Madras High Court
A.L.Ramachandra vs The Official Liquidator on 30 September, 2019
Author: S. Manikumar
Bench: S.Manikumar
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 30.09.2019
Coram
THE HONOURABLE MR. JUSTICE S.MANIKUMAR
C.A.No.1035 of 2014
1. A.L.Ramachandra
S/o. Late Adusumilli Suryanarayana
Chairman & Managing Director of
VTX Industries Ltd.,
Having registered Office at
No.2/185, Palladam Road,
Pilliampatti (Via) Pollachi 642 002,
Tamil Nadu.
2. VTX Industries Ltd.,
Having registered Office at
No.2/185, Palladam Road,
Pilliampatti (Via) Pollachi 642 002,
Tamil Nadu.
.. Petitioners
v.
The Official Liquidator,
VTX Industries Limited in Liquidation,
High Court, Madras. .. Respondent
Application filed under Order XIV Rules 8 of O.S. Rules r/w. Rules
9, 11(b), 19 and 67 of the Company Court Rules, 1959, r/w. Sections 391
and 446 of the Companies Act, 1956, for directing the applicant-Company
to convene the meeting of Class Unsecured Creditors of the Applicant-
Company for consideration and approval of the scheme of Arrangement
http://www.judis.nic.in
and Compromise.
2
For Petitioner : Mr.H.Karthik Seshadri
For Respondent : The Official Liquidator
ORDER
This application is filed for a direction to the applicant-Company to convene the meeting of Class Unsecured Creditors of the Applicant- Company for consideration and approval of the scheme of Arrangement and Compromise.
2. The 1st applicant is the Chairman and Managing Director of the Office of M/s.VTX Industries Ltd., Pollachi, 2nd applicant, which was ordered to be wound up by this Court, vide order, dated 23.06.2014 in C.P.No.151 of 2013. The 2nd Applicant-Company was incorporated on 05.09.1953 as Vijayeswari Textiles Limited. The name of the Company was changed from Vijayeswari Textiles Limited to VTX Industries Limited and certificate of incorporation to that effect was issued by the Registrar of Companies, Coimbatore. The main objects of the Company are as follows:
(a) To carry on all or any of the following businesses namely cotton spinners and doublers, wool, silk, flax jute, hem and staple fibre spinners, linen manufacturers, cotton, flax, hemp, jute and wool merchants, wool combers, http://www.judis.nic.in worsted spinners, woolen spinners, yar merchants, worsted 3 stuff manufacturers, bleachers and dyers and makers of citriol, bleaching and dyeing materials and to purchase, sell, comb, prepare, spin, dye and deal in flax, hemp, jute, wool, cotton sil and other fibrous substances and to weave or otherwise manufacture, buy and sell and deal in linen, yarn, cloth and other goods and fabrics, whether textile, felted, netted or looped;
(b) To deal in and also to work spinning and weaving mills, cotton mills, jute mills and mills of another description and to maintain, erect and work ginning factories, foundries and manufacturers of every kind of goods and merchandise and to erect, maintain and work presses for pressing merchandise into bales. To erect warehouses, tanks, chawls, or other buildings and to erect such machinery, engines, apparatus and work thereon as may be necessary for the purposes of the Company and to sell or mortgage all or any portion of the same as may be thought desirable.
(c) To buy, contract or sell or send for sale in the whole world, cotton, waste, droppings, fly, silk, wool, jute, hemp and other fibrous articles to deal in all materials and things necessary or useful for dyeing, printing and bleaching purposes and generally to deal in all or any of the fabrics, articles and things and to do all these either on cash or on credit and for ready or future delivery;
(d) To gin kappas and to spin, weave, manufacture, dye, print and bleach cotton, waste, droppings, fly, silk, http://www.judis.nic.in wool, jute, hemp and other fibrous articles and to prepare 4 yarn, clothe, bleached or unbleached and other fabrics and things of what nature or kind so ever;
(e) To generate, consume, purchase, sell, supply and distribute electricity by erection/installation of wind or hydel or thermal or solar or atomic or any other sources in India or elsewhere;
(f) To carry on the business of financiers including refinancing of all operations, re-discounting bills, securitization, purchase or assignment of financial assets/hire purchase, leasing and letting or lease of movable properties.
