TMI Blog2009 (2) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that earlier application moved for convening the meeting is of no consequence in view of the present scheme, the official liquidator can proceed with the disposal of the assets of the company in liquidation. - COMPANY PETITION NOS. 275, 276 AND 277 OF 2008 WITH COMPANY APPLICATION NOS. 446, 447 AND 448 OF 2008 - - - Dated:- 2-2-2009 - K.A. PUJ, J. S.N. Soparkar and Mrs. Swati Soparkar for the Petitioner. Ms. Amee Yajnik for the Official Liquidator. Harin Raval for the Central Government. JUDGMENT K.A. Puj, J. All these three petitions are filed seeking sanction of this court to the scheme of arrangement at annexure C to each of the petitions. Company Petition No. 275 of 2008 filed by the ex-promoter of Mardia Steel Ltd. (in liquidation) seeking sanction of the scheme so as to be binding on all the unsecured creditors, equity shareholders and secured creditors of the company and Mardia Steel Ltd. (in liquidation). 2. The petitioners of Company Petitions Nos. 276 and 277 of 2008 are Atithi Dwelling P. Ltd. and Karnavati Dwelling P. Ltd., the wholly owned subsidiary companies to whom the assets of Mardia Steel Ltd. (in liquidation) are sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. However, those efforts could not be succeeded. Owing to continued losses, networth of the company was fully eroded as on March 31, 1998 and hence, reference was made before the BIFR on April 21, 1998 and the same was registered as Case No. 100 of 1998 by the BIFR. During May 2001, the BIFR ordered for change in management of the company and the operating agency IFCI advertised as per the direction of the BIFR. The company made an offer for one-time settlement. However, no other scheme or proposal was received by the operating agency. The banks and financial institutions in October 2001, rejected the offer made by the company and sought for the directions from the BIFR. The BIFR in April 2002, recommended this court for winding up of the company. Based on this recommendation, winding up petition was registered and ultimately, this court vide its order dated July 23, 2003, appointed the provisional liquidator and thereafter final winding up order was passed by the court. 6. Thereafter, an attempt was made by the ex-promoters by proposing a scheme of compromise to its secured and unsecured creditors in the year 2005. Company Applications Nos. 45 and 312 of 2005 and Company Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent scheme is proposed with the improved terms of settlement with the creditors. Moreover, the manufacturing units forming two separate divisions are proposed to be transferred to two separate entities in order to make the revival feasible. The main objects of reviving Mardia Steel Ltd., are settlement of liabilities, generation of employment, utilisation of the idle assets for effective business operation and in turn giving economic advantage, restructuring capital to reflect the new economic value of the business, transfer of properties and assets in favour of 100 per cent, subsidiary companies in order to make each unit operate as a private center, streamline operations through new management, initiatives of which to make the networth positive within a reasonable time frame. A composite scheme of arrangement in the nature of compromise with its creditors and reconstruction of its share capital as well as the transfer of assets and liabilities to the wholly owned subsidiaries is placed on the record of this petition for the consideration of this court. 10. This court vide its order dated August 11, 2008, directed the petitioners to convene separate meetings of the unsecure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angement was approved unanimously by the secured creditors of the company present and voting at the meeting. 13. Under section 394(1) of the Companies Act, 1956, notice of this petition was also given to the Central Government. As observed earlier, scheme also contemplates reconstruction including reduction of capital as an integral part of the proposed scheme of arrangement. The proposed reduction does not involve any diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital and the order of the court sanctioning the scheme would be deemed to be an order under section 102 of the Companies Act, 1956, confirming reduction. Hence, the procedure prescribed under section 10(2) of the Companies Act, 1956, was not required to be followed. 14. Pursuant to the order passed by this court on August 11, 2008, in Company Application No. 446 of 2008, notice of the petition has been got advertised in Loksatta Jansatta and The New Indian Express both Ahmedabad editions dated October 28, 2008. Notice of the petition was also served upon the Regional Director and the official liquidator attached to this court since the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees as may be legally enforceable against the company. She has, therefore, submitted that a specific direction in the order to this effect is necessary. 17. She has further submitted that the scheme of revival of the company has been approved by the requisite statutory majority of the creditors and shareholders. However, before sanctioning the scheme, it would also be necessary to issue suitable directions in the order in respect of the expenses incurred by the official liquidator right from the date on which the company was ordered to be wound up. She has further submitted that during the course of winding up proceedings of the company for the period from April 1, 2003 to October 30, 2003, the official liquidator has received certain funds and realisation and has also incurred certain expenses. An amount of Rs. 12,43,960 has been paid to the security agencies for safeguarding the assets of the company for the period from June, 2003 to August, 2004 and an amount of Rs. 55,84,402 is outstanding to be paid to M/s. United Security Organisation for safeguarding the assets of the company for the period from September, 2004, to May, 2008. Further, an amount of Rs. 8,75,348 is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of all the assets and properties situated at Mardia Nagar, District Surendranagar. As against the aforesaid statutory liability of Rs. 69.07 lakhs, Rs. 23.42 lakhs is lying with the Vijaya Bank as an amount of unclaimed dividend deposited by the company leaving a net liability of Rs. 45.65 lakhs which is fully secured against the remaining assets of the company as aforesaid. He has, therefore, submitted that upon the scheme being effective, the company shall be in a position to meet with the said statutory liabilities. 