Rajasthan High Court - Jaipur
M/ S Jaipur Metals & Electricals Ltd vs ======= on 2 April, 2012
Author: Ajay Rastogi
Bench: Ajay Rastogi
In the High Court of Judicature for Rajasthan Jaipur Bench **
1-Company Application No.104/2010 in Company Petition No.19/2009 M/s Genus Power Infrastructures Ltd Versus M/s Jaipur Metals & Electricals Ltd., And 2-Company Application No.153/2010 in Company Petition No.19/2009 Jaipur Metals & Electricals Employees Co-operative Credit & Thrift Society Ltd And Metals & Electricals Mazdoor Sangh, Jaipur Versus M/s Jaipur Metals & Electricals Ltd And 3-Company Application No.103/2010 U/r 9 of Co. (Court) Rules seeking leave to file application U/Ss 391(1) of Co. Act M/s Genus Power Infrastructures Ltd Versus M/s Jaipur Metals & Electricals Ltd Date of Order ::: 02/04/2012 Hon'ble Mr. Justice Ajay Rastogi Mr. Ashok Gaur Sr. Adv., with Mr. Ashwin Jaiman, for applicant (JME Empl. Soc. Ltd) (153/2010) Mr. Rishabh Khandelwal, for applicant (Genus) (104/2010) Mr. Sudhir Gupta, Sr. Adv., with Mr. Sachin Mehta, for objector (M/s Alchemist Assets Co. Ltd) Mr. Anant Kasliwal & Mr. Nitin Jain for respondent (ARCIL) Instant company applications have been filed U/s 391(1) & 393 of Indian Companies Act, 1956 ("Co. Act") seeking revival of M/s Jaipur Metals & Electrical Ltd ("Co.-JMEL"), and it has been prayed that let the meeting be held of creditors, share holders & members of Co.-JMEL to examine the scheme of compromise/arrangement proposed by applicant M/s Genus Power Infrastructure Ltd ("Co.-Genus") with or without modification.
In order to appreciate the grievance of the applicants, it will be necessary to glance through a few relevant background facts. It has come on record that Co.-JMEL at one stage was referred to Board for Industrial & Financial Reconstruction ("BIFR") on 18/12/1998 U/s 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ("Sick Co. Act, 1985") and after conducting inquiry U/s 16(1) and affording opportunity of hearing to all the concerned parties including Jaipur Metals & Electrical Employees Co-operative Credit & Thrift Society Ltd and Metals & Electrical Mazdoor Sangh, Jaipur, the BIFR declared Co.-JMEL as a sick industrial company U/s 3(1)(o) of the Sick Co. Act, 1985; and after appointing IDBI as Operating Agency U/s 17(3), finally after consideration of all facts & with unanimous consent on the winding up of the Co.-JMEL, the BIFR confirmed its opinion that the sick industrial company (JMEL) was not likely to make its net worth exceed the accumulated losses in future; and considered it appropriate that it will be just, equitable & in public interest that the Co.-JMEL should be wound up U/s 20(1) of Sick Co. Act, 1985 vide order dt.26/09/2002, which was to be forwarded to the High Court for taking further appropriate action, obviously under the provisions of Indian Co. Act.
It is a matter of concern that the recommendations made by BIFR vide order dt. 26/09/2002 (supra) was sent to the High Court with forwarding letter dt.24/01/2009; on which Company Petition NO.19/2009 was registered and is pending consideration for admission.
After Company Petition-19/2009 being registered, JMEL Mazdoor Sangh claiming as share holders of Co.-JMEL filed application (3628/ dt. 25/02/2010) seeking their impleadment as party respondent in Company Petition-19/2009 for addressing on its admission which was granted impleading Mazdoor Sangh as party respondent for being heard at admission stage vide order dt. 29/04/2010.
At the same time, application (6780/ dt.15/03/2010) in Co. Petition-19/2009 was filed M/s Genus Power Infrastructure Ltd claiming to be successful bidder for seeking permission for being heard at admission stage; which came to be rejected vide reasoned order dt.13/12/2010 holding that U/s 439(4) of the Co. Act, the company, creditors/contributories can only have a right of hearing at admission stage and merely because payments were made of certain dues of the workmen & statutory dues of State Govt., that by itself will not make the successful bidder (Genus) as creditor/contributory of Co.-JMEL, entitling right of hearing at admission stage.
