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