TMI Blog2004 (10) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Corporation Limited on 2nd September 1955. Thereafter the name of the company was changed as Maha Rashtra Apex Corporation Limited on 22nd March 1996. The registered office of the petitioner-company is situated at Syndicate House, Upendera Nagar, Manipal, in the State of Karnataka. The authorized capital of the petitioner-company is Rs. 40 crores divided into 2 crores equity shares of Rs. 10 each and Rs. 2 crores redeemable cumulative preference shares of Rs. 10 each. The details of the issued, subscribed and paid up share capital of the petitioner-company as on 31st March 2002 is set out in paragraphs 5 and 6 of the petition. As is clear from the said paragraphs the petitioner-company has issued 1,41,50,100 equity shares of Rs. 10 each; 17,63,500, 17.5 per cent redeemable cumulative preference shares of Rs. 10 each. It is stated that subsequent to 31st March 2002 no material change or alteration has been made to the share capital of the petitioner-company. However, they have not paid redemption amount on preference shares on the due dates in respect of repayment falling due from September 2002 onwards. The petitioners equity shares are listed at National Stock Exchange, Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of acceptance of deposits by RBI, the petitioner-company was suddenly and irrationally downgraded during the period 1998, which seriously affected the resource mobilization, particularly, in the form of fixed deposits from the public. It resulted in increasing the cost of overheads and servicing of the deposit holders. The position in the industrial sector coupled with the slow down of the economy and other factors, particularly, in the transport industry, adversely affected the process of recovery of the loaned amount with interest. It seriously affected the nature of security in terms of money value held by the petitioners. In the absence of extending the benefit of approaching Debt Recovery Tribunal which is extended only to Banks other financial institutions, the NBFCs are required to pursue civil remedies only for recovery of outstanding amount and this has also compounded the problems faced by the petitioner-company. The income from the operations was drastly reduced because of the aforesaid factors. In 18 months period prior to 31-3-2000 the income from the operation was Rs. 101.60 crores whereas Rs. 53.02 crores was the income from operations for the year ended 31-3-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should also form a part of the arrangement and restructuring being proposed, so that the creditors of the petitioner-company are not deprived of any of their legitimate debts being repaid. Accordingly, they were of the opinion that the subsidiary company Maharashtra Apex Asset Management Company Limited should undertake the said responsibility for recovery and distribution of the proceeds recovered to the bond holders and deposit holders of the petitioner-company. Therefore, at the meeting held on 15th April 2002 the Board of Directors approved the Scheme of Arrangement/restructure between the petitioner-company, its shareholders and creditors in participation with the subsidiaries, Kurlon Limited and Maharashtra Apex Asset Management Company Limited. Accordingly the petitioner-company preferred an application to this court in Company Application No. 226/2002 seeking directions of this Court for convening the class meetings of the shareholders and creditors of the petitioner company. By order dated 17-4-2002 this court passed an order directing the company to hold separate meetings of the equity shareholders, preference shareholders, secured creditors and unsecured creditors on 14t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -11-2002 proposed a revised scheme. Thereafter Company Application No. 1108/2002 was filed before this court seeking leave of this Court to convene respective class meetings of the members, preference shareholders, bond holders as well as deposit holders. This court on 2-1-2003 allowed the said application, directed the petitioner to convene meeting on 14-2-2003 and 15-2-2003 at Manipal, and directed Dr. K. Sreenivasan, IPS Retd., failing him Ms. Nalini Venkatesh, failing her Mr. R.B. Despande to act as Chairman/Chairperson and report the result of the meeting. Notice of the meeting was also advertised in Deccan Herald and Kannada Prabha both on 17-1-2003. As ordered meeting was held. In the meeting of the equity shareholders 252 equity shareholders were present, the value of the share was Rs. 6,89,26,670. Out of them 247 representing Rs. 6,89,07,160 i.e. , 99.97 per cent voted in favour of the scheme. Five person representing Rs. 19,490 i.e. , 0.03 per cent voted against the scheme. Insofar as preference shareholders are concerned, 10 were present who represented the value of the shareholders as Rs. 7,90,000. All of them voted in favour of the Scheme. 16191 bond holders i.e. , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isement, the Registrar of Companies have filed an affidavit setting out his observations of the scheme. It is contended that the company has not furnished the source of finance to settle the outstanding debts which are bond/deposits. The existing financial position is also not sound. The attendance of the meeting of the secured and unsecured creditors shows that the response to the scheme was poor. Though the technical requirement of quorum has been complied with, it appears that there was lack of proportional representation. They have received a complaint dated 22-4-2003 from one Mr. S.G. Prakash of Chikmagalur, as affected creditor of the company. Similarly Mr. C. Pandit Rao and Mr. J. Ganapathi Sastri of Secunderabad, have also filed complaints opposing the scheme. The company by proposing the scheme is attempting to circumvent the provisions of section 274(1)( g ) of the Companies Act, 1956. Therefore, he requested the court to take note of these facts before passing orders. 