9911796707
TMI Blog2006 (2) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... the later is with regard to the specified unsecured creditors. 2. The petitioner-company was incorporated on 15-5-1986 in accordance with the provisions of the Companies Act, 1956. The petitioner-company became a public limited company on 14-7-1986. The share capital of the petitioner-company as on 31-3-2005 is stated to be as under: Authorised Figures in Rs. 3 ,00,00,000 Equity Shares of Rs 10 each 30,00,00,000 10,00,000 2 per cent Cumulative Convertible Preference Shares of Rs.100 each 10,00,00,000 10,00,000 5 per cent Cumulative Convertible Preference Shares of Rs.100 each 10,00,00,000 20,00,000 Redeemable Preference Shares of Rs.100 each 20,00,00,000 Total 70,00,00,000 Issued subscribed and paid-up 95,34,090 Equity Shares of Rs. 10 each 9,53,49,900 2,50,000 Redeemable Preference Shares of Rs. 100 each 2,50,00,000 Total 12,03,40,900 3. The main objects of the petitioner-company on its incorporation are as follows: "( i )To carry on business in India and elsewhere as manufactures, products, processors, formulators, selle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner and Wanbury Limited will help to streamline operations of both the companies-resulting in the petitioner-company overcoming its accumulated losses on the assumption that Wanbury Limited has global presence in APIs and is manufacturing Metformin and Salsalate and has introduced other products like Amytriptaline, Tramadol, Promethazine and Sertraline over the last few months. It is stated that Wanbury Limited is the World s largest producer of Metformin and it caters to API markets in over 40 countries especially the related markets in North America, Europe etc. It is further stated that Wanbury Limited enjoys an excellent customer loyalty with over 200 companies across the globe and is keen to explore avenues to enhance its sales and increase its capacities to address the increased need of its customers. 6. As mentioned earlier, for the offer made by the said Wanbury Limited who has come forward to act as strategic partner, on 14-4-2005, the board of directors of the petitioner-company considering all the aspects of the matter resolved that subject to the directions and sanction of the appro-priate court as may be required under law and subject to such permission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stics, located at D-306, TTC Industrial Area, MIDC, Turbhe, Navi Mumbai- 400705 and bearing the particulars mentioned in Schedule III hereto. On or prior to the date on which the present scheme is filed PPIL, shall procure and file before the Hon ble Court before whom the scheme will be filed under section 391 of the Companies Act, 1956, a certificate of non-objection from the partners of Neeldeep Plastics, will be filed for the transfer of the aforesaid building described in Schedule III, in accordance with clause 5.1.5 of this scheme. 3.3 Terms and conditions: 3.3.1 The Secured Creditors have agreed that the consideration referred to in clause 3.2 shall be a settlement towards outstanding dues for which charge had been created on the assets of PPIL. 3.3.2 The amounts that remain outstanding out of the amounts set out in clause 3.1 shall be treated as unsecured loans and the rights of the secured creditors to the extent that the outstanding amounts which remain unpaid after the agreement of the secured creditors to the scheme have been procured shall be the same as those unsecured creditors of PPIL. 3.4 The Secured Creditors have also agreed that the payment of the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the secured creditors with effect from the date on which the majority of the lenders at the meeting of the lenders meet and agree on this scheme. 4. Consideration to each secured creditors. 4.1 It has been agreed that the total payment of the consideration referred to in clause 3.2, to the secured creditors shall amount to the following: LendersEquityNCDOFCDCash Total ARCIL5,988,49214,970,92135,930,21014,856,38271,746,006 IIBI583,2221,458,0243,499,2581,446,8696,987,374 Unit2,400,4456,000,99014,402,3765,955,07828,758,889 Trust of India Bank of207,262518,1451,243,549514,1812,483,137 India Bank of442,5841,106,4362,655,4471,097,975,302,438 Baroda Union Bank78,195195,483469,160193,988936,826 of India Total9,700,20024,250,00058,200,00024,064,470116,214,670 Principal (Figures in Rupees) 4.2 In addition to the above the immovable assets referred to in clause 3.2 of the scheme valued at Rs. 2,25,80,000 (Two crores twenty five lakhs eighty thousand only) shall also be part of the consideration in accordance with the provisions of this scheme. 