IN THE ALLAHABAD HIGH COURT 

R. P. Agarwal for the petitioner. 

Mahesh Agarwal and S. D. Singh for the respondent. 

JUDGMENT 

SUDHIR NARAIN J. - The petitioner, Banaras Beads Ltd., filed this petition for winding up Shrishti Carriers Private Limited having its registered office at 24/56 Birhana Road, Kanpur (hereinafter referred to as "the company"). 

The version of the petitioner is that it entered into an agreement on May 17, 1995, with the respondent-company whereby it agreed to make available the required funds to the company for subscription to the rights issue of 12 per cent. fully convertible debentures of Shrishti Videocorp Ltd. and the company had agreed to repay the petitioners the fund so arranged by it within 180 days. As the nature of the agreement is relevant it is quoted below : 

"This agreement made this the seventeenth day of May in the year one thousand nine hundred ninety-five between Shrishti Carriers Pvt. Ltd., having its corporate office at 502, Som Datt Chambers 1, 5, Bhikaji Cama Place, New Delhi 110 066, party of the first part hereinafter referred to as the principal (which expression shall unless excluded by and/or repugnant to the subject and/or context shall include its directors, agents, employees, nominees and/or assigns) and Banaras Beads Ltd., of A/1, Industrial Area, Varanasi 221 106, party of the second part hereinafter referred to as the agent (which expression shall unless excluded by and/or repugnant to the subject and/or context shall include its successors, agents, nominees and/or assigns). 

Whereas the principal approached the agent for financial arrangements against share applications for subscription to rights issue in the primary market, of Shrishti Videocorp Limited and whereas the agent agreed to make financial arrangements in account of the principal on the terms and conditions and against charges to be paid by the principal unto the agent as enumerated hereunder. 

Now, this agreement witnesseth and it is hereby agreed by and between the parties hereto as follows : 

(1) The agent shall inform the principal of the amount that the agent would like to invest in the account of the principal for subscription to the rights issue of 12 per cent. unsecured fully convertible debentures (FCDS) of Shrishti Videocorp Limited. 

(2) The principal, thereafter, shall furnish the agent with the particulars of rights issue due to open from April 18, 1995, to May 20, 1995, wherefore the principal would like the agent to subscribe in its account. 

(3) The agent, subject to his willingness and agreeing to invest in the rights issue specified by the principal in terms of clause (2) above, shall arrange to apply for the number of debentures specified by the principal provided however that the amount of applications shall not exceed the amount available for investment and indicated by their agent in terms of clause (1) above. 

(4) The agent shall forward the xerox copies of the applications and acknowledgment receipts and upon intimation such applications shall be deemed to have been made in account of the principal. 

(5) However, the interest that may accrue to the agent on the deposits that he might make with bankers for issue of the Stock Invest Certificates shall be to the account and for the benefit of the agent exclusively and the principal shall have no claim and/or charge of any nature whatsoever thereon. 

(6) The principal shall within 180 days get transferred all the FCDs acquired by the agent on behalf of the principal and with a view to secure the undertaking the principal has delivered to the agent a post-dated cheque No. 640731 dated November 18, 1995, for Rs. 1 crore drawn on the State Bank of India, Bhikaji Cama Place, Ring Road, New Delhi, which the agent shall be entitled to encash on the due date. The principal hereby assures that the cheque shall be duly encashed on presentation on the due date. 

(7) That for the finances provided by the agent to the principal, the principal has agreed to pay commitment charges of Rs. 15 lakhs in advance. 

(8) That with a view to further secure the agent, the principal has pledged with the agent shares and securities detailed in the schedule hereunder. The agent shall be entitled to get its charge, registered under the provisions of the Companies Act with the companies for which the shares are pledged. 

(9) That in case the principal commits any default or the cheque is bounced, the agent shall be entitled to sell in open market at the rate then prevailing the FCDs of Srishti Videocorp Limited acquired by the agent on behalf of the principal as well as the shares pledged by the principal with the agent by way of security and recover the amount advanced by the agent on behalf of the principal in acquiring the FCDs and further interest at 28 per cent. per month for the days of default and all expense,% incurred in this regard. 

(10) That all costs of acquisition of FCDs and transfer, shall be on account of the principal. 

(11) That any dividend, bonus, rights share or interest payable in the intervening period will be the entitlement of the principal. 

(12) That this agreement has been entered into at Varanasi and the Varanasi court alone shall have the jurisdiction to entertain any suit or proceedings in case of any dispute between the parties. 

(13) The agent, immediately after submitting debenture applications shall draw his bill on the principal for the commitment charges at the rate specified in clause (7) hereinabove, payment whereof shall be made by the principal to the agent forthwith. 

(14) The agent, on receipt of the allotment/refund advice, shall intimate the principal of the date of application supported with the xerox copy of such advice. 

