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2014 DIGILAW 1221 (DEL)

Deutsche Trustee Company Ltd. v. Tulip Telecom Ltd.

2014-04-16

R.V.EASWAR

body2014
Judgment : R.V. Easwar, J. 1. M/s Tulip Telecom Ltd. (hereinafter referred to as “TTL” or the “respondent-company”) is a company incorporated in India. It issued an offering circular for foreign currency convertible bonds (FCCBs) for USD 150 million, to be redeemed on maturity at 144.56% of the principal amount. A trust deed was entered into between TTL and M/s Deutsche Trustee Company Ltd., the petitioner herein, under which the petitioner was appointed the trustee for the bondholders. The bonds were to be redeemed on 26th July, 2012. They had been partly redeemed and the principal value of the unredeemed bonds on the date of maturity was USD 97 million. After aggregating the premium payable on maturity, the amount payable by TTL as on the above date on the bonds came to USD 140 million. It is common ground that when the maturity date arrived, the unredeemed bonds were not redeemed by TTL. Assurances were given to the Bombay Stock Exchange and the National Stock Exchange that the bonds would be redeemed by 10th September, 2012. The trustee for the bondholders i.e. the petitioner in these proceedings, sent a fax message to the respondent on 28th August, 2012 informing the latter that the bonds were not redeemed on the date of maturity. Action was contemplated by the petitioner and this was also intimated to TTL. In October, 2012 there was an announcement to the bondholders about the development. On 19.3.2013 the petitioner sent the statutory demand notice contemplated by section 434(1)(a) of the Companies Act, 1956 which was followed up by reminders sent in the month of April, 2013. No amount was forthcoming from TTL despite the statutory demand notice and reminders. 2. On 8th May, 2013, TTL obtained a letter of approval for a Corporate Debt Restructuring Scheme, a copy of which is placed as annexure C to CA 1688/2013. The petitioner on coming to know of the CDR scheme, filed a winding up petition before this Court on 31st May, 2013 under section 433(e) of the Companies Act seeking winding up of TTL on the ground of inability to pay its debts. CA 1529/2013 is an application filed by the petitioner to restrain TTL from modifying in any manner any security interest granted by TTL to the CDR lenders in the past. CA 1529/2013 is an application filed by the petitioner to restrain TTL from modifying in any manner any security interest granted by TTL to the CDR lenders in the past. CA 1688/2013 is an application filed by ICICI Bank Ltd., which is the lead bank in the consortium of banks, seeking impleadment in the present proceedings. 3. When the company petition No.329/2013 was listed for hearing, on 16th September, 2013, the learned senior counsel appearing for TTL undertook before the Company Judge that the CDR scheme will not be given effect to till the disposal of the interim applications. When the matter was listed for arguments on 7th October, 2013, there was initially some dispute raised on behalf of the respondent as to whether any such undertaking was given to this Court, but after some time the learned senior counsel appearing for the respondent-company made a statement that if any such undertaking had been given earlier by the senior counsel who appeared before this Court on the earlier date, the same would be honoured. Thereafter CA 1529/2013, which is an application for stay of the CDR scheme was taken up for consideration. Even here initially there was some objection raised on behalf of the respondent as to whether CA 1529/2013 was in fact an application for stay of the CDR scheme. However, the learned senior counsel for the petitioner pointed out that a prayer for stay of the CDR scheme had been made in para 15 of the company petition. After this statement was made, the parties addressed arguments as to whether the CDR scheme should be stayed, pending admission of the company petition. The position therefore is that this Court has not passed any order as to whether the company petition No.329/2013 should be admitted or not; arguments were heard at length only on the question whether the CDR scheme which was approved by letter dated 8th May, 2013 and was followed up by a Master Restructuring Agreement (MRA) dated 17th July, 2013 should continue or should be stayed till further orders. 4. Mr Rajiv Nayar, the learned senior counsel appearing for the petitioner put forth the following submissions in support of the application for stay of the CDR scheme : (i) There is an undisputed debt which TTL is unable to pay. There is also acknowledgement of the debt several times. 4. Mr Rajiv Nayar, the learned senior counsel appearing for the petitioner put forth the following submissions in support of the application for stay of the CDR scheme : (i) There is an undisputed debt which TTL is unable to pay. There is also acknowledgement of the debt several times. No reply was sent by TTL to the statutory demand notice, nor was any payment made in redemption of the bonds. There is thus a prima facie case for admission of the company petition. If so, there is also a strong case for granting stay of the CDR scheme. (ii) The CDR scheme is heavily loaded in favour of the secured creditors giving rise to the apprehension in the minds of the petitioner that if the said scheme is implemented, there will be no assets left which can be liquated for meeting the liability of TTL to the bondholders. (iii) Between 31st May, 2013 and 10th July, 2013, the respondent did not inform the petitioner about the proposed CDR scheme, even though by that time the default had occurred and the petitioner had also sent the statutory notice followed up by reminders. (iv) After the judgment of the Supreme Court in Jitendra Nath Singh v. Official Liquidator (2013) 1 SCC 462 , the very basis of any CDR scheme has come under a cloud or question because of the provision for pooling of securities and for inducting further securities into the CDR scheme. The CDR scheme in the present case makes provision for both pooling of securities and for inducting further securities to the prejudice of the interests of the petitioner. (v) The CDR scheme is not a statutory scheme; in any case, the petitioner is neither bound by the scheme nor can he be compelled to join the scheme or await the outcome of the scheme. 