9911796707
TMI Blog1981 (8) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 equity shares of Rs. 100 each and 25,000 ten per cent, cumulative redeemable preference shares of even value. The paid up capital of the company is Rs. 29,98,600 consisting of 17,492 equity shares of the value of Rs. 100 each and 12,494 cumulative redeemable preference shares of Rs. 100 each, fully paid up. The redeemable preference shares were redeemable on par on 31st October, 1976, under the special resolution dated 24th June, 1967. There is also a sum of Rs. 575 received on forfeited shares. 2. The company was incorporated to manufacture, extract, refine, prepare for the market, stores, sell, purchase, transport, export, import and generally deal in all kinds of oils and oil products; to carry on all the mechanical and chemical process for extraction of oil from oil-seeds and for refining and dehydrogenating the same; and for the manufacture of vanaspati or vanaspati ghee. Immediately after its incorporation it set up a plant at Bhavnagar and had a promising start. Initially the company flourished and made substantial profits but by about the end of 1974 and the beginning of 1975, it encountered rough weather and was soon on the rocks having been compelled to close its ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as well as financial obligations. The petitioning creditors not having been paid their commission of Rs. 33,826.89, which was indisputably due to them, served the company with a statutory notice demanding their dues on 1st September, 1975 (exhibit 'B'). The company admittedly received this notice but failed to meet the demand made therein by either paying or tendering the amount or compounding the same to the satisfaction of the petitioning creditors. The petitioning creditors, there fore, filed the aforesaid petition praying that the company which was in insolvent circumstances and unable to meet its financial obligations be wound up. 4. The said petition came up for admission on 4th February, 1976, when the court directed notice pending admission to issue on the company calling upon it to show cause why the petition should not be admitted. This notice was served on the company on or about 7th February, 1976, but no appearance was entered on behalf of the company till 16th February, 1976, on which date the notice was made returnable. There upon, the petition was admited on 16th February, 1976, and usual advertisements were directed to be published in the Government Gazette and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme. Suitable directions were given in that application on 29th August, 1977, for convening meetings, etc. Pursuant to the directions of the court, meetings of creditors, etc., were held between 8th October, 1977, and 15th October, 1977, to consider the schemes propounded by three different parties under the aforesaid three separate applications. Ultimately, on 1st November, 1977, the chairman of the meetings presented his report to the court but no substantive petition was filed under section 391(2) of the Act within the prescribed time by the first two applicants; only NDDB presented a substantive petition under section 391(2) of the Act on 9th December, 1977. As that petition was filed beyond the statutory period, by Company Application No. 168 of 1977 condonation of delay was sought which was granted on 16th December, 1977. The above facts disclose that there are two competing schemes in the field, one of TIL and the other of NDDB. 6. The official liquidator appointed to work as the provisional liquidator of the company moved Company Application No. 151 of 1977, for inviting proposals from interested parties for running the plant of the company during the interim period ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of the Central Govt. was heard. The learned Additional Standing Counsel for the Central Govt. after some discussion in court made a statement that in view of the contemplated interim arrangement, the Central Govt. was not inclined to press for immediate permission but would revive the application at a later stage. The courf, while according sanction to NDDB to run the plant on lease, kept the application of the Central Govt. pending. Thereafter, when the substantive petitions under section 391(2) of the Act were set down for hearing, the learned Additional Standing Counsel for the Central Govt. was called upon to clarify whether the Central Govt. desired that orders should be passed on its application. The learned Additional Standing Counsel for the Central Govt stated at the bar that he was instructed by Shri I.A. Siddiqi, Director (Vanaspati) in the Ministry of Civil Supplies and Co-operation, Government of India, to inform the court that "the Government of India does not press the summons at this stage and that if necessary it will take out a fresh summons in the light of the orders this court may make so far as the two competing schemes are concerned". On this statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was out of the picture. This company application was supported by affidavit filed by Mr. Dalai, the constituted attorney of TIL. In view of this development which took place during the pendency of the two competing schemes, it was strongly argued on behalf of NDDB that TIL was no more in the picture and hence there was no question of granting approval to the scheme propounded on behalf of TIL. 9. Further developments which took place on different dates thereafter may now be briefly recapitulated. On 15th February, 1980, the representatives of the various creditor banks as well as Gujarat State Finance Corporation (GSFC) informed the court in no uncertain terms that they supported the NDDB scheme. They also pointed out that in view of the developments set out in the preceding paragraph, the TIL scheme was no more in the picture. The learned counsel for TIL asked for time to clarify its position. On the two subsequent dates fixed for hearing, no one