MORGAN SECURITIES & CREDITS PVT LTD v. BPL LIMITED

Through: Mr. Subrat Birla, Advocate. ..... Respondent And ,/ wtrM.P.956 of zorz MORGAN SECURITIES & CREDITS PVT LTD ..... Petitioner Through: Ir,{r. Sinran Mehta with Ms. Inklee Roy and Ms. Yogita Sunaria, Advocates. VETSUS Signature Not Verified Digitally Signed By:AMULYA OMP Nos. 274, 865 & 956 of 2012 Page I of 12 BPL LIMITED ..... Respondent Through: Mr. Subrat Birla, Advocate. CORAM: JUSTICE S. MURALIDHAR t ORDER 04.L2.2012

1. These are three petitions by the Petitioner, Morgan Securities & Credits Pvt. Ltd., under Section 9 of the Arbihation and Conciliation Act, 1996 ('Act') filed against the Respondent, BPL Lirnited. The petitions arise nnder a cornnon set of facts and are accordingly being disposed of by a cornrnon order.

2. The facts in OMP No. 274 of 2072 are flrat the Petitioner and the Respondent entered into bill discounting arrangements by sanction letters dated 27n' December 2002 and lltl' June 2003. The letter dated 27ttr December 2002 was addressed by the Petitioner to BPL Display Devices Limited ('BDDL') whereby the Petitioner sanctioned BDDL the facility of bills discounting limited to an extent of Rs. 6 crores. The Drawer was BDDL and the Drawee was the Respondent. Clause 3 of the said letter reads as under: "3. Bill of Exchange/Hundi shall be with recourse to Drawer. Therefore, the liability to repay amount to Morgan Securities & Credits Private Limited (hereinafter referred to as "the OMP Nos. 274, 865 & 956 of 2012 Poge 2 of 12 . Discounting Cornpany") on the due date shall be of Drawer and Drawee jointly and severally. In case the Drawee does not make payment on due date of any bill of exchange/hundi, the Drawer shall make the payment of all the amount due thereon to without any notice or demand or presentment from the payee or the holder in this behalf." Under Clause 5 the repayment wis to be made to the Petitioner by way of crossed cheque/demand draft payable at New Delhi. Clause 6 of the said letter reads as under: "6. In the event of any arnount remaining overdue on any liundi/bill of exchange under this facility neither of the Drawer and Drawee shall without the prior written pennission of the Discounting Cornpany pass any resolution for its winding up for its amalgatnation/rnerger or otherwise or for arnalgamation/merger of any other company into the Drawer or Drawee (enter directly or indirectly into any new arealfield of business/operation) or dispose off or sell or enculnber any of its undertaking or business of any of its investrnents in shares etc. register/recognize any transfer of its shares by any of its present promoters group; change its paid up share capital or redeem any security; appoint or reappoint or rnodify any tenn and condition of appointment of any whole time or managing director, pay any rernuneration to any of its rnanaging directors, whole time directors or the chairman; or pay any dividend on any shares."

3. Under the subsequent letter dated 1lni June 2003 a ftirther bilt discounting facility was sanctioned to the extent of Rs. 6.5 crores by the Petitioner to BDDL whereby the arrangement was sirnilar. One difference was that in the said letter it was stated that the bill discounting facility was at a concessional OMP Nos. 274, 865 & 956 of 2012 rate of 22.5% per annum and that "in case of delay or default in rnaking payment of principal or overdue bill discounting charges/interest or any part thereof on its due date. the concessional rate will be withdrawn and the normal rate of bill discounting charges/interest of 36oh per annum rnonthly rests, shall be payable by the DraweelDrawer from its due date."

4. On 2nd Febru ary 2007 the Chairm an &Managing Director ('CMD') of the Respondent addressed the following letter to the Petitioner: "Dear Sirs, Re: Pending Payrnents. This is with reference to the discussions we had today at oru Office with your representative Mr. Madhukar Dodrajka regarding outstanding dues pertaining to BDDL account. At the outset, I would like to thank you for your patience and understanding during the really trying phase of BPL Limited. As yoll may be aware, BPL Lirnited has restntctured its businesses and has fonned a joint venture company for its Colour Television business with our JV partners, SANYO. After the formation of the JV, BPL has been striving hard to get back to normalcy and is in touch with varions financial institutions for sanction of required ftinds for our working capital requirements and settlement of all outstanding dues. I am constantly rnonitoring the situation and rest assured we will settle your outstandings within the next 6 rnonths. Looking forward to your support, as always and thank you once again for your patience and understanding. OMP Nos. 274, 865 & 956 of 2012 6 Thanking you and with regards."

5. Since there were continued defaults in making payment, the Petitioner by its letter dated 28u' June 2007 invoked the arbitration clause. Thereafter, the disputes were referred to the learned sole Arbitrator. The arbitration proceedings are pending.

