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TMI Blog2018 (10) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... n of CCDs into equity shares and several issues that crop up in this petition and the fact that the Petitioner filed the Petition u/s.7 of the IB Code against Respondent No.4 herein would go to show that this Petition is not a mere petition seeking rectification of entries in the register of members but it has got other collateral purposes namely, triggering Corporate Insolvency Resolution Process in respect of Respondent No.4. Therefore, this Tribunal is of the considered view that such contentious issues cannot be decided while exercising jurisdiction u/s.59 of the Companies Act. - C.P. NO. 248/59/HDB/2018 - - - Dated:- 29-8-2018 - SHRI BIKKI RAVEENDRA BABU, JUDICIAL MEMBER For The Petitioner : Niranjan Reddy, Ld. Counsel, Lakshmikanth Reddy, Ms. Namrata Sinha For The Respondent : P. Vikram, Ld. counsel, Yogesh Kumar Jagia, Ld. counsel and D.V.A.S. Ravi Prasad, Ld. counsel ORDER Per : Shri Bikki Raveendra, Babu, Member Judicial 1. MAIF Investment India Private Limited filed this petition U/s.59 of the Companies Act seeking the following reliefs:- a. To declare that the board resolution dated 26.03.2018 passed by the erstwhile Board of Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. Consummate a merger between Respondent Nos.2 and 4 upon the request of an Investor at any time but in any case before the earlier of (A) December 31, 2016 and (B) the completion of the one year from the date of commercial operation of the second 250 MW unit under the Project (Type 2 Event of Default); and c. Annual interest payment to the Petitioner and Respondent No. 13, failure of which would amount to a coupon break event (Type 3 Event of Default). 5. As per Clause 17.8 of the Investment Agreement, the parties including Respondent No.2 undertook that it shall adhere to the terms and conditions of the NCDs and CCDs in all respects and shall redeem the NCDs and convert the CCDs in accordance with their respective terms. The terms of the CCDs as set out at Schedule 9 Part B of the Investment Agreement specifically provide that the CCDs are to be converted only at the option and/or election of the CCD holder as follows: 4.1 Each CCD shall be convertible into Equity Shares (as per the ration mentioned below). At the election of the holders of such CCD , under the circumstances specified in Clause 25.4(g), Clause 21.3(b), or under any circumstances as may be expressl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017, in total lent ₹ 780 crores to Respondent No.2 by way of subscription of debentures and acquired 1 equity share each in Respondent No.2 and Respondent No.4. The said amount was to be utilized to buyout existing investors and to complete the Project which was being developed in Orissa. 11. Thereafter, Respondent No.4 was in need of a bridge loan in order to finance the completion of Unit 1 of the Project. On 23.12.2016, the Petitioner and Respondent No. 13, the Promoters and Respondent Nos.1,2 and 4 along with one Arkay Energy Rameswaran Limited entered into a Subscription Agreement in terms of which Petitioner No. 1 provided a bridge loan for a sum of ₹ 102 crores by subscribing to 10,200,000 optionally convertible debentures (OCDs) of Respondent No.4 at ₹ 100/-per OCD in February 2017 for an aggregate consideration of ₹ 102 crores. 12. The Promoters and Respondents 1,2 and 4 committed contractual breaches repeatedly which amounted to occurrence of serious Events of Default as defined under the Investment Agreement that is Type 1 Event of Default; Type 2 Event of Default and Type 3 Event of Default were triggered. 13. Inspite of several remind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of the Subscription Agreement dated 23.12.2016, had expressed a willingness to infuse additional funding of ₹ 100 crore to enable Unit II to commence operations and have submitted a detailed proposal for revival. 22. The Promoters and Respondent No.1 elected to settle its disputes by way of arbitration and/or invoked arbitration by moving the Hon ble Bombay High Court through Commercial Arbitration Petition(L) No.423of 2017. But ultimately on 13.10.2017, the Arbitration Petition was mentioned before the Hon ble Bombay High Court and sought permission to withdraw with liberty but the Hon ble High Court permitted to withdraw without granting liberty. 23. The JLF in its meeting held on 05.10.2017 took a serious view as to the gross mismanagement of the Project by the Promoters. 24. On 06.10.2017, the Petitioner and the Respondent No. 13 addressed a letter to the Respondent No.3 and instructed it to call an EOGM of the shareholders of Respondent No.2 to discuss the matters more particularly set out in Annexure A to the letter as Respondent Nos.2 has failed to call for the same. 25. On 06.10.2017, Respondent No.3 issued a Special Notice under Section 115 read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issued vide Articles 65.8 and 77.4 of the Chapter II. 34. The Petitioner and the Respondent 13 by their letter dated 20.03.2018 informed the Respondent Nos.1,2 and 4, the Promoters and Arkay Energy Rameshwaram Limited that any unilateral conversion of the CCDs contemplated in the agenda circulated in the notice of 17.03.2018 would be contrary to the Articles of Association of Respondent No.2, the terms and conditions of the CCDs; and the Investment Agreement dated 25.06.2015. 