Dismissed

Khyati Realtors Private Limited v. M/S. Zenal Construction Private Limited - U45200MH1994PTC082117

Bombay HC29 Aug 2013CP/243/2012

Case brief

AI extract

What is this about?

Winding up petition against a company on an unpaid advance. The respondent's defence that the petitioner was an unlicensed money lender and the transaction a loan raised triable issues requiring evidence, and the respondent was shown to be commercially solvent. The company court held the defence was not moonshine and rejected the petition, leaving the petitioner to a civil suit.

What the court decided

AI extract

Khyati Realtors Private Limited Vs M/S. Zenal… — Insolvency and Bankruptcy | Bombay HC (2013)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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COMPANY PETITION NO. 243 OF 2012

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Khyati Realtors Pvt. Ltd., ... Petitioner.

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V/s.

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M/s. Zenal Construction Pvt. Ltd., ... Respondent.

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Mr. Zal Andhyarujina a/with Mr. Rohan Cama & Mr. Mahesh Londhe i/by M/s. Sanjay Udeshi & Co. for the Petitioner.

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Mr. Sanjay Jain a/with Ms. Sarika Mehra i/by L.J. Law for the Respondent.

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CORAM : N. M. JAMDAR, J.

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DATE : 29^th AUGUST, 2013

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P.C. :

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1 By this petition, the petitioner seeks winding up of the respondent company viz. M/s. Zenal Construction Pvt.Ltd..

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2 The petitioner is in the business of finance, investments and real estate/TDR. The respondent is a company incorporated under the Companies Act, 1956. The authorized capital of the respondent company is Rs.5,00,00,000/-, and issued subscribed and paid up capital

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of Rs. 2,72,00,000/-. The main object of the respondent company is to deal with the construction and reconstruction of buildings, offices, flats, warehouses etc..

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3 The case of the petitioner is as follows : The respondent represented the petitioner that it was entitled to purchase two flats in Prabhudayal Co-operative Housing Society Ltd., at Andheri (East), Mumbai. The respondent represented that it was in need of money and investment support for acquisition of the flats. The respondent stated that it will repay the amount in a short while. Relying on this assurance, the petitioner gave a sum of Rs. Two Crores to the respondent by a cheque dated 12^th December, 2007. Inspite of the assurance, the respondent failed to refund the amount. Thereafter, the respondent entered into an agreement with the petitioner on 24^th February, 2009. It is the case of the petitioner that the respondent by this agreement admitted their liability towards the investment support. The respondent agreed to pay interest for the period from 12^th December, 2007 to 12th September, 2009 and the amount was calculated at Rs. One crore thirty lakhs. A penalty at the rate of Rs. One lakh per month was also provided in the agreement. It was agreed that the securities would be realized on non-payment. The Directors

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of the respondent also gave their personal guarantees and a schedule for the repayment was agreed upon. The post dated cheques were also given by way of security. By this agreement, the respondent agreed to pay an amount of Rs.Three crores thirty lakhs. Pursuant to this agreement dated 24^th February, 2009, a deed of mortgage as well as the agreement for sale were executed on 27^th February, 2009. The cheques received by the respondent were deposited and the same were dishonoured. A criminal complaint was filed by the petitioner in the Metropolitan Magistrate's Court. Thereafter, the petitioner issued a statutory notice under sections 433 and 434 of the Companies Act, claiming an amount of Rs. Four crore ninety lakhs within 20 days from the receipt of the notice by the respondent. The notice was replied to by the respondent, denying it's liability to pay. Thereafter, the present company petition is filed.

