TMI Blog2002 (4) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... subscribed share capital running into crores of rupees and issued equity shares of Rs. 1,00,54,99,450 with redeemable cumulative and non-convertible preference shares etc.; that the company and its associated textile companies employed over 10,000 persons in and around the city of Ahmedabad making them a largest private sector employer in the State of Gujarat; that the petitioner company earned profit for pretty long time; that the company obtained borrowings/credits from various Banks and financial institutions to finance its business needs and as on 31-3-2000 the total debt of the company mounted to approximately $ 593 million or Rs. 2,700 crores; that 64 per cent of that is from on-shore lenders and balance from off-shore lenders. That during the period between years 1997-2000 the company started making loss and was confronted with falling denim price and increase in manufacturing cost. The changed supply and demand structure in the industry, world-wide intensified price competition and as a result there was steep fall in the company s sales realisation. That, on account of sharp increase in full expenses, significant cost and time overrun in certain projects, pre-operative exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting of secured creditors, unsecured creditors and working capital lenders was, whether unsecured/secured/working capital creditors of the company approved the Scheme of Arrangement submitted at the meeting in the form of resolution. That, thereupon the aforesaid resolution on the proposed Scheme of Arrangement was put to vote by poll. That twenty (20) unsecured creditors holding Rs. 8,914.94 million of the outstanding unsecured debt of the company as on 31-3-2000 voted in favour of the said Scheme of Arrangement, representing 95.24 per cent in the number of unsecured creditors and 98.95 per cent in value of the total outstanding unsecured debt of the company as on 31-3-2000, present and voting, excluding invalid ballot papers. One unsecured creditor voted against the Scheme of Arrangement representing 4.76 per cent in the number of unsecured creditors and 1.05 per cent in value of the total outstanding unsecured debt of the company as of 31-3-2000 present and voting. Thus the scheme was approved and resolution was passed with the requisite majority. That the meeting of the working capital lenders of the company was attended by 12 working capital lenders. That the resolution on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the total outstanding secured debt of the company as of 31-3-2000, present and voting, excluding invalid ballot papers. Six (6) secured creditors holding Rs. 1,235.16 million of the outstanding secured debt of the company as of 31-3-2000 voted against the said Scheme of Arrangement representing 14.63 per cent in the number of secured creditors and 11.43 per cent in value of the total outstanding secured debt of the company as of 31-3-2000 present and voting. Five (5) votes were found to be invalid. That the scheme approved and resolution was passed with the requisite majority. 3. The company along with the petition under section 391(1) presented the scheme Exhibit D floated by the body of creditors for approval and prayed for the reliefs stated in para-24 of the petition. The petition was admitted on 25-7-2001. This Court directed the petition to be advertised in Times of India (Ahmedabad edition), Gujarat Samachar (Ahmedabad edition) and Sandesh (Ahmedabad edition). Notice in Official Gazette was dispensed with. The notice to the Central Government was directed to be served through Regional Director, Department of Company Affairs, Bombay. Mr. S.B. Vakil, the learned seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y lenders (off-shore lenders) have not been constituted as a separate class. 5. On 1-2-2002 Ms. P.J. Davawala, the learned additional standing counsel for the Central Government stated that the Government of India has no objection to the sanctioning of the scheme or restructuring and produced letter dated 13-9-2001 by Registrar of Companies, Gujarat, to the said effect. 6. I have heard Mr. S.N. Soparkar, the learned senior counsel with Mrs. Swati Soparkar for the petitioner company, Mr. S.B. Vakil, learned senior counsel with Mr. A.S. Vakil for United Bank of Switzerland, Mr. P.C. Kavina, the learned counsel with Mr. A.S. Diwan Mr. N.C. Thakkar for Commerzebank AG, Mr. P.P. Banaji, the learned counsel for Fuji Bank, Ms. Rajni Iyer, the learned counsel with Mr. Jal Soli Unwala for Bank of Nova Scotia Asia Ltd., Mr. S.N. Shelat, the learned senior counsel with Mr. N.V. Anjaria for Deutsche Bank, Mr. K.S. Nanavati, the learned senior counsel with Ms. Megha Jani for UCO Bank, Ms. P.J. Davawala, the learned counsel for Union of India, Department of Company Affairs, Mr. Mihir Joshi, the learned counsel for State Bank of Saurasthra, Singhi Co. for Exim Bank and Mr. D.S. Vasawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o this Court vide report dated 20-7-2001. It is not in dispute that, out of total number of secured creditors the present objectors four (4) in number have chosen to object to the scheme being sanctioned by this Court under section 391. 