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IDBI Trusteeship Services Ltd. Versus Hubtown Ltd.

2015 (5) TMI 940 - BOMBAY HIGH COURT

Winding up application by Debenture Trustee - Failed to pay the amounts due to the Petitioner under the Deed of Corporate Guarantee - FDI In India in contravention of FDI policy / Fema regulations - Held that:- From the afore-stated facts it appears that FMO, a foreign entity wanted to invest a substantial sum by way of FDI in a slum rehabilitation project being undertaken in Mumbai by Rubix, and an Industrial Park being undertaken by Amazia. The FDI Policy and the statutory FEMA Regulations (wh .....

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e this was not permissible under the FEMA Regulations/FDI Policy, the investment structure was devised/adopted.

The conduct of FMO in routing its FDI nominally through Vinca to Amazia and Rubix against issuance by them of OPCDs and the amendments/provisions made in Vinca’s Articles of Association, establishes that FMO was fully aware that it could not under the FDI Policy and FEMA Regulations directly invest in the OPCDs, or require that its FDI amount/investment be returned back to i .....

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titioner is acting at the instance of FMO/FMO nominees on the Board of Directors of Vinca. This is the stipulation in Vinca’s articles and under the DTD. In any event, inasmuch as the transaction (based on return of the FDI/principal amount invested along with a fixed rate of return thereon) is not permissible/prohibited under the FDI Policy and the FEMA Regulations, neither IDBI nor FMO can seek the assistance of the Court to effectuate/implement/enforce such a prohibited/illegal transaction. .....

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law, is unenforceable, and consequently the Bank Guarantee issued by Vinca being part of the said structure is also unenforceable. The FMO is as much a party to the aforestated colourable device/structure designed as the Respondent Company. In my view, the Company has raised a dispute which requires adjudication on further evidence in a properly constituted Suit. - Decided against the appellant. - Company Petition No. 644 of 2013 - Dated:- 8-5-2015 - S. J. Kathawalla, J. For the Petitioner : Dr .....

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mp; Partners, for the Respondent. JUDGMENT 1. By the above Company Petition, the Petitioner - IDBI Trusteeship Services Ltd. seek winding up of the Respondent Company - Hubtown Ltd. ( the Company ) on the ground that the Company is deemed to be unable to pay its debts. The Company Petition is taken up for admission. 2. The Petitioner is a Company incorporated under the Companies Act, 1956 and is a Debenture Trustee of the debentures issued to Vinca Developers Pvt. Ltd. ( Vinca ) by Amazia Develo .....

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s are convertible within a period of 60 months from December 2009. Upon such conversion, FMO will hold 90% shareholding in Vinca. 4. The investment made by FMO in Vinca in the form of three CCDs was used by Vinca to purchase Optionally Convertible Debentures ( OPCDs ) issued by Amazia and Rubix. In respect of the OPCDs, a Debenture Subscription and Debenture Trust cum Mortgage Deed was executed on 1st December 2009 between Amazia, the Company and the Petitioner. Similarly in respect of the OPCDs .....

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the Articles of Association of Vinca, the Company can nominate two Directors and two alternate Directors of Vinca. The Promoters of the Company viz. Hemant Shah and Vyomesh Shah can nominate two Directors and two alternate Directors of Vinca. Under the Articles of Association of Vinca, these Directors nominated by the Company and the Promoters of the Company are called ACL Directors. Under the Articles of Association of Vinca, FMO has a right to nominate two Directors (being the Nominee Director .....

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ch consent shall require the affirmative approval of the Nominee Directors on the Board of Vinca. Further any decision taken without such affirmative approval is null and void. 8. From 2nd May 2012, the Petitioner issued notices of default to Amazia and Rubix in respect of the liability under the respective OPCDs issued by Amazia and Rubix. On 27th June 2012, the Petitioner issued notices of redemption calling upon Amazia and Rubix to fully redeem all the OPCDs at par value. On 3rd August 2012, .....

