TaxTMI 
TaxTMI 
2014 (4) TMI 1327
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....ular business of the appellant as a going concern so as to ensure that the employees of the company associated with that business do not lose their employment or any benefits related thereto and also the sale of the properties and assets of the appellant, if so required. The learned Judge also continued the order passed while admitting the petition by which an Administrator was appointed for the purpose of the sale of the said business and, if necessary, also the properties and assets of the company. The terms of the appointment and the scope of his duties continued as per the admission order. The learned Judge also passed directions for the sale of the said business. 2(A) This appeal raises for our consideration, two aspects. Firstly, whether the appellant company ought to be wound up and secondly, whether the adverse remarks passed by the learned single Judge against the appellant, it's promoters and directors, ought to be expunged. We have answered both the questions in the negative, against the appellant. The first question admits of no difficulty and does not even warrant a very detailed discussion. The second question admits of no difficulty but has required a detai....
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....ce even after the notice of demand was made. Nor was it disclosed in the over 18 affidavits filed prior thereto. In any event, even assuming it was made, it was a conditional offer which the respondent were not bound to accept. The appellant was, therefore, in any event, not entitled to commit a breach of its representations that the sale proceeds would be utilized to repay / redeem the bonds. (D) Only upon being compelled by the orders of this Court in a suit filed by the bondholders, the appellant disclosed the agreement under which the MSD division was sold and the manner in which the sale proceeds were utilized. The appellant thereupon came up with a case that it did not own the MSD division by itself. It had only a share therein along with its wholly owned subsidiary Zenith Infotech FZE Dubai. Accordingly, the purchaser paid about 50% of the purchase price each to the appellant and to Zenith Dubai. We have confirmed the findings of the learned Judge that the alleged share of Zenith Dubai in the MSD division was an after- thought. In any event, the aforesaid representations were to the effect that the entire sale proceeds would be utilized to repay / redeem the bonds. ....
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....e principal amount on the maturity date. The bonds were to be issued under the trust deed between the appellant and the Bank of New York, London branch. On 26th September, 2006, the appellant entered into a trust deed with the respondent in respect of the 2011 bonds. Clause 2.2 of the trust deed reads as under : "2.2 Covenant to pay The Company will, on one Business Day prior to any date when the Bonds or any of them become due to be redeemed in accordance with the Conditions, unconditionally pay or procure to be paid to or to the order of the Trustee in London in US Dollars in immediately available funds the principal amount of the Bonds becoming due for redemption or repayment on that date (to be received by 10:00 a.m., London time) together with any applicable premium and will (subject to the Conditions) until such payment (both before or after any judgment or order of a court of competent jurisdiction) unconditionally so pay or procure to pay to or to the order of the Trustee interest in U.S. Dollars on the principal amount of the Bonds outstanding as set out in the Conditions provided that ... ... ... ... ... ... ... ... ... ... The Trustee will hold the bene....
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....kets, as permitted by law so as to redeem/repay the outstanding Foreign Currency Convertible Bonds which would come for repayment/redemption in August, 2011 and August, 2012. The Board commends all the above resolutions to the Shareholders. None of the Directors is concerned or interested in the resolutions at item nos.1 and 2 except to be extent of the shares held by them in the Company." [emphasis supplied] 5. On 27th December, 2010, the company made the following announcement on the website of the Bombay Stock Exchange : "Zenith Infotech Ltd has informed BSE that the Board of Directors of the Company at its meeting held on December 27, 2010 have resolved to raise the funds for re-payment / redemption of Foreign Currency Convertible Bonds due in August 2011 and August' 2012 and for this purpose the Company is calling an Extraordinary General Meeting for obtaining Shareholders' approval for borrowing monies upto Rs. 1,500 Crores." 6. By its corporate announcement dated January 6, 2011, the appellant informed BSE that the EOGM of the members of the appellant will be held on 29th January, 2011. In the explanatory statement attached to the said anno....
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....ch will be a Subsidiary of Zenith RMM LLC, by way of an Asset Purchase Agreement. However, Zenith Infotech Ltd is going to be a major shareholder." RESPONDENTS NOTICES OF DEMAND : 11. This brings us to the notice of default and a notice of cross default issued by the respondents to the appellant on account of the appellant's default in the repayment of the 2011 bonds on 21st September, 2011. It would be useful to see the provisions of the Offering Circular under which these notices were issued. The Offering Circular specified that the references to the terms and conditions or any conditions are to the terms and conditions or any conditions contained therein set out in the part of the Offering Circular titled "Terms and Conditions of the Bonds". Clauses 11(A) and (D) of the "Terms and Conditions of the Bonds" read as under : "11. EVENTS OF DEFAULT If any of the following events (each on "Event of Default") occurs the Trustee at its discretion may (but shall not be obliged to) and if so requested in writing by the holders of at least 25% in principal amount of the Bonds then outstanding, shall (subject always to the Trustee having been indemnified or provi....