5. Mr Nayar sought to elaborate the main objection to the CDR scheme, i.e. the provision for pooling of the securities and the provision for the induction of further security in the form of shares of a company by name Tulip Data Centre Pvt. Ltd. a wholly-owned subsidiary of TTL. 5. Mr Nayar sought to elaborate the main objection to the CDR scheme, i.e. the provision for pooling of the securities and the provision for the induction of further security in the form of shares of a company by name Tulip Data Centre Pvt. Ltd. a wholly-owned subsidiary of TTL. He clarified that there is no objection to the security itself, but the objection is to the pooling of the security amongst the secured creditors who are participating in the CDR scheme, which may deprive the petitioner of its legitimate rights to have the proceeds of the assets, even if not charged in favour of the petitioner, applied to the discharge of the FCCBs. He strongly relied on the observations of the Supreme Court in para 10 and 11 of the judgment in the case of Jitendra Nath Singh (supra) to the effect that a secured creditor of an insolvent company which is being wound up has only a right over the particular property or asset of the company offered to the secured creditor as a security and the unsecured creditors have rights over all other properties or assets of the insolvent company. He also invited my attention to para 8(a) of CA 1529/2013 in which there is a specific challenge to the pooling of the securities. The other strong objection to the CDR scheme is that it provides for further induction of security in the form of shares of Tulip Data Centre Pvt. Ltd., the argument being that but for such induction of the shares into the CDR package, they would have been available for being applied towards the discharge of the liability to the bondholders and thus the induction of those shares into the CDR package was detrimental to the interests of the petitioner. 6. The subsidiary objections of Mr Nayar, the learned senior counsel for the petitioner, are firstly that the CDR scheme cannot fix the redemption value of the FCCBs since the CDR lenders or those who participate in the CDR scheme are in no way concerned with the unsecured creditors such as the bondholders. It is pointed out that as per the CDR scheme, a cap of Rs.243 cores has been placed on the liability in respect of the FCCBs which is completely without the sanction of law and is a unilateral, unauthorised step taken by the CDR lenders. It is pointed out that as per the CDR scheme, a cap of Rs.243 cores has been placed on the liability in respect of the FCCBs which is completely without the sanction of law and is a unilateral, unauthorised step taken by the CDR lenders. According to Mr Nayar, TTL has given only two options to the petitioner – either to accept the amount of Rs.243 cores in full settlement of the liability now or to accept fresh bonds of 10 years maturity for a total redemption value of USD 144.71 million, neither of which is acceptable to the petitioner. 7. Mr. Nayar criticised a few aspects of the CDR scheme which according to him were detrimental to the interests of the petitioner. He pointed that the MRA provided for certain sacrifices by the secured creditors participating in the CDR scheme, according to which the secured creditors sacrificed only the interest of Rs.238 cores on the loans advanced by them without any sacrifice of the principal amount, whereas the expectation of the CDR scheme is that the petitioner should sacrifice a sum of Rs.650 cores. He submitted that these terms are heavily loaded in favour of the respondent-company and the secured creditors participating in the CDR scheme. He placed strong reliance on the judgments of the Bombay High Court in Sublime Agro Ltd. V. Indage Vinters Ltd. (dated 19.3.2010, S.J. Kathwalla, J.) and BNY Corporate Trustee Services Ltd. V. Wockhardt Ltd. (dated 11.3.2011, S.C. Dharmadhikari, J.), and the judgment of this Court in Citibank N.A. vs. Moser Baer (dated 17th July, 2013). 8. In support of the aforesaid submissions, Mr Nayar made elaborate references to the CDR scheme and the MRA. 9. The stay application was vehemently opposed on behalf of the respondent company. Mr. Sundaram, the learned senior counsel appearing for TTL pointed out that the winding up petition has not even been admitted and therefore utmost caution has to be exercised in passing any order on the application which seeks to stay the implementation of the CDR scheme. 9. The stay application was vehemently opposed on behalf of the respondent company. Mr. Sundaram, the learned senior counsel appearing for TTL pointed out that the winding up petition has not even been admitted and therefore utmost caution has to be exercised in passing any order on the application which seeks to stay the implementation of the CDR scheme. He pointed out that the usual parameters for stay, such as the existence of a prima facie case on merits, the balance of convenience and the irreparable loss or injury that could be caused to the parties ought to be taken note of in the present case also, with the additional aspect being factored in, namely, that the winding up petition itself is yet to be admitted. With this preface he contended that there was a marked difference between the judgment of this Court in the case of Citibank N.A., vs. Moser Baer (supra), relied upon by the petitioner, and the present case in the sense that Moser Baer relied upon earlier judgment of