AI Drafter 
TaxTMI 
TaxTMI 
2019 (3) TMI 1188
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....ner in that capacity has filed a Petition before the Hon'ble Bombay High Court under the old provisions of Companies Act, 1956 by invoking sections 433(e), (f) & Sec. 434 of the Act on 21.10.2016 bearing Company Petition No. 847/2016. The said Petition was transferred because of the Notification dated 29.06.2017 issued by Ministry of Corporate Affairs through which all proceedings relating to voluntary winding up of a company stood transferred to the Bench exercising territorial jurisdiction of NCLT. As a consequence, the said Petition pending for disposal before the Hon'ble High Court was transferred to NCLT, Mumbai for due adjudication under the provisions of newly incorporated Insolvency and Bankruptcy Code, 2016. 2.1 On transfer of case records from High Court to NCLT Mumbai, the Petitioner had filed the Application dated 25.05.2017 on the requisite Form No.1 as prescribed under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in respect of a Debt of Rs. 97,79,40,000/- and default of payment of a Financial Debt of Rs. 266,39,08,560/- (refer Part-IV of Form No.1)....
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....y side a Letter of Undertaking (LoU) was executed on 20.08.2009 by the Respondent Company (La-Fin) to purchase the Petitioner's share in MCX-SX any time after a period of one year but not later than three years from the date of Petitioner's investment pursuant to said SPA. e. A premium or a price was also indicated that the purchase price of the Petitioner's share would be higher of (i) the price that would give the Petitioner an internal rate of return of 15% on its investment; or (ii) the price at which the most recent transaction of MCX-SX's equity shares was carried out by the MCX Group. f. Further, as per the "Letter of Undertaking" dated 20.08.2009 the Respondent Company without the Petitioner's written consent forbidden to issue MCX-SX share to any person(s) at a price below Rs. 35/- per equity share. g. The Petitioner (ILFS) therefore purchased the share of MCX on 20.08.2009 at Rs. 36/- per share for total consideration of Rs. 159,12,00,000/- (Rupees One Hundred Fifty- Nine Crore Nine Lakhs Twelve Thousand only) h. On 20.11.2009 the Petitioner (ILFS) received an EOGM notice from MCX-SX scheduled to be held on 15.12.200....
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....duly purchased the warrant issued in favour of the Petitioner for the share extinguished. 6. The controversy erupted when the Petitioner received a letter dated 23.08.2010 from the MCX-SX stating inter alia that FTIL had informed MCX-SX that the Respondent Company's obligations under the 'Letter of Undertaking' had become infructuous on account of the Scheme of Reduction being approved by this Hon'ble High Court. Further, the said letter stated that in compliance with the order of Hon'ble Bombay High Court dated 10.08.2010 passed in Writ Petition No. 1440/2010, the Board of Directors of the Respondent Company has passed a resolution declining to honour any buy back or other similar arrangement. 6.1 The Petitioner replied on 10.09.2010 refuting the wrongful stand taken by MCX-SX, denying the contentions of the MCX Group, and reiterating that the Respondent Company continued to be responsible to honour its obligations to the Petitioner under the 'Letter of Undertaking'. Further, the Petitioner also recorded the fact that by way of the 2009 MCX Letter, MCX confirmed that there would be no dilution of the terms of either the SPA or the Letter of Undert....
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....here is no contract for the sale and purchase of shares. A contract for the purchase or sale of the shares would come into being only at a future point of time in the eventuality of the party which is granted an option exercising the option in future. Once such an option is exercised, the contract would be completed only by means of spot delivery or by a mode which is considered lawful. Hence, the basis and foundation of the order which is that there was a forward contract which is unlawful at its inception is lacking in substance. (vii) The buy back agreements cannot be held to be illegal as found in the impugned order of the Whole Time Member of SEBI on the ground that they constitute forward contracts. A buy back confers an option on the promisee and no contract for the purchase and sale of shares is made until the option is exercised. The promissor cannot compel the exercise of the option and if the promisee were not to exercise the option in future, there would be no contract for the sale and purchase of shares. Once a contract is arrived at upon the option being exercised, the contract would be fulfilled by spot delivery and would, therefore, not be unlawful." 6.3....
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....ent and you and your group companies, including MCX Ltd. ("the MCX Group"), it was agreed that (i) our client would exit MCX Ltd. (ii) its investment in MCX Ltd. would be transferred to another investor (IFCI); (iii) part of the proceeds realized therefrom would be used by our client to purchase from MCX Ltd. 4,42,00,000 equity shares in MCX Stock Exchange Ltd. ("MCX-SX") (representing 2.46% of its equity share capital); and (iv) you (as a condition to our client purchasing the said 4,42,00,000 share of MCX SX) would be obliged to offer to buy or cause to be bought from our client, the said 4,42,00,000 shares at a agreed price within an agree period. 2. The aforesaid arrangement was formalised by the parties by executing the following agreements:- (a) A Share Purchase Agreement dated 20th August, 2009 amongst our client, MCX Ltd. and MCX-SX in relation to our client's purchase of shares held by MCX Ltd. in MCX-SX ("the SPA"); and (b) A Letter of Undertaking dated 20th August, 2009 by you (hereinafter referred to as "the Letter of Undertaking"), inter alia undertaking an obligation to make an offer to our client either by yourself or your nominees, to ....
