TMI Blog2017 (1) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... so a matter of record that the promoters were required to bring their own contribution and deposit the same with the State Bank of India to enable payment to the petitioner. The outstanding dues were to be paid subject to restructuring and the promoters contribution. In my view, the respondents have miserably failed in keeping up the promises held out and the same does not appear to be unintentional. The revenues are deliberately kept on a leash, being controlled by its group companies. The respondent will be unable to sustain itself on its own steam. Prima facie, it would have to be shown that Company is plainly commercially insolvent and its existing and probable assets would be insufficient to meet the existing liability. This I believe has been established by the Petitioner in this case ably assisted by the Respondent's admission of being revenue neutral. The respondent company is clearly unable to pay its debts as and when they arise. They have willfully omitted to even service this debt. In my view this is a fit case for admission. Considering the fact that it is a group company presently operating the respondent must be put to terms. - COMPANY PETITION NO. 892 OF 2014 & COM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing for creation of the permanent security dated 12th April, 2010; (iii) Undertaking for non-receipt of Commission dated 12th April, 2010; and (iv) Undertaking for Non-disposal of Shareholding dated 12th April, 2010. 3. An amount of ₹ 45 crores was disbursed on 13th April, 2010 at 12% interest payable on a monthly basis as set out in the terms of Loan Agreement. The company created an exclusive charge and mortgage in respect of the aforesaid leased premises and complied with the provisions of the Companies Act. In this respect a copy of the certificate of registration of mortgage has been relied upon by the petitioner as evidence in creation of the charge in favour of the petitioner. As the company had also pledged 21182 equity shares of Khatau Industries Pvt. Ltd. 4. The company allegedly defaulted in payment of the very first installment which was due on 15th June, 2011. Interest was paid till July 2010 and the Company failed to pay the interest from August 2012. Since no payments were forthcoming, the petitioner vide an email dated 21st July, 2011 called upon the company to make payments of the amounts due. Meanwhile, it appears that the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The company filed an affidavit in reply of a Director of the Company specifically empowered by a Board Resolution to file the reply. The name of the company underwent to change pursuant to a composite scheme of arrangement and amalgamation was sanctioned by this Court vide order dated 9th May, 2014 resulting in the ship management and shipping investment business of Varun Shipping Company Limited (VSCL ) being demerged from VSCL was transferred to and vested in the respondent Varun Global Ltd. The shipping business of VSCL along with group companies were amalgamated with Varun Resources Ltd. (VRL ) The demerger resulted in all legal proceedings filed by and against VSCL being continued by or against the respondent. In the circumstances, vide order dated 19th March, 2015 the name of the respondent was brought on record. 7. It is contended that with the global economic slowdown in 2009 the shipping industry was badly affected but the Respondent and its group companies have successfully beaten the recessionary trend and have enough assets to cover all liabilities . The lenders of VRL agreed to restructure the loans and formed the Joint Lender s Forum mechanism (JLF). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps for implementation of the same. Mr. Khatau, the Director of the respondent company had then assured the JLF that his contribution would be brought in by 18th March, 2015. It appears that the company then signed a Master Restructuring Agreement with the lender banks on 31st March, 2015 and the banks have approved the restructuring package approved by the JLF and the loan facility extended by the petitioner was proposed to be paid by June 2023 in the manner provided therein. It is contended that the restructuring package approved by the JLF provides for the payment of the Petitioner's claim even though Varun Global Ltd. is independent of VRL and the MRA operate between the landlord and VRL. The MRA provided that in consideration of the respondent undertaking the crew and technical management of the vessels of VRL, the respondent would receive management fees at an agreed rate to be paid out of the cash flows of VRL. 10. According to the deponent of the affidavit in reply the petitioner's loan is secured by mortgage of office premises on the ground floor, 1st and 3rd floor, Laxmi Building, 6, Shoorji Vallabhdas Marg, Ballard Estate, Mumbai-1 admeasuring 11976 sq. ft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vident from the fact that when the company s scheme petition for amalgamation was filed, the petitioner did not object to the scheme and which came to be approved by this Court vide order dated 9th May, 2014. 