Karnataka High Court
United Breweries (Holdings) Limited vs Rolls-Royce & Partners Finance Limited on 24 May, 2013
Author: Ram Mohan Reddy
Bench: Ram Mohan Reddy
1
C.A. No.437/13 in Co.P. No.122/12
and connected cases
IN THE HIGH COURT OF KARNATAKA, BANGALORE
DATED THIS THE 24th DAY OF MAY, 2013
BEFORE
THE HON'BLE MR.JUSTICE RAM MOHAN REDDY
COMPANY APPLICATION NOS.437, 441, 440, 439 AND
438 OF 2013
IN
COMPANY PETITION NOS.122, 121, 248, 185 AND 57
OF 2012
CA 437/2013
IN CO.P. No.122/2012
BETWEEN:
UNITED BREWERIES (HOLDINGS) LIMITED,
REGD. OFFICE AT UB CITY,
LEVEL 12, UB TOWER, 24,
VITTAL MALLYA ROAD,
BANGALORE- 560 001.
... APPLICANT
(BY SRI. UDAYA HOLLA, SENIOR ADVOCATE FOR
M/S. HOLLA AND HOLLA, ADVOCATES )
AND:
ROLLS-ROYCE & PARTNERS FINANCE LIMITED,
REGD. OFFICE AT 65,
BUCKINGHAM GATE,
LONDON SW1E 6AT
ENGLAND
REP. BY ITS AUTHORISED SIGNATORY
MR.JITENDRA PANDA RESPONDENT
(BY SRI N.N. HARISH, ADVOCATE )
2
C.A. No.437/13 in Co.P. No.122/12
and connected cases
THIS APPLICATION IS FILED UNDER SECTION 536(2) R/W
SECTION 537(1) OF THE COMPANIES ACT, 1956 R/W RULES 6
AND 9 OF THE COMPANIES (COURT) RULES, 1959 PRAYING TO
PERMIT THE APPLICANT UNDER SECTIONS 536(2) AND 537(1)
TO SELL TO DIAGEO PLC AND/OR RELAY B.V. UPTO 13,612,591
EQUITY SHARES OF UNITED SPIRITS LIMITED HELD BY THE
APPLICANT.
CA 441/2013
IN CO.P. No.121/2012
BETWEEN:
UNITED BREWERIES (HOLDINGS) LIMITED,
REGD. OFFICE AT UB CITY,
LEVEL 12, UB TOWER, 24,
VITTAL MALLYA ROAD,
BANGALORE- 560 001.
... APPLICANT
(BY SRI. UDAYA HOLLA, SENIOR ADVOCATE FOR
M/S. HOLLA AND HOLLA, ADVOCATES )
AND:
RRPF ENGINE LEASING LIMITED,
REGD OFFICE AT 65,
BUCKINGHAM GATE,
LONDON SW1E 6AT
ENGLAND
REP. BY ITS AUTHORISED SIGNATORY
MR.JITENDRA PANDA
..RESPONDENT
(BY SRI. N.N. HARISH, ADVOCATE )
THIS APPLICATION IS FILED UNDER SECTION 536(2) R/W
SECTION 537(1)(b) OF THE COMPANIES ACT, 1956 R/W RULES
6 AND 9 OF THE COMPANIES (COURT) RULES, 1959 PRAYING
TO PERMIT THE APPLICANT UNDER SECTIONS 536(2) AND
537(1) TO SELL TO DIAGEO PLC AND/OR RELAY B.V. UPTO
3
C.A. No.437/13 in Co.P. No.122/12
and connected cases
13,612,591 EQUITY SHARES OF UNITED SPIRITS LIMITED HELD
BY THE APPLICANT.
C.A. No.440/2013
IN CO.P. No.248/2012
BETWEEN:
UNITED BREWERIES (HOLDINGS) LIMITED,
REGD. OFFICE AT UB CITY,
LEVEL 12, UB TOWER, 24,
VITTAL MALLYA ROAD,
BANGALORE-560 001. APPLICANT
(BY SRI UDAYA HOLLA, SENIOR ADVOCATE FOR
M/S. HOLLA AND HOLLA, ADVOCATES)
AND
BNP PARIBAS,
REGD. OFFICE AT 16,
BOULEVARD DES ITALIENS, 75009,
PARIS, FRANCE,
REPRESENTED BY ITS
CONSTITUTED ATTORNEY
Mr. SABESAN ANANTHANATAYANAN RESPONDENT.
(BY Ms.FERESHTE SETHNA & PRASHANTH G.,
ADVOCATES)
This application is filed under Section 536(2) read with
Section 537(1)(b) of the Companies Act, 1956 read with
Rules 6 and 9 of the Companies (Court) Rules, 1959, praying
to permit the applicant under Sections 536(2) and 537(1)(b)
to sell 13,612,591 equity shares of United Spirits Limited
held by the applicant in the interests of justice.
CA NO.439/2013
IN
CO.P. NO.185/2012
4
C.A. No.437/13 in Co.P. No.122/12
and connected cases
BETWEEN:
UNITED BREWERIES (HOLDINGS) LIMITED,
REGD. OFFICE AT UB CITY,
LEVEL 12, UB TOWER, 24,
VITTAL MALLYA ROAD,
BANGALORE-560 001.
... APPLICANT.
(BY SRI UDAYA HOLLA, SR. ADVOCATE
FOR M/s. HOLLA AND HOLLA, ADVOCATES)
AND :
AVIONS DE TRANSPORT REGIONAL G.I.E.,
1, ALLE PIERRE NADOT,
31172 BLAGNAC,
FRANCE, REP., BY ITS ATTORNEY
SRI SUDARSHAN PRADHAN.
... RESPONDENT
(BY SRI. C. MURALIDHAR, ADVOCATE
FOR M/S. MURALI AND CO., ADVOCATES)
THIS APPLICATION IS FILED UNDER SECTION 536(2)
READ WITH SECTION 537(1)(b) OF THE COMPANIES ACT, 1956
READ WITH RULES 6 AND 9 OF THE COMPANIES (COURT)
RULES, 1959 PRAYING TO PERMIT THE APPLICANT UNDER
SECTIONS 536(2) AND 537(1)(b) TO SELL 13,612,591 EQUITY
SHARES OF UNITED SPIRITS LIMITED HELD BY THE APPLICANT
IN THE INTERESTS OF JUSTICE.
CA 438/2013
IN COP 57/2012
BETWEEN:
UNITED BREWERIES (HOLDINGS) LIMITED,
5
C.A. No.437/13 in Co.P. No.122/12
and connected cases
REGD. OFFICE AT UB CITY,
LEVEL 12, UB TOWER, 24,
VITTAL MALLYA ROAD,
BANGALORE- 560 001.
... APPLICANT
(BY SRI. UDAYA HOLLA, SENIOR ADVOCATE FOR
M/S. HOLLA AND HOLLA, ADVOCATES)
AND :
IAE INTERNATIONAL AERO ENGINES AG,
628 HEBRON AVENUE,
SUITE 400, GLASTONBURY,
CONNECTICUIT 06033,
USA
REP. BY ITS ATTORNEY
MR.PARAMINDER SINGH DADHWAL.
