icici Bank Ltd. Vs. Saurav Chemicals Ltd. - Court Judgment

Excerpt:
- surya kant, j.1. this petition under sections 433(e), (f), 434 and 439 of the companies act, 1956, filed by the icici bank ltd., seeks winding up of the respondent-company-m/s. saurav chemicals ltd.2. while the petitioner is a public financial institution, the respondent-company was incorporated on december 20, 1993, under the provisions of the companies act, 1956 (in short 'the act') with its registered office within the territorial jurisdiction of this court. the authorised equity share capital of the respondent-company is rs. 2 lakhs divided into 20,000 equity shares of rs. 10 each. the company has been incorporated to carry on the business as distributor/retailer/exporter and importer of all kinds of industrial organic as well as inorganic-chemicals, other consumable chemicals as well as the manufacture of industrial chemicals like detergent powders, cleaning powder, acid slurry, liquid soap, and allied industrial chemicals.3. the petitioner-bank has averred that it executed an international swaps and derivatives association (for short 'isda') master agreement along with schedule thereto with the respondent-company on july 17, 2005, for the purpose of transacting in forward contracts and other derivative transactions from time to time. the respondent-company entered into a full currency swap deal for an underlying amount of rs. 6.40 crores and the currency pairs involved were usd/inr and usd/chf. the transaction was to expire on august 7, 2006. it is further averred that a letter of confirmation with regard to the aforementioned deal issued by the petitioner on august 2, 2005, was duly accepted and signed by the respondent-company (annexure p4) making a declaration in terms whereof that all the risks of the transaction have been explained by the petitioner-bank and that the respondent had understood all the risks of the transaction. it is stated that during the term of the agreement, the petitioner-bank remained in constant touch with the respondent-company through e-mails and telephone communications and gave whatever advice was sought from time to time including the current status of the swap-deal. the petitioner even supplied and intimated the calculation sheet to the respondent-company vide an e-mail dated january 21, 2005 (annexure p6). the petitioner-bank claims that the respondent-company was aware of running into losses on the aforesaid swap deal due to appreciation of the swiss franc against the indian rupee and had even expressed desire to opt out of the said agreement and eventually terminated the same vide its letter dated december 7, 2005 (annexure p7) but the respondent-company re-considered its decision and decided to continue. thereafter, a joint meeting is stated to have been held on february 23, 2006, between the representatives of the parties wherein it was explained that the respondent-company could close the swap deal as and when it chooses but it opted to remain in the swap deal with the hope that its losses would reduce due to favourable market conditions. the petitioner-bank has averred that it continued to furnish whatever information was sought from it by the respondent-company and one such e-mail was again sent on march 22, 2006 (annexure p9) besides the calculation sheet of loss and profit on the swap deal vide e-mail dated july 14, 2006.4. the petitioner-bank has further alleged that the swap deal transaction expired on august 7, 2006, which was duly conveyed to the respondent-company on august 10, 2006. however, notwithstanding its acknowledgment and clear admission in the form of letters of confirmation/isda agreement, the respondent-company has failed to make the outstanding payment to the petitioner-bank. a notice for winding up was served vide registered letter dated october 7, 2006, but the respondent-company vide its reply dated november 4, 2006, has denied its liability allegedly on wholly flimsy and untenable grounds. according to the petitioner-bank, the respondent-company is liable to pay its lawful debts amounting to rs. 34,24,437 as on august 7, 2006, along with interest at the floating rate/icici bank benchmark advance rate plus 8 per cent, till the date of payment and its non-failure amounts to its inability to pay the lawful debts warranting action of the winding up.5. the respondent-company has filed its written statement, inter alia, raising preliminary objections that (i) the isda agreement was void ab initio; (ii) the issues raised in this petition are disputed questions of fact for which a winding up petition is not maintainable; (iii) the isda agreement contemplates certain obligations and duties of the petitioner-bank including specified information to be given to the customers and in the event of any misrepresentation or non-supply of the specified information, the parties had a right to terminate the contract but the bank failed to disclose the true risk factors; (iv) the isda agreement was procured through misrepresentation and by concealing the material facts and the bank failed to keep its promise that they will provide the report with regard to libor curve/usd/chf trend, usd/inr trend and forward premium trend from start of deal as well as all the calculations. these deficiencies were communicated to the bank vide letters dated august 2, 2006 and september 23, 2006; (v) on december 7, 2005, the respondent-company informed the petitioner-bank in writing that the deal dated august 2, 2005, be cancelled as the calculations of the deal had never been confirmed from the side of the petitioner-bank and no action was taken by the bank on that communication at its own risk; (vi) that the delay in communication of the details of the profit/loss was