AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 266
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....e offer letter further stated that unless previously converted, redeemed or repurchased and cancelled the issuer. ie. the respondent, will redeem each bond in US Dollars at US$128.50158% of the principal amount on the date of maturity. The Bond holders were given an option to convert their bonds into fully paid-up equity shares of the respondent. 3. In pursuance of the above offer letter, the respondent had issued the aforesaid bonds to the Bond holders and the petitioner, as the Trustee of the Bond holders and the respondent, as the Issuer, had entered into a Trust Deed on 21.02.2007. The terms and conditions of the Bond formed a part of the Trust Deed and was set out as Schedule-2 to the Trust Deed. 4. It is the case of the petitioner that from the 2nd semi-annual interest due on 21.12.2009, the respondent had not paid the interest that had become due and payable on the scheduled dates. Since the default continued for over 5 days in each of the instances, it became an event of default as per condition No.10 of the Bond. As on 06.04.2011, the respondent therefore, was due in the amount of $38,098,737.85. The petitioner as Trustee therefore, issued a notice of default dated 0....
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....t is now sought to be raised lacks bona-fide. Considering the fact that the respondent is unable to pay its debts, the respondent company should be wound up. 11. The respondent has countered these averments by contending that the respondent is a profitable concern and for the period June, 2010 - March, 2011, the profit of the Respondent Company was Rs. 396 lakhs. They had also set up wind mill projects in 2 places at Karnataka in 1998 and at Puducherry in 2004. In the year 2007, the respondent decided to raise funds through Foreign Currency Convertible Bonds. M/s. Jefferies International Ltd. was the Manager for this fund and M/s. Euroclear its clearing agent. The respondent issued the offer circular dated 13.12.2007. 12. The respondent would further contend that the Bond holders are unsecured creditors and the bonds are freely traded in the Singapore Exchange Securities Trading Ltd. Further, the Bond holders are investing money subject to risk disclosed in the offer letter. The respondent would further contend that M/s.QVT Fund LP and Quintessence Fund L.P., Cayman Islands (Collectively known as QVT Bond holder) were the major subscribers to the issue. The Petitioner Trus....
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....ived at is that the restructuring had not taken place. The respondent has themselves accepted this fact in some of their earlier correspondence. The petitioner further submitted that the Bond holders had denied the execution of the revised term sheet. Further, the 2 companies who had questioned the petitioner's right to file the petition had not responded to the petitioner's letters asking them to identify themselves with the necessary proof of their holdings. Therefore, the petitioner contended that the respondent was attempting to put up a sham defense and the petition for winding up should be ordered. 17. Submissions: (A). Mr. P.S. Raman, the learned Senior Counsel who was instructed by the Counsel for the petitioner had made his oral submissions which has been captured in the written submissions filed on behalf of the petitioner. The Learned Senior Counsel had given a brief submission on the floating of the Bonds by the respondent; the procedure contemplated for applying for it, how and when the Bonds are to be redeemed, the salient features of the Bonds etc. He had also briefly touched upon the sequence of events commencing from the issue of Bonds upto the com....
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....enith Infotech Ltd. Vs. The Bank of New York Mellon London Branch."- Appeal (L) No.344 of 2013. (ii) Judgment of the Division Bench of our High Court dated 24.04.2014 in "Deutsche Trustee Company Limited Vs. Mascon Global Limited."- O.S.A No.231 of 2013. (c) The next objection was that the petitioner has instituted the company petition without the proper authorization of the Bond holder as certain Bond holders ie. M/s. White Crown Holdings Ltd., had expressed the view that they were happy to go ahead with the restructuring and had not authorised the petitioner to move the winding up petition. To this, the petitioner would contend that as per Clause 16 and 24 of the Trust Deed that the petitioner was vested with the full discretion with regard to institution of proceedings to enforce the terms of the Bonds/Trust. The petitioner is bound to initiate such proceedings if so directed by an Extraordinary Resolution or if requested in writing by Bond holders holding at least 25% of the Bonds. The Senior counsel would bring to the notice of the Court the Letter dated 04.04.2011 from M/s.QVT Fund LP and Quintessence Fund L.P.,who admittedly held over 45% of the outstanding princ....
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....that the argument that USD15 millions worth of Bonds were purchased in the Secondary market as alluded by the Issuer was wrong since M/s.QVT Fund LP and Quintessence Fund L.P., continued to hold USD8 million worth of shares which represents 53% of the outstanding bonds. Once the debt is undisputed the ability of a Company to pay is not a defense. The petitioner would rely on the Judgment reported in 1971(3) SCC 632 - "M/s. Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd." (f) The respondent had contended that there exists no admitted liability to enable the petitioner to maintain the present company petition. This defense is taken on the basis that no debt was due under the Bonds which formed the subject matter of the Company petition as the terms of the Bond stood modified/restructured with effect from 22.06.2009. That Apart, the petitioner acknowledging this restructuring had placed a zero interest debt service letter dated 07.12.2009 which would clearly prove that the petitioner had acted upon the restructuring. Further, M/s.QVT Fund LP and Quintessence Fund L.P. had signed the term sheet approving the modification/restructuring. The petitioner woul....
