Case: Zenith Infortech Limited &amp; Others Vs. The Bank of New York Mellon London Branch &amp; Another

payment to be made to the FCCB bond holders over a three year period in certain proceedings which were pending before the Securities Appellate Tribunal in appeal against an order passed by SEBI. On 4 July 2013, the Company Petition for winding up was fixed for hearing on 26 July 2013. In order to forestall the hearing of the Company Petition, the Appellant made an announcement on the website of the Bombay Stock Exchange to the effect that the Board of Directors had decided to make a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as the accumulated losses had exceeded the net worth of the Company as per the audited financial results on 30 June 2013. On 19 July 2013, the Company made a corporate announcement on the BSE website of its audited financial results for a period of nine months ending on 30 June 2013. On 19 July 2013, a reference was filed before the BIFR which was announced on 25 July 2013 in a corporate statement on the website. On 26 July 2013, the hearing of the Company Petition for winding up was fixed on 29 July 2013, when the Court was informed that a reference has been filed before the BIFR. This Court has been informed during the course of the hearing of the appeal that the reference was found not to be maintainable on 12 August 2013.11. The Learned Single Judge has considered the facts and circumstances which have been adverted to in the earlier part of this judgment and has arrived at the following conclusion:The Promoters/Directors of the Company have therefore left no stone unturned in ensuring that no amount whatsoever is paid to the Petitioner/bondholders of the FCCBs despite an amount of approx. Rs. 586 crores being due and payable to them till date. If at all the net worth of the Company has been eroded, there is no doubt that the same is the creation of the Promoters/Directors of the Company who have siphoned away the moneys from the Company with the sole intention of avoiding repayment of the amounts due under the FCCBs. The order passed by this Court on 9th October, 2012 cannot be said to have secured the claim of the Petitioner since as set out in the said order that was the best that could have been done by the Court whilst passing an order under the provisions of Order 38 Rule 5 of the Code of Civil Procedure, 1908. Under the circumstances the Promoters/Directors of the Company cannot be trusted with the affairs of the Company and if the Provisional Liquidator is not appointed, the Promoters/Directors of the Company who are only interested in personal gains and not in the interest of any of its shareholders, creditors, or workers will within no time bring the company to a standstill by siphoning/milking its balance assets by showing losses in its business and even bringing its 800 workmen on the streets. However, since Mr. Devetre has submitted that the Company is engaged in sensitive business viz. the CC Business and the office of the Liquidator High Court, Bombay may not be equipped to deal with the complex handling of such business, I appoint Shri Salil Shah, Advocate, as the Administrator of the Company. The Administrator shall take symbolic possession of the property, effects, actionable claims, books of accounts, statutory records and other documents of the Company. The Administrator may also retain copies of books of accounts, statutory records and other records as he may deem fit. The Directors of the Company shall provide all information sought by the Administrator pertaining to the working/affairs of the Company and shall forward the agenda of all Board Meetings/General Meetings at least 72 hours in advance to the Administrator and shall not take up any matter at any meeting which is not mentioned in the agenda. In case of emergency the Directors may hold a Board Meeting at short notice with the permission of the Administrator. However, the Administrator shall ensure that the day to day functioning of the Company is not hampered in any manner whatsoever.12. The Respondent applied before the Learned Single Judge for the appointment of a provisional liquidator. The Learned Single Judge has held, and in our view with justification, that if a Provisional Liquidator is not appointed, the promoters/directors of the Company who have been motivated by personal gain and not by the interests of the shareholders, creditors or workers may bring the business of the Company to a stand still by siphoning of its balance assets. This apprehension cannot be regarded as unfounded having regard to the course of events noted in the earlier part of the present judgment. However, it was urged on behalf of the Appellant before the Learned Single Judge that since the Company is engaged in a sensitive business, of Cloud Computing, the office of the Liquidator may not be equipped to deal with the complex handling of such a business. The Learned Single Judge hence directed that an administrator should be appointed. The Learned Single Judge has provided adequate safeguards by directing that the administrator will ensure that the day to day functioning of the Company is not hampered. The appointment of the administrator has been made, in these circumstances, with a view to safeguard the interests of the shareholders, creditors and the workers. Mr. R.A. Dada, Learned Senior Counsel for workers submitted that forty per cent of the turnover is paid towards the salaries of the employees and many of the employees were engaged in both software and hardware business. As the Learned Single Judge noted, having regard to the track record of the promoters/directors, it was necessary in the interests of employees themselves that an administrator should be appointed in the absence of which, in all likelihood, the business and assets would be wasted and the business would be brought to a standstill. The Learned Company Judge has acted within jurisdiction in issuing this direction.