Delhi High Court
Mcnally Bharat Engineering Company ... vs Kkr India Financial Services Limited & ... on 7 February, 2022
Author: Vipin Sanghi
Bench: Vipin Sanghi, Rekha Palli
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 03.02.2022
% Judgment delivered on: 07.02.2022
+ FAO(OS) (COMM) 2/2021and CM APPL. 173/2021 & 2166/2021
EVEREADY INDUSTRIES INDIA LTD. ..... Appellant
Through Mr. Darius Khambata, Sr. Adv. with
Mr. Padam Khaitan, Mr. Jeevan
Ballav Panda, Ms. Shalini Sati
Prasad, Mr. Satish Padhi, Ms. Meher
Tandon, Mr. Gaurav Sharma and
Mr. Pheroze F. Mehta, Advs.
versus
KKR INDIA FINANCIAL SERVICES LIMITED
& ANR ..... Respondents
Through Mr. Neeraj Kishan Kaul & Mr. Akhil
Sibal, Sr. Advs. with Mr.
Yashvardhan, Mr. Murtaza Somjee,
Ms. Smita Kant, Ms. Kritika Nagpal,
Ms. Bhavya Bhatia, Ms. Anwesha
Dasgupta, Ms. Vatsala Khandelwal,
Mr. Shantanu Parashar, Advs. for
Respondent No. 1 and 2.
Mr. Sanjoy Ghose with Mr. Rhishabh
Jetley, Mr. Sumedh Rishi Advs. for
R-3 to 6 & 9.
+ FAO(OS) (COMM) 5/2021 and CM APPL. 1055/2021, 5959/2021
& 6031/2021
MCLEOD RUSSEL PVT. LTD. ..... Appellant
Through Mr. Sandeep Sethi, Sr. Adv. with
Mr. Kumar Shashank, Mr. Padam
Khaitan, Mr. Jeevan Ballav Panda,
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 1 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
Ms. Shalini Sati Prasad, Mr. Satish
Padhi, Ms. Meher Tandon, Mr.
Gaurav Sharma, Mr. Sidhant Kumar,
and Mr. Aviral Kapoor, Advs.
versus
KKR INDIA FINANCIAL SERVICES LIMITED
& ANR. ..... Respondents
Through Mr. Neeraj Kishan Kaul & Mr. Akhil
Sibal, Senior Advocates, Mr.
Yashvardhan, Mr. Murtaza Somjee,
Ms. Smita Kant, Ms. Kritika Nagpal,
Ms. Bhavya Bhatia, Ms. Anwesha
Dasgupta, Ms. Vatsala Khandelwal,
Mr. Shantanu Parashar, Advocates for
Respondent No. 1 and 2
Mr. Sanjoy Ghose with Mr. Rhishabh
Jetley, Mr. Sumedh Rishi Advs for R-
3 to 6 & 9.
Mr. P. Chidambaram, Sr. Adv. with
Mr. Anand Shankar Jha & Mr. Arpit
Gupta, Advs. for RBL Bank in CM
APPL. 5959/2021 & CM APPL.
6031/2021
+ FAO(OS) (COMM) 6/2021 and CM APPL. 1059/2021
MCNALLY BHARAT ENGINEERING
COMPANY LIMITED ..... Appellant
Through Mr. Jayant Mehta with Mr. Padam
Khaitan, Mr. Jeevan Ballav, Ms.
Shalini Sati Prasad, Mr. Satish Padi,
Ms. Meher Tandon and Mr. Gaurav
Sharma, Advs.
versus
KKR INDIA FINANCIAL SERVICES LIMITED
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 2 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
& ANR. ..... Respondents
Through Mr. Neeraj Kishan Kaul & Mr. Akhil
Sibal, Sr. Advs., Mr. Yashvardhan,
Mr. Murtaza Somjee, Ms. Smita Kant,
Ms. Kritika Nagpal, Ms. Bhavya
Bhatia, Ms. Anwesha Dasgupta, Ms.
Vatsala Khandelwal, Mr. Shantanu
Parashar, Advs. for Respondent No. 1
and 2
Mr. Sanjoy Ghose with Mr. Rhishabh
Jetley, Mr. Sumedh Rishi Advs. for
R-3 to 6 & 9.
CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI
HON'BLE MS. JUSTICE REKHA PALLI
JUDGMENT
VIPIN SANGHI, J.
1. The Appellants have preferred the present appeals under section 37 Arbitration and Conciliation Act, 1996 to assail the order dated 23.11.2020 passed by the learned single Judge in O.M.P (I) (COMM) 459/2019 under section 9 of the Arbitration and Conciliation Act. The Appellants - who were the Respondent Nos. 5 to 7 in the aforesaid OMP, had preferred applications seeking vacation of ex-parte ad-interim order of injunction granted in favor of the Respondents herein - Petitioners in the O.M.P., vide order dated 13.12.2019 passed by the learned Single Judge, which was decided by the common impugned order.
2. We had heard detailed submissions of learned Counsels in all these appeals, and reserved the judgment on 07.04.2021. However, on account of the large volume of the case, and due to heavy rush of work, the preparation FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 3 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 and pronouncement of the judgment got delayed. Though, we took copious notes, and also called for the written submissions by the parties, which had been filed, looking to the passage of time, we considered it appropriate to list the matter to enable the counsels to refresh us with an outline of the submissions advanced by them. Consequently, vide our order dated 31.01.2022, we directed the listing of the appeals on 03.02.2022, with advance notice to them for the purpose of listing the matters, so that they are ready to proceed with the hearing. Learned senior counsels for the parties, accordingly, refreshed us by providing an outline of their submissions advanced, at length, earlier. After hearing the same, we again reserved judgment on 03.02.2022.
3. The brief facts leading up to present appeals are as follows:
(i) The Appellants in the present appeals are Mc Nally Bharat Engineering Company Limited (MBECL) (Appellant in FAO(OS) (COMM) 6/2021), McLeod Russel India Limited (MRIL) (Appellant in FAO(OS) (COMM) 5/2021), and Eveready Industries India Limited (EIIL) (Appellant in FAO(OS) (COMM) 2/2021), who were impleaded as respondent Nos.5 - 7 in the Section 9 petition respectively.
(ii) The Respondent No.1 is a non-banking financial Company in the business of providing loans and financial advances.
(iii) Respondent No. 2 is a company registered under the Companies Act, 1956 which is also registered as a debenture trustee with Securities Exchange Board of India, and acts as a security trustee on behalf of the Respondent No. 1.FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 4 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
(iv) The Respondent No. 1 entered into a Facility Agreement Dated September 27, 2017 ("Facility Agreement‟ herein referred as FA) with Williamson Magor & Company Limited ("Borrower No. 1"), Williamson Financial Services Limited ("Borrower No. 2"), Mr Aditya Khaitan ("Guarantor") and Mr Amritanshu Khaitan ("Guarantor") and Babcock Borsig Limited ("Obligor'').
(v) Under the said FA, a sum of INR 100,00,00,000.00 (Indian Rupees One Hundred Crore only), each was provided to the Borrowers.
(vi) As per the FA, the credit facilities were guaranteed by an irrevocable and unconditional personal guarantee by way of a Deed of Personal Guarantee dated September 26, 2017 („Deed of Personal Guarantee „for short), executed by the Guarantors in favour of Respondent No. 2, whereby they had undertaken to pay the outstanding amounts and discharge all liabilities of the borrowers under the FA. In addition, the Guarantors had provided indemnity to the Respondents against all loses and claims etc.
(vii) On account of failure of the Borrowers, the Guarantors, and the Obligor to discharge their liability to repay the said loans, the Respondent No.1 invoked the jurisdiction of this Court under Section 9 of the Arbitration and Conciliation Act, as there was an arbitration agreement in the FA, to seek a restraint against the Borrowers, Guarantors, Obligor and the Appellants herein, from dealing with their assets, on the premise that, apart from FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 5 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 the Borrowers, Guarantors and Obligor, the Appellants -
described in the FA as Reference Entities (RE), were also liable to be injuncted from dealing with their assets, as they are group companies. Respondent No. 1 sought to invoke the Group Companies Doctrine to reach out to the Appellants - REs. By the impugned order, the Ld. Single Judge found merit in this submission of respondent No.1 and, consequently, injuncted the Respondents in the O.M.P, including the three Appellants in these appeals.
(viii) It was the case of the Respondents in the petition filed under Section 9 of the Arbitration and Conciliation Act, 1996 („Act‟, for short) that the credit facility under the FA was advanced to borrowers after due verification of the credit worthiness of the group companies as a whole, including the Appellants (Respondent No. 5-7 in the section 9 Petition)
(ix) The borrowers were required to create multiple securities according to the timeline stipulated in the agreement, to ensure collateral cover of the loan outstanding, by way of pledge over the equity shares of McLeod Russel India Limited and/or Eveready Industries India Limited and/or create security - by way of mortgage over properties acceptable to the Respondent No.1.
(x) It was stated by the Respondents that the Guarantors and the Promoter Group were barred from selling, transferring, or disposing off any shares of Appellants herein, without the prior consent of the Respondents.
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 6 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30(xi) It was also stated that there was serious capital reduction in the aggregate shareholding of the promotor group in the Appellants, breaching multiple clauses related to encumbrance of shares, which were held as security against the loan.
(xii) It was alleged that the Guarantors had failed to discharge the various liabilities towards the Respondent No. 1. Vide the Order dated 13.12.2019 the Learned Single Judge had restrained, inter alia, the Appellants as under:
(a) restrained from selling, transferring, alienating, disposing, assigning, dealing or encumbering or creating third party rights on their assets, till the next date of hearing.
(b) restrained from carrying out any change in its capital structure, or any Corporate or debt restructuring, till the next date of hearing; and
(c) directed to file an affidavit providing the details of their tangible or intangible assets held by them as on 31.03.2019 as well as on 30.09.2019, before the next date of hearing.
(xiii) Subsequently, vide the Impugned Order dated 23.11.2020, the Learned Single Judge dismissed the application filed on behalf of the Appellants for vacation of the interim injunction.
4. The present appeals are filed, praying for setting aside the order dated 23.11.2020 passed by the Ld. Single Judge, to the extent that the Appellants were restrained from selling, transferring, alienating, disposing, assigning, dealing or encumbering or creating third party rights on its assets, and FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 7 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 restraining the Appellants from carrying out any change in their capital structure, or any corporate or debt restructuring, during pendency of the arbitral proceedings, and for granting of stay on the operation of the order dated 13.12.2019 to that extent. Submissions of behalf of the Appellants
(i) Learned Senior Counsels on behalf of the Appellants Mr. D.J Khambata, Mr. Sandeep Sethi and Mr. Jayant Mehta submit that the Appellants in the present appeal do not have any privity of contract with the Respondent - Lenders, and they have no legally binding obligation or liability qua repayment of the facility, as they are not a party to the FA, nor beneficiaries of the amounts borrowed under the FA. They submit that the Court had no jurisdiction, while dealing with the petition under Section 9 of the Arbitration and Conciliation Act, 1996 to pass any injunctive order against them, who are strangers to the FA and, consequently, the Arbitration Agreement. They have placed reliance on the definitions of a Guarantor [Clause 1.1.1 (mm)], Obligor [Clause 1.1.1(ccc)], Pledgor [Clause 1.1.1 (lll` )], Security Provider [Clause 1.1.1(bbbb)] and a Reference Entity [Clause 1.1.1 (sss)] contained in FA. The Appellants are only described as Reference Entities with no obligations, whatsoever, under the FA.
(ii) They further submit that the FA does not provide for any enforcement against the Reference Entities, nor the promoter group as a whole. All liabilities for repayment of the loan facility have been only fastened on the Borrowers, Guarantors and Obligers in their personal capacities. They further place reliance on the Interpretation clause FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 8 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 1.2 (a)(i), 1.2 (c); Repayment Clause 4.1 - which casts obligation of repayment of the principal amount by the Borrowers; Security Clause 5.1-5.6; Representation & warranties and Enforcement obligations listed in Clause 6.1 and 6.1.3; Various Affirmative, Negative and Information Covenants as per Clause 7.1-7.3, and Clause 9.6.1 which provides complete Indemnity to the Lenders.