(15) The principal shall keep with the agent post-dated cheques of Rs. 1 crore at the time of handing over the debenture renunciation forms. The principal hereby assures that the cheque will be encashed on presentation on the due date. If, however, the cheque is not encashed on presentation on the due date it will be treated as default and a breach of the agreement. 

(16) The agent upon receipt of share certificates in terms of allotment advice against application made by the agent in account of the principal, shall deliver them to the principal on repayment of the investment made by the agent on behalf of principal." 

The company at the time of execution of the agreement had handed over to the petitioner a post-dated cheque No. 460731 dated November 18, 1995 for Rs. 1 crore drawn on the State Bank of India, Bhikaji Cama Place Branch, New Delhi, towards repayment of the amount which the petitioner was required to arrange under the aforesaid agreement. The petitioner arranged the sum of Rs. 1,00,02,000 (one crore two lakhs) for the company to enable it to subscribe to 166700 fully convertible debentures of Shrishti Videocorp Ltd. The petitioner presented the cheque to the bank for encashment on November 21, 1995, but the same was returned unpaid by the bank with the remark 'Effects not yet cleared. Please present again". The cheque was again presented to the bank on November 24, 1995, for encashment. This time it was again dishonoured by the State Bank of India with the remark 'insufficiency of funds". It sent a message dated November 27, 1995, to the company. The company by its fax message on November 27, 1995, regretted its inability to pay the dues. 

The petitioner received sums of Rs. 20 lakhs, vide banker's cheque No. 841454 dated December 7, 1995, and Rs. 5 lakhs, vide banker's cheque No. 841504 dated January 9, 1996, both drawn on the State Bank of India, New Delhi. The petitioner again requested for further payment. The company assured that it will make the payments but it failed to do so. The petitioner sent a notice dated March 26, 1996, to the company but the amount was not paid. It filed a criminal complaint under section 138 of the Negotiable Instruments Act, 1881, and section 420 of the Indian Penal Code before the Chief judicial Magistrate, Varanasi, on April 22, 1996, against one of the directors/signatories of the cheques in question. The Chief judicial Magistrate, Varanasi has taken cognisance of the complaint and the criminal proceeding is alleged to be pending. The petitioner further sent statutory notice dated September 19, 1996, under section 434 of the Companies Act, 1956, to the respondent-company at the registered office but even after the service of notice the company neither responded nor made the payment towards the dues of the petitioner. The petitioner filed this company petition on December 3, 1996, and on this petition the notice was issued to the company. 

The respondent-company has filed a counter-affidavit and has taken several pleas. The contention, of the respondent-company is that the petitioner had invested the amount in purchase of the convertible debentures and it was its investment and is not a debt due to the petitioner. The petitioner is claiming the amount in pursuance of the agreement dated May 16, 1995, and if there is, a breach of agreement, the petitioner can file a suit for specific performance of agreement. Secondly, the petitioner has already given security in the shape of shares of the respondent-company. Thirdly, the cheque was entrusted to the petitioner with an understanding that it shall not be encashed and presented to the bank and, lastly, that the company is solvent. It is not a case where the winding up petition be entertained. 

I have heard R. P. Agarwal, learned counsel for the petitioner, and S. D. Singh, learned counsel for the respondent. 

It is not denied that the respondent-company had issued a post-dated cheque dated January 18, 1995, for Rs. 1 crore drawn on the State Bank of India to be encashed by the petitioner on the due date. This cheque was dishonoured. In the counter-affidavit it has been stated that the said cheque was not to be presented by the petitioner to the bank. III view of clause (6) of the agreement this contention cannot be accepted. There is nothing to show that there was any separate agreements between the parties. The petitioner had purchased as agent for the respondent-company fully convertible debentures (FCDS) of Shrishti Videocorp Ltd. The respondent was to get transferred within 180 days all the FCDs acquired by the petitioner on behalf of the respondent-company It is on this under-standing that the petitioner had invested the amount for the purchase of FCDS. 

Learned counsel for the respondent contended that the petitioner had made the investment in purchase of the FCDs and it cannot be taken as a debt due to the petitioner. The agreement dated May 17, 1995, between the parties shows that the petitioner had purchased for the respondent-company. It had not invested the amount in its own account but it was held by the petitioner to be put in the account of the respondent and the 'respondent was the beneficial owner thereof. The entire transaction has to be considered in the light of the said agreement. It was at the instance of the respondent that the petitioner had to purchase FCDs for the respondent as an agent for the principal and the respondent had agreed to purchase it from the petitioner within 180 days and to ensure the payment, a cheque for Rs. 1 crore drawn on the State Bank of India was given to him with the stipulation that the agent shall be entitled to encash on the due date. "The principal hereby assures that the cheque shall be duly encashed on presentation on the due date". Clause 7 of the agreement provides that for the finances provided by the agent to the principal, the principal has agreed to pay commitment charges of Rs. 15 lakhs in advance. It is clear from the nature of transaction that the petitioner had not made the investment in its own right in purchasing the FCDS. 

