*1* cp.892.00.sxw kps IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.892 OF 2000 Oman International Bank, S.A.O.G... ..Petitioner -Versus- Iridium India Telecom Ltd.. ..Respondent .......... Mr.F.D’vetre, Senior Advocate a/w Mr.Rafiq Peermoddin, Mr. M.S. Bodhanwalla, Mr.Rajeev Pandey, Ms.Prachi Raj Mhatre i/b M.S.Bodhanwalla & Company, for the Petitioner. Mr.Virag Tulzapurkar, Senior Advocate a/w Mr.Rohit Kapadia, Mr.V.R.Dhond, Shahezad Kazi, Jyoti Sinha i/b N.S. & Himayatullah, for the Respondent. Mr.Ravi Kadam, Advocate General a/w Dr.Birendra Saraf i/b Ms.Lubna Vohra, for IL & FS Creditors. .......... CORAM : S.C.DHARMADHIKARI, J. Reserved on : 14th January, 2011 Pronounced on : 03rd February, 2011. JUDGMENT: 1 This is a petition seeking winding up of the Respondent Company. 2 After pointing out that the Petitioner is a Banking Corporation incorporated and existing under the laws of Oman and having branch office at Mumbai, so also, the details of the Respondent which was incorporated as a Public Limited Company on 24.10.1994; it is stated that sometime in or around May, 1998, the Respondent Company approached *2* cp.892.00.sxw the Petitioner and requested for certain credit facilities for the purposes of their project at Dighi near Pune. The Respondent Company inter-alia represented that 80% of its shareholding was held by leading Financial Institutions of India. The Petitioner, after considering the aforesaid representation, agreed to grant to the Respondent Company the facilities mentioned in their letter of sanction dated 06.05.1998. However, the said facilities were not used by the Respondent Company and it desired certain alterations in the terms and conditions. After negotiations, the Petitioner sanctioned certain facilities as detailed in their letter dated 01.02.1999. The copies of sanction letters are annexed as Annexures A-1 and A-2 to the petition. It is stated that the present petition is filed on account of default in repayment of the outstanding dues of Short Term Loan Facility and overdue interests, costs, charges etc.. 3 In consideration of the facilities granted and with a view to secure the repayment of all amounts that may become due and payable, the Respondent Company executed certain documents, the details of which are mentioned in paragraph No.8 of the petition. 4 It is stated that the Respondent utilized the short term loan facility of Rs.100 Million. The Infrastructure Leasing & Financial Services Limited (in short “IL&FS”) offered to give security in the form of its letter of support dated 07.04.1999 inter-alia requesting the Petitioner to make credit facility available to the Respondent Company on the terms and conditions negotiated. In paragraph Nos.9 and 10 of the petition, this is what is stated:- “9. Infrastructure Leasing & Financial Services Ltd., (hereinafter referred to as “the said IL&FS”) offered to give security in form of its letter of support dated 07.04.1999 inter-alia requesting the Petitioners to make credit facility available to the Respondent Company on terms and conditions negotiated. The said IL&FS further *3* cp.892.00.sxw represented and fully committed in the performance of debt obligation of the Respondent Company and assured that they would prevent the Respondent Company from entering into any liquidation as to prejudice the Petitioners’ rights against the Respondent Company. The said IL&FS being one of the major shareholder further represented that the financial position of the Respondent Company was sound and it was in a position to satisfactorily meet its obligation and liabilities in respect of the said facility on due date. The said IL&FS further stated that it was their policy to ensure that Banks dealing with their affiliates were not put to loss or inconvenience and therefore they shall do “whatsoever is necessary” in order to ensure the repayment of the Respondent Company’s obligation under the said facilities as and when the same shall become due and payable. The said IL&FS further agreed and undertook that so long as any money remained owing to the Petitioners by the Respondent Company, the said IL&FS shall not sell, assign, transfer, pledge or otherwise encumber in any manner their shareholdings in the Respondent Company. Copy of the said letter dated 07.04.1999 is hereto annexed and marked Exhibit ‘C’. 