appeared on behalf of TIL. On 29th February, 1980, the learned counsel for M/s. Velji Shamji & Co., the sponsor of the TIL scheme, caused a flutter when he informed the court that his client no longer supported the TIL scheme but on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suant to this order passed by me on 14th March, 1980, the necessary advertisements appeared in the newspapers and in response thereto representatives of various interests made their submissions before me on the merits and dements of the two competing schemes. ****** A comparative study 48. A comparative study of the two schemes reveals that the scheme proposed by NDDB was far more beneficial to practically all interests than the TIL scheme as originally proposed. Under the TIL scheme depositors claiming the principal amount of Rs. 7,500 and below were to receive 30 per cent, and the rest 20 per cent, of the principal amount, without interest, whereas under the NDDB scheme the whole of the principal amount was offered within one month from the effective date, without interest. It was only at the meeting that TIL agreed to pay 50 per cent, of the principal amount with 12 per cent, interest to all the depositors. This offer was further enhanced after the introduction of the NDDB scheme to payment of the whole of the principal amount in four equal instalments with interest after the first instalment at 14 per cent, per annum. So far as other unsecured creditors are concerned TIL off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olving a project cost of rupees six crores. Financially it is a sound concern; its assets far exceed its liabilities and its sales turnover at the end of September 30, 1975, was to the tune of Rs. 28,99,21,627. 50. NDDB on the other hand has been set up by the Ministry of Agriculture and is registered under the Societies Registration Act. It is carrying on multifarious activities all over the country mainly in the field of development of dairy industry. According to NDDB, the Government of India is seriously considering a proposal to evolve a national policy on edible oils. It is proposed to obtain 2,50,000 tonnes of vegetable oil as gift from co-operatives in the USA and to utilise the sale proceeds there from for stimulating production of oil seeds and oil within the country and to build up an efficient system of procurement, processing and marketing of oil in the State of Gujarat. Depending upon the final outcome of the policy decision to be taken by the Government of India as to the instrumentality through which the long-term national policy on edible oil should be implemented, the proposed scheme would be implemented by the .specific agency if so set up or alternatively by ND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors of the two schemes, as projected in the submissions of their learned counsel. The submissions of Mr. K. S. Nanavati, the learned counsel for NDDB, run thus : NDDB is non-profit-making institution aimed at advancing the cause of research in different fields and in making available consumer goods at competitive prices. Its object is to benefit both the producer and the consumer by eliminating the middleman who takes away a big slice and thereby spirals the prices of various commodities. TIL on the other hand is floated with the object of profit-making and it cannot have the interest c consumers or producers at heart but would on the contrary try to exploit them with a view to boosting up its profit-margin. Under the TIL scheme the total offer is to the tune of Rs. 1,19,94,000 while under the NDDB scheme the offer is to the tune of Rs. 2,86,51,000, that is Rs. 96,00,000 more than what is offered by TIL. If NDDB enters the edible oil market on no-profit-no-loss basis, both the groundnut grower and consumers will benefit by the elimination of the middleman whose removal from the scene will help stabilise the prices at a reasonable level. That is why the nationalised banks, includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s scheme at the meetings of the different interests held for according approval thereto, the subsequent success in winning over a few creditors and M/s. Sidhrani and Musa Adam, the office bearers of the Rashtriya Mazdoor Sangh, cannot infuse life into a dead scheme. In the circum stances, it would be a fraud on the statute if the TIL scheme is bypassed by allowing substitution as prayed for in the summonses taken out by NDDB and Velji Shamji and Co., because the court would be doing indirectly that which the statute does not directly permit. Again, if TIL is capable of working the scheme, there is no reason why it should be refused the opportunity to do so particularly when its scheme has been approved by the creditors/members as well as workers/employees of the company at the meetings held for that purpose. Even a better scheme may be rejected by the trade creditors having regard to their future trade prospects depending on who will be in the management of the company. The equity shareholders had refused to sell their shares to NDDB and they cannot be compelled to do so and the mere fact that approximately 75 per cent, of the shares are pledged with Dena Bank is not a valid consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se if the company is wound up, they are certain to get nothing, as the value of the company's total assets is far less that the claim of the secured creditors. In the circumstances, what is offered to the equity shareholders under the scheme is more or less by way of a gift. The equity shareholders cannot transfer their shares without the court's sanction in view of section 536(2) of the Act. Mr. Bhatt pointed out that Mr. Navlakha, an employee of the Birlas, had gone round and collected proxies with the help whereof TIL was successful in defeating the NDDB scheme at the meeting of the equity shareholders. While assuring the court that the grievance of the workmen would be examined and redressed, Mr. Bhatt submitted that NDDB