Gujarat High Court
Apurva J. Parekh vs Essen Computers Ltd. on 19 January, 2005
Equivalent citations: [2006]129COMPCAS121(GUJ), [2005]61SCL254(GUJ)
Author: K.A. Puj
Bench: K.A. Puj
JUDGMENT K.A. Puj, J.
1. The petitioners, namely, Shri Apurva J. Parekh, the Ex-Director of Essen Computers Limited as petitioner No. 1 and Essen Finance and Investment Limited, a Company registered under the Companies Act, 1956 as petitioner No. 2, have filed this petition to obtain the sanction of this Court to the scheme of compromise proposed by the petitioners with the Loan Creditors, Secured Creditors, Creditors for goods and expenses and Statutory Creditors of the Company, namely, Essen Computers Limited (In Liquidation).
2. The Company was floated in the year 1984. The Company was mainly dealing in Computers, peripherals, modules, instruments, hardware, software and systems. After successful beginning, on account of various reasons beyond the control of the management, the company suffered heavy financial losses. The main reason for such financial losses was the failure of the Eastern block market and set back suffered by the hardware industries in the country. As a result thereof, the Company closed down its business activities on 31.03.1994 and by an order dated 17.04.1997 passed by this Court in Company Petition No. 97/1995, the Company was ordered to be wound up. Since then the Official Liquidator attached to this Court has taken over the charge of the assets of the Company.
3. Some times in the year 2001, the petitioners felt that if the winding up operations of the Company were continued, the Creditors were not likely to receive anything and as against that, there was a possibility of revival of the Company for the benefit of such Creditors and shareholders of the Company and in this view of the matter, the scheme of compromise and/or arrangement was being proposed by the sponsors with the objective of revival of the company and for repayment of a part of the dues of the Creditors of the Company in a phased manner.
4. Accordingly, an application being Company Application No. 112/2001 was filed before this Court seeking appropriate direction for convening the meetings etc. and this Court vide its order dated 12.04.2001 directed the petitioners to convene the meetings of the Loan Creditors, Secured Creditors, Creditors for Goods and Expenses and Statutory Creditors of the Company for the purpose of considering and if thought fit, approving with or without modifications the said compromise or arrangement and the said order directed the petitioner No. 1 to act as the Chairman of the meeting and to report the result thereof to this Court. The notice of the meeting was sent individually to all the Loan Creditors, Secured Creditors, Creditors for Goods and Expenses and Statutory Creditors of the Company as required by the order together with copy of scheme of compromise and of the explanatory statement required under Section 393 of the Act and a form of Proxy. The notice of the meeting was also advertised as directed by this Court in "Indian Express", Ahmedabad Edition of 14.04.2001 and "Jansatta", Ahmedabad Edition of 13.04.2001. On 07.05.2001, the said meetings of the Loan Creditors, Secured Creditors, Creditors for Goods and Expenses and Statutory Creditors of the Company were duly convened in accordance with the order of this Court and the petitioner No. 1 acted as the Chairman of the said meetings and he has reported the result of the meeting to this Court.
5. As per the report of the Chairman, the meeting of the Loan Creditors of the Company was attended by four Loan Creditors in person, and through Proxies and the total value of their debts was Rs. 31,94,11,000/-. The said scheme of compromise was read and/or explained by the Chairman of the meeting and the poll was taken to ascertain the wishes of the Creditors. All the four Creditors present in person or through Proxy have voted in favour of the Resolution and thus the Resolution approving the scheme of compromise was carried unanimously.
6. The meeting of the Secured Creditors of the Company was attended by four Secured Creditors in person, and through Proxies and the total value of their debts was Rs. 12,60,04,375/-. All the four Creditors have voted in favour of the Resolution and thus the Resolution approving the scheme of compromise was carried unanimously.
7. The meeting of the Statutory Creditors of the Company was attended by none in person or through Proxies.
8. The meeting of the Creditors for Goods and Expenses of the Company was attended by Secured Creditors in person and through Proxies and the total value of their debts was Rs. 71,21,946/-. All the eight Creditors have voted in favour of the Resolution and thus the Resolution approving the scheme of compromise was carried unanimously.
9. The Scheme proposed by the sponsors was divided into several parts.
I. Part I deals with Loan Creditors :-
As per the modified scheme, it was proposed that the total liability of the Company payable to the Loan Creditors shall be settled in full and final in the following manner :-
(i) The amount payable as on 31.03.1997 to each of the Loan Creditors shall be settled under the Scheme. Interest, including penalty interest, penalty or any other amount allegedly debited in the loan account or payable in respect of any period after 01.04.1997 shall be ignored and treated to have been settled with the settlement of the amount payable as on 31.03.1997. The amount payable as on 31.03.1997 shall be determined in the manner and order prescribed below :-
(a) In case the Loan Creditor has filed any suit for recovery, value of the suit or;
(b) Amount agreed between the Loan Creditors and the Company on a contractual basis subject to any compromise or settlement entered into upto 31.03.1997 + (plus) interest at document rate on the outstanding amount, if any; or
(c) If the amount cannot be determined either under clause (a) or clause (b), the same shall be determined on the basis of the amount recorded in the Books of Account of the concerned Loan Creditor.
(ii) The amount so calculated shall be at the option of the Loan Creditor paid over/discharged to each of the Loan Creditor by issue of such number of ZIFCD (Zero Interest Fully Convertible Debenture) of the Company each of Rs. 10 fully paid up at a premium of Rs. 215/- per ZIFCD (total price Rs. 225/- per ZIFCD) so as to discharge the said principal amount. The issue and allotment of ZIFCD shall take place within one month from the effective date of the Scheme. Alternatively, the Loan Creditor may opt in writing and shall be settled by paying over cash equivalent of 3% of the amount mentioned in Sub-clause I(i) above within a period of three months.
(iii) In case any of the Loan Creditor does not exercise option as per Clause (ii) above, the amount payable to it shall be settled by issuing such number of ZIFCD of the Company each of Rs. 10 fully paid up at a premium of Rs. 215/- per ZIFCD (total price of Rs. 225/- per ZIFCD) so as to discharge the said principal amount.
(iv) The list of the Loan Creditors as also the amount of loan and ZIFCD to be issued to them or in the alternate, amount in cash payable to them is given in the statement attached with the petition at Annexure A.
(v) On the issue and allotment of ZIFCD in the first option or payment of cash in the second option, as the case may be, the liability of the Loan Creditors of the Company as also the guarantors, if any, shall stand discharged and no amount whatsoever shall then be payable by the Company and/or any of the guarantors who had guaranteed payment to the Loan Creditors.
(vi) In the event there being a dispute between the parties as regards the correct amount payable by the Company to the Loan Creditors, the same shall be referred to the auditors of the company whose decision shall be final.
10. II -Part II deals with Secured Creditors :-
It was proposed that the total liability of the Company payable to the Secured Creditors shall be settled in full and final in the following manner :-
(i) The amount payable as on 31.03.1997 to each of the Secured Creditor shall be settled under the Scheme. Interest, including penalty interest, penalty or any other amount allegedly debited in the loan account or payable in respect of any period after 01.04.1997 shall be ignored and treated to have been settled with the settlement of the amount payable as on 31.03.1997. The amount payable as on 31.03.1997 shall be determined in the manner and order prescribed below :-
(a) In case the Secured Creditor has filed any suit before March 31, 1997 for the recovery, value of the suit; or
(b) Amount agreed between the Loan Creditor and the Company on a contractual basis subject to any compromise or settlement entered into upto 31.03.1997 + (plus) interest at document rate on the outstanding amount, if any; or
(c) If the amount cannot be determined either under clause (a) or clause (b), the same shall be determined on the basis of the amount recorded in the Books of Account of the concerned Loan Creditor.
(ii) The amount so calculated shall be at the option of the Secured Creditor paid over/discharged to each of the Secured Creditor by
(a) issue of such number of ZIFCD of the Company each of Rs. 10 fully paid up at a premium of Rs. 215 per ZIFCD.
(b) issue of such number of ZINCD of the company each of Rs. 10 fully paid up at par.
(c) An amount to be paid in cash out of the sale proceeds of the assets hypothecated / mortgaged / charged to them within a period of 12 months from the effective date to be paid to them prorata on the basis of the amount payable to them as on 31.03.1997.
(d) a specified amount within 3 months from the sanction of the scheme, provided that if the company has deposited with any of the secured creditor any amount under "no lien account" / "paid under settlement earlier" or received from "Sale of Security" after 31.03.1994, the said amount shall be discharged against the amount payable under this option and the balance, if any, shall be payable by one party to another.
(e) The amount payable to each of the secured creditors shall be discharged in the above referred manner so as to ensure that each secured creditor gets, on a pro-rata basis, the same number of debenture and equal amount of cash which is in ratio of the amount due to him vis-a-vis the amount payable to all the creditors.
(f) In case any of the Secured Creditor does not desire to opt for the above package of ZIFCD and ZINCD and cash, the amount payable to it as mentioned in Clause II (i) above be settled by paying over cash equivalent of 20% of the amount payable to it within 3 months from the effective date provided that if the company has deposited with any of the secured creditor any amount under "no lien account" / "paid under settlement earlier" or received from "Sale of Security" after 31.03.1994, the said amount shall be discharged against the amount payable under this option and the balance, if any, shall be payable by one party to another.
(iii) The list of the Secured Creditors as also the amount of loan and the debentures and cash payable in the first option or in the alternate the amount in cash payable to them under second option is given in the statement which is annexed with the petition at Annexure-B.
(iv) On the issue and allotment of ZIFCD, ZINCD and payment of cash in the first option or payment of cash only in the second option, as the case may be, the liability of the Secured Creditors of the Company as also the guarantors, if any, shall stand discharged and no amount whatsoever shall then be payable by the Company and/or any of the guarantors to the Secured Creditors.
