2013 (11) TMI 31 - HC - Companies Law

Meeting of secured creditors - Whether interest of the workers would be prejudiced if the scheme of arrangement is sanctioned - Held that - Attention not drawn to any Rule in the Companies (Court) Rules mandating the Company Court to direct, at the first motion stage, that the workmen ought to be heard in relation to their objections to the maintainability of the application. The reason is simple. Dues payable to workmen are treated on par with dues payable to secured creditors and in this sense the workmen are treated on par with secured creditors. If the workmen have any objection to the scheme or compromise, they can voice the same i the meeting of the secured creditors to be held under the directions of the Company Court. They also have a right to voice their objections at the second motion stage and this right was not seriously contested by the learned counsel for the applicant. Thus, in the absence of any statutory provision and having regard to the fact that the workmen, as part of the secured creditors, can voice their objections in the secured creditors meeting and also at the second motion stage, objection raised for the workmen maintainability of the application are rejected - Decided against petitioner.

Summary

Issues Involved:
1. Scheme of arrangement and compromise under sections 391 to 394 of the Companies Act, 1956.
2. Objections by workmen regarding the maintainability of the application.
3. Directions for convening meetings of creditors and shareholders.

Issue-wise Detailed Analysis:

1. Scheme of Arrangement and Compromise:
The case involves a first motion joint application under sections 391 to 394 of the Companies Act, 1956, concerning a scheme of arrangement and compromise proposed between a company in liquidation, S.B.L. Industries Ltd., and its creditors. The scheme is proposed by P.C. Sen, the ex-management and director, who holds substantial shares in the company. The company, incorporated in 1960, faced financial difficulties from the late 1980s and ceased operations in 2001. The ex-management, with the support of a strategic investor, aims to revive the company by refurbishing its assets and recommencing operations. The application includes details of the company's capital and a copy of the audited balance sheet as of 21.3.2005. The strategic investor has already paid Rs. 13 crores to the State Bank of India, and preference shareholders have transferred their shares to P.C. Sen. The scheme proposes to pay off all creditors within 6 to 12 months and complete refurbishment and recommencement of operations within a maximum of 24 months. The scheme is stated to be in the interest of the company, shareholders, creditors, and public interest as it would revive economic activity, generate state revenue, and provide employment.

2. Objections by Workmen:
Mr. B.K. Sinha, representing the workmen, raised a preliminary objection to the maintainability of the application, arguing that the scheme would prejudice the workers' interests and that P.C. Sen is attempting to take advantage of the company's extensive lands. He also questioned the legality of the share transfer to P.C. Sen, arguing that it required the official liquidator's permission and that the acquisition of shares by P.C. Sen in 1999 was a sham transaction. Mr. Arun Kathpalia, representing the company, opposed these contentions, stating that workmen do not have a right to object at the first motion stage and can voice their objections at the second motion stage and in the secured creditors' meeting. The court agreed with Mr. Kathpalia, noting that under section 391(1) and Rule 67 of the Companies (Court) Rules, 1959, the summons for directions to convene meetings are to be moved ex-parte, and no statutory provision mandates hearing workmen's objections at the first motion stage. The court emphasized that workmen, treated on par with secured creditors, can voice their objections in the secured creditors' meeting and at the second motion stage.

3. Directions for Convening Meetings:
The court issued detailed directions for convening meetings of secured creditors, statutory liabilities creditors, unsecured creditors, equity shareholders, and preference shareholders. Specific dates, times, and venues for these meetings were provided, with appointed chairpersons and alternate chairpersons for each meeting. The quorum for each meeting was fixed, and provisions were made for adjournment if the quorum was not met initially. The court also directed the publication of advance notices in newspapers and individual notices by ordinary post at least 21 days before the scheduled meetings. The chairpersons were instructed to file their reports within seven days of the conclusion of the respective meetings. The application was allowed in these terms, and the order was to be given dasti.

Conclusion:
The judgment addresses the proposed scheme of arrangement and compromise for a company in liquidation, the objections raised by workmen, and the procedural directions for convening meetings of various classes of creditors and shareholders. The court emphasized the procedural requirements under the Companies Act and relevant rules, ensuring that objections could be raised at appropriate stages while facilitating the proposed scheme's consideration.