5. Method and Mode of paying consideration : 5.1 Subject to clause 3.3.1 and 3.3.2, as full and final con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 100 each comprising Part A being of a face value of Rs. 60 each and Part B being of a face value of Rs. 40 each. Part A of the NCDs shall be redeemable at the face value of Rs. 60 each at the end of two years from the date of issue of the NCDs. Part B of the NCDs shall be redeemable at the face value of Rs. 40 each at the end of three years from the date of issue of the NCDs. The NCDs shall be issued to the secured creditors within 30 days of the Effective Date and subject to the consents/approvals and in the manner prescribed by the relevant agencies, authorities and bodies including the BIFR/AAIFR and the appropriate Courts. Wanbury shall take all necessary steps to obtain such approvals. The NCDs shall be pari passu secured against the fixed assets of Wanbury. Lenders NCD No. of NCDs ARCIL 14,970,921 149,709 IIBI 1,458,024 14,580 Unit Trust of India 6,000,990 60,010 Bank of India 518,145 5,181 Bank of Baroda 1,106,436 11,064 Union Bank of India 1,095,483 1,055 Total 24,250,000 242,499 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset security ratio mentioned above is maintained by Wanbury. ( d )Immediately upon conversion of the OFCDs,the shares shall be listed by the appropriate Stock Exchange. 5.1.5 Immovable assets of PPIL : ( a )Subsequent to the effective date, the properties described at clauses 3.2( e ) and 3.2( f ) shall be sold by ARCIL, the principal secured creditor of PPIL, on best effect basis on the scheme coming into effect in accordance with clause 9.1 of this scheme, and the proceeds thereof shall be paid by ARCIL to each of the secured creditors on the following basis : Sharing of ownership and sale proceeds As Secured Lender ARCIL 52.90 per cent IIBI 5.33 per cent Unit Trust of India 21.92 per cent Bank of India 1.89 per cent Bank of Baroda 5.55 per cent Union Bank of India 0.98 per cent Total Principal 88.57 per cent ( b )PPIL shall extend suitable cooperation to ARCIL and sign or cause to be singed all documents necessary for the sale of the said properties to give effect to this clause. ( c )Any fee and/or expenses/costs incurred by ARCIL/W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Scheme conditional on approval/sanctions and effective date : 9.1 The Scheme is conditional on and subject to all of the conditions mentioned in sub-clauses ( a ) to ( e ) hereunder having been duly met/completed. ( a )Approval of an agreement to the scheme by the requisite majority of the secured creditors of PPIL as may be directed by the High Court of Judicature at Bombay. ( b )Approval of an agreement to such other scheme as may be proposed for the Banks and Financial institutions being unsecured creditors by the requisite majority of the Banks and Financial institutions being unsecured creditors of PPIL as may be directed by the High Court of Judicature at Bombay. ( c )Sanctions and orders under the provisions of section 391 of the Act being obtained by PPIL from the High Court of Judicature at Bombay. ( d )Receipt of the order of AAIFR and/or such other forum setting aside the recommendations for winding up of PPIL, passed by the BIFR. ( e )Approvals of the shareholders of Wanbury. ( f )Approval and acceptance of an overall settlement including an order for merger, or other mode of acquisition of assets of PPIL by Wanbury or such scheme of PPIL by BIFR/AAIF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 204 GIC Mutual Fund 582 LIC Housing Finance 264 Army Group Insurance Fund 384 ICICI Bank 763 Ind Bank Merchant Banking 416 Services Limited Abhyudaya Coop Bank Limited 48 Indusind Bank Ltd. 65 Total principal 27,687 3.2 Consideration payable : Towards the said amounts due to each of the unsecured creditors, the company along with its associates and Wanbury to the facilities referred to above, has agreed that the following assets are available to be set off against these amounts : ( a )Rs. 150.03 (Rupees one hundred fifty lakhs and three thousand only) in cash. ( b )The building owned by PPIL admeasuring approx. 339 sq. meters of regular constructed space and approx. 275.17 sq. meters of constructed mezzanine spare and located at 212, Marwah Industrial Estate, Saki Vihar Road, Saki Naka, Mumbai-400072 and bearing the particulars mentioned in Schedule II hereto. ( c )The building owned by PPIL, through its partnership firm Neeldeep Plastics, located at D-306, TTC Industrial Area, MIDC, Turbhe, Navi Mumbai-400705 and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments contained in this scheme with the unsecured creditors, shall be binding on all the unsecured creditors with effect from the date on which the majority of the unsecured creditors meet and agree to this scheme. 