TMI Blog2012 (11) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... d transfer of 55,60,000 pledged shares by Malanpur was null and void and contrary to law & reference was made to the orders passed in the Civil Suit at Calcutta. It will not be appropriate and proper for us to go into and examine the said orders of the Calcutta High Court and proceedings as it is clearly beyond what is required and mandated by the Supreme Court in the order dated 6th July, 2009 wherein opined that the High Court should decide the said question in accordance with law and in the meanwhile, status quo as regards the transfer of shares shall continue till the High Court decides the matter expeditiously. Thus examination or go into the question on merits relating to the proceedings pending before the Calcutta High Court and the orders passed therein is not warranted. We express no opinion in this regard. - Company Appeal Nos. 1 and 2/2011 & Company Appeal No. 28/2010 - - - Dated:- 9-11-2012 - MR. SANJIV KHANNA MR. S.P. GARG JJ. Appellants: Mr. Atul Sharma, Mr. Milanka Chaudhary and Ms. Neeru Mehta, Advocates. Respondents: Mr. Jayant Bhushan, Sr. Advocate with Mr. Ajay Bhargav, Mr. Diwakar Maheshwari And Mr. Vinam Gupta, Advocates. Mr. Rishi Agarwala, Mr. Ank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in JIK Industries Limited and Ors. vs. Amarlal Vs. Jumani Anr. (2012) 3 SCC 255. 3. Contentions of the respondent Spice Jet Ltd. and the Modi Group are that: (i) Malanpur was correctly treated and classified with the Inter-Corporate Depositors and not as a secured creditor. (ii) A decree holder was not a secured creditor and did not form a separate class. (iii) Malanpur had never claimed or urged that they formed a separate class because shares were pledged to them or they had sold the said shares. The aforesaid contentions are an afterthought and should not be allowed to be raised. (iv) The Scheme was sanctioned on 15th July, 2005 and has been successfully implemented. The amount due and payable under the scheme has been paid to the creditors. Even the amount payable to Malanpur has been deposited. (v) Similar or identical contention raised was negated in the order dated 29th July, 2003 passed in CA No. 606/2003 in CA No.797/2000. The Division Bench of Calcutta High Court in their order dated 20th July, 2005 has also rejected the said contention in G.A. No. 2212/2005. (vi) The proceedings under Section 138 of the NI Act have not been quashed but stayed. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the Company, i.e. Modi Luft Limited. By order dated 29th April, 1998, the official liquidator was appointed the provisional liquidator of the Company. (v) In May 1998, Malanpur filed an execution petition for recovery of dues payable under the decree dated 8th September, 1997. Calcutta High Court by order dated 23rd June, 1998, stayed the execution petition No. 1545/1998 as the provisional liquidator had been appointed by the Delhi High Court in the winding up proceedings. (vi) By order dated 31st December, 1999, an amount of Rs. 9 crores was deposited with the Registrar of the High Court, on behalf of the Company, i.e. Modi Luft Limited. The order appointing provisional liquidator was recalled by the Company Judge on 30st May, 2001. The company had settled its dispute with Indian Oil Corporation by making full and final payment. The company also settled the claim of Hindustan Petroleum Corporation Limited, which withdrew CP No. 237/1998 vide order dated 12th September, 2001. (vii) It appears that the aforesaid funds were made available, secured or paid by Royal Holding Services Limited, a company belonging to Verus Group, Canada. (viii) CA No. 797/2000 was filed in May, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Co. Ltd., (1970) 40 Company Cases 819 (Guj), it has been observed as under:- 41. It is always a moot question what constitutes a class. Buckley on the Companies Acts, 13th edition, page 406, has observed that it is a formidable difficulty to say what constitutes a "class" of creditors. The creditors composing the different classes must have different interests. When one finds a different state of fact existing among different creditors which may differently affect their minds and their judgment, they must be divided into different classes. 10. In Palmer s Treatise Company Law, 25th edition, it has been observed as under:- "What constitutes a class: The court does not itself consider at this point what classes of creditors or members should be made parties to the scheme. This is for the company to decide, in accordance with what the scheme purports to achieve. The application for an order for meetings is a preliminary step, the applicant taking the risk that the classes which are fixed by the judge, usually on the applicant's request, are sufficient for the ultimate purpose of the section, the risk being that if in the result, and we emphasize the words in the result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shareholders otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened. On the facts of the present case the appellant has not been able to make out a case for holding a separate meeting of dissenting minority equity shareholders represented by him. 13. The object and purpose of classification of creditors is to ensure that the meetings of different classes of creditors are held in a manner that there should not be any injustice or confiscation, and persons dissimilar are not clubbed together with a view to take advantage of their conflicting interest. 