9911796707
TMI Blog2020 (8) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed as Debenture Trustee, vide Debenture Trust Deeds dated 5th January, 2017. 3. On the same day, i.e. 5th January, 2017, two Debenture Trust Deeds, were executed, whereby 5650 non-convertible debentures, each with face value of Rs. 10 lakhs, and 7000 debentures, each with face value of Rs. 10 lakhs, were issued, in favour of a consortium of lenders comprising M/s. KKR India Financial Services Pvt. Ltd. and KKR India Debt Opportunities Fund (referred to, collectively, as "KKR"), M/s. L & T Finance Ltd., L & T Fincorp Ltd. and Family Credit Ltd. (referred to, collectively, as "L & T") and M/s. BOI AXA Corporate Credit Spectrum Fund ("BOI"), who are referred to, collectively, as the "debenture holders". The total value of the debentures was, therefore, Rs. 1400 crores, and were issued to the debenture holders on private placement basis. Salient Features of the Debenture Trust Deeds 4. The Debenture Trust Deeds (which were identical) provided, inter alia, as follows: (i) The debentures were issued, in favour of the debenture holders, by way of private placement, in one or more tranches. (ii) The obligations, in respect of the debentures, were secured by way of (a) a pari p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was defined, in Clause 1.1.100, somewhat enigmatically, as meaning "Security Cover of at least two times". (iv) "Obligations" were defined, in Clause 1.1.70 of the Debenture Trust Deed, as including all debts and liabilities, due or payable by the petitioner, under or in connection with any Transaction Document, including the Outstanding Amounts. "Transaction Documents", as defined in Clause 1.1.127, included, inter alia, the Debenture Trust Deeds, the Deeds of Hypothecation (of the amounts in the Designated Bank Accounts) and the Memoranda of Pledge (whereby the shares of CGP and BILT were pledged as security, pending redemption of the debentures). "Outstanding Amounts" was defined in Clause 1.1.73, as meaning all the amounts payable by the petitioner to the Debenture Holders and the Debenture Trustee. (v) KKR (comprising KKR India Financial Services Private Limited and KKR India Did Opportunities Fund II), L & T (comprising L & T Finance Ltd., L & T Fincorp Ltd. and Family Credit Ltd.) and BOI AXA Corporate Credit Spectrum Fund were enlisted and defined as the "Debenture Holders", under Schedule 2 to the Debenture Trust Deed read with Clause 1.1.27 thereof. (vi) The aggrega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the petitioner. The petitioner was permitted, by this Clause, to repay, in part or in full, the Outstanding Amounts, any time within a period of 30 months from the first Deemed Date of Allotment (which period was defined, in Clause 1.1.122, as the "Tenure"). The "First Deemed Date of Allotment" was, in turn, defined, in Clause 1.1.47, as the Deemed Date of Allotment of the First Tranche, i.e. the date when the Investment Amount, relevant to the First Tranche, was deposited by the concerned Debenture Holder. (xi) Early Redemption required the petitioner to issue a written notice, to the Debenture Trustee, stating the exact portion of the Outstanding Amounts, that it intended to redeem, and the date of such intended redemption. (xii) "Mandatory Redemption" was covered by Clause 2.5.2, and was mandatorily required to be undertaken, within 5 days of the occurrence of an Identified Event. "Identified Events" were defined, in Clause 1.1.52, as meaning "all steps and actions, taken by the Company and the Debenture Trustee, for realization of the value of the assets of the Company, as specified in Schedule 15 to the Debenture Trust Deed". Schedule 15 included, in such "Identified Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined, in Clause 1.1.36, as meaning the dematerialised securities account of the petitioner, maintained with PNR Securities Ltd. and to be operated in accordance with the terms of the Debenture Trust Deed. (xvi) Clause 4.3.1 required the petitioner to constitute a subcommittee of its Board, which was to be entrusted with the responsibility for providing guidance on value creation, including by way of transfer of the businesses or undertakings of the Reference Entities, or the petitioner, for the purpose of achieving the Identified Events. This sub-Committee, to be known as the "Strategic Committee", was to comprise of one nominee of the petitioner and one nominee of the Debenture Trustee. (xvii) Clause 9 dealt with "Events of Default". "Event of Default" was defined, in Clause 1.1.41, as meaning any event set out in Schedule 3 to the Debenture Trust Deed. Schedule 3 enlisted as many as thirty three "Events of Default". Of these, the following "Events of Default" may be reproduced: "1. The proceeds of the Debentures are utilised for any purpose other than the purpose set out in this Deed; 2. The Company does not pay on the due date any amount payable by it pursuant to a Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in Clauses 9.1 to 9.6, which merits reproduction, in extenso, thus: "9.1 Upon the occurrence of an Event of Default, the Company shall immediately inform the Debenture Trustee in writing of such occurrence, together with all details related thereto. The Debenture Trustee shall thereafter or upon becoming aware of an Event of Default immediately notify the Debenture Holders of the occurrence of such Event of Default, requesting for instructions as to the steps required to be taken by the Debenture Trustee, if any, under Clause 9.2 below. 