Company Application No.141 and 291 of 2009 in Com.Appln.No.2296 of 2008 in C.P.No.17 of 2004
These applications are filed by the applicant which is a licensed Money Exchange House in U.A.E. and carrying on exchange and remittance business for the past 28 years having several branches in United Arab Emirates (UAE).
2. The brief facts leading to the filing of above applications are as follows:
On 17.3.2008, the demand drafts bearing Nos.074186 to 074205 each for a sum of Rs.1,18,00,000/- totalling Rs.23.60 crores had been issued by the applicant company in favour of the Official Liquidator, High Court, Madras. The demand drafts were drawn on Canara Bank, Foreign Department, Chennai. The demand drafts were purchased by one Mr.Kochupillai Thulasi Das, Chairman and Managing Director of M/s.Power Engineering International FZCO, Jebel Ali, Dubai from the applicant company. 2(a). It is the case of the applicant that the said demand drafts were obtained by Mr.Kochupillai Thulasi Das in collusion with the 2nd respondent M/s.Fairdeal Supplies Private Limited having Office at Kolkata. It appears that the applicant issued the above said demand drafts based on the request made by the said Mr.Kochupillai Thulasi Das and one Mr.Ray Divakar, Power of Attorney Holder of the wife of Mr.Kochupillai Thulasi Das viz., Mrs.Santhakumari Amma, on issuance of a cheque dated 17.3.2008 drawn on Commercial Bank of Dubai, Jabel Ali Branch, Dubai for a sum of AED 21,320,340.00 as consideration for purchasing the above said demand drafts. It is stated that the said cheque issued by Mr.Kochu Pillai Thulasidas and Mr.Ray Divakar was dishonoured on 18.3.2008 and before any steps could be taken by the applicant, the said Kochu Pillai Thulasidas had fled the country. 2(b). The said demand drafts were stated to have been passed on by the second respondent in auction sale conducted by this Court in respect of the properties of M/s.SIV Industries Limited under liquidation. The second respondent was stated to have participated in the auction and he was the second highest bidder. When the highest bidder failed to pay the amount, there was an order for fresh auction and that was challenged by the second respondent in O.S.A.No.383 of 2007. The Division Bench of this Court directed the second respondent to deposit a sum of Rs.23.60 crores within a period of 15 days and the balance sale consideration of Rs.212.24 crores within 60 days from the date of deposit of the above said amount of Rs.23.60 crores, which is the E.M.D. amount calculated at the rate of 10% of the sale consideration. It is stated that the second respondent deposited the said demand drafts issued by the applicant company to the extent of Rs.23.60 crores for purchasing the properties of M/s.SIV Industries Limited. Since the balance amount was not paid by the second respondent, there was a direction by the Division Bench, forfeiting the said sum of Rs.23.60 crores and the same has gone to the account of the Official Liquidator. 2(c). Coming to know about the alleged fraud committed by the second respondent, the applicant moved a petition before the Division Bench to implead itself as a party and also filed another petition for injunction against the Official Liquidator from dealing with the said amount of Rs.23.60 crores.
2(d). When O.S.A.No.383 of 2007 was taken up for hearing on 17.4.2008, the Division Bench recorded the undertaking given by the learned counsel for the appellant in that case who is the second respondent herein that the second respondent would resolve the dispute with the applicant herein and that rest of sale amount of Rs.212.4 crores would be deposited. However, in spite of time granted by the Division Bench, the second respondent did not choose to deposit the balance sale consideration and ultimately, the O.S.A. came to be disposed of by the Division Bench on 28.8.2008, with direction to forfeit the amount of Rs.23.60 crores deposited by the second respondent. 2(e). In respect of the rights of the applicant, the Division Bench while declining to decide the same in the appellate stage, since it would involve enquiry on the question of fact whether the second respondent (appellant before the Division Bench) had actually obtained the demand drafts for Rs.23.60 crores by playing fraud on the applicant company and therefore, the matter has to be decided by this Court after hearing the parties on merits. It was also observed by the Division Bench that if this Court comes to the conclusion favourable to the applicant on merits, the order of forfeiture for Rs.23.60 crores made by the Division Bench shall not stand in the way of the Company Court to proceed on merits. 2(f). It is by virtue of the said direction, the present application, C.A.No.2296 of 2008 has been filed by the applicant seeking for a direction against the Official Liquidator to refund a sum of Rs.23.60 crores deposited by the second respondent with the Official Liquidator as E.M.D. with interest.
3. Pending the above said application, the applicant company has also filed C.A.No.141 of 2009 for direction against the Commissioner of Police to investigate the complaint dated 11.11.2008 stated to have been given against the second respondent and C.A.No.291 of 2009 to implead the proposed party, M/s. Assets Reconstruction Company (India) Limited, Mumbai, which is one of the secured creditors of the company under liquidation.
4. The Official Liquidator in his report dated 30.6.2009 has stated that the said M/s.SIV Industries Limited was wound up by order dated 25.8.2004 in C.P.Nos.17 of 2004 and 107 of 2001 and the Official Liquidator has taken possession of all available assets valued by ITCOT Consultancy as per directions. The sale conducted in respect of factory was confirmed in favour of one Jalal Nazaar for Rs.236 crores on 2.11.2007 and he paid Rs.10 crores being 10% of the upset price fixed by the Court and obtained extension of time for making the balance E.M.D. Ultimately, the sale came to be cancelled and the E.M.D. paid by him was forfeited. The said Jalal Nazaar filed appeals in O.S.A.Nos.381 and 382 of 2007. 4(a). In the meantime, the second respondent who was the next highest bidder offering a sum of Rs.236 crores for the properties has also filed O.S.A.No.383 of 2007 and paid 10% of E.M.D. viz., Rs.23.60 crores. Since both of them have not paid the balance amount, the Division Bench in the order dated 28.8.2008, confirmed the Single Judge order dated 23.8.2008 forfeiting the E.M.D. made by the highest bidder as well as the second respondent and remanded the matter to the Company Court again. 4(b). As far as the events stated to have happened by the first respondent about the issuance of Demand Drafts to Mr. Kochupillai Thulasi Das and another are concerned, the Official Liquidator is not aware of the same, however, according to him, the demand drafts were handed over to the Official Liquidator on 18.3.2008 and the same were encashed on 19.3.2008. It is stated that Abu Dhabi Court punished the said Kochupillai Thulasi Das and the power of attorney agent, Ray Divakar on 22.4.2008 by imposing imprisonment for three years. However, since the said two persons were not traceable, the Red Corner alert against those accused was issued through Interpol in Abu Dhabi. It is stated that the amounts realised by the Official Liquidator were already distributed among the secured creditors and workmen as per the orders of this Court from time to time. It is denied that the Official Liquidator is an unjust beneficiary.