14. According to Halsbury s Laws of India, 2007, Vol. 27, Unsecured creditors who may have filed suits or obtained decrees must be deemed to be of the same class as other unsecured creditors, as per Section 390 (c) of the Companies Act. Further, an unsecured creditor who has a decree does not become a secured creditor, and does not constitute a separate class (see Haricharan Karanjai Vs. Ulipur Bank Ltd. (1942) 12 Company Cases 110). After reference to the provisions and relying upon Section 511 of the C. Act, the Gujarat High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the company which is being wound up, for its just and equitable distribution. If attachment is held subsisting giving some right to the attaching creditor, it would strike at the root of the principle whereby all unsecured creditors are to be paid in pari passu. 15. In view of the aforesaid position we are in complete agreement with the Company Judge that Malanpur cannot be treated as a distinct class of creditor on the ground that it was a decree holder. It was certainly not a secured creditor. We also reject the contention of Malanpur that the principal amount due and payable to them was not Rs.5 crores but Rs.5,83,96,465/-. Admittedly, the principal amount advanced was Rs.5 crores. The fallacious argument of Malanpur on the said issue proceeds on the foundation that as they have a court decree, the amount mentioned in the court decree should be treated as the principal amount. If we accept the aforesaid contention, it will lead to an unwarranted distinction between a decree holder and other claimants, and gravely affect and upset the pari passu principle. Unsecured creditors form a separate class and have to be treated alike regardless of whether they have a court decre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present legal fight stems from, and is because of, the market price of the shares of Spice Jet. 18. This brings us to the second issue regarding proceedings under Section 138 of the NI Act. Malanpur has filed proceedings under the aforesaid section as cheques given by Modi Luft for encashment had bounced and had not been honoured. In the order dated 15th July, 2005, learned single Judge has observed as under:- 56. Insofar as objection of Malanpur to this two conditions attached to making payment of first Installment are concerned, there may not be of any cause of worry inasmuch as it can be directed that the suits or other proceedings under Section 138 of the Negotiable Instruments Act shall be withdrawn only after the complete payment is made as per the scheme. Till that time, the complainant as well as the company may apply for adjourning of the pending matters. On the final payment being made a joint compromise application can be filed for disposing of the said pending proceedings. It has been pointed out by the petitioner that in the creditors' meetings, this term had been changed and it was decided that the withdrawal of such complaints would be simultaneously with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs under Section 138 of NI Act cannot be stayed. We are also in agreement with the counsel for the Malanpur that even if the scheme has been sanctioned and payment to the creditors is to be made under the scheme, criminal proceedings under Section 138 of the NI Act cannot be stayed or quashed by the Company Court. In the Krishna Texport Industries (supra), the scheme was sanctioned and a question arose whether in exercise of power under Section 391(6) of C. Act, criminal prosecution under Section 138 of NI Act could be stayed or quashed. The Division Bench in Krishna Texport Industries (supra), after referring to several decisions of the Supreme Court and High Courts, observed that the word proceedings used in the said section would not include criminal proceedings . The Division Bench referred to the observations of the Supreme Court in BSI Limited and Anr. Vs. GIFT Holding Private Limited (2000) 2 SCC 737, Kusum Ingots Allows Ltd. vs. Pennar Peterson Securities Ltd.(2000) 2 SCC 745, Rajneesh Aggarwal vs. Amit J. Bhalla (2001) 1 SCC 631 and observed that the expression proceedings can be interpreted differently depending upon the context in which it has been used by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said case was that the scheme was approved in the meeting held on 25th June, 2005 and was sanctioned by the Court vide order dated 16th September, 2005. The appointed date as stipulated was 28th February, 2005. In the said case, prosecution under Section 138 of NI Act had been filed in some cases after the appointed date. In fact, in some cases, cheques were dishonoured after the said date. The scheme envisaged issue of shares to the creditors. Identical or similar arguments were raised but were rejected by the Bombay High Court observing that the scheme did not have the effect of creating a new debt but it simply makes the original debt payable in the manner and to the extent provided in the scheme. Thus sanction of the scheme did not result in extinguishing the debt but only curtailed the right to recover the debt in the sense that the debt would become payable only in accordance with the sanctioned scheme. Distinction was drawn between power of the Company Court and exercise of power under Section 482 of the Code of Criminal Procedure, 1973 (Cr.P.C., for short). The effect and the consequence once the payment was made under the Scheme and whether in such circumstances the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of. 25. The said order was passed in the SLP preferred by Spice Jet against the judgment and order dated 11th July, 2005 passed by the Division Bench of Calcutta High Court in G.A. No. 3152/2003 in APO No. 317/2001 in APOT No. 615/2001 GA No. 2293/2001 in CS No. 161/1997. By the said order, the Division Bench of Calcutta High Court had set aside the order passed by the learned Single Judge in the execution proceedings and allowed the appeal in terms of prayers (a) and (b) of the application being GA No. 2293/2001. The prayer was for a direction upon the Company/ Spice Jet to register transfer of 40,48,200 shares which were sold to three purchasers, and 15,11,200 shares, which were sold by the three purchasers, to various individuals. 