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Judgment
,,,,,,,
V. Kameswar Rao, J",,,,,,,
I.A.6877/2020 (filed by the petitioner for bringing on record additional documents),,,,,,,
This application has been filed by the petitioners with the following prayers:,,,,,,,
“The Applicants/Petitioners respectfully pray that this Hon’ble Court may be graciously pleased to:,,,,,,,
A. Allow the present application and take on record the e-mails annexed with the present application;,,,,,,,
B. Pass any other or further order as this Hon’ble Court may deem fit and proper in the facts and circumstances of the case.â€,,,,,,,
In substance, vide this application, petitioners seek to bring on record certain e-mails exchanged between the parties herein, more particularly with",,,,,,,
respondent Nos. 5, 6 & 7 in respect of certain transactions.",,,,,,,
The case of the petitioners in this application is primarily to meet the case of respondent Nos. 5, 6 & 7, that they have no role to play in the",,,,,,,
transaction with the petitioners as they neither made any correspondence nor negotiation with the petitioners nor played any active role.,,,,,,,
Reply to this application has been filed by respondent Nos. 5, 6 & 7 and in their submissions, it is stated that the said application has been filed after",,,,,,,
inordinate delay without any explanation after having access to the pleadings / arguments and the stand of the respondents, in order to improve their",,,,,,,
case which is in gross violation of principles of natural justice. Vide the said application, the petitioners seek to put forth a new case. If the said",,,,,,,
application is allowed same would amount to amending the petition. That apart, it is stated that the documents which are sought to be brought on",,,,,,,
record are unrelated documents and cannot be brought in at this point of time. Further, it is not the case of the petitioners that these documents were",,,,,,,
not in their possession at the time of filing of the petition. It is also stated that the documents are irrelevant and in no manner demonstrate that the loan,,,,,,,
facility granted to the Williamson Magor Group is a single economic unit. Even the documents on which reliance is sought to be placed pertain to a,,,,,,,
period subsequent to the execution of the Facility Agreement and as such have no relation to the transaction in question.,,,,,,,
Having perused the application / replies, and heard arguments on behalf of the parties, this Court is of the view, the present petition having been",,,,,,,
filed under Section 9 of the Arbitration and Conciliation Act, 1996 (‘Act’, for short) and not a Civil Suit, where the rigours of filing the",,,,,,,
documents have to be strictly followed, there being no impediment in law and to consider all the relevant material for proper adjudication, it is",,,,,,,
necessary that such documents are looked into.,,,,,,,
Even though the petitioner filed this application subsequent to filing of the three applications by the respondent Nos. 5, 6 & 7, sufficient opportunity",,,,,,,
having been given to the said respondents to meet the case of the petitioners on these documents by hearing the counsels on the objections on the,,,,,,,
application, which is in compliance of the principles of the natural justice, the plea of learned Sr. Counsels for the respondents 5, 6 and 7 that a new",,,,,,,
case is being set up is without any merit. The application is allowed and the documents are taken on record. The application is disposed of.,,,,,,,
I.A. 18200/2019 (filed by respondent no. 5 for vacation of order dated December 13, 2019)",,,,,,,
I.A. 18202/2019 (filed by respondent no. 6 for vacation of order dated December 13, 2019)",,,,,,,
I.A.762/2020 (filed by respondent no. 5 for vacation of order dated December 13, 2019)",,,,,,,
With this common order I shall decide the three applications filed by respondent No.5, 6 and 7 seeking vacation of the ex-parte ad-interim order",,,,,,,
passed by this Court on December 13, 2019.",,,,,,,
Before dealing with these applications, I find it necessary to narrate in brief the facts and chronology of events that led to the filing of the present",,,,,,,
applications by the applicants / respondent Nos. 5, 6 and 7.",,,,,,,
The petitioner No.1 is registered with the Reserve Bank of India as a non-deposit taking, systemically important Non-Banking Financial Company",,,,,,,
(‘NBFC’) as defined in 'Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms,,,,,,,
(Reserve Bank) Directions, 2015, issued by the Reserve Bank of India and involved in the business of providing loans and advances to companies, and",,,,,,,
in this case has advanced an aggregate sum of INR 100 crores to respondent No. 1 and an aggregate sum of INR 100 crores to respondent No. 2.,,,,,,,
Petitioner No.2 is a company registered under the Companies Act, 1956 which is also registered as a debenture trustee with Securities Exchange",,,,,,,
Board of India and acts as a security trustee on behalf of the Petitioner No. 1.,,,,,,,
It is a conceded position of all the parties herein that petitioners entered into a Facility Agreement dated September 27, 2017 (‘Facility",,,,,,,
Agreement’, for short) with the respondent Nos. 1, 2, 3 and 4 whereby respondent Nos. 1 and 2 were granted credit facility of INR 100 Crores",,,,,,,
each.,,,,,,,
The respondent No.1 is a company incorporated under the provisions of Companies Act, 1956 engaged in the business of manufacturing tea, jute,",,,,,,,
engineering and reprographic items. the Respondent No. 2, on the other hand, is an Investments Company, an NBFC registered with the Reserve",,,,,,,
Bank of India under the Reserve Bank of India Act, 1934, with respondent No. 3 and 4 being the Promoters/Directors of the respondents No. 1 and 2.",,,,,,,
Pursuant to clause 5.1 of the Facility Agreement, the credit facilities were guaranteed by an irrevocable and unconditional personal guarantee",,,,,,,
entered by way of a Deed of Personal Guarantee dated September 26, 2017 (‘Deed of Personal Guarantee’, for short), executed by respondent",,,,,,,
Nos. 3 & 4 in favour of petitioner No. 2, whereby it was undertaken to pay the outstanding amounts and discharge all liabilities of respondent Nos. 1",,,,,,,
& 2 under the Facility Agreement. In addition, respondent Nos. 3 & 4 had provided indemnity to the petitioners against all loses and claims etc.",,,,,,,
A Security Trust Facility Agreement was also executed between the petitioners and respondent Nos. 1 & 2 on September 27, 2017 (‘Trust",,,,,,,
Facility Agreement’, for short).",,,,,,,
Pursuant to clause 5.1 of the Facility Agreement, an Unattested Share Pledge Agreement dated September 27, 2017 (‘Share Pledge",,,,,,,
Agreement’, for short) was entered into by and between the petitioners and the respondent Nos. 1, 2, 3, 4 and 5 along with respondent No. 8",,,,,,,
whereby 4,16,66,666 compulsory convertible preference shares of respondent No.5 were pledged in favour of the Petitioner No.2.",,,,,,,
It is stated by the petitioners/non-applicants in the petition filed under Section 9 of the Arbitration and Conciliation Act, 1996 (‘Act’, for",,,,,,,
short) that the credit facility under the Facility Agreement was advanced to respondent No. 1 and 2 after due verification of the credit worthiness of,,,,,,,
the group companies, as a whole and the underlying companies like respondent Nos. 5 to 7, the applicants herein. Respondent No. 5 is engaged in the",,,,,,,
business of providing turnkey solutions in the areas of power, steel etc. and respondent Nos. 1 & 2 hold some percentage of equity shares in the share",,,,,,,
capital of respondent No. 5. Respondent No. 6 is in the business of manufacturing tea and respondent Nos. 1 & 2 hold equity shares in the share,,,,,,,
capital of respondent No. 6. Likewise, respondent Nos. 1 and 2 hold equity shares in the share capital of respondent No. 7.",,,,,,,
Pursuant to clause 5.8 of the Facility Agreement, within a period of 18 (eighteen) months, from the date of disbursement i.e. September 30, 2017,",,,,,,,
the respondent Nos. 1 and 2 were required to issue a security by way of pledge over the equity shares of either respondent No.6 and/or respondent,,,,,,,
No.7 and/or create security by way of mortgage over properties acceptable by the petitioner No.1 so as to ensure that the collateral cover is atleast,,,,,,,
1.5x of the loan outstanding amount. Similarly, as per clause 5.9 of the Facility Agreement, on or before the expiry of 24 (twenty-four) months from",,,,,,,
the date of disbursement i.e. September 30, 2017, the respondent Nos. 1 and 2 were required to ensure that the collateral cover is increased to 2.0X in",,,,,,,
respect of the loan outstanding amounts. However, it is stated by the petitioners in the petition under Section 9 that the respondents have failed to fulfil",,,,,,,
the aforesaid obligations.,,,,,,,
It is the case of the petitioner in the main petition under Section 9 of the Act that as per clause 7.2.3 (c) of the Facility Agreement, the Guarantors",,,,,,,
and the Promoter Group were barred from selling, transferring or disposing off any shares of Respondents Nos. 5, 6 and 7 held by the Promoter",,,,,,,
Group without the prior consent of the petitioners. In this respect, it is averred that since the entry of parties into the Facility Agreement, the",,,,,,,
aggregating shareholding of the Promoter Group in (i) Respondent No.6 has reduced from 49.9% to 27% and in (ii) Respondent No 7 has reduced,,,,,,,
from 44% to 31.1% (of the entire share capital). It is also stated that as on September 30, 2019, the aggregate value of unencumbered shares of the",,,,,,,
respondent Nos. 6 and 7 is INR 16,00,00,000 as opposed to INR 750,00,00,000, which was the required value as per Clause 7.2.4 of the Facility",,,,,,,
Agreement.,,,,,,,
Similarly, Clause 7.2.6 mandated that the Guarantor and Promoter Group shall not encumber any share held by Guarantor and Promoter Group in",,,,,,,
the Reference Entities.,,,,,,,
Subsequently, respondent No. 1 executed an Unattested Deed of Hypothecation (‘Deed of Hypothecation’, for short) in favour of petitioner",,,,,,,
No. 2 whereby respondent No. 1 hypothecated ‘all of the present and future rights, title and interest and benefits of Respondent No. 1 in, to and",,,,,,,
under the Rupee denominated bank account in the name of the Respondent No. 1 bearing account number 019081400002674 with Yes Bank,,,,,,,
The petitioner has, in the main petition pointed out the following defaults on behalf of the respondents:",,,,,,,
a. On March 31, 2019, the respondent Nos. 1 and 2 defaulted in creating the security and also failed to ensure that the collateral cover for the loan",,,,,,,
outstanding amounts is at least 1.5x of the loan outstanding amount pursuant to clauses 5.8 and 5.9 of the Facility Agreement.,,,,,,,
b. On April 30, 2019, the respondent No.2 defaulted in making payments towards interest as stipulated under the Facility Agreement.",,,,,,,
c. Further, on May 31, 2019 and June 30, 2019, the respondent Nos. 1 and 2 defaulted in making payments in respect of interest as stipulated under",,,,,,,
the Facility Agreement and till date the abovementioned defaults have not been rectified.,,,,,,,
d. That, on September 30, 2019, the respondent Nos. 1 and 2 also failed to ensure that the collateral cover over the security created pursuant to clause",,,,,,,
5.8 of the Facility Agreement, is increased to 2.0X of the loan outstanding amount as per the terms of the Facility Agreement.",,,,,,,
With regard to the defaults, the petitioner has stated to have issued the following notices/demands:",,,,,,,
a. Notice of breach of covenants and remainder to create security on or before March 31, 2019 dated March 15, 2019 was issued by the Petitioner",,,,,,,
No.1 to the Respondents Nos. 1, 2, 3, 4 and 8.",,,,,,,
b. Notice of breach of covenants and failure to create security on or before March 31, 2019 dated April 25, 2019 was issued by the Petition No.1 to",,,,,,,
the Respondents Nos. 1, 2, 3, 4 and 8.",,,,,,,
c. Letter of Reservation of Rights dated October 17, 2019 was issued by the Petitioner No.1 to the respondent Nos. 1, 2, 3 and 4.",,,,,,,
d. On December 9, 2019, the Petitioner No. 1 issued an Acceleration Notice in favour of the Respondent No. 1 demanding payments aggregating up",,,,,,,
to INR 131,37,51,607.",,,,,,,
e. On December 9, 2019, the Petitioner No. 1 issued an Acceleration Notice in favour of the Respondent No. 2 demanding payments aggregating up",,,,,,,
to INR 131,94,83,013.",,,,,,,
f. On December 9, 2019, the Petitioner No. 2 has issued a Demand Notice in favour of the Respondents demanding payments aggregating up to INR",,,,,,,
263,32,34,620.",,,,,,,
It is alleged that the petitioner filed the main petition under Section 9 on the failure of the respondents to discharge the liability towards the,,,,,,,
petitioner under the various agreements, and a co-ordinate Bench of this Court granted an ex parte ad-interim stay vide order dated December 13,",,,,,,,
2019. The relevant portion of the order reads as under:,,,,,,,
“……,,,,,,,
Accordingly respondent Nos. 1 to 8 are restrained from selling, transferring, alienating, disposing, assigning, dealing or encumbering or creating",,,,,,,
third party rights on their assets, till the next date of hearing.",,,,,,,
Respondent Nos. 1, 2, 3 and 4 are further restrained from diluting their shareholding in any of the Respondent Companies, directly or indirectly, by",,,,,,,
way of sale or otherwise, as also respondent Nos. 5, 6, and 7 from carrying out any change in its capital structure, or any Corporate or debt",,,,,,,
restructuring, till the next date of hearing.",,,,,,,
Respondent Nos. 1, 2, 3, 4 and 8 are restrained from alienating, creating third party rights and interest or creating any third-party encumbrance of",,,,,,,
whatsoever nature in 4,16,66,666 compulsory convertible preference shares of Respondent No.5, now converted into equity shares. Respondent Nos.",,,,,,,
