9911796707
TMI Blog2006 (2) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... cured creditors, whereas the later is with regard to the specified unsecured creditors. 2. The petitioner-company was incorporated on 15-5-1986 in accordance with the provisions of the Companies Act, 1956. The petitioner-company became a public limited company on 14-7-1986. The share capital of the petitioner-company as on 31-3-2005 is stated to be as under: Authorised Figures in Rs. 3,00,00,000 Equity Shares of Rs 10 each 30,00,00,000 10,00,000 2 per cent Cumulative Convertible Preference Shares of Rs.100 each 10,00,00,000 10,00,000 5 per cent Cumulative Convertible Preference Shares of Rs.100 each 10,00,00,000 20,00,000 Redeemable Preference Shares of Rs.100 each 20,00,00,000 Total 70,00,00,000 Issued subscribed and paid-up 95,34,090 Equity Shares of Rs. 10 each 9,53,49,900 2,50,000 Redeemable Preference Shares of Rs. 100 each 2,50,00,000 Total 12,03,40,900 3. The main objects of the petitioner-company on its incorporation are as follows: "(i )To carry on business in India and elsewhere as manufactures, products, processors, formulators, sellers, importers, exporters, merchants, distributors, traders and dealers in proprietary medicines, common medicinal prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcoming its accumulated losses on the assumption that Wanbury Limited has global presence in APIs and is manufacturing Metformin and Salsalate and has introduced other products like Amytriptaline, Tramadol, Promethazine and Sertraline over the last few months. It is stated that Wanbury Limited is the World's largest producer of Metformin and it caters to API markets in over 40 countries especially the related markets in North America, Europe etc. It is further stated that Wanbury Limited enjoys an excellent customer loyalty with over 200 companies across the globe and is keen to explore avenues to enhance its sales and increase its capacities to address the increased need of its customers. 6. As mentioned earlier, for the offer made by the said Wanbury Limited who has come forward to act as strategic partner, on 14-4-2005, the board of directors of the petitioner-company considering all the aspects of the matter resolved that subject to the directions and sanction of the appro-priate court as may be required under law and subject to such permission of such other authorities as may be necessary, the scheme of arrangement between the petitioner-company, its named secured creditors ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me will be filed under section 391 of the Companies Act, 1956, a certificate of non-objection from the partners of Neeldeep Plastics, will be filed for the transfer of the aforesaid building described in Schedule III, in accordance with clause 5.1.5 of this scheme. 3.3 Terms and conditions: 3.3.1 The Secured Creditors have agreed that the consideration referred to in clause 3.2 shall be a settlement towards outstanding dues for which charge had been created on the assets of PPIL. 3.3.2 The amounts that remain outstanding out of the amounts set out in clause 3.1 shall be treated as unsecured loans and the rights of the secured creditors to the extent that the outstanding amounts which remain unpaid after the agreement of the secured creditors to the scheme have been procured shall be the same as those unsecured creditors of PPIL. 3.4 The Secured Creditors have also agreed that the payment of the consideration referred to in clause 3.2 shall occur only after the AAIFR or other competent forum or court has passed orders for the merger of PPIL with Wanbury Limited, or passed such other orders facilitating a complete transaction of PPIL assets and ownership,free of encumbrances to W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the secured creditors shall amount to the following: LendersEquityNCDOFCDCash Total ARCIL5,988,49214,970,92135,930,21014,856,38271,746,006 IIBI583,2221,458,0243,499,2581,446,8696,987,374 Unit2,400,4456,000,99014,402,3765,955,07828,758,889 Trust of India Bank of207,262518,1451,243,549514,1812,483,137 India Bank of442,5841,106,4362,655,4471,097,975,302,438 Baroda Union Bank78,195195,483469,160193,988936,826 of India Total9,700,20024,250,00058,200,00024,064,470116,214,670 Principal (Figures in Rupees) 4.2 In addition to the above the immovable assets referred to in clause 3.2 of the scheme valued at Rs. 2,25,80,000 (Two crores twenty five lakhs eighty thousand only) shall also be part of the consideration in accordance with the provisions of this scheme. 5. Method and Mode of paying consideration : 5.1 Subject to clause 3.3.1 and 3.3.2, as full and final consideration and in full settlement of all dues, overdrafts, borrowings, interest payments, penalties, guarantees, equity conversion rights or other rights whatsoever, Wanbury would give to the Secured Creditors, the consideration in the manner, stated hereunder : 5.1.1 Cash : Rs. 24,064,470 (Rupees two crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the BIFR/AAIFR and the appropriate Courts. Wanbury shall take all necessary steps to obtain such approvals. The NCDs shall be pari passu secured against the fixed assets of Wanbury. Lenders NCD No. of NCDs ARCIL 14,970,921 149,709 IIBI 1,458,024 14,580 Unit Trust of India 6,000,990 60,010 Bank of India 518,145 5,181 Bank of Baroda 1,106,436 11,064 Union Bank of India 1,095,483 1,055 Total 24,250,000 242,499 5.1.4. Zero coupon Optionally Fully Convertible Debentures (OFCDs) : (a )Wanbury shall take such steps as are necessary issue OFCDs of a face value of Rs. 1,000 per OFCD within 30 days of the Effective Date as stated below : Secured lenders amount No. of OFCDs ARCIL Trust 35,930,210 35,930 IIBI 3,499,258 3,499 UTI 14,402,376 14,402 BOI 1,243,549 1,244 BOB 2,655,447 2,655 UBI 469,160 469 Total 58,200,000 58,199 (b)The OFCDs shall be optionally convertible and the option may be exercised between 18 months and 36 months of the date of issue of the OFCDs. The price at conversion of these OFCDs shall be higher of: (a) 67 per cent of the 3 months average weekly closing high low price per share quoted on the BSE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts necessary for the sale of the said properties to give effect to this clause. (c)Any fee and/or expenses/costs incurred by ARCIL/Wanbury/PPIL in relation to the said properties shall be deducted from the sale proceeds of the said properties. (d)The secured creditors shall if though necessary by then execute amongst themselves documents as required their agreement to the sale of the properties by ARCIL or make such other arrangement as they deem fit for the expeditious sale of the property and/or distribution of the consideration received from the sale thereof in the proportion mentioned in sub-clause 5.1.5(a). Wanbury and/or PPIL shall have no liability on these assets including taxes, costs and/or charges payable or incurred in respect of the properties or sale of these properties or the distribution of the proceeds therefrom to the secured creditors or the allocation and sale thereof to the secured creditors as the case may be and Wanbury/PPIL shall have no involvement or role in such agreement entered into between ARCIL and the other secured lenders and as such, on the effective date, the loans, dues and liabilities towards the secured creditors whether from PPIL, Wanbury an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition of assets of PPIL by Wanbury or such scheme of PPIL by BIFR/AAIFR. (g )Filing and submission of any of the aforesaid orders of any forum with any agency/statutory body, as may be required,including the RoC and. (h)All other sanctions and approvals as may be required in respect of this scheme being obtained. 9.2 This scheme shall become effective on the date on which all the conditions referred to in clause 9.1 have been duly met/completed and such date shall be the effective date for the purposes of this scheme. 10. Effect of Non-Receipt of Approval/Sanctions : In case the scheme is not sanctioned by the High Court of Judicature at Bombay, or in the event any of the approvals or conditions enumerated in para 9.1 above not being obtained or complied with, or for any other reason, the scheme cannot be implemented, the status quo of the secured creditors of PPIL shall be restored as if the scheme had not been proposed and all liabilities of PPIL towards the secured creditors and the rights of the secured creditors including the right to take such legal action and proceedings as they deem fit shall be restored." 7. The Board of Directors of the petitioner-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PPIL (and the guarantors) for the liabilities of PPIL towards the Unsecured Creditors. 3.3.2 The unsecured creditors have also agreed that the payment of the consideration referred to in clause 3.2 and the transfer envisaged in this scheme shall occur only after the AAIFR or such other forum or court has passed orders for; (a) merger of PPIL with Wanbury Limited; and (b) passed such other orders facilitating a complete transition of PPIL assets and ownership, free of encumbrances, to Wanbury, to the satisfaction of Wanbury and all approvals have been acquired from all parties, agencies and authorities towards the performance of acts to give effect to such orders and this scheme. 3.3.3 The Unsecured Creditors shall perform all acts to cooperate with PPIL and Wanbury, in any and all manners to give effect to the scheme, including filing documents, materials, affidavits and other evidence in court or such other forum as may be necessary, in support of this scheme. 3.3.4 The Unsecured Creditors shall issue a "No Dues" certificate upon receipt of consideration from Wanbury as stated in clause 3.2 subsequent to the effective date. In the event that the scheme gets the necessary approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the provisions of this scheme, after the assets have been appropriately dealt with in accordance with the scheme of arrangement with the secured creditors under section 391 of Companies Act, 1956. 5. Method and Mode of paying consideration : 5.1 As full and final consideration and in full settlement of all dues, overdrafts, borrowings, interest payments, penalties, guarantees, equity conversion rights or other rights whatsoever, Wanbury would give to the unsecured creditors, the consideration in the manner, stated hereunder: 5.1.1 Cash : Rs. 150.03 lakhs as cash down payment which shall be payable to each of the unsecured creditors on or after the Effective Date as described below: Unsecured creditorsCash in Indian Rupees ARCIL7,896,480 IIBI240,591 Unit Trust of India1,606,709 Bank of India58,802 [ Unsecured creditors Cash in Indian Rupees Bank of Baroda 1,796,214 Union Bank of India 317,352 LIC-Asset Management Company 467,346 Life Insurance Corpn. of India 584,182 General Insurance Corpn. of India 70,102 New India Assurance 81,786 United India Insurance 