2005 (11) TMI 253 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the Company Court in light of BIFR proceedings.
2. Compliance with the Court's directions in convening meetings.
3. Validity and fairness of the proposed scheme.
4. Separate class treatment for decree-holder creditors.
5. Impact on guarantors and directors, including criminal liabilities.
6. Reasonableness and implementability of the scheme.
7. Objections raised by workers.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Company Court in light of BIFR proceedings:
The objection raised was that the Company Court lacked jurisdiction due to the pendency of BIFR proceedings, citing sections 32 and 26 of SICA. The Court rejected this, referring to a precedent from the Bombay High Court which clarified that sections 391 to 394 of the Companies Act are not inconsistent with SICA provisions. Thus, the Company Court retains jurisdiction to sanction schemes under sections 391 and 394.

2. Compliance with the Court's directions in convening meetings:
The intervenors argued that the order dated 5th May 2005 by Justice S.U. Kamdar was not complied with, as only the amended scheme was considered, not the original scheme. The Court found this objection baseless, noting that the Chairman's report indicated that both the original and amended schemes were considered. The Court also noted that no objections regarding this were raised during the meetings.

3. Validity and fairness of the proposed scheme:
The scheme was challenged on grounds of being unreasonable, unjust, unconscionable, and unimplementable. The Court applied the legal principles from Miheer H. Mafatlal v. Mafatlal Industries Ltd., emphasizing that the scheme must be fair, reasonable, and backed by the requisite majority. The Court found that the scheme, with modifications, met these criteria and was aimed at restructuring debts to revive the company.

4. Separate class treatment for decree-holder creditors:
Videocon International Limited argued that as a decree-holder, it should be treated as a separate class of unsecured creditors. The Court rejected this, citing section 390(c) of the Companies Act and the precedent from Haricharan Karanjai v. Ulipur Bank, which states that decree-holders are deemed to be of the same class as other unsecured creditors. The Court found no conflicting interests warranting separate class treatment.

5. Impact on guarantors and directors, including criminal liabilities:
The intervenors contended that the primary purpose of the scheme was to absolve guarantors and directors of liabilities, including criminal actions. The Court rejected the argument that this was the primary purpose but acknowledged that criminal actions could not be interdicted by the Company Court under section 391(6), as established in previous cases. Thus, the scheme could not include provisions affecting criminal liabilities.

6. Reasonableness and implementability of the scheme:
The Court found the objections regarding the scheme's reasonableness and implementability to be substantial. It noted the lack of a default clause and the absence of a commitment to pay the entire principal amount by the end of the 8th year. The Court approved the scheme with modifications, including a clear repayment schedule and default provisions to ensure the scheme's fairness and implementability.

7. Objections raised by workers:
Workers raised objections to certain clauses affecting their rights. The Court noted that the scheme was not intended to affect workers' rights and accepted the company's affidavit assuring no changes to service conditions without agreement. The Court ordered the scheme to exclude any references impacting workers' rights.

Conclusion:
The petition was allowed, and the scheme was sanctioned with modifications to ensure fairness, reasonableness, and implementability. The interim stay on criminal prosecution was extended for twelve weeks to allow the petitioner to seek other legal remedies.