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Bank of New York Mellon v/s Cranes Software International Ltd.

    Company Petition No. 203 of 2010

    Decided On, 28 November 2017

    At, High Court of Karnataka


    For the Petitioner: Uday Holla, Senior Counsel, Anind Thomas, M/s. A.Z.B. & Partners, Advocates. For the Respondent: Kaleemullah Shariff, Aditya Narayan, Ajay J. Nandalike, Advocates.

Judgment Text

1. The petitioner is before this court in this petition filed under section 433(e) and (f) read with section 434 of the Companies Act, 1956, contending that the respondent-company are due the debt to the petitioner and they are unable to pay the same. Hence, the petitioner seeks that the respondent-company ordered to be wound up.

2. The petitioner-bank is incorporated in New York and is carrying on the business such as providing trustee, agency and other securities related services. Accordingly, the petitioner and the respondent entered into a deed dated March 17, 2006 where under the petitioner was appointed as the trustee in respect of 42 million euros, 2.5 percent, foreign currency convertible bonds. Such bonds are issued by the respondent to various investors in International Capital Markets. The respondents are stated to have committed default under the terms of the bonds by failing to make the payment of interest in respect of the bonds which fell due on September 18, 2009 prior to instituting this petition. At this point, it is contended that the bonds have become convertible and the entire amount has become payable. Despite opportunity, since the respondents had failed to make any payment to the bond holders, the petitioners contend that the respondents are unable to pay the amount which is a debt. At the point when the petition was filed the interest payable being at the rate of 2.5 percent, on the principal value of bonds on March 18 and September 18 of the each year, the amount due was Euros 525000. The first payment of interest amounting to Euros 527940 was made on September 18, 2006 and the last payment was on September 18, 2008. The subsequent interest was not paid which was also indicated in the annual report of the respondent for the financial year ending on March 31, 2009.

3. In the above background, in the instant petition, keeping in view the nature of the contentions that had been raised by the respondents, this court while considering the petition for admission had made an elaborate consideration of all contentions including the locus standi, jurisdiction and the applicability of the appropriate law and had accordingly admitted the petition through the order dated March 19, 2012. Though the respondent had filed an appeal, the same had been withdrawn and the instant petition was finally heard by this court. The learned company judge who heard the matter at that point was however pleased to dismiss the petition by the order dated March 4, 2014-(Bank of New York Mellon v. Cranes Software International Ltd. [2015] 190 Comp Cas 195 (Karn)). The conclusion therein was that the English law would be applicable. The petitioner herein however assailed the said order dated March 4, 2014 passed in this petition in an appeal in O.S.A. No. 22 of 2014-(Bank of New York Mellon v. Cranes Software International Ltd. [2016] 195 Comp Cas 17 (Karn)). The hon'ble Division Bench after having considered the matter in detail has set aside the order dated March 4, 2014 dismissing the company petition and remanded for fresh decision. It is to be noted that on the aspect relating to all other rival contentions the instant petition is held maintainable and the petitioner as a trustee was held entitled to file the petition seeking winding up. The only reason for which the present petition has been remanded for consideration is that it is for the company petitioner to prove that the debt liable to be paid is either admitted or duly proved and also that the company is unable to pay its debts. Since according to the Hon'ble Division Bench the learned company judge through the order dated March 4, 2014 had not adverted to that aspect, the matter is ordered to be considered in that regard.

