TMI Blog2014 (4) TMI 1298X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the petition itself. Appeal disposed off. - S.J. VAZIFDAR AND G.S. PATEL, JJ. For the Appellant : Mr. S.U. Kamdar, Senior Counsel, Mr. Sharan Jagtiani, Mr. Chirag Modi, Mr. Ankit Lohia, Mr. Munaf Virjee and Mr. Rishikesh Soni, i/b DSK Legal For the Respondent : Mr. Dinyar Madon and Mr. P.N. Modi, Senior Counsels, Mr. Zal Andhyarujina, Mr. Faraz Sagar, Mr. Amit Vyas and Ms. Rhia Marshall, i/b Economic Law Practice for Respondent No. 1, Mr. Nishit Doshi, i/b Res Legal for Respondent No. 2, Mr. Tushad Cooper and Ms. Vaidehi Naik, i/b Phoenix Legal-Standard Chartered Bank, Mr. Virag Tulzapurkar, Senior Counsel, Mr. Nikhil Sakhardande, Mr. Bhalchandra Palav, Mr. A.S. Mathkar, i/b Amarchand Mangaldas and S.A. Shroff Co. for Intervenor-Citi Bank JUDGMENT S.J. VAZIFDAR, J. 1. Admit. With the consent of the parties, the appeal is heard finally. This is an appeal against the order and judgment of the learned company Judge admitting a petition filed by respondent No. 1 for having the second respondent company-Etisalat D.B. Telecom Limited (hereinafter referred to as the company ) wound up under section 433(f) of the Companies Act, 1956 on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s case is held to be well founded, the petition ought to be dismissed in view of the conduct of the petitioner, both before and after the petition was filed. We have found no substance in the alternate submissions either. 4. After setting out the facts upto the date of the impugned order, we will deal with the petitioner's case for winding up the company and the appellant's defence thereto. We will thereafter deal with the appellant's contention that the petition ought not to be entertained in view of the petitioner's conduct before as well as after the petition was filed. 5(A) Mr. Kamdar, the learned senior counsel appearing on behalf of the appellant, submitted that a petition for the winding up of a company, including on the ground that it is just and equitable to do so, must be considered in greater depth even at the stage of admission as compared to other petitions or proceedings at the admission stage in view of the drastic consequences of even admitting a winding up petition. We agree. The appeal was, accordingly, heard at considerable length and in depth. (B) Mr. Madon, the learned senior counsel appearing on behalf of the petitioner submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent No. 4 subscribed to 13317245 shares of the company. Consequently, the appellant, the petitioner and respondent Nos.3 and 4 held 45.73%, 44.75%, 4.27% and 5.27% of the equity shares of the company. (C) On 17th March, 2009, the petitioner acquired two additional shares of the company involving an investment of Rs. 209.70 crores which was equivalent to the spectrum fee payable by the company for the Rajasthan and Haryana circles under the 2G licences. On 25th May, 2010, the petitioner acquired one more share of the company involving an investment of Rs. 106.95 crores which was equivalent to the spectrum fee payable by the company for the Bihar and Madhya Pradesh circles in respect of the 2G licences. 10. The three tranches of investment by the petitioner on 17th December, 2008, 17th March, 2008 and 25th May, 2010, aggregated to Rs. 3545.09 crores. The petitioner contended that it entered into the agreements and subscribed to the shares on the representations of Balwa and Goenka that the 2G licences were acquired in accordance with law and on the warranties made by the appellant as to their expertise in the field of telecommunications. 11. In the meantime, on 17th D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g violation of the provisions of the Foreign Exchange Management Act, 1999. 15(A). On 8th July, 2011, the appellant filed a petition against the company, the petitioner and the petitioner's nominee Directors on the Board of Directors of the company under section 397 and 398 of the Companies Act before the Company Law Board. The appellant, inter-alia, alleged that the petitioner had failed to bring its expertise and management skills to manage the business of the company in terms of the licences; that the petitioner had failed to comply with the capital call made by the Board of Directors of the company; that the minutes of the meeting of the Board of Directors held on 23rd November, 2011, had been wrongly recorded and that the petitioner was responsible for the financial losses suffered by the company on account of its mismanagement and unnecessary expenditure. (B) On 1st August, 2011, the appellant unconditionally withdrew the petition. Balwa, by a letter dated 2nd August, 2011, addressed to the Chairman of Etisalat stated that the decision to file the petition was taken by his lawyers without his consent and concurrence and that such a thing would never happen again. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. 19. On 1st March, 2012, the appellant withdrew its nominee Directors from the Board of the company. 20. On 29th March, 2012, criminal complaints were filed by the Channel Partners of the company against the petitioner's nominee Directors and employees seconded to the company. None of the Directors or employees associated with the appellant were named in these complaints which, according to the petitioner, indicated that the complaints were orchestrated/instigated by the appellant. Look-out notices were issued pursuant to the said criminal complaints. On 3rd April, 2012, one Pratap Ghose seconded by the petitioner company was detained at the Mumbai International Airport. 21. On 3rd April, 2012, the Supreme Court rejected a petition for a review of the judgment dated 2nd February, 2012, quashing the 2G licences. 22. Citibank, a creditor of the company had filed an application before the Debts Recovery Tribunal, New Delhi. By an order dated 13th April, 2012, the DRT directed the company to disclose it movable and immovable assets and to maintain status quo in respect thereof. Standard Chartered Bank (SCB), another creditor of the company also filed an application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the company as on 12th April, 2013, was about Rs. 4200 crores. Standard Chartered Bank which has a claim of Rs. 1465.95 crores and Citibank which has a claim of Rs. 738 crores appeared before the learned single Judge as well as before us supporting the winding up of the company. RIL and RCL opposed the winding up of the company. They have an aggregate claim of Rs. 1679 crores. Factors in Support of The Petitioner's Case for Winding UP the Company on the Just and Equitable Ground. 