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TMI Blog2010 (2) TMI 1330X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 18 of the sanctioned scheme which provides for payment of 30 per cent of the principal outstanding dues of non-current unsecured creditors as against 89 per cent paid to current unsecured creditor, i.e., OCP, Morocco. 2. Briefly, the facts of the case are that the appellant company was declared sick at the hearing held on 20-7-2005 and State Bank of India (SBI) was appointed as the Operating Agency (OA) under section 17(3) of Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as 'SICA') to examine the viability of the appellant company and to submit its report. After examining the Draft Rehabilitation Scheme (DRS) submitted by the OA, the BIFR, on 12-2-2008, directed the OA to submit a revised DRS without restructuring of capital and without concessions from Government of India especially in respect of the arbitration decision and loan given to the company. Consequently, the OA submitted a revised DRS to the BIFR vide its letter dated 20-2-2008. The BIFR circulated the DRS and heard objections and suggestions on the DRS on 15-5-2008, 5-6-2008 and 5-8-2008 and thereafter in its hearing held on 2-9-2008 sanctioned the rehabilitation scheme: Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st have a rational relation with the object sought to be achieved by the statute. 4.1 Highlighting the rationale of classification between 'current and non-current unsecured creditors' in the instant case he pointed out that whereas the appellant company stopped the supply of Phosphoric Acid (raw material) to respondent No. 2 from February, 2002, OCP, Morocco, continued to supply raw material to the respondent company even though these companies who supplied raw material to the respondent company after it was declared sick cannot take the shelter of section 22(1) of SICA. The learned counsel argued that the classification between 'current and non-current unsecured creditors' is thus based on an intelligible differentia with the sole object of achieving the purpose and object of SICA, i.e., to revive the sick industrial company. The learned counsel further contended that even the OA considered the classification between 'current and non-current unsecured creditors' as reasonable. Even otherwise, the learned counsel pointed out that the sacrifice made by the OCP is much higher than that made by the appellant in terms of the quantum of money because the appellant company has sacrific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocco), GCT, MITSUI, PHOSCHEM, FEDMIS and YPIE shall be restructured and repaid in the following manner: (i) Dues of current unsecured creditor (a) Overdues as on 31-3-2007, OCP/MP, Morocco (Reliefs) amounting to Rs. 262.50 crores equivalent to US$ 602,20,164.46 (aa) 11 per cent of the overdues (US$ 66,24,218.09) will be waived. (bb) 44 per cent of the overdues (US$ 264,96,872.36) will be converted into 5 per cent Cumulative Preference Shares (CPS) redeemable from 2014-15 in 4 equal annual instalments. The conversion will be made in 2007-08 and the CPS will be issued in Indian rupees of Rs. 1,000 each. The redemption of CPS will also be in Indian rupees. For this purpose, approval from the BIFR under sections 81(1), 372A of the Companies Act, 1956, and relevant clauses of schedule 1 to article 4.4 of the Share Holders' Agreement (SHA) dated 28-2-2002 is granted. Further, approval from the BIFR for exemption of the requirements under the Companies Act, 1956 and SHA to make necessary alteration in the memorandum and articles of association of PPL is also granted. (cc) Balance 45 per cent of the overdues (US$ 270,99,074.01) to be paid in two annual equal instalments during 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India (1991) 1 Comp. LJ. 353 (SC): [1991] 2 SCC 48, paragraph 8; Maneckchowk and Ahmedabad Mfg. Co. Ltd., In re (1970) 2 Comp. LJ. 300 (Guj.): Manu/GJ/0002/1969, paragraph 41; Dhirendra Pandua v State of Orissa AIR 2009 SC 163: MANU/SC/4096/2008, paragraphs 20, 21; Ramkrishna Dalmia v. Justice S.R. Tendulkar (1959) SCR 279, paragraph 14." 9.1 The Hon'ble Supreme Court in the case of Prem Chand Somchand Shah v. Union of India [1991] 2 SCC 48 while enunciating the scope of right to equality guaranteed in the article 14 of the Constitution of India held that 'the said right ensures equality amongst equals and its aim is to protect persons similarly placed against discriminatory treatment. It means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Conversely discrimination may result if persons dissimilarly situate are treated equally. Even amongst persons similarly situate differential treatment would be permissible between one class and the other'. 10. However, to satisfy the constitutional test of permissible classification, two conditions must be satisfied namely : (a) Differential treatment should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romises each will form a different class. Even if there are different groups within a class the interests of which are different from the rest of the class or who are to be treated differently in the scheme, such groups must be treated as separate classes for the purpose of the scheme. Broadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. The group styled as a class should ordinarily be homogeneous and must have commonality of interest and the compromise offered to them must be identical. This will provide rational indicia for determining the peripheral boundaries of classification. The test as stated earlier would be that a class must be confined to those persons whose rights are not so similar as to make it impossible for them to consult together with a view to their common interest." 