Madras High Court
Orchid Chemicals & Pharmaceuticals ... vs Idbi Bank Limited on 10 January, 2013
Author: N. Paul Vasanthakumar
Bench: N. Paul Vasanthakumar
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 10.01.2013 CORAM THE HONOURABLE MR. JUSTICE N. PAUL VASANTHAKUMAR WRIT PETITION NO.27547 of 2012 and M.P.Nos.1 and 2 of 2012 Orchid Chemicals & Pharmaceuticals Limited rep. by its Senior General Manager-Legal and Company Secretary "Orchid Towers" 313, Valluvarkottam High Road Nungambakkam Chennai 600 034. ... Petitioner Vs. IDBI Bank Limited 115, Anna Salai P.B.No.805, Saidapet Chennai 600 015. ... Respondent Writ Petition filed under Article 226 of the Constitution of India praying for the issuance of a Writ of Declaration declaring that the purported exercise of the right of conversion by the respondent-bank, of part of the loan to the extent of Rs.30,19,37,460/- into 3,01,93,746 equity shares at par pursuant to the respondent's communication dated 30.8.2012 is null and void, non-est and inoperative. For Petitioner : Mr.AL. Somayaji Senior Counsel for Mr.T.K.Bhaskar For Respondents : Mr.R.Krishnamurthy Senior Counsel for Mr.P.L.Narayanan ******* O R D E R
This writ petition is filed praying for a Declaration declaring that the purported exercise of the right of conversion by the respondent-bank, of part of the loan to the extent of Rs.30,19,37,460/- into 3,01,93,746 equity shares at par, pursuant to the respondent's communication dated 30.8.2012, is null and void, non-est and in-operative.
2. The case of the petitioner is that the petitioner is a public limited company whose shares are listed in the Bombay Stock Exchange, National Stock Exchange and the Madras Stock Exchange. The petitioner is having a registered office at Numgambakkam, Chennai-34. The petitioner is one of the leading pharmaceutical companies in India. In the year ended on 31.3.2012, the annual turnover of the petitioner-company was Rs.1736.33 crores. The petitioner-company has been registered as a 100% export oriented unit and has its factory at Chennai and Aurangabad and also having Research and Development Centre located at Sholinganallur, Chennai. The respondent-bank's registered office is at IDBI Towers, WTC Complex, Cuffe Parade, Mumbai-5 and a branch office at No.115, Anna Salai, Saidapet, Chennai-15.
3. According to the petitioner, the Government is a principal shareholder of the respondent-bank to the extent of 70.52% and its Board comprises of four Government nominees and as such, the Government is having a deep and pervasive control over the operations of the respondent-bank. In the year 2010, the petitioner agreed to borrow a sum of Rs.100 Crores from the respondent-bank pursuant to a loan agreement entered into between the parties on 20.7.2010, as per which, the petitioner was to draw under the loan on or before 31.8.2010 the amounts repayable in terms of an amortization schedule with the first instalment payable on 1.7.2011. The entire loan is to be discharged by 1.1.2015. Interest was to be paid at the rate of Bank Base Rate (BBR) plus 425 bps per annum and has to be paid on monthly basis. In the event of default in principal or interest on respective due dates, liquidated damages at 2.1% per annum was payable during the default period. The loan was also secured in favour of the lender with a first mortgage of all the immovable properties and a second charge by way of hypothecation on borrower's stock of raw materials, semi-finished and finished goods, consumable stores and other current assets. Article IV(i)(b) of the Agreement enables conversion right in any event of default. The Agreement also provides that in the event of default, respondent-bank is entitled to issue notice in writing declaring that the principal and all accrued interest to be payable forthwith and the security in terms of the Agreement will become enforceable.
4. According to the petitioner, repayments under the term loan had been regular till April, 2012. Due to unfavourable market conditions, the petitioner-company has been undergoing a severe strain in liquidity post-redemption after February, 2012, as it redeemed its Foreign Currency Convertible Bonds, which was listed on the Singapore Exchange Limited to the tune of US$ 175 Million as they fell due for maturity. On 18.5.2012, the petitioner sent a letter to regularise its accounts in continuation of a meeting of consortium lenders held on 12.4.2012.
