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2008 DIGILAW 528 (GUJ)

In re : Panchmahal Steel Ltd v. .

2008-11-24

K.A.PUJ

body2008
ORDER : K.A. Puj, J. The petitioner Company has filed this petition under Section 391 of the Companies Act, 1956 to obtain sanction of this Court to the modified scheme of compromise and/or arrangement between the petitioner and its secured lenders and equity shareholders. 2. The brief facts giving rise to the present petition are that in 1995-96, the petitioner Company took up a Steel Melt Shop (SMS) Project for a capacity of 1,50,000 M.T. Per annum. However, on account of recessionary trends in the steel sector, the petitioner company could not achieve the financial closure of the project. Further, reduction in operating margins as a result of competitive pressures, unexpected delay in stabilization of the new rolling mill and the requirement of servicing the project debt led to liquidity problems. At the end of financial year in March, 2001 the petitioner Company's accumulated losses exceeded its net worth and hence came within the purview of Section 3(1)(0) of Sick Industrial Companies (Special Provisions) Act, 1985 and the Board for Industrial and Financial Reconstruction (BIFR) declared the petitioner Company as a sick industrial Company by its order dated 7.11.2002. The secured creditors of the petitioner company comprising of Financial Institutions and Banks formulated in 2000, a scheme of restructuring of liabilities, which was given effect from April 1, 1999. Subsequently, debts were again restructured in the year 2001 by some of the secured creditors. The efforts of the petitioner Company towards cost reduction, concentration on value added products and the enhancement of prospects for the stainless steel sector worldwide yielded some positive results. In the year 2004 and 2006, Asset Reconstruction Company (India) Ltd., (ARCIL) acquired debts from certain Banks, who had given loans and financial assistance to the petitioner company. ARCIL suggested the terms and conditions for the proposed restructuring scheme in consultation with the petitioner company and accordingly the scheme was prepared pursuant to the said terms and conditions. 3. The scheme prepared by the petitioner Company seeks to evolve a customized and contemporary business model and a revised capital and debt structure so that these are resized in line with the business viability and cash flows. The existing loans of the petitioner company shall be restructured on the terms and conditions as stipulated in the scheme. 4. 3. The scheme prepared by the petitioner Company seeks to evolve a customized and contemporary business model and a revised capital and debt structure so that these are resized in line with the business viability and cash flows. The existing loans of the petitioner company shall be restructured on the terms and conditions as stipulated in the scheme. 4. The petitioner company, therefore, filed Company application No.525 of 2007, before this Court and this Court vide its order dated 22.11.2007 directed the petitioner company to convene separate meetings of the secured lenders and equity shareholders of the petitioner company, for the purpose of considering and if thought fit, approving with or without modification, the arrangement embodied in the scheme of compromise and/or arrangement. As directed by this Court vide its order dated 22.11.2007, notice of the meetings were sent individually to the secured lenders and equity shareholders of the petitioner company, together with the copy of the scheme, a copy of the explanatory statement required to be sent under Section 393 of the Act and a form of proxy. The notice of the meeting was also advertised as directed by this Court once in 'Indian Express' Baroda Edition and 'Sandesh', Ahmedabad Edition, both on 30.11.2007. 5. In compliance with the order dated 22.11.2007 the meeting of the secured creditors of the petitioner company was held on 28.12.2007. The said meeting of the secured creditor was attended to by three secured lenders through authorised representatives holding value of Rs. 142.55 crores. At the meeting one of the secured lenders, namely, Asset Reconstruction (India) Limited (ARCIL) through its letter date 24.12.2007 proposed modification to the scheme. The Gujarat Industrial Investment Corporation Ltd., (GIIC) also submitted a letter dated 27.12.2007 and informed that they object to the modifications and to the scheme. Voting took place on the modification of the scheme and the said modification was approved by the requisite statutory majority. Thereafter, the modified scheme was taken into consideration and scrutineers after verifying the poll papers informed the result as under:- (a) 3 secured lenders used 3 poll papers for the purpose of voting. (b) 2 secured lenders holding value of Rs. 125.84 crores, representing 66.67% of number of secured lenders and 88.28% in value present and voting, voted in favour of modified scheme. (b) 2 secured lenders holding value of Rs. 125.84 crores, representing 66.67% of number of secured lenders and 88.28% in value present and voting, voted in favour of modified scheme. (c) 1 secured lender holding value of 16.71 crores, representing 33.33% of number of secured lenders and 11.72% in value present and voting, voted against the modified scheme. This modified scheme was thus approved and resolution to that effect was carried by requisite majority. 