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TMI Blog1975 (2) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the court aforesaid is satisfied that a compromise or arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act." It will also be necessary to read rules 86 and 87 of the Companies (Court) Rules, 1959, framed by the Supreme Court of India under powers conferred by sub-sections (1) and (2) of section 643 of the Act : "86. Report on working of compromise or arrangement. At any time after the passing of the order sanctioning the compromise or arrangement, the court may, either of its own motion or on the application of any person interested, make an order directing the company, or, where the company is being wound up, the liquidator, to submit to the court within such time as the court may fix, a report on the working of the said compromise or arrangement. On a conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount within four years from the effective date." etc. According to the said scheme, the last (sixth) instalment should have been paid to the creditors on or before March 22, 1974. The first instalment was itself due on April 22, 1970, but the time was extended up to May 15, 1970, by order dated April 24, 1970, with directions to complete payment by May 22, 1970. The second instalment was due on August 22, 1970, but the time was extended up to September 22, 1970, by order dated September 4, 1970; by the same order there was a consequential extension of one month for payment of third and fourth instalments. The third instalment was due on March 22, 1971, but the time was extended up to July 31, 1971, by order dated March 18, 1971. The fourth instalment was due on March 22, 1972 ; no extension of time was sought for the fourth instalment. The fifth instalment was due on March 22, 1973. C.A, No. 175 of 1973 was filed on March 20, 1973, seeking extension of time by one year in view of acute power cut ; owing to temporary improvement in the power supply position, the company started making payment from November 1, 1973, with the permission of the court ; Rs. 17 lakhs is said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and which had selling agency rights of Fiat cars in the States of Punjab and Himachal Pradesh, had also ceased, the agency having been lost. When the scheme came into effect the managing committee found that the company had to clear unsecured liabilities totalling Rs. 1,72,24,136 on account of repayment to depositors, payments to unsecured creditors, compensation to employees, statutory liabilities, such as, arrears of sales tax, income-tax, provident fund, etc. In addition, a sum of Rs. 83,05,425 was due to secured creditors, namely, the Haryana Financial Corporation and National Grindlays Bank Ltd., Connaught Circus, now Grindlays Bank Ltd. The total liability thus amounted to Rs. 2,55,29,571 on the date when the scheme came into effect. It is claimed that the managing committee had obtained reductions from unsecured creditors to the extent of Rs. 37,70,267. There were disputes and/or appeals and other proceedings in respect of unsecured liabilities totalling Rs. 10,67,874. The undisputed liability, under the scheme, to depositors, unsecured creditors, employees and statutory bodies amounted to Rs. 1,23,83,995 out of which sums totalling Rs. 84,56,962 were paid leaving a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to issue equity shares of the face value of Rs. 15 lakhs V.K. Mundhra suggested that it may be done for Rs. 20 lakhs through shares issued pro rata to existing shareholders ; if all of them subscribed to the share capital thus issued, it is stated, that the company will receive Rs. 10 lakhs immediately. This has been suggested by way of finding the additional working capital needed. V.K. Mundhra also made the offer that, in the event of the shareholders renouncing, he was also willing to subscribe additional capital by underwriting the entire issue of Rs. 20 lakhs, as above. He also stated that he and his associates had advanced loans to the company in the sum of Rs. 21,30,532.88 for which the interest alone amounted to Rs. 12,79,765.16 (at the rate of 12% per annum). The question whether interest is payable on these advances is a separate question which it is needless to discuss here. In the said affidavit V.K. Mundhra also asserted that the sanctioned scheme was being implemented successfully, it was fully capable of being completed satisfactorily provided normal working conditions are available and that no occasion had arisen for the consideration of any alternative proposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the internal auditor. He was to be paid remuneration according to what was applicable to such officials who had retired from Government a course which was felt to be cheaper than appointing private chartered accountants of standing and may not yet ensure such whole-time and competent attention to the accounts side of the working of the Globe Steels division. I referred this question, of the above-said loans by, and repayments to, V.K. Mundhra and his associates to the internal auditor. He reported that some loans had been advanced by V.K. Mundhra and his associates and that they had been repaid. He pointed out that this was due to the lacuna in the scheme which omitted to provide for needed working capital. There is, however, no need to be detained about this aspect because in the affidavit of V.K. Mundhra dated November 28, 1974, he finally agreed that he will unconditionally pay to the company Rs. 6,50,000 within such time as the court may be pleased to direct and that the same will be adjusted against the proposed issue of equity shares as per his proposals dated November 10, 1974. He also further agreed that on his proposals dated November 12, 1974, being approved he an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .K. Mundhra with the management, other sources of raising of capital not being found to be feasible, V.K. Mundhra came out with the above-said proposal of not only providing further finance and to repay the above said sum of Rs. 6,50,000. When the question of finding sufficient financial resources were being discussed the Punjab National Bank Ltd., through its counsel, Mr. K.K. Jain, had also intervened with proposals that they would be able to finance the running of the company subject to certain terms. Such a proposal had been made earlier by Mr. Ved Vyas but this dormant proposal was revived as a result of discussions in public court regarding this. V.K. Mundhra's offer to come forward with the above proposals, as they have finally emerged (which were improved by him from time to time) may in a sense be said to have been provoked not only by the accusations against him but also by the intervention by the Punjab National Bank Ltd. It is needless to be detained about the allegations and counter-allegations which Mr. Ved Vyas and Mr. Sanghi were hurling at each other's clients. It does not appear necessary, at least at present, to go into such accusations. Such attacks seem to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alment of "heats" in the Globe Steds division with a view to making private and illegitimate profit. The internal auditor, whom I had directed to make an informal enquiry into