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TMI Blog2014 (1) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... d the second report in the form of affidavit dated 27.9.2013, but it is not disputed by the counsel for the respective parties that the second affidavit is mere reiteration of the objections raised in the earlier report-affidavit dated 17.7.2013. The report of the Official Liquidator discloses that the petitioner in compliance of the order of this Court dated 27.2.2013, has deposited a sum of ₹ 37,87,550/- on 12.3.2013. It has further been stated by the Official Liquidator that no claim has been received from any unsecured creditors of the Company and that the Official Liquidator has not received any complaint against the proposed Scheme of Arrangement and Reconstruction from any person or party interested in the Scheme in any manner. It has further been expressed by the O.L. that except for the above objections, the affairs of the Company have not been conducted in a manner prejudicial to the interest of its members, creditors or to public interest. In the present case, it is not disputed by any of the secured creditors or the official liquidator that the applicant has cleared the outstanding dues of the secured creditors and that the scheme of reconstruction/revival has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the counsel for the parties in Company Petition No.21/2013 which is a petition under Section 394 of the Companies Act (for short the Act ) seeking sanction of the Scheme of Arrangement and Reconstruction between Dhar Cement Limited, the Company under Liquidation, and its shareholders and creditors. 3/ Also heard counsel for the parties on the following I.A.s filed in the Company Petition No.17/2002, which is a petition for winding up of the Company in Liquidation i.e. Dhar Cement Limited :- i. I.A. No.828/2013 filed by one of the promoter of the Company under Section 466 of the Companies Act, 1956 read with Rule 9 of the Companies (Court) Rules, 1959 for permanent stay of the winding up proceedings. ii. I.A. Nos.1621/2013, 1622/2013, 1868/2013, 1869/2013, 1870/2013, 1872/2013, 1873/2013, 1946/2013, 4656/2013, 4657/2013, 4655/2013, 5940/2013, 5943/2013, 5942/2013, 5944/2013, 5945/2013, 5941/2013, 7126/2013 and 7508/2013 filed by the ex workers of the Company in liquidation under Rule 9 of the Companies (Court) Rules, 1959 for directions to the Official Liquidator to settle their dues and to release the payment. iii. I.A. No.4837/2013, 4973/2013 and 4974/2013 filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and the plant and machinery were lying in open condition subject to theft. This Court had permitted the fresh valuation of the property, and though the fresh valuation was done but further steps for auctioning the property could not be taken up. 5/ At this stage Pradeep Kasliwal, one of the promoter of the Company in Liquidation, has filed I.A. No.828/2013 dated 11.2.2013 along with the Scheme of Arrangement and Reconstruction with a prayer, inter alia, to stay the liquidation proceedings by exercising the power under Section 466 of the Companies Act. The same promoter has also filed a separate petition being Company Petition No.21/2013 under Section 391 to 394 of the Companies Act to sanction Scheme of Arrangement and Reconstruction of the Company in Liquidation with a view to revive the said company. He is one of the promoter and ex Managing Director having 27% major shareholding in the Company in liquidation and is a contributory under Section 428 of the Companies Act. The stand of the applicant based upon the judgments of the Delhi High Court in the matter of A.K. Mishra and Another Vs. Wearwell Cycle Co. (India) Ltd. reported in 1993(78) Comp. Cases 252 (Del), in the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A company facing winding up proceedings is expressly included in Section 391(1). It is no longer res integra that Section 391 of the Act would apply even in a case where an order of winding up has been made and the liquidator has been appointed. Though on the appointment of the official liquidator after passing the winding up order and on placing the assets in possession of the official liquidator, the assets become custodia legis but there is no bar for revival of the company, if the real purpose underlying the scheme for reconstruction and revival is bonafide and the scheme is just, fair, reasonable and in public interest. It is also undisputed that while choosing between revival of the Company and its winding up, the Court normally leans in favour of revival of the Company and normally attempt is made to ensure revival of the Company rather than dissolving it. 7/ The Supreme Court in the matter of Meghal Homes (P) Ltd. Vs. Shree Niwas Girni K.K. Samiti and others reported in 2007(7) SCC 753 while considering the similar issue, has held that :- 33. The argument that Section 391 would not apply to a company which has already been ordered to be wound up, cannot be accepted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46.******************************* 47. When a company is ordered to be wound up, the assets of it are put in possession of the Official Liquidator. The assets become custodia legis. The follow-up, in the absence of a revival of the company, is the realisation of the assets of the company by the Official Liquidator and distribution of the proceeds to the creditors, workers and contributories of the company ultimately resulting in the death of the company by an order under Section 481 of the Act, being passed. But, nothing stands in the way of the Company Court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the Company. In that context, the court has necessarily to see whether the scheme contemplates revival of the business of the company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of Section 529 and Section 529-A of the Act. Of course, the court has to see to the bona fides of the scheme and to ensure that what is put forward is not a ruse to dispose of the assets of the company in liquidation. 48.***** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case. 56. In the decision reported at MANU/DE/2353/2005: [2008] 144 Comp. Cases 780 (Delhi) in Re: JVG Leasing (securities and Finance) Ltd. and others, the court found that the propounded scheme for revival was lacking in bonafide, incomplete and not viable. However, the principles which were laid down by the court with regard to consideration of a scheme for revival deserve to be considered in extenso and read as follows :- 24. I am conscious of the principles of law which have come to be established over a period of time though series of judgments that whenever choice is available to the court between revival of the company and its winding up, the court must as far as possible lean in favour of revival of the company. However, that does not mean that whenever a scheme for revival is filed, the court has to automatically and routinely sanction the same. It is also the duty of the court to satisfy itself that the scheme is genuine and bona fide. The court has also to satisfy about the feasibility, completeness and workability of the scheme. The court does not function as a mere rubber stamp or post office and it is incumbent upon the court to be satisfied prima facie abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members on their respective classes have approved the scheme as required by Section 391 sub-section (2). On this aspect the nature of compromise or arrangement between the company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court certainly would not act as a court of appeal and sit in judgment over the informed view of the parties concerned to the compromise as the scheme would be in the realm of corporate and commercial wisdom of the parties concerned. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority. Consequently the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties. This exercise remains only for the parties and is in the realm of commercial democracy permeating the activities of the concerned creditors and members of the company who in their best commercial and economic interest by majority agree to give green signal to such a compromise or arrangement. The aforesaid statutory scheme which is clearly discernible from the relevant provisions of the Act4, as seen above, has been subjected to a series of decisions of different High Courts and this Court as well as by the courts in England which had also occasion to consider schemes under pari materia English Company Law. We will briefly refer to the relevant decisions on the point. But before we do so we may also usefully refer to the observations found in the oft-quoted passage in Buckley on the Companies Act, 14th Edn. They are as under : In exercising its power of sanction the court will see, first that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his, that I do not doubt for a moment that the court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that the proposal was at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it. What other circumstances the court may take into consideration I will not attempt to forecast. In Anglo-Continental Supply Co. Ltd. [(1922) 2 Ch 723 : 91 LJ Ch 658] Ashtury, J., a century later reiterated the very same prepositions as under: Before giving its sanction to a scheme of arrangement the court will see firstly that the provisions of the statute have been complied with; secondly that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and, thirdly, that the arrangement is such as a man of business would reasonably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved, the principle of 'prudent business management test' or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a subsidiary of a foreign company then the test is not only whether the scheme shall result in maximising profits of the shareholders or whether the interest of employees was protected but it has to ensure that merger shall not result in impeding promotion of industry or shall obstruct growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decisions Hoare Co. Ltds. [1933 All ER Rep 105, Ch D] and Bugle Press Ltd. [1961 Ch 270 : (1960) 1 All ER 768 : (1960) 2 WLR 658] that the power of the court is to be satisfied only whether the provisions of the Act have been complied with or that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a) have been held. 2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 subsection (2). 3. That the meetings concerned of 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 members of that class. 4. That all necessary material indicated by Section 393(1)(a) is placed before the voters at the meetings concerned as contemplated by Section 391 sub-section (1). 5. That all the requisite material contemplated by the proviso of sub-section (2) of Section 391 of the Act is placed before the Court by the applicant concerned seeking sanction for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settle the dues of the unsecured creditors. The Company also proposes to offer employment to all its past willing employees on market comparable terms. 12/ In the first state petition filed under Section 391 of the Act being Company Application No.1/2013, this Court vide order dated 27.2.2013, had dispensed with the meeting of the secured creditors taking note of the petitioner's submission that there were 6 secured creditors and their dues were cleared and secured creditors had given the No Dues Certificate. This Court on 27.2.2013 had directed the meeting of the shareholders as well as the unsecured creditors and had also appointed the Chairman/Alternate Chairman for convening the meeting and directed the advertisement in accordance with law. The Chairman appointed by this Court, had submitted the report dated 9.4.2013 stating that meeting of the equity shareholders and the unsecured creditors was held as per the direction of this Court, and the shareholders as well as the unsecured creditors had unanimously approved the proposed scheme. 13/ This Court, vide order dated 27.2.2013, had stayed the winding up proceedings of the Company in Company Petition No.17/2002. