9911796707
TMI Blog1991 (1) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,00,000 equity shares of Rs. 10 each, of which 5,00,000 equity shares were issued and Rs. 10 was paid-up on each share issued. The objects for which the company was formed are set out in the company's memorandum of association. In brief they are: ( i )to carry on the business of iron founders, mechanical engineers and manufacturers of agricultural implements and textile machinery, etc., ( ii )to carry on the business of structural engineering, general jobbing, casting and machining works, the manufacture of malleable castings for vaccum brakes, and other fittings for the railways and other commercial purposes. The company commenced business in 1946-47. All through, it had poor performance. As per the printed annual report of the company made for the year ending December 31, 1982, the accumulated loss of the company was about Rs. 61.52 lakhs, as against the paid-up capital and free reserves of Rs. 9.10 lakhs. There was no provision made in the balance-sheet towards certain statutory claims and liabilities for the earlier period. The industrial relations were also disturbing with several industrial disputes pending in the Labour Court and the Industrial Tribunal for adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. The management also took steps to export its products to countries such as Bangladesh and Mauritius. Despite all these rehabilitory schemes, diversification, rejuvenating measures adopted by the company, the working results were not sufficient to match the additional investment made by way of increase of capital and bank advances. The company was not able to sustain its efforts for viability despite fresh investments because of several hurdles which thwarted its efforts. They include steep increase in the cost of raw materials, non-availability of raw materials at the appropriate time from agencies such as the Steel Authority of India Limited, Coal India Limited, etc., low productivity and continuance of power cut. In addition to the above, the Central Government of India made several drastic changes in the textile policy which affected adversely the powerloom sector. As a result of change in textile policy, several varieties of textiles numbering about 22, including most common varieties, like dhoties and sarees even with small borders, doria cloth and shirting, which were hitherto mainly manufactured by the decentralised but unorganised powerloom industry were reserved exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986, under section 433( e ) of the Companies Act before this court. The company pleaded for time to make payment of the admitted liability but since nothing could be arranged, this court made a winding up order on June 18, 1987. It is stated that it is not possible to revive the company for continuing the manufacturing activities. Any new plan of revival of manufacturing activities would call for further investment of one crore rupees by way of working capital in addition to necessary funds for settlement of labour claims, statutory liabilities, overdue secured and unsecured advances all amounting to Rs.3.25 crores (approximately). But in the textile engineering industry in general and weaving in particular and the peculiar problems and inherent weakness in the company's structure, there was no reasonable basis that further efforts would be fruitful. In fact, such a huge investment attended with high incidence of risk would not be forthcoming at all from any quarter. This is more so because the factors as explained above which contributed to the sickness and unviability of the industry are beyond the control of any management. The summarised provisional balance-sheet of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory liabilities as well as to the members. One of the positive benefits of the scheme is the arrangement by which the entire class of labour would be able to receive their total dues within a period of six months from the date of approval of the scheme. This beneficial situation may not be ordinarily possible, if the present proceedings are continued. As such the scheme is drawn up keeping in view the interest of the large number of workmen who otherwise would have to wait for a long period to get their wages. The scheme of the compromise and/or arrangement was given in detail in annexure B to the petition. As per the scheme, it envisages the following modus operandi for the clearance of the liabilities: ( a )On approval of the scheme, all the assets of the company other than land shall be jointly realised by the company in liquidation, SM Property Developers/bankers within a period of six months from the date of approval. The estimated value of such realisation is about Rs. 95 lakhs. ( b )SM Property Developers shall, within a period of six months from the date of approval of the scheme, arrange for obtaining the necessary clearance for the proposed group housing project fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by official liquidator 1.20 Complete labour dues 90.80 Maintenance expenses for the interrugnum period and scheme operation costs 2.67 Balance cash/provision to be kept in reserve with any of the consortium of bankers 0.33 95.00 However, realisation, if any, in excess of the estimated values shall be exclusively paid to the secured creditors against their dues. ( h )The first instalment of Rs. 50 lakhs from SM Property Developers shall be utilised as under: (Rs. in lakhs) Payment of statutory dues 22.00 10% of the secured creditors 23.00 10% of the unsecured