TMI Blog2013 (5) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly been recorded in the report dated 22-7-2005 that the SDF has voted in favour of the Scheme. The submission of the appellant that a 3/4th majority of the secured creditors had voted in favour of the Scheme is, thus, incorrect. Section 392 envisages a situation of 3/4th majority of the creditors present and voting. The SDF was neither present nor did it vote. This is substantiated from the record. Company Application had enlisted the list of secured creditors computing their liability. An amount of Rs. 182 lakhs had been shown as due to the IDBI. A sum of Rs. 149.60 lakhs was due to the IIBI. This is mentioned in the proposed scheme of arrangement itself. Submission of the appellant that 75 per cent of the secured creditors had voted in favour of the Scheme is, thus, an incorrect fact. The language of sections 391 and 393 makes it abundantly clear that when the company Court is called upon to sanction a Scheme it is in fact the duty of the Court to go through the proposed Scheme carefully and find out whether all the provisions of law and directions of the Court as to the conduct of meetings have been complied with and whether Scheme is in the interest of the Company as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sugar Development Fund (SDF), a Government Company shall remain outside the Scheme. This order was challenged by filing an application (C.A. No. 504/2006) under Rules 9 and 6 of the Company (Court) Rules 1959 seeking modification of the order dated 31.03.2006; the submission that the SDF has been inadvertently kept out of the Scheme was negatived; the order dated 26.04.2006 had rejected this argument of the propounders. 2. Relevant would it be to state that this subsequent order dated 26.04.2006 is not the subject matter of challenge in this appeal; order dated 31.03.2006 has alone been challenged. The order dated 31.03.2006 had merged with the order dated 26.04.2006 and the said order not being the subject matter of this appeal, the appeal is liable to be rejected on this ground alone. 3. Record shows that the Company-M/s Lakshmiji Sugar Mills Company Ltd. was incorporated on 27.01.1936. The Company was registered as a sick company before the Board of Industrial Financial Reconstruction (BIFR); winding up of the Company was recommended. During the pendency of the winding up petition, the management/promoters of the Company promulgated a Scheme for its revival. 4. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of fact, it was noted that the Secretary (Sugar and Cane) and the Cane Commissioner, Government of U.P. who had represented two State Government loans had consented to the Scheme subject to confirmation by the higher authorities. The SDF, Ministry of Consumer Affairs representing a loan of Rs. 678.6 lacs had through A. Ramachandran of the IFCI produced a letter stating that SDF loan should be kept outside the scope of the Scheme/arrangement as it was not possible for the SDF to write off its loan under the extant rules. The learned Single Judge had again, as a matter of fact, noted that the Chairperson in his report had wrongly recorded that the SDF had voted in favour of the Scheme; the actual fact emerging from the report that A. Ramachandran of the IFCI did not have a clear authority letter to cast his vote and as such SDF had not cast its vote. The other two creditors i.e. the IDBI and IIBI had suggested a modification in the Scheme which having been accepted by the promoters, they had voted in favour of the Scheme. The correspondence exchanged between the Central Government and the advocates of the promoters of the Scheme is relevant. In its letter dated 18.10.2005, IF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company court's jurisdiction being peripheral and supervisory and not appellate, it could only act as an umpire of a cricket match who has to see that both the parties are playing according to the rules and do not over step the rules. (ii) Second submission being founded on the basis that the impugned order has erroneously delved into facts; where the other two secured creditors i.e. the IDBI and IIBI were getting 40% of their dues in terms of the Scheme, the SDF being offered only 25% of its dues whereas the government company was not getting anything; it was not for the Company Judge to have examined this issue when this issue was not even raised by the SDF in its objections to the Scheme. On all counts, the impugned order holding the SDF to be excluded from the purview of the sanctioned scheme has committed an illegality. The whole purpose of propounding a scheme would be negated if the SDF was permitted to stay outside the Scheme; the propounders, in these circumstances, may well have allowed the Company to remain in liquidation; no benefit would have accrued to the propounders in case the SDF was not made bound by the Scheme. All these parameters have been ignored in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (prior to the date of the convening of the meeting of the secured creditors) addressed by the IFCI to the advocate of the promoters clearly and categorically stated that SDF has to remain outside the Scheme as the extant rules of the SDF did not permit a re-structure of its debt; it should therefore be kept outside the purview of the scheme. SDF had also not voted in the Scheme. Submission of the appellant that 75% of the secured creditors had voted in favour of the Scheme is thus an incorrect fact. 14. The Central Government had given two loans to the Company. The first loan was of Rs. 561.10 lacs which was notified as a custodian loan. The second loan of Rs. 728.60 lacs was given by the SDF. Under the proposed Scheme, the promoters had proposed to reduce the loan of Rs. 561.10 lacs to nil and the loan of Rs 728.60 lacs to 25%. Admittedly, the settlement with the other two secured creditors i.e. the IDBI and the IIBI was a settlement of 40% of their total dues. In this context, the submission of the learned counsel for the respondent that there was no justification or reason as to why the SDF would have accorded consent to a reduced figure of 25% is a submission not without forc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which might be supported by the requisite majority if the court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. 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. The court has to satisfy itself that: (i) the meeting was duly held and conducted; (ii) that the compromise was a real compromise; (iii) that it was accepted by a competent majority; (iv) that the majority was acting in good faith and for common advantage of the whole class; 18. It is in fact the duty of the court to go through the proposed Scheme carefully and find out whether all the provisions of law and directions of the court as to the conduct of meetings have been complied with and whether Scheme is in the interest of the Company as well that of its creditors and only then it should be given effect to. The court is not a mere rubber stamp or a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