... RESPONDENT
(BY SRI. SHREYAS JAYASIMHA, ADV., FOR M/S. AZB &
PARTNERS, ADVOCATES)
THIS APPLICATION IS FILED UNDER SECTION 536(2) R/W
SECTION 537(1)(b) OF THE COMPANIES ACT, 1956 R/W RULES
6 AND 9 OF THE COMPANIES (COURT) RULES, 1959 PRAYING
TO PERMIT THE APPLICANT UNDER SECTIONS 536(2) AND
537(1)(b) TO SELL 13,612,591 EQUITY SHARES OF UNITED
SPIRITS LIMITED HELD BY THE APPLICANT.
THESE APPLICATIONS HAVING BEEN HEARD AND
COMING ON FOR ORDERS THIS DAY, THE COURT MADE THE
FOLLOWING:
6
C.A. No.437/13 in Co.P. No.122/12
and connected cases
ORDER
The respondent-company common in the company petitions has presented these applications under Section 536(2) and 537(1) of the Companies Act, 1956 for short 'Act' read with Rules 6 and 9 of the Companies (Court) Rules, 1959, for short 'Rules' seeking leave of the Court to permit it to sell, dispose of and/or procure sale or disposal of upto 13,612,591 equity shares of United Spirits Limited (USL) under DIAGEO transaction referred to in the affidavit dt. 15.3.2013.
2. The applicant is said to own 25,577,293 equity shares of USL equivalent to 18.03% as disclosed in the Annual report for the financial year ended 31st March 2012.
3. The application, it is said is necessitated since:
(a) the petitioners in COP 248/12 and connected petitions opposed the affidavit dt. 15.3.2013 of the 7 C.A. No.437/13 in Co.P. No.122/12 and connected cases applicant undertaking to deposit before Court Rs.100 crores from out of the surplus sale proceeds it received following completion of the DIAGEO transaction;
(b) on 15.1.2013 when COP 248/12 was listed for admission, the applicant company, through its counsel submitted that applicant would not alienate its investments other than those (i) already secured to various institutions and Banks by way of pledging/mortgaging/securitizing, being Body Corporates; (ii) specifically those of USL already contracted to be sold in terms of the concluded deal with DIAGEO, which when recorded this Court did not pass interim orders in the petitions;
(c) at the hearing of COP 122/12 and CA 1130/12 on 15.3.2013, the applicant filed an affidavit disclosing that shares of USL held by the applicant since mortgaged/pledged/hypothecated in favour of various financial institutions and Banks are agreed to be sold to DIAGEO Group at a price of Rs.1,440/- per equity share 8 C.A. No.437/13 in Co.P. No.122/12 and connected cases under a concluded contract and obtained requisite permissions from Competitive Commission of India (CCI), Securities and Exchange Board of India (SEBI);
(d) subsequently on 21.3.2013 Reserve Bank of India (RBI) extended permission for the DIAGEO transaction;
(e) that on 2.4.2013 in COP 122/12 and connected petitions, this Court directed the applicant to make a proposal for repayment of dues; and
(f) the Learned counsel for the applicant made a submission on 08.04.2013, that pending final hearing of the company petitions filed against the applicant before this court, without admitting the liabilities, but to demonstrate bonafides and subject to this Court permitting the sale of equity shares of USL to DIAGEO is willing to deposit Rs.200/- crores i.e. 119 crores from DIAGEO and Rs.81 crores from sale of certain immovable properties owned by it. 9
C.A. No.437/13 in Co.P. No.122/12 and connected cases
4. According to the applicant in the usual course of its business, to raise funds, pledged equity shares of USL, owned by it, in favour of the following financial institutions which have agreed to release the pledges for the purpose of DIAGEO transaction, subject to payment of their dues together with interest until settlement:
Rs. In Crores HDFC 75.00 Motilal 40.73 LKP 71.53 SICOM 193.66 Future 161.59 ILFS 155.47 IFCI 160.00 Religare 110.00 Edelweiss 200.00 HDFC Bank 23.00 Yes Bank 219.65 SREI 35.00 Narayan 5.00 Shriram ICICI 145.00 10 C.A. No.437/13 in Co.P. No.122/12 and connected cases
5. The DIAGEO transaction is said to secure Rs.1,714.79 crores at the rate of Rs.1,440/- per equity share of USL as on 9.11.2012, on which date the price of the said listed share listed on the National Stock Exchange closed at Rs.1,360/- per share, while the share price averaged around Rs.760/- per share during the twelve months period preceding the date of contract, and is currently over Rs.1,900/- per share, as a result of the transaction with DIAGEO, the largest manufacturer of liquor, though USL too is a largest global liquor marking Company under the UB Group. The sale, is intended to pay off the aforesaid creditors who have agreed to release the pledges in exercise of the right of the applicant for redemption, which would lead to receipt of Rs.119 crores, in excess, after payment of the aforesaid dues.
6. The DIAGEO transaction is said to be bonafide, in the best interest of the shareholders and creditors of the applicant paving way for better position to pay off its 11 C.A. No.437/13 in Co.P. No.122/12 and connected cases creditors and to preserve its business, as also increase its net worth as opined by M/s Grant Thorton Group, a leading international accounting firm. In the event the transaction does not come through, the applicant envisages a fall in the price of shares, severely affecting its net worth to the detriment of its shareholders and creditors.
7. On 18.4.2013, the applicant filed a memo in COP 248/12, disclosing particulars of share holding pattern, details of secured and unsecured loans, shares pledged/non-disposal undertakings, details of investments as on 31.3.2013 and copies of pledgees of shares, as also the annual report 2011-12 of USL.
8. On 24.4.2013 the applicant filed a memo stating that 87,94,000 equity shares of USL owned by the applicant and held by M/s YES Bank, subject to non-disposal undertaking, the said Bank exercised its right and created a pledge on 10.4.2013.
9. On 26.4.2013 the applicant filed an affidavit enclosing copies of documents relating to convening of the meeting of secured creditors on 24.4.2013, whence the petitioner-creditor in COP 248/12 was represented 12 C.A. No.437/13 in Co.P. No.122/12 and connected cases and a unanimous decision taken to sell the pledged 13,612,591 equity shares of USL, to DIAGEO PLc in terms of the agreements dt. 9.11.2012.
10. On 2.5.2013 applicant filed a memo enclosing documents relating to pledge of USL shares as also clarification over the same and details of encumbered and unencumbered immovable properties of the applicant.