8. The salient features of the scheme reproduced in para-14 of the petition read : ( a )The Scheme of Arrangement ( the Scheme ) with the creditors has the effect of restructuring of the debt of the company owed to the existing lenders (as defined in section 1 of the Schedule) pursuant to section 391 and other relevant provisions of the Act. ( b )In the scheme, unless repugnant to the meaning or context thereof, the following expressions shall have the following meanings : I. Act means the Companies Act or any statutory modification or re-enactment thereof; II. Commencement Date or Appointed Date shall mean 1-4-2000, being the date as of which (or by reference to which) relevant existing credits will be restructured on the basis that relevant calculations of and relating to, existing creditors are made as of 31-3-2000; III. effective date shall mean the date, which is the later of; ( i )the date on which the certified copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be Restructured ] of the Schedule, the non-retail public debenture holders shall be restructured under the scheme in the same manner as the restructured lenders and would accordingly elect or be deemed have elected to participate in either the Buyback Schemes or the Restructuring Scheme on the same terms and conditions as the restructured lenders. ( g ) Excluded Debt - The excluded debt shall remain unaffected by the restructuring contemplated under the scheme and the company shall continue to make the payments due in relation to them as and when they become due and payable. Provided however, that any consequential changes to their terms in relation to the restructuring of the security or otherwise to give effect to the restructuring of the debt under the scheme, shall be carried out by the company. ( h ) Modification of Security - From the effective date and subject to the provisions of the scheme including in relation to the execution of any documentation to give formal effect thereto, the approvals from any party which is not a holder of the existing credits and the time frame therefore, the following security shall be deemed to be created and/or modified in the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with section 11(B) of the Scheme. ( k ) Regulatory Approvals for Payments - The company shall make all the payments contemplated under the Debt Buyback Schemes, subject to all necessary regulatory approvals. The company shall make all necessary applications (and shall do all follow up actions that may be required) to the relevant regulatory authorities for effecting such payments. In the event that any payments that are required to be made by the company cannot be made immediately due to regulatory reasons, the company shall open a separate no lien account with a third party agent acceptable to the existing lenders whose payments cannot be made and such account would be charged to the security agent or any other agent chosen by such existing lenders for the benefit of the existing lenders and the company would make all necessary applications for the creation of such charge. ( l ) References to 75 per cent consent of Lenders - Except in relation to consent/actions to be taken after the effective date from the post restructuring lenders all references in the schedule to 75 per cent consent of the lenders shall be deemed to have been satisfied upon the sanction of the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd duties in connection with the scheme and incidental to the completion of the restructuring of the debt of the company in pursuance of the scheme shall be borne and paid by the company. ( t )The working group shall take all decisions required to be made by it under the scheme, including in relation to waiver of any of the conditions precedent set out in sections 3(A) and 3(B) of the Schedule, with the consent of at least three of its members. ( u )The board of directors of the company, with the consent of the working group may assent from time to time on behalf of all persons concerned to any modifications or amendments or additions to the scheme, or which the High Court of Gujarat at Ahmedabad and/or any other authorities under law may deem fit to approve or impose and to resolve all doubts or difficulties that may arise for carrying out the scheme and to do and execute all acts, deeds, matters and things necessary for bringing scheme into effect. 9. The benefits of the Scheme of Arrangement reproduced in Para-15 of the petition read thus : ( a )This scheme would help in the revival and continued existence of the petitioner company, which as a group employs over 10,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii )The lenders who are opting for buyback of their debt are sacrificing 52 per cent 55 per cent of principal outstanding and waiving the entire unpaid interest in consideration of their immediate exit from the petitioner company lenders who are not opting for buyback are accepting longer (5 to 10 years) tenure for repayment and reduced rates of interest. ( iv )The management of the petitioner company is accepting well defined control and monitoring by the lenders over the management of the petitioner company. The board of the petitioner company is to be reconstituted with lenders appointing four nominee directors and influencing the appointment of another four directors. The Chairman of the board of directors and director (Finance) will be independent persons not connected