5. In the counter affidavit filed by the second respondent, while questioning the maintainability of the application before this Court, it is stated that the second respondent has nothing to do with the preparation of the demand drafts which were issued in the name of Official Liquidator, Madras and any accommodation by the applicant company to its customers in issuing demand drafts is a business transaction, and the applicant has to work out its remedy only against those customers. It is also denied by the second respondent that it has played fraud in obtaining such demand drafts. It is stated that the second respondent has entered into a written arrangement with M/s.Power Engineering International FZCO, Jebel Ali, Dubai which had agreed to have an assignment of this respondent's right in its favour for a consideration. It is, pursuant to the said arrangement, the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai agreed to provide an initial amount of Rs.23.60 crores, which was also provided. The demand drafts were submitted to the first respondent, Official Liquidator which were genuine and encashed. It is stated that the second respondent was not aware as to who had obtained the said demand drafts and the second respondent had not been a party to any fraud alleged to have been committed. It is stated that as per the arrangement since the party, viz., M/s.Power Engineering International FZCO, Jebel Ali, Dubai did not bring any more funds, the transaction was not able to be proceeded with, resulting in the forfeiture of the amount. 5(a). It is also stated that as against the order of the Division Bench dated 28.8.2008, an SLP was filed before the Supreme Court. The application along with the prayer is stated to be not maintainable and it is stated that the Official Liquidator is a holder in due course and therefore, the recovery of money by him is bona fide. It is the case of the second respondent that it has no contractual relationship with the applicant in obtaining the demand drafts. It is not correct to state that the second respondent has not disputed any allegation made by the applicant. It is also denied that the second respondent has stated that it would settle the dispute with the applicant. It is stated that the authorised share capital of the second respondent is Rs.12 crores and the issued and paid up capital is Rs.2 crores and not Rs.5 crores, a stated by the applicant in the affidavit and the second respondent has estimated the reserves over Rs.53 crores carrying on various businesses. The second respondent company, as a subsidiary of the Frontline Group in the field of international and domestic trading of coal and coke.
6. Mr.M.S.Krishnan, learned senior counsel appearing for the applicant would submit that the entire facts would show that the second respondent has played fraud in collusion with M/s.Power Engineering International FZCO, Jebel Ali, Dubai and the said fraud was not only against the applicant company, but also against this Court in producing demand drafts obtained by the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai in the auction sale. He would also rely upon the principles of equity to show that inasmuch as the Official Liquidator is not a person entitled for the amounts, the applicant being the owner of the demand drafts is entitled to get back the said amount. His main contention is based on section 58 of the Negotiable Instruments Act,1881 and also sections 70 and 72 of the Indian Contract Act,1872. He would rely upon the judgment reported in M.L.M.Ramanadan Chettiar vs. Gundu Ayyar and others [AIR 1928 Madras 1238] to substantiate his contention. According to him, the demand drafts having been obtained from the applicant are negotiable instruments which have been obtained by unlawful means for unlawful consideration and therefore, the ultimate beneficiary viz., the Official Liquidator should be directed to release the amount to the applicant, who is admittedly the owner of the instruments. His contention is that on the facts of the case, it is clear that fraud has been played on the applicant which does not require any evidence and therefore it is not necessary for the applicant to go to the appropriate jurisdictional Court and to adduce evidence, etc.
7. On the other hand, it is the contention of Mr.Prakash Gokalaney, learned counsel for the second respondent that it was only as per the arrangement between the second respondent and M/s.Power Engineering International FZCO, Jebel Ali, Dubai, the second respondent participated in the auction and handed over the demand drafts obtained by the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai from the applicant company. Since the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai has not taken any steps to pay the balance amount as per the arrangement, it is not possible for the second respondent to pay the balance amount and it is, in those circumstances, the amount has been forfeited. 7(a). It is his contention that the applicant has no jurisdiction to claim any amount from the Official Liquidator inasmuch as the applicant has not participated in any of the court auction sale. It is his case that since the applicant is unable to recover the amount from its customer viz., Mr.Kochupillai Thulasi Das, Chairman and Managing Director of M/s.Power Engineering International FZCO, Jebel Ali, Dubai, the present application is filed for the purpose of recovering the same, which is not maintainable. 7(b). It is his submission that section 58 of the Negotiable Instruments Act,1881, has no application since there was no fraud played and in any event, whether fraud has been played is a question of fact which requires adjudication of facts and the same cannot be done in this application. He would also submit that the demand drafts obtained from the applicant company are not vague ones and nobody can intermeddle the same and there is no fraud played on the Court. 7(c). He would rely upon the judgment in B.P.Gupta and others vs. Standard Enamel Works (P) Ltd., [(1987) 62 Com. Cases 36 (Delhi), [(2001) 44 CLA (Sny) 1 (Madras)], The Director of Industries and Commerce, Chepauk, Chennai 5 vs. P.N.Kumar and others [2009(1) CTC 393], Ravindra S.More and another vs. Sundarsan Chits (I) Ltd., (in liquidation) [73 Com.Cases 393 (Kerala)], R.P.Verma and others vs. Aanaam Pvt., Ltd., and others [69 Com. Cases 152 (P&H)] and Bhaurao Dagdu Paralkar vs. State of Maharashtra and others [(2005) 7 SCC 605] apart from relying upon Section 188, Cr.P.C. and contend that the Commissioner of Police, Chennai cannot be directed to investigate the incident which is stated to have taken place in a foreign country.