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ken by the Directors nominated by the Company and its Promoters on the Board of Vinca and in any event the said decision could not be taken without the affirmative decision of the Nominee Directors of FMO and the Nominee Directors of FMO had not cast their affirmative vote for termination of Trusteeship of the Petitioner. 9. On 19th December 2012, Vinca wrote to the Petitioner purportedly discharging the guarantee. The Petitioner by its reply dated 26th December 2012, addressed to Vinca recorded .....

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ns raised by the Company in its reply letter dated 22nd January 2013. 11. On 10th May 2013, the present Company Petition was filed by the Petitioner against the Company on the ground that the Company has failed to comply with the statutory notice to pay the amount under the guarantee. On 16th May 2013, the Petitioner also filed Summary Suit No. 520 of 2013 against the Company for recovery of the dues under the guarantee and on 12th February 2014, filed Summary Suit No. 480 of 2014 for recovery o .....

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ed an Agenda for holding a Meeting of its Board of Directors on 3rd July 2014, inter alia for the following purposes: (i) to consider amendment to Article 2 (uu) (I) under the heading Reserved Matters ; (ii) to approve convening of EGM of Vinca to alter the Articles of Association; (iii) to consider and approve modification of the terms and conditions of the OPCDs by fully converting OPCDs into equity shares; (iv) to consider and approve modification of the terms and conditions of OPCDs issued b .....

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assing resolutions and/or implementing the said resolutions, and/or acting on the basis of the said resolutions. (c) An ad-in-terim order dated 2nd July 2014 was passed in the Notice of Motion in the said Suit whereby the statement of the Defendants was recorded that pending further orders the Defendants will not act on the resolutions passed in the Meeting of Vinca held on 3rd July 2014. (d) The Nominee Directors of FMO attended and participated in the Meeting through video conferencing and tho .....

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ed 9th December 2009. The defences raised by the Company are mere moonshine. They are not bona fide and the claim of the Petitioner cannot be disputed. Dr. Tulzapurkar submitted that the contentions raised by the Company in the Affidavits are totally unsustainable and without any merit whatsoever. The Company Petition therefore deserves to be admitted and advertised. 15. It will not be out of place to mention at this stage itself that in view of what is stated in paragraphs 4 to 9 hereinabove, I .....

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.2, 6.2.11, 6.2.11.1 and 6.2.11.2 of the Foreign Direct Investment (FDI) Policy and clauses 2 (ii), 3, 4 , 5, along with Schedule I and Annexures A and B to the said Schedule of the FEMA Regulations and also the Reserve Bank of India (RBI) Circular No. 86 dated 9th January, 2014 in support of his contention that the FDI policy and the statutory FEMA Regulations (which incorporate the FDI Policy as a schedule thereto) permit FDI in townships, construction of houses, only by way of equity and do n .....

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of which was to enable FMO to secure a fixed rate of return on its FDI investments in townships/construction of housing, notwithstanding the FEMA Regulations/FDI policy, which permit only an equity investment without any fixed/agreed rate of return in the said sector. Mr. Chinoy submitted that the said Guarantee was an integral part of this artificial and illegal structure and therefore not enforceable in law. 17. Mr. Chinoy submitted that according to him the above submissions constitute the c .....

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ctor with an assured return/rate of return. 16.2 That FMO, a foreign entity wanted to invest a substantial sum by way of FDI in a slum rehabilitation project being undertaken in Mumbai by Rubix and an Industrial Park being undertaken/owned by Amazia. FMO was however only willing to invest in the said projects on the basis of an assured /fixed return, which was and is not permissible under the FEMA Regulations/FDI Policy. To enable FMO to bypass/circumvent the said FEMA/FDI prohibitions and get a .....

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ments executed for the FDI investment (Subscription Agreement and Debenture Trust Deed annexed as Schedule 13 thereto), however establish that the FDI received from FMO, was not intended for/could not be used by Vinca for any project of its own but was specifically required to be immediately invested by/through Vinca in OPCDs of Rubix & Amazia, bearing a fixed rate of return of 13.5%. iii) Under the FEMA/FDI regulations/policy FMO could not have invested the said amounts in Amazia and Rubix .....

