JUDGMENT Hon’ble Sunil Ambwani, J.—Heard Shri Sunil Gupta, Senior Advocate: Shri Ravi Kant, Senior Advocate; Shri Jitendra Sethi and Shri Pushkar Mehrotra for applicant-companies; Shri Vipin Sinha for Punjab National Bank; Shri Tilak Bose assisted by Shri Piyush Agarwal for Malanpur Steels Ltd; Ms Roma Hameed for Hindustan Composite Ltd. and Shri Shambhu Chopra and Shri Ravi Prakash Srivastava for Hindustan Sanitary Ware Ltd. and Rasoi Ltd. 2. This Confirmation Petition under Section 391 read with Section 394 of Companies Act 1956 is for sanction a ‘Scheme of Arrangement’ between Willard India Limited-Applicant No. 1, (WIL) with its registered office at Village Bhandoria, P.O. Aurangabad, District Bulandshahr; Agauta Sugar & Chemicals Limited-Applicant No. 2 (ASCL) with its registered office A-24 Sector V, P.O. NOIDA, District Gautam Budh Nagar; Chitavalasah Jute Mills Private Limited-Applicant No. 3 (CJMPL) with its registered office B-623. Kamla Nagar, Agra 282 004 and Perfect Career Consultants Private Limited-Applicant No. 4 (PCCPL), with its registered office B-623, Kamla Nagar, Agra 282 004 and its respective share-holders and creditors. 3. By an order dated 18.5.2006, the Court issued directions to convene meeting of the equity share-holders and creditors of the four applicant companies to consider for approval the ‘Scheme of Arrangement’. The meetings were convened for 26.6.2006, appointing as Chairman and Alternate Chairman of the meetings. The order dated 18.5.2006 provided : 1. Heard Shri Ravi Kant, Senior Advocate; J.K. Sethi, Advocate and Shri Pushkar Mehrotra for applicant-companies; Shri Rajeev Nanda, Advocate assisted by Roma Hameed and Devyani Ashra in Company Petition No. 8 of 2006 and Shri Pankaj Bhatia in Company Petition No. 49 of 1998. 2. Five creditors winding up Petitions are pending to wind up Willard India Ltd, the applicant Company No. 1. Out of these Company Petition No. 49 of 1998 Mukund Ltd, has been advertised in the year 2000. Willard India Limited has filed this application alongwith three other companies to convene meetings of the share-holders and the creditors (both secured and unsecured) for considering the scheme of arrangement of demerger and to consider an offer to the secured and unsecured creditors for payment of their principal amount at a reduced rate of interest. 3. Willard India Limited has filed this application alongwith three other companies to convene meetings of the share-holders and the creditors (both secured and unsecured) for considering the scheme of arrangement of demerger and to consider an offer to the secured and unsecured creditors for payment of their principal amount at a reduced rate of interest. 3. In the affidavit of Shri Nand Kishor Rawat, Director of applicant company No. 1 filed today, it is stated that the scheme has received in principle approval of the consenting participants of 85.7% of the total outstanding of the respondent. It is contended in the affidavit that petitioning’ creditors represent a small minority of the outstanding of the secured and unsecured creditors. In para 8 of this affidavit, it is stated that respondent company has 6217 workmen on its rolls; 30,000 cane growers supplying cane each year: 42,448 share-holders and 275 fixed deposit holders. The company had total income of Rs. 12870.97 lacs in the ending year 2004-05. By the scheme the companies propose to demerge their business to co-operate as a joint venture, share profits and to expand its activities. 4. Shri Rajeev Nanda, learned Counsel for the creditor-petitioner Hindustan Composites Limited in pending Company Petition No. 8 of 2006 submits that the scheme is not bonafide. He submits that the applicant company No. 1 made several defaults, after extending promises and issued cheques to repay the Inter Corporate Deposits accepted in 1996. It has not even paid the part of the principal amount advanced as long back in the year 1996. He has labelled the scheme as a camouflage to avoid the dues of the creditors, and has pressed for advertisement of his petition. 5. Once a ‘scheme of arrangement’ has been presented to the Court with a request for convening of meetings of the share-holders and creditors to consider the terms which according to the applicant companies has received in principle approval of creditors of 85.7% of the total outstanding, the Court has no jurisdiction to refuse to convening of the meetings. The word ‘may’ in Section 391 of the Companies Act gives discretion to the Court to convene the meetings. This discretion, however, has to be applied on the settled judicial principles for calling meetings to consider the scheme of arrangement. The word ‘may’ in Section 391 of the Companies Act gives discretion to the Court to convene the meetings. This discretion, however, has to be applied on the settled judicial principles for calling meetings to consider the scheme of arrangement. The order convening the meetings shall not be denied unless it is shown that the scheme violates any statutory provision of law or is an attempt to defraud the share-holders or creditors, or is not in public interest. 6. In Rainbow Denim Ltd. v. Rama Petrochemicals Ltd., 2003 Company Cases 640, Supreme Court did not approve of the Company Judge making adverse observations on the scheme. It was held that the appropriate time for the Company Judge to consider the scheme is subsequent to the approval thereof by the shareholders and creditors of the company. 7. The creditor-petitioners have not alleged that the scheme violates any statutory provision of law or is not in the public interest. The petitioning-creditors are in minority but that is not a ground on which the Court may refuse to convene the meetings. 8. Shri Nanda appearing in Company Petition No. 8 of 2006 submits that the participation of his clients in the meetings may not be treated to have waived their rights to realise its debts with agreed rate of interest. He further submits that the Company Petition, in which he is appearing, may be advertised for which he has established good and sufficient grounds to wind up the respondent company. I find that Company Petition No. 49 of 1998 has already been advertised in the year 2000 and thus fresh advertisement need not be carried out. The petitioning creditors do not need any protection. Their participation in the meetings convened by the. Court shall not waive their rights which may have accrued to them and is pursued by them in their company petition. The Court, however, will have to consider the effect of the resolution passed by the majority in the meetings, on the winding up petitions. 9. The scheme also provides for re-schedulement of the payment of principal amount and liability of interest to the creditors. It will be open to each of the creditors or a class of creditors to put their views or to propose modalities of payment, rate of interest and the payment schedules in the meetings. 9. The scheme also provides for re-schedulement of the payment of principal amount and liability of interest to the creditors. It will be open to each of the creditors or a class of creditors to put their views or to propose modalities of payment, rate of interest and the payment schedules in the meetings. Further, they will also have opportunity to object to the resolution if it is carried out in the meetings with or without any modifications. 10. Let the meetings of the share-holders and creditors of the companies be convened on the venue, dates, and time endicated as follows; SN. Name of Venue Date Time No. company 1. Willard India At its registered office at 21.6.2006 At 11.00 a.m. Limited Village Bhandoria, shareholders P.O. Aurangabad, meeting and District Bulandshahr at 2.00 p.m. creditors meeting 2. Agauta Sugar At its registered office at 22.6.2006 At 11.00 a.m. & Chemicals A-24 Sector V, P.O. shareholders Ltd. NOIDA, District Gautum meeting and Budh Nagar at 2.00 p.m. creditors meeting 3. Chitavalsah At its registered office at 23.6.2006 At 11.00 a.m. Jute Mills B-623, Kamla Nagar, shareholders Private Ltd. Agra 282 004. meeting and at 2.00 p.m. creditors meeting 4. Prefect Career At its registered office at 23.6.2006 At 11.00 a.m. Consultants B-623, Kamla Nagar, shareholders Private Limited Agra 282 004. meeting and at 2.00 p.m. creditors meeting 11. Shri Avinash Tripathi and Shri Ashish Srivastava, Advocates are appointed as Chairman and Alternate Chairman respectively for the meetings of the share-holders and creditors of Willard India Limited-Applicant No. 1 and Agauta Sugar & Chemicals Ltd. Applicant No. 2; Shri Rakesh Bahadur and Shri Arun Kumar Singh, Advocates are appointed as Chairman and Alternate Chairman respectively for the meetings of the share-holders and creditors of Chitavalsah Jute Mills Private Ltd. Applicant No. 3, and Perfect Career Consultants Private Limited-Applicant No. 4. They shall be paid Rs. 10,000/- for Chairman and Rs. 5000/- for Alternate Chairman for each meetings and an additional amount of 159% of their professional charges as incidental expenses. The applicant-companies shall make their travel arrangements by A.C. 1st Class and/or the Air Conditioned taxi and their stay at a respectable guest house or a hotel on their request. 12. 10,000/- for Chairman and Rs. 5000/- for Alternate Chairman for each meetings and an additional amount of 159% of their professional charges as incidental expenses. The applicant-companies shall make their travel arrangements by A.C. 1st Class and/or the Air Conditioned taxi and their stay at a respectable guest house or a hotel on their request. 12. The notice convening aforesaid meetings shall be sent under the signatures of the Chairmen at least 21 clears days before the date appointed for the meetings, alongwith the scheme and the statement as required to be furnished pursuant to Section 393 of the Companies Act, 1956, alongwith prescribed form of proxy by pre-paid letter post under certificate of posting, addressed to each of the share-holders/members and creditors of the companies at their respective registered or last known address. 13. In addition, at least 21 clear days before the date appointed for the meetings in respect of companies, as aforesaid, advertisement convening the said meetings shall be made in ‘Times of India’ (English) published from Lucknow and Delhi; and ‘Dainik Jagaran’ (Hindi) published from Kanpur and New Delhi under the signatures of the Chairman appointed for the meetings separately giving full details of the meetings, place and time of the meetings. 14. The voting by proxy shall be permitted provided that the proxies in the prescribed form duly signed by the person entitled to attend and vote at the meeting, and in case of company or an association, by a duly authorized representative of such company/association are lodged with the respective companies at its registered office not later than 48 hours before the meetings. The quorum of the meeting shall be the same as is provided in the Article of Association of the respective companies. 15. The report will be submitted by the Chairman by 3.7.2006. List on 18.7.2006 for hearing. Copy by Monday.” 4. By the same order, the objections of the five creditors, who have filed winding up petitions against the WIL to the convening of the meetings, were rejected and it was held that the convening the meetings cannot be denied unless it is shown that scheme violates any statutory provision of law or makes any attempt to defraud the share-holders or creditors or is not in the public interest. 5. The Chairman of the meetings filed their ‘affidavits of service’ stating that meetings were convened and held. 5. The Chairman of the meetings filed their ‘affidavits of service’ stating that meetings were convened and held. They filed the reports upon which this Confirmation Petition was filed and was directed to be advertised. 6. Shri Avinash Tripathi, Advocate, the Chairman of the meetings of share-holders and creditors of WIL filed his report supported by his affidavit stating that total number of votes of the value of Rs. 18,57,98,020 were cast. There were no invalid votes. All the persons present representing the value resolved to adopt the scheme with a modification that the ‘appointed date’ be taken as 1.1.2004 instead of 1.10.2004. The State Bank of India, a preferential, share-holders to the extent of Rs. 10,3,00,000 represented by Shri Sardendu, AGM, SBI, Treasury Department, Corporate Sector, Mumbai intimated that SBI did not have sufficient time to consider the demerger scheme in the Corporate Office Credit Committee meeting and that a decision by the appropriate authority is yet to be taken with regard to the same. The representative of the SBI did not cast his vote and give a letter to the chairman of the meeting stating that SBI shall communicate its decision on the demerger scheme within three week’s time to the company Court. 