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2008 DIGILAW 248 (GUJ)

In Re : Narmada Aluminium Industries Ltd. v. .

2008-05-16

K.A.PUJ

body2008
JUDGMENT : K.A. Puj, J. The petitioner has filed this petition under sections 391 to 394 of the Companies Act, 1956, for sanctioning the scheme of arrangement in the nature of compromise between Shree Narmada Aluminium Industries Ltd., its secured and unsecured creditors and shareholders. 2. The company was incorporated on April 15, 1981, in the name and style of Narmada Aluminium Extrusion P. Ltd., under the provisions of the Companies Act, 1956. This name was subsequently changed to Shree Narmada Aluminium Industries Ltd., with effect from November 9, 1995. The company, due to reasons beyond its control was registered with the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985. Thereafter, the board opined for winding up of the company and the Company Petition No. 256 of 2000 came to be filed with this court. The petitioner-company preferred the appeal before the appellate authority and the said authority has dismissed the appeal. Thereafter, the petitioner preferred the special civil application challenging the validity of the orders passed by the BIFR and the AAIFR but the said petition came to be dismissed. The petitioner preferred the Letters Patent appeal against the order passed in special civil application which also came to be dismissed. 3. The petitioner is the company which was facing financial problems and has started doing the business and regularly paying the current dues statutory and contractual. The petitioner had deposited the substantial amount of Rs.50 lakhs with the registry of this court, pursuant to the order dated October 4, 2005, passed in Company Petition No. 256 of 2000 and shown its bona fide. The petitioner did file a detailed affidavit in the Company Petition No. 256 of 2000 stating therein that, the secured creditors have agreed for one-time settlement for the amount of Rs.200 lakhs as full and final payment and the petitioner has also placed on record the necessary correspondence from the respective secured lenders to the aforesaid effect. The two unsecured creditors have preferred winding up petitions being Company Petitions Nos. 131 and 132 of 1990 before this court which matters are pending because of the pendency of the proceedings before the BIFR and, thereafter, pendency of the present petition. The said two unsecured creditors have also filed Civil Suits Nos. The two unsecured creditors have preferred winding up petitions being Company Petitions Nos. 131 and 132 of 1990 before this court which matters are pending because of the pendency of the proceedings before the BIFR and, thereafter, pendency of the present petition. The said two unsecured creditors have also filed Civil Suits Nos. 904 and 905 of 1993 before the Bombay High Court and the petitioner-company has also filed counter claim being Civil Suit No. 1793 of 1993. All these proceedings are still pending. Irrespective of the disputes and alleged claims and without prejudice the said alleged unsecured creditors are also put at par with the other unsecured creditors of the scheme and thus are offered the same compromise as is offered to the other unsecured creditors. Upon sanctioning of the scheme the above petition and civil suits shall be withdrawn as not pressed. The petitioner is under the process of restructuring its manufacturing unit and to attain the object of full-fledged revival of the unit. The petitioner has also made offers to other creditors to settle their dispute with the company. The petitioner had shown its readiness and willingness to offer to the respective creditors and shareholders as per the scheme. The petitioner-company has sustained losses in the past years but is coming out from the woods and has made strenuous efforts to revive the company and for that the company has also shown its bona fide and potentiality before this court. It is further stated that the projected profit and loss statement of the petitioner-company is produced before the court. The State sales tax authority has proposed to initiate the coercive action against the petitioner-company for non-payment of deferred sales tax dues to the extent of Rs.2.50 crores. The petitioner-company is in the process of settling the said alleged dues under settlement scheme of the BIFR and the application in this regard has been made. In this view of the matter, the board of directors of the petitioner-company is of the opinion that the restructuring and revival would result in benefit to all concerns including the shareholders, creditors, employees of the petitioner-company. The employees of the petitioner-company are supporting the petitioner and as the company is situated in the remote place, the said company if given an opportunity then the workers and employees would not be deprived of their livelihood. The employees of the petitioner-company are supporting the petitioner and as the company is situated in the remote place, the said company if given an opportunity then the workers and employees would not be deprived of their livelihood. It is further submitted that the sundry creditors/suppliers have full trust in the management of the petitioner-company and are also ready to supply the raw materials to the petitioner-company. 