1993 Supreme(Cal) 23

High Court Of Calcutta
Ruma Pal
ASSOCIATED FOREST PRODUCTS (PVT.) LTD. - Appellant
Versus
K.T.S.(SINGAPORE) PLC.LTD. - Respondent
.  .   Of  .
Decided On : 01/18/1993

An application for winding up of a company is not an enforcement of the claim of a petitioning creditor and does not come within the exception to the general permission as enunciated in Clause (b) of sub-section 3 of section 47 of FERA, 1973.

Headnote:

ASSOCIATED FOREST PRODUCT (P) LTD. - WINDING UP - FERA VIOLATION - NO APPLICATION FOR RBI PERMISSION - PAYMENT TO U. LUBRICANTS - NO NOVATION - WINDING UP PETITION ADMITTED.

Fact of the Case:

Petitioner, a Singapore company, entered into an agreement with the respondent company for the supply of timber. The goods were delivered and bills were raised. The respondent company did not make any payment. Upon demand, the respondent company sent a telex stating that there were discussions with the petitioner that the bills would be paid by installments upon receipt of permission from the Reserve Bank of India (RBI). It was also stated that the local laws did not permit the bank to credit a foreigner's account and as such the money could not be deposited in the bank to the credit of the petitioner without the permission of RBI. A memorandum of understanding was entered into between the parties whereby the respondent company agreed to settle the outstanding amount by progressive monthly installments before a certain date. No payment was made pursuant to the memorandum of understanding. A guarantee was executed by the director of the respondent company confirming the facts and rescheduling the payments. The respondent company made a payment to United Lubricants and Industrial Products of India, which was received on behalf of the petitioner for remittance to them on receipt of payment for one lot out of three lots. The amount was deposited by United Lubricants with the United Commercial Bank. After this, no further payment was received from the respondent company or United Lubricants. The petitioner served a notice under section 434 of the Companies Act, 1956 on the respondent company, but no reply was received. A winding up petition was presented.

Finding of the Court:

1. The respondent company's defenses that the goods supplied were defective and that the transaction was in violation of the Foreign Exchange Regulation Act, 1973 (FERA) were rejected. 2. The respondent company's claim that there was a novation of the contract by virtue of the document dated 24th May, 1989, as a result of which only United Lubricants could sue to recover the debt, was also rejected. 3. The winding up petition was admitted subject to scrutiny for the amount of Rs. 13,17,554.50 together with interest at 18% per annum from the due dates of the installments under the document dated 24th May 1989 until the date of the order and costs assessed at 25 G.Ms.

Issues: 1. Whether the transaction between the respondent company and the petitioner was illegal or in violation of FERA? 2. Whether there was a novation of the contract between the respondent company and the petitioner? 3. Whether the winding up petition should be admitted?

Ratio Decidendi: 1. The prohibition of payment to a person not resident in India under section 9(1) of FERA is not an absolute bar. Payment may be made subject to the permission of the Reserve Bank of India (RBI). 2. The agreement between the petitioner and the respondent company did not explicitly provide for obtaining permission from RBI, but section 47(2) of FERA provides that every contract governed by the laws of India would have an implied term to the effect that nothing agreed to be done which was prohibited to be done except with the permission of RBI shall not be done unless such permission is granted. 3. The respondent company failed to produce any document to show that it had applied for permission from RBI to make the payment to the petitioner, and therefore, it must be held that the respondent company is unable to pay its debt and liable to be wound up. 4. The payment to United Lubricants would not be for the credit of the petitioner, and therefore, the respondent company could have secured the claim of the petitioner by paying United Lubricants. 5. The document dated 24th May, 1989, did not create a novation of the contract, as it was clear that it was the debt of the petitioner that was to be paid by installments.

Final Decision: The winding up petition was admitted subject to scrutiny for the amount of Rs. 13,17,554.50 together with interest at 18% per annum from the due dates of the installments under the document dated 24th May 1989 until the date of the order and costs assessed at 25 G.Ms.