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....larified to the Bombay Stock Exchange as follows : "1) The Company has defaulted on its US$33 mn FCCB which was due on 21st September 2011 and is in negotiations with the bondholders to extend the time of repayment; 2) As informed to BSE earlier vide letter dated September 24, 2011, we have received all monies due from Zenith RMM, LLC except for the amount to be held in escrow part of which the Company plans to utilise for partial repayment of FCCBs." [emphasis supplied] 14. On 14th October, 2011, some shareholders, who were probably also holders of the bonds, filed a suit against the appellant in the Bombay City Civil Court contending, inter-alia, that the appellant had, contrary to its representations contained in the explanatory statement annexed to the notice dated 29th December, 2010, convening the EOGM on 29th January, 2011, defaulted in the repayment of the said bonds. An affidavit-in-reply dated 24th October, 2011, was filed on behalf of the appellant wherein it was, inter-alia, stated as follows : "3(c) The sale to Defendant No.2 has been completed to the knowledge of the Plaintiffs and the sale proceeds received by Defendant No.1 will be appl....
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....t subject to the protection granted to defendant Nos.2, 3 and 4 in respect of their affidavit. The learned Judge ordered accordingly. The order was clarified by an order dated 29th November, 2011. 16(A) Upon the sale of the MSD business by the Asset Purchase Agreement, the appellant was left only with the Cloud Computing Division Business. The respondents, therefore, filed Notice of Motion No.3520 of 2011 to restrain the appellant from selling the business of the Cloud Computing Division. (B) There followed a series of orders passed by the learned single Judge, the appeal Court and the Supreme Court regarding the appointment of valuers and the valuation reports submitted by them. These orders are now not relevant. Suffice it to note that at the end of a reasonably lengthy exercise it appears that the Cloud Computing Division Business is worth no more than about Rs. 195 crores to Rs. 211 crores. 17. By an order dated 23rd December, 2011, in Notice of Motion No.3520 of 2011 and Notice of Motion No.3527 of 2011 in the suit filed in this Court, the learned single Judge directed the appellant to place on affidavit, particulars of payments made to various parties from the sale c....
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....hought. The SAAZ software that was developed by the appellant was the backbone of the delivery from the network operations of the centre with Mumbai indicating that the same was owned only by the appellant. The primary seller of the MSD business under the APA was the appellant; that no material asset was owned by Zenith, Dubai and that there was no basis for paying about 50% of the sale consideration to Zenith, Dubai. It was held that the appellant had used Zenith, Dubai as a vehicle to siphon away the sale proceeds of the MSD business outside the jurisdiction of this Court. The learned Judge also dealt with the manner in which the amount coming to the appellant under the APA was disbursed viz. US$ 12.6 million. The learned Judge passed strictures about the conduct of the company with respect to its applications under the Sick Industrial Companies Act and before SEBI. (B) On 19th August, 2013 and 23rd August, 2013, the appellant filed Appeal (Lodg.) No.344 of 2013 and two employees of the company filed Appeal (Lodg.) No.347 of 2013 against the order and judgment dated 30th July, 2013. The Division Bench, after referring to the above facts and especially the representations ma....
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....he Directors of the Company shall provide all information sought by the Administrator pertaining to the working/affairs of the Company and shall forward the agenda of all Board Meetings/General Meetings at least 72 hours in advance to the Administrator and shall not take up any matter at any meeting which is not mentioned in the agenda. In case of emergency the Directors may hold a Board Meeting at short notice with the permission of the Administrator. However, the Administrator shall ensure that the day to day functioning of the Company is not hampered in any manner whatsoever." 12. The Respondent applied before the Learned Single Judge for the appointment of a provisional liquidator. The Learned Single Judge has held, and in our view with justification, that if a Provisional Liquidator is not appointed, the promoters/directors of the Company who have been motivated by personal gain and not by the interests of the shareholders, creditors or workers may bring the business of the Company to a stand still by siphoning of its balance assets. This apprehension cannot be regarded as unfounded having regard to the course of events noted in the earlier part of the present judgmen....
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.... of the CC Business of the Company as a going concern so as to ensure that the employees of the Company associated with the said business do not loose their employment or any benefits related thereto, and also the sale of properties and assets of the Company if so required. The Administrator appointed under the Admission Order shall continue for the purpose of the sale of the CC Business and if necessary also for the properties and the assets of the Company. The terms of his appointment and the scope of his duties shall be as set out in the Admission Order and hereinafter the sale of the CC Business as well as the assets of the Company shall be conducted on the following terms: (i) The Administrator shall offer the CC Business for sale in a public auction, which auction shall be widely advertised in national newspapers as well as in the international press; (ii) The Administrator is granted liberty to seek the assistance of any Investment Bank as also an independent law firm of repute in Mumbai to assist him in the sale process and the legal issues arising out of the sale of or related to or associated with the sale of the CC Business. However before the appointme....
