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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J.
APPEAL NO.513 OF 2007
IN
COMPANY PETITION NO.726 OF 1998
WITH
NOTICE OF MOTION NO.3002 OF 2007
ig ...
M/s.Motwani Builders Pvt.Ltd. ...Appellant
v/s.
M/s.Kunal & Co. ...Respondent
WITH
APPEAL NO.514 OF 2007
IN
COMPANY PETITION NO.171 OF 2000
WITH
NOTICE OF MOTION NO.3003 OF 2007
...
M/s.Motwani Builders Pvt.Ltd. ...Appellant
v/s.
Tarachand H. Khanchdani ...Respondent
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...
Mr.S.H.Doctor Sr.Advocate with Mr.J.P.Sen i/b
M/s.Federal & Rashmikant for the Appellant.
Dr.V.V.Tulzapurkar, Sr.Advocate with
Mr.B.K.Bali for Respondent No.1 for the Respondent
in Appeal No.513/2007.
Mr.Pramod Kumar i/b M/s.Pramod Kumar & Co. for the
Respondent in Appeal No.514/2007.
...
CORAM: D.K.DESHMUKH &
A.A.SAYED, JJ.
ig DATED: 12TH MARCH, 2009
JUDGMENT:(PER D.K.DESHMUKH, J.)
1. By both these appeals the Appellant challenges
common order passed by the learned single Judge of
this court dated 29-6-2007 in Company Petition No.726
of 1998 and Company Petition No.171 of 2000. Both
these company petitions were filed by two different
Petitioners seeking the same reliefs namely winding
up of the Appellant-company. The grounds on which
the order of winding up of the Appellant-company was
sought was also the same, and therefore, in our
opinion, both these appeals can be conveniently
disposed of by a common order.
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2. The facts that are relevant and material for our
purpose are that the Company Petition No.726 of 1998
was filed by M/s.Kunal & Co., a partnership firm
registered under the Indian Partnership Act seeking
an order for winding up of the Appellant-company and
an order for appointment of official liquidator as a
liquidator of the company was also sought.
3. In the petition, it was averred that the
Appellant-Company was incorporated on 17.2.1982 under
the Companies Act, 1956 as a private company, limited
by shares. The registered office of the Company was
at Mumbai. The authorised share capital was
Rs.3,00,000/- divided into 30,000 equity shares of
Rs.10/- each. The issued, subscribed and paid up
share capital of the Appellant Company was
Rs.2,07,000/- divided into 20,700 equity shares of
Rs.10/- each, fully paid up. The objects of the
Company as set out in the Memorandum of Association
were to carry on business, own, buy, sell, possess,
develop, construct, demolish, rebuild or otherwise
deal in lands and buildings and to do other ancillary
things in relation to the aforesaid objects as set
out in detail in the Memorandum of Association. It
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was contended that the Company was indebted to Kunal
for a sum of Rs.3,91,54,538/- being the balance of
the amount lent and advanced by the petitioner-Kunal
to the Appellant-Company alongwith interest due at
the rate of 18% p.a. with quarterly rests as per the
agreement and in accordance with the particulars of
claim.
4. It was averred in the petition that in or about
March-1994 the Appellant-Company through its Director
and a
Shareholder Mr.K.K.Motwani approached the
petitioner-Kunal and requested for grant of a
temporary loan to enable the Company to make payment
to the appropriate authority of the Income-tax
department from whom the Appellant-Company was to
purchase a property situated at Worli for development
in an auction sale for a consideration of
Rs.21,75,00,000/-. The Appellant Company agreed to
pay interest at the rate of 18% p.a. with quarterly
rests on the amount which may be lent and advanced.
The Petitioner-Kunal therefore, lent and advanced to
the Appellant-Company an amount aggregating to
Rs.3,54,51,000/- during the period between February
to March-1994. This amount lent by the
petitioner-Kunal was duly received by the
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Appellant-Company and the Company agreed to repay the
same alongwith interest thereon at the rate of 18%
p.a. with quarterly rests.
5. The Appellant-Company thereafter, alongwith its
forwarding letter dated 7.6.1994 sent to the
petitioner-Kunal a cheque for an amount of
Rs.39,40,000/- towards repayment of a part of the
loan and another cheque for Rs.9,31,707/- towards the
interest due upto 31.5.1994 at the rate of 18% p.a.
as agreed.
6. The Appellant-Company thereafter paid further
amounts towards repayment of the loan by a cheque
dated 8.7.1994 for Rs.39,40,000/-, a cheque dated
4.8.1994 for Rs.39,71,000/- and a cheque dated
8.2.1995 for Rs.20,00,000/-. The company also paid
to the petitioner-Kunal interest due on the amount of
the loan upto 31.12.1994. The Appellant-Company
thereafter failed to pay the balance amount of the
loan or the interest due thereon to the
petitioner-Kunal. That from the certificate issued
by the Company, it was evident that the Company paid
income tax deducted from the interest accrued and
payable to the petitioner-Kunal for the years ending
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on 31.3.1995 and 31.3.1996 although the amount of the
said interest accrued had not been paid by the
Company to the Petitioner-Kunal. That in the
circumstances, a sum of Rs.3,64,22,825/- remained due
and payable by the Appellant-Company to the
petitioner-Kunal as on 31.3.1998 with further
interest thereon at the rate of 18% p.a. with
quarterly rests from 1.4.1998 till payment.