duly acknowledged by the representative of the petitioner-bank who apologized for the same as he had requested one of his colleagues to do the needful but he failed to do so; (vii) that the legality of the derivative transaction was also a matter of public debate in published articles which fully exposed the fraud being played by the private banks, like the petitioner. on the merits, the respondent-company though has not disputed the execution of the agreement but plead mis-representation and being misled on the minimisation of interest on term loan of rs. 9 crores taken from the punjab national bank, chandigarh, as a consideration to sign the isda agreement and enter into the swap deal. similarly, the respondent-company has disputed its liability as per the stand explained in the preliminary objections.6. learned counsel for the parties have been heard and the record have been perused.7. the petitioner-bank has sought the winding up of the respondent-company in terms of section 433(e) which enables the court to wind up a company 'if it is unable to pay its debts' and under clause (f) if the court is of the opinion that 'it is just and equitable that the company should be wound up'. section 434 of the act provides that a company shall be deemed to be unable to pay its debts when it neglects to pay the debt exceeding rupees one lakh to a creditor who has already served the company with a notice by registered post demanding the due amount or if the execution or other particulars issued on a decree or order passed by the court in favour of the creditor of the company is returned unsatisfied or if the court is satisfied that the company is unable to pay its debts. it may be seen that where the company makes a default in payment of the due amount to the creditor despite notice served through a registered post, an order of winding up can be passed irrespective of the fact whether the company is in a position to pay or not. similarly, such an order can also be passed when the company does not have sufficient means to discharge its debt liability or a court decree passed against it remains unexecutable. in other words, the acknowledgment of debt and inability to pay the debts by the company are sine qua non for the court to invoke the winding up jurisdiction under sections 433(e) and (f) read with section 434 of the act. it is equally well-settled that where there is a bona fide dispute over liability between the claimant/creditors and the company which involves serious contest on questions of facts, the winding up petition cannot be entertained as a tool of arm twisting, especially when the financial condition of the company sought to be wound up does not warrant such a punitive action in public interest.8. in order to opine as to whether there exists any bona fide dispute between the parties to take out the respondent-company from the rigours of winding up, a brief reference to the isda master agreement may be made. clause 3(v) declares all the obligations under the agreement to be liable, valid and binding obligations. clause 4 (agreements) obligates that each party, so long as either party has or may have any obligation under this agreement or under any credit support documents to which it is a party, shall:(a) 'furnish specified information'.--it will deliver to the other party any forms, documents or certificates specified in the schedule or any confirmation by the date specified in the schedule or such confirmation, if none is specified, as soon as reasonably practicable;(b) maintain authorisations;(c) comply with laws.clause 5 of the master agreement read with the schedule attached thereto provides consequences of default and termination events, the relevant part whereof reads as follows:5. events of default and termination events.--(a) events of default. the occurrence at any time with respect to a party or, if applicable, any credit support provider of such party or any specified entity of such party of any of the following events constitutes an event of default (an 'event of default') with respect to such party:(i) failure to pay or deliver.(ii) breach of agreement.(iii) credit support default.(iv) misrepresentation.(v) default under specified transaction.(vi) cross default.(vii) bankruptcy.(viii) merger without assumption,(b) termination events. the occurrence at any time with respect to a party or, if applicable, any credit support provider of such party or any specified entity of such party of any event specified below constitutes an illegality if the event is specified in (i) below, if specified to be applicable, a credit event upon merger if the event is specified pursuant to (ii) below or an additional termination event if the event is specified pursuant to (iii) below:--(i) illegality.--due to the adoption of, or any change in, any applicable law after the date on which a transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulating authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of section 4(b) for such party which will be the affected party):--(1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such transaction or to comply with any other material provision of this agreement relating to such transaction; or(2) to perform or for any credit support provider of such party to perform, any contingent or other obligation which the party (or such credit support provider) has under any credit support document relating to such transaction;(ii) credit event upon merger.