2012 (9) TMI 461 - HC - Companies Law

Court dismisses appeal due to company's debt failure, revokes agreements with creditors, prioritizes creditor protection.

The court dismissed the appeal, emphasizing the company's failure to settle debts and revive operations, leading to the revocation of agreements with ... Winding up proceedings - BIFR finally vide order dated 23rd February, 2000 recommended winding up of the company. - on initiation of winding up proceedings, the ex-directors of the company filed an application stating that they have taken steps to settle the matter with the creditors and workers. - winding up was stayed - Held that:- the company got a life line for the third time. The first one was before the BIFR; the second one was when they entered one time settlement with the PNB and the third when they entered into agreement with ACE Ltd. The company again defaulted. The scheme was propounded way back in 2005. The scheme original propounded was based on OTS payment for PNB. The said OTS payments were not made. Payments were ultimately made to PNB by ACE Ltd. in terms of the deed of assignment. It appears that Directors of the company are in occupation of the residential accommodation belonging to the company in Delhi measuring 3000 square yards. They are using and residing in the said residential property without making any payment. The workers in their application CA 117/2004 had made a claim of more than R.5.45 crores along with details. We do not think the scheme as propounded can be implemented and enforced today. - Company to be wound up. Issues Involved:1. Viability of the 2005 Scheme for the company's revival.2. Compliance with the Memorandum of Understanding (MOU) and One-Time Settlement (OTS) agreements.3. Payment to creditors and workers.4. Actions taken by the Official Liquidator and the subsequent winding-up proceedings.5. Legal proceedings and appeals related to the winding-up and debt recovery.Issue-wise Detailed Analysis:1. Viability of the 2005 Scheme for the company's revival:The court noted that the Scheme proposed in 2005 was no longer viable and relevant. Despite the ex-management's efforts to settle claims and revive the company, the learned Single Judge concluded that the Scheme could not be implemented effectively. The Company Judge recorded that the management had not made any payment to the workers after the order dated 9th February 2005. Additionally, the company failed to fulfill its commitments under the Scheme, including payments to creditors and workers.2. Compliance with the Memorandum of Understanding (MOU) and One-Time Settlement (OTS) agreements:The company entered into a one-time settlement (OTS) with Punjab National Bank (PNB) for payment of dues amounting to Rs. 26.16 crores, which was to be paid in installments by 31st December 2007, with interest at 6% p.a. on a reducing balance. However, the company only paid Rs. 13.80 crores, leading PNB to revoke the OTS. Subsequently, ACE Ltd. paid PNB Rs. 15.01 crores and took over the debt. The company was required to repay ACE Ltd. within 12 months with 24% interest, but only managed to pay Rs. 2.09 crores. ACE Ltd. revoked the MOU due to non-payment and assigned the debt to IFCI Ltd.3. Payment to creditors and workers:The court noted that the company failed to make payments to creditors and workers as per the agreed terms. The company had entered into settlements with some workers, but others continued to pursue their claims. The company also failed to pay the balance amount to PNB and other creditors, leading to the revocation of the OTS and MOU. The court emphasized that the interests of creditors and workers are paramount and must be protected.4. Actions taken by the Official Liquidator and the subsequent winding-up proceedings:The Official Liquidator was directed to take over the assets of the company following the winding-up order dated 14th August 2003. The winding-up proceedings were stayed temporarily to allow the ex-management to settle claims and revive the company. However, due to the company's failure to comply with the terms of the Scheme and make necessary payments, the court concluded that the winding-up proceedings should proceed.5. Legal proceedings and appeals related to the winding-up and debt recovery:The company's appeal against the winding-up order was dismissed, and subsequent legal proceedings, including those under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), were initiated by IFCI Ltd. The company filed proceedings under Section 17 before the Debt Recovery Tribunal (DRT), which are still pending. The Supreme Court stayed the auction proceedings under the SARFAESI Act until the DRT's decision.Conclusion:The court dismissed the appeal, emphasizing that the company had multiple opportunities to settle its debts and revive its operations but failed to do so. The interests of creditors and workers must be protected, and the winding-up proceedings should not be stalled any further. The court did not express any opinion on the interpretation of the MOU or the ex-management's intention to contest the proceedings before the DRT.