1. The above Company Petition is filed by the Petitioner â Etisalat Mauritius Ltd. for winding up of Respondent No.1 Etisalat DB Telecom Pvt. Ltd. According to the Petitioner, it is just and equitable to wind up the Respondent No.1 Company inter alia on the following grounds:
(i) Loss of substratum of the Respondent No.1 Company on account of the quashing of the 2G licenses by the Honble Supreme Court;
(ii) Dysfunctional Board of Directors owing to the withdrawal of Directors nominated by Respondent No.2 Majestic Infracon Pvt. Ltd.;
(iii) The Respondent No.1 Company is insolvent as its liabilities far exceed its assets and it cannot pay its dues as and when they arise.
The Company Petition is taken up for admission.
2. Briefly set out here-in-below, are the facts which have led to the filing of the above Company Petition and the orders passed by this Court thereon after the filing of the Petition and pending admission of the same:
2.1 The Petitioner â Etisalat Mauritius Ltd. (EML) is a Company incorporated under the laws relating to Companies of Mauritius. The Petitioner is a 100 per cent subsidiary of Emirates Telecommunications Corporation (âEtisalatâ), a Public Listed Corporation, incorporated in the United Arab Emirates (UAE). Etisalat is 60 per cent owned by the Federal Government of UAE and 40 per cent owned by UAE national individuals. Etisalat is an International Telecommunications Operator and currently has operations in 18 countries and services over 140 million subscribers across its network.
2.2 The first Respondent â Etisalat DB Telecom Pvt. Ltd. (âthe Companyâ) was incorporated on 13th July, 2006 under the Companies Act, 1956, in the name of Swan Capital Pvt. Ltd. On 15th February, 2007, the Company changed its name to Swan Telecom Pvt. Ltd. and on 12th March, 2009 again changed its name to Etisalat DB Telecom Pvt. Ltd.
2.3 The second Respondent, Majestic Infracon Pvt. Ltd. (Majestic) is a Company incorporated under the Companies Act, 1956, under the provisions of the Companies Act, 1956. Majestic is said to be 100 per cent owned and controlled either directly or indirectly by Shahid Balwa (Balwa) and Vinod Goenka (Goenka). Majestic was formerly known as Tiger Trustees Pvt. Ltd. (âTiger). Tiger has been the subject of investigation by the Criminal Investigation Authorities investigating the 2G scam and was closely involved in the events which form the 2G scam. The Petitioner has pointed out that it has been alleged by the CBI that Tiger is an Associated Company of Reliance.
2.4 The third Respondent Delphi Investment Limited (Delphi) is a Private Company, limited by shares incorporated in the Republic of Mauritius. Delphi holds 5.26 per cent shares in the Company.
2.5 The fourth Respondent â Genex Exim Ventures Pvt. Ltd. (âGenex) is a Company incorporated under the provisions of the Companies Act, 1956 and holds 4.26 per cent of the shareholding of the Company.
2.6 After the incorporation of the Company on 13th July, 2006, on 1st October, 2007, Respondent No.2-Majestic acquired 90.10 per cent of the equity shares of the Company and Shahid Balwa and Vinod Goenka were appointed Directors of the Company. The remaining 9.90 per cent shares were held by Delphi.
2.7 On 10th January, 2008, Letters of Intent for the grant of Unified Access Services Licenses (â2G Licenses) were issued to the Company by the Department of Telecommunications (âDoT), Government of India. The Company met the funding required to pay the entry fees in respect of the 2G licenses through bank loans.
2.8 According to the Petitioner, thereafter Balwa and Goenka approached Etisalat through Deutsche Bank to convince Etisalat to invest in Swan Telecom Ltd. Balwa and Goenka in the course of negotiations made false representations as to the lawful manner in which the licenses were acquired. Amongst other representations, they represented that the licenses had no basis to be revoked/suspended/cancelled/terminated as they had fulfilled all legal obligations and due procedure. Warranties were also made by Respondent No. 2 as to their expertise in the field of telecom.
2.9 Based on the above representations and warranties, on 23rd September, 2008, Shareholders Agreement and Share Subscription Agreement were entered into between the Company, Respondent No.2-Majestic, the Petitioner, Genex, Shahid Balwa and Vinod Goenka. Pursuant thereto on 17th December, 2008, the Petitioner subscribed to 11,29,94,228 shares of the Company by investing an amount of Rs.3228.44 crores. At about the same time, Genex subscribed to 1,33,17,245 shares of Respondent No.1. As a result of this investment, the shareholding structure of the Company was as under:
| (i) | Respondent No.2/Majestic | 45.73% |
| (ii) | PetitionerâEML | 44.73% |
| (iii) | Respondent No.3 â Delphi | 4.27% |
| (iv) | Respondent no.4 â Genex | 5.27% |
| Total | 100% |
2.10 On 17th December, 2008, a Management Services Agreement was entered into between the Company and Etisalat Telecommunications Corporation wherein the Etisalat Group agreed to provide management services as provided therein, to the Company. However, according to the Petitioner in reality, at an operational level, Balwa (Managing Director and Vice-Chairman), Goenka and the key management (CEO/CRO/CLO) hired by them, prior to the Petitioners investment, managed the Company on a daily basis. Contrary to Respondent No.2-Majestics allegation that the Petitioners nominee Directors were also given power and authority to negotiate/execute contracts, Mr. Al Haddad was not given any such power on any occasion and Mr. Julfar was given limited authorization by the Board on only one occasion on 31st August, 2010, to assist in the negotiation of a contract with ZTE. Balwa interfered in all minor and major matters that were to be dealt by Mr. Pratap Ghose and other key officers and ensured that his decision prevailed over the others. In support of these contentions, the Petitioner has relied on the affidavit of Respondent No.2 Majestic dated 26th March, 2012, and the affidavits on behalf of the Petitioner dated 30th April, 2012 and 24th July, 2012 and the table marked A18 summarizing authority given to Respondent No.2 Majestic through Board Resolutions.
2.11 On 17th March, 2009, the Petitioner invested an amount of Rs.209.70 crores in the Company and was allotted 2 additional shares of the Company. The said sum of Rs. 209.70 crores was the equivalent of spectrum fee payable by Respondent no. 1 for the Rajasthan and Haryana circles under the 2G licenses.
2.12 On 21st October, 2009, the CBI filed a FIR against unknown officers of the DoT and unknown private persons and began an investigation into the process of allocation of 2G spectrum by the DoT.
2.13 On 25th May, 2010, the Petitioner invested a further amount of Rs.106.95 crores in the Company and was allotted one additional share of the Company. The said sum of Rs. 106.95 crores was the equivalent of the spectrum fees payable by the Company for the Bihar and Madhya Pradesh circles. With this remittance, the total investment made by the Petitioner in Respondent No.1 was Rs.3545.09 crores.
2.14 On 14th February, 2010 and 3rd January, 2011, Public Interest Litigations (PILs) were filed in the Honble Supreme Court of India in respect of 2G spectrum allocation by the Centre for Public Interest Litigation and Dr. Subramanian Swamy. On 2nd April, 2011, the CBI filed a charge-sheet before the Special CBI Judge, inter alia, against the then Minister of Telecommunications â A. Raja, the Company, Balwa and Goenka. On 25th April, 2011, a supplementary charge-sheet was filed by CBI setting out details of the amounts in the nature of illegal gratification channeled by M/s. Dynamix Realty, a Group Company of the DB Group of Companies (of which Respondent No.2 Majestic is a part and Balwa and Goenka the principal shareholders and promoters) in return for preferential allotment of 2G licenses to the Company. According to the Petitioner the CBI charge-sheet alleges that the Company (Swan) was a Reliance Anil Dhirubhai Ambani Group (âRADAG') entity. Under the extant Telecom Policy, RADAG was ineligible to apply for or obtain UASLs as it held licenses in RCOM. Swan was used by RADAG to mask the identity of the promoter (then RADAG) while applying for 2G licenses. On a change in the Telecom Policy permitting dual technology (GSM + CDMA), RADAG sold Swan to Balwa and Goenka. According to the Petitioner, the CBI charge-sheet describes how Balwa and Goenka, whose DB Group had no telecom experience, then entered into a criminal conspiracy with RADAG, the then Telecom Minister and the then Telecom Secretary, to cause the issuance of UASLs to Swan, which was otherwise ineligible, in a manner that ensured the issuance of licenses to Swan over several other eligible applicants on a âfirst come first served' basis, for a price that was far lesser than the inherent value of the spectrum that accompanies the licenses. On 8th July, 2011, a show cause notice was issued by the Directorate of Enforcement to the Company and its Directors alleging violation of the provisions of the Foreign Exchange Management Act, 1999. 2.15 On 8th July, 2011, Respondent No.2/Majestic filed a Petition under Sections 397 and 398 of the Companies Act before the Company Law Board, Mumbai (âCLB) against the Company, the Petitioner and the Petitioners nominee on the Board of Directors of the Company wherein Respondent No.2 Majestic (the Petitioner therein), inter alia, raised the following allegations:
(i) That the Petitioner failed to bring its expertise and management skills to manage the business of Respondent No.1 in terms of the 2G licenses;
(ii) That the Petitioner failed to comply with the capital call made by the Board of Directors of the Company;
(iii) That the Minutes of the Meeting of the Board of Directors held on 25th April, 2011 had been wrongly recorded; and
(iv) That the Petitioner was responsible for the financial losses suffered by the Company on account of its mismanagement and unnecessary expenditure.