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4 Reply affidavit has been filed by the respondent. In the reply, the respondent has taken various contentions. The respondent has contended that the claim of the petitioner is based on improperly and insufficiently stamped documents and since the agreement upon which the petition is based is not properly stamped, it cannot be relied upon. It is also submitted that the petitioner is a money lender,

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carrying on business of money lending and the transaction referred to in the company petition is a “loan” transaction within the meaning of the Bombay Money Lenders Act, 1947. The respondent has filed an additional affidavit, placing on record the annual statement of accounts for the year 2006 to 2011 in support of its contention that the petitioner is a money lender. It is submitted that the company has completed about eight development projects and has investment of about Six crores rupees with current assets of about Rs. Twenty-seven crores and the company is solvent and financially sound. It is stated that the amount of Rs. Two crores was given to the respondent to enable it to carry on a re-development project and the petitioner failed to release further amount. This left the respondent in difficult financial position and the respondent had to proceed with the redevelopment on its own account. It is also averred in the reply that it was mutually decided between the petitioner and the respondent that the respondent will take over the redevelopment project and refund the amount of Rs. Two crores as soon as the respondent get the money realized from the projects. It is submitted that the respondent was not able to find another funding partner and the co-operative society also tried to resile from the project. In spite of the assurance of the petitioner to

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give further financial assistance, the petitioner failed to do so and the respondent was placed in difficult position.

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5 A rejoinder has been filed by the petitioner, in which solvency of the respondent company is disputed and the averments made in the petition are reiterated. As far as the averments regarding money lending is concerned, the petitioner has denied that the transaction in question did not fall within the scope of the Bombay Money Lenders Act, 1946. A further affidavit in rejoinder is also filed by the petitioner, controverting the assertions made on behalf of the respondent by annexing the annual report. In the additional affidavit in rejoinder, the petitioner has stated that the annual accounts do not show that the petitioner is a money lender and/ or the present transaction is of money lending.

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6 I have heard Mr. Zal Andhyarujina, learned counsel and Mr.Roham Cama, learned counsel for the petitioner and Mr. Sanjay Jain, the learned counsel for the respondent.

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7 The receipt of the amount of Rs. Two crores is not disputed. The execution of the agreement dated 24^th February, 2009

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is also not disputed. It is also not disputed that the cheques were issued by the respondent have returned dishonoured. It is also not in dispute that the amount of Rs. Two Crores has not been repaid and neither the amount agreed under the agreement.

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8 The respondent in its defence has primarily raised three contentions : Firstly, that the petitioner is a money lender and in view of the provisions of the Bombay Money Lenders Act, 1946, the suit if instituted would be barred and so also a petition for winding up. Second, that the document upon which the petition is based is insufficiently stamped and in view of the provisions of Section 54 of the Bombay Stamp Act,1950 such a document cannot be made basis for a winding up petition. Third, that the company is commercially solvent and therefore, it is not necessary that the company be wound up. It is the contention of the respondent that the points which are raised, if were raised in a summary suit, a case for conditional leave would have been made out and thus a company petition for winding up need not be entertained.

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9 As far as the point regarding money lending is concerned, it has two facets. Firstly, whether the respondent be termed as a

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“money lender” and secondly, whether the present transaction can be considered as a “money lending” transaction.

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10 The Bombay Money-Lenders Act, 1946 was framed to regulate and control transaction of money lending. Section 2(9) of the Act defines the term 'loan' and specifies what is not included in the `loan'. Section 2(9)(f) states that advance made on the basis of the negotiable instrument will not be a 'loan'. Section 2(9)(f) states that the advance made bonafide by any person carrying on business, not having his primary object of lending money, then such advances if made in regular course of business will not be a 'loan'. Section 2(10) defines 'money lender' and exempt certain categories. Section 6 lays down that every money lender shall make an application for licence. Section 10 states that no courts shall pass a decree in favour of the money lender unless the court is satisfied that when the loan was advanced, the money lender had a valid licence.

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11 The learned counsel for the respondent has relied upon the decision of the learned single Judge of this Court (F.I.Rebello,J.) in the case of M/s. Marine Container Services (I) Pvt.Ltd ., vs. M/s. Rushabh Precisioin Bearings Ltd. , reported in 1999(3) Bom. C.R.