26. We have already referred to the civil suit CS No. 161A/1997 which was filed by Malanpur against the Company, (Modi Luft Limited) in the Calcutta High Court. As noticed above, in the said suit a decree on admission in the sum of Rs. 5,83,96,465/- was passed on 8th September, 1997. The first Execution Petition 1545/1998 was stayed by the Calcutta High Court on 23rd June, 1998 upon appointment of the provisional liquidator. Subsequently, Mala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity deposit of Rs.36 crores to Agache Associates. This amount, it was alleged, was paid by Paradise Credit Private Ltd., Kesha Investment Pvt. Ltd. and Modi Overseas Pvt. Ltd. to Agache Associates and in lieu thereof 55,60,000 shares were issued to the said companies. The allegation against the Company, the management, and Modi Group, was that this liability of Rs.36 crores was artificial and the premises were never taken on rent. (ii) In CA No. 265/2003, the prayer made was that resolution dated 30th July, 1996 by which the Board of Directors had allotted the shares to the aforesaid companies should be declared null and void. (iii) As noticed above, disputes and differences had arisen between Modi Group and Royal Holding Services Limited. (iv) Similar allegations were made against the Modi Group in the application under Sections 391-392 of the Companies Act enclosing therewith the scheme. It was stated:- Royal Airways Limited has moved the application being CA 265/2003 as stated above and in the event, Mr. S.K. Modi is able to bring back the Rs.36 crores embezzled by him, then Royal Airways Limited shall be able to repay its creditors effectively and early, and in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th interest 18% p.a. would be recoverable from Mr. S.K. Modi and his group investment companies, jointly and severally, in case SK Modi Group investment companies fail to pay their call money and for which amount Royal Airways Limited reserves its right to initiate appropriate legal proceedings. The remaining amounts of nearly Rs.22 crores together with interest at 18% p.a. shall as and when realized be utilized by Royal Airways Limited for its commercial operations. Royal Holdings Services Limited shall subscribe to the shares offered to it on a Rights Basis, if permitted by law to do so. In the event of a Rights Issue and Royal Holding Services Limited (holding Company of Royal Airways Limited) not being permitted by law to subscribe to the Rights Issue, Royal Holding Services Limited shall, renounce its right to subscribe to the Shares of Royal Airways Limited offered on a rights basis in favour of Non-Resident Indians who control Royal Holding Services Limited, and who have conveyed their willingness to deposit the entire share allotment money in respect of its Rights entitlement pursuant to the rights Issue with the Court as share application money at least thirty (30) days pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been arrived at between the parties. In view of this settlement, prayer is made for withdrawal of CA No. 265/2003 and 155/2002. The application is signed by all the concerned parties and is also supported by affidavits. Prayers made in these applications are accordingly allowed and CA Nos. 265/2003 and 155/2002 are dismissed as withdrawn. I may note the contention of Mr. Jayant Bhushan, learned senior counsel appearing for M/s. Malanpur Steel Ltd. that the settlement also stipulates that shares purportedly sold by M/s. Malanpur Steel Ltd. shall not be forfeited and, therefore, there is no impediment in transferring these shares in the name of the transferees. It is not in dispute that matter in this respect is pending in the Supreme Court and it would be open to M/s. Malanpur Steel Ltd. to make this submission before the Supreme Court. These applications are disposed of in the aforesaid terms. At this stage, I may note that while passing the orders in the main petition sanctioning the scheme, joint receivers were also appointed for disposal of 92,20,400 shares. Dr. Saif Mahood, Court Receiver, submits that these shares are in possession of Mr. Jhanji, other Co-Receiver. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the Company and no liability whatsoever under fiscal and other laws/ regulations will accrue to the nominee and the same shall be the exclusive liability of the Company. MGE hereby acknowledges that such nominee is acting as an agent of the Company in respect of these shares and undertakes not to raise dispute/claim of any nature in this regard against the nominee; (ii) The Company agrees that upon the court passing an order/direction to record the settlement as contemplated herein, all claims and objections of the Company against MGE with regard to the shares and mutual rights and obligations of the Parties against each other in relation to or arising out of the Lease Agreement dated September 11, 1995 ( Lease Agreement ), including any claim with respect to Rs. 33,00,00,000 (Rupees thirty six crores) stated as deposit in the Lease agreement shall stand satisfied. All amounts realized from the sale of 80,00,000 (Eighty lac) shares under Clause (i) above shall be in full and final satisfaction of all and any claims of the Company arising from or in respect of the above claims. Any shortfall or excess from such realization shall be to the benefit or account of the Company. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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