TaxTMI 
TaxTMI 
2018 (10) TMI 338
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....ent No.2 Company and the terms of the CCDs as set out in schedule 9 Part B of the Investment Agreement as illegal and void-ab-initio. b. To declare that the conversions of compulsory convertible debentures is ultra vires and contrary to the Articles of Association of Respondent No.2. c. TO direct the Respondents 5 and 6 to cancel the 9,06,599 equity shares of Respondent No.2 credited to the account of the Petitioner pursuant to the illegal resolution of the Board of Directors is in contravention of the Articles of Association of Respondent No.2. d. To pass orders for rectification of the register of members of Respondent No.2. 2. On 25.06.2015, an Investment Agreement was entered into between the petitioner and the Respondent No. 13 together with the promoter group consisting of Respondent No.7, Mr. K. Raghu Rama Krishna Raju and Sriba Seabase Pvt. Ltd. (collectively 'the Promoters') and Respondent Nos. 1, 2 and 4. In terms of the Investment Agreement the Petitioner and the Respondent No. 13 lent a sum of Rs. 780 crores as follows :- a. The petitioner subscribed to 9,06,599 the investor compulsorily convertible debentures of Respondent No.2 ("....
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....) The Company shall convert the CCDs upon receipt of a written notice (the "Conversion Notice") by the CCD holders..." (Emphasis supplied). 6. The aforesaid terms of the Investment Agreement were incorporated in the Articles of Association of Respondent No.2, particularly at Articles 65.8 and 77.4 of Chapter II. On 15.05.2015 the lead lender of Respondent No.4 had issued a letter whereby, it approved the proposed modification in the equity structure of Respondent No.4 on account of Investment Agreement. 7. On 27.06.2015, a Debenture Trust Deed was executed between Respondent No.2 and Respondent No.3 in terms of which Rs. 699 crores and additional amount of Rs. 80 crores was proposed to be raised by way if issue of NCDs and the payment of discharge of NCDs was to be secured by:- a. Pledge of 9,500 equity shares held by Respondent No.1 in Respondent No.2 representing 51% of its share capital on fully diluted basis; b. Pledge of 50,57,79,500 equity shares of the Respondent No.4 representing 48.99% of its share capital on fully diluted basis; and c. Hypothecation and maintenance of all cash flows of the Respondent No.4 permitted to be hypothecated under....
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.... in terms of the Subscription Agreement dated 23.12.2016. 15. Consequently, on 29.08.2017, the Petitioner and the Respondent No. 13 addressed a letter to the Promoters and Respondent Nos.1,2 and 4 calling upon them in terms of the Investment Agreement informing them that on account of occurrence of Events of Default under the Investment Agreement they became entitled to exercise voting rights in respect of the securities held by them in Respondents Nos. 2 and 4. 16. On 31.08.2017, the Respondent No.3 invoked the Power of Attorney granted to it pursuant to the Share Pledge Agreement and invoked the pledge of 9,500 shares of Respondent No.1 in Respondent No.2 and 50,57,79,500 equity shares of Respondent No.1 in Respondent No.4 but the pledged shares have not been sord and they were only transferred to de-mat account of Respondent No.3. 17. On 05.09.2017, the Petitioner and Respondent No. 13 issued letters to the Promoters and Respondent Nos.1, 2 and 4 and Arkay Energy Rameshwaram Ltd calling upon them to convert the CCDs into equity shares and thereby stating that with effect from 05.09.2017, the nominees of the Promoters and Respondent No. 1 shall cease to be the directors ....
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....s of Respondent No.2. (b) Conversion of the CCDs subscribed to by the Petitioners into equity shares of Respondent No.2. 26. On 17.10.2017, the Respondent filed two Petitions before the NCLT, Hyderabad CP No.235/2017 for a declaration that the notice dated 06.10.2017 issued by the Respondent No.3 is illegal and contrary to Articles of Association of Respondent No.1 and CP No.243/2017 under section 59 of the Companies Act, 2013 for rectification of register of members and for a declaration that the transfer of 9,500 shares in the name of Respondent No.3 are contrary to the Articles of Respondent No. 1. 27. The NCLT, Hyderabad by its order dated 27.10.2017 stayed the EOGM scheduled to be held on 01.11.2017 until the next date of hearing, i.e., 17.11.2017 at which time it was extended by consent to 12.12.2017. 28. Thereafter, there was no extension of status quo order. 29. On 06.03.2018 Respondent No.1 filed a memo in both the Company petitions CP 235/2017 and CP 243/17 seeking to withdraw the same with a liberty to file afresh. 30. This Tribunal permitted the petitioners in both the CP's to withdraw petitions by granting liberty to the Petitioner to file fresh Company ....