was prepared to pay the workmen in full outside the scheme. In brief, his submission was that the objections raised against the plea for substitution are not well-founded and the court should disregard them. Statutory requirements : 57. Chapter V of the Act deals with compromises, arrangements and reconstructions of companies which are liable to be wound up under the Act. Section 391 of the Act provides that where a compromise or arrangement is proposed betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the arrangement is such as a man of business would reasonably approve, that is, whether the scheme is fair and reasonable and does not hurt any class or classes of persons affected thereby. While considering the scheme, in addition to the above, the court will also examine its effect on the workers/employees of the company with a view to safeguarding their interests. The section confers a wide discretion on the court in the matter of according its sanction to the compromise or arrangement between the company and its creditors/members. The court is not bound to superadd its seal to the scheme or arrangement merely because it has received approval of the requisite majority at the meetings held for that purpose. The use of the expression "if sanctioned by the court" in section 391(2) clearly suggests that the discretion conferred on the court is of the widest amplitude and regardless of the fact that the scheme has been approved by the requisite majority, the court will refuse to put its seal thereto if its purpose is not bona fide but merely to shield the misdeeds of the ex-directors or if it oppresses the minority or is otherwise inequitable. Only a scheme which is fair and reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... workable scheme which would help revive the sick unit. Every circumstance which a reasonable and prudent businessman is expected to bear in mind while approving the scheme must be taken into consideration by the court and thereafter if the court finds that the majority has acted fairly and honestly and has not oppressed the minority in any manner whatsoever, it will proceed to accord sanction to the scheme. 60. In re Maneckchowk & Ahmedabad Mfg. Co. Ltd. [1970] 40 Comp. Cas. 819 (Guj.), the court reiterated that in exercising its discretion in sanctioning a scheme of compromise with members and creditors under section 391(2) of the Act, it must, treat it as cardinal that its function does not extend to usurping the views of the members or creditors. It must look at the scheme and determine that it is a reasonable one and while doing so, it will certainly weigh the wishes of the majority vote and the reasons which actuated the contesting creditors in opposing the scheme. None the less it is essential that the scheme must be a fair and equitable one and the court must be satisfied that the majority was acting in a bona fide and honest manner and in the interest of the class that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ften pushed through even with more than the statutory majority. The well-informed class of shareholders, such as, financial institutions, statutory corporations, etc., scrutinise the scheme with an expert's eye and it is presumed to act bona fide and for the benefit of the company as a whole. It must, therefore, be realised that before the court sanctions a scheme, it must not only be satisfied that the statutory provisions have been complied with but must also be satisfied that the minority is not unduly oppressed and that those who are promoting the scheme are not doing so merely to advance their personal interests at the cost of innocent investors. 62. Having clearly understood the width and amplitude of the court's power under section 391 of the Act, we may now go to the next important provision, namely, section 392, 1he relevant part whereof reads as under: "392.(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 there after, give such directions in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is necessary for the proper working of the scheme. 64. The next question to be considered is whether the court can in exercise of power conferred upon it by section 392(1)(b) of the Act substitute one sponsor for another while sanctioning the scheme under section 391(2) of the Act. A scheme under section 391 is a compromise or arrangement between a company enlist creditors or between a company and its members. The question then is, if the scheme is between a company, which is a juristic personality, and its members and creditors, can it be said that the personality of the sponsor is of secondary importance and the court can while exercising power under section 392(1)(b) of the Act substitute one sponsor for another even though the scheme proposed by the sponsor sought to be substituted did not receive approval at the meetings of the diverse interests called for considering the scheme ? Even though a company is undoubtedly a juristic personality, it is well known that the whole show is monitored by the human machinery which is the decision-making body so far as the day to day management is concerned. The observations of Viscount Haldane L.C. in Lennard's Carrying Co. Ltd. v. Asia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company and whoever comes in as sponsor would be bound by it. Undoubtedly, a sponsor of the scheme enjoys an important place in the scheme of compromise and/or arrangement but basically the scheme is between the company and its creditors or any class of them, or the company and its members or any class of them, and not between the sponsor of the scheme and the creditor or member. The scheme represents a contract sanctified by court's approval between the company and the creditors and/or members of the company. The company may as well be in charge of directors and the implementation of the scheme may come through the agency of the directors but that would not lead to the conclusion that during the working of the scheme the directors cannot be changed. If the scheme has to be ultimately implemented by the company as part of its contract and yet its directors can be changed according to its articles of association, we see no difference in the situation where a sponsor is required to be changed in the facts and circumstances of a case. Therefore, it is not possible to accept the submission that as and by way of modification one sponsor of a scheme cannot be substituted for another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is nothing in the Act or in decided cases to fetter the court's power to modify the scheme to achieve the paramount objective of reviving the sick unit, in a manner conducive to the interest of all concerned. 