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TMI Blog2013 (6) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... under the sanctioned scheme. The Court in the present case has nowhere returned a conclusion that the scheme was unworkable. The terms of the scheme as is evident from para 13 (Company Petition No.20 of 2011) details the benefits which had accused to the transferee company. - These benefits had already accrued to the transferee company. The appellant has also acted upon the scheme. Under section 392(2) of the said Act the Court will not pass an order for winding up on the basis of a mere allegation without any particulars; merely on a bald submission that the scheme as sanctioned has become unworkable would not lead to the passing of a winding up order. - petition dismissed with cost quantified at Rs.25,000/-. - CO.APP. 18/2013 - - - Dated:- 13-3-2013 - Sanjay Kishan Kaul And Indermeet Kaur,JJ. For the Petitioner : Mr. Gopal Subramaniam, Sr. Advocate with Mr.Ritin Rai, Mr.Santanam Swaminathan, Ms. Kartika Sharma and Mr. Manu Sanan, Advocates. For the Respondents : Mr. Rajiv Nayar, Sr. Adv. With Mr. Rishi Agarawala and Ms. Malavika Lal, Advocate. JUDGMENT Indermeet Kaur, J. 1 Company petition No.20 of 2011 was filed jointly by Real Global Broadcast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to be distributed across the country through cable operators. 6 In 2009, ABE, Meditech and the respondent commenced discussions qua the exit of the respondent from the transferor company and Meditech. A valuation report was submitted by the Chartered Accountant M/s Suri and Sudhir to calculate the Discounted Free Cash Flow (DCF) of the transferor company under the Foreign Direct Investment Policy (FDIP). On 02.6.2010 the respondent, Alva Brothers, ABE, the transferee company and Meditech entered into a Binding Term Sheet (BTS) that replaced an earlier BTS dated 18.12.2009. 7 On 25.6.2010, the transferee company was incorporated by ABE. 8 On 01.7.2010 the transferor company and the transferee company entered into a scheme which was the subject matter of Company Petition No.20 of 2011. This scheme proposed an amalgamation of the transferor company and transferee company. A joint application supported by two affidavits, both of which had been sworn by Nikhil Alva in his capacity as the director of the transferor company as also in his capacity of director of the transferee company was filed before the Company Judge. This scheme sought to cancel the shares of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferee company which included the entire distribution network including the STBs along with the software encryption keys which the respondent had failed to honour; the payment of USD 1,500,000 payable to the respondent was only contingent upon this entire undertaking to be transferred as a working business to the transferee company and there being a violation of this obligation, it was clear that the scheme was no longer workable and in view of the provisions of Section 392 of the said Act the scheme be cancelled and an order for winding up of the transferee company be passed. 12 Before adverting to this application (filed on 30.10.2012) certain intervening events are relevant. 13 On 21.12.2011 a letter of demand /default notice was sent by the respondent to the transferee company seeking payment of USD 1,500,000 in terms of the order dated 29.3.2011. This letter contained a warning that in case the transferee company failed to honour its commitment the respondent would have no other alternative but to take legal recourse; no reply was filed to this demand. Respondent thereafter filed a contempt petition (Contempt Case No.230/2012) stating that the transferee company has fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Company Judge in C.A. 2076/2012 (in C.P.20/2011) filed by the present appellants; (2) The learned Company Judge seized of the said application (C.A. 2076/2012) is requested to hear the parties and dispose of the said application at her earliest convenience. For this purpose, learned counsel for the parties shall be present before the learned Company Judge on 23.11.2012. Apparently, the said application has been listed for further proceedings on 16.01.2013; the learned Company Judge is requested to take-up the matter according to the Court s earliest convenience and proceed with the application and decide it as expeditiously as possible, and if possible, within three months from today. (3) The parties are directed to approach the learned Single Judge seized of CCP.230/2012, immediately after the decision in C.A.2076/2012. 16 The impugned order dated 20.02.2013 was passed thereafter. The impugned order has rejected the twin prayers made in the application. The plea of the transferee company that the distribution network was also part of the complete undertaking which was to be transferred to the transferee company, in the absence of which the scheme has become unworkable wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and description whatsoever, privileges, provision funds, quota rights, registrations, reserves, and all properties, movable and immovable, real, corporeal or incorporeal, wheresover situated, right to use and avail of telephones, telexes, facsimile connections, installations and other communication facilities and equipments, tenancy rights, titles, trademarks, trade names, all other utilities held by the Transferor Company or to which the Transferor Company is entitled to on the Appointed Date and cash and bank balances, all employees engaged in the Transferor Company at their respective offices, branches at their current terms and conditions, all earnest moneys and/or deposits including security deposits paid by the Transferor Company and all other interests wheresover situate, belonging to or in the ownership, power or possession of or in the control of or vested in or granted in favour of or enjoyed by or arising to the Transferor Company. Clause 7.1 which describes transfer of undertaking and reads as under: 7.1 Transfer of the Undertaking: With effect from the Appointed Date, and subject to the provisions of the Scheme in relation to the mode of transfer and vesting, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is