TaxTMI 
TaxTMI 
TaxTMI 
2006 (12) TMI 585
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....raise the percentage of interest on amount payable as down payment to the workmen from 10% p.a. to 11% p.a.. Mr. J.P. Cama, Counsel for Shramik Utkarsha Sabha (Hereinafter referred to as the "Sabha") and Mr. Fredun D'vtre state on instructions that their clients are also willing to hike the said interest from 10.17% p.a. to 11% p.a. The amount by way of down payment to workers offered by the petitioner thus stands increased to Rs. 1,43,471743/- and the amount as offered by the Sabha and its sponsor stands increased to Rs. 1,43,637497/- on the basis of 11% interest on their own recorded offers in this regard. These Counsel also state that on the acceptance of the scheme, their clients will pay the full value of the property as quantified by the petitioner in para-20 of the petition i.e. Rs. 52,07,50,000/- to M/s. Bali Properties & Investments Pvt. Ltd. Mr. Sanjay Singhvi appearing for the rival workers union Shramik Mahasangh (Hereinafter referred to as the "Mahasangh") states that in view of these statements, the modified scheme as propounded by the Shramik Utkarsha Sabha would be preferred by his clients. Also at the stage of arguments the Advocate appearing fo....
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....nt and further interest was secured by an equitable mortgage and/or hypothecation of various immovable and movable properties of the Company. The suit further sought enforcement of the security in respect of the mortgaged and charged properties, by sale thereof. 5. By an order dated 24.11.1986 passed by this Court in the aforesaid suit bearing no.3290 of 1986 filed by the Central Bank of India, the Court Receiver, High Court, Bombay was appointed as ad-interim Receiver of the movable and immovable properties of the company with all powers under Order 40 Rule 1 of Civil Procedure Code, save and except the powers to sell the properties. The Court receiver continues to date. 6. It appears from the record that on the date of winding up of the company, there were in all 1312 workers working in the company. Some of these workers were staying within the factory premises of the company at Thane. These workers who were residing in the premises resisted the taking of the possession by the Court Receiver and claimed tenancy rights. There was litigation in this regard and attempts were made to evict them. At one stage this Court had directed that they be evicted forcibly but that order was s....
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.... for a scheme of compromise/arrangement between the company and its equity shareholders, secured creditors, unsecured creditors, statutory creditors and workers. 11. After the filing of this petition, the petitioner took out Company application no.527 of 2006 for directions relating to convening various meetings of equity shareholders, secured creditors, unsecured creditors, statutory creditors and workers and by an order dated 21.4.2006 the petitioner was directed to convene separate meetings of equity shareholders, secured creditors, unsecured creditors, statutary creditors and workers. 12. The scheme which was to be put up at these meetings was the scheme of compromise or arrangement as annexed at Exhibit-A to the petition. The substance of the said scheme as originally filed in this Court and put up at the various meetings was as follows :- (a) The petitioner would borrow and bring in the sum not exceeding Rs. 1,16,83,738/- for payment of outstanding dues to the unsecured creditors and statutory creditors of the company (the statutory liability being Rs. 53,77,359/- and dues of unsecured creditors being Rs. 63,06,379/-). (b) The applicant would arrange and borrow a furthe....
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....in dispute therefore, that at the meeting the workers, (who are creditors of the company since they have not been paid) did not grant approval to the scheme of the petitioner as originally proposed. 14. After the filing of this petition, in pursuance to the advertisement, on behalf of one of the two workers unions of the company i.e. the Shramik Utkarsha Sabha, an affidavit dated 12.10.2006 came to be filed. It was mentioned in the affidavit that the Union had approximately 338 members and that their office bearers Mr. Vijay Kamble and Krishna Mokal had attended the workers' meeting but were not allowed to voice their grievances. By the said affidavit the opposition to the scheme of the petitioner was placed on record. It was contended that the secured creditor M/s. Bali Properties & Investments Pvt. Ltd., was only a nominee of the present petitioner and the intention behind the scheme was to appropriate the assets of the company by denying the workers' re-employment. They suggested modifications under Section 392 of the Companies Act which according to the union were more beneficial to the displaced workers and contained an proposal aimed at getting eligible workers re-employed a....
