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TMI Blog2008 (2) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 it was just, equitable and in public interest that the Company should be wound up under section 20(1) of the Act. 3. This Court has, vide its order dated 9-1-2006, after hearing all the parties, admitted this petition and appointed the Official Liquidator attached to this Court as the Provisional Liquidator of the Company and he was directed to take charge of all properties of all the Units of the Company and was further directed to issue public advertisement in two newspapers, one in English newspaper and other one in vernacular language having wide circulation in the State of Gujarat, Maharashtra and Karnataka. The Official Liquidator was further directed to call for the details of all pending cases filed by or against the Company in different Courts and also the details of the properties which are in charge of the Court Receiver or other persons as per the directions and the orders passed by the Court. The Official Liquidator was further directed to collect the details wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders 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 24-10-2007 observing that if the scheme for revival is entertained, the realisation of the property is bound to be delayed and it may be that if the revival of the Company itself is to take place, no useful purpose may be served for disposal of the property, but at the same time, the expenses already incurred by the OL for preservation of the property and the expenses which may be incurred by the OL for preservation of the property is an aspect, which is required to be considered. The Court further observed that the loss if any caused to the security of the secured assets of the company in liquidation on account of the delay in consideration of the proposal or sanction being granted by this Court is also the relevant aspect, which may be required to be considered. Taking into consideration these two aspects coupled with the objections, the Court found that the matter was required to be considered for putting condition upon the Directors or Ex-Directors of the Company who are moving the propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, 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 stated that the proceedings for winding up of the Company should expeditiously be proceeded further so that the assets of the Company can be sold and the workers may be paid their dues at the earliest. 11. On behalf of the Company, a reply was filed on 11-12-2007 wherein it is stated that the applicant Union has concealed the fact that on the earlier occasion the application came to be preferred being Company Application No. 336 of 2006. The said application was dismissed for non-prosecution. It is further stated that in case of the Company went into liquidation the staff personnel/managerial persons are not entitled to any amount under section 529A of the Companies Act, 1956, while in the case of revival the interest of all the employees including workman and staff persons are taken into consideration and hence, the objection raised by the application Union is not tenable. 12. In the above background of the matter, all these petitions as well as applications are heard together since the winding up peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 banking cooperation with the applicant-company and other consortium banker of SITEL. The said Bank of India, though had consented to the said amalgamation, failed in sharing the charge of the securities of Vadodara and Dharwad Units and had not given even the second charge to the other consortium Bankers. Further, they had also appropriated Rs. 50 lakhs of margin money against an expired Bank guarantee without even informing the applicant-company and when the said guarantee remained uninvoked, whereby the applicant-company's account was wrongfully designated as a NPA. Further, no preshipment finance for export orders against Letters of Credits-LCs and Demand Drafts was provided, resulting in the applicant-company's credibility being affected and export and domestic contracts of almost Rs. 100 crores getting frustrated. These are certain instances among various others which have led to the precipitous fall of the Company, in spite of all Banks concerned had desired the amalgamation of SITEL with the cash rich APS and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 implement the order. The applicant has also paid the inspection fees of Rs. 10,000 but the OL has not acted upon the order dated 4-5-2006. The applicant thereafter preferred Contempt Application against the OL. The same was withdrawn later on. Thus, the OL assured to comply with the order. Bank of India, thereafter, preferred Review Application along with delay application. This Court upon considering the facts and circumstances, rejected the delay condonation application with reasoned order and directed that, even if the delay is condoned then also there is no merit in the case. Mr. Shah has invited the Court's attention to the order dated 8-3-2007. Bank of India, thereafter, moved an application before this Court seeking permission for sale of hypothecated assets of the applicant-company. The said application being Company Application No. 289 of 2006 was allowed. The applicant-company preferred leave to file appeal and appeal with stay application. The Division Bench of this Court directed the OL to give inspection to the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill again have an opportunity to raise their grievance before the Court when substantive petition is filed by the Company for confirmation of the Scheme. Mr. Shah, therefore, submitted that prayer made by the applicant for convening the meeting deserves to be granted. 