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s for the Amazia and Rubix OPCDs provided that the Debenture Trustee/the Petitioner would only act on the instructions of the Nominee Directors of FMO. v) Accordingly though Vinca was an Indian Company and the nominal recipient of the FDI, the transaction was so structured that: (a) the FDI amount would be immediately routed by Vinca to Amazia & Rubix against issue by them of OPCDs bearing a return of 14.5%. (b) FMO/its Nominee Directors could exclusively deal with the OPCDs and the Debentur .....

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ue and punctual payment of the principal and the interest by Amazia and Rubix to Vinca, actually to FMO and was part of the structure devised to ensure the receipt by FMO at the fixed rate of return of 14.5%. 16.3 That, if the entire transaction is looked at as a whole, it is clear that the interposing of Vinca as the nominal recipient of the FDI (against issuance of equity shares and CCDs) was a colourable and artificially structured transaction, the object and purpose of which was to enable FM .....

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the said illegal object of securing the said fixed rate of return for FMO. Although IDBI ,the Petitioner, claims to be nominally acting on behalf of Vinca, it is in fact admittedly acting only at the instance of FMO/FMO's Nominee Directors on the Board of Vinca. FMO through its Nominee Directors on the Board of Vinca has instructed IDBI to demand the said sums (principal and agreed rate of return) from Amazia and Rubix and has further instructed/required IDBI to invoke the said Guarantee an .....

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t has been issued by an Indian entity in favour of another Indian entity . In paras 10 (xi), (xii) and (xiii) pages 11 and 12, the Petitioner has merely denied that, FMO or the Plaintiffs have in any manner breached their obligations under the Indian Exchange Control Regulations, the FDI policy, or any other applicable law. The Petitioner has also submitted that, (i) the Company is estopped from raising this contention and (ii) that the said defence lacks commercial morality . 16.6 That, by the .....

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s any assured return/rate of return. It is submitted that this would be contrary to law, public policy and public interest. 17. Relying on the decision of the Hon'ble Supreme Court of India in the case of Vodafone International Holdings BV vs. Union of India (2012) 70 Com Cases 369, Mr. Chinoy submitted that whilst ascertaining the legal nature of the transaction, it is the task of the Court to look at the entire transaction as a whole and not to adopt a dissecting approach. Mr. Chinoy also .....

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rary to the public policy of India. 18. Mr. Chinoy therefore submitted that the matter involves both triable issues and bona fide disputes and therefore the Company Petition cannot be admitted. 19. Dr. Tulzapurkar, the Learned Senior Advocate appearing for the Petitioner, has submitted that the submissions advanced on behalf of the Company that the transaction documents are violative of the FDI Policy and FEMA Regulations are incorrect and untenable. Dr.Tulzapurkar made the following submissions .....

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ompany, except that if that money had been received by the first Indian Company i.e. Vinca from a nonresident, the same could not be invested in equity or compulsorily convertible securities in any sectors prohibited under the FDI Policy. The businesses carried on by Rubix and Amazia were in permissible sectors under the FDI Policy and therefore there was no bar or prohibition against Vinca from investing funds in Amazia and Rubix in the form of OPCDs. The investment by Vinca in Amazia and Rubix .....

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ares cannot exceed the price prescribed by the RBI. 19.5 That the doctrine of pari delicto is not applicable; that the Petitioner is not a party to the conspiracy and the Petitioner is not acting on behalf of FMO. Even if the Petitioner is acting on behalf of FMO, the doctrine of pari delicto would not be applicable as the Company had induced FMO to make the FDI/investment by representing that the transaction was FDI/FEMA complaint. The representations and assurances made by the Company in the r .....

