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TMI Blog1994 (4) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... o receive their dues, i.e., retrenchment compensation, gratuity, etc., and such dues of applicants Nos. 2 and 3 and other class of workers would approximately work out to Rs. 6 crores and, therefore, they have stated that in their capacity as creditors they have filed the present summons. The applicants have proposed the scheme of compromise and arrangement for the revival of the Ahmedabad Shree Ramakrishna Mills Co. Ltd. with or without modification provided that such scheme is approved by secured and unsecured creditors, preferential creditors of the company and provided that it is also approved by the equity shareholders. The authorised share capital of applicant No. 1 society is stated to be Rs. 10 lakhs divided into one lakh shares of Rs. 10 each while its issued, subscribed and paid-up capital is Rs. 4,06,000 divided into 40,600 shares of Rs. 10 each. The paramount object of applicant No. 1 is to remove unemployment of the members and to revive or restart the closed units and thereby to generate employment opportunities for its members. The applicant society claims to have a membership of 4,060 persons out of which 3,700 members are workmen of different textile mills. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efer to the various proposals of the scheme and at appropriate places reference thereto shall be made. The aforesaid schemes proposed by the applicants and the company application seeking directions to convene meetings of various affected interests is seriously opposed by the secured creditors of the company in liquidation. The secured creditors of the company are (1) Industrial Finance Corporation of India Ltd., (2) ICICI, (3) Central Bank of India, and (4) the Executors and Trustees Department of the Central Bank of India. The Industrial Finance Corporation of India Ltd. has filed a detailed affidavit of S.R. Patel, Manager (Law) and he has set out various reasons as to why no directions as prayed for in the summons should be issued and as to why the company application should be rejected. Similarly, the Central Bank of India has also filed an affidavit-in-reply of H.N. Bhatnagar, chief manager and has opposed the request for issuance of any directions as prayed for in the judges' summons. Objections from secured creditors: (1)After going through the affidavits-in-reply filed by two of the secured creditors, and after hearing the submissions made by learned counsel for the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and, therefore, it should not be entertained. (e)The proposed scheme by applicant No. 1-society is no scheme of arrangement in the eye of law as there are no concrete proposals. The scheme is very vague. The scheme is both technically and economically not viable. The scheme does not stipulate starting of the entire unit but it merely stipulates starting of the processing unit without starting the weaving unit. The scheme makes no provision for proper finance to start with and in the absence of financial soundness of the applicant the scheme is bound to fail. The scheme, in fact, is based on the possibility of waiver of liabilities of the closed unit by the Government of India, and as such, the possibility is once again based on some nebulous and platitudinous statement made by a Member of Parliament, it cannot be said to be based on any reliable foundation. In fact, no Government's policy or positive stand of the Government is annexed to the scheme which may justify an inference that the Government would definitely waive the liabilities of the company in liquidation. The scheme is, therefore, stated to be hollow and absolutely impracticable and defective on almost every count. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting and to put forth their points of view on the scheme so that the unit might restart. Such power of veto can be exercised even thereafter by the secured creditors, and therefore, also the relief prayed for in the application should be granted, submits Mr. B.R. Shah, learned advocate for the applicant. Re-objection (a ) and ( b): (i)It is true that initially an application was filed by Gujarat Kamdar Sahakari Mandali Ltd. It is also true that the original applicant is a registered co-operative society. It is also true that the said applicant is neither a creditor nor a shareholder of the company in liquidation. This objection to the maintainability of the application, as it stood prior to its amendment, would have been a strong technical objection. However, leave to amend the company application was granted to the applicant during the course of hearing and applicants Nos. 2 and 3 were permitted to be added as party applicants. From the cause title of the application as it stands now Chhalashankar D. Shukla and Kalyanbhai Ramchandra. Sharma are applicants Nos. 2 and 3, who were the workers of the company in liquidation. It is their case that as workers of the company in liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidation, the application is not maintainable and would remain to be not maintainable. In my opinion, once applicants Nos. 2 and 3, who are members of applicant No. 1-society are impleaded as party applicants, and once it is asserted that they are the creditors of the company in liquidation, in the sense stated hereinabove, the objection has no foundation to stand and it shall have to be rejected. The objection would pale into insignificance the moment it is established that applicants Nos. 2 and 3 who are the