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....ay, 2012 including (a) land and buildings situate at 30 MIDC Road, Andheri (West), Mumbai 400093; (b) an Industrial Gala at SEEPZ, Andheri, Mumbai; (c ) furnitures and fixtures; (d) factory and office equipments; (e) electrical fittings; and (f) computers (hardware and software) by public auction after a valuation being carried out by an independent valuer who will fix the reserve bid, with the sale being carried out under the supervision of Administrator. In this context, the Administrator shall be entitled to seek assistance of the same independent law firm appointed to sell the CC Business, to assist him on any legal issues arising out of the sale of or related to or associated with the sale; (ix) The entire process of sale shall be completed on or before 16th April, 2014; (x) It shall be the responsibility of the Promoters and Directors of the Company to obtain the necessary approvals, consents and permissions as may be necessary to effectuate the sale of the CC Business and the immovable properties and fixed assets of the Company and to keep the Administrator informed about the status and progress of the same; (xi) The Company, its Promoters and Directors sha....
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....e satisfied from the sale proceeds of the CC Business and the sale proceeds of the immovable properties and fixed assets of the Company, the same shall be disbursed to the Petitioner as well as other creditors to the extent of their claim, and the order of winding up of the Company shall stand set aside and the surplus if any shall be handed over to the Company. 50. The above winding up Petition along with Company Application No.66 of 2012 and Company Application (L) No. 544 of 2013 is accordingly disposed of. However the Parties shall be at liberty to move this Court for necessary directions if required, for compliance/ implementation of this order. SEBI'S ORDER : 20. The Integrated Market Surveillance System of The Securities & Exchange Board of India (SEBI) generated an alert on the sudden change in the price of the scrip of the appellant. SEBI also received several complaints against the appellant, inter-alia, in regard to the facts stated by us. (A) SEBI passed a detailed interim order dated 25th March, 2013, in which it analysed the entire transaction relating to the 2011 and 2012 bonds, the sale of the MSD business under the APA and the manner in which ....
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....bserved that it intended hearing the appeal shortly and extended the time period for furnishing the bank guarantee by 40 days. The appeal was listed on 24th September, 2013. The extended period expired on 31st October, 2013. (D) We are informed that the guarantee has not been furnished to date. ADMITTED FACTS : 21. The consideration of the rival contentions is prefaced with the following admitted facts : (i) An amount of over US $101 is due and payable by the appellant to the respondents. (ii) The appellant expressly represented to its shareholders, the bondholders / respondents, the Bombay Stock Exchange, the National Stock Exchange and to the Bombay City Civil Court that it proposed selling the MSD division to raise funds to repay / redeem the 2011 and 2012 bonds. (iii) The MSD business was sold purportedly on the terms and conditions contained in the Asset Purchase Agreement. (iv) An amount of about US $55 million was received under the APA (According to the appellant it received only 50% of this amount and its wholly owned subsidiary Zenith Dubai received the balance 50%. This is seriously disputed by the respondents. It, however, ma....
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....n it's own words. In paragraph 32 of the affidavit-in-reply dated 7th November, 2013, the appellant, after referring to the resolution passed at the EOGM held on 29th January, 2011, stated as under : "... ... ... ... ... ... ... ... I say that the company was entitled to apply the funds received by it upon the sale of MSD Business in a manner which it thinks is most suitable and in the best interest of the company. I say that the Company had the intention of utilizing the sale proceeds of the MSD Business for repayment of the Petitioner's dues in respect of the 2011 Bonds. However, immediately after the Appellant received the monies from the sale of the MSD Business i.e. on 27th September 2011, the Petitioner illegally accelerated the payment of the 2012 Bonds. Consequently, the demand of the petitioner rose from US$ 35.5 million to US$ 89 million. The Company and its subsidiary viz. Zenith Dubai had received an aggregate sum of US$ 48.7 million from sale of the MSD business. The Company's offer that the Bondholders accept the dues against the 2011 Bonds and withdraw the acceleration of the 2012 Bonds was refused by the Instructing Bondholders. The Instructing ....
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....than Rs. 211/- crores. The value of the other assets is not more than Rs. 200 crores. The appellant has not even attempted to demonstrate how it would be able to function as a viable commercial enterprise in view of the extent of its debts. The substratum of the appellant has been eroded. 27. Secondly, we have disbelieved the appellant's entire case in this regard. We have come to the conclusion that there was no offer as alleged. The appellant has not established it's case regarding the offer. Apart from its bare word, the appellant has not relied upon anything that even suggests that the offer was made. The respondent has established beyond a shadow of doubt that the appellant's case regarding the offer is false. The appellant's case regarding the offer to pay the amounts due in respect of the 2011 bonds is not only false but is demonstrated to be false on the basis of the appellant's affidavit-in- reply filed after the petition was admitted. The falsity of the case is established by several factors. Even if each of these factors does not by itself establish the falsity of the appellant's case, taken together they do. Indeed, taken together, these facto....
