Dinesh Kapadia & vs Silk Mill Workers Union on 13 February, 2015

[Cites 10, Cited by 0]

Gujarat High Court

Dinesh Kapadia & vs Silk Mill Workers Union on 13 February, 2015

1. The petitioner, Ex-Director of M/s Vania Silk Mills Pvt. Ltd. (in liquidation), together with the petitioner No.2, have presented a Scheme of Compromise or Arrangement between M/s Vania Silk Mills Pvt. Ltd. and the shareholders, unsecured creditors and workers of the company (hereinafter referred to as "the Scheme") and seek sanction of such scheme, with or without modification, and to declare that the same shall be binding on the company, its shareholders, unsecured creditors and workers. The petitioners further pray that upon sanction of the Scheme, the management and control of the company along with its assets and liabilities may be directed to be handed over to the petitioners for proper implementation of the scheme and the Official Liquidator be directed to act forthwith accordingly.

2. M/s Vania Silk Mills Pvt. Ltd. was incorporated under Certification of Incorporation No.7650 of 1945-1946 under the provisions of the Baroda Companies Act, 1980 on 30th August, 1950. In terms of the latest balance sheet as on 31.03.1992 filed before the Official Liquidator, subsequent to the winding up order, the authorized, issued, subscribed and paid up share capital of the company consisted of the following:

Share Capital as on 31.03.1992 Particulars No. of shares Amount in (Rs) Current Share Capital :

Authorized Equity Shares of 25000 Rs.25,00,000/- Rs.100/- each Issued and subscribed shares 10000 Rs.10,00,000/- of Rs.100/- each

3. The Company started its manufacturing operations in the year 1950 - 51 and earned a lot of goodwill. However, in or around August, 1980, on account of financial and other problems, the Company was required to be closed down. A settlement came to be arrived at before this Court on 5 th November, 1981 with the assistance of the workers union for re-starting the mill. Certain directions were also given to the Bank of Baroda for releasing working capital. The manufacturing operations of the Company in various departments were restarted on 5th January, 1982. However, with effect from 7th December, 1984, the functioning of the Company was again required to be closed down as the working capital was not received in time from the bankers, viz., Bank of Baroda. Since the Company could not revive its operations, in or around 1988, a winding up petition came to be filed before this court. By a final winding up order dated 18th October, 1994 passed in Company Petitions No.138 and 141 of 1988, this court ordered the company to be wound up and the Official Liquidator attached to this court was appointed as the liquidator of the Company. Upon the winding up order being made, statement of affairs was filed on behalf of the Company as required under the relevant provisions of the Companies Act, 1956 (hereinafter referred to as "the Act") and the account position and the last balance sheet as on 31st March, 1992 came to be filed before the Official Liquidator, spelling out the affairs of the Company.

4. It is the case of the petitioners that the Company owned the land bearing Survey No.146, situated at Village Antalia, Taluka Gandevi, District Valsad. Insofar as the movable properties of the Company are concerned, it appears that over a period of time, the same have either been siphoned off or been rendered scrap and practically of no value.

5. Pursuant to the winding up order being passed by this court, a sale committee came to be constituted and a surveyor appointed by the sale committee assessed the value of the land bearing Revenue Survey No.146 of village Antalia at Rs.53.36 lacs in the year 2005. The valuer also valued the buildings and machinery etc. at Rs.87 lacs approximately. It is the case of the petitioners that the entire building is in a totally dilapidated condition and the machineries are either non- existent or have become scrap. Thus, the Company's only realizable asset is the land bearing Survey No.146 and the value of scrap of building and machinery.

6. It is further the case of the petitioners that one Bilimora Trust is the owner of the land bearing Survey No.175 of Village Antaliya, which has been given on lease by the trust to the Company. As the Company failed to make payment of the lease rent, the lease stood terminated as per clause 8 of the lease deed. Based on this assertion, Bilimora Trust filed Company Application No.258 of 1995 seeking vacant possession of the said land, which application came to be disposed of with an observation that the issue as to whether the secured creditor had charge over the said property for leasehold rights is required to be agitated in appropriate proceedings. It is further the case of the petitioners that different proceedings in the nature of O.J. Appeal, SLP, applications before the Debt Recovery Tribunal, in the suit filed by the Bank of Baroda, as also the suit before the Navsari/Bilimora Court and first appeal arising therefrom, have been initiated by rival parties. The proceedings in respect of this leasehold land are presently pending before the Debt Recovery Tribunal, this court, as well as before the District Court, Navsari.