65. Mr. Cooper next argued that the court must decide the question of according sanction to the scheme on the basis of the circumstances prevailing at the time when the meeting was called for the purpose of considering the scheme and it would not be open to it to take subsequent developments into consideration. In support of this submission he strongly relied on the following passage from the judgment of Miabhoy J., in Sidhpur Mills Co. Ltd., In re, AIR 1962 Guj. 305, 311 : "It (the scheme) must be tested from the point of view of an ordinary reasonable shareholder, acting in a business like manner, taking within his comprehension and bearing in mind all the circumstances prevailing at the time when the meeting was called upon to consider the scheme in question. I am emphasizing the last point because an argument was made by Mr. Amin that certain circumstances or events which took place after the scheme had been considered should be taken into account. I do not wish to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1970] 40 Comp. Cas. 819 (Guj.), he submitted that the court must treat it as cardinal that its function does not extend to usurping the view of the members and if the scheme is otherwise fair and reasonable it must respect the majority vote cast at the meeting. This broad general principle of law is indisputable but its application must necessarily depend on the facts of each case. In the first place, the scheme is between the company and its members. We have already seen that even though the sponsor of the scheme plays an important role, his substitution would not affect the basic fabric of the scheme. In fact, in the instant case, it is difficult to understand how the scheme, in so far as it concerns the members, will be affected if TIL is substituted by NDDB. By the substitution of NDDB the rights of the members will not be adversely affected in any manner; on the contrary, the NDDB offer is better. It is, therefore, clear that by substitution of the sponsor the provision of the scheme concerning the members is not sought to be altered to their detriment. If at all, it will stand improved. 67. Now, out of 17,492 equity shares, 2,593 shares are held by Ratilal Gandhi and his g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought out that the company was financially broke and was unable to pay its debts. The value of the company's assets was clearly insufficient to pay off even the secured creditors. Therefore, if the assets of the company were liquidated the ordinary shareholders could not expect to receive anything for their shares. The offer to pay them a certain price per share is, therefore, clearly gratuitous or in the nature of a gift. In Re: Broomsfield Guild Pottery Society [1898] WN 80, it was said that if the company is insolvent and the scheme provides for the transfer of its business to another company, it is not necessary for the scheme to be approved by a meeting of ordinary shareholders, because they would receive nothing if the company were wound up and so they have no rights which are affected by the scheme. This principle was reiterated In re Tea Corporation Ltd., Sorsbie v. Same Co. [1904] 1 Ch D 12. In that case it was found as a fact that the value of the company's assets was such as to negative the notion that the ordinary shareholders had any financial interest in them. The ordinary shareholders did not vote in favour of the scheme at the meeting. It was held that their disse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IL upgraded the offer by agreeing to pay up to 9th March, 1976, instead of 31st December, 1975. As against this NDDB offered to pay full salary/ wages to all workers/employees from 1st November, 1975, to 8th March, 1976, within three months from the effective date. It agreed to pay gratuity to those workers whose services were terminated prior to the closure. At the NDDB meeting TIL once again upgraded the offer and NDDB also matched its offer accordingly. It will be seen from the above that but for the appearance of NDDB on the scene the workers would have received a raw deal, TIL was out to exploit them and they would not have got a better deal but for the emergence of NDDB. At the hearing of this matter Mr, Nanavati went so far as to say that NDDB would pay the workers/employees outside the scheme fully, if they so desire. At the time when the meetings were called to consider the schemes offered to them, the workers/employees were represented by the office bearers of the. Rashtriya Mazdoor Sangh and they voted for the TIL scheme even though the NDDB scheme had initially offered a better deal. Subsequently the workers/employees were divided into two groups on the Bhavcagar Kamdar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstanding with that concern but because they were satisfied that TIL would provide stable and efficient management having regard to its past experience in this field. It was, therefore, urged with considerable vehemence by Mr. Vakharia that the court should not foist on the workers an inefficient management which can promise nothing but a recurrence of the present situation within a few years and thereby worsen the plight of the workers. It must immediately be conceded that the welfare of the workmen under a particular scheme or management is a relevant consideration, more particularly when the court is deciding the question of substitution, and if the court is satisfied that a particular management will not be able to deliver the goods and the scheme will soon be on the rocks it will refuse to stake the future of the company and its workmen by opting in its favour. What we have then to see is whether there is justification in the apprehension expressed by Mr. Vakharia on behalf of one of the trade unions. 