(Prayer: Petition filed under Section 433 (e) and (f), 434 (1)(a) and 439(1)(b) of the Companies Act for winding up the respondent company.)
1. The Company petition filed as early as in the year 2011 which has travelled back and forth between the NCLT and this Court was taken up for hearing by me on various dates starting from 31.01.2020 and orders were reserved on 27.02.2020. The brief facts necessary for considering the petition is herein below narrated.
2. The Respondent company which is engaged in generating power from wind, had issued an offer circular on 13.12.2007 announcing the issue of USD 30,000,000 2.5% Convertible Bonds due 2012 otherwise called the Foreign currency Convertible Bonds. The bonds were to mature on 22.12.2012 and were to bear interest @2.5% per annum payable semi-annually in arrears on the 6th and 12th month of each calender year after the issue date. ie.21.12.2007. The offer letter further stated that unless previously converted, redeemed or repurchased and cancelled the issuer. ie. the respondent, will redeem each bond in US Dollars at US$128.50158% of the principal amount on the date of maturity. The Bond holders were given an option to convert their bonds into fully paid-up equity shares of the respondent.
3. In pursuance of the above offer letter, the respondent had issued the aforesaid bonds to the Bond holders and the petitioner, as the Trustee of the Bond holders and the respondent, as the Issuer, had entered into a Trust Deed on 21.02.2007. The terms and conditions of the Bond formed a part of the Trust Deed and was set out as Schedule-2 to the Trust Deed.
4. It is the case of the petitioner that from the 2nd semi-annual interest due on 21.12.2009, the respondent had not paid the interest that had become due and payable on the scheduled dates. Since the default continued for over 5 days in each of the instances, it became an event of default as per condition No.10 of the Bond. As on 06.04.2011, the respondent therefore, was due in the amount of $38,098,737.85. The petitioner as Trustee therefore, issued a notice of default dated 06.04.2011 calling upon the respondent to remit the early redemption amount together with the accrued and unpaid interest as contemplated under condition No.10 of the Bond.
5. The Respondent has sent a reply dated 19.04.2011 stating that they had attempted to restructure the Bonds in the year 2009. They therefore, contended that since the Bond holders were put an notice about the restructuring, an event of default had not occurred. It is the contention of the petitioner that till the date of filing this winding up petition, the formal restructuring had not taken place. Therefore, the respondent is bound by the terms of the Bond and the objectives under the Trust Deed. The petitioner would therefore, submit that there was no bona-fide dispute to the respondent’s liability to the Bond holders.
6. Since there was no positive response from the respondent, the petitioner had issued a Statutory notice under Section 434(1) (a) of the Companies Act, (hereinafter called as ‘the Act”) calling upon the respondent to pay the sums due by them within a period of 21 days failing which the respondent was put on notice that a Winding up petition would follow.
7. The respondent, who had sent a reply on 01.06.2011, had not disputed the liability or its failure to make the payment post December, 2009. To this, the petitioner had sent a re-joinder dated 30.09.2011 putting the respondent on notice that the winding up petition, as alerted in the notice dated 18.05.2011, would be filed as it has to be deemed that the respondent is unable to pay its debts.
8. The petitioner would further submit that the proposal for restructuring was turned down by the majority of the Bond holders and the said decision was also communicated to the petitioner under cover of E-mail dated 17.08.2011. As on 31.08.2011, the respondent was due and owing a sum of $40,319,149.50.
9. The petitioner would further submit that the liability of the respondent to pay the Bonds is seen at several places of the Annual Return for the period of 2009-2010 which is repeated in the Annual Return for the period of 2010-2011. It is only in the notes of account that the respondent had made a false statement that “The FCC Bonds have been restricted with the existing Bond holders”. This is an absolutely incorrect and misleading statement.
10. The petitioner would therefore, contend that the dispute that is now sought to be raised lacks bona-fide. Considering the fact that the respondent is unable to pay its debts, the respondent company should be wound up.
11. The respondent has countered these averments by contending that the respondent is a profitable concern and for the period June, 2010 - March, 2011, the profit of the Respondent Company was Rs.396 lakhs. They had also set up wind mill projects in 2 places at Karnataka in 1998 and at Puducherry in 2004. In the year 2007, the respondent decided to raise funds through Foreign Currency Convertible Bonds. M/s. Jefferies International Ltd. was the Manager for this fund and M/s. Euroclear its clearing agent. The respondent issued the offer circular dated 13.12.2007.
