TMI Blog2015 (7) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... petition, to have the company wound up. (a)Arbitration Petition is disposed of by directing State Bank of India – the Monitoring Institution under the CDR Package – to allow the Petitioner to participate in the CDR package if it so chooses, by amending the provisions and terms of the package appropriately. In the event the Petitioner does not choose to so participate, State Bank of India is directed to keep the Petitioner informed from time to time about the progress of the implementation of the CDR Scheme and not allow any disposal of assets of the Respondent Company without intimation to the Petitioner. The Petitioner will be at liberty to apply for appropriate reliefs with respect to the disposal, if any, of the assets as and when such intimation is given to it, with a view to protect its interests consistently with the other creditors including the CDR lenders. (b) The Court Receiver appointed as receiver in respect of hypothecated assets described in the Schedule to the Deed of Hypothecation dated 13 July 2010 (Exhibit – H to the petition) in the order dated 26 November 2014, which is continued as an adinterim arrangement in terms of the order passed by the Appeal Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d lenders to formulate a CDR scheme, it is the case of the Petitioner that the Respondents are in the process of arranging their affairs and assets in such a manner as to defeat the execution of any arbitral award that the Petitioner may obtain in the reference. The Petitioner further submits that the hypothecated assets, which form its security, are insufficient to satisfy the dues of the Petitioner. The Petitioner, in the premises, seeks a deposit order and in default of such deposit, an order for attachment before judgment and in the alternative, an interim injunction restraining the Respondents from selling their movable and immovable assets or even dealing with them as part of the CDR Scheme. 3. The application is opposed by the Respondents and the consortium of their secured lenders, comprising of 20 banks and financial institutions led by the lead bank State Bank of India, who have taken out the accompanying Chamber Summons for impleadment in the Arbitration Petition. The Respondents oppose the application on various grounds including insufficiency of stamp on the document containing inter alia the arbitration agreement, the CDR mechanism being put in place and balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stamped; the document cannot, in the premises, be led in evidence or acted upon by this Court and thus, no relief can be granted to the Petitioner under Section 9 of the Act. It is submitted that the Term Loan Agreement is executed between the parties in Delhi and bears the stamp in accordance with the law applicable in Delhi. It is submitted that within three months of the document or its copy being received in the State of Maharashtra, it is required to be stamped with the duty applicable in Maharashtra by virtue of Sections 18 and 19 of the Maharashtra Stamp Act, 1958 and the document not having been so stamped, is inadmissible in evidence and incapable of being acted upon by this Court. Learned Counsel for the Respondents relies upon the judgments of the Supreme Court in the case of SMS Tea Estates Pvt. Ltd. vs. Chandmari Tea Company Pvt. Ltd.( (2011) 14 SCC 66) and of the Division Bench of our Court in the case of Lakdawala Developers Pvt. Ltd. vs Badal Mittal and Others(APP(L)272.13 std. 25 June 2013, Coram: Dr. D.Y. Chandrachud S.C. Gupte,JJ.) in support of his submissions. In reply, it is submitted by the Petitioner that the document cast the duty of payment of stamp dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner in pursuance thereof having been admitted by the Respondents, the Court would be within its rights to consider the interim application of the Petitioner pending the arbitration reference even in the absence of the Term Loan Agreement. So also, the questions regarding the existence of the debt and bonafide disputes in respect thereof, if any, which are the subject matter of the Company Petition, can also be considered without reference to the stipulations of the Term Loan Agreement in the facts of the present case. 7. It is alleged by the Respondents that the Petitioner has 'falsely' stated in the petition that the documents, including the Term Loan Agreement, were executed in Mumbai, whereas the documents were actually executed in Delhi. It is true that the documents appear to have been executed in Delhi and there appears to be an incorrect statement in the petition that they were executed in Mumbai. That, however, does not imply that the statement is 'false' or, much less, that the petition should be thrown out on that ground. The word 'false' in this context implies 'deliberately intended to deceive' and only if a party indulges in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 38 Rule 5 and Order 39 Rules 1 and 2, but at the same time, will have the discretion to mould the relief on a case by case basis with a view to secure the ends of justice and preserve the sanctity of the arbitral process. That is the ratio of the case of Deccan Chronicle Holdings Limited Vs. L T Finance Limited(Appeal(L) No.130 131/13 in Arb. Petn. 1095/12 1321/12, Coram: D.Y.Chandrachud S.C.Gupte,JJ. dtd.8/8/13.), where a Division Bench of our Court reviewed the law on the subject including the Supreme Court decision in Adhunik Steel Ltd. Vs. Orissa Manganese Minerals (P) Ltd. (AIR 2007 SCC 2563) and the decision of our High Court in Nimbus Communications Ltd. Vs. Board of Control for Cricket in India (2012(5) Bom.C.R. 114 ). 