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TMI Blog2005 (6) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Scheme of Arrangement of Compromise (Annexure 'II') submitted by the Company is null and void. Alternatively, the direction was sought for by the applicant to direct the company to convene separate meeting of the Debenture holders holding more than 2000 debentures in the interest of justice. 3. Company Application No. 217 of 2005 was filed on 23-6-2005 and it was placed for hearing on 24-6-2005. However, a request was made on behalf of the applicant in company application No. 224 of 2005 to adjourn the said matter. Accordingly, it was adjourned to 27-6-2005. On that day, Peerless General Finance and Investment Company Limited has moved Company Application No. 224 of 2005 and has sought the permission of this Court to circulate the said matter and hear the same along with Company Application No. 217 of 2005. Accordingly, both these applications are heard together with the consent of the parties and on mutual understanding between the parties, the hearing of both these applications is treated as the final hearing of the applications. 4. As far as Company Application No. 217 of 2005 is concerned, an affidavit in support of the Judge's Summons is filed by Shri Sheikh S. Shaffi, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Application No. 405 of 2004, several meetings were held by the Company with the Lender Monitoring Committee in respect of the proposal put forward by certain debenture holders. The Company had also held meetings with the said debenture holders from time to time in respect of the proposals submitted by them. The Lender Monitoring Committee after evaluation of the proposals placed by the said Debenture holders with the sustainability of the Company's cashflows, sustainability of Company's debt and post-settlement and impact on project completion with the envisaged time and cost suggested for the repayment of the dues as on maturity date of all the debenture holders with 5 per cent each down payment immediately and thereafter another 5 per cent at the end of 12 months from the down payment date and the balance within a period of 6 years from the down payment date. The said proposal suggested by the Lender Monitoring Committee did not lend support of the said debenture holders inspite of efforts made by the Company based on the guidelines provided by the Lender Monitoring Committee. The meeting of the debenture holders was thereafter adjourned to 25-6-2005. However, the lenders inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It deals with application for stay. It reads as under :- 71. Application for stay.-An application under sub-section (6) of section 391 for stay of the commencement or continuation of any suit or proceeding against the company may be moved by a Judge's summons ex parte, provided that where a petition for winding up of the Company or a petition under section 397 or 398 is pending, notice of the application shall be given to the petitioner in such petition. 9. He has further submitted that in the present case, the applicant has simply moved an application under section 391(1) seeking direction for convening the meeting of the Scheme Lenders. No application under section 391(6) for stay has been moved by the Company. The objectors have no right to have any audience while deciding the application by the Court seeking direction to convene the meeting under section 391(1) of the Act. He has further submitted that the provisions contained in rule 69 deals with directions at hearing of summons and it starts with "Upon the hearing of the summons or any adjourned hearing thereof, the Court can give such directions as it may think necessary in respect of the matters enumerated therein." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Dharmishtha N. Raval, learned advocate appearing for UTI. 11. Mr. Thakore had addressed the Court on the other issue as to whether the Court can examine the Scheme at the stage of seeking direction for convening the meeting or whether the Court can straightway reject the Scheme without issuing direction to convene the meeting. In this connection, he relied on the decision of Gujarati Kamdar Sahakari Mandal v. Ramkrishna Mills Ltd. [1998] 92 Comp. Cas. 692 (Guj.) wherein this Court has observed that when in cases where at the threshold serious objections are raised by class of Creditors, the Court may issue directions to convene the meetings of shareholders and Creditors because the discussion and exchange of views, with or without modification may ultimately result in the evolving of some such scheme which may become acceptable to a class of persons who opposed the scheme initially. The Court has further observed that the very purpose of this consultation would be frustrated if the Sponsor of the Scheme is denied opportunity of consulting the affected interests by convening the meeting. The Court has, therefore, taken the view that the application cannot be rejected by the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present application by the Company and the directions sought for therein should be granted by this Court. 14. Mr. N.K. Pahwa, learned advocate appearing for Peerless General Finance and Investment Company Limited, the applicant in Company Application No. 224 of 2005 has submitted that the Company from its very inception had classified its liabilities in two parts, one pertaining to the dues of the Banks and Financial Institutions and the other pertaining to the dues of Debenture holders. Whereas insofar as the dues of Banks and Financial Institutions are concerned, the Company has already reached to an agreement of compromise with them which is binding on the parties under a Restructuring package finally sanctioned by CDR Cell. The Company has thereafter proposed the Scheme under section 391 of the Act for the Debenture holders. As far as the present Scheme is concerned, the Company has put both the Banks and Financial Institutions as well as the Debenture holders holding more than 2000 debentures under one class. This is being done despite the fact that so far as Banks and Financial Institutions are concerned, there is no question of any Scheme for compromise as the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d repayment upto 25-7-2018 (assuming Project re-start date of 25-1-2005 and completion date of 25-4-2007). With respect to payment of interest for the period from 1-10-1998 to 29-12-2003, in the earlier Scheme, the Com- pany proposed to pay the interest as a Bullet repayment on 20-4-2025, whereas in the present Scheme, it is proposed for a Bullet repayment by 31-3-2026. He has further invited the Court's attention to the distinguishing features between the Term