However, on 1st August, 2011, Respondent No.2 Majestic unconditionally withdrew the said petition filed before the CLB. On 2nd August, 2011, Balwa admitted in his letter to the Chairman of Etisalat (the holding Company of the Petitioner) that the decision to file the petition before the CLB was taken by his lawyers without his consent or concurrence and that such occurrence will never happen again. (Though Respondent No.2-Majestic has disputed this letter in its affidavit dated 12th June, 2012, the same was not disputed during oral arguments).
2.16 On 22nd October, 2011, an order was passed by the Special CBI Judge framing criminal charges against Balwa, Goenka and the Company.
2.17 According to the Petitioner, Respondent No.2-Majestic repeatedly stated that it is unable to make any capital contribution into the Company.
2.18 On 2nd February, 2012, the Honble Supreme Court quashed all the 2G licenses, inter alia, allotted to the Company. In its said judgment, the Honble Supreme Court recorded findings of conspiracy between the then Minister of Communications and certain applicants for licenses which were real estate companies having no prior experience in dealing with telecom services and who had made their applications only one day before the cutoff date fixed by the Minister on his own. The only real estate companies who were granted 2G licenses in 2008 were the Company and the Unitech Group. The Honble Supreme Court in its judgment further recorded that Respondent No.1 was one of the successful applicants which had offloaded their stakes for thousands of crores in the name of infusion of equity. The Honble Supreme Court also imposed costs of Rs.5 crores each, only on three of the licensee companies whose licenses had been cancelled by the said judgment which included the Company. The said judgment was made operative by the Honble Supreme Court after four months from the date of pronouncement.
2.19 At the meeting of the Board of Directors of the Company held on 19th February, 2012, the management of the Company was directed to submit a complete plan for network shutdown. Again, in the meeting of the Board of Directors of the Company held on 22nd February, 2012, it was unanimously decided to shut down the telecom network of the Company. According to the Petitioner, the Directors nominated by Respondent No. 2 supported this decision as is evident from the video recording and the transcripts of this meeting.
2.20 On 23rd February, 2012, Reliance Infratel Ltd. (RITL) and Reliance Communication Ltd. (RCL) (together Reliance) filed Petitions before the Telecom Disputes Settlement and Appellate Tribunal (âTDSAT) for claims amounting to Rs.1679 crores against the Company. On 31st January, 2012, Reliance had already switched off the telecom network of the Company and disabled access to their passive telecom infrastructure to the Company.
2.21 On 23rd February, 2012, the Petitioner filed a Civil Suit in this Court against Respondent No.2 Majestic and its promoters Balwa and Goenka claiming damages for loss of the Petitioners investment on account of their fraudulent representations and mis-representations.
2.22 On 23rd February, 2012, Goenka and Balwa issued a letter to the Board of Directors of the Company raising objections to the recording of Minutes of the Meeting held on 22nd February, 2012. On 28th February, 2012, the Company informed the DoT and the Telecom Regulatory Authority of India (âTRAI) that it is shutting down its telecom network with effect from 31st March, 2012.
2.23 According to the Petitioner on 29th February, 2012, Respondent No.2 Majestic threatened withdrawal of its nominee Directors in a letter addressed to the Petitioner and on 1st March, 2012, Respondent No.2-Majestic withdrew its two nominee Directors from the Board of the Company. Out of the remaining three Directors, two are foreign nationals. The meeting of the Board of Directors could not be convened thereafter as it is stipulated under the Foreign Director Investment (âFDI) scheme that a telecom Company must have a majority of Indian citizens on its Board of Directors. Thereafter, the Petitioner filed the present petition on 12th March, 2012, seeking winding up of the Company on the grounds set out hereinabove.
2.24 On 29th March, 2012, criminal complaints were filed by the Channel Partners of the Company against the Petitioners nominees on the Board of Directors and the Petitioners employees seconded to the Company. The Petitioner has pointed out that none of the Directors or employees associated with the Respondent No.2 Majestic were named in these complaints, clearly indicating that Respondent No.2 Majestic orchestrated/instigated such complaints. In fact, on 3rd April, 2012, Pratap Ghose, a secondee of the Petitioner to the Company was detained at the Mumbai International Airport on account of a lookout notice issued pursuant to the criminal complaints filed by the Channel Partners.
2.25 On 3rd April, 2012, the Honble Supreme Court rejected the Review Petition filed by Respondent No. 1 for review of the judgment dated 2nd February, 2012, quashing the 2G licenses.
2.26 On 11th April, 2012, this Court in the above Company Petition granted time to the creditors/claimants of the Company to file their respective affidavits before this Court, setting out the particulars of their claim against the Company on or before 16th April, 2012 and also directed that until further orders the Company shall not make any payments to any of the creditors/claimants of the Company without obtaining prior permission of the Court.
2.27 On 13th April, 2012, in an application filed by Citi Bank, a creditor of the Company, the Debts Recovery Tribunal, New Delhi, directed the Company to disclose details of all its movable and immovable assets and to maintain status quo. On 16th April, 2012, in an application filed by Standard Chartered Bank, a creditor of the Company, the Debts Recovery Tribunal, Mumbai, passed an ex parte order directing the attachment of all the assets of the Company and appointed a Receiver for all its assets.
2.28 On 18th February, 2012, TRAI issued its recommendations on Exit Policy for Telecom Licenses wherein it recommended that in view of the terms of the 2G licenses, the entry fees paid by earlier licensees (including the Company) ought not to be refunded to them.
2.29 According to the Petitioner on 19th May, 2012, Punjab National Bank (âPNB) misappropriated an amount of Rs.254.16 crores out of the Companys fixed deposits with the Bank towards an outstanding loan given by PNB to Respondent No.2 Majestic. In fact, on 12th October, 2012, the Advocates for Respondent No.2 Majestic have issued a letter admitting that it owed over Rs.254 crores to PNB and that the appropriation of the funds of the Company by PNB against unpaid amounts due from Respondent No.2 Majestic was illegal.
2.30 On the basis of the minutes consented to by the Petitioner, Respondent No.2-Majestic, employees and creditors of the Company; on 3rd July, 2012, this Court in the above Company Petition passed an order in terms of the said minutes whereby an Authorized Person (âAP) was appointed by this Court inter alia, to preserve and protect the assets of the Company and to mitigate and minimize costs and liabilities.
2.31 On 6th August, 2012, Respondent No.2-Majestic issued dispute notice invoking arbitration against the Petitioner under the Share Subscription Agreement and the Shareholders Agreement dated 23rd September, 2008. On 14th August, 2012, the Petitioner has replied to the dispute notice issued by the Respondent No.2-Majestic and denied all the allegations raised therein. It was further stated that PNB may have a claim against Respondent No.2 Majestic in respect of the loans disbursed to it, but the Company is completely unconnected with the said loan transaction.
2.32 On 28th February, 2012, DOT filed an affidavit stating that there is no refund possible of the license fees. On 10th January, 2013, the Additional CIT, Mumbai, passed an order under Section 281B of the Income Tax Act, 1961, attaching the telecom license fees deposited by the Company with the DOT. On 16th January, 2013, DoT issued a notice to the Company imposing penalty of Rs.650 crores. On 8th February, 2013, DoT once again wrote a letter to the Company stating that it will not refund the license fees.
2.33 In the meantime, the Authorized Person has from time to time heard the nominees of the Petitioner as well as Respondent No.2 Majestic and/or the creditors of the Petitioner and has submitted several reports before this Court and obtained orders on the same regarding termination of 212 out of 286 employees (i.e. 74 per cent of the employees) on the rolls of the Company; making payments for the premium of insurance policies taken by the Company; seeking payment of employees salaries and other dues; recommending payment/renewal of Bank Guarantees; recommending to vacate property/office premises in occupation of the Company; retaining M/s. Luthra and Luthra as Advocates for the 2G matter; recommending sale of furniture, seeking sanction as regards payment for various ongoing services; recommending return of licensed premises; recommending payment to Channel Partners, etc. The Authorized Person also obtained permission of this Court by Report No.12 of 2013 to move the DRT and obtain a stay on the ex-parte order dated 16th April, 2012, appointing a Receiver in respect of the movable and immovable properties of the Company. Pursuant thereto, the Authorized Person also made an application before the DRT to that effect. On 9th January, 2013, the DRT declined to set aside its order dated 16th April, 2012, but has however, in view of the appointment of the Authorized Person by this Court to inter alia protect the assets of the Company, directed that its order dated 16th April, 2012, remain in abeyance until the Authorized Person continues to be so appointed under the order passed by this Court dated 3rd July, 2012.
2.34 This Court has disposed of most of the reports, inter alia of the Petitioner as well as Respondent No.2 Majestic by passing consent orders. On 11th October, 2012, Respondent No.2 Majestic also filed a Company Application (L) No.616 of 2012 seeking orders from this Court to direct the Company to submit its application for prequalification in the 2G auction, for which the last date notified by the DoT was 19th October, 2012. The said application which was opposed by the Petitioner was rejected by this Court by its order dated 18th October, 2012 and the Appeal preferred there-from was also dismissed by the Honble Division Bench of this Court (Coram: Dr. D.Y. Chandrachud and A.A. Sayed, JJ.), on the ground that it is not possible for a shareholder of a Company to seek a direction to the effect that the Company should bid in respect of a particular contract and also that the Company evidently does not have sufficient resources to enter into contractual commitments. A similar application was made on behalf of Respondent No.2 Majestic on 21st February, 2013 to bid for new 2G licenses which was again rejected by this Court.
