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Issues Involved:
1. Sanction of the Modified Scheme of Arrangement. 2. Objections by State Bank of India (SBI). 3. Objections by Industrial Investment Bank of India (IIBI). 4. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Issue-wise Detailed Analysis: 1. Sanction of the Modified Scheme of Arrangement: The petitioners, Gontermann-Piepers (India) Limited (1st petitioner-company) and G.P.I. Textiles Limited (2nd petitioner-company), sought the sanction of a modified Scheme of Arrangement under sections 391 to 394 of the Companies Act, 1956. The purpose of the scheme was to demerge the textile division from the 1st petitioner-company to the 2nd petitioner-company to facilitate independent growth and development of the spinning mill business and iron and steel rolling division. The scheme aimed at better administration, operational organization, and efficiency with optimum utilization of resources. 2. Objections by State Bank of India (SBI): SBI raised several objections against the modified Scheme of Arrangement: - The scheme diluted the charge created in favor of SBI over the properties of the companies. - It was lopsided, favoring the 1st petitioner-company by clearing the Roll Division of substantial liabilities while burdening the loss-making Textile Division. - The 1st petitioner-company did not obtain written consent from SBI as required by the loan agreements before affecting the scheme. - The scheme failed to account for pending tax assessments and proceedings. - Post-demerger, SBI would be deprived of cash flows from the profit-making Roll Division. - The segregation of the Roll Division would dilute SBI's charge over the properties. - The modifications to the scheme were introduced without prior notice to SBI, denying them sufficient opportunity to examine the amendments. - The scheme was alleged to be mala fide, with directors failing to disclose their interests as required under section 391 of the Companies Act. In reply, the petitioners argued that SBI's financial assistance was related only to the Textile Project and not the Roll Division. They contended that the scheme was beneficial for both companies and their stakeholders and that the Roll Division would provide a corporate guarantee to SBI post-demerger. 3. Objections by Industrial Investment Bank of India (IIBI): IIBI objected to the scheme on the grounds that: - The Textile Division, which was incurring huge losses, would adversely affect the financial health of both companies post-demerger. - The scheme did not safeguard the interests of the creditors and would dilute the strength of the profit-making Roll Division. - The total outstanding amount of IIBI was significant, and the scheme did not address their concerns adequately. The petitioners responded that the modified scheme did not affect IIBI's interests as a creditor and that the scheme was approved by the majority of creditors, including other financial institutions. 4. Applicability of Section 22 of the SICA: A preliminary objection was raised regarding the applicability of Section 22 of the SICA, which suspends legal proceedings against a sick industrial company. The court examined whether this section applied to the present proceedings initiated by the petitioners under sections 391 to 394 of the Companies Act. Section 22(1) of the SICA provides that no proceedings for the winding up of an industrial company or for the enforcement of any security against the company shall lie or be proceeded with further without the consent of the Board or the Appellate Authority. The court noted that the provision applies to all proceedings relating to monetary claims or enforcement of guarantees against the industrial company, including those initiated by the company itself. The court referred to several Supreme Court judgments, including Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra Ltd. and Patheja Bros. Forgings & Stamping v. ICICI Ltd., which clarified that the expressions "legal proceedings" and "be proceeded with further" should be given a wider interpretation to include all proceedings pertaining to the properties and assets of the industrial company. Given that the 1st petitioner-company had already made a reference to the BIFR, the court held that the present proceedings seeking sanction of the modified scheme could not proceed further in view of Section 22 of the SICA. Conclusion: The court ordered that the proceedings of Company Petition No. 13 of 2003 shall remain in abeyance until the BIFR decides the reference made by the 1st petitioner-company under Section 15 of the SICA. The court did not record any findings on the merits of the modified scheme or the objections raised, as the proceedings were suspended.
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