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Anand Rathi Commodities Limited v/s Encore Natural Polymers Private Limited

    Appeal No. 19 of 2018 in Company Petition No. 192 of 2016
    Decided On, 10 October 2018
    At, High Court of Judicature at Bombay
    By, THE HONOURABLE MR. JUSTICE A.S. OKA & THE HONOURABLE MR. JUSTICE M.S. SONAK
    For the Appellant: Pradeep Sancheti, Senior Advocate a/w Prateek Saksaria, Vaibhav Singh i/b Shardul Amarchand Mangaldas, Advocates. For the Respondent: Venkatesh Dhond, Senior Advocate a/w Shyam Kapadia i/b Dastur Kalambi & Associates, Advocates.


Judgment Text
M.S. Sonak, J.

1. Heard learned counsel for the parties.

2. The challenge in this appeal is to the order dated 27th September, 2017 made by the learned Company Judge in Company Petition No. 192 of 2016 in the following terms:-

'(i) The respondent shall deposit a sum of Rs. 1,45,79,032/- Prothonotary and Senior Master of this Court within a period of 8 weeks from today.

(ii) In the event deposit is made and if a suit is filed by the Petitioner, the amounts so deposited will be transferred to the suit account and thereafter the company petition will stand dismissed.

(iii) If the amount is not so deposited, the petition shall revive and shall stand admitted, returnable within six weeks from the date of default and be advertised in two local newspapers i.e. Free Press Journal (in English) and Navshakti (in Marathi) and in the Maharashtra Government Gazette. Delay in publication of the advertisement in the Maharashtra Government Gazette shall not invalidate the advertisement and shall not constitute non-compliance of this direction or of the Company (Court) Rules, 1959.

(iv) The Petitioner shall deposit an amount of Rs.10,000/- with the Prothonotary and Senior Master of this Court towards publication charges, within two weeks from the date of default, with intimation to the Company Registrar failing which the Petition shall stand dismissed for non prosecution.

(v) The learned Counsel for the Respondent Company waives service of the Petition under Rule 28 of the Companies Court Rules, 1959. (iv) Petition is disposed of in the above terms.'

3. Mr. Sancheti, the learned Senior Counsel for the appellant submits that this is not a case where any 'debt' can be said to be due and payable by the appellant to the respondent. In the absence of any debt due and payable by the appellant, no petition was maintainable for winding up of the appellant.

4. Mr. Sancheti, by way of elaboration submits that the appellant was only a broker through whom the respondent traded at the National Spot Exchange Limited (NSEL). The appellant has nowhere denied receipt of an amount of Rs. 1,45,79,032/- from the respondent for the purposes of the transaction involving a paired contract concerning purchase and sale of White Refined Sugar-M Grade ('Sugar') at the NSEL. The appellant, consistent with the instructions received from the respondent carried out the transaction and even issued contract notes for purchase and sale of sugar. In terms of transaction which was described as T+2 (purchase segment) and T+25 (sale segment), the respondent after a period of about 25 days from the date of the transactions i.e. 15th July, 2013, was to receive an amount of Rs.1,47,94,679/- towards the sale of sugar under the T+25 segment of the transaction. However, on 30th July, 2013, all transactions and operations at NSEL were suspended and therefore, the appellant upon receipt of proportionate amounts from NSEL, has paid the same over to the respondent.

5. Mr. Sancheti submits that it is not even the case of the respondent that it is the appellant which is liable to pay this amount, unless such amount is paid by the NSEL to the appellant. The appellant has nowhere denied the liability to pay such amount to the respondent once the same is received from the NSEL. In fact, from out of the proportionate payments received from NSEL, the appellant has made and respondent has received without demur, proportionate payments in respect of the transactions.

