TaxTMI 
TaxTMI 
2013 (5) TMI 347
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.... itself as Transferee company] under sections 391 to 394 of the Act in the Company Court on 10th January, 2011 praying that the Court should sanction the Scheme involving RGB and RLB and their respective shareholders and creditors so as to be binding on RLB and RGB and their shareholders and creditors. 3. RGB was a company incorporated under the Act on 11th October, 2006 with its registered office at New Delhi. RGB was engaged in the business of broadcasting 24 hour entertainment television programmes. 50% of the shareholding of RGB was held by Turner Asia Pacific Ventures Inc. ('Turner') and 50% was held by Alva Brothers Entertainment Pvt. Ltd. ('ABE'). ABE owned Miditech Pvt. Ltd. ('Miditech'), promoted by Mr. Niret Alva and Mr. Nikhil Alva ('Alva brothers') engaged in the business of television content creation. Initially, the Alva brothers formed a partnership firm, which was later converted into Miditech in 1997. It is stated that ICICI Ventures picked up a 25% stake in Miditech in 2000. In 2003, Turner engaged the services of Miditech to produce television content for various Turner channels. 4. It is stated that Turner is owned entirely by Turner Asia Pacific Investmen....
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....re encryption keys ('SEK') which enables the owner of the channel to remotely control the STB even when it is installed in a far-flung area. In other words, the owner can activate/deactivate the frequency of the STB without having physical access to the STB. 8. On 14th July, 2008, Turner Entertainment Networks Asia Inc. ('TENA') [now known as TBSAP], a parent company of Turner and RGB entered into a shared services agreement ('SSA') [later known as 'transmission agreement'] ('TA') for uplinking of the REAL channel from Turner's pay out facility at Hong Kong. The SSA contained a separate arbitration clause and was for a period of five years with the consideration for each year being set out in Clause 3 thereof. The SSA was governed by the laws of Hong Kong. 9. It is stated that, on 2nd September 2008, the Foreign Investment Promotion Board ('FIPB'), Government of India, gave its approval to the investment by Turner in RGB. It is stated that RGB purchased about 3000 STBs from Turner through a nominated manufacturer named Conax situated in Hong Kong. Conax manufactures conditional access boxes for Turner. The 3000 Conax boxes were delivered to Turner's own India distribution arm....
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....ition of satellite uplinking services to a third party, provided it terminates the Transmission Services Agreement in accordance with this clause and advises TAPV, at the same time it provides the Notice, of the identity of a third party that will provide satellite uplinking services to RGB for the REAL Channel, TAPV will use reasonable commercial efforts to assist RGB with the transition of satellite uplinking services to such third party by providing all available and relevant information and materials to such third party. BTS dated 2nd June 2010 Service Agreements ♦ The Parties shall procure that with effect from the date of this Term Sheet, the following agreements shall also terminate: * Shared Services Agreement dated 12 December, 2007 between Turner International India Private Limited and RGB; and * Email Services Agreement dated 26 August, 2008 between Turner Entertainment Networks Asia, Inc. and RGB. ♦ The Parties agree that notwithstanding the termination of the Real Shareholders' Agreement, the Shared Services Agreement dated 14 July, 2008 between Turner Entertainment Networks Asia,....
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.... the REAL Channel, TAPV will use reasonable commercial efforts to assist RGB with the transition of satellite uplinking services to such third party by providing all available and relevant information and materials to such third party and RGB, as may be required. 11. On 2nd June, 2010, the TA of 14th July, 2008 was amended, under which, inter alia, (a) the transmission fees payable by RGB was reduced; and (b) Turner's right to terminate the contract without cause with 180 days' notice was removed, and only RGB was entitled to terminate the same with 90 days notice. 12. On 25th June, 2010, ABE incorporated RLB. On 1st July, 2010, RGB and RLB entered into the Scheme under which the appointed date was 1st July, 2010 and the effective date was the date of filing of Form-21 with the Registrar of Companies ('ROC'), Delhi. Clause 1.10 of the Scheme reads as under: "1.10 "Undertaking" shall mean and include the following: (a) All the assets, whether movable or immovable, tangible or intangible, properti....
