Richa Jain v. Registrar of Companies — 1988 DIGILAW 90 (RAJ)

P.C. Jain, J.-Miss Richa Jain, petitioner in Company Petition No. 19 of 1985 and Universal Investment Trust Ltd., in Miscellaneous Petition No. 20 of 1985 have prayed that the order of initiation of winding up proceedings against Sahu Minerals and Properties Ltd. on the petition of the Registrar of Companies, Rajasthan, be declared illegal and the order of winding up dated August 8, 1978, be quashed. In both the petitions, an application has been filed under Section 391(2) of the Companies Act, 1956, for sanctioning a scheme of compromise and arrangement between the creditors and the company, Sahu Minerals and Properties Ltd. Since in both the petitions the factual position and the legal points involved are the same, they are being disposed of by this common order. 2. Briefly stated, the facts of the case are that the Registrar of Companies filed a petition for winding up of the company, Sahu Minerals and Properties Ltd. (hereinafter referred to as “the company”) under Section 395(5) read with Section 433(c) of the Companies Act, 1956. The winding-up petition was admitted by this Court on April 6, 1977, and notices were issued and the notices were also published. The case proceeded ex parte, against the company and ultimately this Court, vide its order dated August 8, 1978, passed a winding-up order. After the passing of the winding-up order, the official liquidator attached to this Court took over possession of the company’s properties. The official liquidator, during the winding-up process, moved an application before this Court being Miscellaneous Petition No. 157 of 1984, for fixing some date to notify claims as required under Rule 147 and to publish an advertisement in the newspapers under Rule 148. During the course of winding-up proceedings, this Court, vide order dated December 27, 1987, passed in Miscellaneous Petition No. 186 of 1984, allowed the official liquidator to dispose of the property of the company situated at 19-A, Alipur Road, Calcutta, and invite tenders for the sale of the said property. In both the petitions, it is contended that the property, which was proposed to be auctioned and sold as aforesaid, is under the security and charge of Universal Investment Trust Ltd. and without first getting the charge of the said company cleared and getting the title deed released from the said company, no sale or auction proceedings should have been allowed or commenced. In both the petitions, the petitioners have challenged the winding-up order on various grounds. It is contended by the petitioners that Sahu Minerals and Properties Ltd. is a mining company, both under the provisions of the Coking Coal Mines (Nationalisation) Act, 1972, as well as the Coal Mines (Nationalisation) Act, 1973, and, as such, in accordance with the provisions of Sections 28 and 32 of the aforesaid Acts, no proceedings for the winding-up of Sahu Minerals and Properties Ltd. could be initiated except with the previous sanction of the Central Government and, because no such sanction of the Central Government was obtained for moving the petition for winding-up, consequently, the order dated August 8, 1978, passed by this Court for winding-up of the company, is not valid. It is also contended that the winding-up petition was filed under Section 439(5) read with Section 433(c) of the Companies Act and Section 433(c) provides that if a company does not commence its business within a year from its incorporation or suspends its business for a whole year, then the said company may be ordered to be wound up by the Court on an application filed by the Registrar of Companies and such application should be filed by the Registrar only after obtaining the previous sanction from the Regional Director, Company Law Board, and, since no such sanction was obtained by the Registrar, the proceeding initiated for winding up was bad in law. It is also submitted in the petition that the mandatory provisions which require to be observed by the Court for issuing a notice under Rules 24, 99, 112, 113, 147 and 148 were not observed. In the premises, it is contended that in view of the various infirmities and non-compliance of the mandatory provisions of law, the winding-up proceedings against the company were bad and a prayer is made in both the petitions to quash and set aside the winding-up proceedings and the winding-up order passed by this Court on August 8, 1978, and further proceedings taken for sale and auction of the company’s property. 3. During the pendency of these petitions, the petitioners have filed a petition under Section 39 1(2) of the Companies Act for sanctioning a scheme of compromise and arrangement between the creditors and members of the company in liquidation. 