Mahavir Civil Engineering And Services Pvt. Ltd. v. The Jalgaon Peoples Co-Operative Bank Ltd & Ors.

12. The background facts are that on the 20th March, 2009, a Joint Venture agreement was entered into between the Applicant, the Company in liquidation viz. M/s Siddharth Infratech Pvt. Ltd. (the “Company”) and the Respondent No. 3 viz. SPML, to form a Joint Venture named Siddharth-Mahavir-SPML (JV) (the “Joint Venture”) for the work of construction of a Lift Irrigation Project at Jigaon (the “Jigaon project”), in the following partnership ratio: a) Applicant (Mahavir-37%) b) Respondent No. 3(SPML-10%) and c) the Company (Siddharth Infratech Pvt. Ltd.-53%)

13. On 24th July, 2009, the Joint Venture was allotted the Jigaon project by the Vidarbh Industrial Development Corporation (the “VIDC”). On 5th August, 2009, the Joint Venture entered into a subcontract with the Applicant, sub-contracting 50% of the Jigaon project work to the Applicant and on 12th August, 2009, the Joint Venture entered into a sub-contract with a sole proprietorship firm of the Respondent No. 4 which sub-contract was transferred to the Company, sub-contracting the balance 50% of the work.

14. In the year 2016, the Company started facing financial crisis and was unable to carry out its sub-contracts obligations, which was avk/Nikita Gadgil-RA-LA 5/66 statedly communicated to the Applicant during oral discussions between the parties.

15. As the Jigaon project started getting delayed, the government department threatened to impose heavy fines upon the Joint Venture and on the 3rd June, 2016, an agreement was entered into between the Joint Venture, the Applicant and the Company in order to avoid penalties and to carry out the Jigaon project smoothly, whereby it was decided by the parties to the Joint Venture to sub-contract, the share of work of the Company to the extent of work amounting to Rs.17,75,8000/- to the Applicant.

16. On 7th September, 2016, Company Petition No. 708 of 2016 was filed against the Company seeking winding up of the Company of which the Applicant was neither informed nor aware.

17. From 2018 onwards the financial condition of the company further deteriorated and the Company was unable to fund and or execute the work sub-contracted to it.

18. On 18th September, 2018, the Company Petition was admitted.

19. On 5th January, 2019, the Assistant Superintendent Engineer addressed a letter to impose fines on the Joint Venture for carrying out avk/Nikita Gadgil-RA-LA 6/66 the work. On 22nd January, 2019, the Executive Engineer addressed a letter calling upon the Sub-Divisional Engineer to impose fines on the Joint Venture, if it failed to carry out the work at the earliest. On 13th February, 2019, the Executive Engineer addressed two letters to the Joint Venture stating that as there had been no progress in the work, a daily fine of Rs. 5000/- from 1st April, 2018 onwards of a total of Rs. 17,40,000/- was being imposed on the Joint Venture and it was also orally communicated that the department would terminate the contract/work if it was not carried out in timely manner.

20. That, therefore, on 5th April, 2019, the Company passed a Board Resolution acknowledging its paucity of funds due to which the Company gave its consent for pre-closure and/or hand over of its part of the Jigaon project work completely to the Applicant. The Board Resolution also recorded that the Company was in the process of entering into a Supplementary Joint Venture Deed with the Applicant and Respondent No. 3 along with a sub-contract agreement to assign the work under the Jigaon project to the Applicant.

21. On 8th April, 2019, the Company addressed a letter to the Joint Venture expressing its inability to complete the project work that was pending and also stated that a sub-contract had been finalised wherein avk/Nikita Gadgil-RA-LA 7/66 it was decided that the balance work would be executed entirely by the Applicant and the Company also cancelled the sub-contract by which work had been previously sub-contracted to it.

22. In order to facilitate the shift of the work to the Applicant, on 8th April, 2019, itself the following agreements / documents were entered into:a) Supplementary Joint Venture Deed dated 08th April 2019 between the parties to the Joint Venture viz. The Applicant, the Company and the Respondent No. 3. b) Irrevocable Power of Attorney dated 08th April 2019 executed by the Applicant, the Company and the Respondent No. 3 in favour of a director of the Applicant to be the true and lawful attorney of the Joint Venture, such that the works could be carried out smoothly. c) A sub-contract dated 08th April 2019 between the Joint Venture, the Applicant, the Company and the Respondent No. 3 wherein the balance work remaining for the Jigaon project after completion of the work under the 13th RA Bill was sub-contracted in its entirety to the Applicant as the Company did not have funds to fulfill the work and had expressed its unwillingness to execute its remaining share of works sub-contracted to the Company via sub-contract dated 12th August, 2009. d) Escrow Agreement dated 10th April, 2019, between the Applicant, the Joint Venture and the Respondent No. 1 Bank was entered into and an escrow account opened. (the aforesaid documents are hereinafter referred to as the “2019 Agreements”) avk/Nikita Gadgil-RA-LA 8/66

23. On 2nd May, 2019, the government department for the project had given a site mobilisation advance to the Joint Venture, contingent on a bank guarantee of Rs. 17,42,71,000/- provided by the Respondent No. 3.

24. On 7th August, 2019, during the pendency of the Jigaon project work, this Court ordered the liquidation of the Company.

25. On 3rd February, 2020, the government department of the project noted that remarkable progress had been made and as a result of the same waived off the entire fine imposed earlier on the Joint Venture and further extended the deadline to complete the remaining part of the Jigaon project work.

26. The company filed an Appeal challenging the liquidation order and on 10th August, 2021, the Company Petition was ordered to be transferred to the NCLT upon an application by the Company and all the pending Applications were disposed including the Interim Application. This order was challenged and on 11th March, 2022, the Division Bench of this Court in Interim Application (L) No. 24923 of 2021 passed an order (the “11th March, 2022 order”) and after considering all facts and circumstances under which the 2019 avk/Nikita Gadgil-RA-LA 9/66 Agreements were entered into inter-alia held that the sub-contracting of work was done for overall benefit of the Joint Venture and the Company. The Company assailed the said order of the Division Bench by a Special Leave Petition which was dismissed on 1st April 2022.

27. On 5th September, 2022, the Division Bench in Interim Application (L) No. 25363 of 2022 has expressly upheld the order dated 11th March, 2022 noting that there was no application to it to vary, modify or recall the same.

28. The aforesaid facts are not in dispute. While Interim Application No.2323 of 2021 seeks validation of the transaction of assigning Jigaon Project work by the Joint Venture to the Applicant herein as is reflected in the documents namely Supplementary Joint Venture dated 8th 2019, Irrevocable Power of Attorney dated 8th April 2019, Agreement dated 8th April 2019 and Escrow Account Agreement dated 10th 2019 as legal and valid and not void under Section 536(2) of the Companies Act, 1956, prayers (a) to (g) of the Official Liquidator's Report seek just the opposite viz. declaration of the said transaction as void along with consequential directions, prayers (h) onwards statedly are not being pressed as having been worked out. avk/Nikita Gadgil-RA-LA 10/66

29. Mr. Khandekar, learned Counsel for the Applicant has submitted that the 2019 Agreements are for the overall benefit of the Company and the Joint Venture and the said finding in the order dated 11th March, 2022 remain intact and unchallenged, a Division Bench of this Court already having rendered a finding that the 2019 Agreements are for the benefit of the company, which has been upheld by the Hon’ble Supreme Court.

30. Mr. Khandekar has submitted that since from 2018 onwards the financial condition of the Company further deteriorated and the Company was unable to fund and or execute the work sub-contracted to it, as can be seen from the correspondence that due to inability of the Company to perform its part of the Jigaon project work, the Jigaon project work was delayed and the concerned government department officials started insisting that the Executive Engineer of the project impose fines upon the Joint Venture for the delay and also threatened to terminate the contract, when in 2019, the Jigaon project work was completed upto the 13th RA Bill, and since the financial condition of the company deteriorated and it was unable to carry out work subcontracted to it, it was therefore, mutually decided by the Joint Venture partners, due to the financial incapacity of the company the Joint avk/Nikita Gadgil-RA-LA 11/66 Venture being unable to carry out the project work on time and the Joint Venture and its partners suffering due to the fines imposed by the government department upon the Joint Venture, to subcontract the remaining project work to the Applicant as this arrangement would save the Joint Venture from imposition of government fines and at the same time the project work would get completed and as such, the same was in the interest of the Joint Ventures and its partners including the Company. Mr. Khandekar has submitted that on 5th April, 2019, the Company passed a Board Resolution acknowledging its paucity of funds due to which the Company gave its consent for pre-closure and/or hand over of its part of the Jigaon project work completely to the Applicant. The Board Resolution also recorded that the Company was in the process of entering into a supplementary Joint Venture deed with the Applicant and Respondent No. 3 along with a sub-contract agreement to assign the work under the Jigaon project to the Applicant and on 8th April, 2019, the Company addressed a letter to the Joint Venture expressing its inability to complete the project work that was pending and also stated that a sub-contract had been finalised wherein it was decided that the balance work would be executed entirely by the Applicant and the Company also cancelled the sub-contract by which work had been previously sub-contracted to it. Mr. Khandekar has avk/Nikita Gadgil-RA-LA 12/66 submitted that on 8th April, 2019, the Company owed approximately 13-14 crores to various parties qua the sub-contract, which liability was taken over by the Applicant. Mr. Khandekar has submitted that in view of the understanding between the partners of the Joint Venture that the Applicant should not only agree to take over the Jigaon project work but should also accept all kinds of liabilities under the work and should readily invest the monies required to carry out the Jigaon project work, entirely itself. That therefore, sub-contracting of the Jigaon project work to the Applicant meant that the Applicant shall have to invest its financial resources, take over the liabilities and complete the Jigaon project work entirely on its own, which in fact the Applicant has taken over along with the liabilities of the Company. Mr. Khandekar has submitted that in order to facilitate the shift of the work to the Applicant, the 2019 Agreements were entered into on 8th April, 2019, itself.