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eceive the said amounts without complying with the FDI Regulations for sale of shares and repatriation. 20. Dr. Tulzapurkar has in support of his above submissions inter alia relied upon the decisions of the Hon'ble Supreme Court in the case of Bacha F. Guzdar vs. CIT AIR 1955 SC 740, Gurmukh Singh v. Amar Singh 1991) 3 SCC 79, Kedar Nath Motani v. Prahlad Rai (1960) 1 SCR 861, and Sita Ram v. Radha Bai AIR 1968 SC 534. . Dr. Tulzapurkar therefore submitted that the above Petition be admitte .....

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substantial sum by way of FDI in a slum rehabilitation project being undertaken in Mumbai by Rubix, and an Industrial Park being undertaken by Amazia. The FDI Policy and the statutory FEMA Regulations (which incorporates the FDI Policy as a Schedule thereto) permit FDI in townships, construction of houses, only by way of equity investments (which is defined to also include debentures which are compulsorily required to be converted into equity : CCDs). The FDI Policy and the FEMA Regulations proh .....

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FDI amount of ₹ 418 crores received by Vinca from FMO against issuance of 10 per cent equity and 3 CCDs to the FMO, was not to be retained by Vinca or used by Vinca in its own FDI eligible township/construction projects, but the said SSA and the DTDs expressly stipulated that the FDI amount received by Vinca from FMO was to be immediately passed on to Amazia and Rubix against issuance by them of their OPCDs. Accordingly as submitted on behalf of the Company, Vinca was only the nominal rec .....

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FDI Policy /FEMA Regulations. (iv) Contemporaneously the Articles of Association of Vinca were amended to provide that, (i) on conversion of the three CCDs, FMO would hold/own more than 99% of Vinca s total equity shares and (ii) that the FMO Nominee Directors on Vinca s Board of Directors would alone be entitled to take all decisions/deal with the OPCDs and the Debenture Trustee i.e. the Petitioner herein. (v) On receipt back by Vinca of the FDI amount of ₹ 418 crores and interest thereo .....

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ca had no real business or commercial purpose. Vinca was interposed as the nominal recipient company, only in order to route the FDI investment amount received from FMO, to Amazia and Rubix against issuance by them of OPCDs bearing interest at 14.5 per cent per annum and to receive back the amount invested (i.e. the FDI amount of ₹ 418 crores) and interest thereon at 14.5 per cent per annum from Amazia and Rubix and to make the same available to FMO. (vii) The guarantee executed by the Com .....

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e/recover the said FDI amount and interest thereon at 14.5 per cent per annum for FMO (through Vinca) contrary to the FDI Policy and the statutory FEMA Regulations. 23. The Judgment of the Supreme Court in the case of Vodafone International Holdings BV vs. UOI (supra) held that: (i) It is the task of the Court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not to adopt a dissecting approach and that a device which was c .....

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test of fiscal nullity it would be open to the revenue to discard the interposing of that entity….It is the task of the revenue/court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not to adopt a dissecting approach.(page 404 para 68) 24. In the case of Immami Appa Rao and others vs. Gollapalli Ramalingamurthi & Ors. AIR 1962 SC 370 the Appellant and Respondent No. 2 were members of a HUF. Respondent No. 2 h .....

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Respondent No.2. The High Court recorded a finding that Respondent No. 2 had successfully played a fraud on his creditors by getting the property purchased by Respondent No. 1 benami. However the High Court held that the Appellant and Respondent No. 2 were estopped from setting up the fraud against Respondent No.1 and the High Court decreed the claim of Respondent No.1. The Hon'ble Supreme Court allowed the Appeal and held: (i) Out of the two confederates in fraud, Respondent No.1 wants a d .....

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ntly inconsistent with public interest (para 13 page 375) (ii) There can be no question of estoppel in such a case for the obvious reason that the fraud in question was agreed to by both the parties and both the parties have assisted each other in carrying out the fraud. When it is said that a person cannot plead his own fraud, it really means that a person cannot be permitted to go to a Court of Law to seek its assistance and yet base his claim for the Court s assistance on the ground of his fr .....

