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TMI Blog2010 (8) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of the investment in share capital of respondent No. 1 company by the petitioner has been set out. Respondent No. 1 company is the successor-in-interest of Indian Sewing Machine Company, Indian arm of Singer, USA. In view of the provisions of the Foreign Exchange Regulation Act, 1973 (for short, 'the FERA'), 30 per cent of the share capital of respondent No. 1 company was offered to the petitioner at a cost of Rs. 260 lakhs. There have been subsequently bonus and rights issue of respondent No. 1. The bonus shares were enjoyed by the petitioner while the rights shares were declined. The petitioner claims that in view of respondent No. 1 company not performing well, the petitioner diluted its holding leaving a balance of about 7.76 per cent of the total share/equity capital. 2. The petitioner claims that it had no knowledge of respondent No. 1 company approaching the Board for Industrial & Financial Reconstruction (for short, 'BIFR') till the representative of the petitioner collected the annual report from the office of respondent No. 1 company on or about 6-8-2008. It is only then the factum of respondent No. 1 company being declared sick by the BIFR in terms of an order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present writ petition as the findings are against the petitioner on all the three aspects. These three aspects are :- (i)The BIFR has no power to provide for dilution of equity under section 18(2)(f) of the SICA without following the procedure prescribed under sections 81, 100 to 103 of the Companies Act. (ii)The petitioner is a public financial institution within the meaning of section 19(1) of the SICA and, thus, there can be no dilution of equity without consent of the petitioner in view of section 19(2) of the SICA. (iii)The non-compliance by respondent No. 1 of section 18(3)(a) of the SICA requiring the publication of the draft scheme as per the directions of the BIFR to enable the stakeholders to file their objections. First Aspect 5. A perusal of the approved scheme shows that a multi-pronged strategy for rehabilitation forms basis of the same as reflected in para 9.2 as under:- "(1)One Time Settlement (OTS) of the dues of FIs/Bank. (2)Infusion of fresh funds by the promoters. (3)Relief and concessions from various concerned parties. (4)Capital Restructuring." 6. The One Time Settlement (OTS) with the secured creditors was negotiated with four banks and all the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking with another company." Thus, the basis for rejection of the argument of the petitioner in the impugned order is the power of the Board (BIFR) conferred under section 18(2)(f) of the SICA read with section 32 of the SICA. 9. We find no fault with the aforesaid reasoning. We are fortified in our view by the observations made by a Division Bench of this Court in Sarin International (P.) Ltd. v. AAIFR [1997] 89 Comp. Cas. 842. A grievance was sought to be made in that case about an approved scheme where dues of some unsecured creditors had been waived wholly or partially without their consent and the shareholding of the existing shareholders had been written down by 90 per cent and their shares had been compulsorily transferred at 10 per cent face value to another entity. We may also note at this stage itself that another aspect touched upon in that case was that in the event of winding up, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given." [Emphasis supplied] 12. We are unable to accept the aforesaid plea and once again find no fault with the reasoning contained in the impugned order. Merely because the petitioner is a Government Company within the meaning of the Companies Act, which has invested in the share capital of respondent No. 1 company, does not imply that the petitioner is covered under section 19(1) of the SICA. If this submission of the petitioner was to be accepted, then equally an unsecured creditor is making the so-called sacrifice as he would not get the full amount of his dues nor interest. The provisions of section 19(1) of the SICA are specific as the financial assistance has to be provided by way of loans, advances or guarantees or reliefs or concessions or sacrifices. The present case is one only of dilutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the rehabilitation scheme with the co-operation of the secured creditors and the funds infused by the promoters. New share certificates after capital reduction already stands dispatched to all the shareholders. 16. Learned senior counsel for the petitioner did seek to rely upon the judgment of a Division Bench of this Court in Mewar Sugar Mills Ltd. v. Chairman, CBDT 1998 VI AD (Delhi) 309, but that was in the context of the relief from operation of section 41 of the Income-tax Act, 1961, which would be a sacrifice from the Central Government and, thus, would have no application to the facts of the present case. 17. We, thus, find no merit in the aforesaid plea. Third Aspect 18. The third aspect emanates from a direction of the BIFR requiring respondent No. 1 to publish the salient features of the scheme in terms of section 18(3)(a) of the SICA in one leading newspaper and one State level vernacular newspaper for information of the shareholders. The admitted position is that the publication has taken place only in Jammu & Kashmir Times. Thus, learned senior counsel for the petitioner contends that the absence of the publication about the aspect of reduction of share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h its views in the AGM which provided the avenue for the petitioner to put forth its views where the petitioner did not participate. The shareholding of the petitioner was only 7.76 per cent and all the other shareholders have overwhelmingly voted in favour of the draft scheme. 24. Learned senior counsel for the petitioner has brought to our attention an order passed by the AAIFR in Appeal No. 226/2008 and other connected matters on 21-5-2010 where non-compliance of order dated 12-2-2008 of the BIFR had been noticed, but considering the publication did take place in Jammu & Kashmir Times, which is a State level newspaper, an opinion was formed that the provisions of section 18(3)(a) of the SICA can be said to have been complied with. However, since the principles of natural justice were violated, an opportunity of hearing to the appellants therein was provided, who are unsecured creditors. Learned counsel submits that at least this course of action should be followed. 25. In our considered view, this would be a fruitless exercise and the mere completion of formality as if the plea of the petitioner that dilution of share should not take place was to be accepted, the complete rest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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