TaxTMI 
TaxTMI 
2014 (4) TMI 1298
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....mpany Judge admitting a petition filed by respondent No. 1 for having the second respondent company-Etisalat D.B. Telecom Limited (hereinafter referred to as "the company") wound up under section 433(f) of the Companies Act, 1956 on the ground that it is just and equitable to do so. 2. It is convenient to refer to the parties as they are arrayed in the petition. In the petition, Respondent No. 1 to this appeal was the petitioner. The appellant was respondent No. 2 to the petition. Respondent No. 2 to the appeal-Etisalat D.B. Telecom Limited i.e. the company sought to be wound up was Respondent No. 1 to the petition (hereinafter referred to as "the company"). Respondent Nos.3 and 4 -Delphi Investment Limited and Genex Exim Ventures Private Limited were respondent Nos.3 and 4 to the petition. 3. The petitioner contended that it is just and equitable to wind up the company, inter-alia, on the ground that the substratum of the company has almost completely been eroded, that there is a deadlock in the management of the company and on the Board of Directors of the company and that there is a complete lack of uberrima fides between the main shareholders of the company viz., the peti....
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....f the drastic consequences of even admitting a winding up petition. We agree. The appeal was, accordingly, heard at considerable length and in depth. (B) Mr. Madon, the learned senior counsel appearing on behalf of the petitioner submitted that the Appellate Court ought not to easily interfere with the discretion exercised by the company Judge while admitting the petition for winding up, including on the just and equitable ground. As we have come to the conclusion that the learned Judge rightly exercised his jurisdiction while admitting the petition. It is not necessary to express any opinion on the question as to the manner of exercise of the appellate jurisdiction against such orders. FACTS: 6(A) The petitioner, a company incorporated in Mauritius, is a 100% subsidiary of Emirates Telecommunications Corporation (Etisalat) incorporated in the United Arab Emirates. The Central Government of the United Arab Emirates owns 60% of the shares of Etisalat and the balance 40% is held by UAE nationals. Etisalat carries on business as an international telecommunications operator in about 18 countries and services over 140 million subscribers across its network. (B) The company w....
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.... shares on the representations of Balwa and Goenka that the 2G licences were acquired in accordance with law and on the warranties made by the appellant as to their expertise in the field of telecommunications. 11. In the meantime, on 17th December, 2008, a Management Services Agreement was entered into between the company and Etisalat. We will refer to the relevant provisions thereof while dealing with the submissions. Suffice it to note at this stage that the appellant's contention is that the petitioner was in charge of the management of the company and is, therefore, responsible for the failure of the company. The petitioner's case on the other hand is that despite the provisions of the Management Services Agreement, the appellants, its directors and officers were, in fact, in charge of the management of the company. 12. On 21st October, 2009, before the petitioner invested the last amount of Rs. 106.95 crores to acquire one additional share, the CBI filed an FIR against unknown officers of the Department of Telecommunications (DoT) and unknown private persons and began an investigation into the process of allocation of 2G spectrum by the DoT. On 14th February, 20....
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....tion. Balwa, by a letter dated 2nd August, 2011, addressed to the Chairman of Etisalat stated that the decision to file the petition was taken by his lawyers without his consent and concurrence and that such a thing would never happen again. The learned Judge has recorded in the impugned judgment that though the letter was disputed on affidavit, it was not disputed during the hearing before him. 16(A) On 22nd October, 2011, an order was passed by the special CBI Judge framing criminal charges against Balwa, Goenka and the company. (B) The Supreme Court, by a judgment dated 2nd February, 2012, quashed all the 2G licences allotted to aliathe company. We will refer to the findings relied upon by the learned counsel appearing on behalf of the petitioner later. (C) On 18th February, 2012, the TRAI recommended that the entry fees paid by the licencees of the 2G licences ought not to be refunded. On 28th February, 2012, the DoT filed an affidavit stating that no refund of the licence fees was possible. 17(A) On 8th February, 2012, the company informed the DoT and the Telecom Regulatory Authority of India (TRAI) that it was shutting down its telecom network with effect from 31s....
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....y an order dated 13th April, 2012, the DRT directed the company to disclose it movable and immovable assets and to maintain status quo in respect thereof. Standard Chartered Bank (SCB), another creditor of the company also filed an application before the DRT for recovery of its dues. On 16th April, 2012, the DRT passed an ex parte order directing the attachment of all the assets of the company and appointed a Receiver thereof. 23. On 19th May, 2012, Punjab National Bank wrongly appropriated an amount of Rs. 254.16 crores out of the company's fixed deposits towards a loan granted by it to the appellant. On 12th October, 2012, the appellant's advocate issued a letter admitting that it owed Rs. 254 crores to Punjab National Bank and that the appropriation of funds of the company was illegal. 24. On 3rd July, 2012, the learned company Judge passed an interim order appointing an advocate and solicitor of this Court as an Authorized Person in respect of the company. He was to discharge several functions in connection with the company. We will refer to this order in detail later. The Authorized Person had submitted several reports before the company Judge. Several orders ....
