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TMI Blog2018 (10) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... t out in schedule 9 Part B of the Investment Agreement as illegal and void-ab-initio. b. To declare that the conversions of compulsory convertible debentures is ultra vires and contrary to the Articles of Association of Respondent No.2. c. TO direct the Respondents 5 and 6 to cancel the 9,06,599 equity shares of Respondent No.2 credited to the account of the Petitioner pursuant to the illegal resolution of the Board of Directors is in contravention of the Articles of Association of Respondent No.2. d. To pass orders for rectification of the register of members of Respondent No.2. 2. On 25.06.2015, an Investment Agreement was entered into between the petitioner and the Respondent No. 13 together with the promoter group consisting of Respondent No.7, Mr. K. Raghu Rama Krishna Raju and Sriba Seabase Pvt. Ltd. (collectively 'the Promoters') and Respondent Nos. 1, 2 and 4. In terms of the Investment Agreement the Petitioner and the Respondent No. 13 lent a sum of Rs. 780 crores as follows :- a. The petitioner subscribed to 9,06,599 the investor compulsorily convertible debentures of Respondent No.2 ("CCDs") of Rs. 10 each for an aggregate consideration of Rs. 99,99,990 and one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The aforesaid terms of the Investment Agreement were incorporated in the Articles of Association of Respondent No.2, particularly at Articles 65.8 and 77.4 of Chapter II. On 15.05.2015 the lead lender of Respondent No.4 had issued a letter whereby, it approved the proposed modification in the equity structure of Respondent No.4 on account of Investment Agreement. 7. On 27.06.2015, a Debenture Trust Deed was executed between Respondent No.2 and Respondent No.3 in terms of which Rs. 699 crores and additional amount of Rs. 80 crores was proposed to be raised by way if issue of NCDs and the payment of discharge of NCDs was to be secured by:- a. Pledge of 9,500 equity shares held by Respondent No.1 in Respondent No.2 representing 51% of its share capital on fully diluted basis; b. Pledge of 50,57,79,500 equity shares of the Respondent No.4 representing 48.99% of its share capital on fully diluted basis; and c. Hypothecation and maintenance of all cash flows of the Respondent No.4 permitted to be hypothecated under the terms of Financing Agreements. 8. The obligations under the Investment Agreement were secured by a pledge of shares under the Share Pledge Agreement dated 09.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent Nos.1,2 and 4 calling upon them in terms of the Investment Agreement informing them that on account of occurrence of Events of Default under the Investment Agreement they became entitled to exercise voting rights in respect of the securities held by them in Respondents Nos. 2 and 4. 16. On 31.08.2017, the Respondent No.3 invoked the Power of Attorney granted to it pursuant to the Share Pledge Agreement and invoked the pledge of 9,500 shares of Respondent No.1 in Respondent No.2 and 50,57,79,500 equity shares of Respondent No.1 in Respondent No.4 but the pledged shares have not been sord and they were only transferred to de-mat account of Respondent No.3. 17. On 05.09.2017, the Petitioner and Respondent No. 13 issued letters to the Promoters and Respondent Nos.1, 2 and 4 and Arkay Energy Rameshwaram Ltd calling upon them to convert the CCDs into equity shares and thereby stating that with effect from 05.09.2017, the nominees of the Promoters and Respondent No. 1 shall cease to be the directors of Respondent No.2 and 4. 18. On 12.09.2017, the Respondent No.3 addressed a notice in exercise of its rights under the Debenture Trust Deed, the Share Pledge Agreement and the Powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CP No.235/2017 for a declaration that the notice dated 06.10.2017 issued by the Respondent No.3 is illegal and contrary to Articles of Association of Respondent No.1 and CP No.243/2017 under section 59 of the Companies Act, 2013 for rectification of register of members and for a declaration that the transfer of 9,500 shares in the name of Respondent No.3 are contrary to the Articles of Respondent No. 1. 27. The NCLT, Hyderabad by its order dated 27.10.2017 stayed the EOGM scheduled to be held on 01.11.2017 until the next date of hearing, i.e., 17.11.2017 at which time it was extended by consent to 12.12.2017. 28. Thereafter, there was no extension of status quo order. 29. On 06.03.2018 Respondent No.1 filed a memo in both the Company petitions CP 235/2017 and CP 243/17 seeking to withdraw the same with a liberty to file afresh. 30. This Tribunal permitted the petitioners in both the CP's to withdraw petitions by granting liberty to the Petitioner to file fresh Company petition if the Petitioner is aggrieved by the action of the Respondent. 31. Further, the Hon'ble Tribunal ordered since the restraint order passed by the Tribunal stands vacated by virtue of disposal of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1971 stating that the meeting of the Board of Directors of respondent No.2 held on 26.03.2018 is in blatant violation of the orders passed on 06.03.2018. 41. On 06.04.2018 the Petitioner and the Respondent No. 13 were intimated by SBI SG Global Securities Services Pvt. Ltd. about the conversion of CCDs into equity shares and the Petitioner's account had been credited with 9,06,599 equity shares of Respondent No.2 as on 06.04.2018. 