4. Consideration to each secured creditors : 4.1 It has been agreed that the total payment of the consideration referred to in clause 3.2, to the unsecured creditors shall be proportionate to the amount due towards each of them and shall amount to the following : Unsecured creditorsTotal consideration in Indian Rupees ARCIL7,896,480 IIBI240,591 Unit Trust of India1,606,709 Bank of India58,802 Unsecured creditors Total consideration in Indian Rupees Bank of Baroda 1,796,214 Union Bank of India 317,352 LIC-Asset Management Company 467,346 Life Insurance Corpn. of India 584,182 General Insurance Corpn. of India 70,102 New India Assurance 81,786 United India Insurance 81,786 GIC Mutual Fund 233,673 LIC Housing Finance 116,836 Army Group Insurance Fund 233,673 ICICI Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 9.1 of this scheme, and the proceeds thereof shall be paid by ARCIL to each of the unsecured creditors on the following basis : Unsecured creditorsSharing of ownership and sale proceeds ARCIL6.02 per cent IIBI0.18 per cent Unit Trust of India1.22 per cent Bank of India0.04 per cent Bank of Baroda1.37 per cent Union Bank of India0.24 per cent LIC-Asset Management Company0.36 per cent Life Insurance Corpn. of India0.45 per cent General Insurance Corpn. of India0.05 per cent New India Assurance0.06 per cent United India Insurance0.06 per cent GIC Mutual Fund0.18 per cent Unsecured creditors Sharing of ownership and sale proceeds LIC Housing Finance 0.09 per cent Army Group Insurance Fund 0.18 per cent ICICI Bank 0.48 per cent Ind Bank Merchant Banking Services Limited 0.36 per cent Abhyudaya Coop Bank Limited 0.04 per cent Indusind Bank Ltd. 0.06 per cent Total principal 11.43 per cent ( b )PPIL shall extend suitable cooperation to ARCIL and sign or cause to be singed all documents necessary for the sale of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme, in respect of the properties referred to in clauses 3.2( b ) and 3.2( c ) of the scheme, Wanbury shall have no control, in the event of their sale in accordance with clause 5.1.2( a ) and in the event of their transfer in accordance with clause 5.1.2( b ) above. 9. Scheme conditional on approval/sanctions and effective date : 9.1 The Scheme is conditional on and subject to all of the conditions mentioned in sub-clauses ( a ) to ( e ) hereunder having been duly met/completed. ( a )Approval of an agreement to the scheme by the requisite majority of the unsecured creditors of PPIL as may be directed by the High Court of Judicature at Bombay. ( b )Approval of an agreement to such other scheme as may be proposed for the Banks and Financial institutions being secured creditors by the requisite majority of the Banks and Financial institutions being secured creditors of PPIL as may be directed by the High Court of Judicature at Bombay. ( c )Sanctions and orders under the provisions of section 391 of the Act being obtained by PPIL from the High Court of Judicature at Bombay. ( d )Receipt of the order of AAIFR and/or such other forum setting aside the recommendations for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airman for the said meeting. 9. Pursuant to the aforesaid directions given by this court notices of meeting were sent to individual secured as well as unsecured creditors and also separately advertised in the Free Press Journal. The meeting of the secured creditors and unsecured creditors was accordingly held at the specified place and time. Mr. A.P. Kothari chaired the respective meetings who in turn has reported the result of the concerned meetings to this court. 10. Insofar as the meeting of the secured creditors is concerned, same was attended by six secured creditors of the petitioner company in person or through representative or by proxy. With consent of all the secured creditors present at the said meeting relevant documents were taken as read and the scheme was put to vote. On scrutiny by the scrutinisers, six ballot representing value of Rs. 17,657 lakhs secured creditors were found in ballot box, five ballots representing value of Rs. 14,657 lakhs secured creditors validly voted "For the Scheme", one ballot representing value of Rs. 3,000 lakhs secured creditors validly voted "Against the scheme". The report of the Chairman records that there were no invalid ball ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the secured creditors. According to the UTI it had invested ( i ) Rs. 600.00 lakhs in 16 per cent Non-convertible Debentures (NCDs) and ( ii ) Rs. 200.00 lakhs in 18.5 per cent NCDs. The 16 per cent NCDs are secured by the mortgage of the immovable properties of the petitioner-company. Insofar as the 18.5 per cent NCDs is concerned, the petitioner-company with others on pari passu basis had agreed to create the security by pari passu charge on the immovable properties along with other secured creditors, but has failed and