8. Mr.AL.Somayaji, learend senior counsel appearing for the Official Liquidator submitted that the Application No.2296 of 2008 is not maintainable for the simple reason that the amount of Rs.23.60 crores was received by the Official Liquidator by virtue of order of the Court forfeiting the said amount since the participant of the auction viz., the 2nd respondent failed to pay the balance sale consideration. When the amount was received by the Official Liquidator by way of forfeiture and it was not paid either by the second respondent or the applicant company to the Official Liquidator and it cannot be said that the Official Liquidator is an unjust beneficiary. 8(a). According to him, the Official Liquidator is not concerned with any dispute that the applicant company has got with its customers and it is for the applicant to work out its remedy against its customers. It is also his submission that it is only in furtherance of contractual relationship with its customer, the applicant company has issued demand drafts in favour of the Official Liquidator, Madras, and not for the purpose of the applicant participating in the auction and therefore, the applicant has no locus stanti to file the present application in this Court. 8(b). According to him, whether there is a fraud committed by the applicant's customer in collusion with the second respondent is a matter which cannot be decided in the absence of the said customer of the applicant. Even if there is any remedy available to the applicant towards the second respondent against whom an allegation of fraud is made, the Official Liquidator cannot be made responsible for the same. Once the demand drafts were forfeited, the transactions stood completed. The applicant company having paid the amounts under the demand drafts had no right to stop payment. 8(c). He would rely upon the judgment in Raghavendrasingh Bhadoria vs. State Bank of Indore and others [A.I.R. 1992 Madhya Pradesh 148] apart from relying on Tannan's Banking Law in support of his contention that it is not for the company Court to decide such an issue in winding up proceedings. The demand drafts which can be compared to a letter of credit should be treated as an independent transaction between the applicant and its customer and after the payment was made to the payee, there is no cause of action. He would rely upon the judgment in United Commercial Bank vs. Bank of India and others [(1981) 2 SCC 766]. He would submit that in any event, the Official Liquidator cannot be treated as an unjust beneficiary so as to direct him to return the amounts. He would rely upon Narendra Dada Agro Industries Ltd., vs. State of Maharashtra [CDJ 2006 BHC 1484].
9. At the outset, on the facts which are enumerated above and which are not in much dispute, the question that has to be decided is whether the Official Liquidator in whose favour as per the order of this Court, forfeiture has been effected in respect of E.M.D. paid by a party can be directed to return the amounts to the applicant which had issued the demand drafts, either on the basis that there was a fraud played on the applicant by its customer or on the basis that the Official Liquidator has become an unjust beneficiary.
10. It is seen that the highest bidder Jalal Nazaar, who has given an offer of Rs.236 crores to purchase the properties of the company in liquidation and paid Rs.10 crores as E.M.D. and he has not paid the balance amount. It was in those circumstances, the petitions in Application Nos.2941 and 2942 of 2007 were disposed of by order dated 23.11.2007 cancelling the sale confirmed in favour of the said Jalal Nazaar, who has filed appeals in O.S.A.Nos.381 and 382 of 2007. The second respondent who was the second highest bidder has also filed an appeal in O.S.A.No.383 of 2007 on the ground that when the sale in favour of the highest bidder was cancelled, as the second highest bidder, his bid should have been accepted. When all the appeals were pending, the present applicant has filed M.P.No.2 of 2008 in O.S.A.No.383 of 2007 to grant leave to file the petition to implead itself as a party. By order dated 4.4.2008, while granting leave, the Division Bench of this Court has observed as follows: " Leave granted.
Let the case be listed on 17.04.2008, as orderd earlier. On the said date the court will decide whether the Director of the appellant company of OSA.No.383/07 be directed to appear before the Court in person, if not present on the next date.
Until further orders, the Official Liquidator will not disburse any amount out of Rs.23.60 crores deposited by appellant of OSA.No.383/07 without prior permission of the Court."
11. On 17.4.2008, on the very same applications in the said appeals, by taking note of the submissions made by all the parties, the Division Bench has passed the following order:
" OSA.Nos.381 & 382 of 2007: Learned counsel for the appellant submitted that the appellant is still interested to pay the amount if some more time is granted. But in view of the earlier order passed by this court, we are not passing any special order for the present. The court may consider it if for one or other reason, the matter is not settled with the appellant of OSA.No.383 of 2007.
OSA.No.383 of 2007: Learned counsel appearing for the appellant submits that the appellant has taken steps to resolve whatever the dispute as now raised by the intervenor-M/s.A.L.Rostaman Internatinal Exchange. He further assured that rest of the amount of Rs.212.4 Crores will be deposited within the time frame, as per the earlier order of the court.
The pendency of these appeals shall not stand in the way of the Official Liquidator to review the security arrangement and/or to take any direction from the Company Judge (Single Judge) for protection of the assets of the Company under winding up.
Let a copy of this order be handover to the counsel for the parties and Official Liquidator.
Post "for orders"on 10.6.2008 at 2.15 pm in the chambers."
12. By a subsequent order passed in various applications in the above said appeals dated 17.7.2008, the Bench, having noted the fact that neither the highest bidder Jalal Nazaar, nor the second respondent deposited the sale consideration of Rs.236 crores, held as follows:
" In spite of time allowed to the appellants, they have filed to deposit the total amount of Rs.236 crores. In the circumstances, the appellants are given opportunity to state as to why their appeals be not dismissed and heavy costs be not imposed and the amount(s) be not forfeited and the concerned person(s) be not punished for "contempt" of court for giving false statement/undertaking before the court.
