9911796707
TMI Blog2008 (11) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial year in March, 2001 the petitioner company's accumulated losses exceeded its net worth and hence came within the purview of section 3(1)(0) of Sick Industrial Companies (Special Provisions) Act, 1985 and the Board for Industrial and Financial Reconstruction (BIFR) declared the petitioner Company as a sick industrial Company by its order dated 7-11-2002. The secured creditors of the petitioner company comprising of financial Institutions and Banks formulated in 2000, a scheme of restructuring of liabilities, which was given effect from 1-4-1999. Subsequently, debts were again restructured in the year 2001 by some of the secured creditors. The efforts of the petitioner Company towards cost reduction, concentration on value added products and the enhancement of prospects for the stainless steel sector worldwide yielded some positive results. In the years 2004 and 2006, Asset Reconstruction Company (India) Ltd. (ARCIL) acquired debts from certain Banks, who had given loans and financial assistance to the petitioner company. ARCIL suggested the terms and conditions for the proposed restructuring scheme in consultation with the petitioner-company and accordingly the scheme was pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f secured lenders and 88.28 per cent, in value present and voting, voted in favour of modified scheme. (c)1 secured lender holding value of 16.71 crores, representing 33.33 per cent of number of secured lenders and 11.72 per cent in value present and voting, voted against, the modified scheme. This modified scheme was thus approved and resolution to that effect was carried by requisite majority. 6. Simultaneously as per direction of this Court vide its order dated 22-11-2007, the meeting of the equity shareholders of the petitioner company was held on 28-12-2007. The said meeting of the equity shareholders was attended to by 14 equity shareholders comprising of 12 equity shareholders in person and 2 equity shareholders through authorised representatives for an aggregate of 1,13,83,558 shares. In the meeting of the equity shareholders, initially modification was proposed and the same was approved and the resolution was carried unanimously. Thereafter, on modification, the voting took place and scrutineer after verifying the poll paper informed the results as under :- (a)14 equity shareholders used 17 poll papers for the purpose of voting. (b)14 equity shareholders holding 1,13,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he status of ARCIL as secured creditor, the Court was inclined to go through the deed of assignment and the value of debts assigned by State Bank of India as well as ICICI Bank Ltd. to ARCIL and at what consideration the said debts have been assigned to ARCIL. The Court, therefore, felt that the presence of ARCIL was necessary before the Court. Accordingly, notice was issued to ARCIL making it returnable on 18-6-2008 with a direction that ARCIL should produce deed of assignment under which the debts were assigned by State Bank of India as well as ICICI Bank Ltd. to ARCIL and the amount of debts assigned and the amount of consideration at which the said debts have been assigned. 10. Pursuant to the said order, an affidavit is filed by Shri Nilesh Shah, Vice President of ARCIL attaching therewith assignment agreement between ICICI Bank Ltd. and ARCIL. It is stated in the said affidavit that this Court, in exercise of its jurisdiction under section 391 of the Companies Act, especially, when the petitioner has accepted the status of ARCIL as a secured creditor and no other secured creditor, as on the date of passing of the order dated 16-5-2008, challenged the status of ARCIL, would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch less than RBI Bank rate also. 12. It is further stated that GIIC filed its objections in the meeting of secured creditors/lenders dated 27-12-2007 which has been submitted to the Chairman of the meeting on 28-12-2007. However, same has not been discussed and considered in the meeting. It is, therefore, submitted that there is no effective and proper discussion in the meeting and as such whole proceedings vitiated and the petition deserves to be rejected on this ground alone. 13. Mr. Shelat has further submitted that GIIC cannot be compelled to accept lesser amount than the actual outstanding dues by the petitioner in the name of such scheme. The scheme cannot be granted at the cost of GIIC which is a trustee of public funds. The GIIC has borrowed moneys from financial corporation and in turn has to pay interest on borrowed funds which are advanced to the entrepreneurs and borrowers like the petitioner. Therefore, if the GIIC is compelled to reduce the rate of interest drastically it will incur heavy losses and the GIIC is not getting similar concessions which are to be accepted by GIIC under the scheme. It is, therefore, submitted that it may result into non-fulfilment of dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, not bona fide which does not contain true and correct facts before this Court. The GIIC has, therefore, strong objection against sanction of scheme and the Court should reject the same. 16. It is further stated in the affidavit that ARCIL has not disclosed the purchase consideration in respect of ICICI Bank Ltd., only gross amount for total port folio list of various borrowers have been mentioned. If true and correct facts are stated on record by ARCIL, the actual ratio of consent, between the parties, whether for or against the scheme can be worked out. 17. Mr. Shelat further submitted that ARCIL is a securitisation company under the provisions of Securitisation Act established with specific pur-pose and object stated in the Securitisation Act. On consideration paid/ payable by ARCIL for the debts assigned to ARCIL by ICICI Bank Ltd., as well as State Bank of India is for substantially lower amounts than the actual amount of outstanding debt due from the petitioner company in respect of both ICICI Bank Ltd. as well as SBI. Therefore, the capacity of ARCIL to sacrifice under the present scheme is substantially higher, meaning thereby the ARCIL can afford to give up and sac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for whom the scheme is mooted by the concerned Company must automati-cally put its seal of approval on such a scheme. It is trite to say that once the Scheme gets sanctioned by the Court, it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the concerned scheme placed for its sanction. The Court has also caste duty on the sanctioning Court and held that the sanctioning Court has to see to it that 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, that the Scheme put up for sanction of the Court is backed up by the requisite majority vote as required by section 391, sub-section (2), 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme and not by substituting a new Scheme. This power can be exercised suo motu without any application. In exercise of that power, it cannot be