7. It is also the case of the petitioners that the Company is indebted to the Trust with regard to unpaid lease rent upto the date of termination of lease and the Trust is, therefore, treated as an unsecured creditor of the Company to the extent of outstanding lease rent. Presently, the Trust has three beneficiaries, out of which, two beneficiaries, who are also the shareholders of the Company, have agreed to offer their beneficial interest in the land, to be utilized for the aforesaid revival operations of the Company and have also agreed to waive their claim for unpaid lease rent/mesne profits if the scheme is made effective.

8. According to the petitioners, various meetings had been held by the Sale Committee constituted by this court, however, no concrete steps could be taken for sale of the property and the net result is that the unsecured creditors and the workers could not be paid anything right from the inception of the winding up proceedings. Apart from the claims from the unsecured creditors and the workers, there is also a demand from the Employees' Provident Fund Organization.

9. It appears that the Bank of Baroda was the only secured creditor of the Company. It had filed a suit being Civil Suit No.2260 of 1986 before the Bombay High Court seeking recovery of its dues. The said suit was transferred for adjudication before the Debts Recovery Tribunal, at Ahmedabad. However, during the pendency of the said suit, the erstwhile director/guarantor of the Company arrived at a settlement with the bank whereby, the bank had agreed to accept an amount of Rs.95 lacs in full and final settlement of its dues. It is the case of the petitioners that in anticipation of the sanction of the Scheme, as also to show its bona fides, the sponsor has paid the OTS dues of the bank along with interest for delayed payment.

10. It appears that the petitioners had earlier filed an application being Company Application No.547 of 2007 proposing a scheme for reviving the operations of the Company. However, since the scheme as framed did not appear to be workable, the petitioners sought permission to withdraw the application with liberty to file a fresh application for the same purpose with better terms and particulars. By an order dated 24.12.2007, this court granted permission to withdraw the application with liberty to file a fresh application with some better terms and particulars. The court further made it clear that withdrawal of the application would not come in the way of the applicant to file a fresh application or from making a request to consider a fresh application proposing the Scheme with better terms and particulars. Subsequently, the sponsors requested the Chartered Accountants to prepare a revival project report. After extensive studies, the Chartered Accountants prepared a revival project report. As per the report, there is a great market potential for reviving the manufacturing operations of the Company. The second sponsor of the Scheme, Shri Siddhi Vinayak Developers will introduce the required capital in addition to the proposed sale consideration of surplus land of the Company and the remaining land will be utilized for production facility for the revival of the unit and to restart the manufacturing operations of the Company.

11. After the previous petition filed by the petitioners for sanction of the scheme came to be withdrawn with liberty to file a fresh petition, Company Petition No.292 of 2008 came to be filed by the petitioners seeking directions for convening meetings. After considering the revised proposal/scheme, this Court vide order dated 13th May, 2008 allowed the application and directed convening of meetings. Accordingly, notices of the meeting were sent individually to the shareholders, unsecured creditors and workers of the Company, together with copy of the Scheme of Compromise with statement as required under section 393 of the Companies Act, 1965 and form of proxy. On 13th June, 2008, a meeting of the unsecured creditors was duly convened. Pursuant thereto, the Chairman reported the results stating that the meeting was attended in person/through proxies by twelve creditors having total value of Rs.27,48,154/-. All the twelve unsecured creditors voted in favour of the scheme.

12. On 13th January, 2008, a meeting of the workers of the Company was convened and the Scheme was read over and explained to them. Twenty-nine workers having outstanding dues of Rs.17,70,871/- cast their votes, all of which were in favour of the Scheme. A meeting of the shareholders of the Company was convened on 14th June, 2008, and a total of 16 votes representing 6437 shares were cast, all of which were in favour of the Scheme.