9.2 On the occurrence of any Event of Default, the Debenture Trustee may (acting pursuant to Approved Instructions) by a notice in writing to the Company (an "Enforcement Notice"): 9.2.1. declare the Outstanding Amounts, in respect of the Debentures payable under the Transaction Documents to be immediately due and payable; 9.2.2. instruct the company to discharge the Obligations under the Transaction Documents, including without limitation, by way of sale of one or more of the assets of the Company, including, without limitation, the Secured Assets; 9.2.3. without any further notice and without assigning any reason and at the risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the proceeds from all such sales (collectively, the "Share Sale Proceeds") are directly credited only to the AHL Designated Bank Account or such account as may be notified from time to time by the Debenture Trustee (acting pursuant to Approved Instructions). 9.4. The occurrence of any one of the events set out in Schedule 3 shall constitute an event of default (an "Event of Default") for the purposes of this Deed. 9.5. Upon (i) the occurrence of any Event of Default or (ii) any event which, after the delivery of a notice, making of a determination or lapse of time (or any combination of the foregoing), could constitute an Event of Default (other than an Event of Default set out in paragraph 9 of Schedule 3 to the extent it relates to a Material Entity), the company shall promptly give notice thereof to the Debenture Trustee in writing, specifying the nature of such Event of Default or of such event and the remedies proposed to be taken to cure the same. 9.6. In the event the Debenture Trustee (acting in accordance with Approved Instructions) requires the Company to seek any approvals (including approvals from Governmental Authorities) pursuant to the Enforcement Notice, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int the third arbitrator who shall act as the presiding arbitrator. In the event a party fails to appoint their arbitrator for any reason whatsoever within 15(fifteen) days of another party appointing the arbitrator, then, the appointment process set forth in the International Chamber of Commerce Rules of Arbitration ("Rules") shall be followed. The seat of arbitration shall be at Delhi or such other seat in India as may be agreed to by the Parties and the arbitration shall be governed by the provisions of the Rules. The language of the arbitration proceedings shall be English. The expenses of the arbitration shall be borne in such manner as the arbitral tribunal may determine. The award shall be final, conclusive and binding on all parties concerned. The arbitration tribunal may lay down from time to time the procedure to be followed in conducting arbitration proceedings and shall conduct the arbitration proceedings in such manner as it considers appropriate. (c) Notwithstanding anything contained hereinabove, in the event of the law being made or amended so as to bring the Debenture Holders under the SARFESI Act or the DRT Act, or any other special legislation to enable the Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustee (acting on the Approved Instructions) then on the Strategic Committee Target Date, the nominee of the Debenture Trustee on the Strategic Committee will have the casting vote with respect to decisions/recommendations of the Strategic Committee in the event of a tie, until the Final Settlement Date, or (ii) immediately upon the occurrence of an Event of Default under para 2 of Schedule 3 or if the Company fails to pay the Outstanding Amounts in case of acceleration of the Outstanding Amounts of the Debentures by the Debenture Trustee pursuant to this Deed or any other Transaction Document, the nominee of the Debenture Trustee on the Strategic Committee will have the casting vote with respect to decisions/recommendations of the Strategic Committee in the event of a tie, until the Final Settlement Date. 4.3.6. If any portion of the Outstanding Amounts is still outstanding by the end of 18 (eighteen) months from the first Deemed Date of Allotment, then, the nominee of the Debenture Trustee on the Strategic Committee will have the casting vote with respect to decisions/recommendations of the Strategic Committee in the event of a tie, until the Final Settlement Date." (Emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement objectives relating to value creation in CGP. The Strategic Committee agreed to implement the recommendation. 