doubted, that the Company Court can issue necessary directions with a view to remove an impediment, difficulty or obstruction which may arise in the working of such a Scheme or arrangement. Thus, when approving the Scheme of compromise/arrangement, the Court may, by the order giving its approval, make provision for the benefit of the dissenting creditors and pass orders by way of amendment of the Scheme, which is incidental and necessary to ensure that the scheme is carried out. In order to protect the dissenting unsecured creditor, Court both order that the scheme by which the payment of 60 per cent of the amount to the unsecured creditor is not bonding on this dissenting unsecured creditor. In the result, sanction is accorded to the scheme propounded by the petitioner subject to the modification that the clause in the scheme as to the payment of 60 per cent of the amount due to the unsecured creditor is not binding on the objector/dissenting unsecured creditor. The said dissenter shall be paid the entire amount due within a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the majority shareholders acting as a class had not behaved in a bona fide manner for protecting the interest of the class as a whole or were in any way inimical to the appellant. Financial institutions and statutory corporations held a substantial percentage of the shares in the respondent company. This class of shareholders who are naturally well informed about the business requirements and economic needs and the requirements of corporate finance in the light of their personal interest would not have wholly approved the scheme if it was contrary to the interest of the shareholders as a class. The individual personal interest of minor shareholders like the appellant was absolutely outside the scope of consideration when such class meeting acting for the benefit of the whole class of equity shareholders takes up the consideration of the scheme for its approval. Consequently, it could not be said that the majority shareholders had sacrificed the class interest of the appellant minority shareholders when they voted with overwhelming majority in favour of the scheme. 23. While dealing with and objecting to the contention of GIIC being a different class, Mr. Thakore relied on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Core Health Care Ltd., In re [2007] 138 Comp. Cas. 2041 wherein this Court had an occasion to deal with the argument of the objector that ARCIL would have no right to vote at both the meetings of the lenders or if it had any right of voting, then value of its vote should have been reduced to the price at which the debt is assigned to it and not to the value of the debt which has been assigned in its favour. The argument in fact, was that if the ARCIL had purchased right to recover the debt at much low price than its face value, then according to the objectors, the value at which ARCIL had purchased the debts should be the value of ARCIL's right and not the right on its face value which has been purchased at much low price. The objection further was that ARCIL not being the lender would not be entitled to vote at all. While dealing with these objections, the Court discussed the controversy between the Company and the objectors in great detail. It was observed by the Court that it is undisputed that on receipt of smaller amount by lending Banks, that assignor assigned their right in favour of ARCIL. Neither the Companies Act nor the SARFAESI Act nor the Contract Act no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is conflict of interest between ARCIL and other lenders. Objection, in fact, was that the objectors having not agreed to the Scheme would be entitled to recover in full and while ARCIL having purchased the property at a lower price would be entitled to recover the price which it had paid to the lending institution. The Court held that the argument is absolutely misconceived. If statutorily required majority agrees to the Scheme and the High Court, sanctions the scheme, then irrespective of the objection by the dissenting parties, the Scheme would bind them. Any objector would be entitled to raise objection in the meeting and if majority marches over them, then it would not be coercion by majority or minority. The minority will have to surrender to the wishes of the majority. The Court has also considered the question of creation of the class. The Court has addressed a question as to whether formation of the class provides some advantages or disadvantages to the persons of the same class. The Court thereafter held that it would be seen on the touchstone of the equity that whether the Scheme would affect everybody identically. The word 'identical' would not mean in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration when considering whether an agreement is binding or not. Equity may give the relief of setting aside a transaction as it was "improvidently obtained" when unfair advantage is taken of a person who is poor, ignorant or weak-minded, or is for some other reason in need of special protection. Specific performance may be refused on similar ground, but mere inadequacy of consideration is not a ground for relief where the parties have bargained on equal terms. 28. He also relied on the decision in the case of Walker v. Bradford Old Bank Ltd. [1884] 12 Queen's Bench Division 511, wherein it is held that it is not competent for a mere stranger to the assignment to successfully raise any point as to whether a Court of Equity would or would not enforce it, and even the point now taken by the defendants as to what the Court of Equity under the circumstances would or would not do, be correct, that it is not open to the defendants, being mere debtors to the estate of the deceased assignor or to his assignee, now to attempt to impeach the settlement. 29. Having heard the learned counsels for the parties and having considered the scheme with objections of GIIC in light of the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od faith and are not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. The Court has to see that the scheme as a whole must be found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 31. In view of the above discussion, the present scheme is sanctioned subject to the following modifications : (i)The total outstanding amount of GIIC as on cut-off date i.e., 31-3-2004 should be taken at Rs. 21.93 crores as against Rs. 16.71 crores. (ii)In CDR Scheme during the period from 1-4-2004 to 31-3-2005, the interest is not provided which is unreasonable and improper. Such interest should be provided at least at 10 per cent p.a. (iii)In CDR Scheme as on cut-off date the proposed amount of loan is shown at Rs. 142.55 crores after restructuring and it is proposed to be settled as under:- (a)Loan I - Rs. 62.71 crores. (b)Loan II - Rs. 13.76 crores. (c)Loan III - Rs. 66.08 crores. 32. As regards Loan - I i.e., Rs. 62.71 crores, the petitioner proposed to pay the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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