Tag: companiesact

-Report by Lynda Mayengbam

The Securities and Exchange Board of India v. Rajkumar Nagpal is an appeal filed in response to the single judge’s ruling on October 28, 2021, which stated that the case concerned a Debenture Trust Agreement between the parties as
issuers and trustees of Debenture Trustees, respectively. The 17 debenture holders had filed a lawsuit to defend their rights and the amount due to them. The case was filed before the Bombay High Court on July 1, 2021.

FACTS

Reliance Commercial Finance Limited as ‘Issuer’ and Vistra ITCL as ‘Debenture Trustee’ executed a Debenture Trust Deed on 3rd May 2017. In response to the first default committed by RCFL, Vistra wrote to SEBI to inform them of the
actions it had taken in its status as Debenture Trustee and to request guidance about the ICA and its implementing mechanisms.

In a circular titled “Standardization of procedure to be followed by Debenture Trustee(s) in case of “Default” by Issuers of Listed Debt Securities,” SEBI published information on October 13, 2020. (“SEBI Circular”). The Plaintiffs, who are 17 Debenture Holders, filed a lawsuit in Bombay High Court on July 1, 2021, seeking an order to restrain RCFL, BoB, and RBI from executing the RBI Circular.

The court ruled that the SEBI circular did not govern the debenture trust deeds and that it could not be allowed to apply retrospectively. The SEBI circular will not precede any of the debenture trust deeds’ specific provisions. Therefore, SEBI challenged the order passed by the Single Judge’s order of the Bombay High Court and submitted an appeal.

RESPONDENT’S ARGUMENTS

The respondents contended that SEBI is not a party to the lawsuit, hence SEBI cannot be deemed an aggrieved party. Any order approving a merger scheme under Section 391 of the 2013 Companies Act is not subjected to appeal by SEBI. The SEBI Circular does not apply to this case because it does not include a scenario in which the holders of the debentures would reach a compromise, settlement, or agreement with the debenture issuer. Given that the SEBI circular has a retrospective application, SEBI’s appeal cannot be upheld. As in Principles of Statutory Interpretation by Justice G.P. Singh, it stated that

‘ The rule against retrospective construction does not apply to a statute merely because a part of the requisites for its action is drawn from a time antecedent to its passing.

APPELLANT’S ARGUMENTS

The Appellant contended that following Section 13 of the Commercial Courts Act of 2015, this appeal has been submitted as according to Section 13 (1A), “Any person aggrieved” by a decision or order of the Commercial, the
Commercial Appellate Division may hear the appeal. Due to specific remarks made by the Ld. Single Judge in the impugned orders to the effect that the ruling will not set a precedent against SEBI, SEBI’s statutory right to initiate an appeal cannot be revoked. The SEBI Circular makes no mention of its application to defaults that occurred before October 13, 2020. Lawfully, any legislation—delegated or otherwise—is regarded as prospective unless it has been
explicitly or obliquely given retrospective effect. If a debt cannot be settled through the compromise or settlement method, SEBI contends that debenture holders are entitled to receive the whole amount that is owed (principal and
interest). The argument, however, is that the solution reached in accordance with the Division Bench’s directive will also bind all the other debenture holders, who weren’t involved in the initial lawsuit brought before the High Court.

COURT’S DECISION

It was held by the hon’ble court that

i. There is no bar to the civil court’s jurisdiction
ii. The SEBI Circular is applicable if debenture holders wish to implement a Resolution Plan to which the lenders are a party
iii. Dissenting ISIN level debenture holders are bound by the ICA /Resolution Plan
iv. The SEBI Circular has retroactive application

For dissenting debenture holders in the present case the court observed:

“The dissenting debenture holders would have been bound by the Resolution Plan if it had been approved in accordance with the Insolvency and Bankruptcy Code, 2016 or under an ICA as acceded to under the SEBI Circular. We accordingly deem it appropriate that dissenting debenture holders should be provided an option to accept the terms of the Resolution Plan. Alternatively, the dissenting debenture holders have a right to stand outside the proposed Resolution Plan framed under the lender‘s ICA and pursue other legal means to recover their entitled dues.”

