2010 (8) TMI 186 - HC - Companies Law

Compromise and arrangement - petition under sections 391 and 394 of the Companies Act, 1956 - Held that - In the proposed scheme, it is specified that the petitioner require ₹ 10,100 crores for revival of the respondent-company-in-liquidation. Further the scheme specifies that a sum of ₹ 500 crores will be mobilised from promoters equity, ₹ 8,000 crores from sugar development fund loan and ₹ 1,600 crores by way of subsidy. Learned counsel for the petitioner fairly submitted that as on now the sugar development fund loan to an extent of ₹ 8,000 crores is not available. No material is placed as to how the petitioner will mobilise the subsidy to an extent of ₹ 1,600 crores. Thus, on the face of it the petitioner-company is not able to mobilise a sum of ₹ 9,600 crores as against the total requirement of ₹ 10,100 crores. On the face of it, the proposed scheme is not viable, practicable and the same is not in the interest of the members, secured creditors and unsecured creditors of the respondent-company-in-liquidation.

Issues:
1. Petition under sections 391 and 394 of the Companies Act, 1956 for sanction of compromise or arrangement.
2. Object of petitioner-company to take over assets and liabilities of respondent-company.
3. Winding up of respondent-company recommended by BIFR and ordered by the Court.
4. Permission sought for holding meetings of members, unsecured creditors, and secured creditors.
5. Objections filed opposing the revival scheme of the respondent-company.
6. Examination of the law laid down by the Supreme Court in Miheer H. Mafatlal case.
7. Failure to hold a separate meeting of the secured creditor as directed by the Court.
8. Objections by workmen regarding false promises and delay in payment of dues.
9. Lack of specifics in the revival scheme regarding mobilization of funds to clear existing liabilities.
10. Lack of financial details of associated companies supporting the scheme.
11. Infeasibility of mobilizing required funds as per the proposed scheme.

Analysis:

1. The petitioner filed a petition seeking sanction of a compromise or arrangement under sections 391 and 394 of the Companies Act, 1956, to benefit all members and creditors of the respondent-company. The petitioner's objective was to take over the assets and liabilities of the respondent-company.

2. The Board for Industrial and Financial Reconstruction (BIFR) recommended winding up of the respondent-company, which was subsequently ordered by the Court. The Official Liquidator took over the assets and liabilities of the respondent-company in liquidation.

3. The Court allowed the petitioner to hold separate meetings of shareholders, secured creditors, and unsecured creditors. However, objections were raised by various parties, including the Regional Director, Official Liquidator, secured creditor, and workmen, opposing the revival scheme of the respondent-company.

4. The Supreme Court's decision in Miheer H. Mafatlal case highlighted the importance of ensuring fairness, legality, and reasonableness in schemes of compromise or arrangement. The Court must scrutinize the scheme to ensure it is just and not contrary to law or public policy.

5. The Court noted that the revival scheme proposed by the petitioner faced significant opposition, particularly from the secured creditor State Bank of Mysore, rendering it unsuitable for sanction. Additionally, objections were raised by workmen regarding false promises and delays in payment of dues.

6. The revival scheme lacked specifics on mobilizing funds to clear existing liabilities, and financial details of associated companies supporting the scheme were not provided. The proposed scheme was deemed unviable and impracticable, as the petitioner failed to demonstrate the feasibility of mobilizing the required funds.

7. Ultimately, the Court dismissed the petition due to the inadequacies and impracticalities of the proposed revival scheme, which failed to address crucial issues related to clearing existing liabilities and lacked necessary financial details to support its feasibility.

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