1998 (7) TMI 501 - HC - Companies Law

Summary

Issues Involved:
1. Approval of lease agreement under Section 536(2) of the Companies Act, 1956.
2. Viability and benefit of the lease proposal for the company, its creditors, and the public.
3. Opposition from secured creditors and other respondents.
4. Financial status and dues of the respondent company.
5. Interests of the workmen and their livelihood.

Issue-Wise Detailed Analysis:

1. Approval of Lease Agreement under Section 536(2) of the Companies Act, 1956:
The applicant, Bengani Food Products Private Limited, sought court approval for a lease agreement with Indian Maize and Chemicals Limited under Section 536(2) of the Companies Act, 1956. The court acknowledged its jurisdiction to approve such dispositions before a winding-up order, provided the scheme is viable and beneficial for creditors and the public.

2. Viability and Benefit of the Lease Proposal:
The applicant proposed to pay Rs. 60 lakhs per annum as lease rent, suggesting part of this amount could be used to pay workers and clear old dues. The court examined whether this proposal was viable and in the interest of the company and its creditors. The BIFR had previously determined that the company was not likely to become viable and recommended winding up. The court found that the lease amount offered was insufficient compared to the company's outstanding dues of Rs. 47 crores, and thus, the proposal was not viable or beneficial.

3. Opposition from Secured Creditors and Other Respondents:
Respondent No. 4, a secured creditor, opposed the lease agreement, stating that prior approval was not obtained as per the terms of their agreement with the company. They argued that the proposal would not benefit creditors and was collusive. Respondent No. 9 highlighted substantial electricity dues and the disconnection of supply, asserting that reconnection was not possible without clearing dues. Respondent No. 10 also objected, noting the company's default on lease rentals and financial obligations.

4. Financial Status and Dues of the Respondent Company:
The court noted the company's weak financial position, with total dues around Rs. 50 crores and assets valued significantly lower. The BIFR had exhausted all rehabilitation possibilities and recommended winding up due to the company's inability to become viable. The court emphasized that the company's financial state and the substantial dues made the lease proposal unviable.

5. Interests of the Workmen and Their Livelihood:
The workmen supported the lease proposal, hoping it would secure their livelihood. However, the court considered the broader interest of the company, creditors, and public. It concluded that the lease amount was too low to make a significant impact and that the proposal was not in the overall interest. The court also noted that previous similar proposals had failed to yield positive results.

Conclusion:
The court rejected the application for approval of the lease agreement, citing the non-viability of the proposal given the company's substantial dues and the recommendation for winding up by the BIFR and the Appellate Authority. The court emphasized that the interests of all stakeholders, including creditors and the public, outweighed the temporary benefit to workmen.