(v) In the event there being a dispute between the parties as regards the correct amount payable by the Company to the Secured Creditors, the same shall be referred to the Auditors of the Company whose decision shall be final.
11. III Part III deals with Creditors for Goods and Expenses :-
The amount payable to the creditors for goods and expenses shall be settled :-
(i) by making a payment of 1% of the outstanding amount on the basis of the books of accounts of the company as on 31.03.1997.
(ii) In the event there being a dispute between the parties as regards the correct amount payable by the Company to the Creditors, the same shall be referred to the Auditors of the Company whose decision shall be final.
12. IV-Part IV deals with Statutory Creditors :-
In view of the fact that the company has remained closed from 31.03.1994 till the date of filing petition, various litigations as also assessments and other proceedings have remained unattended. In view of this, it is proposed to settle the liability payable to the statutory creditors in the following manner :-
(i) The company shall be liable to pay all its admitted statutory liabilities as on 31.03.1994 which were not disputed by it.
(ii) If between 31.03.1994 and the effective date, any assessment is framed or appeal/revision/rectification proceedings are disposed of ex-parte, the same shall be set aside and shall be concluded after giving reasonable opportunity of hearing to the company.
(iii) The period between 01.04.1994 and the effective date shall, for all these purposes be ignored including and for the purpose of computing the period for repayment of the sales tax deferred loan, in which case also this period shall be ignored.
(iv) The principal amount payable by the company shall be paid over by the company within a period of 12 months from the effective date without any liability to pay any interest or penalty.
(v) The company shall be permitted to file appeal/revision/rectification against necessary orders and the same shall be dealt with by the appropriate authority without raising any question as to limitation for the interregnum period from 01.04.1994 till the effective date.
13. V - Part V enumerates other terms of the Scheme. The same reads as under :-
(i) On the sanction of the scheme, the winding up orders passed against the company shall be revoked / recalled and the Company shall revive.
(ii) All rights, privileges and benefits available to the company including relisting on the stock exchange shall be reinstated without insisting upon completion of the procedural formalities.
(iii) No penal action shall be taken against the company or its promoters or the Board of Directors for the lapse, if any, or for any act of commission or omission in respect of the company during the interregnum period from 01.04.1994 till the effective date.
(iv) If any suit, claim, litigation or disputes are pending before any court, debt recovery tribunal or any other authority in respect of any thing done or omitted to be done by the company or its promoters or the board of directors, for the period upto effective date, the same shall, on fulfillment of all the obligations of the sponsors/applicants/Essen Computers Ltd. (presently under Liquidation) under the scheme, lapse and shall not be proceeded further.
(v) The factory premises/said property of the company are situate at A/10, GIDC Electronic Complex, Gandhinagar - 382 015, situate on the land belonging to Gujarat Industrial Development Corporation ("GIDC"). GIDC be directed to execute in favour of the company a lease deed in respect of the said property.
(vi) The company shall be permitted to revive the pending application to the Govt. of Gujarat for subsidy in respect of Investments made and also subsidy for interest paid thereon. The subsidy granted by the Govt. of Gujarat may be set off against the Sales Tax liability of the company.
(vii) On the company being revived pursuant to the sanction of the scheme, Apurva Parekh shall be considered as the Managing Director with authority/power to constitute a new board of Directors for carrying out the day-to-day affairs of the company.
(viii) On the scheme being sanctioned, the Official Liquidator, High Court of Gujarat shall cease to be the Official Liquidator of the company. The Official Liquidator shall hand over to the sponsors of the scheme or their duly authorised representative all papers, books and records of the company that may be in his possession or custody and also hand over possession of all the properties of the company moveable or immoveable as may be in his possession or custody.
14. In the above background of the matter, the petitioners have prayed for in this petition that the scheme of compromise as referred to in para 8 of the petition and being Annexure CC to the petition be sanctioned by this Court so as to binding on all the Loan Creditors, Secured Creditors, Statutory Creditors and Creditors for Goods and Expenses of the Company and that the winding up order passed against the Company be revoked / recalled and the Company be revived and that on the company being revived pursuant to the sanction of the scheme, the petitioner No. 1 be considered as the Managing Director with authority/power to constitute a new board of directors for carrying out the day-to-day affairs of the company and the Official Liquidator attached to this Court shall cease to be the Official Liquidator of the Company and that the Official Liquidator be directed to hand over to the petitioners or their duly authorised representative all papers, books and records of the company that may be in his possession or custody and also hand over possession of all the properties of the company movable and immovable as may be in his possession or custody.
15. This petition was admitted by this Court (Coram :- C.K. Buch, J.) on 13.06.2001 and the petition was ordered to be advertised in "Indian Express" English daily and "Jansatta" Gujarati daily of Ahmedabad editions. Notice in the Official Gazette was dispensed with. Notice to the Central Government was ordered to be served through Regional Director, Department of Company Affairs, Mumbai. Notice was also ordered to be issued to the Official Liquidator and he was directed to file his report. For this purpose, he was permitted to engage a Chartered Accountant out of the panel maintained by him and the fees for whom were to be borne by the petitioners.
16. After issuance of the notice as aforesaid, the Scheme was objected to by many objectors. ICICI Limited has filed its objections on 18.10.2001. Mr. Sandeep Singhi, learned advocate appearing for the ICICI Limited, while relying on the said affidavit of the objector, has submitted that ICICI has come to know about filing of the present petition only on receipt of the intimation by the Regional Director, Western Region, Mumbai vide his undated letter. He has submitted that as per the information gathered, no notice of the meeting or copy of the scheme or the explanatory statement under Section 393 of the Companies Act, 1956 has been received by the objector. He has further submitted that the petitioner No. 1, in the aforesaid proceedings has filed an affidavit on 27.04.2001 wherein notices alleged to have been sent to the Creditors by Certificate of posting have been annexed. The address to which the alleged notices claimed to have been sent to the objector was that of 163 Backbay Reclamation, Mumbai - 400 020. This Court in Company Application No. 112/2001 has directed the sponsor to send the notices to the last known address of the Creditors. The petitioners were aware that the Regd. office of the objector has been changed in view of the fact that the objector has filed a suit before the Debts Recovery Tribunal against the company in liquidation, and also against the petitioner No. 1. In the said suit, the present address of the objector was mentioned. Though the petitioners are well aware about the change in address of the objector, they have purposedly addressed the alleged notices to the old address of the objector only with a view to ensure that the objector did not remain present at the time of meeting, or to see that the objector did not see to come in the way of the petitioners who by the present petition sought to cover their misdeeds by proposing the present Scheme which is absolutely unjust and unfair. Since the notice was not sent to the objector and the said meeting was not properly called for though directed by this Court, the present petition is not maintainable and is required to be rejected. Mr. Singhi has further submitted that as per the provisions contained in Section 51 of the Act, a document may be served on a Company or an officer thereof by sending it to the Company or office at the Regd. office of the Company by post under a certificate of posting or by Regd. post, or by leaving it at its Regd. office. The word document is defined in Section 2(15) of the Act which says that the document includes Summons, notice, requisition, order, other legal process and register, whether issued, sent or kept in presence of this or any other Act, or otherwise. Section 53 of the Act talks about the service of documents on members by Company. The petitioners were aware about the last known address of ICICI and yet notice purposefully was not sent on the said address. He has, therefore, submitted that since the meeting was held without effecting the proper service of the notice on the secured creditors, the entire proceedings of the meeting are required to be held as illegal.
17. Mr. Singhi has further submitted that the petitioners who have proposed the present scheme pursuant to the direction of this Court, called, inter alia the meeting of the Secured Creditors, the list of which is annexed to the Scheme of compromise. No latest financial position of the company in liquidation was produced before this Court, much less, the balance-sheet for the year ended 1997 and hence, it is not possible for the objectors to verify the correctness of the said list. The classes of the Secured Creditors have also not been properly constituted. UTI and LIC to whom the company in liquidation has issued Secured Non-Convertible Debentures have been shown in the category of Loan Creditors who are required to be classified as Secured Creditors. As per the abridged balance-sheet produced by the petitioners, it is no where shown that the petitioner No. 2 is the Secured Creditor of the Company in liquidation. It is not known as to how Pankaj Vijay & Co. and Shri Ranchodrai Traders are the Secured Creditors of the Company in liquidation. Mr. Singhi has further submitted that the said class has been constituted wrongly only for the purpose to ensure that the sponsor in the meetings got an illegal statutory majority. He has further submitted that the value as taken by the sponsor for the purpose of the meeting of the Secured Creditors was wrongly mentioned only to ensure that the sponsor garners illegal statutory majority. For the purpose of the Scheme of compromise, sponsor has taken 31.03.1997 as the cut-off date for the purpose of verifying the dues and the compromise to be offered thereof. The petitioners have not offered any scheme in respect of the dues after 31.03.1997. He has further submitted that for the purpose of calculating the votes in the meeting, no such cut-off date i.e. 31.03.1997 can be taken into consideration as sought to be done by the petitioners.
