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Section 433 in The Companies Act, 1956
The Companies Act, 1956
Section 434 in The Companies Act, 1956
Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla ... on 10 October, 1975
Section 398 in The Companies Act, 1956

Bombay High Court
C vs Companies Act, 1956 Having Its ... on 18 November, 2013
Bench: S.J. Kathawalla

KPP 1 CP 114/2012 rt

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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ORDINARY ORIGINAL CIVIL JURISDICTION

COMPANY PETITION NO. 114 OF 2012

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Etisalat Mauritius Ltd. ) a Company duly incorporated under the laws relating to ) Companies in the Republic of Mauritius having its office at ) 4th Floor, Raffles Tower, 19 Cybercity, Ebene, ) Republic of Mauritius )...Petitioner h

versus ig

1. Etisalat DB Telecom Pvt. Ltd. ) a Company duly incorporated under the provisions of the ) H

Companies Act, 1956, CIN: U74992MH2006PTC163071 having ) its registered office at 7th and 8th Floor, Techniplex, ) Near Veer Savarkar Flyover, Goregaon (West), ) Mumbai-400 062, Maharashtra, India. ) y

2. Majestic Infracon Pvt. Ltd. ) a Company duly incorporated under the provisions of the ) ba

Companies Act, 1956 having its registered office at ) DB House, General A.K. Vaidya Marg, Goregaon (East), ) Mumbai-400 063, as a shareholding holding share in ) Respondent No.1 Company. ) om

3. Delphi Investment Limited ) a Company under the laws relating to Companies in Mauritius ) having its office at Les Cascades, Edith Cavell Street, ) Port Louis, Republic of Mauritius as a Shareholder of ) Respondent No.1 Company. ) B

3. Genex Exim Ventures Pvt. Ltd. ) a Company duly incorporated under the provisions of the ) Companies Act, 1956, having its registered office at No.10 and ) 11, Dr. Radhakrishnan Salai Chennai Citi Centre, 4 th Floor, ) Mylapore, Chennai-600 004, as a Shareholder of ) Respondent No.1 Company.

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KPP 2 CP 114/2012 Mr. Dinyar D. Madon, Senior Advocate, along with Mr. Pradeep Sancheti, Senior Advocate, Mr. Pesi Modi, Senior Advocate, Mr. Zal Andhyarujina, Mr. F.A. Sagar, Mr. rt

Amit Vyas and Ms. Aanchal Vaswani, instructed by Mr. Mr. Madhur R. Baya, for the Petitioner.

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Mr. S.U. Kamdar, Senior Advocate, with Mr. Chirag Mody, Mr. Sharan Jagtiani, Mr. Ankit Lohia, Mr. Sajit Suwarna, Mr. M. Virjee, Mr. Rishikesh Soni and Mr. Manhar S.Saini, instructed by M/s. DSK Legal for the Applicant-Respondent No.2. C

Mr. Virag Tulzapurkar, Senior Advocate, along with Mr. Bhalchandra Palav, instructed by M/s. Amarchand Mangaldas S.A. Shroff & Co. for Citi Bank. Mr. Tushad Cooper along with Ms. Vaidehi Naik, instructed by M/s. Phoenix Legal h

for Standard Chartered Bank.

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Mr. Parag A. Vyas for Ministry of Telecommunications & IT. Mr. J.S. Solomon, Authorized Person, present. H

CORAM : S. J. KATHAWALLA, J.

Judgment

reserved on

: 2

August 2013

nd

Judgment pronounced on: 18 November , 2013 th

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JUDGMENT

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1. The above Company Petition is filed by the Petitioner - Etisalat Mauritius Ltd. for winding up of Respondent No. 1-- Etisalat DB Telecom Pvt. Ltd. According to the om

Petitioner, it is just and equitable to wind up the Respondent No. 1 Company inter alia on the following grounds:

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(i) Loss of substratum of the Respondent No. 1 Company on account of the quashing of the 2G licenses by the Hon'ble Supreme Court; (ii)Dysfunctional Board of Directors owing to the withdrawal of Directors nominated by Respondent No.2 Majestic Infracon Pvt. Ltd.; (iii) The Respondent No.1 Company is insolvent as its liabilities far exceed its ::: Downloaded on - 20/11/2013 00:58:48 :::

KPP 3 CP 114/2012 assets and it cannot pay its dues as and when they arise. rt

The Company Petition is taken up for admission. ou

2. Briefly set out hereinbelow, are the facts which have led to the filing of the above Company Petition and the orders passed by this Court thereon after the filing C

of the Petition and pending admission of the same: 2.1 The Petitioner - Etisalat Mauritius Ltd. (EML) is a Company incorporated h

under the laws relating to Companies of Mauritius. The Petitioner is a 100 per cent ig

subsidiary of Emirates Telecommunications Corporation ("Etisalat"), a Public Listed H

Corporation, incorporated in the United Arab Emirates (UAE). Etisalat is 60 per cent owned by the Federal Government of UAE and 40 per cent owned by UAE national individuals. Etisalat is an International Telecommunications Operator and currently y

has operations in 18 countries and services over 140 million subscribers across its ba

network.

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2.2 The first Respondent - Etisalat DB Telecom Pvt. Ltd. ("the Company") was incorporated on 13th July, 2006 under the Companies Act, 1956, in the name of Swan Capital Pvt. Ltd. On 15 th February, 2007, the Company changed its name to B

Swan Telecom Pvt. Ltd. and on 12 th March, 2009 again changed its name to Etisalat DB Telecom Pvt. Ltd.

2.3 The second Respondent, Majestic Infracon Pvt. Ltd. (Majestic) is a Company ::: Downloaded on - 20/11/2013 00:58:48 :::

KPP 4 CP 114/2012 incorporated under the Companies Act, 1956, under the provisions of the Companies rt

Act, 1956. Majestic is said to be 100 per cent owned and controlled either directly ou

or indirectly by Shahid Balwa (Balwa) and Vinod Goenka (Goenka). Majestic was formerly known as Tiger Trustees Pvt. Ltd. ('Tiger'). Tiger has been the subject of investigation by the Criminal Investigation Authorities investigating the 2G scam and C

was closely involved in the events which form the 2G scam. The Petitioner has pointed out that it has been alleged by the CBI that Tiger is an Associated Company h

of Reliance.

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2.4 The third Respondent -- Delphi Investment Limited (Delphi) is a Private H

Company, limited by shares incorporated in the Republic of Mauritius. Delphi holds 5.26 per cent shares in the Company.

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2.5 The fourth Respondent - Genex Exim Ventures Pvt. Ltd. ('Genex') is a Company incorporated under the provisions of the Companies Act, 1956 and holds om

4.26 per cent of the shareholding of the Company. 2.6 After the incorporation of the Company on 13 th July, 2006, on 1st October, B

2007, Respondent No.2-Majestic acquired 90.10 per cent of the equity shares of the Company and Shahid Balwa and Vinod Goenka were appointed Directors of the Company. The remaining 9.90 per cent shares were held by Delphi. 2.7 On 10th January, 2008, Letters of Intent for the grant of Unified Access ::: Downloaded on - 20/11/2013 00:58:48 :::

KPP 5 CP 114/2012 Services Licenses ('2G Licenses') were issued to the Company by the Department of rt

Telecommunications ('DoT'), Government of India. The Company met the funding ou

required to pay the entry fees in respect of the 2G licenses through bank loans. 2.8 According to the Petitioner, thereafter Balwa and Goenka approached Etisalat C

through Deutsche Bank to convince Etisalat to invest in Swan Telecom Ltd. Balwa and Goenka in the course of negotiations made false representations as to the h

lawful manner in which the licenses were acquired. Amongst other representations, ig

they represented that the licenses had no basis to be revoked/suspended/cancelled/terminated as they had fulfilled all legal obligations H

and due procedure. Warranties were also made by Respondent No. 2 as to their expertise in the field of telecom.

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2.9 Based on the above representations and warranties, on 23rd September, 2008, Shareholders Agreement and Share Subscription Agreement were entered into om

between the Company, Respondent No.2-Majestic, the Petitioner, Genex, Shahid Balwa and Vinod Goenka. Pursuant thereto on 17 th December, 2008, the Petitioner subscribed to 11,29,94,228 shares of the Company by investing an amount of Rs. B

3228.44 crores. At about the same time, Genex subscribed to 1,33,17,245 shares of Respondent No. 1. As a result of this investment, the shareholding structure of the Company was as under:

(i) Respondent No.2/Majestic : 45.73% (ii) Petitioner--EML : 44.73% ::: Downloaded on - 20/11/2013 00:58:48 :::

KPP 6 CP 114/2012 (iii) Respondent No. 3 - Delphi : 4.27% rt

(iv) Respondent no. 4 - Genex : 5.27% ----------

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Total 100%

According to the Petitioner, their capital contribution was, inter alia, used by the C

Company to repay the bank loans which funded the acquisition of the 2G licenses. h

2.10 On 17th December, 2008, a Management Services Agreement was entered ig

into between the Company and Etisalat Telecommunications Corporation wherein the Etisalat Group agreed to provide management services as provided therein, to H

the Company. However, according to the Petitioner in reality, at an operational level, Balwa (Managing Director and Vice-Chairman), Goenka and the key management y

(CEO/CRO/CLO) hired by them, prior to the Petitioner's investment, managed the ba

Company on a daily basis. Contrary to Respondent No.2-Majestic's allegation that the Petitioner's nominee Directors were also given power and authority to om

negotiate/execute contracts, Mr. Al Haddad was not given any such power on any occasion and Mr. Julfar was given limited authorization by the Board on only one occasion on 31st August, 2010, to assist in the negotiation of a contract with ZTE. B

Balwa interfered in all minor and major matters that were to be dealt by Mr. Pratap Ghose and other key officers and ensured that his decision prevailed over the others. In support of these contentions, the Petitioner has relied on the affidavit of Respondent No.2-Majestic dated 26th March, 2012, and the affidavits on behalf of the Petitioner dated 30th April, 2012 and 24th July, 2012 and the table marked A-18 ::: Downloaded on - 20/11/2013 00:58:48 :::

KPP 7 CP 114/2012 summarizing authority given to Respondent No. 2-Majestic through Board rt

Resolutions.

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2.11 On 17th March, 2009, the Petitioner invested an amount of Rs. 209.70 crores in the Company and was allotted 2 additional shares of the Company. The said sum C

of Rs. 209.70 crores was the equivalent of spectrum fee payable by Respondent no. 1 for the Rajasthan and Haryana circles under the 2G licenses. h

2.12

ig

On 21st October, 2009, the CBI filed a FIR against unknown officers of the DoT and unknown private persons and began an investigation into the process of H

allocation of 2G spectrum by the DoT.

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2.13 On 25th May, 2010, the Petitioner invested a further amount of Rs. 106.95 ba

crores in the Company and was allotted one additional share of the Company. The said sum of Rs. 106.95 crores was the equivalent of the spectrum fees payable by the om

Company for the Bihar and Madhya Pradesh circles. With this remittance, the total investment made by the Petitioner in Respondent No. 1 was Rs. 3545.09 crores. B

2.14 On 14th February, 2010 and 3rd January, 2011, Public Interest Litigations (PILs) were filed in the Hon'ble Supreme Court of India in respect of 2G spectrum allocation by the Centre for Public Interest Litigation and Dr. Subramanian Swamy. On 2nd April, 2011, the CBI filed a charge-sheet before the Special CBI Judge, inter alia, against the then Minister of Telecommunications - A. Raja, the Company, Balwa ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 8 CP 114/2012 and Goenka. On 25th April, 2011, a supplementary charge-sheet was filed by CBI rt

setting out details of the amounts in the nature of illegal gratification channeled by ou

M/s. Dynamix Realty, a Group Company of the DB Group of Companies (of which Respondent No.2-Majestic is a part and Balwa and Goenka the principal shareholders and promoters) in return for preferential allotment of 2G licenses to C

the Company. According to the Petitioner the CBI charge-sheet alleges that the Company (Swan) was a Reliance Anil Dhirubhai Ambani Group ('R-ADAG') entity. h

Under the extant Telecom Policy, R-ADAG was ineligible to apply for or obtain UASLs ig

as it held licenses in R-COM. Swan was used by R-ADAG to mask the identity of the promoter (then R-ADAG) while applying for 2G licenses. On a change in the H

Telecom Policy permitting dual technology (GSM + CDMA), R-ADAG sold Swan to Balwa and Goenka. According to the Petitioner, the CBI charge-sheet describes y

how Balwa and Goenka, whose DB Group had no telecom experience, then entered ba

into a criminal conspiracy with R-ADAG, the then Telecom Minister and the then Telecom Secretary, to cause the issuance of UASLs to Swan, which was otherwise om

ineligible, in a manner that ensured the issuance of licenses to Swan over several other eligible applicants on a 'first come first served' basis, for a price that was far lesser than the inherent value of the spectrum that accompanies the licenses. On B

8th July, 2011, a show cause notice was issued by the Directorate of Enforcement to the Company and its Directors alleging violation of the provisions of the Foreign Exchange Management Act, 1999.