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....tained on these three grounds which we have held require further consideration at the final hearing of the petition. 29(A)(i) We referred earlier to the public interest litigations and the judgment of the Supreme Court in respect of the allocation of the 2G spectrum. The Supreme Court, by its judgment dated 2nd February, 2012 in Writ Petition (Civil) No. 423 of 2010 Centre for Public Interest Litigation & Ors. v. Union of India & Ors., quashed all the 2G licences, including those allotted to the company. Mr. Madon relied upon several observations in the judgment of the Supreme Court. It is not necessary to refer to all of them. It is sufficient for the purpose of these proceedings to note that the Supreme Court held that the entire approach adopted in the allocation of licences was lopsided and contrary to the decision taken by the council of ministers and that this approach became a handle for the then minister of C&IT and the officers of the DoT to gift away important national assets at throw away prices by willfully ignoring the concerns raised from various quarters, including the Prime Minister, Ministry of Finance and also some of its own officers. The judgment notes tha....
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....lia, against the said Balwa and Goenka in the Court of Special Judge, CBI in what is now referred to as the 2-G Spectrum case. The same alleges various illegalities and criminal acts on their part. Criminal conspiracy on their part along with others has also been alleged. The result of the case is not material. The charge-sheet alongwith various others factors, including the judgment of the Supreme Court, prima facie, at least, is sufficient ground for the company court coming to the conclusion that the petition for winding up the company on the just and equitable ground warrants admission. 31. The petition for winding up ought to be admitted even assuming that none of the persons connected with the company are found guilty. We do not for a moment suggest that the moment there is a complaint about the conduct of a company or its promoters, directors and officers, a court must wind up the company on the just and equitable ground. That would depend on the facts of each case. When matters have reached such a stage as in this case, a substantial partner in the company is entitled to approach the court to have the company wound up on the just and equitable ground. Considering all tha....
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....tional Long Distance and Internet Service Provider licences. It is contended that the company can carry on business utilizing these three licences. 35. The appellant was unable to indicate how on the basis of the three subsisting licences the company would be able to carry on business profitably even in the distant future. Although these are business decisions which the company is entitled to assess, it is incumbent especially in such cases for the party to establish even prima facie that the company is at least likely in future to be a commercially and financially viable undertaking. Our attention has not been brought to any material which even remotely indicates the same. Nothing except a purported scheme-and we use the term "purported" advisedly-which we will refer to shortly. The petitioner's investment in the company was almost entirely if not only in view of the 2G licences held by the company. It was not on the basis of the three subsisting licences. As noted by the learned Judge there has never been a proposal or plan to operate a business using these three subsisting licences. Nor is there a technical or a business plan indicating the resources required and the mann....
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....epayment to the Reliance companies in priority to the other creditors. Clause 4(b)(ii) of the minutes of the meeting of the Board of Directors of the company held on 19th December, 2011, records that Balwa pointed out that the company must confirm to Reliance an undisputed amount owed to it and "make immediate payment of it". That probably is why Reliance is opposing the winding up petition. The two major creditors-Standard Chartered Bank and Citibank, to whom an amount of over Rs. 2,000 crores is due, have not only not waived their claims, but have adopted proceedings to recover the same and have even sought for and obtained orders from the DRT appointing a Receiver in respect of the assets of the company. The order for Receiver has merely been suspended and that too only in view of the fact that the Authorized Person has been appointed by the company Judge. If, therefore, the appointment of the Authorized Person is revoked, the Receiver would take possession of the assets of the company in any event. It is difficult to see how in that event the company would at all be able to function. Moreover, even assuming that the company continues to function under the Receiver, there is not....
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....ts can apply to the facts of the present case. (B) The judgment is of no assistance to the appellant. (i) As we observed earlier, the subject matter of the company is gone. Condition (a) that the subject matter of the company is gone does not imply that it must have gone entirely. It is sufficient if the court comes to the conclusion that it has substantially or almost entirely gone. It can hardly be suggested that what was meant was that even if a minuscule part of the subject matter of the company remains it cannot be said that the substratum of the company has gone. In the case before us, the thirteen 2G licences have been cancelled leaving the company with the three subsisting licence. The monetary value of the three subsisting licences is only 0.325% of the value of thirteen 2G licences. The monetary values are at least an indication of the extent of the erosion of the substratum of the company. (ii) Condition (b) refers to the object for which the company was incorporated. This condition does not apply only to the initial object for which the company was incorporated. The applicability of this principle would indeed depend upon the facts of each case. We ....
