TaxTMI 
TaxTMI 
TaxTMI 
2010 (2) TMI 1331
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....7 and its subsequent conversion into equity on 15.6.2009 as null and void and by another direction the BIFR has directed the appellant company to submit an alternate draft rehabilitation scheme to the IDBI (operating agency) without involving any change of management. Against this order, the appellant company as well as VIPPL (Appeal No. 193 of 2009), HEPL (Appeal No. 187 of 2009) and MATIL (Appeal No. 196 of 2009) have also fried separate appeals challenging the same order on various grounds. Therefore, all the aforesaid appeals are being decided by this common order. 2. Brief facts of the case are that Balaji Distilleries Limited filed a reference under section 15(1) of SICA and in the hearing held on 20.12.2006, the BIFR declared the company sick and appointed IDBI as the operating agency (OA) with the direction to prepare a viability study report and rehabilitation scheme for the company with 31.3.2007 as the cut off date. 3. The BIFR, by its order dated 25.3.08, permitted the company to create first mortgage and charge in favour of Standard Chartered Bank on the movable and immovable assets of the distillery and brewery divisions (excluding current assets) of the company in ....
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....ideration the observation made by the Board under paragraph 2.1 and submit a fully tied up DRS with full details of the rationale for merger of one unit -- distillery division with United Spirits Ltd and demerger of another unit -- brewery division with Chennai Breweries (P) Ltd., giving details of the division-wise assets and liabilities and viability of each unit. The BIFR further directed that the OA shall submit a detailed report on whether the 3 investors, viz., VIPPL, HEPL and MATIL belong to promoter group after verifying their ownership (shareholding) and give the documents/credentials of the three companies. A further direction was given to the company that the company may negotiate with Indian Bank to arrive at a settlement. 6. In the hearing held on 25.5.2009, the Board issued directions that OA shall examine the various issues mentioned under paragraph 2.3 and submit a report whether the company has complied with SEBI guidelines while allotting convertible warrants to .investors not belonging to the promoter group within 15 days. The company was also directed to clarify with copy to the OA and SCB how change of management can take place without the permission of BIFR a....
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....t the proposed conversion of funds through warrants. The swap ratio has also been considered taking into consideration of the above infusion of funds. If the proposed funds from warrant holders do not materialize, then entire viability/DRS would have to be re-worked. 8. Before the BIFR it was submitted by the company that mere issue of shares may not tantamount to change of management. It was further submitted that in case ownership alone determines management, the company has requested for condonation for not obtaining prior permission of the BIFR. It was further stated that the dues of the Indian Bank and the Oriental Bank of Commerce were paid by the company. OCCRPS of Rs. 18.02 crores also were redeemed by the company. The dues of Indian Overseas Bank were also settled under OTS. Indian Bank has also stated that their dues have also been paid and both of them sought exemption. SCB also submitted a letter dated 13.7.2009 stating that SCB is agreeable to the demerger of the brewery division of Balaji Distilleries Ltd. to Chennai Breweries Limited, a subsidiary of the company, subject to fulfillment of the terms and conditions-mentioned in SCB's letter dated 13.7.2009 to the ....
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.... also subsequently approved by shareholders of the appellant company at AGM held on 12.9.2007. The warrants were issued at Rs. 13.78 each in accordance with SEBI guidelines with regard to pricing of issues. The appellant company on receipt of 10% of the application money allotted the warrants on 20.12.2007 and the warrant holders had 17 months and 29 days time to bring in the balance money and get the warrants converted into equity shares of the appellant company. On 15.6.2009, the balance money of Rs. 111.62 crores was paid and the warrants were converted into equity shares. 11. Shri Singhvi further argued that the appellant company has complied with all necessary statutory requirements. It was argued that the company has complied with various SEBI guidelines regarding disclosure and investor protection which deal with pricing, lock-in, etc., and SEBI (Substantial Acquisition of Shares and Takeover) Regulations. He has also stated that the certificate of CA confirming that the SEBI (DIP) guidelines have been complied with has been obtained. He has also submitted the record of detailed workings as to how pricing of Rs. 13.78 is arrived at. It was further argued that the company ha....
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....ear from the written submissions of SEBI regarding the proposed allotment and even in the hearing held on 14.1.2009 the question of infusion of funds for the purpose of rehabilitation of the sick company was discussed. The BIFR, in its order dated 3.3.2009, has also discussed the same and has raised various questions to satisfy itself whether the investor companies are Indian companies; whether there is any violation of FEMA and the company has fully answered the questions raised by the BIFR from time to time and all the directions issued by the BIFR were examined by IDBI (OA) in detail and answers were submitted and even then without assigning any cogent reason, the BIFR simply discarded them which is not legal. The BIFR has not considered this aspect of the matter that the funds raised by allotment had been used to pay and settle the dues of creditors on OTS basis. The transaction of allotment of warrants and its subsequent conversion into equity shares has been consummated and the funds raised by the company have been utilized towards the revival of the company. It was further argued that BIFR has illegally declared the allotment null and void and directed the company to submit ....
