TMI Blog2015 (10) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... itted and Respondent is restrained by a temporary order and injunction from disposing of any of its assets and properties or creating any third party rights otherwise than in due course of its business - The Respondent Company is directed to place on record the latest financials of the Company – Allowed and decided in favour of the Petitioner. - Company Petition No.961 of 2014 With Company Application No. 294 OF 2015 With Company Petition No.976 of 2014 With Company Petition No.776 of 2014 With Company Petition No.990 of 2014 - - - Dated:- 1-10-2015 - S.C. GUPTE, J. With Company Petition No.16 of 2015 With Company Petition No.19 of 2015 With Company Petition No.20 of 2015 With Company Petition No.21 of 2015 With Company Petition No.23 of 2015 With Company Petition No.24 of 2015 With Company Petition No.25 of 2015 With Company Petition No.26 of 2015 With Company Petition No.39 of 2015 With Company Petition No.42 of 2015 With Company Petition No.47 of 2015 With Company Petition No.112 of 2015 With Company Petition No.136 of 2015 With Company Petition No.177 of 2015 With Company Petition No.178 of 2015 With Company Petition No.235 of 2015 With Company Petition No.312 of 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Axix Trustees Services Ltd. (the Debenture Trustees) and the debenture holders. It was agreed in this meeting that the Respondent would pay the outstanding principal amount due on the NCDs on 24 August 2013 and 30 September 2013 and the interest amount due on 31 August 2013. The Respondent, however, defaulted in meeting these commitments. By their Advocates letter dated 3 December 2013, the Petitioners served a statutory demand notice under Sections 433 and 434 of the Act. The Respondent failed to comply with this notice. As of 30 September 2014, the Respondent was indebted to the Petitioner for a sum of ₹ 10.89 Crores towards the dues in the respect of the NCDs, when the petition was filed. 2.1.2 Though the Respondent has in its reply to the petition generally denied the dues and put the Petitioners to the proof of the dues, there is no real contest on the dues under the NCDs. The Petitioners investment of ₹ 15 Crores in the NCDs is admitted. So also are the terms of the NCDs. All that the Respondent submits is that the Respondent has made payment of about ₹ 9.76 Crores to the Petitioners towards principal and interest before the date of the statutory dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness loans. There is no contest to the claim on merits in the Respondent s reply. The reply pleads a case of temporary financial crisis. 2.5 Company Petition No. 19 of 2015: 2.5.1 The claim here is of a sum of about ₹ 11.48 Lacs on account of a business loan. There is no contest on merits. The plea is of financial difficulties. 2.6 Company Petition No. 20 of 2015: 2.6.1 The claim is of about ₹ 17.25 Lacs on account of a business loan. There is no contest on merits. 2.7 Company Petition No. 776 of 2014: 2.7.1 The claim of about ₹ 67.58 Lacs on account of an inter corporate deposit as of 31 May 2014 has been contested by a bare denial in the Respondent s reply, without any particulars. 2.8 Company Petition No. 21 of 2015: 2.8.1 There is an uncontested claim of about ₹ 47.10 Lacs on account of a business loan extended by the Petitioner to the Respondent. 2.9 Company Petition No. 23 of 2015: 2.9.1. The Petitioner s debt in the sum of about ₹ 11.66 Lacs is not disputed by the Respondent. 2.10 Company Petition No. 24 of 2015: 2.10.1 The Petitioner s debt of about ₹ 22.90 Lacs in not disputed. 2.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest is not contested beyond stating that accounts need to be verified. 2.21 Company Petition No. 312 of 2015: 2.21.1The Petitioner s claim is for a sum of about ₹ 79.69 Lacs on account of an Inter Corporate Deposit. There appears to be no contest on the merits of the debt. 2.22 Company Petition No. 378 of 2015: 2.22.1The Petitioner s claim of about ₹ 3.71 Lacs is on account of goods sold and delivered. There appears to be no contest on the merits of the debt. 2.23 Company Petition No. 417 of 2015: 2.23.1There is no contest to the Petitioner s claim of about ₹ 6.94 Lacs on account of goods sold and delivered beyond stating that the employees of the company are not aware of past transactions and till such time as inspection is offered by the Petitioner, the Respondent is not in a position to deal with the merits of the debt. The reply is of 6 July 2015. The position remains the same till date. 2.24 Company Petition No. 768 of 2015: 2.24.1 There is no contest to the Petitioner s claim of about ₹ 42.18 Lacs on account of an Inter Corporate Deposit except a general denial. 3. Common defence of the Respondent to all these P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Summonses for appropriate reliefs.) When the Company Petition appeared on board on the next occasion, the advocates of the Respondent sought to withdraw their appearance and the matter was adjourned. On 7 January 2015, learned Senior Counsel appearing for the Respondent, on instructions, stated that the Respondent was willing to sell its immovable property known as Elder House at Andheri (West) in Mumbai, which was mortgaged to the debenture trustees and valued at ₹ 170 Crpores for the purpose of making payment to the creditors including the Petitioners Tata Capital. The Petition was thereupon adjourned by directing the Petitioners to give notice to the debenture trustees. On the next occasion, i.e. on 3 February 2015, in the presence of the debenture trustees, by consent of parties, M/s Yardi Prabhu Consultants and Valuers Pvt. Ltd. were appointed as valuers to value the property, namely, Elder House. The valuers submitted their report estimating the fair value of the property at ₹ 113.24 Crores. When the petition was thereafter taken up for hearing, learned Senior Counsel of the Respondent submitted that instead of Elder House, other properties of the Company, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rim relief, the creditors were directed