money derived/withdrawn from the solicitors‟

firm. The solicitors firm claimed restitution of the said amount by relying

upon law and equity. Lord Templeman in his speech observed :-

"Conversion does not lie for money, taken and received as currency: see Orton v.

Butler (1822) 5 B. & Ald. 652 and Foster v. Green (1862) 7 H. & N. 881. But the law imposes an obligation on the recipient of stolen money to pay an equivalent sum to the victim if the recipient has been "unjustly enriched" at the expense of the true owner. In Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C. 32, 61, Lord Wright said:

"It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep.""

21. Defence by way of change of position was also discussed in detail. It

may be noticed here that as per Section 18 of the Gaming Act, 1845,

contracts by way of gaming or wagering are null and void but not illegal in

England. It was accordingly held that the amount retained by the defendant

club out of the "stolen" money of the solicitors‟ firm cannot be retained and

must be repaid to the solicitors. The defendant club was not entitled to

retain the winning out of the solicitors‟ money. In this case, Lord

Templeman referred with approval the observations in Hudson v

Robinson 1816 (4) MNS 475 and observed :-

"In Hudson v. Robinson (1816) 4 M. & S. 475, a partner fraudulently contracted in the names of the partnership to sell goods to the plaintiff. The fraud received the purchase price from the plaintiff and defaulted in delivery of the goods. It was held that the plaintiff could recover the purchase price from the fraud as money had and received. Lord Ellenborough C.J. said, at p. 478:

C.P.No.292/2004 Page 16 "It is said that an action for money had and received is not maintainable in this case. But an action for money had and received is maintainable whenever the money of one man has, without consideration, got into the pocket of another. Here the money of the plaintiffs has got into the pocket of the defendant; and the question is whether this has been without any consideration. The consideration was the supposed right of the defendant to dispose of the goods as partnership property, which was the inducement to the plaintiffs to give this bill, under which they have been obliged to pay the money. The defendant had no such right; therefore the absence of any consideration entitles the plaintiffs to maintain this action, and still more so where the money has got into the defendant's pocket through the medium of a fraud."

Here the money of the solicitors got into the pocket of the club without any consideration."

22. Reference was made to Bianbrigge v Browne 1881 (18) Chan DW

188 and it was observed :

"In Bainbrigge v. Browne (1881) 18 Ch.D. 188, the plaintiff children, under the influence of their father, charged by deed their reversionary interest under a settlement as security for advances made by the defendants to the father. Fry J. held, at p. 197, that undue influence:

"operates against the person who is able to exercise the influence (in this case it was the father) and in my Judgment, it would operate against every volunteer who claimed under him, and also against every person who claimed under him with notice of the equity there by created or with notice of the circumstances from which the court infers the equity."

On the facts the defendants who were not volunteers did not have the requisite notice and were entitled to enforce their security. In the present case the club is in the same position as a volunteer."

23. Decision of High Court of Australia in Black versus S. Freeman and Company 1910 (12) C.L.R. 105 was quoted with approval. In the said case it has been held that money stolen by husband and handed over to his

C.P.No.292/2004 Page 17 wife as gift could be recovered by the victim. High Court of Australia observed :

"Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person, then it may be followed into that other person's hands. If, of course, that other person shows that it has come to him bona fide for valuable consideration, and without notice, it then may lose its character as trust money and cannot be recovered. But if it is handed over merely as a gift, it does not matter whether there is notice or not."

24. Reference was also made to Banque Beige Pour I'Etranger vs

Hambrouck (1921) 1 K.B. 321 wherein Bankes, L.J. has observed:

"To accept either of the two contentions with which I have been so far dealing would be to assent to the proposition that a thief who has stolen money, and who from fear of detection hands that money to a beggar who happens to pass, gives a title to the money to the beggar as against the true owner - a proposition which is obviously impossible of acceptance."

25. In the same case, Atkin L.J. has held :-

"as the money paid into the bank can be identified as the product of the original money, the plaintiffs have the common law right to claim it, and can sue for money had and received."