11. On 9.5.2013 applicant filed an affidavit of even date of its Corporate Vice President-Legal and Company Secretary, stating that the applicant is willing to offer its immovable property as security to Court to secure an amount of Rs.250 crores to demonstrate its bonafides (without admitting its liability) on the following terms:
"(i) This Hon`ble Court may be pleased to grant leave in each of the Company Applications under Section 536(2) read with Section 537(1) of the Companies Act, 1956 permitting UBHL to sell, dispose of and / or procure the sale or disposal of upto 13,612,591 equity shares in USL held by UBHL to relay B.V/Diageo Plc; 13
C.A. No.437/13 in Co.P. No.122/12 and connected cases
(ii) UBHL shall be at liberty to deposit upto Rs.250 crores or any part thereof in this Hon`ble Court from time to time, provided that against each such deposit the aforesaid security in favour of this Hon`ble Court in respect of the aforesaid immovable property shall prorata stand released to the extent of each such deposit; and
(iii) subject to the aforesaid charges created in favour of HDFC Ltd., and ICICI Ltd., and leases in favour of various third parties, UBHL shall not create any further charge in respect of the aforesaid immovable property, without the prior permission of this Hon`ble Court. "
12. The petitioning creditor in COP 57/12 filed objections to CA 438/12 inter alia denying the claim over the alleged DIAGEO transaction dated 09.11.2012 after the commencement of winding up proceeding, much less, guarantee/pledge of shares of USL, in the absence of material particulars and copies of documents. Though in the absence of particulars along with list of Secured and unsecured creditors of the applicant, the admission of the Chairman of UB Group over the execution of the Corporate Guarantees, the application, it is said, is a ruse to thwart the attempt of 14 C.A. No.437/13 in Co.P. No.122/12 and connected cases the petitioning creditor to secure an order of winding up.
13. The petitioning creditor in COP 248/12 filed objections to CA 248/12 on 9.5.2013 inter alia denying the assertions in the application, in addition to submitting that the application is to subvert orders on the application for appointment of a provisional liquidator while concedes the inevitability of winding up. It is submitted that the applications are not maintainable without an adjudication of the right of the petitioner to seek admission of the petition. According to the respondent, the application is to negate the retrospective invalidation of the DIAGEO transaction notwithstanding the applicant's commercial insolvency.
14. It is stated that despite the undertaking extended to the court on 15.1.2013, nevertheless, caused prejudice to the petitioner, by admittedly dealing 15 C.A. No.437/13 in Co.P. No.122/12 and connected cases with USL shares to the extent of Rs.55 crores as set out in paragraph 8 of the statement of objections.
15. The alleged re-creation of pledge of 51500 shares (from 7,00,000 to 7,50,000) between 8.2.2013 to 22.2.2013 amounts to gross willful violation of the undertaking. Even otherwise, 7,51,000 equity shares of USL valued at more than 108 crores, regard being had to its price on the relevant date, raises a doubt, in the absence of valid explanation for the purpose for which such sums were raised, leading to securing a fraudulent preference of creditors.
16. The application is opposed on several grounds including that of liquidation of assets through sale of share in view of discrepancies in the disclosure of number of shares of USL held by the applicant in the public announcement dt. 9.11.2012. According to the respondent, the number of shares contracted to be sold 16 C.A. No.437/13 in Co.P. No.122/12 and connected cases to DIAGEO, the reduction in its numbers held by the applicant as disclosed in the Bombay Stock Exchange from December 2012 and that reflected during March 2013, as also the conversion from unsecured to secured, the pledge of shares to LKP finance Limited valued at Rs.71.53 crores occasioning suspicion. It is submitted that the non-disposal undertaking extended to EDELWEISS capital to the extent of 1,50,000 shares is also suspect. The pledge forms, it is said, appear to be unauthentic, while illegal pledges after 16.1.2012 (to be read as 26.3.2012 as submitted by the learned counsel), the date on which COP 5/12 was filed, require to be held void, are in respect of the following:
(a) Yes Bank : 12.85 lakh equity shares of USL;
(b) Capital First : 12.79 lakh equity shares of USL;
(c) ECL : 22.15 lakh equity shares of USL;
(d) Religare : 20.52 lakh equity shares of USL;
(e) IFCI : 12.37 lakh equity shares of USL;
(f) IL&FS : 23.91 lakh equity shares of USL;
(g) HDFC : 15.85 lakh equity shares of USL. 17
C.A. No.437/13 in Co.P. No.122/12 and connected cases
17. The annual report for the financial year ended 31.3.2012 of the applicant, it is submitted, does not disclose pledges in respect of the following:
i) Motilal Oswal: who is claimed to be entitled to receive Rs. 40.73 crores;
ii) LKP Finance: who is claimed to be entitled to receive Rs.71.53 crores;
iii) SICOM: who is claimed to be entitled to receive Rs.193.66 crores;
iv) SREI: who is claimed to be entitled to receive Rs.35 crores;
v) Naryan Shriram: who is claimed to be entitled to receive Rs.5 crores.
18. It is the further objection of the respondent that the application suffers from non-disclosure of statutory filings, consents, etc, regarding pledges, non- disclosure of legal proceedings relating to pledge of shares (suit instituted in Bombay High Court by the 18 C.A. No.437/13 in Co.P. No.122/12 and connected cases applicant seeking reliefs against sale of pledged shares by Banks and Financial Institutions), material suppression of secured and unsecured creditor details, requisition for share purchase agreement and ancillary documents not complied with by the applicant, price valuation by DIEGO sale wholly unsustainable, hence the need to secure the funds in court. It is next stated that under the Preferential Allotment Agreement dt. 9.11.2012 DEIGO PLc is entitled to preferential allotment of 1,45,32,775 shares equivalent to 10% of the enlarged capital, while under the Share Purchase Agreement of even date, applicant agreed to sell 9,070,595 equivalent to 6.24% equity shares of USL while King Fisher (subsidiary of the applicant) agreed to sell 7,64,63,092 shares equivalent to 5.26% of USL shares, amongst other shareholders, who have agreed to sell USL Share owned by them, totaling to 2,52,26,839 equity shares, representing 17.4% of the enlarged capital, while, the public offer is for 3,77,85,214 shares 19 C.A. No.437/13 in Co.P. No.122/12 and connected cases representing 26%. Thus in all DIAGEO transaction it is said, entitles the purchaser to 7,75,44,827 representing 53.4% of equity shares in USL.
19. According to the respondent if USL does not receive the cash infusion through the preferential allotment then the deal with DIAGEO cannot fructify. It is the submission of the respondent that since the applicant has freely dealt with the shares of USL owned by its subsidiaries, in the first event be held liable to discharge any outstanding liability to the lenders from such pledged shares rather than from the shares of USL held by the applicant. Yet again, it is submitted, that after 26.3.2012 sale of any shares of USL owned by the applicant's subsidiaries cannot but be void.
20. It is next submitted that the claim to validate the sale of shares, in view of pledges and the pledgees 20 C.A. No.437/13 in Co.P. No.122/12 and connected cases consent to the sale, is impermissible, since the pledges rights are questionable.
21. The valuation report of the immovable properties belonging to the applicant are said to be unreliable for several reasons one of which being that the value could be achieved only "after completion". The assessment made by the valuer over the valuation, it is submitted, is unrealistic and not supported by relevant material.