6.5. Following on the above recommendation, in the next meeting of the Strategic Committee, on 16th November, 2018, Mr. Krishnan suggested the appointment of Tranzmute LLP (hereinafter referred to as "Tranzmute"), a partnership of KKR and Mr. Narayan Seshadri, as the "Independent Resource", to suggest measures for value creation at CGP. 6.6. Subsequently, however, Mr. Krishnan suggested that the appointment of Tranzmute, as "Independent Resource" be placed on hold, as a result whereof it never fructified. The Debenture Trustee decided to withdraw the proposal for appointment of Tranzmute and, as an alternative thereto, Mr. Sanjay Nayar, as the representative of Mr. Krishnan in the 200th Meeting of the BoD of the petitioner, held on 6th March, 2019, proposed the engagement of Mr. Sumanth Cidambi, Director of the Credit Business of KKR India, as a consultant to CGP. Mr. Gautam Thapar, Chairman of the petitioner, agreed to the engagement of Mr. Cidambi, by the petitioner, to assist the petitioner in relation to its investment in CGP and to suggest measures for value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , addressed by the petitioner to the National Stock Exchange of India Ltd. (NSE), the Bombay Stock Exchange Ltd. (BSE) and CGP, whereunder intimation has been provided, as required by Regulations 29 and 31 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as "the 2011 SEBI Regulations"), regarding invocation, to the effect that the Respondent, as the Debenture Trustee, had invoked the pledge, of the shares of CGP, held by the petitioner. The said communication may be reproduced thus: "Date: 10th March, 2019 National Stock Exchange of India Limited Exchange Plaza Bandra Kurla Complex Bandra (East), Mumbai 400051 Bombay Stock Exchange Limited 1st Floor, New Trading Ring, Rotunda Building, Phiroze Jeejeebhoy Towers, Dalai Street, Mumbai-400001 The Company Secretary CG Power and Industrial Solutions Limited 6th Floor, CG House Dr. Annie Besant Road, Worli, Mumbai-400030 Re: Intimation under Regulation 29 and 31 of SEBI (Substantial Acquisition of Shares And Takeovers) Regulations, 2011 Dear Sir(s) The pledge on shares created by the Company as a Promoter in CG Power and Industrial Solutions Limited h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood transferred to the name of the Debenture Trustee, i.e. the respondent, plummeted, so that they could later purchase the shares at a pittance. 6.13. As a consequence of the aforesaid alleged machinations, chiefly, by KKR, the petition alleges that there was a fall in the value of the shares of CGP, from Rs. 36.60 on 1st March, 2019 to Rs. 12.25 on 6th December, 2019 per share. 6.14. It is alleged that, having thus succeeded in ensuring that the value of the shares of CGP, earlier held by the petitioner and which had been transferred in the name of the Debenture Trustee, plummeted in the stock market, the Debenture Trustee, in complete breach of the fiduciary relationship between the pledgee and pledgor, and the alleged oral agreement, dated 6th March, 2019 (supra), sold the pledged shares of CGP, between July and September, 2019. As a result thereof, KKR acquired 10% shareholding in CGP @ Rs. 14.62 per share and 9.99% of the pledged shares of CGP were sold by the respondent to L & T Finance Ltd. on 6th November, 2019. Disclosures to the NSEI and BSE, evidencing this fact, have been placed on record. 6.15. On 10th September, 2019, the Debenture Trustee addressed a notice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghlighted other breaches. It was also pointed out, in the said communication, that as per the covenants of the Debenture Trust Deeds, all Outstanding Amounts were payable by the petitioner on the final redemption date, i.e. 10th July, 2019, in which respect, too, the petitioner had defaulted. A tabular statement, setting out the amounts outstanding, to be paid by the petitioner, to the Debenture Trustee, on behalf of the debenture holder for onward payments to the debenture holders, as on 30th June, 2020, was also enclosed, which may be reproduced thus: "DETAILS OF OUTSTANDING AMOUNTS AS ON JUNE 30, 2020 UNDER THE DEBENTURE TRUST DEEDS 6.18. The alleged default on the part of the petitioner, in failing to liquidate the entire Outstanding Amounts, under the Debenture Trust Deeds and, inter alia, to ensure maintenance of the required security cover, it was alleged, constituted "Events of Default", within the meaning of Clause 1.1.41 of the Debenture Trust Deeds, read with Schedule 3 thereof. The letter, therefore, called upon the petitioner to, within a period of ten days, pay, to the debenture holders, the entire Outstanding Amounts, remaining to be paid to them, in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner, had no liability under the debenture trust deeds, which stood, accordingly rescinded. The petitioner has also pointed out that it had complained, in the above regard, to the SEBI, which was enquiring into the matter. 