18. Mr. Sandeep Singhi has submitted that there was no proper quorum for convening the meeting and hence, this Court has no jurisdiction to entertain this petition. He has submitted that as per the order dated 04.04.2001 passed by this Court in Company Application No. 112 of 2001, the quorum for the meeting was to be of two persons either present in person or through proxies. So far as the meeting of secured creditors is concerned, there was only one secured creditor i.e. Bank of India and no one else is the secured creditor. Ranchhodrai Traders or Pankaj Vijay & Co. were not secured creditors of the company in liquidation. The petitioner No. 1 on behalf of Essen Computers Limited (In Liquidation) has filed statement of affairs under Section 454 of the Companies Act, 1956 with the O.L. In the said statement of affairs filed by the petitioner No. 1, neither Shri Ranchhodrai Traders or Pankaj Vijay & Co. were shown as the secured creditors of Essen Computers Limited (In Liquidation). The affidavits filed by Pankaj Biharibhai Shah and by Nirav B. Shah are completely silent as to for what reason Essen Peripherals Limited (now merged into Essen Computers Limited) required the alleged paltry sum of Rs. 1175/- and 3,200/- from Pankaj Vijay & Co. and Shri Ranchhodrai Traders respectively. As per the search carried out in the office of the Registrar of Companies, it was found that Essen Peripherals Limited, for the alleged amount claimed to have been advanced by Pankaj Vijay & Co. and Shri Ranchhodrai Traders, have hypothecated a bicycle in favour of Pankaj Vijay & Co. and a steel Cupboard in favour of Shri Ranchhodrai Traders by two hypothecation Deeds both dated 18.05.1992. Neither Pankaj Biharibhai Shah nor Nirav Shah have disclosed in their affidavits the nature of the charge agreed to have been created by the Company. Both these persons who have filed the affidavits have suppressed the material facts before this Court in the Company Application preferred by Essen Peripherals Limited now merged into Essen Computers Limited (In Liquidation). This Court vide its order dated 11.03.1992 directed interalia convening of the meeting of the secured creditors of Essen Peripherals Limited. As per the direction of this Court, the meeting was to be convened on 18.04.1992. In the said meeting held on 18.04.1992, Bank of India, GIIC and GSFC were present at the meeting. All the three secured creditors requested Chairman of the meeting for adjournment of the meeting as secured creditors were not supplied for adequate information. The said meeting pursuant to the request made by the said secured creditors was adjourned to 22.05.1992. The Chairman of the meeting directed Essen Peripherals Limited to send fresh letters regarding adjourned meeting to all the secured creditors of Essen Peripherals Limited. It was just four days before the adjourned meeting that the alleged hypothecation Deed came to be executed in favour of Pankaj Vijay & Co. and Shri Ranchhodrai Traders as claimed. In the adjourned meeting, ICICI, GIIC and GSFC voted against the Scheme of amalgamation. However, Bank of India voted in favour of the scheme of amalgamation and along with Bank of India Pankaj Vijay & Co. and Shri Ranchhodrai Traders have also voted in the meeting in favour of the scheme by claiming themselves to be the secured creditors of the Essen Peripherals Limited. From these facts, it appears that both Pankaj Vijay & Co. and Shri Ranchhodrai Traders illegally by claiming themselves to be the secured creditors helped Essen Peripherals Limited to garner logical majority, knowing fully well that they were not and were never secured creditors of Essen Peripherals Limited. From 18.05.1992, neither Shri Ranchhodrai Traders nor Pankaj Vijay & Co. have been paid their alleged debt either by Essen Peripherals Limited or by Essen Computers Limited. Admittedly, on the date of winding up of the Essen Computers Limited, the alleged debt of Shri Ranchhodrai Traders were time barred and, therefore, neither Pankaj Vijay & Co. nor Shri Ranchhodrai Traders were the secured creditors of Essen Computers Limited (In Liquidation). He has, therefore, submitted that both these parties were artificially made the secured creditors and hence, they are not to be considered as genuine secured creditors. The fraud which was committed in 1992 was perpetuated even in 2001 and with the help of these two artificial secured creditors, the petitioners have tried to give an impression to this Court that the resolution was moved and supported by the requisite majority of the secured creditors.
19. Mr. Singhi has further submitted that the dues of the objector outstanding as on 31.03.1997 have been shown by the sponsor at Rs. 223 Lacs. The dues, however, as worked out by the objector as on 31.03.1997 are about Rs. 250 Lacs in respect of the loans advanced to the company in liquidation. The objector is also a Secured Creditor of the company in liquidation for the loans advanced to one Essen Peripherals Limited which was merged with the company in liquidation with effect from September, 1991. In the said list of Secured Creditors, the dues of the said Essen Peripherals Limited, which was merged into the company in liquidation was not mentioned. The amount outstanding towards loans advanced by the objector to the said Essen Peripherals Limited as on 31.03.1997 was Rs. 248 Lacs. No such dues have been taken into consideration by the sponsor only with an oblique motive. If the dues of the objector are properly taken into consideration, the Scheme as proposed by the petitioners fails and the same cannot be termed to have been passed by requisite majority. In this view of the matter, Mr. Singhi has submitted that the present petition is required to be rejected with cost as the Sponsors have not come with clean hands before the Court and has suppressed material facts from this Court in their enthusiasm / anxiety to see that the Scheme, which is not bonafide, gets sanctioned / sealed by this Court. The Scheme as proposed by the Sponsors is not acceptable to the objector in its present form and no prudent man of business would approve the Scheme as proposed by the Sponsors, as the Scheme is not to revive or rehabilitate the affairs of the Company in liquidation or to genuinely pay the dues of the Creditors, but the Scheme is intended to cover the misdeeds of the promoters/directors of the Company in liquidation, including the petitioners.
20. Mr. Singhi has further submitted that neither in the Company Application nor in the Company Petition, it has been disclosed about the particulars of pending criminal action against the Promoters or the erstwhile Directors of the Company. Further, no details have also been provided in respect of the suits instituted against the Promoters and the Directors of the Company in liquidation. No details of the petitioner No. 1 and petitioner No. 2 have been given in respect of their financial capacity to revive the company in liquidation. No rehabilitation plan has been provided in the Scheme. No details as stated above are mentioned in the Explanatory Statement under Section 393 of the Companies Act, 1956 which is alleged to have been circulated by the petitioners to the Creditors of the Company in liquidation. The interest of the erstwhile Directors, including the petitioners in proposing the present Scheme is also not mentioned. The petitioner No. 2 is a loss making company. Had the said facts been mentioned at the time of hearing of the Company application, this Court could have rejected the Scheme as the same lacks bonafide, or under any circumstances, this Court would never have permitted the petitioner No. 1 to act as the Chairman for the meeting, and the Court would have appointed an independent Chairman so that the meeting could have been conducted in a transparent manner. The Chairman has voted in the proposed Scheme in his capacity as a Creditor which shows that the Chairman has interest in the present Scheme. The petitioner No. 1 is one of the sponsors of the Scheme. He is the debtor of the Company and he has also claimed himself to be the creditor and under the Scheme, he is also one of the beneficiaries. Thus, he being the judge in his own cause is not entitled to be appointed as the Chairman of the Company. The report submitted before this Court by such person cannot be considered to be trust-worthy and hence, the entire proceedings suffer from this basic infirmity. Had the said fact been brought clearly to the notice of this Court at the time of hearing of the Company Application, this Court would never have permitted the petitioner No. 1 to act as Chairman of the proposed Meeting. He has, therefore, submitted that the Scheme as proposed by the petitioners deserves to be rejected with compensatory costs.
21. Notices of the Scheme were issued on the Official Liquidator and he has filed his report on 30.10.2001 making certain preliminary submissions. Mr. Ashok L. Shah, learned advocate appearing for Official Liquidator has submitted that the O.L. is required to be issued notice as per the Provisions of the Act and the rules framed thereunder. Rule 68 of the Companies (Court) Rules, 1959 states that where the Company is not the applicant, a copy of the summons and of the affidavits shall be served on the Company, or where the company is being would up on its liquidator not less than 14 days before the date fixed for the hearing of the summons. The notice was sent to the O.L. and since he has filed the objections before this Court objecting to the Scheme, it cannot be said that the O.L. has no locus in the present proceedings.
22. Mr. Shah has further submitted that the Official Liquidator has, after the company was ordered to be wound up, requested the Ex-Directors to hand over the possession of Books of Accounts. However, they have failed to do so and hence, the Official Liquidator has, on the basis of the preliminary papers available with him, initiated misfeasance proceedings under Section 543 of the Act against the Ex-Directors / Officers of the Company. For the purpose of misfeasance proceedings, as per the directions given by this Court, a Chartered Accountant has been appointed to scrutinise the Books of Accounts and other records. However, since the Ex-Directors / Officers have not handed over relevant and important books of Accounts and records, the investigation by the Chartered Accountant was held up. No cogent reason has also been given by the Ex-Directors/Officers of the Company, including the petitioner / Sponsor of the Scheme, for not making available the Company's important Books of Accounts and other papers. M/s. Mukund and Rohit, Chartered Accountants have submitted their misfeasance Report dated 19.04.2001. In the said Report, it was stated that the report was based on the records available with the office of the Regional Director, Mumbai. In the said report, it was also stated that for giving their final conclusion, they require records from the Ex-Directors / Officers of the Company. The Official Liquidator has produced the misfeasance Report dated 19.04.2001 along with his preliminary report. Some of the major irregularities and findings as per the report are as under :-
(1) There is violation of Section 418 of the Companies Act, 1956 in the matter of Employees' Provident Fund and Family Pension.
(2) As regards writing off debts.
(3) Non-compliance with shareholders' grievances as per requirements of SEBI and Stock Exchange.
(4) Advances from associated concerns.
(5) Sale transactions with related persons.
(6) Violation of Section 113 of the Act.
(7) Non-creation of charge by execution of documents and various other matters as per the report.
(8) Other details about the transactions, such as, proper authorisation, fair value of the properties etc. are not available for want of records from Ex-Directors.
23. Mr. Shah has further submitted that the Official Liquidator of the company in liquidation has to take care of various interests, such as, the interests of unsecured creditors, workers, shareholders, etc. The Official Liquidator has gone through the proposed scheme and it appears that compromise and/or arrangement is being offered to Loan Creditors, Secured Creditors, Creditors for Goods and Expenses and Statutory Creditors. No compromise or arrangement is being offered to any one else though the scheme affects various other interests, such as, interests of shareholders, workers, various authorities, various other Creditors, such as depositors etc. Though the Scheme affects these various other interests, their meetings were not prayed for and were not convened.