3. During the pendency of these petitions, the petitioners have filed a petition under Section 39 1(2) of the Companies Act for sanctioning a scheme of compromise and arrangement between the creditors and members of the company in liquidation. On behalf of the petitioners, a draft scheme of compromise was filed, copies of which were given to the Counsel for the Registrar of Companies and Counsel for the official liquidator. Shri R. P. Garg, an advocate practising in this Court, was appointed as chairman for conducting a meeting of the creditors and shareholders by order of this Court dated December 19, 1986. 4. Inboth the petitions, returns have been filed by the Registrar of Companies, respondent No. 1, and the official liquidator, respondent No. 2. The Registrar of Companies opposed the application under Section 466 of the Companies Act for quashing and setting aside the order of liquidation and, also the application under Section 391 of the Companies Act for sanctioning of a scheme of compromise and arrangement. The official liquidator, in his reply, has also opposed the petitions. In the reply, it is submitted that the provisions of the Companies Act were not violated before the order of winding up was passed. It is also submitted that the petition under Section 466 of the Companies Act is not maintainable at the instance of contributories or shareholders and creditors of the company in liquidation. The official liquidator has also opposed the sanctioning of the scheme of compromise/arrangement. 5. Shri R. P. Garg, who was appointed as chairman to convene a meeting of the creditors, debenture-holders, shareholders/members of the company in liquidation, has submitted his report to this Court. The report is dated December 21, 1987. In the report, Shri Garg, the chairman of the meeting, has submitted that he summoned by notice and also by advertisement the creditors, debenture-holders, shareholders/members of the company in liquidation. The meeting of the creditors was held on February 21, 1987, at 10 a.m. and the meeting of the debenture-holders was held at 2 p.m. It is also submitted in the report that 10 creditors, including one secured creditor, who were entitled to a total claim of Rs. 10,76,545, attended the meeting and the meeting of the debenture-holders was attended by six persons who were entitled to a claim of Rs. 10,76,545, attended the meeting and the meeting of the debenture-holders was attended by six persons who were entitled to a claim of Rs. 84,500 and the meeting of the shareholders was attended by 11 persons and the value of the shares together amounts to Rs. 14,60,200. In the meeting, the chairman read out the proposed compromise/arrangement and the creditors, debenture-holders and shareholders approved the arrangement which was placed by the chairman in the said meeting. The proposed compromise arrangement was unanimously approved by them. In the meeting, the members/shareholders were of the opinion that the compromise arrangement should be approved and a modification was suggested that the accounts of the company would be kept up-to-date as far as possible, and in future necessary compliance with all statutory provisions of the Companies Act would be carried out. It was also proposed that every effort should be made to resume the business of the company as early as possible in the interests of all concerned. After the submission of the report of the chairman, the company presented a petition to the Court for confirmation of the compromise/arrangement contending that the compromise/ arrangement be sanctioned by the Court so as to be binding on all the creditors, debenture holders, shareholders and members of the company. In the petition, it was contended that Sahu Minerals and Properties Ltd., in liquidation, were working on coal mines and marble mines. However, the coal mines were nationalised by the Government of India under the Coking Coal Mines (Emergency Provisions) Ordinance, 1971, replaced by the Coking Coal Mines. (Emergency Provisions) Act, 1971, and the Coking Coal Mines (Nationalisation) Act, 1972, as well as the Coal Mines (Nationalisation) Act, 1973. It was also contended that the company had three mining leas’es at village Bar, District Pali, Narvar, District Ajmer and Devimata Kalkot, District Udaipur. The said three mining leases were cancelled due to nonpayment of ground rent. The company in liquidation also submitted that the financial position of the company is as per the claims filed with the liquidator. It is also suggested in the application that it would be in the interest of creditors and the shareholders that the scheme proposed by the petitioners be sanctioned by the Court. The company in liquidation also submitted that the financial position of the company is as per the claims filed with the liquidator. It is also suggested in the application that it would be in the interest of creditors and the shareholders that the scheme proposed by the petitioners be sanctioned by the Court. As per the scheme, the dues of the creditors shall be paid in instalments as mentioned in the scheme and thereafter the mining business of the company shall be revived. The revival of the company and its business shall be advantageous to the creditors and shareholders inasmuch as their dues will be settled as per the schedule of payment as mentioned in the scheme. The liquidator shall settle the dues at the rate of 20 % of their legal dues which shall be paid in six monthly instalments commencing after the moratorium of two years from the date of sanction of the scheme by the Court. It is also mentioned that instead of issuing equity shares as mentioned in the original scheme submitted to the Court, the same shall be paid in cash in instalments as mentioned above. 