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TMI Blog2014 (1) TMI 1476X X X X Extracts X X X X X X X X Extracts X X X X ..... the address given in the cause title of the Petition. The Petitioner is engaged, inter alia, in the business of providing corporate trustee services. The main object for which the Company was incorporated is to inter alia carry on the business of manufacturers and sellers of all kinds of electronic and electrical equipment and machinery including computers, data loggers, process controllers, geophysical and communication instruments, ultrasonic and microwave devices, etc. 4. The Petitioner has stated in the Petition filed on 21st December, 2011, that the Company is indebted to the Petitioner for an aggregate sum of US $ 36,141,167.66 (US Dollars Thirty Six Million One Hundred Forty One Thousand and One Hundred Sixty Seven and Sixty Six cents only). 5. On 15th September, 2006, the Company offered US $ 33 million 3.0 % convertible bonds 2011 due for repayment or redemption in August 2011. Similarly on 14th August, 2007, it also offered US $ 50 million 3.0 % convertible bonds 2012 due for repayment or redemption in August 2012. The bonds were issued at 100 per cent of the principal amount. The Petitioner is the Trustee holding the aforesaid bonds in trust for the bondholders, who su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Petitioner also addressed a notice of Cross Default to the Company stating the occurrence of a cross default in relation to the 2012 Bonds under Condition 11 (D)of the Terms and Conditions in relation to the 2011 Bonds. On 10th October, 2011, the Petitioner also addressed a letter to the Company notifying that the 2011 Bonds were immediately due and payable. On 12th October, 2011, the Petitioner addressed a Notice of Acceleration for the 2012 Bonds to the Company declaring the 2012 Bonds as due and payable due to a cross default. 9. On 13th October, 2011, the Company made an announcement on the BSE stating that its MSD Business had been sold and acknowledged the debt. The announcement made on BSE reads as follows: "1. The Company has defaulted on its US$ 33 Million FCCB which was due on 21st September, 2011 and is in negotiation with the bondholders to extend the time of repayment; 2. As informed to BSE earlier vide letter dated 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." Thus, the Company made a clear admission that the Bonds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purportedly "terminating" the Petitioner as a Trustee. The Petitioner by their letter dated 18th November, 2011, replied to the termination notice stating that the purported termination is contrary to the Trust Deed and therefore void and nonest. The Petitioner pointed out that as per Clause 16.2 of the Trust Deed, termination can only be by way of an extraordinary resolution by threefourths of the bondholders, and no such resolution has been passed. The Petitioner further pointed out that as per clause 11.25 of the Trust Deed, the Petitioner has to act in the best interest of the bondholders. The Petitioner also amended the Plaint in Suit No. 2865 of 2011 and challenged the termination of its Trusteeship, inter alia on the ground that the said termination is illegal and on the face of it null and void. 14. Upon the sale of the MSD Business, the Cloud Computing Business ("CC Business") was the only business of the Company. In the Notice of Motion filed in the Suit, the Company stated that the value of the CC Business was approximately US $ 150 Million. However, the Petitioner contended that this was not the correct valuation. In view thereof, by an order dated 23rd December, 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to claim the Equity Stake in Continuum Managed Services amounting to Rs. 39.86 crores and/or Rs. 32.27 crores held in joint escrow account. Pursuant to the said liberty granted, the said Defendant Nos. 2, 3 and 4 in the Suit have now moved an application before this Court claiming the said entire amount held in the Joint Escrow Account. 16. On 25th March, 2013, the Securities and Exchange Board of India ("SEBI") passed an order against the Promoters of the Company, inter alia, directing the Promoters of the Company to furnish a Bank Guarantee for US $ 33.93 million. The Company and its Promoters filed an Appeal dated 8th March, 2013, before the Securities Appellate Tribunal ("SAT") challenging the order dated 25th March, 2013, passed by SEBI. On 17th June, 2013, the Company made a settlement proposal over a 3 year period to the FCCB bondholders before the SAT. On 4th July, 2013, the above Company Petition was mentioned before this Court for fixing a date of hearing for Admission, which was fixed for 26th July, 2013. The Company with a view to stall the hearing for Admission, made a corporate announcement on the BSE website stating that, "The Board of Directors of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conscious of the fact that such dishonest promoters of the Company, more often than not, take advantage of a beneficent legislation like SICA and by taking repeated