(iii) They further submit that the intention of the parties must be gathered from the express words used in the FA. The FA should be interpreted giving the actual meaning to the words contained in the contract. Reliance is placed on Central Bank of India Ltd. v. Hartford Fire Insurance Co. Ltd, AIR 1965 SC 1288 and Rajasthan State Industrial Development & Investment Corporation v. Diamond &Gem Development Corporation Ltd. (2013) 5 SCC 470
(iv) Ld. Senior Counsels further submit that the injunction granted by the Ld. Single Judge is beyond the scope of the section 9 petition, and the injunction could have been granted, only in respect of the „encumbered assets‟ as defined under Clause 1.1.1 (x) of the FA, and not qua the assets of the Appellants. The invocation of the Group Company Doctrine is vehemently contested by them. The assets of the Appellants do not form the subject matter of the FA, and could have only been reached, if the corporate veil was pierced, which was not even attempted by the Ld. Single Judge.
(v) Ld. Counsels submit that the Ld. Single Judge has erred in invoking of the Group Company Doctrine. In support of this submission, it is argued that:
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 9 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30(a) Firstly, the grounds citied in the impugned order are not sufficient for the invocation of the Group Companies Doctrine:-
i. As the Appellant is not a party to the FA, rather it is a stranger to the agreement;
ii. The Appellant was not involved in the negotiations of the FA. The discussions cited in the impugned order were with respect to another distinct loan facility sought to be granted to the Appellant, which never fructified; iii. There is no existence of a tight group structure, or an indication that the Appellants and the borrowers function as a single economic entity
(b) Secondly, the Appellants have been wrongly held as controlled entities of the Borrowers, Guarantors, Obligors, Promoter group as, neither the Borrowers, nor Guarantors, nor the Obligors, nor the Promoter group held more than 50% of the equity shares of the Appellants on the date of execution of the FA, nor on the date of the impugned order. The Appellants also do not fall under the definition of "Controlled Entity" as per clause 1.1.1
(q) of the FA, as:-
(i) The Borrowers, Guarantors, Obligors or Promoter group do not have the power to appoint more than half the members of the Board of Directors;
(ii) Any member of the Appellant‟s Promoter Group or its Managing Director cannot necessarily be held to have control over the company. The individual Directors/ Managing Directors, as per the Articles of Association of FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 10 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 the Appellants, are subjected to the control of the Board of Directors, and do not have the power to enter into agreements, or undertake liabilities on behalf of the Appellants. Rather, the guarantees extended by Mr. Aditya Khaitan and Mr. Amritanshu Khaitan were completely personal in nature.
(iii) The Emails relied upon by the Ld. Single Judge do not show any role or involvement of the Appellants, nor depict any liabilities under-taken by the Appellants qua the facilities. All information that was provided to the Guarantors upon their requests, was already existing in the public domain and the use of the common domain email was merely a prevalent industry practice.
(iv) The actions of the Directors/ Managing Director, detrimental to the interest of the shareholders of the Company, are not valid in law, as they breach the fiduciary duties of the Directors. Therefore, they do not bind the appellant companies:
(v) The Appellant companies being public companies, with large number of shareholders, have their own personality, which cannot be held as the alter ego of the individual persons involved.
(vi) The Appellants have further stated that the company EIIL was undergoing restructuring, and a consortium was considering different restructuring plans when the injunctions came on. This has caused grave difficulties FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 11 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 for the Appellant EIIL, who is a stranger to the FA. They are not able to raise any fund/ working capital for meeting their day-to-day requirement, despite options being available to them, as EIIL is unable to create/ modify any security. They have relied on State Bank Of India Vs Ericsson India Pvt. Ltd, (2018) 16 SCC 617.
(c) Thirdly, the test propounded in Chloro Controls India v Sereven Trent Water Purification, (2013) 1 SCC 641 had been wrongly applied in the facts of the present case. They place reliance on Gatx India Pvt. Ltd v Arshiya Rail Infrastructure Limited, 2014 SCC Online Del 4181.
Submissions on behalf of the Respondents
5. On the other hand, Ld. Senior Counsels Mr. N.K Kaul and Mr. Akhil Sibal appearing on behalf of the Respondents sought to defend the impugned order, contending that Learned Single Judge has rightly dismissed the applications of the Appellants seeking vacation of the Order dated 13.12.2019. They submitted that:
(i) The Appellants are intricately and intrinsically connected to the FA by which the respondent No. 1 and 2 extended the loan facility. The loans under the FA were extended to the borrowers after due verification of the credit worthiness of the group companies, as a whole, which included the three Appellant companies. The borrowers are shareholding companies in the Williamson Magor group, possessing no assets of their own, and they existed merely for the purposes of raising funds for their group companies. The Facility was granted to them only because the Williamson Magor Group - as a FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 12 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 whole, came forward through its pivotal individuals viz. Mr. Aditya Khaitan and Mr. Amritanshu Khaitan - the Guarantors, who are in effective control of the management of the group companies - including the Appellants.
(ii) The primary purpose of availing the loan was to finance the debt of one of the Appellants MRIL. This has been explicitly mentioned in the FA in End Use clause 2.3 (a)(i) and the Chartered Accountant‟s Certificate.
(iii) The Ld. Single Judge has rightly found the Appellants to be security providers defined as (i) Pledger; (ii) Any other person „creating security‟ under the security documents, as they were to create security on various assets and properties as per Clauses dealing with security, namely, Clauses 5.1 (e), 5.8, 5.9, 5.10, 5.11 and 5.12 of the FA.
Additionally, one of the Appellants, MBECL executed the pledge agreement which was a security document under the FA as per clause 1.1.1(xxx), which also included all documents executed pursuant to clause 5.
(iv) The Appellants were rightly held as Obligors as per clause 1.1.1(ccc), which define „Obligors‟ as Borrowers, Security Provider and Guarantors
(v) The FA includes specific clauses relating to the Appellants, and imposes considerable duties and liabilities on them, which were essential for performance of the agreement either as a promoter group company, Reference Entity, Security Provider, or Obligors. All critical clauses, such as Event of Default, Requirement to maintain a FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 13 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 certain EBITDA ratio, End Use etc. are related specifically to the Appellants, as it was on their strength that the Facility was extended.
(vi) Reliance is placed on a tabulation. The description of the parties in this tabulation is as per the memo of parties of the O.M.P. It has submitted, that the tabulation clearly brings out how - under the Clauses of the FA, the Appellants - who were described as Reference Entities in the FA, qualify as "Promoter Group Companies", and "Obligors" - as defined in the FA. The tabulation also, by reference to the clauses of the FA, shows that obligation was cast on the Appellants to create security, in order to secure the Facility. The various Representations and Warranties offered under the FA qua the Appellants have also been highlighted. Other covenants relating to the Reference Entities have also been highlighted, to claim that the Facility/ Loan was advanced to the borrowers - part of the Promoter Group Companies, with obligation which, inter alia, related to and bound the Appellants - Reference Entities. The tabulation is reproduced herein:
S.N Clause No. Reference Implication o.I. FACILITY WAS FOR BENEFIT OF RESPONDENT NO. 6
1. 2.3 read 2.3 END USE One of the uses of with (a) The Borrowers shall apply the facility was C.A. the amounts borrowed by it repayment of Certifica under the Facility in accordance existing loans / te @ Pg. with Applicable Law for the advances extended No. 269 purpose of meeting the by R-6 to R-1 and following costs: R-2 and infusion FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 14 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
(i) Repayment of the existing of funds into R-6 loans/ advances extended by thus, making it a MRIL to the Borrowers or beneficiary of infusion of proceeds into MRIL loan.
solely for the purpose of reduction of debt
2. 2.1 FACILITY Subject to the terms of this Agreement, the Lenders make available to Borrower 1 an INR term loan facility in an aggregate being Rs.
100,00,00,000 (Rupees One Hundred Crores only) and Borrower 2 an INR term loan facility in an aggregate being Rs.
100,00,00,000 (Rupees One Hundred Crores only) (collectively referred to as "Facility") for the Tenor. The Facility may be drawn down by the Borrowers within the relevant Availability Period in accordance with the terms and conditions of this Agreement in one or more tranches.
3. 7.1.11 End-Use The proceeds of the Facility shall at all times be utilised for the purposes as mentioned in clause 2.3 of this Agreement.
II. RESPONDENTS NO. 5-7 ARE PROMOTER GROUP FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 15 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 COMPANIES
4. 1.1.1.(p) "Control" (including, with A combined correlative meaning, the terms reading of these "controlled by" and "under clauses makes common control with") of a it is clear that Person means (a) ownership of Respondent more than 50% (Fifty per cent) No. 5-7 are part of the equity shares, voting of Promoter rights or other ownership Group as these interests of such Person; or (b) are entities the power to appoint more than controlled by half of the members of the board the Guarantors. of directors; or (c) the power to Respondent direct the management or No. 3 and 4 are policies of a Person, whether Managing through the ownership of Director of and voting rights, power to appoint Director of R-6 directors or similar governing respectively body of such Person, or and vice-a through contractual or other versa in case of arrangements. Respondent No.7 and therefore, have power to direct management or policies of these companies through the ownership of voting rights, power to appoint FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 16 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 directors or similar governing body or through contractual or other arrangements.
Further R-1 to
R-4 are
promoter group
of Respondent
No. 5-7 and
therefore, in a
position to
exercise control
over the
policies of
management.
Shareholding
pattern of the
Respondent
No. 5 [@117-
121, Vol. 1 of
P‟s Docs.]
shows that
Respondents
No. 4, 1, 2, 6 &
8 are part of
"Promoter
Group"
Shareholding
pattern of the
Respondent
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 17 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
No. 7 [@ 122-
127, Vol. 1 of
P‟s Docs.]
shows that
Respondents
No. 3, 4, 1, 2, 6
& 8 are part of
"Promoter
Group"
Shareholding
pattern of the
Respondent
No. 2 [@ 128-
131, Vol-1 of
P‟s Docs.]
shows that
Respondents
No. 4, 6, & 1
are part of
"Promoter
Group"
Shareholding
pattern of the
Respondent
No. 6 [@ 136-
139, Vol-1 of
P‟s Docs.]
shows that
Respondents
No. 3, 4, 1, 2,
8, & 7 are part
of "Promoter
Group"
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 18 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
5. 1.1.1(q)"Controlled Entity" in relation to any Person(s), is any other Person on whom such first Person exercises Control.
6. 1.1.1.(oo "Promoter Group" shall mean:
o) Each of the Guarantors
(i) Kilburn Engineering Limited;
(ii) Babcock Borsig Limited;
(iii) Bishnauth Investments
Limited;
(iv) Woodside Park Limited;
(v) Ichamati Investments
Limited;
(vi) United Machine Co.
Limited;
(vii) Zen Industrial Services Limited;
(viii) Nitya Holdings &
Properties Limited;
(ix) Dufflaghur Investments
Limited; and
(x) Any other Controlled
Entity of the
Guarantor(s)
III. RESPONDENTS NO. 5 TO 7 ARE "REFERENCE ENTITIES"
7. 1.1.1.(ss "Reference Entity" shall mean Respondents No. 5
s) (i) McNally Bharat to 7 are Reference Engineering Company Entities, which Limited, a public listed also form part of company incorporated in India Promoter Group and validly existing as a and have FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 19 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 company for the purposes of undertaken Companies Act 2013 with its various registered office at Four Mangoe obligations under Lane, Surendra Mohan Ghosh the Facility Sarani, Kolkata- 700001 and Agreement corporate identification number L45202WB1961PLC025181 ("MBECL"); (ii) McLeod Russel India Limited, a company incorporated in India and validly existing as a company for the purposes of Companies Act 2013 with its registered office at Four Mangoe Lane, Surendra Mohan Ghosh Sarani, Kolkata-700001 and corporate identification number L51109WB1998PLC087076 ("MRIL"); and (iii) Eveready Industries India Limited, a company incorporated in India and validly existing as a company for the purposes of Companies Act 2013 with its registered office at 1, Middleton Street, Kolkata-700071 and corporate identification number L31402WB1934PLC007993 ("EIIL").
