2003 (7) TMI 496 - HC - Companies Law

Court waives meetings for Lufthansa & trade creditors, approves Scheme for Compromise. Inter-Corporate Depositors & staff creditors to meet. .

Modiluft Ltd., In re

Modiluft Ltd., In re - [2003] 47 SCL 227 (DELHI) Issues Involved:1. Application under sections 391(1) and 393 of the Companies Act.2. Convening meetings of creditors for Scheme for Compromise.3. Consent and objections from various creditors.4. Allegations of fraudulent actions and management disputes.5. Classification of creditors and statutory dues.6. Feasibility, bona fides, and legality of the Scheme.7. Exclusion of time-barred debts.Detailed Analysis:1. Application under sections 391(1) and 393 of the Companies Act:The application was moved by Royal Airways Limited (RAL) under sections 391(1) and 393 of the Companies Act, seeking directions for convening meetings of creditors to consider a Scheme for Compromise. The application was initially filed pursuant to a court order dated 31-12-1999 and updated by an order dated 6-3-2003.2. Convening meetings of creditors for Scheme for Compromise:The court permitted the applicant to update the scheme reflecting the company's current financial status. The updated scheme highlighted that a vast majority of creditors (Rs. 41 crores out of Rs. 51 crores) had consented to the scheme. The scheme proposed enhancement in the percentage of the principal amount to be repaid and outlined financing through deposits, rights issues, and proceeds from the sale of shares.3. Consent and objections from various creditors:The applicant argued that more than Rs. 11 crores were available for the scheme's disposal. Debts of individual creditors except customs had been settled, and statutory dues were under litigation. The scheme contemplated four classes of creditors: Deutsche Lufthansa A.G., Inter Corporate Depositors, Trade Creditors, and Staff Creditors. The applicant sought dispensation of meetings for Lufthansa and trade creditors due to their substantial consent.4. Allegations of fraudulent actions and management disputes:The principal opponent, S.K. Modi, was alleged to have caused a loss of more than Rs. 35 crores to the company through fraudulent actions. The present management's status was reaffirmed by court orders restraining S.K. Modi and others from acting on behalf of the company. The opponent argued that the scheme sought to oust certain creditors based on alleged fraud and unpaid call money on shares.5. Classification of creditors and statutory dues:The scheme's classification of creditors was challenged, but the court noted that the company could decide the classes of creditors. The preference given to statutory dues was justified as it was a condition for the No Objection Certificate from the Ministry of Civil Aviation, essential for the company's revival.6. Feasibility, bona fides, and legality of the Scheme:The court emphasized that at the stage of section 391(1), it was concerned with the feasibility, bona fides, public interest, and creditors' interest. The scheme was found to be prima facie valid and bona fide, with substantial creditor consent. The court held that the scheme should be referred for consideration under section 391(1).7. Exclusion of time-barred debts:The court noted that the exclusion of time-barred debts was a risk the proponent of the scheme took. Adequate provision could be made for such claims under section 391(2) if found genuine. The plea that the scheme would be invalid without including certain creditors was not upheld, as the scheme's feasibility would be considered during the creditors' meeting.Conclusion:The court ordered that the requirement of convening and holding meetings of Lufthansa and trade creditors was dispensed with due to their consent. However, meetings for Inter-Corporate Depositors and staff creditors were to be convened to consider and approve the updated Scheme for Compromise. The court found the scheme bona fide, reasonable, and prima facie feasible, warranting consideration under section 391(1) of the Act.