with the promoters of the company. There will be a Supervisory Board consisting of Chairman, Managing Director, Director (Finance), one nominee director and one independent director. The management is also accepting the appointment of an independent auditor for assisting lenders in reviewing and monitoring the cash flow and performance of the petitioner company in a specified manner. The management of the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tituted by the Steering Committee to scrutinize the transactions of the company for the purpose of the scheme of compromise, but attended the meeting as the observers had participated in the meeting. It is also admitted that in December 1999 a Technical Expert KSA Technopak was appointed as consultant to carry out techno-economic viability study of the company at the instance of some of the lenders, including the objectors. Thereafter, in January 2000 the Company appointed Jardine Fleming (P.) Ltd. a firm of financial consultants to devise the package for revival of the company. After receipt of the report of the said consultants in March 2000, two meetings of the lenders of the company were held and a Core Group of the major lenders by the name Steering Committee ( SC ) was formed to examine reports of the experts of majority lenders, including the objectors. The SC which met five times all the representatives of the objectors attended these meetings but refused to be the part of the SC as members thereof. Request of the objectors for better terms as it is revealed from Pages 00005, 6 and 49 of Document File, Part-I was refused by the SC. The objectors raised allegation of ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aforesaid provisions provide for two types of arrangement or compromise. One type of arrangement made by and between the company and its creditors as a whole or between its members as a whole, and the other type of compromise or arrangement is such which is between the company and its creditors and members as a whole, but it may be between the company and class of creditors or between the company and class of members. Sub-section (4) of section 391 provides for an application being made for the issue of direction for meeting of the creditors or class of members or the members of class of creditors as the case may be. Sub-section (2) deals with when majority in number in value of creditors or class of creditors agree to any arrangement or compromise, if sanctioned by the Court, be binding on all the creditors. It is suggested from the provisions contained in section 391 that, it is only where different terms are offered to different class of creditors under the proposed compromise or arrangement, separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent groups or classes. The company will ordinarily be expected to offer an identical compromise to persons belonging to one class, otherwise it may be discriminatory. At any rate, those who are offered substantially different compromises each will form a different class. Even if there 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. Broadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. The group styled as a class should ordinarily be homogeneous and must have commonality of interest and the compromise offered to them must be identical. This will provide rational indicia for determining the peripheral boundaries of classification. The test as stated earlier would be that a class must be confined to those persons whose rights are so similar as to make it possible for them to consult together with a view to their common interest." In the case of Mafatla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that their interest may be affected differently from other secured creditors because of their interrelationship particularly ICICI or their interest other than as secured creditors simplicitor but the same cannot entitle the objectors to sustain their claim of separate class distinct from other secured creditors. The inter se differences/disputes amongst some secured creditors cannot be the criterion for constituting separate class of secured creditors in foreign currency. Personal conflict of interest of the objectors with ICICI would be totally foreign to the scope of class meeting convened by the company to consider the scheme. In case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. AIR 1997 SC 506; at para-38 the Supreme Court considered provisions contained in section 391(1) and observed thus : "... So far as the Articles of Association of respondent-company are concerned they also contemplate two classes of shareholders. No separate class of equity shareholders is contemplated either by the Act or by the Articles of Association of the respondent-company. Appellant is admittedly an equity shareholder." Therefore, he would fall within the same class of equity shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration and when commercial interest of the appellant so far as the Scheme is concerned is in common with other equity shareholders he would have a common cause with them either to accept or to reject the Scheme from commercial point of view. Consequently there was no occasion for convening a separate class meeting of the minority equity shareholders represented by the appellant and his group as tried to be suggested." In this connection