2014 (6) TMI 747 - HC - Companies Law

Winding up of Company - Inability to pay debts - Default under the terms of the Bonds by failing to make payment of interest in respect of the Bonds - Respondent contends that petitioner is not a creditor - Held that - contract, in any other court or courts with jurisdiction, the declared forum of choice was the English court. This court would certainly have jurisdiction over the respondent company as it is a company registered within the jurisdiction of this court, if this be the reason for the petitioner to have instituted the petition before this court as stated at paragraph no. 16 of the petition, it was incumbent on the petitioner to have incidentally stated as to the reason for not having instituted the proceedings in the forum of choice, exclusively and expressly reserved. More importantly this court is called upon to try the case and determine the insolvency of the respondent and its inability to pay its debts-in relation to the payments due under the contract and with reference to the terms of the contract. The third point framed for consideration, as above, would in fact require this court to firstly decide whether an event of default had occurred and whether the petitioner had satisfied the conditions after such default by the respondent, in order to present the petition and thereafter to adjudicate on the dispute whether there was an irrefutable liability which the respondent is unable to satisfy etc., this would be inconsistent with the intention and the admitted position that the contract is declared to be governed by the English law. It would be appropriate if the petitioner should approach the competent English court in this regard. If once there are findings of fact arrived at with reference to the contract on the application of the English law, as to the liability and inability on the part of the respondent to pay its debts - such findings could possibly be the basis of a winding up petition before this court. It could even be with reference to winding up proceedings under the Companies Act, 1956, subject to the petitioner satisfying that there has been an adjudication and findings on the assertions as to the breach of contract, the liability thereof and the inability on the part of the respondent to pay its debts, with reference to the English law, by a competent court with jurisdiction - on which this court could act. - Decided against Petitioner.

Summary

Issues Involved:
1. Nature of the contract between the parties.
2. Jurisdiction of the court considering the exclusive jurisdiction clause favoring English courts.
3. Whether the petitioner has satisfied the conditions under the contract to prefer the winding-up petition.
4. Whether the respondent should be ordered to be wound up.

Detailed Analysis:

1. Nature of the Contract Between the Parties:
The respondent, an Indian public limited company, issued Euro 42 million 2.50% Convertible Bonds due 2011, governed by English law. The bonds, convertible into equity shares or Global Deposit Receipts (GDRs), carried a 2.50% annual interest, payable semi-annually. The contract, constituted by a trust deed dated 17 March 2006 between the respondent and the petitioner (trustee for bondholders), specified that the English courts have exclusive jurisdiction over any disputes. Events of default, including non-payment of interest or principal, allowed the trustee to declare the bonds repayable. The commercial nature of the transaction was debated extensively, with references to legal principles indicating that the bonds could be treated as debt securities or debentures, thus making the petitioner an unsecured creditor.

2. Jurisdiction of the Court Considering the Exclusive Jurisdiction Clause Favoring English Courts:
The contract explicitly conferred exclusive jurisdiction on the English courts for disputes arising from or connected with the trust deed or bonds. Despite the petitioner reserving the right to initiate proceedings in other courts with jurisdiction, the primary forum chosen was the English courts. The court noted that it would be inconsistent for it to determine insolvency and inability to pay debts under the contract governed by English law. The petitioner should approach the English courts for adjudication on the default and liability issues, which could then form the basis for a winding-up petition in India. The court referred to the Apex Court's decision in Swastik Gases (P.) Ltd. v. Indian Oil Corp. Ltd., emphasizing the binding nature of exclusive jurisdiction clauses.

3. Whether the Petitioner Has Satisfied the Conditions Under the Contract to Prefer the Winding-Up Petition:
The petitioner argued that the respondent defaulted on interest payments due on 18 September 2009 and subsequent periods, leading to the issuance of default notices. The respondent contended that the petitioner, not being a creditor or bondholder, lacked the standing to file the petition. The respondent also argued that the bondholders had not exercised their conversion option, and the bonds were not pure debt instruments but convertible instruments, making bondholders contingent shareholders. The petitioner's failure to provide evidence of bondholder instructions for default notices and the restructuring proposals accepted by other creditors further complicated the matter. The court found that the petitioner had not demonstrated compliance with all contractual conditions to prefer the winding-up petition.

4. Whether the Respondent Should Be Ordered to Be Wound Up:
The respondent argued that it had not neglected to pay its debts and had sought additional time for interest payments, with other secured creditors accepting restructuring proposals. The respondent's financial instability was temporary, with significant efforts from stakeholders to stabilize the company. The court noted that the winding-up petition could not be used as a debt recovery mechanism and that the petitioner had acted unreasonably by rejecting restructuring proposals. The court held that the grounds for winding up under Section 433(e) of the Companies Act, 1956, were not made out, and the petition was not maintainable.

Conclusion:
The court dismissed the petition, emphasizing the exclusive jurisdiction of the English courts and the petitioner's failure to satisfy contractual conditions for winding up. The decision highlighted the importance of adhering to jurisdiction clauses and the appropriate use of winding-up petitions. The court also referenced the case of Intesa Sanpaolo S.P.A. v. Videocon Industries Ltd., noting the difference in circumstances due to the presence of a foreign decree in that case.