TaxTMI 
TaxTMI 
2013 (10) TMI 571
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....sellers of all kinds of electronic and electrical equipments and machinery including computers, data loggers, process controllers, geophysical and communication instruments, ultrasonic and microwave devices, etc. 4. The Petitioner has stated in the Petition that the Company is indebted to the Petitioner for an aggregate sum of US $ 36,141,167.66 (US Dollars Thirty Six Million One Hundred Forty One Thousand and One Hundred Sixty Seven and Sixty Six cents only). 5. On 15th September, 2006, the Company offered US $ 33 million 3.0% convertible bonds 2011 due for repayment or redemption in August 2011. Similarly on 14th August, 2007, it also offered US $ 50 million 3.0% convertible bonds 2012 due for repayment or redemption in August 2012. The bonds were issued at 100 per cent of the principal amount. The Petitioner is the trustee holding the aforesaid bonds in trust for the bondholders, who subscribed to the said bonds. 6. The Company also entered into a Trust Deed dated 20th September, 2006, in relation to the 2011 Bonds and a separate Trust Deed dated 17th August, 2007 in relation to the 2012 Bonds, with the Petitioner. Under clause 2.2 of both the Trust Deeds, it was provid....
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....onds. The Petitioner also addressed a notice of Cross Default to the Company stating the occurrence of a cross default in relation to the 2012 Bonds under Condition 11(D) of the terms and conditions in relation to the 2011 Bonds. On 10th October, 2011, the Petitioner also addressed a letter to the Company notifying that the 2011 Bonds were immediately due and payable. On 12th October, 2011, the Petitioner addressed a Notice of Acceleration for the 2012 Bonds to the Company declaring the 2012 Bonds as due and payable due to a cross default. 9. On 13th October, 2011, the Company made an announcement on the BSE stating that its MSD Business had been sold and acknowledged the debt. The announcement made on BSE reads as follows: "1. The Company has defaulted on its US$ 33 Million FCCB which was due on 21st September, 2011 and is in negotiation with the bondholders to extend the time of repayment; 2. As informed to BSE earlier vide letter dated September 24, 2011, we have received all monies due from Zenith RMM, LLC except for the amount to be held in escrow part of which the Company plans to utilize for partial repayment of FCCB....
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....e specious plea that it was acting against the interest of the Company. 13. Thereafter on 15th November, 2011, the Company addressed a letter purportedly "terminating" the Petitioner as a Trustee. The Petitioner by their letter dated 18th November, 2011, replied to the termination notice stating that the purported termination is contrary to the Trust Deed and therefore void and non est. The Petitioner pointed out that as per Clause 16.2 of the Trust Deed, termination can only be by way of an extraordinary resolution by three-fourths of the bondholders, and no such resolution has been passed. The Petitioner further pointed out that as per clause 11.25 of the Trust Deed, the Petitioner has to act in the best interest of the bondholders. The Petitioner also amended the Plaint in Suit No. 2865 of 2011 and challenged the termination of its Trusteeship, inter alia on the ground that the said termination is illegal and on the face of it null and void. 14. Upon the sale of the MSD Business, the Cloud Computing Business ("CC Business") was the only business of the Company. In the Notice of Motion filed in the suit, the Company stated that the value of the CC Business was approximately....
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....vent shall make their subsidiaries return an amount of Rs. 25 crores within a period of six months from the date of the order. By the said order, this Court also granted liberty to Defendant Nos. 2, 3 and 4 therein to move this Court seeking appropriate orders if at any time they are of the view that they are entitled to claim the Equity Stake in Continuum Managed Services amounting to Rs. 39.86 crores and/or Rs. 32.27 crores held in joint escrow account. Pursuant to the said liberty granted, the said Defendant Nos. 2, 3 and 4 in the Suit have now moved an application before this Court claiming the said entire amount held in the Joint Escrow Account. 16. On 25th March, 2013, the Securities and Exchange Board of India ("SEBI") passed an order against the Promoters of the Company, inter alia, directing the Promoters of the Company to furnish a Bank Guarantee for US $ 33.93 million. The Company and its Promoters filed an Appeal dated 8th March, 2013, before the Securities Appellate Tribunal ("SAT") challenging the order dated 25th March, 2013, passed by SEBI. On 17th June, 2013, the Company made a settlement proposal over a 3 year period to the FCCB bondholders before the SAT. On 4....
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.... due and payable by the Company to the Petitioner towards repayment of FCCBs. The Promoters/Directors of the Company have therefore left no stone unturned in ensuring that the Petitioner does not receive a single paisa towards repayment of the FCCBs. 18. Mr. Dwarkadas submitted that the conduct of the Company in filing the Special Reference before the BIFR is not bona fide. He submitted that the Reference has been filed by the Company under the first proviso to section 15(1) of the SICA which is solely based on the "opinion" of the Board. He submitted that it is this opinion which the Petitioner calls into question before this Court submitting that this Court has jurisdiction to go into the legality, proprietary and bona fides of the same. Mr. Dwarkadas submitted that the jurisdictional fact which would constitute the statutory, mandatory, condition precedent i.e. the sine qua non for the valid legal and intra vires exercise of power by the Board of Directors of the Company is that "the Board of Directors had sufficient reasons... to form the opinion.....". The opinion must be formed honestly and in a bona fide manner, in the best interests of the Company and its shareholders as....
