2001 (7) TMI 1228 - HC - Companies Law

Issues Involved:
1. Maintainability of the proceedings initiated by AML and the jurisdiction of the Court as to the recalling of the order.
2. The suppression of material facts and the fraud played by AML.
3. Improper classification in calling the meeting.
4. The proposed scheme offending commercial and public morality.
5. Silence and ambiguity in the scheme regarding payment of Government dues and dues of financial institutions.

Detailed Analysis:

1. Maintainability of the Proceedings Initiated by AML and the Jurisdiction of the Court as to the Recalling of the Order:
The applicants argued that the court should recall the order passed ex parte in Company Application No. 160 of 2001. They contended that AML's transactions rendered it unviable and that AML used the Bombay Relief Undertakings (Special Provisions) Act, 1958 ("the BRU Act") to compel creditors to accept a scheme. The applicants also questioned the maintainability of AML's application under section 391 of the Companies Act, given the protection under the BRU Act. The court held that AML was entitled to pursue remedies under section 391 despite the BRU Act, as the act of issuing a notification under section 4 of the BRU Act did not bar AML from seeking relief under section 391.

2. The Suppression of Material Facts and the Fraud Played by AML:
The applicants alleged that AML suppressed material facts and committed fraud, particularly regarding sale and leaseback transactions, sale of garment business, and diversion of funds to subsidiaries. They argued that AML's lack of bona fides should lead to the dismissal of the scheme. The court noted that these issues could be deliberated during the meeting and that AML had disclosed relevant transactions to the court. The court found no substantial evidence of suppression or fraud that would justify recalling the order.

3. Improper Classification in Calling the Meeting:
The applicants contended that the classification of creditors for the meeting was improper, arguing that offshore lenders who lent in foreign currency should be treated as a separate class. They claimed that AML had clubbed them with other secured creditors to dilute their influence. The court held that the responsibility for determining the classification of creditors rested with the applicant (AML) and that any objection to the classification should be raised during the meeting. The court emphasized that the classification should be such that creditors with similar rights and interests could consult together for their common interest.

4. The Proposed Scheme Offending Commercial and Public Morality:
The applicants argued that the scheme proposed by AML offended commercial and public morality and that its approval would validate material illegality. They pointed to AML's transactions with ICICI and the alleged diversion of funds. The court found that these issues were already on record and could be addressed during the meeting. The court emphasized that the scheme's fairness and legality would be scrutinized at the time of final approval, not at the preliminary stage.

5. Silence and Ambiguity in the Scheme Regarding Payment of Government Dues and Dues of Financial Institutions:
The applicants highlighted that the scheme was silent and ambiguous about the payment of government dues and the dues of financial institutions. They argued that the scheme should be dismissed in its current form. The court noted that the scheme's details, including the payment of dues, could be discussed and modified during the meeting. The court reiterated that the scheme would be subject to final approval, where all objections could be considered.

Conclusion:
The court rejected the application to recall the order passed on 13-6-2001, allowing AML to proceed with the scheme under section 391 of the Companies Act. The court emphasized that the applicants could raise their objections during the meeting and that the scheme would be subject to final approval by the court. The court also clarified that the classification of creditors and the fairness of the scheme would be scrutinized during the final approval stage.

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