TMI Blog2006 (1) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... The Bank, on being satisfied that a non-banking financial company, ( a ) to ( c ) ****** ( d )the continuance of the non-banking financial company is detrimental to the public interest or to the interest of depositors of the company, may file an application for winding up of such non-banking financial company under the Companies Act, 1956 (1 of 1956)." 3. Even though the original petition does not specify whether it was filed under section 45MC(1)( d ) of the RBI Act, during the hearing of the CA 1416/90 which was filed by the company convening the meeting of the creditors, the learned counsel for the applicant/RBI had submitted that this petition was filed under section 45MC(1)( d ) of the RBI Act. 4. The objects of the respondent-company were averred to be as follows: "( a )To carry on the business of technical, financial and management consultant and advisers and to enter into collaboration agreement for the manufacture of items which the company is entitled to produce, in India and abroad with the companies, firms and individuals. Central and/or State Government and their concerns and to render and provide all type of services including managerial, personnel secr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the maximum permissible rates and acceptance of other deposits beyond the period permitted by the RBI and violation of other norms as well as the degradation of the credit rating from CARE (FD)C. 6. The following other allegations have also been made against the respondent-company : "( a )That the complaints were received from Tourism Finance Corporation Ltd. ( b )That the RBI also received information from State Bank of India about large scale misuse at par discounting facility. ( c )That on 26-4-1997 the RBI asked the company to submit its schedule of assets which could be used for discharging its obligations and liabilities but the reply only disclosed liabilities and no mention was made about its assets as discernible from the letter dated 7-5-1997 sent by the company. ( d )That the company was also asked by the RBI by letter dated 15-5-1997 to furnish a month-wise FDR maturity, loan of public deposits and it was found that all offices of the company were closed since 9-5-1997 nor was the chairman of the company, Shri C. R. Bhansali traceable. ( e )That the company s directors informed that they had resigned from the company Board from 6-3-1997. ( f )That a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company petitioner in the winding up petition bearing CP No. 191 of 1997. 13. The pleas of the RBI/objector in CP No. 251 of 2002 are as follows : ( a )Once the application under section 45MC(1)( d ) of the RBI Act has been admitted and grounds under section 45MC(1)( d ) are made out, only extraordinary circumstances would enable this Court to exercise its jurisdiction not to pass an order for winding up and no such circumstances have been shown by the petitioner-company which is liable to be wound up. ( b )No order except the order of winding up would be prejudicial to public interest in the present case. ( c )Consequently this Court should direct winding up by taking into account not only the interest of the creditors and the shareholders of the company but also public interest. ( d )The petitioner-company having lost its substratum deserves to be wound up particularly when it was incorporated for the sole purpose of accepting deposits and to act as a non-banking financial institution. ( e )The order dated 9-4-1997 prevents the petitioner-company from accepting the deposit from the public and the very purpose of the incorporation of the petitioner can no longer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent-company the following pleas were made by the learned senior counsel for the respondents, Dr. A. M. Singhvi and Mr. Sudhanshu Batra: ( i )The respective meetings of secured creditors, unsecured creditors and shareholders have accepted the modified scheme by overwhelming majority of 3/4th in value as well as by simple majority. A report to that effect has been filed by the chairman of the meeting and it is the second motion which is pending in this Court so as to accord final Approval to the scheme. All co-operative banks of Gujarat have given their consent to the scheme as evident from Annexure A. The winding of a company is a step resulting in civil death of the company and it is contrary to the public interest as lakh of depositors and shareholders all over the country who would find that their investments will become sterile and they have not got any return on their investments. ( ii ) While performing the statutory functions, the RBI is required to take the general public interest in mind. While balancing the general public interest, the interest of the banks and financial institutions and the secured and unsecured creditors is also to be taken into account. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, such a resolution cannot be accepted by the court. ( B )The court cannot sanction a scheme containing the reliefs and concessions sought which have the effect of taking away of the statutory powers of the RBI by directing it to grant registration/licence to a company without following the procedures laid down under the RBI Act. ( C )The accounts of the directors ought not to be de-freezed. 