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....alue Appliances Ltd. v. Canara Bank [1998] 16 SCL 445, Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 25 SCL 461 (SC) and Raheja Universal Ltd. v. NRC Ltd. [2012] 115 SCL 715, Mr. De'vetre submitted that the submission advanced on behalf of the Petitioner, that this Court should not permit the Company to proceed with the Reference is baseless and untenable and as held by the Hon'ble Supreme Court, the jurisdiction of the Civil Court is barred under the SICA. Mr. Devetre submitted that even if this Court comes to the conclusion that the Company Petition deserves to be admitted and the Official Liquidator, High Court, Bombay, needs to be appointed as a Provisional Liquidator of the Company, looking at the nature of the business of the Company i.e. its dealing in sensitive equipments and programmes, the office of the Official Liquidator will not be able to handle the same for want of knowledge and training in the subject and will therefore destroy the business of the Company which will cause suffering and prejudice to the 800 workers working for the Company. Without prejudice to the aforesaid submissions advanced on behalf of the Company, Mr. De'vetre submitted th....
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.... order passed by the Division Bench of this Court dated 9th July, 2012, the Hon'ble Division Bench has recorded that "there is no dispute of the fact that when maturity date of the repayment/redemption of the 2011 Bonds came in August/September, Defendant No.1 did not make payment". The amount due by the Company on the date of filing of the Company Petition towards payment of FCCBs due on 2011 and 2012 was US $ 89 million (approximately INR 483 crores) which as of date has increased to Rs. 586 crores. The Company sold its MSD Business for US $ 54,712,461, but did not pay a single paisa to the Petitioner/bondholders towards repayment of FCCBs. The Company has no defence to the claim of the Petitioner in regard to the said amounts due and payable by the Company to the Petitioner. 21. The submission that the termination of the appointment of the Petitioner as Trustee is baseless and untenable since under clause 16.2 of the Trust Deed, the termination can only be by way of an extraordinary resolution by three fourths of the bondholders, and no such resolution has been passed by the bondholders. The Company is a party to the Trust Deed and is aware of the terms and conditions and is ....
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....ng executed against a Company, the object of winding up is to wind down a Company which is unable to pay its debts or deemed unable to pay its debts. It is a remedy for protection of creditors in general. The fact that the Civil Court in a money suit has recorded the undertaking of the defendant that it shall not dispose off its assets except by leave of the Court is meant only to ensure that as and when a decree is passed in a suit, there are sufficient assets available to execute the said decree to realize the fruits of the decree. A winding up Court is not concerned with such an undertaking particularly when it is an undisputed position that the assets belonging to the Company are insufficient to meet the debt of the Petitioning Creditor and the undertaking given by the Company not to dispose of such assets cannot be said to be a security to the reasonable satisfaction of the Petitioning creditor. 24. In the present case, the Company has also alleged that it is commercially solvent. The Hon'ble Supreme Court has in the case of IBAHealth (India) Pvt. Ltd. v. Info-Drive Systems Sdn. Bhd. 104 SCL 367 inter alia held that if there is no dispute as to the company's liability, the ....
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....ay the outstanding FCCBs which would become due for repayment/redemption in August, 2011 and August, 2012. The Company based on its said representation obtained the mandate of its shareholders to sell and/or lease the business and/or Divisions including subsidiaries (wholly or partly) of the Company and in fact thereafter sold its MSD Business for a huge sum of US $ 54,712,461. However, after the sale of the MSD Business, the said representation made to the shareholders was brazenly breached by the Promoters/Directors of the Company and not a single paisa was paid to the Petitioner/bondholders towards the outstanding FCCBs. This on the part of the Promoters/Directors of the Company shows that they dishonestly made a false representation to their shareholders that they will be selling the undertaking of the Company for making repayment of the FCCBs and thereafter defrauded the shareholders by not paying a single paisa towards the FCCBs despite sale of the MSD Business of the Company for US $ 54,712,461. It is the bounden duty of a Company to scrupulously follow and observe the mandatory provision of section 173 of the Act which is enacted in the interest of the shareholders. The Hon....
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....he repayment of FCCBs. It is therefore again established that the announcement made on the BSE by the Promoters/Directors of the Company was without any intention of making any payment towards repayment of FCCBs. 27. Emboldened by the repeated dishonest representations made to its shareholders by way of the explanatory statement dated 27th December, 2010, and an announcement on the BSE dated 13th October, 2011, the Promoters/Directors of the Company proceeded to make a false statement on oath, by filing an affidavit dated 17th October, 2011, stating therein that the sale proceeds received by the Company will be applied towards buy back/redemption of FCCBs. Thus, it is established beyond any doubt that the Promoters/Directors of the Company had at all relevant times decided not to make any payment to the Petitioner/bondholders towards the FCCBs and at the same time sell a substantial division of the Company and empty the coffers of the Company by making false representations to the shareholders, to the BSE, to the Court and to the Petitioner/bondholders. 28. The Promoters/Directors of the Company, as stated hereinabove, received an amount of US $ 54,712,461 pursuant to the sal....