this Court in Bipla Chemical Industries V. Shree Keshariya Investment Ltd. (1977) 47 Com.Cas 211, which was a case which was not decided on the existence of debts. He submitted that a company court is a court of equitable jurisdiction and therefore while deciding on the stay application, it has to weigh all factors which would affect the justness and the equitable nature of the issue. He heavily relied on the judgment of the Supreme Court in Hind Overseas Private Ltd. V. Raghunath Prasad Jhunjhunwalla & Anr. (1976) 3SCC 259 and the judgment of this Court in Laguna Holdings Pvt. Ltd. & Ors. V. Eden Park Hotels Pvt. Ltd. & Ors. (2013) 176 Comp. Cas. 118. Mr. Sundaram submitted that both Bipla Chemical Industries and Moser Baer (Supra) were cases on the question whether the winding up petition should be admitted or not. The defence in those cases was that since there was already a CDR Scheme or a revival scheme in place, the winding up petition should not be admitted. This Court found no merit in the defence which, according to Mr.Sundaram, was the right view to take since at the stage of admission of the winding up petition the company court has to merely examine whether there was an admitted debt which the company is unable to pay. This Court found no merit in the defence which, according to Mr.Sundaram, was the right view to take since at the stage of admission of the winding up petition the company court has to merely examine whether there was an admitted debt which the company is unable to pay. If these basic conditions are satisfied, it is the discretion of the court to admit the petition or not and in the two decisions of this Court cited above, the Court thought it fit to hold that the existence of a CDR scheme cannot be an impediment to the admission of the winding up petition, given that there was an admitted debt and an inability to pay the same. According to Mr. Sundaram, the present proceedings are different, in the sense that we are not concerned with the question whether the winding up petition should be admitted or not; the petitioner seeks stay even before the petition is admitted, a situation which according to Mr. Sundaram calls for extreme caution and sensitiveness. Moreover, according to him, the bondholders are only speculators, having bought the bonds in the market at a discount and expecting to gain if the company goes into liquidation, and not genuine investors. He further contended that it is even doubtful whether the bonds can be said to represent a “debt” for the purposes of Section 433/434 of the Act. 10. Mr. Sundaram reminded me of the well-settled principle laid down in Madhusudan Gordhandas V. Madhu Woollen Ind. (1971) 3SCC 632 that the decision whether to wind-up a company or not should be taken by the company court after taking into consideration the wishes and views of all the stakeholders including the contributories, the secured creditors, the workmen as well as the customers. The company court is also bound to keep in view the economy of the country and the public interest that is likely to suffer if an order of winding up is made. According to the learned senior counsel, a majority of the creditors (almost 3-4th) in the present case desire that the company should revive. The CDR scheme is a step for the revival of the company. According to the learned senior counsel, a majority of the creditors (almost 3-4th) in the present case desire that the company should revive. The CDR scheme is a step for the revival of the company. Irrespective of the question whether it is statutory or not, there can be no gainsaying that the scheme has the blessing of the Reserve Bank of India which has laid down certain broad principles and contours for the framing of the CDR Scheme. The scheme was initiated after a study conducted by Ernst and Young, who have made some general observations in their technical evaluation report indicating a positive outlook for TTL. 11. Mr. Sundaram further submitted that if the stay application is allowed and the CDR scheme is stayed, this Court would have reached a conclusion that there was a case for winding-up even before the winding-up petition is admitted, a course which would be a reversal of the proceedings and the normal procedure that the stay application would come up for consideration only if the winding up petition is admitted or at least notice is issued to the respondent. He therefore reminded this court several times, gently but firmly, that this Court should exercise extra caution and should have very strong and exceptional reasons as to why the CDR scheme should be stayed even before the winding up petition is admitted. 12. Mr. Sundaram has also pointed out several provisions in the CDR scheme and the MRA which are aimed at lightening of the debt burden of the respondent-company and the increase of its working capital, which would go a long way in reviving the liquidity of TTL. 13. The workmen numbering about 121 out of 3500 odd workers of TTL have filed CA No.1796/2013 for impleading. Mr. Wadhwa, the learned counsel appearing for the workmen strongly relied on the judgment of the Supreme Court in National Textiles Workers’Union V. P.R.Ramakrishnanand & Ors. (1983) 1SCC 228 and submitted that the workers have a right to be heard both before the winding up petition is admitted and thereafter before any winding up order is passed. He contended that the CDR scheme will ease the liquidity crunch faced by TTL. (1983) 1SCC 228 and submitted that the workers have a right to be heard both before the winding up petition is admitted and thereafter before any winding up order is passed. He contended that the CDR scheme will ease the liquidity crunch faced by TTL. Pointing out that there is nothing in the CDR scheme which provides for retrenchment of workmen and arguing for a case for continuance of the scheme, Mr.Wadhwa submitted that the company court is a court of equitable jurisdiction and is not bound to order winding up of a company even if the conditions of Section 433 of the Act are satisfied. The power of the court to admit a winding up petition is discretionary. Mr. Wadhwa says that if that is so, the position would be a fortiori in the case of stay application, that too where the winding up petition is yet to be taken up for admission; the balance of convenience and the irretrievable loss or injury are loaded in favour of the continuance of the CDR scheme. He submitted that the petitioner is an unsecured creditor and all unsecured creditors have an inherent risk and the petitioner is no exception. The concerns of the workmen should be protected by the company court. He therefore pleaded that the implementation of the CDR scheme should not be stayed. 