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TMI Blog2014 (6) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... deration, 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turity with a premium over the principal amount, unless redeemed or converted previously. There is an option available to the investor to convert the Bonds into equity shares of the issuer in accordance with the terms prescribed. Unless so converted, the bonds remain outstanding debt instruments of the Issuer. It is claimed that the Bond holders had not exercised the option to convert the bonds into equity shares. The Bonds carried an interest component that was required to be paid by the respondent to the bondholders. It was payable as per Condition no.5, at the rate of 2.5% on the principal value of the bonds, semiannually, on March 18th and September 18th of each year. Though payments towards interest was said to have been made, during the periods 2006 to March 2009, there was said to be a default in respect of the payment due in September 2009. It is stated that there were several exchanges of communication in respect of the default aforesaid, by way of e-mails, over a sustained period. It is stated that though there were assurances of payment, it was not complied with and hence the petitioner is said to have issued a notice of default, dated 22.12.2009, in terms of Condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot parties to the Trust Deed and though the petitioner has styled itself as the trustee, it is not one, as understood in law. It is contended that the Bond documents, including the Trust Deed are governed by the English law as stated therein, hence the present petition is an effort to convert this court into a debt collecting agency, by using its process to bring pressure on the respondent to pay any amount under the Bonds. It is contended that under the 'Trust Deed', the petitioner may give notice of default to the respondent if, (a) so requested in writing by the holders of not less than 25% in principal amount of the Bonds then outstanding, or (b) so directed by an Extraordinary Resolution, and only if a valid notice of default is served, does the entire bond amount become due and payable. Although the petitioner has, in its notice, stated that it has been directed by the holders of the Bonds holding not less than 25% in aggregate principal amount of the Bonds then outstanding, the petitioner has not annexed any proof or evidence in support thereof. The petitioner is the only person who knows the pattern of holding of the bonds and has deliberately withheld this in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest. The respondent further states that the other secured creditors have an outstanding, far larger than the amount due by the respondent to the holders of the Bonds and who are also secured creditors, have restructured their respective payment schedules. The respondent further states that some of the secured creditors are international banks of repute, such as HSBC and scheduled banks such as, J K Bank and Public Sector Undertaking Banks such as State Bank of India and its Associates/Subsidiaries (State Bank of Travancore/State Bank of Mysore), Canara Bank, Allahabad Bank, Bank of India and IDBI Bank. The respondent further states that the employees of the respondent, who too are stake holders, have voluntarily agreed to take a nominal reduction in their salaries and in addition thereto, the promoters of the respondent have infused additional subordinated debt of approximately Rs.26 crore and have also offered some of their personal assets as additional collateral security for the benefit of some of the secured lenders. In effect, every stake holder (whether shareholders, secured creditors or employees) have in some form or the other extended co-operation to the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. The bonds were said to have been issued under Section 81(1A). It is contended that debentures are a fiction of the Companies Act and are required to be stamped under the Indian Stamp Act, 1899, whereas the Bonds are not. Under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, the debenture trustee must be a scheduled bank, a public financial institution, an insurance company or a body corporate and must be registered with the SEBI to act as a debenture trustee. The petitioner does not qualify in the above respect. It is reiterated that the petitioner merely has a right to enforce repayment of the Bonds and to enforce the provisions of the Trust Deed or the Conditions. However, winding up a company is not a manner to enforce repayment of the Bonds and the nature of a winding up petition is entirely different from an action to enforce the Terms and Conditions of the Trust Deed and the Bonds. The petitioner is not a creditor, and therefore is not entitled to present a petition for winding up as it is an admitted position that the petitioner is authorised under the provisions of the Trust Deed only to initiate recovery proceedings. The respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be wound up ? The first point requires consideration as there is much debate on the nature of the transaction and even the nomenclature that is adopted to describe documents involved. The respondent, which is incorporated as a public limited company in India with limited liability, had issued what were billed as the Euro 42, 000,000 - 2.50 per cent. Convertible