Andhra HC (Pre-Telangana)
Deepika Chit Fund Pvt. Ltd vs The Secretary, Home Department, ... on 25 September, 2012
Author: Ramesh Ranganathan
Bench: Ramesh Ranganathan
THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN C.A.Nos.341 of 2009 (342 of 2009) 25.09.2012 Deepika Chit Fund Pvt. Ltd. The Secretary, Home Department, Secretariat, Hyderabad. !Counsel for the Applicant: Sri S.Ravi, learned Senior Counsel. Counsel for the Respondent: GP for Home <Gist: >Head Note: ?Citations: 1. AIR 1979 SC 734 2. (1988) 2 GLR 1045 3. 2004 (3) ALD 879 4. (1976) 46 Company Cases 279 COMMON ORDER:
Company Application Nos.341 and 342 of 2009, in Company Petition No.197 of 2003, are filed seeking a direction from this Court to the respondent (Secretary, Home Department) to initiate necessary steps for withdrawing cases where the de facto complainants had sought to withdraw the complaint against the company and its Directors/managerial personnel; and to stay hearing of the complaints against the company and its Directors/managerial personnel.
Company Petition Nos.196 and 197 of 2003 were filed before this Court, under Sections 391 and 394 of the Companies Act, 1956, seeking its sanction for a scheme of arrangement whereby the petitioner in C.P.No.196 of 2003 was to amalgamate with the petitioner in C.P.No.197 of 2003. The scheme also provided for payment, to the depositors/prized chit subscribers/creditors of both the companies, of a sum equal to the principal due, as reflected in the books of both the companies on the appointed date, together with interest at 4% per annum from the date these debts became due till the appointed date in such installments as may be proposed by the Collection and Disbursal Committee to be constituted and approved by the Court. The appointed date stipulated under the scheme was 01.04.2003. The scheme does not prescribe any outer time limit within which both the companies were required to repay the aforementioned sum in its entirety. It is not in dispute that, though nearly nine years have elapsed since the scheme was approved by the Board of Directors of both the companies, the principal with interest at 4% per annum, (that too only till 01.04.2003), has not yet been paid in its entirety. The percentage of interest of 4% per annum, though measly, cannot be revised upwards in these proceedings, as the scheme has already been sanctioned by this Court by its order dated 25.11.2008. This Court was of the view that, since the principal together with interest at 4% per annum would be paid in two or three equal installments, this may have weighed with the investors in accepting the proposed arrangement. Let alone payment in two or three installments, the principal amount, with interest at 4% per annum (the interest component stood frozen as on 01.04.2003), has not been paid in its entirety even till date.
Sri S.Ravi, learned Senior Counsel appearing for the applicant, would fairly state that the scheme is open ended, and does not prescribe any outer time limit within which the applicant is required to repay the principal with 4% per annum interest thereon. In effect the scheme, approved by this Court, would enable the applicant to avoid making payment, if they so choose, even for the next decade or two. It is in this context that the prayer sought for in these two applications needs to be examined. While not making payment, in its entirety, to their creditors, the applicant has sought and obtained stay of the complaints lodged against them by the depositors and subscribers of the chits. In addition, the applicant has been filing one application after the other, using (abusing) the process of this Court, for recovery of their dues. On being asked as to how the provisions of Sections 391(6) and 392 of the Companies Act would apply to the case on hand, Sri S.Ravi, learned Senior Counsel, would place reliance on, S.K.Gupta v K.P.Jain1; In Re: Divya Vasundhara Financiers Pvt. Ltd.2; and In Re: Deepika Chit Fund (P) Ltd.3, in support of his submission that the power of this Court, to supervise the carrying out of the compromise or arrangement, and to give such directions in regard to any matter, is wide; it would bring within its ambit the power to grant stay of continuance of the criminal proceedings initiated against the applicant company and its Directors; as also to entertain applications filed by the applicant for recovery of the amounts due to them from their debtors and various banks.
A close examination of Sections 391 and 392 of the Companies Act would reveal that Sections 391 and 392 operate at different stages, and do not control each other. Section 392 comes into operation after the enquiry under Section 391 is over. The Court, under Section 391 of the Companies Act, is entitled to pass any interlocutory order either for the purpose of enquiry into the affairs of the company or for preservation of company's assets, pending the sanction of the proposed Scheme of Arrangement. (In Re Deepika Chit Fund (P) Ltd.3). When a scheme of compromise and arrangement is moved under Section 391, there may be number of civil and criminal proceedings pending against the Directors and the Company as taken out by various creditors in different Courts. The Court may find that if these proceedings are permitted to go on, pending consideration of the scheme by the Court, a situation may arise wherein individual creditors, as complainants, may be able to pressurise the Directors of the Company, who may be accused in the cases, to succumb to their demands, and that would not only jeopardise consideration and working of the scheme as a whole but may even, in a given case, amount to undue preference of creditors who might have filed criminal complaints, and to whose pressure the Directors may succumb. The word 'proceeding', as employed by Section 391(6), should be interpreted in the widest possible manner so that scheme of compromise and arrangement can be effectively examined, and can be properly executed. (In Re: Divya Vasundhara Financiers Pvt. Ltd.2).