12. The respondent would further contend that the Bond holders are unsecured creditors and the bonds are freely traded in the Singapore Exchange Securities Trading Ltd. Further, the Bond holders are investing money subject to risk disclosed in the offer letter. The respondent would further contend that M/s.QVT Fund LP and Quintessence Fund L.P., Cayman Islands (Collectively known as QVT Bond holder) were the major subscribers to the issue. The Petitioner Trustee was bound to consider the collective interest of the Bond holders and not individual Bond holders.
13. It is the further case of the respondent that in June, 2009 owing to the global stagnation, the share value of the respondent Company fell. Thereafter, there was a consensus between the respondent and the bond holders which broadly provided as follows:
(i) Coupon sale of remaining bond was to be reduced to 0% from existing 2.5%.
(ii) 50% of the outstanding bonds to be converted at applicable conversion premium stipulated by regulatory authorities with an upper cap of Rs.65/- per share.
(iii) Balance 50% of the bonds may be converted at the option of the Bond holders at the time of maturity of the Bond. ie., December, 2012 and if not redeemed to be redeemed at a reduced redemption premium @111.01% instead of 128.5%.
(iv) Existing conversion premium at Rs.167/- would be down to 15 days.
14. The respondent would contend that the restructuring came into effect on 22.06.2009. This fact was communicated to the Bond holders and they had agreed to the same. The respondent would further contend that on 12.08.2009 M/s.QVT Fund LP and Quintessence Fund L.P., who held 45% of the Bonds has signed the revised term sheet and the share holders of the respondent had also passed a resolution on 12.08.2011 agreeing for the restructuring. In fact the petitioner acknowledging the restructuring had claimed 0% interest for December, 2009.
15. The respondent apart from raising the issue of the locus standi of the petitioner to maintain the winding up petition, had also contended that all the Bond holders had not authorized the petitioner to file the winding up petition. Considering the fact that the petition includes disputed questions of fact the winding up petition is not maintainable and further as there is no debt “in praesenti” the petition deserves to be dismissed. The respondent would therefore, seek to have the petition dismissed.
16. In their rejoinder, the petitioner would contend that the restructuring had not been approved by the Bond holders and the procedure contemplated has not been followed. As per procedure after restructuring, the Trust Deed had to be amended by a Supplementary Trust Deed. None of these, according to the petitioner, had been followed and therefore the only logical conclusion that can be arrived at is that the restructuring had not taken place. The respondent has themselves accepted this fact in some of their earlier correspondence. The petitioner further submitted that the Bond holders had denied the execution of the revised term sheet. Further, the 2 companies who had questioned the petitioner’s right to file the petition had not responded to the petitioner’s letters asking them to identify themselves with the necessary proof of their holdings. Therefore, the petitioner contended that the respondent was attempting to put up a sham defense and the petition for winding up should be ordered.
(A). Mr. P.S. Raman, the learned Senior Counsel who was instructed by the Counsel for the petitioner had made his oral submissions which has been captured in the written submissions filed on behalf of the petitioner. The Learned Senior Counsel had given a brief submission on the floating of the Bonds by the respondent; the procedure contemplated for applying for it, how and when the Bonds are to be redeemed, the salient features of the Bonds etc. He had also briefly touched upon the sequence of events commencing from the issue of Bonds upto the commencement of the dispute. The Senior Counsel would submit that the petitioner was appointed as a Trustee by the Bond holders and it was in this capacity that the petitioner had entered into the Trust Deed dated 21.12.2007 with the respondent/Issuer. The Senior Counsel would make his submission to each of the objections made by the counsel for the respondent and the arguments are being extracted herein below:
(a) The respondent had taken a preliminary objection to the winding up petition by questioning the jurisdiction of this Court as parties had agreed to be governed by the English Laws. The respondent had pleaded that the terms and conditions of the Trust Deed, the instruction letter dated 04.04.2011 and the Notice of default dated 06.04.2011 would render the company petition not maintainable before this Court. To the above contention, the learned Senior Counsel for the petitioner would contend that the Trust Deed had clearly stated that this restriction is only for the benefit of the Trustee and each of the Bond holders. However, the same would not restrict their right to take proceedings in any other Court of competent jurisdiction. Further winding up proceedings which is a Statutory remedy can only be filed in the High Court within whose jurisdiction the Registered Office of the respondent Company was situated. To support his argument, the petitioner has relied on the Judgment reported in 1999(5) SCC 688- “Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd.” and a Judgment dated 16.06.2008 of the Delhi High Court in the matter of “Shin Satellite Public Co. Ltd. Vs.STV Enterprises Ltd.” - Co.Pet.No.128/2005.