8. 1.1.1(rrr "Reference Controlled ) Entities" shall mean the Controlled Entities of the Reference Entity, the Borrowers, FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 20 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 the Guarantors and/or the Obligors.
IV. RESPONDENTS NO. 5 TO 7 ARE "OBLIGORS"
9. 1.1.1(cc "Obligors" shall mean the A combined
c) Borrowers, the Security reading of these Providers and the Guarantors clauses establishes that the Respondents 5 to 7 are Obligors as they are Security Providers, who had to create Security on the various assets and properties as noted in Clause 5 of the Facility Agreement.
10. 1.1.1(bb "Security Provider" shall mean bb) (i) the Pledgors; and (ii) any other person creating Security under the Security Documents
11. 1.1.1(aa "Security" shall mean the aa) security interests created on the various assets and properties as noted in clause 5 hereof.
12. 1.1.1(xx "Security Documents" shall
x) mean each of the agreement or deed or document (each as amended from time to time) executed by any of the Borrowers, the Guarantors and the Obligors for the benefit of FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 21 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 the Lenders and/or the Identified Lenders or any of them for creation and perfection of Security or guarantee as required in terms of clause 5 hereof, including but not limited to the following:
(i) this Agreement;
(ii) Security Trustee
Agreement dated
September 27, 2017
between Williamson
Magor & Co. Limited as
Borrower 1, Williamson
Financial Services
Limited, as Borrower 2
and Lenders.
(iii) Hypothecation Deed to
be executed between the
Parties;
(iv) Pledge Agreement dated
September 27, 2017
between Williamson
Magor & Co. Limited,
Williamson Financial
Services Limited,
Babcock Borsig Limited
and KKR India Financial
Services Private Limited;
(v) Personal Guarantees dated
September 26,
2017.issued by Mr. Aditya
Khaitan and Mr.
Amritanshu Khaitan in
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 22 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
favour of;
(vi) Demand Promissory Note
dated September 27,
2017issued by Borrower 1
and Borrower 2 in favour
of the Security Trustee;
(vii) Letter of Continuity of
Demand Promissory Note
dated September 24th,
2017.issued by Borrower
1 and Borrower 2 in
favour of the Security
Trustee; and
(viii) Security document to be executed pursuant to the provisions of Clause 5 of this Agreement.
(ix) any declarations, certificates, powers of attorney and/or other document designated as such by the Security Trustee or the Lenders in terms of Financing Documents or executed by the Borrowers, the Guarantors and/or the Obligors with the Lenders and/or the Security Trustee;
13. 1.1.1(ee) "Financing Documents" means this Agreement, any inter creditor agreement, each of the Security Documents, the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 23 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Security Trustee Agreement, and any other agreement or deed or document executed by any of the Borrowers, the Guarantors and the Obligors for the benefit of the Identified Lenders or any of them.
V. GUARANTORS
14. 1.1.1(m Guarantor Respondent no. 3
m) read and 4 are with guarantors and Schedul therefore, e1 Respondent No. 5-
7 are part of
promoter group
for them being
controlled by the
Respondent No.3
and 4 in terms of
Cl. 1.1.1(ooo)(x)
VI. SECURITY TO BE CREATED BY RESPONDENT NO. 5 TO 7
15. 5.1 (e) The Loans and all Loan A Letter of Outstanding Amounts, including comfort was to be all Cash Interest, Default issued by R-6 as Interest, Redemption Interest all part of Security. and any other costs, charges, expenses, fees or amounts payable to any of the Lenders and/or the Security Trustee under the Financing Documents and all other obligations and undertakings of the Borrowers, FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 24 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 the Guarantors and the Obligors under the Financing Documents shall be secured by:
(a) to (d) XXXX
(e) A letter of comfort to be issued by MRIL in a form acceptable to the Lenders.
16. 5.8 The Borrower shall ensure that Security was to be within a period of 18 months created by R-6 & from the first Disbursement R-7 in terms of Date, Security is created by way these clauses in of pledge over equity shares of order to keep the MRIL and/or EIIL and/or Petitioners mortgage by way of a mortgage secured. over properties acceptable by Therefore, it was Lenders ("New Security"). The on their strength New Security shall be created to that the loan was ensure that the Collateral Cover extended by for the Loan Outstanding Petitioners to R-1 Amounts shall be at least 1.5x & R-2.
Notes:
1. As on 31.03.2019, the Respondents failed to create the "New Security"
and failed to
ensure that the
collateral cover
over the new
security is at least
1.5 times of the
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 25 of 95
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Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
loan outstanding
amount as
stipulated in
Clause 5.8.
2. As on
30.09.2019, the
Respondents
failed to ensure
that the collateral
cover over the
new security is
increased to 2.0
times of the loan
outstanding
amount as
stipulated in
Clause 5.9.
17. 5.9 On or before expiry of 24
months from the first
Disbursement Date, the
Borrower shall ensure that
Collateral Cover over the New
Security is increased to 2.0X of the Loan Outstanding Amount
18. 5.10 Upon the breach of Collateral Cover as provided in Clause 5.8 or 5.9 above, the Borrower and/or Promoter Group shall provide incremental shares as pledge ("Top-up Shares"), within 5 Business Days, so that the Collateral Cover is maintained as per Clause 5.8 or FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 26 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 5.9 above.
19. 5.11 Borrower and/or Promoter Group shall have the option of providing cash collateral in lieu of Top-up Shares, in which case, the cash collateral provided shall be adjusted against the Loan Outstanding Amount
20. 5.12 Collateral Cover to be in the form of mortgage over real estate properties acceptable to the Lender and/or equity shares of MRIL / EIIL
21. 1.1.1(ee "Overall Rate" shall mean an
e) IRR of 16 % per annum. At the time the minimum Collateral Cover of the Security Interest created by the Promoter Group and Reference Entity/ Borrowers reaches 1.5x, an IRR of 14.5%per annum; or if the minimum Collateral Cover of the Security Interest created by the Promoter Group and Reference Entity/ Borrowers reaches 2.0x, an IRR of 12.5% per annum VII. REPRESENTATIONS & WARRANTIES MADE QUA CORPORATE STRUCTURE OF RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES
22. 6.1.2 (d) 6.1.2 Corporate Since the facility and (e) (a) XXX availed by R-1 &
(b) XXX R-2 was granted FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 27 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
(c) XXX on the strength of
(d) As on the date of R-5 to 7, it was execution of this imperative that Agreement and the first certain corporate Disbursement Date, the structure is shareholding of the maintained by R-5 Reference Entity, to R-7. Hence, Borrowers and the these Obligors is as provided in representations Schedule 6.1.2(d) and warranties qua (Shareholding Pattern) the corporate hereof. structure of R-5 to
(e) The Reference Entity, R-7 were provided Promoter Group, by the Borrowers and/or the Respondents.
Obligors or any of their directors do not appear on the RBI‟s list of defaulters and ECGC‟s caution list.
VIII. REPRESENTATIONS & WARRANTIES MADE QUA ENFORCEABLE OBLIGATIONS OF RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES
23. 6.1.3 6.1.3 Enforceable Obligations Since the facility
(a) XXX availed by R-1 &
(b) XXX. R-2 was granted
(c) XXX on the strength of
(d) No event or occurrence R-5 to 7, it was which could be said to imperative that have a Material Adverse these Effect on the Reference representations Entity, the Borrowers, the and warranties qua Guarantors or the enforceable Obligors or on their obligations qua R-
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 28 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30respective businesses or 5 to R-7 were assets exists or is provided by the reasonably likely to exist. Respondents.
(e) to (f) XXX
(g) The operations of the Reference Entity, Borrowers, the Guarantors and the Obligors are conducted in compliance with all Applicable Laws and the Borrowers, the Guarantors and/or the Obligors have not received any notice or other communication from any court, tribunal, arbitrator, governmental agency or regulatory body with respect to an alleged, actual or potential violation and/or failure to comply with any Applicable Laws.
IX. REPRESENTATIONS & WARRANTIES MADE QUA LEAGL PROCEEDINGS AGAINST OBLIGATIONS OF RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES
24. 6.1.4 6.1.4 Legal Proceedings Since the facility There are no Legal Proceedings availed by R-1 & pending or threatened, or any R-2 was granted written notices received by the on the strength of Reference Entity, the R-5 to 7, it was Borrowers, the Guarantors imperative that the and/or the Obligors which R-5 to R-7 were would result into any Legal not faced with Proceedings, in India or any legal proceedings other jurisdiction (a) against the either pending or FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 29 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Reference Entity, the Borrowers, threatened. Any the Guarantors and/or the such pendency of Obligors, (b) any properties or legal proceedings rights of the Borrowers, the would have Guarantors and/or the Obligors, material impact on
(c) relating to businesses or loan provided by operations of the Borrowers, the the Petitioners. Guarantors and/or the Obligors, Hence, the or (d) regarding the legality or Respondents enforceability or effectiveness or provided the validity or performance of any representations & of the Financing Documents warranties in these and/or any of the Clearances that terms. have been obtained, and (e) that would prevent the exercise and the enforcement by each of the Lenders and the Security Trustee of their respective rights under the Financing Documents to which they are a party or the remedies in respect of thereof. X. REPRESENTATIONS & WARRANTIES MADE QUA ACCOUNTS OF RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES
25. 6.1.5 6.1.5 Accounts Since the facility
(a) The books of accounts of availed by R-1 & the Reference Entity, R-2 was granted Borrowers and Obligors on the strength of have been properly R-5 to 7, it was maintained in accordance imperative that the with Applicable Law. R-5 to R-7
(b) The accounts of the maintained their Reference Entity, Accounts in the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 30 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Borrowers and Obligors manner provided have been prepared using herein. Hence, the GAAP, applied on a Respondents consistent basis; and are provided the true and fair and disclose representations & all liabilities (whether warranties in these actual or contingent). terms.
(c) There are no known unaccounted liabilities of the Reference Entity, Borrowers and the Obligors except to the extent disclosed in the latest financial statements of the Reference Entity, Borrowers and the Obligors. The Reference Entity, Borrowers and/or the Obligors do not have any (i) material claims against them, (ii) material liabilities or (iii) Indebtedness, whether direct, indirect, contingent, absolute, accrued or otherwise, nor is there any condition, fact or circumstance that will create such claim, obligation, liability or Indebtedness, except as required to reflect the transactions contemplated FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 31 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 by this Agreement.
(d) There have been no change in the financial or operational position of the Reference Entity, Borrowers and/or the Obligors which has caused or could reasonably be expected to cause any Material Adverse Effect.
(e) The Reference Entity, Borrowers and the Obligors which are companies maintain systems of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or specific authorisations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, (iii) access to assets is permitted only in accordance with management's general or specific Clearance, and FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 32 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
(iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(f) The Reference Entity, Borrowers and the Obligors have made and kept books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of such entity and provide a sufficient basis for the preparation of its respective financial statements in accordance with applicable GAAP.
XI. REPRESENTATIONS & WARRANTIES MADE QUA INSOLVENCY OF RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES
26. 6.1.8 6.1.8 Insolvency Since the facility
(a) The Reference Entity, availed by R-1 & Borrowers, the Guarantors R-2 was granted and/or the Obligors are on the strength of not insolvent or unable to R-5 to 7, it was pay their debts, and none imperative that the of their creditors has R-5 to R-7 were FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 33 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 presented any petition, not faced with any application or other event of proceedings for any insolvency. Any administration order, such event of creditors‟ voluntary insolvency would arrangement or similar have material relief by which their impact on loan affairs, business or provided by the business assets are Petitioners. Hence, managed by a Person the Respondents appointed for the purpose provided the by a court, governmental representations & agency or similar body, or warranties in these by any creditor or by the terms.
entity itself nor has any such order or relief been granted or appointment made.