the Supreme Court referred to what the learned author Palmer in his Treatise Company Law 24th Edition, has to say on What Constitutes a class : "The Court does not itself consider at this point what classes of creditors or members should be made parties to the Scheme". The Supreme court then proceeds to observe : "... It is, therefore, obvious that unless a separate and different type of Scheme of Compromise is offered to a sub-class of a class of creditors or shareholders otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened." In case of D.A. Swamy v. India Meters Ltd. [1994] 79 Comp. Cas., 27, the Division Bench of the Madras High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is otherwise. Identical/same terms of compromise have been offered to all the secured creditors. There cannot be any preferential treatment to some secured creditors and the scheme cannot give any special treatment to some creditors. Simply because some of the secured creditors, have some dispute between them or have been fighting litigation inter se can be no ground for treating litigating secured creditors differently from the body of secured creditors. There cannot be a class within the class and the class has to be of one type of creditors, namely secured creditors unsecured creditors and working capital lenders as all the secured creditors have similar rights in the company. As far as commonality or conflict of interest is concerned all the secured creditors have a common interest of securing their dues in proportion to the amount lend and the terms or conditions thereof. It is not the say of the objectors that their rights are dissimilar to the rights of supporting secured creditors. As far as the body of secured creditors is concerned, there can be an effective consultation as far as their dues/interest/rights against the company under the scheme are concerned. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uspension of all rights and obligations of the company, the right to invoke the jurisdiction of this Court under section 391(1) are also suspended, consequently this Court does not have jurisdiction to sanction the Scheme; that the provisions of the BRU Act and the provisions of section 391 operate in the same field viz., an undertaking requiring rehabilitation and protection against distraint from execution and sale of its assets may move either under the BRU Act or under provisions of section 391. While rehabilitation and protection extended by the BRU Act is under the aegis of the State Government, the rehabilitation and protection extended by section 391 is under the aegis of Company Court and as the company enjoys protection of the State Government under the BRU Act it cannot seek Company Court s protection. It is submitted for the company that, the issue as regards jurisdiction is closed/concluded in view of the order dated 9-7-1991 passed in Company Application No. 160 of 2001 by this Court when the meeting was permitted to be convened by this Court. In the alternative it is submitted that, even if the question as regards jurisdiction in the context of section 4(1)( a )( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pended but only the remedy for the enforcement of the right is suspended. In our opinion, this appears to be the true construction of sub-clause ( iv ) because, if this sub-clause is interpreted as suspending the very existence of the rights covered by the notification issued under section 4, the very object of the statute would be frustrated. This will be evident from the discussion which follows: "It is evident from the wording of this sub-clause that it contemplates the suspension of any right, privilege, obligation or liability accrued or incurred in the past. The sub-clause, therefore, covers within its vide compass even the rights accrued in favour of the relief undertaking itself. Now, if this sub-clause is construed as putting a temporary halt to the very existence of the rights covered by the notification issued under section 4, the result would be that even the rights of the undertaking accrued in the past would have no existence for the temporary period in question. If this happens, it would be totally impossible for the undertaking to function at all because it cannot use its machinery or premises for running its industry. This would obviously destroy the very obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without modification or not, then the protection under section 391(6) would follow. As far as the power to consider or examine the scheme under section 391 is concerned the power has to be either express or implied. As far as provisions under the BRU Act are concerned there is no implied or express bar to any petition for the sanction of the scheme and in absence of any express or implied bar to the petition under section 391, merely because the company is declared a relief undertaking under section 3 of the BRU Act, I do not see any substance in the contentions raised on behalf of the objectors on the score of want of jurisdiction of this Court to consider the scheme under section 391(1)/(2), and the company can pursue the proceedings under section 391, even during subsistence of the notification under section 3 of the BRU Act. Reading sections 3 and 4 together the privilege or insulation offered to the undertaking is because of the subjective satisfaction of the State Government that the particular undertaking needs some help or protection. It be hardly said that the notification under section 4 is not issued pursuant to any prayer by the company and, therefore, there is no ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding 9,565.03 millions of the outstanding secured debt of the company as of 31-3-2000 voted in favour of the said scheme for arrangement representing 85.36 per cent in the number of secured creditors and 88.68 per cent of the value of the total outstanding secured debt of the petitioner company as of 31-3-2000 present and voting. 