9911796707
TMI Blog2002 (1) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... onvertible debentures in E and F series in the following three categories: ( a )Cumulative Debentures of Rs. 5200 each ( b )Monthly Income Debentures of Rs. 3500 each ( c )Regular Return Debentures of Rs. 2500 each. The total face value of all the debentures in Series E and F taken together was Rs. 69 crores. All the debentures were issued on 8-8-1996 and were to mature after a period of five years, i.e., on 8-8-2001. 2.3 The maturity value of the cumulative debentures was to be Rs. 12,000 each on 8-8-2001. A majority of debentures, which are the subject-matter of this petition are Cumulative debentures of Rs. 5,200 each and accordingly the discussion will centre around on the maturity value of such Cumulative debentures. As far as the other categories of debentures are concerned, i.e., Monthly Income debentures and Regular Return debentures, they have already been paid the interest accrued on the debentures as per the Debenture Deed and in their case the maturity amount on the face of it is the maturity amount of the principal debenture amount but the learned counsel for the petitioner points out that the maturity value is now worked out in such a manner t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debenture holders in E and F series were convened on 18-8-2001 under the Chairmanship of Mr. Justice BJ Diwan (Retd.). 3.2 The notices of the meetings were advertised, as directed by the order of this Court, in The Times of India and Sandesh , Ahmedabad editions on 24-7-2001. The learned counsel for the petitioner further adds that it was also published in Gujarat Samachar . The meetings were accordingly held on 18-8-2001 under the Chairmanship of Mr. Justice BJ Diwan (Retd.). The learned Chairman submitted his report. The report was produced before this Court in Company Application No. 188 of 2001 along with an affidavit dated 28-8-2001. 3.3 The number of Debenture holders who were present in person or through proxy in the various categories and those who voted in favour of the Resolution approving the scheme of compromise and those who voted against, with the percentage are set out in a chart hereinbelow (after excluding conditional votes and invalid votes; the particulars of which are already contained in the Chairman s report - the total number of abstentions, invalid votes and conditional votes being comparatively insignificant 87, 5 and 2 for Groups a , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to record one clarification coming from the petitioner through the affidavit dated 14-12-2001 of Mr. R. Srinivasan, General Manager (Finance) of Torrent (P.) Ltd. which company is one of the promoters of the GLFL and owns 25 per cent of the shareholding in GLFL. It has been stated therein that Torrent (P.) Ltd. has agreed to pay an amount upto Rs. 11 crores to GLFL for the purpose of raising the amount of compromise to be paid to Debenture holders in E and F series from 55 per cent to 70 per cent of the outstanding dues as proposed in the scheme of arrangement. It is specifically stated in the said affidavit that the said amount of Rs. 11 crores shall be utilised only for repaying the E and F series debenture holders for which an appropriate escrow mechanism would be worked out and further that the amount agreed to be given is subject to sanction of the scheme by this Court and shall be paid within 30 days of the effective date under the scheme. It is further stated that the amount would be given by way of 0 per cent unsecured debentures or an instrument of a like nature to GLFL and would be repayable only after settling the liabilities of its other secured and unsecure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dify the scheme under section 392(1)( b ) and accordingly the Court may exercise its powers for raising the maturity amount so as to require the company to pay 80 per cent of the maturity amount immediately and the balance 20 per cent maturity amount may be paid in instalments. 7. The thrust of the submission of Mr. P.C. Kavina for the Banks was that when the company has agreed to pay only 55 per cent of the Bank s dues, there was no justification for the company agreeing to pay 70 per cent to the debenture holders in Series E and F when the Banks have a better claim over the properties of the company as holding first charge as against the debenture holders who are having only the second charge. A detailed reference to the objections made by the Banks will be made hereinafter. Of course, Mr. Soparkar for the company has also raised a preliminary objection against the locus standi of the Banks. That will also be discussed hereinafter. 8. For the present reference is made to the objections raised by the Banks only with a view to pointing out that the factum of objections raised by the Banks (and not their validity) is one of the factors which is required to be taken i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions in respect of the objections raised by the debenture holders, it would be necessary to set out the principles laid down by the Apex Court in Miheer H. Mafatlal s case ( supra ), which principles are as under : "In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged : 1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meeting as contemplated by section 391(1)( a ) have been held. 2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by section 391 of sub-section (2). 3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just fair to the class as whole so as to legitimately bind even the dissenting members of that class. 4. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure is that the explanatory statement with the notice convening the meeting on 18-8-2001 did not contain all the relevant particulars such as statutory duties of the debenture trustees and pendency of the proceedings before the Debts Recovery Tribunal and pendency of a winding up petition. 12.1 As regards non-disclosure of the proceedings before the Debts Recovery Tribunal, there is considerable substance in the submission of the learned counsel for the company that when the notice for the meeting along with the explanatory statement was sent on 18-7-2001, no proceedings were pending before the Debts Recovery Tribunal and the suit by one of the Banks was instituted only on 18-8-2001 and, therefore, no fault can be found with the company for not referring to the DRT proceedings in the explanatory statement. 12.2 As far as the pendency of the winding up petition before this Court is concerned, there is no dispute regarding the fact that one winding up petition was pending when the explanatory statement was sent on 18-7-2001. It is, however, the submission of the learned counsel for the company that the company did not intend to coerce the debenture holders into accepting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conveniently takes shelter behind the Reserve Bank Directive dated 28-8-2000 but even the mighty Banks did not dare to squeak, much less whisper, before the Reserve Bank regarding the possible consequences of compliance by the company with the said RBI directive. Presented with this fait accompli , as prudent men, the overwhelming number of debenture holders decided at the meeting held on 18-8-2001, to accept 70 per cent of the maturity amount. Hence the Court would not like to interfere with their wisdom. Contention No. 4 : A small percentage of debenture holders present at the meeting 14. Mr. Desai thereupon submitted that when hardly 8 to 10 per cent of the debenture holders were present at the meeting, their views cannot be taken as the view of the entire body of debenture holders. Under the existing law as contained in section 174(1) of the Act and a similar provision in article 103( a ) of the articles of association of the GLFL stipulating that five members personally present shall be the quorum, the grievance, though not frivolous, cannot be accepted. The quorum is fixed in terms of the number of persons, and not in terms of the percentage of the number of member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed deposit holders were paid full amount with agreed rate of interest which was much higher than 12 per cent p.a., i.e., about 17 per cent was not unreasonable, but the learned counsel for the company submitted that as per the original scheme which was earlier proposed by the company, the debenture holders were to be paid only 55 per cent of the maturity amount, but it was in order to give just and reasonable return to the debenture holders that one of its group Companies, i.e., Torrent (P.) Ltd. came out with an offer to contribute Rs. 11 crores so as to raise the maturity amount from 55 per cent to 70 per cent, even in teeth of the opposition which was likely to come from the Banks which were assured only 55 per cent payment by 31-3-2002. It is submitted that in view of the depressed market conditions and in view of the performance of the other non-banking finance companies, the details of which are given in a separate list of NBFCs having defaulted in payment, the offer made by the GLFL should be examined in this background and also in light of the challenge being made by the Banks to the offer of 70 per cent payment to the debenture holders. 17. Having heard the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave a second charge. Moreover the Banks dues are prior in point of time. If the Banks choose to exercise their rights under the aforesaid statutory provisions, the debenture holders will get nothing from the company. Hence the company has no right to give any favour to the debenture holders without the express consent of the banks. 18.3 There was suppression of material facts inasmuch as the company did not disclose the pending winding up petition and the DRT proceedings in the explanatory statement to the debenture holders which was sent along with the notice for convening the meeting on 18-8-2001. 18.4 When the Banks are being paid only 55 per cent of their dues, the company cannot offer a higher maturity amount to the debenture holders to the extent of 70 per cent. Earlier the Banks had agreed to accept 55 per cent from 31-3-2002 only because the debenture holders were also to be paid 55 per cent of the maturity amount. 18.5 The company s case that 15 per cent additional maturity amount is to be paid to the debenture holders from borrowings from a group company does not alter the fact that the entire maturity amount is going to be paid by the company itself. The sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.5 The company is paying only 55 per cent of the maturity amount as the balance 15 per cent is being paid by the promoters from their own funds. The total liability is about Rs. 79 crores. Under the scheme, the total amount payable comes to Rs. 55.26 crores. Out of the said amount, only about Rs. 44.26 crores is being paid from the funds of the company and the remaining amount of Rs. 11 crores is being contributed by the promoters. It is also pointed out that the Banks do not have a charge over the funds being made available by the company such as refund from the Income-tax Department. LOCUS STANDI OF BANKS 20. Having heard the learned counsel for the parties, it appears to the Court that there is considerable substance in the submission made by the learned counsel for the company that when the scheme of compromise offered to the debenture holders in E and F series does not even purport to affect the rights of the Banks, the Banks have no right to oppose the scheme of compromise between the company and the debenture holders in E and F series. 