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The learned single Judge after considering the provisions of Bombay Money Lenders Act, 1946 came to the conclusion that as far as the applicability of the Money Lenders Act is concerned, the presentation of a suit and the presentation of a company petition will be on the same footing. The learned single Judge came to the conclusion that though the company petition is not for recovery of money and is for the winding up of the company, under section 434(1) the debt must be legally recoverable. If the petitioner is shown to be a money lender then the recovery of the amount will be barred under section 10 of the Bombay Money Lenders Act and thus a petition for winding up will also not be maintainable. The learned single Judge in paragraph 13 observed thus :

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“13. It was urged that the petition should be rejected as the debt is not legally recoverable. It was contended that if no relief could be granted if a suit was filed then the Company petition would not be maintainable. Learned Counsel has relied upon a judgement of this Court in Dabholkar Enterprises v. Padma Alloy Castings Pvt. Ltd., . In that case a petition for winding up was filed by a partnership which was not registered. A learned Single Judge of this Court held that the petition was not maintainable as an unregistered partnership could not have filed a suit for recovery of money. Reliance was also placed in the case of M/s Baba Finance Corporation v. Mohd. Nayeem and another, . In that case a Single Judge of the Andhra Pradesh High Court was considering the question on the complaint filed by a money lender doing moneylending business without

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license. The learned Single Judge I held that the cheque must relate to a debt or liability enforceable in law. I find no difficulty in so also construing section 434(1)(c) to held that a petition for winding up, under section 433(e) read with section 434(1)(a) of the Companies Act would only lie only if the debt was legally recoverable. The fact that the present is a Company petition and under the Bombay Money tenders Act no relief will be granted if the suit is filed would also make the debt unenforceable under the Companies Act. It is no doubt true that a company petition is not a petition for recovery of dues from a Company. Nevertheless to wind up a Company under section 434(1)(a) the amount must be a debt which is legally recoverable. If the recovery itself is barred under section 10 of the Bombay Money Lenders Act, I am of the opinion, therefore, that in such a case the petition filed on the ground that the Company is unable to pay such a debt, would also not be maintainable. A consistent view has been taken that in respect of time barred debts, no petition would be maintainable. This is because a time barred debt is not legally recoverable. The same reasoning must also be adopted in the present case. However, in the instant case as I have held the transaction would be excluded from the definition of "loan" the petition cannot be dismissed on that count.”

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(emphasis supplied)

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The learned single Judge held that for a transaction to be a “money lending business”, there must be a system, repetition and continuity. An isolated transaction will not be affected by the embargo under the Money Lenders Act. In the facts of that case the learned single Judge came to the conclusion that there was no evidence to show that the petitioner was engaged in the business of money lending, as there was no regularity. It was thus held that if it is shown that the

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petitioner is engaged in the business of money lending without a requisite licence, the recovery of the amount would be barred and thus the company petition will be dismissed.

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12 Once the defence of money lending is available to the respondent, the next point, will arise as to what would be the level of scrutiny by the company court and what will be the extent of burden upon the respondent to show that the petitioner is engaged in the business of money lending. Is it that the respondent must 'conclusively prove' that the petitioner is engaged in the business of money lending or if it is sufficient that enough material is placed on record to draw an inference that the petitioner is engaged in a business of money lending, which can only be dispelled by leading detailed evidence.

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13 The learned single Judge (K. Shivashankar Bhat, J.) of the Karnataka High Court in the case of Divya Export Enterprises vs. Producing Private Ltd. , reported in 1991 (70) Company Cases 692 (Kar) relied upon the decision of the Apex Court in the case of Mechalec Engineers and Manufacturers vs. Basic Equipment Corporation, reported in AIR 1977 SC 577, held that the guidance to

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find out whether the defence is bona fide and one of substance, reference to the principles enunciated under Order 37, Rule 3 of the Civil Procedure Code may not be irrelevant. In the case of Mechalec Engineers (supra) the Apex Court approved the formulation made by the Calcutta High court in recording the principles when the unconditional leave needs to be granted and set out certain propositions, as under :

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“8. In Smt. Kiranmoyee Dassi and Anr. v. Dr. J. Chatterjee , Das. J.,after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 17 C.P.C. in the form of the following propositions (at p. 253) :

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(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend.

