JUDGMENT
1. These are the two sets of Company Appeals. In one set of Company Appeals consisting of Appeal Nos. 1 to 21 of 2003 challenge has been made to the order passed by the Company Judge dated 15-1-2003 allowing all the Company Petitions, namely, 21 in number by winding-up the Company M/s. Incan Mutual Fund Benefit Ltd. under Section 433(e) of the Companies Act. The Official liquidator has also been appointed as Liquidator of the Company. He was directed to proceed immediately to exercise power under Section 457 of the Companies Act, allowing him to take into his custody all the movable and immovable properties, including the cash in custody with the District Magistrate, Rai Bareilly under Section 456(1) of the Act. The official liquidator has been directed to submit the statement of accounts and other necessary statements, within three months, and also to chalk out a plan for repayment of the creditors' dues in a just and reasonable manner. Further direction has been issued that Director, Central Bureau of Investigation and the Additional/Joint Directors, Central Bureau of Investigation stationed at Lucknow shall register a case for investigation and submit the report in accordance with law as the Company Judge found it to be a case of cheating and misappropriation of the public funds with evil designs and further large sums collected on behalf of M/s. Incan Mutual Fund Benefit Limited have been siphoned off by the Directors, by way of loans or otherwise.
2. The other set of Company Appeals challenging the order passed by the Company Judge filed by M/s. Incan Fertilizers and Chemicals Limited, arises out of the order dated 30-7-2003, by means of which permission was granted to the official liquidator to auction the property of M/s, Incan Fertilizers & Chemicals Ltd., which permission was objected by M/s. Incan Mutual Fund Benefit Ltd. on the ground that the said property belongs to M/s. Incan Fertilizers and Chemicals Limited and is not the property of the Company which has been directed to be wound up but the Company Judge allowed the official liquidator to proceed for public auction of the said property.
3. We have been informed that the auction has already taken place.
4. All the Company Petitions which have been allowed by one common order dated 15-1-2003 have been filed by the investors who had invested their money in the Company known as M/s. Incan Mutual Fund Benefit Ltd. and the Company Petition No. 15 of 2003 has been filed by Incan Employees Welfare Association and others, which has been treated as the leading petition by the Company Judge.
5. The winding up petitions have been filed under Section 433(b), (d) (e) and (f) of Companies Act, 1956. The Company petitions as originally framed sought the winding up of the Company known as M/s. Incan Mutual Fund Benefit Ltd. and Incan Group of Companies. Incan Group of Companies is constituted of the following Companies besides Incan Mutual Benefit Limited, Incan Fertilizers and Chemicals Limited, Ratan Micronutrients Limited, Vinayak Trading Pvt. Limited, Incan Construction Limited, Incan Consultancy Services Limited, Deva Investment & Leasing Limited, Incan International Limited and Merit Pharmaceuticals Limited.
6. Challenging the winding up order of Company Judge, the learned counsel for the appellant Sri Umesh Chandra, Senior Advocate, has mainly urged the following grounds :
(a) In view of provisions of Chapter III-B of the Reserve Bank of India Act, 1934, and in particular that of Section 45-Q and 45-MC, the creditors could not have filed the Company Petition under Section 433 as the provisions of this Chapter have got overriding effect as against any other law for the time being in force, wherein Section 45-MC gives the power to file winding up petition to the Reserve Bank of India alone, that too under the grounds given in the aforesaid Section 45-MC.
(b) The creditors namely investors having already approached the Company Law Board seeking payment of their deposits under Section 45-QA and the Company Law Board having approved a scheme for making the payment, neither the winding up petition was maintainable nor winding up could have been ordered as the remedy to such creditors was to get the order of the Company Law Board executed as a decree of Civil Court.
(c) The Company Petition itself was not framed in accordance with Company (Court) Rules, in as much as the affidavit accompanying the petition was not in conformity with Rule 21 of the aforesaid rules; the Company petition was filed against Incan Group of Companies even though no such Company is in existence nor is registered under the Companies Act; and the Incan Fertilizers and Chemicals Limited was not at all impleaded as a party to the Company Petition.
(d) The statutory notice under Section 434 is not a notice either framed in accordance with the statutory provisions nor was addressed or served at the registered office of the Company.
(e) Since the proceedings under Section 186 of the Companies Act were pending before the Company Law Board, therefore, the winding up petition is not maintainable; and
(f) Under the circumstances including the circumstance that under the order of the Company Law Board, a scheme was approved for repayment of the amount to the creditors and for implementing the scheme, effective steps were also taken, the winding up could not have been ordered as other modes were available for making the payment of the debts and winding up should not be resorted to in view of the provisions of Section 443(2) of the Companies Act.
In the appeal No. 23 of 2003 filed by M/s. Incan Fertilizers and Chemicals Ltd., the sole argument of the learned counsel for the appellant is that said Company has not been ordered to be wound up nor was it impleaded in the Company Petition as one of the opposite parties and, therefore, the property and assets belonging to the aforesaid Company cannot be auctioned for the purpose of realization of the debts/dues of the Company which has been ordered to be wound up namely M/s. Incan Mutual Fund Benefit Limited and even if the order of winding up the Company stands, the assets and properties of any other Company including that of M/s. Incan Fertilizers and Chemicals Limited (the appellant), cannot be taken possession of by the official liquidator nor can be auctioned.
7. Section 433 of the Companies Act gives the circumstances in which a Company may be wound up by the Court. A Company may be wound up by the Court on the grounds mentioned from Clauses (a) to (f) of Section 433 which reads as under :
"433. Circumstances in which company may be wound-up by Court.--A company may be wound up by the Court:--
(a) if the company has, by special resolution, resolved that the company be wound up by the Court;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;
(d) if the number of members is reduced, in the case of public company, below seven, and in the case of a private company, below two;
(e) if the company is unable to pay its debts;
(f) if the Court is of opinion that it is just and equitable that the company should be wound up."
In view of the Clause (e) of Section 433, the Company may be wound up by the Court, if the Company is unable to pay its debts and Clause (f) provides that if the Court is of the opinion that it is just and equitable that the Company should be wound up then the same may be wound up under the aforesaid Clause (f) of Section 433.
8. For testing the argument that the winding up petition by the creditors could not have been filed as it was not maintainable in view of the provisions of Chapter III-B of the Reserve Bank of India Act, one has to see the scheme of provisions of Chapter III-B of Reserve Bank of India Act and Chapter II of the Companies Act which chapter deals with winding up of the Company by the Court namely the cases in which the Company may be wound up by the Court.
9. The Reserve Bank of India Act, 1934 (Act No. 2 of 1934) was enacted by the Parliament for constituting the Reserve Bank of India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency any credit system of the country to its advantage. Chapter III-B of the Act, contains the provisions relating to non-banking institutions receiving deposits and financial institutions and the appellant Company is a non banking institution which term has been defined in Section 45-I in the following manner: "non-banking institution" means a company, corporation or co-operative society.
10. Section 45-K invests the Reserve Bank of India with such power to collect information from non-banking institutions as to deposits and to give directions. The Bank at any time can direct any non-banking institution to furnish information asked for and can also issue directions either generally or to any non-banking institution or group of non-banking institutions in particular in respect of any matters relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits as given in Clauses 1, 2 and 3 of Section 45-K. In terms of sub clause (4) of Section 45-K, if any non-banking institution fails to comply with any direction given by the Bank under Sub-section (3), the Bank may prohibit the acceptance of deposits by that non-banking institution. Sub-clause (6) provides that every non-banking organization, if so required by the Bank, shall send the annual balance sheet and profit and loss account or other annual accounts to every person.