14. Mr. Sandeep Sethi, learned senior counsel appearing for the ICICI Bank Ltd. in CA No.1688/2013, which is the lead bank in the CDR scheme pointed out that there are 13 banks and financial institutions representing more than 2/3rd of the debt owed by TTL participating in the scheme and an amount in excess of Rs.2000 crores is due to them, the amount due to ICICI Bank Ltd. being Rs.670 crores. He read out and relied upon the salient features of the revival scheme, particularly the provisions relating to restructuring of debts. According to Mr. Sethi, the CDR scheme does address the concerns of the FCCB holders also and thus a holistic and macro view has been taken. He pointed out that the CDR scheme does not envisage any payment to any creditor to the prejudice of the other creditors and a moratorium on such payment has been imposed till March, 2015 and therefore at least till that time, no prejudice would be caused to the petitioner. He pointed out that the CDR scheme does not envisage any payment to any creditor to the prejudice of the other creditors and a moratorium on such payment has been imposed till March, 2015 and therefore at least till that time, no prejudice would be caused to the petitioner. He drew my attention to the impressive customer profile of TTL and submitted that once the CDR scheme is implemented and considerable progress is made, the effect thereof shall be felt in increased liquidity and possibility of sparing of funds enabling repayment of the FCCBs. With reference to the argument of the petitioner that the pooling of the securities would be detrimental to the interests of the bondholders, Mr. Sethi strongly denied that it would be so. He argued that the implication of pooling of securities is only that the secured creditors would inter se make adjustments to their respective securities without in any way affecting the prospects of the unsecured creditors and therefore there is no room for the apprehension expressed on behalf of the petitioner that the pooling of the securities would diminish the prospects of the unsecured creditors getting any payment in respect of the bonds. He pointed out that in any case, even before the CDR scheme, all the creditors, in addition to the charge or security of a specific asset, had a pari passu charge on the other fixed or moveable assets and the pooling of securities did not make any effective change to the same. 15. In his rejoinder to the arguments of the learned senior counsel for the respondent-company and the ICICI Bank Ltd. as well as to the arguments of the learned counsel for the workmen, Mr. Rajiv Nayar summed up his arguments as follows: - (i) The induction of the shares of Tulip Data Centre Pvt. Ltd. into the fold of the CDR scheme is wholly detrimental and prejudicial to the interests of the petitioner and should not be permitted. The sale of these shares is in the immediate contemplation of the CDR lenders and there is no provision in the MRA prohibiting the sale. The sale of these shares is in the immediate contemplation of the CDR lenders and there is no provision in the MRA prohibiting the sale. The only provision is that the payment to the CDR lenders will be deferred till June, 2015 but the sale of shares can take place at any time; (ii) The pooling of the securities contemplated by the CDR scheme deprives the right of the petitioner by reducing the asset-base of the respondent-company and creates a new class of creditors, which is impermissible; (iii) The CDR scheme will negate the rights of the unsecured creditors in the case of the liquidation. The CDR scheme does not take care of the unsecured creditors of which the petitioner is one; (iv) If the sale of shares takes place, against which there is no provision, it cannot be reversed by the Company Court; any fresh charges created upon the aforesaid shares cannot be undone by the Company Court; even a pledge of shares cannot be undone. In truth and reality, the CDR scheme is thus only a process of sale of the assets of the company for the benefit of the secured creditors; it is not a step towards revival of the company; (v) The petitioner is not a speculator, as alleged by the respondent, who has acquired the bonds at a discounted price and is hoping to derive huge gains if any payment is made by the TTL. On the contrary, even as per the offer circular, the fluctuation in the market price of the shares are bound to affect the bonds, but once the maturity date is crossed, without redemption, the risk factor cannot operate thereafter; (vi) As per the circular issued by the Reserve Bank of India on 01.07.2013, even a bond is a debt instrument and, therefore, the argument advanced on behalf of the respondent-company that the bonds do not represent a debt qua Sections 433 and 434 of the Companies Act is without any merit; (vii) The circulars issued by the Reserve Bank of India on 23.08.2001, 05.02.2013 and 10.11.2005 on the subject of CDR schemes have no statutory basis. Only the secured creditors who are parties to the CDR scheme are bound by the circulars; (viii) The existence of a CDR scheme is not an impediment to the winding-up proceedings being admitted by the Company Court as held