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TMI Blog2012 (11) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court of Delhi in CA No. 797/2000 and CA No. 1852/2002 in CP No. 385/2003, sanctioning the scheme under Section 391(2) read with Section 394 of the Companies Act, 1956 (C. Act for short) on the terms set out therein. Objections were raised by Malanpur before the Company Judge against the scheme, in the said Company Appeal. Malanpur in this appeal also impugns the order dated 14th July, 2010 passed in Company Application 1130/2005, as the said order rejects the Review Application. 2. For the sake of convenience we have decided to first take up the appeal preferred by Malanpur. Primarily three contentions have been raised. First, it was submitted that Malanpur was wrongly treated at par with the unsecured creditors or the inter-corporate depositors. Shares pledged with Malanpur had been sold for recovery of their dues, and thus they formed a separate class. The second argument raised was that the principal amount claimed by Malanpur was not Rs.5 crores i.e. the amount of inter-corporate deposit, but included Rs.83,96,465/- payable as interest for which a decree on admission was passed by Calcutta High Court in CS No. 161A/1997 vide order dated 23rd April, 1997. Third, it was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r aircrafts to it. Subsequently, Lufthansa terminated the agreement and the aircrafts given on lease were seized and taken back. The company was liable to pay debts to several creditors, including Malanpur. Malanpur, earlier known as Hindustan Development Corporation Limited, had advanced an inter-corporate deposit (ICD, for short) of Rs.5 crores to the company in November, 1995. The deposit was repayable after one year with interest @ 20% p.a. In November-December 1995, three investment companies of Modi Group viz. Paradise Credit Pvt. Ltd., Kesha Investments Pvt. Ltd. and Modi Overseas Investments Limited pledged 34,00,000, 6,60,000 and 15,00,000 shares respectively (total 55,60,000 shares) as collateral security for the ICDs. (ii) As there was default in payment, Malanpur filed Civil Suit bearing CS No. 161A/1997 before Calcutta High Court. The prayers made in the suit were, inter alia, (i) decree for a sum of Rs.5,83,96,465/- being the principal amount and interest due and payable on the date of filing of the suit; (ii) Interim interest and interest on judgment at the rate of 20% per annum; and (iii) declaration that Malanpur was entitled to sell the said pledged shares b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate deposits had consented but Malanpur had objected, it was directed that a meeting of the inter-corporate depositors should be held. A meeting of the staff creditors was also directed to be convened. (x) Suffice at this stage to notice that Malanpur had filed objections at the time of first motion which were referred to and duly noticed in the order dated 29th July, 2003. The Company Court also examined the contention regarding classification of creditors for the purpose of meetings under Section 391/393 of the C. Act. It was observed that at the said stage it was for the company to decide what/ which class of creditors should be made parties to the scheme. 5. At the said stage Malanpur did not contest or state that they had been wrongly classified by being treated at par with, or in the same class as, the inter corporate depositors, neither did they contest that they constituted a separate class as they had sold the pledged shares. 6. The scheme was unanimously approved by the staff creditors and more than 3/4th of the inter corporate depositors, inspite of opposition and negative vote by Malanpur. 7. Malanpur thereafter filed objections to the second motion. By a deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that case it is not the practice to hold a meeting of that class, but to make the class a party to the scheme and to obtain the consent of all its members to be bound. It is, however, necessary for at least one class meeting to be held in order to give the court jurisdiction under the section." 11. A class consists of creditors or members who form a homogenous group with commonality of interest. A class must be confined to members or creditors whose rights are similar. Their rights should not be dissimilar so as to make it impossible for them to consult together keeping in view their common interest. As defined by Bowen, L.J. 'it seems plain that we must give such a meaning to "Class" as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest." (Sovereign Life Assurance Co. Ltd. v. Dodd 1892 (2) Q.B. 573 CA). 12. Creditors can normally be divided into three categories (which may themselves overlap), of preferential creditors, secured creditors and unsecured creditors. Unsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for just and equitable distribution of the assets of the company amongst various persons interested in it. Consequently, once a company is ordered to be wound up, a scramble for taking away its assets must be avoided. All the assets of the company must be available for just and equitable distribution amongst the various interests having claims against the company. If by some action of creditor this basic concept of just and equitable distribution amongst the various interests having claims against the company is sought to be defeated, the liquidator has to step in and resist such benefit going to some to the exclusion of rest similarly situated. To repeat the words of Lindley J., In re Oak Pits Colliery Co., the object of the winding-up provisions of the Companies Act is to pay all unsecured creditors upon equality and pay them pari passu. This principle has secured statutory recognition in