4. In the above circumstance, since the order dated March 4, 2014 where-under the petition was dismissed, has been set aside and at this point when the petition is being ultimately considered, the order dated March 19, 2012 passed by this court while admitting the petition also becomes relevant to be taken note. Though the learned company judge in the order dated March 4, 2014 had not adverted to the issue relating to the debt being payable as what was considered therein was only the maintainability of the petition, since in the order dated March 19, 2012 a prima facie consideration relating to the debt had been made to come to a conclusion that the petition is liable to be admitted, the same would remain relevant at this point in time. The consideration and the conclusion therein is as hereunder :

"25. Having analysed the preliminary objections which were raised by the respondents and having arrived at the conclusion that the same are not sustainable, the question for consideration is with regard to the amount being due and payable and in that circumstance whether the petition calls for admission so as to consider the further process of winding up in order to recover the amount. The fact that the accreted principal amount and the interest thereon has become due and payable as claimed in the petition is evident from the fact that the respondents in their reply to the statutory notice have not denied this fact. Even in the objection statement filed before this court the liability to pay is not disputed but certain contentions have been urged to resist the winding up since according to the respondents the present position is due to global recession and the respondents would be able to pay the amount when the position improves. Further the effect on the ongoing activities more particularly considering that there are several employees has been put forth to contend that it would not be equitable to wind up the company.

26. Learned senior counsel for the respondent has relied on the judgment of the Hon'ble Supreme Court in the case of Mechalec Engineers and Manufacturers v. Basic Equipment Corporation [1976] 4 SCC 687 to contend that the same yardstick as applied while considering the grant of leave to defend in a suit under Order 37 of the CPC should be applied and leave could be refused only if the defence is illusory or sham or moonshine. Reliance is also placed upon the decision of the hon'ble Supreme Court in the case of Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 (SC) ; [1994] 3 SCC 348 and the decision of this court in the case of Divya Export Enterprises v. Producin P. Ltd., ILR 1990 Kam 1610; [1991] 70 Comp Cas 692 (Kam) to point out that an order under section 433(e) is discretionary and it should be exercised only when the company is commercially insolvent and unable to pay its debts. The said decisions cannot come to the aid of the respondents inasmuch as the respondents have indicated their financial difficulty in paying the amount due to the bondholders by their reply to the statutory notice issued during September, 2010. Thereafter the instant petition has been pending from the said period. At no point of time the respondents have come forward with any bona fide attempt to settle the matter either by indicating the improvement in their financial position or by making part payment or providing any plan for settling the matter in a manner that would be acceptable to the petitioners. Instead the respondents have been raising technical pleas to defeat the petition and in that context, the defence in any event cannot be considered as bona fide. In that view, the decision relied on by learned senior counsel for the petitioners in the case of Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan (now G.V. Dalvi), Court Receiver, High Court, Bombay [1966] 36 Comp Cas 426 (SC) ; AIR 1966 SC 1707 would be more apposite.

27. It was strenuously contended by learned senior counsel for the respondent that the bonds are convertible by the bond holders into newly issued equity shares and in such circumstance the trustee by seeking for winding up is defeating the right of the bond holder from becoming the shareholders. The said contention is also without substance. In that regard, a perusal of the convertible bond would indicate that such right is to be exercised between the period April 27, 2006 to March 11, 2011. The fact that the respondent-company has not placed any material on record in that direction would indicate that none of the bond holders have exercised such right. That apart the bond has matured on March 18, 2011 and the entire amount has become payable, yet there is no indication of settling the dues or entering into amicable terms with the petitioner or the bond holders. Instead spurious contentions are being raised. Even though it is contended as if the petitioner is acting against the interest of the bond holders contrary to their instruction, the respondents have not made any effort to establish that the bond holders have compromised or consented to the request of the respondent-company.

28. For the above stated reasons, I am of the opinion that the respondent-company is unable to pay its admitted debts. This petition therefore deserves to be admitted and proceeded further in accordance with law."

5. In the above backdrop, the consideration at this point is whether the above conclusion relating to the debt being due and the inability to pay the same has been dispelled in any other manner by subsequently paying the amount or showing any improvement in that regard. Further, what is also to be noticed is as to whether the affidavit of opposition filed herein would alter the situation. In that regard, the affidavit of opposition filed by one Mr. Zia Ulla Sheriff is to state that he being a partner of M/s. Sheriff Constructions has invested a sum of Rs. 208 crores in the respondent-company. It is contended that the amount invested by him was utilised to pay the creditors as indicated in the enclosure at annexure R2 to the affidavit. The said enclosure does not indicate payment towards the claim as put forth by the petitioner nor does it indicate the payment as against the total dues of such of those creditors. The certificate issued by the chartered accountant and enclosed to the affidavit is dated June 17, 2012 which would indicate that even if the investment as claimed is made at that stage, though more than 5 years have elapsed thereafter the present status does not indicate any major improvement in the financial position of the respondent-company.

