1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE BETWEEN : ON THE 19TH DAY OF JUNE 2012 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH COMPANY PETITION NO.177 OF 2011 1 M/S BAKHTAWAR CONSTRUCTION COMPANY PVT LTD A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT MEHER HOUSE, NO.15, CAWASJI PATEL STREET, FORT, MUMBAI 400 001, REPRESENTED BY ITS DIRECTOR MS ZINIA LAWYER. 2 MS.ZINIA LAWYER AGED ABOUT 58 YEARS, D/O.LATE MR.M N IRANI 3 MS.FARAH LAWYER AGED ABOUT 34 YEARS, D/O. MR.SOHRAB LAWYER REP. BY HIS POWER OF ATTORNEY HOLDER, PETITIONER NO.2,
4 MR.RUSTOM LAWYER AGED ABOUT 30 YEARS, S/O MR.SOHRAB LAWYER. REP. BY HIS POWER OF ATTORNEY HOLDER, PETITIONER NO.2 PETITIONERS NOS.2 TO 4 R/AT.FLAT 152, EI-CID, NO.13A RIDGE ROAD, MALABAR HILL MUMBAI 400 006. 5 MRS.BAKHTAWAR B CHENOY AGED ABOUT 54 YEARS W/O.MR.BEZAN CHENOY D/O.LATE MR.M N IRANI REP. BY HER POWER OF ATTORNEY HOLDER, PETITIONER NO.2, 6 MR.DARIUS B CHENOY AGED ABOUT 34 YEARS, S/O.MR.BEZAN CHENOY REP. BY HIS POWER OF ATTORNEY HOLDER, PETITIONER NO.2 7 MS.NAZAK B CHENOY AGED ABOUT 30 YEARS D/O.MR.BEZAN CHENOY REP. BY HER POWER OF ATTORNEY HOLDER, PETITONER NO.2, PETITIONERS NOS. 5 TO 7 R/AT.FLAT 141 & 142, EI-CID NO.13-A RIDGE ROAD, MALABAR HILL MUMBAI - 400 006. 2
3 8 MR.AMOGH M GHAISAS AGED ABOUT 45 YEARS S/O.MR.M A GHAISAS R/AT.A-27, BHAVESHWAR DHAM NO.85, DR RAFI AHMED KIDWAI ROAD, WADALA (W), MUMBAI 400 031 BEING THE EXECUTOR OF THE ESTATE OF LATE MRS MEHROO IRANI....PETITIONERS (BY SRI S.S.NAGANAND, SR.COUNSEL, FOR SRI P B APPAIAH, ADVOCATE) AND : UNITED BREWERIES LIMITED A PUBLIC LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT UB TOWER, UB CITY, NO.24, VITTAL MALLYA ROAD BANGALORE - 560 001 REP. BY ITS MANAGING DIRECTOR MR.KALYAN GANGULY....RESPONDENT (BY SRI UDAY HOLLA, SR.COUNSEL FOR M/S HOLLA & HOLLA, ADVOCATES) * * * * * THIS COP FILED UNDER SECTION 439 R/W SECTION 433(e) & (f) OF THE COMPANIES ACT, 1956 PRAYING TO UNITED BREWERIES LIMITED, THE RESPONDENT HEREIN, BE WOUND UP UNDER THE PROVISIONS OF SECTION 43(e) OF THE
4 COMPANIES ACT, 1956 THIS COMPANY PETITION LISTED FOR ADMISSION HAVING BEEN HEARD AND RESERVED FOR JUDGMENT COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING:- ORDER 1. The petitioners are the erstwhile promoters of a company known as Associated Breweries and Distilleries Limited (hereinafter referred to as ABDL). It is engaged in the brewery business. The petitioner No.1 is represented by its Director, petitioner No.2. Petitioner Nos.2, 3 and 4 are shareholders. Petitioner No.2 and 5 are sisters. Petitioners 3 and 4 are children of petitioner No.2. Petitioner Nos.6 & 7 are the children of Petitioner No.5. Petitioner No.8 is the Executor of the estate of M/s.Mehroo Irani who died on 17.02.2005. The petitioner Nos.3 to 7 are represented by their Power of Attorney holder petitioner No.2. 2. The respondent is a public limited company, limited by shares, which was earlier known as U.B.Beer Limited. The
5 main objects of the respondent are to carry on the business of brewers and malsters in all its branches and to consolidate all brewery related activities. To carry on all or any of the business of hop merchants and growers, timber merchants and growers, malt factors, corn merchants, wine and spirit merchants, etc. Among the other objects, the company is carrying on the activities of purchase and take over, manage, control undertake or otherwise acquire any business either in part or in entirety and acquire from such business right, properties and assets including plants, machinery, lands, buildings, goodwill, liabilities, etc. 3.(a) The company ABDL was originally a partnership firm engaged in the manufacture of beer since 1973 and on ABDL being converted into a company, the shares of the same were held by the petitioners. The petitioners decided to sell to the UB group (of which the respondent is the flagship company) by transfer of the petitioner s shareholding in ABDL. Accordingly the company by name United Breweries Holdings Ltd.,
