9911796707
TMI Blog1993 (5) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... ditibility, the failure of the company to comply with the provisions of the Companies Act and mismanagement of the company by the Directors etc.. The company did not file any reply to the main winding up petition. On the contrary the company conceded its inability to pay and in fact supported the said creditor's petition. It was also alleged in the said petition that the company had transferred its valuable rights in its Connaught Place Office, to a third party for huge underhand payment to the Directors with a view to defraud the company's creditors. The company is also stated to have suffered loss of ₹ 2,38.400.53 in the year 1973-74 and in that year the accummulated losses had risen upto ₹ 27.86,687.91 as against .the paid-up capital of ₹ 18,62,970. It was mentioned that the Directors and their friends and relatives had also given a loan of ₹ 3.75 lacs to the company which they were unable to get back and further that the bankers had declined to grant a further loan to the company. The factory of the company suffered disconnection of electric supply on account of non-payment of electricity bills. In addition, there were certain statutory liabiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. M/s. Misra and Arenja also agreed to purchase the credit of and settle the claim of the Bank. The said Misra and Arenja pending the approval of the Scheme also provided the company through official liquidator after obtaining orders dated 3-12-1984 from the Company Judge on their application being C.A, 666/84, assistance to contest LPA No. 109174 filed by Government against the single Judge's order issuing the mandamus to the Government to sell the property viz. factory land and sheds to the company. Under the said agreement they also agreed that Mr. Seth shall have nothing to do with the result of the said L.P.A. and that cost of the litigation from the date of the agreement would be borne by said M/s. Misra and Arenja. ( 4. ) Following the said agreement Mr. Seth filed a new Scheme being C.A. 26/85 for the revival of the company mentioning the said M/s. Misra and Arenja as financial associates and providing for transfer of 15000 shares to the said M/s. Misra and Arenja and their nominees as provided in the Scheme for approved by the Company Court. On 15-1-1985 the earlier Scheme mentioned in CA 527/83 including the said petition were dismissed as infructuous. On the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that after settling with the Bank M/s. Arenja and Misra stepped into the shoes of the Bank. This and other relevant extracts of the said order are as under: Under this agreement and pending approval of the Scheme in CA No. 26/85 Misra and Arenja claimed to have paid a sum of ₹ 39,87,570.90, and this has not been disputed. This amount is stated to have been paid as under: (1) ₹ 51,000 paid to Seth on 28-11-1984 on the execution of the agreement on account of purchase of shares. (2)Rs. 2,69,000 paid to Seth on 11-2-1985 being the balance amount payable under the aforesaid agreement for the purchase of 13000 equity shares and 2000 preference shares. (3) ₹ 2,44,498.12 again paid to Seth on 11-2-1985 on account of assignment of credits /deposits as mentioned in the agreement. (4) R.s. 19,18.000 paid to Puirab National Rank in the sums of ₹ 14,00,000 on 1-8-1985 and ₹ 1,09,000 on 10-8-1985 and ₹ 4,18,000 on , 8 .5-11)86. (5) ₹ 16,36,707.78 deposited with the Registry of the High Court being price for transfer of land and building to the company through the official liquidator by the Central Government as per judgment of the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank. Seth, Misra and Arenja under which Misra and Arenja became creditors of the company in respect of the amounts due to the bank. It appears to me that the agreement was entered into bona fide and in the interest of the company. It is not disputed that statement of affairs as required under Sub-s. (1) of S. 454 of the Act- was filed giving the details of the debts and liabilities of the company, I am of the view that the creditors named in the statement of affairs be taken to be the creditors for the purpose of the meetings in question except where the credits have been lawfully transferred. In the present case there is no dispute that the credits amounting to ₹ 4 88,996.24 as mentioned in Annexure 'D to the agreement dated 28-11-1984 were rightly transferred to Misra and Arenja. This has been admitted in the replies filed by Seth in CAS 949/85 and 963/85. Misra and Arenja will have to be treated as creditors in place of the persons whose names are mentioned in Annexure D to the agreement with the amounts shown against their names. (emphasis supplied). In the said order, Wadhwa, J. had proceeded to give following directions : (1) The O.L. to substitute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revival