TMI Blog2020 (9) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.05.2011 and the present petition filed on October, 2011. That apart it is after the issue of the Statutory notice that the respondent send a letter dated 03.08.2011 to all the Bond holders asking them to give their assent for any one of the terms of restructuring. It is therefore clearly evident that till the date of the filing of the winding up petition, the restructuring had not taken place and only the preliminary stage of signing the term sheet had taken place. This was also thereafter, revoked by QVT Bond holder in February, 2011. Therefore, the defense that there is no debt and the liability is bonafide disputed rings hollow and is clearly a defense lacking in substance and a moonshine one. Whether the liability has been admitted? - HELD THAT:- In the 20th Annual Report for the period 2014-2015 in the notes forming part of the financial statement the respondent company has stated that a Restructuring had been entered and in terms there of 50% of the bonds worth 15 Million USD has been redeemed and the balance is to be converted into 1,91,53,012 Equity shares. This statement has been appended when the petitioner has filed the winding up petition in the year 2011 itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In pursuance of the above offer letter, the respondent had issued the aforesaid bonds to the Bond holders and the petitioner, as the Trustee of the Bond holders and the respondent, as the Issuer, had entered into a Trust Deed on 21.02.2007. The terms and conditions of the Bond formed a part of the Trust Deed and was set out as Schedule-2 to the Trust Deed. 4. It is the case of the petitioner that from the 2nd semi-annual interest due on 21.12.2009, the respondent had not paid the interest that had become due and payable on the scheduled dates. Since the default continued for over 5 days in each of the instances, it became an event of default as per condition No.10 of the Bond. As on 06.04.2011, the respondent therefore, was due in the amount of $38,098,737.85. The petitioner as Trustee therefore, issued a notice of default dated 06.04.2011 calling upon the respondent to remit the early redemption amount together with the accrued and unpaid interest as contemplated under condition No.10 of the Bond. 5. The Respondent has sent a reply dated 19.04.2011 stating that they had attempted to restructure the Bonds in the year 2009. They therefore, contended that since the Bond hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as ₹ 396 lakhs. They had also set up wind mill projects in 2 places at Karnataka in 1998 and at Puducherry in 2004. In the year 2007, the respondent decided to raise funds through Foreign Currency Convertible Bonds. M/s. Jefferies International Ltd. was the Manager for this fund and M/s. Euroclear its clearing agent. The respondent issued the offer circular dated 13.12.2007. 12. The respondent would further contend that the Bond holders are unsecured creditors and the bonds are freely traded in the Singapore Exchange Securities Trading Ltd. Further, the Bond holders are investing money subject to risk disclosed in the offer letter. The respondent would further contend that M/s.QVT Fund LP and Quintessence Fund L.P., Cayman Islands (Collectively known as QVT Bond holder) were the major subscribers to the issue. The Petitioner Trustee was bound to consider the collective interest of the Bond holders and not individual Bond holders. 13. It is the further case of the respondent that in June, 2009 owing to the global stagnation, the share value of the respondent Company fell. Thereafter, there was a consensus between the respondent and the bond holders which broadly pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the petitioner's letters asking them to identify themselves with the necessary proof of their holdings. Therefore, the petitioner contended that the respondent was attempting to put up a sham defense and the petition for winding up should be ordered. 17. Submissions: (A). Mr. P.S. Raman, the learned Senior Counsel who was instructed by the Counsel for the petitioner had made his oral submissions which has been captured in the written submissions filed on behalf of the petitioner. The Learned Senior Counsel had given a brief submission on the floating of the Bonds by the respondent; the procedure contemplated for applying for it, how and when the Bonds are to be redeemed, the salient features of the Bonds etc. He had also briefly touched upon the sequence of events commencing from the issue of Bonds upto the commencement of the dispute. The Senior Counsel would submit that the petitioner was appointed as a Trustee by the Bond holders and it was in this capacity that the petitioner had entered into the Trust Deed dated 21.12.2007 with the respondent/Issuer. The Senior Counsel would make his submission to each of the objections made by the counsel for the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout the proper authorization of the Bond holder as certain Bond holders ie. M/s. White Crown Holdings Ltd., had expressed the view that they were happy to go ahead with the restructuring and had not authorised the petitioner to move the winding up petition. To this, the