6. Mr. Sancheti submits that in such a situation, it cannot be said that there existed any debt due and payable by the appellant to the respondents, which the appellant can be said to be a failed or neglected to pay to the respondent. Mr. Sancheti relies upon M/s. Greenhills Exports (P) Ltd., and others Vs. Coffee Board – ILR 2001 KAR 2950 and E-City Media Private Limited Vs. Sadhrta Retail Limited – 2009 SCC OnLine Bom 1813 in support of such submissions.

7. Mr. Sancheti, in the alternate submits that a winding up petition on the basis of allegations of misrepresentation and fraud is not at all maintainable, particularly because such allegations cannot be adjudicated in a summary jurisdiction under the Companies Act. Further, until such allegations are adjudicated upon, there can be no question of determining any liability to pay. He submits that there are no proper pleadings in support of allegations of fraud or misrepresentation. In any case, he submits that there is no material on record to sustain any findings of fraud or misrepresentation.

8. Mr. Sancheti submits that the learned Company Judge has inferred fraud or misrepresentation on the basis of alleged discrepancies in the timings at which the trades were transacted at the NSEL. He submits that there were no pleadings in the company petition on the aspect of any alleged time discrepancy. Therefore, the appellant was deprived of opportunity to explain the same. In any case, such a time discrepancy, which even according to the learned Company Judge applies only to the second segment of the transaction i.e. T+25 (sale segment), is certainly not sufficient to infer any fraud.

9. Mr. Sancheti submits that the very institution of the winding up petition was an abuse of the process of law since such institution was for exerting undue pressures upon the appellant. He submits that it is evident that the respondent is trying to take undue advantage of some bonafide mistake in punching the correct client codes at the time the subject trades were transacted on the NSEL on 15th July, 2013. Mr. Sancheti submits that substantial and bonafide defenses have been raised by the appellant and therefore, the impugned order warrants interference.

10. Mr. Venkatesh Dhond, the learned Senior Counsel for respondent and Mr. Shyam Kapadia, defended the impugned order on the basis of reasoning reflected therein. They pointed out that there is no dispute whatsoever that the respondent had advanced through the regular banking channels an amount of Rs.1,45,79,032/- with instructions to transact the trades in question at the NSEL in the name of the respondent. However, the records very clearly bear out that the appellant utilised this amount to trade in the name of Sujana Sudini (Sujana). Thus, it is clear that the appellant is due and payable the sum of Rs. 1,45,79,032/- to the respondent, since such amount was never utilised by the appellant for trading on behalf of the respondent at the NSEL.

11. The learned Counsel for the respondent submit that the defense that there was some error on the part of the appellant's dealer in punching the correct client code when the trades were transacted on 15th July, 2013 and that such error was corrected on the same day or on the next date beyond transaction hours was neither a substantial or bonafide defense. There is absolutely no material produced on record to demonstrate that this was a case of some inadvertent error, which was immediately rectified. Such alleged inadvertent error was never even acknowledged by the appellant at the earliest instance, but rather, attempts were made to forward contract notes in the name of the respondent, so as to create an impression that the subject trades, in fact stand recorded in the name of the respondent in the NSEL records.

12. Mr. Dhond and Mr. Kapadia pointed out that the communication dated 29th September, 2014 issued by the NSEL very clearly states that the subject trades recorded in the name of Sujana and not the respondent in the records of the NSEL. They submit that all this material very clearly establishes that the appellant is due and payable an amount of Rs.1,45,79,032/- to the respondent and that the so called defense is raised by the appellant are nothing but moonshine, not to mention that it is lacking in bona-fides.

13. To the query from the Bench, as to whether the appellant was raising the contention that the paired contracts which the respondent had instructed the appellant to transact at the NSEL were contrary to public policy or in breach of the mandate for which the NSEL had been established, Mr. Sancheti, the learned Senior Counsel for the appellant made it clear that the appellant was not raising any such plea, since, such a plea might affect several other trading clients of the appellant who may have transacted paired contracts at the NSEL. However, Mr. Sancheti stated that it is for the Court to consider this aspect in the light of certain observations in 63, Moons Technologies Limited (formerly Financial Technologies (India) Ltd. & others vs. The Union of India and others – 2017 SCC OnLine Bom 9297.