members of applicant No. 1-society are in law entitled to maintain such application. If the application is maintainable at the instance of a single creditor and if it is filed by such single creditor for and on behalf of himself as well as by the society of which he is the member it cannot be said that such application is not maintainable. In that view of the matter, the aforesaid objections (a) and (b) are overruled. Re-objection (c ): (i)The objection as set out hereinabove itself makes clear that it is once again a technical objection. The objection is, to say the least, not expected of a banking institution or financial institution. To say that the present summons is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety proposing the scheme. It is, therefore, submitted that when sufficient progress is made towards sale of the assets and properties, an application of this nature by the aforesaid workers is belatedly filed and is filed solely with a view to defeating the process of sale already commenced by this court. At this stage it is required to be noted that in the absence of any scheme and the arrangement to revive or restart the textile unit, and in view of the fact that the secured creditors wanted to enforce their securities by remaining outside the winding up proceedings they approached the court for necessary permission. In the absence of any scheme from any quarter the judge of the company court was expected to take some reasonable step on such application. It was with a view to processing such application and with a view to knowing the price which the assets of the company could fetch that this court has taken various steps. However, taking of such steps by this court would not militate against an application proposing a scheme to restart a closed unit. At this stage, this court has simply received seven offers which are far below expectation and the market price at which the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile there is no proposal to start the weaving unit. In fact, there is a tacit admission that the applicant-society is not in a position to start weaving unit at this stage. It is further submitted that financially also the applicant-society is not in a position to fulfil its obligation inasmuch as the entire scheme is based on possibility of waiver of above liabilities of the closed unit towards the Government and semi-Government organisation and financial institutions. It is submitted that the scheme is so hollow and so truncated that it is not likely to be accepted by any reasonably prudent and rational class of creditors much less by a conscientious class like that of the secured creditors, the financial institutions. Lastly, it is submitted that on consideration of the provisions of the scheme the financial institutions are not likely to accept the scheme. The scheme should be rejected as unworkable, unreasonable and impracticable. In this connection, reliance was placed upon the decision of the learned single judge of this court in the case of Krishnakumar Mills Co. Ltd, ( In Liquidation), In re [1975] 45 Comp Cas 248 (Guj). (ii)While deciding the aforesaid objection on the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 391(1) of the Companies Act, to convene meetings of the shareholders and creditors to consider the arrangement of the scheme of compromise between Krishnakumar Mills Co. Ltd. (In liquidation) and the creditors and members of the said mills. The applicant before the court was one Ratilal Manilal Shah who was the creditor of the company. The scheme was opposed at the initial stage of issuing directions by two secured creditors, namely, the Gujarat State Financial Corporation and the State Bank of Saurashtra. On behalf of the secured creditors affidavits-in-reply were filed setting out the reasons why they have opposed any order being issued for convening the meetings of the shareholders and the creditors. The principal reason stated by them was that the scheme was neither reasonable nor practicable of being implemented and that a similar scheme was in the past rejected by the court summarily. It was in the aforesaid fact situation that the court was called upon to decide as to whether the meetings of the shareholders and the creditors be convened or not. The court noticed that in the case before it the process was already initiated by the official liquidator for sale of mov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eighed with the court in Krishnakumar Mills Co. Ltd. (In liquidation) , In re [1975] 45 Comp Cas 248 (Guj) in rejecting the application was that more than half of the total value of the creditors were opposing the scheme and, therefore, the scheme cannot be said to practicable of implementation. The submissions made by the sponsor of the scheme before the court that the court should not turn down the scheme at the initial stage and must give an opportunity to the shareholders as well as creditors to consider what is best in their interest and to have discussion, deliberation and exchange of views about making the scheme workable was negatived by the court solely because the secured creditor opposed the scheme. Based on the aforesaid finding reached by the learned single judge of this court, it is submitted before this court that the ratio of the decision is that when the secured creditors are opposing the scheme as one which is not reasonable and capable of using implemented, the court should at the threshold reject the application for convening the meeting of shareholders and creditors as no useful purpose would be served and as convening