31. Mr. Khandekar has submitted that although it has been argued on behalf of the Respondent No. 4 former director of the Company that this irrevocable Power of Attorney had been cancelled vide newspaper notice dated 28th March, 2020, on 18th April, 2020, the Applicant through its directors have responded by publishing its reply asserting avk/Nikita Gadgil-RA-LA 13/66 that the contents of the ex-directors notice were false, misleading and illegal, submitting that it is settled law that an Irrevocable Power of Attorney which has created an interest in favour of the Applicant could not have been unilaterally revoked. Mr. Khandekar has submitted that even otherwise at the time of the purported revocation by the Company and / or its directors, the Company was in liquidation and as such had no power and or authority to revoke the Irrevocable Power of Attorney.

32. Mr. Khandekar has submitted that the Joint Venture, the Applicant, the Company and the Respondent No. 3 also entered into a sub-contract wherein the balance work remaining for the Jigaon project after completion of the work of 13th RA Bill was sub-contracted in its entirety to the Applicant as the Company did not have funds to fulfill the work and had expressed its unwillingness to execute its remaining share of works sub-contracted to the company via sub-contract dated 12th August, 2009 inter-alia to enable the Jigoan project to be completed within the stipulated time and that with respect to the balance remaining work are as under as per this sub-contract all liabilities as also risk of the completion of the work were transferred to the Applicant. avk/Nikita Gadgil-RA-LA 14/66

33. Mr. Khandekar has further submitted that payment pursuant to the sub-contracted work i.e. all work after the 13th RA Bill was to be made to the Applicant and the Joint Venture was entitled to retain only a margin of 0.50% on the gross bill and the entire balance payment i.e. 99.5% was to be made to the Applicant and that as such the Company’s share, if any, is only 53% of this 5.50% to which the Joint Venture was entitled. Mr. Khandekar has submitted that payments under the Jigaon sub-contract Agreement were in no manner whatsoever dependent upon the share of each of the partners in the Joint Venture and were solely based upon the terms of the Jigoan sub-contract Agreement.

34. Drawing this Court’s attention to Clause 3(II) of the Sub-Contract Agreement dated 08th April 2019, Mr. Khandekar has submitted that the Joint Venture did not have any right, title and interest in the amount payable to the Applicant and the same shall never form part of the property of the Joint Venture.

35. Mr. Khandekar has further submitted that pursuant to Clause 3

(IV) of the Sub-Contract Agreement dated 08th April 2019, payment in respect of the work sub-contracted were to be made in the escrow bank account to be opened with Respondent No. 1 and this account was to be operated exclusively by Dellip Kotecha i.e. the Applicant’s director. avk/Nikita Gadgil-RA-LA 15/66 That under Clauses 3(III), 5, 69(a) and 19 of the Sub-Contract Agreement dated 08th April 2019, all liabilities in respect of the subcontracted work were transferred to the Applicant. That by Clause 14, the Joint Venture as also the Company did not have the right to revoke / cancel the subcontract. Mr. Khandekar has submitted that on 10th April, 2019, the Applicant, the Joint Venture and the Respondent No. 1 Bank entered into an Escrow Agreement and opened an escrow account, by which Escrow Agreement it was specified that the escrow account shall be operated solely by the signature of the director of the Applicant and all amounts received in the said account shall be directly transferred to the cash credit account held in the name of the Applicant. Mr. Khandekar has drawn this Court’s attention to Recital E, Article 3.1, Article 6.[1] in this regard.

36. Mr. Khandekar has submitted that on 2nd May, 2019, the government department for the project had given a site mobilisation advance to the Joint Venture, contingent on a bank guarantee of Rs. 17,42,71,000/- provided by the Respondent No. 3 and that if the Applicant had not executed the works, the bank guarantee would have been invoked and that therefore, the agreements are in the benefit of the Company. Mr. Khandekar has submitted that on 7th August, 2019, avk/Nikita Gadgil-RA-LA 16/66 during the pendency of the Jigaon project work, this Court ordered the liquidation of the Company.

37. Mr. Khandekar has submitted that the Applicant not only took over and discharged the work but also liabilities of approximately Rs.

38. Mr. Khandekar has submitted that it is on account of the Applicant taking over the project work that on 3rd February, 2020, the Government department of the project noted that remarkable progress had been made and as a result of the same waived off the entire fine imposed earlier on the Joint Venture and further extended the deadline to complete the remaining part of the project work.

39. Mr. Khandekar has submitted that the 11th March, 2022 order, has been passed after considering all facts and circumstances under which the 2019 Agreements were entered into inter-alia held that the sub-contracting of work was done for overall benefit of the Joint Venture and the Company and that the Special Leave Petition by the Company assailing the said order of the Division Bench by a asserting that the Court had exceeded its jurisdiction and granted specific performance of 2019 Agreements by upholding these as enforceable avk/Nikita Gadgil-RA-LA 17/66 and also alleging that the High Court had erroneously noted that the sub-contracting of work will be for the overall benefit of the Joint Venture, was dismissed on 1st April 2022, the Special Leave Petition holding, “..... on going through and considering the impugned order passed by the High Court we see no reason to interfere with the same. The SLP stands dismissed”. Mr. Khandekar has submitted it is therefore, clear that even though the Appellate Court had in paragraph 41 held that prima facie if not ex-facie the transactions of subcontracting the balance work do appear for the overall benefit of the Joint Venture and the Applicant, the Hon’ble Supreme Court confirmed the same.

40. Mr. Khandekar has relied upon the findings and analysis in the paragraphs 39 to 41 and 46 of the decision of the Appeal Court in the case of Siddharth Infra Tech Pvt. Ltd. vs. The Jalgaon Peoples Co-op. Bank Ltd. and others in the matter between BNC Power Project Ltd. vs. M/s. Siddharth Infra Tech Pvt. Ltd.1, in support.

41. Mr. Khandekar has submitted that therefore the Respondent NO. 4 cannot at this stage canvass that the transaction is neither in the interest of the Company nor for the benefit of the Company or in any manner object to the Application or the Official Liquidator seek to stake

1 Order dated 11th March 2022 passed in Interim Application (L) No.24923 of 2021 in Appeal (L) No. 23597 of 2021 in Company Petition No. 708 of 2016. avk/Nikita Gadgil-RA-LA 18/66 a claim to the monies arising out of the contract. Mr. Khandekar has further submitted that what decides this issue conclusively against the Company is its own written submission filed in the proceedings before the Division Bench, which passed the 11th March, 2022 order, wherein in the context of the 2019 Agreements, the Company itself has asserted in paragraph 13(c)(iv) of its written submission as under:- “Its is submitted that when the transactions above were entered into there was no restraint on entering into the same. The Applicant believed the Petition would be dismissed and even otherwise did not have any fraudulent intention.”

42. It has also been submitted on behalf of the Applicant that the Company has not placed on record any document establishing that the Applicant was informed of the filing or the order of admission of the company petition at the time of entering into the 2019 Agreements.

43. Mr. Khandekar has submitted that therefore this Court may allow the Interim Application in terms of prayer clause (a) and dismiss the Official Liquidator’s Report.

44. Mr. Cama, on the other hand, canvassing that the transaction entered into in 2019 are neither in the interest of the Company nor for the benefit of the Company has submitted that while the Company in liquidation was party to those Agreements, the Respondent No.4 and avk/Nikita Gadgil-RA-LA 19/66 98% shareholder of the Company in liquidation, bears the greatest financial and legal exposure to Government action in the project, yet has no control over its execution, quality timelines, or delivery and his submissions therefore merit due consideration.

45. Mr. Cama has submitted that the Applicant in an Application under Section 536 of the Companies Act, 1956 has to plead and prove that not only is the transaction bona fide but specifically that it is in the interest of the Company and not simply in its own interest and only then would this Court consider whether to validate the transaction.

