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TMI Blog2019 (3) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Hon'ble Bombay High Court under the old provisions of Companies Act, 1956 by invoking sections 433(e), (f) & Sec. 434 of the Act on 21.10.2016 bearing Company Petition No. 847/2016. The said Petition was transferred because of the Notification dated 29.06.2017 issued by Ministry of Corporate Affairs through which all proceedings relating to voluntary winding up of a company stood transferred to the Bench exercising territorial jurisdiction of NCLT. As a consequence, the said Petition pending for disposal before the Hon'ble High Court was transferred to NCLT, Mumbai for due adjudication under the provisions of newly incorporated Insolvency and Bankruptcy Code, 2016. 2.1 On transfer of case records from High Court to NCLT Mumbai, the Petitioner had filed the Application dated 25.05.2017 on the requisite Form No.1 as prescribed under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in respect of a Debt of Rs. 97,79,40,000/- and default of payment of a Financial Debt of Rs. 266,39,08,560/- (refer Part-IV of Form No.1), annexed therein the evidences of alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Company (La-Fin) to purchase the Petitioner's share in MCX-SX any time after a period of one year but not later than three years from the date of Petitioner's investment pursuant to said SPA. e. A premium or a price was also indicated that the purchase price of the Petitioner's share would be higher of (i) the price that would give the Petitioner an internal rate of return of 15% on its investment; or (ii) the price at which the most recent transaction of MCX-SX's equity shares was carried out by the MCX Group. f. Further, as per the "Letter of Undertaking" dated 20.08.2009 the Respondent Company without the Petitioner's written consent forbidden to issue MCX-SX share to any person(s) at a price below Rs. 35/- per equity share. g. The Petitioner (ILFS) therefore purchased the share of MCX on 20.08.2009 at Rs. 36/- per share for total consideration of Rs. 159,12,00,000/- (Rupees One Hundred Fifty- Nine Crore Nine Lakhs Twelve Thousand only) h. On 20.11.2009 the Petitioner (ILFS) received an EOGM notice from MCX-SX scheduled to be held on 15.12.2009 for consideration to pass a Special Resolution for "Scheme of Reduction" of the Share Capital of MCX-SX. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the MCX-SX stating inter alia that FTIL had informed MCX-SX that the Respondent Company's obligations under the 'Letter of Undertaking' had become infructuous on account of the Scheme of Reduction being approved by this Hon'ble High Court. Further, the said letter stated that in compliance with the order of Hon'ble Bombay High Court dated 10.08.2010 passed in Writ Petition No. 1440/2010, the Board of Directors of the Respondent Company has passed a resolution declining to honour any buy back or other similar arrangement. 6.1 The Petitioner replied on 10.09.2010 refuting the wrongful stand taken by MCX-SX, denying the contentions of the MCX Group, and reiterating that the Respondent Company continued to be responsible to honour its obligations to the Petitioner under the 'Letter of Undertaking'. Further, the Petitioner also recorded the fact that by way of the 2009 MCX Letter, MCX confirmed that there would be no dilution of the terms of either the SPA or the Letter of Undertaking. 6.2 An Order of the Hon'ble Bombay High Court is on record dated 14.03.2012 (Writ Petition No. 213/2011) filed by MCX Stock Exchange Limited (Petitioner) v. Securities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted an option exercising the option in future. Once such an option is exercised, the contract would be completed only by means of spot delivery or by a mode which is considered lawful. Hence, the basis and foundation of the order which is that there was a forward contract which is unlawful at its inception is lacking in substance. (vii) The buy back agreements cannot be held to be illegal as found in the impugned order of the Whole Time Member of SEBI on the ground that they constitute forward contracts. A buy back confers an option on the promisee and no contract for the purchase and sale of shares is made until the option is exercised. The promissor cannot compel the exercise of the option and if the promisee were not to exercise the option in future, there would be no contract for the sale and purchase of shares. Once a contract is arrived at upon the option being exercised, the contract would be fulfilled by spot delivery and would, therefore, not be unlawful." 6.3 The Hon'ble Court has expressed that the "Letter of Undertaking" was lawful and enforceable. In nutshell, held that the performance of the obligations contended in the Letter of Undertaking could be lawfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realized therefrom would be used by our client to purchase from MCX Ltd. 4,42,00,000 equity shares in MCX Stock Exchange Ltd. ("MCX-SX") (representing 2.46% of its equity share capital); and (iv) you (as a condition to our client purchasing the said 4,42,00,000 share of MCX SX) would be obliged to offer to buy or cause to be bought from our client, the said 4,42,00,000 shares at a agreed price within an agree period. 2. The aforesaid arrangement was formalised by the parties by executing the following agreements:- (a) A Share Purchase Agreement dated 20th August, 2009 amongst our client, MCX Ltd. and MCX-SX in relation to our client's purchase of shares held by MCX Ltd. in MCX-SX ("the SPA"); and (b) A Letter of Undertaking dated 20th August, 2009 by you (hereinafter referred to as "the Letter of Undertaking"), inter alia undertaking an obligation to make an offer to our client either by yourself or your nominees, to purchase the MCX-SX shares purchased by our client under the SPA any time after a period of one year but no later than three years from the date of our client's investment at a price which would be the higher of (i) the price that would give our client a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Bombay High Court. 