TaxTMI 
TaxTMI 
2025 (2) TMI 21
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....sing the petitioner, respondents 9 and 10) and the team- respondents (comprising respondents 6 to 8). It is being fought hard as in the body-line series. I realised that team-respondents had pushed the team- petitioner on the back-foot after securing few advantages in the earlier matches. Team-petitioner is batting. I saw the batsmen walking aggressively and restlessly outside the crease. It has to take its chances on this final day wicket of the final match, which looked the way it ordinarily will look on the final day - weary with cracks. 1.2 And, here I am, stepping into officiate the final moments of the game in this ground. "How many times have I been here? How many matches would I have umpired?" - A thought passed by. Cautioning my mind not to wander, I settled down to umpire another game. Will the petitioner hit its way to its team's victory or is the team-respondents going to steal the show? I am not interested in the outcome. For, I am neither a player nor a spectator. An Overview of the Series A. Setting the Tone - Backdrop facts: 2. Broadly, it is a story of two foreign investors collaborating with Indian Companies promoted by a certain K.C. Palanisami (K....
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....l ensure that at least 25% of the amount due is paid in every quarter. CEPL, C.G. Holdings and KCP are at liberty to make use of the fixed deposit held by CEPL with SBI, Erode Main Branch, free of any liens or encumbrances towards refund of the investments of ORE and Athappan. VML [i.e. Vasantha Mills Ltd, the 9th respondent in this writ petition, and hereinafter "VML"] shall not alienate or sell any of its immovable properties till full payment is made to Ore, in terms of this order. In the event of any failure to make the repayment within the specified time,CEPL, CG Holdings, KCP and VML will duly convey the immovable properties of VML, namely 17.15 acres of land in favour of ORE and 7.80 acres of land in favour of Athappan by executing and registering necessary deeds of conveyance in strict compliance with all applicable laws, as consideration for reduction of capital and surrender of the shares of ORE and Athappan, upon which ORE as well as Athappan will deliver the share certificates and blank transfer forms in respect of their holdings in CEPL and the subsidiaries, if any, in favour of CG Holdings and KCP. CEPL is consequently authorized to reduce its share capital and in the....
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.... applications for modification of the Order of CLB dated 13.08.2008. While the principal prayer in these applications revolved around the utilisation of the money of C.G. Holdings lying in fixed deposits for discharging the liability cast on CEPL, ORE on its part has sought a modification that instead of the land of VML being sold to it, the same may be sold to the one who ORE nominates. On 03.08.2009 , the CLB came out with its Order modifying its earlier Order. In this Order it tweaked its direction vis-a-vis the utilisation of funds in the fixed deposits, but as regards letting ORE's nominees to purchase the property is concerned, it allowed it. 3.3 All the parties were apparently unhappy with some part of the modified Order, and this let to the institution of a batch of Company Appeals, and a Division Bench of this Court, vide its judgement dated 05.08.2011 (by R. Bhanumathi J, as the Hon'ble Judge then was) disposed of the same. In the context of the present case, it is significant to extract the following passage from the Order of this Court: 145.... By the order dated 3.8.2009, Company Law Board modified the earlier order directing VML to execute the Sale....
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....id either in cash or kind. However, no cash was paid by the CEPL as stipulated in the CLB's Order, and hence the foreign investors shifted their focus to property-component as provided in the CLB's Order, vis-a-vis the discharge of petitioner's liability. Indeed, it must be said to their credit, at the first instance they did not focus on the property as they had approached the CLB for disbursing the money of KCP group lying in fixed deposits. 6.1 Will Team-Respondents wrest the advantage it gained in the first leg and obtain the conveyance of the property that CLB had directed? The duel will be what the theme of this segment is all about. 6.2 From here onwards both the teams adopted different strategies. Team- respondents had their only option left - to obtain conveyance of 17.15 acres in favour of ORE's nominee and 7.80 acres in favour of Athappan. They made the following moves, which sync well with their objective: a) As mentioned in an earlier paragraph on 05.08.2011, the Division bench of this Court had disposed of the batch of company appeals preferred by both sides challenging the Order of CLB modifying its earlier Order. Wasting no time on 22.09.2....
