Case: In Re: Rushabh Precision Bearings Limited Vs.

The statutory notice dated September 22, 1997 has been served on the Company. In reply by letter of October 24, 1997 the Company stated that the demand as made was not tenable and contended that there were serious disputes. It was further set out that the conduct of the petitioners was malicious and vexatious. The interest and charges was also disputed. It is contended that the petitioners received excess payments by way of interest. It was further pointed out that the Company could cancel the transactions entered into by the Directors which were detrimental to the business interests of the Company and its shareholders. Lastly it is contended that there was a bona fide dispute. It is further averred that the Company is liable to pay the amounts decided by the Competent Court or by mutual negotiations.The case of the petitioners is that the Company had approached the petitioners for deposits and at the request of the Company the petitioners lent and advanced working capital between 5th December, 1995 to 23rd October, 1996 as intercorporate deposit totalling to Rs.To secure due repayment the Company issued 8 postdated cheques. In the meantime the Company approached the petitioners for renewing the deposits as the Company was not in a position to repay the amounts on maturity. At the request of the Company the petitioners agreed to further renew the deposit totalling Rs. 2,30,00,000/on the Company executing fresh sets of security documents. Towards the various amounts which were renewed the petitioners were secured by the followingDemand Promissory Note.(ii) Postdated cheques for the same.(iii) Intercorporate Deposit Receipt.(iv) Letters of assurance.The various dates are not being referred to as they differ from deposit to deposit. The various amounts and their renewal are set out in paragraph 10(a) and 10(h) of the petition. By separate letters the Company agreed to pay interest at the rate of 22.5% per annum and had in fact paid interest at the said rate.

Reasoning:
3. At the outset I may point out that in so far as the petition for winding up on the ground that the contingent and prospective liabilities of the Company are more than its assets or net worth must be rejected. Apart from the averments in para 19 there is no other material placed in support thereof. In fact in para 5 of the petition, the petitioners themselves have pointed out that the issue and subscribed share capital of the Company is Rs. 15.00 crores. In that light of the matter I do not propose to consider the petition for winding up.At the outset I may point out that in so far as the petition for winding up on the ground that the contingent and prospective liabilities of the Company are more than its assets or net worth must be rejected. Apart from the averments in para 19 there is no other material placed in support thereof. In fact in para 5 of the petition, the petitioners themselves have pointed out that the issue and subscribed share capital of the Company is Rs. 15.00 crores. In that light of the matter I do not propose to consider the petition for winding up.The first contention is that these are all group transactions by various companies of the petitioners and sister companies having advanced various amounts to the petitioners. That may be true. However, the fact remains that in so far as the petitioners are concerned, the petitioners have advanced to the Company an amount of Rs. 2,30,00,000/as set out therein and it has been renewed from time to time. The fact that the other sister companies may have made payments can be no answer in so far as the petitioners are concerned. The petitioner is a legal entity. The Company must show that it has secured and/or paid to the petitioners herein the amounts claimed. If it has paid excess amounts to the said sister companies the Company can seek relief against those sister companies. It can be no answer in so far as the claim of the present petitioner is concerned. Hence, that contention must be rejected.5. The second contention is that on the date of the statutory notice there was no cause of action. The petitioners in the petition have pleaded and set out that intercorporate deposit was first effected by payment of various amounts from 5th December, 1995 to 23rd October, 1996. These have been renewed from time to time. Against the renewal the Company has secured the petitioners by separate documents in the form of promissory notes, intercorporate depositcheques and letter of assurance. Apart from that the leave and license agreement itself evidence the fact that the petitioners had advanced moneys to the Company. Therefore, on the date of the statutory notice the Company was due and owing moneys to the petitioners. The contention that there was no cause of action must consequently also be rejected.6. The third contention has been suppression of material facts. I am unimpressed by the said contention. The petitioners in their petition have set out various details. The omission to point out some transactions cannot make it a case of suppression of material facts. At any rate in a case under section 434(1)(a) all that the petitioner must establish is that the Company is indebted to the petitioners in an amount of over Rs.This the petitioners have established. That contention of the respondent must also be rejected.7. The fourth contention is that the petition was based on the unstamped promissory notes and receipts and as such could not have been taken in evidence by any Court. I need not refer to the authorities relied upon as I propose to accept the said contention that the promissory notes which were not properly stamped or the receipts which were not stamped