6 (hereinafter referred to as UBHL, for short) which is a sister concern of the respondent, entered into a Share Transfer and Subscription Agreement dated 19.01.2001 (hereinafter referred to as STASA, for short). In terms whereof, UBHL acquired 65% equity stake in ABDL by way of a transfer of shares from petitioners 1 to 7 and the late Mrs.Mehroo Irani being the promoters of ABDL. Simultaneously, a Shareholder s Agreement was also entered into on 19 th January 2001 between the petitioners and the late Mrs.Mehroo Irani and UBHL, which agreement incorporated provisions that were to govern the relation between the parties so long as the petitioners continued to hold a stake in ABDL. (b) The respondent acquired the said 65% stake in ABDL from UBGIL. Thus, ABDL became the subsidiary of the respondent. The Deed of Adherence was entered into on 14 th February 2003 between the respondent and ABDL whereby the respondent undertook to observe, perform and be bound by all the terms and conditions of the Shareholder s Agreement.
7 (c) That by way of an Escrow Agreement entered into on 28.03.2005, the respondent agreed to acquire the balance 35% of the equity share capital of ABDL from petitioners 1 to 8. The said transfer took place in and around July 2005. ABDL therefore became a wholly owned subsidiary of the respondent whereas 65% of the petitioner s shareholding was transferred on 19 th January 2001 and the balance 35% of their holding was governed by a Put Option contained in the Shareholders Agreement dated 19 th January 2001. (d) The petitioners contend that under Clause III (A) of the STASA, the petitioners were to receive a sum of Rs.15.82 crores as the consideration for the sale of their shares in ABDL. This Clause further states that this amount of the consideration has been arrived at after deducting a sum of Rs.3.23 crores referred to in Clause III (A)(ii) and a sum of Rs.2.00 crores referred to in Clause III (B). Clause III (A)(ii) sets out the basis on which the amount of Rs.3.23 crores is withheld by the
8 respondent and the circumstances in which and the extent to which, the respondent is liable to pay this amount of 3.23 crores to the petitioners, part by part over the years up to the close of the financial year 2008-09. (e) On 28.03.2005, the petitioners and the respondent entered into an Escrow Agreement in respect of the Put Option of the petitioners in respect of their balance 35% in ABDL. Prior to the signing of the Escrow Agreement, the petitioners were told that ABDL was to amalgamate with the respondent. On amalgamation, it was the respondent who would have automatically become eligible to avail of the tax benefit in respect of the past losses of ABDL contemplated in the said Clause and as contemplated in the STASA. (f) The amalgamation of ABDL and in particular the demerged undertaking/brewery business with the respondent was approved by the Hon ble High Court of Bombay on 7 th August 2006 in exercise of its powers and jurisdiction under Section 391
9 to 394 of the Companies Act, 1956 in Company Petition No.287 of 2006 with effect from 1.4.2005. After the said scheme was sanctioned, ABDL continued to exist with a nominal share capital and the rest of the assets and business of ABDL stood merged with the respondent. On 30.9.2008 the petitioner addressed a letter to the respondent stating that since the respondent is about to avail the tax shield by setting off the accumulated losses of ABDL in the assessment of the respondent by the end of the calendar year 2008, they would be entitled to claim the said amount of Rs.3.23 crores from the respondent as per the said Clause of the STASA. Accordingly, the petitioners called upon the respondent to pay the said amount. (g) The respondent replied by its letter dated 14 th October 2008, stating that since the tax benefit was availed of by the respondent and not by ABDL, the contingency liability to pay Rs.3.23 crores did not arise and the petitioners would not be entitled for the same. The petitioners, vide their letters dated 24.12.2008, 25.02.2009, 08.05.2009, 29.06.2009 etc.,
