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TMI Blog1992 (11) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... ion known as Doro, situated at Nanora Village of Bicholim Taluka, entered into an agreement on August 4, 1987, by virtue of which Messrs. Narayan R. Bandekar and Sons Pvt. Ltd. (for short "Bandekar Sons"), were permitted to carry out the work of extracting, raising, processing, loading and delivering iron ore into trucks employed by and on behalf of the petitioners at the mines on conditions that Bandekar Sons are to extract a minimum quantity of one lakh wet tonnes (WMT) of iron ore to be delivered to the petitioners ; that in case of any shortfall in the extraction quantity, Bandekar Sons are liable to pay a compensation of Rs. 10.35 per WMT of quantity short-raised ; that Bandekar Sons were to be paid by the petitioners a remuneration of Rs. 24.65 per WMT of iron ore delivered ; that upon determination of this agreement the petitioners were given option to purchase lands, buildings, structures, all or in part at a fair value, valuation to be made by a qualified third person, in the event no agreement or fair value is reached by and between the parties, an interim ad hoc determination of value to be paid for obtaining vacant possession thereof. Subsequently, the said agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen presented for payment was also returned unpaid by the Canara Bank on May 24, 1989, with the same remark. The further story is that Bandekar Sons was unable to fulfil their obligation to extract the minimum quantity of 3 lakhs WMT under the agreement dated August 4, 1987, read with the further agreement dated August 18, 1987, or to repay the short-term loan of Rs. 41 lakhs. In or about May, 1989, Bandekar Sons approached the petitioners, expressed their inability to extract the minimum quantity of iron ore and on admitting difficulties in fulfilling the obligations cast under the agreement dated August 4, 1987, as modified by the agreement dated August 18, 1987, the petitioners were requested to treat the contract as rescinded forthwith and agreed to return the amount of Rs. 41 lakhs, which was advanced by way of financial assistance, as also to pay to the petitioners a sum of Rs. 25 lakhs towards liquidated damages for failure to perform their obligations under the said agreement dated August 4, 1987, as amended by the agreement dated August 18, 1987. It is the case of the petitioners that they agreed to rescind the agreements and to accept Rs. 25 lakhs by way of full and fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird, fourth and fifth parts full discharge of their liabilities for the repayment of the said total amount of Rs. 66,00,000 for the repayment of which all the said parties bind themselves jointly and severally, with further agreement with the creditors who shall be entitled to immediate recovery of the said amount or part thereof remaining unrecovered from the parties of the aforesaid parts. (2)Debtor No. 1, viz. , the party of the second part herein have relinquished the possession of the said mining concession 'Doro' in favour of the creditors with whatever machineries, ores, utensils, sheds, and/or other accessories lying within the said mining area in order that the creditors may be at liberty to deal with the same in the manner deemed fit by them. (3)It is further also expressly agreed that in the event of the cheques being returned dishonoured, for whatever reasons attributable to any or all the parties of the second, third, fourth and fifth parts the debtors together with parties of the third, fourth and fifth parts shall be liable for criminal prosecution in addition to civil action against all the parties of the second, third, fourth and fifth parts to entitle the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany had been preoccupied and was not in a position to send a comprehensive reply and that it would be sent subsequently. However, no further reply was made nor have the petitioners received payment of Rs. 66 lakhs along with compound interest and that is how this company petition was subsequently lodged. A reference has been made that there are several winding up petitions filed in this court against the company and the company is in financial difficulties. The liabilities of the company are more than its assets and it is also just and equitable that the company be ordered to be wound up under the orders and directions of this court. It is also averred that the company has become commercially insolvent and that on a search being taken of the file lying with the Registrar of Companies it is noticed that no returns are filed for the periods ending March 31, 1989, and March 31, 1990, and that the cash losses suffered by the company for the year ending June 30, 1986, June 30, 1987, and June 30, 1988, are more than the net worth of the company in the amounts of Rs. 167.11, Rs. 290.69 and Rs. 381.34 crores respectively. Relying upon the balance-sheets, these averments are sought to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the company, is not based upon factual assessment of damages and in fact such damages are required to be proved by the petitioners, that too, after leading appropriate evidence that the loss suffered was on account of non-extraction of ore by Bandekar Sons. It is then said that the said