Pacific Convergence Coproation Ltd Vs Data Access India Limited - Citation 711357 - Court Judgment

Judgment:

A.K. Sikri, J.

1. The petitioner is a company incorporated under the laws of the Cayman Islands and having its correspondence address at Hong Kong. The business of the petitioner is to provide a complete range of interactive and broadcast products to households in countries through Asia and the Middle East, by means of asymmetric, two way, interactive digital services provided to and through existing and new satellite television distributors.

2. The petitioner has filed this petition against the respondent company (hereinafter referred to as `the company') which is an Indian company having its registered office in New Delhi, praying for its winding up under Sections 433(e) and 434 of the Companies Act 1956 (for short `the Act'). The ground for winding up is the debt allegedly owed by the company to the petitioner which according to the petitioner, the company is unable to pay. The debt, as per the averments made in the petition, became due to it under the following circumstances:

3. The petitioner granted loan of US $10,000,000/- under two agreements of US $ 5,00,000/- each The Loan Agreement No. I is dated 24th May, 2000 and the Loan Agreement No. II is dated 24th July, 2000. The petitioner has reproduced the relevant terms of the two Loan Agreements in para 6 of the petition but it may not be necessary to reproduce those terms inasmuch grant of these loans by the petitioner to the company is not disputed by the company. However, the particular provisions of the loan agreements, which would require discussion, shall be taken note of at the appropriate stage.

4. The loans were given in the Installments and were secured by a first charge on the assets/properties specified under the hypothecation Agreements dated 24th May and 24th July, 2000 respectively as amended by the amendment Agreements dated 15th January and 10th April, 2002. As per the repayment schedule prescribed under the Loan Agreement I, the payments were to be made between June to September, 2003. Likewise, money taken under the Loan Agreement II was to be repaid between September and November, 2003. In this way, under both the Agreements, the entire loan was to be repaid between June and November, 2003. The company has not made this payment to the petitioner although amount payable on this account is duly reflected and acknowledged by the company in its books of accounts. Even in the Balance Sheet for the period ending 30th September, 2002 the outstanding amount is reflected by the company. The company had also recorded the liability in its Draft Red Herring Prospectus (DRHP) categorically earmarking Rs. 456,957,000/- ( i.e. US $ 10 million). Apart from the aforesaid documents, Side Agreement dated 23rd June, 2003, Minutes of the meeting dated 25th February, 2004 between the parties as well as letter dated 26th February, 2004 of the company concede this liability. When this admitted amount was not paid, though it became due way back in the year 2003, the petitioner was constrained to send legal notice dated 8th September, 2004 under Sections 433 and 434 of the Act calling upon the company to pay the said amount of US $ 10 million within three weeks of the receipt of this notice. Rather than paying the amount, the company gave reply giving its own version and refusing to make the payment. According to the petitioner, the allegations contained in the reply are false, unsubstantiated and totally unrelated to the issue at hand and only a ploy to avoid making payment of admitted liability. This has provoked the petitioner to file the instant petition, on the aforesaid allegations, seeking winding up of the company on the ground that it is unable to pay the debt and has become commercially insolvent and it would be just and proper to order winding up of the company.

5. As I have pointed out earlier, grant of the loan by the petitioner to company and execution of the two Loan Agreements between the parties is not under dispute. It is also not in dispute that the repayment of dates are mentioned in these agreements. Clause 7.3 of the Agreements deals with `evidence of debt' and reads as under:

7.3 Evidence of Debt. The Lender shall maintain on its books in accordance with its usual practice a set of accounts recording the amounts from time to time owing by the Borrower hereunder. In any legal proceeding and otherwise for the purposes of this Agreement the entries made in such accounts shall, in the absence of manifest error, be conclusive and binding on the Borrower as to the existence and amounts of the obligations of the Borrower recorded therein.

6. The company has also not denied that in various statutory and other documents, note whereof is taken above, liability is acknowledged and, thereforee, as per Clause 7.3 of the Agreements the petitioner has rightly contended that there is sufficient evidence of debt by the company to the petitioner. The very objects of the public issue for which DRHP was issued discloses that the objective of the issue was repayment of the loans in question. In fact DRHP carries a clause to the effect that `the information contained in the Draft Red Herring Prospectus is true and correct in all material aspects and is not misleading in any material respect'. In the clause relating to `objects of the issue' it is, inter alia, mentioned that :

We intend to deploy the net proceeds for expanding and upgrading our international long distance telephony network and meeting the needs of long term working capital and for repaying borrowings that stands on our books as of 30th September, 2003.

7. Underneath are given the details as to how proceedings raised from the issue shall be utilized and at S. No. 5, it is stipulated:

Repayment of borrowings (ECB) from PCCL of amount US $ 10 million, principal amount payable to PCCL by May 2004)

8. In the same prospectus, details of indebtedness are given as per which borrowings from various parties are mentioned. At S. Nos. 1 and 2 `outstanding indebtedness as of 30th September, 2003 of the petitioner is acknowledged. The loan of US $ 5 million each which was taken under these Agreements in four trenches each is also mentioned and date of maturity is mentioned `the date falling three years after the date on which such advance is made'.

In the Balance Sheet as on 30th September, 2002, 31st March, 2004 and provisional Balance Sheet for the period ending 30th September, 2004, the liability towards the petitioner is acknowledged. At this stage itself, it may be pointed out that CHPL, one of the shareholders of the company has filed scheme of arrangement (CA No. 537/2005) and in this scheme also liability of the petitioner is acknowledged.

Apart from the aforesaid statutory records, in the following documents liability to pay the debt of the petitioner is conceded:

(i) Minutes of the meeting dated 25th February, 2004.

(ii) Letter dated 26th February, 2004.

(iii) 3rd Shareholders Agreement dated 26th August, 2004 (definition of PCML loan (clause 1.1.25) read with definition of effective date (clause 1.1.13).

(iv) 3rd Shareholders Agreement dated 26th August, 2004.

9. Notwithstanding the above admissions of the liability, the company has contested this petition and is praying for dismissal of the petition primarily on the following grounds.

(a) The petitioner has not approached this Court with clean hands and has suppressed material facts. According to the company suppression is on the following counts:

(I) These facts would show that the petitioner and its affiliate companies have siphoned off huge money from the company and following illustration in this behalf are given:

(i) Agreements were executed between company and subsidiaries of PCCW group viz. M/s Corporate Access Limited as well as M/s BTN Access (Hong Kong) Ltd. for the alleged purchase of bandwidths and ports and for purchase of certain capital equipment by the company. These were onerous contacts of which the company was to made to take bandwidth of a quantum much in excess of the actual requirement. Furthermore, the company was highly overcharged for the bandwidths and ports, etc.and monies were siphoned off.

(ii) In a glaring instance, BTN Access charged a sum of US $ 1,00,000 per month for a period of 24 months as bandwidth charges for Hong Kong to New York though the services had never been activated. thereforee, without providing the service the company was made to pay monies to PCCW Group.

(iii) The company was made to spend an amount of about Rs. 28 crores on `brand building cost'. This was for a brand `NOW' which belongs to the PCCW group and not the company.

(II) Another false plea taken in the petition is the averments made in the petition that the petitioner owns no direct shareholding in the company. The petitioner has in fact suppressed the fact that it together with a network of companies, all coming under the same management i.e. Pacific Century Cyber Works Limited, held a significant shareholding in the company. The shares were acquired through Pacific Convergence (Mauritius Limited) and Pacific Net Invest Limited. The network of companies are referred as PCCW Group. Till recently, the PCCW group held significant shareholding in the company. Even as on the date the said group holds 23.4 per cent shareholding in the company and 24 per cent in PNI. The PCCW group had direct control over the management of day to day affairs of the company. They had several nominee directors on the Board of the company. Mr. Deepak Sahay, Mr. David Manion, Mr. Yuen Tin Fan and Mr. Alexander Anthony Arena were all representatives of PCCW group on the Board of the company. As a joint venture partner with the other promoter, Mr. Sidhartha Ray, the PCCW group had various rights through which they could influence management and policy decisions of the company. PCML and PCCW had special consent rights on account of which several important decisions relating to the company could not be taken without their prior consent and co-operation. During this period the PCCW group has diverted large sums of money running into crores of rupees under the guise of various related party transactions said to have been entered into between the company and subsidiaries of the PCCW group.

(b) According to the company, the new investors i.e. M/s Cheran Holdings Pvt.Ltd. (CHPL) and M/s KCP Associates Holdings (KCPH) purchased the shares from the promoter Mr. Sidhartha Ray and his group companies and SPA Enterprises Pvt.Ltd. through a series of shareholders' agreements. As per these agreements, the new investors agreed to bring in additional funds of Rs. 75 crores to tide the company over the cash crisis on various conditions mentioned in the agreement which were to be fulfilled by Mr. Ray and his associates. At the request of new investors, one M/s Odyssey Re, America agreed to lend the funds to the company on certain conditions. However, Mr. Ray did not fulfilll his obligations under the agreements. In the meanwhile, new investors also undertook an investigation into the reasons for the company's poor financial condition and at that time it was discovered that huge monies had been siphoned off both by the PCCW group (group to which the petitioner belongs) and Mr. Sidhartha Ray. Illustration of these siphoning off funds are already noted above. On this basis, the company states that it is seeking to recover these monies from PCCW group and Mr. Ray and, thereforee, the petitioner cannot maintain such a petition when the group to which the petitioner belongs is responsible for present financial position of the company. It is also contended that the present winding up proceedings are motivated and have been filed for oblique purpose i.e. for stalling further investigations which are required into the various transactions by the erstwhile management.

(c) It is also stated that the winding up petition is not maintainable as the alleged outstanding dues under the two Loan Agreements were not due on the date of issuance of statutory notice dated 8th September, 2004 as well as the date of presentation of the petition. In fact PCCML had issued a letter dated 26th November, 2003 on behalf of the petitioner as per which time for repayment of loan amounts was sought to be extended to 24th May, 2004. By subsequent letter dated 19th January, 2004 PCCML extended the repayment of the amount to 30th January, 2005. Thus on the date when the notice was issued or winding up petition was filed, the debt was not due as it had already been deferred and, thereforee, there was no cause of action to file this petition.