7. The ING Vyas Bank represented by Shri Satish Gautam voted in the meeting but on scrutiny it was found that he has not submitted the resolution of board of directors authorising him to appear as a proxy for the bank 48 hours before the meeting and as such his vote was not counted. The chairman recorded that the meeting was attended personally by 3 members, 3 members in representative capacity and 15 members by proxies which made the requirement of quorum as per ‘Article of Association’. 8. With regard to the meeting of creditors of WIL, Shri Avinash Tripathi, Advocate Chairman of the meeting reports in para-2 as follows : “The said meeting was attended personally by one creditor in person and 283 creditors by proxy in representative capacity entitled together to the credit value of Rs. 776,959,006. This met the requirement of quorum as per the Article of Association of the Company” 9. According to his report out of total represented credit of Rs. 776,959,006.00 86.11% (Rs. 669042841) voted in favour of the scheme and 13.89% (Rs. 107,916,165) voted against the scheme. 776,959,006. This met the requirement of quorum as per the Article of Association of the Company” 9. According to his report out of total represented credit of Rs. 776,959,006.00 86.11% (Rs. 669042841) voted in favour of the scheme and 13.89% (Rs. 107,916,165) voted against the scheme. The scheme of arrangement was adopted with modification that the appointed date be taken as 1st January instead of 1s1 October. 10. Shri Avinash Tripathi, the Chairman further reports in his affidavit that Shri Kumar Sardendu, A.G.M., S.B.I. Treasury Department Corporate Sector, Mumbai, the preference share-holders to the extent of Rs. 1,03,00,000 representing SBI stated that the SBI did not have sufficient time to consider the scheme in the Corporate Office Credit Committee meeting and requested three week’s time to submit his comments to the company Court. Shri Mohinder Singh, Advocate representing SBI Capital Limited, a creditor to the extent of Rs. 56,73,782.00 as on 31.3.2006 objected to the scheme. He was not found to have any resolution of the board of directors. As per Rule 70 (2) of the Companies (Court) Rules 1959 he was not permitted to cast his vote in the meeting. His objections were taken on record and are enclosed with the report to the Chairman. Malanpur Steels Limited formerly known as Hindustan Development Corporation Limited, a creditor to the extent of Rs.39,75,924.00 also submitted its objection dated 24.6.2006 in the meeting. The U.T.I. Mutual Fund and U.T.I. SUUTI, the creditors to the extent of Rs.4,39,85182 and Rs. 537,59,667.00 respectively participated in the voting and submitted their objections. Shri Jitendra Sethi, Advocate for WIL objected stating that U.T.I. Mutual Fund and U.T.I. SUUTI are not creditors of the company. They are only debenture holders. Hence they should not be permitted to cast their vote. Punjab National Bank, one of the creditors casted their vote as the matter was left to the decision of Hon’ble Company Judge. The Punjab National Bank one of the creditors participated in the meeting .and casted their vote alongwith their suggestions vide letter dated 26.6.2006. The letter was made part of the record. 11. Life Insurance Corporation of India, H.S.B.C, S.A.S.F. Approved scheme of arrangement. The chairman states in his affidavit that creditors’ meeting was attended personally by one creditor in person, 283 creditors by proxy and in representative capacity entitled together to the credit value to the extent of Rs. The letter was made part of the record. 11. Life Insurance Corporation of India, H.S.B.C, S.A.S.F. Approved scheme of arrangement. The chairman states in his affidavit that creditors’ meeting was attended personally by one creditor in person, 283 creditors by proxy and in representative capacity entitled together to the credit value to the extent of Rs. 776,959,006 which met the required quorum as per the articles of association. In para 20 of his report the Chairman states as follows : “20. That the under mentioned secured and unsecured Creditors attended the meeting and voted against the proposed Scheme of Arrangement being adopted and carried into effect. Sl. Name of Creditor Address Amount/Value No. 1. UTI Mutual Fund represented UTI Tower, G.N. Block 43,985,182 by B.M. Prabhakar 43,985,182 Bandra Kurla Complex Mumbai 2. UTI-SUUTI Represented by UTI Tower, G.N. Block, 53,759,667 B.M. Prabhakar Bandra Kurla Complex, Mumbai 3. Hindustan Sanitry Ware and Tewari House 2nd Floor 2,775,113 Industries Limited represented 2,775,113 11B/8 Main by Shabya Shashi Patre Pusa Road, New Delhi 4. Malanpur Steel Limited Industrial Area P.O. Birla 3,975,924 represented by Alok Sinha Nagar Gwalior Roy 5. Mukund Limited represented Bajaj Bhawan, 226 3,420,279 by D.C. Wagle Jamuna Lal Bajaj Nariman Point, Mumbai 12. With regard to the meetings of the share-holders of Agauta Sugar and Chemicals Ltd. (ASCL), Shri Avinash Tripathi, Advocate the Chairman of the meeting recorded in para 2 as follows : “The said meeting was attended personally by one share-holder as representative of Willard India Limited which was holding 50,000 shares in individual capacity and 8 share-holders by proxy entitled together to 50,1000 value of shares. This met the requirement of quorum as per the Articles of Association of the Company.” 13. Out of the total votes cast all the votes were cast in favour of scheme with modifications that the appointed date to be taken as 1st January instead of 1st October, 2004. 14. The report of the chairman shows that the meeting of the- share-holders of Agauta Sugar and Chemical Ltd (ASCL) was attended by only 2 persons with proxies namely Shri P.M. Singhvi and Shri G.L. Dosi. Both these persons are employees of the WIL. Whereas Shri P.M. Singhvi was representing the WIL with 500000 shares and all other 8 share-holders. 14. The report of the chairman shows that the meeting of the- share-holders of Agauta Sugar and Chemical Ltd (ASCL) was attended by only 2 persons with proxies namely Shri P.M. Singhvi and Shri G.L. Dosi. Both these persons are employees of the WIL. Whereas Shri P.M. Singhvi was representing the WIL with 500000 shares and all other 8 share-holders. The other shares of WIL which are jointly held by some other person namely Shri K.A. Madhusudan (150 shares); Shri Tomy George (150 shares) Shri Nalin Garg (150 shares); Shri Deepak Diwan (150 shares); Shri Ramesh Chand Bhandar (100 shares); Shri A.K. Bharat (100 shares); Shri R.M. Keswani (100 shares) and Shri Shyam Sunder Gupta (100 shares) with total of 501,000 shares were all represented by Shri G.L. Dosi. 15. The creditor’s meeting of Agauta Sugar and Chemical Ltd (ASCL) was also attended by single representative of WIL having credit value to the extent of Rs. 87,01,374.00 and a representative of Sugar Development Fund alleging himself to be creditor of Agauta Sugar and Chemical to the extent of Rs. 50 lacs loan. Para 2 of the report of Shri Avinash Tripathi, Chairman of the meeting reports : “2. The said meeting was attended personally by single representative of Willard India Limited having credit value to the extent of 87,01,374 and a representative of Sugar Development Fund alleging himself to be a creditor of Agauta Sugar and Chemicals to the extent of Rs. 50 lacs loan.” The Chairman further reported in para 7 as follows : “7. Sugar Development Fund, Ministry of Consumer Affairs, Department of Food and Public Distribution represented by Deputy-Director Mr. D.K. Sibbal, alleging himself to be a creditor of Agauta Sugar and Chemicals Limited voted against the Scheme of Arrangement. His voting right has been disputed by Sri Pushkar Mehrotra, Advocate and will be subject to the decision of Hon’ble Company Judge.” 16. The Chairman reports that Shri Pushkar Mehrotra raised objections on behalf of the company that Shri D.K. Sibbal, Deputy Director, Ministry of Consumer Affairs, Department of Food and Public Distribution, Sugar Development Fund, Government of India had given a loan of Rs. 50 lacs to Agauta Sugar & Chemicals Limited on 26.3.1999 for a period of two years under the Sugar Development Fund Rules 1983. 50 lacs to Agauta Sugar & Chemicals Limited on 26.3.1999 for a period of two years under the Sugar Development Fund Rules 1983. In the Rules there was no provision for re-schedulement of payment of S.D.F. Loan or for restructuring and re-schedulement of interest or penal interest. Shri D.K. Sibbal was permitted to exercise his vote. Learned Counsel for WIL raised their objection on behalf of the company that loan was advanced to M/s Agauta Sugar and Chemicals Limited, instead it was given to Agauta Sugar and Chemicals Limited, (a Division of Willard India Limited) in the year 1999. Agauta Sugar and Chemicals Limited was not in existence in the year 1999. It is reported that out of total votes caste with value of Rs. 1,37,01,374 (valid votes Rs. 87,01,374+50,00,000) of WIL, the votes in favour of the scheme were of the value of Rs. 87,01,374. 17. With regard to the share-holder’s meeting of Chitavalsah Jute Mills Private Limited, it is reported by Shri Rakesh Bahadur, Advocate appointed as Chairman of the meetings that the meeting of the share-holder was attended by proxy by all 8 share-holders of the company, entitled together to 10000 shares and value of the share being Rs. 1,00,000/- and the meeting of the creditors was attended by the sole creditor U.K. Jain and Co. through its representative Shri U.K. Jain and said creditor entitled together to debt of Rs.550/- as on date . In the table appended to the report the names of only three shareholders have been given. Whereas Willard India Limited (WIL) was represented through proxy, 9980 shares with a value of Rs. 99,800, Shri P.M. Singhvi represented the company. The other 02 proxies who attended the meeting were Shri G.L. Dosi separately representing WIL jointly and Shri Paras Kumar Jain for 10 shares with value of Rs. 100/- and WIL jointly with Ms. Deepika Agarwal for 10 shares with value of Rs. 100/-. The report shows that in fact there was only two persons namely Shri P.M. Singhvi and Shri G.L. Dosi holding proxies of WIL individually and M/s WIL jointly with Paras Kumar Jain and Ms. Deepika Agarwal for the creditor’s meeting. There was only one creditors namely U.K. Jain and Co. represented by Shri U.K. Jain for Rs. 550/- which is said to be the only creditor of the company as on that date. 18. Deepika Agarwal for the creditor’s meeting. There was only one creditors namely U.K. Jain and Co. represented by Shri U.K. Jain for Rs. 550/- which is said to be the only creditor of the company as on that date. 18. In respect of the meeting of share-holders of Perfect Career Consultants Private Limited (PCCPL) B-623 Kamla Nagar, Agra chaired by Shri Rakesh Bahadur, Advocate, it is reported that the meeting was attended by same two persons namely Shri P.M. Singhvi and Shri G.L. Dosi holding 9980 share in WIL, represented by Shri P.M. Singhvi and 10 shares each by Shri G.L. Dosi jointly held with WIL with Shri Paras Kumar Jain and Ms Deepika Agarwal. The meeting of the creditors was attended by U.K. Jain and Co-represented by Shri U.K. Jain, a creditor of Rs. 550/- only which was said to be the only debt of the company as on that date. 19. The confirmation petition was advertised in daily newspapers ‘Times of India (English) Lucknow and Delhi and ‘Dainik Jagaran’ (Hindi) from Kanpur, and New Delhi. 20. When the matter came up for hearing on 25.8.2006, objections were filed by SBI Capital Market Ltd. and Malanpur Steels Ltd. Shri Vipin Sinha appeared on behalf of Punjab National Bank; Ms Roma Hameed for Hindustan Composites Ltd and Shri Ravi Prakash Srivastava for Hindustan Sanitary Ware Ltd. Shri Tilak Bose alongwith Shri Piyush Agarwal appeared for Malanpur Steels Ltd. They have also filed their objections to the confirmation to the scheme. 