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....iness outside the jurisdiction of this Court. 30. Despite as stated aforesaid, the Promoters/Directors of the Company representing to its shareholders, the BSE and to the Bombay City Civil Court that the consideration received from the sale of the MSD Business would be utilised towards the repayment of the FCCBs, not only the Promoters/Directors of the Company siphoned away 50 per cent of the consideration to its Dubai entity as aforesaid, but without paying a single paisa to the Petitioner purportedly utilised the balance payment retained by the Company as follows: (A) Purported payments to Standard Chartered Bank ("SCB") aggregating to US $ 12.6 Million (INR 61.7 crores) (i) On 12th October, 2011, the Company purports to have made a payment to SCB of US $ 4.3 million (INR 21.0 crores). The Company has not provided any confirmation from SCB that SCB has in fact received this payment. The Company has also not provided any clarification as to why the sale proceeds from the MSD Business were utilised for these payments. (ii) On 14th October, 2011, the....
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....th October, 2011, the Company invested US $ 5.1 million (INR 24.7 crores) in Zenith Cloud Computing FZC, UAE. As of 30th September, 2011, Zenith Cloud was a related party and owned by the Saraf family and owed INR 30 lakhs to the Company. While the Company in its disclosure affidavit dated 23rd January, 2012, stated that purported investments had been made in Zenith Cloud, the Company has not provided any evidence as to the nature of the purported investment i.e. whether as equity or debt and has not given any reason as to why such investments were made from the sale proceeds of the MSD Business especially given the fact that the Company had obtained permission from shareholders to specifically repay the FCCB holders and had defaulted on such payment. Also the Company has not ascribed any valuation to this investment and has not sated the networth of Zenith Cloud or what ownership the Company acquired. (iii) On 24th November, 2011, the Company claims that it made a payment to Amplidata of an amount of US$ 1.5 million (INR 7.6 crores). As per the affidavit dated 23rd January, 2012, filed by the Company it appears that the Company p....
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....n cases are undated or unsigned thereby questioning the veracity of such documents/payments. One such instance is the payment of US $ 1 million (INR 5 crores) to DSSR which is an entity which has no website, and no mention is made of what services were provided. (iii) The Company has stated that in October, 2011, it made payment towards capital goods purchased for an aggregate amount of US $ 3 million (INR 15.0 crores). While the Company has set out payments made on account of purchase of capital goods, it is pertinent to note that given the fact that the Company is conducting business and these are ongoing expenses incurred in the normal course of business, there is no explanation accorded as to why the sale proceeds of the MSD Business were utilised to make these payments especially when as per the explanatory statement the sale proceeds were to be utilised to redeem the FCCBs. Furthermore out of this payment, US $1.85 million (INR 9 crores) is paid to a company called Trigem Enterprises. No invoices are provided, nor the nature of services rendered by Trigem Enterprises are set out. ....
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....sses have exceeded the networth of the Company as per the Audited Financial Results as at June 30, 2013" and a 400 page Reference was filed by the Company with the BIFR on 23rd July, 2013 which is not admitted till date. The Promoters/Directors of the Company have therefore left no stone unturned in ensuring that no amount whatsoever is paid to the Petitioner/bondholders of the FCCBs despite an amount of approx. Rs. 586 crores being due and payable to them till date. If at all the networth of the Company has been eroded, there is no doubt that the same is the creation of the Promoters/Directors of the Company who have siphoned away the moneys from the Company with the sole intention of avoiding repayment of the amounts due under the FCCBs. The order passed by this Court on 9th October, 2012 cannot be said to have secured the claim of the Petitioner since as set out in the said order that was the best that could have been done by the Court whilst passing an order under the provisions of Order 38 Rule 5 of the Code of Civil Procedure, 1908. Under the circumstances the Promoters/Directors of the Company cannot be trusted with the affairs of the Company and if the Provisional Liquidato....
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.... the very formation of opinion is bad and the consequent filing of the reference would be ultra vires the first proviso to section 15(1), illegal and void and would be non est and the Company should not be permitted to proceed with the Reference. Mr. Dwarkadas has in support of his submissions relied on several decisions set out in paragraph 18 above. 33. As held by the Hon'ble Division Bench of the Delhi High Court in the case of B.I.L. Industries Ltd. (supra) the principal object of the SICA is to rehabilitate genuinely sick companies where due to factors beyond their control, the Companies have become sick, and that this Act is really not meant to help those companies where the company has become sick due to dishonesty, siphoning off of funds and misappropriation of funds by its promoters and management. As set out hereinabove, I am satisfied that the Promoters/Directors of the Company have acted dishonestly and are guilty of deliberate deception with the design of seeking unfair advantage/gain at the cost of causing loss to the Petitioner/bondholders. I also agree that any beneficent legislation passed for rehabilitating genuinely sick companies which, because of factors bey....