14. Mr. Dhond, learned Senior Counsel for the respondent however responded by stating that the issue of paired contracts being contrary to public policy or not does not arise in this matter, because the material on record overwhelmingly establishes that the amount advanced by the respondent to the appellant was never utilised for transacting any contracts, much less any paired contracts. He points out that this is not the case where the respondent is seeking to enforce any paired contracts but rather this is case where the respondent only points out that the amount which was admittedly advanced by the respondent to the appellant was never utilised for transacting any contracts at all on behalf of the respondent and therefore, the appellant cannot hold on to such amounts. Secondly and what prejudice, Mr. Dhond submits that the claim of the respondent for the amount of Rs.1,45,79,032/- at the highest relates to the T+2 (purchase segment) of the transaction, which was absolutely legal and valid. Therefore, even assuming that there was some issue concerning the T+25(sale segment) of the transaction, the same was clearly severable and consequently there could be legal issue whatsoever to the recovery of amounts paid by the respondent to the appellant towards the T+2 (purchase segment) of the transaction. In this regard, Mr. Dhond relies on the ruling in B.O.I. Finance Ltd. Vs. Custodian and others – (1997) 10 SCC 488.

15. The rival contentions now fall for determination.

16. The principles on the basis on which the Company Court exercises discretion in matters of this nature, are fairly well settled. The first principle is that if a debt is bonafide disputed and the defense is a substantial one, the Court will not wind up the company. Secondly, where the debt is undisputed, the court will not act upon a defense that the company has the ability to pay the debt but the company chooses not to pay that particular debt. Thirdly, where there is no doubt that the company owes the creditor debt entitling him to a winding up order but the exact amount of the debt is disputed, the Court will make a winding up order without requiring the creditor to quantify the debt precisely so long as the debt in question is in excess of the statutorily prescribed limits. Fourthly, and perhaps most importantly, the Company Court will not wind up a company where the defense raised by the company is in good faith, one of substance, is likely to succeed in point of law and the company adduces prima-facie proof of the fact on which the defense is based. [See – M/s. Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd. - 1971(3) SCC 632].

17. The aforesaid principles have been elaborated in IBA Health (India) Private Limited Vs. Info-Drive Systems SDN. BHD – (2010) 10 SCC 553 where the Apex Court has held that it is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the winding-up petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding-up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding-up petition as a means of forcing the company to pay a bona fide disputed debt. A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at the stage of a winding-up petition is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. If the debt is bona fide disputed, there cannot be 'neglect to pay' within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non-payment of the amount of such a bona fide disputed debt cannot be termed as 'neglect to pay' so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956.

18. The Apex Court in IBA Health (India) Private Limited (supra) has also held that where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purpose of winding up. 'Bona fide dispute' implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt upon which a petition is founded is a hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the company-to-pay before coming to that conclusion and ascertain that the company's refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil court.

19. The rival contentions in the present case will therefore, have to be evaluated on the touchstone of the aforesaid well settled principles in matters of the present nature.

20. There is absolutely no dispute in the present case that the respondent had instructed the appellant who is a broker to carry out trades in paired contracts offered by the NSEL for purchase and sale of sugar on 15th July, 2013 in the name of the respondent. On the same date i.e. on 15th July, 2013, the appellant in purported compliance with the instructions, represented to the respondent that such trades in a total sum of Rs. 1,45,63,473.06 had in fact transacted by the appellant for and on behalf of the respondent. This representation was in the form of issue of contract note Nos. 0012335(NSEL contract No. SM30AMBL2) in respect of the T+2 (purchase segment) and contract Note No. 0012334 (NSEL contract No. SM30AMBL25) in respect of the T+25 (sale segment). There were e-mails forwarded by the appellant on 16th July, 2013 confirming that the appellant had indeed transacted such trades in the name of the respondent. On 16th July, 2013 the appellant also e-mailed the digitally signed contract notes, again confirming the position that the subject trades had indeed been transacted by the appellant in the name of the respondent on 15th July, 2013. Based upon all such representations, there is no dispute whatsoever that the respondent paid an amount of Rs. 1,45,79,032/- towards the T+2(purchase segment) of the transaction vide RTGS. Even the appellant has never disputed the receipt of the amount of Rs.1,45,79,032/- from the respondent.