(d) It is also the case of the company that it is the second largest provider of the International Long Distance (ILD) voice traffic service in India. The company was issued a license to operate ILD services on 27th March, 2002 and commenced its ILD operation in July, 2002. The company was ranked as the 7th largest company in terms of turnover among the top 100 telecom companies as per the report published by Voice and Data Estimates in July, 2003. The company showed a compounded annual growth rate of 61 per cent since it commenced operation in July, 2002. The company has also Interconnect Agreements with 110 leading ILD operators and these partners hand over/takeover calls for over 210 countries at the company's switches in New York, London and Hong Kong and its points of presence (PoPs) at Los Angeles, Singapore and Cyprus. The company has also set up subsidiaries in Netherlands, USA and UK. In December, 2002 the wholly owned subsidiary Pacific Net Invest by (PNIBV) in Netherlands in turn incorporated a wholly owned subsidiary in the USA viz. Data Access America Inc. (DAA) to carry out telecommunications service and telecom switch operations. DAA in turn incorporated a wholly owned subsidiary in the UK under the name Data Access Telecom Ltd.(DAT) on 29th June, 2003. The company has also obtained an Internet Service Provider (ISP) license and is a category A ISP entitled to provide internet services and establish its own interest gateway in India. The company operates its internet services in the cities of New Delhi, Mumbai, Chennai and Bangalore. Thus the company offers a comprehensive range of voice and date services to retail and corporate customers. The new investor with the intention of reviving the company and restoring its financial position are submitting a proposal for revival of the company.

10. The petitioner has refuted the aforesaid allegations dubbing the same as not only factually incorrect but irrelevant in the present context. The case of the petitioner is that in view of the admitted liability as evidenced through various statutory and other records, which constitutes `evidence of debt' as per clause 7.3 in both the Loan Agreements, these pleas taken by the company, are totally extraneous. The petitioner was required to give the evidence of subsisting debt as per the aforesaid clause agreed to between the parties and the petitioner has been able to discharge this onus. According to the petitioner, no further enquiry is needed. In any case, without prejudice to this contention, the petitioner has denied the allegations. It is explained, in the first instance, that there is no suppression of facts by the petitioner inasmuch as the Loan Agreements annexed with the winding up petition contain the clauses indicating the interest of the petitioner. Recital A in both the Agreements, which are almost similar, clearly states that the petitioner through its wholly owned subsidiary proposed to acquire share worth 49 per cent of the issue and paid up share capital of the operator (i.e.the company). Thus it was on record that the petitioner's subsidiary company was acquiring the aforesaid stakes and as far as the petitioner is concerned, it does not hold any shares. The petitioner and one of the shareholders of the respondent company i.e. PCML are not one and the same entity and respondent's attempt to pierce the petitioner's and the shareholders' corporate veil is not sustainable in law. The law regarding the piercing the corporate veil is well-established by the Supreme Court in the case of Life Insurance Corporation of India v. Escorts Ltd. and Ors. reported as : 1986(8)ECC189 , which held that the veil might be lifted if:

1. The aim is to avoid a taxation statute,

2. Protection of public interest,

3. Evade obligations imposed by the law,

4. If the company is an agent or trustee for the parent company or its members.

In Re. Polly Peck International [1996] 1 BCLC 428, it was held that despite the close relationship between the two entities, there was no basis for finding that the former was acting as agent of the latter. The subsidiary was not a mere facade of the Group and there was no basis for treating the Group as a single economic entity. In Adam and Ors. v. Cape Industries Plc and Anr. reported as [1991] 1 All ER 929, it was held that the subsidiary could not be treated as single economic unit and there was nothing illegal in the defendants using their corporate structure to ensure that future legal liabilities of third parties would fall on another member of the group rather than on the defendants, in those circumstances the Court would not lift the corporate veil.

11. Allegations of siphoning off funds are disputed by alleging that there is no documentary evidence to establish fraud which allows the lifting of corporate veil of the petitioner. The mere allegation that the PCCW Group Companies have siphoned off money is not a valid ground for piercing the corporate veil of the petitioner or to be treated as a 'bona fide dispute'. The defense of the company can only be countenanced by this Court to reject the winding up petition [as per Madhusudan Gordhandas & Co. v. Madhu Wollen Industries Pvt. Ltd. reported as : [1972]2SCR201 ], if:

a) the defense of the company is in good faith and one of substance;

b) the defense is likely to succeed in point of law; and

c) the company adduces, prima facie proof of the facts upon which the defense proceeds.

12. It is submitted that defense of the company is not in good faith and has no substance inasmuch as the basis of the allegations is a draft unsigned certified fraud examiner report. The alleged report is based merely on surmises and conjectures. The contracts on the basis of which the siphoning is alleged are not put on record. The aforesaid makes the defense a sham defense and is of no consequence or substance. (See P.Y. Parry v. Cynotech Bioproducts (P) Ltd., Bangalore (2000) 3 Comp LJ 78.The repeated acknowledgments by the company of its liability in its statutory filings, carrying liability for wrong declaration, and in its dealings with third parties, coupled with the fact that the defense is being raised for the first time after the service of the winding up notice gives the defense the colour of moonshine/sham defense. (Ashoka Industries v. Tobu Enterprises [2002] 39 SCL 923 (Del.). The debt, on which the petition is based, has been repeatedly acknowledged by the company in its various statutory filings and other documents. thereforee, the amount on which the winding up petition is moved is undisputed by the company, save and except on the allegations set out above. It is also submitted that the defense of the company is not likely to succeed in law as it has neither pleaded set off nor a counter claim and has merely made defamatory allegations of siphoning off funds by way of inter se transactions between it and related concerns of the petitioner. Furthermore, this defense does not arise either from the same transaction or even against the petitioner. Thus even legally, the company is not entitled to sustain the plea for setting off when the cross demands do not pertain to same parties or do not arise out of same transaction as held in Nathmal Bhaironbux and Co. v. Kashi Ram and Ors. reported as and Hofer v. Strawson reported as (1999) 2 BCLC 336. According to the petitioner, there is not even a prima facie proof of the facts upon which the defense proceeds inasmuch as these allegations have been raised for the first time after issuance of the statutory winding up notice and, are thereforee, clearly an after thought apart from there being filmsy defense.

13. It is denied that notice of winding up petition or filing of the petition was premature on the ground that as per the Loan Agreements the debt became due and payable in the year 2003 upon expiry of three years from the dates on which, by different trenches, loans were advanced; letter dated 19th January, 2004 was written by PCML and not by the petitioner; in any case accommodation given by this letter dated 19th January, 2004 was expressly superseded at the meeting held on 25th February, 2004 as in the said meeting the company agreed to repay the loan within two weeks from the IPO. It was also confirmed by the company vide its letter dated 26th February, 2004 and for this reason precisely public issue was made and it was specifically acknowledged in the DRHP that the amounts raised from the public issue would be utilized, inter alia, towards payment of the amount to the petitioner. Thus, according to the petitioner, upon failure of IPO, the amount became immediately due and payable.

14. The claim of the company that there is sufficient security for payment of the debt and the petitioner has not chosen to enforce the said security, is refuted by the petitioner by contending that the security offered to the petitioner was repeatedly diluted by the petitioner at the request of the company in favor of the other creditors. This is evident from the Recital F to the Amendment Agreement dated 5th January, 2002 and Recital E to the Second Amendment Agreement dated 10th April, 2002. The security presently available to the petitioner, post the dilutions inducted by the company, is only to the tune of Rs. 4.5 crores as against the claim of Rs. 44 crores approximately. The aforesaid insufficiency of the security coupled with the established bona fide debt conclusively establishes the maintainability of the petition. Further, the insufficiency of the security is established by a document of the company, who has failed to establish that the security offered is sufficient to cover the admitted liability. (Indian Oil Corporation Ltd. v. NEPC India Ltd. (2003) 114 Comp Cas 207.

15. The bona fides of the scheme moved by the company are also challenged and it submitted that the said scheme is neither viable and is clearly a non-starter. It is also submitted that there is an erosion of the substratum. There is sufficient material on record to show that the company is commercially insolvent and is unable to pay the debt. In this behalf, the petitioner has sought to point out that apart from failing and neglecting to pay the admitted debt of the petitioner on account of the company's precarious financial health, admitted liability of the company is to the tune of Rs. 530 crores as per its calculations and the creditors include MTNL, BSNL and apart from various other statutory dues of the Income Tax department to the tune of Rs. 18 crores payable by the company. For failure to even make payments to its service providers, namely, MTNL and BSNL those service providers have only disconnected the points of connection which are which are essential for operation of the company's business but have also invoked bank guarantees furnished in their favor by the company. The result is that the company has not been able to restart its business for more than six months after disconnection of the points of interconnect by NSNL and MTNL. That apart, the license of the company as itself been put in jeopardy as the Department of Telecommunications has issued a show cause notice in this behalf. thereforee, the company is even unable to carry on its business.

16. I have considered the respective submissions of both the parties.

17. As pointed out by me, above, there is plethora of evidence on record to show that US $ 10 million is the liability of the company towards the petitioner. This liability has been acknowledged in various documents. In this backdrop, before dealing with the defense of the company, let me point out here itself that liability of other creditors to the tune of Rs. 530 crores is also not disputed by the company. These liabilities are indicated in CA No. 537/2005 filed for restructuring of debts. It was also stated at the bar that these liabilities have risen to more than Rs. 700 crores which was not denied by the company. ( In any case whether liability is Rs. 530 crore or Rs. 700 crores would not make much difference as even Rs. 530 crores is the substantial liability). thereforee, before dealing with the defense and other submissions of the company, it would be apposite to first deal with CA No. 537/2005, wherein scheme of reconstruction is proposed by the CHPL.