After the matter was referred by BIFR which is pending before this Court in Co. Petition No.19/2009 for winding up of Co.-JMEL, the State Government being major share holders also invited for revival of Co.-JMEL and took necessary steps through Request for Proposal and invited private promoters to acquire Co.-JMEL vide notice dt.08/09/2008 pursuant to which M/s Genus Power Ltd tendered its bid offer and was declared successful bidder vide letter dt. 08/10/2008 and the Draft Rehabilitation Package was prepared and proposed by successful bidder (Genus) to enter into Memo of Understanding (MOU) with the State Government, JME Employees Credit & Thrift Soc. Ltd & JMEL Mazdoor Sangh, which was executed on 07/11/2008 - in the terms thereof, payment towards employees' dues worth Rs.6.83 Crores while Rs.1.09 Crores towards statutory dues of State Government were paid by so-called bidder (Genus) and as per recital of MOU (supra) (Ann.3, 4, & 5) entered into between State Govt. & successful bidder (Genus), under its Cl.4.2 the MOU remains valid for the period of three years from the date of its execution and that apart, as per its Cl.2.2, there was an agreement for transfer of shares of Co.-JMEL held by State Government to the successful bidder (Genus) only after revival of Co.-JMEL. Since other two MOUs were entered into between successful bidders (Genus) & two Workmen Union (JME Employees Society & Mazdoor Sangh) who were also having shares held of Co.-JMEL; based on such MOUs dt.07/11/2008, the effect of MOUs came up for consideration in CWP-7761/2003 (Mahaveer Kumar Godha Vs. State) and the efforts were made by Court, and the Advocate General was called upon on 06/03/2009 for holding a meeting on 21/03/2009 of all the parties along with Principal Secretary to Government, Industries Department Jaipur for revival of the Co.-JMEL; pursuant to which the Advocate General called a meeting in his chambers on 21/03/2009 and submitted report dt.02/04/2009, which was taken note of by Co-ordinate Bench in CWP-7761/2003 in its order dt.10/04/2009 ad infra:
"In the circumstances, I am of the view that since the parties to the dispute are not in agreement to affect a compromise, the sentiments expressed by this Hon'ble Court cannot be operationalized. The only course of action now open and to which most of the parties to the dispute, including the State Government seems to be acquiesced is that the matter be referred to the Hon'ble Company Court for further adjudication. "
Shri Sudhir Gupta, Senior Counsel appearing for secured creditor (Alchemist Asseet & Reconstruction Co. Ltd) raised an objection that Three years' term of the so-called MOUs as per its Cl.4.2 has expired - in absence of it being renewed, such MOUs entered into between State Government & successful bidder (Genus) may not be of any consequence.
To meet out the objection raised (supra), the time was granted by the Court on a number of dates but Counsel for successful bidder (Genus) has informed that it is still pending with State Government and the ultimate fact is that after the term of Three years' having expired, it has not been renewed so far.
At the same time, this Court likes to record that as regards MOUs entered between successful bidder (Genus) & other share holder (JME Employees Co-operative Credit & Thrift Society Ltd) on 10/01/2012 for renewal of earlier MOU dt.07/11/2008 and as per recitals thereof, the parties to the MOU have agreed that terms & conditions of earlier MOU dt.07/11/2008 shall be binding between the parties for a further period of one year from the date of its execution.
Both the Counsel for the applicants jointly submit that after recommendations made by BIFR vide order dt.26/09/2002, the State Government being one of major share holders took active steps for revival of Co.-JMEL and through request of proposal was invited from private bidders to acquire Co.-JMEL - pursuant to which, M/s Genus Infrastructure Power Ltd offered its bid & being successful bidder, Draft Rehabilitation Package was prepared by Genus Power for entering into MOUs with State Government, JME Employees Credit Society & Mazdoor Sangh; and based on such proposals vide MOUs, sufficient funds have been released out of which employees dues worth Rs.6.83 Crores while Rs.1.09 Crores towards sovereign dues were paid by successful bidder(Genus), and in this view of matter, Draft Rehabilitation package deserves to be examined, for which meeting of Co.-JMEL, its Creditors, Members & share holders may be convened where M/s Alchemist claiming to be secured creditor of Co.-JMEL may also participate; and after deliberations over the proposed arrangements, certainly it may come out with positive results and collective efforts can be made to revive the Co.-JMEL.