1, 2, 3 4 and 8 shall deposit the aforesaid equity shares in dematerialized form before this Court and the same will be retained by this Court.",,,,,,,
It is directed that the Rupee denominated bank account in the name of respondent No. 1 bearing account number 019081400002674 with Yes,,,,,,,
Bank Ltd. be attached.,,,,,,,
The respondent Nos. 1 to 7 will file an affidavit providing the details of their tangible or intangible assets held by them as on 31.03.2019 as well as,,,,,,,
on 30.09.2019, before the next date of hearing.â€",,,,,,,
It is to vacate the ex parte ad interim stay granted by the impugned order that respondent Nos. 5, 6 and 7 have filed these applications",,,,,,,
respectively.,,,,,,,
It is the case of the respondent No.6 and respondent No. 7 and as contended by Mr. Sandeep Sethi, learned Senior Counsel that respondent No. 6",,,,,,,
and respondent No. 7 are not signatories to the Facility Agreement on which the present Petition is founded and similarly also not parties to the,,,,,,,
transaction or the arbitration agreement and the connected agreements being the Security Trustee Agreement, Personal Guarantee, Share Pledge",,,,,,,
Agreement and the Deed of Hypothecation, being collectively herein after referred as Other Agreements. It is submitted by him that the subject",,,,,,,
transaction is between the petitioner No. 1 and Respondent Nos 1 & 2 for a sum of INR 100 crores advanced to each respondent. The repayment of,,,,,,,
the same is guaranteed by respondent Nos.3 and 4 in their personal capacity. It is further stated by him that the various agreements are signed by the,,,,,,,
petitioners and respondent Nos. 1 to 4 only and that shares held by the individual guarantors in respondent Nos. 6 and 7 were pledged as security for,,,,,,,
repayment of the loan taken by respondent Nos. 1 & 2, which was why respondent Nos. 6 and 7 were mentioned as ‘Reference Entities’, with",,,,,,,
no obligations cast over them. In support of his submission, Mr. Sethi has relied upon the Apex Court judgment in Indowind Energy v. Wescare",,,,,,,
(India), (2010) 5 SCC 306, wherein it is held that common shareholding or common directors is not enough to bind the non-signatory company through",,,,,,,
the acts of the signatory.,,,,,,,
It is submitted by Mr. Sethi that none of the foundational facts that are sine qua non for the invocation of the principle of group companies has,,,,,,,
been pleaded or even referred to in the petition. He stated that it is an undisputable position of law that the invocation of the group-companies doctrine,,,,,,,
requires a finding of unmistakable intent of non-signatory parties to be bound by the agreement. The question of such intention is clearly a question of,,,,,,,
fact which requires specific pleading. It is submitted by Mr. Sethi that in the present case, the documents placed on record show clearly that",,,,,,,
respondent No.6 and respondent No.7 were not parties to the agreements. There is no document or pleading alleging that respondent No.6 and,,,,,,,
respondent No.7 in any manner participated in the negotiations of the agreements or made any statement to be bound by such agreements. The,,,,,,,
contractual correspondence as well as the demand notices between the parties alleging default are also addressed only to respondent Nos. 1 to 4 and,,,,,,,
not to respondent No.6 or Respondent No.7. Therefore, ex-facie no such case has been pleaded by the Petitioners in the present case. Interim",,,,,,,
measures under Section 9 of the Act is an equitable and discretionary remedy, the petitioners’ conduct on this count disentitles it to any indulgence",,,,,,,
from this Court.,,,,,,,
Further, it is submitted by Mr. Sethi that the petitioner being a large player in the financial sector across over 20 countries, it is clear that it",,,,,,,
exercises reasonable prudence when entering into the Facility Agreement after ample negotiations and the same is self-contained, which in clear",,,,,,,
terms lays down the intent of the parities. It has been recorded in Clause 13.3 of the Facility Agreement as well.,,,,,,,
It is submitted by Mr. Sethi that Clause 5.1 records specifically that the Borrowers, Guarantors and the Obligors shall secure the said loan and as",,,,,,,
per the Facility Agreement, Borrowers are respondent Nos. 1 & 2, while guarantors are respondent Nos. 3 & 4 and obligors defined as Borrowers",,,,,,,
and the Security Providers which include the borrowers or any other person creating security in favour of the petitioners. Clause 5.10 fastens the,,,,,,,
liability on the ‘Promoter Group’ to replenish the security cover in case of any deficiency in terms of the Facility Agreement. Respondent Nos.,,,,,,,
6 & 7, as per the Facility Agreement are neither borrowers nor guarantors, which is clearly indicative of the fact that no obligation was intended to",,,,,,,
cast upon them despite being aware of their existence, rather they are enlisted only as reference entities and Clauses 5.8 and 5.12 unambiguously",,,,,,,
state that it is the equity shares in respondent Nos.6 and 7 owned by respondent Nos.1 and 2 that are to serve as security. In other words, it is his",,,,,,,
submission that the company and its shareholders are entirely distinct and independent in the eyes of law and the provision of the shares of a company,,,,,,,
as security by a shareholder for a loan availed by such shareholder cannot possibly bind the said company in any manner whatsoever to such loan.,,,,,,,
Mr. Sethi also submitted that the reliance placed by the petitioners on Clause 7.2.3 (a) which mandates the Borrowers, Guarantors and the",,,,,,,
Promoter Group not to issue fresh shares in any of the Reference Entities is misplaced for the reason that there is no obligation on respondent Nos.6,,,,,,,
and 7 as they are neither Borrowers, Guarantors nor Promoter Group. The said obligations are cast upon the respondents No. 1-4 to protect the value",,,,,,,
of the security provided i.e. their shareholding in respondent Nos. 6 and 7. He further submitted that the intent of Clause 7.4.1 which requires,,,,,,,
respondent Nos.1 and 2 to ensure compliance with certain benchmarks of the financial health of respondent Nos. 6 and 7 is only limited to securing,,,,,,,
the value of the security i.e. the shares in respondent No.6 and respondent No.7. These terms do not in any manner oblige respondent No. 6 and,,,,,,,
respondent No.7 to do or refrain from doing any act. This is confirmed by the fact that Clause 5.8 requires provision of additional security in case of,,,,,,,
any deficiency only by R-1 to R-4. Accordingly, there was no obligation or charge cast on R-6 and R-7.",,,,,,,
It is averred by Mr. Sethi, respondent Nos. 3 & 4 have signed the Facility Agreement in their personal capacity, as guarantors and the stand of",,,,,,,
petitioner that respondent No.6 & 7 are liable as per the doctrine of ostensible authority and estoppel is also misplaced.,,,,,,,
Further, it is stated by Mr. Sethi that the fraud has not been pleaded by the petitioners’ for lifting of corporate veil. The petitioners’ claim",,,,,,,
that proceeds of the loan received by respondent No.6 qualifies it as a case fraud has not been pleaded in the petition and that in the absence of any,,,,,,,
pleading the Court should be duty bound to disregard such a plea. In this regard, he has relied upon a Division Bench judgment of this Court in Division",,,,,,,
Bench of this Court in Elof Hansson v. Shree Acids & Chemicals, 2012 SCCOnLine Del 572. Without prejudice, it is stated by Mr. Sethi that the",,,,,,,
aforesaid contention, Clause 2.3 of the Facility Agreement clearly spelt out the purpose of the loan i.e. the discharge of R-6 ’s debts. It is",,,,,,,
therefore clear that the parties intended R-6 to be the recipient of the proceeds of the loan as per the clear understanding between the parties.,,,,,,,
Moreover, Mr. Sethi stated that no case for invocation of the Group Companies Doctrine has been made out as claimed by the petitioners and that",,,,,,,
the reliance placed by the petitioners’ on Mahanagar Telephone Nigam v. Canara Bank 2019 SCC OnLine SC 995, Chloro Controls India v.",,,,,,,
Severn Trent Water Purification (2013) 1 SCC 641) and Cheran Properties v. Kasturi and Sons (2018) 16 SCC 413 is misplaced, as the said",,,,,,,
judgments are distinguishable in the facts of the present case.,,,,,,,
It is also vehemently stated by Mr. Sethi that no case had been made out by the petitioners to secure restraint against third parties under Section 9,,,,,,,
of the Act. In support of his submission that restraint can’t be imposed against a non-signatory/third party, Mr. Sethi has relied on the following",,,,,,,
judgments:,,,,,,,
Kanta Vashist vs. Ashwani Khurana, CDJ 2008 DHC 2265;",,,,,,,
Ajay Makhija v. Dollarmine Exports, 2009 SCCOnLine Del2486;",,,,,,,
S.No.,Clause No.,Reference,Pages,Implication,,,
I. FACILITY WAS FOR BENEFIT OF RESPONDENT NO. 6,,,,,,,
,1.,"2.3 read with C.A. Certificate @
Pg. No. 269","2.3 END USE
(a) The Borrowers shall apply the
amounts borrowed by it under the
Facility in accordance with Applicable
Law for the purpose of meeting the
following costs:
(i) Repayment of the existing loans/
advances extended by MRIL to the
Borrowers or infusion of proceeds into
MRIL solely for the purpose o
reduction of debt","59
f","One of the uses of
the facility was
repayment of existing
loans / advances
extended by R-6 to
R-1 and R-2 and
infusion of funds into
R-6 thus, making it a
beneficiary of loan.",,
,,2.1,"FACILITYl oan. Subject to the terms
of this Agreement, the Lenders make
available to Borrower 1 an INR term
loan facility in an aggregate being Rs.
100,00,00,000 (Rupees One Hundred
Crores only) and Borrower 2 an INR
term loan facility in an aggregate being
Rs. 100,00,00,000 (Rupees One
Hundred Crores only) (collectively
referred to as “Facilityâ€) for the
Tenor. The Facility may be drawn
down by the Borrowers within the
relevant Availability Period in
accordance with the terms and
conditions of this Agreement in one or
more tranches.",59,,,
,,7.1.11,"End-Use The proceeds of the Facility
shall at all times be utilised for the
purposes as mentioned in clause 2.3 of
this Agreement.",,,,
,II. RESPONDENTS NO. 5-7 ARE PROMOTER GROUP COMPANIES,,,,,,
,4.,1.1.1.(p),"“Control†(including, with
correlative meaning, the terms
“controlled by†and “under
common control withâ€) of a Person
means (a) ownership of more than 50%
(Fifty per cent) of the equity shares,
voting rights or other ownership
interests of such Person; or (b) the
power to appoint more than half of the
members of the board of directors; or
( c ) the power to direct the
management or policies of a",47,,,
,,,"Person, whether through the",,,,
,,,"ownership of voting rights, power to",,,,
,,,appoint directors or similar,,,,
,,,"governing body of such Person, or",,,,
,,,through contractual or other,,,,
,,,arrangements.,,,,
,5.,1.1.1(q),"“Controlled Entity†in relation to
any Person(s), is any other Person on
whom such first Person exercises
Control.",47,"â € ¢ A combined
reading of these
clauses makes it is
clear that Respondent
No. 5-7 are part of
Promoter Group as
these are entities
controlled by the
Guarantors.
• Respondent No.
3 and 4 are Managing
Director of and
Director of R-6
respectively and
vicea versa in case of
Respondent No.7 and
therefore, have
power to direct",,
,6.,1.1.1.(ooo),"“Promoter Group†shall mean:
Each of the Guarantors
(i) Kilburn Engineering Limited;
(ii) Babcock Borsig Limited;
(iii) Bishnauth Investments Limited;
(iv) Woodside Park Limited;
(v) Ichamati Investments Limited;
(vi) United Machine Co. Limited;",53,,,
,,,,,,,
,,,,,,,
,,,,,,,
,,"(vii) Zen Industrial Services Limited;
(viii) Nitya Holdings & Properties
Limited;
(ix) Dufflaghur Investments Limited
and
(x) Any other Controlled Entity of the
Guarantor(s)",;,"management or
policies of these
companies through
t h e ownership of
voting rights, power
to appoint directors or
similar governing
body or through
contractual or other
arrangements.
• Further R-1 to
R-4 are promoter
group of Respondent
No. 5-7 and
therefore, in a
position to exercise
control over the
policies of
management.
â € ¢ Shareholding
pattern of the
Respondent No. 5
[@117-121, Vol. 1 of
P’s Docs.]
shows that
Respondents No. 4
1, 2, 6 & 8 are part of
“Promoter
Groupâ€
â € ¢ Shareholding
pattern of the
Respondent No. 7
[@ 122-127, Vol. 1
of P’s Docs.]
shows that
Respondents No. 3
4, 1, 2, 6 & 8 are part
of “Promoter
Groupâ€
â € ¢ Shareholding
pattern of the
Respondent No. 2
[@ 128-131, Vol-1 of
P’s Docs.]
shows that
Respondents No. 4
6, & 1 are part of
“Promoter
Groupâ€
â € ¢ Shareholding
pattern of the
Respondent No. 6
[@ 136-139, Vol-1 of
P’s Docs.]
shows that
Respondents No. 3
4, 1, 2, 8, & 7 are
part of “Promoter
Groupâ€",,,
III. RESPONDENTS NO. 5 TO 7 ARE “REFERENCE ENTITIESâ€,,,,,,,
1.1.1.(sss) “Reference Entity†shall mean (i)54 Respondents No. 5 to
McNally Bharat Engineering Company 7 are Reference
Limited, a public listed company Entities, which also
incorporated in India and validly existing form part of
as a company for the purposes of Promoter Group and
Companies Act 2013 with its registered have undertaken
office at Four Mangoe Lane, Surendra various obligations
Mohan Ghosh Sarani, Kolkata- 700001 under the Facility
and corporate identification number Agreement
L45202WB1961PLC025181
(“MBECLâ€); (ii) McLeod Russel
India Limited, a company incorporated
in India and validly existing as a
company for the purposes of
Companies Act 2013 with its registered
office at Four Mangoe Lane, Surendra
Mohan Ghosh Sarani, Kolkata700001
and corporate identification number
L51109WB1998PLC087076
(“MRILâ€); and (iii) Eveready
Industries India Limited, a company
incorporated in India and validly existing
as a company for the purposes of
Companies Act 2013 with its registered
office at 1, Middleton Street, Kolkata-
700071 and corporate identification
number L31402WB1934PLC007993
(“EIILâ€).
1.1.1(rrr) “Reference Controlled Entitiesâ€54
shall mean the Controlled Entities of the
Reference Entity, the Borrowers, the
Guarantors and/or the Obligors.