24. Mr. Shah has further submitted that the Company in liquidation was a listed company and there were large number of shareholders spread over in various parts of the country. When a scheme of Compromise or Arrangement is being offered in respect to the company in liquidation and particularly, in case of the present company in liquidation, interest of shareholders is vitally affected. Shareholders are contributories in case of a company in liquidation. The present Scheme envisages and provides for several provisions which have a direct bearing on interest of its shareholders. Without obtaining the consent of its shareholders, the present Scheme cannot be approved or implemented. The present scheme, for instance, provides that on the Scheme being sanctioned and the Company being revived, the petitioner No. 1 shall be considered as the Managing Director with authority / power to constitute a new Board of Directors for carrying out the day to day affairs of the Company. The Managing Director of a Company has first to be a Director of the Company and the power to appoint a Director of a Company is a statutory prerogative of shareholders of a company under Section 255 of the Act. Such prerogative power and right of the shareholders of the Company are sought to be taken away by the proposed Scheme and that too without convening a meeting of the shareholders of the Company and without obtaining their consent.
25. Mr. Shah has further submitted that the Scheme proposes to issue Zero interest Fully Convertible Debentures to Secured Creditors to be converted into equity shares and the said equity shares shall rank pari passu with the old existing equity shares. This also affects the right of shareholders of the Company and without their meeting and consent, fully convertible Debentures cannot be issued and cannot be converted into equity shares ranking pari passu with the old equity shares. A meeting of the shareholders of the Company is, therefore, required to be convened and unless the shareholders approve the present Scheme, it cannot be sanctioned or approved.
26. Mr. Shah has further submitted that a Scheme envisages that all rights, privileges and benefits available to the Company including re-listing on the Stock Exchange shall be reinstated without insisting upon completion of procedural formalities. This term clearly affects rights of Stock Exchange as well as SEBI and other Governmental authorities. Without their consent, a Scheme with such a term cannot be sanctioned or approved.
27. Mr. Shah has further submitted that Scheme also provides that no penal action shall be taken against the Company or its promoters or the Board of Directors for any lapse or for any act of commission or omission in respect of the Company during the period from 01.04.1994 till the effective date. The Company and its promoters and/or Directors appear to have committed several lapses and prosecutions have already been filed by the Registrar of Companies, Gujarat, in respect of serious violations of Provisions of Sections 314, 22, 209, 297, 73, 113 and 301 of the Act. Under the guise of Company being revived, the prosecutions launched against the Company and/or its promoters and/or its Directors for serious violations of various statutory provisions cannot be set at naught. For such a provision of the Scheme to be effective there has to be a statutory provision for the same and also the consent of the Registrar of Companies has to be obtained for the same. No consent of the Registrar of Companies has been obtained and there cannot be a Scheme of Compromise and/or Arrangement to protect a Company or its promoters and/or its Directors against criminal liabilities and prosecutions for various violations committed while the Company was not wound up. In this view of the matter also, the present Scheme cannot be sanctioned or approved.
28. Mr. Shah has further submitted that as per one of the terms of the Scheme, if any suit, claim, litigation or dispute is pending before any Court, Debt Recovery Tribunal or any other authority in respect of anything done or omitted to be done by the Company or its Board of Directors or promoters for the period upto the effective date, the same shall subject to the terms of the Scheme lapse and shall not be proceeded with further. A scheme with such a term cannot be approved or sanctioned without obtaining the consent of the parties to any such suit, claim, litigation or dispute which is sought to lapse or not to be proceeded with further. One of the terms of the Scheme envisages that GIDC should be directed to execute in favour of the Company a Lease Deed in respect of the property situated at A/10, GIDC Electronic Complex, Gandhinagar. Without the consent and approval of GIDC, a Scheme with such a term affecting its interest cannot be approved or sanctioned. The Scheme seeks certain reliefs from the Government of Gujarat in respect of subsidy regarding investments. Without the consent and approval of the Government of Gujarat, a Scheme with such a term cannot be sanctioned or approved.
29. Mr. Shah has further submitted that one of the provisions contained in the Scheme was that on finalisation and approval of the Scheme by this Court, the liabilities of the guarantors stood discharged. Section 391 does not contemplate such a situation. Even otherwise, the proposed Scheme is also in violation of the provisions contained in Section 393 of the Act as some of the Directors were the guarantors and their interest was not disclosed in the explanatory statement. He has further submitted that as per the Provisions contained in Rule 79 of the Rules, the Company or its liquidator, as the case may be, shall within seven days of the filing of the report by the Chairman present a petition to the Court for confirmation of the compromise or arrangement. The petition was filed beyond the statutory period as prescribed in Rule 79. The Chairman has submitted his report on 7th May whereas the petition was filed on 28th May and hence, it is beyond the period of seven days. For this purpose, Mr. Shah has relied on the decision of the Delhi High Court in the case of Bhagwan Singh And Sons Pvt. Ltd. v. Kalawati And Others, 60 COMPANY CASES 94 wherein the petition filed under Section 391 of the Act was dismissed on the ground that there was delay in filing the petition for sanction of the Court to the scheme. Mr. Shah has further submitted that the persons who have supported the Scheme have received the notice in time whereas the persons who are opposing the Scheme did not receive the notice in time. This was intentionally made by the sponsors of the Scheme so as to prevent others from attending to the Scheme. Mr. Shah has, therefore, submitted that the Scheme deserves to be dismissed for the aforesaid reasons.
30. Mr. Shah has further submitted that the Scheme has not at all made any reference to or provision for workers and employees of the Company. On a winding up order made, the services or employment of all workers and employees stand terminated. However, if the winding up order is to be revoked or cancelled, the effect would be that the termination or cessation of employment of workers would also be revoked and set aside and they would continue to be in the employment of the Company. The interest of the Workers is also likely to be affected by the proposed Scheme and before sanctioning the Scheme, the workers ought to have been heard and their meeting also should have been convened and sanction should have been obtained from them to the proposed Scheme. Since no approval of the workers is obtained, the Scheme cannot be sanctioned or approved. Mr. Shah has further submitted that the Official Liquidator has received a representation from one Mr. Bansidhar Panchal and others. They have filed Reference cases in the Labour Court being Reference Cases No. 80 of 1991 and 385 of 1991 wherein they had contended that they were illegally discharged from their employment and they sought reinstatement in the employment. The Labour Court, vide its orders dated 21.03.1994 and 05.12.1994 directed the Company to pay 50% of the salary with allowance and incidental benefits to the applicants - employees from 20.07.1993 till the final disposal of the said references. He has, therefore, submitted that these five persons were entitled to claim amount under the references from the Company, but the same has not been provided for in the Scheme. He has, therefore, submitted that the present Scheme proposed by the Sponsors does not deserve for sanction or approval of this Court.
31. One Mr. Shailesh Prabhudas Mehta has also filed his objections against the proposed Scheme. It is his grievance that though he was holding the shares of the Company, the said shares were not deliberately registered in his name. The shares were lodged three times for transfer with the Company and they were still not registered in his name. It is the grievance of Mr. Mehta against the scheme that the said Scheme was in violation of the guidelines issued by Reserve Bank of India on 27.07.2000. As per the guidelines of R.B.I., public sector bank and financial institution should take minimum of 100% amount due and payable to them when such account is classified as non-performing assets (NPA). In the present case, the Company has gone into liquidation on 17.04.1997 and hence, in balance-sheets of the Banks and Financial Institutions ended on 31.03.1998, these assets could be classified as non-performing assets, if the Banks and Financial Institutions chose to treat such assets as NPA. In any case the petitioners have treated the same as non-performing assets. As per the said guidelines, the Banks and Financial Institutions shall not have any option but to recover 100% of the amount outstanding as on that date. If every debtor of the Bank is willing to pay back only 2 or 3 % of the outstanding amount, then the burden of the entire non-performing assets will be on the Government of India and thereby it will be on the entire public at large. There are no rules for waiver of any sum without the approval of the Board of Directors of the concerned Banks and RBI. If there is any condition which is contrary to guidelines, the Banks are not supposed to accept such settlement or Scheme.
32. It is further stated that under Section 391 and 394 of the Companies Act, 1956, there can be compromise or arrangement between the Company and its members or Creditors. In this Scheme, the predominant feature of the Scheme is that the guarantor and sureties of the company in liquidation are sought to be relieved from their liabilities to pay the short fall to the Secured Creditors. The liability of the guarantors and sureties is independent cause of action for the Banks and it cannot be part of the scheme under the Companies Act. The Scheme was preferred only to save their personal property. The petitioners have never sought to revive the Company as one of the Units of the Company, namely, Essen Fabrication & Engineering was sold by public auction by the Secured Creditors. The petitioners have not come with the bonafide interest or with clean hands before this Court. There is every likelihood that even if the revival is allowed, there is no guarantee that the petitioners will run the business. In the Scheme itself, the petitioners have disclosed their intention to sell the assets of the Company to pay the dues of the Creditors. The petitioners are not putting any money personally towards the revival of the Factory.