11. Section 45-MC gives power to Bank namely the Reserve Bank of India to file winding-up petition and reads as under :
45-MC. Power of Bank to file winding-up petition.--(1) The Bank, on being satisfied that a non-banking financial company,--
(a) is unable to pay its debt; or
(b) has by virtue of the provisions of Section 45-IA become disqualified to carry on the business of a non-banking financial institution; or
(c) has been prohibited by the Bank from receiving deposit by an order and such order has been in force for a period of not less than three months; or
(d) the continuance of the non-banking financial company is detrimental to the public interest or to the interest of depositors of the company;
may file an application for winding up of such non-banking financial company under the Companies Act, 1956 (1 of 1956).
(2) A non-banking financial company shall be deemed to be unable to pay its debt if it has refused or has failed to meet within five working days any lawful demand made at any of its offices or branches and the bank certifies in writing that such company is unable to pay its debt.
(3) A copy of every application made by the bank under Sub-section (1) shall be sent to the Registrar of companies.
(4) All the provisions of the Companies Act, 1956 (1 of 1956) relating to winding-up of a company shall apply to a winding-up proceeding initiated on the application made by the bank under this provision.
Section 45-Q says that Chapter III-B shall override all the laws for the time being in force and reads as under :
"45-Q. Chapter III-B to override other laws.--The provisions of this Chapter shall have effect notwithstanding anything consistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."
12. On the strength of the aforesaid non obstante clause in Section 45-Q, a submission has been made that provisions of winding up of a Company by the Court as given in Section 433 of the Companies Act, would stand abrogated as they stand superseded by virtue of the aforesaid provision of Section 45-Q as against the provisions of Chapter III-B of the Act. According to the appellant, the winding up petition, in the matter of the non-banking financial institution can be filed only by the Reserve Bank of India as given under Section 45-MC on the grounds mentioned therein and not under Section 433. Reliance has been placed upon the case of K.P. Chackochan v. Federal Bank [1989] Comp. Cas. 953 in support of the submission. The aforesaid case was not in relation to the non-banking financial institution but it related to a banking Company wherein the Kerala High Court held that a banking company can be wound up only under the provisions of Part III of the Banking Regulation Act, 1949, and not under Section 433 read with the allied sections of the Companies Act, 1956. It was also observed that in the case of a banking company, it is the Reserve Bank which factually controls the Company, and therefore, the question of the minority shareholders being oppressed does not arise. A proceeding under Section 397, therefore, cannot be taken cognizance of by the court if the company involved is a banking company. The aforesaid case, thus, does not assist the appellant in any manner.
13. The non obstante clause in Section 45-Q would prohibit the Reserve Bank of India to file a Company Petition under Section 433 as a specific provision for the purpose has been provided under Section 45-MC in Chapter III-B giving the grounds for moving for winding up of a non-banking financial company by the Bank. The grounds (a) to (d) which are available to the Reserve Bank of India for filing winding up petition against a non-banking financial company provide different grounds for winding up except the ground (d) namely the non-banking financial institution is unable to pay its debts as against the grounds mentioned in Section 433 of the Companies Act.
14. The statutory notice under Section 434 which raises deeming fiction regarding the Company being unable to pay its debts on service of such a notice under the provisions of the Act, also does not find mention with the same terms under Section 45MC of the Reserve Bank of India Act wherein a different provision in Sub-clause 2 has been provided. Sub-clause 4 further provides that all the provisions of the Companies Act, 1956 relating to winding-up of a company shall apply to a winding-up proceeding initiated on the application made by the bank under the said provision. There is nothing in Chapter III-B of the Reserve Bank of India Act, rather there is no provision under Chapter III-B, which effects the rights of a creator to file a winding-up petition under Section 433 of the Companies Act. Chapter III-B does not give any such right in any of its provisions to the creditor to file a winding-up petition. The provisions of Chapter III-B would have overriding effect against any such provision which may be in consistent to any other law for the time being in force or any instrument having effect by virtue of any such law is in consistent with the provisions of this chapter.
15. There is no inconsistency between Section 433 of the Companies Act and any of the provisions of Chapter III-B of the Reserve Bank of India Act in relation to the right of the creditors to apply for winding up of a Company through Court under Section 433 of the Companies Act. In the absence of any provision or any right being given to the creditor for moving the petition for winding up of the Company, under Chapter III-B of the Reserve Bank of India Act, the question of inconsistency is far from being attracted and if the interpretation given by the counsel is accepted, it would mean completely depriving a creditor from filing a Company Petition for winding up though case for winding up may be made out on the behest of the creditor. Such an interpretation would mean the divesting or deprivation of the statutory legal right of the creditor to ask for winding up of the Company wherein winding up can be ordered by the Court under any of the Clauses (a) to (f) mentioned in Section 433.
16. The scope of Section 45-QA cannot be enlarged beyond the limits for which it has been enacted Chapter III-B, undoubtedly would allow the creditors to have recourse to Section 45-QA namely for asking the Company Law Board to order repayment of deposits but this would not in itself mean that the other remedy available to the creditors under the Companies Act would stand forfeited. Unless the statute specifically bars the remedy, there cannot be any presumption in law that the remedy is not available to the aggrieved person. Chapter III-B does not bar any such remedy to the creditors of a non-banking financial institution to approach the Court for winding up of the Company.
17. The scheme of Chapter III-B in relation to the creditors gives one mode of recovery of the amount of their deposits through the Company Law Board as provided under Section 45-QA. The approach to the Company Law Board for getting the payment would not be sufficient to curtail the right of the creditor for winding up the Company through the Court nor would oust the jurisdiction of the Court in entertaining such a petition of winding up.
18. Section 433 is entirely on different footing which gives various other grounds, dissimilar to the grounds mentioned in Section 45MC except the ground regarding the Company being unable to pay its debts to the creditors for moving a winding up petition.
19. Under Section 439, a winding up petition can be filed by the Company or by any creditor or creditors, including any contingent or prospective creditor or creditors or by contributory or contributories or by all or any of the parties whether together or separately or by the Registrar or in a case falling under Section 243, by any person authorized by the Central Government in that behalf.
20. In view of the overriding effect of provisions of Chapter III-B, the Reserve Bank of India would not fall within the meaning of a person who could file a petition for winding up under Section 433 as given in Section 439 of the Act. The provisions of Chapter III-B of the Reserve Bank of India Act as well as the provisions of Chapter II of the Companies Act, run in two different fields where no inconsistency could be pointed out against the right of the creditor or any person who has been given a right to file winding up petition under Section 439 as against any of the provisions of Chapter III-B of the Act. Thus, the argument that Chapter III-B, which has got overriding effect, barred the remedy of the respondents to file the Company Petition under Section 433 of the Companies Act, does not reflect the true meaning and import of the aforesaid provision and is liable to be rejected.
21. Another argument has been raised that the Reserve Bank of India Act being special Act, it would override the provisions of the general Act namely the Companies Act, 1956. Reference has been made to the case of Ram Krishna Verma v. State of UP AIR 1992 SC 1888. This was a case where the Apex Court held that by operation of Section 98 of the Act, Chapter VI overrides Chapter V and other law and shall have effect notwithstanding anything inconsistent therewith contained in Chapter V or any other law for the time being in force or any instrument having effect by virtue of such law. The result in that even under the Act the existing scheme under the repealed Act or made under Chapter VI of the Act shall have overriding effect on Chapter V notwithstanding any right given to private operators in Chapter V of the Act. No corridor protection to private operators is permissible.'
22. The point in issue does not call for any further discussion on the principle that the provisions of the special Act override the general Act as the said principle would be attracted in a case where on the same subject-matter there may be two inconsistent or conflicting provisions under the Special Act as well as under the general Act. Chapter III-B of the Reserve Bank of India Act and Chapter II of the Companies Act are neither inconsistent nor there is any conflict in the two provisions with respect to the right of a creditor to file a winding up petition.