28. The petitioner has made out more than just a strong prima facie case that the substratum of the company is completely eroded and that there is almost no hope of reviving the company; that there is a complete loss of faith between the main shareholders of the company viz. the petitioner and the appellant and that there is a complete deadlock in the management and on the Board of Directors of the company. The order admitting the petition must be sustained on these three grounds which we have held require further consideration at the final hearing of the petition. 29(A)(i) We referred earlier to the public interest litigations and the judgment of the Supreme Court in respect of the allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual. The same is the subject matter of investigation by the authorities. This is clear from paragraph 81(vii) of the judgment which reads as under : 81.......... (vii) However, it is made clear that the observations made in this judgment shall not, in any manner, affect the pending investigation by the CBI, Directorate of Enforcement and others agencies or cause prejudice to those who are facing prosecution in the cases registered by the CBI or who may face prosecution on the basis of chargesheet(s) which may be filed by the CBI in future and the Special Judge, CBI shall decide the matter uninfluenced by this judgment. We also make it clear that this judgment shall not prejudice any person in the action which may be taken by other investigating agencies under Income Tax Act, 1961, Prevention of Money Laundering Act, 2002 and other similar statutes. 30. A charge-sheet dated 22nd October, 2011, has also been filed, inter-alia, against the said Balwa and Goenka in the Court of Special Judge, CBI in what is now referred to as the 2-G Spectrum case. The same alleges various illegalities and criminal acts on their part. Criminal conspiracy on their part along with others has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing reluctant to continue with a venture which, prima facie, at least, is tainted in respect of a predominant part of its commercial activities. The justification is greater as the petitioner joined the venture on the basis of this very activity to be undertaken on the basis of the 2G licences cancelled by the Supreme Court. 33. The learned Judge rightly came to the conclusion that with the cancellation of the thirteen 2G licences, the company was left without a commercial enterprise. The 2G licences were the most valuable asset of the company. The commercial existence of the company depended on these licences. They were undoubtedly the basis on which the petitioner was pursuade to invest a sum of over Rs. 3500 crores in the company. 34. The appellant's denial of the company having lost its substratum is based essentially on the fact that the company still has three telephone licences viz. International Long Distance, National Long Distance and Internet Service Provider licences. It is contended that the company can carry on business utilizing these three licences. 35. The appellant was unable to indicate how on the basis of the three subsisting licences the company wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial and commercial viability of the companies are not the same. Each company has its own strengths and weaknesses. The appellant has not even attempted to indicate any similarities between the companies that continue to function despite the cancellation of the 2G licences allotted to them and the company in this case. The mere cancellation of the 2G licences is not the only factor that determines the commercial viability of an enterprise. Our attention was not invited to any material that would justify a comparison between those companies and the company before us. 39. The indebtedness of the company is, as on date, over Rs. 4,500 crores. Mr. Kamdar stated that the Reliance group of companies is opposing the winding up. However, the Reliance companies have also sought repayment of amounts in excess of Rs. 1700 crores. They have not given up their claim. In fact, the attempt on the part of Balwa and Goenka was to ensure repayment to the Reliance companies in priority to the other creditors. Clause 4(b)(ii) of the minutes of the meeting of the Board of Directors of the company held on 19th December, 2011, records that Balwa pointed out that the company must confirm to Relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o continue the operations on the basis of the three subsisting licences. 42. This brings us to the judgments relied upon by Mr. Kamdar in support of the submission that the substratum of the company cannot be deemed to be gone. 43(A) Mr. Kamdar relied on the following observations in In Re: Cine Industries Recording Company Limited (1941) 44 BLR 387 : Therefore on the authorities the position seems to be that the substratum of the company is deemed to be gone when (a) the subject-matter of the company is gone, or (b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss which has been construed by the Privy Council to mean that there is no reasonable hope that the object of trading at a profit can be attained, or (d) the existing and probable assets are insufficient to meet the existing liabilities. None of these four tests can apply to the facts of the present case. (B) The judgment is of no assistance to the appellant. (i) As we observed earlier, the subject matter of the company is gone. Condition (a) that the subject matter of the company is gone does not imply that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1971) 3 SCC 532, paragraph 29 is also unfounded. The Supreme Court held that an application that the substratum of the company is gone is to be alleged and proved as a fact and that the mere fact that the company has suffered trading losses will not destroy its substratum unless there is no reasonable prospect of it ever making any profit even in the future. In the case before the Supreme Court, the company established that out of the proceeds of sale of the machinery, there would be sufficient money for carrying on the export business which was within its objects. One of the Directors of the company was a partner in a firm which was a creditor of the company. The company was not required to meet the claim of the firm and on the contrary the group of the Directors was to bring money into the company. It was found as a matter of fact, therefore, that the substratum of the company had not gone. On the other hand, in the case before us, it has been established that the substratum of the company has gone. There is no prospect of money being brought in by anyone to make it a commercially viable enterprise. 