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.... very first affidavit. It is not the appellant's case that it gave instructions to this effect to it's solicitors but that the solicitors omitted to mention the same. Indeed, had such instructions been given to the solicitors / advocates, it is inconceivable that they would not have mentioned the same. The alleged offer is not really a mitigating circumstance qua the appellant's dishonest conduct. It is, however, the only talking point that it has. It is inconceivable that if, in fact, such an offer had been made it would not have been referred to in any of these pleadings. 31. The very admission of a petition for winding up has serious consequences. As a general rule, the consequences of admitting a winding up petition are far more serious than orders of admission of other petitions or appeals. It is not possible that a party such as the appellant would omit to mention such an important aspect prior to the admission of the petition. 32. The number of affidavits in which the alleged offer was not referred to is also important. What is even more important, however, is the stage at which the affidavit dated 7th November, 2013, referring to the alleged offer was file....
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....ed on the basis of the averment in paragraph 32 of the affidavit dated 7th November, 2013 and in view of the above facts. 36. We will now demonstrate that the offer could not have been made on or after 12th October, 2011 either. 37. Firstly all that we said and the inferences we drew about the over eighteen affidavits filed by the appellant not mentioning the alleged offer would equally apply to the period on or after 12th October, 2011. The affidavits had been filed over a period of ten months from 24th October, 2011 to 5th August, 2012. Had the offer actually been made on or after 12th October, 2011, it is inconceivable that it would not have been referred to in any of the affidavits. 38. In matters such as these, it is inconceivable that an offer, as the one alleged, would have been made only orally. It would have been recorded at least after it was allegedly rejected by the respondent. 39. Mr. Seervai rightly contended that the averment in the affidavit is contrary to what is stated in ground R(i) of the Memorandum of Appeal where it is, inter-alia, stated as follows : "... ... ... ... The Appellant Company's offer that the bondholders accept the dues a....
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...., by that time, the appellant did not even have the money to comply with the alleged offer. The alleged offer was made only after the monies had been appropriated / utilized for other purposes and diverted to the appellant group concerns. 42. It is necessary to read the averments in paragraph 32 of the affidavit dated 7th November, 2013, again. They make it clear that even according to the appellant, the alleged offer was made only after the respondent gave the notice dated 12th October, 2011, of acceleration of the 2012 bonds. This, as we mentioned, is evident from the averment that the appellant offered that the bondholders accept the dues against the 2011 bonds "and withdraw the acceleration of the 2012 bonds." Thus, the offer was clearly alleged to have been made subsequent to the acceleration of the 2012 bonds by the notice dated 12th October, 2011. 43. It is impossible that the alleged offer had been made on and after 12th October, 2011, either. The facts stated by the appellant itself demonstrate that when the alleged offer was made i.e. on or after 12th October, 2011, the appellant did not have the money to make payment in respect of the 20011 bonds. This is conclusiv....
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....and / reserve for payment of salaries. The salary bill for the financial year 2010-11 was Rs. 95 cores. (B) The appellant states that Zenith Dubai utilized the US$ 27 million received by it under the APA as follows : (i) On 11th October, 2011, US$ 0.73 million was invested in Cloud Dubai and Vu Dubai. (ii) On 12th October, 2011, US$ 5 million was invested in Cloud Dubai and US$ 8 million was invested in Vu Dubai. (iii) On 12th October, 2011, US$ 7.2 million was paid to Zenith Infotech Singapore Pte. Ltd., which is a wholly owned subsidiary of the appellant to partly repay the working capital loan taken by Zenith Singapore from the Standard Chartered Bank. It is important to note that in paragraph 4 of an affidavit dated 23rd January, 2012, the appellant stated that oral instructions to do so were given on 29th September, 2011, i.e. much before the alleged oral offer was made. Thus, the process of diverting the funds commenced much before the alleged offer was made. 46. Thus, by 12th October, 2011, the appellant and Zenith Dubai did not have the money - over US$ 33 million to redeem the 2011 bonds. The alleged offer could, therefore, never have been ....
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....4th October 2011, "actively discussing our debt obligations with our bondholders" when actually the Company to its knowledge, had failed to open any dialogue with the Instructing Bondholders who held more than a majority of each of the 2011 Bonds and the 2012 Bonds." [emphasis supplied] It is important to note that the respondent has expressly stated that "The last communication of the company with the instructing bondholders was a completely unproductive meeting on 4th October, 2011." The pleading, therefore, is that there was no meeting after 4th October, 2011. We have already analyzed the pleading in paragraph 32 of the affidavit dated 7th November, 2013, to the effect that the appellant's case was that the alleged offer was made only after 12th October, 2011. The rival pleadings were, therefore, in place. The respondent's case was that there was no meeting after 4th October, 2011, between the appellant and the instructing bondholders. The appellant's case, on the other hand, is that an offer was made by it on or after 12th October, 2011. It remains for the Court to decide which case ought to be accepted. It is not necessary for the respondent to file a rejoinder ....
