9911796707
TMI Blog2005 (11) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... stered company having its stock listed in three stock exchanges at Mumbai, Madras and Hyderabad. For the purpose of its business, the petitioner company availed term loans from various Banks and financial institutions for its working capital requirements during the course of its operations such as IDBI, ICICI, State Bank of India, Central Bank of India, Indian Bank, Unit Trust of India (hereinafter referred to as "UTI"), Life Insurance Corporation of India (hereinafter referred to as "LIC of India") and Army Group Insurance Fund. Owing to various internal and external factors including recession in ceramic tile industry, the petitioner company was unable to adequately service their secured loans. 3. The Reserve Bank of India in consultation with the Government of India finalized the scheme of Corporate Debt Restructuring (hereinafter referred to as "CDR") a non-statutory mechanism for restructuring corporate debts on voluntary basis outside the purview of BIFR and Debt Recovery Tribunals for the benefit of all concerned. The petitioner company approached the CDR empowered group and the CDR Cell in fact framed and approved a restructuring package for the petitioner company and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner company acted in an unfair and discriminatory manner and selectively prepaid huge amount to certain creditors excluding UTI. On that ground the scheme entails rejection. The UTI constitutes a different class of secured creditors since it is a debenture holder as per section 117C of the Companies Act. Therefore, the petitioner company cannot hold a single meeting of all the creditors since UTI constitutes a different class among the secured creditors. The UTI granted earlier a re-schedule payment package to the petitioner company in the month of March, 2001 which was accepted by the petitioner company according to which the entire principal and outstanding amount with simple interest was to be paid in instalments by March, 2005. The petitioner company failed to adhere to the same. As a result, UTI has already cancelled the said package and filed O. A. before the Debt Recovery Tribunal. The voting rights in the meeting of the secured creditors should be as per the existing outstanding. The petitioner company, however, reduced the outstanding amount to be paid to UTI with a view to lower the value resulting in lower voting rights. When UTI filed I. A. before the Debts Recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way but not at the beginning? and (4)Whether the company petition is barred by limitation? 11. Point No. 4 : Apropos the point of limitation, as per rule 79 of the Companies (Court) Rules, 1959 a petition for sanctioning the scheme by the Company Court shall be filed within seven days of the filing of the report by the Chairperson, when the proposed compromise or arrangement is agreed to in the meeting convened by the Chairperson. In the instant case, the Chairperson submitted his report on 23-8-2004. The company petition was filed on 31-8-2004. It is obvious that the company petition was filed on the seventh day when the date on which the report was submitted by the Chairperson is excluded. Presumably, therefore, the point of limitation has, however, been not pressed later because of the clear case of the petitioner company. 12. Point No. 1 : Obviously unlike the other secured creditors UTI is a debenture holder. Section 117C of the Companies Act mandates that where a company issues debentures, it shall create a debenture redemption reserve for the redemption of such debentures to which adequate amounts shall be credited from out of its profits every year until such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of scheme of compromise is offered to a sub-class of a class of creditors or shareholders otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened. . . ." (p. 834) One has to see the entire scheme so as to know whether there are any classes amongst the secured creditors. As discussed hereinabove, merely because section 117C of the Companies Act mandates a reserve to be created and funds are to be deposited in that reserve for redemption of the debentures, the debentures holder will not constitute as a separate class from among the secured creditors. The debts of the other secured creditors are also secured. The debt of debentures holder is secured under law by making the company obliged to create a fund and to deposit in that fund the amounts from out of the profits which shall eventually go in liquidation of the debt. This arrangement itself cannot make the holder of debentures a separate class. The scheme envisages payment of the debt of all the secured creditors by deferring the payment of interest from a particular point and then paying that interest at the end in equal instalments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the concerned scheme placed for its sanction. It is, of course, true that so far as the Company Court is concerned as per the statutory provisions of sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding on a dissenting minority of creditors or members, as the case may be, even though they have not consented to such a scheme and to that extent absence of their consent will have no effect on the scheme. It can be postulated that even in the case of such a scheme of compromise and arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved by such class of persons with requisite majority vote. However, the further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is approaching the Company Court half the way after implementing the scheme. The scheme as evolved in accordance with the guidelines framed by the RBI has been approved by the majority of the secured creditors in the meeting held in regard thereto. Undoubtedly, UTI and LIC of India constitute a minority. The other secured creditors constitute a majority. It is a case where 83 per cent value has been held by the majority. 