22. Applicant filed a rejoinder on 14.5.2013 to clarify certain facts such as the filing of the company petition No.5/12 by M/s Micro Dynamics Pvt Ltd. on 16.1.2012 against a company which is not the applicant and that the respondent is fully aware of the filing of the O.S.No.263/2013 by the applicant before the Bombay High court and that State Bank of India and Jammu and Kashmir Bank invoked the pledged shares of USL, thus reducing the applicant's holding of USL shares to 21 C.A. No.437/13 in Co.P. No.122/12 and connected cases 2,05,73,768 and further that M/s Motilal Oswal Financial Services Limited addressed a letter dated 21.12.2012 to LKP Finance Limited regarding disclosure in Form-W of even date, the pledge of 1,22,000 shares of USL as a security trustee on behalf of LKP Finance Limited and therefore there is no conversion from unsecured to secured creditor, unsupported by pledge forms.
23. The letter dated 6.5.2013 of the learned counsel for the respondent, it is said, in the rejoinder, seeks unlimited access to records, documents, books of account, etc. over which the respondent cannot claim as a matter of right. It is further stated that the applicant is entitled to seek the reliefs in the application while pointing out that it holds 2,25,99,890 equity shares of USL as on 15.1.2013 from out of which 4,70,233 are unencumbered as on that date, while 5,90,272 equity shares held by the applicant are unencumbered as on 22 C.A. No.437/13 in Co.P. No.122/12 and connected cases 29.4.2013. The allegation of the applicant having raised 108 crores against pledge of 7,51,500 equity shares of USL is countered by stating that security cover demanded by lenders ranges between 1.75 to 2.5 times the amounts advanced. It is further stated that the summary of utilization of proceeds submitted by the applicant as on 8.4.2013 discloses amounts payable to pledges of the shares created for raising loans in the usual course of business of the applicant, which are bonafide. As regards the allegation that another secured creditor M/s United Bank of India has filed a company petition before this court, it is stated, that the applicant is not served with a copy of the petition and therefore, unaware of its filing and hence unable to respond to the allegation. That USL's U.K. based subsidiary USL Holdings (UK) Limited obtained financial assistance from City Bank, London to remit funds for operations of WHYTE and MACKAY Limited, Scotland, a 23 C.A. No.437/13 in Co.P. No.122/12 and connected cases wholly owned subsidiary of USL and one of the largest scotch whisky distilleries in the world. I Re: JURISDICTION UNDER SECTION 536(2) OF THE ACT DURING THE PENDENCY OF COMPANY PETITION FOR WINDING-UP.
24. The contention of the respondent that the jurisdiction of the company court under Section 536 of the Act arises only after winding up of the applicant company, by placing reliance upon the opinion of this court in Mandya National Paper Mills Limited -v- Rai Bahadur Shreeram Durgaprasad Private Limited1 is without merit since it does not fully support the said proposition, in view of the following observation:
"It may be that the suggestion that the court has no jurisdiction whatever to deal with situations arising between the date of presentation of the winding -up petition and the order of winding-up is not sound, because on the 1 1967(37) Comp.cases 201 (Mysore High Court) 24 C.A. No.437/13 in Co.P. No.122/12 and connected cases passing of a winding-up order, the date of commencement of winding-up is related back to the date of presentation of the petition, and, secondly, even before an order for winding up is passed, the court may find it necessary to make appropriate interim orders either for the protection of the company or for the protection of any of the creditors of the company."
25. There is force in the submission of the learned senior counsel for the applicant that an order under Section 536(2) of the Act is permissible even before the winding up of the company, in the light of the observations in the opinion of this court in Smt.Usha R.Shetty and others -v- M/s Radeesh Rubber Private Limited, Bangalore and another2, that at the stage of entertaining a winding up petition the court has inherent power to do that which is necessary to advance the cause of justice or make such orders which are 2 1992(3) Kar.L.J 604 25 C.A. No.437/13 in Co.P. No.122/12 and connected cases necessary to meet the ends of justice and such inherent power is neither taken away nor restricted by Section 443(1) of the Act, while negating the plea that court cannot exercise jurisdiction under Section 536(2) of the Act before the winding up order is passed, following the observations of the Apex Court in N.S.Mills -v- Union of India3 and Hind Overseas Private Limited -v- R.P.Jhunjhunwala4.
26. In Kamani Metallic Oxides Limited -v- Kamani Tubes Limited5 the Division Bench of the Bombay High Court followed the observations in re Miles Aircraft Limited6 that "firstly the opening clause of Section 536(2) " in the case of winding up" does not mean " after the winding up order is passed" or " upon passing such order". It means " during winding up proceeding" which admittedly commence on the date on 3 AIR 1976 SC 1152 4 1976(46) Comp.cases 91(SC) 5 1984 (56) Comp.cases 19 6 (1948) 1 All.ER 225 # 18 Comp.cases 250 (Ch.D) 26 C.A. No.437/13 in Co.P. No.122/12 and connected cases which the petition for winding up is filed. This interpretation which we are putting does not leave bonafide dispositions of assets of the company, open to challenge at the hands of the liquidator, in the event of winding up order being passed. Sometimes dispositions would be necessary in the interest of the company and thus in the ultimate interest of the creditors of the company, during the pendency of the application for winding up. But the Directors would be reluctant to enter into transactions on their own for fear of the transactions being declared invalid on the passing of the winding up order. The company Court must have jurisdiction to protect such transactions. We, therefore, feel that the rule of harmonious construction supports the view that the Court can exercise jurisdiction under Section 536(2) even before the winding up order is made. The fact that the order would become otiose if the application for winding up is ultimately rejected, does not take away the jurisdiction."
27
C.A. No.437/13 in Co.P. No.122/12 and connected cases
27. The Division Bench in addition followed the observations In re A.I.Levy (Holdings) Limited7 :
" It appears to me that the object of the Section is to protect the interest of the creditors from the possible unfortunate results which would ensue from the presentation of a petition, and to protect the interests as much during the period while the petition was pending as after an order has been made on it. What the section provides in its present terms is that any disposition of the property of the company made after the commencement of the winding up shall be void in the winding up of the company unless the court otherwise orders; that is to say, if and when the company comes to be put into liquidation the transaction is to be as if it had never taken place."
28. So also is the view of the Kerala High court in Travancore Rayons Limited -v- Registrar of Companies8.
7 (1964) 1 Ch 19 # 34 Comp.cases 720 (Ch.D) at page 727 8 1988(64) Comp.cases 819 28 C.A. No.437/13 in Co.P. No.122/12 and connected cases II Re: ALLEGATIONS OF VIOLATION OF LAWS IN THE MATTER OF PLEADGE OF SHARES
29. The next submission of the learned counsel for the respondent that the alleged pledges of USL shares owned by the applicant are in violation of Section 12(3) of the Depositories Act, 1996 and Regulation 58 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, for short 'Regulations' framed under The Securities and Exchange Board of India Act, 1992 (Act 15 of 1992), exfacie, is untenable. Section 12 of the Depositories Act, 1996 reads thus:
12. Pledge or hypothecation of securities held in a depository.-(1) Subject to such regulations and bye-laws, as may be made in this behalf, a beneficial owner may with the previous approval of the depository create a pledge or hypothecation in respect of a security owned by him through a depository.29
C.A. No.437/13 in Co.P. No.122/12 and connected cases (2) Every beneficial owner shall give intimation of such pledge of hypothecation to the depository and such depository shall thereupon make entries in its records accordingly. (3) Any entry in the records of a depository under sub-section (2) shall be evidence of a pledge or hypothecation Regulation 58 of the Regulations reads thus:
Manner of creating pledge or hypothecation.