26. Lord Goff in the same decision has referred to the decision in Clarke versus Shee and Johnson (1774) 1 Cowp. 197, Lofft. 756 wherein it has been stated :

"This is a liberal action in the nature of a bill in equity;

and if, under the circumstances of the case, it appears that the defendant cannot in conscience retain what is the subject matter of it, the plaintiff may well support this action . . . the plaintiff does not sue as standing in the place of Wood his clerk: for the money and notes which Wood paid to the defendants, are the identical notes and money of the plaintiff. Where money or notes are paid bona fide, and upon a valuable consideration, they never shall be brought back by the true owner; but where they come mala fide into a person's hands, they are in the nature of specific property; and if their identity can be traced and ascertained, the party has a right to recover. It is of public benefit and example that it should; but otherwise, if they cannot be followed and identified, C.P.No.292/2004 Page 18 because there it might be inconvenient and open a door to fraud. Miller v. Race, 1 Burr. 452: and in Golightly v. Reynolds (1772) Lofft. 88 the identity was traced through different hands and shops. Here the plaintiff sues for his identified property, which has come to the hands of the defendant iniquitously and illegally, in breach of the Act of Parliament, therefore they have no right to retain it: and consequently the plaintiff is well entitled to recover."

27. Turning to the question of title of money, Lord Goff observed that

the plaintiff is entitled to succeed against a third party for money had and

received and available for use by the third party, though not if third party

had received the money in good faith and for valuable consideration. This

was because property in money like other fungibles is lost as much as it is

mixed with other money but this is not applicable when the action is

founded upon the wrong by a third party. In fact it was conceded by the

defendant-club that the solicitors can establish legal title to money and the

title was not defeated by mixing of money with other money by cash when it

was transferred to other hands. It was accordingly observed :

"It is well established that a legal owner is entitled to trace his property into its product, provided that the latter is indeed identifiable as the product of his property. Thus, in Taylor v. Plumer (1815) 3 M. & S. 562, where Sir Thomas Plumer gave a draft to a stockbroker for the purpose of buying exchequer bills, and the stockbroker instead used the draft for buying American securities and doubloons for his own purposes, Sir Thomas was able to trace his property into the securities and doubloons in the hands of the stockbroker, and so defeat a claim made to them by the stockbroker's assignees in bankruptcy. Of course, "tracing" or "following" property into its product involves a decision by the owner of the original property to assert his title to the product in place of his original property. This is sometimes referred to as ratification. I myself would not so describe it; but it has, in my opinion, at least one feature in common with ratification, that it cannot be relied upon so as to render an innocent recipient a wrongdoer (cf. Bolton Partners v. Lambert (1889) 41 Ch.D. 295, 307, per Cotton L.J. - "an act lawful at the time of its performance [cannot] be rendered unlawful, by the application of the doctrine of ratification.")"

C.P.No.292/2004 Page 19

28. Lord Goff dealt at length with the question of change of position by the defendant-club. It was held that change of position can be a valid defence but the change of position must be in good faith. It was further observed that it would be unwise to define the scope of the said defence in abstract terms and the law should be allowed to develop on case to case basis as the law of restitution is based on unjust enrichment of the defendant. It was observed :

".....The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these. The principle is widely recognised throughout the common law world. It is recognised in the United States of America (see Restatement of Restitution, para. 142, and Palmer on Restitution, vol. III, para. 16.8); it has been judicially recognised by the Supreme Court of Canada (see Rural Municipality of Storthoaks v. Mobil Oil Canada Ltd. (1975) 55 D.L.R. (3d) 1); it has been introduced by statute in New Zealand (Judicature Act 1908, section 94B (as amended)),and in Western Australia (see Western Australia Law Reform (Property, Perpetuities and Succession) Act 1962, section 24, and Western Australia Trustee Act 1962, section 65(8)), and it has been judicially recognised by the Supreme Court of Victoria (see Bank of New South Wales v. Murphett [1983] 1 V.R. 489). In the important case of Australia and New Zealand Banking Group Ltd, v. Westpac Banking Corporation (1988) 78 A.L.R. 187, there are strong indications that the High Court of Australia may be moving towards the same destination (see especially at pp. 162 and 168, per curiam). The time for its recognition in this country is, in my opinion, long overdue.

I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as here he defendant has paid away the money with knowledge of the facts entitling the plaintiff to

C.P.No.292/2004 Page 20 restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration.......

At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in ail the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions."

29. Benefits acquired by fraud, breach of confidence, breach of fiduciary

relationships or by other wrong doings therefore do not get benefit under

the defence of change of position. Further change of position as a defence

has to be causally linked to the receipt that makes it inequitable for the

recipient to make restitution. Mere fact that the recipient has spend the

money whole or in part, does not make it inequitable because expenditure

might have been incurred by him in any event in ordinary course of things.

