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TMI Blog2014 (4) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... were to be redeemed on 26th July, 2012. They had been partly redeemed and the principal value of the unredeemed bonds on the date of maturity was USD 97 million. After aggregating the premium payable on maturity, the amount payable by TTL as on the above date on the bonds came to USD 140 million. It is common ground that when the maturity date arrived, the unredeemed bonds were not redeemed by TTL. Assurances were given to the Bombay Stock Exchange and the National Stock Exchange that the bonds would be redeemed by 10th September, 2012. The trustee for the bondholders i.e. the petitioner in these proceedings, sent a fax message to the respondent on 28th August, 2012 informing the latter that the bonds were not redeemed on the date of maturity. Action was contemplated by the petitioner and this was also intimated to TTL. In October, 2012 there was an announcement to the bondholders about the development. On 19.3.2013 the petitioner sent the statutory demand notice contemplated by section 434(1)(a) of the Companies Act, 1956 which was followed up by reminders sent in the month of April, 2013. No amount was forthcoming from TTL despite the statutory demand notice and reminders. 2. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 4. Mr Rajiv Nayar, the learned senior counsel appearing for the petitioner put forth the following submissions in support of the application for stay of the CDR scheme : (i) There is an undisputed debt which TTL is unable to pay. There is also acknowledgement of the debt several times. No reply was sent by TTL to the statutory demand notice, nor was any payment made in redemption of the bonds. There is thus a prima facie case for admission of the company petition. If so, there is also a strong case for granting stay of the CDR scheme. (ii) The CDR scheme is heavily loaded in favour of the secured creditors giving rise to the apprehension in the minds of the petitioner that if the said scheme is implemented, there will be no assets left which can be liquated for meeting the liability of TTL to the bondholders. (iii) Between 31st May, 2013 and 10th July, 2013, the respondent did not inform the petitioner about the proposed CDR scheme, even though by that time the default had occurred and the petitioner had also sent the statutory notice followed up by reminders. (iv) After the judgment of the Supreme Court in Jitendra Nath Singh v. Official Liquidator (2013) 1 SCC 462, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or those who participate in the CDR scheme are in no way concerned with the unsecured creditors such as the bondholders. It is pointed out that as per the CDR scheme, a cap of Rs. 243 cores has been placed on the liability in respect of the FCCBs which is completely without the sanction of law and is a unilateral, unauthorised step taken by the CDR lenders. According to Mr Nayar, TTL has given only two options to the petitioner - either to accept the amount of Rs. 243 cores in full settlement of the liability now or to accept fresh bonds of 10 years maturity for a total redemption value of USD 144.71 million, neither of which is acceptable to the petitioner. 7. Mr. Nayar criticised a few aspects of the CDR scheme which according to him were detrimental to the interests of the petitioner. He pointed that the MRA provided for certain sacrifices by the secured creditors participating in the CDR scheme, according to which the secured creditors sacrificed only the interest of Rs. 238 cores on the loans advanced by them without any sacrifice of the principal amount, whereas the expectation of the CDR scheme is that the petitioner should sacrifice a sum of Rs. 650 cores. He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot. The defence in those cases was that since there was already a CDR Scheme or a revival scheme in place, the winding up petition should not be admitted. This Court found no merit in the defence which, according to Mr. Sundaram, was the right view to take since at the stage of admission of the winding up petition the company court has to merely examine whether there was an admitted debt which the company is unable to pay. If these basic conditions are satisfied, it is the discretion of the court to admit the petition or not and in the two decisions of this Court cited above, the Court thought it fit to hold that the existence of a CDR scheme cannot be an impediment to the admission of the winding up petition, given that there was an admitted debt and an inability to pay the same. According to Mr. Sundaram, the present proceedings are different, in the sense that we are not concerned with the question whether the winding up petition should be admitted or not; the petitioner seeks stay even before the petition is admitted, a situation which according to Mr. Sundaram calls for extreme caution and sensitiveness. Moreover, according to him, the bondholders are only