Let a copy of this order be handed over to the counsel for the appellants for information to the person(s) who have sworn to the affidavit(s) in the appeals.
Post the appeals "for orders" on 4.8.2008 on top of the list above the "hearing" cases."
13. Ultimately, when all the said appeals were taken up along with the applications filed by the applicant as intervener, having heard the parties extensively, the Division Bench in the judgment dated 28.8.2008, has drawn the questions to be decided as follows:
" 20. The only question that arises for consideration in all these O.S.As. is as to whether the "Earnest Money" in terms of the auction-notice, deposited by one or other appellant(s), should be refunded or not?"
14. After referring to various judgments on the issue relating to the refund of E.M.D., the Division Bench having found that as per the terms of contract, the forfeiture has to be effected, ultimately held as follows:
" 21. The question relating to refund of "Earnest Money" fell for consideration before the Supreme Court in the decision reported in AIR 1970 SC 1986 ("H.C.Mills vs. Tata Air Craft"), wherein, the Supreme Court, while dealing with the provisions of Section 74 of the Contract Act, 1872, relating to the deposit of the "Earnest Money", having noticed the fact that the purchaser, by the terms of the Contract, was liable to deposit 25% of the purchase-price, held that, upon default/failure of the purchaser in paying the purchase-price, the "Earnest Money" deposited, shall be forfeited.
22. Similar view was taken by the Apex Court in the decision reported in 1996 (4) SCC 249 ("H.U.D.A. vs. Kewal Krishan Goel") wherein, the Court held that the "Earnest Money" deposited shall bind the contract between parties and the forfeiture would be justified, when the contract falls through, on default/failure on the part of the allottee/purchaser.
23. In the decision reported in 2007 (1) SCC 228 ("Swurabh Prakash vs. DLF Universal Limited"), the Supreme Court noticed the distinction between "Security" and "Earnest Money" and held that the appellant-developer of the said case, rightly exercised its right to forfeit the "Earnest Money" as per the terms of the Contract.
24. In the present O.S.As. as it is not in dispute that in the tender-advertisement, the bidder(s) were asked to deposit 10% of the "Earnest Money" on acceptance of their bid, and in pursuance of the bid, the highest bidder (appellant-JalalNazar, in O.S.A.Nos.381 and 382 of 2007) deposited only Rs.10 crores and not the total amount, subsequently, as the offer accepted by the Court on request of the appellant of O.S.A.No.383 of 2007, was in confirmity with the terms and conditions of the tender-advertisement, he appellant-M/s.Fairdeal Supplies Private Limited, being the second highest bidder (in O.S.A.No.383 of 2007) is also bound by the terms and conditions of the tender-advertisement, and he is liable to deposit 10% of the offer amount and the offer of Rs.236 crorres, having been given by the appellant-M/s.Fairdeal Supplies Private Limited, he duly deposited 10% of the offer amount, i.e. Rs.23.60 crores. Having failed to deposit the rest of the amount in respect of the bid in question, in terms of the tender-advertisement and the order passed by this Curt as quoted supra, we are of the view that the amount deposited by the appellant-Jalal Nazar (in O.S.A.Nos.381 and 383 of 2007) and the appellant-M/s.Fairdeal Supplies Private Limited (in O.S.A.No.383 of 2007), be forfeited. It is accordingly ordered to forfeit Rs.23.60 crores (Rupees twenty three crores and sixty lakhs only) which was deposited by the appellant of O.S.A.No.383 of 2007, in accordance with law, as also to forfeit the initial amount of Rs.10 crores, deposited by the first highest bidder, namely Jalal Nazar-the appellant of O.S.A.Nos.381 and 382 of 2007."
15. However, while deciding the intervening application filed by the applicant wherein the applicant has also sought for a direction against the Official Liquidator to refund of amounts, the Division Bench has held that the same can be decided only by a competent jurisdictional Court and if necessary, the applicant can bring the above fact to the notice of the Judge deciding the company applications. The Division Bench has held as follows: " So far as the intervening application filed by one M/s.AL Rostamani International Exchange (in C.M.P.SR.Nos.29712, 29713 and 29715 of 2008) with the consequential prayer to direct the Official Liquidator to refund the amount of Rs.23.69 crores to it and to grant interim order of injunction by seeking leave of the Court, in C.M.P.SR.Nos.29712, 29713 and 29715 of 2008 in O.S.A.No.383 of 2007, it is not possible for this Court at this stage in the present O.S.As., to decide the question of fact as to whether the appellant of O.S.A.No.383 of 2007, namely M/s.Fairdeal Supplies Pvt.Ltd., had actually obtained the Demand Drafts in question, for Rs.23.60 crores, by playing fraud on the said intervenor-company or not. This question can only be decided by a Court of competent jurisdiction and if so necessary, the intervenor-company, i.e. M/s.AL Rostamani International Exchange, may bring the above facts to the notice of the concerned portfolio single Judge dealing with the Company Petitions/Company Applications and the learned single Judge, after hearing the parties concerned, may pass appropriate orders, on merits and in accordance with law." It is based on the above findings of the Division Bench, the applicant has filed the above applications.