6. Simultaneously as per direction of this Court vide its order dated 22.11.2007, the meeting of the equity shareholders of the petitioner company was held on 28.12.2007. The said meeting of the equity shareholders was attended to by 14 equity shareholders comprising of 12 equity shareholders in person and 2 equity shareholders through authorised representatives for an aggregate of 1,13,83,558/- shares. In the meeting of the equity shareholders, initially modification was proposed and the same was approved and the resolution was carried unanimously. Thereafter, on modification, the voting took place and scrutineer after verifying the poll paper informed the results as under:- (a) 14 equity shareholders used 17 poll papers for the purpose of voting. (b) 14 equity shareholders holding 1,13,83,558 equity shares, representing 100% of number of equity shareholders and 100% of equity shareholding present and voting, voted in favour of modified scheme. Thus, the modification was approved and the Resolution was carried unanimously. The Chairman has reported the result of the aforesaid meetings to this Court by his report dated 3.1.2008. The present petition was thereafter filed by the petitioner on 7.1.2008. 7. This Court has admitted the petition on 8.1.2008. The Court has directed the publication of notice of hearing of the petition in English daily, 'Indian Express' Baroda Edition and Gujarati daily, 'Sandesh', Ahmedabad Edition. The Court has also directed to serve notice of hearing of the petition on the Central Government through the Regional Director, Department of Company Affairs, pursuant to Section 394(4) of the Companies Act, 1956. 8. Pursuant to this order, notice of hearing of the petition has been published in English daily, 'Indian Express' Baroda Edition and Gujarati daily, 'Sandesh', Ahmedabad edition, both dated 16.1.2008. Notice of hearing of the petition has already been served upon the Regional Director, Department of Company Affairs, on 16.1.2008 and affidavit to this effect was filed alongwith relevant cuttings of the newspapers, on 31.1.2008. Notice of hearing of the petition has already been served upon the Regional Director, Department of Company Affairs, on 16.1.2008 and affidavit to this effect was filed alongwith relevant cuttings of the newspapers, on 31.1.2008. Since GIIC has raised objection against the modification as well as the scheme itself, an advance copy of the petition was served on GIIC and on behalf of GIIC an affidavit-in-reply raising objection to the scheme is filed by Shri Dinubhai D. Patel, Manager (Legal) on 28.2.2008. An affidavit is also filed by Shri R.K.Dalmia, Dy. Registrar of Companies alongwith which letter dated 29.1.2008 of Joint Director (Legal) was attached, wherein it is stated that there was no objection to the scheme of compromise and/or arrangement moved by the petitioner Company before this Court. 9. On 16.5.2008, the Court has passed detailed order after hearing Mr.Mihir Thakore, learned Sr. Counsel appearing with Mr.Sandeep Singhi for the petitioner Company and Mr. S.N.Shelat, learned Sr. Counsel appearing with Mr. R.D.Dave for the objector, namely, GIIC. The Court observed that During the course of hearing, the question arose as to the status of ARCIL as secured creditor, ARCIL has acquired debts of State Bank of India and ICICI Bank Ltd under the deed of assignment. Before considering the status of ARCIL as secured creditor, the Court was inclined to go through the deed of assignment and the value of debts assigned by State Bank of India as well as ICICI Bank Ltd. to ARCIL and at what consideration the said debts have been assigned to ARCIL. The Court, therefore, felt that the presence of ARCIL was necessary before the Court. Accordingly, notice was issued to ARCIL making it returnable on 18.6.2008 with a direction that ARCIL should produce deed of assignment under which the debts were assigned by State Bank of India as well as ICICI Bank Ltd. to ARCIL and the amount of debts assigned and the amount of consideration at which the said debts have been assigned. 10. Pursuant to the said order, an affidavit is filed by Shri Nilesh Shah, Vice President of ARCIL attaching therewith assignment agreement between ICICI Bank Ltd. and ARCIL. 10. Pursuant to the said order, an affidavit is filed by Shri Nilesh Shah, Vice President of ARCIL attaching therewith assignment agreement between ICICI Bank Ltd. and ARCIL. It is stated in the said affidavit that this Court, in exercise of its jurisdiction under Section 391 of the Companies Act, especially, when the petitioner has accepted the status of ARCIL as a secured creditor and no other secured creditor, as on the date of passing of the order dated 16.5.2008, challenged the status of ARCIL, would not have jurisdiction to go into the question of status of ARCIL as a secured creditor. The Court has also no jurisdiction to go into the question whether the assignment is for proper consideration or not, especially because ARCIL is a securitisation Company as defined under the SARFAESI Act. However, without prejudice to its right to take up all the legal contentions which may be available to it, at a future date and without prejudice to its right to challenge the order dated 16.5.2008 in so far as it issues directions against ARCIL and assumes jurisdiction against ARCIL and its rights the deed of assignment of debt executed by ICICI Bank Ltd., in favour of ARCIL was attached alongwith the affidavit. It is further stated in the affidavit that since ARCIL has recently shifted its office and it was trying to trace the deed of assignment of debt executed by State Bank of India in favour of ARCIL. The purchase consideration for assignment agreement with SBI is Rs. 19,90,00,000/-. The purchase consideration for assignment agreement with ICICI is Rs. 528,54,00,000/- which is for portfolio of loans of all borrowers mentioned in said assignment agreement. The debt due from the petitioner company to these two banks was Rs. 94.35 crores as on 31.1.2004 and Rs. 49.52 crore as on 31.12.2005 respectively. 