21. During the pendency of the hearing, Mukund Ltd, one of the creditor, who had filed winding up petition and was also objecting to the confirmation of the scheme, withdrew its objections. Ms Roma Hameed for Hindustan Composites Ltd stated that she is not receiving any instructions in the matter. SBI Capital Market Ltd. represented through Shri Vipin Sinha did not choose to press his objections. With these developments the Punjab National Bank; Malanpur Steels Ltd; Hindustan Composite Ltd. and Hindustan Sanitary Ware Industries Ltd. were the only creditors who have raised their objections to the scheme. The Official Liquidator, U.P. and the Regional Director, Companies Affairs, NOIDA. have filed their replies/comments to the scheme. 22. Shri Tilak Bose, appearing for Malanpur Steel Ltd. (in short the MSL) led the arguments in support to the objections to the scheme. The Official Liquidator, U.P. and the Regional Director, Companies Affairs, NOIDA. have filed their replies/comments to the scheme. 22. Shri Tilak Bose, appearing for Malanpur Steel Ltd. (in short the MSL) led the arguments in support to the objections to the scheme. It is contended by him that MSL, formally ‘Hindustan Development Corporation Ltd. casted its vote against the approval of the scheme in the creditors meeting of WIL. The MSL has filed a civil suit for recovery of amount due to it in Kolkata High Court in 1997. Shri Tilak Bose submits that a resolution to approve the scheme must be passed by the creditors with vote value of throe-fourth of the value of the creditors present and voting. In the meeting of creditors of WIL only two creditors were present and the resolution is passed by only one creditor. Even if he has three-fourth value of the credits, the resolution will fall as a single creditor will not form majority in number. The Companies Act 1956 does not mention the member of creditors in the general sense to the classes of creditors. From the language of Section 391 it would appear that the intention of the Act is to have a re-arrangement or settlement approved by a separate meeting of the creditors divided into different classes. It is for the applicant-companies in the ex parte proceedings under Section 391 of the Companies Act to decide whether one general meeting or different meetings of the different classes of creditors have to be convened based upon their interest. Whenever such an application is moved, the sanction of the scheme will depend upon the fulfillment of the conditions under Section 391 (2) of the Companies Act. The application under Section 391 (1) for an order for convening the meeting is a preliminary step. The applicant takes the risk with the classes which are fixed by the Judge usually on the applicant’s request or sanction for the alternative purpose of the scheme. If in the result, they reveal inadequacy the scheme will not be approved. (Palmer’s Company Law 24th Edition para 79-11 page 1140). 23. Shri Tilak Bose submits that the value of the creditor’s vote is the value of the claim of the creditor prior to the sanction of the meeting and cannot under any stretch of imagination reflect the best scheme value. (Palmer’s Company Law 24th Edition para 79-11 page 1140). 23. Shri Tilak Bose submits that the value of the creditor’s vote is the value of the claim of the creditor prior to the sanction of the meeting and cannot under any stretch of imagination reflect the best scheme value. In the present case, there are three types of creditors; (i) the secured creditors of WIL consisting of public, financial institutions and banks; (ii) the unsecured creditors to whom principal amount and interest is due and (iii) the creditors to whom only interest is due. There are different modes of payment of interest provided in the scheme to the three classes of creditors in clause 3.2.2 (C&D) of the Debt Restructuring of WIL in Part II of the scheme. The Chairman of the meetings held class-wise secret ballot, whereas the report does not indicate whether such secret class wise ballot was held. From the Chairman’s report, it appears that there was only one class meeting of the creditors, which was not proper. The public, financial institutions and banks included in part ‘A’ of the Schedule-I could not be clubbed with part ‘B’ and part ‘C’ of Schedule-I. 24. In respect of Section ‘C of Class-I creditors, the meeting was attended only by three creditors and that only one creditor voted in favour of the scheme and thus the majority of creditors did not vote in favour of the scheme. The restructuring of loans were related only to the creditors mentioned in Schedule-I of the scheme. There are only about 27 creditors in Section ‘A’ of Schedule-I. The restructuring of debts is confined only to 27 creditors and thus separate class wise meeting of these 27 creditors ought to have been called. The other creditors were ‘trade creditors’ and ‘petty creditors’ of WIL. Such creditors ought not to have been allowed to vote for the restructuring of the debts under Part II of the scheme. 25. Shri Tilak Bose contends that the necessary quorum of the meeting was not reached as the applicant-companies are still admitting that only one creditor attended each of the three meetings. The Court had fixed the quorum in accordance with the ‘Article of Association’ of the company. The articles of the applicant-companies do not provide that only one creditor will constitute the quorum. The Court had fixed the quorum in accordance with the ‘Article of Association’ of the company. The articles of the applicant-companies do not provide that only one creditor will constitute the quorum. Even if there was only three creditors, no specific order was obtained by the applicants on 18.5.2006 about the quorum of the creditors meeting where there were only three creditors. The Chairman of the meeting of the share-holders of ASCL stated that the meeting was attended by one shareholder personally and eight share-holders by proxies; in respect of the CJMPL the meeting was attended by 8 share-holders by proxies; in respect of PCCPL the meeting was attended by only 8 share-holders by proxies. The outside creditors participated in the meeting are nothing but sham creditors set up by the companies itself as Shri G.S. Doshi, who filed application for applicant company has voted in favour of company on behalf of the purported creditors; Shri P.M. Sighvi, representative of WIL attended shareholder’s meeting of ASCL and then again CJMPL as well as PCCPL. Many ballot papers were not signed and votes were invalid. 26. It is submitted that the true and correct value of votes of MSL has not been taken into account. The company is indebted to MIL of more than Rs. 7 crores whereas the vote value was taken only for Rs. 39,75,924/-. The applicant companies have made preferential payments to Mukund Ltd. and SBI Capital Markets Ltd. during the pendency of the proceedings vitiating the entire scheme. The votes cast of public, financial institutions and secured creditors were not unconditional and were as such invalid votes. It is submitted that in the event the scheme is sanctioned, WIL will be stripped off of all its assets. The scheme is not bona fide and is detrimental to the creditors. 27. Shri Tilak Bose has placed strong reliance on a Division Bench judgment of Calcutta High Court delivered by Hon’ble Justice Ms. Ruma Pal, J. (as she then was) in Hindustan Development Corporation Ltd. v. Shaw Wallace & Co. Ltd., 2000 SEBI & Corporate Laws-Reports (Vol.25) 187 (DB). Paragraphs 20, 21, 25, 26, 58, 66, 69, 76, 77, 78 of the judgment are quoted as below : “20. Ruma Pal, J. (as she then was) in Hindustan Development Corporation Ltd. v. Shaw Wallace & Co. Ltd., 2000 SEBI & Corporate Laws-Reports (Vol.25) 187 (DB). Paragraphs 20, 21, 25, 26, 58, 66, 69, 76, 77, 78 of the judgment are quoted as below : “20. In constructing section 153 (2) of the Indian Companies Act, 1913 (the precursor of Section 391 of the 1956 Act) a Division Bench of this Court in Bengal Bank Ltd. v. Suresh Chakravarty, AIR 1952 Cal. 133 said that the scheme of course is not effective unless it is confirmed by the Court. But before the Court makes an order sanctioning the scheme, it is necessary in the first place to have the scheme or arrangement approved and accepted by the requisite majority and if the scheme is sanctioned by the requisite majority then it is presented to the Court for confirmation. In other words, the Court cannot sanction a scheme until it has been approved by the majority in terms of section 153 (2) of the Indian Companies Act. It was held that the : “... Scheme should be approved by the requisite majority before it can be presented to the Court for confirmation. If that is not done then I think the Court has no jurisdiction to approve a scheme....” (Emphasis supplied) 21. The same view has also been taken in Nand Prasad v. Arjun Prasad, AIR 1959 Pat. 293 where the Division Bench said : “...These authorities firmly establish that one of the essential conditions to give jurisdiction to the Court to accord its sanction to a scheme is that it should have been passed by a majority as required under Section 153 (2) of the Companies Act... In other words, unless the Court is satisfied that the same has been approved by the statutory majority and in a manner provided by law, it is not open to the Court to give any sanction to it.” 25. Again Palmer’s Company Law (Vol. I, 23rd edn.) summaries the law as follows in para 79.13 : “The Court must see that the resolutions are passed by the statutory majority in value of and number in accordance with the section at a meeting or meetings duly convened and held. Upon this depends the jurisdiction of the Court to confirm the Scheme. “ 26. I, 23rd edn.) summaries the law as follows in para 79.13 : “The Court must see that the resolutions are passed by the statutory majority in value of and number in accordance with the section at a meeting or meetings duly convened and held. Upon this depends the jurisdiction of the Court to confirm the Scheme. “ 26. Even if an application is made on the basis that the statutory majority has approved the scheme. It is the duty of the Court to satisfy that it is so. The Court may hold an enquiry and determine whether in law the provisions of section 391 (2) had been fulfilled. Thus in the case of Nand Prasad (supra) where the Chairman submitted a report to the effect that the compromise or arrangement had been approved by the statutory majority, the Court held an enquiry and found as a matter of law from a perusal of the Report that votes had been wrongly counted. But once it is found that the statutory majority is not there, the application would be incompetent and the Court would not have the jurisdiction to approve the scheme. This would a fortiori be true in this case where the Chairman’s report itself says that the prescribed majority did not approve either the original or the modified scheme at the meeting. 58. For example, it is the allegation of the appellants that Bennett Coleman & Company Ltd. and Praj Industries Ltd. (who filed letters supporting the scheme after opposing it at the meeting) changed their mind having derived an unfair benefit from the company for doing so. The company has disputed this. It is not necessary to determine this allegation. But the possibility of ‘horse trading’ or ‘under the counter-trading’ which might take place subsequent to the meeting cannot be denied. 66. The next submission of the company was that the Court could itself modify the scheme without any fresh meeting. This would be true if there were a duly approved scheme before the Court in the first place. This was the view expressed in the case of Bhavnagar Vegetable Products Ltd, In re (1984) 55 Comp. Cas. 107 (Guj). This would also depend upon the nature of the modification. This would be true if there were a duly approved scheme before the Court in the first place. This was the view expressed in the case of Bhavnagar Vegetable Products Ltd, In re (1984) 55 Comp. Cas. 107 (Guj). This would also depend upon the nature of the modification. If the modification does not alter the basic structure, such as a change in the class of creditors, the Court will not itself modify the scheme but direct the classes of share-holders to consider the modification. So, in Hindustan General Electric Corpn., In re AIR 1959 Cal. 679 the company’s different classes of shareholders approved a proposal for reduction of its capital at several meetings. A modification of the scheme was necessary because of an obvious illegality in the approved scheme. The Court directed the modification to be considered at the meeting of the different classes of share-holders. The modification was duly approved by the share-holders after which the approved scheme was sanctioned by the Court. 