IV. RESPONDENTS NO. 5 TO 7 ARE “OBLIGORSâ€
1.1.1(ccc) “Obligors†shall mean the53 A combined reading
Borrowers, the Security Providers and of these clauses
the Guarantors establishes that the
Respondents 5 to 7
1.1.1(bbbb) “Security Provider†shall mean (i)56 are Obligors as they
the Pledgors; and (ii) any other person are Security
creating Security under the Security Providers, who had to
Documents create Security on
t h e various assets
1.1.1(aaaa) “Security†shall mean the security56 and properties as
interests created on the various assets noted in Clause 5 of
and properties as noted in clause 5 the Facility
hereof. Agreement.",7.,1.1.1.(sss),"“Reference Entity†shall mean (i)
McNally Bharat Engineering Compan
Limited, a public listed company
incorporated in India and validly existing
as a company for the purposes of
Companies Act 2013 with its registered
office at Four Mangoe Lane, Surendra
Mohan Ghosh Sarani, Kolkata- 70000
and corporate identification number
L45202WB1961PLC025181
(“MBECLâ€); (ii) McLeod Russ
India Limited, a company incorporated
in India and validly existing as a
company for the purposes of
Companies Act 2013 with its registered
office at Four Mangoe Lane, Surendra
Mohan Ghosh Sarani, Kolkata70000
and corporate identification number
L51109WB1998PLC087076
(“MRILâ€); and (iii) Everead
Industries India Limited, a company
incorporated in India and validly existing
as a company for the purposes of
Companies Act 2013 with its registered
office at 1, Middleton Street, Kolkata
700071 and corporate identification
number L31402WB1934PLC007993
(“EIILâ€).","54
y
1
el
1
y
-","Respondents No. 5 to
7 are Reference
Entities, which also
form part of
Promoter Group and
have undertaken
various obligations
under the Facility
Agreement",,
,8.,1.1.1(rrr),"“Reference Controlled Entitiesâ€
shall mean the Controlled Entities of the
Reference Entity, the Borrowers, the
Guarantors and/or the Obligors.",54,,,
,IV. RESPONDENTS NO. 5 TO 7 ARE “OBLIGORSâ€,,,,,,
,9.,1.1.1(ccc),"“Obligors†shall mean the
Borrowers, the Security Providers and
the Guarantors",53,"A combined reading
of these clauses
establishes that the
Respondents 5 to 7
are Obligors as they
are Security
Providers, who had to
create Security on
t h e various assets
and properties as
noted in Clause 5 of
the Facility
Agreement.",,
,10.,1.1.1(bbbb),"“Security Provider†shall mean (i)
the Pledgors; and (ii) any other person
creating Security under the Security
Documents",56,,,
,11.,1.1.1(aaaa),"“Security†shall mean the security
interests created on the various assets
and properties as noted in clause 5
hereof.",56,,,
,,,,,,,
,,,,,,,
12.,1.1.1(xxx),"“Security Documents†shall mean
each of the agreement or deed or
document (each as amended from time
to time) executed by any of the
Borrowers, the Guarantors and the
Obligors for the benefit of the Lenders
and/or the Identified Lenders or any of
them for creation and perfection of
Security or guarantee as required in
terms of clause 5 hereof, including but
not limited to the following:
(i) this Agreement;
(ii) Security Trustee Agreement dated
September 27, 2017 between
Williamson Magor & Co. Limited as
Borrower 1, Williamson Financia
Services Limited, as Borrower 2 and
Lenders.
(iii) Hypothecation Deed to be executed
between the Parties;
( i v ) Pledge Agreement dated
September 27, 2017 between
Williamson Magor & Co. Limited,
Williamson Financial Services Limited
Babcock Borsig Limited and KKR
India Financial Services Private
Limited;
( v ) Personal Guarantees dated
September 26, 2017.issued by Mr.
Aditya Khaitan and Mr. Amritanshu
Khaitan in favour of;
(vi) Demand Promissory Note dated
September 27, 2017issued by Borrower
1 and Borrower 2 in favour of the
Security Trustee;
(vii) Letter of Continuity of Demand
Promissory Note dated September 24th
2017.issued by Borrower 1 and
Borrower 2 in favour of the Security
Trustee; and
(viii) Security document to be executed
pursuant to the provisions of Clause 5
of this Agreement.
(ix) any declarations, certificates,
powers of attorney and/or other
document designated as such by the
Security Trustee or the Lenders in
terms of Financing Documents or
executed by the Borrowers, the
Guarantors and/or the Obligors with the
Lenders and/or the Security Trustee;","55
l
,
,",,,,
13.,1.1.1(ee),"“Financing Documents†means this
Agreement, any inter creditor
agreement, each of the Security
Documents, the Security Trustee
Agreement, and any other agreement or
deed or document executed by any of
the Borrowers, the Guarantors and
the Obligors for the benefit of the",49,,,,
,,Identified Lenders or any of them.,,,,,
V. GUARANTORS,,,,,,,
1.1.1(mm) read with Schedule 1 Guarantor 51 & 98 Respondent no. 3 and
4 are guarantors and
therefore,
Respondent No. 5-7
are part of promoter
group for them being
controlled by the
Respondent No.3 and
4 in terms of Cl.
1.1.1(ooo)(x)
VI. SECURITY TO BE CREATED BY RESPONDENT NO. 5 TO 7
5.1 (e) The Loans and all Loan Outstanding64-65 A Letter of comfort
Amounts, including all Cash Interest, was to be issued by
Default Interest, Redemption Interest R-6 as part of
all and any other costs, charges, Security.
expenses, fees or amounts payable to
any of the Lenders and/or the Security
Trustee under the Financing Documents
and all other obligations and
undertakings of the Borrowers, the
Guarantors and the Obligors under the
Financing Documents shall be secured
by:
(a) to (d) XXXX
(e) A letter of comfort to be issued by
MRIL in a form acceptable to the
Lenders.
5.8 The Borrower shall ensure that within a65 Security was to be
period of 18 months from the first created by R-6 & R-
Disbursement Date, Security is created 7 in terms of these
by way of pledge over equity shares of clauses in order to
MRIL and/or EIIL and/or mortgage by keep the Petitioners
way of a mortgage over properties secured. Therefore, it
acceptable by Lenders (“New was on their strength
Securityâ€). The New Security shall be that the loan was
created to ensure that the Collateral extended by
Cover for the Loan Outstanding Petitioners to R-1 &
Amounts shall be at least 1.5x R-2.
5.9 On or before expiry of 24 months from65 Notes: 1.
the first Disbursement Date, the
Borrower shall ensure that Collateral As on 31.03.2019, the
Cover over the New Security is Respondents failed to
increased to 2.0X of the Loan create the “New
Outstanding Amount Security†and failed
to ensure that the
5.10 Upon the breach of Collateral Cover as65 collateral cover over
provided in Clause 5.8 or 5.9 above, the the new security is at
Borrower and/or Promoter Group shall least 1.5 times of the
provide incremental shares as pledge loan outstanding
(“Top-up Sharesâ€), within 5 amount as stipulated
Business Days, so that the Collateral in Clause 5.8. 2. As
Cover is maintained as per Clause 5.8 o n 30.09.2019, the
or 5.9 above. 65 Respondents failed to Respondents failed to
create the “New Security†and ensure that the
failed to ensure that the collateral cover collateral cover over
over the new security is at least 1.5 the new security is
times of the loan outstanding amount as increased to 2.0 times
stipulated in Clause 5.8. 2. As on of the loan
30.09.2019, the Respondents failed to outstanding amount
ensure that the collateral cover over the a s stipulated in
new security is increased to 2.0 times Clause 5.9.
of the loan outstanding amount as
stipulated in Clause 5.9. 19. 5.11
Borrower and/or Promoter Group shall
have",14.,1.1.1(mm) read with Schedule 1,Guarantor,51 & 98,"Respondent no. 3 and
4 are guarantors and
therefore,
Respondent No. 5-7
are part of promoter
group for them being
controlled by the
Respondent No.3 and
4 in terms of Cl.
1.1.1(ooo)(x)",,
,VI. SECURITY TO BE CREATED BY RESPONDENT NO. 5 TO 7,,,,,,
,15.,5.1 (e),"The Loans and all Loan Outstanding
Amounts, including all Cash Interest
Default Interest, Redemption Interes
all and any other costs, charges,
expenses, fees or amounts payable to
any of the Lenders and/or the Security
Trustee under the Financing Documents
and all other obligations and
undertakings of the Borrowers, the
Guarantors and the Obligors under the
Financing Documents shall be secured
by:
(a) to (d) XXXX
(e) A letter of comfort to be issued by
MRIL in a form acceptable to the
Lenders.","64-65
,
t","A Letter of comfort
was to be issued by
R-6 as part of
Security.",,
,16.,5.8,"The Borrower shall ensure that within a
period of 18 months from the first
Disbursement Date, Security is created
by way of pledge over equity shares of
MRIL and/or EIIL and/or mortgage b
way of a mortgage over properties
acceptable by Lenders (“New
Securityâ€). The New Security shall be
created to ensure that the Collateral
Cover for the Loan Outstanding
Amounts shall be at least 1.5x","65
y","Security was to be
created by R-6 & R-
7 in terms of these
clauses in order to
keep the Petitioners
secured. Therefore, it
was on their strength
that the loan was
extended by
Petitioners to R-1 &
R-2.
Notes: 1.
As on 31.03.2019, the
Respondents failed to
create the “New
Security†and failed
to ensure that the
collateral cover over
the new security is at
least 1.5 times of the
loan outstanding
amount as stipulated
in Clause 5.8. 2. As
o n 30.09.2019, the
Respondents failed to
ensure that the
collateral cover over
the new security is
increased to 2.0 times
of the loan
outstanding amount
a s stipulated in
Clause 5.9.",,
,17.,5.9,"On or before expiry of 24 months from
the first Disbursement Date, the
Borrower shall ensure that Collateral
Cover over the New Security is
increased to 2.0X of the Loan
Outstanding Amount",65,,,
,18.,5.10,"Upon the breach of Collateral Cover as
provided in Clause 5.8 or 5.9 above, the
Borrower and/or Promoter Group shal
provide incremental shares as pledge
(“Top-up Sharesâ€), within 5
Business Days, so that the Collatera
Cover is maintained as per Clause 5.8
or 5.9 above. 65 Respondents failed to
create the “New Security†and
failed to ensure that the collateral cover
over the new security is at least 1.5
times of the loan outstanding amount as
stipulated in Clause 5.8. 2. As on
30.09.2019, the Respondents failed to
ensure that the collateral cover over the
new security is increased to 2.0 times
of the loan outstanding amount as
stipulated in Clause 5.9. 19. 5.11
Borrower and/or Promoter Group shal
have","65
l
l
l",,,
,,,,,,,
,,,,,,,
19.,5.11,"Borrower and/or Promoter Group shal
have the option of providing cash
collateral in lieu of Top-up Shares, in
which case, the cash collateral provided
shall be adjusted against the Loan
Outstanding Amount",l65,,,,
20.,5.12,"Collateral Cover to be in the form of
mortgage over real estate properties
acceptable to the Lender and/or equity
shares of MRIL / EIIL",65,,,,
21.,1.1.1(eee),"“Overall Rate†shall mean an IRR
of 16 % per annum. At the time the
minimum Collateral Cover of the
Security Interest created by the
Promoter Group and Reference Entity/
Borrowers reaches 1.5x, an IRR o
14.5%per annum; or if the minimum
Collateral Cover of the Security Interest
created by the Promoter Group and
Reference Entity/ Borrowers reaches
2.0x, an IRR of 12.5% per annum","53
f",,,,
VII. REPRESENTATIONS & WARRANTIES MADE QUA CORPORATE STRUCTURE OF RESPOND5
TO 7 AS REFERENCE ENTITIES",,,,,,,
22.,6.1.2 (d) and (e),"6.1.2 Corporate
(a) XXX
(b) XXX
(c) XXX
(d) As on the date of execution of this
Agreement and the first Disbursement
Date, the shareholding of the Reference
Entity, Borrowers and the Obligors is as
provided in Schedule 6.1.2(d)
(Shareholding Pattern) hereof.
(e) The Reference Entity, Promote
Group, Borrowers and/or the Obligors
or any of their directors do not appear
on the RBI’s list of defaulters and
ECGC’s caution list.","66- 67
r","Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
certain corporate
structure is
maintained by R-5 to
R7. Hence, these
representations and
warranties qua the
corporate structure of
R-5 to R-7 were
provided by the
Respondents.",,,
VIII. REPRESENTATIONS & WARRANTIES MADE QUA ENFORCEABLE OBLIGATION
RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES",,,,,,,
23.,6.1.3,"6.1.3 Enforceable Obligations
(a) XXX
(b) XXX.
(c) XXX
(d) No event or occurrence which could
be said to have a Material Adverse
Effect on the Reference Entity, the
Borrowers, the Guarantors or the
Obligors or on their respective
businesses or assets exists or is
reasonably likely to exist.
(e) to (f) XXX
(g) The operations of the Reference
Entity, Borrowers, the Guarantors and
t h e Obligors are conducted in
compliance with all Applicable Laws
and the Borrowers, the Guarantors
and/or the Obligors have not received
any notice or other communication from
any court, tribunal, arbitrator,
governmental agency or regulatory
body with respect to an alleged, actual
or potential violation and/or failure to
comply with any Applicable Laws.",67-68,"Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
these representations
and warranties qua
enforceable
obligations qua R-5 to
R-7 were provided by
the Respondents.",,,
IX. REPRESENTATIONS & WARRANTIES MADE QUA LEAGL PROCEEDINGS AGAOINBSLTIG ATIONS
OF RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES",,,,,,,
24.,6.1.4,"6.1.4 Legal Proceedings There are no
Legal Proceedings pending or
threatened, or any written notices
received by the Reference Entity, the
Borrowers, the Guarantors and/or the
Obligors which would result into any
Legal Proceedings, in India or any other
jurisdiction (a) against the Reference
Entity, the Borrowers, the Guarantors
and/or the Obligors, (b) any properties
or rights of the Borrowers, the
Guarantors and/or the Obligors, (c)
relating to businesses or operations of
the Borrowers, the Guarantors and/or
the Obligors, or (d) regarding the
legality or enforceability or
effectiveness or validity or performance
of any of the Financing Documents
and/or any of the Clearances that have
been obtained, and (e) that would
prevent the exercise and the
enforcement by each of the Lenders
and the Security Trustee of their
respective rights under the Financing
Documents to which they are a party or
the remedies in respect of thereof",68,"Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
the R-5 to R-7 were
not faced with legal
proceedings either
pending or
threatened. Any such
pendency of legal
proceedings would
have material impact
on loan provided by
the Petitioners.
