1981 (8) TMI 198 - HC - Companies Law

Summary

Issues Involved:
1. Petition for winding up the company.
2. Admission of the petition and appointment of provisional liquidator.
3. Competing schemes for revival of the company.
4. Substitution of NDDB for TIL as the sponsor of the scheme.
5. Statutory requirements under Sections 391 and 392 of the Companies Act.
6. Comparative study of the schemes proposed by TIL and NDDB.
7. Financial viability and management efficiency of NDDB.
8. Legal validity of substitution under Section 392.

Detailed Analysis:

1. Petition for Winding Up the Company:
The petition for winding up Bhavnagar Vegetable Products Ltd. was filed under Section 433 read with Section 439 of the Companies Act, 1956. The company, incorporated in 1945, faced financial difficulties by the end of 1974, leading to the cessation of its business by November 1975. The company had significant liabilities, including Rs. 87,46,095 to sundry creditors, Rs. 58,00,000 to Messrs J. H. Rayner and Co., Ltd., and Rs. 3,16,00,000 in bank loans. The petitioning creditor, M/s. Veljee Shamji & Co., sought the winding up due to the company's inability to meet its financial obligations.

2. Admission of the Petition and Appointment of Provisional Liquidator:
The petition was admitted on 16th February 1976, and the official liquidator was appointed as the provisional liquidator on 8th March 1976. The liquidator took charge of the company's assets, and the court directed the invitation of offers for running the plant during the pendency of the petition.

3. Competing Schemes for Revival of the Company:
Three competing schemes were proposed for the company's revival: one by M/s. Tungabhadra Industries Ltd. (TIL), one by Shri Balvantrai Oil Processing Co-operative Society Ltd. and Shri Jashbhai Nagjibhai Patel, and one by the National Dairy Development Board (NDDB). Meetings of creditors and shareholders were convened to consider these schemes. Ultimately, only NDDB filed a substantive petition under Section 391(2) for its scheme, which was filed beyond the statutory period but condoned by the court.

4. Substitution of NDDB for TIL as the Sponsor of the Scheme:
During the hearing, it was revealed that TIL was no longer in a position to implement its scheme due to the withdrawal of support from the nationalized banks. Consequently, NDDB sought substitution as the sponsor of the scheme, which was supported by the petitioning creditor, M/s. Veljee Shamji & Co. The court had to decide whether to permit this substitution in the interest of all concerned, including the labor.

5. Statutory Requirements under Sections 391 and 392 of the Companies Act:
Section 391 provides for a compromise or arrangement between a company and its creditors or members, requiring the approval of a majority in number representing three-fourths in value and the court's sanction. Section 392 grants the court the power to supervise and make necessary modifications for the proper working of the scheme. The court emphasized that the scheme must be fair and reasonable, and the court's discretion is of the widest amplitude.

6. Comparative Study of the Schemes Proposed by TIL and NDDB:
The NDDB scheme was found to be far more beneficial than the TIL scheme. NDDB offered to pay the whole principal amount to depositors within one month, while TIL offered only 20-30% without interest. For unsecured creditors, NDDB offered full payment within one month, whereas TIL offered 20% in five yearly installments. NDDB also provided better terms for employees, preference shareholders, and equity shareholders compared to TIL.

7. Financial Viability and Management Efficiency of NDDB:
NDDB, a non-profit institution, had incurred substantial losses while running the plant on an interim basis but had paid over ninety lakhs by way of lease money. The court noted that NDDB's financial capacity and soundness were not in question, and its objective was to benefit both producers and consumers by eliminating the middleman.

8. Legal Validity of Substitution under Section 392:
The court held that substitution of the sponsor is permissible under Section 392(1)(b) of the Act, as it allows the court to make modifications necessary for the proper working of the scheme. The Supreme Court's decision in S. K. Gupta v. K. P. Jain was cited, which clarified that substitution does not change the basic fabric of the scheme. The court concluded that the substitution of NDDB for TIL was warranted to ensure the successful implementation of the scheme.

Final Order:
The court sanctioned the upgraded TIL scheme with NDDB substituted as the sponsor, subject to further upgrading the scheme to match the NDDB scheme's benefits. The winding-up order was revoked, and the official liquidator was directed to hand over the company's assets to NDDB. The court retained supervision over the scheme's implementation and provided for modifications and directions as necessary. The appeal by TIL was dismissed, and the court refused the certificate of fitness to appeal to the Supreme Court.