3. The applicants-Company is engaged in the production and sales of superfine cotton yam and textile made-ups. The Company was incorporated in 1953 and commenced its activity with an initial installed capacity of 5000 spindles and over a period of five decades has grown into a two star category exporter of made-ups with inhouse integrated facilities' cover spinning, weaving, processing, sewing and design and product development. The existing spinning unit of the Company situated at Puliyampatti, Pollachi Taluk has an installed capacity of 46004 spindles. The weaving facility at Arakulam, Palladam Taluk has an installed capacity of 90 looms. The processing division of the Company has a capacity of 35000 meters per day and is located at SIPCOT http://www.judis.nic.in Industrial Growth Centre, Perundurai. The sewing activities located at 5 Kuniamuthur, Coimbatore are outsourced from SAPL, a Promoter Group Company. SAPL has installed capacity of 24,00,000 pieces of made-ups per annum. The entire production of made-ups is exported. The Company is now a player in the home textiles segment with a firm foothold in the niche segment of high-end bedroom products and its customers include some of the world's leading retailers such as Macy's, Laura Ashley and T.J. Maxx and H. Goods. The Company has also entered the branded arena with ingredient brands, Gossammer Cotton and Genusia Cotton. A summary of the existing facilities in all divisions is given below:-
Divisions Existing Capacity
(per month)
Weaving (In house) 300,000 metres
Processing 910,000 metres
Sewing 400,000 pieces
4. In the year 2007, the Company approached the Capital market and offered its shares to the Public by way of an Initial Public Offer (IPO) for 90,00,000 equity shares with a face value of Rs.10. After obtaining necessary clearances from the Securities and Exchange Board of India, "SEBI", the IPO was completed and the equity shares were listed on the Bombay and Madras Stock Exchange. The Company has more than 4288 equity shareholders and the shares are being regularly traded on the Stock Exchange.
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5. The Company was growing at a reasonable rate till the financial year ended 31.03.2008. The Company for the financial year ended 31.03.2008 achieved turnover of Rs.285.54 crores with Profit after tax of Rs.8.44 crores. The Company also declared dividend to its shareholders. During the Financial year 2008-09, the Company's turnover dropped significantly as a result of global economic slowdown especially in US and European Countries and unexpected cross currency fluctuation in terms of dollar revenue. The domestic factors also had significant impact on the export business of the Company. These factors included the following -
(a) Minimum support price of cotton
(b) Exorbitant interest rates
(c) Insufficient working capital due to declining profitability
(d) Reduction in duty draw back rates, delays in reimbursement of technology-upgradation fund scheme
(e) Un-rebated State/local levies
6. According to the applicant, the readymade garments and home furnishing segment was facing severe economic pressure in the international market due to fall in demand for these products at retail. The Company in 2007 came with an Initial Public Offering into undertake http://www.judis.nic.in 7 expansion activities for the Company in the fond hope that there would be expansion in the export market requiring additional capacities to cater to such increasing demand. With sudden collapse of global economy and with the shrinkage of the textile export market, more particularly the retail market, the Company was faced with fall in sales and increase in interest cost on account of capacities.