5. The petitioner has filed reply to the statement of the Registar of Companies. It is contended that the financial position of receivables on account of hire purchase assets, lease assets as on 31-3-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently they are not entitled to carry on business of a NBFC or accept deposits from the public. The mode of repayment suggested in the scheme is not in the public interest or in the interest of the depositors of the company. The company has no definite plan or ability to repay the depositors even as per the revised scheme proposed by it. In the proposed scheme it does not contain any plan for recovering or realizing its assets. The scheme does not contain any material which shows that the company will be able to meet its commitments towards repayment of depositors as per the repaying schedule furnished in the scheme. Some of the depositors are accusing the management of siphoning off the funds of the company. Therefore, it is necessary to investigate the said allegations before any scheme or compromise is considered. The scheme proposed to repay depositors which gives a free hand to the company to siphon off assets or to divert the funds for a period of five years. The proposed scheme appears to be an attempt calculated to secure immunity against any claim from the creditors. An observer be appointed by court to ensure that the sale proceeds of its assets are not siphoned off by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition. The Reserve Bank of India has directed the company to close down the operation and liquidate the debts. These objectors were not aware of the said orders and they have invested money. As the company s financial position is crippled and as there are no signs of revival, as the entire infrastructure has collapsed, therefore, the scheme propounded by the company is sham. Hence it has to be rejected. Many of the creditors have not received notice. Some of the creditors have received notice after meeting. Thus the company has prevented the genuine creditors from attending the meeting and expressing their opinion. Number of persons shown to have attended the meeting is exaggerated. Only 500 to 600 persons were present in the meeting hall. A close scrutiny of the proxy forms of the company shows that the company might have forged the proxy forms and votes said to have been polled in favour of the scheme, ballot boxes were not sealed, unauthorized persons were allowed to cast votes in favour of the scheme, the company has conveniently and cleverly prevented the genuine creditors from attending the meeting and thus got approval of the scheme fraudulently. The scheme is not fair a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion contending that the same is not tenable in law and they have sought for rejection of the said objection. 10. One Sri. D.K. Karigowda, holder of non-convertible premier bond who has invested a sum of Rs. 1,00,000 in the petitioner-company has also filed objections contending that he is aged 80 years. He made the investment with the fond hope of getting regular monthly income for his livelihood. The company has failed to pay monthly interest from April 2002. Therefore, he has been put to financial problem and he has to undergo surgery. He needs money and, therefore, he requested the court to direct the petitioner to make payment immediately. Petitioner has filed statement of objections and contend that there is no substance in the said contention also. 11. One Master D. Venkatesh and 6 minors through their guardian have filed their objections opposing the scheme. They contend that their parents are all poor agriculturists and the money is invested with the intention of getting prompt income periodically. Petitioner-company has misappropriated the money belonging to the objectors. The statement of account are all cooked up with the help of Chartered Accountants. They have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment of the scheme and direction to the petitioner to pay the principal amount in one instalment and the interest part in the second instalment within the period to be fixed by the court. 13. One Sri C. Pandit Rao from Secunderabad has filed his objections. He has set out in the objection about the subsidiary concerns of the petitioner-company. He seeks for rejection of the scheme. He submits that the company is bound to pay the amount of proceeds which they had invested with the petitioner company. Sri. S.G. Prakash of Chikmagalur one of the creditors appeared in person and submitted his objections to the scheme and was also heard. 14. Sri. S.M. Chandrashekar learned counsel appearing for the creditors contended that the scheme proposed by the petitioner-company has not been approved by the statutory majority as required under section 391(2) of the Act. It is his specific contention that under section 391(2) of the Act, it is stated that 3/4th in value of the creditors present and voting either in person or by proxy. A proper and reasonable interpretation of the said provision would be that only when majority of the members/creditors of the company and who also repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the interest of depositors and creditors of the company. 17. Learned counsel appearing for the other objectors adopted the aforesaid arguments and further contended that the opposing creditors are only interested in getting back their deposits in full in one instalment with accrued interest and if that is not forthcoming the scheme should not be approved. 