9. In the present case, the reliefs are sought both on the basis that the principles of Order 38 Rule 5 are satisfied in the present case and that there is also a case for enforcement of a negative covenant under the principles behind Order 39 Rules 1 and 2. It is submitted that there is a clear case of an outstanding debt, which is not even seriously disputed by the Respondents. The debt is of a huge sum of over ₹ 25 crores. It is furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. In the premises, as long as the Petitioner s first pari passu charge is being recognized by the CDR lenders, the Petitioner cannot make any serious grievance out of the CDR scheme or its proposal of a consolidated hypothecation deed. As and when the security is realized, the Petitioner as the first pari passu charge holder will be entitled to participate in it. There is no case, thus, for granting any injunction by way of enforcement of the negative covenant claimed by the Petitioner. 11. As for the case under Order 38 Rule 5, in the facts of the case, noted above, there is hardly any likelihood of the Respondents disposing of their assets with an intention to obstruct or defeat any award that may be passed in favour of the Petitioner. In the first place, all properties of the Respondents are subject matter of security for the dues of secured creditors; they are being closely monitored within the parameters of a CDR Scheme. Secondly, the disposal, if any, can only be under the CDR Scheme and such disposal can never be termed as disposal with an intention to defeat any award against the Respondents. This is particularly so, since the CDR lenders are owed a sum of over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 341 crores by CDR lenders into the company, and (iv) total loan tenure of 117 months, with repayment starting from 30 April 2016. The total sacrifice of CDR lenders on account of deferment of principal repayment and reduction of interest rate is estimated at ₹ 290.84 crores. The Interveners/CDR lenders have placed on record the financials of the company and the various steps taken by the stakeholders in the matter of revival of the company. In the light of the foregoing, this Court would be loathe to pass any order jeopardizing the CDR Scheme without any compelling reason. It is neither in the interest of the company nor its creditors including the Petitioner herein. The balance of convenience weighs heavily in favour of allowing the CDR Scheme to have a full play, with a fair chance to all stakeholders to secure a survival for the company, so that its commitments are honoured. 14. Interests of justice would instead be served better if the Petitioner is either allowed to participate in the CDR Scheme or if it chooses not to, kept informed from time to time about the progress of the implementation of the Scheme, with directions to the Monitoring Institution under the Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m: Manmohan Singh,J) in support of his contentions. 16. It is true that there is no defence to the Petitioner s debt and there is a clear case of deemed inability to pay it on the part of the company. But does that mean that the Company Court is obligated to admit a winding up petition. Is advisability of a winding up order not a matter to be considered by the Company Court. For there is no denying that the right to a winding up order is not an unqualified right. In Palmer's Company Law the rule is expressed in the following words: the Court will regard the wishes of the majority in value of the creditors, and if, for some good reason, they object to a winding up order, the Court in its discretion may refuse the order. The Supreme Court in the case of Madhusudan Gordhandas Co. Vs. Madhu Woolen Industries Pvt. Ltd. (1971(3) SCC 632) explained the matter thus: 22. Another rule which the court follows is that if there is opposition to the making of the winding up order by the creditors the court will consider their wishes and may decline to make the winding up order. Under Section 557 of the Companies Act, 1956 in all matters relating to the winding up of the company the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in all matters relating to the winding up of a company, the Court will have regard to the wishes of creditors and contributories. Subsection (1) of section 557 provides a clear statutory principle for the Court to follow. As a matter of fact there is no reason why the mandate of subsection (1) of section 557 should not be applied even to the stage of admission. Chawla, J. held that the interests of creditors are not in any manner affected or prejudiced by a mere admission of the petition and that they have an opportunity to have their say at the time of admission. In my view, the interest of creditors has to be considered by the Court even at the stage of admission. The reasons are not far to seek and the facts of the case are fairly typical. In the present case, in the affidavit in support of the company application(Company Application No.352 of 2003), it has been averred that State Bank of India leads the consortium of banks that advanced large sums of money to the respondent Company towards working capital facilities. The consortium consists of State Bank of India, Bank of Baroda, Canara Bank, Union Bank of India, State Bank of Indore, Corporation Bank, ABN Amro Bank N.V., Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, is very much a component of the sound judicial discretion to be exercised by the Court and there is no reason why it ought not to form part of the consideration of the Court at the admission stage, as explained above. 18. Let us now consider whether the judgments relied upon by the Petitioner's Counsel concerning CDR Schemes visavis winding up petitions, state the law otherwise. In BNY Corporate Trustee Services Ltd.