10. The Respondent Company defaulted in paying the principal on due date. In respect of the principal loan amount falling due on 30.12.1999, part payment of Rs. 80,50,000/- was made against/towards interest paid on 06.10.1999 and 14.01.2000, while all other due including principal sum and/or interest remain unpaid till date. Under the said sanction letter dated 01.02.1999, an event on default was to inter-alia occur if the Respondent Company failed to pay back the loan within the stipulated tenor of 180 days from the date of draw down, whether demanded or not and in an event of repeated overdues/irregularity the Petitioners entitled to render the offer of facilities cancelled/ withdrawn and all outstandings will be repayable on demand. In respect of all overdues outstandings, the Respondent Company is liable to pay interest @ 25.50% p.a. with quarterly rests from the respective due date till payment.” *4* cp.892.00.sxw 4 In paragraph No.11 of the petition, it is pointed out that the Respondent gave instructions to the Petitioner regarding disbursement of the short term loan to their account vide Annexure D-1. The Respondent was in the business of providing mobile phones which were linked via satellite. The American principals of the Respondent Company were in difficulties and sometime in April, 1999 there were adverse media reports with regard to the worldwide functioning of Iridium Group. On the Petitioner’s inquiry, the Respondent vide their letters dated 21.04.1999 and 01.07.1999 explained their position and reiterated that in India, the shareholders of the Respondent Company are Indian Financial Institutions who constitute perhaps the strongest backers of any project ever implemented in India. At the same time, the Petitioners were informed by the Respondent by a letter dated 28.07.1999 that Iridium LLC was going through a restructuring process and in the worst case scenario may be forced to use the protection under Chapter XI of the Bankruptcy Codes which would enable the Respondent Company to carry on business without the pressure of having to satisfy various debt holders. 5 However, the Petitioners allege that the media reports continued and on account of uncertainty, the Petitioners called upon Mr.Dalal, Chief Executive Officer of the said IL&FS and other senior officers of IL&FS and voiced their concerns. The said IL&FS assured the Petitioners about timely repayment of the short term loan by due date i.e. on 06.10.1999. The Petitioners have recorded the same in their letter dated 09.08.1999. Copies of the aforesaid correspondence have been annexed as Annexures D-2 to D-5. The Petitioners also called upon the Respondent Company to ensure repayment of the short term loan on due date as assured. However, in reply the Respondent Company confirmed by letters dated 01.10.1999 and 05.10.1999 that it would pay interest on due *5* cp.892.00.sxw date and assured that there will be no default. The Respondent also requested to roll over the short term facility for 180 days more as set out therein. However, that request was not acceptable to the Petitioners and by their letter dated 16.11.1999 they called upon the Respondent to pay the principal loan amount. There was also reminder issued on 30.12.1999. The Petitioners also requested the Respondent Company to influence its shareholders to mobilize at least part payment of overdue. Therefore, the Respondent Company forwarded a cheque for Rs. 41,50,000/- towards payment of interest on principal amount for the period 07.10.1999 to 09.01.2000. Copies of this correspondence have also been annexed at Annexures E-1 to E-6. Since the Respondent Company failed to repay the principal sum and/or subsequent interest, there was further correspondence. There were meetings held in May, 2000 with the Country Manager, India and the Chief General Manager of IDBI to discuss repayment of the short term loan and the Petitioners were assured that the Respondent Company would ensure early realisation of overdue interest and with regard to repayment of the principal sum, all shareholders would have joint share liability. Since no payment was forthcoming from the said IL&FS, there was correspondence with the IL&FS as well. In such circumstances that in paragraph No.12 of the petition, it is alleged that the Respondent Company failed to regularize its account, therefore, a statutory notice under Sections 433 r/w 434 of the Companies Act was addressed. Even an application was made for recovery of the sum to the Debts Recovery Tribunal. It is stated that as on 31.07.2000, a sum of Rs.11,71,58,035.07 was due and payable together with interest and since the amount has not been paid, this is a fit case where the Respondent Company should be wound up, particularly for the reasons set out in paragraph Nos.15 to 19. *6* cp.892.00.sxw 6 With the above statements and averments this Company Petition was filed on 23.08.2000. A reply affidavit was filed on 30.08.2005 by Nitin Lokhande who is Director of the Respondent Company, in which, it was stated that the Respondent was promoted by India’s premier banks and financial institutions and almost 80% of the shareholdings in the Respondent Company is held by the Industrial Development Bank of India, ICICI Bank, State Bank of India, Export Import Bank of India, Unit Trust of India, General Insurance Corporation of India and its subsidiaries, Life Insurance Corporation of India, Housing Development Finance Corporation and Infrastructure Leasing & Financial Services Limited. The shareholding pattern of the Respondent Company is set out in Annexure-1 to this