5. According to the petitioner-company, during the first week of August, 2012, the official of the respondent-bank, DGM, insisted on a personal meeting to discuss the repayment schedule and the plan of action for repayment. The meeting was held on 4.8.2012 and in continuation of discussion, the petitioner sent a formal request, vide e-mail dated 7.8.2012, followed by a letter to GM of the respondent-bank and the respondent-bank called for particulars to consider re-structuring the proposal. The petitioner-company in its Board meeting held on 22.8.2012, unanimously approved a Business Transfer Agreement with Hospira Healthcare India Pvt. Ltd., for transfer of its API business of Penicillin and penems at Aurangabad for a value of approximately US$ 200 Million. The said Agreement was signed on 29.8.2012 and the said fact was disclosed in the stock exchanges on the same day.
6. According to the petitioner-company, respondent-bank instead of responding to the re-structuring proposal, purported to exercise its right of conversion to the amount of Rs.30,19,37,460/- into 3,01,93,746 equity shares of Rs.10/- each. It is contended that notice of conversion is defective. According to the petitioner-company, no conversion notice was issued and the loan sanction was not recalled. The said action of respondent-bank is said to be in contravention of the provisions of the Companies Act, particularly Section 81(3)(b) and the Public Companies (Terms of Issue of Debentures and Raising of Loans with option to convert such or debentures or loans into shares) Rules, 1977. The said Rule contemplates at least 30 days prior notice to the intended date of conversion.
7. It is also stated in the affidavit that purported exercise of right to conversion is unfair and particularly to the terms of Agreement, as it seeks allotment of shares of more than 30% of the outstanding share capital of the petitioner-company on a post-issue basis. The market value of the share as of date being quoted on the stock exchange, is around Rs.110 per share. It is also stated in the affidavit that the petitioner-company has remitted the entire outstanding dues towards interest and principal. Therefore, the purported exercise of conversion right is to be set aside. After issuance of notice, the petitioner-company sent a letter on 11.9.2012 seeking time until 31.10.2012 to settle the outstanding due. However, again on 13.9.2012, the respondent-bank re-asserted its right to convert a part of the loan into equity shares. According to the petitioner-company, the said action of the respondent-bank is arbitrary and non-est. Hence, the petitioner-company has filed this writ petition with the above said prayer.
8. It is the contention of the respondent-bank that the writ petition is not maintainable, as the question raised in this writ petition is a mere enforcement of contract, involving disputed questions of facts.
9. The respondent-bank has filed a counter affidavit stating that the petitioner is seeking lame excuses for its failure to comply with the contractual terms after availing the huge loan facility from the respondent-bank. The respondent-bank exercised its option in terms of the Agreement following the default committed by the petitioner-company, which failed to repay the interest and principal as contained in Article IV of the Loan Agreement. The Loan Agreement was entered into on 20.7.2010, during which time, the existence of 1977 Rules was very much aware to the parties. The petitioner-company waived their personal benefit of 30 days notice by execution of Term Loan Agreement and also waived right under Section 23 of the Indian Contract Act, 1872. The respondent-company also initiated legal action by filing a suit before this Court bearing C.S.No.684 of 2012 after 30 days of notice dated 30.8.2012. The notice of conversion does not suffer any legal infirmity. The respondent-bank is not an instrumentality of the State. The petitioner-company has not sought for No Objection Certificate from the respondent-bank for completion of the transaction of transfer of its penicillin and penem business until it received the suit notice. The petitioner-company filed a caveat opposing the grant of interim orders in the civil suit filed. As disputed facts are involved and the suit has already been filed, the petitioner can very well agitate its rights in the suit. The respondent-bank is not discharging any sovereign function and is clearly performing commercial transactions and therefore, the writ petition filed questioning the commercial transaction is not maintainable and ultimately, the respondent-bank has prayed for dismissing the writ petition.
10. The learned Senior Counsel appearing for the petitioner argued that there are statutory violations committed by the respondent-bank through the impugned action and therefore, the writ petition filed before this Court is maintainable, particularly, when the writ was filed prior to filing of the suit. The learned Senior Counsel further submitted that though the petitioner-company is entitled to raise all the contentions in the pending suit, due to arbitrary action of the respondent-bank and the violations of statutory provisions, the petitioner is entitled to maintain the writ petition, particularly, when the entire principal amount and interest payable as on date have already been paid, though with a delay.