4. By an order made in the Company Application No. 39 of 2006 on February 20, 2006, the petitioner was directed to convene a meeting of the shareholders, secured creditors and unsecured creditors for the purpose of considering and, if thought fit, approving with or without modifications, the compromise/arrangement proposed to be made between the petitioner-company and its shareholders, secured creditors and unsecured creditors to the proposed scheme and the said order directed the Registrar General of the High Court to appoint one person not below the rank of the Assistant Registrar to convene, hold and conduct separate meeting and to report to the court within four weeks from the date of passing of the order. Thereafter, the petitioner preferred Company Application No. 128 of 2006 for extension of time to convene, hold and conduct meeting of the petitioner-company and its shareholders, secured creditors and unsecured creditors and the court has extended the date of convening the meeting from April 4, 2006 to May 10, 2006, vide its order dated March 20, 2006. Notice of meeting was sent individually to the shareholders, secured creditors and unsecured creditors as required together with a copy of the compromise or arrangement and of the statement required under section 393 and a form of proxy. Notice of the meeting was also advertised as directed under the said order in two daily newspapers, namely, Nav Gujarat Times (Gujarati language), Surat edition and The New Indian Express (English language), Baroda edition. On May 10, 2006, meeting of the shareholders and unsecured creditors of the company was duly convened in accordance with the order and was held at Bharuch and Shri P.C. Joshi, Assistant Registrar of this court acted as the chairman of the meeting. The meeting of the secured creditors was terminated by the chairman for the mandatory lapse on the part of the secured creditors. 5. The said meeting of the shareholders was attended by 22 shareholders entitled together 18,05,700 equity shares. The meeting of the secured creditors was terminated by the chairman for the mandatory lapse on the part of the secured creditors. 5. The said meeting of the shareholders was attended by 22 shareholders entitled together 18,05,700 equity shares. Of the 22 equity shareholders, 2 shareholders attended in person, 16 attended through proxy and 4 attended through representative. The said scheme of arrangement in the nature of compromise was read and explained by Shri Dharamsinhbhai J. Patel, executive director upon request by the chairman of the meeting and it was unanimously resolved that the scheme of compromise and/or arrangement between the company and its equity shareholders as well as the unsecured creditors was approved. The chairman of the meeting reported the result of the meeting to this court. The meeting of the secured creditors was terminated on May 10, 2006, as none of the secured creditors had lodged with the company at least 48 hours before the time fixed for the meeting, a copy of the resolution of their respective board of directors authorising the persons present to act as their respective representative, and hence in view of the mandatory requirements of rule 70(2) of the Companies (Court) Rules, 1959, the representative of the secured creditors could not be permitted to act as representative. The meeting of the secured creditors was terminated by the chairman with the suggestion that the company should obtain suitable direction for holding a fresh meeting of the secured creditors, which suggestion was acceptable to all persons present. Thereafter, the petitioner-company has preferred separate Company Application No. 290 of 2006 in Company Application No. 39 of 2006 in Company Petition No. 256 of 2000 for convening a fresh meeting of secured creditors. This court vide its order dated June 16, 2006, considered the submission and ordered for fresh meeting of the secured creditors to be convened on July 22, 2006. Notice of the said meeting was sent by U.P. C. and hand delivery as per order dated June 16, 