23. The next argument that the scheme having been approved by the Company Law Board and the Company having taken effective steps for implementing the same, the Company Petition for winding up could not have been filed, also has to be rejected for the following reasons :
24. It is true that in a given case where the Company Law Board has been approached either by the creditors or by the company itself, or through its directors for getting the scheme approved for making payment to the creditors, and the Company Law Board approves such scheme which is effectively and promptly implemented or is being implemented generally and bona fidely, the Company petition for winding up on behalf of such creditors may be maintainable, but the winding up can be refused or deferred for a period to make the payment as per the scheme but in no case, mere approach by the creditors to the Company Law Board seeking payment of their deposits which defaulting company has not paid, on its own, would not be a ground to hold that the winding up petition cannot be filed by such creditor or creditors under Section 433 of the Act.
25. One more aspect, which would weigh with the Company Judge in winding up petition by creditors where a scheme has been approved by the Company Law Board for making the payment, is the conduct of the defaulting Company in implementing the said scheme which would include the steps taken by the Company, manner and time consumed by the company in taking such steps if at all taken, effectiveness of such steps and the bona fide and genuine efforts made by the Company in implementing the scheme. In case it is found that the action of the company is a camouflage wherein the Company is involved in delaying tactics so as to avoid the payment under the pretext that the approved scheme by the Company Law Board is being implemented or is likely to be implemented, the creditors cannot be allowed to wait till eternity with the hope that the Company would comply with the directions issued by the Company Law Board at some point of time. Merely because the creditors can approach for execution of the order passed by the Company Law Board as decree of the Civil Court, that would also not be a ground to reject the Company petition for winding up, more so in a case where the Company of its own is having no assets and that despite the scheme being framed and approved by the Company Law Board, the payment was not being made. In view of the fact that despite the scheme being approved by the Company Law Board, the payment is not made by the Company, the winding up of the Company can be ordered, as the Company would be said to be unable to pay its debts. In a case where no properties of the Company are available, and the Company had not taken any steps worth being effective for making the payment for a considerable period, despite the order of the Company Law Board, the Company Petition for winding up would not be either not maintainable nor it can be rejected on this ground.
26. The aforesaid argument further raises two points of consideration, one is the legal aspect of the defence taken by the appellant, namely, regarding the filing of the winding up petition after the Company Law Board has approved the scheme for repayment, and the other is the factual aspect in this regard which would differ from case to case and would have to be appreciated on the facts of each and every case.
27. In the case in hand the order passed by the Company Law Board indicates that the Company Law Board on the basis of the admission of the Company that a large number of deposits are outstanding for repayment on maturity, it decided to invoke suo motu powers to order repayment of the amount deposited as provided under Section 45QA of the Reserve Bank of India Act. Accordingly, the Company was directed to indicate reasons for default and also its proposal to meet the pending claims as well as those which may arise in future on maturity. The Company furnished a detailed statement of its reasons for its failure to repay all the matured deposits and also a scheme for repayment of both outstanding matured deposits and also the deposits that would be maturing in future. The Company submitted a scheme for repayment of deposits during the period of five years, the gist of which has been quoted in the order of the Company Law Board itself. Another scheme was given on behalf of the depositors asking for repayment scheme of 48 months. The Company submitted a revised repayment schedule for 48 months and had published the scheme in two newspapers viz., Times of India and Dainik Jagran, Lucknow edition dated 20th March, 1999. The revised scheme published was as under :
"It is notified for general information of the depositors that the company has made an application to Hon'ble Company Law Board seeking time for repayment of deposits as per following scheme :
Deposit Payment to be made from the date of Maturity (% of principal amount) Within 12 months Within 24 months Within 36 months Within 48 months Up to 5000 100
--
--
--
5001 to 15000 20 30 50
--
15001 to 25000 15 10 55
--
25001 to 50000 15 25 30 30 50001 to 1 lakh 10 20 30 40 Ahove 1 lakh 10 20 30 40 Interest up to date of maturity at contracted rates and post maturity interest at 11.5 % p.a. payable with the last instalment.
Any depositor who has any objection to the scheme may submit written objection to the Bench Officer, Company Law Board, Northern Region Bench, 5th Floor, Shastri Bhavan, New Delhi with a copy to company on or before 15th April, 1999."
28. Thereafter various dates were fixed by the Company Law Board in which the Company absented though representatives of the depositors and a large number of depositors attended the proceedings. The Company Law Board, therefore, after observing that due opportunity has been given to the company to make its submission on the suggestions given by the depositor but none is present on behalf of the Company and directors have also chosen to remain absent whereas large number of depositors are involved who have put in their hard earned money with the Company, found that the matter could not be allowed to be dragged. The Company Law Board on going through the revised scheme submitted by the Company and suggestions made by the Advocate on behalf of the depositors, and with a view to balance the interest of the Company and the depositors and also the public interest at large, ordered as follows :
(i) The interest payable will be at the contracted rates up to the date of maturity and thereafter at the rate of 12.5 per cent per annum till the date of payment to be paid along with the last instalments in respect of all categories of deposits, after the date of maturity.
(ii) All deposits upto Rs. 10,000 shall be paid within 12 months from the date of maturity along with interest due both pre and post maturity.
(iii) All deposits in the range of Rs. 10,001 to Rs. 25,000 shall be repaid at the rate of 25% in the first year, 30% in second year and the balance 45% in the third year. The period is to be reckoned from the date of maturity. The interest for both pre and post maturity period will be paid along with last instalment.
(iv) All deposits of Rs. 25,001 to Rs. 50,000 shall be repaid at the rate of 20% in the first year, 30% in the second year and the balance 50% in the third year. The interest for both pre and post maturity period will be paid along with last instalment.
(v) All deposits over Rs. 50,001 shall be paid at the rate of 2096 in the first year, 40% in the second year and balance 40% in the third year. The period of payment is to be reckoned from the date of maturity. The interest for both pre and post maturity period will be paid along with last instalment.
(vi) The repayment scheme shall cater for all types of deposit schemes of the company namely high premium fixed deposit scheme, monthly recurring deposit scheme, daily deposit scheme, recurring income scheme, short term deposit scheme, saving account, marriage and higher education scheme etc.
(vii) The above scheme will be applicable to all deposits whether overdue or yet to mature, and whether any application has been filed before the Company Law Board or not.
29. The Board also directed to follow certain guidelines in implementing the scheme and guideline No. (vi) specifically required the Company to file an affidavit of compliance once in three months. The gist of the scheme for repayment of deposits was directed to be published by the Company in the national daily for general information of the depositors within ten days from the date of receipt of the order and the operative part of the order was communicated to all the depositors by post by the Company within four weeks. To ensure that the repayment schedule is implemented in terms of the order, the Company Law Board directed that Manjit Singh Aujla, who was promoter Director of the Company when most of the deposits were accepted by the Company, Ashok Harbola, who had filed application in the Company Law Board, Raj Pati Dubey, Adarsh Chhabra and Sewak Kumar Menon who are Directors of the company as per the information furnished by the Registrar of Companies, shall file an affidavit of undertaking that the aforesaid scheme shall be implemented without fail, to the Reserve Bank of India, Department of Supervision (Financial Companies), New Delhi within ten days from the receipt of the order, with a copy to Bench Officer, Company Law Board, Northern Region, New Delhi. The order of the Company Law Board is dated 31-8-99.
30. Despite the aforesaid order, the record reveals that not a single penny was paid nor any effective steps was taken by the Company or its Directors for making any payment to the depositors. Since the Company failed to make the repayment even as per the directions and the scheme and the Company did not take any interest in the proceedings nor the directors attended the proceedings despite themselves having come to the Board for getting the scheme approved for payment, the investors were well within their right to approach the Court for winding up of the Company on the ground that the Company has failed to make the payment and it is unable to pay its debts.
