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TMI Blog2013 (9) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is as to whether the Company is unable to pay its debts - material on record would indicate that the Company is unable to pay its debts. The Learned Single Judge has noted that on 17 June 2013, the Company made a settlement proposal for payment to be made to the FCCB bond holders over a three year period in certain proceedings which were pending before the Securities Appellate Tribunal in appeal against an order passed by SEBI. On 4 July 2013, the Company Petition for winding up was fixed for hearing on 26 July 2013. In order to forestall the hearing of the Company Petition, the Appellant made an announcement on the website of the Bombay Stock Exchange to the effect that the Board of Directors had decided to make a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as the accumulated losses had exceeded the net worth of the Company as per the audited financial results on 30 June 2013. On 19 July 2013, the Company made a corporate announcement on the BSE website of its audited financial results for a period of nine months ending on 30 June 2013. On 19 July 2013, a reference was filed before the BIFR which was announced on 25 July 2013 in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtible bonds (a series of 2006 and of 2011). On 15 September 2006, the Appellant offered USD 36 million three per cent convertible bonds which became due for payment on 21 September 2011. The Appellant entered into a Trust Deed with the Respondent, covenanting under Clause 2.2 to unconditionally repay the principal amount. On 14 August 2007, the Appellant offered the second series consisting of USD 50 million three per cent convertible bonds. A Trust Deed was executed with a covenant for unconditional payment. On 27 September 2011, the Respondent issued a default notice calling upon the Appellant to pay the outstanding principal amount of the first series. On 30 September 2011, a notice of cross default was issued to the Appellant. Following this, a notice was issued on 10 October 2011 stating that the amount under the first series was due and payable immediately. By a subsequent notice dated 12 October 2011, the Respondent accelerated the payment of the amount under the second series declaring that it was due and payable as a result of a cross default. A statutory notice was issued on 4 November 2011 claiming that an amount of USD 36.141 million and USD 53.915 million was due. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 36 million under the first series was 21 September 2011. On 13 October 2011, the Appellant made an announcement to the Bombay Stock Exchange, being a listed Company, stating inter alia as follows: 1. The Company has defaulted on its US$ 33 mn FCCB which was due on September 21, 2011 and the Company was and is in negotiations with the bondholders to extend the time for repayment. -2. As informed to BSE earlier vide letter sated September 24,2011, we have received all monies due from Zenith RMM, LLC except for the amount to be held in escrow, part of which the Company plans to utilize for partial repayment of FCCBs. -3. Further we would like to inform you that the management, promoters have not in last one year bought or sold any shares of the Company. The representation which was held out by the Company was that: (i) There was an admitted default in the payment of the first series of the bonds; (ii) The Appellant had sold one of its divisions, the MSD Division, and the consideration received from the sale of the division would be utilized for partial payment of the FCCB Bonds. No disclosure was made of any part of the consideration realised from the sale of the MSD Divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the sale consideration which has been received by the Appellant has been utilized for making: (i) Payments to Standard Chartered Bank of USD 12.6 million (Rs. 61.7 crores); (ii) Payments to related parties aggregating to USD 15.3 million (Rs. 74.2 crores); and (iii) Other payments aggregating to USD 23 million (Rs.115 crores). The point to be noted is that no part of the consideration has been paid over to the bond holders despite a solemn statement to the shareholders in the explanatory statement, a representation to the Bombay Stock Exchange and even a statement on affidavit before the City Civil Court. 6. Now, it is in this background that the submissions which have been urged on behalf of the Appellant must be evaluated. Clause 24 of the Deed of Trust provides as follows: At any time after the Bonds have become due and repayable, the Trustee may, at its discretion and without further notice, take such proceedings against the Company as it may think fit to enforce repayment of the Bonds together with premium (if any) and to enforce the provision of this Trust Deed, but it will not be bound to take any such proceedings unless (a) it shall have been so requested in writing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 439(1)(b). Hence, there can be no manner of doubt that a petition, at the behest of the Respondent for winding up, was maintainable. 8. The Respondent has instituted a suit against the Appellant on the Original Side for the recovery of the outstanding dues under the two series of bonds. In that suit, an application under Order 38 Rule 5 was moved in which on 14 February 2012, the Learned Single Judge inter alia restrained the Appellant from disposing of, alienating or transferring its interests in its Cloud Computing Business. In that ad-interim order, the Learned Single Judge noted that the value of the computing business as computed in a report of Ernst and Young was Rs.598 crores. By an order dated 1 March 2012, a Learned Single Judge declined to grant a copy of the valuation report to the Respondent. The Division Bench in appeal, by an order dated 27 March 2012 recorded that there was no dispute about the fact that no payment has been made by the Appellant herein on the date on which the bonds fell due for repayment or redemption. The Division Bench in the course of its judgment observed as follows: We find considerable substance in the submission made on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oud Computing Business, Ernst and Young in their valuation report dated 3 July 2012 had valued the enterprise value at between Rs.152 crores and Rs.211 crores. In view of the subsequent report, the proceedings were remanded back to the Learned Single Judge for reconsideration. By an order dated 9 October 2012, the Learned Single Judge noted the undertaking of the Appellant not to dispose of its assets and disposed of the application for ad-interim relief accordingly. This aspect has a serious bearing on the conduct of the Appellant and its lack of bona fides. 9. A proceeding for winding up, it is well settled, is not a proceeding for the recovery of outstanding dues. Nor for that matter, can the remedy of a Petition for winding up be utilized to pressurise a company which is commercially solvent to pay a debt which is bona fide disputed. In the present case, there is no dispute about the debt due and payable by the Appellant to the Respondent. The company in the present case is unable to pay. The conduct of the Appellant in failing to utilise any part of the sale consideration from the sale of the MSD Division to repay the bond holders despite a solemn assurance to the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterised as a stand alone ground. 10. In the present case, the material on record would indicate that the Company is unable to pay its debts. The Learned Single Judge has noted that on 17 June 2013, the Company made a settlement proposal for payment to be made to the FCCB bond holders over a three year period in certain proceedings which were pending before the Securities Appellate Tribunal in appeal against an order passed by SEBI. On 4 July 2013, the Company Petition for winding up was fixed for hearing on 26 July 2013. In order to forestall the hearing of the Company Petition, the Appellant made an announcement on the website of the Bombay Stock Exchange to the effect that the Board of Directors had decided to make a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as the accumulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y may not be equipped to deal with the complex handling of such business, I appoint Shri Salil Shah, Advocate, as the Administrator of the Company. The Administrator shall take symbolic possession of the property, effects, actionable claims, books of accounts, statutory records and other documents of the Company. The Administrator may also retain copies of books of accounts, statutory records and other records as he may deem fit. The Directors of the Company shall provide all information sought by the Administrator pertaining to the working/affairs of the Company and shall forward the agenda of all Board Meetings/General Meetings at least 72 hours in advance to the Administrator and shall not take up any matter at any meeting which is not mentioned in the agenda. In case of emergency the Directors may hold a Board Meeting at short notice with the permission of the Administrator. However, the Administrator shall ensure that the day to day functioning of the Company is not hampered in any manner whatsoever. 12. The Respondent applied before the Learned Single Judge for the appointment of a provisional liquidator. The Learned Single Judge has held, and in our view with justificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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