2.15 On 8th July, 2011, Respondent No.2/Majestic filed a Petition under Sections ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 9 CP 114/2012 397 and 398 of the Companies Act before the Company Law Board, Mumbai rt

('CLB') against the Company, the Petitioner and the Petitioner's nominee on the ou

Board of Directors of the Company wherein Respondent No.2-Majestic (the Petitioner therein), inter alia, raised the following allegations: (i) That the Petitioner failed to bring its expertise and management skills C

to manage the business of Respondent No. 1 in terms of the 2G licenses;

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(ii) That the Petitioner failed to comply with the capital call made by the ig

Board of Directors of the Company;

(iii) That the Minutes of the Meeting of the Board of Directors held on H

25th April, 2011 had been wrongly recorded; and (iv) That the Petitioner was responsible for the financial losses suffered by y

the Company on account of its mismanagement and unnecessary ba

expenditure.

However, on 1st August, 2011, Respondent No.2-Majestic unconditionally withdrew om

the said petition filed before the CLB. On 2 nd August, 2011, Balwa admitted in his letter to the Chairman of Etisalat (the holding Company of the Petitioner) that the decision to file the petition before the CLB was taken by his lawyers without his B

consent or concurrence and that such occurrence will never happen again. (Though Respondent No.2-Majestic has disputed this letter in its affidavit dated 12 th June, 2012, the same was not disputed during oral arguments). 2.16 On 22nd October, 2011, an order was passed by the Special CBI Judge ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 10 CP 114/2012 framing criminal charges against Balwa, Goenka and the Company. rt

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2.17 According to the Petitioner, Respondent No.2-Majestic repeatedly stated that it is unable to make any capital contribution into the Company. C

2.18 On 2nd February, 2012, the Hon'ble Supreme Court quashed all the 2G licenses, inter alia, allotted to the Company. In its said judgment, the Hon'ble h

Supreme Court recorded findings of conspiracy between the then Minister of ig

Communications and certain applicants for licenses which were real estate companies having no prior experience in dealing with telecom services and who had H

made their applications only one day before the cutoff date fixed by the Minister on his own. The only real estate companies who were granted 2G licenses in 2008 were y

the Company and the Unitech Group. The Hon'ble Supreme Court in its judgment ba

further recorded that Respondent No. 1 was one of the successful applicants which had offloaded their stakes for thousands of crores in the name of infusion of equity. om

The Hon'ble Supreme Court also imposed costs of Rs. 5 crores each, only on three of the licensee companies whose licenses had been cancelled by the said judgment which included the Company. The said judgment was made operative by the Hon'ble B

Supreme Court after four months from the date of pronouncement. 2.19 At the meeting of the Board of Directors of the Company held on 19 th February, 2012, the management of the Company was directed to submit a complete plan for network shutdown. Again, in the meeting of the Board of Directors of the ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 11 CP 114/2012 Company held on 22nd February, 2012, it was unanimously decided to shut down the rt

telecom network of the Company. According to the Petitioner, the Directors ou

nominated by Respondent No. 2 supported this decision as is evident from the video recording and the transcripts of this meeting. C

2.20 On 23rd February, 2012, Reliance Infratel Ltd. (RITL) and Reliance Communication Ltd. (RCL) (together Reliance) filed Petitions before the Telecom h

Disputes Settlement and Appellate Tribunal (''TDSAT'') for claims amounting to Rs. ig

1679 crores against the Company. On 31 st January, 2012, Reliance had already switched off the telecom network of the Company and disabled access to their H

passive telecom infrastructure to the Company. y

2.21 On 23rd February, 2012, the Petitioner filed a Civil Suit in this Court against ba

Respondent No.2-Majestic and its promoters Balwa and Goenka claiming damages for loss of the Petitioner's investment on account of their fraudulent representations om

and misrepresentations.

2.22 On 23rd February, 2012, Goenka and Balwa issued a letter to the Board of B

Directors of the Company raising objections to the recording of Minutes of the Meeting held on 22nd February, 2012. On 28 th February, 2012, the Company informed the DoT and the Telecom Regulatory Authority of India ('TRAI') that it is shutting down its telecom network with effect from 31st March, 2012. ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 12 CP 114/2012 2.23 According to the Petitioner on 29 th February, 2012, Respondent No.2-Majestic rt

threatened withdrawal of its nominee Directors in a letter addressed to the Petitioner ou

and on 1st March, 2012, Respondent No.2-Majestic withdrew its two nominee Directors from the Board of the Company. Out of the remaining three Directors, two are foreign nationals. The meeting of the Board of Directors could not be C

convened thereafter as it is stipulated under the Foreign Director Investment ('FDI') scheme that a telecom Company must have a majority of Indian citizens on its Board h

of Directors. Thereafter, the Petitioner filed the present petition on 12 th March, ig

2012, seeking winding up of the Company on the grounds set out hereinabove. H

2.24 On 29th March, 2012, criminal complaints were filed by the Channel Partners of the Company against the Petitioner's nominees on the Board of Directors and the y

Petitioner's employees seconded to the Company. The Petitioner has pointed out ba

that none of the Directors or employees associated with the Respondent No. 2- Majestic were named in these complaints, clearly indicating that Respondent No. 2- om

Majestic orchestrated/instigated such complaints. In fact, on 3 rd April, 2012, Pratap Ghose, a secondee of the Petitioner to the Company was detained at the Mumbai International Airport on account of a look-out notice issued pursuant to the criminal B

complaints filed by the Channel Partners.

2.25 On 3rd April, 2012, the Hon'ble Supreme Court rejected the Review Petition filed by Respondent No. 1 for review of the judgment dated 2 nd February, 2012, quashing the 2G licenses.

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KPP 13 CP 114/2012 rt

2.26 On 11th April, 2012, this Court in the above Company Petition granted time to ou

the creditors/claimants of the Company to file their respective affidavits before this Court, setting out the particulars of their claim against the Company on or before 16th April, 2012 and also directed that until further orders the Company shall not C

make any payments to any of the creditors/claimants of the Company without obtaining prior permission of the Court.

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2.27

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On 13th April, 2012, in an application filed by Citi Bank, a creditor of the Company, the Debts Recovery Tribunal, New Delhi, directed the Company to disclose H

details of all its movable and immovable assets and to maintain status quo. On 16 th April, 2012, in an application filed by Standard Chartered Bank, a creditor of the y

Company, the Debts Recovery Tribunal, Mumbai, passed an ex parte order directing ba

the attachment of all the assets of the Company and appointed a Receiver for all its assets.

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2.28 On 18th February, 2012, TRAI issued its recommendations on Exit Policy for Telecom Licenses wherein it recommended that in view of the terms of the 2G B

licenses, the entry fees paid by earlier licensees (including the Company) ought not to be refunded to them.

2.29 According to the Petitioner on 19th May, 2012, Punjab National Bank ("PNB'') misappropriated an amount of Rs. 254.16 crores out of the Company's fixed deposits ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 14 CP 114/2012 with the Bank towards an outstanding loan given by PNB to Respondent No.2- rt

Majestic. In fact, on 12th October, 2012, the Advocates for Respondent No.2-Majestic ou

have issued a letter admitting that it owed over Rs. 254 crores to PNB and that the appropriation of the funds of the Company by PNB against unpaid amounts due from Respondent No.2-Majestic was illegal.

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2.30 On the basis of the minutes consented to by the Petitioner, Respondent No.2- h

Majestic, employees and creditors of the Company; on 3 rd July, 2012, this Court in ig

the above Company Petition passed an order in terms of the said minutes whereby an Authorized Person ('AP'') was appointed by this Court inter alia, to preserve and H

protect the assets of the Company and to mitigate and minimize costs and liabilities. y

2.31 On 6th August, 2012, Respondent No.2-Majestic issued dispute notice invoking ba

arbitration against the Petitioner under the Share Subscription Agreement and the Shareholders Agreement dated 23rd September, 2008. On 14th August, 2012, the om

Petitioner has replied to the dispute notice issued by the Respondent No.2-Majestic and denied all the allegations raised therein. It was further stated that PNB may have a claim against Respondent No.2-Majestic in respect of the loans disbursed to B

it, but the Company is completely unconnected with the said loan transaction. 2.32 On 28th February, 2012, DOT filed an affidavit stating that there is no refund possible of the license fees. On 10 th January, 2013, the Additional CIT, Mumbai, passed an order under Section 281B of the Income Tax Act, 1961, attaching the ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 15 CP 114/2012 telecom license fees deposited by the Company with the DOT. On 16 th January, rt

2013, DoT issued a notice to the Company imposing penalty of Rs. 650 crores. On ou

8th February, 2013, DoT once again wrote a letter to the Company stating that it will not refund the license fees.

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2.33 In the meantime, the Authorized Person has from time to time heard the nominees of the Petitioner as well as Respondent No.2-Majestic and/or the h

creditors of the Petitioner and has submitted several reports before this Court and ig

obtained orders on the same regarding termination of 212 out of 286 employees (i.e. 74 per cent of the employees) on the rolls of the Company; making payments for the H

premium of insurance policies taken by the Company; seeking payment of employees' salaries and other dues; recommending payment/renewal of Bank y

Guarantees; recommending to vacate property/office premises in occupation of the ba

Company; retaining M/s. Luthra & Luthra as Advocates for the 2G matter; recommending sale of furniture, seeking sanction as regards payment for various om

ongoing services; recommending return of licensed premises; recommending payment to Channel Partners, etc. The Authorized Person also obtained permission of this Court by Report No. 12 of 2013 to move the DRT and obtain a stay on the B

ex-parte order dated 16th April, 2012, appointing a Receiver in respect of the movable and immovable properties of the Company. Pursuant thereto, the Authorized Person also made an application before the DRT to that effect. On 9 th January, 2013, the DRT declined to set aside its order dated 16 th April, 2012, but has however, in view of the appointment of the Authorized Person by this Court to inter ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 16 CP 114/2012 alia protect the assets of the Company, directed that its order dated 16 th April, 2012, rt

remain in abeyance until the Authorized Person continues to be so appointed under ou

the order passed by this Court dated 3rd July, 2012. 2.34 This Court has disposed of most of the reports, inter alia of the Petitioner as C

well as Respondent No.2-Majestic by passing consent orders. On 11 th October, 2012, Respondent No.2-Majestic also filed a Company Application (L) No. 616 of h

2012 seeking orders from this Court to direct the Company to submit its application ig

for pre-qualification in the 2G auction, for which the last date notified by the DoT was 19th October, 2012. The said application which was opposed by the Petitioner H

was rejected by this Court by its order dated 18 th October, 2012 and the Appeal preferred therefrom was also dismissed by the Hon'ble Division Bench of this Court y

(Coram: Dr. D.Y. Chandrachud and A.A. Sayed, JJ.), on the ground that it is not ba

possible for a shareholder of a Company to seek a direction to the effect that the Company should bid in respect of a particular contract and also that the Company om

evidently does not have sufficient resources to enter into contractual commitments. A similar application was made on behalf of Respondent No.2-Majestic on 21 st February, 2013 to bid for new 2G licenses which was again rejected by this Court. B

2.35 The total amount claimed by the Company's creditors as on 12 th April, 2013, as per the list submitted by the Authorized Person is Rs. 41,867,100,05.14. 2.36. The SCB which has a claim of Rs. 1465.95 crores against the Company and ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 17 CP 114/2012 the Citi Bank which has a claim of Rs. 738 crores against the Company, have through rt

their respective Counsel supported the present Petition seeking winding up of the ou

Company. Reliance Infratel Ltd. and Reliance Communications Ltd. who have filed petitions before the TDSAT for claims amounting to Rs. 1679 crores against the Company as on 23rd February, 2012 and who have on 31st January, 2012, switched C

off the telecom network of the Company and disabled access to their passive telecom infrastructure to the Company have, through their Counsel, submitted that they do h

not support the present Winding Up Petition filed by the Petitioner. ig

3. One of the main contentions of the Petitioner is that in view of the judgment H

of the Hon'ble Supreme Court dated 2nd February 2012, the Company is unable to carry on its principal business viz. the provision of Second Generation ('2G') y

telecommunication services in India and the Company was left without a commercial ba

enterprise. The 2G licenses were the most valuable and only tangible assets of the Company and the very basis for the investment of equity capital by the Petitioners om

and debt by various secured creditors. On account of the quashing and termination of all the 15 Universal Access Service Licenses ('UASL' or '2G' licenses), the Company has lost its substratum.

B

3.1 However, Respondent No.2-Majestic has denied and disputed that the Company has lost its substratum and has submitted that notwithstanding the cancellation of the 2G spectrum UASL licenses by order of the Hon'ble Supreme Court of India, the Company still has 3 valid telephone licenses for International ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 18 CP 114/2012 Long Distance (ILD), National Long Distance (NLD) and Internet Service Provider rt

(ISP) and the Company is capable of carrying on profitable business on the strength ou

of these 3 valid licenses and the Company has reasonable prospect of carrying on 2G business by applying for fresh 2G license particularly when the Company has the assets and infrastructure to carry on 2G licenses. It is submitted on behalf of C

Respondent No.2-Majestic that merely because the Company is currently making losses, it does not imply that the substratum of the Company is lost. It is submitted h

that as held in various judgments, it is not for this Court to decide whether the ig

Company is capable of carrying on a profitable venture. Respondent No.2-Majestic as shareholders of the Company have a business plan and are ready and willing to H

carry on the business of the Company as per its Memorandum. There is no basis for the Company to be wound up under the just and equitable clause on account of a y

baseless allegation of loss of substratum by the Petitioner. In support of the ba

submission that the facts of the present case do not constitute a loss of substratum for the purposes of a petition under Section 433 (f), Respondent No. 2 relied on the om

decisions in (i) Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla and another1, (ii) M/s. Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd.2, (iii) In re. The Cine Industries & Recording Co. Ltd. 3, (iv) In Re Kitson & Co. Ltd. B

4

, (v) In re Taldua Rubber Co. Ltd. 5, (vi) In Galbraith v. Merito Shipping Co. 6 and (vii) In Vassant Holiday Homes Pvt. Ltd. and ors. Vs. Madan V. Prabhu 7. It is submitted 1 (1976)3 SCC 259, paras 34 to 36, page 271 2 1971 (3) SCC 632, page 641, para 29

3 1941 Bom. L.R. (54) 387, page no. 394

4 (1946) 1 All ER 435, 175 LT 25, page Nos. 4 and 5 5 (1946) 2 All ER 763, page Nos. 1, 4 to 6 6 1947 SC 446, page Nos. 5 to 7

7 2001 (3) BomCR 493, paras 31 and 32, 41 to 44 ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 19 CP 114/2012 that though in the present case, as stated hereinabove, it is possible for the Company rt

to carry on the business stipulated in its charter, the principal barrier in achieving ou

this is the conduct of the Petitioner. The Petitioner cannot be allowed to take advantage of its own conduct to frustrate the possibility of the Company carrying on business as prescribed by its Memorandum of Association. It is therefore submitted C

that there is no loss of substratum so as to justify the admission of the Petition under Section 433 (f) of the Act.

