TMI Blog2013 (5) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... roducing into it clauses that plainly do not exist. The pleas of RLB in the present application go far beyond mere modification of the Scheme. The Court is satisfied that accepting the prayer of RLB to restore it the distribution network would be nothing short of ordering specific performance of an agreement that has already worked itself out and would be reading into the Scheme, clauses and obligations which did not exist when the Scheme was accorded sanction. The alternative prayer that RLB should be directed to be wound up, since its entire substratum has disappeared, will require a detailed examination of several relevant factors, all of which are not before the Court. Nothing precludes RLB from seeking winding up in accordance with law in appropriate proceedings by placing the full facts before the Court which can then be responded to by the OL, the RD and other interested parties including creditors. Given the pleadings in the present application, it is not possible to undertake that exercise at this stage. Therefore, while reserving RLB's liberty to seek winding up in accordance with law, the present application is dismissed with costs of Rs. 20,000 to be paid by RLB to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entertainment Networks, Inc. ('TENT). Turner Broadcasting System Inc. ('TBSI') owns 100% of TENI. Time Warner Inc. owns 100% of TBSI. The Turner Group is one of the multinational media corporations in the world having major operations in film, television and publishing. The Turner Group includes Time Inc., HBO, The CW television network, CNN, Warner Brothers, Cartoon Network, etc. 5. According to RLB, following the growth of the domestic television broadcast industry, ABE, in 2006, decided to enter the broadcast arena on its own and incorporated RGB as a wholly owned subsidiary of Miditech with an intention of launching a television channel under the brand name REAL. 6. On 12th December, 2007, ABE, Miditech and Turner entered into inter-related agreements whereby Turner acquired approximately 29.4% stake in Miditech and 50% stake in RGB. According to RLB, the basic arrangement between the parties was that ABE would continue to control Miditech which would generate television content to be supplied to RGB and Turner would control RGB in the administrative, financial and legal spheres. Turner would establish through its contacts and specialization "an asset in the form of a dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 2010, one year after the launch of the REAL channel, it was being distributed to 13 to 14 million households. 10. In 2009, ABE, Miditech and Turner commenced discussions regarding Turner's exit from RGB and Miditech. A valuation report was commissioned by RGB for the purposes of the Scheme. On 2nd June, 2010, Turner, Alva Brothers, ABE, RGB and Miditech entered into a Binding Term Sheet ('BTS') that replaced an earlier BTS dated 18th December, 2009. Since much of the arguments in the present application has turned around on these two BTSs, certain relevant clauses of the said documents require to be reproduced as under: BTS dated 18th December, 2009 Sale Transaction Sale of TAPV' shares in RGB Subject to the terms of the Definitive Agreements (if any), TAPV agrees to sell and ABE agrees to buy all of TAPV's 10,000 ordinary shares and 214,990,000 convertible preference shares in RGB for Indian Rupees 77,950,000 ("Sale Transaction"). Service Agreements The Parties shall procure that simultaneous with the termination of the Real Shareholders' Agreement, the following agreements shall also terminate: the Shared Services Agreement da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of TENA's transmission facilities (which is expected to take place no earlier than 30 November, 2011) and 18 months after the completion of the RGB Transaction ("End Date"), provided the broadcast of the REAL Channel (as defined in the Transmission Services Agreement) is in standard definition and 4x3 format. TENA shall advise RGB, ABE and the Alva Brothers of the proposed date for the relocation of TENA's transmission facilities six months' prior to such date. If TENA advises RGB, ABE and the Alva Brothers of the proposed relocation of TENA's transmission facilities ("Relocation Notice"), RGB shall have the right to extend the End Date until 18 months after the completion of the RGB Transaction, provided that: (a) RGB gives TENA notice of its decision to extend the End Date within one month after the Relocation Notice is given; and (b) RGB pays TENA in advance for all costs and expenses relating to the relocation of TENA's transmission facilities to the extent used for and the continued uplinking of, the REAL Channel, including but not limited to capital expenditure. REAL acknowledges and agrees that it shall have no rights to or claim over any equipment or other resources acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or vested in or granted in favour of or enjoyed by the Transferor Company as on the Appointed Date (hereinafter