Delhi High Court
Komal Plastic Industries vs Roxy Enterprises Pvt. Ltd. on 25 January, 1991
Equivalent citations: [1991]72COMPCAS61(DELHI)
Author: Y.K. Sabharwal
Bench: Y.K. Sabharwal
JUDGMENT Y.K. Sabharwal, J.
(1) This order will dispose of CAs. 4096, 4097/89 and Ca 653/90. The circumstances under which these applications have been filed are in brief as follows :- Three winding up petitions being Cp 80/86, Cp 30/87 and Cp 149/87 have been filed seeking the winding up of the respondent company. The petitioning creditor in these three petitions are different but the company of which the winding up is sought is the same, namely, M/s. Roxy Enterprises Pvt. Ltd. (hereinafter referred to as 'the Company'). Cp 80/86 was filed in April 1986, Cp 30/87 was filed in December 1986 and Cp 149/87 was filed in August 1987. In all these petitions notices were issued to the respondent to show cause why the petition be not admitted. Cp 80/86 was, however admitted by orders made on 1st October 1986 but the orders for advertisement of the petition were deferred. In Cp 30/87 on 2nd August 1989 Sh. S L. Nagpal and Sh. Sanjay Nagpal being father and son respectively filed Case 4096 and 4097 of 1987. These applicants were directors and shareholders of the company. The other shareholders are claimed to be their family members Ca 4096/89 is accompanied with a tentative scheme of arrangement/compromise under Section 391 of the Companies Act, 1956. The prayer in the application is that the Scheme of Arrangement sponsored by the applicants is highly beneficial to the interest of the creditors at large and that the Scheme be put to vote to all classes of creditors and necessary summons for directions be given as to issue and publication of notices and convening of meetings of both classes of creditors, namely, secured and unsecured. The only secured creditor is State Bank of India. By Ca 4097/89 the applicants have sought stay of various suits and winding up petitions pending approval/sanction of the Scheme of Arrangement. Para 12 (a) of Ca 4(97/89 sets out suits and legal proceedings and the winding up petitions pending against the company as under: ___________________________________________________________________________ Suit No Amount Name of Parties Court ___________________________________________________________________________ Cp 30/87 37808.55 M/s.Kamal Plastics High Court V. Roxy Enterprises of Delhi. Cp 89/86 117962.00 Devi Dayal Cast- -do- ings (P) Ltd. vs. Roxy Enterprises (P) Ltd. Cp 149/87 49424.20 Devi Dayal Aluminium (P) Ltd. vs. Roxy Enterprises (P) Ltd. -do- Suit No. 2003/85 State Bank of India -do- vs. Roxy Enterprises (P) Ltd. Suit No. 478585.00 Bharat Aluminium -do- 512/88 Co. Ltd. vs. Roxy Enterprises (P) Ltd. Suit No, 198469.05 Devi Dayal Castings -do- 2699/87 (P) Ltd. vs. Roxy Enterprises (P) Ltd. Suit No. 29053.00 M/s. Pearl Enter. Sh. R.P.Gupta 4/89 prises (P) Ltd. vs. Adj, Delhi Roxy Enterprises (P)'Ltd. Suit No. 173843.76 M/s. Usha Martin -do- 801/86 Industries vs. Roxy Enterprises (P) Ltd. Suit No. Mala Dang vs. Roxy Sh. S.N. Kapoor Adj, Delhi. 271 /86 Enterprises (P) Ltd. Suit 4955.00 Nand Gopal vs. Sh. Pawan Roxy Kumar No. 180/88 Enterprises (P) Ltd. Adj, Delhi.
(2) By an ex-parte order made on 3rd August 1989 by S.N. Sapra, J. the notice was directed to be issued on CAs. 4096 and 4097/87 and in the meanwhile, the proceedings in Suit No. 2003/85 entitled blaic Bank of India vs. Roxy Enterprises (P) Ltd, Suit No. 512/88 M/s. Bharat Aluminium Co. Ltd. vs. Roxy Enterprises (P) Ltd and Suit No. 80l/86 M/s. Usha Martin Industries vs. Roxy Enter rises (P) Ltd pending in this court were ordered to be stayed.
(3) The Stale Bank of India has filed affidavit opposing the prayers made in the applications referred to above. It has been, inter alia, contended in the affidavit that the Scheme has been propounded merely to delay the proceedings in various suits and in particular Suit No. 2003/85 filed by the State Bank of India against the company for recovery of Rs. 1,53,38,10.14 which amount would now work out to be more than Rs. 2.40 crores. Likewise the petitioning creditors of Cp 80/86 ana 149/87 have also filed replies/affidavits opposing the prayer made in the application propounding the Scheme. Affidavit has also been filed on behalf to M/s. Bharat Aluminium Co. being plaintiff of Suit No. 51./88 objecting to the reliefs claimed by the company. The petitioning creditor of CP 30/87 has also filed reply opposing the prayer made in the two applications filed by Nagpals. Dunning the course of hearing counsel for the applicant informed the court that Sh. SL. Nagpal has since died but submitted that bids legal heirs are interested in pursuing the applications. I proceed on the assumption that the legal representation of Sh. S L Nagpal are also interested in propounding the Scheme filed in Ca 4096/89.
