2005 (7) TMI 377 - HC - Companies Law

Summary

Issues Involved:
1. Convening the meeting of Unsecured Creditors.
2. Extension of the period for filing Company Petition.
3. Validity of the Scheme of Arrangement.
4. Classification and inclusion of Unsecured Creditors.
5. Objections raised by Exim Bank.

Detailed Analysis:

1. Convening the Meeting of Unsecured Creditors:
The applicant, Birla VXL Limited, sought a direction to convene a meeting of the Unsecured Creditors of its OCM Division, which was to be transferred to OCM (India) Ltd., to consider and approve a Scheme of Arrangement. The applicant had previously filed Company Application No. 171 of 2005, which was disposed of by the Court on 10-5-2005, directing separate meetings of Existing Lenders, Equity Shareholders, Preference Shareholders, and Unsecured Creditors. These meetings were held on 25-6-2005, and the Scheme was unanimously approved. However, the applicant later realized that the Scheme did not envisage any compromise with all Unsecured Creditors, only those of the OCM Division. Thus, they sought to convene a separate meeting for these specific creditors.

2. Extension of the Period for Filing Company Petition:
The applicant also requested an extension of the period for filing the Company Petition in terms of rule 79 of the Companies (Court) Rules, 1959, for seven days from the date of filing the Chairman's report of the meeting of the Unsecured Creditors of the OCM Division.

3. Validity of the Scheme of Arrangement:
The Scheme proposed the demerger of the OCM Division into OCM (India) Ltd. The applicant argued that the Scheme did not require a compromise with all Unsecured Creditors but only those of the OCM Division. The Exim Bank, however, contended that the Scheme affected all Unsecured Creditors and that a fresh meeting of all classes of creditors was necessary.

4. Classification and Inclusion of Unsecured Creditors:
The Exim Bank filed Company Application No. 230 of 2005, seeking to recall the order dated 10-5-2005 and to hold a fresh meeting of all classes of creditors, including itself. The Exim Bank argued that it was not called to the initial meeting and that the applicant was attempting to exclude it by convening a separate meeting for the OCM Division's creditors. The Court noted that the applicant's actions seemed to aim at excluding the Exim Bank and other similar creditors, which was not just, proper, or legal.

5. Objections Raised by Exim Bank:
The Exim Bank argued that the applicant's second application was not maintainable under section 391 of the Companies Act, 1956, and that the earlier order of 10-5-2005 should operate with full force. The Exim Bank contended that the applicant was trying to avoid its participation in the meeting by classifying creditors in a way that excluded it. The Court agreed that the applicant's actions appeared to be an attempt to exclude the Exim Bank and that the Exim Bank should be allowed to participate in the meeting of Unsecured Creditors.

Judgment and Directions:
1. The Court directed that a meeting of all Unsecured Creditors, including the Exim Bank, be convened on 31-8-2005 to consider the Scheme of Arrangement.
2. An advertisement convening the meeting was to be published in specified newspapers, and notices were to be sent to all Unsecured Creditors.
3. The Chairman of the meeting was to be appointed from among the Directors of the applicant-company.
4. The quorum for the meeting was set at three persons present in person.
5. Voting by proxy was permitted, and the value of each Unsecured Creditor was to be determined according to the company's books.
6. The Chairman was to report the result of the meeting to the Court within 14 days.
7. The period for filing the Company Petition was extended by seven days from the date of filing the Chairman's report.

Conclusion:
The Court emphasized that the Exim Bank should not be deprived of its right to participate in the meeting of Unsecured Creditors and issued directions to ensure its inclusion. The application was disposed of with these directions, and no order as to costs was made.