2.35 The total amount claimed by the Companys creditors as on 12th April, 2013, as per the list submitted by the Authorized Person is Rs.41,867,100,05.14.
2.36. The SCB which has a claim of Rs.1465.95 crores against the Company and the Citi Bank which has a claim of Rs.738 crores against the Company, have through their respective Counsel supported the present Petition seeking winding up of the Company. Reliance Infratel Ltd. and Reliance Communications Ltd. who have filed petitions before the TDSAT for claims amounting to Rs.1679 crores against the Company as on 23rd February, 2012 and who have on 31st January, 2012, switched off the telecom network of the Company and disabled access to their passive telecom infrastructure to the Company have, through their Counsel, submitted that they do not support the present Winding Up Petition filed by the Petitioner.
3. One of the main contentions of the Petitioner is that in view of the judgment of the Honble Supreme Court dated 2nd February 2012, the Company is unable to carry on its principal business viz. the provision of Second Generation (â2G) telecommunication services in India and the Company was left without a commercial enterprise. The 2G licenses were the most valuable and only tangible assets of the Company and the very basis for the investment of equity capital by the Petitioners and debt by various secured creditors. On account of the quashing and termination of all the 15 Universal Access Service Licenses (âUASL or â2G licenses), the Company has lost its substratum.
3.1 However, Respondent No.2 Majestic has denied and disputed that the Company has lost its substratum and has submitted that notwithstanding the cancellation of the 2G spectrum UASL licenses by order of the Honble Supreme Court of India, the Company still has 3 valid telephone licenses for International Long Distance (ILD), National Long Distance (NLD) and Internet Service Provider (ISP) and the Company is capable of carrying on profitable business on the strength of these 3 valid licenses and the Company has reasonable prospect of carrying on 2G business by applying for fresh 2G license particularly when the Company has the assets and infrastructure to carry on 2G licenses. It is submitted on behalf of Respondent No.2-Majestic that merely because the Company is currently making losses, it does not imply that the substratum of the Company is lost. It is submitted that as held in various judgments, it is not for this Court to decide whether the Company is capable of carrying on a profitable venture. Respondent No.2-Majestic as shareholders of the Company have a business plan and are ready and willing to carry on the business of the Company as per its Memorandum. There is no basis for the Company to be wound up under the just and equitable clause on account of a baseless allegation of loss of substratum by the Petitioner. In support of the submission that the facts of the present case do not constitute a loss of substratum for the purposes of a petition under Section 433 (f), Respondent No. 2 relied on the decisions in (i) Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla and another (1976)3 SCC 259, paras 34 to 36, page 271), (ii) M/s. Madhusudan Gordhandas and Co. vs. Madhu Woollen Industries Pvt. Ltd. (1971 (3) SCC 632, page 641, para 29), (iii) In re. The Cine Industries and Recording Co. Ltd. (1941 Bom. L.R. (54) 387, page no. 394), (iv) In Re Kitson and Co. Ltd. (1946) 1 All ER 435, 175 LT 25, page Nos. 4 and 5), (v) In re Taldua Rubber Co. Ltd. (1946) 2 All ER 763, page Nos. 1, 4 to 6), (vi) In Galbraith v. Merito Shipping Co. (1947 SC 446, page Nos. 5 to 7)and (vii) In Vassant Holiday Homes Pvt. Ltd. and ors. Vs. Madan V. Prabhu (2001 (3) BomCR 493, paras 31 and 32, 41 to 44). It is submitted that though in the present case, as stated hereinabove, it is possible for the Company to carry on the business stipulated in its charter, the principal barrier in achieving this is the conduct of the Petitioner. The Petitioner cannot be allowed to take advantage of its own conduct to frustrate the possibility of the Company carrying on business as prescribed by its Memorandum of Association. It is therefore submitted that there is no loss of substratum so as to justify the admission of the Petition under Section 433 (f) of the Act.
3.2 It is an admitted position that under the judgment dated 2nd February, 2012 of the Honble Supreme Court in the case of Centre for Public Interest Litigation vs. Union of India and others (supra) , all the 15 Universal Access Service Licenses (UASL or 2G Licenses) held by the Company have been quashed/terminated. The Company was therefore rendered unable to carry on its principal object viz. the provision of Second Generation (2G) telecommunication services in India. The 2G licenses constituted the most valuable asset of the Company and the very basis for the investment of equity capital by the Petitioners and debt by various secured creditors. Subsequently, by an order dated 4th April, 2012, the Honble Supreme Court was pleased to dismiss the review petition filed by the Company and by various other orders, the Honble Supreme Court continued to require that the Government of India ensure that the licensees whose 2G licenses had been cancelled, cease to do business within the outer limit of time provided by the Honble Supreme Court. The Company was using the telecom infrastructure under contracts with Reliance Infratel Ltd. and Reliance Communications Ltd. who shut down the power supply to the Companys telecom equipment from 31st January, 2012. According to the Petitioner, the Company does not have any other telecom infrastructure.
3.3 In fact, on 22nd February, 2012, the Board of Directors of the Company unanimously resolved to shut down the 2G operations in India as at 31st March, 2012, and it was so shut down on 31st March, 2012. Again shortly after the unanimous decision to shut down operations was taken by the Board of Directors of the Company, on or about 1st March, 2012, both the nominees of Respondent No.2 on the Board of the Company, who constituted two out of the three Indian Directors on a five member Board of Directors, unilaterally resigned from the Companys Board. This made the Board defunct as no real decisions could be taken without the consent of the majority shareholders. This had the effect of all the decision making operations at the Company coming to a complete halt.
3.4 The Honble Supreme Court further required the Govt. of India to conduct fresh auctions of the 2G licenses and spectrum and two such rounds of auction have been completed till date. The Company, however, has not bid in the fresh auctions of the 2G licenses and presently does not hold any 2G license or spectrum. Respondent No.2 Majestic did move this Court seeking directions against the Company to bid for the fresh auctions of the 2G licenses and spectrum. As set out hereinabove, this Court as well as the Honble Division Bench of this Court dismissed the applications, inter alia, on the ground that the DRT, Mumbai, on an application made by the SCB has appointed a Receiver in respect of all the movable and immovable assets of the Company and also on the grounds that the management of the Company was in disarray and that the Company evidently does not have sufficient resources to enter into contractual commitments.
3.5 The Respondent No.2 Majestic has sought to oppose the submission of the Petitioner that the Company has lost its substratum and deserves to be wound up, on the ground that there is viable business opportunity which can be exploited by utilizing the NLD, ILD and ISP licenses held by the Company. As correctly submitted by the Petitioner, the intent and object of the parties at the time of the Petitioners investment in the Company to the tune of Rs. 3228.44 crores (which was by 25th May, 2010 increased to Rs. 3545.09 crores) was to run a successful 2G mobile and telecommunications business in India. The Petitioners decision to invest in the Company was informed by projections of strong growth in mobile penetration in India and the opportunity to exploit the same through the 2G licenses. In fact, even in the early stages of its financial difficulties and immediately after the cancellation of its UAS licenses by the Honble Supreme Court, while nominees of Respondent No.2 Majestic were still on the Board of Directors of the Company, there was no proposal or plan to operate a business using these licenses. The ILD and NLD licenses were purchased in October, 2008, before the roll out services under the 2G licenses. Despite the acquisition of these licenses, Respondent No.2-Majestic has at no stage thought it fit to operate these licenses or set up the infrastructure necessary for operating these licenses. This is despite the fact that there were no disputes between the Petitioner and Respondent No.2 Majestic when the ILD/NLD/ISP licenses were acquired. The Petitioner has further correctly submitted that the suggested revival of the Company through these three licenses is baseless, as the proposal does not account for the substantial additional investment and risks involved in entering a new market in which neither the Company nor Respondent No.2 Majestic has any prior experience or expertise. In any event, it is the considered view of the Petitioner that even if the Company were to commence this business, the costs involved would generate further liabilities and the earnings, if any, would not be sufficient to service the existing debts. It is therefore not in the interest of the Company to even attempt to commence such business. Again, the purported telecom infrastructure already deployed for operating NLD/ILD/ISP licenses has already been attached by the order of the DRT dated 16th April, 2012. Though by an order dated 9th January, 2013, the DRT has kept its order appointing Receiver in abeyance, the attachment continues to remain in effect.
3.6 As recorded hereinabove it is strongly contended on behalf of the Respondent No.2 Majestic that in the present case it is possible for the Company to carry on the business stipulated in its charter. Even during the hearing held before this Court on 30th October, 2012, the Learned Senior Advocate appearing for Respondent No.2 Majestic submitted before this Court that Respondent No.2 Majestic is in a position to place a revival scheme before the Court on the basis that the Company can be revived even without receiving the funds due to the Company which are held up with the telecom authorities and/or other Banks. In view thereof, without prejudice to the rights and contentions of the parties and without going into the issue as to whether the Company was capable of being revived, an opportunity was given to the Respondent No.2 Majestic to place its revival scheme before this Court on or before 30th November, 2012 and forward copies of the same to the Advocate for the Petitioner and the Advocates appearing for some of the creditors of the Company.