could not have been tendered in evidence. The petition, however, is not based on the promissory notes or the receipts alone. They were merely collateral securities and as such even if such documents are excluded the petitioners have independently been able to show that the amounts were advanced and secured by the Company. Hence, the said contention is rejected.8. The fifth contention is that the amounts were secured by way of leave and licence agreement. A reading of the agreement itself shows that the agreements were entered into as a collateral security. That security was for the due repayment of the loan by the Company to the petitioners. Even otherwise in para 12 of the petition the petitioners have pointed out that the agreements were never acted upon. It is no doubt true that the Company contended that the Power of Attorney had been given in favour of the petitioners by the persons with whom the leave and licence agreement had been entered into. Even assuming that such a Power of Attorney had been granted no permission of the landlord has been obtained till date. Hence, it cannot be a security for due repayment of the loan. The agreements do not show as was sought to be contended on behalf of the Company that the debts have been transferred to the account of the persons whose names were shown in the agreements. That contention also deserves to behad initially found favour with the said argument when the judgment was dictated on that day. However, in the other petition which was being argued Counsel therein brought to my notice additional material including the meaning of "incorporated by Act" of Parliament as set out in Strouds Judicial Dictionary, 4th Edition. Reference, therefore, needs to be made to that meaning, which reads as under:"A Company "incorporated by the Act of Parliament" means one which "by" an Act is brought into existence does and not include a Company incorporated "under" anmy mind there is merit in that submission. Looking at the definition clauses wherein reference is made to a Company as defined under the Companies Act, the exclusion of deposit in a Company, a loan by an Insurance Corporation or by a bank it is clear what the Legislature had in mind while introducing section 2(9)(ee) were those Corporations or Companies incorporated by annaturally is for the purpose to show that the advance was made on the basis of an negotiable instrument. A cheque would be a negotiable instrument. From a consideration of the above it will therefore, be clear that though the petitioners would not be excluded by section 2(9)(ee) yet the transaction would be excluded by virtue of section 2(9)(a) and/or 2(9)(f). There is also no material on record that the petitioners are regularly carrying on business ofIn other words there is no regularity, there is no continuity and there is no notion of system of repetition. Reference may now be made to paragraphs. It can be seen from the said paragraph that it is not the primary object of the Company to carry on business of money lending. The said transaction would, therefore, be excluded from the definition of moneylending by virtue of section 2(9)(f). Such an interpretation must also follow to protect thousands of individuals who deposit their life savings with Companies. To my mind, therefore, the said transaction would not be hit by the provisions of Bombay Money Lendersthat case a petition for winding up was filed by a partnership which was. A learned Single Judge of this Court held that the petition was not maintainable as an unregistered partnership could not have filed a suit for recovery of money. Reliance was also placed in the case of (M/s Baba Finance Corporation v. Mohd. Nayeem and another)7, 1997 All.M.R.(Cri.) Journal 1. In that case a Single Judge of the Andhra Pradesh High Court was considering the question on the complaint filed by a money lender doing moneylending business without license. The learned Single Judge I held that the cheque must relate to a debt or liability enforceable in law. I find no difficulty in so also construing section 434(1)(c) to held that a petition for winding up, under section 433(e) read with section 434(1)(a) of the Companies Act would only lie only if the debt was legally recoverable. The fact that the present is a Company petition and under the Bombay Money tenders Act no relief will be granted if the suit is filed would also make the debt unenforceable under the Companies Act. It is no doubt true that a company petition is not a petition for recovery of dues from a Company. Nevertheless to wind up a Company under section 434(1)(a) the amount must be a debt which is legally recoverable. If the recovery itself is barred under section 10 of the Bombay Money Lenders Act, I am of the opinion, therefore, that in such a case the petition filed on the ground that the Company is unable to pay such a debt, would also not be maintainable. A consistent view has been taken that in respect of time barred debts, no petition would be maintainable. This is because a time barred debt is not legally recoverable. The same reasoning must also be adopted in the present case. However, in the instant case as I have held the transaction would be excluded from the definition of "loan" the petition cannot be dismissed on that count.14. My attention has also been invited to the order dated 21st December, 1998 in Company Petition No. 48 of 1998, wherein in respect of the present petitioners an order admitting the petition had been passed against another group Company. I need not go into that aspect of the judgement as independently in the facts of the presents case I have held that the petitioners have established that the Company is justly indebted to the petitioners.