7. It was averred that the Appellant-Company had
admitted and
acknowledged its liability to the
petitioner-Kunal and also confirmed the correctness
of the amounts due to the petitioner-Kunal by
executing confirmation of the accounts as on
31.3.1995. That the company had also admitted and
confirmed the correctness of the interest accrued on
the principal amount upto 31.3.1996 vide its letter
dated 27.3.1996. The company has also confirmed the
correctness of the balance due to the
Petitioner-Kunal as on 30.9.1996 by executing a
confirmation of the accounts. Lastly, the company
had further admitted and acknowledged its liability
to the petitioner-Kunal in its accounts and the
balance sheet for the year ended 31.3.1996. It was
contended that in view of these admissions there was
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no dispute whatsoever about the liability of the
Company to the petitioner.
8. That since the Appellant-Company failed and
neglected to make payment to the petitioner-Kunal
after February-1995 either towards repayment of the
principal or the interest due, the petitioner-Kunal
by its Advocate’s letter dated 20.07.1998, recorded
some of the facts mentioned above and demanded
payment of the amount due to the Petitioner-Kunal.
The
said letter was duly served upon the Company by
hand delivery on 22.7.1998. The company however,
failed and neglected to comply with the demand made
by the Petitioner-Kunal or to respond to the said
letter. In the circumstances, a 2nd letter addressed
by the Advocate for the petitioner-Kunal dated
24.8.1998, recorded these facts and notified that the
petitioner-Kunal was proceeding with the filing of
the winding up petition. The company however, failed
and neglected to pay the amount due to the
petitioner-Kunal or any part thereof. A contention
was thus raised in the petition that the Company was
unable to pay its debts and was therefore liable to
be wound up under the provisions of the Companies
Act. It was then averred in the petition that the
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petitioner-Kunal was a shareholder of the Company
holding 3800 equity shares of Rs.10/- each. In his
capacity as a member and a shareholder of the Company
the petitioner-Kunal was entitled to receive notices
of the Annual General Meetings of the Company as also
the copies of the annual accounts of the Company
every year. The petitioner-Kunal had however, till
date, not received any notice from the Company about
the Annual General Meeting, if any, held by it. The
petitioner-Kunal was therefore, not aware of the
present status
or development of the said property
purchased at Worli or any other activities, if any,
carried on by the Appellant-Company. In the
circumstances, the petitioner-Kunal had lost
confidence in the present management of the Company
and was therefore, entitled to seek winding up of the
Company. The petitioner-Kunal averred that it was
therefore, just and equitable to wind up the Company
in the interest of its creditors and shareholders.
After filing of the petition and the service of the
same upon the Company, an affidavit-in-reply affirmed
by the managing director of the Company Mr.Kanayo
Khubchand Motwani duly affirmed on 18.12.1998 came to
be filed in the petition. It was contended on behalf
of the Appellant-Company that the petition filed by
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the petitioner-Kunal was malafide, induced by
ulterior motive and was an abuse of the process of
the Court. The petitioner-Kunal had deliberately
suppressed true facts, papers and documents with a
view to seeking quick remedy in an inappropriate
forum. The Appellant-Company’s relation with the
Petitioner-Kunal was not that of borrower and lender.
The Petitioner-Kunal entered into a business deal
through its nominee Shri Ramesh T.Khanchandani in
pursuance of the agreement dated 28.3.1994 entered
into
between (i) Shri K.K.Motwani, (ii) Shri Manohar
T.Makhija and (iii) Shri Ramesh T.Khanchandani. The
said Mr.Makhija and Mr.Khanchandani who were non
resident Indians (NRIs) were introduced to the
deponent by one Shri Sunil Mirpuri who was an agent
and broker in real estates. That the Company was
incorporated on 17.2.1982 by the deponent, his
brother and a close friend with an authorised capital
of Rs.3,00,000/- for development and construction
business. Though there were several business
proposals, none had materialised for want of an
appropriate land site. On 19.1.1994 an appropriate
authority of the income-tax department held an
auction of a property at Worli and the Company made a
successful bid at the price of Rs.21,75,00,000/-.
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The Company paid Rs.10/- lacs as earnest money to the
appropriate authority. At the time of the bid, there
were great potentialities and bright prospects for
development and construction business. Hence, after
the land was acquired, the aforesaid NRIs through the
good offices of the said Shri Sunil Mirpuri, the real
estate agent and broker, showed great interest in the
project because of the prime location of the land
which was acquired by the Appellant-Company from the
income-tax department in an auction sale and because
such property
was presumed to be free from any
encumbrances and/or hassles of defective title.
Accordingly, an agreement dated 28.3.1994 was entered
into between Shri K.K.Motwani and the aforesaid two
NRIs namely Shri Manohar T.Makhija and Shri Ramesh
T.Khanchandani and the agreement provided that they
shall jointly participate in the said Company to
carry on the development of the said property at
Worli, Mumbai and that the balance equity shares of
the Company to the extent of 29,700 shares (30,000
equity shares of Rs.10/- each less 300 shares issued
at the relevant time) were to be issued to these 3
persons and their nominees, so that after such issue
their holding in the entire capital of Rs.3,00,000/-
shall be in the ratio of 34:33:33 respectively. It
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was contended that paragraph-2 of the agreement
provided that Shri Manohar T.Makhija shall be the
Chairman, Shri K.K.Motwani shall be the Managing
Director and Shri Ramesh T.Khanchandani shall be the
Director of the Appellant-Company. In paragraph-4 it
was provided that the parties to the said agreement
shall contribute or arrange such loans and funds as
may be required for the purpose of paying for the
property, stamp duty and other expenses and
development and construction cost. In paragraph-8 it
was
provided that for the purpose of development of
the said property, all major decisions such as
appointment of Architects and sales policy shall be
taken unanimously. However, other decisions shall be
taken by the Managing Director who shall be in-charge
of the construction. In paragraph-9 it was provided
that Shri K.K.Motwani and his nominees shall bring in
loans and deposits of Rs.6/- crores and interest @
18% per annum will be paid by the Company thereon.
