COMP/21020/2002 1/20 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY PETITION No. 210 of 2002 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= SATELLITE TELEVISION ASIAN REGION LIMITED. & 1 - Petitioner(s) Versus KUNVAR AJAY DESINER SAREE(P) LTD. - Respondent(s) ========================================================= Appearance : MR CL SONI for Petitioner(s) : 1 - 2. MR SN SOPARKAR with MS VAIBHAVI PARIKH for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.A.PUJ Date : 14/11/2008 ORAL JUDGMENT 1. The petitioner Company, namely, Satellite Television Asian Region Ltd., and Star India COMP/21020/2002 2/20 JUDGMENT Pvt. Ltd., have filed this petition under Sections 433 and 434 of the Companies Act, 1956 for recovery of amount of Rs.19,91,78,218/- being the charges for telecasting Company's commercial on Star channels alongwith interest as well as finance charges of Rs.2,04,72,314/- thereon till 30.11.2002, thus aggregating to Rs.21,96,50,532/-. 2. The brief facts giving rise to the present petition are that the first petitioner is engaged in the business of telecasting entertainment and other programmes and also commercials on various satellite television channels. Star India Private Ltd., the second petitioner is an independent representative in India for procuring the advertisements to be broadcast on Star Channels being run by the first petitioner. The second petitioner accordingly procures instructions for advertisements from advertisers for telecast COMP/21020/2002 3/20 JUDGMENT on Star Channels belonging to the first petitioner. On 25.10.2001 and 24.12.2001, the respondent-Company entered into two agreements with the second petitioner for booking of commercial slots for telecasting its products on Star Channels. As per the agreements, the respondent-Company agreed to pay the invoice amounts within 30 days and in case of delayed payments interest at the rate of 2% p.m.. In pursuance of the above agreements, the respondent-Company's commercials were telecast on Star Channels on selected dates, times and during selected programmes from November 2001 to June 2002. After telecast of the advertisements, the second petitioner raised invoices from time to time for total amounts of Rs.19,91,78,218/-. 3. In June 2002 the respondent-Company issued post-dated cheques in favour of the second petitioner towards clearing of outstanding COMP/21020/2002 4/20 JUDGMENT dues, out of which, the first five cheques were honoured, but the next two cheques were dishonoured and the next cheque drawn by the respondent-Company in favour of the second petitioner for Rs.1.10 crores was also dishonoured by the bankers of the respondent- Company in June 2002. 4. After filing of the criminal complaint by the second petitioner against the respondent- Company under Section 138 of the Negotiable Instruments Act, 1881, a Director of the respondent-Company had a meeting with the second petitioner on 14.8.2002, at which the respondent-Company agreed to pay a sum of Rs.19.87 crores in full and final settlement of its dues in respect of advertisements telecast on Star network upto June 2002. This was also recorded in the letter dated 19.8.2002 (Annexure-D to company petition). On 2.9.2002, the Director of the respondent- Company had another meeting with the second COMP/21020/2002 5/20 JUDGMENT petitioner and while confirming that a sum of Rs.19.87 crores was owed by the respondent- Company to the second petitioner in respect of advertisements telecast upto 30.6.2002, the payment schedule was revised as under :- (a) Rs.4 crores to be paid by 31.12.2002; (b) Rs.15 crores to be paid by 20 equal monthly installments of Rs.75 lakhs each commencing from September 2002; (c) The final installment would be of Rs.87 lakhs and odd amount; 5. This revised payment schedule as indicated at the meeting on 2.9.2002 was incorporated in the respondent-Company's letter dated 3.9.2002 (Annexure-E to the petition) to the second petitioner. However, on 27.9.2002 (Annexure-F to the petition), the respondent- Company informed the second petitioner that due to financial problem as well as dull market we are unable to pay Rs.75 lakhs in September month for which we will give you Rs.One Crore each (75 Lakhs + 25 Lakhs) for COMP/21020/2002 6/20 JUDGMENT the months October, November & December 2002. Towards the above liability, the respondent- Company sent demand drafts aggregating to Rs.25 lakhs along with the letter dated 16.10.2002 (Annexure-G to the petition). While sending these drafts of Rs.25 lakhs, the respondent-Company stated in the said letter that, the balance of Rs.75 lakhs will be cleared before the end of this month (October 2002) as mentioned in the letter dated 27.9.2002. 