31. For allowing the winding up petition, it essentially requires that there are dues of the creditors against the Company, namely, debt and that the Company has failed to make the payment at the given intervals or at such intervals in time when the depositors have asked for payment and that the Company is unable to pay its debts. In case all the three ingredients aforesaid are established, besides other contents, if at all required to be proved, the creditors would be justified in asking the winding up of the Company.
32. The Company Judge has observed and is also on record that the Company, right from deposits of day one, did not make refund to any creditor. It has come in the order passed by the Company Law Board also that the Company M/s. Incan Mutual Benefit Ltd. was incorporated on 3rd October, 1991 which has its branches in the State of Uttar Pradesh, Haryana, Punjab and Himachal Pradesh. It was registered with the Registrar of Companies, U.P., Kanpur and was notified by the Central Government as "NIDIII" or mutual benefit society under the provisions of Section 620A of the Companies Act, 1956 vide G.S.R. No. 292 dated 27th May 1993. The main object of the Company was lending and borrowing to/from its members. The investments were made in fertilizers, real estates as well as agro-pharma plantations. The position of the deposits as on 31st December, 1998 was Rs. 7200 lakhs, which works out to Rs. 8208 lakhs on maturity. The company has accepted the deposits under the following schemes :
(i) High Premium Fixed Deposit Scheme;
(ii) Monthly Recurring Deposit Scheme;
(iii) Recurring Income Scheme;
(iv) Short Term Deposit;
(v) Daily Deposit Scheme; and
(vi) Saving Account.
33. The Company started accepting fixed deposits from its members from 1992 onwards but defaulted in making repayment of matured deposits w.e.f. October, 1998. There being run of the depositors, the Company issued a circular on 1-2-1999 informing its members that money could be collected by them in October and November 1998 on maturity, of an amount of 3096 alongwith upto date interest till the date of payment and balance amount of 70% would be reinvested for a period of six months and above from the date of payment. The circular stated further that those members whose deposits have matured in December 1998 are requested to contact their branches for payments after 15th March 1999 and the members whose deposits were to mature in February 1999 were requested to collect their dues after 15th May, 1999.
34. Despite the aforesaid assurance and proposal made, not a single penny was paid to any of depositors and even a petty amount of refund of Rs. 500 was not made. Since money of the depositors was not being paid and the Company admitted its liability in proceedings under Section 45-QA which were taken sue motu by the Company Law Board, a scheme was formulated regarding the payment to the creditors with interest but the said scheme was also not followed nor was implemented by the Company. The Company having thus failed to make the payment on demand either on maturity of the deposit or under the scheme, it can safely be presumed that the Company was unable to pay its debts.
35. The order passed by the Company Law Board dated 31-8-1999 was not implemented for more than a period of one and half years despite the appointment of two Hon'ble Judges of High Court namely, Justice S.N. Sapra, reitred Judge Delhi High Court and thereafter Justice Ujagar Singh.
36. Manjit Singh Aujla, Chairman of the Incan Group of Companies and Director of M/s. Incan Mutual Fund Benefit Ltd. admitted that the Company mobilized the deposits from its members in accordance with the terms and conditions of the various schemes and it successfully carried out its operations by making timely payments to its members/depositors, but it was in 1998 that this Company suffered the wrath of the depositors. It has been further contended that as there was a run on the deposits, the Company was put in a precarious condition and due to severe liquidity crunch, the company could not fulfil its commitment toward its members.
37. The learned Company Judge has rightly found that this was enough to hold that since the Company failed to pay its debt, it is liable to be wound up under Section 433(e) of the Companies Act.
38. The Company advertised in its brochure that the Company proposed to open 123 branches with five lakh members employing over 1000 people in the State of Himachal Pradesh and Jammu and Kashmir and perhaps in all the major States of India and abroad. It also floated various attractive schemes giving dreams and illusions to lakhs of people for having better return of their deposits so made and has collected the deposits but instead of acting bona fidely in taking the investment and making payment of dues, it indulged in siphoning off its money in other Companies of the same Incan Group of Companies having almost common Directors under some loan agreements which money was never sought to be realized from the Company.
39. The question regarding the money of Incan Mutual Fund Benefit Ltd. being provided to other Companies and the effect thereof would be considered in the later part of the judgment.
40. Under the circumstances, the Company Judge rightly found that it was amply established from the record that the Company collected huge amount from its members/depositors on representation of highly lucrative schemes with a view to collect maximum amount even if it tends to defraud the creditors and thereafter transfer the said money in various forms including loan agreements to other sister concerns and thus acted in breach of trust, and against the schemes propagated by the Company itself to the prejudice of the depositors and public at large. The dues over the Company are established and are admitted. The non payment of the same is also established and admitted and the intention not to pay also stands proved besides the fact that the Company is unable to pay its debts because of liquidity crunch and having transferred all the money of the Company in the hands of other sister concerns.
41. The view taken by the Company Judge regarding conduct of the Company and its Director in collecting huge amount from the depositors and not paying it back, and deliberate attempt to misguide and mislead the depositors by giving false assurance of making repayment on future dates, coupled by the failure on the part of the Company to make payment as per the scheme approved by the Company Law Board, gave full jurisdiction to the Company Judge to entertain the petition for winding up and to order for winding up of the company.
42. So far the validity of the statutory notice under Section 434 issued by the investors to the Company is concerned, we would like to observe at the outset that though we do not find any substantial defect in the notice so as to make it invalid, the invalidity of the notice even if any in the instant case, would not effect the order of the Company Judge allowing winding up of the Company. It is not being disputed by the learned counsel for the appellant that the issuance or service of notice under Section 434 of the Companies Act is not a condition precedent for filing a winding up petition against the Company under Section 433 of the Act.
43. Provisions of Section 434 create a deeming fiction or a strong presumption against the defaulting Company, in case a notice as required under the said provision is served upon the Company and the Company still fails to make payment within statutory period of 21 days as provided therein. In case the statutory notice under Section 434 is sent and received by the Company which notice, of course, should meet the requirement of the Section, and if the payment is not made even thereafter within the statutory time stipulated, in such a case it stands proved even without there being further evidence, that there are dues against the Company, namely, debts and the Company is unable to pay its debts which has not been paid back despite demand being made. The winding up order thus can be passed only on the above evidence. In that event too, the Company would be at liberty to satisfy the Company Judge that it has worth and capability to make the payment. The Company Court in such a situation may consider the assets and properties including cash available with the Company, if the Company comes forward bona fidely and with clean hands and discloses means where the liability of repayment has to be met, the Company Court may allow the Company to make the payment alternately, instead of ordering for winding up of the Company. But in a case where no such bona fide effort has been made before the Company Court, nor any asset, property or cash, which may be sufficient for meeting the debt has brought before the Court, the Company Court in its discretion would allow the winding up of the Company on the strength of the statutory notice issued under Section 434 of the Act.
44. In a given case where a notice under Section 434 has been given and there are other circumstances also pleaded so as to prove that there are dues against the Company, which the Company has failed to pay and the Company is unable to pay its debts, the winding up order can be passed either on both counts or on any one of the grounds aforesaid.
