1982 (2) TMI 238 - HC - Companies Law

Summary

Issues Involved:
1. Non-compliance with the court order dated 26th June 1981.
2. Request to vacate or stay the court order dated 26th June 1981.
3. Liberty to propound a fresh scheme of reconstruction under section 391 of the Companies Act, 1956.
4. Validity of the proposed scheme concerning fixed depositors under section 58A of the Companies Act, 1956.

Detailed Analysis:

1. Non-Compliance with the Court Order Dated 26th June 1981:
The company sought condonation for non-compliance with the court's order dated 26th June 1981, which directed convening meetings of secured and unsecured creditors to consider a scheme of compromise or arrangement. The company argued that after receiving a letter from the Industrial Reconstruction Corporation of India Ltd. (IRCI) on 27th July 1981, indicating potential financial assistance, it became unnecessary to comply with the court's directions. The court found this explanation insufficient, noting that the company's reliance on IRCI's letter seemed to be an afterthought and that the company had abused the court's process. The court emphasized the involvement of a large body of creditors and the pending winding-up petitions against the company, ultimately refusing to condone the delay.

2. Request to Vacate or Stay the Court Order Dated 26th June 1981:
The company did not pursue this prayer after modifying its arguments. The court noted that the company had not implemented the court's order and had abused the process by not convening the creditors' meetings as directed. The court refused to vacate or stay the order, emphasizing the importance of compliance with court directions, especially when the interests of numerous creditors were at stake.

3. Liberty to Propound a Fresh Scheme of Reconstruction Under Section 391 of the Companies Act, 1956:
The company sought liberty to propound a fresh scheme of reconstruction, arguing that the basis of the original scheme had changed due to IRCI's potential financial assistance. The court found the request for eight weeks' time to make a fresh proposal to be mala fide, noting that the company had ample time since July 27, 1981, to come up with a new proposal. The court refused to grant time for a fresh proposal, highlighting the company's lack of bona fides and its abuse of the court's process.

The court also examined the modified prayer to amend the old proposal, considering the potential financial assistance from IRCI. The court found that many of the conditions for IRCI's assistance were precedent, including the requirement for the Government of Maharashtra to declare the company a relief undertaking. The court was not satisfied with the company's ability to repay unsecured creditors or the workability of the proposal, ultimately refusing this part of the modified prayer.

4. Validity of the Proposed Scheme Concerning Fixed Depositors Under Section 58A of the Companies Act, 1956:
The court examined whether the proposed scheme could cover fixed depositors, who are governed by special provisions under section 58A of the Companies Act, 1956, and the Companies (Acceptance of Deposits) Rules, 1975. The court noted that fixed depositors form a distinct class of creditors with rights different from other unsecured creditors. The court highlighted the statutory safeguards for fixed depositors, including the requirement for companies to maintain liquid assets and the penalties for non-repayment of deposits.

The court concluded that fixed depositors could not be treated similarly to trade or sundry creditors and could not be included in the scheme of compromise. The court emphasized that including fixed depositors in the scheme would nullify their statutory rights and protections. The court noted the company's admitted contraventions of section 58A and the 1975 Rules, as evidenced by auditors' reports and the directors' silence on these issues.

Conclusion:
The court dismissed Company Application No. 7 of 1982, refusing to condone the non-compliance with the court's order, vacate or stay the order, grant time for a fresh proposal, or allow amendments to the old proposal involving fixed depositors. The court directed the prothonotary and senior master to forward a copy of the judgment to the Ministry of Law, Justice and Company Affairs, and the Reserve Bank of India for consideration of potential amendments to section 621 or other relevant provisions of the Companies Act, 1956. No order as to costs was made.