2017 (8) TMI 5 - HC - Companies Law

Outstanding liability towards petitioner - liability to repay under the Bonds - Held that - On 07.11.2014 an additional affidavit was filed by the respondent company wherein it admitted its liability to repay under the Bonds. This Court vide order dated 11.05.2017, as a matter of last opportunity directed the respondent to place on record an affidavit giving the mode and manner in which it will repay its admitted outstanding liability towards petitioner and also to demonstrate its ability to repay admitted amount. On 14.07.2017 the respondent filed an additional affidavit but nothing was stated as to how it is going to repay the debt owed to the petitioner or ever demonstrated its ability to repay. The CDR scheme as proposed, even otherwise, is not binding upon the petitioner or the Bond Holders since they have never approved of such a scheme. The petitioner in its own right as a creditor, being the Trustee in respect of the Bonds has a locus to file this petition and considering the financial deterioration of the company as is shown in the record submitted and also is out of business and is merely speculating of getting more contracts from ONGC despite having being blacklisted by it from January 2013 till the end of 2014, do show that it had failed in its business. The TEV Report which forms the basis of CDR Scheme too is based on assumptions, caveats or benefits which are largely theoretical. In its reply dated 21.08.2013 to the legal notice, the respondent did not dispute the allegations of the petitioner. Thus considering the huge debt liability of the respondent company coupled with the fact it is out of business and is pulling with scant number of employees, having a negative worth; there is no reason why the petition be not admitted against it. Consequently, the petition is admitted and the Official Liquidator attached to this Court is appointed as the Provisional Liquidator. He is directed to take over all the assets, books of accounts and records of the respondent-company forthwith. The citations be published accordingly also adhering to procedures as detailed in law.

Summary

Issues:
1. Enforcement of corporate trustee services for bond-holders.
2. Default in payment by respondent company for convertible bonds.
3. Allegations of financial distress and debt restructuring by respondent company.
4. Legal action seeking winding up of respondent company.

Analysis:

Issue 1: Enforcement of Corporate Trustee Services
The petitioner, engaged in providing corporate trustee services, filed a Company Petition on behalf of bond-holders for an outstanding sum of USD 84,100,000.33. The petitioner, acting as Trustee, had been indemnified and instructed by over 25% of bond-holders to enforce the Bonds, as per the Conditions. The respondent company, indebted to the petitioner, failed to make the required payments, leading to legal action seeking enforcement of the Bonds.

Issue 2: Default in Payment for Convertible Bonds
The respondent company had issued USD80,000,000, 5% Convertible Bonds due on 17.08.2015, failing to pay interest of USD2,000,000 on 16.07.2013. Despite notices and demands, the respondent did not fulfill its obligations under the Trust Deed and Bonds, acknowledging its liability in Annual Reports but failing to make payments, leading to legal action for the outstanding amount.

Issue 3: Allegations of Financial Distress and Debt Restructuring
The respondent company, facing financial challenges, initiated discussions for debt restructuring through Corporate Debt Restructuring Mechanism (CDR) without informing bond-holders. The company's financial state, decline in turnover, and attempts to restructure debts raised concerns about its ability to repay. The petitioner alleged that the CDR scheme was not approved by bond-holders and that the respondent's financial condition indicated an inability to meet obligations.

Issue 4: Legal Action Seeking Winding Up
Considering the respondent company's financial deterioration, admission of debt, and failure to propose a repayment plan, the Court admitted the petition and appointed the Official Liquidator as the Provisional Liquidator. The Court directed the takeover of assets, publication of citations, and filing of statements of affairs by directors. The respondent was restrained from disposing of assets without Court permission, emphasizing the seriousness of the financial situation and the need for winding up proceedings.

This comprehensive analysis covers the enforcement of corporate trustee services, default in payment for convertible bonds, allegations of financial distress and debt restructuring, and the legal action seeking winding up of the respondent company based on the detailed judgment delivered by the Delhi High Court.