9911796707
TMI Blog2002 (1) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... sued redeemable non-convertible debentures in 'E' and 'F' series in the following three categories:- (a)Cumulative Debentures of Rs. 5200 each (b)Monthly Income Debentures of Rs. 3500 each (c)Regular Return Debentures of Rs. 2500 each. The total face value of all the debentures in Series 'E' and 'F' taken together was Rs. 69 crores. All the debentures were issued on 8-8-1996 and were to mature after a period of five years, i.e., on 8-8-2001. 2.3 The maturity value of the cumulative debentures was to be Rs. 12,000 each on 8-8-2001. A majority of debentures, which are the subject-matter of this petition are Cumulative debentures of Rs. 5,200 each and accordingly the discussion will centre around on the maturity value of such Cumulative debentures. As far as the other categories of debentures are concerned, i.e., Monthly Income debentures and Regular Return debentures, they have already been paid the interest accrued on the debentures as per the Debenture Deed and in their case the maturity amount on the face of it is the maturity amount of the principal debenture amount but the learned counsel for the petitioner points out that the maturity value is now worked out in such a mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ', Ahmedabad editions on 24-7-2001. The learned counsel for the petitioner further adds that it was also published in 'Gujarat Samachar'. The meetings were accordingly held on 18-8-2001 under the Chairmanship of Mr. Justice BJ Diwan (Retd.). The learned Chairman submitted his report. The report was produced before this Court in Company Application No. 188 of 2001 along with an affidavit dated 28-8-2001. 3.3 The number of Debenture holders who were present in person or through proxy in the various categories and those who voted in favour of the Resolution approving the scheme of compromise and those who voted against, with the percentage are set out in a chart hereinbelow (after excluding conditional votes and invalid votes; the particulars of which are already contained in the Chairman's report - the total number of abstentions, invalid votes and conditional votes being comparatively insignificant 87, 5 and 2 for Groups 'a', 'b' and 'c' respectively). (a)Result of the voting at the meeting of Cumulative Debenture Holders Total Valid Number % Value % Votes (Rs.) In favour 5184 99.08 6,96,96,000 98.78 Against 48 0.92 8,64,000 1.22 Total 523 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sm would be worked out and further that the amount agreed to be given is subject to sanction of the scheme by this Court and shall be paid within 30 days of the effective date under the scheme. It is further stated that the amount would be given by way of 0 per cent unsecured debentures or an instrument of a like nature to GLFL and would be repayable only after settling the liabilities of its other secured and unsecured creditors. In other words, GLFL proposes to pay 55 per cent of the maturity amount to the Debenture holders in 'E' and 'F' series from out of its own fund and the remaining 15 per cent amount is to be paid from the funds to be made available by Torrent (P.) Ltd. specifically for the purpose of paying the same to the debenture holders in 'E' and 'F' series and subject to the sanction of the scheme by this Court. CONTENTIONS OF THE DEBENTURE HOLDERS 6. The objections raised by Mr. I.J. Desai with Mr. N.V. Anjaria on behalf of the above 95 Debenture holders in 'E' and 'F' series are as under : 6.1-0 There was non-compliance with various statutory provisions. 6.1-1 There was breach of section 393(1)(a) of the Companies Act ('the Act'). The explanatory statement sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parkar for the company has also raised a preliminary objection against the locus standi of the Banks. That will also be discussed hereinafter. 8. For the present reference is made to the objections raised by the Banks only with a view to pointing out that the factum of objections raised by the Banks (and not their validity) is one of the factors which is required to be taken into consideration while taking the final decision for granting or not granting sanction to the scheme of compromise and Arrangement as proposed by the company and which has been approved by the overwhelming majority of the debenture holders who remained present and voted at the meeting held on 18-8-2001. COMPANY'S REPLY TO DEBENTURE HOLDERS 9.0 On the other hand Mr. Soparkar learned counsel for the company has made the following submissions in reply to the contentions raised on behalf of debenture holders in series 'E' and 'F':- 9.1 There was no breach of any provisions prescribing the procedure for convening and holding meetings of debenture holders. 9.2 The explanatory statement sent to the debenture holders along with the notice of the meeting convened on 18-8-2001 had set out all the relevant facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just fair to the class as whole so as to legitimately bind even the dissenting members of that class. 4.That all the necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by section 391, sub-section (1). 