7. The Company had in 2008 availed term loan of Rs.175 crores from Indian Overseas Bank led consortium comprising of UCO Bank, United Bank of India and Andhra Bank. Apart from term loan facilities, the Company had availed additional working capital facility of Rs.155 crore from Andhra Bank led consortium comprising of Indian Overseas Bank, YES Bank and Oriental Bank of Commerce. Despite adverse conditions with which the textile industry is faced with, the Company has been taking steps to maintain its level of operations to break-even on the cost and pay all statutory dues. The Company has been steadily increasing its turnover by approaching newer international markets like South America, Australia, New Zealand, South Africa etc. The turnover has increased from Rs.125.01 Crores in 2008-09 to Rs.164.42 crores in 2010-11 and Rs.189 crores in 2011-12 and Rs.176.29 crores in 2012-13. Though the Company has been expanding its turnover, the Company has http://www.judis.nic.in 8 been incurring significant cost towards interest cost on borrowings and exchange rate fluctuations, leaving the Company with no fresh capital for deployment in the business of the Company. The Company has repaid part of the term loan. The Company has not been able to achieve economics of scale on account of increase in interest cost and rising debt which has been eroding significant margins of the Company.
8. It is the further case of the applicants that the accumulated debt to banks has been increased to Rs.350 crores, as of June' 2014. The business does not have capacity to service the outstanding amount of debt. In 2013, the Company faced with adverse market conditions and stressed liquidity position approached the lending banks for Corporate Debt Restructuring to re-phase the debts of the Company. However the Banks were not in favor of restructuring proposal given by the Company and debt restructuring could not be given effect to. During this period, the business of the Company further deteriorated and the cash flows of the Company was severely affected. The account of the Company was classified as Non Performing Asset by the Banks and proceedings were commenced under Section 13(4) of the Securitization and Asset Reconstruction of Financial Security Interest Act, 2002 and have taken over symbolic possession of the secured assets.
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9. The applicants have submitted that the unsecured creditors of the Company started pressing for payments to be made to them for the supplies made. One such unsecured creditor, M/s.Thiagaraja Mills Private Limited has filed C.P.No.151 of 2013 for winding up of the Company, on account of inability to pay debts by the Company. On 06.09.2013, this Court passed an ex parte order, admitting the Company Petition No.151 of 2013, appointing Official Liquidator as Provisional Liquidator of the Applicant Company in C.A.No.559 of 2013 in C.P.No.151 of 2013. This Court fixed 11.10.2013 as the date for hearing of the winding up petition, which was stated in the publication effected by the 1st Respondent, pursuant to order, dated 06.09.2013. The Applicant Company coming to know of the said ex parte order, filed C.A.No.1042 of 2013 before this Court to suspend the order, dated 06.09.2013 passed in C.A.No.559 of 2013 and in C.P.No.151 of 2013. The Applicant also filed C.A.No.1043 of 2013 in C.P.No.151 of 2013 for recalling the order, dated 06.09.2013. This Court on 27.09.2013 suspended the order, dated 06.09.2013. Though the 1st Respondent had by then effected publication in the newspapers prescribed, the Applicant had paid the said amount to the 1st Respondent. The Applicant came to know that on 14.03.2014, the erstwhile Counsel of the Company did not appear and the said application was dismissed for default. C.A.Nos.424 and 425 of 2014 was http://www.judis.nic.in 10 filed to set aside the order, dated 14.03.2014 and to restore C.A.No.1042 of 2013 on the file of this Court. C.A.Nos.424 and 425 of 2014 were allowed by this Court. On 12.06.2014, earlier Counsel was not present in this Court, which dismissed C.A.Nos.1042 and 1043 of 2013 for default and fixed the hearing of Company Petition on 23.06.2014. On 23.06.2014, once again earlier Counsel was not present in this Court, resulting in passing of final winding up order.