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.... or arising to the Transferor Company." 13. According to RLB, the central feature of the Scheme was the transfer of the business of RGB to RLB as a 'going concern'. It included transfer of all the movable assets, permits and licences from RGB to RLB. All shares of RGB were to be cancelled and in consideration thereof, Turner was to be paid US $ 1.5 million. RGB would merge into RLB as a wholly owned subsidiary. Payments to Turner were made subject to approvals by Reserve Bank of India ('RBI') and other statutory approvals of the Government. The tax losses, unabsorbed depreciation and Minimum Alternate Tax ('MAT') credit of RGB was not to be available to RLB post-merger under any circumstances. Upon the Scheme being approved by the Court, if any disputes or differences arose as regards its construction or any other matter arising therefrom, it was to be referred to arbitration under the Arbitration and Conciliation Act, 1996 save in respect of the subject matter of the BTS dated 2nd June, 2010 which was to be referred to arbitration as contemplated therein. 14. On 14th November, 2010, RGB launched the Food First Channel. RGB ceased with effect from the same date to broadcast R....
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....ally in technical areas, which are essential for critical decisions. (iii) The amalgamation of both the companies will pave the way for better and more efficient utilization of larger resources and funds. (iv) It would also lead to growth prospects for the personnel and organization connected with both Petitioner Companies and thus, be in the interest of and for the welfare of, the employees of the companies concerned in this Scheme, and will also be in the larger interest of the public." 17. It was further stated that "The Scheme, the cancellation of the shares of the Turner Asia Pacific Ventures, Inc. and consideration payable thereto does not require any prior approval from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 1999 ('FEMA')." Reference was made in the petition to an earlier Co. Appl. (M) No. 220 of 2010 which had been disposed of by the Court on 13 December, 2010, dispensing with the requirement of holding of meeting of shareholders, creditors of RGB and RLB. It was stated that "it would be just and equitable that the Scheme be sanction....
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.... recent developments and acts of maladministration had just come to light in 2012, and that RLB had "genuine bona fide counter-claims against each Turner which was both civilly and criminally liable for many of its actions." 23. On 24th September, 2012, the learned Single Judge passed an order in Cont. Cas. (C) No. 230 of 2012, stating that the Court was not impressed with the above assertions of RLB and directed, inter alia, as under: "Suffice it to say that an obligation has been undertaken by the respondents before this court, which requires compliance. In the event the petitioners are required to fulfil any reciprocal obligations, as contended by the respondents, the very least that the respondents ought to have done by now, was to take recourse to an appropriate remedy, in accordance with law. Admittedly, no steps have been taken in that behalf, though the direction to deposit flows from a judgment dated 25.03.2011. As regards the submission made by the respondents, qua their purported inability to pay, no demonstrable, legally recognized steps have been taken in that regard. In these circumstances, for the moment, I propose to issue a limited di....
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....ide in failing to transfer or activate the STBs; that the correspondence subsequent to BTS dated 18th December, 2009 and prior to 2nd June, 2010 and even after the execution of the Scheme on 1st July, 2010, showed that there was discussion between the parties on the question of providing STBs encryption code; that Turner "wilfully cheated" RLB/ABE "by not transferring decryption key" and, therefore, "had effectively and retrievably destroyed Real Global's asset in the Distribution network and wiped out the value of the applicant." RLB contends that Turner, in violation of the TA, sent a notice dated 19th March, 2012, calling upon RLB to pay the outstanding amounts. RLB states that Turner's obligations under BTS dated 2nd June, 2010 to help RGB to transit to a third party was independent of the other obligations under the Scheme. It is repeatedly urged by RLB that it made no business sense for RLB to have agreed to mere transfer of the STBs without transfer of the decryption key since the real asset was, in fact, the distribution network. RLB avers that by failing to transfer the decryption key i.e. "the true property rights in the distribution network", Turner had "destroyed the co....