(b) The next objection of the respondent was that the petitioner as a Trustee did not have the locus-standi to maintain the winding up petition under Section 433 and 434 of the Act. The response to this objection is that the obligation to pay the amounts due under the Bond as per Clause 2.2 and 2.2.1 of the Trust Deed was only towards the Trustee. That apart, the onus of enforcing the terms and conditions of the Trust deed was upon the petitioner as Trustee and only in the event of the petitioner failing to act in this regard, the Bond holders could initiate proceedings against the respondent. He would rely upon the following the Judgments in support of this contention:
(i) Judgment of the Bombay High Court dated 02.09.2013 in “Zenith Infotech Ltd. Vs. The Bank of New York Mellon London Branch.”- Appeal (L) No.344 of 2013.
(ii) Judgment of the Division Bench of our High Court dated 24.04.2014 in “Deutsche Trustee Company Limited Vs. Mascon Global Limited.”- O.S.A No.231 of 2013.
(c) The next objection was that the petitioner has instituted the company petition without the proper authorization of the Bond holder as certain Bond holders ie. M/s. White Crown Holdings Ltd., had expressed the view that they were happy to go ahead with the restructuring and had not authorised the petitioner to move the winding up petition. To this, the petitioner would contend that as per Clause 16 and 24 of the Trust Deed that the petitioner was vested with the full discretion with regard to institution of proceedings to enforce the terms of the Bonds/Trust. The petitioner is bound to initiate such proceedings if so directed by an Extraordinary Resolution or if requested in writing by Bond holders holding at least 25% of the Bonds. The Senior counsel would bring to the notice of the Court the Letter dated 04.04.2011 from M/s.QVT Fund LP and Quintessence Fund L.P.,who admittedly held over 45% of the outstanding principal amount of the Bonds, instructing the petitioner to proceed on the basis of the Event of Default. It was only on such instruction that the petitioner had issued the notice of default followed by the winding up notice and later the petition. The petitioner had also called in question the authenticity of the alleged mails from M/s.White Crowns Holding Ltd. and M/s.Eco Ventures International (FZE) dated 14.11.2011 since the two had not responded to the Mail of the petitioner asking them to provide them proof of their holdings. The petitioner would contend that the Mail had not emanated from the Bond holders. The argument of the respondent that the petition is pre-mature in as much the petitioner had not given the respondent an opportunity to rectify the event of default is patently incorrect. The winding up notice was issued only after the lapse of a month from the date of issue of the Notice of Default and thereafter the petition had been filed much later.
(d) An objection was raised that the company petition had not been signed by the person so authorised by the petitioner. The respondent would point out that the cause title of the petition would indicate that the petitioner is represented by its attorney Mr.Naveet Singh but the petition, affidavits and other documents filed into the Court contained the signature of the Ms.Ritu Rana.
The response to the above objection is that this objection was never raised in the counter statement and for the first time has been raised at the time of the argument. That apart, the Power of Attorney of Ms.Ritu Rana had been filed along with the petition and the same had been notarized and apostilled thereby establishing the authenticity of the Power of Attorney. All the formalities had been followed while filing the petition.
(e) The respondent had also raised a defense that the Bonds did not constituted a debt and consequently, the winding up petition filed under Section 433(e) read with section 434 of the Act was not maintainable.
The petitioner would contend that the offer letter had clearly described the Bond as constituting an unsecured obligation. The debt has been acknowledged in all Annual Returns upto the Financial Year 2016-2017 and only in 2017-2018, the amounts towards the Bonds has without explanation moved to the equity portion and shown as unsecured equity. The petitioner would contend that the argument that USD15 millions worth of Bonds were purchased in the Secondary market as alluded by the Issuer was wrong since M/s.QVT Fund LP and Quintessence Fund L.P., continued to hold USD8 million worth of shares which represents 53% of the outstanding bonds. Once the debt is undisputed the ability of a Company to pay is not a defense. The petitioner would rely on the Judgment reported in 1971(3) SCC 632 - “M/s. Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd.”
(f) The respondent had contended that there exists no admitted liability to enable the petitioner to maintain the present company petition. This defense is taken on the basis that no debt was due under the Bonds which formed the subject matter of the Company petition as the terms of the Bond stood modified/restructured with effect from 22.06.2009. That Apart, the petitioner acknowledging this restructuring had placed a zero interest debt service letter dated 07.12.2009 which would clearly prove that the petitioner had acted upon the restructuring. Further, M/s.QVT Fund LP and Quintessence Fund L.P. had signed the term sheet approving the modification/restructuring.