adjournments before the BIFR/AAIFR after registration of their Reference, deprive the small and bona fide creditors of the Company for more than a decade, by seeking protection under the provisions of Section 22 of the SICA. .... ... ... There are several petitions pending in this Court since the year 1998-2000 seeking winding up of Companies which have not seen the light of day for the last 10 to 15 years, since this Court is not allowed to proceed with the matter in view of Section 22 of SICA. The Judges of this Court handling Company matters have time and again drawn the attention of the BIFR/AAIFR to the pathetic situation in which the small creditors of such Companies are placed since the last several years with no light in sight at the other end of the tunnel. However, it is trite that the function of Courts is only to interpret the law and not to legislate. As observed by the Hon'ble Supreme Court in Rishab Agro Industries Ltd. (supra), "If a provision of law is misused and subjected to the abuse of process of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt challenging the order admitting the Company Petition dated 30th July, 2013 ("DB Appeal"). On 23rd August, 2013, two employees of the Company filed an Appeal challenging the order admitting the Company Petition before the Division Bench of this Court("Employee Appeal"). It is pertinent to note that in the said Appeal, the employees have not taken any ground to the effect that the Cloud Computing Business of the Company is worth approximately INR 400 crores, as now alleged by them in the Application taken out by them to intervene in the present Company Petition. 22. On 26th July, 2013, the SEBI filed a SLP before the Hon'ble Supreme Court seeking leave to file an Appeal challenging the SAT order. On 27th August, 2013, the Hon'ble Supreme Court was pleased to stay the operation of the SAT order. 23. On 2nd September, 2013, the Division Bench of this Court (Coram: Dr. D.Y. Chandrachud & M.S. Sonak, JJ.) dismissed the Appeal, inter alia, on the ground that the present case is one where the Company has admitted the debt, admitted the default and has admitted insolvency. The employees decided to accept the said order and did not appeal from the same. However, the Company preferred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g extension of time for furnishing the Bank Guarantee beyond 24th October, 2013. However, the same was refused by the Hon'ble Supreme Court. This Court is informed by the Petitioner that to the best of their knowledge the Directors/Promoters of the Company have till date not furnished the required Bank Guarantee. 26. On 13th September, 2013, the Secretary of the BIFR rejected the Appeal filed by the Company challenging the order dated 12th August, 2013, rejecting the Company's Reference passed by the Registrar, BIFR. The Secretary in his order made the following observation: ".... It is clear that the Company was not carrying any manufacturing activities and has manipulated its balance sheet for the period ended 30.6.2013." 27. Since the Hon'ble Supreme Court by its order dated 30th September, 2013, dismissed as withdrawn, the SLP filed by the Petitioner impugning the order passed by the Hon'ble Division Bench of this Court dated 2nd September, 2013, on 1st October, 2013, the Advocates for the Petitioner mentioned the Company Petition before this Court seeking an extension of the returnable date. This Court passed an order extending the returnable date to 21st October, 2013. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so does not arise. It was also submitted that the Company has not siphoned away any funds received from the sale of the MSD Business. All the aforestated contentions of the Company advanced at the time of the admission of the Company Petition were rejected by this Court by its detailed order dated 30th July, 2013, the Appeal preferred therefrom before the Hon'ble Division Bench of this Court, as stated earlier, has been dismissed, and the SLP filed therefrom was also dismissed as withdrawn. 31. The Company Petition is now taken up for hearing and final disposal. 32. At the outset it is submitted on behalf of the Company that this Court ought not to proceed with the hearing of the above Company Petition, since the Company has not complied with Rules 24 and 30 of the Companies (Court) Rules, 1959 ("the said Rules"). It is submitted that this Court therefore ought to follow the procedure on default of compliance as regards advertisement and service of notice, as laid down in Rule 31 of the said Rules. Rules 7, 24, 30 and 31 of the said Rules are reproduced hereunder for ready reference: "7. Power of Court to enlarge or abridge time._ The Court may, in any case in which it shall de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout the returnable date and the admission of the Petition was published in the Official Gazette in the issue of the Official Gazette dated 10th October, 2013 - 16th October, 2013. It is submitted that no application for dispensation of the mandatory period as required, was taken out by the Petitioner. The