13. According to Mr. Dhond the learned Senior Advocate appearing for the respondent, the petitioner is attempting to disrupt the implementation of the scheme by seeking an injunction and despite being fully secured, the petitioner has not disclosed that VSCL was always ready to repay the loan. Mr. Dhond relied upon an additional affidavit dated 30th August, 2016 by which the respondent has sought to place on record further facts which according to them have a critical bearing on the petitioner s entitlement to the reliefs claimed. This affidavit has been affirmed after this Petition was partly argued for admission but with the leave of the Court. Mr. Dhond submitted that the respondent has since had urgent consultations with the lenders and the affidavit records that the respondent is willing to propose a financial solution to the disputes forming the subject matter of the petition. Mr. Dhond submitted that the shipping business of the Varun Group is vested in VRL has eig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vassed by Mr. Dhond. The respondent itself has approximately 80,000 shareholders and ironically the petitioner itself has a substantial shareholding in the respondent. The petitioner had chosen to mindlessly pursue and agitate the winding up of the respondent and after commencement of the restructuring scheme and as of 30th August, 2016 a sum of ₹ 441.30 crores will be paid out. The scheme has been evolved after much effort by lenders and is presently functioning smoothly. The additional affidavit also relied upon the MRA between the JLF and executed on or about 29th June, 2015. On the other hand the petitioner has done nothing and it has not even filed a recovery application. Serious prejudice it is claimed will be caused to VRL and the respondent and its employees of the petitioner is admitted but no prejudice will be caused to the petitioner since the amount as per the scheme will continue to be deposited. Mr. Dhond further submitted that the respondent was a going concern to the regularly receiving income for VRL as fees and admission of the petition would cause enormous disruption of business and affairs of not only of the respondent company but also of VRL which ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02) 110CompCas 70 (P H) Canara Bank v/s. Arihant Industries Ltd. 5) (2015) 127 CLA 223( Punj Har) Bank of New York Mellon v/s. JCT Ltd. 6) (1992) 73 Comp Cas 271 (Guj) In Re: Rishi Enterprises. 18. Ms. Saheed the learned counsel appearing on behalf of the petitioner relied upon an additional affidavit of one Sanjay Johari in which the petitioner categorically states that the restructuring proposal is not acceptable to the petitioner since it seeks to convert outstanding interest into a funded interest term loan and the security in terms of the lease in favour of Khatau on behalf of the provided for the respondent to the petitioner at the time of sanction and disbursement of the loan has not yet been renewed. It is stated that the petitioners have set out in detail the fact that the respondent company has availed Rupee Term Loan of ₹ 45 crores repayable in 17 equal quarterly installments and it is also executed security documents as set out in the petition including mortgage of the property owned by Khatau Industries Ltd. However, the property was leased out to Khatau Industries Ltd. by the Bombay Port Trust but the lease has expired in March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be released as a pre-condition is not acceptable to the petitioner. 21. The petitioner also relied upon the clause 4.3.7 of the Reserve Bank of India Circular DBOD B.P.B.C. No.97/2014.132/2013-14 dated 26th February, 2014 which provides that willful defaulters are not normally entitled to restructuring. However, the JLF was to review the reasons for classification of the borrower as willful defaulter and satisfy itself that the borrower was in a position to rectify the willful default. It is also made clear that the decision to restructure should be taken subject to the approval of the Board of Directors or individual banks within the JLF. The petitioners contend that on 19th December, 2014 the Chairman of the company was in the final stages of resolving the issues pertaining to the claim of the petitioner and that then, it was expected to be resolved within a fortnight. Several JLF meetings were held but the petitioner was invited only to some of them. The company has been advised to bring in the amounts but they failed to do so. The petitioner has admitted to have received a letter on 4th April, 2015 from SBI informing them that the restructuring package was being implemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for removal of the name of VSCL from the list of willful defaulters nor is the petitioner obliged to grant any no objection to the restructuring package. For the aforesaid reasons, the petitioner has reiterated its case and refuted the respondent s contention. Ms. Saheed relied upon the following judgments in support of her case :- i) Judgement in Company Petition no.971 of 2009 dated 11th March, 2011 BNY Corporate Trustee Services Ltd. v/s. Wockhardt Limited; ii) Judgement in Civil Appeal no.8230 of 2010 Supreme Court M/s. IBA Health (I) P. Ltd. v/s. M/s. Info-Drive Systems Sdn. Bhd. 24. I have heard counsel at length and with their assistance have considered the pleadings and documents and case law cited. Mr. Dhond opposed the petition upon the following basis; (a) Firstly the petitioner was secured by the pledged shares as well as the mortgaged. The lease would be renewed and the security will subsist in favour of the petitioner. The petition is therefore not maintainable since the petitioner is a secured creditor. (b) Secondly, the JLF is willing to cooperate and secure the petitioners claim and despite this the petitioner had failed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not without a security and whose interests are sought to be protected in that case in separate arbitration proceeding the State Bank of India being the monitoring institution under the CDR Package was to allow the petitioner