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....er hand, in the case before us, it has been established that the substratum of the company has gone. There is no prospect of money being brought in by anyone to make it a commercially viable enterprise. 45. Mr. Madon relied upon the judgment of a Division Bench of the Gujarat High Court in In Re: Kermeen Foods Pvt. Ltd. 1985 58 CC 156. Mr. Madon relied upon the judgment as, according to him, the facts were similar to the facts in the present case. That, however, does not carry the matter any further on the question of law. 46. Mr. Kamdar then submitted that the financial position of the company is not relevant in a winding up petition based on the just and equitable ground. The financial position, according to him, is relevant only if the petition is filed under section 433(e) i.e. where the company is unable to pay its dues. 47. Mr. Madon relied upon the judgment of a learned single Judge of the Calcutta High Court in In Re: Darjeeling Bank Limited, AIR 1948 Cal. 335 and 1977 CC 15, in support of his submission that the absence of a statutory notice under section 434(1)(a) would not make a difference as that would only disentitle a petitioner to avail of the deeming provi....
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.... carried on in a commercially viable manner. In other words, where a company is unable to carry on the main business and is found to be unable to or incapable of undertaking any other business even in future in a commercially viable manner, it must be held that its substratum has gone. In this case, the company would be unable to do any business even unrelated to the 2G licences for it does not have the financial capacity to do so. Any attempt to do any other business, including related to the three subsisting licences would only result in disastrous consequences plunging the company to a situation far worse than it is today. 51. There may be certain exceptional cases arising on account of extraordinary circumstances which may pursuade a court not to wind up a company although its substratum has gone if it is in the public interest that the company continues. For instance, if a company is the only enterprise manufacturing critical defence equipment or components for defence equipment and there is an urgent need for such equipment a court may be pursuaded to let the company continue to function in public interest. The case before us does not fall under this category. Nothing t....
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....aggregated to Rs. 3883 crores and stated that the cash in hand was approximately Rs. 737.44 crores. Clause 6 deals with the source of funds for revival of the company. It states that the company can generate an amount of about Rs. 2540.04 crores. This, however, comprises of a sum of Rs. 1600 crores by way of "Equity Infusion by certain class of investors." There are no particulars even as to the identity of the investors. There is no affidavit or even a letter from any person confirming the same. Paragraph 6 further states that the appellant is presently in talks "with various potential investors" without specifying who the potential investors are. (iv) In clause 7 it is stated that the company would settle the claims of all its creditors, but there is not even a suggestion as to how the claims would be settled. It is pertinent to note that the scheme admits that an amount of Rs. 1600.27 crores is due to the Standard Chartered Bank, that a sum of Rs. 745.03 crores is due to the Citibank and an amount of Rs. 1537.97 crores is due to the other creditors, including Reliance. (v) There is a summary of cash flow over the business of ten years annexed to the scheme. It ....
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....t Rs. 4500 crores. The scheme does not even indicate how the company can turn the corner and become a viable enterprise. 58. It is not necessary in this case, therefore, to consider whether the court can compel the petitioner, who invested such a large amount in the company on the basis of the 2G licences to continue to deploy his funds on a different venture. It would have been necessary to consider this question had there been a possibility of the company undertaking another business venture in a commercially viable manner. 59. Moreover, the learned judge has clarified 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 even after the admission of the company petition. No such attempt has been made to date. 60. In the circumstances, we are entirely in agreement with the learned Judge that the company has lost its substratum and that the appellant's contention that the company is capable of being revised is unrealistic. 61. The petitioner further contended that there is a complete loss of faith and trust between the appellant and the petitioner. This,....
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....ogether to implement the agreed business plan for the company especially in large number of matters requiring an affirmative vote." In paragraph 20 of the petition, the petitioner averred that the faith and trust with which the investments were made by it in the company on the representation of Balwa and Goenka is lost; that there is total loss of confidence and mutuality between the shareholders of the company and that "the company is in a situation of a total deadlock on the Board and on the functioning." [emphasis supplied] 64. The petitioner has, therefore, expressly pleaded that there is a complete lack of uberrima fides between the majority shareholders and that there is a deadlock in the management. The contention that the petitioner has not pleaded the same is rejected. 65. Mr. Kamdar then submitted that there is, in fact, no deadlock and that assuming that there is a likelihood of deadlock, the agreements between the parties provide a mechanism for resolving the same. 66. In view of the facts that have transpired, including those set out earlier, it is futile to presume or even imagine that the majority shareholders would cooperate with each other. There is nothin....
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....ihood of any effective resolution being passed. (C) Under clause 20(a)(ii), so long as the petitioner's holding is at least 40% of the share capital of the company, no action or decision relating to any of the affirmative matters can be taken without the petitioner's prior written consent in respect thereof. The affirmative matters are enumerated in clause 20(b). The affirmative matters have a significant bearing on the running and the continued existence of the company as a viable commercial enterprise. The affirmative matters include any amendment to the Memorandum of Association and Articles of Association of the company; the approval of the annual financial and Operating Business Plan and any changes thereto to the extent materially inconsistent with the Initial Business Plan. The initial business plan contemplated the working of the 2G licences which now stand cancelled. The affirmative matters also include a significant change in the nature and scope of the business to the extent not contemplated by the initial business. The petitioner has made it clear that it does not intend according it's consent especially in this regard. The affirmative matters inclu....