2006, to the secured creditors together with the copy of the scheme of arrangement in the nature of compromise and of the statement required under section 393 and the form of proxy. The publication of the notice of the meeting was dispensed with. On July 22, 2006, a meeting of the secured creditors of the company was duly convened in accordance with the said order. The publication of the notice of the meeting was dispensed with. On July 22, 2006, a meeting of the secured creditors of the company was duly convened in accordance with the said order. The chairman of the meeting has reported the result of the said meeting vide his report dated June 18, 2006. As per the chairman's report, the said meeting of the secured creditors was attended by three secured creditors having total voting value of Rs.37,32,13,894 attending and voting at the meeting through their representatives. During the course of discussion in the meeting of the secured creditors representative of IFCI moved in writing a motion for modification of the scheme. The said amendment was put to vote by poll and on counting the votes, the modification proposed by IFCI was rejected by majority. Thereafter, the Dena Bank proposed an amendment in the scheme offered to the secured creditors. The second amendment was proposed by the Dena Bank. The second amendment was put to vote by poll and vote was taken on the said second amendment. On counting the vote the said meeting was of the opinion that the second amendment proposed by the Dena Bank be passed and approved. Of the three secured creditors having a total voting value of Rs.37,32,13,894.16 attending and voting at the meeting through their representatives, two secured creditors having voting value of Rs.31,06,84,102.16, i.e., to say two third in number and 83.24 per cent. in value of those present and voting, voted in favour of the proposed scheme amendment and one secured creditor, having voting value of Rs.6,25,29,792 voted against the proposed second amendment. 6. The petition came to be admitted on September 4, 2006 and notice was issued to the Central Government through the Regional Director, Department of Company Affairs, Mumbai. Notice of hearing of the petition was also ordered to be published in two daily newspapers, namely, Nav Gujarat Times (Gujarati language), Surat edition and The New Indian Express (English language), Baroda edition. The publication of notice in the Government Gazette was dispensed with. 7. On notice being served on the Central Government an affidavit was filed by Shri P.L. Malik, Assistant Registrar of Companies along with the letter dated December 14, 2006, issued by the Regional Director, wherein the following objections were raised : (i) The company is a listed company and registered in different stock exchanges. 7. On notice being served on the Central Government an affidavit was filed by Shri P.L. Malik, Assistant Registrar of Companies along with the letter dated December 14, 2006, issued by the Regional Director, wherein the following objections were raised : (i) The company is a listed company and registered in different stock exchanges. However, the petitioner has not obtained NoC from such stock exchanges. (ii) As per clause (8) of the scheme the paid-up capital of the company will be reduced to Re. 1 by cancelling Rs.9. However, no special resolution under sections 100-105 read with rule 85 of the Companies (Court) Rules have been passed by the company. (iii) The company was registered in the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 and the said Board opined for winding up of the company in Company Petition No. 256 of 2000 in public interest. (iv) There is no concrete revival scheme before this court from the board of directors of the company. 8. A further affidavit is filed by Kanubhai Chaturbhai Patel, authorised representative of the petitioner-company stating therein that IFCI one of the secured creditors who has opposed the scheme in the meeting of the secured creditors, subsequently vide its letter dated September 20, 2007, has withdrawn the objections to the scheme and supported and approved the sanctioning of the scheme. 