CA No. 537/2005

18. In this application filed under Sections 391-394 of the Act by the CHPL, one of the shareholders of the company, allegedly holding 12.5 per cent of the total issued and paid up share capital has proposed a scheme of arrangement with the creditors. The dues payable to different creditors are acknowledged in the following terms:

(i) Secured creditors, namely, banks and IDFC = Rs. 90 crores.

(ii) Pressing creditors, namely, BSNL, MTNL and DoT = Rs. 160 crores

(iii) Income Tax dues = Rs. 5 crores

(iv) Vehicle Loans = Rs. 63,25,407/-

(v) Unsecured creditors = Rs. 55 crores.

19. The scheme indicated in the application provides the manner in which the aforesaid loans are proposed to be given. Period within which the propounder wants the loans to be paid off starts from the year 2005-2006 and goes up to the year 2010-2011 for various categories of creditors.

20. Under Section 391 of the Act, for any such scheme of arrangement propounded, different classes of creditors as well as shareholders have to give their consent. In each category the consent of not less than 75 per cent shareholders/creditors is to be obtained. It is only if the aforesaid requisite members give their nod to a scheme that the court will consider thereafter as to whether the scheme propounded is just and equitable. If the propounder is not able to muster the consent of minimum number of persons in each category as prescribed therein, further enquiry by the court is not warranted. It is for this reason that the prayer made in the application is that the meetings of the equity shareholders of the company as well as separate meetings of all the secured and unsecured creditors of the company be directed to be convened to approve the scheme.

21. When this application came up for hearing, most of the creditors opposed the scheme. Learned Counsel appearing for the BSNL and MTNL have not only opposed the scheme of arrangement, in fact, they have even filed winding up petitions being CP No. 208/2005 and CP No. 209/2005 respectively. If even this one category of creditors does not agree to the proposal made in the scheme, the scheme would become a non-starter as provisions of Section 391 of the Act would not be satisfied. Others who objected the scheme include Canara Bank and IDFC.

That apart, para (k) of the scheme stipulates special conditions relating to:

(a) Reconstitution of the Board as desired by the propounder and stated therein.

(b) Imposing condition upon BSNL/MTNL to provide and establish connectivity to all points of interconnect, present and future to the company as well as providing reasonable level of out bound traffic to the company.

(c) Bank should restore and permit the company to operate credit facilities as provided by the banks in their sanction letters.

(d) Vacation of stay orders passed by this Court in respect of US $ 17 million remitted by Odyssey Re and release thereof from all attachments and encumbrances.

Some general conditions are also stipulated in para (l). It is also mentioned that in the event of this scheme failing to take effect by 15th October, 2005 it shall become null and void.

22. These conditions are also not acceptable to the creditors. BSNL/MTNL have not only discontinued the connectivity, litigation has started in this behalf and the action of BSNL/DoT is challenged by the company in the High Court of Madras. Learned Counsel for the banks also made a statement at the bar that they were not willing to restore and permit the company to operate the credit facilities as per their sanction letters. In fact, Canara Bank has leveled allegations of fraudulent transfer of funds and has filed various applications seeking attachment and remittance of those funds. As would be noted, while dealing with those applications, Canara Bank has vehemently opposed any such move on the part of either CHPL or the company. IDFC also, which is to recover approximately Rs. 30 crores, has not agreed to the scheme.

23. It may also be stated that the scheme does not provide for all the dues payable by the company to various creditors inasmuch as the company itself in CA No. 1/2005 admitted the debt to the extent of Rs. 446.5 crores. The debts of various creditors admitted therein are at variance with the amounts shown outstanding to those creditors. For example, in CA No. 1/2005, it is stated that BSNL,MTNL and DoT have lodged claim of Rs. 196.5 crores (Rs.184 crores + Rs. 8 crores + Rs. 4.5 crores) whereas in the present CA their claim is admitted to the extent of Rs. 160 crores only. Likewise, the claim of Income Tax Department mentioned in CA No. 1/2005 is Rs. 18 crores and in the present CA their claim is admitted to the extent of Rs. 5 crores. So far as secured creditors, namely, banks and IDFC are concerned, in CA No. 1/2005 it is stated that they have lodged claim of Rs. 120 crores (Rs. 75 crores + Rs. 15 Crores + Rs. 30 crores) whereas in the present application their claim is admitted to the extent of Rs. 90 crores.

24. In view of such opposition coming from the creditors at the threshold itself, there is no point in passing an order of convening of the meetings as it is manifest that the propounder will not be in a position to satisfy the requirement of Section 391(1) of the Act.

25. Resultantly, I have no option but to dismiss this application.

26. Having rejected the scheme as neither workable nor bona fide, I state here the admitted position about the affairs of the company.

(a) Huge liability of over Rs. 530 crores to various parties.

(b) Two service providers, namely, MTNL and BSNL have disconnected the points of connection because of which the company is not in a position to undertake its operation and carry on the business. The activities of the company had come to a halting point for last number of months.

(c) MTNL and BSNL have also invoked the bank guarantees furnished by the company in their favor and thus the dues are demanded by these two service providers. Not only this, what is more significant is that both have filed company petitions seeking winding up of the company. These petitions are CP No. 209/2005 and CP No. 208/2005 respectively. Thus even these service providers are seeking winding up of the company on the ground that the the company is unable to pay their debts. Apart from these two winding up petitions, Data Teleservices (Maharashtra) and Orient Press Ltd. have filed CP No. 189/2005 and CP No. 236/2005 respectively against the company.

(d) The license of the company is itself in jeopardy. In this behalf, it may be noted that after the show cause notice issued by the Department of Telecommunications, the said department has cancelled/revoked the license, which fact is indicated in CA No. 1062/2005 filed on 28th July, 2005 by L&T; Finance Ltd., another creditor. (Order dated 5th August, 2005 was passed in this application to the effect that averments made in the application shall be considered while pronouncing the orders). No doubt learned senior counsel for the company informed that against the aforesaid decision of the Department of Telecommunications as well as the BSNL, the company has filed a writ petition in the High Court of Judicature at Madras and the Madras High Court had passed an order dated 24th March, 2005 granting interim injunction, but the same is subject to the condition that the company shall deposit a sum of Rs. 50 crores within eight weeks and for Rs. 17 crores bank guarantee shall be furnished within the same period. It would be appropriate to reproduce that order:

This petition coming on for orders upon perusing the petition and the affidavit filed in support thereof and upon hearing the arguments of M/S SRINATH SRIDEVAN Advocate for the petitioner the court made the following order:-

According to the respondent outstanding amount is Rs. 218 crores, and the petitioner have been directed to pay Rs. 1.09 crores being 50 per cent .

However, according to the petitioner, what is actual due is 134.36 crores. In the impugned order, the first respondent have not taken into consideration the said letter of the petitioner dated 12th, January, 10.2004.

Therefore, even on the basis of the calculation of the petitioner, the petitioner has to pay Rs. 67 crores being 50 per cent of the amount classified by him.

With the result, interim injunction subject to the following conditions.

The petitioner shall deposit with the first respondent a sum of Rs. 50 crores within a period of 8 weeks from the date of receipt of copy of this order. Balance of Rs. 17 crores shall be paid by way of bank guarantee within the said period. The bank guarantee shall be kept alive until further orders. Notice.

What is emphasized is that as per the BSNL, the liability towards BSNL is Rs. 218 crores and in any case, the company has accepted the liability of Rs. 134.36 crores. Furthermore, it cannot be denied as of date the license to operate itself is in jeopardy.

(e) The company has not been able to show that it has sufficient assets to meet the existing liabilities. In fact even Rs. 75 crores which the new management wanted to put in, has been embroiled in controversy and the new investor is showing its reluctance to provide these funds.

27. If one takes a holistic view of the matter, dehors, the various technical pleas raised by the company in defense to this petition, this prima facie opinion is inescapable that the company is indebted not only to the petitioner but has huge liability towards other creditors also; there are spate of winding up petitions filed by these creditors who have refused to agree to the scheme of reconstruction/arrangement; there are bleak chances of the company's revival which has no business activity at present and thus it has lost its substratum as well. thereforee, it would be a fit case to admit the company petition.

28. Notwithstanding the above position, I would, nevertheless, discuss various contentions put forth by learned senior counsel for the company.

29. The contention of the company alleging suppression of material facts primarily suffers from the averments that till recently the PCCW group had significant shareholding in the company and this group was in direct control over the management of the day to day affairs and, thereforee, it is responsible for the present state of affairs of the company. The subsidiary companies of the company would acquire 49 per cent stakes as mentioned in the Loan Agreements which have been placed on record. In the petition averment which is made is that `the petitioner neither is, nor ever was, a shareholder of the company'. This averment appears in para 18 of the petition. It is made in the context of refuting the allegations of the company contained in its reply to the petitioner's winding up notice. thereforee, it cannot be alleged that there is any mis-statement of facts. However, in so far as alleged suppression regarding control of the PCCW group over the management etc. is concerned, again, these allegations of the company are in the reply dated 29th September, 2004 together with corrigendum thereto dated 30th September, 2004 to the winding up notice and these replies are annexed with the petition and in para 18 of the petition the petitioner has alleged that these are frivolous and defamatory allegations, unrelated to the subject matter of petition and the petitioner would take appropriate legal action for making such defamatory and scandalous allegations. thereforee, it cannot be said that there is suppression of `material facts'. One has to bear in mind that the petition is filed, inter alia, on the ground that the company is indebted to the petitioner and is unable to pay the debts and further that it has lost its substratum. Once this is the ground for filing of the petition, the cause of action has to be so stated which is founded on such provisions. It is for these reasons, the petitioner has highlighted the loan transaction between the parties and detailed averments in view of the above are made. In that context, the petitioner has stated in para 18 about the replies given by the company and has dubbed the allegations as irrelevant but defamatory and scandalous as well. It was not for the petitioner, in the first instance,to make those averments in detail in a petition founded on such cause of action. Of course, when the company comes out with such a plea that the petitioner group had control over the management of the company and it has siphoned off the funds, the petitioner is expected to deal with those allegations in detail and such a rebuttal, in fact, has been provided in the rejoinder filed by the petitioner. thereforee, it cannot be said that the petition suffers from suppression of facts.