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....y 50% each of the equity capital of the company. 71. Even absent provisions such as those contained in clauses 8, 16 and 20 of the Articles of Association, the submission is not well founded. Mr. Kamdar relied upon paragraph 33 of the judgment of the Supreme Court in Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunuwalla (1976) 3 SCC 259. Mr. Kamdar's submission, in fact, militates against the judgment of the Supreme Court. Paragraph 33 reads as under : 33. When more than one family or several friends and relations together form a Company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the Company on account of lack of probity in the management of the Company and there is no hope or possibility of smooth and efficient continuance of the Company as a commercial concern, there may arise a case for winding-up on the just and equitable ground. In a given case the principles of dissolution of partnership may apply sq....
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....agraph 16 merely refers to the facts of that case viz. that there were only two shareholders and two Directors. The judgment cannot be read to mean that a case of a deadlock can arise only where there are only two shareholders and two Directors and they do not cooperate with each other. Stalemate is a question of fact. A stalemate is not dependent only upon the extent of the shareholding or the number of Directors on the Board of Directors of the company. It can also arise on account of the agreement between the shareholders. The case before us is an example. It would depend upon the facts of each case. For instance, an affirmative vote, as in the present case, may be required for major policy decisions even if the shareholding is unequal. The entire management and functioning of the company can be affected by such provisions. The test ought to be whether a business can be and is likely to be obstructed to the detriment of the company. 73. Mr. Kamdar submitted that a mere possibility of a deadlock is not sufficient to maintain a winding up petition on the just and equitable ground. He submitted that there must, in fact, be a deadlock for such a petition to be maintainable. 74....
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.... from the company. The appellant is entitled to adopt proceedings, including for specific performance of the Put Option Deed and/or for damages. The appellant would only be entitled to monetary relief in any proceedings to enforce the rights under the Put Option Deed. Having exercised this right, the appellant cannot have any interest in the company, irrespective of whether it continues or is wound up. 80. Mr. Kamdar, however, submitted that the exercise of rights under the Put Option Deed would not disentitle the appellant to resist the petition for winding up as the appellant may, at any time, revoke the same. In fact, the petitioner has by its letter dated 15th December, 2013 rejected its liability to pay amounts pursuant to the exercise of the Put Option right by the appellant. 81. That the appellant may withdraw the exercise of its right under the Put Option agreement would make no difference for, as on date, the appellant has not done so. It is unnecessary to consider at this stage the effect of the appellant withdrawing its action on the admissibility of the petition on this ground. 82. Having said that, however, we do not at this stage express an opinion whether th....
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....p on the just and equitable ground may be entirely different from the grounds upon which the petitioner herein seeks winding up of the company. This aspect must be left open for consideration, at the final hearing of the petition. 87. Mr. Kamdar raised these additional defences to the petitioner's case viz. He submitted that the petition for winding up on the just and equitable ground must be decided only on the basis of the facts as on the date of the petition and not on the hearing of subsequent facts. Alternatively, he submitted that the facts must be pleaded in the petition and cannot be introduced in affidavits. Thirdly, he submitted that fourteen creditors have opposed the petition, whereas only two have supported it. 88. Mr. Kamdar submitted that a winding up petition based on the just and equitable clause must be decided only on the basis of the facts as on the date of the petition. According to him, the facts subsequent to the filing of the petition are irrelevant and cannot be taken into consideration while deciding whether such a petition ought to be entertained. Thus, for instance, the judgment of the Supreme Court cancelling the 2G licenses, the further proce....
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....deciding the petition under sections 397 and 398. Rejecting the contention, the learned Judge held in paragraph 8 as under :- 8. Under Rule 6 of the Companies (Court) Rules, 1959 the provisions of the Code of Civil Procedure, so far as applicable, shall apply to all proceedings under the Companies Act. The provisions relating to amendments of pleadings would, therefore, apply to amendment of pleadings under the Companies Act. There is no bar to an amendment which incorporates subsequent events if the amendment is otherwise necessary for proper determination of issue between the parties. In the case of Promode Kumar Mittal v. Southern Steel Ltd., reported in (1980) 50 Comp. Cas. 555 the Calcutta High Court observed in a petition under sections 397 and 398 of the Companies Act that the Court can take notice of all subsequent events to grant reliefs finally after trial in a company matter and the interim orders passed from time to time by the Court in all applications, the meetings held under the Chairman appointed by the Court, and the resolutions passed by majority shareholders and directors present therein are all relevant. In the case of Inder Kumar Jain v. Osra Bottling ....
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....l vs. Green Chambers Limited (supra). It does not take the matter further. 96. Mr. Kamdar further submitted that in the case before us, subsequent factors were only introduced by the petitioner by filing further affidavits and not by amending the petition. He submitted that in any event, the subsequent facts must be pleaded in the petition by having the petition amended and cannot be introduced by filing affidavits. 97. It has been the practice of this Court to allow parties to introduce fresh evidence by amending the petition or by filing further affidavits. Pleadings in a suit are different from the pleadings in petitions, including under the Companies Act. A plaintiff must amend the plaint. The parties must be afforded an opportunity of meeting the case whether taken in the petition or on affidavit. So long as the other parties are afforded an opportunity of meeting the case, we see no reason to insist upon subsequent facts being pleaded only in the petition by having it amended. The mere reliance upon evidence, oral or documentary, is not, of course, sufficient for evidence, oral or documentary, does not constitute pleadings. 98. In support of this submission, he relie....