10 addressed to the respondent reiterated demands for payment of Rs.3.23 crores. The same did not receive any favourble response. The petitioners therefore issued a statutory notice dated 27 th October 2010 under Section 433 and 434 of the Companies Act to the respondent calling upon the respondent to make payment of Rs.3.23 crores along with interest thereon @ 18% p.a. payable from the due date within 21 days from the date of receipt of the said notice. (h) The respondent issued a reply denying all the claims of the petitioners. Since the respondent failed and neglected to pay the outstanding amount, the present petition has been filed seeking to wind up the respondent company under the provisions of Section 433(e) of the Companies Act, 1956. 4.(a) On notice of this petition being issued, the respondent has filed its statement of objections. They contend that the petition is false, frivolous, vexatious and not maintainable either in law or on facts and hence the same is
11 liable to be dismissed in limine. (b) That the respondent is the leading brewer in India having an annual turnover of more than 3000 crores. It is in the pink of health and has consistently been making profits. It is false to state that the respondent is unable to pay its debts. The petitioners are not the creditors of the respondent company and the amount claimed by the petitioners is not admitted but it is disputed by the respondent. (c) That the ingredients of Section 439 is absent and hence, the petition is not maintainable. (d) It is the further case of the respondent that the petitioner instituted a suit before the High Court of Bombay seeking recovery of very same amount. Since the suit has been filed for recovery of the said amount, the present petition deserves to be dismissed.
12 (e) That the erstwhile ABDL has been amalgamated into United Breweries Limited, the respondent company with effect from 10.03.2011 in terms of the order dated 21.01.2011 of the Hon'ble High Court of Karnataka in COP Nos.259 and 261 of 2010. The respondent as well as the erstwhile ABDL has right from the beginning disputed the liability towards the petitioners and therefore the petitioners cannot go for summary proceedings and this petition for winding up. Hence, the petition deserves to be dismissed on this ground as well. (f) That the understanding between the erstwhile promoters of ABDL i.e. the petitioners and UBHL was that in the event of ABDL turning profitable after the acquisition by UBHL and the business losses being set off against the business profits of ABDL, only then the balance was to be paid back to the erstwhile promoters of ABDL for the business losses incurred during their tenure subject to the condition that the said losses were set off before 31.03.2009.
13 (g) In view of the restructuring of the brewing business of the group, the respondent purchased the equity shares of ABDL from UBHL and consequently, ABDL became a subsidiary of the respondent. The understanding with respect of Rs.3.23 crores as in STASA was also reflected in the Memorandum of Understanding entered into between the respondent, ABDL and the erstwhile promoters of ABDL namely the petitioner herein on 23.05.2003. (h) That ABDL never made any profits. The respondent kept funding the increasing losses of ABDL. (i) It is quite apparent that the contract to pay the sum of Rs.3.23 crores to the petitioners was purely a contingent contract subject to the condition that ABDL must earn profits and the accumulated losses of ABDL should be adjusted against future profits of ABDL. That these contingencies never occurred. As a matter of fact, ABDL did not generate profits and over a period of time, the brewery business of ABDL was transferred to
14 the respondent under a Scheme of Arrangement. (j) That the allegation that the respondent has purposely and wilfully failed and neglected to pay them a total sum of Rs.3.23 crores being the balance consideration payable to the petitioners under STASA, in which the petitioners are described as promoters and named in Schedule I to the STASA is false. (k) That the allegation that the tax shield was availed of by the respondent is not admitted to be true and correct in that the respondent did not make use of any tax shield but instead set off the losses of ABDL against the pre-demerger profits of the respondent. Moreover, on the demerger, the respondent had to write off an amount of Rs.47.92 crores on account of ABDL. (l) Therefore, it is pleaded that the debts are not proved, the claim of the petitioner is disputed, hence, the petition requires to be dismissed.