section 511 of the Companies Act, which provides as under: "Subject to the provisions of this Act as to preferential payments, the assets of a company shall, on its winding-up, be applied in satisfaction of its liabilities pari passu and, subject to such application, shall, unless the articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Lufthansa also had a court decree of US$ 5 million. Malanpur, if treated as a separate category along with Lufthansa, would not have succeeded in their objection to the scheme. In that case, Malanpur would have represented 18% and Lufthansa would have represented 82% in value in terms the amount due and payable by the company to the decree holders. We may also note that the decree passed by the Single Judge of the Calcutta High Court is pending challenge before the Division Bench. Lastly, as per the case of Malanpur, they have sold the pledged shares for consideration of Rs.1.39 crores. If this amount of Rs.1.39 crores is reduced from the debt, the principal amount of debt due and payable to Malanpur, i.e. their percentage in value term will come down by more than 25%. 17. The contention of the Malanpur that they should have been treated as a separate class because they were holders of pledged shares or had sold the same was not taken or raised before the learned single Judge in the objections or at the time or hearing/arguments resulting in passing of the order dated 15th July, 2005. It is apparent that this contention was taken subsequently only at the time of hearing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken due proceedings under Section 138 of the NI Act. Naturally, once the amounts as per the scheme are paid, the Spice Jet shall be absolved of any liability in respect of the aforesaid ICDs given by the Malanpur to Spice jet. In such an eventuality, it would always be permissible to Spice Jet to contend before the Court, where these proceedings are pending that amount in question stands paid. The consequence flawing there from can always be taken into account by the Court where these proceedings are pending. In this backdrop once the scheme has already been sanctioned, this ground seeking review of the order is not even available to Malanpur. 29. In Krishna Texport (supra), this Court was of the opinion that Company Court was not empowered to stay criminal proceedings against officers of the company involved in cheating, criminal breach of trust, misappropriation, forgery and dishonor of cheques. Likewise, provisions of Section 391 (6) of the Companies Act, could not be used to bring an end the prosecution arising from Income Tax Act or Foreign Exchange Control Act. Because of this reason, the court also opined that proceedings under Section 138 of the N.I. Act instituted again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinue as they arise out of the failure of the company's Directors to honour the negotiable instrument duly signed by them like a cheque. The proceedings Under Section 138 of the NI Act are not for recovery of claim of money by a creditor for which the remedy would be by filing a civil suit. 33. It can hardly be said that the object of Section 391(6) of the said Act is to prevent action against the officers of the company who may be involved in cheating, criminal breach of trust, mis-appropriation, forgery and for that matter dishonour of cheque. Again the provision cannot be used to bring to an end a prosecution arising from Income Tax Act or Foreign Exchange Control Act. The proceedings are clearly not of a pecuniary nature involving recovery of money. Interestingly, even the scheme stated to be approved at the behest of the respondent company does not envisage bar to any criminal proceedings or payment of any actual amount in the given facts of the case as discussed at the inception of this judgment, but only seeks to extinguish the liability of the appellant on the ground that the respondent is liable to pay a lesser amount, the interest not running, and the claim is alleged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 138 of NI Act can be sustained. The aforesaid observations will be treated as deleted. We clarify that we have not examined or stated what will be the effect in case payment is made under the sanctioned scheme. We have also not examined whether in the said situation the accused would be entitled to ask for quashing of the criminal proceedings. The said aspect will be examined in the criminal proceedings by the court(s) concerned and we express no opinion in that regard. 23. The aforesaid findings, dispose of the company appeal No. 28/2010 filed by Malanpur. 24. This brings us to the appeal filed by Spice Jet Limited and the others i.e. Company Appeal Nos. 1 and 2/2011. The issue raised pertains to 55,60,000 pledged shares which were given as collateral securities for the ICDs. The issue arises for consideration in view of the directions given by the Supreme Court in its order dated 6th July, 2009, passed in SLP(C) No. 17474/2005. The order reads as under:- "By order dated 16th January, 2009 the Delhi High Court in C.M. Nos. 1469-1470 of 2008 in Co. P. No. 385 of 2003 observed that the question regarding forfeiture of shares is pending in the Supreme Court and it would be open t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eded with. The result is that the said execution proceedings have been stayed. We, therefore, need not examine the orders passed in the second execution proceedings. This is not an aspect which should also be examined by this court. What has to be examined and gone into by this court in terms of the directions issued by the Supreme Court in their order dated 6th July, 2009, is the question relating to forfeiture of 55,60,000 pledged shares. We shall be only examining the said aspect. 