of the company Mr. Seth was no longer interested in going along with the said financers or honcuring his commitments under the said agreement and started looking for excuses to frustrate the revival of the company with the help of the financers viz. Misra and Arenja despite having committed to the contrary under the aforesaid agreement. ( 7. ) Mr . Seth also instituted a suit being Suit No. 2621/87 along.with 1.A. 9438/87 praying for interim injunction/cancellation of the holding of the meetings of the creditors and the shareholders. Interim orders were passed and injunction was granted with regard to the convening of the meetings of the transfer of the share:-The court in the said suit also passed an order of injuncion in respect of the meetings to consider the Scheme of Kelvinator, The said I.As. were finally dismissed on May 11, .1988. ( 8. ) The court finally passed an order directing the convening of the meetings of both the Schemes one propounded by LA 26/85 and the other propounded in CA 414/85 giving liberty to anyone attending the meetings of the shareholders and creditors of the company to move for modification/amendment of the Scheme or any of the terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction of transfer of shares when the share certificates and the transfer forms were duly handed over to- the respondent by the appellant and his associates and full consideration which was agreed upon had.been obtained by the transferers from the transferees. So, (he ransaction of transfer of shares was complete in the present case. If the court in its wisdom comes to the conclusion that transfer of shares has been made between the parties validly and the said transfer of shares is not going to adversely affect the public interest or the interest of the Company, there is no earthly reason why the Company Court should not declare such a transaction as valid and direct the registration of shares in the names of the transferees or their nominees in the register of the company. It has been then argued that the transaction in question was unconscionable inasmuch as the appellant was in dire circumstances and had to agree to the transfer of shares in order to come out of the economic hardship which he was facing. The transaction, of shares between the parties is purely a commercial transaction. The transaction has been entered into by the appellant and his associates wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar even in the order of B. N. Kirpal, J. dated April, 1986. Hence, we find no merit in these appeals. We make it clear that the Company Judge would consider the schemes pending before him keeping in: view the public interest of reviving the Company so that job opportunities become available. The Company Judge may also keep in view as to which propounder is having sufficient finances to revive the Company and put it on sound footing, without selling or encumbering the precious land owned by the Company. There' are various considerations which have to be considered by the Company Judge in deciding as to whether he should accept any of the schemes already propounded before him which we need not elaborate further. These two appeals are dismissed. The parties arc left to bear their own costs. ( 13. ) This order of the Division Bench was also challenged before the Hon'ble Supreme Court and only on 12th May, 1993 it came to light that even that challenge had failed and the Special Leave Petition of Mr. H.L. Seth had since been dismissed. ( 14. ) Thus the order passed by D.P. Wadhwa, J. on 20-5-1987 became final. ( 15. ) In view of .the fact of transfer of shares ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.Misra and Arneja have already invested among other thing a sum of ₹ 16,36,707.78 as price of factory land and sheds apart from incurring expenses on stamp duty of ₹ 68,3651- for the execution of the sale deed plus certain other expenses in this connection. It is also not disputed that M/s. Misra Arenja after securing settlement with the Punjab National Bank had stepped into the shoes of the Bank. The said Bank was due a sum of ₹ 24,87,537.00 as detailed in Annexure H to the petition. At the time of hearing, Mr. Lonial pointed out that certain other sums are due to all the remaining creditors of the company and he had offered to pay that in. the Court immediately. As regards shares M/s. Misra and Arenja and their Associates and'/or nominees have already purchased a total 'of 15,000 shares i.e. 13,000 equity and 2000 Preference Shares from Seth Group. They also claimed to have purchased another 958 equity shares from other shareholders of the company. ( 19. ) By an Order dated May 29, 1987, the Court had referred the Scheme in CA 26185 414185 propounded by Sri H.L. Seth M/s. Kelvinator, respectively, to the meeting of the creditors and sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Kelvinator