Crb Capital Markets Limited vs Reserve Bank Of India on 24 January, 2006

[Cites 30, Cited by 7]

Delhi High Court

Crb Capital Markets Limited vs Reserve Bank Of India on 24 January, 2006

Equivalent citations: II(2006)BC57, [2007]135COMPCAS86(DELHI), (2006)6COMPLJ485(DEL), 127(2006)DLT576, [2006]72SCL256(DELHI)

1. The Reserve Bank of India(in short the `RBI') under the powers conferred under Section 45MC(1)(d) of the Reserve Bank of India Act, 1934(hereinafter referred to as the `RBI Act') filed the winding up petition, CP.No.191/97 in this Court.

2. The relevant portion of Section 45MC(1)(d) of the RBI Act reads as follows:-

45MC. Power of Bank to file winding up petition.-(1) The Bank, on being satisfied that a non-banking financial company

d) the continuance of the non-banking financial company is detrimental to the public interest or to the interest of depositors of the company, may file an application for winding up of such non-banking financial company under the Companies Act, 1956 (1 of 1956).

3. Even though the original petition does not specify whether it was filed under Section 45MC(1)(d) of the RBI Act, during the hearing of the CA.1416/90 which was filed by the company convening the meeting of the creditors, the learned counsel for the applicant/RBI had submitted that this petition was filed under Section 45MC(1)(d) of the RBI Act.

4. The objects of the respondent Company were averred to be as follows:-

(a) To carry on the business of technical, financial and management consultant and advisers and to enter into collaboration agreement for the manufacture of items which the Company is entitled to produce, in India and abroad with the Companies, firms and individuals, Central and/or State Government and their concerns and to render and provide all type of services including managerial, personnel secretarial, designing engineering, preparation of feasibility and project reports, drawings, plant layouts, tenders for all the plants and machinery, equipments, Buildings and other structures and helping finalisation of contracts and erection and commissioning of plants.

(b) To carry on all or any of the business of Investment Company and to invest in and acquire and hold and otherwise deal in shares stocks, debentures, debenture stocks, bonds, Government Securities and any other securities, financiers of industrial, commercial and other enterprise and general financiers, provided that the Company shall not carry on the business of Banking as defined under the Banking Regulations Act, 1949.

(c) To acquire by purchase, lease, exchange, hire or otherwise develop or operate land, buildings and hereditaments of any tenure or description including agricultural land, mines, quarries, tea or coffee gardens, farms, gardens, or chards, groves plantations and any estate or interest therein, and any right over or connected with land and buildings so situated and develop or to turn the same to account as may seem expedient and in particular by preparing building sites and Page 0628by constructing, reconstructing, altering, improving, decorating, furnishing and maintaining hotels rooms flats, houses, restaurants, markets, shops workshops, mills, factories, warehouses, cold storage, warehouses godowns, offices, hostels, gardens, swimming pool, play grounds, buildings works and conveniences of all kinds and by leasing, hiring or disposing of the same.

5. The allegations in the winding up petition are as follows:-

(a) that the company was originally incorporated on 16th May, 1985 and became a public limited company on 4th March, 1991 and was re-christianed as CRB Capital Markets Limited on 18th November, 1991.

(b) that the company was initially provisionally classified as a limited company on 4th May, 1993 and the status was changed to Equipment Leasing Finance Company.

(c) that the company has applied for registration as a non-banking financial company (NBFC) on 24th October, 1996 and consequently the RBI carried out inspection of the company. Large scale complaints were received against the petitioner of in fact carrying loan and investment business and holding excess deposits to the tune of Rs.34.72 crores in violation of the NBFC (RBI directions 1997) as well as payment of brokerage in excess of the maximum permissible rates and acceptance of other deposits beyond the period permitted by the RBI and violation of other norms as well as the degradation of the credit rating from CARE (FD) C.

6. The following other allegations have also been made against the respondent Company:-

(a) that the complaints were received from Tourism Finance Corporation Limited.

(b) that the RBI also received information from State Bank of India about large scale misuse at par discounting facility.

(c) that on 26th April, 1997 the RBI asked the company to submit its Schedule of Assets which could be used for discharging its obligations and liabilities but the reply only disclosed liabilities and no mention was made about its assets as discernible from the letter dated 7th May, 1997 sent by the Company.

(d) that the company was also asked by the RBI by letter dated 15th May, 1997 to furnish a month-wise FDR maturity, loan of public deposits and it was found that all offices of the company were closed since 9th May, 1997 nor was the Chairman of the Company, Shri C.R. Bhansali traceable.

(e) that the company's directors informed that they had resigned from the Company Board from 6th March, 1997.

(f) that a complaint was also received from the Ministry of Revenue, Government of Gujarat that the cooperative banks in Gujarat had been duped by CRB Capital Markets Ltd., to the tune of Rs.50 crores.

(g) that the Chairman of the Company was directed to meet RBI to explain the financial position but he failed to appear before the RBI. In view of the above averments, the winding up petition had been filed and various interim orders were passed.

7. On 22nd March, 2002 in CA.No.1416/98 preferred by the respondent company, i.e., the propounder of the scheme for convening the meetings of the creditors of the company to seek their approval for the Scheme of Rearrangement formulated by the petitioner, this Court by its order dated 22nd March, 2002 while admitting the company petition directed the consideration of the Scheme propounded by the respondent company by the creditors of the company. A retired Judge of this Court as Chairman along with an Alternate Chairman was appointed.

8. Pending the consideration of the Scheme the Court had also directed that no further steps including publication be taken pursuant to the admission of the company petition No.191 of 1997.

9. The scheme was directed to be considered by the secured creditors, unsecured creditors and shareholders of the respondent company and accordingly meetings were held.

10. In the said meetings, convened under the orders of this court dated 22nd March, 2002, the Resolution as to the Scheme of Compromise and Arrangement as modified have been passed by over th majority in value and by simple majority also. The report of the Chairman of the Meeting has been filed in this Court and pursuant to the said report, the present company petition No.251/2002 has been filed for sanction of the said Scheme of Compromise and/or Arrangement as approved by the secured creditors, unsecured creditors and the shareholders of the propounder company.

11. The following parties have preferred and urged their respective objections to the proposed Scheme of Compromise and/or Arrangement:-

i. Reserve Bank of India (RBI) ii. Securities and Exchange Board of India (SEBI ii. Official Liquidator (OL) v. Malanpur Steel Ltd. (formerly `Hindustan Development Corporation Ltd.') v. Gujarat Industrial Investment Corporation Ltd.(GIIC)

12. The main objections in the present case have been preferred by the RBI which is in fact the company petitioner in the winding up petition bearing CP.No.191 of 1997.

13. The pleas of the RBI/Objector in CP.No.251 of 2002 are as follows:-

(a) Once the application under Section 45MC(1)(d) of the RBI Act has been admitted and grounds under Section 45MC(1)(d) are made out, only extraordinary circumstances would enable this Court to exercise its jurisdiction not to pass an order for winding up and no such circumstances have been shown by the petitioner company which is liable to be wound up.

(b) No order except the order of winding up would be prejudicial to public interest in the present case.

(c) Consequently this Court should direct winding up by taking into account not only the interest of the creditors and the shareholders of the company but also public interest.