That, Shri Manohar T.Makhija and his nominees shall
bring in loans and deposits of Rs.9/- crores and
interest @ 18% per annum will be paid by the Company
thereon. That Shri Ramesh T.Khanchandani and his
nominees shall bring in loans and deposits of Rs.9/-
crores and interest @ 18% per annum will be paid by
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the Company thereon. It was submitted that the
petitioner-Kunal was a nominee of the aforesaid Shri
Ramesh T.Khanchandani and held 13% i.e. 3,900 shares
out of 33% i.e. 9,900 shares allotted to
Khanchandani’s group. The petitioner-Kunal initially
paid an amount of Rs.3,54,51,000/- which was
equivalent to 13/33 of Rs.9,00,00,000/- as its
contribution by way of loans and deposit to
participate in the Worli project as a nominee of the
said Khanchandani group. It was mutually agreed that
the payments of such interest to the participants was
nothing but an advance against their final profits
and was adjustable against their shares in the final
profits to be distributed equally in the ratio of
34:33:33 on completion of the said Worli project.
That neither the K.K.Motwani group nor the Manohar
T.Makhija group took any interest at any time on the
advances made by them to the Company and therefore,
subsequently such periodical payments of interest
earlier made to Shri Ramesh T.Khanchandani and his
nominees including the petitioner were also stopped.
It was contended that the Worli Project could not
take off because of various objections raised from
time to time by various authorities. Initial
objection was raised to the development on the
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property by the Coastal Zone Regulations. After that
objection was removed the Corporation declined to
grant permission and was claiming amount as
Corporation premium. With the result the land was
not conveyed to the Appellant Company.
9. That as a result of undue delay in having the
land conveyed to the Appellant- Company and
consequent delays in granting approval of the plans,
the Company had taken up the matter with the Finance
Minister of
India for recission of the contract of
purchase of plot by the Company in the public auction
held by the appropriate authority of the income tax
department and has claimed refund of purchase price
together with interest and damages for losses
suffered by the Company. The Finance Minister had
sought the opinion of the Attorney General of India
in this respect to enable him to take a suitable
decision. That the Appellant-Company was expecting
disposal of its complaint with the Finance Minister
within next 3 to 4 months. It was contended that the
Appellant-Company was legally obliged to refund in
priority, the deposits of the prospective flat owners
who have booked the flats in the proposed building to
be constructed on the said plot of land at Worli,
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Mumbai. The petitioner-Kunal as a nominee of Shri
Ramesh T.Khanchandani group was duty bound to repay
to the Appellant-Company the amount paid to it in
advance by way of interest against the final profits
of the project to enable the Appellant-Company to
return the deposits of the prospective flat owners.
That the Directors' reports from time to time had
dwelt upon all the problems, obstacles, hurdles,
hassles and issues encountered by the
Appellant-Company and the petitioner-Kunal was well
aware of
the same. That the petitioner-Kunal as a
nominee of Shri Ramesh T.Khanchandani was fully
briefed about the day to day developments, matters
and issues faced by the Company as the said Shri
Ramesh T.Khanchandani was one of the directors of the
Company and the Chairman Shri Manohar T.Makhija and
Managing Director Shri K.K.Motwani were regularly in
touch with him through fax, informal meetings
whenever he came to Mumbai as also through notices
for the Directors’ meetings. It was contended that
neither Shri Ramesh T.Khanchandani nor any other
shareholder or Director had raised any dispute of the
nature raised by the petitioner-Kunal. It was
contended that the petitioner-Kunal’s claim for the
payment of interest only to the petitioner-Kunal in
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preference to the depositors and lenders of other
groups as also Shri Ramesh T.Khanchandani himself to
whose group the Petitioner-Kunal belonged as a
nominee was unjust complex and of triable nature as
such interest was in any case adjustable against the
final profits, if any, of the project. It was
contended that when the real estate market had
totally crashed, plans for construction of the Worli
property not yet approved for the reasons aforesaid
and the Company’s claim against the income tax
department for
interest and damages etc. for the
delays, not of Company’s making, still to be
resolved, it was neither justified nor possible for
the Company to make any payment to the
Petitioner-Kunal in respect of its loan/deposits in
the nature of its contribution for participating in
the project as also the interest in lieu of final
profits in preference not only to contributors of
other groups but even the proposed flat owners. It
was contended that the main asset of the Company was
the said plot of land at Worli, Mumbai and the title
of this land was shrouded in the mystery of
bureaucratic ways of working. The said land was not
capable of being transferred unless the dispute
between the income tax department and the Corporation
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was resolved and the land was duly conveyed to the
Company. That the Appellant-Company undertook that
it will not transfer and/or mortgage the said land to
any outside party, save and except to surrender the
same to the income tax department against return of
monies paid to it by the Appellant-Company as also
compensation in the nature of loss of interest and
damages suffered by the Company because of breach of
the terms and conditions of the auction sale. It was
contended that the presentation of the winding up
petition by the
ig petitioner-Kunal was a device to
pressurise the Company to submit to an unjust claim
and that the Company Court was not the forum for
resolving various complex and complicated questions
like the nature of contributions by the participants,
adjustment of interest against future profits and
that these issues required thorough investigation.
