2018 (10) TMI 978 - HC - Companies Law

Winding up petition - debt due and payable - Held that - As noted earlier not a single document has been produced on record by the appellant to demonstrate that the appellant's dealer, either on 15th July, 2013 or even within 2-3 days thereafter actually corrected/modified or for that matter attempted to correct/modify the alleged error in punching in in the respondent's UCC in the record of the NSEL. This is despite the fact that the appellant, both in response to the statutory notice as well as in its reply opposing the company petition, has time and again asserted that such modification/correction was in fact carried out. Again, there is also no material produced on record by the appellant to even prima-facie establish that the factum of alleged error/mistake as well as its immediate correction/modification was intimated to the respondent either on 15th July, 2013 or within some reasonable period thereafter. In such circumstances, we cannot really fault the view taken by the learned Company Judge in holding that the defense raised by the appellant was neither bona-fide nor substantial. Mr. Sancheti, however chose to rely upon NSEL circular dated 8th July, 2011 in support of the primary defense. He submitted that this circular makes it clear that the NSEL permits client code modification and therefore, on the basis of such circular, it must be held that errors in punching in the client's code are quite routine and correction/modification is clearly permissible. Mr. Sancheti submits that on the basis of this circular the primary defense raised by the appellant deserves to be accepted. If modification had indeed been effected by the appellant, as repeatedly asserted, then surely the same would have been reflected in the records of NSEL, which was fully operational between 15th July, 2013 and 30th July, 2013. Admittedly, no such modification/correction is reflected in the records of the NSEL. As noted earlier the NSEL by its communication dated 29th September, 2014 has very clearly stated the subject trades stand recorded in the name of Sujana and not in the name of the NSEL. Therefore, it is not possible to accept Mr. Sancheti's contention that the NSEL circular dated 8th July, 2011 constitutes any prima-facie proof in relation to the primary defense urged by and on behalf of the appellant. In the facts of the present case it is difficult to accept that the defense raised by the appellant is either bona-fide or substantial. In any case, the appellant has failed to adduce any prima-facie proof in support of the primary fact on which the defense is based. Mr. Dhond, had in fact pointed out that this may not be some isolated instance, since, even criminal prosecution is launched against the appellant/its officers for routinely increasing trade volumes by deliberately punching incorrect client codes. In a jurisdiction of the present nature, obviously, we cannot go into such issues.

Issues Involved:
1. Whether any 'debt' was due and payable by the appellant to the respondent.
2. Whether the winding-up petition was maintainable based on allegations of misrepresentation and fraud.
3. Whether the primary defense raised by the appellant regarding the punching error and subsequent correction was bona fide and substantial.
4. Whether the secondary defenses raised by the appellant were credible.
5. Whether the exercise of discretion by the Company Judge was reasonable.

Detailed Analysis:

1. Debt Due and Payable by the Appellant:
The appellant argued that no debt was due and payable unless the amount was received from the National Spot Exchange Limited (NSEL). The appellant acted as a broker for the respondent, trading in paired contracts of sugar. The respondent advanced ?1,45,79,032/- for these trades. However, due to the suspension of NSEL operations, the appellant claimed it could not pay the respondent until it received funds from NSEL. The respondent countered that the amount was never utilized for trading on its behalf, and thus the appellant owed this sum to the respondent.

2. Maintainability of Winding-Up Petition Based on Misrepresentation and Fraud:
The appellant contended that allegations of misrepresentation and fraud could not be adjudicated in a summary jurisdiction under the Companies Act and required a full trial. The respondent argued that the appellant utilized the funds to trade in the name of another client, Sujana Sudini, rather than the respondent, which constituted misrepresentation.

3. Primary Defense of Punching Error:
The appellant claimed a punching error in entering the Unique Client Code (UCC) for the respondent's trades, which was corrected offline after trading hours. The appellant asserted that this error was communicated to the respondent. However, the NSEL's communication indicated that the trades were recorded in the name of Sujana, not the respondent. The court found that the appellant failed to produce prima facie proof of the error and its correction, deeming the defense neither bona fide nor substantial.

4. Credibility of Secondary Defenses:
The appellant's secondary defenses included the assertion that the respondent had received proportionate payments, indicating the trades were conducted on its behalf. The appellant also argued that the respondent's statutory notice demanded ?1,47,94,679/-, suggesting enforcement of paired contracts. The court found these defenses unconvincing as the primary defense was not established. The statutory notice only demanded ?1,45,79,032/-, the amount advanced for trading.

5. Exercise of Discretion by the Company Judge:
The Company Judge's order required the appellant to deposit ?1,45,79,032/- within eight weeks, failing which the petition would revive and be advertised. The court held that the Company Judge exercised discretion reasonably, providing the appellant an opportunity to deposit the amount and avoid winding up.

Conclusion:
The court dismissed the appeal, finding no substantial defense by the appellant. The appellant failed to provide prima facie proof of the punching error and its correction. The secondary defenses were also found lacking. The Company Judge's discretion was upheld, and the order to deposit the amount within eight weeks was deemed appropriate. The interim order was extended for four weeks.

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