1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION jmi COMPANY PETITION NO. 717 OF 2009. In the matter of winding up of Nirved Traders Private Ltd. Rain Commodities Limited. ..Petitioner. .... Mr. N. Pandit, i/b. Joy Legal Consultants, for Petitioner. Mr. Janak Dwarkadas, Senior Advocate, a/w. Mr. V. R. Dhond, i/b. M/s. Desai & Diwanji, for Respondent. .... CORAM : S.J. KATHAWALLA, J. DATE : 26TH MARCH 2010. P.C. By this petition, the petitioner is seeking winding up of the company Nirved Traders Private Ltd.(company). 2. The facts as stated by the petitioner in the petition are as follows :- 3. The Petitioner carries on business inter-alia of manufacturing Cement. 4. The Birla Cement Industries Limited (BCIL) is a closely held unlisted company belonging to the Yash Birla Group (YBG) having its principal object as that of carrying on the business of 2 cement. The total shareholding of BCIL is 50,700 equity shares, out of which the company holds 9000 equity shares. The other shareholders of BCIL are M/s Shearson Investment and Trading Company Private Limited, M/s. Birla Bombay Private Limited, M/s. Godavari Corporation Private Limited and seven individuals, i.e., Shri Yashovardhan Birla, Smt. Avanti Birla, Shri U.S. Sethia, Shri L.R. Daga, Shri Arun Kumar Singhi, Shri Arun Jain and Shri Girdharilal Lath. 5. The company and others represented to the petition that BCIL possesses a valid mining lease in respect of an extent of 1,572.99 acres bearing limestone in Ramai and Yapalaguda Villages, of Adilabad District, Andhra Pradesh (the said lease). A Memorandum of Understanding (MOU) dated 6th December 2007 was entered into between the petitioner and YBG, whereby each of the member of the YBG offered to sell and the petitioner offered to buy 50,700 equity shares of BCIL for a total consideration of Rs. 15 crores. 6. The MOU recognises that the said lease was of paramount importance for the transaction. The BCIL was required to produce all the documentation necessary to demonstrate that the mining lease is valid as on the date of the definitive sale of 3 purchase agreement. In the event, the petitioner was not satisfied with the result of the due diligence, the petitioner would have the right to terminate the MOU by stating reasons. Upon such termination, the petitioner was entitled to receive the entire amounts paid to the company and others within a period of seven days without any interest. In accordance with the MOU, the petitioner remitted the sum of Rs.2.50 crores in the name of Shearson Investment and Trading Co. Pvt. Ltd. (for and on behalf of the Yash Birla Group) by a demand draft drawn on the Indian Bank, Mumbai, on 6th December 2007. 7. Thereafter, an addendum to the said MOU dated 6th December 2007 was executed by and between the YBG and the petitioner. The said addendum recognises that the YBG, of which the company is a member, was in the process of obtaining the required approvals for the mining lease and for updating the accounting and secretarial records. It was therefore, mutually agreed that the term of the MOU would be valid for a period of 180 days from the date of original MOU dated 6th December 2007 i.e. upto June 5, 2008. 8. Thereafter, the second addendum to the MOU, dated 5th June 2008 was executed by and between the YBG and the 4 petitioner. For reasons recorded in the said addendum, it was mutually agreed that the term of the MOU would be extended for a period upto nine months from the date of original MOU dated 6th December 2007; i.e. upto 5th September 2008. 9. Thereafter, the third addendum dated 26th August 2008 came to be executed by and between the parties wherein the parties mutually agreed that the term of the MOU would be extended for a period upto 12 (twelve) months from the date of original MOU dated 6th December 2007; i.e. upto 5th December 2008. 10. The petitioner has in clause (i) of paragraph 9 of the petition set out the details of the amounts paid by the petitioner to the YBG, aggregating to Rs.12,05,00,000/- in compliance with the terms of the MOU dated 6th December 2007 and the subsequent addendas dated 28th February 2008, 5th June 2008 and 26th August 2008. However, all the amounts were paid to M/s. Shearson Investment & Trading Company Private Ltd. on behalf of the YBG. 11. According to the petitioner, even after the addendum no.3 had expired, the company and others belonging to YBG failed to comply with the terms of the MOU and failed to make out a 5 valid title with respect to the mining lease given in favour of BCIL. According to the petitioner, the petitioner did not fulfill their obligation as contemplated