petitioner would contend that as per Clause 16 and 24 of the Trust Deed that the petitioner was vested with the full discretion with regard to institution of proceedings to enforce the terms of the Bonds/Trust. The petitioner is bound to initiate such proceedings if so directed by an Extraordinary Resolution or if requested in writing by Bond holders holding at least 25% of the Bonds. The Senior counsel would bring to the notice of the Court the Letter dated 04.04.2011 from M/s.QVT Fund LP and Quintessence Fund L.P.,who admittedly held over 45% of the outstanding principal amount of the Bonds, instructing the petitioner to proceed on the basis of the Event of Default. It was only on such instruction that the petitioner had issued the notice of default followed by the winding up notice and later the petition. The petitioner had also called in question the authenticity of the alleged mails from M/s.White Crowns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioner would rely on the Judgment reported in 1971(3) SCC 632 - M/s. Madhusudan Gordhandas Co. Vs. Madhu Woollen Industries Pvt. Ltd. (f) The respondent had contended that there exists no admitted liability to enable the petitioner to maintain the present company petition. This defense is taken on the basis that no debt was due under the Bonds which formed the subject matter of the Company petition as the terms of the Bond stood modified/restructured with effect from 22.06.2009. That Apart, the petitioner acknowledging this restructuring had placed a zero interest debt service letter dated 07.12.2009 which would clearly prove that the petitioner had acted upon the restructuring. Further, M/s.QVT Fund LP and Quintessence Fund L.P. had signed the term sheet approving the modification/restructuring. The petitioner would counter this objection by contending that except for signing the terms sheet, M/s.QVT Fund LP and Quintessence Fund L.P. had not proceeded further with the restructuring as contemplated under the terms and conditions of the Bonds read with the Articles of Schedule IV of the Trust Deed. There was no extraordinary resolution of the Bond holders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no demand of interest was made by way of an invoice. (iv) The petition is filed only on the written instruction of M/s.QVT Fund LP and Quintessence Fund L.P. and no other Bond holders has given written instruction to the petitioner to file the winding up petition. (v) That the petitioner who claims to be is not aware of the signing of the term sheet by M/s.QVT Fund LP and Quintessence Fund L.P. would contend that M/s.QVT Fund LP and Quintessence Fund L.P. has not signed the same. (vi) That 50% of the Bond amounting to USD 15 millions redeemed belongs to one particular Bond holder and it is not M/s.QVT Fund LP and Quintessence Fund L.P. The Learned Counsel would further submit that the Judgments reported viz., Zenith Infotech Ltd. Vs. The Bank of New York Mellon London Branch. and Deutsche Trustee Company Limited Vs. Mascon Global Limited can be distinguished from the facts of the present case as the Statutory notice in Zenith Infotech Ltd. Vs. The Bank of New York Mellon London Branch. was issued after the Bonds matured for repayment and redemption which is not the case in the case of on hand. Further in the above referred case their Lordships were d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tessence Fund L.P and the petitioner. The respondent would therefore contend that since there is a dispute with reference to the debt which is bondafide the winding up petition deserves to be dismissed. 18. Discussion: a) The respondent has raised the preliminary issue of jurisdiction. This defense has been taken on account of clause 21 of the Terms and Conditions of the Bonds which reads as follows: The Bonds, the Trust deed and the Agency agreement are governed by, and shall be construed in accordance with, English law. In relation to any legal action or proceedings arising out of or in connection with the Trust deed and the Bonds, the Issuer has in the Trust deed irrevocably submitted to the jurisdiction of the courts of England and in relation there to has appointed an agent for service of process in England. The Courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Bonds and accordingly any legal action or proceedings arising out of or in connection with the two Bonds may be brought in such court . b) However the Trust deed at Clause 25.2 would clarify that the jurisdiction being vested with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company should be wound up. 434. COMPANY WHEN DEEMED UNABLE TO PAY ITS DEBTS : (1) A company shall be deemed to be unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company. (2) The demand referred to in clause (a) of subsection (1) shall be deemed to have been duly given under the hand of the creditor if it is sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g directions as to the advertisement of the petition. (e) A reading of Section 433(e) would clearly show that a Company can be wound up if it is unable to pay its debts which presupposes the followings: (a) That there is a debt which is validly due to the petitioner, and (b) the Respondent Company which is sought to be