3.7 The purported scheme was thereafter served on the Petitioner by the Advocate for Respondent No.2 Majestic on 5th December, 2012. The purported scheme is necessarily founded on the Petitioner withdrawing the present Company Petition and the Petitioner selling its shares to Respondent No.2-Majestic. The scheme, as correctly pointed out by the Petitioner, is so designed so as to conceal material data and to obviate objections from the other interested parties. It is impossible to derive any positive outcome from the arrangement proposed by the Respondent No.2 Majestic, where neither the immediate source of funds available to the Company nor the future revenue streams from purportedly viable businesses have been determined in the scheme. The scheme is devoid of any specifics or details. Till date there has been no information/detail on the names of the âpotential investors as envisaged in the scheme. As submitted by the Petitioner, it is inconceivable to reasonably expect investors to invest in the Company considering the financial situation and the lack of business potential. Though Respondent No.2 Majestic has offered speculative and hypothetical data in the scheme, the method of arriving at the figures is not substantiated. Despite the huge outstanding debts and the proposed operational expenditure to be incurred by the Company being critical to the future of the Company, Respondent No.2-Majestic has failed to disclose the most fundamental facet namely the source of funds required for the revival of the Company. This clearly demonstrates a non-serious and frivolous nature of the scheme prepared by Respondent No.2 Majestic.
3.8 While the scheme is significantly silent on what steps are suggested to be taken by the Company to repay its creditors, the best offer that Respondent No.2 Majestic has been able to make in respect of the creditors is repayment of the amounts in about 57 years and that too, not the entire debt but the reduced amount. This clearly shows that Respondent No.2 Majestic intends the Company to be exposed to further risks and liabilities over a longer period of time, thereby diminishing the likelihood of settlement of the claims of legitimate creditors. As correctly submitted by the Petitioner, as the scheme is intended to be brought into effect only after the withdrawal of the Company Petition by the Petitioner and therefore after the Companys affairs are no longer within the purview of this Court, the purported scheme is clearly an attempt by Respondent No.2 Majestic to selectively deal or not to deal with certain classes of creditors in furtherance of its own independent agenda. Again Respondent No.2-Majestics purported revival scheme admits that the Company can only be revived if Rs.1600 crores is brought in as equity infusion. In paragraph 5.1 of the purported scheme, Respondent No.2 Majestic admits that if the Company is not revived, it will undergo liquidation. Such infusion of capital will necessarily require the consent of the Petitioner and the Petitioner is correct in submitting that it is not agreeable to any such capital infusion by unknown third party investors.
3.9 Again, the decision in respect of the Company to undertake any new venture has to be jointly made by the principal shareholders of the Company viz. the Petitioner and Respondent No.2-Majestic. As correctly submitted by the Petitioner, apart from the impossibility of working with Respondent No.2 Majestic, the Petitioner cannot be lawfully compelled to participate in a venture which is fundamentally different to that for which it invested in the Company. Under the Shareholders Agreement and the Share Subscription Agreement, the Petitioner can assert its affirmative voting rights against commencement of new businesses and therefore it is not open to Respondent No.2-Majestic to unilaterally commence a business solely on NLD/ILD/ISP licenses. The Petitioner has made it clear that it does not intend the Company to pursue this enterprise which poses additional risks and mounting liabilities for the Company, further worsening its financial position as well its ability to repay the debts due to its creditors.
3.10 This Court has also noted that the Company had 308 employees on its rolls at the time of filing of the Company Petition on 12th March, 2012. When the Authorized Person was appointed, by an order dated 3rd July, 2012, the number of employees was reduced to 286 on account of resignations. Accepting the recommendations of the Authorized Person, the number of employees as on 4th March, 2013 was reduced to 52. By an order dated 22nd March, 2013, this Court has directed the termination of the Chief Executive Officer, the Chief Regulatory Officer and two Nodal Officers of the Company. At present the Company has 48 employees on its rolls and is disbursing their respective monthly salaries. The Authorized Person by his report dated 13th June, 2013, has recommended the termination of 28 employees thereby leaving a skeletal staff of 16 employees to take care of the remaining assets of the Company. The Authorized Person had to make various payments in order to meet the current liabilities in the phase of preservation of assets pending the winding up of the Company. Since the filing of the present Petition, payments to employees towards salaries and benefits are in excess of INR 47 crores. Furthermore, approximately Rs. 1 crore has been spent on renewing Bank Guarantees. Over INR Rs. 1.1 crore have been paid towards warehousing and to landlords including by way of adjustment of deposits. A sum in excess of INR 93 lakhs has been incurred towards insurance premiums which again largely relates to fast depreciating, nonproductive assets which the Petitioners maintain must be disposed of immediately. As per the latest list of claims circulated by the Authorized Person on 12th April, 2013, the total amount claimed by the Companys creditors is above Rs.4186.71 crores. By Report No.26 of 2013, a further liability to Channel Partners to the amount of INR Rs.10 crores has been shown by the Authorized Person.
3.11 In the aforesaid circumstances I am in agreement with the Petitioner that the Company has lost its substratum. I am also of the view that the purported revival scheme of the Respondent No.2 Majestic is unrealistic and speculative. There is therefore no scope of any realistic revival of the business of the Company or a renewed ability to carry out its own functions independently. The Respondent No.2 Majestic has therefore miserably failed to establish that it is possible for the Company to carry on the business stipulated in its charter, and the principal barrier to achieving this is the conduct of the Petitioner. In view of the facts and circumstances set out herein, the decisions relied on by the Respondent No.2 Majestic also do not lend any assistance to the Respondent No.2 Majestic. However it is necessary to clarify that a genuine comprehensive scheme which is in the interest of the Company, its shareholders and creditors can always be placed before the Court for its consideration i.e. even after the admission of the Company Petition.
4 The facts set out in paragraph 2 above also establish a complete breakdown of relations between the principal shareholders of the Company. The relationship between the principal shareholders of the Company being the Petitioner and Respondent No. 2Majestic has irretrievably broken down on account of the fact that the reputation of the Company has been destroyed by the CBI proceedings (conducted under the supervision of the Honble Supreme Court), in which Balwa and Goenka stand accused of being party to and benefitting from the illegal actions on the part of the Ex-Minister of Communications. As submitted by the Petitioner, the Petitioner is a respectable telecom company, majorly held and controlled by the Government of the United Arab Emirates and having operations in 18 countries. The Government of UAE does not desire to be associated with such persons. These developments have completely undermined the Company, destroying its brand and reputation, as it has been at the center of and is criminally accused in the 2G Spectrum Scam. It is irrelevant whether they are ultimately acquitted or not.
4.1 Again, as submitted by the Petitioner, the purpose of the Petitioners investment was to create a major telecom service provider in India providing services on the 2G network using the licenses acquired by the Company. The Petitioner has effectively lost its entire investment of Rs.3545.09 crores in the Company as a result of the quashing of the 2G licenses by the Honble Supreme Court, which has clearly been occasioned by the illegal acts of the promoters of Respondent No. 2/Majestic (Balwa and Goenka) who were Directors and the main decision makers of the Company at the time of the acquisition of the 2G licenses on 10th January, 2008, which were declared to be illegal by the Honble Supreme Court.
4.2 The Petitioner and the Respondent No.2-Majestic have separately raised civil disputes against each other under the Share Subscription Agreement and the Shareholders Agreement. The Petitioner has filed a suit for damages against Respondent No.2-Majestic and its Promoters, inter alia, for the loss of its investment in the Company. Respondent No.2 Majestic has issued a dispute notice against the Petitioner for disputes allegedly arising out of unspecified terms of these agreements.
4.3 Both the principal shareholders have made very serious allegations against each other. Both of them attribute the present state of the Company to each other. There exists complete mistrust between the two principal shareholders and both the principal shareholders believe that the Company cannot successfully run its business in continuance with the other. Despite the proceedings of the meeting of the Company being captured on CC T.V, the principal shareholders do not and cannot agree on the issue as to what actually transpired at the meeting and choose to deny and dispute what is stated by each other.
4.4 The relationship between the Petitioner and Respondent No.2 has further deteriorated after the filing of the present Company Petition. In fact, the employees seconded by the Petitioner to the Company and the Directors nominated by the Petitioner are subjected to criminal proceedings initiated by the Channel Partners of the Company. It appears that the Petitioner is correct in believing that these proceedings have been brought at the behest of Respondent No.2 Majestic as the complaints filed have selectively targeted only persons associated with the Petitioner and conveniently excluded everyone connected through Respondent No.2 Majestic.
4.5 The above facts demonstrate complete lack of probity and total loss of faith between the major shareholders of the Company and contribute in proving the loss of substratum and the fact that the Company is incapable of functioning. If such a failed joint venture is allowed to continue, in my view, the slim chances that prevail as on date to protect some of the assets of the Company and not to leave its creditors and skeletal staff high and dry, would also be lost.
