- 1 - 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 ... 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 - 2 - ... 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. 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. - 3 - 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 - 4 - 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 - 5 - 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 - 6 - 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 - 7 - 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 - 8 - 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 - 9 - 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/-. - 10 - 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 - 11 - 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 - 12 - 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 - 13 - 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, - 14 - 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 - 15 - 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 - 16 - 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 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 - 17 - 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 - 18 - 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 - 19 - 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 - 20 - 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 - 21 - 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. 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