21. Since there is no dispute whatsoever that the respondent had advanced and the appellant had received the amount of Rs. 1,45,79,032/- to carry out subject trades at the NSEL platform on 15th July, 2013, the onus was obviously on the appellant to at least prima-facie establish that such trades were indeed transacted by the appellant in the name of the respondent. In fact, as will be noted hereafter, it has been the specific defense of the appellant that such trades were indeed carried out in the name of the respondent though, after correction/modification of client code on the platform of NSEL.

22. The communication dated 29th September, 2014 addressed by the NSEL however maintains that the subject trades stand in the name of Sujana and not in the name of the respondent. Therefore, the onus of at least prima-facie explaining as to how the subject trades stand recorded in the name of Sujana in the NSEL records, when the appellant has time and again insisted that the subject trades, consequent upon modification/correction stand in the name of the respondent, is clearly upon the appellant.

23. If the specific defense raised by the appellant, both in response to the statutory notice under Section 433 of the Companies Act as well as the averments in the company petition is found to be a bona-fide defense, a defense of substantial nature, likely to succeed in point of law and further, if the appellant produces even prima-facie proof of the fact on which such defense is based, then, certainly as contended by Mr. Sancheti, the impugned order may warrant interference. However, if the defense is not bona-fide but speculative, illusory or misconceived, then there would be no case made out to warrant interference to the impugned order.

24. In IBA Health (India) Private Limited (supra) upon which reliance is placed by Mr. Sancheti, it is made clear that the Company Court at the stage of consideration of a winding up petition is not expected to hold a full trial in the matter. It must decide whether the ground of the defense appears to be substantial. The defense must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement or some mere wrangle. Therefore, applying these principles, the moot question which arises is whether the appellant had adduced at least prima-facie proof of the fact on which such defense is based.

25. A dispute or the defense raised by the appellant is paraphrased in the appellant's reply dated 24th November, 2011 to the respondent's statutory notice dated 5th November, 2011 under Sections 433 and 434 of the Companies Act. The portions relevant to the context of the specific defense raised, read as follows.

'3.4 With regards to Para 1(iv) of your Notice, the ARCL dealer while punching in your buy trade for white Refined Sugar M Grade having Contract Specification No. SM30AMBL2 committed an error and realized his mistake on the very same day after trading hours. As the online platform of NSEL was not available after trading house, the unique client code (UCC) for the said trades of White Refined Sugar M Grade was modified outside the online platform of NSEL for operational purpose. As a result of the error committed by the dealer, the contract note pertaining to your buy trade initially did not include your trade in White Refined Sugar M Grade. The aforesaid fact has already been conveyed to you by our earlier communications.

3.6 ….........

….........

c. We reiterate that the dealer while punching in your buy trade for White Refined Sugar M Grade having Contract Specification No. SM30AMBL2 committed an error and realised his mistake on the very same day after trading hours. As the online platform of NSEL was not available after trading hours, the UCC for the said trades of White Refined Sugar M Grade was modified outside the online platform of NSEL for operational purpose. As a result of the error committee by the dealer, contract note pertaining to your buy trade initially did not include your trade in White Refined Sugar M Grade. However, revised contract note/s (hard copy as well as ECN) were sent to you at your registered address/e-mail ID.