neglected to create the security in its favour. As a result, insofar as the claim arising out of 18.5 per cent NCDs is concerned, has been treated as claim of unsecured creditors. In other words the petitioner-company is taking advantage of its own wrong. It is then contended that the UTI had filed proceedings against the petitioner-company for recovery of its dues to the extent of Rs. 27,31,51,538 and the enforcement of their securities. These proceedings have been decided in favour of the UTI on 31-3-2004 and recovery certificate is also issued on 17-5-2004. The UTI is therefore entitled to recover the said sum along with interest at the rate of 16 per c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. During the arguments while reiterating the objections taken in the reply affidavit, the counsel appearing for the UTI emphasised that as the proceedings under the provisions of the SICA are pending before the AAIFR, jurisdiction of this court to sanction any scheme is excluded. In support of this submission reliance was placed on the decision of the Rajasthan High Court in the case of Union of India v. Krishna Mills Ltd. [1994] 4 CCJ 296. The learned counsel for the objector UTI has also relied on the decision of the Apex Court in the case of Navnit R. Kamani v. R.R. Kamani AIR 1989 SC 9 to contend that the objects and reasons for introduction of SICA of 1985 will have to be kept in mind while considering the question whether the jurisdiction of the company court is excluded or not. 16. It was then contended that assuming this court can still exercise its jurisdiction in this case, as it is open to the petitioner-company to pursue the remedy before any of the forums, the petitioner-company will have to exercise either of the remedy and cannot be allowed to pursue the remedy for similar reliefs before two different forums. In other words, according to the UTI the doct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the reference under section 15 is made to the BIFR, the BIFR is seized of the matter and in that case by virtue of section 32 of SICA, the provisions of that Act would prevail notwithstanding anything contained in the Companies Act, 1956. In my opinion, this decision is of no avail to the interveners. In the first place, the limited question that was considered by the Andhra Pradesh High Court in exercise of writ jurisdiction was : whether the BIFR has the power to restrain the company from effecting any change in the composition of the Board of Directors, including top managerial personnel pending decision on the question of rehabilitation of the Company. The statement of law occurring at Page 31 placitum (H) of the said decision as referred to above will, therefore, have to be considered in that limited perspective. In any case, I would prefer to agree with the view expressed by Justice S.U. Kamdar which is the correct statement of law. Viewed in this perspective, the objection that this Court has no jurisdiction to entertain the present proceedings in view of the pendency of the BIFR reference will have to be rejected. Anticipating this situation, perhaps, Counsel for the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e non obstante clause contained in section 529A of the Companies Act for the following reasons : 11. Firstly, as already held hereinabove, the Sick Industrial Companies (Special Provisions) Act, 1985, is a special statute qua the general provisions contained in the Companies Act, 1956, and being a special enactment, it shall prevail over the provisions of the Companies Act. Secondly, the non obstante clauses contained in sections 22 and 32 of the 1985 Act have been enacted at a subsequent point of time and for that reason also, even if there is an assumed inconsistency in the two non obstante clauses, the latter non obstante clause would prevail. The Legislature must be deemed to be aware of the non obstante clause contained in the Companies Act when it incorporated the non obstante clause in sections 22(1) and 32(1) of the 1985 Act. If, despite this knowledge, Parliament has thought it proper to enact the non obstante clause in the subsequent statute, there is no justification for curtailing the scope of these non obstante clauses by reference to the provisions of section 529A of the 1956 Act. 12. It is also significant to notice that the chapter relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant provisions held that the legislative intention behind the introduction of section 77A is to provide an alternative method by which a company may buy-back up to 25 per cent of its total paid up equity capital in any financial year subject to compliance with sub-sections (2), (3), and (4). The Court observed that such provision does not supplant or take away any part of the pre-existing jurisdiction