33. It is further stated in the said affidavit that the classification done in the Scheme of the Secured and Unsecured Creditors is also wrong. In the statement of accounts, total amount outstanding towards Unsecured Creditors are shown as Rs. 28 Crores whereas the actual outstanding amount of Unsecured Creditors comes to around Rs. 44 Crores. There is also discrepancy with regard to the debt of the Secured Creditors of Bank of India as well as State Bank of India shown in the statement of affairs and the statements produced before this Court. The petitioners have wrongly classified the dues of the LIC and UTI towards the non-convertible debentures. According to the balance-sheet of the Company in liquidation for the year 1988-89 and 89-90, the said amount was shown as Secured debentures. The petitioners have omitted certain Creditors of the Company from the Scheme, namely, LIC Mutual Fund, State Bank of India Mutual Fund, Canara Bank Mutual Fund and Bank of India Mutual Fund who are the Creditors for the interest amount. In the Scheme, there is a proposal to give Zero Interest Fully Convertible Debentures to the Secured or Unsecured Creditors. However, such debentures cannot be issued without permission of the shareholders, stock exchange and SEBI. There is also an alternative Scheme of allotting Zero Interest Non-Convertible Debentures. This can also not be done without the consent of the shareholders. The petitioners want to sell the factory premises of the Company in liquidation which cannot be done without the Resolution of the shareholders under Section 293(1)(a) of the Act. Misfeasance proceedings are pending against the Ex-Directors and Officers of the Company. Registrar of Companies have also lodged numerous prosecutions against the Company and its Directors.
34. Ms. Dharmishtha Raval, learned advocate appearing for Shri Shailesh Mehta has submitted that the scheme proposed for revival of the Company is not at all workable. The company in liquidation was a listing company and it was having large number of shareholders. Without the consent of the shareholders, such a scheme cannot be sanctioned by the Court. She has further submitted that non-transfer of shares in the Company's register would not disentitle her client from raising objection to the Scheme. In support of this proposition, she relied on the decision of the Hon'ble Supreme Court in the case of Life Insurance Corporation Of India v. Escorts Limited And Others, AIR 1986 S.C. 1370 wherein it is held that a shareholder has an undoubted interest in a Company, an interest which is represented by his share-holding. Share is movable property, with all the attributes of such property. The rights of a shareholder are (1) to elect Directors and thus to participate in the management through them; (2) to vote on resolutions at meetings of the Company; (3) to enjoy profits of the Company in the shape of dividends; (4) to apply to the Court for relief in the case of oppression; (5) to apply to the Court for relief in the case of mismanagement; (6) to apply to the Court for winding up of the Company; (7) to share in the surplus on winding up. A share is transferable but while a transfer may be effected between transferor and transferee from the date of transfer, the transfer is truly complete and the transferee becomes a shareholder in the true and full sense of the term, with all the rights of a shareholder, only when the transfer is registered in the Company's register. A transfer effective between the transferor and the transferee is not effective as against the Company and persons without notice of the transfer until the transferee is registered in the company's register. Indeed until the transfer is registered in the books of the Company the person whose name is found in the register alone is entitled to receive the dividends, notwithstanding that he has already parted with his interest in the shares. However, on the transfer of shares, the transferee becomes the owner of the beneficial interest,though the legal title continues with the transferor. The relationship of Trustee and 'cestui que trust' is established and the transferor is bound to comply with all reasonable directions that the transferee may give. He also becomes a trustee of the dividends as also of the right to vote. The right of the transferee 'to get on the register' must be exercised with due diligence and the principles of equity which makes the transferor a constructive trustee does not extend to a case where a transferee takes no active interest 'to get on the register'.
35. Ms. Raval has further submitted that the scheme proposed by the petitioners are contrary to the provisions contained in Securities Contract (Regulation) Act, 1956. It is also contrary to the provisions contained in the listing agreement, more particularly, the provisions contained in Clause 19 (a), Clauses 23, 24(a)(b)(c), 31(e) and 36. The petitioners have not complied at all the statutory requirements for the purpose of sponsoring any scheme for compromise or rearrangement. The Provisions contained in SEBI disclosure and investor protection guidelines - 2000 were also not complied with. The preferential allotment suggested in the Scheme is contrary to the Provisions and there was no justification for issuance of debentures under the Scheme. The petitioners have merely annexed the abridged financial statements along with the Scheme. It is contrary to the provisions contained in Section 391(2) of the Act as the full balance-sheet is required to be produced. Certain secured creditors were not invited or no notices were issued on them for the purpose of convening the meetings. Ms. Rawal has relied on the decision of the Andhra Pradesh High Court in the case of K. Sudhakar Gupta v. Electro Thermics (P) Ltd. And Others (2004) 58 CLA 78 (A.P.) wherein while refusing to sanction the Scheme and enumerating the reasons thereof, the Court has also observed that the petitioner was seeking permission of disposal of the existing assets merely for establishment of the new unit elsewhere. Here in the present case also, the petitioners have sought the permission of the Court to dispose of the assets not even for establishment of new unit and hence, scheme cannot be sanctioned for seeking permission for disposal of the assets as there would not remain anything to carry on the business when the assets were ordered to be disposed of.
36. Ms. Raval has further relied on the decision of the Hon'ble Supreme Court in the case of State Of West Bengal and Ors. v. Pronab Kr Sur And Others (2003) 54 CLA 207 (S.C.) wherein it is held that the only provision in the Companies Act which could possibly be invoked by a High Court to pass order approving the proposal of the Company owing surplus land for sale to a party offering to purchase it is Section 394 read with Section 391(1) and 392. But a sanction of proposed Scheme will be possible only if the procedure prescribed for sanctioning the scheme or arrangement sought to be entered into with creditors for the revival of the Company has been followed. There are steps required to be taken by the Court and are enumerated in Section 391 to 394-A. The pre-requisites laid down in this Section cannot be treated as empty formalities. If the purpose is to rehabilitate or revive the Company, definite proposals for revival should be insisted upon and the High Court should pass appropriate orders to ensure that the industry is put back on its wheels and starts production within a time frame. A court will be overstepping the limits of its jurisdiction if it permits the sale of surplus land without complying with requirements for such a sanction.
37. Considering all the aforesaid issues, it is strongly urged that the Scheme may not be sanctioned by this Court as it is contrary to the Provisions of the Act and also contrary to the larger public interest.
38. Unit Trust of India has filed objections against the proposed Scheme of compromise and/or arrangement. Mr. K.I. Shah, learned advocate appearing for the UTI has relied on the said objections. He has submitted that notice for convening the meeting was received by UTI on 10.05.2001 for attending the meeting of the Creditors whereas the meeting was held on 07.05.2001. He has, therefore, submitted that the said conduct of the petitioners is not bonafide. The UTI was not satisfied with the details of the Scheme as provided for approval of the Company and, therefore, the Court has to see that there is no risk in implementing the Scheme of the Company. Pursuant to the Scheme, the petitioners have already disclosed their intention to sell the assets of the Company and the petitioners are not putting in any money towards the revival of the Company. It is now an established fact that the petitioners had failed to run the business of the Company as it was closed down in 1994 and hence, they should not be allowed to dispose of any assets of the Company. Before sanctioning the Scheme, this Court should satisfy itself as to whether the meeting was duly held and conducted; whether the compromise was real, bonafide, just and equitable; whether it was accepted by a competent majority, whether the majority was acting in good faith and for common advantage of the whole class; what they did was reasonable, prudent and proper; and whether the provisions of the statute have been complied with, whether the Scheme is reasonable and practical and whether there is any reasonable objection to it. There is nothing in the Scheme to inspire the confidence of the Court and satisfy the conscience of the Court with regard to all these issues.
39. It is further stated that the petitioners under the Scheme are willing to pay back only 20% to the Secured Creditors and 3% to the Unsecured Creditors out of sale proceeds of the properties of the Company in liquidation. Such proposal under the Scheme establishes that the petitioners are unable to generate the funds to run and manage the Company affairs. In Annexure A to the Scheme, for UTI, Rs. 1 Crore is shown as unsecured loans for non-convertible debentures. The Company has, however, promised to create Security for Non-Convertible Debentures having first charge on its property. The Company could not give any first charge on its property to UTI and hence, as per the sanctioned terms and conditions, the money taken for the issue of Non-Convertible Debentures had to be refunded within one year from the date of payment. The Company had not paid any amount whatsoever and not kept its promise. Now the petitioners proposed to pay Rs. 3,00,000/- to UTI which is highly prejudicial to the public interest as the money raised by the Company from UTI is now due and outstanding represents the interests of millions of small investors who constitute the Unitholders of UTI. He has, therefore, submitted that the Scheme as proposed cannot be sanctioned by this Court.
40. LIC has also filed objections against the Scheme proposed by the petitioners. It is stated that LIC is entitled to recover Rs. 3,98,20,007/- as on 01.01.2002 relating to Non-Convertible Debentures. Notice was not served on LIC for attending any meeting of the Creditors. The conduct of the petitioners is, therefore, not genuine and bonafide. The petitioners have not complied with the requirements of the Provisions contained in Section 391 and 394 of the Companies Act. The petitioners have also not disclosed all the material facts relating to the Company, namely, Accounts of the company, Auditor's Report, details of any legal proceedings against the Company and the latest financial position of the Company. It is also stated that LIC did not agree to the disposal of the assets of the Company under the said Scheme. If for revival of the Company, assets are required to be sold, then there is no need to revive the Company. If the repayment of dues of the Creditors is required to be paid out of the sale proceeds of the assets of the Company, then such things would be done through Official Liquidator and not through the petitioners. The petitioners have wrongly classified the dues of LIC towards Non-Convertible Debentures. The amount was obtained from them on an assurance that the mortgaged security would be created. However, no follow-up actions were taken by them and the Debentures issued by the Company were not secured by mortgaged property. As against the huge dues of LIC, only Rs. 1.50 Lacs was proposed to be paid under the Scheme which is highly prejudicial to public interest and hence, the said Scheme should not be sanctioned.