3.8 With reference to Para 2 and 3 of your Notice, we reiterate that the dealer while punching in your buy trade for White Refined Sugar M Grade having Contract Specification No. SM30AMBL2 committed an error and realized his mistake on the very same day after trading hours. As the online platform of NSEL was not available after trading hours, the UCC for the said trades of White Refined Sugar M Grade was modified outside the online platform of NSEL for operational purpose. As a result of the error committed by the dealer, contract note pertaining to your buy trade initially did not include your trade in White Refined Sugar M Grade. However, revised contract notes (hard copy as well as ECN) were sent to you at your registered address/e-mail ID. We would further like to clarify that under the NSEL Bye-laws and the NSEL Circular dated July 8, 2011, modification of UCC by members was permitted by NSEL. Please also note that the Forward Markets Commission (FMC) as the designated agency for NSEL has not issued any restrictions regarding client code modification on NSEL, whether or not carried out on the online platform of NSEL'.

[Emphasis supplied]

26. The appellant has reiterated the aforesaid defense in the affidavit in reply dated 4th July, 2017 filed on its behalf in opposition to the company petition. This is clear from the following averments in the affidavit in reply.

'13. The dealer of the Respondent while executing the trade on behalf of the Petitioner in 43 lots of White Refined Sugar – M Grade (Contract Specifications SM30AMBL2/ SM30AMBL25) committed a punching error while entering the Unique Client Code ('UCC'). Instead of entering the UCC for the Petitioner, the CC of another client, namely, Ms. Sujana Sudini. The dealer realized the mistake on the very same day, but after the trading/market hours. As the online platform of NSEL was not available after trading hours, the UCC for the trade in White Refined Sugar – M Grade (Contract Specifications SM30AMBL2 / SM30AMBL25) was modified offline, outside NSEL's online platform'.

Paragraph 22-d.

(iii) On the same day, 15th July, 2013, at the instructions of the Petitioner, the Respondent sold the subject commodities vide Contract No. 0012334 for a total value of Rs.1,47,94,679/- and a statement of this buy and sell trades was sent by the Respondent to the Petitioner on 16th July, 2013. It is reiterated that while executing the trades on behalf of the Petitioner in 43 lots of White Refined Sugar-M Grade (Contract Specifications SM30AMBL2 / SM30AMBL25) committed a punching error while entering the Unique Client Code ('UCC'). Instead of entering the UCC for the Petitioner, the dealer entered the UCC of another client, namely, Ms. Sujana Sudini. The dealer realized the mistake on the very same day, but after the trading/market hours. As the online platform of NSEL was not available after trading hours, the UCC for the trade in White Refined Sugar – M Grade (Contract Specifications SM30AMBL2 / SM30AMBL25) was modified offline, outside NSEL's online platform.

(xi) As the dealer of the Respondent realized his mistake after expiry of trading hours of NSEL, the trade in Refined Sugar – M Grade executed at the request of the Petitioner was modified offline and as such the subject trade appears in the name of another client named Sujana Sudini in whose account the subject trade was inadvertantly carried out by the dealer of the Respondent.

[Emphasis supplied]

27. From the aforesaid, it is clear that the appellant, in opposition to the company petition, has raised the following specific defense:-

(i) That the appellant's dealer committed an error in punching the correct Unique Client Code (UCC) in respect of the transactions undertaken by the appellant on the NSEL platform on 15th July, 2013. The appellant's dealer, instead of punching in the respondent's UCC, punched in the UCC concerning Sujana;

(ii) The error as aforesaid was realised by the appellant's dealer on the very same day, but after trading hours. Therefore, the appellant's dealer corrected/modified UCC outside the online platform of NSEL for operational purposes;

(iii) That the factum of the aforesaid error/mistake as well as its immediate correction/modification was intimated to the respondent.

