Ujjwal Traffin P. Ltd. vs Xenitis Infotech P. Ltd.

Kalvan Jyoti Sengupta, J.—Both the appeals are taken out against one and common judgment of the learned company judge dated April 1, 2010 ( Xenitis Infotech Pvt. Ltd. Vs. Swarna Sathi Dealers Pvt. Ltd., by which the appellants'' winding up petitions have been permanently stayed, holding in both the matters the companies have been able to make out bona fide dispute for rendering decision in civil suit in relation to loan transaction. The fact in both the cases are identical, however, the figures of the claims and payment dates are different, therefore the common back ground case made out in both the petitions are stated hereunder :

Both the petitioning-creditors/appellants pursuant to and in terms of the oral agreement lent and advanced substantial amounts to the respondent-company. A sum of Rs. 2,15,50,000 was advanced by the appellant in the first mentioned appeal (hereinafter referred to as "the first appeal"), whereas a sum of Rs. 4,18,00,000 was advanced by the appellant in the second mentioned appeal (hereinafter referred to as "the second appeal") to the company. The appellant in the first appeal lent the aforesaid sum of Rs. 2,15,50,000 on various dates between June 29, 2006 to July 19, 2006. The said payments were made by twelve account-payee-cheques and the same were admittedly encashed. In case of the second appeal the aforesaid payments were made by the appellant/petitioning creditor between June 19, 2006 and November 7, 2006, on diverse dates by thirty several cheques and the same were duly encashed and appropriated. In spite of repeated demands and requests the company did not repay or secure the said sum of Rs. 2,15,50,000 to the appellant in the first appeal as such the said appellant is entitled to claim repayment of the amount of loan and interest at the rate of 10 per cent, per annum thus an aggregate sum of Rs. 2,60,11,250 have become due and payable. As far as the second appeal is concerned a sum of Rs. 10,00,000 was paid by the company by way of part repayment by account payee cheque on May 12, 2008. Thus after adjusting the said part payment there has been due and owing an aggregate sum of Rs. 4,93,30,833 together with interest at the rate of 10 per cent, per annum. The statutory notices in respect of the two matters were duly served, demanding payment failing which threatening to initiate winding up proceedings u/s 434 of the Companies Act, 1956. Despite receipt of the notices the company did not pay nor secure the said amount or any portion thereof to both the appellants/petitioning-creditors.

Affidavit in oppositions were filed before the learned trial judge. Common defence was taken by the company as against two separate claims and contentions made in two winding up proceedings.

As far as the first appeal is concerned the substance of defence taken, is stated hereunder : The petitioning creditor has suppressed from this hon''ble court a letter dated March 26, 2007, issued by and on behalf of the petitioning creditor therein it has been instructed by the petitioning creditor to the company that the payment made earlier, of Rs. 2,15,50,000 need not be repaid and this amount should be transferred in its entirety to M/s. Gajra Impex and Credit P. Ltd., No. 57, Jawharlal Nehru Road, Kolkata-700 071. By a subsequent letter the petitioning-creditor/appellant has confirmed that the said amount has been received back and there has been no dues payable to the said petitioning creditor. In view of the aforesaid instruction the company has paid the said amount to the Gajra and as such there cannot be any failure or neglect to pay the amount. Moreover it is stated that the company has very sound financial health that would be reflected from its balance-sheet. The company is making huge profits and also having substantial assets. Similar and identical defence has been taken in the second appeal in the affidavit opposing winding up petition. It has been stated therein that by letter dated March 26, 2007, the petitioning creditor instructed the company to transfer the said outstanding amount of Rs. 4,03,00,000 to M/s. Clarion Overseas P. Ltd., No. 57, Jawharlal Nehru Road, Kolkata-700 071 and by a subsequent letter it has been confirmed by the appellant/petitioning creditor that there has been no dues. These two companies are really alter ego of both the petitioning-creditors/appellants.

In the affidavit in reply it has been emphatically stated that those letters are forged and manufactured and they were never written. This assertion has been made in the affidavit in reply after obtaining inspection of the original of the same by no less than a person of the director of the companies.

The learned company judge after hearing found that there has been circular transaction in relation to the said payment and there has been no bona fide transaction actually. The petitioning-creditors have no reason to lend such amount, and it was a fictitious transaction. Moreover a case of fraud and forgery have been made out. Hence disputed question of fact has been raised before the learned judge, His Lordship, therefore, refused to pass any winding up order and had permanently stayed the proceedings as stated above.

