SOM NATH JAIN Vs. OSWAL AGRO MILLS LIMITED

JUDGEMENT

(1.) THIS petition under Section 439 read with sections 433 and 434 of the Companies Act, 1956 (for short "the Act"), is by an individual for winding up of Oswal Agro Mills Ltd. , respondent No. 1 as it has failed to pay the amount due to the petitioner being unable to pay its debts within the meaning of Section 434 of the Companies Act.

(2.) RESPONDENT No. 1 is a public limited company incorporated under the Act and registered with the Registrar of Companies, Punjab. The facts giving rise to this petition may, in brief, be noticed. According to the allegations made, the petitioner entered into an agreement with the respondent-company for the purchase of shares and made the payment in the month of May, 1991, which payment is now being denied by the respondents. In a meeting which took place between the petitioner and respondent No. 2, it was agreed that the petitioner would purchase two lakhs equity shares in the company at the rate of Rs. 25 per share. The amount representing the value of two lakhs shares in the sum of Rs. 50 lakhs was to be paid through a demand draft in the name of the company and the shares were to be delivered within one week thereafter. A draft dated May 16, 1991, in the sum of Rs. 50 lakhs drawn on the Jammu and Kashmir Bank, Ludhiana favouring respondent No. 1 was delivered to J. P. Jain with a list of nominees in whose favour the shares were to be issued. A photocopy of the draft is annexure P-1 with the petition. According to the petitioner after repeated requests the respondents delivered one lakh equity shares in August, 1992, of Oswal Agro Mills Limited to the petitioner, though these shares were to be issued within a week of the payment. The petitioner in that behalf suffered a huge loss on account of the non-delivery of equity shares. The company became liable to refund the money on May 23, 1991, itself and the company by not returning the money to the petitioner has become a debtor and the petitioner has become a creditor to the extent of the amount of Rs. 50 lakhs along with interest at the rate of 24 per cent. Even if it be taken that one lakh equity shares of respondent No. 1 were delivered on August 20, 1992, the balance amount with interest remains payable, being an admitted debt. In September, 1993, one lakh shares of Bindal Agro Ltd. , were delivered to the petitioner, which shares the petitioner never agreed to purchase. The petitioner agreed to purchase the equity shares of Oswal Agro Mills Ltd. , only and as a consequence of the breach of the agreement, respondents became liable to return to the petitioner the entire sum of Rs. 50 lakhs along with interest at 24 per cent, per annum which amount stands duly accounted for in the bank statements and the account books of the company. Since the amount was not being paid by the respondents, the petitioner was compelled to issue notice under sections 433 and 434 of the Act. Notice dated April 19, 1994, is annexure P-3 and annexures P-4 to P-7 are the acknowledgment due receipts with the petition. According to the petitioner, the respondents are liable to pay a sum of more than Rs. 50 lakhs besides damages and interest. In the end, it is averred that the petitioner has now come to know that the respondent-company is unable to carry on its manufacturing function for want of funds and that it has also to pay huge amounts and thus it is unable to pay its debts and is, therefore, liable to be wound up under the provisions of the Act.

(3.) RESPONDENT No. 1 in its written statement has taken a preliminary objection namely that as per the settled law the provisions of the Act could not be used as a tool or instrument for the recovery of debts. By another preliminary objection, it has been pleaded that the petitioner has not approached the court with clean hands. It has been averred that the petitioner himself is liable to pay a sum of Rs. 1,62,00,000 to his creditor namely Diana Properties, a close business associate of respondent No. 1 and the petition has been filed with a view to pressurise respondent No. 1 to exert pressure on Diana Properties to forgo its claim. The petitioner himself negotiated with Diana Properties for the purchase of shares and has not paid the full consideration even after the lapse of three years. Again the petitioner negotiated for the purchase of one lakh equity shares of Bindal Agro Ltd. with Diana Properties. He, therefore, in the process owed a sum of Rs. 1,62,00,000 with interest. The further stand of respondent No, 1 is that no agreement took place between the petitioner and the respondent-company for the sale of shares and any petition based on a contract in violation of law is not enforceable. The petitioner by filing this petition is trying to avoid his liability qua Diana Properties. Respondent No. 1 cannot hold shares and, therefore, it could never contract with the petitioner for the sale of shares and if respondent No. 2 had undertaken to arrange for sale of shares of the company in favour of the petitioner, the claim only lies against respondent No. 2 and not respondent No. 1. Execution of the agreement for the sale of shares on behalf of respondent No. 1 has been denied. It is further the case of respondent No. 1 that in order to cultivate relations with the management of the respondent-company, which has extensive trade and industrial activities, the petitioner agreed to provide an interest free loan to the tune of Rs. 55 lakhs to the respondent-company repayable after ten years and the respondent has not denied to pay the said amount which was provided to it through two drafts, one for Rs. 50 lakhs and the other for Rs. 5 lakhs. On the merits, it is stated that respondent No. 1 could not negotiate for the sale of shares and the petitioner owes a huge amount to Diana Properties on account of the transfer of shares of the respondent-company and the petitioner is trying to avoid the payment to the said company. No document was signed on behalf of respondent No. 1 with the petitioner for the purchase or sale of shares and that J. P. Jain is not an employee or representative of the company and is thus not authorised to take any decision on behalf of the company and that the transaction/dealings, if any, are illegal and void ab initio. The existence of any agreement was denied. It is the further case of respondent No. 1 that the question of payment for the shares and interest free loan are separate and distinct transactions and the petitioner is trying to mislead the court by trying to confuse and merge the two issues and the notice was served by the petitioner with a view to create evidence and to avoid the payment of his liabilities. Respondent No. 1 received a sum of Rs. 55 lakhs from the petitioner as interest free loan and this amount is payable after ten years as agreed. It has been denied that the respondent-company is having a financial crunch.