15. In reply to the above summarised objections raised by the learned counsel for the petitioner, the following pleas have been taken by the respondent-company: 16. The following reliefs have been prayed by the respondent-company qua its scheme propounded as per CP No. 251/2002 : ( i )All the bank accounts of the company as well as its group companies and its ex-directors and officers which have been frozen be de-freezed and RBI be directed to give necessary instructions to the banks for making such accounts operative. ( ii )RBI be directed to revoke its prohibitory orders passed under section 45K(4) read with section 45MB(1) of RBI Act. ( iii )RBI be directed to accept the application for registration as NBFC under section 45(1A) of the RBI Act on being filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the scheme arrive at their owned reasoned judgment and agree to be bound by such compromise or arrangement. The court cannot, undertake t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003] 48 SCL 689 (Delhi), this Court held as under : "( j )A living scheme like the present one approved by the vast majority is preferable to compulsory liquidation." (p. 715) 22. Insofar as the objections raised by the Official Liquidator are concerned, the only objection is that no definite or clear source of funding has been mentioned in the scheme of arrangement and on this aspect the scheme is vague. Since the scheme does not contemplate any commitments on behalf of the propounder it ought not to be sanctioned. 23. In reply to the above plea of the Official Liquidator as summarised above, the company has submitted that the source of funds and application of funds have been clearly indicated in a tabulated chart of the projected balance sheet for first six years and the said flow of funds was duly considered by all the creditors and the shareholders at the time of sanctioning the scheme and only after considering the same, the scheme was approved. The Official Liquidator must confine its pleas under second proviso to section 394(1) of the Act. The company has relied upon the position of law laid down by Madhya Pradesh High Court in the case of Nilnita Chemicals Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 446 would cover all types of proceedings against the company including even criminal proceedings. If any authority were needed to highlight this proposition, it is supplied by a decision of the Delhi High Court in the case of Official Liquidators. R.C.Abrol, [1977] 4 Comp. Cas. 537. D.K. Kapur, J, in that case, held that the High Court had power under section 446(3) to transfer a pending complaint before the Magistrate for trial to itself. Having referred to sub-section (3) of section 446, the following observations were made (at page 542) This shows that once a proceeding by or against a company has become a pending proceeding in any court, it can be transferred to the court which is winding up a company. For instance, if the present complaint is filed before a Magistrate who takes cognisance of it, then the case would, become a pending case before a Magistrate and could be transferred to this Court under section 446(3), if the Court thought it fit to transfer the same ." (p.171) (2) J. Burrow (Leeds) Ltd., In re. [1984] Comp. LJ 10 (Chd.) wherein it was held that the proceedings in the Magistrate s court were a proceeding within the meaning of section 226( b ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The objector had chosen not to attend the meeting of the unsecured creditors despite having been served the notice of the same. Consequently, the objector cannot contend that because it had given a corporate line of credit, it should be treated as a secured creditor for the other financial facilities, i.e., bill discounting facility in the absence of the registration of the charge, and ought to be rejected. 29. The CBI has raised the plea that two cases have been registered against the directors and the company and a FIR has been registered pursuant to the complaint of State Bank of India ( SBI ) and another pursuant to a complaint of Bank of Baroda. Charge-sheet has been filed in the competent court of law at Mumbai under sections 120( b ), 468, 471 and 13(2)( b ) of Prevention of Corruption Act, 1998, and also under section 420, IPC in District Courts at Mumbai. The CBI cannot concede to stay such concession sought by the company and such concession cannot be sanctioned. 30. In reply to the above objection of the CBI, the respondents have contended that since the Bank of Baroda has already consented to the sanction of the proposed scheme by its letter dated 12-10-2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt payable to the respective secured creditors shall be as indicated below Secured Creditor Offered Amount 1. Bank of India 4,12,00,000.00 2. United Western Bank Ltd. 1,86,84,302.00 3. SIDBI 48,00,000.00 4. Union Bank of India 18,51,856.00 5. Karur Vysya Bank Ltd. 1,45,23,534.00 6. Federal Bank Ltd. 92,20,000.00 7. State Bank of Travancore 2,62,91,972.00 8. Bank of Tokyo 3,90,00,000.00 9. Dena Bank 1,05,00,312.00 10. Bank of Baroda 1,95,00,000.00 11. Bank of Rajasthan 2,60,59,631.00 12. Canfin Homes Ltd. 72,00,000.00 13. GIIC Ltd. 10,00,00,000.00 14. APIDC Ltd. 1,90,46,482.00 15. Tuscon Exports Ltd. 5,25,00,000.00 16. Global Finance Corporation Ltd. 4,14,00,000.00 17. Rashmirita Exports Ltd. 6,50,00,000.00 18. Shree Bhikshu Edn. and Health Care Ltd. 11,25,00,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmencing immediately upon expiry of twelve months from the date of sanctioning of the scheme by the Hon ble Delhi High Court. ( b )Payment equivalent to balance 50 per cent of the principal amount deposited/invested shall be discharged in the form of allotment of shares of CRB Capital Markets Ltd. of Rs. 10 each at par immediately upon receipt of approval from the competent authority. Co-operative banks Considering the fact that the depositors of the various co-operative banks are small and needy, payment to the co-operative banks shall be made as follows : ( i )Payment equivalent to 25 per cent of the principal amount shall be made within 3 months from the date of sanctioning of the scheme of arrangement/compromise by the Hon ble Delhi High Court. ( ii )Payment of balance 75 per cent of the principal amount shall be made in 16 equal quarterly instalments commencing from the month following the expiry of six months from the date of sanction of the scheme of arrangement/compromise by the Hon ble Delhi High Court. ( iii )In view of the fact that two of the co-operative banks, namely, the Gozaria Nagrik Sahkari Bank Ltd. and Boriavi Peoples Co-operative Banks Ltd. who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt in abeyance and shall be withdrawn simultaneously upon receipt of last instalment of the dues by the creditors in terms of the above schedule of payment. Further resolved that the original scheme filed by the propounder of the scheme shall be suitably modified to the extent indicated above." 