2004 (12) TMI 383 - HC - Companies Law

Issues Involved:
1. Provisional liquidation of Mideast Integrated Steel Ltd.
2. Financial assistance and creditor demands.
3. Rejection of the initial scheme of arrangement.
4. Proposal of a new scheme of arrangement.
5. Objections to the proposed scheme.
6. Convening of creditors' meetings.
7. Commissioning of the plant.
8. Settlement with specific creditors.
9. Security charges reimbursement.

Issue-wise Detailed Analysis:

1. Provisional Liquidation of Mideast Integrated Steel Ltd.:
Mideast Integrated Steel Ltd. is under provisional liquidation as per the order dated 19th September 2002. The Official Liquidator was appointed to take over the assets of the company, which are now in his possession.

2. Financial Assistance and Creditor Demands:
The respondent-company undertook to establish a plant in Orissa, taking financial assistance from banks and other financial institutions. Due to financial difficulties, various creditors, including secured and unsecured, started demanding their dues, leading to multiple company petitions for winding up under sections 433(e), 434, and 439 of the Companies Act, 1956.

3. Rejection of the Initial Scheme of Arrangement:
The company proposed a scheme of arrangement to pay creditors, which was rejected on 19th September 2002. The Court observed that the scheme did not consider secured creditors, misrepresented amounts due, and lacked clarity on negotiations with third parties. The scheme was opposed by all petitioning creditors, making it unlikely to receive the necessary 75% creditor approval under section 391(1) of the Act.

4. Proposal of a New Scheme of Arrangement:
The ex-management proposed a new scheme in Company Application No. 1144 of 2004, citing substantial changes in circumstances. The Debt Recovery Tribunal (DRT) had passed an order on 14th July 2004, which is under appeal, regarding a scheme for staggered payment to banks. The present application relates to unsecured creditors and includes debenture holders and other secured creditors outside DRT jurisdiction.

5. Objections to the Proposed Scheme:
Objections included the absence of scheme costs, fund flow details, payment plans, and technical/financial viability. The Court adopted a cautious approach, requiring the applicants to deposit Rs. 2 crores to demonstrate bona fides and provide details of the arrangement with a foreign investor.

6. Convening of Creditors' Meetings:
The Court allowed the convening of meetings for unsecured and secured creditors on 15th January 2005. Justice Usha Mehra (retd.) was appointed as chairperson, with Mr. P.V. Kapur as alternate chairperson. Notices were to be published in newspapers and sent individually to creditors.

7. Commissioning of the Plant:
The Court considered the viability of commissioning the plant, supported by Mecon Ltd.'s techno-economic feasibility report. The company/applicants were to provide complete details by 10th December 2004. A Committee of experts, including Mr. Arvind Pandey and Mr. B.P. Singh, along with an IDBI nominee, was to oversee the commissioning. The plant would remain in the Official Liquidator's custody, and commissioning would enhance the project's value without affecting creditors.

8. Settlement with Specific Creditors:
Settlements were reached with ICICI Bank, First Leasing Company of India, and Orissa Mining Corporation Ltd. The applicants agreed to pay 40% of the principal amount to ICICI Bank and First Leasing, with immediate payments of Rs. 30 lakhs each. Orissa Mining Corporation was to receive the entire principal amount within thirty days, without interest.

9. Security Charges Reimbursement:
The Official Liquidator's security charges were to be settled by the company/applicants, despite not being their liability at this stage.

Conclusion:
The Court balanced the interests of creditors and the potential for company revival, allowing the new scheme's proposal and plant commissioning under strict conditions to protect creditors' interests. The matter was listed for further directions on 16 February 2005.

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