TMI Blog2013 (8) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... istance of the local police authorities, if required – Decided in favor of Petitioner. - Co. Pet. 5 of 2012 - - - Dated:- 7-5-2013 - S. Muralidhar, J. For the Appellant : Sandeep Sethi, Sandeep Kapur, Shivek Trehan and Laksh Khanna. For the Respondent : Sakal Bhushan and Robin George. ORDER:- This is a petition under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956 ('Act') filed by Ernst and Young Private Limited ('E Y') seeking winding up of Respondent Jagson International Limited ('JIL') on the ground of its inability to pay its debts. 2. The background facts are that JIL contacted E Y seeking assistance in arranging adequate finance through debt/equity financing to help JIL in expanding their offshore oil drilling services. JIL needed financial assistance of USD 330 million to acquire two additional rigs. After mutual negotiations a letter of engagement ('LOE') dated 1st April 2008 was executed by E Y and JIL. The terms and conditions of the engagement were spelt out in the LOE. The breakup of the total funding requirement for the rigs was also set out. 3. Clause 3.3 of the LOE set out the fees and expenses payable. The fees payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudiced in the event that a transaction, once completed, has evolved away from that originally envisaged in this letter and we will still be entitled to our success fee based on any consideration paid by you in relation to any transaction on which we advise pursuant to this engagement or any variation of this engagement. Furthermore, if the structure or nature of the transaction begins to alter from the mandate originally envisaged by us as outlined in this letter, we reserve the right to withdraw from this engagement or renegotiate the Engagement Letter." 4. Clause 3.3.3 provided for termination fees. In the event that JIL sought to withdraw from the project with no material changes to the terms offered, JIL had to pay E Y termination fees of Rs.30 lakhs in addition to the engagement fees for the debts and equities raised separately. 5. Clause 3.3.6 of the LOE sets out the payment schedule. The entire fees was payable as per different milestones defined in clause 3.3.1. Success fees was to be paid on the day of transaction closure co-terminus with the transactions at closing between JIL, its subsidiaries and the lenders/investors, as applicable. An extension letter w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities with Axis Bank. We hope that in the spirit of maintaining our relationship with Jagson, we will get an early payment/clearance of our outstanding." 9. JIL wrote a letter to E Y on 27th January 2011 stating as under: "Dear Sir We refer to your fund raising engagement with Jagson International Ltd. dated April 1, 2008 and the extension letter dated November 2, 2009 and further correspondence with reference to the letter dated April 22, 2010 and October 4, 2010 with respect to clearance of our outstanding invoices. We appreciate your patience and would like to inform you that the company is currently facing some cash-flow mismatch, which is expected to be clear by February 2011, We acknowledge the receipt of invoice of INR4,90,04,429 from E Y Pvt. Limited and the same would be cleared subject to approval with Mr. J.P. Gupta, Chairman, Jagson Group." 10. With no payment coming forth, a legal notice was issued on 31st August 2011 by E Y to JIL under Sections 433(e), 434 and 439 of the Act. JIL was called upon to make payment of the admitted debt of Rs.7,94,65,462 together with the interest @ 12% per annum from the due date till payment. 11. A reply was se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xis Bank and in the meanwhile JIL faced a lot of harassment. It is stated that considering that the JIL's poor experience with E Y, it decided not to avail the services of E Y for financing the acquisition of another rig i.e. Ensco 57. JIL stated that on its own it arranged the debt of USD 37.6 million from the State Bank of India ('SBI'). It is stated that even the transaction relating to the financing of Ensco 51 was outside the scope of the LOE. Further since the debt of USD 49.88 million to be arranged by E Y was less than 1/6th of the originally proposed debt of USD 330 million an understanding had been arrived at between the parties to the effect that the respondent company would, on successful arrangement of the debt for the Ensco 51 rig, pay 0.32% of the debt as Success fees apart from service tax. Accordingly, JIL paid E Y Rs.76,55,902 plus Rs.7,88,558 for of service tax totalling Rs.84,44,460 by 11th October 2010. JIL contends that with the said payment nothing further remains to be paid to E Y. JIL has claimed that there was an "oral" understanding between the parties that JIL would on successful arrangement of the reduced debt pay E Y 0.32% of the debt as Success fee. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sakal Bhushan submitted that under Clause 13 of the LOE, the Engagement fee was to be set of against the Success fee. He reiterated the submissions that the original purpose for which the assistance in finance was sought could not be achieved and the actual assistance provided by E Y to enable JIL to obtain loans was not even 1/6th of the original sum of USD 330 million. The fees, therefore, correspondingly was required to be reduced. He submitted that apart from the sum of Rs.84.44 lakhs nothing was payable either towards Engagement fee or Success fee by JIL to the E Y. He pointed out that JIL never agreed to the enhanced Success fee rate of 1.15%. He also sought to draw a distinction between E Y arranging for finances and merely assisting JIL in obtaining finances. According to Mr. Sakal Bhushan no Success fee could be claimed by E Y for merely 'assisting' JIL in obtaining finance as compared to 'arranging' for such finance. He pointed out the variance in figures of the amount due as claimed by E Y in different paras of the petition and that this itself was a good reason for not entertaining the petition. In support of his plea that a winding up petition for a vague and unascerta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akes it clear that Success fee "will not be prejudiced in the event that a transaction, once completed, has evolved away from that originally envisaged in this letter". It clearly states that E Y will still be entitled to the Success fee relation to any transaction on which E Y advises. The words "structure and nature of the transaction" might refer to the debt/equity financing but the explanation offered by JIL that this was only for finances 'arranged' for by E Y on not those for which it provided 'assistance' is not borne out from the LOE. Among the services offered by E Y providing 'assistance' in obtaining finance for the transactions of acquisitions of rigs is definitely included. 20. Further, it is seen that there is an unequivocal admission of liability by JIL in its letter dated 27th January 2011 while acknowledging receipt of the invoice in the sum of Rs.4,90,04,429 from E Y. In his e-mail of 9th October 2011 sent to the Petitioner, Mr. Pradeep Gupta makes a reference to the meeting held with the Chairman of JIL even when he requests for "patience for little more time". The e-mail dated 26th May 2011 from JIL also seeks some more time to make payment. Therefore, the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be allowed to proceed and if demand is not met and an application for liquidation is filed under Section 439 in reliance of the presumption under Section 434(1)(a) that the company is unable to pay it debts, the law should take its own course and the company of course will have an opportunity on the liquidation application to rebut that presumption." (Emphasis supplied) 23. Accordingly, the Court is satisfied that the Petitioner has made out a case for admission of the petition and for appointment of the Official Liquidator ('OL') attached to this Court as Provisional Liquidator ('PL') of JIL on the ground of its inability to pay its admitted debts. 24. The petition is, therefore, admitted. A copy of this petition be served on the Official Liquidator ('OL') attached to this Court. The OL is appointed as the Provisional Liquidator ('PL') of the JIL. The OL is directed to take over all the assets, books of accounts and records of the JIL immediately upon this order becoming effective as indicated hereafter. The OL shall in that event also prepare a complete inventory of all the assets of the JIL before sealing the premises in which they are kept. He may also seek the assi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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