could not muster the majority of the creditors as required under the law. This Scheme could not be passed even at the time of the meeting of the shareholders. For these reasons, the Schemes covered by C.A. 414/85 94187 cannot be accepted and are hereby rejected. Kelvinator had also filed an application being CA 133/85 under Rule 79 of Companies Court Rules, which also stands dismissed in the light of the above. ( 20. ) Coming to the Scheme propounded by Mr. H. L. Seth which is contained in CA 26/85. I find that at the meetings two resolutions were moved proposing modifications to the Scheme, one by Mr. Vipin Galokh of Matchless Industries of India being Resolution No. 2 and the other by M/s. Misra and Aren)a being Resolution No. 1. The resolution No. 2 was adopted by Mr. H. L. Seth. It is the admitted case of the parties that this resolution No. 2 was not approved by the creditors and shareholders of the Company and apparently for that reason no application was made under Section 391(2) of the Act by Mr. Seth who had in fact moved C.A. No. 1082189 alleging that none of the Scheme could be approved at the said meetings. ( 21. ) Resolution No- 1 moved by M/s. Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. ( 24. ) Before dealing with the above let me notice a few submissions made at the bar on behalf of M/s. Misra Arenja. It was submitted that under the Scheme all government dues in respect of liabilities to various authorities such as sales tax, income tax and local authorities which may be found to be finally due and payable by the company would be paid in full; and ( 25. ) The remaining shareholders of the company hotding the balance 2371 shares would be free to retain their shares and incase they wish to sell. Mis. Misra Arenja will buy the same at. par. ( 26. ) Mr . Lonial has also sought directions from this Court to the Commissioner, Sales Tax to suo motu set aside the exparte assessment for the year 1973-74 to 1977-78 and remand the cases for fresh assessment on merits. It is submitted that all these exparte assessment are highly exaggerated and have resulted from inaction of the Official Liquidator- It was vehemently argued that in case Mr. Seth had cooperated with the official Liquidator, the amount would have come to much smaller figure. It is not disputed before me that with Mr. Seth's help the figure of the Sales Tax dues could come down drastically. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hndiratta and S. L. Gupta (Excise and Taxation Officer on behalf of Sales Tax Department) and Kelvinator have filed their respective objections against the sanction of the Scheme. As already observed Mr. H. L. Seth had earlier also propounded a Scheme which was covered by C.A. 527183. Earlier the Court did not feel satisfied about viability of the said Scheme as it did not show as to how the resources are to be mobilised. I find the same problem arising in the modification of the Scheme covered by resolution No. 2. In the statement of affairs Mr. H.L. Seth had shown only ₹ 122.00 as the dues of Sales Tax authorities. The amounts due to the creditors in my opinion could not be changed from what had already in terms been approved under the order dated 20th May, 1987 passed by Wadhwa, J. which order has been upheld in appeal and has since become final. Although the order dated 9th November, 1987 passed by Mahinder Narain, J. pointed out that those creditors whose comptete addresses were not available and who had not been served with notices and appear in response to public notice only would be permitted to vote at the meeting on establishing prima-facie proof of the credits befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en up for hearing by the Hon'ble Supreme Court. If was only on 12th May 1993 from C.A. 669193 that I came to know of the dismissal of the said Special Leaye Petition by the Hon'ble Supreme Court. Mr. J.C. Seth points out that he has filed another Special Leave Petition which is stilt pending. He however conceded that no stay of present proceedings was granted in that Special Leave Petition. In the circumstances, I do not think it appropriate to wait any longer for the outcome of the said petition filed in the Supreme Court. ( 28. ) Coming to the modification by Resolution No. 1 the main and most vehement opposition to the sanction of Scheme came from Mr. H. L Seth, represented by Mr. J. C. Seth, Advocate who is incidentally Mr. H. L. Seth's brother. ( 29. ) I will now deal with the above objections in the order in which they appear. ( 30. ) I feel that whenever a choice is available to court between the revival of the company and its winding up, the Court must as far as possible lean in favour the revival of the company for that will have the prospectus of generating jobs and putting the assets of the company to productive use as against auction of assets and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be a majority in number. The same principle applies to creditors. It will be seen that the majorities are of those who vote, not of those entitled to vote nor of those who are present. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored. ( 32. ) It may further be noticed that the above illustration is not based on any judgement of any Court or any authentic judicial pronouncement in interpreting this expression. ( 33. ) In this case, it may be pointed out that the author has relied Upon (1973) 1 All. F. R.' 134 (Ch.) (139)(3), where it has been observed as under : The purpose is to prevent a numerical majority with a small stake Outvoting a minority with a large stake, e.g. to prevent 51 members with one share each outvoting 49 members with ten shares each. ( 34. ) Mr . Lonial argued that counting of heads erf the persons present. and voting is certainly the right method so long as a poll is nut demanded. But when a poll is demanded the value of proxies cannot be ignored. However, it would be noticed from the facts appearing hereafter that even the numbers and value both criteria have been f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearing as counsel for Mr. H. L. Seth. In addition to these 24, M/s. Misra Arenja had also stepped into the shoes of the Punjab National Bank who war. a secured creditors as has been held by D. P. Wadhwa, J. Thus they had stepped into the shoes of in all 25 creditors. Subsequent to the meeting of course Sales Tax authorities on remand had reassessed the sales tax dues which came to substantially reduced amount, Mis. Misra and Arenja have also offered to pav the said reduced claim of Sales Tax Department as mentioned above. ( 36. ) Coming to the creditors meeting I find that with regard to the statutory creditors claim as well as the. claims of M/s. Misra and Arenja who had placed substantial amount at the disposal of the Official Liquidator were not ordered to be included in the list of creditors even though such payments are matters of court record. The said order of Wadhwa, J. has since been upheld by the Division Bench in appeal and a challenge to the Division Bench order has also failed in the Supreme Court and as such the said order has become final. It is for this reason that I am of the view that only those creditors could be included in the list of creditors and credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than the amounts in the list settled by the court, then the Chairman could not have rejected the claims of Misra and Arenja presented before him and rejected by him. I think this submission is not without merit. As already observed above, I consider that what was intended by the order dated 9-11-87 was that in case any creditor who has not been served with. personal notice comes before the Chairman and presents his claim to substantiate that he is one of the creditors in the records of the company on the date of winding up, then he could be permitted to vote subject of course, to the amounts tallying with the records of the company and the Statement of affairs. No such exercise was carried out by the Chairman, Mr. Lonial has referred to a letter dated 11-11-85 addressed to the assessing authority which has been issued by Mr. Seth wherein Mr. Seth has written I can only help to a limied extent and I am sure that once the records are organised and explained by the competent person who knows the accounts thoroughly there should be no liability of sales tax on the company. Having taken up such a stand, it is surprising that Mr. Seth is not supporting the inflated claim of the Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of their representatives. As such votes of these two creditors represented by person out duly authorised could not have been considered. I find that the votes of the creditors represented and the voting against the resolution were less than those who were represented and voted in favour thereof. ( 41. ) Coming to the value of the votes, I find that while the value of the debts represented by the votes cast in favour of Resolution No.1 of M/s. Misra Arenja came to ₹ 30,80,535.36 without taking into accounts which M/s. Misra Arenja had paid to company to enable it to acquire valuable property and the value of the votes cast against it was only ₹ 1,99/132 which figure also includes the value of the votes of T.I. M. Sales Ltd', and Ralson India Ltd. which were cast by persons who had not been duly authorised in terms of the provisions of Section 187 of the Companies Act. The value of the credit of T.I. M. Sales is ₹ 8293.92 while that of Ralson India Limited is ₹ 4500. I hold the votes by these two parties cannot be taken into account. Votes cast on behalf of the Regional Provident Fund Commissioner and ESIC also could not have been taken into co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and voting. In this fashion the members present tod