Hence, the
Respondents
provided the
representations &
warranties in these
terms.",,,
X. REPRESENTATIONS & WARRANTIES MADE QUA ACCOUNTS OF RESPONDENTS 5 TO
REFERENCE ENTITIES",,,,,,,
25.,6.1.5,"6.1.5 Accounts
(a) The books of accounts of the
Reference Entity, Borrowers and
Obligors have been properly maintained
in accordance with Applicable Law.
(b) The accounts of the Reference
Entity, Borrowers and Obligors have
been prepared using GAAP, applied on
a consistent basis; and are true and fair
and disclose all liabilities (whether
actual or contingent).
(c) There are no known unaccounted
liabilities of the Reference Entity,
Borrowers and the Obligors except to
the extent disclosed in the latest
financial statements of the Reference
Entity, Borrowers and the Obligors. The
Reference Entity, Borrowers and/or the
Obligors do not have any (i) material
claims against them, (ii) material
liabilities or (iii) Indebtedness, whether
direct, indirect, contingent, absolute,
accrued or otherwise, nor is there any
condition, fact or circumstance that will
create such claim, obligation, liability or
Indebtedness, except as required to
reflect the transactions contemplated by
this Agreement.
(d) There have been no change in the
financial or operational position of the
Reference Entity, Borrowers and/or the
Obligors which has caused or could
reasonably be expected to cause any
Material Adverse Effect.
(e) The Reference Entity, Borrowers
and the Obligors which are companies
maintain systems of internal accounting
controls sufficient to provide reasonable
assurance that (i) transactions are
executed in accordance with
management's general or specific
authorisations, (ii) transactions are
recorded as necessary to permit
preparation of financial statements in
conformity with GAAP, (iii) access to
assets is permitted only in accordance
with management's general or specific
Clearance, and (iv) the recorded
accountability for assets is compared
with the existing assets at reasonable
intervals and appropriate action is taken
with respect to any differences.
(f) The Reference Entity, Borrowers
and the Obligors have made and kept
books, records and accounts which, in
reasonable detail, accurately and fairly
reflect the transactions and dispositions
of assets of such entity and provide a
sufficient basis for the preparation of its
respective financial statements in
accordance with applicable GAAP.",68-69,"Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
the R-5 to R-7
maintained their
Accounts in the
manner provided
herein. Hence, the
Respondents
provided the
representations &
warranties in these
terms.",,,
XI. REPRESENTATIONS & WARRANTIES MADE QUA INSOLVENCY OF RESPONDENTS 5 TO
REFERENCE ENTITIES",,,,,,,
26.,6.1.8,"6.1.8 Insolvency
(a) The Reference Entity, Borrowers
the Guarantors and/or the Obligors are
not insolvent or unable to pay their
debts, and none of their creditors has
presented any petition, application or
other proceedings for any administration
order, creditors’ voluntary
arrangement or similar relief by which
their affairs, business or business assets
are managed by a Person appointed for
the purpose by a court, governmental
agency or similar body, or by any
creditor or by the entity itself nor has
any such order or relief been granted or
appointment made.
(b) No order has been made, no petition
or application presented, no resolution
passed and no meeting convened for
the purpose of windingup/insolvency of
the Reference Entity, Borrowers, the
Guarantors and/or the Obligors or
whereby their assets are to be
distributed to creditors or shareholders
or other contributories nor have they
received written notice of any receiver
(including an administrative receiver),
liquidator, trustee, administrator,
supervisor, nominee, custodian or
similar official having been appointed in
respect of the whole or any part of their
businesses or assets.","70
,","Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
the R-5 to R-7 were
not faced with any
event of insolvency.
Any such event of
insolvency would
have material impact
on loan provided by
the Petitioners.
Hence, the
Respondents
provided the
representations &
warranties in these
terms.",,,
XII. REPRESENTATIONS & WARRANTIES MADE QUA INSURANCE POLICIES TO BE MAINT
BY RESPONDENTS 5 TO 7 AS REFERENCE ENTITIES",,,,,,,
27.,6.1.10,"6.1.10 Insurance All insurance
contracts/policies required or advisable
in relation to the businesses and
operations of the Reference Entity,
Borrowers, the Guarantors and the
Obligors and/or in terms of the
Financing Documents have been put in
place at the times and in the manner
required herein and are, as
contemplated herein, in full force and
effect, and the Borrowers, the
Guarantors and the Obligors have
complied with all their obligations under
the insurance contracts/policies and no
event or circumstances has occurred
nor has there been any omission to
disclose a fact which in any such case
would entitle any insurer to avoid or
otherwise reduce its liability thereunder
to less than the amount provided in the
relevant policy and insurance coverage
provided by such insurance. The
Borrowers, the Guarantors and the
Obligors have not defaulted in payment
of any premium in relation to any
insurance contract/policy procured by
them. The Borrowers, the Guarantors
and the Obligors shall provide the
Security Trustee copies of cover notes
of the insurance contracts procured by
them",71,"Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
the R-5 to R-7
maintained the
insurance policies in
the manner provided
herein. Hence, the
Respondents
provided the
representations &
warranties in these
terms.",,,
XIII. OTHER REPRESENTATIONS & WARRANTIES MADE QUA RESPONDENTS 5 TOR 7E AFES RENCE
ENTITIES",,,,,,,
6.1.12 6.1.12 Others (a) No event has71-72
occurred that has caused or is capable
of causing, a Material Adverse Effect.
(b) None of, the directors and/or the
promoters of, the Reference Entity,
Borrowers, the Guarantors and/or
Obligors, have been barred from
accessing the capital markets by the
Securities and Exchange Board of India
nor are the shares of any of the
Reference Entity, Borrowers, the
Guarantors and / or Obligors (if they
are listed) been suspended from trading.",28.,6.1.12,"6.1.12 Others (a) No event has
occurred that has caused or is capable
of causing, a Material Adverse Effect.
(b) None of, the directors and/or the
promoters of, the Reference Entity,
Borrowers, the Guarantors and/or
Obligors, have been barred from
accessing the capital markets by the
Securities and Exchange Board of India
nor are the shares of any of the
Reference Entity, Borrowers, the
Guarantors and / or Obligors (if they
are listed) been suspended from trading.",71-72,"Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
the R-5 to R-7 did not
cause any Material
Adverse Effect in the
manner provided
herein. Hence, the
Respondents
provided the
representations &
warranties in these
terms.
A bare perusal of
terms in Clause 6
such as:
➢ non-inclusion in
the RBI’s
defaulter’s list;
➢ no events
constituting Material
Adverse Effect on R-
5 to R-7;
➢ no pendency of
legal proceedings
against R-5 to R-7;
➢ maintenance of
books of accounts of
R-5 to R-7 in a
particular manner;
➢ no insolvency
proceedings against
R-5 to R-7
shows that R-5 to R-
7 were part of this
transaction and are
duly bound by these
clauses.
The fact that R-3 and
R-4 had the power
and authority to
control the
shareholding of R-5
to R-7 shows that
these companies are
controlled by R-3 and
R-4.
Lastly, a combined
reading of all these
clauses clearly
indicate that R-5 to
R-7 have important
and crucial role in this
loan transaction. All
critical clauses relate
to them. The purpose
of these clauses is to
secure the
Petitioners.
Therefore, if the
order dated
13.12.2019 is vacated
then the Petitioners
will be left empty
handed despite",,
,,,,,,,
,,,,,,,
29.,1.1.1 (bbb),"“Material Adverse Effect†shal
mean the effect or consequence of an
event, circumstance, occurrence or
condition which, in the sole opinion of
the Lenders, has caused, as of any date
of determination, or could be expected
to cause, a material and adverse effect
on:
(i) the financial condition, carrying of
business, operations, assets or prospects
of any of the Borrowers, the
Guarantors and/or the Obligors and/or
the Reference Entity;
(ii) the ability of the Borrowers, the
Guarantors or any Obligor to perform or
comply with its obligations under any of
the Financing Documents or in relation
to the Identified Debt;
(iii) the legality, validity, binding nature
or enforceability of any of the Financing
Documents (including the ability of any
Finance Parties to enforce any of its
remedies under the Financing
Documents); or
(iv) the validity, legality or enforceability
of any Security expressed to be created
pursuant to any Financing Documents
or on the priority and ranking of any of
that Security",l52,"admitted dues of Rs.
293 Crores (Approx.)
as R-1 to R-4 have
no assets of its own
to secure the
Petitioners.",,,
XIV. AFFIRMATIVE COVENANTS OF RESPONDENTS NO. 5 TO 7 AS REFERENCE ENTITIES,,,,,,,
30.,7.1,"7.1.1 Inspection and Compliance
(a ) xxx (b) The Borrowers and
Guarantors shall ensure that the
Reference Entity does not at any time
become a private limited company,
except with the consent of the Majority
Lenders and subject to any changes to
the Security Documents required by the
Lenders and/or the Security Trustee
having been made to their satisfaction.
7.1.2 Books of accounts The
Borrowers and the Guarantors
undertake in respect of the Reference
Entity, the Borrowers, the Guarantors
and the Obligors:
(a) to keep such adequate accounting
and control systems, management
information systems, books of account,
and other records as are required to be
maintained under Applicable Law and
such accounts as are adequate to
reflect truly and fairly the financial
condition and results of operations in
conformity with GAAP consistently
applied and all requirements of
Applicable Law.
( b ) to ensure that its financial
statements for each financial year give
a true and fair view of the state of
affairs of the Person in respect of
whom such statement has been
prepared in each case in accordance
with GAAP consistently applied.
(c) to ensure its audited financial
statements for each financial year are
prepared promptly and in any case
within 45 (forty five) days of the end of
each such financial year and in
preparation of such financial statements
apply all accounting policies in a
consistent manner in accordance with
GAAP.
(d) to file all relevant tax returns within
the time permitted by the authorities",72-76,"Since the facility
availed by R-1 & R-2
was granted on the
strength of R-5 to 7,
it was imperative that
the R-5 to R-7 do not
change their
corporate structure
by becoming a
private limited
company. Further, R-
5 to R-7 were
required to present
the true state of
affairs by maintaining
their and filing etc. of
their books of
accounts in the
manner provided
herein.",,,
XV. NEGATIVE COVENANTS OF RESPONDENTS,,,,,,,
31.,7.2,"7.2.3 The Borrowers, the Guarantors
and the Promoter Group shall not:
(a) issue any fresh equity or preference
shares or any other instruments
convertible into equity or preference
shares by the Reference Entity;
(b) sell, transfer or dispose off or allow
any of the entities listed in Schedule
6.1.2(d) (Shareholding Pattern) hereof
to sell, transfer or dispose off the
shareholding in Borrowers which are
companies, save and except as maybe
permitted under this Agreement.;
(c) sell, transfer or dispose off shares
any of the Reference Entities held by
the Promoter Group without prior
consent of the Lenders.",76-77,"At the time of filing
of this petition, the
aggregate
shareholding of the
Promoter Group (i) in
Respondent No. 6
has reduced from
49% to 27% (of the
entire share capital)
and (ii) in Respondent
No. 7 has reduced
from 44% to 31.1%
(of the entire share
capital).",,,
7.2.4 The Guarantors and the Promoter77 As of 30.09.2019, the
Group shall at all times hold shares aggregate value of
aggregating to a value of INR unencumbered shares
750,00,00,000 of Eveready & McLeod of Respondent No. 6
Russell free and clear from & 7 is INR 16 crores
Encumbrance. as opposed to INR
750 crores. This is
primarily because of
the fact that the
aggregate number of
shares unencumbered
since the entry into
the Facility
Agreement has
drastically reduced (i)
in respect of R6 from
3.9 crores
unencumbered shares
to mere 10 lakh
unencumbered
shares; (ii) in respect
of R-7 from 2.02
crores unencumbered
shares to mere 35
lakh unencumbered
shares. This has
further been affected
by a sharp drop in the
share prices
7.2.6 7.2.6 The Guarantors and the Promoter78 T h e aggregate
Group shall not Encumber any shares number of shares
held by the Guarantors and the encumbered since the
Promoter Group in the Reference entry into the Facility
Entities save and except as disclosed by Agreement
the Promoter Group as on the date of significantly
this Agreement or as provided under increased from (i) in
this Agreement or as required to be respect of R-6,
Encumbered as “top-up†shares in 14.3% to 26.5%; and
accordance with the provisions of (ii) in respect of R-7,
existing security creation arrangements. 16.3% to 26.3% (in
each case of the
entire share capital).
Therefore, the entire
shareholding of the
Promoter Group is
now pledged (almost
98% in Respondent
No. 6 and 85% in
respondent No. 7, as
percentage of the
shareholding held by
them).
XVI. INFORMATION COVENANTS OF RESPONDENTS
7.3.3 The Borrowers shall provide ‘MIS80 Obligation to provide
reports’ in respect of the Reference MIS reports
Entity, Borrowers, the Guarantors and unaudited and audited
the Obligors containing details and in a financial statements
form as required by the Lenders, to the at the end of every
Lenders within 15 (fifteen) calendar quarter and
days of the end of every Fiscal Quarter. compliance
certificate showing
compliances by R-5
to R-7 was only due
to the fact that the
Facility Agreement
was extended basis
t h e i r financial
strength.