16. The fact that the demand drafts in question to a total amount of Rs.23.60 crores issued by the applicant which is stated to be a foreign company, carrying on banking operations in Dubai, UAE, as per the request of M/s.Power Engineering International FZCO, Jebel Ali, Dubai which is admittedly a customer of the applicant company is admitted as it is seen in the affidavit filed on behalf of the application. The said demand drafts were issued by the applicant company on 17.3.2008 to the Chairman and Managing Director of M/s.Power Engineering International FZCO, Jebel Ali, Dubai viz., Mr.Kochupillai Thulasi Das, based on the cheque stated to have been issued by the said Mr.Kochupillai Thulasi Das and Mr.Ray Divakar, also a resident of U.A.E. stated to be the power of attorney holder of the wife of Mr.Kochupillai Thulasi Das, by name, Mrs.Santhakumari Amma. It was based on the cheque issued by them, the applicant company issued the demand drafts at the instance of M/s.Power Engineering International FZCO, Jebel Ali, Dubai and the demand drafts were drawn in favour of the Official Liquidator, High Court, Madras on Canara Bank, Foreign Exchange, Anna Salai, Madras with which the applicant has commercial transactions.
17. Admittedly, the said demand drafts were presented by the second respondent before the Division Bench for the payment of E.M.D. amount for the purchase of properties of the company in liquidation. It is relevant to point out that the appeals have been periodically taken by the Division Bench. In the year 2007, the Company Judge has passed an order cancelling the offer given by the highest bidder and the second respondent and the highest bidder Jalal Nazaar have been given time to deposit the E.M.D. amount of Rs.23.60 crores. In fact, in O.S.As., the Division Bench has passed the order on 1.2.2008 which is as follows: " O.S.A.No.383 of 2007: So far as the appellant-Company in O.S.A.No.383 of 2007 is concerned, no specific order is being passed today. If the appellant in O.S.A.Nos.381 and 382 of 2007 fails to deposit the amounts in terms of the order passed today in those appeals, then, if the appellant-Company in O.S.A.No.383 of 2007 agrees, it is allowed 15 days time to deposit a sum of Rs.23.60 crores (Rupees twenty three crores and sixty laksh only) from the date of failure of the appellant in O.S.A.Nos.381 and 382 of 2007 and further sum of Rs.212.40 crores (Rupees two hundred twelve crores and forty lakhs only) within further period of sxity days, with similar conditions a mentioned in those appeals."
18. Subsequently, on 28.3.2008, the second respondent, who is the appellant in O.S.A.No.383 of 2007, through its counsel has informed the Division Bench that on 18.3.2008 the second respondent has deposited with the Official Liquidator the demand drafts dated 17.3.2008 and the Division Bench has passed the following order:
" O.S.A.No.383 of 2007: Learned counsel appearing for the appellant submitted that a sum of Rs.33.6 crores towards earnest money, has been deposited with the Official Liquidator on 18.3.2008 by way of Demand Drafts, dated 17.3.2008. This is accepted by the Official Liquidator.
2. So far as the rest of the amount of Rs.212.4 crores is concerned, learned counsel appearing for the appellant submitted that the aforesaid rest of the amount, shall be deposited by 15.4.2008 with the Official Liquidator.
3. In the circumstances, we allow the appellant in O.S.A.No.383 of 2007 to deposit such amount of Rs.212.4 crores (Rupees two hundred and twelve crores and forty lakhs only) with the Official Liquidator by 15.4.2008."
19. It appears that the applicant filed the miscellaneous petitions to implead and to grant leave in the month of April, 2008 and leave was granted on 4.4.2008. In the meantime, the Official Liquidator appears to have encashed the demand drafts which were presented to him on 18.3.2008. The second respondent has produced an agreement of assignment dated 4.3.2008 entered into between the second respondent and M/s.Power Engineering International FZCO, Jebel Ali, Dubai represented by its Chairman and Managing Director Mr.Kochupillai Thulasi Das. A reading of the said agreement makes it clear that the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai was aware of the auction held in this Court and the second respondent agreed to assign the orders that may be passed by the Madras High Court in respect of sale in favour of M/s.Power Engineering International FZCO, Jebel Ali, Dubai for a consideration and the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai agreed to pay Rs.240 crores and on the date of agreement a sum of Rs.23.60 crores in the form of Demand Drafts obtained from the applicant Bank was handed over to the second respondent. Therefore, the contention of the second respondent is that the said demand drafts came to the hands of the second respondent only in pursuance of the agreement of assignment dated 4.3.2008 and it was, based on that, the second respondent participated in the auction and handed over the demand drafts on 17.3.2008. In such circumstances, it cannot be said as if the second respondent has played fraud on this Court in participating in the auction and depositing the demand drafts on 18.3.2008.
20. If it is the case of the applicant as it is seen in the pleadings that its customer Mr.Kochupillai Thulasi Das approached it for obtaining the demand drafts by giving a cheque, which was subsequently dishonoured, for which the said Kochupillai Thulasi Das and another were punished, the remedy of the applicant lies elsewhere and not by filing the present application against the Official Liquidator. In any event, unless and until the applicant makes out a case in the appropriate forum that its customer viz., M/s.Power Engineering International FZCO, Jebel Ali, Dubai represented by Mr.Kochupillai Thulasi Das has committed fraud, there is absolutely no cause of action for the applicant to proceed even under the Negotiable Instruments Act,1881, irrespective of the question whether such finding against the customer of the applicant itself would be a cause of action for the applicant under section 58 of the Negotiable Instruments Act,1881.
21. Section 58 of the Negotiable Instruments Act,1881, which is relied upon by the learned senior counsel for the applicant is as follows:
" 58. Instrument obtained by unlawful means or for unlawful consideration:
When a negotiable instrument has been lost, or has been obtained from any maker, acceptor or holder thereof by means of an offence or fraud, or for an unlawful consideration, no possessor or endorsee who claims through the person who found or so obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor or holder, or from any party prior to such holder, unless such possessor or endorsee is, or some person through whom he claims was, a holder thereof in due course."