affidavit in reply. It is contended that the Respondent was set up as a special purpose vehicle to hold the Indian investment in Iridium LLC, a global company, which owned and operated the Iridium satellite constellation of 66 satellites at the relevant time and to market and provide the Iridium global mobile telecommunication services in India and SAARC countries except Pakistan. The said Iridium LLC launched its operations in or about November, 1998 and filed for bankruptcy in or about August, 1999. Its assets were eventually sold in the bankruptcy proceedings in the United States of America for about US $ 25 million with the result that the entire investment of the Respondent Company in the said Iridium LLC was completely wiped out. 7 It is alleged that the present financial condition of the Respondent Company is due to the loss and/or misrepresentation and/or deceit practiced by one Motorola Inc.. The said Motorola Inc. induced the Respondent Company to invest a large amount and/or incur huge expenses/ liabilities inter-alia for subscribing to the equity of the said Iridium LLC and towards setting up a Gateway Station at Dighi, Pune. It is *7* cp.892.00.sxw stated that the Respondent Company has instituted a suit in this Court against the said Motorola Inc. being Suit No.3092/2003 for recovery of nearly Rs.1000 crores and the said suit is pending. It is stated that by a judgment and order dated 30.04.2004 passed in appeal in that suit, which appeal was filed by the Respondent Company, the Division Bench was pleased to inter-alia restrain the said Motorola Inc. by an order and injunction not to repatriate any monies out of India until such time that the said Motorola Inc. deposits a sum not exceeding rupee equivalant of US $ 120,490,000/-, which amount, if deposited, was directed to be invested by the Prothonotary & Senior Master of this Court in a Fixed Deposit until further orders. 8 It is stated that against this order a Special Leave Petition was filed by the Motorola Inc. in the Hon’ble Supreme Court of India and by an order dated 26.07.2004 the Hon’ble Supreme Court was pleased to grant stay of the aforementioned judgment and order of the Division Bench on the condition that the Motorola Inc. deposits a sum of Rs.200 crores or US dollars equivalent thereof in their bank account in New Delhi. It is stated that the said Special Leave Petition, thereafter, has been admitted and the order of deposit has been continued. 9 It is also stated that the Respondent has filed a criminal complaint against the said Motorola Inc., in which, the process was issued. But, an application under Section 482 of the Code of Criminal Procedure was filed in this Court and by an order dated 08.08.2003 this Court quashed the said complaint. Against this order, the Respondent Company preferred a Special Leave Petition (Criminal) No.4995/2003 before the Hon’ble Supreme Court. The hearing of said SLP was deferred pending the decision on a point of law referred to a Constitution Bench. Thereafter, the Respondent Company succeeded before the Constitution *8* cp.892.00.sxw Bench and now the criminal case can proceed in accordance with law. 10 It is submitted that this entire litigation is looked after by the shareholders and promoters of the Respondent Company and particularly the institutional shareholders and they have contributed and continue to contribute sizable sums in that behalf. 11 My attention is invited to the fact that prior to the filing of this Company Petition the Petitioners filed an Original Application No. 2320/2000 in the Debt Recovery Tribunal-II, Mumbai against the Respondent Company on the same set of facts. A decree came to be passed on 25.10.2001 by the Debt Recovery Tribunal-II, Mumbai in favour of the Petitioners. Thereafter, a recovery certificate has been issued by the Debt Recovery Tribunal on 06.11.2001. It is stated that a complete and exhaustive disclosure of all assets was made by the Respondent Company on or about 04.04.2002 before the Recovery Officer, DRT-II, Mumbai. It is also stated that the Respondent Company has certain amount lying in its credit with some banks, which has been attached. The only secured creditor is State Bank of India. The nature of proceedings instituted by State Bank of India and reliefs granted therein have been referred to in paragraph Nos.6 to 8 of the affidavit in reply dated 30.08.2005. 