F u r t h e r , the
Petitioners have
produced emails
showing compliance",32.,7.2.4,"The Guarantors and the Promoter
Group shall at all times hold shares
aggregating to a value of INR
750,00,00,000 of Eveready & McLeod
Russell free and clear from
Encumbrance.",77,"As of 30.09.2019, the
aggregate value of
unencumbered shares
of Respondent No. 6
& 7 is INR 16 crores
as opposed to INR
750 crores. This is
primarily because of
the fact that the
aggregate number of
shares unencumbered
since the entry into
the Facility
Agreement has
drastically reduced (i)
in respect of R6 from
3.9 crores
unencumbered shares
to mere 10 lakh
unencumbered
shares; (ii) in respect
of R-7 from 2.02
crores unencumbered
shares to mere 35
lakh unencumbered
shares. This has
further been affected
by a sharp drop in the
share prices",",",
,33.,7.2.6,"7.2.6 The Guarantors and the Promote
Group shall not Encumber any shares
held by the Guarantors and the
Promoter Group in the Reference
Entities save and except as disclosed by
the Promoter Group as on the date of
this Agreement or as provided under
this Agreement or as required to be
Encumbered as “top-up†shares in
accordance with the provisions of
existing security creation arrangements.",r78,"T h e aggregate
number of shares
encumbered since the
entry into the Facility
Agreement
significantly
increased from (i) in
respect of R-6,
14.3% to 26.5%; and
(ii) in respect of R-7,
16.3% to 26.3% (in
each case of the
entire share capital).
Therefore, the entire
shareholding of the
Promoter Group is
now pledged (almost
98% in Respondent
No. 6 and 85% in
respondent No. 7, as
percentage of the
shareholding held by
them).",,
,XVI. INFORMATION COVENANTS OF RESPONDENTS,,,,,,
,34.,7.3.3,"The Borrowers shall provide ‘MIS
reports’ in respect of the Reference
Entity, Borrowers, the Guarantors and
the Obligors containing details and in a
form as required by the Lenders, to the
Lenders within 15 (fifteen) calendar
days of the end of every Fiscal Quarter.",80,"Obligation to provide
MIS reports
unaudited and audited
financial statements
at the end of every
quarter and
compliance
certificate showing
compliances by R-5
to R-7 was only due
to the fact that the
Facility Agreement
was extended basis
t h e i r financial
strength.
F u r t h e r , the
Petitioners have
produced emails
showing compliance",,
,,,,,,,
,,,,,,,
35.,7.3.4,"The Borrowers shall deliver unaudited
financial statements (standalone and
consolidated) in respect of the
Reference Entity, Borrowers, the
Guarantors and the Obligors for each
financial quarter to the Lenders within
15 (fifteen) calendar days of the end of
each financial quarter and the audited
financial statements (standalone and
consolidated) and signed annual reports
in respect of the Reference Entity,
Borrowers, the Guarantors and the
Obligors to the Lenders within 45 (forty
five) calendar days of the end of each
financial year.",80,"of these terms by R-6
& R-7, thus
establishing that these
respondents fulfilled
their obligations under
the Facility
Agreement by
undertaking to be
bound by the terms of
the Facility
Agreement.",,,
36.,"7.3.5 read with Schedule 1.1.1
(n) [Point 4]","T h e Borrowers shall provide
Compliance Certificate (based such to
be provided by an Authorized Officer
who is a Director in respect of the
Reference Entity, Borrowers, the
Guarantors and the Obligors within: (a)
15 (fifteen) calendar days of the end of
every Fiscal Quarter based on the
unaudited financial statements, and (b)
45 (forty five) calendar days of the end
of each financial year.",80 & 100,,,,
XVII. FINANCIAL COVENANTS OF RESPONDENTS,,,,,,,
37.,7.4,"7.4.1 Each of the Borrower shall at al
times comply with the following on a
consolidated basis:
(a) Gross Primary Debt to LTM
EBITDA Ratio: In respect of MRI
Gross Primary Debt to LTM EBITD
Ratio shall be less than or equal to the
ratio set out in respect of the periods
below",,,,"l80
L,
A
L,
A
g
A","Obligation to maintain
a certain percentage
of EBITDA ratio o
R-6 and R-7 shows
that their financial
strength was crucial
for securing the dues
of the Petitioners.
F u r t h e r , the
Petitioners have
produced emails
showing compliance
of these terms by R-6
& R-7, thus
establishing that these
respondents fulfilled
their obligations under
the Facility
Agreement by
undertaking to be
bound by the terms of
the Facility
Agreement.
,,Covenant,"From
September
30, 2017
till
December
31, 2017","From
January
1, 2018
till
March
31,
2018","From
April 1,
2019 till
repayment",,
,,"Gross
Primary
Debt to
LTM
EBITDA
Ratio for
preceding
12
months(1)",8.75,3.5,3.0,,
,,"(b) Gross Primary Debt to LTM
EBITDA Ratio: In respect of EII
Gross Primary Debt to LTM EBITD
Ratio shall be shall be less than or equal
to the ratio set out in respect of the
periods below
Covenant From September
30, 2017 till
repayment
Gross Primary2.25
Debt to LTM
EBITDAR atio
for preceding 12
months(1)
(1) Note: LTM EBITDA for precedin
12 months shall be based on (i) the
audited financial statements of the
Issuer, in case of the evaluation being
for the end of the Financial Year, and
(ii) the limited reviewed financial
statements, in any other case. Such
Gross Primary Debt to LTM EBIDT
Ratio to be tested at the end of every
Fiscal Quarter",,,,,
XVIII. EVENTS OF DEFAULT,,,,,,,
38.,8 read with Schedule 1.1.1(z),"Events of Default and Consequences
8 . 1 Each of the events or
circumstances set out in Schedule
1.1.1(z) (Events of Default) is an event
of default (“Event of Defaultâ€).",,,,81,"Clause 3 of Schedule
1.1.1(z) provides
various situations qua
R-5 to R-7, which
would amount to
events of default.
Further, certain
actions of R-5 to R7
c a n also trigger
events of default.
,39.,"8.4.1(d) read with Schedule
1.1.1(z)","Acceleration and other consequence of
default",81,"T h e aforesaid
unequivocally and
unambiguously
establishes that R-5
to R-7 were
intrinsically
connected with the
performance of the
Facility Agreement
o n part of the
Respondents and
failure in
performance of these
obligations by R-5 to
R-7 would entail
event of default.",,
,40.,Schedule 1.1.1(z),"Schedule 1.1.1(z)
Events of Default
Cross Default
(a) Any of the Reference Entity
Borrowers, the Guarantors and/or the
Obligors failing to pay its debts or
Indebtedness to any Person as they fal
due or suspends or threatens to suspend
making payments (whether principal or
interest) with respect to any of its debts
or any notice received by the
Reference Entity, Borrowers, the
Guarantors and/or Obligors regarding
or commencement by any lender or
creditor of, any enforcement action on
any security made available/guarantee
provided by the Reference Entity,
Borrowers, the Guarantors and/or the
Obligors.
(b) Any of the Reference Controlled
Entities failing to pay its debts or
Indebtedness to any Person as they fal
due or suspends or threatens to suspend
making payments (whether principal or
interest) with respect to any of its debts
or any notice received by any of the
Reference Controlled Entities regarding,
or commencement by any lender or
creditor of, any enforcement action on
any security made available/guarantee
provided by any of the Reference
Controlled Entities.
(c) Any of the Reference Entity
Borrowers, the Guarantors and/or the
Obligors fail to comply with or breach
the terms of any document (other than
Financing Documents, the default in
respect of which is provided in
paragraphs 1 and 2 above) relating to
any Indebtedness of such Reference
Entity, Borrowers, the Guarantors
and/or the Obligors and such non-
compliance or breach entitles the
counterparties/creditors of the
Reference Entity, Borrowers, the
Guarantors and/or Obligors to
accelerate the outstanding amounts due
to them or to take any enforcement
action against the Reference Entity,
Borrowers, the Guarantors and/or the
Obligors and/or their assets or
commence any liquidation, bankruptcy
or winding up proceedings.
(d) Any of the Reference Controlled",",
l
,
l
,",,,
,,,,,,,
,,,,,,,
,,,"Entities fail to comply with or breach
the terms of any document (other than
Financing Documents, the default in
respect of which is provided in
paragraphs 1 and 2 above) relating to
any Indebtedness of such Reference
Controlled Entity and such non-
compliance or breach entitles the
counterparties/creditors of any of the
Reference Controlled Entities to
accelerate the outstanding amounts due
to them or to take any enforcement
action against any of the Reference
Controlled Entities and/or their assets or
commence any liquidation, bankruptcy
or winding up proceedings.
(e) Any Person exercises a lien or set-
off against any of the Borrowers, the
Guarantors and/or the Obligors or any
of their assets.
(f) Failure by the Reference Entity
Borrowers, the Guarantors and/or the
Obligors to pay one or more amounts
due under any judgments or decrees
which shall have been entered against
the Reference Entity, the Borrowers
the Guarantors or any Obligors.
4 . Winding Up, Nationalization
Receiver
(a) Any of the Reference Entity
Borrowers, the Guarantors or the
Obligors commencing/taking steps to
initiate a voluntary winding up or
restructuring or insolvency process
under any applicable bankruptcy,
insolvency, winding up or other similar
Applicable Laws now or hereafter in
effect; or (b) a petition is presented, or
a meeting is convened for the purpose
of considering a resolution, or any steps
are taken, for making an administration
order against or for the Reference
Entity’s, Borrowers’, the
Guarantors’ and/or the
Obligors’ winding up; or (c) Any of
the Reference Entity, Borrowers, the
Guarantors and/or the Obligors
consents to the entry of an order for
relief in an involuntary proceeding under
any such Applicable Law, or consents
to the appointment or taking possession
of itself or its assets by a receiver,
liquidator, assignee (or similar official).
(b) If an involuntary proceeding against
the Reference Entity, Borrower, the
Guarantors and/or the Obligors has
been admitted under any applicable
bankruptcy, insolvency, winding up or
other similar Applicable Law now or
hereafter in effect, or any notice from
any Person is received by the
Reference Entity, Borrowers, the
Guarantors and/or the Obligors in
relation to the institution/proposed
institution of proceedings of winding-up,
liquidation, dissolution, condemnation
etc. against the Reference Entity,
Borrowers, the Guarantors or any
Obligor.
(c) Any death, insolvency or any other
incapacity of the Guarantors and/or",",
,
,
,",,,
,,,,,,,
,,,,,,,
,,,"Obligors who are individuals.
(d) Any order is made for the
dissolution, liquidation, winding-up or
termination of the Reference Entity,
Borrowers, the Guarantors or any of
the Obligors or for the winding up or
liquidation of their affairs.
(e) Any notice is received by the
Reference Entity, Borrowers, the
Guarantors or any of the Obligors from
any Governmental Authority in relation
to the institution/proposed institution of
proceedings of nationalisation,
condemnation etc. against the
Reference Entity, Borrowers, the
Guarantors or any Obligor.
(f) Any Governmental Authority having
condemned, nationalized, seized, or
otherwise expropriated all or any part of
the assets of any of the Reference
Entity, Borrowers, the Guarantors or
Obligors or having assumed custody or
control of its business or operations or
having taken any action that would
prevent it or its officers from carrying
on its business or operations or a
substantial part thereof.
(g) Any proceeding or other action is
ordered or admitted by any
Governmental Authority/courts/tribunals
for the appointment of a receiver,
liquidator, assignee (or similar official)
for any part of property or assets of the
Reference Entity, Borrowers, the
Guarantors or Obligors or an execution
attachment or restraint has been levied
by a court/tribunal or any Governmental
Authority on all or any part of the
assets of any of the Reference Entity,
Borrowers, the Guarantors or Obligors.
(h) Any of the Reference Entity
Borrowers, the Guarantors and/or the
Obligors is declared as sick under the
Applicable Law or is, in the reasonable
apprehension of the Lenders and/or the
Security Trustee, likely to be declared
as sick under Applicable Law.
Security
(a) Failure by the Borrowers, the
Guarantors and/or the Obligors, as
applicable, in creation of Security
Interest to the satisfaction of the
Lenders within the period stipulated in
the Financing Documents.
(b) Notwithstanding anything contained
in the Financing Documents, any of the
Financing Documents once executed
and delivered fail to provide the
Security Interests, rights, title, remedies,
powers or privileges intended to be
created thereby (including the priority
intended to be created thereby), or such
Security Interest failing to have the
priority contemplated under the
Financing Documents, or the Security
Interest purported to be created thereby
being jeopardized or endangered in any
manner whatsoever, or any other
obligations purported to be secured",",
,",,,
,,,,,,,
,,,,,,,
,,,"thereby or any part thereof being
disaffirmed by or on behalf of any of
the Borrowers, the Guarantors or the
Obligors or any other party thereto.
(c) The occurrence of any event
affecting the Security or in the event of
t he title of any Borrowers, the
Guarantors and/or Obligor to any
portion of the Security being challenged
or in the event any Security or part
thereof or any Security Document fails
to constitute a valid and perfected first
ranking charge or ceases to be in full
force and effect or Borrowers, the
Guarantors and/or Obligor under any
Security Document has repudiated or
revoked or is likely to repudiate or
revoke such Security.
(d) If the whole or any part of the
Security is sold, Encumbered or
Transferred or otherwise disposed off
without the consent of the Lenders.
Other Default
(a) Failure by the entities listed in
Schedule 6.1.2(d) (Shareholding
Pattern) hereof to maintain and retain
management control over the
Reference Entity, the Borrowers, the
Guarantors and/or the Obligors and/or
failure to maintain their respective
shareholding in the Borrowers, the
Guarantors and the Obligors.
(b) The Reference Entity, Borrowers
the Guarantors and/or any of the
Obligors ceasing or makes a
declaration/announcement/notification
to cease to carry on its business.
(c) Any license, clearance, approval or
authorisation material in relation to the
business of any of the Reference Entity,
Borrowers, the Guarantors and/or any
of the Obligors is revoked, withdrawn,
terminated or suspended.
(d) Any Material Adverse Effect.
(e) Any insurance contracted or taken
by the Borrowers is not, or ceases to
be, in full force and effect at any time
when it is required to be in effect or any
insurance is avoided; or (b) any insurer
or re-insurer avoids or suspends or
becomes entitled to avoid or suspend,
any insurance or any claim under it or
otherwise reduce its liability under any
insurance; or (c) any insurer of any
insurance is not bound, or ceases to be
bound, to meet its obligations in full or in
part under any insurance.
(f) Any Legal Proceeding shall have
been instituted against the Reference
Entity, Borrowers, the Guarantors or
any of the Obligors which is of a value
of more than INR 10,00,000.