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....ed 05.03.2012, 27.06.2013 and 19.08.2012 vis-a-vis share pricing, FC-TRS, etc. RBI had responded with its reply dated, 28.03.2013 and 07.08.2013 on the subject. 6.4 Even as the CEPL was busy corresponding with RBI on share pricing etc., on 10.12.2014, ORE constituted ORE Trust, with all Indian Trustees and ORE as the sole beneficiary. It is the 7th respondent. It is a kind of special vehicle formed by ORE to be its nominee for purchase of the immovable property. Now, on one hand RBI, Mumbai had indicated that ORE, being a foreign company cannot acquire property in India. On the other hand, CLB had authorised ORE to acquire property through its nominee. And the RBI, Mumbai, had not said that ORE's Indian nominee cannot purchase immovable property in India. On 01.05.2015, RBI, Mumbai was addressed for permission to purchase the VML lands through the nominee of ORE, namely ORE Trust. On 08.06.2015 RBI, Delhi granted necessary permission and this communication makes a reference to a letter, dated 05.05.2015, seeking identical permission. 6.5 When once the permission was obtained, on 31.12.2015, the CLB passed separate Orders in E.P.35 and 36 of 2011 and inter alia directed VM....
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.... directions were given by the CLB vis-a-vis payment of amounts to ORE and Athappan were directed only against CEPL. Now, for it to stay at the wicket, it needed a cause of action: Its strategy can now be explained: a) As seen in the narration above, vide its Communication dated 08.06.2015, the RBI, New Delhi, had permitted sale of 17.15 acres to the nominee of ORE. And, this precisely is the communication which VML had earlier challenged in W.P. (Civil) 834 of 2016 before the Delhi High Court and withdrew. However, in his pursuit to save the property (even after its sale and registration), KCP (the promoter of his group of companies that constitute the team-petitioner), had been addressing multiple correspondences to the RBI and also the Prime Minister of India questioning the RBI's letter dated 08.06.2015. b) On 27.01.2016, the Petitioner wrote to the RBI seeking modification of the letter dated 08.06.2015 to the extent that: 1. the value of the shares be determined as per the FEMA Pricing Guidelines; 2. buyback of shares by the Petitioner be permitted on the basis of FC-TRS Form submitted already; and 3. to clarify that the 6th and....
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....n entities, then it is mandatory that they shall comply with pricing guidelines under FEMA. To state it differently, notwithstanding the fact that the CLB has directed payment of specific sum for the buy-back of shares, what is required to be paid is the value of the shares which is computed as per the pricing guidelines under the FEMA. In its correspondence, dated 28.03.2013, 07.08.2013, 21.12.2015 and 05.04.2016 to KCP RBI, Mumbai, has clarified that for buy back of shares, pricing must be done. But it has not happened till now. b) Secondly, when immovable property of VML has to be sold by a resident Indian to a foreigner, then it is mandatory that FEMA compliance is fulfilled and necessary approval of RBI is obtained. Both ORE and Athappan indeed had approached RBI, Mumbai, but it vide its communication dated 09.04.2012 and 04.04.2012 had underscored that immovable property of a resident cannot be sold to a foreign national or a company. However, RBI, New Delhi vide its communication dated 08.06.2015 has allowed the very sale which RBI Mumbi had disallowed. c) Eventually 17.15 acres and 7.80 acres of VML lands were sold by CLB to ORE Trust, a Special Purpose Ve....
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....tors of CEPL in the manner mandated by FEMA regime, it can be safely stated that it would be no more than the value of the paper on which it is printed and therefore, the CEPL is keen to knock off the investments which ORE and Athappan had made by insisting on share-pricing. c) The sale of VML land is not the primary objective of the Order of the CLB. Nor did these foreign investors of CEPL approach the CLB with a prayer for the same. Nor VML was under any obligation to sell the land at the first instance. Nor these respondents insisted for the purchase of the lands as a consideration for reduction in the share capital which the share certificates they hold evidence. It was because the CEPL was not inclined to pay the money invested in terms of the spirit of the CLB order, it invited upon itself a circumstance where the sale of VML land to the investors became inevitable. d) This Order of the CLB was not challenged by CEPL and has become final. What was challenged by it was the Order of CLB modifying its earlier Order by which it allowed the nominee of the foreign investors to take the sale. And it has become final. e) Eventually sale of land did take pla....