voting in favour of the Resolution No.1 did exceed the number who voted against the resolution. Another case which is opposite to illustrate the point would be the case of Bhavnagar Vegetable Products Ltd. reported as 1984(55) Company Cases 107 at page 140 and 141(7). In that case as regards the preference shareholders out of 12492 fully subscribed shares, LIC alone held shares of the value of ₹ 10 lacs and at the NDDB meeting four shareholders holding 10017 shares voted in favour of NDDB as against eight shareholders holding only 158 shares who opposed, which shows that NDDE is acceptable to the former who hold the majority of shares The Court had upheld the scheme which was voted by four preference shareholders present and voting as against 8 other shareholders which means that if it was only a matter of head count the scheme could not have been accepted or sanctioned. On the con trary, the discussion and the conclusion in the judgement shows that NDDB was acceptable to the LIC who hold the majority of the shares. Similar was the case of Navjivan Mills Co. Ltd., Kalol reported as 1972 (42) Company Cases 265 at page 321(8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic interest. Industry, and trade as.it will generate employment avenues for a number of persons and also help file growth of commmerece which in turn will result in payment of taxes to the State. ( 50. ) In the light of above discussion, I hold that the objections(i) and (ii) have no merit and are rejected (iii) Mr. Seth next contended very vehemently that the full disclosure of facts has not been made about the affairs of the company to the shareholders and the creditors at the time of the meeting. Mr. Seth did no* give any detail of the material facts which were not disclosed and which would be necessary to unable the court in coming to the conclusion whether the scheme lias been approved by the statutory majority or not. The notices were in fact prepared by the O.L. in terms of the order of the court. Notices were also duly sent to all the shareholders and creditors. In case the present objection is based on nonavailability of audited balance sheet or the non-audit of the company's accounts then I think Mr. Seth himself is responsible for the state of affairs prior to the winding up, as he was the person incharge of the affairs of the company. Mr. Seth contended that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Arenja which is pending consideration before this court. For the above reasons, I do not find guy merit in this objection of Mr. Seth and reject the sain . (iv) Mr. Seth next contended that Mr. H. L. Seth could not have been substituted by M/s. Misra and Arenja as the propounder of the Scheme and he would not have been removed from the position of Chairman of the Management Committee by moving resolution in the meetings of the creditors and shareholders held on July 16 1988. Mr Lonial in reply has submitted that in its order dated 10-4-1986, the court had specifically made it clear that at the meeting the Scheme may be pasted with or without modifications. It was also clarified that it would be open to anyone who would be entitled to move for amendment of any-of the terms of arrangement. In this connection my attention was drawn by Mr. Lonial to the fact that Mr. Seth had moved for modification seeking total ouster of M/s. Misra and Arenja from the Scheme ; selling 2500 sq. yards of the land of the company and giving up rights of the company to appeal in inspect of Sales Tax Assessment cases. The said modifications were defeated by a big majority of votes . ( 52. ) Mr . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter. ( 54. ) In the light of the above discussion. I hold that there is no substance in this objection of Mr. Seth and it is also rejected. (v) The fifth objection raised by Mr. Seth was that the names of Misra and Arenja had not been mentioned in the register of members ot the Company and accordingly votes cast by them for the purpose of ascertaining the number and value thereof cannot be taken into account. Regarding Member Register my attention was drawn to the order dated November 11, 1987 wherein Mahinder Narain, J. had made specific inquiry from Mr. Seth regarding any evidence of delivery of Members Register of the company, but Mr. Seth failed to produce any such document. The liquidator has contended that Member Register was never handed over to him by Mr. Seth. However, in his report on the Scheme and comments on the report of the Chairman, the Official Liquidator has stated that he recorded the transfer of shares in the Share Register of the company and thereafter only the list of shareholders was prepared and filed in the court cm November II, 1987. It appears that the liquidator had reconstructed the records with the help of Mr. Seth or others and might have rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) The next ground