5 The Learned Senior Advocate appearing for the Petitioner has also submitted that in view of the afore-stated facts a deadlock situation is created in the Company. The Learned Senior Advocate appearing for the Respondent No.2 Majestic has submitted that the Petitioner has not set out a single instance of a deadlock situation. He submitted that under Clause 3.12.2 of the Shareholders Agreement dated 23rd September, 2008, the Petitioner was required to give a written notice if it regarded that a deadlock situation had arisen and the senior management was required to then try and resolve the same. The Petitioner has not given a single notice as required under Clause 3.12.2 of the Shareholders Agreement dated 23rd September, 2008. It is further submitted that there are four shareholders of the Company. There is no 50 â 50 shareholding between the Petitioner and Respondent No.2 Majestic which could give rise to a deadlock situation. The voting in terms of the shareholding can tilt on either side in case of a difference of opinion between the Petitioner and Respondent No.2-Majestic depending upon the votes cast by the other shareholders i.e. Respondent Nos. 3 and 4. Further, even on the Board of Directors three Directors are required to be nominated by the Petitioner and two by the Respondent No.2 Majestic. Therefore, there is no question of a deadlock in the decision making of the Company as falsely alleged by the Petitioner. Respondent No.2-Majestic in support of its contention that a situation of deadlock has not been created in the Company has relied on the decisions in Hind Overseas Pvt. Ltd. vs. R.P. Jhunjhunwalla and another. (supra), M.S.D.C. Radharaman v. M.S.D. Chandrashekhar and another ((2008) 6 SCC 750), and Abnash Kaur v. Lord Krishna Sugar Mills and others (1972) 2 Del 413 pages 452 and 454.). It is further submitted on behalf of Respondent No.2 Majestic that from the above judgments and in particular, the Judgment of the Hon'ble Supreme Court in Hind Overseas Pvt. Ltd., it is clear that deadlock alone is not sufficient for winding up of a Company on a just and equitable ground. The deadlock must arise from actions which constitute a lack of probity. The deadlock must be of such a nature that there is no hope or possibility of smooth and effective continuance of the Company as a commercial concern.
5.1 As set out in the earlier paragraphs of this order, Respondent No.2 Majestic has withdrawn its two Nominee Directors from the Board of Directors of the Company without nominating replacements. Out of the remaining Directors, two are foreign nationals. A meeting of the Board of Directors could not be convened thereafter as it is stipulated under the FDI Scheme that Telecom Companies must have a majority of Indian citizens on its Board of Directors. The Petitioner has correctly submitted that the provision in the Shareholders Agreement pertaining to the deadlock mechanism apply in a situation where there are commercial or managerial differences between the parties and not when the substratum of the Company has completely disappeared. In circumstances where the Hon'ble Supreme Court has cancelled the Company's UAS Licenses, the Petitioner cannot be reasonably expected to invoke this clause especially since the Hon'ble Supreme Court has found the issuance of the UASL's under the then Telecom Minister unlawful and designed to benefit certain persons, specifically Balwa, Goenka and Swan. The facts set out hereinabove demonstrate total loss of faith between the major shareholders of the Company and lack of probity. The other two shareholders viz. Delphi and Genex have stayed away from taking decisions pertaining to the Company. They do not have any representation on the Board of Directors of the Company. In view thereof, the submissions advanced on behalf of the Respondent No.2 Majestic and the case law cited in support of their submission that the Petitioner has falsely alleged that a situation of deadlock is created in the Company cannot be accepted and stands rejected.
6. The Learned Senior Advocate appearing for the Respondent No.2 Majestic has submitted that the jurisdiction invoked by the Petitioner is undoubtedly a discretionary and equitable jurisdiction. In exercise of discretion as to whether this Petition under Section 433 (f) of the Act warrants admission, the conduct of the Petitioner is an extremely relevant factor. This principal of conduct being relevant has been accepted by the Honble Supreme Court in the case of M/s. Madhusudan Gordhandas and Co. (Supra) wherein the Honble Supreme Court has held that a petition presented with an improper motive or without a legitimate motive ought not to be entertained by this Court. The Respondent No.2 Majestic has in support of its contention that the conduct of the Petitioner is unfair and dubious made several allegations against the Petitioner as set out hereunder, along with response of the Petitioner, as well as the view of this Court in regard thereto:
6.1.1 The Petitioner has acted in collusion with Standard Chartered Bank (SCB) and Citi Bank N.A. (Citi Bank). It is submitted on behalf of Respondent No.2 Majestic that the present Petition is filed by the Petitioner in collusion with SCB with whom it has global relations and also with Citi Bank. The Petitioner has not only admitted the alleged debts of the Company to these Banks in affidavits filed by it but on the instructions of the Petitioner, the Company has also admitted its alleged dues to SCB in the affidavit filed by it dated 26th March, 2012. Further, using the admission in the affidavit dated 26th March, 2012, SCB has at the hearing before the DRT on 16th April, 2012, obtained an order of appointment of Receiver over the assets of the Company. The Petitioner has also ensured that no one appears for the Company before the DRT at the said hearing despite a battery of lawyers appearing for the Company before other forums at the same time. No plausible explanation for nonappearance on behalf of the Company before DRT1 has been given by the Company or the Petitioner herein. The said collusion is also apparent from the emails annexed to the affidavit dated 12th June, 2012 filed by an employee of the Company, whereby it is evident that the Petitioners Advocates have vetted the draft reply proposed to be filed by the Company and even consulted SCB in the process. It is further submitted that though it is true that the nominee Directors of Respondent No.2 Majestic had signed a balance sheet of the Company admitting the dues of SCB, signing of the said balance-sheet cannot be construed as a judicial admission.
6.1.2 In response, the Petitioner has pointed out that Respondent No.2 Majestic nor the Company have never denied the SCB debt in the Company Petition or in the proceeding before the DRT. The SCB debt is admitted in the Companys balance sheet which is signed by Balwa/Goenka. The order dated 9th January, 2013 passed by DRT also recognizes/takes cognizance of the existence of the SCB debt. The DRT observed that the debt is appearing in the Companys books. Therefore it is incorrect to say that the order dated 16th April, 2012, is based on Pratap Ghoshs affidavit in the Company Petition. It is further submitted that the Company agreed to draw on the SCB loan for purchase of network equipment (2G) in 2009, with the full consent and knowledge of Respondent No.2 Majestic and its nominees. There was never any allegation by Respondent No.2 Majestic at the time of the transaction that there was any collusion between the Petitioner and SCB. This allegation is therefore a complete after-thought. It is submitted that various Board Resolutions dated 15th June, 2009, 15th September, 2009, 31st August, 2010 were passed on the drawdown of the SCB with the consent of Balwa and Goenka who were the Managing Director and Director of the Company at the relevant time. It is submitted that in fact it is Balwa who has colluded with the PNB and Reliance and other entities in which he had financial interests like the DB Group of Companies and Techniplex. It is submitted that the affidavit filed by Shri Gyanendra Upadhyay is not admissible and cannot and does not form part of the record of this Court, as more particularly set out inter alia in the affidavits filed by the Petitioner dated 21st July, 2012, 30th April, 2012, Report Nos. 29 and 30 of the Authorized Person and this Courts order dated 22nd July, 2013 and also the CBI charge-sheet. The documents annexed to Upadhyays affidavit are not only stolen documents but are also privileged and confidential documents as envisaged under Sections 126 and 129 of the Indian Evidence Act. In this regard, the Learned Advocate appearing on behalf of the Petitioner has relied on page Nos.211-212 of Compilation of Affidavits of the Petitioner which pages form part of the affidavit dated 24th September, 2012.
6.1.3 As regards the allegation of Respondent No.2-Majestic that the Company was not represented by any lawyer before the DRT, since the Petitioner and the SCB were acting in collusion, the Petitioner has pointed out that Abdul Salam Al Bangui has previously delegated his authority in other proceedings including the Supreme Court Review Petition and TDSAT Petition and the CLB proceedings to Atul Jhamb and Dr. Budhiraja, appointees of Respondent No.2-Majestic. Admittedly SCB notices were served/attempted to be served on 12th and 13th April, 2013 at which time Atul Jhamb and Bhudhiraja, both being Senior Officers of the Company were both present in the Company and could have taken steps to represent the Company in the DRT proceedings. It is submitted that it has never been the contention of Respondent No.2 Majestic that these two senior most officials of the Company were in any way prevented from defending the DRT proceedings. It is pointed out that the Petitioners secondees had resigned with effect from 1st April, 2012 and its nominee were out of the country. Pratap Ghose had already been detained at the Airport on 4th April, 2012 and was being subjected to daily intense police questioning (mostly about the present Petition) for an entire month, at the behest of Balwa and Goenka/Majestic. The Board of the Company was dysfunctional post the unilateral resignation of the Directors of Majestic. The Channel Partners and other persons acting in concert with Balwa and Goenka threatened the Petitioners secondees and Pratap Ghose.
6.1.4 It is submitted on behalf of the Petitioner that the allegation advanced on the part of Respondent No.2-Majestic that the documents viz. the letter of comfort from Emirates Communication Corporation and the covenants to the effect that the facility is valid only till such time as Etisalat has control over the Company under the Shareholders Agreement, the evidence showing collusion between SCB and Etisalat and that the Petitioner is trying to favour SCB, are untenable and baseless. It is submitted that there is nothing suspicious, illegal or mala fide about the Letter of Comfort. It is international practice for Banks to take such letters of comfort while extending loans to a Joint Venture. In any event, Balwa also agreed to utilize the SCB funds in the purchase of telecom equipment. In fact, Respondent No.2 Majestic in the Company Petition filed before the CLB accused the Petitioner of not providing a comfort letter to Tech Mahindra. It is submitted on behalf of the Petitioner that without the letter of comfort, the SCB loan would not have been made available on the terms it was made available. The Petitioner has therefore submitted that the allegation that the Petitioner had intention of favouring the said Banks is baseless, untenable and self-contradictory. It is submitted that if the Petitioner had any intention of favouring the said Banks, it would have got the Company to repay the loan in priority instead of filing the present Petition and seeking the intervention of this Court to ensure due payment of all proven creditors on a fair and equitable basis. It is submitted that it is absurd to insinuate that the Petitioner would allegedly for the benefit of certain creditors jeopardize more than Rs.3544 crores of its own investment in the Company.