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3.2

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It is an admitted position that under the judgment dated 2 nd February, 2012 of the Hon'ble Supreme Court in the case of Centre for Public Interest Litigation vs. H

Union of India and others (supra) , all the 15 Universal Access Service Licenses (UASL or 2G Licenses) held by the Company have been quashed/terminated. The y

Company was therefore rendered unable to carry on its principal object viz. the ba

provision of Second Generation (2G) telecommunication services in India. The 2G licenses constituted the most valuable asset of the Company and the very basis for om

the investment of equity capital by the Petitioners and debt by various secured creditors. Subsequently, by an order dated 4 th April, 2012, the Hon'ble Supreme Court was pleased to dismiss the review petition filed by the Company and by B

various other orders, the Hon'ble Supreme Court continued to require that the Government of India ensure that the licensees whose 2G licenses had been cancelled, cease to do business within the outer limit of time provided by the Hon'ble Supreme Court. The Company was using the telecom infrastructure under contracts with Reliance Infratel Ltd. and Reliance Communications Ltd. who shut ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 20 CP 114/2012 down the power supply to the Company's telecom equipment from 31 st January, rt

2012. According to the Petitioner, the Company does not have any other telecom ou

infrastructure.

3.3 In fact, on 22nd February, 2012, the Board of Directors of the Company C

unanimously resolved to shut down the 2G operations in India as at 31 st March, 2012, and it was so shut down on 31 st March, 2012. Again shortly after the h

unanimous decision to shut down operations was taken by the Board of Directors of ig

the Company, on or about 1st March, 2012, both the nominees of Respondent No.2 on the Board of the Company, who constituted two out of the three Indian Directors H

on a five member Board of Directors, unilaterally resigned from the Company's Board. This made the Board defunct as no real decisions could be taken without the y

consent of the majority shareholders. This had the effect of all the decision making ba

operations at the Company coming to a complete halt. om

3.4 The Hon'ble Supreme Court further required the Govt. of India to conduct fresh auctions of the 2G licenses and spectrum and two such rounds of auction have been completed till date. The Company, however, has not bid in the fresh auctions B

of the 2G licenses and presently does not hold any 2G license or spectrum. Respondent No.2-Majestic did move this Court seeking directions against the Company to bid for the fresh auctions of the 2G licenses and spectrum. As set out hereinabove, this Court as well as the Hon'ble Division Bench of this Court dismissed the applications, inter alia, on the ground that the DRT, Mumbai, on an application ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 21 CP 114/2012 made by the SCB has appointed a Receiver in respect of all the movable and rt

immovable assets of the Company and also on the grounds that the management of ou

the Company was in disarray and that the Company evidently does not have sufficient resources to enter into contractual commitments. C

3.5 The Respondent No. 2-Majestic has sought to oppose the submission of the Petitioner that the Company has lost its substratum and deserves to be wound up, on h

the ground that there is viable business opportunity which can be exploited by ig

utilizing the NLD, ILD and ISP licenses held by the Company. As correctly submitted by the Petitioner, the intent and object of the parties at the time of the Petitioner's H

investment in the Company to the tune of Rs. 3228.44 crores (which was by 25 th May, 2010 increased to Rs. 3545.09 crores) was to run a successful 2G mobile and y

telecommunications business in India. The Petitioner's decision to invest in the ba

Company was informed by projections of strong growth in mobile penetration in India and the opportunity to exploit the same through the 2G licenses. In fact, even om

in the early stages of its financial difficulties and immediately after the cancellation of its UAS licenses by the Hon'ble Supreme Court, while nominees of Respondent No. 2-Majestic were still on the Board of Directors of the Company, there was no B

proposal or plan to operate a business using these licenses. The ILD and NLD licenses were purchased in October, 2008, before the roll out services under the 2G licenses. Despite the acquisition of these licenses, Respondent No.2-Majestic has at no stage thought it fit to operate these licenses or set up the infrastructure necessary for operating these licenses. This is despite the fact that there were no disputes ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 22 CP 114/2012 between the Petitioner and Respondent No. 2-Majestic when the ILD/NLD/ISP rt

licenses were acquired. The Petitioner has further correctly submitted that the ou

suggested revival of the Company through these three licenses is baseless, as the proposal does not account for the substantial additional investment and risks involved in entering a new market in which neither the Company nor Respondent C

No.2-Majestic has any prior experience or expertise. In any event, it is the considered view of the Petitioner that even if the Company were to commence this h

business, the costs involved would generate further liabilities and the earnings, if ig

any, would not be sufficient to service the existing debts. It is therefore not in the interest of the Company to even attempt to commence such business. Again, the H

purported telecom infrastructure already deployed for operating NLD/ILD/ISP licenses has already been attached by the order of the DRT dated 16 th April, 2012. y

Though by an order dated 9th January, 2013, the DRT has kept its order appointing ba

Receiver in abeyance, the attachment continues to remain in effect. om

3.6 As recorded hereinabove it is strongly contended on behalf of the Respondent No.2-Majestic that in the present case it is possible for the Company to carry on the business stipulated in its charter. Even during the hearing held before this Court on B

30th October, 2012, the Learned Senior Advocate appearing for Respondent No.2- Majestic submitted before this Court that Respondent No.2-Majestic is in a position to place a revival scheme before the Court on the basis that the Company can be revived even without receiving the funds due to the Company which are held up with the telecom authorities and/or other Banks. In view thereof, without prejudice ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 23 CP 114/2012 to the rights and contentions of the parties and without going into the issue as to rt

whether the Company was capable of being revived, an opportunity was given to the ou

Respondent No.2-Majestic to place its revival scheme before this Court on or before 30th November, 2012 and forward copies of the same to the Advocate for the Petitioner and the Advocates appearing for some of the creditors of the Company. C

3.7 The purported scheme was thereafter served on the Petitioner by the Advocate for Respondent No.2-Majestic on 5 th December, 2012. The purported h

scheme is necessarily founded on the Petitioner withdrawing the present Company ig

Petition and the Petitioner selling its shares to Respondent No.2-Majestic. The H

scheme, as correctly pointed out by the Petitioner, is so designed so as to conceal material data and to obviate objections from the other interested parties. It is impossible to derive any positive outcome from the arrangement proposed by the y

Respondent No.2-Majestic, where neither the immediate source of funds available to ba

the Company nor the future revenue streams from purportedly viable businesses have been determined in the scheme. The scheme is devoid of any specifics or om

details. Till date there has been no information/detail on the names of the 'potential investors' as envisaged in the scheme. As submitted by the Petitioner, it is inconceivable to reasonably expect investors to invest in the Company considering B

the financial situation and the lack of business potential. Though Respondent No.2- Majestic has offered speculative and hypothetical data in the scheme, the method of arriving at the figures is not substantiated. Despite the huge outstanding debts and the proposed operational expenditure to be incurred by the Company being critical ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 24 CP 114/2012 to the future of the Company, Respondent No.2-Majestic has failed to disclose the rt

most fundamental facet namely the source of funds required for the revival of the ou

Company. This clearly demonstrates a non-serious and frivolous nature of the scheme prepared by Respondent No.2-Majestic.

C

3.8 While the scheme is significantly silent on what steps are suggested to be taken by the Company to repay its creditors, the best offer that Respondent No.2- h

Majestic has been able to make in respect of the creditors is repayment of the ig

amounts in about 5-7 years and that too, not the entire debt but the reduced amount. This clearly shows that Respondent No.2-Majestic intends the Company to H

be exposed to further risks and liabilities over a longer period of time, thereby diminishing the likelihood of settlement of the claims of legitimate creditors. As y

correctly submitted by the Petitioner, as the scheme is intended to be brought into ba

effect only after the withdrawal of the Company Petition by the Petitioner and therefore after the Company's affairs are no longer within the purview of this Court, om

the purported scheme is clearly an attempt by Respondent No.2-Majestic to selectively deal or not to deal with certain classes of creditors in furtherance of its own independent agenda. Again Respondent No.2-Majestic's purported revival B

scheme admits that the Company can only be revived if Rs. 1600 crores is brought in as equity infusion. In paragraph 5.1 of the purported scheme, Respondent No.2- Majestic admits that if the Company is not revived, it will undergo liquidation. Such infusion of capital will necessarily require the consent of the Petitioner and the Petitioner is correct in submitting that it is not agreeable to any such capital infusion ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 25 CP 114/2012 by unknown third party investors.

rt

ou

3.9 Again, the decision in respect of the Company to undertake any new venture has to be jointly made by the principal shareholders of the Company viz. the Petitioner and Respondent No.2-Majestic. As correctly submitted by the Petitioner, C

apart from the impossibility of working with Respondent No.2-Majestic, the Petitioner cannot be lawfully compelled to participate in a venture which is h

fundamentally different to that for which it invested in the Company. Under the ig

Shareholders Agreement and the Share Subscription Agreement, the Petitioner can assert its affirmative voting rights against commencement of new businesses and H

therefore it is not open to Respondent No.2-Majestic to unilaterally commence a business solely on NLD/ILD/ISP licenses. The Petitioner has made it clear that it y

does not intend the Company to pursue this enterprise which poses additional risks ba

and mounting liabilities for the Company, further worsening its financial position as well its ability to repay the debts due to its creditors. om

3.10 This Court has also noted that the Company had 308 employees on its rolls at the time of filing of the Company Petition on 12 th March, 2012. When the B

Authorized Person was appointed, by an order dated 3 rd July, 2012, the number of employees was reduced to 286 on account of resignations. Accepting the recommendations of the Authorized Person, the number of employees as on 4 th March, 2013 was reduced to 52. By an order dated 22 nd March, 2013, this Court has directed the termination of the Chief Executive Officer, the Chief Regulatory Officer ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 26 CP 114/2012 and two Nodal Officers of the Company. At present the Company has 48 employees rt

on its rolls and is disbursing their respective monthly salaries. The Authorized ou

Person by his report dated 13th June, 2013, has recommended the termination of 28 employees thereby leaving a skeletal staff of 16 employees to take care of the remaining assets of the Company. The Authorized Person had to make various C

payments in order to meet the current liabilities in the phase of preservation of assets pending the winding up of the Company. Since the filing of the present h

Petition, payments to employees towards salaries and benefits are in excess of INR ig

47 crores. Furthermore, approximately Rs. 1 crore has been spent on renewing Bank Guarantees. Over INR Rs. 1.1 crore have been paid towards warehousing and to H

landlords including by way of adjustment of deposits. A sum in excess of INR 93 lakhs has been incurred towards insurance premiums which again largely relates to y

fast depreciating, non-productive assets which the Petitioners maintain must be ba

disposed of immediately. As per the latest list of claims circulated by the Authorized Person on 12th April, 2013, the total amount claimed by the Company's creditors is om

above Rs. 4186.71 crores. By Report No. 26 of 2013, a further liability to Channel Partners to the amount of INR Rs. 10 crores has been shown by the Authorized Person.

