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TMI Blog2005 (2) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... re than one-fourth in value of debenture holders holding more than 2000 debentures, in the interest of justice; (C)That this Hon ble Court be pleased to vacate the order dated 4-4-2003 made by this Hon ble Court in Company Application No. 166 of 2003, in the interest of justice and equity; 2. This Court has permitted the applicant to join the Company, namely, Essar Oil Limited as respondent and notice was issued on 6-12-2004 making it returnable on 17-12-2004. This Court has passed further order on 29-12-2004 recording the submission of Mr. S.N. Soparkar, learned Senior Advocate appearing for the respondent-Company that without prejudice to the rights and contentions of the respective parties, a joint meeting would be held between the applicant and the respondent-Company in presence of the debenture trustees somewhere in the second week of January, 2005, to explore the possibilities and to put an end to all disputes between the parties. The said statement was made on the basis of information that the meeting was being convened by the debenture trustees, where both the parties were invited. 3. This Court has passed further order on 2-2-2005 observing that the applicant alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificates issued to the applicant contained financial covenants and conditions. It was stipulated therein that the Company would pay interest at the rate of 12.5 per cent per annum semi-annually on June 30th and December 31st beginning from 21-4-1995 on the debentures upto 20-12-1997 on the paid up value of the Part-C of the debentures outstanding from time to time. It was further stipulated that the first payment of interest would be for the period ending 31-12-1995. It was also stipulated that the debenture holders who did not opt to exercise the conversion option of Part-C of the debentures, interest would be paid at the rate of 14 per cent per annum beginning for the period from 21-12-1997 till the date prior to redemption date. The said interest was to be paid also on June 30th and December 31st. The last payment of interest would be made along with the redemption amount of the debentures. The applicant has chosen not to opt to exercise the conversion option in respect of Part-C of the debentures and, therefore, the applicant was entitled to interest at the rate of 12.5 per cent per annum from 21-4-1995 semi-annually and at the rate of 14 per cent per annum from 21-12-1997 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 171 of 2003. Since the Company was not permitting the applicant to proceed with the pending suit filed by the applicant for recovery of its dues from the Company, the applicant has filed Company Application No. 263 of 2004 in this Court praying for vacating / modifying the order dated 7-4-2003 passed by this Court in Company Application No. 171 of 2003. This Court vide its order dated 18-10-2004 permitted the applicant to proceed with the pending suit. However, it was directed that the decree that may be made in the suit shall not be executed until finalisation of the Scheme of Arrangement or until suitable orders are made by this Court in that behalf. 8. Mr. Pahwa has further submitted that pursuant to the directions issued by this Court by an order dated 4-4-2003 in Company Application No. 166 of 2003 meeting for debenture holders for considering the Scheme was to be convened on 6-5-2003. However, no decision was taken in the meeting so directed by the Court for more than a year. The Chairman of the Meeting thereafter issued an advertisement dated 1-8-2004 stating that the meeting of the debenture holders holding more than 2000 debentures was scheduled to be held on 26-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is also opposed by the applicant, in particular, in view of the fact that the Scheme is contrary to the statutory guidelines issued by the Reserve Bank of India to non-banking financial Companies. The applicant being a non-banking financial Company is amenable to the guidelines issued by the Reserve Bank of India and it is, therefore, not open for the applicant to deviate from the said guidelines as they are mandatory in nature. Considering the totality of circumstances and in particular the fact that the institutions holding more than about 45 per cent in value of votes are opposed to the Scheme proposed by the Company, no fruitful purpose would be achieved in permitting the Company to hold and convene any further meeting of the debenture holders of the class holding more than 2000 debentures. He has, therefore, submitted that relief prayed for in the present Judge s Summons is required to be granted. 