of the company court to sanction a scheme for such reduction under sections 100 to 104 and section 391. In para 23 of the said judgment the court further noted that it is well settled that the exclusion of the jurisdiction of the court should not readily be inferred, such exclusion should be explicitly or clearly implied. It further observed that the provisions of section 77A was merely enabling provision and the court s powers under sections 100 to 104 and section 391 are not in any way affected. I find substance in the submission canvassed on behalf of the petitioner-company that the purpose of the proposed scheme of arrangement is mainly to revive the company and infuse funds, which approach will be consistent with the object of the SICA. The scheme on hand is intended only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in that event the direction given by this court in exercise of powers under section 391 of the Companies Act will bind the non-consenting bank and financial institutions as well. In such a case drastic order of winding up of the sick industrial company will not be resorted to. Viewed in this perspective the petitioner-company may be justified in contending that the remedy under section 391, as is invoked by the petitioner is the proper remedy and directions passed in the said proceedings by this court will be in no way inconsistent with the scheme or the provisions of the SICA. 21. The next argument of the obstructionist UTI is that it was a separate class of creditors, inasmuch as UTI had invested Rs. 600 lakhs in 16 per cent NCDs which are secured by mortgage of immovable properties. It had also invested Rs. 200 lakhs in 18.5 per cent NCDs for which the petitioner-company had agreed to create pari passu charge in its favour on the immovable properties. It is then submitted that the classification of secured and unsecured creditors made by the petitioner-company was with mala fide intention to reduce the representation of the obstructionist UTI. It was also argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time transaction with the Petitioner, cannot be the basis to treat them as separate class or sub-class of the unsecured creditors. Counsel for the said intervenor would, however, place reliance on the decision of the Madras High Court in D.A. Swamy s case ( supra ) wherein it is observed that broadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. It is then observed that the group styled as a class should, ordinarily, be homogeneous and must have commonality of interest and the compromise offered to them must be identical. The exposition in this decision is of no avail to the intervenor. It will be useful to advert to Para 38 of the decision of the Apex Court in the case of Miheer H. Mafatlal ( supra ), wherein, it is observed that where a compromise or arrangement is proposed between a company and its members or any class of them a meeting of such members or class of them has to be convened. It is then observed that this clearly presupposes that if the Scheme of Arrangement or Compromise is offered to the members as a class and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This provision was in addition to the sale proceeds available from immovable property, which is quite substantial in nature and would not become available unless assistance offered by Wanbury Limited was to be accepted. Indeed, the entire claim of UTI or for that matter other secured creditors is not being satisfied but in the given situation, the offer as made appears to be fair and reasonable and would subserve the interest of all concern, which in turn will result in rehabilitation and revival of the petitioner-company, which is already before the BIFR for last over 8 years with no better offer forthcoming. If the proposed scheme is not to be accepted, it is obvious that the recommendations made by the BIFR for winding up of the petitioner-company will be inevitable, which situation is avoidable if the proposed scheme is accepted. Indeed, UTI may be justified in contending that neither the corporate debts restructuring mechanism nor the one time settlement norms laid down by the Reserve Bank of India are applicable or suitable to business/regulatory requirements. However, keeping in mind the interest of all concern, the appropriate course is only to sanction the proposed schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up of petitioner-company. The fact that implementation of the present scheme, even if sanctioned, to be made subject to the order of the AAIFR, will make no difference. Such provision in the subject scheme is but appropriate. Unless the order of the BIFR was to be set aside by the higher authority provided under SICA, 1985, question of enforcing the proposed scheme to be sanctioned by this court will not arise. That arrangement, however, does not mean that there is possibility of inconsistent orders being passed. If the proposed scheme is approved, it is bound to revive the financial position of the petitioner-company so as to bring it outside the purview of sick industrial company. If the offer intended under the proposed scheme is found appropriate, then the authority under the provisions of the SICA will consider passing of necessary orders to subserve the interest of all concerned. Viewed in this perspective, I find no substance in the objection that because of pendency of proceedings before the AAIFR the request made in the present petition should not be granted. 