9911796707
TMI Blog1983 (9) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... , including the petitioners in Company Petitions Nos. 544 and 551 of 1982, appeared and supported the petitioning creditor. The application was adjourned after directions were given for filing of affidavits. The said application is pending. Thereafter, on April 28, 1983, M/s. Pokharmull & Sons filed another winding-up petition and applied for appointment of a provisional liquidator over the company. On the same day, the official liquidator was appointed the provisional liquidator of the company. On May 12, 1983, the company filed an application under sections 391, 392 and 393(3) of the Companies Act, 1956, proposing a scheme of compromise or arrangement with its creditors and for directions for meetings to be held for that purpose. On May 12, 1983, directions were given in the said application for calling a meeting of the unsecured creditors of the company on July 23, 1983, for consideration of the proposed scheme. Notice of the meeting was directed to be advertised. On May 13, 1983, the company filed an application under section 391(6) of the Companies Act, 1956, for an order, inter alia, that commencement and continuation of all suits and proceedings against the company be sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if properly run, will have an annual turnover of Rs. 8 crores with a profit margin of 10%. Of the Faridabad unit, it is the case of the company that the spinning department is viable and, if run properly, can effect annual sales of Rs. 3.75 crores with a similar profit margin of 10%. The textile department of the Faridabad unit is admitted to be sick. Its plant is stated to be obsolete and uneconomic. The company proposes to dispose of the said unit. An agreement, it is alleged, has been entered into for the sale of the said weaving and processing unit of the textile department of the company at Faridabad with its plant, machinery and assets for Rs. 52.50 lakhs. Rs. 5 lakhs have been received as advance payment of price. The company contends that with the balance of the sale proceeds, i.e., Rs. 47.50 lakhs, and with the help of the Punjab National Bank, its bankers, the company can be revived. The bank, it is alleged, has offered facilities to the company by way of rehabilitation-cum-renewal loan by its letter dated May 4, 1983. Learned counsel for the petitioning creditors and for the supporting creditors submitted at the hearing that 3/4ths of the creditors of the class to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no provision in the original scheme even for postponement of payment of the unsecured loans. The proposal to amend the scheme and provide for postponement of payment of the unsecured loans, it was submitted, was illegal even with the unanimous consent of the creditors. Under the Companies (Acceptance of Deposits) Rules, 1975, read with section 58A of the Companies Act, unsecured loans had to be treated as deposits. A company was not entitled to accept unsecured loans exceeding 20% of its paid up capital plus its reserves and surplus reduced by accumulated loss. The share capital and the reserves and surplus of the company in the aggregate was Rs. 60,67,060, whereas the accumulated loss as on December 31, 1981, was Rs. 2,28,70,575. The unsecured loans thus exceeded the statutory limit and were illegal. The same were repayable forthwith unless time for repayment was extended by the Central Government. It was next submitted that the sundry creditors and the unsecured loan creditors constituted two different classes. Proposed repayment of these two classes of creditors were also on different bases. It was submitted that the approval of three-fourths majority of both the classes of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter. The scheme was approved by a large majority of shareholders and creditors. The court rejected the scheme and directed winding-up of the company. On appeal from this order, it was found that (a ) the scheme, if adopted, might give the depositors a part of their dues but it was misrepresented in the scheme that the bank would be ultimately revived; (b) wrongful withdrawals from the bank of large amounts by the directors and their associates were not brought to the notice of the creditors and the shareholders; (c) that the bank was hopelessly insolvent; and (d) the creditors who were not depositors had not been considered in the scheme. The rejection of the scheme was upheld. The appeal court observed as follows (p. 81 of 10 Comp. Cas.): "The fact that shareholders and creditors of a company have approved of a scheme of compromise or arrangement as contemplated by section 153 of the Indian Companies Act does not mean that the court is bound to accept the scheme. It is the court's duty to examine the proposals and decide whether they are fair and reasonable, taking everything into consideration. That the shareholders and creditors have approved of a scheme will of course carry w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enable