30. Other contention of the company is the non-maintainability of the petition on the ground that there was no cause of action on the date of filing of the petition. I am not impressed with this argument either. In the first instance, the debt admittedly became due and payable in the year 2003 as per the Loan Agreements. Even if the letter dated 19th January, 2004 written by PCML is treated as one on behalf of the petitioner, events which happened subsequent thereto would indicate that this arrangement was superseded inasmuch as, immediately thereafter in February, 2004, the company came out with IPO and it was specifically disclosed in DRHP that one of the objectives of the issue was to utilize the money raised therein for repayment of the petitioner's debt. Moreover having regard to the admission of its liability in number of documents, it does not lie in the mouth of the company to come out with such a plea, more so when till date no such amount is paid inspire of acknowledging the liability. Once these facts and events are examined in their proper perspective as indicated above, the judgment cited by the learned senior counsel for the company on the point of premature notice would clearly be distinguishable. Furthermore, all these cases were concerned with the agreement between the parties agreeing to defer the payment. In Laxmi Sugar Mills Ltd. v. National Indl. Corporation Ltd. 38 Com Cases 384, the respondent had entered into an agreement with UPFC which did not allow it to repay the amount to the petitioner, and thereforee, it was held that there was a bona fide dispute.'Whereas in the instant case, the respondent has acknowledged the dues repeatedly but was unable to pay due to its financial ill-health. Hence, the ratio in the said case is not applicable to the facts of the present case. In OFU LYNX Ltd. v. Simon Crave India Ltd. 41 Comp Cas 174 the Court has rightly held that whether there is a bona fide dispute or not would necessarily depend on the facts and circumstances of each particular case. The winding up notice must comply with all the requirements of the statute. In the present case, the winding up notice as validly issued and thereforee, the presumption under Section 434 of the Companies Act as to inability of the respondent company to pay the debt and its insolvency. In Focus Advertising Pvt. Ltd. v. Ahoora Blocks Pvt. Ltd. 45 Comp Cas 534, it was held that the notice must mention the amount of the debt as well as an affirmative statement that the debt is due. The winding up notice given by the petitioner contained all the relevant particulars including the averment that the amount of loan is due and payable. In Parry & Co. Ltd. v. India Machinery Stores (P) Ltd. 49 Comp Cas 21, it was held that when there was an agreement between the parties the winding up notice could not be issued prior to the specified date in the agreement. There is no such agreement between the petitioner and the respondent company. On the contrary, the respondent has admitted its liability towards the petitioner and agreed to pay the outstanding dues of the petitioner at the time the winding up notice was issued to the respondent company. In P.K. Varghese v. J.T. Metal Finishers (P) Ltd. 63 Comp Cas 644, the Court held that the winding up petition cannot be filed to coerce repayment of amount not immediately due from the company. The petitioner had agreed for repayment after two years and in token of his acceptance of that condition, had affixed his signature at the board meeting when he was a director of the company. In the instant case, there is no such agreement between the parties and the company is admittedly insolvent and is unable to pay its debts due to other creditors and the amount of loan was due and payable when the notice of winding up was issued. thereforee, these cases would not have application in this case.

31. Mere allegations regarding siphoning off funds by the PCCW group companies cannot come to the aid of the company in defense of this petition. At the cost of repetition, it has to be stated that significant factor which is to be taken note of here again is the admission of liability by the company in various documents. Interestingly, the liability is even acknowledged in the 3rd Shareholders' Agreement dated 3rd August, 2004 which was drawn up without any involvement of the petitioner. This Shareholders' Agreement was between the new investors, namely, CHPL, KCPH AND Mr. Sidhartha Ray and his companies. In this agreement when the petitioner was not a party, debt payable to the petitioner was acknowledged. It was stated at the bar that this Agreement was executed by the parties after a detailed due diligence on both financial and legal fronts when the assistance of financial experts, namely, Price Waterhouse Coopers and legal experts, namely, Kochar & Co. Advocates, was obtained who had a thorough probe into the affairs of the company. Subsequent allegations about the siphoning off funds , at least for the purpose of present proceedings, are to be taken with a pinch of salt and prima facie it appears that the motive is to evade the liability.

32. Be that as it may, even in the scheme of arrangement propounded by the company, this liability is admitted. In the light of these facts, reliance by the learned senior counsel for the petitioner on the judgment of the Supreme Court in the case of Madhusudan Gordhandas & Co. (supra) is well founded inasmuch as neither the defense appears to be in good faith nor is it one of substance. Such a defense is not likely to succeed in law and there is no prima facie proof of the facts upon which the defense proceeds. The petitioner has quoted number of judgments in support of this plea, some of which have been noted while discussing the arguments of the petitioner. Without examining those judgments in further detail, it is suffice to observe that the plea of alleged siphoning off funds by the group companies to which the petitioner belongs would not cut much ice more so when holistic view of the affairs of the company is taken which reflects that the company has huge liabilities which may be anywhere between Rs. 530-Rs.700 crores. Other defense, namely, sufficiency of security of potency of scheme of restructuring have already been dealt with above.

33. thereforee, I am of the prima facie view that the company is indebted to the petitioner and is unable to pay the debt. This view becomes strengthened when holistic view of the matter is taken and it is examined on a further plea that the company has lost its substratum and it would be just and equitable to wind up this company inasmuch as, as recorded above, there are huge liabilities; there is no business activity and no prospects of its revival. This company petition is accordingly admitted to hearing. Let citations be published in Statesman (English) and Jansatta (Hindi) for 17th January, 2006.

CA No. 1244/2004

34. The Official Liquidator who was appointed as the Provisional Liquidator for a limited purpose vide order dated 26th October, 2004 is now directed to take immediately into his possession all the assets and records of the company and file his report by the next date of hearing.

35. This application is disposed of accordingly.

CAs No. 1458/2004, 179, 291, 304,450, 662 & 701/2005

36. With the appointment of provisional liquidator, CA No. 1458/2004 filed by the company for vacation of order dated 26th October, 2004 is dismissed.

37. CA No. 179/2005 filed by IDFC seeking direction to the provisional liquidator to maintain status quo in respect of the movable assets of the company also stands disposed of with this order.

38. Case No. 291, 304/2005 are filed by MTNL and BSNL. In these applications, it is, inter alia, prayed that in view of the admitted outstanding amount payable by the company to the MTNL and BSNL various bank accounts of the company be attached and SPA Enterprises Pvt.Ltd. , Stracon (India) Ltd. and Mr. Siddhartha Ray be restrained from disposing of the properties of the company. With the appointment of provisional liquidator, no further orders are required to be passed in these applications which are disposed of accordingly.

39. Globecast Asia Pte Ltd. has filed CA No. 662/2005 in which it is, inter alia, stated that the company owes, as on 10th September, 2004, a total sum of US $ 1,389,255.21. It is the admitted debt and the applicant had issued legal notice dated 23rd December, 2004 demanding the payment and step to initiate winding up proceedings against the company. Prayer made in this application is to direct the provisional liquidator to maintain status quo with respect to the properties of the company. With the appointment of the provisional liquidator, this prayer is taken care of. This application is disposed of.

40. CA No. 701/2005 is filed by the company for taking on record an additional document on record. This document is copy of the plaint of the suit filed by the company against the petitioner in the main petition, namely, Data Access India Ltd. v. Pacific Convergence Corporation India (P) Ltd. and Ors. In the suit claim is made against the petitioner and some other persons who are imp leaded as the defendants and a decree in the sum of Rs. 178,15,00,000/- is prayed for. The suit is mainly filed on the allegation that these defendants have siphoned off the funds of the company. With the appointment of the provisional liquidator, these aspects shall be taken care of by him at the appropriate stage and no further orders are required to be passed in this application which is disposed of accordingly.

CA No. 450/2005

41. This application is filed by CHPL levelling allegations of fraud against the company. Since the provisional liquidator is appointed, he can go into these allegations.

42. With these observations, this application is disposed of.

43. After filing of the company petition, spate of applications have come to be filed by various parties. Arguments were heard on these applications in detail and it is now the stage to deal with these applications as well.

CAs 1409/2004, 1582/2004, 35, 36, 287 288/2005, 677/2005

44. Initiator in the move was Canara Bank which filed CA No. 1409/2004 on 23rd November, 2004. Canara Bank is one of the secured creditors of the company. The company has its banking dealings with Green Park Branch, New Delhi of Canara Bank (for short `the bank'). The bank has financed the business of the company in consortium with Syndicate Bank vide deed of hypothecation dated 15th April, 2004 and as per the said deed bank is the lead bank and is entitled to act on behalf of the consortium partner as well. It is the case of the bank that the company owes about Rs. 92 crores to the bank and about Rs. 17 crores to Syndicate Bank which liability is increasing on daily basis. Particulars of various financial limits which were given by the consortium to the company are stated in the application. Main cause of concern of the bank is diversion of Rs. 75 crores received in India. The background under this money was received by the company in India and the manner in which it is sought to be diverted is explained in the following manner:

45. After the grant of various loans by the consortium to the company, some time in January/February, 2004 the company approached the bank for enhancement of Non Fund Based Limits (NFB limits) and also sanction of regular fund based limits in consortium with Syndicate Bank in the ratio of 70:30. The consortium sanctioned additional fund based limit of Rs. 40 crores and Non Fund limits of Rs. 110 crores to the company. Apart from these limits, the company had also availed Rs. 5 crores from Syndicate Bank and Rs. 10 crores from the Bank as short term loans to meet its emergent requirement. The company was meeting its commitments on the working capital limits and there was good business accruing through ILD. The company also started a 100 per cent subsidiary under the name and style of Data Access America Inc. in USA to facilitate the sourcing of business abroad and collection of receivables. On 26th August, 2004, a Shareholders' Agreement was signed by the following shares of the company

(i) Cheran Holdings Private Limited.