15 5. Sri.Naganand, the learned Senior Counsel appearing on behalf of petitioner s counsel, in support of his case, relies on the judgment reported in ILR 1987 KAR 2673 [HEGDE & GOLAY LIMITED VS. STATE BANK OF INDIA) with specific references to Paras 34, 36 and 49. He contends that the dispute raised by the Company must be in good faith and must be substantial and the defence must be one, which is likely to succeed in point of law, and the company must also adduce prima-facie proof of the facts on which the defence depends. That the pendency of a suit is no bar to the maintainability of a winding-up petition. That if the Company has failed to show that the debt is bonafide disputed, it would not render the claim any more disputed or any less just, merely because the creditor is driven to file suits for its recovery. Though a winding-up petition is a mode for recovery of a just debt, the proceedings of winding up, do not partake of the nature of a suit. 6.(a) Sri.Udaya Holla, the learned Senior Counsel
16 appearing on behalf of respondent s counsel contends that there are no debts due by the respondent much less an admitted debt. A bonafide dispute has been raised. That the dispute has been raised at the earliest point of time and hence, it cannot be held that the respondent is liable to pay its debts. (b) He pleads that there is no debt payable. The amounts would arise only against future profits, if any and hence the debt is based on a contingency. Therefore, it is contended that only if there is any future profit and after setting off the accumulated losses, the respondent is liable to repay the same. As stated in the letter of the respondent dated 14.10.2008 vide Annexure R to the petition, the same has been reiterated. The respondent has stated that in terms of Clause III(A)(ii) of STASA, it is clear that the erstwhile promoters can claim the sum of Rs.3.23 crores only in the event of ABDL turning profitable and upon utilization of such future business profits, if any, for setting off the accumulated business losses in order to avail
17 certain tax benefits. Further, UBL had to write off an amount of Rs.47.92 crore as goodwill. (c) That admittedly the petitioner has filed a suit for recovery at the Bombay High Court and the suit is pending. Therefore, when once the petitioner has filed a suit for recovery of very money, the Court should refrain itself from considering the winding up petition. (d) It is further contended that there is a substantial delay in filing the company petition. That the demand to make the payment was made as far as back in September 30, 2008. The present petition has been filed on 13.10.2011 namely, a little more than three years. Hence on this ground, the petition requires to be rejected. (e) In support of his contention, he relies on the judgment in the case of IBA HEALTH (INDIA) PRIVATE
18 LIMITED VS. INFO-DRIVE SYSTEMS SDN. BHD reported in (2010) 10 SCC 553 to contend that when a creditor s debt is bonafide disputed on substantial grounds, the Court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abusing the winding-up procedure. 7. Heard learned counsels and examined the material. 8. The plea of the petitioners is based on Clause 3(A) of STASA. Clause 3(A) deals with the consideration, which reads as follows:- III.A. CONSIDERATION i) As consideration for the transfer of the Shares by the Promoters to the Acquirer, the Acquirer shall, at Closing, pay the Promoters rateably in proportion to their respective shareholding or in such other manner as may be agreed between them a
19 sum of Rs.15.82 crores being the aggregate purchase price of the Shares less the Consideration Earnest. The amount of the Consideration has been arrived at after deducting the sum of Rs.3.23 crores referred to in Clause IIIA (ii) and the sum of Rs.2 crores referred to in Clause IIIB. ii) A sum of Rs.3.23 crores shall be withheld by the Acquirer and credited by the Acquirer to the account of the Company as an interest free unsecured loan of Rs.3.23 crores to the Company on behalf of the Promoters (the Loan Amount). The Loan Amount shall be repaid and released to the Promoters in the following manner:- a) Such amount as shall be equal to the amount of tax shield availed of by the Company by setting off the accumulated losses including depreciation of the Company (as of the Closing Date) against future profits, if any, of the Company, shall be repaid and released to the Promoters each year (in the proportion indicated by them) within 30 days from the date of the
20 Auditors Certificate (referred to below). b) xxxxx c) xxxxx d) xxxxx e) xxxxx Therefore, it is contended that the said agreement is clear and the respondent is liable to pay the admitted amount. 9. A reading of the said Clause would clearly show that the payments could be made only against future profits if any to be made by the Company. That only if there are profits and after setting off the accumulated losses, only then, the question of payment arises. Under these circumstances, whether the company has made a profit, whether accumulated losses have been absorbed and other issues require to be agitated in an appropriate Court. It is not for the Company Court to interpret these Clauses.
