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TMI Blog2008 (11) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... es proposed by Reserve Bank of India and considering the debt funds of GIIC. The rate of interest should at least be 10 per cent p.a. instead of 5 per cent p.a. As regards Loan - II i.e., ₹ 13.76 crores, the petitioner proposed to issue Secured Non-Convertible Debentures (NCDs Series I) coupon rate of face value of ₹ 1 lakh each to the secured lender and repayable within 18 months from the date of issue. However, no interest is proposed on such NCDs which is absolutely unjust and unreasonable. At least interest at the rate of 10 per cent p.a. should be provided on such NCDs. As regards Loan - III of ₹ 66.08 crores, the petitioner proposed to issue Fully Convertible Debentures (FCDs) of face value of ₹ 10 each within three months from the effective date with 0 per cent rate of interest. The FCDs shall be converted into equity shares of ₹ 10 each at a premium of 25 per cent. The conversion of FCDs should be at par (i.e., at ₹ 10 per equity share) and not at a premium as proposed under the Scheme. Since GIIC has objected to the scheme and since the Court found substantial force in the said objections, the proposed scheme shall be binding to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial assistance to the petitioner company. ARCIL suggested the terms and conditions for the proposed restructuring scheme in consultation with the petitioner-company and accordingly the scheme was prepared pursuant to the said terms and conditions. 3. The scheme prepared by the petitioner Company seeks to evolve a customized and contemporary business model and a revised capital and debt structure so that these are resized in line with the business viability and cash flows. The existing loans of the petitioner company shall be restructured on the terms and conditions as stipulated in the scheme. 4. The petitioner company, therefore, filed Company Application No. 525 of 2007, before this Court and this Court vide its order dated 22-11-2007 directed the petitioner company to convene separate meetings of the secured lenders and equity shareholders of the petitioner company, for the purpose of considering and if thought fit, approving with or without modification, the arrangement embodied in the scheme of compromise and/or arrangement. As directed by this Court vide its order dated 22-11-2007, notice of the meetings were sent individually to the secured lenders and equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on modification, the voting took place and scrutineer after verifying the poll paper informed the results as under : ( a )14 equity shareholders used 17 poll papers for the purpose of voting. ( b )14 equity shareholders holding 1,13,83,558 equity shares, representing 100 per cent of number of equity shareholders and 100 per cent of equity shareholding present and voting, voted in favour of modified scheme. Thus, the modification was approved and the Resolution was carried unanimously. The Chairman has reported the result of the aforesaid meetings to this Court by his report dated 3-1-2008. The present petition was thereafter filed by the petitioner on 7-1-2008. 7. This Court has admitted the petition on 8-1-2008. The Court has directed the publication of notice of hearing of the petition in English daily, Indian Express Baroda Edition and Gujarati daily, Sandesh , Ahmedabad Edition. The Court has also directed to serve notice of hearing of the petition on the Central Government through the Regional Director, Department of Company Affairs, pursuant to section 394(4) of the Companies Act, 1956. 8. Pursuant to this order, notice of hearing of the petition has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction under section 391 of the Companies Act, especially, when the petitioner has accepted the status of ARCIL as a secured creditor and no other secured creditor, as on the date of passing of the order dated 16-5-2008, challenged the status of ARCIL, would not have jurisdiction to go into the question of status of ARCIL as a secured creditor. The Court has also no jurisdiction to go into the question whether the assignment is for proper consideration or not, especially because ARCIL is a securitisation Company as defined under the SARFAESI Act. However, without prejudice to its right to take up all the legal contentions which may be available to it, at a future date and without prejudice to its right to challenge the order dated 16-5-2008 insofar as it issues directions against ARCIL and assumes jurisdiction against ARCIL and its rights the deed of assignment of debt executed by ICICI Bank Ltd., in favour of ARCIL was attached along with the affidavit. It is further stated in the affidavit that since ARCIL has recently shifted its office and it was trying to trace the deed of assignment of debt executed by State Bank of India in favour of ARCIL. The purchase consideration for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the GIIC is compelled to reduce the rate of interest drastically it will incur heavy losses and the GIIC is not getting similar concessions which are to be accepted by GIIC under the scheme. It is, therefore, submitted that it may result into non-fulfilment of demands to its lenders. 