That therefore, the Court could not be required to
investigate several complex facts and evidences in
depth. That the amount received by the Company from
the petitioner-Kunal and other participants were for
the purpose of purchase and development of the said
plot of land at Worli and the main asset of the
Company was the said plot of land that was very much
in existence. There were no business losses as such
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suffered by the Company and therefore, it was not
possible to contend that the Company has lost its
substratum. Therefore, there was no question of
winding up the Company. It was averred that on
receipt of notice from the petitioner’s Advocate,
reference was immediately made to Shri Sunil Mirpuri
and Shri Sunil Mirpuri had assured that he would
convince the petitioner-Kunal against filing any
winding up petition because the management of the
Company was strenuously working to save the financial
interests of
the Company as stated above. During
this time the deponent had also to make trips to
Delhi in connection with the follow up of the matter
lying with the Finance Minister and hence the notice
of the petitioner’s Advocate remained to be replied
which unfortunately resulted in exparte acceptance of
the petition by this Court. In view of what was
stated in the reply, it was denied that the Company
was liable to pay the amount claimed and that it was
just and equitable that the Company should be wound
up. That Kunal was a nominee of Shri Ramesh
T.Khanchandani group and one of the participants in
the said project. The amount advanced by it to the
Company was agreed contribution simpliciter and not
the amount allegedly lent and advanced by the
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petitioner as held out by it. It was denied that the
petitioner was not given copies of annual accounts,
directors’ and auditor’ reports regularly and that
therefore, the petitioner was unaware about the
present status of development of Worli property as
alleged by the petitioner. It was contended that
Kunal never made any such grievance prior to the
filing of the petition. That the allegations made by
the petitioner-Kunal were absurd and motivated. It
was further contended that the order of winding up
was not only
injurious to the interests of the
proposed flat owners, the shareholders and business
participants but in the aforesaid circumstances, when
the matter was lying for decision with the Finance
Minister, it will not be beneficial and will not even
be in the interest of the petitioner itself. On
behalf of the Company, leave was sought to file an
additional affidavit supplementing the Company’s say
in the matter if there were any further developments
therein including the Company’s complaint lying for
disposal with the Finance Minister. On 1.2.1999 an
affidavit in rejoinder was affirmed by Mr.Shreepal S.
Dalal, a partner of Kunal. It was contended in this
rejoinder that the Appellant-Company had admitted
that monies were due and payable to the
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petitioner-Kunal but had raised a false and bogus
story contrary to the documents on record and that
the defence was an afterthought. Neither Kunal nor
the Appellant-Company were a party to the alleged
agreement or arrangement. The alleged agreement or
arrangement was not binding on the petitioner-Kunal
and could not in any manner affect the liability of
the Company to Kunal. That the issues raised were
irrelevant and it was not a case of disputed
liability. It was denied that the petition was
malafide. It
was denied that the petitioner-Kunal
has deliberately suppressed any facts, papers or
documents with a view to seeking a quick remedy in an
inappropriate forum. It was denied that the forum
was inappropriate and if at all there was anybody
misleading the court, it was the Company which had
put forward a completely false, dishonest, bogus and
irrelevant case in order to dishonestly evade its
liability and to confuse the Court. It was denied
that the petitioner has entered into a business deal
as one of the nominees of Shri Ramesh Khanchandani in
pursuance of the agreement dated 28.3.1994 or
otherwise. That neither the petitioner-Kunal nor the
Company was a party to the said agreement dated
28-3-1994 and therefore, said agreement was
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irrelevant. It was contended that Kunal had lent
money to the Company and had nothing to do with the
business deal or any agreement entered into between
Motwani, Makhija and Khanchandani. It was denied
that the Company’s relation with the petitioner-Kunal
was not that of a borrower and lender. That the
documents on record clearly proved beyond doubt that
relationship of the Petitioner-Kunal and Company was
that of a borrower and lender. It was contended that
the agreement dated 28-3-1994 had no relevance to the
petition
and deliberately sought to be introduced to
confuse the matter. That the terms of the said
agreement were neither binding on the
petitioner-Kunal nor the company, nor did it any way
affects the liability of the Company to Kunal. It
was submitted that the petitioners were allotted 3900
shares as the petitioners could give a loan to a
private limited company only if they were
shareholders. It was contended that Kunal’s name was
not mentioned as a nominee in the alleged agreement
dated 28.3.1994. It was averred that 3900 shares
were allotted to the Petitioners as they had agreed
to lend monies to the Company and not as nominees of
Shri Ramesh T.Khanchandani. It was denied that
Rs.3,54,51,000/- were paid by the Kunal as its
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contribution by way of loans and deposit to
participate in the Worli project as a nominee of the
Khanchandani group. It was reiterated that the said
amount was lent and advanced as and by way of a loan
which was repayable together with interest @ 18% per
annum with quarterly rests. It was reiterated that
the petitioner had refunded part of the loan and
interest thereon @ 18% p.a. and that these payments
were not by way of advance against any future profits
as falsely alleged. That the notices to the Company
went un-replied.
ig That there was no agreement entered
into by Kunal regarding distribution of profit or the
adjustment as alleged or otherwise. It was denied
that the amounts paid to Kunal were by way of
interest against the ‘final profit of the project’ as
alleged. It was denied that the petitioner-Kunal as
an alleged nominee or otherwise was liable to make
any payment or repayment to the Company to return the
alleged deposit of the alleged prospective flat
owners or for any other reason. It was contended
that it was absurd and unbelievable that any person
would book a flat and pay a deposit to the developer
for a project even without approval of the plans by
the Municipal Corporation. It was contended that the
management of the Company, with a view to defraud the
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creditors like the petitioner and deprive them of
their legitimate dues and to siphon off the amounts
from the Company, created false and bogus liability
in the books of accounts of the Company by showing
bogus sales of the flats and this indicated the
dis-honest intention of the Company. It was prayed
that the Court should call upon the Company to
produce all the relevant documents and records
regarding the alleged sale. It was contended that
the petitioner’s claim was in respect of the
repayment
of the loan together with interest and was
not in any manner what-so-ever dependent upon or
linked to the Company making a profit or repaying the
depositors and lenders of other groups as also
Mr.Ramesh Khanchandani. It was denied that the
petitioner’s claim was unjust, complex and triable in
nature. It was contended that Kunal was not
concerned with the alleged financial difficulties of
the Company and that the facts indicated that the
Company was unable to pay its debts and should be
wound up. It was denied that the amount paid by the
Kunal to the Company was agreed contribution
simpliciter. The other contentions made on behalf of
the Company were also denied and it was stated that
the Company had no defences whatsoever.
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10. The company petition No.726 of 1998 was heard by
the learned single Judge of this Court for admission
on 12-2-1999. The learned single Judge passed a
conditional order directing the Appellant-company to
deposit an amount of Rs.3,91,54,539/- within eight
weeks from the date of the order, failing which the
company petition was to stand admitted. Against the
order of the admission, an appeal was preferred,
which was registered as Appeal No.401 of 1999. By
order dated
9-4-1999, the Appellate Bench extended
the period for depositing the amount by one week.
The amount was not deposited. The Division Bench,
thereafter, heard the appeal and summarily dismissed
the same by order dated 20-4-1999. After admission
of the petition it was advertised and an affidavit
proving publication of the admission was filed.
11. During the pendency of Company Petition No.726
of 1998 in this court, a Company Petition No.171 of
2000 was filed by Mr.Tarachand H. Khanchandani.
(Hereinafter referred to as the Petitioner-
Tarachand). It was averred in the petition that on
or about 15.4.1994, on a request made by the
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Appellant Company to provide temporary financial
assistance to fulfil and discharge its liabilities to
acquire and purchase an immovable property being a
plot at Worli on auction sale by the appropriate
authority under the Income Tax Act and for meeting
the consideration price of Rs.21,75,00,000/- the
petitioner-Tarachand provided advances to the
Appellant-Company in the sum of Rs.4,08,99,000/- by
way of temporary financial assistance. The
Appellant-Company had agreed to pay interest @ 18%
p.a. on
the amount so advanced and the amount so
advanced was duly acknowledged by the Company. That
on 1.4.1996 a sum of Rs.3,47,83,435/- was outstanding
as due and payable by the Company to the
petitioner-Tarachand. The Company had shown the said
outstanding amount as due in their books of account
as credit to the loan account of the petitioner
Tarachand to the Company. Since the
Appellant-Company was in financial difficulties and
unable to pay the said outstanding dues and interest
at the aforesaid rates of 18% for the period 1.4.1995
to 31.3.1996, the Company agreed to pay interest by
its letter dated 27.3.1996 and confirmed having
credited the amount of Rs.56,35,006/- after deducting
a sum of Rs.6,26,012/- as TDS @ 10% as interest for
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the period from 1.4.1995 to 31.3.1996 in the loan
account of the petitioner Tarachand as shown in its
books of account and further confirmed that the
outstanding loan as on 31.3.1996 was
Rs.4,04,18,441/-. The company also issued a TDS
certificate dated 10.6.1996 confirming the aforesaid
facts. That inspite of repeated requests and demands
and though promises were made, the Appellant-Company
avoided, failed and neglected to repay the said
outstanding amount nor did the Company paid interest
at the
aforesaid rate payable at the end of every
year. That the Company had admitted, confirmed and
acknowledged its liability to pay the said amount to
the petitioner-Tarachand in its accounts and balance
sheets published for the years upto 20.6.1998. The
petitioner Tarachand contended that he was one of the
shareholders of the Company and as such he was
entitled to receive notice of the annual general
meetings as also copies of the annual accounts of the
Company every year. He however, did not receive any
such notice or a copy of annual accounts for the
period from 1.4.1998. Therefore, he was not aware of
the present financial position of the
Appellant-Company save as what was stated earlier in
the petition. That as recorded in the annual
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accounts and statements of liabilities for the period
ended 31.3.1998, it was seen that the Company was
heavily indebted to its creditors including unsecured
creditors. That the company was not going to develop
the said property and in the circumstances, the
petitioner-Tarachand had lost confidence and was
therefore seeking winding up of the Company on just
and equitable ground also. That the acts of omission
and commission on the part of the Company and
particularly of its director Shri Motwani who has
been
in charge of the affairs of the Company were so
gross that the said Company had defrauded the various
creditors of the Company. To the best knowledge of
Tarachand, the Company had so far not obtained
sanction of plans, secured the issue of commencement
certificate and other orders/approvals from the
concerned authorities and therefore, there were no
chance of commencing and completing the development
of the property purchased in auction from the
Income-tax department. That the Company had not
shown readiness and willingness to take appropriate
steps for the purpose of development of the said
property. The company had not given any proposal to
this Court in the pending Company Petition
No.726/1998 to discharge its liability to its
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creditors. The petitioner-Tarachand apprehended that
if the said Company succeed in obtaining a refund of
the amount of auction price from the Income-tax
department, such amount will be siphoned away and
none of the creditors will get a return of their
amount and claim towards interest or the Company may
refund the said amount to its selected creditors to
the prejudicial interest of others. That the
property was lying vacant and no construction
activity had started.