Company has relied on the decision of the Division Bench of the Hon'ble Delhi High Court in the case of Lt. Col. R.K. Saxena vs. Imperial Forestry Corporation 2001 107 Company Cases 401 wherein it is held that the Petition for winding up has to be advertised before the same is placed for hearing before the Court and the exercise of discretion in Rule 24 of the Rules is confined only to the time limit for advertisement i.e. only to that part of the Rule, which says, ".......be advertised not less than fourteen days before the date fixed for hearing....". It is further submitted on behalf of the Company that not only has the Petitioner not complied with the mandatory requirement of Rule 24, but has failed and neglected to comply with the mandatory requirement of Rule 30 of the said Rules. The affidavit required to be filed as per Rule 30 was admittedly not filed three days prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9th October, 2013, to be released on 3rd October, 2013, due to paucity of time and in view of the fact that 2nd October, 2013 was a National Holiday. The Petition was therefore advertised in the Maharashtra Government Gazette at the earliest available opportunity in the next weekly gazette for the period from 10th October to 16th October, 2013 in accordance with the directions of this Court. The decision of the Division Bench of the Hon'ble Delhi High Court in Lt. Col. R.K. Saxena's case (supra) would not assist the Company since the facts and circumstances in which the said judgment has been passed are totally different from the facts of the present case. In Saxena's case, the advertisement of admission of the winding up petition had not been placed in the Official Gazette at all. The Hon'ble Delhi High Court therefore held in that case that it was mandatory to publish the advertisement in the Official Gazette, with a view to lend authenticity to the advertisement published in the local newspapers. In that case it was held that Rule 24 was mandatory in the context of publishing the advertisement in the Official Gazette. The Court however held that it has the discretion to alter t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case, the advertisement of admission of the Company Petition was published in the Maharashtra Government Gazette on 10th October, 2013 and the Company Petition, although placed for hearing on 21st October, 2013, was ultimately heard by this Court only on 11th November, 2013. In the light of the same there was no need for such directions to be passed by this Court. 36. As regards the contention raised by the Company that the Petitioner has not complied with Rule 30 of the said Rules , an affidavit dated 8th November, 2013 under the said Rules has been affirmed on behalf of the Petitioner on 8th November, 2013, and has been tendered on 11th November, 2013. The Court was on vacation from 1st to 10th November, 2013, during which time the Filing Departments of the Court including the Company Department were also closed. Accordingly, the said affidavit was filed on the first working day thereafter. Non filing of the affidavit of service three working days prior to the hearing of the Company Petition is a curable defect. In view of the sufficient compliance with the order of the Court by the Company and also in view of Rule 7 of the Rules, whereunder the Court is given pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the SICA will be registered with the BIFR and the stay under Section 22 of the SICA will operate in respect of the proceedings under the present Company Petition cannot be brushed aside. Again, the submission made on behalf of the Petitioner that the conduct of the Company is throughout not bonafide and the Petitioner is not at all ready to accept/rely on any suggestion made by the Company on any ground whatsoever, is fully justified in view of the following mala fide conduct of the Promoters/Directors of the Company since inception: (i) The Promoters of the Company had admittedly not repaid the amounts due to the Petitioner/Bondholders under the 2011 Bonds as per the terms of the 2006 Offering Circular and the 2006 Trust Deed as well as under the 2012 Bonds as per the terms of the 2007 Offering Circular and the 2007 Trust Deed and the Company has therefore defaulted in the repayment of the 2011 as well as 2012 Bonds. The Company by its notice dated 27th December, 2010 called its EOGM on 29th January, 2011, and in the Explanatory Statement annexed to the said notice inter alia represented to its shareholders that the Company is desirous of selling and/or leasing the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to act in the manner desired by the management unless they have formed their own judgment on the question after being placed in full possession of all material facts and apprised of the interest of the management in any particular action being taken. If, therefore, there was any contravention of the provisions of Section 173, the meeting of the company held on 5th September, 1961, would be invalid and so also would the resolution passed at that meeting be invalid." (ii) Despite