creditors 3.83 Balance cash/provision to be kept in reserve with any of the consortium of bankers 1.17 50.00 ( i )The balance amount due to the secured and unsecured creditors shall be paid in half-yearly instalment each of 10% for the next 4'/2 years out of the amount to be paid by SM Property Developers against the balance consideration due detailed as under: Each instalment of Rs. 30 lakhs shall be paid by SM Property Develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or without modification the said compromise or arrangement and the said order directed that Sri Kora Chandy, advocate and failing him Sri Premchand Gupta, advocate, should act as chairman of the said meeting and should report the result thereof to this court. Notice of the meeting was sent individually to all the creditors and members and workers' union as required by the order together with a copy of the compromise/arrangement and the statement required under section 393 and a form of proxy. The notice of the meeting was also advertised as directed by the said order in the newspaper Deccan Herald on February 16, 1989. It is also on record to show that on March 13, 1989, a meeting of the workers and employees, secured creditors, preferential statutory creditors, unsecured creditors and members of the company in liquidation, duly convened in accordance with the said order was held at Sree Ramesh-wara Kalyana Mandira, 3rd Main Road, Chamarajpet, Bangalore-18, and the said Sri Kora Chandy, advocate, acted as the chairman of the meeting. The chairman appointed by this court has reported the result of the meeting in his Report No. 1, dated March 16, 1989, and Report No. 2, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the scheme signified their consent to the scheme as detailed below: Sl. No. Name of the unsecured creditors Amount (Rs.) Date of affidavit 1. Sree Hari Enterprises, 29/4, Nehru Nagar, Bangalore-20 10,906.00 27-2-90 2. Anil Agencies, 19/2, MRR Lane, Bangalore-2. 80,990.00 13-6-90 3. Geethu Enterprises, Seshamahal Building, Vasavi Temple Road, V.V. Puram, Bangalore-4. 2,15,600.00 13-6-90 4. Esbee Wire and Allied Industries Pvt. Ltd., 179, D. Rajappa St., Bangalore-2. 8,802.57 3-7-90 5. Esbee Industrial Corporation, 179, D. Rajappa Street, Bangalore-2. 81,638.88 -do- 6. Kamal Steel and Metal Corporation, 1/8, N.R. Road Cross, Bangalore-2. 60,918.55 -do- 7. Ess Ess Steels, 258, 14th Main, 24th Cross, BSK-II Stage, Bangalore-70. 1,88,560.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the meeting. Further it is submitted that the valuation arrived is not based on any present criteria of valuation as per the Rules of the Bangalore City Corporation and/or of the estimates of the property developers, Bangalore. It is further alleged that there was no 3/4ths majority voting in favour of the scheme and as such the court has no jurisdiction under section 391 of the Companies Act, to approve the scheme. Learned counsel, Mr. Kolekar, appearing for the unsecured creditors, has strenuously contended that this scheme was not approved by the 3/4ths majority of the unsecured creditors in the meeting held on September 13, 1989. The unsecured creditors who opposed the scheme in the meeting later filed their individual affidavits in the court agreeing for approval of the scheme which could make 3/4ths of the unsecured creditors, is not a valid one for 3/4ths should vote in the meeting convened on March 13, 1989. As there was no 3/4ths of the unsecured creditors voting in the meeting convened and held, there is no valid approval of the scheme by the unsecured creditors as required under section 391(2) of the Companies Act. This court should not accede to the request of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made up by 3/4ths of the majority of the unsecured creditors. That being so, Karamchand Thapar and Bros. (Coal Sales) Ltd., who are objectors/unsecured creditors, cannot put an obstacle for sanctioning of the scheme of arrangement on technical grounds. In support of the contentions, learned counsel for the petitioner has cited the decisions in 1. Bhupendra Kumar Munchand v. Official Liquidator [1975] ILR 1975 Kar 1106, 2. B. V. Gupta v. Bangalore Plastics (C. A. No. 1676 of 1981 in C.P. Nos. 12, 16 and 19 of 1979-19-8-81 (Kar.), 3. Mazola Theatres Pvt. Ltd. v. New Bank of India [1975] ILR Delhi 1. The contention of the petitioner given in the petition clearly goes to establish that the scheme is for compromise/arrangement between the company (now in liquidation) and the secured creditors/unsecured creditors. The liabilities and assets given as on the date of liquidation indicate that the company may not be able to pay even 60% of the secured creditors and in those circumstance, statutory creditors as well as the unsecured creditors may have to forgo their entire claim. As per the scheme the petitioner would generate the requisite fund to meet all the liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the section is not confiscation. Although in a meeting held under this section it is perfectly fair for every one to do and express what is best for himself, yet this court has to see what is reasonable and just, as regards to the interest of the whole class. What is to be considered by this court is not whether there is a loss of mere nominal, legal right but whether what has been done is beneficial in a business sense. I have examined the scheme of compromise/arrangement. The scheme is primarily directed at injecting health into a sick company. In this case, separate meetings were called for the compromise scheme, convening