9911796707
TMI Blog2003 (9) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... the said meetings were duly published in the manner prescribed under the Act and on 14th July, 2000 the meetings were held. In the said meeting Clause 20(xvi) was proposed to be modified by addition of the phrase prior to the implementation of the sanctioned scheme or any part thereof which clause earlier read as Parties will enter into definitive agreements in respect of the real estate project. The two resolutions, one to modify the scheme and the second resolution for approval of the scheme with the above modifications were approved by more than the requisite majority of the three-fourth in number and value of the shareholders and the creditors of the company and were accordingly reported to this Court by the Chairpersons of the said meetings. 3. On 31st July, 2000 the present petition, CP 251/2000 was filed under Sections 391 to 394 of the Act seeking sanction and the approval of the scheme. This Court on 1st August, 2000 issued notice to the Official Liquidator (OL), attached to this Court and the Regional Director, Department of company Affairs, Northern Region, Kanpur as well as the creditors and shareholders of the petitioner company by way of the prescribed pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 141.47 crores, already stood paid. Since M/s DCM Ltd. is still an unpaid vendor to the extent of ₹ 109.7 crores, it has encumbrance on the property of the value of the price owed; (h) Independent builders were appointed by M/s DCM Ltd., in 1996. But due to the actions of the said Builders, the project work stopped in July, 1997. The Petitioner Company had accordingly sold the properties at Bara Hindu Rao /Krishnan in anticipation of the commencement of the construction on the project site and there was enthusiastic response and advances were received from the customeRs. But the cash flows dried up when construction stopped in July, 1997; (i) Since the investments made by the Company in the real estate project had placed a tremendous burden on the cash flow of the Company, it was unable to service its debts due to the halt of the construction in July, 1997; (j) The aforesaid circumstances necessitated the formulation and presentation of the present Scheme which is founded on a feasible debt settlement by the Petitioner Company of the debts owed by it to its Creditors, as well as the fulfillment of the obligations to the customers/flat buyers; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998 is to be paid in three equal installments in the 36th, 48th and 60th month from the date of commencement of construction at the site. The total amount payable is to be bifurcated into interest bearing loan and Zero Coupon Bonds and is to given an equated return to all the secured creditors in a just and reasonable manner. The interest on interest bearing loan for the first 24 months is also to be paid in three equal installments in the 36th, 48th and 60th month from the date of commencement of construction on the site; (d) The Option II grants the choice to the Banks and Financial Institutions to opt for equity and/or property and/or Zero Coupon Bonds in settlement of their dues; (e) The debts owed to DCM are to be repaid in installments spread over a period of 6 years; (f) The Unsecured Creditors, i.e., the flat-buyers, who have cancelled their bookings and the debts of others, will be settled from the first year of the operations of the Company after the sanction of the present Scheme. 8. Thus the applicant company has submitted that the scheme deserves to be sanctioned and approved by this Court as the requisite statutory majority as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The result of the meeting of the secured creditors have been by excluding and including DCM Ltd., and Focus is graphically set out as follows:- Voting Pattern without DCM and Focus Rupees Name of Secured Creditor Voted in favor Voted Against Value of Vote in Rs. Value of Vote in % Total HDFC Limited Yes 241599500 19.59 241599500 ICICI Limited Yes 414212007 33.59 414212007 IFCI Limited Yes 335929361 27.24 335929361 Gruh Finance Limited Yes 81324564 6.59 81324564 Sub-Total 1073065432 87.02 SBI Home Finance Limited Yes 84917991 6.89 84917991 Canara Bank Yes 75198185 6.10 75198185 Sub-Total 160116176 12.98 Total 12331811608 100 1233181608 Voting Pattern with DCM and Focus Rupees Name of Secured Creditor Voted in favor Voted Against Value of Vote in Rs. Value of Vote in % Total DCM Limited Yes 1096208435 47.04 1096208435 Focus Estates Pvt Limited Yes 812400 0.03 812400 HDFC Limited Yes 241599500 10.37 241599500 ICICI Limited Yes 414212007 17.78 414212007 IFCI Limited Yes 335929361 14.42 335929361 Gruh Finance Limited Yes 81324564 3.49 81324564 Sub-Total 2170086267 93.13 SBI Home Finance Limited Yes 84917991 3.64 84917991 Canara Bank Yes 75198185 3.23 75198185 Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) In Cetex Petro Chemicals Ltd reported as MANU/TN/0075/1991 it was held that it is for the members of the company to judge the benefits of a scheme and not for the Company Court. 10. In Miheer H. Mafatlal v. Mafatlal Industries Ltd. reported as [1996] 87 Comp Cas 792, the Hon'ble Supreme Court held as under: ............ The sanctioning court has to see to it 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; that the scheme put up for sanction of the court is backed up by the requisite majority vote as required by section 391, sub-section (2); that the concerned meetings of the creditors of members or any class of them had the relevant material to enable the voters to arrive at 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 ; that all necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors in opposing the scheme. None the less it is essential that the scheme must be a fair and equitable one, though it is none of the business of the court to judge upon the commercial merits which in fact is the function of the creditors and membeRs. (ii) The scheme has not got to be scrutinised by the court with that much care with which an expert will scrutinise it, nor will it approach it in a carping spirit with a view to pick holes in it. If the majority