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of giving effect to a fraudulent transfer (para 15 pg. 375 and 376 ) 25. In the case of Renusagar Power Co. Ltd. vs. General Electric Co. (supra), the Supreme Court has held (in para 76 at page 891) that, the provisions contained in the FERA have been enacted to safeguard the economic interests of India and any violation of the said provisions would be contrary to the public policy of India as envisaged in Section 7 (1) (b) (ii) of the Act . 26. Applying the law laid down in the above judgments: .....

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ions imposed by the FDI Policy and the FEMA Regulations which embody the Public Policy of India. (iii) Since right from the outset the FMO was aware that the FDI Policy and the statutory FEMA Regulations permit FDI in townships, construction of houses, only by way of equity investments and the FDI Policy and the FEMA Regulations prohibit any other form of investments (nonequity) in the said sector with an assured return/rate of return, and therefore structured the above device to bypass/circumve .....

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tance of FMO/FMO nominees on the Board of Directors of Vinca and are by the present Company Petition, seeking the assistance of this Court, to enforce and recover the FDI amount and interest thereon at 14.5% per annum for FMO (through Vinca), contrary to the prohibition contained in the FDI Policy and FEMA Regulations. This, as the Supreme Court has held is clearly and patently inconsistent with the paramount consideration of public interest. 27. It is contended on behalf of the Petitioner that .....

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retain the FDI amount, or to utilize the same in any of its own projects. The SSA and DTD required Vinca to immediately pass on the FDI amount received from FMO to Amazia and Rubix against subscription of OPCDs issued or to be issued by them (i.e. Amazia and Rubix). Press Note 2 of 2005 permits FDI investment in the real estate sector only if it is for a township/construction project. Accordingly the purported investment in Vinca cannot be said to be in accordance with Press Note 2 of 2005 and w .....

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advanced on behalf of the Petitioner also cannot be accepted. The SSA and DTD establish that there was no question of Vinca deciding of its own volition to invest the FDI amount received by it from FMO in the OPCDs of Amazia and Rubix. The specific/express terms of the SSA and DTD stipulated that Vinca could not retain, or itself utilize the FDI amounts received by it from FMO, but was required to immediately pass on the same to Amazia and Rubix against subscription of the OPCDs issued/to be iss .....

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FEMA Regulations against issuance of CCDs bearing interest. 29.1 The Petitioner seems to have lost sight of the fact that the FDI Policy/FEMA Regulations only permit FDI by way of equity investments in Companies undertaking eligible townships/construction projects. Accordingly under the FDI Policy/FEMA Regulations the foreign investor has necessarily to undertake the equity risk of the project and cannot stipulate for return its investment/FDI with a fixed rate of return. CCDs (bearing interest) .....

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onversion of the Vinca CCDs and FMO becoming the 99 per cent shareholder of Vinca, FMO will have to follow RBI s pricing guidelines if it wants to sell its Vinca shares and that the price that FMO can receive for the shares cannot exceed the price prescribed by the RBI. 30.1 Again the Petitioner has lost sight of the fact that on receipt back by Vinca of the FDI amount of ₹ 418 crores and interest thereon at 14.5 per cent per annum, FMO would on conversion its CCD's, become the owner o .....

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iracy and IDBI is not acting on behalf of FMO. Even if IDBI is acting on behalf of FMO, the doctrine of Pari Delicto would not be applicable as the Company had induced FMO to make the FDI/Investment by representing that the transaction was FDI/FEMA complaint. 31.1 The above submission of the Petitioner cannot be accepted. The conduct of FMO in routing its FDI nominally through Vinca to Amazia and Rubix against issuance by them of OPCDs and the amendments/provisions made in Vinca s Articles of As .....

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a fixed rate of return thereon, was not permissible under/in violation of the FDI Policy and the FEMA Regulations. It is clear that in claiming the amount and initiating the present proceedings, the Petitioner is acting at the instance of FMO/FMO nominees on the Board of Directors of Vinca. This is the stipulation in Vinca s articles and under the DTD. In any event, inasmuch as the transaction (based on return of the FDI/principal amount invested along with a fixed rate of return thereon) is not .....