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(b) If the Defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.

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(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shews such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment

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and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

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(d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend.

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(e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plaintiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to prove a defence.”

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The principles governing for grant of unconditional leave in summons for judgment will not be irrelevant while considering whether the defence to a winding up petition is bonafide.

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14 The next point will then arise as to how the courts have treated the defence of money lending while considering the grant of unconditional leave in a summary suit. The learned counsel for the respondent relied upon the decision of the learned single Judge of this Court (D.K. Deshmukh, J.) in the case of Jatix Jashwantrai

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Bhagat vs. Dayaram WaWaghaji Thaker & Ors . in Summons for Judgment No. 309 of 2006 in Summary Suit No. 1642 of 2006 dated 4^th October, 2006. The learned counsel for the respondent has placed on the record a copy of the reply filed by the defendant in that case. The defendant had raised a defence that the plaintiff is a money lender and he has advanced loans to various persons and the transaction falls in the definition of “loan” as defined under section 2(9) of the Bombay Money Lenders Act. The learned single Judge found in that case that there was no dispute that the loan was advanced. The court found that the defence put up by the defendant in that case could not be termed as a moonshine defence and unconditional leave was granted. The learned counsel then relied upon another judgment and order passed by another learned single Judge of this court (R.J. Kochar,J.) in the case of Bharati Surendera Khandar vs. Deepak M. Shah, in Summons for Judgment No. 727 of 1998 in Summary Suit No. 3080 of 1998 decided on October 8, 2001. The learned Judge after considering the factual position observed as under :

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“9. …... ….. “Mr. Jain, further, heavily relied upon the following judgments in support of his contention on the point of the issues that the Plaintiff was carrying on regularly the money lending business without a valid licence under the Bombay Money Lenders Act of 1897. Mr.Jain has prayed for unconditional leave to defend the

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suit on this point also. According to him an unconditional leave to defend should be granted as observed by the then Chief Justice Mr. M.C. Chagla, in the Judgment of 1972 BLR 1371 in case of Bakhtwar Ice Factory vs. Chunilal Sonmal & Co.. This judgment clearly supports the contention of Shri Jain in a similar suit to which the Bombay Money Lenders Act was applied, unconditional leave to defend should be granted. The issue will have to be decided in Trial as to whether the money lending transaction between the parties was covered by the said enactment. Both the parties will have to adduce evidence for their respective contentions. The plaintiff will have to prove that he was not carrying on regularly the money lending business. While the defendant will have to prove to the contrary.

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In this context, I am not able to decide and nor called upon to decide finally the said point at this stage.

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Mr. Jain, the learned counsel for the defendant has also relied uopn the following judgments in support of his contention in respect of the triable issue of money lending :

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i) AIR 1994 Patna 301;(ii) 1997 BLR 458 BOM; iii) AIR 1974 A.P. (full bench) 1; iv) AIR 1974 Patna 103.

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The ratio of the above judgments is that whenever a suit relating to a loan is filed and the defendant questions the very maintainability of the suit under section 9 of the Money Lenders Act, on the ground that the Plaintiff is a money lender and is carrying on his business without obtaining a licence from the Government, the framing of issue in this regard and decision thereupon is mandatory on the part of the Court. In our case, the Plaintiff has relied on the Promissory note wherein interest @ 18% p.a. is specified. Learned single Judge of this Court, in a case of Dharmadas Motibhai Wani vs. Shidya Jatrya Bhil, 1990 BLR 459 (supra) held that by virtue of Section

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80 of the Negotiable Instruments Act (Bom. XXXI of 1947), the advance on interest, and, therefore, the 'loan', within the meaning of Section -2(9) of the Bombay Money Lenders Act.