45. Mr. Madon relied upon the judgment of a Division Bench of the Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be wound up for the failure to do so would only result in further losses and further debts, which is to the detriment of all the parties concerned-the shareholders, the creditors and the workers. Continuing such a company cannot possible enure to the benefit of any of these parties. Nor can it be in public interest to continue such a company in the facts and circumstances of this case. Where the entire business that a company was formed to do or which it may be entitled to do cannot possibly be done even in future, the court would readily invoke the just and equitable ground to wind it up for no purpose would be served by letting it continue. 50. Where a company is, for any reason, unable to carry on the business undertaken by it, it cannot be said that its substratum has not gone merely because it can or is entitled to undertake any other business even if such new or different business cannot be carried on in a commercially viable manner. In other words, where a company is unable to carry on the main business and is found to be unable to or incapable of undertaking any other business even in future in a commercially viable manner, it must be held that its substratum has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the creditors and the company that the company ought to be revived indicating thereby that the company, as on date, is not a viable enterprise. (ii) In paragraph 4.3 it is stated that the three subsisting licences can be commercially exploited to generate revenues for the company. This is a bald assertion without any particulars even as to the financial projections. Paragraph 4.3 also states that the appellant firmly believes that the company can be revived with the three licences and with future growth opportunities that may be available in the telecom sector. Again, there are no particulars whatsoever. There is not even a feasibility report. (iii) Paragraph 4.4 states that the scheme is formulated on the assumption that the company does not receive the funds due to it by the Telecom authorities and/or the banks. Paragraph 5.1 admits that the debts at that time aggregated to Rs. 3883 crores and stated that the cash in hand was approximately Rs. 737.44 crores. Clause 6 deals with the source of funds for revival of the company. It states that the company can generate an amount of about Rs. 2540.04 crores. This, however, comprises of a sum of Rs. 1600 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, cannot even be looked at. 56. The learned Judge also rightly noted that the consent of the petitioner would be required for any such venture. This is clear from the terms of the shareholders agreement and the share-subscription agreement. The petitioner's refusal to agree to the same cannot be termed as unreasonable. The learned Judge recorded the petitioner's statement that it did not intend pursing the suggested enterprise as it posed additional risks and liabilities for the company which would only worsen its financial position as well as its ability to repay the debts due to creditors. Considering the facts and circumstances of the case, the petitioner's stand is understandable and justified. 57. As we noted earlier, the company was indebted to various creditors and is liable for various other dues aggregating to about Rs. 4500 crores. The scheme does not even indicate how the company can turn the corner and become a viable enterprise. 58. It is not necessary in this case, therefore, to consider whether the court can compel the petitioner, who invested such a large amount in the company on the basis of the 2G licences to continue to deploy his fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matters raised in the Supreme Court proceedings. On the contrary, it made its investment on the basis of the representations made that the Licenses had been legally obtained and were validly held by the Company. The aforestated facts and events have brought about a total breakdown in the relationship between the parties, loss of confidence and trust, created a situation of a total deadlock with no hope or possibility of any solution in the functioning, governance and improvement in funds and financial capability of the Company to function profitably and discharge its debts and liabilities in normal and ordinary course of business. [emphasis supplied] It is averred in paragraph 10 of the petition that the relationship between the parties has irretrievably broken down and it is no longer possible for the parties to come together to implement the agreed business plan for the company especially in large number of matters requiring an affirmative vote. In paragraph 20 of the petition, the petitioner averred that the faith and trust with which the investments were made by it in the company on the representation of Balwa and Goenka is lost; that there is total loss of confiden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the appellant are not liable to retire by rotation. The petitioner is entitled to nominate the Chairman of the Board of Directors and the appellant is entitled to nominate the Vice Chairman. (B) Clause 16 provides for the quorum for any meeting of the Board of Directors. The quorum requires the presence of at least one of the appellant's directors and two of the petitioner's directors unless they waive this requirement. The quorum for meetings of any committee established by the Board of Directors has a similar requirement. The petitioner, therefore, has a majority on the Board of Directors and is also entitled to nominate the Chairman. Meetings cannot be held in the absence of the petitioner's directors. Considering the relationship between the parties, there is little, if any likelihood of any effective resolution being passed. (C) Under clause 20(a)(ii), so long as the petitioner's holding is at least 40% of the share capital of the company, no action or decision relating to any of the affirmative matters can be taken without the petitioner's prior written consent in respect thereof. The affirmative matters are enumerated in clause 20(b). The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive written notice to the other Shareholders that it regards a deadlock situation as having arisen ( Deadlock ). b) A Deadlock shall be referred to the senior management of the Founding Shareholder and the Strategic Investor within ten (10) Business Days of a notice issued under Article 21. Such senior management shall endeavor to resolve the Deadlock within twenty (20) Business Days of the matter being referred to them ( Deadlock Discussion Period ). 