11. The main thirst of the objection raised by Mr. S.N.Shelat, learned Senior Counsel appearing for GIIC is that the scheme proposed by the petitioner is not maintainable in law and is not in the general interest of secured creditors. In the meeting of the secured creditors, GIIC has raised objections which are referred to in the report of the Chairman. However, said objections are not considered and not discussed in the meeting at all. In the meeting of the secured creditors, GIIC has raised objections which are referred to in the report of the Chairman. However, said objections are not considered and not discussed in the meeting at all. It is further stated that the petitioner has not correctly considered the dues of GIIC as of cut off date of CDR Scheme, which is 31.3.2004 which according to GIIC is Rs. 21.55 crores and not Rs. 16.71 crores as mentioned by the petitioner. It is, therefore, submitted that the true and correct facts are not represented in the petition by the petitioner. It is further submitted that the CDR Scheme is silent on the interest payable for the year 2004-05, which requires to be incorporated/added in the scheme. The interest rates offered on three components of calculated out standings at 5% and 0% are very meagre and even very much less than RBI Bank rate also. 12. It is further stated that GIIC filed its objections in the meeting of secured creditors/lenders dated 27.12.2007 which has been submitted to the Chairman of the meeting on 28.12.2007. However, same has not been discussed and considered in the meeting. It is, therefore, submitted that there is no effective and proper discussion in the meeting and as such whole proceedings vitiated and the petition deserves to be rejected on this ground alone. 13. Mr. Shelat has further submitted that GIIC cannot be compelled to accept lesser amount than the actual outstanding dues by the petitioner in the name of such scheme. The scheme cannot be granted at the cost of GIIC which is a trustee of public funds. The GIIC has borrowed moneys from financial corporation and in turn has to pay interest on borrowed funds which are advanced to the entrepreneurs and borrowers like the petitioner. Therefore, if the GIIC is compelled to reduce the rate of interest drastically it will incur heavy losses and the GIIC is not getting similar concessions which are to be accepted by GIIC under the scheme. It is, therefore, submitted that it may result into non-fulfillment of demands to its lenders. 14. It is further stated in the said affidavit that the financial position of the Company is now no longer poor as the petitioner has applied for de-registration from BIFR and the company is already making substantial profits for last few years. It is, therefore, submitted that it may result into non-fulfillment of demands to its lenders. 14. It is further stated in the said affidavit that the financial position of the Company is now no longer poor as the petitioner has applied for de-registration from BIFR and the company is already making substantial profits for last few years. Accordingly, company's share price on the stock exchange, which was 52 week low at Rs. 144/-, went up and once touched high value of Rs. 400/-. It is, therefore, submitted that the Company is no longer a sick company and hence the Company is not entitled to any concession from GIIC. 15. The GIIC has filed its further objection on 12.8.2008 wherein it is stated that despite the order of this Court, ARCIL has not produced the deed of assignment of debts entered into between ARCIL as well as SBI. It is further stated that the document which is sought to be enforced and relied on in judicial proceedings in the present case is not adequately stamped and required stamp duty has not been paid as applicable in the State of Gujarat under Bombay Stamps Act. It is, therefore, submitted that the agreement is not ex-facie, enforceable and cannot be relied on in the present proceedings. Even if it is held to be enforceable, alternatively it is submitted that on page 52 of the petition, outstanding dues of the ARCIL (combined total of ICICI and SBI) as on 31.3.2004 together with interest is shown as Rs. 116.23 crores. As against that, in the affidavit of ARCIL total debt from the petitioner company to ICICI and SBI is mentioned at Rs. 94.35 crores only as on 31.1.2004 i.e. two months prior to cut-off date which is 31.3.2004. Subsequently, the said debt is substantially reduced to Rs. 49.52 crores only as on 31.12.2005. Accordingly, ARCIL is required to give details of outstanding dues from petitioner company, with break up as principal and unpaid interest etc, as of 31.3.2004, the cut off date for the proposed CDR Scheme. It is, therefore, submitted that as against Rs. 116.23 crores the debt should be considered revised lower figure as Rs. 49.52 crores, which means, the petitioner company must have paid substantial amount to ARCIL which reduced the debt after cut-off date. It is, therefore, submitted that as against Rs. 116.23 crores the debt should be considered revised lower figure as Rs. 49.52 crores, which means, the petitioner company must have paid substantial amount to ARCIL which reduced the debt after cut-off date. It is, therefore, submitted that this aspect has been suppressed materially by the petitioner in the petition with an ulterior motive and the scheme is not submitted with full details and correct statement of facts. The scheme is, therefore, not bonafide which does not contain true and correct facts before this Court. The GIIC has, therefore, strong objection against sanction of scheme and the Court should reject the same. 16. It is further stated in the affidavit that ARCIL has not disclosed the purchase consideration in respect of ICICI Bank Ltd., only gross amount for total portfolio list of various borrowers have been mentioned. If true and correct facts are stated