Learned counsel for the respondent then contended that the cheque was given to the petitioner as security for buy-back of debentures and if the respondent failed to buy back the debentures the petitioner can file suit for specific performance of the agreement and the winding up petition on the ground of "inability to pay" is not maintainable. A perusal of the agreement indicates that the debentures were not purchased by the petitioner in its own right but as an agent for the respondent-company and as they were purchased as agent and it was in the name of the petitioner, it was to be transferred in the name of the respondent company. It was in the nature of transaction of loan because the FCDs were to be transferred within 180 days in the name of the respondent-company and to ensure that, a post-dated cheque was to be presented in the bank on the due date. 

Moreover, there cannot be any question of buy-back of the debentures because the debentures were held by the petitioner as agent of the respondent and in the account of the respondents and not in its own right. The petitioner is not expected to buy back its own property. 

The third submission of learned counsel for the respondent is that the petitioner was provided adequate security in the shape of shares/debentures and without realising the security, the remedy of winding up is not permissible. The petitioner in its rejoinder affidavit has categorically stated that the petitioner had received 77,800 equity shares of Shrishti Videocorp Ltd. by way of security. The respondent had given blank transfer deeds along with the said share certificates which were dated December 23, 1994, and those transfer deeds were no longer valid and there can be no use for transfer/sale of these shares in view of the provisions of section 108 of the Companies Act. Moreover, shares are being quoted only at a price of around Rs. 9 per share and they are quite thinly traded. There are hardly any buyers for the 77,800 shares in question and even if it is assumed that these shares are saleable at this price, then a sum of Around Rs. 7 lakhs can be realised as against the dues of about Rs. 1 crore. Even if it is assumed that the saleable value of 77,800 shares of Shrishti Videocorp Ltd., is accounted for, the respondent still owes Rs. 86 lakhs to the 

Petitioner. Moreover, these shares are being held as an agent by the petitioner for the respondent. The Petitioner has always been insisting on the respondent to take those shares from the petitioner. The petitioner has further stated in the statutory notice that the petitioner has always been ready and willing to transfer the debentures and others to the respondent and was still ready and willing to do so immediately upon the respondent making the payment of the dues of the petitioner. Further a debtor has the right to refuse to release the security till his entire loan is repaid as held in Garware Capital Markets Ltd. v. Jaswal Granites Ltd. [1998] 93 Comp Cas 218; [1998] 1 Comp LJ 68. One of the defences taken by the respondent is that the petitioner started criminal proceedings against the respondent and this winding up petition is not maintainable. Firstly, the criminal proceedings are against the director of the respondent-company who had issued the cheque and not against the company. Secondly, criminal proceedings are for an offence committed under section 138 of the Negotiable Instruments Act while winding up proceedings are on the ground of the respondent's inability to pay its debt. In Sanjiv Kumar v. Sitrendra Steel Rolling Mills proceedings under section 138 of the Negotiable Instruments Act and civil proceedings are simultaneously possible. 

From the facts and circumstances of the present case it is clear that the respondent-company is unable to pay its debt. In paragraph 9 of the counter-affidavit filed on behalf of the respondent it has been asserted that the shares and debentures 'could not be got transferred due to certain unavoidable circumstances and for the reasons beyond their control 'the respondent-company has been unable to perform this part of the agreement". In paragraph 10 it has been stated that the main reason for the company having not been able to perform its part of the agreement is unforeseen collapse of the share market and drought of fund which is being faced by the entire industry and the business community. In paragraph 27 it has been stated that no amount is due and payable by the respondent to the petitioner. On the other hand, it is stated "however, the obligation to repurchase the FCDs is outstanding and the respondent-company is making efforts to discharge its obligation. However, any delay in discharge of the obligation to repurchase the units would not amount to creation of and inability to pay the debts'. In paragraph 29 it is stated "the delay if any, on the part of the respondent is only for the repurchase of the shares and not in the repayment of any alleged debt". 

As discussed above, the nature of the transaction was in the shape of a loan. The petitioner had purchased the shares as an agent for the respondent-company and the respondent-company was to purchase it within 180 days and for that a post-dated cheque was given which was to be presented on the due date. The respondent-company has failed to pay the amount and it shall be taken as debt. I am prima facie satisfied that the respondent-company has failed to pay its debt. The petition is liable to be advertised under rule 24 of the Companies (Court) Rules, 1959. The petition is admitted and shall be advertised in accordance with the said rules. 

The petitioner shall take steps within three weeks.