TaxTMI 
TaxTMI 
1998 (3) TMI 535
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....e of agreement of sale and paid firstly to the preferential creditors and secondly to the unsecured creditors of the petitioner, in final satisfaction of all claims, the principal amounts due to them as on 31-3-1996 as per the audited accounts of the petitioner-company. 2. The petitioner is a company incorporated under the Companies Act and has its registered office at B-2 Laxmi Industrial Estate, Goregaon (West), Bombay-400 090, ('Bedrock'). Bedrock was incorporated on or about 5-4-1979 as a Private Ltd. Co. registered under No. 21169 of 79 with the Registrar of Companies, Maharashtra. The authorised capital of Bedrock is Rs. 25 lakhs divided into 25,000 equity shares of the face value of Rs. 100 each. The issued, subscribed and paid up capital of Bedrock is Rs. 15 lakhs divided into 15,000 equity shares of Rs. 100 each. The objects for which Bedrock was formed are set forth in the Memorandum and articles of association of the company. The main objects for which the company was incorporated are as follows : "1. To enter into partnership in the business carried on by Shri Narayan Prasad Poddar, Shri Dharaprasad Poddar, Shri Mahabir Prasad Poddar, Shri Ram Prasad Poddar an....
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....e 12th and 13th Annual General Meeting of Bedrock be convened separately under the Chairmanship of Mr. T.D. Sugla, a retired Judge of the Bombay High Court. Two winding up petitions had also been filed by Matushree Investments Pvt. Ltd. and Matushree Finance Pvt. Ltd. being Company Petition Nos. 513 of 1991 and 611 of 1991, praying that the said two Companies be wound up on the ground that it would be just and equitable to do so under section 433(f) of the Act. These companies were major shareholders in Bedrock holding approximately 39 per cent of the issued and subscribed share capital of Bedrock. By an order dated 29-1-1992, Official Liquidator, High Court, Bombay, was appointed as the Provisional Liquidator of the two compa-nies. By an order dated 14-7-1993 this Court also directed the representa-tive of the Official Liquidator to vote for the election as directors of Arunkumar Poddar. C.J. Halwasia and Kamalkumar Poddar, at the 12th Annual General Meeting. The said meeting was held on 15-7-1993 and the three persons mentioned above were elected as directors of Bedrock. The 13th Annual General Meeting of Bedrock was also held immediately thereafter. 3. Several other proceedings....
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....o the creditors of the company. Thus, on 6-12-1993 Company Application No. 876 of 1993 was filed in this Court seeking directions to convene a meeting of the secured/ preferential and unsecured creditors of the company to consider the scheme of compromise suggested by Bedrock. The scheme provided, inter alia, the sale of the Goregaon property. The proceeds from the sale were to be used for payment to the creditors. The payment was to be made on the principal amounts due to the creditor as on 31-3-1993 as per the audited accounts of Bedrock. The value of the Goregaon property which had been lying unutilised since 1987 was estimated to be approximately 4.68 crores as per the valuation report dated 4-6-1992. This proposed agreement shall be referred to as 'the 1993 Agreement'. 6. On 8-12-1993 this court directed that the meetings of the secured, preferential and unsecured creditors be held on 19-2-1994. This meeting and the subsequent meeting were adjourned for various reasons. On application made by Bedrock the meeting to be held on 19-2-1994 was adjourned to 16-4-1994. This meeting was further adjourned to 28-6-1994 on orders of this Court. Again the meetings were postponed....
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....st the Poddar family members credit balances appropriated by the Central Bank of India from a family concern of the Poddar family viz,, Poddar Sales Corpn. have been accepted by the Bank as discharge of the liability of Bedrock. The documents of title of the property had been returned to Bedrock by 31-3-1996. As a result of this, Poddar Sales Corpn. became an unsecured creditor of Bedrock to the extent of the amount which was due to the Central Bank of India as on 31-3-1996. Some of the unsecured creditors have also settled their claims against Bedrock. Thus, some of the creditors have ceased to be creditors of Bedrock on 31-3-1996. As a result of the aforesaid developments, as on 31-3-1996, Bedrock did not have any secured creditors. Summary Suit No. 2399 of 1992 filed by MSSIDC had also been settled. The Company Petition filed by the MSSIDC had also been withdrawn in the year 1995. In view of the above modification of the 1993 agreement, was sought to provide that the preferential creditors will be paid the principal amount due as on 31-3-1996 as per the audited accounts of Bedrock and the unsecured creditors will be paid the principal amount due as on 31-3-1996 as per the audite....
