TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 1223
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.... is a nonbanking financial company who has granted a credit facility by way of term loan of Rs. 50 crores to the Respondents. Respondent No.1 is the principal debtor, whilst Respondent Nos.2 and 3, who are directors of Respondent No.1, are guarantors for the advance. The transaction documents for the loan include a term loan agreement dated 24 June 2010 ("Term Loan Agreement") and a deed of hypothecation dated 13 July 2010, executed by Respondent No.1, and personal guarantees executed by Respondent Nos.2 and 3. The Respondents availed of the loan, but committed defaults in repayment of the same. A sum of Rs. 29.68 crores is alleged to be due and payable by the Respondents to the Petitioner as of the date of the petition. The Petitioner has recalled the entire finance, invoked the personal guarantees, and also invoked the arbitration agreement contained in the Term Loan Agreement. Referring to the conduct of the Respondents, set out in the petition, and in particular, the attempts of the Respondents and their secured lenders to formulate a CDR scheme, it is the case of the Petitioner that the Respondents are in the process of arranging their affairs and assets in such a manner as to....
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....It is submitted that a sum of Rs. 29.68 crores is due and payable by the Respondent to the Petitioner as of 21 March 2013; that the Petitioner served a statutory notice on the Respondent under Section 434 of the Companies Act, 1956; and that despite such notice, the Respondent failed to discharge the debt and, accordingly, there is a deemed inability to pay the debt on the part of the 1st Respondent Company. The petition is opposed by the Respondents and the secured lenders led by State Bank of India on the same grounds as are contained in their submissions in the accompanying Arbitration Petition. 5. Before we take up the question of granting of interim relief to the Petitioner or admission of the winding up petition in the face of the CDR scheme, let us dispose of the objections of insufficiency of stamp duty, and suppression and misstatement. It is firstly submitted by the Respondents that the arbitration clause is contained in a document (i.e. Term Loan Agreement) which is insufficiently stamped; the document cannot, in the premises, be led in evidence or acted upon by this Court and thus, no relief can be granted to the Petitioner under Section 9 of the Act. It is submitted ....
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....e. It is, however, submitted by Mr. Seervai, learned Senior Counsel appearing for the Respondents, that the judgment of Aditya Birla Finance Limited is per incurium since it erroneously disregards two binding judgments, namely, the cases of SMS Tea Estate and Lakdawala Developers. Learned Counsel implores the Court to take a different view from that of the fellow learned Single Judge in Aditya Birla Finance Limited. I am not inclined to go any deeper in this controversy for the simple reason that in the present case, the agreement and its contents are not in any way disputed by the Respondents and in the premises, it is not really necessary to rely on the document, namely, the Term Loan Agreement or its contents for the purposes of considering the present interim application. Even if we were to disregard the contents of the Term Loan Agreement, the existence of the debt as well as the arbitration agreement between the parties, the due invocation thereof and the reference commenced by the Petitioner in pursuance thereof having been admitted by the Respondents, the Court would be within its rights to consider the interim application of the Petitioner pending the arbitration reference....
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....yment of Rs. 10.30 crores. Under the circumstances, there is no case of suppression on this count either, so as to deny equitable relief to the Petitioner. 8. Let us now consider the merits of the petition in the face of the CDR Scheme. The petition seeks an attachment before judgment or relief in the nature thereof. It is settled law that the principles laid down in the Code of Civil Procedure, 1908 for grant for interlocutory reliefs as well as the underlying basis of Order 38 Rule 5 furnish a guide to the Court whenever similar reliefs are sought under Section 9 of the Act. At the same time, Courts must bear in mind the object of preserving the efficacy of arbitration as an effective form of dispute resolution behind a provision such as Section 9 of the Act. In other words, whilst deciding an application under Section 9 for reliefs in the nature of an attachment before judgment or an injunction, the Court will broadly bear in mind the fundamental principles of Order 38 Rule 5 and Order 39 Rules 1 and 2, but at the same time, will have the discretion to mould the relief on a case by case basis with a view to secure the ends of justice and preserve the sanctity of the arbitral pr....