Page 0630

(d) The petitioner company having lost its substratum deserves to be wound up particularly when it was incorporated for the sole purpose of accepting deposits and to act as a non-banking financial institution.

(e) The order dated 9th April, 1997 prevents the petitioner company from accepting the deposit from the public and the very purpose of the incorporation of the petitioner can no longer be achieved in the present case.

(f) Since the substratum of the petitioner company had gone, carrying on its usual business has become impossible as laid down in the following judgments:-

(i) Seth Mohanlal v. Grain Chamber Ltd.

22. Under Section 162 of the Indian Companies Act, the Court may make an order for winding up a Company if the Court is of the opinion that it is just and equitable that the Company be wound up. In making an order for winding up on the ground that it is just and equitable that a Company should be wound up, the Court will consider the interests of the shareholders as well as of the creditors. Substratum of the Company is said to have disappeared when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the Company except at a loss, or the existing and possible assets are insufficient to meet the existing liabilities.

(ii) Mohanlal Dhanjibhai Mehta Vs Chunilal B. Mehta (1962) 32 Com Cases 970, 984 (Guj). It is now well settled by authorities that when the substratum of the company is gone, it is just and equitable to wind up the company. It was Lord Cairns who first suggested in In re Suburban Hotel Co. That if the substratum of the company were gone, that might render it just and equitable to make a compulsory winding up order.

(g) In the present case the winding up of the petitioner company is the only remedy available in public interest.

(h) The scheme propounded by the company is contrary to the law and thus its approval is not in public interest and has been opposed by the RBI, OL, Malanpur Steel Ltd., GIIC, SEBI and other individual depositors.

(i) In the present form the proposed Scheme is not tenable as it restricts the statutory powers of the RBI as conferred under the provisions of the RBI Act.

(j) The term just and equitable has to be given effective meaning.

(k) Even a profitable company can be wound up if it is just and equitable to do so.

(l) The momentous decision to wound up a defunct company may reasonably be left to the RBI as per the law laid down by the Hon'ble Supreme Court in Palai Central Bank .

14. In reply to the objections of the Reserve Bank of India (in short 'RBI') and in support of the revival scheme propounded by the respondent company Page 0631the following pleas were made by the learned senior counsel for the respondents, Dr. A.M. Singhvi and Mr. Sudhanshu Batra:

(I) The respective meetings of Secured Creditors, Unsecured Creditors and Shareholders have accepted the modified scheme by overwhelming majority of 3/4th in value as well as by simple majority. A report to that effect has been filed by the Chairman of the meeting and it is the second motion which is pending in this Court so as to accord final approval to the scheme. All cooperative banks of Gujarat have given their consent to the scheme as evident from Annexure A. The winding of a company is a step resulting in civil death of the company and it is contrary to the public interest as lakhs of depositors and shareholders all over the country who would find that their investments will become sterile and they have not got any return on their investments.

(II) While performing the statutory functions, the RBI is required to take the general public interest in mind. While balancing the general public interest, the interest of the Banks and Financial Institutions and the secured and unsecured creditors is also to be taken into account. The revival of a financial company cannot be objected to merely because of certain alleged irregularities. The implications and closure of a company not only has an impact on the Banks and the Financial Institutions and its customers and debtors, but also on the future of the financial services in that region. Consequently competing interests have to be weighed and balanced.

(III) The provisions of Section 45MC(1)(d) are akin to the provisions of Section 433(1)(f) of the Companies Act. This Court, therefore, must follow the catena of judgments where it has been held that the winding up of a company should be ordered in the rarest of rare cases as it tantamounts to civil death of the company and the petition for winding up should not be resorted to as a matter of right.

(IV) The true test for determining whether the company should be wound up is its commercial insolvency on the date of petition of the winding up. The commercial insolvency must mean that existing assets and liabilities of the companies are such so as to make it reasonably certain that the said assets would be insufficient to meet the existing liabilities. The substratum of the company must be deemed to be gone (a) when the subject matter of the company is gone; (b) the object of the incorporation of the company has failed; (c) the business of the company cannot be carried out except at a loss ; (d) the existing probable assets are insufficient to meet the existing liabilities of the companies. It is submitted that none of the aforesaid tests apply in the present case in favor of the company and therefore, the company cannot and should not be wound up.

(V) The remedy of winding up is a discretionary remedy and the Court is not bound to allow the winding up petition even if the case to that effect on facts is made out. Normally, efforts should be made to save a company sought to be wound up.

(VI) The principle of 'just and equitable' cannot be used to wind up a company on mere allegations. Unless the Court is compelled by Page 0632circumstances, the winding up order on 'just and equitable' ground cannot be made.

(VII) The following objections have been raised by the RBI:-

(A) The resolution of the creditors of a Scheme of arrangement cannot annul the statutory provisions nor can it take away the statutory powers of the RBI under the RBI Act, therefore, such a resolution cannot be accepted by the Court.

(B) The Court cannot sanction a scheme containing the reliefs and concessions sought which have the effect of taking away the statutory powers of the RBI by directing it to grant registration/license to a company without following the procedures laid down under the RBI Act.

(C) The accounts of the Directors ought not to be de-freezed.

15. In reply to the above summarized objections raised by the learned counsel for the petitioner, the following pleas have been taken by the respondent company:

16 The following reliefs have been prayed by the respondent company qua its scheme propounded as per CP No.251/2002:

(i) All the Bank accounts of the Company as well its Group Companies and its ex-Directors and Officers which have been frozen be de-freezed and Reserve Bank of India be directed to give necessary instructions to the Banks for making such accounts operative.

(ii) Reserve Bank of India be directed to revoke its prohibitory orders passed u/s 45K(4) read with Section 45MB(1) of RBI Act, 1934.

(iii) Reserve Bank of India be directed to accept the Application for Registration as NBFC u/s 45(1A) of Reserve Bank of India Act 1934 on being filed by the Company.

(iv) Reserve Bank of India be directed to restore its suspension order against 'in principal approval' for setting up CRB Global Bank Limited.

(v) The RBI be directed to restore the licenses granted to the company to act as authorized dealer in foreign exchange.

17. Prohibitory orders dated 9th April, 1997 passed by the RBI were operative for six months from the date of the order and the winding up petition was filed on 21st May, 1997 and the provisional liquidator was appointed ex- parte on 22nd May, 1997. The RBI thus preempted the company from challenging the order dated 9th April, 1997 passed by it. Even otherwise the prohibitory orders dated 9th April, 1997 passed under Section 45MB(2) read with Section 45MB(1) of the RBI Act have become infructuous as the order dated 9th April, 1997 was operative only for a period of six months as per the provisions of Section 45MB(2) of the RBI Act.

18. In so far as the relief mentioned in para (ii) above is concerned, it was submitted that the relief can be modified to direct RBI to consider the application of the respondent company and to deal with it in accordance with law.

19. The reliefs claimed in para (i) and (iv) are not being pressed by the company. The company has sought the relief in so far as it is contained in para (v) that Page 0633the RBI be directed to consider the application of the respondent company for grant of such license and to deal with the same in accordance with law.

20. In so far as the RBI's plea in sub para (i) that the Director's Bank accounts ought not to be defreezed, this has already been done in the orders passed by this Court, dated 7th September, 2001 passed in CA No. 737/97 in CP No. 191/1997, where all bank accounts of the Directors have been defreezed after a protracted hearing. This order has not been challenged and has attained finality and this Court is now required only to give full effect to the above order.