7. The petition asserts that, "in these extraordinary circumstances", the petitioner was seeking interim measures of protection, pending initiation of arbitration proceedings, in terms of the Debenture Trust Deeds and Memoranda of Pledge, under Section 9 of the 1996 Act. 8. At this stage, it would be appropriate to reproduce the prayer clause, in the petition, thus: "In view of the above facts and circumstances, it is most respectfully prayed that this Hon'ble Court may be graciously be pleased to grant the following interim measures: A. Call upon the Debenture Trustee, including its officers, agents, servants and assigns to forthwith transfer the Pledged CG Shares into the demat account of the Petitioner and to do all necessary and incidental acts in relation to the same; B. Direct and/restraint the Debenture Trustee, including its officers, agents, servants and assigns from selling the shares of BILT held by the petitioner and/or acting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on 16th July, 2020, that, even while the matter was thus pending before this Court, 50% of the pledged shares of BILT have been sold, by respondent, on 15th July, 2020. In the circumstances, he exhorted this Court to restrain the respondent from selling the remaining 50% of the BILT shares. 12. Before proceeding to refer to the submissions of Mr. Rajiv Nayar, learned Senior Counsel by way of response to the submissions of Mr. Rohtagi, it would be appropriate to reproduce the tabular statement, filed by the respondent, setting out the details of shares of CGP and BILT, as the position obtains today, thus: 13. Responding to the submissions of Mr. Rohatgi, Mr. Rajiv Nayar, learned Senior Counsel appearing for the respondent, submits that the present petition was completely devoid of any actionable grievance, which the petitioner could legitimately have against the respondent, and, therefore, was also devoid of any sustainable cause of action. 14. Adverting to the prayers in the petition, Mr. Nayar submits that prayer A has been rendered infructuous, as all shares of CGP stood invoked, and 6.26 crores shares had already been sold. Prayer C, it was submitted, was in the nature of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handelwal To Vistra ITCL (India) Limited The IL&FS Financial Centre, Plot C-22, G Block, 7th Floor Bandra Kurla Complex, Bandra (East) Mumbai 400051 Facsimile number +91 22 26593535 Email: [email protected] Dear Sirs, Sub: Your Notice dated February 26, 2019 regarding Shortfall in Security Cover 1. We, Avantha Holdings Limited ("AHL") and Salient Financial Solutions Limited ("Issuer") make reference to your captioned notice dated February 26, 2019 ("Notice"), and each of the documents referred to therein. Capitalized terms used but not defined herein shall have the meaning ascribed to such terms under the Notice. 2. We, the Issuer and AHL (collectively, the "Obligors") acknowledge the receipt of the Notice sent by you on behalf of the Debenture Holders referred to in Annexure 1 of your Notice, the Obligors failure to maintain the Required Security Cover, and the Aggregate Accrued Amount owing to the Debenture Holders' as identified in your Notice, as on date as set out in the Notice. 3. We wish to notify you of our intent to remedy each of the breaches under the Transaction Documents, and of our intent to ensure the payment of the Outstanding Amounts u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing to the Debenture Holders as identified in Annexure 1 of your Notice in accordance with the terms of the Transaction Documents; and 5.3. in the event that the Outstanding Amounts owed to the Debenture Holders identified in Annexure 1 of your Notice are discharged, to immediately re-transfer, to AHL, any Pledged Reference Entity 1 Shares that continue to be held by the Debenture Trustee at such time and which have not previously been sold by the Debenture Trustee and/or the Debenture Holders, in accordance with the Transaction Documents. 