9911796707
TMI Blog2002 (10) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... Share holders No. of Shares held % of Share holding 1 to 50 3491 35.26 1,25,832 2.65 51 to 100 2852 28.81 2,61,007 5.49 No. of Equity Shares held No. of Share holders % of Share holders No. of Shares held % of Share holding 101 to 200 2739 27.66 4,81,687 10.14 201 to 500 598 6.04 2,08,104 4.38 501 to 1000 155 1.56 1,07,788 2.27 1001 to 5000 57 0.57 94,187 1.98 5001 above 9 0.09 34,73,355 73.09 Total 9901 100.00 47,52,000 100.00 3. The Petitioner s Board of Directors propounded the scheme and approved the same in a meeting held on 27th November, 2001. The scheme is presented under sections 391 to 394 read with section 100 of the Companies Act, 1956 for cancellation of equity shares held in small lots and to issue in lieu thereof 11% secured redeemable non-convertible debenture (NCD s) of Rs. 20 each of the company in the manner and to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrender of the share certificate relating to the Equity Shares desired to be cancelled upon which the Company would issue a new share certificate for the balance shares (if any), not cancelled. ( c )In case of dematerialised Shareholding, cancellation of upto 200 (two hundred) Equity Shares upon the Company receiving a written intimation on or before the Record Date in Form C and photocopy of debit instruction slip duly acknowledged by the Depository Participants. For receiving dematerialised shares, the Company shall appoint Trustees who shall hold the shares in trust till such time the shares are cancelled and debentures are allotted in accordance with the Scheme." 4( b ) Clause 8 of the Scheme provides that the issued, subscribed and paid-up equity share capital of the company shall stand cancelled and be reduced to the extent of equity shares surrendered and/or otherwise cancelled pursuant to Clause 4 of the scheme. Clause 10 is important. It provides that in consideration of the equity shares surrendered for cancellation or otherwise cancelled by the petitioner pursuant to the scheme, the company is required to issue one 11% N.C.D. of Rs. 20 for every equity share of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y undertakes to give notice of hearing of the Petition to all the secured and unsecured creditors of such value if and as may be directed by this Hon ble Court . In the circumstances, the meeting of creditors of the Applicant Company be dispensed with. This would not cause any prejudice and would avoid unnecessary proliferation of notices and enormously cumbersome procedure. In any event general notice of hearing of Petitioner in the newspapers will be given if and as may be directed by this Hon ble Court." [Emphasis supplied] 6. ( a ) The meeting of the equity shareholders of the Petitioner was accordingly held on 5th January, 2002. Mr. A.P. Kothari, Company Registrar of this Court appointed Chairman of the meeting by the order dated 5th December, 2001, submitted his report. ( b ) One of the shareholder viz., Dandvati Investments and Trading Company Private Limited proposed an amendment to the scheme by incorporating paragraphs 15A and 15B thereto, to provide for a longer validity period of the scheme. The amendment was approved by an overwhelming majority of the equity shareholders present at the meeting, only two persons having voted against the same. ( c ) Thirty-seve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensed with. The petitioner thereafter had the matter circulated for modifying the order dated 8th March, 2002. On 4th April, 2002, D.K. Deshmukh, J., passed a fresh order as under : "P.C. : Minutes of order taken on record and marked "X". Order in terms of minutes of order." clauses 5 and 6 of the Minutes of the order read as under : "5. At least 21 days prior to the date of the hearing of the petition individual notice to be served upon the Secured Creditor of the Petitioner Company viz. The United Western Bank Limited and also upon the Unsecured Creditors whose claim exceeds Rs. 1 lac and individual notice to Unsecured Creditors whose claim is Rs. 1 lac and less is dispensed with. 6. In view of clause 5 hereinabove, the procedure under section 101(2) of the Companies Act, 1956 is dispensed with." Clause 5 was pursuant to the undertaking of the company contained in paragraph 20 of Company Application No. 573 of 2001 and in view of which the meeting of the creditors was dispensed with as recorded in clause 11 of the order of D.G. Karnik, J., dated 5th December, 2001. Once again it is important to note that the order dated 4th April, 2002 did not dispense with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re a creditor entered on the list whose debt or claim is not discharged or has not determined does not consent to the reduction, the Court may, if it thinks fit, dispense with the consent of that creditor, on the company securing payment of his debt or claim by appropriating, as the Court, may direct, the following amount : ( i )if the company admits the full amount of the debt of claim or, though not admitting it, is willing to provide for it, then, the full amount of the debt or claim; ( ii )if the company does not admit and is not willing to provide for the full amount of the debt or claim, or if the amount is contingent or not ascertained, then, an amount fixed by the Court after the like inquiry and adjudication as if the company were being wound-up by the Court. (3) Where a proposed reduction of share capital involves either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, the Court may, if, having regard to any special circumstances of the case, it thinks proper so to do, direct that the provisions of sub-section (2) shall not apply as regards any class or any classes of creditors." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms "procedure" to mean "provision" and vice versa . The context of the order would indicate this. However in this case it is not so. 16. The company itself proceeded on the basis that there was a distinction between dispensing with the procedure under section 101 on the one hand and dispensing with the provisions of section 101(2) on the other. This is evident from the fact that after pointing out the inaccuracy in the statement made on its behalf before D.K. Deshmukh. J., on 8th March, 2002, the company in its affidavit dated 18th March, 2002, did not even submit that the provisions of section 101(2) ought to be dispensed with. The company only submitted that the procedure under section 101(2) be dispensed with. 17. The fallacy in Dr. Tulzapurkar s submission is apparent for another reason. In paragraph 23 of Company Application No. 573 of 2001 the company requested that meeting of the creditors be dispensed with on two grounds. One of the grounds was that the company undertook to give notice of the hearing of the petition to the creditors of such value if and as may be directed by this court. It was on the basis of this paragraph that D.G. Karnik, J., in his order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific procedure under section 101(2) relating to the settlement of the list of the creditors. The court altered the procedure under section 101(2)( b ). Thus the court exercised its power under section 101(3) to the limited extent of dispensing with the specific procedure and not with all the provisions of section 101(2).Instead of going through the rather elaborate procedure provided by 101(2)( b ), the court in exercise of its jurisdiction directed the company to give notice of the hearing of the petition to unsecured creditors whose claims were in excess of Rs. 1,00,000. 19. This in turn implied that the Court would consider only the case of those creditors who appeared at the hearing of the petition as to whether or not their debts ought to be secured by the company. In respect of such creditors the court did not dispense with the provisions of section 101(2). 20. Nor do I see anything in the said order which restricts the right of the creditors to appear before this court only for the limited purpose of opposing the scheme generally and not for the purpose of enforcing their rights under section 101(2)( a ) and ( c ). 21. When the court settles a list of creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s , but it will only do so in special circumstances, and on being satisfied that the company has deposited in court a sum of money sufficient to satisfy all claims which are likely to be made against it, or that a bank or other responsible person or company ( e.g., an insurance company) has guaranteed the payment of such claims, valuing them in the same way as if the company were being wound-up, and that the guarantor has sufficient assets to meet all its liabilities. The effect of such a dispensation is not only to obviate the procedural requirements with regard to creditors, but also to deprive them of their right to object to the reduction on the hearing of the company s petition." [Emphasis supplied.] 25. Dr. Tulzapurkar relied upon the last three lines of the above extract in support of his submission that the order dated 4th April, 2002 deprived the creditors of their right even to object to the scheme at the hearing of the Company Petition. But, the last three lines must be read with the first sentence in that paragraph. The words "such a dispensation" referred to in the last three lines relate to the words "the Court may dispense with these provisions for the protect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entitled to an order under 101(2)( c ) securing the entire amount, ipso facto . Where the company does not admit and is not willing to provide security for the full amount of the debt, the court is required in respect of a creditor entered on the list, to fix the amount after the like enquiry and adjudication as if the company were being wound-up by the court. The Court may even dispense with the provisions of section 101(2) in exercise of its powers under section 101(3). If it were not so section 101(2)( c )( ii ) would have provided in express terms that the Court is bound to secure every creditor entered on the list to the extent of the amounts of their debts or claims determined under section 101(2)( b ). 