10. The applicant-Company has filed application, seeking review of the order, dated 23.06.2014, inter alia on the ground that no notice or publication, as per requirements of Rule 96 of the Companies (Court) Rules, 1959 was effected and therefore, no opportunity was available for shareholders or creditors to express their intention to either oppose or support the Company Petition. The review petition is pending adjudication before this Court and the order of winding up, dated 23.06.2014, was under challenge before this Court. After passing of winding up order, dated 23.06.2014, the Company filed C.A.Nos.752 and 753 of 2014 to stay further proceedings in winding up and to set aside the order, dated 23.06.2014 in C.P.No.151 of 2013. The Company has been making sincere efforts to make payment to the creditors. The Company could not raise funds, in view of the orders passed by this Court and on http://www.judis.nic.in 11 account of pressure from the banks. This Court, by order, dated 24.07.2014, granted order of interim stay for period of two weeks to make payment of the amount due to the petitioner in C.P.No.151 of 2013. The order was further extended on 12.08.2014, but the Company could not raise funds, in view of credit squeeze and pressure from various class of creditors. According to the applicants, the Company intends to pay and that the Company needs breathing space by way of moratorium to tide over the crisis. The Official Liquidator has not taken charge of affairs of the Company till the date of filing of the application.
11. The applicant-Company, to tide over the crisis and to ensure that the class of unsecured creditors is treated at par, proposed the present scheme to compromise with the unsecured creditors of the Company to whom amounts are due in excess of Rs.1 lakh only, as at 31 March' 2014. The Company is a going concern and its factories are operational and functional. Even in adverse conditions since 2013, the Company has been carrying on production and has been able to generate revenue. The Company, on account of having its shares listed on the Bombay, Madras Stock Exchange has been filing financial statements with the Stock Exchanges. All these financial parameters would go toshow that the Company is a going concern and that the Company would be able to http://www.judis.nic.in 12 resurrect itself, if the Company is able to re-phase its debts due to Banks and Secured Lenders and gets breathing space from other unsecured creditors of the Company. The authorized capital of the Company is Rs.20,00,00,000/- divided into 2,00,00,000 equity shares of Rs.10/- each. The paid up capital of the Company is Rs.18,16,92,400/- divided into 1,81,69,240 equity shares of Rs.10/- each.
12. According to the applicants, the Banks have not considered the Corporate Debt Restructuring favorably and the Company has been exploring other options to buy peace with the Secured Creditors. The Company is in discussion with these Banks and the Banks have been considering the proposals given by the Company. The Company intends to provide One Time Settlement proposal to the Banks. The Company is in discussion with the Strategic Financial Investors who can infuse funds into the Company enabling the One time settlement with the Banks. The investors will also invest additional funds to revive the operations and will service a reduced level of debt. This would enable the Company settle the liabilities of existing lenders and will significantly reduce the finance cost of the Company which has been severely hampering the cash flow of the Company. The Company accordingly has also appointed Andhra Bank empanelled Valuer as required by the Potential Investors to http://www.judis.nic.in 13 ascertain the security cover for the investment. The Company and its Promoters have been making significant progress in making the said financial arrangement. The Banks are also inclined to favorably consider the proposal. The Company for the above purpose will also have to sell off non-core assets of the Company and realize cash flows to further improve the liquidity situation of the Company. Non-core assets are in form of land holdings and they are expected to realize, on or about Rs.80 crores. The Company is looking at options to maximize the value of these landholdings in manner that would enhance liquidity to the Company.
13. Apart from the above financial measures, the applicant- Company is also taking the following operational and functional decisions to bring in professionalism in the management of the Company. Summary of initiatives in this regard are given below,
(a) Appointment of Professional Consultant Sayanta Basu as consultant to Company;
(b) Sale of Non-core assets of the Company to improve liquidity conditions of the Company. The sale would be carried out in a phased manner so that better value is fetched by these assets which would otherwise realize distress value;
http://www.judis.nic.in (c) Offering of Stock Options to Key Management and Directors to 14 retain them and make them focus on turnaround of the Company so that their efforts would commensurate with the returns in the growth in the equity share of the Company;
(d) Focus on high margin business to improve cash flows and profitability;
(e) Continuing to export to key players like John Lewis and Myers
-Genuisa and Parousha;
(f) Negotiate Debt Restructuring by September 2014 and reduce the debt burden by March 2015.