But a bonafide recipient is entitled to establish the defence that he had

increased his outgoings as a result of the receipt. [See, para 168, Halsbury‟s

Law of England, Vol. 40(1), 4th Edition]

30. As noticed above, in the present case, serious allegations have been

made and as recorded in the Order/Judgment dated 18th November, 2005,

these allegations have been found to be prima facie correct. Several aspects

have been noticed and doubts about the bonafides of the transactions

relating transfer of money from the account with ABN Amro Bank have

been noticed. The said observations and findings have been upheld by the

Division bench in appeal. As observed above, it is apparent that there is

C.P.No.292/2004 Page 21 consorted and a deliberate desire is to stall and not comply with the

Order/Judgment dated 18th November, 2005. Even after more than five

years, the directions given in the said Order/Judgment have not been

complied with. In this connection, it is noticed that CEPL is a joint venture

of O.R.E. Holdings Ltd, CG Holdings Pvt Ltd and Mr. Nandakumar

Athappan who hold 45%, 45% and 10% shares respectively. It appears that

after filing of the present petition, Mr. Nandakumar Athappan and Mr. K.C.

Palanisamy have also developed some differences. Numerous litigations

have come up and have been filed by several parties to keep control and

retain hold of the money. It is stated on behalf of Mr. K.C. Palanisamy that

CEPL is the holding company of Cheran Properties Pvt. Ltd. which in turn

is a holding company of SPIL. Similarly, CHPL is a subsidiary of CEPL and

KCPAHL is a subsidiary of CHPL. Prima facie, it does appear that all the

companies were fully aware and conscious of the transfer of the money in

ABN Amro Bank and the claim of Canara Bank.

31. C.P.No. 65/2005 has been filed by the CHPL represented by Mr.

K.C. Palanisamy under section 397, 398, 402 & 403 of the Act on account of

certain purported acts of oppression and mis-management in affairs of

CEPL and other respondent. C.P.No. 76/2005 has been filed by the O.R.E.

Holdings Pvt. Ltd. under section 397, 398, 402 & 403 of the Act on account

of certain purported acts of oppression and mis-management indulged by

Mr. K.C. Palnisamy in affairs of CEPL. In these petitions interim order were

passed by Company Law Board (CLB, for short) on 13th August, 2008 i.e.

after the order dated 18th November, 2005 passed by the Company Court.

Neither Canara Bank nor DAIL is a party in the said proceedings. It is

pointed that applications filed by the Canara Bank to be impleaded as a

party in C.P. No. 65/2005 & C.P. No. 76/2005 was dismissed by the CLB

vide order dated 18th July, 2007. Aforesaid orders do not affect and negate

C.P.No.292/2004 Page 22 the effect of the order dated 18th November, 2005, which has been upheld

by the Division Bench vide order dated 20th November, 2009. The findings

and observations made in the order dated 13th August, 2008 passed by CLB

do not operate as res judicata, viz., Canara Bank or DIAL. The findings and

observations therein will be examined and considered while deciding inter

se the rights between the parties to the CLB litigations but cannot be

ground to not to comply with the order dated 18th November, 2005.

32. W.P. No. 32444-50 of 2006 has been filed by CEPL in the Madras

High Court against the Income Tax Department. Interim application has

been made in said writ petitions for directing the Income Tax Authorities to

place the amount appropriated in a fixed deposit with a nationalized bank

and restraining Income Tax Authorities from making any refund to Mr.

K.C. Palainsamy and CHPL. The Madras High Court has passed an interim

order dated 23rd November, 2006 directing the Income Tax Authorities not

to refund the amounts till further orders.

33. By interim order dated 26th September, 2006 in C.A.No. 1156/2006

this Court has directed that in case Income Tax Authorities releases

payment of Rs. 32,43,31,290/- to CHPL, the same after deposit will not be

withdrawn and the said company will maintain minimum of balance equal

to amount received. This order is subject to order of Madras High Court.

The said restriction was placed on account of principle of comity between

Courts. The said interim direction shall continue till further order.

34. Canara Bank may have filed an application for being impleaded as a

party in W.P.No. 32444-50 of 2006 before the Madras High Court and

these applications may be dismissed, but this is inconsequential and

immaterial as far as the order dated 18th November, 2005 is concerned.