therein to participate in the CDR package if it so chooses. By amending the provisions of the package and petitioner chooses not to participate, State Bank of India was directed to keep that petitioner informed of the progress of the CDR scheme and not to allow any disposal of assets of the Company without intimation to the petitioner who was granted liberty to apply for appropriate reliefs in relation to such disposal. The Court Receiver had already been appointed as receiver in respect of hypothecated assets in that case. The Petition was dismissed granting liberty to the petitioner to apply for winding up of the Company on the same facts in the event CDR package fails or cannot be implemented. Mr. Dhond submitted that a situation contemplated in Tata Capital (supra) is very similar to the present case and the petitioner should not disrupt the process of restructuring since it would completely disrupt the other members recovery in accordance with the sugge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such discretion arises only after petition is admitted. In matters of winding up on the ground of inability to pay its debts the Court has to bear in mind that a winding up petition is not an alternative to the ordinary procedure for realisation of the debts. Even in case where indebtedness of the petitioner is not in dispute or doubt, Courts do not order winding up where it is satisfied that it would not be in the interest of justice to wind up the Company or whether the majority in value of the creditors do not favor the winding up. It is also to be noted that a winding up order will not be made on a creditor s petition if it does not benefit the Company's creditors generally. At the stage of admission one factor that needs to be considered is whether from the material before the Court it appears that the Company is commercially solvent and the present state of affairs is the result of temporary setback in business operations, In that case the court came to the conclusion that the petitioner being a secured creditors to a very small extent and on considering the entire gamut of the respondent company's business the petitioner had recourse to an appropriate remedy for rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner or get the debt restructured to maintain its credit worthiness. The respondent Company was restrained from creating further charge on its assets, which may prejudice the right of the petitioner who was an unsecured creditor in that case. 26. In my view, none of these decisions come to the assistance of Mr. Dhond inasmuch as in each of these cases, the emphasis has been on considering the pros and cons of admission of the petition, after taking into consideration the interest of the General body of creditors as well as the shareholders In the leading case of M/s.Madhusudan Gordhandas Co. Vs. Madhu Woollen Industries Pvt. Ltd paragraph 20 clearly sets out as follows:- Two rules are well established. Firstly, if the debt is bonafide disputed and the defence is a substantial one, the Court will not wind up the Company. Secondly where the debt is undisputed Court will not act upon a defence that the company will have ability to pay the debt, but the company chooses not to pay that particular debt and where there is no doubt that the company owes the creditors a debt entitling him to a winding up order but the exact amount of the debt is disputed. The Court will m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in American Express Bank (supra) wherein the case Mr. Dhond had sought to contend that in the discretion of the court the Court ought not to proceed in winding up and the Court has to bear in mind interests of the majority of creditors. Ms. Saheed pointed out that the judgment of the single Judge of the Gujarat High Court was subject to an appeal by the Bank challenging the dismissal of the petition by a single Judge. The Appeal came to be admitted on 18/2/1988 and thereafter on 27/8/1999 the appeal bearing OJ/55/1997 came to be withdrawn since the parties settled the dispute. 29. In the present case, both the petitioner and the respondent company were ad-idem that the loan agreement prevails. The fact that there is a debt owing is not in dispute. However computation of additional interest and liquidated damages may have been called into question. What is pertinent to note is that the principal sum due is not in dispute nor is overdue interest. It is case of the Company that it offered to secure the amount of overdue interest. Mr. Dhond had relied upon a copy of the letter from State Bank of India addressed to the petitioner dated 1st April, 2015 on the subject of classificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts other creditors and the petitioner had declined to join a the package. The Court observed that there is no absolute right in the creditors to insist that a winding up order be passed and the Court cannot refuse to entertain the petition mainly because the CDR scheme for settlement of dues is proposed by the Company and proposal of the scheme itself cannot be ground to refuse admission of winding up petition. 