45. Challenging the statutory notice in the instant petition, it has been asserted that notice is not in conformity of the aforesaid provisions of Section 434. The notice dated 22-3-2000 has a heading 'notice for repayment of debts under Section 434(1)(a) of the Indian Companies Act, 1956'. The notice has been issued to the Managing Director of M/s. Incan Mutual Benefit Ltd. by advocate on behalf of his clients namely the registered association whose members had invested money in the aforesaid Company under different schemes. The notice gives total membership of the association as 43,432 who have invested an amount of Rs. 51.99 crores for which a certificate issued by the authorized signatory of the Company has also been annexed, In all there are three certificates attached therein mentioning the money invested by the members of the association in the Company which certificates have been annexed as Schedules-A, B and C to the notice. The certificates relate to Northern Region, Chandigarh, whose branches are located mainly in Punjab and Haryana and one branch in Himachal Pradesh, Jallandhar region comprising of offices in districts of Jallandhar, Kapurthala, Hoshiarpur, Nawanshar and Amritsar, and Ludhiana Region of Punjab. The three certificates were sent to the Managing Director of the Company alongwith the notice. The notice calls upon the addressee to make payment of the matured amount with interest at the earliest.
46. Making challenge to the aforesaid notice it has been stated that notice has not been addressed to the Company nor it has been delivered at its registered office by registered post and it does not give statutory period of 21 days to make the payment. The certificates attached to the said notice arc being disputed on the ground that the authorized signatory who has signed the certificates has not come to adduce the evidence by filing the affidavit and confirming the fact that he has issued the certificates. The address given in the notice is as follows : The Managing Director, M/s. Incan Mutual Benefit Ltd., B-1/37, Sector F, Kapoorthala, Aliganj, Lucknow. The purpose of issuing the notice to the Company is to make the Company know that there is a creditor, who has made a demand either under his hand or through his agent or legal advisor duly authorized on his behalf which demand is to be met by the Company within a period of three weeks from the date of receipt of the notice. It has also been stated in Para 6 of the Company Petition that the registered office of the Incan Mutual Fund Benefit is Incan Bhawan B-1/37, Sector-F, Kapoorthala, Aliganj, Lucknow and the notice has been sent by registered post to that very address. Therefore, it cannot be said that notice has not been sent at the registered office by the registered post. It is not necessary that notice should say that the amount demanded has to be paid back within 21 days as it is statutory requirement under Section 434(1)(a) that the Company should make the payment within three weeks and if it neglects to make payment thereafter to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor, the Company shall be deemed to be unable to pay its debts.
47. The certificates attached to the notice issued by the authorized signatory of the Company firstly are the certificate issued by the authorized signatory of the Company itself and, therefore, the plea that it could not be taken into consideration and were inadmissible, would not be open to the Company unless there is denial of such a certificate being issued by the authorized signatory of the Company. We do not find any such denial by the Company. Apart from this the notice itself was self-sufficient for the Company to understand that payment of the amount demanded which was specifically mentioned is due to the investors, which the Company was under obligation to pay. Even if the notice is found to be addressed to the Managing Director and not to the Company, the same will not affect the merits of the present case, as even in the absence of statutory notice, the evidence on record was sufficient to order winding up of the Company.
48. Reliance has been placed on the case of Alliance Credit & Investments Ltd. v. Khaitan Hostombe Spinels Ltd. [1999] 95 Comp. Cas. 436 (All.) in support of his submissions that statutory notice if not served at the registered office but at the branch office, the benefit of deeming fiction under Section 434 would not be available. Reliance has also been placed on the case of Paramjit Lal Badhwar v. Prem Spg. & Wvg. Mills Co. Ltd. [1986] 60 Comp. Cas. 420 (All.) in this regard. The case of B. Vishwanathan v. Seshasayee Paper & Board Ltd. [1992] 73 Comp. Cas. 136 (Mad.) was also cited. In this case the Court found that there was a bona fide dispute about the debt and that the notice was addressed only to the Managing Director and not to the Company.
49. In the case of Registrar of Cos. v. Navjivan Trading Finance (P.) Ltd. [1977] 48 Comp. Cas. 402, the Gujarat High Court has observed that if on assessment of financial position of the Company it is found that the Company is not able to pay its debts, the winding up order can be passed.
50. In the case of Hariprasad v. Amalgamated Commercial Traders (P.) Ltd. AIR 1964 Mad. 519, it has been held that a Company can be wound up on the petition of a creditor for its inability to pay his claim after proper demand had been made by him and on the lapse of three weeks from the date of service of such demand, even though the company is commercially solvent.
51. An argument has also been raised regarding the maintainability of the Company Petition in view of the defective affidavit filed alongwith the petition under Rule 21 of the Company (Court) Rules, and great emphasis has been laid upon the fact that in the affidavit writ petition has been mentioned instead of Company Petition and, therefore, it is no affidavit within the meaning of Rule 21. Since the Company Petition cannot be said to be accompanied by an affidavit, the same ought to have been rejected on this ground alone. It is no doubt true that word 'writ' has been mentioned before the word 'petition' but simply because of inadvertence, as learned counsel points out, writ has been mentioned, instead of Company, it would not make the Company Petition altogether bad. Besides this, the question regarding the correctness of the affidavit, namely, irregularity in the verification clause was not raised initially before the Company Judge in any of the replies or affidavits filed by the appellant. The point was neither taken nor pressed. In the absence of any such plea being taken before the Company Judge and also in the absence of any such plea being taken in the memo of appeal, despite being pointed out by the Court to the learned counsel for the appellant, such a plea cannot be allowed to be raised.
52. The admissibility of the certificates issued by the authorized signatory which was sent alongwith notice under Section 434 was also not under challenge before the Company Judge nor any such plea has been taken in the memo of appeal. The grounds thus urged cannot be allowed to be taken in appeal and in any case any such irregularity cannot be fatal for the claim of the respondents. Neither issuance of the certificates by the authorized signatory has been denied either before the Company Judge or in the appeal nor contents of the same have been disputed.
53. In view of the approved scheme of the Company Law Board Company's failure to make the payments, the argument that the Company Judge erred in ordering winding up of the Company without giving any weight to the provisions of Section 443(2) of the Companies Act, also has no substance. Section 443 deals with power of the Court on hearing petition. Sub-section (2) of Section 443, which reads as under :
'443(2) Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the Court may refuse to make any order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy'.
This would be a consideration for the Company Judge where a petition for winding up has been presented on the ground that it is 'just and equitable' that the Company should be wound up.
54. Section 433 gives six circumstances, namely (a) to (f) which give power to the Court to order winding up of the Company if any one or more circumstances mentioned in the aforesaid provision are pleaded, proved and established to the satisfaction of the Company Judge. Six circumstances given specifically under Clauses (a) to (f) of Section 433 give different circumstances, which are independent of each other. If the Company resolves that the Company be wound up by the Court, there would be no applicability of Clause (f) of Section 433 which says that the Company can be wound up if the Court is of the opinion that it is just and equitable that the Company would be wound up. Likewise the Company would be wound up under Clauses (b), (c) and (d) independently.
55. If the Company is to be wound up under Clause (b), the provisions of Sub-section (3) of Section 443 would also have to be taken into consideration. Where the winding up is being sought for under Clause (e) of Section 433, mainly on the ground that the Company is unable to pay its debts, Sub-section (2) of Section 443 would not be applicable. There may be a case where the Court finds that Company is liable to be wound up under any of the clauses apart from Clause (f) of Section 433 or also in view of Clause (f), the Court may consider as to whether the Company should be ordered to be wound up or the petitioners be required to pursue some other remedy as may be available to them.
56. For the applicability of Sub-section (2) of Section 443, apart from the fact that the winding up of the Company is to be claimed because it is just and equitable that the Company should be wound up and for refusing such a prayer, it is also essential for the Court to see that some other remedy is available to the petitioners and that they are acting unreasonably in seeking the winding up of the Company instead of pursuing the other remedy. Therefore, the existence of alternative remedy and the unreasonableness on the part of the petitioners namely, the creditors in seeking the winding up of the Company, instead of pursuing other remedy, are the necessary ingredients, which may not allow the Company to be wound up.
