Delhi High Court
Sunil Gandhi & Anr. vs A.N. Buildwell Private Limited on 17 February, 2020
Author: Jayant Nath
Bench: Jayant Nath
$~J
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment pronounced on: 17.02.2020
+ CO.PET. 6/2019
SUNIL GANDHI & ANR. ..... Petitioner
Through
versus
A.N. BUILDWELL PRIVATE LIMITED ..... Respondent
Through Mr.Ashim Sood and Mr.Rhythm B.,
Advocates for Spirewood Allottees.
Mr.Satya Prakash, Adv. for
Ms.Shikha Sadh.
Mr.Kunal Sharma, Adv. for OL.
Ms.Puja Jain, Adv. for SELFC.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J. (JUDGMENT)
1. This petition is filed under sections 391-393 of the Companies Act,
1956 praying that the proposed scheme of compromise and arrangement
which is attached as Annexure 1 to the petition be sanctioned by this court so
as to be binding on the Members, creditors(secured and unsecured),
stakeholders and allottees of the respondent company.
2. The case of the petitioner is that the respondent company was allotted
an IT/Technology Park Project called Spire Edge Project in Manesar, District
Gurugram. The project comprises blocks A to F. It is the case of the
respondent company that blocks B, C and D of the respondent company have
been handed over to the respective allottees as occupation certificate of these
blocks were received. Lease deeds have also been registered for some of the
allottees. As far as block A is concerned, it is stated that the Scheme
envisages shifting of the allottees to blocks B, C and D by allotting them
CO.PET. 6/2019 Page 1 of 22
areas which are unsold subject to the allottees making payments.
Another project of the company is Spire Woods Project which is a
residential scheme located in sector 103, Gurugram, Haryana. This project
has 12 towers containing 620 dwelling units.
3. A perusal of the Scheme filed by the petitioner shows that it seeks
three-fold objects, namely, revival of the company, construction of the Spire
Edge Project and Construction of the Spire Woods Project.
Regarding the Spire Edge Project, the propounders expressed their
willingness to complete the construction of towers „E‟ and „F‟ and furnished
offices. Certain terms are introduced, namely, that the allottees shall not
claim any penalty, damage, compensation, etc. from the Company. It is
claimed that an amount of Rs. 25 crores is required for completion of
construction of Block „E‟ and „F‟ and the furnished offices of Spire Edge
Project. The same will be organized out of funds which will be infused by
the propounders and out of sales as well as loans to be raised. The allottees
of tower „A‟ of Spire Edge Project shall be shifted to other towers of Spire
Edge project. Immediately upon sanction of the scheme by the Court, the
propounders shall make arrangements of funds over a period of 90 days and
shall cause to be contributed Rs. 25 crores to be used for revival of the
Company and its project. It is stated that proof of Rs. 12 crores has already
been given to the OL.
Similarly, the Spire Woods Project would also be revived by SW New
Developers who is said to be a renowned real estate developer. The said SW
New Developer has agreed to invest a sum of Rs. 20 crores through any of
its companies.
4. This scheme was put up for approval in Company Application
CO.PET. 6/2019 Page 2 of 22
CO.APP.(M)115/2016. This court disposed of the said petition on
16.10.2018. The court dispensed with meeting of Optionally Convertible
Debentures Series A and Optional Convertible Debentures Series B and of
Block F of the Spire Edge Project as there is not even a single unit owner.
The court also held that no meeting of the allottees of Blocks B, C and D
need to be called. Meeting of members and creditors of the respondent
company were called in different categories including
(i) Allottees of block A Spire Wood Project
(ii) Allottees of furnished office of Spire Edge
(iii) Allottees of Block E Spire Edge Project.
(iv) Meeting of all the equity shareholders in Class A, B and C
respectively.
(v) The meeting of secured and unsecured creditors.
(vi) Meeting of all allottees of Spire Wood Project.
In the meantime a few allottees of Blocks B, C and D of Spire Wood
Project filed an appeal being Co.(A) 26/2018 against the order of this court
dated 16.10.2018. The Division Bench on 11.12.2018 ordered that the
meeting of all the allottees of Blocks B, C and D of Spire Edge Project
would also be held alongwith the other meetings. Consequential orders were
passed by the Division Bench.