58. (1) If a beneficial owner intends to create a pledge on a security owned by him, he shall make an application to the depository through the participant who has his account in respect of such securities.
2) The participant after satisfaction that the securities are available for pledge shall make a note in its records of the notice of pledge and forward the application to the depository. (3) The depository after confirmation from the pledgee that the securities are available for pledge with the pledger shall within fifteen days 30 C.A. No.437/13 in Co.P. No.122/12 and connected cases of the receipt of the application create and record the pledge and send an intimation of the same to the participants of the pledger and the pledgees. (4) On receipt of the intimation under sub- regulation (3) the participants of both the pledger and the pledgee shall inform the pledger and the pledgee respectively of the entry of creation of the pledge.
(5) If the depository does not create the pledge, it shall send along with the reasons an intimation to the participants of the pledgor and the pledgee.
(6) The entry of pledge made under sub- regulation (3) may be cancelled by the depository if the pledger or the pledgee makes an application to the depository through its participant:
Provided that no entry of pledge shall be cancelled by the depository without prior concurrence of the pledgee.31
C.A. No.437/13 in Co.P. No.122/12 and connected cases (7) The depository on the cancellation of the entry of pledge shall inform the participant of the pledger.
(8) Subject to the provisions of the pledge document, the pledgee may invoke the pledge and on such invocation, the depository shall register the pledgee as beneficial owner of such securities and amend its records accordingly. (9) After amending its records under sub-
regulation (8) the depository shall immediately inform the participants of the pledger and pledgee of the change who in turn shall make the necessary changes in their records and inform the pledger and pledgee respectively. (10) (a) If a beneficial owner intends to create a hypothecation on a security owned by him he may do so in accordance with the provisions of sub-regulations (1) to (9).
(b) The provisions of sub-regulations (1) to (9) shall mutatis mutandis apply in such cases of hypothecation:
Provided that the depository before registering the hypothecatee as a 32 C.A. No.437/13 in Co.P. No.122/12 and connected cases beneficial owner shall obtain the prior concurrence of the hypothecator. (11) No transfer of security in respect of which a notice or entry of pledge or hypothecation is in force shall be effected by a participant without the concurrence of the pledgee or the hypothecate, as the case may be.]
30. Indisputably applicant being the beneficial owner of the USL shares sought to pledge the same in favour of M/s HDFC, YES Bank, Axis Bank, IDBI Bank Limited, Eddlewiss Securities Limited, Sicom Limited, Religare Finwest Limited, IL & FS Financial Services Ltd., SBI Industrial Finance Branch, Bangalore, Religare Securities Limited, J&K Bank Limited and IFCI Financial Services Limited, by making applications through the 'participant' meaning a person registered as such under the Securities and Exchange Board of India, 1992, since the participants' IDs' are conspicuously printed on the applications in Form 'W' Annexure-'R20'. Intimation having been given by the applicant through 33 C.A. No.437/13 in Co.P. No.122/12 and connected cases the 'participant', duly acknowledged, is compliance with Regulation 58(1) of the Regulations, while under sub- regulation (2) it is for the 'participant' to make note in its record the notice of the pledge and thereafter forward the application to the depository. Thus the applicant has, primafacie, disclosed compliance with the notice of pledge.
31. Moreover, in the Notes to the financial statement under the nomenclature ' Nature of Security and terms of repayment of secured borrowings', at page 33 of the Annual report 2011-12 of the applicant, discloses the creation of following pledges:
Name No. of shares of USL
i) YES Bank Ltd - 1,285,000
ii) Future Capital Holdings Ltd- 1,279,688
a) Subsidiary company- 1,171,312
iii) ELC Finance Ltd. - 2,215,000
iv) Religare Finvest Ltd. - 2,052,683
34
C.A. No.437/13 in Co.P. No.122/12
and connected cases
v) IFCI Ltd. - 1,237,477
a) subsidiary company- 1,467,523
vi) IL & FS Services Ltd. - 2,319,000
a) subsidiary company- 875,647
vii) HDFC Ltd - 1,585,154
a) Subsidiary company - 5,000,000
__________ __________
TOTAL 11,974,002 8,514,482
___________ _________
32. The annual report though discloses that the applicant holds 23,577,490 equity shares of USL, it is the submission of the learned Sr. counsel that State Bank of India and J&k Bank Ltd., invoked their respective pledges of 26,46,155 and 3,57,170 shares on 25.3.2013 and 19.11.2012, reducing the number of shares held by the applicant to 20,573,768. According to the learned counsel 19,833,696 shares of USL were pledged by the applicant on various dates commencing from 2008 onwards upto February, 2013 to secure loans in the usual course of its business, as also to 35 C.A. No.437/13 in Co.P. No.122/12 and connected cases revive King Fisher Airways, its subsidiary, leaving the applicant with 7,40,272 equity shares free, from encumbrance, while more than 13,612,591 equity shares were pledged in favour of various financial institutions much prior to 31.3.2012. III; RE. CLAIM OF RESPONDENT THAT USL IS A SUBSIDIARY OF APPLICANT:
33. The submission of the respondent that USL is a subsidiary of the applicant since 27.72% of its equity shares is held by the applicant as disclosed in the annual report 2011-12 of USL, at page 91, and in the Notes to the consolidated financial statements, at page 65, of the annual report 2011-12 of the applicant, is countered by the learned Sr.counsel for the applicant pointing to page 65 of the Notes, supra, to submit that USL is described as an 'Associate Company'. The further submission of the learned counsel for the respondent that the term 'subsidiary' used in paragraph 28 of the statement of objections is since the Board of 36 C.A. No.437/13 in Co.P. No.122/12 and connected cases USL is controlled by the Chairman of the applicant, regard being had to Section 4(1)(a) of the Act, is opposed by pointing to page 8 of the applicant's annual report 2011-12 disclosing five independent directors, two non-
executive directors and a Managing director, while there are four independent directors, a non-executive Vice Chairman and a Managing director of USL as disclosed in page 9 of the Annual report 2011-12 of USL.
34. The further allegation that more than Rs.4,000 crores has disappeared from USL into a company icnorporated in British Virgin Island and hence needs to be enquired into, is justifiably opposed by submitting that, in the first place, USL is not a party to the proceeding and that monies invested in the acquisition of the Scottish Distillery 'WHYTE' and 'MACKAY', Scotland, a wholly owned subsidiary of USL is through financial assistance obtained from City Bank, 37 C.A. No.437/13 in Co.P. No.122/12 and connected cases London, in full compliance with the Foreign Exchange Regulations.