of attack by Mr. .T. C. Seth was that the Scheme is not commercially viable and is also not in public interest. While raising this argument Mr. J. C. Seth primarily stressed that the Scheme is in fact unfair and discriminatory towards his client. Apart from this allegation Mr. Seth was unable to point out any other argument or bring to my notice any fact wherefrom such contention of Mr. Seth received any support. All these arguments have already been dealt with in the earlier decisions and I need not go over the same again and T find no merit in contentions of Mr. Seth. In fact, I find this argument rather surprising because the Scheme was orginally propounded by Mr. Seth himself vide CA 26/85 and in that, it has been categorically stated that the Scheme is commercially viable fair and reasonable and now Mr. Seth himself turns around and states to the contrary. The opposition by M/s. H. L. Seth and Subhash Chander is based on factors irrelevent to the merits of the Scheme. I consider that the Scheme which was propounded by Mr. H. L. Seth following the agreement between H. L. Selh and Misra Areja on 28-11-1984 has already been acted upon by the parties concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le had proposed the other resolution modifying his scheme which had the intention of selling the company's assets to raise working capital. He strongly defended the Scheme and submitting that the same had been propounded with the prinicpal object of reviving the sick industrial unit. In the cour e of arguments, he went to the extent to suggest that M/s. Misra and Arenja had also offered not to charge interest on a large part of their credits and investments and to reduce the burden of repayment of their credits and investments, they would t convert a part thereof into hilly paid capitl of the company. He repeated his assertion that the Scheme was originally propounded by Mr. H. L.. Seth himself. Even at the time of propounding the Scheme by Mr. Seth there was no electric power connection available which had been disconnected for non-payment of the bills. He pointed out that the scheme had provided that the Managing Committee to be appointed by the Court at the time of the sanction of the Scheme shall prepare the necessary project report immediately after the power and electricity connections are restored upon payment of the outstanding bills. The scheme had provided that wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meetings of the creditors and shareholders subject to further directions contained hereunder. The Scheme as modified by the resolution No. 1 and by the directions contained hereunder shall form part of this judgement and will be binding on all the creditors and members of the Company :--- 1. M/s- Misra. Arenja shall deposit ₹ 1.83,654.50 with the Official Liquidator within 15 days from the date hereof to liquidate the liability of the company towards the remaining creditors other than revenue authorities, of the company. The Official Liquidator is directed to pay the said creditors after verifying the debts due to them. 2. The amount of ₹ 91.259]- paid by M/s. Misra Arenja to Official Liquidator Which is already lyitaig with the Official Liquidator shall be paid by him to the Sales Tax authorities towards the payment of sales tax dues for the year 1968-69 immediately. A further sum of ₹ 50,520.00 be also placed with the Official Liquidator within fifteen days from today for onward payment of the Sales Tax dues determined on reassessment for the year 1969-70. 3. Commissioner, Sales Tax, Haryana, is directed to exercise suo motu exercise revisional j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project report obtained' and submitted steps be initiated to reconstitute the Board of Directors of the Company after calling an extra-ordinary Annual General Meeting of the members of the Company. The said Board will also continue to be responsible to ensure the progress made in the impiementation of the Scheme. 6(b) Mr. H. L- Seth shall be associated with it by the Management Committee Board of Directors. His services should be availed of in getting the Sales tax assessment re- assessment carried out. Mr. Seth shall be paid a monthly remuneration of ₹ 19,0001- per month plus expenses incurred by him in discharging his duty initially for a period of one year commencing after 60 days from today. Thereafter the Board of Directors;Management Committee may consider the need for his services to be continued or not. I am providing for this association of Mr. H. L. Seth because in my opinion he would be the best man to assist the Managment Committee in getting the assessments I reassessments of Sales Tax by the Revenue authorities completed expeditiously. Mr. H. L. Seth will also be paid a sum of Rs. I lakhs within 30 days from today to enable him to take initial steps for ..... 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