13. Vide order dated 1st August, 2008, the petition came to be admitted and notice came to be issued to the Official Liquidator, Regional Director, Silk Mills Workers' Union and Dakshin Gujarat Shramik Sabha. Pursuant thereto, one Chimanlal R. Dhivar, Secretary, Silk Mills Workers' Union has filed an affidavit-in-reply dated 28th August, 2008 raising certain objections to the entertainment of the Scheme, inter alia, on the ground that the same will further delay payment of legitimate dues to the workers. Various other grounds have been stated, but in view of the subsequent events that have taken place thereafter, it is not necessary to set out the same.

14. It may be noted that a bulk of the record relates to disputes between two Unions, each disputing the bona fides of the other. Initially, workers had filed individual affidavits to the effect that one Bababhai Chibabhai had fraudulently obtained their signatures and that they repose their faith only in the Silk Mill Workers' Union. In view of the disputes between the two unions, it appears that individual workers had come forth and filed Vakalatnama in favour of Mr. A. K. Clerk, learned advocate for the respondent No.3 Union. Vide order dated 19.09.2014, the Company Court had permitted the Union to file Vakalatnamas of 202 individual workers in favour of Mr. A. K. Clerk. On 13th November, 2014, the court recorded that Mr. A. K. Clerk, learned advocate for the respondent No.3 stated that he had filed individual Vakalatnamas of 233 workmen and that he was filing affidavits of six workmen out of the said 233 workmen. The said affidavits had been filed by one Manilal Babarbhai Patel, Natvarbhai Dhirbhai Patel, Ramubhai Dhedabhai Patel, Manilal Unkabhai Patel, Thakorbhai Makanbhai Patel, Thakorbhai Maganbhai Patel, Maniyabhai Bhanabhai Patel and Dalpatbhai Bhalabhai Patel, all dated 10.11.2014 and 12.11.2014, wherein each workman has, inter alia, stated that he is a member of Silk Mill Workers Union, Billimora, and that he is not a member of any other union, and further that he is ready to accept a total amount of Rs.4.75 crores towards the full and final settlement.

15. The record of the case further reveals that the Official Liquidator has filed a report dated 12th December, 2008 opposing the Scheme. According to the Official Liquidator, the objective of the Scheme thus appeared to be to dispose of the land and thereby profit from it. One Mr. R. K. Dalmia, Deputy Registrar of Companies has filed an affidavit dated 24th December, 2008 stating that, "The manufacturing operations of the company were closed down in December, 1984 and revival of the company for resuming manufacturing operation shall require erection and construction of new factory building and installation of new plant and machineries the provisions made in the scheme do not appear workable. Thus, the scheme of revival of the company, as proposed does not appear to be either bona fide nor genuine." It is further stated therein that, "The Company's factory was finally closed down on 07.12.1984 and after 25 years of non-maintenance, it is highly doubtful whether all the buildings and plant & machinery could at all be salvaged with the meager outlay provided in the scheme." It is also stated therein that, "As per the scheme, sale of a portion of land admeasuring 1,20,000 sq. ft. is expected to generate Rs.150 lacs at Rs.125/- per sq. ft. If 87,000 sq. ft. which is set apart for production facility is also disposed of at the same rate of Rs.125/- per sq. ft., a further fund of Rs.1,08,75,000/- could be available, taking total funds available to Rs.258.75 lacs with which 100% of unsecured creditors (outside creditors) dues of Rs.52.40 lacs could be paid off in full instead of 20% as envisaged in the scheme. Thus, it would not be in the interest of unsecured creditors including workmen that the unit be revived at such a huge sacrifice."

16. The Official Liquidator has along with a report dated 7th July, 2010, submitted a report of Hakim Dani & Co., Chartered Accountants dated 6th April, 2010 wherein, it is stated that the total claim as per the calculation sheet submitted is Rs.2,57,01,177/-. As against which, an amount of Rs.64,47,480/- of the gratuity payable to 239 workmen and retrenchment compensation of Rs.29,05,683/- payable to 127 workmen are confirmed for payment and the amount of Rs.6,94,379/- towards gratuity payable to 33 workmen which is left to the discretion of the Official Liquidator.

