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TMI Blog2007 (1) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner thus stands increased to Rs. 14,34,71,743 and the amount as offered by the sabha and its sponsor stands increased to Rs. 14,36,37,497 on the basis of 11 per cent interest on their own recorded offers in this regard. These counsel also state that on the acceptance of the scheme, their clients will pay the full value of the property as quantified by the petitioner in paragraph 20 of the petition, i.e., Rs. 52,07,50,000 to M/s. Bali Properties and Investments (P.) Ltd. Mr. Sanjay Singhvi appearing for the rival workers union Shramik Mahasangh (hereinafter referred to as the "Mahasangh") states that in view of these statements, the modified scheme as propounded by the Shramik Utkarsha Sabha would be preferred by his clients. Also at the stage of arguments the advocate appearing for M/s. Bali Properties and Investments (P.) Ltd., submitted 2 documents, one being a xerox copy of a letter dated 12-12-2006, said to have been written by one Sanjay Dalmia, a director of Prateek Apparels (P.) Ltd., to advocates Sanjay Udeshi and to his advocate Rajesh Shah and an auditor s report dated 31-8-2006, dealing with the balance-sheet of the said company. He states that these documents could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Bank of India, the court receiver, High Court, Bombay was appointed as ad interim receiver of the movable and immovable properties of the company with all powers under Order 40, rule 1 of the Civil Procedure Code, save and except the powers to sell the properties. The court receiver continues to-date. 6. It appears from the record that on the date of winding up of the company, there were in all 1312 workers working in the company. Some of these workers were staying within the factory premises of the company at Thane. These workers who were residing in the premises resisted the taking of the possession by the court receiver and claimed tenancy rights. There was litigation in this regard and attempts were made to evict them. At one stage this court had directed that they be evicted forcibly but that order was set aside in appeal and ultimately, the Official Liquidator was directed by this court to evict them in accordance with law by filing proceedings under section 630 of the Companies Act. Thirty such complaints under section 630 of the Companies Act were filed by the Official Liquidator before the Judicial Magistrate, First Class at Thane and those cases are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs of equity shareholders, secured creditors, unsecured creditors, statutory creditors and workers and by an order dated 21-4-2006, the petitioner was directed to convene separate meetings of equity shareholders, secured creditors, unsecured creditors, statutory creditors and workers. 12. The scheme which was to be put up at these meetings was the scheme of compromise or arrangement as annexed at exhibit A to the petition. The substance of the said scheme as originally filed in this court and put up at the various meetings was as follows : ( a )The petitioner would borrow and bring in the sum not exceeding Rs. 1,16,83,738 for payment of outstanding dues to the unsecured creditors and statutory creditors of the company (the statutory liability being Rs. 53,77,359 and dues of unsecured creditors being Rs. 63,06,379). ( b )The applicant would arrange and borrow a further sum of Rs. 8,40,53,925 for payment of the dues of the workmen of the company and if there was any shortfall, inclusive of the claim of 65 workers, which had not been adjudicated, to bring in further amounts to meet such claims. ( c )That upon acceptance and sanction, the winding up order dated 11-6-1987, wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unions of the company, i.e., the Shramik Utkarsha Sabha, an affidavit dated 12-10-2006, came to be filed. It was mentioned in the affidavit that the union had approximately 338 members and that their office bearers Mr. Vijay Kamble and Krishna Mokal had attended the workers meeting but were not allowed to voice their grievances. By the said affidavit the opposition to the scheme of the petitioner was placed on record. It was contended that the secured creditor M/s. Bali Properties and Investments (P.) Ltd., was only a nominee of the present petitioner and the intention behind the scheme was to appropriate the assets of the company by denying the workers re-employment. They suggested modifications under section 392 of the Companies Act which according to the union were more beneficial to the displaced workers and contained a proposal aimed at getting eligible workers re-employed and re-habilitated. The proposal was to repay the full value of the companies assets of Rs. 52,07,50,000 to the petitioner and/or Bali Properties and Investments (P.) Ltd. Another modification proposed was to provide an amount of Rs. 14,44,83,133 out of which workers could be paid Rs. 13,27,99,395 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r he was willing to sponsor a scheme for revival of the company. In this affidavit, Mr. Sanjay Dalmia indicated his agreement to sponsor the scheme and to pay the following amounts in full and final discharge of all liabilities of the company : ( a )Rs. 52,07,50,000 to M/s. Bali Properties and Investments (P.) Ltd., ( b )Rs. 13,27,99,395 to the workers of the company, ( c )Rs. 1,16,83,738 to the unsecured creditors and statutory creditors of the company. 