Dismissed

K. Sera Sera Production Ltd. v. Maharashtra Film State and Cultural Development Corpn.

Bombay HC19 Jun 2008CP/181/2004

Case brief

AI extract

What is this about?

In a company petition for winding up, the Bombay High Court examined a dispute over funds advanced by the petitioner to a government respondent for show production. The respondent alleged fraud by its officials, stating money did not reach corporate accounts. The court held the dispute was bonafide and dismissed the winding up petition, directing recovery suits on merits.

What did the court decide?

Petition for winding up dismissed; no case made out to entertain it; recovery proceedings must be decided on separate merits.

1. Heard Mr.Patel appearing for the petitioner and Mr.Apte for the respondent. This Company Petition for winding up is presented by the petitioner. The petitioner Company was earlier known as "Garnet Paper Mills Ltd.". The certificate of Registration in the name of the petitioner has been issued on 22nd October, 2002.

2. It is stated that the respondent is a Government of Maharashtra Enterprise. It is a corporation which is set up for the purposes of encouraging film, stage and cultural development in the State. The objects have been set out and thereafter it is stated that in or about August 2002 the Company entered into an contract

dated 12th April, 2002 with Set India Pvt Ltd.(for short "SET") whereunder SET had agreed to acquire exclusive right in respect of 13 shows/episodes of 3 hours duration each to be produced and showed by the respondent Company at Film City. There is a contract between SET and the respondent. The contract with SET states that it had agreed to pay to the Company a sum of Rs.1.7 crore per show and Rs.12.78 crore in the aggregate for 13 shows. The SET paid to the respondent Company a sum of Rs.3 crores in advance. Thereafter, the respondent Company was in need of funds and that is how it approached the petitioner and requested it to provide funds for purposes of shooting, producing and organising the shows. It is stated in the petition in para 4(e) that the arrangement was that respondent would initially stage/produce 5 shows and submit Master Tapes of 5 shows to SET for its approval and thereafter it will produce 4 further shows in the second stage.

3. The Agreement in question is dated 08th August, 2002 according to the petitioner. A copy of it is enclosed as Exhibit B. The Agreement contemplates that the petitioner would lend a total sum of Rs.9 crores to the Company for production of 13 shows which the respondent had agreed to sell to the SET. Initially, Rs.3 crores were to be forwarded. As part payment, the

petitioner paid Rs.1.5 crores, Receipt of which was acknowledged, according to the petitioner, by the Company in the Agreement itself. The amount was paid by an account payee cross cheque in favour of the respondent. In para 5 of the petition it is stated that the cheque was handed over to the then Managing Director of the respondent. The cheque was duly deposited and encashed by the respondent and that is how a post dated cheque for Rs.1.5 crores dated 24th August, 2002 was forwarded. It was to be deposited only in the event of 5 shows being delivered by the respondent to the SET. Thus, that cheque being forwarded is not solely made the basis of the claim.

4. It is not necessary to refer to the other averments in the petition, save and except, para 7 thereof. It is clear from the averments of the petition that the respondent handed over only one show to the SET and nothingelse was handed over or produced. Therefore, the occasion by the petitioner to forward the further sum of Rs.1.5 crores did not arise. The question was of repayment of the sum of Rs.1.5 crores which was already lent and advanced according to the petitioner.

cheque. The SET did not pay any further sum to the petitioner. Therefore, the petitioner demanded re-payment of the sums advanced from the respondent. It is in such circumstances that the petition proceeds to state that petitioner was entitled to deposit the cheques allegedly issued and handed over by respondent on 08th November, 2002. In view of the reduced liability of the petitioner, the Company according to the petitioner has issued a fresh cheque dated 15th December, 2002 for Rs.90 lakhs in lieu of the earlier cheques of Rs.1.5 crores. The respondent also agreed to issue a fresh cheque for Rs.17,50,000/- towards interest. The case of the petitioner is that it called upon the respondent to issue a fresh cheque of Rs.17,50,000/- in lieu of earlier cheque of Rs.35 lakhs dated 08th November, 2002 but it did not forward the cheque or pay the amount.

has been replied and the reply is referred to. It is stated that the Company was issued a statutory Notice and despite receipt of it the respondent Company failed to comply with the requisitions therein. That is how the present petition for winding up is filed.

9. Mr.Patel has taken me through the list of dates and events so also averments in the petition and the annexures thereto including the Agreement, at Exhibit "B" He submits that this is a clear case where the alleged fraud by the employees of the respondent cannot be a ground to deny the legitimate dues of the petitioner. It is not the case of the respondent that the petitioner was a party to the fraud. Therefore, the fraud if any, of the employees and Managing Director of the respondent cannot be a ground for denying the payment. The petitioner has not being involved in any of these activities. In such circumstances and when the respondent had handed over post-dated cheques in due repayment, it is immaterial whether the petitioner accepted some amount from SET. Ultimately, according to Shri Patel, the Agreement is between two companies i.e petitioner and the respondent. It is the respondent which is liable. Further, it cannot be said that there

10. The liability is that of the respondent and that is how the Agreement between the parties reads. In such circumstances and when the execution of the Agreement is not denied, the dispute raised is not bonafide.