11. The learned Senior Counsel cited the judgment of the Supreme Court in (2010) 11 SCC 186 (Zonal Manager, Central Bank of India vs. Devi Ispat Limited and Others), in support of his contentions.
12. The learned Senior Counsel appearing for the respondent-bank, on the other hand, submitted that in respect of the very same subject, suit is already filed in C.S.No.684 of 2012 before this Court and the issues in the suit and in the writ petition are substantially same. Therefore, the disputes can be resolved only in the suit pending and if the petitioner-company is having any right to assert, it can file counter claim or file another suit to redress its grievance. The learned Senior Counsel cited the judgments of the Supreme Court reported in (1996) 6 SCC 22 (State of U.P. And Others vs. Bridge & Roof Company (India) Ltd., (2002) 4 SCC 316 (Commissioner of Customs, Mumbai vs. Virgo Steels, Bombay and Another ), (2008) 17 SCC 672 (Bank of India vs. Surendra Steel Industries Private Limited and Others) and also relied on the decision reported in (2010) 11 SCC 186 (Zonal Manager, Central Bank of India vs. Devi Ispat Limited and Others) cited by the learned Senior Counsel for the petitioner-company.
13. I have considered the rival submissions made by the learned Senior Counsel appearing for the respective parties.
14. In the writ petition, the petitioner-company prayed for declaration that the purported exercise of the right of conversion by the respondent-bank, of part of the loan to the extent of Rs.30,19,37,460/- into 3,01,93,746 equity shares at par, pursuant to the respondent's communication dated 30.8.2012, is null and void, non-est and in-operative. The respondent-bank issued a notice on 14.9.2012 proposing legal action for non-conversion of default at loan amount into company's equity shares. After receipt of the said legal notice, on 8.10.2012, the petitioner-company filed this writ petition. The respondent-bank pursuant to the notice issued on 14.9.2013, filed a suit in C.S.No.684 of 2012 on 13.10.2012 and prayed for judgment and decree against the petitioner-company for mandatory injunction directing the petitioner and its Directors and Officers to issue and allot 3,01,93,746 numbers of fully and paid equity shares of Rs.10/- each at par in the name of the respondent-bank in dematerialized form and consequently such allotment of equity shares to the plaintiff/bank to take effect from 30.8.2012. Thus, the subject matter in the writ petition i.e. seeking conversion of the loan amount of Rs.30,19,37,460/- into 3,01,93,746 equity shares is pending for adjudication before this Court on the Original Side.
15. The main contention of the learned Senior Counsel for the petitioner-company is that the writ petition was filed earlier than the date of filing of the suit. It is to be noted that the writ petitioner was served a suit notice and informed of legal action by the respondent-bank as early as on 14.9.2012. Thus, the contention of the learned Senior Counsel for the petitioner that the petitioner having filed the writ petition before the date of filing of suit, the issue raised in this writ petition is to be decided, cannot be countenanced. As the subject matter in issue regarding the conversion of loan amount into equity shares is pending in the suit and the parties can agitate all issues and if the writ petition is decided on merits, it will amount to parallel proceeding. In fact after contest, O.A.Nos.864 and 865 of 2012 in C.S.No.684 of 2012 filed by the respondent-bank were disposed of on merits on 18.12.2012. Hence, I am of the view that it is not proper to decide the issue raised in this writ petition, when the issues are already pending in the civil suit, where the factual aspects can be gone into in detail and the petitioner can raise all its objections/legal contentions, which are raised in this writ petition.
16. Insofar as the decisions relied on by the learned Senior Counsel for the parties, it is relevant to note that in none of those cases, while pending civil suit, a decision was rendered in the writ petition. Therefore, the said decisions cited supra will have no application to the facts of this case.
17. In fine, the writ petition is dismissed with liberty to the petitioner-company to agitate its claim in the suit filed by the respondent-bank. No costs. Connected miscellaneous petitions are also dismissed.
kb To IDBI Bank Limited 115, Anna Salai P.B.No.805, Saidapet Chennai 600 015