Mr. Pramit Roy, learned counsel appearing for the petitioning-creditors/ appellants in both the matters advances common argument. He contends that there is no dispute and denial that the appellants have made payment by account payee cheques and the same have been received. Two letters purporting to be of the appellants are manufactured and forged and on taking inspection it was established so. In the first appeal he submits that the purported defence is not a bona fide one. The defence taken by the company is self-contradictory as on the one hand it is urged that in real sense there was no payment of loan and it was circular transaction to divert money and get return on the other hand it is asserted loan has been repaid to the appellants'' nominee. The plea of repayment of loan to Swarnasathi as per instruction of the appellant could not be established by producing any document. The company alleged that the petitioning-creditor received repayment from one Gajra Impex P. Ltd. Subsequently it transpired that no payment had been received through Gajra, and this has been admitted by the company itself. It will appear from pages 55-61 of the paper book that the company took more than three chances to file affidavit in opposition to set up concocted story. The repayment through Mrigaya has been alleged for the first time in rejoinder to the supplementary affidavit, yet nothing has been shown regarding payment to Ujjwal. The entire defence is based on manufactured document.

Similar argument was advanced in another appeal by Mr. Roy.

Mr. Kapoor appearing for the company made submissions on certain facts which were not stated in the affidavit before the learned trial judge. He advanced legal submission relying on the decision in the case of In Re: East Kajoria Collieries Private Ltd., the relevant portion of which is as follows (page 185) :

... that a petitioner, who applies for winding up of a company on the ground that the company is unable to pay its debts, must make out sufficient grounds in the petition itself and if such grounds have not been so made out, the court is not entitled to take notice of other evidence that may be produced in the affidavit of other parties. Nor should the court allow the petitioner an opportunity to introduce further evidence regarding indebtedness by fresh affidavit to be filed by him.

He submits that the appellants did not produce in their respective petitions disclosing the reasons for filing these winding up petitions. No explanation whatsoever has been given either in the petition or in the affidavits as to why agreements in writing were not entered into with the company in connection with purported grant of inter corporate deposit of such huge amount. Even in the absence of any prior commercial relationship between the appellant and the companies it is surprising that there has been no exchange of correspondences between the parties before issuance of statutory notice. He further submits that the appellants Swarnasathi had no substantial balance to provide inter corporate deposit of Rs. 4.15 crores as its net worth on the date of alleged transaction was only Rs. 2.67 crores. He contends further that actually it was incident of circular transaction and the meaning of the circular transaction could be found in the Oxford Dictionary of finance and banking, an artificial transaction between companies in a group, or under a single control, the purpose of which is to inflate the turnover of one or more of the companies.

It has been stated in the affidavit that such artificial transaction was entered into with the object of window dressing its financial position prior to an intended public issue. These were accordingly never reflected in the annual company''s balance-sheet as either loan or inter corporate deposit. The company in its affidavit in paragraph 6 has stated that the entire transaction was concurrent transaction. The fund-flow statement clearly evidences that transaction was concurrent and substantial as identical amounts have been transacted over short periods. This is however, taken beyond the realm of doubts by at least one circular that could be traced showing that the money paid by Ujjwal had travelled back to Swarnasathi. He tells Mrigaya, Ujjwal and Swarnasathi are closely held group companies. Ujjwal and Mrigaya hold shares in Swarnasathi. This could be evidenced in the document annexed to the paper book. Therefore, receipt of money by Swarnasathi implies receipt of money by Ujjwal as both the companies are interconnected and owned and controlled by Kedia so Swarnasathi and Ujjwal are sister concerns. Thus the company has been able to put up not only a bona fide dispute and rather irrefutable dispute. In this context he has referred to the decision of the Supreme Court IBA Health (I) Pvt. Ltd. Vs. Info-Drive Systems Sdn. Bhd., . Moreover it is an admitted case of the petitioners/appellants that fraud and forgery or manipulation have been committed. This cannot be decided in a summary procedure and he has relied on a decision of the hon''ble High Court of N. N. Consultants P. Ltd. v. Khatema Fibres Ltd. [2001] 104 Comp Cas 254. Even the learned trial judge noting the aforesaid circular transaction directed the tax authority and the SEBI authority to take steps and this direction prima facie establishes the circular transaction and this has been done in order to inflate the artificial net worth of the company before issue of share. When stay was prayed for it shows that the petitioning-creditors/ appellants is afraid of facing enquiry. According to him the order of the learned trial judge does not call for any interference.

