1987 (5) TMI 340 - HC - Companies Law

Court upholds agreement, dismisses recall application, directs share transfer, schedules revival scheme meetings.

The court dismissed the application to recall the orders for holding meetings, upheld the agreement between Seth, Misra, and Arneja, and directed the ... Shares warrants and entries in register of members, Compromise and arrangement, Winding up - Powers of liquidator Issues Involved:1. Winding up of Wearwell Cycle Co. (India) Ltd.2. Settlement of Punjab National Bank's claims.3. Scheme of arrangement proposed by H. L. Seth.4. Agreement between H. L. Seth, A. K. Misra, and Braham Arneja.5. Role of Kelvinator of India Ltd. in the revival scheme.6. Transfer of shares and credits.7. Validity of the agreement dated November 28, 1984.8. Registration of share transfers under Section 536(2) of the Companies Act.9. Determination of creditors and shareholders entitled to vote.Detailed Analysis:1. Winding up of Wearwell Cycle Co. (India) Ltd.:The company, Wearwell Cycle Co. (India) Ltd., was ordered to be wound up on March 9, 1978, on a creditor's petition. The company supported the winding-up petition due to its inability to pay debts amounting to Rs. 10,530.89. The petitioning creditor alleged numerous unpaid creditors, non-compliance with the Companies Act, 1956, and mismanagement by the directors. The company admitted these issues and supported the petition for the appointment of a provisional liquidator.2. Settlement of Punjab National Bank's claims:Punjab National Bank filed a suit against the company and guarantors for recovery of Rs. 24,87,547.95. This suit was settled on October 31, 1986, with the bank receiving Rs. 19.18 lakhs from the guarantors, leading to the suit being filed as satisfied and the guarantors released from liability.3. Scheme of arrangement proposed by H. L. Seth:H. L. Seth filed an application under Section 391 of the Companies Act, seeking directions to convene separate meetings of unsecured creditors and shareholders to consider a scheme of arrangement. The scheme proposed payment of 50% to unsecured creditors, 20% on equity shares, and 30% on preference shares, with no arrears of dividend on preference shares. The scheme faced scrutiny for its viability and lack of detailed particulars.4. Agreement between H. L. Seth, A. K. Misra, and Braham Arneja:On November 28, 1984, Seth entered into an agreement with Misra and Arneja for the revival of the company. Misra and Arneja agreed to buy shares and credits of the company and to settle the bank's claims. The agreement included the payment of Rs. 3,20,000 for shares and Rs. 2,44,498.12 for credits. Misra and Arneja paid a total of Rs. 39,87,570 towards the revival scheme.5. Role of Kelvinator of India Ltd. in the revival scheme:Kelvinator of India Ltd. proposed a competing scheme for the revival of the company, which offered more lucrative terms to shareholders and creditors. This led to a conflict with Misra and Arneja, who also improved their terms to match Kelvinator's offer.6. Transfer of shares and credits:Misra and Arneja claimed to have acquired over 75% of the equity shareholding and credits of the company under the agreement with Seth. They sought directions for the official liquidator to register the transfer of shares and recognize them as creditors.7. Validity of the agreement dated November 28, 1984:Seth later contested the validity of the agreement, alleging duress and undue influence. However, the court found no evidence of inequality of bargaining power and upheld the agreement as valid and entered into freely by both parties.8. Registration of share transfers under Section 536(2) of the Companies Act:The court directed the official liquidator to register the transfer of shares in favor of Misra and Arneja, subject to Misra obtaining requisite permission from the Reserve Bank of India. The court emphasized that the agreement was bona fide and in the interest of the company.9. Determination of creditors and shareholders entitled to vote:The court directed that the list of creditors and shareholders entitled to vote be based on the statement of affairs filed under Section 454 of the Companies Act, with necessary amendments to reflect the transfer of credits and shares to Misra and Arneja. Meetings of the members and creditors were scheduled to consider the schemes proposed by Seth and Kelvinator of India Ltd.Conclusion:The court dismissed the application to recall the orders for holding meetings, upheld the agreement between Seth, Misra, and Arneja, and directed the official liquidator to register the transfer of shares and recognize Misra and Arneja as creditors. The meetings to consider the revival schemes were scheduled for July 10 and 11, 1987.