Vasu Tech Ltd. vs Ratna Commercial Enterprises Ltd.

M.M. Kumar, J.—This appeal filed u/s 483 of the Companies Act, 1956, read with rule 11 of the Companies (Court) Rules, 1959, has been filed challenging the order dated April 22, 2009, passed by the learned company judge in Company Petition No. 13 of 2007 Ratna Commercial Enterprises P. Ltd. Vs. Vasu Tech. Ltd., , admitting the company petition for winding up of Vasu Tech Ltd. the appellant-company and directing publication of the factum of admission in the Indian Express, The Times of India (Delhi edition), and Dainik Bhaskar (Haryana edition) as also in the Official Gazette of the State of Haryana.

The facts of the case may first be noticed. The appellant-company has claimed that it had invented a new technology, namely, "versatile system on chip", which overcomes the limitations of traditional microprocessors. In 1999, when the said invention was at a conceptual stage, ICICI Venture Funds Management Co. Ltd. (ICICI) had shown its interest and agreed to give financial support for the development of new technology. However, in 2001 there was a change in the funding policy of the ICICI and it withdrew the financial support from the appellant-company. This led the appellant-company to borrow the funds from the market.

In 2003, Mr. Pradip Burman, who is one of the two directors of M/s. Ratna Commercial Enterprises Ltd.--the respondent-company, agreed to give financial support to the appellant-company. At the first instance, an intercorporate deposit of Rs. 2 crores in three instalments with interest at 12 per cent, per annum was advanced by the respondent-company to the appellant-company. It has come on record that the respondent-company had advanced a total loan of Rs. 540,893,273 to the appellant-company from time to time and these short term loans were to be repaid after one year or at least with the close of the financial year. The appellant-company also issued various post dated cheques for the re-payment of the loan and also issued receipts acknowledging advancement of the loan from time to time.

In March 2004, Mr. Dhruv Varma, managing director of the appellant-company promoted a company, namely, Vasucorp Inc. in the State of Delaware, USA for commercialisation and launching of the new technology globally. It has been asserted that Mr. Pradip Burman of the respondent-company was appointed as a director in Vasucorp Inc. on June 27, 2004 and he was also attending the board and management meetings in the United States. It is claimed that on August 10, 2004,1.05 million shares of Vasucorp Inc. were transferred to M/s. Wogan Technologies, which is a corporation owned and controlled by Mr. Pradip Burman. On March 11, 2005, again 0.65 million shares were transferred. It has been asserted that the aforementioned shares were transferred because Mr. Pradip Burman was showing keen interest in conversion of the loans advanced by the respondent-company to the appellant-company into equity and the loans taken from time to time were to be adjusted against the shares to be transferred.

On March 31, 2005, Mr. Pradip Burman agreed to take over the ICICI''s interest in the appellant-company and the loan amount of Rs. 2 crores, advanced by the ICICI was repaid by the respondent-company by buying the equity investment of the ICICI in the appellant-company. In that regard, a loan agreement was executed between the parties on April 15, 2005 (P4). As per the agreement, the respondent-company'' took over equity investment of the ICICI in the appellant-company to the tune of 7,38,234 shares for a sum of Rs. 2,25,48,000 on the understanding that it would be transferred to Mr. Dhruv Verma. On April 15, 2005, itself, another share pledge agreement was also signed between M/s. R. L. Varma and Sons, HUF as pledgers, the respondent-company as pledgee and the appellant-company as confirming party. A deed of guarantee in favour of the respondent-company was also executed.

The appellant-company has claimed that it was regularly paying interest on the amount advanced by the respondent-company on quarterly basis, which was paid up to March 31, 2005. However, Mr. Pradip Burman, who was taking keen interest in the project of the appellant-company, showed his desire that the respondent-company would be interested in taking a part of those shares, which were to be transferred by Vasucorp Inc. to Vasu Tech Ltd.--the appellant-company, by way of transfer in adjustment of the loans given to the appellant-company. Since the proposal of Mr. Pradip Burman was acceptable to Vasucorp Inc., accordingly in June 2005, a request was made to treat the advances as interest free or to defer the payment of interest for two years. The request was accepted by the respondent-company and on August 31, 2006, a memorandum of understanding was executed for deferring the payment of interest till March 31, 2007.

On May 9, 2006, Mr. Dhruv Varma of the appellant-company sent an e-mail to Mr. Pradip Burman informing him as under:

This refers to our discussions regarding allotment of shares for the loans that you have given to Vasu Tech till date:

You will subscribe to an additional 4mn shares of Vasucorp.

