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TMI Blog2006 (1) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... nk to file winding up petition.--(1) The Bank, on being satisfied that a non-banking financial company,-- (a) to (c) ****** (d)the continuance of the non-banking financial company is detrimental to the public interest or to the interest of depositors of the company, may file an application for winding up of such non-banking financial company under the Companies Act, 1956 (1 of 1956)." 3. Even though the original petition does not specify whether it was filed under section 45MC(1)(d) of the RBI Act, during the hearing of the CA 1416/90 which was filed by the company convening the meeting of the creditors, the learned counsel for the applicant/RBI had submitted that this petition was filed under section 45MC(1)(d) of the RBI Act. 4. The objects of the respondent-company were averred to be as follows: "(a)To carry on the business of technical, financial and management consultant and advisers and to enter into collaboration agreement for the manufacture of items which the company is entitled to produce, in India and abroad with the companies, firms and individuals. Central and/or State Government and their concerns and to render and provide all type of services including manageria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the maximum permissible rates and acceptance of other deposits beyond the period permitted by the RBI and violation of other norms as well as the degradation of the credit rating from CARE (FD)C. 6. The following other allegations have also been made against the respondent-company : "(a)That the complaints were received from Tourism Finance Corporation Ltd. (b)That the RBI also received information from State Bank of India about large scale misuse at par discounting facility. (c )That on 26-4-1997 the RBI asked the company to submit its schedule of assets which could be used for discharging its obligations and liabilities but the reply only disclosed liabilities and no mention was made about its assets as discernible from the letter dated 7-5-1997 sent by the company. (d)That the company was also asked by the RBI by letter dated 15-5-1997 to furnish a month-wise FDR maturity, loan of public deposits and it was found that all offices of the company were closed since 9-5-1997 nor was the chairman of the company, Shri C. R. Bhansali traceable. (e )That the company's directors informed that they had resigned from the company Board from 6-3-1997. (f )That a complaint was also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 191 of 1997. 13. The pleas of the RBI/objector in CP No. 251 of 2002 are as follows : (a)Once the application under section 45MC(1)(d) of the RBI Act has been admitted and grounds under section 45MC(1)(d) are made out, only extraordinary circumstances would enable this Court to exercise its jurisdiction not to pass an order for winding up and no such circumstances have been shown by the petitioner-company which is liable to be wound up. (b)No order except the order of winding up would be prejudicial to public interest in the present case. (c)Consequently this Court should direct winding up by taking into account not only the interest of the creditors and the shareholders of the company but also public interest. (d)The petitioner-company having lost its substratum deserves to be wound up particularly when it was incorporated for the sole purpose of accepting deposits and to act as a non-banking financial institution. (e)The order dated 9-4-1997 prevents the petitioner-company from accepting the deposit from the public and the very purpose of the incorporation of the petitioner can no longer be achieved in the present case. (f)Since the substratum of the petitioner-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Sudhanshu Batra: (i)The respective meetings of secured creditors, unsecured creditors and shareholders have accepted the modified scheme by overwhelming majority of 3/4th in value as well as by simple majority. A report to that effect has been filed by the chairman of the meeting and it is the second motion which is pending in this Court so as to accord final Approval to the scheme. All co-operative banks of Gujarat have given their consent to the scheme as evident from Annexure A. The winding of a company is a step resulting in civil death of the company and it is contrary to the public interest as lakh of depositors and shareholders all over the country who would find that their investments will become sterile and they have not got any return on their investments. (ii) While performing the statutory functions, the RBI is required to take the general public interest in mind. While balancing the general public interest, the interest of the banks and financial institutions and the secured and unsecured creditors is also to be taken into account. The revival of a financial company cannot be objected to merely because of certain alleged irregularities. The implications and closur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect of taking away of the statutory powers of the RBI by directing it to grant registration/licence to a company without following the procedures laid down under the RBI Act. (C)The accounts of the directors ought not to be de-freezed. 