46. Mr. Cama has submitted that the Agreements in question have all been entered into much after the filing of the Company petition on 07th September 2016 and also much after the admission order dated 18th September, 2018. Mr. Cama has submitted that the upshot of the 2019 Agreements is that at point in time after the Company Petition was admitted on 18th September, 2018, the Company has divested itself of its 53% share in the joint venture as also its entitlement to carry out 53% of the work by way of a subcontract as referred to above, and in place of the above, the Company in Liquidation has now an entitlement to a measly 53% of 0.5% of the gross billing. avk/Nikita Gadgil-RA-LA 20/66

47. Mr. Cama has submitted that by virtue of the transactions of 2019, the joint venture in which the Company in Liquidation remains a 53% shareholder, remains liable to VIDC for all obligations arising under the Joint Venture Agreement and the work allotted to the joint venture, while retaining virtually none of the profit/income from the work done and the Company’s 53% JV entitlement equals Rs.41,91,95,413/- along with interest of Rs.11,09,71,162/-. Mr. Cama has submitted that realisation of these amounts substantially exceeding the liquidation liability would enable the Company’s revival, restore its credentials and permit its expertise in infrastructure development to be utilised once again.

48. Mr. Cama has submitted that the there is no pleading or proof by the Applicant to show that the transaction was in the best interest of the Company and that it is not even the Applicant’s case that the Company in Liquidation has benefited in any manner whatsoever from the said transaction and has submitted that the only benefit if at all would be to the Applicant itself and it is impermissible for a party seeking validation of a transaction to justify it on the anvil of its own self-serving interest, which are evidently not aligned to the interest of the Company in liquidation. avk/Nikita Gadgil-RA-LA 21/66

49. Mr. Cama has relied upon the following decisions in support of his submissions:

(i) Sarigam Containers Pvt Ltd. vs. Magatul Industries Limited[2]

(ii) GOL Offshore Ltd., In re[3]

(iii) Laxman Yeswant Prabhudesai vs. NRC Ltd[4]

(iv) Sunita Vasudeo Warke vs. Official Liquidator[5]

(v) BIFR vs. Hindustan Transmission Products Ltd[6]

50. Mr. Cama has submitted that even apart from the above test of bona fide interest of the Company in Liquidation having not been met, a bare perusal of the subject Agreements of 2019 would show that the same are unenforceable, illegal, invalid and ought not to be enforced by receiving the imprimatur of the Court by virtue of this validation application.

51. Mr. Cama has submitted that the agreements in question which seek to deal with rights having a monetary value, to the extent of the Company’s Rs.78,33,71,090/- share in the work would require to be stamped under Article 5(h) (A) (iv) of Schedule I of the Maharashtra Stamp Act, 1958 (the “Maharashtra Stamp Act”). Learned Counsel has submitted that in the present case the documents are stamped on a stamp paper of Rs.500 whereas the stamp duty payable at 0.2% of the

6 (2013) 176 Comp Cas 53 avk/Nikita Gadgil-RA-LA 22/66 value of the transaction to the extent that the Company in Liquidation has divested itself of 50% of the subcontracting rights, would be calculated on Rs.78,33,71,090/- under the Article 5(h) (A) (iv) of the Maharashtra Stamp Act, 1958 would be Rs.15,66,743 and as the agreements are insufficiently stamped the same cannot possibly be acted upon in any manner whatsoever as evident from Sections 33 and 35 of the Indian Stamp Act, 1899 (the “Stamp Act”) and has relied upon decision in the case of Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 In re[7]

52. Mr. Cama has submitted that as per the tender conditions and in particular Condition No.105, the joint venture was entitled to subcontract only with the permission of the Irrigation Department. Clause 105 of the tender is reproduced as under for reference: “105. Subletting of work shall be done only with prior approval/permission of the Engineer-in-charge, such permission shall not absolve the contractor from contractual obligation.”

53. Mr. Cama, has submitted that unlike for the 2009 sub contracts, no approval of VIDC has been taken in the present case. In the past VIDC has on 4 to 5 occasions rejected permission for the very same avk/Nikita Gadgil-RA-LA 23/66 subject transaction of 2019 and has relied upon letters dated 09th May 2019, 29th September 2020, 12th July 2021, 14th July 2021 and 2nd February, 2022. Mr. Cama has submitted that no such permission of VIDC has been taken as mandated by the tender condition, as had been done at the time of the 2009 subcontract to the Company in Liquidation and Mahavir respectively as evident from unnumbered recital clause 2 of 5th August 2009 Agreement and unnumbered recital clause 2 of 12th August 2009 Agreement.

54. Mr. Cama has further submitted that the agreement in question is void under Section 25 of the Indian Contract Act, 1872 for want of consideration since no consideration has passed under the Agreements and a significant asset of the Company in liquidation has been transferred/relinquished.

55. With respect to the 11th March 2022 order of the Division bench, Mr. Cama has submitted that the findings of the Division Bench in it were prima facie views as expressly stated in paragraph 49 of the Order and that there is no conclusive view that the transaction in question was for the benefit of the Company and the Division Bench has categorically stated in paragraphs 39 and 43 that the question was not being considered from the standpoint of Section 536 of the Companies avk/Nikita Gadgil-RA-LA 24/66 Act as at that time the Company was not in liquidation and the test of considering the interests of the Company and whether the transaction ought to be validated did not even fall for consideration and was expressly not gone into by the Division Bench.

56. Mr. Cama has submitted that for the aforesaid reasons, the present Application be dismissed with costs.

57. Mr. Khan learned Counsel for the Official Liquidator has submitted that on 07th September 2016, Company Petition was filed by the Original Petitioner, BNC Power Project Ltd. Mr. Khan has submitted that on 08th April 2019, the Supplemental JV Agreement entered into between the JV Partners purporting to relinquish the right of the Company in Liquidation in favour of Applicant with regards to the execution of the balance work remaining after the 13th RA Bill and that under the supplemental JV Agreement, the Applicant was appointed as a sub-contractor by the JV and bills for the work done by Applicant were to be submitted to the JV for verification and approval, and if verified, the JV would keep a margin of 0.50% of gross bill and pay the balance to Mahavir into an Escrow Bank Account to be opened with Jalgaon Peoples Cooperative Bank to be operated exclusively by Mr. Dellip Vijaykumar Kotecha, Director of Applicant. avk/Nikita Gadgil-RA-LA 25/66

58. Mr. Khan has submitted that the Respondent No. 4 on 25th November 2019 sent a letter to the Official Liquidator’s office, inter alia stating that proprietary firm, Siddharth Construction, had entered into a Joint Venture Agreement dated 20th March 2009 with Applicant and SPML as per which the shares of the partnership were the Company in Liquidation had a 53% share, the Applicant has 37% share and SPML had a 10% share and the joint venture was created for carrying out the work tendered by VIDC due to be completed, after extension by 30th June 2020. That in 2009, Siddharth Construction was taken over by the Company in Liquidation and during the pendency of the winding up petition, the Company in Liquidation entered into another agreement on 08th April 2019 with the Joint Venture (JV) to allow Applicant to carry out the remaining work. The 16th RA Bill has been allocated by the JV for Rs.12,87,02,232/-. 53% share i.e. Rs.6,69,25,160.60/belonged to M/s. Siddharth Construction amounting to Rs.6,69,25,160.60/-. JV had opened a JV Escrow Account with Jalgaon Peoples Cooperative Bank Ltd for operation of their financial transactions.

59. Mr. Khan has submitted that thereafter correspondence ensued between the Official Liquidator and the Applicant and Jalgaon Bank avk/Nikita Gadgil-RA-LA 26/66 from January 2020 till February 2020, however, the same have been withdrawn by the Official Liquidator vide Consent Minutes of Order entered into between Applicant and the Official Liquidator on 06th March 2020, but the same was done without prejudice to the rights and contentions of the Official Liquidator including but not limited to the validity of the purported Agreement dated 8th April 2019.

60. Mr. Khan has submitted that in pursuance of the above the Official Liquidator’s Report 90 of 2020 was filed seeking inter-alia a declaration that the purported Supplemental JV Agreement is void, that all monies arising out of the Contract, to the extent of 53% be kept in the said Account till further Orders as the transaction falls foul of the provisions of the Companies Act, 1956 and attracts the provisions of Section 536(2) of the Companies Act 1956. Mr. Khan has relied on the following decisions in support:

(i) Board for Industrial & Fin. Reconstruction In re[8]

(ii) Garware Marine Industries Ltd. In re[9],

(iii) Nimesh K Thakkar v. Official Liquidator 10

61. In rejoinder Mr. Khandekar has submitted that the pleaded case that the transaction of assigning Jigaon project work by the Joint Venture to the Applicant is in the benefit of the company can be seen 8 (2017) 202 Comp Cas 551 9 (2015) 192 Comp Cas 204 10 (1991) 70 Comp Cas 257 avk/Nikita Gadgil-RA-LA 27/66 from paragraph 25 of the Interim Application as well as paragraphs 10,14,17,20,23 and 42 of the additional affidavit dated 12th January

2021. Therefore, it cannot be said that there is no pleaded case.

62. To the submissions by Mr. Cama, learned Counsel for the Ex- Director that the 2019 Agreements are invalid as the Government of Maharashtra Irrigation Department had rejected these agreements vide letters dated 9th May, 2019, 29th September, 2020, 12th July, 2021, 14th July, 2021 and 2nd February, 2022 and that no permission of VIDC has been taken as mandated by the tender condition as had been done at the time of the 2009 sub-contract to the Company in liquidation to the Applicant, Mr. Khandekar has firstly submitted that the said correspondence is of very little consequence as in fact by letters dated 24th March, 2020 and 26th May, 2020, the 2019 Agreements have been unequivocally accepted and acknowledged and also acted upon, as can be seen by the act of deposit of monies into the escrow account.