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Mr. Jain has further relied on the judgment of the learned single Judge of Patna High Court in case of Urrah Dlusadh vs. Inderdayal Singh : AIR 1954 PATNA 301, wherein it has been held that where the defendant pleads that the plaintiff not being registered as a money lender cannot recover the loan, it is for the Plaintiff, who claims exemption, to prove the circumstances on which he can rely to escape the penalty provided under the Bihar Money Lenders' Act.

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As per the ratio of the Division Bench of Patna High Court in a case of Dwarka Prasad vs. Firm L.B. Ambika Ram, Patna 103 (supra), the burden is on the Plaintiff to prove that the loan transaction was of casual nature and that he was not carrying on money lenders' business or that he was not professional money lender.”

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(emphasis supplied)

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Thus the observations upon which the emphasis has been supplied show that once the basic facts from which certain inferences can be drawn regarding the money lending activities of the petitioner then the burden shifts to the plaintiff/ petitioner to prove to the contrary. The learned single Judge relied upon the decision of the Chief Justice Mr. M.C. Chagla in the case of Bakhtawar Ice Factory vs. Chunilal Sonmal & Co., reported in 1972 BLR 1371.

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15 It needs to be examined whether the petitioner in the present case has placed on the record sufficient material to indicate that the respondent is engaged in the activity of money lending without licence and whether to ascertain the truthfulness of this assertion, a detailed scrutiny of evidence is required, or that a defence raised is also a bald assertion.

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16 Now turning to the examination of the facts of the present case. As regards the claim of the respondent, the learned counsel for the respondent has relied upon averments made in the petition, recitals in the agreement and averments made in the replies and bank statements. The learned counsel for the respondent submitted that the petition and the agreement itself have styled the transaction as a 'loan transaction'. The agreement itself demonstrates that the petitioner is in the business of finance, and the banks statement show that the petitioner habitually gives loans and interest thereupon is the main source of income of the petitioner. Perusal of the petition indicates that the petitioner has used the word 'loan' for the amount which is given to the respondent. This reference appears, for instance, in paragraphs nos. 8, 12,15 and 16. Thus the petitioner itself in the petition has styled the transaction as a 'loan'. It is the case of the

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petitioner in the petition that the respondent represented to the petitioner that the respondent was in need of money. The respondent represented that the money will be returned and accordingly a loan was advanced.

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17 In the agreement, the petitioner has described itself as being in the business for finance and investments and real estate/TDR business. In the recitals the amount which is advanced is stated to be as 'loan'. The agreement also uses the word 'loan' almost throughout. The agreement provides for security clause and penalty and also lays down modalities for repayment. Thus from the petition and the agreement it is clear that the petitioner is in the business of finance and investment and real estate.

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18 It is argued by the learned counsel for the petitioner that loans may be one of the subsidiary activities of the petitioner and the present transaction is an isolated transaction. In this context, the reply rejoinder is filed by the petitioner needs to be noticed. It is significant to note that in paragraph 8 of the rejoinder, the petitioner has denied that the transaction is not a 'loan transaction'. The reference is to the 'transaction' . When a specific contention is raised in the

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reply that the petitioner is in the 'money lending business', denial is only of the fact that the transaction being of 'money lending'. There is a distinction between these two aspects, namely, the petitioner being in 'money lending business' and the transaction being a 'money lending transaction'. It is pertinent to note a first instance that the petitioner is a money lender, has not been denied in the rejoinder. This contention is, however, raised in the further affidavit when the respondent filed a further affidavit, placing on the record the bank statements.

