2010 (7) TMI 776 - HC - Companies Law

Revival/restructuring of company - meetings of inter-corporate depositors ( ICDs ) and staff creditors were held and the scheme was approved by the staff creditors unanimously and by ICDs by a majority of more than 3/4ths - three persons filed their objections namely S.K. Modi Group Malanpur Steel Ltd. and Paradise Credit (P.) Ltd - objection of the Malanpur was that it is a decree-holder and is thus wrongly classified as ICD and it should have been classified as a decree-holder and the decretal amount should have been treated at the principal amount - contention of Malanpur that it was a secured creditor of the company and therefore it had right to get the entire decretal amount - Other objection of Malanpur that as per the scheme even the payment of first instalment had been made upon conditional withdrawal of suits and other criminal complaints filed under section 138 of Negotiable Instruments Act 1881 ( NI Act ) and undertaking from respective creditors to support reorganisation in the capital structure of the company - Merely because certain shares were pledged with the Malanpur would not make it a secured creditor - whether a decree-holder stands at the same footing as that of an unsecured creditor when the matter is before the company court for sanction of a scheme filed by a company - decree-holder in the light of the said section 390(c) of 1956 Act also stands on the same footing as that of an unsecured creditor and it has to be accepted that even after obtaining a decree against the appellant/petitioner by the decree-holder the respondent herein shall be deemed to be of the same class as that of other unsecured creditors under the said section - payment would be made to Malanpur Steels Ltd. as per the sanctioned Scheme and once the entire payment is made Malanpur shall withdraw the proceedings under section 138 of the NI Act which were filed by it alleging non-payment of dues in the form of dishonour of the cheques review petition bereft of any merit dismissed

Issues Involved:
1. Classification of Malanpur Steel Ltd. as an Inter-Corporate Depositor (ICD) or a secured creditor.
2. Validity of conditions in the payment scheme regarding withdrawal of suits and reorganization of capital structure.
3. Proceedings under Section 138 of the Negotiable Instruments Act.
4. Forfeiture and transfer of pledged shares.

Detailed Analysis:

1. Classification of Malanpur Steel Ltd. as an Inter-Corporate Depositor (ICD) or a secured creditor:

The core issue raised by Malanpur Steel Ltd. (Malanpur) was its classification as an ICD rather than a secured creditor. Malanpur argued that it should be classified as a secured creditor due to a decree in its favor and shares pledged by Spice Jet (formerly Modiluft) at the time of advancing the loan. The court, in its order dated 15th July 2005, had elaborately dealt with this issue, stating that merely having a decree does not make Malanpur a secured creditor. The decree was based on an admission by the company, and the principal amount remained Rs. 5 crore, which was treated as an ICD. The court noted that even if Malanpur were classified as a secured creditor, it would not have changed the approval of the scheme since Lufthansa, with a larger stake, had already approved it. Additionally, the court highlighted that Malanpur's decree was under challenge and that Malanpur had already recovered a portion of the decretal amount. Therefore, the court found no merit in Malanpur's plea for reclassification and dismissed it as an attempt to re-argue the matter, which is beyond the scope of a review petition.

2. Validity of conditions in the payment scheme regarding withdrawal of suits and reorganization of capital structure:

Malanpur objected to the conditions in the payment scheme that required the conditional withdrawal of suits and reorganization of the company's capital structure. The court addressed these objections in its previous order, stating that the withdrawal of suits or proceedings under Section 138 of the NI Act would only occur after complete payment as per the scheme. This arrangement was deemed reasonable, and the court found that the objection had been rendered nugatory as the creditors had agreed to these terms during their meeting. Consequently, the court found no grounds to review this aspect of the order.

3. Proceedings under Section 138 of the Negotiable Instruments Act:

Malanpur contended that the company court had no jurisdiction to stay proceedings under Section 138 of the NI Act. The court clarified that there was no order directing Malanpur to withdraw such proceedings; instead, the arrangement allowed for adjourning the matters until payments were made as per the scheme. The court emphasized that once the payments were made, Spice Jet would be absolved of liability, and Malanpur could withdraw the proceedings. The court noted that the scheme had been substantially acted upon, with payments made to most creditors. Therefore, this ground for review was not available to Malanpur.

4. Forfeiture and transfer of pledged shares:

The issue of forfeiture and transfer of pledged shares was highlighted by the Supreme Court, directing the Delhi High Court to decide the matter. However, the court noted that this issue had become infructuous due to a settlement between S.K. Modi group, RHSL, Spice Jet, and B.S. Kansagra, which covered the dispute regarding the shares, including those pledged with Malanpur. The court concluded that it was not required to decide on the validity of orders passed by the Division Bench of the Calcutta High Court, as the settlement had resolved the matter.

Conclusion:

The review petition filed by Malanpur was dismissed as it lacked merit. The court reiterated that payments to Malanpur would be made as per the sanctioned scheme, and upon completion of payments, Malanpur would withdraw proceedings under Section 138 of the NI Act. The court also noted that the application for advancing the hearing date of another application did not survive.

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