After hearing the contention of learned counsel and reading the judgment of the learned trial judge the point for consideration in the appeal is whether the learned trial judge is justified in passing unconditional order permanently staying winding up petition and relegation of disputes to the suit or not ? On reading of both the pleadings and materials it emerges to us that factum of payment of the amount by the appellant to the companies are not denied and disputed and this could be seen from the statement and averment made in the affidavit in opposition filed by the company in answer to the two winding up petitions. In both the winding up petitions it has been stated in paragraph 7 the respective amounts were paid by way of inter corporate deposit by several cheques and these were encashed. In the affidavit in opposition the aforesaid statement and averment have not been denied and disputed, rather it is stated in places of the affidavits that the deposits were made but it was repaid to the respective sister concerns of the respective appellants/creditors as per their written instructions. Apparently those letters were written on the respective letter heads of the appellant/petitioning-creditor. The genuineness of these letters are seriously disputed and denied by the appellants herein in their affidavits in reply after having inspection of the original of the same. The defence of the company would have been absolutely clear cut had there been no challenge to the same for it is specifically mentioned that inter corporate loan need not be repaid and it should be transferred to some other company. It is also alleged by the appellant-company that these two sister companies are not really the sister companies of the appellant actually these companies as mentioned in their letters are run by the directors who ran the appellant-company also. Actually it is emphatically stated in the affidavit by the appellants that they did not have any connection or relation with these two companies.

In view of the aforesaid serious disputed question of fact we think the learned trial judge has rightly relegated the matter to the civil suit. It is difficult for this court to scrutinize in great detail in a summary proceedings for it needs witness action as fraud and forgery has been alleged. If these two letters are established to be genuine then obviously the appellant cannot have any claim. Whether it is a circular transaction or not can also be decided by witness action by producing document but one fact remains that the company though had taken a plea that it is a circular transaction and inter corporate loan has been repaid by way of transfer to other companies but no document has been produced to show that this has been followed even if such case is taken to be a proof in its face value. In the absence of any documents, namely, the bank statement regarding payment to those companies at this stage the court cannot accept such case to be a full proof defence.

In our considered view the companies are separate statutory and juristic legal entity. Why repayment should be paid to another company is not understandable unless the specific instruction as alleged by the companies is established.

Mr. Kapoor''s contention is that the company has been able to establish its complete defence is not acceptable as in the affidavit filed by his client in answer to the winding up petition it clearly shows that fact of advancing and receipt of inter corporate loan has been admitted by necessary implication. Therefore, the judgment of this court, cited by Mr. Kapoor in this connection is not at all applicable. We are of the view the petitioning-creditors/appellants have been able to establish their prima facie case for maintaining winding up petition as we find payment of loan amount is admitted more or less, the factum of repayment has to be established with concrete document. We think the winding up petitions are maintainable. We, however, agree with Mr. Kapoor''s contention that disputes raised by his client are of such nature it cannot be decided in a winding up petition, defence is not as such clear and strong because of lack of document of repayment to other companies as alleged by his client by producing the bank statement, unconditional order of staying winding up petition permanently can be supported.

We modify the judgment and order of the learned trial judge that the disputes involved in both the matters would stand relegated to the suits provided they shall furnish security'' either by bank guarantee in any nationalised bank or in any other form to the satisfaction of the Registrar Original Side, in the sum or Rs. 2,15,50,000 as far as the first appeal is concerned and Rs. 4.18 crores as far as the second appeal is concerned. This court grants eight weeks time to furnish such security. In case of such security being furnished and in the event suit is filed within 4 weeks from the date of furnishing security by the appellants then the aforesaid amount of security shall be held by the Registrar Original Side till any suitable order is passed by the appropriate civil court. If no security is furnished the judgment of the trial judge will stand set aside and the winding up petitions will stand admitted. In that case it would be open for the appellants to approach the learned trial judge to seek proper direction of advertisements. On the other hand if no suit is filed within the time as above then security so furnished shall be returned to the company forthwith by the Registrar Original Side and in that case winding up applications will stand dismissed.

If the suit is filed the above two applications will stand disposed of in terms of above order.

Syamal Kanti Chakrabarti J.

I agree.