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19 The bank statement of the petitioner from the year 2006 to 2011 have been placed on the record. The transaction in question is of 12^th December, 2007 and agreement is of 24^th February, 2009. Thus the bank statement for the period before the agreement and after the agreement have been placed on record. A perusal of the bank statements of account/ balance sheet as on 31^st March 2006 show the secured loans of Rs. 2,261,309,632/- and unsecured loans of Rs. 57,788,631/-. The loans and advances are shown to Rs. 2,598,221,485. In schedule “J” to the balance sheet, sundry loans and other loans is shown to the tune of Rs. 2,598,221,485/- . What is pertinent to note is the schedule “L”, where the income from

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operations has been specified. Sales of TDR is shown to Rs. 15,761,187/- and income from interest generated is shown to Rs. 50,904,188/-. The operational expenses have been shown as Rs. 310,295/- .

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20 Thus in this balance-sheet, the income generated from interest is almost three times than the sale of TDR. In the balance sheet as on 31^st March, 2007, again the loans and advances have been specified to the tune of Rs. 3,300,221,384/- The sales of TDR at schedule “N” is shown to Rs. 81,727,284/- and interest received is shown to Rs. 238,169,383/-. In the balance sheet as on 31^st March, 2008, loans and advances have been shown to Rs. 5,108,166,515/-. At schedule “J” the loans and advances have been shown as Rs. 5,104,657,368/-. The balance sheet as on 31^st March, 2009 show the loans and advances to Rs. 3,166,488,238 at Exh. 4 page 210.

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21 The schedule to the accounts specifies the fixed assets. The assets are two motor cars, a television set, air conditioner, water purifier, a scanner. The balance sheet as on 31^st March, 2010 reiterates the same position as regards the loan and advances and the interest earned. In the subsequent years the interest earned on the

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loans have been reduced. In the Directors report which is placed on record for the year 2011, it is stated that the company has earned income by interest on advances, consultancy income and dividend income.

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22 Thus the perusal of the bank statements for the relevant period show that the major part of the income of the petitioner was the interest on the loans and advances. The petitioner has advanced substantial amount of loan and has received substantial amounts of loan. The fixed assets of the company are only office equipments. The directors in their report have also acknowledged that the main operations of the company is earning interest on advances of loan. This position has to be read alongwith the description of the petitioner in the agreement. In the agreement the petitioner is described as in the business of finance. The respondent has placed balance sheets for the period of five years on the record before and after the transaction. The balance sheets, prima facie, show that there is a systematic activity on the part of the respondent to advance loans and substantial interest therefrom. It is also contended by the learned counsel for the respondent that even the claim made in the petition of interest on the amount claimed is usurious. Once these basic facts, coupled with the

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assertion regarding business of money lending without licence are placed on record, then it is upto the the petitioner to show that it is not so.

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23 As stated earlier, in the rejoinder there is no denial that the petitioner is in the business of money lending. Even in the additional rejoinder filed, the petitioner only states that the respondents have merely relied upon the annual report and have not shown that the petitioner is a money lender. It is contended that the respondent have not made out a prima facie case to show that the petitioner is in the money lending business and that the entries are normal business transactions. During the course of the argument, the learned counsel for the petitioner submitted that the main business of the petitioner was the sale of TDR and the transaction in question was an isolated transaction. There is absolutely no material placed on the record in furtherance of this contention, except a bald denial. It is stated that the petitioner is primarily in the business of TDR and loan and advances are a secondary business. Considering the figures mentioned earlier, prima facie, this does not appears to be so. There is no contramaterial placed on record by the petitioner. This issue, therefore, will require examination of evidence. As observed above, the burden had

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shifted on the petitioner and to discharge the burden the petitioner will have to lead evidence. At this stage, therefore, it cannot be said that the defence of the respondent is merely a bald assertion.