(ii) KCP Associates Holdings Private Limited.

(iii) SPA Enterprises Limited.

(iv) Pacific Net Invest Limited.

(v) Data Access (India) Limited.

(vi) Mr. Siddhartha Ray.

(vii) Stracon (India) Limited.

46. As per this Agreement, Mr. Ray, the main promoter of the company, diverted his stakes in the company in favor of new promoters and the shareholding pattern of the company, as per the Agreement, became as under:

Pacific Convergence (Mauritius) Ltd. 23.40%SPA Enterprises Ltd. 13.75%Pacific Net Invest ltd. * 51.00%Employees & Associates 0.84%Cheran Holdings Pvt.Ltd. 11.01%TOTAL 100.00%*In Pacific Net Invest Ltd., the shareholding is as follows:Pacific Convergence (Mauritius) Ltd. 24.00%Cheran Holdings Pvt.Ltd. 24.00%KCPL Associate Holdings Pvt.ltd. 52.00%TOTAL 100.00%

47. Details are given, thereafter, as to how the company went into financial difficulties after BSNL started invoking bank guarantees and liability of consortium mounted. It is not necessary to give those details at this stage. Suffice is to mention that a meeting of the consortium was convened on 7th September, 2004 in which Mr. Siddhartha Ray and Mr. K.C.Palanisamy and Mr. Karunanidhi, representatives of new investors' group were also present wherein the said representatives, inter alia, represented that (a) there were huge dues from Data Access America which are receivables and are funded by the bank but the company is not able to realize due to stoppage of operations by BSNL. (b) The new investor would invest Rs. 75 crores as unsecured loan. And (c) the new investors estimate an amount of Rs. 180 crores to be brought in to bring the company to normalcy. Out of this, Rs. 75 crores will be brought in by the new promoters, Rs. 20 crores by Mr. Ray.

48. Number of meetings were thereafter held. Vide letter dated 1st November, 2004, Mr. Ray informed the bank that he had resigned as director of the company with effect from 31st August, 2004.

49. Be as it may, pursuant to the Agreement, the company requested the bank to grant permission for opening an account with ABN AMRO Bank, 19/1, Haddows road, Chennai for receiving the new investors money. Believing the said representation of the company, the bank permitted the opening of the account with ABN AMRO Bank for the limited purpose of receiving the investors money. Account No. 1130826 in the name of M/s Data Access (India) Limited was accordingly opened. In the said account, the company received 17 million US $ from M/s Data Access America Inc. which is 100 per cent subsidiary of the company. This amount received was on account of the debt due to the company and which is charged/hypothecated with the bank. On receiving this information, the bank vide its letter dated 13th November, 2004 called upon ABN AMRO Bank to remit the amounts received in the account of the company. After receiving this letter the Manager of ABN AMRO Bank spoke with the manager of the Bank on 16th November, 2004 and informed the Bank that the funds have been transferred to some other account and the account of the company only had Rs. 48,000/-. After receiving this information, the bank issued notices dated 17th and 18th November, 2004 to ABN AMRO Bank and the company calling upon them to remit the amount book debts/receivables realized by the company with the bank. However, the ABN AMRO bank did not reply to the said notice. Reply dated 19th November, 2004 was received from the company through its counsel M/s Dua Associates wherein this fact that the remittances were received in the account of the company with ABN AMRO Bank was not denied. ABN AMRO Bank had not revealed the details of the amount to which the money have now been transferred by the company. The prayer essentially is to protect the diversion of the said amount of 17 million US $ (which is equivalent to approximately Rs. 75 crores) to other channels as it legitimately belongs to the bank/consortium.

50. When this application came up for hearing on 25th November, 2004, following order was passed:

Notice which is accepted by Ms.Ritu Bhalla, learned Counsel for the petitioner and Ms.Tyagi, learned Counsel for the Official Liquidator. Notice shall also be issued to ABN Amro Bank, 19/1 Haddows Road, Branch Chennai and the respondents for the next date.

Notice be served dusty.

List on 3rd December, 2004.

The respondent company is restrained from dealing with the amount received from Data Access America in bank account No. 1130826 of respondent company maintained by ABN Amro Bank Chennai or any other account of the associates or agents of the respondent company in the aforesaid branch or any other branch office of ABN Amro Bank in India.

The ABN Amro Bank shall also give complete particulars of such remittances received from the aforesaid firm Data Access America.

51. When the matter came up for hearing on 3rd December, 2004 and time was given to file replies, the company was directed to give complete particulars of the bank account maintained by it with ABN AMRO Bank, Chennai. Same direction was also given to ABN AMRO Bank also and the matter was directed to be listed on 8th February, 2005. However, before this date, the bank filed another CA No. 1582/2004 wherein it disclosed the manner in which the money was received in the account of the company with ABN AMRO Bank and the manner in which the said money was transferred to different parties. This application was listed on 17th December, 2004 and following order was passed on this application:

In para 5 of this application it is stated by the applicant that Income-Tax authorities have confirmed that a sum of Rs. 78.45 crores was credited to the account of the respondent company with ABN Amro Bank in account No. 1014374 on 19th August, 2004 and on the same date Rs. 78.45 crores was transferred to account No. 1103945 of M/s. Cheran Holdings Pvt. Ltd. maintained with ABN Amro Bank, Chennai. It is also disclosed that from account No. 1103945 of M/s. Cheran Holdings Pvt. Ltd. amounts were further transferred in the following manner:-

(a) On 19th, August, 2004, Rs. 35,30,46,482/- to Account No. 922322 of M/s. Cheran Enterprises with ABN Amro Bank.

(b) On 19th August, 2004 Rs. 18.05,00,000/- to Account No. 94444 of M/s. KCP Associates Holdings with ABN Amro Bank.

(d) From the account No. 994444 of M/s. KCP Associates Holdings, a sum of Rs. 18.03 crores was transferred to Syndicate Bank, Delhi-A/c. KCP on 20th August, 2004.

From the aforesaid averment it is prima facie established that attempt is made by the respondent to transfer these funds to other accounts so as to go out of the reach of the petitioner or the Canara Bank. ABN Amro Bank, Chennai and Syndicate Bank, Delhi would ensure that minimum balance, as mentioned in sub-paras (a), (c) and (d) is maintained in those accounts, namely, in account No. 922322 of M/s. Cheran Enterprises - Rs. 35,30,482/-; in account No. 912277 of Sporting Pastime India Ltd. - Rs. 25 crores and in account of KCP Associates Holding with Syndicate Bank, Delhi - 18.05 crores. As the applicant is not aware of the branch office of Syndicate Bank where this account is maintained, the order shall be served upon the zonal office of Syndicate Bank at Delhi.

Notice for 7th January, 2005, dusty through counsel.

52. Other applications which have been filed thereafter are by Canara Bank, ABN AMRO Bank, the company and various other parties who are staking their claims over this amount of Rs. 75 crores. thereforee, the subject matter involved in all these applications is the same. Main issue is as to whom this money belongs and consideration at this stage is the nature of order which is required to be passed at the time when the provisional liquidator has been appointed.

53. In order to understand the case of each party, I may state at this stage the nature of applications filed by these parties.

54. CA No. 35/2005 is filed by the company seeking vacation of interim order dated 17th December, 2004 passed in CA No. 1582/2004. According to the company, amount of 17 million US $ was not received from its American subsidiary, namely, Data Access America, Inc.. Case set up by the company is that Odyssey America Reinsurance Corporation (hereinafter referred as `Odyssey Re') had agreed to lend this amount of US $ 17 million and the money was in fact remitted by them. The amount was given to the company on two conditions, namely, (a) roll-over of all loans and bank guarantees with the bank and Syndicate Bank for a period of at least 12 months and (b) reinstatement of all points of interconnect with BSNL and extension by BSNL of all outstanding dues. Hamblin Watsa Investment Counsel (for short `Hamblin'), which the investment advisors of Odyssey sent a letter dated 12th August, 2004 to Data Access America about this term loan on the aforesaid conditions. The company also sent a letter dated 12th August, 2004 informing the bank about the term loan of Rs. 75 crores from the new investors subject to certain conditions. Even M/s Cheran Enterprises Pvt.Ltd.(CEPL) sent a letter dated 12th August, 2004 to the bank stating that the loan was conditional. CEPL is a joint venture between O.R.E. Holdings Ltd. which in turn is subsidiary of Odyssey Re. Since the loan was to be given subject to conditions, Hamblin vide its letter dated 18th August, 2004 requested Data Access America to direct the company to place the loan proceeds with Cheran pending fulfilment of the pre-disbursement conditions. Thereafter, the funds of US $ 17 million were sent to India on 18th August, 2004. As per the directions of Hamblin the monies were transferred to Cheran. It is also the case of the company that various conditions imposed on Mr. Ray and his companies have not been fulfilled. Details of the meetings which took place between the parties are mentioned. It is also alleged that Mr. Ray has committed various acts of frauds. The gist of the company's case is that money has not been sent by Data Access America to the company. Rather, it was a loan which Odyssey Re agreed to give to the company subject to fulfilment of certain conditions and awaiting the fulfilment of those conditions, money was kept with Cheran. Since conditions are not fulfilled, Odyssey Re has right to take its money back. Thus, according to the company, money does not belong to the company or its subsidiary Data Access America and, thereforee, the bank has no right over this money

55. CA No. 36/2005 is filed by Cheran Holdings Pvt.Ltd. and KCP Associates Holdings Pvt.Ltd. Since they were injuncted vide order dated 17th December, 2004 prayer made by them in this application is the same, namely, vacation of the said interim order. The emphasis in their application is also the same as of the company in CA No. 35/2005. In addition, it is alleged that monies were transferred out of ABN AMRO Bank as far back as on 19th August, 2004 and there is delay in filing application by the bank. Non-cooperation of the bank is also alleged. These applicants have also made various allegations against Mr. Ray regarding siphoning off the company's funds.