21. Section 391(1) provides that where a compromise or arrangement is proposed between a company and its creditors or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Scheme. The decision of the Calcutta High Court in Hindustan Development Corpn. Ltd. s case ( supra ) or the decision of the Madras High Court in Coimbatore Cotton Mills Ltd. s case ( supra ), however, do not throw any light on the exact controversy at hand, because there is no disregard of the provisions of the statute regarding the advertisement of the scheme, nor is there any clubbing of two different classes of creditors. 24. On the other hand, in Maneckchowk Ahmedabad Mfg. Co. Ltd. In re ( supra ), this Court has laid down the following principles: "When the judge s summons is taken out for seeking directions for convening meetings a duty is cast on the company to put proper materials before the Court so that the Court may give proper directions for separate meetings of different classes of creditors and members. If the creditors and members are not properly classified and if the meeting of the proper class of creditors and members is not separately held, the scheme approved at such meeting cannot be sanctioned, vide Court Practice Note in [1934] Weekly Notes 142. The responsibility for determining what creditors are to be summoned to any meeting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cia for determining the peripheral boundaries of classification. The test as stated earlier would be that a class must be confined to those persons whose rights are not so similar as to make it impossible for them to consult, together with a view to their common interest." [Emphasis supplied] (p. 873) 25. The aforesaid decision, therefore, clearly contemplates that those who are offered substantially different compromises each will form a different class. Of course, the Banks are not offered any compromise not because they are not considered to be secured creditors but because none of their legal rights are required to be waived by the Banks and, therefore, their interests are not affected by the scheme whereas the debenture holders in E and F series are required to give up their rights over 30 per cent of the maturity amount. Hence the very fact that the debenture holders of E and F series are offered only 70 per cent of the maturity amount makes them a different class by itself. This Court has also recognised that if there are different groups within a class the interests of which are different from the rest of the class or who are to be treated differently in the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the part of the GLFL in giving preferential treatment to the debenture holders in E and F series. This is all the more so, when one considers the fact that the Banks did not oppose the payment of dues of the unsecured Fixed deposit holders by the GLFL. The submission of Mr. Kavina that the said payment was made as per the directives of the Reserve Bank of India, does not carry the Banks case any further as the debenture holders in E and F series have better legal rights than the fixed deposit holders, as already indicated above. The only reason why the Court has not accepted the submission of Mr. Desai for the debenture holders for making an endeavour for increasing the maturity amount above 70 per cent is the intransigent stand being adopted by the Banks for objecting to any amount being available to the debenture holders beyond 55 per cent, as the GLFL is hopeful of persuading the Banks to take a more reasonable stand by making some more funds available to the Banks instead of raising the funds proposed to be paid to the debenture holders in E and F series. BANKS OBJECTIONS NO. 5 28. The contention urged on behalf of the Banks that source of funds is not rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 1,860 shall be paid per each debenture. 31. At this stage, Mr. Soparkar for the company invites the attention of the Court to Reserve Bank s directives vide letter Ref. No. DNBS (AH). No. 423/R. 234/2000-2001, dated 28-8-2000 which prohibits the company from accepting any further public deposits or from renewing the maturity deposits in any manner. Mr. Soparkar points out that the amount of Rs. 11 crores to be borrowed by the company from Torrent (P.) Ltd. is for the limited purpose of paying the same to the debenture holders in E and F series, as already stated in the affidavit dated 14-12-2001 and that appropriate clarification may be issued by this Court so that the borrowings to be made by the company with good intention of paying the amounts to the debenture holders in E and F series may not be construed as a violation of the directives of the Reserve Bank of India. 32. It is obvious that in view of the financial condition of the company, the Reserve Bank had restrained the company from accepting any further public deposits. However, the amount of Rs. 11 crores or any higher amount being borrowed by the company is not from the public at large, but its o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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