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....eive a letter dated 23rd August, 2010 MCX-SX, inter alia stating that Financial Technologies (India) Ltd. ("FTIL") had informed MCX-SX that your obligations under the Letter of Undertaking had become infructuous and stood superseded upon the Scheme of reduction having been approved by the Hon'ble Bombay High Court. 8 . Our client, vide its reply dated 10th September, 2010, refuted the stand taken by MCX-SX and, purportedly, by you. Our client reiterated that the fundamental premise of its investment in MCX-SX was the arrangement provided by the MCX Group by which you would buy the shares held by our client. Our client categorically denied the contentions of the MCX Group that post implementation of the Scheme of reduction, the responsibility of the MCX Group through you to buy the shares of MCX-SX from our client had ceased to exist. Our client also recorded that MCX Ltd. had, vide its letter dated 14th December, 2009 addressed to our client, categorically confirmed that there would be no dilution of the terms of either the SPA or the Letter of Undertaking. 9. Thereafter, in anticipation of the end of the "Agreed Period" which was to fall on 19th August, 2012,....
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....ction was obtained on the explicit understanding that there would not be any dilution of your obligations under the Letter of Undertaking. In any event, the MIMPS Regulations or the SECC Regulations, for that matter, would not preclude you from performing your obligations under the Letter of Undertaking as you could, inter alia, arrange for your "appointed nominees" to offer to purchase the said Shares. Our client pointed out that the contentions sought to be raised by you vide your letter dated 16th August, 2012 were, in fact, in teeth of the submissions made by the MCX Group before the Hon'ble Bombay High Court in Writ Petition No. 213 of 2011 filed by MCX-SX against SEBI and others. 12. Finally, our client addressed a letter to you on 15th April, 2013, inter alia, informing you that as per the working/calculation contained therein, as on 31st March, 2013, you were bound and liable to pay a sum of Rs. 161,99,03,280/- to our client towards fulfilment of your obligations under the Letter of Undertaking. Vide the said letter, our client also called upon you to make payment of the said sum on or before 22nd April, 2013. However, instead of making payment of our client....
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....of action accrued to the Applicant on 16.08.2012 when the Respondent refused to perform its alleged obligation. Therefore, simply going by the Applicant's own pleadings, the Applicant's alleged cause of action (viz. the date of refusal as alleged) arose on 16.08.2012. However, the statutory notice for winding-up admittedly is dated 03.11.2015, and was received by the Respondent on 05.11.2015. It is self-evident that the statutory notice was issued to the Respondent beyond 3 (three) years from 16.8.2012. Therefore, the Winding-Up Petition as also Insolvency Petition of the Petitioner, both are barred by the law of Limitation and liable to be dismissed. 9.3 On behalf of the Respondent Debtor written submissions were also made, relevant portion reproduced below :- "SHORT NOTES OF SUBMISSIONS ON BEHALF OF THE RESPONDENT I.E. THE ALLEGED CORPORATE DEBTOR (CD) A. Not a "financial debt" within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC): 1. The subject matter of the Application is not a "financial debt" within the meaning of Section 5(8) of IBC for the following reasons:- (i) There has not been disbursement o....
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.... during the "Agreed Period" to purchase all the shares acquired by IL & FS under the SPA. Under this clause of the LoU the Formula of the offer price i.e. "Buy Back Price" is prescribed. Further, under this clause IL & Fs has the option to accept/not accept such offer within a maximum period of 30 days. (PB Page 87, Point 1) * Point 2 of LoU gives option to IL & FS to exit from MCX-SX on the basis of an IPO. (PB Page 87 Point 2). In such event, the CD would have no obligation to make any payment for "buy back". * Points 1 and 2 of LoU show that after expiry of the "Agreed Period" ail rights of IL & FS under the LoU lapse. In other words, neither can it insist on exiting through an IPO or causing CD to buy its shares under the LoU or otherwise. The above would show that the transaction between the concerned parties could not and did not have "the commercial effect of a borrowing"; (d) On the date of execution of the SPA and LoU there was no "forward sale or purchase agreement" of the shares acquired by IL & FS under the SPA. This was recognized by the Division Bench Judgment of the High Court of Judicature at Bombay in Writ Petition No. 213 ....
