9911796707
TMI Blog2005 (7) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... Company has submitted that the delay in implementation of the project due to the various circumstances beyond the control of the applicant- company has affected the repayment of borrowings and payment of interest thereon. The applicant-company, therefore, started negotiations to restructure the debts of the applicant-company and requested the principal lenders to refer the matter to Corporate Debt Restructuring Cell (CDR Cell) under the CDR System, which has been set up under guidelines issued by the Reserve Bank of India. In the meantime, the Part C of CFCDs, which had become 14% Secured redeemable Non-Convertible Debentures (NCD s) of Rs. 105 each in December, 1997, were maturing for redemption on April 20, 2003. The applicant-company therefore proposed four schemes of arrangement/compromise in March 2003 viz., (1) holders of debentures interest, (2) holders of debentures holding less than 2,000 fully paid debentures, (3) holders of partly paid debentures and (4) debentures holders holding more than 2,000 fully paid debentureseach. 4. The applicant-Company thereafter filed four separate Company Applications being Company Application Nos. 165, 166, 167 and 168 all are of 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws, sustainability of Company s debt post-settlement and impact on project completion within scheduled time and cost suggested for the repayment of the dues as on maturity date of the large debenture holders with 5% each down payment immediately and thereafter another 5% at the end of 12 months from the down payment date and the balance within a period of 6 years from the down payment date. In suggesting this 6 years period the LMC paid special attention to the fact that small debenture holders also had a 6 years scheme sanctioned to them and that it is in the interest of all the stakeholders including debenture holders that the project may be completed in the next 24 months as a matter of highest priority. Mr. Thakore has further submitted that even the said proposal which was suggested by the Lender Monitoring Committee did not lend support of the said debenture holders in spite of efforts made by the applicant-company based on the guidelines provided by the Lender Monitoring Committee. The Lenders therefore informed the applicant- company to restructure all the debts in line with CDR sanction. The applicant-company was, therefore, desirous of effecting the restructuring of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that day, on expiry of one year the Directors of the Company shall not be capable of being appointed or reappointed as Directors of other companies. Mr. Thakore further submitted that however, if the scheme is sanctioned, on the sanction of the schemes the debentures redemption date itself would not be 20-4-2003 and consequently the failure envisaged in section 274(1)( g ) qua redemption of debentures will not take place and the present Directors would not be disqualified. He has therefore submitted that a situation has arisen that while the Directors of the Company would stand disqualified yet on the sanction of the scheme they would not be considered disqualified. This can create a hiatus. The Directors of the Company may therefore opt to resign as Directors of the Company and no new Directors of good standing will come forward to be appointed as Director of the applicant-company. This would not be in the interest of the Company including or for the implementation of schemes already sanctioned by this Court. He has, therefore, submitted that it would be just and proper that this Court should issue appropriate directions that the present Directors would not be treated as disqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinues for one year or more. The words used in sub-section (1) is shall and not may . It is, therefore, mandatory in nature and once the default is committed as envisaged in section 274(1)( g )( B ) the disqualification starts. There is no question of postponing disqualification or waiving the said disqualification. He has further submitted that sub-section (2) of section 274 curves out certain exception and it empowers the Central Government to issue notification in the Official Gazette and remove the disqualification only in respect of clause ( d ) and clause ( e ) of sub-section (1) of section 274. Disqualification envisaged in clause ( g ) of section 274(1) does not find its place in sub-section (2) of section 274. He has, therefore, submitted that this Court has no power to postpone the disqualification of the Directors of the applicant- company which has already taken place. 12. Mr. Pahva has further submitted that the whole argument canvassed by the learned Senior Counsel Mr. Thakore appearing for the Company is ex facie erroneous and based on some hypothesis. It proceeds on assumption that the scheme proposed by the Company is sanctioned and date of redemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, the application is made by the applicant. If the application made is found maintainable under some specific substantive provision of the Act, then alone can rule 9 of the Rules be pressed into service and not otherwise. He has submitted that the applicant has not moved the application under any substantive provisions and hence it is not maintainable. Under section 391 of the Act, the Court can issue directions only to convene the meeting, and no further directions can be issued according to the applicant. The present application is moved requesting this Court to exercise power under sections 391 and 392 of the Act. In support of his submissions he relied on the decision of Bombay High Court in the case of Kishore Y. Patel v. Patel Engg. Co. Ltd. [1994] 79 Comp. Cas. 53 . 