15. In reply to the above summarised objections raised by the learned counsel for the petitioner, the following pleas have been taken by the respondent-company: 16. The following reliefs have been prayed by the respondent-company qua its scheme propounded as per CP No. 251/2002 : (i)All the bank accounts of the company as well as its group companies and its ex-directors and officers which have been frozen be de-freezed and RBI be directed to give necessary instructions to the banks for making such accounts operative. (ii)RBI be directed to revoke its prohibitory orders passed under section 45K(4) read with section 45MB(1) of RBI Act. (iii)RBI be directed to accept the application for registration as NBFC under section 45(1A) of the RBI Act on being filed by the company. (iv)RBI be directed to restore its suspension order against 'in principle approval' for setting up CRB Global Bank Ltd. (v)The RBI be directed to restore the licences grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be in the realm of corporate and commercial wisdom of the concerned parties. The court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority. Consequently, the company court's jurisdiction to that extent is peripheral and supervisory and not appellate. The court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the scheme arrive at their owned reasoned judgment and agree to be bound by such compromise or arrangement. The court cannot, undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties." (p. 137) (b)In Mather & Platt (India) Ltd., In re. [2002] 39 SCL 58 (Bom. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, the only objection is that no definite or clear source of funding has been mentioned in the scheme of arrangement and on this aspect the scheme is vague. Since the scheme does not contemplate any commitments on behalf of the propounder it ought not to be sanctioned. 23. In reply to the above plea of the Official Liquidator as summarised above, the company has submitted that the source of funds and application of funds have been clearly indicated in a tabulated chart of the projected balance sheet for first six years and the said flow of funds was duly considered by all the creditors and the shareholders at the time of sanctioning the scheme and only after considering the same, the scheme was approved. The Official Liquidator must confine its pleas under second proviso to section 394(1) of the Act. The company has relied upon the position of law laid down by Madhya Pradesh High Court in the case of Nilnita Chemicals Ltd., In re [1999] 21 SCL 25 (Mag.) (Trib.); [1997] 26 CLA 347 (MP) : '"The role of the Official Liquidator is limited to the extent as contemplated under second proviso to section 394(1) of the Act. Apart from this provision under the Act or the rules, the Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. D.K. Kapur, J, in that case, held that the High Court had power under section 446(3) to transfer a pending complaint before the Magistrate for trial to itself. Having referred to sub-section (3) of section 446, the following observations were made (at page 542) 'This shows that once a proceeding by or against a company has become a pending proceeding in any court, it can be transferred to the court which is winding up a company. For instance, if the present complaint is filed before a Magistrate who takes cognisance of it, then the case would, become a pending case before a Magistrate and could be transferred to this Court under section 446(3), if the Court thought it fit to transfer the same'." (p.171) (2) J. Burrow (Leeds) Ltd., In re. [1984] Comp. LJ 10 (Chd.) wherein it was held that the proceedings in the Magistrate's court were a 'proceeding' within the meaning of section 226(b) of the Companies Act, 1948 (UK) and, accordingly, the court could stay the proceedings, if satisfied that the determination of the question or the required exercise of the power under section 307(2) of the 1948 Act (UK) is just and beneficial. (3) Shri Basant Lal Aggarwal v. Lloyds Finance Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discounting facility in the absence of the registration of the charge, and ought to be rejected. 29. The CBI has raised the plea that two cases have been registered against the directors and the company and a FIR has been registered pursuant to the complaint of State Bank of India ('SBI') and another pursuant to a complaint of Bank of Baroda. Charge-sheet has been filed in the competent court of law at Mumbai under sections 120(b), 468, 471 and 13(2)(b) of Prevention of Corruption Act, 1998, and also under section 420, IPC in District Courts at Mumbai. The CBI cannot concede to stay such concession sought by the company and such concession cannot be sanctioned. 30. In reply to the above objection of the CBI, the respondents have contended that since the Bank of Baroda has already consented to the sanction of the proposed scheme by its letter dated 12-10-2002 and has given a no objection for stay of all civil and criminal proceedings, insofar as Bank of Baroda is concerned, this plea cannot be entertained. The SBI neither attended the meeting of the creditors nor filed objections against the revival of the company. The SBI has also obtained a consent decree from the competent cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,62,91,972.00 8. Bank of Tokyo 3,90,00,000.00 9. Dena Bank 1,05,00,312.00 10. Bank of Baroda 1,95,00,000.00 11. Bank of Rajasthan 2,60,59,631.00 12. Canfin Homes Ltd. 72,00,000.00 13. GIIC Ltd. 10,00,00,000.00 14. APIDC Ltd. 1,90,46,482.00 15. Tuscon Exports Ltd. 5,25,00,000.00 16. Global Finance Corporation Ltd. 4,14,00,000.00 17. Rashmirita Exports Ltd. 6,50,00,000.00 18. Shree Bhikshu Edn. and Health Care Ltd. 11,25,00,000.00 19. Sucharu Enterprises 3,28,39,653.00 20. Star Enter. and Fin. Gen. (P.) Ltd. 1,17,83,036.00 21. National Telecom (I) Ltd. 2,90,00,000.00 22. Peachtree Investment (P.) Ltd. 7,10,00,000.00 23. Surya Prakash Mansinghka 25,00,000.00 24. Suresh Kumar Mansinghka 10,00,000.00 25. Shiv Kumar Mansinghka 5,50,000.00 26. Ram Krishna Rohit Kumar Mansinghka 25,00,000.00 27. Nikita Devi Mansinghka 15,00,000.00 28. Hemant Kumar Mansinghka 25,00,000.00 29. Basant Kumar Mansinghka 25,00,000.00 30. Baladevi Mansinghka 10,00,000.00' Further resolved that the secured creditors shall be entitled to liquidate the securities held by them by private negotiations in consultation with the propounder of the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of arrangement/compromise by the Hon'ble Delhi High Court. (iii)In view of the fact that two of the co-operative banks, namely, the Gozaria Nagrik Sahkari Bank Ltd. and Boriavi Peoples Co-operative Banks Ltd. who have been declared as 'weak banks' by their apex body, payment shall be made to the said Banks as follows : (a ) Payment equivalent to 25 per cent of