6. The reasons for the Petitioner approaching this Court by way of OMP No. 274 of 2012 are set out in the order dated 23'd March 2012 passed by this Court, which reads as urder: "1. Although the parties are before the learned Arbitrator and an interirn order was passed by the learned Sole Arbitrator on 12tl' J:;Jy 2007 which is subsisting, the immediate provocation for fte Petitioner to file the present petition nnder Section 9 of the Arbitration and Conciliation Act, Lgg6 is a notice dated 14n' Febmary 2012 has been issued by Respondent BPL Limited for an extra-ordinary general rneeting ('EGM') to be held on 29fl' March 20L2.In the explanatory statement issued under Section 173 (2) of the Companies Act, 1956 under Itern No. 1 it is stated that BPL Lirnited has already invested about Rs. 115 crores in the equity of BPL Power tluough its subsidiary and it proposes to further invest in the equity share capital of the subsidiary company up to the extent of Rs. 40 crores. The Petitioner states that as on date BPL. Ltd. owes it Rs. I,46,J8,I1,065 and therefore, BPL Ltd. should be restrained from rnaking any further investment as indicated in the above notice.

2. Issue notice to the Respondent, rettunable on 23'd April 2012. OMP Nos. 274, 865 & 956 of 2012 Poge 5 of 12

3. Till the next date of hearing, the Respondent is resfained from transferring a sum of Rs. 40 crores to its subsidiary coffrpany Bharat Energy Ventures Limited or BPL Power Lirnited, in any manner, whether directly or indirectly.

4. Order be given dasti to learned counsel for the Petitioner under signature of the Court Master."

7. Subsequent to the above order, the Petitioner filed an application IA No. 14329 of 2072 seeking to place on record the order dated 10n' Decernber 2007 passed by the Court in an earlier OMP No. 485 of 2007 (BPL Limited v. Morgan Seatrities & Credits Pvt Ltd.). The said application was allowed on 8n'Augrrst 2012.

8. Tlre facts relevant to OMP No. 865 of 2012 are set out in the order dated 12tr' September 2012 passed in the said petition by this Court, which reads as under: "1. The disputes between the Petitioner and the Respondent arising out of the sanction of bill discounting facilities by the Petitioner in favour of the Respondent by document dated 27tt' December 2002, are already pending before a sole Arbitrator.

2. Mr. Sirnran Mehta, learned counsel appearing for the Petitioner refers to the Clause (6) of the bill discounting document which states that in the event of any arnount remaining overdue, the Respondent will not without prior written permission of the Petitioner pass any resolution "for its winding up for its arnalgamation/rnerger or otherwise or for amalgamation/merger of any othei company into the" OMP Nos. 274, 865 & 956 of 2012 Poge 6 of 12 q Respondent either directly or indirectly into any new arealfield of business/operation or dispose of any of its undertaking or business or any. of its investments in shares etc. He refers to a letter dated 2"o Febnrary 2007, written by the Chairrnan & Managing Director of the Respondent acknowledging that there were outstanding dues owing to the Petitioner. According to the Petitioner, the Respondent owed it, as on 31't Augusi 2012, over Rs.I72.5 crores.

3. The Petitioner states that recently it carne across a notice issued by the Respondent to its shareholders, regarding resolutions to be passed at a meeting of the shareholders held on 3'd August 2012. Part of the agenda for the rneeting concerned the transfer of the Respondent's health care business to its wholly owned subsidiary financed by the Respondent. The resolution ftirther proposed that flre assets of the Respondent would be encumbered for that purpose. This was being done without prior permission of the Petitioner. It is stated that although the parties are before the learned Arbitrator, given the urgency of the relief being sought, the Petitioner is constrained to file the present petition.

4. Issue notice to the Respondent, rettunable on 4fl'Decernber 2012. Dasti. in addition.

5. Till the next date of hearing, the Respondent is restrained frorn taking any ftirther action prusuant to the decisions taken or resolutions passed at the rneeting of the Respondent's shareholders held on 3'd Augrrst 2012.

6. Copy of this order be given dasti under signature of the Court Master."

9. Tlre Petitioner filed OMP No. 956 of 2012 stating that the Respondent was diverting a surn of Rs. 50.05 crores to its subsidiary companies as was OMP Noc 27,1, 865 & 956 of 2012 Poge 7 of 12 evident from its letter dated 12tr' September 2012 addressed to the Manager - Listing, Bombay Stock Exchange Lirnited ('BSEL'). The said letter stated that in the Annual General Meeting ('AGM') of the shareholders of the Respondent held on 12ttt Septernber 2012 resolutions approving the investment in the proposed Wholly Owned Subsidiary 1:WOS'; of the company and investment in the equity share capital of BPL Techno Vision Private Lirnited ('BTVPL') as well as in the equity/redeernable preference share capital of BPL Telecom Private Lirnited ('BTPL') were approved. It was further stated by the Petitioner that the above letter dated 12n. Septernber 2012 read with the notice for flre AGM made it clear that the Respondent proposed to transfer a sllm of Rs. 50.05 crores to its three subsidiaries namely BTVPL, BTPL and one nnnamed WOS. It was fruther stated that a perusal of the latest Annual Report of the Respondent for the year 2017-2012 revealed that the Respondent was disposing of valuable irnmovable properties in violation of Clause 6 of the letter dated 27tt' Decernber 2002, which included its land at Dobastpet at Hosur Road. It was apprehended that with BDDL already before the Board for Industrial & Financial Reconstruction ('BIFR') and with the Petitioner's clairn being Rs.