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.... another letter to Respondent Nos.1,2 and 4 reiterating their stand. 40. The Petitioner and Respondent No. 13 filed an application under section 425 of the Companies Act, 2013 read with Section 12 of the Contempt of Courts Act, 1971 stating that the meeting of the Board of Directors of respondent No.2 held on 26.03.2018 is in blatant violation of the orders passed on 06.03.2018. 41. On 06.04.2018 the Petitioner and the Respondent No. 13 were intimated by SBI SG Global Securities Services Pvt. Ltd. about the conversion of CCDs into equity shares and the Petitioner's account had been credited with 9,06,599 equity shares of Respondent No.2 as on 06.04.2018. 42. According to the Petitioner and Respondent No. 13 the Board of Directors meeting on 26.03.2018 for conversion of CCDs was based on a deliberate misinterpretation of the Order dated 06.03.2018 and it is in violation of the Articles of Association. 43. The Petitioner without prejudice to his contempt filed this Petition. 44. The Respondent No.1 filed counter stating that the Petition is not supported by affidavit prescribed in the NCLT Rules, 2016. 45. This Tribunal has no jurisdiction u/s. 59 of Act to grant th....
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....5/2017 and CP 243/2017. 57. According to the 1st Respondent it was the case of the petitioner all through that they have invoked the pledge and became Major Shareholders of the Respondent No.2. 58. Even in the Board Meeting dated 26.03.2018 which was convened to give effect to the conversion of CCDs, the petitioner did not take any steps to withdraw or recall the Pledge. 59. The Respondent No.2 filed counter on the same lines on which Respondent No.1 filed. 60. Basing on the Pleadings and the rival contentions the following points emerge for determination in this Petition. (i) Whether this Tribunal has got jurisdiction to consider and grant the reliefs prayed in this Petition while exercising jurisdiction U/s.59 of the Companies Act, 2013? (ii) Whether the conversion of 9,06,599 CCDs into equity shares in favour of the Petitioner is in accordance with the Articles of Association and Investment Agreement the dated 25.06.2015? (iii) Whether Petitioner is entitled for rectification of register of members of Respondent No.2? 61. This petition is filed invoking the jurisdiction of this Tribunal u/s.59 of the Companies Act, 2013 that corresponds ....
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.... company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may be extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both. 64. Sec. 59 sub-section (1) gives rise to a cause of action to any member of the Company or the Company or all the person aggrieved in case if the name of any person is without sufficient cause entered into the register of members of a company or after having been entered in the register, omitted therefrom without sufficient cause. 65. In the case on hand the cause of the Petitioner is that without sufficient cause its name has been entered into register of members and equity shares of the Respondent No.2 Company have been allotted to it as per the intimation given by the SBI SG Global Securities Private Limited about the conversion of CCDs into equity shares and the Petitioners account had been credited with 9,06,599 equity shares of Respondent No.2 on 06.04.2018. 66. Admittedly on 05.09.2017 the Petitioner....
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....uiry u/s.59 is made clear in the decision of the Hon'ble Supreme Court in Ammonia Supplies Corpn. (P) Lts. v. Modern Plastic Containers (P.) Ltd. and others reported in (1998) 7 Supreme Court Cases 105. 74. In that Judgement the Hon'ble Supreme Court held the Court under u/s.155 of the Companies Act 1956 has to adjudicate in the facts and circumstances whether the dispute raised really pertains to rectification or under the grab of rectification questions of the facts involving contentious issues raised. 75. It is further held in that Judgment that if dispute found to be relating to the peripheral field of rectification, then the Company Court under section 155 will have exclusive jurisdiction and jurisdiction of Civil Court will be impliedly barred. It is also held that if the finding is otherwise Civil Court's jurisdiction is not excluded. 76. Keeping the said principle in mind we proceed to examine facts and events that lead to be filing of this Petition. 77. Admittedly on 25.06.2015, The Investment Agreement was entered into between the Petitioner and Respondent No. 13 together with Promoter group consisting of Respondent No.7, Mr.K.Raghu Rama Krishna Raju and Sriba....
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....Equity share of each of CCD converted by them, and shall deliver duly stamped shares certificates in respect thereof. (B) The Company shall update its registers of debenture holders and members to record the conversion of the CCDs. (iii) The Company and the Promoters shall do all such acts and deeds to give effect to the provisions of this Article 0(d), including without limitation, causing any Director nominated by the Promoters to exercise their voting rights in a meeting of the Board to approve the conversion of the CCDs. (e) In the event the Company undertakes any form of restructuring of its share capital, including but not limited to (i) consolidation or sub-division or splitting up of its Equity Securities; (ii) issue of bonus or right shares; (iii) distribution of scrip dividend; or (iv) other similar occurrences, the number of Equity Shares that each CCD converts into, shall be adjusted accordingly in a manner that the holder of the CCDs receive such manner of Equity Shares that they would have been entitled to receive immediately after the occurrences set out in the sub paragraphs (i) to (iv) above had the conversion of the CCDs occurred immedia....