it to carry on its business. The application was rejected. (d) A.M. Muhammed Abdulla Tharagnar v. Official Liquidator; Cape Comorin Generals Traffic Co. Ltd. [1953] 23 Comp. Cas. 161 ; AIR 1952 TC 243. Here, in an application under section 153 of the Indian Companies Act, 1913, for propounding a scheme for reconstruction of a company, which was in liquidation, and praying for an order directing a meeting of the shareholders as a matter of course, a Division Bench of the Travancore Cochin High Court rejected the application on the ground that an identical application, made earlier, had been rejected. (e) Bengal Bank Lid. v. Suresh Chakravarthy [1951] 21 Comp. Cas. 315 (Cal.); AIR 1952 Cal. 133. In this case, a scheme of arrangement was propounded by a bank and was approved by the required majority of the shareholders. The scheme was thereafter modified by the Reserve Bank. The court refused to sanction the same. A Division Bench of this court dismissed the appeal preferred from the order refusing sanction, observing as follows (p. 317 of 21 Comp. Cas.): "The court does not sanction a scheme merely because it has been approved by the requisite majority. The court does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll yield to a smooth and satisfactory execution." (g) Krishnakumar Mills Co. Ltd., In re [1975] 45 Comp. Cas. 248 (Guj.). In this case, a company was in the process of liquidation and the official liquidator under directions of the court had advertised sale of the assets of the company inviting tenders. At this stage, a creditor moved an application under section 391 of the Companies Act for convening a meeting of the shareholders and creditors of the company to consider a scheme of compromise and arrangement. The secured creditors appeared and opposed the application, before directions for holding the meeting were issued, alleging that the proposed scheme was neither reasonable nor practicable and that a similar scheme had been rejected in the past. The court after considering the objections rejected the application. (h) Hellenic and General Trust Ltd., In re [1976] 1 WLR 123 (Ch D). This decision of the Chancery Division of the English High Court was cited for the proposition that the interests of a wholly owned subsidiary of an intended purchaser of shares under a scheme of arrangement were different from those of the ordinary shareholders who formed a different class and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not come under the mischief of the Companies (Acceptance of Deposits) Rules. Under section 58A of the Act, a company was permitted to apply to the Central Government for extension of time for repayment of deposits and exemption from the penal consequences laid down in the said section. The form prescribed for such an application required the company to state, inter alia, whether there was any scheme for repayment of deposits approved by a High Court. It was possible to propound a scheme for repayment of deposits and such a scheme would not be ex facie illegal. If there was any lacuna in the scheme, the same could always be amended either by the court or at a meeting of the creditors where objections could be raised and considered. Learned counsel submitted last that the intention and the desire of a large number of creditors of a company could not be ignored in deciding whether the company should be wound up or not. Unless shown that the majority of the creditors have coerced the minority or intended to further their special interest at the cost of others, the desire of the majority should be favourably considered. Taking into account the current socio-economic condition, ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in fact deposits will be deemed to be deposits, cannot be deferred. The said prohibition in the rules, in my view, is not absolute as section 58A of the Companies Act provides for extension of the time for repayment of deposits with the sanction of the Central Government. With the consent of the majority of the loan creditors, there is no reason why sanction by the Central Government, if applied for, will be withheld. On this aspect, the scheme may need further amendment. In the event such sanction is not ultimately granted, the scheme will become void. I do not find the scheme to be patently illegal. A contention has been raised that the creditors of the company should be divided into two classes, viz., sundry creditors and loan creditors, and that the scheme should be considered by the two classes separately. Prima facie, I do not find any particular reason for such a classification. It is nobody's case that the loan creditors are not genuine creditors or that they have any special interest to override or oppress the sundry creditors. In any event, I am not expressing my final opinion in the matter and the same may be agitated if and when the scheme is approved in the meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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