8 . Our client, vide its reply dated 10th September, 2010, refuted the stand taken by MCX-SX and, purportedly, by you. Our client reiterated that the fundamental premise of its investment in MCX-SX was the arrangement provided by the MCX Group by which you would buy the shares held by our client. Our client categorically denied the contentions of the MCX Group that post implementation of the Scheme of reduction, the responsibility of the MCX Group through you to buy the shares of MCX-SX from our client had ceased to exist. Our client also recorded that MCX Ltd. had, vide its letter dated 14th December, 2009 addressed to our client, categorically confirmed that there would be no dilution of the terms of either the SPA or the Letter of Undertaking. 9. Thereafter, in anticipation of the end of the "Agreed Period" which was to fall on 19th August, 2012, our client addressed a letter dated 3rd August, 2012 to you referring to the Letter of Undertaking and stating that our client would tike to sell their entire holding of 2,71,65,000 equity shares, which you were obliged to purchase or cause to be purchased. Our client requested you to indicate the specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter alia, arrange for your "appointed nominees" to offer to purchase the said Shares. Our client pointed out that the contentions sought to be raised by you vide your letter dated 16th August, 2012 were, in fact, in teeth of the submissions made by the MCX Group before the Hon'ble Bombay High Court in Writ Petition No. 213 of 2011 filed by MCX-SX against SEBI and others. 12. Finally, our client addressed a letter to you on 15th April, 2013, inter alia, informing you that as per the working/calculation contained therein, as on 31st March, 2013, you were bound and liable to pay a sum of Rs. 161,99,03,280/- to our client towards fulfilment of your obligations under the Letter of Undertaking. Vide the said letter, our client also called upon you to make payment of the said sum on or before 22nd April, 2013. However, instead of making payment of our client's legitimate dues, you once again sought to raise the same false and frivolous contentions that you had raised earlier. 13. In the circumstances aforesaid, our client was left with no option but to file a Suit against you which our client did by filing Suit No. 449 of 2013 inter alia for enforcing specific performance of y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.11.2015, and was received by the Respondent on 05.11.2015. It is self-evident that the statutory notice was issued to the Respondent beyond 3 (three) years from 16.8.2012. Therefore, the Winding-Up Petition as also Insolvency Petition of the Petitioner, both are barred by the law of Limitation and liable to be dismissed. 9.3 On behalf of the Respondent Debtor written submissions were also made, relevant portion reproduced below :- "SHORT NOTES OF SUBMISSIONS ON BEHALF OF THE RESPONDENT I.E. THE ALLEGED CORPORATE DEBTOR (CD) A. Not a "financial debt" within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC): 1. The subject matter of the Application is not a "financial debt" within the meaning of Section 5(8) of IBC for the following reasons:- (i) There has not been disbursement of any sum of money to CD by the Applicant (IL & FS). As such, the first limb of the definition of Section 5(8) of IBC is not satisfied; (ii) IL&FS seek to rely on the Letter of Undertaking (LOU) dated 20.08.2009 (PB pages 86 to 89) to contend that there is a liability on the part of CD to pay under such LOU and as such there is a "financial debt" within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make any payment for "buy back". * Points 1 and 2 of LoU show that after expiry of the "Agreed Period" ail rights of IL & FS under the LoU lapse. In other words, neither can it insist on exiting through an IPO or causing CD to buy its shares under the LoU or otherwise. The above would show that the transaction between the concerned parties could not and did not have "the commercial effect of a borrowing"; (d) On the date of execution of the SPA and LoU there was no "forward sale or purchase agreement" of the shares acquired by IL & FS under the SPA. This was recognized by the Division Bench Judgment of the High Court of Judicature at Bombay in Writ Petition No. 213 of 2011 dated March 14, 2012 (PB Pages 116 to 265 at Page 209, Paras 73 to 75, Pages 212 to 214, Para 77, Pages 215 -216, Para 80, Pages 222 to 223 and Para 108(vii), Page 257 at 260), as also the Division Bench Judgment of the High Court of Judicature at Bombay in Appeal No. 274 of 2015 (PB Pages 321 to 358 at Para 25 Page 331 at 332, 333 Para 28, Page 335 at 336). The said decisions of the High Court show that on exercise of the "option" by IL & FS, the LoU would result in a concluded contract for purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. As per the Notification dated 29th June 2017 i.e. Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017, transfer of the company petition from the High Court to NCLT cannot result in a winding up petition converted into an application under Section 7 of IBC. As such, the petition is liable to be dismissed (See Unimark Remedies Ltd. v. Ashok Alco Chem Ltd. Company Appeal (AT) (Insolvency) No. 45 of 2017). 3. In view of the decision of the NCLAT dated 07.11.2017 in Speculum Plast Pvt. Ltd. v. PTC Techno Pvt. Ltd. in Company Appeal (AT) (Insolvency) No. 47 of 2017, the CD is not making any further submissions on limitation and receives its right to do so if the need arises in the appropriate forum." 