Court rejects GE plea against DCM

Recovery of Rs 2.14 cr due to breach of agreements sought by MNC's financial services arm to be decided by arbitration tribunal.

The Delhi High Court has dismissed GE Countrywide Consumer Financial Service Ltd's petition seeking recovery of Rs 2.14 crore on account of breach of agreements with DCM Financial Services Ltd.

While refusing to entertain GE's winding up petition against DCM in view of the matter pending before the arbitrator, Justice AK Sikri said since various issues including maintainability of counter claims were to be decided by the arbitral tribunal, it was not proper for him to decide the issue.

The court also directed GE to take up its exclusion as a creditor and file its objection before the court when DCM would file its second motion in its scheme of arrangement petition.

It may be noted that various winding up petitions against DCM are pending before the court and the company had also moved a petition under Section 391 and 391A of the Companies Act for sanction of the scheme of arrangement. However, GE's name doesn't figure in the list of its creditors as DCM has also made counterclaims against GE .

GE had moved the court alleging breach of contract and had sought DCM's winding up under Section 434 of the Companies Act demanding Rs 2.14 crore including interest within three weeks. It contended that DCM was no longer able to pay its debts and was commercially insolvent.

DCM Financial Services Ltd, a non-banking financial company, had entered into a dozen contracts - 'Agreement to Purchase Receivables' and 'Servicing Agreements' - with GE Countrywide Consumer for sale, transfer or assigning of the hire charges falling due under its hire-purchase agreements with its customers.

As per the agreements, DCM would assign the receivable to GE for an agreed consideration and all rights, title and interest, and the entire ownership of those receivable would transfer and vest in GE. DCM would hold all amounts received by it in trust for, and for the benefit of GE.

GE was entitled to receive all the money falling due under the hire-purchase agreements between DCM and its customers. The money collected by DCM was to be remitted to GE periodically.

While contending that it had discharged its liability, DCM, through its counsels Rajiv Nayar and Manali Singhal, said, the total value of receivable securitised under the agreements was Rs 23.12 crore at a net present value of Rs 18.09 crore.

"GE had retained Rs 3.16 crore as cash collateral, which amounted to 15-20 per cent of the net present value of future receivable," the counsels had argued.