177.20 crores as on 30il'September 2012,even if the Petitioner succeeded in OMP Nos. 274, 865 & 956 of 2012 the arbitral proceedings it might not be able to recover the clairned amount.

10. In OMP No. 956 of 2072 an interim order was passed by this Court on 9n' Octob er 2012 restraining the Respondent from taking any ftirther action pnrsnant to the letter dated 12r'september 2OI2 addressed to BSEL.

11. This Court has heard the subrnissions of Mr. Simran Mehta, learned counsel for the Petitioner and Mr. Subrat Birla, learned counsel for the Respondent.

12.IltIr. 'Subrat Birla, learned counsel for the Respondent first submitted that since the parties were already before the learned Arbitrator, the Petitioner conld well seek interim reliefs in proceedings under Section 77 of the Act. In reply, Mr. Simran Mehta, learned counsel for the Petitioner contended that with the Respondent repeatedly diverting rnonies to the unnarned WOS and other subsidiary units/sister concerns, there was a real apprehension that the Petitioner may not be able to recover the clairned amount.

13. As far as the above subrnissions are concerned, this Court is of the view that the Petitioner is right in its contention that frequency with which the Respondent has sought to make investments in its subsidiaries/sister OMP Nos 274, 865 & 956 of 2012 concerns or unnamed WOS, gives rise to a reasonable and justifiable apprelrension that the Respondent will present the Petitioner with a fait accompli. by the end of the arbitral proceedings. Primafacie it appears that tlre Respondent is acting in contravention of Clause 6 of the letter dated 27tt' December 2002 whereby the Respondent was extended bill discounting facilities on certain tenns hnd conditions.

14. It was then contended by learned counsel for the Respondent that whereas in the first letter dated 27n' December 2002 there was Clause 6 which prevented the Respondent from taking action without the perrnission of the Petitioner, there was no sirnilar clause in the subsequent letter dated lltr'June 2003. This subrnission overlooks the fact that under the bill discounting facility, the liability of BDDL and the Respondent to repay the amount to the Petitioner was joint and several. Indeed, given the arnount claimed by the Petitioner, the balance of convenience is in its favour in restraining the Respondent from alienating its assets, both immovable and movable, or rnaking ftirther investments in its subsidiaries.

15. It was flren contended by learned counsel for the Respondent that as regards the first bill discounting facility the entire liability has already been OMP Nos. 271, 865 & 956 of 2012 /2 discharged by BDDL. A reference is made to certain post-dated cheques ('PDCs') issued in favour of the Petitioner for over Rs. 5 crores. Although learned counsel for the Respondent repeatedly stated that the 'payment' was made, he was unable to show any document to substantiate his plea that the PDCs issued were in fact encashed bv the Petitioner.

16. On the other hand, Mr. Mehta pointed out that the Petitioner was able to realize payment only against some of the PDCs. The Petitioner did not present most of the PDCs at the request of the Respondent since there was insufficient balance in its accounts. Mr. Mehta further stated that far from the liability being discharged, the Respondent owed the Petitioner huge arnounts as outstanding against the bill discounting facility.

17. Lastly it was then contended by learned counsel for the Respondent that the clairns of the Petitioner were time barred. On the other hand Mr. Mehta placed reliance on the letter dated 2nd Febmary 2007 written by the CMD of the Respondent acknowledging liability. In the considered view of the Court, the question whether any of the Petitionerls clairns against the Respondent are tirne barred will be decided in the arbitral proceedings. OMP Nos. 274, 865 & 956 of 2012 /:

18. After considering the submissions of learned counsel for the parties, this Conrt directs that the interim orders dated 23'd March2}l2 in OMP No. 274 of 2012, the interim order dated 12tr' September 2012 in OMP No. 865 of 2012 and the interim order dated 9r' Octob er 2012 in OMP No. 956 of 2012 shall continue during the pendency of the arbitral proceedings. It is however clarified that the said orders may be modified by the learned Arbitrator if the Respondent is able to demonstrate by way of an appropriate application and affidavit before the learned Arbitrator that the entire liability owed to the Petitioner has been ftilly discharged.

19. Tlre petitions are disposed of in the above terms. Order be given dasti to learned counsel for the parties. DECEMBER O4,2OL2 RK S. MURALIDHAR, J OMP Nos. 274, 865 & 956 of 2012 Page 12 of I 2