12. In the affidavit in reply filed on behalf of the
Appellant-company in Company Petition No.171 of 2000
the same defences as were raised in reply filed in
Company Petition No.726 of 1998 were raised. The
Company Petition No.171 of 2000 was admitted in view
of the admission of the Company Petition No.726 of
1998. During the pendency of these petitions,
additional affidavits were filed on behalf of the
Appellant Company as also on behalf of the
Petitioners. In those additional affidavits more or
less the facts which were stated in the affidavit in
reply initially filed were reiterated and some
additional facts were also disclosed. The additional
facts which were stated in the affidavit were that
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the understanding as to the contribution to be made
by the three groups and the manner in which the
interest accrued thereon was to be adjusted, was
reflected in the Minutes of Meeting of the Board of
Directors of the Appellant-Company held on 24-1-1994
at which Mr.Shripal Dalal the partner of the
Petitioner-Kunal was present. It was averred that it
was agreed in the said meeting that the understanding
reached between the parties would be reduced to
writing and that the agreements in this behalf would
be drawn up
by the Advocate Mr.D.H.Harish.
Accordingly the agreements were drawn up by the said
Advocate. It was also disclosed that a part of the
contribution of Khanchandani group and Makhija group
were refunded from out of the funds received from the
prospective purchasers of the flats. It was also
contended that after admission of Company Petition
No.726 of 1998, discussions were held between three
groups to seek a way out of the impasse by selling or
developing the plot of land at Worli which was the
only substantial asset of the Appellant Company. It
was claimed that in or about November, 2004 the
Petitioners in the Company petitions indicated that
they had a proposal from a party for the purchase of
the said plot of land. In this behalf, Mr.Dalal
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addressed a letter dated 23-11-2004 to Mr.Ramesh
Khanchandani setting out the nature of the offer. It
appears that an offer of Rs.18 crores for the
property was received from the “reliable party”. The
said letter indicated the total contribution made by
member of each group after taking into account the
amounts that had been refunded to the Khanchandani
group and Makhija group. In view of the fact that an
amount of about Rs.16 crores will be available for
distribution, it was suggested that each party
including the
persons who had booked flats in the
said building, accept a pro rata distribution of the
said amount of Rs.16 crores. The proposed pro rata
distribution was in the handwritten notes that was
annexed to the letter. On the basis of this pro rata
distribution the Petitioners were to receive an
amount of Rs.1.2 crores. It was contended on behalf
of the Appellant company that the contents of the
letter and the hand written notes fully confirmed the
understanding that has been pleaded by the Appellant
company amongst the three groups. By further
affidavit dated 17-10-2005 affirmed by Mr.Dalal on
behalf of the Petitioner-Kunal, the balance sheet of
the Appellant company for the year 1994-95 till the
year 2003-04 were placed on record in order to enable
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the court to appreciate the financial position of the
company. In the affidavit dated 21-9-2005 affirmed
by Mr.S.S.Dalal, it was stated that during the
pendency of the petitions as offer for purchase of
the flats was received by the company, a proposal was
prepared for sharing of the sale-proceeds of the
flats by all the creditors of the company on pari
pasu basis, but nothing came out from those
negotiations. It appears that in addition to the
various affidavits filed by the parties, on behalf of
the Petitioners
iga compilation of documents dated
13-11-2006 including balance sheets of the Appellant
company for the year 1994, 1995, 1996, 1997, 1998 and
2004 was filed. The original minutes books of the
company were also tendered and taken on record. Both
the petitions were heard by the learned single Judge
and by his detail judgment, the learned single Judge
allowed both the petitions in terms of prayer clause
(a) with costs.
13. Feeling aggrieved by the order of the learned
single Judge , these two appeals have been filed by
the Company challenging that order.
14. It is clear from the record that an order for
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winding up of the Appellant company has been made by
the learned single Judge on two grounds; (1) that
the company is unable to pay its debts and (2) it is
just and equitable to wind up the Appellant company.
15. We propose to take up for consideration the
contentions of the learned Counsel appearing for the
Appellant that the learned single Judge was not
justified in ordering winding up of the Appellant
company on the ground that it is just and equitable
to wind up the
ig Appellant-company. The learned
Counsel submitted that the learned single Judge could
not have considered the material which has come on
record because of the affidavits filed by both the
parties, but should have restricted himself to the
averments in the petitions and the material brought
on record in support of those averments. The learned
Counsel submitted that so far as the averments in the
petitions are concerned, an order for winding up of
the Appellant company on the ground that it is just
and equitable to wind up the Appellant company is
impossible to be made. It was claimed that the
Petitioners were the share holders of the Appellant
company and they have not received notice of the
annual general meeting of the company and they have
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also not received the annual accounts of the company
every year and that they have been kept in total dark
about the developments of the said property at Worli
purchased by the company, and therefore, they have
lost confidence of the present management of the
company. The learned counsel submits that, however,
the learned single Judge has considered the material
which has come on record, which does not necessarily
support the averments in the petition in relation to
just and equitable ground. In the submission of the
learned counsel
igthis is impermissible. In our
opinion, however, the submission is not well founded.