11. Mr.Apte on the other hand has invited my attention to the reply to the advocate’s notice and the statutory notice. He submits that one Mr.Govind Swarup and Mr.A.G.Shukla were the Managing Director and Financial Adviser and Chief Accounting Officer of the respondent respectively. Together, they perpetrated a fraud and in collision with one Shahab Ahmed brought in several such parties including the petitioner. He submits that the Board of Directors of the Corporation have not been informed of the Arrangement and number of other Agreements purportedly executed by the Managing Director on behalf of the Corporation. The Managing Director with collision of several parties and persons including the officials of the Corporation has siphoned off the funds which are public funds. Once the fraud was detected, immediate remedial measures were taken.

is not involved in the same. He submits that there is no rejoinder affidavit and in such circumstances, the dispute raised by the public body raised is bonafide. This is a case where a fraud has been perpetrated on the public and it is investigated. Criminal cases are filed and they are pending. He has also invited my attention to the Agreement and has contended that once the petitioner looks to SET for payments, then, it is immaterial whether any cheques were handed over by the respondent. These are disputed claims which cannot be decided in the limited jurisdiction that is conferred upon the Court. This is not a recovery claim and that is how the petition must be dismissed as it is abuse of the process of the Court.

12. With the assistance of the learned counsel appearing for both sides I have perused the petition and annexures thereto. In the petition itself there is a categorical averment made that the respondent had some arrangement with SET which is to the knowledge of the petitioner. That SET were to make payment upon certain shows being prepared, produced and handed over to them is referred to in the recitals. The SET has not received admittedly the entire shows. Therefore, the arrangement pleaded is that the petitioner would look to SET for the re-payment of the amount allegedly advanced

by it to the respondent. The petitioner has forwarded the monies with a clear understanding that SET was to produce the shows and thereafter the payments were to be received from SET by the petitioner. The petitioner pleads that respondent needed funds to comply with its obligation towards SET. That is how respondent approached petitioner for financial assistance. Petitioner agreed to re-payment of amounts lent and advanced by it, from SET. Prima facie, that is how the Agreement between parties reads. The petition itself states that the cheque which has been handed over by the respondent was handed over to the then Managing Director of the Company. Further, para 8 of the petition sets out as to how only one show was produced by the respondent. All these are facts to the knowledge of the petitioner. The petitioner is fully aware of the obligation that had to be discharged by the respondent to SET. The re-payment was allegedly of the petitioner’s dues by SET and that is how the petitioner looks to this entity for its dues. It is in such circumstances that I find substance in the defence which has been raised throughout that the monies which were handed over to the Managing Director never came to the account of the respondent Corporation. The respondent Corporation has denied receipt of any sums much less by the cheque referred in the petition. It has stated in

paras 4 and 5 of the affidavit in reply that several transactions, about which, the Board of the respondent Corporation had no knowledge, have been entered into. The fraud has been detected now and the investigations are complete. The guilty would be brought to book and that is how special case has been filed. The respondent states that no money allegedly paid by the petitioner came to respondent but was credited to one "Hum Ek Hain-Film City" account opened by one A.G.Shukla with Shahab Ahmed at Bank of Maharashtra, Oshivara Branch, Mumbai. The payments received from Sony Entertainment Television of Rs.3 crores was also deposited in this account. Therefore, the amounts have not come into account of the Corporation.

13. Once this is a nature of the defence and the petitioner has received the payment from SET so also SET being admittedly involved in the transaction as is clear from a perusal of the Agreement between the petitioner and respondent, then several issues would arise before it can be conclusively held that the petitioner can recover the monies from the respondent. The letter which has been addressed by the respondent’s advocate in reply to the notice dated 24th February, 2003 itself makes a reference to the fraud. It has also been stated in the further correspondence that the account where the

amount is credited is a private bank account. The stopping of payment which has been referred to in the petition itself, has been justified and the reply proceeds to state that the petitioner is well aware of fraud and events leading to the payment being stopped. These very aspects are subject matter of pending proceedings before the Sessions Court. The petitioner filed complaint No.290/S/2003 alleging offences under section 138 + 141 of the Negotiable Instruments Act, 1888 by the respondent. The order of the learned Magistrate issuing process is challenged on the ground that no offence is committed but there is a fraud. There is no legally enforceable debt. The Revision Application is admitted and the complaint is stayed.

14. All this will have to be read together and in the backdrop of the fact that a Government of Maharashtra undertaking which is incharge and trustee of public funds cannot be called upon straightaway in these proceedings to pay sums which are bonafide disputed by it. The petition proceeds on the basis that dues of the petitioner are not paid but the petitioner is aware of the dispute. Admittedly, these proceedings are not a suit for recovery of money. They cannot be converted into the same as well. Prima facie, this is a claim which is disputed and the dispute raised is bonafide.

15. However, it is clarified that the observations made in this order are only for the purposes of considering as to whether a petition for winding up the respondent Company would be maintainable or not. They shall not in any manner influence any proceedings which the petitioner institutes for recovery and such proceedings must be decided on their own merits and in accordance with law uninfluenced by these prima-facie observations. All plea in that behalf are kept open. Petition dismissed. No costs.

K. Sera Sera Production Ltd. v. Maharashtra Film State and Cultural Development Corpn.

Case brief

What is this about?

What did the court decide?

K. Sera Sera Production Ltd. v. Maharashtra Film State and Cultural Development Corpn.

Case brief

What is this about?

What did the court decide?

What the court decided

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