57. It is established from the evidence on record that since the day of inception of the Company, namely, M/s. Incan Mutual Fund Benefit Ltd., invitations were extended and offers were invited from public in general to invest their money in the Company with assured interest and assured payment on maturity or on demand, as per the various schemes. It is also established and has rightly been found by the learned Company Judge that the Company incessantly collected amounts from the public and the huge amounts collected were not retained in the Company's accounts but to the detriment of the investors and without protecting their rights, almost the entire money was transferred in the accounts of the sister concerns leaving no money for return to the investors in the Company. The Company carved out a device of entering into loan agreements with other sister concerns, namely, Incan Group of Companies, which loan agreement provided for advance of the money but did not postulate any effective clause for refund of the money, except that in the agreements, period of the loan was mentioned but neither the rates of interest on which the loan was advanced were mentioned nor mode of repayment was mentioned.
58. The loan agreements entered into separately with M/s. Incan Mutual Fund Benefit Ltd. by the other Companies of Incan Group of Companies, namely, M/s. Incan Fertilizers & Chemicals Ltd. dated 30-11-1995, M/s. Incan Sales Private Limited dated 5-8-1992, M/s. Incan Consultancy Services Limited dated 30-11-1995, M/s. Deva Investments & Leasing Limited dated 29-11-1995, M/s. Incan Construction Limited dated 5-8-1992, M/s. Merit Development & Construction (P.) Limited dated 5-8-1992, and other agreement of M/s. Incan Construction Limited dated 29-11-1995, M/s. Stalwart Holding Pvt. Limited dated 30-11-1995 and M/s Incan International Limited dated 28-11-1995 have been brought on record which prove beyond doubt that right from the year 1992, when the Company M/s. Incan Mutual Fund Benefit Ltd. was incorporated on 3-10-1991, the Company started draining out the money under the aforesaid loan agreements, first of which was executed on 5-8-1992. It was well within the knowledge of the Directors of the Company that money collected was that of the depositors and that under the terms of the agreement, and in view of their promise as propagated has to be returned to the depositors either on maturity of the deposits or at timely intervals as per the schemes. The deliberate act of the Company in providing funds to other Companies of M/s. Incan Group of Companies having almost common Directors or the Managing Director, cannot be termed as bona fide action but was apparently with a view to keep the Company without funds which naturally would deprive the investors from having their money back viz. even the principal amount what to say of interest on the said amount.
59. Finding that there was lot of pressure from the investors to return the money, a recourse was made to Company Law Board wherein also the Company, except presenting itself initially in the proceedings, did not care to participate and the scheme as approved by the Company Law Board for payment of the debts was not adhered to nor was implemented.
60. The assertion that scheme was advertised and a post box was requested in itself could not mean that the Company acted sincerely and seriously or took any positive and effective steps for implementing the scheme, particularly when despite information being furnished by a large number of share holders/members about their dues in pursuance to the notice issued by the Chairman of the reconstituted new Board of Directors dated 1-7-2001, no response was made by the Company nor any amount was paid.
61. Even the newly appointed Chairman namely, two High Court Judges failed to prompt the Company to make payment and, therefore, gave up the efforts. Despite more than 1 1/2 years having been lapsed, from the date of the order of the Company Law Board, not a single penny was paid to any of the investor including those investors who were to be refunded only an amount of Rs. 500 or less.
62. The newly appointed Directors of the Board were also interested in winding up of the Company. The Company issued a circular dated 1-2-1999 informing its members to collect deposits matured in October and November 1998 and take 30% of the maturity amount along with upto date interest, till the date of payment, at contracted rate mentioned in certificate/Pass Book and reinvest 7096 of the amount for a period of six months. The same circular further recited that members, whose deposits have matured in December, 1998 could contact their branches for payments after 15th March, 1999 and members, whose deposits have matured in January 1999 could contact their branches for payments after 15th April, 1999.
63. The aforesaid plan has been found a total fraud by the Company Judge and he has taken note of the fact that the Company has not paid even to those creditors, whose credit balance in the Savings Bank Account was even less than Rs. 500.
64. The order of the Company Law Board dated 31-8-1999 was thus not at all taken seriously nor was there any intention at any point of time for following the same and to make the payments. The order was passed by the Company Law Board exercising its suo motu powers and an officer to be duly authorized by the Reserve Bank of India under Section 58(c) of the Reserve Bank of India Act had to take an appropriate action in the matter of repayment of the dues to the creditors. The scheme was formulated regarding the payment to the creditors alongwith interest, according to which all deposits upto Rs. 10,000 were to be paid within 12 months from the date of maturity, whereas deposits in the range of Rs. 10,001 to 25,001 were to be repaid @ 25% in the first year, 30% in the second year and the balance 45% in the third year. The deposits of Rs. 25,001 to Rs. 50,000 were to be repaid in instalments of 20% in the first year, 30% in the second year and the balance 50% in the third year. The deposits over Rs. 50,001 were directed to be paid @ 20% in the first year, 40% in the second year and the balance 40% in the third year. The period of payment was to be reckoned from the date of maturity. Certain guidelines were also issued and compliance report was to be furnished by the Company. It is neither denied nor could be proved otherwise by the appellant that no payments were made under this scheme also till date. The investors have thus been deprived of their legitimate money.
65. The Company Judge on assessing the entire evidence on record and the established fact that the Company who had collected huge amounts from the investors, has failed in making the repayment, coupled with the conduct of the Company, found that it was a fit case for ordering winding up of the Company. Recourse to Section 443(2) would thus not be a ground for refusing winding up of the Company as firstly Company has been ordered to be wound up because it is unable to pay its debts, and secondly, there is no unreasonableness on the part of the creditors/depositors to pay for winding up of the Company nor there is any effective or efficient or for that matter any alternative remedy available in terms of the aforesaid provision for realizing the money. Merely because the Company Law Board approved a scheme for repayment, which scheme has not been honoured by the Company, the said fact cannot be a ground either for holding that there is some other remedy available for the investors for realizing their money nor the order of the Company Law Board or approach to the Company Law Board either by the investors, or the Company itself or suo motu exercise of power by the Company Law Board would in any way restrict the right of the creditors to file winding up petition under Section 433, which is an independent provision under the Companies Act.
66. The Company Petition as framed shows that it has been filed by Incan Employees Welfare Association which is a registered association duly registered with the Registrar of Firms and Societies, Punjab, Chandigarh and by some other office bearers of the association including individual investors. The members of the association and the other petitioners had deposited their money with M/s. Incan Mutual Fund Benefit Ltd. The total amount so invested by the members of the association in Chandigarh, Jalandhar and Ludhiana is approximately Rs. 51.99 crores. The Company also opened many branches in the States of Uttar Pradesh, Haryana, Punjab, Himachal Pradesh, and Union Territory of Chandigarh. It had deposits worth Rs. 7,200 lakhs as on 31 -12-1998 and the maturity amount was approximately Rs. 8,200 lakhs. M/s. Incan Group of Companies, which was impleaded as opposite party No. 1 and M/s. Incan Mutual Fund Benefit Ltd., which was impleaded as opposite party No. 2, purchased many properties across the country including a plot of 18,900 sq.ft. at 5, Lal Bahadur Shastri Marg, South Avenue, under Havelock Road Scheme at Baraf Khana, Lucknow. Few more properties which have been referred in the order of the Company Judge are land measuring 36000 sq.ft. near Dalibagh Colony; 53 Bigha Farm House in Village Kumrawan P.S. Itaunja; 22 Bigha land near Negoha Lucknow Raibareily Road; 14 Bigha land in Kundanganj and 8 Bigha land in village Kankaha Mohan Lal Ganj. These properties were purchased from the deposits accepted from the investors under various schemes such as High Premium Fixed Deposit Scheme; Monthly Recurring Deposit Scheme; Recurring Deposit Scheme; Short -Term Deposit Scheme; Daily Deposit Scheme; Saving Accounts etc.