21. The company has also relied upon the position of law laid down in the following judgments:-

(a) In the case of Lanco Kalahasthi Castings Ltd. Reported as [2004] 52 SCL 131 (AP) the Andhra Pradesh High Court held as under:- Para 15 However, Court cannot have jurisdiction like an appellate authority to minutely scrutinize the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members of their respective classes have approved the scheme as required by section 391 sub-section(2). The Court certainly would not act as a Court of appeal and sit in judgment over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the concerned parties. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority. Consequently, the Company Court's jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the Rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui Jurisdiction with their open eyes and fully informed about the pros and cons of the scheme arrive at their owned reasoned judgment and agree to be bound by such compromise or arrangement. The Court cannot, undertake the exercise of scrutinizing the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties.

(b) In Mather and Platt (India) Ltd., IN RE, (2002) 39 SCL 58 (BOM), the Bombay High Court held as under:-

8. In the present case, the requisite statutory procedure has been duly followed before the scheme has been placed for the sanction of the court. The scheme is backed by the requisite majority. The creditors have been duly given individual notices of the hearing of the petition. The members of the company have voted in favor of the scheme by an Page 0634overwhelming majority. All the necessary material as required by law was placed before the shareholders under section 393. The proposed scheme is not violative of any provision of law or public policy. There is absolutely no material on record to come to the conclusion that the members were not acting bona fide and in good faith or that they were attempting to coerce the minority in order to promote any interest adverse to the interest of the minority. The Scheme in the present case cannot be regarded as one which a produce businessman would not adopt. The scheme has the requisite support of an overwhelming majority of shareholders. The court must defer to the commercial wisdom of the shareholders.

15. The principle is well-established that this Court while exercising its powers under sections 391 and 394 of the Act, does not sit in appeal over the decision arrived at by the shareholders or the secured creditors or the unsecured creditors, and minutely examine whether the proposed scheme of arrangement, as approved by the shareholders or the secured creditors or the unsecured creditors, as the case may be, should be sanctioned or not. Suffice it to say, if the proposed scheme as approved by the shareholders or the secured creditors or the unsecured creditors as the case may be is in their best interests and it is appropriate that the scheme of arrangement should be sanctioned, and it is not for this Court to delve deep into the commercial wisdom exercised by the shareholders or the secured creditors or the unsecured creditors, for this Court lacks such an expertise.

(d) In DCM Estate and Infrastructure Ltd., IN RE (2003) 48 SCL 689 (Delhi), this Court held as under:- Para 41 ...(j) A living scheme like the instant one approved by the vast majority was preferable to compulsory liquidation.

22. In so far as the objections raised by the Official Liquidator are concerned, the only objection is that no definite or clear source of funding has been mentioned in the Scheme of Arrangement and on this aspect the scheme is vague. Since the scheme does not contemplate any commitments on behalf of the propounder it ought not to be sanctioned.

23. In reply to the above plea of the Official Liquidator as summarized above, the company has submitted that the source of funds and application of funds have been clearly indicated in a tabulated chart of the projected Balance Sheet for first six years and the said flow of funds was duly considered by all the creditors and the shareholders at the time of sanctioning the scheme and only after considering the same, the scheme was approved. The official liquidator must confine its pleas under second proviso to Section 394(1) of the Companies Act. The company has relied upon the position of law laid down by Madhya Pradesh High Court in the case of Nilnita Chemicals Ltd. (1997) 3 Com.LJ 101 (MP) CP:

Page 0635 The role of the Official Liquidator is limited to the extent as contemplated under second proviso to section 394(1) of the Companies Act. Apart from this provision under the act or the rules, the Official Liquidator cannot be permitted to take each and every sort of objections against sanction of the scheme of amalgamation. Thus, the Official Liquidator does not have the locus to object to the source of funds or the application of the funds when the creditors in their commercial wisdom have not thought fit to go into it and have approved the scheme by an overwhelming majority.

24. In so far as the objections on behalf of the Malanpur Steel Limited (in short 'MSL') are concerned, the objection is that a sum of Rs.43.55 crores is due and payable to it by the respondent and that it is a secured creditor on the basis of guarantee, post dated cheques and pledge of shares of M/s CRB Capital Markets Ltd. It is also contended that as per the law laid down in State of Tamil Nadu vs. Uma Investment Pvt. Ltd. 1997 Vol. 7 Company Cases 242 the cases under Section 138 of the Negotiable Instruments Act cannot be stayed by a blanket order of the Court.

25. In reply to the pleas of MSL, the company has submitted as follows:-

(a) The claim of Malanpur Steel Ltd. as a secured creditor to the extent of Rs.43.55 crores is false;

(b) The loan granted by the objector was Rs.10 crores and the said loan was not secured against any assets of the company;

(c) The mere fact of the guarantee or post dated cheques or pledge of shares does not make the objector the secured creditor;

(d) The shares were pledged by the associate company as guarantor for payment of the loan by CRB Capital Markets Ltd. Consequently, the MSL cannot be termed as a secured creditor. Reliance has been placed on Section 391(6) of the Companies Act to contend that a company court is empowered to stay all proceedings including the criminal proceedings pending against the directors and the company when a scheme of compromise or arrangement was moved before the Court as per the law laid down in the following judgments:

1.Divya Vasundhra Financiers (P) Ltd. And Harish C. Ras Kapoor and Ors. Jaferbhai Mohmed Chatpar (Guj.) 1987 (65) Comp. Cases 163 It has now been well settled by a catena of decisions that the term suit or other proceedings as employed in various other sub-sections of section 446 would cover all types of proceedings against the company including even criminal proceedings. If any authority were needed to highlight this proposition, it is supplied by a decision of the Delhi High Court in the case of Official Liquidator v. R.C. Abrol [1977] 4 Comp Case 537. D.K. Kapur J., in that case, held that the High Court had power under section 446(3) to transfer a pending complaint before the Magistrate for trial to itself. Having referred to sub-section (3) of section 446, the following observations were made (at page 542):

This shows that once a proceeding by or against a company has become a pending proceeding in any court, it can be transferred to Page 0636the court which is winding up a company. For instance, if the present complaint is filed before a Magistrate who takes cognizance of it, then the case would become a pending case before a Magistrate and could be transfer the same.

2. (1984)/Comp LJ 10 (Chd) J. Burrow (Leeds) Ltd. wherein it was held that the proceedings in the Magistrate's Court were a 'proceeding' within the meaning of Section 226(b) of the Companies Act, 1948 (UK) and accordingly, the Court could stay the proceedings, if satisfied that the determination of the question or the required exercise of the power under Section 307(2) of the 1948 Act (UK) is just and beneficial.

3.Shri Basant Lal Aggarwal vs. Lloyds Finance Ltd. and Ors. in CA No. (L) 223/2004 in CP No. 1017/2002 (Bombay High Court) wherein the High Court of Bombay stayed over 6000 proceedings pending against the respondent and its directors in civil and criminal courts.

4. In the matter of DCM Financial Services Limited, CA No. 399/2001 order dated 14th March, 2001 wherein this Court had stayed the criminal proceedings under Section 391(6) of the Companies Act, 1956.