27. The aforesaid shares were purportedly issued to Paradise Credit Pvt. Limited, Kesha Investment Pvt. Ltd. and Modi Overseas Investment Limited. These three companies are also appellants along with Spice Jet Ltd. in Co. A. Nos. 1 and 2 of 2011. 28. To decide the question raised some more facts have to be stated. These are: (i) During the course of winding up proceedings before this court, C.A. No. 265/2003 was filed by Siddhantha Sharma, Chairman of Royal Airways Limited under Section 343/441 of the C. Act. The application pertained to allotment of the shares to the companies of Modi Group. The allegation was that these shares were tainted and not fully paid up. The holders in question had not paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions inter-alia that the purported board resolution of Royal Airways Limited whereby the Partly Paid Shares were made fully paid up on July 30, 1996, after the institution of the first winding up petition on July 1, 1996, be declared void, as no previous sanction of the Court was taken. The Court vide its orders dated January 28, 2003 in CA 1852/2001 in CA 797/2000 moved by a Trade Creditor of Royal Airways Limited, held that the marking of the Partly Paid Shares as fully paid up, by the purported Board resolution dated July 30, 1996, was not a bona fide transaction and the alleged lease of a certain property was a stratagem device of the S.K. Modi Group to falsely and illegally make the Partly Paid Shares as fully paid up. The articles of Association of Royal Airways Limited authorize Royal Airways Limited to forfeit shares for non-payment of call money within the stipulated period and to reissue the same. Subject to the orders which may be passed in CA 265/2003, Royal Airways Limited proposes to give 30 (thirty) days' notice to the SK Modi Group Investment Companies, to pay the balance call money of Rs.30 per share on the Partly Paid Shares and recover a part of Rs.33.31 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying for certain directions including a prayer for lifting of the Corporate Veil and attaching all the shares of the SK Modi Group. The pledged shares detailed herein were pledged by the group companies of the SK Modi Group and accordingly, on the Effective Date and in order to recover the Rs.33.31 crores due and outstanding from the SK Modi Group investment companies, Royal Airways Limited shall make an application for appointment of a Court Receiver in respect of the Clean Shares and the above Clean Shares shall be sold by the Court Receiver at least two months before the Second Installment Date and the proceeds realized therefrom would be available for meeting the Second Installment. Partly Paid Shares held by Reliance Capital Limited and Malanpur totaling to 88,92,900 as detailed hereinafter, shall also be kept in the safe custody of the Court Receiver and subject to the final outcome in CA 265/2003 shall be re-issued on a rights basis under the Rights Issue as stated hereinabove." 29. CA No. 265/2003, however, did not get decided on merit as the disputes between the Royal Holding Services Limited and "Modi Group" got settled subsequent to the sanction of the scheme. Thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the said settlement, CS (OS) No. 1673/2005 filed by S.K. Modi and others against B.S. Kansar and others, was disposed of on 12th December, 2008. The Memorandum of Settlement forms part of the decree and is binding on the parties. The relevant clause of the said MOS is as under:- 2. Terms of Settlement 2.1 The Parties agree and undertake to make a joint application in CA 797 of 2000 for recording the settlement before the Hon‟ble High Court of Delhi at New Delhi in respect of the Company's shares issued and allotted and to be deemed as fully paid and also the obligations of the Parties in the following manner. (i) The Court Receivers appointed by the Hon‟ble High Court vide orders dated July 15, 2005 in Company Petition No.385 of 2003 are on date holding 92,20,400 (Ninety Two Lacs Twenty Thousand Four Hundred) shares of the Company that belongs to MGE, as set out in detail in Annexure C, MGE agrees that 80,00,000 (Eighty lakhs) of these shares be dealt with by the Company at its absolute discretion without reference or further confirmation from MGE. Towards this end, MGE undertakes to extend full cooperation to the Company including but not limited to execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated Septemeber 11, 1995 shall stand fully extinguished and Agache Associates, shall be free to deal with the lease property, without any claim or objection from the Company; and (v) The parties shall withdraw and/or procure withdrawal of all its litigations/cases pending in various courts against each other in respect of matters being settles herein including C.A. No. 265/2003 challenging the validity of Board meeting dated July 31, 1996. (vi) The Company shall request the Court that the injunction order passed by Justice Mukul Mudgal dated January 20, 2003 in C.A. No. 1852/2001 stands satisfied and be vacated accordingly. 31. In view of the aforesaid position, we do not think Spice Jet or Modi Group can urge and contend that 55,60,000 shares are liable to be forfeited or should be forfeited. The said contention would be contrary to the settlement and stand which they have taken before the company court in CA NO. 634/2009 as well as CS(OS) No. 1673/2005. The compromise and settlement between them clearly stipulates that these shares are not liable to be forfeited. 32. Learned counsel for the Modi Group and Spice Jet had argued and contended before us that sale and transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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