B

3.11 In the aforesaid circumstances I am in agreement with the Petitioner that the Company has lost its substratum. I am also of the view that the purported revival scheme of the Respondent No.2-Majestic is unrealistic and speculative. There is therefore no scope of any realistic revival of the business of the Company or a ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 27 CP 114/2012 renewed ability to carry out its own functions independently. The Respondent No.2- rt

Majestic has therefore miserably failed to establish that it is possible for the ou

Company to carry on the business stipulated in its charter, and the principal barrier to achieving this is the conduct of the Petitioner. In view of the facts and circumstances set out herein, the decisions relied on by the Respondent No.2- C

Majestic also do not lend any assistance to the Respondent No.2-Majestic. However it is necessary to clarify that a genuine comprehensive scheme which is in the h

interest of the Company, its shareholders and creditors can always be placed before ig

the Court for its consideration i.e. even after the admission of the Company Petition. H

4 The facts set out in paragraph 2 above also establish a complete breakdown of relations between the principal shareholders of the Company. The relationship y

between the principal shareholders of the Company being the Petitioner and ba

Respondent No. 2-Majestic has irretrievably broken down on account of the fact that the reputation of the Company has been destroyed by the CBI proceedings om

(conducted under the supervision of the Hon'ble Supreme Court), in which Balwa and Goenka stand accused of being party to and benefitting from the illegal actions on the part of the Ex-Minister of Communications. As submitted by the Petitioner, B

the Petitioner is a respectable telecom company, majorly held and controlled by the Government of the United Arab Emirates and having operations in 18 countries. The Government of UAE does not desire to be associated with such persons. These developments have completely undermined the Company, destroying its brand and reputation, as it has been at the center of and is criminally accused in the 2G ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 28 CP 114/2012 Spectrum Scam. It is irrelevant whether they are ultimately acquitted or not. rt

ou

4.1 Again, as submitted by the Petitioner, the purpose of the Petitioner's investment was to create a major telecom service provider in India providing services on the 2G network using the licenses acquired by the Company. The C

Petitioner has effectively lost its entire investment of Rs. 3545.09 crores in the Company as a result of the quashing of the 2G licenses by the Hon'ble Supreme h

Court, which has clearly been occasioned by the illegal acts of the promoters of ig

Respondent No. 2/Majestic (Balwa and Goenka) who were Directors and the main decision makers of the Company at the time of the acquisition of the 2G licenses on H

10th January, 2008, which were declared to be illegal by the Hon'ble Supreme Court. y

4.2 The Petitioner and the Respondent No.2-Majestic have separately raised civil ba

disputes against each other under the Share Subscription Agreement and the Shareholders Agreement. The Petitioner has filed a suit for damages against om

Respondent No.2-Majestic and its Promoters, inter alia, for the loss of its investment in the Company. Respondent No. 2-Majestic has issued a dispute notice against the Petitioner for disputes allegedly arising out of unspecified terms of these agreements. B

4.3 Both the principal shareholders have made very serious allegations against each other. Both of them attribute the present state of the Company to each other. There exists complete mistrust between the two principal shareholders and both the principal shareholders believe that the Company cannot successfully run its business ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 29 CP 114/2012 in continuance with the other. Despite the proceedings of the meeting of the rt

Company being captured on CC T.V, the principal shareholders do not and cannot ou

agree on the issue as to what actually transpired at the meeting and choose to deny and dispute what is stated by each other.

C

4.4 The relationship between the Petitioner and Respondent No. 2 has further deteriorated after the filing of the present Company Petition. In fact, the employees h

seconded by the Petitioner to the Company and the Directors nominated by the ig

Petitioner are subjected to criminal proceedings initiated by the Channel Partners of the Company. It appears that the Petitioner is correct in believing that these H

proceedings have been brought at the behest of Respondent No. 2-Majestic as the complaints filed have selectively targeted only persons associated with the Petitioner y

and conveniently excluded everyone connected through Respondent No.2-Majestic. ba

4.5 The above facts demonstrate complete lack of probity and total loss of faith om

between the major shareholders of the Company and contribute in proving the loss of substratum and the fact that the Company is incapable of functioning. If such a failed joint venture is allowed to continue, in my view, the slim chances that prevail B

as on date to protect some of the assets of the Company and not to leave its creditors and skeletal staff high and dry, would also be lost. 5 The Learned Senior Advocate appearing for the Petitioner has also submitted that in view of the aforestated facts a deadlock situation is created in the Company. ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 30 CP 114/2012 The Learned Senior Advocate appearing for the Respondent No.2-Majestic has rt

submitted that the Petitioner has not set out a single instance of a deadlock ou

situation. He submitted that under Clause 3.12.2 of the Shareholders Agreement dated 23rd September, 2008, the Petitioner was required to give a written notice if it regarded that a deadlock situation had arisen and the senior management was C

required to then try and resolve the same. The Petitioner has not given a single notice as required under Clause 3.12.2 of the Shareholders Agreement dated 23 rd h

September, 2008. It is further submitted that there are four shareholders of the ig

Company. There is no 50 - 50 shareholding between the Petitioner and Respondent No.2-Majestic which could give rise to a deadlock situation. The voting in terms of H

the shareholding can tilt on either side in case of a difference of opinion between the Petitioner and Respondent No.2-Majestic depending upon the votes cast by the y

other shareholders i.e. Respondent Nos. 3 and 4. Further, even on the Board of ba

Directors three Directors are required to be nominated by the Petitioner and two by the Respondent No.2-Majestic. Therefore, there is no question of a deadlock in the om

decision making of the Company as falsely alleged by the Petitioner. Respondent No.2-Majestic in support of its contention that a situation of deadlock has not been created in the Company has relied on the decisions in Hind Overseas Pvt. Ltd. vs. R.P. B

Jhunjhunwalla and another. (supra), M.S.D.C. Radharaman v. M.S.D. Chandrashekhar and another8, and Abnash Kaur v. Lord Krishna Sugar Mills and others9. It is further submitted on behalf of Respondent No.2-Majestic that from the above judgments and in particular, the Judgment of the Hon'ble Supreme Court in 8 (2008) 6 SCC 750

9 (1972) 2 Del 413 pages 452 and 454.

::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 31 CP 114/2012 Hind Overseas Pvt. Ltd., it is clear that deadlock alone is not sufficient for winding rt

up of a Company on a just and equitable ground. The deadlock must arise from ou

actions which constitute a lack of probity. The deadlock must be of such a nature that there is no hope or possibility of smooth and effective continuance of the Company as a commercial concern.

C

5.1 As set out in the earlier paragraphs of this order, Respondent No.2-Majestic h

has withdrawn its two Nominee Directors from the Board of Directors of the ig

Company without nominating replacements. Out of the remaining Directors, two are foreign nationals. A meeting of the Board of Directors could not be convened H

thereafter as it is stipulated under the FDI Scheme that Telecom Companies must have a majority of Indian citizens on its Board of Directors. The Petitioner has y

correctly submitted that the provision in the Shareholders Agreement pertaining to ba

the deadlock mechanism apply in a situation where there are commercial or managerial differences between the parties and not when the substratum of the om

Company has completely disappeared. In circumstances where the Hon'ble Supreme Court has cancelled the Company's UAS Licenses, the Petitioner cannot be reasonably expected to invoke this clause especially since the Hon'ble Supreme B

Court has found the issuance of the UASL's under the then Telecom Minister unlawful and designed to benefit certain persons, specifically Balwa, Goenka & Swan. The facts set out hereinabove demonstrate total loss of faith between the major shareholders of the Company and lack of probity. The other two shareholders viz. Delphi and Genex have stayed away from taking decisions pertaining to the ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 32 CP 114/2012 Company. They do not have any representation on the Board of Directors of the rt

Company. In view thereof, the submissions advanced on behalf of the Respondent ou

No.2-Majestic and the case law cited in support of their submission that the Petitioner has falsely alleged that a situation of deadlock is created in the Company cannot be accepted and stands rejected.

C

6. The Learned Senior Advocate appearing for the Respondent No.2-Majestic has h

submitted that the jurisdiction invoked by the Petitioner is undoubtedly a ig

discretionary and equitable jurisdiction. In exercise of discretion as to whether this Petition under Section 433 (f) of the Act warrants admission, the conduct of the H

Petitioner is an extremely relevant factor. This principal of conduct being relevant has been accepted by the Hon'ble Supreme Court in the case of M/s. Madhusudan y

Gordhandas & Co. (Supra) wherein the Hon'ble Supreme Court has held that a ba

petition presented with an improper motive or without a legitimate motive ought not to be entertained by this Court. The Respondent No.2-Majestic has in support of om

its contention that the conduct of the Petitioner is unfair and dubious made several allegations against the Petitioner as set out hereunder, along with response of the Petitioner, as well as the view of this Court in regard thereto: B

6.1.1 The Petitioner has acted in collusion with Standard Chartered Bank (SCB) and Citi Bank N.A. (Citi Bank).

It is submitted on behalf of Respondent No.2-Majestic that the present Petition is filed by the Petitioner in collusion with SCB with whom it has global relations and ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 33 CP 114/2012 also with Citi Bank. The Petitioner has not only admitted the alleged debts of the rt

Company to these Banks in affidavits filed by it but on the instructions of the ou

Petitioner, the Company has also admitted its alleged dues to SCB in the affidavit filed by it dated 26 th March, 2012. Further, using the admission in the affidavit dated 26th March, 2012, SCB has at the hearing before the DRT on 16 th April, 2012, C

obtained an order of appointment of Receiver over the assets of the Company. The Petitioner has also ensured that no one appears for the Company before the DRT at h

the said hearing despite a battery of lawyers appearing for the Company before ig

other forums at the same time. No plausible explanation for non-appearance on behalf of the Company before DRT-1 has been given by the Company or the H

Petitioner herein. The said collusion is also apparent from the e-mails annexed to the affidavit dated 12th June, 2012 filed by an employee of the Company, whereby it is y

evident that the Petitioner's Advocates have vetted the draft reply proposed to be ba

filed by the Company and even consulted SCB in the process. It is further submitted that though it is true that the nominee Directors of Respondent No.2-Majestic had om

signed a balance sheet of the Company admitting the dues of SCB, signing of the said balance-sheet cannot be construed as a judicial admission. B

6.1.2 In response, the Petitioner has pointed out that Respondent No.2-Majestic nor the Company have never denied the SCB debt in the Company Petition or in the proceeding before the DRT. The SCB debt is admitted in the Company's balance sheet which is signed by Balwa/Goenka. The order dated 9 th January, 2013 passed by DRT also recognizes/takes cognizance of the existence of the SCB debt. The DRT ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 34 CP 114/2012 observed that the debt is appearing in the Company's books. Therefore it is incorrect rt

to say that the order dated 16th April, 2012, is based on Pratap Ghosh's affidavit in ou

the Company Petition. It is further submitted that the Company agreed to draw on the SCB loan for purchase of network equipment (2G) in 2009, with the full consent and knowledge of Respondent No.2-Majestic and its nominees. There was never any C

allegation by Respondent No.2-Majestic at the time of the transaction that there was any collusion between the Petitioner and SCB. This allegation is therefore a complete h

afterthought. It is submitted that various Board Resolutions dated 15 th June, 2009, ig

15th September, 2009, 31st August, 2010 were passed on the drawdown of the SCB with the consent of Balwa and Goenka who were the Managing Director and H

Director of the Company at the relevant time. It is submitted that in fact it is Balwa who has colluded with the PNB and Reliance and other entities in which he had y

financial interests like the DB Group of Companies and Techniplex. It is submitted ba

that the affidavit filed by Shri Gyanendra Upadhyay is not admissible and cannot and does not form part of the record of this Court, as more particularly set out inter om

alia in the affidavits filed by the Petitioner dated 21 st July, 2012, 30th April, 2012, Report Nos. 29 and 30 of the Authorized Person and this Court's order dated 22 nd July, 2013 and also the CBI charge-sheet. The documents annexed to Upadhyay's B

affidavit are not only stolen documents but are also privileged and confidential documents as envisaged under Sections 126 and 129 of the Indian Evidence Act. In this regard, the Learned Advocate appearing on behalf of the Petitioner has relied on page Nos. 211-212 of Compilation of Affidavits of the Petitioner which pages form part of the affidavit dated 24th September, 2012. ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 35 CP 114/2012 rt

6.1.3 As regards the allegation of Respondent No.2-Majestic that the Company was ou

not represented by any lawyer before the DRT, since the Petitioner and the SCB were acting in collusion, the Petitioner has pointed out that Abdul Salam Al Bangui has previously delegated his authority in other proceedings including the Supreme Court C

Review Petition and TDSAT Petition and the CLB proceedings to Atul Jhamb and Dr. Budhiraja, appointees of Respondent No.2-Majestic. Admittedly SCB notices were h

served/attempted to be served on 12 th and 13th April, 2013 at which time Atul ig

Jhamb and Bhudhiraja, both being Senior Officers of the Company were both present in the Company and could have taken steps to represent the Company in the H

DRT proceedings. It is submitted that it has never been the contention of Respondent No.2-Majestic that these two senior most officials of the Company were in any way y

prevented from defending the DRT proceedings. It is pointed out that the Petitioners ba

secondees had resigned with effect from 1 st April, 2012 and its nominee were out of the country. Pratap Ghose had already been detained at the Airport on 4 th April, om

2012 and was being subjected to daily intense police questioning (mostly about the present Petition) for an entire month, at the behest of Balwa and Goenka/Majestic. The Board of the Company was dysfunctional post the unilateral resignation of the B

Directors of Majestic. The Channel Partners and other persons acting in concert with Balwa and Goenka threatened the Petitioner's secondees and Pratap Ghose. 6.1.4 It is submitted on behalf of the Petitioner that the allegation advanced on the part of Respondent No.2-Majestic that the documents viz. the letter of comfort from ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 36 CP 114/2012 Emirates Communication Corporation and the covenants to the effect that the rt

facility is valid only till such time as Etisalat has control over the Company under the ou

Shareholders Agreement, the evidence showing collusion between SCB and Etisalat and that the Petitioner is trying to favour SCB, are untenable and baseless. It is submitted that there is nothing suspicious, illegal or mala fide about the Letter of C

Comfort. It is international practice for Banks to take such letters of comfort while extending loans to a Joint Venture. In any event, Balwa also agreed to utilize the h

SCB funds in the purchase of telecom equipment. In fact, Respondent No.2-Majestic ig

in the Company Petition filed before the CLB accused the Petitioner of not providing a comfort letter to Tech Mahindra. It is submitted on behalf of the Petitioner that H

without the letter of comfort, the SCB loan would not have been made available on the terms it was made available. The Petitioner has therefore submitted that the y

allegation that the Petitioner had intention of favouring the said Banks is baseless, ba

untenable and self-contradictory. It is submitted that if the Petitioner had any intention of favouring the said Banks, it would have got the Company to repay the om

loan in priority instead of filing the present Petition and seeking the intervention of this Court to ensure due payment of all proven creditors on a fair and equitable basis. It is submitted that it is absurd to insinuate that the Petitioner would allegedly B

for the benefit of certain creditors jeopardize more than Rs. 3544 crores of its own investment in the Company.