on record by ARCIL, the actual ratio of consent between the parties, whether for or against the scheme can be worked out. 17. Mr. Shelat further submitted that ARCIL is a securitisation company under the provisions of Securitisation Act established with specific purpose and object stated in the Securitisation Act. On consideration paid/payable by ARCIL for the debts assigned to ARCIL by ICICI Bank Ltd., as well as State Bank of India is for substantially lower amounts than the actual amount of outstanding debt due from the petitioner company in respect of both ICICI Bank Ltd as well as SBI. Therefore, the capacity of ARCIL to sacrifice under the present scheme is substantially higher, meaning thereby the ARCIL can afford to give up and sacrifice large amount as it was enjoying the benefit of assignment deed at subsequently reduced purchase price. It is, therefore, submitted that the margin between actual purchase consideration and the liability due from petitioner company is substantial. By giving consent to the unreasonable contents of the scheme by ARCIL by sacrificing even full margin amount would not cause any loss to ARCIL. It is, therefore, submitted that the consideration for consent to the draft CDR scheme by ARCIL is substantially different because of much lower purchase consideration paid/payable under assignment agreement under Securitisation Act and the actual transaction. It is, therefore, submitted that the ARCIL and GIIC both are different class of creditors and they form different class of creditors. It is, therefore, submitted that the consideration for consent to the draft CDR scheme by ARCIL is substantially different because of much lower purchase consideration paid/payable under assignment agreement under Securitisation Act and the actual transaction. It is, therefore, submitted that the ARCIL and GIIC both are different class of creditors and they form different class of creditors. The GIIC being separate class of creditor, separate meeting ought to have been held by the petitioner company. Since the present scheme does not fulfill the paramount requirement under Section 391 of Companies Act and as such the petition deserves to be rejected. 18. Mr. Shelat in support of his submissions relied on the decision of the Hon'ble Supreme Court in Miheer H. Mafatlal's case (Supra) wherein it is held that on a conjoint reading of the relevant provisions under Section 391 and 393 of the Companies Act, it becomes clear that the Company Court which is called upon to sanction such a Scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and does not violate any public policy. The Court further held that no Court of law would countenance a scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently, it cannot be said that the Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the concerned Company must automatically put its seal of approval on such a scheme. It is trite to say that once the Scheme gets sanctioned by the Court, it would bind even the dissenting minority shareholders or creditors. It is trite to say that once the Scheme gets sanctioned by the Court, it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the concerned scheme placed for its sanction. The Court has also caste duty on the sanctioning Court and held that the sanctioning Court has to see to it that all the requisite statutory procedure for supporting such a Scheme has been complied with and that the requisite meetings as contemplated by Section 391 (1) (a) have been held, that the Scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391, sub-section (2), that the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question; that the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class; that all necessary material indicated by Section 393 (1) (a) is placed before the voters at the concerned meetings as contemplated by Section 391, sub-section (1); that all the requisite material contemplated by the proviso to subsection (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a Scheme and the Court gets satisfied about the same; that the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary can pierce the veil of apparent corporate purpose underlying the Scheme and can judiciously x-ray the same. The Company Court has also to satisfy itself that the members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. The Scheme as a whole must also be found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 19. In the case of M/s. Indequip Limited v. M/s. Maneckchowk and Ahmedabad Manufacturing Company Limited by provisional Liquidator, (1970) II Company Law Journal 300. this Court held that the Court has power at the time of making an order sanctioning the Scheme under Section 392 to make such modification in the compromise or arrangement as it seems necessary for the proper working of compromise or arrangement. The power can be exercised not for substituting the scheme as approved by the members and creditors but for making the compromise or arrangement effective and workable. 