18. Per contra, learned counsel for the petitioner Sri K. Parameswaran, submits that there is no ambiguity in the language employed in section 391(2) of the Act calling for another interpretation by this Court. The section is unambiguous. Once the majority in number representing 3/4th in value of the creditors present and voting either in person or by proxy agree to any compromise or arrangement, the requirement under section 391(2) of the Act is fully complied with and this view has been consistently taken by the various High Courts in the Country as well as by the Supreme Court and, therefore, no case or deviation from the said interpretation is made out in this case. He submitted that the meeting to consider revised scheme was convened legally in pursuance of the order and the application filed for the said purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e affairs of the company has been conducted in the manner prejudicial to the interest of public and the shareholders and, therefore, in the circum of the scheme the company has demonstrated their bona fides and their intention to pay back all the creditors the principal amount plus interest, as such, it is in the interest of the depositors, creditors and shareholders the sanction sought for is to be accorded. 20. After hearing the parties at length the court called upon the Reserve Bank of India to suggest safeguards by way of amendment to the Scheme so that if court were to accord sanction to the scheme the interest of every one is protected. Accordingly, the Reserve Bank of India has filed an application placing its recommendations. It is suggested that the company should be directed to furnish detailed scheme setting out the manner and time-frame within which it recovers dues from it subsidiary and associate companies and other debtors and to submit to the court at intervals as this Hon ble Court deem fit a true and correct report containing the recoveries made from the subsidiary and associate companies and other debtors as per schedule. The promoters may be directed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in public interest. All the financial transactions discussed are clearly and categorically reflected in the books of accounts maintained by the company and in the absence of any prohibition in law no exception could be taken to the same. The apprehensions expressed by the RBI are imaginary and without any basis. The said suggestions do not merit any consideration. However, they contend they would abide by the orders to be passed by this court in this regard. 22. Before considering the legal issue, it is necessary to have the undisputed facts. 23. It is not in dispute that total number of Equity shareholders of the petitioner-company are 12,656, Preference shareholders are 144, Bond holders are 1,06,610 and deposits are 62,806. In the meeting of equity shareholders held, 256 persons attended the meeting and voted. Out of these votes, four votes were invalid. Out of the remaining 252 valid votes, 247 voted in favour of the scheme whereas, 5 voted against the scheme. The total value of 252 shareholders present is Rs. 6,89,26,670. Value of the shareholders voted in favour of the scheme comes to Rs. 6,89,07,160 which works out to 99.97 per cent. Similarly, the total value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders and creditors. 28. It is in this context, the question for consideration is, is it the requirement of law as contemplated under section 391(2) of the Act, that majority in number representing 3/4th in value of the creditors or shareholders present and voting or it is the 3/4th of majority in number of members and creditors of the company of the total credit. 29. Answer to this point revolves on interpretation to be placed on section 391(2) of the Act which reads as under: "391(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person, or where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company." In the 13th Edition of Buckley on the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers) who are present and voting; and, secondly, it must be three-fourths in value of the holding of such persons. Thus, if there are 100 members voting of whom (to take an extreme example) one member holds 901 shares and the remainder hold one each, the 99 shareholders holding one share each cannot force a scheme against the vote of the holder of the 901 shares, because they do not muster three-fourths in value. Conversely, that shareholder and 49 of the others could not force a scheme against the votes of the remaining 50 because there would not be a majority in number. The same principle applies to creditors. It will be seen that the majorities are of those who vote, not of those entitled to vote nor of those who are present. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored. However, this is not the whole requirement, because in addition the Court requires to be satisfied that the class is fairly represented. If, for instance, there were altogether 1000 shareholders holding 10,000 shares in all, the Court would be unlikely to be satisfied by the statutory majorities at a meeting at which 10 members holding 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of 5,00,000 total votes and three out of 104 votes exercisable at the meeting, have actually been polled in its favour. As we shall see later the procedure of voting on a show of hands, unless a poll is effectively demanded, may produce even greater anomalies." In Bessemer Steel Ordinance Co., In re [1875-76] 1 Ch. D 251, wherein identical provisions of the English Law have been interpreted as under: (page 252): "The only question is, whether the agreement has been approved by the proper number of creditors required by the Act. The second section of the Act provided that the meeting of the company s creditors may approve and sanction the agreement: If a majority in number representing three-fourths in value of such creditors, or class of creditors, present either in person or by proxy at such meeting, shall agree to the arrangement or compromise, and the agreement or compromise shall, if sanctioned by an order of the Court, be binding on all such creditors or class of creditors (as the case might be) and also on the liquidators and contributories of the company . The question, therefore, is whether the majority representing three-fourths in value is to be the majori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was of the value represented by the members who were not only present but who had also voted. In fact, it went a step further to hold that the creditors who were present and had even