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24 Now as regards the second point as to whether the transaction in question is a money lending transaction. The learned counsel for the petitioner has sought to rely on section 2(9)(f) of the Bombay Money Lenders Act. The learned counsel submitted that since the loan amount was advanced on the basis of a negotiable instrument i.e. the cheque it will not be termed as a loan and therefore, this particular transaction is not a loan transaction. The learned counsel for the petitioner has relied upon the decision of the learned single Judge of this Court (V.A. Mohta,J.) in the case of Nandram Kaniram and Ors. vs. N.B. Rahatekar, reported in 1994(1) Bom. C.R.28 and the decision of the learned single Judge (Sharad Manohar,J) of this Court in the case of Sitaram Laxminarayan Rathi vs. Sitaram Kashiram Koli, reported in 1985 Mh. L.J. 430. The learned counsel for the petitioner submitted that in the case of Nandram Kaniram (supra) the court had held that a cheque will have to be considered as a negotiable instrument and therefore, section 2(9) (f) will be attracted. The learned counsel submitted that in the case of

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Sitaram Laxminarayan Rathi (supra) even the post dated cheque is considered at an instrument under the Negotiable Instruments Act and the provisions under section 2(9)(f) of the Money Lenders Act would be attracted. Section 2(9) (f) and (f2) are reproduced below :

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Section 2(9) : “loan” means an advance at interest *** whether of money or in kind but does not include -

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(f) an advance [of any sum exceeding rupees three thousand] made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881 (XXVI of 1881), other than a promissory note;

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[(f2) an advance made bonafide by any person carrying on any business, not having for its primary object the lending of money, if such advance is made in the regular course of his business]

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25 The main question is whether the advance is made on the basis of a negotiable instrument. This issue will turn on the facts of each case. In the case of Nandram Kaniram (supra), the plaintiff therein paid a sum of Rs.15,000/- to the defendant through a cheque dated 24^th June, 1976 through a Hundi Dalal. On the very day, the defendant gave a post dated cheques for Rs. 15,000/-, and Rs.562/- is interest for a period of 90 days. In the facts of that case, the court found that the advance was clearly on the basis of the cheque. The

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court also found that plaintiff had not carried on business of money lending in a systematic manner. Thus this decision will have to be understood in the facts of that case.

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26 In the case of Sitaram L. Rathi (supra), the plaintiff led evidence of prove that the amount of Rs. 1500/- was against a post dated cheque. As against the plaintiff's evidence the defendant did not step in the witness box. The court held that the post dated cheque will have to be considered as a negotiable instrument for the purpose of section 2(9)(f) of the Money Lenders Act. The learned single Judge, however, observed that section 2(9)(f) of the Act takes the transaction out of the purview of the concept of loan only if the loan is advanced as against the cheques. Therefore, there need to be a direct nexus between issue of the 'cheque' and the grant of the 'loan'.

¶164

27 In the present case, the petitioner itself has stated that the amount of Rs. Two crores was advanced to the respondent much before the present agreement was executed and the post dated cheques were given. It is the case of the petitioner itself that the loan was advanced only on the oral assurance that the amount will be repaid. There were requests on the part of the respondents for grant of

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further time. Because the respondent failed to pay the amount, an agreement was entered into and thereafter, the cheques were given. Thus prima facie, it does not appear that the amount was advanced on the basis of the post dated cheques. As stated earlier, the amount was advanced much before the post dated cheques were given. Thus in my opinion, this issue will also require leading of evidence. The question whether the loan was advanced on the basis of the cheque or not, will have to be considered as triable issue and the defence of the respondent in that regard cannot be considered as moonshine.

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28 The next issue that arises is whether the agreement can be considered as insufficiently stamped so as to attract the provisions of section 35 of the Bombay Stamps Act. The learned counsel for the respondents in this regard submitted that the agreement which contains power of attorney and hypothecation will be covered under Articles 6 and 40(b) of the Bombay Stamps Act. The learned counsel submitted that the stamp duty paid on the agreement is only Rs.200/and, therefore, considering the provisions of the above mentioned Articles, the instrument in question is grossly inadequately stamped and cannot be read in evidence. Reliance is placed on the decision of the Apex Court in the case of SMS Tea Estates Pvt. Ltd. , vs.