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....r winding up was filed i.e. 21st October, 2016, the petition was barred by limitation. This is particularly so when in the plaint in Suit No. 449 of 2013, it has been averred that the cause of action arose on 16th August 2012 (Para 43 of the Plaint, See Reply Page 51). Filing of the Suit cannot save limitation so far as the winding up petition is concerned. No proceedings can be initiated under IBC on the basis of such petition which was barred by limitation (See Hariom Firestock Limited v. Sunjal Engineering Pvt. Ltd. (1999) 96 Comp. Cas 349). 2. As per the Notification dated 29th June 2017 i.e. Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017, transfer of the company petition from the High Court to NCLT cannot result in a winding up petition converted into an application under Section 7 of IBC. As such, the petition is liable to be dismissed (See Unimark Remedies Ltd. v. Ashok Alco Chem Ltd. Company Appeal (AT) (Insolvency) No. 45 of 2017). 3. In view of the decision of the NCLAT dated 07.11.2017 in Speculum Plast Pvt. Ltd. v. PTC Techno Pvt. Ltd. in Company Appeal (AT) (Insolvency) No. 47 of 2017, the CD is not making any further submiss....
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....ary Original Civil Jurisdiction in the High Court of Judicature at Bombay in Suit No. 449/2013 allegedly a Civil Suit seeking "Specific Performance" is filed by the Plaintiff (ILFS) against the Defendant (La-Fin), therefore, the filing of Insolvency Proceedings against La-Fin is a duplicity of the proceedings, purported to be 'Forum Shopping'. To examine this objection, we have perused the contents of the said Petition as well. 10.2 In the said Petition it is stated that the Plaintiff (ILFS) is registered as "Infrastructure Leasing and Financial Services Limited" promoted by leading banks viz. Central Bank of India, Unit Trust of India, HDFC Limited and over the years other principal stakeholders in ILFS are SBI, LIC having broad based shareholding. 10.3 About the Defendant (La-Fin), it is functioning as holding Company to look after the interest of Mr. Jignesh Prakash Shah and Mrs. Rupal Jignesh Shah, who are the Promoters and 100% shareholder of La-Fin. Mr. Jignesh Shah happened to be the Chairman and Group CEO of Multi Commodity Exchange of India (MCX Ltd.) and Promoter shareholder of MCX-Stock Exchange Ltd. (MCX-SX). The assets of the Defendant Company are Financi....
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....EOGM of the Members to be held on 15.12.2009 to pass a resolution to effectuate a scheme of Reduction of Share of MCX-SX. ILFS voted against the said proposal. On an undertaking given by the group that warrant be issued in favour of ILFS and purchases were made immediately on approval of the scheme of Reduction and in any event before 31.03.2010 by providing minimum internal rate of return of 15% on the investment, the ILFS was persuaded to give approval of Share Reduction Scheme. Again the Plaintiff (ILFS) in good faith believed on the assurances. Consequent thereupon, the Plaintiff's holding in MCX-SX had become rendered just below 5%. However, 'Warrants' were issued in favour of the Plaintiff for the shares extinguished. As assured and undertaken, these warrants were duly purchased by MCX Ltd. on 26.03.2010. The Plaintiff presently holds 2,71,65,000 equity shares of MCX-SX representing just under 5% of its equity share capital. Clearly, therefore, all parties recognised that the obligation to purchase shares could be lawfully honoured, despite the MIPMPS Regulations and/or the Scheme of reduction. 10.9 The dispute trigged from this event. It is informed that it wa....
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....the Code defining "Financial Debt" are to be scrutinized to resolve this issue. For ready reference reproduced below :- "5.(8) "financial debt" means a debt along with interest if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-matenalised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, Including any forward safe or purchase agreement having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from ....
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....amount has been "raised" with an objective of economic gain or commercial effect may also be treated as "Financial Debt". I, hereby, hasten to add that an investment, may or may not be a long term investment, with the purpose of acquisition of an asset, right or ownership and prima facie a capital-outlay may be having commercial intention, shall not fall within the definition of "Financial Debt". Thus a broad distinction can be made that if there is an assured return or commercial gain within a guaranteed period than that transaction be not considered an Investment under the Insolvency Code but a Financial Transaction so as to fall within any of the long list of categories prescribed u/s. 5 of the Code defining 'Financial Debt'. 11.3 In my opinion it is an important judicial phenomenon that in the "Definition" section both the terms i.e. "means" and "includes" are used. By using both these expressions the definition has enlarged its scope of implementation. In the first segment of the section where the expression "means" is used the term "Financial Debt" defines a disbursement against the consideration for the time value of money. But where the expression "includes" is u....
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....value of money, this definition has also included all those transactions which are not having the element of physical transfer of money from the hand of the lender to the account of the borrower. Thus, the "disbursement" as well as element of "interest" are not the two conditions sine-quo-non so as to fall within the ambits of the definition of 'Financial Debt'. Those transactions where an amount is raised having commercial effect of a borrowing are also coming within this definition. Other transactions such as "derivative transaction" or "counter indemnity obligation" or "value" of a transaction, may be calculated on the basis of market value and to be taken into account for the purpose of claim of "Financial Debt". 13. In the light of the above discussion and on due perusal of the documents annexed, the Debt is to be qualified as "Financial Debt" as defined under section 5(8) of Insolvency & Bankruptcy Code, 2016. As a result, the Financial Creditor has filed this Application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. 14. Since this is a Petition of "Financial Creditor", therefore, the Insolvency Process shall commenc....