81,786 GIC Mutual Fund 233,673 LIC Housing Finance 116,836 Army Group Insurance Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured creditors as the case may be and Wanbury/PPIL shall have no involvement or role in such agreement entered into between ARCIL and the other unsecured lenders and as such, on the effective date, the loans, dues and liabilities towards the unsecured creditors whether from PPIL, Wanbury and/or any of their associates, officers, employees or directors shall stand completely discharged subject to the payment of the consideration described in this scheme. (e )For the purposes of this scheme, the assets referred to in clauses 3.2(b) and 3.2(c ) shall together be valued at a price of Rs. 2,25,80,000 (Two crores twenty five lakh eighty thousand only) regardless of the price at which the same are sold by ARCIL in accordance with clause 5.1.5(a) above and the amounts outstanding towards the unsecured creditors shall be deemed as having been paid back to the extent of Rs. 25,80,000 (Rupees twenty five lakh eighty thousand only) regardless of the actual amounts received subsequently by the unsecured creditors. 6. Results for Wanbury : 6.1 Upon payment of cash consideration towards full and final settlement mentioned in clauses 4 and 5 above, Wanbury Limited shall get complete control ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng obtained or complied, or for any other reason, the scheme cannot be implemented, the status quo of the unsecured creditors of PPIL shall be restored as if the scheme had not been proposed and all liabilities of PPIL towards the secured creditors and the rights of the unsecured creditors including the right to take such legal action and proceedings as they deem fit shall be restored." (bracket in clause 3.3.1 supplied) 8. The petitioner-company thereafter approached this court by taking out two separate Judges Summons being Civil Application Nos. 281 of 2005 and 282 of 2005 with regard to the respective schemes of specified secured and unsecured creditors referred to above. This court on 29-4-2005 directed the petitioner-company to convene meeting of the secured creditors on Saturday 4-6-2005 at 11.30 a.m. at Riverview Hotel at Patalganga, District Raigad for the purpose of considering the scheme of arrangement. This court also nominated the Chairman for the said meeting and provided for the manner in which the said meeting should consider the scheme of arrangement of secured creditors. Insofar as the scheme of arrangement regarding the specified unsecured creditors, this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The petitioner-company has thereafter approached this court by way of present petitions under section 391 of the Companies Act, 1956 for sanction with or without modification of the arrangement embodied in the respective schemes of arrangements and for declaration that the same is binding on the petitioner-company, its concerned secured and unsecured creditors as also for consequential reliefs. 13. Ordinarily, as necessary formalities have been complied with and the respective proposed schemes have been approved by majority in number representing more than 3/4th for the value of the specified secured and unsecured creditors, this court would have no difficulty in acceding to the request of the petitioner-company to sanction the arrangement embodied in the respective schemes of arrangement and declare the same to be binding on the concerned parties. But both these schemes are resisted by some of the secured creditors and unsecured creditors. 14. I would first deal with the objections raised in respect of the proposed scheme of arrangement, regarding secured creditors. As is seen earlier the said scheme is essentially in relation to the six secured creditors named in the scheme. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment is spread over for long period of the NCDs and OFCDs. It is stated that the amount which will have to be sacrificed by the UTI is essentially the public money contributed by general public/ small investors. 15. It is then stated that UTI is a separate class of creditors as their dues are secured by 1st pari passu charge on the immovable properties and the second charge on movable assets of the petitioner-company, for which reason it cannot be equated with the banks who have financed for the working capital requirement of the petitioner-company. It is then stated in the reply affidavit that the petitioner-company has deliberately made classification of creditors as secured and unsecured for their own convenience with mala fide intention to reduce representation of the objectors-UTI. It is lastly stated that neither the Corporate Debts Restructuring (CDR) mechanism nor the One Time Settlement (OTS) norms laid down by the Reserve Bank of India are applicable to the case in hand. In substance, it is stated that the scheme of arrangement envisages huge waiver and long term tenure of repayment of the NCDs and OFCDs, which is prejudicial to the interest of large number of investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t however, has been made only after the objection was raised to the present scheme by the UTI. On the above arguments it was contended on behalf of the UTI that the petition should be dismissed and request of the petitioner-company for sanction of the proposed scheme of arrangement be refused. 