32. I am in agreement with the observations in the said judgment that the petition cannot be dismissed because a scheme is proposed and the operation of such a scheme cannot be ground to question maintainability of the petition or not to admit the petition since there is no dispute about liability. The petitioner is statutory corporation seeking to secure interest of lakhs of policy holders. Its interests lie in protecting these assets and its investments. The lease of the building by Bombay Port Trust to the respondent company had admittedly expired in March, 2016 and the 'security' in favour of the petitioner would only be of some value if the lease was valid and subject to the conditions of the lease. As of date there is no enforceable security in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember, 2012 and amongst this is one addressed to the petitioner Corporation. It is a fact that the petitioner did not consent to the scheme it did not oppose the scheme either. Although it was open to the petitioner to appear before this Court at the hearing of the amalgamation petition, the petitioner made no such effort. However, this alone in my view cannot be held against the petitioner in facts of the present case and in ordinary circumstances the conduct of the petitioner could have been questioned for not having opposed the scheme for amalgamation. However, in the present case I find no justification to hold this against the Petitioner. 35. The principal submission on behalf of the respondent as to maintainability in my view has no merit. Merely because the security was created by way of leasehold rights will not entitle the respondent to avoid depending on this petition. The security as presently seems worthless since the lease granted to lessee Khatau Industries has expired in March 2016, and presently the petitioner cannot enforce its security. On this ground alone the contention as to maintainability is unsustainable. The petition is clearly maintainable in the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner. In fact nothing whatsoever, apart from actual operational costs, have been paid to the respondent company. The respondent company is admittedly revenue neutral and as Mr. Dhond has submitted it has no other assets to pay over sums due to the petitioner. The respondent company is quite obviously controlled by Varun Resources Ltd. and other group companies. The additional affidavit filed on behalf of the petitioner makes it clear that the group companies being given interest free loans and advances. References to the auditor's report of the company has revealed that even Varun Resources Ltd. has a negative net worth. The respondent has given Varun Maritime Ltd. interest free advance although company has negative net worth of ₹ 1088.55 lakhs. The respondent has given deposits of ₹ 7.73 lakhs to Varun Corporation Ltd. (its holding company) in respect of residential premises and has given interest free advance of ₹ 200 lakhs to Varun Corporation Ltd. which has net worth of ₹ 55.30 lakhs. All this does not augur well for the company's defence. Mr. Dhond s explanation regarding Note No.26 of report does not alleviate the petitioner's position. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to accede pari passu charge in favour of the petitioner and in view of the facts and circumstances of the case that the order that I propose to be pass must sufficiently safeguard interest of those seeking to protect the respondent company and its employees. It is always open to the respondent to safeguard the petitioner's claim and the Court will be entitled to draw adverse inference in the event of any resistance. 39. The restructuring proposals of loans involves reduction in the principal sum and if the petitioner accepts the restructuring the respondent is willing to make payment in accordance with the proposed schedule or by depositing the same or depositing the same in an account designated by this Court. The suggestion made was as follows:- . The outstanding amount to the petitioner would stand capitalized as on 1st September, 2016. As per the scheme this works out to ₹ 67.85 crores. .This amount would earn interest @ 12% and would be repaid as per the repayment schedule applicable to all other lenders, by 30th June, 2023. A copy of the schedule of repayment of the petitioner's debt is. annexed hereto and marked as Exhibit C. The fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defence that the Company has the liability to pay the debt but the Company chooses not to pay that particular debt. Reference was made in paragraph 21 of Madhusudan Gordhandas to Re :A Company [94 SJ 6369] he further adds where there is no doubt that the Company owes the creditors a debt entitling him to make a winding up order but the exact amount of the debt is disputed the Court will make a winding up order without requiring the creditor to quantify the debt precisely. This was decided in Tweeds Garages Limited [1962 Ch 406]. The principles on which Court acts are first that the defence of the Company is in good faith and one of substance and secondly the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which defence depends. To my mind paragraphs 20 and 21 of Madhusudan Gordhandas (supra) lays down fundamental aspects to be considered when court is presented with a winding up petition. The contents of paragraph 22 no doubt exhorts the court to consider the wishes of other creditors trying to arrive at a conclusion opposing the winding up order. But in my view principles enunciated in these two judgments Tweeds Garage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lighted the fact that it is that the shipping business is in doldrums, a fact repeated by company and echoed by its employees. According to the said affidavit there are statutory dues which have remain unpaid for more than six months as income tax dues amounting to ₹ 271.88 lakhs. This is for the period April, 2014 to September, 2015 has not been paid. Interest on delayed payment of tax amounting to ₹ 39.29 lakhs overdue for period of April, 2014 to September, 2015. In the circumstances it is submitted that there is no substance in the