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ations for sale of shares and repatriation. 32.1 This submission too of the Petitioner cannot be accepted. The present claim has been made and the present proceeding has been initiated/filed by the Petitioner at the instance of FMO/FMO nominees on Vinca s Board of Directors, in order to secure repayment/return of the FDI amount invested along with a fixed rate of return thereon i.e. for seeking the active assistance of this Court to implement/effectuate/enforce a transaction prohibited by the FD .....

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shareholder of Vinca. Under the FDI Policy/FEMA Regulations, FMO can thereafter sell the shares of Vinca at the fair value, which will necessarily include the value/benefit of the FDI amount and interest at 14.5 per cent thereon. 33. Much after the Learned Senior Advocates appearing for the Parties concluded their submissions qua the above issue, the Learned Senior Advocate appearing for the Petitioner circulated a judgment of the Division Bench of this Court dated 18/19th July, 2014, in Videoco .....

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f this Court in Videocon Industries Ltd. (supra), the Learned Senior Advocate for the Petitioner has made the following submissions: 34.1 That the Division Bench of this Court after going through the relevant provisions of FEMA (including the Rules and Regulations thereunder) and the FDI Policy in relation to a Patronage Letter issued by Videocon Industries Ltd. to Intesa Sanpaolo S.P.A. has inter alia held in paragraph 34 of its judgment as under: Assuming that Videocon have committed any wrong .....

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onest defence . 34.2 That in relation to the aforesaid dishonest defence taken by Videocon Industries that the Patronage Letter was issued in contravention of the provisions of FEMA or in breach of other legal requirements, the Division Bench of this Court has inter alia held in para 34 of its judgment as under: In Eurometal Ltd. v. Aluminium Cables and Conductors (U.P.) Pvt. Ltd. [ (1983) 53 Comp Cas 744 Cal] and SRM Exploration Pvt. Ltd. v. N &S & N Consultants S.R.O. [ (2012) 4 Comp L .....

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Indian Companies and which would ultimately undermine the role of India the world of trade and commerce. We could not agree less. We, therefore, do not find any merit in submissions of Dr. Tulzapurkar that the order of admission of the winding up petition was erroneous on any such count. 34.3 That in the present proceedings, the Company has raised defences, including that the transaction and/or the guarantee are contrary to FEMA and the FDI Policy only in its response dated 22nd January, 2013, t .....

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y other legal requirements. The defence is, therefore, raised for the first time only after receiving statutory notice i.e. after almost four years of issuance of the Patronage Letter.: 34.4 That additionally in para 40 of the Videocon Appeal, this Court has held as under: Applying the above principles, we have no hesitation in holding that the dispute raised by Videocon is not at all bonafide, much less substantial. The defence adopted by Videocon is not merely moonshine but dishonest and there .....

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a). In that case, Videocon Industries Ltd. had given a Patronage Letter to Intesa Bank as a condition for the Bank granting a loan of Euro 35 Million to its subsidiary VDC Technologies SPA. Videocon contended that the Patronage Letter/Guarantee was issued in breach of the FEMA Guarantee Regulations 2000 which provided that no person could, without the general or special permission of the RBI, give a Guarantee, which had the effect of guaranteeing a debt or liability owed by a person resident in .....

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quently Asked Questions given by the RBI re. Questions 34 and 35 in the FEMA Manual of 2007 leaves no manner of doubt that it was permissible for Videocon to give Guarantees for its step down subsidiary, provided such exposures were within its permissible financial commitments and that Videocon had never contended that the same was not within its permissible financial commitments (Paras 3133 pgs. 2225). (iii) Assuming that Videocon had committed any wrong in issuing the patronage letter without .....