6.1.5 The SCB has also denied and disputed the allegations of collusion advanced by Respondent No.2-Majestic against the Petitioner and SCB. It is submitted by SCB that SCB being a secured creditor has acted in a bona fide manner in its normal course of business as a Bank at all times and its action cannot be treated as collusive as alleged. Further the decision of availing the loan from a particular bank is entirely a commercial decision of the Board of Directors of the Company which depends upon various factors, including purpose of the loan, viability, sanction limit, interest rate, other charges etc., all of which the borrowing party has to consider. It is submitted that the loan facility availed by the Company from SCB was for the conduct of its business which facilities were duly approved by the Board of Directors of the Company and only on execution of suitable documentation between the Company and SCB, the said loan facilities were disbursed. Thus, SCB validly and legally granted the loan to the Company much prior to the filing of the present Company Petition. The Respondent No.2-Majestic or their nominees never objected to the facilities granted by SCB at the time of disbursal. The Company failed and neglected to pay the outstanding dues and committed series of events of default under the said loan facilities. In view thereof, the allegation of Respondent No.2 Majestic regarding the alleged preference given to SCB by the Petitioner /Etisalat Group over the other Banks is misconceived and devoid of any merit. SCB has further pointed out that the SCB is a secured creditor of the Company which is indebted to SCB in the sum of Rs. 1465.95 crores approximately as of March 31, 2012 with interest thereon till the date of payment. It is pointed out on behalf of the SCB that the balance sheet for the year ended 31st March, 2011 expressly admits the then existing liability of the Company to SCB in the sum of Rs. 781.8 crores approximately as per Schedule-C of the said balance sheet. Schedule-C mentions that the said loan is a secured loan, secured by way of a first charge over the equipment supplied by Ericson India Pvt. Ltd., and a Comfort Letter from Emirates Telecommunication Corporation. The said balance sheet has been executed on 24th August, 2011 by representatives of both Etisalat Mauritius Ltd. i.e. the Petitioner herein as also Majestic Infracom Pvt. Ltd. being Respondent No. 2 herein. The said balance sheet is also inter alia executed by the aforementioned Mr. Pratap Ghosh, CFO of the Company. In fact, the said balance sheet significantly is found annexed to the affidavit of Respondent No.2-Majestic dated 11th April, 2012. It is further submitted on behalf of the SCB that the unaudited balance sheet of the Company for the year ending March, 2012 which has been prepared and submitted along with the IT Returns of the Company for the Assessment Year 2012-2013 also reflects an admission of liability by the Company to SCB in the sum of Rs.1448.5 crores approximately as on 31st March, 2012. It is therefore submitted that it is undeniable that SCB is a secured creditor of the Company and the Company is indebted to SCB in the sum in excess of approximately Rs. 1450 crores as on 31st March, 2012.
6.1.6 The SCB has further submitted that in order to recover its amounts, it issued a recall notice on 4th April, 2012 to the Company and thereafter on 10th April, 2012, filed proceedings before the DRT at Mumbai being Original Application No. 61 of 2012 for recovery of its dues. On 16th April, 2012, the DRT passed various interim orders and directions in the said interim Application taken out by SCB. Pursuant to and in compliance with the order of the Company Court dated 11th April, 2012, SCB also filed its affidavit setting out its claim and the factum of the DRT proceedings before this Court vide its affidavit dated 17th April, 2012.
6.1.7 SCB has denied the allegation that it is apparent from the emails annexed to the affidavit dated 12th June, 2012 of Mr. Gyanendra Upadhyay that there is collusion between SCB and the Petitioner. SCB has denied that it was ever consulted either by the Petitioner or by the Advocates of the Company in the matter of the draft reply which was proposed to be filed by the Company. It is submitted that there is nothing in the said emails which indicate any consultation with regard to the reply to be filed by the Company or with regard to the Company Petition before this Court. However, on the contrary the said emails disclose the intent to inform the creditor banks of certain proceedings filed before the learned TDSAT by Reliance Telecommunications Ltd. and Reliance Infracon Ltd. In fact, pursuant to the said intimation by the Petitioner, SCB did attend the proceedings before the learned TDSAT with a view to protecting its interest particularly with regard to the security in its favour, by bringing to the notice of the learned TDSAT the relevant facts relating to the security. SCB further after filing its claim before the DRT, Mumbai, and after obtaining adinterim orders therein also sought to bring the said facts to the notice of the learned TDSAT which is inter alia recorded by the learned TDSAT vide its order dated May 3, 2012.
6.1.8 SCB has submitted that it is pertinent to note that the Authorized Person took out a Misc. Application No. 389 of 2012 to vacate the adinterim order passed by the DRT, Mumbai in favour of SCB, wherein the fact of ex-parte ad interim order having been passed was also brought to the notice of the DRT, Mumbai. Inspite thereof, by a reasoned order, the DRT refused to vacate the ex-parte order.
6.1.9 As regards the revival scheme of the Respondent No.2-Majestic, SCB submitted that it is clear that the same does not reflect any realistic plan proposed by the Respondent No.2 Majestic to revive the business of the Company and the said scheme is vague, without any substance, unreasonable and above all fails to protect the rights/interest of the creditors of the Company. It is submitted that the SCB has filed its affidavit responding to the purported revival scheme, where-under the said scheme has been vehemently opposed to, to which the Respondent No.2 Majestic has no valid and substantial defense. SCB therefore submitted that the allegation advanced on behalf of the Petitioner that the SCB and the Petitioner have acted in collusion is baseless, untenable and deserves to be forthwith rejected.
6.1.10 The allegations made by Respondent No.2 Majestic that the Petitioner and Citibank have acted in collusion with each other are also vehemently denied by the Petitioner as well as Citi Bank. The details of the loans availed of by the Company from Citibank and their outstanding amounts there-under have been set out in detail in Citibanks Affidavit dated 16th April, 2012 wherein it is pointed out by Citibank that the Company for the purpose of carrying on its business had availed from Citibank (i) unsecured working capital credit facilities upto an amount of Rs.333,60,00,000/- (BG Facility); and (ii) unsecured working capital credit facilities upto an amount of Rs.550,00,00,000/- ( LC Facility). As regards the BG Facility availed by the Company from Citibank, the Board of Directors of the Company on 25th May, 2010 passed a Resolution, inter alia, for availing of the BG Facility upto US $ 100 Million (then approx.. INR 492,09,99,908.45) from Citibank and to do such other deeds and things as may be necessary for availing the BG Facility. In its further meeting held and resolution passed on 6th June, 2011, the limit of the BG Facility was reduced to USD 57 Million (then approx. INR 280, 49, 69,947.81). The copies of the Board Resolutions have been made available by the Company to Citibank. Thereafter, upon execution of certain loan/security documents, the Company availed of the BG facility from Citibank. Under the BG Facility, at the request of the Company, Citibank issued its Bank Guarantee dated 14th July, 2010, in favour of the beneficiary viz. Tech Mahindra Limited valid upto 30th June, 2011. Tech Mahindra was entitled to invoke and make a claim under the Bank Guarantee in accordance with the terms thereof. The said Bank Guarantee was therefore in force till the same was invoked by Tech Mahindra. On 1st March, 2012, Citibank received a letter from Tech Mahindra Ltd. invoking the Bank Guarantee of Citibank on account of default in the payment of invoices by the Company for quarter ending 31st December, 2011, on the agreed due dates of 31st December, 2011 plus 60 days from the due date for the respective quarters as stated in the Bank Guarantee and demanding payment there-under. This demand was in terms of the Bank Guarantee and within its validity period. Citibank was therefore bound by this demand. In view thereof, the liability of Citibank to make payment under the Bank Guarantee became absolute. By its letter dated 2nd March, 2012, Citibank brought to the notice of the Company the letter dated 1st March, 2012, from Tech Mahindra and that Citibank was in the process of making the payment to the beneficiary and requested the Company to immediately reimburse/fund Citibank the amount under the BG Facility which the Company was/is bound to do. The Company did not dispute the demand made by Tech Mahindra nor the requisition made by Citibanks said letter dated 2nd March, 2012. Citibank in response to the invocation of the Bank Guarantee, made due payment of Rs.154,48,35,531/- to Tech Mahindra Ltd. on 15th March, 2012 under the said Bank Guarantee. Vide its two letters, both dated 16th March, 2012, Citibank communicated the same to the Company at its address in Mumbai and New Delhi and requested the Company to fund the same to Citibank immediately. However, the Company wrongly failed and neglected to arrange reimbursement/funding to Citibank. Citibank is therefore entitled to recover the said amount of Rs.154,48, 35,531/- together with applicable interest from the Company.
6.1.11 For the purpose of availing the LC Facility, the Board of Directors of the Company on 31st August, 2010, resolved to avail the LC Facility upto USD 122 Million. Under the said LC Facility, at the request of the Company, Citibank issued six Letters of Credit in favour of the beneficiaries named therein, in respect of the network equipment provided by the said beneficiaries to the Company for implementation of 2G network. Under the said Letters of Credit, Citibank N.A. China (Citi China) was nominated as the Negotiating Bank, while Citibank N.A. Bahrain (Citi Bahrain) was nominated as Reimbursing Bank. The maturity date of the said Letters of Credit was 31st May, 2012.