present application on behalf of the employees and that merely because employees may be effected is no reason to decline an order of admission. The affidavit on behalf of the petitioner also annexes thereto a copy of the Sixth Annual Report for the period 2015-16 in which case Ms. Saheed highlighted the fact that note no 26 made by the independent Audit Report to highlight the fact that from amongst long term investment and other exposures in holding and associated companies there has inadequate disclosure for instance in Varun Cyprus Ltd an Associate Company as on 31st March, 2015, the auditors have observed that they have not been able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 47. Ms. Mehta in support of her application also relied upon the decision of the statutory bench of the Supreme Court in National Textile Workers Union and Others vs. P.R. Ramakrishna and Ors (1983)1 SCC 228 and relied upon observation of the Supreme Court in paragraph no. 15, 18 and 20 in as much as observation of Chinnappa Reddy and Baharul Islam Bhagwati J in that Company does not prohibit hearing to the workers and in all situation there are special provisions in the Act which take element of public interest. The Company used discretion in the light of the new situation arising as a result of socio economic changes and accept all of the workers' interest in the Company. It is also observed that an imaginative Company Judge may help to restructure and infuse new life in the Company whose life is ebbing out, within the four corners of the statute and keeping in view the interests not merely of the creditors and the contributories but also the interests of the workers. While in respectful agreement with the said observations, I am afraid I am unable to find any scope for such infusion given the designedly revenue neutral structure of the business. 48. In making th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidated damages. There is however no doubt that the principal sum and the admitted portion of interest is overdue. Moreover interest of ₹ 16.80 crores on the overdue payment was already offered to be paid if the willful defaulter tag was deleted. In fact this amount was also paid over to the SBI to be kept in deposit with them. This course adopted by the respondent not only indicates an attempt to avoid payment of an admitted debt but in my view it amounts to refusal to pay an admitted debt. When the petitioner offered to deposit the amount with SBI to be retained with them in deposit, SBI addressed a letter to the petitioner from which it became obvious that the amount was part of the debt due over and above the principal sum. The principal sum and the overdue interest not being dispute at the material time, the respondent chose not to pay overdue amounts to the petitioner. Instead the respondent along with the assistance of SBI utilised the said amount of ₹ 16.80 crores for purposes of VRL. This was clearly not a bonafide act on the part of the respondent and certainly does not support the respondent case for rejection of the petition. 52. As to maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un Resources Limited and the retaining of the shipping management business alone with the respondent Corporation by itself resulted in the respondent being revenue neutral. Being revenue neutral in the facts and circumstances, the respondent company will have just enough funds to maintain its operation of managing the assets of Varun Resources Limited. No doubt the petitioner Corporation did not object to the proposed scheme of amalgamation and demerger. Notwithstanding such inaction on the part of the petitioner the respondent cannot now contend that the petitioner ought to have been more diligent and ought to have objected to the same. Yet again, merely objecting to the scheme may not have resolved the issue. The petitioner cannot be left in the lurch and made to face the vagaries and the uncertainties of the shipping business. The petitioner is owed a debt by the respondent company. The restructuring package is not restricted to the respondent company. Under the restructured packaged monies payable to the JLF and proposed to be paid to the petitioner will be received only or mainly from Varun Resources Limited against whom the petitioner has no claim as on date. 56. As stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner has made it clear that they are unable to accept the offers to receive the principal amount due to them and would pay upto June, 2023 as proposed. In the circumstances I do not find that there is sufficient material to hold that petition is not maintainable. In my view the petition is maintainable given the facts and circumstances of the case, notwithstanding the claims of the workers that is being agitated to be considered at the appropriate time. The other defences taken up by the respondents dealt with above have no merit. 58. Having considered the fact that the respondent is revenue neutral it appears that respondent company is unable to pay the debt owing to the petitioner. As seen from the Company's response and the submission made in the Company Application filed on behalf of the workers the respondent's business of shipping management is wholly dependent upon the fortunes of its group companies VRL and VSCL. It is VSCL that is funding operation of the respondent Company and it is this fact that is being sought to be leveraged by the respondent and its group Company in order to seek the petitioners consent to agree to the terms proposed by VSCL. Given the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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