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Issues Involved:
1. Sanctioning the scheme of compromise/arrangement under sections 391 and 393 of the Companies Act, 1956. 2. Objections raised by HUDCO regarding non-disclosure of material facts, discrimination between creditors, and unfair means to obtain a majority vote. Issue-Wise Detailed Analysis: 1. Sanctioning the Scheme of Compromise/Arrangement: The petitioner, TCI Infrastructure Ltd., submitted a petition under sections 391 and 393 of the Companies Act, 1956, seeking the court's sanction for a scheme of compromise/arrangement with its secured creditors. The petitioner company, originally incorporated as TCI Housing Finance Company Limited and later renamed, faced significant financial losses, leading to liquidity issues. To address these, the Board of Directors approved a scheme of compromise/arrangement on 10-5-2005, which was subsequently presented to the court for sanctioning. 2. Objections Raised by HUDCO: HUDCO, one of the secured creditors, raised several objections against the proposed scheme: (a) Non-disclosure of Important and Relevant Material Facts: HUDCO argued that the petitioner company failed to disclose the status of all secured creditors and the preferential treatment given to State Bank of India (SBI), which was pre-paid in full, unlike other creditors who were offered only 47.50% of the outstanding principal amount. Additionally, the petitioner company did not disclose the pending recovery application filed by HUDCO and three criminal cases under section 138 of the Negotiable Instruments Act against its directors. (b) Discrimination Between Secured Creditors: HUDCO highlighted that the petitioner company discriminated between SBI, which was paid in full, and other creditors like IDBI and HUDCO, who were offered a significantly lower settlement amount. This preferential treatment was not justified or disclosed in the explanatory statement of the scheme. (c) Unfair Means to Obtain a 3/4th Majority Vote: HUDCO alleged that the petitioner company inducted Bhoruka Investment Ltd. (BIL) as a secured creditor to secure the required majority vote for the scheme. The loan from BIL was taken on 31-3-2006, the cut-off date for the scheme, and the charge was registered on the same date, indicating an attempt to manipulate the voting process. (d) Non-disclosure of Personal Benefits to the Managing Director: HUDCO pointed out that the scheme did not disclose the personal benefits accruing to Mr. Ashok Agarwal, the Managing Director, who stood to gain from the abatement of cases against him if the scheme was sanctioned. (e) Non-mention of the Source of Funds for Settlement: The scheme did not specify the source of funds or cash inflow for the payment of the settlement amounts, raising concerns about its feasibility. (f) Oppressive Nature of the Scheme: HUDCO argued that the scheme was oppressive as it required secured creditors to sacrifice 51.50% of the outstanding principal amount and forgo interest, costs, and expenses. Court's Analysis: The court examined the scheme and the objections raised by HUDCO, referring to the principles laid down by the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. and Hindustan Lever v. State of Maharashtra. The court emphasized that its jurisdiction was supervisory and not appellate, focusing on ensuring compliance with statutory procedures and fairness in the scheme. Upon reviewing the scheme, the court found several discrepancies: - The petitioner company had accorded preferential treatment to SBI without disclosing this fact. - The pending legal proceedings against the company and its directors were not disclosed. - The induction of BIL as a secured creditor appeared to be a strategy to manipulate the voting process. - The scheme compelled secured creditors to make significant sacrifices without adequate justification. Conclusion: The court concluded that the objections raised by HUDCO were substantial and undermined the fairness of the scheme. Consequently, the petition for sanctioning the scheme of compromise/arrangement was rejected.
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