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....teek Apparels Pvt. Ltd., (Hereinafter referred to as a sponsor) filed an affidavit contending that he had been approached by the "Sabha" along with a copy of Company Petition No.472/2006 and had been asked whether he was willing to sponsor a scheme for revival of the company. In this affidavit, Mr. Sanjay Dalmia indicated his agreement to sponsor the scheme and to pay the following amounts in full and final discharge of all liabilities of the company. (a) Rs. 52,07,50,000 to M/s. Bali Properties & Investments Pvt. Ltd., (b) Rs. 13,27,99,395/- to the workers of the company. (c) Rs. 1,16,83,738/- to the unsecured creditors and statutory creditors of the company. It was placed on record that they were further willing to start a textile unit with a new name and that they had no objection if the name Modella was retained by the erstwhile promoters of the company. In paragraph-8 of the affidavit an undertaking was given to start the textile unit within a maximum period of 18 months from the date of conveyance including construction of the built up premises and installation of plant and machinery. Pursuant thereto, they undertook to re-employ all the eligible workers who ....
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....vival. I must say that the objections raised do not indicate a full and proper application of mind. 21. On 15.12.2006 for the first time another union by name Shramik Mahasangh (hereinafter referred to as "Mahasangh") filed an affidavit of their Vice President Mr. Vilas Madhukar Naik and in this affidavit, the modifications sought by the rival union (sabha) were dealt with. It was stated that the modifications put forward by the Sabha as they stood were illusory and less beneficial to the scheme as proposed by the petitioner Brij Mohan Grover. It was placed on record that this union and a majority of workmen preferred the scheme as proposed by the petitioner. (As Court's time is over, rest of the judgment is reserved). 22. In the course of hearing on various dates, as the Sabha had come with a better deal for the workers (offering down payment of Rs. 13,27,99,395/- as against Rs. 8,40,53,395/- proposed to be paid by the petitioner) and to the secured creditor, I had called upon the petitioner's Counsel to see if he could persuade the petitioner to better his offer in order to make the scheme more attractive vis-a-vis the workers and less vague as regards the secured cre....
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....alf of the Sabha was filed placing on record the proposed modified scheme of compromise or arrangement. The said document which was an Annexure to the affidavit further crystalised the modifications propounded by the Sabha as under :- (a) that their Sponsor would deposit with the Official Liquidator a sum of Rs. 1,16,83,738/- for payments due to un-secured creditors and statutory creditors within 15 days of the sanction of the scheme by this Court. (b) The claim of Bali Properties & Investments Pvt. Ltd., being the secured creditors would be paid by their sponsor by settlement and if there was no settlement the sponsor agreed to pay the decretal amount as decreed in High Court Suit No. 3290 of 1986. That in the event of there being a decree in favour of the secured creditors in High Court Suit No. 3290 of 1986 and in the event of the decree remaining unsatisfied by the sale of the properties of the company the sponsor would bring in or make good the shortfall amount, if any, to satisfy the decree. The sponsor would be entitled to be brought on record in the said suit as the defendants and would be entitled to contest the said Suit No. 3290 of 1986. (c) That their sponsor woul....
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....he workers who had not reached the age of superannuation will be offered employment in the textile unit which will employ approximate 300 workmen. In case after providing employment to all the eligible workers as above, if there were any vacancies, then employment to the nominees of the other workmen will also be considered. That M/s.BLR Knits Pvt. Ltd., had also agreed to submit a project report which was under preparation, giving the details of the revival scheme including the plant and machinery, production capacity, cost of project, means of finance etc. which will be submitted within 60 days on the final sanction of the scheme by the High Court. 27. On 22.12.2006 on behalf of the Mahasangh a further affidavit was filed placing on record that the Sangh now supported the amendments as put forward by the Sabha since the workers would stand to get an additional amount of Rs. 23,70,538/- as compared to the amount payable under the amended scheme by the petitioner and as this amount is promised to be paid within 15 days of the sanction of the scheme. 28. Shri Sanjay Singhvi, learned Counsel for Mahasangh, however, argued before the Court that the stand of the workers would be, in ....