28. In addition to the aforesaid, the appellant, had also contended before the learned Company Judge that the respondent had in fact claimed an amount of Rs.1,47,94,679/- in the statutory notice under Section 433 of the Companies Act, therefore, this is a case where the respondent was seeking to enforce the transaction of paired contracts transacted by the appellant for and on behalf of the respondent. The appellant had also contended before the learned Company Judge that the appellant has paid and the respondent has received proportionate amount towards the subject trades without any demur and therefore, this is yet another indicator that the subject trades were in fact entered into on behalf of the respondent. The appellant also contended before the learned Company Judge that the appellant was only a broker and therefore not primarily liable to pay any amount to the respondent, unless such amounts were received from the NSEL. In this regard learned Counsel for the appellant also contended that there was no discrepancy in the timing of the T+2 (purchase segment) and the alleged and slight discrepancy in the timing of the T+25 (sale segment) inconsequential and in any case insufficient to inter any irregularity, much less any fraud or misrepresentation.

29. Now, each of the aforesaid contentions/defenses are really secondary to the main defense that there was some error on the part of the appellant's dealer in punching it the correct UCC and further, this error was realised on the same date i.e. 15th July, 2017 and also corrected/modified outside the online platform of NSEL for operational purposes. If such primary defense were to have been established, even prima-facie, only then some credence could have been extended to the secondary defenses urged by and on behalf of the appellant. However, if the appellant is unable to establish even prima-facie, the ingredients of its primary defense, then, there is no good reason to interfere with the impugned order on the basis of the secondary defense/contentions as aforesaid.

30. The respondent has pointed out that the appellant created an impression the trades transacted on 15th July, 2013, were in fact in the name of the respondent. It is only much later i.e. on or about 23rd April, 2014, in the course of the meeting held under the aegis of the Economic Offence Wing (EOW), that the respondent realised that the subject trades had no nexus whatsoever with the respondent. The respondent contends that even on 23rd April, 2014, the representatives of the appellant insisted that the subject trades were in fact in the name of the respondent and the confusion would be shortly cleared. However, no documents were produced on record in support of the plea that there was any error in punching in the correct UCC and that such error was in fact corrected in the records of the NSEL. Instead, on 6th May, 2014, the appellant chose to forward duplicate and unsigned contract notes including therein the subject trades. The respondent also pointed out that no delivery allocation reports (DAR) in respect of the subject trades were ever forwarded by the appellant to the respondent. The respondent also pointed out that the circumstance that so called proportionate amounts, which correspond to a minuscule of what is due and payable to the respondent, may have been received by the respondent, was clearly relatable to the misimpression created by the appellant that the subject trades had indeed been transacted by the appellant in the name of the respondent.

31. Besides, as regards the secondary defenses, it must be noted that a proper reading of the statutory notice under Section 433 of the Companies Act issued by the respondent to the appellant makes it clear that the respondent had only demanded an amount of Rs.1,45,79,032/-, which amount, the respondent had admittedly advanced to the appellant for transacting the subject trades. In the statutory notice, it is clearly the case of the respondent that since the subject trades were never transacted by the appellant in the name of the respondent, the appellant is liable to refund the amount of Rs.1,45,79,032/- to the respondent and it is this the sense that such amount is due and payable by the appellant to the respondent. There is no demand or claim in the statutory notice for an amount of Rs.1,47,94,679/- as contended by Mr. Sancheti. On this basis therefore, it cannot be said that the respondent is in fact seeking enforcement of the paired contracts.

32. Again, on one hand the appellant contends that since, the appellant was only a broker, it was not liable to pay any amount to the respondent, unless such amount is received by the appellant from the NSEL. On the other hand, the appellant despite its assertion that the transaction of paired contracts was in fact effected in the name of the respondent, has failed to place any material on record to establish this position, even prima-facie. The claim of the respondent in such circumstances cannot be relegated to the realms of uncertainties dependent upon whether or not Sujana in whose name the subject trades stand recorded, will claim such amount or not or whether the NSEL will agree to treat the subject trades as entered into for and on behalf of the respondent. Even the discrepancy in timings of the subject trades, when viewed in the admitted context that the subject trades were never transacted by punching in the respondent's UCC, is not some inconsequential discrepancy, as urged. There was reference to such discrepancy in the statutory notice issued by the respondent to the appellant. The appellant has responded to the statutory notice, but the discrepancy is not really explained.