Shri Sudhir Gupta, Senior Counsel appearing for M/s Alchemist while opposing the request, submits that M/s Alchemist Asset Reconstruction Co. (respondent) being one of secured creditors of Co.-JMEL holding 33% of total secured debts of JMEL; and holding exclusive first charge over the JMEL and also holding 50.93% shares, is not agreeable to rehabilitation package proposed by successful bidder ( Genus) who has no locus at this stage. Counsel also submits that instant applications filed U/Ss 391(1) & 393 of Co.Act are not maintainable since the Scheme of compromise or arrangement could be proposed, if arrived at between Co.-JMEL and its creditor or between the Company & its members and admittedly, it was neither between the Co.-JMEL, its Creditors, & members; that being so, such applications filed by so-called successful bidder & Mazdoor Sangh for holding of the meeting of creditors, share holders & members of the Company to consider the Scheme of arrangement/Draft Rehabilitation Packages allegedly prepared by successful bidder is not maintainable and permissible under the law.
Shri Gupta while questioning the Scheme/ Rehabilitation package, submits that it is not bonafide, fair & reasonable as is evident from the fact that one set of share holders (Workers) are given a consideration of Rs.100 per share for 172083 shares constituting 59.49% shares whereas State Government holding 58511.3 shares constituting 20.23% of share capital are given a consideration of Rs.19.42 Crores meaning thereby Rs.3319/- per share and despite respondent (Alchemist) being first charge holder has been offered 15.75% of its dues while 2nd charge holders have been given 20% to 36% of their dues, which is not permissible. Counsel further submits that present scheme for transfer of share-holding of of State Government (20.23%) and applicant-1 (JME Employees Society) (59.49%), that has been reduced to 9.9% & 29.2% respectively in view of the Order dt.30/10/2008 passed by Company Law Board in Company petition NO.56/2008 whereby share-holding of respondents to the extent of of 50.93% has been upheld; however, order of the CLB is under challenge by State Government, JMEL in Company Appeal Nos.6, 7 & 8/2008 and the Co. Court vide order dt.30/11/2009 directed the parties to maintain status quo.
However, Senior Counsel for respondent (Alchemist) submits that the fact still remains that apart from litigation, respondent (Alchemist) is holding major share holdings in the Co.-JMEL and is not agreeable to the Draft Rehabilitation Package introduced by so called successful bidder (Genus), and as per admission of the applicant, Alchemist is holding 33% of total secured debts & share holding of Co.-JMEL, is not supporting the Scheme of Revival which on the very face of it, cannot be approved for want of statutory majority (3/4th of total secured creditors or share-holding) required for approval provided U/S 391(2) of Co. Act, 1956.
Before examining the controversy for determination, it would be necessary to keep in view limited scope of jurisdiction of the Company Court being called upon to sanction the Scheme as per provisions of S.391 & 393 of Co. Act. A conjoint reading of both the Sections 391 & 393 makes it clear that the compromise or arrangement can be proposed between a Company & its creditors or any class of them or between a Company and its members or any class of them; and if such a scheme is put forward by a Company for sanction of the Court, the Court may consider the Scheme and direct holding of meetings of creditors or class of creditors or members or class of members being concerned with such a scheme. But as per Sub-S.(2) of S.391 of Co. Act, majority in numbers representing 3/4th in value of the creditors or class of creditors or members or class of members, as the case may be, present or voting either in person or by proxy at such a meeting if accord their approval to any compromise or arrangement, the Court gets jurisdiction to sanction the scheme with or without modification. If such a compromise is sanctioned by the Court, it would be binding on all the creditors or class of creditors or members or class of members as the case may be, meaning thereby even to dissenting creditors or class of creditors or dissenting members or class of members, such sanctioned scheme would remain binding.
It is also true that S.391 of Co. Act gives the widest discretion to the Court to approve any sort of arrangement and/or scheme, if placed on record for consideration and it has also to be kept in mind that as far as possible, the Court has to take a practical approach for revival of industry rather than closing it down; but at the same time, a class of creditors particularly, secured creditors cannot be asked to wait indefinitely so as to render their securities meaningless. Thus, balancing of views and adverse interest is the prime function to be performed by the Court and while doing so, a number of factors have to be taken into consideration but the paramount object should not be divested that if possible the Company must revive and the Company is not forced to close down and even in case of the Company being wound up, compromise/arrangement, if proposed, is in the interest of Company that can always be considered by the Court U/s 391(1) of Co. Act.
But in the instant case, as regards liability of Co.-JMEL, that was considered at one stage atlength by BIFR and after opportunity of hearing being afforded to all the parties and on having come to the conclusion, the BIFR vide order dt.26/09/2002 in exercise of powers U/s 20(1) of Sick Act, 1985, came to the conclusion that Co.-JMEL is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations - as a result whereof, is not likely to become viable in future and taking note thereof, the BIFR forwarded its opinion to the Company Court vide letter dt.24/01/2009, recommending that Co.-JMEL be wound up; and on having received the BIFR recommendations (supra) Company Petition-19/2009 was registered & is still pending consideration at admission stage. But the parties for one reason or the other have not made as yet submissions regarding admission on the Reference made by BIFR U/s 20(1) of Sick Act, 1985.