--if 'credit event upon merger 7 is specified in the schedule as applying to the party, such party ('x'), any credit support provider of x or any applicable specified entity of x consolidates or amalgamates with, or merges with or into, or transfer all or substantially all its assets to, another entity and such action does not constitute an event described in section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of x, such credit support provider or such specified entity, as the case may be, immediately prior to such action (and, in such event, x or its successor or transferee, as appropriate, will be the affected party); or(iii) additional termination event.--if any 'additional termination event' is specified in the schedule or any confirmation as applying, the occurrence of such event (and, in such event, the affected party or affected parties shall be as specified for such additional termination event in the schedule or such confirmation).(c) event of default and illegality.--if an event or circumstance, which would otherwise constitute or give rise to an event of default also, constitutes an illegality, it will be treated as an illegality and will not constitute an event of default.schedulepart 1. termination provisions(b) 'specified transaction' shall have the meaning specified in section 12 of this agreement.(c) the 'cross default' provisions of section 5(a)(vi) will apply to party a only (both with respect to itself and with respect to each of its specified entities).if such provisions apply:'specified indebtedness' will have the meaning specified in section 12.'threshold amount' means, at any time with respect to party a, rupees fifty crores only.(d) the 'credit event upon merger' provisions of section 5(b)(ii) will apply to party a.(e) the 'automatic early termination' provisions of section 6(a) will not apply to party a or to party b.(f) payments on early termination : for the purpose of section 6(e) of this agreement--(i) market quotation will apply. where market qutotation is not available, loss method will apply.(ii) the second method will apply.(g) 'termination currency means inr.(h) 'additional termination event' will apply to party a.10. a conjunctive reference and reading of these provisions, does suggest that furnishing of 'specified information' is one of the agreed valid obligation and in the event of default, it constitutes 'breach of agreement'.11. whether there was a default in furnishing of specified information, as claimed by the respondent-company or denied by the petitioner-bank is purely a question of fact, necessitating the evidence on record to prove or deny the same. the respondent-company had admittedly sent a communication dated december 7, 2005 (annexure p7) to the following effect:this is in reference to the subject mentioned above regarding the agreement of swap deal between usd/chf. we had done swap deal for usd 43.5350 and chf 1.2735 for principal amount of rs. 6.40 crores. for the last three months we are following your representative of this region for getting the status of this deal. every time an assurance is given that they are sending by mail or faxing it but till date we have not received even a single confirmation from your side. it is highly disappointing factor that we are not getting the data after assurances given by mr. harpreet gilliani, regional head. as. you know that it is projected that rupee and chf will depreciate in the coming months. we request you to please cancel our deal and the company is not responsible for any financial loss to icici bank. please treat this letter on a priority basis and if any information or document is required by you we will be pleased to provide you the same.(emphasis here printed in italics supplied)12. the company had, thus, accused the petitioner-bank of not performing its part of the contractual obligation and self responsible for suffering the financial loss, if any. the letter demanded cancellation of the deal 'on priority basis'. could the respondent-company wriggle out of the contract and cancel it or whether there existed valid grounds like the alleged breach of terms and conditions of the agreement by the petitioner-bank, is yet another set of contentious issues which cannot be resolved without recording evidence. the winding up petition, thus, has many interrogatories in its flock which can essentially be resolved by a civil court only.13. the respondent-company has placed on record its balance-sheet for the year 2006-07 (annexure r5) which is a clear indicative of its sound financial position. it is a profit yielding company and this court, therefore, would in larger public interest, be reluctant to proceed with the winding up proceedings which will result into adverse publicity against the respondent-company as an insolvent. contrary to it, the petitioner-bank can proceed with the recovery suit before a civil court and prove that it has always performed and/or had been willing to perform its part of the contract under the isda agreement and breach, if any, has been committed by the respondent-company only.14. in icici bank ltd. v. sundaram multi pap ltd. co. petition no. 248 of 2008, decided on september 15, 2008-- [2010] 153 comp cas 424, the bombay high court ordered winding up of the company on account of its non-discharge of debt liability accruing under the icda agreement as there, the company in default had acknowledged the debt liability of rs. 1.52 crores and had issued a cheque on december 12, 2007, which was dishonoured. thereafter, the company filed a civil suit disputing the two transactions dated october 24, 2007 and october 30, 2007 though it did not dispute the agreement between the parties. on facts, no benefit of the said decision can be taken by the petitioner-bank for want of express or implied acknowledgment of debt by the respondent-company.15. for the reasons aforestated, i do not find any merit in this winding up petition and dismiss the same, however, with liberty to the petitioner to file a civil suit for recovery, if so advised.