by the Bombay High Court in Sublime Agro Ltd. (supra) and Wockhardt Ltd. (supra) The judgment of this Court in Citibank N.A. vs. Moser Baer (supra) and in the Hongkong and Shanghai Banking Corporation Ltd. V. M/s Surya Vinayak Ind. Ltd. Dated 12.2.2014 (Bakhru, J.) are also to the same effect; (ix) The projected profit and loss account shows a dismal picture of the respondent-company. TTL is a sinking ship. The technical evaluation and viability report submitted by Ernst & Young on which reliance was placed by the respondent and the ICICI Bank Ltd. has no credibility. The Directors’ report does not inspire any confidence; (x) The conduct of ICICI Bank Ltd., the lead banker, has not been bona fide in as much as it did not inform the Court about the existence of the CDR scheme even on 10.07.2013 though the winding-up petition was filed by the petitioner on 31.05.2013. The bank had a motive to conceal the fact from this Court because the MRA was pending approval on that date and the Court, if it had been informed, could have put the same on hold; and (xi) The respondent-company has also not informed this Court about the oral undertaking given by its senior counsel to this Court on 16.09.2013 that it will not proceed with the CDR scheme. It was only the petitioner which brought it to the notice of this Court on 23.10.2013 and 24.10.2013; the respondent has thus not acted bona fide. 16. The parties have filed written submissions which have been taken into consideration. 17. At this stage, when the winding-up petition is yet to come up for admission, the only concern is whether there is any justification for staying the CDR Scheme, which is yet to be given effect to pursuant to the undertaking given to this court on behalf of TTL on 16-9-2013. 17. At this stage, when the winding-up petition is yet to come up for admission, the only concern is whether there is any justification for staying the CDR Scheme, which is yet to be given effect to pursuant to the undertaking given to this court on behalf of TTL on 16-9-2013. There can be no dispute that the company court is not bound to order winding-up even if the conditions of sections 433 and 434 are satisfied, if it is found that winding-up will not be in the interests of all the stakeholders of the company, such as the creditors, customers, workmen, contributories etc. It is also open to the court to ascertain the wishes of the creditors under section 557 of the Act. The company court should welcome measures to revive the company rather than wind-up the company because the liquidation of the company is likely to affect prejudicially the stakeholders. The question whether the CDR scheme should be stayed is closely linked to this broad and general rule; a CDR scheme is aimed at reviving the company which has fallen into difficulties. Even assuming for the sake of argument that the CDR Scheme is not statutory in nature despite the backing and support extended by the RBI, and its implementation is purely voluntary or contractual and in its very nature cannot include the unsecured creditors, confined as it is to secured creditors, still one cannot overlook that it is an attempt by a majority of the secured creditors to revive the company and help it turn round and overcome the financial crisis. It must also be appreciated – as I do – that a CDR scheme has to perforce be based on an optimistic approach, provided the company continues to be viable with its substratum intact. The technical evaluation and viability report has to be accorded some credibility in this context and its authors accredited with some sense of responsibility, even making allowance for the fact that its highlights could possibly tend to be somewhat exaggerated. The report has therefore to be viewed as a document which provides the platform for implementation of further financial strategies and as affording merely a starting point of a series of optimistic measures to be put in place aimed at revival. The report is no doubt not a magical talisman, a wand that can make the past disappear. The report has therefore to be viewed as a document which provides the platform for implementation of further financial strategies and as affording merely a starting point of a series of optimistic measures to be put in place aimed at revival. The report is no doubt not a magical talisman, a wand that can make the past disappear. But it gives the impetus for everyone to take efforts jointly to make the past of the company disappear. 18. The predominant concerns of the petitioner, articulated with precision by Mr. Rajiv Nayar appearing for the petitioner, are: (i) the pooling of the securities and (ii) the induction of further security in the form of shares of TDCPL which would have been otherwise available for the unsecured creditors, including the petitioner. The answer to (i) given on behalf of the respondent-company is that even before the pooling of the securities the CDR lenders had, in addition to the asset secured to them, a first pari passu charge on all the other fixed assets of the company and a second pari passu charge on the moveable assets; the working capital lenders had a first pari passu charge over the moveable asset and second pari passu charge over the fixed assets. It is thus contended by the respondent that the assets available to the unsecured creditors cannot be said to be reduced because of the CDR scheme. With regard to the point No.