TaxTMI 
TaxTMI 
2015 (3) TMI 371
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....ratum of the Respondent No. 1 Company on account of the quashing of the 2G licenses by the Hon'ble Supreme Court; (ii) Dysfunctional Board of Directors owing to the withdrawal of Directors nominated by Respondent No.2 Majestic Infracon Pvt. Ltd.; (iii) The Respondent No.1 Company is insolvent as its liabilities far exceed its assets and it cannot pay its dues as and when they arise. 2. The Company Petition is taken up for final hearing. 3. Briefly set out hereinbelow, are the facts which have led to the filing of the above Company Petition and the orders passed by this Court thereon after the filing of the Petition. 3.1 The Petitioner - Etisalat Mauritius Ltd. (EML) is a Company incorporated under the laws relating to Companies of Mauritius. The Petitioner is a 100 per cent subsidiary of Emirates Telecommunications Corporation ("Etisalat"), a Public Listed Corporation, incorporated in the United Arab Emirates (UAE). Etisalat is 60 per cent owned by the Federal Government of UAE and 40 per cent owned by UAE national individuals. Etisalat is an International Telecommunications Operator and currently has operations in 18 countries and services over 140 million subscribe....
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....d that the licenses had no basis to be revoked/suspended/cancelled/terminated as they had fulfilled all legal obligations and due procedure. Warranties were also made by Respondent No. 2 as to their expertise in the field of telecom. 3.9 Based on the above representations and warranties, on 23rd September, 2008, Shareholders Agreement and Share Subscription Agreement were entered into between the Company, Respondent No.2Majestic, the Petitioner, Genex, Shahid Balwa and Vinod Goenka. Pursuant thereto on 17th December, 2008, the Petitioner subscribed to 11,29,94,228 shares of the Company by investing an amount of Rs. 3228.44 crores. At about the same time, Genex subscribed to 1,33,17,245 shares of Respondent No. 1. As a result of this investment, the shareholding structure of the Company was as under: Respondent No.2/Majestic Respondent No.2/Majestic 45.73% Petitioner-EML 44.73% Respondent No. 3 - Delphi 4.27% Respondent no. 4 - Genex 5.27% Total 100% 100% According to the Petitioner, their capital contribution was, inter alia, used by the Company to repay the bank loans which funded the acquisition of the 2G licenses. 3.10 On 17th Decemb....
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.... 2G spectrum allocation by the Centre for Public Interest Litigation and Dr. Subramanian Swamy. On 2nd April, 2011, the CBI filed a charge-sheet before the Special CBI Judge, inter alia, against the then Minister of Telecommunications - A. Raja, the Company, Balwa and Goenka. On 25th April, 2011, a supplementary charge-sheet was filed by CBI setting out details of the amounts in the nature of illegal gratification channeled by M/s. Dynamix Realty, a Group Company of the DB Group of Companies (of which Respondent No.2Majestic is a part and Balwa and Goenka the principal shareholders and promoters) in return for preferential allotment of 2G licenses to the Company. According to the Petitioner the CBI charge-sheet alleges that the Company (Swan) was a Reliance Anil Dhirubhai Ambani Group ('RADAG') entity. Under the extant Telecom Policy, RADAG was ineligible to apply for or obtain UASLs as it held licenses in RCOM. Swan was used by RADAG to mask the identity of the promoter (then RADAG) while applying for 2G licenses. On a change in the Telecom Policy permitting dual technology (GSM + CDMA), RADAG sold Swan to Balwa and Goenka. According to the Petitioner, the CBI charge-sheet des....
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....make any capital contribution into the Company. 3.18 On 2nd February, 2012, the Hon'ble Supreme Court quashed all the 2G licenses, inter alia, allotted to the Company. In its said judgment, the Hon'ble Supreme Court recorded findings of conspiracy between the then Minister of Communications and certain applicants for licenses which were real estate companies having no prior experience in dealing with telecom services and who had made their applications only one day before the cutoff date fixed by the Minister on his own. The only real estate companies who were granted 2G licenses in 2008 were the Company and the Unitech Group. The Hon'ble Supreme Court in its judgment further recorded that Respondent No. 1 was one of the successful applicants which had offloaded their stakes for thousands of crores in the name of infusion of equity. The Hon'ble Supreme Court also imposed costs of Rs. 5 crores each, only on three of the licensee companies whose licenses had been cancelled by the said judgment which included the Company. The said judgment was made operative by the Hon'ble Supreme Court after four months from the date of pronouncement. 3.19 At the meeting of the Board of Directo....
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....f the Company against the Petitioner's nominees on the Board of Directors and the Petitioner's employees seconded to the Company. The Petitioner has pointed out that none of the Directors or employees associated with the Respondent No. 2Majestic were named in these complaints, clearly indicating that Respondent No. 2Majestic orchestrated/instigated such complaints. In fact, on 3rd April, 2012, Pratap Ghose, a secondee of the Petitioner to the Company was detained at the Mumbai International Airport on account of a lookout notice issued pursuant to the criminal complaints filed by the Channel Partners. 3.26 On 3rd April, 2012, the Hon'ble Supreme Court rejected the Review Petition filed by Respondent No. 1 for review of the judgment dated 2nd February, 2012, quashing the 2G licenses. 3.27 On 11th April, 2012, this Court in the above Company Petition granted time to the creditors/claimants of the Company to file their respective affidavits before this Court, setting out the particulars of their claim against the Company on or before 16th April, 2012 and also directed that until further orders the Company shall not make any payments to any of the creditors/claimants of the Compa....
