2014 (4) TMI 766 - HC - Companies Law

Winding up of company - Breach of contract - non payment of dues under derivative transaction - Held that - The matter must either be documented if the assertions are said to be affirmed on the basis of available records, or, being undocumented, must be to the personal knowledge of the person who affirmed the petition. That affirmation is by one Atulya Sharma, and, as Mr. DeVitre points out, he categorically says that he affirmed the petition on the basis of information derived from the petitioner s records . That must necessarily mean some contemporaneous record of these critical assertions. There is none. What is more puzzling is this reference to 4 30 pm as the transaction time. This is the time after which, according to Deutsche Bank, the Japanese Yen reached the entry level of 118.55 allegedly specified by Finolex. But this time of 4 30 pm IST is inexplicable. Throughout, the reference is only to 3 00 pm Tokyo time, about 11 30 am IST. At the time the Tokyo exchange opened and when, according to Deutsche Bank, the Japanese Yen crossed the barrier event mark, it would have been very early in the morning in India, well before 10 00 or 11 00 am. When, exactly, therefore the Japanese Yen hit the so-called entry-level is unknown. If it reached that level at the specified Tokyo time, 3 00 pm, that was 11 30 am IST, and the contract execution time of 4 30 pm mentioned by Deutsche Bank is meaningless and without cogent explanation. If the Japanese Yen had indeed crossed the entry-level mark, descending from its barrier-event mark at the start of the day s trading, and if that was at or before 3 00 pm Tokyo time, 11 30 am IST, then there was not only no reason to wait till 4 30 pm, but there is also no explanation for this, nor an explanation as to how the Yen could have crossed the entry-level mark at 4 30 pm IST (about 8 00 pm Tokyo time), given that the transaction is linked to a Tokyobased reporting index and the spot rate for every Fixing Date is pegged to 3 00 pm Tokyo time. There are several crucial, yet careful, elisions in this Company Petition, apparent when it is set beside Deutsche Bank s Original Application No.160 of 2009 filed before the Debt Recovery Tribunal. Before the latter, Deutsche Bank said there were telephone discussions between Finolex and Deutsche Bank s Treasury Department in Mumbai. This is not to be found in the Company Petition - There are other such assertions in the Original Application as well - This creates another conflict between Deutsche Bank s position in two parallel, factually similar but distinct proceedings. If, as Deutsche Bank says in the Original Application before the Debt Recovery Tribunal, there is evidentiary material of this telephone conversations and emails and, in particular, of Finolex specifying an entry point, and if the Term Sheet or Confirmation Sheet are supposed to affirm or confirm these, then one might reasonably expect to see these specifics properly reflected in the signed documentation an endorsement, perhaps, of the specified entry level, or a confirmation that the document was not to be executed till a certain event happened. There is simply no such evidence. There is no equivalence between a proceeding in the Debt Recovery Tribunal under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and a winding up petition under Sections 433 and 434 of the Companies Act, 1956. This does not and cannot mean that a company court, in exercise of its equitable jurisdiction, must, only because of the pendency of a proceeding in the other forum, proceed on the a priori assumption that the debt claimed is undisputed - Decided against Petitioner.

Summary

Issues Involved:
1. Legality and validity of the derivative transaction.
2. Alleged breach of the Reserve Bank of India (RBI) Master Circular.
3. Whether the transaction constitutes a wagering contract.
4. The timing and execution of the derivative transaction.
5. Whether the transaction was knocked out on the trade date.
6. The impact of oral instructions and their documentation.
7. The relevance of pending proceedings before the Debt Recovery Tribunal (DRT).

Issue-wise Detailed Analysis:

1. Legality and Validity of the Derivative Transaction:
Deutsche Bank AG claimed an amount of US$ 21,001,543.71 (plus interest) from Finolex Industries Ltd under a derivative transaction based on a 2002 ISDA Master Agreement. Deutsche Bank argued that the derivative transaction was legal and valid, citing previous similar transactions between the parties, none of which had been disputed. The bank contended that the current transaction was restructured twice at Finolex's request and there was no breach of statutory or regulatory requirements.

2. Alleged Breach of the RBI Master Circular:
Finolex argued that the transaction violated the RBI Master Circular regulating derivative transactions. However, the court did not find it necessary to examine this defense in detail, as there were other sufficient defenses raised by Finolex.

3. Whether the Transaction Constitutes a Wagering Contract:
Finolex contended that the derivative transaction was a wagering contract and hence illegal. This defense was part of a broader argument that the transaction was contrary to statutory and regulatory requirements. The court noted that this issue was not yet decided and required further examination.

4. The Timing and Execution of the Derivative Transaction:
A key issue was whether the transaction was executed at 4:30 pm on 9th August 2007, as claimed by Deutsche Bank, or if it was knocked out earlier in the day when the Japanese Yen crossed the barrier event mark. Deutsche Bank asserted that oral instructions from Finolex specified that the transaction should be entered into only when the USD/JPY rate reached 118.55, which allegedly occurred at 4:30 pm. However, there was no contemporaneous record of these instructions, and the court found this assertion problematic.

5. Whether the Transaction Was Knocked Out on the Trade Date:
Finolex claimed that the transaction was knocked out on the trade date itself, as the Japanese Yen crossed the barrier event mark of 119.30. Deutsche Bank argued that the barrier event occurred before the transaction was executed, and thus the transaction was valid. The court found that this factual controversy required evidence and could not be resolved summarily.

6. The Impact of Oral Instructions and Their Documentation:
Deutsche Bank's case relied heavily on alleged oral instructions from Finolex, which were disputed by Finolex. The court noted that these instructions were not documented and that Deutsche Bank's petition lacked adequate particulars regarding these instructions. The court emphasized the need for evidence to establish these claims.

7. The Relevance of Pending Proceedings Before the DRT:
Deutsche Bank had filed an application before the DRT for recovery of dues, while Finolex had initiated civil recovery proceedings against Deutsche Bank. The court noted that the issues in these proceedings overlapped with the factual matters in the winding-up petition. The court referenced the decision in Viral Filaments Ltd v IndusInd Bank Ltd, which held that a winding-up petition need not be preceded by an adjudication by the DRT. However, the court found that the factual disputes in this case required investigation and could not be resolved in a summary manner.

Conclusion:
The court dismissed the winding-up petition, finding that Finolex's defenses were not without merit or substance. The court emphasized that the factual controversies raised by Finolex required evidence and could not be resolved summarily. The court also noted Finolex's sound financial position, which supported the decision to dismiss the petition. The pending applications for inspection and interim relief were disposed of as infructuous.