GRAMERCY EMERGING MARKET FUND VS. ESSAR STEEL LTD. (2002) 108 COMP. CAS.

Facts of The Case

1. Gramercy Emerging Market Fund vs. Essar Steel Ltd (2002) 108 comp. cas. Is a landmark judgement given by The Honourable Gujrat High Court which dealt with complication of corporate debt, rights of the creditor and the essentials under that a company may be subjected to compulsory winding up. 
2. This case is issued before the court under Section 439 of The Companies Act, 1956. Here the petitioners filed a suit seeking compensation by the respondent, but, the respondent that they (petitioners) are not the beneficial owners of the noteholders to accept compensation. So, the respondents filed a petition against the petitioners before the Honourable Gujrat High Court.
3. The respondent (Essar Steel Ltd.) had issued some New Notes through a Trust Deed. A floating charge had secured the New Notes over the Company’s assets. So, the trust deed fixed a trustee, who was responsible for enacting the interests of the noteholders. And Gramercy Emerging Market fund (the petitioner) were the beneficial owners of the Global notes and they were also the creditors.
4. The petitioners had claimed for winding up of the company under Section 439 of The Companies Act, 1956 as the respondent was unable to the debt within a fixed period. 
5. At first, the petitioner had sent a demand notice for payment of the debts within 16^th April, 2001 with Section 434 (1) (a) of the Companies Act, 1956. But the respondent did not respond within that period. So, the petitioner filed a petition before the learned single Judge against the respondent.
6. But the respondent claimed that the petitioners are not the note holders and not the creditors under Section 439 of The Companies Act, 1956 and also said that only the trustee is the creditor and has the right to accept the payment. So, basically, they claimed that the petitioners were not the creditors and they didn’t have the locus standi to file the petition. But the Single bench Judge rejected all of these objections raised against Gramercy Emerging Market Fund (petitioner) by Essar Steel Ltd. (respondent).
7. So, the respondent challenged this petition by Gramercy Emerging Market Fund before The Honourable Gujrat High Court.

Issues of The Case

1. Whether the petitioners, the beneficial owners of the New Notes had the legal power to file a petition of winding up of a company under Section 439 (1) (b) of The Companies Act, 1956.
2. Whether the beneficial owners of the New Notes (Gramercy Emerging Market Fund) could the holders of any security which defined under Section 2 (12) and Section 2 (45AA) of The Companies Act, 1956 and also governing as creditors designated to start winding up of a company.

Judgement

1. The Gujrat High Court also passed the same judgement as the Learned Single Bench Judge. So, the learned single judge had rejected all of the objections of the Essar Steel Ltd. against The Gramercy Emerging Market Fund and also announced that as The Gramercy Emerging Market Fund was the beneficial owners of the Global Notes so, they are the creditors under Section 439 (1) (b) of The Companies Act, 1956, legalizing their petitions for winding up Essar Steel Ltd.
2. After this, The Learned Single Judge Bench conducted that the trustee should join as a necessary party for winding up proceedings of the company under the trust deed. And The Learned Single Judge Bench also said that the respondent has to pay the debts to the petitioner as they are the beneficial owners of the Global Notes and also the creditors.
3. So, The Honourable Gujrat High Court also dismissed the appeal filed by Essar Steel Ltd. against the petitioner, Gramercy Emerging Market Fund, considering the maintainability of the petition and legitimacy of the creditors.

Causes of The Judgement by The Honourable Gujrat High Court

The Honourable Gujrat High Court had directed the petitioner, Gramercy Emerging Market Fund as the creditors under Section 439 (1) (b) of The Companies Act, 1956 and the noteholders of New Notes. There had been some reasons behind this decision which are following….

• Beneficial Ownership for Describing The Creditor Status: The petitioner (Gramercy Emerging Market Fund) were the beneficial owners of The Global Notes. So, this describes the status of the creditor that the petitioner should join as an essential party for winding up of the Company, Essar Steel Ltd. The Honourable Gujrat High Court had given an example to this situation through the principle of The Contract Law about third party beneficiaries describing that the creditor-beneficiaries are given the permission to use their rights even if those rights are not mentioned in the trust deed.
• Doctrine of Privity of Contract: According to the doctrine of Privity of Contract, if the promisor does not maintain the obligations of the contract then the beneficial owner has the right to enforce his right against the promisor.
• Interpretation of “Debenture”: This confirmed that Global Notes narrow as “debentures” under Section 2 (12) of The Companies Act, 1956 for their features because securities used for investments and trade. The Honourable Gujrat High Court observed that the New Notes issued by Essar Steel Ltd. met this definition.
• Conflict Between Separation between Separation of Statutory Rights and Contractual Restrictions: Here the petitioner and the respondent conflict regarding the statutory rights which enables the creditors to enforce the right of winding up the company.
• The Honourable Gujrat High Court closely examined the Trust Deed and the terms and conditions of the Global Notes to assure the beneficial interest of the petitioner to enforce the right of winding up the company, Essar Steel Ltd. under Section 439 (1) (b) of The Companies Act, 1956, if the company Essar Steel Ltd. fails to pay the debt and does not respond even after sending the demand notice by the petitioner.

Impact of The Judgement

1. Beneficial owners of Global Notes benefits the standing to protect their rights by winding up of the petitions.
2. This case establishes a clearcut precedent for helping in future creditor beneficiary relationships for providing important legal grounds to help in the legal proceedings.
3. This case may help in future litigation concerning complex securities and trust arrangements.
4. This case strengthens the regulatory framework within the regulation of securities and regarding contractual terms with the statutory rights.
5. The judgement of this case acts as a very important and necessary legal reference for both company lawyers and the investors of any company, enforcing their right.

Reasoning

1. It held that the trustees have the right to petition for winding up of unpaid debts against the company from whom he deserves to get the payment.
2. It held that trustees are not only the individual noteholders but also the creditors being entitled to file a winding up petition.
3. This case enlightened that contractual obligations should be maintained within the prescribed time.
4. This case held that legislative provisions help to reference integral parts of the statute.
5. This case elaborated that the creditors can file winding up petition.

All of these precedents support the judgement of this case that the beneficial noteholders as well as the creditors cam file a petition of winding up of company in failure of debt. The judgement of Gramercy Emerging Market Fund vs. Essar Steel Limited (2002)111COMPCAS1(GUJ) is very important in defining the beneficial owners to act as a creditor under Section 439 (1) (b) of The Companies Act, 1956. Through closely examining the contractual obligations and necessary statutory rights, The Honourable Gujrat High Court had held that beneficial ownership of Global notes includes the status of the creditor to file winding up petitions before the court. The decision of this case by The Honourable Gujrat High Court protects the beneficial interests of any investors of any company as well as the right of winding up of the beneficial owners of Global Notes. And also, the companies are told to pay the debts and it becomes compulsory after the judgement of this case.

The judgement of this case provides a clear and straight line for analysing and enforcing the rights of the beneficial creditors within the scope of corporate law.

So, The Honourable Gujrat high Court supported the decision of learned Single Bench Judge and dismissed the appeal raised by the respondent against the petitioner and held that the petitioner has a right to file a winding up petition.

References

1. https://indiankanoon.org
2. https://www.casemine.com
3. https://sooperkanoon.com

This article is written by Anushree Gayen, an intern under Legal Vidhiya

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