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....tating that there is no refund possible of the license fees. On 10th January, 2013, the Additional CIT, Mumbai, passed an order under Section 281B of the Income Tax Act, 1961, attaching the telecom license fees deposited by the Company with the DOT. On 16th January, 2013, DoT issued a notice to the Company imposing penalty of Rs. 650 crores. On 8th February, 2013, DoT once again wrote a letter to the Company stating that it will not refund the license fees. 3.34 In the meantime, the Authorized Person from time to time heard the nominees of the Petitioner as well as Respondent No.2Majestic and/or the creditors of the Petitioner and has submitted several reports before this Court and obtained orders on the same regarding termination of 212 out of 286 employees (i.e. 74 per cent of the employees) on the rolls of the Company; making payments for the premium of insurance policies taken by the Company; seeking payment of employees' salaries and other dues; recommending payment/renewal of Bank Guarantees; recommending to vacate property/office premises in occupation of the Company; retaining M/s. Luthra & Luthra as Advocates for the 2G matter; recommending sale of furniture, seeking sa....
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....resent Petition seeking winding up of the Company. Reliance Infratel Ltd. and Reliance Communications Ltd. who have filed petitions before the TDSAT for claims amounting to Rs. 1679 crores against the Company as on 23rd February, 2012 and who have on 31st January, 2012, switched off the telecom network of the Company and disabled access to their passive telecom infrastructure to the Company had, through their Counsel at the stage of admission of the Petition, submitted that they do not support the present Winding Up Petition filed by the Petitioner. However now, when the Petition is being heard finally they have remained absent and therefore no submissions are made before this Court. 4. This Court after hearing arguments for admission over several days of the above Company Petition, and after considering the voluminous written submissions tendered, by its order and judgment dated 18th November 2013, admitted the above Company Petition wherein detailed reasoned findings on the relevant aspects of the matter that were before the Court at the stage of admission have been recorded ("order of Admission"). By the said order of admission, the Company Petition was made returnable on 18t....
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....;ble Supreme Court of India by its order dated 14th July, 2014, dismissed the Special Leave Petition in limine. 8. The Company Petition, as stated above, is now taken up for hearing and final disposal. 9. The Learned Counsel appearing for the Respondent No.2, after making detailed submissions on certain aspects which had arisen after the order of admission and during the pendency of the said Appeal and on aspects pertaining to which the Appeal Court had observed that the same would be considered in greater detail at the hearing of the Petition, once again started reading and repeating what was set out by the Respondent No.2 in the written submissions which were submitted in three volumes and already argued upon in great detail at the stage of admission, the findings pertaining to which have been set out in the order of admission and also upheld by the Hon'ble Appeal Court in its detailed order and findings. This Court therefore informed the Counsel for the Respondent No.2 that the question of him again advancing the same arguments which have been dealt with and decided in the order of admission, and in respect of which there are no change of circumstances, does not arise.....
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....nding. Apart from the fact that I am in agreement with the submissions advanced by the Petitioner, in my view, the facts and circumstances on the basis of which I have passed the admission order dated 30th July, 2013, have remained the same till date and do not call for any different findings at this stage than those arrived at during the stage of admission. I therefore once again confirm all the findings arrived at by this Court in the admission order dated 30th July, 2013." In the instant case since the facts and circumstances on the basis of which the order of admission was passed have remained the same till date, no different findings from those already arrived at, at the stage of admission are called for. Accordingly I confirm all the findings arrived at in the order of admission. 11. However, for a convenient reading of the present judgment and order, I will hereinafter mention and reproduce in verbatim the arguments advanced by the parties on several issues and the findings recorded by me in the order of admission, and which, as stated hereinabove, hereby stand confirmed by me. LOSS OF SUBSTRATUM 12. As set out herein and in the order of admission, one of the main cont....
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....e facts of the present case do not constitute a loss of substratum for the purposes of a petition under Section 433 (f), Respondent No. 2 relied on the decisions in (i) Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla and another (1976)3 SCC 259, paras 34 to 36, page 271 (ii) M/s. Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd.1971 (3) SCC 632, page 641, para 29 (iii) In re. The Cine Industries & Recording Co. Ltd. 1941 Bom. L.R. (54) 387, page no. 394 (iv) In Re Kitson & Co. Ltd. (1946) 1 All ER 435, 175 LT 25, page Nos. 4 and 5 (v) In re Taldua Rubber Co. Ltd. (1946) 2 All ER 763, page Nos. 1, 4 to 6 (vi) In Galbraith v. Merito Shipping Co. 1947 SC 446, page Nos. 5 to 7 and (vii) In Vassant Holiday Homes Pvt. Ltd. and ors. Vs. Madan V. Prabhu. 2001 (3) BomCR 493, paras 31 and 32, 41 to 44 It is submitted that though in the present case, as stated hereinabove, it is possible for the Company to carry on the business stipulated in its charter, the principal barrier in achieving this is the conduct of the Petitioner. The Petitioner cannot be allowed to take advantage of its own conduct to frustrate the possibility of the Company carrying on business as pre....
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....duct fresh auctions of the 2G licenses and spectrum and two such rounds of auction have been completed till date. The Company, however, has not bid in the fresh auctions of the 2G licenses and presently does not hold any 2G license or spectrum. Respondent No.2Majestic did move this Court seeking directions against the Company to bid for the fresh auctions of the 2G licenses and spectrum. As set out hereinabove, this Court as well as the Hon'ble Division Bench of this Court dismissed the applications, inter alia, on the ground that the DRT, Mumbai, on an application made by the SCB has appointed a Receiver in respect of all the movable and immovable assets of the Company and also on the grounds that the management of the Company was in disarray and that the Company evidently does not have sufficient resources to enter into contractual commitments. 3.5 The Respondent No. 2Majestic has sought to oppose the submission of the Petitioner that the Company has lost its substratum and deserves to be wound up, on the ground that there is viable business opportunity which can be exploited by utilizing the NLD, ILD and ISP licenses held by the Company. As correctly submitted by the Petition....
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....y to carry on the business stipulated in its charter. Even during the hearing held before this Court on 30th October, 2012, the Learned Senior Advocate appearing for Respondent No.2Majestic submitted before this Court that Respondent No.2Majestic is in a position to place a revival scheme before the Court on the basis that the Company can be revived even without receiving the funds due to the Company which are held up with the telecom authorities and/or other Banks. In view thereof, without prejudice to the rights and contentions of the parties and without going into the issue as to whether the Company was capable of being revived, an opportunity was given to the Respondent No.2Majestic to place its revival scheme before this Court on or before 30th November, 2012 and forward copies of the same to the Advocate for the Petitioner and the Advocates appearing for some of the creditors of the Company. 3.7 The purported scheme was thereafter served on the Petitioner by the Advocate for Respondent No.2Majestic on 5th December, 2012. The purported scheme is necessarily founded on the Petitioner withdrawing the present Company Petition and the Petitioner selling its shares to Respondent....
