Case Note & Summary
This company petition sought winding up of Prime Broking Company (India) Ltd under the Companies Act, 1956 on the ground of inability to pay debts. The petitioner, National Securities Clearing Corporation Ltd, a wholly owned subsidiary of the National Stock Exchange of India Ltd, provided clearing and settlement services. The respondent was a trading member in the Futures and Options segment and had executed trades resulting in outstanding obligations. As of 2 April 2013, an amount of Rs.158.04 Crores became due, acknowledged by the respondent's letter requesting adjustment of deposits and collaterals. After adjustments, Rs.3.77 Crores remained due, also admitted. Further expiry of contracts in June 2013 added Rs.91.01 Crores, totalling Rs.94.78 Crores by 28 June 2013. The petitioner called for payment, but the respondent denied liability citing a circular reducing permissible collaterals and alleging the petitioner failed to sell 20 lakh shares of Gitanjali Gems Ltd. as agreed, which would have covered the dues. The respondent also raised a counter-claim of Rs.213.02 Crores and later filed a suit claiming Rs.152.57 Crores against the petitioner. Meanwhile, complaints from third parties regarding non-delivery of Gitanjali shares led to an EOW order under Section 102 CrPC freezing the shares. The petitioner challenged this order under Section 482 CrPC but was rejected; the Supreme Court allowed an interim sale of shares pending appeal. The respondent was declared a defaulter in October 2013 and expelled from trading membership. A statutory notice under Sections 433 and 434 was served, replied to with denials. The petition was filed seeking winding up and recovery of Rs.103.73 Crores. The respondent admitted Rs.90.90 Crores but claimed set-off against its own damages claim. The court heard arguments and reserved judgment on 17 June 2016, but the excerpt ends before the decision.
Issue of Consideration
Whether the respondent company should be wound up under Sections 433 and 434 of the Companies Act, 1956 when an admitted debt of Rs.90.90 Crores exists but the respondent disputes the total claim and has set up a counter-claim for a larger amount, alleging bona fide dispute.
Law Points
- Winding up on ground of inability to pay debts
- statutory notice under Sections 433 and 434 Companies Act 1956
- admission of liability
- bona fide dispute
- counter-claim
- set-off
- clearing and settlement obligations
- defaulter declaration
- Section 102 CrPC
- Section 482 CrPC
- Bye-law 16
Case Details
2016 LawText (BOM) (06) 78
COMPANY PETITION NO. 3 OF 2015
Virag Tulzapurkar, Zal Andhyarujina, B. Saraf, Sachin Chandarana, Nirav Shah, Rishikesh Soni, Naushar Kohli
National Securities Clearing Corporation Ltd
Prime Broking Company (India) Ltd
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Nature of Litigation
Company petition for winding up under the Companies Act, 1956 on the ground of inability to pay debts.
Remedy Sought
Petitioner seeks winding up of the Respondent Company and recovery of Rs.103.73 Crores together with interest at 12% per annum.
Filing Reason
Respondent Company allegedly failed to pay outstanding amounts arising from F&O trades, despite admitting a part of the debt; petitioner had to make payments to counter parties and thus claimed recovery.
Previous Decisions
Respondent declared defaulter on 15 October 2013; appeal before SAT dismissed on 30 June 2015; appeal to Supreme Court pending. EOW freeze order under Section 102 CrPC; High Court rejected petitioner's challenge under Section 482 CrPC; Supreme Court allowed sale of Gitanjali shares pending appeal. Criminal complaints by Sarvin Mercantile and Trusha Infrastructure regarding shares.
Issues
Whether the respondent company was unable to pay its debts within the meaning of Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956.
Whether the respondent had raised a bona fide dispute and counter-claim that should preclude the admission of the winding up petition.
Whether the petitioner's claim was maintainable when the respondent admitted a partial debt of Rs.90.90 Crores but disputed the balance and set up a counter-claim exceeding the admitted sum.
Submissions/Arguments
Petitioner contended that Respondent owed Rs.103.73 Crores (Rs.90.90 Crores admitted) from F&O trades; failure to pay forced petitioner to discharge respondent's obligations to counter parties; statutory notice issued; thus petitioner entitled to winding up order.
Respondent disputed liability on grounds that petitioner's circular unilaterally reduced permissible collaterals, and that petitioner failed to sell all 20 lakh Gitanjali Gems shares as agreed, which would have covered dues; also raised a counter-claim of Rs.213.02 Crores (later suit for Rs.152.57 Crores) for damages caused by petitioner's actions; sought dismissal of petition.
Judgment Excerpts
the Respondent Company vide its letter dated 2nd April, 2013, has in clear and express terms admitted the outstanding amount of Rs.158.04 Crores as due and payable by the Respondent Company to the Petitioner
the Respondent Company has admitted that an amount of Rs.90.90 Crores was due and payable by the Respondent Company to the Petitioner
By its order dated 25th March, 2013, the EOW requested the Petitioner to withhold the shares of Gitanjali till further orders in view of the fact that the said shares were the subject matter of an investigation
Procedural History
Petitioner, a wholly owned subsidiary of NSE, offered clearing services; Respondent was a trading member in F&O segment. Trades executed led to outstanding Rs.158.04 Crores by 2 April 2013; respondent admitted and requested adjustment of deposits. After adjustment, Rs.3.77 Crores due, admitted. Further expiry in June 2013 added Rs.91.01 Crores, total Rs.94.78 Crores by 28 June 2013. Petitioner demanded payment; respondent denied liability citing circular and failure to sell shares. Respondent raised counter-claim of Rs.213.02 Crores. Meanwhile, third-party complaints led to EOW freeze order under Section 102 CrPC; petitioner's challenge under Section 482 CrPC rejected by High Court; Supreme Court allowed sale of shares. Respondent declared defaulter on 15 October 2013, expelled from NSE. Statutory notice under Sections 433 and 434 Companies Act, 1956 served on 17 April 2014; respondent replied denying liability and seeking set-off. Respondent filed suit for Rs.152.57 Crores. Petition filed; arguments heard; judgment reserved on 17 June 2016; pronounced on 28 June 2016.
Acts & Sections
- Companies Act, 1956: 433, 434
- Code of Criminal Procedure, 1973: 102, 482
- Petitioner's Bye-laws, Rules and Regulations (Futures and Options segment): Bye-law 16 of Chapter VI