( g ) Any material assets of the
Reference Entity, Borrowers, the
Guarantors and/or Obligor are
destroyed in any substantial manner,
whether due to a force majeure event",",",,,
,,,,,,,
,,,,,,,
,,"or otherwise.
(h) The liabilities of the Reference
Entity, Borrowers, the Guarantors
and/or the Obligors are more than their
respective assets or the networth of the
Reference Entity, Borrowers, the
Guarantors and/or the Obligors is
eroded or becomes negative or zero.
(i) The Borrowers using the Facility o
any part thereof for any purpose other
than for which the Facility was
sanctioned.
(j) The Reference Entity, Borrowers
the Guarantors and/or the Obligors or
any of their directors appearing on the
RBI’s list of defaulters and
ECGC’s caution list.
(k) Any of the directors and/or the
promoters of the Reference Entity,
Borrowers, the Guarantors and/or
Obligors, being barred from accessing
the capital markets by the Securities
and Exchange Board of India or the
shares of any of the Reference Entity,
Borrowers, the Guarantors and / or
Obligors (if they are listed) been
suspended from trading.
(l) The Guarantors ceasing to be a
directors of the Borrowers.","r
,",,,,
41.,11.10 (a),"11.10 Remedies and Waivers
(a) No failure to exercise, nor any delay
in exercising, on the part of any Lender
and/or Security Trustee, any right or
remedy under the Financing Documents
shall operate as a waiver, nor shall any
single or partial exercise of any right or
remedy prevent any further or other
exercise or the exercise of any other
right or remedy. The rights and
remedies provided in this Agreement
are cumulative and not exclusive of any
rights or remedies provided by
Applicable Law.","9 2 read
with page
no. 310,
313,316 and
318","â € ¢ Clause 11.10
clearly states that non
exercise of any right
under the facility
agreement by the
Petitioners would not
amount to waiver.
â € ¢ The notices
[Point 5 @ Pg. No
310 and 313 and point
4 @ Pg. No. 316 and
318] expressly states
that it is without
prejudice to the rights
and remedies
available under the
agreement.",,,
acceleration notices and default notice it is also stated that the said notices are without prejudice to the rights and remedies available to the Lender/,,,,,,,
Security Trustee under the Financing Documents and/or applicable law, all of which rights and remedies are specifically reserved and the",,,,,,,
Borrower’s, Guarantor’s and Obligor’s continuing obligations under the Financing Documents.",,,,,,,
Share Pledge Agreement was entered into by and between the petitioners and the respondent Nos. 1, 2, 3, 4 and 5 along with respondent No. 8, as",,,,,,,
per Clause 5.1 of the Facility Agreement, whereby 4,16,66,666 compulsory convertible preference shares of respondent No. 5 were pledged in favour",,,,,,,
of the petitioner No. 2. And as per Clause 5.3 thereof the Share Pledge Agreement respondent No. 5 provides various undertaking on its part.,,,,,,,
Placing reliance on Clause 1.1.1 (aaa), (bbb), (ccc), (mmm), (ooo), (sss), (xxx) and Clause 1.1.1 (ee), it is stated that deinitions of",,,,,,,
‘Promoter’, ‘Promoter Group’, ‘Obligors’, Guarantors’ and ‘Reference Entity’, it is stated that a combined reading of",,,,,,,
these Clauses along with the various communications exchanged between petitioners and respondents clearly reveals that the loan was extended to,,,,,,,
the Williamson Magor Group as a whole and they all constitute one single economic entity and further the mutual intention of the parties to bind non-,,,,,,,
signatories, respondent No. 5-7.",,,,,,,
It is further submitted by the Counsels that the foundation to invoke ‘Group Companies Doctrine’ has been laid down in the pleadings, as the",,,,,,,
petitioners have very categorically revealed in the petition that although respondent No. 1-4 are signatory parties to the Facility Agreement, the facility",,,,,,,
was extended to the Williamson Magor Group as a whole on the basis of the credit worthiness of respondent No. 5-7.,,,,,,,
It is vehemently contended by the Counsels that the orders under Section 9 of the Act can be passed against non-signatories on the following basis,,,,,,,
such as a) where there is an intention to bind the non-signatories, which can be inferred from agreement itself and/or the manner in which the",,,,,,,
agreement is implemented/performed by the parties i.e. conduct of parties; b) Group of Companies Doctrine, and; c) attempt to use a corporate",,,,,,,
façade to deprive the creditors of their money. Reliance has been placed on the following judgments in support of this plea:,,,,,,,
Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. & Ors., 2013 (1) SCC 641;",,,,,,,
Cheran Properties Ltd. v. Kasturi Sons Ltd. & Ors., 2018 16 SCC 413;",,,,,,,
Mahanagar Telephone Nigam Ltd. v. Canara Bank & Ors., 2019 SCC Online SC 995;",,,,,,,
Sterling and Wilson International FZE and Ors. V. Sunshakti Solar Power Projects Private Limited AND Ors., MANU/DE/1303/2020;",,,,,,,
VLS Finance Ltd. v. BMS IT Institute Private Limited & Ors., 220 (2015) DLT 113;",,,,,,,
Goyal MG Gases Pvt. Ltd. v. Air Liquide Deutschland GmBH and Ors., MANU/DE/0098/2005;",,,,,,,
Dorling Kindersley (India) Pvt. Ltd. v. Sanguine Technical Publishers & Ors., 2013 2 Arb.LR52 (Del);",,,,,,,
Gatx India Pvt. Ltd. v. Arshiya Rail Infrastructure Ltd., 216 (2015) DLT 20;",,,,,,,
Counsels have also submitted that even the website of respondent No.1 states that the group of entities and individuals include respondent Nos. 6,,,,,,,
& 7. It is also stated that respondent Nos. 1 & 2 have acted as agents of respondent Nos. 5 to 7 in procuring the loans from petitioner No. 1 and have,,,,,,,
used the loan proceeds as part of their general business operations of funding group companies by transferring monies to respondent No. 6.,,,,,,,
It is also submitted by the Counsels refuting the stand taken by the applicants/respondent Nos. 5-7, they don’t form part of the Williamson",,,,,,,
Magor Group, that the Court must lift the corporate veil of the respondents in order to ascertain whether respondents actually form part of the",,,,,,,
Williamson Magor Group and that after availing the loan of Rs. 200 crores by representing themselves as part of group companies attempt is now,,,,,,,
made to use a corporate façade to fraudulently deprive the petitioners of their money. In support of this, the Counsels have placed their anchorage",,,,,,,
on the following judgments:,,,,,,,
Life Insurance Corporation Ltd. v. Escorts ltd. and Ors., 1986 1 SCC 264;",,,,,,,
State of U.P. and Ors. v. Renusagar Power Co. and Ors., 1988 4 SCC 59;",,,,,,,
Arcelomittal India (P) Ltd. v. Satish Kumar Gupta., 2019 2 SCC 1;",,,,,,,
Vodafone International Holdings BV. Union of India and Anr., 2012 6 SCC 613;",,,,,,,
DDA v. Skipper Construction Company (P) Ltd. & Anr., 1996 4 SCC 622.",,,,,,,
Having heard the Ld. counsels appearing for the parties, at the outset I shall broadly encapsulate their submissions. Mr. Sethi, Mr. Makkar",,,,,,,
Learned Senior Counsels and Mr. Jayant Mehta, learned counsel appearing for respondent Nos. 6, 7 & 5 respectively (‘Counsels for",,,,,,,
respondents’ for short) have submitted as follows:,,,,,,,
Respondent 5, 6 and 7 are not signatories to the Facility Agreement, Personal Guarantee, Share Pledge Agreement and the Deed of Hypothecation.",,,,,,,
No disclosure to that extent has been made in the petition.,,,,,,,
Being non-signatories, respondent No.5, 6 and 7 are not parties to the transaction or arbitration agreements therein and Section 9 does not lie",,,,,,,
against them. (Reference: on Indowind (Supra); Ameet Lalchand Shah (supra); Kanta Vashist (supra), Ajay Makhija, Mukesh Hans (supra), Mcleod",,,,,,,
Russel India Ltd. (supra)).,,,,,,,
Moreover, the invocation of group companies’ doctrine requires a finding of unmistakeable intent of non-signatory parties to be bound by",,,,,,,
agreement.,,,,,,,
Respondent Nos. 5, 6 and 7 are intentionally kept from being enveloped within the definition of being a ‘Borrower’, ‘Guarantor’,",,,,,,,
‘Obligor’, or ‘Promoter Group’.",,,,,,,
The Facility Agreement is a self-contained agreement as per Clause 13.3 and as per Clause 4.1 the obligation to repay loan is that of respondent,,,,,,,
Nos. 1 and 2 (Borrowers) and also respondent No. 3 and 4 (Guarantors).,,,,,,,
Clause 5.1 casts specific obligation on ‘Borrower’, ‘Guarantor’, ‘Obligor’ to secure the loan and Clause 5.10 requires",,,,,,,
‘Promoter-Group’ to replenish security in case of deficiency.,,,,,,,
‘Promoter Group’ does not include respondent Nos. 5, 6 & & 7 under the Facility Agreement and are not controlled entities of Guarantors.",,,,,,,
‘Reference Entities’ are being specifically defined and introduced only to state that the equity shares in respondent No. 6 & 7 are owned by,,,,,,,
the Borrowers, which serves as the security to the transaction under the Facility Agreement. (Reference to Clause 5.8 and 5.12). The company and",,,,,,,
its shareholders are independent and distinct entities in the eye of law.,,,,,,,
Clause 7.2.3 (a) requires ‘Borrower’, ‘Guarantor’, or ‘Promoter Group’ not to issue fresh shares in any ‘Reference",,,,,,,
Entity’ and no obligation is cast upon respondent No. 6 and 7. The obligation is of respondent Nos. 1-4 to protect the value of the security provided,,,,,,,
i.e. their shareholding in respondent Nos. 6 and 7.,,,,,,,
Clause 7.4.1 requires respondent No. 1 & 2 to ensure compliance of certain benchmarks of the financial health of the respondent No.5, 6 & 7.",,,,,,,
These terms do not in any manner oblige respondent Nos.5, 6 & 7 to do or refrain doing any act. A conjoint reading with Clause 5.8 makes it clear",,,,,,,
that the obligation for providing additional security in case of deficiency is on respondent Nos. 1-4.,,,,,,,
Notices of breach are all addressed to respondent Nos. 1-4.,,,,,,,
Respondent Nos. 3 & 4 have signed the Facility Agreement in their personal capacity as Guarantors as defined under Schedule 1 and there being,,,,,,,
no instance wherein respondent Nos. 3 and 4 have purported to act on behalf of respondent Nos. 5, 6 & 7, the doctrine of ostensible authority and",,,,,,,
estoppel is misplaced.,,,,,,,
No case of Fraud has been pleaded by the petitioner, for lifting of the corporate veil. Reliance is placed on Eloff Hansson (supra), to contend that",,,,,,,
in the absence of such pleading, Court is bound to disregard the same.",,,,,,,
The plea of fraud being committed as the proceeds where received by respondent No. 6 is any way misplaced as Clause 2.3 of the Facility,,,,,,,
Agreement lays the purpose of the loan to discharge respondent No. 6.,,,,,,,
No prima facie case is made out, as to restrain a third party under Section 9. Reliance placed by petitioner on Dorling Kindersley (supra) is",,,,,,,
misplaced as no derivative rights/title exists with the third party.,,,,,,,
Reliance placed by petitioner on Mahanagar Telephone Nigam (supra), in support of the contention that Section 9 lie against a non-signatory to an",,,,,,,
arbitration agreement is misplaced, as no intention to bind the non-signatories is made out as per the Facility Agreement. Similarly, the judgments,",,,,,,,
Chloro Controls India (supra), Mayavati Trading (supra), Gareware Wall Ropes (supra) and Cheran Properties (supra) are distinguishable in the facts",,,,,,,
of this case.,,,,,,,
On the other hand, the submissions made by Mr. Neeraj Kishan Kaul and Mr. Akhil Sibal are as follows.",,,,,,,
All respondents are part of the Williamson Magor Group. Respondent No. 1 and 2 are pure holding and investment companies and a major,,,,,,,
shareholding company in the Williamson Magor Group. In this regard, reliance was placed upon Clauses 1.1.1(aaa), (bbb), (ccc), (mmm), (ooo), (sss),",,,,,,,
(xxx) and 1.1.1(eee).,,,,,,,
Respondent Nos. 1 & 2 exists merely to raise funds on behalf of its group companies including respondent Nos. 5-7.,,,,,,,
Clause 2.3 of the Facility Agreement records its primary purpose as to finance respondent No.6.,,,,,,,
Credit facility granted after taking into consideration the credit worthiness of Williamson Magor Group as a whole and clause 7.4 of the Facility,,,,,,,
Agreement is applicable to respondent Nos. 6 and 7.,,,,,,,
Shareholding pattern of respondent Nos. 5, 6 & 7 indicate that they form part of the ‘Promoter Group’ as defined under the Facility",,,,,,,
Agreement, being entities controlled by the Guarantors.",,,,,,,
As per Clause 5.1(e), a letter is to be issued by respondent No. 6 to the Lenders and Clause 5.11 grants both the Borrower and/or Promoter Group",,,,,,,
the option of providing cash collateral in lieu of Top-up Shares.,,,,,,,
Clause 7.1.1 (b), obligation is cast on respondent No. 1-4 to ensure, respondent No. 5-7 does not become private entities.",,,,,,,
The shareholding of Reference Entity as on disbursement date was provided in Schedule 6.1.2(d) of the Facility Agreement, which has changed as",,,,,,,
on date.,,,,,,,
As per Clause 6.1.5(a), books of accounts to be prepared using GAAP on a consistent basis of Reference Entity, borrowers, obligors in accordance",,,,,,,
with applicable law is indicative of the fact that the Facility Agreement was granted on the strength respondent Nos. 5 to 7.,,,,,,,
As relied upon Clause 1.1.1 (bbb) read with Clause 6 to contend that “material adverse effect†envisages change in the financial condition,",,,,,,,
carrying out business, assets or prospects of Reference Entity as expressly represented and warranted in Clause 6.",,,,,,,
Shareholding pattern of respondent Nos. 5 to 7 clearly indicates that respondent Nos. 1 to 4 form part of its Promoter Group.,,,,,,,
Group Companies Doctrine can be invoked as in the petition it has been categorically stated that although respondent Nos. 1 to 4 are signatories,",,,,,,,
the facility was extended to the Williamson Magor Group as a whole.,,,,,,,
Orders Under Section 9 of the Act can be passed against non-signatories (i) where there is an intention to bind non-signatories which can be,,,,,,,