The petitioner would counter this objection by contending that except for signing the terms sheet, M/s.QVT Fund LP and Quintessence Fund L.P. had not proceeded further with the restructuring as contemplated under the terms and conditions of the Bonds read with the Articles of Schedule IV of the Trust Deed. There was no extraordinary resolution of the Bond holders as contemplated. Further the Term Sheet upon which the respondent places great reliance is only a tentative (non-binding) document. Further the term sheet had not been executed by the Bond holders M/s.QVT Fund LP and Quintessence Fund L.P. A reading of the Term sheet would clearly highlight its tentative nature as it states the restructuring would be subject to the satisfactory completion of the documentation and obtaining the approval of the regulatory authorities. The approval granted by the Reserve Bank of India was subject to the condition that the restructuring procedure had to be completed. As this procedure admittedly had not been completed, it is clear that the restructuring had not taken place. The petitioner would draw the attention of this Court to the respondent’s Letter dated 20.01.204 (pending this winding up petition) acknowledging that the conversion to equity was yet to take place and wherein they had requested the Bond holders to hold a meeting for this purpose. The petitioner therefore, would contend that this defense is not bona-fide and only a moonshine defense. The petitioner would contend that the respondent cannot rest its case on the Zero interest Letter dated 07.12.2009, as there was no obligation of the part of the petitioner to issue such a letter as the payment of the semi-annual interest had to be made on the scheduled date irrespective of a demand being made by the petitioner or not.
The petitioner would therefore, pray for the admission of the Winding up petition and to direct the appointment of the Official Liquidator as a Provisional Liquidator.
B. Mr.Murali Kumaran, learned counsel appearing on behalf of the respondent company, apart from reiterating the objections that has been narrated supra also contended that the petitioner is guilty of suppression in as much as they have failed to divulge the following facts:
(i) The petitioner is not only the Trustee but also the Registrar as well as Principal Agent of the Bonds.
(ii) The Bonds are trade-able in international market with restriction in trading in certain countries including India and that the Bonds are listed in the Singapore Stock Exchange.
(iii) The petitioner had issued an invoice claiming “Zero” coupon interest for the period 21.06.2009 to 21.12.2009 and for the remaining 2 periods viz., 21.12.2009 to 21.06.2009 and 21.06.2009 to 21.12.2010, no demand of interest was made by way of an invoice.
(iv) The petition is filed only on the written instruction of M/s.QVT Fund LP and Quintessence Fund L.P. and no other Bond holders has given written instruction to the petitioner to file the winding up petition.
(v) That the petitioner who claims to be is not aware of the signing of the term sheet by M/s.QVT Fund LP and Quintessence Fund L.P. would contend that M/s.QVT Fund LP and Quintessence Fund L.P. has not signed the same.
(vi) That 50% of the Bond amounting to USD 15 millions redeemed belongs to one particular Bond holder and it is not M/s.QVT Fund LP and Quintessence Fund L.P.
The Learned Counsel would further submit that the Judgments reported viz., “Zenith Infotech Ltd. Vs. The Bank of New York Mellon London Branch.” and “Deutsche Trustee Company Limited Vs. Mascon Global Limited can be distinguished from the facts of the present case as the Statutory notice in “Zenith Infotech Ltd. Vs. The Bank of New York Mellon London Branch.” was issued after the Bonds matured for repayment and redemption which is not the case in the case of on hand. Further in the above referred case their Lordships were dealing with the interpretation and definition of the word “Creditor” under Section 439(2) of the Act. The Judgment in “Zenith Infotech Ltd. Vs. The Bank of New York Mellon London Branch” was also on these lines. The Counsel would argue that the definition of Creditor given in Section 439 (2) of the Act cannot be extended to Section 434 of the Act. It is also his submission that the trigger point in a petition under Section 433(e) for the purpose of limitation is the default under Section 434 of the Act, as Section 434 details the cause of action for filing the winding up petition under Section 433(e) of the Act. The further argument advanced is that the petitioner is not a “Creditor” for the purpose of issuing the Statutory notice under Section 434(1)(a) of the Act as it is only the person to whom the Company is indebted who is termed a “Creditor”. The Statutory notice that has been issued would state that the amounts were due and payable to the petitioner who is only the Trustee and not the Creditor. Therefore, the Statutory notice is not valid and the petition for winding up based on this notice is not maintainable. The respondent would also contend that the petitioner is unaware of the identity of the Bond holders by relying upon an affidavit dated 14.09.2016 filed on behalf of the petitioner. Therefore, it is the contention of the respondent that the winding up petition filed without knowing the identity of the Bond holders is not maintainable.