voted but whose votes had been found to be invalid, could not be said to have voted because casting an invalid vote is no voting in the eyes of law. 30. In the aforesaid case of Kirloskar Electric Co. Ltd. ( supra ) this Court had an occasion to consider the meaning of the words "present and voting" and it was held as under: "Sub-section (2) of section 391 requires that a scheme of compromise or arrangement must be approved by majority of creditors/members representing three-fourths in value of the creditors or class of creditors, or members or class of members, present and voting either in person or where proxies are allowed, by proxy. There is no difficulty in understanding the word present as the creditors or members should be physically present in person or through their proxy in the meeting. The problem arises in the context of the word voting . Voting is formal expression of will or opinion by the person entitled to exercise the right on the subject or issue in question. Voting is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution has been passed with three-fourths majority...." (p. 436) 31. The Full Bench of the Punjab Haryana High Court in the case of Swift Formulations (P.) Ltd., In re [2004] 121 Comp. Cas. 27 1 dealing with the identical situation, after reviewing the entire case law on the point has held that to interpret the requirement of majority under section 391(2) of the Act to mean three-fourths majority of the total value of shares/credit would not only render the expression "present and voting" as redundant but also make the provision totally unworkable and impractical. It was also held that for the purpose of section 391(2) of the Act, the requirement of majority of three-fourths has to be seen in relation to the value of shares/credit represented by the persons who are present and voting in the meeting, either in person or by proxy. This provision cannot be interpreted to mean that the three-fourths majority has to be of the total value of the creditors/shareholders of the company. It was also held that section 391(2) of the Act has also been enacted so as to ensure that a compromise or arrangement should receive substantial support from the creditors/ shareholders. It is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the well settled rules of construction. The Act contains enough safeguards to protect the interest of the creditors/shareholders. As per the provisions of the Act, every creditor/shareholder has to be given 21 days notice along with a copy of the arrangement. Notice is also required to be given to the Central Government. However, if despite sufficient notice, a creditor/shareholder chooses not to attend the meeting, his inaction cannot possibly hold up the decision making process of the company. Even after a decision has been arrived at by the requisite majority, but the Court finds it to be against the interest of the creditors/shareholders, it can still not sanction the compromise or arrangement. In the modern corporate world, there are companies in which the number of shareholders runs into lakhs and such shareholders are located in different parts of the country. To require such companies to have the approval under section 391(2) of the Act from a majority representing three-fourths of the total value of its shares is almost impossible. Such an interpretation would render the provision unworkable. 33. Section 391(2) of the Act has been enacted so as to ensure that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree-fourths in value" to be read as three-fourths in total value and the words present and voting are ignored. Such an approach militates against the well settled rules of construction as it entails importing of the word "total" not used in the provision and also rejection of the words "present and voting" as meaningless. Therefore, it is not possible to accept such contention. 36. In this background, the facts stated above makes it very clear that the scheme which is proposed by the petitioner is approved by a majority of equity shareholders, preference shareholders, Bond holders and deposit holders representing three-fourths in value as well as in numbers present and voting. 37. A faint attempt was made to contend that the section requires approval by the majority of shareholders and creditors. If the majority of shareholders and creditors have remained absent by not attending the meeting, it cannot be inferred that they have given approval. On the contrary, inference that can be drawn is that they have not given approval. This contention also has no substance. 38. In fact, in Bessemer Steel Ordinance Co. s case ( supra ) (Volume I, Chancery Division, Page 251 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, no meeting as required under law could be held. It is thereafter, the petitioners filed one more application in C.A. 720 of 2002 for similar relief and an application No. 715/02 was filed to withdraw C.A. 226 of 2002. However, before any order was passed by this Court in C.A. No. 720/02, it was also withdrawn. An application was filed in C.A. No. 1108/2002 in pursuance of which the meeting held was third application in a row. Therefore, he contends that the third application itself was not maintainable and the meeting held in pursuance of the orders passed in the said application is one without jurisdiction and, therefore, the scheme which is said to have been approved in the meeting held in pursuance of the said order is not valid and legal and this Court cannot accord sanction to such a scheme. 