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....39;s Conduct Before The Petition Was Filed : 104. We will first deal with the petitioner's conduct prior to the petition which, according to Mr. Kamdar, warranted a dismissal of the petition. 105. Mr. Kamdar contended that the company was managed only by the petitioner. The petitioner was, therefore, according to him, responsible for the company's failure to meet the roll-out obligations leading to the financial loss sustained by the company. The provisions of the Management Services Agreement relied upon by Mr. Kamdar are these. Clause 1 defines services to mean such management services as the operator i.e. the petitioner deems necessary based on its experience in its sole and absolute discretion to assist the company meet the objectives performed in accordance with clause 4. The objectives include the services referred to in Appendix A to the agreement. Under clause 21, the operator/petitioner was appointed to provide the services on an exclusive basis throughout the term. Clause 4 deals with services and service performance levels. Clause 41 provides that without prejudice to the responsibility of the Board and the management and the corporate governance of the com....
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....o operate the Business of the Company in accordance with the then current Business Plan. 3.6.2 Subject to Clauses 3.6.3 to 3.6.5 below, the Strategic Investor shall have the right to select and appoint the following senior managerial personnel of the Company; (a) the Chief Financial Officer; (b) the Chief Executive Officer; (c) the Chief Operating Officer; (d) the Chief Technical Officer; and (e) the Chief Marketing Officer, (collectively, the "Key Employees"). 3.6.4 During the Evaluation Period, the Strategic Investor shall have the right to require the Company to terminate the employment of any Existing Key Employees, by giving notice in writing to the Founding Shareholder, the Individuals and the Company and to appoint any person as a replacement of such Existing Key Employee. The appointment of an individual as a replacement of that Existing Key Employee pursuant to the Clause 3.6.4 shall be subject to the provisions of Clause 3.12 of this Agreement, provided that the Founding Shareholder shall not unreasonably withhold its consent to the appointment of Key Employees as described above. 3.81 Quorum....
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....r by the Board, any committee, by circular resolution by the shareholders of the Company, or any of the employees, officers or managers of the Company) unless the prior written consent of the Founding Shareholder is obtained for such action or decision, such consent not to be unreasonably withheld or delayed; and (d) during the term of this Agreement for so long as the Strategic Investor holds at least 20% but less than 40% of the Share Capital of the Company, no action or decision relating to any of the matters requiring a special resolution under the provisions of the Act, shall be taken (whether by the Board, any committee, by circular resolution by the shareholders of the Company, or any of the employees, officers or managers of the Company) unless the prior written consent of the Strategic Investor is obtained for such action or decision, such consent not to be unreasonably withheld or delayed. 3.12.2 Deadlock (a) If a proposal is made in respect of an Affirmative Matter but such proposal is not approved in accordance with Clause 3.12.1, a Shareholder may give written notice to the other Shareholders that it regards a deadlock situation as having ari....
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....arned Judge had only set out the rival contentions and the facts and made the above observations. In other words, according to him, the judgment does not contain any reasons. The submission is incorrect for the learned Judge has set out the facts in considerable detail and the manner in which they have been set out support the conclusion. To obviate any further grievance, we intend furnishing reasons briefly in this regard. 109. Though the shareholders agreement and the management services agreement conferred considerable power upon the petitioner, it is not merely the petitioner who managed the day-to-day affairs of the company. The participation of the appellant and its nominees/appointees in the affairs and management of the company was considerable. This is clear from only a few facts. 110. As recorded in the minutes at a meeting of the Board of Directors held on 10th November, 2009, the management was directed to communicate to Reliance in writing the potential loss to the company and the inability of Reliance to deliver the launch scope. The communication was directed to be drafted by the solicitors and vetted by Balwa. This was an important aspect for the company and t....
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....in the management of the company. It was not contended that the petitioner, at any stage, obstructed the functioning of the company by refusing to accept any of the appellant's suggestions. In any event, there is no correspondence at the material time raising grievances to this effect. 115. Thus, even assuming that there was a failure to meet the business requirements, the petitioner cannot be held responsible for the same. It certainly did not disentitle the petitioner to maintain the petition for winding up if the circumstances otherwise establish that it is just and equitable to wind up the company. 116. Mr. Kamdar's submission that the petitioner ought not to be permitted to maintain this petition on the ground that it failed to meet the roll out obligation is rejected for the above reasons. The allegations in this regard are, to say the least, vague and without material particulars. Mr. Kamdar himself faced difficulty in substantiating this submission which was evident from the fact that he essentially only read out paragraph 54.1 of the affidavit in reply dated 11th April, 2012 of one Adil Patel. Paragraph 54.1 of the affidavit itself contains bare allegations a....