20. In S. M. Holding Finance Private Limited v. Mysore Machinery Manufacturers Limited (In Liquidation), 1993 (78) Company Cases 432 (Kar.). the Court held that to protect the interest of the dissenting unsecured creditors, the Court can make an order in exercise of the power under Section 392 (1), and make modification in the compromise or arrangement while sanctioning the Scheme. In other words, the power of the Court under Section 392 is wide enough to give effect to the sanctioned scheme by amending the scheme and not by substituting a new Scheme. This power can be exercised suo motu without any application. In exercise of that power, it cannot be doubted, that the Company Court can issue necessary directions with a view to remove an impediment, difficulty or obstruction which may arise in the working of such a Scheme or arrangement. Thus, when approving the Scheme of compromise/arrangement, the Court may, by the order giving its approval, make provision for the benefit of the dissenting creditors and pass orders by way of amendment of the Scheme, which is incidental and necessary to ensure that the scheme is carried out. In order to protect the dissenting unsecured creditor, Court both order that the scheme by which the payment of 60 per cent of the amount to the unsecured creditor is not bonding on this dissenting unsecured creditor. In order to protect the dissenting unsecured creditor, Court both order that the scheme by which the payment of 60 per cent of the amount to the unsecured creditor is not bonding on this dissenting unsecured creditor. In the result, sanction is accorded to the scheme propounded by the petitioner subject to the modification that the clause in the scheme as to the payment of 60% of the amount due to the unsecured creditor is not binding on the objector / dissenting unsecured creditor. The said dissenter shall be paid the entire amount due within a period of two years with interest on his making a claim within one month. If this claim is not admitted and this claim is rejected either partially or in entirety, then it is open to him to approach this Court for adjudication of his claim and if on such adjudication it is found that the Company is liable, he shall be paid accordingly within a period of two years with interest. 21. Dealing with the objections raised by GIIC, Mr. Mihir Thakore, learned Senior Counsel appearing for the petitioner Company has submitted that the requisite statutory majority of the secured lenders have approved the present scheme. The objections are filed by GIIC only to pressurise the petitioner to offer a better scheme to GIIC than those offered to and agreed by the majority of the secured lenders. He has further submitted that as on cut off date the outstanding debt of GIIC is Rs. 16.71 crores and not Rs. 21.55 crores as claimed by GIIC. The present proceedings are not for the purpose of adjudicating the debts of GIIC. He has further submitted that the issue of purchase consideration between ICIC Bank Ltd. and ARCIL is neither relevant for deciding the issues before this Court or a concern of GIIC. The purchase consideration is not the relevant criteria to decide the requisite majority under Section 391 of the Companies Act, 1956. For the purpose of requisite majority the amount due in the books of the petitioner Company would be relevant criteria to decide the requisite majority under Section 391 of the Companies Act, 1956. He has further submitted that ARCIL and GIIC are not different class of creditors and no separate meeting of GIIC was required to be convened. The terms of the scheme are same for all the secured lenders. He has further submitted that ARCIL and GIIC are not different class of creditors and no separate meeting of GIIC was required to be convened. The terms of the scheme are same for all the secured lenders. He has further submitted that the terms and conditions of the scheme are neither unreasonable nor arbitrary nor they would give profit to the petitioner at the cost of GIIC. Lastly, he has submitted that scheme is neither against public policy nor it is contrary to the provisions of Section 391 of the Act. The objections raised by GIIC are, therefore, required to be overruled. 22. Regarding the Scheme, Mr. Thakore relied on the decision of Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Limited, (1996) 87 Company Cases 792 (SC) wherein the Hon'ble Supreme Court, inter alia, held that it could not be said that the scheme as put to vote was in any way unfair to the appellant or that the majority shareholders acting as a class had not behaved in a bonafide manner for protecting the interest of the class as a whole or were in any way inimical to the appellant. Financial institutions and statutory corporations held a substantial percentage of the shares in the respondent Company. This class of shareholders who are naturally well informed about the business requirements and economic needs and the requirements of corporate finance in the light of their personal interest would not have wholly approved the scheme if it was contrary to the interest of the shareholders as a class. The individual personal interest of minor shareholders like the appellant was absolutely outside the scope of consideration when such class meeting acting for the benefit of the whole class of equity shareholders takes up the consideration of the scheme for its approval. Consequently, it could not be said that the majority shareholders had sacrificed the class interest of the appellant minority shareholders when they voted with overwhelming majority in favour of the scheme. 23. While dealing with and objecting to the contention of GIIC being a different class, Mr. Consequently, it could not be said that the majority shareholders had sacrificed the class interest of the appellant minority shareholders when they voted with overwhelming majority in favour of the scheme. 23. While dealing with and objecting to the contention of GIIC being a different class, Mr. Thakore relied on the decision in the case of Mather and Platt Fire Systems Limited, (2007) 79 SCL 432 (Bombay) wherein it is held that where the same terms of compromise are offered to a class of members or creditors, no separate meeting of a subclass among them is required. The true test is that a class consists of persons whose rights are similar in terms of the compromise. 