41. The Companies Act casts obligation on the Company to approach this Court for convening the meeting of the shareholders and creditors of the Company under section 391, in the event the Company proposes a compromise or arrangement between a Company and its creditors or any class of them or between a company and its members or any class of them, to enable the Company to place i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 43. Next it was submitted that the scheme as it is if approved contravenes the provision of various laws, which is impermissible in law. Reliance is placed on section 58A(3 a ) of the Act which provides that every deposit accepted by the company at any time before the commencement of the company in 1974 in accordance with the direction made by the Reserve Bank of India under Chapter IIIB of the Reserve Bank of India Act, shall, unless renewed in accordance with clause ( b ) repaid in accordance with the terms and conditions of such deposits. Section 58A of the Act provides that no deposit referred to in clause ( a ) shall be renewed unless deposit is such that it should have been accepted in accordance with the rules made under sub-section (1). Sub-section (3A) of section 58A of the Act provides that every deposit accepted by a company after the commencement of the Amendment Act, 1988 was unless renewed in accordance with the rules made under sub-section (1) be repaid in accordance with the terms and conditions of such deposits. Under sub-section (5) if the company omits or fails to make repayment of deposit as aforesaid, the company shall be punishable with fine and every of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , sanction cannot be afforded. The scheme is opposed to public policy, it is opposed to a statutory provision. Therefore, it would not be a proper exercise of power by the court in according sanction. 45. In order to appreciate this contention it is necessary to look at sections 391 and 394. Section 391(1) provides for convening of a meeting to consider the compromise. Sub-section (2) of section 391 of the Act in which the meeting to consider the proposed scheme is to be approved, the proviso to section 391(2) which is relevant for the purpose of finding under what circumstances the said scheme could be sanctioned reads as under: " Provided that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by Affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor s report on the accounts of the company, the pendency of any investigation, proceedings, in relation to the company under sections 235 and 251, and the like. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions have to be fulfilled namely: 1.The company should disclose to the court by an affidavit or otherwise all material facts relating to the company. 2.The company should produce the latest financial condition of the company showing its financial position. 3.The latest auditors report on the accounts of the company. 4.It should disclose the pendency or otherwise of any investigation proceedings in relation to the company under sections 235 and 251 and the like. Therefore, in the aforesaid provisions there is no specific provision which prohibits the court from according sanction if the terms of the scheme is contrary to any of the statutory provisions contained in the Companies Act or Reserve Bank of India Act or any other law which is applicable to the company. In the absence of a specific provision if the terms of the scheme runs counter to the statutory provisions or would have the effect of violating those statutory provisions can the court accord sanction? 46. In this regard it is necessary to refer few judgments relied on by the learned counsel appearing for the parties. 47. The Delhi High Court in the case of In re Himachal Telematics Ltd. [1996] 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. M.A. Khader AIR 1986 SC 1218, wherein it has held that a clause in the rent agreement executed by the transferor company successfully prohibited, without the express consent of the landlord, the transfer or interest including possession in respect of the leased premises under the order of the High Court without obtaining the written permission or consent of the landlord could be said to have been transferred to the transferee company in contravention of the provisions of the Act thereby making the transferee company liable to be evicted from the tenanted premises. 50. From the aforesaid provisions and the Judgments relied on, it is clear that the powers of the court under sections 391 to 394 of the Companies Act is unhindered by any of those provisions. The only two circumstances under which the company court is prevented from according sanction is contained in proviso to sections 391 and 394 where the official liquidator or the Registrar of Companies files a report stating that the affairs of the company is conducted in a manner prejudicial to the members of the company and the company. Insofar as the power of the court to accord sanction, proviso to section 392 is conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia shows that when a non- banking financial institution is directed to close down its business of which the certificate of registration is cancelled, as a consequence thereof such non-banking financial institutions are directed to continue to repay the deposits on due dates or dispose of all their financial assets within 3 years from the date of rejection or convert into non-banking non-financial companies within the same period. 52. The Reserve Bank of India has passed an order restraining the company from alienating the property. Under the Scheme the company is seeking permission of the court to alienate the assets of the company to enable them to raise funds to pay the creditors and depositors. Unless the permission sought for is granted the company will not be able to implement the scheme. Therefore, notwithstanding the statutory provision under which the Reserve Bank of India has exercised its power restraining the company from alienating its assets, as under the scheme it is proposed that the assets have to be sold and the sale proceeds are to be utilized for paying the creditors and depositors, according sanction to a scheme containing any such provision would not be ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn : (1)Sanctioning Court has to see to it all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)( a ) have been held. (2)The sanction put up for sanction of the Court is backed up by the requisite majority vote as required by section 391(2). (3)That the concerned