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....u charge over the current assets of the company, both present and future. The other secured creditors (who are participating in the CDR Scheme and described as CDR Lenders) also have hypothecation deeds executed in their favour, many of these being even prior to the date of the Petitioner's charge. Presently, what is proposed in the CDR Scheme is that there would be a consolidated hypothecation deed and charge over the current assets of the 1st Respondent in place of these individual deeds, in favour of the CDR lenders. In other words, there is merely a restructuring of the existing charge in favour of the CDR lenders. No doubt there is an increased exposure to the extent of fresh Rs. 341 crores to be infused by the CDR lenders as part of the CDR Scheme. But that is something which is really to get the Respondent company out of the present debt trap and to revive it, and that is being closely monitored by a mechanism put in place by the Reserve Bank of India. In the premises, as long as the Petitioner's first pari passu charge is being recognized by the CDR lenders, the Petitioner cannot make any serious grievance out of the CDR scheme or its proposal of a consolidated hypothecatio....
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....for restructuring by the banks unless the financial viability of the borrower company is established and there is a reasonable certainty of repayment from the borrower, as per the terms of the restructuring package. It is a bonafide last ditch effort to assist the company to get back on rails, in the interest of all stakeholders. The CDR Cell established under the guidelines of RBI is an expert body, who, after assessing the merits of the restructuring proposal, has approved a final CDR package for Respondent No. 1 and appointed State Bank of India as the Monitoring Institution to oversee the implementation of the package, with a condition to furnish periodic reports to the CDR Cell. The CDR Scheme inter alia envisages (i) a cutoff date of 1 January 2014 at which the total debt outstanding is estimated at Rs. 3170.67 crores, (ii) principal moratorium of 27 months from the cutoff date, (iii) infusion of additional funds of Rs. 341 crores by CDR lenders into the company, and (iv) total loan tenure of 117 months, with repayment starting from 30 April 2016. The total sacrifice of CDR lenders on account of deferment of principal repayment and reduction of interest rate is estimated at R....
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.... oppose an admission order on the ground of an ongoing CDR Scheme, if there is otherwise a case for winding up. It is submitted that the Court may consider advisability of a winding up order after hearing all stakeholders at the final hearing of the petition, but that need not come in the way of admission of a petition for winding up. Learned Counsel relies upon the judgments of learned Single Judges of our Court in BNY Corporate Trustee Services Ltd. Vs. Wockhardt Limited (CP/971/09 dtd. 11 March, 2011, Coram: S.C. Dharmadhikari, J.) and Sublime Agro Ltd. Vs. Indage Vintners Limited (CP/960/09 dtd. 19 March, 2010, Coram: S.J. Kathawalla, J) as also of Delhi High Court in Citibank, N. A. Vs. Moser Baer India Ltd. (Co.Pet.558/2012 & Co.Appl.2301/2012 dtd. 17 July, 2013, Cora: R.V.Easwar, J.(Delhi High Court) and Yes Bank Limited Vs. A2Z Maintenance & Engineering Services Ltd. (CS(OS) No.217/2014 dtd. 30 July, 2014, Coram: Manmohan Singh,J) in support of his contentions. 16. It is true that there is no defence to the Petitioner's debt and there is a clear case of deemed inability to pay it on the part of the company. But does that mean that the Company Court is obligated to admit a ....
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....in the case of Bipla Chemical Industries Vs. Shree Keshariya Investment Ltd. (1977) 47 Company Cases 211) was cited before the learned Single Judge, which had taken a view that the creditors who are inclined to oppose a petition for winding up are not entitled to be heard at the stage of admission. Delhi High Court relied on Rule 96 of the Companies Court Rules, 1959 which enables the creditors to be heard after the petition is admitted and advertised, and observed that there was no rule envisaging such hearing before admission. The learned Single Judge in Bharat Petroleum Corporation (supra) respectfully disagreed with this view, holding as follows (part of para 6): "The circumstance that there is no rule which envisages that the creditors may be heard to oppose the admission of a petition does not interpose any bar to the Company Court even at the stage of admission in view of the clear mandate of section 557 that in all matters relating to the winding up of a company, the Court will have regard to the wishes of creditors and contributories. Subsection (1) of section 557 provides a clear statutory principle for the Court to follow. As a matter of fact there is no reason why the ....