56. Applicant in CA No. 287/2005 is Cheran Enterprises Pvt. Ltd. (CEPL) and prayer in this application is to modify the order dated 17th December, 2004 with respect to the minimum balance to be ensured in account No. 922322 of this applicant. In this application, it is, inter alia, alleged that in the month of June 2004, CHPL was negotiating with Mr. Ray for the purchase of approximately 63 per cent stakes in the company. On 1st July, 2004, an amount of Rs. 35 crores was remitted by CEPL to CHPL for acquiring the equity in CHPL. However, subsequently the Board of Directors of the CEPL (applicant) decided not to procure the said equity in CHPL and as a consequence asked CHPL to refund the amount of Rs. 35 crores back to CEPL. Subsequently, CHPL returned the amount of Rs. 35 crores to the applicant on 19th August, 2004. This is the Explanationn of CEPL as to how the money was transferred to its account and on this basis it is alleged that vide order dated 17th December, 2004 amount of Rs. 55 crores has been wrongly attached under the presumption that this money belongs to the company or have been removed from the company.

57. Sporting Pastime India Ltd. (SPIL) has also filed CA No. 288/2005 for vacation of order dated 17th December, 2004. As per the averments made in this application, SPIL is engaged in the promotion of a large piece of prime real estate to be developed as a country club-cum-golf course near Chennai. For the said purposes, the applicant deemed it expedient to invite infusion of fresh capital for carrying on its project. Agreement dated 19th July, 2004 was entered between the applicant, its shareholders and Mr. K.C.Planiswamy whereby Mr. Palaniswamy agreed to secured 90 per cent shareholding of the applicant. Pursuant to this agreement, shareholding of the SPIL was increased to Rs. 27 crores. CHPL, a nominee Mr. Palaniswamy had invested Rs. 25 crores in the equity of the applicant and as per the payment in the month of October, 2004 thereby increasing the total paid capital of the applicant to Rs. 52 crores. By virtue of this investment, CHPL is holding 48 per cent of the equity in SPIL and balance 52 per cent is held by other shareholders. Thus, according the applicant's Explanationn Rs. 25 crores remitted by CHPL to it is against acquisition of share capital and allotment of shares. thereforee, this money legitimately belongs to SPIL and on this ground vacation of the order dated 17th December, 2004 is prayed for.

58. CA No. 677/2005 is filed by Hamblin Watsa Investment Counsel Ltd.for vacation of order dated 17th December, 2004 attaching US $ 17 million.

59. The subject matter of dispute which is involved in these applications is about the remittance of Rs. 75 crores in the account of the company maintained with ABN AMRO Bank. Prayer made by the bank in its applications is supported by other secured creditors, namely, MTNL, BSNL and IDFC as well as the petitioner in the main petition. On the other hand, company has opposed this prayer and other parties involved, namely, Cheran Holdings Private Limited. & KCP Associates Holdings Pvt. Ltd., M/s Cheran Enterprises Pvt. Ltd. Sporting Pastime India Ltd. and Hamblin Watsa Investment Counsel have joined the company in opposing the prayer and seeking vacation of the order dated 17th December, 2004.

60. While admitting the petition, I have already indicated the huge extent of liabilities which the company has qua the petitioner and various secured and unsecured creditors. There may be some dispute about the exact amount of the liability qua these secured and unsecured creditors. Otherwise, the company has admitted its liabilities qua them. In so far as the bank is concerned, it is explained in detail that various loans/accommodations were granted by the consortium to the company and according to it more than Rs. 150 crores is payable by the company to the consortium out of which more than Rs. 90 crores is the liability of the bank itself. There are inter se disputes between the erstwhile management led by Mr. Ray and the new management. According to the new management, Mr. Ray has siphoned off the funds which led to present state of affairs in the company. If there is any siphoning off funds that is a matter which, again, would require consideration at the appropriate hands and at appropriate stage if ultimately winding up orders are passed finally. It is, however, necessary to protect the monies which belong to the company so that they are ultimately paid to the creditors who would be the actual and legitimate beneficiaries. The monies cannot be allowed to be frittered away in such a manner that ultimately they are out of the reach of the Company Court/liquidator if at that stage it is found that the amount in question belonged to the company and not Odyssey/CHPL etc. who are staking their claims thereon. thereforee, at this stage, only a prima facie look into the allegations of the two groups, for and against, is to be given. The matter is accordingly examined with this scope and purpose in mind.

61. It would be rather in the interest of both the parties not to give any definite findings at this stage lest it may not affect their interest. At the later stage when an indepth enquiry into the matter would be required and exact nature of transaction would be determined.

62. As per the detailed submissions made by Mr. Y.P.Narula, learned senior counsel appearing for the bank, the remittance of US $ 17 million is not by way of any loan given by Odyssey Re, that too subject to certain conditions as alleged. According to the bank, the amount of US $ 17 million is received from Data Access America and in support of this plea, following detailed submissions are made:

63. Admitted facts are that since the bank/consortium had to receive substantial amount, on 9th July, 2004, the company sent a letter to the bank informing that it was arranging a sum of Rs. 75 crores to Rs. 125 crores from an investor in order to augment the working capital and improve the cash flow. Thereafter, vide letter dated 23rd July, 2004 the company requested the bank to open a no lien escrow account in the name of the company for repayment of proposed loan of Rs. 75 crores to the investors in 60 monthly installments. Accepting this request the bank opened an escrow account in the name of the company on 24th July, 2004. Thereafter, two letters dated 12th August, 2004 were received by the bank from Mr. Ray and Mr. R.Karunanidhi and other signed by Mr. K.C.Palaniswamy. These were with regard to investors fund of Rs. 75 crores and it is clear from these letters that the companies, namely, KCPAHL and CHPL were the notified investors and the amount receivables from M/s Data Access America on account of services rendered had no connection with the same. It was followed by letter dated 18th August, 2004 from the company seeking permission for opening a current account with ABN AMRO Bank, Chennai to facilitate the smooth transfer of funds in the minimum possible time. It was also mentioned that the funds need to be transferred immediately to the bank. From the said letter it is apparent that the investors viz. CHPL and KCPL were having an account with ABN AMRO, Chennai and that the money was to be transferred from one account to the other in the same branch. The said letter never indicated that the investor money was to be received from a foreign party in foreign exchange by the company. The letter dated 18th August, 2004 only indicated that the transaction was within India and was obviously in Indian rupees and there was no indication or mention of any remittance of foreign exchange by any foreign company. It is clear from the letter that the investor' money was to be deposited with Canara Bank and for which escrow account was opened by the bank. The bank accordingly granted permission for opening of the account.

64. On 26th August, 2004, another shareholder's Agreement was signed between the concerned parties stipulating various conditions interest the Share Holders. The Bank was, however, never consulted and had no role to play in the signing of the said earlier Agreement or the agreement of 26th August, 2004. In fact, this Agreement was given to the Bank sometime in October, 2004 and as per Clause 8 of the said Agreement the investor was to bring in the amount of Rs. 75 crore on certain conditions mentioned in the said clause. From the said Share Holder's Agreement, it is clear that as on 26th August, 2004, the investor's money had not been received by the Respondent Company. Thereafter, on 7th September, 2004 a consortium meeting was held in which Mr. Siddharth Ray and Mr. K.C. Palanisami participated on behalf of the Respondent Company. In the said meeting also, it was represented by the said persons that the investor's money of Rs. 75 crore was yet to come. In fact, the consortium's views recorded in the minutes of the said meeting stated as under:

The Company officials shall arrange for infusion of Rs. 75 crore by the investors money to set right the irregularities.

65. As a follow up of the consortium meeting of 7th September, 2004, Canara Bank received letters dated 16th September, 2004, 17th September, 2004 and 21st September, 2004 and in the said letters also there is no mention of the receipt of any loan amount of Rs. 75 crore from the investors. Infact, in para 2 of the letter dated 21/7/2004, the Bank was informed that a sum of Rs. 83.81 crore is due from Data Access America to the Respondent Company as on 31/8/2004, which was not correct and was contrary to remittance of 17 Millions USD by Data Access America to Data Access India Ltd. on 19th August, 2004 along with a swift message that the said payment was on account of the outstanding liability towards services rendered. It is relevant to mention that during this period i.e. in November, 2004, the Bank received copies of the letters addressed by the Chairman of the Respondent Company to Enforcement Directorate and to the Revenue Authorities, stating therein that the new management had fraudulently transferred funds of 'DAIL' to their own Companies. The said letter also mentioned that the amount of 17 Million US Dollars received in the account of 'DAIL' with ABN AMRO Bank, Chennai were receivables to be deposited with Canara Bank. In fact, after receiving the amount of 17 Million US Dollars on 19th August, 2004, ABN AMRO Bank filed the Inward Remittance Certificate with the Reserve Bank of India the same day, i.e. on 19th August, 2004, declaring that the remittance was received on the account of the respondent Company against outstanding bills of services rendered. It is further submitted that under the provisions of Section 6 read with Section 47(2) of FEMA, read with Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations 2000, there is a prohibition to borrow or lend any foreign exchange. The Relevant Regulation 3 framed under the said Act reads as under:-

Regulation 3. Prohibition to borrow or lend in foreign exchange - Save as otherwise provided in the Act, rules or regulations made there under, no person resident in India shall borrow or lend in foreign exchange from or to persons resident in or outside India.

Provided that the Reserve Bank may, for sufficient reasons, permit a person to borrow or lend in foreign exchange from or to a person resident outside India.