under the said MOU dated 6th December 2007 and the subsequent addenda. The petitioner therefore, through their Advocates addressed a legal notice dated 10th February 2009 to the company and whilst demanding refund of the amount paid to the company, also demanded interest at the rate of 18% per annum. According to the petitioner, vexed by the attitude of the company, the petitioner through their Advocates addressed a statutory notice dated 20th April 2009 to the company and the three other companies narrating the entire facts and calling upon the company to pay an amount of Rs.2,13,90,534/-. As the company had offered to sell the shares held by it in BCIL, the petitioner called upon the company to pay the proportionate consideration received with respect to the shares held by the company in BCIL. The company failed and neglected to repay the said amount to the petitioner. The company has not even replied to the said notice. 12. According to the petitioner, the petitioner also issued similar notice dated 20th April 2009 to Mr. Yash Birla and other individuals who hold 100 shares each in BCIL informing them that 6 the petitioner would take legal action against them for recovery of the sums by filing appropriate proceedings. 13. According to the petitioner, on 12th May 2009 a conciliatory letter was addressed by the petitioner to the YBG. The petitioner had again requested the YBG that the legal course be avoided and the payment be made or alternatively the company and others had been called upon to transfer the shares in the company on or before 28th May 2009 without any further consideration. However, there was no response given by the company to the said letter. The petitioner has therefore, submitted in the petition that the company is liable to pay to the petitioner a sum of Rs.2,67,09,687/- which includes the principal amount of Rs.2,13,90,534/- alongwith interest calculated @ 18% per annum from the respective dates of payments made by the petitioner till the date of the filing of the petition, as set out in the particulars of claim at Exhibit-A to the petition and also further interest @ 18% per annum on the Principal amount of Rs.2,13,90,534/- from the date of filing of the petition till payment and/or realisation. The company is therefore, deemed to be unable to pay its debts and liable to be wound up as being commercially insolvent in accordance with sections 433 and 434 of the Companies Act, 1956 7 as amended upto-date. 14. The company has filed its detailed reply dated 30th September 2009. According to the company, what is to be noted is that the MOU is not entered into between the petitioner and the company alone. There are seven other individuals and three other companies who are parties to the MOU. All persons who were parties to the MOU, are necessary parties to any proceeding where an issue arising out of the MOU has to be decided. Therefore, the present petition, where a claim is made against the company alone out of the eleven members of the YBG, directly arising out of the MOU, is not maintainable. It is submitted that on this ground alone, the petition is liable to be dismissed with costs. 15. The company without prejudice to the aforesaid contention has submitted that the MOU does not anywhere provide as to how much of the advance payment or the consideration is payable to each of the members of the YBG; or for that matter in the event of the amount being required to be returned, how much amount is refundable by each of the members of the YBG. All the amounts are admittedly paid by the petitioner to M/s. Shearson Investments and Trading Company Pvt. Ltd. and not to the Company. This itself is a matter to be 8 adjudicated upon in the presence of all the members of YBG as to what is the liability of each member of the group. It is submitted that on this ground alone, the company petition deserves to be dismissed with costs. 16. The company has further submitted that the MOU on the basis of which the petitioner has filed the present petition was substituted by a new agreement. There was a novation whereby the MOU was substituted by a fresh agreement. Therefore, no claim can lie on the basis of the MOU and on that ground alone, the petition is liable to be dismissed with costs. It is submitted that the petitioner has suppressed several material facts from this Court and the petitioner has attempted to mislead this Court by presenting a distorted picture of facts. 