69. Clause 21 merely provides that the parties shall endeavour to resolve the deadlock . The parties are not bound to resolve the deadlock. There is no self-operative mechanism that provides a solution to a deadlock. 70. Mr. Kamdar then submitted that a deadlock situation can arise only where the contesting parties hold exactly 50% each of the equity capital of the company. 71. Even absent provisions such as those contained in clauses 8, 16 and 20 of the Articles of Association, the submission is not well founded. Mr. Kamdar relied upon paragraph 33 of the judgment of the Supreme Court in Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunuwalla (1976) 3 SCC 259. Mr. Kamdar's submission, in fact, militates against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Radharamanan v. MSD Chandrasekara Raja Anr. (2008) 6 SCC 750 relied upon by Mr. Kamdar does not support the contention either. Paragraphs 16 and 17 read as under :- 16. The deadlock in regard to the conduct of the business of the Company has been noticed by the Company Law Board as also the High Court. Keeping in view the fact that there are only two shareholders and two Directors and bitterness having crept in their personal relationship, the same, in our opinion, will have a direct impact in the matter of conduct of the affairs of the Company. 17. When there are two Directors, non-cooperation by one of them would result in a stalemate and in that view of the matter the Company Law Board and the High Court have rightly exercised their jurisdiction. Paragraph 16 merely refers to the facts of that case viz. that there were only two shareholders and two Directors. The judgment cannot be read to mean that a case of a deadlock can arise only where there are only two shareholders and two Directors and they do not cooperate with each other. Stalemate is a question of fact. A stalemate is not dependent only upon the extent of the shareholding or the number of Directors on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegic Investor respectively. Clause 3 of the Put Option Agreement reads as under :- 3. PUT OPTION During the Put Option Period, and subject to the terms of this Put Option Deed (in particular Clause 6.1), the Founding Shareholder shall have the right but not the obligation, to sell the Put Shares (on the basis and with the warranties set out in Clause 7 of this Put Option Deed and Paragraphs A, B and C in Annexure C of this Put Option Deed) and to require the Strategic Investor to, and the Strategic Investor shall be obliged to purchase the Put Shares ( Put Option ) at Put Price, provided that the number of the Put Shares and the Put Price shall be subject to adjustment in accordance with Clause 9. 79. The appellant, therefore, has opted to exit from the company. The appellant is entitled to adopt proceedings, including for specific performance of the Put Option Deed and/or for damages. The appellant would only be entitled to monetary relief in any proceedings to enforce the rights under the Put Option Deed. Having exercised this right, the appellant cannot have any interest in the company, irrespective of whether it continues or is wound up. 80. Mr. Kamdar, however, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d injury to the appellant. The appellant further stated : The facts stated herein clearly establish that it is just and equitable to wind up the company. However, the petitioner submits that to wind up the company would unfairly prejudice and cause harm and injury to the petitioner, who is a minority shareholder . 86. We are not inclined, at this stage, to consider the effect of these averments. They are made in the context of a petition under sections 397 and 398. That petition would have to be analyzed to see whether the averments therein militate against the appellant's defence to this company petition. The grounds in support of the appellants averments in the petition before the CLB that the conduct of the petitioner herein warrants winding up on the just and equitable ground may be entirely different from the grounds upon which the petitioner herein seeks winding up of the company. This aspect must be left open for consideration, at the final hearing of the petition. 87. Mr. Kamdar raised these additional defences to the petitioner's case viz. He submitted that the petition for winding up on the just and equitable ground must be decided only on the basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be in the interest of any party. It would be equally absurd in such cases to first wind up the company and then leave it to the parties to file an application for bringing the company out of liquidation. 91. Nor do we find Mr. Kamdar's submissions to be supported by any authority. The authorities are to the contrary. 92. A learned single Judge of this Court in Khimji M. Shah v. Ratilal Damodardas Modi 1988 Mh. L.J. 38, considered an application for amendment of a petition filed under sections 397 and 398 of the Companies Act. The respondent opposed the application, inter-alia, on the ground that the amendments dealt with the events subsequent to the filing of the petition. It was contended that the subsequent events cannot be gone into in deciding the petition under sections 397 and 398. Rejecting the contention, the learned Judge held in paragraph 8 as under :- 8. Under Rule 6 of the Companies (Court) Rules, 1959 the provisions of the Code of Civil Procedure, so far as applicable, shall apply to all proceedings under the Companies Act. The provisions relating to amendments of pleadings would, therefore, apply to amendment of pleadings under the Companies Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto consideration for determining whether a case is made out for holding that it is just and equitable that the Company should be wound up, and we agree with the High Court that no such case is made out. The Supreme Court did not hold that the subsequent events cannot be taken into consideration. Indeed the circumstances justifying a winding up order must exist as on the date of the filing of the petition. That, however, does not justify the conclusion that subsequent events cannot be considered. 95. Mr. Kamdar then relied upon the judgment of the Supreme Court in Hind Overseas Private Limited vs. R.P. Jhunjhunwala, (1976) 3 SCC 259. Paragraph 30 of the judgment relied upon by Mr. Kamdar merely quotes the above sentence in Seth Mohan Lal vs. Green Chambers Limited (supra). It does not take the matter further. 96. Mr. Kamdar further submitted that in the case before us, subsequent factors were only introduced by the petitioner by filing further affidavits and not by amending the petition. He submitted that in any event, the subsequent facts must be pleaded in the petition by having the petition amended and cannot be introduced by filing affidavits. 