9911796707
|
Home
Issues Involved:
1. Ultra vires the Finance Corporation to lease out the assets of the company. 2. Impossibility to evolve a workable scheme due to conflicting conditions imposed by different groups of creditors. Detailed Analysis: Issue 1: Ultra vires the Finance Corporation to lease out the assets of the company The company, Shri Vikram Cotton Mills Ltd., sought court sanction under Section 153 of the Indian Companies Act (VII of 1913) for a scheme to pay off its debts. The scheme proposed that the Industrial Finance Corporation, a secured creditor, would lease out the company's assets. However, it was argued that this was beyond the Corporation's statutory powers as defined by the Industrial Finance Corporation Act (XV of 1948) and its amendments. The Act allows the Corporation to either take over management or sell and realize the property pledged, but does not confer the power to grant a lease. The court concluded that the power to lease is neither incidental nor consequential to the power of granting loans and is not included in the statutory powers of the Corporation. Therefore, sanctioning a scheme that includes leasing by the Corporation would be ultra vires and could be challenged and nullified by any interested party. Issue 2: Impossibility to evolve a workable scheme due to conflicting conditions imposed by different groups of creditors The scheme required approval from various groups of creditors, including secured creditors, employees, labor, and unsecured creditors. While all groups initially approved the scheme, they imposed conditions favoring their interests. Notably, the unsecured creditors deleted a clause (paragraph 17) that allowed the court to alter or amend the scheme. This created a conflict as the conditions imposed by different groups were inconsistent and could not be reconciled into a single workable scheme. The court emphasized that it lacked the power to modify the scheme in the absence of an express provision allowing such modifications. Consequently, the court could not sanction a scheme that was not unanimously agreed upon by all creditors and shareholders, leading to the conclusion that no workable scheme existed. Conclusion: The application for sanctioning the scheme was dismissed on two primary grounds: 1. The proposed leasing of assets by the Industrial Finance Corporation was ultra vires its statutory powers. 2. The conflicting conditions imposed by different groups of creditors made it impossible to evolve a workable scheme, and the court lacked the authority to modify the scheme to reconcile these differences. The judgment underscores the necessity for all elements of a scheme to be within the legal powers of all parties involved and the importance of unanimous agreement among creditors and shareholders for court-sanctioned schemes under Section 153 of the Indian Companies Act.
|