6(six) secured creditors holding Rs. 1,235.16 million of the outstanding secured creditors of the petitioner company as of 31-3-2000 voted against said scheme of arrangement representing 40.63 per cent in the number of secured creditors and 11.43 per cent in value of the total outstanding secured debt of the company as of 31-3-2000 present and voting. 5(five) votes were found to be invalid and, thus, the scheme was approved and resolution was passed with the requisite majority. 20. Sub-section (2) of section 391 requires that the scheme of compromise or arrangement must be approved by majority of creditors/members representing 3/4 in value of the creditors or class of creditors/or members or class of members. It is contended that, if the objectors were treated as a separate class then the voting pattern would have been changed and there would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icates that when division becomes necessary then the Speaker directs, those in support to go in the right lobby and those who oppose in left lobby. And, the members who take part in it pass through one or other of lobbies, give their names to the clerks, who sit at desks, and are counted by the tellers as they leave the respective lobbies... In practice and procedure of the Parliament by M.N. Kaul and S.L. Shakdher, the procedure of voting in Lok Sabha is described thus : "Under the automatic vote recorder system, each member casts his vote from the seat allotted to him by pressing the requisite button provided for the purpose. A push button set containing a pilot light and three push buttons - a green button for Yes , a red button for No and a black button for Abstain - together with a push switch suspended by a wire, is provided at the seat of each member." Thus, it will be seen from the above that a member present and voting may remain neutral, indifferent, unbiased, impartial, not engaged on either side. Voting is formal expression of will or opinion by the person entitled to exercise the right on the subject or issue in question has to be either in the affirmative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity. 23. Mr. A.L. Shah, Chairman appointed by this Court in Company Application No. 160 of 2001 in the matter of Scheme of Arrangement of Arvind Mills Limited with its creditors, filed his report, copy whereof is at pages 237 to 272 of the document file Part-III. Page-252, Clause (C) whereof refers to the Meeting of Secured Creditors, suggesting that 46 secured creditors. 18 attended through proxy and 28 through representatives. That the total amount due as on 31-3-2000 to the said total 46 creditors who attended the meeting is Rs. 11,970.77 millions. That, at page 257 it is observed that Shri. A. Sekar, proxy holder of the Commerzebank AG and of three other Secured Creditors, with the permission of the Chairman of the meeting raised 4 objections to the approval of the Scheme of Restructuring : 1.The garment business as also brands of the company have been illegally sold away at a price of about Rs. 361 crore. 2.Various amounts have been transferred to subsidiaries and as a result about Rs. 395 crores of the Company has been siphoned. 3.The company had entered into between September 1998 and March 1999, transaction of sale and leaseback with ICICI Ltd., whereby the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank (one vote) had the ballot papers voted For the Scheme they attached with the ballot papers their letter dated 12-7-2001 (in case of State Bank of India) and in case of Indian Bank writing on the ballot paper itself stating that they were approving the Scheme subject to condition mentioned in their letters/comments on the ballot papers. Thus, these five votes, four of State Bank of India and one of Indian Bank were treated invalid. 24. The above observations would reveal that the votes cast by State Bank of India and Indian Bank are conditionally agreeing with the Scheme. Conditional approval to the Scheme cannot be regarded as votes in favour of the proposition nor at the same time these votes can be regarded as against the proposition because it is conditional expression of opinion by the State Bank of India and Indian Bank and the votes of State Bank of India and Indian Bank have been rightly excluded from consideration by the Chairman at the meeting treating these votes to be nullity/void and void votes are of no more effect than no votes and the votes by State Bank of India being unintelligible ballot being ineffective cannot be included in the total count done which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand to lose anything in these transactions and nothing has gone out of the company and that there has been no transfer of fund