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TMI Blog2014 (4) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... ill not be justified in claiming that the company should be willy-nilly wound up just because their dues have not been paid, even when steps for revival of the company are afoot. It is in this context necessary to recapitulate that it is the duty of the Company Court to welcome revival rather than affirm the death of the company. The respondent-company is an IT infrastructure company providing core infrastructure and essential services. It employs about 3500 workmen on whom some 20,000 lives are dependent. Staying the CDR scheme at this juncture would practicably amount to winding up of the company which step has to be taken only as a last resort. The legislative thinking on this aspect can also be gleaned from the provisions of the Companies Act, 2013 which is yet to come in force fully, though many of its provisions have been notified. Section 253 of that Act provides that the Company or 50% in value of its secured creditors may file an application before the Company Law Tribunal for a determination that the company be declared sick and for stay of the winding up proceedings to facilitate revival. Section 256 provides for appointment of an interim administrator to consider whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the respondent on 28th August, 2012 informing the latter that the bonds were not redeemed on the date of maturity. Action was contemplated by the petitioner and this was also intimated to TTL. In October, 2012 there was an announcement to the bondholders about the development. On 19.3.2013 the petitioner sent the statutory demand notice contemplated by section 434(1)(a) of the Companies Act, 1956 which was followed up by reminders sent in the month of April, 2013. No amount was forthcoming from TTL despite the statutory demand notice and reminders. 2. On 8th May, 2013, TTL obtained a letter of approval for a Corporate Debt Restructuring Scheme, a copy of which is placed as annexure C to CA 1688/2013. The petitioner on coming to know of the CDR scheme, filed a winding up petition before this Court on 31st May, 2013 under section 433(e) of the Companies Act seeking winding up of TTL on the ground of inability to pay its debts. CA 1529/2013 is an application filed by the petitioner to restrain TTL from modifying in any manner any security interest granted by TTL to the CDR lenders in the past. CA 1688/2013 is an application filed by ICICI Bank Ltd., which is the lead bank in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the apprehension in the minds of the petitioner that if the said scheme is implemented, there will be no assets left which can be liquated for meeting the liability of TTL to the bondholders. (iii) Between 31st May, 2013 and 10th July, 2013, the respondent did not inform the petitioner about the proposed CDR scheme, even though by that time the default had occurred and the petitioner had also sent the statutory notice followed up by reminders. (iv) After the judgment of the Supreme Court in Jitendra Nath Singh v. Official Liquidator (2013) 1 SCC 462, the very basis of any CDR scheme has come under a cloud or question because of the provision for pooling of securities and for inducting further securities into the CDR scheme. The CDR scheme in the present case makes provision for both pooling of securities and for inducting further securities to the prejudice of the interests of the petitioner. (v) The CDR scheme is not a statutory scheme; in any case, the petitioner is neither bound by the scheme nor can he be compelled to join the scheme or await the outcome of the scheme. 5. Mr Nayar sought to elaborate the main objection to the CDR scheme, i.e. the provision for pooling of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceptable to the petitioner. 7. Mr. Nayar criticised a few aspects of the CDR scheme which according to him were detrimental to the interests of the petitioner. He pointed that the MRA provided for certain sacrifices by the secured creditors participating in the CDR scheme, according to which the secured creditors sacrificed only the interest of Rs. 238 cores on the loans advanced by them without any sacrifice of the principal amount, whereas the expectation of the CDR scheme is that the petitioner should sacrifice a sum of Rs. 650 cores. He submitted that these terms are heavily loaded in favour of the respondent-company and the secured creditors participating in the CDR scheme. He placed strong reliance on the judgments of the Bombay High Court in Sublime Agro Ltd. V. Indage Vinters Ltd. (dated 19.3.2010, S.J. Kathwalla, J.) and BNY Corporate Trustee Services Ltd. V. Wockhardt Ltd. (dated 11.3.2011, S.C. Dharmadhikari, J.), and the judgment of this Court in Citibank N.A. vs. Moser Baer (dated 17th July, 2013). 