18. The respondent would further contend that M/s.QVT Fund LP and Quintessence Fund L.P had authorised the petitioner only to issue the notice and not to file the winding up petition and once again the present petition being one without authority is therefore not maintainable. The winding up petition, according to the respondent is nothing but an arm twisting tactic by the petitioner. The respondent would contend that out of the 30 million bonds 15 million have been redeemed as per the restructured terms and the petitioner has been instructed to file the instant petition only by Bond holders holding only approximately 8 million bonds. The Bond holders holding 7 million bonds have not only accepted the restructured terms but has also contended that they have not instructed the petitioner to file the winding up petition on their behalf. The respondent would also plead collusion between M/s.QVT Fund LP and Quintessence Fund L.P and the petitioner. The respondent would therefore contend that since there is a dispute with reference to the debt which is bondafide the winding up petition deserves to be dismissed.
a) The respondent has raised the preliminary issue of jurisdiction. This defense has been taken on account of clause 21 of the Terms and Conditions of the Bonds which reads as follows:
“The Bonds, the Trust deed and the Agency agreement are governed by, and shall be construed in accordance with, English law. In relation to any legal action or proceedings arising out of or in connection with the Trust deed and the Bonds, the Issuer has in the Trust deed irrevocably submitted to the jurisdiction of the courts of England and in relation there to has appointed an agent for service of process in England. The Courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Bonds and accordingly any legal action or proceedings arising out of or in connection with the two Bonds may be brought in such court”.
b) However the Trust deed at Clause 25.2 would clarify that the jurisdiction being vested with the Courts of England and Wales to settle any disputes arising out of or in connection with the Trust deed, the conditions or the Bonds was only for the benefit of the Trustee and the Bond holders and it will not limit the right of any of them to take proceedings in any other court of competent jurisdiction or even be a fetter to proceedings being initiated concurrently or otherwise is any one or more jurisdiction.
c) Therefore the agreed terms of the Trust deed gave the discretion to the Trustee/the Bond holders to approach any competent court having jurisdiction. Admittedly the petition that is now placed for the consideration of this Court is a petition for winding up the respondent company under the provisions of the Companies Act 1956. The Act confer jurisdiction to entertain a winding up petition only upon the High Court within whose jurisdiction the registered office of the company that is sought to be wound up is situate. There is no quarrel on the fact that the registered office of the respondent company is only within the jurisdiction of this Court. Therefore viewed both from the terms of the Trust Deed as well as the statutory provisions of the Act, this Court vested with the jurisdiction to hear and decide the winding up petition. Therefore the preliminary objection raised by the respondent is rejected.
d) As this Court has the jurisdiction to consider the above petition let us proceed to discuss the case on hand. It is necessary to extract Sections 433, 434 and 439 of the Act as these provisions which have a bearing on the facts of this Case.
“433.CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP BY TRIBUNAL:
“433. Circumstances in which company may be wound up by Court. - A company may be wound by the Court, -
(a) if the company has, by special resolution, resolved that the company be wound up by the Court ;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting ;
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year ;
(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two ;
(e) if the company is unable to pay its debts ;
(f) if the Court is of opinion that it is just and equitable that the company should be wound up.”
434. COMPANY WHEN DEEMED UNABLE TO PAY ITS DEBTS:
(1) A company shall be deemed to be unable to pay its debts-
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub- section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm. Transfer of Proceedings.
1. An application to the Court for the winding up of a company shall be by petition presented, subject to the provisions of this section,-
439(1) & (2) in the Companies Act, 1956 states as follows:
(a) by the company; or
(b) by any creditor or creditors, including any contingent or prospective creditor or creditors; or
(c) by any contributory or contributories; or
(d) by all or any of the parties specified in clauses (a), (b) and (c), whether together or separately; or
(e) by the Registrar; or
(f) in a case falling under section 243, by any person authorised by the Central Government in that behalf.
(2) A secured creditor, the holder of any debentures (including debenture stock), whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and the trustee for the holders of debentures, shall be deemed to be creditors within the meaning of clause (b) of sub- section (1).”
Useful reference is also to be made to Rule 24 and 96 of the Company Court Rules.
Rule 24. Advertisement of petition :-
(1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these rules otherwise provide, be advertised not less than fourteen days before the date fixed for hearing, in one issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily newspaper in the English language and a daily newspaper in the regional language circulating in the State or the Union Territory concerned, as may be fixed by the Judge.
(2) Except in the case of a petition to wind-up a company the Judge may, if he thinks fit, dispense with any advertisement required by these rules.
Rule 96. Admission of petition and directions as to advertisement - Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition.”
(e) A reading of Section 433(e) would clearly show that a Company can be wound up if it is unable to pay its debts which presupposes the followings:
(a) That there is a debt which is validly due to the petitioner, and
(b) the Respondent Company which is sought to be wound up is unable to pay its debts.