68. The company lastly submitted that the Court should grant the alternative prayer which had been made to the Court by the company viz : “(b) If necessary, the Chairman of the said meeting appointed b this Hon’ble Court be directed to convene an adjourned meeting for the purpose of ascertaining the view of the creditors covered by the said Scheme afresh and Chairman of the said meeting be directed to make a further report to this Hon’ble Court on the result of such voting.” 69. This submission of the company is also unacceptable. The meeting has already been held pursuant to the orders passed under Section 391 (1). There is no scope for, in effect, passing another order for holding an adjourned meeting in this proceeding for re-considering the scheme. The statute does not allow for this. What the company is in effect asking for is afresh order under Section 391 (1) on the application presented by it on 18.12.1997 a meeting cannot now be directed on the financial picture obtaining in 1996-97. The position of the company and the creditors may have changed in the last two years. Several creditor’s claims would have increased with the accumulation of interest. The company has produced its current audited balance sheet before us from which it is clear that there have been significant changes in its financial set up. The position of the company and the creditors may have changed in the last two years. Several creditor’s claims would have increased with the accumulation of interest. The company has produced its current audited balance sheet before us from which it is clear that there have been significant changes in its financial set up. In any event, the exercise would be a futile one unless the Court considers the scheme to be a viable one. 76. It, however, appears from HDC’s notes of argument that : according to it the order under Section 391 covered secured and unsecured creditors. 77. In fact several of the creditors who are sought to be covered by the scheme are secured creditors in the sense that the inter-corporate deposits made by them were secured by shares either in the company or in the company’s subsidiaries. Even according to the company at least six of the creditors who are covered by the scheme had made advances to the company against pledge of shares, namely : 1. Colgate Palmolive (I) Ltd. 2. Maharashtra Apex Corporation 3. Deccan Tobacco Processors 4. Benett Coleman & Co. Ltd. 5. Andhra Pradesh Paper Mills Ltd. 6. Nippon Denro Ispat Ltd. 78. In our view, the secured creditors should not have been clubbed together with the unsecured creditors. Their interest would not be the same. This is another reason why the scheme could not be sanctioned. If the creditors and members are not properly classified and if the meeting of the proper class of creditors and members are not separately held, the scheme approved as such meeting cannot be sanctioned, vide Court Practice Note in (1934) Weekly Notes 142. The responsibility for determining what creditors are to be summoned to any meeting as constituting a class is of the applicant-company and if meetings are incorrectly convened or constituted or an objection is taken to the presence of any particular creditor as having interests competing with the others such objection if successfully taken at the hearing of the petition for sanctioning the scheme the company must take the risk of having it dismissed” (Per Desai, J. in Maneckchowk & Ahmedabad Mfg. Col. Ltd., In re (1970) 40 Comp. Cas 819, 873 (Guj). Col. Ltd., In re (1970) 40 Comp. Cas 819, 873 (Guj). In fact, as observed in the last mentioned judgment “Generally speaking, the creditors of the company should be divided into three different classes, viz secured creditors, preferential creditors and unsecured creditors” [See also Mansukhlal’s case (supra)].” 28. Shri Tilak Bose submits that the claim of MSL was decreed by the Calcutta High Court with 17% interest. The WIL has filed an appeal in which cross objections have been filed by MSL for decree on the basis of agreed interest rate, according to which the dues of MSL are more than 7 crores whereas the WIL is incorrectly and unfairly treated these dues only to Rs. 39,75,924/-. He submits that the secured creditors fall in different class and that any decision taken by the secured creditors cannot be allowed to outweigh the concerns of unsecured creditors. The interest of the unsecured creditors (Incorporate Deposit Holders) by first reducing their dues and then thereafter making no provision for repayment are highly objectionable and illusive provisions for payment of interest in the scheme. He relies upon ‘Palmer’ in his Treatise Company Law 24th Edition : “What constitutes a class : The Court does not itself consider at this point what classes of creditors or members should be made parties to the scheme. This is for the company to decide, in accordance with what the scheme purports to achieve. The application for an order for meetings is a preliminary step, the applicant taking the risk that the classes which are fixed by the Judge, unusually, on the applicant’s request are sufficient, for the ultimate purpose of the Section, the risk being that if in the result, and we emphasis the words ‘in the result’ they reveal inadequacies, the scheme will not be approved. If e.g. rights of ordinary share-holders are to be altered, but those of preference shares are not touched, a meeting of ordinary share-holders will be necessary but not of preference shareholders. If there are different groups within a class the interest of which are different from the rest of the class, or which are to be treated differently under the Scheme, such groups must be treated as separate class for the purpose of the scheme. If there are different groups within a class the interest of which are different from the rest of the class, or which are to be treated differently under the Scheme, such groups must be treated as separate class for the purpose of the scheme. Moreover, when the company has decided what classes are necessary parties to the scheme, it may happen that one class will consist of a small number of persons who will all be willing to be bound by the meeting of that class, but to make the class a party to the scheme and to obtain the consent of all its members to be bound. It is however necessary to at least one class meeting to be held in order to give the Court jurisdiction under the Section.“ 29. In substance Shri Tilak Bose submits that clubbing of different class of creditors in which the dues of unsecured creditors were not properly reflected was not proper. In all the meeting the statutory majority was not reached and that all the meetings were hushed up with just the employees of WIL holding proxies, to secure resolutions approving the scheme of demerger. The share-holders and creditors likely to be affected by the meeting were not present. There was no discussion at all between or amongst them nor there could be any, as the meetings were only attended by the employees of WIL on merits of the scheme and thus the Court should not approve scheme which is even otherwise oppressive to the unsecured creditors, and was not properly convened or held. 30. The Punjab National Bank Asset Recovery’ Management Branch New Delhi represented by Shri Vipin Sinha has also raised strong objection to the scheme. In their objections, supported by affidavit of Dr. G.N. Singh, Chief Manager, Asset Recovery Management Branch, Atma Ram House 1-Tolstoy Marg, New Delhi, objections were also filed by the Bank with the Chairman appointed by the Court in the meeting of the creditors held on 26.6.2006. the The erstwhile PNB Capital Services Ltd., a wholly owned subsidiary of PNB which stood merged and amalgamated with PNB at the request of WIL had sanctioned and allowed the placement of short term deposits of Rs. the The erstwhile PNB Capital Services Ltd., a wholly owned subsidiary of PNB which stood merged and amalgamated with PNB at the request of WIL had sanctioned and allowed the placement of short term deposits of Rs. 10 crores on 4.11.1994 for six months with an interest @ 10% per annum on quarterly rests required urgently for expansion/implementation of the project of the company namely Sugar Division (Agauta Sugar & Chemical) and Jute Division (Chitavalsah Jute Mills). This short term deposit was to be re-paid by respondent-company (WIL) from the proceeds of the proposed right-cum-public issue. A demand promissory note and short term agreement were also recorded apart from the necessary documents on 19.1 1.1994. The WIL failed to pay the dues and consequently a winding up petition No. 115/1997 was filed in Allahabad High Court was filed on 16.1.1997 by PNB Capital Services Ltd. Apart from other payment the WIL offered one time settlement of Rs. 397 lacs against dues of bank amounting to Rs. 2866 lacs as on 30.9.2004 which was accepted by the bank subject to certain terms and conditions, inter alia that in the event of failure to pay OTS instalment as per schedule or the compliance with the terms OTS by the company. The original liability in respect of the dues shall revert and become payable and Punjab National Bank will be free to approach in forum/Court as may be necessary to protect the interest of the bank. This approval was conveyed by the Punjab National Bank by its letter dated 10.11.2005 and further amended by letter dated 20.7.2006. The WIL was availing various credit facilities in the shape of term loan and working capital (both fund-based and non-fund based) from Punjab National Bank which were reviewed/enhanced from time to time. Due to non-payment of bank dues in time some irregular portion of working capital/un-serviced interest was re-scheduled into WCTL & FITL. In June 1993 the position of financial facilities granted to the WIL was to the extent Rs. 777.90 lacs. The WIL approached the bank to allow it to transfer its Battery Division with all its assets and liabilities to and in favour of Willard Storage Battery Ltd. a newly formed company to support the scheme of arrangement for re-merger of WIL. 777.90 lacs. The WIL approached the bank to allow it to transfer its Battery Division with all its assets and liabilities to and in favour of Willard Storage Battery Ltd. a newly formed company to support the scheme of arrangement for re-merger of WIL. The bank agreed to the request of the WIL in 1993 and allowed the Willard Storage Battery Ltd. to continue to avail all facilities except 40% of the term loan, FITL and WCTL already granted by it to WIL. The term loans (including WCTL & FITL) having outstanding of Rs. 276.36 lacs were retained by WIL and the term loans outstanding of Rs. 477.01 lacs were transferred to WSBL. 31. An agreement was executed between WIL and WSBL on 27.11.1993 where by it was agreed that as regards the security for the term loan of Rs. 835 lac (Bank’s share Rs. 477.01) agreed to.be transferred to WSBL would continue to remain secured by mortgage of fixed assets of the WSBL and WIL. Further, WIL will furnish a corporate guarantee to secure the term loan and working capital facilities (Both fund-based and non-fund based) to be transferred to Willard Storage Battery Ltd. These facilities of Rs. 1390 lacs as on 1.12.1993 were transferred to Willard Storage Battery Ltd. The loans transferred to Willard Storage Battery Ltd. and WIL were to continue to be secured by personal guarantee of Shri K.K. Bajoria. The WIL executed Corporate Guarantee on 5.5.1995. As per scheme of arrangement of 1993 for demerger of WIL and WSBL, the dues of WSBL were to be first pari passu charges on all the assets of WIL and WSBL. Both WIL and WSBL failed to pay the bank dues and consequently application for recovery of Rs. 157.70 lacs together with further interest @ 21.25% per annum against WIL and Rs. 2808.84 lac with further interest at the rate of Rs. 21.25% per annum against WSBL and guarantors was filed in Debt Recovery Tribunal, Delhi on 17.7.1998 and for enforcement of securities of guarantees is pending as on date. The balance sheet as on 31.3.2005 submitted by WIL has shown the outstanding of PNB of Rs. 162.83 lakhs and further in note No. 2 (e) of the balance sheet under secured loans the company has shown that term loan of Rs. 19.97 lacs from PICUP and Rs. The balance sheet as on 31.3.2005 submitted by WIL has shown the outstanding of PNB of Rs. 162.83 lakhs and further in note No. 2 (e) of the balance sheet under secured loans the company has shown that term loan of Rs. 19.97 lacs from PICUP and Rs. 122.85 lakhs from PNB as well as term loan of Rs. 1367 laks of WSBL from IFCI, ICICI, PNB and PICUP, and also personal guarantee of a Director. The restructuring scheme for proposal of demerger of WIL into four companies WIL ASML, CJML and PCCPL (the scheme under consideration) was approved by lenders under Corporate Debt Restructuring (CDR) on 22.12.2004 under which the debts of Sugar units and Jute unit of the company are being restructured. The dues of PNB including the dues of erstwhile PNB Capital Services Ltd. have not been incorporated in the re-structuring scheme already approved under CDR mechanism, nor have they been shown as liability of the company for which PNB is raising objection continuously. 