35. In the circumstances, truly, an investigation into the aforesaid allegations at this stage of the proceeding in the company petition is neither desirable nor called for.
IV. Re: PRINCIPLES GOVERNING EXERCISE OF JURISDICTION OF COURTS UNDER SECTION 536(2) OF THE ACT:
36. It is useful to make reference to the observations of the Court of Chancery Division in Burton and Deakin Ltd., In re9 :
" If on an application under Section 227 relating to a solvent company, it s directors placed before the Court evidence that they considered that a particular disposition falling within their powers was necessary or expedient in the interest of the company, and if the court considered that the reasons given were such as 9 (1977) 1 All ER 631 (Ch.D) 38 C.A. No.437/13 in Co.P. No.122/12 and connected cases an intelligent and honest man could reasonably hold, the Court would normally sanction the disposition notwithstanding the opposition of a contributory, unless the contributory had adduced compelling evidence which proved that the disposition is likely to injure the company.
The court would not, except in the case of proven bad faith or other exceptional circumstances, interfere with the discretion conferred on the directors by a company's articles of association at the instance of the contributory, even if a winding-up petition had been presented.
According to Slade J, the animus of the subsection is to forbid malapropos and objectionable disposition or dissipation of property which would ultimately fall to a low ebb or tale off the assets otherwise available for distribution among the creditors of the company in the event of winding-up. But the section leaves a reserve power of discretion to justify and uphold all genuine and proper transactions, exercising a sound discretion normally validating transactions which are benign and honest; transactions which have been done in the best 39 C.A. No.437/13 in Co.P. No.122/12 and connected cases interest of the company and in the ordinary course of the company's business. The legislative intent is plainly manifested by the use of the select expression 'unless the court otherwise orders' which mandates silently but eloquently a duty on the Judge to examine each case on its peculiarities, facts, and circumstances, special bearing being given to the question of good faith and honest intention aimed at the best interest of the company. The omission to indicate any special guiding principles in the matter of discretion to be exercised by the Court, makes it clear that it is not left entirely at large, but controlled by the general principles which apply to every kind of judicial discretion."
37. In re Gray's Inn Construction Company Limited10 the Court of appeals observed thus:
" In considering whether to make a validating order the court must always, in my opinion, do its best to ensure that the interests of the unsecured creditors will not be prejudiced. Where the application relates 10 (1980) 1 WLR.711 40 C.A. No.437/13 in Co.P. No.122/12 and connected cases to specific transaction this may be susceptible of possible proof. In a case of completion of a contract or project the proof may perhaps be less positive but nevertheless be cogent enough to satisfy the court that in the interest of the creditors the company should be enabled to proceed, or at any rate that proceeding in the manner proposed would not prejudice them in any respect. The desirability of the company being enabled to carry on its business generally is likely to be more speculative and will be likely to depend on whether a sale of the business as a going concern will be more beneficial than a break-up realization of the companies assets. In each case, I think, the court must necessarily carry out a balancing exercise of the kind envisaged by Templeman J., in his Judgment. Each case must depend on its own particular of facts.
Since the policy of the law is to procure as far as practicable ratable payments of the unsecured creditors' claims, it is, in my opinion, clear that the court should not validate any transaction or series of 41 C.A. No.437/13 in Co.P. No.122/12 and connected cases transactions which might result in one or more preliquidation creditors being paid in full at the expense of other creditors, who will only receive a dividend, in the absence of special circumstances making such a course desirable in the interests of the unsecured creditors as a body. If for example, it were in the interest of the creditors generally that the company's business should be carried on and this could only be achieved by paying for goods already supplied to the company when the petition is presented but not yet paid for, the court might think fit in the exercise of its discretion to validate payment for those goods."
38. In RBI -V- CRYSTAL CREDIT CORPORATION LIMITED11 at paragraph 5 it is observed thus:
" .... The purpose behind subsection (2) of Section 536 is to prevent improper disposition or dissipation of property so as to affect the assets otherwise available for 11 (2006) 132 COMP.cases 363 (Delhi) 42 C.A. No.437/13 in Co.P. No.122/12 and connected cases distribution among the creditors of the company in winding up. But the court is, however, given the discretion to uphold all proper transactions which otherwise appear to be proper transactions. What is to be borne in mind, while examining such a transaction, is that the assets of the company should be made available for distribution pari passu amongst the creditors of the company and that no creditor should obtain an advantage over his fellow creditor. In Andhra Bank Ltd. -v-
Provisional Liquidator, Godavari sugars and Refineries Ltd.12, after scanning through the case law on the point culled out the following principles which are to be kept in mind in such cases:
i) transactions bonafide entered
into and completed in the
ordinary course of trade must be
protected.
ii) if the disposition is made for the purpose of preserving the business as a going concern, 12 (1954) 24 Comp.cases 149 43 C.A. No.437/13 in Co.P. No.122/12 and connected cases then also the discretion of a court must be exercised.
iii) A disposition must not be
validated merely because the
party bonafide entered into the
transaction.
iv) Knowledge of the presentation of
the winding up is immaterial."
V. RE.PLEDGE OF SHARES FOR RAISING LOANS NOT FORTHCOMING FROM THE APPLICANT'S ANNUAL REPORT 2011-12:
39. From out of the names of the pledgees (Secured Creditors) and the amounts due to them said to be Rs.1,595.63 crores, as extracted in paragraph 4 supra, pledge of shares of USL by the applicant for securing loans from the following are not disclosed in the Annual report 2011-12 of the applicant, so as to, at this stage, be treated as secured creditors, more so after the institution of the company petition 5/12 on 26.3.2012:
44
C.A. No.437/13 in Co.P. No.122/12 and connected cases Names Rs. in crores
i) Motilal 40.73
ii) L.K.P. 71.53
iii) SICOM 193.66
iv) SREI 35.00
v) Narayan Shreeram 5.00
vi) ICICI 145.00 Total 490.92
40. There is force in the submission of the learned counsel for the respondent that the pledge of USL shares by the applicant in respect of the aforesaid pledges, not disclosed to be accounted for in the Books of account of the applicant for the financial year 2011-
12 and in the absence of relevant material as well as accounts post 31.3.2012 or after the undertaking extended to the court on 15.1.2013 for having taken loans by the applicant as against the pledges, in the usual course of business of the applicant, prima facie, do not qualify for repayment. In order to effect repayment to the pledgees, it is required of the applicant, who admits to have made pledge of shares 45 C.A. No.437/13 in Co.P. No.122/12 and connected cases after 31.3.2012, to establish transaction bonafide entered into and completed in the ordinary course of trade, to be protected and that the disposition is made for the purpose of preserving the business as a going concern. Regard being had to the nature of business of the applicant and the ongoing projects of construction activity over its immovable properties, it is possible that the Applicant may have bonafide, for preserving the business, pledged shares in USL with reputed financial institution. But merely because pledge of shares of USL is made by the applicant in favour of the aforesaid institutions, a bonafide transaction, does not mean that the disposition during the pendency of the Company Petition calls for validation. Had records of accounts been made available, the Court could have appreciated such material and if warranted protected the said transactions, even if the transactions are made during the pendency of petition for winding-up, being its jurisdiction under Sec 536(2) of the Act. It is open for 46 C.A. No.437/13 in Co.P. No.122/12 and connected cases the Applicant to make necessary application in that regard.
