TaxTMI 
TaxTMI 
2003 (9) TMI 804
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..... Notice of the said meetings were duly published in the manner prescribed under the Act and on 14th July, 2000 the meetings were held. In the said meeting Clause 20(xvi) was proposed to be modified by addition of the phrase" prior to the implementation of the sanctioned scheme or any part thereof" which clause earlier read as "Parties will enter into definitive agreements in respect of the real estate project." The two resolutions, one to modify the scheme and the second resolution for approval of the scheme with the above modifications were approved by more than the requisite majority of the three-fourth in number and value of the shareholders and the creditors of the company and were accordingly reported to this Court by the Chairpersons of the said meetings. 3. On 31st July, 2000 the present petition, CP 251/2000 was filed under Sections 391 to 394 of the Act seeking sanction and the approval of the scheme. This Court on 1st August, 2000 issued notice to the Official Liquidator (OL), attached to this Court and the Regional Director, Department of company Affairs, Northern Region, Kanpur as well as the creditors and shareholders of the petitioner company by ....
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....nce M/s DCM Ltd. is still an unpaid vendor to the extent of ₹ 109.7 crores, it has encumbrance on the property of the value of the price owed; (h) Independent builders were appointed by M/s DCM Ltd., in 1996. But due to the actions of the said Builders, the project work stopped in July, 1997. The Petitioner Company had accordingly sold the properties at Bara Hindu Rao /Krishnan in anticipation of the commencement of the construction on the project site and there was enthusiastic response and advances were received from the customeRs. But the cash flows dried up when construction stopped in July, 1997; (i) Since the investments made by the Company in the real estate project had placed a tremendous burden on the cash flow of the Company, it was unable to service its debts due to the halt of the construction in July, 1997; (j) The aforesaid circumstances necessitated the formulation and presentation of the present Scheme which is founded on a feasible debt settlement by the Petitioner Company of the debts owed by it to its Creditors, as well as the fulfillment of the obligations to the customers/flat buyers; (k) The scheme accordingly envisages the revival and restructur....
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.... total amount payable is to be bifurcated into interest bearing loan and Zero Coupon Bonds and is to given an equated return to all the secured creditors in a just and reasonable manner. The interest on interest bearing loan for the first 24 months is also to be paid in three equal installments in the 36th, 48th and 60th month from the date of commencement of construction on the site; (d) The Option II grants the choice to the Banks and Financial Institutions to opt for equity and/or property and/or Zero Coupon Bonds in settlement of their dues; (e) The debts owed to DCM are to be repaid in installments spread over a period of 6 years; (f) The Unsecured Creditors, i.e., the flat-buyers, who have cancelled their bookings and the debts of others, will be settled from the first year of the operations of the Company after the sanction of the present Scheme. 8. Thus the applicant company has submitted that the scheme deserves to be sanctioned and approved by this Court as the requisite statutory majority as per the norms prescribed by Section 391(2) of the Act of not only the creditors both secured and unsecured, but all the shareholders present at the time of the meetings have ....
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....t DCM and Focus Rupees "Name of Secured Creditor Voted in favor Voted Against Value of Vote in Rs. Value of Vote in % Total HDFC Limited Yes 241599500 19.59 241599500 ICICI Limited Yes 414212007 33.59 414212007 IFCI Limited Yes 335929361 27.24 335929361 Gruh Finance Limited Yes 81324564 6.59 81324564 Sub-Total 1073065432 87.02 SBI Home Finance Limited Yes 84917991 6.89 84917991 Canara Bank Yes 75198185 6.10 75198185 Sub-Total 160116176 12.98 Total 12331811608 100 1233181608 Voting Pattern with DCM and Focus Rupees "Name of Secured Creditor Voted in favor Voted Against Value of Vote in Rs. Value of Vote in % Total DCM Limited Yes 1096208435 47.04 1096208435 Focus Estates Pvt Limited Yes 812400 0.03 812400 HDFC Limited Yes 241599500 10.37 241599500 ICICI Limited Yes 414212007 17.78 414212007 IFCI Limited Yes 335929361 14.42 335929361 Gruh Finance Limited Yes 81324564 3.49 81324564 Sub-Total 2170086267 93.13 SBI Home Finance Limited Yes 84917991 3.64 84917991 Canara Bank Yes 75198185 3.23 75198185 Sub-Total 160116176 6.87 Total 2330202443 100 2330202443 9. The position of law relating to the powers and obligations of a Company Court under Section 391 to Section 394 of the....
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....ndustries Ltd. reported as [1996] 87 Comp Cas 792, the Hon'ble Supreme Court held as under: "............ The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)(a) have been held; that the scheme put up for sanction of the court is backed up by the requisite majority vote as required by section 391, sub-section (2); that the concerned meetings of the creditors of members or any class of them had the relevant material to enable the voters to arrive at informed decision for approving the scheme in question; that the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class ; that all necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by section 391, sub-section (1) ; that all the requisite material contemplated by the proviso to sub-section (2) of section 391 of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and....