8. In support of the aforesaid submissions, Mr Nayar made elaborate references to the CDR scheme and the MRA. 9. The stay application was vehemently opposed on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a CDR scheme cannot be an impediment to the admission of the winding up petition, given that there was an admitted debt and an inability to pay the same. According to Mr. Sundaram, the present proceedings are different, in the sense that we are not concerned with the question whether the winding up petition should be admitted or not; the petitioner seeks stay even before the petition is admitted, a situation which according to Mr. Sundaram calls for extreme caution and sensitiveness. Moreover, according to him, the bondholders are only speculators, having bought the bonds in the market at a discount and expecting to gain if the company goes into liquidation, and not genuine investors. He further contended that it is even doubtful whether the bonds can be said to represent a "debt" for the purposes of Section 433/434 of the Act. 10. Mr. Sundaram reminded me of the well-settled principle laid down in Madhusudan Gordhandas V. Madhu Woollen Ind. (1971) 3SCC 632 that the decision whether to wind-up a company or not should be taken by the company court after taking into consideration the wishes and views of all the stakeholders including the contributories, the secured creditors, the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich provides for retrenchment of workmen and arguing for a case for continuance of the scheme, Mr. Wadhwa submitted that the company court is a court of equitable jurisdiction and is not bound to order winding up of a company even if the conditions of Section 433 of the Act are satisfied. The power of the court to admit a winding up petition is discretionary. Mr. Wadhwa says that if that is so, the position would be a fortiori in the case of stay application, that too where the winding up petition is yet to be taken up for admission; the balance of convenience and the irretrievable loss or injury are loaded in favour of the continuance of the CDR scheme. He submitted that the petitioner is an unsecured creditor and all unsecured creditors have an inherent risk and the petitioner is no exception. The concerns of the workmen should be protected by the company court. He therefore pleaded that the implementation of the CDR scheme should not be stayed. 14. Mr. Sandeep Sethi, learned senior counsel appearing for the ICICI Bank Ltd. in CA No.1688/2013, which is the lead bank in the CDR scheme pointed out that there are 13 banks and financial institutions representing more than 2/3rd of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplation of the CDR lenders and there is no provision in the MRA prohibiting the sale. The only provision is that the payment to the CDR lenders will be deferred till June, 2015 but the sale of shares can take place at any time; (ii) The pooling of the securities contemplated by the CDR scheme deprives the right of the petitioner by reducing the asset- base of the respondent-company and creates a new class of creditors, which is impermissible; (iii) The CDR scheme will negate the rights of the unsecured creditors in the case of the liquidation. The CDR scheme does not take care of the unsecured creditors of which the petitioner is one; (iv) If the sale of shares takes place, against which there is no provision, it cannot be reversed by the Company Court; any fresh charges created upon the aforesaid shares cannot be undone by the Company Court; even a pledge of shares cannot be undone. In truth and reality, the CDR scheme is thus only a process of sale of the assets of the company for the benefit of the secured creditors; it is not a step towards revival of the company; (v) The petitioner is not a speculator, as alleged by the respondent, who has acquired the bonds at a disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties have filed written submissions which have been taken into consideration. 17. At this stage, when the winding-up petition is yet to come up for admission, the only concern is whether there is any justification for staying the CDR Scheme, which is yet to be given effect to pursuant to the undertaking given to this court on behalf of TTL on 16-9-2013. There can be no dispute that the company court is not bound to order winding- up even if the conditions of sections 433 and 434 are satisfied, if it is found that winding-up will not be in the interests of all the stakeholders of the company, such as the creditors, customers, workmen, contributories etc. It is also open to the court to ascertain the wishes of the creditors under section 557 of the Act. The company court should welcome measures to revive the company rather than wind-up the company because the liquidation of the company is likely to affect prejudicially the stakeholders. The question whether the CDR scheme should be stayed is closely linked to this broad and general rule; a CDR scheme is aimed at reviving the company which has fallen into difficulties. Even assuming for the sake of argument that the CDR Scheme is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". My attention was drawn to the financial statements for the six months period ended 31.03.2013 in which the investment in the said shares is shown at Rs. 214.01 crores. It is also submitted that TDCPL has a total secured debt of about Rs. 350 crores including the debt of Rs. 150 crores extended by ICICI Bank, against which 30% of the shares have been pledged. In addition another 30% of the shares are pledged to Edelweiss and Religare. According to the respondent, the realisable value of the shares in a distress sale would be much below the book value and will not be sufficient to clear the dues to the bondholders. The argument is that the induction of the TDCPL shares will not prejudice the interests of the bondholders, considering their low market value. Except the book value of Rs. 214 crores, the other figures - given by the petitioner as the estimated market price of the shares - and the claim of the respondent that the shares would fetch a price much below the book value are not immediately capable of verification in the absence of any acceptable report by a competent person estimating the market value of the shares on a realistic basis. 