6. We acknowledge and agree that such invocation of the pledge over such Pledged Reference Entity 1 Shares shall, if undertaken by the Debenture Trustee in the manner described above, be deemed to have been undertaken at the express request of the Obligors, and that the Obligors hereby expressly waive all rights, claims and remedies as may be available to the Obligors, in law or in equity, in respect of any such invocation of the pledge over such Pledged Reference Entity 1 Shares other than the Obligors' right to (a) seek a re-transfer of such Pledged Reference Entity 1 Shares upon payment of the Outstanding Amounts to the Debenture Hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice, followed by notices under Section 176 of the Contract Act, calling on the petitioner to remedy the defaults, failing which sale of the pledged CGP shares was mooted as a possibility. The invocation of the pledged CGP shares, therefore, Mr. Nayar points out, was preceded by notices under Section 176 of the Contract Act, following which the pledge was invoked on 16th September, 2019. 18. Mr. Nayar also points out that the petitioner's account has been categorised as a Non-Performing Account on 10th October, 2019, as per applicable guidelines of the Reserve Bank of India (RBI). Additionally, the written submissions filed by the respondent asserts that a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) has been filed, by the ICICI Bank, against the petitioner. 19. In the circumstances, the respondent submits that the petitioner has no prima facie case in its favour, and that the respondent is entitled to invoke the pledge against the BILT shares, consequent on the defaults of the petitioner. Besides, it is pointed out that the petitioner is seeking to base its case on an alleged-but, as the respondent would contend an non-existent-oral agreement, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of Maharashtra v. M. V. River Oghese AIR 1990 Bom 107, "are granted to serve the temporary purpose of protecting the plaintiff's interest so that the suit is not frustrated". 25. The Court, while exercising its power under Section 9 of the 1996 Act, has to be acutely conscious of the power, vested in the arbitrator/arbitral tribunal, by Section 17 of the same Act. A reading of Section 9, and Section 17, of the 1996 Act, reveals that they are identically worded. The "interim measures", which can be ordered by the arbitral tribunal, under Section 17, are the very same as those which can be ordered by the Court under Section 9. It is for this reason that sub-section (3) of Section 9 proscribes grant of interim measures, by the Court, consequent on constitution of the arbitral tribunal, save and except where the Court finds that circumstances exist, which may not render the remedy, under Section 17, to be efficacious. The Court, while exercising jurisdiction under Section 9, even at a pre-arbitration stage, cannot, therefore, usurp the jurisdiction which would, otherwise, be vested in the arbitrator, or the arbitral tribunal, yet to be constituted. The Court is also required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interim measures, under Section 9, would frustrate, or would render the recourse, to arbitration-which is yet to take place-a futility. 27. In Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd. MANU/SC/2936/2007 : (2007) 7 SCC 125, the Supreme Court examined, in detail, the scope of Section 9 of the 1996 Act. Paras 11, 14, 15 and 21 of the report may be reproduced, thus: "9. Learned counsel also relied on International Commercial Arbitration in UNCITRAL Model Law Jurisdictions by Dr. Peter Binder, wherein it is stated: "It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure." It is further stated: "In certain circumstances, especially where the Arbitral Tribunal has not yet been established, the issuance of interim measures by the court is the only way assets can be saved for a future arbitration. Otherwise, the claimant could end up with a worthless arbitral award due to the fact that the losing party has moved his attachable assets to a 'safe' jurisdiction where they are out of reach of the claimant's seiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject-matter of an arbitration agreement. According to learned counsel for Adhunik Steels, the subject-matter of the arbitration agreement in the case on hand, is the mining and lifting of ore by it from the mines leased to OMM Private Limited for a period of 10 years and its attempted abrupt termination by OMM Private Limited and the dispute before the arbitrator would be the effect of the agreement and the right of OMM Private Limited to terminate it prematurely in the circumstances of the case. So viewed, it was open to the court to pass an order by way of an interim measure of protection that the existing arrangement under the contract should be continued pending the resolution of the dispute by the arbitrator. May be, there is some force in this submission made on behalf of Adhunik Steels. But, at the same time, whether an interim measure permitting Adhunik Steels to carry on the mining operations, an extraordinary measure in itself in the face of the attempted termination of the contract by OMM Private Limited or the termination of the contract by OMM Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h November, 2003, and from dispossessing