26. Section 391(6) of the Companies Act reads as follows:-

391. Power to compromise or make arrangements with creditors and members -1) x x x ...

(6) The court may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the court thinks fit, until the application is finally disposed of.

27. In so far as the objections by GIIC are concerned, the objection is that a corporate credit in the sum of Rs.10 crores was given by it to the company by hypothecation of plant and machinery of the company situated at Daman in Mumbai and Rajgarh which is duly registered as a charge with the Registrar of Companies. The objector had also granted bill discounting facilities aggregating to Rs.12.5 crores to the company and such facility was secured by pledge of shares of M/s CRB Capital Markets Ltd. The claim therefore is that the objector is a secured creditor and has wrongly been placed in the category of an unsecured creditor for the facility of Rs.12.5 crores though it was categorized as a secured creditor to the extent of Rs.10 crores.

28. In reply to the above pleas of the objector GIIC, it has been contended by the company that the objector has been rightly placed in the category of secured creditor by virtue of hypothecation of the plant and machinery of the company for the line of credit of Rs.10 crores, because such line of credit was registered as a charge on 5th October, 1996 with the Registrar of Companies which clearly specify that the charge was of Rs.10 crores only. As far as the other facility of Rs.12.5 crores is concerned, the objector was not considered as secured creditor as such pledging of shares was for guarantee for loan payable by the company to the objector. The objector had chosen not to attend the meeting of the unsecured creditors despite having been served the notice of the same. Consequently, the objector cannot contend Page 0637that because it had given a corporate line of credit, it should be treated as a secured creditor for the other financial facilities i.e. Bill Discounting Facility in the absence of the registration of the charge, and ought to be rejected.

29. The CBI has raised the plea that two cases have been registered against the Directors and the company and a FIR has been registered pursuant to the complaint of State Bank of India(hereinafter referred to as `SBI') and another pursuant to a complaint of Bank of Baroda. Charge-sheet has been filed in the competent court of law at Mumbai under Section 5(e) of 97 u/s 120(b), 468, 471 and 13(2)(b) of Prevention of Corruption Act 1(e) of 98 u/s 120(b), 468, 471 and 13(2)(b) of the Prevention of Corruption Act and also under Section 420 IPC in District Courts at Mumbai. The CBI cannot concede to stay such concession sought by the company and such concession cannot be sanctioned.

30. In reply to the above objection of the CBI, the respondents have contended that since the Bank of Baroda has already consented to the sanction of the proposed scheme by its letter dated 12th October, 2002 and has given a no objection for stay of all civil and criminal proceedings, in so far as Bank of Baroda is concerned, this plea cannot be entertained. The SBI neither attended the meeting of the creditors nor filed objections against the revival of the company. The SBI has also obtained a consent decree from the competent Court of law in Mumbai prior to the institution of the winding up petition by the Reserve Bank of India. In any event, this Court has ample powers under Section 391(6) of the Companies Act so as to stay all civil and criminal proceedings against the company and its officers during the implementation of the scheme of arrangement. In fact in the orders dated 9th October, 1998, 1st December, 2004 and 27th January, 2005 in CA No. 180/98 in CP No. 191/97 and CA No. 1336/2004 in CP No. 251/2002 respectively criminal proceedings against the company have already been stayed.

31. In my view, in the approval of the scheme by the shareholders and the creditors, as per the report of the Chairman, the following was the pattern of voting:-

STATUS OF SECURED CREDItorS MEETING (PRESENT and VOTING) 81.55% are in favor of scheme 18.45% have dissented to the scheme. OVERALL STATUS OF SECURED CREDItorS 82.95% have given their consent (along with written consent) 13.63% have given their dissent(objection filed only by GIIC) 3.42% neither objected to the scheme nor gave assent STATUS OF UNSECURED CREDItorS MEETING (PRESENT and VOTING) 98.81% voted in favor of the scheme 1.19% voted against the scheme STATUS OF SHAREHOLDERS MEETING (PRESENT and VOTING) 100% voted in favor of the scheme.

32. I have noticed that the salient features of the scheme approved by the shareholders and creditors in the meeting summoned under the orders of this Court dated 22nd March, 2002 are:-

Page 0638 ...THAT payment to the secured creditors shall be made as follows:-

i) The payment equivalent to 10% of the offered amount shall be made within 3 months from the date of sanctioning of the scheme by the Hon'ble High Court.

ii) The balance 90% of the offered amount shall be paid in 10 equal quarterly Installments beginning from the month following the expiry of 6 months from the date of sanctioning of the scheme by the Hon'ble High Court.

iii) No interest shall be payable.

iv) The offered amount payable to the respective secured creditors shall be as indicated below-

Secured Creditor Offered Amount 1 Bank of India 41,200,000.00 2 United Western Bank Ltd. 18,684,302.00 3 SIDBI 4,800,000.00 4 Union Bank of India 1,851,856.00 5 Karur Vysya Bank Ltd. 14,523,534.00 6 Federal Bank Ltd. 9,220,000.00 7 State Bank of Travancore 26,291,972.00 8 Bank of Tokyo 39,000,000.00 9 Dena Bank 10,500,312.00 10 Bank of Baroda 19,500,000.00 11 Bank of Rajasthan 26,059,631.00 12 Canfin Homes Ltd. 7,200,000.00 13 GIIC Ltd. 100,000,000.00 14 APIDC Ltd. 19,046,482.00 15 Tuscon Exports Ltd. 52,500,000.00 16 Global Finance Corporation Ltd. 41,400,000.00 17 Rashmirita Exports Ltd. 65,000,000.00 18 Shree Bhikshu Edn. and Health Care Ltd. 112,500,000.00

19. Sucharu Enterprises 32,839,653.00

20. Star Enter. and Fin. Gen. P. Ltd. 11,783,036.00

21. National Telecom (I) Ltd. 29,000,000.00

22. Peachtree Inv.P. Ltd. 71,000,000.00

23. Surya Prakash Mansinghka 2,500,000.00

24. Suresh Kumar Mansinghka 1,000,000.00

25. Shiv Kumar Mansinghka 550,000.00

26. Ram Krishna Rohit Kumar Mansinghka 2,500,000.00

27. Nikita Devi Mansinghka 1,500,000.00

28. Hemant Kumar Mansinghka 2,500,000.00

29. Basant Kumar Mansinghka 2,500,000.00

30. Baladevi Mansinghka 1,000,000.00 FURTHER RESOLVED THAT the Secured Creditors shall be entitled to liquidate the securities held by them by private negotiations in consultation with the propounder of the scheme of Arrangement and the amount so received shall be adjusted against the offered amount remaining due or in case Page 0639of excess recovery, the excess amount shall be deposited with the company forthwith. Failing liquidation of any of the securities held by the secured creditors the same shall be released in favor of the Company simultaneously upon receipt of the last Installment due in terms of the above schedule of payment. It shall be an endeavor of the secured creditors holding securities to liquidate the same with private negotiations in consultation with the propounder as a first step for recovery of the dues.

It is further RESOLVED THAT the original scheme filed by the propounder of the scheme shall be suitably modified to the extent indicated above....