both secured and unsecured creditors. The secured creditors have all consented to the scheme whereas the unsecured creditors did not pass the scheme by 3/4ths majority, but later by filing individual affidavits consented to the scheme which was by 3/4ths majority. It is seen that when the statute confers discretionary power on the court, such power has to be exercised judicially as and when an occasion arises and that, therefore, ordinarily discretion must be brought to bear on every case as and when it comes up before this court. As already noticed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any investigation proceedings in relation to the company under sections 235 to 251 and the like". Section 391(2) is not cast in negative form whereas the proviso to section 391(2) is cast in negative form. As section 391(2) except the proviso is not prohibitory in character, it is possible to treat it as merely permissive. When section 391(2) is not prohibitory in character it definitely appears to be directory. Apart from that, in considering its nature, its design and the consequence which follow do give the expression of intendment of the Legislature. It is settled law that a mandatory enactment must be obeyed or fulfilled exactly, but it is sufficient if a directory enactment be obeyed or fulfilled subsequently; even when there is complete non-compliance with a directory provision, it has been held in many cases as not affecting the validity of the act done in breach thereof (See State of U. P. v. Manbodhan Lai Srivastava, AIR 1957 SC 912). Now, I consider the decision cited by Mr. Kolekar, learned counsel for the objector unsecured creditor. In the decision in N. A. P. Alagiri Raja and Co. v. JV. Guruswamy [1989] 65 Comp Cas 758 (Mad), the question for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 391 of the Companies Act, it is not necessary for the court to ascertain whether all the members of a company have expressly consented to the scheme. Under the section, once the scheme is passed by the requisite majority, all the members become bound by it". None of the decisions support the contention of the respondent objector and as such they do not help him. Mr. A. N. Jayaram, learned counsel for the petitioner in support of his contention, as already pointed out relied on the decision of our High Court in B. V. Gupta v. Bangalore Plastics (Company Application No. 1676 of 1981, in Company Petitions Nos. 12, 16 and 19 of 1979, dated August 19, 1981). He brought to the notice of the court the observation made in para 13 of the judgment. It reads as follows: "Section 391 of the Act is an important provision made in the Act in regard to repatriation, compromise and reconstruction and amalgamation of schemes so that the interest of several members of the company or companies and creditors secured and unsecured are safeguarded in any scheme of reconstruction, amalgamation or compromise which is going to be approved by the court under section 394 of the Act. Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per, merely because there is one objector to the approval of the scheme, who is none other than the sole dissenter, the court should not refuse to sanction the scheme. What the court could do in such circumstances is to give protection to the dissenter, by amending the scheme. The above views of mine receive support from Palmer's Company Law, volume 1, twenty-third edition, para 79-13, which reads: "... The court will not, however, upset a scheme for minor irregularities, as where consent of a class has been subsequently obtained, and where the necessary majority of one class was absent when the petition was presented, the court allowed a fresh petition to be presented subsequently when the necessary majority was later obtained, without requiring the other class meetings to be held again". As already noticed all the acts have been done in conformity with the provisions of the Companies Act, and the Central Government to whom notice was issued, appeared through counsel and stated that they have nothing to say with regard to the approval of the scheme by this court. The applicant in Company Application No. 1 of 1989 is the Regional Provident Fund Commissioner, Karnataka Bhavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, Sri Narasimharaja Square, Bangalore 2. The said dissenter shall be paid the entire amount due within a period of two years with interest on his making a claim within one month. If this claim is not admitted and this claim is rejected either partially or in entirety, then it is open to him to approach this court for adjudication of his claim and if on such adjudication it is found that the company is liable, he shall be paid accordingly within a period of two years with interest. The order of winding up of this company by this court in Company Petition No. 44 of 1986, dated June 18, 1987, is rescinded. The company is taken out of liquidation proceedings. All costs and charges and expenses of the applicant/petitioner incidental to the preparation, formulation and negotiation of the scheme of reconstruction and all costs charges and expenses incurred by him in the course of winding up proceedings leading to this sanction of the scheme including the fees of the legal advisers and chartered accountants, shall be borne and paid by the company. The official liquidator is directed to hand over possession of the entire undertaking of this company and all the assets including the b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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