9911796707
TMI Blog2008 (2) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... ANY APPLICATION NOS. 448 AND 500 OF 2007 - - - Dated:- 12-2-2008 - K.A. PUJ, J. A.K. Clerk, Y.F. Mehta and Pavan S. Godiawala for the Petitioner. Janak R. Shah, R.D. Dave, A.S. Vakil, Bharat Jani, Subramaniam Iyer, Raju K. Kothari, Rajesh P. Mankad and Ms. Amee Yajni for the Respondent. JUDGMENT 1. Since all these petitions as well as Company Applications are in respect of the same Company, namely, APS Star Industries Ltd., they are heard together and are disposed of by this common judgment and order. 2. Company Petition No. 190 of 2003 is registered on the basis of opinion forwarded by the Board for Industrial and Financial Reconstruction ( BIFR ) on 16-7-2003 to the Registrar of this Court under section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ( SICA ) stating that despite having allowed enough time and opportunity, it had not been possible to formulate any acceptable revival scheme for the company enabling it to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the Company as a result thereof was not likely to become viable in future and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Petitions, namely, Company Petition Nos. 73, 74, 124 of 1996, 23/97, 50/98 and 161/2000 were disposed of in view of the order passed by the Court on 9-1-2006. Since Company Petition No. 287 of 2003 is also for winding up of the respondent-company and Court is seized with Company Petition No. 190 of 2003 which is also for winding up of the respondent-company, the Company Petition No. 287 of 2003 no longer survives and the same is disposed of accordingly. 6. During the pendency of Company Petition No. 190 of 2003, the Company has moved an application being Company Application No. 448 of 2007 seeking direction to conduct separate meetings of the (Group-A) consists of secured creditors, (Group-B) consists of employees of the Vadodara Unit, (Group-C) consists of employees of Nasik Unit, (Group-D) consists of employees of Dharwad Unit, (Group-E) consists of Unsecured Trade Creditors, (Group-F) consists of unsecured creditors who have given equipments on lease and (Group-G) equity shareholders for considering and if thought fit with or without modification and approval of the scheme of arrangement in the nature of revival and compromise. 7. This Court has passed an order on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further stated that since the illegal closure of the Nasik Unit of the Company was made in or around 1997, the employees of Nasik Unit of the Company have not been paid anything by way of wages. Further affidavit was filed on 4-12-2007 wherein it is stated that in OJ Civil Application No. 354 of 2007 this Court has directed the inspection of the properties of the Company situated at Nasik. Accordingly, the said inspection was carried out on 19-9-2007. It was found that there is only open plot and there is no plant and machinery or building at the site. The same position prevailed when it was inspected before 3 months as directed by this Court to the office of the OL. It is further stated in the said affidavit that the Company does not have any building or plant and machinery and there is only an open plot. It is, therefore, prayed that the workers have not been paid anything for the last 10 years and there is no possibility of Nasik Unit being revived as there is no building, plant and machinery and, therefore, the applicant Union is opposing to the proposed scheme of arrangement in the nature of revival and compromise under section 391 of the Companies Act, 1956. It is further sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The applicant had its main unit at Vadodara and at Dharwad. The SITEL which was before BIFR as of 1992, had its unit at Dombivili and Nasik in the State of Maharashtra. Due to severe financial losses and market goodwill suffered by SITEL, the Operating Agency, i.e., IDBI along with the Financial Institutions of SITEL proposed merger of SITEL with APS. The BIFR vide order dated 10-3-1995 sanctioned DRS finalised by IDBI as the OA of SITEL for amalgamation of SITEL with APS and the said order dated 10-3-1995 was to have retrospective effect as on 1-3-1994. Subsequently due to non-release of the need-based working capital as directed and sanctioned in the BIFR sanctioned scheme, several orders of exports could not be executed and Dombivili Unit closed down in 1996 and Nasik Unit in early 1998. The closure of these units had the obvious cascading effect on the turnover of Vadodara and Dharwad units. 14. Mr. Shah has further submitted that Bank of India which was the consortium leader of the consortium consisting of itself and the United Bank of India, which were the bankers of the erstwhile Associated Precision Spindles (APS) for the reasons best known to it, had stopped all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to submit a viable scheme which, however, was not even proposed. 16. Mr. Shah has, therefore, submitted that all this has happened only because under the compelling circumstances, the former CMD has with- drawn himself from the debentures of the Company and BIFR has forwarded opined for winding up of the Company. This Court has in turn passed the order of admission and advertisement. The review preferred was also rejected by this Court. 