IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.726 OF 1998 COMPANY PETITION NO.726 OF 1998 COMPANY PETITION NO.726 OF 1998 In the matter of Section 439 of the Companies Act, 1956 ; And In the matter of Motwani Builders Pvt.Ltd., having their registered office at 501, Tulsiani Chambers, Nariman Point, Mumbai-21. M/s.Kunal & Co. ) ) a partnership firm duly registered) under the provisions of the Indian) Partnership Act, carrying on ) business at 66, Mittal Tower, 210,) Nariman Point, Mumbai-400 021. )..Petitioner A N D COMPANY PETITION NO.171 OF 2000 COMPANY PETITION NO.171 OF 2000 COMPANY PETITION NO.171 OF 2000 In the matter of Section 439 of the Companies Act, 1956 ; And In the matter of Motwani Builders Pvt.Ltd., having their registered office at 501, Tulsiani Chambers, Nariman Point, Mumbai-21. Shri Tarachand H.Khanchandani ) ) of Bombay Indian Inhabitant ) residing at Rajni Gandha Building ) 3rd Floor, Talmiky Road, Santacruz) (West), Mumbai-400 054 )..Petitioner ---- Mr.B.K.Bali with Ms.Payal Kotwani i/by M/s.Thakkar & Bali for the petitioners. Shri Doctor, Sr.Counsel with J.P.Sen i/by F.Rashmikant for respondents. : 2 : Shri P.N.Vora i/by Pramodkumar & Co. for the petitioner in C.P.No.171/2000. Mr.J.P.Sen with Mr.S.H.Doctor i/by M/s.F.& Rashmikant & Co. for respondents. ---- Coram : R.S.Mohite,J Coram : R.S.Mohite,J Coram : R.S.Mohite,J Date : 29.06.2007. Judgment :- Judgment :- Judgment :- 1. Since both these Company Petitions arise out of the same set of facts and seek winding up of the same Company i.e. Motwani Builders Pvt.Ltd., (hereinafter referred to as the ‘Company’) both are being disposed off by this common judgment and order. 2. The relevant facts and events pertaining to Company Petition No.726 of 1998 are as under :- (a) The petition was filed by the petitioner M/s.Kunal & Co. which is a registered partnership firm (hereinafter referred to as ‘Kunal’) on 3rd September 1998 seeking the winding up of the Company and the appointment of the Official Liquidator as Liquidator of the Company. In the petition, it was averred that the Company was incorporated on 17.2.1982 under the Companies Act, 1956 as a private company, limited by shares. The registered office : 3 : 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 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 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 to the Company alongwith interest due at the rate of 18% p.a. with quarterly rests as per an agreement and in accordance with the particulars of claim annexed and marked at Exhibit-A to the petition. (b) It was averred in the petition that in or about March-1994 the Company through its Director and a Shareholder Mr.K.K.Motwani approached the petitioner 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 Company was to purchase a property situated at Worli for development in an auction sale : 4 : for a consideration of Rs.21,75,00,000/-. The Company agreed to pay interest at the rate of 18% p.a. with quarterely rests on the amount which may be lent and advanced. The petitioner therefore, lent and advanced to the Company an amount aggregating to Rs.3,54,51,000/- during the period between February to March-1994. This amount lent by the petitioner was duly received by the Company and the Company agreed to repay the same alongwith interest thereon at the rate of 18% p.a. with quarterely rests. (c) The company thereafter, alongwith its forwarding letter dated 7.6.1994 sent to the petitioner 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. A copy of the said letter dated 7.6.1994 was annexed at Exhibit-B to the petition. (d) The 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 interest due on the amount of the loan upto 31.12.1994. The company thereafter failed to pay the balance amount of the loan or the interest : 5 : due thereon to the petitioner. 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 for the years ended 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. That in the circumstances, a sum of Rs.3,64,22,825/- remained due and payable by the Company to the petitioner 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. (e) It was averred that the Company had admitted and acknowledged its liability to the petitioner and also confirmed the correctness of the amounts due to the petitioner by executing confirmation of the accounts as on 31.3.1995, a copy of which confirmation was annexed at Exhibit-C to the petition. 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, a copy of which was annexed at Exhibit-D to the petition. The company has also confirmed the correctness of the balance due to the petitioner as on 30.9.1996 by executing a confirmation of the accounts, a copy of which was annexed at Exhibit-E to the petition. Lastly, the company had further admitted and acknowledged its : 6 : liability to the petitioner 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 no dispute whatsoever about the liability of the Company to the petitioner. (f) That since the Company failed and neglected to make payment to the petitioner after February-1995 either towards repayment of the principal or the interest due, the petitioner 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. 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 or to respond to the said letter. In the circumstances, a 2nd letter addressed by the Advocate for the petitioner dated 24.8.1998, recorded these facts and notified that the petitioner was proceeding with the filing of the winding up petition. The company however, failed and neglected to pay the amount due to the petitioner or any part thereof. The aforesaid letters dated 20.7.1998 and 24.8.1998 were annexed at Exhibit-F1 and Exhibit-F2 to the petition. A contention was thus raised in the petition that the Company was unable to pay its debts and was : 7 : therefore liable to be wound up under the provisions of the Companies Act. (g) It was then averred in the petition that the petitioner 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 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 had however, till date, not received any notice from the Company about the Annual General Meeting, if any, held by it. The petitioner 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 Company. In the circumstances, the petitioner had lost confidence in the present management of the Company and was therefore, entitled to seek winding up of the Company. The petitioner averred that it was therefore, just and equitable to wind up the Company in the interest of its creditors and shareholders. The petitioner sought interim relief of appointment of the Official Liquidator as a provisional liquidator so as to preserve and protect the assets of the Company. (h) that after filing of the petition and the service of the same upon the Company, an : 8 : 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 Company that the petition filed by the petitioner was malafide, induced by ulterior motive and was an abuse of the process of the Court. The petitioner had deliberately suppressed true facts, papers and documents on record with a view to seeking quick remedy in an inappropriate forum. The Company’s relation with the petitioner was not that of borrower and lender. The petitioner entered into a business deal as one of the nominees of Shri Ramesh T.Khanchandani in pursuance of the agreement dated 28.3.1994 entered into between (i) Shri K.K.Motwani, the deponent herein, (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 : 9 : a successful bid at a price of Rs.21,75,00,000/-. 