The appeal was allowed in part, subject to the directions issued in the judgment under Article 142 of the Constitution.

-Report by Ojas Bhatnagar

The International Chamber of Commerce had directed Antrix Corporation Limited to pay US$ 560 Million with interest to Devas Multimedia Private Limited. The Delhi High Court has set aside this arbitral award in the case of Antrix Corporation Ltd. vs Devas Multimedia Pvt. Ltd. saying that it suffered from patent illegalities and fraud. It is not in accordance with the public policy of India.

FACTS

Antrix Corporation Ltd was incorporated on 28 September 1992 under the Companies Act, 1956. Antrix provides commercial help to ISRO, it helps provide a host of products and services. On 17 December 2004 Devas was incorporated as a private company under the 1956 Act purportedly to pursue digital multimedia services. Antrix and Devas entered into a written agreement on 28 January 2005. Devas were developing a platform capable of delivering multimedia and information services via satellite and terrestrial systems to mobile receivers. Antrix had agreed to build, operate and launch two satellites and lease spectrum capacity on those satellites to Devas.

Devas promised to use such satellites and spectrum to offer multimedia broadband services across India. The Agreement was terminated by the force majeure clause on 25 February 2011 by Antrix due to revised
policy decisions of the Central Government. Devas invoked the arbitration clause contained in the Agreement. Ultimately, the International Chamber of Commerce on 14 September 2015 awarded Devas USD 562.5 million with
interest for the damages caused by Antrix’s non-performance of the Agreement.

Devas was also suspected of committing various fraudulent activities. Accordingly, the CBI and the ED investigated the matter. The CBI filed an FIR against Devas as well as its officers for offences under Section 420 read with Section 120B of the IPC, and Sections 13(1)(d) read with Section 13(2) of the Prevention of Corruption Act, 1988. The ED filed a report as well. Antrix initiated proceedings for the winding up of Devas. Antrix arrived before the National Company Law Tribunal, Bengaluru Bench praying for Devas to be wound up on account of committing fraud under Section 271(e) of the Companies Act, 2013.

On 19 January 2021, after hearing the parties, the NCLT passed a reasoned order admitting the petition and appointing an official liquidator attached to the High Court of Bangalore as the provisional liquidator. The final order was passed by NCLT dated 25 May 2021 which directed the winding up of Devas. Aggrieved by the order of winding up, Devas filed an appeal before the NCLAT. The appeal before NCLAT was dismissed vide an order dated 08 September 2021. Against the NCLAT order, an ex-director of Devas along with a shareholder filed an appeal before the Hon’ble Supreme Court.

The Supreme Court, in its January 2022 judgment, had ordered the winding up of the company.

COURT’S DECISION

The grounds for setting aside an arbitral award are limited. If the award does not comply with the fundamental policy of Indian law or the patent is illegal, the award can be set aside. The Arbitral Tribunal has incorrectly excluded the evidence which pertained to pre-contractual negotiations. It committed patent illegality in giving the award in this regard. Some issues are contradicted by the findings on other issues and are also contradicted by the reasoning given to reach the said conclusions. The award also contravenes the fundamental policy of Indian law as it conflicts with
various basic notions of justice. It has violated the FIPB policies as well.

“It has held that a product of fraud is in conflict with the public policy of any country including India. The basic notions of morality and justice are always in conflict with fraud and that allowing Devas and its shareholders to reap the benefits of their fraudulent action, would send another wrong message namely that by adopting fraudulent means and by bringing into India an investment in a sum of INR 579 crores, the investors can hope to get tens of thousands of
crores of rupees, even after siphoning off INR 488 crores.”

The objections filed by the petitioner are allowed and the arbitral award is set aside.