25. It was lastly contended on behalf of UTI that no disclosure has been made in the petition that any scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as banks and financial institutions to be named as unsecu- red creditors for the purpose of the present scheme. The other objectors to the proposed scheme are UTI and Indus Ind Bank Ltd. These two have been named and described as unsecured creditors in the proposed scheme. The material portion of the scheme is already extracted in the earlier part of this judgment. 28. I shall now advert to the objections taken by the respective objectors. The Pedilite Industries Ltd. has filed two affidavits before this court dated 18-8-2005 and 29-8-2005. The substance of the objection is that they are also part of the class of unsecured creditors and there is no tangible reason to single out them. It is then contended that the proposed scheme is unfair and against the public interest. The second objector is Tata Finance Ltd. who has caused to file two affidavits before this court dated 19-8-2005 and 16-9-2005 respectively. The substance of the objection is that they had offered bill financing facility.As the petitioner-company failed to discharge its obligation they were required to resort to proceedings in which an award has been passed whereunder the petitioner-company is liable to pay the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d because of the pending proceedings before the BIFR. Insofar as the merits of the scheme it is stated that the scheme, if approved, will require the said UTI to sacrifice huge amount and the repayment is spread over a long period to the NCDs and OFCDs. That the proposed scheme is not viable within the business and regulatory requirements of UTI. Besides, the classification of creditors made is with mala fide intention to reduce the representation of UTI. More or less the same objections have been taken by UTI as raised in relation to the petition sanctioning the scheme of arrangement regarding secured creditors. 31. The main arguments were canvassed by Mr. Virag Tulzapurkar, counsel appearing for the petitioners. Mr. Sham Mehta, counsel appeared for UTI. Mr. Birendra Saraf appearing for Interveners Pedilite Industries and Pedilite Ind Ltd., Mr. Shrikant Chavan for Indusind Bank and Mr. Damani adopted the said arguments. During the course of the argument, besides reiterating the stand taken in the reply affidavits, it was argued that even if the proposed scheme has been approved by the requisite majority as required by law that does not mean that this court cannot refuse to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngement between the company and its members is likely to adversely affect the creditors, it would be proper for the court to exercise its judicial discretion to convene the meeting of the creditors, unless majority of the creditors representing 3/4th in value of the creditors have otherwise given consent for the same. In para 13 of the judgment while disagreeing with the view expressed by the Delhi High Court, the learned Single Judge of this court has held that the creditors have right to participate in the process of consideration of the scheme of arrangement between the company and its members. Section 391(1) gives a discretion to the court to convene a meeting of the creditors or any class of them and that the court would exercise the discretion by convening a meeting of creditors if the creditors are likely to be adversely affected by an arrangement between the company and its members. In para 14 of the said decision, the court has observed that it is duty bound to consider the interests of all the creditors. What importance should be given to the fact that the creditors are likely to be affected would vary from case to case but the Judge would certainly examine whether the cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured creditors who are banks and financial institutions, standing on different footing all together than the ordinary class of general unsecured creditors. Their interest is common and homogeneous class of persons. My