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....ppear to have been crystallized at any point of time. This is evident from the minutes of the meeting of the Board of Directors of the company held on 24th August, 2011. Paragraph 6(b) is titled "EDB Way forward". It is recorded that the Board directed the management "to prepare a business plan with targeted roll out" and barter deal with other operators which would be presented to the Board after the shareholders meeting. The allegations that the company did not achieve any roll-out is incorrect. A document annexed to the affidavit dated 21st August, 2012, on behalf of the appellant belies the contention. It indicates that roll out did take place in about 16 places, including Mumbai, Chennai, Delhi, Lucknow, Bangalore and Hyderabad. 119. Mr. Madon's submission that the failure to meet the roll out obligation would, at the highest, indicate that the company had not achieved success or even a projected roll-out is well founded. In these circumstances, there is no justification for dismissing the petition on the ground that the company has not done well due to the petitioner's default. Indeed, it appears that the main cause was the cancellation of the 2G licences. 120. ....
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....th regard to the security concerns. The appellant's grievance is that despite the same, the petitioner did not make a fresh application to the FIPB. 124. Firstly, it is important to note that the petitioner did make an application to the FIPB, but the FIPB refused to grant the approval. It cannot, therefore, be said that the petitioner had failed to make an application to the FIPB for approval. Further, the appellant had filed a petition before the CLB under sections 397 and 398 of the Companies Act in which it raised this issue. The appellant thereafter withdrew the company petition. 125. It is also important to see the appellant's case on affidavit with regard to Mr. Kamdar's contention that the failure to apply for the FIPB approval resulted in a financial crunch. As Mr. Madon rightly pointed out, assuming there was any failure on the part of the petitioner, as alleged in this regard, it affects the rights, if any, of the appellant and not of the company. In paragraph 25.14 of its affidavit in reply dated 11th April, 2012, the appellant contended that it had a Put Option Agreement dated 17th December, 2008 which, if exercised, would enable it to exit from the c....
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....at if the FIPB approval had been obtained, the company would have got an amount of Rs. 934.20 crores. The petitioner's failure to obtain the FIPB approval, therefore, according to him, caused a loss even to the company of the sum of Rs. 934.20 crores. Clauses 1.1 and 2.10 read as under : 1.1 Definitions In this Agreement and unless the context requires otherwise, the following words and expressions shall have the following meaning : ........ "Control Premium" means a sum equal to Rs. 9,342,000,000/- (Rupees Nine Billion Three Hundred and Forty Two Million Only) pursuant to Clause 2.1; ....... 2.10 If, following Completion and at any tie on or before the end of the Lock-In Period, the Strategic Investor acquires Shares such that all the Shares held by the Strategic Investor, represent 50% + 1 Share or more of the fully diluted Equity Capital of the Company, the Strategic Investor shall, subscribe for and be allotted 1 (one) additional Equity Share within ten (10) Business Days of the Strategic Investor acquiring such Shares. The consideration payable for such (1) one Equity Share shall be the Control Premium and shall be paid....
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....relied upon towards the end of the hearing before us. The letter does not establish any breach of the contractual obligations between the petitioner and the company. An understanding is alleged. An obligation on the part of the petitioner is not established. Even assuming that there is a pleading to this effect, it would essentially be a dispute between the petitioner and Genex. The same would require evidence. We are not inclined to dismiss the petition on the basis of this letter. 134. Mr. Kamdar then submitted that the petitioner obtained loans from the Standard Chartered Bank (SCB) and Citibank instead of availing the loan that had already been sanctioned by the ICICI Bank and in respect whereof the company had spent an amount of Rs. 15 crores. By not availing the loan from ICICI bank, the petitioner caused a loss of Rs. 15 crores to the company. The petitioner, according to him, availed of the loan from SCB and Citibank only because of the global banking relationship that the petitioner has with these banks. 135. There is no allegation of fraud or collusion between the petitioner on the one hand and SCB and Citibank on the other. It is not even alleged that the terms and....
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....e Company, as may be resolved by the Board, the Company can call upon the Founding Shareholder, the Strategic Investor and the Indian Investor, from time to time, for an Agreed Infusion of Capital of up to Rs. 4,670,000,000 (Rupees four billion six hundred and seventy thousand only) each, per Capital Call (subject to an overall limit of Rs. 8,530,000,000 (Rupees eight billion five hundred and thirty million only) from the Founding Shareholder and Rs. 9,340,000,000 (Rupees nine billion three hundred and forty million only) from the Strategic Investor apportioned pro rata among them) with thirty (30) days prior written notice ("Capital Call Notice") which shall be contributed proportionately to their then shareholding in the Company by the Founding Shareholder and the Strategic Investor. 139. The Board of Directors, at a meeting held on 25th May, 2010, passed a resolution authorizing the board to issue capital call notices to the appellant and the petitioner. The minutes of a meeting of the Board of Directors held on 31st August, 2010, recorded that call notices were issued to the appellant and to the petitioner for Rs. 8530 million and Rs. 9340 million respectively and pursuant t....