20. Mr. A.S. Vakil, learned advocate appearing for Bank of India, one of the secured creditors strongly objected to this application seeking direction for convening the meeting. He submitted that before considering this application, the conduct of the applicant-company is required to be seen. Ever since the Company was registered with the BIFR in the year 1998 the conduct of the Company clearly demonstrates that the company is far from serious to rehabilitate itself. In fact, the Company is also not resourceful enough to mobilize funds, much less sufficient funds. In the guise of wanting to settle with secured creditors, etc., and on the pretext of wanting to present a scheme under section 391 of the Act, the company has, since 1998, completely stalled the process of recovery of the legitimate dues of crores of rupees. On the one hand, since 1998 the company has not paid any amount and stalled the process of recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed down and its assets were disposed of. Part of the proceeds would then be used to make payments to the workers and the balance for revival of the company. (iii) 18-12-1998.-At the hearing dated 18-12-1998, the BIFR passed an order, paragraphs 2, 3 and 9 thereof are as follows :- '2. In today's hearing, the Bench noted that as reported by the OA, despite a lapse of almost five months the Company had failed to submit any scheme. Meanwhile several letters were received from the company conveying various developments and asking for extension in time for giving a proposal by three months. . . . Meanwhile the company had also conveyed that while its dispute with foreign collaborator SKF - TMC had not yet been resolved as per the newspaper reports, SKF - TMC itself was closing down its operations before 31-12-1998. 3. On being asked whether OA (IDBI) was aware of the position regarding Company's proposal, . . . As per the status known to her, the Company had not submitted any proposal and instead had written to BIFR seeking time up to February 1999. . . 9. After hearing the submissions, the Bench observed that the Company apparently had not taken any concrete steps in the last fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, March, 1997 and June, 1999. . . 9. The representative of BOI, Shri B.N. Chopra, submitted that there were no delays on their part. The company had come to BIFR in 1998 only, and no one raised objections to its sickness. It was recorded in the minutes of the last hearing also that the company had failed to come up with a scheme. In these circumstances, the question of their issuing NOC should not arise at this stage. The company's proposal envisaging sale of three units had come up now only, to which also their response was positive. Different units of the company were financed by different banks, who held separate charges also. The Company itself was not even in a position to pay insurance premia and maintenance cost but wanted the banks to continue financing it. BOI was ready to do so, depending upon continuations of its first charge on Baroda unit. They had no objection to sale of that unit also, provided the dues of BOI and United Bank of India (UBOI) were set off first. Subject to this and some other conditions already conveyed to the Company, they had no objection to the sale of Baroda unit. 14. Having heard the submissions, the Bench expressed concerned at the slow pace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out approval of BIFR. As such, no justification was seen for its request to allow it to utilise the remaining amount also, leaving the workers of other units suffering for the sake of revival of Dharwad unit. It had failed to remove the alleged illegal possession of the flats at Dhanraj Mahal or enter into any acceptable OTS with the banks. The company had not even acknowledged the debts of the banks and all such inactions on its part pointed to the failure of the management. In view of the foregoing, the Bench issued the following directions :- (a),( b), (c)** ** ** (d)The OA shall issue advertisements seeking offers for change in management of the Company as per the procedure latest by 31-7-2000. . . . . . (e)The company shall provide item-wise details with book values of all its fixed assets and detailed breakup of the liabilities of all the units being closed down, particularly the dues of the workers as on 31-3-1999 to the OA within 15 days. (f),** ** ** (g)The existing promoters are still free to submit their fully tied up OTS proposal after negotiations with all the secured creditors and others in response to the advertisements. . . (vi) 18-1-2001.-At the further h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given, no buyer would have come forward because the machinery and other assets would have fetched only a pittance and the machines could leave been sold only to the 'junk dealers' who would have come to buy the assets. Therefore, it would have been in the interest of the secured creditors to get the company rehabilitated so that their dues could be paid. She stated that if any superior court would have given orders for attachment of the property, nobody could have proceeded in the matter. . . . 