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....evival scheme admits that the Company can only be revived if Rs. 1600 crores is brought in as equity infusion. In paragraph 5.1 of the purported scheme, Respondent No.2Majestic admits that if the Company is not revived, it will undergo liquidation. Such infusion of capital will necessarily require the consent of the Petitioner and the Petitioner is correct in submitting that it is not agreeable to any such capital infusion by unknown third party investors. 3.9 Again, the decision in respect of the Company to undertake any new venture has to be jointly made by the principal shareholders of the Company viz. the Petitioner and Respondent No.2Majestic. As correctly submitted by the Petitioner, apart from the impossibility of working with Respondent No.2Majestic, the Petitioner cannot be lawfully compelled to participate in a venture which is fundamentally different to that for which it invested in the Company. Under the Shareholders Agreement and the Share Subscription Agreement, the Petitioner can assert its affirmative voting rights against commencement of new businesses and therefore it is not open to Respondent No.2Majestic to unilaterally commence a business solely on NLD/ILD/I....
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....dent No.2Majestic is unrealistic and speculative. There is therefore no scope of any realistic revival of the business of the Company or a renewed ability to carry out its own functions independently. The Respondent No.2Majestic has therefore miserably failed to establish that it is possible for the Company to carry on the business stipulated in its charter, and the principal barrier to achieving this is the conduct of the Petitioner. In view of the facts and circumstances set out herein, the decisions relied on by the Respondent No.2Majestic also do not lend any assistance to the Respondent No.2Majestic. However it is necessary to clarify that a genuine comprehensive scheme which is in the interest of the Company, its shareholders and creditors can always be placed before the Court for its consideration i.e. even after the admission of the Company Petition. 12.1 On the issue of loss of substratum, the order of the Appeal Court inter alia observes that the Unified Access Services Licenses ("UASLs") were the most valuable assets of the Company and that the commercial existence of the Company depended on UASLs. It is also observed that the UASLs were undoubtedly the basis on which....
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....x Officer (TDS) - 3 (3) vide order u/s 201 (1)/201 (1A) determining short deduction of Tax amounting to Rs. 24,83,020/in respect of the 2nd quarter of the Financial Year 200809, resulting in a demand of Rs. 32,03,830/including interest amounting to Rs. 7,10,810/for short deduction of tax and determining short deduction of Rs. 14,061,480/in respect of the 4th quarter of the Financial Year of 200809 resulting in a demand of Rs. 1,84,93,840/including interest amounting to Rs. 44,28,800/for short payment and for long deposit of tax. The Company preferred an appeal against the said order of the Assessing Officer. - The Company received a notice issued by the Income Tax Department under sections 143 (1) and a show cause notice under section 271 (1) (b) of IT Act and Income Tax Assessment proceedings relating to the Company which are in progress. - Order dated 10.01.2013 under Section 281B of the Income Tax Act 1961 issued by the Additional CIT Mumbai attaching the telecom license fees deposited by Respondent No. 1 Company with the DOT. - Notice of Demand issued by the Income Tax Department under Section 156 of the IT Act of an amount of Rs. 467,00,39,738/( Rupees Four Hundred Si....
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.... the Appeals, whichever is earlier. - The Application for stay of recovery of Income Tax demand for A.Y. 201011 has been refused by the Deputy Commissioner of Income Tax9 (1) under Order dated 10th July, 2014." I am therefore once again in complete agreement with the Petitioner that the substratum of the Company has eroded and is destroyed, and the Company is liable to be wound up on this ground. COMPLETE LACK OF PROBITY, LOSS OF FAITH AND BREAKDOWN OF RELATIONS: 13. As set out in paragraph 4 of the order of admission, I am also convinced that the facts set out in paragraph 2 above demonstrates a complete lack of probity, loss of faith and a complete breakdown of relations between the principal shareholders of the Company. Paragraph 4 of the order of admission is therefore reproduced hereunder. "4. The facts set out in paragraph 2 above also establish a complete breakdown of relations between the principal shareholders of the Company. The relationship between the principal shareholders of the Company being the Petitioner and Respondent No. 2Majestic has irretrievably broken down on account of the fact that the reputation of the Company has been destroyed by the CBI p....
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....areholders do not and cannot agree on the issue as to what actually transpired at the meeting and choose to deny and dispute what is stated by each other. 4.4 The relationship between the Petitioner and Respondent No. 2 has further deteriorated after the filing of the present Company Petition. In fact, the employees seconded by the Petitioner to the Company and the Directors nominated by the Petitioner are subjected to criminal proceedings initiated by the Channel Partners of the Company. It appears that the Petitioner is correct in believing that these proceedings have been brought at the behest of Respondent No. 2Majestic as the complaints filed have selectively targeted only persons associated with the Petitioner and conveniently excluded everyone connected through Respondent No.2Majestic. 4.5 The above facts demonstrate complete lack of probity and total loss of faith between the major shareholders of the Company and contribute in proving the loss of substratum and the fact that the Company is incapable of functioning. If such a failed joint venture is allowed to continue, in my view, the slim chances that prevail as on date to protect some of the assets of the Company an....