5. In terms of the orders of this court dated 16.10.2018, 14.11.2018 and
of the Division Bench dated 11.12.2018 meetings have been held on
different dates i.e. 23.12.2018, 16.12.2018, 6.1.2019, 13.1.2019 and
14.1.2019. Notices were also advertised in Business Standard (English
edition and Hindi edition). The respective chairpersons of the meetings have
filed their reports. The result of the voting of the scheme that took place is as
CO.PET. 6/2019 Page 3 of 22
follows:-
Synopsis of Court Convened Meeting for Revival of A.N. Buildwell Pvt. Ltd.
Synopsis of Spire EDGE Project
Block A (Spire Edge Project)-06.01.2019
Particulars In number Percentage(based
on the numbers of
allottees)
Total No. of Allottees 34 100
Total No. of Allotees/Proxy Appeared 24 71
Total Votes 24 100
Valid Votes 24 100
Invalid Votes 0 0
Total Valid Votes Without Modification 20 83
Cast in favour of With Modification 4 77
the Scheme
Total FOR (with or without Modifications) 24 100
Total Valid Votes Cast Against the 0 0
Proposed Scheme
Block B, C & D (Spire Edge Project)-14.01.2019
Particulars In number Percentage(based
on the number of
allottees)
Total No. of Allottees 1041 100
Total No. of Allotees/Proxy Appeared 395 38
Invalid Votes 11
Valid Votes 384 100
Total Valid Votes Without 22 6
Cast in favour of Modification
the Scheme With Modification 293 76
Total FOR (with or without 315 82
Modifications)
Total Valid Votes Without 19 5
Cast Against the Modification
Scheme With Modification 50 13
Total Against (with or without 69 18
modifications)
CO.PET. 6/2019 Page 4 of 22
Synopsis of Spire EDGE Project
Furnished Office (Spire Edge Project)-06.01.2019
Particulars In number Percentage(based
on the number of
allottees
Total No. of Allottees 50 100
Total No. of Allotees/Proxy Appeared 36
Total Votes 36 100
Valid Votes 36 100
Invalid Votes 0 0
Total Valid Votes Without 29 81
Cast in favour of Modification
the Scheme With Modification 6 17
Total FOR (with or without 35 97
Modifications)
Total Valid Votes Cast Against the 1 3
Proposed Scheme
Block E (Spire Edge Project)-06.01.2019
Particulars In number Percentage(based
on the number of
allottees)
Total No. of Allottees 152 100
Total No. of Allotees/Proxy Appeared 103 68
Total Votes 103
Valid Votes 102 100
Invalid Votes 1
Total Valid Votes Without 97 95
Cast in favour of Modification
the Scheme With Modification 4 4
Total FOR (with or without 101 99
Modifications)
Total Valid Votes Cast Against the 1 1
Proposed Scheme
Synopsis of Spire WOODS Project
Spire Woods
Particulars In number Percentage(based
on the number of
CO.PET. 6/2019 Page 5 of 22
allottees)
Total No. of Allottees 517 100
Total No. of Allotees/Proxy Appeared 366 71
Total Votes 366
Valid Votes 364 100
Invalid Votes 2
Total Valid Votes Without 66 18
Cast in favour of Modification
the Scheme With Modification 292 80
Total FOR (with or without 358 98
Modifications)
Total Valid Votes Cast Against the 6 2
Proposed Scheme
Synopsis of Creditors (Secured & Unsecured) of A.N.Buidwell Pvt. Ltd.
Secured Creditors
Particulars In number Percentage(based
on the number of
Allottees)
Total No. of Secured Creditors or 2 100
Respondent Company
Total No. of Secured Creditors/Proxy 2 100
Appeared
Total Votes 0 0
Valid Votes 0 0
Invalid Votes 0 -
Votes cast in favour of the Scheme 0 -
Total Valid Votes Cast Against the 0 -
Proposed Scheme
Unsecured Creditors
Particulars In number Percentage(based
on the number of
Allottees)
Total No. of Unsecured Creditors or 171 100
Respondent Company
Total No. of Unsecured Creditors/Proxy 19 11
Appeared
Total Votes 19 100
CO.PET. 6/2019 Page 6 of 22
Valid Votes 18 100
Invalid Votes 1 -
Votes cast in favour of the Scheme 18 100
Total Valid Votes Cast Against the 0 0
Proposed Scheme
6. What follows from the above result is that with the necessary
modifications each of the category of creditors have passed the Scheme with
modifications with a majority of more than 75%. In nutshell, learned counsel
states the result as follows:-
(a) Block A (Spire Edge Project) 100% approval
(b) Blocks B,C and D, (Spire Edge Project) with modification 82%
(c) Furnished Office (Spire Edge Project) with modifications 97%
(d) Block E (Spire Edge Project) with modifications 99%
(e) Spire Woods Project with modifications 98%
7. In terms of section 391 of the Companies Act, 1956, much above 75%
of the creditors have given their consent to the annexed scheme.