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....especially as they were also made to such parties and to the Court. The representation to the Court was, of course, much later. 51. That the entire exercise was a preplanned, preconceived strategy to deceive and defraud the respondent is evident from the fact that within fifteen days of the receipt of US$ 48 million under the Asset Purchase Agreement, the appellant and Zenith Dubai "utilized" US$ 44 million without informing any party concerned about the proposed "utilization" of the funds. All this surely could not have been thought of, decided upon and implemented in a few days. Zenith Dubai, for instance, spent over US$ 21 million on 11th and 12th October, 2011. It is no mere coincidence that by 11th October, 2011, the respondent had recalled the amounts due under the 2011 bonds and issued a notice of cross default with respect to the 2012 bonds and that on 12th October, 2011, the respondent issued the notice of acceleration of the 2012 bonds and by 12th October, 2011 about US$ 44 million was "spent", "utilized" and "invested" by the appellant and Zenith Dubai, as alleged. 52. If the appellant's case regarding the offer and the respondent's refusal thereof is to be....
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.... of this Court. This constituted siphoning. The learned Judge upheld the respondent's contentions in this regard. 56. This case of the appellant is unsustainable whichever way it is looked at. There are three clear, distinct and independent answers to it. Firstly, the case that Zenith Dubai had a share in the MSD business is not established. Secondly, even assuming that Zenith Dubai had a share it would make no difference, as the appellant by its announcements / statements to it's shareholders, the bondholders, the Bombay Stock Exchange, the National Stock Exchange and the Bombay City Civil Court clearly represented that it was the sole owner of the MSD business and that it was solely entitled to the sale proceeds in respect thereof under the APA. Assuming Zenith Dubai had an interest in the MSD business, the appellant suppressed the same and by its announcements / statements represented to all concerned, especially the bondholders that it was solely entitled to the MSD division to ensure that they took no action to safeguard their rights and thereby obstruct the sale of the MSD business and the appellant's strategy to divert the funds, inter- alia, to its grou....
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....cement on the BSE dated 30th October, 2011, set out earlier. It would be useful to set it out again : "1) The Company has defaulted on its US$33 mn FCCB which was due on 21st September 2011 and is in negotiations with the bondholders to extend the time of repayment; 2) As informed to BSE earlier vide letter dated September 24, 2011, we have received all monies due from Zenith RMM, LLC except for the amount to be held in escrow part of which the Company plans to utilise for partial repayment of FCCBs." [emphasis supplied] The words "we have received all monies due from Zenith RMM, LLC" indicate that it is the appellant alone who owned the MSD division. The announcement does not indicate even remotely that the appellant had only a share in it. Had it been otherwise, the announcement would have indicated that the appellant had received the sale consideration to the extent of its share in the MSD business. (C) The matter does not even end there. We mentioned earlier that in its affidavit dated 17th October, 2011, filed before the City Civil Court, the appellant stated : "3(c) The sale to Defendant No.2 has been completed to the knowledge of the Plaintif....
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....ment/redemption of the bonds. This is the only commercial meaning that can be attributed to the announcements and to the statement in the affidavit. Most important however, is the fact that the appellant has admitted the same on affidavit. This is established by the following facts and circumstances. (A) The announcements quoted above themselves clearly represented that the entire proceeds from the sale of the MSD division was to be paid to the respondent. For instance, the 30th October, 2011, announcement on the BSE and the affidavit stated that the appellant had received all the monies due from Zenith RMM LLC and that "the sale proceeds received by defendant No.1 (appellant) will be used towards buy-back / redemption of FCCB (i.e. the bonds)". (B) The doubt, if any, is set at rest by the appellant's case regarding the alleged offer to redeem the 2011 bonds conditional upon the respondent revoking the acceleration of the 2012 bonds. US$ 21 million which came to the appellant was not sufficient to redeem the 2011 bonds. The amount under the 2011 bonds was about US$ 36 million. It was not even suggested that the balance amount of US$ 15 million was to be procured / arrange....