24. He further relied on the decision of this Court in the case of Arvind Mills Limited, (2003) 44 GLR 2968. wherein this Court has held that while dealing with the contention of the objectors that their interest is not similar to that of other Secured Creditors, particularly, ICICI and that they constitute a separate class of Secured Creditors, the Court held that it is not because of the different treatment/treatment given to the objectors that they constitute a separate class of Secured Creditors and it is not the say of the objectors that the terms offered to them under the Scheme are different. There is no dissimilarity of interest vis-a-vis the scheme. As far as objectors are concerned, all the Secured Creditors under the Scheme are offered the same terms but the objectors being foreign currency lenders perceive their interest differently or consider that their interest may be affected differently from other secured creditors because of their inter-relationship particularly ICICI or their interest other than as secured creditors simpliciter, but the same cannot entitle the objectors to sustain their claim of separate class distinct from other secured creditors. The inter se differences/disputes amongst some secured creditors cannot be the criterion for constituting separate class of secured creditors in foreign currency. Personal conflict of interest of the objectors with ICICI would be totally foreign to the scope of class meeting convened by the Company to consider the Scheme. The inter se differences/disputes amongst some secured creditors cannot be the criterion for constituting separate class of secured creditors in foreign currency. Personal conflict of interest of the objectors with ICICI would be totally foreign to the scope of class meeting convened by the Company to consider the Scheme. The Court held that the objectors would not be entitled to be treated as different class of secured creditors, a class within the class, as there is no conflict of commercial interest between objectors and other secured creditors, especially when the same scheme with same terms has been offered to all the Secured Creditors and there is no distinction made in the Scheme between the objectors and other secured creditors. 25. In support of his submissions on the status of ARCIL, he relied on the decision of this Court in the case of Core Health Care Limited, In re, ( 2007) 138 Company Cases 204 (Gujarat) wherein this Court had an occasion to deal with the argument of the objector that ARCIL would have no right to vote at both the meetings of the lenders or if it had any right of voting, then value of its vote should have been reduced to the price at which the debt is assigned to it and not to the value of the debt which has been assigned in its favour. The argument in fact, was that if the ARCIL had purchased right to recover the debt at much low price than its face value, then according to the objectors, the value at which ARCIL had purchased the debts should be the value of ARCIL's right and not the right on its face value which has been purchased at much low price. The objection further was that ARCIL not being the lender would not be entitled to vote at all. While dealing with these objections, the Court discussed the controversy between the Company and the objectors in great detail. It was observed by the Court that it is undisputed that on receipt of smaller amount by lending Banks, that assignor assigned their right in favour of ARCIL. Neither the Companies Act nor the SARFEASI Act nor the Contract Act nor the Sale of Goods Act provides that if right to recover debt is purchased at the lower price, the right to recover would stand reduced to the price paid for acquiring their rights. Neither the Companies Act nor the SARFEASI Act nor the Contract Act nor the Sale of Goods Act provides that if right to recover debt is purchased at the lower price, the right to recover would stand reduced to the price paid for acquiring their rights. In the said case, ARCIL had paid lower price for acquiring greater right. If a person voluntarily without any pressure, duress or coercion taking into consideration the hard realities of life, sells his property at a lower price, then the law does not stop him from doing so. Any person who purchases valuable property for a lower price, an element of fraud or dishonesty is not associated with it, then he becomes absolute owner of the right purchased by him. In case, the property was to be sold by ARCIL under the provisions of the SARFEASI Act, could objector say that their money should be paid to them in full and ARCIL be paid in proportion to the money which they have paid to purchase the entire right. If the SARFEASI Act does not provide for such bar nor creates any bar against any lender, to say, that ARCIL would not be entitled to recover full money, then in that proceeding, one cannot be allowed to say that ARCIL purchased the right of greater value, but lower price was paid and, therefore, value of the purchased or assigned right should be reduced proportionately taking into consideration the price paid by the purchaser. The Court further observed that assignment of the debt has already been registered in the office of the Registrar of Companies. It cannot be gainsaid that ARCIL does not sit into the shoes of the lender and it cannot be deemed to be lender for all purposes and does not claim all the rights of the second lender. In fact, all the rights of secured lender or financial institution would vest in ARCIL. It cannot be gainsaid that ARCIL does not sit into the shoes of the lender and it cannot be deemed to be lender for all purposes and does not claim all the rights of the second lender. In fact, all the rights of secured lender or financial institution would vest in ARCIL. The Court then discussed the provisions of Section 5 of SARFEASI Act and held that if the debts were not assigned in favour of ARCIL, then, each of the assignor, i.e. lender Bank would have been