Section 434 elaborates the circumstances when a Company is deemed to be unable to pay its debts:
(i) Where despite issuing a demand notice calling upon the respondent to pay the debt it owes to the petitioner, which is over and above a sum of Rs.500/- and the respondent after a period of 3 weeks from the receipt of the notice, has failed to pay up the due or given a reply putting forth a valid defense; or
(ii) Where an execution or other process issued on a decree or order by any Court in favour of the creditor is returned unsatisfied in whole or part; and
(iii) That the Company is unable to pay its debts and the contingent and prospective liabilities of the Company are such that it would be unable to pay its debts.
(f) The only ground on which this petition can be dismissed is when the respondent company disputes the debt and such dispute is bona-fide and substantial. If the dispute is only a ruse to avoid the liability and a moonshine defense, the Court can proceed to wind up the Company following the procedure contemplated under the Act and the Rules.
In the case on hand, the respondent has raised a defense that they do not owe any debt to the petitioner. The defense in this regard is as follows:
(i) That the Bond holders had agreed to the restructuring of the Bonds by converting 50% of the Bond value into equity shares for which purpose M/s.QVT Fund LP and Quintessence Fund L.P., having a substantial holding, had signed a term sheet.
(ii) As a follow-up of this restructuring the petitioner had raised a 0% invoice for the period June, 2009 - December, 2009;
(iii) That the petitioner did not have the authority of all the Bond holders to institute the winding up the proceedings and that 2 of them had questioned the petitioner’s move. They had also called in question the petition on the ground that it was not instituted by a competent authority. The main thrust of the respondent’s arguments is that they deny their liability as they are disputing the very existence of the debt.
(g) The March of the Law regarding challenge to a winding up petition on the ground of dispute to the debt starting from the decision in “Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami and another” reported in [1965 ] 35 Company cases 456(SC) has been that if the debt is disputed, the respondent company cannot be wound up. In the Judgment in “Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd. reported in 1971(3) SCC 632, the Hon’ble Supreme Court following the Judgment in “Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami and another” held as follows:
“20.Two rules are well settled. First if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon. and the sum demanded by the, creditor was unreasonable (See London and Paris Banking Corporation (1). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company When the company contended that the work had not been done properly was not allowed. (See Re. Brighton Club and Norfold Hotel Co. Ltd.
21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company 94 S.J. 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantity the debt precisely (See Re. Tweeds Garages Ltd. (3) The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends.
22. Another rule which the court follows is that if there is opposition to the making of the winding up order by the creditors the court will consider their wishes and may decline to make the winding up order. Under section 557 of the Company Act 1956 in all matters relating to the winding up of the company the court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered though perhaps the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer’s Company Law, 21st Edition page 742 as follows : “This right to a winding up order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and if, for some good reason, they object to a winding up order, the court in its discretion may refuse the order’. The wishes of the creditors will however be tested by the court on the grounds as to whether the case of the persons opposing the winding up is reasonable; secondly, whether there are matters which should be inquired into and investigated if a winding up order is made. It is also well settled that a winding up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally. The grounds furnished by the creditors opposing the winding up will have an. important bearing on the reasonableness of the case (See Re. P. & J. Macrae Ltd.)
(h) This Judgment laid down the following circumstances to be taken into consideration while considering a petition under Section 433(e) of the Act.
(i) If the debt is disputed and the dispute is bona-fide and the defense is a substantial one then this Court will not wind up the Company.
(ii) Where the debt is undisputed, the Court will not accept the defense that the Company has the ability to pay but would order winding up.
(iii). Where the dispute is only with reference to the quantum of debt even then the Court can order winding up.
(iv) If there is a valid opposition to the winding up of the Company by the creditors/shareholders, the Court can refuse to wind up the Company.
(i) The Judgment in “Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd” and “Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami and another” has been reiterated in the Judgment reported in 2009(3) SCC 527 - “Vijay Industries Vs. NATL Technologies Ltd.” . The Hon’ble Supreme Court also considered another Judgment in the matter of “Mediquip Systems (P) Ltd. Vs. Proxmia Medical System Gmbh [2005 (7) SCC 42. and after taking into consideration the facts before them held that once a part of the debt is admitted then the winding up petition ought to be admitted and not dismissed on the ground that the debt is disputed.
(j) In the case before us the respondent’s case is that only 50% of the Bonds were restructured and the remaining 50% remained as Bonds. The Bonds were to be redeemed in December, 2012. Admittedly, to date even the admitted amounts due towards this 50% has not been paid.