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....t of its contention that a situation of deadlock has not been created in the Company has relied on the decisions in Hind Overseas Pvt. Ltd. vs. R.P. Jhunjhunwalla and another. (supra), M.S.D.C. Radharaman v. M.S.D. Chandrashekhar and another (2008) 6 SCC 750 and Abnash Kaur v. Lord Krishna Sugar Mills and others 9 (1972) 2 Del 413 pages 452 and 454 It is further submitted on behalf of Respondent No.2Majestic that from the above judgments and in particular, the Judgment of the Hon'ble Supreme Court in Hind Overseas Pvt. Ltd., it is clear that deadlock alone is not sufficient for winding up of a Company on a just and equitable ground. The deadlock must arise from actions which constitute a lack of probity. The deadlock must be of such a nature that there is no hope or possibility of smooth and effective continuance of the Company as a commercial concern. 5.1 As set out in the earlier paragraphs of this order, Respondent No.2Majestic has withdrawn its two Nominee Directors from the Board of Directors of the Company without nominating replacements. Out of the remaining Directors, two are foreign nationals. A meeting of the Board of Directors could not be convened thereafter as i....
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.... jurisdiction and therefore the conduct of the Petitioner is an extremely relevant fact to decide the question as to whether this Petition under Section 433 (f) of the Act ought to be entertained or allowed. Relying on the decision of the Hon'ble Supreme Court in M/s. Madhusudan Gordhandas & Co. (Supra) wherein the Hon'ble Supreme Court has held that a petition presented with an improper motive or without a legitimate motive ought not to be entertained by a Court, the Respondent No.2 has submitted that the conduct of the Petitioner is unfair and dubious. Respondent No. 2 in support of this contention first submitted that the Petitioner has acted in collusion with the Standard Chartered Bank ("SCB") and the Citi Bank N.A. (Citi Bank). This Court has in clauses 6.1.1 to 6.1.15 of the order of admission recorded and dealt with all the allegations made by the Respondent No. 2 qua SCB - Citi Bank and has reached a finding that there is no collusion between the Petitioner with SCB and/or Citi Bank as alleged or at all and that Respondent No. 2 has failed to establish that the conduct of the Petitioner is unfair or dubious. The relevant paragraphs dealing with the said allegations aga....
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....mpany agreed to draw on the SCB loan for purchase of network equipment (2G) in 2009, with the full consent and knowledge of Respondent No.2Majestic and its nominees. There was never any allegation by Respondent No.2Majestic at the time of the transaction that there was any collusion between the Petitioner and SCB. This allegation is therefore a complete afterthought. It is submitted that various Board Resolutions dated 15th June, 2009, 15th September, 2009, 31st August, 2010 were passed on the drawdown of the SCB with the consent of Balwa and Goenka who were the Managing Director and Director of the Company at the relevant time. It is submitted that in fact it is Balwa who has colluded with the PNB and Reliance and other entities in which he had financial interests like the DB Group of Companies and Techniplex. It is submitted that the affidavit filed by Shri Gyanendra Upadhyay is not admissible and cannot and does not form part of the record of this Court, as more particularly set out inter alia in the affidavits filed by the Petitioner dated 21st July, 2012, 30th April, 2012, Report Nos. 29 and 30 of the Authorized Person and this Court's order dated 22nd July, 2013 and also the ....
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....nd that the Petitioner is trying to favour SCB, are untenable and baseless. It is submitted that there is nothing suspicious, illegal or mala fide about the Letter of Comfort. It is international practice for Banks to take such letters of comfort while extending loans to a Joint Venture. In any event, Balwa also agreed to utilize the SCB funds in the purchase of telecom equipment. In fact, Respondent No.2Majestic in the Company Petition filed before the CLB accused the Petitioner of not providing a comfort letter to Tech Mahindra. It is submitted on behalf of the Petitioner that without the letter of comfort, the SCB loan would not have been made available on the terms it was made available. The Petitioner has therefore submitted that the allegation that the Petitioner had intention of favouring the said Banks is baseless, untenable and selfcontradictory. It is submitted that if the Petitioner had any intention of favouring the said Banks, it would have got the Company to repay the loan in priority instead of filing the present Petition and seeking the intervention of this Court to ensure due payment of all proven creditors on a fair and equitable basis. It is submitted that it is ....
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....said balance sheet has been executed on 24th August, 2011 by representatives of both Etisalat Mauritius Ltd. i.e. the Petitioner herein as also Majestic Infracom Pvt. Ltd. being Respondent No. 2 herein. The said balance sheet is also inter alia executed by the aforementioned Mr. Pratap Ghosh, CFO of the Company. In fact, the said balance sheet significantly is found annexed to the affidavit of Respondent No.2Majestic dated 11th April, 2012. It is further submitted on behalf of the SCB that the unaudited balance sheet of the Company for the year ending March, 2012 which has been prepared and submitted along with the IT Returns of the Company for the Assessment Year 20122013 also reflects an admission of liability by the Company to SCB in the sum of Rs. 1448.5 crores approximately as on 31st March, 2012. It is therefore submitted that it is undeniable that SCB is a secured creditor of the Company and the Company is indebted to SCB in the sum in excess of approximately Rs. 1450 crores as on 31st March, 2012. 6.1.6 The SCB has further submitted that in order to recover its amounts, it issued a recall notice on 4th April, 2012 to the Company and thereafter on 10th April, 2012, filed ....
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....o.2Majestic to revive the business of the Company and the said scheme is vague, without any substance, unreasonable and above all fails to protect the rights/interest of the creditors of the Company. It is submitted that the SCB has filed its affidavit responding to the purported revival scheme, whereunder the said scheme has been vehemently opposed to, to which the Respondent No.2Majestic has no valid and substantial defense. SCB therefore submitted that the allegation advanced on behalf of the Petitioner that the SCB and the Petitioner have acted in collusion is baseless, untenable and deserves to be forthwith rejected. 6.1.10 The allegations made by Respondent No.2Majestic that the Petitioner and Citibank have acted in collusion with each other are also vehemently denied by the Petitioner as well as Citi Bank. The details of the loans availed of by the Company from Citibank and their outstanding amounts thereunder have been set out in detail in Citibank's Affidavit dated 16th April, 2012 wherein it is pointed out by Citibank that the Company for the purpose of carrying on its business had availed from Citibank (i) unsecured working capital credit facilities upto an amount of ....