I will subscribe to an additional lmn shares of Vasucorp.

For the loans that you give beyond those existing as on date, for every Rs. 1 crore an additional 350,000 shares in Vasucorp will be transferred to you by me. This transfer will be restricted to 1.45 mn shares, beyond which the shares will be given by Vasu Tech out of the shares it holds in Vasucorp.

Vasu Tech will be issued 8mn shares in Vasucorp. A sum of $ 2mn and a royalty free license for the Indian market will form the balance consideration for the transfer of technology and the intellectual property from Vasu Tech to Vasucorp.

The primary shareholders of Vasu Tech will be Dhruv Varma and Associates and Pradip Burman and Associates. (There is a buy-back agreement with Trafag after which they will cease to be shareholders). The break up of shareholding in Vasu Tech between Dhruv Varma and Associates and Pradip Burman and Associates will be as follows:

Dhruv Varma and Associates--53.75 per cent.

Pradip Burman and Associates--46.25 per cent.

Regards, Dhruv.

The aforementioned e-mail was replied on the same date by Mr. Pradip Burman, the contents of which being relevant to the present controversy are reproduced as under :

Dear Dhruv,

Re : Your e-mail of May 9th

According to my records, which has been confirmed by our office in Delhi, the outstanding loans as of 1st May, 2006, is Rs. 48.87 cr. This includes the Rs. 2.25 cr paid to ICICI Ventures for release of your 7,38,234 shares of Vasutech, lying with me.

Here are the calculation for shares: Rs. 27 Cr. @ 1.5% for every crore of 7m = 2.835m Rs. 10 cr @ 175,000 for every cr. = 1.750m Rs. 3 cr @ 250,000 cr = 0.750m ______ Rs. 40 cr. 5.335m ______ Rs. 10 cr. @ 350,000/cr = 3.500m ______ Rs. 50 cr 8.835m ______ Total due 8.835 (assuming 50 cr loan) Less in had 3.450 ___________ 5.385m now due ____________

Any additional loans--350,000 share s/Cr. From VasuCorp until your holding is 3 m.

In addition 46.25 per cent, of Vasutech shares to be offered at par with 2� per cent, royalty on all sales connected with the VSoC.

You may kindly confirm the above.

With regards

(Pradip Burman).

It is claimed that the consolidated amount that was advanced by the respondent-company up till September 30, 2006, was secured by the appellant-company by giving the respondent-company post dated cheques dated April 1, 2007, under a covering letter of September 30, 2006. Thereafter, certain e-mails were exchanged for concluding the contract of issuance of equity against the loans advanced by the respondent-company. Eventually, on October 10, 2006, Mr. Pradip Burman sent an e-mail with regard to conversion of shares intimating current outstanding of the appellant-company and shares due as on September 30, 2006. It was disclosed that outstanding loans of about Rs. 60 crores were to be converted into 8.885 million shares of Vasucorp Inc. Mr. Dhruv Varma of the appellant-company was called upon to accept and confirm the said position, which he had done vide e-mail dated October 11, 2006, by accepting the proposal of Mr. Burman. It has been claimed that once the offer and acceptance between the parties has taken place, novation of contract took place for the amount advanced by the respondent-company. On December 6, 2006, final confirmation was received from Mr. Burman through e-mail. It has been asserted that between September 27, 2006 to October 11, 2006, post dated cheques were issued by the appellant-company under various covering letters stating the amount of loans along with furnished calculation of interest and break up of principal amount and interest being paid as also the amount of tax deducted at source. However, after October 10, 2006, no cheques/covering letters were issued to the respondent-company for the amount advanced till October 10, 2006. It has been further claimed that between October 11, 2006 to December 6, 2006, additional fresh amounts were advanced and these additional amounts were novated on December 6, 2006.

After December 11, 2006, certain differences alleged to have cropped up between the promoters of Vasucorp Inc. and Mr. Pradip Burman. Consequently, he threatened Mr. Dhruv Varma that the cheques which were issued as collateral security would be presented and action would be initiated in the event of dishonouring of the cheques. It has also been pointed out by the appellant-company that on December 14, 2006 and December 15, 2006, two draft agreements titled "agreement" and "memorandum of understanding" were handed over to Mr. Dhruv Varma to sign on dotted lines without any negotiation or discussion. It is alleged that these agreements were completely one sided, unethical and a clear attempt on the part of the respondent-company to oust the appellant-company from the Vasucorp Inc. and with a view to take over all the powers, management and control into their hands and to bind the promoters to refund the entire amount advanced in addition to the transfer of major share holding free of cost. The said agreements were not acceptable to Mr. Dhruv Varma.

