2007 (1) TMI 251 - HC - Companies Law

Issues Involved:
1. Increase in interest rate for workers' down payment.
2. Scheme of compromise/arrangement between the company and its stakeholders.
3. Approval and objections to the proposed scheme.
4. Modifications suggested by the workers' unions.
5. Financial solvency of the sponsor.
6. Comparative analysis of the original scheme and the modified scheme.
7. Jurisdiction and powers of the company court.
8. Final order and directions.

Detailed Analysis:

1. Increase in Interest Rate for Workers' Down Payment:
The judgment records that the petitioner agreed to increase the interest rate on the down payment to workers from 10% to 11% per annum. The Sabha and its sponsor also agreed to this increase, resulting in the down payment amounts being Rs. 14,34,71,743 and Rs. 14,36,37,497 respectively.

2. Scheme of Compromise/Arrangement Between the Company and its Stakeholders:
The company petition was filed for a scheme of compromise/arrangement between the company and its equity shareholders, secured creditors, unsecured creditors, statutory creditors, and workers. The scheme proposed by the petitioner included borrowing funds to pay outstanding dues to unsecured creditors, statutory creditors, and workmen, and staying the winding-up order.

3. Approval and Objections to the Proposed Scheme:
Meetings were held for various stakeholders to approve the scheme. While equity shareholders, secured creditors, unsecured creditors, and statutory creditors approved the scheme, the workers did not. The workers' union, Shramik Utkarsha Sabha, opposed the scheme and suggested modifications.

4. Modifications Suggested by the Workers' Unions:
The Sabha proposed modifications to the scheme, including paying the full value of the company's assets to the petitioner and/or Bali Properties and Investments (P.) Ltd., and providing an amount for workers and creditors. They also proposed starting a new textile unit to re-employ eligible workers. The modifications included a bank guarantee to ensure the performance of starting the textile unit.

5. Financial Solvency of the Sponsor:
Concerns were raised about the financial solvency of the sponsor, Prateek Apparels (P.) Ltd. The sponsor's net worth was negative, but the court noted that the sponsor's ability to raise funds could not be solely judged by the balance sheet. The sponsor provided affidavits promising to bring in the required amounts.

6. Comparative Analysis of the Original Scheme and the Modified Scheme:
The court provided a comparative table showing that the modified scheme offered by the Sabha was more beneficial to all parties compared to the petitioner's scheme. The modified scheme provided a higher down payment to workers, proposed the revival of the company's textile business, and ensured re-employment for eligible workers. It also offered a bank guarantee for starting the textile unit.

7. Jurisdiction and Powers of the Company Court:
The court discussed its jurisdiction under sections 391 and 392 of the Companies Act, 1956. It noted that the court's role is supervisory and not appellate. The court has the power to modify a scheme to ensure its proper working, even suo motu, without calling a meeting of all members or creditors. The modifications suggested by the Sabha were within the court's jurisdiction to sanction.

8. Final Order and Directions:
The court rejected the petitioner's scheme and sanctioned the modified scheme proposed by the Sabha with clarifications and further modifications. The sponsor was directed to deposit the amounts within specified timeframes and provide a bank guarantee. The Official Liquidator was directed to commence payment to workers after 30 days. The court provided liberty to the parties to apply for further orders in case of default or to seek an extension of time.

Order:
- The petitioner's scheme was rejected.
- The modified scheme by the Sabha was sanctioned with specific conditions.
- The sponsor was to deposit Rs. 1,16,83,738 and Rs. 14,36,37,497 within 15 days, and Rs. 52,07,50,000 within 60 days.
- A bank guarantee of Rs. 13,27,99,395 was to be provided within 90 days.
- The Official Liquidator was to commence payment to workers after 30 days.
- The court provided liberty to apply for further orders in case of default or to seek an extension of time.

Conclusion:
The judgment comprehensively addressed the issues of interest rate increase, approval and objections to the scheme, modifications suggested by the workers' unions, financial solvency of the sponsor, and the jurisdiction and powers of the company court. The court ultimately sanctioned the modified scheme proposed by the Sabha, ensuring better benefits for the workers and other stakeholders.

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