32. It is further submitted by PNB that CDR Empowered Group taking note of the objections made by the PNB in its meeting held 16.3.2006 directed the company to resolve its dispute with PNB in the meeting dated 22.6.2006 and to approach High Court for approval of demerger. Consequently the WIL approached PNB vide its letter dated 23.6.2006 acknowledging its liability for term debt and proposal of restructuring the dues of PNB under the terms loans. In a separate letter dated 24.6.2006 signed by Company President (Finance) on a plain paper it has been agreed that all the 04 demerging companies shall furnish individual corporate guarantees in place of WIL and will be jointly and severally liable to PNB for discharging the guarantees in respect of the dues of WSBL. The PNB received a notice of scheme of arrangement and that despite the companies letters dated 23.6.2006 and 24.6.2006 the company has filed scheme of arrangement without mentioning the dues of PNB except for a cursory reference regarding interest liability of its sugar division towards PNB to them quantifying the amounts, in Section-C of Schedule-I of the scheme. Further the WIL has made a corporate announcement on Bombay Stock Exchange which states that share-holders and creditors of the company in its meeting on 26.6.2006 have approved scheme of arrangement by requisite majority. Further the WIL has made a corporate announcement on Bombay Stock Exchange which states that share-holders and creditors of the company in its meeting on 26.6.2006 have approved scheme of arrangement by requisite majority. In fact the company has misrepresented about its liability towards PNB in contravention of the clear directions of the CDR Empowered Group and despite indicating its willingness to properly account for its liability to PNB which is a public sector bank involving public money. It has misguided public about its demerger proposal and suggestion of liabilities. The PNB has offered following modifications in the scheme to acknowledge its debts and the commitments made by the WIL. “a. ICD of Rs. 10 crores granted by erstwhile PNB Capital Services Limited (now merged with PNB) It is, therefore, desired that the said OTS amount of Rs. 397 lacs be reflected separately under Heading “F” dues under ICD in the scheme of arrangement alongwith other terms and conditions of the OTS, as contained in letter dated 10.11.2005 and of PNB.“ 33. Hindustan Composite Ltd. has filed Company Petition No. 8 of 2006 to wind up WIL. Both Hindustan Composite Ltd. and Resoi Ltd., the creditors mentioned at item Nos. 7 and 8 of the list of creditors in Section-B of Schedule-I of the scheme have filed their affidavits, affirmed by Shri Purshottam Kejriwal opposing the application to sanction the scheme. 34. It is contended by Shri Shambhu Chopra that Hindustan Composite Ltd. had filed winding up petition at the time when application under Section 391 (1) of Companies Act, 1956 had come up for hearing. The Court did not advertise the winding up petition as the advertisement under Rule 24 of the Companies (Court) Rules, 1959 in winding up petition filed by Mukund Limited was held to be for the benefit of all other creditors in the pending company petition to wind up WIL. 35. Both Hindustan Composite Ltd. and Resoi Ltd. have objected to the clubbing of secured creditors and unsecured creditors as a class of creditors. The interest of Section-A creditors (consisting of Public financial Institutions) is different from the interest of Section-B and Section-C creditors. The mode of payment envisaged in the scheme for these creditors is different and that they are treated differently under the scheme. The interest of Section-A creditors (consisting of Public financial Institutions) is different from the interest of Section-B and Section-C creditors. The mode of payment envisaged in the scheme for these creditors is different and that they are treated differently under the scheme. The ex parte motion in the application under Section 391 for clubbing the unequal classes and holding one meeting of the different classes of creditors, will not take away the rights of an unidentified and distinct class of creditors to raise objection to protect their interest. The applicant takes the risk that the classes fixed by the Judge usually on the applicant’s request are sufficient for the ultimate purpose to sanction of the scheme. It is contended that even within each sub class the scheme of arrangement was not passed by majority of 75%. Section-B of Schedule-1 has ten creditors out of which only 02 were present in the meeting and out of these, one was Hindustan Sanitary Ware who voted against the scheme. In para 6 (e) of the affidavit filed by G.L. Doshi on behalf of WIL on August 25, 2006. Anudeep Investment Co. Ltd. Mirk Trading and Manufacturing Ltd. and Poddar Heritage Investment Ltd. are not creditors appearing in Section B of Schedule I. Thus the votes of these creditors could not be taken into account. Even if all the creditors in Section-B and C are taken into account, a total number of 05 creditors attended the meeting out of which 3 voted against the scheme. Thus the majority number present in the meeting so far as unsecured creditors voted against the scheme which did not fulfil the requirement of Section 391 (2) providing for three-fourth in value of the creditors present in the voting to support the scheme. 36. Hindustan Composite Limited and Rasoi Limited did not participate in the meeting. They however have a right to be heard in pursuance of the advertisement to the sanction the scheme. In fact an appeal has been filed against the order dated May 18, 2006 directing holding of the meeting which is still pending. 37. Learned Counsel for Hindustan Composites Limited and Rasoi Limited objected to the value of the votes inasmuch as only outstanding principal in Section B of Schedule-I was taken without mentioning the interest. The Rasoi Ltd. was a creditor of interest for Rs. 71,57,180 and Hindustan Composites Ltd. it is Rs. 37. Learned Counsel for Hindustan Composites Limited and Rasoi Limited objected to the value of the votes inasmuch as only outstanding principal in Section B of Schedule-I was taken without mentioning the interest. The Rasoi Ltd. was a creditor of interest for Rs. 71,57,180 and Hindustan Composites Ltd. it is Rs. 2,16,41,260/- as on June 30, 2006. Their value of votes have not been taken into consideration in the meeting. 38. With regard to quorum it is alleged whereas the scheme is composite for 4 applicant’s companies, in case of the creditors of the applicant Nos. 2, 3 and 4 only one creditor attended, who could not have constituted the quorum to proceed with the meeting. The scheme is not bona fide. The Sugar and Jute Divisions alongwith the specified assets are being transferred by the WIL and the legal proceedings against the WIL or in respect of Sugar Divisions are being transferred to Augauta. In Section-B of Schedule-I the outstanding of the Hindustan composite Limited & Rasoi Limited have arbitrarily been classified under the Sugar Division of WIL, whereas in the past, the payments were made by WIL through its Jute Division. The liability of repayment is with the WIL to which the loan was advanced and that no other company can assume the liability. 39. It is contended that if the scheme is sanctioned the WIL will not have any assets. The Sugar division will go to Augauta. Jute Division will give to Chitavalsah and specified assets to Perfect Consultants. If the scheme is sanctioned, the right to realise the dues from Jute Division and specified assets will disappear. 40. Shri Sunil Gupta, Senior Advocate appearing for WIL in support of the scheme submits that Battery unit of WIL was incorporated on 11.5.1973 with only a battery manufacturing unit which ran into trouble on account of carried forward losses and set backs on the advent of modern technology and competition. In 1980 a Jute Manufacturing Company with Jute unit located at Vishakhapatnam, Andhra Pradesh merged with WIL. The Jute unit was stable and profit making. On 27.12.1990 Agauta Sugar Company was incorporated with a sugar licence for 2500 TCD factory in Bulandshahr, U.P. A public issue was proposed in 1993 to take care of cane shortage, costs overruns and financing through Financial Institutions and Banks and short term loans from incorporate deposits. The Jute unit was stable and profit making. On 27.12.1990 Agauta Sugar Company was incorporated with a sugar licence for 2500 TCD factory in Bulandshahr, U.P. A public issue was proposed in 1993 to take care of cane shortage, costs overruns and financing through Financial Institutions and Banks and short term loans from incorporate deposits. The public issue was delayed on account of capital market crushing in 1992. In 1993 the public issue opened and in 1994 the sugar plant was commissioned. However, uneconomic prices increase, cane arrears resulted in set back which led to defaults and re-payment of secured as well as unsecured debts. In 1994-2000 compromise and settlement were made with other factories with regard to cane arrears and the production capacity was expanded in 2001-02 to 3500 TDC. For ten years the sugar business has picked up on account of development of cane areas and sugar exports and the proposed by-products such as power, and ethanol. The sugar production has since doubled. The Japanese collaborator hived out the battery unit from WIL to a new company WSBL in 1993. With the agreement of financial institutions and banks out of liability of Rs. 1367 lacs Rs. 500 lacs remained with WIL and Rs. 867 were undertaken by WSBL to which WIL provided corporate guarantees. In the year 1995 the WSBL was ordered to be wound up by Allahabad High Court and is in liquidation. 