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....d by obtaining a loan. The petitioner's scheme is not approved by both the workers unions or any worker. (ii) As against this, the modified scheme of the Sabha offers to pay an amount of Rs. 1434637497 within 15 days of the sanction of the scheme by the High Court. However, in addition to this offer the modified scheme of the Sabha offers a proposal for the revival of the companies textile business and reemployment of such workers who have not reached the age of superannuation by the putting up and starting of a textile unit which will employ approximately 300 workers and which unit will be housed on an area of approximately 20,000 sq.feet. This modified scheme submitted by the Sabha is now supported by both the unions who claim to represent and is not opposed by any individual worker. (C) Amount due to secured creditor :- (I) The scheme of the petitioner provides that in the event of there being a decree in favour of the secured creditor in High Court Suit No.3290 of 1986, the said claim will stand satisfied and/or be met with from the mortgaged property. It states that the secured creditor has agreed to waive the claim for the balance, remaining unsatisfied, if any, provide....
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....n not to place before this Court the said deed of assignment, so that the details of their alleged transaction with the Central Bank of India could be perused by the Court. It can be seen from paragraph-11 of the petition that the petitioner has admitted that the said Bali Properties & Investment Pvt. Ltd., have been acting at the request of the petitioner since 1994 and the petitioner admits that it was his request that Bali Properties & Investments Pvt. Ltd., paid to the bank by 30.9.1994 a sum of Rs. 6,05,43,723/-. This amount was added to the amount of Rs. 3,24,56,277/- which were the company's existing fixed deposits and were directed by the Court to be endorsed to the bank by order dated 19.9.1994. That thereafter according to the petitioner, to make up the settlement amount of Rs. 17 crores the balance amount of Rs. 7,75,00,000/- was paid by Bali Properties & Investments Pvt. Ltd., to the bank. It thus appears that Bali Properties & Investments Pvt. Ltd., has only paid an amount of Rs. 12,80,43,723/-. They have not disclosed to this Court as to how they now have a claim of Rs. 123 crores. No particulars of any such claim have been given and the claim as yet remains unproved.....
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....osed by the petitioner to be borne by the company & consequently the shareholders, by taking such loans. The company also gets to retain the name/brand name/mark Modella. 31. From the aforesaid comparitive table, it is clear that the scheme as modified by the Sabha is clearly equal to, in two respects and more advantageous to all parties in several other respects, than the scheme as proposed by the petitioner. The scheme as proposed by the petitioner is now opposed by both the Unions and their member workers. There is no disapproval to it by any other individual worker. The scheme is also more advantageous to the secured creditor particularly as it contemplates down payment of the entire value of the property as calculated by the petitioner of the land and structures at Thane which is the subject matter of the scheme. It is more advantageous to the shareholders as it reduces their burden of taking further loans. 32. Faced with this situation, no serious argument was made by the Counsel appearing for the petitioner to contend that the scheme as proposed by the petitioner was superior to the scheme as sought to be modified by the 'Sabha'. Counsel however, submitted several legal pr....
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....he 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 braod parameters about the requirement of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ....