14. It is further stated in the said affidavit that the financial position of the company is now no longer poor as the petitioner has applied for de-registration from BIFR and the company is already making substantial profits for last few years. Accordingly, company s share price on the stock exchange, which was 52 week low at Rs. 144, went up and once touched high value of Rs. 400. It is, therefore, submitted that the Company is no longer a sick company and hence the Company is not entitled to any concession from GIIC. 15. The GIIC has filed its further objection on 12-8-2008 wherein it is stated that despite the order of this Court, ARCIL has not produced the deed of assignment of debts entered into between ARCIL as well as SBI. It is further stated that the document which is sought to be enforced and relied on in judicial proceedings in the present case is not adequately stamped and requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer amounts than the actual amount of outstanding debt due from the petitioner company in respect of both ICICI Bank Ltd. as well as SBI. Therefore, the capacity of ARCIL to sacrifice under the present scheme is substantially higher, meaning thereby the ARCIL can afford to give up and sacrifice large amount as it was enjoying the benefit of assignment deed at subsequently reduced purchase price. It is, therefore, submitted that the margin between actual purchase consideration and the liability due from petitioner company is substantial. By giving consent to the unreasonable contents of the scheme by ARCIL by sacrificing even full margin amount would not cause any loss to ARCIL. It is, therefore, submitted that the consideration for consent to the draft CDR scheme by ARCIL is substantially different because of much lower purchase consideration paid/payable under assignment agreement under Securitisation Act and the actual transaction. It is, therefore, submitted that the ARCIL and GIIC both are different class of creditors and they form different class of creditors. The GIIC being separate class of creditor, separate meeting ought to have been held by the petitioner company. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question; that the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting member of that class; that all necessary material indicated by section 393(1)( a ) is placed before the voters at the concerned meetings as contemplated by section 391, sub-section (1); that all the requisite material contemplated by the proviso to sub-section (2) of section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a Scheme and the Court gets satisfied about the same; that the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary can pierce the veil of apparent corporate purpose underlying the Scheme and can judiciously x-ray the same. The Company Court has also to satisfy itself that the members or class of members or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accorded to the scheme propounded by the petitioner subject to the modification that the clause in the scheme as to the payment of 60 per cent of the amount due to the unsecured creditor is not binding on the objector/dissenting unsecured creditor. The said dissenter shall be paid the entire amount due within a period of two years with interest on his making a claim within one month. If this claim is not admitted and this claim is rejected either partially or in entirety, then it is open to him to approach this Court for adjudication of his claim and if on such adjudication it is found that the Company is liable, he shall be paid accordingly within a period of two years with interest. 21. Dealing with the objections raised by GIIC, Mr. Mihir Thakore, learned Senior Counsel appearing for the petitioner-company has submitted that the requisite statutory majority of the secured lenders have approved the present scheme. The objections are filed by GIIC only to pressurise the petitioner to offer a better scheme to GIIC than those offered to and agreed by the majority of the secured lenders. He has further submitted that as on cut off date the outstanding debt of GIIC is Rs. 16.71 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its approval. Consequently, it could not be said that the majority shareholders had sacrificed the class interest of the appellant minority shareholders when they voted with overwhelming majority in favour of the scheme. 23. While dealing with and objecting to the contention of GIIC being a different class, Mr. Thakore relied on the decision in the case of Mather Platt Fire Systems Ltd., In re [2007] 79 SCL 432 (Bom.), wherein it is held that where the same terms of compromise are offered to a class of members or creditors, no separate meeting of a sub-class among them is required. The true test is that a class consists of persons whose rights are similar in terms of the compromise. 