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....ompany. Thereafter another sum of Rs. 60 lakhs was paid on 3-12-1997 whilst the matter was being heard in Appeal. 9. It is also the case of Bedrock that all the meetings convened and held for considering the compromise agreement have been adjourned on the specific orders of this Court. The meetings were convened and postponed as follows : 16-4-1994, 28-6-1994, 12-11-1994, 15-3-1995, 13-6-1995, 28-9-1995, 30-3-1996, 15-6-1996,5-9-1996,4-11-1996,23-1-1997, 13-3-1997,3-4-1997 and 28-4-1997. 10. Relying on the aforesaid facts it is submitted by Mr. Chagla that on 31-3-1996 there was no secured creditor. Two of the three preferential creditors had approved the scheme in the meeting held on 30-3-1996. So far as MSSIDC is concerned, they were unsecured creditors. However, the meeting could not be held for want of quorum. In the meantime, ex parte application was made for modification of the scheme. The purpose was to bring the compromise agreement upto date i.e., 31-3-1996. In the meeting held on 28-4-1997 of the preferential and the unsecured creditors, the majority has approved the compromise. The approval is unanimous so far as the preferential creditors are concerned. An overwhelmi....
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....gle Judge. Mr. Chagla submits that Bedrock was not doing well. Thus, the compromise agreement was to put the company on a sounder financial footing. 12. Mr. Thakkar, on the other hand, submits that the purpose of a scheme of compromise or agreement should be to revive the company. The object of the scheme should not be to sell the only surviving asset and to profiteer from the sale proceeds. It is submitted that the sole aim of the agreement is to deprive MSSIDC of the benefit of the decree. It is submitted that in order to succeed in the design the petitioners have not held any meetings from 1993 till 1996. Pursuant to the orders dated 15-2-1994 and 16-2-1994 the petitioner company proposed to hold the meeting of the unsecured creditors of the company at the Indian Merchants Chamber Churchgate, Bombay on 19-2-1994 at 2.00 p.m. This was, however, postponed to 16-4-1994. A notice to this effect was sent to the MSSIDC dated 17-2-1994. By telegram dated 12-4-1994 MSSIDC were informed that the meeting which was scheduled for 16-4-1994 has been adjourned to 28-6-1994. Thereafter by a telegram dated 23-6-1994 the meeting was adjourned to 12-11-1994. By telegram dated 11-3-1995 the meeti....
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....petition No. 38 of 1990. It is submitted that the suit was decreed in favour of MSSIDC on the basis of the consent terms on 1-9-1995. On the very same date in view of the consent terms MSSIDC withdrew the Company Petition. Having achieved that purpose, the petitioners are now trying to wriggle out of the decree. It is submitted that the petitioners are seeking the sanction of the compromise agreement only to profiteer from the sale of the Goregaon property and to defeat the decree which has been passed against it. It is further submitted that there is delilerate misstatement in the amended scheme about the value of the claim of MSSIDC. It is further submitted that the petitioners have deliberately included their family members and secured creditors by styling them as unsecured creditors. This has been done merely to create a false majority to mislead the Court. It is submitted that the claim of MSSIDC is shown indifferent amounts in different proceedings according to the convenience of the petitioners. In the list of creditors given with the original scheme of compromise agreement, 1993 the claim of the MSSIDC is Rs. 75,17,416.35. The claim of Poddar Tyres Ltd. is Rs. 21,24,030.27.....