6.1.12 Thereupon, the beneficiaries of the LCs negotiated documents under the LCs to Citi China. Citi China advised Citibank (the LC Opening Bank) of certain discrepancies in the documents submitted under the LCs. Citibank brought these discrepancies to the notice of the Company. The Company advised acceptance of the documents (notwithstanding the discrepancies), by an acceptance letter dated 18th November, 2010. Thus the Company waived the discrepancies. The Company unconditionally and irrevocably instructed Citibank to make payment to the beneficiary notwithstanding the discrepancies. Citibank, accordingly advised and instructed Citi China to accept the documents. Citibank instructed Citi Bahrain to release the payment under the LCs to Citi China upon negotiation. Citibank acted upon the said letter, as instructed by the Company. Accordingly, Citi Bahrain discounted the documents under the LCs and became entitled to receive payment under the said documents from Citibank. Citi Bahrain thus became entitled to demand payment of the said amount from Citibank and upon such demand it was the liability of Citibank to pay the said amount to Citi Bahrain. Upon payment, Citibank was entitled to seek reimbursement of the said amount from the Company as the opener of the LCs. On 31st May, 2012, Citibank transmitted the sum of USD 103,945,631 to the account of Citi Bahrain. Upon making the aforesaid payment to Citi Bahrain viz. the Reimbursing Bank under the said LCs, the contingent liability of the Company became an absolute liability. Citibank is entitled to recover the said amounts from the Company. Citibank vide its letter dated 21st June, 2012, intimated to the Company about the payment made by Citibank to Citi Bahrain and called upon the Company to make the said payment of USD 103,945,631. Citibank received a letter dated 29th June, 2012, from the Advocates for the Company, inter alia, expressing its inability to pay the dues, inter alia, on the ground that Winding Up Petition against the Company is pending in this Court and an order of injunction has been passed in the said Winding Up Petition by this Court restraining the Company from making any payment to any of its creditors. Citibank for recovery of its claim under the loan facilities, has already filed Original Application No.56 of 2012 in the DRT No.2, New Delhi, which is pending hearing and final disposal. The said claim of Citibank has been amended in the Original Application and the revised claim is for Rs.737,60,20,256.11-.
6.1.13 Citibank has submitted that it is an admitted position that the Company took the benefit of the loan facilities granted by Citibank and is bound to repay the dues. Having availed of the loan facilities, Respondent No.2 Majestic (as a shareholder of the Company) cannot dispute the Companys liability to Citibank. In fact, in the present Petition, Respondent No.2 Majestic is completely silent about the aforesaid huge liability of the Company towards Citibank and therefore is attempting to unnecessarily divert the attention of this Court to issues which are devoid of any merit. The Citibank has vehemently denied the allegation of Respondent No.2 Majestic that the Petitioner has purportedly given a preference to Citibank over other Banks and has also denied and disputed the allegation of purported collusion between the Petitioner and Citibank in filing the Petition.
6.1.14 It is further submitted on behalf of the Citibank that though Respondent No.2-Majestic proposed a purported scheme of revival of the Company, the said scheme was vague, without any substance, unreasonable, unfair, lacking transparency and did not protect the rights/interests of creditors. Further it is not in dispute that there is total loss of mutual confidence and trust amongst the shareholders of the Company, viz. the Petitioner and Respondent No.2-Majestic. Thus, there is a vacuum in the management of the Company due to the internal disputes between its shareholders, and the business of the Company has come to a standstill, for which Citibank is not accountable. The Company owes huge amounts to its several creditors to the tune of Rs.3569,09, 52,184.27/- which includes the claim of Citibank. It is submitted that ultimately the winding up proceedings ensure to the benefit of all the creditors of the Company. Therefore, as a creditor of the Company, Citibank is entitled to support the Petition for winding up.
6.1.15 The above submissions of SCB as well as Citibank clearly establish the transparent dealings between the Petitioner and the said Banks. The loans and advances applied for and obtained by the Company are supported by the Resolutions passed by the Board of Directors of the Company which includes the nominees of Respondent No.2 Majestic. The said loans are shown payable to the respective Banks by the Company in its balance-sheets which are inter alia signed by the nominee Directors of the Respondent No.2 Majestic. The Respondent No.2-Majestic has at no point of time disputed the claims of SCB as well as of Citibank and has not done so even in the present proceedings. I find nothing incorrect on the part of the CFO of the Company having admitted in his affidavit the amounts due and payable by the Company to the said Banks, which amounts are not denied/disputed by the Respondent No.2 Majestic till date, more so when the transaction with the Bank are supported by overwhelming documentary evidence. Both the parties have filed their independent proceedings before the DRT. It is incorrect to suggest that the DRT, Mumbai passed an order appointing Receiver in respect of the movable and immovable properties of the Company only because the CFO of the Company admitted the liability of the Company towards the Banks. Even otherwise, there is no defence even attempted to be advanced on behalf of Respondent No.2 Majestic qua the claims of the Banks. The DRT has, even after hearing the parties, declined to set aside its order dated 16th April, 2012 appointing a Court Receiver in respect of the movable and immovable properties of the Company, though the DRT has kept the said order in abeyance only because this Court has already appointed the Authorized Person to take care of the assets and properties of the Company. In view thereof and in view of the afore-stated submissions advanced by the Petitioner and the Banks, it is clear that there is no collusion between the Petitioner with SCB and/or Citibank as alleged or at all and amongst others, the allegations that the said Banks were preferred by the Petitioner over other Banks or that the Petitioner did not get the Company represented before the DRT, Mumbai, through an Advocate on 16th April, 2012, with an intention to help the SCB to obtain orders against the Company are untenable and baseless and cannot be accepted and hence rejected. Respondent No.2 Majestic have therefore also failed to establish that the conduct of the Petitioner is unfair or dubious.
6.2 Due to unilateral secret and illegal decisions/conduct, the Company which was managed by the Petitioner suffered losses and was unable to effectively commence its business.
It is submitted on behalf of Respondent No.2 Majestic that the Petitioner had represented that it had operations in the Middle East, in Africa and other countries and that it had significant experience, ability and expertise in carrying on the telecom business as an International Telecom Operator. The Respondent No. 2 had entered into the aforesaid agreements with Etisalat viz. the Share Subscription Agreement, the Shareholders Agreement and the Management Services Agreement, as it was desirous of taking on Board a strategic partner with a proven track record and expertise in carrying on and guiding the day to day operations of the Company. Pursuant to the said Agreements and the deputation of the secondees by the Etisalat Group, they were put in management and were responsible for the day to day affairs of the Company. The cheque signing authority of the Company was also given to the Petitioner and its nominees pursuant to the Board Resolution dated 17th December, 2008. Thus the Petitioner/Etisalat Group was in charge of and managing the day to day affairs of the Company. However, under the management of the Petitioner, the Company suffered losses and was unable to effectively commence its business as a result of the delay in meeting with its roll out obligations. The Petitioner/Etisalat Group has taken unilateral/secret illegal decisions through the Board of the Company which is controlled by the Etisalat Group without knowledge, intimation or even consent of the Respondent No.2 Majestic and/or its representatives. The secondees deputed by the Petitioner/Etisalat Group incurred unnecessary expenses on account of the Company by frequently travelling to the U.A.E. over the weekends and also on week days and thereby not being available to efficiently run the day to day affairs of the Company. It is submitted that the Petitioner also failed to obtain F.I.P.B. approval to increase its shareholding and the Petitioner also failed to bring in call money as agreed under the Shareholders Agreement. The Petitioner failed to utilize the sanctioned loan of Rs.6700 crores. The Petitioner procured equipments at a very high cost. They failed to implement the business plan and launch the services despite repeated follow up. The Petitioner called for meetings contrary to the Shareholders Agreement and incorrectly recorded minutes of various Board Meetings. In view of this conduct, the Etisalat Group failed to ensure the launch of the telecom services as per the business plan and led the Company into a situation wherein it started facing a financial crunch and wrongly and illegally started blaming the Respondent No.2 Majestic and its ultimate shareholders for the same. It is submitted that it was on account of the mismanagement by the Petitioner and its group entities, that the Company was unable to commence commercial operations in accordance with the business plan contemplated when the Shareholders Agreement was executed. It is submitted that therefore allegations against Respondent No.2-Majestic and its ex-Directors with regard to the alleged 2G scam are wholly irrelevant in respect of the failure to start commercial operations, inasmuch as the issue of 2G scam is still under investigation. In contrast to the failure and inability of the Petitioner to launch telecom services, other Companies such as Uninor and MTS which were granted the licenses at the same time as the Company, have been able to garner significant market share and are expanding their customer base. These Companies have despite cancellation of their licenses submitted bids and have been successful in obtaining licenses in the subsequent fresh round of auction by DoT.
6.2.1 The Learned Advocate appearing for the Petitioner has in response pointed out that despite the afore-stated agreements entered into by and between Respondent No.2-Majestic with Etisalat including the Management Services Agreement, in reality Balwa and Goenka together with the CEO, the Chief Regulatory Officer, the Chief Legal Officer, who were hired by them prior to the Petitioners investment, managed the Company on a daily basis. Balwa was the Managing Director of the Company and he also served as Vice Chairman on the Board of the Company. This position, in conjunction with the fact that a permanent Chairman was never elected, further increased his influence qua taking decisions on the Board and in the management of the Company. The Petitioner despite being entitled to appoint replacements for the higher senior management positions (including CEO, CFO and COO), upon insistence of the Respondent No.2-Majestic retained some of its people in the same roles such as Atul Jhamb, the CEO of the Company. Board resolutions were passed giving Balwa and Goenka control of the Company as follows:
(i) To act as regards the appointment of Directors;
(ii) To invest Company funds;
(iii) To do all things facilitating creation and allotment of Company shares;
(iv) To act in relation to loans;
(v) To sign the Companys balance-sheet;
(vi) To sign Directors report;
(vii) To execute POA in favour of signatories authorized to represent the Company before the Government; and
(viii) To execute documents relating to 3G auction.