12 It is stated that unsecured creditors of the Respondent Company are the Industrial & Development Bank of India (IDBI) and the Infrastructure Leasing & Financial Services Limited (IL&FS). They have to recover major amounts. Further it is important to bear in mind that even the creditors together with these institutional shareholders are not in favour of the passing of the winding up order. In paragraph Nos.12 and 13 of this affidavit in reply, this is what is stated:- “12. The object and purpose behind winding up a company is to ensure proper realization of the value in respect of the *9* cp.892.00.sxw assets and properties of the Company and to ensure proper distribution of the proceeds thereof amongst the creditors of the Company. However, so far as the Respondent Company is concerned, the Respondent Company will not gain anything by a winding-up order and no purpose whatsoever would be served by winding up the Respondent Company inasmuch as:- (i) the Company is not carrying on any business since last several years; (ii) the Company has no employees/ staff; (iii) the bank accounts of the Company are already attached in execution of the Recovery Certificate issued by the DRT as stated hereinabove; (iv) a Receiver appointed by the DRT has already taken possession of the assets and properties of the Respondent Company in execution of the Recovery Certificate obtained by the State Bank of India; (v) the assets and properties of the Respondent Company, are being sold through the DRT. The same are however, not capable of realizing enough monies to satisfy the claim of the State Bank of India (secured creditor) let alone unsecured creditors; (vi) the assets and properties of the Respondent Company are safe and secure in the custody of the Receiver and there is no likelihood of the same being dissipated or frittered away; and (vii) other than the assets of which the possession has already been taken by the Receiver in execution of Recovery Certificate obtained by the State Bank of India, secured creditor, there are no other assets available, of which possession could be taken by the Official Liquidator, if appointed; (viii) The board of the Respondent consists of nominees of the banks and public financial institutions who are shareholders of the Respondent. There is therefore no apprehension about the bonafides or probity of the management. 13. It is neither in the interest of the shareholders or the creditors (including the Petitioners) nor the Company to have the company wound up. In fact, if the Respondent Company is wound up, the only chance of the creditors *10* cp.892.00.sxw (including the Petitioners) of recovering their dues, would be lost forever. As afore stated, the claim of the Respondent Company against Motorola is huge and is required to be pursued earnestly, diligently and seriously. As afore stated, pursuant to the orders passed by the Hon’ble Supreme Court of India, Motorola Inc. has already deposited a sum of Rs.200 crores in their bank account at New Delhi. The said SLP has been admitted and is pending hearing and final disposal. Large funds have been expended till date and more funds would be required by the Respondent Company to pursue the litigation. The Respondent Company is receiving assistance from some of its shareholders to enable the Respondent Company to pursue the said litigation. These shareholders are rendering monetary assistance because they feel confident about the Respondent Company recovering its dues from Motorola. If, however, at this stage the Company is ordered to be wound up and Official Liquidator is appointed as Liquidator of the Company as prayed for by the Petitioners, it is unlikely that the claim of the Respondent Company against Motorola can be pursued effectively. It is equally unlikely that any of the shareholder of the Respondent Company will continue to give monetary assistance to the Respondent Company towards the litigation cost of such a claim. So also, if the Company is directed to be wound up and a Liquidator is appointed, Motorola will never be induced to settle the proceedings filed by the Respondent Company.” 13 On more or less identical lines and by submitting that no fruitful purpose would be served by an order directing the winding up the Respondent Company, so also, by submitting that the Receiver appointed by the Debt Recovery Tribunal has already taken possession of all movable and immovable properties, even IDBI has opposed the winding up of the Respondent Company by filing the reply affidavit dated 13.09.2005. 14 To both affidavits, a rejoinder is filed by the Petitioners and it is contended that once it is undisputed that the Company is insolvent, not *11* cp.892.00.sxw carrying on any business and has lost its substratum, it must be wound up. The only purpose for which the Company is stated to be functioning is to recover the investments of the shareholders/ creditors. Thus, they are trying for their own purposes to resist the winding up. Therefore, when such is the benefit which they seek to derive, then, this Court should not accept their pleas but proceed to pass an order of winding up. 15 It is submitted that the litigation against Motorola Inc. is sponsored by the institutional shareholders and other vested interests for obvious purposes. The Petitioner is unsecured creditor holding a decree against the Respondent Company. It legitimately apprehends that there may be a settlement/ compromise secretly arrived at between the Respondent Company and the shareholders and the said Motorola Inc., thereby, the suit filed by the Respondent against Motorola Inc. will be compromised for the private benefit and to the prejudice of the general body of creditors including the Petitioners. In such circumstances none of the affidavits should be treated as an independent stand but that of the parties who for their private benefits, desire that the Respondent Company should not be wound up. 16 My attention is also invited to the further affidavit in rejoinder filed on 10.02.2006. 