66. In the present case, no permission of RBI has been obtained by any party. In case the company was to receive any loan in foreign exchange from abroad, prior permission of the RBI was required. It is, thereforee, the case of the Bank that the entire story of the Respondent Company that the said amount of 17 Million US Dollars was received as loan by the Respondent Company from its 100 per cent subsidiary is false. In fact, as per the letter dated 18th, August, 2004, written by the Respondent Company, seeking no objection from the Bank for opening a current account with ABN AMRO Bank, Chennai, the investor was to infuse funds in to the Respondent Company by transferring amount in Indian Rupees from its account with ABN AMRO Bank, Chennai to the account of the Respondent Company in Indian Rupees. The investor was 'CHPL' and 'K.C.P.' and not 'DAA'. The swift message of 'DAA' received with the remittance of 17 Million US Dollars cannot be changed. The Respondent Company has fabricated the story of unsecured loan by 'CHPL' to 'DAIL' through 'DAA'. The said story is neither plausible nor possible.

67. On the other hand, case of the company and other parties supporting it is that the money was given as loan by Odyssey and that too on certain conditions and conditions have not been fulfilled not even loan transaction came into existence. According to the company, CHPL/KCPAHL along with Mr. K.C.Palaniswamy had entered into a joint venture with Mr. Ray group on 1st July, 2004 for acquiring the shareholding in the company and had accordingly effected payment of Rs. 33 crores for the purpose. Further, the incoming promoters had agreed to bring in Rs. 75 crores as first trench towards debt restructuring/revival of the company. However, CHPL/KCPAHL had agreed to bring in further amount totalling Rs. 300 crores in the company. Simultaneously, CHPL/KCPHL had nominated 4 directors in Data Access America Inc., a subsidiary of the company on 1st July, 2004 itself. Board resolutions were according passed thereby appointing Mr. Ashutosh Mishra shall report to Mr. Ray and the operations in the bank accounts of Data Access America Inc.over Rs. 1 million to be carried forth on instructions by Mr. Gobinath Attahpan. CHPL had, in turn, approached Odyssey a large financial institution in US for arranging the funds. On 12th August, 2004 Hamblin sanctioned the loans on the fulfilment of certain conditions by the company on the request of CHPL. On 13th August, 2004 money was transmitted from Citi Bank A/c of Odyssey to Wells Fargo A/c of the company. On the same date, Mr. Gobinath Attahpan issued instructions to Mr. Ashutosh Mishra to transfer US $ 17 million to the account of CHPL. On 16th August, 2004 a swift message was sent for transfer of US $ 17 million from Data Access America Inc.to CHPL in its ABN AMRO account at Chennai. It is further sought to be explained that account with ABN AMRO Bank was opened for specific purpose for getting the investors fund from CHPL. In the meantime, change in instructions were received on 18th August, 2004 at US by Mr. Ashutosh Mishra on receiving the confirmation regarding the opening of the account by the company by observing that the transfer was made to a wrong account and reflecting the said amount as payment against outstanding dues by Data Access America Inc.Even Mr. Ray, on this basis, wrote on 18th August, 2004 to ABN AMRO regarding change of instructions. thereforee, on 19th August, 2004, on the basis of these instructions, money was transferred to CHPL on realization of the error in transfer. Otherwise, it is clear from the joint meetings of the company with the bank and Syndicate Bank etc. that Data Access America was not in a position to realize its amount due to various problems. thereforee, remittance of these amounts by Data Access America did not arise. Thus, according to the company, remittance of amount of US $ 17 million in the account of the company maintained with ABN AMRO Bank was by mistake and this mistake was immediately corrected on the very first day i.e. 19th August, 2004. In the meantime, as conditions entailed by the Odyssey were not met by 1st September, 2004 on the basis of which the loans were to be provided but it sought withdrawal of the loan facility on 2nd September, 2004. The money of Rs. 78.45 crores was, thereforee, held by the company in trust and such a trust money is not to be intermingled with other funds of the company and is to be give a separate treatment. In support of the proposition reliance is placed on New Bank of India v. Pearey Lal 1962 32 Comp. Cas. 91, Barclay Bank Ltd. v. Quistclose Investment Ltd. (1968) All ER 651, P.V. Narain v. Aaron Spinning and Weaving Mill Ltd. (1961) 31 Comp. Cas. 261 and Official Liquidator v. V. Chandranarayan (1973) 43 Comp.Cas. 245.

68. It is also pleaded that such a transaction would not come within the mischief of Section 531 of the Act; it is not a fraudulent preference; essential ingredients of fraudulent preference under Section 531 are missing; Canara Bank and others have not been able to discharge the burden of proving that such a transaction is fraudulent preference; fraudulent preference cannot be inferred from mere suspicion but has to be based on legal evidence; the mere act that transfer payment or other act being within 6 months prior to the petition is not by itself sufficient to avoid it as invalid under Section 531; dominant motive in the mind of the company as represented by the directors or general body of shareholders as the case may be must be to prefer the creditor is missing and for all these reasons Section 531 of the Act, ex facie is not applicable. It is also contended that there is no right to set off as that is applicable only if an amount is due and payable. Many judgments on Section 531 are cited. It is not necessary to take not of these judgments in view of the approach which is to be adopted at this stage inasmuch as already pointed out above, at this stage I have only to take prima facie view of the matter and not to give definite determinative finding on Section 531 of the Act.

69. No doubt the company has tried to give its own version and hue to the entire transaction and dubbing the receipt of funds in the company's account as an error. However, the admitted facts are:

(a) The amount was received in the account of the company maintained with ABN AMRO Bank.

(b) The amount was received through its subsidiary Data Access America Inc.

Whether it was a loan given by Odyssey Re, that too with conditions, is a matter which needs a thorough probe. It is also possible that as Data Access America has to make substantial payments to the company, it borrowed the money from the said parties for making payment to the company.

(c) Although it is alleged that the money was to be given by way of loan by CHPL/Odyssey with certain conditions, even when this money was received on 18th August, 2004, the correspondence on record which is highlighted by the bank shows that much after this date also there were discussions about the investors infusing Rs. 75 crores indicating that such a money has yet to come.

(d) This can be inferred from the shareholder's agreement dated 26th August, 2004, consortium meeting dated 7th September, 2004 and follow up letters dated 16th , 17th and 21st September, 2004 received by the bank. Even in reply dated 19th November, 2004 counsel for company M/s Dua Associates did not refute the allegation of the bank that money was received from Data Access America Inc.in the account of the company.

(e) Although as per the representations made, investors were to infuse Rs. 75 crores, money received is US $ 17 million i.e. Rs. 78.45 crores.

(f) After receiving the amount, the ABN AMRO filed inward remittance certificate with RBI on 19th August, 2004 i.e. the same date declaring that the remittance was received in the account of the company against the outstanding bills of services rendered.

(g) No permission of RBI has been obtained by any party for lending foreign exchange to an Indian company.

70. That apart, allegations of the bank need serious consideration that pursuant to the orders of this Court, ABN AMRO Bank had filed its affidavit which clearly shows that after receiving the amount in accounts of the respondent company, the same were transferred on different dates in to the account of Cheran Holding Pvt. Ltd. and on its sister concerns. On the filing of C.A. 36/05 by CHPL, it became apparent that the present management of the Company is fraudulently and illegally keeping the amount with its other companies, which is the security of the Bank and which was received in the account of the Company from Data Access America towards payment of its dues. Further serious allegation made by the bank is that the company has tried to fabricate further documentation to fill in lacunas in the false story set up in Case No. 35 & 36/2005 and in order to place the said documents on record, affidavit was filed in CA No. 179/2005.

71. All these factors persuade me to pass interim orders to protect the interest of the secured creditors. The averments made by the company in its applications, replies to applications and affidavit about these transactions are not without suspicion and cannot be accepted at the face value. Similar is the position in the case of CHPL and SPIL. The company has annexed a letter dated 25th November, 2004 allegedly issued by the ABN AMRO Bank to the RBI, forwarding another inward remittance certificate stating that the said remittance was towards loan to the company. The company filed another letter dated 16th September, 2004 of ABN AMRO Bank to the RBI, seeking approval for returning the amount of US $ 17 Million to Data Access America. Form the said correspondence of ABN AMRO Bank it is apparent that the amount of US $ 17 million is still under the control of the company.

72. Interim order dated 17th December, 2004 is accordingly confirmed. Consequence would be that the amount which has been transferred from ABN AMRO Account No. 1014374 of the company to CHPL and other companies shall be remitted back by those parties to the account of the company maintained with ABN AMRO Bank. Needful in this respect shall be done within two weeks. After receiving this amount the ABN AMRO Bank shall remit this amount to Canara bank. It is because of the admitted liability of the bank and charge of the bank over this money. Furthermore, in case it is found ultimately that the money is to be refunded to Odyssey Re etc., appropriate orders can be passed directing Canara Bank to refund the amount and the bank has sufficient means to carry out such directions. Appropriate orders shall be passed in the company petition as to how this amount is to be dealt with depending on the nature of the final orders passed in the company petition.

73. Case 1409 & 1582/2004 filed by the Canara Bank are allowed in the aforesaid terms. Case 35, 36, 287, 288 & 677/2005 filed for vacation of the order dated 17th December, 2004 are dismissed.

CAs No. 1, 34 & 373 /2005

74. CA No. 1/2005 is filed by the company with prayer to attach the amount of approximately Rs. 13 crores lying deposited in this Court. It is, inter alia, stated that in OMP No. 438/2004 entitled Stracon v. Prasar Bharti, Stracon had deposited an amount of US $ 21,87,500/- and in OMP No. 375/2003 between the same parties, Stracon had deposited a sum of Rs. 11,61,03,750/- and US $ 39,37,500/-. is No. 8713/2004 was moved in those proceedings and an order was passed that for withdrawal of the amounts by Stracon PB had given its no objection to the withdrawal of the amount. It is further stated that the company owes to ten creditors, names whereof are given in para 17, a total sum of Rs. 446.5 crores. It is further alleged that Mr. Ray who entered into the shareholders' agreement with the new management of the company had siphoned off huge funds from the company. Further, he had projected that liability of the company was Rs. 315 crores and since the liability is much more, Mr. Ray, SPA and Stracon are jointly and severally obligated to bring the funds which are, in excess of Rs. 315 crores, to the company and, thereforee, the amount of Rs. 13 crores lying deposited in this Court in the aforesaid OMPs be not allowed to be withdrawn by Stracon.

