2016 (7) TMI 1155 - HC - Companies Law

Winding up proceedings - Held that - No attempt has been made in the present proceeding to show how the materials now being relied upon so substantially undermine the findings in the previous orders as to justify a modification of those directions. The letters are part of the record; ABN Amro s explanation is of no consequence given that DAAI had remitted the amount towards services rendered. In the opinion of this Court the learned Single Judge cannot be faulted for refusing to vary the directions in the previous order because the materials - i.e. income tax orders unrelated Company Law Board proceedings etc. do not show that the basis or substratum of the previous judgment has eroded. The Company Law Board proceedings do not concern the viability of DAIL; they relate to the management of other companies and the alleged misfeasance of individuals including Palaniswamy; he appears to have been incarcerated for some time. The orders made in criminal proceedings similarly reflect the merits of the contentions made there. Their relevance in determining whether the amounts received in DAIL s no lien escrow account which was permitted with the secured creditor s permission (on the representation that it would be used to receive investor s contributions) from its subsidiary for services rendered are not really so. As noticed earlier all indications are to the contrary. The explanation now sought to be given i.e. that Odyssey made over the amounts to DAAI as part of a conditional loan do not detract from the inferences justifiably forming the basis of the previous judgment of 18.11.2005.

Issues Involved:
1. Obligation to remit funds as per previous court order.
2. Winding-up petition and appointment of Provisional Liquidator.
3. Financing and secured creditor claims by Canara Bank.
4. Alleged unauthorized transfer of funds and subsequent legal actions.
5. Compliance with RBI regulations and tracing of funds.
6. Legal principles of trust, restitution, and unjust enrichment.
7. Impact of income tax proceedings and Company Law Board orders on the case.
8. Jurisdictional and procedural challenges in related legal proceedings.

Detailed Analysis:

1. Obligation to Remit Funds:
The appellant, Cheran Enterprises Pvt. Ltd. (CEPL), appealed against a judgment dismissing their applications to relieve them from remitting Rs. 35,30,46,482/- with ABN Amro as per a previous order. The court had directed CEPL to remit the amount back to the account of Data Access India Ltd. (DAIL) maintained with ABN Amro Bank, which was to be transferred to Canara Bank due to its secured creditor status.

2. Winding-up Petition and Appointment of Provisional Liquidator:
The winding-up petition filed by Pacific Convergence Corporation Ltd. against DAIL under Section 433(e) read with 434 of the Companies Act was admitted, resulting in the appointment of a Provisional Liquidator. The court found that DAIL had lost its substratum, was not engaging in business activities, and had no prospect of revival, justifying the winding-up.

3. Financing and Secured Creditor Claims by Canara Bank:
Canara Bank, as a secured creditor, had financed DAIL’s business and claimed a lien over all of DAIL’s book debts. DAIL had executed a Deed of Hypothecation in favor of Canara Bank. The bank initiated proceedings before the Debts Recovery Tribunal and claimed that the funds received from Data Access America Inc. (DAAI) were subject to its lien.

4. Alleged Unauthorized Transfer of Funds and Subsequent Legal Actions:
The court observed that funds received in DAIL's account with ABN Amro were transferred to various accounts, including CEPL’s, which was contested by Canara Bank. The court found that the transfer of funds was an attempt to place them beyond the reach of creditors, specifically Canara Bank. The court confirmed the interim order restraining the transfer of these funds and directed their return to DAIL’s account.

5. Compliance with RBI Regulations and Tracing of Funds:
The court noted that no permission from the RBI was obtained for the foreign exchange transaction, which was required if the funds were to be considered a loan from DAAI to DAIL. The court relied on the principle of tracing and restitution, emphasizing that the funds should be returned to Canara Bank, which had a legitimate claim over them.

6. Legal Principles of Trust, Restitution, and Unjust Enrichment:
The court applied the principles of trust and restitution, citing several legal precedents. It held that the funds held by DAIL were trust money and could not be intermingled with other funds. The court emphasized that unjust enrichment must be restituted, and the funds should be returned to Canara Bank.

7. Impact of Income Tax Proceedings and Company Law Board Orders on the Case:
The court dismissed the appellant’s argument that subsequent income tax proceedings and Company Law Board orders should affect the previous judgment. It held that these proceedings did not undermine the basis of the previous judgment, which had attained finality and required compliance.

8. Jurisdictional and Procedural Challenges in Related Legal Proceedings:
The court addressed various jurisdictional and procedural challenges raised by the appellant, including the significance of orders from the Madras High Court and the Company Law Board. It held that these orders did not negate the effect of the previous judgment, which had been upheld by the Division Bench.

Conclusion:
The appeal was dismissed, and the court directed CEPL and related entities to comply with the previous order by remitting the funds to Canara Bank. The court emphasized the importance of adhering to legal principles of trust, restitution, and unjust enrichment, and rejected the appellant’s arguments based on subsequent legal proceedings.

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