is acting in a bona fide and honest manner, and in the interests of the class that it purports to represent, then, if the scheme is such as fair-minded person, reasonably acquainted with the facts of the case as prevailing at the time when the scheme was sponsored and approved, can regard it as beneficial for those whom the majority seeks to represent, then, unless there are some strong and cogent grounds to show that the scheme was conceived, designed or calculated to cause injury to others, the court will ordinarily sanction it, rather than reject it. While examining the scheme the court should, keeping in view all the aspects of the matter, prefer a living scheme to compulsory liquidation bringing about an end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. The group styled as a class should ordinarily be homogeneous and must have commonality of interest and the compromise offered to them must be identical. (xxiii) General speaking, the creditors of the company should be divided into three different classes, viz. secured creditors, preferential creditors and unsecured creditors. The workers of the company, each to the extent of the first ₹ 1, 000 of his claim in winding up, would be a preferential creditor and indisputably they would form a separate and distinct class. Unsecured creditors will normally form a single class except where some of them are to be treated in a manner different from the rest and have different interests which might conflict. ...... (xxv) The essential requirement of section 393(1)(a) is that the creditors and members who are to assemble in the meeting should have advance information of the proposed scheme of compromise and arrangement and its effect on their interest as member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properly consulted, or that the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme..... 13. In the matter of Rangkala Investments Ltd. reported as (1995)1GLR308 , the Gujarat High Court held as under: ............It would be permissible for the court to accord sanction to a scheme of amalgamation under section 394 of the Companies Act, 1956, even if the scheme contemplates a consequential alteration in the objects clause of the memorandum of association of the transferee company... 14. In the matter of PMP Auto Industries Limited reported as MANU/MH/0112/1991 : 1991(4)BomCR387 it has been held as under: .Section 391 of the Companies Act, 1956, invests the court with powers to approve or sanction a scheme of amalgamation/ arrangement which is for the benefit of the company. In doing so, if there are any other things which, for effectuation, require a special procedure to be followed - except reduction of capital -then the court has power to sanction them while sanctioning the scheme itself. It would not be necessary for the company to resort to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of section 391, it is clear that the object of the section is not confiscation. Although in a meeting held under this section it is perfectly fair for every one to do and express what is best for himself, the court has to see what is reasonable and just as regards the interest of the whole class. What is to be considered by the court is not whether there is a loss of mere nominal, legal rights but whether what has been done is beneficial in a business sense. -A. In the context of the approval of shareholders/creditors obtained subsequent to the meeting fixed by the Court, the following position of law has been laid down in the above judgment of the S.M. Holding Finance Pvt. Ltd. (supra) In the decision of Mazola Theatres (P) Ltd. v. New Bank of India Ltd. [1975] (2) 1975 1 (Delhi), the Court has observed as follows: The meeting contemplated in section 391 is analogous to an extra ordinary general meeting of the company, in as much as a three-fourth majority is required to pass the required resolution. The normal rule is that the consent of the shareholders whether it is unanimous or by a three-fourths majority, must be obtained in a meeting summoned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was absent when the petition was presented, the court allowed a fresh petition to be presented subsequently when the necessary majority was later obtained, without requiring the other class meetings to be held again. Thus not only the Karnataka High Court in the above judgment, but also this Court in Mazola's Theatres (P) Ltd. 's case (supra) have approved the consents given outside a meeting held under Section 391 of the Act. The view of Palmer on Company Law noticed above is also to the effect that such minor irregularities of a subsequent consent will not persuade the court to upset a scheme which has subsequently obtained the requisite majority's approval. 17. I have considered the scheme which has been approved by the requisite majority in the meetings held on 14th July, 2002. There was a slight modification at the end of the clause 20(xvi). Two resolutions were voted by the requisite majority in the meeting. One was for modification of the scheme and the next resolution was for the approval of the scheme with the modification. Section 391(2) of the Act reads as follows:- (2). If a majority in number representing three-fourths ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mary of the scheme has been enumerated in this order. The only surviving objection has been raised in C.A. 1306/2001 by SBI Home Finance. 