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2013 Supreme(Bom) 2507
HIGH COURT OF JUDICATURE AT BOMBAY
S.J. KATHAWALLA, J.
The Bank of New York Mellon, London Branch
Versus
Zenith Infotech Limited
Company Petition No.28 of 2012 with Company Application No. 66 of 2012 with Company Application (L) No. 544 of 2013
Decided on: 13-12-2013
For the Petitioner:Janak Dwarkadas, N.H. Seervai, Senior Advocates, Rahul Narichania, S. Mandal, Sahil Kanuga, Ankur Kashyap, instructed by M/s. AZB & Partners, Advocates.
For the Respondents:Arif Bookwala, Shailesh Shah, Senior Advocates along with Zal Andhyarujina, Parag Kabadi, Ms. Mrinalini Rajpal, Shardul Singh, instructed by M/s. Doijode Associates & Gaikwad, Advocates.
Headnote:
The Court ordered the winding up of a company, Zenith Infotech Limited (ZIL), on the grounds of admitted debt, admitted insolvency, and admitted default. The Court found that the Promoters/Directors of ZIL had acted dishonestly and had siphoned away the funds of the Company. The Court also rejected the Company's arguments that the winding up should be deferred until the sale of the Company's Cloud Computing Business (CC Business) and other assets, finding that such a delay would not be in the best interests of the Company or its creditors.
Fact of the Case:
ZIL, a software company, defaulted on its US$ 33 million FCCBs due in 2011 and its US$ 50 million FCCBs due in 2012. The Company sold its MSD Business for US$ 54,712,461 but failed to make any payment towards the FCCBs. The Company's Promoters/Directors made false representations to shareholders and the Court, and siphoned away the sale proceeds of the MSD Business. The Company filed a Reference with the BIFR seeking protection under SICA, but the Reference was rejected. The Petitioner, a US National Banking Corporation and Trustee holding the FCCBs, filed a Company Petition for winding up of ZIL.
Finding of the Court:
The Court found that the Company had admitted its debt, admitted its default, and admitted its insolvency. The Court also found that the Company's Promoters/Directors had acted dishonestly and had siphoned away the funds of the Company. The Court rejected the Company's arguments that the winding up should be deferred until the sale of the CC Business and other assets, finding that such a delay would not be in the best interests of the Company or its creditors.
Issues: Whether the Company should be wound up; Whether the winding up should be deferred until the sale of the CC Business and other assets.
Ratio Decidendi: The Court held that the Company should be wound up because it had admitted its debt, admitted its default, and admitted its insolvency. The Court also found that the Company's Promoters/Directors had acted dishonestly and had siphoned away the funds of the Company. The Court rejected the Company's arguments that the winding up should be deferred until the sale of the CC Business and other assets, finding that such a delay would not be in the best interests of the Company or its creditors.
Final Decision: The Court ordered the winding up of ZIL and appointed the Official Liquidator as Liquidator of the Company. The Court stayed the winding up order until April 16, 2014, to facilitate the sale of the CC Business as a going concern and the sale of the Company's properties and assets.
1. By this Company Petition, the Petitioner seeks winding up of Zenith Infotech Limited (hereinafter referred to as ‘the Company’), which was incorporated on 31st December, 1996, under the provisions of the Companies Act, 1956 (No.1 of 1956) (“the Act”). The Petition is taken up for hearing and final disposal.
2. The facts leading to the filing of the present Petition are as under:
3. The Petitioner is a US National Banking Corporation, having its Office at the address given in the cause title of the Petition. The Petitioner is engaged, inter alia, in the business of providing corporate trustee services. The main object for which the Company was incorporated is to inter alia carry on the business of manufacturers and sellers of all kinds of electronic and electrical equipment and machinery including computers, data loggers, process controllers, geophysical and communication instruments, ultrasonic and microwave devices, etc.
4. The Petitioner has stated in the Petition filed on 21st December, 2011, that the Company is indebted to the Petitioner for an aggregate sum of US $ 36,141,167.66 (US Dollars Thirty Six Million One Hundred Forty One Thousand and One Hundred Sixty Seven and Sixty Six cents only).
5. On 15th September, 2006, the Company offered US $ 33 million 3.0 % convertible bonds 2011 due for repayment or redemption in August 2011. Similarly on 14th August, 2007, it also offered US $ 50 million 3.0 % convertible bonds 2012 due for repayment or redemption in August 2012. The bonds were issued at 100 per cent of the principal amount. The Petitioner is the Trustee holding the aforesaid bonds in trust for the bondholders, who subscribed to the said bonds.
6. The Company entered into a Trust Deed dated 20th September, 2006 in relation to the 2011 Bonds and a separate Trust Deed dated 17th August, 2007 in relation to the 2012 Bonds with the Petitioner. Under clause 2.2 of both the Trust Deeds, it was provided that the Petitioner “.... covenants to unconditionally pay or procure to be paid to or to the order of the Trustee in London in US $ in immediately available funds the principal amount”.
7. The maturity date for repayment under the 2011 Bonds was 21st September, 2011. Prior to that, the Company on 27th December, 2010 issued a notice to hold an Extraordinary General Meeting (‘EOGM’) of the Company on Saturday, 29th January, 2011. In the Explanatory Statement annexed to the said notice it was inter alia provided as under:
“The Company has issued Foreign Currency Bonds of US$ 33 million in August, 2006 and US $ 50 million in August, 2007. These Bonds would become due for repayment/redemption in August, 2011 and August, 2012. The Board of Directors propose to augment the funds for the purpose in one or more of the following methods (including) through any combination thereof:
(1) To borrow moneys from Domestic markets and/or through External Commercial Borrowings upto an amount not exceeding Rs.1,500,00,00,000/- ( Rupees One Thousand Five Hundred Crores).
(ii) To sell and/or lease the business and/or divisions including the subsidiaries (wholly and partly) of the Company and for that purpose to issue debt securities / bonds, etc. in the domestic or international markets, as permitted by law so as to redeem/repay the outstanding Foreign Currency Convertible Bonds which would come for repayment/redemption in August, 2011 and August, 2012.
…. …... …. ..”
8. Pursuant to the Resolution passed at the EOGM held on 29th January, 2011, the Company sold its Remote Monitoring and Management Business (“the MSD Business”) and on 26th September, 2011 made an announcement on the Bombay Stock Exchange (“BSE”) and National Stock Exchange (“NSE”) regarding the said sale. Since the Company failed to make the repayment under the 2011 Bonds on the maturity date i.e. 21st September, 2011, the Petitioner on 27th September, 2011, issued an Event of Default Notice to the Company for the event of default which had occurred under Condition 11 of the Te
