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TMI Blog2004 (12) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... his possession now. 2. It may be noted that the respondent-company undertook the task of establishing and commissioning a plant in Orissa. For commissioning of the said plant, financial assistance was taken from various financial institutions, including the banks. Certain other parties had also supplied materials, etc., on credit. Before this plant could be fully commissioned and production started, it went into rough weather. As substantial amounts are due and payable to various banks/financial institutions/secured creditors as well as other unsecured creditors, they started demanding their dues. Number of company petitions came to be filed in this Court seeking winding up of the respondent-company under the provisions of sections 433( e ), 434 and 439 of the Companies Act, 1956 ( the Act ). In these petitions, show-cause notices were issued and during the pendency of these proceedings, the respondent-company made efforts to pay off these creditors. Some amounts were paid. Certain assurances and undertakings were also held out. However, the respondent-company could not stand up to those assurances. Sometime in the year 1999, the company/applicant also filed the application-pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pass such an order. Since the matter is before the Debt Recovery Appellate Tribunal, it is not for me to make any comment upon the validity or otherwise of the said order. This fact is noted for pointing out that as far as the secured creditors are concerned, they had approached the DRT and some order is passed by the DRT in those proceedings. Therefore, the present application filed in this Court relates to unsecured creditors and also includes debenture holders and other secured creditors who do not come under the jurisdiction of the DRT. It is proposed to pay to these creditors in a phased manner and prayer is made for order seeking to convene a meeting of these creditors as envisaged under section 391(1) of the Act. Rajiv Sawhney, learned senior counsel appearing for the ex-directors, also stated that the propounders have been able to tie up/arrive at some arrangement with a foreign investor who has agreed to provide sufficient funds for commissioning of the plant. 5. When this application came up for hearing on 29th September, 2004, he submitted that in order to show their bona fides, the applicants had arranged two managers cheques in the sum of Rs. 1 crore each in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions. Offer was also made to negotiate with those creditors and the applicants showed its willingness to modify the scheme appropriately by providing such a clause. Thereafter, Company Application No. 1318 of 2004, which is an application under order VI, rule 17 of the Code of Civil Procedure, was filed incorporating the amendment in the scheme as per the aforesaid suggestions which has been allowed. He also submitted that during the course of hearing, the applicants have even settled the matter with three creditors (orders in respect of these creditors are passed separately in today s date) which would be another proof of their bona fides. 8. The applicants have also filed Company Application No. 1318 of 2004 seeking permission to complete the commissioning of the plant. 9. Although banking institutions/secured creditors are not covered by the proposed scheme, since prayer made in this application concerns these secured creditors as well, on 23rd November, 2004, following directions were given : "Before any order is passed on this application, it is deemed proper that the applicants hold a meeting with the secured creditors represented by Mr. Sumant Batra, advocate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, in addition, put the creditors in a spot as it becomes difficult to recover their dues in such an eventuality. The ill effects of sickness in industrial companies would be loss of production, loss of employment, loss of revenue to Central and State Governments and locking up of investible funds of banks and financial institutions. Therefore, while on the one hand, protection of creditors right has to be ensured, it cannot be denied that the companies which go sick due to reasons beyond their control and which have the potential to become viable are required to be revived. Therefore, the Court has to encourage revival/rehabilitation of the undertaking if serious and genuine efforts are made in this behalf and there is a possibility for the same. Question is of balancing the interest of parties which may appear to be conflicting in nature but which are not so when the matter is looked into in proper perspective. Balancing reconstruction, rehabilitation and recovery is a delicate task and it is the duty of the Court to achieve the same, if it is possible in a given situation. 13. The Official Liquidator has already been appointed as the provisional liquidator in this case. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t disclosing the name at this stage (he also stated that there were certain reasons for not disclosing the name of the investor at this stage and at the time of second motion complete details in this behalf would be given); producing letter of credits worth Rs. 46 crores which were opened by the foreign investor in favour of the suppliers (these LCs were shown for perusal of the Court); making suitable amendments in the proposed scheme; rectifying the dues payable to certain creditors on pointing out the mistakes by those creditors, etc. 16.1-1 It may specifically be noted that although in the scheme - Indian Hume Pipes Co. Ltd. is shown as creditor in the sum of Rs. 78 lakhs approximately, after the counsel for Indian Hume Pipes Co. Ltd. pointed out the correct figure, the company/applicants have accepted that the money due to Indian Hume Pipes Co. Ltd. is Rs. 1,07,99,677.10. Similarly, in the case of Babkok Engineering, amount is corrected to Rs. 2.68 crores + Rs. 3.92 lakhs. 