2010 (4) TMI 608 - HC - Companies Law

Scheme of compromise and arrangement - Held that - The scheme of compromise and arrangement (revised) as per annexure B of Company Petition No. 215 of 2003 is hereby sanctioned, subject to modifications/orders mentioned above, so as to be binding, on the company, its members and creditors. In view of the scheme being sanctioned, all criminal cases filed against the company as well as the suits, execution petitions and; complaints/appeals before various forums shall stand abated and, payments made in these proceeds shall be adjusted against the outstanding debts payable to the claimants. The company shall file a certified copy of this order with the Registrar of Companies, Karnataka, within thirty days from the date of receipt of the certified copy of this order.Office is directed to draw the order in the prescribed form by incorporating the amendments as per this order without insisting for stamp duty since the scheme of compromise and arrangement is being sanctioned under section 391 of the Act, which is not covered by article 20(4) of Schedule I to the Karnataka Stamp Act, 1957. (g)All pending company applications are disposed of by separate orders.

Summary

Issues Involved:
1. Winding up of the company.
2. Sanctioning of the scheme of compromise and arrangement.
3. Financial position and compliance with RBI regulations.
4. Approval of the scheme by creditors and shareholders.
5. RBI's locus standi and objections.
6. Company's right to exist post-cancellation of NBFC registration.
7. Conditions for sanctioning the scheme.

Detailed Analysis:

1. Winding Up of the Company:
Company Petition No. 102 of 2002 was filed by the Reserve Bank of India (RBI) under section 45 of the RBI Act, 1934, read with section 433 of the Companies Act, 1956, for winding up of Tulunadu Finance and Developments Ltd. due to unsatisfactory financial position and defaults in repayment of deposits. The RBI conducted inspections and found violations of the RBI Act, leading to the cancellation of the company's registration.

2. Sanctioning of the Scheme of Compromise and Arrangement:
Company Petition No. 215 of 2003 was filed by the company under sections 391 to 393 read with section 394A of the Companies Act, 1956, for sanctioning a scheme of compromise and arrangement. The scheme included rescheduling debts and restructuring the company's financial obligations. Meetings were convened for equity shareholders, secured creditors, debenture holders, and deposit holders, with the majority approving the scheme.

3. Financial Position and Compliance with RBI Regulations:
The company's financial difficulties were exacerbated by RBI's regulatory changes in 1998, which restricted the acceptance of fresh deposits. The company's financial assets were almost equal to its liabilities. The company had valuable assets and initiated legal actions to recover loans, but faced challenges due to defaults by borrowers.

4. Approval of the Scheme by Creditors and Shareholders:
The scheme was approved by an overwhelming majority of equity shareholders (99.54%), debenture holders (99.15%), and deposit holders (98.66%). Secured creditors (bankers) initially did not approve the scheme, but were subsequently repaid in full by the company.

5. RBI's Locus Standi and Objections:
The RBI argued that the company should be wound up due to its inability to comply with RBI regulations and the cancellation of its registration certificate. The RBI contended that the company suppressed material facts in the meetings convened for the scheme's approval. However, the court found no suppression of facts and noted that the scheme was transparently communicated to all stakeholders.

6. Company's Right to Exist Post-Cancellation of NBFC Registration:
The court noted that one of the main objects of the company was to carry on real estate business, apart from non-banking financial business. The RBI's policy allowed companies whose registration was cancelled to convert into non-banking non-financial companies within three years. The court held that the company had the right to survive as a non-banking non-financial company and continue its real estate business.

7. Conditions for Sanctioning the Scheme:
The court sanctioned the scheme subject to several conditions:
- The company shall not carry on non-banking financial business.
- Repayment timelines stipulated in the scheme must be adhered to strictly.
- Payments to depositors with deposits between Rs. 2,000 and Rs. 5,000 must be made within two years in two equal installments.
- Statements showing payments made as per the scheme must be filed with the court.
- The company is allowed to negotiate the sale of its immovable properties with court approval.
- The court will supervise the implementation of the scheme and modifications can be requested if necessary.
- Annual statements of accounts showing recoveries must be filed with the court.

Conclusion:
The court dismissed the RBI's petition for winding up and allowed the company's petition for sanctioning the scheme of compromise and arrangement, subject to specified conditions. The scheme was found to be in the interest of the company's members and creditors and did not contravene any statutory provisions. The court emphasized the commercial wisdom of the stakeholders in approving the scheme and the company's right to continue its real estate business.