11.1 In the aforesaid case cited supra Their Lordships for reasons contained therein observed that unsecured creditors will normally form a single class except where some of them are to be treated in a manner different from the rest and have diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court in the case of Prem Chand Somchand Shah (supra). 14. The learned counsel for respondent No. 2 has argued that the intelligible differentia on the basis of which the classification of unsecured creditors between current and non-current has been done is the fact that while the appellant company along with other suppliers stopped supplying raw material, i.e., Phosphoric Acid to the respondent company in February, 2002, OCP, Morocco despite the huge outstanding dues, continued to supply raw material thus helping the company to revive. It was argued that though the appellant company and OCP, Morocco, constitute a group belonging to sundry creditors for goods supplied to the respondent company within the class of unsecured creditors yet, on the basis of the intelligible differentia cited above, they can be further classified as current and non-current on the basis of the period of supply of goods and such a classification could form the basis for differential treatment between these two classes. Applying the criteria as laid down in the case of Maneckchowk & Ahmedabad Mfg. Co. Ltd., In re (supra), there is no doubt that the appellant company and OCP, Morocco belong to a grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Phosphoric Acid and rock phosphate that accrued up to 1-3-2002 in an aggregate outstanding principal amount is US$ 60,220,164.46. The same figure appears in the sanctioned scheme, though, the sanctioned scheme does not mention the period to which the overdues relate. However, considering the facts on record as indicated above, for settlement of the overdues of the appellant company and OCP, Morocco, for the identical period of supply of goods and raw material, i.e., up to 2002, they could not have been classified as non-current and current for differential treatment in the sanctioned scheme. It is not the case of the respondent company that overdues of OCP, Morocco, pertain to a period beyond 2002 for which a differential treatment is justified. It is thus clearly established that the dues of OCP, Morocco, as provided for in the sanctioned scheme and in the settlement agreement dated 22-9-2008 pertain to supply made in the same period in which the appellant company had made supplies to the respondent company. The respondent company in paragraph 3(d) of its written submission has clearly admitted that even though the sanctioned scheme deals with the dues of all the creditors till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognized the classification between supplier of goods before the sickness of the company and unsecured creditors who supplied the goods to the company after the company was declared sick. In our opinion, these decisions of the Hon'ble High Courts do not apply to the present case because in the case of Amitabh Textiles Mills Ltd. (supra) the question before the Hon'ble Court was whether the petitioner No. 1 which became sick since 26-2-1998, is entitled to the reliefs claimed for where the recovery of the amount of electrical bills was/is sought to be recovered by the respondents on account of supply of the electrical energy to the petitioner No. 1 after it had become sick. In the case of Unilab Chemicals & Pharmaceuticals (supra) the question was whether protection of section 22(1) of SICA would be attracted to an industrial company under reference to the BIFR in respect of raw material or any goods supplied to the company after the declaration of sickness of the unit. In both the above cases, the Hon'ble High Courts held that the liabilities incurred during post-declaration period are not protected under section 22(1) of SICA. Thus, it is very clear from the above that the issues i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e OA as reasonable has no basis and no reason has been given by the OA for holding such an opinion. Similarly, the argument of the respondent company that, even otherwise, the sacrifice made by OCP is much higher than that made by the appellant company in terms of quantum of money, also holds no water. It is quite obvious from the impugned order and the sanctioned scheme of the BIFR that the dispensation given to OCP, Morocco, and to the appellant company is in percentage terms of their outstanding dues and is in not in terms of the quantum of money. 20. We have already pointed out in the foregoing paragraphs that the classification of unsecured creditors as current and non-current is not based on an intelligible differentia to justify differential treatment between two unsecured creditors. In above view of the matter, we direct that paragraph 18 of the sanctioned scheme enclosed as annexure 'A' to the impugned order be modified to provide for similar dispensation to the appellant and OCP, Morocco. The exact percentage of dues to be paid to the unsecured creditors would need to be determined having regard to the facts of the case and the projections regarding viability etc. contai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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