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Chandmari Tea Company Pvt. Ltd. , reported in 2011 (9) SCE 382. The Division Bench of this court (S.K. Desai and Aggarwal, JJ) in the case of Har Kishore Jain & Sons Pvt. Ltd. , vs. Bank of Baroda in Appeal No. 873 of 1984 and the decision of the learned single Judge of this Court (H. Suresh,J.) in the case of Yogendra Patwardhan vs. Khandellwal Hermann , reported in 1989 (1) Bom. C.R. 96. It is urged by the learned counsel for the respondent that unless under section 35 of the Stamp Act, stamp duty and penalty due in respect of the Stamp duty is paid, the court cannot rely on the instrument. It is also submitted that once the defence of improper stamp duty is raised, though it is technical, it cannot be lightly brush aside and unconditional leave is required to be granted.

¶175

29 The learned counsel for the petitioner on the other hand submitted that the petition is not based on the agreement in question but the agreement only narrates the events which led to the execution and secure the repayment the loan. The learned counsel submitted that the grant and receipt of money is not disputed and therefore, it is not as if the agreement is put into effect. There is substance in this submission. The amount of Rs. Two crores was initially advanced. This amount was not repaid and therefore, the agreement was entered

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into for repayment. Considering that there was no repayment, certain safeguards were provided such as modalities of the repayment and release of the security. The present petition is not a suit based for enforcement of this agreement. The company petition is based on the fact of money advanced and non-return thereof. The agreement is being placed on record only for the purpose of showing the admissions of the respondent contained in the agreement. Thus, prima facie, it cannot be said that the bar of section 35 of the Bombay Stamp Act, will not apply to an instrument at hand in the facts of the present case. However, this point need not be gone into in detail in view of the findings recorded in respect of the first two issues.

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30 As far as the financial viability of the respondent is concerned, the respondent has placed on record that the company is profit making company , having net worth of Rs. 2.49 Crores. It has investment of Rs. 6 Crores with current assets of 27 Crores rupees. The company is controlled by Sun Farma Group. The petitioner has denied this position. However, except denial, nothing else is placed on record to show that the respondent is commercially and/ or financially insolvent and needs to be wound up on this ground alone.

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31 Thus to sum up, the defence raised by the respondent as against the petitioner company being money lender without licence, and that this transaction is a money lending transaction cannot be brushed aside as without any substance whatsoever. The questions are not pure question of law and will have to be adjudicated in the facts of the case. The initial burden in this regard has been discharged by the respondent and it is upto the petitioner to dispel the same by leading evidence, which exercise cannot be done in the summary jurisdiction exercised while entertaining a petition for winding up. It is a settled law that once arguable questions are raised, the court will not force a payment which is bonafide disputed. The apex court in the case of IBA Health (I) Pvt. Ltd ., vs. Info -Drive Systems SDN BHD , reported in 2010(10) Supreme Court Cases 553, has emphasized the consequence of admission of a winding up petition. The apex court has stated that the company court cannot be reduced as a debt collecting agency or petition cannot be meant of bringing improper pressure on the company to pay a bona fide disputed debt. After admission the issuance of advertisement in the newspaper may attract adverse publicity, which damage cannot be easily undone.

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32 In view of the above, the petition cannot be entertained and it is rejected. It is however, clarified that the observations made above as regards the merits of the rival contentions are only to ascertain whether the respondent has bonafide defence and in case the petitioner files a civil suit/ summary suit, those proceedings will be decided on their own merits.

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Khyati Realtors Private Limited v. M/S. Zenal Construction Private Limited - U45200MH1994PTC082117

Case brief

What is this about?

What the court decided

Khyati Realtors Private Limited v. M/S. Zenal Construction Private Limited - U45200MH1994PTC082117

Case brief

What is this about?

What the court decided

A compact analysis

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