6. The other affidavit in opposition to the winding up is filed by one Smt. Shobha K.N. who claims to be an employee in the respondent-company. She contends that she is designated as the vice-president and has been working for the last 10 years. The contention essentially is with regard to the effort put in by the employees to sustain the company and also to contend with regard to the prospects of the company. Though the affidavit is filed in opposition, details as produced therein would indicate that even in respect of the employees listed out in annexure B to the affidavit the payment is due to the employees. The said affidavit in any event does not indicate anything substantial to indicate the financial status of the company and the ability of the respondent-company to pay the amount due.

7. In addition at the time of hearing of this petition, Sri Mueed Khader one of the directors of the respondent-company has filed the affidavit dated November 24, 2017 wherein it is stated that the respondent-company has made a concerted effort towards full recovery despite the financial circumstances. It is stated therein that during September, 2009 the respondent-company owed a total principal amount of Rs. 651 crores to various banks and an amount of over Rs. 625 crores has been settled to major entities and even though the name of the banks are mentioned therein, the payment of the amount to the petitioner does not find a place therein and as such there is no effort made to settle the dues. In fact except expressing an intention to clear, in so far as the payment there is no indication. A reference is no doubt made to the investment said to have been made by Mr. Zia Ulla Sheriff. Though such statements are made in the affidavit, there is no material to indicate the progress made by the company to tide over the financial constraint. Further as already noticed, the investment as made by Mr. Zia Ulla Sheriff is prior to 2012. In that light, the documents submitted by the petitioner along with the memo would include the statement of audited financial result for each quarter of the year ending March 31, 2014. The same would indicate that huge loss has been depicted therein and the report of the independent auditor would also indicate that the financial position of the respondent-company is not comfortable and the report further contains that as per the attached balance-sheet as on March 31, 2015 the redemption of foreign currency convertible bond amounting to Rs. 2,835.42 lakhs (42 million Euros) to the holders of the bonds have fallen due during April, 2011 and is yet to be redeemed as on the date of balance-sheet. The said report dated May 29, 2015 further indicates that the loss after tax for the year ending March 31, 2015 would have been higher by Rs. 50,924.36 lakhs. That apart, though in the affidavit, the director of the respondent-company has referred to the payment made to the Bank of India so as to claim about the effort made to repay, the document produced by learned counsel for the petition

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er along with the memo dated November 24, 2017 is the copy of the FIR based on the complaint filed by the Zonal Manager of the Bank of India against the respondent-company and the directors including Sri Mueed Khader who has sworn to the affidavit referred to above alleging fraud committed by them. 8. In the above circumstance, though the persons opposing the petition and the director representing the respondent-company have filed the affidavits and it is contended that the winding up only in order to recover the amount due to one of the creditors is not contemplated under sections 433 and 434 of the Companies Act, the conclusion reached as on the date of admission of this petition and also since the financial position of the respondent-company has not shown any improvement nor has any other debenture holders or creditors have opposed the winding up of the respondent-company, the only option would be to order winding up of the respondent-company. 9. Accordingly, it is ordered that the respondent-company be would up in accordance with law. The official liquidator attached to this court shall take charge of the affairs of the respondent-company. The petitioner shall deposit a sum of Rs. 75,000 with the official liquidator towards provisional liquidation expenses. The petitioner shall take out publication of the winding up order in The Hindu English daily and Vijaya Karnataka Kannada daily within 15 days. 10. The petition is allowed in the above terms.