sum of Rs. 25 lakhs is not a penalty under the agreement dated August 14, 1989, and cannot be recovered unless the actual amount of damages suffered by the petitioners is shown and the petitioners satisfy this court that they had taken all steps to mitigate the loss, if any, suffered by them as they were obliged to do by law. At any rate the question as to how damages are to be calculated on the basis of any alleged breach of contract is one of law on the basis of given facts. Another defence is that the iron ore lying at the mines on the date the Mining Concession Doro was handed over to the petitioners is of a value exceeding Rs. 25 lakhs and in that context Bandekar Sons would not be liable to pay anything and, therefore, as guarantors there is no liability for the company. Thereafter, several circumstances are set out to show that Bandekar Sons had taken this mine initially from the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The credit for Rs. 10 lakhs is also required to be adjusted, which was payable by the petitioners to Messrs. Rashmi Exports and this liability is known to Anil Salgaonkar when he obtained a controlling interest from the earlier group of shareholders based on business principles and moralities with the machinery left on the mining site after handing over the concession pursuant to the agreement dated August 14, 1989, is worth more than Rs. 10 lakhs and which is finally left deteriorating in the Mines. The screening plant is itself valued at Rs. 10,06,100. 63,000 tonnes of iron ore is of the value of Rs. 20,83,946.80. Anil Salgaonkar has been paid through the hands of M.S. Prabhu a sum of Rs. 26,44,500 for which credit is liable to be given to the company. On proper accounts, it is the petitioners that are required to pay substantial amounts to the company. That these companies are only wearing corporate facade and if the corporate veil is lifted they are nothing but concerns of one and the same family. Shri Chagla, learned counsel appearing for the petitioners, has contended that on the facts and regard being had to the unambiguous and well intended agreement dated August 14, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the petitioners. It must be noted that under various receipts M.S. Prabhu has received Rs. 26,44,500 and this is the case set up by the company. The receipts are alleged to be signed by M.S. Prabhu, who has, however, denied them. Out of this amount of Rs. 26,44,500, the last payment is alleged to be Rs. 15 lakhs in cash and there is no receipt admittedly given by M.S. Prabhu. The receipts so called are prior to July 26, 1989. This latter date has a bearing because the last agreement under which the Mines Doro was relinquished by Bandekar Sons is dated August 14, 1989. In other words as on August 14, 1989, the company and its sister concern were aware of the transactions as to what payments are made to M.S. Prabhu. It is inconceivable that a cash payment of Rs. 15 lakhs could be made on November 15, 1989, without obtaining a receipt from M.S. Prabhu when earlier payments, even a small sum of Rs. 10,000, are covered by receipts. The story, therefore, becomes highly doubtful. An attempt made by Shri Zaiwalla is that the company made its stand clear as early as December 5, 1989, some time after the dishonour of the cheques and the petitioners' reaction to that came about only on F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the agreement of August 4, 1987, clause 12 specifically states that on determination of that agreement the petitioners shall have the option to purchase the land, buildings, structures, all or in part at a fair value and if the parties do not reach any fair valuation, it can be got done by an acceptable and qualified expert. To the same effect more or less is what is stated in the agreement dated August 18, 1987, that the petitioners shall have a right over the ore extracted and the machinery employed within the Doro Mines. In the background of these stipulations Shri Zaiwalla says that clause (2) of the agreement dated August 14, 1989, will have to be viewed in its proper construction and perspective. Clause (2) of this agreement reads : "Debtor No. 1, viz., the party of the second part herein have relinquished the possession of the said Mining Concession 'Doro' in favour of the creditors with whatever machineries, ores, utensils, sheds and/or other accessories lying within the said mining area in order that the creditors may be at liberty to deal with the same in the manner deemed fit by them". I do not think that much effort is needed to view that aspect though indeed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to be made to suggest and some analysis reports are also relied upon that the ore left behind is of exportable quality with 57 per cent. Fe content and, therefore, it could not have been surrendered for a song. The petitioners have in fact relied upon some documents annexed to the valuation report that Rashmi Exports itself had, as late as October 31, 1990, valued its ore at Rs. 32,58,900 for 63,900 tonnes ; it is not disputed but it is contended that its value is more than one crore. If Rashmi Exports has itself made its valuation as on October 31, 1990, at Rs. 32,58,900, it is difficult to accept that its value has now been enhanced to such a high proportion. A point has been made by Shri Zaiwalla