11. In support of his submission that when it is apparent that the requisite majority is not favour of sanctioning the Scheme, the Court should not grant permission to the Company to convene the meeting, Mr. Pahwa has relied on the decision of this Court in the case of Krishna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant can certainly approach this Court for vacation and/or modification of the order passed by this Court, has relied on the decision of the Bombay High Court in the case of Sakamari Steel Alloys Ltd., In re. [1981] 51 Comp. Cas. 266 wherein it is held that Rule 67 of the Companies (Court) Rules, 1959, says that an application under section 391(1) of the Companies Act, 1956, for directions is to be moved ex parte. Hearing a motion ex parte does not mean that the Court has not to apply its mind or be prima facie satisfied about the merits of the application. The language of section 391(1) is manifestly clear about the discretion resting with the Court in granting an application. Rule 69 is equally clear and points out that directions are to be given "unless he (the Judge) thinks fit for any reason to dismiss the Summons (for directions)". Thus, on the basis of the Act and the Rules made thereunder, it is not compulsory for the Court to give directions to convene a meeting contemplated under section 391(1). The Court has to consider the circumstances before giving its approval, though the fact that 3/4th in value of the creditors have agreed to accept the Scheme would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by Mr. Pahwa. He has submitted that there are in all 11 meetings held for considering the Scheme and all these meetings were adjourned. Despite specific objections raised by these institutes, the Scheme was not put to vote and instead thereof, the meetings were adjourned by simple majority. Mr. Desai has furnished the details of adjournments of meetings which are as under: 4-4-2003:This Court ordered to hold meeting on 6-5-2003 6-5-2003:Adjourned to 14-6-2003 14-6-2003:Adjourned to 14-8-2003 14-8-2003:Adjourned to 11-9-2003 11-9-2003:Adjourned to 15-11-2003 15-11-2003:Adjourned to 16-1-2004 16-1-2004:Adjourned to 15-4-2004 15-4-2004:Adjourned to 24-6-2004 24-6-2004:Adjourned to 26-8-2004 26-8-2004:Adjourned to 26-10-2004 26-10-2004:Adjourned to 23-12-2004 23-12-2004:Adjourned to 23-2-2005 17. Mr. Desai has further submitted that if the respondent-Company is not in a position to get through the Scheme, it should frame the new Scheme and seek the permission of this court for convening the meeting to consider that new Scheme. The present scheme for which the permission is granted by this Court is pending for the period of more than one year and 10 mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seconded by the State Bank of India. Though the applicant and other three institutes have opposed the adjournment motion, the same was carried by majority. Mr. Thakore has further submitted that so far as the meeting held on 23-12-2004 is concerned, in the said meeting the representatives of debenture trustees requested the representatives of the debenture holders, namely Unit Trust of India, GIC Mutual Fund, LIC Mutual Fund and the applicant that a meeting to be held to discuss about submission of a reasonable proposal to the Company to modify the present Scheme which in turn can be referred to their lenders for their consideration. The representatives of the said debenture holders agreed to hold a meeting with the debenture trustees and discussed in the second week of January 2005. Accordingly, the debenture trustees vide their letter dated 13-12-2004 intimated to the said debenture holders about convening a meeting on 7-1-2005. The debenture trustees vide their letter dated 8-1-2005 informed the Company that the meeting was held as scheduled and the representatives of UTI, LIC Mutual Fund, the applicant and GIC Mutual Fund attended the said meeting and deliberated the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders vide Company s letter dated 31-1-2005 and the ICICI Bank has replied vide its letter dated 1-2-2005 requesting the Company to persuade the debenture holders to accept the proposal for modification in line with Corporate Debt Restructuring (CDR). ICICI Bank Limited has, however, assured to place the proposal put forward by the debenture holders at the next Lenders Monitoring Committee Meeting for discussion and consideration. He has, therefore, submitted that it may not be proper to conclude anything at this stage and proposals are open for deliberation and discussion. To proceed further on the basis of any conclusion as claimed by the applicant would hamper the implementation of the refinery project which was restarted in full swing with lot of new money having been brought into the project by the lenders and it may derail the project which may not be in any manner whatsoever in the interest of the applicant or other three institutes who are merely second charge holders. 21. Mr. Thakore has further placed certain statements on record showing that the total loans taken by the Company upto 30-9-2004 from not less than 23 lenders are to the tune of Rs. 2976.43 crores. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are insisting for the Company raising the loans firstly to complete the Refinery Project (Rs. 2000 crore approx.) prior to further borrowings for other purposes. The existing outstandings of the applicant and other three institutes (Rs. 235 crores) constitutes 3.5 per cent of the existing loans i.e. Rs. 6610 Crores and 3.1 per cent of the existing loans plus new sanctioned loans by existing lenders i.e. Rs. 7605 crores. 