(b) No order has been made, no petition or application presented, no resolution passed and no meeting convened for the purpose of winding-up/insolvency of the Reference Entity, Borrowers, the Guarantors and/or the Obligors or whereby their assets are to be distributed to creditors or shareholders or other contributories nor have they received written notice of any receiver FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 34 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 (including an administrative receiver), liquidator, trustee, administrator, supervisor, nominee, custodian or similar official having been appointed in respect of the whole or any part of their businesses or assets.
XII. REPRESENTATIONS & WARRANTIES MADE QUA INSURANCE POLICIES TO BE MAINTAINED BY RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES
27. 6.1.10 6.1.10 Insurance Since the facility All insurance contracts/policies availed by R-1 & required or advisable in relation R-2 was granted to the businesses and operations on the strength of of the Reference Entity, R-5 to 7, it was Borrowers, the Guarantors and imperative that the the Obligors and/or in terms of R-5 to R-7 the Financing Documents have maintained the been put in place at the times insurance policies and in the manner required in the manner herein and are, as contemplated provided herein. herein, in full force and effect, Hence, the and the Borrowers, the Respondents Guarantors and the Obligors provided the have complied with all their representations & obligations under the insurance warranties in these contracts/policies and no event terms. or circumstances has occurred nor has there been any omission to disclose a fact which in any FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 35 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 such case would entitle any insurer to avoid or otherwise reduce its liability thereunder to less than the amount provided in the relevant policy and insurance coverage provided by such insurance. The Borrowers, the Guarantors and the Obligors have not defaulted in payment of any premium in relation to any insurance contract/policy procured by them. The Borrowers, the Guarantors and the Obligors shall provide the Security Trustee copies of cover notes of the insurance contracts procured by them.
XIII. OTHER REPRESENTATIONS & WARRANTIES MADE QUA RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES
28. 6.1.12 6.1.12 Others Since the facility
(a) No event has occurred availed by R-1 & that has caused or is R-2 was granted capable of causing, a on the strength of Material Adverse Effect. R-5 to 7, it was
(b) None of, the directors imperative that the and/or the promoters of, R-5 to R-7 did not the Reference Entity, cause any Material Borrowers, the Guarantors Adverse Effect in and/or Obligors, have the manner been barred from provided herein. accessing the capital Hence, the markets by the Securities Respondents and Exchange Board of provided the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 36 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 India nor are the shares of representations & any of the Reference warranties in these Entity, Borrowers, the terms.
Guarantors and / or
Obligors (if they are A bare perusal of
listed) been suspended terms in Clause 6
from trading. such as:
non-inclusion
in the RBI‟s
defaulter‟s list;
no events
constituting
Material
Adverse Effect
on R-5 to R-7;
no pendency of
legal
proceedings
against R-5 to
R-7;
maintenance of
books of
accounts of R-5
to R-7 in a
particular
manner;
no insolvency
proceedings
against R-5 to
R-7
shows that R-5 to
R-7 were part of
this transaction
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 37 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
and are duly
bound by these
clauses.
The fact that R-3
and R-4 had the
power and
authority to
control the
shareholding of R-
5 to R-7 shows
that these
companies are
controlled by R-3
and R-4.
Lastly, a
combined reading
of all these clauses
clearly indicate
that R-5 to R-7
have important
and crucial role in
this loan
transaction. All
critical clauses
relate to them. The
purpose of these
clauses is to
secure the
Petitioners.
Therefore, if the
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 38 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
order dated
13.12.2019 is
vacated then the
Petitioners will be
left empty handed
despite admitted
dues of Rs. 293
Crores (Approx.)
as R-1 to R-4 have
no assets of its
own to secure the
Petitioners.
29. 1.1.1 "Material Adverse Effect"
(bbb) shall mean the effect or
consequence of an event,
circumstance, occurrence or
condition which, in the sole
opinion of the Lenders, has
caused, as of any date of
determination, or could be
expected to cause, a material and adverse effect on:
(i) the financial condition, carrying of business, operations, assets or prospects of any of the Borrowers, the Guarantors and/or the Obligors and/or the Reference Entity;
(ii) the ability of the Borrowers, the Guarantors or any Obligor to perform or comply with its obligations FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 39 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 under any of the Financing Documents or in relation to the Identified Debt;
(iii) the legality, validity, binding nature or enforceability of any of the Financing Documents (including the ability of any Finance Parties to enforce any of its remedies under the Financing Documents);
or
(iv) the validity, legality or enforceability of any Security expressed to be created pursuant to any Financing Documents or on the priority and ranking of any of that Security.
XIV. AFFIRMATIVE COVENANTS OF RESPONDENTS NO. 5 TO 7 AS REFERENCE ENTITIES
30. 7.1 7.1.1 Inspection and Since the facility Compliance availed by R-1 &
(a) xxx R-2 was granted
(b) The Borrowers and on the strength of Guarantors shall ensure R-5 to 7, it was that the Reference Entity imperative that the does not at any time R-5 to R-7 do not become a private limited change their company, except with the corporate structure consent of the Majority by becoming a Lenders and subject to private limited any changes to the company. Further, FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 40 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Security Documents R-5 to R-7 were required by the Lenders required to present and/or the Security the true state of Trustee having been made affairs by to their satisfaction. maintaining their 7.1.2 Books of accounts and filing etc. of The Borrowers and the their books of Guarantors undertake in respect accounts in the of the Reference Entity, the manner provided Borrowers, the Guarantors and herein. the Obligors:
(a) to keep such adequate accounting and control systems, management information systems, books of account, and other records as are required to be maintained under Applicable Law and such accounts as are adequate to reflect truly and fairly the financial condition and results of operations in conformity with GAAP consistently applied and all requirements of Applicable Law.
(b) to ensure that its financial statements for each financial year give a true and fair view of the state of affairs of the Person in FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 41 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 respect of whom such statement has been prepared in each case in accordance with GAAP consistently applied.
(c) to ensure its audited financial statements for each financial year are prepared promptly and in any case within 45 (forty five) days of the end of each such financial year and in preparation of such financial statements apply all accounting policies in a consistent manner in accordance with GAAP.
(d) to file all relevant tax returns within the time permitted by the authorities.
XV. NEGATIVE COVENANTS OF RESPONDENTS
31. 7.2 7.2.3 The Borrowers, the At the time of Guarantors and the Promoter filing of this Group shall not: petition, the
(a) issue any fresh equity or aggregate preference shares or any shareholding of other instruments the Promoter convertible into equity or Group (i) in preference shares by the Respondent No. 6 Reference Entity; has reduced from
(b) sell, transfer or dispose 49% to 27% (of off or allow any of the the entire share FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 42 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 entities listed in Schedule capital) and (ii) in 6.1.2(d) (Shareholding Respondent No. 7 Pattern) hereof to sell, has reduced from transfer or dispose off the 44% to 31.1% (of shareholding in the entire share Borrowers which are capital).
companies, save and except as maybe permitted under this Agreement.;
(c) sell, transfer or dispose
off shares any of the
Reference Entities held by
the Promoter Group
without prior consent of
the Lenders.
32. 7.2.4 The Guarantors and the As of 30.09.2019,
Promoter Group shall at all the aggregate
times hold shares aggregating to value of
a value of INR 750,00,00,000 of unencumbered
Eveready & McLeod Russell shares of
free and clear from Respondent No. 6
Encumbrance. & 7 is INR 16
crores as opposed
to INR 750 crores.
This is primarily
because of the fact
that the aggregate
number of shares
unencumbered
since the entry
into the Facility
Agreement has
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 43 of 95
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Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
drastically reduced
(i) in respect of R-
6 from 3.9 crores
unencumbered
shares to mere 10
lakh
unencumbered
shares; (ii) in
respect of R-7
from 2.02 crores
unencumbered
shares to mere 35
lakh
unencumbered
shares. This has
further been
affected by a sharp
drop in the share
prices
33. 7.2.6 7.2.6 The Guarantors and the The aggregate
Promoter Group shall not number of shares
Encumber any shares held by encumbered since
the Guarantors and the Promoter the entry into the
Group in the Reference Entities Facility
save and except as disclosed by Agreement
the Promoter Group as on the significantly
date of this Agreement or as increased from (i)
provided under this Agreement in respect of R-6,
or as required to be Encumbered 14.3% to 26.5%;
as "top-up" shares in accordance and (ii) in respect with the provisions of existing of R-7, 16.3% to security creation arrangements. 26.3% (in each case of the entire FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 44 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 share capital).
Therefore, the
entire
shareholding of
the Promoter
Group is now
pledged (almost
98% in
Respondent No. 6
and 85% in
respondent No. 7,
as percentage of
the shareholding
held by them).
XVI. INFORMATION COVENANTS OF RESPONDENTS
34. 7.3.3 The Borrowers shall provide Obligation to „MIS reports‟ in respect of the provide MIS Reference Entity, Borrowers, the reports, unaudited Guarantors and the Obligors and audited containing details and in a form financial as required by the Lenders, to statements at the the Lenders within 15 (fifteen) end of every calendar days of the end of quarter and every Fiscal Quarter. compliance certificate showing compliances by R-
5 to R-7 was only
due to the fact that
the Facility
Agreement was
extended basis
their financial
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 45 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
strength.
Further, the
Petitioners have
produced emails
showing
compliance of
these terms by R-6
& R-7, thus
establishing that
these respondents
fulfilled their
obligations under
the Facility
Agreement by
undertaking to be
bound by the
terms of the
Facility
Agreement.
35. 7.3.4 The Borrowers shall deliver
unaudited financial statements (standalone and consolidated) in respect of the Reference Entity, Borrowers, the Guarantors and the Obligors for each financial quarter to the Lenders within 15 (fifteen) calendar days of the end of each financial quarter and the audited financial statements (standalone and consolidated) and signed annual reports in respect of the Reference Entity, FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 46 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Borrowers, the Guarantors and the Obligors to the Lenders within 45 (forty five) calendar days of the end of each financial year.
36. 7.3.5 The Borrowers shall provide read Compliance Certificate (based with such to be provided by an Schedul Authorized Officer who is a e 1.1.1 Director in respect of the
(n) Reference Entity, Borrowers, the [Point 4] Guarantors and the Obligors within: (a) 15 (fifteen) calendar days of the end of every Fiscal Quarter based on the unaudited financial statements, and (b) 45 (forty five) calendar days of the end of each financial year.
XVII. FINANCIAL COVENANTS OF RESPONDENTS
37. 7.4 7.4.1 Each of the Borrower Obligation to shall at all times comply with maintain a certain the following on a consolidated percentage of basis: EBITDA ratio of
(a) Gross Primary Debt to R-6 and R-7 LTM EBITDA Ratio: In shows that their respect of MRIL, Gross financial strength Primary Debt to LTM was crucial for EBITDA Ratio shall be securing the dues less than or equal to the of the Petitioners.
ratio set out in respect of
the periods below Further, the
Covena Fro Fro Fro Petitioners have
nt m m m produced emails
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 47 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
Sep Jan Apr showing
tem uary il 1, compliance of
ber 1, 201 these terms by R-6
30, 2018 9 till & R-7, thus
201 till repa establishing that
7 Mar yme these respondents
till ch nt fulfilled their
Dec 31, obligations under
em 2018 the Facility
ber Agreement by
31, undertaking to be
201 bound by the
7 terms of the
Gross 8.7 3.5 3.0 Facility
Primary 5 Agreement.