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....mbeRs. (ii) The scheme has not got to be scrutinised by the court with that much care with which an expert will scrutinise it, nor will it approach it in a carping spirit with a view to pick holes in it. If the majority is acting in a bona fide and honest manner, and in the interests of the class that it purports to represent, then, if the scheme is such as fair-minded person, reasonably acquainted with the facts of the case as prevailing at the time when the scheme was sponsored and approved, can regard it as beneficial for those whom the majority seeks to represent, then, unless there are some strong and cogent grounds to show that the scheme was conceived, designed or calculated to cause injury to others, the court will ordinarily sanction it, rather than reject it. While examining the scheme the court should, keeping in view all the aspects of the matter, prefer a living scheme to compulsory liquidation bringing about an end to a company. SIDHPUR MILLS CO. LTD., MANU/GJ/0076/1962 : AIR1962Guj305 relied on. (iii) Before the court accords its sanction to any scheme of compromise and arrangement, it would normally expect to be satisfied about three important not; (b) wheth....
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....t and the compromise offered to them must be identical. (xxiii) General speaking, the creditors of the company should be divided into three different classes, viz. secured creditors, preferential creditors and unsecured creditors. The workers of the company, each to the extent of the first ₹ 1, 000 of his claim in winding up, would be a preferential creditor and indisputably they would form a separate and distinct class. Unsecured creditors will normally form a single class except where some of them are to be treated in a manner different from the rest and have different interests which might conflict. ...... (xxv) The essential requirement of section 393(1)(a) is that the creditors and members who are to assemble in the meeting should have advance information of the proposed scheme of compromise and arrangement and its effect on their interest as members and creditors. If the whole of the proposed scheme was annexed to the notice, anyone having a bare perusal of the scheme would be able to .... out what was intended to be done by the scheme of compromise and arrangement and what would be its effect on his interest as creditor or member of the company and the first pa....
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....ble for the court to accord sanction to a scheme of amalgamation under section 394 of the Companies Act, 1956, even if the scheme contemplates a consequential alteration in the objects clause of the memorandum of association of the transferee company..." 14. In the matter of PMP Auto Industries Limited reported as MANU/MH/0112/1991 : 1991(4)BomCR387 it has been held as under: ".Section 391 of the Companies Act, 1956, invests the court with powers to approve or sanction a scheme of amalgamation/ arrangement which is for the benefit of the company. In doing so, if there are any other things which, for effectuation, require a special procedure to be followed - except reduction of capital -then the court has power to sanction them while sanctioning the scheme itself. It would not be necessary for the company to resort to other provisions of the Companies Act or to follow other procedures prescribed for bringing about the changes requisite for effectively implementing the scheme which is sanctioned by the court. Not only is section 391 a complete code, but it is intended to be in the nature of a "single window clearance" system to ensure that the parties are not ....
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....her there is a loss of mere nominal, legal rights but whether what has been done is beneficial in a business sense." -A. In the context of the approval of shareholders/creditors obtained subsequent to the meeting fixed by the Court, the following position of law has been laid down in the above judgment of the S.M. Holding Finance Pvt. Ltd. (supra) "In the decision of Mazola Theatres (P) Ltd. v. New Bank of India Ltd. " [1975] (2) 1975 1 (Delhi), the Court has observed as follows: "The meeting contemplated in section 391 is analogous to an extra ordinary general meeting of the company, in as much as a three-fourth majority is required to pass the required resolution. The normal rule is that the consent of the shareholders whether it is unanimous or by a three-fourths majority, must be obtained in a meeting summoned on the orders of the court under section 391. This is in accordance with the general principle, that members must act in a general meeting. Inroads have, however, been made on this formal doctrine. Firstly, the consent of all or virtually all the shareholders given even outside a meeting is sufficient to comply with the requirements of a meeting. Se....
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....ave approved the consents given outside a meeting held under Section 391 of the Act. The view of Palmer on Company Law noticed above is also to the effect that such minor irregularities of a subsequent consent will not persuade the court to upset a scheme which has subsequently obtained the requisite majority's approval. 17. I have considered the scheme which has been approved by the requisite majority in the meetings held on 14th July, 2002. There was a slight modification at the end of the clause 20(xvi). Two resolutions were voted by the requisite majority in the meeting. One was for modification of the scheme and the next resolution was for the approval of the scheme with the modification. Section 391(2) of the Act reads as follows:- "(2). If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed [under the rules made under section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the....