6. In the petition, the terms of the compromise/arrangement as embodied in the scheme of arrangement and particulars of modifications, which were unanimously adopted, are given. The amended scheme of arrangement as approved by the creditors, debenture-holders, members/shareholders has also been placed on record, as annexure 3 with the petition under Rule 79 of the Companies (Court) Rules, 1959. 7. A notice was issued to the Director, Company Law Board, Kanpur, for filing a representation against the application under Rule 79 of the Companies (Court) Rules. 8. In this matter, I have heard learned Counsel for the petitioner as well as Counsel for the respondent company, Registrar of Companies, official liquidator and Counsel representing the Company Law Board. 9. It is a well settled principle of law that before the Court accords its sanction to any scheme of compromise/arrangement, it would normally expect to be satisfied about the following matters: 1. Whether the statutory provisions have been complied with or not; 2. Whether the class or classes have been fairly represented; and 3. Whether the arrangement is such that a man of business would reasonably approve. 10. The official liquidator has filed a reply raising objections in the matter of the scheme of compromise/arrangement. Whether the statutory provisions have been complied with or not; 2. Whether the class or classes have been fairly represented; and 3. Whether the arrangement is such that a man of business would reasonably approve. 10. The official liquidator has filed a reply raising objections in the matter of the scheme of compromise/arrangement. The main objection raised by the official liquidator about the scheme of compromise/arrangement is that the scheme is vague, unjustified and illusory, It is also submitted by the official liquidator that the scheme of compromise is not workable at all. 11. On behalf of the Regional Director, objections have also been submitted. It is also stated in the objections that the application has not been filed in the prescribed form as required by Rule 11 of the Companies (Court) Rules, 1959. It is also stated that the petitioner has not disclosed all material facts relating to the company, such as the latest financial position of the company along with the latest audit report thereof It is also objected for the reason that the scheme is discriminatory inasmuch as it contemplates payment in full to some of the secured creditors whereas in respect of the unsecured creditors only 20% of the amount due is proposed for payment in instalments after a moratorium of two years from the date of sanction of the scheme by the Court. 12. The petitioner, Richa Jain, has filed a reply to the objections. In the reply, the petitioner has submitted that there is no infirmity in the petition, as the petition has been filed correctly in accordance with the relevant provisions of the Companies Act and the Companies (Court) Rules, 1959. The petitioner has also submitted that she has disclosed all material particulars relating to the company including the latest financial position as obtained from the books of account lying in the custody of the official liquidator. It is stated that the position of accounts as available on March 31, 1987, would show that during the period from the date of winding-up order in the year 1978 till March 31, 1978, the official liquidator had received an approximate sum of Rs. 8,44,246.26, out of which he had spent a sum of Rs. 3,79,136.06 approximately towards payment of profession fee, travelling expenses, salary to staff and publication charges, leaving a balance of Rs. 4,64,110.20, out of which Rs. 8,44,246.26, out of which he had spent a sum of Rs. 3,79,136.06 approximately towards payment of profession fee, travelling expenses, salary to staff and publication charges, leaving a balance of Rs. 4,64,110.20, out of which Rs. 4,57,000 had been kept in fixed deposit with the bank from time to time. 13. I havegiven my thoughtful consideration to the submissions made by Shri Bhandari, learned Counsel for the petitioner, and Shri Keshote, learned Counsel for the official liquidator, and Shri B. P. Gupta, learned Counsel for Regional Director, Company Law Board, Kanpur. I have also gone through the record of the case and the scheme for which approval is sought. 