17. According to the company, BCIL possesses a valid mining lease for limestone in respect of 1572.99 acres of land bearing limestone in Ramai and Yapalaguda Villages of Adilabad District, Andhra Pradesh. The mining lease was transferred in favour of BCIL by M/s. Zenith Limited with effect from 29th January 1996 and is valid upto 26th January 2016. The petitioner in and around August 2007, approached the Yash Birla Group to avail benefits of the existing mining lease between BCIL and the 9 State Government of Andhra Pradesh. Pursuant to discussions, it was agreed that the entire shareholding belonging to the Yash Birla Group will be sold to the petitioner. It is on the basis of this understanding that the petitioner and the Yash Birla Group executed the MOU. 18. The company after setting out the circumstances under which the first second and third addendum were executed, has pointed out that the company was not at all responsible for any delay and it had fulfilled all that was required to be done on its part. It is pointed out that on 3rd November 2008, the petitioner vide its e-mail addressed to the YBG attached a ‘status note’ dated 1st November 2008 (which was forwarded to the petitioner by their Consultant) setting out the status on the mining lease between the BCIL and the Government of Andhra Pradesh. In this e-mail, the petitioner specified that a specific confirmation of the Government of Andhra Pradesh would be required to be obtained by BCIL, extending time for setting up the cement plan. This was because the mining lease executed between BCIL and the Government of Andhra Predesh required BCIL to set up a cement plant within three years from the date of the mining lease. According to the company, this was an additional condition laid 10 down by the petitioner and the said condition did not form part of the MOU or the earlier addenda. It is submitted that the fear and concern which caused the petitioner to question the validity of the mining lease of BCIL was entirely misconceived and exaggerated. The same was also clearly at variance with the agreed terms embodied under the MOU and the various addendums entered and executed between the parties. 19. According to the company, the YBG thereafter, forwarded a letter dated 5th November 2008 addressed by the Government of Andhra Pradesh to BCIL inter-alia stating that the mining lease was valid till 28th January 2016. According to the company, this letter evidences the fact that BCIL has a valid mining lease. Inspite of the said letter, the YBG continued to follow up with the Government of Andhra Pradesh to inter-alia comply with the additional condition. 20. According to the company, the parties also tried to sit across the table and execute a fourth addendum. A draft of the fourth addendum was also exchanged. In the midst of these discussions, to the shock and surprise of the YBG, the petitioner addressed an e-mail dated 4th December 2008 attaching a letter, addressed to BCIL stating therein that if the conditions of the 11 mining lease are not fulfilled, then the MOU will stand extinguished by efflux of time and the entire sum of Rs. 12,05,00,000/- would have to be refunded to them. 21. In response to the letter from the petitioner dated 4th December 2008, the YBG on the very same day, addressed an e- mail to the petitioner inter-alia recording that the requirement that the YBG should seek exemption from the Government as the cement plant was not constructed within 36 months of execution of the mining lease deed, was never discussed between the parties and the issue was raised for the first time by the petitioner only in the month of November 2008. The petitioner by their letter dated 5th December 2008 inter-alia recorded that the desired exemption letter for establishing the cement factory was appropriate. 22. Subsequently, by an e-mail dated 6th December 2008 addressed by the petitioner to the YBG, the petitioner informed the YBG that the petitioner were aggreeable for an extension of the MOU by a further period of 90 days on conditions set out therein. 23. Thereafter, on 11th December 2008, the YBG forwarded a copy of the opinion of M/s. Crowford Bayley and Company, the Solicitors of BCIL on the validity of the mining lease. The petitioner vide e-mail dated 11th December 2008 addressed to 12 the BCIL, stated that since the last date of the third addendum was 5th December 2008, the MOU stood extinguished by efflux of time and the entire amount of Rs.12,05,00,000/- had to be refunded to the petitioner. After addressing the said e-mail, the petitioner continued the discussion with the YBG. 24. On 12th December 2008, the petitioner responded in detail to the opinion of M/s. Crawford Bayley and Company, i.e. BCIL’s Solicitors. The petitioner inter-alia required the YBG to procure a letter from the Government of Andhra Pradesh granting BCIL further time for setting up of the cement plant. 