not to take any steps for sale of the Company s immovable properties. The appeal was thereupon stood over till 6 May 2015. The appeal next came up before a Special Bench sitting in the May Vaccation on 14 May 2015. A request was made by the Company for continuation of ad-interim reliefs till 31 July 2015 once again on the basis of the same confidential indicative term sheet, which was not disclosed to the other parties. The Division Bench (of which I was a member) observed that it was not possible to act on an un-signed term sheet without disclosing the same to the creditors of the Company and grant a long stay. The Division Bench, however, continued the ad-interim stay for a limited period till the reopening of the Courts after the vacation. The appeal thereafter appeared before the regular Court on 10 June 2015, when the Court granted extension of time upto 31 July 2015 for the purpose of entering into agreement with the financial institution, but directed the parties to make submissions on 29 June 2015 for considering extension of time to make payment of ₹ 2 Crores (i.e. ₹ 1.60 Crores being still to be paid). The ad-interim rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f African and South Asian Countries. These brands will grow and contribute to the business turnover. The Respondent has commenced exports of Shelcal to more than 25 Countries and targets to receive ₹ 100 Crores from globle sales. For financial year 2015-16, the Company is likely to notch up sale of over ₹ 25 Crores .. . The Company is looking at a strong prescription base in over 70 Countries by March 2017. The Company has Launched several products. A logical and major part of Respondent Company s further growth strategy is to develop other products as successful as Shelcal and export the geographical reach of the Respondent Company. The liabilities, though need to be cleared off, are more than sufficiently covered by assets and brands. The Company has entered into Term Sheet with a Financial Institution. The Respondent Company believes that with the cash inflow from the Financial Institution the Respondent Company will be able to solve its problems. The Company expects a turnaround in Financial Year 2015-16. By FY 2017 Elder Group (domestic and international) is expecting a turnover of ₹ 1000 Crores on consolidated basis. These are the statements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot resulted into any agreement as yet). Today at the time of passing of the order, learned Counsel for the Respondent Company, produces an order of the Appeal Court dated 8 September 2015 by which a final term sheet dated 31 August 2015 is taken on record in a sealed envelope. The order notes the Respondent's submission that the financial institution would be able to provide upto ₹ 170 Crores by 31 October 2015, 'subject to execution of mutually acceptable documents and deeds'. The Appeal Court also accepted a statement of the Respondent Company's Counsel that an affidavit would be filed by its Managing Director indicating when M/s Tata Capital Financial Services Ltd. would be paid their principal amount. It was clarified that the order being passed by the Appeal Court was without prejudice to the rights and contentions of M/s Tata Capital. I inquired with Counsel for the Respondent, if this statement was complied with and the affidavit of the Managing Director was filed. Learned Counsel answered in the negative. 3.10 This Court, as I have recounted above, was first told on 7 January 2015 that the Respondent was willing to sell Elder House, the main asset o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 Besides the so called term sheet , which contains several basic conditions precedent (at least insofar as the term sheet disclosed to me is concerned, since I do not even have the benefit of the so called final term sheet) before a definitive agreement is reached, is nothing but a document, which merely holds out a remote possibility of financial help, which may or may not come by. The so called lender is not even before this Court and in fact ducks the hearing behind a shroud of confidentiality. The term sheet does not inspire any confidence, in the facts noted above. The Petitions cannot be simply adjourned because there is some as yet undisclosed term sheet. The final term sheet of 31 August 2015, whereby the financer would be able to provide upto ₹ 170 crores by 31 October 2015, is said to be subject to execution of mutually acceptable documents and deeds. That means two things. Even now there is no definitive agreement, but a term sheet containing an offer to provide ₹ 170 crores 'subject to execution of mutually acceptable documents': and even if this entire finance comes by the stipulated date, even the claims of debenture holders, for whose benefit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g picture: As against the total liabilities (non-current and current ) of 1514.84 Crores, these are fixed assets of ₹ 1012.37 Crores. The other assets are long term loans and advances of ₹ 305.38 Crores, intangible assets of ₹ 219.70 Crores and current assets (including current investment, trade receivables, short term advances, etc.) of ₹ 923.99 Crores. 3.16 The independent auditors have given a qualified opinion on the basis of the following: (i) On fixed assets, the Company has not provided for impairment loss. Management has neither provided a technical evaluation report nor a valuation report to arrive at the fair value and, consequently, quantification of the possible impairment loss on these assets could not be arrived at; (ii) The Company has written off in the financial year trade advances of ₹ 176.24 Crores and other advances of ₹ 855.32 Crores made to various parties on Current account either during the year or in earlier financial years, the reasons of which including details regarding financial capability of these parties and confirmation/details of their accounts were not made available to the auditors; (iii) As for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business of sale, marketing and distribution of the products of Team A-2 and Team B- Gynae through sales force or otherwise, in India and Nepal (excluding exports from India and Nepal) which included amongst others, intellectual property, current assets, specified liabilities, employees, data and records, third party manufacturing contracts, C F agreements, etc. as a going concern and a definitive Business Transfer Agreement was signed with Torrent Pharmaceuticals Limited, Ahmedabad, on 13 December 2013 for a total consideration of ₹ 200,400.00 lacs. The said slump sale transaction was consummated and closed on 29 June 2014. 