72. Let us first focus our attention to the affidavit of Mr. Subodh Mehta dated 14th March, 1980. By that affidavit Mr. Mehta has tried to question the NDDB claim made in the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed through the Gujarat Oil Growers Co-operative Federation with a view to eliminating the middlemen. Similarly, the purchases of cotton seeds were made through the said Federation. It would appear from the above that the allegation that the bulk of the purchases were made through the Balwantrai Mehta Oil Processing Co-operative Society is not well-founded. There is also no basis for the allegation that the groundnut purchase were sub-standard. It must also be remembered that NDDB is not in a position to introduce long-term changes and instal new machinery for the simple reason that it has been permitted to work the unit as a stop-gap measure till the scheme is finally approved. There were also some labour problems leading to a snap strike notwithstanding the assurance given to court, which hampered production programme of NDDB. In the circumstances, it cannot be said that NDDB incurred losses because of lack of expertise in the field and defective purchasing policy. To my mind, the allegation of mismanagement has been made on hearsay and is without foundation. Conclusion : 74. With the factual panorama clear and the statutory perspective explained, we come face to face with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccasion, when the banks withdrew support to the TIL scheme. Mr. B. J. Shelat, the learned counsel for the petitioning creditor, has informed the court that "in view of the withdrawal of support by the bank to TIL, the scheme as put forward by his client was not practicable". The subsequent conduct of TIL in applying for the withdrawal of the deposit money of Rs. 75,000 from court betrays want of confidence on its part to run the unit under the said scheme without the support of the banks. If this was the situation in December, 1979, how does one account for TIL's revived interest in its scheme ? To my mind, it is because of the huge amount of accumulated compensation money, now in the hands of the official liquidator received from NDDB under the interim arrangement. If the TIL scheme is approved and the winding-up order is revoked, TIL hopes to lay its hands on this huge amount of nearly a crore of rupees. But as things presently stand, the nationalised banks are not willing to co-operate with TIL. If at one stage TIL felt that it cannot run the unit under its scheme without the support of the banks and decided to withdraw, it is difficult to understand how it can hope to implement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statutory creditors are opposed to a particular sponsor and are unwilling to do business with him, should not the court substitute the sponsor to salvage the scheme in larger public interest rather than allow it to wither away? In such a situation if the court refuses to adopt a pragmatic approach and insists on the same sponsor implementing the scheme on the erroneous belief that he forms part of the basic structure of the scheme, the scheme is bound to face rough weather and if it capsizes (a risk not worth taking) it will prove disastrous to all interests, particularly the labour, for we will be back to square one. 78. On the one hand NDDB is a non-profit making body operating in the co-operative field while on the other hand TIL has profit-making as its objective. The NDDB objective is to benefit the producers as well as consumers by eliminating the middleman who is generally responsible for hiking up the prices of consumer goods and thereby offer the same at competitive rates. As its objective is not profit-making it can certainly offer its products at a price which is lower than that of a private enterpreneur such as TIL, and at the same time indirectly curb the monopolist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the risk of throttling the successful implementation of the scheme, the court will certainly prefer the former course. Speaking generally, the purpose of presenting a scheme is not only to benefit the members/creditors of the company but also to sub-serve public interest and if this objective cannot be satisfied without substituting the sponsor, the sponsor must yield. Therefore, in cases where the court is satisfied that the scheme cannot be successfully implemented without substituting or changing the sponsor, the court will, without doubt, lean in favour of substitution for the obvious reason that it is preferable to implement the scheme under another sponsor (management) rather than allow it to be defeated altogether. It is the scheme which is of paramount importance and not the sponsor who promotes it. If the situation in a given case demands that the sponsor must be substituted to save the scheme, the court should not hesitate to do so and the sponsor who is replaced should not grudge it because the endeavour of all, including the court, should be to achieve the main objective, namely, to revive the sick unit in public interest. If this approach of the court is correct its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had certain misgivings and they had resorted to a snap strike but, as stated earlier, their grievance was against the personnel manning the unit. The top brass in the management of the unit underwent a change to redress their grievance and in order to watch their performance I allowed