17. An affidavit-in-reply dated 7th March, 2011 has been filed by Shri Chimanbhai Ramjibhai Dhivar, Secretary, Silk Mills Workers' Union alleging that the Scheme has been moved with the mala fide intention of appropriating the lands belonging to the company which would fetch a high price if sold through the Official Liquidator. That after a lapse of 27 years of illegal closure of the mill, the present scheme for revival of the unit may not be sanctioned. It is stated that the claims of 265 workmen comes to Rs.7,24,66,003/- which does not include the provident fund amount standing to the credit of each workmen. The Official Liquidator has submitted a report dated 10th March, 2011 stating that the dues of Rs.9,21,608/- be directed to be paid towards outstanding bills of security agencies, valuers and chartered accountants.

18. An affidavit dated 13th October, 2012 has been filed by Shri Chimanbhai Ramjibhai Dhivar stating that consent terms have been filed which has been signed by him as Secretary of the Silk Mills Workers' Union pursuant to a resolution of the union dated 12th October, 2013. That the court had directed the individual workmen to file Vakalatnama pursuant to which, 233 workmen/heirs of deceased workmen have filed Vakalatnama in favour of learned advocate Mr. A. K. Clerk,. It is further stated that the petitioners had offered to pay Rs.4.75 crores instead of Rs.4.25 crores as stated in the consent terms filed on 14th October, 2013 and that 236 workmen have given their consent to accept Rs.4.75 crores.

19. Mr. M. R. Bhatt, Senior Advocate, learned counsel for the petitioners submitted that all the requirements necessary for a Scheme of Compromise and Arrangement between the Company (in liquidation) and the traders and workers of the company to satisfy their outstanding dues and for revival of the company, are duly complied with. The requisite majority of the shareholders, unsecured creditors and workers have given their consent to the Scheme. The procedure required to be followed under the provisions of the Companies Act has been duly followed and the record clearly shows that the majority of the unsecured creditors and workers have voted in favour of the Scheme. It was submitted that all necessary material was duly placed before convening of the meeting and that the Scheme being just and proper and in accordance with law, deserves to be sanctioned.

20. At this juncture, it may be pertinent to note that though the present petition had been filed in the year 2008, the same could not be heard as there was a dispute as regards which learned advocate was representing the workmen. It appears that in view of the disputes between the learned advocates, the court had deemed it fit to direct that individual workmen should file Vakalatnama in favour of their advocate pursuant to which, 233 workmen have filed individual Vakalatnamas in favour of Mr. A. K. Clerk. Mr. B. T. Rao, learned advocate who claims to be appearing on behalf of the workmen, is not in a position to show that he has filed Vakalatnama of any individual workman. However, Mr. Rao has submitted that his client is hospitalized and is not in a position to submit a Vakalatnama. Under the circumstances, with a view to ensure that the hearing of the matter is not delayed any further, the court has deemed it fit to afford him an opportunity of hearing. Accordingly, Mr. B. T. Rao, learned advocate appeared on behalf of unknown workmen, has vehemently opposed the petition, by submitting that no useful purpose would be served by sanctioning the scheme for revival. It was submitted that the company has been closed since 1984 and the machinery has already been sold. The workmen are over-aged and hence, even if the company is revived, the question of engaging them would not arise. It was submitted that the Scheme is not feasible and that on the face of it, the application is not bona fide. It was submitted that the entire scheme has been put up with a view to gain the land of the Company (in liquidation). Referring to the Scheme of Compromise and Arrangement, it was submitted that no details have been furnished therein regarding the manner in which the manufacturing activities are to take place. No details have been furnished regarding the existing machinery and the machinery that is proposed to be purchased. It was submitted that the generation of employment as stated in the Scheme is merely an eye-wash. Though the company has been closed since 1984, no sincere efforts have been made to pay the dues of the workmen. It was pointed out that the Billimora Trust had obtained a consent decree in its favour in respect of the land leased to the company and that such decree had been challenged by the Bank of Baroda, the only secured creditor of the company and such a decree had been set aside. It was submitted that the workmen had initially claimed Rs.7 crores, however, now they are tired of waiting and are ready to compromise and have succumbed to pressure. It was pointed out that under the Scheme, part of the land of the company, is proposed to be sold to generate funds. The cost of the project is not mentioned, however, 90% of the shares would come to the petitioners. It was submitted that at the time when the application was presented before this court, on behalf of the workmen, an affidavit had been filed objecting to the Scheme, therefore, such objections have to be taken into consideration and the subsequent event of compromise between the parties cannot be looked into. It was submitted that the Scheme, therefore, does not deserve to be sanctioned and that a better amount could be fetched if the land is put up for auction.