14. Mr. Pahva further relied on the decision of this Court in the case of M.G. Doshit v. Reliance Petrochemicals Ltd. [1994] 79 Comp. Cas. 830 wherein it is held that the High Court is a special Court or a company court with special Company jurisdiction and the jurisdiction has to be found from specific provisions of the Act. The High Court does not have any general plenary or residua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointment or employment already made prior to his conviction. The Court has further observed that the provision contained in the Companies Act have relevance to the management of the affairs of companies incorporated under that law. The operation of section 267 would take effect as soon as conviction is recorded by a competent Court of an offence involving moral turpitude. Sections 267, 274 and 283 constitute a code whereunder a Director, Managing Director and the whole time Director are visited with certain disqualifications in the event of conviction. The Companies Act itself makes a distinction in the matter of fixation of the point of time when the disqualification becomes effective in the case of a Director and a Managing Director. That is because of the fiduciary nature of the relationship. The Court has also observed that the purpose of section 267 is to protect the interest of the shareholders and to ensure that the management of the affairs of the company and its control is not in the hands or a person who has been found by a competent Court to be guilty of an offence involving moral turpitude and has been sentenced to suffer imprisonment for the said crime. The Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. After having heard the learned advocates appearing for the respective parties and after having considered the facts stated, averments made and contentions raised in the affidavit filed in support of the Judges Summons and after having gone through the authorities cited before the Court, the Court is of the view that there is no dispute about the fact that the scheme of compromise and arrangement is proposed by the applicant-company with the Scheme Lenders, which inter alia includes debenture holders holding more than 2,000 debentures. There is no dispute about the fact that this Court has issued directions for convening of the meeting which is to be held on 28-7-2005. There is also no dispute about the fact that earlier this Court has passed an order in Company Application No. 95/2004 on 1-4-2004. This Court has taken a view that since the scheme of compromise/arrangement is pending for sanction of this Court, the relief prayed in this application is required to be granted to the applicant- Company with some modification in this wise that by virtue of the provisions of section 274(1)( g ) of the Act, the Directors of the applicant- Company would not be disqualified for their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make such declaration that the Directors of the applicant-Company may not be disqualified for their appointment in other Company by virtue of provisions contained in section 274(1)( g ) of the Act. The Court has also not considered the strict interpretation of the provision of section 274(1)( g ) of the Act, as now contended by Mr. Pahva in the present application. Section 274(1)( g ) is very clear and unambiguous. It is mandatory in nature as held by the Hon ble Supreme Court in the context of section 267 of the Act, which deals with disqualification of the Managing Director. The Court has also not considered earlier the provision of section 274(2) which curves out the exception only in case of section 274(1)( d ) and section 274(1)( e ) . However, no exception is curved out so far as sub-Clause( g ) is concerned. Thus, the said sub-section must be given its natural meaning and once the default is committed the disqualification starts, which cannot be postponed or differed on assumption that if the scheme would be sanctioned, the date of redemption would be differed and in that case there may not be any violation of section 274(1)( g ) of the Act. The Court is considering the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommenced and debentures could not be redeemed etc., the Directors could not absolve themselves from their responsibility as they were incharge and in the control of the affairs of the company. The Court cannot ignore the fact that the debenture holders holding more than 2,000 debentures more particularly, financial institutions like Pearless General Finance Investment Company Ltd., and UTI are also answerable to their investors and if the debentures are not redeemed alongwith the interest accrued thereon they are also answerable to their members and investors who have put faith in them and invested the amount with them. The Court, therefore, takes strict view in the matter and interprets the provision in the strict sense which in no uncertain terms disqualifies the Directors of the Company from being appointed as Directors of the other Company by virtue of the default committed by them in paying the redemption amount with interest to the debenture holders on their due date of redemption. 21. In the above view of the matter and due to the reasons stated hereinabove, the present application is accordingly rejected without any order as to costs. - - TaxTMI - TMITax - Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X
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