6. As the respondent-Company did not release the balance payment, the second petitioner sent a statutory notice dated 18.10.2002 to the respondent-Company under Section 434 of the Companies Act, 1956 calling upon the respondent-Company to pay Rs.20.25 crores including Rs.19.87 crores being the outstanding dues and Rs.37 lakhs and odd amount being the interest accrued thereon upto 30.9.2002. The notice stated that in COMP/21020/2002 7/20 JUDGMENT case of the respondent-Company's failure to pay the said amount within 21 days from the date of receipt of the notice, the second petitioner shall file a winding up petition against the respondent-Company. The above notice was received by the respondent-Company on 21.10.2002, but it neither complied with nor replied to the said notice. Therefore, the petitioners filed the winding up petition on 20.11.2002. This petition came up for preliminary hearing on 25.11.2002 before this Court and notice was issued making it returnable on 17.12.2002. On 14.12.2002, Advocates of the petitioner issued a public notice in two Gujarat newspapers. Being aggrieved by the said public notice, the respondent-Company filed Company Application No.407 of 2002 before this Court contending that even before the hearing of the show cause notice issued on the company petition, the petitioners published a notice of winding up of the respondent-Company in the COMP/21020/2002 8/20 JUDGMENT newspapers without directions of the Company Court. Therefore, besides harming reputation of the respondent-Company it amounted to abuse of the process of the Court requiring summary dismissal of the company petition with exemplary costs. The petitioners resisted the application by filing reply pointing out that Mr Suresh Chand Agarwal, Managing Director of the respondent-Company had a long meeting with the second petitioner on 03.12.2002 when the representatives of other advertising agencies and TV channels were also present. During the said meeting, it was stated by the said Director that they were expecting loans from the banks and financial institutions against mortgage of the Company's assets. The petitioners, therefore, deemed it necessary to inform the members of the public about the claim of the petitioners against the respondent-Company so that the future multiple legal proceedings can be avoided and, therefore, with a COMP/21020/2002 9/20 JUDGMENT bonafide and genuine intention, the petitioners issued the above public notice dated 14.12.2002 in two Gujarati newspapers. It was submitted that the notice was informative and cautionary in nature, that the respondent-Company had admitted its liability and thereafter failed to discharge the same and was also facing proceedings under Section 138 of the Negotiable Instruments Act and, therefore, there was no defamation of the respondent-Company. It was also submitted that reference to the winding up petition was not a notice of winding up, as alleged. 7. After hearing the learned counsel for the parties, the learned Company Judge by judgment dated 25.4.2003 dismissed the winding up petition on the ground that the advertisement dated 14.12.2002 was an abuse of the process of the Court. Being aggrieved by this order of the learned COMP/21020/2002 10/20 JUDGMENT Company Judge the petitioners filed OJ Appeal No.51 of 2003. This OJ Appeal was allowed by the Division Bench of this Court vide its order dated 5.9.2007 and it was held in that order that it cannot be said on the basis of the material of the Company Petition that the petitioners, petitioning creditors had any groundless or baseless claim or that the winding up petition was filed to coerce the Company into admitting the groundless claim. In fact, the respondent Company had already admitted the claim of the petitioner, petitioning creditors to the tune of Rs.19.87 Crores in their correspondence prior to the statutory notice. The Division Bench has, thereafter, restored the Company Petition No.210 of 2002 to the file of the learned Company Judge and directed to proceed to hear and decide the said Company petition at the admission stage on merits as expeditiously as possible after