16. It is the scheme which seeks to revive the petitioner company which received a setback on account of recession in the market. The Board of Directors of the petitioner company in the meeting held on 21-11-2003 approved the scheme of arrangement between the petitioner company and its secured creditors with effect from 1-4-2003, of course, subject to the confirmation of this Court. The scheme envisages restructuring of debt payment schedule. Some of the salient features seem to be that in respect of IDBI, it shall waive the entire further interest and liquidated damages as on the appointed date; it shall defer interest accruing up to 31-3-2003 on term loans and the petitioner company shall repay the deferred interest along with existing deferred interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets of the company. The scheme is subject to periodical review by the secured creditors who has a right to convert up to 100 per cent of the loans outstanding into equity shares at par. The secured creditors whenever they deem fit may constitute a monitoring committee to monitor the implementation of the scheme with reference to the performance of the petitioner company on quarterly basis. If the petitioner company commits default in payment or re-payment of the principal amount, the secured creditors have an unqualified right to disclose or publish the details of default and the name of the company and its directors. In the event of the petitioner company not complying with any of the terms and conditions of the scheme, the secured creditors shall by notice in writing declare the scheme as failed and revoke the reliefs and concessions granted to the petitioner company pursuant to the scheme. 17. The learned counsel appearing for the petitioner company, seeks to place reliance upon a recent Judgment of the Apex Court in Administrator of the Specified undertaking of the UTI v. Garware Polyester Ltd. AIR 2005 SC 2520. The Judgment is a complete answer to the core contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ceekay Ltd., In re [2000] 4 Comp. L.J. 142 1 . That was a case of amalgamation. The amalgamation as proposed between the transferor and transferee companies although approved by the members of both the companies, their creditors, etc. were found to be conditional. It was further noticed that the effect had been given to those clauses without the necessary permission of the Court. It was held that in according sanction to a scheme of amalgamation, the Company Court was basically having supervisory jurisdiction but it is not a rubber stamp. The claim had to be seen as a whole. If it was found that it was not fair or what was being projected was not true, the Company Court could well refuse the claim. 19. A passing observation has been made about giving effect to the scheme before approaching the Company Court. But, there has been no prohibition either in the Act or as could be seen from the Judgment being sought to be relied upon. In this context, it is expedient to look at the provisions germane in the context, to the extent necessary for the present purposes which, reads as under : "Section 391. Power to Compromise or make arrangement with creditors and members. - (1) Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, such as the latest financial position of the company, the latest auditor s report on the accounts of the company, the pendency of any investigating proceedings in relation to the company under sections 235 to 251 and the like. If the procedure of holding the meeting of the creditors or members, as the case may be, is followed and a resolution is passed with the requisite majority as enjoined under sub-section (2) of section 391, the Court has only to satisfy about the other requirements of the latest financial position, disclosure of material facts and pendency of any investigation or the like. Merely because the section reads that where a compromise or arrangement is proposed followed up by holding of the meeting passing of resolution and the satisfaction of the Company Court about the requirement contained in the provision to sub-section (2) of section 391, it does not mean that before sanctioning of the compromise or arrangement by the Court the scheme shall not be given effect to. Furthermore, such an objection has not been taken by the respondent inter alia in the counter filed. In my considered view, giving effect to the scheme because of the fact that CDR evolved the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nual profits and how far the past losses had been wiped off." (p. 94) 22. The facts obtaining in the instant case are entirely different. As can be seen from the scheme evolved in this case as set out above, it is obvious that it is nothing but restructuring the debts re-payment schedule. There is nothing to see that any preferential treatment is sought to be made in respect of one creditor qua the other. From the facts, it is obvious that the scheme envisages equal treatment insofar as all the eight secured creditors are concerned. In my considered view, it is not discernible from the above salient features that UTI and LIC of India are in any manner discriminated. It cannot be said that the scheme is unfair, unreasonable and unjust which no prudent businessman would accept. On the other hand, it appears that the scheme is meant to help the petitioner company to revive by restructuring the debt re-payment schedule. Therefore, the decisions relied on by the learned counsel have no application to the facts of this case. 23. Following the Judgment of the Apex Court in Garware Polyester Ltd. s case ( supra ) and for the reasons discussed hereinabove, the scheme of arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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