17. Mr. Shah has further submitted that the applicant-company to enable itself to float the revival scheme, preferred Company Application No. 236 of 2006 for prayers to direct the OL to permit the applicant and its authorised representatives, including its technical consultants to take joint inventory and inspection and assess all machineries and equipments of the Company s factory premises at Vadodara, Dharwad, Dombivili and Nasik and further sought direction to have trial run of the said machineries and permit to have inspection and take copies of all records in the factory units and at corporate offices at Mumbai. These prayers were granted by this Court on 4-5-2006. The OL has remained silent even after regular correspondence to impleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2005 decided on 30-6-2005 wherein this Court has taken the view that it is not just and proper for this Court to reject the application at the threshold filed by the Company seeking direction for convening the meeting of the Scheme Lenders to consider the scheme of compromise and arrangement between the Company and scheme lenders on the ground that it is mala fide moved and it is fraud on the debenture holders holding more than 2000 debentures of the Company who are reduced to minorities in the present Scheme because of fraudulent classification and placing them in the same class, with Term Lenders and Working Capital Lenders and hence, the present Scheme is illegal and null and void , as alleged by the objectors. The Court has further observed that this fact by itself is not enough to outrightly reject the Scheme especially when such minority will have an opportunity to discuss and deliberate at the Scheme and even if the Scheme is approved at the meeting by requisite statutory majority, despite their valid and strong objections, they will again have an opportunity to raise their grievance before the Court when substantive petition is filed by the Company for confirmation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord, the Bench was satisfied that a package under section 17(2) was not possible in this case and as such it was necessary in public interest to take measures specified under section 18 of the Act in relation to the company. Accordingly, in exercise of the powers conferred under section 17(3) of the Act, the Bench appointed IDBI as the Operating Agency (OA) to examine the viability and prepare a viability study report keeping in view the provisions of section 18 of the Act and the Measures and Guidelines enclosed. 7. The Bench further enquired about the company s response regarding High Court order for repayment of the dues of workers. The CMD of the Company, Shri Mehta, submitted that they had already given a provisional revival scheme to IDBI including the treatment of the workers dues. The workers who had filed a suit in the Labour Court and subsequent contempt petition in the High Court were from the Dombivili unit of erstwhile SITEL which was closed with effect from 1-3-1996. As per the proposal, Dombivli unit which was not in operation, was to be closed down and its assets were disposed of. Part of the proceeds would then be used to make payments to the workers and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out of the four units of the company i.e., those at Baroda, Nasik and Dombivili, were found to be non-viable and the company had mooted a proposal for sale of these units and utilized the proceeds thereof for revival of Dharwad unit along with settlement of the dues of secured creditors and workers. The OA had held joint meetings on 28-7-1999 and 24-9-1999 to discuss this proposal. . . . . 4. . . . The various issues regarding the company were discussed in the joint meetings held by the OA and as per the consensus of the joint meeting held on 24-9-1999, all parties agreed for the sale of three units of the company and the two flats at Dhanraj Mahal, Mumbai and deposit of sale proceed in an interest bearing No Lien Account (NLA) to be used for payment to the secured creditors first and thereafter, for clearance of statutory and workers dues. The balance left would be used for revival of Dharwad unit. All the participating Banks. . . . 5. . . . On being asked, Shri Mehta, submitted that the Company s Dombivili, Nasik and Baroda units, were lying closed respectively from February, 1996, March, 1997 and June, 1999. . . 9. The representative of BOI, Shri B.N. Chopra, submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Vadodara and Dharwad units was also pending due to company s inability to supply the required information. They had already stated that they had no objection to the sale of Vadodara unit, but proceeds thereof as and when received should be used for the settlement of the dues of first charge holders on all assets of that unit i.e., BOI and United Bank of India (UBI). While the banks all along were showing a positive approach and supporting rehabilitation, the company was also expected to keep them informed of the material developments like receipt of Rs. 5 crores from SKF-TMC. The company blaming bankers for non-preparation of a rehabilitation scheme was totally baseless, since they had already agreed to provide NOC subject to some conditions and they were not willing to take any further exposure. The company had not even arranged for the insurance of the assets in spite of receipt of Rs. 5 crores from SKF-TMC and was asking BOI to arrange for it. 18. On a careful consideration of the submissions made, the Bench expressed serious displeasure at the company utilising substantial funds out of Rs. 5 crores received from SKF-TMC without approval of BIFR. As such, no justificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by IDBI. The representative of BOI further submitted that the company had been given various chances to give clarifications on the objections raised by the secured creditors and they had failed on all scores. All secured creditors had asked for filing suit against the company as the company could not initiate any rehabilitation steps despite the adequate opportunity being given to them and the company/promoters had not agreed for bringing any fresh funds for its rehabilitation and the sale proceeds of the assets were inadequate to meet the means of finance. Therefore, they had no justification to once again take up the same issue