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2018 (7) TMI 871

Approval of a Scheme of Compromise and Arrangement between the applicant and a class of its creditors - Held that:- There are serious doubts about the manner in which the ex-directors have conducted their business. There are grave allegations about the ex-directors having sold immovable properties and received proceeds in their own accounts. They have also failed to hand over possession of all the flats/properties, vehicles, plant & machinery and cash in hand belonging to the company in liquidat .....

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av Mohan, Mr. Rishi K. Awasthi, Ms. Ritu Arora, Mr. Piyush Chaoudhary and Mr. Kabir Ghosh, Advs. for respondent ex-management. Mr. Nishant Kumar Srivastava, Adv. for Manoj Srivastava, Ex-Director. Ms. Sangeeta Chandra, Adv. for OL. Mr. Ajit Kr.Sinha, Sr. Adv. with Mr. Ashwarya Sinha and Ms. Ameya Vikram Thanvi, Advs. in CA 238/2018 JAYANT NATH, J. CA No.714/2017 in Co.Pet. No.357/2015 1. This application is filed by Ex-Management of the respondent company Assotech Ltd. under Section 391 of the C .....

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₹ 17.60 crores to the complainants within a period of one year. The schedule of payments was not adhered to and the directors defaulted. 4. Against the above order of this court dated 8.2.2010 admitting the petition, the respondent company went up in appeal before the Division Bench. On 09.02.2017 the Division Bench dismissed the appeal. However, it was left open to the Ex-Directors of the respondent company to file a comprehensive scheme of arrangement disclosing therein all the admitted .....

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for ICICI Bank. 8. The learned senior counsel appearing for the Ex.Management of the respondent company has explained the mechanism of the scheme proposed by the respondent company. It is urged by the learned senior counsel that as per the scheme, a sum of ₹ 5 crores will be infused from personal resources by the applicant/Ex-Management. Once construction starts, the flat buyers will pay their dues and this will help to revive the functioning of the company. It was pleaded that as far as .....

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at list of creditors shown in the scheme are only those creditors who are before the court and have filed litigations. It was submitted that the company is willing to abide by any restrictions that may be imposed for success of the scheme by this court. 9. When the arguments of the above counsel were nearing completion, an application was filed being CA 238/2018 pursuant to certain directions passed by the Supreme Court. 10. This application CA. 238/2018 has been filed by two of the home buyers .....

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project and the ex-directors cannot be trusted with the present Scheme of Revival. He has relied heavily on Sections 464 and 465 of the Companies Act to submit that this court may appoint a Committee of Inspection to act with the Liquidator which should also comprise of home buyers or representatives of creditors and contributories. 12. The present application has also been opposed by the learned counsel appearing for the secured creditors Essel Finance. She submits that the proposed scheme is c .....

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applicant and no scheme can be enforced which includes the said land. However, she withdrew her opposition when it was clarified by the respondent/ Ex.Management that the scheme deals only with unsecured creditors. 13. The learned counsel appearing for Mr.Manoj Srivastava, who claims to be a minority shareholder of the respondent company states that the entire scheme is misplaced as there are large statutory dues payable by the respondent company to various Government Organisations which are not .....

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rores. It is further stated that if order appointing the OL as the Provisional Liquidator is withdrawn all the pending projects are likely to be completed by 31.03.2020. The Scheme provides that the creditors shall be paid all their dues by (i) generation of funds from the existing projects and revenue to be realised from the debtors; (ii) corpus of ₹ 5 cores as one time induction of money towards the clearance of the liability from personal source of the ex-management; (iii) collateral se .....

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ng projects of the respondent company, namely, Assotech. The Nest Ghaziabad; Celeste, Sector-44, Noida and Windsor Court, Noida; are proposed to be completed by 31.3.2020. In all on completion of the project a sum of approximately 124 crores is expected to be generated. 16. Schedule C shows that a total payment of about ₹ 50 crores is to be made to those persons who are listed in Schedule A by either making payment or handing over properties. The Scheme does not deal with the secured credi .....

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leste Tower, Sector 44, Noida (269 units constructed, out of which 127 units+ 7 shops shall be handed over within 12 months and the balance 37 units shall be handed over within 6 months, 98 units possession has already been handed over); b. Windsor Court, Sector-78 c. The Nest, Crossing Republik, (141 units possession handed over balance within 6 to 9 months); Ghaziabad (694 unit possession handed over balance within 12 to 24 months). 6. Assotech Limited is committed to hand over the possession .....

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ed a list which contains the name of 92 unsecured creditors all of them seem to have been in some litigations against the respondent company. The total dues payable under the new list to the 92 unsecured creditors is not stated. However, it appears that some of the creditors are sought to be paid by allotting properties in Noida and Gurgaon. 12. A perusal of the Schedule A list (i) (ii) and (iii) of the scheme shows that this contains a list of only those creditors who have initiated some legal .....