attention has been rightly invited to the observations of the Apex Court in para 38 of the decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd. AIR 1997 SC 506. Reliance is also placed on the observations of the Gujarat High Court in the case of Gujarat Lease Financing Ltd. ( supra ). What should constitute a class has been a matter of debate. In para 24 of this decision, the Gujarat High Court while making reference to Buckley on the Companies Act, 13th edition, page 406, noted that it is formidable difficulty to say what constitutes a "class" of creditors. The creditors composing the different classes must have different interest. When one finds a different state of fact existing among different creditors which may differently affect their minds and their judgment, they must be divided into different classes. "Class" must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o determine whether the two or more groups of members or creditors form a different class is whether the same scheme of arrangement or compromise offers the same terms to all or whether different terms are offered. If the scheme offers to the two groups of members or creditors different terms of arrangement, they would generally form a different class. ( iii )Another test is to see whether the rights of the two or more groups of members or creditors are so dissimilar that they cannot reasonably be expected to have a common interest and are not likely to consult together to have a common view of their common interest. If their interests are so dissimilar that they are reasonably unlikely to take the same view about the scheme and would reasonably feel that any one view would unreasonably benefit one or unreasonably prejudice the other then they would form different classes. ( iv )The private interest of one or a group of members or creditors vis-a-vis the directors of the company or the persons in the management of the company are alien for the purpose of classification. As held by the Apex Court in Miheer H. Mafatlal s case [1996] 87 Comp. Cas. 792, AIR 1997 SC 506, the mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case, as the scheme of arrangement or compromise offers the same terms to all the specified or named unsecured creditors referred to in the scheme they have been treated as different class of unsecured creditors as they will have to exercise their rights not in dissimilar manner and are reasonably expected to have common interest. In the above decision it is observed that amongst unsecured creditors, some may be preferred like the Government or the workers who may have a statutory preference over others. Suffice it to observe that the specified or named unsecured creditors in the proposed scheme are banks and financial institutions, the rights and interests of objectors who have been left out were in no way similar to that of named unsecured creditors. That being the position, the classification done by the petitioner-company keeping out three objectors, who have approached this court as interveners, from the described unsecured creditors in the scheme, cannot be said to be unjust or unreasonable. To get over this position the learned counsel for the objectors would contend that no factual foundation has been laid before this court as to why 18 institutions have been selective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the proposed scheme said institutions at serial Nos. 7,12,13,14 and 16 are engaged in either banking or financial institutions for which reason they have been specified as a separate class along with described unsecured creditors. 38. It was contended on behalf of the objectors that the arrangement which is propounded is an eye wash. It is alleged that Wanbury Limited was earlier known as Pearl Organic Limited. The petitioner-company has already transferred its assets to the said Pearl Organic Limited. It is also alleged that the promoters in the petitioner-company and Wanbury Limited are common. All these allegations have been countered by the petitioner-company. It is stated on affidavit that there are about 4000 shareholders in Wanbury Limited which is a public limited company and no properties are of the promoters of the petitioner-company as alleged. The petitioner has also stoutly denied that the petitioner along with Wanbury Limited have been at all intention to defraud any one from whom the petitioner company had taken assets on hire purchase basis as alleged or otherwise. It is also denied in the affidavit that the petitioner-company in connivance with Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich have been made on behalf of UTI as secured creditors have been reiterated, as unsecured creditors. I have addressed these contentions in the earlier part of my judgment. For the purpose of brevity I would