8. This petition came up for hearing before the Court on 8.3.2019. This
Court directed notice to be issued to the (i) Official Liquidator/Provisional
Liquidator (ii) Income Tax Department (iii) Excise and Taxation
Department, Government of Haryana. (iv) Service Tax Department/Good &
Service Tax Department (v) Directorate of Town and Country Planning,
Chandigarh (vi) HSIDC Limited Haryana (vii) Real Estate Regulatory
Authority, Gurugram, Haryana (viii) State Environmental Impact
Assessment Authority, Haryana and (ix)Regional Director, Northern Region,
Ministry of Corporate Affairs. Publication was also directed to be issued in
Newspapers The Business Standard (English Edition) and The Business
CO.PET. 6/2019 Page 7 of 22
Standard (Hindi edition). On 22.5.2019 learned senior counsel for the
petitioner stated that the scheme has been uploaded on the website.
Opportunity was granted to the parties to file objections.
9. The Official Liquidator has also filed his report being OLR
No.162/2019. Nothing adverse is mentioned against the said scheme in the
said report.
10. Objections have been received from various stakeholders including
Mr.Vijay Shankar Pandey, Ms.Renuka Kulkarni, Mr.Anil Kumar Sharda,
Ms.Deepa Kapoor, Spire Edge Maintenance Lease and Faciliation Ltd.
(SELFC) and Ms. Shikha Sadh.
11. The following are the broad objections raised by the aforenoted
parties.
(i) Ms.Shikha Sadh
As per the objections filed, it is stated that the scheme involving stakes
of hundreds of crores cannot be sanctioned on the basis of vague and cryptic
statements. It is stated that the revival scheme is nothing but a tool to sell off
the valuable assets of the Company under liquidation.
It is pleaded that all builder buyer agreements with customers should
be honoured as promised. Otherwise, the present scheme of revival is
nothing but an attempt to cheat the customers under the canopy of revival
scheme.
It is further pleaded that revival plan proposes to stay all criminal
cases of any nature sine die against the ex-management of the company
which is completely contrary to the decision of the Division Bench of this
court in case of RBI vs. C.R.B. Capital Markets Ltd., 195(2012) DLT 204.
It is pleaded that the Scheme prohibits the objector to pursue her
CO.PET. 6/2019 Page 8 of 22
complaint under Section 138 of the NI Act and her FIR No. 114/2016
registered in PS Sarita Vihar against the ex-management of the Company.
It is further pleaded that the revival plan seeks directions against the
statutory bodies like Income Tax Department, Excise and Taxation
Department, etc. which is wholly illegal.
(ii) Vijay Shankar Pandey
The aforesaid objector is said to be an allottee of a residential unit of
the respondent in the Spire Woods Project. He has filed a criminal complaint
on 30.05.2015 against the respondent company for cheating, conspiracy and
criminal breach of trust. This complaint has been clubbed with FIR No.
114/2016 filed with PS Sarita Vihar.
It is claimed that the revival scheme is against public policy,
unconscionable and prejudicial to the interest of the allottees of the Spire
Woods Project. The prejudicial terms include settlement of FIRs, criminal
complaints, lack of particulars regarding the identity of the new investor in
the respondent and the manner in which and the terms on which it proposes
to complete the Spire Woods Project.
It is pleaded that once the revival scheme is sanctioned, SW New
Developer Company (a potential investor) could completely disappear
leaving all allottees high and dry.