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....of the Bank Guarantee, made due payment of Rs. 154, 48, 35,531/to Tech Mahindra Ltd. on 15th March, 2012 under the said Bank Guarantee. Vide its two letters, both dated 16th March, 2012, Citibank communicated the same to the Company at its address in Mumbai and New Delhi and requested the Company to fund the same to Citibank immediately. However, the Company wrongly failed and neglected to arrange reimbursement/funding to Citibank. Citibank is therefore entitled to recover the said amount of Rs. 154, 48, 35,531/together with applicable interest from the Company. 6.1.11 For the purpose of availing the LC Facility, the Board of Directors of the Company on 31st August, 2010, resolved to avail the LC Facility upto USD 122 Million. Under the said LC Facility, at the request of the Company, Citibank issued six Letters of Credit in favour of the beneficiaries named therein, in respect of the network equipment provided by the said beneficiaries to the Company for implementation of 2G network. Under the said Letters of Credit, Citibank N.A. China (Citi China) was nominated as the Negotiating Bank, while Citibank N.A. Bahrain (Citi Bahrain) was nominated as Reimbursing Bank. The maturity ....
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....o. 2, New Delhi, which is pending hearing and final disposal. The said claim of Citibank has been amended in the Original Application and the revised claim is for Rs. 737, 60, 20,256.11. 6.1.13 Citibank has submitted that it is an admitted position that the Company took the benefit of the loan facilities granted by Citibank and is bound to repay the dues. Having availed of the loan facilities, Respondent No.2Majestic (as a shareholder of the Company) cannot dispute the Company's liability to Citibank. In fact, in the present Petition, Respondent No.2Majestic is completely silent about the aforesaid huge liability of the Company towards Citibank and therefore is attempting to unnecessarily divert the attention of this Court to issues which are devoid of any merit. The Citibank has vehemently denied the allegation of Respondent No.2Majestic that the Petitioner has purportedly given a preference to Citibank over other Banks and has also denied and disputed the allegation of purported collusion between the Petitioner and Citibank in filing the Petition. 6.1.14 It is further submitted on behalf of the Citibank that though Respondent No.2Majestic proposed a purported scheme of revi....
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....arties, declined to set aside its order dated 16th April, 2012 appointing a Court Receiver in respect of the movable and immovable properties of the Company, though the DRT has kept the said order in abeyance only because this Court has already appointed the Authorized Person to take care of the assets and properties of the Company. In view thereof and in view of the aforestated submissions advanced by the Petitioner and the Banks, it is clear that there is no collusion between the Petitioner with SCB and/or Citibank as alleged or at all and amongst others, the allegations that the said Banks were preferred by the Petitioner over other Banks or that the Petitioner did not get the Company represented before the DRT, Mumbai, through an Advocate on 16th April, 2012, with an intention to help the SCB to obtain orders against the Company are untenable and baseless and cannot be accepted and hence rejected. Respondent No.2Majestic have therefore also failed to establish that the conduct of the Petitioner is unfair or dubious.": 15.1 The Hon'ble Appeal Court has also declined to accept the allegations advanced on behalf of Respondent No.2, that: (i) the Petitioner has acted in c....
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....rge of and managing the day to day affairs of the Company. However, under the management of the Petitioner, the Company suffered losses and was unable to effectively commence its business as a result of the delay in meeting with its roll out obligations. The Petitioner/Etisalat Group has taken unilateral/secret illegal decisions through the Board of the Company which is controlled by the Etisalat Group without knowledge, intimation or even consent of the Respondent No.2Majestic and/or its representatives. The secondees deputed by the Petitioner/Etisalat Group incurred unnecessary expenses on account of the Company by frequently travelling to the U.A.E. over the weekends and also on week days and thereby not being available to efficiently run the day to day affairs of the Company. It is submitted that the Petitioner also failed to obtain F.I.P.B. approval to increase its shareholding and the Petitioner also failed to bring in call money as agreed under the Shareholders Agreement. The Petitioner failed to utilize the sanctioned loan of Rs. 6700 crores. The Petitioner procured equipments at a very high cost. They failed to implement the business plan and launch the services despite re....
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....its people in the same roles such as Atul Jhamb, the CEO of the Company. Board resolutions were passed giving Balwa and Goenka control of the Company as follows: (i) To act as regards the appointment of Directors; (ii) To invest Company funds; (iii) To do all things facilitating creation and allotment of Company shares; (iv) To act in relation to loans; (v) To sign the Company's balancesheet; (vi) To sign Director's report; (vii) To execute POA in favour of signatories authorized to represent the Company before the Government; and (viii) To execute documents relating to 3G auction. Balwa was the sole person in charge of negotiating with the Reliance Companies which Companies were responsible for the passive telecom infrastructure. Balwa cited his strong business relation with Reliance to take on the responsibility to deal with them personally. Balwa and Goenka entered into various contracts on behalf of the Company without disclosing their interests in those Companies viz. Reliance, EON and Techniplex. Shri Ahmed Salahuddin who was appointed as Director of the Company was not an employee of Etisalat but was introduced to Etisalat by Balwa. Mr. Salahuddin was....
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....secret illegal decisions as alleged or at all. The decision taken on 22nd February, 2012 was with the knowledge, presence and consent of Respondent No.2Majestic which is revealed by the video recording. The decision to shut down the network was taken after obtaining legal opinion of Senior Advocates. The Resolution to shut down the network was read out and approved by Respondent No.2Majestic. These allegations have been made as an afterthought to the suit for damages filed by the Petitioner. The decision to shut down the network was unanimous. It is submitted that the secondees travelled to and from the UAE at their own expenses and not at the expense of the Company. The travel cost of Etisalat secondees to the Company were never paid by the Company. As regards the allegation that the Petitioner failed to obtain F.I.P.B. approval to increase its shareholding, it is submitted by the Petitioner that the said allegation is false and is denied. The Company was responsible for filing the application for FIPB approval. The FIPB refused to give its approval to the purchase by Etisalat of Genex's shares largely because of the reputation and links of Balwa, as admitted by Balwa in his lette....