33. In support of the proposed scheme propounded by this application, the plea of the respondent-company is that the modified scheme of compromise shall achieve the feasible debt repayment. In my view the public interest inherent in the scheme is evident from the fact that this seeks to benefit 1,34,000 deposit holders and about 36 co-operative banks and many of the deposit holders are retired Government personnel and senior citizens including widows and several other similarly situated deposit holders who are needy and dependent on the recurring income from the deposits made with the company. Similarly, there are large number of deposit holders who had invested in various co-operative banks which had lent deposits to the company, and such unsecured creditors would also be benefited by the modified scheme as it provides for accelerated payment to the unsecured creditors. The scheme con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of the weaker sections of the society and it is directed that widows, disabled persons, retired Government servants and persons above 65 years of age, i.e., senior citizens, will get their entire deposit repaid without any limit within one year after the sanction of the scheme. Insofar as other unsecured creditors are concerned such as the deposit holders and the bond holders above the value of Rs. 5,000, they are to be paid an amount equivalent to 50 per cent of the principal amount in five equal yearly instalments commencing from the date of sanctioning of the scheme and balance of 50 per cent of the principal amount is to be discharged in the form of allotment of shares of CRB Capital Markets Ltd. of Rs. 10 each at par as soon as approval from the competent authority is received. 34. Insofar as the co-operative banks are concerned, 25 per cent of the principal amount is to be paid within three months from the date of sanction of the scheme and the balance 75 per cent of the principal amount is to be paid in 16 equal quarterly instalments commencing from the month following the expiry of six months from the date of sanction of the Scheme. Special provision has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company and such orders of this Court in CA 737/1997 shall continue. I direct that the frozen amounts of the company, as well as its group companies and its ex-directors shall stand de-freezed. Consequent instructions to the banks are to be issued by the RBI if not already issued. The amounts outstanding in the de-frozen amounts on the date of the sanction of the scheme shall be furnished to the administrator within eight weeks of the date of de-freezing. The quarterly statements of such accounts shall be submitted to the administrator appointed by this order. Insofar as prayer ( ii ) is concerned, as contended by the company it has become infructuous by passage of time. Insofar as prayer ( iii ) is con-cerned, the RBI is directed to consider the application for registration of the company as NBFC under section 45MB(1) of the RBI Act, in accordance with law. Insofar as prayer ( iv ) which seeks a direction against the RBI to restore its suspension order against in principal approval for setting up CRB Global Bank Ltd. has not been pressed. Insofar as prayer ( v ) is concerned, the Reserve Bank of India is directed to consider the plea of the petitioner for restoration of licences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a case of a scheme of compromise or arrangement between the company and its members and creditors, it is the proviso to section 391(2) which has to be complied with. Before the court can accord sanction to such a compromise or arrangement as is clear from the said proviso, 4 conditions 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 are contrary to any of the statutory provisions contained in the Companies Act or the Reserve Bank of India Act or any other law which is applicable to the company. . . (p. 340) From the aforesaid provisions and the judgments relied on, it is clear that the powers of the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1 year of the date of the sanction of the scheme to the widows, Government servants, disabled and senior citizens and the scheme is, thus, in the public interest. Such affected persons are the weaker sections of the society are, thus, fully guaranteed repayment that too under the supervision of the administrator being appointed by this court. Since Rs. 17 crores plus interest thereon have already been generated and Rs. 10 crores are to be infused by the promoters it cannot be said that the company has lost its substratum. 41. Insofar as the plea of Malanpur Steel is concerned, I am of the view that there is merit in the plea of the company that the loan granted by the objector, Malanpur Steel to the extent of Rs. 10 crores was not secured by any asset of the company. There is merit in the plea of the company that the guarantee, post-dated cheques or the pledge of shares cannot make the objector a secured creditor. The objector has not shown that the loan given was secured or is registered as a charge with the office of the Registrar of Companies. Accordingly, it cannot be held that the objector Malanpur Steel has become a secured creditor. 