It is further pleaded that exoneration of the respondent company, its
past directors and officers and original shareholders from pending litigations
including criminal cases contemplated under various clauses of the revival
scheme is against public policy and illegal. Reliance is placed on the
judgment of the Supreme Court in the case of J.I.K. Industries Ltd. & Ors.
vs. Amarlala V. Jumani & Anr., (2012) 3 SCC 255 and the judgment of this
CO.PET. 6/2019 Page 9 of 22
court in the case of Krishna Texport Industries Ltd. vs. DCM Ltd.,(2008)
104 DRJ 101 (DB).
It is further pleaded that despite the revival scheme having been
passed by the majority, the revival scheme ought not to be granted sanction
since it is not commercially viable and is unfair to all classes of creditors
including the Spire Woods Project allottees. The said company SW New
Developer Company has made no real discernible and tangible monetary
commitment. Major shortcoming in the revival scheme is that the said SW
New Developer Company is willing to invest Rs. 20 crores subject to certain
terms and conditions.
It is stated that the object of the scheme is apparent, namely, that the
propounders, namely, the past directors and the shareholders seek to put
themselves in control of the respondent Company from which they have
already siphoned off funds. At the same time, SW New Developer Company
despite undertaking to complete the Spire Woods Project has not been given
any representation on the Board of Directors of the respondent Company.
(iii) Ms.Renuka Kulkarni.
It is pleaded that on account of the acts of the ex-management of the
respondent company, the investors were constrained to file an application
seeking direction for conducting of a free and fair investigation by SFIO
against the various illegal acts committed by the said ex-directors. The OL
has also supported such an investigation.
It is further stated that the majority of the investors are in their twilight
years and are investors who have booked units in Blocks B, C and D of the
Spire Edge Project. They have been denied fair treatment by the petitioners.
Most of the investors in the said block have paid the land enhancement cost
CO.PET. 6/2019 Page 10 of 22
to the respondent Company. However, the same was not deposited by the
petitioners with the authority.
Most of the investors participated in the process of voting, casted their
votes in favour of the scheme subject to modifications as were listed out in
the typed sheet of paper attached to the respective voting slips. It was
expected that the petitioners would call for a meeting with the
representatives of the investors for an in-depth discussion and negotiation
but nothing of that sought was done.
(iv) Spire Edge Maintenance Lease & Facilitation Pvt. Ltd. (SELFC)
SELFC has filed objections for and on behalf of the allottees/investors
of Block B, C and D in the Spire Edge Project. Majority of the shareholding
in SELFC is held by the said investors in accordance with the Builder Buyer
Agreements executed by the respondent Company. Reliance is placed on the
judgment of the Supreme Court in the case Meghal Homes (P) Ltd. Vs.
Shree Niwas Girni K.K. Samiti and Ors., (2007) 7 SCC 753. Essentially the
objections are a claim for better terms than what the scheme proposes.
It is pleaded that Technology Upgradation Charges/WTC should be
refunded back to the allottees or should be adjusted against the outstanding
payment that some allottees may have to make. It is prayed that payment of
14 months unpaid assured returns/commitment charges @ Rs. 55/- per sq. ft.
as stipulated in the builder buyers agreement be made. It is pleaded that the
incomplete building of blocks was forced upon the allottees on 30.10.2011
and hence, assured returns to all allottees were stopped on the pretext that
possession has been offered. The difference of time period between the date
when the possession was forced and the date when the actual occupancy
certificate was obtained is 14 months. Hence, investors feel that it would be
CO.PET. 6/2019 Page 11 of 22
justified for them to demand pending assured returns for the said 14 months.
It is further pleaded that the petitioners be directed to make immediate
payment of Rs. 20 crores to SELFC for the purpose of repair, renovation and
completion of buildings of Block B, C and D to enable SELFC to commence
efforts to put the said building on lease for the benefit of the allottees. Such
other objections have been raised by SELFC seeking to improve the terms of
the rival Scheme.
12. I may note that somewhat similar objections as stated above have been
filed by other objectors including Sh.Anil Kumar Sharda and Ms.Deepa
Kapoor.
13. I have heard learned counsel for the parties including the learned
counsel for the objectors and learned counsel for the OL. I will now deal
with the objections filed.
14. As far as the objections filed by SELFC are concerned, it is manifest
that they are only bargaining and trying to improve the terms of settlement to
make them more favourable in favour of the allottees of blocks B, C and D
in the Spire Edge Project. Directions are also sought to be made to the
company to make certain payments. Clearly, these objections only seek
better terms than offered by the Scheme. They cannot be termed as
objections.