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....ther. Balwa and Goenka chaired all the Board meetings where it was decided to avail of SCB loan as also where it was agreed to differ the ICICI loan. The SCB loan was considered and taken in 2009, whereas the ICICI loan was contemplated in 2010. Therefore, there could never have been any comparison. The Board Resolution No. 34 dated 15th September, 2009 and the Board Resolution dated 25th May, 2010 clearly indicate that all Banks were being contemplated for a loan facility to fund further purchase of spectrum/licenses and that the ICICI loan was on terms equally favorable/unfavorable as others. 6.2.4 As regards the allegation that the Etisalat Group procured network equipment at a very high cost as compared to what was paid by other Indian Telecom operators, it is submitted by the Petitioner that the equipment was purchased by the Company at the best possible price. Balwa and Jhamb tried to renegotiate but to no effect. Balwa despite having no experience in this field made an unsubstantiated claim as to the high price of the equipment. The Respondent No.2Majestic has also not produced any evidence of the equipment being overpriced. Later on negotiations with vendors by Jhamb and....
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....resent Petition is the fact that clause 8 of the Shareholders Agreement provides for a noncompete clause which restrains the Petitioner from entering into the Telecom Sector in India through any entity other than the Company and it is clear that the Petitioner has no intention of exiting the Indian Telecom Sector. 6.2.7 From the aforestated allegations advanced by the Respondent No.2Majestic and the answers given thereto by the Petitioners and the perusal of the documents relied upon by the Parties, it is clear that it cannot be held that it was only the Petitioner who was in charge of the day to day affairs of the Company or that all business decisions have been taken by the Petitioner. There is equal participation, if not more, of the nominees of Respondent No.2Majestic in carrying on its day to day business and in taking important decisions in the matter. The Petitioner alone therefore cannot be blamed for noncommencement or delay in commencement of the business or incurring any losses in the business or taking any unilateral decisions qua the running and/or shutting down of the business. From the submissions made by the Parties and the records produced by them it is clear th....
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....d for under clause 3.12.1 of the Shareholders Agreement. In fact, Respondent No.2Majestic vide its letter dated 23rd February, 2012, strongly objected to the incorrect statement of Etisalat Group that the Board of the Company (which at that time had Respondent No.2's Nominee Directors) had unanimously agreed to shut down the business of the Company and that the said nominees had not given consent to shutting down the Company; (iii) Despite the aforesaid objection of Respondent No.2Majestic, by its letter dated 23rd February, 2012, Etisalat immediately informed the Abu Dhabi Securities Exchange about the decision to shut down the operations of the Company and also informed the DoT and TRAI that the Company is shutting down its telecom network w.e.f. March 31, 2012; (iv) In view of the conduct of the Petitioner, TRAI addressed a show cause notice dated 16th March, 2012, calling upon the Company to comply with its obligations under the UASLs until the licenses are operative; (v) On 27th June, 2012, DoT issued a show cause notice calling upon the Company to explain why it should not be penalized for illegal closure of operations in breach of the UASL terms and conditions; (vi) On 28th ....
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....ontribute to the funding of the Company. The Petitioner has pointed out that the objection taken by Respondent No.2Majestic on 23rd February, 2012 was belated and an afterthought and contrary to the consent given at the meeting of 22nd February, 2012. It is pointed out by the Petitioner that Etisalat informed the Abu Dhabi Securities Exchange about the decision to shut down the operations of the Company before receipt of the letter dated 23rd February, 2012, from the Respondent No.2Majestic recording its objections. It is submitted that in any event, the intimation is factually correct and the said intimation was required as Etisalat is owned by the sovereign. As regards the allegation that the Petitioner informed the DoT and TRAI that the Company is shutting down its telecom network with effect from 31st March, 2012, the Petitioner has pointed out that the said information was forwarded to the DoT and TRAI not by the Petitioner but by the Company and Shri Buddhiraja, a nominee of the Respondent No.2Majestic had signed the letters. As regards the show cause notices/demand notices issued by the DoT and the stand of the DoT that the amount of Rs. 1600 crores is not refundable to the ....
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....ubmitted that it is well settled that in a Petition for winding up, a case for winding up must be contained in the Petition alone and subsequent events cannot be looked at to support the Petition. In support of this contention, the Learned Senior Advocate appearing for the Respondent No.2Majestic has relied on the decision of the Hon'ble Supreme Court in Mohan Lal and another vs. Grain Chamber Ltd., Muzzaffarnagar and others AIR 1968 SC 772, para 20 Hind Overseas Pvt. Ltd. vs. Raghunath Prasad Jhunjhunwala and another (supra) and Sangramsinh p.Gaekwad and ors. vs.Shantadevi P. Gaekwad (2005) 11 SCC 314 para 200 It is submitted that the decisions relied upon by the Petitioner in response to the above decisions relied upon by the Respondent No.2Majestic lends no assistance to the Petitioner. In any event, the said judgments would be impliedly overruled by the judgment of the Supreme Court in the case of Sangramsingh P. Gaekwad (supra) more particularly paragraph 22 of the same which reads as follows: " It is now well settled that a case for grant of relief under Sections 397 and 398 of the Company Act must be made out in the petition itself and the defects contained therein ca....
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....s true that the appointment of the Authorized Person was without prejudice to the rights of either party. That does not mean that the court should not take into account the situation of the company at the time of hearing the matter. It is therefore submitted that the Respondent No.2Majestic has wrongly contended that the Petitioner wrongly relies on events post the filing of the Petition in support of the admission of the Petition. 8.4. Prior to 3rd July, 2012, this Court had informed Mr. Madon, Learned Senior Advocate appearing for the Petitioner and Mr. Dwarkadas, learned Senior Advocate appearing for Respondent No.2Majestic that in view of the management of the Company being in complete disarray, if this Court takes the view that pending the hearing and final disposal of the admission of the Company Petition, a Provisional Liquidator needs to be appointed in respect of the Company, the same will cause harm and prejudice to the Company because there are number of very urgent/ essential steps required to be taken on behalf of the Company. This Court therefore suggested to the learned Advocates that it would be in the interest of the parties, if some independent Advocate/Solicit....