of meeting of shareholders and creditors w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured creditors an application for convening the meeting of shareholders and creditors shall have to be rejected by the court. (v)Mr. S. M. Singhi, learned counsel appearing for the Industrial Credit and Investment Corporation of India has invited the attention of this court to the decision of the Bombay High Court in Sakamari Steel and Alloys Ltd., In re [1981] 51 Comp Cas 266 . Before the Bombay High Court, the company has a mini-steel plant at Nagpur. Within two years of its commissioning the business, it closed down in the year 1976. The financial position of the company as emerging from the audited balance-sheet was very poor. Two secured creditors of the company, namely, the State Industrial and Investment Corporation of Maharashtra Ltd. and Bank of Maharashtra had also instituted suits and the company had failed to pay its debts. In exercise of powers under the respective mortgages both the State Industrial and Investment Corporation of Maharashtra Ltd. and Bank of Maharashtra entered into possession of the factory premises and took possession of the plant and equipment. They thereafter proceeded to advertise sale of the company's factory and invited offers. The offer of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to undertake the exercise of enumerating exhaustively the factors which the court must take into consideration. Totally new factors may arise and may be legitimately taken into consideration by the court. Therefore, without undertaking the exercise of exhaustively enumerating the factors which the court may take into consideration while considering the application under section 391(1), some of the relevant factors which can be considered at the threshold as set out by the Bombay High Court can be enumerated. They are: "(i)Whether the company is qualified to sponsor a scheme, that is, if it is liable to be wound up as defined in section 390(a). (ii)The motive of the company or creditors in sponsoring a scheme. (iii)Whether the company is really intending to save itself from liquidation or it wants to eat up a part or whole of the principal amount or interest of a particular class of its creditors. (iv)Whether all creditors who are similar in that class are covered under the proposed scheme. Persons whose rights are not so dissimilar should be covered by the same scheme as otherwise it would be impossible for them to consult together and protect their common interest. The prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme there is no charm in making order for convening the meeting of secured creditors. Unfortunately, it is not a question of charm but it is a question of opening the doors for negotiation, discussion and deliberation, and if any discussion, deliberation may bring about a change of mind or heart the court's action shall not shut it by rejecting the application outright. (vii)This would require this court to consider one another objection put forth by the IFCI, and it is to the effect that the applicant-co-operative society has no experience of textile business and is not economically and financially sound so as to manage the business of the company in liquidation. It is further submitted that the company in liquidation has three departments, namely, spinning, processing and weaving and the proposal is to restart only the spinning/processing unit while there is no proposal to restart the weaving department. It is further submitted that the applicant-society has been doing small or petty jobs of altogether different nature of work such as scheme of gutter or drainage laying, scheme of water-pipelaying and other sundry works which can be done on contract basis. The applicant-society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors (financial institutions) shall waive their dues as per the policy of the Government of India.. It is, no doubt true that as on date no concrete policy of the Government of India is made known to this court or to the financial institution. But the applicant-society consistent with the underlying policy of the constitutional provision and with the statement made on the floor of the House on behalf of the Government has submitted before this court that the court should, at this stage, permit the applicant to go to the interests affected by convening meetings with them. Even otherwise, by making reference to the Companies (Amendment) Bill, 1985, whereby section 529 came to be amended it can be said that the resources of the companies constitute a major segment of the material resources of the community; and common good demands that the ownership and the control of resources of every company are so distributed that in the unfortunate event of its liquidation, workers whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the product of their labour and effort. With such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication for convening the meeting at the threshold on the ground that the workers do not possess managerial expertise. The plight of such workers is very pithily described by M.P. Thakkar J., speaking on behalf of the Supreme Court in Navnit R. Kamani v. Kamani (R. R.) [1988] 4 SCC 387, 389; [1989] 66 Comp Cas 132, 135, as under : "More than a thousand brimming eyes are waiting to replace the tears of despair by tears of relief. No less than 600 wronged workers of a once prosperous industrial unit induced or reduced to 'sickness' are on their toes to resort to self-help to restore the last source of their butterless bread. Their pens are quivering