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.... bondholders. If it were not so, there would be no reason for the appellant to justify the utilization of the sale proceeds by Zenith Dubai. This destroys Mr. Chagla's contention that Zenith Dubai being a separate legal entity was entitled to deal with the amount received by it as it pleased. 61. Thus, whichever way the matter is seen, the express representation by the appellant to the respondent was that the entire consideration from the sale of the MSD business was to be utilized for redeeming the bonds. 62. It is no mere accident that the appellant did not keep its word. There were no circumstances that prevented the appellant from keeping its word. There were no supervening commercial circumstances that disabled the appellant from keeping its word. The appellant's intention right from the beginning was to mislead all the relevant parties, especially the bondholders and to divert the moneys, including by putting the same out of the reach of this Court. 63. The manner in and the haste with which Zenith Dubai disbursed the amount of US$ 27 million received under the APA also indicates an attempt to divert the monies, putting it beyond the control of the Court and ....
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....ala fide. It is sufficient to refer to only some of the averments in the petition. They are as follows : (A)(i) The announcement to the Stock Exchanges contained false representations that the company was in negotiations with the bondholders to extend the time for payment. The company's management refused to contact the bondholders after the meeting of 4th October, 2011. The company had violated / breached clause 9.27 of the 2006 and 2007 trust deeds. With the benefit of hindsight it appears that at the time of the EOGM held on 29th January, 2011, the company had no real intention to comply with the covenant in the explanatory statement that the monies would be used to repay the said bonds. (ii) Mr. Chagla submitted that this last averment was merely speculative and was not a positive allegation of fraud or siphoning. That is incorrect. That the respondent drew the inference on the basis of hindsight is irrelevant. Indeed, when the representations were made, the respondent believed the same in good faith. They did not doubt the same. It is only thereafter, and despite the representations, the proceeds from the sale of the MSD business were not utilized to rede....
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.... (ii) The respondents, therefore, clearly pleaded that the funds received from the sale of the MSD business had been siphoned off with an intent of personal gain on the part of the promoters. That the phrase "makes it very hard to believe that the promoters of the company were not trying to siphon off funds" is in the negative makes no difference. The allegation is quite clearly one of siphoning. (C)(i) The further averments in the petition are as follows. The company and other entities viz. Zenith Dubai, Zenith Monitoring and Zenith RMM had structured the transaction "in a veiled attempt to circumvent clause 9.27 of the trust deed and to hinder, delay and defraud bondholders thereby seeking to collect on obligations due and owing while improperly conveying benefit to themselves to ensure that maximum benefits accrue to themselves and with respect to the company and the promoters of the company the proceeds were not paid to the bondholders. The sale of the MSD was not conducted on an arm's length basis and was made with an intent to "willfully default on its obligation to both the shareholders and its creditors i.e. the bondholders." The sale of the MSD business ....
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....in a petition for winding up a company to implead all the directors and promoters. If the company court finds the conduct of the company sought to be wound up to be dishonest, it is open to the company court to say so and pass orders accordingly. To do so, it is not necessary to order all the directors and/or promoters to be impleaded. This has never been the practice. It is wholly unnecessary. There are innumerable petitions for winding up where the conduct of a company is adversely commented upon. A view to the contrary would unnecessarily complicate the procedure in winding up petitions. 72. In a winding up petition, the company court is entitled to record adverse findings against the directors in general or the promoters in general even if they have not been impleaded. If such findings are recorded against a particular director or a particular promoter, then it may be necessary to join such a director or promoter as the case may be. However, if the Court finds the conduct of the company to be mala fide depending on the facts of the case, it is entitled to draw an inference that the mala fides ought to be attributed to the Board of directors or to the promoters, generally wit....
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.... a company in question would indeed depend upon the facts of each case. 74. In the circumstances, we see no reason to expunge the adverse remarks. Nor do we find it necessary to refrain from passing adverse remarks against the appellant, the Board of directors and the promoters of the appellant in general. Which of the directors or promoters was responsible for what has been done will undoubtedly fall for determination in the course of the winding up of the appellant and in other proceedings and inquiries. It would also be the subject matter of the proceedings that the Official Liquidator and the respondent may deem necessary to adopt not merely against the appellant, its directors and promoters but also against any other company, including the appellant's sister concerns and group companies as well as against Zenith RMM, LLC. 75. Mr. Chagla apprehends that because of the adverse findings, the Official Liquidator would charge / proceed against every promoter and every director. It would then be for the promoter / director concerned to prove his innocence. 76. What the Official Liquidator or any other authority may do cannot be a ground for a court refraining from makin....
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....lant and Zenith Dubai. It is possible that a purchaser would make payment in such manner and to such parties as the vendor directs. It is possible that Zenith RMM, LLC was unaware that Zenith Dubai did not have an interest in the MSD business, but bona fide made the payment of about 50% of the consideration at the instance of the appellant. This again is an issue which will be decided in appropriate proceedings such as in the suit filed by the respondent before this Court and before the appropriate Tribunals and authorities. The apprehension that adverse remarks may affect Zenith RMM, LLC in the United States of America cannot be a ground for expunging the remarks against the appellant. The regulatory authorities in the United States of America would obviously not be bound by adverse remarks made in these proceedings. The regulatory authorities in the United States of America may well investigate the matter independently in the event of an application being made or information being furnished to them by the Official Liquidator or the respondent or by any other party. 80. There is indeed a possibility of the issue arising even in the United States of America or in Dubai as to the....