clear from the explicit language of the terms of the scheme which is further fortified by the fact that prior to the sanction of the scheme the various correspondences exchange between the parties evidenced the fact that the STBs and the software of the encryption key was an issue being debated interse the parties and the draft MOU which was a proposed agreement between the respondent-Turner and the transferee company which was an agreement providing of the decryption key to the transferee company was in fact never executed. Learned counsel for the respondent has also drawn attention of this court to Schedule A which is the list of properties filed along with the scheme; submission being that the description of the properties proposed to be transferred by the transferor to the transferee did not at all include the software of the decryption keys. 21 In rejoinder, learned senior counsel for the appellant has drawn an additional line of argument based on the aforenoted Schedule. Submission being that the description of the plant and machinery which includes satellite receivers encompasses the encryption key to the STBs; and this has to be necessarily read from this descrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court is satisfied that the scheme cannot work satisfactorily it may in the alternate order winding up of the company. The powers of the Court under this section, however, do not go beyond the implementation of the scheme which already stands sanctioned under Section 391 of the said Act. The scheme may however necessitate certain modifications for its implementation as the court may consider necessary for the proper working of the said compromise or arrangement. While the power under this section may be of a widest amplitude but it cannot be read to be unlimited. It may be invoked only for the purpose of determination or adjudication of any right or interest claimed under the sanctioned scheme. There is no dispute to the fact that if the court comes to the conclusion that the scheme is completely unworkable, it may in its discretion order winding up of the company. Use of the word may under Section 392(2) indicates the discretionary power vested upon the court. This discretion however has to be exercised fairly and in the facts of each case. 28 At this stage it would be relevant to examine the application filed by the appellant vide which he had sought certain directions ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intent of the parties. These correspondences/e-mail (as highlighted by the learned counsel for the appellant) were prior to the date of the sanction of the scheme. The issue about the transfer of the distribution network from the transferor company to the transferee company was always a bone of contention. Conax in its e-mail dated 25.5.2010 had clarified that Conax‟s policy did not permit the transfer/duplication of the security keys to another operator system due to security reasons. The e-mails dated 01.6.2000 (between the transferee company and the respondent) evidenced that the issue of the process of change to a new transmission service involving encoding, box change and so on was complex and the respondent‟s reply vide e-mail of the same date reflects that the respondent was willing to extend the time period by nine months to enable the Alva Brothers (on behalf of the transferee company) to find a new service provider. Thereafter a draft MOU between the transferee company, the respondent and Conax was entered into. This is evident from the mail dated 27.7.2010; this draft MOU related to the transfer of the decryption keys to the transferee company. The fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case has nowhere returned a conclusion that the scheme was unworkable. The terms of the scheme as is evident from para 13 (Company Petition No.20 of 2011) details the benefits which had accused to the transferee company. These related to benefits in management expertise especially in technical areas which were essential for critical decisions and the amalgamation of both the companies had in fact paved the way for a better and more efficient utilization of the larger resources and funds of the two companies. The growth prospects for the personnel and the organizations connected with the two companies were also better; this being in the interest of the welfare of the employees of both the companies as also be in the larger interest of the public. These benefits had already accrued to the transferee company. The appellant has also acted upon the scheme. This is clear from the communication dated 07.7.2012 addressed by the Alva Brothers (on behalf of the transferee company) wherein information was sought to facilitate the payment of the amount payable (USD 1,50,000) to Turner in terms of the sanctioned scheme. 37 Under section 392(2) of the said Act the Court will not pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lternate proposal for getting a scheme of arrangement sanctioned was filed. The basis of the scheme, therefore, was that a new management would replace the old, the mills would be restarted and the creditors would be paid out of the profits so earned. The Court had noted that even assuming that Jalan were under an obligation to bring in finances including their own monies, they could not be said to be under an obligation to bring in finance if the working of the mills showed no reasonable prospects of profit. The very object of the company being to manufacture cloth, if the mills had to be closed that would mean that the very object for which the company existed and which was also the assumption on which the scheme was framed ceased to exist. The winding up petition pending prior to the filing of the joint application for the sanction of the scheme had in fact proceeded on the assumption that the company was commercially insolvent; it was only in these circumstances that the Supreme Court had noted that this scheme not being workable and the substratum of the company having been lost it was a fit case for winding up. The said facts are clearly distinguishable and would not apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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