19. I am unable to reject the appreh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are capital intensive the revenues start flowing in only after a long gestation period. Between the time when the infrastructure is put in place (by which time heavy capital outlay would have taken place) and the time when the revenues start trickling in, every such company faces a cash crunch during which period there is high probability of defaults in loan repayments. Apparently, TTL being such an infrastructure company providing core and essential services in the IT sector has been caught in this period. The optimism generated by the technical evaluation and viability report has factored in this element; it is only a matter of time, according to the report, that the company would start earning revenues which would generate adequate cash inflows. The CDR package scheme enables the company to tide over this crucial period by providing for funding of interest liability, fresh infusion of working capital, moratorium on repayment of debt and a slew of other measures outlined in the CDR scheme and the MRA. In my opinion, it would be useless beyond a particular point to enter into the nitty-gritty of the figures mentioned in the CDR scheme and the MRA since one can adopt a selective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CDR scheme is confined to the secured creditors. They can only speak for themselves which is what they did when they announced a sacrifice of Rs. 238 crores. By placing a cap of Rs. 243 cores I do not think that the intention is that the balance of around Rs. 650 cores due to the bond holders should be sacrificed by them. The cap of Rs. 243 crores has been placed in the CDR scheme as one of the bases for calculating the cash flows of the company. The CDR lenders certainly have no right to say that the balance of the amount should be sacrificed by the bond holders. While working out the possible cash flows of the company certain assumptions have to be made both in respect of the revenues and the payments. One such assumption is a cap of Rs. 243 crores on the liability to bond holders and the cash flows available to the company are worked out on that basis. It can hardly be said to imply that the bond holders should give up their claim to the extent of Rs. 650 cores. In any case, it is only an option offered at best, and it is open to the petitioner to reject it. 23. Taking an overall view of the conspectus of the case it seems to me that the implementation of the CDR scheme cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider whether it is possible to revive and rehabilitate a sick company on the basis of the draft scheme, if any, filed along with the application for revival and rehabilitation filed under section 254(1) by a secured creditor or the company itself. Thus the legislative thinking also appears to be to revive and rehabilitate the company if possible and save it from liquidation. This is legislative recognition of the judicial decisions. 24. Before I conclude, it is necessary for me to explain my decision in Citibank, N.A. vs. Moser Baer rendered on 17th July, 2013, on which reliance was placed by Mr. Rajiv Nayar, the learned senior counsel for the petitioner. In the subsequent decision rendered by me on 3.4.2014 in the same case in CA No.2091/2013 I had dealt with my earlier decision in Moser Baer (supra) and distinguished it as follows:- "21. The context in which the observations were made by me in paragraphs 16 to 18 of my order dated 17th July, 2013 needs to be appreciated. That was the admission stage of the company petition. The contention of the petitioner was that the discretion should not be exercised in favour of the respondent's company by refusing to admit the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial defence and not whether the company would in future be able to pay the debts because of the CDR scheme or similar revival attempts. The case of the respondent- company did not measure up to any substantial defence at the admission stage, which was considered by me to be sufficient and relevant to admit the petition. The existence of the CDR scheme was considered by me to be not relevant at the admission stage. I referred to two judgments of the Bombay High Court (supra) wherein it was held that the existence of a CDR scheme was held not to be an impediment to the admission of a winding-up petition. Hence I admitted the petition." 25. The result is that there will be no stay of the CDR scheme and the company is at liberty to implement the same forthwith. The undertaking given to this Court on 16.09.2013 stands discharged. However, I direct that though there can be a pooling of the securities, any sale of a pooled security shall be subject to the orders passed by this Court and prior approval of such sale shall be taken from this Court. In respect of the shares of TDCPL, though they can be inducted into the CDR scheme, any sale of the said shares or any charge, pledge or secu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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