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ereon at 14.75%, contrary to the statutory FEMA Regulations and the FDI Policy embodied therein, which only permit FDI investment in townships/real estate development sector to be made in the form of equity (including Compulsorily Convertible Debentures) and preclude any assured return. I am also prima facie of the view that the Company's Guarantee (which is the basis of the Company Petition) though ostensibly in favour of Vinca, an Indian Company, was part of the aforesaid illegal structure .....

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ect seeking the assistance of this Court to enable/enforce recovery by FMO of its FDI amount and interest thereon (through Vinca), contrary to the provisions of the FEMA Regulations and FDI Policy embodied therein. As has been held by the Supreme Court in the case of Immami Appa Rao vs. G. Ramalingamurthi (supra), the plaintiff who wants orders in his favour, is actually seeking the active assistance of the Court to achieve what the law prohibits/declares illegal and that is clearly and patently .....

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lhi High Court has considered a similar transaction/structure, which mandated the payment of fixed interest thereunder and has upheld the same. It is further submitted that the Delhi High Court has in paragraphs 21 to 34 of the Zaheer Mauritius's case enquired into the transaction to see as to whether any case was made out therein for 'lifting the corporate veil'. It is submitted that the findings in the said paragraphs support the following contentions of the Petitioner. (i) The str .....

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ke a case for lifting the corporate veil on the basis that Amazia and Rubix are subsidiaries of Vinca and are therefore one entity. The aforesaid contention is preposterous to say the least, as the sequitur thereto would be that all subsidiaries are the same entity as their respective parent. (iii) No case has been made out for lifting the corporate veil. Without prejudice, it is submitted by the Petitioner that Vinca, Amazia and Rubix are separate and distinct legal entities with their respecti .....

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upra) is inapposite and irrelevant to the issues presently under consideration. 39. I have considered the submissions advanced by the Learned Advocates appearing for the Parties qua the judgment in the case of Zaheer Mauritius (supra).The relevant facts in that case are briefly set out hereunder: (i) Vatika which owned land, was reserved for being developed as a cyber park, had set up a JV company SH Tech Park Developers P. Ltd. and had transferred development rights in the said land to the JV C .....

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put and call options, Vatika had acquired all the said shares and CCDs allotted to Zaheer Mauritius. (v) The Income Tax Officer held that the receipt by Zaheer Mauritius from the transfer of the shares/CCDs would be taxed as interest and not as capital gains. The AAR confirmed the ITO's view and held that as the put and call options were based on a fixed rate of return on the investment made by Zaheer Mauritius, the transaction was essentially a loan to Vatika and had only been structured as .....

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I Policy, FDI in the real estate sector was permitted only through Equity or CCDs and held that the put and call options were commercial arrangements between the parties and the same did not change the legal nature of the transaction which was an investment in and subsequent sale of CCDs of the JV company. The judgment only considered, dealt with and decided whether in the context of such call and put options, the Revenue was entitled to treat the sale proceeds of the CCDs received by the Foreig .....

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oners that the judgment supports the Petitioner's case that, the structure transaction is valid and is not in contravention of FEMA and/or the FDI Policy does not appear to be correct. The structure devised by the Petitioner FMO in the instant case to get back its FDI with a return of 14.75% was not based on a buy back agreement as in the case before the Delhi High Court. Moreover, the RBI has expressly clarified/stipulated that even such buy back agreements at preagreed prices are not permi .....

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e price prevailing at the time so as to enable the investor to exit without any assured return . The RBI Circular also expressly stipulates that for transfer/buy back of CCDs the guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at the price prevailing at the time of exit. 39.2 In my view, the Petitioner is also not correct in stating that the judgment supports the Petitioner in conten .....

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inal recipient. The SSA and the annexed Debenture Trust Deed, specifically provided that the FDI amount to be received by Vinca from FMO against issuance of CCDs and equity shares by Vinca, was not to be retained by Vinca or used by Vinca in its own projects. The SSA and Trust Deed in fact expressly stipulated that the FDI amount received by Vinca from FMO, was to be immediately passed on by Vinca to Amazia and Rubix, against issuance by them of OPCDs. Accordingly the SSA and the Trust Deed itse .....

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