20. It was placed on record that they were further willing to start a textile unit with a new name and that they had no objection if the name Modella was retained by the erstwhile promoters of the company. In paragraph 8 of the affidavit an undertaking was given to start the textile unit within a maximum period of 18 months from the date of conveyance including construction of the built up premises and installation of plant and machinery. Pursuant thereto, they undertook to re-employ all the eligible workers who may opt for re-employment and also undertook to run and keep running the unit for a minimum period of 3 years. Further, that if they did not start the textile unit within 18 months from the date of the final sanct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first time another union by name Shramik Mahasangh (hereinafter referred to as the "mahasangh") filed an affidavit of their Vice-President Mr. Vilas Madhukar Naik and in this affidavit, the modifications sought by the rival union (sabha) were dealt with. It was stated that the modifications put forward by the sabha as they stood were illusory and less beneficial to the scheme as proposed by the petitioner Brij Mohan Grover. It was placed on record that this union and a majority of workmen preferred the scheme as proposed by the petitioner (as court s time is over, rest of the judgment is reserved). 25. In the course of hearing on various dates, as the sabha had come with a better deal for the workers (offering down payment of Rs. 13,27,99,395 as against Rs. 8,40,53,395 proposed to be paid by the petitioner) and to the secured creditor, I had called upon the petitioner s counsel to see if he could persuade the petitioner to better his offer in order to make the scheme more attractive vis-a-vis the workers and less vague as regards the secured creditors. In consequence, the petitioner filed Company Applica-tion No. 1182 of 2006 for amending the scheme. By the said applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said document which was an annexure to the affidavit further crystallised the modifications propounded by the sabha as under : ( a )that their sponsor would deposit with the Official Liquidator a sum of Rs. 1,16,83,738 for payments due to unsecured creditors and statutory creditors within 15 days of the sanction of the scheme by this court. ( b )The claim of Bali Properties and Investments (P.) Ltd., being the secured creditors would be paid by their sponsor by settlement and if there was no settlement the sponsor agreed to pay the decretal amount as decreed in High Court Suit No. 3290 of 1986. That in the event of there being a decree in favour of the secured creditors in High Court Suit No. 3290 of 1986 and in the event of the decree remaining unsatisfied by the sale of the properties of the company the sponsor would bring in or make good the shortfall amount, if any, to satisfy the decree. The sponsor would be entitled to be brought on record in the said suit as the defendants and would be entitled to contest the said Suit No. 3290 of 1986. ( c )That their sponsor would deposit a further amount of Rs. 13,27,99,395 towards the down payment to be made to the workers within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loy approximate 300 workmen. In case after providing employment to all the eligible workers as above, if there were any vacancies, then employment to the nominees of the other workmen will also be considered. That M/s. BLR Knits (P.) Ltd., had also agreed to submit a project report which was under preparation, giving the details of the revival scheme including the plant and machinery, production capacity, cost of project, means of finance, etc., which will be submitted within 60 days on the final sanction of the scheme by the High Court. 30. On 22-12-2006, on behalf of the mahasangh a further affidavit was filed placing on record that the sangh now supported the amendments as put forward by the sabha since the workers would stand to get an additional amount of Rs. 23,70,538 as compared to the amount payable under the amended scheme by the petitioner and as this amount is promised to be paid within 15 days of the sanction of the scheme. 