17. I shall first deal with the question whether the pendency of the proceedings before the AAIFR under the provisions of the SICA would exclude the jurisdiction of this court to entertain the present petition to consider prayer for sanction of the proposed scheme of arrangement. This aspect came up for consideration before me in the case of Sharp Industries Ltd., In re decided on 17-11-2005 being Company Petition No. 460 of 20051, which was also under section 391 of the Companies Act for a scheme of compromise/arrangement between the said company and its secured/unsecured creditors and equity shareholders. After considering the exposition of this court in the case of National Organic Chemical Industries Ltd. v. Nocil Employees Union [2005] 126 Comp. Cas. 922 2, I had an occasion to observe as follows : "16. I am in agreement with the view expressed by Justice S.U. Kamdar in the above decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paras 8 and 10 to 12 of this decision. The relevant portion of the said paras 8 and 10 to 12 as under : "8. ...It is, thus, clear that the 1985 Act is designed as a special statute for making efforts to protect the sick industrial companies from death. As far as possible, attempts are to be made for revival of the company and only when the Board comes to the conclusion that revival is not possible, winding up proceedings can be taken by the High Court on a reference made by the Board. Being a special statute in relation to sick industrial companies, provisions contained in the 1985 Act will prevail qua the general provisions contained in the Companies Act. The maxim generalia specialibus non derogant will apply in such cases and the provisions of the 1985 Act will be construed to be having overriding effect on the provisions of the 1956 Act. 10. Thus, there is a clear exclusion of the provisions of the Companies Act and by virtue of section 22(1), no proceedings for winding up of an industrial company or for execution, distress or the like against any of the properties of the industrial company shall lie or be proceeded with further in accordance with the provisions of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... former shall prevail over the latter in case of inconsistency". (p. 308) The ultimate conclusion recorded in this decision is the correct statement of law which is consistent with the view taken by our High Court in the case of National Organic Chemical Industries Ltd. (supra) as well as Sharp Industries Ltd.'s case (supra). The legal position is that the provisions of 1985 Act shall prevail over the provisions of the Companies Act, 1956 "in case of inconsistency" in a given subject. 19. Besides, as is noted by our High Court the provisions of the two enactments operate in different spheres and the scheme insofar as the power of the High Court to grant sanction to the proposed scheme of arrangement is unaffected. Reliance is rightly placed by the learned counsel for the petitioner-company on the decision of the Division Bench of our High Court in the case of Securities & Exchange Board of India v. Sterlite Industries (India) Ltd. [2003] 45 SCL 475 . The Division Bench of our High Court was dealing with similar argument that in view of specific provisions in the SEBI Act, 1992, the legislative intent was to exclude the jurisdiction of the forum under the Companies Act in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks and Financial institutions referred to in sub-section (1) of section 19 of the Act of 1985. If it was sanction of a scheme simplicitor under section 18 of the Act undoubtedly by virtue of sub-section (8) of section 18 of the Act of 1985, the directions given by the forum under the provisions of the Act of 1985 would not only bind the sick industrial company and the transferee-company but also other companies as also shareholders, creditors, guarantors and employees of the said company. However, as specified secured creditors qualify the description of the banks and financial institutions referred to in section 19(1) of the SICA, the matter will have to be viewed from different perspective. That is so because, section 19(4) makes it amply clear that if consent to the scheme is not given by any one of the person required to give such consent to the scheme, to provide financial assistance, the Board will have to adopt such measures including winding up of a sick industrial company. In other words, even if one bank or financial institution was to withhold the consent, rehabilitation of a sick industrial company by giving financial assistance will be ruled out. On the other hand the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other five specified secured creditors. All these secured creditors were required to provide concession or sacrifice the outstanding dues receivable by them from the petitioner-company. They therefore formed a homogeneous class and have been rightly classified. The argument of UTI that recovery certificate has been issued in its favour for which it stands in a different category will have to be stated to be rejected. Similar contention was considered by me recently in the decision in the case of Sharp Industries Ltd. (supra). It will be apposite to advert to the exposition in para 21 of this decision which reads thus : "...Insofar as the former objection is concerned, it is well settled that merely because decree has been passed in favour of the creditor, he would not constitute different class of unsecured creditor. This position is fortified from the purport of section 390(c) of the Act which provides