VI) RE - ADJUDICATION OVER PLEDGES OF SHARES IN FAVOUR OF S.B.I & J & K BANK LTD.
41. The submission that the pledge of 26,46,155 shares of USL by the applicant in favour of SBI and 3,57,170 shares in favour of J & K Bank made apparently after 31.3.2012 (since not accounted for in the balance sheet for the financial year 2011-12) and since invoked, while the High court of Bombay did not grant any interim relief to the applicant over the disposal of the shares by the pledgees, ought to be declared void, is unavailable to the respondent as it does not arise for decision making, at this stage of the proceeding, and more so, when the said financial institutions are not parties to the proceeding. This aspect of the matter may arise for decision making on 47 C.A. No.437/13 in Co.P. No.122/12 and connected cases the winding-up of the company, after an investigation by the Official Liquidator.
VII) RE - PUBLIC ANNOUNCEMENT:
42. The public announcement, for short 'PA' under Regulation 15(1) of the SEBI (substantial acquisition of shares and take overs) Regulations, 2011, dated 9.11.2012 Annexure-P1 to the statement of objections, is an open offer to the public shareholders for acquisition of upto 37,785,214 equity shares of USL constituting 26% of the share capital, for short 'Target company', by Relay B.V. together with DIAGEO PLc and others, acting in concert, at a price of Rs.1,440/- per equity share. The underlining transaction for the open offer, it is said, is:
(A) the Share Purchase Agreement (SPA) of even date between relay B.V. and DIAGEO with the applicant, amongst others for acquisition of 25,226,839 equity shares constituting 17.4% shares in USL, whereunder 48 C.A. No.437/13 in Co.P. No.122/12 and connected cases applicant together with its subsidiary King Fisher Finvest India Limited for short 'KFL' have agreed to sell 19,536,648 equity shares from out of 23,577,293 representing 18% of equity shares in USL held by the applicant and 12,676,342 being 9.7% of equity shares held by KFL. However, the footnote therein reads thus:
"NOTES-
1) xxxxx
2) In terms of the SPA, United Breweries (Holdings) Limited and King Fisher Finwest India Limited have agreed to sell an aggregate of 16,716,987 equity shares of USL to the acquirer and the split between them shall be determined closer to the completion of the SPA. Currently, United breweries (Holdings) Limited intends to sell 9,070,595 equity shares and Kingfisher FinWest India Limited intends to sell 7,646,392 equity shares."49
C.A. No.437/13 in Co.P. No.122/12 and connected cases B) The preferential allotment agreement (PAA) of even date between relay B.V. and DIAGEO with USL is to subscribe to 14,532,775 equity shares (preferential shares) being 10% of the shares in USL on a preferential basis at Rs.10/- per share on payment in cash. C) The Share Holders Agreement (SHA) of even date is between the same parties, whereunder, the applicant and its wholly owned subsidiary KFL have agreed, conditionally, to sell additional shares of USL to Relay B.V. at the price of Rs.1,440/- per equity shares in the event preferential allotment does not complete and Relay holds less than 25.1% of the shares in USL after taking into account equity shares of USL acquired under the open offer, under SPA or in any other manner and accordingly the public announcement would stand modified.
50
C.A. No.437/13 in Co.P. No.122/12 and connected cases
43. The PA further discloses that after the acquisition of shares the proposed share holding would be 77,544,828 equity shares representing 53.4% of USL shares on emerging voting capital.
44. The share holding pattern of USL as disclosed in Annexure-P2 to the statement of objections discloses that from out of 20,573,968 shares representing 15.73% held by the applicant, 20,005,235 shares representing 15.30% are encumbered, while KFL though holds 1,26,76,342 shares representing 9.69%, nevertheless 1,23,12,892 shares representing 9.41% are encumbered.
45. Indeed the public offer is said to have failed since none of the public shareholders offered to sell their shares in USL at 1,440/- per equity shares, which, apparently does not necessarily mean that the SPA, the PPA and SHA are rendered void, as submitted by the 51 C.A. No.437/13 in Co.P. No.122/12 and connected cases learned counsel for the respondents, more so, in the light of the said agreements being independent of the outcome of the public offer, as discernable from the PA.
46. Having scrutinized the terms and conditions of the SPA, a copy of which is placed before court, material particulars as set out therein are reflected in the PA and regard being had to the term of confidentiality, the imprimatur of the competition Commission of India on 26.2.2013 Annexure-A, the Securities and Exchange Board of India on 31.1.2013 Annexure-B and the Reserve Bank of India on 21.3.2013 Annexure-C, it cannot but be said that no prejudice is caused to the respondent by not being furnished with a copy of the SPA. The contention to the contrary is without merit. What merits consideration is the fact that permission for sale of shares numbering 13,612,591 of USL are encumbered/pledged in favour of reputed financial institutions, for securing loans to 52 C.A. No.437/13 in Co.P. No.122/12 and connected cases carry on the applicant's business, as indicated in the Annual report for the financial year 2011-12.
47. Keeping in mind the fact that more than 13,612,591 equity shares of USL were pledged to raise loans to carry on business of the applicant as disclosed in the annual report 2011-12 and extracted at paragraph 31 supra, the submission of the learned Counsel for the respondent that the shares of USL held by the subsidiaries of the Applicant and not that belonging to the applicant be sold to wipe out the secured liabilities, though the split between them is to be determined closer to the completion of the 'SPA', pales into insignificance. The applicant is the holding company while KFL is its subsidiary and in the circumstances, more appropriately the permission to sell 13,612,591 equity shares and the pledge of the shares as set out in the Annual report 2011-12 it does not matter much over the number of shares of USL held 53 C.A. No.437/13 in Co.P. No.122/12 and connected cases by the applicant required to be sold in terms of the DIAGEO transaction under the SPA. The further submission of the learned counsel that three million equity shares of USL held by KFL is encumbrance free and therefore, may be put to sale under the SPA is without merit, since as noticed supra out of 1,26,76,342 equity shares of USL held by KFL 1,23,12,892 equity shares are encumbered (as disclosed in Annexure-P2 to the statement of objections).
VIII. RE-PRICE PER EQUITY SHARE:
The price of Rs.1,440/- per equity share of USL on 9.11.2012 the date of SPA, PPA and SHA and the issue of PA, it is submitted, is far less than the true value of the share which is presently hovering around Rs.2,200/- is without merit. A copy of the historical price data for the equity share of USL as quoted on the National Stock Exchange Limited for India for the period from 25.4.2012 to 30.4.2013, furnished by the learned 54 C.A. No.437/13 in Co.P. No.122/12 and connected cases senior counsel for the applicant, discloses that as on 25.4.2012 one equity shares of USL closed at Rs.737.60 and on 9.11.2012 closed at Rs.1,360.50 and thereafter on the increasing trend closed at Rs.2210.95 on 30.4.2013, while on 8.5.2013 it closed at Rs.2324.10.