adopt same reasons while rejecting the objections of UTI as described unsecured creditors. On the other hand it is apposite to refer to the decision, which was cited by the learned counsel for one of the objectors, of the Gujarat High Court in the case of Maneckchowk Ahmedabad Mfg. Co. Ltd. ( supra ). While dealing with ground as to whether the scheme in that case was not commercially and economically viable or feasible and is in fact unfair and unreasonable the court at page 901 observed thus: "...How should the court approach a scheme of compromise and arrangement submitted for its sanction which is shown to have been approved by a statutory majority of creditors and members who are directly affected by the scheme. The burden, of course, of showing that the scheme is a fair and reasonable one initially lies on the petitioner. The petitioner must prima facie show that the scheme is pre-eminently fair and reasonable as a prudent and reasonable shareholder would approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential that the scheme must be a fair and equitable one thought it is none of the business of the court to judge upon the commercial merits which in fact is the function of the creditors and members." (p. 901) 40. The legal position has been articulated by the Apex Court in the case of Miheer H. Mafatlal ( supra ) in para 28 thereof as to the parameters to be kept in mind by the court while undertaking scrutiny of the scheme. Applying these principles, it is not possible to take a view that the proposed scheme is unfair and/or unreasonable to any of the described unsecured creditors, or prejudicial to their interest or that they have been treated differently than the class of creditors who are similarly situated like them. Thus understood, the scheme as proposed will have to be approved. 41. One of the described unsecured creditor objected to the proposed scheme on the assertion that there was dispute about the outstanding amount payable to it as on 31-7-2005. That assertion has been countered by the petitioner-company in its rejoinder affidavit dated 30-8-2005. In para 4 of the affidavit it is stated thus: "Whereas there is no dispute on the principal amount outsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous. The objectors are taking advantage of the incomplete details mentioned in the Schedule IV of the accounts. It is stated that the office premises referred to in Schedule IV at page 192 are none else but the premises at Sakhinaka. The property at Turbhe are already described as factory building. Similarly, the assets at Patalganga are described under the caption "capital work-in-progress" which is the last item of the same list. Thus the stand taken by the petitioner company is supported by the details and description given in Schedule III at page 191 of the paperbook. Accordingly, even this objection is only to be stated to be rejected being devoid of any merit. 44. The grievance of the unsecured creditors who are not part of the described unsecured creditors in the proposed scheme that their interest has been totally marginalised, is without any substance. True it is that in the pleadings as filed in the present petition on behalf of the petitioner before this court, no clear stand has been taken with regard to that class of unsecured creditors. To get over this drawback the learned counsel for the petitioner-company, on instructions stated during the course of argument th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal debtor, unless it is otherwise provided by the contract. Obviously, the triparte contract entered into with the guarantors in respect of the liabilities of the petitioner-company with the concerned described unsecured creditors are not placed on record. Indeed, no contention has been raised on behalf of the objectors in this behalf. The question, however, is, if in the original contract, express provision has been made that irrespective of scaling down of claim between the described unsecured creditors and the petitioner-company, the liability of the guarantors will continue to operate for the original amount, in that situation it will not be possible to approve the proposed scheme as it is to absolve the guarantors of their liabilities under the original agreement. The power of this court under section 391 is limited to approve the compromise or arrangement between the company and its creditors. That power cannot be extended so as to undo or dilute in any manner the triparte contract between the guarantor who is a third party on the one hand and the petitioner-company and the concerned unsecured creditors on the other. Viewed in this perspective, it is not possible for this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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