to any of the subsidiary companies and as such there is no diversion of funds. That no objection has been raised even by the statutory auditor against any of the above transactions. The petitioner in rejoinder has denied all these allegations and stated that the criminal proceedings are pending before the Court of the learned magistrate; that under the scheme it is proposed that all the existing securities offered to the secured creditors would undergo a change and only fresh documentation would be necessary for that purpose. Leasehold assets are not owned by the petitioner company, the same would not, therefore, be part of security available to the lenders; that even independent of the scheme it is always open to the company to enter into compromise with any of its lenders and the scheme recognises the right which even otherwise is available to the company; that the proceedings pending in the English Court are beyond jurisdiction of this Court and the said issue is irrelevant in view of the fact that the objectors having seen futility of continuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to raise funds as the capital invested by that time would become a dead investment as the project would have remained incomplete. The incomplete project with investment of Rs. 1,100 crores would have led to financial catastrophe. At this point of time the sale and lease back transaction came to be entered into between the company and ICICI. Under the said transaction ICICI gave Rs. 150.00 crores more which have been adjusted against the dues of the ICICI and the same assets sold to the ICICI have been taken on lease by the company which has raised the assets coverage to Rs. 290 crores between 1996-1999. Under the agreement with the Syndicate undisputedly the com- pany was required to provide asset coverage of Rs. 133 crores against the loan of Rs. 100 crores. It is not the say of the objectors that the project was not in incomplete state and needed no further funds, has not been completed by the company after the sale and lease back transactions with ICICI. It may be appreciated that, as far as foreign currency lenders are concerned they only had floating charge on movable items and all that the company was required to do was to maintain the asset coverage under the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmittee which consist of major secured creditors, including members of the Syndicate, after scrutiny of the accounts would not have supported the Scheme of compromise. It may be appreciated that on the information supplied to all the creditors the discussions amongst secured creditors lasted for sixteen months and the total period taken for the proposed scheme of reconstruction is twenty-one months. It may also be noted that the four objectors are not the only foreign currency lenders, but there are other foreign currency lenders, ten in number, who have supported the scheme along with other secured creditors in domestic currency. Since it is not suggested from the record that a single rupee was given by the company to any of its subsidiary company and the original investments have been made quite some time back, and that, only the nature of investment has changed, I do not find any force in the objection on this score. 28. One more objection under the head of Cloak to cover up and legitimize fraud is the spin off of the Garment Division by the company. It is submitted on behalf of the objectors that between the years 1997-98, 1998-99 and 1999-2000 the company diverted up to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon. That during year 1998-99 and 1999-2000 sale and leaseback of fixed assets was done with ICICI for Rs. 491 million of book value of the assets and the purpose could be to pay for project cost. In December 1998, AML sold 35 per cent of two of its branded garments unlisted subsidiaries, namely Arvind Clothing Ltd. (Arrow brand of apparels) and Arvind Fashions Ltd. (LEE brand of apparels) to ICICI at an aggregate consideration of Rs. 410 million. That, AML had a buy back obligation for these shares at an interest-driven price. That the proceeds helped the Company to beef up its liquidity position to keep servicing debt obligations and continue operations. That remaining 65 per cent holding in each of the subsidiaries to Asman Investments Ltd. (AIL), a wholly owned subsidiary, as part of consolidating all investments in one balance sheet and the AIL pledged 65 per cent holding to ICICI as security for AML s buy back obligation. That, the company sold some fixed assets in March 1999 to ICICI Group at the book value of Rs. 2,545 million and leased those assets back. Some of the debt instalments of ICICI maturing in financial year ended in 3/1999 and 3/2000 were pre-paid from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tia Asia Ltd., Singapore and to Deutsche Bank AG, Hong Kong (both the objectors). It is suggested therefrom that the meeting of the off-shore lenders was convened on 3-3-2000 and some of the lenders present requested for information on certain matter and the information provided related to assets cover ratio. The position of asset cover ratio as on 31-3-1998, 31-3-1999 and 31-12-1999 was attached with the said letter. That the information was also supplied of directors resolutions on sale and leaseback thereof. The information provided contain