meetings of the creditors 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 and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. (4)That all necessary material indicated by section 393(1)( a ) is placed before the voters at the concerned meetings as contemplated by section 391(1). (5)That all the requisite material contemplated by the proviso to section 391(2) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of the Act." This section comes to play after the scheme is sanctioned by the Court under section 391 of the Act. After sanction of the scheme, the Court has the power to supervise and carry out the compromise or arrangement. In the course of such supervision or at the time of making the order sanctioning the scheme or at any time thereof, the court can give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for proper working of the compromise or arrangement. In fact, sub-section (2) of section 392 of the Act confers the wide powers on the Court. After the scheme is sanctioned if the Court is of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank, Rs. 4.22 crores in the form of term deposits in escrow account, Rs. 2 crores in the form of other term deposits and Rs. 14 crores in the form of SLR securities. Thus, a sum of Rs. 26.35 crores is available with the company for disbursal to the depositors and creditors in terms of the scheme. Recoverable assets i.e., the amounts which can be recovered under the Hire Purchase agreements is about Rs. 72 crores, lease assets is about Rs. 26 crores, demand loans is about Rs. 103 crores, bill discounting is about Rs. 8 crores, interest on the aforesaid recovery is about Rs. 105 crores and thus, the total amount to be recovered is about Rs. 314 crores. In addition to that, the company at various locations had 33 properties, the approximate value of which as on 31-3-2003 is around Rs. 14.60 crores. Accordingly to the petitioner, the present market value is around Rs. 20 crores. In addition to that, shareholding in subsidiary companies and other investments in unquoted shares would be around Rs. 40 crores. Even after the margin of 10 per cent of the total amounts recovered, the company may recover about Rs. 360 crores which may be sufficient to meet its commitment under the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors and depositors have compromised their interest with the company to the extent of receiving the principal amount in a period of five years and waiving the interest due to them from 31-3-2002. 60. The company moved this Court for permission to convene meeting of shareholders, creditors and depositors of the company to consider the said proposal which was granted. Accordingly, the meeting was held. The report submitted by the Chairman of the meeting clearly discloses that the scheme has been approved by the requisite majority. Thus, the petitioner has complied with the statutory requirements. 61. Registrar of Companies after notice, have entered appearance and filed statement expressing certain apprehensions which have already been considered and found them without any substance. Similarly, the Reserve Bank of India also entered appearance and has filed its objections pointing out the deficiencies in the scheme. In fact, after hearing, when the Reserve Bank of India was called upon to suggest the mode to make the scheme workable, it has filed an affidavit giving its suggestions. Those suggestions have already been considered above. Similarly, several depositors and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt itself with accrued interest out of the SLR. 62. The winding up of a company is an extreme step because it results in the civil death of the company. On such winding up order being passed section 529A of the Act provides for preferential payments. Payment to the workers, debts due to the secured creditors shall be paid up in priority to all other debts. The aforesaid debts shall be paid in full unless the assets are insufficient to meet them in which case they shall abate in equal proportion. Thereafter, out of the remaining amount all the revenues, taxes, cesses and rates due from the company to the Central or State Government or to the local authority are liable to be paid. Thereafter all wages or salary of an employee has to be paid. Then all accrued holiday remuneration becoming payable to any employee are to be paid. It is only thereafter if any amount is available the question of paying unsecured creditors would arise. Under these circumstances, as contended by these unsecured creditors that if their amounts are not paid on the maturity date in one lumpsum with the entire accrued interest the scheme is to be rejected and the company is ordered to be wound up is detrime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets and the sale proceeds shall be released only for the purpose of discharging the amounts due to the depositors and creditors under the terms of the scheme. (5)The company shall obtain prior permission of this Court for liquidating its investments in shares of other companies. (6)Petitioner company shall not carry on the business as a non-banking financial company without prior permission of the RBI. (7)The SLR encashed shall be utilised for payment of depositors only. (8)In the event of bond holders opting for splitting or by transfer of bonds to the value of Rs. 5000 or less to get the benefit of this order, it is made clear that they would not be entitled to the benefit mentioned in clause (2) supra . (9)It is made clear as discussed above, the terms of the scheme provides for repayment of depositors, creditors over a period of 5 years that too in instalments and in the process, assets of the company have to be sold with the permission of the Court. Supervision of this Court to carry out the terms of the scheme is very much necessary and if for the proper working of the scheme there is any necessity for modification of the scheme or for giving any further directions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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