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..... Specific to the question of decryption keys, Turner refers to the emails exchanged between Conax and RLB which made it unequivocally clear that the STBs would be unworkable if they were not on the Turner link. It is also denied that the fee levied by Turner was over double the rates in India. It is stated that it was open to either of the parties to terminate the TA on their own will. It is urged that the TA is a separate agreement and has worked itself out. Turner denies that any assurance was given by it to RLB about transferring the decryption code. On the other hand Turner refers to its notice dated 21st December, 2011 stating that if the outstanding amount of US $ 726,025 was not paid, the TA would be terminated. Since this request went unheeded, TBSAP had to switch off the signal after a period of approximately three months thereafter. Therefore, this could not be said to be illegal or mala fide. Submissions of counsel for RLB 29. Mr. Nitin Rai, learned counsel for RLB, placed considerable reliance on Clause 1.10 of the Scheme and submitted that the purpose of the Scheme was to transfer the entire business assets of RGB to RLB as a 'going concern.' According to him, t....
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....r submitted that this Court cannot add to the Scheme any obligation that did not already exist when the Scheme was sanctioned in the first place. He relied on the judgment in RNRL to emphasise that the powers of the Court under Section 392 of the Act did not include introducing any new clause in the Scheme. He referred to the correspondence exchanged between the parties which showed that the technical non-feasibility of providing the decryption code to RLB was made explicit even prior to sanctioning the Scheme. Since at no point of time did RLB raise any dispute concerning the distribution network, the present application was only to avoid the consequences of the contempt petition and was, therefore, not bona fide. 33. Mr. Nayar submitted that it is only after the repeated defaults by RLB in complying with its obligations under the TA that the signal had to be stopped. He pointed out that pursuant to entering into the Scheme, a separate Deed of Termination, Waiver and Indemnity had been entered into between the parties on 22nd July, 2010, in terms of which the SSA stood terminated. Moreover, the TA had worked itself out. He, accordingly, submitted that the present application de....
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....modifications" in the Scheme as it may consider necessary for its proper working. Since there is no time-limit prescribed as to when such an application can be filed, there is no difficulty in holding that the present application by RLB is maintainable. The prayers 36. The prayers made in the present application read as under: "(a) Pass necessary orders and directions to ensure that the Scheme is workable under sections 392(1) and section 394 as referred to in para 11.2.9; Alternatively, (b) Declare the impugned Scheme dated 29.03.2011 as sanctioned by this Hon'ble Court in CP/20/2011 as unworkable and cancelled and consequently order the winding up of the Applicant Company under the Companies act, 1956; (c) Pass such other and further order(s) as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case." 37. The above prayers have been elaborated in para 11.2.9 of the application as under: "11.2.9 It is submitted that even though the Scheme has been comp....
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....ndeed, as suggested now, there was correspondence exchanged between the parties which cast an obligation on Turner to provide RLB encryption code to ensure transfer of the distribution network from RGB to RLB, there is no reason why RLB did not bring this fact to the attention of the Court when it was seized of the Company Petition No. 20 of 2011. In other words, this was not a development subsequent to the sanctioning of the Scheme, even according to RLB. These were facts, even assuming that they were true, which were in the knowledge of RLB, not only during the pendency of Company Petition No. 20 of 2011, but even prior to its filing on 10th January, 2011. On the contrary, RLB and RGB filed an affidavit of compliance on 29th March 2011 which was acted upon by the Court when it passed an order on that date sanctioning the Scheme. 41. Clause 1.10 of the Scheme defines 'undertaking' to mean all the assets tangible or intangible of whatsoever nature and wherever situate which has been enjoyed by the Transferor company as on the appointed date. However, this has to be read in the context of what has been set out in the Scheme itself. Clause 8 details the mode of transfer of underta....