28. Dr. Tulzapurkar submitted, in the alternative, that a creditor who appears pursuant to the notice is not entitled to security as of right, as if he is on the list of creditors settled by the court. Such a creditor is bound, according to him, to satisfy the Court that in the facts of his case he is entitled to have his claim either paid or secured. The submission is well founded. The Court dispensed with the procedure of settling the lists of creditors. The Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he creditors dues will depend upon the substantive proceedings adopted in a Court of law indicates that a similar procedure is not contemplated under section 101(2). I do not suggest that a Court has no power to direct the parties to lead evidence in proceedings under section 101. But that would be only for the purpose of determining the extent of the security. The Court is entitled to determine the extent of the security on the basis of affidavits filed before it in a proceeding under section 101. The manner and extent of proof must be decided by the Court depending on the fact of each case. 32. Under section 101(2)( c )( ii ), the Court is required to fix the amount "after the like inquiry and adjudication as if the Company were being wound-up by the Court". Rules 147 to 163 of the Companies (Court) Rules, 1959 (hereinafter referred to as the Rules) deal with the debts and claims against the company and prescribe the procedure for determination thereof. The Rules and especially Rules 150, 151, 159, 160 and 163 establish that it is permissible for the Liquidator to determine the claims on the basis of the affidavits, which are to be filed in Form No. 66. The Liquidator is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the aforesaid two orders. Thermax has tabulated its claims in Exhibit A to its affidavit. The claims are ex facie barred by limitation. Mr. Doijode was unable to dispute the same. 38. In the affidavit in reply, the petitioner has further stated that Thermax had abandoned the sight of the two contracts. Further, the petitioner disputed the various claims of Thermax by various letters, two of which are annexed to the Petitioner s affidavit in reply. The Petitioner has alleged that it was Thermax which was responsible for various breaches of the said contract and that it has suffered losses as a result thereof. The above facts are not rebutted by Thermax. In the circumstances, and specially in view of the fact that the claim appears to be barred by limitation, I am not inclined to secure the same. 39. In the first affidavit dated 29th May, 2002 Thermax alleges to have a claim against the Petitioners in respect of a purchase order dated 25th June, 1997. The purchase order was for a sum of Rs. 75,00,000. The Petitioner had procured a contract for setting up a Water Treatment Plant for Telco at Pune. The Petitioner was to set up a Primary Treatment Plant and the effluents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by it pursuant to the purchase order Rs. 12,37,000 by way of damages, Rs. 5,56,639.98 ps. towards interest and Rs. 10,50,000 towards recovery of the amount recovered by the Petitioner by invoking the guarantee, including interest thereon. 42. Dr. Tulzapurkar submitted that in view of the order dated 18th January, 2000 dismissing the application for injuncting payment under the bank guarantee, the Respondent is not entitled to have any part of its claim secured. I am unable to agree. The injunction was refused not pursuant to an adjudication of the claim of Thermax on merits but in view of the law relating to the grant of injunctions in respect of unconditional bank guarantees. This is clear from the order. However, refusal of the injunction does indicate that the invocation of the guarantee by the Petitioners was not fraudulent and that there were no special equities in favour of Thermax, entitling it to the injunction. The refusal of an injunction restraining the bank guarantee would not by itself disentitle a creditor from seeking security under section 101. 43. The Petitioner has disputed the claim of Thermax. The Petitioner s case is that Thermax committed several bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rport to deal with an admitted claim or a claim regarding the sustainability of which the Court has little or no doubt. 47. The Petitioner has at several places contended that its financial position is sound. For instance, in its affidavit in reply, the Petitioner has stated that it is a profit-making and financially sound company. This is evident from the balance sheet and accounts annexed to the petition. The Petitioner will therefore be able to meet any liability, if the suit is decided against it. This position has not been controverted by any of the creditors who have appeared before me, including Thermax. 48. I am also satisfied that this assertion is well founded. The latest audited accounts of the company for the year ended 31st March, 2001 are annexed to Company Application No. 573 of 2001. The net wealth (share capital and reserves excluding revaluation reserves) for the year ending 31st March, 2001 was Rs. 18,50,66,000. The Net Current Assets for the Financial Year 31st March, 2000 and 31st March, 2001 was Rs. 26,37,11,000. Moreover, the company has been paying dividend throughout from 1997 except during the year ended 31st March, 2000. The audited financial resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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