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Judgment
Anand Byrareddy, J.—The petitioner is said to be a global bank - registered under the Companies Ordinance of the Hongkong Special Administrative Region. It is said to be functioning in India as a banking company, as defined under the Banking Regulation Act, 1949 (hereinafter referred to as the ''BR Act'', for brevity) having their principal place of business at Mumbai. The respondent is a company registered under the Companies Act, 1956 (hereinafter referred to as the "Act", for brevity) having its registered office at Bangalore. The respondent is said to be engaged in the manufacture of garments. It is said that several reputed companies in India and abroad, are said to be availing the manufacturing facility of the respondent.
It is stated that the petitioner, apart from providing banking services, also renders Factoring Services - namely, an internationally accepted financing solution that allows a client to convert its accounts receivables - to cash, thereby enabling the client to raise instant cash against its invoices. It is said that the provision of factoring services is enabled by the Central Government and the Master Guidelines issued by the Reserve Bank of India (RBI) every year, cover para-banking activities including Factoring Services.
The respondent is said to have entered into a contract with the petitioner, dated 27-3-2008, entitled - Invoice Discounting/Factoring Agreement. The facility amount which was Rs. 5 Crores initially, was enhanced to Rs. 10 Crores, as on 26-9-2008. It is claimed that the respondent committed default in repayment, in respect of which, the petitioner is said to have issued a legal notice dated 22-4-2009 demanding payment of a sum of Rs. 8,66,28,184.86 p. with interest thereon. The respondent is said to have denied the liability entirely, by its reply dated 29-4-2009.
However, it is stated, that the respondent had arrived at a settlement with the petitioner in respect of the above claim and a memorandum of agreement dated 2-7-2009 is said to have been executed by the respondent in favour of the petitioner. It is claimed that as the respondent did not abide by the commitment, the petitioner had issued a statutory notice dated 11-5-2012, under Section 434 of the Act, calling upon the respondent to repay a sum of Rs. 5,59,50,149.49 p., due as on 31-7-2010. The respondent is said to have denied the liability under a reply dated 2-6-2012. The respondent is then said to have filed a civil suit in O.S. No. 5831 of 2009 on the file of the City Civil Court, Bangalore, challenging the very transaction. Interlocutory applications for temporary injunction having been allowed by the Trial Court, the same are said to have been challenged by the petitioner in appeals in MFA No. 2714 of 2009 and connected appeals before this Court in its appellate jurisdiction. The said appeals having been allowed, the respondent is said to have challenged the same before the Apex Court in SLP (Civil) No. 25855 of 2010, which is said to have been dismissed on 11-4-2011.
It is hence contended that the respondent having acknowledged the debt in terms of the memorandum of agreement dated 2-7-2009, has thereafter sought to raise untenable objections and it is only to cover up its insolvency as it is no longer able to pay its debts and hence the present petition.
The respondent has resisted the petition and contends that it was misled into entering into the contract with the petitioner. In that, it was understood by the respondent that the petitioner would buy the debts of about eight customers of the respondent-company, at 85% of the invoice value for an aggregate sum of Rs. 5 Crores. The factoring charges, termed as interest, at the rate of 11% was to be set off against the 15% margin of the invoice value. In addition to it, the entire invoice value would be covered by insurance, for which the respondent was to pay the petitioner 0.14% of the gross invoice value. It is claimed that the respondent was led to believe that in the event of any of the customers whose invoice, had been bought by the petitioner, failed or delayed in making payment, the petitioner could recover the invoice value from the insurer, in this regard the petitioner had collected a premium under the heading "Service Charges".
It is contended that the factoring facility was not a loan, but a transaction of assignment of debt, which the petitioner had purchased. And that there was a credit cover in the event of a default by the debtor, namely the insurance cover for which premium had been collected by the petitioner at the rate of 0.14%. It is asserted that in terms of Clause 9 of the Factoring Agreement, the petitioner had a right to recourse in respect of any unappropriated debt following non-payment of its debt and in the event, the debt exceeded 100% of its credit cover, beyond a period of 60 days, the amount would be recovered from the respondent, in excess of the amount covered by insurance. It was for the petitioner to ensure that the purchase of debts did not exceed the aggregate limit of Rs. 5 Crores.