wound up is unable to pay its debts. Section 434 elaborates the circumstances when a Company is deemed to be unable to pay its debts: (i) Where despite issuing a demand notice calling upon the respondent to pay the debt it owes to the petitioner, which is over and above a sum of ₹ 500/- and the respondent after a period of 3 weeks from the receipt of the notice, has failed to pay up the due or given a reply putting forth a valid defense; or (ii) Where an execution or other process issued on a decree or order by any Court in favour of the creditor is returned unsatisfied in whole or part; and (iii) That the Company is unable to pay its debts and the contingent and prospective liabilities of the Company are such that it would be unable to pay its debts. (f) The only ground on which this petition can be dismissed is when the respondent co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany When the company contended that the work had not been done properly was not allowed. (See Re. Brighton Club and Norfold Hotel Co. Ltd. 21.Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company 94 S.J. 369). Where however there is no doubt that the company owes the creditor a debt entitling him to 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 quantity the debt precisely (See Re. Tweeds Garages Ltd. (3) The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. 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 Company Act 1956 in all matters relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before them held that once a part of the debt is admitted then the winding up petition ought to be admitted and not dismissed on the ground that the debt is disputed. (j) In the case before us the respondent's case is that only 50% of the Bonds were restructured and the remaining 50% remained as Bonds. The Bonds were to be redeemed in December, 2012. Admittedly, to date even the admitted amounts due towards this 50% has not been paid. (k) The cause of action for the present petition is the non-payment of the semi-annual interests by the respondent which according to the petitioner gave rise to an event of Default. This gave a right to the petitioner under the terms of the Bond and the Trust Deed to seek the early redemption amount. The petitioner as the Trustee of the Bond holders had issued the notice of Default dated 06.4.2011 upon the instructions of their Bond holders. From the reply dated 19.04.2011 of the respondent, it is seen that the Bond holders consent for the amendment to the Trust Deed had not been received till the date of the reply notice. The respondent has further stated that M/s.QVT Fund LP and Quintessence Fund L.P. had not proceeded as agreed by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether or not they were present at the meeting at which such resolution was passed. The Company hereby requests that the Bondholders consider and assent to one of the three offers and inform the Trustee (at wanlin.chong@bnymellon.com) or the Company (at diraviam@indowind.com with cc to:rajadurai@indowind.com) of their presence. The Company will then consider the preference of the Bondholders and communicate the decision to the Bondholders. Bondholders are urged to take steps to contact the Trustee or the Company with their preference as soon as possible and, in any case, on or before 11.00am (London time) on August 17, 2011. The Company will then seek formal Bondholders consent, if sufficient interest is shown for any of the proposals outlined above, to a restructuring through the passing of an Extraordinary Resolution by Bondholders in accordance with the Trust Deed and, assuming that is passed execute and request the Trustee to execute a supplemental trust deed (the Supplemental Trust Deed ) amending the Trust Deed and the terms and conditions of the Bonds set out in Schedule 1 to the Trust Deed. M/s.QVT Fund LP and Quintessence Fund L.P. bond holders have responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore given permission to the petitioner to institute proceeding for winding up the respondent company. (m) From a complete analysis of the above documents it is clear that the Bond holder who had initially filed a term sheet agreeing to the restructuring of the FCCB in principle has thereafter on 02.02.2011 expressed in writing their intention not to go ahead with restructuring which was reiterated in August, 2011 and forwarded to the respondent as attachment to Email dated 17.08.2011. The notice for default has been issued after the Bond holders had expressed their intention not to proceed further with the restructuring. The notice was issued on 06.04.2011 and the Statutory notice under Section 434(1)(a) of the Act has been issued on 18.05.2011 and the present petition filed on October, 2011. That apart it is after the issue of the Statutory notice that the respondent send a letter dated 03.08.2011 to all the Bond holders asking them to give their assent for any one of the terms of restructuring. It is therefore clearly evident that till the date of the filing of the winding up petition, the restructuring had not taken place and only the preliminary stage of signing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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