15. As far as other objections are concerned, it is manifest that the two
apprehensions of the objectors are: (i) that the promoters of the scheme are
seeking to wriggle out of the criminal liabilities fastened on them as various
criminal complaints are pending and (ii) the scheme is an attempt to siphon
off the funds of the company by the propounders of the scheme.
16. As far the issue of waiver of the criminal liability is concerned,
CO.PET. 6/2019 Page 12 of 22
reference may be had to the judgment of the Supreme Court in the case of
J.I.K. Industries Ltd. & Ors. vs. Amarlala V. Jumani & Anr., (supra)
where the Supreme Court held as follows:-
"19. In the instant appeal in most of the cases the offence under
the NI Act has been committed prior to the scheme. Therefore,
the offence which has already been committed prior to the
scheme does not get automatically compounded only as a result
of the said scheme. Therefore, even by relying on the ratio of the
aforesaid judgment in J.K. (Bombay) (P) Ltd. [AIR 1970 SC
1041] , this Court cannot accept the appellant's contention that
the scheme under Section 391 of the Companies Act will have
the effect of automatically compounding the offence under the NI
Act."
17. Similarly, the Division Bench of this court in the case of Krishna
Texport Industries Ltd. vs. DCM Ltd.(supra) held as follows:-
"24. It cannot be lost sight of that the aforesaid provisions take
colour from the same intent and in a similar situation. The
proceedings arose on account of the failure of the company to
meet its financial commitments. Thus if winding proceedings are
pending, the civil proceedings can be put in abeyance for the time
being to give some time to the company to come up with a
scheme or otherwise to clear its liability. In fact, in view of the
D.K. Kapur‟s case (supra), the matter is not even res integra
insofar as this Court is concerned that in such a situation criminal
proceedings cannot be kept in abeyance.
xxx
26. We are in agreement with the view that the words used in all
the aforesaid provisions of "proceedings" or "other proceedings"
must be construed ejusdem generis with the expression „suit‟
used aforesaid and clearly imply civil proceedings. It is only such
construction which is in conformity with the intent of the
legislature introducing these provisions in the said Act
CO.PET. 6/2019 Page 13 of 22
xxx
33. It can hardly be said that the object of Section 391 (6) of the
said Act is to prevent action against the officers of the company
who may be involved in cheating, criminal breach of trust, mis-
appropriation, forgery and for that matter dishonour of cheque.
Again the provision cannot be used to bring to an end a
prosecution arising from Income Tax Act or Foreign Exchange
Control Act. The proceedings are clearly not of a pecuniary
nature involving recovery of money. Interestingly, even the
scheme stated to be approved at the behest of the respondent
company does not envisage bar to any criminal proceedings or
payment of any actual amount in the given facts of the case as
discussed at the inception of this judgment, but only seeks to
extinguish the liability of the appellant on the ground that the
respondent is liable to pay a lesser amount, the interest not
running, and the claim is alleged to have been extinguished by
payment to a third party at the behest of the appellant for which
there is no written document."
18. A perusal of the scheme would show that amongst all clauses, the
following clauses refer to the issue of criminal liability. The said clauses read
as follows:
"15.4. The statutory authorities including but not limited to
Registrar of Companies, NCT of Delhi and Haryana, Income
Tax Department, Service Tax Department, GST Department
and Value Added Tax Department be directed not to initiate any
proceedings, civil as well criminal, in respect of any non-
compliance on the part of the Company and/ or its
Directors/Shareholders under the Applicable Laws.
15.5. All the Statutory Authorities to waive off interest and/or
penalty charged /levied for any non-compliance under
applicable laws in view of the fact that Company could not
complete the statutory compliances as mentioned due to various
reasons as mentioned in Scheme, including but not limited to
CO.PET. 6/2019 Page 14 of 22
registration under RERA, GST, VAT, Service Tax and Income
Tax.
15.6. The Income-Tax Department be directed to stay the
demands and vacate the ex-parte orders and to condone the
delay and ·allow the Company to file appeals, revision
applications and any other proceedings before the appropriate
authorities and or court.
15.7. All the cases, civil as well as criminal, filed against the
Company, its ex-Directors & Officers and the Original
Shareholders to be vacated or stayed sine-die. Any other
proceedings filed in any Court in India including consumer
forums by any person, company and or institutions including
public interest litigation be vacated or stayed sine-die."