41. Gujarat Industrial Development Corporation has also filed objections against the proposed Scheme. It is submitted that GIDC had vide license Agreement dated 03.10.1986 allotted plot bearing numbers A/10 and Plot No. 7 admeasuring 35651 Sq. Mtrs. and 10,112 Sq. Meters respectively to the Company in liquidation. The Company had defaulted in payment of the installments to the Corporation, consequently on 31.05.1996, the Corporation terminated the license agreement and resumed possession of 25651 Sq. Meters of land. The remaining land was in possession of some Secured Creditors and hence, Corporation could not obtain the possession of the same. In respect of the pending dues of Rs. 14,28,151/- the recovery order was passed on 05.09.1997. The Collector, Gandhinagar, was informed to recover the said amount as arrears of land revenue and remit the same to the Corporation. The Corporation has not received any notice in respect of any meeting of the Creditors for the purpose of considering the Scheme proposed by the petitioners. Had the Corporation received the mandatory notice, it would have raised objection during the course of that meeting. The similarly situated Creditors have also not received any intimation in respect of the proposed Scheme. It is, therefore, submitted that the Scheme suffers from procedural impropriety and illegality and the same is required to be rejected by this Court. The petitioners in the Scheme have proposed that GIDC should be directed to execute a Lease Agreement with the petitioners. Such a proposal cannot form part of a Scheme under Section 391 of the Act. The Scheme is, therefore, not in conformity with the Provisions of Section 391 and hence, it is required to be rejected by this Court.
42. The Regional Director, Western Region (Department of Company Affairs), Mumbai has also filed objections against the proposed Scheme. Ms. P.J. Davawala, the learned Additional Standing Counsel has submitted that the Scheme does not provide for anything in respect of workers and their dues, if any, on revival of the Company and revocation of the winding up order. To make provisions regarding employees, therefore, becomes significance as the employees would be necessary for post revival functioning / working of the Company. The Scheme does not envisage anything about the post revival plans / projections / reforms of funds and hence, except settlement of dues of Creditors by issuing Convertible and Non-Convertible Debentures and payments in cash, there is nothing in the Scheme. The Scheme provides that shares of the Company will be relisted on the Stock Exchange without insisting for completion of procedural formalities. This cannot be enforced upon concerned authorities in a Scheme under Section 391 without hearing the concerned authorities. In para 16 of the petition, it is averred that no investigation proceedings under Section 235 to 251 of the Act are pending. However, the Registrar of Companies has filed prosecution for violation of Sections 314, 211, 209, 297, 73, 113 and 301 of the Act. Objection was also raised to the effect that full balance-sheet was not filed alongwith the Scheme. From the Chairman's Report dated 07.05.2001, it appears that Bank of India and State Bank of India have given their consent to the repayment plan. However, no mention has been made in the petition as whether other financial institutions have given their consent or not. Looking to all these facts, the Scheme should not be sanctioned by this Court.
43. The Central Excise Department has also filed affidavit of objection against sanctioning the scheme proposed by the petitioners. Mr. Jitendra Malkan, learned Senior Standing Counsel for the Central Government has submitted that the Central Excise Department has to recover an amount of Rs. 1,73,63,852/from the company in liquidation since 1997 and the proposal made by the petitioners to pay 20% is not acceptable to the Central Excise Department. He has, therefore, submitted that the Central Excise Department has an objection to grant any relief to the petitioners sanctioning the scheme of compromise and/or arrangement.
44. State Bank of India has filed its objections to the proposed Scheme on 23.03.2002. It is stated in the affidavit that the State Bank of India had lent and advanced sizable financial assistance to the company in liquidation and since the said company failed and neglected to repay the same, the State Bank of India has filed O.A. No. 47 of 1997 against the company in liquidation and guarantors for recovery of a sum of Rs. 8,27,42,456.73/- before the Debts Recovery Tribunal. It is further stated that the state Bank of India had also lent and advanced sizable financial assistance to M/s. Essen Fabrication & Engineering Company Private Limited which was merged with the company in liquidation in pursuance of the order dated 28.10.1992 passed by this Court with effect from 30.09.1991. Since the said Company had failed and neglected to repay the debt, the State Bank of India on 21.04.1997 has filed O.A. No. 28/1997 against the company in liquidation and guarantors for recovery of a sum of Rs. 1,09,54,475.04ps. before the Debts Recovery Tribunal. Thus, the total aggregate sum of Rs. 10,11,36,774.77 was due and payable by the company in liquidation to the State Bank of India as on 31.03.1997. This aggregate amount was not taken into consideration and not included by the sponsors in the proposed Scheme. If the total dues of the objector were properly taken into consideration, the Scheme as proposed by the petitioners fails as the resolution for the said Scheme cannot be said to have been passed by requisite majority as required under the Provisions of Companies Act. The Sponsors had not come with clean hands and they are guilty of suppressio veri and suggestio falsi. Even otherwise, the Sponsors and the Directors are guilty of committing various acts of omission and/or commission by acting dehorse the provisions of the Act and have not made full disclosure of true and correct figures.
45. It is further stated that the entire exercise of convening the meeting and discussing the proposed Scheme undertaken by the Sponsors by simultaneously acting as Chairman is illegal. The Chairman having voted in the said meeting as a Creditor per se shows that he has interest in the Scheme and thereby was disqualified to act as the Chairman. The State Bank of India had set up its GIDC Electronic Estate Branch at Gandhinagar for the sole object of promoting Electronic Industries in the State of Gujarat by lending public money to the Electronic Industries. Thus, the State Bank of India cannot be expected to give loan and then write it off as a bad debt and ultimately to go out of the business. The Bank has to recover the amounts due so that fresh loans can be given. If Banks are forced to accept the compromise at a throw away amount, this would lead the Bank towards bankruptcy. It is, therefore, stated that the payment of 20% of the dues as envisaged in the proposed Scheme is not only on a very lower side but the same is highly unreasonable and unjust and is not acceptable to the State Bank of India. The very assessment of the amounts due and payable shown in the proposed Scheme is not true and correct and by proposing such Scheme, the Sponsors want to delay and avoid the repayment of public dues. The entire Scheme is, therefore, against the public interest and public policy.
46. It is further stated that under the guise of sanctioning of the proposed Scheme, the Directors of the Company in liquidation who in their individual and personal capacity have also stood as sureties to the State Bank of India want to get themselves relieved from their liabilities of repayment of aggregate sum of Rs. 10,11,36,774.77/- + further interest thereon from 01.04.1997 till date. Lastly, it was stated that the proposed Scheme is even otherwise not genuine and lacks bonafide and fairness. It is not also for the common advantage of all the secured and statutory and other Creditors. The Directors of the Company in liquidation are also guilty of various acts of misfeasance for which various proceedings are pending against them. The Sponsors have not made full disclosures of the affairs of the Company and hence, it is just and necessary to investigate the affairs of the Company before considering the proposed Scheme. It is, therefore, submitted that by presenting such Scheme, the Company and its Directors are intending to seal their misdeeds and the proposed Scheme is neither fair nor reasonable and also not in public interest. The Scheme, therefore, deserves to be rejected.
47. The State Bank of India, however, vide its subsequent affidavit filed on 27.03.2004 has stated that the competent authority of the State Bank of India on 19.02.2004 has approved and opted for option i.e. for acceptance of combined compromise offer of Rs. 0.79 Crores against total dues of Rs. 22.72 Crores in the account of ECL and EFEL involving an amount of Rs. 0.17 Crores already received in the year 1996 and also 1,36,000/- Equity shares at face value of Rs. 10/- each (Market Value Nil) and thus only upon receipt of net payment of Rs. 0.62 Crores, the State Bank of India agree to withdraw the suit proceedings being O.A. No. 47/1997 and 128/1997 filed against Essen Computers Limited (In liquidation) and other guarantors pending before the Debts Recovery Tribunal, Ahmedabad.
48. In support of the Scheme, affidavit of one Mr. Pankaj Bihari Shah, proprietor of Shri Ranchhodrai Traders was filed on 18.03.2004. It is stated in the said affidavit that pursuant to the order passed by this Court on 12.04.2001 in Company Application No. 112/2001, separate meetings of the Loan Creditors, Secured Creditors, Statutory Creditors and Creditors for Goods and Expenses of the Essen Computers Limited (In liquidation) were conducted at the Sports Authority of India Complex, Gandhinagar on 07.05.2001. Shri Ranchhodrai Traders received notice dated 12.04.2001 from the Sponsors inclusive therewith a package of the Scheme of a compromise and arrangement informing of the date and venue fixed for the meeting. The said meeting was attended by Shri Prabodh Chavda on behalf of Shri Ranchhodrai Traders. It is further stated that at the said meeting, the Scheme of revival and compromise was read out and explained by the Chairman of the said meetings to those persons at the respective meetings. The Chairman invited objections from the persons attending the meeting and as none were forthcoming, the Resolution was put to vote and was passed unanimously by all the Secured Creditors present thereat. The prayer was made in the affidavit to grant sanction to the Scheme as proposed by the Sponsors.
49. An affidavit was filed by one Nirav B. Shah, Proprietor of Pankaj Vijay & Co. in support of the Scheme. The said affidavit was exactly on identical terms as the affidavit of Shri Pankaj Bihari Shah. In the said affidavit, it was also confirmed that the Scheme was approved by the Secured Creditors who were present at the meeting and prayer was made to sanction the Scheme.
50. An affidavit was filed on 27.03.2004 by one Mr. Purushottam Devanga, Assistant General Manager, Ahmedabad Recovery Branch, Bank of India in support of the Scheme. The said affidavit is also on the identical terms and it was confirmed that the Bank of India has granted its approval to the said Scheme. Mr. P.C. Kavina, the learned advocate appearing for Bank of India has supported the Scheme.
