2023 (4) TMI 1148 - HC - Companies Law

Seeking modification in the scheme of Amalgamation - attempt for creation of trust for benefits of debenture holders (mere an attempt to cheat debenture holders by gaining more time) - HELD THAT - There are assets about Rs.171.64 crores and after the liabilities, about a sum of Rs.157 crores are available. If they had realized those advances and loan, easily the company would have paid the amount to the debenture holders but it appears that no steps have been taken on their part and no report was filed with regard to the collection of those advances and loans - Further, the total amount outstanding to the debenture holders is about Rs.125 crores along with interest. If really the VIL and its sponsors had any intention to implement the scheme, they could have very well implemented the same with the realization of the current assets alone. When the scheme was approved, they have highlighted the above financial position and obtain the approval of this Court as well as the approval of the debenture holders. However, when the present modification has been filed, nothing has been mentioned about the recoveries made by VIL against the advances and loans mentioned in financial position as on 30.09.2013. This Court is of the view that allowing the modification only affect the interest of the debenture holders and further it would be more beneficial for the promoters to safeguard them from all the criminal proceedings and other liabilities and thereby, they will absolve from all the responsibilities. Therefore, this Court cannot be wittingly or unwittingly be a party for all those misdeeds of the applicant as well as Mr.R.Subramanian, party-in-person and other Directors of VIL - this Court is not inclined to entertain this application and the same is liable to be dismissed. While dismissing the application, this Court is of the considered view that this application came to be filed only to cheat debenture holders by gaining more time. Therefore, for wasting the Court time and making an attempt to defraud the creditors and the debenture holders, this Court is inclined to dismiss this application with the cost of a sum of Rs.2,00,000/- to the Official Liquidator and the said amount shall be utilised by the learned Official Liquidator to defray his expenses with regard to the taking over of assets and realization of assets of VIL. Application dismissed.

Summary

Issues Involved:
1. Modification of the Scheme sanctioned in C.P.No.15 of 2014.
2. Transfer of rights vested in properties to a Trust.
3. Implementation of the original scheme and financial position of VIL.
4. Allegations of criminal proceedings affecting the scheme's implementation.
5. Benefit to debenture holders versus benefit to VIL directors.
6. Jurisdiction of the Court and applicability of the Companies Act.

Summary:

Modification of the Scheme:
The applicant sought modifications to the scheme sanctioned in C.P.No.15 of 2014, including definitions and terms related to the "Appointed Date," "Creditors," "Effective Modified Date," and the creation of a Trust to manage the properties for the benefit of debenture holders. The modifications also detailed the distribution of proceeds and the treatment of payments from the Trust.

Transfer of Rights to a Trust:
The applicant proposed transferring all rights vested in the properties to a Trust for the benefit of debenture holders. However, the Court noted that the details of the properties were not furnished, and many properties were involved in litigations. The Court observed that transferring these properties to a Trust would not provide immediate relief to debenture holders but would benefit the directors of VIL.

Implementation of the Original Scheme:
The original scheme required VIL to repay the principal amount with interest within nine months from 01.04.2013. The Court noted that VIL had not furnished details of any repayments made and appeared not to have made any significant payments. The financial position of VIL as on 30.09.2013 showed substantial current assets and loans, which could have been used to repay debenture holders, but no steps were taken for realization.

Criminal Proceedings and Scheme Implementation:
The applicant and Mr. R. Subramanian argued that the original scheme was not implemented due to criminal proceedings by the EOW. They claimed that the scheme was not workable due to these proceedings. However, the Court found that the modification application was filed to escape criminal liabilities and would not benefit debenture holders.

Benefit to Debenture Holders vs. VIL Directors:
The Court concluded that the modification application was not for the benefit of debenture holders but to benefit Mr. R. Subramanian and other VIL directors by transferring liabilities to the Trust. The modification would further delay payments to debenture holders and safeguard the directors from criminal proceedings.

Jurisdiction and Companies Act Applicability:
Mr. R. Subramanian raised the issue of jurisdiction, arguing that the matter should be transferred to the NCLT under the New Companies Act. The Court referred to previous orders and provisions of the Companies Act, concluding that the High Court retained jurisdiction over the matter and rejected the request for transfer.

Conclusion:
The Court dismissed the application for modification, holding that it was filed to cheat debenture holders and gain more time. The Court imposed a cost of Rs. 2,00,000 on the applicant, payable to the Official Liquidator, for wasting court time and attempting to defraud creditors and debenture holders. The original scheme was deemed not viable for implementation, and the company was found liable to be wound up.