2020 (9) TMI 266 - HC - Companies Law

Admission of Winding up petition - appointment of the Official Liquidator as a Provisional Liquidator - 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 - 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. HELD 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. Whether the liability has been admitted? - HELD THAT - 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 - 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. 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.

Summary

Issues Involved:
1. Jurisdiction of the Court.
2. Locus standi of the petitioner.
3. Authorization to file the winding-up petition.
4. Validity of the restructuring agreement.
5. Existence and acknowledgment of debt.
6. Bona-fide dispute of debt by the respondent.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Court:
The respondent contended that the winding-up petition was not maintainable before this Court due to the jurisdiction clause in the Trust Deed, which stated that disputes should be settled in the courts of England. However, the Trust Deed also clarified that this jurisdiction was for the benefit of the Trustee and Bond holders and did not restrict their right to take proceedings in any other competent court. Since the registered office of the respondent company is within the jurisdiction of this Court, the Court held that it had the jurisdiction to hear and decide the winding-up petition.

2. Locus Standi of the Petitioner:
The respondent questioned the petitioner’s locus standi to maintain the winding-up petition, arguing that the petitioner, as a Trustee, did not have the authority under Sections 433 and 434 of the Companies Act. The Court, however, found that the Trust Deed obligated the petitioner to enforce the terms of the Bonds and Trust Deed, and only if the petitioner failed to act could the Bond holders initiate proceedings. The Court relied on precedents where Trustees were deemed creditors within the meaning of the Act, thereby dismissing the respondent’s objection.

3. Authorization to File the Winding-Up Petition:
The respondent argued that the petitioner did not have proper authorization from all Bond holders to file the winding-up petition, particularly pointing out that M/s. White Crown Holdings Ltd. had not authorized the petitioner. The Court found that the petitioner had been instructed by M/s. QVT Fund LP and Quintessence Fund L.P., who held over 45% of the Bonds, to proceed with the winding-up petition. The Court noted that the Trust Deed vested the petitioner with full discretion to enforce the terms of the Bonds and Trust Deed, thereby rejecting the respondent’s objection.

4. Validity of the Restructuring Agreement:
The respondent claimed that the Bonds had been restructured in 2009, and thus, no event of default had occurred. The petitioner countered that the restructuring had not been approved by the Bond holders as required and that the necessary procedures were not followed. The Court found that the restructuring was not completed as the required documentation and regulatory approvals were not obtained. The Court noted that the Bond holders had expressed their intention not to proceed with the restructuring, making the respondent’s defense of restructuring invalid.

5. Existence and Acknowledgment of Debt:
The respondent argued that there was no admitted liability as the Bonds were restructured. The Court examined the respondent’s balance sheets and annual returns, which consistently showed the Bonds as unsecured loans. The Court noted that the respondent had acknowledged the debt in its financial statements up to the filing of the winding-up petition, thereby establishing the existence of the debt.

6. Bona-Fide Dispute of Debt by the Respondent:
The respondent contended that the debt was bona-fide disputed due to the restructuring agreement. The Court found that the dispute raised by the respondent was not bona-fide and lacked substance, as the restructuring was not completed and the debt was acknowledged in the financial statements. The Court held that the respondent’s defense was a moonshine defense, intended to avoid liability.

Conclusion:
The Court admitted the winding-up petition, finding that the petitioner had the locus standi and proper authorization to file the petition. The Court rejected the respondent’s defenses regarding jurisdiction, restructuring, and bona-fide dispute of debt. The respondent company was restrained from transferring or dealing with its immovable assets, and citations were directed to be published in specified newspapers. The matter was posted for further hearing.