Debt to
LTM
EBITDA
Ratio for
precedin
g 12
months(
1)
(b) Gross Primary Debt to
LTM EBITDA Ratio: In
respect of EIIL, Gross
Primary Debt to LTM
EBITDA Ratio shall be
shall be less than or equal
to the ratio set out in
respect of the periods
below
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 48 of 95
Signature Not Verified
Digiltally Signed
By:BHUPINDER SINGH
ROHELLA
Signing Date:08.02.2022
14:45:30
Covenant From
Septembe
r 30, 2017
till
repaymen
t
Gross 2.25
Primary
Debt to LTM
EBITDA
Ratio for
preceding 12
months(1)
(1) Note: LTM EBITDA for
preceding 12 months shall be
based on (i) the audited
financial statements of the
Issuer, in case of the evaluation being for the end of the Financial Year, and (ii) the limited reviewed financial statements, in any other case.
Such Gross Primary Debt to LTM EBIDTA Ratio to be tested at the end of every Fiscal Quarter XVIII. EVENTS OF DEFAULT
38. 8 read Events of Default and Clause 3 of with Consequences Schedule 1.1.1(z) Schedul 8.1 Each of the events or provides various e circumstances set out in situations qua R-5 FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 49 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 1.1.1(z) Schedule 1.1.1(z) (Events of to R-7, which Default) is an event of default would amount to ("Event of Default"). events of default.
Further, certain actions of R-5 to R-7 can also trigger events of default.
The aforesaid unequivocally and unambiguously establishes that R-
5 to R-7 were intrinsically connected with the performance of the Facility Agreement on part of the Respondents and failure in performance of these obligations by R-5 to R-7 would entail event of default.
39. 8.4.1(d) Acceleration and other read consequence of default with Schedul e 1.1.1(z) FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 50 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
40. Schedul Schedule 1.1.1(z) e Events of Default 1.1.1(z) 3. Cross Default
(a) Any of the Reference Entity, Borrowers, the Guarantors and/or the Obligors failing to pay its debts or Indebtedness to any Person as they fall due or suspends or threatens to suspend making payments (whether principal or interest) with respect to any of its debts or any notice received by the Reference Entity, Borrowers, the Guarantors and/or Obligors regarding, or commencement by any lender or creditor of, any enforcement action on any security made available/guarantee provided by the Reference Entity, Borrowers, the Guarantors and/or the Obligors.
(b) Any of the Reference Controlled Entities failing to pay its debts or Indebtedness to any Person as they fall due or FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 51 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 suspends or threatens to suspend making payments (whether principal or interest) with respect to any of its debts or any notice received by any of the Reference Controlled Entities regarding, or commencement by any lender or creditor of, any enforcement action on any security made available/guarantee provided by any of the Reference Controlled Entities.
(c) Any of the Reference Entity, Borrowers, the Guarantors and/or the Obligors fail to comply with or breach the terms of any document (other than Financing Documents, the default in respect of which is provided in paragraphs 1 and 2 above) relating to any Indebtedness of such Reference Entity, Borrowers, the Guarantors and/or the Obligors and such non-compliance or breach entitles the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 52 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 counterparties/creditors of the Reference Entity, Borrowers, the Guarantors and/or Obligors to accelerate the outstanding amounts due to them or to take any enforcement action against the Reference Entity, Borrowers, the Guarantors and/or the Obligors and/or their assets or commence any liquidation, bankruptcy or winding up proceedings.
(d) Any of the Reference Controlled Entities fail to comply with or breach the terms of any document (other than Financing Documents, the default in respect of which is provided in paragraphs 1 and 2 above) relating to any Indebtedness of such Reference Controlled Entity and such non-
compliance or breach entitles the counterparties/creditors of any of the Reference Controlled Entities to accelerate the outstanding FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 53 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 amounts due to them or to take any enforcement action against any of the Reference Controlled Entities and/or their assets or commence any liquidation, bankruptcy or winding up proceedings.
(e) Any Person exercises a lien or set-off against any of the Borrowers, the Guarantors and/or the Obligors or any of their assets.
(f) Failure by the Reference Entity, Borrowers, the Guarantors and/or the Obligors to pay one or more amounts due under any judgments or decrees which shall have been entered against the Reference Entity, the Borrowers, the Guarantors or any Obligors.
4. Winding Up, Nationalization, Receiver
(a) Any of the Reference Entity, Borrowers, the Guarantors or the Obligors commencing/taking steps to initiate a voluntary FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 54 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 winding up or restructuring or insolvency process under any applicable bankruptcy, insolvency, winding up or other similar Applicable Laws now or hereafter in effect;
or (b) a petition is presented, or a meeting is convened for the purpose of considering a resolution, or any steps are taken, for making an administration order against or for the Reference Entity‟s, Borrowers‟, the Guarantors‟ and/or the Obligors‟ winding up; or
(c) Any of the Reference Entity, Borrowers, the Guarantors and/or the Obligors consents to the entry of an order for relief in an involuntary proceeding under any such Applicable Law, or consents to the appointment or taking possession of itself or its assets by a receiver, liquidator, assignee (or FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 55 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 similar official).
(b) If an involuntary proceeding against the Reference Entity, Borrower, the Guarantors and/or the Obligors has been admitted under any applicable bankruptcy, insolvency, winding up or other similar Applicable Law now or hereafter in effect, or any notice from any Person is received by the Reference Entity, Borrowers, the Guarantors and/or the Obligors in relation to the institution/proposed institution of proceedings of winding-up, liquidation, dissolution, condemnation etc. against the Reference Entity, Borrowers, the Guarantors or any Obligor.
(c) Any death, insolvency or any other incapacity of the Guarantors and/or Obligors who are individuals.
(d) Any order is made for the dissolution, liquidation, winding-up or termination FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 56 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 of the Reference Entity, Borrowers, the Guarantors or any of the Obligors or for the winding up or liquidation of their affairs.
(e) Any notice is received by the Reference Entity, Borrowers, the Guarantors or any of the Obligors from any Governmental Authority in relation to the institution/proposed institution of proceedings of nationalisation, condemnation etc. against the Reference Entity, Borrowers, the Guarantors or any Obligor.
(f) Any Governmental Authority having condemned, nationalized, seized, or otherwise expropriated all or any part of the assets of any of the Reference Entity, Borrowers, the Guarantors or Obligors or having assumed custody or control of its business or operations or having taken any action that would prevent it or its officers FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 57 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 from carrying on its business or operations or a substantial part thereof.
(g) Any proceeding or other action is ordered or admitted by any Governmental Authority/courts/tribunals for the appointment of a receiver, liquidator, assignee (or similar official) for any part of property or assets of the Reference Entity, Borrowers, the Guarantors or Obligors or an execution, attachment or restraint has been levied by a court/tribunal or any Governmental Authority on all or any part of the assets of any of the Reference Entity, Borrowers, the Guarantors or Obligors.
(h) Any of the Reference Entity, Borrowers, the Guarantors and/or the Obligors is declared as sick under the Applicable Law or is, in the reasonable apprehension of the Lenders and/or the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 58 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Security Trustee, likely to be declared as sick under Applicable Law.
5. Security
(a) Failure by the Borrowers, the Guarantors and/or the Obligors, as applicable, in creation of Security Interest to the satisfaction of the Lenders within the period stipulated in the Financing Documents.
(b) Notwithstanding anything contained in the Financing Documents, any of the Financing Documents once executed and delivered fail to provide the Security Interests, rights, title, remedies, powers or privileges intended to be created thereby (including the priority intended to be created thereby), or such Security Interest failing to have the priority contemplated under the Financing Documents, or the Security Interest purported to be created thereby being jeopardized or endangered in any FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 59 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 manner whatsoever, or any other obligations purported to be secured thereby or any part thereof being disaffirmed by or on behalf of any of the Borrowers, the Guarantors or the Obligors or any other party thereto.
(c) The occurrence of any event affecting the Security or in the event of the title of any Borrowers, the Guarantors and/or Obligor to any portion of the Security being challenged or in the event any Security or part thereof or any Security Document fails to constitute a valid and perfected first ranking charge or ceases to be in full force and effect or Borrowers, the Guarantors and/or Obligor under any Security Document has repudiated or revoked or is likely to repudiate or revoke such Security.
(d) If the whole or any part of the Security is sold, FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 60 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Encumbered or Transferred or otherwise disposed off without the consent of the Lenders.
6. Other Default
(a) Failure by the entities listed in Schedule 6.1.2(d) (Shareholding Pattern) hereof to maintain and retain management control over the Reference Entity, the Borrowers, the Guarantors and/or the Obligors and/or failure to maintain their respective shareholding in the Borrowers, the Guarantors and the Obligors.
(b) The Reference Entity, Borrowers, the Guarantors and/or any of the Obligors ceasing or makes a declaration/announcement /notification to cease to carry on its business.
(c) Any license, clearance, approval or authorisation material in relation to the business of any of the Reference Entity, Borrowers, the Guarantors and/or any of the Obligors FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 61 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 is revoked, withdrawn, terminated or suspended.
(d) Any Material Adverse Effect.
(e) Any insurance contracted or taken by the Borrowers is not, or ceases to be, in full force and effect at any time when it is required to be in effect or any insurance is avoided; or
(b) any insurer or re-
insurer avoids or suspends or becomes entitled to avoid or suspend, any insurance or any claim under it or otherwise reduce its liability under any insurance; or (c) any insurer of any insurance is not bound, or ceases to be bound, to meet its obligations in full or in part under any insurance.
(f) Any Legal Proceeding shall have been instituted against the Reference Entity, Borrowers, the Guarantors or any of the Obligors which is of a value of more than INR 10,00,000.
(g) Any material assets of the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 62 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Reference Entity, Borrowers, the Guarantors and/or Obligor are destroyed in any substantial manner, whether due to a force majeure event or otherwise.
(h) The liabilities of the Reference Entity, Borrowers, the Guarantors and/or the Obligors are more than their respective assets or the networth of the Reference Entity, Borrowers, the Guarantors and/or the Obligors is eroded or becomes negative or zero.
(i) The Borrowers using the Facility or any part thereof for any purpose other than for which the Facility was sanctioned.
(j) The Reference Entity, Borrowers, the Guarantors and/or the Obligors or any of their directors appearing on the RBI‟s list of defaulters and ECGC‟s caution list.
(k) Any of the directors and/or the promoters of FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 63 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 the Reference Entity, Borrowers, the Guarantors and/or Obligors, being barred from accessing the capital markets by the Securities and Exchange Board of India or the shares of any of the Reference Entity, Borrowers, the Guarantors and / or Obligors (if they are listed) been suspended from trading.
(l) The Guarantors ceasing to be a directors of the Borrowers.
41. 11.10 (a) 11.10 Remedies and Waivers Clause 11.10
(a) No failure to exercise, nor clearly states any delay in exercising, on the that non exercise part of any Lender and/or of any right Security Trustee, any right or under the facility remedy under the Financing agreement by the Documents shall operate as a Petitioners waiver, nor shall any single or would not partial exercise of any right or amount to remedy prevent any further or waiver. other exercise or the exercise of The notices any other right or remedy. The [Point 5 @ Pg.
rights and remedies provided in No. 310 and 313this Agreement are cumulative and point 4 @ and not exclusive of any rights Pg. No. 316 and or remedies provided by 318] expressly Applicable Law. states that it is FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 64 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 without prejudice to the rights and remedies available under the agreement.
(vii) It was further submitted that the Appellants are "Controlled Entities"
of the Guarantors, as the Guarantors control the policies and management affairs of the Appellant companies through ownership and Voting Rights, and have the power to appoint Directors, or a similar governing body.
(viii) The Guarantors - Aditya Khaitan and Amritanshu Khaitan, along with the father of Aditiya Khaitan - Late Shri. Brij Mohan Khaitan, are Promoters of the Appellants. They are also Directors/Managing Directors of EIIL and MIRL interchangeably. Thus, they are clearly in a position to exercise control over the Appellants.
(ix) Amongst the various obligations that have been undertaken by the Guarantors, a significant one is that they shall not change the corporate structure of the Appellants, and ensure they do not become private companies. This itself shows that they were in position to direct the policies of the Appellants and had control over them.