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....vices with 6 months notice as, depending on when the notice is issued, 6 months may not be enough as RGB may not have the resources to buy new boxes, make the change etc. I can understand that Turner needs to terminate early if facilities are being moved and there are capex implications. We are keen to make the move as soon as possible, which can happen once we have a new investor, fresh funding in place etc. A notice from turner while these things are being put in place will be a huge blow to our plans to keep the channel alive and therefore, is something we cannot take a risk on. Please give me a call if we need to discuss, but hope you understand the precarious situation this clause potentially puts us in. Best, Manas" (Turner's reply): "Hi Manas We've considered your concern and understand that a change to a new services provider may take longer than the Alvas may have originally contemplated, given the confirmation from Conex that they would not be able to use the existing boxes. It s....
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....'S group') entered into an agreement with the group which agreed to buy the shares and take over the management of the Respondent company ('J group'). Inter alia, the agreement was that after the J group took over, the company would execute a second legal mortgage of its fixed and other assets in favour of the S group and certain unsecured creditors, in consideration of which those creditors agreed to receive interest at a nominal rate and deferred repayment of their debts. The agreement also contemplated the company obtaining loans from certain financial institutions, the Central and State Governments and other persons and securing them by a prior charge over its fixed and liquid assets. 46.3 The Scheme was approved by a learned Single Judge of the Bombay High Court in February 1966. Alternative to the execution of the second mortgage, the approved Scheme proposed execution of a Debenture Trust Deed ('DTD') in favour of Schedule B creditors. The J group was to provide the necessary finance for running the mills. On this basis, the winding up petition was withdrawn. 46.4 The mills were restarted in April 1966. The payments to various categories of creditors, other than the Sc....
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....se, however, it is only after the contempt petition was filed by Turner group that RLB has come forth with the plea of unworkability of the Scheme without distribution network. There appears to be no attempt made by RLB to actually work the Scheme. The facts in J.K. Bombay (P.) Ltd. (supra) case being clearly distinguishable, the said decision is not of assistance to RLB in the present case. The RNRL Case 48.1 The other decision on which considerable reliance is placed by Mr. Rai is Reliance Natural Resources Ltd. (supra) case. The facts were that Reliance Industries Ltd. ('RIL') had filed a petition in the High Court of Bombay to obtain sanction for a Scheme of demerger between RIL and the four other companies, including Reliance Natural Resources Ltd. ('RNRL'). Clause 19 of the Scheme, which was sanctioned by the learned Company Judge, required RIL to enter into suitable arrangement with RNRL for supply of gas to the power plants of Reliance Energy Ltd. ('REL'), a group company of RIL and Reliance Patal Ganga Power Ltd. ('RPPL'). Disputes arose out of the wording of the draft Gas Sale and Master Agreement ('GSMA') and Gas Sale and Purchase Agreement ('GSPA') proposed by RIL....
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....the Act dealt with post sanction supervision, the Court could not "undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties." The Court explained that "This exercise remains only for the parties and is in the realm of commercial democracy permeating the activities of the creditors concerned and members of the company who in their best commercial and economic interest by majority agree to give green signal to such a compromise or arrangement." 48.7 The majority also referred to the decision in S.K. Gupta v. K.P. Jain [1979] 3 SCC 54 which held that the learned Company Judge has the power under Section 392 of the Act to make modifications but only "for the proper working of the scheme and not for any other purpose." The Supreme Court in Reliance Natural Resources Ltd. (supra) case understood the said judgment in S.K. Gupta as not permitting "the Company Court to so modify a scheme as to change its basic fabric." Thereafter, in paras 43 and 44 of Reliance Natural Resources Ltd. (supra), the majority held as under: "43. In the light of the stand t....