63. Mr. Khandekar has submitted that moreover, the said correspondence was admittedly brought on record before the Division Bench of this Court at the time of passing of the 11th March, 2022 order and that after considering the same the Division Bench in paragraph 35 of its order has observed that the reliance of correspondence with the avk/Nikita Gadgil-RA-LA 28/66 government department is of very little consequence as the government department does not have any authority or locus to disapprove the 2019 Agreements which are internal arrangements entered into by the Joint Venture with its constituents and further that vide letter dated 26th May, 2020, the government department has in fact taken on record the 2019 Agreements and also acted in accordance with the same. That the Hon’ble Supreme Court, as submitted, has also upheld the 11th March, 2022 order and that the said letters are evidently of no consequence.

64. As regards the issue with respect to the approval of the VIDC to the 2019 Agreements is concerned, Mr. Khandekar has submitted that the said tender condition was also brought to the notice of the Division Bench of this Court while passing the 11th March, 2022 order and the Division Bench has after considering the facts observed that the same was done for the overall benefit of the Joint Venture and the Company. Mr. Khandekar has submitted that the said tender condition was also expressly brought on record and agitated before the Hon’ble Supreme Court and the Hon’ble Supreme Court refused to interfere with the 11th March, 2022 order. avk/Nikita Gadgil-RA-LA 29/66

65. Mr. Khandekar has further submitted that even otherwise the Respondent No. 4 has himself also acted on the basis of the 2019 Agreements and not expended any monies and / or efforts in the execution of the work done after the 13th RA bill and is in any event not entitled to payment in the escrow account.

66. That neither the Respondent No. 4 nor the government department have filed any proceedings substantially challenging the 2019 Agreements but have in fact acted in furtherance thereof. Mr. Khandekar has submitted that, therefore, the objection raised by Mr. Cama with respect to the correspondence and the approval of the VIDC are completely misplaced and be ignored by this Court.

67. The Applicant in the Interim Application as noted above is seeking validation of transactions entered into in the year 2019 under Section 536(2) of the Companies Act, 1956. For the sake of convenience, Section 536 is quoted as under:- “536. Avoidance of transfers, etc., after commencement of winding up.-- (1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the Liquidator, and any alteration in the status of the members of the company, made after the commencement of the winding up, shall be void. (2) In the case of a winding up by or subject to the supervision of the court, any disposition of the property avk/Nikita Gadgil-RA-LA 30/66 (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.”

68. Contextually also, Section 441(2) of the Companies Act, 1956, is relevant and is also quoted as under: “441. Commencement of winding up by court. -- Where, before the presentation of a petition for the winding up of a company by the court, a resolution has been passed by the company for voluntary winding up, the winding of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the court on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (1) …... (2) In any other case, the winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up.”

69. Under Part VII of the Companies Act, 1956, there are three modes of winding up. First is, winding up by the Court, next is voluntary winding up and the third is winding up by subjecting to the supervision of the Court.

70. As can be seen in the present case we are concerned with the winding up by the Court and which is where Section 536(2) of the Companies Act, 1956 becomes relevant. avk/Nikita Gadgil-RA-LA 31/66

71. Under Section 449 of the Companies Act, 1956, on a winding-up order being made in respect of a company, the Official Liquidator shall, by virtue of his office, become the liquidator of the Company.

72. In this backdrop, we can consider the impact of the legislative direction in Section 536(2) of the Companies Act, 1956 that any disposition of the property of a Company made after the commencement of the winding up i.e. after the presentation of a petition for winding up, shall be void unless the Court otherwise orders. The word “void” as employed in the context of Section 536(2) indicates that the word “void” is not employed peremptorily since the court has power to order otherwise; the words “unless the court otherwise orders” are capable of diluting the rigour of the word “void” and to choose the alternative meaning attached to that word, which means that the payments or transactions made after the commencement of the winding-up proceedings, would not become void ab-initio and that such transactions can be validated.

73. The Hon’ble Supreme Court in the case of Pankaj Mehra and another vs. State of Maharashtra and others11, has observed that it is difficult to lay down that all dispositions of property made by a avk/Nikita Gadgil-RA-LA 32/66 company during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be null and void. The Hon’ble Supreme Court has gone on to say that if such a view is taken the business of the company would be paralysed, for the company may have to deal with very many day-today transactions, make payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stagemanaging a petition to be presented for winding up in order to defeat such bona fide customers. It is therefore clear that the Court has discretion to validate dispositions of the property made by the company during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up.

74. The Hon’ble Gujarat High Court in the case of Navjivan Mills Ltd., In re12, has in paragraph 19 observed that it is a well settled principle that if the Company Court is satisfied that a particular disposition of the property of a Company which is the subject matter of a winding up petition, is necessary or expedient in the interest of the avk/Nikita Gadgil-RA-LA 33/66 company and particularly its creditors and shareholders and the transactions are in the ordinary course of its current trade bona fide entered into and completed, and it is in the interest of every one to preserve the company as a going concern, and if such transactions are not maintained, the presentation of the petition groundless or wellfounded would result ipso facto into paralyzing the trade of the company and a great injury without any counter-balance of advantage would be done to those interested in the assets of the company, it would be in the discretion and duty of the court to validate such transactions.

75. This Court in the case of Helbon Engineers Pvt. Ltd. vs. Ferral Anant Machinery Manufacturers Pvt. Ltd.13, has relying upon the decision of the Hon’ble Supreme Court in the case of Pankaj Mehra and another vs. State of Maharashtra and others (supra), observed in paragraphs 40, 41 and 42 as under: “40. No doubt, pursuant to Section 441 of the Companies Act, winding up of a company by Court shall be deemed to have commenced at the time of presentation of the petition which in the present case would be 25th August 2003. It is also provided under Section 536(2) of the Companies Act that in the case of a winding up by a Court, any disposition of the property of the company made after the commencement of the 13 2024:BHC-OS:8509 avk/Nikita Gadgil-RA-LA 34/66 winding up shall, unless the Court otherwise orders, be void. This Court in the case of S.P. Khanna v. S.N. Ghosh (supra) has clearly observed that if bonafides are established, then Section 536(2) would not apply, as the said provision is clearly an enabling provision in favour of saving transactions in the interest of justice. That, all transactions which are bonafide and shown to be fair, just and reasonable, deserve to be protected because of clear equity involved in such matters. Section 536(2) declares the transactions after commencement of the winding up void but leaves discretion to the Court to make appropriate orders in that regard. That, the jurisdiction vested is equitable and is meant to be exercised as such. If even bonafide transaction for a consideration would not be protected, then the company, only by the fact that the process of winding up has started, would benefit itself by unjust enrichment. Such a result is clearly to be avoided while exercising power under the said provision.

41. In the case of Pankaj Mehra and Another vs. State of Maharashtra and Others (supra), the Hon’ble Supreme Court has considered the impact of the legislative direction in Section 536(2) that any disposition of the property of the company made after the commencement of the winding up shall be void. The Hon’ble Supreme Court has observed that there are two important aspects: first is, that the word “void” need not automatically indicate that any disposition should be ab-initio void. That, the legal implication of the word “void” need not necessarily be a stage of nullity in all contingencies. The Hon’ble Supreme Court has observed that the manner in which the word “void” has been employed in Section 536(2), the same means voidable. Paragraphs 14, 15, 19 and 20 of the said decision are usefully quoted as under: “14. In the above backdrop alone we an consider the impact of the legislative direction in Section 536(2) that any disposition of the property of the company made after the avk/Nikita Gadgil-RA-LA 35/66 commencement of the winding up (i.e. after the presentation of a petition for winding up) shall be void. There are two important aspects here. First is, that the word “void” need not automatically indicate that any disposition should be ab initio void. The legal implication of the word “void” need not necessarily be a stage of nullity in all contingencies. Black’s Law Dictionary gives the meaning of the word “void” as having different nuances in different connotations. One of them is of course “null, or having no legal force or binding effect”. And the other is “unable in law, to support the purpose for which it was intended”. After referring to the nuances between void and voidable the lexicographer pointed out the following: “The word ‘void’ in its strictest, means that which has no force and effect, is without legal efficacy, is incapable of being enforced by law, or has no legal or binding force, but frequently the word is used and construed as having the more liberal meaning of ‘voidable’. The word ‘void’ is used in statutes in the sense of utterly void so as to be incapable of ratification, and also in the sense of voidable and resort must be had to the rules of construction in many cases to determine in which sense the legislature intended to use it. An act or contract neither wrong in itself nor against public policy, which has been declared void by statute for the protection or benefit of a certain party, or class of parties, is voidable only.