Therefore, the DIAGEO transaction entered into on 9.11.2012 for sale of equity shares of USL at a price of Rs.1440/- per equity share was higher than Rs.1360.50 per equity share as closed on the National Stock Market on the said date.
IX. RE.IMMOVABLE PROPERTY VALUATION REPORT:
48. There is considerable force in the submission of the learned Counsel for the respondent that the valuation report of H.S.Nagaraja and Assts over immovable properties belonging to the applicant suffers from inadequacies of relevant material constituting substantial legal evidence in support of valuation. It is not known as to what is the basis or foundation to 55 C.A. No.437/13 in Co.P. No.122/12 and connected cases arrive at the value of the properties. Hence the report is rejected.
X. RE-ALLEGATION THAT APPLICANT IS COMMERCIALLY INSOLVENT:
49. It is lastly pointed out that the contingent liabilities of the applicant, more appropriately guarantees extended by the applicant on behalf of subsidiaries, Banks, financial institutions and others and the long terms borrowings, both secured and unsecured is around Rs.10,000/- crores as disclosed in the annual report 2011-12, to submit that the applicant is not in a position to repay its debts and therefore allowing the application and permitting the sale transaction of shares is detrimental to the interest of the respondents. Regard being had to the fact that undisputedly applicant has immovable properties, which are secured against loans extended by reputed financial institutions and on their clearance would 56 C.A. No.437/13 in Co.P. No.122/12 and connected cases become freehold properties, while though the report of M/s Grant Thorton is, in my opinion, an exaggeration, nevertheless, it cannot be presumed that the applicant is commercially insolvent, so as to disentitle the Applicant to a permission to sell 13,612,591 shares.
XI. RE-ALLEGATION THAT SPA, PPA & SHA ARE DETRIMENTAL TO THE INTEREST OF CREDITORS:
50. Regard being had to the annual report 2011- 12 of the applicant and keeping in mind that loans were raised by pledging excess of 13,612,591 equity shares of USL much before the filing of the company petitions for winding up and that the monies secured as loans are disclosed to be put to use for carrying on the business of the applicant, coupled with the secured creditors having extended their consent for the sale, as also the permission of the concerned authorities, it cannot be said that the SPA, PPA and SHA are detrimental to the interest of the respondents. In my opinion, paying off 57 C.A. No.437/13 in Co.P. No.122/12 and connected cases the debts of the secured creditors from out of the sale proceeds of the sale of shares under the DIAGEO transaction is in the best interest of the secured creditors in particular to those set out in the annual report 2011-12 and as extracted supra at paragraph No.31 supra.
51. Keeping in mind the principles of law in the matter of exercise of discretion under Section 536(2) of the Act as extracted supra, and applying the same to the facts and circumstances of this case, the DIAGEO transaction, in my opinion is genuine and bonafide and for the purpose of promoting the interest of the company, its creditors, as also the respondents who have come up in the winding-up petitions. The fall and ebb in the share price are on account of several factors and in this case the run up in the share price from Rs.737.80 as on 25.4.2012 and its fall till about 12.7.2012 whereafterwards a steady increase in the 58 C.A. No.437/13 in Co.P. No.122/12 and connected cases price to Rs.1,360.50 as on 9.11.2012 the date of the DIAGEO transaction, thereafter, has left a value enhancement to Rs.2324.10 per share as on 8.5.2013.
This price run up is attributable to the DIAGEO transaction, regard being had to, the said company being also one of the distillery having joined hands with the applicant also commanding global leadership as the worlds largest Distilled Spirit marketer. The transaction, it appears is likely to enhance the business opportunities of the applicant. The apprehension of the applicant that if the DIAGEO transaction is frustrated there is a strong possibility that the price of USL share would crash, possibly below Rs.737/- per equity share causing enormous loss of value to the detriment of the applicant and its creditors, is well founded. XII. RE-UTILIZATION SUMMARY:
52. The summary of utilization of proceeds from DIAGEO transaction is perse unacceptable in the 59 C.A. No.437/13 in Co.P. No.122/12 and connected cases absence of actual amounts received as loans, interest applied and the amounts due on the date of payment and therefore, it is too far fetched for the applicant to expect the court to conclude that out of Rs.1960.21 crores there would be a net in-flow of Rs.1,714.79 crores from out of which loans to an extent of Rs.1595.63 crores are to be repaid leaving a net surplus of Rs. 119.16 crore. Therefore, there is a need to direct the applicant to place on record the audited accounts relating to amounts due and payable to the secured creditors, more fully mentioned at paragraph No.31 supra and as disclosed in the annual returns 2011-12.
As regards the payment of dues to such of those persons/institutions mentioned in paragraph 39 supra, who do not find place in the disclosure in the annual report 2011-12 of the applicant, no payments can be made from out of sale proceeds until after filing necessary application, an investigation thereto and an order of this court.
60
C.A. No.437/13 in Co.P. No.122/12 and connected cases
53. Company petition 57/12 filed by IAE International Aero Limited is for recovery of Rs.168 crores; COP 121/12 filed by RRPF Engine Leasing Limited, is for recovery of Rs.2.92 crores: cop 122/12 filed Rolls-Royce & Partners Finance Limited is for recovery of Rs.57.18 crore; 185/12 filed by Avions De Transport Regional G.I.E., is for recovery of Rs.92.58 crores and COP 248/12 filed by B.N.P. Paribas is for recovery of Rs.145.91 cores.
Regard being had to the totality of circumstances, ends of justice would be met by the following:
ORDER I) The applications are allowed in part. II) The applicant is permitted to:
a) sell 13,612,591 equity shares of USL held by it, to Relay B.V., and DIAGEO PLc and others acting in concert, at a sale price of Rs.1,440/- per equity share;
b) from out of the sale proceeds: 61
C.A. No.437/13 in Co.P. No.122/12 and connected cases
i) to make payment of dues to the secured creditors disclosed in its annual report 2011-12 as extracted at paragraph 31 supra;
ii) to expend reasonable sums of money towards legal expenses;
iii) to pay taxes incidental to the sale transaction;
III) to submit to court the audited statement of accounts over repayments, expenses and taxes, incurred as directed supra, by the 22nd July, 2013;
IV) The applicant is directed to:
a) deposit Rs.250/- crores (rupees Two Hundred and Fifty crores only) in this court immediately on the conclusion of the transaction and receipt of sale consideration which the registry is directed to keep in a term deposit in a Nationalised Bank for an initial period of one year;
b) retain the balance of the sale consideration without deploying the same for its business activity, subject to further orders;
c) refrain from creating
pledge/hypothecation/charge/
62
C.A. No.437/13 in Co.P. No.122/12
and connected cases
encumbrance over its movable and
immovable properties pending disposal of the company petitions.
Sd/-
JUDGE ln/sma