2006 (12) TMI 585 - HC - Companies Law

Issues Involved:

1. Increase in interest rate for payments to workers.
2. Approval and modification of the scheme of compromise or arrangement.
3. Claims and liabilities of secured and unsecured creditors.
4. Re-employment and rehabilitation of workers.
5. Role and financial capacity of the sponsor.
6. Jurisdiction and powers of the Company Court under Sections 391 and 392 of the Companies Act, 1956.

Detailed Analysis:

1. Increase in Interest Rate for Payments to Workers:

The judgment begins with the parties agreeing to increase the interest rate on the down payment to workers from 10% to 11% per annum. This increase was accepted by the petitioner, Shramik Utkarsha Sabha (Sabha), and its sponsor. Consequently, the amounts offered to the workers by both the petitioner and the Sabha were adjusted based on this new interest rate.

2. Approval and Modification of the Scheme of Compromise or Arrangement:

The petitioner filed a Company Petition under Sections 391 to 394 of the Companies Act, 1956, proposing a scheme of compromise/arrangement. The scheme aimed to settle dues with equity shareholders, secured creditors, unsecured creditors, statutory creditors, and workers. However, the workers did not approve the scheme during the meeting, leading to the proposal of modifications by the Sabha. The modified scheme included a higher payment to workers and a plan for the revival of the company's textile unit, which gained support from both workers' unions.

3. Claims and Liabilities of Secured and Unsecured Creditors:

The secured creditor, Bali Properties & Investments Pvt. Ltd., had its claim addressed in the original scheme, but the petitioner's proposal was vague regarding the satisfaction of this claim. The modified scheme by the Sabha proposed to settle the secured creditor's claim by paying the decretal amount in High Court Suit No.3290 of 1986. The unsecured creditors and statutory creditors were offered a specific amount, which was accepted by the majority.

4. Re-employment and Rehabilitation of Workers:

The modified scheme by the Sabha included a proposal for starting a new textile unit, which would provide re-employment to eligible workers. The sponsor agreed to deposit a bank guarantee as a performance guarantee for this purpose. The scheme aimed to employ approximately 300 workers and offered additional benefits such as the revival of the textile business.

5. Role and Financial Capacity of the Sponsor:

The sponsor, Prateek Apparels Pvt. Ltd., was questioned regarding its financial capacity to fulfill the scheme's obligations. Despite concerns about its negative net worth, the sponsor and the Sabha assured the Court of their ability to bring in the required funds. The Court noted that the sponsor's financial capacity would be tested by its ability to fulfill the scheme's promises, secured by the bank guarantee.

6. Jurisdiction and Powers of the Company Court under Sections 391 and 392 of the Companies Act, 1956:

The Court discussed its jurisdiction under Sections 391 and 392, emphasizing its supervisory role rather than an appellate one. The Court has the power to modify a scheme to ensure its proper working and can substitute sponsors if necessary. The judgment cited previous cases to affirm that the Court can sanction modifications to a scheme, especially when the original scheme is unworkable due to lack of approval from key stakeholders like workers and secured creditors.

Conclusion:

The Court sanctioned the modified scheme proposed by the Sabha, which was more beneficial to all parties involved, including workers, secured creditors, and shareholders. The original scheme by the petitioner was rejected due to opposition from workers and the secured creditor. The judgment highlighted the Court's role in ensuring that a workable and fair scheme is implemented, considering the interests of all stakeholders.

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