that unsecured creditors who may have filed suits or obtained decrees shall be 'deemed to be' of the same class as other unsecured creditors. There is also authority to support this position, in the case of Haricharan Karanjai v. Ulipur Bank AIR 1942 Cal. 442. Insofar as the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was their wisdom to accept the proposed scheme because the amount referred to in the proposed scheme was not only guaranteed as to be received in cash and by way of equity shares of Wanbury Limited, who has come forward to revive the company, though the amount receivable will be pegged down only to the extent of 37.5 per cent of the principal amount. Insofar as the argument that UTI was secured by 1st pari passu charge on the immovable properties in relation to the investments in NCDs is concerned, clearly overlooks that even by disposal of the immovable properties of the petitioner, UTI would not be in a position to satisfy its entire outstanding dues. Whereas, under the scheme, not only the sale proceeds of immovable properties have been offered to the secured creditors but Wanbury Limited, who is a third company, has assured of infuse cash to the extent of Rs. 2,40,64,470 in addition to providing for 64,668 equity shares of Wanbury Limited of Rs. 10 each issued at the premium of Rs. 140 each issued and allotted by Wanbury Limited which is valued in the sum of Rs. 97,00,200 and zero coupon NCDs issued and allotted by Wanbury Limited in the sum of Rs. 2,42,50,000, besides zero c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the matter can be considered and AAIFR will be in a better position to propound a comprehensive scheme which will protect the interest of all concerned, whereas the present scheme only represents or relates to the interest of the named secured creditors and will be partial arrangement. Besides, if the scheme was given effect to the substratum of the company will be lost or disposed of, thus making the pending matter before the AAIFR fate accompli. In my opinion, there is no substance in the apprehension expressed by UTI. The present scheme is clearly a scheme limited to scaling down the debts of the named secured creditors and then to take measures to satisfy the pegged down debts with the assistance of Wanbury Limited. The concession or sacrifice to be made by the concerned secured creditors will result in reviving the petitioner-company. As is noted earlier, it is only in the proceedings under section 391 of the Companies Act, direction given by this court would bind UTI who has not consented for offering concession or sacrifice. The apprehension that the matter before the AAIFR will become fate accompli, also does not commend to me. The matter before the AAIFR is essentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d creditors". In all 18 unsecured creditors are named as unsecured creditors for the purpose of this scheme. Even in relation to this petition, the Regional Director has filed affidavit opining that the scheme is not prejudicial to the interest of the creditors and shareholders and appropriate orders may be passed. Ordinarily, as all the requisite formalities have been complied with by the petitioner-company the proposed scheme ought to be sanctioned. However, the same is objected to by five creditors of the petitioner-company. Out of these five creditors, three creditors are not amongst the 18 unsecured creditors named in the scheme. One of them is Tata Finance Ltd. who had arrangement of bill financing facility with the petitioner-company, 2nd is Pedilite Industries Ltd. who had given inter-corporate deposit of Rs. 10 crores to the petitioner company and the 3rd is Ludhram Finance Ltd. who had given advance to the petitioner-company. The said three companies have not been named in the unsecured creditors for the purpose of the present scheme. As is stated by the petitioner the present scheme relates to the named unsecured creditors, essentially being banks and financial instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany petition for winding up of the petitioner-company which is pending before this court being Company Petition No 175 of 1997 having admitted on 20-4-1998. It is stated that the petitioner-company has fraudulently not added the name of this intervener in the list of unsecured creditors referred to in the scheme. 30. The next two objectors whose names are found in the list and described as unsecured creditors have also caused to file affidavits opposing this petition. UTI has filed affidavit of its authorized officer dated 15-9-2005 and Indus Ind Bank Ltd. has filed affidavit of its authorized officer dated 19-9-2005. Insofar as the later is concerned it is stated that the criminal proceedings against the petitioner-company and its directors are pending. Besides, company petition for winding up is also pending in respect of the petitioner-company. Insofar as UTI is concerned it is alleged that in the proceedings before the Debt Recovery Tribunal adopted by UTI, an order has been passed for recovery of certain amount against the petitioner-company alongwith interest at the rate of 16 per cent p.a. and on that basis the recovery certificate has been issued on 17-5-2004. However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cus standi of banks was raised and answered against the banks. In my opinion, in the present case, however, the objectors are justified in contending that they have locus standi to appear in