TIOL-DDT 2677
03 09 2015
Thursday

THE Controversy: This is an international thriller. The story started in Hyderabad, India, the major action took place in Mauritius; the legal battle started in London and extended to Hyderabad and finally the Supreme Court in New Delhi.

Sujana Universal Industries Ltd, a Hyderabad based Company executed a deed of guarantee in favour of Mauritius Commercial Bank Ltd, for a trade finance banking facility of 20 million US dollars (that's more than a 100 crores rupees) extended by the bank to its wholly owned subsidiary Hestia Holdings Limited (HHL) in Mauritius. HHL defaulted payment and the Bank got a decree against HHL from a High Court in London. The scene shifted to Hyderabad, India. The Bank also filed a civil suit against Sujana, the guarantor for the recovery of the decreed amount. The bank also filed a petition to wind up Sujana to recover its dues.

The Company Judge observed that the petitioner bank had lent money to a subsidiary, of the respondent-company - Sujana, outside India and had filed a suit for recovery of the same in Court; as regards the liability, the admission in the correspondence by the respondent-company was sufficient to form the basis of the petition for winding up; even assuming that there was an execution petition, filed for enforcement of a foreign decree, it could not be said that the petitioner had ceased to remain the creditor of the respondent-company; and to deprive the petitioner would encourage Indian companies to be dishonest in their international dealings. While admitting the Company Petition,the Company Judge, however, deferred advertisement of admission of the company petition for a period of six months in order to give one more opportunity to the respondent-company.

The matter reached the High Court of Hyderabad for the State of Telangana and the State of Andhra Pradesh. The High Court in a scholarly and exhaustive treatise on the subject observed,

I. On failure of the borrower to repay the loan, can the lender seek to have the company, which had stood as guarantor for the said loan, wound up under Section 433 and 434 of the Companies Act?

Section 433 of the Companies Act, 1956 prescribes the circumstances in which a company may be wound up by Court and, under sub-section (e) thereof, a company may be wound up by the Court if it is unable to pay its debts.

HHL (which borrowed money from the petitioner and failed to repay the loan to them) is a wholly owned subsidiary of the respondent-company. A holding company is liable for the debt of the subsidiary, if it has guaranteed that debt.

In the present case, HHL has not only defaulted in repayment of the loan in accordance with the loan facility agreement, but the petitioner has also invoked the corporate guarantee, and has demanded that both the borrower and the guarantor (respondent-company) pay the outstanding loan.

The liability of the respondent-company, which was earlier contingent on HHL defaulting in repayment of the loan facility, crystallized into a "debt" on the happening of the contingency ie default by HHL. As the contingent liability of the guarantor (respondent-company) had crystallized into a "debt", the lender was entitled not only to file a civil suit for recovery of the debt due, but also to invoke the jurisdiction of the Company Court,under Section 433(e) and Section 434(1) of the Act, on the ground that, despite a demand being made, the respondent-company had neglected to pay the amount admittedly due; and neglect to pay the debt due enabled the Company Court to order winding up of the respondent-company, under Section 433(e) of the Act, on the ground of its inability to pay its debts.

II. Remedy of a civil suit for recovery of money - does it bar the creditor from invoking the jurisdiction of the company court under section 433(e) and 434(1)(a) of the Companies Act? NO

Availing the remedy of a civil suit would not bar exercise of discretion, under Section 433(e) of the Companies Act, to wind up the company.

Proceedings for winding up, under Section 433 of the Companies Act, cannot be equated to Suits or for that matter Suits for recovery of money. In the winding up proceedings, the lis is not merely between the petitioning creditor and the company sought to be wound up. Once the petition is admitted the creditors, contributories, shareholders, etc., seek redress in the proceedings, and even oppose the winding up. The company is directed to be wound up depending upon a case being made out, whereupon the assets are taken over and distributed in accordance with the provisions of the Companies Act and the Rules. A suit for recovery of money is essentially a suit between the parties where no third party can seek indulgence or impleadment. Proceedings for winding up under the Companies Act are entirely different, a special remedy provided for. The idea is not to restrict the proceedings to the parties alone. Its range is widened and all steps taken in winding up proceedings are in public interest. Sometimes the relief for winding up is denied when it is against public interest.

A petition presented under Section 433(e) of the Companies Act for winding up of a company is not equivalent to an application seeking recovery of a debt due to the petitioning creditor. Section 433 of the Companies Act is not intended to supplant the jurisdiction of a civil court to adjudicate a money suit. Section 433(e) vests in the Company Court the jurisdiction to wind up a Company, inter alia under clause (e), if the Company is unable to pay its debts.

III. Advertisement, of admission of the petition for winding up, cannot be deferred as a matter of course:

On the company petition being admitted, an advertisement must follow. It is only on such an advertisement being issued, would the other creditors and stake holders come to know that the petition for winding up has been admitted, and they can intervene and file applications either supporting or opposing the petition for winding up of the company. Adjudication of the company petition, in order to decide whether or not a winding up order should be passed and a liquidator appointed, can take place only after admission of the company petition is advertised in accordance with Rules 24 and 99 of the Rules, and not prior thereto. Rule 24(2) takes away the discretion of the Company Judge to dispense with the advertisement, and mandates that a petition to wind up the company must be advertised.

IV. Conclusion:

The High Court concluded:

As default by HHL, in repayment of the loan to the petitioner, has resulted in crystallization of the liability of the respondent-company (which stood as guarantor for the loan extended by the petitioner to HHL) into a "debt", the petitioner-bank is entitled to invoke the jurisdiction of the Company Court under Section 433(e) r/w Section 434(1) of the Companies Act. The order of the Company Judge, admitting the petition, does not suffer from any illegality necessitating interference.