(ii) above, the respondent contends that the petitioner’s estimate that the shares of TDCPL would fetch around Rs.3,000 to Rs.4,000 crores is “outrageously exaggerated”. My attention was drawn to the financial statements for the six months period ended 31.03.2013 in which the investment in the said shares is shown at Rs.214.01 crores. It is also submitted that TDCPL has a total secured debt of about Rs.350 crores including the debt of Rs.150 crores extended by ICICI Bank, against which 30% of the shares have been pledged. In addition another 30% of the shares are pledged to Edelweiss and Religare. According to the respondent, the realisable value of the shares in a distress sale would be much below the book value and will not be sufficient to clear the dues to the bondholders. The argument is that the induction of the TDCPL shares will not prejudice the interests of the bondholders, considering their low market value. According to the respondent, the realisable value of the shares in a distress sale would be much below the book value and will not be sufficient to clear the dues to the bondholders. The argument is that the induction of the TDCPL shares will not prejudice the interests of the bondholders, considering their low market value. Excpet the book value of Rs.214 crores, the other figures – given by the petitioner as the estimated market price of the shares – and the claim of the respondent that the shares would fetch a price much below the book value are not immediately capable of verification in the absence of any acceptable report by a competent person estimating the market value of the shares on a realistic basis. 19. I am unable to reject the apprehension of the petitioner as baseless, so far as these two points are concerned. Even if the respondent is correct in stating that the pooling arrangement does not cause any fresh prejudice to the interests of the bondholders, the fresh induction of TDCPL shares is a cause for concern. A robust commonsense approach would indicate that the CDR lenders apparently had some basis for the opinion that the shares are of considerable value; otherwise it is difficult to justify the decision to induct them into the CDR package scheme. When this move was made, I am fairly certain that the lender – banks would have taken pains to assess the real worth of shares and after embarking upon such an exercise, they must have had enough justification in support of the move, in terms of the market value of the shares. I am unable to hazard a guess as to what precisely is the market value of the shares but at the same time I am fairly certain that their real worth must have been such as to justify the decision of the lender banks to induct them into the CDR scheme. 20. The question now is whether the mere existence of these two thorny issues should persuade the Company Court to injunct the respondent from proceeding further with the CDR scheme. That consequence seems to me to be somewhat unfair and disproportionate to the apprehensions of the petitioner. The respondent-company is a network infrastructure company providing network connectivity to 2000 cities and supporting crucial networks for the government, public sector banks and various private enterprises. That consequence seems to me to be somewhat unfair and disproportionate to the apprehensions of the petitioner. The respondent-company is a network infrastructure company providing network connectivity to 2000 cities and supporting crucial networks for the government, public sector banks and various private enterprises. It is one of the largest information technology infrastructure companies and provides core infrastructure and essential services. Its customer profile is an impressive array of electricity boards of several States, leading private sector and public sector banks, many airlines to which it provides connectivity, police departments of Jammu & Kashmir, Delhi, etc., National Informatics Centre (NIC) the States of Haryana, Assam, Madhya Pradesh, Maharashtra and Gujarat, who avail of the “State wide area network” provided by the respondent and so on and so forth. The respondent-company, like many other infrastructure companies, has not been able to match the cash flows with the requirements of the business or with its liabilities towards repayment of loans including the bonds on account of the fact that in all such companies which are capital intensive the revenues start flowing in only after a long gestation period. Between the time when the infrastructure is put in place (by which time heavy capital outlay would have taken place) and the time when the revenues start trickling in, every such company faces a cash crunch during which period there is high probability of defaults in loan repayments. Apparently, TTL being such an infrastructure company providing core and essential services in the IT sector has been caught in this period. The optimism generated by the technical evaluation and viability report has factored in this element; it is only a matter of time, according to the report, that the company would start earning revenues which would generate adequate cash inflows. The CDR package scheme enables the company to tide over this crucial period by providing for funding of interest liability, fresh infusion of working capital, moratorium on repayment of debt and a slew of other measures outlined in the CDR scheme and the MRA. In my opinion, it would be useless beyond a particular point to enter into the nitty-gritty of the figures mentioned in the CDR scheme and the MRA since one can adopt a selective approach and cull out figures which suit what one wants to say. 21. In my opinion, it would be useless beyond a particular point to enter into the nitty-gritty of the figures mentioned in the CDR scheme and the MRA since one can adopt a selective approach and cull out figures which suit what one wants to say. 21. One of the contentions of the petitioner was that the CDR scheme is not viable, that its object is not to revive the company but to merely realize the assets of the company for the benefit of the secured creditors. I do not think that such a sweeping charge can be countenanced. As already pointed out, the CDR scheme has the support and backing of the RBI, which has issued several guidelines through various circulars and though it is doubtful whether the CDR scheme can be called statutory, yet it has a basic sanctity and reflects an attempt by the secured creditors to