41. Out of Rs. 500 lacs undertaken by the WIL towards different creditors by 25.2.1997, only Rs. 126 lacs remained due from WIL to PNB Caps. On 3.7.2000 Chitavalsah Jute Mills Pvt. Ltd., Raghu Food: Sri Ram Net Sanchar, were incorporated. The Prefect Career Consultants Private Ltd. was incorporated on 13.2.2002 with the change in economy. The payment of old debts with interest rate fixed more than ten years ago, the repayment of dues has become unavoidable. With stakes of 30000 sugar cane growers, 5000 employees, 37000 share-holders and involvement of Rs. 100 crores approximately of financial institutions and banks, the Corporate Debt Restructure Cell of RBI considered the proposal of restructuring of WIL’s debts of FIs and banks on 22.12.2004. The Monitoring Committee established in January 2005 with representatives from IDBI, ICICI, IFCI, SBI and CDR cell, FIs, Banks to implement the package. The FIs and Banks were to implement the package with infusion of personal funds of promoters Rs. The Monitoring Committee established in January 2005 with representatives from IDBI, ICICI, IFCI, SBI and CDR cell, FIs, Banks to implement the package. The FIs and Banks were to implement the package with infusion of personal funds of promoters Rs. 2.5 crores and arrangement for further loans of Rs. 10 crores. The CDR Empowered Group reviewed, implemented and approved proposal dated 16.3.2006 as well as the scheme for reconstruction (de-merger) of WIL into 4 companies namely WIL, ASC, CJM and PCC. The scheme provided that WIL will approach Allahabad High Court for sanction of the scheme and that WIL will resolve the issue with PNB. The ASC was to substitute WIL in CDR. 42. Shri Sunil Gupta explained the scheme of de-merger and classification of various classes of creditors in the scheme which was re-appraised by the CDR Cell of RBI/FIs/Banks and stake-holders, on 7.5.2006 and in pursuance of which the company application was filed under Section 391 (1) of the Act for an order of convening the meeting on 18.5.2005. Part II of the scheme provides a ‘Debt Restructuring of WIL’ with cut off date as on 30.9.2004. The principal amount of the loans under Clause 3.2.1 are provided to be re-scheduled and re-paid in 20 quarterly installments commencing from 31.12.2006 with rate of interest reduced to 10.25% per annum from October 1, 2004 and payable from October 1, 2005 as applicable interest payment schedules. Out of these clause (b) of Para 3.2.2 provides for funding and conversion into ‘Funded Interest Term Loan’ (FITL) carrying zero per cent interest to be paid in 20 quarterly instalments commencing December 31, 2006. Sub clause (c) provides for interest arrears owed to FIs and Banks included in Schedule-I upto cut of date (i) 30% of the simple interest arrears to be converted into non-interest bearing loans re-payable in 8 quarterly instalments commencing from December 2011 and ending in September 2013 and (ii) the balance simple interest, compound interest, liquidated damages, penal interest etc is to stand waived. In clause (d) interest arrears on the loans upto cut of date owed to other creditors included in Schedule-1 is to be repaid (i) simple interest to be calculated at the rate of 5.4% per annum till the cut off date and shall stand converted into non-interest bearing loans re-payable in 8 quarterly instalments commencing from December 2011 and ending in September 2013 and (ii) balance simple interest, compound interest, liquidated damages, penal interest to be waived of. 43. The interest on repaid loans and incorporate deposits in clause 3.2.3 in the scheme specified in Section (c)9 of Schedule-I is to be dealt with and paid in the same manner as provided in clause 3.2.2 on the basis of reducing balance of the re-paid principal amounts as in the case of re-paid loans. Para 4.5 of the same part gives liberty to WIL to pursue restructuring of debts of other creditors on such terms and conditions as it may deem expedient having regard to the amount of the debt, assets charged, security released or sacrifices made by such creditors or any other relevant factor (s). 44. Shri Gupta explained that credit of loans and incorporated deposits specified in Section ‘C of Schedule-I are to be paid in the same terms as provided in clause 3.2.2 of the scheme and that though the amount is not specified as in the case of Section-A and Section-B the creditors in Schedule-I the creditors are fully aware of their loans and advances. These creditors include PNB, Mukund Limited, Sirpur Paper Mills Ltd. and the Malanpur Steel Ltd. 45. SBI Capitals Markets had leased certain equipment to Sugar units and had rental dues against WIL. It had filed a suit in Delhi High Court and that during the pendency of these proceedings their objections were withdrawn presumably on the ground that their dues were settled. Malanpur Steel Ltd. has serious objections to the repayment of a preferred class of creditor by way of seeking its approval to the scheme during the pendency of the proceedings. 46. Shri Gupta states that PNB Capitals was a subsidiary of PNB. The PNB voted in favour of the scheme at serial No. 9 in the creditor’s meeting of WIL on 26.6.2006 re-presented by Shri R.K. Juneja. 46. Shri Gupta states that PNB Capitals was a subsidiary of PNB. The PNB voted in favour of the scheme at serial No. 9 in the creditor’s meeting of WIL on 26.6.2006 re-presented by Shri R.K. Juneja. In its letter dated 26.6.2006 handed over to the Chairman of the meeting, Chief Manager, PNB raised following points : “We have to inform that we are connected with the above co. in the following three ways : 1. Loan of PNB Caps being re-paid by M/s Willard India Ltd. through the scheme of compromise. 2. A term debt of Rs. 157.69 lacs as on 17.7.1998 + interest thereon being the amount of term debt retained in M/s Willard Storage Battery Ltd. 3. M/s Willard India Ltd has given corporate guarantee for four dues in M/s Willard Storage Battery Ltd. of PNB Caps. 4. CO. is paying our dues in terms of OTS and our dues are also incorporated in the CDR restructuring scheme, which has .since been approved. However, the C.O., has defaulted in re-paying its instalment of Rs. 99.25 lacs fallen due on 10th May, 2006 for which the C.O. has been advised to make the payment immediately alongwith interest. 5. We request that all the four companies being hived off under the scheme of demerger, should give corporate guarantee for ourdues in Willard Storage Battery Ltd. 6. We have also taken up the matter with ICICI and CDR Cell to incorporate our view as above in the re-structuring scheme prepared/to be amended by them. We request you to kindly note our above observations/request in the minutes of the today’s share-holders/creditors meeting. Sd/- Chief Manager” 47. The PNB in its objections filed in these proceedings through Shri Vipin Sinha, Advocate has summarized his objection in para 19 of the affidavit. “19. (a) ICD of Rs. 10 crores granted by erstwhile PNB Capital Services Limited (now merged with PNB) It is, therefore, desired that the said OTS amount of Rs. 397 lacs be reflected separately under Heading “F” dues under ICD in the Scheme of arrangement alongwith other terms and conditions of the OTS, as contained in letter dated 10.11.2005 and of PNB. (b) Term Loan granted to WIL- o/s of Rs. 157.70 lacs (suit amount) with further interest. 397 lacs be reflected separately under Heading “F” dues under ICD in the Scheme of arrangement alongwith other terms and conditions of the OTS, as contained in letter dated 10.11.2005 and of PNB. (b) Term Loan granted to WIL- o/s of Rs. 157.70 lacs (suit amount) with further interest. It is desired that (i) The Scheme of arrangement may be modified appropriately .incorporating term loan o/s of PNB in clear terms; (ii) The said term loan O/s may be transferred to sugar division i.e. to Augauta Sugar & Chemicals Ltd. (ASCL) and shall be secured by way of pari passu charge on fixed assets of ASCL; (iii) Terms & conditions for the re-payment of the said term loan o/s shall be in terms of the CDR Package at par with other lenders; (iv) Personal guarantee of Shri K.K. Bajoria will continue, for which he will give specific undertaking/guarantee, as may be specified by the bank; (c) O/s of Willard Storage Battery Limited Therefore, it is desired that another heading may be introduced as “dues in respect of Willard Storage Batteries Ltd., in the table under Section-A of Schedule-I secured by corporate guarantee of WIL to PNB (which stands invoked) and charge on assets of WIL Dues owed to PNB may be shown under this heading as Rs. 2808.83 lacs as on date of 17.7.1998 (Date of OA) with further interest @ 21.25% p.a." 48. Shri Sunil Gupta further submits that in the year 1993 upon de-merger and transfer of battery division to WSBL with the permission of PNB certain dues (part of Rs. 500 lacs) were retained by WIL. The PNB filed O.A. No. 247/1998 for Rs. 157.70 lacs with further interest @ of 21.25% against WSBL and WIL. The CDR Cell suggested that WIL will resolve issue with PNB and accordingly letters sent on 23.6.2006 and 24.6.2006. The WIL had acknowledged the dues of WSBL and has proposed to restructure the dues. In the letter dated 19.7.2006 the PNB has accepted the dues of Rs. 126 lacs plus interest and a spirit of compromise. The WIL has agreed on 23.8.2006 to incorporate Rs. 126.70 lacs in the scheme as secured debt with also pari pasu charge on fixed assets and guarantee by K.K. Bajoria (promoter). He submits that WIL was a corporate guarantor of WSBL and in the present case the debts of WIL are being restructured. The WIL has agreed on 23.8.2006 to incorporate Rs. 126.70 lacs in the scheme as secured debt with also pari pasu charge on fixed assets and guarantee by K.K. Bajoria (promoter). He submits that WIL was a corporate guarantor of WSBL and in the present case the debts of WIL are being restructured. The WSBL is in liquidation. During the voting or even in PNB letters the dues of PNB claimed at Rs. 2806.83 lacs were not determined and in any case adjudication is pending before Debt Recovery Tribunal. The corporate and K.K. Bajoria’s guarantees are only to the extent of contingent liability depending upon DRT order acceptable by WIL as part of the scheme. 49. In reply to Malanpur Steel Ltd’s objections, Shri Gupta submits that there is only one scheme for all the classes with no discrimination. No such objections with regard to a class of creditors were taken before the Chairman and no prejudice was pleaded or proved with Chairman. Secret ballot was used and that sundry creditors voted in favour of the scheme. These sundry creditors were equally interested in the de-merger of the company. It is denied that all the ballot papers were signed by the alternative chairman. In Section ‘C’ of Schedule I the PNB voted in favour with 81.55 % whereas Mukund and Malanpur had only 8.53% and 9.92% value of the credit. In Section ‘B’ of Schedule I Poddar Heritage Investment Ltd. had 85.65% against 14.35% of Hindustan Sanitary Ware. Shri Gupta submits that the principal amount of incorporate deposit of Malanpur Steel Ltd. of Rs. 2.5 crores is fully paid up. The dues are admitted only to the extent of Rs. 39.75 lacs. The issue of interest is subjudice before the Calcutta High Court and that the Malanpur Steel Ltd. had challenged and got Single Judge’s decree of 17% interest set aside. The appeal is still pending in Kolkatta High Court. Shri Gupta submits that there is no evidence to show that one proxy was used for different creditors or they were forced to use single ballot papers in case of different votes for and against the scheme. Shri P.M. Singhvi and Shri G.S. Doshi appeared for WIL in different meeting of other companies and not in same meeting. In the WIL meeting they appeared for creditors of WIL. In ASCL meeting they appeared for WIL as shareholders of ASCL. Shri P.M. Singhvi and Shri G.S. Doshi appeared for WIL in different meeting of other companies and not in same meeting. In the WIL meeting they appeared for creditors of WIL. In ASCL meeting they appeared for WIL as shareholders of ASCL. In the creditor’s meeting of WIL Shri K.K. Bajoria was personally present and authorised representative of 15 corporate creditors were also personally present. In the ASCL, CJMPL, PCCPL meetings also authorised representative of one predominant corporate members (virtually 100%) and creditor (94.9%) namely WIL was personally present. The SDF was a creditor of WIL and not ASCL. He wrongly appeared in the meeting of ASCL and should not be counted that is why the Chairman had left the matter to the Court. Shri Gupta further explains that WIL will remain the holding company of ASCL (40%), CJMPL (40%), and PCCPL (100%) the liabilities are to be transferred alongwith respective assets. The scheme has followed the restructuring/de-merger directions of RBI-CDR Cell and cannot be treated as a whimsical scheme. There is no reduction perse of the share capital as shareholders will be given share in similar value in de-merged companies. In any case reduction of share capital can be ordered under Section 391. The SBI Caps did not have a board’s resolution and as such its representative was not permitted to vote. In any’case the dues of SBI Caps have been settled and they have withdrawn their objections. Similarly PNB has settled the dues and LIC has given consent and HSBC has also given consent. 50. With regard to objections taken by Hindustan Composite Ltd. Shri Gupta submits that no different or discriminatory treatment is given under the scheme. It applies equally to all. The secured creditors are not aggrieved. The HCL did not choose to be present at the meeting and that even amongst unsecured creditors, the PNB with more than 75% credit voted in favour of the scheme. 51. It applies equally to all. The secured creditors are not aggrieved. The HCL did not choose to be present at the meeting and that even amongst unsecured creditors, the PNB with more than 75% credit voted in favour of the scheme. 51. Palmer Company Law, 24th Edition (79-11) defines a class for the purpose of arrangement and re-constructions : “The application.....for an order for meetings is a preliminary step, the applicant taking the risk that the classes which are fixed by the judge, usually on the applicant’s request, are sufficient for the ultimate purpose of the section, the risk being that if in the result, and we emphasise the words ‘in the result,’ they reveal inadequacies, the scheme will not be approval.” 