21. Mr. P. C. Master, learned advocate appearing on behalf of the respondent Union has submitted that he represents the Union which is agreeable to the Scheme.

22. Mr. A. K. Clerk, learned advocate appearing on behalf of the individual workmen has submitted that the Silk Mills Workers' Union is the union recognized under the provisions of the Bombay Industrial Relations Act, 1946 and is the only union which is recognized to represent the workmen. It was submitted that out of 278 workmen, he has filed vakalatnama of 233 workmen and that 139 workman have passed away. It was urged that the workmen whom he represents have agreed to settle so that they get the money now within a short period, whereas the Official Liquidator will take a lot of time to sell the assets and settle their claims. It was, accordingly, urged that the Scheme be sanctioned so that the workmen get their dues in terms of the settlement at the earliest.

23. Dr. Amee Yajnik, learned advocate appearing on behalf of the Official Liquidator reiterated what is stated in the Official Liquidator's reports. It was submitted that initially, the claims raised by the workmen were to the tune of Rs.7.5 crores, whereas they have now settled for Rs.4 crores and odd. Referring to the Scheme, it was submitted that the scheme for revival is totally silent as to whether they would re-employ the workmen or not. It was argued that if the revival is not to be a revival in the true sense, it narrows down to a private arrangement for selling the assets of the company which would not be countenanced by this court. The attention of the court was invited to the report submitted by the Deputy Registrar of Companies to submit that in terms of the said report also, the scheme of revival does not appear to be feasible. Therefore, even on a perusal of the Scheme, it appears that the same is not feasible, inasmuch as, the amount reserved for the purpose of purchase of machinery, does not appear to be sufficient for purchasing the machinery of this nature. It was, accordingly, submitted that the scheme does not deserve to be sanctioned.

24. In rejoinder, Mr. M. R. Bhatt, learned counsel for the petitioners submitted that the Scheme has to be considered in the context of the prevailing situation. It was submitted that the winding up order has been passed way back in the year 1994, and till the year 2008, the Official Liquidator had not done anything. Claims were not invited and the property was not put up for sale. In the year 1995, the trust had approached this court. It was pointed out that the factum of the trust being the owner of land bearing survey No.175 of village Antaliya has not been challenged nor is it disputed that the trust is the owner of 12 lacs square feet of land. It was submitted that even in case the trust loses in the proceedings filed against it, all that the company has is leasehold rights which have restricted market value. In these circumstances, when the owners of survey No.175 who are related to the Directors of the Company, have come forth permitting their land to be utilized for the purpose of revival of the scheme, there should not be any objection to the same. It was submitted that insofar as the finance required for the purpose of funding the revival, the trust property will be sold after developing the same, which is also one of the objectives of the company and that the money so generated will be pumped into the revival of the company. The attention of the court was invited to the revival project, to point out that the same contemplates generation of employment for 53 persons and that the capacity of the unit is production of 27,00,000 metres of fancy gray clothes. It was submitted that revival project clearly shows the nature of machinery intended to be purchased and the cost thereof. As regards the contention raised on behalf of the Official Liquidator that the Scheme of Compromise is not viable, it was submitted that all that the Official Liquidator has stated is that the cost of the machines as shown in the report is on the lower side, however, the Official Liquidator has not come forth and stated as to what would be the cost of such machinery. Moreover, the averments made in the official liquidator report are not backed by any opinion of an expert. It was urged that the bona fides of the petitioners is evident from the fact that in the year 2007 itself, the petitioners approached the sole secured creditor Bank of Baroda and paid off its dues. Thus, before they came to this court with the scheme for revival, the petitioners had settled the dues of the sole secured creditor. As regards settlement with the workers is concerned, it was pointed out that initially, the petitioners had settled with Dakshin Gujarat Shramik Sabha for Rs.1.65 crores and thereafter, majority of all the workmen had accepted full and final settlement upon payment of Rs.4.75 crores, except for one unnamed workman represented by learned advocate Mr. B. T. Rao. It was submitted that the project report had been prepared by the Chartered Accountants and it is not the case of the Official Liquidator that the Chartered Accountants are not competent to prepare such report. It was urged that when all the requirements for a scheme of arrangement have been satisfied and the dues of the workmen are likely to be settled, there cannot be any impediment in sanctioning the Scheme.