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....Board of directors was not responsible for the transactions and the dealings of the appellant under consideration. The promoters hold about 65% of the equity shares of the appellant. Some of them are on the Board of directors. In such circumstances, observations against the Board of directors in general and the promoters in general can be made. The important distinction between the judgment of the Supreme Court and the case before us is that adverse remarks have not been made against the entire Board of directors or against all the promoters. One or more of them is certainly responsible for the acts. The adverse remarks by the learned Judge and by us are not against the entire Board of directors or against all the promoters. In fact, we have clearly mentioned that it will be necessary to identify which of the directors or which of the promoters was responsible for the same. 84. Mr. Chagla relied upon paragraphs 29 and 30 of the judgment of the Supreme Court in State of Maharashtra v. Public Concern for Governance Trust & Ors. (2007) 3 SCC 587, which read as under :- "29. In the instant case, allegations have been made against the then Chief Minister, however, he was not....
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....y suggestion by such an appellant ought to be considered. We, in fact, do not see how the learned Judge could have avoided considering the conduct of the appellant in these circumstances. 87. Had the appellant come forward honestly admitting its liability, expressing its regret for having failed to not merely honour its obligations but also its representations and indicated a genuine intention to repay / redeem the bonds, a lenient view could have been pressed for. The appellant has, however, supported its stand, shown no remorse and expressed no regret for its failure to pay over US$ 100 million and not offered to bring back the US$ 44 million diverted by it to Zenith Dubai and others. It is, therefore, not open to the appellant to contend that the observations insofar as they are adverse to the appellant were not necessary for deciding the petition. The attitude of the appellant before the learned company Judge and before us left the learned Judge and leaves us with no option but to consider the conduct of the appellant. The submission that the conduct of the appellant is not relevant is unsustainable. 88. Mr. Chagla submitted that allegations of fraud and cheating have cri....
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....the facts are equally consistent with the plaintiff having acted honestly. Meredith, J. had observed as follows : "Now it is well settled that where fraud is to be inferred from the circumstances, and is not directly proved, those circumstances must be such as to exclude any other reasonable possibility. In other words, the criterion is similar to that which is applicable to circumstantial evidence in criminal cases." We are unable to agree with these observations. As we have said before, the fact that the party is alleged to have accepted bribe in a civil case does not convert it into a criminal case, and the ordinary rules applicable to civil cases apply. The learned counsel has not been able to cite any other authority to show that there is any such well- settled proposition as stated by Meredith, J." The judgment is a complete answer to the submission. On a parity of reasoning, the fact that the appellant is alleged to have committed a fraud upon the respondent or to have siphoned the money or to have cheated the respondent in a civil case viz. the winding up petition, does not convert it into a criminal case. The ordinary rules applicable to civil cases wo....
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.... departing from the settled practice of the Court against interference with those concurrent findings of fact." The Supreme Court held that in the trial of an election petition, the approach must be as in a criminal trial and, therefore, allegations of corrupt practices must be proved, not on a mere preponderance of probability, but beyond reasonable doubt. In fact, the Supreme Court held that proof of mere preponderance of probability is sufficient in trial of a civil suit. The Supreme Court held that corrupt practice must be established beyond reasonable doubt in view of its finding that in the trial of an election petition, the approach to the evidence must be "as in a criminal trial". In other words, the Supreme Court considered an election petition to be akin to a criminal trial. Once it is held that a particular proceeding is or is akin to a criminal trial, it would follow that the level of proof required to establish allegations of the criminal acts alleged therein must be beyond reasonable doubt as in the case of a criminal trial. A winding up petition is neither a criminal trial nor akin to one. The judgment therefore, is of no assistance to the appellant. 91. Mr. Ch....
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....due consideration and effect to the totality of the evidence and circumstances of the case, the mind of the Court is left rocking with reasonable doubt - not being the doubt of a timid, fickle or vacillating mind - as to the veracity of the charge, it must hold the same as not proved." This judgment was also in a case under The Representation of Peoples' Act, 1951. Gulabchand's case is not referred to. In any event, Gulabchand's case cannot be held to have been over-ruled as this case was decided by a bench of two learned Judges. The case, however, is distinguishable. It was one under The Representation of Peoples' Act, 1951, and the Supreme Court held that the standard of proof required "in such cases is not a mere preponderance of probability, but beyond reasonable doubt." The Supreme Court noted that the trial of an Election Petition is in the nature of an accusation of a quasi-criminal action. In other words, an election petition itself is a quasi-criminal action or one akin thereto. It is for that reason that the standard of proof in an election petition is the same as in a criminal trial. The Supreme Court noted that in an election petition, the commission ....