6.1.5 The SCB has also denied and disputed the allegations of collusion advanced by Respondent No.2-Majestic against the Petitioner and SCB. It is submitted by SCB ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 37 CP 114/2012 that SCB being a secured creditor has acted in a bona fide manner in its normal rt

course of business as a Bank at all times and its action cannot be treated as collusive ou

as alleged. Further the decision of availing the loan from a particular bank is entirely a commercial decision of the Board of Directors of the Company which depends upon various factors, including purpose of the loan, viability, sanction limit, interest C

rate, other charges etc., all of which the borrowing party has to consider. It is submitted that the loan facility availed by the Company from SCB was for the h

conduct of its business which facilities were duly approved by the Board of Directors ig

of the Company and only on execution of suitable documentation between the Company and SCB, the said loan facilities were disbursed. Thus, SCB validly and H

legally granted the loan to the Company much prior to the filing of the present Company Petition. The Respondent No.2-Majestic or their nominees never objected y

to the facilities granted by SCB at the time of disbursal. The Company failed and ba

neglected to pay the outstanding dues and committed series of events of default under the said loan facilities. In view thereof, the allegation of Respondent No.2- om

Majestic regarding the alleged preference given to SCB by the Petitioner /Etisalat Group over the other Banks is misconceived and devoid of any merit. SCB has further pointed out that the SCB is a secured creditor of the Company which is B

indebted to SCB in the sum of Rs. 1465.95 crores approximately as of March 31, 2012 with interest thereon till the date of payment. It is pointed out on behalf of the SCB that the balance sheet for the year ended 31 st March, 2011 expressly admits the then existing liability of the Company to SCB in the sum of Rs. 781.8 crores approximately as per Schedule-C of the said balance sheet. Schedule-C mentions ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 38 CP 114/2012 that the said loan is a secured loan, secured by way of a first charge over the rt

equipment supplied by Ericson India Pvt. Ltd., and a Comfort Letter from Emirates ou

Telecommunication Corporation. The said balance sheet has been executed on 24 th August, 2011 by representatives of both Etisalat Mauritius Ltd. i.e. the Petitioner herein as also Majestic Infracom Pvt. Ltd. being Respondent No. 2 herein. The said C

balance sheet is also inter alia executed by the aforementioned Mr. Pratap Ghosh, CFO of the Company. In fact, the said balance sheet significantly is found annexed h

to the affidavit of Respondent No.2-Majestic dated 11 th April, 2012. It is further ig

submitted on behalf of the SCB that the unaudited balance sheet of the Company for the year ending March, 2012 which has been prepared and submitted along with the H

IT Returns of the Company for the Assessment Year 2012-2013 also reflects an admission of liability by the Company to SCB in the sum of Rs. 1448.5 crores y

approximately as on 31st March, 2012. It is therefore submitted that it is undeniable ba

that SCB is a secured creditor of the Company and the Company is indebted to SCB in the sum in excess of approximately Rs. 1450 crores as on 31st March, 2012. om

6.1.6 The SCB has further submitted that in order to recover its amounts, it issued a recall notice on 4th April, 2012 to the Company and thereafter on 10 th April, 2012, B

filed proceedings before the DRT at Mumbai being Original Application No. 61 of 2012 for recovery of its dues. On 16 th April, 2012, the DRT passed various interim orders and directions in the said interim Application taken out by SCB. Pursuant to and in compliance with the order of the Company Court dated 11 th April, 2012, SCB also filed its affidavit setting out its claim and the factum of the DRT proceedings ::: Downloaded on - 20/11/2013 00:58:49 :::

KPP 39 CP 114/2012 before this Court vide its affidavit dated 17th April, 2012. rt

ou

6.1.7 SCB has denied the allegation that it is apparent from the emails annexed to the affidavit dated 12th June, 2012 of Mr. Gyanendra Upadhyay that there is C

collusion between SCB and the Petitioner. SCB has denied that it was ever consulted either by the Petitioner or by the Advocates of the Company in the matter of the draft reply which was proposed to be filed by the Company. It is submitted that there h

is nothing in the said emails which indicate any consultation with regard to the reply ig

to be filed by the Company or with regard to the Company Petition before this Court. H

However, on the contrary the said e-mails disclose the intent to inform the creditor banks of certain proceedings filed before the learned TDSAT by Reliance Telecommunications Ltd. and Reliance Infracon Ltd. In fact, pursuant to the said y

intimation by the Petitioner, SCB did attend the proceedings before the learned ba

TDSAT with a view to protecting its interest particularly with regard to the security in its favour, by bringing to the notice of the learned TDSAT the relevant facts om

relating to the security. SCB further after filing its claim before the DRT, Mumbai, and after obtaining ad-interim orders therein also sought to bring the said facts to the notice of the learned TDSAT which is inter alia recorded by the learned TDSAT B

vide its order dated May 3, 2012.

6.1.8 SCB has submitted that it is pertinent to note that the Authorized Person took out a Misc. Application No. 389 of 2012 to vacate the ad-interim order passed by the ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 40 CP 114/2012 DRT, Mumbai in favour of SCB, wherein the fact of ex-parte ad interim order having rt

been passed was also brought to the notice of the DRT, Mumbai. Inspite thereof, by ou

a reasoned order, the DRT refused to vacate the ex-parte order. 6.1.9 As regards the revival scheme of the Respondent No.2-Majestic, SCB C

submitted that it is clear that the same does not reflect any realistic plan proposed by the Respondent No.2-Majestic to revive the business of the Company and the said h

scheme is vague, without any substance, unreasonable and above all fails to protect ig

the rights/interest of the creditors of the Company. It is submitted that the SCB has filed its affidavit responding to the purported revival scheme, whereunder the said H

scheme has been vehemently opposed to, to which the Respondent No.2-Majestic has no valid and substantial defense. SCB therefore submitted that the allegation y

advanced on behalf of the Petitioner that the SCB and the Petitioner have acted in ba

collusion is baseless, untenable and deserves to be forthwith rejected. om

6.1.10 The allegations made by Respondent No.2-Majestic that the Petitioner and Citibank have acted in collusion with each other are also vehemently denied by the Petitioner as well as Citi Bank. The details of the loans availed of by the B

Company from Citibank and their outstanding amounts thereunder have been set out in detail in Citibank's Affidavit dated 16th April, 2012 wherein it is pointed out by Citibank that the Company for the purpose of carrying on its business had availed from Citibank (i) unsecured working capital credit facilities upto an amount of Rs. 333,60,00,000 (BG Facility); and (ii) unsecured working capital credit facilities upto ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 41 CP 114/2012 an amount of Rs. 550,00,00,000/- (LC Facility). As regards the BG Facility availed rt

by the Company from Citibank, the Board of Directors of the Company on 25 th May, ou

2010 passed a Resolution, inter alia, for availing of the BG Facility upto US $ 100 Million (then approx.. INR 492, 09, 99,908.45) from Citibank and to do such other deeds and things as may be necessary for availing the BG Facility. In its further C

meeting held and resolution passed on 6 th June, 2011, the limit of the BG Facility was reduced to USD 57 Million (then approx. INR 280, 49, 69,947.81). The copies h

of the Board Resolutions have been made available by the Company to Citibank. ig

Thereafter, upon execution of certain loan/security documents, the Company availed of the BG facility from Citibank. Under the BG Facility, at the request of the H

Company, Citibank issued its Bank Guarantee dated 14 th July, 2010, in favour of the beneficiary viz. Tech Mahindra Limited valid upto 30 th June, 2011. Tech Mahindra y

was entitled to invoke and make a claim under the Bank Guarantee in accordance ba

with the terms thereof. The said Bank Guarantee was therefore in force till the same was invoked by Tech Mahindra. On 1st March, 2012, Citibank received a letter from om

Tech Mahindra Ltd. invoking the Bank Guarantee of Citibank on account of default in the payment of invoices by the Company for quarter ending 31 st December, 2011, on the agreed due dates of 31 st December, 2011 plus 60 days from the due date for B

the respective quarters as stated in the Bank Guarantee and demanding payment thereunder. This demand was in terms of the Bank Guarantee and within its validity period. Citibank was therefore bound by this demand. In view thereof, the liability of Citibank to make payment under the Bank Guarantee became absolute. By its letter dated 2nd March, 2012, Citibank brought to the notice of the Company the ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 42 CP 114/2012 letter dated 1st March, 2012, from Tech Mahindra and that Citibank was in the rt

process of making the payment to the beneficiary and requested the Company to ou

immediately reimburse/fund Citibank the amount under the BG Facility which the Company was/is bound to do. The Company did not dispute the demand made by Tech Mahindra nor the requisition made by Citibank's said letter dated 2 nd March, C

2012. Citibank in response to the invocation of the Bank Guarantee, made due payment of Rs. 154, 48, 35,531/- to Tech Mahindra Ltd. on 15 th March, 2012 under h

the said Bank Guarantee. Vide its two letters, both dated 16 th March, 2012, Citibank ig

communicated the same to the Company at its address in Mumbai and New Delhi and requested the Company to fund the same to Citibank immediately. However, the H

Company wrongly failed and neglected to arrange reimbursement/funding to Citibank. Citibank is therefore entitled to recover the said amount of Rs. 154, 48, y

35,531/- together with applicable interest from the Company. ba

6.1.11 For the purpose of availing the LC Facility, the Board of Directors of the om

Company on 31st August, 2010, resolved to avail the LC Facility upto USD 122 Million. Under the said LC Facility, at the request of the Company, Citibank issued six Letters of Credit in favour of the beneficiaries named therein, in respect of the B

network equipment provided by the said beneficiaries to the Company for implementation of 2G network. Under the said Letters of Credit, Citibank N.A. China (Citi China) was nominated as the Negotiating Bank, while Citibank N.A. Bahrain (Citi Bahrain) was nominated as Reimbursing Bank. The maturity date of the said Letters of Credit was 31st May, 2012. ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 43 CP 114/2012 rt

6.1.12 Thereupon, the beneficiaries of the LCs negotiated documents under ou

the LCs to Citi China. Citi China advised Citibank (the LC Opening Bank) of certain discrepancies in the documents submitted under the LCs. Citibank brought these discrepancies to the notice of the Company. The Company advised acceptance of C

the documents (notwithstanding the discrepancies), by an acceptance letter dated 18th November, 2010. Thus the Company waived the discrepancies. The Company h

unconditionally and irrevocably instructed Citibank to make payment to the ig

beneficiary notwithstanding the discrepancies. Citibank, accordingly advised and instructed Citi China to accept the documents. Citibank instructed Citi Bahrain to H

release the payment under the LCs to Citi China upon negotiation. Citibank acted upon the said letter, as instructed by the Company. Accordingly, Citi Bahrain y

discounted the documents under the LCs and became entitled to receive payment ba

under the said documents from Citibank. Citi Bahrain thus became entitled to demand payment of the said amount from Citibank and upon such demand it was om

the liability of Citibank to pay the said amount to Citi Bahrain. Upon payment, Citibank was entitled to seek reimbursement of the said amount from the Company as the opener of the LCs. On 31 st May, 2012, Citibank transmitted the sum of USD B

103,945,631 to the account of Citi Bahrain. Upon making the aforesaid payment to Citi Bahrain viz. the Reimbursing Bank under the said LCs, the contingent liability of the Company became an absolute liability. Citibank is entitled to recover the said amounts from the Company. Citibank vide its letter dated 21 st June, 2012, intimated to the Company about the payment made by Citibank to Citi Bahrain and called ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 44 CP 114/2012 upon the Company to make the said payment of USD 103,945,631. Citibank rt

received a letter dated 29th June, 2012, from the Advocates for the Company, inter ou

alia, expressing its inability to pay the dues, inter alia, on the ground that Winding Up Petition against the Company is pending in this Court and an order of injunction has been passed in the said Winding Up Petition by this Court restraining the C

Company from making any payment to any of its creditors. Citibank for recovery of its claim under the loan facilities, has already filed Original Application No. 56 of h

2012 in the DRT No. 2, New Delhi, which is pending hearing and final disposal. The ig

said claim of Citibank has been amended in the Original Application and the revised claim is for Rs. 737, 60, 20,256.11.