33. Be that as it may, even if some credence is to be extended to the secondary defenses raised by and on behalf of the appellant, there would still be no reason to interfere with the impugned order. This is because the appellant has failed to produce on record even prima-facie proof in support of the primary defense raised by it in response to both, the statutory notice and the company petition. As noted earlier not a single document has been produced on record by the appellant to demonstrate that the appellant's dealer, either on 15th July, 2013 or even within 2-3 days thereafter actually corrected/modified or for that matter attempted to correct/modify the alleged error in punching in the respondent's UCC in the record of the NSEL. This is despite the fact that the appellant, both in response to the statutory notice as well as in its reply opposing the company petition, has time and again asserted that such modification/correction was in fact carried out. Again, there is also no material produced on record by the appellant to even prima-facie establish that the factum of alleged error/mistake as well as its immediate correction/modification was intimated to the respondent either on 15th July, 2013 or within some reasonable period thereafter. In such circumstances, we cannot really fault the view taken by the learned Company Judge in holding that the defense raised by the appellant was neither bona-fide nor substantial.

34. Mr. Sancheti, however chose to rely upon NSEL circular dated 8th July, 2011 in support of the primary defense. He submitted that this circular makes it clear that the NSEL permits client code modification and therefore, on the basis of such circular, it must be held that errors in punching in the client's code are quite routine and correction/modification is clearly permissible. Mr. Sancheti submits that on the basis of this circular the primary defense raised by the appellant deserves to be accepted.

35. In order to appreciate this contention, reference is necessary to the NSEL circular dated 8th July, 2011, which reads as follows :- National Spot Exchange Limited Circular Ref. No.L NSEL/TRD/2011/122 July 8, 2011 Dear Members, Client Code Modification In terms of provisions of the Rules, Bye-Laws and Business Rules of the Exchange, the Members of the Exchange are notified that revised Client Code Modification timing w.e.f. Saturday 9th July 2011 as under: a. The facility of client code modifications is allowed. b. The members are also allowed to change their client codes during the trading hours and 10 minutes extra will be provided after day halt of the respective contracts. For example: on all the trading days from Mondays to Fridays: Contact Trading Timing Client Code Modification Timing 10:00 AM 4:00 PM 10:00 AM 4:00 PM 10:30 AM 4:30 PM 10:30 AM 4:40 PM 10:00 AM 6:00 PM 10:00 AM 6:10 PM 10:00 AM 11:30 PM 10:00 AM 11:40 PM c. On Saturdays the same shall be allowed from 10:00 AM to 2:10 PM for all contracts. d. At all times, Proprietary (OWN) trades shall not be allowed to be modified as client trades and client trades shall not be allowed to be modified as proprietary (OWN) trades. For any clarification, Trading team can be contacted at 022-6761 9900 Extn: 9911/9912/9913/9914 or through email at NSELTrading@ nationalspotexchange.com For and on behalf of National Spot Exchange Ltd. Santosh Mansingh Asst. Vice President

36. The circular, at the highest indicates that client code modification is permitted in certain circumstances and subject to compliance with certain conditions. However, the real question is whether in the facts and circumstances of the present case any client code modification was in fact carried out by the appellant in relation to the transactions on 15th July, 2013. The circular is certainly not any proof or even prima-facie proof that the appellant in the present case consistent with the terms of the circular or even otherwise, in fact carried out any client code modification.