31. Shri Sanjay Singhvi, learned counsel for mahasangh, however, argued before the court that the stand of the workers would be, in his words, mercenary in nature and they would support the scheme/modification which gave the maximum benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkers unions or any worker. ( ii ) As against this, the modified scheme of the sabha offers to pay an amount of Rs. 1,43,46,37,497 within 15 days of the sanction of the scheme by the High Court. However, in addition to this offer the modified scheme of the sabha offers a proposal for the revival of the company s textile business and re-employment of such workers who have not reached the age of superannuation by the putting up and starting of a textile unit which will employ approximately 300 workers and which unit will be housed on an area of approximately 20,000 sq. ft. This modified scheme submitted by the sabha is now supported by both the unions who claim to represent and is not opposed by any individual worker. ( C ) Amount due to secured creditor : ( i ) The scheme of the petitioner provides that in the event of there being a decree in favour of the secured creditor in the High Court Suit No. 3290 of 1986, the said claim will stand satisfied and/or be met with from the mortgaged property. It states that the secured creditor has agreed to waive the claim for the balance, remaining unsatisfied, if any, provided the scheme of the petitioner is sanctioned by this court (wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignment, so that the details of their alleged transaction with the Central Bank of India could be perused by the court. It can be seen from paragraph 11 of the petition that the petitioner has admitted that the said Bali Properties and Investments (P.) Ltd., have been acting at the request of the petitioner since 1994 and the petitioner admits that it was his request that Bali Properties and Investments (P.) Ltd., paid to the bank by 30-9-1994, a sum of Rs. 6,05,43,723. This amount was added to the amount of Rs. 3,24,56,277 which were the company s existing fixed deposits and were directed by the court to be endorsed to the bank by an order dated 19-9-1994. That thereafter according to the petitioner, to make up the settlement amount of Rs. 17 crores the balance amount of Rs. 7,75,00,000 was paid by Bali Properties and Investments (P.) Ltd., to the bank. It thus appears that Bali Properties and Investments (P.) Ltd., has only paid an amount of Rs. 12,80,43,723. They have not disclosed to this court as to how they now have a claim of Rs. 123 crores. No particulars of any such claim have been given and the claim as yet remains unproved. In the affidavits filed on their behalf they no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently the shareholders, by taking such loans. The company also gets to retain the name/brand name/mark Modella. 34. From the aforesaid comparative table, it is clear that the scheme as modified by the sabha is clearly equal to, in two respects and more advantageous to all parties in several other respects, than the scheme as proposed by the petitioner. The scheme as proposed by the petitioner is now opposed by both the unions and their member workers. There is no disapproval to it by any other individual worker. The scheme is also more advantageous to the secured creditor particularly as it contemplates down payment of the entire value of the property as calculated by the petitioner of the land and structures at Thane which is the subject-matter of the scheme, it is more advantageous to the shareholders as it reduces their burden of taking further loans. 35. Faced with this situation, no serious argument was made by the counsel appearing for the petitioner to contend that the scheme as proposed by the petitioner was superior to the scheme as sought to be modified by the "sabha". Counsel, however, submitted several legal propositions to contend that in any case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderlying the scheme and can judiciously x-ray the same. 7.That the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent. 8.That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9.Once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re deemed to have granted their approval. The modifications of the "sabha" make no change in the amounts payable to them as proposed in the petitioner s scheme. After notice to statutory creditor has appeared before me to indicate that they are withdrawing their approval or that there is any change in their stance. The modifications as suggested by the "sabha", in my view, takes adequate care of the interest of the secured creditor insofar as it not only offers to deposit the entire market value of the land and structure as calculated by the petitioner and left uncontroverted by the secured creditor but also further offers to pay the entire decretal amount if and when the suit of the secured creditor is decreed. 