25. As regards the contention that the Scheme for Revival has been submitted after a considerable delay, the learned counsel placed reliance upon the decision of this court in the case of Niranjan B. Shah v. Suresh Steel Corporation and others, [2011] 162 Comp Cas 100 (Guj), wherein the court had sanctioned the Scheme of Compromise and Arrangement after a period of 33 years of the winding up order. The attention of the court was invited to the principles laid down by the Supreme Court in the decision in case of Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579, to submit that the Scheme of Revival as presented by the petitioners duly meets with all the parameters laid down by the Supreme Court in paragraph 29 of the said decision. Reliance was also placed upon the decision of this court in the case of Gujarat Kamdar Sahakari Mandal and others v. Ramkrishna Mills Ltd., [1998] 92 Comp Cas 692 (Guj), as well as an unreported decision of a Division Bench of this court rendered on 09.10.2012 in O.J. Appeal No.10 of 2005 in Company Petition No.111 of 2001, whereby the court had set aside the judgement passed by the Company Court rejecting the Scheme of Compromise on the basis of the submissions advanced by the learned counsel for the appellant that the scheme is found to be acceptable by secured creditors, loan creditors, unsecured creditors, creditors for goods and expenses and shareholders.

26. The facts are not in dispute. Vania Silk Mills Pvt. Ltd. was ordered to be wound up by an order dated 18.10.1994 in Company Petition No.138 and 141 of 1988. Pursuant thereto, the Official Liquidator was appointed as the liquidator of the Company. The assets of the Company appear to be mainly in the nature of land. It appears that the building is in a totally dilapidated condition and the machineries are either non- existent or scrap. It appears that the assets of the Company have not been put up for sale and hence, the workmen are still waiting for their dues. In 2008, after a period of about fourteen years from the date of order of winding up, the petitioners herein presented the present Scheme for Compromise and Arrangement between the creditors and the workmen of the Company to settle their outstanding dues and for revival of the Company. Initially, the Scheme was opposed by the workmen; however, subsequently the workmen have given their consent for sanctioning the Scheme in view of the settlement arrived at between them and the petitioners.

27. The record of the case reveals that the shareholders, sole secured creditor, unsecured creditors as well as the workmen have given their consent for sanctioning the Scheme. At this juncture, it may be germane to refer to the principles laid down by the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. (supra), wherein the court has earmarked the scope and ambit of the jurisdiction of the concerned Company Court while dealing with such application in the following terms:

"In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged :

1. 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 meeting as contemplated by section 391(1) (a) have been held.

2. 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).

3. 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 whole so as to legitimately bind even the dissenting members of that class.

4. That all the 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).

5. That all the requisite material contemplated by the provision of sub-section (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.

6. 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.

7. That the Company Court has also to satisfy itself that 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 of the same class whom they purported to represent.

8. That the scheme as a whole is also 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.

9. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.

The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction."

28. Examining the facts of the present case in the light of the above principles, the court is firstly required to examine as to whether all the requisite statutory procedure for supporting such a scheme have been complied with and the requisite meetings as contemplated by section 391(1)(a) of the Act have been held.

