Case Note & Summary
This Company Petition was filed by Etisalat Mauritius Ltd. (Petitioner), a wholly owned subsidiary of Emirates Telecommunications Corporation, seeking winding up of Etisalat DB Telecom Pvt. Ltd. (Respondent No.1) under the just and equitable clause of the Companies Act, 1956. Respondent No.1 was incorporated in 2006 and later acquired 2G telecom licenses. Respondent No.2, Majestic Infracon Pvt. Ltd., held 45.73% shares, while the Petitioner held 44.73%; the remaining shares were held by Delphi Investment Ltd. and Genex Exim Ventures Pvt. Ltd. The Petitioner alleged that the substratum of Respondent No.1 was lost after the Supreme Court quashed the 2G licenses, that the Board of Directors became dysfunctional due to withdrawal of Respondent No.2’s nominees, and that the company was insolvent with liabilities exceeding assets. The Petitioner contended that it had invested over Rs. 3545 crores based on false representations by Respondent No.2’s promoters regarding the lawful acquisition of the licenses. The CBI investigation into the 2G spectrum allocation and subsequent chargesheet alleging conspiracy, including involvement of Respondent No.1 as a front for RADAG, formed the background. On 8 July 2011, Respondent No.2 had filed a petition under Sections 397 and 398 of the Companies Act before the Company Law Board alleging mismanagement by the Petitioner, but it was unconditionally withdrawn on 1 August 2011. The Petitioner argued that the quashing of licenses, combined with the dysfunctional board and financial distress, made winding up the only viable option. The matter was heard and judgment reserved on 16 October 2014, and pronounced on 20 February 2015. However, the available extracted text ends before the court’s analysis and final decision, leaving the outcome unknown.
Issue of Consideration
Whether Respondent No.1 Company should be wound up on just and equitable grounds due to loss of substratum arising from quashing of 2G licenses by the Supreme Court, dysfunctional board, and insolvency.
Law Points
- winding up
- just and equitable
- loss of substratum
- insolvency
- board deadlock
- consequences of quashing of licenses
- Companies Act
- 1956
- Foreign Exchange Management Act
- 1999
Case Details
2015 LawText (BOM) (02) 67
Company Petition No. 114 of 2012
Mr. Dinyar D. Madon, Mr. Pradeep Sancheti, Mr. Pesi Modi, Mr. Zal Andhyarujina, Mr. F.A. Sagar, Mr. Amit Vyas, Ms. Aanchal Vaswani (instructed by Mr. Madhur R. Baya) for Petitioner; Mr. S.U. Kamdar, Mr. Chirag Mody, Mr. Sharan Jagtiani, Mr. Ankit Lohia, Mr. Sajit Suwarna, Mr. M. Virjee, Mr. Rishikesh Soni, Mr. Manhar S.Saini (instructed by M/s. DSK Legal) for Respondent No.2; Mr. Virag Tulzapurkar, Mr. Bhalchandra Palav (instructed by M/s. Amarchand Mangaldas) for Citi Bank; Mr. Tushad Cooper, Ms. Vaidehi Naik (instructed by M/s. Phoenix Legal) for Standard Chartered Bank; Mr. Parag A. Vyas for Ministry of Telecommunications & IT
1. Etisalat DB Telecom Pvt. Ltd., 2. Majestic Infracon Pvt. Ltd., 3. Delphi Investment Limited, 4. Genex Exim Ventures Pvt. Ltd.
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Nature of Litigation
Remedy Sought
Petitioner – Etisalat Mauritius Ltd. seeks winding up of Respondent No.1 – Etisalat DB Telecom Pvt. Ltd.
Filing Reason
Loss of substratum due to quashing of 2G licenses by the Supreme Court; dysfunctional Board of Directors due to withdrawal of directors nominated by Respondent No.2; insolvency with liabilities exceeding assets.
Previous Decisions
Respondent No.2 filed a petition under Sections 397 and 398 of the Companies Act, 1956 before the Company Law Board, Mumbai, which was unconditionally withdrawn on 1 August 2011.
Issues
Whether the Company should be wound up on the ground that its substratum is lost due to the quashing of 2G licenses by the Supreme Court?
Whether the Company should be wound up due to a dysfunctional Board of Directors owing to the withdrawal of directors nominated by Respondent No.2?
Whether the Company is insolvent as its liabilities far exceed its assets and it cannot pay its dues?
Submissions/Arguments
Petitioner argued that Respondent No.2 made false representations regarding the lawful acquisition of 2G licenses, that the Company's substratum is lost, and that the board is dysfunctional and the company insolvent.
In the withdrawn CLB petition, Respondent No.2 had alleged that the Petitioner failed to provide management expertise, failed to comply with capital calls, and was responsible for mismanagement and unnecessary expenditure.
Judgment Excerpts
loss of substratum of the Respondent No. 1 Company on account of the quashing of the 2G licenses by the Hon’ble Supreme Court
the Petitioner subscribed to 11,29,94,228 shares of the Company by investing an amount of Rs. 3228.44 crores
the Company (Swan) was a Reliance Anil Dhirubhai Ambani Group (‘RADAG') entity
Procedural History
The Company was incorporated on 13 July 2006. On 1 October 2007, Respondent No.2 acquired 90.10% shares. On 10 January 2008, Letters of Intent for 2G licenses were issued. On 23 September 2008, Shareholders Agreement and Share Subscription Agreement were entered into. On 17 December 2008, Petitioner invested Rs. 3228.44 crores. In 2009, further investments of Rs. 209.70 crores and Rs. 106.95 crores were made. On 21 October 2009, CBI filed FIR. On 2 April 2011, CBI filed chargesheet. On 8 July 2011, Respondent No.2 filed petition under Sections 397/398 before the CLB, Mumbai. On 1 August 2011, the CLB petition was withdrawn. The present Company Petition No. 114 of 2012 was filed in 2012. On 16 October 2014, judgment was reserved. On 20 February 2015, judgment was pronounced.
Acts & Sections
- Companies Act, 1956: 397, 398
- Foreign Exchange Management Act, 1999:
