1983 (9) TMI 257 - HC - Companies Law

Issues Involved:
1. Winding-up petitions against the company.
2. Appointment of a provisional liquidator.
3. Proposed scheme of compromise or arrangement under sections 391, 392, and 393(3) of the Companies Act, 1956.
4. Application for stay of suits and proceedings against the company under section 391(6).
5. Objections to the proposed scheme by creditors.
6. Classification of creditors.
7. Feasibility and legality of the proposed scheme.
8. Maintenance of status quo of the company's assets.

Issue-wise Detailed Analysis:

1. Winding-up petitions against the company:
In November and December 1982, three petitions for winding-up Bengal National Textile Mills Ltd. were filed by Eastern Spinning Mills and Industries Ltd., Bharat Commerce and Industries Ltd., and Rajasthan Spinning and Weaving Mills Ltd. Company Petition No. 551 of 1981 was admitted on February 9, 1983, and Company Petition No. 581 of 1982 was admitted on February 16, 1983, with directions for advertisements. Advertisements were published on March 11, 1983, and further hearings involved multiple creditors supporting the petitioning creditor.

2. Appointment of a provisional liquidator:
On April 28, 1983, M/s. Pokharmull & Sons filed another winding-up petition and applied for the appointment of a provisional liquidator. The official liquidator was appointed as the provisional liquidator of the company on the same day.

3. Proposed scheme of compromise or arrangement under sections 391, 392, and 393(3) of the Companies Act, 1956:
On May 12, 1983, the company filed an application proposing a scheme of compromise or arrangement with its creditors and sought directions for meetings to consider the scheme. Directions were given for calling a meeting of the unsecured creditors on July 23, 1983, and the notice of the meeting was to be advertised.

4. Application for stay of suits and proceedings against the company under section 391(6):
On May 13, 1983, the company filed an application under section 391(6) for an order to stay the commencement and continuation of all suits and proceedings against it and for recalling the appointment of the provisional liquidator.

5. Objections to the proposed scheme by creditors:
Creditors argued that the proposed scheme was impracticable, unfair, fraudulent, and incurably defective. They contended that the scheme, if implemented, would result in a violation of law. They also emphasized that the court could scrutinize the proposed scheme at any stage, even after an order was made under section 391 for calling a meeting. The creditors highlighted that the scheme only considered sundry creditors and not unsecured loan creditors, making it impractical and illegal.

6. Classification of creditors:
The creditors argued that sundry creditors and unsecured loan creditors constituted two different classes and that the scheme should be considered by these two classes separately. The company, however, contended that there was no need for such a classification as unsecured loan creditors had expressed their intention to support the scheme and defer repayment of their dues.

7. Feasibility and legality of the proposed scheme:
The court considered the objections regarding the feasibility and legality of the scheme. It was noted that the scheme was based on certain expectations which might or might not materialize. The court held that the objection regarding the non-provision for payment of loan creditors was curable and that the prohibition under the Deposit Rules of 1975 was not absolute, as section 58A of the Companies Act allowed for an extension of time for repayment with the sanction of the Central Government.

8. Maintenance of status quo of the company's assets:
The court acknowledged the objection of the sundry creditors regarding the likelihood of dissipation of the company's assets pending the finalization of the scheme. It was deemed in the interest of all concerned that the present status quo of the company's assets be maintained until a final decision on the scheme was reached.

Conclusion:
The court ordered that the meeting of the creditors should be held without prejudice to the rights and contentions of the petitioning creditor and other supporting creditors. The winding-up proceedings would not be stayed, but the provisional liquidator would not take any further steps regarding the company's properties, assets, and records. All other proceedings pending in respect of the winding-up would stand adjourned until the meeting was held and the chairman's report was filed. There was no order as to costs.

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