Adhunik from the mines. In so holding, the District Court opined that Rule 37 of the Mineral Concession Rules, 1960, was not applicable to the arrangement between OMM and Adhunik. OMM appealed to the High Court of Orissa. The High Court reversed the decision, of the District Court, on the ground that the loss, if any, that Adhunik may have had to sustain, were the contract between OMM and Adhunik to be terminated, could be compensated in terms of money and that, therefore, by virtue of clause (c) of the Specific Relief Act, 1963, injunction, as prayed for by Adhunik, could not be granted. Appeals, thereagainst, were filed, before the Supreme Court, by both Adhunik as well as OMM, leading to the passing of the judgment by the Supreme Court. Having set out the guiding principles, as above, the Supreme Court adumbrated the issue for consideration, before it, as being "whether in the circumstances, an order of injunction could be granted restraining OMM Pvt. Ltd. from interfering with Adhunik Steels working of the contract which OMM Pvt. Ltd. has sought to terminate". Significantly, no injunction, restraining OMM from acting on its decision to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the Specific Relief Act, while Firm Ashok Traders v. Gurmukh Das Saluja MANU/SC/0026/2004 : (2004) 3 SCC 155 also holds-as did Adhunik Steels Ltd.5, two years later-that "the Court under Section 9 is only formulating interim measures so as to protect the right under adjudication before the Arbitral Tribunal from being frustrated". 30. The need for restraint, while exercising jurisdiction under Section 9 of the 1996 Act, was also emphasised by this Court, through Dalveer Bhandari, J. (as he then was) in Olex Facas Pvt. Ltd. v. Skoda Export Co. Ltd. MANU/DE/0593/2000 : AIR 2000 Del 161, thus: "In my view, though the Court is vested with the power to grant interim relief, but the Court's discretion must be exercised sparingly and only in appropriate cases. The Courts should be extremely cautious in granting interim relief in cases of this nature. The Court's discretion ought to be exercised in those exceptional cases where there is adequate material on record, leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous, by frittering away the properties of funds either before or during the pendency of arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erweight the case of the petitioner-despite the allegation, otherwise serious, of an elaborate facade having been engineered by the respondents-really is. The petitioner borrowed Rs. 1265 crores, from the consortium of KKR, L & T and BOI, against 12,650 debentures, each with face value of Rs. 10 lakhs. The respondent was the Debenture Trustee. The debentures were redeemable on 6th July, 2019, in ordinary course. To secure the debentures, the petitioner pledged 13,53,92,496 equity shares, held by it in CGP and 32,26,89,019 equity shares, held by it in BILT. Of these, between 10th July, 2019 and 16th September, 2019, 6,71,87,692 shares, and, on 4th November, 2019, 6,26,00,000, of the remaining 6,82,04,804 pledged shares of CGP, were sold in the open market. These shares were purchased by KKR and L & T, respectively. As these purchases resulted in substantial acquisition of the open market shares, by single entities, the requisite statutory disclosures, under Regulation 29 (2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, were made, which have been placed on record by the petitioner. 56,04,804 shares of CGP, alone, therefore, remain available for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket, and purchased by KKR and L & T; and Section 9 of the 1996 Act, howsoever wide its amplitude, cannot justify setting the clock back to a stage anterior to the invocation of the pledge, by the Respondent, which took place as far back as in March, 2019. 36. Interestingly, the Note below the Disclosure, qua the invocation and sale of 6,71,87,692 shares (purchased by KKR from the open market), specifically states that, even after the said sale, 6,82,04,804 equity shares of CGP, continued to be held by the Respondent as Debenture Trustee in respect of the Debentures issued by the petitioner, and that, "until sale of the shares by the Debenture Trustee, the Pledgor (i.e. the petitioner) will continue to have the right to require a re-transfer of the shares to itself upon repayment of the debt." That repayment has, till date, not happened. In the meanwhile, of the remaining 6,82,04,804 shares, 6,26,00,000 have been purchased by L & T Ltd. from the open market, leaving 56,04,804 shares, alone, unsold. 37. Prayer B, in the petition, seeks a restraint, against the Respondent, from selling of the shares of BILT, held by the Respondent, and against acting in furtherance of the notice, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of any proceeds realized from such sale towards the discharge of the relevant portion of such Outstanding Amounts." The impugned Notice further advised the petitioner to treat it as the notice under Section 176 of the Contract Act, for invocation of Pledge. 