14. According to the applicants, all the assets of the Company are secured to the Banks and Financial Institutions, who are secured creditors of the Company. The Secured creditors are ready to consider the proposal of One Time Settlement. Though symbolic possession has been taken by the Banks pursuant to the provisions of SARFAESI Act, the Banks have not taken any further steps to realize their security in view of the proposal winding up of the Company, as no assets would be left for the benefit of such unsecured creditors. Continued carrying on of business of the Company would make cash flows available for the Company to pay the Unsecured Creditors of the Company. There are competitors of the Company, who are also unsecured creditors of the http://www.judis.nic.in 15 Company who are showing greater interest in winding up the Company and have collateral purpose in getting the Company wound up. The Company is taking steps to pay these creditors also through the present scheme. The Salient features of the Scheme are as follows:
(a) "Class of Creditors " or " Scheme Creditors" means the unsecured creditors of the company to whom the company has to pay a sum of more than Rupees One lakh as on appointed date and is given by way of Annexure to the Scheme.
(b) "First Installment Date" shall mean the date, 18 months after the Effective Date and Provided further that in respect of each such Scheme Creditor who is a party to any Dispute(s), the First Installment Date shall mean the taken appropriate steps, moved appropriate application(s)/ joint application(s)/ compromise application(s)/ petition(s) etc. before the appropriate forum(s)/ court(s) judicial or quasi judicial authority(ies) etc. and has also undertaken and performed all such acts, deeds and things and provided all necessary document(s) and assistance to the Company, for the withdrawal/ quashing/ compounding of all such Dispute(s) to which such Scheme Creditor is a party and the final orders rejecting / dismissing the respective Disputes or for the withdrawal/ quashing/compounding of the respective Dispute(s) and vacating and setting aside all adverse and interim orders, http://www.judis.nic.in 16 is/are passed by the respective forum(s) / court(s) / judicial or quasi judicial authority(ies) etc., as may be the case.
15. The Scheme in summary provides for the following,
(a) The company has products which are ready to be sold and the only avenue open to the Company for entering into a settlement and compromise with the Scheme Creditors is based on the future earnings potential of the Company and internal accruals of the Company. The Company is confident of meeting the debts of scheme creditors listed herein in Annexure.
(b) The Annexure hereto sets out the liability due to the Scheme Creditors as appearing in the books of accounts of the Company as on the appointed date and the Scheme Debts as reduced by the amounts paid there against after the Appointed Date.
(c) The Company hereby agrees and undertakes, subject to sanction and approval of the Scheme by the Authority and the Scheme becoming effective and operative to pay to the Scheme Creditors in terms of the Scheme, the amounts set out in the annexure ("Scheme Debts") out of the Principal Amounts due towards the respective Scheme Creditors (including those Creditors covered by individual settlements made earlier), in compromise and full and final settlement and total http://www.judis.nic.in 17 discharge of all its liabilities, obligations and dues towards the Scheme Creditors and all of their claims that they may have against the company, after deducting there from any amount paid/settled by assignment of debts, to such Scheme Creditors after the Appointed Date.
(d) Settlement and Compromise ar d amount to be paid by the company to class of scheme creditors shall be in full and final settlement of the amounts due by the company to the scheme creditors.
(e) Settlement and Compromise with Scheme Creditors:
The Company shall pay the amount due and payable as on the appointed date which amount shall be the Scheme Debt". The Company shall the said amount due and payable as on appointed dated to Creditors in installments as provided in clause f.
(f) After approval of the Scheme by the Scheme Creditors and sanction and approval of the Scheme by the High Court, Madras and upon the Scheme becoming effective and operative the net amounts payable as Scheme Debts to the respective Scheme Creditors of different classes as above as reduced by the amounts paid after appointed date, if any, to the concerned Scheme Creditors, shall be disbursed and paid by the Company in the following manner:
(i) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 180 days from tH f irst Installment date;
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(ii) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 360 days from the first Installment date;
(iii) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 540 days from the First Installment date;
(iv) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 720 days from the First Installment date;
(v) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 900 days from the First Installment date;
(vi) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 1080 days from the First Installment date;
(vii) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 1260 days from the First Installment date;
(viii) 12.5% of the "Scheme Debt" on the Subsequent Installment Date being 1440 days from the First Installment date; The payment to Scheme Creditors is spread over 4 years time with payment of 12.5% of the Scheme Debt being paid every six months. If the Company is able to cover up its losses at an earlier date and generate cash flows reducing the finance cost due to Banks and Secured Lenders, the Company will take steps to pre-pay the Scheme Debt to the Class Creditors.