giving one opportunity to the respondent Company to file its affidavit-in- COMP/21020/2002 11/20 JUDGMENT reply 8. After this restoration, the Company Petition was placed for hearing on 20.9.2007 and this Court observed that without prejudice to the rights as may be available to the respondent Company, for carrying the matter before the higher forum the respondent Company may file the affidavit on merits, if it so chooses latest by 17.10.2007. On the contrary, it was stated before the Court on that day that the respondent company has challenged the order of the Division Bench passed in OJ Appeal No51 of 2003 on 5.9.2007, before Hon'ble Supreme Court in SLP (Civil) No.3465 of 2007 and the said SLP was dismissed by the Hon'ble Supreme Court. 9. In the above view of the matter and in absence of affidavit-in-reply filed by the respondent Company and since the debts of the petitioners have not been disputed, this COMP/21020/2002 12/20 JUDGMENT Court has passed an order of admission of advertisement on 4.4.2008. The petitioner was directed to issue public advertisement in all editions of 'Times of India' and 'Navbharat Times' and as far as State of Gujarat is concerned, all editions of 'Gujarat Samachar' publication of advertisement in Official Gazette is dispensed with. 10. Pursuant to the above order of admission and advertisement, the advertisement of the Company Petition, in the prescribed format was published by the petitioner No.2 in the following newspapers on the following dates. Newspaper Edition Publication Date Times of India Delhi 18th April, 2008 Times of India Mumbai 18th April, 2008 Timex of India Kolkata 18th April, 2008 Timex of India Hyderabad 18th April, 2008 Timex of India Banglore, Mysore 18th April, 2008 Timex of India Ahmedabad, Surat 18th April, 2008 Timex of India Lucknow 18th April, 2008 Timex of India Pune 18th April, 2008 Timex of India Chandigarh 18th April, 2008 Timex of India Chennai 18th April, 2008 Timex of India Mangalore 18th April, 2008 Timex of India Nagpur 18th April, 2008 Navbharat Times Delhi 18th April, 2008 COMP/21020/2002 13/20 JUDGMENT Newspaper Edition Publication Date Navbharat Times Mumbai 18th April, 2008 Gujarat Samachar Ahmedabad 18th April, 2008 Gujarat Samachar Baroda 18th April, 2008 Gujarat Samachar Bhavnagar 18th April, 2008 Gujarat Samachar Surat 18th April, 2008 Gujarat Samachar Rajkot 18th April, 2008 11. Pursuant to the aforesaid advertisement, one Mr.Ram Niwas Hukam Chand Gupta filed his objections dated 28.4.2008, wherein it is stated that Mr.Suresh Agarwal, Mrs. Anju Suresh Agarwal, Mr. Subhash Agarawl and Mr. J.P.Agarwal are owners of group companies, namely, (a) Kunwar Ajay Designer Sarees Pvt. Ltd., (b) Kunwar Ajay Foods Pvt. Ltd., (c) Poonam Industries Ltd., (d) Bharatiya Silk Trading Co., (e) Hindustan Silk Trading Co., etc. They were managing the day-to-day affairs of these companies through board of directors. They committed serious financial irregularities of criminal nature misappropriating and diverting large funds for their personal interest resulting into these companies going out of business/market COMP/21020/2002 14/20 JUDGMENT at the cost of unsecured creditors of large amounts. The secured creditors (banks and financial institutions) took physical possession of the mortgaged properties and hypothecated moveable assets. For the deficit, they filed suits in the Court for the remaining unsecured outstandings. The worst affected in this process were the unsecured creditors of huge amount. Most of them have taken legal recourse and some have filed criminal cases against the company and the owner directors. 12. It is further stated in the objection letter that the Directors of these Companies, after the Company Petition No.210 of 2002 was filed before this Court, started disposing of the assets of the various Companies, namely, Kunwar Ajay Designer Sarees Pvt. Ltd. In this process, Mr. Suresh Agarwal sold two trade marks, namely, “Dandi Namak” and “Friendly Wash Detergent” through agreement COMP/21020/2002 15/20 JUDGMENT for assignment dated 10.1.2002 for whopping consideration of Rs.10.75 crores to one M/s. Pinky Advertising Co. Pvt. Ltd., Mumbai. As per this agreement, Mr. Suresh Agarwal was indebted to this company to the extent of Rs.10.75 crores and he assigned these trade marks in full satisfaction of his debts. This agreement for assignment of trade mark was at the cost of unsecured creditors, who did not get even a panny out of it. This money should have been available for equitable distribution amongst unsecured creditors. 