DyStar Global Holdings (Singapore) Pte Ltd v Kiri Industries Ltd and others and another suit

• Court: International Commercial Court (Singapore)
• Judge: Kannan Ramesh J
• Judgment Date: 03 July 2018
• Neutral Citation: [2018] SGHC(I) 6
• Citation: [2018] SGHC(I) 6
• Published date: 20 February 2020
• Plaintiff Counsel: See Chern Yang, Teng Po Yew and Audie Wong Cheng Siew (Premier Law LLC)
• Defendant Counsel: Nandakumar Ponniya Servai, Wong Tjen Wee, Liu Ze Ming, Lucas Lim, Daniel Ho and Nicolette Oon (Wong & Leow LLC),Dinesh Dhillon Singh, Lim Dao Kai, Margaret Joan Ling Wei Wei, Ivan Lim Jun Rui, and Nigel Yeo Kok Quan (Allen & Gledhill LLP)
• Date: 03 July 2018
• Hearing Date: 11 January 2018,01 March 2018,10 November 2017,23 February 2018,16 January 2018,13 November 2017,12 January 2018,05 March 2018,09 November 2017,15 January 2018,06 March 2018,07 November 2017,06 November 2017,08 November 2017
• Docket Number: Suits Nos 3 and 4 of 2017
• Subject Matter: Oppression,Civil Procedure,Companies,Directors,Breach,Tort,Illegality and public policy,Duties,Conspiracy,Minority shareholders,Restraint of trade,Pleadings,Contract

Kannan Ramesh J (delivering the judgment of the court): Introduction

The present dispute arises from a joint venture between Kiri Industries Limited (“Kiri”) and Senda International Capital Limited (“Senda”). Collectively, they own substantially the entire shareholding in DyStar Global Holdings (Singapore) Pte Ltd (“DyStar”). In Suit No 4 of 2017 (“Suit 4”), Kiri seeks relief against Senda for minority oppression. Senda counterclaims against Kiri and Kiri-related parties for conspiracy and breaches of contractual obligations including, among other things, alleged unfair competition. Senda’s counterclaims overlap substantially with DyStar’s claims in Suit No 3 of 2017 (“Suit 3”) against Kiri and the Kiri-related parties. In this judgment, we will first set out our decision on the claims in Suit 4 before turning to the counterclaims in Suit 4 and the claims in Suit 3.

Suit 4: minority oppression of Kiri The facts The parties

DyStar’s shareholders are: Kiri with 2,623,354 shares (approximately 37.57%); Senda with 4,359,520 shares (approximately 62.43%); and Well Prospering Limited (“WPL”) with one share.

The Kiri parties

Kiri is an Indian incorporated company listed on the National Stock Exchange and the Bombay Stock Exchange. It is in the business of manufacturing and selling reactive dyes, dye intermediates, and basic chemicals. In 1998, Kiri was incorporated by Pravinchandra Amrutlal Kiri (“Pravin”) who has been the Chairman of Kiri ever since. Pravin’s son, Manishkumar Pravinchandra Kiri (“Manish”), is the Managing Director of Kiri.

Manish is also a director of Kiri International (Mauritius) Private Limited (“KIPL”). KIPL is a company incorporated in Mauritius and a wholly-owned subsidiary of Kiri.

Mukherjee Amitava (“Amit”), while not a Kiri director, is a director of DyStar. Amit and Manish were nominated to the DyStar board of directors (“the DyStar Board”) by Kiri. We shall refer to Manish and Amit collectively as “the Kiri Directors”.

The Senda and WPL parties

Senda and WPL were incorporated in Hong Kong and are wholly-owned subsidiaries of Zhejiang Longsheng Group Co., Ltd (“Longsheng”). Longsheng was incorporated in China and is listed on the Shanghai Stock Exchange. Longsheng, like Kiri, is in the business of dye chemicals. In the course of this judgment, given that Senda acts on the instructions of Longsheng, we will refer to both Senda and Longsheng as “Senda”, unless the context suggests otherwise or we specifically make reference to Longsheng.

Ruan Weixiang (“Ruan”) is a director of Senda, as well as the Chairman of the board of directors and General Manager of Longsheng. He is also a director and Chairman of the board of directors of DyStar. The remaining directors of DyStar are Xu Yalin (“Xu”) and Yao Jianfang (“Yao”). Ruan, Xu and Yao were nominated to the DyStar Board by WPL at Longsheng’s behest. We shall refer to Ruan, Xu and Yao collectively as “the Longsheng Directors”.

Kiri’s previous relationship with Longsheng

Kiri and Longsheng had dealings prior to their collaboration in DyStar. In 2007, Longsheng was looking for potential investment opportunities in India. Xiang Zhifeng (“Xiang”), an employee of Longsheng, became acquainted with Manish. Negotiations between Kiri and Longsheng culminated in Kiri and WPL entering into a joint venture agreement in 2008. This joint venture agreement provided for Kiri and WPL to establish a joint venture company in India called Lonsen Kiri Chemical Industries Limited (“Lonsen Kiri”), with Kiri holding 40% of the shares and WPL holding 60% of the shares.

The idea was for Lonsen Kiri to manufacture various reactive dyes in India, using technology derived from an exchange of know-how and information between Kiri and Longsheng on the technical aspects of dye manufacturing. Also, Longsheng would leverage on its network of customers and connections to identify customers for the dyes that Lonsen Kiri was to manufacture.