On December 19, 2006, Mr. Pradip Burman resigned from the board of Vasucorp Inc. and thereafter seven cheques for a total sum of Rs. 4,31,193 were presented to the bankers, which were cleared. On January 5, 2007, a legal notice was sent by the respondent-company which was duly replied by the appellant-company on February 3, 2007. The appellant-company requested for return of post dated cheques dated April 1, 2007. However, without waiting for April 1, 2007, the respondent-company filed Company Petition No. 13 of 2007 in this Court on February 19, 2007, seeking winding up of the appellant-company on the ground that it has failed to pay debts and the total amount repayable at the time of filing of the petition, which was more than Rs. 54 crores with interest at the rate of 12 per cent, per annum. In the company petition the respondent-company has also asserted that the appellant-company had committed various defaults and breaches of understanding between the parties, including the terms of the loan agreement and failed to pay the loan amount with interest as per the stipulations contained therein. Reference was made to various clauses of the agreement in paragraph 14 of the petition. The respondent-company took the stand that issuance of share capital in the Vasucorp Inc. was independent of the loan transaction and was not in lieu of the loan amount advanced by it. It was also stated that Mr. Pradip Burman, managing director of the respondent-company separately paid the share money for purchase of the share in Vasucorp Inc. and it has nothing to do with the loan transaction. It was further averred that the appellant-company issued various post dated cheques for payment of outstanding loan amount and some cheques were replaced by some fresh cheques because on the dates the said cheques matured, the appellant-company did not have adequate funds and request was made to the respondent-company to accept fresh cheque in lieu of the outstanding amounts. A list of such cheques issued by the appellant-company was also placed on record as annexure P10.

In the company petition it was also pleaded by the respondent-company that some of the cheques were presented for clearance and two cheques were returned dishonoured for insufficiency of funds in the account and after issuing statutory notice u/s 138 read with Section 142 of the Negotiable Instruments Act, 1881, proceedings u/s 138 read with Section 142 of the aforesaid Act were also instituted before the Chief Metropolitan Magistrate, New Delhi. Thereafter, the appellant-company made payment against three dishonoured cheques through pay order under the cover of its letter dated January 23, 2007. In the said letter, the appellant-company also informed the petitioner-respondent-company that it shall be sending demand drafts against the remaining two cheques, which were never received. Finally, it was stated that the appellant-company is indebted to the petitioner-respondent-company and has become commercially insolvent company unable to discharge its lawful liability. Thus, the appellant-company is liable to be wound up.

The appellant-company filed its detailed written statement opposing the petition for winding up by pointing out the aforementioned factual position. The appellant-company denied the allegations that it has become insolvent and that its business has come to a stand still. It was also pointed out by the appellant-company that a Civil Suit (O.S.) No. 570 of 2007, was filed by it in the High Court of Delhi seeking a prohibitory and mandatory injunction against the petitioner-respondent-company. Though, initially an interim injunction from presenting the cheques was issued, however, subsequently, the injunction was vacated by the Delhi High Court vide its order dated June 15, 2007, on an appeal preferred by the petitioner-respondent-company. Against the order of the Division Bench of the Delhi High Court, the appellant-company filed a Special Leave Petition. Initially, the Hon�ble Supreme Court stayed the order of the Division Bench of the Delhi High Court. Meanwhile, the petitioner-respondent-company presented the cheques and, thus, the SLP was finally dismissed. The suit filed by the appellant-company was also withdrawn.

In the rejoinder filed by the petitioner-respondent-company, it has been admitted that two suits for recovery under Order XXXVII, rule 1 of the CPC were filed by it in the Delhi High Court, one for recovery of Rs. 20 crores and other for recovery of Rs. 40 crores and the application for leave to defend were pending.

After noticing the above mentioned factual background and hearing counsel for the parties, the learned company judge formulated five propositions and came to the following conclusions:

Winding up is not a mode of recovery of debt or amount payable by the company;

It is the discretion of the court to order winding up which should be the last resort;

It is the inability of the company to pay its debts which attracts the provisions of Section 433(e) of the Companies Act. Inability is in the nature of commercial insolvency;

If there is a bona fide dispute regarding the payment of the debt, there cannot be neglect to pay within the meaning of Section 434(1)(a) of the Companies Act. The bona fide dispute means the defence of the company is substantial and raises triable issues which can be more conveniently adjudicated upon in a regular forum in a civil suit; and

The creditor has both the remedies of filing a civil suit as well as a winding up petition, if there is no bona fide dispute with regard to the sum payable.