10. FINDINGS :- Heard the arguments of both the sides at length. Carefully perused the compilation along with the Petition transferred from the Hon'ble High Court. A 'Share Purchase Agreement' was executed on 20.08.2009 amongst the parties namely (i) MCX Stock Exchange Limited (referred as "Company"), (ii) Multi Commodities Exchange of India Limited (referred as "Seller"), and (iii) IL&FS Financial Services Limited (referred as "Purchaser"). The "Selle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading banks viz. Central Bank of India, Unit Trust of India, HDFC Limited and over the years other principal stakeholders in ILFS are SBI, LIC having broad based shareholding. 10.3 About the Defendant (La-Fin), it is functioning as holding Company to look after the interest of Mr. Jignesh Prakash Shah and Mrs. Rupal Jignesh Shah, who are the Promoters and 100% shareholder of La-Fin. Mr. Jignesh Shah happened to be the Chairman and Group CEO of Multi Commodity Exchange of India (MCX Ltd.) and Promoter shareholder of MCX-Stock Exchange Ltd. (MCX-SX). The assets of the Defendant Company are Financial Investment including shareholding in Financial Technologies (India) Limited (FTIL). 10.4 The said Suit by the Plaintiff is seeking enforcement of the obligation owing to the Plaintiff by the Defendant under a written document i.e. LoU dated 20.08.2009. 10.5 Prior to 20.08.2009, the Plaintiff held approximately 5% of the equity Share Capital of MCX Ltd. Pursuant to negotiations held between the Plaintiff and the MCX Group, it was agreed that (i) the Plaintiff would exit MCX Ltd.; (ii) its investment in MCX Ltd. would be transferred to another investor; (iii) part of the proceeds reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in MCX-SX had become rendered just below 5%. However, 'Warrants' were issued in favour of the Plaintiff for the shares extinguished. As assured and undertaken, these warrants were duly purchased by MCX Ltd. on 26.03.2010. The Plaintiff presently holds 2,71,65,000 equity shares of MCX-SX representing just under 5% of its equity share capital. Clearly, therefore, all parties recognised that the obligation to purchase shares could be lawfully honoured, despite the MIPMPS Regulations and/or the Scheme of reduction. 10.9 The dispute trigged from this event. It is informed that it was a surprise to Plaintiff (ILFS) to receive a letter dated 23.08.2010 from MCX-SX stating that FTIL had informed that the obligation of La-Fin and the LoU had become infructuous. Reason given was that all the assurances is stood superseded upon the approval of Share Reduction Scheme by the Hon'ble Court. It is informed that in compliance with the directions issued by the Hon'ble Court vide an order dated 10.08.2010 passed in Writ Petition No. 1440/2010 filed by MCX-SX against SEBI, the Board Directors of the Defendant had passed a Resolution dated 12.08.2010 declining to honour any buy-back o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, Including any forward safe or purchase agreement having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;' (emphasis supplied) 11.1 On careful reading of this section, in my humble opinion, Financial Debt can be segmented into two types. One is disbursed against the consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 5 of the Code defining 'Financial Debt'. 11.3 In my opinion it is an important judicial phenomenon that in the "Definition" section both the terms i.e. "means" and "includes" are used. By using both these expressions the definition has enlarged its scope of implementation. In the first segment of the section where the expression "means" is used the term "Financial Debt" defines a disbursement against the consideration for the time value of money. But where the expression "includes" is used, thereunder several examples are enlisted which thus fall within the ambit of the definition of "Financial Debt". In one of the example, an "amount raised" having commercial effect, is a borrowing within the definition of "Financial Debt". As a consequence, certain transactions as enlisted are beyond the conventional sense of borrowings. The scope of the borrowings is enlarged in this definition beyond the conventional scope of borrowing against payment of interest. 11.4 As a sequel to arrive at a judicious conclusion it is obvious to examine the clauses of the "SPA" and the terms of the undertakings given in "LoU". The clauses of SPA are therefore to be read along with the LoU. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debt". 13. In the light of the above discussion and on due perusal of the documents annexed, the Debt is to be qualified as "Financial Debt" as defined under section 5(8) of Insolvency & Bankruptcy Code, 2016. As a result, the Financial Creditor has filed this Application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. 14. Since this is a Petition of "Financial Creditor", therefore, the Insolvency Process shall commence as prescribed under Section 7 of IBC, 2016. The occurrence of "default" is established. The Financial Debtor had failed to pay the amounts due. 15. Having considered the totality of the facts and circumstances mentioned above that the Debt in question is a 'Financial Debt' and that the occurrence of 'default' is recognized, hence considering the state of affairs mentioned supra the Petition under consideration deserves to be "Admitted". 16. The Petitioner/Financial Creditor has proposed the name of the IRP Mr. S. Ravi, Address: Ravi Ranjan & Co., 505-A, 5th Floor, Rectangle 1, District Centre, Saket, New Delhi - 110017, Email Address: [email protected], Registration No. IBBI/IPA-001/IP-00067/2016-17/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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