19. With regard to the workers/staff dues, Mr. Soparkar has submitted that the company has paid to all workers, staff of their dues. An amount of Rs. 3,39,747 remains unpaid as some of the workers/members of the staff have not come to collect the same. Upon scheme being effective, the same will be paid by the company in accordance with law, by depositing the same amount in a separate bank account. On revival, the company shall, as is duty bound to honour all legitimate claims of workers and employees as may be legally enforceable against the company. Mr. Soparkar has further submitted that upon scheme being effective and on verification of the amount submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company in liquidation. IV. As per clause 10.2 of the scheme, the sponsors will bring in Rs. 5 crores only by way of capital and the scheme is silent about the fund to be brought in the event of shortfall. V. By virtue of the scheme, the properties of the company in liquidation, i.e., the demerged company will be vested in KDPL and ADPL whose paid-up capitals are Rs. 1 lakh each and that too by transferring the entire paid-up capital of KDPL and ADPL to the demerged company, i.e., the company in liquidation. As per clause 8.1 of the scheme, outstanding debts at the time of winding up order is Rs. 19,623 lakhs and the same had been settled in the scheme at Rs. 10,530 lakhs. In this connection, the petitioner may be directed to clarify as to how Rs. 10,530 lakhs will be raised while the paid-up capital of KDPL and ADPL are Rs. 1 lakh each only, the sponsors of the scheme will bring in Rs. 5 crores only by way of capital. The scheme appears to be a ploy to dispose of the properties of the company in liquidation by taking out of liquidation. VI. Moreover, the official liquidator at paragraph (5) of his report stated that O. J. Appeal No. 34 of 2007 filed by the Bank of Rajasth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to fifth objection, Mr. Soparkar has submitted that the present scheme is not a ploy to dispose of the properties of the company in liquidation. The scheme envisages transfer of assets along with specified liabilities towards the secured creditors to the wholly owned subsidiary of the company. The sponsors have undertaken to infuse funds as may be required. Further, clauses 11 and 12 of the scheme along with the respective sub-clauses provide for satisfaction of all the parries over the said properties and discharge of all the liabilities. It also authorises the respective secured creditors to nominate their representatives as directors so long as these liabilities are fully satisfied in accordance with the scheme. The said proposal for settlement of outstanding dues of the secured creditors under the proposed scheme of compromise and arrangement has been unanimously approved by the secured creditors, unsecured creditors and shareholders in the respective meetings held on September 29, 2008. He has, therefore, submitted that the settlement of liability of secured creditors of 105.30 crores will be as per the conditions stipulated in the proposed scheme. Lastly, he has su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fairness of the scheme has to be kept in view by this court while putting its seal of approval on the concerned scheme placed before its sanction. The Act as well as the judicial pronouncements on the subject casts an onerous duty on the sanctioning court to satisfy itself that the members or class of members or creditors or class of creditors, as the case may be, are acting bona fide and in good faith. The court has also to see that the scheme as a whole must be found to be just, fair and reasonable from the point of view of prudent man of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. The court has to also see as to whether the scheme is workable in future or whether it merely contains promises and assurances which can never be fulfilled as no concrete proposals or financial resources are emerged from the scheme. 25. Keeping the above aspect of the matter in mind, if the scheme is to be analysed or scrutinised, it appears that no provisions are made for satisfaction of the dues of the statutory creditors. It is true that no scheme is proposed to the statutory creditors and no arrangement or compromise is sough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme is more than what they have paid by way of purchase consideration. Hence, ARCIL has not to sacrifice anything by agreeing to the scheme of arrangement. One more aspect which is required to be kept in mind is that under the scheme, the secured creditors are given two options and the crystallised amount is proposed to be settled and satisfied by the company, at the option of the secured creditor ( a ) by payment of Rs. 105.30 crores on or before January 31, 2009 or ( b ) by payment of Rs. 102.40 crores on or before January 31, 2009 and issued allotment (pro rata inter se) on or before January 31, 2009, of 3.26 crores fully paid-up equity shares of face value of Rs. 1 each of the company at par post reduction of equity capital. It is nowhere spelt out as to how this 105.30 crores or 102.40 crores are made available to the company for the purpose of making payment to the secured creditors as admittedly, the promoters of the scheme have agreed to bring forth an amount of Rs. 5 crores only. An attempt is made to convince the court that under the scheme, two units of the company are sought to be transferred. Transfer of liability of secured creditors to Karnavati Dwelling P. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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