29. The record of the case reveals that pursuant to an order dated 13.06.2008 passed by this court in Company Application No.292 of 2008, a meeting of shareholders, unsecured creditors and workmen of the Company had been held and the majority of the shareholders, unsecured creditors and workmen had voted in favour of the Scheme. Thus, the first and second conditions laid down by the Supreme Court in the above decision stand duly satisfied. The third factor which is required to be examined is as to whether 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 and that the majority decision of the concerned class of voters is just and fair to the class as whole so as to legitimately bind even the dissenting members of that class. From the averments made in the memorandum of petition, it is apparent that the petitioners have clearly asserted that all relevant material had been furnished to the voters for the purpose of enabling them to arrive at an informed decision. Though various affidavits have been filed from time to time on behalf of the workmen and the Deputy Registrar of Companies as well as the Official Liquidator, it has not been contended that the relevant material had not been placed before the workmen. Accordingly, conditions No.3 and 4 laid down in the above decision also stand satisfied.

30. The fifth condition is that all the requisite material contemplated by the provision of sub-section (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. Sub-section (2) of section 391 of the Act provides that if a majority in number representing three-fourth in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company. The proviso thereto provides that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like. A perusal of the record of the case reveals that all the relevant material, as required under sub-section (2) of section 391 of the Act has been duly produced before the court.

31. The next factor which is required to be ascertained is that the proposed scheme of compromise and arrangement is not be violative of any provision of law and is not contrary to public policy. In the facts of the present case, nothing has been brought to the notice of the court to indicate that there is any violation of any provisions of law or that the Scheme of compromise and arrangement is in any manner contrary to public policy. Though the Official Liquidator has filed several reports and the Deputy Registrar of Companies has also filed affidavits, it is not the case of either of them that there is any violation of any provisions of law or that the Scheme of compromise and arrangement is not contrary to public policy.

32. This court is then required 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 of the same class whom they purported to represent. In the facts of the present case, insofar as the secured creditors are concerned, the Bank of Baroda is the sole secured creditor and all its dues have already been settled prior to the present scheme having been brought before this court.

33. Insofar as the shareholders and the unsecured creditors and workers of the company are concerned, during the meeting held pursuant to orders passed by this court, all the shareholders and the unsecured creditors were present and have voted in favour of the Scheme. Insofar as the workers are concerned, though initially there was opposition to the Scheme, subsequently the workmen have arrived at settlement with the petitioners and have submitted consent terms whereby, they have agreed to settle with the petitioners for a sum of Rs.4.75 crores. Under the circumstances, there is nothing on record to indicate that there is any lack of good faith on the part of the members or that the minority has been coerced in order to accept the Scheme.