17 It is on this material that I have proceeded to hear Mr.D’Vetre, learned Senior Counsel appearing on behalf of the Petitioners, Mr.Tulzapurkar, learned Senior Counsel appearing on behalf of the Respondent Company and Mr.Kadam, learned Advocate General appearing for the intervener. 18 It is submitted by Mr.D’Vetre that there is a recovery certificate in favour of the Petitioners. The claim of the Petitioners in Indian rupees is more than Rs.10 crores plus 15% interest and quarterly *12* cp.892.00.sxw rests. That the Petitioners have succeeded in obtaining the recovery certificate, is not disputed by any of the parties. Mr.D’Vetre submits that IL&FS induced the Petitioners to lend to the Respondent. This was on the basis that the Respondent was set up as a special purpose vehicle of several financial institutions. 80% of the shareholding is institutional which includes the intervener. 20% shareholding is of American company. 19 Mr.D’Vetre has invited my attention to the reply affidavit and particularly paragraphs reproduced above and contended that the Respondent Company is closed, there are no employees, there are no assets and whatever assets are there, they are security of the State Bank of India and the same are in custody and control of the Receiver appointed by the Debt Recovery Tribunal. In such circumstances each factors/ reasons set out in paragraph No.12 of the affidavit in reply dated 30.08.2005 by itself make out a case for winding up the Respondent Company. Mr.D’Vetre was at pains to emphasize that the creditors who have filed the affidavits and the intervener are in-charge of the Respondent Company. They are in management. They are not independent in any sense of the term but have their own stakes and motives in opposing the winding up. In such circumstances and when reasonable apprehension is set out that the institutional shareholders may arrive at private compromise or arrangement with the Motorola Inc., then, this is a fit case for passing of the winding-up order. 20 Mr.D’Vetre invited my attention to Section 443 of the Companies Act, 1956 and particularly proviso below sub-section (1) thereof. He submits that once the substratum has gone, the winding up order must be made and the ground on which it is opposed has no substance, more so, because the Official Liquidator will conduct and look after all legal proceedings. He can be assisted by the institutional *13* cp.892.00.sxw creditors. For all these reasons, Mr.D’Vetre submits that the winding up order be passed. In support of his submissions, Mr.D’Vetre relies upon the following decision:- Demaglass Holdings Ltd., Re, (2001) 2 BCLC 633 (Ch D) at pp.637-639. 21 On the other hand, Mr.Tulzapurkar, learned Senior Counsel appearing for the Respondent Company admits that the Company has no assets, no business but has no legal proceedings or any claims against it except the suit filed against Motorola Inc.. Mr.Tulzapurkar has invited my attention to the shareholding pattern and has submitted that the Respondent Company is set up by banks and financial institutions. While it is true that there was international venture which was to be undertaken and completed by the Respondent and Motorola Inc. and that was a failure, yet, there is no basis for apprehension that there will be any private compromise or settlement by either the Respondent or stake holders/ financial institutions with Motorola Inc.. Mr.Tulzapurkar submits that there is no material to demonstrate that the Petitioners will be kept in dark or behind the back of the Petitioner, some arrangement will be arrived at with Motorola Inc.. Mr.Tulzapurkar points out that the Petitioner has intervened in the Supreme Court proceedings. When this company petition was admitted, a request was made to appoint a provisional liquidator but that request was specifically refused. There are no changed circumstances and therefore, the winding up order should not be passed. Mr.Tulzapurkar submits that the Court should take into account the wishes of the creditors and that is a relevant consideration. For all these reasons, he submits that the petition be dismissed. 22 Mr.Tulzapurkar, relies upon the following decisions in support *14* cp.892.00.sxw of the above submissions:- (i) Chancery Division, 1883, Vol.XXIV, 259. (In re Chapel House Colliery Company). (ii) (1970) In re L.H.F. Wools Ltd. (C.A.). (No.001551/1968) (iii) 1975 Company Cases (Vol.45) 534. (judgment dated 30-31 October, 1974 in Focus Advertising Private Ltd. Vs.