Bonds due 2011. The Bonds carried an interest at the rate of 2.50% per annum. The interest was payable semi- annually, on 18 March and 18 September of each year. The first payment of interest was to be made on 18 September 2006, for the period commencing on 18 March 2006, which was the closing date for the issuance of the Bonds. The Bonds were convertible by the Bond holders into newly issued equity shares of Rs.2 each of the respondent or into Global Deposit Receipts (GDR), each representing one share at an initial conversion price of Rs. 143.29 per share (at a fixed conversion rate of exchange of Rs. 52.68 = Euro 1.00) The Bonds were to mature on 18 March 2011 at 112.83 % of their principal value. The Offer was made entirely outside India. The Bonds were not offered or sold nor were to be offered or so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the relationship between debt- holder and company creates no particular conceptual puzzles the relationship is simply the contractual relationship of debtor and creditor, coupled, if the debt is secured on some or all of the company's assets, with that of mortgagor and mortgagee - the terminology used in this area to refer to debt securities issued by a company is not settled, either in law or in the commercial practice, but is rather variable. The terms debentures, bonds and notes in particular, are common in this area. Of these, the rather old fashioned term 'debenture' is the only one noticed in the statute. (See: Principles of Modern Company Law - Gower and Davies, Eighth Edition.) b. Debentures first appeared during the 1860's in the form closely resembling the bonds which companies had previously issued in order to raise loans. Their principal difference from bonds was that, in addition to containing a covenant by the company to repay the loan, they charged the company's property or undertaking with the repayment, thus creating a security which later became identified as a floating charge. Gradually the form of dentures changed from that of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt forms of investment. Chitty J, said : 'In my opinion a debenture means a document which either creates a debt or acknowledges it, and any document which fulfils either of these conditions is a debenture . I cannot find any precise legal definition of the term, it is not either in law or commerce a strictly technical term, or what is called a term of art.' (Levy v. Abercorris Slate and Slab Co. [1887] 37 ChD 260 (See: Pennington's Company Law, Butterworths, Fourth Edition) c. If a debenture confers no charge, a debenture holder is an ordinary unsecured creditor. Thus, if there is default in the payment of principal or interest he may - ( a) sue for the principal or interest and after obtaining judgment, levy execution against the company, or (b) petition either for an administration order or for the winding up of the company by the court on the ground that the company is unable to pay its debts. 6. The winding up of a company under the English law is governed by the Insolvency Act 1986. That Act is a consolidation of parts of the Companies Act 1985 (itself a consolidation) and the Insolvency Act 1985. A winding up may be by the court or voluntary. A third form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to a Dispute ( Proceedings ) in any other courts with jurisdiction. To the extent allowed by law, the Trustee or any of the Bondholders may take concurrent Proceedings in any number of jurisdictions. Apart from the above, it is also seen that the following caveat is issued in the Offering of the Bonds thus : Furthermore, this offering is being made entirely outside India. This Offering Circular may not be distributed directly or indirectly in India or to residents of India and the Bonds are not being offered or sold and may not be offered or sold directly or indirectly in India or to, or for the account or benefit of, any resident of India or to any Ineligible Investor (as defined in Definitions and Glossary ). This Offering Circular will be filed with the Reserve Bank of India, the Securities and Exchange Board of India, the BSE, the NSE and the Registrar of Companies, Bangalore for information purposes only. The Registrar of Companies, Bangalore is located at II Floor, E-Wing, Kendriya Sadan, Koramangala, Bangalore - 560 034, India. The contract was not entered into in India and no part of it could be extended to any resident in India, directly or indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner, to approach courts other than the English courts can only be with reference to situations which would not require the said courts, with jurisdiction, to address a cause that does not require any adjudication on facts that require the application of the English law, unless the independent application of that law is also within that court's purview. It is certainly not within the purview of this court to ascertain and apply the English law in interpreting the working of the contract between the parties. On the other hand the said reservation of an option to approach courts with jurisdiction, in relation to the contract, can for instance, be under criminal or quasi-criminal proceedings against the respondent and its men. Or for that matter 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. It is pertinent to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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