Hence, there is an attempt in the scheme to try and seek waiver of the
criminal proceedings. To that extent the aforesaid clauses of the scheme
would accordingly not be approved. However, once the scheme is
implemented and the concerned creditor receives his share as per the
scheme, appropriate consequences would follow as per law in the pending
criminal matters.
19. Regarding the concern of the objectors that the scheme is nothing but
an attempt to siphon off funds and assets of the company in question, the
said apprehension can be taken care of by appointing a court supervisor who
would supervise the completion of the scheme. This is so as the OL has
already been appointed as the Provisional Liquidator. It is true that the funds
of the company cannot be dissipated in the guise of a revival scheme. To
ensure that is not done, it would be necessary to have a close watch on the
functioning of the revival scheme and the manner in which the assets of the
company are dealt with. To ensure the same, it would be appropriate for this
CO.PET. 6/2019 Page 15 of 22
court to appoint a court commissioner to supervise the functioning of the
scheme. This would allay the fears of the objectors, namely, that the
propounders of the scheme would end up siphoning off valuable funds and
assets of the company.
20. On the above facts, reference may be had to the judgment of the
Supreme Court in Meghal Homes (P) Ltd. vs. Shree Niwas Girni
K.K.Samiti and Others, (supra) where the court held as follows:-
"45. Considerable arguments were raised on the role of the Court
when a scheme under Section 391 of the Act was propounded for
its consideration. The decision in Miheer H. Mafatlal v. Mafatlal
Industries Ltd. [(1997) 1 SCC 579] was relied on. That was a
case of merger or amalgamation of two companies. Neither of the
companies was in liquidation. This Court held that compromise
or arrangement included amalgamation of one company with
another. This Court also defined the broad contours of the
jurisdiction of the Company Court in granting sanction to a
scheme in terms of Section 391 and Section 393 of the Act. This
Court laid down the following parameters:
"1. The sanctioning court has to see to it that all the
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 the scheme put up for sanction of the Court is
backed up by the requisite majority vote as required by
Section 391 sub-section (2).
3. That the meetings concerned 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 class of voters concerned is just and fair to
the class as a whole so as to legitimately bind even the
dissenting members of that class.
CO.PET. 6/2019 Page 16 of 22
4. That all necessary material indicated by Section
393(1)(a) is placed before the voters at the meetings
concerned as contemplated by Section 391 sub-section
(1).
5. That all the requisite material contemplated by the
proviso of sub-section (2) of Section 391 of the Act is
placed before the Court by the applicant concerned
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 same.
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 the 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
requirements 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 the 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
CO.PET. 6/2019 Page 17 of 22
otherwise amount to the Court exercising appellate
jurisdiction over the scheme rather than its supervisory
jurisdiction."
46. We may straightaway notice that this Court did not have
occasion to consider whether any additional tests have to be
satisfied when the company concerned is in liquidation and a
compromise or arrangement in respect of it is proposed.
Therefore, it cannot be said that this would be the final word on
any scheme put forward under Section 391 of the Act, whatever
be the position of the company concerned. Even then, this
decision lays down the need to conform to the statutory
formalities, the power of the Court to ascertain the real purpose
underlying the scheme, the bona fides of the scheme, the good
faith in propounding it and that as a whole, it is just, fair and
reasonable, at the same time emphasising that it is not for the
court to examine the scheme as if it were an appellate authority
over the commercial wisdom of the majority.
47. When a company is ordered to be wound up, the assets of it
are put in possession of the Official Liquidator. The assets
become custodia legis. The follow-up, in the absence of a revival
of the company, is the realisation of the assets of the company by
the Official Liquidator and distribution of the proceeds to the
creditors, workers and contributories of the company ultimately
resulting in the death of the company by an order under Section
481 of the Act, being passed. But, nothing stands in the way of
the Company Court, before the ultimate step is taken or before
the assets are disposed of, to accept a scheme or proposal for
revival of the Company. In that context, the court has necessarily
to see whether the scheme contemplates revival of the business of
the company, makes provisions for paying off creditors or for
satisfying their claims as agreed to by them and for meeting the
liability of the workers in terms of Section 529 and Section 529-
A of the Act. Of course, the court has to see to the bona fides of
the scheme and to ensure that what is put forward is not a ruse to
dispose of the assets of the company in liquidation."