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....ted 13.08.2008. The dissection of the order of CLB is already done (see paragraph 3.1 (b) above) but its salient features are required to be reiterated now for spotlighting the fault line in the strategy of the petitioner : a) that CEPL shall pay Rs.75.0 crores to ORE Holdings and Rs.4.0 crores to Athappan with interest at 8% per annum within a period of one year; b) on breach of the above condition, then 17.15 acres of VML properties must be sold to ORE, and 7.80 acres to Athappan; c) on performance of any one of these conditions in the order indicated, both ORE and Athappan must surrender their share certificates, pursuant to which, there shall be a reduction in the share capital of CEPL. 14.1 While the team-respondents chose to read the terms set out by the CLB for their exit from CEPL in the above-mentioned order (from top to bottom), the team-petitioner had opted to read it in the reverse direction - from bottom to top, and if it may be stated, deliberately with pretended innocence. 14.2 It was very obvious from the strategy of KCP and his group of companies who have been litigating since CLB took cognizance of the controversy, that they were k....
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....he consideration for reduction of share capital, and has not described it as consideration for the purchase of shares from its foreign investors. 14.5 KCP's strategy is far too transparent, except that he did not realise it. And, sadly despite suffering heavy bruises in the earlier matches - read it as earlier rounds of litigations, he continues to believe that his strategy to deny ORE and Athappan will work: a) When it comes to payment to ORE and Athappan in cash, he brought in his theory of share-pricing. And as against Rs.75 crores plus interest payable to ORE, he offered Rs.12,41,419/- which is an insignificant 0.165%, and Rs.45,663 to Athappan as against his entitlement of Rs.4.0 crores which represents an inconsequential 0.11% of the principal amount receivable by him. It is therefore, far too evident that if the shares of the foreign investors in a dysfunctional company were to be valued under the FEMA regime, their worth will bear no relationship to the amounts which CEPL was under an obligation to pay to ORE and Athappan; b) When it came to an alternate mode of discharging CEPL's obligation to its foreign investors through the property of VML, ....
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....the cricketing analogies and terminologies lavishly employed, this continues to be a judicial order, and hence I need confirmation on the correctness of my conclusion. 16.2 How does his plea of share-pricing likely to aid KCP or his companies now? His team still harps on the communication from the RBI dated 28.03.2013, 07.08.2013, 21.12.2015 and 05.04.2016 wherein the RBI has indicated the need for share-pricing or what is required to be done vis-a-vis share pricing, and this does not help the petitioner in any way. After all RBI had respondent the question which KCP has raised and since KCP posed the question touching on share-pricing, RBI had answered what is to be done, as the case may be. And, shifting back to the sale of VML lands to the nominee of ORE and Athappan, they have ensured that the objective contemplated by the CLB's Order dated 13.08.2008 has been accomplished after about 16 years and after few rounds of litigations. ORE and Athappan had surrendered the share certificates, and the final ritual that possibly remains to be done is to formally bring about a reduction in share capital. Now whether canvassing share-pricing will help him gain an advantage? Today b....
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....y bear, there is nothing to interest or impress this court. Couch dolls do not, and cannot win cricket matches. 17. Another argument canvassed was that a property worth more than Rs.500 crores has been sold for nothing. If it is true, KCP has lot to introspect. Is it not he who created the situation? The CLB did not direct the sale of VML lands, but only payment of money. And both ORE and Athappan did not want the lands either, but only their money. As indicated elsewhere in this Order KCP took up share-pricing only to pull the wool from everyone's eyes, including the Court, to deny ORE and Athappan the benefit of the Order of the CLB, but they needed an entry-point to canvass it. A search for a window took them to the stipulation in the Order of the CLB dated 13.08.2008 as well as the Division bench of this Court (by R. Bhanumathi J,) where both the Tribunal and this Court had insisted that the exit-formula devised by CLB (for ORE and Athappan to sever from KCP group) must be worked out only within the framework of the applicable laws. If share-pricing was to be the working mechanism of the exit-formula of the CLB, then it would have been made its bottom-line by the CLB. It....