In September 2008, the petitioner is said to have enhanced the factoring limit to Rs. 10 Crores. However, the facility was said to have been limited to two of the respondent''s customers, Arvind brand and Hasbro. The insurance cover was revised and the premium collected at 0.24% of the invoice value.
It is admitted by the respondent that on account of a world wide recession in the market, during January 2009, the above said customers had defaulted in payments and the respondent had assisted the petitioner in following up the process of recovery from the above customers. This, the respondent contends, did not however, create a "borrower lender" relationship between the petitioner and itself. It is contended that notwithstanding the default on the part of the above said customers, instead of invoking a claim against the Insurance Company in respect of such defaults, relentlessly purchased further debts - with an eye on profit. When the debts mounted beyond manageable limits, pressure was brought on the respondent by the threats of treating the respondent''s account as a non-performing asset and to bring the name of the respondent in the list of the Credit Information Bureau of India Limited, thereby black listing the company in the market. The respondent is said to have lodged a complaint with the banking ombudsman in February 2009, thereby preventing any such mischief. However, the petitioner is said to have then indicated that a claim would be raised against the respondent before the Debt Recovery Tribunal (DRT) and compelled the respondent to enter into the memorandum of agreement dated 8-4-2009, to repurchase the receivables from domestic factoring facility. It is also contended that the petitioner-company also compelled the respondent to part with documents of title pertaining to certain immovable property at Arakere Village as collateral security.
It is therefore alleged by the respondent that the petitioner had departed from the terms of the agreement and resorted to extra legal methods in illegally demanding payment by the respondent and simultaneously from its customers, which was fraudulent. It is stated that the petitioner, who had made a demand for payment of a sum of Rs. 8,02,08,272/-, a sum of Rs. 3.06 Crores is said to have been paid out of sheer desperation and buckling to the extra legal methods adopted by the petitioner, of which Rs. 1.55 Crore is said to have been paid by Arvind Brands, Rs. 37 lakhs by Hasbro and the further amount of Rs. 1.14 Crore by the respondent which it was not legally obligated to pay, according to the respondent. It is thus claimed that it was in the above background that the respondent had filed the aforesaid civil suit negating the above transaction. That had ultimately resulted in the Apex Court disposing of the special leave petitions - challenging the judgments passed in appeals by this Court, against the injunctory orders issued against the petitioner, with an observation that the pending suit be decided on merits. However, it is pointed out that the Apex Court had appreciated the fact that the transaction in question was with respect to purchase and repurchase of debts in the following terms:
"ORDER
Mr. Sundaram, learned Senior Counsel appearing on behalf of the petitioners does not dispute that as on 30th September, 2010, the petitioners have to pay Rs. 5,75,51,034.35 subject to the respondents furnishing uncollected bills of that amount.
Mr. Jayant Bhushan, learned Senior Counsel appearing on behalf of the respondents undertakes to furnish photocopies of the bills within four weeks from today and on producing the said bills within four weeks, learned Senior Counsel for the petitioners states that payment would be made within a week thereafter.
List these matters after six weeks".
However, it is stated that the petitioner failed to furnish the bill wise details against which the claims were made. However, the petitioner is said to have lodged recovery proceedings against the respondent before the DRT, seeking recovery of a sum of Rs. 5.60 Crores, as if it was a loan amount due from the respondent.
It is contended that it was the responsibility of the petitioner to manage the debts that were assigned to it by the respondent-company without calling upon the respondent-company to monitor the repayments and that an irrevocable power of attorney has been executed by the respondent-company for collection of all assigned debts. The respondent-company contends that the petitioner is attempting to pass on the responsibility of the debt account management on the respondent-company, which in the first place is not as per the terms of the Factoring Agreement.
It is pointed out that the Factoring Agreement being one that provides for a Right of Recourse, the same is defined thus in the agreement:
"Right of Recourse
9.01 The Bank shall have the right to immediate Recourse:
(a) in respect of each unapproved debt, following non-payment by its due date for payment;
(b) of all outstanding debts, upon the happening of a termination event or the giving of a notice to terminate this agreement under condition 2.01;
(c) where the credit cover is neither zero nor 100%, in respect of the amount of each approved debt that exceeds the credit cover to the extent that it does so on the 60th day after its due date for payment or, if earlier, the date of insolvency of the relevant customer; and
9.02 The amount payable by the client to the bank in accordance with Condition 9.01(a), 9.01(b) or 9.01(c) shall be the amount prepaid (if any) by the bank to the client in respect of the debt in question pursuant to Condition 4. The amount payable by the client to the bank in accordance with Condition 9.01(d) shall be the purchase price of the debt in question. The client shall pay all such amounts on receipt of demand for payment from the bank.