38. The petitioner responded to the aforesaid Notice, vide letter dated 8th July, 2020. The said response merits reproduction, in extenso, thus: "Ref: MPB/SJ/97 BY EMAIL 8 July 2020 To, Vistra ITCL (India) Ltd., The IL&FS Financial Centre, Plot C-22, G Block, 7th Floor, Bandra Kurla Complex, Sandra (East), Mumbai 400051. Facsimile number: +91 22 26593535 E-mail: [email protected] Kind Attn.: Senior Vice President Dear Sirs, Re.: Debenture Trust Deeds dated January 5, 2017 1. We write to you under instructions of our client, Avantha Holdings Limited (AHL) and with reference to the Debenture Trust Deeds dated January 5, 2017 (Debenture Trust Deeds), entered into with you by and on behalf of KKR India Financial Services Limited and KKR India Debt opportunities Fund II (KKR), L&T Finance Ltd., L&T FinCorp Ltd. and Family Credit Ltd. (L&T) and BOI AXA Corporate Credit Spectrum Fund. 2. The Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a limited liability 50-50 partnership between KKR Capital Markets India Pvt. Ltd. and one Mr. Narayan Seshadri. Presentations to this effect were made to AHL. 8. However, finally it was decided that Mr. Narayan Seshadri would be appointed to the Board of CG Power as an 'independent director' as required by KKR and he was appointed on 8 March 2019. 9. Thereafter, a series of events unfolded. 10. On the same day of Mr. Seshadri's appointment, an Operations Committee was set up by the Board of CG Power under the chairmanship of independent directors to "focus on operational movement, credible decisions on the international business, any capital restructuring requires, and other similar matters so as to enable the Company to leverage the strong growth". Mr. Seshadri was key member of the Operations Committee. 11. On 24 April 2019, an independent law firm, M/s. Vaish Associates Advocates (Vaish) was appointed to "investigate" certain transactions which were allegedly unauthorised. On 21 June 2019 the engagement of Tranzmute was approved by the Risk and Audit Committee to assist in "capital restructuring exercise" and on 19 August 2019, based on the preliminary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date, i.e. 10th July, 2019. The fact of failure, on the part of the petitioner, to pay the Outstanding Amounts by the cutoff date of 10th July, 2019, stands, in fact, expressly acknowledged and admitted, by the petitioner, in its letter dated 30th June, 2020. The approach of the petitioner, in its response dated 8th July, 2020, was to maintain a studied silence thereon, and, instead, to allege "market manipulation" by KKR and its confederates. Even in the present petition, before this Court, the petitioner has remained completely silent, regarding the allegation of non-maintenance of the Required Security Cover, and of failing to repay all Outstanding Amounts, to the Debenture Holders, on or before 10th July, 2019. Prima facie, therefore, "Events of Default" had taken place, within the meaning of Clause 1.1.41 of the Debenture Trust Deeds, read with Clause 3.4 and S. No. 2 and 14 of the "Events of Default", enumerated in Schedule 3 to the Debenture Trust Deed. 40. No occasion, therefore, arises for this Court to interdict the invocation and sale, if any, of the pledged BILT shares. Any such direction, by this Court, would amount to a proscription, on the respondents exercising the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh & Co., too, is entirely presumptuous in nature, amounting to nothing more than speculation. There are myriad and manifold considerations, which operate to raise, or lower, the prices of stocks in the stock market. Fluctuation of the stock market, as is axiomatic in macroeconomic theory, is one of the most unpredictable of all unpredictable sciences. It would be legally facile to presume that, merely because of the report by the law firm engaged by the respondents, the price of the CGP shares fell. In the absence of solid and unimpeachable evidence to bolster such an averment-which may well nigh be impossible to source-no judicial notice can be taken thereof. 43. In any event, that dispute is entirely foreign to the issue of default, by the petitioner, to honour its obligations under the Debenture Trust Deeds, and the resultant right, of the Respondent to invoke the pledged shares, and sell them in the stock market, for realisation of the outstanding amounts. 44. Prayer B in the petition, too, therefore, cannot be granted. 45. For the same reasons, Prayer C, in the petition, too, must fail. The petitioner prays, in the said prayer, that the Debenture Trustee, i.e. the Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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