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....by the Respondent No.3 and Petitioners. Ultimately, CP No.235/2017 was withdrawn by the Respondent No.1. 88. This Tribunal granted permission to Respondent No.1 to conduct EOGM in accordance with law and by following principles of natural justice. 89. The grievance of the Petitioner is that Respondent No.1 and Respondent No.2 convened the Board meeting stating that it has got the approval from NCLT, Hyderabad to conduct the Board meeting. 90. The Board meeting scheduled on 26.03.2018 and the notice of said meeting was given on 17.03.2018. 91. It is at this stage that the Petitioner and Respondent No. 13 took a 'U' turn and stated that they are not going ahead with the conversions of CCDs into equity and they will exercise such option at a future date vide letter 20.03.2018. 92. Here it is pertinent to mention that the Petitioners also filed a Petition U/s.425 of the Companies Act, vide CP 175/425/HDB/2018 for contempt on the ground that the Board of Directors meeting was called by miss-quoting the Order of the NCLT dated 06.03.2018 passed in CP 235/2017. 93. Thereafter, Petitioners filed this Petition. Thereafter, the Petitioner also filed CP (IB)No.l92/7/HDB/2017....
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....t Agreement. 104. On this aspect learned counsel appearing for the Respondent relying upon the decision of the Sharad P. Jagtiani v. Edelweiss Securities Ltd. of Delhi High Court decided on 03.03.2014 2014 Indlaw DEL 965, contended that when it is mentioned in the written statement referring to the Arbitration Agreement it is not necessary that a separate Petition u/s.8(2) of the Act needs to be filed. This is also a contentious issue. It require elaborate examination of the provisions of the Arbitration Act and case law on the point. 105. The next issue raised by the respondent is that the Petitioner and the Respondent No.3 having elected to have conversion of CCDs into equity shares of Respondent No.2 choose to go back on their election which is not provided in the Articles of Association or in the Investment Agreement. 106. The issue raised by the Petitioner is that before the conversion of CCDs into equity shares when the Petitioner wrote back to the Respondents 1 and 2 by a letter dated 28.03.2018 asking them not to place agenda item No.3 of the Board meeting dated 26.03.2018 relating to conversion of CCDs into equity shares, the conversion is illegal. Basing on the p....
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....s the matters more particularly set out in Annexure-A of the letter, as Respondent No.2 has failed to call for the same. 116. Basing upon the same letter, on 06.10.2017 the Respondent No.3 issued a special notice u/s.115 read with Section 169 of the Companies Act calling for a General Meeting of the Respondent No.2 for the purpose of conversion of CCDs subscribed by the Petitioners into the equity shares of Respondent No.2. 117. When the Respondent No.1 and 2 challenged the special notice issued for convening of EOGM, the Petitioner opposed the same. 118. This Tribunal vide its order dated 06.03.2018 clearly held that Respondent No.1 may conduct EOGM in accordance with law and follow principles of natural Justice. 119. In the absence of CP NO.235/2017 and with the vacation of the Stay Order Respondent No.1 is supposed to act on the notice dated 06.10.2017 issued by Respondent No.3 for calling of EOGM. 120. But Respondent No.1 called for a Board Meeting on 26.03.2018 for conversion of CCDs held by the Petitioner into equity shares of Respondent No.2. 121. As soon as notice is issued on 17.03.2018, on 20.03.2018 Petitioner asked Respondent No.2 not to go ahead with ....
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.... days no right is expressly or impliedly given to the Petitioner to revoke the election. 130. On the other hand the right is given to the Petitioner to enforce the election of CCDs into equity shares. In the case on hand after the Joint Lenders Forum Meetings, the Petitioner came to know that the net worth of the Respondent 1 and 2 Company is completely eroded and the petitioner thought of going back on their request for conversion of CCDs into equity. 131. Such course of action whether permissible under the provisions of the Companies Act is a substantial question of law that require determination by exercising a wider jurisdiction than the jurisdiction provided U/s.59 of the Companies Act. 132. In case the Company is going well in terms of Finance and its share has got considerable value which is equivalent to the amount in default that includes interest, even then the Petitioner can put forward an argument that within 5 days conversion did not take place and therefore the Petitioner is not entitled for conversion. 133. Mere non-conversion of CCDs into equity shares within 5 days from the date of election will not automatically disentitle the investors to have their r....