The Supreme Court in its judgment in the case of Hind
Overseas Pvt.Ltd. v/s. Raghunath Prasad
Jhunjhunwalla and anr, AIR 1976 SC 565 in paragraph
35 has observed thus:-
“……. It is now well established that,
the sixth clause, namely, ‘just andequitable’ is not to be read as being ejusdem
generis with the preceding five clauses.
While the five earlier clauses prescribe
definite conditions to be fulfilled for the
one or the other to be attracted in a given
case, the just and equitable clause leavesthe entire matter to the wide and wise
judicial discretion of the court. The only
limitations are the force and content of the
words themselves, ‘just and equitable’.
The court in paragraph 42 has further observed that:
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“42. It is not a proper principle to
encourage hasty petitions of this nature
without first attempting to sort out thedispute and controversy between the members
in the domestic forum in conformity with the
articles of association. There must bematerials to show when ‘just and equitable’
clause is invoked, that it is just and
equitable not only to the persons applying
for winding up but also to the company and to
all its shareholders. The company court willhave to keep in mind the position of the
company as a whole and the interests of the
shareholders and see that they do not suffer
in a fight for power that ensues between two
groups.”
16. It is, thus, clear from the observations of the
Supreme Court
quoted above that when the court is
considering the question whether it is appropriate to
make an order for winding up of the company, because
it is just and equitable to wind up the company, the
court has to take into consideration the position of
the company as a whole and it has to keep in mind the
interest of all the shareholders of the company. In
other words, when the court is considering a petition
seeking an order for winding up of a company on just
and equitable ground, the court cannot shut its eye
to the material brought before it and exclude that
material from consideration only because there are no
averments in the petition in that regard. No doubt,
while taking the material which has come on record
into consideration the court will have to see that
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the company against whom the material is to be used
is given an opportunity to submits its point of view
in relation to that material. In so far as the
present petition is concerned, the material that has
been placed on record and which is relevant for
making an order for winding up of the company on just
and equitable ground has come from the company
itself. There is also no complaint that the company
was not given an opportunity to submits its point of
view in relation to the material. In our opinion,
therefore, the
learned single Judge was perfectly
justified in considering the entire material. It is
the case of the Appellant company itself that the
company was incorporated in the year 1982, and its
authorised share capital was only Rs.3 lakh. There
is no material on record to show that before
purchasing the Worli property in March, 1994, the
company had carried on any business of construction
of building. It is, thus, clear from the record that
the only tangible assets of the company is the Worli
property, for which the company had paid an amount of
Rs.21.75 crores to the income-tax department. The
admitted position is that despite expiry of 25 years,
even the title to this property is not acquired by
the company. In 1998, the Appellant company itself
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has addressed a letter to the Finance Minister dated
10-6-1998. In that letter, it was claimed on behalf
of the company that there is an ab-initio difficulty
in the title of the property, and therefore, it was
stated “In the circumstances stated above, we are no
more interested in the plot purchased by us. You are
requested to personally look into the matter and
direct the Income-tax authority to refund the
principal amount together with interest at the very
early date.”
17. This letter has been placed on record by the
Appellant-company itself along with the affidavit of
Mr.K.K.Motwani dated 16-11-2006. There is nothing on
record to show that this request made by the company
for return of the property to the Income-tax
Department has at any time been withdrawn by the
company. It is the case of the Appellant-company
itself that the amounts were advanced by the
Petitioners in these two company petitions for the
development of the Worli property, because they
wanted to participate in the profits that would be
made on development of the Worli property. Now, if
it is the case of the Appellant-company itself that
it is in no position to develop the property because
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there is an ab-initio difficulty in the title to the
property and that it is claiming refund of money paid
to the Income-tax Department, in our opinion, it is
safe to assume that the substratum of the company
itself would disappear, and therefore, in our
opinion, no fault can be found with the conclusion
reached by the learned single Judge that the company
is liable to be wound up on just and equitable
ground. We find that the learned single Judge was
perfectly justified in recording a finding that there
is
variance of stand taken by the Appellant-company
from time to time and the position that is revealed
by the audited balance sheet of the company. The
learned single Judge has referred to the affidavit
dated 7-3-2007 filed on behalf of the Appellant
company in Company Petition No.171 of 2000 and has
observed that in that affidavit a statement was made
that five persons have advanced money for purchase of
the flats. However, the balance sheet of the company
shows that 10 persons had advanced amounts for
purchase of flats. It is further to be seen here
that the learned single Judge has noted that in the
balance sheet a sum of Rs.6,35,30,972/- was shown as
advance towards allotment of the flat made by one
Mr.Lal M. Daryanani. Mr.Motwani in the affidavit
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filed in this court admitted that out of the amount
of Rs.6,35,30,972/- only a sum of Rs.1,24,00,000/-
was the advance received towards allotment of flat.
The balance amount of Rs.5,11,30,972/- was brought
into the company as Motwani’s contribution towards
the project. Similarly, the amount of
Rs.1,24,00,000/- was shown in the balance sheet as
advance paid by Mr.K.K.Motwani towards the allotment
of the flat. But it was stated on affidavit that it
was actually Mr.K.K.Motwani’s contribution towards
the project
under the agreement dated 28-3-1994.
After having gone through the record carefully we
find that the learned single Judge was perfectly
justified in holding that the company has been
maintaining false record and fabricating the records.