S.391 (1) of Co. Act envisages regarding compromise/arrangement, if proposed & arrived at between a company & its creditors or any class of them or between a company & its member or any class of them; and further in the case of a company which is being wound up, on the application of the OL, the Court may consider to hold a meeting of the creditors or class of creditors or of the members or class of them as the case may be.
This Court finds substance that instant so-called Scheme put forward by successful bidder (Genus) cannot be given any credence for the reason that it is not compromise/arrangement having been allegedly proposed, if arrived at between the Company and its creditors or its members. As regards so called MOUs, they were entered into between so-called successful bidder (Genus) with State Government & two workmen Unions, its term was valid for three years from the date of execution thereof which indisputably expired in November, 2011 and the bidder (Genus) might have submitted application to the State Government for renewal of MOUs' but it has not been renewed as yet.
Whole thrust of so-called successful bidder (Genus) is in regard to certain payments having been made to the worker's dues & statutory dues of the State Government but that alone would not be considered to be sufficient for being taken note of by this Court in regard to the Scheme proposed for revival of Co.-JMEL at the behest of bidder (Genus).
State Government is also one of major share holders of Co.-JMEL and at one stage, effort were made calling upon State Government to come forward for some better ways for compromise & revival of the Company, being paramount consideration, should not be divested and the State Government must be in favour of revival of Co.-JMEL rather than closing it down; but in the proceedings initiated before the Co-ordinate Bench in CWP-7761/2003 while the Advocate General was called upon to hold a meeting with Principal Secretary of Government, Department of Industries to find out ways regarding the Scheme of compromise/arrangement, if arrived at, can be considered and how it is possible to revive the Co.-JMEL; obviously keeping in view that secured creditors cannot be asked to wait for indefinite period which may render their securities meaningless, and balancing of views & adverse interest in fact were to be performed taking note of various factors. That being so, State Government under directions given by Co-ordinate Bench vide order dt.06/03/2009 in CWP-7761/2003, held meeting in his chambers on 21/03/2009 and submitted a report on 02/04/2009 which has been taken note of by Co-ordinate Bench in its order dt. 10/04/2009 (referred to herein above); according to which, the State Government who is one of major share holders, had expressed that they are not in agreement to affect the compromise and the sentiments expressed by the Court cannot be operationalized and most of the parties to the dispute including the State Government seems to be acquiesced and the only course of action opened for the parties to the dispute including State Government is that the matter be referred to the Company Court for further adjudication.
Thus, when one of major share holders has shown inability and the others who have participated have not arrived at to affect the so called compromise & the present scheme introduced through MOUs is neither by Company and its creditors or members; inasmuch as the matter has been examined at length by BIFR which has made its recommendations in exercise of powers U/s 20(1) of Sick Co. Act, 1985 and taking note of further fact that to give any effect to the compromise or arrangement as referred to in sub-Section (2) of S.391 unless majority in numbers representing 3/4th in value of the creditors or class of creditors or members or class of members, as the case may be, present or voting at such a meeting, may accord their approval to the Scheme proposed, the same cannot be sanctioned having its binding effect and when one of the secured creditors-Alchemist who admittedly without taking note of order of Company Law Board, is holding 33% of total secured debts of Co.-JMEL, any compromise/ arrangement, if taken note of and meeting of the Co.-JMEL, creditors & members is being called upon, that will not get majority representing 3/4th in value of the creditors or class of creditors or members or class of members, as the case may be, which is the requirement U/s 391(2) of Co. Act, apart from having any locus of the Scheme in question put forward by so called successful bidder (Genus), in the considered opinion of this Court, calling of meeting of Company, creditors & members to examine the Rehabilitation package proposed will not be meaningful and is not going to serve any purpose, but will remain a futile exercise.
Consequently, both the applications (No.104/2010 & 153/2010) being devoid of merit fail and are hereby dismissed. However, it is made clear that what has been observed by this Court (supra) may not adversely affect right of the parties while Company Petition No.19/2009 being heard for admission.
In the light of what has been observed (supra), 3rd Co.Appl.No.103/2010 seeking leave has become infructuous and accordingly stands dismissed. No costs.
(Ajay Rastogi), J.
K.Khatri/p15/1/ 104CoAppl-2010MarRsrApr2JMEL.doc