Similarly the fact that Canara Bank has abandoned or waived their rights or

the Supreme Court has dismissed Special Leave Petition against order

C.P.No.292/2004 Page 23 dated 24th April 2008 for impleadment does not negate, eclipse or

obliterate the order dated 18th November, 2005. It may be again noted that

the Division Bench has upheld order dated 18th November, 2005 in their

judgment dated 20th November, 2009. The interim order passed by Madras

High Court and the order dated 24th April, 2008 dismissing the

applications of Canara Bank, are earlier in time. It is not possible to accept

the contention that the appellants in Company Appeals 3 & 4 of 2006 were

unaware of these orders of the Madras High Court.

35. Order dated 21st January, 2009 passed in Crl. O. P. No. 1137/2009

initiated by Nandakumar Athappan against State Bank of India, Erode

Branch including directions therein are not binding on Canara Bank and

this court and do not justify recall of order dated 18th November, 2005

which is earlier in point of time. Canara Bank and DIAL the company

under provisional liquidation are not parties to the said litigation. The

order of criminal court dated 21st January, 2009 again is prior in point of

time i.e. before the Company Appeals 3 & 4 of 2006 filed by CHPL and

SPIL were dismissed on 29th November, 2009.

36. Keeping in view the aforesaid facts, the following directions are

issued:-

(1) All bank accounts and deposits of CEPL, CHPL, SPIL and KCPAHPL

are hereby attached. No payments will be made from the said bank

accounts except with the permission of the Company Court. The

aforementioned companies are also restrained from selling,

disposing of or creating third party interest in respect of movable

and immovable assets.

(2) Managing Director/principal officer of CEPL, CHPL, SPIL and

KCPAHPL will file affidavits in the Court within fifteen days

furnishing the following details:

C.P.No.292/2004 Page 24

(a) Account numbers and details of the banks including details of

fixed deposits and other deposits.

(b) Details of movable and immovable assets including shares.

(c) Names and addresses of the directors.

37. CEPL, Mr. K.C. Palaniswamy and CHPL will file copy of this order

before the Madras High Court. Copy of this order will be also brought to

the notice and filed with the Company Law Board by the parties appearing

before the Company Law Board.

38. Mr. Nandkumar Athappan will be present in the Court on the next

date of hearing.

39. The aforesaid attachment orders and restrain order shall be

withdrawn on deposit of 78,45,50,000/- with the Canara Bank in terms

of the order dated 18th November, 2005. The said amount must be

deposited immediately in terms of the said order and latest by or before 31st

March, 2011. The attachment orders in respect of the bank accounts and

fixed deposits or other deposits will not come in the way of depositing

payments. In case deposit is not made by 31st March, 2011, the parties

concerned will be liable to pay interest @ 15% per annum with effect from

the date of passing of this order. The question of payment of interest for

past period is for the time being left open.

List on 5th April, 2011.

CA Nos. 1459/2006 and 1061/2010

Applications CA Nos. 1459/2006 and 1061/2010 filed by CEPL are

dismissed in praesenti and at this stage. The contentions raised and not

decided in the present order are left open and will be decided after the

money is deposited with Canara Bank in accordance with the order dated

18th November, 2005.

C.P.No.292/2004 Page 25 CA Nos. 221/2007 & 688/2010

CA Nos. 221/2007 & 688/2010 filed by Canara Bank are adjourned to 5th April, 2011.

CCP No. 31/2005, CA No. 1755/2005 in CCP No. 31/2005 (filed by Canara Bank) & CCP No. 16/2007 (filed by Siddharth Ray)

No orders are being passed on these petitions at this stage.

Re-list on 5th April, 2011.

Suitable orders may be passed, including personal presence of the Directors of the alleged contemnor companies on the next date of hearing.

CA No. 989/2007

This application by Odyssey will be decided only after the money is deposited in this Court in terms of order dated 18th November, 2005 and the order passed above.

Re-list this application on 5th April, 2011.

CA No. 1137/2010 in CCP (Co.) No. 31/2005 and CA No. 1138/2010 in CCP (Co.) No. 16/2007

These are both applications for discharge filed by the counsel, who was earlier appearing for SPIL. The application is allowed, subject to all just exceptions.

CA Nos. 925/08, 736/2009, 1702/2009, 1232/2010, 1531/2010 & 2050/2010 in CP No. 292/2004

Relist on 5th April, 2011. On the said date the matter will be listed before the Company Court as per the Roster.

(SANJIV KHANNA) JUDGE JANUARY 21, 2011.

P/VKR

C.P.No.292/2004                                                      Page 26