The order of the Company Judge, to the limited extent advertisement of admission of the Company Petition was deferred by six months, is set aside. As required under Rule 24 read with Rule 99 of the Companies Court Rules, 1959, admission of the Company Petition is required to be advertised in two daily newspapers. The petitioner shall cause advertisement in THE HINDU (English daily) and EENADU (Telugu daily) in both Andhra Pradesh and Telangana State editions on or before 07.09.2015.

Twists in the tale :

The Annual Report of Sujana for 2013-14 states:

Hestia Holdings Limited, Mauritius has became subsidiary of the Company w.e.f. 27th December 2010, with the object of carrying on the business of general trade which includes general imports and exports.

Contingent Liability: Corporate Guarantee provided by the Company to Mauritius Commercial Bank, Mauritius, on behalf of Hestia Holdings Ltd, Mauritius, wholly owned subsidiary to SUIL. The Company has received the legal notice u/s 433 of the Companies Act 1956 and the Company has given reply to the legal notice - USD 20 Millions.

The Annual report recognises the Corporate Guarantee as a liability.

The Sujana Group was promoted by Union Minister of State for Science and Technology YS Chowdary who is also known as "Sujana Chowdary".

The High Court judgement was delivered on 28.07.2015 and on Tuesday (01.09.2015), the Supreme Court dismissed the Special Leave Petition by the Company. So, the winding up proceedings will continue.

Please see : 2015-TIOL-2021-HC-AP-CA

Due Date for Filing Income Tax Return Extended

IF you have not filed the Income Tax Return, do hurry up - the due date is extended. The Section 119 Order of the CBDT states,

For Assessment Year 2015-2016, vide even number order dated 10th June, 2015, the Central Board of Direct Taxes ('CBDT') had extended the 'due-date' for filing Income-tax returns till 31st August, 2015 in cases of those taxpayers who were required to file their tax-return by 31st July, 2015. This date was further extended till 7th September, 2015 in case of taxpayers of Gujarat in view of dislocation of general life in that State in last week of August.

CBDT has further received representations that across the country, taxpayers had faced hardships in E-Filing Returns of Income on the last date i.e. 31st August, 2015 due to slowing down of certain e-services.

Therefore, after considering the matter, CBDT in exercise of powers conferred under section 119 of the Income-tax Act, 1961, hereby extends the 'due-date' for E-Filing Returns of Income from 31st August, 2015 to 7th September, 2015 in respect of all the taxpayers who were required to E-File their returns by 31st August, 2015.

CBDT Order in F.No.225/154/2015/ITA.II., Dated: September 2, 2015

CESTAT Allahabad - Directions

THE president of CESTAT has issued the following directions in relation to the Bench at Allahabad:

All appeals to be filed shall be at Allahabad w.e.f. 01.09.2015 and all pending appeals also stand transferred to that Regional Bench, consequently part heard matters also shall be delisted and transferred. Since ROM and other Misc application are in either disposed of appeals or pending appeals, these should also be transferred to Allahabad as the territorial Jurisdiction stands transferred and bifurcated. However, appeals where hearing is completed and final orders have been reserved, the final order may be pronounced by the bench which has reserved orders .

CESTAT Circular in F.No.01/04/Circular/CESTAT/2014., Dated: September 01, 2015

FTP - Applicability of Para 5.10 (d) of HoP relating to third party exports under EPCG Scheme

DGFT has clarified that the provisions of Para 5.10(d) of HoP 2015-20 shall be applicable to third party exports made on or after 01.04.2015 (even in respect of exports made under EPCG authorisations issued prior to 01.04.2015). Third party exports which have been made prior to 01.04.2015 will be governed by the provisions of relevant policy/procedure).

Para 5.10(d) stipulates:

The EPCG authorization holder shall submit the following additional documents for discharge of EO through third party (ies):

(i) A copy of agreement entered into between the authorization holder and the ultimate exporter undertaking to export the goods manufactured by the authorization holder/supporting manufacturer for fulfilment of the export obligation against the EPCG authorization in question.

(ii) Proof of having despatched the goods from authorization holder's factory premises to the ultimate exporter/port of export viz. (a) ARE-1 Certificate issued by Central Excise with due authentication by the Customs verifying the exports along with the shipping bill number, date and EPCG authorization number (b) Invoice duly incorporating the relevant EPCG authorization number & date at the time of dispatch.

(iii) Lorry Receipt (LR) /Logistical evidence for transportation of goods from the premises of the authorization holder to the third party/port of export.

(iv) An undertaking from the 3rd party on a stamp paper, declaring that the products exported for fulfillment of EO by them on behalf of the license holder as per details given in the statement of exports, were manufactured by the license holder.

(v) Financial evidence for having received proceeds through normal banking channel from third party exporter's account to the authorization holder's account towards such third party supplies.

(vi) Disclaimer certificate from third party that they shall not use such proceeds towards EO fulfillment of any EPCG authorization (s) obtained by them.

DGFT Policy Circular No.03/2015-20., Dated: September 02, 2015

Income Tax Deputy Commissioner Sentenced to Five Years RI - DA case

IN a Disproportionate Assets case, the CBI Court, Hyderabad yesterday sentenced a Deputy Commissioner of Income Tax (IRS 2001) to undergo five years Rigorous Imprisonment with fine for Rs.Six lakhs. The Deputy Commissioner was charged with amassing assets disproportionate to the tune of around Rs.72,87,592.72 - yes computed to the last paisa.

Until Tomorrow with more DDT

Have a nice day.

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