The managing director of the company was courageous
enough to file an affidavit stating that what is
shown in the balance sheet of the company is not
correct without giving any explanation how income
statement came to be made in the balance sheet, and
still the company argued before us that it was not
just and equitable to wind up the company. We find
that there is substance in the submission made on
behalf of the Petitioners in the company petition,
that the records were fabricated by the company to
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show that substantial amounts were received from the
flat purchasers, when no such amounts were actually
received, so as to deny payment to the persons who
have advanced loans to the company.
Taking overall view of the matter, in our opinion, no
exception can be taken to the order of the learned
single Judge directing winding up of the company on
the ground that it is just and equitable to wind up
the company.
18. Now, taking up the other ground on which the
winding up of the Appellant company has been ordered,
namely inability of the company to pay its debts,
there is no dispute between the parties that the
amounts have been received from the Petitioners in
both the company petitions by the Appellant company.
It is not in dispute that interest at the rate of 18%
p.a. was payable on those amounts. There is also no
dispute that so far as the Petitioner Kunal is
concerned, a part of principal and interest for some
time has been paid by the company to that Petitioner.
It is also not in dispute that interest on the amount
advanced by the Petitioner Tarachand was also paid to
him by the Appellant-company. The sole defence of
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the company in this regard is that what was advanced
by the Petitioners in both the company petitions was
not loan, but it was their contribution as share
holders of the company for the development of the
Worli property and for that purpose reliance was
placed on the agreement dated 28-5-1994, the
resolution of the company etc. But the company has
not given any explanation as to why in the letter
dated 7-6-1994 addressed to the Petitioner-Kunal it
is stated that an amount of Rs.39,40,000/- is being
paid “towards
refund of loan” and why in the same
letter it is stated that an amount of Rs.9,31,707/-
is being paid by the Appellant-company to the
Petitioner Kunal “on your loan amount upto
31-5-1994”. It is also not explained as to why in
the letter dated 27th March, 1996 addressed by the
Appellant-company to the Petitioner Kunal it is
stated
“Re: Payment of interest on your loan account
with us.
This is to inform you that a sum of
Rs.2,25,11,451/- was outstanding in our
books of accounts as a credit to your
loan account with us as on 1/4/1995.”
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In the same letter it is further stated “The net
interest amount of Rs.36,46,855/- has been credited
to your loan account and the outstanding loan amount
as on 31/3/1996 stands at Rs.2,61,58,306/-“. The
Appellant-company has also not explained as to why in
its letter dated 27-3-1996 addressed to the
Petitioner-Tarachand it states:
“Re: Payment of interest on your loan account
with us.
This is to inform you that a sum of
Rs.3,47,83,435/- was outstanding in our
books of accounts as a credit to your
loan account with us as on 1.4.1995.”
19. What is further pertinent to be noted is that in
the balance sheet of the year ending with 31st March,
1997 the names of both the Petitioners are shown
under the column “unsecured loans”. The same is the
position with the balance sheet ending with 31st
March, 1998. In the face of these documents and no
explanation is being offered by the Appellant-company
as to why when the amount advanced by the Petitioners
towards their contribution for the development of the
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property in the balance sheet of the company and in
the letters addressed to these Petitioners was
described as ‘a loan’. In our opinion, therefore, it
is clear that the defence put up by the company about
there being an agreement between three groups is an
after thought and has rightly been discarded by the
learned single Judge. This aspect of the matter has
been considered in detail by the learned single
Judge. After having heard the learned counsel for
both sides at length and after having perused the
record we find
no reason to disagree with the
findings recorded by the learned single Judge on this
aspect of the matter. It was contended before us
that the Petitioners in the company petitions were
given shares at the face value, because they were
contributing monies for development of the property.
Now, they want to keep the shares and they also want
refund of their contribution. When this submission
was advanced, on behalf of the Petitioners a clear
statement was made before us that in case the
Appellant company pays off the debts of the
Petitioners in the company petitions, they are
willing to return their shares to the company or a
such person as may be named by the company. Time was
sought to consider this, but ultimately we were told
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that it is not possible for the company to pay off
the Petitioners in the company petitions. In this
view of the matter, therefore, we find no substance
in the submission made on behalf of the Appellant
company that the Petitioners in the company petitions
want their money to be returned and also want to
retain their shares.
20. It was also contended before us on behalf of the
Appellant company that the learned single Judge
should not
have entertained the petitions, because
the Petitioners have suppressed joint venture
agreement and had not disclosed that agreement in the
petitions. The learned single Judge, in our opinion,
has rightly rejected this contention. The joint
venture agreement which according to the Appellant
has been suppressed by the Petitioners is not signed
by the Petitioners. It was contended that one
Mr.Ramesh Thadani had signed that agreement and that
both the Petitioners in the company petitions are his
nominees. Both the Petitioners have denied this
allegation. There is nothing on record except bare
statement made on behalf of the Appellant-company
supporting such allegation. In our opinion,
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therefore, by no stretch of imagination the
Petitioners in company petitions can be said to be
guilty of suppressing material fact.
21. Taking overall view of the matter, therefore, we
find no substance in these Appeals. They are
dismissed with costs. In view of disposal of
Appeals, Notices of Motion are also disposed of.
22. At the request of the learned Counsel appearing
for the Appellants,
ig the operation of the interim
order which is presently operating is continued for a
period of eight weeks from today. The learned
Counsel for the Appellant states that during this
period the Appellants shall continue to abide by the
statement made by them which has been recorded in
these proceedings. Statement accepted.
(D.K.DESHMUKH, J.)
(A.A.SAYED, J.)
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