Longsheng’s involvement in the acquisition of DyStar

Prior to the involvement of Kiri and Longsheng in DyStar, there existed a group of companies which we shall collectively refer to as “Pre-Acquisition DyStar”. The precise corporate structure of Pre-Acquisition DyStar is not relevant for present purposes.

From the late 1990s, Kiri regularly supplied dyes to Pre-Acquisition DyStar. Pre-Acquisition DyStar was an international player in the dye industry based in Germany. It was owned by a private equity firm, Platinum Equity. The 2009 global economic crisis brought financial difficulties for Pre-Acquisition DyStar’s European operations (in particular, DyStar Textilfarben GmbH (“DyStar GmbH”) and DyStar Textilfarben GmbH & Co Deutschland KG (“DyStar KG”)).

Manish learned that Platinum Equity was seeking to sell Pre-Acquisition DyStar. Manish introduced Ruan and Xiang to Platinum Equity with a view to stirring Longsheng’s interest in acquiring Pre-Acquisition DyStar with Kiri. The plan was for acquisition of the shares in Pre-Acquisition DyStar rather than its assets. However, Longsheng was not keen on structuring the investment in this manner and declined to participate. This did not deter Kiri from pursuing the acquisition on its own. On 2 September 2009, Kiri, through Manish, entered into an exclusivity agreement for the proposed acquisition of Pre-Acquisition DyStar.

On 28 September 2009, insolvency administrators were appointed in Germany over DyStar GmbH and DyStar KG. Consequently, negotiations for the acquisition of Pre-Acquisition DyStar had to be restarted with the insolvency administrators.

On 24 November 2009, Kiri incorporated KIPL and two companies in Singapore. KIPL was incorporated because Kiri had been considering investing in DyStar through a company in Mauritius for tax reasons. One of the Singapore companies was DyStar. Until 19 January 2012, it was named “Kiri Holding Singapore Private Limited”. For convenience, we shall generally refer to Kiri Holding Singapore Private Limited as “DyStar”.

Kiri’s negotiations with the insolvency administrators proved successful. On 4 December 2009, Kiri signed an asset purchase agreement (“the APA”) with the insolvency administrators. Under the APA, DyStar GmbH and DyStar KG were to sell to DyStar selected assets, including the shares of various subsidiaries. The APA further provided that: DyStar was to pay a total purchase price of €40,000,002. DyStar was to provide bank guarantees for the purchase price by 4 January 2010. If the guarantees were not provided by then, DyStar GmbH and DyStar KG could withdraw from the APA with repayment of the “Transfer-Share” to DyStar. Further, if the bank guarantees were not provided by 2 February 2010, DyStar GmbH and DyStar KG were entitled to withdraw from the APA without repayment of the “Transfer-Share” to DyStar. The “Transfer-Share” refers to a sum of approximately €9m that Kiri had paid to DyStar KG for the purpose of establishing certain companies in Germany to take over the employment of DyStar KG’s employees as required under the APA.

As of end-January 2010, Kiri was still seeking funding to complete the acquisition under the APA.

Kiri turned to Longsheng. It invited Longsheng to participate in the acquisition. At a meeting on 27 January 2010, Manish and Ruan discussed the possibility of Longsheng investing in DyStar. Manish and Ruan have different accounts of what was said at this meeting. Ruan paints a picture of Manish being in desperate need for funding. He claims that Manish was “visibly troubled” and told Ruan that he (Manish) was in a “dire situation” as he only had two to three days to raise €22m or the “whole transaction [ie, the APA] would fall through”. Manish, however, denies this account. He claims to have been neither visibly troubled nor in a dire situation, as he was still exploring options for financing, such as requesting a short extension for payment. Manish suggests that he “merely presented Longsheng with the opportunity” of participating in the acquisition at the meeting. For present purposes, it is unnecessary to choose between the competing accounts.

Following the meeting on 27 January 2010, Ruan (on behalf of WPL) and Manish (on behalf of Kiri) executed a term sheet (“the Term Sheet”) dated 27 January 2010. That the Term Sheet was signed the very same day indicates that there was some urgency to complete a deal. The following key terms were agreed under the Term Sheet: WPL would invest €22m, comprising equity of €3m and debt under a compulsory convertible zero-coupon bond issued by DyStar of €19m (“the Initial Convertible Bond”). The debt under the Initial Convertible Bond was convertible to equity within 5 years and 7 days from the date of its issuance. WPL would have an 18.75% shareholding in DyStar prior to conversion of debt to equity under the Initial Convertible Bond. Kiri would subscribe to €13m worth of shares in DyStar, representing 81.25% of the shareholding.

The Term Sheet did not specify a mechanism or formula for conversion of debt to equity under the Initial Convertible Bond. Following the Term Sheet, Kiri and Longsheng worked towards concluding formal transaction documents. This culminated in two documents being executed on 31 January 2010: (1) the Share Subscription and Shareholders Agreement (“the SSSA”), and (2) the Convertible Bond Subscription Agreement (“the CBSA”). These documents were signed by Pravin and Manish personally, as well as on behalf of Kiri and DyStar respectively. Manish also signed the SSSA on behalf of KIPL. It is unclear why Pravin, Manish and KIPL were parties to the SSSA and CBSA when they were not shareholders of DyStar. Again, the short interval between the execution of the Term Sheet and, the SSSA and CBSA suggests that there was some urgency in completing the deal.

The SSSA and CBSA provided for a different joint venture structure from that envisaged in the Term Sheet (see...