revive the company. The basic object of any CDR scheme is to restructure the debts of the company and to provide the company with the much needed time to equalise its revenues with its repayment obligations. Any company may at any time of its existence go through phases of financial crunch. In many cases it may be temporary and may be due to mismatch of the revenue and payment streams. The CDR mechanism certainly is not a guarantee that the company will overcome the financial crisis. It is an attempt, bona fide made, to assist the company get back on to rails. It attempts to infuse a sense of financial discipline and resilience into the company. However, the success of the CDR scheme depends on several factors, not the least of them being a sense of commitment on the part of the company to adhere to the terms of the scheme. The company cannot by any means be said to ignore the unsecured creditors and prefer the secured creditors by entering into a CDR scheme. Despite sincere efforts, it may happen that during the implementation of the scheme, it may not be able to adhere to certain projected parameters/figures. But one cannot doubt the sincerity on the part of the company merely because it has not been able to achieve the targeted or projected figures during the implementation of the scheme. Despite sincere efforts, it may happen that during the implementation of the scheme, it may not be able to adhere to certain projected parameters/figures. But one cannot doubt the sincerity on the part of the company merely because it has not been able to achieve the targeted or projected figures during the implementation of the scheme. The rationale is that the company must be given a fair chance to acquit itself well, survive the financial crisis and move forward to honouring its commitments. 22. Mr. Nayar also took objection to the effect that the CDR lenders have made a sacrifice of only Rs.238 crores by giving up the interest on the loans temporarily while at the same time they expect the bond holders to make a sacrifice of the entire amounts due on the bonds. The CDR scheme is confined to the secured creditors. They can only speak for themselves which is what they did when they announced a sacrifice of Rs.238 crores. By placing a cap of Rs.243 cores I do not think that the intention is that the balance of around Rs. 650 cores due to the bond holders should be sacrificed by them. The cap of Rs.243 crores has been placed in the CDR scheme as one of the bases for calculating the cash flows of the company. The CDR lenders certainly have no right to say that the balance of the amount should be sacrificed by the bond holders. While working out the possible cash flows of the company certain assumptions have to be made both in respect of the revenues and the payments. One such assumption is a cap of Rs.243 crores on the liability to bond holders and the cash flows available to the company are worked out on that basis. It can hardly be said to imply that the bond holders should give up their claim to the extent of Rs.650 cores. In any case, it is only an option offered at best, and it is open to the petitioner to reject it. 23. Taking an overall view of the conspectus of the case it seems to me that the implementation of the CDR scheme cannot be stayed. That will not be in the interests of the company or the various stake holders; nor would it be in the interest of the bondholders. Mr. 23. Taking an overall view of the conspectus of the case it seems to me that the implementation of the CDR scheme cannot be stayed. That will not be in the interests of the company or the various stake holders; nor would it be in the interest of the bondholders. Mr. Nayar, strongly contended that the argument that the success of the CDR scheme would be beneficial to the petitioner and therefore the petitioner should not try to block it is unacceptable because the CDR scheme, even if it is implemented, appears to be only for the benefit of the secured creditors. But what this contention overlooks is that the bondholders are unsecured creditors, whereas the CDR lenders are all secured creditors. I must hasten to clarify that I do not mean to convey the idea that an unsecured creditor need not be paid back his dues. But having lent monies without any security, an unsecured creditor would appear to have taken a greater risk, as pointed out by Mr. Wadhwa, the learned counsel appearing for the workmen of the company, and therefore cannot complain when the secured creditors join together and take steps to revive the company. The revival, if successful, would benefit not only the secured creditors but also the bondholders who may expect to be paid their dues once the company revives. The bondholders, in my humble opinion will not be justified in claiming that the company should be willy-nilly wound up just because their dues have not been paid, even when steps for revival of the company are afoot. It is in this context necessary to recapitulate that it is the duty of the Company Court to welcome revival rather than affirm the death of the company. The respondent-company is an IT infrastructure company providing core infrastructure and essential services. It employs about 3500 workmen on whom some 20,000 lives are dependent. Staying the CDR scheme at this juncture would practicably amount to winding up of the company which step has to be taken only as a last resort. The legislative thinking on this aspect can also be gleaned from the provisions of the Companies Act, 2013 which is yet to come in force fully, though many of its provisions have been notified. The legislative thinking on this aspect can also be gleaned from the provisions of the Companies Act, 2013 which is yet to come in force fully, though many of its provisions have been notified. Section 253 of that Act provides that the Company or 50% in value of its secured creditors may file an application before the Company Law Tribunal for a determination that the company be declared sick and for stay of the winding up proceedings to facilitate revival. Section 256 provides for appointment of an interim administrator to consider whether it is possible to revive and rehabilitate a sick company on the basis of the draft scheme, if any, filed along with the application for revival and rehabilitation filed under section 254(1) by a secured creditor or the company itself. Thus the legislative thinking also appears to be to revive and rehabilitate the company if possible and save it from liquidation. This is legislative recognition of the judicial decisions. 