15. For discerning the legislative idea in employing the word “void” in the context set out in Section 536(2) of the Companies Act the second aspect to be noticed is that the provision itself shows that the word void is not employed peremptorily since the court has power to order otherwise. The words “unless the court otherwise orders” are capable of diluting the rigour of the word “void” and to choose the alternative meaning attached to that word. avk/Nikita Gadgil-RA-LA 36/66

19. In Gray’s Inn Construction Co. Ltd., Re reported in (1980) 1 All ER 814(CA), the Court of Appeal (Civil Division) considered the principle on which discretion of the court to validate the dispositions of property made by a company, during the interregnum between presentation of a winding up petition and the passing of the order for winding up, has been dealt with, Section 227 of the English Companies Act, 1948 is almost the same as Section 536(2) of the Indian Companies Act. Dispositions which could be validated are mentioned in the decision. The said decision was cited before us in order to emphasise the point that courts would be very circumspect in the matter of validating the payments and the interest of the creditors as well as the company would be kept uppermost in consideration. Be that so, the said decision is not sufficient to support the contention that disposition during the interregnum would be irretrievable void.

20. It is difficult to lay down that all dispositions of property made by a company during the interregnum between the presentation of a petition for winding up and the passing of order for winding up would be null and void. If such a view is taken the business of the company would be paralysed. For the company may have to deal with very many day-to-day transactions, make payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stage-managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment.”

42. It is clear from the aforesaid exposition that the discretion to the Court by the use of the words “unless the Court otherwise orders” has to be kept in mind. That, if all avk/Nikita Gadgil-RA-LA 37/66 dispositions of property made by a company in liquidation during the interregnum between the presentation of the petition for winding up and the passing of the order for winding up, would be null and void, that would completely paralyse the business of company as the company has to deal with very many day-to-day transactions. Such interpretation, as observed by the Hon’ble Supreme Court, could lead to a catastrophic situation which should be averted.”

76. It is, therefore, clear from the aforesaid elucidation that the Company Court in view of the terms “unless the court otherwise orders”, has discretion to validate/ratify the transactions/dispositions of the company’s property that would have occurred during the interregnum between the presentation of the petition for winding up and the passing of the order for winding up, provided the dispositions/transactions are bona fide and shown to be fair, just and reasonable. In this case, Section 536(2) of the Companies Act, 1956 would not apply as the enabling provision is in favour of saving transactions in the interest of justice.

77. Having set out the law as above, this Court now proceeds to consider the case at hand.

78. When in the year 2016, the Company started facing financial crisis and was unable to carry out its sub-contracts obligations, and as avk/Nikita Gadgil-RA-LA 38/66 the Jigaon project started getting delayed and the government department threatened to impose heavy fines upon the Joint Venture, on the 3rd June, 2016, an agreement was entered into between the Joint Venture, the Applicant and the Company in order to avoid penalties and to carry out the Jigaon project smoothly, whereby it was decided by the parties to the Joint Venture to sub-contract, the share of work of the Company to the extent of work amounting to Rs. 17,75,8000/- to the Applicant. It is not in dispute that the work was carried out by the Applicant and consequently in line with the terms of the agreement, payments in respect of the said work were transferred by the Joint Venture to the Applicant and the Company not having executed this work raised no objection to the Applicant receiving this payment as the company was in fact a partner in the Joint Venture. Thereafter the Company Petition No. 708 of 2016 for winding up was filed against the Company on 7th September, 2016. Again from 2018 onwards, the financial condition of the Company further deteriorated and as can be seen from the correspondence referred to above that due to inability of the Company to perform its part of the Jigaon project, the Jigaon project was delayed and the concerned government department officials started insisting that the Executive Engineer of the project impose fines upon the Joint Venture for the delay and also avk/Nikita Gadgil-RA-LA 39/66 threatened to terminate the contract and the Company was unable to fund and or execute the work sub-contracted to it. On 18th September, 2018, the Company Petition was admitted. Therefore, in 2019, when the Jigaon project work was completed upto the 13th RA Bill but since the financial condition of the Company deteriorated and it was unable to carry out work sub-contracted to it, it was therefore, mutually decided by the Joint Venture partners, due to the financial incapacity of the Company, the Joint Venture being unable to carry out the project work on time and the Joint Venture and its partners suffering due to the fines imposed by the government department upon the Joint Venture, to subcontract the remaining project work to the Applicant. As this arrangement would save the Joint Venture from imposition of government fines and at the same time the project work would get completed and as such, the same being not only in the interest of the Joint Ventures and its partners but also the Company as can be evidenced from (i) the Board Resolution dated 5th April, 2019, passed by the Company acknowledging its paucity of funds due to which the Company gave its consent for pre-closure and/or hand over of its part of the Jigaon project work completely to the Applicant. The Board Resolution also recorded that the Company was in the process of entering into a Supplementary Joint Venture Deed with the Applicant avk/Nikita Gadgil-RA-LA 40/66 and Respondent No. 3 along with a sub-contract agreement to assign the work under the Jigaon project to the Applicant, (ii) Letter dated 8th April, 2019, of the Company to the Joint Venture expressing its inability to complete the project work that was pending and also stating that a sub-contract had been finalised wherein it was decided that the balance work would be executed entirely by the Applicant and the Company also cancelled the sub-contract by which work had been previously subcontracted to it. It is in this context that in order to facilitate the shift of the work to the Applicant, on 8th April, 2019, itself the 2019 Agreements were entered into:a) The parties to the Joint Venture viz. The Applicant, the Company and the Respondent No. 3 entered into a supplementary Joint Venture Deed amending certain terms and conditions of the Joint Venture Agreement to enable the Applicant to carry out the works in entirety. The following clauses were added:i) Clause 4(b)(c): Mr. Dellip Kotecha, a director of the Applicant was designated as the sole signing authority of the Joint Venture and was given exclusive power to control and manage the affairs of the Joint Venture, the Joint Venture was to execute a Power of Attorney in this regard. ii) Clause 4(d)- A current account and escrow account was to be opened in the name of the Joint Venture, these accounts were to be operated solely by Dellip Kotecha i.e. a director of the Applicant, the Joint Venture was to execute a power of attorney in avk/Nikita Gadgil-RA-LA 41/66 this regard. iii) Clause4(g)- No party to the Joint Venture had the right to assign any benefits, obligations or liabilities to any third parties without the written consent of Dellip Kotecha i.e. a director of the Applicant. b) The Applicant, the Company and the Respondent No. 3 executed an Irrevocable Power of Attorney in favour of a director of the Applicant to be the true and lawful attorney of the Joint Venture, such that the works could be carried out smoothly. The following clauses were added:i) Clause (i) – The Applicant’s director was given the power to open bank accounts in the name of the Joint Venture and to deposit and withdraw money from the same as also operate the same. The Power of Attorney which was previously given jointly to a director of the Company along with a director of the Applicant was revoked and now solely the Applicant’s director was given the necessary authority. ii) Clause (k)- The Applicant’s director was given the power to submit bills to the necessary department for the work done and to accept/receive payments in respect of the same in the accounts of the Joint Venture. iii) Page 68-The Irrevocable Power of Attorney could not be revoked or cancelled till the time the final bill was prepared and paid and all security deposit and retention money was received by the Joint Venture and paid to the Applicant. All previous power of attorneys were cancelled with immediate effect.

79. Although it has been argued on behalf of the Respondent No. 4 viz. the former director of the Company that this Irrevocable Power of Attorney had been cancelled vide newspaper notice dated 28th March, 2020, on 18th April, 2020, the Applicant through its directors have avk/Nikita Gadgil-RA-LA 42/66 responded by publishing its reply asserting that the contents of the exdirectors notice were false, misleading and illegal.

80. It is settled law that an Irrevocable Power of Attorney which has created an interest in favour of the Applicant could not have been unilaterally revoked. Even otherwise at the time of the purported revocation by the Company and / or its directors, the Company was in liquidation and as such had no power and or authority to revoke the Irrevocable Power of Attorney.

81. The Joint Venture, the Applicant, the Company and the Respondent No. 3 also entered into a sub-contract wherein the balance work remaining for the Jigaon project after completion of the work under the 13th RA Bill was sub-contracted in its entirety to the Applicant as the Company did not have funds to fulfill the work and had expressed its unwillingness to execute its remaining share of works sub-contracted to the Company via sub-contract dated 12th August,

2009. The sub-contract was executed inter-alia to enable the Jigoan project to be completed within the stipulated time. The important clauses in the said sub-contract with respect to the balance remaining work are as under:avk/Nikita Gadgil-RA-LA 43/66 i) Page 75- As per this sub-contract all liabilities as also risk of the completion of the work were transferred to the Applicant. ii) Clause 3(I) – Payment pursuant to the sub-contracted work i.e. all work after the 13th

R. A. Bill was to be made to the

Applicant. The Joint Venture was entitled to retain only a margin of 0.50% on the gross bill and the entire balance payment i.e. 99.5% was to be made to the Applicant. As such the Company’s share, if any, is only 53% of this 5.50% to which the Joint Venture was entitled. Payments under the Jigaon subcontract Agreement were in no manner whatsoever dependent upon the share of each of the partners in the Joint Venture and were solely based upon the terms of the Jigoan sub-contract Agreement. iii) Clause 3(II) – The Joint Venture did not have any right, title and interest in the amount payable to the Applicant and the same shall never form part of the property of the Joint Venture. iv) Clause 3 (IV) – Payment in respect of the work subcontracted were to be made in the escrow bank account to be opened with Respondent No. 1 and this account was to be operated exclusively by Dellip Kotecha i.e. the Applicant’s director. v) Clause 3(III), 5, 69(a) and 19- All liabilities in respect of the subcontracted work were transferred to the Applicant. vi) Clause 14: The Joint Venture as also the Company did not have the right to revoke / cancel the subcontract.