25. On 19th December 2008, the YBG requested the petitioner to pay an amount of Rs.30 lacs by way of reimbursement towards the expenses incurred by the YBG for fulfillment of the additional condition. On 23rd December 2008, the petitioner addressed an e-mail to the YBG asking them to refund the sum of Rs.12,05,00,000/- stating that the MOU had expired due to efflux of time and further refused to reimburse YBG with the sum of Rs.30 lacs. Thereafter, e-mails/correspondence was exchanged between both the parties wherein the YBG requested the petitioner to extend the period of MOU and the petitioner requested the YBG to refund the advance amount of Rs. 13 12,05,00,000/- at the earliest. 26. On 9th January 2009, a meeting was held between the petitioner and the YBG when it was agreed that the YBG would have a period of 30 days to fulfill the remaining conditions failing which the entire amount paid as advance would have to be refunded. 27. On 10th February 2009, the petitioner sent a notice to BCIL and YBG stating that as the YBG has failed to fulfill their demand as agreed in the meeting dated 9th January 2009, the YBG was liable to refund to them a sum of Rs.12,05,00,000/- alongwith the interest at the rate of 18% per annum. 28. Discussions were once again held between the petitioner and the YBG on 24th February 2009 and 3rd March 2009 in order to revive and complete the transaction. The petitioner vide its e-mail dated 3rd March 2009 inter-alia confirmed the said discussions and the meetings held between the parties. In the said e-mail, the petitioner in a complete reversal of its earlier stand of seeking refund of the advance paid, put forth two options before the YBG. The first option was that the petitioner would provide the YBG with No Objection Certificate (NOC) for sale of its shareholding in BCIL to any third party, with a condition that the 14 entire advance paid by the petitioner to the YBG was refunded on or before 25th March 2009 and that until such time, the YBG would pledge 100% of BCIL's shares in favour of the petitioner. The second option was that in the event, YBG failed to refund the said amount by 25th March 2009, the YBG would be under an obligation to execute a definitive agreement for sale of shares to the petitioner for total consideration of Rs.12,05,00,000/- which was the amount that had been already paid by the petitioner to the YBG. 29. The YBG by its e-mail dated 19th March 2009 requested the petitioner to allow an extension upto 15th April 2009 to repay the full advance to the petitioner and in the event, the YBG was not able to pay back the advance by 15th April 2009 requested the petitioner to purchase 100% shares of BCIL at a total consideration of Rs.14 crores. 30. The petitioner vide its e-mail dated 20th March 2009 agreed to give time to the YBG until 15th April 2009 but insisted that on YBG's failure to refund the advance by 15th April 2009, the petitioner may either unconditionally acquire all the shares of BCIL for a total consideration of Rs.12,05,00,000/- or pursue such other remedy as may deemed fit and appropriate. 15 31. On 20th April 2009, the petitioner addressed a notice to the company requiring the company to refund the sum of Rs.2,13,90,534/- from the company on the basis of the proportionate shareholding held by the company in BCIL out of the total advance of Rs.12,05,00,000/-. 32. After having issued the above statutory notices dated 20th April 2009 and 22nd April 2009, the petitioner by its e-mail dated 5th May 2009 forwarded to the YBG a fresh proposal and or option with regard to the ongoing transaction between the parties. 33. In response to the petitioner’s e-mail dated 5th May 2009, the YBG vide its e-mail dated 8th May 2009 inter-alia recorded that the YBG had used the advance money paid by the petitioner to them, for other business purposes and due to the current economic scenario, the YBG had been adversely affected in their cash flows. Though the YBG had a bonafide intention to refund the money, in view of the current tight cash flow situation, the YBG could refund the advance only once they were able to sell the mining lease/company to a new purchaser. The YBG sought the petitioners No Objection to proceed with the transfer of shares in BCIL, to a new purchaser and requested the petitioner to give some further time till they found a new purchaser for BCIL. 16 34. The petitioner in response to the said e-mail dated 8th May 2009, vide its e-mail dated 12th May 2009 reiterated their earlier proposal containing three options (as given by them to the YBG vide their e-mail dated 5th May 2009) of allowing the petitioner's time until 28th May 2009 to repay the entire advance of Rs.12,05,00,000/- alongwith the accrued interest. According to the company, by addressing the above e-mail, the petitioner gave up its right to claim refund and initiate legal proceedings against the company and other members of the YBG and expressed its intention and desire to buy the entire shareholding of BCIL on modified terms. 