speculators, having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong way in reviving the liquidity of TTL. 13. The workmen numbering about 121 out of 3500 odd workers of TTL have filed CA No.1796/2013 for impleading. Mr. Wadhwa, the learned counsel appearing for the workmen strongly relied on the judgment of the Supreme Court in National Textiles Workers' Union V. P.R. Ramakrishnanand & Ors. (1983) 1SCC 228 and submitted that the workers have a right to be heard both before the winding up petition is admitted and thereafter before any winding up order is passed. He contended that the CDR scheme will ease the liquidity crunch faced by TTL. Pointing out that there is nothing in the CDR scheme which provides for retrenchment of workmen and arguing for a case for continuance of the scheme, Mr. Wadhwa submitted that the company court is a court of equitable jurisdiction and is not bound to order winding up of a company even if the conditions of Section 433 of the Act are satisfied. The power of the court to admit a winding up petition is discretionary. Mr. Wadhwa says that if that is so, the position would be a fortiori in the case of stay application, that too where the winding up petition is yet to be taken up for admission; the balance of conveni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset, had a pari passu charge on the other fixed or moveable assets and the pooling of securities did not make any effective change to the same. 15. In his rejoinder to the arguments of the learned senior counsel for the respondent-company and the ICICI Bank Ltd. as well as to the arguments of the learned counsel for the workmen, Mr. Rajiv Nayar summed up his arguments as follows: - (i) The induction of the shares of Tulip Data Centre Pvt. Ltd. into the fold of the CDR scheme is wholly detrimental and prejudicial to the interests of the petitioner and should not be permitted. The sale of these shares is in the immediate contemplation of the CDR lenders and there is no provision in the MRA prohibiting the sale. The only provision is that the payment to the CDR lenders will be deferred till June, 2015 but the sale of shares can take place at any time; (ii) The pooling of the securities contemplated by the CDR scheme deprives the right of the petitioner by reducing the asset- base of the respondent-company and creates a new class of creditors, which is impermissible; (iii) The CDR scheme will negate the rights of the unsecured creditors in the case of the liquidation. The CDR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CDR scheme even on 10.07.2013 though the winding-up petition was filed by the petitioner on 31.05.2013. The bank had a motive to conceal the fact from this Court because the MRA was pending approval on that date and the Court, if it had been informed, could have put the same on hold; and (xi) The respondent-company has also not informed this Court about the oral undertaking given by its senior counsel to this Court on 16.09.2013 that it will not proceed with the CDR scheme. It was only the petitioner which brought it to the notice of this Court on 23.10.2013 and 24.10.2013; the respondent has thus not acted bona fide. 16. The parties have filed written submissions which have been taken into consideration. 17. At this stage, when the winding-up petition is yet to come up for admission, the only concern is whether there is any justification for staying the CDR Scheme, which is yet to be given effect to pursuant to the undertaking given to this court on behalf of TTL on 16-9-2013. There can be no dispute that the company court is not bound to order winding- up even if the conditions of sections 433 and 434 are satisfied, if it is found that winding-up will not be in the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the asset secured to them, a first pari passu charge on all the other fixed assets of the company and a second pari passu charge on the moveable assets; the working capital lenders had a first pari passu charge over the moveable asset and second pari passu charge over the fixed assets. It is thus contended by the respondent that the assets available to the unsecured creditors cannot be said to be reduced because of the CDR scheme. With regard to the point No.(ii) above, the respondent contends that the petitioner's estimate that the shares of TDCPL would fetch around Rs. 3,000 to Rs. 4,000 crores is "outrageously exaggerated". My attention was drawn to the financial statements for the six months period ended 31.03.2013 in which the investment in the said shares is shown at Rs. 214.01 crores. It is also submitted that TDCPL has a total secured debt of about Rs. 350 crores including the debt of Rs. 150 crores extended by ICICI Bank, against which 30% of the shares have been pledged. In addition another 30% of the shares are pledged to Edelweiss and Religare. According to the respondent, the realisable value of the shares in a distress sale would be much below the book value and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of