inferred from agreement itself and / or the manner in which the agreement is performed by parties,(ii) Group of Companies Doctrine and (iii) attempt",,,,,,,
to use corporate façade to deprive creditors of their money (Ref: Chloro Controls India Pvt. Ltd. (supra); Cheran Properties Ltd. (supra);,,,,,,,
Mahanagar Telephone Nigam Ltd. (supra); Sterling and Wilson International FZE and Ors. (supra); VLS Finance Ltd. (supra); Goyal MG Gases Pvt.,,,,,,,
Ltd. (supra); Dorling Kindersley (India) Pvt. Ltd. (supra); Gatx India Pvt. Ltd. (supra).,,,,,,,
Having broadly noted the submissions, the preliminary issue that falls for consideration under these applications is the maintainability of the petition",,,,,,,
in so far as respondent No. 5, 6 and 7 are concerned, being non-signatories to the Facility Agreement and to that extent the applicability of ex-parte",,,,,,,
order passed by this Court on December 13, 2019.",,,,,,,
It is trite law that even though the scope of an arbitration agreement is entered into by a Company within a group of corporate entities, as per",,,,,,,
‘Group of Companies Doctrine’, the same can in certain circumstances bind non-signatory affiliates as well. This doctrine was propounded",,,,,,,
through the case of Dow Chemical v. Isover-Saint-Gobain, 1984 Rev Arb 137 and first invoked by the Supreme Court in Chloro Controls (supra). A",,,,,,,
combined reading of the judgments of the Apex Court and this Court, as relied upon by the Mr. Kaul and Mr. Sibal, in Chloro Controls (supra), Cheran",,,,,,,
Properties Limited (supra), Mahanagar Telephone Nigam Ltd. (supra), Sterling and Wilson International Fze and Ors. (supra), VLS Finance Ltd.",,,,,,,
(supra), Gatx India Pvt. Ltd. (supra), Goyal MG Gases Pvt. Ltd. (supra) and Dorling Kindersley (supra) reveals the following position:",,,,,,,
Section 9 cannot be confined only to the parties to the arbitration agreement.,,,,,,,
‘Group Companies Doctrine’, is an exception whereby arbitration agreement binds a non-party or a non-signatory as well;",,,,,,,
The arbitration agreement entered into by one of the companies in the group and the non-signatory affiliate, or sister, or parent concern is held to be",,,,,,,
bound by the arbitration agreement, if the facts and circumstances of the case indicate a mutual intention of all parties to bind both the signatories and",,,,,,,
non-signatory affiliates in the group, or;",,,,,,,
This Doctrine gets attracted when a non-signatory entity on the Group, was engaged in the negotiation or performance of the commercial contract,",,,,,,,
or made statements indicating its intention to be bound by the contract, or;",,,,,,,
In cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single",,,,,,,
economic reality, especially when funds of one company is used to financially support or re-structure other members of the group, or;",,,,,,,
Doctrine can be invoked to bind non-signatory affiliate of a parent company or inclusion of a third party to arbitration, where there is a direct",,,,,,,
relationship between the party which is a signatory to the arbitration agreement or there is direct commonality of the subject matter,,,,,,,
Even if all parties to the lis were not signatory to all the agreements, but none of the Companies was a stranger to these transactions; parties",,,,,,,
intended, executed and implemented a composite transaction.",,,,,,,
Having noted the position of law, I shall now refer to the terms of the Facility Agreement. The position that emerges from the Facility Agreement",,,,,,,
is as follows:,,,,,,,
Respondent Nos.1 and 2 (Borrowers as defined under Part-E of Schedule â€" I to the agreement) have availed credit facility to the tune of Rs.100,,,,,,,
Crores each from the petitioner No.1.,,,,,,,
Respondent Nos. 3 and 4 are guarantors to the Facility Agreement as per Part-A of Schedule â€" I.,,,,,,,
Clause 2.3 of the Facility Agreement records that the facility was availed for repayment of existing loans / advances extended by respondent No.6,,,,,,,
to borrowers or infusion of proceeds into respondent No.6 solely for the purpose of reduction of debt.,,,,,,,
Clause 1.1.1 (p) defines ‘Control’. It also includes the power to direct the management or policies of a person, whether through the",,,,,,,
ownership of voting rights, power to appoint Directors or similar governing body of such person or through contractual or other arrangement.",,,,,,,
Clause 1.1.1 (bbb) defined ‘Material Adverse Effect’ to include an event, circumstance, occurrence or condition which, in the sole opinion of",,,,,,,
the lenders, has caused, as of any date of determination, or could be expected to cause, a material and adverse effect on: (i) the financial condition,",,,,,,,
carrying of business, operations, assets or prospects of any of the Borrowers, the Guarantors and/or the Obligors and/or the Reference Entity;",,,,,,,
Clause 1.1.1(ooo) defines ‘promoter group’ and includes any other controlled entity of the guarantors.,,,,,,,
Clause 1.1.1 (aaa) defines security to mean the security interest created on various assets and properties as noted in Clause 5.,,,,,,,
The Facility Agreement also defines security document in Clause 1.1.1 (xxx) to include all documents executed pursuant to Clause 5 which deals,,,,,,,
with ‘Security’.,,,,,,,
‘Security Provider’ shall mean (i) the Pledgors; and (ii) any other person creating Security under the Security Documents.,,,,,,,
Clause 1.1.1 (ccc) defines ‘Obligors’ as Borrowers, ‘Security Provider’ and Guarantors.",,,,,,,
In pursuance of Clause 5.1(a) a first ranking and exclusive pledge on pledged shares created pursuant to pledge agreement for securing loan,",,,,,,,
outstanding amount and any monies payable in respect of the facility.,,,,,,,
A. Clause 5.1.(e) includes A letter of comfort to be issued by MRIL in a form acceptable to lenders to secure the loans and all outstanding,,,,,,,
amounts.,,,,,,,
Even though the obligation to ensure adequate collateral cover (‘New Security’), by way of pledge over equity shares of respondent No.6",,,,,,,
and/or respondent No.7 and/or mortgage over properties at the end of 18 and 24 months (1.5x and 2.0 x respectively), was on the borrowers as per",,,,,,,
Clauses 5.8 and 5.9; Clause 5.10 envisaged that the Borrower and / or Promoter Group shall provide incremental shares as pledged “top-up,,,,,,,
shares’’ on the breach co-lateral cover as per Clause 5.8 and 5.9.,,,,,,,
An option to even provide cash collateral in lieu of “Top-up Shares†was also provided to the Borrower and Promoter Group as per Clause,,,,,,,
5.11. The cash collateral provided was to be adjusted against the loan outstanding amount.,,,,,,,
Respondents 5 to 7 are named as ‘Reference Entities’ under Clause 1.1.1 (sss).,,,,,,,
Clause 6 of the Facility Agreement dealt with Representation and warranties which the borrower and guarantors jointly and severally made to the,,,,,,,
lenders as on date of the Agreement to be continued till the date of final settlement.,,,,,,,
16.1 As per Clause 6.1.2 (d) an express representation and warranty was made that As on date of the execution of this agreement and the first,,,,,,,
disbursement date, the shareholding of Reference Entity, borrowers and the obligors is as provided in Schedule â€" 6.1.2 (d) and the same shall be",,,,,,,
maintained till the date of final settlement.,,,,,,,
16.2 Clause 6.1.2 (e) stipulated the Reference Entity, Promoter Group, borrowers and / or the obligors or any of their Directors shall not appear on the",,,,,,,
RBI list of defaulters and ECGC’s caution list.,,,,,,,
16.3 Clause 6.1.4 expressly stated no legal proceedings pending or threatened, or any written notices received by the Reference Entity, the borrowers,",,,,,,,
the guarantors and / or the obligors.,,,,,,,
16.4 As per Clause 6.1.5(a), books of accounts to be prepared using GAAP on a consistent basis of Reference Entity, borrowers, obligors in",,,,,,,
accordance with applicable law.,,,,,,,
16.5 Clause 6.1.8(a) also envisaged that the Reference Entity, borrowers, the guarantors and / or obligors are not insolvent or unable to pay their",,,,,,,
debts.,,,,,,,
Clause 7.1.1 (b), obligation is cast on respondent No. 1-4 to ensure, respondent No. 5-7 does not become private entities.",,,,,,,
Clause 7.2.3 (a) mandates that the Borrowers, Guarantors and the Promoter Group shall not issue any fresh equity or preference share or any",,,,,,,
other instruments convertible into equity or preference shares by the Reference Entity.,,,,,,,
Clause 7.2.3 (b) also mandates the Borrowers, Guarantors and the Promoter Group not to sell, transfer or dispose off or allow any of the entities",,,,,,,
listed in Schedule 6.1.2(d) (entities includes respondent No.5-7) of the Facility Agreement to sell, transfer or dispose off shareholding in Borrowers",,,,,,,
except as permitted under the Facility.,,,,,,,
Obligation is cast on the Borrowers, Guarantors and the Promoter Group to not sell, transfer or dispose off shares any of the Reference Entities",,,,,,,
held by Promoter Group without prior consent of the Lenders.,,,,,,,
Guarantors and Promoter Group to hold shares aggregating to a value of 7,50,00,00,000 of respondent Nos. 6 and 7 as per Clause 7.2.4.",,,,,,,
As per Clause 7.3.4 obligation was cast upon the Borrowers to deliver unaudited and audited financial statements in respect of the Reference,,,,,,,
Entity, Borrowers, the Guarantors and the Obligors for each financial quarter to the Lenders within 15 (fifteen) calendar and 45 (forty-five) calendar",,,,,,,
days of the end of each financial year respectively.,,,,,,,
Schedule 1.1.1(z) which deals with events of defaults such as cross-default (Clause 3 thereto), winding up nationalization, receiver (Clause 4",,,,,,,
thereto), other default (Clause 6 thereto), all envisage these events applicable to Reference Entities as well.",,,,,,,
In particular Clause 6(a) of Schedule 1.1.1(z) contemplates an event of default, as failure by the entities listed in Schedule 6.1.2(d) (Shareholding",,,,,,,
Pattern) hereof to maintain and retain management control over the Reference Entity, the Borrowers, the Guarantors and/or the Obligors and/or",,,,,,,
failure to maintain their respective shareholding in the Borrowers, the Guarantors and the Obligors.â€",,,,,,,
Clause 7.4 of the Facility Agreement is upon respondent Nos.1and 2 to maintain Gross Primary Debt to LTM EBITDA Ratio in respect of,,,,,,,
respondent Nos.6 and 7 at certain levels at given points of time.,,,,,,,
A perusal of the documents which are placed on record reveals the following:,,,,,,,
An email exchanged from an official (Manager of the respondent No. 1) under the official mail-id of respondent No. 6 to the petitioner’s,,,,,,,
representative (e-mail dated June 28, 2018 annexed at page No. 18 to I.A. 6877/2020) with regard to the quarterly compliance to be followed as per",,,,,,,
the Facility Agreement, depicts the files on behalf of respondent No. 7 being attached by the Manager of respondent No. 1.",,,,,,,
An email sent by an official of the petitioner to respondent No. 3 & 4 (e-mail dated January 24, 2019 annexed at page No. 33 to I.A. 6877/2020),",,,,,,,
whereby it is indicated that the loan under Facility Agreement was given in favour of ‘your promoter hold cos. in Sep’17 with PG’s and,,,,,,,
in good faith’. The email further reads as, ‘It has been brought to my notice that this is facility has multiple covenant breaches",,,,,,,
(primarily on account of excess leverage in McLeod Russel & Eveready and non-maintenance of min. unencumbered shareholding of,,,,,,,
Rs.750 crores) which were informed to us only on post facto basis which is completely unacceptable. Further, I understand that the",,,,,,,
aforesaid credit facility needs to be secured by 1.5x cover (Principal + Accreted Interest) in the form of pledge of shares of Eveready &,,,,,,,
McLeod Russel not later than 31st March’19 and thereafter at 2.0x level by 30th Sep’19.Please give us a plan to rectify the,,,,,,,
aforesaid breaches at the earliest and ensure to provide us the security within the agreed time line’.,,,,,,,
The respondent Nos. 3 & 4 has in fact replied to the aforesaid mail vide email on the same day (annexed at page No. 33 to I.A. 6877/2020),",,,,,,,
acknowledging the mail and has not disputed them being not part of the promoter/promoter group of the holding companies. Moreover, in pursuance of",,,,,,,
rectifying the breaches and other statutory requirements, the official of petitioner No. 1 communicated to the respondent No. 3 & 4 that",,,,,,,
‘..We’ve since then discussed your requirement for incremental funding at the holdco. level to take care of certain short-term,,,,,,,
maturities at the operating co. level and we are unable to progress at this juncture. Incrementally, we have an RBI inspection coming up,",,,,,,,
and we would need to comply with the security creation requirement in the existing facility first, and would appreciate if you could prioritize",,,,,,,
creating the requisite security (1.5x cover in the form of pledge over Eveready & McLeod Russel shares) against our facility of Rs.200,,,,,,,
crores + accreted interest latest by 31st March’19. Request if you could accordingly organize to create security within the aforesaid,,,,,,,
timeline.’,,,,,,,
An e-mail dated January 07, 2019, exchanged between an official of the petitioner No. 1 to an official of respondent No. 6, whereby in a table",,,,,,,
reproduced therein, respondent No. 3 & 4 are named as the Promoters of respondent No. 7 and the Promoter Group therein is defined as Promoter &",,,,,,,
his immediate family members & any entity owned and controlled by such individuals which constitutes Promoter Group.,,,,,,,
‘Security provider’ as envisaged under Clause 1.1.1(bbb) means to include any person who creates ‘Security’ under the ‘Security,,,,,,,