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.... to the capital call by the company. 142. The petitioner's conduct prior to the petition does not disentitle it to maintain the petition. This brings us to Mr. Kamdar's contention that the petition ought to be dismissed in view of the petitioner's conduct after the petition was filed. Whether the Petition Ought to be Dismissed on account of The Petitioner's Conduct After The Petition was Filed : 143. Firstly, Mr. Kamdar submitted that the petitioner had admitted the dues of SCB and Citibank before the Debts Recovery Tribunal. He submitted that by doing so, the petitioner had acted to the detriment and prejudice of the company and ought not, therefore, to be permitted to maintain the petition. 144. There is really a very simple answer to this contention. The dues of the SCB and Citibank are admitted. They were and continue to be admitted, not merely by the company, but even by the appellant. It was not even suggested before us that the amounts claimed by these banks are not due to them by the company. Mr. Kamdar's grievance is that by admitting the amounts due on affidavit, albeit honestly, the company was prejudiced as a Receiver had been appointed i....
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....nd Citibank. It is sufficient to note that the dues of Citibank have also been admitted. 147. The loan agreements between SCB and the company were signed even by the Directors appointed by the appellant. The balance sheet admitting the liability is also signed by the appellant's nominee Director. The Authorized Person prepared the balance sheet for the year 2011-2012 in which he mentioned the dues of SCB to be Rs. 1448 crores. The appellant never objected to the same. Moreover, the DRT did not grant the interim recovery certificate based only on the admissions contained in the affidavit. The order of the DRT dated 16th April, 2012, also refers to the judgment of the Supreme Court in the public interest litigation. There is also a reference to the company having insufficient funds to repay the creditors, including the employees salaries. 148. Collusion was alleged between the SCB and the petitioner on account of the SCB having agreed to keep the order of the DRT appointing the Receiver in abeyance and agreeing to the continuation of the Authorized Person. There is nothing unusual about the same. The Authorized Person was appointed initially as an interim measure by the com....
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.... ground. Firstly, it is doubtful whether the amounts deposited could have been set off against the bid. Secondly, the Court Receiver had been appointed by the DRT in the Original Application filed by the SCB. Mr. Kamdar submitted that had the bid been accepted, an application could have been made for modification of the order appointing the Court Receiver, by permitting the company to act as the agent of the Court Receiver. This, however, would in any event have required a large scale funding. There is nothing to indicate that funds could have been made available. 153. There is, however, another and more important reason why the petition cannot be dismissed on the ground that the petitioner objected to the company bidding at the re-auction. (A) The appellant had, in fact, filed Company Application (Lodg) No. 616 of 2012, before the learned Judge to permit the company to bid at the re-auction. The petitioner opposed this application. The learned Judge, by an order dated 18th October, 2012, rejected the application. The learned Judge observed that the appellant had sought directions against the company even to request the DRT to treat the amount of Rs. 1600 crores deposit....
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.... but of the Division Bench as well. In view of the previous orders of this Court, we did not permit Mr. Madon to re-argue this issue on merits. 155. Mr. Madon submitted that the Board of Directors had unanimously agreed to shut down the business of the company relevant to the 2G licences. In other words, he contended that it was decided at the said meeting to wind up the company. Mr. Kamdar denied the same. He contended that the petitioner had unilaterally decided to shut down the business. The decision is contrary to the provisions of the agreements between the parties. He, in fact, submitted that in view thereof the company suffered a severe set back and even on that ground, the petition ought to be dismissed. 156. The first question, therefore, is whether the Board of Directors had unanimously agreed to shut down the company's business. From the record, it is difficult to come to a definite conclusion at the stage of admission. It would be necessary to consider this aspect in greater detail at the hearing of the petition. According to the petitioner, in the light of the judgment of the Supreme Court, the financial position of the company and the absence of any further ....
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.... an issue which must await the final hearing of the petition. On this aspect a lot would depend upon the conclusion whether the decision to shut down was unanimous or not. 159. At Mr. Madon's instance, we watched a video recording of the meeting. We are not inclined at this stage to express any conclusive opinion on the basis of this video for admittedly the entire meeting was not recorded. This aspect of the matter would require further consideration. On the one hand, the entire meeting was not recorded. On the other hand, it is not the appellant's case that any other part of the meeting was recorded, but was not produced. Further, assuming that objections were raised during the earlier part of the meeting, there does not appear to have been any objection raised at the time of passing the resolution. The appellant itself in the affidavit-in-reply stated that the recording only commenced towards the very end of the meeting. The transcript of the video recording of the Board meeting held on 22nd February, 2012, has been denied by the appellant. The denial was communicated by the appellant on the very next day by a communication dated 23rd February, 2012. 160. Mr. Madon....