35. Thereafter, the petitioner by an e-mail dated 26th May 2009 inter-alia requested the YBG to refund the advance amount of Rs.12,05,00,000/- crores paid to the YBG and in the event of failure on the part of the YBG to make good the payment, the petitioner threatened to initiate appropriate legal action for securing their interest. Admittedly, the petitioner has inter-alia not made a mention of this e-mail or any correspondence, thereafter, which took place between the petitioner and the YBG though the petition is filed by the petitioner only in August 2009. 17 36. In response to the petitioner's e-mail dated 26th May 2009, the YBG by its e-mail dated 27th May 2009 informed the petitioner that Mr. Murthy of YBG is travelling out of Mumbai and was therefore, not able to respond to the telephone call made by Mr. T. Srinivasa Rao of the petitioner on the earlier day (i.e. 26th May 2009). The petitioner was therefore, informed that Mr. Murthy will call Mr. Rao in the morning of 28th May 2009 after having a discussion with Mr. Birla (who was out of the country). Thereafter, on 29th May 2009 at 12.04 a.m. an e-mail was addressed by the YBG to the petitioner requesting the petitioner to allow them an extension upto 30th June 2009 for the last time and if the Birla Group is unable to finalise the amount payable for BCIL by 30th June 2009, the YBG will either refund the entire advance consideration received from the petitioner amounting to Rs. 12,05,00,000/- with interest as agreed; or transfer the shares of BCIL without any further payments from the petitioner. 37. According to the company, after the YBG has addressed its offer as contained in it e-mail dated 29th May 2009, Mr. Tushar Dey, the General Counsel and the Authorised Representative of the YBG and who had addressed the said e-mail dated 29th May 2009 had a telephonic discussion with Mr. T. 18 Srinivasa Rao of the petitioner on 29th May 2009 (in the evening) so as to arrive at mutually acceptable terms to both parties for concluding the sale transaction. During this tele-conversation, Mr. T. Srinivasa Rao, Vice President (Finance), and Authorised Representative of the petitioner agreed to the proposal contained in YBG's e-mail dated 29th May 2009. 38. According to the company, thus, a final, concluded and binding oral agreement was reached between the YBG and the petitioner. According to the company, the telephone call on 29th May 2009 which resulted in the final concluded and binding oral agreement between the YBG and the petitioner was made by Mr. Tushar Dey from his Mobile bearing No. 9820 305 363 to Mr. T. Srinivasa Rao's Mobile No. 9866 779 001. The company has annexed at Exhibit-PP to its reply a copy of the record of the telephone call made by Mr. Tushar Dey from his mobile number to Mr. T. Srinivasa Rao's mobile number on 29th May 2009. According to the company, the YBG on account of the tight market conditions was not able to find a third party purchaser for the said shares. In such circumstances, the YBG in terms of the oral agreement between the parties, through their e- mail dated 30th June 2009, informed the petitioner about its 19 decision to opt for the option of selling the shares held in BCIL to the petitioner for the consideration of Rs.12,05,00,000/-. Alongwith the said e-mail, the YBG also forwarded the draft of the share purchase agreement for transferring the YBG shareholding in BCIL to the petitioner. The YBG thus, expressed its readiness and willingness to perform their obligations as per the oral agreement reached between the parties on 29th May 2009. The said e-mail dated 30th June 2009 is annexed as Exhibit-QQ to the reply. 39. However, according to the company, the petitioner did not take any steps towards concluding the transaction of sale through the Share Purchase Agreement nor did it respond to the e-mail dated 30th June 2009 of the YBG. In fact, there was a complete silence on the part of the petitioner till 27th August 2009, when the petitioner in a misconceived and fraudulent manner filed, the present petition before this Court. 40. The YBG (which inter-alia comprises of the company)