which had been decided earlier, The Bench should give BOI the permission to file suit against the company subject to the condition that no decree would be executed without the prior approval of BIFR. 21. Ms. Ahmadi also stated that if the banks would have been permitted to file suit against the company, even then the decrees obtained by them would not have been executed without the prior permission of BIFR and the superior courts could have also given some interim orders. Therefore, the banks could not have proceeded against the company. If the advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continue with legal recourse/take the legal action against the Company. To demonstrate their seriousness, the promoters were given time up to 15-7-2001 to deposit Rs. 4 crores or 10 per cent of outstanding dues in a no-lien account with the OA. The company had not deposited the amount and their proposal was found not convincing and projections were too optimistic. The OA, therefore, could not formulate the viable scheme. 9. The Board noted that the company was declared sick in the first hearing and seven hearings thereafter had been conducted. It wanted to know from company whether they had come out with any acceptable, viable proposal or had they ever approached the Board seeking for extension of time with due justifications. The company s representative stated that they were waiting for the valuation report from OA and they could not attend to the preparation of a proposal for revival as they had to attend to the various legal issues pending before them. However, they submitted their first proposal on 13-2-1999 and recently they had submitted another proposal. 10. The OA indicated that the company had got a stay only in regard to the order for change of management through Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of the new promoters. 8. . . . On being asked whether Shri Patel was short-circuiting the SEBI norms for buying the shares of the earlier promoters as per the SEBI norms, she could not reply satisfactorily in the matter and only added that one month time should be given to the new promoters to submit his proposal. . . . 22. The representative of IDBI stated that the agreement for change of management and induction of Shri Bharat K. Patel was null and void and change of management should have been done in a transparent manner and the same had come to them as a surprise. . . 24. It was also noted that the CMD of the company resigned and he had given a letter to IDBI and others stating that he would continue to function as consultant and authorised representative in the interim period as has been requested by the Board of Directors (BoD) of the Company. The Bench also recalled that in the submissions made by some of the secured creditors they had indicated that the agreement entered into by the CMD with Shri Bharat K. Patel was not transparent and without any due approval of the secured creditors and should be declared as null and void . The Board wanted to know how th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble acceptable, comprehensive rehabilitation plan in 30 days. 30. In view of the foregoing and the material on record, the Bench came to the conclusion that despite having allowed enough time and opportunity it had not been possible to formulate any acceptable revival scheme for the company enabling it to make its networth exceed the accumulated loses within a reasonable time while meeting all its financial obligations and that the company as a result thereof was not likely to become viable in future and that it was just, equitable and in public interest that the Company should be wound up under section 20(1) of the Act. The Bench, therefore, formed the prima facie opinion to wind up the company in terms of section 20 of the Act. . . 31. The Bench further directed that keeping into view the request of the company, the Board decided to give them a final opportunity as asked for above to submit their acceptable, viable proposal to the OA within 30 days. They should also deposit 25 per cent of the funds required for the rehabilitation of the company and the same should be kept in an interest bearing No Lien Account (NLA) with the OA. . . If no proposal would be received they sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a or an officer nominated by him as Court Receiver. The Court Receiver submitted his report dated 5-11-2003. As per the said report the outstanding liabilities of the Company towards statutory dues ( i.e., sales tax, Income-tax, P.F., import duty, electricity charges and workers) was approximately Rs. 20 crores. 10. Application Exh. A/16 by Bank of India. It is thereafter that Bank of India preferred the Application (Exh. A/16) before the DRT for permission to sell the hypothecated securities plants, machineries and stocks, which are exclusively charged to Bank of India. 11. Order dated 9-1-2006 in the Petition. This Hon ble Court was pleased by order dated 9-1-2006 to admit the petition, order advertisement thereof and also appoint the liquidator as the provisional liquidator of the company with a direction to take charge of all the properties of all units of the company, Though the company filed a Company Application No. 17 of 2006 for review/recall of the said order dated 9-1-2006, the same was ultimately withdrawn by the Company. 12. Order dated 28-3-2006 of the DRT. The DRT was pleased by order dated 28-3-2006 to permit the Court Receiver for selling hypothecated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Impugned order dated 28-6-2007. The learned Single Judge thereafter pronounced the order on 28-6-2007 and thereby granted permission to Bank of India to sell the hypothecated securities, subject to the terms and conditions stated therein. The valuer has given the valuation report dated 18-9-2007. 