25. The Bench after hearing the submissions made by the participants and after noting the directions of the High Court in the case No. 1014/01 dated 14-2-2001, directed as follows :- (a),( b), (c)** ** ** (d)If any acceptable, viable, fully tied, comprehensive proposal emerged at such a meeting the OA would submit the Draft Rehabilitation Scheme (DRS) for the due consideration of BIFR along with copies of such a report and the minutes of the joint meeting. The DRS should be forwarded to the BIFR, company and to all concerned. (e)** ** ** (f)The Company should indicate clearly the sources for all the funds to be brought by them giving evidences for such funds to the OA as already ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held on 31-7-1998 in para-11, the Bench had specifically observed that if the company was anxious for revival, it should not lose sight of one of the main purposes of SICA which was to save employment for the workers. In case the company wanted to close down some of its units, it should follow proper legal procedure for doing the same. 22. . . . The Company gave further clarifications to the OA in April 2001, which were discussed in the joint meeting of the OA held in the same month. The cost of the scheme was for Rs. 81.37 crores, out of which Rs. 15.68 crores were compensation to the employees of Dombivili, Vadodara and Nasik units. The payment of banks, FIs would cost Rs. 21.16 crores and payment of KSIDC/KIADB would be Rs. 2.37 crores and Rs. 15.66 crores for payment of Vadodara lease. Payment to NBFC is Rs. 6.90 crores. Statutory and other dues-Rs. 2.50 crores, production and market expenses from Dharwad-Rs. 4.55 crores. Technology Valuation SKF as per agreement-Rs. 1 crore, cost of new design pattern-Rs. 5.50 crores, start up expenses-Rs. 6.90 crores. The means of finance were through the sale of Dombivili, Vadodara, Nasik plant and two flats (attached by BHC in Mumbai) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on these issues. 27. The learned counsel on behalf of the company was asked to let this Bench know whether the CMD of the Company, Shri Suresh Mehta resigned, entered into an agreement with Shri Bharat K. Patel appointing him as MD and whether such an appointment was in compliance with the company law provisions and also SEBI provisions regarding transfer of management/shares and whether such an agreement had been entered in a transparent manner with the consent of all concerned. Mr. Tasneem Ahmadi stated that this was a complex question and they should be given some more time to submit their reply in this regard.' Thereafter in paragraph 28 the BIFR issued certain directions. (xi) 26-3-2003.-At the hearing of the Reference Case, the BIFR passed an order dated 26-3-2003. In paragraphs 25, 29, 30 and 31 it has been observed/recorded as follows :- '25. On being asked that under such circumstances whether they felt that the Company could be revived, Shri Mehta stated that with the support of BKP there would be chance for revival. He stated that in the joint meeting many of the secured creditors were accepting the proposal of BKP. He stated that Shri Suresh Mehta has become insolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 16-7-2003 to the Registrar of this Hon'ble Court under section 20(1) of SICA, which came to be registered as Company Petition No. 190 of 2003. 5. Original Application No. 14 of 2003 before DRT: (Jan. 2003).-As stated in paragraph 4 of Company Application No. 289 of 2006, Bank of India thereafter filed before the DRT, Ahmedabad OA 14/2003 against the company and others for recovery of a sum of Rs. 3,64,42,148.78 paise. The reliefs have been reproduced in paragraph 4 of Company Application No. 289/2006. The DRT was pleased, by order dated 21-1-2003, to pass/grant certain interim reliefs in favour of Bank of India and also appoint a Commissioner to make inventory of all the hypothecated/pledged securities. 6. BIFR's prima facie opinion : (26-3-2003)/26-6-2003). -Thereafter the BIFR vide its order dated 26-3-2003 formed a prima facie opinion that the Company cannot be revived on a long-term basis and that it is just and equitable that the Company should be wound up. Thereafter, by further order dated 26-6-2003 the BIFR confirmed its earlier prima facie opinion dated 26-3-2003 and directed that the said opinion be forwarded to the concerned High Court along with the earlier orders/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the plant and machineries on the basis that the Company would like to prefer a scheme for revival. This Court by ex parte order dated 4-5-2006 granted Company Application 236/2006. 14. Company Application 289/2006 by Bank, for permission to sell.-In view of the order dated 28-3-2006 passed by the DRT, Bank of India preferred Company Application 289/2006 for permission to sell the hypothecated properties in terms of the DRT order dated 28-3-2006. On 18-9-2006 an order came to be passed wherein it has been recorded as follows :- '. . .The learned advocates appearing on behalf of the respective parties - Shri A.S. Vakil, Shri Rajesh Mankad, Shri Subramanian Iyer, Shri Bharat Jani and Singhi & Company, etc., have jointly submitted that the said order has been obtained by the applicant without serving any copy of the said application upon any of the opponents except Official Liquidator and, in fact, the said order is adversely affecting them. The learned advocates appearing on behalf of the respective parties are justified in making the grievance that the said order has been obtained without serving the copy of Company Application No. 236 of 2006 upon them and without giving any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Baroda and the valuation report is likely to be ready by Monday. Mr. A.L. Shah for the applicant states that since the order dated 4-5-2006 of the learned Company Judge continues to operate, the applicant may be permitted to take inspection as per that order. In view of the above, we direct the Official Liquidator to permit the applicant to take inspection of the properties at Baroda and Nasik in accordance with the order dated 5-6-2006 passed by the learned Company Judge in Company Application No. 236 of 2006, upon deposit of the requisite inspection charges. While giving the applicant inspection of the property at Baroda, the Official Liquidator shall also give intimation to Bank of India.' This Appeal is still pending before Division Bench." 