21 10. A bare reading of the said clause would not render the liability of the respondent to be absolute or undisputed. The petitioners reliance on the said clause to show the liability of the respondent to make the said payment is opposite to the subsequent clauses wherein it is stated that the amounts shall be arrived at after setting off the accumulated losses and after arriving at the future profits if any. Therefore, whether the company would have future profits or not, whether they have accumulated losses or not, cannot be concluded by a mere reading of these clauses. A detailed examination is required to be made in order to ascertain whether a debt has arisen in terms of these clauses. The Company Court would exceed its jurisdiction if it so did. The legal right of the petitioners company would necessarily have to be agitated in an appropriate proceeding and not before the Company Court. 11. By the interpretation of the said Clause both views
22 are possible. It could be held that the respondent is due to make the payment or it could also be held that the payment arises only when profits are made, etc. Therefore, the contention that they are not liable to make the payment in terms of the STASA is not a moonshine. It is a valid, lawful defence. 12. The dispute regarding payment is bonafide. From the very inception as the communication would indicate, the respondent has consistently reiterated that there is no admitted debt in terms of STASA as pleaded by the petitioners. 13. It is therefore apparent that the debt is bonafide disputed on substantial grounds. That the claimed amount is uncertain. That the defence taken by the respondent is in good faith and is one of substance. It is likely to succeed in point of law. For these reasons, I am convinced that the petitioner has failed to make out a case.
23 14. (a) A recently delivered judgment of the Hon'ble Supreme Court in the case of IBA HEALTH (INDAI) PRIVATE LIMITED VS. INFO-DRIVE SYSTEMS SDN. BHD. reported in (2010) 10 SCC 553 would have a direct bearing on this case. Incidentally, the said matter arose from proceedings from Karnataka. A Company Petition was filed seeking to wind up the respondent company on the ground that it had failed to pay its debts in terms of the deed of settlement and other grounds. That the respondent company was obligated by the deed of settlement to make the payment. The learned Company Judge on hearing both the sides admitted the Company Petition holding that the respondent company has established a prima facie case and ordered that the matter be relisted for orders regarding advertisement. Aggrieved by the said order, an appeal was filed in OSA No.36/2009 before the Division Bench, which came to be dismissed. Both these orders were challenged before the Hon'ble Supreme Court in SLP No.886/2010. The Hon'ble Supreme Court in the above mentioned decision held at Paras 29 and 30 as follows:-
24 29. On a detailed analysis of the various terms and conditions incorporated in the deed of settlement as well as the compromise deed and the averments made by the parties, we are of the considered view that there is a bona fide dispute with regard to the amount of claim made by the respondent Company in the company petition which is substantial in nature. The Company Court while exercising its powers under Sections 433 and 434 of the Companies Act, 1956 would not be in a position to decide who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed which calls for detailed investigation of facts and examination of evidence and calls for interpretation of the various terms and conditions of the deed of settlement and the compromise entered into between the parties. 30. A company petition cannot be pursued in respect of contingent debt unless the contingency has happened and it has become actually due. xxxxxx In this case, there is a bona fide dispute as to whether the amount claimed is presently due and if, at all, it is due, whether the appellant Company
25 is liable to pay the sum unless they have received the same from M/s.Solutions Protocol Sdn. Bhd. (b) The Hon'ble Supreme Court held that a company petition cannot be pursued in respect of a contingent debt unless the contingency has happened and it has become actually due. The Company Court is not in a position to decide who was at fault in not complying with the terms and conditions of the deed. Such a deed calls for a detailed investigation of facts and examination of evidence and calls for interpretation of the various terms and conditions of the deed of settlement and the compromise entered into between the parties. The judgment of the Hon'ble Supreme Court is directly applicable to the case on hand. In the present case also, the contingencies of arriving at the figure after setting off the accumulated losses and after arriving at the future profits, etc is yet to ascertained. Hence, on this ground also petition is liable to be dismissed.
26 15. The respondent has further contended that there is a delay in filing the petition since the demand for the money has been made as far as back vide letter dated 30 th September 2008 vide Annexure-K. That the petitioners have already filed a suit to recover the said amount. That an amalgamation has taken place. 16. On each one of these grounds, it is pleaded by the respondent that the petition is liable to be rejected. The petitioner has replied to them. However, in view of the finding of this Court with regard to the failure of the petitioners to establish an admitted debt, it would not be necessary to go into these issues. Considering these grounds in the given circumstances, would be purely academic, since the petitioners have failed at the threshold itself in showing that there is an admitted debt or that the respondent has neglected to pay the debt.
27 17. For the aforesaid reasons, the petition being devoid of merits is dismissed. Sd/- JUDGE Prs*