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]10. In the present case, the material on record would indicate that the Company is unable to pay its debts. The Learned Single Judge has noted that on 17 June 2013, the Company made a settlement proposal for payment to be made to the FCCB bond holders over a three year period in certain proceedings which were pending before the Securities Appellate Tribunal in appeal against an order passed by SEBI. On 4 July 2013, the Company Petition for winding up was fixed for hearing on 26 July 2013. In order to forestall the hearing of the Company Petition, the Appellant made an announcement on the website of the Bombay Stock Exchange to the effect that the Board of Directors had decided to make a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as the accumulated losses had exceeded the net worth of the Company as per the audited financial results on 30 June 2013. On 19 July 2013, the Company made a corporate announcement on the BSE website of its audited financial results for a period of nine months ending on 30 June 2013. On 19 July 2013, a reference was filed before the BIFR which was announced on 25 July 2013 in a corporate statement on the website. On 26 July 2013, the hearing of the Company Petition for winding up was fixed on 29 July 2013, when the Court was informed that a reference has been filed before the BIFR. This Court has been informed during the course of the hearing of the appeal that the reference was found not to be maintainable on 12 August 2013.11. The Learned Single Judge has considered the facts and circumstances which have been adverted to in the earlier part of this judgment and has arrived at the following conclusion:The Promoters/Directors of the Company have therefore left no stone unturned in ensuring that no amount whatsoever is paid to the Petitioner/bondholders of the FCCBs despite an amount of approx. Rs. 586 crores being due and payable to them till date. If at all the net worth of the Company has been eroded, there is no doubt that the same is the creation of the Promoters/Directors of the Company who have siphoned away the moneys from the Company with the sole intention of avoiding repayment of the amounts due under the FCCBs. The order passed by this Court on 9th October, 2012 cannot be said to have secured the claim of the Petitioner since as set out in the said order that was the best that could have been done by the Court whilst passing an order under the provisions of Order 38 Rule 5 of the Code of Civil Procedure, 1908. Under the circumstances the Promoters/Directors of the Company cannot be trusted with the affairs of the Company and if the Provisional Liquidator is not appointed, the Promoters/Directors of the Company who are only interested in personal gains and not in the interest of any of its shareholders, creditors, or workers will within no time bring the company to a standstill by siphoning/milking its balance assets by showing losses in its business and even bringing its 800 workmen on the streets. However, since Mr. Devetre has submitted that the Company is engaged in sensitive business viz. the CC Business and the office of the Liquidator High Court, Bombay may not be equipped to deal with the complex handling of such business, I appoint Shri Salil Shah, Advocate, as the Administrator of the Company. The Administrator shall take symbolic possession of the property, effects, actionable claims, books of accounts, statutory records and other documents of the Company. The Administrator may also retain copies of books of accounts, statutory records and other records as he may deem fit. The Directors of the Company shall provide all information sought by the Administrator pertaining to the working/affairs of the Company and shall forward the agenda of all Board Meetings/General Meetings at least 72 hours in advance to the Administrator and shall not take up any matter at any meeting which is not mentioned in the agenda. In case of emergency the Directors may hold a Board Meeting at short notice with the permission of the Administrator. However, the Administrator shall ensure that the day to day functioning of the Company is not hampered in any manner whatsoever.12. The Respondent applied before the Learned Single Judge for the appointment of a provisional liquidator. The Learned Single Judge has held, and in our view with justification, that if a Provisional Liquidator is not appointed, the promoters/directors of the Company who have been motivated by personal gain and not by the interests of the shareholders, creditors or workers may bring the business of the Company to a stand still by siphoning of its balance assets. This apprehension cannot be regarded as unfounded having regard to the course of events noted in the earlier part of the present judgment. However, it was urged on behalf of the Appellant before the Learned Single Judge that since the Company is engaged in a sensitive business, of Cloud Computing, the office of the Liquidator may not be equipped to deal with the complex handling of such a business. The Learned Single Judge hence directed that an administrator should be appointed. The Learned Single Judge has provided adequate safeguards by directing that the administrator will ensure that the day to day functioning of the Company is not hampered. The appointment of the administrator has been made, in these circumstances, with a view to safeguard the interests of the shareholders, creditors and the workers. Mr. R.A. Dada, Learned Senior Counsel for workers submitted that forty per cent of the turnover is paid towards the salaries of the employees and many of the employees were engaged in both software and hardware business. As the Learned Single Judge noted, having regard to the track record of the promoters/directors, it was necessary in the interests of employees themselves that an administrator should be appointed in the absence of which, in all likelihood, the business and assets would be wasted and the business would be brought to a standstill. The Learned Company Judge has acted within jurisdiction in issuing this direction.