14. The petitioner, in her application, has sought that the scheme is for the purpose of revival of the company by adopting various measures and taking steps as envisaged. The petitioner has also stated that after the coalmining business of the company was nationalised in the years 1971 and 1973, she carmot run the business of coal mining. As regards cancellation of mining rights in respect of marble leases, the petitioner has contended that it will be revived. She has also submitted that the company may start other businesses in accordance with the objects of the company. 15. As regards compliance with the statutory provisions, I am of the opinion that the petitioner has filed the petition correctly in accordance with the provisions of the Companies Act and the Companies (Court) Rules, 1959, and there is no infirmity in the same. The petitioner had also disclosed the required particulars of the assets and also source of funds for starting the business after revival. The position of accounts as available on March 31, 1987, has also been given. From the record, it appears that a sum of Rs. 4,57,000 had been kept in fixed deposit with the bank. The petition is not ambiguous. In the scheme, the necessary particulars have been given. The petitioner has given all the required particulars of the shares held by her in the company. The petitioner is also holding more than one lakh ordinary shares in the capital of the company which constitutes more than 25 % of the paid-up capital of the company. 16. In the scheme, the necessary particulars have been given. The petitioner has given all the required particulars of the shares held by her in the company. The petitioner is also holding more than one lakh ordinary shares in the capital of the company which constitutes more than 25 % of the paid-up capital of the company. 16. The scheme of arrangement as proposed by the petitioner was discussed in all its details during the meeting convened for the purpose and all those persons primarily concerned with the company have approved the said scheme with minor modifications. The scheme, thus, has the approval of creditors and members whose vital interests in the company are really at stake. The scheme has been properly considered and approved, as would be evident from the report of the chairman. 17. The scheme is fair and reasonable and is not mala fide. No allegations of mala fides have been alleged. The scheme is fair and reasonable as it has been approved by the creditors and members in the meeting held for this purpose. The scheme is also fair as it is based upon correct information as to the affairs of the company and has the independent support of the body of creditors who have given their assent to the scheme. The scheme is fair and reasonable as there is nothing on the record to show that the object of the scheme is to cover the deeds of delinquent directors. There is nothing on record to prove or to infer that the scheme is put forth with a view to cover the misdeeds of directors of the company. In my opinion, the scheme appears to be feasible and workable also. Thus, all the three requirements as discussed above, for sanctioning of the scheme of compromise, are fully satisfied in the facts and circumstances of the case. 9.18. In the premises atoresaid, sanction is hereby accorded to the scheme of compromise/arrangement in the meetings held on February 21, 1987, a copy of which is annexed to this order. All parties who appeared at the hearing should bear their respective costs except the official liquidator whose costs should be given out of the company’s funds. The cost payable to the official liquidator is quantified at Rs. 1,500. A direction is given to official liquidator for return of possession of the company. 10.19. All parties who appeared at the hearing should bear their respective costs except the official liquidator whose costs should be given out of the company’s funds. The cost payable to the official liquidator is quantified at Rs. 1,500. A direction is given to official liquidator for return of possession of the company. 10.19. For a proper working of the compromise or arrangement, a committee of the following person is constituted:-Shri. vs. L. Mathur, Advocate, Jaipur. 120. It is also directed that a certified copy of the order shall be filed with the Registrar of Companies within 14 days from the date of the order. It is also observed that after passing of the order sanctioning compromise/ arrangement, the official liquidator may submit to this Court within a period of four months a report on the working of the compromise/arrangement. It is also directed that any person interested in the matter shall be at liberty to apply to this Court for any direction that may be necessary in regard to the working of the compromise or arrangement or for passing an appropriate order under Sub-section (2) of Section 392 of the Companies Act. It is also declared that the compromise/arrangement as sanctioned by this Court shall be binding on the creditors, shareholders and debenture-holders and members of the company and also the company.