to write a new chapter in the saga of workers' struggle for finding their true 'identity' and 'dignity'. Their dream is coming true with the enlightened and refreshing approach of the Central and State Governments, and the concerned Nationalised Banks, coupled with prompt, efficient and swift decision making on the part of the BIFR and IDBI". (ix)It is with the aforesaid approach that the application is required to be approached, and in the opinion of this court the approach of examining the essential nature of the scheme at the stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no possibility of financial institutions agreeing to such scheme, and, therefore, the scheme is required to be rejected at the threshold. It is no doubt true that at present the applicant-society is not possessed of any other cogent material to support its claim that the Government of India has taken such a policy decision but it is submitted before this court that in case such support is not coming forth from the Government of India as per its policy, the scheme stipulates that the sponsor will work out a package deal in consultation with the financial institutions on the lines of packages offered by the sick industrial undertaking while permitting the scheme for revival and rehabilitation. The possibility of working out such packages by discussion or deliberation could not be ruled out but it is submitted by learned counsel for the financial institutions that there should be a concrete proposal or concrete package deal and in the absence of any proposal in the alternative, the scheme deserves to be rejected. It is submitted by them that in the absence of any concrete proposal no useful purpose will be served by convening the meeting of secured creditors as secured creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rights of the creditors. The proposal in the scheme is as under: "4A. Reduction and reorganisation of share capital of Ramkrishna. - (i) The issued, subscribed and paid-up share capital of Ramkrishna shall be reduced from Rs. 45,16,500 divided into 4,07,050 equity shares of Rs. 10 and 8921 5.71 per cent, redeemable cumulative preference shares of Rs. 50 each Rs. 4,51,655, divided into 4,07,959 equity shares of Re. 1 and 8921 5.71 per cent, redeemable cumulative preference shares of Rs. 5 each, such reduction to be effected by cancelling the capital paid-up to the extent of Rs. 9 per equity share and Rs. 45 per preference share. (ii) Forthwith upon such reduction of capital taking effect, the 4,07,050 equity shares of Re. 1 each and 8,921 preference shares of Rs. 5 each consolidated in such manner that every 10 equity shares of Re. 1 each shall constitute one equity share of Rs. 10 and every 20 preference shares of Rs. 5 each shall constitute one preference of Rs. 100 fully paid-up". (xii)It thus becomes clear that the share capital stands reduced to 4,07,050 equity shares of Re. 1 and 8,921 preferential shares of Rs. 5. However, it is submitted by the sponsor of the scheme tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company shall be convened and held at the Gujarat Chamber of Commerce Hall, Ashram Road, Ahmedabad, on July 23, 24, 1994, at 11 a.m. for the purpose of considering and if thought fit approving with or without modifications the scheme of compromise and arrangement proposed by the applicant society for the revival of the opponent-company. (iii)That a meeting of employees of the opponent-company shall be convened and held at the Gujarat Chamber of Commerce Hall, Ashram Road, Ahmedabad, on July 23, 1994, at 11 a.m. for the purpose of considering, and if thought fit, approving with or without modifications the scheme of compromise and arrangement proposed by the applicant-society for the revival of the opponent-company. (iv)That a meeting of preferential creditors of the opponent-company shall be convened and held at the Gujarat Chamber of Commerce Hall, Ashram Road, Ahmedabad, on July 23, 24, 1994, at 11 a.m. for the purpose of considering and if thought fit approving with or without modifications the scheme of compromise and arrangement proposed by the applicant-society for the revival of the opponent-company. (v)That a meeting of 13.5 per cent, partly convertible debenture holder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertisement, the notice and the statement accompanying the notice and the same shall be settled by the chairman appointed for the meetings. (xi)That, Mr. R.R. Jain, Registrar, Gujarat High Court, and failing him, Mr. Dholakia, Deputy Registrar, shall be the chairman of the meetings to be held on July 23, 24, 1994, as aforesaid. (xii)That the chairman appointed for the meetings do issue the advertisement and send out the notices of the meetings referred to above. (xiii)That the quorum for the said meetings shall be decided by the chairman for the respective meetings. (xiv)That voting by proxy be permitted, provided that a proxy in the prescribed form duly signed by the person entitled to vote at the meetings is filed with the applicant-company at its registered office at Gandhi Majoor Sevalaya, Bhadra, Ahmedabad, not later than 48 hours before the respective meeting. (xv)That the value of each member or creditor shall be in accordance with the books of the company and where the entries in the books are disputed, the chairman shall determine the value for the purpose of the meeting. (xvi)The chairman is directed to report to this court the result of the said meetings within seve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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