75. This application is contested by petitioner including Stracon etc. on the ground that there is a liability on their part qua the company. It is also stated that in the contract between the Prasar Bharti and them, Prasar Bharti had encased the bank guarantee and the bank which had furnished the bank guarantee had made the payment at the instance of these parties. In order to make payment to the bank, order of withdrawal of the money was sought. thereforee, payment is to be made to the bank. After hearing the parties, interim direction was given on 13th January, 2005 to the effect that this amount be given to the bank and be kept by the bank in `no lien' account so that it can be properly dealt with at the later stage. On this application, order dated 3rd January, 2005 was passed directing the registry not to release the said amount to Stracon and/or Mr. Ray.

76. In order to understand the rival contentions in respect of this amount, it would be necessary to reproduce the order dated 13th January, 2005:

Respondent has moved this application in which prayer is made that amount of approximately Rs. 13 crores lying deposited in this Court by M/s. Stracon (India) Ltd. (in short 'Stracon') be not released to Stracon. Without stating in detail the averments made in this application at this stage, it would be sufficient to point out that the application is founded on the allegation that there was certain agreement between the respondent company and Stracon and according to the applicant, the fallout thereof is that Stracon, SPA Enterprises Ltd. (in short 'SPA') and Mr. Siddharth Ray are jointly and severally liable to pay the applicant a sum of Rs. 151.5 crores approximately. It may be noted that at this stage itself that the money in question was deposited by Stracon in other proceedings being OMP Nos. 375/2003 and 438/2004. Those proceedings were applications under Section 9 of the Arbitration and Conciliation Act, 1996 filed by Stracon and TWI against Prasar Bharti and interim orders were passed in those cases directing Stracon and TWI to deposit certain amounts. Stracon had made a deposit of Rs. 11,61,03,750/-. According to TWI, it had deposited a sum of US $ 3.93 millions plus US $ 2.18 millions.

In those very proceedings on an application filed by Stracon and TWI, order dated 27th December, 2004 was passed by learned Vacation Judge permitting these two companies to withdraw the amounts lying deposited in this Court. At this stage this application was filed by the applicant/respondent company in which order dated 3rd January, 2005 was passed directing the Registrar of this Court not to release the amount to M/s. Stracon and/or Mr. Siddharth Ray pursuant to order dated 27th December, 2004 passed in is 8713/2004 in OMP 438/2004. On notice of this application being issued to Stracon, SPA and Mr. Siddharth Ray these parties have appeared. M/s. TWI and IMG were also allowed to be imp leaded as respondents in this application vide order dated 7th January, 2005. All these parties have filed their replies opposing the prayer made in this application. The contention raised by Stracon, SPA and Mr. Siddharth Ray is that there is no such liability on their part qua the applicant. It is also explained that in the contract between Prasar Bharti and them, a bank guarantee was given and since Prasar Bharti encased the bank guarantee, prayer was made to the Court for withdrawal of the amount in order to pay up Canara Bank who had furnished this bank guarantee to Prasar Bharti at the instance of these parties. It is their case that the money itself was deposited in this Court because of the said bank guarantee given to Prasar Bharti. On encashment of the bank guarantee Canara Bank has already paid the amount to Prasar Bharti. These parties, at whose behest the bank guarantee was given, have now to make the payment to the bank.

Canara Bank as well as Syndicate Bank were also allowed to be imp leaded as parties. Canara Bank has filed reply in which it is stated that in view of the facts noted above, it is Canara Bank which is entitled to this amount and, thereforee, the amount be paid to Canara Bank.

Without going into the rival contentions raised in this application and replies filed by the aforesaid parties at this stage, I feel that ends of justice would be met by making following interim arrangement:-

A) M/s. Stracon had deposited a sum of Rs. Rs.11,61,03,750/-. This amount can be given to Canara Bank. It is suggested by Mr. Desai, learned senior counsel appearing for the applicant/respondent, that the amount may be kept by the Registry with Canara Bank in 'No Lien Account' so that it can be appropriately dealt with at a later stage after the matter in this behalf is thoroughly investigated and finding recorded in respect thereof. It may be mentioned that Mr. Sundaram, learned senior counsel appearing for M/s. Stracon also agreed with this course of action, subject to the rider that interest liability of M/s. Stracon to Canara Bank over this money shall not accrue. In case Canara Bank is ultimately asked to refund this money, question of payment of interest for the intervening period and at what rate that interest should be paid and by whom shall be decided at that stage.

B) The amount of US $ 6.125 millions deposited by TWI is to be refunded to TWI. It may be noted that there is no allegation in the application made by the applicant against TWI and the application is directed against Stracon, SPA and Mr. Siddharth Ray. Even the restraint order dated 3rd January, 2005 was to the effect that money be not released to Stracon and Mr. Siddharth Ray. In the reply filed by TWI it is categorically stated that this amount was deposited by TWI and IMG. There is nothing on record to show to the contrary. Mr. Manmohan, learned senior counsel appearing for TWI also makes a statement at the Bar, on instructions, that except the transaction in question between TWI and SPA with Stracon, there are no other dealings between TWI and IMG on one hand and Stracon on the other.

Mr. Sharma, learned Counsel appearing for Prasar Bharti, submits that Prasar Bharti has moved an application in OMP 438/2004 for recalling of order dated 27th December, 2004 in so far as withdrawal of the money deposited by TWI and IMG to the extent of US $ 2.187 millions. It is clarified that that application shall be dealt with by the concerned Court on its own merit and any observations made in this order shall not prejudice either party in those proceedings.

This application shall be listed for further arguments along with the company petition on 8th February, 2005.

77. The bank, thereafter, filed CA No. 34/2005 stating the amount belonged to it and praying for the vacation of the aforesaid order. The bank has filed another CA No. 373/2005 seeking permission to adjust the amount of Rs. 11,76,13,800/- received by it and this amount be kept in `no lien' account. Reference is made to the order dated 21st February, 2005 passed in OMP No. 375/2003 whereby all the claims and counter claims in the said petition are referred to the sole arbitrator appointed by the court. It is, inter alia, mentioned that since the amount received is kept in `no lien' account it is not earning any interest. Further amount given to the bank is in reimbursement of the amount paid by it to Prasar Bharti under the bank guarantee. It is also submitted that in these proceedings claim of the bank against Stracon cannot be examined and on these grounds, permission is sought to appropriate the amount.

78. In view of the fact that in the aforesaid OMPs arising out of disputes between Stracon and Prasar Bharti, Stracon had deposited the amount in this Court and further in view of the fact that Prasar Bharti invoked the bank guarantee and the bank who had given the bank guarantee was made to pay the said amount, I find that bank will have legitimate right to recover this amount. Stracon was directed to deposit the amount in the court in view of claims of the Prasar Bharti and to recover the amount of the bank guarantee. Since Prasar Bharti has received this amount by invoking the bank guarantee and the bank is made to cough out this amount, it would have legitimate right over the amount deposited by Stracon in the court, precisely the purpose for which the amount was deposited. thereforee, interest of justice would be subserved in allowing the bank to appropriate this amount. It would be without prejudice to the rights and contentions of these two parties in the arbitration proceedings. It may be noted that the prayer of the company not to allow the Stracon to withdraw the amount in question is based on the allegations that it owes money to the company which allegations are seriously disputed by Mr. Ray and Stracon. I have already pointed out above that this would be gone into by the official liquidator at the appropriate stage. On the other hand, liability of Stracon to pay the bank is firmed up and undisputed as the bank has made payment on the part of Stracon to Prasar Bharti. On this ground also order for appropriating the amount by the bank would be more reasonable. Further, in case it is ultimately found that it is the company which had claimed priority over this amount, the bank can always be ordered to make this payment to the company.

79. With these directions, these applications are disposed of.

CA Nos. 351 & 1062/2005

80. CA No. 351/2005 is filed by M/s L& T Finance Limited. The averments made in this application are to the effect that the applicant had entered into Master Rental Agreement dated 10th October, 2003 with the company as per which equipments details whereof are given in para 6 of the application, were leased out. Copy of the agreement is placed on record. It is also averred that the company, as on 25th February, 2005 owes a sum of Rs. 29,43,030/- towards the over due rental payments and delayed payment charges and also Rs. 1,19,03,167/- towards principal outstanding to the applicant. According to the applicant, since the equipments belong to the applicant, prayer is made for directing the provisional liquidator to hand over the equipments as mentioned in Schedule No. 1 to the Agreement dated 10th October, 2003, to the applicant.

81. CA No. 1062/2005 is also moved by the same applicant with same prayer. Averments made in this application are not denied. The company is not functioning either. Since the equipments in question belong to the applicant and large sums are payable by the company to this applicant, it would be appropriate to direct handing over the equipments to the applicant.

82. These applications are disposed of directing the provisional liquidator to hand over the equipments as mentioned in Schedule No. 1 to the Agreement dated 10th October, 2003.

Subject	Company;Civil
Court	Delhi High Court
Decided On	Nov-18-2005
Case Number	CP No. 292 of 2004 and CA Nos. 1244, 1409,1458, 1582/2004 and 1, 34, 35, 36, 179, 287, 288, 291, 304
Judge	A.K. Sikri, J.
Reported in	I(2006)BC288; 125(2005)DLT337; 2005(85)DRJ701
Acts	Arbitration and Conciliation Act, 1996 - Sections 9; Companies Act, 1956 - Sections 391 to 394, 433, 434 and 531; Foreign Exchange Management Act - Sections 6 and 47(2); Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 - Regulation 3; Foreign Exchange Management Rules
Appellant	Pacific Convergence Coproation Ltd.
Respondent	Data Access (India) Limited
Advocates:	Arun Jaitley and; Rajiv Nayar, Sr. Advs.,; Ritu Bhalla,
Cases Referred	Stracon v. Prasar Bharti

Pacific Convergence Coproation Ltd. Vs. Data Access (India) Limited - Court Judgment