It is prudent to apply the aforenoted principles to the facts of the present case. It has come on record that the petitioner-company has advanced loan amount of more than Rs. 54 crores as principal carrying interest at the rate of 12 per cent. Various post dated cheques were issued by the respondent-company towards the re-payment of the loan and interest. Some of the cheques have been dishonoured and criminal proceedings u/s 138 of the Negotiable Instruments Act, 1881, have been filed. The respondent-company while re-paying the amount has made deductions of TDS which itself is an acknowledgment of debt and its liability to pay the loan/interest. As a matter of fact, the respondent-company has admitted the receipt of loan and also issuance of various cheques to the petitioner-company in paragraph 8 of its reply. It has also admitted various cheques having been issued towards the payment of the loan/interest. The only defence of the respondent-company is that there has been a subsequent arrangement between the parties for investment in another company of the respondent, namely, Vasucorp Inc. USA and the loan amount was agreed to be converted into equity shares in the said company for which the novation of contract is pleaded based upon various e-mails dealt with in detail hereinabove. However, no material has been placed on record by the respondent that number of shares equivalent to the amount of loan and interest accrued thereon have been allotted to the petitioner-company or on its behalf. The plea of novation of contract though raised, has not been substantiated on the record. To the contrary there is written loan agreement between the parties followed by various cheques issued towards its repayment. Even the attempt of the respondent-company to seek injunction against the petitioner-company from encashing the cheques issued by the respondent-company and the discharge of loan/interest has failed up to the Hon�ble Supreme Court and eventually, the suit filed by the respondent-company seeking restraint order against the petitioner-company from presenting cheques for encashment has been withdrawn. The petitioner has already filed two civil suits for recovery where the leave to defend is yet to be granted by the concerned civil court. Be that as it may, the defence raised in the present petition is not a substantial one. The specific plea raised in paragraphs 20 and 21 of the winding up petition that the functioning of respondent-company has come to a stand still and it is unable to pay its debts has been simply denied by the respondent-company. No material has been placed on record to establish that its worth is equal or more than its liability and also that the company is still functioning and has substantial and sufficient resources to pay its debts. Even the balance-sheet for the relevant period has not been placed on record to rebut the specific allegations made in the winding up petition that the company is unable to pay its debts. There is huge outstanding against the respondent-company. Its substratum, the financial health and functionality has not been disclosed. In view of the totality of the circumstances, I am of the considered view that this is a fit case where this petition is to be admitted.

Petition is admitted. The factum of admission be published in the Indian Express, The Times of India (Delhi edition) and Dainik Bhaskar (Haryana edition) as also in the Official Gazette of the State of Haryana.

On May 4, 2009, while issuing notice of motion, the Division Bench stayed publication of the petition as directed by the learned company judge vide his order dated April 22, 2009.

Mr. Ashwani Kumar Chopra, learned senior counsel has vehemently argued that there is a novation of contract which was entered into between the appellant-company with the petitioner-respondent-company on April 15, 2005. In that regard he has referred to various e-mails, which have been placed on record as annexures R1 to R3, to substantiate his argument. According to him, those e-mails clearly shows complete novation of contract resulting in replacing the loan agreement dated April 15, 2005, with the new agreement. Commending adversely on the view taken by the learned company judge, Mr. Chopra has submitted that the issue although has been raised before the learned company judge but has not been dealt with. He further submits that the learned company judge has failed to properly consider and appreciate those e-mails and other documents placed on record, which clearly establish that there was novation of contract.

The other submission made by Mr. Chopra is that the defence of the appellant-company before the learned company judge is substantial and there is a bona fide dispute which can be adjudicated upon only by way of a regular suit instead of initiation of proceedings u/s 433(e) and (f) read with Sections 434 and 439 of the Companies Act, 1956 and rule 9 of the Companies (Court) Rules, 1959. He has argued that the learned company judge has failed to correctly apply various propositions of law culled out from the judgments cited and considered by him. In the background of the aforesaid argument, Mr. Chopra has prayed for setting aside of the order admitting the company petition and directing its advertisement.