9. An affidavit is filed by the manager of Kotak Mahindra Bank Ltd., (2010) 153 Comp Cas 107 (Guj) raising objections against the scheme and stating therein that ICICI Bank Ltd., had filed the Original Application No. 229 of 2003 in DRT-III, Mumbai, claiming huge amount from the petitioner-company. The amounts claimed are more than Rs.7.50 crores as on May 31, 2003, along with the interest thereon. Pursuant to the assignment of debts by ICICI Bank Ltd., in favour of the objector bank, the objector bank has been permitted to be on record in place of the ICICI Bank Ltd., in Debts Recovery Tribunal proceedings. The objector bank has already filed an application for appointment of a receiver in respect of the secured assets and the matter is pending before DRT-III, Mumbai. The objector bank has already filed an application for appointment of a receiver in respect of the secured assets and the matter is pending before DRT-III, Mumbai. As recovery proceedings initiated under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which is a special Act and has also non-obstante clause, are pending before the competent forum, this court, therefore, may not have jurisdiction to consider the present scheme which has direct effect of causing prejudice to the claims of the objector bank. 10. It is further submitted in the said affidavit that the scheme of compromise is based on the figures of the outstanding amounts as determined between the secured creditors in the meeting of the secured creditors on January 9, 2006, in the office of the IDBI. All the secured creditors present had agreed to outstanding amounts as also the ratio based on the first charge on the fixed assets. The outstanding amounts was fixed at Rs.383.35 lakhs for all the secured creditors including the IDBI Ltd., IFCI Ltd., Kotak Mahindra Bank Ltd., and the Dena Bank. The share of the objector, Kotak Mahindra Bank Ltd., was Rs.148 lakhs which is 38.60 per cent. of the total outstanding amount. The objections of the objector bank are in respect of debt which is above 25 per cent. of the outstanding debts sought to be compromised. The dues have to be calculated on current debt and not as per the original funding amount. The say of the objector that the company has settled the dues of IDBI, IFCI and Dena Bank. As such the objector is the sole secured creditor of the company comprising 100 per cent. of the debts of the company. It is, therefore, submitted that in view of the objections of the objector bank alone, the present scheme of compromise does not have the support of the statutory majority as provided under section 391(1) of the Act. 11. It is further submitted that in the meeting held in pursuance to the order made by this court, IFCI Ltd., had submitted its objections to the scheme of comprise. The subsequent letter addressed by IFCI Ltd., cannot be construed to be a decision of the secured creditors which was to be taken in the meeting ordered to be held by this court in terms of section 391(1) of the Act. The subsequent letter addressed by IFCI Ltd., cannot be construed to be a decision of the secured creditors which was to be taken in the meeting ordered to be held by this court in terms of section 391(1) of the Act. It is, therefore, submitted that the scheme does not have support of the secured creditors holding debt more than the statutory majority as provided in section 391(1) of the Act. 12. Pursuant to the additional affidavit dated March 4, 2008, filed by Kotak Mahindra Bank Ltd., the petitioner-company has filed counter affidavit dated March 10, 2008. It is stated in this affidavit that in spite of objections being raised, Kotak Mahindra Bank Ltd., has still not produced a true and full copy of the deed of assignment on the basis of which it has assigned its debt to Kotak Mahindra Bank Ltd. The petitioner-company has challenged before the Appellate Tribunal the order of the Debts Recovery Tribunal whereby Kotak Mahindra Bank has been permitted to be on record in place of the ICICI Bank Ltd. The said appeal is still pending. Since Kotak Mahindra Bank Ltd., is not producing true and full copy of the alleged deed of assignment, the petitioner made private inquiries and it has been reliably learnt that the alleged deed of assignment on which Kotak Mahindra Bank relies on is a compromise document by which for a stamp fee of Rs.1 lakh claims of the ICICI Bank Ltd., against 114 parties are sought to be assigned to the Kotak Mahindra Bank Ltd. The petitioner has also learnt that by the said deed of assignment Kotak Mahindra Bank is sought to be assigned for an up front payment of only Rs.6 crores claims of the ICICI Bank Ltd., worth more than Rs.2,000 crores (consisting of claims for Rs.215.72 crores as the principal amount and the balance as interest). 13. It is further submitted in the said affidavit that the scheme of compromise and arrangement is based on figures of outstanding amount as mentioned in the meeting of banks and financial institutions on January 9, 2006, as alleged or otherwise. So far as present scheme is concerned it is based on the agreed sum of Rs.200 lakhs which all the banks and financial institutions have agreed to accept amongst themselves but could not agree as to its distribution of the said sum amongst themselves. 