some time to pass. The unit has since been working smoothly without any serious labour problem. In fact, NDDB has increased the percentage of D. A. payable to the workers on the summons moved by the Rashtriya Mazdoor Sangh which shows that the labour management relations are fast improving. It will appear from the above that by and large NDDB is acceptable to all concerned and since it is assured co-operation from the financial institutions, there is do difficulty in substituting it as the sponsor of the scheme which has received statutory approval. Final order 80. The upgraded TIL scheme which has been approved by the statutory majority is sanctioned on the following terms and conditions : (a)NDDB will stand substituted for TIL and the two judge's summons taken out for that purpose, namely, Company Application No. 106 of 1980 and Company Application No. 114 of 1980, are accordingly made absolute; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is order, give possession of the company to NDDB along with the relevant records; (l)the scheme will be implemented and carried out under this court's supervision and subject to the directions that this court may give from time to time for the better and efficient execution of the scheme; (m)if any difficulty is experienced in the execution or implementation of the scheme hereby approved and modified or any doubt arises as regards the true meaning and scope of any of the terms imposed 'by this order, parties will be at liberty to apply for further directions; (n)a copy of the finally approved scheme together with the modifications accepted by this order will be separately filed; and (o)a certified copy of this order will be filed with the Registrar of Companies as required by sub-section (3) of section 391 of the Act. 81. In the result, therefore, Company Petition No. 57 of 1976, preferred under section 391(2) of Act, for according sanction to the TIL scheme is allowed subject to the modifications made from time to time as also the modifications sought and granted by the two judges, summons, viz., Company Applications Nos. 106 and 114 of 1980, vide clause (a) and (b) herein- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resurrect an economically ruined oil & vegetable products manufacturing unit. The appellant-company, TIL, in terms, admits that it is not in a position to implement even its own less attractive scheme (offering something less to creditors, as also to shareholders) as the secured creditors and nationalized banks do not support it. Not prepared to offer the terms offered by its rival, not prepared to implement its own scheme which is much inferior and is admittedly unworkable, what locus standi has the appellant to challenge by way of this appeal an order sanctioning a scheme by the learned company judge ? What is the motivation ? Dog in the manger philosophy ? We are not told what interest the appellant has in challenging the impugned order. All that we are told is that on a microscopic examination of the relevant provisions (sections 391 and 392 of the Companies Act) in the light of the interpretation canvassed by the appellant the learned company judge had no jurisdiction to order substitution of its rival in the place of the appellant (notwithstanding the law laid down by the Supreme Court in S. K. Gupta's case [1979] 49 Comp. Cas. 342) as sponsor of the scheme to resurrect the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointed by the court to preside over this meeting submitted his report. On October 21, 1976, the appellant (TIL) instituted a petition for sanctioning the scheme. Before final orders could be passed by the court, NDDB proposed its own scheme. Thus, the scheme proposed by the appellant-TIL, which was sanctioned by the requisite majority, remained unsanctioned. The learned company judge, who was seized of the matter at the relevant time, issued appropriate directions in Company Petition No. 9 of 1978, filed by NDDB for calling the meetings of the shareholders, creditors and workers in order to consider the scheme sponsored by the NDDB. Strangely enough the equity shareholders who were prepared to accept 10 paise per share under the TIL scheme and had accepted the offer for payment at that rate in the course of the meetings called to consider the TIL scheme in 1976, refused to vote for the NDDB scheme whereby they were offered Rs. 10 per share in place of 10 paise per share. In other words, though, they were offered a price which was 100 times the price offered by the TIL, they did not accept the offer. The NDDB revised its offer upwards by offering Rs. 15 per share in place of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as Company Application No. 279 of 1979, praying for the refund of earnest money deposit of Rs. 75,000 on the premise that it was out of picture. This application was supported by an affidavit sworn by one Dalai, a constituted attorney of TIL. Thus, there was no question of granting approval to the scheme as proposed by TIL. Meanwhile, on February 15, 1980, learned counsel for M/s. Velji Shamji & Co., which had sponsored the TIL scheme, informed the court that his client no longer supported the scheme proposed by TIL and went to the length of stating that his client supported the NDDB scheme. On that very day, the NDDB took out a judge's summons for substitution of its name in place of M/s. Velji Shamji & Co.-the sponsor of the TIL scheme-and for modification of the said scheme to bring it in line with the NDDB scheme. So also M/s. Velji Shamji & Co.