16.1-2 Mr. Sawhney also submitted that settlement with the lessors (ICICI Bank and First Leasing Co. of India Ltd.) should also be taken as an important indicator proving bona fides and seriousness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er H. Mafatlal v. Mafatlal Industries Ltd. [1996] 4 Comp. LJ 124 (SC), supra , has categorically held that all the statutory requirements have to be strictly complied with before sanctioning amalgamation scheme. Therefore, what is required is the latest financial position at the time of final hearing of the application, i.e., at the time of sanctioning." 17.1 Therefore, his submission was that most of the objections relate to the stage of second motion and were not even relevant at this stage. 18. Refuting the contention that notice to the Central Government was required at this stage, he referred to the Division Bench judgment of this Court in the case of Y.K.M. Holdings (P.) Ltd. v. Prayog T. Pac Industries Ltd. [2001] 30 SCL 158 (Delhi) and submitted that provisions of section 394A of the Act are to be complied with serving such a notice at the time of second motion. 19. I am inclined to accept the submission of Mr. Sawhney that, at this stage, when a scheme of arrangement is proposed, the Court is to ascertain as to whether ultimately, the creditors representing three-fourths in value would be giving their consent to the proposed scheme and would be passin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointed for the meetings. 25. In addition to the publication of the notice in the newspapers, individual notices convening the meetings along with the scheme of arrangement and the statement under section 393 of the Act shall be sent by post under certificate of posting to the unsecured and secured creditors of the company at their registered or last known addresses at least twenty-one days before the date appointed for the meetings. 26. The advocate for the company shall issue the advertisement and notice as per the draft settled by the chairperson appointed by this Court. 27. Voting by proxy shall be permitted if a proxy in the prescribed form duly signed by the person entitled to attend and vote at the meetings is filed with the registered offices of the companies at least forty-eight hours before the meetings. 28. The results of the aforesaid meetings shall be reported to this Court by the chairperson within one week from the conclusion of the meetings and the report shall be verified by affidavit. 29. Let me now revert to the second issue which is of greater significance, viz., commissioning of the plant. 30. Insofar as commissioning of the plant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f funds for completion of the balance facilities (and not only part of the productive facilities), sources for raising the requisite funds and the terms on which such funds would be made available, organisational set-up contemplated for completion and commissioning of the plant on sustained basis, proposed arrangement set-up including the role of the promoters, arrangements envisaged for procurement of critical raw materials on a long-term basis, role and responsibilities of the technical collaborator (which would include revalidation of the performance guarantees for the plant), estimates of projected profitability and cash flow and the arrangements contemplated for capturing the cash flows through trust and retention account/escrow mechanism (so as to ensure that the funds generated are utilised in a pre-defined manner), detailed repayment plan for meeting the dues of the secured creditors, etc. After making available such detailed plan, the secured creditors would need a reasonable time to deliberate on the same. In the circumstances, it was not possible to the secured lenders to comment on the commissioning of the plant." 31. As already noted above, at the instance of IDBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, first thing which is to be ensured is that it is not handed over to them at this stage. They shall only provide the necessary finance. As mentioned above, the plant and other assets are in possession of the Official Liquidator. It shall remain in the custody of the Official Liquidator. For the purpose of commissioning, it is proposed to appoint a Committee of experts. The company/applicants have already contacted Mr. Arvind Pandey, Ex-Chairman of Steel Authority of India Ltd. and Mr. B.P. Singh, former CMD of Neelanchal Spark Nigam Ltd. for availing their services. It is not in dispute that two are the experts in this field. The Committee shall consist of these two persons and a nominee of IDBI to oversee the commissioning of the plan. The interest of the financial institutions/secured creditors shall further be taken care of by allowing IDBI to nominate its representative. Furthermore, by allowing the commissioning of the plant, no control of the plant is being given to the company/applicants. It is also made clear that without the settlement with the secured creditor or final approval of the scheme in respect of them either in the proceedings originated from DRT or by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in making payment of the leased rentals by the company to these lessors. During the course of arguments, the applicants have settled the dispute with these lessors on the following terms : (1) The applicants/company shall pay 40 per cent of the principal amount which works out to Rs. 4.8 crores in the case of ICICI Bank and Rs. 1,61,60,000 in case of First Leasing Co. of India. (2) Both these lessors shall be paid Rs. 30 lakhs each immediately out of Rs. 2 crores deposited by the applicants in this Court. (3) At the time of second motion, if eventuality arises, the applicants shall deposit Rs. 60 lakhs in this Court to cover this amount. (4) Balance amount shall be paid to the aforesaid lessors by 20th March, 2005. In case the balance amount is not paid by 20th March, 2005 both the lessors shall be entitled to take possession of their leased equipments. (5) Certain debentures were issued by the company/applicants to First Leasing Company of India on account of unpaid rentals having become due. These debentures shall remain in the custody of the First Leasing Co. of India and shall be returned to the company/applicants and/or counsel after full payment, as aforesaid, is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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