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....an alleged wrongful decision to shut down the business of the company relating to the 2G licences. Had the review petition been allowed, it may have a different thing altogether. It is neither necessary nor possible to speculate on the outcome had the decision been reviewed. The fact is that it was not. All the circumstances discussed by us entitling the petitioner to maintain this petition would, therefore, remain unaffected even assuming that the petitioner had wrongly decided to shut down the business of the company relating to the 2G licences. Further, it is important to note that the appellant took no steps to resist this alleged illegal action of the petitioner in shutting down the business of the company relating to the 2G licences. 164. The mere fact that there is no question of the petitioner or any of its officers or nominees being charge-sheeted in respect of the 2G licences would not be a ground for dismissing the petition. It is true that the petitioner and its Directors, officers and nominees came into the picture only after the 2G licences were obtained. Indeed, they appear to have come into the picture on the basis of the assurance that the 2G licences were valid....
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.... Mr. Kamdar that the company has no power to make such an order, absent consent from the parties concerned. If the company court had the power to do so, we would without hesitation have continued the same solicitor of this Court as the Authorized Person. There are no allegations against him either of mala fides or of incompetence. He has discharged his duties in accordance with his mandate and as per the orders of this Court. Indeed, under the minutes of the order several steps of far reaching consequences have already been taken, including regarding the termination of the services of various officers and employees of the company and the sale of certain assets of the company. Further, the Authorized Person has also engaged other lawyers to the company, in accordance with the directions and wishes of the appellant and the petitioner, before the authorities and courts. For instances, by an order dated 29th October, 2013, as confirmed by an order of the Division Bench dated 13th November, 2013, the Authorized Person has been assigned the task of receiving submissions/objections from the petitioner and respondent No. 2 and thereafter instructing a firm of advocates to cross examine the....
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.... Normally again, the powers must not be exercised in a manner which would result in the company being wound up even before the petition is heard finally. At the final hearing the Court may well dismiss the petition or pass such other orders which would not necessarily result in the petition being wound up. If, in the meantime, all the assets of the company are sold and orders are passed which, in effect, results in the company being wound up it would result in the company being faced with a fait accompli. 171. There is, however, no absolute rule as to the manner of exercise of powers of the company court during the period prior to a petition for winding up being finally heard. As we mentioned earlier, interim orders in many cases are not merely necessarily, but imperative in the interest of the company. An obvious example is the disposable of perishable assets of a company. Where a Provisional Liquidator is appointed, it is only the Provisional Liquidator who can deal with the assets of the company. It can hardly be suggested that it is in the interest of the company to let such assets decay and lose all value during the pendency of the petition. There may be assets such as heav....
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.... CC 425, relied upon by Mr. Madon, supports this view. In that case, the Official Liquidator was appointed as a Provisional Liquidator. The application for injunction was opposed on the ground that the main winding up petition had not been set for hearing and, therefore, section 443 could not have been invoked by the applicant. The Division Bench held as under : Against this order, O.S.A. No. 128 of 1981 has been filed. By another order dated December 7, 1981, in C.A. No. 843 of 1981, the learned Judge appointed the official liquidator as the provisional liquidator pending the winding-up petition. Against this order, O.S.A. No. 189 of 1981 has been filed. Both before the learned single judge and before us, learned counsel for the appellants questioned the maintainability of the application for injunction. This was on the ground that the main winding-up petition was not set for hearing on that date and that, therefore, section 443 of the Companies Act cannot be invoked by the applicants and that the applications cannot also be sustained either under Order 39, rule 1, of the Civil Procedure Code or rule IX of the Companies (Court) Rules, 1959. The relevant ....
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....fore, from the date of presentation of the winding-up petition, the court gets jurisdiction. Section 450 also makes this very clear. Sub-sections (1) and (2) of this section provide that at any time after the presentation of the winding-up petition and before the making of the winding-up order, the court may, for special reasons to be recorded in writing, dispense with the notice to the company and appoint a provisional liquidator straight-way. These provisions clearly establish that the court's jurisdiction to make interim order is not postponed till the date set for hearing of the company petition after notice to respondents. In fact, this point is concluded by a Bench decision of this court in Ramakrishna Industries P. Ltd. v. P.R. Radhakrishnan (1983) II MLJ 227. It may be mentioned that that case also related to the same company. On the same day along with CA Nos. 843 and 844 of 1981, the respondents herein also filed CA No. 845 of 1981, for the appointment of a Court Commissioner to take an inventory of the assets and accounts of the company. That application also came up for orders along with these applications which are the subject matter of the appeals and by an ex par....
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....Radeesh Rubber Pvt. Ltd. & Anr. 1995 84 Com. Cases 602. The learned Judge held as under : Learned counsel, referring to section 536(2) of the Companies Act, has submitted that no transfer of the assets during the pendency of the winding up petition should be effected. As per section 536(2) in the case of winding up by or subject to the supervision of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void. Thus, it clearly indicates that the court has power to order transfer or to sell the assets of the company when the winding up petition is pending. There is no inherent indication in the section so as to warrant the conclusion that this power can be exercised only after the winding up order is made. It is difficult to spell out the limits on the jurisdiction of the courts from the opening words in the section, viz., "in the case of winding up" so as to mean "only if the company is ordered to be wound up". It would be reading more than what the Legislature int....