this matter and submit a report, did not find anything wrong as alleged. Mr. Ved Vyas was taking me through some further aspects which, according to him, required further investigation. I am not, however, going into the details of these allegations at this stage except to notice that the arguments of Mr. Ved Vyas on this question were not completed when other issues became more pressing as set out above. It seemed that orders were needed urgently concerning whether the scheme could be worked, with or without modifications, or whether there had to be a winding up. It was urged by Mr. Sanghi that the proposals made by the Punjab National Bank Ltd. could not be considered because the only consideration before the court now is whether the scheme, which was approved by this court, could be continued for any further period with or without modifications. The relevant provisions of the scheme, only some of which have been extracted above, do show that the depositors had to be paid the amount due to them on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some modifications ; the court could, even without giving an opportunity to the shareholders and creditors to consider those modifications, order the existing arrangement to continue instead of winding up the company. It is a permissible manner of gathering legislative intent by seeking to find out the mischief to be avoided and the remedy to be promoted. On the language of section 392 and in the above context, it appears that an alternative has now been given to the court to order winding up in the event of a scheme already approved by the court not being possible to work, "with or without modifications". It may be noticed that the power under section 392 to do so has been conferred on the court in a manner that will permit the exercise of the said power not only on any application made to it but even suo motu. The Supreme Court also, in order to carry out the legislative intent, has drawn up the aforesaid rules 86 and 87. The said section 392 as well as the above said rules clearly indicate the court's power to modify the scheme, to which sanction had already been given, without directing a fresh meeting, if the same was necessary and without resorting to winding up. A simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peared from which fact A.N. Sen J. inferred : "Therefore I can reasonably infer that the majority of the creditors do not have any objection to this particular modification." In granting the extension, which was the modification asked for by the company, A.N. Sen J. took into consideration the industrial climate of the State when the order was passed. I am now fortified in the view I am taking now not only by the observations made by Sachar J. (which do not appear to have been dissented from in any manner by the Division Bench) and by the decision of A.N. Sen J. but also by the fact that, even on grounds of propriety, nearly 67% of the creditors (in terms of amounts due to them) have informed V.K. Mundhra that they wish the existing scheme to be continued for a further period as proposed by V.K. Mundhra, to which I shall refer presently. What is now contended before me by Messrs K.K. Jain and Ved Vyas is not that I should wind up the company but that I should convene another meeting of the creditors and shareholders for the purpose of seeking their approval to the modification and, while doing so, may also place before them the proposals made by the Punjab National Bank Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra finding out from the depositors and creditors what they had to say. By affidavit dated January 20, 1975, V.K. Mundhra informed this court that he had sent a printed circular dated December 23, 1974 (as per annexure "A" to the said affidavit), explaining the position that the approval of those proposals could be communicated. The affidavit mentions that 954 depositors and unsecured creditors representing Rs. 57.26,229.18 in value of fixed deposits and liabilities owed to them by the company (nearly 67%) had communicated to him in writing their consent ; their names, addresses and value of deposits and the liabilities were also disclosed in annexure "C" to the said affidavit. Some more creditors are stated to have written to V.K. Mundhra subsequently expressing their consent to the continuance of the existing scheme for the above-mentioned period. While V.K. Mundhra had, it was mentioned at the bar, subsequently received letters of consent from some more creditors and depositors, it is important that as the question was discussed, spread over a month even later, no further opposition to the extension of the period of the scheme with modifications, than what is urged by the clients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers also or the existing scheme should be continued for a further period by granting an extension of time for this purpose and also provide such further safeguards as may ensure proper working of the scheme without allowing anyone to exploit the situation for his own private ends. It seems obvious that the latter course would be best to adopt in the circumstances. As I have already indicated, the question of whether any private profit has been made already by V.K. Mundhra, as alleged on the basis of certain heats (photostat copies of which were made available to the internal auditor as well as to this court) is a matter which requires further consideration than what has yet been possible. This need for such investigation could only be considered by having the services, as I shall presently explain, of a technical person on the managing committee. I wish to make it clear that if anything results from such investigation indicating that private advantage has been taken by V.K. Mundhra and those with whose assistance he is working the scheme then, on this sole ground, V.K Mundhra would be removed forthwith from the management, regardless of the course that is now being taken ; what fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed, which would not be hindered in any manner by his being a member of the committee, but could only be helped further. I do not propose to allow any further additional remuneration to him for this purpose except that he, like any other member of the committee, would draw the usual sitting fee alone, for attending the meetings of the committee. Regarding the second vacancy, the one caused by the resignation of P.N. Handa, I direct that an advertisement would be made in the Financial Express, Delhi, Statesman, Calcutta, and the Economic Times of Bombay calling for applications from one who has had experience in running any public sector unit of a similar kind. The relevant qualifications, etc., concerning applicants will be fixed by me, when a draft form of advertisement is put up before me by the company. The intention is that, if such a person who has retired from a public sector unit, suitably qualified, is available and is willing to be so appointed, he would not only serve on the managing committee and be present at its meetings but would also act as a full-time technical adviser to supervise all day to day matters and direct all technical operations. It would be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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