14. So far as present scheme is concerned it is based on the agreed sum of Rs.200 lakhs which all the banks and financial institutions have agreed to accept amongst themselves but could not agree as to its distribution of the said sum amongst themselves. 14. The facts stated and averments made in the further affidavit filed on behalf of the petitioner-company were disputed by Kotak Mahindra Bank Ltd., and an affidavit in surrejoinder was filed. It is, inter alia, submitted therein that the present scheme and the action taken by the petitioner are nothing less than a fraudulent act on the objection of the secured creditors. The stand taken by the petitioner in the present affidavit is not bona fide. The scheme defines secured creditors in clause (1.7) which has a reference to the total sum due and payable by the company to the secured creditors as on January 31, 2006. Considering the outstanding amount even as per the company which is based on the principal amount and the interest amount thereon, the extent of value of debt in favour of the objector bank is 26.36 per cent. The amount which is unsecured and/or not secured by the first charge on the fixed assets of the petitioner-company cannot be included so as to determine the outstanding amount keeping in view class of secured creditors having first charge on the fixed assets. The objector bank has produced a copy of the decision dated January 9, 2006, in Company Application No. 638 of 2006 and perusal of the decision taken in the meeting held on January 9, 2006, makes it clear that the principal outstanding amount which came to be agreed by all the secured creditors as of the same period, i.e., January, 2006 was as under : - Rupees Security % of IDBI 149 First pari passu charge on the fixed assets. 27.2% IFCI 63 -do- 11.5% Kotak Mahindra Bank Ltd. 148 -do- 27.0% Dena Bank 187 Only Rs.22.94 lakhs is secured by a charge on the fixed assets. Balance amount is unsecured and/or secured only to current assets. 34.0% 547 100% 15. Percentage of debt in favour of the Dena Bank include the debt secured only on current assets and not on the fixed assets. 16. Balance amount is unsecured and/or secured only to current assets. 34.0% 547 100% 15. Percentage of debt in favour of the Dena Bank include the debt secured only on current assets and not on the fixed assets. 16. It is further submitted that in the same meeting it was proposed that by way of one-time settlement the outstanding amount shall be distributed amongst the secured creditors having first charge. The proposal was as under : o/s Sharing based on principal Sharing based on first charge % sharing o/s Sharing based on principal Sharing based on first charge % sharing IDBI Ltd. 149.41 (38.97%) 55.37 77.97 38.98 IFCI 63.00 (16.39%) 22.60 32.86 16.43 Kotak Mahindra Bank Ltd. (ICICI a/c.) 148.00 (38.40%) 51.41 77.22 38.61 Dena Bank 22.94 (5.93%) 70.62 11.96 5.98 383.35 200 200 100 17. On the basis of these two charts, a submission was made that the percentage stake of the objector bank was to the extent of 38.40 per cent. and the proposal to settle the dues of the secured creditors was almost to the similar extent while keeping in view the one-time settlement amount of Rs.200 lakhs. 18. It is further submitted that the company in connivance with the Dena Bank and with a view to pay higher amount to the Dena Bank than what it was entitled to claim under the scheme on merits, the petitioner presented the present scheme of compromise. Several objections were raised in the meeting against not allowing Kotak Mahindra Bank's representative to participate in the meeting. Thus, raising various issues it was emphatically stated in the said affidavit in rejoinder that the Dena Bank is required to be considered as secured creditor for the purpose of the present scheme to the extent of Rs.22.94 lakhs which would only constitute 5.93 per cent. As against this, the value of debt of the Dena Bank is considered at Rs.20.12 crores which would constitute 44.89 per cent. It is, therefore, submitted that the scheme is contrary to the order passed by this court. The scheme is in any case contrary to the binding order of this court and, therefore, the scheme is liable to be rejected. 19. On behalf of the Dena Bank an affidavit was filed on February 24, 2007, wherein it is stated that Kotak Mahindra Bank Ltd., is not a contributory of the company. The scheme is in any case contrary to the binding order of this court and, therefore, the scheme is liable to be rejected. 