67. Manjit Singh Aujla, Chairman of M/s. Incan Group of Companies, filed a counter affidavit on behalf of the Incan Group of Companies and pleaded that he was not the Chairman of any such Company known as M/s. Incan Group of Companies and asserted that as a matter of fact, M/s. Incan Group of Companies is a misnomer as there is no such company. The objection of the Company that since there is no Company known as Incan Group of Companies, therefore, the petition is not maintainable was rejected by the Company Judge after considering the fact that the petitioners deposited their money in the account of M/s. Incan Mutual Fund Benefit Ltd. and since the Head Office of this Company is situated in the Incan Bhawan, B-1/37, Sector-F, Kapoorthala, Aliganj, Lucknow and that since M/s. Incan Group of Companies have floated as many as eight other companies with the investment of the funds collected by tike Incan Mutual Fund Benefit Limited, the petitioners depicted M/s. Incan Group of Companies as the leading Company having its assets and liabilities with other companies including M/s. Incan Mutual Fund Benefit Limited. The Company Judge also found that Manjit Singh Aujla was the Managing Director of M/s. Incan Mutual Fund Benefit Limited and the Director of other Companies. Mr. B.D. Sharma, who is the representative of the M/s. Incan Group of Companies, has also published notice in newspapers under the title and heading of M/s. Incan Group of Companies, as is evident from a public notice advertised in 'Dainik Jagran' a local Hindi Newspaper of October 25, 1999. Mr. B.D. Sharma clearly indicates by virtue of the said notice that the Incan Group of Companies shall not be responsible for the individual decision of senior executives of the Incan Group of Companies who had been mischievously misrepresenting for their own benefit. Though the Incan Group of Companies comprises Incan Fertilizers and Chemicals Limited, Ratan Micronutrients Limited, Vinayak Trading Pvt. Limited, Incan Construction Limited, Incan Consultancy Services Limited, Deva Investment & Leasing Limited, Incan International Limited, Merit Pharmaceuticals Limited and Incan Mutual Benefit Limited, the petitioners claimed relief against the opposite party No. 2 with whom they had invested their money. The Company Judge, therefore, found that M/s. Incan Group of Companies was not a legal entity and there cannot be winding up of such a Company, but accepted the plea of the investors that they were mislead by the publicity which was made on behalf of M/s. Incan Group of Companies that this Company was managing the affairs of all the above mentioned nine companies. The company Judge, under the circumstances, directed that the Company petition shall remain confined to the liabilities of M/s. Incan Mutual Fund Benefit Limited only.
68. For showing the invalidity of the order passed by the Company Judge, an argument was also raised that non-framing of issues as required under Rule 2(4 & 6) of the Company (Court) Rules, 1959 vitiated the order.
69. Reliance has been placed on the case of Ravindra S. More v. Sundarsan Chits (India) Ltd. (in Liquidation) [1992] 73 Comp. Cas. 393 (Ken). In the aforesaid case the Kerala High Court on the facts of that case wherein the learned Judge proceeded to pronounce judgment without framing issues on the date when the case was not posted for trial, held that in view of the serious controversy raised and in view of the fact that no opportunity was given to the defendants, issues should have been framed and the matter was remanded to the trial Court. It does not lay down that in all matter of Company Petitions, issues must necessarily be framed nor non-framing of issues would be fatal in all cases. Of course, that would depend upon the facts of each and every case. Rule 2(4) of the Companies (Court) Rules, 1959 only defines the Code, which means the Code of Civil Procedure, whereas Rule 6 says 'Save as provided by the Act or by these rules the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the Court. This rule also does not mandatorily enjoins any duty upon the Company Judge to frame issues in the matter. However, if the Company Judge frames issues, it would not be against the Rules. On mere non-framing the issues for deciding the petition after affording opportunity to the parties of putting defence and of adducing evidence and that of arguments would not mean that the Company Judge acted in violation of any rules so as to hold the order bad.
70. The findings thus recorded by the Company Judge and the reasons for ordering winding up of the Company do not suffer from any perversity or illegality and, therefore, we uphold the order of winding up passed by the Company Judge.
71. Company Appeal No. 23 of 2003 has been filed by M/s. Incan Fertilizers and Chemicals Ltd. challenging the order of the Company Judge dated 30-7-2003 by means of which permission was given to the official liquidator for auctioning the property named as M/s. Govind Garh Fertilizers which belonged to M/s. Incan Fertilizers and Chemicals Ltd. namely, appellant in the present appeal on the ground that there is no order of winding up of M/s. Incan Fertilizers and Chemicals Ltd. nor the said Company is party in the Company Petition and, therefore, even if M/s. Incan Mutual Fund Benefit Ltd. is to be wound up under the orders of the Court, no property or asset of any other Company including that of M/s. Incan Fertilizers and Chemicals Ltd. can be taken possession of or can be put to auction.
72. So far as it has been asserted that the appellant has not been impleaded as a party in the Company Petition, it is on record that opposite party No. 4 in the Company Petition has been impleaded in the following manner : R.P. Gupta, Managing Director, M/s. Incan Fertilisers and Chemicals Ltd., Incan Bhawan, Kapoorthala, Aliganj, Lucknow. The opposite parties which have been impleaded in the Company Petition are : (1) M/s. Incan Group of Companies, Incan Bhawan, B-1/37, Sector-F, Kapoorthala, Aliganj, Lucknow. Through its Chairman Manjit Singh Aujla; (2) M/s. Incan Mutual Fund Benefit Incan Bhawan, B-1/37, Sector-F, Kapoorthala, Aliganj, Lucknow, through its board of directors, Lucknow; (3) B.D. Sharma, Representative M/s. Incan Group of Companies, 2/32, Vikas Nagar, Lucknow; (4) R.P. Gupta, Managing Director M/s. Incan Fertilisers and Chemicals Ltd., Incan Bhawan, Kapoorthala, Aliganj, Lucknow; (5) T.S. Sinha, Managing Director, M/s. Ratan Micronutrients Ltd. Incan Bhawan, Kapoorthala, Aliganj, Lucknow; (6) Ashok Krishna, Managing Director M/s. Incan Construction Ltd. Incan Bhawan, Kapoorthala, Aliganj, Lucknow; (7) Col. B.M. Bhagi, Managing Director, M/s. Incan Mutual Benefit Ltd., Incan Bhawan, Kapoorthala, Aliganj, Lucknow; (8) Manjit Singh Aujla, Chairman, M/s. Incan Mutual Benefit Ltd. Incan Bhawan, Kapoorthala, Aliganj, Lucknow; and other statutory authorities. Apart from the fact that technical objection of non impleadment of the Company would not be sufficient to reject the Company Petition or to hold that the appellant company is not party with the company petition and, therefore, the order impugned is bad, suffice would be to say that R.P. Gupta, Managing Director of the Company is a party to the Company Petition. The Company could have been impleaded through the Managing Director but if the Managing Director of the Company has been impleaded, it is not such a technical defect so as to take that the Company was not impleaded at all in the Company Petition or such impleadment would be sufficient to defeat the claim of the petitioners. Besides, R.P. Gupta, Managing Director of the Company has stood personal guarantee in all loans advanced to the appellant company by M/s. Incan Mutual Fund Benefit Ltd. The Company was thus fully represented in the Company Petition.