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....nternational market with restriction in trading in certain countries including India and that the Bonds are listed in the Singapore Stock Exchange. (iii) The petitioner had issued an invoice claiming "Zero" coupon interest for the period 21.06.2009 to 21.12.2009 and for the remaining 2 periods viz., 21.12.2009 to 21.06.2009 and 21.06.2009 to 21.12.2010, no demand of interest was made by way of an invoice. (iv) The petition is filed only on the written instruction of M/s.QVT Fund LP and Quintessence Fund L.P. and no other Bond holders has given written instruction to the petitioner to file the winding up petition. (v) That the petitioner who claims to be is not aware of the signing of the term sheet by M/s.QVT Fund LP and Quintessence Fund L.P. would contend that M/s.QVT Fund LP and Quintessence Fund L.P. has not signed the same. (vi) That 50% of the Bond amounting to USD 15 millions redeemed belongs to one particular Bond holder and it is not M/s.QVT Fund LP and Quintessence Fund L.P. The Learned Counsel would further submit that the Judgments reported viz., "Zenith Infotech Ltd. Vs. The Bank of New York Mellon London Branch." and "Deutsche Tr....
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....le the instant petition only by Bond holders holding only approximately 8 million bonds. The Bond holders holding 7 million bonds have not only accepted the restructured terms but has also contended that they have not instructed the petitioner to file the winding up petition on their behalf. The respondent would also plead collusion between M/s.QVT Fund LP and Quintessence Fund L.P and the petitioner. The respondent would therefore contend that since there is a dispute with reference to the debt which is bondafide the winding up petition deserves to be dismissed. 18. Discussion: a) The respondent has raised the preliminary issue of jurisdiction. This defense has been taken on account of clause 21 of the Terms and Conditions of the Bonds which reads as follows: " The Bonds, the Trust deed and the Agency agreement are governed by, and shall be construed in accordance with, English law. In relation to any legal action or proceedings arising out of or in connection with the Trust deed and the Bonds, the Issuer has in the Trust deed irrevocably submitted to the jurisdiction of the courts of England and in relation there to has appointed an agent for s....
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.... meeting ; (c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year ; (d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two ; (e) if the company is unable to pay its debts ; (f) if the Court is of opinion that it is just and equitable that the company should be wound up." 434. COMPANY WHEN DEEMED UNABLE TO PAY ITS DEBTS: (1) A company shall be deemed to be unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned....
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....t, dispense with any advertisement required by these rules. Rule 96. Admission of petition and directions as to advertisement - Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition." (e) A reading of Section 433(e) would clearly show that a Company can be wound up if it is unable to pay its debts which presupposes the followings: (a) That there is a debt which is validly due to the petitioner, and (b) the Respondent Company which is sought to be wound up is unable to pay its debts. Section 434 elaborates the circumstances when a Company is deemed to be unable to pay its debts: (i) Where despite issuing a demand notice calling upon the respondent to pay the debt it owes to the petitioner, which is over and above a sum of Rs. 500/- and the respondent after a peri....
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.... another" held as follows: "20.Two rules are well settled. First if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon. and the sum demanded by the, creditor was unreasonable (See London and Paris Banking Corporation (1). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company When the company contended that the work had not been done properly was not allowed. (See Re. Brighton Club and Norfold Hotel Co. Ltd. 21.Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company 94 S.J. 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantity the debt precisely (See R....
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....lid opposition to the winding up of the Company by the creditors/shareholders, the Court can refuse to wind up the Company. (i) The Judgment in "Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd" and "Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami and another" has been reiterated in the Judgment reported in 2009(3) SCC 527 - "Vijay Industries Vs. NATL Technologies Ltd." . The Hon'ble Supreme Court also considered another Judgment in the matter of "Mediquip Systems (P) Ltd. Vs. Proxmia Medical System Gmbh [2005 (7) SCC 42. and after taking into consideration the facts before them held that once a part of the debt is admitted then the winding up petition ought to be admitted and not dismissed on the ground that the debt is disputed. (j) In the case before us the respondent's case is that only 50% of the Bonds were restructured and the remaining 50% remained as Bonds. The Bonds were to be redeemed in December, 2012. Admittedly, to date even the admitted amounts due towards this 50% has not been paid. (k) The cause of action for the present petition is the non-payment of the semi-annual interests by the respondent whic....
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....tstanding Bonds by another ten (10) years and then offer 10% of the principal amount of the Bonds to the Company for repurchase at each year beginning December 2012 up to and ending December 2022. This letter serves to inform the Bondholders that the Company wishes to extend the above offers to all Bondholders. Pursuant to the Trust Deed, a resolution on a Reserved Matter requires quorum of two or more persons holding or representing not less than two-thirds in principal amount of the Bonds for the time being outstanding. The Trust Deed also states taht such Extraordinary Resolution duly passed shall be binding on Bondholders whether or not they were present at the meeting at which such resolution was passed. The Company hereby requests that the Bondholders consider and assent to one of the three offers and inform the Trustee (at [email protected]) or the Company (at [email protected] with cc to:[email protected]) of their presence. The Company will then consider the preference of the Bondholders and communicate the decision to the Bondholders. Bondholders are urged to take steps to contact the Trustee or the Company with their preference as soon....
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....ders of at least 25 per cent in principal amount of the Bonds then outstanding consequently the Bonds are and have become immediately due and payable at their Early Redemption Amount, plus accrued and unpaid interest; and (b) If the insurer fails to make payment of the Early Redemption Amount and the accrued and unpaid interest, in accordance with the provisions of the Trust Deed and the Conditions, enforcement proceedings (including, but not limited to winding up proceedings) will be initiated against the Issuer, entirely at the Issuer's risk as to costs and consequences thereof." The Bond holder who holds more than 45% of the principal amount of the Bonds had therefore given permission to the petitioner to institute proceeding for winding up the respondent company. (m) From a complete analysis of the above documents it is clear that the Bond holder who had initially filed a term sheet agreeing to the restructuring of the FCCB in principle has thereafter on 02.02.2011 expressed in writing their intention not to go ahead with restructuring which was reiterated in August, 2011 and forwarded to the respondent as attachment to Email dated 17.08.2011. The notice f....