...THAT payment to the unsecured Creditors shall be made as follows:-

(A) DEPOSIT and BOND HOLDERS

i) DEPOSIT/BOND HOLDERS up to Rs.5,000/- Payment equivalent to 100% of the deposit to deposit holders/Bond holders who have invested up to Rs.5,000/- and to widows/retired Govt. Servants/disabled persons above 65 years not exceeding Rs.10 crores, in aggregate, shall be made within one year from the date of sanctioning of the scheme of Arrangement/Compromise.

ii) DEPOSItorS and BOND HOLDERS ABOVE RS.5,000/-

a) The Payment equivalent to 50% of the principal amount deposited/invested shall be made in 5 equal yearly Installments commencing immediately upon expiry of twelve months from the date of sanctioning of the scheme by the Hon'ble Delhi High Court.

b) Payment equivalent to balance 50% of the principal amount deposited/invested shall be discharged in the form of allotment of shares of CRB Capital Markets Ltd. of Rs.10/- each at par immediately upon receipt of approval from the competent authority.

CO-OPERATIVE BANKS Considering the fact that the depositors of the various Co-Operative Banks are small and needy, payment to the Co-Operative Banks shall be made as follows:-

i) Payment equivalent to 25% of the principal amount shall be made within 3 months from the date of sanctioning of the scheme of Arrangement/Compromise by the Hon'ble Delhi High Court.

ii) Payment of balance 75% of the principal amount shall be made in 16 equal quarterly Installments commencing from the month following the expiry of six months from the date of sanction of the scheme of Arrangement/Compromise by the Hon'ble Delhi High Court.

iii) In view of the fact that two of the Co-Operative Banks namely The Gozaria Nagrik Sahkari Bank Ltd. and Boriavi Peoples Co-Operative Banks Ltd. who have been declared as Weak Banks by their Apex Body, payment shall be made to the said Banks as follows:

a) Payment equivalent to 25% of the principal amount shall be made within 3 months from the date of sanctioning of the scheme by the Hon'ble Delhi High Curt.

b) Payment of balance 75% of the principal amount shall be made in eight equal quarterly Installments commencing from the month following the expiry of six months from the date of sanctioning Page 0640of the scheme of Arrangement/Compromise by Hon'ble Delhi High Court. STATE BANK OF INDIA (Unsecured Creditor) Since the charge over the securities held by State Bank of India have not been registered with the Registrar of Companies, State Bank of India is considered as an unsecured creditor. All the assets whether moveable or immovable held by the State Bank of India except asset owned by CRB Corporation Ltd. shall be liquidated by the Bank in private negotiations in consultation with the propounder of the scheme for recovery of the principal amount. Any shortfall and/ or deficiency in discharge of the dues of the Bank against recovery from the various assets held by SBI, the same shall be paid and/ or discharged by the company at par in terms of the payment of schedule as applicable to other unsecured creditors. No interest, however, shall be payable to the Bank on the principal amount determined. OTHER UNSECURED CREDItorS

i) Payment equivalent to 50% of the principal amount shall be made in 5 equal yearly Installments commencing immediately upon expiry of 12 months from the date of Sanction of the scheme by the Hon'ble Delhi High Court.

ii) Payment equivalent to balance 50% of the principal amount shall be discharged in the form of allotment of CRB Capital Markets Ltd. at the rate of Rs.10/- each at par immediately upon receipt of approval from the competent authority. FURTHER RESOLVED THAT the documents of immovable properties / shares held by all the above categories of unsecured creditors shall be released in favor of the company upon receipt of last Installment due to them in terms of the above schedule of payment.

FURTHER RESOLVED THAT upon sanction of the scheme of Arrangement by the Hon'ble Delhi High Court as modified in terms contained herein above, all cases whether civil or criminal pending before any Court/Tribunal/Authority shall be kept in abeyance and shall be withdrawn simultaneously upon receipt of last Installment of the dues by the Creditors in terms of the above schedule of payment.

FURTHER RESOLVED THAT the original scheme filed by the propounder of the scheme shall be suitably modified to the extent indicated above.

33. In support of the proposed scheme propounded by this application, the plea of the respondent company is that the modified scheme of compromise shall achieve the feasible debt repayment. In my view the public interest inherent in the scheme is evident from the fact that this seeks to benefit 1,34,000 deposit holders and about 36 cooperative banks and many of the deposit holders are retired Government personnel and senior citizens including widows and several other similarly situated deposit holders who are needy and dependent on the recurring income from the deposits made with the Company. Similarly, there are large number of deposit holders who had invested in various cooperative Banks which had lent deposits to the company, and such unsecured creditors would also be benefited by the modified scheme as it provides for accelerated payment to the unsecured creditors. The scheme Page 0641contemplates recovery plans for recovering arrears of lease, hire purchase installments, loan and advances, reorganisation of share capital of the Company by issuing shares of Rs.10/- each at par in part discharge of the dues of unsecured creditors including Deposit holders and bond holders and engagement in non-fund based business activities. The scheme also contemplates diversification of the company's business in areas such as information technology, Bio-tech and the growing market of Media. The Scheme also involves induction of funds by the propounder of the scheme to the extent of Rs.10 crores. I have also noted that the scheme postulates that the secured creditors are to be paid 10% of the offered amount within three months from the date of sanctioning the scheme and the balance 90% of the offered amount is to be paid in 10 equal quarterly Installments commencing from the month following the expiry of 6 months from the date of sanctioning of the Scheme. In so far as the unsecured creditors are concerned, out of them, the deposit and bond holders up to Rs.5,000/- will receive 100% of the said deposit. The scheme contemplates payment of 100% of the deposit to the deposit holders who have invested up to Rs.5,000 (widows/retired Govt. Servants/disabled and persons above 65 years) not exceeding Rs.10 crores to be paid within one year from the date of sanction of the scheme. Thus the small investors holding deposits up to Rs.5,000/- get their money within a year. I am however not satisfied that the upper limit of Rs.10 crores for such depositors facilitates public interest. In Tata Oil Mills Co. Ltd. and Hindustan Level Limited [1994] 3 Com. LJ 46, the Bombay High Court held as under:-

The role which the court has to play, before according its section (sanction) under section 391(2) of the Companies Act, 1956, is more vital and potent; it is not only an inquisitorial and supervisory role but is also a pragmatic role which requires the forming of an independent and informal judgment as regards the feasibility or proper working of the scheme and making suitable modifications in the scheme and issuing appropriate directions with that end in view.

Accordingly, the limit of Rs.10 crores for the payment of depositors up to Rs.5,000/- is being removed and the scheme is modified to that extent. The scheme is also modified for the benefit of the weaker sections of the society and it is directed that widows, disabled persons, retired government servants and persons above 65 years of age i.e. senior citizens, will get their entire deposit repaid without any limit within one year after the sanction of the scheme. In so far as other unsecured creditors are concerned such as the deposit holders and the bond holders above the value of Rs.5,000/-, they are to be paid an amount equivalent to 50% of the principal amount in five equal yearly installments comencing from the date of sanctioning of the scheme and balance of 50% of the principal amount is to be discharged in the form of allotment of shares of CRB Capital Markets Ltd. Of Rs.10/- each at par as soon as approval from the competent authority is received.