relating to sale of fixed assets and leaseback related to period 24-9-1998 for the first sale and lease back of September 1998, 16-3-1999 and 25-3-1999 and both the above transactions were noted by the Board of Directors on 29-5-1999 and 14-9-1999. That the information was also supplied as regards assets sale and leaseback with the list of plant and machineries in respect of which sale and leaseback transactions were executed with ICICI group also attached with the said letter. The information was also supplied as regards Regulatory Returns on end-use which include details of returns filed with Reserve Bank of India in form ECB 2, including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the books of account of the company and transactions were checked and nothing was found objectionable in any of the transactions entered into by the company and the Sub Committee approved the Financial Projections. It is pertinent to note that the objectors though requested to join the Sub Committee to scrutinise the books of account of the Company, have declined to join the Sub Committee. Document File Part-II (page-271) Appendix II and information Memorandum of Document File Part-III (page-875) suggests the inventory, advances, other loans and advances current assets, investments by each of the Company, investment in bonds and investment in other equity shares etc. Perusal of the same suggest that there is no transfer of funds/assets to AIL, and that, the company transferred amount of its investments in AIL for a total consideration of Rs. 1,752.3 million in the financial year 1998-99. Most of the investments were in AIL. While total exposure of the company to AIL was Rs. 2,506 million at the end of December, 1999. It is suggested from sub para 4.2 that major investments transferred included Arvind Products Ltd., Arvind Clothing Ltd., Arvind Fashions Ltd., Arvind Intex Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs. 550 crores to its creditors, to have paid dues of the State Government first. More so when the State Government is battling for funds in the aftermath of the earthquake in Gujarat. As against this, the say of the Company is that the scheme seeks to cover only certain debts of the Company and so far as other creditors are concerned no Scheme of Compromise is proposed. That the State Government dues are not covered under the Scheme because they are to be paid on due dates. It may be appreciated that, the State Government s dues have been excluded from the scheme, may be for the reason that the same would amount to sacrifice by the State Government also like other creditors. It may be realised that the Scheme has been floated and supported by the creditors, namely working capital creditors, unsecured creditors, secured creditors and all the creditors have sacrificing to certain extent floated and supported the Scheme considering the public interest and the commercial morality. The State Government has rightly not been included in the Scheme so as not to insist upon the sacrifice from the State Government. Perusal of the Scheme does not refer to sources of funds from which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the scheme document. The past events cannot be a disqualification as far as approval of the scheme of restructuring is concerned. It is only because the financial difficulties experienced/undergone by the company and the debt mounting over the company the scheme of restructuring is necessitated, so that the company can survive and the creditors may also get their dues with some sacrifice on their part depending upon the resources available to the Company and the object behind the exercise of restructuring is that the employees of the Company may not starve and putting the company on a sound financial footing to serve interest of all concerned under the circumstances. It may also be seen that what is sought to be approved/sanctioned is the Scheme of Restructuring of debt and not the past conduct. Suffice it to say that the past conduct is not relevant for consideration of the Scheme of Restructuring of the debt. 34. File Part-I, Page 0001 Annexure-A suggests holding of meeting of the off-shore lenders on 3-3-2000. Page-00003 is the Synopsis of the meeting of the on-shore lenders held on 29-3-2000. It is suggested therefrom that US $ 75 million syndicate demanded payment upto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or otherwise unfair and unjust to the classes of creditors for whom the Scheme is meant. Propriety, merits of the compromise or arrangement have to be judged by the parties to the Scheme, who with their open eyes and full information about the pros and cons of the Scheme arrive at their own reasoned judgment and agreed to join such compromise or arrangement. It is also not within the realm of the Court to find out whether a better Scheme could have been adopted by the parties or not. The Scheme has been favoured by the requisite statutory majority of the creditors who as the experts into the commercial wisdom and have exercised their commercial wisdom by supporting the scheme. In the instant case, the Scheme supported by the majority of the creditors does not appear to be unconscionable or illegal in any manner or that the same is otherwise unfair or unjust to the classes of creditors for whom the Scheme is meant. It may be appreciated that it is not the say of the objectors that they are not offered equal terms under the Scheme like other secured creditors. To be precise, off-shore lenders - foreign currency lenders, nor the objectors in principle opposed to the Scheme, Simply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, exercising their commercial wisdom. 