2004 (10) TMI 336 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the scheme of compromise and arrangement under sections 391-393 read with section 394A of the Companies Act, 1956.
2. Compliance with statutory requirements and majority approval.
3. Objections from the Reserve Bank of India (RBI) and depositors.
4. Legal implications of the scheme vis-`a-vis statutory provisions.
5. Fairness and reasonableness of the scheme.
6. Modifications and conditions for sanctioning the scheme.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Compromise and Arrangement:
The petitioner, Maha Rashtra Apex Corporation Limited, sought court sanction for a revised scheme of compromise and arrangement with its creditors, shareholders, bondholders, and deposit holders under sections 391-393 read with section 394A of the Companies Act, 1956. The scheme proposed waiver of interest post-1st April 2002, repayment of debts in five installments, and other modifications to address financial difficulties faced by the company.

2. Compliance with Statutory Requirements and Majority Approval:
The court examined whether the scheme was approved by the requisite majority as per section 391(2) of the Act. The meeting held for the scheme's approval was attended by equity shareholders, preference shareholders, bondholders, and deposit holders. The scheme received overwhelming approval from the attendees, fulfilling the requirement of majority in number representing three-fourths in value of the creditors or shareholders present and voting.

3. Objections from the Reserve Bank of India (RBI) and Depositors:
The RBI objected to the scheme on grounds that it violated section 45-IB of the RBI Act, 1934, and that the company's financial position was unsatisfactory. The RBI suggested safeguards, including the appointment of an observer and ensuring that the sale proceeds of assets were not siphoned off. Depositors raised concerns about the scheme's fairness, particularly the deferred payment and waiver of interest. They suggested modifications such as immediate payment of a portion of the deposits and interest.

4. Legal Implications of the Scheme vis-`a-vis Statutory Provisions:
The court considered whether the scheme contravened statutory provisions, such as sections 58A and 45Q of the RBI Act. It was held that the court's power under sections 391 to 394 of the Companies Act is not hindered by these provisions. The court can sanction a scheme even if it contravenes other statutory provisions, provided it is in the interest of the company, its members, creditors, and the public.

5. Fairness and Reasonableness of the Scheme:
The court found the scheme to be fair, just, and reasonable, considering the company's financial difficulties and the statutory majority's approval. The scheme aimed to repay the principal amount to depositors and creditors in installments, with interest up to 31st March 2002, while waiving interest thereafter. The court emphasized that the scheme was a better alternative to winding up the company, which would result in the civil death of the company.

6. Modifications and Conditions for Sanctioning the Scheme:
The court sanctioned the scheme subject to several modifications and conditions to protect the interests of all parties involved:
1. The repayment period was advanced by six months.
2. Depositors and bondholders with amounts of Rs. 5000 or less were to be paid within six months.
3. The company was required to file statements showing payments made as per the scheme.
4. Sale of immovable property and liquidation of investments were to be done with court permission.
5. The company was prohibited from carrying on non-banking financial business without RBI's permission.
6. The SLR encashed was to be utilized for paying depositors only.
7. The court retained the power to supervise the scheme's implementation and make necessary modifications.

Conclusion:
The court sanctioned the revised scheme of compromise and arrangement, subject to the specified modifications and conditions, ensuring it was fair, just, and reasonable, and in the interest of the company, its members, creditors, and the public.