35. The Petitioner and Respondent No. 13 cautioned the Respondent Nos. 1,2 and 4 and Arkay Energy Rameshwaram Ltd. not to place the agenda item and the Petitioner is reserving its right to convert the CCDs at such time as it deems fit by issuing a fresh notice for the same. 36. The Board of Directors of Respondent No.2 held the meeting on 26.03.2018 and passed the agenda item 3 also i.e., the proposed conversion of CCDs. 37. In the meeting also the nominee Directors of the Petitioners and Respondent No. 13 presented the letter dated 26.03.2018 to the Board of Directors on behalf of the Petitioner and Respondent No. 13. 38. Since the Directors of Respondent No.2 proceed with item 3 of the agend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oppel on accepting the withdrawal of Petition filed challenging notice issued under section 100(2nd respondent) of Act seeking convening of EOGM. 51. It is stated that the reliefs prayed in the petition goes to show that it is filed for a collateral purpose. 52. It is stated by the 1st Respondent that the sole grievance of the petitioner in this petition is in relation to the Board Resolution dated 26.03.2018 wherein, a resolution was passed to convert 9,06,599 CCDs into equity shares in favour of the Petitioner. 53. According to the Respondent No.1 the CCDs were converted in accordance with investment Agreement read with subscription Agreement on election of the Petitioner. 54. Even before the conversion of the CCDs, the Petitioner is a substantial shareholder of the Respondent No.2 post invocation of pledge of equity shares which resulted in holding of 51% equity of Respondent No.2. 55. The Respondent No.1 however stated that the Petitioner vide its letter dated 05.09.2017, expressly elected to invoke clauses of Investment Agreement dated 25.06.2015 and called upon Respondent No.2 to convert CCDs knowingly fully well that it would result in 100% shareholding with R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de India, for rectification of the register. (2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved. (3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal. (4) Where the transfer of securities in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992) or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and exchange Board, direct any company o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent Nos. 1,2 and 4, the Promoters and Arkay Energy Rameswaram Limited that any unilateral conversion of the CCDs contemplated in the agenda circulated in the notice of 17.03.2018 be contrary to the Articles of Association of Respondent No.2, the terms and conditions of the CCDs and the Investment Agreement dated 25.06.2015. 70. Inspite of it the Board of Directors of Respondent No.2 Company in their meeting held on 26.03.2018 passed the agenda item No.3 i.e., proposed conversion of CCDs into equity shares of Respondent No.2 Company. 71. If we turn to the reliefs prayed in the petition they mainly relate to the declaration that the Board resolution dated 26.03.2018 passed by the erstwhile Board of directors of the 2nd Respondent Company authorising the conversion of compulsory convertible debentures into equity shares of Respondent No.2 is ultra vires to Articles of Association and the terms of the CCDs of the Investment Agreement as illegal and void-ab-initio. 72. The petitioner in the petition in page 29 (10.10) stated as follows:- The acts and misdeed of the Promoter Group and Respondent Nos. 7 to 12 also constitute acts of oppression and mismanagement and the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Promoters shall adhere to the terms and condition of the NCDs and CCDs in all respects and shall redeem the NCDs and convert the CCDs in accordance with their respective terms. 77.4 Conversion (a) Each CCD shall be convertible into Equity Shares (as per the ratio mentioned below), at the election of the holders of such CCD, under the circumstances specified in Article 72.4(g), Article 69.3(b), or under any circumstances as may be expressly specified under Article 69 in this regard. (b) Each CCD, once fully paid, shall be convertible into l (one) Equity Share, without any further p [payments being made by the holder of the CCD; (c) On the occurrence of the Conversion Due Date, the each CCD shall convert into 1 (one) Equity Share, without any further actions required to be taken by the hold of such CCD. (d) Conversion Procedure The CCDs shall be converted, when pursuant to Article 0(a), in the following manner:- (i) The Company shall convert the CCDs upon receipt of a written notice (the Conversion Notice ) by the CCD holders. The conversion of the CCDs shall be completed within a period of 5 (five) days from the date of receipt of the Conversion Notice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 2 and 50,57,79,500 equity shares of Respondent No.1 in Respondent No.4 were invoked. 84. Admittedly, on 05.09.2017, the petitioner and Respondent No. 13 issued letters to the promoters and Respondent Nos.1, 2 and 4 and Arkay Energy Ramashwaram Ltd. calling upon them to convert the CCDs into equity shares. 85. On 12.09.2017, the Respondent No.3 addressed a notice in exercise of its rights under the Debenture Trust Deed, the Share Pledge Agreement and Power of Attorney calling upon Respondent No.2 to convene EOGM within 21 days to consider and convert all 906,559 CCDs issued by Respondent No.2 to the Petitioner into 906,559 equity shares and to approve removal of persons mentioned in as directors of Respondent No.2. 