H

6.1.13 Citibank has submitted that it is an admitted position that the Company y

took the benefit of the loan facilities granted by Citibank and is bound to repay the ba

dues. Having availed of the loan facilities, Respondent No.2-Majestic (as a shareholder of the Company) cannot dispute the Company's liability to Citibank. In om

fact, in the present Petition, Respondent No.2-Majestic is completely silent about the aforesaid huge liability of the Company towards Citibank and therefore is attempting to unnecessarily divert the attention of this Court to issues which are devoid of any B

merit. The Citibank has vehemently denied the allegation of Respondent No.2- Majestic that the Petitioner has purportedly given a preference to Citibank over other Banks and has also denied and disputed the allegation of purported collusion between the Petitioner and Citibank in filing the Petition. 6.1.14 It is further submitted on behalf of the Citibank that though ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 45 CP 114/2012 Respondent No.2-Majestic proposed a purported scheme of revival of the Company, rt

the said scheme was vague, without any substance, unreasonable, unfair, lacking ou

transparency and did not protect the rights/interests of creditors. Further it is not in dispute that there is total loss of mutual confidence and trust amongst the shareholders of the Company, viz. the Petitioner and Respondent No.2-Majestic. C

Thus, there is a vacuum in the management of the Company due to the internal disputes between its shareholders, and the business of the Company has come to a h

standstill, for which Citibank is not accountable. The Company owes huge amounts ig

to its several creditors to the tune of Rs. 3569, 09, 52,184.27 which includes the claim of Citibank. It is submitted that ultimately the winding up proceedings enure H

to the benefit of all the creditors of the Company. Therefore, as a creditor of the Company, Citibank is entitled to support the Petition for winding up. y

ba

6.1.15 The above submissions of SCB as well as Citibank clearly establish the transparent dealings between the Petitioner and the said Banks. The loans and om

advances applied for and obtained by the Company are supported by the Resolutions passed by the Board of Directors of the Company which includes the nominees of Respondent No.2-Majestic. The said loans are shown payable to the respective Banks B

by the Company in its balance-sheets which are inter alia signed by the nominee Directors of the Respondent No.2-Majestic. The Respondent No.2-Majestic has at no point of time disputed the claims of SCB as well as of Citibank and has not done so even in the present proceedings. I find nothing incorrect on the part of the CFO of the Company having admitted in his affidavit the amounts due and payable by the ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 46 CP 114/2012 Company to the said Banks, which amounts are not denied/disputed by the rt

Respondent No.2-Majestic till date, more so when the transaction with the Bank are ou

supported by overwhelming documentary evidence. Both the parties have filed their independent proceedings before the DRT. It is incorrect to suggest that the DRT, Mumbai passed an order appointing Receiver in respect of the movable and C

immovable properties of the Company only because the CFO of the Company admitted the liability of the Company towards the Banks. Even otherwise, there is h

no defence even attempted to be advanced on behalf of Respondent No.2-Majestic ig

qua the claims of the Banks. The DRT has, even after hearing the parties, declined to set aside its order dated 16th April, 2012 appointing a Court Receiver in respect of H

the movable and immovable properties of the Company, though the DRT has kept the said order in abeyance only because this Court has already appointed the y

Authorized Person to take care of the assets and properties of the Company. In view ba

thereof and in view of the aforestated submissions advanced by the Petitioner and the Banks, it is clear that there is no collusion between the Petitioner with SCB om

and/or Citibank as alleged or at all and amongst others, the allegations that the said Banks were preferred by the Petitioner over other Banks or that the Petitioner did not get the Company represented before the DRT, Mumbai, through an Advocate on B

16th April, 2012, with an intention to help the SCB to obtain orders against the Company are untenable and baseless and cannot be accepted and hence rejected. Respondent No.2-Majestic have therefore also failed to establish that the conduct of the Petitioner is unfair or dubious.

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KPP 47 CP 114/2012 rt

6.2 Due to unilateral secret and illegal decisions/conduct, the Company ou

which was managed by the Petitioner suffered losses and was unable to effectively commence its business.

It is submitted on behalf of Respondent No.2-Majestic that the Petitioner had C

represented that it had operations in the Middle East, in Africa and other countries and that it had significant experience, ability and expertise in carrying on the h

telecom business as an International Telecom Operator. The Respondent No. 2 had ig

entered into the aforesaid agreements with Etisalat viz. the Share Subscription Agreement, the Shareholders Agreement and the Management Services Agreement, H

as it was desirous of taking on Board a strategic partner with a proven track record and expertise in carrying on and guiding the day to day operations of the Company. y

Pursuant to the said Agreements and the deputation of the secondees by the Etisalat ba

Group, they were put in management and were responsible for the day to day affairs of the Company. The cheque signing authority of the Company was also given to the om

Petitioner and its nominees pursuant to the Board Resolution dated 17 th December, 2008. Thus the Petitioner/Etisalat Group was in charge of and managing the day to day affairs of the Company. However, under the management of the Petitioner, the B

Company suffered losses and was unable to effectively commence its business as a result of the delay in meeting with its roll out obligations. The Petitioner/Etisalat Group has taken unilateral/secret illegal decisions through the Board of the Company which is controlled by the Etisalat Group without knowledge, intimation or even consent of the Respondent No.2-Majestic and/or its representatives. The ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 48 CP 114/2012 secondees deputed by the Petitioner/Etisalat Group incurred unnecessary expenses rt

on account of the Company by frequently travelling to the U.A.E. over the weekends ou

and also on week days and thereby not being available to efficiently run the day to day affairs of the Company. It is submitted that the Petitioner also failed to obtain F.I.P.B. approval to increase its shareholding and the Petitioner also failed to bring in C

call money as agreed under the Shareholders Agreement. The Petitioner failed to utilize the sanctioned loan of Rs. 6700 crores. The Petitioner procured equipments at h

a very high cost. They failed to implement the business plan and launch the services ig

despite repeated follow up. The Petitioner called for meetings contrary to the Shareholders Agreement and incorrectly recorded minutes of various Board H

Meetings. In view of this conduct, the Etisalat Group failed to ensure the launch of the telecom services as per the business plan and led the Company into a situation y

wherein it started facing a financial crunch and wrongly and illegally started ba

blaming the Respondent No.2-Majestic and its ultimate shareholders for the same. It is submitted that it was on account of the mismanagement by the Petitioner and its om

group entities, that the Company was unable to commence commercial operations in accordance with the business plan contemplated when the Shareholders Agreement was executed. It is submitted that therefore allegations against Respondent No.2- B

Majestic and its ex-Directors with regard to the alleged 2G scam are wholly irrelevant in respect of the failure to start commercial operations, inasmuch as the issue of 2G scam is still under investigation. In contrast to the failure and inability of the Petitioner to launch telecom services, other Companies such as Uninor and MTS which were granted the licenses at the same time as the Company, have been ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 49 CP 114/2012 able to garner significant market share and are expanding their customer base. rt

These Companies have despite cancellation of their licenses submitted bids and have ou

been successful in obtaining licenses in the subsequent fresh round of auction by DoT.

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6.2.1 The Learned Advocate appearing for the Petitioner has in response pointed out that despite the aforestated agreements entered into by and between h

Respondent No.2-Majestic with Etisalat including the Management Services ig

Agreement, in reality Balwa and Goenka together with the CEO, the Chief Regulatory Officer, the Chief Legal Officer, who were hired by them prior to the H

Petitioner's investment, managed the Company on a daily basis. Balwa was the Managing Director of the Company and he also served as Vice Chairman on the y

Board of the Company. This position, in conjunction with the fact that a permanent ba

Chairman was never elected, further increased his influence qua taking decisions on the Board and in the management of the Company. The Petitioner despite being om

entitled to appoint replacements for the higher senior management positions (including CEO, CFO and COO), upon insistence of the Respondent No.2-Majestic retained some of its people in the same roles such as Atul Jhamb, the CEO of the B

Company. Board resolutions were passed giving Balwa and Goenka control of the Company as follows:

(i) To act as regards the appointment of Directors; (ii) To invest Company funds;

(iii) To do all things facilitating creation and allotment of Company shares; ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 50 CP 114/2012 (iv) To act in relation to loans;

rt

(v) To sign the Company's balance-sheet;

ou

(vi) To sign Director's report;

(vii) To execute POA in favour of signatories authorized to represent the Company before the Government; and

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(viii) To execute documents relating to 3G auction. Balwa was the sole person in charge of negotiating with the Reliance Companies h

which Companies were responsible for the passive telecom infrastructure. Balwa ig

cited his strong business relation with Reliance to take on the responsibility to deal with them personally. Balwa and Goenka entered into various contracts on behalf of H

the Company without disclosing their interests in those Companies viz. Reliance, EON and Techniplex. Shri Ahmed Salahuddin who was appointed as Director of the y

Company was not an employee of Etisalat but was introduced to Etisalat by Balwa. ba

Mr. Salahuddin was also personally known to Goenka. Contrary to the Respondent No.2-Majestic's allegation that the Petitioner's Nominee Directors were also given om

Board authority to negotiate/execute contracts, Mr. Al Haddad was not given any such power on any occasion and Mr. Julfar was given limited authorization by the Board on only one occasion i.e. on 31 st August, 2010 to assist in the negotiation of a B

contract with ZTE. Balwa interfered in all major and minor matters that were to be dealt by Mr. Pratap Ghose and other key officers and ensured that his decision prevailed over the others. Balwa and Goenka were always present in all Board meetings held when decisions were taken. It is therefore submitted on behalf of the Petitioner that the allegation made by the Respondent No.2-Majestic that it is the ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 51 CP 114/2012 Petitioner who is responsible for the losses incurred by the Company or failure to rt

meet their roll out obligations as per the terms of UASLs issued by DoT, are false ou

and incorrect. The Petitioner has submitted that Respondent No.2-Majestic has even earlier made similar allegations before the CLB in a Petition filed under Sections 397/398 of the Companies Act and has later unconditionally withdrawn the same. C

It is submitted that failure to meet its roll out obligations was inter alia due to Balwa exercising great degree of control over the Company and at times would ensure that h

his opinion prevailed over the advice of the management leading to delays. The ig

poor services by Reliance also caused great delay, as is reflected in various Board Resolutions. It is submitted that Company's failure to implement its business plan H

and to meet its roll out obligations was severely hampered by the commercial environment and technical and legal problems associated with roll out operations y

which were then seriously exacerbated by commencement of the various legal ba

proceedings against it (for the most part arising out of the conduct of Balwa and Goenka), including the CBI investigations and subsequent criminal trial, the om

Supreme Court proceedings and the various investigations/proceedings by the Regulators, the DoT and the Enforcement Directorate, including the FEMA proceedings. Considerable time and resources have been spent since the end of B

2010 defending the Company against these various investigations/proceedings. It is submitted that the Petitioner/Etisalat Group has not taken any unilateral/secret illegal decisions as alleged or at all. The decision taken on 22 nd February, 2012 was with the knowledge, presence and consent of Respondent No.2-Majestic which is revealed by the video recording. The decision to shut down the network was taken ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 52 CP 114/2012 after obtaining legal opinion of Senior Advocates. The Resolution to shut down the rt

network was read out and approved by Respondent No.2-Majestic. These allegations ou

have been made as an afterthought to the suit for damages filed by the Petitioner. The decision to shut down the network was unanimous. It is submitted that the secondees travelled to and from the UAE at their own expenses and not at the C

expense of the Company. The travel cost of Etisalat secondees to the Company were never paid by the Company. As regards the allegation that the Petitioner failed to h

obtain F.I.P.B. approval to increase its shareholding, it is submitted by the Petitioner ig

that the said allegation is false and is denied. The Company was responsible for filing the application for FIPB approval. The FIPB refused to give its approval to the H

purchase by Etisalat of Genex's shares largely because of the reputation and links of Balwa, as admitted by Balwa in his letter dated 23rd December, 2010. Genex was y

presented to Etisalat by Balwa. Etisalat had no previous involvement with Genex. As ba

far as the Petitioner is concerned, the relationship with Genex has thus always been at arm's length and on a purely commercial basis. om

6.2.2. As regards the allegation that the Petitioner failed to bring in the call money, the Petitioner has submitted that there is no failure on the part of the Petitioner to B

bring in the call money. The amount was to be used to capitalize the Company. As the Company did not need the money at the time of the capital call, the Petitioner did not contribute. Capital call was subject to a supported business plan to be submitted by Balwa which never happened. The Resolution to return the call money was at the insistence of Balwa. It is submitted that therefore Respondent No.2- ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 53 CP 114/2012 Majestic cannot claim that the Petitioner's lack of funding contributed to the delay in rt

roll out and/or other financial business issues. In fact, after Respondent No.2- ou

Majestic's alleged initial equity investment, it never contributed material funding to the Company. Respondent No.2-Majestic purchased UAS licenses primarily from the debt taken by Respondent No.2-Majestic and/or the Company. The Petitioner's total C

investment in the Company was allegedly used to repay this debt. On 5 th and 22nd July, 2010, at the instance of Mr. Balwa, the Board of the Company resolved that the h

funds are not required by the Company and shall be returned to PNB. Since Balwa ig

funded the capital call through a PNB Loan, the amount ought to have been returned to PNB. However, the Respondent No.2-Majestic used the funds to fund its H

other businesses including the payment of DB Group loans. As per the orders of this Court, the Authorized Person has got a suit drafted and settled against PNB, Balwa y

and Goenka for colluding to misappropriate the assets/monies of the Company. ba

6.2.3 The Petitioner has also denied the allegation that it has failed to utilize the om

sanctioned loan of Rs. 6,700 crores by the ICICI Bank. The Petitioner has explained that different Bank loans were taken for different purposes. SCB loan was for purchase of equipment. The loan from Citibank was for BGs. The ICICI loan was to B

be used for purchase of additional spectrum/3G licenses which were never acquired by the Company. Therefore these loans and their terms cannot be compared with each other. Balwa and Goenka chaired all the Board meetings where it was decided to avail of SCB loan as also where it was agreed to differ the ICICI loan. The SCB loan was considered and taken in 2009, whereas the ICICI loan was contemplated in ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 54 CP 114/2012 2010. Therefore, there could never have been any comparison. The Board rt

Resolution No. 34 dated 15 th September, 2009 and the Board Resolution dated 25 th ou

May, 2010 clearly indicate that all Banks were being contemplated for a loan facility to fund further purchase of spectrum/licenses and that the ICICI loan was on terms equally favorable/unfavorable as others.