this case proceedings because they constitute general class of unsecured creditors. It is open to them to agitate before this court that the unsecured creditors named by the petitioner-company is not properly carved or there is no tangible basis to carve out such selective unsecured creditors as a class. Besides, it is open to them to contend that the scheme, if approved and implemented, it is likely to affect their interest in future. This is so because, the assets referred to in the proposed scheme will be disposed of and will not be available to those class of unsecured creditors for ever. Reliance has been rightly placed on the observations of this court in the case of ICICI Bank Ltd. 2002 (4) Bombay Cases Reporter 403. In para 9 of this decision the court observed that where the arrangement is purely between the company and its members, not adversely affecting the creditors or any class of them, the court is not bound to convene a meeting of the creditors. It is further observed that, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enable. The material on record including affidavits filed by the petitioner-company make it amply clear that the proposed scheme in relation to the specified unsecured creditors was confined to the banks and financial institutions so as to scale down the debt receivable by them from the petitioner-company and to provide for arrangement to satisfy the scaled down debts. 34. The grievance of the objectors that the decree/award has been passed against the petitioner in the proceedings resorted to by them, will make no difference. In my earlier part of the judgment, I have already answered this aspect to hold that the creditors who incidentally have secured decree, will have to be considered on par with the other creditors. In this case, the question is whether the objectors who have not been shown as specified unsecured creditors in the proposed scheme are justified in contending that they have been unjustly left out, though were on par in all respects with the specified unsecured creditors referred to in the proposed scheme. I have no hesitation to answer this issue against the objectors. From the materials on record I am satisfied that the proposed scheme is in respect of the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom making an attempt to comprehensively define what constitutes a 'class'. We would however, so far as is necessary for the decision of this case, state the factors which would generally be taken into consideration by the court in deciding whether a person or group of persons form a separate class so as to require convening of a separate meeting of such class. (i )In the case of shareholders, the Act recognizes only two classes, namely, equity shareholders and the preference shareholders. Though further sub-classification amongst the equity shareholders or preference shareholders is not impermissible, the mere fact that the equity shares (equity or preference) are issued at different times would not make them a different class. Similarly, the mere fact that the preference shares are redeemable on different dates would not make them shares of different classes. However, in some cases, the equity shares which are fully paid up and equity shares which are partly paid up may form a different class like where they are to be or exchanged for the shares of the transferee-company to be issued in different proportions depending upon their paid up value. (ii)One of the tests to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c property on happening of some event. It would depend upon the facts and circumstances of each case, whether there would be any need for further sub-classification even amongst the secured creditors. Amongst unsecured creditors also there can be sub-classes. It was held in the case of Sovereign Life Assurance Co. [1892] 2 QB 573 (CA) that the creditors whose policies had matured and who had crystallized claim would form a different sub-class from the creditors whose policies had not matured and whose claims were not crystallized. Amongst unsecured creditors, some may be preferred like the Government, or the workers who may have a statutory preference over others. It is difficult to enumerate the circumstances under which different creditors, secured or unsecured, would form a separate sub-class. But, the general principle would be the same namely whether the interest of the creditors who claim to belong to a different class are so dissimilar to the interest of the other creditors that it would be impossible for them to sit and consult together and take a common view of their common interest." (p. 17) 35. Applying the principles referred to above, in this case, as the scheme of ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Buckley on the Companies Acts, 13th edition. It is not possible to suggest that other institutions can be equated with the banks and financial institutions. Reliance is also placed on the decision in the case of Wipro Finance Ltd v. Suman Motels Ltd. 1999(4) BCR 1. Reference was made to the observa-tions in para 7 of this decision which reiterates the legal position as has been noted earlier by the Division Bench of our High Court referred to above. 