Mr. Sudhir Makkar, learned Counsel for the petitioner-respondent-company has opposed the appeal and vehemently argued that there was no novation of contract because the talks through e-mails were entirely independent of the loan agreement in writing, dated April 15, 2005. He has drawn our attention to the order dated June 15, 2007, passed by the Appellate Bench of the Delhi High Court against order dated March 28, 2007, passed in a suit filed by the respondent-appellant. While referring to covering letter dated November 29, 2006, which is much after the so called novation of contract, which is alleged to have taken place on October 11, 2006, Mr. Makkar has submitted that the respondent-appellant-company was not expected to issue 16 cheques along with the covering letter. A reference has been made to a sample of one such letter dated November 29, 2006, which has been read out to the court and reads thus:

29-11-2006

The Chairman,

M/s. Ratna Commercial Enterprises Pvt. Ltd.,

New Delhi.

Reg : Short Term Loan

Dear Sir,

Please find enclosed herewith the following cheques towards repayment of short term loan of Rs. 50,00,000 (rupees fifty lakhs only) along with interest at 12 per cent, per annum for the period.

381120 1-1-2007 42,074 Interest at 12% per annum for the period 29-11-2006 to 31-12-2006 on Rs. 50,00,000 less TDS at 22.44%, i.e., Rs. 12173. 2. 381121 1-4-2007 1,14,746 Interest @ 12% per annum for the period 01-01-2007 to 31-03-2007 on Rs. 50,00,000 less TDS @ 22.44%, i.e., Rs. 33,199. 3. 381122 1-4-2007 50,00,000 Repayment of loan. We hope you will find the above in order. We shall be grateful if you can provide us with your Income Tax PAN number for our records and for issue of TDS certificates.

Thanking you,

for Vasu Tech Ltd., (Aruna Varma), Director.

Mr. Makkar has argued that none of these letters have even remotely suggested that the cheques were not expected to be encashed or that they were being issued as collateral in lieu of the equity shares which were to be allotted to the petitioner-respondent in the appellant-company. Our attention has been drawn to various letters dated September 27, 2006, October 11, 2006, October 19, 2006, October 31, 2006, November 22, 2006, November 29, 2006 and December 6, 2006. Learned Counsel has insisted that the so called novation by e-mails is an imaginary thought because even in the e-mails no suggestion has been made that the cheques issued with the covering letters were not to be encashed. It has been further pointed out that it is only after the issuance of the legal notice on January 5, 2007 (P7) that the appellant-company had written to the petitioner-respondent requesting that the cheques may not be presented for payment. Mr. Makkar has further pointed out that the order dated June 15, 2007, which has refused injunction to the appellant-company, was upheld on their appeal as the SLP was dismissed vide order dated February 4, 2008 (A3) and the interim relief claimed in the suit filed by the appellant-company on the original side of the Delhi High Court for restraining the petitioner-respondent-company from encashing the cheques was declined and the same attained finality. He has also referred to the order dated September 3, 2008, passed by the Delhi High Court in the original side suit which shows that the suit was dismissed as withdrawn.

Mr. Makkar has then made a reference to Clause 12.5 of the loan agreement dated April 15, 2005 (P4), which in unequivocal terms states that no variation of the agreement is to bind the parties unless such variation is in writing and signed by each party. According to learned Counsel no novation would be possible in the absence of any subsequent agreement in writing varying the terms of the loan agreement dated April 15, 2005. He has also placed reliance on the memorandum of understanding, dated August 31, 2006, where the loan advanced by the petitioner-respondent-company to the tune of Rs. 49,83,93,273 has been acknowledged. The clauses acknowledging the aforesaid loan amount and the future mode of payment have been read out to us and the same are reproduced as under :

The borrower hereby unequivocally confirms that the lender has advanced various amounts from time to time to the borrower, receipt whereof, the borrower hereby acknowledge. The borrower hereby confirms that as on date of this memorandum of understanding a sum of Rs. 49,83,93,273 (rupees forty nine crores eighty three lakhs ninety three thousand two hundred seventy three)(principal amount) is due and payable by the borrower to the lender exclusive of interest at 12 per cent, per annum.

The borrower further confirms that the aforesaid loan amount carry interest at the rate of 12 per cent, per annum payable by the borrower on quarterly basis on or before 15th of the month immediately succeeding the close of every quarter.

The borrower confirms that the interest on the aforesaid amount stand paid up to March 31, 2005. It is agreed between the parties that payment of interest for the financial year 2005-06 shall be made on deferred payment basis by the borrower and the said payment of interest shall stand deferred for a period of 12 months from the date on which the payment of interest would otherwise have become payable. Consequently, it is agreed that the borrower shall not be liable to make payment of interest in the financial year 2005-06 of the interest payable for this period shall be paid by the borrower to the lender in the financial year 2007-08, which payment shall be in addition to the interest payable during that financial year.