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....ditors. In the affidavit while discussing the agreement entered into between Bedrock and the Poddar Tyres Ltd., the said concern is described as another company of the Poddar family and now under the same management as of Bedrock. Mr. Thakkar submits that these aver-ments categorically show that Poddar Sales Corpn. and Poddar Tyres Ltd. are not bona fide unsecured creditors of Bedrock. It is submitted that they ought not to be included in the class of unsecured creditors. It is submitted that if these two creditors are excluded, by no stretch of imagination can it be said that the agreement has been approved by the requisite majority of the unsecured creditors. It is submitted that the timing of the applica- tion for modification of the scheme clearly shows that the debts were first created by the petitioner company in favour of Poddar Sales Corpn. and Poddar Tyres Ltd. and thereafter the application for modification of the scheme was made. Mr. Thakkar submits that it is of significance that the decree was passed in favour of MSSIDC on 1-9-1995. The first payment under the consent decree was made on 15-9-1995. Thereafter Bedrock had defaulted and MSSIDC had to resort to attachment ....
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....Thakkar relies on a judgment in the case of Hellenic & General Trust Ltd., In re 1975 3 All ER 382. The relevant facts in that case were that a company which carried on business as an investment trust applied for the sanction of the Court to a scheme of arrangement under section 206 of the Companies Act, 1948 relating to the ordinary shares of the company. Those shares were held as to 53.01 per cent by another company (MIT) which was a wholly owned subsidiary of a Bank (Hambros), and as to 13.95 per cent by the National Bank of Greece SA (NBG). By the proposed arrangement the ordinary shares of the company were to be cancelled and new ordinary shares were to be issued to Hambros with the result that the company would become a wholly owned subsidiary of Hambros. The former shareholders of the company were to be compensated in cash for the loss of their shares. The offer price was 48p. per share which was said to represent the true net asset value of the shares. On that basis it was between 20 and 25 per cent more than the shareholders would have been able to obtain elsewhere. However, if the scheme went through, NBG would become liable to a very substantial capital gains tax in Gree....
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....stion, therefore, is whether MIT, a wholly owned subsidiary of Hambros, formed a part of the same class as the other ordinary sharehold-ers. What is an appropriate class must depend on the circumstances but some general principles are to be found in the authorities. In Sovereign Life Assurance Co. v. Dodd the Court of Appeal held that for the purposes of an arrangement affecting the policy-holders of an assurance company the holders of policies which had matured were creditors and were a different class from policy-holders whose policies had not matured. Lord Esher MR said : "... they must be divided into different classes... because the creditors composing the different classes have different interests; and, therefore, if we find a different state of facts existing among different creditors which may differently affect their minds and their judgment, they must be divided into different classes." Brown LJ said : "It seems plain that we must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible ....
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....ompany submitted that difficulties will arise in practice if every subsidiary or associated company may constitute a separate class. So far as a wholly owned subsidiary is concerned, there is no difficulty at all, and in most cases it will be sufficient to judge the class composition by reference to the shareholding... [Emphasis supplied] Thereafter Mr. Thakkar relies on a judgment of this Court in Company Petition No. 395 of 1994 connected with other matters decided on 3-4-1996. In view of the above Mr. Thakkar submits that the petition deserves to be dismissed. 14. In reply, Mr. Chagla submits that the whole scheme of compromise cannot be rejected merely because one creditor happens to object. His objection, according to Mr. Chagla, is wholly irrelevant. The attitude of the MSSIDC is to somehow scuttle the compromise agreement which is for the benefit of other creditors. All creditors under the agreement have to be paid the principal amount due on 31-3-1996. Both the secured and preferential creditor have voted in favour of the Agreement. Now the only-secured creditor has been paid and the preferential creditors have approved the modified scheme. It is further submitted that th....
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....on for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent. 8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdict....
