2005 (5) TMI 325 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the proposed scheme of arrangement/restructuring under sections 391 and 394 of the Companies Act, 1956.
2. Objections raised by Empire Trading Co. regarding creditor status and meeting notices.
3. Compliance with statutory requirements and bona fides of the scheme.

Issue-wise Detailed Analysis:

1. Sanction of the proposed scheme of arrangement/restructuring under sections 391 and 394 of the Companies Act, 1956:
The petition was filed by a shareholder of National Steel and General Mills (P.) Ltd., a company in liquidation, seeking sanction of a proposed scheme of arrangement/restructuring. The company was ordered to be wound up in 1988, and various attempts to revive it had failed due to financial constraints. The present petitioner proposed a new scheme in 2001, which was approved by the shareholders and unsecured creditors in meetings convened as per court orders. The secured creditors, UPFC and Allahabad Bank, initially had disputes but eventually settled their dues, leading to the court dispensing with the need for their meeting.

2. Objections raised by Empire Trading Co. regarding creditor status and meeting notices:
Empire Trading Co. (the objector) claimed to be a secured creditor, alleging that it was not notified of the meetings. The objector's status as a creditor was based on an agreement with Mr. Ajay Sharda, the petitioner, to pay Rs. 1 crore to Allahabad Bank on behalf of the company. The objector argued that it was entitled to participate in the secured creditors' meeting. However, the court found that the objector's claim was not substantiated, as the payment was made to Mr. Ajay Sharda and not to the company or the official liquidator. The court noted that the objector did not raise any claim during the auction of the company's assets in 1999 or in subsequent years until the present petition was filed. The court rejected the objections, allowing the objector to pursue civil proceedings for recovery of the alleged claim.

3. Compliance with statutory requirements and bona fides of the scheme:
The court examined whether the proposed scheme complied with statutory requirements and was bona fide. The scheme was approved by the shareholders and unsecured creditors in duly convened meetings, and the secured creditors' dues were settled, leading to their consent to the scheme. The Regional Director and the official liquidator raised no objections. The court emphasized that its role was to ensure compliance with statutory procedures and not to evaluate the commercial wisdom of the scheme. The court cited precedents highlighting that the court should favor the revival of a company over its winding up if a feasible scheme is presented. The court found that the scheme met all necessary criteria and granted sanction under sections 391 and 394 of the Companies Act, 1956.

Conclusion:
The court sanctioned the proposed scheme of arrangement/restructuring, rejecting the objections raised by Empire Trading Co. and confirming compliance with statutory requirements and bona fide intentions. The petition was disposed of accordingly.