2006 (1) TMI 253 - HC - Companies Law

Summary

Issues Involved:
1. RBI's Winding Up Petition
2. Allegations Against the Respondent-Company
3. Objections to the Scheme of Compromise and Arrangement
4. RBI's Pleas Against the Scheme
5. Respondent-Company's Defense and Proposals
6. Objections by Official Liquidator, Malanpur Steel Ltd., and GIIC
7. CBI's Objections
8. Court's Consideration of Public Interest
9. Court's Directions and Modifications to the Scheme

Detailed Analysis:

1. RBI's Winding Up Petition:
The Reserve Bank of India (RBI) filed a winding up petition under section 45MC(1)(d) of the RBI Act, 1934, asserting that the continuance of the non-banking financial company (NBFC) was detrimental to public interest and the interest of depositors.

2. Allegations Against the Respondent-Company:
The respondent-company was accused of several violations, including:
- Holding excess deposits of Rs. 34.72 crores.
- Misuse of par discounting facility.
- Non-disclosure of assets.
- Resignation of directors and untraceable chairman.
- Fraudulent activities involving co-operative banks in Gujarat.

3. Objections to the Scheme of Compromise and Arrangement:
The scheme proposed by the respondent-company was objected to by RBI, SEBI, Official Liquidator, Malanpur Steel Ltd., and GIIC. The objections primarily focused on the legality, feasibility, and public interest aspects of the scheme.

4. RBI's Pleas Against the Scheme:
RBI contended that:
- The company had lost its substratum and should be wound up.
- No order except winding up would serve public interest.
- The proposed scheme was contrary to law and not in public interest.
- The scheme restricted RBI's statutory powers.

5. Respondent-Company's Defense and Proposals:
The respondent-company argued that:
- The scheme was approved by an overwhelming majority of creditors and shareholders.
- Winding up would result in civil death of the company, affecting lakhs of depositors and shareholders.
- The company had not lost its substratum and could be revived.
- The scheme provided a feasible debt repayment plan and was in public interest.

6. Objections by Official Liquidator, Malanpur Steel Ltd., and GIIC:
- The Official Liquidator objected to the vague source of funding in the scheme.
- Malanpur Steel Ltd. claimed to be a secured creditor but was disputed by the company.
- GIIC objected to being categorized as an unsecured creditor for certain facilities.

7. CBI's Objections:
The CBI objected to the stay of criminal proceedings against the company and its directors. The respondent-company countered that the Bank of Baroda had consented to the scheme and SBI had not objected.

8. Court's Consideration of Public Interest:
The court emphasized the public interest in sanctioning the scheme, noting the benefits to small depositors, co-operative banks, and the overall feasibility of the debt repayment plan. The court also considered the overwhelming support from creditors and shareholders.

9. Court's Directions and Modifications to the Scheme:
The court sanctioned the scheme with the following modifications and directions:
- Reduced the repayment period for small depositors to 9 months.
- Ensured full repayment to widows, retired government servants, disabled persons, and senior citizens within one year.
- Reduced the repayment period for unsecured creditors to 4 years.
- Directed RBI to consider the company's application for NBFC registration and other licenses in accordance with law.
- Appointed an administrator to oversee the implementation of the scheme.
- Allowed the winding up petition to revive if the scheme could not be successfully implemented.

Conclusion:
The court sanctioned the scheme of compromise and arrangement proposed by the respondent-company, subject to modifications and directions to ensure public interest and feasibility. The winding up petition filed by RBI was disposed of, with provisions for revival if the scheme failed.