the principal amount shall be made within 3 months from the date of sanctioning of the scheme by the Hon'ble Delhi High Court. (b)Payment of balance 75 per cent of the principal amount shall be made in eight equal quarterly instalments commencing from the month following the expiry of six months from the date of sanctioning of the scheme of arrangement/compromise by Hon'ble Delhi High Court. State Bank of India (unsecured creditor) Since the charge over the securities held by State Bank of India have not been registered with the Registrar of Companies, State Bank of India is considered as an unsecured creditor. All the assets whether movable or immovable held by the State Bank of India except asset owned by CRB Corporation Ltd. shall be liquidated by the Bank in private negotiations in consultation with the propounder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had lent deposits to the company, and such unsecured creditors would also be benefited by the modified scheme as it provides for accelerated payment to the unsecured creditors. The scheme contemplates recovery plans for recovering arrears of lease, hire purchase instalments, loan and advances, reorganisation of share capital of the company by issuing shares of Rs. 10 each at par in part discharge of the dues of unsecured creditors including deposit holders and bond holders and engagement in non-fund based business activities. The scheme also contemplates diversification of the company's business in areas such as information technology, bio-tech and the growing market of media. The scheme also involves induction of funds by the propounder of the scheme to the extent of Rs. 10 crores. I have also noted that the scheme postulates that the secured creditors are to be paid 10 per cent of the offered amount within three months from the date of sanctioning the scheme and the balance 90 per cent of the offered amount is to be paid in 10 equal quarterly instalments commencing from the month following the expiry of 6 months from the date of sanctioning of the scheme. Insofar as the unsecure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be paid in 16 equal quarterly instalments commencing from the month following the expiry of six months from the date of sanction of the Scheme. Special provision has been made for payment to two weak co-operative banks, namely, the Gozaria Nagrik Sahkari Bank Ltd. and Boriavi People's Co-operative Bank Ltd. It is provided that the payment equivalent to 25 per cent of the principal amount shall be made within three months from the date of sanctioning of the scheme and the balance 75 per cent in 16 equal quarterly instalments commencing from the month following the expiry of six months from the date of sanction of the scheme. All such payments to the co-operative banks also promote public interest because the co-operative banks have lent funds to the company from their corpus constituted by small depositors. 35. Insofar as another unsecured creditor SBI is concerned, all the assets held by the State Bank of India except the assets owned by CRB Corporation Ltd. are to be liquidated by the Bank in private negotiations in consultation with the propounder of the scheme for recovery of the principal amount. The shortfall in discharge against the recovery from the assets held by SB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . has not been pressed. Insofar as prayer (v) is concerned, the Reserve Bank of India is directed to consider the plea of the petitioner for restoration of licences granted to the company to act as authorised dealer in foreign exchange in accordance with law. 38. In view of the above conclusion, I am primarily required to consider the plea of public interest raised by the RBI the co-petitioner. The public interest in general which the RBI represents cannot certainly be lost sight of. The public interest which is, however, more significant and determinative and must be considered by the court is the interest of the secured and unsecured creditors including the deposit holders and the shareholders. I cannot lose sight of the fact that the secured and unsecured creditors as well as the shareholders who are the real stakeholders in the company have overwhelmingly voted in support of the scheme in the meeting summoned by this Court. In my view, this is a paramount consideration which must be kept in mind when a court is considering the sanctioning of a scheme. 39. The RBI has contended that the resolution of the creditors of a scheme of arrangement cannot annul the statutory powers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to the company. . .' (p. 340) 'From the aforesaid provisions and the judgments relied on, it is clear that the powers of the court under sections 391 to 394 of the Companies Act is unhindered by any of those provisions. The only two circumstances under which the Company Court is prevented from according sanction is contained in proviso to sections 391 and 394 where the Official Liquidator or the Registrar of Companies files a report stating that the affairs of the company is conducted in a manner prejudicial to the members of the company and the company. Insofar as the power of the court to accord sanction, proviso to section 392 is concerned, once the conditions are fulfilled, there is no impediment for the court to accord sanction. Once these statutory requirements are complied with, though the provisions of the scheme contravened the legislative mandate, it is permissible to make provisions in the scheme contrary to the other statutory provisions. The order of the Company Court, according sanction, will have the effect of overriding those other statutory provisions.' (p. 342) 'The Reserve Bank of India has passed an order restraining the company from alienating the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, it cannot be held that the objector Malanpur Steel has become a secured creditor. 