37. If modification had indeed been effected by the appellant, as repeatedly asserted, then surely the same would have been reflected in the records of NSEL, which was fully operational between 15th July, 2013 and 30th July, 2013. Admittedly, no such modification/correction is reflected in the records of the NSEL. As noted earlier the NSEL by its communication dated 29th September, 2014 has very clearly stated the subject trades stand recorded in the name of Sujana and not in the name of the NSEL. Therefore, it is not possible to accept Mr. Sancheti's contention that the NSEL circular dated 8th July, 2011 constitutes any prima-facie proof in relation to the primary defense urged by and on behalf of the appellant.

38. Applying the principles in Ms. Madhusudan Gordhandas & Co (supra) and IBA Health (India) Private Limited (supra), it is difficult to disagree with the learned Company Judge that the defense raised by the appellant was neither bona-fide nor substantial. The Apex Court has held that it is the duty of the Company Court to decide whether the grounds of the dispute raised by the company appear to be substantial or whether the grounds consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement. The Apex Court has also held that the company, in order to avoid a winding up

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order must not just raise some defense but the company must establish that such defense is raised in good faith, the defense is substantial, the defense is likely to succeed in point of law and further and must importantly the company must adduce prima-facie proof on the fact on which the defense is based. In the facts of the present case it is difficult to accept that the defense raised by the appellant is either bona-fide or substantial. In any case, the appellant has failed to adduce any prima-facie proof in support of the primary fact on which the defense is based. 39. Mr. Dhond, had in fact pointed out that this may not be some isolated instance, since, even criminal prosecution is launched against the appellant/its officers for routinely increasing trade volumes by deliberately punching incorrect client codes. In a jurisdiction of the present nature, obviously, we cannot go into such issues. 40. The ruling in case of N/s. Greenhills Exports (P) Ltd. and others (supra) is clearly not applicable because in that case the Division Bench of the Karnataka High Court was concerned with a claim based upon allegations of breach of contract by the company which sought to be wound up. The amounts claimed by the Coffee Board against the company which was sought to be wound up were by way of reimbursement of several losses allegedly incurred by the Coffee Board as consequence of breach committed by the company in question. There was no adjudication by Civil Court or arbitrator that the company had in fact committed breach and incurred pecuniary liability. In the present case, the respondent does not allege any breach of the purchase and sale contract. The case of the respondent is that the amount advanced by the respondent to the appellant for trading at the NSEL, having not been utilised at all for carrying out such transactions, the appellant is liable to pay back the same to the respondent. Therefore, this is not a case where the claim is based upon some breach of contract which is yet to be adjudicated by the appropriate forum. 41. Similarly, the ruling in E-City Media Private Limited (supra) is also not applicable in the facts of the present case. In the said case, the winding up of the company was applied for on the basis of loss or damages sustained by the petitioner on account of alleged breach by the respondent company of the agreement dated 22nd May, 2008. Such is not the position in the present case. 42. The learned Company Judge in the present case has exercised discretion reasonably in not directly ordering the admission of the company petition. The learned Company Judge has granted the appellant an opportunity to deposit the amount of Rs. 1,45,79,032/- and in case such deposit is made, the petition is to stand dismissed. In the facts and circumstances of the present case and the legal position in such matters, we cannot say that the exercise of discretion by the learned Company Judge is vitiated in any manner. 43. In 63, Moons, Technologies Limited (supra), although there are observations with regard to 'paired contracts' in the facts of the present case, since, prima-facie, it cannot be said that the appellant has utilised the amounts advanced by the respondents to it for transacting any paired contracts in the name of the respondent, there is really no necessity to go into this issue. 44. For all the aforesaid reasons we see no good ground to interfere with the impugned order. This appeal is therefore dismissed. There shall be no order as to costs. 45. Pending Notices of Motion, if any, do not survive and the same are disposed of. 46. The learned Counsel for the appellant seeks extension of the interim order granted by the learned Company Judge and continued by this Court for a period of four weeks. Interim order is accordingly continued for a period of four weeks from today.
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