the above sanctity/seriousness being known to the Promoters/Directors of the Company, as stated hereinabove, they nonchalantly proceeded to make a false representation in the explanatory statement dated 27th December, 2010, and defrauded the shareholders by selling a valuable asset/undertaking of the Company and thereafter did not make any payment from the consideration received therefrom towards the FCCBs, for which the mandate of the shareholders was obtained. (iii) On 13th October, 2011, the Promoters/Directors of the Company made an announcement on the BSE that they have received the entire consideration from the sale of the MSD Business except for the amount to be held in escrow and the Company plans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. On page 37 of the Schedule, details of the SAAZ Software are provided which the contract itself terms on page 37 " This (SAAZ Software) is by far the most important intellectual property as the SAAZ Software is what our resellers/MSP's pay for as well as it form the backbone of how service delivery to our resellers/MSP's are performed from our network operation centre in Mumbai, India." The fact that the SAAZ Software is developed by the Company and that it is the backbone of the delivery from the network operation of centre with Mumbai clearly indicates that it is also owned by the Company. In any event, on page 93 it is shown that the trademark for SAAZ is owned by the Company. On page 105 a list of material contracts are set out and each of such contracts are with the Company. It is therefore clear that the primary seller of the Assets under the US APA is the Company ; no material asset was owned by the Dubai entity which was sold to the Purchasers ; there is no basis for paying around 50% sale consideration to the Dubai entity ; the payment to the Dubai entity in no way justifies payment of consideration of US $ 27 million. It is therefore evident that the Company has used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is not admitted till date. The Promoters/Directors of the Company have therefore left no stone unturned in ensuring that no amount whatsoever is paid to the Petitioner/bondholders of the FCCBs despite an amount of approx. Rs. 600 crores being due and payable to them till date. In the above circumstances, the Bondholders cannot be blamed for having lost complete faith and trust in the Company, its Promoters and Management, and for not being ready to trust their word in view of their past conduct of giving false assurances only to renege therefrom. In fact, as set out hereinabove, the Promoters/Directors of the Company have not only been dishonest with the Bondholders and the Stock Exchange but have also been dishonest with the Court, and as stated hereinabove made a false and dishonest statement on oath in its affidavit dated 17th October, 2012, filed before the City Civil Court inter alia stating that the sale proceeds received will be applied towards buy back/redemption of FCCBs and have thereafter not paid a single paisa to the Bondholders and have dishonestly utilized the said amounts as set out hereinabove. In fact, the Securities and Exchange Board of India ("SEBI") vide its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dizes the integrity of the securities market. 25. The board of directors of ZIL is hereby directed to furnish within 30 days from the date of this order, bank guarantee(s) of a minimum tenure of one year, for USD 33.93 million (i.e. the amount of sale proceeds of MSD Division that has been diverted as described in para 15 above), in the name of Securities and Exchange Board of India, without using the funds of ZIL or creating any charge on assets of ZIL". As set out hereinabove, despite the Hon'ble Supreme Court having extended the time to enable the Promoters/Directors of the Company to furnish the Bank Guarantee as required under the SEBI Order, the Promoters/Directors have failed and neglected to provide the Bank Guarantee till date. I am therefore not inclined to defer the hearing or the decision on the Company Petition as submitted/suggested by the Company. 40. The Petitioner is also correct in its submission that even if the CC Business were to be sold, the value thereof as per the Valuation Report of Ernst and Young dated 3rd July, 2012, is in the region of about Rs. 196 crores - Rs. 211 crores (which is approximately USD 31.6 Million - USD 34 Million as per the conversio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding dues, including payments in respect of warranties provided by the Company to its various customers, which would become payable only after expiry of the warranty period. Though I am satisfied that the employees have been put forward by the Company with an oblique motive of protecting its own interest, and the interest of the employees and the concern shown with regard to the employees loosing their jobs is a mere pretence on the part of the Company, I have no doubt in my mind that the jobs/employment of the employees should be uppermost in the mind of the Court at the time of passing an order directing