referred to as "the said assets") and; (b) All the present and future liability and debts, duties, liabilities and obligations of every description or pertaining to, the Transferor Company, whether secured or unsecured, as on the Appointed Date (hereinafter referred to as "the said liabilities"). Without prejudice to the generality of the foregoing, the term "Undertaking" shall include the entire business of the Transferor Company which is being carried out under the trade name of "Real Global Broadcasting Private Limited" and shall include advantages of whatsoever nature, agreements, allotments, approvals, arrangements, authorizations, benefits, capital work-in-progress, concessions, rights and assets, industrial and intellectual property rights of any nature whatsoever and licenses in respect thereof, intangibles, investments, leasehold rights, liberties, patents, permits, powers of every kind, nature and description whatsoever, privileges, provision funds, quota rights, registrations, reserves, and all properties, movable and immovable, real, corporeal or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheaper and more efficient alternatives available in India. It is stated that without the encryption code to control STBs, the property in the STBs cannot be said to have passed onto RLB in terms of the Scheme and, therefore, the distribution network was never transferred to RLB. It is further stated that of the 3000 STBs which were to be transferred to RLB, only 922 were distributed in the field. The remaining could not be activated without the encryption code and Turner's involvement. 15. In the meanwhile, an agreement for the sale and purchase of approximately 29.26% of the equity share capital of Miditech was entered into between Turner, Alva Brothers, Miditech and ABE. Petition seeking sanction of the Scheme 16. As mentioned earlier, RGB and RLB jointly filed Co. Pet. No.20 of 2011 in this Court on 10th January, 2011 seeking sanction of the Scheme. There was no mention anywhere in the petition of any of the difficulties faced by RLB, as is now sought to be made out in great detail in Co. Appl. No. 2076 of 2012. On the other hand, what was told to the Court in para 13 of the petition reads as under: "13. That the circumstances, reasons and grounds that have neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OL filed a report on 9th March, 2011, stating, inter alia, that the OL had not received any complaint against the proposed Scheme or any person and that the affairs of the Transferor company, i.e., RGB, did not appear to have been conducted in any manner prejudicial to the interests of the members or to public interest. In other words, neither the RD nor the OL expressed any reservation whatsoever to the sanctioning of the Scheme. A joint affidavit of compliance by RGB and RLB was filed on 29th March, 2011. 19. On 29th March, 2011, the said joint affidavit was taken on record. The Court noted: "Even today, during the course of hearing both Mr. K.S. Pradhan, Deputy Registrar of Companies and Ms. Purnima Sethi, learned counsel for Official Liquidator have confirmed that the Regional Director (Northern Region) and Official Liquidator have no objection to the present petition being allowed." 20. Consequently, the Court passed an order sanctioning the Scheme with effect from the appointed date. Turner's contempt petition 21. Turner filed a contempt petition, being Cont. Cas. (C) No. 230 of 2012, stating that RGB had failed to comply with its obligations under the Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper forum for determining whether reciprocal obligations were complied, was the learned Company Judge who was seized of the present application. Consequently, the DB issued the following directions: "(1) The operation of the impugned order dated 24.09.2012 shall be kept in abeyance to await the decision of the learned Company Judge in C.A. 2076/2012 (in C.P. 20/2011) filed by the present appellants; (2) The learned Company Judge seized of the said application (C.A. 2076/2012) is requested to hear the parties and dispose of the said application at her earliest convenience. For this purpose, learned counsel for the parties shall be present before the learned Company Judge on 23.11.2012. Apparently, the said application has been listed for further proceedings on 16.01.2013; the learned Company Judge is requested to take up the matter according to the Court's earliest convenience and proceed with the application and decide it as expeditiously as possible, and if possible, within three months from today. (3) The parties are directed to approach the learned Single Judge seized of CCP 230/2012, immediately after the decision in C.A. 2076/2012." RLB's contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rner to comply with any of its reciprocal obligations. It is submitted that all assets and properties of RLB were transferred to RGB at the time of sanctioning the Scheme. Even during the course of exchange of correspondence between the parties, subsequent to the sanctioning of the Scheme, no dispute was raised