86. When Respondent No.2 failed to call EOGM on 06.10.2017, Respondent No.3 issued a special notice U/s.115 read with Section 169 of the Companies Act 2013, calling for a General Meeting of Respondent No.2 for to the purpose of passing resolutions for the conversion of CCDs subscribed to by the Petitioners into equity shares of Respondent No.2. 87. The Respondent No.2 filed CP No.235/2017 challenging the notice issued by Respondent No.3 for conven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is the holding Company of Respondent No.4 herein. 98. The next issue raised by the Petitioner in respect of the impugned Board resolution dated 26.03.2018 is, it is violative of Article of Association and it is violative of Investment Agreement. 99. The next contentious issue raised by the Respondents 1,2 and 4 is that in view of the Arbitration clause in the Investment Agreement this petition is not maintainable without invoking Arbitration. 100. In this context it may be pertinent to mention here that the Petitioner herein in CP No.235/2017 invoked the issue of Arbitration by filing a Petition u/s.8. 101. Of course it is stated that it was opposed by the Respondents 1 and 2 herein in CP No.235/2017. That means in CP No.235/2017 Petitioners herein took a stand that the CP No.235/2017 is not maintainable without invoking Arbitration. 102. Where as the Respondents 1 and 2 herein in CP No.235/2017 took a stand that the issue involved therein was not arbitral and therefore referring to Arbitration is not necessary. But here in this petition both the parties are taking a diametrically opposite stand. 103. It is a fact that Respondents did not file the Petition u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f members. 110. However, it is left open to the Petitioner to invoke the jurisdiction of this Tribunal either u/s.241 or if so advised by going to the Arbitration on the contentious issue. 111. Points 1 and 2 are ordered accordingly. 112. Coming to the relief of rectification prayed by the Petitioner so long as the Board Resolution dated 26.03.2018 is there, in other words unless and until Board Resolution dated 26.03.2018 is declared invalid, the action of the 2nd Respondent Company in mentioning the names of the Petitioners as equity shareholders in the register of 2nd Respondent Company cannot be ordered to be rectified. 113. While exercising the jurisdiction u/s.59 of the Companies Act this Tribunal has to see whether there is sufficient cause to mention the names of the Petitioner in the register of 2nd Respondent Company on account of conversion. 114. The process for conversion is initiated by the Petitioner by writing a letter dated 05.09.2017, not stopping there, Respondent No.3 choose to issue a notice to convene EOGM to consider the conversion of CCDs into equity shares at the instance of Petitioner and Respondent No. 13. 115. Not stopping there on 06.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of members prayed by the Petitioner cannot be granted. 125. Learned counsel appearing for the Petitioner contended that the request for conversion of CCDs into equity shares shall be carried out within 5 days as per the Articles of Association but the same has not been done by the Respondents 1 and 2 and therefore, they are not entitled to call for a Board of Directors Meeting on 26.03.2018 for the purpose of conversion of CCDs into equity shares. 126. The Petitioner in its wisdom thought of taking equity shares in the place of CCDs, perhaps thinking that it is in its interest. 127. If the same wisdom continues for petitioner and if conversion is advantageous to the Petitioner and in case Respondent 1 and 2 did not take steps for conversion of CCDs into equity shares within 5 days would the Petitioner remain silent without exercising the right given to the Petitioner to enforce its election for conversion of CCDs into equities. In fact the petitioner tried to exercise its right to conversion. 128. The time limit of 5 days is given to the Company to convert the CCDs into equities without delaying the process and without taking any other steps to the detriment of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of 100 shares by Rangbir Singh, respondent No.5, in favour of Smt. Raj Rani and Smt. Usha Rani, Respondent Nos. 2 and 3 respectively and further the transfer of aforesaid 100 shares by Smt. Raj Rani and Smt. Usha Rani, Respondent Nos. 2 and 3 in favour of Prakash Chand Aggarwal was valid and in accordance with the Articles of Association of the Company. 137. Hon ble Punjab and Haryana Court considered the Articles of Association and gave a finding depending upon the facts of the case. 138. There is no dispute about the proposition of law that when there is transfer of shares it has to be seen whether such transfers have been made in accordance with the Articles of Association or not? 139. In the case on hand the Investment Agreement which is incorporated in the Articles of Association gives a right of election to ask for conversion of CCDs into equity shares when an event of default occurred as per the terms of Investment Agreement dated 25.06.2015. Such election has been made by the Petitioner. 140. Therefore, the conversion of CCDs into equity shares is not in derogation of Articles of Association or the terms of Investment Agreement. In that view of the matter on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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