(x) Furthermore, the Guarantors have assumed specific financial, accounting, and reporting obligations in context of the Appellants, and have even fulfilled these obligations, which clearly show their direct control over the Appellants.FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 65 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
(xi) The Promoters of the Appellants have strong family ties, and together held 44% of the shares in EIIL at the time of the execution of the FA. The family held similar shareholding in the other Appellants.
(xii) Further, the shareholding patterns of EIIL, MBECL and MRIL as elaborated in the above table clearly indicate that the Williamson Magor & Company Limited ("Borrower No. 1"), Williamson Financial Services Limited ("Borrower No. 2"), Mr Aditya Khaitan ("Guarantor") and Mr Amritanshu Khaitan ("Guarantor") form part of the promoter group.
(xiii) Clause 1.1.1 (ooo) defines Promoter Group to include any "Controlled Entities" of the Guarantors. Since the guarantors‟ exercise control over the management and policies of the Appellants, they are a part of the promoter group.
(xiv) The FA was executed by the Guarantors as Directors of the Appellants. As per section 2(54), 2(69) of the Companies Act, which defines Managing Director and Promoters, the Promoters and Guarantors exercise control over the Appellants. Any person dealing with a company‟s Director, would ultimately presume and expect that they would have the required authority to act for the company and, by virtue of the doctrine of indoor management, the company would be bound but the actinons of its officers. They have placed reliance on Abaskar Construction(P) Ltd v. Devi Dutt, MANU/DE/2641/2014
(xv) The intention to bind the Appellants under the FA is clear, and they have duly bound themselves to it. Learned senior counsels for the Respondents have drawn our attention towards the detailed clauses which cover all conceivable aspects like maintaining a particular FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 66 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 corporate structure, accounting and reporting obligations, maintaining a particular level of EBITDA ratio, financial position, event of default etc. as elaborated in rows at Sl. Nos. 22 to 40 of the above table.
They have submitted that such detailed clauses with respect to the Appellants have been intentionally put in the FA, as it was the only security available to the Lenders for effecting recoveries in case of default.
(xvi) Further reliance has been placed on the various e-mails exchanged between the parties involved, as elaborated below:
(i) Email dated 05.11.2018 - 06.11.2018 where, the Senior Vice President Finance - EIIL under the domain name of EIIL provided Detailed financial Model/Business plan and other information related to EIIL and Details of Overseas assets of MRIL, to the representative of the Respondent. The guarantors have marked in the mail using domain names of both EIIL and MRIL, while the subject of the mail is „Group Info -Williamson‟.
(ii) Emails dated 30.03.2018, 27.06.2018-28.06.2018. Where the manager of Williamson Magor & Co. Ltd, while writing under the domain name of MRIL, have provided the details related to the interest payment towards the facility and the required information regarding computation of consolidated Debt/ EBITDA ratios & LTM Debt / EBITDA ratios of both EIIL and MRIL respectively to the Respondent‟s representative for their quarterly compliances.
(iii) Emails dated 24.01.2019 sent by Mr. Sanjay Nayyar was addressed to the guarantors Mr. Aditiya Khaitan and Amritanshu Khaitan, who were using the domain names of EIIL and MRIL FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 67 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 respectively. The subject of the mail read „Williamson Magor group‟ and the email read as:
"Dear Aditya, Amritanshu, As you are aware that we had given the facility of Rs.200 crores to your promoter hold cos. in Sep‟17 with PG‟s and in good faith. It has been brought to my notice that this is facility has multiple covenant breaches (primarily on account of excess leverage in McLeod Russel & Eveready and non-maintenance of min. unencumbered shareholding of Rs.750 crores) which were informed to us only on post facto basis which is completely unacceptable. Further, I understand that the aforesaid credit facility needs to be secured by 1.5x cover (Principal + Accreted Interest) in the form of pledge of shares of Eveready & McLeod Russel not later than 31st March‟19 and thereafter at 2.0x level by 30th Sep‟19. Please give us a plan to rectify the aforesaid breaches at the earliest and ensure to provide us the security within the agreed time line."
(iv) The mail was duly acknowledged by the guarantor Mr. Aditiya Khaitan on the same day, where they requested to meet the Respondents and discuss future plans. The reply reads as follows:
"Thank you for your mail and I have noted the concerns you have put out. Our intention has been to ensure that the entire amount is repaid and we have already put some actions in play FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 68 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 which your team is fully aware of. I would like to come across to meet you and explain the plan and request if you could give me a time early next week.
Kind regards."
(v) This email was followed by another email by Mr. Sanjay Nayyar to the guarantors on 14.02.2019, which reads as:
"Dear Aditya, Amritanshu, Thank you for coming over & meeting us last week. We‟ve since then discussed your requirement for incremental funding at the holdco. level to take care of certain short-term maturities at the operating co. level and we are unable to progress at this juncture.
Incrementally, we have an RBI inspection coming up, and we would need to comply with the security creation requirement in the existing facility first, and would appreciate if you could prioritize creating the requisite security (1.5x cover in the form of pledge over Eveready & McLeod Russel shares) against our facility of Rs.200 crores + accreted interest latest by 31st March‟19.
Request if you could accordingly organize to create security within the aforesaid timeline."
(vi) This mail was followed up by an official of the Respondent, vide a mail dated 18.02.2019 which read as follows:
"Dear Sir, FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 69 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Refer mail below. Request if you could organize to create the security for us at the earliest considering we are not in a position to take up the new deal.
Also, I‟ve been chasing with your teams for submission of compliance certificates, request you to submit the corrected compliance certificate (for June‟18 & Sep‟18 quarters) and also for Dec‟18 quarter immediately (trust the results would have been declared). Refer attached mail for all the pendency pl.
This is to be done on an urgent basis please."
(vii) The reply to this mail was provided the same day by an official of the Appellants from the email I. D. [email protected], which read as:
"Compliance certificates will be sent to you in next two days."
(xvii) The Respondents submit that at no point of time the Appellants have denied their co-extensive liabilities under the FA. Rather, they have provided the required information which would, otherwise, have been their proprietary and the Appellants would have denied the said information to the Respondent if they had no concern with the FA. The Appellants have cooperated towards the performance of the FA. The Guarantors, Appellants and their respective officers such as CFO, Manager were writing for each other from the official email Ids of EIIL and MRIL, giving financial and other information, as the facility was extended for the entire group entity as a single economic unit; for the benefit of the entire group entity, and; there was a clear mutual FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 70 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 intention of the parties - including the Appellants, to be bound by the agreement.
(xviii) Based on the above factual discussion, the Respondents further contend that this is a fit case to invoke the group companies‟ doctrine to bind the aforesaid non-signatory Appellants, and hence orders have rightly been passed against the Appellants under section 9 to preserve the subject matter of the final arbitration. Reliance has been placed by the Respondents on Garware Wall Ropes Ltd V. Coastal Marine Constructions & Engg Ltd., (2019) 9 SCC 209, Mayavati Trading
(p) Ltd V. Pradyuat Deb Burman, (2019) 8 SCC 714 , Uttrakhand Purv Sainik Kalyan Nigam Ltd V. Northern Coal Field Ltd., (2020) 2 SCC 455.
Discussion
6. We may first discuss the legal background and foundation of the Group Companies Doctrine.
6.1. The group companies‟ doctrine was propounded in the case of Dow Chemicals v. Isover Saint Gobain ICC Case No. 4131, YCA 1984.
7. Based on this English principle, the Supreme Court introduced and applied the doctrine in the Indian context in Chloro Controls India v Sereven Trent Water Purification, (2013) 1 SCC 641 In this case, the doctrine was applied with reference to enforcement of a foreign award under section 45 of the Act. The court held:
"103. Various legal basis may be applied to bind a non- signatory to an arbitration agreement. 103.1 The first theory is that of implied consent, third party beneficiaries, guarantors, assignment and other transfer FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 71 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities.
103.2 The second theory includes the legal doctrines of agent- principal relations, apparent authority, piercing of veil (also called the "alter ego"), joint venture relations, succession and estoppel. They do not rely on the parties‟ intention but rather on the force of the applicable law." (emphasis supplied)
8. The court recognized the nature of modern business transactions which are carried out through multiple agreements creating intrinsically related transactions between the parties within a corporate group, and formulated the test for determining the applicability of the doctrine as follows:
"71. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the Courts under the English Law have, in certain cases, also applied the "Group of Companies Doctrine". This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non- signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non- signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. ['Russell on Arbitration' (Twenty Third Edition)].
72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non- signatory parties. In other words, „intention of the parties‟ is a FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 72 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.
73. A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The Court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the Court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the Court answers the same in the affirmative, the reference of even non- signatory parties would fall within the exception afore- discussed.
76. The Court will have to examine such pleas with greater caution and by definite reference to the language of the contract and intention of the parties. In the case of composite transactions and multiple agreements, it may again be possible to invoke such principle in accepting the pleas of non- signatory parties for reference to arbitration. Where the agreements are consequential and in the nature of a follow-up to the principal or mother agreement, the latter containing the arbitration agreement and such agreements being so intrinsically inter-mingled or inter-dependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non-signatory parties to arbitration. The principle of 'composite performance' would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 73 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 intention of the parties and the attendant circumstances on the other." (emphasis supplied) 7.2 This doctrine was followed and applied in the case of Cheran Properties Ltd. V. Kasturi& Sons Ltd. (2018) 16 SCC 413. Here the doctrine was applied in the context of a domestic arbitration to enforce an award against a non-signatory. The court further explained the scope of the doctrine:
"23...The exercise while applying the doctrine is to determine whether there existed an intention to facilitate the fulfilment, of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non- signatories. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory.
7.3 The Court, while rejecting the constricted interpretation advanced by the Appellant, held:
"34.... Dr Singhvi urged that in Chloro Controls there was a joint venture agreement; the mother or parent agreement contained an arbitration clause and though the ancillary agreements did not contain an arbitration agreement, they could not have been performed in the absence of the mother agreement. The submission proceeds on a constricted interpretation of the Chloro Controls dictum. The principle which underlies Chloro Controls is that an arbitration agreement which is entered into by a company within a group of companies may bind non- signatory affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. In applying the doctrine, the law seeks to enforce the common intention of the parties, where circumstances indicate that both signatories and non-signatories were intended to be bound."FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 74 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
7.4 In Mahanagar Telephone Nigam Ltd V. Canara Bank, (2019) SCC Online SC 995, the Supreme Court while noticing the above principles, also established the test of „single economic entity‟ or „single economic reality‟. The relevant discussion is as follows:
"10.5 ........... The „Group of Companies‟ doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the non-signatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the non-signatory affiliates in the group. The doctrine provides that a non-signatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non- signatory will also be bound and benefitted by the relevant contracts.
10.6 The circumstances in which the „Group of Companies‟ Doctrine could be invoked to bind the non-signatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject matter; the composite nature of the transaction between the parties. A „composite transaction‟ refers to a transaction which is inter-linked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute.FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 75 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30
10.7 The Group of Companies Doctrine has also been invoked in cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or re-structure other members of the group." (emphasis supplied)
9. Having discussed the relevant legal principle and the developments around it, we now proceed to examine the FA and the correspondence put forth:
a) The Facility was extended to the Borrowers for repayments of existing loans/ debt reduction of MRIL - the Appellant in FAO(OS)(COMM) 5/2021.
b) As per clause 2.3, MRIL is also referred to as a Reference Entity in the FA. If the submissions of the Appellants were to be accepted, it would mean that the actual beneficiary under the FA owes no obligation to either repay, or secure the facility.
This itself defeats the arguments of the Appellants.
c) "Control" is referred in the F.A. as the power to direct management and polices (as per clause 1.1.1 (p)), and any entity controlled by a person exercising control is referred as a "Controlled Entity". As per clause 1.1.1 (ooo) of the F.A., the Promoter Group shall include any entity controlled by the guarantors.