42. According to the Petitioner and Respondent No. 13 the Board of Directors meeting on 26.03.2018 for conversion of CCDs was based on a deliberate misinterpretation of the Order dated 06.03.2018 and it is in violation of the Articles of Association. 43. The Petitioner without prejudice to his contempt filed this Petition. 44. The Respondent No.1 filed counter stating that the Petition is not supported by affidavit prescribed in the NCLT Rules, 2016. 45. This Tribunal has no jurisdiction u/s. 59 of Act to grant the reliefs claimed in the Petition. 46. The issue raised by the Petitioner in the instant Petition is triable issue required a detailed trial and interpretation of various agreements executed among the parties to the Petition. 47. It is sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o give effect to the conversion of CCDs, the petitioner did not take any steps to withdraw or recall the Pledge. 59. The Respondent No.2 filed counter on the same lines on which Respondent No.1 filed. 60. Basing on the Pleadings and the rival contentions the following points emerge for determination in this Petition. (i) Whether this Tribunal has got jurisdiction to consider and grant the reliefs prayed in this Petition while exercising jurisdiction U/s.59 of the Companies Act, 2013? (ii) Whether the conversion of 9,06,599 CCDs into equity shares in favour of the Petitioner is in accordance with the Articles of Association and Investment Agreement the dated 25.06.2015? (iii) Whether Petitioner is entitled for rectification of register of members of Respondent No.2? 61. This petition is filed invoking the jurisdiction of this Tribunal u/s.59 of the Companies Act, 2013 that corresponds to Sec.111A of the Companies Act, 1956 inserted by Sec.30 of Act 22 of 1996 with effect from 20.09.1995 repealing Sec. 155 of the earlier Companies Act. 62. Sec.59 of the Companies Act 2013 came into force with effect from 12.09.2013. 63. Sec.59 of the Companies Act reads as under:- Rectif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three lakh rupees, or with both. 64. Sec. 59 sub-section (1) gives rise to a cause of action to any member of the Company or the Company or all the person aggrieved in case if the name of any person is without sufficient cause entered into the register of members of a company or after having been entered in the register, omitted therefrom without sufficient cause. 65. In the case on hand the cause of the Petitioner is that without sufficient cause its name has been entered into register of members and equity shares of the Respondent No.2 Company have been allotted to it as per the intimation given by the SBI SG Global Securities Private Limited about the conversion of CCDs into equity shares and the Petitioners account had been credited with 9,06,599 equity shares of Respondent No.2 on 06.04.2018. 66. Admittedly on 05.09.2017 the Petitioner and Respondent No. 13 issued letters to the Promoters and Respondent Nos. 1, 2 and 4 and Arkay Energy Rameswaram Limited calling upon them to convert the CCDs into equity shares and thereby stating that with effect from 05.09.2017, the nominees of Promoters and Respondent No.1 shall cease to be the Directors of Respondent No.2 and 4. 67. Adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the dispute raised really pertains to rectification or under the grab of rectification questions of the facts involving contentious issues raised. 75. It is further held in that Judgment that if dispute found to be relating to the peripheral field of rectification, then the Company Court under section 155 will have exclusive jurisdiction and jurisdiction of Civil Court will be impliedly barred. It is also held that if the finding is otherwise Civil Court's jurisdiction is not excluded. 76. Keeping the said principle in mind we proceed to examine facts and events that lead to be filing of this Petition. 77. Admittedly on 25.06.2015, The Investment Agreement was entered into between the Petitioner and Respondent No. 13 together with Promoter group consisting of Respondent No.7, Mr.K.Raghu Rama Krishna Raju and Sriba Seabase Pvt. Ltd. (collectively 'the Promoters') and Respondent Nos. 1, 2 and 4. 78. Admittedly, in terms of the Investment Agreement, the Petitioner and Respondent No. 13 lent a sum of Rs. 780 crores as follows:- a. The petitioner subscribed to 9,06,599 the investor compulsorily convertible debentures of Respondent No.2 ("CCDs") of Rs. 10 each for an aggregate c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir voting rights in a meeting of the Board to approve the conversion of the CCDs. (e) In the event the Company undertakes any form of restructuring of its share capital, including but not limited to (i) consolidation or sub-division or splitting up of its Equity Securities; (ii) issue of bonus or right shares; (iii) distribution of scrip dividend; or (iv) other similar occurrences, the number of Equity Shares that each CCD converts into, shall be adjusted accordingly in a manner that the holder of the CCDs receive such manner of Equity Shares that they would have been entitled to receive immediately after the occurrences set out in the sub paragraphs (i) to (iv) above had the conversion of the CCDs occurred immediately prior to such occurrences. 