Balwawas the sole person in charge of negotiating with the Reliance Companies which Companies were responsible for the passive telecom infrastructure. Balwa cited his strong business relation with Reliance to take on the responsibility to deal with them personally. Balwa and Goenka entered into various contracts on behalf of the Company without disclosing their interests in those Companies viz. Reliance, EON and Techniplex. Shri Ahmed Salahuddin who was appointed as Director of the Company was not an employee of Etisalat but was introduced to Etisalat by Balwa. Mr. Salahuddin was also personally known to Goenka. Contrary to the Respondent No.2 Majestics allegation that the Petitioners Nominee Directors were also given Board authority to negotiate/execute contracts, Mr. Al Haddad was not given any such power on any occasion and Mr. Julfar was given limited authorization by the Board on only one occasion i.e. on 31st August, 2010 to assist in the negotiation of a contract with ZTE. Balwa interfered in all major and minor matters that were to be dealt by Mr. Pratap Ghose and other key officers and ensured that his decision prevailed over the others. Balwa and Goenka were always present in all Board meetings held when decisions were taken. It is therefore submitted on behalf of the Petitioner that the allegation made by the Respondent No.2 Majestic that it is the Petitioner who is responsible for the losses incurred by the Company or failure to meet their roll out obligations as per the terms of UASLs issued by DoT, are false and incorrect. The Petitioner has submitted that Respondent No.2 Majestic has even earlier made similar allegations before the CLB in a Petition filed under Sections 397/398 of the Companies Act and has later unconditionally withdrawn the same. It is submitted that failure to meet its roll out obligations was inter alia due to Balwa exercising great degree of control over the Company and at times would ensure that his opinion prevailed over the advice of the management leading to delays. The poor services by Reliance also caused great delay, as is reflected in various Board Resolutions. It is submitted that Companys failure to implement its business plan and to meet its roll out obligations was severely hampered by the commercial environment and technical and legal problems associated with roll out operations which were then seriously exacerbated by commencement of the various legal proceedings against it (for the most part arising out of the conduct of Balwa and Goenka), including the CBI investigations and subsequent criminal trial, the Supreme Court proceedings and the various investigations/proceedings by the Regulators, the DoT and the Enforcement Directorate, including the FEMA proceedings. Considerable time and resources have been spent since the end of 2010 defending the Company against these various investigations/proceedings. It is submitted that the Petitioner/Etisalat Group has not taken any unilateral/secret illegal decisions as alleged or at all. The decision taken on 22nd February, 2012 was with the knowledge, presence and consent of Respondent No.2-Majestic which is revealed by the video recording. The decision to shut down the network was taken after obtaining legal opinion of Senior Advocates. The Resolution to shut down the network was read out and approved by Respondent No.2-Majestic. These allegations have been made as an afterthought to the suit for damages filed by the Petitioner. The decision to shut down the network was unanimous. It is submitted that the secondees travelled to and from the UAE at their own expenses and not at the expense of the Company. The travel cost of Etisalat secondees to the Company were never paid by the Company. As regards the allegation that the Petitioner failed to obtain F.I.P.B. approval to increase its shareholding, it is submitted by the Petitioner that the said allegation is false and is denied. The Company was responsible for filing the application for FIPB approval. The FIPB refused to give its approval to the purchase by Etisalat of Genexs shares largely because of the reputation and links of Balwa, as admitted by Balwa in his letter dated 23rd December, 2010. Genex was presented to Etisalat by Balwa. Etisalat had no previous involvement with Genex. As far as the Petitioner is concerned, the relationship with Genex has thus always been at arms length and on a purely commercial basis.
6.2.2. As regards the allegation that the Petitioner failed to bring in the call money, the Petitioner has submitted that there is no failure on the part of the Petitioner to bring in the call money. The amount was to be used to capitalize the Company. As the Company did not need the money at the time of the capital call, the Petitioner did not contribute. Capital call was subject to a supported business plan to be submitted by Balwa which never happened. The Resolution to return the call money was at the insistence of Balwa. It is submitted that therefore Respondent No.2 Majestic cannot claim that the Petitioners lack of funding contributed to the delay in roll out and/or other financial business issues. In fact, after Respondent No.2 Majestics alleged initial equity investment, it never contributed material funding to the Company. Respondent No.2 Majestic purchased UAS licenses primarily from the debt taken by Respondent No.2 Majestic and/or the Company. The Petitioners total investment in the Company was allegedly used to repay this debt. On 5th and 22nd July, 2010, at the instance of Mr. Balwa, the Board of the Company resolved that the funds are not required by the Company and shall be returned to PNB. Since Balwa funded the capital call through a PNB Loan, the amount ought to have been returned to PNB. However, the Respondent No.2-Majestic used the funds to fund its other businesses including the payment of DB Group loans. As per the orders of this Court, the Authorized Person has got a suit drafted and settled against PNB, Balwa and Goenka for colluding to misappropriate the assets/monies of the Company.
6.2.3 The Petitioner has also denied the allegation that it has failed to utilize the sanctioned loan of Rs. 6,700 crores by the ICICI Bank. The Petitioner has explained that different Bank loans were taken for different purposes. SCB loan was for purchase of equipment. The loan from Citibank was for BGs. The ICICI loan was to be used for purchase of additional spectrum/3G licenses which were never acquired by the Company. Therefore these loans and their terms cannot be compared with each other. Balwa and Goenka chaired all the Board meetings where it was decided to avail of SCB loan as also where it was agreed to differ the ICICI loan. The SCB loan was considered and taken in 2009, whereas the ICICI loan was contemplated in 2010. Therefore, there could never have been any comparison. The Board Resolution No. 34 dated 15th September, 2009 and the Board Resolution dated 25th May, 2010 clearly indicate that all Banks were being contemplated for a loan facility to fund further purchase of spectrum/licenses and that the ICICI loan was on terms equally favorable/unfavorable as others.
6.2.4 As regards the allegation that the Etisalat Group procured network equipment at a very high cost as compared to what was paid by other Indian Telecom operators, it is submitted by the Petitioner that the equipment was purchased by the Company at the best possible price. Balwa and Jhamb tried to renegotiate but to no effect. Balwa despite having no experience in this field made an unsubstantiated claim as to the high price of the equipment. The Respondent No.2 Majestic has also not produced any evidence of the equipment being overpriced. Later on negotiations with vendors by Jhamb and Balwa resulted in acceptance of the initial price with minor changes to volume and the Board unanimously accepted the same. In fact, Balwa cancelled the purchase of the Company's own micro wave equipment and purchased the same from Reliance. Balwa ensured that only he and Ms. Suvarna were involved in concluding the Passive Telecom Infrastructure Sharing Agreement signed by Reliance on behalf of the Company. The Management had no opportunity to give its input, and their suggestions which when given were excluded. The CBI and the Enforcement Directorate have similar concerns regarding the links between Balwa and Reliance. Balwa attempted to pay Reliance even though Reliance was an unsecured creditor.
6.2.5 As regards the allegation that the Petitioner/Etisalat Group had called for meetings contrary to the Shareholders Agreement and deliberately incorrectly recorded minutes of various Board Meetings and also failed to give to Respondent No.2 Majestic and its nominee Directors copies of the Minutes of the Board Meetings, the Petitioner has submitted that it was the responsibility of the Company to draft the minutes of the meeting. Mr. Afzal Lodhi, the Company Secretary of the Company had this responsibility and they were to be sent to the Chairman for approval. The allegation therefore that the Petitioner incorrectly recorded the minutes or failed to give copies of the same to the nominees of Respondent No.2-Majestic is in correct and denied.
6.2.6. As regards the allegation that in contrast to the failure and inability of the Petitioner to launch telecom services, other Companies such as Uninor and M.T.S. desired cancellation of their licenses, and submitted bids and have been successful in obtaining licenses in the subsequent fresh round of auction by DoT, the Petitioner has submitted that the Company cannot participate in an auction for any fresh licenses without further funding. The Company has been unsuccessful as the bankers have refused to lend to it. Respondent No.2-Majestic has indicated that it cannot bring in further capital. Even its alleged revival plan requires the Banks to wait for a period of 5 years before any repayment. Unitech (the real estate Company) has exited from Uninor. Balwa and Goenka have never indicated any such exit. The Petitioner has also denied and disputed the allegation that one of the principal reasons for filing the present Petition is the fact that clause 8 of the Shareholders Agreement provides for a non-compete clause which restrains the Petitioner from entering into the Telecom Sector in India through any entity other than the Company and it is clear that the Petitioner has no intention of exiting the Indian Telecom Sector.
6.2.7 From the afore-stated allegations advanced by the Respondent No.2 Majestic and the answers given thereto by the Petitioners and the perusal of the documents relied upon by the Parties, it is clear that it cannot be held that it was only the Petitioner who was in charge of the day to day affairs of the Company or that all business decisions have been taken by the Petitioner. There is equal participation, if not more, of the nominees of Respondent No.2-Majestic in carrying on its day to day business and in taking important decisions in the matter. The Petitioner alone therefore cannot be blamed for non-commencement or delay in commencement of the business or inc