3. Balances under Trade Receivables, inter-division balances, Loans Advances in several cases as also in case of a few Bank Accounts have not been reconciled / confirmed and consequently reconciliation / adjustments, if any, required upon such confirmation are not ascertainable. (Refer Note No. 33). 4. The company provides gratuity benefit to its employees as per AS 15 (Employee Benefits . Based on actuarial valuation as at March 31, 2014, the Company was having plan assets of ₹ 965.58 lacs against the actuarial liability of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal term sheet on record in a sealed cover. That was expressly said to be without prejudice to the rights of the petitioning creditors Tata-Capital before the Appeal Court in that case. It cannot even be suggested that, that would prejudice third party creditors, who have separate claims against the Company and in altogether different proceedings. (iii) The financial circumstances as of 30 June 2014, as noted above, take into account the restructuring proposal through slump sale to Torrent Pharmaceuticals Ltd. of the Company s business of sale, marketing and distribution in India and Nepal (excluding exports from India and Nepal), which included amongst others intellectual property, current assets, specified liabilities, employees, data and records, third party manufacturing contracts, c f agreements, etc. as a going concern. In other words, the dire financial circumstances that are reflected in the audited balance sheet as of 30 June 2014 are after the Company recovered, and employed towards its dues, a sum of ₹ 2004 Crores after the slump sale of its most major asset. (iv) There is nothing on record to show the viability of the balance undertaking or business left wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al case. 8 In Rishi Enterprises (supra), the Company was temporarily unable to pay the creditors, since a large part of its dues were withheld by its purchasers; there were ongoing disputes with these parties; the Company had nevertheless paid 15% of the creditors dues as ordered by the Court; there were workmen, who opposed the winding up petition; and in the light of all these circumstances the Court was of the view that it would be in the interest of justice to give time to the Company to come out of its momentary financial crisis. 9 This decision was followed by another Single Judge of Gujarat High Court in American Express Bank s Case (supra). In that case, majority of lenders of the Company had faith in the strength and capability of the Company to survive the crisis and were agreeable to restructure their debts; and the Company, which employed 3500 people, had an intrinsic proven potentiality. On these facts, the Court held that the Petitioner, who was a secured creditor to a very small extent, and who could even remain outside winding up and realize his security, should not be allowed to insist on winding up. On this footing, the Court refused to admit his winding up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the company and allow it to continue its uneconomic functioning. That may only result in further liabilities being created against the company necessarily causing corresponding reduction in the distributable assets. But it may be possible that a company which at the moment is in adversity and is passing through evil days could not successfully revived by reason of change of circumstances and on account of factors which may make it possible for the company to function economically once it is revived. No doubt at the moment it may be that it is unable to meet its liabilities. But if there is reasonable, if not certain, prospect of its revival and effective and commercially successful functioning, then a short wait by the creditors may be worthwhile. They may then get better returns. It should be the policy of the court to promote revival of a company which at the moment may not be solvent and may not be able to meet its obligations to its creditors, if it is shown that there is reasonable prospect of resurrection and survival. It is easy for a court merely on finding that a company is unable to pay its debts to bury it deep and distribute its assets, whatsoever is available, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res against the actuarial liability of ₹ 12.93 Crores owed to workmen. If the petitions are admitted and advertised, all stakeholders may be in a position to come before the Company Court and be heard in the matter before a final decision on winding up of the Respondent is taken. Even workmen would be heard in that case. After hearing all stakeholders, a final decision could be taken on whether or not to wind up the Company and at what stage. I am conscious of the fact that admission of winding up petitions puts the Company at a serious disadvantage in terms of its credibility, but on an overall view of the matter, I must say that the resultant prospect of not acting in a timely manner in the face of serious doubts as to commercial viability of the Company and several critical unexplained financial matters (particularly, the huge write offs in the immediately preceding years to the detriment of the Company) clearly outweighs the disadvantage of an admission order. Besides, some protective order needs to be passed, in the facts and circumstances of the case noted above, in respect of the assets and properties of the Company. 14 In the premises, the following order is pass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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