1975 (2) TMI 67 - HC - Companies Law

Issues Involved:
1. Further steps and directions under Section 392(2) of the Companies Act, 1956.
2. Compliance with the scheme sanctioned on May 31, 1969.
3. Financial difficulties and operational challenges faced by Globe Motors Ltd.
4. Proposals for additional financing and extension of the scheme.
5. Legal interpretation of the court's power under Section 392 of the Companies Act, 1956.
6. Appointment of new members to the managing committee.
7. Monitoring and safeguarding the implementation of the scheme.

Issue-wise Detailed Analysis:

1. Further Steps and Directions under Section 392(2) of the Companies Act, 1956:
The court examined the necessity of taking further steps and issuing directions under Section 392(2) of the Companies Act, 1956, to ensure the proper implementation of the scheme sanctioned for Globe Motors Ltd. The court referred to Section 392(1) and (2) of the Act, which empowers the court to supervise the carrying out of the compromise or arrangement and to make modifications as necessary. It also considered Rules 86 and 87 of the Companies (Court) Rules, 1959, which provide for the submission of reports on the working of the compromise or arrangement and allow for applications to determine any questions related to the scheme's working.

2. Compliance with the Scheme Sanctioned on May 31, 1969:
The scheme dated February 24, 1969, was sanctioned by the court on May 31, 1969, and provided for the repayment of depositors in six installments over four years. However, due to various extensions granted by the court, the payments were delayed, and the last installment was due on March 22, 1974. The court noted that approximately 75% of the capital amount had been paid, but the interest remained unpaid. The company faced operational challenges due to power cuts, which reduced the working capacity of the Globe Steels division.

3. Financial Difficulties and Operational Challenges Faced by Globe Motors Ltd.:
The court acknowledged the financial difficulties faced by Globe Motors Ltd., including accumulated losses, loss of valuable selling agencies, and the need to clear substantial unsecured and secured liabilities. The managing committee had obtained reductions from unsecured creditors and made payments under the scheme, but the lack of provision for additional working capital posed a significant challenge. The court noted that the power cuts further exacerbated the company's difficulties, affecting its ability to meet its obligations under the scheme.

4. Proposals for Additional Financing and Extension of the Scheme:
V.K. Mundhra, the proponent of the scheme, proposed to provide additional financing by subscribing to equity shares and underwriting the entire issue if necessary. He also offered to repay the sum of Rs. 6,50,000 to the company and proposed an extension of the scheme to allow for the repayment of the remaining liabilities. The court considered these proposals and noted that the majority of the creditors had expressed their consent to the extension of the scheme. The court emphasized the need for additional working capital and the importance of ensuring the proper implementation of the scheme.

5. Legal Interpretation of the Court's Power under Section 392 of the Companies Act, 1956:
The court discussed the legislative intent behind Section 392, which was introduced to address the limitations of the old Section 153 of the Companies Act, 1913. The new provision empowered the court to modify the scheme without directing a fresh meeting of creditors and shareholders. The court referred to previous judgments, including those of Sachar J. and A.N. Sen J., which supported the view that the court has the power to extend the scheme's period and make necessary modifications to ensure its proper working.

6. Appointment of New Members to the Managing Committee:
The court addressed the need to fill vacancies in the managing committee and appointed the internal auditor as a member to ensure effective oversight. The court also directed the company to advertise for a person with technical expertise to serve on the committee and supervise the Globe Steels division. This appointment aimed to enhance the committee's ability to monitor the scheme's implementation and ensure accountability.

7. Monitoring and Safeguarding the Implementation of the Scheme:
The court emphasized the importance of monitoring the scheme's implementation and safeguarding against potential misuse. It directed the installation of meters to register the electric energy consumed by each furnace to check for any abuse. The court reserved the liberty to issue further directions and safeguards based on reports from the internal auditor and the technical expert. The proposals made by V.K. Mundhra were accepted, subject to the conditions outlined by the court, and the scheme's working period was extended accordingly.

Conclusion:
The court concluded that winding up Globe Motors Ltd. was not warranted and that extending the scheme with modifications and additional safeguards was in the best interest of the creditors and shareholders. The court's decision aimed to ensure the proper working of the scheme, facilitate the repayment of creditors, and preserve the company's potential as a going concern.

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