winding up of a Company. However, I also cannot lose sight of the fact that the winding up process cannot be delayed on the ground that the employees may loose their jobs because when an organization like the present Company is headed by dishonest Promoters/Directors who have a single point agenda viz. their selfinterest, they may with the passage of time bring the Company to such a state that the employees may not even get the fruits of their toil put in for several years viz. their terminal benefits, which it is at least possible to secure at this point of time. However, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces on record, the averments made, the arguments advanced and the evidence led on behalf of both the parties to the Company Petition. It is also submitted that since the SLP has been dismissed and the employees have chosen not to challenge the Division Bench order, the findings therein and in the admission order have become final and binding. Apart from the fact that I am in agreement with the submissions advanced by the Petitioner, in my view, the facts and circumstances on the basis of which I have passed the admission order dated 30th July, 2013, have remained the same till date and do not call for any different findings at this stage than those arrived at during the stage of admission. I therefore once again confirm all the findings arrived at by this Court in the admission order dated 30th July, 2013. 45. The Company has also pressed the arguments and contentions advanced at pages 801 to 813 of the affidavit in reply. The same is almost a repetition of what was submitted by the Learned Senior Advocate appearing for the Company at the stage of admission and is already dealt with in the admission order dated 30th July, 2013 and herein. 46. The Company has next submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is correct in submitting that the Company has failed to rebut the presumption of insolvency and is therefore liable to be wound up. 47. It is also submitted on behalf of the Company that insofar as the wrongful and illegal acts of Directors and Promoters are concerned, SEBI is investigating into the same and therefore it was not necessary for this Court to take cognizance of the conduct of the Directors and Promoters in determining whether the Company ought to be wound up. In response, the Petitioner has correctly relied upon the judgment of the Hon'ble Supreme Court in D.D.A. vs. Skipper Construction Company (P) Ltd. (1996) 4 SCC 622 wherein the Hon'ble Supreme Court in paragraph observed as follows: "28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nducted on the following terms: (i) The Administrator shall offer the CC Business for sale in a public auction, which auction shall be widely advertised in national newspapers as well as in the international press; (ii) The Administrator is granted liberty to seek the assistance of any Investment Bank as also an independent law firm of repute in Mumbai to assist him in the sale process and the legal issues arising out of the sale of or related to or associated with the sale of the CC Business. However before the appointment of the Investment Bank and the law firm, the approval of this Court shall be obtained; (iii) The Investment Bank and the law firm so appointed by the Administrator after seeking the approval of this Court shall conduct a financial, accounting, business, legal and customer relation due diligence of the CC Business and also prepare an Information Memorandum. The Company and its Promoters shall be required to cooperate in the process of preparation of the Information Memorandum and for the purposes of requesting the due diligence exercises to be undertaken. As part of the sale process, the Company shall also prepare management meetings, meetings with customers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale shall be completed on or before 16th April, 2014; (x) It shall be the responsibility of the Promoters and Directors of the Company to obtain the necessary approvals, consents and permissions as may be necessary to effectuate the sale of the CC Business and the immovable properties and fixed assets of the Company and to keep the Administrator informed about the status and progress of the same; (xi) The Company, its Promoters and Directors shall cooperate with the Petitioner, the Instructing Bondholders (as such persons are identified to the Company by the Petitioner from time to time) and the Administrator to effectuate sale of the CC Business and the Company's immovable properties and fixed assets in a timely manner during the period set out herein; (xii) The Petitioners and the Instructing Bondholders along with their Counsel shall be permitted to attend, participate and put forth their views in the meetings with the Administrator in respect of the sale of the CC Business and the immovable properties and fixed assets of the Company; (xiii) In the event of the sale proceeds from the CC Business and the sale of other immovable properties and fixed assets being insufficient ..... 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