Section 391(6) of the Companies Act enables this Court, at any time after the application has been made to it under Section 391, to stay the commencement or continuation of any proceeding against the company on such terms as the Court thinks fit, until the application is finally disposed of. The application referred to in Section 391(6) is an application filed by the company under Section 391(1) for convening and holding a meeting of the members and/or the creditors of the company. Even if the application made under Section 391(1) of the Companies Act is, in view of Section 391(2), deemed to be in force till the scheme is sanctioned, it is evident that the power of this Court, under Section 391(6), to stay any proceedings instituted against the company is only till the date on which the scheme is sanctioned, and not thereafter. The aforesaid applications were filed after the scheme was sanctioned and, as such, Section 391(6) of the Companies Act does not empower this Court to grant stay of the criminal proceedings initiated against the applicant company and its Directors. The power available to this Court, under Section 392(1)(a) and (b), is to supervise the carrying out of the compromise or an arrangement and give 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. Section 2(29) of the Companies Act defines the words 'modify' and 'modification' to include the making of additions and omissions". Section 2(1-A) defines 'alter' and 'alteration' to include making of additions and omissions. 'Variation' is defined in Section 2(50) to include 'abrogation'. In the context of Section 392, 'modification' would mean addition to the scheme of compromise and/or arrangement or omission therefrom solely for the purpose of making it workable. Reading Section 392, by substituting the definition of the word 'modification' in its place, if something can be omitted or something can be added to a scheme of compromise by the Court, for the proper working of the compromise and/or arrangement, there is no justification for cutting down its meaning by a process of interpretation and thereby whittle down the power of the Court to deal with the scheme of a compromise and/or arrangement for the purpose of making it workable in course of its continued supervision as ordained by Section 392(1). (S.K.Gupta v K.P.Jain1). Section 392 enables this Court to enforce a compromise and arrangement from beginning to end. The Court, at the time of making such an order or at any time thereafter, can give 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. There is ample power under Section 392(1)(b) itself which enables the Court to give proper directions in regard to any matter which may also include staying criminal proceedings which might have been filed against the Company, and the directors, even after sanction of the scheme and before the scheme has been finally worked out. (In Re: Divya Vasundhara Financiers Pvt. Ltd.2). The object and purport of Section 392 is that the Court, sanctioning the scheme under Section 391 of the Companies Act, shall not become functus officio. The object of Section 392 is not to limit or restrict the power of the Court, but to widen it and stretch it beyond the sanction of the scheme. (In Re Deepika Chit Fund (P) Ltd.3). The power of the widest amplitude has been conferred on the Court under Section 392(1)(b) and the width and the magnitude of the power can be gauged from the language employed in Section 392(1)(a) which confers a sort of a supervisory role on the Court during the period the scheme of compromise or arrangement is being implemented. Reading Clauses (a) and (b) of Sub-section (1) of Section 392, it appears that Parliament did not want the Court to be functus officio as soon as the scheme of compromise and arrangement is sanctioned by it. The Court has a continuing supervision over the implementation of the compromise and arrangement. Unenvisaged, unanticipated, unforeseen or even unimaginable hitches, obstruction and impediments may arise in the course of implementation of a scheme of compromise and arrangement and if, on every such occasion, sponsors have to go back to the parties concerned for seeking their approval for a modification, and then seek the approval of the Court, it would be a long drawn out, protracted, time-consuming process with no guarantee of result and the whole scheme of compromise and arrangement may be mutilated in the process. Parliament has, therefore, thought it fit to trust the wisdom of the Court rather than go back to the interested parties. Parliament has conferred power on the Court, not only to make modifications even at the time of sanctioning the scheme, but at any time thereafter during the period the scheme is being implemented. Once the Court approves the scheme, it becomes a statutorily enforceable contract even on dissidents, with power in the Court to modify, amend or correct or revise the contract - the outer periphery or the limit on the power being that it can be done for the proper working of the compromise and arrangement. Subject to this limit on the Court's power, the power seems to be absolute and of the widest amplitude and it would be unwise to curtain it by process of interpretation. (Mansukhlal v. M.V.Shah4; S.K.Gupta v K.P.Jain1 and In Re Deepika Chit Fund (P) Ltd.3).
While the power, conferred on the Court, is wide, its exercise is a matter of discretion, and not for the mere asking. The discretion conferred on this Court, under Section 392 of the Act, is not to be readily exercised more so to aid persons, such as the applicant herein, which has failed to make payment of their dues, to their creditors and depositors, even nine years after they had proposed the scheme, that too after freezing the paltry interest at 4% per annum only till 01.04.2003, and not thereafter. In effect, the applicant does not have to pay any interest on their debts beyond 01.04.2003 though they have not even repaid the dues, in its entirety, even nine years thereafter i.e., till date. It is indeed a matter of concern that the applicant herein has been granted protection, in not having to face the ordeal of criminal proceedings, without any conditions being imposed on them, including requiring them to repay the debts due to their creditors, in its entirety, within a specified time frame.
While this Court was initially inclined to impose exemplary costs on the applicant, Sri S.Ravi, learned Senior Counsel, has placed the affidavit, of the Managing Director of the applicant company, unconditionally undertaking to pay the entire amount due to the prized and unprized subscribers, in terms of the scheme of arrangement sanctioned by this Court, before 31.12.2012. As the Managing Director of the applicant company has now undertaken to repay the entire debts (principal plus interest) before 31.12.2012, a little more than three months from now, I refrain from imposing any costs. Needless to state that any violation of the undertaking, given to this Court by the Managing Director, may well result in action being initiated against him under the Contempt of Courts Act, 1971. I see no reason, however, to keep these applications pending. Suffice it to hold that the interim order granted by this Court earlier shall remain in force only till 31.12.2012, and not thereafter. Both the Company Applications are disposed of accordingly.
_______________________________ (RAMESH RANGANATHAN, J) 25.09.2012