82. On 10th April, 2019, the Applicant, the Joint Venture and the Respondent No. 1 Bank entered into an Escrow Agreement and opened an escrow account. The Escrow Agreement specified that the escrow account shall be operated solely by the signature of the director of the Applicant and all amounts received in the said avk/Nikita Gadgil-RA-LA 44/66 account shall be directly transferred to the cash credit account held in the name of the Applicant. The Recital E, Article 3.1, Article 6.[1] are pertinent in this regard and are usefully quoted as under:- “Recital E-As per this escrow agreement the bank is hereby given standing instruction to transfer the funds received in the escrow account immediate as under as automation process: The payment in respect of all R. A. Bills received from Executive engineer, Jigaon Lift Irrigation Division, Akola, Byepass Road, Khamgaon, Dist-Buldhana pertaining to ‘Balance Work’ as described above and also the payment in respect of all

R. A. Bills received from Executive Engineer, Construction Lift

Irrigation Division, Mahabal, Jalgaon pertaining to balance work of Kurha-Vadoda Lift Irrigation Scheme as described above, shall be fully credited to the designated Escrow account and full amount shall be directly transferred to the cash credit account number 00154700000119 with The Jalgaon Peoples Co.Op. Bank Ltd, 152, Polan Peth, Dana Bazar, Main Branch, Jalgaon-425001, Maharashtra,IFSC Code: JPCB0000001 of Mahavir Civil Engineering And Services Pvt. Ltd. Article 3.[1] - The Account Holder and MAHAVIR jointly hereby irrevocably and unconditionally authorise the Account Bank to receive the amounts into the escrow account and on the same day once the amount gets credited during banking hours in the escrow account to transfer it as per the written instructions given by the “Account Holder” and “MAHAVIR” in para (F) above. Article 6.[1] -The Account Holder’s Account and MAHAVIR’s account shall not be discontinued / closed without the prior written consent from the MAHAVIR.”

83. As can be seen from the above, after the 2019 Agreements have been entered into after due deliberations and appropriate resolution and communication of the Company, the Ex-director cannot do a volte avk/Nikita Gadgil-RA-LA 45/66 face. That the aforesaid clauses having been introduced therein, completely assigning the work of the Company to the Applicant in the Jigaon project and an individual director cannot jeopardise the transaction in this fashion and hold the interest of the Company as well as public interest to the ransom.

84. Even what Mr. Khandekar has submitted with respect to the Company’s written submission filed in the proceedings before the Division Bench, which passed the 11th March, 2022 order, wherein in the context of the 2019 Agreements, the Company has asserted in paragraph 13(c)(iv) that the transactions were entered into as there was no restraint on entering into the same, supports the case of the Applicant and demolishes the case of the Ex-Director opposing the same on untenable grounds.

85. It has been submitted on behalf of the Applicant but not controverted by any material cogent or otherwise before this Court, that on 8th April, 2019, the Company owed approximately 13-14 crores to various parties qua the sub-contract, which liability was taken over by the Applicant in view of the understanding between the partners of the Joint Venture that the Applicant should not only agree to take over the Jigaon project work but should also accept all kinds of liabilities avk/Nikita Gadgil-RA-LA 46/66 under the Jigaon project work and should readily invest the monies required to carry out the Jigaon project work, entirely itself and that therefore, sub-contracting of the Jigaon project work to the Applicant meant that the Applicant shall have to invest its financial resources, take over the liabilities and complete the Jigaon project work entirely on its own, which in fact the Applicant has taken over along with the liabilities of the Company.

86. It is pertinent to note that on 2nd May, 2019, the government department for the project had given a site mobilisation advance to the Joint Venture, contingent on a bank guarantee of Rs. 17,42,71,000/provided by the Respondent No. 3 and true that if the Applicant had not executed the works, the bank guarantee would have been invoked.

87. The aforesaid facts overwhelmingly suggest that the aforementioned transaction and the 2019 Agreements which have been acted upon were not only in the interest of the Joint Venture but also in the interest of the Company as well as in public interest. No other view is possible. The Applicant not only took over and discharged the work but also liabilities of approximately Rs. 14 Crores of the Company on taking over the project work. avk/Nikita Gadgil-RA-LA 47/66

88. And although on 7th August, 2019, during the pendency of the Jigaon project work, this Court ordered the liquidation of the Company, it cannot be denied that on account of the Applicant taking over the Jigaon project work, the government department of the project noted that remarkable progress had been made and as a result of the same waived off the entire fine imposed earlier on the Joint Venture and further extended the deadline to complete the remaining part of the Jigaon project work.

89. The 11th March, 2022 order of the Division Bench of this Court after considering all facts and circumstances under which the 2019 Agreements were entered into inter-alia has held that the subcontracting of work was done for the overall benefit of the Joint Venture and the Company. Paragraphs 39 to 41 and 46, of the decision in the case of Siddharth Infra Tech Pvt. Ltd. vs. The Jalgaon Peoples Coop. Bank Ltd. and others in the matter between BNC Power Project Ltd. vs. M/s. Siddharth Infra Tech Pvt. Ltd. (supra), are relevant and are usefully quoted as under: “39. We have given our anxious consideration to the aforesaid submissions. While we have extensively adverted to the submissions of all parties, for completeness, several of the elaborate contentions made before us may not be relevant. The Applicant is today, not in winding up. Hence, avk/Nikita Gadgil-RA-LA 48/66 we are at this stage, not required to examine the question of effect of the winding up Order on the 2019 Agreements. We are therefore not called upon to decide the arguments on the invalidity of the April 2019 Agreements based on Section 536 of the Companies Act, 1956. We are not required to examine the Applicant’s contention that the Applicant may, in the future, go into liquidation. Therefore, a large part of the arguments made before us is purely academic and can be ignored.

40. We now turn to the immediate and urgent question, which requires our attention, namely should there be any embargo or restraint against Respondent No.3 from operating the Bank Accounts referred to above, namely the Escrow Account and the Cash Credit Account. The record before us clearly indicates the following:the Joint Venture was awarded the Lift Irrigation Project by the State of Maharashtra; the original shareholding in the Joint Venture was 53% (Applicant); 37% (Respondent No.3) and 10% (SPML); the original arrangement was that the Joint Venture had split the work awarded to it, 50:50 between the Applicant and Respondent No.3; due to inability of the Applicant to perform its 50%, the parties executed the 2019 Agreements, in April 2019, whereunder Respondent No.3 took over the responsibility of the 50% part which the Applicant was to complete; the factum of execution of the 2019 Agreements is not disputed, under the 2019 Agreements, the only entitlement of the Joint Venture is to 0.50% of the gross bill. The Applicant has no direct entitlement anymore. It effectively, in a manner of speaking walked away; avk/Nikita Gadgil-RA-LA 49/66 since April 2019, it is Respondent No.3 which is executing the work on its own. It is spending its own money, including by borrowing and it is being paid out of the amounts, which the State Government is releasing. This is, in terms of the 2019 Agreements; the Joint Venture is already behind schedule in executing the work awarded to it (being executed by Respondent No.3, in fact) and has been given a last extension by the State Government till 30th June 2022; any continued restraint on the operation of either the Escrow Account and/or the Cash Credit Account, will seriously prejudice the completion of the Lift Irrigation Project and will be against public interest. It will also be extremely inequitable to entertain the request of the Applicant (or Mr. Sonawane) who sat by, while Respondent No.3 did all the work, to now seek payment not be made to Respondent No.3. Any interference against the Bank Account operation will cause serious prejudice; We are considering an Appeal against an order transferring the Company Petition to the NCLT. The scope of this Appeal is limited. It cannot extend to deciding inter party civil disputes on matters of contract. These are to be decided by the appropriate forum. Had the full facts, now before us, been brought to our notice, we would in the first instance, not passed the Order dated 3rd November 2021.

41. Prima facie if not ex facie the transactions of subcontracting the balance work do appear for overall benefit of Joint Venture and the Applicant. The contention regarding the Applicant and Respondent No.3’s directors being cousins does not by itself establish malafides on the part of Respondent No.3 warranting grant of reliefs sought. avk/Nikita Gadgil-RA-LA 50/66

46. What is extremely material is that Respondent No.3 has carried out all work from the 14th R.A. bill onwards. This is an undisputed fact. The Applicant and Mr. Sonawane cannot retain monies, generated out of executing the project when they have admittedly not performed any work. In other words, it cannot be that Respondent No.3 must continue to execute the work on its own and not be entitled to retain monies generated therefrom.”