by RLB. Turner, in its reply, states that RLB is guilty of suppression of facts in the present application. It has set out in detail the facts which, according to it, showed that Alva group not only had the upper hand in the running of RGB, but was aware of its functioning. Turner alleges that the filing of the present application by RLB was itself mala fide. 27. On the question of STBs, it is stated that they were properties of RGB and now belong to RLB. It is stated that the value of the STBs were, as on 30th June, 2010, Rs. 96,75,009. It is denied that the real control of RGB was with Turner alone. It is submitted that the TA dated 14th July, 2008 was signed with TENA which was separate and distinct from the SSA between Turner and RGB. It is denied that any representation was made by Turner that after the transfer of assets and distribution system to RGB, the Alva group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it should order the winding up of RGB. 30. Mr. Rai referred to the correspondence exchanged between the parties which, according to him, showed that the parties intended that the distribution network would stand transferred to RLB. This in turn, meant that Turner was obliged to pass on the decryption code to enable RLB to use the STBs. Without transfer of decryption code, the STBs would be useless and this would completely defeat the Scheme. He reiterated that because of the dominant position of Turner, RLB had no option but to agree to all its terms, including the agreement before sanctioning the Scheme as presented to the Court without insisting on the plea in clauses to ensure for the distribution of the network. According to Mr. Rai, the TA, no doubt, was equivalent of BTS dated 2nd June, 2010. However, the clause in BTS dated 2nd June, 2010 requiring Turner to assist RLB in transmitting to a third party was part of the Scheme itself and had to be insisted as a casting obligation on Turner. If Turner was to resile from the said obligation, then the Company Court should proceed to wind up RGB. Submissions of counsel for Turner 31. Countering the above submissions, Mr. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the compromise or arrangement. (2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of the Companies (Amendment) Act, 2001 sanctioning a compromise or an arrangement." 35. Under section 392(2), the Court can be approached by "any person interested in the affairs of the company" with an application stating that the Scheme that has been sanctioned under section 391 of the Act cannot be worked out satisfactorily "with or without modifications." If the Court is satisfied that in fact the Scheme cannot be worked satisfactorily, it can make an order for winding up of the company and such an order shall be deemed to be an order under Section 433 of the Act. Under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not allowed to claim the tax losses of RGB, then the Court should wind up RLB. Therefore, RLB seeks to make the restoration to it of the distribution network central to the Scheme itself. Analysis of the contentions 39. First, the Court is constrained to note that between the date on which the Scheme was entered into, i.e., 1st July 2010 and the date on which it was accorded sanction by the Court, i.e., 29th March, 2011, more than seven months had elapsed. If RLB was already facing difficulties in getting Turner to comply with its obligations under the Scheme, there was absolutely no necessity for it to have sought sanction for the Scheme. On the other hand not only did RLB and RGB jointly present the Scheme to the Court for sanction but they also filed a joint affidavit. 40. Secondly, this Court does not find any satisfactory explanation by RLB for not filing this application earlier to receiving notice in the contempt petition, and, in particular, earlier to the order dated 24th September, 2012 passed by the Court in the contempt petition. If, indeed, as suggested now, there was correspondence exchanged between the parties which cast an obligation on Turner to provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the security keys to another Operator system for security issue." 43. On its part Turner was willing to grant time to RLB to find a new service provider but was not agreeable to parting with the encryption codes as is evident from the following exchange of mail between the parties on 1st June, 2010: (From the agent of Alva Brothers to Turner) "Dear Michelle, We can get on a call. The reason we need the 18 month period etc in the first place is because the process to changing to a new transmission services provider is very complex and expensive due to the encoding, box change and so on. This was not clear earlier and we had expected to be able to use the existing decoder boxes that are in the field, even with a new service provider. Now that its clear from Conex that this is not the case, we need adequate time to make this transition. Therefore, it will be a huge problem if Turner were to decide anytime to terminate services with 6 months notice as, depending on when the notice is issued, 6 months may not be enough as RGB may not have the resources to buy new boxes, make the change etc. I can understand that Turner needs to terminate early if facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of the distribution network to RLB would be contrary to the correspondence exchanged between the parties. The J.K. Case 46.1 At this juncture, since considerable reliance was placed by Mr. Rai on the decision in the J.K. Bombay (P.) Ltd. (supra) case, to urge that the Court should view the workability of the Scheme in light of the 'commercial sense', the Court proposes to discuss the said decision in some detail. 