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.... and 28-4-1997. Various litigations between the members of the Poddar family were settled in 1995. The liability towards the Central Bank of India was discharged by appropriating the credit balances of Poddar Sales Corpn. The documents of title of Goregaon property had been returned to Bedrock by 31-3-1996. Summary Suit No. 2399 of 1992 filed by MSSIDC was settled and a decree was passed in their favour on 1-9-1995. The Company Petition filed by MSSIDC was also withdrawn in terms of the consent terms. In October, 1995 Bedrock entered into an agreement with Poddar Tyres Ltd. "(another Company of the Poddar Family and under the same management of the Applicant Company)" as a consignment agent for sale of the products of Poddar Tyres Ltd. on an exclusive basis. Bedrock had committed defaults in payment of instalments in terms of consent terms dated 1-9-1995 MSSIDC took out proceedings for attach-ment of the Goregaon property. Bedrock took out Notice of Motion No. 591 of 1997 praying for condonation of non-payment of the decretal amount being Rs. 1,10,00,000 and for enlargement of time fixed in the Consent Terms. This notice of Motion was rejected on 17-1-1997. The matter is pending i....
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....he Court will refuse to put its seal thereto if its purpose is not bona fide but merely to shield the mis-deeds of the ex-directors or is otherwise inequitable. Therein Justice Vyas had an occasion to examine two claims put forward for the revival of the company. Both the schemes had proposed to sell a part of the immovable property. These were referred to as the 'Mathew Scheme' and the 'Poddar Scheme'. After examining the whole facts situation it was observed as follows : "Is the Mathew Scheme propounded in good faith and is it viable ? These are the next questions to be answered. (a)As mentioned above, while dealing with the question of credibility and credentials of Mr. Mathew, his obsession for acquiring the said land gathered from his past attempts has been discussed. In my view, paradoxically, instead of the paramount objective being revival of the Company, the paramount objective of Mr. Mathew in undertak-ing the present exercise is to develop the said land after acquisition." (g)Taking an overall view and for the reasons mentioned above, it is not possible to sanction the Mathew Scheme, the entire exercise under-taken by Mr. Mathew with the support of the....
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....I have carefully examined the facts narrated by both the sides. I am unable to hold that Poddar Sales Corpn. has nothing to do with Bedrock. In the pleadings it is clearly stated that Poddar Sales Corpn. is a family concern of Poddars. It is also clearly mentioned that the equitable mortgage of the Goregaon property was created by Bedrock and the Central Bank of India had a lien on the accounts of Poddar Sales Corpn. It was for this reason that Poddar Sales Corpn.'s credits were appropriated by the Central Bank of India. In my view, the modification sought by the 1996 agreement is not bona fide. Debts were due to the Central Bank of India from Bedrock for a period prior to 1992. Thus, the 1993 Agreement had been propounded to seek approval of the creditors. No cogent reason is, however, given as to why the meetings of the secured creditors could not be held till 30-3-1996. Numerous applications and proceedings were taken out in Court to obtain orders for postponement of the meetings. 18. It transpires from the pleadings that, on the one hand Central Bank of India had an equitable mortgage in its favour in respect of the Goregaon property of Bedrock as also lien on the bank acc....
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.... MSSIDC. Further, on the one hand, it is asserted that Bedrock entered into an arrangement with Poddar Tyres Ltd. in October, 1995. Yet the list of creditors attached with the 1993 scheme would clearly show that Bedrock was indebted to Poddar Tyres Ltd. in the sum of Rs. 21,24,030.27. Thus, it becomes apparent that there were business transactions between Bed- rock and Poddar Tyres Ltd. before October, 1995. It is the pleaded case of Bedrock that the modification of 1993 agreement is sought on the ground that during the pendency of the original application for the sanction of the 1993 scheme certain changes have occurred. It is categorically averred that in the meeting held on 30th March, 1996 at 11.00 A.M. the Central Bank of India being the only secured creditor approved the scheme. Yet in the same breath it is stated that the suit filed by the Central Bank of India had been settled and thus they were no longer secured creditors as on 31-3-1996. If the liability towards Central Bank of India had already been discharged, the question of the Central Bank of India approving the agreement on 31-3-1996 did not arise. If the liability had not been discharged, the question of Poddar Sal....