36. It is submitted by the learned advocate on for the textile labour association that the Scheme be sanctioned otherwise the petitioner company may be wound-up and as result whereof 12,000 workers, i.e., 48,000 persons would be directly affected these days of global recession; that the workers and their families have a right to livelihood. In this regard reliance has been placed on the decision in case of Textile Labour Association v. State of Gujarat 1995 (1) Guj. Pg. 12 (D.B.). In para-22 it has been observed that The constitutional law and fundamental rights are part of the law and even within the Constitution, the fundamental rights have special importance and within the fundamental rights, right to life and liberty is the most fundamental of such rights. If for enforcement of such rights which is the fundamental law of the land anything comes in conflict thereof, it has to give way to see that the fundamental rights guaranteed by the Constitution are not violated. Reliance is also placed on the decision in case of Tata Iron Steel Co. Ltd. v. Micro Forge (India) Ltd., 41 (2) G.L.R. pg. 1594 (D.B.). While dealing wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting majority shareholders or creditors..." In para 28A, it is observed that: "However further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by section 391 sub-section (2). ... The Court certainly would not act as a Court of appeal and sit in judgment over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the concerned parties. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority. Consequently the Company Court s jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the majority has legitimately and reasonably a right to expect and make. The court must test the scheme not from the point of view of a lawyer or an accountant or an expert, but it must look at it from the point of view of a reasonable and a fair minded person. When dealing with a company which is dealing in commerce or industry or with similar activities, the scheme has got necessarily to be looked at from the point of view of a prudent commercial man." The observations clearly lay down that the scheme must be scrutinised by the court from the point of view of a prudent commercial man and not an expert. The attitude of the court must not be of a sceptic who is out to find faults but of a reasonable and prudent businessman whose insistence is not for an ideal scheme but a 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is generally fair to all classes of creditors and it stands to serve the interest of the workers also, so that with the help of the Scheme the Company can tie over the financial crisis and can regain the sound financial footing. As compared to the percentage of creditors who have supported the Scheme and the benefit of the Scheme would indirectly extend to the other classes of persons including the employees, the objections by only four (4) foreign currency lenders who are in microscopic minority, for the larger good when it does not appear that the Scheme is dishonest, unfair to any class of creditors nor illegal or opposed to public policy or unconscionable, must be allowed to go it s way. The prospect of putting the company on sound financial footing cannot be totally disregarded. More over the Court also cannot be oblivious to the fact that the industry generating employment to about 10,000 persons directly and about 1,00,000 indirectly dependent on it, does not require to be obliterated if it can be resuscitated with the assistant/help of it s creditors. It may also be seen that the Scheme was scrutinised by the Steering Committee comprising of Syndicate and domestic lende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f misfeasance and/or malfeasance (past transactions) for which criminal complaint has been pending before the Criminal Court, and the issue of past transaction is kept open to be adjudicated in appropriate proceedings, civil as well as criminal, by the appropriate Court. ( Ratmani Engg. Ltd. In re [1999] (33) CLA 358 Guj.) and the Scheme deserves to be sanctioned subject to and without prejudice to the liability if any, in the civil and criminal proceedings in respect of the past transactions. 42. The sanction is hereby accordingly accorded to the Scheme of compromise and arrangement and restructuring of the debt of the petitioner company, copy whereof is Annexure-D to the petition. This Court hereby accord sanction to Restructuring of the debt of the petitioner company as envisaged in the Scheme Annexure-D, subject to and without prejudice to the liability if any, in the civil and criminal proceedings in respect of the past transactions. 43. All the parties who appeared at the hearing should bear their respective costs. Petition disposed of accordingly. In Company Application No. 230 of 2001: No order is necessitated in this Company Application, in view of the disposa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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