(4) Ca 653/90 has been fired by Stale Bank of India, inter-alia, seeking an order for vacation of exparte order dated 3rd August 1989 staying the proceedings of Suit No 2003/85. In this application, the bank has averred that it made available various facilities to the company, the company hypothecated stocks, raw-materials, flushed goods as well as plant and machinery in favor of the Bank and o failure of the company to carry out such obligations under various agreements/arrangements the bank filed Suit No. 2003/85 against the company for recovery of more than Rs. 1.53 crores. In the applications gist of orders made in the Suit from time to time has been given in support of the plea that the company has been delaying the proceedings in the suit. It has also been pleaded that in Suit Sh. B.S. Banerjee, advocate, was appointed as a Receiver but the company has deliberately and with ulterior motives discontinued payment of amounts to the Receiver with the result that the Receiver has applied for being discharged. It has been further averred in the application that in suit company has been seeking adjournments and that on 17th July 1989 counsel for the company again sought time for admission/denial of documents when the Court was pleased to direct that the matter would be adjourned to 10th August 1989 and that it would be final opportunity for admission/denial of documents. The bank says that with a view to stall the proceedings of the suit the aforesaid applications were filed introducing the Scheme of Arrangement and exparte order of stay was obtained by deliberately suppressing particulars of proceedings relating to Suit No. 2003/85 In regard to Scheme the bank has pleaded that though more than Rs. 2.50 crores was due to it in August 1989 the Scheme has taken into account only Rs. 3l69 lakhs as the amount recoverable by the bank from the company. It has also been pleaded that the Scheme does not give any detail about the manner in which the funds are sought to be mobilised but merely mentions a Schedule of Payment. The Scheme also seeks a five years moritorium on payment of loan and that seems to be the reason for propounding the Scheme. In regard to unsecured creditors it has been pointed out in the application that the profounder have merely mentioned the names of the companies which are associates of the respondent company. It has further been averred that the purported claim mace by the company in Suit No. 1447/87 for recovery of Rs. 75 lakhs by way of damages etc. from the Bank is frivolous and made solely for the purpose of delaying and/ or denying the rightful claim of the State Bank of India against the company. The bank further states that it has considered the Scheme of Arrangement and is of the considered view that the Scheme is not beneficial to the bank and it would not be capable to it at all and as such no useful purpose would be served if the meeting of the seemed creditors is called to consider the said Scheme as that would be rejected by the State Bank of India who are the only secured creditors. On these grounds it has been submitted by the bank that it would be an exercise in futility to direct the convening of the meeting of the creditors as the State Bank of India is bound to reject the Scheme.
(5) Section 391(2) of the Companies Act. 1956, inter-alia, provides that if a majority of the members representing 3/4th in value of the creditors or class of creditors agree to any compromise or arrangement, the compromise or arrangement shall if sanctioned by the Court be binding on all the creditors. or class of creditors and other persons mentioned in the said section There can be no dispute that the secured creditors are class by themselves There is also no dispute that the State Bank of India is the only secured creditcr. The bank in its affidavit referred to earlier and in Ca 653/90 has strenuously opposed the Scheme. Mr. Nayyar. learned counsel for the pronounces of the Scheme, relaying on Re : National Bank Ltd, 1966 (1) Aer 1006. In re : Maneckchowk Ahmedabad Manufacturing Co. Ltd, 40 Company Cases, 819. In re: Hathising Manufacturing Company Ltd (in liquidation), 46 Company Cases 59, has submitted that the court can sanction the Scheme even if it is not approved by 3/4th majority. The decisions cited by learned counsel have no applicability. None of these cases deal with the question before this court, namely, the effect of objection to the Scheme by more than 3/4th of the majority of the creditors. It is, therefore, unnecessary to dilate on the decisions relied upon by Mr.Nayyar.
(6) The provisions of Secticn 391(2) are clear and unambiguous. The Company Court has no jurisdiction to sanction a Scheme if it is not approved by 3/4th majority of the creditors or class, of creditors. The question of court considering the sanctioning of the Scheme would arise only if the Scheme has been approved by ihe statutory majority provided for under section 391(2). In the present case, 100% secured creditors are opposing Scheme. It would, therefore, be idle formality to direct the convening of the meeting of the secured creditors to consider the scheme.
(7) In re. Auto Steering India Pvt. Ltd, Vol 47 Company Cases 257, Delhi, this Court has held that where separate meetings are called to consider one composite Scheme covering both secured and unsecured creditors it is necessary that both the meetings should pass the Scheme by 3/4th majority. If the secured creditors on the first meeting reject the Scheme has to be deemed to have been rejected by the creditors generally and cannot be considered for sanctioning by the Court. It is not even binding on the unsecured creditors even if they might have voted by a majority in favor of the Scheme. The Scheme propounded in the present case is a composite Scheme covering both secured and unsecured creditors and in view of the stand of State Bank of India no useful purpose would be served by directing the convening of the meeting to consider the Scheme.