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....s stated that as a result of the arrangement with Poddar Tyres Ltd. there are hopes of reviving Bedrock. It is the case of Bedrock that in the arrangement with Poddar Tyres Ltd. the entire invoicing is done in the name of Bedrock. The amounts collected on behalf of Poddar Tyres Ltd. is to be refunded to the said Company by Bedrock. In this process there is a running credit balance in favour of Poddar Tyres Ltd. in the region of Rs. 4 crores. In my view, the aforesaid stand of Bedrock clearly shows that even the arrangement with Bedrock is only an internal family affair. Bedrock cannot, on the one hand, claim to be consignment agents and, on the other hand, claim to be the owners of the goods which rightly belong to Poddar Tyres Ltd. These facts are eloquently set out in paragraph 12 of the affidavit filed on 28-2-1997 by Arunkumar Poddar in Company Application No. 132 of 1997. For better appreciation of this point of view averments made in paragraph 12 may be reproduced in toto : "12. On the Poddar Family Settlement being arrived at in February, 1995, the Applicant Company took the initiative and steps to make its presence felt again in the market for sale of tyres and tubes which....
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....brushed aside. Applying the principles laid down by the Supreme Court in Miheer H. Mafatlal's case (supra) (Principal No. 6), I am constrained to hold that the three masks viz., Bedrock, Poddar Sales Corpn. and Poddar Tyres Ltd. are three aspects of the same entity. I see no difference between the faces behind the mask. I am, therefore, unable to agree with Mr. Chagla that the observations made in the case of Hellenic & General Trust Ltd.'s (supra) would not be applicable in the facts and circumstances of the present case. In my view, Poddar Sales Corpn. and Poddar Tyres Ltd. are not bona fide unsecured creditors of Bedrock. I am also of the considered opinion that the meetings have been deliberately delayed and adjourned in order to create a situation where the only substantial unsecured creditor MSSIDC would be rendered helpless. The systematic manner in which Court as well as creditors are sought to be misled is obvious from the fact that even the liability towards MSSIDC has not been correctly depicted. These facts have already been noticed above. In view of the above, I find substance in the submission made by Mr. Thakkar that the scheme has not been put forward bona f....
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....de of sale of the said property. However, if the property is not under attachment, on the Scheme being sanctioned by this Court, the property can be sold by Bedrock and the proceeds can be utilised by Bedrock at the sole discretion of the board of directors. Another important fact which would show lack of bona fides of Bedrock is that although the scheme is sought to be sanctioned on the basis of the credit balances due on 31-3-1996, yet the present value of the Goregaon property has not been disclosed. The value disclosed is that which existed in the year 1992. It was incumbent on the petitioner to disclose the value of the property as on 31-3-1996. An objection to this effect has also been taken by the Joint Director, Department of Company Affairs. The Joint Director further states that in the absence of proper, complete and upto date details in the proposed scheme of compromise/arrangement, the scheme evidently is vague, uncertain and could hardly be implemented. 22. Keeping the aforesaid facts in view it would be difficult for this Court to close its eyes to the huge amount of tax evasion that may be involved. In my view the sanctioning of the scheme would clearly be against ....
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....learned Counsel Mr. Chagla. The draft proposed modification is as under : "(1) Clause 8 of the Scheme (Exh. to the petition) is modified as under :- (a )Provided, however, that the Company shall pay interest at the rate of % p.a. to MSSIDC Ltd. as under : (i)On Rs. 1,10,00,000 (Rupees One crore ten lakhs) for the period from 1-12-1996 to 9-7-1997; (ii )On Rs. 60,00,000 for the period from 9-7-1997 to 3-12-1997." A perusal of the above clearly shows that Bedrock is prepared to pay interest to MSSIDC for a period after 1-3-1996. Clearly then, all unsecured creditors are not being treated with an even hand. Bedrock would go to any extent to somehow obtain the sanction of this Court of the agreement and to sell the Goregaon property to receive the proceeds thereof. The relevant information as noticed earlier has been withheld from this Court. The petitioners, in my view, are clearly guilty of suppressio vari and suggestio falsi It is a settled principle of law that Courts of law are meant for imparting justice between the parties. One who comes to Court must come with clean hands. A person whose case is based on falsehood has no right to approach the Court. He can be summarily thr....