42. Insofar as the plea of GII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have no objection for sanction of the scheme, and by absence and not opposing the scheme they have given their implied consent, though not an express consent by being present in the meeting and voting for the scheme." (p. 336) 43. I am in agreement with the position of law laid down in the above mentioned case. Therefore, if the GIIC did not attend the meeting of unsecured creditors in spite of being served notice of the same, it cannot now contend that it should be treated as a secured creditor for the Bill discounting facility of Rs. 12.5 crores. If it was of the opinion that it was a secured creditor with respect to the amount of Rs. 12.5 crores, it ought to have attended the meeting of unsecured creditors and placed its objections on being termed as an unsecured creditor in respect of the sum of Rs. 12.5 crores. In any event dues of Rs. 12.5 crores of GIIC will also be liquidated in favour of GIIC along with other unsecured creditors as per the scheme. Its objections, thus, cannot be entertained and are accord-ingly dismissed. 44. Insofar as the plea raised by the CBI is concerned, the cases have been registered pursuant to the complaint of State Bank of India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, there is no bar on this Court to accord sanction to the same. Further, the according of sanction to the scheme by this Court, keeping in mind the above-mentioned conditions shows that this Court is sanctioning the scheme in accordance with the statutory provisions of law. 47. Considering the overall facts of the case, it is evident that if an order of winding up is passed, none of the creditors secured or unsecured or depositors are likely to realise their dues within the foreseeable future or at all. Similarly the shareholders would also substantially lose their investment when winding up is ordered. A winding up order would eventually have the effect of ensuring the civil death of the company. The hon ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 10 SCL 70 has defined the jurisdiction of the Company Court in the following manner : "( 1 )The sanctioning court has to see to it that all 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 )That sanction put up for sanction of the court is backed up by the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme rather than its supervisory jurisdiction. The aforesaid parameters of the scope and ambit of jurisdiction of the Company Court which is called upon to sanction a scheme of compromise or arrangement are not exhaustive but only broadly illustrative of the contours of the court s jurisdiction." (p. 99) 48. The respondents have also relied on the following position of law : "71. This section (section 392 of the Act) 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 wide powers on the court. After the scheme is sanctioned if the court is of the opinion that the scheme cannot be worked satisfactorily with or without modifications, it may either on its own moti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the court directs. (2) If a majority in number of 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 : 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 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th regard to the relief and concession sought in part IV of the scheme under the heading RBI , i.e., ( i ) to ( v ) from the RBI the petitioners have during the course of hearing given up the reliefs/concessions sought in clauses ( ii ) to ( v ) under the heading RBI and here not been pressed and accordingly the said clauses ( ii ) to ( v ) shall stand deleted from the scheme. Insofar as relief ( i ) is concerned directions have already been given in para 37 above. ( IV )As regard para 5 of part IV of the scheme which related to the trust petition filed by SEBI before the Bombay High Court it is contended by the parties that trust petition No. 3 filed by SEBI before the Hon ble Bombay High Court is presently pending before the Supreme Court of India for transferring the same and accordingly the said para 5 shall stand deleted from the scheme. ( V )In order to protect the interest of the public, i.e., the depositors/bond holders/secured and unsecured creditors and to oversee the implementation of the scheme as contemplated by section 392 of the Act, Justice C. M. Nayyar, a former Judge of this Court and the former Chairman of the MRTP Commission, is appointed as administ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the scheme in this order and undertaking to be bound by the same. ( VII )The propounder shall also file the projected balance sheet for five years from the cut-off date Annexure A and the projected fund for statement 5 years from the cut-off date Annexure B in view of the modifications made in this judgment: ( a )The company petition No. 251 of 2002 along with Company Application No. 1416 of 1998 is allowed subject to the terms and conditions mentioned above. ( b )The scheme of compromise and arrangement as put forth in Company Petition No. 251 of 2002 along with Company Application No. 1416 of 1998 is sanctioned subject to the above modifications/orders so as to be binding on the petitioner/company and its members creditors. ( c )In view of the fact that the scheme has been sanctioned subject to the above modifications/orders as above, the winding up petition CP No. 191/ 1997 filed by RBI against the company along with all other pending applications shall stand disposed of accordingly. However, if the administrator reports that the scheme cannot be successfully implemented, then the winding up petition shall revive and the company would be liable to be wound up. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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