90. The Hon’ble Supreme Court on 1st April 2022 has refused to interfere with the said order and dismissed the Special Leave Petition. wherein it was held, “..... on going through and considering the impugned order passed by the High Court we see no reason to interfere with the same. The SLP stands dismissed”. It is therefore, clear that even though the Appellate Court has in paragraph 41 held that prima facie if not ex-facie the transactions of subcontracting the balance work do appear for the overall benefit of the Joint Venture and the Applicant, the Hon’ble Supreme Court confirmed the same. In my view, it would make no difference, whether this finding was made when the Company was in winding up or not because the finding is on the transaction in question and bona fides of the transaction.

91. In fact on 5th September, 2022, the Division Bench in Interim Application (L) No. 25363 of 2022 has expressly upheld the order avk/Nikita Gadgil-RA-LA 51/66 dated 11th March, 2022 noting that there was no application to it to vary, modify or recall the same. Till date admittedly the Company or the Official Liquidator have not preferred any application seeking variation / modification or recall of the 11th March, 2022 order, the findings wherein have been upheld by the Hon’ble Supreme Court and confirmed from time to time.

92. It is reiterated that the 2019 Agreements are for the overall benefit of the company and the Joint Venture and the findings in the 11th March, 2022 order remain intact and unchallenged, a Division Bench of this Court already having rendered a finding that the 2019 Agreements are for the benefit of the company, which has been upheld by the Hon’ble Supreme Court.

93. Exercising the discretion invested in this Court to validate the transactions made by the Company during the interregnum between the date of presentation of the winding up petition on 7th September 2016 and the passing of the winding up order on 7th August 2019, I am of the view that the transaction of assigning Jigaon Project Work by the Joint Venture to the Applicant as evidenced and consummated by the 2019 Agreements, was necessary and expedient in the interest and overall benefit of the Company and the Joint Venture and were entered avk/Nikita Gadgil-RA-LA 52/66 into bona fide, fairly, justly and reasonably to complete the Jigaon Project which was in public interest as well and deserves to be preserved, protected and validated and not doing so would be met with disastrous consequences resulting in irretrievable injustice which cannot be permitted.

94. In view of the above, the arguments by Mr. Cama and Mr. Khan are without any merit and stand rejected.

95. Even the objection that there was no pleaded case that the transaction is bona fide and in the interest of the Company holds no water as the Applicant has specifically pleaded in paragraph 25 of the Interim Application as well as in paragraphs 10, 14, 17, 20, 23 and 42 of the additional affidavit dated 12th January, 2021 that the transaction of assigning the Jigaon project work by the Joint Venture to the Applicant is in the interest of the Company.

96. It has also been submitted on behalf of the Applicant that the Company has not placed on record any document establishing that the Applicant was informed of the order of admission of the Company petition at the time of entering into the 2019 Agreements, which has not been controverted by any cogent or other material. This would avk/Nikita Gadgil-RA-LA 53/66 make the case of the Applicant even more compelling although even if the Applicant knew of the filing and admission of the Company Petition, in my view it would not make any difference as the transaction consummated pursuant to the 2019 Agreements are clearly bona fide, at the request and in the interest and for the benefit of the Company.

97. Mr. Cama has submitted that the 2019 Agreements are insufficiently stamped and the same cannot be acted upon in any manner whatsoever in view of Sections 33 and 35 of the Stamp Act. Mr.Cama has relied upon Paragraphs 44, 65, 66 and 210 of the decision of the Hon’ble Supreme Court in the case of Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 In re (supra).

98. Section 33 of the Stamp Act, authorizes impounding of an instrument not duly stamped and is usefully quoted as under: “33. Examination and impounding of instruments.—(1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a public office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same. avk/Nikita Gadgil-RA-LA 54/66 (2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed: Provided that— (a) nothing herein contained shall be deemed to require any Magistrate or Judge of a Criminal Court to examine or impound, if he does not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898); (b) in the case of a Judge of a High Court, the duty of examining and impounding any instrument under this Section may be delegated to such officer as the Court appoints in this behalf. (3) For the purposes of this section, in cases of doubt,— (a) the State Government may determine what offices shall be deemed to be public offices; and (b) the State Government may determine who shall be deemed to be persons in charge of public offices.”

99. Section 35 the Stamp Act provides that instruments not duly stamped are inadmissible in evidence. Section 35 is also usefully quoted as under: “35. Instruments not duly stamped inadmissible in evidence, etc.— No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person avk/Nikita Gadgil-RA-LA 55/66 or by any public officer, unless such instrument is duly stamped: Provided that— (a) any such instrument [shall] be admitted in evidence on payment of the duty with which the same is chargeable or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion; (b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it;

(c) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;

(d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898); (e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of the Government or where it bears the certificate of the Collector as provided by Section 32 or any other provision of this Act.”

100. A look at both the provisions indicates that a person who has authority to receive evidence and is in-charge of a public office before whom any instrument chargeable, in his opinion, with duty, is produced avk/Nikita Gadgil-RA-LA 56/66 or comes in the performance of his function, shall, if it appears to him that if such instrument is not duly stamped, impound the same. Under Section 35 of the Stamp Act, no instrument chargeable with duty shall be admissible in evidence for any purpose by any person having authority to record evidence or shall be acted upon registered or authenticated by any such person unless the instrument is duly stamped.

101. Mr. Cama has submitted that the 2019 Agreements seek to deal with rights having a monetary value to the extent of the Company’s share in the work and would require to be stamped at a duty at the rate of 0.2% of the value of the transaction to the extent that the Company in liquidation has divested itself of 50% of the sub-contracting right under Article 5(h)(A)(iv) of the Maharashtra Stamp Act which would be Rs. 15,66,743/- and that since the 2019 Agreements are insufficiently stamped, the same cannot be acted upon in any manner whatsoever.

102. Mr. Cama, as noted above, has relied upon the decision in the case of Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 In re (supra) in avk/Nikita Gadgil-RA-LA 57/66 support of his contention. The said decision of the Hon’ble Supreme Court citing several earlier decisions of the Apex Court has very lucidly explained the difference between inadmissibility of an instrument and its voidness. In paragraph 49 of the said decision, the Hon’ble Supreme Court has observed that admissibility of an instrument in evidence is distinct from its validity and enforceability in law. Section 2(g) of the Contract Act provides that an agreement not enforceable by law is said to be void. The admissibility of a particular document or oral testimony, on the other hand, refers to whether or not it can be introduced into evidence. When an agreement is void, it refers to its enforceability in a Court of law. When it is inadmissible, it refers to whether the Court may consider or rely upon it while adjudicating the case. Paragraphs 49 to 59 of the said decision are usefully quoted as under:- “(b) The difference between inadmissibility and voidness

49. The admissibility of an instrument in evidence is distinct from its validity or enforceability in law. Section 2(g) of the Contract Act provides that an agreement not enforceable by law is said to be void. The admissibility of a particular document or oral testimony, on the other hand, refers to whether or not it can be introduced into evidence.

50. P. Ramanatha Aiyar's The Law Lexicon defines “admissible” thus: Admissible Proper to be received, capable and worthy of being admitted. As applied to evidence, the term means that it is of such a character that the Court or Judge is bound to receive it, that is, allow it to be introduced in evidence. Many statutes have rules on the admissibility of documents, avk/Nikita Gadgil-RA-LA 58/66 with the Evidence Act, 1872 (“the Evidence Act”) being one of them.

51. An agreement can be void without its nature as a void agreement having an impact on whether it may be introduced in evidence. Similarly, an agreement can be valid but inadmissible in evidence. For instance, A and B may enter into an agreement by which B is restrained from undertaking a particular trade. This agreement would be void under Section 27 of the Contract Act but this does not impact its admissibility in evidence should A attempt to enforce it against B. The Court will not enforce the agreement between the parties because it is void but the agreement is nonetheless admissible in evidence.

52. When an agreement is void, we are speaking of its enforceability in a court of law. When it is inadmissible, we are referring to whether the Court may consider or rely upon it while adjudicating the case. This is the essence of the difference between voidness and admissibility.

(c) Section 35 of the Stamp Act renders a document inadmissible and not void

53. The majority judgment in N.N. Global (2) summed up its holding in the following terms: (SCC p. 81, para 109) “109. … An agreement which is unstamped or insufficiently stamped is not enforceable, as long as it remains in the said condition. Such an instrument would be void as being not enforceable” The above observation conflates the distinction between enforceability and admissibility.

54. Section 35 of the Stamp Act is unambiguous. It stipulates, “No instrument chargeable with duty shall be admitted in evidence…” The term “admitted in evidence” refers to the admissibility of the instrument. Sub-section (2) of Section 42, too, states that an instrument in respect of which stamp duty is paid and which is endorsed as such will be “admissible in evidence”. The effect of not paying duty or paying an inadequate amount renders an instrument inadmissible and not void. Non-stamping or improper stamping does not result in the instrument becoming invalid. The Stamp Act does not render such an instrument void. The non-payment of stamp duty is accurately characterised as a curable defect. The Stamp Act itself provides for the manner in which the defect avk/Nikita Gadgil-RA-LA 59/66 may be cured and sets out a detailed procedure for it. It bears mentioning that there is no procedure by which a void agreement can be “cured”.