97. It has been the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.00 crores, whereas the fourteen creditors, who opposed the petition have a claim of about Rs. 1000.00 crores. The learned Judge can hardly be faulted for not dismissing the petition merely because fourteen creditors opposed it. 102. In the result, circumstances certainly exist warranting an admission of the petition for winding up the company on the basis of the just and equitable clause. 103. Mr. Kamdar submitted in the alternative that even assuming that the factors warranting admission of the petition exist, the Court ought to have dismissed the petition in view of the petitioner's conduct, both before and after the winding up petition was filed. Whether the Petition Ought to be Dismissed on Account of the Petitioner's Conduct Before The Petition Was Filed : 104. We will first deal with the petitioner's conduct prior to the petition which, according to Mr. Kamdar, warranted a dismissal of the petition. 105. Mr. Kamdar contended that the company was managed only by the petitioner. The petitioner was, therefore, according to him, responsible for the company's failure to meet the roll-out obligations leading to the financial loss sustained by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Agreement, all major decisions, including but not limited to major changes relating to capital expenditure, lease approvals, financing and dispositions in relation to the Company and its business shall be taken by the Board of Directors. Subject to the provisions in relation to the Affirmative Matters, the specific day to day functioning of the Company may be delegated by the Board to committees, Directors or officers, who shall exercise such powers subject to the overall supervisions and control of the Board of Directors, the Memorandum and Articles of Association of the Company and the Applicable Law. The Board of Directors shall instruct the management of the Company to operate the Business of the Company in accordance with the then current Business Plan. 3.6.2 Subject to Clauses 3.6.3 to 3.6.5 below, the Strategic Investor shall have the right to select and appoint the following senior managerial personnel of the Company; (a) the Chief Financial Officer; (b) the Chief Executive Officer; (c) the Chief Operating Officer; (d) the Chief Technical Officer; and (e) the Chief Marketing Officer, (collectively, the Key Employees ). 3.6.4 During the Evaluat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board, any committee, by circular resolution by the shareholders of the Company, or any of the employees, officers or managers of the Company) unless the prior written consent of the Strategic Investor is obtained for such action or decision, such consent not to be unreasonably withheld or delayed; (c) during the term of this Agreement for so long as the Founding Shareholder holds at least 20% but less than 40% of the Share Capital of the Company, no action or decision relating to any of the matters requiring a special resolution under the provisions of the Act, shall be taken (whether by the Board, any committee, by circular resolution by the shareholders of the Company, or any of the employees, officers or managers of the Company) unless the prior written consent of the Founding Shareholder is obtained for such action or decision, such consent not to be unreasonably withheld or delayed; and (d) during the term of this Agreement for so long as the Strategic Investor holds at least 20% but less than 40% of the Share Capital of the Company, no action or decision relating to any of the matters requiring a special resolution under the provisions of the Act, shall be taken (whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention stating that it cannot be held that it was only the petitioner who was in charge of the day-today affairs of the company or that all the business decisions had been taken by the petitioner; that there was equal participation, if not more, of the appellant's nominees in carrying on the day-to-day business and in taking important decisions in the matter and that, therefore, the petitioner alone cannot be blamed for non commencement or delay in the commencement of the business or for the company incurring losses. 108. Mr. Kamdar submitted that the learned Judge had only set out the rival contentions and the facts and made the above observations. In other words, according to him, the judgment does not contain any reasons. The submission is incorrect for the learned Judge has set out the facts in considerable detail and the manner in which they have been set out support the conclusion. To obviate any further grievance, we intend furnishing reasons briefly in this regard. 109. Though the shareholders agreement and the management services agreement conferred considerable power upon the petitioner, it is not merely the petitioner who managed the day-to-day affairs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the petitioner had the power to do so under the shareholders agreement and the management services agreement, it continued with the employees appointed prior to its participation in the company. It also appointed persons on the recommendation of the appellant. The appellant's officers admittedly had the power to issue cheques, at least to the extent of Rs. 50,00,000/-. 114. It is not even the appellant's case that it had nothing to do with the management of the company. Nor is it contended that the petitioner prevented the appellant from participating in the management of the company. It was not contended that the petitioner, at any stage, obstructed the functioning of the company by refusing to accept any of the appellant's suggestions. In any event, there is no correspondence at the material time raising grievances to this effect. 115. Thus, even assuming that there was a failure to meet the business requirements, the petitioner cannot be held responsible for the same. It certainly did not disentitle the petitioner to maintain the petition for winding up if the circumstances otherwise establish that it is just and equitable to wind up the company. 116. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, he indicated that the roll out obligation is as per the initial business plan set out in Schedule I to the share-subscription agreement dated 23rd September, 2008. Even assuming that to be so, there are no particulars as to which part of it was not met by the petitioner. Nor are there any particulars as to how the petitioner failed to meet the obligations. Further, this aspect of the matter does not appear to have been taken before the learned single Judge. It is not difficult to see why this point was not taken by the learned Judge. The business plan does not appear to have been crystallized at any point of time. This is evident from the minutes of the meeting of the Board of Directors of the company held on 24th August, 2011. Paragraph 6(b) is titled EDB Way forward . It is recorded that the Board directed the management to prepare a business plan with targeted roll out and barter deal with other operators which would be presented to the Board after the shareholders meeting. The allegations that the company did not achieve any roll-out is incorrect. A document annexed to the affidavit dated 21st August, 2012, on behalf of the appellant belies the contention. It indicates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication was made to the FIPB only on 3rd December, 2009. On 27th April, 2010, FIPB raised various queries. On 29th September, 2010, FIPB rejected the application for the reason that the Ministry of Home Affairs had not supported the proposal. By a letter dated 1st April, 2011, the appellant alleged that the petitioner had delayed filing the FIPB application and requested the petitioner once again to make the application at the earliest. The appellant also requested the petitioner to intimate in writing the steps taken by it to address the issue raised by the FIPB with regard to the security concerns. The appellant's grievance is that despite the same, the petitioner did not make a fresh application to the FIPB. 124. Firstly, it is important to note that the petitioner did make an application to the FIPB, but the FIPB refused to grant the approval. It cannot, therefore, be said that the petitioner had failed to make an application to the FIPB for approval. Further, the appellant had filed a petition before the CLB under sections 397 and 398 of the Companies Act in which it raised this issue. The appellant thereafter withdrew the company petition. 125. It is also important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts only the Put Option rights of the appellant. That would be a private dispute between the petitioner and the appellant. Such a dispute cannot prevent the petitioner from maintaining the winding up petition. Secondly the record, as it stands, does not establish that the petitioner failed to obtain the FIPB approval. The learned Judge, therefore, rightly refused to dismiss the petition on this ground. 129. Mr. Kamdar relied upon the definition of Control premium in Clause 1.1 and on Clause 2.10 of the Share-Subscription agreement in support of the contention that if the FIPB approval had been obtained, the company would have got an amount of Rs. 934.20 crores. The petitioner's failure to obtain the FIPB approval, therefore, according to him, caused a loss even to the company of the sum of Rs. 934.20 crores. Clauses 1.1 and 2.10 read as under : 1.1 Definitions In this Agreement and unless the context requires otherwise, the following words and expressions shall have the following meaning : ........ Control Premium means a sum equal to Rs. 9,342,000,000/- (Rupees Nine Billion Three Hundred and Forty Two Million Only) pursuant to Clause 2.1; ....... 2.10 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s refused despite the same. The letter alleges that the essential contractual undertaking of the parties was that the petitioner would secure the FIPB approval and complete the transfer of the call shares as defined in a Put and Call agreement between the petitioner and Genex. It is alleged that having failed to purchase shares of Genex, the petitioner did not comply with its obligation to infuse further funds into the company resulting in further commercial damage suffered by the company. 133. Firstly, this is merely a letter relied upon towards the end of the hearing before us. The letter does not establish any breach of the contractual obligations between the petitioner and the company. An understanding is alleged. An obligation on the part of the petitioner is not established. Even assuming that there is a pleading to this effect, it would essentially be a dispute between the petitioner and Genex. The same would require evidence. We are not inclined to dismiss the petition on the basis of this letter. 134. Mr. Kamdar then submitted that the petitioner obtained loans from the Standard Chartered Bank (SCB) and Citibank instead of availing the loan that had already been sanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were aware of and had acceded to the facilities being availed of from SCB and Citibank. The contention, therefore, is a mere after-thought. The learned Judge, therefore, rightly rejected the contention. 138. Mr. Kamdar submitted that the petitioner contrary to its obligation under clause 4.1.5 of the Shareholder Agreement had failed to pay the call money which lead to the company facing a financial crunch. Clause 4.1.5 reads as follows : Agreed Infusion of Capital 4.1.5 Subject to the cash requirements of the Company, as may be resolved by the Board, the Company can call upon the Founding Shareholder, the Strategic Investor and the Indian Investor, from time to time, for an Agreed Infusion of Capital of up to Rs. 4,670,000,000 (Rupees four billion six hundred and seventy thousand only) each, per Capital Call (subject to an overall limit of Rs. 8,530,000,000 (Rupees eight billion five hundred and thirty million only) from the Founding Shareholder and Rs. 9,340,000,000 (Rupees nine billion three hundred and forty million only) from the Strategic Investor apportioned pro rata among them) with thirty (30) days prior written notice ( Capital Call Notice ) which shall be contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. The letter further recorded that should the other shareholders of the company agree to contribute such additional equity funding, the valuation and terms thereof would be subject to the appellant's approval. Thus, the appellant itself refused to bring in any further amounts and expressed its inability and refusal to bring in any amounts as it had utilized its funds elsewhere. Even this letter does not make any allegation to the effect that the petitioner had, at any time, refused to bring in amounts pursuant to the capital call by the company. 