22. First of all, the Negotiable Instruments Act,1881, applies to the territories of India and any instrument that has been obtained in a foreign country and in respect of the transaction that has taken place in a foreign territory, the validity of such transaction cannot be tested under section 58 of the Negotiable Instruments Act,1881. Even assuming that the applicant's customer M/s.Power Engineering International FZCO, Jebel Ali, Dubai which is a company having business in U.A.E. and which is undoubtedly having relationship with the applicant company being its customer, has played fraud on the applicant in obtaining the demand drafts, no decision can be taken on fraud, firstly in the absence of the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai and secondly, for want of jurisdiction for this Court or for any other Indian court. In such circumstances, the contention that the instruments have been brought out in an unlawful manner and hence, the subsequent transferee or endorsee will be presumed to have no better title has no meaning.
23. The principle 'nemo dat quod non habet', meaning thereby no one can pass on better title than what he himself has or the principle 'Ex turpi causa non oritur actio', meaning thereby out of a turpitude no cause of action will arise, cannot be made applicable to the facts and circumstances of the present case unless and until a competent court of jurisdiction on merits viz., on appreciation of evidence, decides about the conduct of the parties since the unlawful means and unlawful consideration is of criminal character, which cannot be decided by exchange of affidavits or documents.
24. The further submission of the learned senior counsel appearing for the applicant, by placing reliance on sections 70 and 72 of the Indian Contract Act,1872, for a direction against the Official Liquidator to return the amounts of demand drafts to the applicant, also deserves to be rejected. Section 70 of the Indian Contract Act,1872, imposes an obligation on a person who is enjoying the benefits either by mistake or otherwise, and it enumerates the principle against unjust enrichment. Similarly, section 72 of the Contract Act,1872, deals with a person to whom money has been paid, or anything delivered, by mistake or under coercion imposing obligation on him to repay or return. The said provisions is also not applicable to the facts of the present case. Sections 70 and 72 of the Contract Act are as follows: " 70. Obligation of person enjoying benefit of non-gratuitous act.- Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."
" 72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion.-
A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it."
25. In a situation like this, where the amount of earnest money deposit has been forfeited in favour of the Official Liquidator, there is absolutely no question of unjust enrichment on the part of the Official Liquidator or the amount paid to the Official Liquidator by mistake. As I have stated earlier, even in respect of the contention that the second respondent has played fraud on the Court, the same is highly doubtful, especially when the second respondent is relying upon the agreement of assignment stated to have been entered into between M/s.Power Engineering International FZCO, Jebel Ali, Dubai represented by its Chairman and Managing Director Mr.Kochupillai Thulasi Das and the second respondent. In any event, these are the matters which would not come within the purview of this Court while deciding the abovesaid applications.
26. Equally, it is not known as to how the concept of equity plays a role in the contractual obligation between the applicant and its customer, M/s.Power Engineering International FZCO, Jebel Ali, Dubai, in issuing demand drafts.
27. There is one more aspect in this case which is relevant to be considered, viz., once the applicant which is a banking institution issued demand drafts at the instance of its customer viz., M/s.Power Engineering International FZCO, Jebel Ali, Dubai, represented by its Chairman and Managing Director Mr.Kochupillai Thulasi Das, even though the said demand drafts can be termed as negotiable instruments, there is no question of issuing an order of 'stop payment' to the bank. The Division Bench of Madhya Pradesh High Court in Raghavendrasingh Bhadoria vs. State Bank of Indore and others [AIR 1992 MP 148] has held that while a demand draft is a bill of exchange drawn by a bank on another bank, it is a negotiable instrument. It was pointed out that the main distinction between a cheque and a draft is that while the cheque is an order by the drawer on his own agent viz., the bank for the payment of certain sum of money to the bearer or the order of the person in whose favour the cheque is drawn, a draft is not an order by a private individual to his own agent. In such view of the matter, the draft cannot be countermanded so easily for the reason that when once the banker issued the demand draft, there is no relationship of principal and agent between the purchaser and the bank. The Division Bench has quoted with approval the earlier decision of Bombay High Court in Tukaram Bapuji Nikam vs. Belgaum Bank Ltd., (AIR 1976 Bombay 185) wherein it is held as follows: " (1) the relationship of the purchaser of a draft and the bank from which that draft has been purchased is merely that of debtor and creditor;
(2) the purchaser of the draft can, therefore, call upon the bank from which he has purchased it to cancel the draft and pay back the money to him at any time before the draft has been delivered to the payee;
(3) if, however, the sole object of the issue of the draft was to transmit the money to another person, a fiduciary relationship is created between the purchaser of the draft and the bank which issues it, and the purchaser of the draft can countermand payment only if the bank has not actually parted with the money held by it as agent, thus terminating the relationship of principal and agent;
(4) ordinarily, a bank issuing a draft cannot refuse to pay the amount thereof, unless there was some doubt as to the identity of the person presenting it as being or properly representing the person in whose favour it was drawn, or in other words, unless there is reasonable ground for disputing the title of the person presenting the draft; and
(5) once the draft has been delivered to the payee or his agent, the purchaser is not entitled to ask the issuing bank to stop payment of the draft to the payee on other grounds such as matters relating to consideration, and the issuing bank can thereafter pay back the amount of the draft to the purchaser of the draft only with the consent of the payee."
28. While that is the legal position regarding the demand draft, once such amount payable under the demand draft has been paid on forfeiture as per orders of this Court, the applicant is not entitled to seek either for stopping the payment or recovering the amount from whom it was paid especially in the circumstance that the payee of the demand draft is a third party who has nothing to do with the alleged fraud.