42. Insofar as the plea of GIIC is concerned, I am of the view that it is a secured creditor only to the extent of Rs. 10 crores as the credit of Rs. 10 crores was registered as a charge on 5-10-1996 with the Registrar of Companies. Insofar as the other facilities for bill discounting to the extent of Rs. 12.5 crores are concerned, the objector cannot be considered as a secured creditor as the shares pledged with the objector were pledged by the associate company of CRB Capital Markets as a guarantor for due payment of the loan payable by the company. The meeting of the unsecured creditors was not attended by the objector/GIIC in spite of being served notice of the same. In this regard, the following position of law has been laid down by the Karnataka High Court in Maharashtra Apex Corporation's case (supra): "In fact, in Bessemer Steel & Ordinance Co.'s case [1875-76] 1 Ch. D. 251, it was held that when all the creditors of the company received notice of the meeting, it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CBI is concerned, the cases have been registered pursuant to the complaint of State Bank of India and Bank of Baroda. The Bank of Baroda has also consented to the scheme by letter dated 12-10-2002 which is on record and has not objected for stay of all civil and criminal action initiated against the company/directors, be kept in abeyance till the last instalment as envisaged under the same is paid. The State Bank of India has neither attended the meeting of the creditors not filed objections against the revival of the company and had obtained a consent decree from the competent court of law at Mumbai prior to institution of the winding up petition by Reserve Bank of India. In this view of the matter, since the Bank of Baroda had already assented to the action against the company/directors being kept in abeyance and the State Bank of India never objected to the scheme and indeed obtained a consent decree in respect of its dues, the objection of the CBI cannot be countenanced. As per laid down by this Court in the matter of DCM Financial Services Ltd.'s case (supra ), and by Bombay High Court in Shri Basant Lal' Aggarwal's case (supra ), the Company Court can stay the criminal pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (2)That sanction put up for sanction of the court is backed up by the requisite majority vote as required by section 391(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 and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. (4)That all necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by section 391(1). (5)That all the requisite material contemplated by the proviso to section 391(2) of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same. (6)That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court if necessary, can pierce the veil of apparent corporate purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut modifications, it may either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up of the company and such order shall be deemed to be an order made under section 433 of the Act." Thus, in view of the position of law laid down in the above-mentioned judgment, the sanctioning of the scheme by the court does not per se make the scheme absolute. It can still be modified if the court considers the modification proper for the working of the compromise/arrangement. The court can certainly order winding up in case the scheme does not bring about benefits as postulated in the scheme to secured creditors, unsecured creditors and the shareholders. 49. I am, therefore, of the view that the following factors indicate the public interest inherent in the sanction of the scheme : (a)The payment to small depositors under the scheme up to Rs. 5,000 in toto within 9 months as per the modified period of one year to 9 months by this Court. (b)Payments in full to the weaker sections of society such as widows, Government servants, disabled and senior citizens within one year of the sanctioning of the scheme. (c)50 per cent cash p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. 392. Power of High Court to enforce compromise and arrangements.-- (1) Where a High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it - (a )shall have power to supervise the carrying out of the compromise or arrangement; and (b)may, at the time of making such order or at any time thereafter, given such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement." 51. This Court while making an order under section 391 of the Act for sanctioning of compromise/arrangement has the power under section 392(1)(a) and (b ) to supervise the carrying out of the compromise or arrangement and has also has the power to give such directions in respect of any matter to make a modification in the compromise or arrangement as it may consider necessary for the proper working of the compromise/arrangement. 52. Accordingly, while approving th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the scheme. The Board of directors of the company shall keep the administrator informed about the implementation of the scheme and furnish information of accounts as directed in this judgment and to comply with the directions towards implementation of the scheme from time-to-time given by the administrator. It will be open to the administrator to seek accounts and information about implementation of the scheme from the company as and when thought fit and such accounts and information shall be expeditiously furnished to the administrator. The administrator is authorised to appoint/nominate an advocate and other professional and clerical staff to assist him upon terms and conditions determined by the administrator. The administrator shall ensure the implementation of the scheme as sanctioned and to see that the public interest as noted by this Court is subserved, if necessary by giving appropriate directions to the company. The administrator through the nominated advocate, shall file a statement in this Court showing the payment made as per the scheme within one month from the date prescribed for making such payment and shall also file the statement of recoveries and amounts rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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