142. The petitioner's conduct prior to the petition does not disentitle it to maintain the petition. This brings us to Mr. Kamdar's contention that the petition ought to be dismissed in view of the petitioner's conduct after the petition was filed. Whether the Petition Ought to be Dismissed on account of The Petitioner's Conduct After The Petition was Filed : 143. Firstly, Mr. Kamdar submitted that the petitioner had admitted the dues of SCB and Citibank before the Debts Recovery Tribunal. He submitted that by doing so, the petitioner had acted to the detriment and prejudice of the company and ought not, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax returns of the company for the assessment year 2012-13 which also contains an admission of liability to SCB in the sum of Rs. 1448.50 crores as on 31st March, 2012. The learned Judge also referred to the details of the facilities availed of by the company from Citibank, including the Board resolutions and the manner in which Citibank honoured the guarantees issued by it at the instance of the company. It is unnecessary to refer to all the transactions and the details of the transactions between the company and Citibank. It is sufficient to note that the dues of Citibank have also been admitted. 147. The loan agreements between SCB and the company were signed even by the Directors appointed by the appellant. The balance sheet admitting the liability is also signed by the appellant's nominee Director. The Authorized Person prepared the balance sheet for the year 2011-2012 in which he mentioned the dues of SCB to be Rs. 1448 crores. The appellant never objected to the same. Moreover, the DRT did not grant the interim recovery certificate based only on the admissions contained in the affidavit. The order of the DRT dated 16th April, 2012, also refers to the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of the company. If it was in the interest of the company to bid at the re-auction, the company Judge would have allowed it to do so. 151. Mr. Kamdar submitted that the Supreme Court judgment did not prevent the company from bidding at the re-auction. Further, the petitioner objected to the company bidding at the re-auction. Had the bid been accepted, the business could have gone on as the infrastructure was already there. 152. We would have to speculate to a considerable extent to dismiss the petition on this ground. Firstly, it is doubtful whether the amounts deposited could have been set off against the bid. Secondly, the Court Receiver had been appointed by the DRT in the Original Application filed by the SCB. Mr. Kamdar submitted that had the bid been accepted, an application could have been made for modification of the order appointing the Court Receiver, by permitting the company to act as the agent of the Court Receiver. This, however, would in any event have required a large scale funding. There is nothing to indicate that funds could have been made available. 153. There is, however, another and more important reason why the petition cannot be dismissed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 crores against the company. The Authorized Person, however, rejected the suggestion in view of the previous orders. The appellant, therefore, applied to the company court. By an order and judgment dated 21st February, 2013, the learned Judge rejected the application. The appellant did not challenge this order. 154. The above orders have attained finality. We cannot go behind these orders. It would amount to re-opening the issue which stands concluded by the orders not only of the learned single Judge, but of the Division Bench as well. In view of the previous orders of this Court, we did not permit Mr. Madon to re-argue this issue on merits. 155. Mr. Madon submitted that the Board of Directors had unanimously agreed to shut down the business of the company relevant to the 2G licences. In other words, he contended that it was decided at the said meeting to wind up the company. Mr. Kamdar denied the same. He contended that the petitioner had unilaterally decided to shut down the business. The decision is contrary to the provisions of the agreements between the parties. He, in fact, submitted that in view thereof the company suffered a severe set back and even on that ground, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng immediately informed the Abu Dhabi Securities Exchange about the decision to shut down. That, however, according to the petitioner, was as per the requirements, inter-alia, in view of the fact that the Government of UAE is the major shareholder of the petitioner. The appellant also made a grievance about the petitioner having informed all the shareholders alleging that the company had unanimously resolved that the appropriate course of action was for the company to terminate its 2G licences. This also is an issue which must await the final hearing of the petition. On this aspect a lot would depend upon the conclusion whether the decision to shut down was unanimous or not. 159. At Mr. Madon's instance, we watched a video recording of the meeting. We are not inclined at this stage to express any conclusive opinion on the basis of this video for admittedly the entire meeting was not recorded. This aspect of the matter would require further consideration. On the one hand, the entire meeting was not recorded. On the other hand, it is not the appellant's case that any other part of the meeting was recorded, but was not produced. Further, assuming that objections were raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company relating to the 2G licences, it would make no difference. Mr. Kamdar himself had contended that the purported resolution, in any event, was not to wind up the company, but only to discontinue the business relating to the 2G licences. The purported resolution is of 22nd February, 2011. By that time, the Supreme Court had already cancelled the 2G licences. The substratum of the company had, inter-alia, on account thereof, already gone. In other words, the substratum had not gone merely on account of an alleged wrongful decision to shut down the business of the company relating to the 2G licences. Had the review petition been allowed, it may have a different thing altogether. It is neither necessary nor possible to speculate on the outcome had the decision been reviewed. The fact is that it was not. All the circumstances discussed by us entitling the petitioner to maintain this petition would, therefore, remain unaffected even assuming that the petitioner had wrongly decided to shut down the business of the company relating to the 2G licences. Further, it is important to note that the appellant took no steps to resist this alleged illegal action of the petitioner in shutting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which such issues were to be dealt with was prescribed. This included the Authorized Person making a report or reports on issues involving payment on behalf of the company. The Authorized Person was also directed to identify employees of the company to be retained as well as to terminate the employment of others. The Authorized Person was to act under the supervision of the Court and to file a report on his activities every two weeks. 