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.... at Bara Hindu Rao and Kishan Ganj, Delhi. (ii)The DCM Limited is introduced in a motivated manner as a secured creditor and in the meeting of the secured creditors the majority was manipulated by introducing DCM and FOCUS Limited as secured creditor. IFCI, Canara Bank and SHF voted against the resolution and only two secured creditors HDFC (conditionally) and ICICI voted for resolution and Gruh Finance was wrongly excluded from the meeting on technical grounds. (iii)Release of personal guarantees as per para 20(xiv) and release of management fees to promoter only benefits the promoter. (iv)The current booking rates makes the project non-viable. (v)DEIL is not experienced in the real estate business and real estate market is at a low ebb. (vi)DCM being in a breach of its contractual obligation can not be considered an unpaid vendor. (vii)The Scheme discharges DCM from its guarantee to SHF. (viii)Secured creditors are provided a return of 10% and DCM gets 12% even on any delay in the payment to it by DEIL. 19. In reply to the pleas of SHF's which is a secured creditor of DEIL, it has been contended by the counsel for the DCM that as an unpaid vendor the DCM....
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....p to 30th September, 1994 and shall be accepted by DEIL by - a. Signing and returning the duplicate copy of this MOU. b. giving an interest free refundable Security Deposit of ₹ 3 crores to DCM. Out of this, ₹ 20 lakhs are payable immediately and the balance shall be payable not later than 12 months from the date of this MOU. c. entering into specific Agreements to Sell for the above mentioned property. DEIL shall have the flexibility to purchase the above properties in one or more lots spread over the next 4 years and these transactions would be subject to necessary approvals from the Income Tax Authorities under the provisions of Chapter XX-C of Income Tax Act, 1961. 4. In case, DCM is not in a position to fulfilll its obligations area and properties as per Clause 1 at any point of time, then DEIL would be entitled to receive the entire deposit along with interest @ 18% per annum thereon for the period for which the deposit is held." It is submitted that the DCM has not failed to fulfilll its obligation under the MOU and the area due under the said MOU already stands allotted to DEIL. Consequently DCM is not a debtor of the DEIL. 23. In answer to the p....
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....CI, IFCI, Gruh Finance and Canara Bank have accepted the scheme because they have stakes in DCM and would be repaid under the DCM's Scheme of Restructuring and Arrangement, it is submitted that the HDFC, Gruh Finance and Canara Bank have no stakes in DCM and are only secured creditors of DEIL and would be paid under the scheme. ICICI has a stake in DCM of ₹ 43.44 crores which amount is payable by DCM under the Scheme of Restructuring and Arrangement. However, the amounts owed by the DEIL, i.e., to the ICICI to the tune of ₹ 37.17 crores would be repaid under the present scheme by the DEIL and not by DCM. Similarly the IFCI has a stake in DCM of ₹ 12.28 crores payable under the DCM's Scheme of Restructuring and Arrangement but its stake in DEIL is much more and is ₹ 35.12 crores payable under the present scheme under Option-I. 26. In answer to the plea of the SHF that the area and details of the booking be disclosed, it is submitted that the said information has already been furnished to the Court as a confidential document. The rates have been disclosed in the affidavit of undertaking dated 22nd May, 2002 filed by DCM in CP.No. 247 of 2000. 27. In ....
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....e banks who are well-versed with the commercial and factual position obtaining and the Court cannot substitute its own commercial wisdom (even if it were to agree with SHF) for those of the creditors and shareholdeRs. 33. As far as plea relating to avoidance of stamp duty is concerned, it has been submitted by the company that as and when the conveyance of the flat is made to the flat buyers by an agreement deed, it will be duly stamped. In my view, in any event whether or not the stamp duty is payable is not the concern of this Court and such issues can be raised by the concerned appropriate authority under the Stamp Act in accordance with law. It is however, made clear that the sanction of the scheme will not come in the way of lawful levy of stamp duty. 34. In reply to the remaining plea of the SHF that the scheme is a fraud on the creditors as under Clause xiv and xv of the scheme, guarantee given by the DCM as well as the personal guarantee given by the Indian promoters for the loans taken by the DEIL would be released or withdrawn on the sanction of the scheme leading to the loss of security for the creditors, counsel for the company has submitted that there was no guaran....
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....herefore, submitted that neither there is a corporate guarantee of DCM nor a personal guarantee of Director/s and/or pledge of shares given as security to SHF. Learned Senior Counsel for the petitioner has also submitted that whatever security had been given for the finances received by the DEIL shall continue post-restructuring also. 37. I am, Therefore, of the view that the SHF cannot comment adversely in respect of personal guarantees of Director/s and/or corporate guarantee of DCM as in its own case neither a personal guarantee nor a corporate guarantee has been given. The other secured creditors in spite of the grievances sought to be raised by the SHF have accepted the scheme. In such a situation when apart from SHF all the secured creditors who are well advised both financially and legally have accepted the scheme, the collateral objections in general to the scheme in respect of release of guarantees by SHF cannot be entertained and sustained. Accordingly this plea of the SHF is also rejected. Thus none of the objections of the SHF survives. 38. I have gone through the scheme, it appears to be fair and reasonable and postulates : (a) restructuring of the company; (b) ....