(8) In M.M. Sebgal v Sehgal Papers Ltd. (In liquidation). Vol. 60 Company Cases 510, Punjab & Haryana High Court has held that Section 391(2) lays down in categorical terms that the proposed arrangement or compromise has to be approved by a conscious act of requisite majority of creditors. There is no scope for implied approval of the proposed Scheme. Where the secured creditors withhold their consent to a proposed Scheme of Arrangement there is nothing in the Companies Act or in the Rules which authorises the Company Judge to probe into the matter of withholding of the consent by the secured creditors and bold that the same has been done malafide or arbitrarily. It was further held that if there is no valid arrangement before the court because of the non satisfaction of the requirement of Section 391(2) of the Act it can never be sanctioned by the court and the question of modification by the court under Section 392 does not arise.
(9) In view of legal position as aforesaid the applications filed by the propounders of the Scheme are liable to be rejected and directions for convening of meetings as sought by the applicants cannot be issued.
(10) Even on merits the applications of the propounders are liable to be rejected. It seems that the Scheme has been put forth with a view to delay the winding up proceedings and proceeding in various suits. The petitions were being adjourned from time to time and the uncontroverter circumstances given in Ca 653/90 which led to the filing of application by the propounders speak for themselves. The company has not refuted the allegations made in Ca 653/90. lt has not filed any reply to this application. The Scheme, even otherwise, does not appear to be feasible and viable. Regarding making availability of the funds for running of the unit it only states that the propounders propose to take loan of Rs. 15 lakhs from eight different persons. The names of the said eight persons and their addresses have been given in Annexure to Ca 4096/89. The propounders have not said as to on what term the loans will be advanced by the said parties. The consent of these eight parties have not been filed. The company is in the business of manufacture of wires and cables. According to the feasibility report the turnover of the company from 1979.80 to 1988-89 was as under :- 1979-80 Rs. 68 lakhs 1980-81 Rs. 157 lakhs 1981-82 Rs. 176 lakhs 1982-83 Rs. 225 lakhs 1983.84 Rs. 243 lakhs 1984.85 Rs. 55 lakhs 1985.86 Rs. 62 lakhs 1986.87 Rs. 61 lakhs 1987-88 Rs. 22 lakhs 1988.89 Rs. 22 lakhs up to 31.3.89 (11) The aforesaid report further states that if the company is afforded a moritorium of five years with Rs. 15 lakhs working capital it would be able to achieve the turnover as under :- 1989.90 Rs: 260 lakhs 1990.91 Rs. 325 lakhs 1991-92 Rs. 390 lakhs 1992-93 Rs. 455 lakhs 1993-94 Rs. 520 lakhs (12) The loss in production and decline in sale has been attenuated to State Bank of India on account of its withdrawal of various facilities which according to the propounder was arbitrary and malafide resulting in heavy losses to them. According to Bank, at present, more than Rs. Three crores is due to it from the Company. According to Company it has suffered damages amounting to Rs. 75 lakhs and after adjusting this amount only about Rs. 31 lakhs is payable to the Bank, The company has claimed Rs. 75 lakhs from the Bank in a suit filed by it against the Bank. If is, however, not necessary for me to go into these aspects but it does stem improbable that by pumping Rs 15 lakhs the propounders would be able to achieve the turnover as claimed by them when they could not achieve the turnover even with huge finances provided fay the bank. There is nothing except a bald statement by the propounders, to show that the company will be able to secure orders for supply of turnover which it claims it will achieve in five years of moritorium. In the Scheme it has been proposed that from the year 1994-95 on wards the liabilities to the extent of Rs. 40 lakhs per year will be paid. Even if these payments are made it will not wipe out the liability of the company. If the Scheme is accepted and five years moritorium is allowed, the bank's apprehension that the whole of its amount will become a total loss is not wholly without basis though this court is not concerned with the reasons for bank's stand. The Scheme is not in the interest of the company or its creditors. As noticed above, the other creditors have also objected to the Scheme. The propounders do not admit the said persons to be the creditors. Their names have not been mentioned in the list of creditors annexed with the application. The purpose seems to be to get the scheme approved from the creditors who are their own family members or their associates The propounders have also not disclosed to the Court the latest financial position of the Company. The Scheme is extremely vague. The conduct of the propounder of the Scheme is also a relevant consideration to be borne in mind while passing orders on application under Section 391 of the Act. The Company has been prolonging the proceedings of winding up petitions and the suits. The object behind the Scheme being to delay the progress of the various suits and the winding up petitions, the conduct of the profounder does not call for any discretion being exercised in their favor. In any case. it is not necessary to dilate on the Scheme in great detail as assuming the Scheme to be beneficial to the Company and its creditors, the meeting of creditors would still be an idle formality on account of opposition by 100% secured creditor, namely. State Bank of India.
(13) In view of the aforesaid discussion, CAs. 4096 and 4097 of 1989 are dismissed with costs and Ca 653/90 is allowed. The order of slay made on 3rd August 1989 is hereby vacated. Costs quantified at Rs. 6.000.00 to be equally shared by petitioning creditors of Cp 30/87, 149/87, Cp 80/86 and plaintiffs of Suits Nos. 2003/85, 512/88 and 801/85.