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial institution and, therefore, the petitioner be directed to place on record that the financial institutions, being major shareholders, were sent notice while convening the meeting of the shareholders. The counsel for the petitioner has drawn the attention of this Court to the list of shareholders submitted by the Chairman along with the report and also his statement on affidavit dated 7.8.2013 to show that all the shareholders of the Company including the member financial institutions were served with the notice of the meeting with the shareholders, as per the direction of this Court. iv. In paragraph 2(d) the Regional Director has stated that the petitioner should be directed to follow all the procedure as may be required by the appropriate authorities of the Mining Department etc. on the payment of fee, if any, for renewal of licence, other approvals and permissions in the name of the Company on sanction of the Scheme. In this regard, the petitioner has stated in the affidavit dated 7.8.2013 that all applications for necessary approval, licence and permissions will be submitted to the concerned authorities immediately on sanction of the Scheme of Arrangement and Recons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. viii. The Regional Director in paragraph 2(h) has raised objection relating to the dues of the Commercial Tax Department of the State as well as the dues of the workers. In respect of the dues of the Commercial Tax Department, the petitioner in his affidavit dated 7.8.2013 has undertaken to meet all the statutory liabilities of the Company under liquidation in accordance with law. In respect of the claims of the workers, this Court in the latter part of this order has constituted a Claim Committee and has issued suitable directions to safeguard the interest of the workers. ix. In paragraph 2(i) the Regional Director has raised objection relating to the claim of the ex workers, but in this regard the suitable directions relating to constitution of the Claim Committee and adjudication of their claims have been issued in the later part of this order. x. In paragraph 2(j) the Regional Director has objected to unilateral condition of withdrawal of the scheme as contained in paragraph 1.7 part D of the Scheme. In this regard, the petitioner has pointed out that the said objection of the Regional Director is based upon the apprehension, which is unfounded because the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order has constituted a Claim Committee and has issued suitable directions to safeguard the interest of the ex workers of the Company iii. Regarding the objection relating to the preferential dues amounting to ₹ 15,43,98,162/-, it has been stated on oath by the petitioner in the affidavit dated 7.8.2013 that all the dues of the Government will be settled by the Company in accordance with the applicable provision. 18/ Apart from the above, the Official Liquidator has not raised any other objection. The report of the Official Liquidator discloses that the petitioner in compliance of the order of this Court dated 27.2.2013, has deposited a sum of ₹ 37,87,550/- on 12.3.2013. It has further been stated by the Official Liquidator that no claim has been received from any unsecured creditors of the Company and that the Official Liquidator has not received any complaint against the proposed Scheme of Arrangement and Reconstruction from any person or party interested in the Scheme in any manner. It has further been expressed by the O.L. that except for the above objections, the affairs of the Company have not been conducted in a manner prejudicial to the interest of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1873/2013, 1946/2013, 4656/2013, 4657/2013, 4655/2013, 5940/2013, 5943/2013, 5942/2013, 5944/2013, 5945/2013, 5941/2013, 7126/2013 and 7508/2013 have been filed by the 19 workers claiming that they have not been given compensation or wages and other entitlements by the employer i.e. the Company or by the official liquidator. Counsel for the workers pressing these applications has submitted that the pending dues of these 19 workers is about ₹ 60 Lacs. He has further submitted that the scheme of compromise does not take into confidence the workers and Paragraph 4.2 and 1.7 of the Scheme relating to the workers is vague. Learned counsel appearing for the promoter/contributory has submitted that he is ready to settle the pending dues of all the workers, for which a Claim Committee may be constituted by this Court. He has further submitted that whatever claim is settled by the Claim Committee, the promoter/contributory before this court will accept it without any objection and will pay the same to the workers within a time bound period. He has also submitted that all the willing ex workers of the Company in liquidation will be given employment on revival of the Company and he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory before this court within two months from the date of adjudication of claim by the Claim Committee. v. To show the bonafides, the promoter/contributory before this court will deposit a sum of ₹ 30 Lacs with the official liquidator within a period of one month from the date of passing of this order, which will be adjusted against the final adjudication of claim by the Claim Committee. vi. If any ex worker is aggrieved by the adjudication done by the Claim Committee, it would be open to him to file an appropriate application in Company Petition No.17/2002. vii. All the expenses incurred by the O.L. for inviting the claim and the expenses of the Claim Committee will be borne by the promoter/contributory present before this Court. viii. The I.A. Nos.1621/2013, 1622/2013, 1868/2013, 1869/2013, 1870/2013, 1872/2013, 1873/2013, 1946/2013, 4656/2013, 4657/2013, 4655/2013, 5940/2013, 5943/2013, 5942/2013, 5944/2013, 5945/2013, 5941/2013, 7126/2013 and 7508/2013 are accordingly disposed of. 26/ So far as I.A. No.4837/2013, 4973/2013 and 4974/2013 are concerned, it has been fairly agreed by the official liquidator that he will have no objection in signing the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideography of the handing over and taking over possession of the assets will be undertaken by O.L. iv. The applicant-promoter/contributory and the other concerning directors of the Company shall remain prohibited from transferring, alienating or parting with possession of any of the assets of the Company without the leave of the Court. This will not preclude the applicant-promoter to approach the financial institutions for financial assistance and seek creation of charge on the assets of the Company-in-Liquidation by the financial institutions. v. The applicant-promoter will submit six monthly report to the O.L. till the time the Company becomes fully operational. vi. The O.L. shall immediately make available the records of the company and handover the same to the authorized representatives of the Company. vii. All the expenses incurred by the O.L. till the handing over of the assets of the Company-in-Liquidation including the expenses for handing over, will be borne by the applicant-promoter. viii.Company Petition No.17/2002 will remain pending only for the limited purpose of permitting any of the ex worker of the Company to file an appropriate application before th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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