9.03 All debt and associated rights the subject of Recourse shall remain vested in the bank until the repurchase price of all such debts has been paid; any amount received by the bank in relation to a debt after payment of such repurchase price shall be paid to the client".
It is hence contended that the petitioner was primarily obligated to recover the money from the customers of the respondent-company, without seeking any instructions on the manner in which it should be recovered and allocated from the respondent-company. Moreover, the petitioner had a right to seek recourse from the respondent-company on fulfilling three conditions:
(a) That the amount factored would have to exceed the sanctioned limit of Rs. 100 Millions and that after the customers of the respondent-company becoming insolvent and unable to pay the amount to the petitioner; and
(b) The amount to be claimed from the respondent-company has to be over and above the risk cover;
(c) Having accepted the complete and exclusive responsibility of recovering the amounts from the respondent-company''s customers, the petitioner had no business in the first place to ask the staff of the respondent-company to allocate any bills of Arvind Brands or Hasbro Clothing as against amounts purportedly recovered by them for reasons that:
i. The respondent-company had no account in the like of a bank account with the petitioner to monitor credit and debit as the petitioner is not the banker of the respondent-company.
ii. Secondly, as per declaration made by the petitioner, it was to manage the respondent-company''s entire debt, which was assigned at a discount covered by service charges towards risk cover.
iii. The moment the goods are sold, the invoices are also sold to the petitioner and hence not shown as outstanding in the books of account of the respondent-company and the respondent-company''s balance-sheet is clean and clear. There is not even a provision for contingent liability in the books of the respondent-company. It is significant to note that before the enhancement of limits from Rs. 50 Millions to Rs. 100 Millions, the balance-sheet of the respondent-company was scrutinised by the petitioner, wherein there is no reference to sundry debtors corresponding to the garment sales to Arvind Brands and Hasbro clothing insofar as factored bills.
The respondent has thus, in its elaborate pleadings, claimed that the petitioners are guilty of:
(a) claiming a sum of Rs. 8,68,54,150.27 despite not having funded bills corresponding to the same;
(b) not returning the bills worth Rs. 8,39,03,170.00 once they purportedly failed to recover the same from ArVind Brands and Hasbro Clothing;
(c) by misleading the Supreme Court that a sum of Rs. 5,75,51,034.00 was outstanding despite the fact that they had not reconciled the accounts and that they had not returned unfunded invoices to the tune of Rs. 8,68,54,150.27;
(d) misleading the Supreme Court that an amount of Rs. 4,06,94,394.75 was outstanding when bills corresponding to the same were admittedly paid by Arvind Brands and Hasbro Clothing;
(e) filing false affidavits before this Court about encashing security cheques provided by the respondent despite an undertaking by them before this Court not to precipitate the matter.
It is further contended that without even issuing the required notice under Section 138 of the Negotiable Instruments Act, 1881, the petitioner filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 before the Magistrate, which came to be dismissed by order dated 23-6-2012.
In the above facts and circumstances, it is evident that the respondent has seriously disputed its liability, only with reference to any undertaking to pay a certain amount of money, in the face of other attendant circumstances and the negation of the very basis for any such liability in the first instance being in the nature of a debt.
It is well-settled that a creditor may seek the assistance of the Company Court under Section 433 of the Act, to compel payment of monies due to him. But, where a debt is bona fide disputed and where the claim appears to the Court as not just, it is open to the Court to refuse the request for a winding up order and to leave the parties to their remedies, to have their claims adjudicated before the appropriate forum.
It is not for the Court hearing a petition for winding up under Section 433(e) of the Act to assess evidence and render judgment either refusing a decree or to draw up a decree in favour of the petitioner and then proceed to wind up the company.
In the present case on hand, this Court is satisfied, prima facie, that the defence raised is bona fide and is likely to succeed in a Civil Court. Hence the petition is rejected. This is however, without prejudice to the case of the petitioner on the merits of the case, which is yet to be adjudicated before the appropriate forum.