34. In so far as the cooperative Banks are concerned, 25% of the principal amount is to be paid within three months from the date of sanction of the scheme and the balance 75% of the principal amount is to be paid in 16 equal quarterly installments commencing from the month following the expiry of six months from the date of sanction of the Scheme. Special provision has been made for payment to two weak cooperative Banks namely The Gozaria Nagrik Sahkari Bank Ltd and Boriavi Peoples Co-operative Bank Ltd. It is provided that the payment equivalent to 25% of the principal amount shall be made within three months from the date of sanctioning of the scheme and the balance 75% in 16 equal quarterly installments commencing from the month following Page 0642the expiry of six months from the date of sanction of the scheme. All such payments to the co-operative banks also promote public interest because the co-operative banks have lent funds to the company from their corpus constituted by small depositors.

35. In so far as another unsecured creditor SBI is concerned, all the assets held by the State Bank of India except the assets owned by CRB Corporation Ltd. are to be liquidated by the Bank in private negotiations in consultation with the propounder of the scheme for recovery of the principal amount. The shortfall in discharge against the recovery from the assets held by SBI, shall be paid or discharged by the company at par in terms of the payment of scheme as applicable to other unsecured creditors.

36. In so far as other unsecured creditors including depositors and Bond Holders above Rs.5000/- are concerned, payment of 50% of the principal amount is to be paid in five equal yearly installments commencing upon expiry of 12 months from the date of sanction of the scheme and the balance 50% of principal amount is to be paid in the form of allotment of shares of CRB Capital Markets Ltd. @ Rs.10/- each at par, upon the approval of the competent authority. In my view the period of payment of other unsecured creditors including depositors and bond holders above Rs.5,000/-, to the extent of the balance 50% spread over five years is too long and this period to pay the balance sum of 50% of unsecured creditors shall stand reduced from a period of 5 years to 4 years commencing immediately upon the expiry of 12 months from the date of sanction of the scheme and the scheme shall stand modified accordingly.

37. I now proceed to deal with the reliefs/concessions sought by the company from the RBI as detailed in paragraph 16. In so far as relief (i) sought from the Reserve Bank of India are concerned, on 7th September, 1998, this Court had already passed orders in CA No. 737/1997 in CP No. 191/1997 defreezing the Bank Account of the company and such orders of this Court in CA 737/1997 shall continue. I direct that the frozen amounts of the company, as well as its group companies and its ex-directors shall stand defreezed. Consequent instructions to the Banks are to be issued by the RBI if not already issued. The amounts outstanding in the defrozen amounts on the date of the sanction of the scheme shall be furnished to the Administrator within eight weeks of the date of defreezing. The quarterly statements of such accounts shall be submitted to the Administrator appointed by this order. In so far as prayer (ii) is concerned, as contended by the company it has become infructuous by passage of time. In so far as prayer (iii) is concerned, the Reserve Bank of India is directed to consider the application for registration of the company as NBFC under Section 45MB(1) of RBI Act, in accordance with law. In so far as prayer (iv) which seeks a direction against the RBI to restore its suspension Page 0643order against in principal approval for setting up CRB Global Bank Limited has not been pressed. In so far as prayer (v) is concerned, the Reserve Bank of India is directed to consider the plea of the petitioner for restoration of licenses granted to the company to act as authorised dealer in foreign exchange in accordance with law.

38. In view of the above conclusion, I am primarily required to consider the plea of public interest raised by the Reserve Bank of India the co- petitioner. The public interest in general which the Reserve Bank of India represents can not certainly be lost sight of. The public interest which is however more significant and determinative and must be considered by the Court is the interest of the secured and unsecured creditors including the deposit holders and the shareholders. I cannot lose sight of the fact that the secured and unsecured creditors as well as the shareholders who are the real stake holders in the company have overwhelmingly voted in support of the scheme in the meeting summoned by this Court. In my view, this is a paramount consideration which must be kept in mind when a Court is considering the sanctioning of a scheme.

39. The RBI has contended that the resolution of the creditors of a scheme of arrangement cannot annul the statutory powers of the RBI under the Act and consequently the court cannot accept such a scheme. However, in my view this contention of the RBI is untenable since this Court before granting approval to any such scheme is only required to consider the 4 conditions as provided in the proviso to Section 391(2) of the Companies Act. In Maharashtra Apex Corporation Ltd. In Re, reported as [2004] Comp Case 637(Karn), the Karnataka High Court has laid down the position of law in the following terms:-

Para 44 Section 391(2) of the Act has been enacted so as to ensure that compromise or arrangement should receive substantial support from the creditors/shareholders. It is for this purpose that a twofold requirement has been prescribed. Firstly, it must be approved by a majority in number of the members present and voting and in addition, such majority should also represent three-fourths value of the creditors/shareholders who are present and voting. This ensures that the persons representing nominal value of shares or credits, though may be in majority, may not take a decision which adversely affects the rights of the persons who have substantial shareholding or credit, but are in minority in numbers. Conversely, it also protects the rights of the small creditors/shareholders against persons holding large shareholdings or representing substantial credit.

Para 58...In a case of a scheme of compromise or arrangement between the company and its members and creditors, it is the proviso to section 391(2) which has to be complied with. Before the court can accord sanction,to such a compromise or arrangement as is clear from the said proviso, 4 conditions have to be fulfillled, namely:-

1. The company should disclose to the court by an affidavit or otherwise all material facts relating to the company.

2. The company should produce the latest financial condition of the company showing its financial position.

Page 0644

3. The latest auditors report on the accounts of the company.

4. It should disclose the pendency or otherwise of any investigation proceedings in relation to the company under sections 235 and 251 and the like. Therefore, in the aforesaid provisions there is no specific provision which prohibits the court from according sanction if the terms of the scheme are contrary to any of the statutory provisions contained in the Companies Act or the Reserve Bank of India Act or any other law which is applicable to the company.

Para 65 From the aforesaid provisions and the judgments relied on, it is clear that the powers of the court under sections 391 to 394 of the Companies Act are unhindered by any of those provisions. The only two circumstances under which the company court is prevented from according sanction is contained in proviso to sections 391 and 394 where the official liquidator or the Registrar of Companies files a report stating that the affairs of the company is conducted in a manner prejudicial to the members of the company and the company. In so far as the power of the court to accord sanction, proviso to section 392 is concerned, once the conditions are fulfillled, there is no impediment for the court to accord sanction. Once these statutory requirements are comReserve Bank of India Actplied with, though the provisions of the scheme contravened the legislative mandate, it is permissible to make provisions in the scheme contrary to the other statutory provisions. The order of the company court, according sanction, will have the effect of overriding those other statutory provisions. (underlining supplied) Para 67 The Reserve Bank of India has passed an order restraining the company from alienating the property. Under the scheme the company is seeking permission of the court to alienate the assets of the company to enable it to raise funds to pay the creditors and deposits. Unless the permission sought for is granted the company will not be able to implement the scheme. Therefore, notwithstanding the statutory provision under which the Reserve Bank of India has exercised its power restraining the company from alienating its assets, as under the scheme it is proposed that the assets have to be sold and the sale proceeds are to be utilized for paying the creditors and depositors, according sanction to a scheme containing any such provision would not be against the interest of the public or the interest of the company, its members and creditors. It cannot be said that such a clause is contrary to law.