13. It is further stated in the said objection letter that his business firms supplied sarees to this group companies including Poonam Industries Ltd., to the tune of Rs.6,82,690/- and Kunwar Ajay Designer Sarees Pvt. Ltd., to the tune of Rs.4,69,224/-. Due to non receipt of payment from them, he filed criminal complaint No.31/2003 dated 6.12.2003 COMP/21020/2002 16/20 JUDGMENT before the Judicial Magistrate First Class, Surat, who passed an order dated 9.12.2003 directing Salabatpura Police Station for investigation and submission of report. The Salabatpura Police Station submitted its report No.2492/2004 dated 10.8.2004 to the Judicial Magistrate First Class, Surat mentioning therein that an offence has been registered being 1st Crime Register No.70/2004 under Sections 406, 409, 420 and 120B of the I.P.C. on 1.4.2004. The investigation report mentions that these directors were involved in a cheating to the tune of Rs.1.80 crores. Warrants were obtained against all the four accused. All the said four accused are absconding. The Judicial Magistrate First Class, Surat, therefore directed in his order dated 29.9.2004 that a public notice under Sub Sections 1 & 2 of Section 82 of the Criminal Procedure Code be published in the local newspaper and the accused be directed to remain present before him on 23.11.2004. COMP/21020/2002 17/20 JUDGMENT From this, it is clear that the Directors of the Company are absconding till date. Under the apprehension that if the company is ordered to be wound up its directors would be absolved from their criminal liability and hence the objection was raised against the winding up of the Company. This observation is, however, unfounded as the winding up of the company would not absolve the directors from their criminal liability. 14. Except the above letter no one has come forward to oppose the winding up petition. The facts are so glaring that it hardly desists the Court from passing the winding up order. There is no dispute about the outstanding liability of the Company. The respondent Company is not only indebted to the petitioner but there are several other creditors secured as well as unsecured. The directors of the respondent Company are absconding. Even they have not come forward COMP/21020/2002 18/20 JUDGMENT to file an affidavit in reply to the present petition. Several criminal complaints are also pending against the Directors of the respondent Company. Instances were cited showing that during the pendency of the petition assets of the company were sold out. If the company is allowed to continue nothing remains thereafter and hence it is a fit case to pass the winding up order. Mr. S.N.Soparkar, learned Senior Counsel appearing with Ms. Vaibhavi Parikh, for the respondent Company could not convince the Court that the winding up order should not be passed at this stage. There is nothing on record to suggest that the Company is in position to discharge its financial liabilities. 15. Considering the overall facts and circumstances of the case and celebrated principles of law applicable to the winding up proceedings, the Court hereby holds that COMP/21020/2002 19/20 JUDGMENT the respondent Company be wound up forthwith and the Official Liquidator attached to this Court is appointed as the Liquidator of the Company. He is hereby directed to take charge of all the assets and properties of the Company in liquidation after giving intimation to the directors of the Company as well as to the secured creditors, before taking possession of the assets of the Company in Liquidation or at the time of taking possession of the properties of the Company in liquidation. The Official Liquidator shall take the inventory of the assets, if any, with the help of the approved valuer and apply his seal over the properties of the Company in liquidation. He is further directed to issue notice to the Directors under Section 454 of the Companies Act, 1956 for filing Statement of Affairs, immediately after the statutory period is over. The Official Liquidator is further directed to file a detailed exhaustive compliance report COMP/21020/2002 20/20 JUDGMENT before this Court within three months from today. 16. Subject to the aforesaid direction and observation this petition is accordingly disposed off. (K. A. PUJ, J.) kks