Horizon Corporate Services Pvt. Ltd. v. The Union of India & Ors.

Judgment

1. Petitioner no.2 is the General Manager of petitioner no.1. The reference in this judgment to the petitioner is to the petitioner no.1. Respondent Nos.2 and 3 are the Ministry of Finance, Government of India and the Industrial Development Bank of India (IDBI) Salgaonkar 1 /8 respectively.

2. The petitioner seeks an order quashing an order dated

31.12.2008 passed by the Competent Authority appointed by the IDBI, a declaration that the petitioner is entitled to upfront payment in respect of 5,18,400 fully paid up shares in United Western Bank, which was amalgamated with IDBI pursuant to a scheme and for various consequential reliefs, including for an order that the respondent no.3 acts in compliance of the said scheme. The petitioner has also sought the payment of the sum of Rs.1,45,15,200/- towards the said upfront payment, together with interest thereon of Rs.89,64,957/- calculated at the rate of 18% per annum from

3.10.2006 till 26.8.2009. The petitioners have claimed further interest on Rs.2,34,80,157/- at the rate of 18% per annum from the date of filing of the petition till payment.

3. It is impossible in this writ petition to grant the reliefs claimed inter alia in view of several highly disputed questions of fact. We will Salgaonkar 2 /8 indicate only a few of them. Further, there are proceedings pending, including before the Company Law Board, the result of which may affect the petitioners claim in this writ petition, even assuming that the petitioner has not been impleaded in those proceedings.

4. The petitioner held 5,18,400 shares of United Western Bank (UWB).

5. Pursuant to a notification dated 30.6.2006 issued by respondent Nos.1 and 2 under Section 45(7) of the Banking Regulation Act, 1949, UWB stood amalgamated with the respondent no.3 -IDBI under the United Western Bank Amalgamation (with Industrial Development Bank) Scheme of 2006. The scheme came into effect from 3.10.2006.

6. Mr. Chitnis, the learned Counsel appearing on behalf of the petitioner relied upon clause 6(5) of the Scheme under which IDBI is liable to make the upfront payment in cash of Rs.28/- in respect of every fully paid up share in UWB to the members of UWB who were Salgaonkar 3 /8 as on the prescribed date registered as the holders of shares of UWB in partial satisfaction of their claim in respect of their interest in such shares.

7. Correspondence ensued between the petitioner and the respondent no.3, in the course of which the petitioner inter alia demanded payment of the upfront amount. Respondent no.3 rejected the demand. The question is whether the petitioner is entitled to an order in this writ petition directing the IDBI to make payment of the said amount.

8. In our opinion, the petitioner must adopt appropriate proceeding for the recovery of its alleged dues. It is not possible in this writ petition to entertain such a claim which involves a consideration of several seriously disputed questions of facts.

9. For instance, IDBI, for effecting of the upfront payment to the registered share holders commenced a due diligence project of UWB. Salgaonkar 4 /8 According to IDBI the same revealed certain serious aspects, including the following. The petitioner was itself actually involved in various litigations against the erstwhile UWB. It acted in concert and as a part of a group of companies and associates represented by one Shivprakash Makharia and one Ashish Makharia, who are referred to as the Makharia Group. The Makharia Group was heavily indebted to UWB. Several proceedings were filed in respect of these disputes by them against UWB. The same were sought to be resolved by Articles of Agreement dated 26.11.2002. The petitioner was also involved in some of these litigations. The said Makharias did not honour their commitment even under the Articles of Agreement. IDBI, therefore, withheld the upfront payment under Clause 7(5) of Chapter IV of the scheme. Indeed it is also alleged that some of the proceedings were initiated with a view to extract hefty and unlawful waiver of dues by said Makharias.

10. The IDBI contends that the petitioner is a part of the Makharia Group and is an Associate Enterprise of that group within the meaning Salgaonkar 5 /8 of Section 92A of the Income Tax Act. This is sought to be established in various ways. For instance, IDBI has sought disclosure of various facts relating to the manner in which the petitioner funded the purchase of the said 5,18,400 shares held by it in UWB. The affidavit in reply sets out in detail the factors which indicate that it cannot be ruled out that the shares were in fact purchased through funds illegally procured by the Makharias including from UWB itself.

11. The orders passed in Company Petition Nos.42 of 2001 and 43 of 2001 identifies the petitioner as a part of the Makharia Group. The appeals against the said order under Section 10F of the Companies Act are pending before the Delhi High Court.

12. Doubts have also been raised about the manner in which the petitioner applied for and financed the purchase of shares issued in

1995. Some of the funding was by way of stock invest. According to IDBI the funding indicates an arrangement by which the Makharias may have diverted the monies illegally. Salgaonkar 6 /8

13. There are various facts which require investigation, including as to the manner in which the entities from which funds were borrowed had obtained the same in the first place.

14. The erstwhile UWB had included the petitioners shareholdings as a part of the Makharias. In other words, the statements attached showed the shareholding of the Makharias as on 31.3.2005 and

30.9.2005 to include the petitioner and its holding.

15. The Reserve Bank of India has also issued a show cause notice under section 47A of the Banking Regulation Act and is investigating the records to ascertain the amounts diverted by the Makharias for the subscription of the rights issued by UWB. It is alleged that about Rs.14.57 crores were diverted from various group accounts of the Makharias for subscription to the rights issue.

16. In fairness, to the learned Counsel for the respondents, we must Salgaonkar 7 /8 mention that we did not permit them to address us on the various other disputed questions of fact, as also the details thereof, as according to us, it is not appropriate in this writ petition to consider the same.

17. The petitioner must be relegated to a regular civil suit to recover its alleged dues.

18. The Writ Petition is therefore dismissed. [R.Y.GANOO, J.] [S.J.VAZIFDAR, J.] Salgaonkar 8 /8