167. It is not necessary to consider the question of law raised by Mr. Kamdar that the company has no power to make such an order, absent consent from the parties concerned. If the company court had the power to do so, we would without hesitation have continued the same solicitor of this Court as the Authorized Person. There are no allegations against him either of mala fides or of incompetence. He has discharged his duties in accordance with his mandate and as per the orders of this Court. Indeed, under the minutes of the order several steps of far reaching consequences have already been taken, including regarding the termination of the services of various officers and employees of the company and the sale of certain assets of the company. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manner in which it is done is not specified in the Companies Act. It would depend upon the facts of each case. Normally, the endeavour of the Provisional Liquidator and of the company court is to manage the affairs of the company in such a manner as to ensure it's continued existence. That, however, does not preclude the company court from passing interim orders. Indeed, interim orders in many cases are imperative to ensure the fulfillment of these objectives which are in the interest of the company. Normally again, the powers must not be exercised in a manner which would result in the company being wound up even before the petition is heard finally. At the final hearing the Court may well dismiss the petition or pass such other orders which would not necessarily result in the petition being wound up. If, in the meantime, all the assets of the company are sold and orders are passed which, in effect, results in the company being wound up it would result in the company being faced with a fait accompli. 171. There is, however, no absolute rule as to the manner of exercise of powers of the company court during the period prior to a petition for winding up being finally heard. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to adjourn the hearing conditionally or unconditionally . The power to adjourn the hearing of a petition conditionally includes the power to pass interim orders. That is clear from the word conditionally . There is nothing in section 443 that restricts the ambit of the words on hearing as suggested by Mr. Kamdar. 174. The judgment of a Division Bench of the Madras High Court in the case of Ramakrishna Industries (P) Ltd. Ors. v. P.R. Ramakrishnan Ors. 1988 64 CC 425, relied upon by Mr. Madon, supports this view. In that case, the Official Liquidator was appointed as a Provisional Liquidator. The application for injunction was opposed on the ground that the main winding up petition had not been set for hearing and, therefore, section 443 could not have been invoked by the applicant. The Division Bench held as under : Against this order, O.S.A. No. 128 of 1981 has been filed. By another order dated December 7, 1981, in C.A. No. 843 of 1981, the learned Judge appointed the official liquidator as the provisional liquidator pending the winding-up petition. Against this order, O.S.A. No. 189 of 1981 has been filed. Both before the learned single judge and before us, le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. Again, section 441(2) specifically states that the winding-up of a company by the court shall be deemed to commence at the time of the prosecution of the petition for winding-up and, therefore, from the date of presentation of the winding-up petition, the court gets jurisdiction. Section 450 also makes this very clear. Sub-sections (1) and (2) of this section provide that at any time after the presentation of the winding-up petition and before the making of the winding-up order, the court may, for special reasons to be recorded in writing, dispense with the notice to the company and appoint a provisional liquidator straight-way. These provisions clearly establish that the court's jurisdiction to make interim order is not postponed till the date set for hearing of the company petition after notice to respondents. In fact, this point is concluded by a Bench decision of this court in Ramakrishna Industries P. Ltd. v. P.R. Radhakrishnan (1983) II MLJ 227. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the same parties reported in (1983) II MLJ 227. For instance we, with respect, do not agree with the observation that there was a folly on the part of the draftsman of section 443. Nor do we agree that section 443(1)(b) is an insane provision or that the draftsman there was dense. 177. This judgment was followed by a learned single Judge of the Karnataka High Court in Smt. Usha R. Shetty Ors. v. Radeesh Rubber Pvt. Ltd. Anr. 1995 84 Com. Cases 602. The learned Judge held as under : Learned counsel, referring to section 536(2) of the Companies Act, has submitted that no transfer of the assets during the pendency of the winding up petition should be effected. As per section 536(2) in the case of winding up by or subject to the supervision of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void. Thus, it clearly indicates that the court has power to order transfer or to sell the assets of the company when the winding up petition is pending. There is no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, was not discussed in detail. 179. We, therefore, reject the contention that the power of the company court to pass interim relief is only when the company petition is finally heard. The power of the company court to grant interim reliefs commences upon the presentation of the petition itself. 180. On 20th December, 2013, Mr. Chirag Modi, the learned counsel who also appeared on behalf of the appellant sought to delete grounds J, Q, V, W and SS of the Memo of Appeal. The appellant was permitted to amend the Memo of Appeal by deleting grounds J, Q, V, W and SS therein. We may also note that Mr. Madon stated that this application was made after his contention on the previous day that the grounds constituted contempt of court. In the circumstances, the impugned order admitting the company petition and the consequential orders is upheld. The judgment is modified only to the limited extent of appointing the Official Liquidator as the Provisional Liquidator of the company and directing the Provisional Liquidator to appoint the Authorized Person as a legal advisor on the same terms and conditions as to his remuneration as fixed by the company court. The Provisional Liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X
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