73. On the question as to whether the property and assets of another company, namely, M/s. Incan Fertilizers and Chemicals Ltd. or for that matter all other companies of Incan Group of Companies namely, sister concerns can be taken possession of and action can be taken by the official liquidator as a result of winding up of the Company, M/s. Incan Mutual Fund Benefit Ltd., the learned counsel for the respondents has relied upon the doctrine of lifting of corporate veil. The submission is that all the associated companies are directly connected and that their property and assets have already been hypothecated in favour of M/s. Incan Mutual Fund Benefit Limited in the various loan agreements, reference of which has already been made in the earlier part of the judgment and, therefore, the said properties/assets of these companies would be liable to be proceeded with as in substance and in reality they not only belong to the company M/s. Incan Mutual Fund Benefit Limited in view of the fact that they have been purchased and acquired from the funds given by the Company M/s. Incan Mutual Fund Benefit Limited but also since they have been hypothecated under the terms of the agreement for securing financial interest of the lender, namely, M/s. Incan Mutual Fund Benefit Limited. Apart from the hypothecation of the fixed assets created by the loan fund the borrower company also agreed to provide such other securities as may be required by the lender company. The argument, therefore, is that in view of the aforesaid factual and legal position, there cannot be any objection from proceeding with, with the fixed assets and other securities of the appellant Company. Reliance has been placed upon the case of Life Insurance Corporation of India v. Escorts Ltd. AIR 1986 SC 1370 wherein the Apex Court has observed as under :
"... Generally and broadly speaking, it may be said that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc." (p. 1373)
74. In the case of State of UP v. Renusagar Power Co. AIR 1988 SC 1737, the Apex Court considered the doctrine of lifting of corporate veil. In the said case by applying the doctrine, it was held that electric energy generated by subsidiary is wholly consumed by its parent company and, therefore, Hindalco and Renusagar must be treated as one concern and Renusagar's power plant must be treated as the "own source of generation" of Hindalco and should be liable to duty on that basis. The Supreme Court further held as under :
"It is high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence. The concept of lifting the corporate veil is a changing concept and is of expanding horizons." (p. 1737) The doctrine of lifting of corporate veil has been held permissible for ascertaining whether tax etc. has been evaded in the case of Union of India v. Playworld Electronics (P.) Ltd. AIR 1990 SC 202.
75. In the case of Subhra Mukherjee v. Bharat Coking Coal Ltd. AIR 2000 SC 1203, the Supreme Court rejected the argument that undue emphasis was given to the fact that the directors of the Company were brothers and the appellants are their wives and that the company is a separate legal entity which is independent of its directors and share-holders. On the strength of the decision of Solomon v. Solomon the Supreme Court held that 'lifting of veil of incorporation under statutes and decisions of the Courts is equally settled position of law'. The Apex Court further observed. '......To look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the courts have pierced the veil of incorporation. Where a transaction of sale of its immovable property by a Company in favour of the wives of the directors is alleged to be sham and collusive, as in the instant case, the Court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and the wives behind the facade of separate entity of the Company.
76. In the case of Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622, the Supreme Court observed that lifting or piercing the corporate veil can be done to see the real men behind the veil who are involved in defrauding others by corrupt and illegal means in deliberate defiance of Court's order.
77. For finding out whether or not the buyer and the seller were related persons within the meaning of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, the Supreme Court permitted lifting of the corporate veil in the case of Collector of Customs v. East African Traders [2000] 9 SCC 483.
78. In the case of Calcutta Chromotype Ltd. v. CCE [1998] 3 SCC 681, the Supreme Court held that lifting of veil would depend on facts and circumstances of the case and that even if they are two separate companies under the Companies Act, authorities/court can lift their corporate veil to see whether the persons behind them are the same and if the buyer is found to be associated with the manufacturer, a presumption under Section 114 of Evidence Act can arise regarding their having interest, directly or indirectly, in the business of each other.
79. Learned counsel for the appellant has, however, submitted that doctrine of lifting of corporate veil would not be available in the winding up petition under Section 433. We fail to appreciate the aforesaid arguments of the learned counsel for the appellant. The object of lifting of corporate veil is to find out the real person who has collected money and who is the beneficiary of the money so collected and that whether two persons are one and the same.
80. Conduct of all the nine companies including M/s. Incan Mutual Fund Benefit Ltd., M/s. Incan Fertilizers and Chemicals Ltd. and that of other companies, the manner of collecting money from the public in general, the utilization of that money for purchasing the properties to the detriment of the investors and without protecting their interest, siphoning off, of the money of the Incan Mutual Fund Benefit Ltd. to the rest of the eight Companies under the loan agreement (referred to above) with no effective condition of repayment, nor any steps ever being taken for repayment or realization of amount advanced coupled with the terms of the loan agreements, hypothecation of properties, fixed assets and other securities of rest of the companies in favour of the lending company namely Incan Mutual Fund Benefit Ltd., do not essentially require the Court to keenly apply the doctrine of lifting of corporate veil as the material on record establishes beyond doubt that assets and properties of M/s. Incan Fertilizers and Chemicals Ltd. or such other Companies can be proceeded with for realization of the amount of creditors of M/s. Incan Mutual Fund Benefit Ltd. The loan agreements which are verbatim copy of each other having same terms and conditions wherein M/s. Incan Mutual Fund Benefit Ltd. is the lending Company and M/s. Incan Fertilizers and Chemicals Ltd. and all other 7 companies are borrowing Companies, stipulated the same conditions of agreement and for the sake of convenience, the conditions mentioned in the agreement are being quoted below :
(1) Whereas the first party a public limited company would require Rs. 15 crores for the period of three years from December, 1995 to December, 1998 to implement corporate plan of capital expenditure requirements.
(2) Whereas the second party - a public limited non-banking company have adequate funds to meet fully the above requirements during the period of December, 1995 to December 1998 by sanctioning the loans with reasonable rates of interest which shall always be higher than the Bank rates of interest on term loans be decided by mutual consent of the borrower and lending companies.
Therefore, this deed written at Lucknow between the first party hereinafter known as borrower and the second party hereinafter known as lender testifies as follows :--
(i) That the Lender agrees to finance the capital cost of the project by releasing term loans on receipt of application in writing from the borrower at least 7 days in advance from time to time beginning from December, 1995 to December, 1998 upto Rs. 15 crores in the aggregate.
(ii) That the interest chargeable shall be higher than the Bank rate of interest on terms loans and will be decided by mutual consent at the time of each term loan.
(iii) That the borrower agrees to hypothecate, the fixed assets created out of the loan funds to secure the financial interests of the lender.
(iv) That the borrower also agrees to provide such other securities, besides those mentioned at (iii) above, as required by the lender.
(v) That the interest shall be payable annually.
(vi) That in the event of default by either borrower or lender, except by circumstances beyond control force majure and acts of God, liquidated damages shall be payable which will be by way of penal interest at 5% more than the prescribed rate, if default is on the part of the borrower and Rs. 5 lakhs, for each act of default on the part of the lender.
81. A perusal of the aforesaid agreement and the conditions therein for payment of loan and the so called condition of refund would show that they apparently are absolutely sham which is fortified from the fact that from the year 1992 when the first agreement was entered into, no money has been repaid till date. In terms of condition Nos. 3 and 4 the fixed assets created out of the loan funds are already under hypothecation for securing the financial interests of the lender Company and that borrower also agreed to provide such other securities, besides those mentioned at condition (iii), as required by the lender.
82. It has also come on record which has not been disputed that Manjit Singh Aujla was the Managing Director of M/s. Incan Mutual Fund Benefit Ltd. and Director of other Companies.
83. We, therefore, find no force in the arguments of the appellant that it is an independent legal entity and a different company, therefore, the property in question could not have been auctioned or proceeded with.
84. For the reasons so concluded, we do not find any merit in either of the appeals, which are liable to be dismissed.
85. All the appeals are hereby dismissed. Costs easy.