24. Before I conclude, it is necessary for me to explain my decision in Citibank, N.A. vs. Moser Baer rendered on 17th July, 2013, on which reliance was placed by Mr. Rajiv Nayar, the learned senior counsel for the petitioner. In the subsequent decision rendered by me on 3.4.2014 in the same case in CA No.2091/2013 I had dealt with my earlier decision in Moser Baer (supra) and distinguished it as follows:- “21. The context in which the observations were made by me in paragraphs 16 to 18 of my order dated 17th July, 2013 needs to be appreciated. That was the admission stage of the company petition. The contention of the petitioner was that the discretion should not be exercised in favour of the respondent’s company by refusing to admit the company petition merely because of the existence of a CDR scheme and the infusion of the funds by the consortiums of banks. For the purpose of admitting a winding up petition it is only necessary for the petitioner to make out a prima facie case for winding up. The petition was under Section 433(e) of the Companies Act. Under this provision the Court may wind up a company if the company is unable to pay its debts. It is a discretion given to the Company court to admit the winding up petition when it is shown that the company is unable to pay its debts. The petition was under Section 433(e) of the Companies Act. Under this provision the Court may wind up a company if the company is unable to pay its debts. It is a discretion given to the Company court to admit the winding up petition when it is shown that the company is unable to pay its debts. I had, while dealing with the company petition at the admission stage referred to the judgment of T.P.S. Chawla, J (as he then was) of this Court in Bipla Chemical Industries vs. Shree Keshariya Investment Ltd. (1977) 47 Company Cases 211. This judgment of the learned single judge relates to the admission stage and the governing principle was held to be that as soon as a prima facie case for winding up was made out, the petition ought to be admitted. It was in this context held by me that all the arguments advanced by the respondent-company that no winding up order should be made in view of the steps for revival initiated by the CDR scheme, would be relevant at a later stage when the court is faced with the question whether the winding up order should be passed or not. It was in this context observed by me that the merits of the CDR scheme cannot be gone into at the stage of admission of the winding up petition. I did advert to the fact that there was no manageable or objective yard stick by which to judge the efficacy of the CDR level scheme. But that was only in deference to the argument that the existence of the CDR scheme is sufficient to preclude the admission of the winding up petition. It was in that context observed by me, taking care to clarify that it was only a prima facie observation, that the quantum of funds to be infused by the company into the CDR scheme (Rs.150 crores) does not compare well with the outstanding liability of around Rs.863 crores due to the petitioner as trustee for the bond-holders. I further proceeded to make a distinction between cases where the company has substantial defences and cases where the argument is only that there are attempts at reviving the company. I further proceeded to make a distinction between cases where the company has substantial defences and cases where the argument is only that there are attempts at reviving the company. To explain further- as it is my duty to do so- at the stage of admission one has to examine whether the company has substantial defence and not whether the company would in future be able to pay the debts because of the CDR scheme or similar revival attempts. The case of the respondent- company did not measure up to any substantial defence at the admission stage, which was considered by me to be sufficient and relevant to admit the petition. The existence of the CDR scheme was considered by me to be not relevant at the admission stage. I referred to two judgments of the Bombay High Court (supra) wherein it was held that the existence of a CDR scheme was held not to be an impediment to the admission of a winding-up petition. Hence I admitted the petition.” 25. The result is that there will be no stay of the CDR scheme and the company is at liberty to implement the same forthwith. The undertaking given to this Court on 16.09.2013 stands discharged. However, I direct that though there can be a pooling of the securities, any sale of a pooled security shall be subject to the orders passed by this Court and prior approval of such sale shall be taken from this Court. In respect of the shares of TDCPL, though they can be inducted into the CDR scheme, any sale of the said shares or any charge, pledge or security interest created upon them shall be subject to the orders of this Court and before creating any such charge etc. or disposing of the shares, the company shall take the prior permission of this Court. This shall constitute sufficient protection of the interests of the bondholders. 26. CA No.1529/2013 is disposed of subject to the aforesaid terms. CA No.1688/2013 is allowed. The company petition (CP No.329/2013) and other connected applications are directed to be listed before the roster bench for directions on 5.5.2014.