(k) The cause of action for the present petition is the non-payment of the semi-annual interests by the respondent which according to the petitioner gave rise to an event of Default. This gave a right to the petitioner under the terms of the Bond and the Trust Deed to seek the early redemption amount. The petitioner as the Trustee of the Bond holders had issued the notice of Default dated 06.4.2011 upon the instructions of their Bond holders. From the reply dated 19.04.2011 of the respondent, it is seen that the Bond holders consent for the amendment to the Trust Deed had not been received till the date of the reply notice. The respondent has further stated that M/s.QVT Fund LP and Quintessence Fund L.P. had not proceeded as agreed by them in the Term sheet. They have also contended that the restructuring had been initiated and had progressed with the full knowledge of the Bond holders. In view of this, the respondent has contended that an event of Default had not occurred. Interestingly, in their response dated 01.06.2011 to the Statutory Notice the respondent would at one place state as follows:
“As a matter of fact, the so-called default in making payment of interest instalment from December, 2009 till date can hardly be said to constitute to a default that cannot be remedied.” This reply is followed by a letter dated 03.08.2011 issued by the respondent to all the Bond holders wherein they have informed the Bond Holders that in view of the global financial crises the respondent may not be able to redeem the entire amount on the Bonds and therefore they were making additional offers to the Bond holders. The Letter has further detailed the procedure that would follow if the Bond holders agreed to any one of these additional offers. The respondent in this letter would state as follows:
(a) accept the change in coupon rate from 2.5% to zero coupon and 50% of the outstanding Bonds to be immediately converted at a conversion premium which shall be as per the RBI pricing guidelines applicable on the date of conversion. The balance 50% of the outstanding Bonds may be converted on similar terms or will be redeemed at a redemption premium of 111% on the Maturity Date; or
(b) extend the maturity of all the outstanding Bonds by another ten (10) years and then receive 100% of the principal amount outstanding along with interest accrued thereon at the end of ten (10) years with a coupon rate of LIBOR (6 months) + 200 basis points; or
(c) extend the maturity of the outstanding Bonds by another ten (10) years and then offer 10% of the principal amount of the Bonds to the Company for repurchase at each year beginning December 2012 up to and ending December 2022.
This letter serves to inform the Bondholders that the Company wishes to extend the above offers to all Bondholders. Pursuant to the Trust Deed, a resolution on a Reserved Matter requires quorum of two or more persons holding or representing not less than two-thirds in principal amount of the Bonds for the time being outstanding. The Trust Deed also states that such Extraordinary Resolution duly passed shall be binding on Bondholders whether or not they were present at the meeting at which such resolution was passed.
The Company hereby requests that the Bondholders consider and assent to one of the three offers and inform the Trustee (at email@example.com) or the Company (at firstname.lastname@example.org with cc to:email@example.com) of their presence. The Company will then consider the preference of the Bondholders and communicate the decision to the Bondholders. Bondholders are urged to take steps to contact the Trustee or the Company with their preference as soon as possible and, in any case, on or before 11.00am (London time) on August 17, 2011.
The Company will then seek formal Bondholders consent, if sufficient interest is shown for any of the proposals outlined above, to a restructuring through the passing of an Extraordinary Resolution by Bondholders in accordance with the Trust Deed and, assuming that is passed execute and request the Trustee to execute a supplemental trust deed (the “Supplemental Trust Deed”) amending the Trust Deed and the terms and conditions of the Bonds set out in Schedule 1 to the Trust Deed.
M/s.QVT Fund LP and Quintessence Fund L.P. bond holders have responded to the offer as follows:
“QVT. Fund LP and Quintessence Fund L.P. (the “QVT Bondholders”) hereby notify the Bank of New York Mellon, as trustee, (the “Trustee”) for the US$30,000,000 2.5% convertible bonds due 2012 issued by the Company (the “Bonds”) that the QVT Bondholders collectively currently own $13.5 million in aggregate principal amount of the Bonds. The Company has defaulted in payment of interest on the Bonds since December 2009. The QVT Bondholders hereby also notify the Trustee that having reviewed the Company Letter they reject all of the proposed offers set forth in the Company Letter and shall vote against the same if put to vote. Given that the QVT Bondholders own 45% in aggregate principal amount of the Bonds and that they are rejecting the proposed offers contained in the Company Letter, the proposals cannot pass under any circumstances. Please inform the Company of the foregoing.”
