2008 (2) TMI 618 - HC - Companies Law

Compromise and arrangement - Held that - Having regard to the facts and circumstances of the case and considering the submissions made by the learned advocates appearing for the respective parties and the authorities cited before the Court, the Court is of the view that there is no substance or merit in Company Application preferred by the applicant for convening the meeting of various groups of creditors and equity shareholders for considering the scheme of arrangement in the nature of revival and compromise and hence, this application is rejected. Since the application is rejected, amount of ₹ 10 lakhs deposited by the applicant with the Registry of this Court pursuant to the order dated 10-12-2007 is hereby ordered to be refunded forthwith. Since winding up order is passed by the Court today in Company Petition No. 190 of 2003, no separate order is required to be passed in Company Petition No. 287 of 2003 which is also moved for winding up of the respondent Company. This petition is accordingly disposed of.

Summary

Issues Involved:
1. Winding up of APS Star Industries Ltd. under section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
2. Appointment and actions of the Official Liquidator.
3. Application for recall of the order of admission and advertisement.
4. Separate meetings for considering the scheme of arrangement in the nature of revival and compromise.
5. Objections by secured creditors and employees.
6. Viability and bona fides of the proposed revival scheme.
7. Legal precedents and judgments cited in support of and against the proposed scheme.

Detailed Analysis:

1. Winding up of APS Star Industries Ltd. under section 20(1) of SICA:
The Board for Industrial and Financial Reconstruction (BIFR) forwarded an opinion on 16-7-2003 stating that despite sufficient time and opportunity, no acceptable revival scheme could be formulated for APS Star Industries Ltd. The company could not make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations. Consequently, it was deemed just, equitable, and in public interest to wind up the company under section 20(1) of SICA. This petition was admitted by the court on 9-1-2006.

2. Appointment and actions of the Official Liquidator:
The court appointed the Official Liquidator (OL) as the Provisional Liquidator of the company and directed him to take charge of all properties, issue public advertisements, and collect details of pending cases and properties. The OL was also instructed to report on the disposal of assets and distribution of amounts among secured creditors and workers. The OL's report on 28-4-2006 indicated no objections to the winding up from any secured creditors, banks, or financial institutions, but rather support for the winding up.

3. Application for recall of the order of admission and advertisement:
The company management applied to recall the order of admission and advertisement. The court observed that it was the responsibility of the respondent-company to obtain necessary orders from the court that issued the original order. Since no such application was entertained, the order became final.

4. Separate meetings for considering the scheme of arrangement in the nature of revival and compromise:
The company sought directions to conduct separate meetings of various groups of creditors and shareholders to consider a scheme of arrangement for revival and compromise. The court initially entertained the proposal but later observed that entertaining the revival scheme would delay the realization of the property and might not serve any useful purpose if the company could not be revived. The court directed the OL to report the expenses incurred for the preservation of the property.

5. Objections by secured creditors and employees:
The Star Industries & Textile Enterprise Employees Union opposed the proposed scheme, arguing that the Nasik unit had no building, plant, or machinery, making its revival impossible. The union emphasized that the workers had not been paid for over ten years and urged for the expeditious winding up of the company to sell the assets and pay the workers' dues. The Bank of India, a secured creditor, also strongly objected, highlighting the company's history of failing to mobilize funds and stalling the recovery process since 1998.

6. Viability and bona fides of the proposed revival scheme:
The court scrutinized the company's track record and found that despite several opportunities and ample time, the company had failed to present a viable revival scheme. The court noted that the company's conduct indicated a lack of seriousness and resourcefulness in rehabilitating itself. The proposed scheme was seen as lacking bona fides, with the primary intention being to forestall the winding-up proceedings rather than genuinely revive the company. The court concluded that the scheme was merely an eye-wash to buy time and did not inspire confidence that the unit would become operational.

7. Legal precedents and judgments cited in support of and against the proposed scheme:
The court referred to several precedents, including the cases of Shree Rama Multitech Ltd. and Essar Oil Ltd., where directions for convening meetings were granted despite objections. However, the court distinguished these cases from the present one, emphasizing the unique circumstances and the company's poor track record. The court also cited the cases of Madhu Textiles Ahmedabad Ltd. and Madhu Fabrics Ltd., where revival schemes were rejected due to lack of viability and bona fides.

Conclusion:
The court rejected Company Application No. 448 of 2007 for convening meetings to consider the revival scheme, finding no merit or substance in the proposed scheme. Consequently, Company Petition No. 190 of 2003 was allowed, and the company was ordered to be wound up. The OL was appointed as the Liquidator to discharge all functions and exercise all powers as the Liquidator. Company Petition No. 287 of 2003, also seeking the winding up of the respondent company, was disposed of accordingly. The court denied the request for a stay against the order.