The parties further agree that the borrower has made payment of a sum of Rs. 1,15,06,727 (rupees one crore fifteen lakhs six thousand seven hundred twenty seven) during the financial year 2005-06 and further confirm that the said payment shall be adjusted towards payment of the principal loan amount due and payable by the borrower and shall not be adjusted against the payment of interest as it is agreed between the parties that the payment of interest for the period 2005-06 shall stand deferred to the next financial year.

He has lastly submitted that the learned company judge has rightly applied the principles concerning winding up and has rightly concluded that the defence of the appellant-company is moonshine. He has drawn our attention to paragraph 5(n) and (q) of the rejoinder filed in the company petition from which the instant appeal has arisen, namely, C.P. No. 13 of 2007, and argued that the parties never contemplated conversion of the loan into equity. Mr. Makkar has substantiated his argument by contending that the other company, namely, Vasucorp Inc. was ushered in and Mr. Pradip Burman became a founder subscriber of that company by virtue of founders'' agreement dated July 1, 2004, entered into amongst Mr. Dhruv Varma, Wogan Technologies Inc. and Mr. David Dell. He has pointed out that Mr. Pradip Burman has substantial equity stake in Wogan Technologies Inc. which is a corporation organised in the British Virgin Islands. The factum of attending the board and management meetings of Vasucorp Inc. by Mr. Pradip Burman have not been denied but it has been pointed out that he officially resigned from the board of Vasucorp Inc. on December 19, 2006. The founders'' agreement dated July 1, 2004, does not in any manner even remotely indicate that the shares were being issued in Vasucorp Inc. against the loans advanced to Vasu Tech Ltd., or that the loans advanced to Vasu Tech Ltd., were ever intended to be converted into any equity. The transfer of shares by Mr. Dhruv Varma to Wogan Technologies Inc. were in pursuance of the stock purchase agreement dated March 11, 2005, which was entered into between Wogan Technologies Inc. and Mr. Dhruv Varma.

Having heard learned Counsel for the parties we are of the considered view that this appeal is liable to be dismissed. The appellant-company has made much hue and cry about novation of contract in pursuance of e-mails exchanged between the parties on May 9, 2006, October 10, 2006, October 11, 2006 and December 6, 2006 (R2 to R4). A perusal of the e-mail dated May 9, 2006, sent at 4.34 a.m. (R2), refers to some discussions intimated by Mr. Dhruv Varma to the petitioner-respondent-company from Mr. Pradip Burman. There is some talk of transfer of additional 3,50,000 shares for every Rs. 1 crore for the loan that was to be given beyond the one existing as on that date. On May 9, 2006, itself at 3.15 p.m., Mr. Pradip Burman sent back an e-mail to Mr. Dhruv Varma stating that the outstanding loan as on May 1, 2006, against the appellant-company was Rs. 48.87 crores, which included Rs. 2.25 crores paid to ICICI Ventures for release of 7,38,234 shares of Vasu Tech Ltd., lying with him. The calculations of shares has then been given. Another e-mail was again sent by Mr. Pradip Burman on October 10, 2006, at 6.04 p.m. giving current outstanding of Vasu Tech Ltd., and shares due as on September 30, 2006, which was confirmed by the e-mail sent by Mr. Dhruv Varma on October 11, 2006, at 3.15 a.m., stating that the calculation in the e-mail sent by him were "okay and confirmed". The parties were negotiating and a draft agreement (R5), which is undated, was prepared and the same has never been signed. The e-mails dated May 9, 2006, October 10, 2006, October 11, 2006 and December 6, 2006 (R2 and R4) cannot constitute any concluded contract and could not be accepted as novation of the written loan agreement dated April 15, 2005 and memorandum of understanding dated August 31, 2006 (R3), especially when in the loan agreement dated April 15, 2005, which is accompanied by an agreement of pledge, dated April 15, 2005 (P5) and the deed of guarantee, dated April 15, 2005 (P6), there is a specific Clause 12.5, which reads as under:

12.5 Variation.--No variation of this agreement shall be binding on any party unless such variation is in writing and signed by each party.

(emphasis here printed in italics added)

It is no doubt true that wherever it is possible to infer a completed agreement, the same can be done and there is no bar that proposal and acceptance made by e-mail is open to any further scrutiny and requirement of law. There cannot be any quarrel to the aforesaid proposition canvassed by Mr. Chopra by placing reliance on the judgment of Hon�ble the Supreme Court rendered in the case of Shakti Bhog Foods Limited Vs. Kola Shipping Limited, .