80. Even according to the Petitioner, the promoters and Respondent Nos.1,2 and 4 committed contractual breaches repeatedly that amount to occurrence of serious Events of Default as defined under the Investment Agreement that is Type 1 Event of Default; Type 2 Event of Default and Type 3 Event of Default. 81. Even according to the petitioners inspite of reminders, Respondent No.2 failed to make interest payments in accordance with the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 and the notice of said meeting was given on 17.03.2018. 91. It is at this stage that the Petitioner and Respondent No. 13 took a 'U' turn and stated that they are not going ahead with the conversions of CCDs into equity and they will exercise such option at a future date vide letter 20.03.2018. 92. Here it is pertinent to mention that the Petitioners also filed a Petition U/s.425 of the Companies Act, vide CP 175/425/HDB/2018 for contempt on the ground that the Board of Directors meeting was called by miss-quoting the Order of the NCLT dated 06.03.2018 passed in CP 235/2017. 93. Thereafter, Petitioners filed this Petition. Thereafter, the Petitioner also filed CP (IB)No.l92/7/HDB/2017 U/s.7 of the IB Code against Ind-Barath Energy (Utkal) Private Limited i.e., Respondent No.4 herein with a request to trigger CIRP Process in respect of Respondent No.4 herein claiming as a Financial Creditor. 94. The Petitioner himself in the Petition raised several issues relating to the Board Resolution dated 26.03.2018, wherein, the conversion of CCDs into equity shares of Respondent No.2 was passed. 95. One of such contentious issues raised by the Petitioner regarding the Board meeting da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se law on the point. 105. The next issue raised by the respondent is that the Petitioner and the Respondent No.3 having elected to have conversion of CCDs into equity shares of Respondent No.2 choose to go back on their election which is not provided in the Articles of Association or in the Investment Agreement. 106. The issue raised by the Petitioner is that before the conversion of CCDs into equity shares when the Petitioner wrote back to the Respondents 1 and 2 by a letter dated 28.03.2018 asking them not to place agenda item No.3 of the Board meeting dated 26.03.2018 relating to conversion of CCDs into equity shares, the conversion is illegal. Basing on the provisions of the Contract Act relating to proposal offer and acceptance. These are all the contentious issues. 107. Unless and until all these issues are answered it is not at all possible to give a finding as to the validity or otherwise of the Board resolution dated 26.03.2018, wherein the conversion of CCDs into equity shares of Respondent No.2 were made. 108. Therefore, while exercising summery the jurisdiction u/s.59 of the Companies Act, I am afraid that the scope cannot permit to go into all the above said conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the same. 118. This Tribunal vide its order dated 06.03.2018 clearly held that Respondent No.1 may conduct EOGM in accordance with law and follow principles of natural Justice. 119. In the absence of CP NO.235/2017 and with the vacation of the Stay Order Respondent No.1 is supposed to act on the notice dated 06.10.2017 issued by Respondent No.3 for calling of EOGM. 120. But Respondent No.1 called for a Board Meeting on 26.03.2018 for conversion of CCDs held by the Petitioner into equity shares of Respondent No.2. 121. As soon as notice is issued on 17.03.2018, on 20.03.2018 Petitioner asked Respondent No.2 not to go ahead with the conversion of CCDs and reserved its right to have a request to convert CCDs into equity shares at a later point of time by issuing a fresh notice. 122. The Articles of Association says that the right of election is given to the Petitioner only once to ask for conversion of CCDs into equity when events of default occurred as per the terms of Investment Agreement dated 25.06.2015. 123. When once election has been made by the Petitioner and when such election is kept alive till they received the notice dated 17.03.2018 for the Board of Directors me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law that require determination by exercising a wider jurisdiction than the jurisdiction provided U/s.59 of the Companies Act. 132. In case the Company is going well in terms of Finance and its share has got considerable value which is equivalent to the amount in default that includes interest, even then the Petitioner can put forward an argument that within 5 days conversion did not take place and therefore the Petitioner is not entitled for conversion. 133. Mere non-conversion of CCDs into equity shares within 5 days from the date of election will not automatically disentitle the investors to have their right for conversion enforced and it does not give right to investor to go back on the election made by it. 134. Therefore, it can be said that the non-conversion of CCDs into equities within 5 days after the Petitioner elected for conversion is not in accordance with the Articles of Association, but it gives the Petitioner only right to enforce conversion but not any other right. There is no merit in the argument that defaulters will convert CCDs into equity to get rid of crores of Rupees of debt; since it is only on election of investor CCD can be converted to equity. 135 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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