(l) All the terms and conditions of the terms sheet was to become operational subject to the completion of the satisfactory documentation and obtaining all the necessary regulatory approvals in connection with Bonds. It appears from the documents filed, that by email dated 02.02.2011, M/s.QVT Fund LP and Quintessence Fund L.P. has informed that they intend to vote against the proposed changes to the FCCB terms. This email has not been disputed by the respondent. Thereafter, on 04.04.2011 M/s.QVT Fund LP and Quintessence Fund L.P., in conformity with condition No.10 of the Bond has instructed the petitioner to issue a notice as set out in Schedule 1 thereto, stating in “a and b” is as follows:
“(a) an Event of Default has occurred and that acting at the request in writing by the holders of at least 25 per cent in principal amount of the Bonds then outstanding consequently the Bonds are and have become immediately due and payable at their Early Redemption Amount, plus accrued and unpaid interest; and
(b) If the insurer fails to make payment of the Early Redemption Amount and the
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accrued and unpaid interest, in accordance with the provisions of the Trust Deed and the Conditions, enforcement proceedings (including, but not limited to winding up proceedings) will be initiated against the Issuer, entirely at the Issuer’s risk as to costs and consequences thereof.” The Bond holder who holds more than 45% of the principal amount of the Bonds had therefore given permission to the petitioner to institute proceeding for winding up the respondent company. (m) From a complete analysis of the above documents it is clear that the Bond holder who had initially filed a term sheet agreeing to the restructuring of the FCCB in principle has thereafter on 02.02.2011 expressed in writing their intention not to go ahead with restructuring which was reiterated in August, 2011 and forwarded to the respondent as attachment to Email dated 17.08.2011. The notice for default has been issued after the Bond holders had expressed their intention not to proceed further with the restructuring. The notice was issued on 06.04.2011 and the Statutory notice under Section 434(1)(a) of the Act has been issued on 18.05.2011 and the present petition filed on October, 2011. That apart it is after the issue of the Statutory notice that the respondent send a letter dated 03.08.2011 to all the Bond holders asking them to give their assent for any one of the terms of restructuring. It is therefore clearly evident that till the date of the filing of the winding up petition, the restructuring had not taken place and only the preliminary stage of signing the term sheet had taken place. This was also thereafter, revoked by QVT Bond holder in February, 2011. Therefore, the defense that there is no debt and the liability is bonafide disputed rings hollow and is clearly a defense lacking in substance and a moonshine one. (n) The next factor to be considered is whether the liability has been admitted. The petitioner has filed the Balance sheet and the Profit and Loss Account of the Respondent Company for the period 2009-2010 to 2012-2013. The Balance Sheet as on 31.03.2011 would show the FCCB as unsecured loans. The petitioner also produced the Annual Reports from the period 2011-2012 upto 2018-2019. In the 18th Annual Report for the period 2012-2013 in the notes forming part of the Financial Statement under Note:9 Other Liabilities, Note (ii) the following has been added as a postscript. “The Company has raised funds through “foreign currency convertible Bond” which has a option of 50% conversion to equity shares and it was due for redemption/conversion in December 2012. Since there is a suit pending against the Company filed by its bond holders, the same is not yet redeemed a converted”. However in the 20th Annual Report for the period 2014-2015 in the notes forming part of the financial statement the respondent company has stated that a Restructuring had been entered and in terms there of 50% of the bonds worth 15 Million USD has been redeemed and the balance is to be converted into 1,91,53,012 Equity shares. This statement has been appended when the petitioner has filed the winding up petition in the year 2011 itself denying any restructuring argument. The respondent had admitted the liability even in the Balance Sheet for the year 2010-2011 though they would state that the restructuring argument had been entered in June 2009. (o) From the typedset dated 22.01.2011 filed by the petitioner, it is seen that a new Company called M/s.Indowind Power Private Limited has been incorporated on 19.08.2010. This Company has been promoted by the respondent Company and its Director. The respondent Company holds 3,97,500 shares in the newly incorporated Company as on 21.11.2011. The objects of this newly incorporated Company are similar to the respondent Company. In the course of the arguments, the learned Senior Counsel appearing on behalf of the petitioner had argued that the petitioner Company apprehends that the respondent Company would transfer its assets to this newly incorporated Company to avoid the debts payable by them. Considering the financial position of the respondent Company which has declared a loss for the period ended 31.03.2019 the apprehension appears to be well founded. (p) In View of the fact that the dispute put forward by the respondent lacks substance and is contrary to the documents produced and since the liability has been admitted in the Balance Sheet for the year ending 31.03.2011 which is just a few months prior to the filing of the winding up petition and in the light of the Judgments referred herein above, the winding up petition is admitted. The respondent Company is restrained from transferring, alienating encumbering or dealing with its immovable assets. Citation is directed to publish in the Times of India and the Daily Thanthi for 22.06.2020. Post the matter for further hearing on 09.07.2020.