HUBTOWN CASE- BRIEF PROFILE

[1].

INTRODUCTION

Case title: IDBI Trusteeship Services Limited v. Hubtown Limited

Date of the Judgement: 08.05.2015
Court: High Court of Bombay

Type of the case: Summons for Judgment No. 39 of 2013 in Summary Suit No. 520 of 2013
Citation: MANU/MH/0923/2015 [I could not find any other authentic citation]
[2].BRIEF FACTS:
Nederlandse Financierings Maatschappiji Voor Ontwikkelingslanden N.V. [Hereinafter referred
as NFO], a Dutch corporation acquired equity shares and compulsorily convertible debentures
of an Indian company, Vinca Developers, for a total consideration of INR 418 crore. The equity
shares comprised 10% of the equity share capital of Vinca and upon conversion of the CCDs,
NFO would hold approximately 99% shareholding in Vinca. Until such conversion, Hubtown
Ltd and its promoters held 90% of Vinca.
The investment made by NFO in Vinca in the form of CCDs was used by Vinca to purchase
Optionally Convertible Debentures issued by Amazia Developers and Rubix Trading, two
wholly-owned subsidiaries of Vinca that were involved in the development of townships in India.
The suit was filed by the debenture trustee with respect to the default under the terms of the
OPCDs .A summary suit along with a suit for winding up proceedings were also filed against
Hubtown for the recovery of dues under the OPCDs.
[3].RELEVANT EXISTING REGULATIONS
A non-resident investor is not guaranteed any assured exit price at the time of making such
investment/agreement and shall exit at a fair price computed as above at the time of, exit subject
to lock-in period requirement as applicable in the existing regulations
[4].HIGH COURTS OBSERVATION
The Court has considered the transaction in the present case as whole although the transaction
involved two different stages: a foreign investment into a holding company, which in turn was
invested in two operating companies.

Relying on the judgement of the Supreme Court in Vodafone International Holdings BV v. Union
of India1, the Court held that a transaction is required to be viewed as a whole and a dissecting
approach should not be adopted.
The Court noted that FDI regulations only permit FDI by way of equity or compulsorily
convertible instruments in Indian companies,
The Court also noted that the present transaction guaranteed an assured exit price with respect to
the CCDs to the foreign investor at the time of making investment and hence was violative of
the FDI policy.
[5].JUDGEMENT
The Court held that the transaction was a colourable device and hence violative of the Foreign
Direct Investment Policy.

(2012) 70 Com Cases 369