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 76 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30d) The expression "Guarantors" is defined in Clause 1.1.1(mm) of the FA to mean "the Persons set out in Part A of Schedule (Guarantors, Obligors, Lenders and Notice Details) and shall include their respective heirs, executors, administrators, successors and permitted assignees" Schedule 1 of the FA, in Part A enlists the names of guarantors as Mr Aditya Khaitan and Mr Amritanshu Khaitan. Therefore, any controlled entity of either of these guarantors would qualify as being covered by expression Promoter Group. In this regard, one may look to the definition of the expression.
e) The position on record is that in September, 2017 when the facility was extended by the respondents, Mr. Brij Mohan Khaitan was the Chairman of the appellant MRIL. Mr. Aditya Khaitan - a defined guarantor and son of Mr. Brij Mohan Khaitan, was the Vice Chairman and Managing Director and Mr. Amritanshu Khaitan - the other defined guarantor, who is also the nephew of Mr. Brij Mohan Khaitan, was the other Director of MRIL. The position in 2019-20 was that Mr. Aditya Khaitan is the Chairman and Managing Director of MRIL and Mr. Amritanshu Khaitan is a Director. Section 2(54) of the Companies Act defines the expression "Managing Director", and by virtue of being the Managing Director, the incumbent is "entrusted with substantial powers of the Management of the affairs of the Company". The expression "Promoter" is defined in Section 2(69) of the Companies Act to FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 77 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 mean a person, inter alia, "has control over the affairs of the Company, directly or indirectly whether as a Shareholder, Director or otherwise; or" " in accordance with whose advice, directions or instructions the Board of Directors of the Company is accustomed to act:" As pointed out by Mr. Kaul, the position is the same when it comes to the other 2 appellants, namely EIIL and MBECL. In EIIL, in the year 2017-18 Mr. Brij Mohan Khaitan was the Chairman, Mr. Aditya Khaitan was the Vice Chairman, non-executive and Mr. Amritanshu Khaitan was a Director. In the year 2019-20, Mr. Aditya Khaitan was the Chairman, and Mr. Amritanshu Khaitan was the Managing Director. In the third appellant namely, MBECL, in the year 2017-18, Mr. Aditya Khaitan was the Chairman, and Mr. Amritanshu Khaitan was the Director. In January, 2021, Mr. Aditya Khaitan was the Chairman of MBECL. Thus, the submission of Mr. Kaul that the appellants were also a part of the Promoter Group as defined in Clause 1.1.1(ooo), appears to be correct, inasmuch, as, the appellants were and are controlled entities of the guarantor(s).
f) The Borrower companies and Guarantors, alongside their family, are part of the promoter group. The Guarantors - Mr. Aditiya Khaitan and Mr. Amritanshu Khatian, are Managing Directors/ Directors of MRIL and EIIL respectively, and vice-a versa. They share control over the Reference Entities due to their said positions, and the Reference Entities are, therefore, FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 78 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Controlled Entities. Shareholding patterns as laid down in Schedule 6.1.2(d) of the FA clearly depict the borrower Companies, and Guarantor Mr. Amritanshu Khaitan, along with MRIL, as part of the promoter group of EIIL. In this regard, we may also refer to the shareholding pattern of EIIL- provided by the borrowers themselves, which shows that the 19 Promoters and Promoter Group shareholders held 44.05% shares in EIL. Williamson Magor & Company Limited - a borrower, Williamson Financial Services Limited - again a borrower, and Mcleod Russel India Ltd. (MRIL) held 23.40, 8.76 and 2.29 percent shares in EIL respectively. The relevant tabulation begins at page 1238 of FAO(OS)(COMM) 2/2021. Similarly, our attention has been drawn to the statement of shareholding pattern vis-à-vis Mcleod Russel India Ltd (MRIL) at pages 1252 and 1253 of the FAO(OS)(COMM) 2/ 2021, which shows that, inter alia, Williamson Magor & Company Limited, Williamson Financial Services Limited - the two borrowers, and Eveready Industries Ltd. (EIIL) have been shown as Promoters/ belonging to the Promoter Group of Mcleod Russel India Ltd. (MRIL) Similar is the position with respect to McNally Bharat Engineering Company Ltd.(MBECL) At pages 1233-1234 of FAO(OS)(COMM) 2/2021, the summary of shareholding pattern of this company shows that the Promoters and Promoter Group holds 57.09% shares. The Promoter/ Promoter Group include, inter alia, Williamson Magor & Company Limited, Williamson Financial Services FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 79 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Limited - the two borrowers and Mcleod Russel India Ltd.(MRIL) The statement regarding the shareholding pattern in Williamson Financial Services Limited is placed at pages 1244-1245 of FAO(OS)(COMM) 2/ 2021. The tabulation shows that the respondent borrowers themselves disclosed that the Promoters and Promoter Group held 61.59% of the shares. The Promoter/ Promoter Group include Mcleod Russel India Ltd.(MRIL) and Williamson Magor & Company Limited - one of the borrowers. Pertinently, the Khaitans are showsn as the Promoters of all these companies.
g) The borrower companies, both the guarantors and MRIL are part of the promoter group of MBECL. The borrowers and guarantors are also a part of the promoter group of MRIL. The first borrower Willamson Magor Co. Ltd (Borrower 1), Mr. Aditiya Khaitan (guarantor 1) and MRIL are Part of the promoter group of Willamson Financial Service (Borrower 2), and all three of the Appellants.
h) "Security" is defined as the security interest that were created as per clause 5 of the FA. Further, all the documents which were executed pursuant to clause 5 are referred to as security documents under clause 1.1.1(xxx) of the FA. The person who creates these securities is referred to as security providers as per clause 1.1.1 (bbb). Pertinently, as per clause 1.1.1(ccc) all security providers, along with guarantors, are also Obligers.
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 80 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30i) Under clause 5.1 (a) (e) of the FA, there were requirement to executing a first ranking and exclusive share pledge on pledged shares, which was to be created pursuant to the pledge agreement, which was to be effective on the first Disbursement Date, for securing the Loan Outstanding Amount and any monies payable in respect of this Facility. MRIL was to issue a letter of comfort in a form acceptable by the Lenders.
j) As per Clauses 5.10, 5.11, 5.12, in case of a breach of collateral cover, the borrower or the promoter group was to provide incremental shares as pledge. They had an option of providing cash collateral in lieu of Top-Up Shares, in which case, the cash collateral would have been adjusted against the Outstanding Loan. Collateral Cover was to be in the form of mortgage over real estate properties acceptable to the Lender and/or equity shares of MRIL / EIIL.
k) Multiple representations and warranties were made by the borrowers and guarantors, and they were binding till the final settlement. These have been enlisted in clause 6 of the agreement. Significant number of these involved the Reference Entities as defined under Clause 1.1.1(sss). The Reference Entities are the three Appellants. Perusal of these clauses clearly indicate an intention to regulate and ensure the wellbeing of the financial health of these entities.
l) As per Clause 6.1.2 (d) (which forms part of Clause 6 dealing with Representations and Warranties), the Share holding FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 81 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 pattern of the Reference Entries were provided. As per clause 7.2.3 (b) the Borrowers, Guarantors and Promoter Group were restrained from, inter alia, selling, transferring or disposing off, the shareholding in borrowers, save and expect as may be permitted under the F.A. Clause 7.2.3(c) casted a similar bar on selling, transferring, or disposing off shares of any Reference Entities held by the Promoter Group without prior consent of the lenders. The entities enlisted in Schedule 6.1.2(d) of the F.A. are the following:
SHAREHOLDING PATTERN AS ON 23RD SEPTEMBER 2017 NAME OF SHAREHHOLDER NO. OF PERCENTAGE SHARES % Mr. BRIJ MOHAN KHAITAN 1 0.0000 JTLY. WILLIAMSOM MAGOR & CO. LIMITED FOUR MANGOE LANE, KOLKATA - 700001 MR. T. R. SWAMINATHAN 1 0.0000 JTLY. WELLIAMSON MAGOR & CO. LIMITED FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 82 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 MR. RAJEEV TAKRU 1 0.0000 JTLY. WILLIAMSON MAGOR & CO. LIMITED MR. KAMAL KISHORE 2 0.0000 BAHETI JTLY. WILLIAMSON MAGOR & CO. LIMITED MR. AMITABH GUHA 1 0.0000 SARKAR JTLY. WILLIAMSON MAGOR & CO. LIMITED WILLIAMSON MAGOR & CO. 3690587 19.6369 LIMITED FOUR MANGOE LANE, KOLKATA - 700001 WILLIAMSON FINANCIAL 3626000 19.2463 SERVICES LIMITED FOUR MANGOE LANE, KOLKATA - 700001 FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 83 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 BORELLI TEA HOLDINGS 1299600 6.8981 LIMITED 79 HIGH STREET GREENHITHE KENT DA9 ONL UNITED KINGDOM UNITED MACHINE CO. 3753194 19.9214 LIMITED CIRCULAR COURT B.A.J.C. BOSE ROAD, KOLKATA - 700017 ICHAMATI INVESTMENTS 3753193 19.9214 LIMITED CIRCULAR COURT B.A.J.C. ROSE ROAD, KOLKATA - 700017 COSEPA FISCAL 2708420 14.3759 INDUSTRIES PRIVATE LIMITED 103 RUSTOM COURT BUILDING,GR. FLOOR OPP.
PODAR HOSPITAL, WORLI DR. 18840000 100.0000 ANNIE BESANT ROAD, MUMBAI - 400018
m) Clause 7.2.3(c) barred the Borrowers, Guarantors and the Promoter Group from selling, transferring or disposing off the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 84 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 shares of the Reference Entities held by the Promoter Group without prior consent of the lenders.
n) As per Clause 6.1.2(e), the Reference Entities, Promoter Group, Borrowers and/ or obligors or any of their directors were obliged to ensure that they did not appear in the RBI „s list of defaulters and ECGS caution list. As per clause 6.1.3(a) the reference entities were to be protected from any material adverse effect, which includes the effect or consequence of an event, circumstance, occurrence or condition which, in the sole opinion of the lenders, has caused, as of any date of determination, or could be expected to cause, a material and adverse effect on, inter alia, the financial condition, carrying of business, operations, assets or prospects of any of the Borrowers, the Guarantors and/or the Obligors and/or the Reference Entity (See clause 1.1.1(bbb)(i))
o) The operations of the Reference Entities as per Clause 6.1.3 (g) had to be in compliance with applicable laws. As per clause 6.1.4 there was a requirement that the reference entities did not have legal proceedings pending against them. As per clause 6.1.5, the account books of the entities had to be maintained in accordance with Standard International norms and practices, and there had to be a further assurance that there were no known unaccounted liabilities on them. No change in the financial or operational position of the Reference Entities were to be undertaken, that could cause material adverse effect. As FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 85 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 per clause 6.1.8, there was also a clear obligation to disclose if the Reference Entities were insolvent.
p) Also in existence are the various covenants and undertaking w.r.t the Reference Entities enlisted in clause 7 (covenants and undertakings) of the FA. These impose specific obligations on the borrowers to maintain the corporate character of the Reference Entities.
q) Clause 7.1.1of the FA required the Reference Entities to - at no point of time before the final realization of the agreement, become private entities. Clause 7.1.2 required maintenance of transparency in the matter of maintenance of the accounts of the Reference Entities
r) Guarantors and Promoter Group were obliged to hold shares aggregating to a value of 7,50,00,00,000 of EIIL and MRIL, as per Clause 7.2.4 and also to ensure that they did not undertake or precure any incremental indebtedness. Under Clause 7.2.5, the Guarantors and the Promoter Group were barred from encumbering the shares held by them in the Reference Entities beyond the encumbrance disclosed in the F.A., except to top-up the existing security to the lenders under Clause 7.2.6.
s) Clause 7.2.7 casted specific obligation on the Borrowers and the Guarantors to not undertake, and to ensure that the obligors do not undertake enumerated financial actions, or any action which have or continue to have a Material Adverse Effect.