19. On behalf of the Dena Bank an affidavit was filed on February 24, 2007, wherein it is stated that Kotak Mahindra Bank Ltd., is not a contributory of the company. It is not a secured creditor or unsecured creditor of the company. It has no locus standi to intervene in the proceedings. It is further submitted that the jurisdiction of the court in dealing with the scope of power under section 391 of the Companies Act, 1956, with regard to the arrangement or the scheme it has no power to adjudicate rights of the parties in a scheme under section 391 of the Companies Act, 1956, is to see that the scheme is fair and reasonable and made in good faith. Sections 391 and 394 make it clear that the court has to consider the pros and cons of the scheme to find out whether the scheme is fair and reasonable and it does not violate any public policy and is not contrary to the provision of law. The court has not to reject the scheme at ipse dixit of certain persons. It is further submitted that whether a particular person having a first charge or second charge is not relevant for the purpose of deciding whether the scheme is fair and reasonable. Whether the company has made proposal for settlement and such proposal is accepted by the respective classes by majority in number and in value. The majority in number and in value of secured creditors has accepted the proposal and settlement. Neither IFCI Ltd., nor the Kotak Mahindra Bank Ltd., has been able to show that the scheme is unreasonable or is unfair or is contrary to the provisions of law or it violates any public policy. It is further submitted that the status of the Kotak Mahindra Bank Ltd., is not a creditor of the company till it is established beyond doubt that it is a creditor then the issue will be whether it is a secured creditor or unsecured creditor. If unsecured creditor, it would be paid as per the settlement offered to unsecured creditor. In view of this fact, objections raised by the Kotak Mahindra Bank Ltd., deserve to be rejected. 20. If unsecured creditor, it would be paid as per the settlement offered to unsecured creditor. In view of this fact, objections raised by the Kotak Mahindra Bank Ltd., deserve to be rejected. 20. In the light of the above facts and circumstances of the case and pleadings of the parties, learned advocates appearing for the respective parties have been heard at length and their submissions were considered. Mr. Ashok L. Shah, learned advocate appearing with Mr. Pavan S. Godiawala for the petitioner-company has pointed out the salient features of the scheme and how it is beneficial to all. He has also relied on several decisions in support of the submission that the objections raised by the Kotak Mahindra Bank Ltd., are liable to be rejected. Mr. R.M. Desai, learned advocate, appears for the Dena Bank. He has also supported the scheme and forcefully submitted that the objections raised by the Kotak Mahindra Bank Ltd., deserves to be overruled. Though IFCI has objected the scheme in the meeting, during the pendency of the petition a letter was written expressing their support to the scheme. Thus, the only objector of the scheme is the Kotak Mahindra Bank Ltd. Mr. N.K. Pahwa, learned advocate, appears for the Kotak Mahindra Bank Ltd., and strongly urged that the scheme may not be approved as distinctly supported by the majority. The value of vote was not properly considered. 21. In the light of the above controversy between the parties the court is of the view that the objections raised by the Kotak Mahindra Bank Ltd., cannot be taken into account as the Kotak Mahindra Bank Ltd., is an assignee of the debt. Since the issue regarding assignment of debt is pending before the Division Bench, whether the assignee can be considered to be a secured creditor is a question to be decided by the Division Bench. If the value of the votes stated to have been held by the Kotak Mahindra Bank Ltd., is ignored, it cannot be said that the scheme has not been approved by the requisite majority of secured creditors. If the value of the votes stated to have been held by the Kotak Mahindra Bank Ltd., is ignored, it cannot be said that the scheme has not been approved by the requisite majority of secured creditors. Since the scheme has been approved by the secured creditors, unsecured creditors and workers and it is beneficial to the interest of the members and it is not contrary to public interest and the scheme is hereby sanctioned and prayer made in the company petition vide paragraph 19 of the petition is hereby granted. 22. The objections raised by the Central Government have also been properly dealt with by an affidavit filed on behalf of the company and hence those objections are also overruled. 23. Since the company petition is allowed, the Company Applications Nos. 637 and 638 of 2006 no longer survive, they are accordingly disposed of.