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....be relied upon by the Company Court while considering a petition under Section 433 (f) on the just and equitable ground. The subsequent events may be pleaded either by amending the petition or by filing further affidavits." 18. The Respondent No.2 has, at the stage of admission, also submitted that the Petitioner cannot be heard to argue that the Petition is filed under Section 433 (e) of the Act, since the Petitioner has not issued any statutory notice under Section 434 (1) (a) of the Act or any other demand notice in its alleged capacity as a creditor of the Company. The said allegation is discussed in paragraphs 9.1 to 9.3 of the order of admission. This Court has concluded the said discussion in paragraph 9.3 as under: ".......Though from the facts narrated in this order, it is very clear that the total liabilities of the Company are far greater than its total assets and the Company is unable to pay its debts in the usual course of business, once this Court comes to a conclusion that the Petitioner has made out a case for winding up of the Company under Section 433 (f) of the Act it is irrelevant whether the Petition is indeed filed also under Section 433 (e ) and am ther....
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....oduced, it can be seen that the nominee Directors of the Respondent No. 2 have given their consent, as falsely alleged by the Petitioner; (iii) The video recording so produced does not show any discussion between the Board Members so present, and only shows the Chairman reading the resolutions without any reaction from the Board Members; (iv) Under the Shareholders Agreement dated 23rd September, 2008, and the amended AOA of the Company, such a decision could only have been taken with the affirmative vote of Respondent No.2's Nominee Director. (v) This being so, no reliance can be placed on such a video recording which is incomplete and does not show any consent or affirmative vote given by the Nominee Directors of the Respondent No.2 for the shutting down of the network. (vi) The Minutes of the Board Meeting dated 19th February, 2012, relied upon by the Petitioner in clause 3 (a), in no uncertain terms stated that, "...in case the Board resolves to shut down the network....". This itself is sufficient to establish that the Board had not decided to shut down the network and it had left the same for future consideration. Therefore the entire reliance of the Petitioner on....
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....ctors held on 19th February, 2012. The said issue was to be discussed at the next meeting viz. on 22nd February, 2012. As such the parties on 19th February, 2012, were fully aware of further discussion taking place on this aspect on 22nd February, 2012. The minutes of 19th February, 2012 are not disputed. The Resolution dated 22nd February, 2012, came to be passed pursuant to the discussions already held in the meeting on 19th February, 2012. 20.5. This Court has gone through the said video recording in Chambers in the presence of the Advocates for the parties and also the representatives of the parties and have also gone through the submisions made by the parties in this regard in their respective affidavits. The decision to shut down the network was in fact first discussed at a prior meeting of the Board of Directors held on 19th February, 2012, at which the following business was discussed: "3. CASH MANAGEMENT AND CASH REALIZATION (a) Presentation of Cost Reduction Scenarios (as per the directive of the last Board Meeting): The Management presented three cost reduction scenarios before the Board. After discussion on the matter, all of the Board members indicated a prefe....
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....ensus of the board, it is further resolved that the management of the company should take all necessary and proper steps. (1)To limit as quickly and as effectively as possible the flows of cash out of the company, including terminating, on appropriate terms all obligations giving rise to the current or future obligations to pay cash. The cost reduction scenario 'C' presented to the last board meeting should be implemented and all payments referred to the board for approval. To seek a refund of the licence fee paid for the UASLs from the DoT. (2) To seek payment of all debts promptly. (3) In light of these events which will affect the financial position of the Company in a number of respects, with the full consensus of the Board, it further resolved to instruct the FCO to consider the company's current financial position and to report to the board on two weekly basis to ensure that the board is in an appropriate position to take all necessary decisions in relationt o the company's affairs to reflect its evolving financial position." 20.7 From the said video recording it is clear that the Chairman has read out all the Resolutions passed at the meeting of 22nd....
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....2 that the Petitioner has erroneously and mischievously relied upon a complaint filed under the Prevention of Money Laundering Act, 2002 ("PMLA") against the Company, Respondent No. 2 and Mr. Shahid Balwa and Mr.Vinod Goenka and is seeking to allege that the complaint evidences that Mr. Balwa and Mr. Goenka had procured the 2G licenses through illegal means and that they had misrepresented to the Petitioner that the 2G licenses were validly obtained. It is submitted on behalf of Respondent No.2 that the complaint filed under the PMLA proceedings is totally irrelevant to the present Petition. In any event and without prejudice it is submitted that a bare reading of the said complaint shows that the Company was not involved in any kind of illegal transaction and that the Company is not involved in any kind of money laundering. It is submitted that in the PMLA complaint, it is not even stated that any money has passed from the Company to any other entity. There is no evidence of any nature whatsoever suggesting transfer of funds to or by the Company. The investigation authorities have erroneously termed a pure lending transaction as a money laundering transaction. The Kalianagar TV to....
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....and that subsequent events cannot be a ground for winding up, is incorrect and the submission is not well founded in law. 21.2 I have considered the submissions on behalf of the Petitioner as well as the Respondent No.2. After the order of the Appeal Court, the Respondent No.1 Company has been charged as an accused (Accused No. 11) in a charge-sheet filed by the Joint Director, Directorate of Money Laundering Act, 2002 on 25th April, 2014 (PMLA charge-sheet). The said charge-sheet is annexed at page 1537 of the affidavit of the Petitioner dated 18th August, 2014. The said charge-sheet sets out the role of the original Promoters Mr. Shahid Balwa and Mr. Vinod Goenka in raising and routing the moneys which were allegedly used to corrupt public servants in what is commonly known as "2G Scam" and in engineering return of those funds once the CBI investigation commenced. The said charge-sheet also sets out how Mr. Balwa and Mr. Goenka allegedly used the Company (then known as Swan Telecom Pvt. Ltd. "STPL") inter alia for money laundering. The relevant paragraphs of the said charge-sheet are already set out in the table hereinabove. As far as the Respondents' case that the PMLA ch....