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 86 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30t) The borrowers were obliged to provide „MIS reports‟ - as per clause 7.3.3, and Unaudited financial statements of, inter alia, the Reference Entities - as per clause 7.3.4. There was further a requirement to provide compliance certificates as per clause 7.3.5, inter alia, in respect of the Reference Entities.
u) Further, the Event of Default which are set out in Schedule 1.1.1 (Z), provide various defaults are with respect to Reference Entities, including Winding Up, Nationalization, Receiver appointed and other defaults enumerated in Clause 6 of Schedule 1.1.1(z). In particular, Clause 6(a) of Schedule 1.1.1(z) contemplates an event of default, " Failure by the entities listed in Schedule 6.1.2(d) (Shareholding Pattern) hereof to maintain and retain management control over the Reference Entity, the Borrowers, the Guarantors and/or the Obligors and/or failure to maintain their respective shareholding in the Borrowers, the Guarantors and the Obligors."
10. We may observe that we have only cited some of the terms and conditions of the F.A., only to emphasis that the parties to the F.A. consciously sought to provide comfort and binding assurance to the lenders
- so as to secure their loans, by binding the Reference Entities in every which way. The objective was to ensure transparency in the matter of management of, inter alia, the Reference Entities and to ensure that the working of the Reference Entities does not get adversely impacted. The F.A. is replete with obligations cast on the parties to it to ultimately ensure FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 87 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 that the worth of, inter alia, the Reference Entities are not eroded till the loans are repaid. Why would the Respondents/ Lenders have such overwhelming and all-pervasive concern over the health, business and activities of the Reference Entities, if they were not to be bound by the obligation of the borrowers & guarantors, and their assets were not to be available as security to enforce repayment of the loans/ facilities? Clearly, the intention of the parties was to bind the Reference Entities by the obligation cast on obligors under the FA. The facilities were granted to the borrowers primarily by showcasing the Reference Entities, as profit making and asset owning credible entities, and the Reference Entities also played along with the borrowers and guarantors - who have control over the affairs of the Reference Entities, and they sought to provide comfort to the Lenders/ Respondents by themselves entertaining their queries. The clear projection and representation of the Borrowers and Guarantors - which was also true, was that they, along with the Reference Entities and obligors formed a group. The intention of the parties was, thus, clearly to bind the Appellants/ Reference Entities with the obligations under the FA.
11. The Email exchanges put forth present a clear picture that the plea - that the Appellants are strangers to the agreement, is completely incorrect. The officers of the Appellants have, time and again, provided required information on behalf of the group. At no point did they claim that they were not aware of the FA, or that they were not obliged to disclose the information sought by the Respondents/ Lenders. Rather, they have aided in the performance of the agreement. The emails exchanged between the Officers of the Appellants, and the Lenders, make it amply clear that the Appellants had not just knowledge of the FA, they acknowledged their FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 88 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 obligations under the FA. Mr. Indranil Roy Choudhary Roy -who was the Joint CEO of Eveready Industries Ltd.(which is evident from the Report of EIL - relevant page 797 of FAO(OS)(COMM) 2/ 2021) was the one who sent the email dated 16.11.2018 to Roopak Jain, enclosing the financial model with all relevant assumptions. This was sent "As advised by Amritanshu." The email exchanges, specially between 24.01.2019 to 18.02.2019, in relation to creation of security, clearly bring out the intention of the parties to bind not just the signatories to the FA, but also the three Reference Entities in relation to the obligations of the Borrowers, Guarantors, Obligors to repay the loans and, to that end, to keep the assets and securities of the Reference Entities unencumbered and valuable. The Respondents/ Lenders stated in their e-mail dated 14.02.2019 that they "would appreciate if you could prioritize creating the requisite security (1.5x cover in the form of pledge over Eveready & McLeod Russel shares) against our facility of Rs.200 crores + accreted interest latest by 31st March‟19.", towards fulfillment of the obligations of the Borrowers, Guarantors, Obligors. This e-mail has been acknowledged by the Appellants‟ officers. In fact, in the reply dated 18.02.2019, there is no denial of any obligation. The information provided in these communications, cannot be regarded as information available in public domain. Rather, the information was provided towards fulfillment of various obligations under the FA. In any event, the issue is not whether the information fell in public domain, or not. The real issue is, how the Reference Entity conducted themselves, and why. After perusal of the emails, it is amply clear that the Appellants/ Reference Entities were intended by all parties - including the Appellants, to be bound by the FA. The overlapping shareholding patterns FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 89 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 qua the entire group; the holding of the pivotal positions in the Appellants by the Guarantors Mr. Aditya Khaitan and Mr. Amritanshu Khaitan, and; the aid provided by the officials of the Appellants towards performance of the FA, clearly depict a tight group structure. In our view, it would be too naive to hold otherwise. The answer to the question - whether the Respondents would have provided the loans to the Borrowers, if they did not have the security of assets and shareholding of the three Reference Entities, would be a plain "NO". The parties to the FA are all commercial men. The FA shows that the Respondents/ Lenders heavily relied on the assets; shareholding in, and, the valuation of the Reference Entities. They bound down the Borrowers, Guarantors, Obligors and the Reference Entities to make sure, that there is no erosion of the worth or valuation of the assets/ shares of the Reference Entities, as that was their security in respect of the loans advanced. Otherwise, there was no purpose to prescribe the stringent conditions in the FA qua the Reference Entities.
12. We, therefore, reject the submission of the Appellants that the factors for invoking the Group Companies Doctrine did not exist in the present case. The Supreme Court has invoked the doctrine in different conditions and in relation to different subject matters, which has been discussed above. The invocation of the doctrine depends on the mutual intention of the parties to bind not only the parties to the agreement, but other entities as well, which form part of the group as a common economic entity.
13. The facts of the case demonstrate that the Facility extended by the Respondent Lenders was on the credit worthiness of the Appellants, who were conscious, and accepted the terms of the FA. As to the question, whether there is any liability on the Appellants qua the FA, is not the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 90 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 question to be determined in the present appeal. The scope of the present appeal is restricted to the preservation of assets in aid of arbitration. The contention placed by the Appellants that their assets could be only reached after lifting the corporate veil, is misplaced. The two concepts are distinct from each other, and the application of these principles does not, necessarily, go hand in hand. Once the Group Companies Doctrine is applied, the non-signatory is also bound by the Arbitration agreement. All the other issues pertaining to jurisdiction, inter se rights and liabilities, etc., are for the Arbitral Tribunal to decide. The reason why the assets of the Appellants are liable to be preserved is, because it was the underlying financial strength of the Appellants, on the basis of which the loan was extended by the Lenders/ Respondents. The borrowers have no assets of their own, so it becomes imperative to protect these assets for the aid of the Arbitral tribunal. Our attention has also been drawn to the Independent Auditors Report of Mcleod Russel India Ltd, which forms part of the Annual Report of the said company for the year 2018-19 . The said report is telling on the manner the financial affairs of the said company are being managed by the management - which includes Mr. Aditya Khaitan as CMD and Mr. Amritansu Khaitan as the Director. The Independent Auditors have, inter alia, observed in this report:
""REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS"
Adverse Opinion We have audited the accompanying consolidated financial statements of Mcleod Russel India Limited ("the parent") and its subsidiaries, (the Parent and its subsidiaries together referred to as "the Group") which comprise the Consolidated FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 91 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 Balance Sheet as at 31 March, 2019, and the Consolidated Statement of Profit and Loss (including Other Comprehensive Income), the Consolidated Cash Flow Statement and the Consolidated Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information. In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of reports of the other auditors on separate financial statements of the subsidiaries referred to in the Other Matters section below, due to the significance of the matters described in the Basis for Adverse Opinion section below, the aforesaid consolidated financial statements do not give the information required by the Companies Act, 2013 ("the Act") in the manner so required and also does not give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended ("Ind AS‟) and other accounting principles generally accepted in India, of the consolidated state of affairs of the Group as at 31 March, 2019, and their consolidated profit, their consolidated other comprehensive loss, their consolidated cash flow and their consolidated changes in equity for the year ended on that date. Basis for Adverse Opinion
(a) During the years, the Parent had extended advances aggregating to Rs.84,175.00 lacs to certain promoter group companies, as capital advances. The promoter group companies to whom such advances were given have substantially lent these onward to another promoter group company. Of the total capital advances, Rs. 77,575.00 lacs was converted to inter-Corporate Deposits (ICD) as of 31 March, 2019. In this connection, we draw attention to paragraphs 1(a) and 1(b) under section „Report on Other Legal and Regulatory Requirements‟ regarding the aforesaid ICDs that, In our opinion, is prejudicial to the interests of the Parent, and the initial recording of these amounts as capital advance was reflected only by book entries.
FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 92 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30(b) As at 31 March, 2019 ICDs of Rs. 174,468.00 lacs given to promoter group companies and other companies [including Rs.77,575.00 lacs referred to in paragraph (a) above] and Rs. 7,702.52 lacs Interest accrued on such ICDs (net of provision of Rs. 8,509.40 lacs), respectively, are doubtful of recovery considering the financial condition of the promoter group companies and the other companies to whom these ICDs have been given. However, the Parent has not made any provision for the outstanding amounts recorded as ICDs and interest accrued thereon. Consequently, the non-current portion of loans and interest accrued thereon are overstated and loss for the year is understated by Rs. 182,170.52 lacs.
(c) The aggregate amount of Rs. 174,468.00 lacs disclosed as ICDs outstanding as at 31 March, 2019 are in excess of limits on lending prescribed under section 186 to the Act by Rs. 61,156.16 lacs for which approval has not been obtained from the members of the Parent. Further, in view of the matter described in paragraph (o) below, we are unable to state if any of the promoter group companies are companies whose Board of Directors of Managing Director or Manager, whereof is accustomed to act in accordance with the directions of any director of the Parent, and therefore covered under section 185 of the Act and any non-compliance thereto.
(d) The Parent has recognized Rs. 6,781.86 lacs as sundry income from one of the promoter group companies. In our opinion and according to the information obtained by us, the sundry income may have been funded to the said promoter group company through monies indirectly lent by the Parent as more fully described in paragraph (a) above or through ICDs granted and therefore may not have been actually realized. We also draw attention to paragraph 1(b) under section „Report on Other Legal and Regulatory Requirements‟ where we have opined that the aforesaid interest income may have been reflected only by book entries and prejudicial to the interests of the Parent. However, considering the amount already quantified as a modification of the audit opinion in respect of outstanding balance of ICDs from these promoter group companies described in paragraph (b) above, this recognition of sundry FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 93 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 income will not have any further impact on the loss for the year."
14. The view taken by the Learned Single Judge does not call for interference in the light of the aforesaid discussion, and in the light of the judgement of the Supreme Court in Wander Ltd. v. Antox India (P) Ltd., 1990 Supp SCC 727, wherein, the Supreme Court observed:-
"13. On a consideration of the matter, we are afraid, the appellate bench fell into error on two important propositions. The first is a misdirection in regard to the very scope and nature of the appeals before it and the limitations on the powers of the appellate court to substitute its own discretion in an appeal preferred against a discretionary order. The second pertains to the infirmities in the ratiocination as to the quality of Antox's alleged user of the trademark on which the passing- off action is founded. We shall deal with these two separately.
14. The appeals before the Division Bench were against the exercise of discretion by the Single Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 94 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30 discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to these principles Gajendragadkar, J. in Printers (Mysore) Private Ltd. v. Pothan Joseph [(1960) 3 SCR 713 : AIR 1960 SC 1156] : (SCR 721) "... These principles are well established, but as has been observed by Viscount Simon in Charles Osenton & Co. v. Jhanaton [1942 AC 130] „...the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles in an individual case‟."
The appellate judgment does not seem to defer to this principle."
15. Accordingly, the appeals are dismissed with costs quantified at Rs. 2 Lakhs each.
(VIPIN SANGHI) JUDGE (REKHA PALLI) JUDGE FEBRUARY 07, 2022 FAO(OS) (COMM) 2/2021, 5/2021 & 6/2021 Page 95 of 95 Signature Not Verified Digiltally Signed By:BHUPINDER SINGH ROHELLA Signing Date:08.02.2022 14:45:30