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....force to the facts of our case. Here the debt of the company sought to be restructured is much larger, the banks and financial institutions are more in number and their exposure much greater in value. In the circumstances noted above, there is a clear case for giving the CDR Scheme a proper chance with a view to get the company back on rails. At this sensitive and critical juncture, an order of admission would seriously affect the market position of the company. The confidence of the business and trade in the future of the company is likely to take a bad hit, if at this stage, when all stakeholders are focused on reviving the company, a winding up petition is admitted against the company. Besides, as noted by the learned Single Judge in Bharat Petroleum Corporation (supra), winding up is a matter of discretion for the Company Court and advisability of a winding up order, in the particular facts of each case, is very much a component of the sound judicial discretion to be exercised by the Court and there is no reason why it ought not to form part of the consideration of the Court at the admission stage, as explained above. 18. Let us now consider whether the judgments relied upon b....
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....to indicate the basis for the CDR lenders to have reached a decision that the company was viable and that the debt could be restructured. Though the decision was said to be on the basis of a "business plan" submitted by the company, the business plan was not produced before the Court despite the Court calling upon the company to do so. The Court noticed that the monitoring committee under the CDR mechanism comprised only of secured creditors and no unsecured creditor was on the monitoring committee. The Court held that the CDR Scheme was a voluntary scheme not binding on the unsecured creditors of the company, who were always free to pursue winding up proceedings. The court also took into account the statement of law in Palmer's Company Law to the effect that where the opposition(to a winding up petition) comes from creditors of a different class, e.g. secured creditors, the court may prefer the wishes of unsecured creditors, since in some cases refusal of the order will rob them of what is virtually their only remedy. The court held that the claim of unsecured creditors in that case amounting to Rs. 200 crores could not be ignored on the ground that the CDR Cell was holding me....
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....d Single Judge of Delhi High Court considered an application of the plaintiff company, who had filed a suit for permanent and mandatory reliefs against four defendants. These reliefs were sought on the basis of certain agreements between them and the plaintiff. It was the grievance of the plaintiff in that case that a CDR package had been approved by the Corporate Debt Restructuring Committee in respect of defendant no.1. The CDR package inter alia contemplated restructuring of term loan. The package envisaged that defendant no.2, as shareholder of defendant no.1, shall pledge the entire shareholding in favour of the CDR lenders. Such pledge would have been in breach of an undertaking forming part of the agreement between the parties. The contention of the defendants was that the CDR package was not voluntary as contended by the plaintiff but that the framework and guidelines laid down by the Reserve Bank of India were binding on the plaintiff. The learned Single Judge of Delhi High Court did not accept the contention of the defendants. The court held that by virtue of documents executed between the parties, the plaintiff had a contractual right to see that no other or further char....
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....g up petition. A restructuring package in respect of a debt of a respondent company being under active implementation and reflecting materially on the viability of the company as also the effect of a winding up order, or even an order of admission of a winding up petition, on the implementation of such package and its effects qua the company and all the other stakeholders, are matters that may well be considered by the Company Court in a winding up petition, both at the stage of admission as well as final hearing. These elements were clearly absent in the case of Sublime Agro. In that case, there was no final CDR scheme actually under implementation. In a meeting of joint lenders, considering the feasibility of the revival of the company on the basis of a "business plan", a proposal for its admission under CDR mechanism was merely approved and the monitoring institution had agreed to convene a joint lenders' meeting and prepare a final restructuring package for the company. And even the so called "business plan" was not forthcoming despite the Court's demand. It is in these facts that our Court said that "the claim of unsecured creditors in the instant case amounting to Rup....