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....the impugned order simply taking into consideration the fact that the allotment of warrants and its subsequent conversion into equity has resulted in change of management with respect to the sick industrial company without permission of BIFR and is violative of provisions of SICA, He further argued that the terms 'control' and 'management' are not defined under provisions of the Companies Act, 1956. The BIFR has erred in ignoring that the warrant holders, including the appellants, had executed irrevocable proxies in favour of the existing promoter to vote on their behalf at all general body meetings of Balaji Distilleries Limited which is valid upto 2014. The conduct of the appellants leaves no doubt that the appellants are only passive investors and are neither keen nor interested in participating in the management of the company. In the light of such unequivocal stand, the doubt expressed by the BIFR as regards the change of management was unfounded and without any basis. It was further argued that the decision of the BIFR that there is a change of management and such change of management can only take place by a transparent procedure and that such procedure has n....
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....ttled by the appellant company by way of OTS. Therefore, the approach taken by the BIFR in this case is arbitrary and the impugned order of the BIFR is liable to be set aside. It was also argued that the BIFR has exceeded its jurisdiction by declaring the transaction null and void. The appellants have repeatedly argued that there shall be no change of management. However to obviate any change of management a condition can be put in the DRS. In all the three appeals, Shri Sibal argued that the impugned order passed by the BIFR be set aside, the investment be taken on record, the DRS be sanctioned and the BIFR be directed to supervise it and see that the company is revived as per the scheme. Shri Sibal submitted that this Authority can also issue direction about the circulation of DRS and cited four decisions in which this authority has issued similar directions; (J.K. Synthetics Ltd., (Appeal No. 301/2000); (2) Gujarat Sidhree Cement Limited (Appeal No. 367 of 2001); Kothari Sugars and Chemicals Ltd. (Appeal No. 188 of 2002); and (4) Renuka Silk Mills Ltd. (Appeal No. 72 of 2006). 14. No one appeared before us for the respondents except IDBI (OA), Indian Bank and SCB. As directed o....
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....itted in the said letter that in view of the urgent need of funds to meet the VAT payment and ongoing capital expenditure, which are part of cost of the rehabilitation proposal submitted by the company, the company by its application dated 30.12.2008 has sought following relief: (a) To grant exemption to warrant holders from the open offer requirement as per SEBI Regulations, 1997, on conversion of warrants into equity shares. (b) To consider the issue of equity share of BDL on conversion of warrants as supervening extraordinary event in terms of listing agreement of BSE, MSE, HSE and grant automatic listing of shares of BDL on conversion. 14.1. SCB has relied on its letter dated 13.7.09 and consented to the DRS. 15. We have heard the learned counsel for the appellants as well as well as the respondent and have perused the relevant records as pointed out by the learned counsel for the parties. During the course of the argument, learned counsel for the appellants vehemently argued and answered all the queries raised before the BIFR. We agree with the contention of Shri Sibal that the BIFR ought to have provided an opportunity of hearing to all the three investor companies befo....
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.... concerned, the same was rectified by receiving further 90% funds on 15.6.2009 which has not been considered by the BIFR. Regarding following open offer requirement as per SEBI guidelines, the appellant has sought exemption in the DRS itself, which will have to be considered by the BIFR at the time of hearing objections/suggestions to the DRS. The BIFR has also not recorded any finding on the averment that the warrant holding companies are Indian companies registered in India and that they are subscribing in Indian rupees only to the warrants and the warrant holding companies are not receiving any funds from OIL, a foreign company. Therefore, permission from RBI and FIPB was not required. The IDBI (OA), vide its letter dated 5.6.2009, submitted a tabular chart regarding all statutory compliances and was of the view that company has made all compliances and has not raised any objection. 17. So far as the question of change of management is concerned, we agree with the view that the ownership of a company is with the shareholders whereas the management of the company is with the directors and that the change in shareholding structure does not ipso facto mean a change in management. ....
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....pattern have been mentioned. In paragraph No. 7.4, the infusion of funds through issue of warrants to the three warrant holding companies has been mentioned. In paragraph 7.4.3 (a) shareholding pattern, conversion of funds into shares has also been mentioned. In paragraph 7.6.1 the rationale for scheme of arrangements has been mentioned in detail and in paragraph 7.6.6 shareholding pattern of USL, post-merger of BDL has been mentioned and, in paragraph 8.3.1., the post-merger structure of management has also been clarified. In the order dated 25.5.09, it has been clarified by the BIFR itself that IDBI has confirmed by their letter dated 18.5.2009 that the three warrant holding companies, viz., VIPPL, HEPL and MATIL, do not belong to the promoters group. In paragraph 2.2, SCB submitted that the DRS may be circulated. The IDBI submitted that the DRS incorporates the observations of the BIFR, as directed in the hearing held on 3.3.2009. It was mentioned in the letter that as SCB has conveyed its no objection to the circulation of the DRS and the company has entered into a settlement with Indian Bank regarding swap issue certificate from the company which has also been obtained. We hav....