40. The RBI has relied upon the judgments in Seth Mohan Lal's case (supra) and Seth Mohan Lal Dhanji Bhai Mehta's case to contend that when the substratum of the company is gone, it is just and equitable to wind up the company. However, in my view this plea cannot be accepted since the scheme involves induction of funds by the propounder of the scheme to the extent of Rs.10 crores, benefits to 36 cooperative banks and 1,34,000 small deposit holders, and the 100% payment of deposits within 1 year of the date of the sanction of the scheme to the widows, government servants, disabled and senior citizens and the scheme is thus in the public interest. Such affected persons are the weaker sections of the society are thus fully guaranteed repayment that too under the supervision of the Administrator Page 0645being appointed by this Court. Since Rs.17 crores plus interest thereon have already been generated and Rs.10 crores are to be infused by the promoters it cannot be said that the company has lost its substratum.

41. In so far as the plea of Malanpur Steel is concerned, I am of the view that there is merit in the plea of the company that the loan granted by the Objector/Malanpur Steel to the extent of Rs.10 crores was not secured by any asset of the company. There is merit in the plea of the company that the guarantee, post dated cheques or the pledge of shares cannot make the objector a secured creditor. The objector has not shown that the loan given was secured or is registered as a charge with the Office of the Registrar of Companies. Accordingly, it cannot be held that the objector Malapur Steel has become a secured creditor. 42. In so far as the plea of GIIC is concerned, I am of the view that it is a secured creditor only to the extent of Rs. 10 crores as the credit of Rs.10 crores was registered as a charge on 5th October, 1996 with the Registrar of Companies. In so far as the other facilities for bill discounting to the extent of Rs.12.5 crores are concerned, the objector cannot be considered as a secured creditor as the shares pledged with the objector were pledged by the associate company of M/s CRB Capital Markets as a guarantor for due payment of the loan payable by the company. The meeting of the unsecured creditors was not attended by the objector/GIIC inspite of being served notice of the same. In this regard, the following position of law has been laid down by the Karnataka High Court in Maharashtra Apex Corporation's case (supra):-

Para 49 In fact, in Bessemer Steel and Ordinance Co.'s case [1875-76] 1 Ch D 251, it was held that when all the creditors of the company received notice of the meeting, it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or not, or they took so little interest in the matter that they did not think it worth their while to attend. At all events, under the Act of Parliament, only those creditors who were present at the meeting are to be attended to, and that three- fourths in value of those present are sufficient to sanction the contract. Therefore, if the creditors who have been duly served with the notices of the meeting which was also accompanied by the scheme, if they do not close to be present in the meeting and express their view one way or the other, the only inference that could be drawn is prima facie, they have no objection for the said scheme being approved. Any other interpretation in this regard would make it impossible for any company to get any of the schemes approved. If a mere absence of the shareholder or a creditor of the company has to be construed as opposition to the scheme which is proposed, then it would render section 391(2) of the Act redundant and certainly that was not the intention of the Legislature. When the persons who had ample opportunity to oppose such a scheme, who are invited to attend the meeting and to cast their vote against the said scheme, do not choose to attend the meeting, participate in the meeting or express their views by casting vote against it, it only means that they have no objection for sanction of the scheme, and by absence and not opposing the scheme, they have given their implied consent, though Page 0646not an express consent by being present in the meeting and voting for the scheme.

43. I am in agreement with the position of law laid down in the above mentioned case. Therefore, if the GIIC did not attend the meeting of unsecured creditors inspite of being served notice of the same, it cannot now contend that it should be treated as a secured creditor for the Bill discounting facility of Rs.12.5 crores. If it was of the opinion that it was a secured creditor with respect to the amount of Rs.12.5 crores, it ought to have attended the meeting of unsecured creditors and placed its objections on being termed as an unsecured creditor in respect of the sum of Rs.12.5 crores. In any event dues of Rs.12.5 crores of GIIC will also be liquidated in favor of GIIC along with other unsecured creditors as per the scheme. Its objections thus cannot be entertained and are accordingly dismissed.

44. In so far as the plea raised by the CBI is concerned, the cases have been registered pursuant to the complaint of State Bank of India and Bank of Baroda. The Bank of Baroda has also consented to the scheme by letter dated 12th October, 2002 which is on record and has not objected for stay of all civil and criminal action intiated against the company/Directors, be kept in abeyance till the last Installment as envisaged under the same is paid. The State Bank of India has neither attended the meeting of the creditors nor filed objections against the revival of the company and had obtained a consent decree from the competent Court of law at Mumbai prior to institution of the winding up petition by Reserve Bank of India. In this view of the matter, since the Bank of Baroda had already assented to the action against the company/directors being kept in abeyance and the State Bank of India never objected to the scheme and indeed obtained a consent decree in respect of its dues, the objection of the CBI cannot be countenanced. As per the laid down by this Court in the matter of DCM Financial Services Limited (supra) and by Bombay High Court in Basant Lal's case (supra), the Company Court can stay the criminal proceedings. The prayer of stay of criminal proceeding in the petition is entitled to be granted and accordingly such cases filed by the CBI shall be kept in abeyance and interim orders dated 9th October, 1998, 1st December, 2004 and 27th January, 2005 in CA No. 180/98 in CP No. 191/97 and CA No. 1336/2004 in CP No. 251/2002 staying the criminal proceedings against the company shall continue.

45. In so far as the plea raised by the Official Liquidator is concerned, it has contended that no definite or clear source of funding has been mentioned in the Scheme of Arrangement. I have noticed that the scheme clearly indicates the projected Balance Sheet for first six years and only after consideration of such flow of funds, the creditors and shareholders had assented to the approval of the scheme. The promoters are to put in Rs.10 crores and Rs.17 crores have already been realized in the company's account apart from interest. In this view of the matter particularly when the creditors and the shareholders have accepted the scheme, the objection raised by the Official Liquidator cannot be countenanced and is rejected.

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46. Thus, in accordance with the position of law laid down in the above mentioned case, I am of the view that since the scheme of the respondent company fulfills the above mentioned conditions, there is no bar on this court to accord sanction to the same. Further, the according of sanction to the scheme by this Court, keeping in mind the above mentioned conditions shows that this Court is sanctioning the scheme in accordance with the statutory provisions of law.

47. Considering the overall facts of the case, it is evident that if an order of winding up is passed, none of the creditors secured or unsecured or depositors are likely to realize their dues within the foreseeable future or at all. Similarly the shareholders would also substantially lose their investment when winding up is ordered. A winding up order would eventually have the effect of ensuring the civil death of the company. The Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. , has defined the jurisdiction of the company court in the following manner:

(1) The sanctioning court has to see to it that all 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 sanction 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 disenting 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 section 391(2) 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 scheme.

(7) That the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of Page 0648the 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 requirement 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 view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.

The aforesaid parameters of the scope and ambit of jurisdiction of the company court which is called upon to sanction a scheme of compromise or arrangement are not exhaustive but only broadly illustrative of the contours of the court's jurisdiction.

48. The respondents have also relied on the following position of law:-

Para 71 This section (Section 392 of the Companies Act) comes to play after the scheme is sanctioned by the court under section 391 of the Act. After sanction of the scheme, the court has the power to supervise and carry out the compromise or arrangement. In the course of such supervision or at the time of making the order sanctioning the scheme or at any time thereof, the court can give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for proper working of the compromise or arrangement. In fact, sub-section(2) of section 392 of the Act confers the wide powers on the court. After the scheme is sanctioned if the court is of the opinion that the scheme cannot be worked satisfactorily with or without modifications, it may either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up of the company and such order shall be deemed to be an order made under section 433 of the Act.