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6.2.4 As regards the allegation that the Etisalat Group procured network equipment h

at a very high cost as compared to what was paid by other Indian Telecom operators, ig

it is submitted by the Petitioner that the equipment was purchased by the Company at the best possible price. Balwa and Jhamb tried to re-negotiate but to no effect. H

Balwa despite having no experience in this field made an unsubstantiated claim as to the high price of the equipment. The Respondent No.2-Majestic has also not y

produced any evidence of the equipment being overpriced. Later on negotiations ba

with vendors by Jhamb and Balwa resulted in acceptance of the initial price with minor changes to volume and the Board unanimously accepted the same. In fact, om

Balwa cancelled the purchase of the Company's own micro wave equipment and purchased the same from Reliance. Balwa ensured that only he and Ms. Suvarna were involved in concluding the Passive Telecom Infrastructure Sharing Agreement B

signed by Reliance on behalf of the Company. The Management had no opportunity to give its input, and their suggestions which when given were excluded. The CBI and the Enforcement Directorate have similar concerns regarding the links between Balwa and Reliance. Balwa attempted to pay Reliance even though Reliance was an unsecured creditor.

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KPP 55 CP 114/2012 rt

6.2.5 As regards the allegation that the Petitioner/Etisalat Group had called for ou

meetings contrary to the Shareholders Agreement and deliberately incorrectly recorded minutes of various Board Meetings and also failed to give to Respondent No.2-Majestic and its nominee Directors copies of the Minutes of the Board C

Meetings, the Petitioner has submitted that it was the responsibility of the Company to draft the minutes of the meeting. Mr. Afzal Lodhi, the Company Secretary of the h

Company had this responsibility and they were to be sent to the Chairman for ig

approval. The allegation therefore that the Petitioner incorrectly recorded the minutes or failed to give copies of the same to the nominees of Respondent No.2- H

Majestic is in correct and denied.

y

6.2.6. As regards the allegation that in contrast to the failure and inability of the ba

Petitioner to launch telecom services, other Companies such as Uninor and M.T.S. desired cancellation of their licenses, and submitted bids and have been successful om

in obtaining licenses in the subsequent fresh round of auction by DoT, the Petitioner has submitted that the Company cannot participate in an auction for any fresh licenses without further funding. The Company has been unsuccessful as the bankers B

have refused to lend to it. Respondent No.2-Majestic has indicated that it cannot bring in further capital. Even its alleged revival plan requires the Banks to wait for a period of 5 years before any repayment. Unitech (the real estate Company) has exited from Uninor. Balwa and Goenka have never indicated any such exit. The Petitioner has also denied and disputed the allegation that one of the principal ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 56 CP 114/2012 reasons for filing the present Petition is the fact that clause 8 of the Shareholders rt

Agreement provides for a non-compete clause which restrains the Petitioner from ou

entering into the Telecom Sector in India through any entity other than the Company and it is clear that the Petitioner has no intention of exiting the Indian Telecom Sector.

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6.2.7 From the aforestated allegations advanced by the Respondent No.2-Majestic h

and the answers given thereto by the Petitioners and the perusal of the documents ig

relied upon by the Parties, it is clear that it cannot be held that it was only the Petitioner who was in charge of the day to day affairs of the Company or that all H

business decisions have been taken by the Petitioner. There is equal participation, if not more, of the nominees of Respondent No.2-Majestic in carrying on its day to day y

business and in taking important decisions in the matter. The Petitioner alone ba

therefore cannot be blamed for non-commencement or delay in commencement of the business or incurring any losses in the business or taking any unilateral decisions om

qua the running and/or shutting down of the business. From the submissions made by the Parties and the records produced by them it is clear that all the aforestated allegations made by the Respondent No.2-Majestic against the Petitioner seriously B

lacks merits as well as bona fides and are nothing but a creation of the Respondent No.2-Majestic, in order to raise excuses to contend that the Petitioner's alleged conduct does not entitle them to any reliefs in this Petition. 6.3 The nominees of the Petitioner failed to comply with its roll out ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 57 CP 114/2012 obligation and unilaterally shut the business of the Company. Due to such rt

illegal actions and conduct of the Petitioner several show cause ou

notices/demand notices are issued to the Company. The Respondent No.2-Majestic inter alia alleged that (i) the Petitioner failed to ensure that the Company complies with its roll out obligations under the UASLs. C

Though the Hon'ble Supreme Court passed an order cancelling 122 UASLs issued by the Govt. of India including 15 UASLs held by the Company, the Hon'ble Supreme h

Court extended the validity of the licenses until fresh auctions would take place; (ii) ig

the Petitioner's nominees unilaterally passed Resolution for shut down of the business. Such a decision could only have been taken with the affirmative vote of H

the Respondent No.2-Majestic's Nominee Director as provided for under clause 3.12.1 of the Shareholders Agreement. In fact, Respondent No.2-Majestic vide its y

letter dated 23rd February, 2012, strongly objected to the incorrect statement of ba

Etisalat Group that the Board of the Company (which at that time had Respondent No.2's Nominee Directors) had unanimously agreed to shut down the business of the om

Company and that the said nominees had not given consent to shutting down the Company; (iii) Despite the aforesaid objection of Respondent No.2-Majestic, by its letter dated 23rd February, 2012, Etisalat immediately informed the Abu Dhabi B

Securities Exchange about the decision to shut down the operations of the Company and also informed the DoT and TRAI that the Company is shutting down its telecom network w.e.f. March 31, 2012; (iv) In view of the conduct of the Petitioner, TRAI addressed a show cause notice dated 16 th March, 2012, calling upon the Company to comply with its obligations under the UASLs until the licenses are operative; (v) On ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 58 CP 114/2012 27th June, 2012, DoT issued a show cause notice calling upon the Company to rt

explain why it should not be penalized for illegal closure of operations in breach of ou

the UASL terms and conditions; (vi) On 28 th December, 2012, DoT filed an affidavit stating that the Company has violated certain conditions of the UASLs and therefore the amount of Rs. 1600 crores is not refundable to the Company; (vii) DoT also C

issued a demand notice dated 16th January, 2013, demanding Rs. 650 crores from the Company for violation of UASL conditions for failure to meet roll out obligations h

and illegal closure of operations. Therefore, due to the illegal actions and conduct of ig

the Petitioner, DoT has made a huge claim against the Company whereas it has granted an adjustment of Rs. 1661 crores and Rs. 1653 to Uninor and MTS (paid by H

the entities against the cancelled licenses) towards the license fees payable by the said Companies for the fresh licenses allotted to them. y

ba

6.3.1 The Petitioner has submitted that the Resolution passed by the Company for shut down on 22nd February, 2012, was consensual. The Majestic Nominee Directors om

raised no objection against the decisions which can be seen from the video recording taken at the time of the passing of the Resolutions. It is also correctly pointed out that the argument in regard to the affirmative vote is a red herring. The affirmative B

vote provision pertains to decisions which are to be taken for the purpose of running the business and any change therein. Such affirmative vote cannot be expected in the present situation where the Hon'ble Supreme Court has held that Respondent No.2-Majestic, Balwa and Goenka are guilty of such acts which make it impossible for any respectable person to carry on business in partnership with Balwa and ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 59 CP 114/2012 Goenka. Furthermore, it is impossible to contemplate that such a person will give an rt

affirmative vote thereby admitting to the charges. In support of its submission that ou

the decision for shut down of the business was not unilateral, the Petitioner has also pointed out that Dr. Buddhiraja (Majestic's appointee) signed all the letters addressed to TRAI and DoT. It is submitted that the said decision was taken by C

consent by the Board of the Company because of the cancellation of the Company's UAS Licenses by the Supreme Court judgment dated 2 nd February, 2012; dire h

financial position of the Company in that its liabilities exceeded its assets, unilateral ig

shut down of substantial parts of its network by Reliance; inability of the Petitioner to raise external funding and Respondent No.2-Majestic too refused to contribute to H

the funding of the Company. The Petitioner has pointed out that the objection taken by Respondent No.2-Majestic on 23rd February, 2012 was belated and an y

afterthought and contrary to the consent given at the meeting of 22nd February, ba

2012. It is pointed out by the Petitioner that Etisalat informed the Abu Dhabi Securities Exchange about the decision to shut down the operations of the Company om

before receipt of the letter dated 23 rd February, 2012, from the Respondent No.2- Majestic recording its objections. It is submitted that in any event, the intimation is factually correct and the said intimation was required as Etisalat is owned by the B

sovereign. As regards the allegation that the Petitioner informed the DoT and TRAI that the Company is shutting down its telecom network with effect from 31st March, 2012, the Petitioner has pointed out that the said information was forwarded to the DoT and TRAI not by the Petitioner but by the Company and Shri Buddhiraja, a nominee of the Respondent No.2-Majestic had signed the letters. As regards the ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 60 CP 114/2012 show cause notices/demand notices issued by the DoT and the stand of the DoT that rt

the amount of Rs. 1600 crores is not refundable to the Company, the Petitioner has ou

submitted that the allegations made in the show cause notice as well as demand notice are incorrect and untenable and the same are required to be pursued with the DoT by the Company/Authorized Person. As regards the allegation that the Uninor C

and MTS are allowed adjustments of Rs. 1661 crores and Rs. 1653 crores towards the license fees payable by the said Companies for the fresh licenses allotted to h

them, the Petitioner has submitted that there is nothing on record to show that ig

Uninor and/or MTS are given any adjustment of license fee as alleged. H

6.3.2 After considering the aforestated submissions and perusing the pleadings and records relied upon by the Parties, I am of the view that the Respondent No.2- y

Majestic has not established that the nominees of the Petitioner have failed to ba

comply with its roll out obligation and unilaterally shut the business of the Company or have committed any illegal actions or conduct resulting in show cause om

notices/demand notices being issued to the Company.

7. The Respondent No.2-Majestic also contended that since the Petitioner by B

filing the suit selected an alternate remedy, they cannot move this Court with the Petition seeking winding up on just and equitable ground. In my view, the suit for damages is not an alternate remedy for a winding up petition. The Petitioner does not seek to benefit financially or recover its losses in the winding up petition which is primarily for the benefit of the creditors. ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 61 CP 114/2012 rt

8.1 The Learned Senior Advocate appearing for Respondent No.2-Majestic has ou

next submitted that the Petitioner has wrongly relied on events post the filing of the Petition in support of the admission of the Petition. It is submitted that the Petitioner has relied upon various reports and steps taken by the Authorized Person C

(some with the consent of the parties and some without the consent of parties but with the sanction of this Court) in support of the admission of this Petition. It is h

submitted that it is well settled that in a Petition for winding up, a case for winding ig

up must be contained in the Petition alone and subsequent events cannot be looked at to support the Petition. In support of this contention, the Learned Senior H

Advocate appearing for the Respondent No.2-Majestic has relied on the decision of the Hon'ble Supreme Court in Mohan Lal and another vs. Grain Chamber Ltd., y

Muzzaffarnagar and others10, Hind Overseas Pvt. Ltd. vs. Raghunath Prasad ba

Jhunjhunwala and another (supra) and Sangramsinh p.Gaekwad and ors. vs.Shantadevi P. Gaekwad11. It is submitted that the decisions relied upon by the om

Petitioner in response to the above decisions relied upon by the Respondent No.2- Majestic lends no assistance to the Petitioner. In any event, the said judgments would be impliedly overruled by the judgment of the Supreme Court in the case of B

Sangramsingh P. Gaekwad (supra) more particularly paragraph 22 of the same which reads as follows:

" It is now well settled that a case for grant of relief under Sections 397 and 398 of the Company Act must be made out in the petition itself 10 AIR 1968 SC 772, para 20

11 (2005) 11 SCC 314 para 200.

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KPP 62 CP 114/2012 and the defects contained therein cannot be cured nor the lacuna filled rt

up by other evidence oral or documentary."

8.2 Without prejudice to the aforesaid contentions, it is submitted on behalf of ou

the Respondent No.2-Majestic that the consent order of 3 rd July, 2012 by which the Authorized Person was appointed, cannot be relied upon because by that order it C

was clearly provided that the appointment of the Authorized Person and the power of the Authorized Person as agreed to by the parties was strictly without prejudice to the rights and contentions of the parties. The Petitioner's submission and reliance on h

events that emanate from this without prejudice consent order is improper. It is ig

therefore submitted that the Petitioner is not entitled to rely upon subsequent events H

as argued by it.