37. It was also contended on behalf of the objectors that there is no material to show that the institutions referred to at serial Nos. 7,12,13,14 and 16 were banking companies. Once again this submission is put forth only across the Bar. No such specific objection has been taken in the reply affidavit filed by any of the objectors. In view of the general assertions made by the objectors in their respective reply affidavits, the petitioner-company has asserted on affidavit that the described unsecured creditors in the proposed scheme are banks and financial institutions and therefore have been constituted as a class. Suffice it to observe that going by the names of described unsecured creditors mentioned in the proposed scheme said ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property including on winding up of the company, the unsecured creditors will not receive any amount whatsoever out of the sale proceeds as the claim of secured creditors would far exceed the value of sale consideration to be received. Viewed in this perspective the provision made in the proposed scheme earmarking certain percentage of the sale proceeds to the described unsecured creditors can be no basis to doubt the fairness of the scheme. 39. Insofar as the named unsecured creditors are concerned, two of them, who have objected before this court, to the proposed scheme, have clearly overlooked that making available certain percentage of sale proceeds of immovable assets of the petitioner-company is bonus offer to these category of unsecured creditors, which, in law, they may not be able to secure, in the event the sale proceeds were to be in insufficient to cover the claim of the secured creditors. Besides, the cash flow of Rs. 150.03 lakhs has been provided to GPI claim of the described unsecured creditors in terms of the scheme. The principal opponent amongst the described unsecured creditors was UTI. Most of the grievances, which have been made on behalf of UTI as secured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining the scheme and the court should, keeping in view all the aspects of the matter, prefer a living scheme to compulsorily liquidation bringing about and end to a company. Reference may be made to Laurence Dawson v. J. Hormasji AIR 1932 Rang. 154, 162, Cunliffe, J. has observed as under: 'The court is of course not a mere machine for registration. It will look into the proposed scheme much as a court of appeal will canvass, if asked to-do so, the decision of a jury, to ascertain if there was reasonable evidence to support their verdict; but it will, I think, always also prefer a living scheme to a compulsory liquidation bringing about an end to a company, and usually without any hope of payment in full.' The court is exercising its discretion under section 321(2) must treat it as cardinal that its function does not extend to usurping the view of the members or creditors. It must look at the scheme to see that it is a reasonable one and while so doing, the court will be strongly influenced by a big majority vote and the reasons which actuated the contesting creditors in opposing the scheme. Nonetheless it is essential that the scheme must be a fair and equitable one thought it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r company that even if the amount due as claimed by the said objector was to be reckoned as Rs. 227.57 lakhs, for the purpose of computing the voting percentage in the scheme. The total percentage of voting against the scheme was 18.53 per cent. Even if the additional figure as claimed by the objector of Rs. 227.57 lakhs is to be accepted as it is, the total percentage voted against the scheme will not exceed 18.33 per cent, which fact is rightly asserted in para 5 of the affidavit of the petitioner-company dated 30-8-2005. In other words, even on that assumed amount of objector, it will not make any difference to the voting pattern to affect the proposed scheme as has been approved by majority of 3/4th in value. 43. The next grievance of the objectors was that the assets of the petitioner-company at Patalganga have not been shown in the balance sheet. Similarly, the assets of the petitioner-company at Sakhinaka and Turbhe are not mentioned in the secured list in Schedule IV of the accounts. I find substance in the argument of the petitioner that the objectors are raising points which are frivolous. The objectors are taking advantage of the incomplete details mentioned in the Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revived which will enure to the advantage of all concern. No fruitful purpose would be served if the petitioner-company is to be wound up, which is the only course available, in the event of failure to properly implement the proposed scheme. 45. The last question, however, that requires to be addressed, is that clause 3.3.1 of the proposed scheme provides that the unsecured creditors have agreed that the consideration referred to in para 3.3.2 shall be in full and final settlement of dues and liabilities of PPIL of the guarantors for the liabilities of PPIL towards the unsecured creditors. Ordinarily, there can be no difficulty in acceding to this proposal of absolving the guarantors of their liabilities to the extent of reduced claim which has been accepted as full and final settlement of dues and liabilities of the petitioner-company under the proposed scheme by the respective described unsecured creditors. However, what is relevant to notice is that under section 128 of the Indian Contract Act, 1872, it is provided that the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. Obviously, the triparte contra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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