29. While considering about the demand draft issued on the basis of letter of credit given by the banker during commercial transaction, the Supreme Court in United Commercial Bank vs. Bank of India and others [(1981) 2 SCC 766] has held that such payment cannot be restrained by way of an order of injunction. The relevant portion of the judgment of the Supreme Court is as follows:
" 32. Banker's commercial credits are almost without exception everywhere made subject to the code entitled the 'Uniform Customs and Practices for Documentary Credits', by which the General Provisions of Definitions and the Article following are to "apply to all documentary credit and binding upon all parties thereto unless expressly agreed". A banker issuing or confirming an irrevocable credit usually undertakes to honour drafts negotiate, or to reimburse in respect of drafts paid, by the paying or negotiating intermediate banker and the credit is thus in the hands of the beneficiary binding against the banker. The credit contract is independent of the sales contract on which it is based, unless the sales contract is in some measure incorporated. Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in terms of the paying or negotiating bank, the beneficiary cannot claim against the paying bank and it is the paying bank's duty to refuse payment.
44. The appellant was under a duty to its constituent, the Bihar Corporation, to scrutinize the documents, and could not be compelled to make payment particularly when the description in the documents did not tally with that in the letter of credit. It was fully entitled to exercise its judgment for its own protection. When the appellant against the first lot of 20 documents refused to make payment except 'under reserve' and against the second lot of 27 documents even 'under reserve' the remedy of the plaintiffs was to approach the 'openers', i.e., the Bihar Corporation, to instruct the appellant to effect a change in the description of the goods from 'Sizola Brand Pure Mustard Oil' to "Sizola Brand Pure Mustard Oil 'Unrefined'" in the letter of credit. Instead of adopting that course, the irregularity in the description in the documents tendered for payment was sought to be got over by the plaintiffs by instructing their bankers, the Bank of India, to execute a letter of guarantee or indemnity. When the bills of exchange tendered to the Bihar Corporation were dishonoured when presented on August 3,1978, the legal consequences must follow as between the appellant and the Bank of India. There was the inevitable chain of events which could not be prevented by the grant of an injunction."
30. The clause in tender process especially when the same is done by the Court to the effect that the party who is unable to act as per the condition and pay the amount of sale consideration should lose the E.M.D. paid, is a stipulation in the interest of the creditors of the company under liquidation. In case of default, necessarily the forfeiture clause has to follow. The forfeiture being effected based on the terms of tender conditions based on which the intending purchaser had participated in the auction process is certainly binding on the participant who has failed to fulfill the condition for payment of sale consideration. On the facts of the present case, as stated above, when it is not in dispute that as per the terms of tender, the party who fails to fulfill the condition in respect of payment of sale consideration is liable for forfeiture of E.M.D. and in pursuance of the same, as per directions of the Division Bench of this Court, forfeiture was effected, it can never be said to be an unjust enrichment by the Official Liquidator. It is an amount which the Official Liquidator is entitled to receive for the benefit of creditors of the company and at the same time.
31. In the matter of Narendra Dada Agro Industries Ltd., vs. State of Maharashtra [CDJ 2006 BHC 1484], the Bombay High Court has held that forfeiture of E.M.D. as per the clause of contract is in public interest and such forfeiture clause can never be avoided on default committed by bidder. It was held as follows:
" 19. .... Where the parties have deliberately specified the amount of Rs.6,50,000/- as Earnest Money for each bidder and agree to stipulation in clause no.10 above, there can be no presumption that, at the same time, it was intended to allow the bidder responsible for the breach to give a go-by to the sum specified. Here the Clause of forfeiture is included in tender document only in the interest of Creditors of the Company and to avoid unnecessary delays in restoring to them their legal dues. The clause is, therefore, in the public interest. The offer made by both the bidders was subject to this contract will be fulfilled as per its terms and conditions. Said amount is part of the purchase price to be adjusted accordingly when the bid is accepted by this Court. It is liable for forfeiture when the transaction falls through by reason of the default or failure of the purchaser/bidder. Clauses 10 and 28 of the terms and conditions practically covered all situations in which the contract can fall through on account of any mistake on the part of such bidders. There is nothing to the contrary in terms of the contract to avoid application, of forfeiture clause and hence, on default committed by the bidder, the Official Liquidator is entitled to forfeit said earnest."
32. In such view of the matter, it is not possible to accept the contention of the learned senior counsel for the applicant that by forfeiture, the Official Liquidator is not entitled for the amount and on satisfaction of fraud having been committed on the applicant, it is open to this Court to direct the Official Liquidator to return the demand drafts to the applicant. That apart, there are ever so many reasons to reject the contentions of the learned senior counsel for the applicant as totally untenable.
33. First of all, as stated above, it is not known as to how such application is maintainable in this Court when the transaction has taken place outside the country. Further, there is no presumption of fraud in respect of demand drafts stated to have been issued by the applicant company, especially in India, unless contrary is proved under section 118 of the Negotiable Instruments Act,1881. On the other hand, the rule of presumption is in favour of the negotiable instrument and it is onus on the part of a party who raises the question that it is not valid, not issued for consideration and the holder of the instrument is not presumed to be the holder in due course, to prove. Further, unless and until it is proved that the Official Liquidator was a party to the alleged fraud or misrepresentation and on the other hand, admittedly, it is not even the case of the applicant, it is not possible to hold that there has been any fraud committed at the time of issuing the instruments by the applicant and as such, the instruments or the right under the instruments are not enforceable under section 58 of the Negotiable Instruments Act,1881.
34. In such view of the matter, the judgment of Madras High Court in M.L.M.Ramanadan Chettiar vs. Gundu Ayyar and others [AIR 1928 Madras 1238], on which reliance was placed by the learned senior counsel for the applicant is not applicable to the facts of the case. In fact, in the said judgment, the Division Bench of this Court consisting of Phillips and Thiruvenkatachariar,JJ., have reiterated the celebrated concept of presumption under the Negotiable Instruments Act,1881, especially with reference to section 118 and also about holder and holder in due course under sections 8 and 9 of the Negotiable Instruments Act, and held that only in cases where the instruments have been obtained by fraud by the maker of the instrument or for unlawful consideration, the presumption can be drawn, but the burden of proving that the holder is not a holder in due course lies on the person who disputes. The relevant portion of the judgment is as follows: " The plaintiff is no doubt a holder for value of the pronotes in virtue of the endorsements made to him on 5th January 1922. Under S.118, Negotiable Instruments Act, the holder of a negotiable instrument shall be presumed to be a holder in due course; but where the instrument has been obtained from the maker by means of fraud or for unlawful consideration the burden of proving that he is a holder in due course lies on him. In this case therefor on the finding that the pronotes were obtained from defendant 1 by fraud and for unlawful consideration the plaintiff has to make out affimatively that he is a holder in due course. Turning to the definition of "holder in due course" given in S.9, the plaintiff though he has proved that he is a 'holder for value of the three notes, has yet to prove that he became the endorsee of the notes before they became payable and without having sufficient cause to believe that any defect exist in the title of the person from whom he derived his title." The law reiterated by the Division Bench above is not of any help to the applicant in this case.