51. In response to the objections raised by ICICI, the petitioners have filed detailed affidavit on 27.10.2001. Based on this affidavit, Mr. Soparkar, learned Senior counsel appearing with Mr. A.S. Vakil for the petitioners has submitted that there was no substance in the objection that the notice for convening the meeting was not issued on ICICI. That on 12.04.2001, the sponsors had issued different notices to approximately 150 + creditors of various class, under UPC to their last known addresses as per the direction of this Court. Moreover, separate advertisements in two daily newspapers, namely, Indian Express and Jansatta, on two separate occasions were placed on and around 14.04.2001 and 25.06.2001 with reference to the scheme of compromise as per the direction of this Court. Thus, the contention of the objector's non-receipt of notice is just an excuse. There was no reason for the petitioners to prevent ICICI from attending the meeting as the Sponsors have already enjoyed the support of two major secured creditors and two minor secured creditors in their favour. ICICI was, therefore, under wrong illusion that its presence would have made any difference. Even otherwise, if it is assumed that they had attended the meeting and even if for a moment it is further assumed that they had objected to the Scheme, the Scheme still have had the support of Creditors having value of Rs. 12.60 Crores i.e. 84.96% in favour and Rs. 2.23 Crores i.e. 15.04% against the Resolution. With regard to classification of UTI / LIC as to whether they are secured or unsecured creditors, Mr. Soparkar has submitted that though ICICI is not concerned about it, it is only for the court's satisfaction that no illegality or irregularity has been committed by the sponsors. UTI/LIC had never seriously been able to persuade GIIC/GSFC who were the only institutions who had charge on all fixed assets other than specific equipment charge as held by ICICI, to cede pari passu charge in their favour and hence, the NCDs so issued, continue to remain unsecured. The same was clearly reflected in the statement of affairs as of April 1997 and can also be verified from a report from qualified Company Secretary confirming that no charge has ever been created in favour of UTI / LIC during the history of the Company. With regard to the petitioner No. 2 i.e. EFIL, he has submitted that it has bought over the debt from GSFC due from Essen Computers Limited. Based on the well established principle, the EFIL has thus rightfully stepped into the shoes of GSFC as a secured creditor as having paid off the dues of GSFC on behalf of Essen Computers Limited (In Liquidation). With regard to other two secured creditors, namely, Pankaj Vijay & Company and Shri Ranchhodrai Traders, Mr. Soparkar has submitted that they were secured creditors of Essen Peripherls Limited (EPL) since May 1992. ICICI's allegation that they were brought in only to secure the majority in numbers, is merely a conjucture and a figment of its vivid imagination. He has submitted that erstwhile EPL was merged with ECL (In Liquidation) as per the order passed by this Court in November, 1992. By virtue of the said order, both the above said secured creditors continued to be secured creditors of Essen Computers Limited. The said secured creditors were, therefore, on record for the last about nine years and they were very much bonafide secured creditors as per the charge certificate issued by the office of Registrar of Companies. With regard to cut-off date, Mr. Soparkar has submitted that the cut-off date has been arrived at after much deliberation and discussion with major secured creditors and loan creditors and as long as it has been accepted by majority of creditors in value as well as in numbers, they should be abide by the same as per the provisions contained in the Act.
52. Mr. Soparkar has further submitted that if the Scheme is not approved for any reason whatsoever, nobody would be benefitted including ICICI as the total assets of the Company had been approved for sale at a value of Rs. 112 Lacs in or around December 2000. If total outstanding dues of the Company are taken as of today, including interest of all creditors, they would be in the range of Rs. 120 Crores and with the above means in a nutshell, each creditor is likely to get a maximum of 1% of its current outstanding, provided the assets on which it holds charge is of some value. ICICI holds only specific equipment refinance charge on equipments which are absolutely obsolete and nonfunctional. It has no charge whatsoever on any other assets such as land, building, machinery and inventory. As against this, if the Scheme is approved, no money was being asked for from Banks / Institutions. On the contrary, the petitioner No. 1 will infuse an amount of Rs. 2.5 Crore into the Company on the date of its revival. Major creditors such as Banks were willing to revive the Company based on their understanding of the Company's ability to repay and they would receive over Rs. 3.50 Crores in cash as per the proposed Scheme, on revival. Over and above this Banks and Financial Institutions would hold 40 Lacs shares in the Company. The revived company would make good to the economic, social and human status of the Society and about 10,000 shareholders would get their due return from the Company. He has, therefore, submitted that there is no reason for objecting the scheme on any count.
53. With regard to the objection raised by Official Liquidator, the petitioners have filed their affidavit on 22.11.2001. Based on this affidavit, Mr. Soparkar has submitted that the Official Liquidator has no authority to raise any objections and/or file the report as the Official Liquidator has no locus standi in the subject matter of the petition which pertains to Scheme of compromise. The petition does not pertain to any amalgamation proceedings. On this ground alone, the report filed by the Official Liquidator containing his objections is required to be ignored / overruled. At the time of taking possession of the assets of the Company, the O.L. has made an inventory report, no copy of which was supplied to the petitioner No. 1 or was brought upon the record of this Court. Despite repeated requests for the said report, the O.L. has kept silence on the matter. The assets of the Company were advertised for sale and offers were received by the O.L. who has recommended that the highest offer of Rs. 112 Lacs be accepted by this Court. It is only because of the intervention of the petitioner No. 1, this Court declined to accept the said offer as the value of the assets as per the Valuation Report was atleast Rs. 27 Crores.
54. Mr. Soparkar has further submitted that there is no substance in the say of the O.L. that the Scheme would have direct bearing on the interest of the shareholders and that without the consent of the shareholders, the Scheme cannot be approved or implemented. The Company was financially insolvent. The worth of its assets is hardly 1% of the worth of its liabilities. The shareholders of the Company will have no stack at all in the Company and their consent is therefore not required. Prior to the Company went into liquidation, the petitioner No. 1 was the Managing Director and, therefore, on revival of the Company, he was to be reinstated as its Managing Director. By virtue of this Scheme, no preemptive rights of the shareholders of the Company were sought to be taken away. With reference to the workers/employees of the Company, he has submitted that the workers referred to therein were no longer in the employment of the Company since 1993. All awards / orders that might have been passed by the Labour Court were passed ex-parte. It is for the first time, the petitioner learnt about the fact that the said reference cases were made and final orders were passed by the Labour Courts. He has, therefore, submitted that the objections raised by the O.L. should not come in the way of sanctioning the scheme by this Court.
55. With regard to the objections raised by the Regional Director, the petitioners have filed their affidavit on 22.11.2001. Based on this affidavit, Mr. Soparkar has submitted that the clauses in the Scheme are for the benefit of all concerned. If the shares are not listed, the shareholders of the Company including those who will receive shares on conversion of debentures, shall suffer. The Clauses in the Scheme only propose that only procedural requirements should be dispensed with because before liquidation, the shares of the Company were listed and by resorting to listing, no authority would suffer. The date of 01.04.1994 was selected because on and from that date, the Company ceased to function. Though the winding up order was passed on 17.04.1997, nothing has been done and no significant activity has been carried out during the period from 01.04.1994 to 17.04.1994. It is for this reason that the date of 01.04.1994 was selected.
56. With regard to the objections raised by Shri Shailesh Mehta, the petitioners have filed their affidavit on 12.12.2001. Based on this affidavit, Mr. Soparkar has submitted that Mr. Mehta has no authority to raise any objection and/or to file any affidavit as he has no locus standi in the subject matter of the petition which pertains to a Scheme of compromise. Mr. Mehta is neither a shareholder nor a creditor of the Company in liquidation and on this ground alone, the affidavit filed by Mr. Mehta containing his objections is required to be ignored / overruled.
57. With regard to non-transfer of shares of Mr. Mehta, Mr. Soparkar has submitted that for proper transfer to be effected, Mr. Mehta has to make sure that he has complied with all the formalities as required by law before he could expect the Company to transfer his shares. All other objections raised by Mr. Mehta were either on the line of the objections raised by ICICI or by the O.L. and the petitioners' reply to these objections are also same and hence, the same are not repeated here.
58. With regard to the objection raised by UTI, the petitioners have filed their affidavit on 31.12.2001. Based on this affidavit, Mr. Soparkar has submitted that notices were sent to all the creditors, including UTI by UPC as per the direction of this Court. There is no substance in the grievance raised by UTI that the notice sent by the sponsors of the Scheme was received by them very late. The UTI has not given an in-depth thought to the proposal as the assets which are being disposed of are no longer needed for the current proposed business of the Company. A centrally air-conditioned facility of approximate size of 1 Lac Sq. Ft. on 12 Acres of land is not needed for running the business now. By disposing of this property which is not required for the purpose of the business of the Company, the secured creditors would be paid out of the sale proceeds of this property. The O.L. has proposed to sell all assets at Rs. 1.12 Crores whereas the sponsors have proposed to pay Bank of India 3.26 Crores from this sale. The Sponsors have not imposed any condition of 3% or 20% to be paid to the creditors. It was up to the creditors to decide their option. If all creditors were taken into consideration, less than 1% shall be available for distribution as per current value of the assets of the Company. If the creditors opt for equity instead of part cash, then the possibility of earning more is always open. The objections raised by UTI are not sustainable and they would not come in the way of sanctioning the Scheme.
59. With regard to the objections raised by LIC, the petitioners have filed affidavit on 02.02.2002. Based on this affidavit, Mr. Soparkar has submitted that the contention of LIC with regard to non-receipt of the notice is without any merit as photocopy of the postal certificate showing distinctly that due notice was posted by the petitioners on 12.04.2001 to the LIC. The LIC has to apply its mind seriously and very carefully to the facts as they are found rather than simply objecting to the scheme for the sake of objection. That the petitioners' reply to the objections raised by UTI is equally applicable to the objections raised by LIC and hence, the same are not repeated here.
60. After having heard the learned advocates appearing for the respective parties and after having considered their pleadings as found in their applications, objections, affidavits and counter affidavits and after having perused the papers and documents produced therewith as well as after having given my anxious thoughts to the relevant statutory provisions and the authorities cited during the course of hearing which lasted for good number of days, the Court is of the view that the petition deserves to be dismissed with exemplary cost.