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 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. A copy of this agreement dated 28.3.1994 was annexed at Exhibit-A to the reply. It was contended that paragraph-2 of : 10 : 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 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 the Company thereon. It was submitted that the petitioner 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 : 11 : petitioner 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. (i) It was contended that the Worli project could not take of because of various objections raised from time to time by local government authorities. Initially objection was raised against sanctioning of the plans due to Coastal Zone Regulations. It took nearly 2 years to resolve this problem and it was resolved only after the Chief Commissioner (Investment & NRIs) New Delhi intervened in a complaint made by the Indian Chamber of Commerce, Hongkong. Later, the Municipal Corporation of Gr.Mumbai (MCGM) raised another objection that the : 12 : plot of land at Worli, Mumbai, was given on lease by them to R.M.D.C. Press (P) Ltd., and that the same belonged to them. That according to the Corporation the appropriate authority of the income tax department which acquired the said plot from the said R.M.D.C. Press (P) Ltd., under the premptive provisions of the Income tax Act was required to pay to the Corporation premium at 7% of the purchase price of Rs.21.75 crores which, as per the Corporation’s calculations would amount to Rs.1.52 crores. The appropriate authority of the income tax department as per its letter dated 2.9.1997 addressed to the Joint Municipal Commissioner, vide para-10 thereof, contested this claim. A copy of this letter was annexed at Exhibit-B to the reply. That this dispute was between the Corporation and the income tax department and that the Company did not directly come into the picture. However, the plot was purchased from the Central Government in public auction, the Company had always felt assured about the clear marketable title of the said land. The terms of auction sale did not contain any condition about the premium payable to the Corporation and therefore, the Company was not liable to be fastened with any such unknown and undeclared liabilities. That the dispute between the Corporation and the income tax department remained unresolved till the date of the filing of the reply. : 13 : (j) That as a result of undue delay in having the land conveyed to the 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 Company was expecting a disposal of its complaint with the Finance Minister within next 3 to 4 months. A copy of this representation dated 10.6.1998 alongwith its annexures was annexed at Exhibit-C to the reply. (k) It was contended that the 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, Mumbai. The petitioner as a nominee of Shri Ramesh T.Khanchandani group was duly bound to repay to the Company the amount paid to it in advance by way of interest against the final profits of the project to enable the Company to return the deposits of the prospective flat owners. : 14 : That the Directors’ reports from time to time had dwelt upon all the problems, obstacles, hurdles, hassles and issues encountered by the Company and the petitioner was well aware of the same. That the petitioner 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. (l) It was contended that the petitioner’s claim for the payment of interest only to the petitioner in preference to the depositors and lenders of other groups as also Shri Ramesh T.Khanchandani himself to whose group the petitioner 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 : 15 : 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 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 interest 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 was resolved and the land was duly conveyed to the Company. That the 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 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 was a device to pressurise the Company to submit to an unjust claim and that this Court was not the forum for resolving various complex and : 16 : complicated questions like the nature of contributions by the participants, adjustment of interest against future 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 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 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. (m) 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 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 : 17 : resulted in exparte acceptance of the petition by this Court. (n) 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 petitioner as held out by it. It was denied that the petitioner was not given copies of annual accounts, directors’ and auditors’ 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 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 even in the interest of the petitioner itself. On behalf of the Company, leave was sought to file an additional : 18 : 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. It was therefore, prayed that the petition of the petitioner was not liable to be admitted and deserved to be dismissed in limine with costs. (o) 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 Company had admitted that monies were due and payable to the petitioner but had raised a false and bogus story contrary to the documents on record and that the defence was an after-thought. Neither Kunal nor the Company were a party to the alleged agreement or arrangement. The alleged agreement or arrangement was not binding on the petitioner and could not in any manner affect the liability of the Company to Kunal. That the issues raised were not irrelevant and it was not a case of disputed liability. It was denied that the petition was malafide. It was denied that the petitioner has deliberately suppressed