2004 (3) TMI 425 - HC - Companies Law

Summary

Issues Involved:
1. Constitution of Collection and Disbursal Committee.
2. Financial soundness and feasibility of the Scheme of Arrangement.
3. Impact of RBI regulations on the financial status of the Transferor Company.
4. Claims and objections by creditors and subscribers.
5. Powers of the Court under Sections 391 and 392 of the Companies Act.
6. Appointment and powers of the Committee of Commissioners.

Issue-wise Detailed Analysis:

1. Constitution of Collection and Disbursal Committee:
The applicant, M/s. Deepika Chit Fund Private Limited, requested the Court to constitute a Collection and Disbursal Committee comprising one Director each from the Transferor and Transferee Companies and a Commissioner appointed by the Court. Clause 2.6 of the Scheme of Arrangement approved by the shareholders and deposit holders provided for the constitution of this committee, detailing its powers and responsibilities, including taking charge of assets, executing decrees, identifying suits, reporting to the Court, and discharging liabilities.

2. Financial Soundness and Feasibility of the Scheme of Arrangement:
The Court, by order dated 25-9-2003, dispensed with the meeting of the shareholders of the Transferee Company and directed the convening of the meeting of the shareholders of the Transferor Company. The scheme was overwhelmingly approved by the shareholders and deposit holders. The financial difficulties faced by the Transferor Company were attributed to the RBI's amended regulations affecting Non-Banking Financial Institutions, leading to premature withdrawals by deposit holders and subsequent liquidity issues.

3. Impact of RBI Regulations on the Financial Status of the Transferor Company:
The Transferor Company, despite adhering to RBI guidelines, faced a financial crisis due to the panic among deposit holders following the collapse of other financial institutions. This led to premature withdrawals, dishonored cheques, and criminal cases against the Directors, further exacerbating the financial instability.

4. Claims and Objections by Creditors and Subscribers:
M/s. Karnataka Bank Ltd. sought to implead itself as a party-respondent, citing outstanding dues and decrees obtained against the Transferor and Transferee Companies. Mr. Khaza Masood Ali, a Prized Unpaid Subscriber, also sought to implead himself, arguing that the proposed scheme could not be applied to him under the A.P. Chit Fund Act, 1971. The Court considered these objections and allowed the impleadment of both parties.

5. Powers of the Court under Sections 391 and 392 of the Companies Act:
The Court examined its powers under Sections 391 and 392, emphasizing that it must satisfy itself about the financial soundness of the companies before sanctioning the scheme. The Court referred to various judgments to assert that it has the authority to conduct an enquiry, pass interim orders, and make necessary modifications to ensure the proper working of the scheme. The Court reiterated that the proviso to Section 391(2) is mandatory, requiring the disclosure of all material facts related to the company.

6. Appointment and Powers of the Committee of Commissioners:
The Court appointed a Committee of Commissioners comprising Sri A. Venku Reddy and Sri M.V. Durga Prasad to examine the financial soundness of the companies and oversee the recovery and distribution of monies. The Committee's interim report highlighted the need for immediate steps to realize the companies' assets and execute decrees. The Court directed the Board of Directors to work in consultation with the Committee, detailing the procedure for handling assets, bank accounts, and reporting requirements.

Conclusion:
The Court allowed the application for the constitution of the Collection and Disbursal Committee, subject to detailed directions for the preservation and recovery of assets. It emphasized the need for transparency and accountability in the process and scheduled regular reviews to monitor progress. The Court also continued the stay orders against M/s. Karnataka Bank Ltd. to facilitate the implementation of the scheme.