61. The brief summary of the objections filed by various parties against the scheme of compromise and arrangement as submitted by Mr. Soparkar is classified in four broad categories.
62. The first category of the objections is that the scheme is not required to be sanctioned because there were procedural lapses at the meeting stage. Such lapses are that the notices of the meetings were not served on various creditors of the Company, the persons who actually despatched the notices have not filed affidavit of service. The petitioner No. 1 could not have acted as the Chairman of the meetings. The petitioners have not made necessary disclosure as required under the Proviso to Sub-section (2) of Section 391 of the Act. The explanatory statement under Section 393(1)(a) was defective. The petitioners did not annex the latest balance-sheet to the petition nor did they circulate the same to the creditors. The Proxies are invalid and, therefore, required to be treated as invalid and the figures mentioned in the Scheme are incorrect and, therefore, the Scheme must fail.
63. The second category of the objections is that the scheme cannot be sanctioned because it violates different provisions of law. In this category, the violations which are enumerated are that the meeting of the equity shareholders was not called. The scheme cannot be sanctioned because the meeting of the statutory creditors could not be convened for want of quorum. The scheme cannot provide for the constitution of the Board of Directors. The scheme violates the Provisions of Section 293(1)(a) of the Act. The scheme cannot be sanctioned so as to bind Stock Exchanges or GIDC and the Scheme affects the workman of the Company and their meetings is not convened.
64. The third category of objections is that even otherwise the Scheme is to fail because of certain other illegality or irregularity. Such illegalities or irregularities are that the Scheme attempts to terminate the proceedings against the guarantors, which is impermissible or against the public interest. The Scheme attempts to terminate the pending criminal proceedings against the petitioner No. 1, which is impermissible or against the public interest. The scheme attempts to terminate the misfeasance proceedings against the promoters or Directors which is impermissible or against the public interest. There is collusion between the petitioners and Bank of India. The petitioners have no means to pay or fructify the scheme. The scheme is speculative in nature and the scheme is contrary to RBI directives and, therefore, cannot be sanctioned.
65. The fourth category of objections is in respect of other issues which inter alia includes that the scheme proceedings are malafide. The petitioners were required to serve a notice to the creditors before moving the application to convene the meetings and the cost of the scheme proceedings.
66. While dealing with all these four categories of objections, Mr. Soparkar has made very strenuous efforts to satisfy the Court that none of the objections is sustainable and the Scheme deserves to be sanctioned. In this process, Mr. Soparkar has referred to various statutory provisions and also referred to judgments of this Court as well as of the Hon'ble Supreme Court. While meeting with each of the objections raised, Mr. Soparkar has submitted that all these objections which are raised to the scheme proceedings are motivated and they are contrary to the provisions of law and against settled legal propositions. In support of these submissions, he has cited various authorities before the Court and based on his submissions as well as the authorities cited before the Court, he has requested the Court that all these objections should be overruled, not only on law but also on the ground that they are not germane from the facts of the case.
67. It is true that some of the objections which are raised may not have legal force behind them and only on the basis of those objections, the Court cannot refuse to grant its approval to the Scheme. But at the same time, certain objections are of such nature which go to the root of the matter and after having found substance in those objections, it is not open for the Court to grant its approval to the Scheme of compromise and/or arrangement. The Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Limited (1996) 87 Company Cases 792 has conducted a vast survey of authorities both from the judicial side as well as from legal text side and presented a summary of the scope and ambit of the jurisdiction of the Company Court as it has become ear-marked in terms of the following broad contour :
(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 meetings 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(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 a whole so as to legitimately bind even the dissenting members of that class.
(4) That all necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391(1).
(5) That all the requisite material contemplated by the proviso to 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 letter comprising 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 could 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.
68. After enumerating the aforesaid 9 parameters, the Hon'ble Supreme Court has further observed that the said 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. If one applies to the aforesaid parameters to the facts of the present case, one will find that apparently, though it appears that the Sponsors of the scheme in question has made an attempt to show that they have complied with all the requisite statutory procedure and that the requisite meeting as contemplated by Section 391(1)(a) has been held, the Court however, in substance and in reality, on the basis of the disputes raised by the objectors, has found that the Scheme was not supported by the requisite majority. The manner and method of making classification of the Secured Creditors, Loan Creditors, Creditors for Goods and Expenses etc. does not inspire the confidence of the Court. The dispute started from the stage of convening the meeting of the Creditors as the Creditors who were supporting the scheme were served in time whereas the Creditors who were objecting to the scheme were either not served or were served late. The Secured Creditors, namely, Pankaj Vijay & Co. and Ranchhodrai Traders do not appear to be the genuine Creditors. All other major Creditors except Bank of India have strongly objected to the Scheme. Even the State Bank of India has initially objected to the Scheme and for the first time in the affidavit-in-reply filed before this Court in 2004, it has been accepted by them on certain terms, to withdraw the recovery suit which was filed before the Debts Recovery Tribunal. The value of the voting rights given to the Creditors and the ratio worked out by the Company was also in dispute. In this view of the matter, it cannot be said that the Scheme was approved by the requisite statutory majority. There is also a substance in the objection raised by the objectors that the concerned meetings of the Creditors had not been got the relevant materials to enable them to arrive at an informed decision for approving the scheme in question. All necessary materials were not placed before the voters at the concerned meetings as contemplated by Section 391(1) of the Act. The petitioners have not produced the latest balance-sheets and hence, all requisite material contemplated by the proviso to sub-section (2) of Section 391 of the Act were not placed before the Court by the petitioners seeking sanction for such a scheme and the Court was not satisfied about production of these requisite materials before the Court.
69. It is rather shocking and surprising that while seeking the order from this Court for appointment of Chairman of the meeting, the petitioner No. 1 has not disclosed the material fact before the Court that he is the debtor of the Company and he is going to cast his vote being one of the Creditors of the Company and he is also one of the beneficiaries under the scheme. Since he being the Judge of his own cause was not entitled to be appointed as the Chairman of the meeting and report submitted by him before the Court cannot be considered to be trust-worthy. Looking to the other terms incorporated in the Scheme, it is difficult to hold that the said Scheme of compromise and arrangement is not violative of any provisions of law and is not contrary to public policy. The petitioners have asked for re-listing of shares on the Stock Exchange without making any compliance with the procedural formalities. The petitioners have also asked for dropping of penal actions that were taken against the company or its promoters or the Board of Directors. They have also sought for the discharge of guarantors from their personal liabilities in the recovery proceedings which are filed by the Banks and financial institutions against the Company as well as its guarantors. A direction was sought for against the GIDC to execute a lease deed in respect of the property situated at A-10 GIDC Electronic Complex, Gandhinagar in favour of the Company. A direction was also sought for against the State Government for reviving the pending application for subsidy in respect of investments made and also in respect of subsidy in respect of interest paid thereon. There are certain procedural and substantive requirements to be complied with before the Court accords its sanction to the Scheme containing the above terms. Without due compliance and proper observation of the various statutory and procedural requirements by the Sponsors of the scheme, the Court cannot put its seal on the Scheme proposed by them.
70. Looking to the conduct of the petitioners in the past as well as looking to the provisions of the Scheme, it cannot be said that the Sponsors were acting bonafide and in good faith. The Court did not find the Scheme as a whole 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 was meant. The whole argument of Mr. Soparkar that if the scheme is not sanctioned, the Creditors would not get anything is fallacious in this wise that even after sanctioning of the Scheme, it is practically impossible for the Sponsors to satisfy the claim of the Creditors. A Company which is in liquidation cannot persuade the Creditors to subscribe its Zero Interest Fully Convertible or Zero Interest Non-Convertible Debentures of a face value of Rs. 10/- at a premium of Rs. 215/- per Debenture. No prudent men would ever subscribe such Debentures at a premium of Rs. 215/-. The offer made to the Secured Creditor at 20% of their dues and to the Creditors for Goods and Expenses at 1% of their dues and to the loan creditors at 3% of their dues is obviously unjust, unfair and improper. Even for such payment, the Sponsor of the Scheme seeks permission to dispose off the assets of the Company. The Sponsors have not taken any care to hold the meeting of the shareholders despite the fact that the proposed Scheme does affect their interest vitally. There is no provision with regard to the dues of the employees or even with regard to the future employment. It is nowhere found in the Scheme as to how the business would be carried out after getting sanction from this Court. The Court is, therefore, of the view that the Scheme is proposed only with a view to dispose off the assets of the Company and to get relieved the promoters and Ex-Directors of the Company from their personal liabilities. Since the broad parameters laid down by the Hon'ble Supreme Court about the requirement of Scheme for getting sanction of the Court are not found to have been met, the Court has no other alternative but to refuse to grant its approval and in such a situation, if the Scheme is not approved by the Court, it cannot be said that the Court is sitting in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval. It is needless to state that the Court will refuse to put its seal of approval if the purpose of the scheme is not bonafide and is intended merely to seal the misdeeds of the Ex-Directors or is otherwise inequitable. The Scheme proposed by the petitioners appears to be a conditional scheme and the Court found that the conditions are unfair and some of them are highly complicated and contrary to law.
71. Taking overall view of the matter and considering the entire facts and circumstances of the case, it can hardly be said that the Scheme proposed by the petitioners for sanction of the Court is fair and reasonable. The Court has not dealt with each of the objections raised by the objectors and the defence of the petitioners in great detail even after recording them in the judgment extensively in as much as the Scheme, on the face of it, does not seem to be just and proper and not even workable. The Court cannot be a party to such a Scheme by putting its seal by granting sanction and accordingly, sanction is refused. The petition is dismissed with a cost of Rs. 1,000/- to each of the objectors.