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rmed to be a class of creditors within the meaning of Section 391 and 392 of the companies Act, 1956. 13. Section 391 (1) and (2) of the Companies Act, 1956 read as follows:- 391. Power to compromise or make arrangements with creditors and members. (1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or memb .....

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ement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub- section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor' s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like.] 14. Hen .....

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eir common interest. As defined by Bowen, L.J. "it seems plain that we must give such a meaning to "Class" as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest." (Sovereign Life Assurance Co. Ltd. v. Dodd 1892 (2) Q.B. 573 CA). 12. Creditors can normally be divided into th .....

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ditors 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 A .....

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-up of companies are meant for just and equitable distribution of the assets of the company amongst various persons interested in it. Consequently, once a company is ordered to be wound up, a scramble for taking away its assets must be avoided. All the assets of the company must be available for just and equitable distribution amongst the various interests having claims against the company. If by some action of creditor this basic concept of just and equitable distribution amongst the various in .....

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opinion, the short answer to the question would be to ignore the attachment or, as a winding up court, raise the attachment with a view to remove an impediment in collection or realisation of the assets 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 p .....

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s the underlining principle behind several provisions of the C. Act (see sections 441, 442, 446, 447, 448, 456, 511 and 537 of the C. Act). Observations in Maneckchowk and Ahmedabad Manufacturing Co. Ltd. (supra) are apposite. The aforesaid sections relate to winding up proceedings but underlying salutary principle of pari passu can be equally applied when it comes to the question of value of voting rights. Unsecured creditors cannot steal a march and claim a better right viz. another unsecured .....

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e injustice to other unsecured creditors who may not have initiated legal cases against the respondent company. 17. It is manifest from a reading of the above legal position that the scheme as proposed by the Ex.Management does not fulfil the basic criteria of Section 391 of the Companies Act, namely, it fails to propose any compromise or arrangement between the company and any class of creditors. 18. That apart, in my opinion, the scheme lacks bona fide and good faith. If one were to remove the .....

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id three incomplete projects. The projects have been languishing since long. It is on account of the improper manner of handling of the projects that the progress in the projects came to halt and the Ex.Management was unable to make any further progress. This creates serious doubts as to how the Ex.Management proposes to move forward to complete the projects and to recover the dues from the creditors/allottees. Further there is no clarity as to the outstanding dues payable to the unsecured credi .....

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at the scheme is only an attempt to persuade this court to revoke the order appointing the OL as the provisional liquidator by infusing ₹ 5 crores in the company. The whole scheme clearly lacks bona fide. 23. In the course of arguments, some of the investors who were present in court had repeatedly pointed out that the Scheme has been filed by the ex-management only to mislead the courts which are hearing the criminal proceedings against the ex-directors of the respondent. The ex-directors .....

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follows:- 10. The conduct of the appellant before the learned Company Judge is clearly indicative of the appellant acquiescing in the order admitting the winding up petition and proceeding to settle the disputes with a number of creditors. This itself establishes that the appellant company is heavily in debt. 11. Learned Senior Counsel for the appellant urge that merely because the appellant is in debt would be no ground to wind up the appellant if it otherwise is a viable company. We have seri .....

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e funds being siphoned off. 17. That apart, the appellant cannot be permitted to satisfy the claims of a few creditors on preferential basis, for if the assets fall short it would mean a large number of unsecured creditors being left high and dry. xxx 19. The facts which we have noted, which emanate from the statement of affairs filed by the directors of the appellant do not warrant any of the impugned order to be set aside in appeal. The debts owned by the appellant are much. The rosy picture p .....

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rt, that despite directions of this Court in this behalf, the ExDirectors have steadfastly neglected, failed and avoided to furnish the Statement of Affairs and the details of the assets in the Balance Sheets; have furthermore failed to hand over peaceful physical possession of all the flats/properties, vehicles, plant and machinery, and cash-in-hand belonging to the company in liquidation to the Provisional Liquidator. xxx 10. A perusal of the communication dated 14.10.2016, received from Mr. M .....

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#8377; 25,00.000/- in Canara Bank -Account No-1 177201004113 on 05/05/16. 5) ₹ 30,00,000/- in Punjab National BANK (Noida) Account No.-3702002100038992 on 18/05/16. 6) DD of Rs.l,50,00.000/- was also handed over to Assotech Limited. (iii) Various immovable properties, belonging to the company in liquidation have been disposed of and the sale proceeds received thereof have been misappropriated by Mr. Sanjeev Srivastava and Mr. Rajeev Srivastava. 11. A statement depicting the bank transactio .....

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this context, reference may be had to the judgment of the Supreme Court in Miheer H.Mafatlal vs. Mafatlal Industries Ltd., (supra) wherein the Supreme Court held as follows:- In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged: 1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme .....

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tisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or credi .....

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t ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a scheme of compromise and arrangement are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction. 30. Clearly, the scheme lacks bona fide. It cannot be termed to be just, fair and reasonable. Ther .....

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