Thus, in view of the position of law laid down in the above mentioned judgment, the sanctioning of the scheme by the court does not per se make the scheme absolute. It can still be modified if the Court considers the modification proper for the working of the compromise/arrangement. The Court can certainly order winding up in case the scheme does not bring about benefits as postulated in the scheme to secured creditors, unsecured creditors and the shareholders.

49. I am, therefore, of the view that the following factors indicate the public interest inherent in the sanction of the scheme :-

(a) The payment to small depositors under the scheme up to Rs.5,000/- in toto within 9 months as per the modified period of one year to 9 months by this Court.

Page 0649

(b) Payments in full to the weaker sections of society such as widows, government servants, disabled and senior citizens within one year of the sanctioning of the scheme.

(c) 50% cash payment of the principal to even the unsecured creditors in 4 yearly Installments as per the scheme modified by this Court and the securing of balance by allotment of shares in their favor. (d) The approval of the scheme of the shareholders, creditors (secured) and unsecured, by the majority stipulated in Section 391 of the Act.

(e) The benefit which is to accrue to 1,34,000 small deposit holders.

(f) The benefit accruing to 36 co-operative Banks.

(g) The fact that already Rs.17 crores have been realized and deposited in the accounts of the company in a nationalized bank during the pendency of this petition in this Court and realization of substantial interest on such Fixed Deposits of Rs.17 crores.

50. Section 391 and 392 of the Companies Act reads as follows:

391. Power to cormpromise or make arrangements with creditors and members.--

(1) Where a compromise or arrangement is proposed--

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them; the court may, on the application of the company or of any creditor or member of the company or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the court directs.

(2) If a majority in number of representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed [under the rules made under section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company:

[Provided that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.]....

392. Power of High Court to enforce compromises and arrangements.Page 0650--(1) Where a High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it--

(a) shall have power to supervise the carrying out of the compromise or arrangement; and

(b) may, at the time of making such order or at any time thereafter, given such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement....

51. This Court while making an order under Section 391 of the Act for sanctioning of compromise/arrangement has the power under Section 392(1)(a) and

(b) to supervise the carrying out of the compromise or arrangement and has also has the power to given such directions in respect of any matter to make a modification in the compromise or arrangement as it may consider necessary for the proper working of the compromise/arrangement.

52. Accordingly, while approving the scheme it is necessary to given the following directions for supervision and modification of the scheme:-

(I) The condition with regard to the Deposit/Bond holders up to Rs,5,000/- is modified and the term for repayment is thus reduced from the period of one year to a period of 9 months. Further the words not exceeding Rs.10 crores in aggregate is deleted as such a limit may hurt the small depositors. Furthermore, the scheme is modified and widows, retired government servants, disabled persons and senior citizens above 65 years shall be paid their entire principal amount deposited within one year from the date of sanctioning of the scheme.

(II) With regard to the unsecured creditors including deposit and bond holders above Rs.5000/-, (except the categories of widows, retired government servants and persons above 65 years) whose period of repayment as per the scheme is 5 annual equal Installments commencing from 12 months from the date of sanction of the scheme is modified and now reduced to 4 annual equal Installments constituting 50% of the principal amount beginning from the expiry of 12 months from the date of sanction of the scheme.

(III) With regard to the relief and concession sought in part IV of the scheme under the heading Reserve Bank of India i.e. (i) to (v) from the Reserve Bank of India the petitioners have during the course of hearing given up the reliefs/concessions sought in clauses (ii) to (v) under the heading Reserve Bank of India and are not been pressed and accordingly the said clauses (ii) to (v) shall stand deleted from the Scheme. In so far as relief (i) is concerned directions have already been given in para 37 above.

(IV) As regard para 5 of part IV of the scheme which related to the Trust Petition filed by SEBI before the Bombay High Court it is contended by the parties that Trust Petition No.3 filed by SEBI before the Hon'ble Mumbai High Court is presently pending before the Supreme Court of India for Page 0651transferring the same and accordingly the said para 5 shall stand deleted from the scheme.

(V) In order to protect the interest of the public i.e. the depositors/bond holders/secured and unsecured creditors and to oversee the implementation of the scheme as contemplated by Section 392 of the Act, Justice C.M. Nayyar, a former Judge of this Court and the former Chairman of the MRTP Commission, is appointed as Administrator of the scheme to oversee the implementation of the scheme. The board of directors of the company shall keep the administrator informed about the implementation of the Scheme and furnish information of accounts as directed in this judgment and to comply with the directions towards implementation of the scheme from time to time given by the administrator. It will be open to the administrator to seek accounts and information about implementation of the scheme from the company as and when thought fit and such accounts and information shall be expeditiously furnished to the Administrator. The Administrator is authorised to appoint/nominate an advocate and other professional and clerical staff to assist him upon terms and conditions determined by the Administrator. The Administrator shall ensure the implementation of the scheme as sanctioned and to see that the public interest as noted by this Court is subserved, if necessary by giving appropriate directions to the company. The Administrator through the nominated advocate, shall file a statement in his Court showing the payment made as per the scheme within one month from the date prescribed for making such payment and shall also file the statement of recoveries and amounts realized by the company once a year in this Court. The decision of the Administrator in all matters concerning the implementation of the scheme shall be final and binding and in case the Administrator is of the opinion that the scheme cannot be implemented for any reason, the Administrator shall through the nominated advocate bring the same to the notice of the Court for appropriate directions/orders including revival of the winding up petition. The Administrator shall be paid a amount of Rs.30,000/- per month and the said amount shall be paid to him at this juncture by Shri C.R.Bhansali from his personal account. He shall also be paid all expenses incurred by him. The nominated Advocate and other officials/professionals appointed by the Administrator shall be paid the fees as determined by the Administrator. In the event of the successful implementation of the scheme in full, it will be open to Shri C.R. Bhansali to realize such expenditure incurred by him from the company.

(VI) That the propounder of this scheme shall within 15 days from the date of sanction of the scheme file an affidavit in the Court accepting the modifications made to the scheme in this order and undertaking to be bound by the same.

(VII) The propounder shall also file the projected balance sheet for five years from the cut off date annexure-A and the projected fund for statement 5 years from the cut of date Annexure-B in view of the modifications made in this judgment.

Page 0652 a. The company petition No.251 of 2002 along with Company application No.1416 of 1998 is allowed subject to the terms and conditions mentioned above.

b. The scheme of compromise and arrangement as put forth in company petition No.251 of 2002 along with Company application No.1416 of 1998 is sanctioned subject to the above modifications/orders so as to be binding on the petitioner/company and its members creditors.

c. In view of the fact that the scheme has been sanctioned subject to the above modifications/orders as above, the winding up petition No. C.P.No.191/1997 filed by RBI against the company along with all other pending application shall stand disposed of accordingly. However, if the administrator reports that the scheme cannot be successfully implemented, then the winding up petition shall revive and the company would be liable to be wound up.

d. The petitioner shall file a certified copy of this order with the Registrar of Companies, Delhi Punjab and Haryana within 30 days of the date of the receipt of the order.

e. The office is directed to draw up the order in the prescribed form by incorporating the modifications postulated as per this judgment.

53. The Company Petition and all pending applications stand disposed of accordingly.

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