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....d Shri Nagaraja and Shri Jayanna had gone to make enquiries about the Miscellaneous Application No. 105 of 1990 when the respondent admitted filing of the miscellaneous application without instructions using signatures obtained on blank papers,. In the complaint it was stated that the conversation was recorded on a tape and the same will be produced, but none was in fact produced. The withholding of the tape-recorded conversation is a serious lacuna. The Bar Council took a serious note of it and, in our opinion, rightly. Learned counsel for the appellant has failed to point out any infirmity in the impugned order." The judgment of the Constitution Bench in Gulabchand's case was not referred to. There is no question of Gulabchand's case being even impliedly over-ruled as this was a judgment of a Bench of three learned Judges. Further, the Supreme Court held that the charge of professional misconduct is in the nature of a quasi-criminal charge. The observation is in the context of proceedings under the Advocates Act. The complaint, as we noted, was for professional misconduct under section 35 of the Advocates Act. Section 35 deals with punishment of advocates for misconduc....
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....the Division Bench dismissing the appeal against the order of the company Judge admitting the petition. Mr. Chagla submitted that the order and judgment of the learned Judge admitting the petition and of the Division Bench dismissing the appeal against the order are of no relevance at the final hearing of the petition for winding up. According to him, even the learned company Judge was not bound by the said orders. In support of this contention, Mr. Chagla submitted that at the admission stage the Court normally does not go into the question in as much depth as it does at the final hearing. The considerations that weigh with the court at the final hearing, he submitted, are different from those that weigh with the court at the stage of admission. He, therefore, persuaded us to go into the matter in detail without reference to the orders and judgments at the admission stage. Mr. Seervai, on the other hand, contended that orders at the stage of admission would be binding at the final hearing absent any change in circumstances or additional facts and evidence. In the present case, according to him, there were no additional facts and no change in circumstances. The learned Judge was....
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.... to put it quite simply, no intention of repaying its debts. We have already referred to the conduct of the company, its directors and promoters. The learned Judge would have been entirely unjustified in exercising his discretion in not winding up the company. 98. Mr. Chagla lastly tendered a draft minutes of order proposed by the appellant "strictly without prejudice". He stated that the same established the appellant's bona fides as it indicated the desire of the appellant to ensure the sale initially of the Cloud Computing business and in the event of there being a shortfall, the sale of the other assets of the appellant in an open, transparent and fair manner. 99. The offer does not impress us. The Official Liquidator would also have to bring the assets of the appellant to sale in a fair, open and transparent manner. The appellant is always at liberty to apply to the company Judge for any directions to ensure that the sale of the assets are conducted properly. We are not inclined to accept the offer for more than one reason. (a) The assets of the company are wholly inadequate to meet even the appellant's liability towards the respondent of over US$ 100 mi....
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....uired to investigate whether the APA ought to be challenged or not and in this regard, it would be necessary for the Official Liquidator to take steps to obtain information including from the authorities in USA, Dubai and Singapore. These are matters in respect whereof the company court would undoubtedly pass necessary directions. By accepting the terms the entire process would be delayed. In view of the conduct of the appellant and its promoters and directors, we see no reason why any opportunity ought to be granted to them to further prejudice the rights and interests not only of the respondent, but also of all other relevant parties. 100. Mr. Chagla submitted that the order for the sale of the Cloud Computing business in the manner stipulated therein is contrary to the provisions of law. It is not open to the appellant to raise this contention for this part of the order was passed by the learned Judge as a matter of indulgence on the suggestion of the appellant and of the employees of the company. In paragraph 41, the learned Judge noted the submission on behalf of the appellant that the winding up order would affect the employees who would lose their jobs, prejudice the s....
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....ted party transaction at a time when Zenith Monitoring was a subsidiary of the appellant. The MSD business was, in turn, transferred by Zenith Monitoring to Zenith RMM, LLC. Zenith RMM, LLC is a company that was formed by Summit Partners LP as a special purpose vehicle for the purchase of the MSD business. Mr. Seervai submitted that the transaction is contrary to clause 9.27 of the 17th August, 2007, trust deed which reads as under : "9. General Covenants : So long as any Bond is outstanding, the Company will ... ... ... ... 9.7. Subsidiaries not sell, dispose, transfer (except for a transfer by way of security only) or otherwise divest itself of any of its shares in a Subsidiary where such sale, disposal, transfer or divestiture would result in the Company holding less than 50 per cent of the issued share capital of such Subsidiary to any third person other than any Subsidiary and to procure that no Subsidiary shall merge or sell, transfer, dispose or otherwise divest itself of substantially all of its assets, without the consent of the Trustee, acting on the instruction of the Bondholders holding nor less than 75 per cent of the principal amoun....