19. Company Application (Stamp) No. 1862/2007. In the meanwhile the Company has already preferred Company Application (Stamp) No. 1862/2007 and prayed for therein the following reliefs : ( a )To direct the Provisional Liquidator to give effect to the Orders dated 4-5-2006 passed in Company Application No. 236 of 2006 and the Orders dated 8-3-2007 passed in Miscellaneous Civil Application No. 2890 of 2006 along with O.J. Civil Application No. 337 of 2006 passed by Hon ble Company Judge. ( b )Such other order or orders this Hon ble Court deems fit to grant under the facts and circumstances of the above case. The aforesaid Company Application (Stamp) No. 1862/2007 was notified on board on 6-9-2007 and the learned Single Judge granted time up to 20-9-2007 for removal of office objections. 20. The Company filed OJ Appeal together with Company Application. The Company has suppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd appointing provisional liquidator. In fact none were appeared in the petition "to oppose" the winding up of the company. The scheme which was presented/filed, is also withdrawn on 8-2-2007. No new-better scheme has been presented thereafter for more than 6 months. He has, therefore, submitted that it is now abundantly clear and apparent that the Company has been actually and literally dodging its secured creditors, workmen etc. in the matter of repayment of the huge and legitimate dues since the year 1998. Time and again the company in Reference Case before the BIFR made promises and assurances to file a scheme and/or come with a proposal to settle the dues. The same never happened during the period 1998-2003. During all these years the Company has never even attempted to deposit any amount much less a significant amount to show its bona fides. Simultaneously the Bank of India s hypothecated securities have been deteriorating in value since the year 1998. Such conduct on part of the Company of dodging its secured creditors is not only required to be condemned but the Company has clearly misused and abused the process of law solely with a view not to repay the huge legitimate d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners is to rehabilitate and to revive the company, no useful purpose will be served by remanding the matter to BIFR for passing a fresh order on reconsideration especially when the secured creditors who are class by themselves present in the Court are objecting per se for sanctioning of the scheme. Therefore, it would be an empty formality to remand the matter and/or to hold the meeting to consider the scheme of revival and rehabilitation. 24. Based on the aforesaid judgment and the facts of the case Mr.Vakil has strongly urged that no indulgence be shown by this Court allowing the Company to convene the meeting and application be straightway rejected. 25. Having heard the learned advocates appearing for the respective parties, the Court first proceeds to decide Company Application No. 448 of 2007. This application is moved by the Company through one of its Directors and shareholders Shri Prabhakar D. Takalkar. Earlier also, the Company has moved similar application proposing the Scheme of compromise and arrangement, being Company Application No. 94 of 2007 and the said application was withdrawn with a liberty to file a fresh, modified and better Scheme. It is true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction for convening the meeting. The Court will look at the real intention of the mover of the Scheme and/or genuineness of the Scheme even at the initial stage. The present Scheme lacks bona fides and only intention of the movers of the Scheme is to forestall the winding up proceedings and to restrain either the Official Liquidator or the secured creditors from selling out the assets of the Company. 27. The Court is, therefore, of the view that no useful purpose would be served in convening the meetings of the creditors and/or shareholders. As observed earlier, most of the secured creditors and workers unions are represented before the Court through their advocates and they have not merely supported the winding up of the Company but have also opposed the scheme by tooth and nail. The assets of the Company have been deteriorating day by day and the secured creditors as well as workers are denied the recovery of their legitimate dues through the process of selling and/or liquidating the assets of the Company. Keeping all these facts in mind, which clearly distinguish the case of the Company with that of the other cases relied on by Mr. Ashok L. Shah appearing for the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the President of the Engineering Mazdoor Sangh on 11-1-2007 wherein it is stated that the Management is sincerely making attempts to revive the Company and they are opposing the winding up order. However, this very Union has taken contrary stand on earlier occasion. 30. An affidavit was filed by Mr. R. A. Mehta wherein except giving details of various proceedings and reiterating the same submissions which were made earlier, no new facts were pointed out by the Company. Before BIFR, the Company itself made the proposal to sell Baroda, Nasik and Dombivili Units of the Company. Now, Scheme was moved seeking revival of these units. Before BIFR, Mr. B.K. Patel was introduced as a Successor to persons in management and he has represented the Company before the Court. Now, the persons who presently come forward to take charge of some of the units of the Company are finding fault with said Mr. B.K. Patel. Mere change of guard without any concrete and positive steps including infusion of fresh funds, settling of dues of creditors and workers and/or discharging various statutory liabilities, is not an answer to sustain any scheme for revival of the Company or to save the Company from ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