Documents’ and therefore, respondent Nos. 5 and 7 are ‘Security Providers’ which also qualifies them as ‘Obligors’ as per Clause",,,,,,,
1.1.1 (ccc). Thus, respondent Nos. 5 and 7 in addition to being ‘Reference Entities’ are also ‘Security Providers’ as well as",,,,,,,
‘Obligors’ as per the Facility Agreement.,,,,,,,
The shareholding pattern as laid down in Schedule 6.1.2(d) of the Facility Agreement clearly depicts that respondent Nos. 1, 2, 4 and 6 form the",,,,,,,
Promoter Group of respondent No.5; respondent Nos. 1,2,3,4 and 6 form part of the Promoter Group of respondent No.7; respondent Nos. 1,2,3,4 and",,,,,,,
7 form part of Promoter Group of respondent No. 6 and; respondent Nos. 1, 3 and 6 form part of Promoter Group of respondent No. 2, 5 to 7.",,,,,,,
The Borrowers and Guarantors, being respondent Nos.1-4, had expressly jointly and severally warranted and represented under Clause 6.1.2(d) to",,,,,,,
the petitioner No.1 and Security Trustee that the shareholding of the Reference Entity, Borrowers and Obligors as provided in Schedule 6.1.2(d) as on",,,,,,,
date of disbursement shall remain the same all throughout till the date of final settlement.,,,,,,,
In fact, Schedule 1.1.1(z) which contemplates various Events of Default, under Clause 6(a) reads as under:",,,,,,,
“(a) Failure by the entities listed in Schedule 6.1.2(d) (Shareholding Pattern) hereof to maintain and retain management control over the,,,,,,,
Reference Entity, the Borrowers, the Guarantors and/or the Obligors and/or failure to maintain their respective shareholding in the",,,,,,,
Borrowers, the Guarantors and the Obligors.â€",,,,,,,
The entities listed in Schedule 6.1.2(d) are Babcock Borsig Limited/respondent No. 8, respondent Nos.1 and 2, as well as respondent Nos.5 to 7.",,,,,,,
A conjoint reading of Clause 6.1.2(d), Clause 6 (a) to Schedule 1.1.1.(z) prima facie indicates that the Borrowers and Guarantors exercised",,,,,,,
management control over the Reference Entities and that the obligation was jointly and severally on respondent Nos. 1-4, accordingly, to maintain the",,,,,,,
shareholding of the Reference Entities intact. Clause 7.1.1(b) viewed from this prism, which casts an obligation on respondent Nos.1 to 4 to ensure the",,,,,,,
respondent Nos.5 to 7 does not become private entities, makes it clear that Reference Entities function at the behest of respondent Nos.1 to 4 herein",,,,,,,
accordingly.,,,,,,,
Similarly, as per Clause 7.3.4 obligation is cast upon the Borrowers to deliver unaudited and audited financial statements in respect of the",,,,,,,
Reference Entity, Borrowers, the Guarantors and the Obligors for each financial quarter to the Lenders within 15 (fifteen) calendar and 45 (forty-five)",,,,,,,
calendar days of the end of each financial year respectively. An obligation as per Clause 7.4 of the Facility Agreement is upon respondent Nos.1and 2,,,,,,,
to maintain Gross Primary Debt to LTM EBITDA Ratio in respect of respondent Nos.6 and 7 at certain levels at given points of time.,,,,,,,
Moreover, it is also pertinent to note that the Facility Agreement categorically records at Clause 2.3 (a) (i) that the Borrowers shall apply the",,,,,,,
amounts borrowed towards repayment of existing loans/advances extended by respondent No. 6/MRIL to the Borrowers or infusion of proceeds into,,,,,,,
respondent No.6/MRIL solely for the purpose of reduction of debt.,,,,,,,
The communications as reproduced above at paragraph 47 along with a reading of Clause 2.3 of the Facility Agreement, which states one of the",,,,,,,
reasons for availing the Facility as ‘Repayment of the existing loans/ advances extended by MRIL to the Borrowers or infusion of proceeds into,,,,,,,
MRIL solely for the purpose of reduction of debt’, is clearly indicative of the fact that respondent No. 1 and 2 along with the group-companies",,,,,,,
functioned as a single economic entity.,,,,,,,
The above-discussed Clauses of the Facility Agreement and communication between various respondents, viewed from the touchstone of settled-",,,,,,,
law, the position that clearly emerges is, respondent Nos. 1, 2 and 5-8 form part of a tight group structure with strong organizational and financial links,",,,,,,,
with respondent No. 3 and 4 being part of the Promoter Group of the various respondents, and in fact functions as a single economic entity. The",,,,,,,
organizational structure with various respondents herein being part of promoter group inter-se the respondents, none of the companies are stranger to",,,,,,,
the Facility Agreement. That apart, the communications bring to light the various negotiations being initiated by non-signatories, as well as the mutual",,,,,,,
intention to bind the non-signatories to the Facility Agreement. Therefore, I am of the opinion that the matter is an apt case for invoking the ‘Group",,,,,,,
Companies Doctrine’ and bind the respondent Nos. 5, 6 and 7/applicants herein who are non-signatories to the Facility Agreement.",,,,,,,
In so far as the pleas taken by the Counsels for respondents by relying upon the various Clauses of the Facility Agreement are concerned, those",,,,,,,
cannot be read in isolation overlooking other Clauses, referred above. They had relied on the judgment of the Supreme Court in Indowind (supra),",,,,,,,
wherein while considering an appeal arising out of an application filed under Section 11 of the Act, the Court held that against the anvil of Section 7, in",,,,,,,
the absence of an arbitration agreement between the parties, no claim against any party or no dispute thereon can be the subject-matter of reference",,,,,,,
to an Arbitrator. Similarly, Reliance was also placed on judgments restricting the applicability of Section 9 to non-signatories and third parties viz. 1.",,,,,,,
Kanta Vashist (supra) 2. Ajay Makhija (supra) 3. Mukesh Hans (supra) and 4. Mcleod Russel India Limited (supra). Suffice it to state that owing to,,,,,,,
the invocation of ‘Group Company Doctrine’, these judgments including Indowind (supra) find no applicability in the facts of this case.",,,,,,,
It is an undisputed fact that the respondent Nos.5 to 7 are referred to in the Facility Agreement as ‘Reference Entity’ as per Clause,,,,,,,
1.1.1(sss). As per Clause 4.1 the obligation to repay is cast upon the Borrowers. However, what needs to be considered at this stage is whether prima",,,,,,,
facie any obligation / liability accrues upon respondent Nos. 5 to 7 being the ‘Reference Entities’ to the Facility Agreement.,,,,,,,
Clause 5 of the Facility Agreement lays down the various security arrangement / documents to secure the various obligations and undertakings of,,,,,,,
the Borrowers, Guarantors and Obligors. It is an admitted position of the parties that it is pursuant to Clause 5.1 (a) that the Share Pledge Agreement",,,,,,,
was entered into by and between respondent Nos. 1, 2, 8, and Security Trustee whereby 4,16,66,666 compulsory convertible preference shares in the",,,,,,,
share capital of respondent No. 5 (Target) were pledged. Similarly, as per Clause 5.1(e), a letter of comfort is to be issued by MRIL / respondent",,,,,,,
No.6 in a form acceptable to the Lenders / petitioners. Clause 1.1.1 (xxx)(viii) of the Facility Agreement brings within the ambit of ‘Security,,,,,,,
Documents’, any Security Document to be executed pursuant to provisions of Clause 5 of the Agreement. A conjoint reading Clause 5.1(a),",,,,,,,
Clause 5.1(e) and Clause 1.1.1 (xxx)(viii) prima facie mandates respondent Nos. 5 and 6 to create Security Document (Share Pledge Agreement and,,,,,,,
letter of comfort respectively) for securing the credit facility under the Facility Agreement.,,,,,,,
Having said that the provisions of the Facility Agreement as noted above and the e-mail on behalf of the petitioner No.1 as referred to in Para,,,,,,,
47(2) & (3) above also indicates that respondent Nos. 3 and 4 as guarantors exercised control over the respondent Nos. 6 & 7. Interestingly, in",,,,,,,
response to the e-mail referred to in Para 47 (2), respondent No. 3 / Aditya Khaitan in his e-mail, with a copy to respondent No. 4, stated as under:",,,,,,,
“Thank you for your mail and I have noted the concerns you have put out. Our intention has been to ensure that the entire amount is,,,,,,,
repaid and we have already put some actions in play which your team is fully aware of.,,,,,,,
I would like to come across to meet you and explain the plan and request if you could give me a time early next week.,,,,,,,
Kind regards.â€,,,,,,,
A reading of the e-mail does indicate that respondent Nos. 3 & 4 had not denied their control over the entities being respondent Nos. 6 & 7. They,,,,,,,
being the guarantors to the Facility Agreement, Clause 1.1.1 (ooo) which defines the Promoter Group to include ‘any other controlled entities of the",,,,,,,
guarantor’, shall trigger. Schedule 6.1.2 (d) to the Facility Agreement clearly reveals that respondent Nos.1, 2, 4 & 7, form part of Promoter",,,,,,,
Group of respondent No.5; respondent Nos. 1, 2, 3, 4 and 6 form part of Promoter Group of respondent No. 7; and respondent Nos. 1, 2, 3, 4 and 7",,,,,,,
form part of Promoter Group of respondent No. 6. Moreover, respondent Nos. 3 and 4 are the Managing Director and Director in respondent No. 6",,,,,,,
and vice-versa in respondent No. 7. The Facility Agreement clearly stipulates the obligation of the Promoter Group under Clauses 5.10 and 5.11 to,,,,,,,
include that they shall provide ‘Top-up shares’ upon breach of collateral cover in terms of Clauses 5.8 and 5.9. Even clause 5.11 obligates the,,,,,,,
Promoter Group to provide cash collateral in view of ‘Top-up shares’. That apart Clauses 7.2.4 and 7.2.6 of the Facility Agreement also,,,,,,,
obligates the following: -,,,,,,,
“7.2.4 The Guarantors and the Promoter Group shall at all times hold shares aggregating to a value of INR 750,00,00,000 of Eveready",,,,,,,
& Mcleod Russell free and clear from Encumbrance.,,,,,,,
7.2.6 The Guarantors and the Promoter Group shall not Encumber any shares held by the Guarantors and the Promoter Group in the,,,,,,,
Reference Entities save and except as disclosed by the Promoter Group as on the date of this Agreement or as provided under this,,,,,,,
Agreement or as required to be Encumbered as ""top-up"" shares in accordance with the provisions of existing security creation",,,,,,,
arrangements.â€,,,,,,,
Similarly, obligations have been listed on the Promoter Group under Clause 7.2.3.",,,,,,,
The plea of the Counsels for the respondents was that respondent Nos. 5, 6 & 7 are not controlled entities of the guarantors. This plea is belied by",,,,,,,
their own e-mails on behalf of the guarantors, i.e., respondent Nos. 3 & 4, which have been referred above. It is also necessary to state, reading of",,,,,,,
the Facility Agreement prima facie reveals that every Reference Entity is part of Promoter Group but every entity which forms part of the Promoter,,,,,,,
Group is not a Reference Entity. It appears, for this primary reason, a mention to a Reference Entity has not been expressly made in the definition of",,,,,,,
Promoter Group under Clause 1.1.1 (ooo), but the stipulation thereunder that ‘any controlled entity of the guarantors’ would be construed as a",,,,,,,
part of the Promoter Group, surely suggest that Reference Entities being 5, 6 & 7 must be construed to mean Promoter Group. Thus, the plea of",,,,,,,
Counsels for respondents that no obligation has been cast upon respondent Nos. 5, 6 & 7 is therefore prima facie unsustainable in view of my",,,,,,,
conclusion above. I am conscious that a provision imposing any liability / obligation has to be strictly construed but this being a Section 9 Petition, the",,,,,,,
final adjudication in that regard has to be by the arbitral tribunal.,,,,,,,
The Judgments referred by the Counsels for the respondents viz. Elof Hansson (supra); Ajay Makhija (supra); Balmer Lawrie & Co. (supra);,,,,,,,
Bacha F. Guzder (supra), in support of their plea that lifting of corporate veil has to be specifically pleaded and proved would have no relevance in",,,,,,,
view of my conclusion above, which is based on the interpretation of the Facility Agreement and on facts.",,,,,,,
In so far as the judgment of the Calcutta High Court in the case of Mcleod Russel (supra), relied upon by Mr. Sethi and Mr. Makkar, is",,,,,,,
concerned, the same arises from an appeal filed against an order passed in application under Order XXXIX Rule 1 & 2 therein, unlike the case in",,,,,,,
hand, which is a petition under Section 9 of the Act. The doctrine of ‘Group of Companies’, was first invoked by the Supreme Court in Chloro",,,,,,,
Controls (supra) to bind non-signatory companies to an arbitration clause under an application filed under Section 11. The said Doctrine has been,,,,,,,
made applicable by me in the facts of the case, especially on a reading of the terms of the Facility Agreement along with various communications",,,,,,,
exchanged between the parties.,,,,,,,
That apart, in the said judgment, the terms of the Facility Agreement were not considered by the Court in the manner, I have done in this case to",,,,,,,
come to a conclusion on the prima facie liabilities of respondent Nos. 5 to 7 herein. So, it follows the judgment is clearly distinguishable.",,,,,,,
At this stage, I may state that in the interim order dated December 13, 2019 this Court has restrained the respondents including 5, 6 & 7 in the",,,,,,,
following manner:,,,,,,,
carrying out any change in its capital structure or,",,,,,,,
any corporate or debt restructuring and;,,,,,,,
restraint from selling, transferring, alienating, disposing, assigning, dealing or encumbering or creating third party rights on their assets.",,,,,,,
These three directions according to me are justified in view of the obligations which have been cast upon respondent Nos. 5, 6 & 7 in the Facility",,,,,,,
Agreement and the same cannot be interfered with.,,,,,,,
The applications are dismissed.,,,,,,,