52. In para 7-12 of the same volume, the author describes classes of creditors : “The question of what constitutes a creditor and what a class of creditors may be is much more difficult than that which concerns share-holders. In general any person having a pecuniary claim against the company capable of estimate is a creditor. Creditors can be divided into three categories (which may themselves overlap), of preferential creditors, secured creditors and unsecured creditors. All preferential creditors who have no security for their debts can be treated as one class, and if, as well frequently be the case, all preferential creditors are to be paid infull, they will be a single class whether or not some are secured and some unsecured. Similarly, all 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. 53. In Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579 the Supreme Court while dealing with point No. 4 with regard to meeting of the creditors and classes of creditors or members or class of members to whom the scheme of compromise or arrangement is offered by the company relying upon Palmer in his treatise Company Law, 24th edition (quoted above) held as follows : “It is, therefore, obvious that unless a separate and different type of scheme of compromise is offered to a sub-class of a class of creditors or shareholders otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened. On the facts of the present case the appellant has not been able to make out a case for holding a separate meeting of the dissenting minority equity shareholders represented by him. The fourth point for determination, therefore, is answered in the negative. That takes us to the consideration of the last point for determination placed for our consideration by learned Senior Counsel for the appellant.” 54. Shri Sunil Gupta has placed reliance on the observations in Miheer H. Mafatlal’s case (supra) : “We may also in this connection profitably refer to the judgment of this Court in the case of Hindustan Lever Employees’ Union v. Hindustan Lever Ltd., (1995) 83 Comp Cas 30; (1995) Supp. 1 SCC 499 wherein a Bench of three learned judges speaking through Sen J. on behalf of himself and Venkatachaliah C.J. and with which decision Sahai J. concurred. Sahai J., in his concurring judgment in the aforesaid case has made the following pertinent observations in this connection in paras 3 and 6 of the report (at pp. 37, 39): “But what was lost sight of was that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company Court does not exercise in appellate jurisdiction.... Section 394 casts an obligation on the Court to be satisfied that the scheme for amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered into 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 maximizing the profit of the shareholders or whether the interest of employees was protected but it has to ensure that the merger shall not result in impeding promotion of industry or obstruct growth of national economy. Liberalized economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decisions Hoare and Co. Liberalized economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decisions Hoare and Co. Ltd. In re (1933) All ER Rep 105 Ch D and Bugle Press ltd., In re (1961) 31 Comp Cas 369; (1961) Ch 270 that the power of the Court is to be satisfied only whether the provisions of the Act have been complied with or 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 normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the Court in this regard is comprehensive.” 55. Shri Gupta then submits relying upon State Bank of India v. Alstom Power Boilers Ltd, (2003) 116 CC 1 (Bom) that whether a particular group of members or creditors would form a class distinct from other members or creditors would largely depend on the facts and circumstances of each case, the Court being required to consider several factors. In the case of shareholders, the Court would not generally favour a further sub-classification other than equity shareholders or preference shareholders. There may be a need for making a further sub-classification in a case of creditors of the company. Apart from broad distinct classes like secured and unsecured creditors, there can be further sub-classes. Those having sufficient security of specific asset or assets and those who may not have sufficient security to meet their credits, there may be creditors having first charge, second or subsequent charge or specific charged attached to a particular piece of property. It will depend upon the facts and circumstances of each case whether there would be any need for further sub-classification even amongst the secured creditors but the general principle would be the same namely whether the interests of the creditors who claim to belong to a different class are so dissimilar to the interests of the other creditors that it would be impossible for them to sit and consult together and take a common view of their common interest. 56. 56. In re Maneckchowk and Ahmedabad Manufacturing Co Ltd., Justice D.A. Desai, J. (as he then was) 1970 CC 40 (819) the tests for sanctioning the scheme were summarised. It was held that the discretion of the Court in sanctioning the scheme of compromise with members and creditors does not extend to usurping the view of the members or creditors. If the scheme is reasonable, the Court will be strongly influenced by a big majority vote and the reasons which actuated the contesting creditors in opposing the scheme. If the scheme is fair and equitable 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. The scheme is not 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 the, if the scheme is such as a 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 to a company. 57. The WIL has 30000 sugar cane growers, 5000 employees, 37000 shareholders and creditors to the tune of more than Rs. 100 crores as stakeholders. The sugar industries are looking up to the growth with increase production and by-products such as power and ethanol. The sugar production has doubled in the country in last ten years. The economic policies adopted by the Government to meet the challenges of globalisation compelled the Reserve Bank of India to lower the interest rates causing serious concern for re-schedulement of the loans taken under the contracts with the higher rate of interest. The sugar production has doubled in the country in last ten years. The economic policies adopted by the Government to meet the challenges of globalisation compelled the Reserve Bank of India to lower the interest rates causing serious concern for re-schedulement of the loans taken under the contracts with the higher rate of interest. The industrial companies with the baggage of old liabilities and higher interest rates were finding it difficult to survive in the new market economy. The Reserve Bank of India proposed Corporate Debt Restructuring of such units. In pursuance thereof the Corporate Debt Restructuring Cell of Reserve Bank of India considered the proposal of restructuring of WIL’s debts of FIs and Banks. The Monitoring Committee established in January 2005 with representatives of IDBI, ICICI, IFCI, SBI and CDR Cell, FIs, Banks. The SBI proposed to implement the package with infusion of personal funds of promoters of Rs. 2.5 crores and will arrange further loans of Rs. 10 crores. The scheme of reconstruction (demerger) approved by the CDR Empowered Group on 16.3.2006, is required approval of the High Court under Section 391/394 of Companies Act, 1956. The WIL was required to resolve the issue with PNB. The scheme formulated and approved by CDR was proposed for approval of the share-holders and creditors. The scheme had received in principal approval by the creditors of 85.77% of total outstanding. It however required statutory approval as restructuring of debts also proposed demerger and was likely to effect the interest of the unsecured creditors. 58. The SBI Capital Markets Ltd; Hindustan Composite Ltd and Mukund Ltd. have withdrawn their objections as their dues were settled during the pendency of the confirmation petition. According to the Chairmen appointed for the meetings the quorum was obtained and the resolution was put to vote and approved by the majority of share holders and creditors of the companies present in the meeting. Malanpur Steel Ltd., Hindustan Sanitary Ware Industries Ltd. and Rasoi Limited the objectors are all unsecured creditors. These companies had made Inter Corporate Deposits (ICD’s) in WIL. The PNB-the other objector has accepted one time settlement and has pressed the objections with regard to certain conditions in the scheme of demerger for securing its loans. The letter dated 26.6.2006 of the Chief Manager PNB and the objections filed in the Court seek to protect the ICD of Rs. The PNB-the other objector has accepted one time settlement and has pressed the objections with regard to certain conditions in the scheme of demerger for securing its loans. The letter dated 26.6.2006 of the Chief Manager PNB and the objections filed in the Court seek to protect the ICD of Rs. 10 crores granted by erstwhile PNB Capital Services Limited by reflecting the OTS amount of Rs. 397 lacs separately under heading ‘F’ in the scheme and to clearly incorporate the term loans of Rs. 157.70 lacs (suit amount) granted to the WIL to be transferred to ASCL and to be secure by way of pari pssu charge on fixed assets of ASCL and to continue the personal guarantee of Shri A.K. Bajoria. The PNB has further requested to introduce the dues in respect of Willard Storage Battery Limited in the schedule under Section ‘A’ of Schedule-I secured by the corporate guarantee of WIL to PNB and charged on the assets of WIL. The dues owed to PNB are requested to be shown under this heading as Rs. 2808.83 lacs as on date of 17.7.98 with further interest @ 21.25% p.a. 59. There is considerable force in the contention that the scheme is beneficial to all the stakeholders including shareholders and creditors as it purports to saving company from the liquidation except the objectors. The Court however will not confirm the scheme unless the statutory requirement as provided under Section 391/394 are complied with and it is found that the scheme is not unfair or unreasonable to any class of creditor or is not against public interest. 60. A perusal of reports of Shri Avinash Tripathi and Shri Rakesh Bahadur, the Chairman of the meetings of shareholders and creditors of WIL/ASCL and shareholders and creditors of CJMPL/PCCL respectively, would go to show that the prescribed quorum in the ‘Articles of Association’ was not present to proceed with the meeting. The Court in its order dated 18.5.2006 had prescribed the same quorum for the meeting which is provided in the ‘Article of Association’ of the respective companies. It is admitted that Article 71 of the ‘Article of Association’ of WIL and the respective companies provide for the quorum of five person to be present in person in the meeting of shareholders. “71. It is admitted that Article 71 of the ‘Article of Association’ of WIL and the respective companies provide for the quorum of five person to be present in person in the meeting of shareholders. “71. No business shall be transacted at any General Meeting of the Company unless a quorum of members is present at the time when the meeting proceeds to transact business. Save as herein otherwise provided, five members present in person shall be quorum. “There is no quorum provided in the ‘Article of Association’ for the meeting of creditors. The Court as such finds that the same quorum, as it is provided in the meeting of the shareholders under the ‘Article of Association’ of the respective companies, is the quorum prescribed to proceed with the creditor’s meeting. Shri Avinash Tripathi, Advocate, Chairman of the meetings of shareholders and creditors of WIL reported that 3 shareholders were present in person representing 1,21,300 shares of the value of Rs. 12,13000 and that 15% represented by proxy 8862927 shares of the value of Rs. 88639270. They were three representatives of the FIs and Banks representing 2374575 shares of the value of Rs. 2,37,45,750. There were authorised representatives of the two institutions and banks representing 997000 preference shares of the value ot Rs. 9,97,00,000. The quorum of the meeting as such was complete and that except Shri Kumar Sardendu, AGMSBI representing preference shares of Rs. 10300000, the resolution was unanimously carried out. The SBI however has not filed any objection to the confirmation petition. 