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16. According to the applicants, no interest shall be charged by any of the Scheme Creditors for non-payment of dues by the Company upto a period of 180 days from the date any of the aforesaid installments become due. The Company shall however, be liable to pay simple interest @ 6% per annum on the amount of the installment due to the Scheme Creditors, beyond the period of 180 days till such installment(s) is actually paid. Further, there would be no penal charges (compound interest, liquidated damages, additional charges, penal interest, costs, fees, expenses or Installments of Scheme Debts to the Scheme Creditors. The Scheme Debts shall be payable as provided above subject to the respective Scheme Creditor(s) taking appropriate step(s)/ moving appropriate application(s)/ joint application(s)/ petition(s) etc. and doing and performing all such acts, deeds and things and undertaking and providing all the necessary assistance to the Company, that are necessary or incidental, for the withdrawal or quashing of any and all Dispute(s).
17. The applicants have further contended that the concerned Scheme Creditor and/or the Company shall move appropriate application(s) for the stay of all Winding Up Proceedings initiated and/or pending against it before the Court including but not limited to those enumerated in Annexure I and the respective Scheme Creditor(s) would http://www.judis.nic.in 20 extend all assistance to the Company in support of the same and the Scheme Debts shall be payable as provided above subject to the Court granting stay of the Winding Up Proceedings. It is clarified that any amounts paid to any of the Scheme Creditors after the Appointed Date, under orders of any Judicial/Quasi Judicial or Statutory Authority or under any other arrangement/agreement/settlement or otherwise by and between such Scheme Creditor(s) and the Company shall be deemed to have been made under this Scheme and the amounts so paid to such Scheme Creditor shall be adjusted in the total amount to be paid under the provisions of the present Scheme and no other additional amount over and above the amount to be paid under the Scheme shall be paid to such Scheme Creditor. In event the Company becomes revenue positive and earns profits over the next five years, the Company shall pay an additional amount of 5% of the Scheme Debts as on the Appointed Date to the Scheme Creditors alongwith the final installment as a goodwill gesture for the support extended by the Scheme Creditors.
18. According to the applicants, the Scheme does not contemplate issue of shares or variation of rights of the members of the Company. As the present scheme is to compromise with Class of Unsecured Creditors of the Company, the Applicants seek convening of http://www.judis.nic.in 21 meeting of the Class of Unsecured Creditors of the Company. Certificate of Chartered Accountant M/s.Suri & Co., Chartered Accountants, Statutory Auditors of the Company enumerating the list of unsecured creditors of the Company alongwith amounts due to the unsecured creditors as at 31 March 2014. The Scheme does not contemplate variation of rights of the Secured Creditors and their interests are not affected in any manner by the present scheme of compromise. The present scheme does not affect interest of any of other creditors of the Company or shareholders of the Company and that the present scheme being a scheme between the Company and the Class Creditors of the Company, the Applicant seeks for convening meeting of Scheme Creditors of the Company. There are no proceedings relating to investigation under Section 235 to 237 of the Companies Act, 1956 pending as against the Applicant Company.
19. Going through the pleadings and material on record, this Court is of the view that the applicant does not made out a case for issuance of the prayer sought for. Hence, this application is dismissed.
30.09.2019 skm http://www.judis.nic.in S. MANIKUMAR, J.
22skm C.A.No.1035 of 2014 30.09.2019 http://www.judis.nic.in