5. That all the requisite material contemplated by the provision of sub-section (2) of section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view of to satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, there is no dispute regarding the fact that one winding up petition was pending when the explanatory statement was sent on 18-7-2001. It is, however, the submission of the learned counsel for the company that the company did not intend to coerce the debenture holders into accepting the scheme proposed for compromise and arrangement by making a reference to the winding up petition but the company was keen to persuade the debenture holders that payment of 70 per cent of the maturity amount was best that the company was giving under the circumstances having regard to the depressed market conditions and the performance of other non-banking finance companies. 12.3 Without intending to lay down any general principle or making any general observation that non-disclosure of a pending winding up petition would not result into violation of the statutory requirement of disclosing material facts to the class of creditors, in the facts and circumstances of this case, it is clear that approval granted by a large number of debenture holders present and voting, was not vitiated on account of non-disclosure of pending winding up petition in the explanatory statement sent along with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles of association of the GLFL stipulating that five members personally present shall be the quorum, the grievance, though not frivolous, cannot be accepted. The quorum is fixed in terms of the number of persons, and not in terms of the percentage of the number of members or creditors. The concern about lack of participation of shareholders in management of the company or examination of the need for affirmative vote by a minimum percentage of affected members of a class are larger issues which do not merit any further discussion in the facts of the present case and must await debate in a more appropriate case. For the reasons being presently recorded in the facts of this case, the Court is of the view that looking to the circumstances in which the debenture holders were placed, they did not have too many options. Contention No. 5 : Merits of the Scheme of Compromise 15. The learned counsel for the 95 debenture holders is not in a position to show how the Scheme is violative of any provision of law or is contrary to public policy. It is not even the case of the objectors that the company is not acting bona fide or that the interest of any directors of the company is adverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of NBFCs having defaulted in payment, the offer made by the GLFL should be examined in this background and also in light of the challenge being made by the Banks to the offer of 70 per cent payment to the debenture holders. 17. Having heard the learned counsel for the parties, the Court is of the view that while the suggestion of Mr. Desai for the debenture holders cannot be said to be unreasonable, in view of the fact that performance of other NBFCs is hardly enviable, that even for raising the maturity amount from 55 per cent to 70 per cent, the company has to borrow funds from another company in its group and more particularly in view of the stand being adopted by the Banks (who did not oppose the payment of Rs. 157 crores to the unsecured fixed deposit holders but have all of a sudden become conscious of their alleged power and capacity to muzzle the company) opposing payment of even 70 per cent of the maturity amount to the debenture holders under the circumstances, the Court is of the view that the scheme as a whole cannot be said to be unjust, unfair or unreasonable from the point of view of prudent men of business taking a commercial decision beneficial to the debenture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y's case that 15 per cent additional maturity amount is to be paid to the debenture holders from borrowings from a group company does not alter the fact that the entire maturity amount is going to be paid by the company itself. The source of funds has no bearing on the question involved. COMPANY'S REPLY TO BANKS 19. On the other hand, Mr. Soparkar the learned counsel for the company has raised the preliminary objection that the scheme of compromise having been offered only to the debenture holders in Series 'E' and 'F', it is for them alone to raise any objection to the scheme and the Banks have nothing to do with the scheme and, therefore they have no right to object to the scheme offered to the debenture holders in 'E' and 'F' series. Without prejudice to the said preliminary submission, Mr. Soparkar has made the following submissions:- 19.1 There is no question of any illegal classification; on their own showing banks claim a higher status over the debenture holders; hence it cannot be said that the Banks and the debenture holders belong to the same class. 19.2 Merely because the Banks can proceed with their cases before the DRT or proceed with the winding up petition, it d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of compromise between the company and the debenture holders in 'E' and 'F' series. 