9911796707
TMI Blog2014 (6) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... reign Currency Convertible Bonds, issued by the respondent to various investors in the international capital markets. It is the petitioner's contention that the terms of the Trust deed enable the petitioner to enforce its conditions against the respondent, in its capacity as the trustee. More particularly, Condition no. 13 of the Conditions of contract, it is claimed, provides that at any time after the Bonds become due and payable, the Trustee may at its discretion and shall, if requested in writing by the bond holders of not less than 25% in principal amount of the Bonds then outstanding, institute proceedings against the respondent to enforce repayment of the Bonds. It is claimed that all amounts outstanding under the Bonds have become immediately due and payable by the respondent as the respondent had committed default under the terms of the Bonds by failing to make payment of interest in respect of the Bonds, which fell due on September 18, 2009. And the default being a continuing one, the present petition is said to be filed. The said Bonds are foreign currency denominated debt instruments issued by an Indian company to raise funds from the international capital markets, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Fourteen Cents only). The said notice dated 12.8.2010 was said to have been acknowledged and the failure to make payments confirmed, by way of a reply dated 1.9.2010, while pleading several reasons resulting in a severe cash flow problem. It is thus stated that the respondent ought to be deemed to be unable to pay its creditors amounts owed to them and hence it would be just and equitable that the respondent be wound up. 3. The respondent, by way of reply, has contended that the petitioner is not a creditor and therefore is not entitled to present a petition for winding up under Section 433 of the Act. It is asserted that the petitioner is neither a bond holder nor a beneficial owner of the Bonds. It is pointed out that the petitioner has not chosen to call itself a creditor in the petition. The petitioner is merely an agent. That the petitioner is not a trustee under any declaration of trust, declared in writing by the author. Nor does the petitioner claim that the ownership of any property is transferred to the petitioner as the trustee, and it is hence contended that the petitioner cannot claim to be acting as a trustee under the Trust Deed relating to the Bonds. As the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onds may exercise the right to acquire GDRs of the respondent and thereby become indirect equity shareholders, in which case some or all of the holders of the Bonds may not continue to be holders of the Bonds of the respondent and upon such conversion, the petitioner will cease to be the Trustee under the "Trust Deed". The outstanding amount of the Bonds cannot be termed as debt and the holders of the Bonds could at best be called contingent shareholders and not contingent creditors. The respondent further states that any directions passed by this Court at this stage may in fact affect the very interest of the holders of the Bonds as equity shareholders, if the respondent is sought to be wound up. The petitioner has exceeded its powers as the issuance of the statutory notice is ultra vires the "Trust Deed" as the petitioner could initiate proceedings only to enforce repayment of the Bonds and as it is a settled proposition of law that a winding up proceeding cannot be used as proceedings to enforce repayment of the Bonds, as is sought to be done in the instant case. It is contended that the respondent has not neglected to pay the interest but has sought additional time to make pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deserves to be dismissed by this Court. That the petitioner has not established any reasons or grounds in support of its submission and has failed to make out any case thereof. It is asserted that the respondent has not lost its substratum, the respondent continues to employ 164 employees in India and, in addition, about 450 employees worldwide; the respondent, on a regular basis, pays its employees an aggregate salary of about Rs.1 crore per month on a standalone basis and Rs.6 crores on a global basis; the respondent contributes to the national exchequer by direct and indirect tax contribution. 4. By way of a rejoinder, to the rejoinder of the petitioner, it is contended by the respondent, that the petitioner for the first time, in the rejoinder seeks to describe itself as a debenture trustee, to overcome the fact that it is not a creditor. That the bonds issued by the respondent are not debentures under the provisions of the Companies Act and hence the petitioner cannot claim as a debenture trustee. That a convertible debenture is usually issued under Section 81(3)(b) of the Act. As the bonds issued were not debentures, the procedure set out under the above provision has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o file and there are several observations in the course of an order dated 19.3.2012. The pleadings have been supplemented thereafter and there were arguments canvassed at some length on facts and with reference to legal principles and provisions, at the final hearing. The findings in the present order if found to be in variance with any observations, in the nature of findings, made in the Order dated 19.3.2012, (which was as regards the maintainability of the petition), it is this order and the findings herein which shall prevail. 