8.3 The Petitioner has in response pointed out that the fact that the Petitioner is y

entitled to rely upon the events post filing the Petition is clear from paragraph 20 of ba

the decision in Mohan Lal vs. Grain Chamber Ltd. (supra) and paragraph 30 of the decision in Hind Overseas Pvt. Ltd. (supra). Furthermore, the Petitioner while om

relying on events post filing of the Petition has not based its case solely on the same. It is submitted that the events prior to the filing of the Petition are more than sufficient to wind up the company. The events post filing of the Petition were put B

forth to the Court only to demonstrate how the situation has further deteriorated and as to how Respondent No.2-Majestic also realizing the same had consented to various employees being laid off, etc. It is submitted that if Respondent No.2- Majestic's submission is accepted, an absurd situation could arise i.e. a Company ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 63 CP 114/2012 which at the time of filing of the Petition deserves to be wound up by the Court, rt

cannot continue its winding up petition despite the fact that during the pendency of ou

the Petition, the situation had improved and by the time of the final hearing no case for winding up was made out. It is further submitted on behalf of the Petitioner that there is no implied overrule of the three judgments relied upon by the Petitioner C

by the judgment of Sangramsingh Gaikwad. It is submitted that paragraph 200 of the Judgment of Sangramsingh P. Gaikwad lends no assistance to the Respondent h

No.2-Majestic in the facts and circumstances of the present case. It is submitted that ig

there is no question of any breach of understanding. It is true that the appointment of the Authorized Person was without prejudice to the rights of either party. That H

does not mean that the court should not take into account the situation of the company at the time of hearing the matter. It is therefore submitted that the y

Respondent No.2-Majestic has wrongly contended that the Petitioner wrongly relies ba

on events post the filing of the Petition in support of the admission of the Petition. om

8.4. Prior to 3rd July, 2012, this Court had informed Mr. Madon, Learned Senior Advocate appearing for the Petitioner and Mr. Dwarkadas, learned Senior Advocate appearing for Respondent No.2-Majestic that in view of the management of the B

Company being in complete disarray, if this Court takes the view that pending the hearing and final disposal of the admission of the Company Petition, a Provisional Liquidator needs to be appointed in respect of the Company, the same will cause harm and prejudice to the Company because there are number of very urgent/ essential steps required to be taken on behalf of the Company. This Court therefore ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 64 CP 114/2012 suggested to the learned Advocates that it would be in the interest of the parties, if rt

some independent Advocate/Solicitor is appointed to look after the day to day ou

affairs of the Company. In fact, it was this Court which suggested the name of Mr. Solomon to be the person in charge of the affairs of the Company pending the admission of the Petition. The suggestion made by the Court was accepted by the C

Advocates appearing for the Parties. Mr. Solomon was accordingly appointed and after considering the various nomenclatures it was decided that Mr. Solomon be h

referred to as "the Authorized Person" ('AP'). Accordingly the minutes dated 3 rd July, ig

2012 were submitted in Court and an order in terms of the said minutes was passed by this Court. The said AP thereafter has submitted various reports to this Court and H

most of the orders passed on the said reports are by consent of the Petitioner as well as by Respondent No.2-Majestic. In my considered view, this Court being seized of y

the reports and having passed orders thereon from time to time can certainly look ba

into and/or consider the same on its own or at the instance of any party before the Court whilst taking a decision in regard to the admission of the above Company om

Petition. Paragraph 200 of the decision of the Hon'ble Supreme Court in Sangramsingh P. Gaikwad (supra) does not assist the Respondent No.2-Majestic in any manner because the cognizance of the reports of the Authorized Person is not B

taken by the Court to cure any defect in the Company Petition or to fill up the lacuna by other evidence- oral or documentary. The question of amending the Petition also does not arise. Though it is true that the Authorized Person was appointed without prejudice to the rights of either party, it is not the contention of the Petitioner that since the Authorized Person was appointed by an order dated 3 rd July, 2012, the ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 65 CP 114/2012 Company Petition should be admitted. At the same time it also does not imply that rt

the Court should not take into account the situation of the Company at the time of ou

hearing the matter. In view thereof, the submission advanced on behalf of the Respondent No.2-Majestic viz. that the Petitioner has wrongly relied on events post the filing of the Petition in support of the admission of the Petition is untenable and C

baseless and is rejected.

h

9.1 The Learned Senior Advocate appearing for the Respondent No.2-Majestic ig

has submitted that the Petitioner cannot be heard to argue that the Petition is filed under Section 433 (e) of the Act, since the Petitioner has not issued any statutory H

notice under Section 434 (1) (a) of the Act or any other demand notice in its alleged capacity as a creditor of the Company. It is submitted that the Petitioner has sought y

to argue that a notice under Section 434 (1) (a) of the Act only establishes a ba

presumption of indebtedness and is not a sine qua non for filing a Petition under Section 433 of the Act. In support of this proposition, the Petitioner has relied upon om

the decisions in (i) Pandam Tea Co. Ltd. vs. Darjeeling Commercial Co. Ltd. 12, (ii) N.N. Valecha v. I.G. Petrochemicals Ltd.13, (iii) In the matter of Indian Companies Act VII of 1913 and in the matter of Darjeeling Bank Ltd. 14 and (iv) In re Kermeen Foods P B

Ltd.: Anil Vasudev Salgaonikar v. Kermeen Foods P. Ltd. 15. It is submitted that these judgments do not assist the Petitioner especially because even in those cases where a Petition under Section 433 (e) was entertained without a statutory notice it was held 12 1977 Comp Cas 15 (47)

13 (2008) 143 Comp. Cas. 122 (Bombay)

14AIR (35) 1948 Cal. 335 (C.N. 137)

15 1985 Comp Cas 156 (58)

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KPP 66 CP 114/2012 that such a petition was required to be substantiated by other evidence. In other rt

words, a person who is neither a creditor nor a prospective creditor of a Company ou

and who has not produced any material much less any cogent material in support of a claim against the Company, cannot file a petition under Section 433 (e) on a general plea that the Company is unable to pay its debts. It is submitted that the C

contention raised by the Petitioner is contrary to the provisions of Rule 95 read with Form 46 of the Companies (Court) Rules, 1959. As against this requirement h

specified by Rule 95, as also contrary to the principles laid down by the judgment ig

cited by the Petitioner which require evidence of debt even if a statutory notice is not served, the only pleading in the Petition in relation to any alleged debt is found in H

para 19 (c )/page 25. The Petitioner makes a bold claim of USD 25 million under the Management Service Agreement dated December 17, 2008 towards dues for y

managing the Company. There are no particulars in support of his claim. The ba

Management Service Agreement dated December 17, 2008, itself is not annexed to the Petition. Hence, by any reckoning, this Petition does not meet the requirement om

under Section 433 (e) of the Act and cannot be admitted on that basis. 9.2 Strictly without prejudice to the above submissions, it is further submitted on B

behalf of the Respondent No.2-Majestic that the alleged debt of the Petitioner is disputed. This dispute is not capable of adjudication in a summary proceeding for winding up under Section 433 (e) of the Act. For this reason also the Petition under Section 433 (e) ought not to be entertained or admitted. ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 67 CP 114/2012 9.3 In response, the learned Senior Advocate appearing for the Petitioner has rt

submitted that in the matter of Indian Companies Act VII of 1913 and in the matter ou

of Darjeeling Bank Ltd. 16; Pandam Tea Co. Ltd. vs. Darjeeling Commercial Co. Ltd. (supra), N.N. Valecha vs. I.G. Petrochemicals Ltd. (supra), and Siddharth Apparels P. Ltd. 17, it is clearly stated that a notice under Section 434 (1) (a) is only required if a C

creditor wishes to rely upon the presumption that a company is unable to pay its debt. However, it is otherwise open to a creditor or a contributory, who has not given h

a notice to satisfy the Court that the Company is unable to pay its debt. The ig

Petitioner has specifically set out in paragraph 8 (d), 19 (c), 19 (d) and 20 of the Petition that Respondent No.1 Company is unable to pay its debt and is H

commercially insolvent. The Respondent No.2-Majestic in its Affidavit-in-reply dated 11th April, 2012, has by attaching the balance sheet of the Company itself admitted y

the indebtedness of the Company. Furthermore, the financial accounts of the ba

Company (at the time of filing of the Petition) provided by the AP clearly shows that the Company is insolvent and is unable to pay its debt. Respondent No.2 had filed a om

purported "Scheme of Revival". The said scheme itself shows that the Company is unable to pay its debt and is an admission on the part of Respondent No.2-Majestic that the Company is unable to pay its debt. Thus, both the majority shareholders of B

the Company who together hold more than 90% of the shareholding are unanimous in their view that the Company is unable to pay its debt. The financial statements as on March, 2012 submitted by the AP also establish the fact that the Company is unable to pay its debt. The Petitioner has relied on a decision of the Hon'ble 16 AIR (35) 1948 Cal. 335 (See para 14 at pg. 339) 17(1983) 59 Comp cas 435 (Cal) (see pages 437 to 438) ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 68 CP 114/2012 Division Bench of the Gujarat High Court in Re: Karmeen Foods Ltd. 18 where inter rt

alia the Hon'ble Court has held:

ou

"It is not as if the sustainability of the winding up petition depends on whether the Company, whose winding up is sought, is able to pay the debt due to the person who moves the Petition. The Company must be C

unable to pay "its debts" which means that the inability is not one to pay the debt of the person moving for winding up but the debt as a whole due from the Company...."

h

Though from the facts narrated in this order, it is very clear that the total liabilities ig

of the Company are far greater than its total assets and the Company is unable to H

pay its debts in the usual course of business, once this Court comes to a conclusion that the Petitioner has made out a case for winding up of the Company under Section 433 (f) of the Act it is irrelevant whether the Petition is indeed filed also y

under Section 433 (e ) and am therefore not dealing with the said issue. ba

10. In view of the above facts and circumstances, I am satisfied that the Company om

has lost its substratum; there exists a deadlock between the main shareholders of the Company; there is complete lack of faith and probity resulting in irretrievable breakdown between the major shareholders of the Company; the liabilities of the B

Company have far exceeded its assets; the scheme propounded by Respondent No.2- Majestic is unrealistic, speculative and unworkable and therefore a case is made out by the Petitioner to wind up the Company under Section 433 (f) of the Act. The Company Petition therefore deserves to be admitted. 18 1985 (58) Comp cas 180

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KPP 69 CP 114/2012 rt

11. As set out hereinabove, since the Company has to recover several huge ou

amounts from the statutory authorities as well as PNB, and is also required to answer the show cause notices/default notices and challenge the same before the appropriate court of law and further steps are required to be taken for protecting the C

properties of the Company and renewing its Bank Guarantees, by consent of the Parties an Authorized Person was appointed even prior to the admission of the h

Petition on 29th October, 2013. Of course, Respondent No.2-Majestic has submitted ig

that even if the Company Petition is admitted, the Authorized Person cannot be appointed and the law requires the appointment of a Provisional Liquidator. In my H

view, the Office of the Official Liquidator, High Court, Bombay is not equipped to carry out this stupendous task (set out in the order dated 3 rd July, 2012) which is y

successfully and in a very competent manner being carried out by the Authorized ba

Person since 3rd July, 2012. In fact, by an order of this Court dated 29 th October, 2013, and the order of the Appeal Court dated 13 th November, 2013, the Authorized om

Person has been assigned a very important task viz. to receive submissions/objections from the Petitioner as well as Respondent No.2/Majestic and accordingly instruct M/s. Luthra and Luthra, Advocates for the Company to cross- B

examine the prosecution witnesses in Criminal Case No. 1 of 2011(CBI vs. A. Raja and others) on behalf of the Company. It is therefore in the interest of the Company, its shareholders and creditors to continue with the Authorized Person, pending the hearing and final disposal of the Petition. This Court has in the case of The Bank of New York Mellon, London Branch vs. Zenith Infotech Limited, at the stage of admission ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 70 CP 114/2012 of the Company Petition, keeping in mind the nature of the business of the company rt

viz. Cloud Competing Business and the fact that the Official Liquidator will not be ou

equipped to take care of the business, appointed an Administrator of Zenith Infotech Ltd. The said appointment was inter alia challenged by the Company therein before the Division Bench of this Court (Coram: Dr. D.Y. Chandrachud & M.S. Sonak, JJ.). C

However, the said Appeal was dismissed and SLP preferred therefrom before the Hon'ble Supreme Court was also unconditionally withdrawn. The submission on h

behalf of Respondent No. 2-Majestic that an Administrator/Authorized Person ig

cannot be appointed pending the final disposal of the Petition is not accepted since very serious steps as indicated in the order dated 3 rd July, 2012, are required to be H

taken on behalf of the Company and the Authorized Person appointed on 3 rd July, 2012, has already worked for several months on several important and serious issues y

pertaining to the Company and is in the midst of taking further steps in the matter. ba

The work put in by him will go waste if he is discontinued and the Office of the Official Liquidator is directed to take over, which as I have already observed is om

completely unequipped to carry out the functions/duties which are assigned to the Authorized Person. In view thereof, I pass the following order. (i) The Company Petition is admitted and made returnable on 18 th December, B

2013;

(ii) The Petitioner is directed to advertise the Petition in two local newspapers, viz. "Free Press Journal" (in English), "Nav Shakti" (in Marathi) and the Maharashtra Government Gazette;

(iii) The Petitioner shall also deposit an amount of Rs. 10,000/- with the ::: Downloaded on - 20/11/2013 00:58:50 :::

KPP 71 CP 114/2012 Prothonotary and Senior Master of this Court towards publication charges, rt

within a period of two weeks from the date of this order, with intimation to ou

the Company Registrar failing which the Petition shall stand dismissed for non- prosecution.

(iv) Pending the hearing and final disposal of the Petition, the Authorized Person C

appointed by this Court by an order dated 3 rd July, 2012, shall continue to act as an Authorized Person and carry on his duties as set out in the said h

order and shall be entitled to receive the same monthly remuneration being received by him till date.

ig

(v) Notice under Rule 28 of the Companies (Court) Rules, 1959, is waived. H

12. The Learned Advocate appearing for Respondent No.2/Majestic seeks stay of y

the order admitting the above Company Petition. The application is rejected. ba

However, the Petitioner shall not advertise the Petition upto 29 th November, 2013. om

- (S.J. KATHAWALLA, J.) B

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