CO.PET. 6/2019 Page 18 of 22
21. Similarly, in Modiluft Limited vs. S.K.Modi, 2005 (123) DLT 413, a
co-ordinate Bench of this court held as follows:-
"40. I do not find that the scheme is inherently incapable of
performance and unworkable. I would take note of some of the
case law cited at the Bar, which would throw light on the
approach to be adopted in such cases.
41. Dealing with such aspects, the Gujarat High Court
(speaking through D.A. Desai, J. as His Lordship then was)
and considering the matter in all its length and breadth in re.
Maneckchowk and Ahmedabad Manufacturing Co.
Ltd. reported (1970) 40 Comp. Cas. 819 made the following
observations which would equally apply to the present fact
situation:
"Even at the cost of repetition, it must be mentioned that the
scheme is opposed by a very few creditors and an
infinitesimally small number of shareholders. The fact that the
scheme has been approved by a requisite majority of
shareholders is undoubtedly a strong argument in its favour,
unless it is shown that their approval was not obtained fairly
and the terms of the scheme are not such as a reasonable man
may accept. The approval of a scheme by statutory majority of
creditors and members is not decisive of the matter. But it is
equally true that due weight should be attached to the choice
indicated by the creditors and members who are vitally
interested in the company and the scheme affecting the
company. Further, on the analysis of the votes cast at the
meeting, the salient feature that comes out to the surface is that
the scheme was opposed especially by those who, apart from
the merits of the scheme, are personally opposed to Gopaldas
Parikh and Linubhai Banker. The feud appears to be more
between the blood relations rather than between the creditors
and members who have offered their best commercial
judgment to the scheme on its merits. It is an inescapable
conclusion that Chandulal Banker as a power of attorney
holder of Shardaben, and Shantaben who is the principal
contender, opposed the scheme tooth and nail not because he
CO.PET. 6/2019 Page 19 of 22
had the interest either of the company or creditors and
members at heart but because he had to leave the active
management when Gopaldas Parikh and Linubhai Banker
stepped in and because of his personal vandetta against both of
them. In this view of the matter it is not possible to accept the
submission of Mr. Vakil that the scheme should not be
imposed upon dissentient members."
.......
43. It is also trite law that the Court would not reject a scheme
simply because there could have been a better scheme."
22. In my opinion, it is not for this court to sit on the commercial wisdom
of the scheme. This court is not sitting as an appellate authority to determine
the commercial facets of the scheme. Majority of the concerned creditors in
terms of Section 391 of the Companies Act, 1956, have in their wisdom
approved the scheme with modification by above 75% majority. I see no
reason to not accept the scheme. There is no merit in the aforenoted
objections and the same are dismissed.
23. However, the scheme is approved subject to the following:-
(a) Mr. Justice S. P. Garg (Rtd.) (Mobile No. 9910384627) is appointed as
the Court Appointed Commissioner to supervise implementation of the
Scheme. The Propounders would be entitled to implement the Scheme, as
above, under supervision of the Court Appointed Commissioner.
(ii) The Court Appointed Commissioner will ensure that the tasks as
stipulated in the Scheme are completed expeditiously in a time bound
manner. The OL will permit the promoters to implement the Scheme, as
stated above, under the supervision of the Court Appointed Commissioner.
(iii) The propounders of the Scheme will open a separate escrow account
where all receipts of any form including sums payable by the propounders
CO.PET. 6/2019 Page 20 of 22
under the scheme and revenues received pursuant to the revival scheme by
the company would be deposited. The escrow account would be operated for
expenses incurred under the supervision of the Court Appointed
Commissioner.
(iv) The Court Appointed Commissioner is empowered to pass any
directions or orders to the promoters for the purpose of implementing of the
Scheme.
(v) The functioning of the Scheme shall be reviewed by the Company
Court after three months. If necessary, this court would be at liberty to pass
further directions as the developments may require including directions to
recall the approval to the scheme.
(vi) The fees of the Court Appointed Commissioner is fixed at
Rs.1,00,000/- plus out of pocket expenses per month. This will be subject to
enhancement, if required.
(vii) I may only clarify that the Scheme is approved subject to a direction to
the concerned departments to take a lenient view while dealing with the
company keeping in view the attempts to revive the company.
(viii) The Ld. Court appointed Commissioner is requested to file a report
every month. This report will be put up to the Court for direction.
24. With the above directions, the petition stands disposed of.
JAYANT NATH, J.
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