several States, leading private sector and public sector banks, many airlines to which it provides connectivity, police departments of Jammu & Kashmir, Delhi, etc., National Informatics Centre (NIC) the States of Haryana, Assam, Madhya Pradesh, Maharashtra and Gujarat, who avail of the "State wide area network" provided by the respondent and so on and so forth. The respondent- company, like many other infrastructure companies, has not been able to match the cash flows with the requirements of the business or with its liabilities towards repayment of loans including the bonds on account of the fact that in all such companies which are capital intensive the revenues start flowing in only after a long gestation period. Between the time when the infrastructure is put in place (by which time heavy capital outlay would have taken place) and the time when the revenues start trickling in, every such company faces a cash crunch during which period there is high probability of defaults in loan repayments. Apparently, TTL being such an infrastructure company providing core and essential services in the IT sector has been caught in this period. The optimism generated by the technical evalua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/figures. But one cannot doubt the sincerity on the part of the company merely because it has not been able to achieve the targeted or projected figures during the implementation of the scheme. The rationale is that the company must be given a fair chance to acquit itself well, survive the financial crisis and move forward to honouring its commitments. 22. Mr. Nayar also took objection to the effect that the CDR lenders have made a sacrifice of only Rs. 238 crores by giving up the interest on the loans temporarily while at the same time they expect the bond holders to make a sacrifice of the entire amounts due on the bonds. The CDR scheme is confined to the secured creditors. They can only speak for themselves which is what they did when they announced a sacrifice of Rs. 238 crores. By placing a cap of Rs. 243 cores I do not think that the intention is that the balance of around Rs. 650 cores due to the bond holders should be sacrificed by them. The cap of Rs. 243 crores has been placed in the CDR scheme as one of the bases for calculating the cash flows of the company. The CDR lenders certainly have no right to say that the balance of the amount should be sacrificed by the bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture would practicably amount to winding up of the company which step has to be taken only as a last resort. The legislative thinking on this aspect can also be gleaned from the provisions of the Companies Act, 2013 which is yet to come in force fully, though many of its provisions have been notified. Section 253 of that Act provides that the Company or 50% in value of its secured creditors may file an application before the Company Law Tribunal for a determination that the company be declared sick and for stay of the winding up proceedings to facilitate revival. Section 256 provides for appointment of an interim administrator to consider whether it is possible to revive and rehabilitate a sick company on the basis of the draft scheme, if any, filed along with the application for revival and rehabilitation filed under section 254(1) by a secured creditor or the company itself. Thus the legislative thinking also appears to be to revive and rehabilitate the company if possible and save it from liquidation. This is legislative recognition of the judicial decisions. 24. Before I conclude, it is necessary for me to explain my decision in Citibank, N.A. vs. Moser Baer rendered on 17th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was in that context observed by me, taking care to clarify that it was only a prima facie observation, that the quantum of funds to be infused by the company into the CDR scheme (Rs.150 crores) does not compare well with the outstanding liability of around Rs. 863 crores due to the petitioner as trustee for the bond-holders. I further proceeded to make a distinction between cases where the company has substantial defences and cases where the argument is only that there are attempts at reviving the company. To explain further- as it is my duty to do so- at the stage of admission one has to examine whether the company has substantial defence and not whether the company would in future be able to pay the debts because of the CDR scheme or similar revival attempts. The case of the respondent- company did not measure up to any substantial defence at the admission stage, which was considered by me to be sufficient and relevant to admit the petition. The existence of the CDR scheme was considered by me to be not relevant at the admission stage. I referred to two judgments of the Bombay High Court (supra) wherein it was held that the existence of a CDR scheme was held not to be an imp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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