34. Insofar as the viability of the Scheme is concerned, on behalf of the Official Liquidator, it has been stated that the Scheme is not viable, inasmuch as, the funds which are sought to be set apart for the purpose of implementing the Scheme are not sufficient for the purpose of purchasing such machinery. Similarly, the Deputy Registrar of Companies through the affidavit filed by him has also expressed doubts regarding the viability of the scheme. In this regard, a perusal of the Articles of Association of the Company reveals that one of the objectives of the Company is to purchase for investment or resale and to traffic in land and house and other property, of any tenure and any interest therein and to create, sell and deal in freehold and leasehold ground, rents and to make advance upon the security of land, house or other property or any interest therein and generally to deal in, traffic by way of sale, lease, exchange or otherwise with land and house property and other property whether real or personal and to turn the same to account as may seem expedient and in particular by preparing building site and by constructing, re- constructing, altering, improving, decorating, furnishing and maintaining offices, flats, house, factories, warehouses, shops, buildings, works and conveniences of all kinds and by consolidating or connecting or subdividing the property and by leasing and disposing of the same. A perusal of the contents of the Scheme shows that the same has been proposed in the backdrop of the fact that there was no progress in respect of sale of the assets of the Company and now, there is a great market potential for manufacturing operations, as also in respect of other objects of the Company, viz., for development/construction of buildings, bungalows, etc.. Accordingly, it is proposed that the second sponsor of the Scheme, viz., Shri Siddhi Vinayak Developers will introduce the required capital in addition to the proposed sale consideration of surplus land of the company and the remaining land will be utilized for production facility for the revival of the unit and to restart the manufacturing operations of the company. It is envisaged that 53 employees in various categories will be needed when the operations of the company are revived. The capacity of the unit is about 27,00,000 metres of fancy gray clothes. The expected capacity utilization is estimated at 80%, 85%, 90%, 95% and 100% in the first five years of operation. The major market for the product is at Surat and Mumbai, which is easily accessible through road and rail. The unit also has a locational advantage as Billimora is connected with road with the major markets at Surat and Mumbai. Further, all types of skilled and unskilled workers are also easily available. The cost of the project for revival is estimated at Rs.362 lacs, which includes existing cost of Rs.37.20 lacs and proposed additional cost of Rs.325 lacs. The means of finance to meet with the project cost is by introduction of promoter's capital of Rs.35 lacs, unsecured loans/deposits of Rs.140 lacs and sale of part of surplus land of the company/Billimora Trust, viz., Survey No.175 admeasuring approximately 1,20,000 square feet at approximately Rs.150 lacs, for which necessary consent of the Trustees of Billimora Trust has been obtained, totalling to Rs.325 lacs. Taking the existing cost of Rs.37.20 lacs, the total means of finance in the project comes to Rs.362.20 lacs. The company is only the owner of land bearing survey No.146 of Village Antalia, and factory shed and machinery. The company had taken on lease land bearing survey No.175 from Billimora Trust, which has terminated the lease. The proceedings relating to survey No.175 are pending before various courts/Debt Recovery Tribunal. The trust presently has three beneficiaries, two beneficiaries, who are also share- holders of the Company have agreed to offer their beneficial interest in the land to be utilized for the aforesaid revival operations of the Company. These two beneficiaries have also agreed to waive their claim for unpaid lease rent/mesne profits if the Scheme is made effective. The sponsors have agreed to induct funds subject to the said litigation. The Scheme proposes to revive the operations of the Company. To make the rehabilitation proposal fully tied up, the present Scheme of Compromise and/or Arrangement has been proposed by the Company with the objective to rehabilitate the Company and for the full and final settlement of the dues of the secured creditors, statutory creditors, and unsecured creditors of the Company in the form of One Time Settlement. The Company believes that the scheme so offered would be for the benefit of the creditors, shareholders and workers of the Company. In case this Scheme would not be passed by all concerned, the assets of the company would be liquidated under winding up and as a result thereof, the creditors and workers would be able to recover meager amount on account of heavy reduction in market value of fixed assets.

35. Insofar as the viability of the Scheme is concerned, the Supreme Court, in the above decision, has held that once the broad parameters about the requirements of the Scheme are satisfied, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who, with their open eyes, had given their approval to the scheme, even if in the view of the court, there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.

36. In the light of the above discussion, when the broad parameters as laid down by the Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. (supra) have been satisfied, this court would have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes had given their approval to the scheme, who are affected by the scheme and who have approved the same. Under the circumstances, when the secured creditors, unsecured creditors and workmen of the Company have given their consent to the Scheme and the statutory provisions in respect thereof have been duly complied with, there does not appear to be any impediment to sanctioning the Scheme of Compromise and Arrangement.

37. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The Scheme of Compromise or Arrangement between M/s Vania Silk Mills Pvt. Ltd. and the shareholders, unsecured creditors and workers of the Company, as presented before this court, is hereby sanctioned. The Scheme shall be binding upon the Company, its shareholders, unsecured creditors and the workmen of the Company. Consequently, the order dated 18th October, 1994 made in Company Petitions No.138 and 141 of 1998 ordering the Company to be wound up, is hereby recalled. The Official Liquidator is hereby directed to handover the management and control of the Company, along with its assets and liabilities, to the petitioners for proper implementation of the Scheme.

38. It may be noted that pursuant to the winding up order, the Official Liquidator has, till date, incurred considerable expenditure under different heads. The learned counsel for the petitioners has submitted that the Official Liquidator may submit a statement of the expenditure incurred by him, which shall be duly paid by the petitioners before possession is handed over to them. Accordingly, it is further directed that upon such statement of expenditure being furnished, the petitioners shall reimburse the amount, whereupon, the Official Liquidator shall hand over the possession of the assets of the Company (in liquidation) to the petitioners. The Official Liquidator is hereby discharged from the proceedings of winding up of the Company (in liquidation).

(HARSHA DEVANI, J.) parmar*

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Gujarat High Court