Lenders and Working Capital Lenders on the one side and Debenture holders on the other side. In this connection, he has submitted that as far as Term Lenders are concerned, the year of investment/finance is 1996 and there are distinguishing features with regard to governing document, rate of interest, repayment, security, listing and the nature of finance/investment for investor. So far as Debenture holders are concerned, the same were issued pursuant to the public issue prospectus. The rate of interest was 14 per cent. It was to be repaid by April, 2003 and the Debenture holders are having second charge over assets of the Company and there was no personal guarantee of promoters. Moreover, security in trust managed by a debe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bansidhar Spg. & Wvg. Mills (P.) Ltd. [Company Application No. 67 of 2004] wherein the Scheme proposed by the Company was rejected by the Court at the very threshold. An appeal preferred against the said decision by way of O.J. Appeal No. 31 of 2004 was also not pressed by the Company and the same was withdrawn with a liberty to move the Company Judge by review application. He has, therefore, submitted that this Court has an ample power to reject the Scheme at the very threshold. Alternatively, he has submitted that this Court may issue direction for convening the separate meeting of the two separate Classes of Creditors. 21. Ms. Dharmishtha N. Raval, learned advocate appearing for UTI has initially prayed for time to place certain evidence on record so as to show that the Scheme is in violation of the provisions of law as well as the guidelines issued by SEBI. In the alternative, she has adopted the arguments of Mr. N.K. Pahwa and strongly opposed the Scheme. In addition to this, she relied on the decision of this Court in the case of Motorol (India) Ltd., In re [2001] 103 Comp. Cas. 389 wherein this Court has held that in view of the serious allegations made regarding non-refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preliminary step, the application taking the risk that the classes which are fixed by the Judge, unusually on the applicant's request, are sufficient for the ultimate purpose of the section, the risk being that if in the result, and we emphasise the words "in the result" they reveal inadequacies, the Scheme will not be approved. The same thing has been reiterated by the Hon'ble Apex Court in the case of Mihir H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp. Cas. 7921 and after quoting the said paragraph from Palmer's Company Law, 24th Edition, the Court observed that 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. Mr. Mihir Thakore and Mr. S.N. Soparkar have, therefore, submitted that in view of these observations, even the alternative prayer should not be granted by this Court. 23. After having heard the learned Senior Counsels, Mr. Mihir Thokore and Mr. S.N. Soparkar with Mr. Sunit S. Shah for the Company and Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This leads to the another issue raised before the Court in relation to the constitution of class. The Company has earlier proposed the scheme for four different classes of Debenture holders. Three different class of Debenture holders have approved the Scheme at the meetings and the same were duly sanctioned by the Court. However, with regard to the Scheme of fourth class of Debenture holders holding more than 2000 debentures, the Chairman of the meeting held on 25-6-2005, has filed his report of even date and recorded the Company's submission therein that considering the current status of project implementation and the option given to small debenture holders approved by this Court, the Company made the best possible efforts to work out an option acceptable to all concerned parties but did not succeed. Since the Company is required to comply with certain conditions of CDR proposal to restart and complete the project within the next three months, the Company has proposed a new Scheme which is in line with CDR proposal and proposed to withdraw the said Scheme. The representative of ICICI Bank Limited, a Debenture holder, who was also acting as Proxy for IDBI Limited and IFCI Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point what classes of Creditors of members should be made parties to the Scheme. This is for the Company to decide in accordance with what the Scheme purports to achieve. The application for an order for meetings is a preliminary step, the application taking the risk that the classes which are fixed by the Judge, unusually on the applicant's request, are sufficient for the ultimate purpose of the section, the risk being that if in the result, they reveal inadequacies, the Scheme will not be approved. This principle further clarifies that if there are different groups within a Class, the interests of which are different from the rest of the Class, or which are to be treated differently under the Scheme, such groups be treated as separate classes for the purpose of Scheme. Based on this, one may argue that though, under the Scheme, all Scheme Lenders are not treated differently, the interests of Debentures holders are different from the interest of Term Lenders and the Working Capital Lenders and, hence, Debentures holders are to be treated as separate classes for the purpose of Scheme. But, this is not the stage at which the Court pronounces its judgment on this issue. It is only fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a copy of the said Scheme of Arrangement and Compromise, a copy of the Statement required to be furnished pursuant to section 393 of the Companies Act, 1956 and the prescribed Form of Proxy, shall be sent by prepaid letter post under Certificate of Posting addressed to each of the Scheme Lenders of the applicant Company at their respective last known addresses. The notice shall be sent to the Scheme Lenders of the applicant Company with reference to the list of persons appearing on the record of the Applicant Company as on 20-6-2005. 4.The settling and/or approval of the advertisement, the Form of Notice and the Statement to accompany the Notice by the Registrar of this Court is dispensed with. 5.Mr. K.N. Venkatasubramanian, Director of the applicant Company, and failing him Mr. Dilip J. Thakkar, Director of the applicant Company, shall be the Chairman of the aforesaid meeting to be held on Thursday, the 28th day of July, 2005. The Chairman so appointed, is hereby directed to put the Scheme to vote, and count the votes of Term Lenders, Working Capital Lenders and Debenture holders separately without any adjournment. Over and above this, the Registrar General of this Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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