-original sponsor of TIL scheme-took out a judge's summons on March 13, 1980, which was registered as Company Application No. 114 of 1980, making a similar request for the substitution of NDDB for TIL in the scheme sponsored by it, subject to it being modified in conformity with the NDDB scheme. The prayers made in these two company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... workers there attended to vote against the scheme at the TIL meeting. NDDB also revised their scheme to bring it in line with the TIL scheme. So far as the preference shareholders are concerned, TIL agreed to pay them Rs. 10 per share whereas NDDB offered Rs. 25 per share straightway. Even the subsequently upgraded offer made by TIL does not offer the preference shareholders more than Rs. 20 per share. Thus, even at present NDDB offers Rs. 5 per share extra as compared to TIL. Equity shareholders were to receive a paltry Rs. 0 10 per equity share under the TIL scheme but NDDB offered Rs. 10 per equity share and hence TIL was compelled to raise its offer to Rs. 10 per share to which NDDB reacted by raising it to Rs. 15 per share. It will thus appear from the above that the scheme initially proposed by TIL was far from fair and equitable. It was only after NDDB entered the field that TIL was compelled to revise its scheme upwards. Even so it does not match the NDDB scheme in all respects". The learned company judge by his closely reasoned judgment and order dated January 20, 1981 (which is presently under challenge), granted the prayer for substitution of NDDB as a party in place o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall deal with in due course. So far as the present appeal is concerned, it is preferred by TIL, who does not want to go ahead with the scheme and thus has no understandable reason to challenge the order, which is not prejudicial to it. Since TIL does not want to go ahead with the scheme, whatever order has been passed by the learned company judge cannot in any way cause any prejudice to TIL. Yet, TIL has challenged the legality of the said order on grounds, to which we will advert in due course. The first question, however, arises as to whether TIL can be said to be an aggrieved party who has aright to challenge the order passed by the learned company judge granting the prayer for substitution of NDDB in place of TIL in the original scheme sponsored by Messrs. Velji Shamji & Co., which has been upgraded to bring it in conformity with the NDDB scheme, as it has finally emerged. We, on our part, are unable to see what interest TIL can have in questioning or challenging the legality of the order passed by the learned company judge, whereby a company is being resurrected, and as a result of which an industrial unit which has ceased production will be able to start production, provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substitution of NDDB in place of TIL. None of the creditors has preferred an: appeal. Thus, all the creditors have accepted the order of substitution. At the cost of repetition, it may be stated that, admittedly, TIL scheme is not workable. TIL is not prepared to deposit Rs. 1 crore, which the NDDB is prepared to do, and the banks having withdrawn their support to TIL, the scheme is not workable. Under the circumstances, it is difficult to comprehend how TIL can feel aggrieved by the order passed by the learned company judge. It would appear to us that TIL is not even an aggrieved party. Nor has TIL anything to gain by preferring this appeal in the sense that even assuming that the order passed by the learned company judge is set aside, TIL does not stand to benefit, for, its original scheme, which is much inferior, does not get automatically sanctioned and the court can never accord sanction to it, when NDDB has offered a much superior scheme which is beneficial to all concerned including equity shareholders who are, for some ulterior reason, opposing the prayer for substitution. All the same, since the appeal has been admitted and legal submissions have been urged by TIL to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that, strictly speaking, omission of the original sponsor of a scheme of compromise or arrangement and substituing another one in his place would not change the basic fabric of the scheme. This is also a proposition which cannot, therefore, be questioned before us. Even so, counsel for the appellant-TIL has contended that the order passed by the learned company judge substituting the name of NDDB as sponsor in place of TIL is contrary to law. For a proper appreciation of the submission urged in this context, it is desirable to reproduce sections 391 and 392 of the Act which are part of Chap. V which deals with arbitration, compromises, arrangements and reconstructions, in so far as they are material: "391(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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the context of the law laid down by the Supreme Court in S. K. Gupta's case empowers the High Court to make an appropriate order or to give appropriate directions or make such modifications, compromises or arrangements only "after" such compromise or arrangement has been sanctioned. In other words, the arrangement or compromise can be tackled by the court under section 392 of the Act. Counsel submits that the court cannot modify the compromise or arrangement by first substituting one sponsor for another sponsor and sanction the scheme thereafter. The court can only sanction the scheme without modification. And, if such a scheme is sanctioned, then only the sanctioned scheme can be modified in exercise of the powers under section 392 of the Act as interpreted by the Supreme Court in S. K. Gupta's case [1979] 49 Comp. Cas. 342 . Now, it is no doubt true that the question of substitution arose in 5. K. Gupta's case "after" the scheme was sanctioned under section 391 of the Act. While that position is, as a matter of fact, true, the ratio of the decision in S. K. Gupta's case does not turn on the question whether or not the substitution of sponsor and modification in this behalf was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s understandable. If a productive unit dies, it results in incalculable harm to the society, to the economy, to the workers, to the shareholders, to the creditors, and the banking institutions which serve the public by extending credit to the industrial units. If the industry