5. The points that would arise for consideration on the rival contentions are : i. What is the nature of the contract between the parties ? ii. Whether the petitioner, having chosen to confer exclusive jurisdiction on the English courts and having intended the application of the English law to the contract, is justified in seeking to invoke the jurisdiction of this court. ? iii. Whether the petitioner has demonstrated that after the default, by the respondent under the contract, the conditions under the contract have been satisfied to enable the petitioner to prefer this petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders to exercise the right to convert the Bonds, as aforesaid). A default in making payment of any principal, premium or interest due in respect of the Bonds, was one of the possible 10 "events of default" that were listed. The Trustee was, however, bound to issue such a notice if requested in writing by the holders of not less than 25% in principal amount of the Bonds then outstanding. Though there has been much debate between the parties as to the nature of the transaction, the several authorities are pretty much agreed upon the basic nature of a transaction such as the one above. It is hence useful to have a overview of the opinions expressed by some leading authorities. a. A company may finance itself not only through the issuance of shares (of various classes) but also by taking loans i.e. by incurring debt. As with shares, the rights of the debtors against the company are essentially a matter of contract between the company and the lender. A debt security will normally have, unlike a share, an end-date, i.e. a point at which the amount still outstanding has to be repaid (its 'maturity date') which date can be set as the parties wish. Because the debt instrument i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders' behalf to minor departures by the company from the terms of the debentures, and were authorized to call meetings of debenture holders to decide whether the trustees should enforce the security given by the trust deed when a case arose for doing so, or whether the debenture holders should agree to a modification of their rights when the company was unable to meet its obligations in full. By the 1980s, it was found that in debenture issues by public companies there was a diminution of the security given by the trust deed. Legal mortgages were rarely given, except by property companies, and sometimes there was not even a floating charge. If no security at all was given - the debentures were commonly known as unsecured loan stock or notes. It was usual for trust deeds covering such stock or notes to contain a 'negative pledge' clause, by which the company undertook not to mortgage its property, or not to mortgage it for more than a specified sum. This ensured that if the company became insolvent and did adhere to its undertaking, the loan stock holders would not find its assets consumed in paying secured creditors. Thus, it is evident that the commercial meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its debts or if the court is of opinion that it is just and equitable that the company should be wound up. It has been agreed between the parties, in so far as the governing law and jurisdiction are concerned, thus : "20.1 Governing law This Trust Deed and the Notes and all matters arising from or connected with them are governed by, and shall be construed in accordance with, English law 20.2 English courts The courts of England have exclusive jurisdiction to settle any dispute (a "Dispute"), arising from or connected with this Trust Deed or the Bonds (including a dispute regarding the existence, validity or termination of this Trust deed or the Bonds) or the consequences of their nullity. 20.3 Appropriate forum The parties agree that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that they will not argue to the contrary. 20.4 Rights of the trustee and Bondholders to take proceedings outside England Clause 20.2 (English C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orum of choice, exclusively and expressly reserved. More importantly this court is called upon to try the case and determine the insolvency of the respondent and its inability to pay its debts - in relation to the payments due under the contract and with reference to the terms of the contract. The third point framed for consideration, as above , would in fact require this court to firstly decide whether an "event of default" had occurred and whether the petitioner had satisfied the conditions after such default by the respondent, in order to present the petition and thereafter to adjudicate on the dispute whether there was an irrefutable liability which the respondent is unable to satisfy etc., this would be inconsistent with the intention and the admitted position that the contract is declared to be governed by the English law. It would be appropriate if the petitioner should approach the competent English court in this regard. If once there are findings of fact arrived at with reference to the contract on the application of the English law, as to the liability and inability on the part of the respondent to pay its debts - such findings could possibly be the basis of a winding up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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