38. It was contended by the counsel appearing for the petitioner that it would be desirable to again send the matter for reconsideration in a fresh meeting of the workers. To counter this argument, it was contended by the counsel appearing for the "sabha" and "mahasangh" that all the workers of the company are represented at the hearing. Both the existing unions had accepted the scheme with the modifications as suggested by the "sabha" and it was pointless to send the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons who could propose a scheme of compromise or arrangement within the scope of section 391(1) of the Companies Act and also concluded that the schemes of such interveners did not serve public interest. In the present case however, the situation is entirely different. The scheme of the petitioner is rendered completely unworkable due to opposition by the two unions representing the workers and even the secured creditor. In view of such a situation, to ensure the working of the scheme, the more beneficial modifications suggested by the "sabha" can be sanctioned. As laid down by the Division Bench, the powers of this court can be exercised even suo motu without calling the meeting of all the members or creditors at the time of sanctioning the scheme. In fact, the Division Bench reached its conclusion about what was stated in the above quoted paragraph after referring to and relying upon an earlier judgment of the Apex Court in the case of S.K. Gupta v. K. P. Jain [1979] 49 Comp. Cas. 342 and a judgment of the Gujarat High Court Tungabhadra Industries Ltd. v. National Dairy Development Board [1984] 55 Comp. Cas. 107 . 40. In the case of S.K. Gupta s case ( supra ) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the court has power to deal with the scheme of compromise or arrangement for the purpose of making it workable and it has power to substitute, by way of modification, one sponsor for another. That the identity or the sponsor is not something basic in the structure of the scheme. Whether or not it is of the essence of the scheme or a basic element in the scheme, is a question of fact depending on the circumstances of each case. Even if one has to proceed on the assumption in certain cases it may be a basic element in the scheme, whether or not it is a basic element is a question which can be examined by the court. 42. It was next sought to be contended that the modifications suggested by the sabha was effectively a scheme by the sponsor who was not a person who could propose a compromise or arrangement under section 391(1) of the Companies Act, 1956, insofar as the sponsor was not the company, its creditor or member. This submission must be stated to be rejected as the modification to the scheme is not put by the sponsor but in fact, it is put up by the union which represents the workers. It was conceded that the workers who are yet to be paid are creditors of the company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was hereby authorized to appoint advocates, counsel, affirm affidavits, and to do all such acts and deeds as may be required for giving effect to the aforesaid matter. In my view, what is important from the point of view of the workers is that the textile unit is established and run. The scheme as modified by the sabha offers a bank guarantee to the tune of Rs. 13,27,99,395 to secure the performance of this promise. The scheme envisaged the opening of a textile unit within a maximum period of 18 months from the date of possession including construction of factory building and installation of plant and machinery. The sponsor and the sabha has undertaken to re-employ all the eligible workers who opt for re-employment and commence operations within 18 months from the date of the final sanction of the scheme. The bank guarantee can be enforced by the Official Liquidator in case of default. They have agreed to furnish this bank guarantee to the Official Liquidator within 90 days by the sanction of the scheme by the High Court and in my view the giving of such a guarantee secures the performance of the promise to revive a textile unit. 44. In the net result, the following order is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the Sabha dated 22-12-2006; ( vii )That the sponsor will be responsible for meeting any contingent liability that may arise from the setting up of the textile unit; (C) After the deposit of Rs. 52,07,50,000, on the filing of a further affidavit by the secured creditor M/s. Bali Properties and Investments (P.) Ltd., accepting the modified scheme as sanctioned by this court, the secured creditor will be at liberty to withdraw the said amount unconditionally if he withdraws Suit No. 3290 of 1986, and subject to giving solvent security to the satisfaction of the Prothonotary and Senior Master, if he chooses to peruse Suit No. 3290 of 1986. It is made, clear that withdrawal of this amount on furnishing solvent security will not prevent the secured creditor from perusing Suit No. 3290 of 1986 or from executing any decree for an amount exceeding Rs. 52,07,50,000 with interest accruing thereon as on the date of the decree against the properties of the company. If, however, there is no affidavit accepting the sanctioned scheme filed within 30 days from the date of deposit then this amount of Rs. 52,07,50,000 will be transferred by the Prothonotary and Senior Master to the account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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