thrives, the consumers would get more supplies, the workers would get employment, the State may get more revenue and the augmented public funds could be employed for a nation building purpose. The large investments made by the banking institutions would be lost if a sinking company is allowed to die. On the other hand, if a rescue operation is carried out under the powers conferred by sections 391 and 392 of the Act by infusing new blood and new life, all concerned stand to benefit. And there will be one more industrial unit producing more goods for the consumers. Availability of more goods would mean availability of goods at a more reasonable price. It will mean more employment in an age when unemployment on a large scale is the bane of the society. It will bring in more revenue by way of sales tax, income-tax and other taxes. How then shall we construe sections 391 and 392 ? Shall we construe them in a manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubted authority to modify the compromise or arrangement by substituting one sponsor for another. That the power of modification includes power of substituting the original sponsor by a new sponsor is a proposition which is not capable of being disputed in view of the law laid down by the Supreme Court in S. K. Gupta's case [1979] 49 Comp. Cas. 342 . We, therefore, do not see any substance in the first submission urged by the learned counsel for the appellant-TIL in this behalf. Is the order vulnerable on the ground that it seeks to do something in-directly which it could not have done directly ? The submission which is urged is that the learned Company Judge should not have authorised a scheme indirectly which was rejected by the shareholders and the creditors. The argument is that one cannot be permitted indirectly to do what cannot be done directly. It is contended that since the scheme sponsored by the NDDB had been rejected at the meeting of the shareholders and the creditors, NDDB cannot be substituted in place of the original sponsor by the order of the court; such is the submission, amounting to giving a back door entry to NDDB. Now, as discussed earlier, the scheme which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court would not create a situation where the shareholders inflict harm on themselves and also harm on all concerned. The existence of an industrial unit today is not a matter concerning the rights of the shareholders only. It is a matter in which the entire society, the consumers, the workers, the revenue and the welfare state, has a stake. The objection raised on the part of the shareholders must, therefore, be repelled unhesitatingly. But it must be realised that the present appellant is not the guardian-ad-litem of the shareholders. The present appellant-TIL is a limited company which has proposed the scheme which admittedly cannot work and which is admittedly less attractive than the scheme proposed by NDDB. One can best describe the attitude of TIL as the dog in the manger attitude, for the appellant-TIL can have no grievance if a dying company is reconstructed and if the shareholders, creditors, workers and the national economy benefits, whilst it loses nothing. Is it mere jealousy which makes it persist in opposing the scheme by preferring this appeal ? We do not know. But one thing is clear, viz., that TIL does not want to offer the same terms as NDDB offer. TIL is not prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompromise as to from whose pocket the compensation was going to come. In a given case if the sponsor sought to be substituted does not have the financial capacity to meet with the obligations undertaken by it, it may stand on a different footing. With such a hypothetical case we are not concerned in the present matter. So far as the present appellant is concerned, it is an admitted position that the financial viability of NDDB and its position to meet with its obligations under the scheme is not questioned by any one. Not even by the shareholders. Under the circumstances, how can TIL, who offered a much less attractive scheme which the court was not prepared to accept because it was against the interest of the shareholders, creditors and workers and which TIL itself, in any case, was not prepared to upgrade in order to bring it in conformity with the more beneficial scheme offered by the NDDB, can challenge the order passed by the learned company judge on this score ? There is no question of granting sanction to a scheme rejected by the shareholders and the creditors. In fact, sanction is being accorded to a scheme which was accepted by the shareholders and creditors with an upward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this value for the shares. Under the circumstances, we cannot accede to this argument which is altogether devoid of any substance. These were the only submissions urged on behalf of the appellant. We see no substance in any one of them. The appeal, therefore, fails and is dismissed. We may state that we have passed an order dismissing the appeal and refusing certificate of fitness to appeal to the Supreme Court of India on July 8, 1981, on which date we passed the order in the following terms : I "Appeal is dismissed for reasons which will follow hereafter. II Appellant will pay the costs of the respondents as also the workers. III Counsel for appellant orally applies for certificate of fitness to appeal to the Supreme Court of India. Certificate is refused as the matter does not involve any substantial question of law of general importance which in the opinion of this High Court needs to be decided by the Supreme Court. IV Counsel for the appellant applies for stay of the operation of the order dismissing the appeal in order to enable the appellant to appeal to the Supreme Court after obtaining special leave. We refuse the prayer for stay in view of the fact that Mr. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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