21. Section 391(1) provides that where a compromise or arrangement is proposed between a company and its creditors or any class of them, the Court may on the application of the company or of any creditor order a meeting of the creditors or class of creditors, to be called, held and conducted in such manner as the Court directs. It further provides that if a majority in number representing three-fourths in value of the creditors or class of creditors, present and voting either in person or by proxy at the meeting, agree to any compromise or arrangement, such compromise or arrangement, if sanctioned by the Court, be binding on all the creditors or all the creditors of the class and also on the company. The Act itself thus permits compromise between the company and a class of is creditors and it is not necessary that the compromise must be between the company on the one hand and all its creditors on the other hand. BANKS' OBJECTION NO. 1 22. Mr. Kavina for the Banks has however vehemently submitted that both the Banks as well as the debenture holders in series 'E' and 'F' belong to the same class o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting cannot be sanctioned, vide Court Practice Note in [1934] Weekly Notes 142. The responsibility for determining what creditors are to be summoned to any meeting as constituting a class is of the applicant company and if meetings are incorrectly convened or constituted or an objection is taken to the presence of any particular creditor as having interests competing with the others such objection if successfully taken at the hearing of the petition for sanctioning the scheme the company must take the risk of having it dismissed. It is always a moot question what constitutes a class. Buckley on the Companies Acts, 13th edition, page 406, has observed that it is a formidable difficulty to say what constitutes a "class" of creditors. The creditors composing the different classes must have different interests. When one finds a different state of fact existing among different creditors which may differently affect their minds and their judgment, they must be divided into different classes. 'Class' must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest (vide Sovereign Life Assurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here are different groups within a class the interests of which are different from the rest of the class or who are to be treated differently in the scheme, such groups must be treated as separate classes for the purpose of the scheme. It is, thus, clear that the debenture holders in 'E' and 'F' series who are required to give up their claim over 30 per cent of the maturity amount constitute a separate class and when the company does not require any waiver of rights by the Banks, there is no question of offering any scheme of compromise to the Banks. The fact that the Banks and the company agreed that the company will pay 55 per cent of the Banks' dues by 31-3-2002 and that further stages of recovery will be determined after 31-3-2002 only pertains to the question of recovery of the amount and it does not have any effect on the Banks being required to give up any of their rights. Hence there is no merit in the contention raised on behalf of the Banks that the company has resorted to illegal classification. BANKS' OBJECTION NO. 2 26. As regards the objection that since the Banks have the power to styme the scheme by having recourse to its remedies under the provisions of the Debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers in 'E' and 'F' series. BANKS' OBJECTIONS NO. 5 28. The contention urged on behalf of the Banks that source of funds is not relevant, cannot be accepted. The Banks do not and cannot have any charge over the contributions from another company of the promoter group or over the refund amount received from the Income-tax Department, even if the refund pertains to the year/s prior to the year in which the debentures in question were issued. STAND OF THE CENTRAL GOVERNMENT 29. As far as the Central Government is concerned, Ms. Parinda J Davawala, the learned Additional Standing Counsel for the Central Government has produced on the record of these proceedings the letter dated 6-11-2001 from the registrar of companies with a copy of the letter dated 16-10-2001 from the Regional Director to the Registrar of Companies. It is submitted by the learned Additional Standing Counsel that the Central Government does not have any objection to the Scheme of Compromise and that as per the Central Government, the matter may be left to this Court to be decided on merits. The letter dated 16-10-2001 merely makes a reference to the winding up petition filed by the Union Bank of India and Company A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs. 11 crores or any higher amount being borrowed by the company is not from the public at large, but its own promoter group which has agreed for the aforesaid lending for the purpose of increasing payment of maturity amount to the debenture holders in 'E' and 'F' series from 55 per cent to 70 per cent. Hence, the borrowing by the company from its promoter group for payment of maturity amount and interest to the debenture holders would not amount to acceptance of any public deposit prohibited by the Reserve Bank of India's directive dated 28-8-2000. 33. Mr. Soparkar further points out that under the interim orders dated 12-7-2001, the company had deposited a sum of Rs. 27.65 crores with the BNP Paribas and that the amount lying with the said Bank as on today is Rs. 35 crores plus interest thereon which amount is lying in a separate 'No lien' bank account with the aforesaid bank at 203, Sakar II, Ellisbridge, Ahmedabad-6. By the order dated 12-7-2001, the Bank was directed not to permit any withdrawal from the said amount for any purpose other than for payment of debenture holders under the present scheme of arrangement. 34. Considering the fact that the aforesaid amount is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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