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....dvanced on behalf of Respondent No. 2 that only charges have been framed against Mr. Balwa and Mr. Goenka and the same are yet to be proved, is irrelevant. The fact of the matter is that after investigation, these charges have been framed and as a result thereof the Petitioner is not wanting to continue in the joint venture Company viz. the Respondent No.1 and the very basis of the joint venture stands eroded and the substratum of the Company destroyed. Moreover, the Company being a joint venture quasi parnership, the PMLA charge-sheet has compounded the loss of mutual faith and confidence between the partners making the continuation of the joint venture impossible. 22. The Respondent No. 2 next submitted that, the submission of the Petitioner that by exercising the Put Option, Respondent No. 2 has opted to exit from the Company and therefore the Respondent No.2 would be entitled only to monetary reliefs to enforce the rights under the Put Option Deed is untenable. The Resondent No. 2 has submitted that the exercise of right under the Put Option Deed would not disentitle Respondent No. 2 from resisting the Petition for winding up. In fact, the Petitioner has vide its letter date....
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....ance. 22.3 In my view, invocation of the Put Option is a contractual right available to Respondent No.2. The exercise of the right under the Put Option Deed would not disentitle Respondent No. 2 from resisting the Petition unless the Petitioner accepts the option exercised by the Respondent No.2. 23. The Respondent No. 2 has next submitted that the Petitioner has purposely delayed and failed to obtain the FIPB approval. Although, an application was prepared in December 2008, the application was made to the FIPB only on December 3, 2009, by the Petitioner. On 27th April, 2010, FIPB raised various queries and on September 29, 2010, FIPB rejected the application for the reasons that the Ministry of Home Affairs had not supported the proposal. Respondent No.2, vide its letter dated 1st April, 2011, informed the Petitioner that it had delayed in filing the FIPB application and requested the Petitioner to once again make the application. Despite the same, the Petitioner did not make a fresh application. 23.1 Respondent No.2, in support of the aforesaid submission, submitted that had the FIPB approval been obtained by the Petitioner, the Company in accordance with Clauses 2.1 and....
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....y in the event of it acquiring 50% + 1 share of the company. The petitioner was not bound to acquire 50% + 1 share in the company. The submission, therefore, is without any substance. Even assuming that Genex Exim Ventures Pvt. Ltd. was entitled to call upon the petitioner to acquire the said share and the petitioner refused to do so, that is a matter between Genex and the petitioner. It was not even suggested that there was a tripartite agreement in this regard between the appellant and/or the company, Genex and the petitioner in this regard." 23.3 According to the Petitioner, besides the observations as extracted above, it was the duty of the Company and not the Petitioner to apply for FIPB approval. In fact the Company did apply for FIPB approval but the same was rejected by the Government of India principally because of the serious concern relating to the reputation of Mr. Balwa and required that Mr. Balwa disassociate himself with the Company before the application could be reconsidered. This is evident from Mr. Balwa's resignation letter dated 12th January, 2011 (Annexure A10 page 246 of the Compilation of Annexures). Furthermore, the FIPB approval was needed to acquir....
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....ndapazha Nadar & Ors. vs. Chitraganiammal & Ors.12 However the Petitioner has submitted that the unconditional withdrawal of the same by the Respondent No. 2 makes it evident that the same are without substance. This is further supported by the letter written by Mr. Shahid Balwa dated 2nd August, 2011. 26. The letter dated 2nd August, 2011, addressed by Mr. Shahid Balwa to the Petitioner is relevant. Mr. Balwa has in the said letter inter alia stated that: " The UAE Government/Etisalat can bring to bear its large influence on organization such as Amnesty International or Fair Trail which are international organizations working globally to ensure human 12 (2007) 7 SCC 65, para 19. rights protection and fundamental right to free and fair trial. Such organizations can appoint their own monitors who will bring a lot of pressure on the Indian establishment and judiciary to give a free and fair trial. Hon'ble Sir, this is necessary to be done since you are aware that Etisalat being a company from UAE was selectively targeted even at the time of giving FIPB approval, whereas similar placed companies were given the approval. It is necessary and imperative that such diplomatic and....
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....avention of the provisions of Foreign Exchange Management Act, 1999 ("FEMA") and FDI policy which stipulates that any acquisition of shares in a Telecom Company by a foreign party above 49% would require FIPB approval. According to Respondent No.2, the Petitioner has not come to this Court in its equity jurisdiction with clean hands and this itself warrants that the Petition be dismissed with costs. 28. The above submission advanced on behalf of the Respondent No. 2 will not be of much assistance to the Respondent No. 2 since the Petitioner is not a noticee to the show cause notice under PMLA or under FEMA, and nor has it been issued any other show cause notice in this regard. In fact, it is only the Company and its Directors (including the Nominee Directors of the Petitioner at the relevant time) who have been issued a show cause notice under FEMA. 29. For reasons set out in paragraph 11 of the order of admission, this Court chose to appoint Mr. Solomon, an Advocate and Solicitor of this Court, to act as an Authorised Person in place of the Provisional Liquidator. However, the Hon'ble Appeal Court modified the order of admission to the limited extent of appointing the Of....
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....ealt with immediately to realise their value; (v) making recommendations for the continuance and/or termination of the employees and matters connected therewith. The Official Liquidator shall therefore be at liberty to move an application/s before this Court under Section 459 of the Companies Act read with Rule 307 of the Companies (Court) Rules, 1959, seeking sanction of this Court to engage the services of a legal practitioner to assist him in the performance of his duties including representing him before the courts of law. 31. In view of the above facts and circumstances, I am satisfied that the Company has lost its substratum; there exits a deadlock between the main shareholders of the Company; there is complete lack of faith and probity resulting in irretrievable breakdown between the major shareholders of the Company; the liabilities of the Company have far exceeded its assets; the scheme propounded by Respondent No. 2 is unrealistic, speculative and unworkable and therefore a case is made out by the Petitioner to wind up the Company under Section 433 (f) of the Act. Hence the following Order: (i) The Company Petition is allowed in terms of prayer clauses (a) and (b....