Court dismisses scheme application under Companies Act, deeming it not genuine or feasible, not in creditor interest.

KR. Balasubramanyan Versus Bellary Spg. & Wvg. Co. Ltd.

KR. Balasubramanyan Versus Bellary Spg. & Wvg. Co. Ltd. - [1995] 84 COMP. CAS. 830 (KAR.) Issues Involved:
1. Request for convening a meeting under Section 391 of the Companies Act, 1956.
2. Objections by the secured creditor, Syndicate Bank.
3. Examination of the proposed scheme's bona fides, feasibility, and interest to creditors.
4. Legal principles governing the court's discretion under Section 391.

Issue-Wise Detailed Analysis:

1. Request for Convening a Meeting under Section 391 of the Companies Act, 1956:
The application was filed by a shareholder and managing director under Section 391 of the Companies Act, 1956, seeking a scheme of arrangement/compromise for the respondent company, which was under liquidation. The applicant requested the court to direct the convening of meetings of unsecured creditors and equity shareholders to consider and approve the proposed scheme of arrangement.

2. Objections by the Secured Creditor, Syndicate Bank:
Syndicate Bank, the only secured creditor, opposed the application, arguing that the scheme was designed to delay the liquidation proceedings. The bank highlighted that the company owed more than Rs. 5 crores and that the proposed scheme offered only Rs. 1.5 crores in full settlement, which was less than one-third of the dues. The bank also pointed out that the scheme did not provide details on how the funds would be mobilized and argued that calling a meeting would be a waste of time and resources.

3. Examination of the Proposed Scheme's Bona Fides, Feasibility, and Interest to Creditors:
The court examined whether the scheme was bona fide, genuine, or feasible and in the interest of the creditors. The court noted that the scheme proposed to pay the secured creditor Rs. 1.5 crores and other dues in staggered payments over several years. However, the court found that the applicant had not demonstrated how the funds would be raised to meet these obligations. The court also observed that the applicant had failed to secure financial assistance from Indian Bank or any other institution and had not refuted the allegations made by Syndicate Bank.

4. Legal Principles Governing the Court's Discretion under Section 391:
The court emphasized that under Section 391(1) of the Act and Rule 69 of the Companies (Court) Rules, 1959, it is not mandatory for the court to convene a meeting unless it is satisfied that the case merits such action. The court referenced the Madras High Court's decision in N. A. P. Alagiri Raja and Co. v. N. Guruswamy, which stated that the court must be satisfied that the compromise or arrangement is genuine, bona fide, and in the interest of creditors and the company.

The court concluded that the applicant's contention that the court is bound to issue directions to convene the meeting was unsustainable. The court found that the proposed scheme was neither bona fide nor reasonable and appeared to be an attempt to delay the liquidation proceedings. The court noted that the scheme lacked clarity on fund mobilization and was not supported by the major secured creditor, Syndicate Bank. Therefore, the court held that directing the convening of a meeting would be futile.

Conclusion:
The court dismissed the application, finding that the proposed scheme was not genuine, bona fide, or feasible and was not in the interest of the creditors. The court also noted that the scheme was vague and appeared to be intended to delay the winding-up proceedings. The application was dismissed with costs quantified at Rs. 3,000.