2014 (2) TMI 878 - HC - Companies Law

Winding up of company - Whether the defence of the Company is prima-facie bona fide, substantial and cannot be said to be specious or spurious, nor intended to deceive genuine creditor, a winding up petition ought not to be entertained - Held that - petitioner cannot be said to have established the Company s liability to it in the amount claimed. The suppressions in the petition are many, and they are critical. It is only in the rejoinder that some sort of an explanation is offered. To my mind, there are two determinative factors. The first is the petitioner s acceptance of the Company s averment that Jayesh Desai or an entity he substantially controls was MSTC s consignee and that this resulted in a circular routing of money and goods. The second aspect is the Company s case regarding the transmission of funds to the Pen Bank. In the further affidavit dated 29th July 2013, the Company has set in copious details how these transactions were effected. Again, there is no cogent answer from the petitioner. Then there is a matter of the petitioner s extraordinary delay in making its claim, despite its contention that its invoices were payable no later than within 120 days. The failure of this petition is inevitable. But it must be accompanied by consequences that are both real and palpable. Received wisdom tells us that Court should be gentle in the award of costs. Indeed they should, when a party earns that clemency. It is not in every case that costs are awarded, and fewer still where the costs imposed are significant. But where the amounts are as high as they are here, where mendacity is writ large in the petition itself, there is no room for leniency - Decided against Petitioner with costs.

Issues Involved:
1. Petitioner's claim of debt owed by the respondent company.
2. Respondent company's defense against the winding-up petition.
3. Allegations of fraud and conspiracy involving multiple entities.
4. Jurisdiction and discretion of the Company Court under Sections 433 and 434 of the Companies Act, 1956.
5. Petitioner's delay in making the claim.
6. Criminal investigations and parallel proceedings.
7. Costs and conduct of the petitioner.

Detailed Analysis:

1. Petitioner's Claim of Debt:
The petitioner claimed that the respondent company was indebted to it in the amount of Rs.52,82,59,398/-. The petitioner argued that the company neglected to pay this amount despite the service of a statutory notice under sections 433 and 434 of the Companies Act, 1956, and sought an order for the company to be wound up.

2. Respondent Company's Defense:
The court found that the respondent company had a substantial and bona fide defense. The company argued that it was a victim of systematic fraud perpetrated by a director of the petitioner, in collusion with officers of the Maharashtra State Trading Corporation (MSTC) and the Pen Co-operative Urban Bank Limited (Pen Bank). The company presented three affidavits detailing the alleged fraud and conspiracy.

3. Allegations of Fraud and Conspiracy:
The company alleged that Jayesh Desai, a director of the petitioner, was involved in a fraudulent scheme where gold jewellery was routed through MSTC to a foreign entity controlled by Desai. The company claimed that Desai melted down the gold and sold it in local markets in Dubai, diverting the proceeds. The court noted that the allegations of collusion and the circuitous movement of money and jewellery were suspicious and under investigation by the CBI.

4. Jurisdiction and Discretion of the Company Court:
The court emphasized that its jurisdiction under Sections 433 and 434 of the Companies Act, 1956, is summary and does not allow for minute scrutiny of evidence. The court found that the company's defense showed a serious dispute regarding its liability to the petitioner and that the petitioner was involved in murky and illicit transactions. The court held that it was impossible to conclude that the company neglected to pay the petitioner's claim without just cause.

5. Petitioner's Delay in Making the Claim:
The court found that there was an unexplained delay of more than two years on the part of the petitioner in making its claim, despite the invoices requiring payment within 120 days. This delay was significant and undermined the petitioner's case.

6. Criminal Investigations and Parallel Proceedings:
The court noted that there were multiple proceedings involving the entities, including arbitration, civil suits, and criminal investigations by the CBI. The court held that these parallel investigations and proceedings indicated that the company's defense was substantial and required further scrutiny.

7. Costs and Conduct of the Petitioner:
The court criticized the petitioner and its director, Jayesh Desai, for their lack of candor and concealment of vital material. The court concluded that the petition was an example of a party taking its chances with the court and dismissed it with costs quantified at Rs. seven lakhs. The court refused the petitioner's request for a stay on the order of payment of costs.

Conclusion:
The court dismissed the winding-up petition, finding that the respondent company had a bona fide defense and that the petitioner's claim was not substantiated. The court also dismissed a related company application as infructuous.

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