(supra), a learned Single Judge of this Court was considering the question of maintainability of a company petition in the face of a CDR Scheme under implementation in respect of the company. In that case, there was a CDR Scheme approved by a majority of the creditors of the company which provided for restructuring of the debts owed by the respondent company to the CDR lenders. The petitioner was not willing to join the CDR Scheme. It was contended on behalf of the petitioner that the CDR Scheme or its pendency by itself did not constitute a defence to the company petition. It was contended that in spite of the pending CDR Scheme approved by some of the creditors of the company, a petition for winding up at the instance of the creditor, who chose to remain out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of unsecured creditors, since in some cases refusal of the order will rob them of what is virtually their only remedy. The court held that the claim of unsecured creditors in that case amounting to ₹ 200 crores could not be ignored on the ground that the CDR Cell was holding meetings for restructuring the debts of the secured lenders of the respondent company. The court noticed that the total liabilities, including debts owed to the secured creditors to the tune of ₹ 200 crores and to the unsecured creditors also to the tune of ₹ 200 crores, were far in excess of the assets of the company and the company appeared to be commercially insolvent. The court was of the view that the company had not paid even the statutory contributions for the benefit of its workers since the past one year; there was suppression of facts in the affidavit filed by the petitioners; and an attempt was made to simply take adjournment on the ground that the CDR Cell was in the process of preparing a financial restructuring package for the respondent company. The court, in the premises, was of the view that there was a case for winding up of the respondent company. The Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Reserve Bank of India were binding on the plaintiff. The learned Single Judge of Delhi High Court did not accept the contention of the defendants. The court held that by virtue of documents executed between the parties, the plaintiff had a contractual right to see that no other or further charge was created in respect of the assets without the prior sanction of the plaintiff and that the defendant shall not dispose of, including by way of pledge, his shareholding in defendant no.1 without the plaintiff's consent. The court held that the CDR mechanism being a voluntary arrangement, no lender could be said to be bound unless he approved of the same. The court noted that the plaintiff in that case had no intention to stall the CDR package but that he was merely interested in protecting his contractual rights. The court, in the premises, granted various reliefs to the plaintiff. 19. A review of the law laid down by the learned Single Judges of our Court and Delhi High Court clearly indicates that, in the first place, a CDR mechanism is a voluntary arrangement and that other creditors, who opt to remain out of the package, could not be forced to either join or act on the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvene a joint lenders' meeting and prepare a final restructuring package for the company. And even the so called business plan was not forthcoming despite the Court's demand. It is in these facts that our Court said that the claim of unsecured creditors in the instant case amounting to Rupees Two Hundred Crores cannot be ignored or pushed back on the ground that the CDR Cell is holding meetings for restructuring the debts of the Respondent Company . The facts of our case are clearly distinguishable from the facts of Sublime Agro noted above. Even in Citibank N.A., Delhi High Court did consider it necessary to examine in detail the effectiveness of the CDR scheme and its impact on the ability of the company to repay the debts, but only at the stage of final hearing of the winding up petition and not at the stage of admission. That was on the basis of the view of that Court concerning the matters to be considered at the admission stage, which view has, as noted above, not found favour with our Court. 20. In our case, as noted in details above, the CDR package is the final CDR package approved by the Corporate Debt Restructuring Cell; there is a huge debt which is bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stand vacated but only with effect from the expiry of the period of 3 weeks from today. (d) Mr. Seervai, learned Counsel appearing for the Respondents states that the Respondents shall furnish a statement on affidavit disclosing the particulars of dealings with the hypothecated assets in the ordinary and usual course of business as of the date of this order. The statement is accepted. Such affidavit shall be submitted within a period of 3 weeks from today. (e) Since I have already heard the Interveners secured lenders of the Respondent Company in the matter and dealt with their submissions, there is no need to pass any separate orders on their Chamber Summons. Chambers Summons (L) No.404 of 2015 is, accordingly, disposed of. (f) Company Petition No.443 of 2014 is dismissed. The Petitioner, however, will be at liberty to apply for winding up of the Respondent Company on the same facts as are urged in this Petition, in the event the CDR Package fails or cannot be implemented in its existing terms. (g) In view of the dismissal of the Company Petition, nothing survives in the Company Application and the same is also dismissed. (h) There shall be no order as to cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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