Section 62 of the Indian Contract Act, 1872, provides for effect of novation amongst other things. The aforesaid provision reads as under:

Effect of novation, rescission, and alteration of contract.--If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.

A perusal of Section 62 of the Indian Contract Act shows that one of the essential requirements of "novation" is that there should be complete substitution of a new contract in place of the old. It is in that situation that the original contract need not be performed. Substitution of a new contract in place of the old contract which would have the effect of rescinding or completely altering the terms of the original contract, has to be by agreement between the parties. A substituted contract should rescind or alter or extinguish the previous contract. But if the terms of the two contracts are inconsistent and they cannot stand together, the subsequent contract cannot be said to be in substitution of the earlier contract. In other words, the old contract has to be substituted by a new contract for the old and it is only in that situation the old contract can be replaced by the new one. The question is dependent on whether the new contract satisfies the legal requirement of expression "contract". For the aforesaid purpose it has to be borne in mind that the "proposal" for making contract and its "communication" within the meaning of Section 3 has to be satisfied by "acceptance" of such proposal without any condition. On the acceptance of the proposal a "concluded contract" may come into being.

It is well known that novation is of two kinds--(a) novation involving change of parties; and (b) novation involving substitution of new contract in place of the old one. In their treatise Law of Contract (Tenth edition), Cheshire and Fifoot have discussed the concept of "novation" and "assignment" in Chapter 16 under the heading of "The voluntary assignment of contractual rights and liabilities". In so far as novation is concerned, the learned authors have defined the same in the following words:

Novation, therefore, is the only method by which the original obligor can be effectively replaced by another. A, B and C must make a new contract by which in consideration of A releasing B from his obligation, C agrees that he will assume responsibility for its performance. This transaction is frequently required upon the retirement of one of the partners of a firm. B, the retiring partner, remains liable at law for partnership debts contracted while he was a member of the firm but if a particular creditor, A, expressly agrees with him and with the remaining members to accept the sole liability of the latter for past debts in place of the liability of the firm as previously constituted, the right of action against B is extinguished.

Under the English law, B cannot assign his obligation that rests upon him by virtue of his contract with A to a third person, C, so that the contractual liability is effectively transferred from him (B) to C. In that regard the learned authors have placed reliance on the observation made by Collins MR in the case of Tolhurst v. The Associated Portland Cement Manufacturers (1900) Ltd. [1902] 2 KB 660 (CA), which reads as under:

It is, I think, quite clear that neither at law nor in equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee. A debtor cannot relieve himself of his liability to his creditor by assigning the burden of the obligation to somebody else; this can only be brought about by the consent of all three, and involves the release of the original debtor.

In the case in hand, Clause 12.6 of the loan agreement dated April 15, 2005, in unequivocal terms puts it beyond any doubt that there cannot be any assignment by shifting the obligation of the appellant-company to any other third party. The aforesaid Clause 12.6 reads as under:

12.6 No assignment.--Subject to the provisions of this agreement, this agreement is personal to the parties and shall not be capable of assignment, except with the prior written consent of the other party.

In view of the aforesaid prohibition, the appellant-company cannot assign their obligation by substituting the shares of another company for discharge of its liability. Moreover, it is not firstly possible to record a finding that a "concluded contract" had ever come into being because there is no "acceptance of proposal" to substitute the loan in consideration of allotment of shares. A perusal of the first e-mail dated May 9, 2006 (R2) shows that the following "proposal", inter alia, was sent:

For the loans that you give beyond those existing as on date, for every Rs. 1 crore an additional 350,000 shares in Vasucorp will be transferred to you by me. This transfer will be restricted to 1.45mn shares, beyond which the shares will be given by Vasu Tech out of the shares it holds in Vasucorp.

