2012 (5) TMI 155 - HC - Companies Law

Winding up of a company - appointment of liquidator - The appellant contested the winding up petition - guarantee declaration given by the appellant on behalf of the company under liquidation - authority through board resolution - held that - The pleadings of the appellant Company are conspicuously silent as to why Mr. Ravi Chilukuri who has a substantial stake in the appellant Company and who from the documents filed by the respondent is the face/promoter of the appellant Company and/or of the Group of Companies to which the appellant Company belongs signed the Guarantee Declaration, Promissory Notes and as to how the Resolution aforesaid of the Board of Directors of the appellant Company landed with the respondent. Similarly though it is contended that comfort letter aforesaid issued by the Bankers of the appellant Company does not refer to the transaction in question but there is no explanation as to for which transaction it was obtained from the bank. - The appellant obviously had a stake in the Stock Purchase and Sale Agreement (supra), for the appellant Company to stand guarantee for the same. The world is a shrinking place today and commercial transactions spanning across borders abound. We have wondered whether we should be dissuaded for the reason of the transaction for which the appellant Company had stood surety/guarantee being between foreign companies. We are of the opinion that if we do so, we would be sending a wrong signal and dissuading foreign commercial entities from relying on the assurances/guarantees given by Indian companies and which would ultimately restrict the role of India in such international commercial transactions. As far as the argument of appellant Company of the purchasers under the aforesaid Stock Purchase and Sale Agreement being not before this Court and of denial of the knowledge of default, is concerned, certainly the appellant Company which had stood guarantee for the purchaser i.e. M/s Newco Prague s.r.o. would be in the know as to whether the purchaser has paid the price or not. If the purchaser was not in default, that would have been the first plea of the appellant Company against the petition for winding up. No such plea has been taken. On the contrary advantage is sought to be taken of technicalities and which cannot be permitted. As far as the argument of Stamp Act is concerned, the same is again only concerned with recovery of penalties and the documents even if unstamped can be read on penalty being paid. The same is thus no absolute bar to this Court acting on the basis of the said documents. It cannot be lost sight of that both the documents i.e. Guarantee Declaration as well as Promissory Notes were executed outside the country.

Issues Involved:
1. Appointment of Provisional Liquidator.
2. Appellant's inability to pay debts.
3. Validity and enforceability of the Guarantee Declaration.
4. Authority of Mr. Ravi Chilukuri to sign the Guarantee Declaration.
5. Compliance with Foreign Exchange Management Act (FEMA).
6. Disputed questions of fact.
7. Stamp Act compliance.
8. Notice under Section 433(e) r/w Section 434 of the Companies Act.
9. Authorization to file winding up petition.

Detailed Analysis:

1. Appointment of Provisional Liquidator:
The appellant contested the judgment dated 4th March 2011, where the Learned Company Judge appointed a Provisional Liquidator and restrained the Directors and officers from dealing with the company's assets. The court upheld this appointment, finding no error in the original judgment.

2. Appellant's Inability to Pay Debts:
The respondent claimed the appellant was unable to pay debts amounting to CZK 215,375,000 under a Guarantee Declaration and Promissory Notes. The court found that the appellant had assumed the duty to pay under the Guarantee Declaration and Promissory Notes.

3. Validity and Enforceability of the Guarantee Declaration:
The Guarantee Declaration dated 15th March 2007 was scrutinized. Despite the appellant's argument that it was invalid due to lack of authority and compliance with FEMA, the court held it enforceable. The court noted that even if executed in violation of FEMA, the Guarantee Declaration was not null and void but subjected the appellant to penalties.

4. Authority of Mr. Ravi Chilukuri to Sign the Guarantee Declaration:
The appellant argued that Mr. Ravi Chilukuri lacked the authority to sign the Guarantee Declaration. However, the court found that he was authorized by a Board Resolution, which was in the widest language. The principle of internal management barred the appellant from denying his authority. The court also noted that Mr. Chilukuri had a substantial stake in the appellant company and was a promoter, thus reinforcing his authority.

5. Compliance with Foreign Exchange Management Act (FEMA):
The appellant contended that the Guarantee Declaration was invalid due to non-compliance with FEMA. The court disagreed, stating that while the appellant could face penalties for not obtaining RBI permission, the transaction itself was not void. The court emphasized that the legislative intent under FEMA did not void such transactions.

6. Disputed Questions of Fact:
The appellant argued that the case involved disputed questions of fact, making the winding up petition inappropriate. The court found no disputed questions of fact, supporting the decision to proceed with the winding up petition.

7. Stamp Act Compliance:
The appellant argued that the Promissory Notes were unstamped and thus inadmissible. The court noted that the Stamp Act primarily concerns penalties and that documents executed outside the country could be read upon payment of penalties. This did not bar the court from acting on these documents.

8. Notice under Section 433(e) r/w Section 434 of the Companies Act:
The appellant contended that the notice dated 1st May 2009 was a demand notice and not a statutory notice under Section 433(e) r/w Section 434. The court found this argument unconvincing, noting that the appellant did not take the plea of the purchaser not being in default, which would have been the primary defense.

9. Authorization to File Winding Up Petition:
The appellant questioned the authorization of the person who filed the winding up petition. The court did not find merit in this argument, as the respondent had sufficiently demonstrated the appellant's liability and default.

Conclusion:
The court dismissed the appeal, upholding the appointment of the Provisional Liquidator and the enforceability of the Guarantee Declaration. The appellant was ordered to pay costs of Rs. 25,000/-.

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