24. He further relied on the decision of this Court in the case of Arvind Mills Ltd., In re [2002] 37 SCL 660 , wherein this Court has held that while dealing with the contention of the objectors that their interest is not similar to that of other secured creditors, particularly, ICICI and that they constitute a separate class of secured creditors, the Court held that it is not because of the different treatment/treatment given to the objectors that they constitute a separate class of secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dealing with these objections, the Court discussed the controversy between the Company and the objectors in great detail. It was observed by the Court that it is undisputed that on receipt of smaller amount by lending Banks, that assignor assigned their right in favour of ARCIL. Neither the Companies Act nor the SARFAESI Act nor the Contract Act nor the Sales of Goods Act provides that if right to recover debt is purchased at the lower price, the right to recover would stand reduced to the price paid for acquiring their rights. In the said case, ARCIL had paid lower price for acquiring greater right. If a person voluntarily without any pressure, duress or coercion taking into consideration the hard realities of life, sells his property at a lower price, then the law does not stop him from doing so. Any person who purchases valuable property for a lower price, an element of fraud or dishonesty is not associated with it, then he becomes absolute owner of the right purchased by him. In case, the property was to be sold by ARCIL under the provisions of the SARFAESI Act, could objector say that their money should be paid to them in full and ARCIL be paid in proportion to the money whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the class. The Court has addressed a question as to whether formation of the class provides some advantages or disadvantages to the persons of the same class. The Court thereafter held that it would be seen on the touchstone of the equity that whether the Scheme would affect everybody identically. The word identical would not mean in terms of money but it will have to be seen that if somebody is making a sacrifice to the tune of 50 per cent, then everybody should make a sacrifice to the tune of 50 per cent. In that case, classification of creditors has to be on the basis of the terms offered to them under the scheme and not on any other basis. It would be correct to say that ARCIL had purchased the debt at much lower price and would, therefore, suffer lesser in comparison to objectors. But under the later, it would have no bearing upon the Scheme proceedings. The Court ultimately overruled the objection raised by the objectors. 26. Regarding validity of assignment and relevance of the issue of adequacy of consideration, Mr. Thakore relied on the decision of Narain Food Products Ltd. v. Tikam Chand AIR 1973 All. 573 wherein while considering the question as to wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o what the Court of Equity under the circumstances would or would not do, be correct, that it is not open to the defendants, being mere debtors to the estate of the deceased assignor or to his assignee, now to attempt to impeach the settlement. 29. Having heard the learned counsels for the parties and having considered the scheme with objections of GIIC in light of the statutory provisions and decided case law on the subject the Court is of the view that since the scheme is approved by the requisite statutory majority of shareholders as well as secured lenders, the Court does not see any impropriety, infirmity or illegality in sanctioning the scheme. However, looking to the status of ARCIL, of course, a secured lender by virtue of assignment of debts by ICICI Bank Ltd. and State Bank of India, and further looking to the objections raised by GIIC, the scheme in its present form cannot be made binding to GIIC. It is true that in view of the decision of this Court in the case of Core Health Care Ltd., In re ( supra ) judicial propriety demands that ARCIL should be accepted as secured lender. However, one important point may not be lost sight of. When Core Health Care Ltd. In re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improper. Such interest should be provided at least at 10 per cent p.a. ( iii )In CDR Scheme as on cut-off date the proposed amount of loan is shown at Rs. 142.55 crores after restructuring and it is proposed to be settled as under: ( a )Loan I - Rs. 62.71 crores. ( b )Loan II - Rs. 13.76 crores. ( c )Loan III - Rs. 66.08 crores. 32. As regards Loan - I i.e., Rs. 62.71 crores, the petitioner proposed to pay the said amount with interest @ 5 per cent p.a. compounded at quarterly rest commencing from 1-4-2005 and ending on 31-3-2010. This interest at the rate of 5 per cent p.a. is very low and unreasonable looking to the present financial market scenario and even OTS Schemes proposed by Reserve Bank of India and considering the debt funds of GIIC. The rate of interest should at least be 10 per cent p.a. instead of 5 per cent p.a. 33. As regards Loan - II i.e., Rs. 13.76 crores, the petitioner proposed to issue Secured Non-Convertible Debentures (NCDs Series I) coupon rate of face value of Rs. 1 lakh each to the secured lender and repayable within 18 months from the date of issue. However, no interest is proposed on such NCDs which is absolutely unjust and unreaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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