entitled to take part in the meeting and project its views and the amount which it was entitled to recover from CORE was to be given its true value, then, on the representative of such lending institution/Bank or Purchaser from such lending institution/Bank would not be entitled to take part in the meeting. ARCIL as assignee having acquired absolute rights of a lender will be entitled to attend the meeting. The Court has also considered the submission of the objectors that there is conflict of interest between ARCIL and other lenders. Objection, in fact, was that the objectors having not agreed to the Scheme would be entitled to recover in full and while ARCIL having purchased the property at a lower price would be entitled to recover the price which it had paid to the lending institution. The Court held that the argument is absolutely misconceived. If statutorily required majority agrees to the Scheme and the High Court sanctions the scheme, then irrespective of the objection by the dissenting parties, the Scheme would bind them. Any objector would be entitled to raise objection in the meeting and if majority marches over them, then it would not be coercion by majority or minority. The minority will have to surrender to the wishes of the majority. The Court has also considered the question of creation of the class. The Court has addressed a question as to whether formation of the class provides some advantages or disadvantages to the persons of the same class. The Court thereafter held that it would be seen on the touchstone of the equity that whether the Scheme would affect everybody identically. The Court has also considered the question of creation of the class. The Court has addressed a question as to whether formation of the class provides some advantages or disadvantages to the persons of the same class. The Court thereafter held that it would be seen on the touchstone of the equity that whether the Scheme would affect everybody identically. The word 'identical' would not mean in terms of money but it will have to be seen that if somebody is making a sacrifice to the tune of 50%, then everybody should make a sacrifice to the tune of 50%. In that case, classification of creditors has to be on the basis of the terms offered to them under the scheme and not on any other basis. It would be correct to say that ARCIL had purchased the debt at much lower price and would, therefore, suffer lesser in comparison to objectors. But under the later, it would have no bearing upon the Scheme proceedings. The Court ultimately overruled the objection raised by the objectors. 26. Regarding validity of assignment and relevance of the issue of adequacy of consideration, Mr. Thakore relied on the decision of M/s. Narain Food Products Limited v. Tikam Chand and others, AIR 1973 Allahabad 573. wherein while considering the question as to whether the alleged assignment of the said Bonds in favour of the plaintiff was bonafide and for consideration and whether the plaintiff is entitled to maintain the suit, the Court held that even assuming that the consideration was not paid, it would not affect the right of the plaintiff to maintain the suit nor it would invalidate the assignment in as much as an assignment of an actionable claim under Section 130 of the Transfer of Property Act may be with or without consideration. Passing of the property would not depend on the payment of consideration only. The assignors were impleaded as parties to the suit. They did not raise any objection to the assignment. They did not allege that the said assignment of the two bonds in suit was without consideration and unenforceable. In these circumstances, it was not open to the defendant No.1 to challenge the assignment. The question of payment of consideration is in fact one between the assignor and the assignee and the debtor can take no advantage of the non-payment of the consideration for the assignment. 27. In these circumstances, it was not open to the defendant No.1 to challenge the assignment. The question of payment of consideration is in fact one between the assignor and the assignee and the debtor can take no advantage of the non-payment of the consideration for the assignment. 27. He further relied on the decision in the case of Vijaya Minerals Private Limited v. Bikash Chandra Deb, AIR 1996 Calcutta 67. wherein the Court held that short of undue influence or duress, an agreement between the parties cannot be rendered nugatory on the ground that the consideration is not adequate. The Courts do not entertain the plea of inadequacy of consideration as a ground for refusal to perform the obligations under a contract. In fact, the Courts do not go into the question of adequacy of consideration when considering whether an agreement is binding or not. Equity may give the relief of setting aside a transaction as it was "improvidently obtained" when unfair advantage is taken of a person who is poor, ignorant or weak-minded, or is for some other reason in need of special protection. Specific performance may be refused on similar ground, but mere inadequacy of consideration is not a ground for relief where the parties have bargained on equal terms. 28. He also relied on the decision in the case of Walker v. The Bradford Old Bank Limited, Volume 12, Queen's Bench Division 511. wherein it is held that it is not competent for a mere stranger to the assignment to successfully raise any point as to whether a Court of Equity would or would not enforce it, and even the point now taken by the defendants as to what the Court of Equity under the circumstances would or would not do, be correct, that it is not open to the defendants, being mere debtors to the estate of the deceased assignor or to his assignee, now to attempt to impeach the settlement. 