22. With regard to the current status of the Refinery Project of the Company, Mr. Thakore has submitted that the capacity of the Refinery is 10.5 million matric tonnes per annum. The Project cost is Rs. 13,000 crores and 2/3rd of the Project is almost completed. The Company has already spent about Rs. 8,000 crores on this project. The Project was on standstill since March, 1999 and now re-commencement of physical construction at site has already been started. The current workforce mobilised on site is about 3000 persons, expected to peak at about 15,000 people in next three months.The expected date of commissioning of the refinery is January 2007 and any further delay in commissioning of the project beyond January 2007 would result in huge cost escalatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Procedure. On page 225 wherein it is stated that "When a meeting is sought to be adjourned, a motion to that effect must be moved. It may be moved by the Chairman of the meeting or any member present at the meeting. It is usually seconded though that is not necessary; even if it is not seconded by any member, it is advisable to put the motion to vote. The motion must clearly state the next date, time and place of the meeting. Voting on this motion is taken in the first instance by a show of hands (except where articles of association of the company do not permit it). If a poll is demanded on the motion, it must be taken "forthwith" i.e. immediately after it is demanded. If the motion secures a simple majority, it will be passed as an ordinary resolution and the Chairman will declare the result and the date, time and place of the adjourned meeting. If the motion to adjourn is passed by the simple majority of votes, it becomes a decision of the meeting and accordingly the meeting stands adjourned." 25. Mr. Thakore further relied on the observations made by B.K. Sen Gupta in his book "Company Meetings Law Procedure" in Chapter 9 on adjournment, it is stated that a valid ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection if the meetings are adjourned for certain valid purposes. 30. Mr. Thakore has further submitted that in view of the decision of the Hon ble Supreme Court in the case of Rainbow Denim Ltd. v. Rama Petrochemicals Ltd., 116 Comp. Cas. 640 , the decisions relied on by the learned advocate of the applicant are not a good law. The Hon ble Supreme Court has held in this case that the appropriate time for the Company Judge to consider the scheme was subsequent to approval thereof by the shareholders and creditors of the appellant-company. Therefore, the order of the learned Company Judge and the order under appeal must be set aside and liberty given to the appellant - Company to move the High Court for directions for calling meetings of its shareholders and creditors for the purposes of considering and approving the scheme. Once that has been done, a further application will be required to be made before the learned Company Judge. That would be the appropriate time for the learned Company Judge to consider the same. Mr. Thakore has, therefore, submitted that the meeting has still not considered the Scheme and it is neither approved nor rejected by the meeting. This Court, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal as well as factual submissions, Mr. Thakore has strongly urged that the present application does not deserve for any indulgence by this Court and it is straightway to be rejected. 34. Mr. Mihir H. Joshi, learned Senior Advocate appearing with learned Advocate Ms. Megha Jani for ICICI Bank Limited has submitted that ICICI Bank Limited is the prime lender and huge investment is made by the Bank in the respondent-Company. The ICICI Bank Limited being the leader is hoping the possibility of arriving at the agreed formula and it is in the interest of everyone to see that the Project to be commissioned immediately and for that purpose, almost all lenders have agreed to invest more funds and also made scarifices in terms of deferment of the principal amount and reduction of interest etc. He has, therefore, submitted that the applicant as well as other three institutes should not have insisted for immediate payment which would adversely hamper the prospects of the project being commissioned. The Lenders Monitoring Cell is considering the proposal put forward by the applicant as well as other three institutes and the decision would be taken very shortly. The Court should not, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er business can be transacted at the meeting till such motion is defeated. The Court, therefore, does not normally find any fault with the Chairman adjourning the meeting on the basis of majority votes. 37. It, however, causes concern to the Court when someone approaches the Court raising the grievance that since the Scheme was not likely to get through, the same was intentionally not put to vote and under the guise of adjournment motion, the meeting was got adjourned from time to time. In such a situation, the Court cannot remain merely a silent spectator and allows the things to happen at the discretion of the Chairman of the meeting. The Court, then, undertakes the task of examining the facts and circumstances leading to such dispute, pierces the veil behind such frequent adjournments, calls upon the Chairman to explain as to why the Scheme which is being considered at the meeting is not put to vote and issue necessary directions for striking the balance between the parties. The Court is not powerless when any mischief is being played with the Court or its directions are misused, misinterpreted or misapplied to sub-serve one s own purpose. 38. Here in the present case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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