61. Shri Avinash Tripathi, Advocate in his report of the creditor’s meetings of WIL, has stated in paragraph 15 of his affidavit that the meeting was attended personally by one creditor in person, 283 creditors by proxies and in representative capacity entitled together to the credit value to the extent of Rs. 776,959,006. Shri Tilak Bose, appearing for MSL, has made serious challenge to the satisfaction of the Chairman of the meetings about the quorum. The ‘Articles of Association’ provides for five persons present in person. The scheme was going to affect both secured and unsecured creditors. In this meeting UTI Mutual Fund of the value of Rs. 43,985,182; UTI-SUUTI of the value of Rs. 53, 759,667; Hindustan Sanitary Ware and Industries Limited of the value of Rs. 2, 775,113; Malanpur Steel Limited of the value of Rs. The scheme was going to affect both secured and unsecured creditors. In this meeting UTI Mutual Fund of the value of Rs. 43,985,182; UTI-SUUTI of the value of Rs. 53, 759,667; Hindustan Sanitary Ware and Industries Limited of the value of Rs. 2, 775,113; Malanpur Steel Limited of the value of Rs. 3, 975,924 and Mukund Limited of the value of Rs. 3, 420, 279 voted against the proposed scheme of arrangement. They constituted 13.89% as against 86.11% who amongst those who are present voted for the scheme. Out of these, the dues of Mukund Limited have been settled for Rs. One crore during the pendency of the proceeding and that UTI Mutual Fund and UTI-SUUTI have not filed any objection in response to the advertisement of the hearing of the petition for confirmation of the scheme. 62. In this meeting only one creditor was present in person and that there were 282 proxies or representative of the banks and financial institutions. The ICICI Bank was represented by Shri Kamal Nigam; GIC by Rakesh Sharma; IFCI Ltd. by Shri Kuldeep Singh; PNB by Shri R.K. Juneja; Allahabad Bank by Shri V.P. Singh. The objectors namely UTI Mutual Fund was represented by Shri B. Prabhakar; UTI-SUUTI by B. Prabhakar; Mukund Ltd. by Shri D.C. Wagla; Hindustan Sanitary Ware and Industries Ltd. by Shri Shabya Shashi Patre; Malanpur Steel Ltd. by Shri Alok Sinha Roy. The other were sundry creditors represented by their authorised representatives. 63. The authorised representatives have to be treated as person attending the meeting and that the quorum was completed and resolution approving scheme was carried out by a majority of 86.11% votes in favour of the scheme. 64. Shri Avinash Tripathi further reports that the meeting of the shareholders of the ASCL was attended by one shareholders as representative of WIL holding 50,000 shares in individual capacity and eight shareholders by proxies entitled together to 50,1000 value of shares and that all votes to approve the scheme. The chairman further reports in a separate affidavit that a meeting of creditors of ASCL was attended by only one representative of WIL having credit value to the extent of Rs. 8701374 and a representative of Sugar Development Fund alleging himself to be a creditor of Agauta Sugar and Chemicals to the extent of Rs. 50 lacs loan. The chairman further reports in a separate affidavit that a meeting of creditors of ASCL was attended by only one representative of WIL having credit value to the extent of Rs. 8701374 and a representative of Sugar Development Fund alleging himself to be a creditor of Agauta Sugar and Chemicals to the extent of Rs. 50 lacs loan. Shri D.K. Sibbal representing Sugar Development Fund raised objections to the scheme as the Shri Pushkar Mehrotra objected that loan was not advanced to ASCL instead it was given to Agauta Sugar and Chemical, division of WIL. 65. The meeting of shareholders and creditors of ASCL were attended by only one shareholder in person. In the meeting of shareholders, there was 8 shareholders by proxies. The quorum of the meeting of the shareholders of ASCL as such was not complete and thus the meeting could not have proceeded with and that the resolution could not be put to vote. Similarly the meeting of the creditors of ASCL was also lacking in quorum as there was only one person namely Shri P.M. Singhvi representing WIL. The other person namely Shri Sibbal was representing Sugar Development Funds objected to the scheme. Once the quorum of the meeting of the creditors was lacking the meeting could not be proceeded with for considering the scheme of demerger. The Court thus finds that the meeting of the shareholders and creditors of Agauta Sugar and Chemicals Ltd. was not held in accordance with law. It could not proceed for want of quorum and that any resolution passed in the meeting is invalid and of no consequence. 66. The objection of Sugar Development Fund raised by Shri D.K. Sibbal was perfectly valid. The Sugar Development Fund had given loan of Rs. 50 lacs to M/s Agauta Sugar and Chemicals Limited on 26.3.1999 for a period of two years under the Sugar Development Funds Rules, 1983. The scheme provided for waiver, reduction and re-schedulement of the loans and as such Sugar Development Fund, Ministry of Consumers Affairs, Department of Food and Public Distribution, Government of India by its letter dated 26.6.2006 had the authority to raise objections to the scheme. 67. The scheme provided for waiver, reduction and re-schedulement of the loans and as such Sugar Development Fund, Ministry of Consumers Affairs, Department of Food and Public Distribution, Government of India by its letter dated 26.6.2006 had the authority to raise objections to the scheme. 67. Shri Rakesh Bahadur, appointed as Chairman of the meeting of shareholders of Chitavalsah Jute Mills Private Limited, reports that the meeting of the shareholders was attended by proxy of all the eight shareholders and that proxies were held by two persons namely Shri P.M. Singhvi who represented WIL for 9900 shareholders and Shri G.L. Doshi representing WIL jointly with Paras Nath Jain with 10 shares and WIL jointly with Ms. Deepika Agarwal with 10 shares. There was no shareholder present in person whereas Shri Paras Kumar Jain and Ms. Deepika Agarwal could have attended the meeting. The quorum of shareholder’s meeting as such was not complete and the meeting could not have proceeded to consider the scheme. Similarly the meeting of the creditors of U.K. Jain & Co represented by Shri U.K. Jain of the value of debt of only Rs. 550. This again was not properly convened as the quorum was not complete. 68. If there were lesser number of shareholders and creditors then prescribed to complete the quorum, the company could have approached the Court for either dispensing with the meeting or to relif the quorum. There was no request made for this purpose at the time of convening the meeting nor any such application was made before the meetings were actually held. The Court as such finds that the meeting of the shareholders and creditors of CJMLP were not properly held and that the resolution passed in the meeting cannot be accepted. 69. Shri Rakesh Bahadur, Advocate the Chairman of the shareholders and creditors meeting of the PCCPL reports that the meetings of the shareholders was not attended by in person. It was attended by proxy by all the 8 shareholders of the company entitled together to 10000 shares and value of the share is Rs. One lac and that two persons namely Shri P.M. Singhvi and Shri G.L. Dosi holding 998 shares in WIL, represented by Shri P.M. Singhvi and 10 shares each by Shri G.L. Dosi jointly held with WIL with Shri Paras Kumar Jain and Ms Deepika Agarwal. One lac and that two persons namely Shri P.M. Singhvi and Shri G.L. Dosi holding 998 shares in WIL, represented by Shri P.M. Singhvi and 10 shares each by Shri G.L. Dosi jointly held with WIL with Shri Paras Kumar Jain and Ms Deepika Agarwal. The meeting of the creditors was attended by some creditor U.K. Jain and Co. through its representative U.K. Jain who entitled together to debt of Rs. 550.00 as on date. The meeting of PCCPL as such did not complete the quorum for either the shareholders or creditors and thus the meetings could not be proceeded with for being the resolution to vote. 70. In this case it was also open to the company to have approach the Court to either dispense with the meetings of shareholders or creditors or to refix a quorum reducing the participants before the meetings were held. The company did not choose to do either and thus the resolutions passed in the meeting cannot be accepted and are held to be invalid and of no consequence. 71. The statutory requirements of a valid meetings have not been followed. The requisite quorum was lacking in the meeting of ASCL, CJMPL, and PCCPL. Just two employees of WIL namely P.M. Singhvi and G.L. Dosi, were managing the entire business with proxies. The contention of Shri Tilak Bose that these meetings were sham and smartly managed by the lawyers of WIL, to defeat the interests of genuine unsecured creditors is found to have substance. According to the long line of cases following Buckley on the Companies Act, 14th Edn. also followed in Miheer H. Mafat Lal (supra) by the Supreme Court, the Court would while exercising power of sanction will see first that the provisions of the statute have been complied with and then whether 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 to promote interest adverse to those of the class whom they purport to represent. The Court would, then examine whether the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The Court would be slow to interfere unless either the class has not been properly consulted or the meeting has not considered these issues. 72. The Court would, then examine whether the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The Court would be slow to interfere unless either the class has not been properly consulted or the meeting has not considered these issues. 72. The objections of Malanpur Steels Ltd. that their dues have been incorrectly shown in the scheme and provisions made for payment of interest by funding the interest rate, which has not been shown and its payment is treated deferred liability to be paid at a much lower interest rate of 5.4% as non-interest bearing loan to be paid in 8 quarterly installments commencing for December, 2011 and ending in September, 2013 is not a lair and reasonable arrangement. In such case Malanpur Steel Ltd. and PNB would form a separate class for which separate meetings were required to be heard or at least their view or proposals could be discussed. The Court while calling for meetings had allowed such discussion in para-9 of its order dated 18.5.2006, but they were streamrolled in the meeting without any discussion. The interest of unsecured creditors was distinct and separate and that a close look at the scheme would show that a different scheme was offered to the unsecured creditors both in class ‘B’ and ‘C’. According to Miheer H. Mafatlal (supra) para 39, a separate meeting of such sub class was required to be convened. The CDR in its approval to the scheme of demerger had made it open to the company to approach PNB for settlement of its dues outside the scope of the scheme of demerger and to restructure the debts of other creditors on such terms as it may deem expedient. It is apparent from the record that the company could not persuade PNB and that the interest of PNB settled through OTS has not been fairly represented secured and taken into account at the time of preparation of the scheme or even up to the date of holding meeting and thereafter. In fact all these dues have not been quantified in scheme at all. The scheme as such cannot be said to be fair and reasonable to the objecting class of creditors and in public interest. The confirmation petition is as such liable to be dismissed. 73. In fact all these dues have not been quantified in scheme at all. The scheme as such cannot be said to be fair and reasonable to the objecting class of creditors and in public interest. The confirmation petition is as such liable to be dismissed. 73. For the aforesaid reasons the prayer to confirm the ‘Scheme of Arrangement’ is rejected. The confirmation petition is dismissed with costs quantified at Rs.50,000/- each to Malanpur Steels Ltd., Punjab National Bank, Hindustan Sanitary Ware Ltd. and Rasoi Ltd. ————