that there are inter se transactions between the other sister companies to which amounts are due from the petitioners and upon taking all the accounts in the end it is the petitioners who will be found owing to the company sought to be wound up or the other sister companies. Shri Zaiwalla says that finally it must be seen by this court whether it is permissible for the court to lift the corporate veil. All these companies are nothing but the family concerns of Narayan Bandekar an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of splitting of the contract Shri Chagla has rightly placed reliance on the decision of Radhakissen Chamaria v. Durgaprasad Chamaria, AIR 1932 Cal 328. Shri Zaiwalla does not seem to be right when he contends that merely because the company had adopted a clear cut stand in its letter of December 5, 1989, that there were personal discussions between the managing director of the petitioners and Narayan Bandekar and that it was agreed that in terms of clause (2) of the agreement dated August 14, 1989, the issue of payments made, machinery, ore, shed, etc., and/or other accessories would be amicably settled and to withhold the cheque for Rs. 66 lakhs subject to the settlement of that issue. This defence taken that there was some other oral agreement, is not permissible to be looked into. Section 92 of the Indian Evidence Act, in my view, is a clear bar to this argument. What is sought to be contended is there were discussions as a result of which it was agreed that matters relating to payments made, machinery, ore, shed, etc., and/or other accessories would be settled pursuant to clause (2) of the agreement dated August 14, 1989, and, secondly, that the cheque for Rs. 66 lakhs shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to section 92 of the Evidence Act. Admittedly, the petitioners are armed with a cheque for Rs. 66 lakhs. Shri Chagla is right when he places reliance on Chhaganlal Kalyandas Shah v. Jagjiwandas Gulabdas [1939] 41 BLR 1263, that proviso 3 to section 92 of the Evidence Act presupposes that the contract, grant or disposition of property itself remains intact but the condition precedent pleaded must in its very nature be extraneous to the contract, grant or disposition itself and as agreed must come into existence before the obligation attaches thereunder. A suit on a promissory note passed by one partner to another as a result of adjustment of a part of the partnership account is held maintainable without bringing a general suit for taking accounts of the partnership. In the decision of Shivlal Bhurabhai Vora v. Bai Sankli, AIR 1931 Bom 297, it was observed that where the condition precedent is a condition without fulfilment of which there is in effect no written agreement at all, then the same shall be hit by proviso 3 of section 92. Shri Zaiwalla has indeed pointed out that oral evidence is permissible to prove the existence of a separate oral contract. He, therefore, says that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistencies in the stand of the company. I need not dilate on this matter and say that Bandekar Sons as principal debtors under the agreement dated August 14, 1989, have not reacted and it is the company, as guarantor, which is trying to wriggle out of the situation. The construction of clause (2) of the agreement dated August 14, 1989, was never challenged in that suit and the basis of the suit for seeking relief of permanent injunction was the parole agreement. What is not less worthy to be seen is that when that suit was instituted and when the case of the company is on lifting the corporate veil, a sum more than what is claimed by the petitioners is liable to be paid, yet no leave was sought under Order II, rule 2, for making a claim at a later date against the petitioners. The agreement itself was not challenged on the ground that there was no consideration. Therefore, the story of the company has to be rejected and it must be held that the defence lacks bona fides. In the context of the findings and conclusions that I have reached, I find nothing to distinguish from the cases cited by learned counsel for the company. For instance in the decision of Federal Chemical Works Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Company Petition No. 13R of 1990. In answer it has been brought to my notice that the order of the learned single judge was challenged in appeal and the matter was thereafter compromised. In the case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Private Ltd., AIR 1971 SC 2600 ; [1972] 42 Comp Cas 125 , it was held that when a debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. The authority further lays down that the principles on which the company court acts are, firstly, that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and, thirdly, that the company adduces prima facie proof of the facts on which the defence depends. Applying these principles it is clear that the debt in so far as the agreement of August 14, 1989, is concerned is undisputed and the company cannot be heard to dispute that undisputed and confirmed debt. I have already highlighted that there is no defence for the company which can be styled as one of substance. Taking every circumstance of this case, it must ..... X X X X Extracts X X X X X X X X Extracts X X X X
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