21. On the basis of the aforesaid facts/events/orders Mr. Vakil has submitted that in fact in the hearing dated 26-10-1999 before the BIFR, it was reported that three out of the four units of the Company i.e., Vadodara, Nasik and Dombivili were found to be non-viable and the Company had already mooted a proposal for sale of the said units and utilize the sale proceeds thereof for revival of Dharwad unit. At the hearing dated 27-4-2004 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, Bank of India now apprehends that the Company would withdraw Company Application (Stamp) No. 1862 of 2007 or not remove office objections and thereby allow the said Company Application (Stamp) No. 1862 of 2007 to be dismissed for non-prosecution. It is in the said circumstances and the aforesaid background facts, prevailing since the year 1998 Mr.Vakil has submitted that the present application moved by the applicant-company for convening the meeting be rejected with exemplary costs. 22. Mr. Vakil in support of submission has relied on the decision of this Court in the case of Madhu Textiles Ahmedabad Ltd., rendered in [Company Petition No. 245 of 2002 decided on 27-4-2005] wherein this Court has taken the view that the petitioner-company is not viable and Revival Scheme proposed by the petitioner-company is nothing but merely an eye wash and it is only with a view to buy time so as to dispose of the assets of the Company. There is no real motive to start the production and no material is produced before the Court so as to inspire the confidence of the Court that the unit will really work if some indulgence is shown by the Court. 23. Mr. Vakil has further relied on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion at the meetings. If the Scheme is approved by the requisite majority and substantive petition is filed before the Court thereafter by the mover of the scheme seeking sanction of the Court to the Scheme, the Court examines the Scheme on its merits at that stage. But this is not the universal rule. The Court's power are not circumscribed or restricted. The Court may even refuse to issue any direction for convening meetings when it finds it just and proper in certain exceptional cases and the Court would be reluctant to issue such directions for convening the meetings of creditors and/or shareholders when looking to the track record of the Company and hidden object behind moving such application, the Court is not prima facie satisfied with the scheme. 26. The Company was before BIFR since 1998. During the pendency of the reference before BIFR, several opportunities were given by the Board for revival and rehabilitation of the Company. Even after forwarding an opinion to wind up the Company and forwarding the same to this Court and even during the pendency of winding up petition before this Court, from 2003 to 2006, no scheme has been moved by the Company. Almost all secured credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e winding up proceedings. There is no real motive to start the Company and no material is produced before the Court so as to inspire confidence of the Court that the Unit will really work if some indulgence is shown by the Court. 28. As far as Company Petition No. 190 of 2003 is concerned, after the order of admission, advertisement and appointment of Provisional Liquidator is passed on 9-1-2006, the Official Liquidator has filed his report on 28-4-2006 wherein, inter alia, it is stated that in response to the advertisement issued in the various newspapers, he had not received any objection regarding the winding up of the Company either from the secured creditors and Banks and financial institutions or from any one. On the contrary, he has received four letters in support of the winding up of the Company. Thereafter, an affidavit is filed on behalf of the Company on 22-6-2006 wherein it is stated that upon completion of the work of inspection and thereafter making application for carrying out particular repairs under the supervision of the Official Liquidator or its representative, the Company would be in a position to prefer the application for scheme of revival of the Company. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, accordingly, the Company is ordered to be wound up. 31. Having regard to the facts and circumstances of the case and considering the submissions made by the learned advocates appearing for the respective parties and the authorities cited before the Court, the Court is of the view that there is no substance or merit in Company Application No. 448 of 2007 preferred by the applicant for convening the meeting of various groups of creditors and equity shareholders for considering the scheme of arrangement in the nature of revival and compromise and hence, this application is rejected. Since the application is rejected, amount of Rs. 10 lakhs deposited by the applicant with the Registry of this Court pursuant to the order dated 10-12-2007 is hereby ordered to be refunded forthwith. 32. Since Company Application No. 448 of 2007 is rejected, Company Application No. 500 of 2007 does not survive as it is only meant for joining party in Company Application No. 448 of 2007. This Company Application is accordingly rejected on the ground that the same does not survive in view of the order passed in Company Application No. 448 of 2007. 33. In view of the aforesaid order, Company Petition N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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