35. The various judgments relied on by the learned senior counsel for the applicant relating to an order obtained by suppression of material fact or judgment obtained by fraud wherein it was held time and again that such judgments and orders are to be treated as nullity which can be questioned even in a collateral proceedings (vide: S.P.Chengalvaraya Naidu (Dead) by LRS. vs. Jagannath (Dead) by LRS. and others [(1994) 1 SCC 1 and Ram Chandra Singh vs. Savitri Devi and others [(2004) 2 LW 70 (SC)]) have no application to the facts of the present case.
36. It can never be presumed as if the order of forfeiture of E.M.D. passed by the Division Bench has been obtained either by playing fraud or by suppression of material fact. It is relevant to point out that there is absolutely nothing on record to show that any fraud has been committed on this Court by the applicant's customer viz., M/s.Power Engineering International FZCO, Jebel Ali, Dubai or by the second respondent. Even if there has been any fraud or collusion as alleged by the applicant between the said M/s.Power Engineering International FZCO, Jebel Ali, Dubai and the second respondent, such an issue cannot be decided by the Company Court, since such allegation of fraud or collusion is not forming part of the transaction which has happened before this Court. Further, no useful purpose would be served even by allowing the applicant to let in any evidence. In such view of the matter, it has only to be held that the applicant company which is unable to recover the amount from its customer, M/s.Power Engineering International FZCO, Jebel Ali, Dubai, which is stated to have issued a cheque for the purpose of issuing the demand drafts, has now decided to file the present application against the Official Liquidator, knowing fully well that the amount has gone to the credit of company in liquidation by way of forfeiture as per terms of tender and as per directions of the Division Bench, and such conduct can never be permitted by this Court. Such claim of the applicant can only be termed as a course abusing the process of Court.
37. By virtue of Rule 6 of the Companies (Court) Rules, 1959, enables the applicability of Civil Procedure Code and by virtue of the inherent powers conferred on the applicant as per rules 6 and 9 viz.,
" R.6. Practice and Procedure of the Court and provisions of the C ode to apply.- Save as provided by the Act or by these Rules the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the Court." " R.9. Inherent Powers of Court.- Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court."
38. It is true that this Court is empowered to pass orders even by moulding the prayer, since the power under rule 9 is akin to section 151 of Civil Procedure Code. But, such power is to be restricted only to company court proceedings and not otherwise. The claim of the applicant for the refund of the amount forfeited in favour of Official Liquidator is not on the basis of participation of applicant company in the company court proceedings, and the claim is made totally based on the grounds which are extraneous to the company Court proceedings. Merely because the forfeited demand drafts were issued by the applicant company which were presented before this Court by a participant in the auction, it does not mean that the drawer bank viz., the applicant company has played any role in the company court proceedings. The inherent powers are to be used only for the purpose of rendering substantial justice, and while dealing with an issue and a matter which is not connected with the Company court proceedings, the company Court is not empowered to use the inherent powers, especially in the facts and circumstances of the case where there is absolutely no evidence of fraud having been played on the court and there is absolutely nothing to presume any fraud especially in the context of the provisions of the Negotiable Instruments Act,1881. Therefore, the contention of the learned senior counsel for the applicant to mould the relief for rendering justice is not tenable.
39. The English Judgment by the Court of Appeal in Banque Belge Pour L'Etranger vs. Hambrouck and others [1919 B 2351] relied upon by the learned senior counsel for the applicant has no application to the facts of the present case. In that case, Their Lordships, Bankes, Scrutton and Atkin L.JJ. were dealing with a cheque obtained by fraud and the transfer effected without consideration. The judgment was delivered in the context of a person who drew cheque upon his account on his bank and handed it over to his kept mistress who deposited it into her account of London Joint City and Midland bank. When the possession of cheque by him itself was by fraud since it was purported to be drawn by a third party, it was held that when fraud was found out, the amount which was paid into the account of his mistress should be deemed to be an amount obtained by fraud for no consideration. I am of the view that the judgment of the English Court relied upon by the learned senior counsel has no relevance to the facts and circumstances of the present case.
40. That apart, the Application No.141 of 2009 filed by the applicant for a direction against the Commissioner of Police to investigate about the complaint dated 11.11.2008 is also not maintainable. In the affidavit filed by the applicant, it is stated that such complaint was given to the Commissioner of Police, Egmore, Chennai against the second respondent in respect of an alleged fraud stated to have been committed by the second respondent in obtaining and misusing the demand drafts issued by the applicant. In the absence of any material to show that the second respondent has played any fraud on this Court or even any fraud against the applicant, it is not possible to give any direction to the Commissioner of Police to investigate into the complaint. The applicant being a foreign bank has to follow the procedure of law for the purpose of taking criminal action if any against a citizen of India. In any event, the applicant's prayer cannot be given in this company application except directing it to work out its remedy, if any available under the law. In such view of the matter, the applications are dismissed. No costs.
Common P.D.Order in
Company Application No.2296/08,141 & 291 of 2009 in Com.Appln.No.2296/08 in C.P.No17 of 2004