The aforesaid clause does not suggest that the loans existing at that stage were to be substituted for subscribing to the shares of Vasucorp Inc. The proposal at best can be stated to be at the nebulous stage. The subsequent e-mails giving details of the dues of the petitioner-respondent-company do not state anything which may lead to a conclusion that the proposal has in terms been accepted. Moreover, the parties had drawn a draft agreement/memorandum of understanding (R5), which has never been signed. The aforesaid course was required to be taken on account of the fact that under Clause 12.5 of the loan agreement dated April 15, 2005 (P4), there is clear stipulation that no variation of the agreement was to be binding on any of the parties unless such variation was in writing and signed by each party. Therefore, no complete new contract substituting the earlier contract had come into being. The argument is wholly imaginary and the same is, thus, liable to be rejected. The view taken by the learned company judge in the order under appeal is, thus, upheld. The other argument that there were triable issues and the substantial defence of the appellant-company is also without any substance. In the agreement dated April 15, 2005 (P4), the appellant-company has acknowledged a loan amount of Rs. 192,000,000, which has been advanced from November, 2003 to April, 2005, as is evident from annexure A attached with the loan agreement dated April 15, 2005. By agreement dated April 15, 2005, the parties have agreed to advance an additional amount of loan of Rs. 20,000,000. The appellant-company vide its letters dated February 10, 2007 and February 21, 2007, had sent pay orders to the petitioner-respondent-company in lieu of dishonoured cheques. Those 16 cheques were sent by various letters. One of the letter dated November 29, 2006, has already been noticed and reproduced above.

We are further of the view that no concluded contract by the managing director or the directors of the company could come into being unless resolution of the company on that score was passed. No such resolution having been placed on record, no conclusion could be reached that a concluded contract has come into being.

During the course of arguments no explanation was tendered by Mr. Chopra as to why these covering letters along with cheques were issued. The letters dated September 27, 2006, October 11, 2006, October 19, 2006, October 31, 2006, November 22, 2006, November 29, 2006 and December 6, 2006, clearly acknowledge the loan amount and its repayment. All these letters except the one were subsequent to the dates of e-mails. There is not even a remote suggestion that on account of alleged concluded contract by e-mails these cheques were not to be encashed or that they were issued as a collateral security in lieu of the shares which were to be allotted to the petitioner-respondent-company in Vasucorp Inc. Therefore, it cannot be said that the liability in the shape of loan claimed by the petitioner-respondent-company has not been acknowledged. In case of triable issue, a winding up petition cannot be entertained and there cannot be any dispute with such a legal proposition as canvassed by Mr. Chopra on the basis of the judgment of the Hon�ble Supreme Court rendered in the case of M/s. Sunil Enterprises and Another Vs. SBI Commercial and International Bank Ltd., .

We are further of the view that the adjudication by a Division Bench of the Delhi High Court in an appeal directed against an interim order dated March 28, 2007, filed by the petitioner-respondent-company further clarify the factual as well as the legal position. It is pertinent to mention that the appellant-company had earlier filed Civil Suit (O.S.) No. 570 of 2007 seeking an injunction in their favour restraining the petitioner-respondent-company from encashing 16 cheques which were issued by it. The learned single judge of the Delhi High Court had granted injunction vide order dated March 28, 2007 and the view taken by the learned single judge was reversed by the Division Bench in F.A.O. (O.S.) No. 206 of 2007. The Division Bench of the Delhi High Court after referring to the letter dated November 29, 2006 (supra), vide its order dated June 15, 2007 (A2) has concluded as under:

Each of the covering letters, copies of which have been placed on record by the defendants, is identically worded. There is no explanation at all why these letters were not produced by the plaintiff along with the plaint. On the other hand, it can be seen that the plaintiff does not deny these covering letters. Paragraph 41 of the plaint states that ''purely with a view to give comfort to the defendants as collateral security, till the shares were transferred, post-dated cheques were given from time to time .... In paragraph 42 it simply lists out the details of the 16 cheques. These letters unequivocally reflect that the cheques were being issued for repayment of a loan and there is no whisper that they are being offered as a collateral as claimed in the plaint. There is a high probability that had the learned single judge been shown these letters, the unconditional ex parte injunction may not have been granted. The very basis of the plaintiffs claim that these cheques were not intended for repayment of the loan would have been in doubt. Therefore, the withholding of these letters should result in drawing an adverse inference against the plaintiff. This is definitely one ground why the ad interim injunction should be vacated.

The appellant-company then challenged the order of the Division Bench before the Hon�ble the Supreme Court and the Special Leave to Appeal (Civil) Nos. 10749-10750 of 2007 were dismissed on February 4, 2008 (A3). Thereafter, the suit filed by the appellant-company was also dismissed as withdrawn on September 3, 2008 (A5). It is, thus, evident that the liability has been acknowledged and there is no triable issue raised by the appellant-company. The 16 cheques issued for re-payment of loan were not affected by any other negotiation or talks. Moreover, vide memorandum of understanding, dated August 31, 2006 (R3), the liability to the extent of Rs. 49,83,93,273 stands acknowledged. Therefore, the appeal is wholly without merit and is, thus, liable to be dismissed.

As a sequel to the aforesaid discussion this appeal fails and the same is dismissed.