BANK OF NEW YORK MELLON Vs. CRANES SOFTWARE INTERNATIONAL LIMITED

JUDGEMENT

(1.) The petitioner is said to be a branch at London, of the Bank of New York, a company incorporated in the State of New York under the laws of that State in the United States of America. The petitioner is said to be engaged, inter-alia, in the business of providing trusteeship, agency and other securities related services.

(2.) The present petition is filed seeking the winding-up of the respondent owing to its alleged inability to pay its debts. It is the petitioner s case that it had entered into a trust deed dated 17.3.2006 with the respondent, whereby the petitioner was appointed as the trustee to the Euro 42 million 2.50% Foreign Currency Convertible Bonds, issued by the respondent to various investors in the international capital markets . It is the petitioner s contention that the terms of the Trust deed enable the petitioner to enforce its conditions against the respondent, in its capacity as the trustee. More particularly, Condition no. 13 of the Conditions of contract, it is claimed, provides that at any time after the Bonds become due and payable, the Trustee may at its discretion and shall, if requested in writing by the bond holders of not less than 25% in principal amount of the Bonds then outstanding, institute proceedings against the respondent to enforce repayment of the Bonds. It is claimed that all amounts outstanding under the Bonds have become immediately due and payable by the respondent as the respondent had committed default under the terms of the Bonds by failing to make payment of interest in respect of the Bonds, which fell due on September 18, 2009. And the default being a continuing one, the present petition is said to be filed.

(3.) The respondent, by way of reply, has contended that the petitioner is not a creditor and therefore is not entitled to present a petition for winding up under Section 433 of the Act. It is asserted that the petitioner is neither a bond holder nor a beneficial owner of the Bonds. It is pointed out that the petitioner has not chosen to call itself a creditor in the petition. The petitioner is merely an agent. That the petitioner is not a trustee under any declaration of trust, declared in writing by the author. Nor does the petitioner claim that the ownership of any property is transferred to the petitioner as the trustee, and it is hence contended that the petitioner cannot claim to be acting as a trustee under the Trust Deed relating to the Bonds. As the bond holders are not parties to the Trust Deed and though the petitioner has styled itself as the trustee, it is not one, as understood in law. It is contended that the Bond documents, including the Trust Deed are governed by the English law as stated therein, hence the present petition is an effort to convert this court into a debt collecting agency, by using its process to bring pressure on the respondent to pay any amount under the Bonds. It is contended that under the Trust Deed , the petitioner may give notice of default to the respondent if, (a) so requested in writing by the holders of not less than 25% in principal amount of the Bonds then outstanding, or (b) so directed by an Extraordinary Resolution, and only if a valid notice of default is served, does the entire bond amount become due and payable. Although the petitioner has, in its notice, stated that it has been directed by the holders of the Bonds holding not less than 25% in aggregate principal amount of the Bonds then outstanding, the petitioner has not annexed any proof or evidence in support thereof. The petitioner is the only person who knows the pattern of holding of the bonds and has deliberately withheld this information. Moreover, since these bonds are freely transferable, even if the petitioner had received such written instructions (which is denied), it is not certain that those bondholders continue to hold the bonds as on date of the petitioner and would continue to do so. It is thus contended that the notice issued by the petitioner is invalid. It is contended that the Bonds are not pure debt instruments. They are convertible instruments and on the petitioner s own showing at paragraph 7 of the Company petition, the FCCBs are treated as foreign direct investments by the Government of India under the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 and the Consolidated FDI Policy dated October 1, 2010 issued by the Department of Industrial Policy and Promotion, Government of India. The holders of the Bonds have an option to convert their Bonds into GRDs (which are represented by equity shares) at any time during the term of the Bond. In a sense, the holders of the Bonds ought to be considered as contingent shareholders of the respondent. It is therefore, possible that some or all of the holders of the Bonds may exercise the right to acquire GDRs of the respondent and thereby become indirect equity shareholders, in which case some or all of the holders of the Bonds may not continue to be holders of the Bonds of the respondent and upon such conversion, the petitioner will cease to be the Trustee under the Trust Deed . The outstanding amount of the Bonds cannot be termed as debt and the holders of the Bonds could at best be called contingent shareholders and not contingent creditors. The respondent further states that any directions passed by this Court at this stage may in fact affect the very interest of the holders of the Bonds as equity shareholders, if the respondent is sought to be wound up. The petitioner has exceeded its powers as the issuance of the statutory notice is ultra vires the Trust Deed as the petitioner could initiate proceedings only to enforce repayment of the Bonds and as it is a settled proposition of law that a winding up proceeding cannot be used as proceedings to enforce repayment of the Bonds, as is sought to be done in the instant case.