46.2 The facts there were that a winding up petition had been filed in respect of the Respondent company in June 1965 and a Provisional Liquidator ('PL') was appointed. The PL took charge of the cotton textile mills of the Respondent company. Thereafter, the group which owned the majority of the equity shares ('S group') entered into an agreement with the group which agreed to buy the shares and take over the management of the Respondent company ('J group'). Inter alia, the agreement was that after the J group took over, the company would execute a second legal mortgage of its fixed and other assets in favour of the S group and certain unsecured creditors, in consideration of which those creditors agreed to receive interest at a nominal rate and deferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant clause in the Scheme could not mean that "J group had taken upon themselves the liability to put any monies even if the mills could not be run at reasonable profits." 47. Mr. Rai emphasised the above observations and contended that even in the present case it made no commercial sense for the Applicant to have agreed to the Scheme without transfer of the distribution network. The facts of the above decision clearly show that the Scheme clearly spelt out the rights and obligations of the different parties. There was no ambiguity in the different clauses of the Scheme. In fact, the Scheme was worked out for some time. Only when it became demonstrably unworkable that the Court intervention was sought. In the present case, however, it is only after the contempt petition was filed by Turner group that RLB has come forth with the plea of unworkability of the Scheme without distribution network. There appears to be no attempt made by RLB to actually work the Scheme. The facts in J.K. Bombay (P.) Ltd. (supra) case being clearly distinguishable, the said decision is not of assistance to RLB in the present case. The RNRL Case 48.1 The other decision on which considerable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MoU. The DB required a suitable arrangement to be entered into by the parties on the basis of the family MoU. Before the DB, the Union of India ('UoI') was permitted to intervene and put forth its stand. 48.5 RNRL, RIL as well as UOI appealed to the Supreme Court. Relevant to the present case, is the decision of the Supreme Court in relation to the powers of the learned Company Judge under Section 392 of the Act. The majority opinion of Justice P. Sathasivam for the Bench dealt with the question whether the learned Company Judge could have modified the scheme. 48.6 The majority referred to the earlier decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 10 SCL 70 (SC) which held that although Section 392 of the Act dealt with post sanction supervision, the Court could not "undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties." The Court explained that "This exercise remains only for the parties and is in the realm of commercial democracy permeating the activities of the creditors concerned and members of the company who in their best commercial and econom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble arrangements as agreed upon by the promoters in the gas supply section of the MoU". Such a modification necessarily tears apart the basic fabric and cannot be permitted." 49. For the purposes of the present case, it is clear from the law explained by the Supreme Court in Reliance Natural Resources Ltd. (supra) case that while the Company Court "is not powerless and can never become functus officio", it cannot rewrite a scheme in any manner, even at the post sanction stage. The Court has to ensure that the basic nature of the arrangement remains and whatever modification is made "should be necessary for the working arrangement." Importantly, in Reliance Natural Resources Ltd. (supra), the Supreme Court disagreed with the DB of the Bombay High Court that the MoU should be engrafted onto the GSMA. In para 125 of the judgment it was held that the MoU neither having been approved by the shareholders nor attached to the scheme, was not "legally binding." It was nevertheless held that the contents of the Scheme "have to be interpreted in the light of the MoU." 50. The scope of the powers of the Company Court under Section 392 of the Act, as explained by the majority opinion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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