29. Having heard the learned counsels for the parties and having considered the scheme with objections of GIIC in light of the statutory provisions and decided case law on the subject the Court is of the view that since the scheme is approved by the requisite statutory majority of shareholders as well as secured lenders, the Court does not see any impropriety, infirmity or illegality in sanctioning the scheme. However, looking to the status of ARCIL, of course, a secured lender by virtue of assignment of debts by ICIC Bank Ltd. and State Bank of India, and further looking to the objections raised by GIIC, the scheme in its present form cannot be made binding to GIIC. It is true that in view of the decision of this Court in the case of Core Health Care Limited, In re, (Supra) judicial propriety demands that ARCIL should be accepted as secured lender. However, one important point may not be lost sight of. When Core Health Care Ltd., case was decided by this Court, no issue with regard to the validity and genuineness of the deed of assignment was raised. Subsequently, it was raised in number of other matters and this Court in the case of Kotak Mahindra Bank Ltd. v. O.L. of M/s. APS Star (India) Ltd., [O.J.A. Nos. 156, 157, 164, 167 & 190 of 2007, dated 12.1.2009]. did not approve the assignment of debt for the reasons stated therein. In an O.J. Appeal filed against the said judgment, the Division Bench of this Court, by an interim order prevented the assignee from receiving any amount out of the disbursement made by Official Liquidator on realisation of the assets of the company in liquidation. All these Appeals are awaiting final judgment of the Court. 30. In view of this subsequent development, though this court is not outright rejecting the petitioner Company's claim that the scheme is approved by the requisite statutory majority of the secured lenders (which is mainly based on ARCIL 's vote), it does not, however, think it just and proper to make the scheme binding on GIIC. While taking this stand, the Court derives support from the decision of Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries. (Supra). The fairness of the scheme qua GIIC has to be kept in view by this Court while putting its seal of approval on the concerned scheme placed for its sanction. While taking this stand, the Court derives support from the decision of Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries. (Supra). The fairness of the scheme qua GIIC has to be kept in view by this Court while putting its seal of approval on the concerned scheme placed for its sanction. The Act as well as the Hon'ble Supreme Court cast duty on the sanctioning Court to satisfy itself that the members or class of members or creditors or class of creditors, as the case may be, are acting bonafide and in good faith and are not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. The Court has to see that the scheme as a whole must be found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 31. In view of the above discussion, the present scheme is sanctioned subject to the following modifications; (i) The total outstanding amount of GIIC as on cut-off date i.e. 31.3.2004 should be taken at Rs. 21.93 crores as against Rs. 16.71 crores. (ii) In C.D.R. Scheme during the period from 1.4.2004 to 31.3.2005, the interest is not provided which is unreasonable and improper. Such interest should be provided at least at 10% p.a. (iii) In C.D.R. Scheme as on cut-off date the proposed amount of loan is shown at Rs. 142.55 crores after restructuring and it is proposed to be settled as under:- (a) Loan I - Rs. 62.71 crores. (b) Loan II - Rs. 13.76 crores. (c) Loan III - Rs. 66.08 crores. 32. As regards Loan - I i.e. Rs. 62.71 crores, the petitioner proposed to pay the said amount with interest @ 5% p.a. compounded at quarterly rest commencing from 1.4.2005 and ending on 31.3.2010. This interest at the rate of 5% p.a. is very low and unreasonable looking to the present financial market scenario and even OTS Schemes proposed by Reserve Bank of India and considering the debt funds of GIIC. The rate of interest should at least be 10% p.a. instead of 5% p.a. 33. As regards Loan - II i.e. Rs. This interest at the rate of 5% p.a. is very low and unreasonable looking to the present financial market scenario and even OTS Schemes proposed by Reserve Bank of India and considering the debt funds of GIIC. The rate of interest should at least be 10% p.a. instead of 5% p.a. 33. As regards Loan - II i.e. Rs. 13.76 crores, the petitioner proposed to issue Secured Non- Convertible debentures (NCDS Series I) coupon rate of face value of Rs. 1 lac each to the secured lender and repayable within 18 months from the date of issue. However, no interest is proposed on such NCDS which is absolutely unjust and unreasonable. At least interest at the rate of 10% p.a. should be provided on such NCDS. 34. As regards Loan - III of Rs. 66.08 crores, the petitioner proposed to issue Fully Convertible Debentures (FCD) of face value of Rs. 10 each within three months from the effective date with 0% rate of interest. The FCDs shall be converted into equity shares of Rs. 10 each at a premium of 25%. The conversion of FCDs should be at par (i.e. at Rs. 10 per equity share) and not at a premium as proposed under the Scheme. 35. Since GIIC has objected to the scheme and since the Court found substantial force in the said objections, the proposed scheme shall be binding to GIIC with above modifications. 36. Subject to the above modifications in the scheme the scheme is sanctioned. This petition is accordingly disposed off. 37. The fees to the Central Government Counsel is determined at Rs. 3500/-. The same shall directly be paid by the petitioner Company to Mr. Iqbal Shaikh, the learned Central Govt. Standing Counsel.