55. In Thiruvengadam Pillai v. Navaneethammal, this Court noted that the trial court and the High Court had doubted the authenticity of an agreement for the sale of certain immovable property because it was written on two stamp papers purchased on different dates. This Court held that this by itself would not invalidate the agreement. It noticed the distinction between the legal validity of the agreement and its admissibility: (SCC p. 537, para 13) “13. The Stamp Act is a fiscal enactment intended to secure revenue for the State. In the absence of any rule requiring consecutively numbered stamp papers purchased on the same day, being used for an instrument which is not intended to be registered, a document cannot be termed as invalid merely because it is written on two stamp papers purchased by the same person on different dates. Even assuming that use of such stamp papers is an irregularity, the Court can only deem the document to be not properly stamped, but cannot, only on that ground, hold the document to be invalid. Even if an agreement is not executed on requisite stamp paper, it is admissible in evidence on payment of duty and penalty under Sections 35 or 37 of the Stamp Act, 1899. If an agreement executed on a plain paper could be admitted in evidence by paying duty and penalty, there is no reason why an agreement executed on two stamp papers, even assuming that they were defective, cannot be accepted on payment of duty and penalty. But admissibility of a document into evidence and proof of genuineness of such document are different issues.” (emphasis supplied)

56. This has long been the position of law in India with respect to the Stamp Act. In Gulzari Lal Marwari v. Ram Gopal, one of the parties contended that the agreement was invalid because it was not properly stamped. The portion of Section 35 which bars the admissibility of unstamped instruments was the same then as it is now. The Calcutta High Court held: (SCC OnLine Cal) “The effect of the section is to make such an unstamped document inadmissible in evidence, and unable to be acted upon by persons having authority to receive evidence or by avk/Nikita Gadgil-RA-LA 60/66 any public officer. It does not affect the validity of the document. There is a clear distinction to be drawn between invalidity and inadmissibility of documents. Certain statutes and sections render documents invalid if they are not stamped. No section of the Stamp Act has this effect….” The position of law has also been noticed by the High Courts in other cases including the Andhra Pradesh High Court in Boottam Pitchiah v. Boyapati Koteswara Rao.

57. In N.N. Global (2) this Court held that the failure to stamp an arbitration agreement is not a “curable defect”. Relying on the provisions of the Contract Act as well as Section 11(6-A) of the Arbitration Act, it held that an unstamped arbitration agreement is void. The relevant paragraphs of the judgment of the majority are extracted below: (SCC p. 79, para 103) “103. … It may not be apposite to merely describe an unstamped arbitration agreement as a “curable defect”. As long it remains an unstamped instrument, it cannot be taken notice of for any purpose, as contemplated in Section 35 of the Stamp Act. It remains unenforceable. … It is “not enforceable in law”. In the said sense, it also cannot exist in law. It would be void. Our view in this regard that voidness is conflated to unenforceability receives fortification from Section 2(j) of the Contract Act which renders a contract which ceases to be enforceable void.” (emphasis in original)

58. The above observation of this Court in N.N. Global (2), is incorrect. Section 2(j) of the Contract Act provides as follows: “2. (j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”

59. Section 2(j) is not attracted when an instrument is rendered inadmissible under Section 35 of the Stamp Act. The effect of the latter is not to render an unstamped agreement unenforceable. If it was unenforceable, it would imply that it was void. We have already discussed why an unstamped or inadequately stamped agreement is not void in the preceding paragraphs. Indeed, the approach of the majority in N.N. Global (2) to the Contract Act would render unstamped agreements void ab initio and not void.” avk/Nikita Gadgil-RA-LA 61/66

103. After a detailed analysis and elucidation of Section 35 of the Stamp Act, the Hon’ble Supreme Court has observed that nonstamping or improper stamping does not result in the instrument becoming invalid but renders it inadmissible in evidence but not void. The non-payment of stamp duty is a curable defect and the Stamp Act itself provides for the manner in which the defect can be cured and sets out a detailed procedure to it which includes Section 33 whereby a person having authority to receive evidence or in charge of a public office can impound an instrument if it appears to him not duly stamped. What this Court is called upon to consider by way of this Interim Application is whether the transaction of assigning the Jigaon Project Work by the Joint Venture to the Applicant as reflected by the 2019 Agreements is void or can be validated. This Court is not considering the admissibility of the 2019 Agreements in evidence or whether the same can be acted upon or not as the same have already been acted upon. Therefore, although this Court has authority to receive evidence and to impound an instrument not duly stamped, since neither the 2019 Agreements are being considered for being admitted in evidence nor for being acted upon as they have already been acted upon, the provisions of Section 33 and Section avk/Nikita Gadgil-RA-LA 62/66 35 of the Stamp Act would not be attracted. The objection therefore with respect to the insufficient stamping raised on behalf of the Ex-Director in my view is only stated to be rejected.

104. As regards the submissions by Mr. Cama, learned Counsel for the Ex-Director that the 2019 Agreements are invalid as the Government of Maharashtra Irrigation Department had rejected these agreements vide letters dated 9th May, 2019, 29th September, 2020, 12th July, 2021, 14th July, 2021 and 2nd February, 2022 and that no permission of VIDC has been taken as mandated by the tender condition as had been done at the time of the 2009 subcontract to the Company in liquidation to the Applicant, I agree with the submissions by Mr. Khandekar that the said correspondence is of very little consequence as in fact by letters dated 24th March, 2020 and 26th May, 2020, the 2019 Agreements have been unequivocally accepted and acknowledged and also acted upon, as can be seen by the act of deposit of monies into the escrow account, which is the view of the Division Bench of this Court at the time of passing of the 11th March, 2022 order having considered the said correspondence. The Division Bench in paragraph 35 of its order had observed that the reliance of avk/Nikita Gadgil-RA-LA 63/66 correspondence with the government department is of very little consequence as the government department does not have any authority or locus to disapprove the 2019 Agreements which are internal arrangements entered into by the Joint Venture with its constituents and further that vide letter dated 26th May, 2020, the government department has in fact taken on record the 2019 Agreements and also acted in accordance with the same. That the Hon’ble Supreme Court, as submitted, has also upheld the 11th March, 2022 order and that the said letters are evidently of no consequence.

105. As regards the issue with respect to the approval of the VIDC to the 2019 Agreements is concerned, here also I agree with Mr. Khandekar that the said tender condition was also brought to the notice of the Division Bench of this Court while passing the 11th March, 2022 order and the Division Bench has after considering the facts observed that the same was done for the overall benefit of the Joint Venture and the Company. Also that the said tender condition was also expressly brought on record and agitated before the Hon’ble Supreme Court and the Hon’ble Supreme Court refused to interfere with the 11th March, 2022 order. avk/Nikita Gadgil-RA-LA 64/66

106. It is also pertinent to note that neither the Respondent No. 4 nor the government department have filed any proceedings substantially challenging the 2019 Agreements but have in fact acted in furtherance thereof. The said objection by Mr. Cama accordingly stands rejected.

107. On behalf of the appearing Respondents reliance has been placed on decisions in the cases of (i)Sarigam Containers Pvt. Ltd. vs. Magatul Industries Limited(supra) (ii) GOL Offshore Ltd., In Re (supra) (iii) Laxman Yeswant Prabhudesai v. NRC Ltd (supra) (iv) Sunita Vasudeo Warke v. Official Liquidator (supra) (v) Board of Industrial and Financial Reconstruction v. M/s. Hindustan Transmission Products Ltd (supra) (vi) Board for Industrial & Financial Reconstruction, In re (supra) (vii) Garware Marine Industries Ltd In re (supra) (viii) Nimesh K Thakkar v. Official Liquidator (supra), however, the facts in those decisions being completely distinguishable from the fact situation before this Court, as the transaction in question and the 2019 Agreements have been entered into after due deliberations and appropriate resolution and communication of the Company, this Court having held that same are necessary and expedient in the interest and overall benefit of the Company entered into bona fide fairly, justly and reasonably to complete the Jigaon project which was in public interest avk/Nikita Gadgil-RA-LA 65/66 deserving validation, the said decisions are of no assistance to the Respondents.

108. Ergo the Interim Application deserves to be allowed and is hereby allowed in terms of prayer clause (a). Consequently, the Official Liquidator’s Report as regards the prayer Clauses (a) to (g) stands rejected.

109. Since Mr. Khan, learned Counsel appearing for the Official Liquidator has submitted that the prayer Clauses (h) onwards are worked out and therefore, not pressed the Official Liquidator’s Report as regards the prayer Clause (h) onwards accordingly stands disposed as not pressed.

110. After the aforesaid order has been pronounced, Mr. Chheda, learned Counsel appears for the Respondent No.4-Ex-Director and seeks stay of the order passed today, which is vehemently opposed by Mr. Khandekar, learned Counsel appearing for the Applicant.

111. In view of what has been observed in the order pronounced today, the request for stay is rejected. (ABHAY AHUJA, J.) avk/Nikita Gadgil-RA-LA 66/66