18. In CA 1306/2001 the SBI Home Finance (S.H.F. for short) through its counsel Shri S.L. Gupta has contended that: (i)₹ 5 crores were advanced by S.H.F. to DEIL and it secured the said loan by mortgage of land building of DCM Limited at Bara Hindu Rao and Kishan Ganj, Delhi. (ii)The DCM Limited is introduced in a motivated manner as a secured creditor and in the meeting of the secured creditors the majority was manipulated by introducing DCM and FOCUS Limited as secured creditor. IFCI, Canara Bank and SHF voted against the resolution and only two secured creditors HDFC (conditionally) and ICICI voted for resolution and Gruh Finance was wrongly excluded from the meeting on technical grounds. (iii)Release of personal guarantees as per para 20(xiv) and release of management fees to promoter only benefits the promoter. (iv)The current booking rates makes the project non-viable. (v)DEIL is not experienced in the real estate business and real estate market is at a low ebb. (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e MOU which are extracted below demonstrate that the DCM has already carried out obligation under the MOU and since the area in question has been allotted to DEIL, and Therefore, DCM cannot be a debtor of DEIL:- 1. DCM hereby offers to sell, out of its total shares, 270, 000 sq. ft. (approximately) in DCM Green Acres and 350000 sq. ft. (approximately) in DCM Techno Plaza to DEIL on the terms and conditions hereinafter stated below- The offer shall be open up to 30th September, 1994 and shall be accepted by DEIL by - a. Signing and returning the duplicate copy of this MOU. b. giving an interest free refundable Security Deposit of ₹ 3 crores to DCM. Out of this, ₹ 20 lakhs are payable immediately and the balance shall be payable not later than 12 months from the date of this MOU. c. entering into specific Agreements to Sell for the above mentioned property. DEIL shall have the flexibility to purchase the above properties in one or more lots spread over the next 4 years and these transactions would be subject to necessary approvals from the Income Tax Authorities under the provisions of Chapter XX-C of Income Tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present Scheme of Restructuring and Arrangement, there is no conveyance of land and title and that when the development is complete, title in each individual flat will be conveyed to the flat buyers by an agreement/deed which will be duly stamped. Consequently no stamp duty is payable at this stage. In any case this Court has power under Section 391 to 394 of the Act to transfer land under the Scheme of Arrangement/Amalgamation 25. In answer to the plea of the SHF that the banks and financial institutions like HDFC, ICICI, IFCI, Gruh Finance and Canara Bank have accepted the scheme because they have stakes in DCM and would be repaid under the DCM's Scheme of Restructuring and Arrangement, it is submitted that the HDFC, Gruh Finance and Canara Bank have no stakes in DCM and are only secured creditors of DEIL and would be paid under the scheme. ICICI has a stake in DCM of ₹ 43.44 crores which amount is payable by DCM under the Scheme of Restructuring and Arrangement. However, the amounts owed by the DEIL, i.e., to the ICICI to the tune of ₹ 37.17 crores would be repaid under the present scheme by the DEIL and not by DCM. Similarly the IFCI has a stake in DCM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of commercial wisdom of the shareholders and the creditors and since they have exercised their franchise in favor of the scheme by a substantive majority, this Court cannot substitute its own judgment for those of the concerned parties. Accordingly, this plea cannot be sustained. 32. Similarly, the pleas about DCM being in breach of its contractual obligation and not being in a position of an unpaid vendor and the differential rate of interest to the secured creditors at the 10% and 12% by the DCM is concerned, this again has been accepted by financial institutions and the banks who are well-versed with the commercial and factual position obtaining and the Court cannot substitute its own commercial wisdom (even if it were to agree with SHF) for those of the creditors and shareholdeRs. 33. As far as plea relating to avoidance of stamp duty is concerned, it has been submitted by the company that as and when the conveyance of the flat is made to the flat buyers by an agreement deed, it will be duly stamped. In my view, in any event whether or not the stamp duty is payable is not the concern of this Court and such issues can be raised by the concerned appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven by DEIL:- a. Demand promissory note for ₹ 500 lacs in favor of SBI Home Finance Limited. b. First mortgage of entire freehold land owned by DCM Ltd., and construction thereon, present and future, situated at Kishanganj and Bara Hindu Rao, Delhi. c. The mortgage referred to above shall rank pari-passu with mortgages to be created in favor of participating lending Institutions/Banks for their proposed term loans. d. Equitable mortgage of flats, present and future, held by the company, on pari-passu charge basis. e. A lien on the receivables of the company against the sale of said flats. It is, Therefore, submitted that neither there is a corporate guarantee of DCM nor a personal guarantee of Director/s and/or pledge of shares given as security to SHF. Learned Senior Counsel for the petitioner has also submitted that whatever security had been given for the finances received by the DEIL shall continue post-restructuring also. 37. I am, Therefore, of the view that the SHF cannot comment adversely in respect of personal guarantees of Director/s and/or corporate guarantee of DCM as in its own case neither a persona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installments spread-over within a period of six yeaRs. The unsecured creditors i.e., flat buyers who have cancelled their bookings and such others whose debts will be settled from the first year of the operation of the company after the sanction of the scheme. 40. Thus it will be readily seen that the secured creditors of the company namely IFCI, Gruh Finance, ICICI, ICICI, HDFC, DCM Ltd and Focus Estates have granted their approval to the scheme. Canara Bank has also agreed to settle as per their letter dated 17th March, 2003. Furthermore there is no objection from any of the unsecured creditors of the company DEIL Ltd. 41. I am satisfied that (a) The statutory procedure for holding the meeting and formulation of the scheme was complied with as per the requirement of Section 391(1)(a). (b) It was approved by the requisite majority stipulated by Section 391(2). (c) There was relevant and adequate material before creditors and members so as to arrive at a informed decision. (d) Section 393(1)(a)'s requirement of placing relevant material before the voters at the statutory meeting under section 391(1) was complied with. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