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....in value approved of the original scheme, all of them are deemed to have granted their approval. The modifications of the 'Sabha' make no change in the amounts payable to them as proposed in the petitioner's scheme. After notice, no statutory creditor has appeared before me to indicate that they are withdrawing their approval or that there is any change in their stance. The modifications as suggested by the 'Sabha', in my view, takes adequate care of the interest of the secured creditor in so far as it not only offers to deposit the entire market value of the land and structure as calculated by the petitioner and left uncontroverted by the secured creditor but also further offers to pay the entire decretal amount if and when the suit of the secured creditor is decreed. 35. It was contended by the Counsel appearing for the petitioner that it would be desirable to again send the matter for re-consideration in a fresh meeting of workers. To counter this argument, it was contended by the Counsel appearing for the 'Sabha' and 'Mahasangh' that all the workers of the company are represented at the hearing. Both the existing unions had accepted the scheme with the modifications as suggest....
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....e rank outsiders and were not persons who could propose a scheme of compromise or arrangement within the scope of Section 391(1) of the Companies Act and also concluded that the schemes of such interveners did not serve public interest. In the present case however, the situation is entirely different. The scheme of the petitioner is rendered completely unworkable due to opposition by the two unions representing the workers and even the secured creditor. In view of such a situation, in my view, to ensure the working of the scheme, the more beneficial modifications suggested by the 'Sabha' can be sanctioned. As laid down by the Division Bench, the powers of this Court can be exercised even suo-motu without calling the meeting of all the members or creditors at the time of sanctioning the scheme. In fact, the Division Bench reached its conclusion about what was stated in the above quoted paragraph after referring to and relying upon an earlier judgment of the Apex Court in the case of S.K. Gupta Vs. K.P. Jain [1979] 49 Comp Cas 342 and a judgment of the Gujrat High Court in Tungabhadra Industries Ltd., Vs. National Dairy Development board [1983] Tax LR 2557; [1984] 55 Comp Cas 107 (Gu....
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....of the said power of modification, the Court has power to deal with the scheme of compromise or arrangement for the purpose of making it workable and it has power to substitute, by way of modification, one sponsor for another. That the identity of the sponsor is not something basic in the structure of the scheme. Whether or not it is of the essence of the scheme or a basic element in the scheme, is a question of fact depending on the circumstances of each case. Even if one has to proceed on the assumption in certain cases it may be a basic clement in the scheme, whether or not it is a basic element is a question which can be examined by the Court. 38. It was next sought to be contended that the modifications suggested by the Sabha was effectively a scheme by the Sponsor who was not a person who could propose a compromise or arrangement under Section 391(1) of the Companies Act 1956 in so far as the sponsor was not the company its creditor or member. This submission must be stated to be rejected as the modification to the scheme is not put by the sponsor but in fact, it is put up by the union which represents the workers. It was conceded that the workers who are yet to be paid are ....
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....half of BLR Knits was hereby authorized to appoint advocates, counsels, affirm affidavits, and to do all such acts and deeds as may be required for giving effect to the aforesaid matter. In my view, what is important from the point of view of the workers is that the textile unit is established & run. The scheme as modified by the Sabha offers a bank guarantee to the tune of Rs. 13,27,99,395/- to secure the performance of this promise. The scheme envisaged the opening of a textile unit within a maximum period of 18 months from the date of possession including construction of factory building and installation of plant and machinery. The Sponsor and the Sabha has undertaken to re-employ all the eligible workers who opt for re-employment and commence operations within 18 months from the date of the final sanction of the scheme. The bank guarantee can be enforced by the Official Liquidator in case of default. They have agreed to furnish this bank guarantee to the Official Liquidator within 90 days by the sanction of the scheme by the High Court and in my view the giving of such a guarantee secures the performance of the promise to revive a textile unit. 40. In the net result, the follo....
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....half of the sabha dated 22.12.2006 ; (vii) that the sponsor will be responsible for meeting any contingent liability that may arise from the setting up of the textile unit ; (C) After the deposit of Rs. 52,07,50,000/-, on the filing of a further affidavit by the secured creditor M/s.Bali Properties & Investments Pvt. Ltd., accepting the modified scheme as sanctioned by this Court, the secured creditor will be at liberty to withdraw the said amount unconditionally if he withdraws Suit No.3290/86, and subject to giving solvent security to the satisfaction of the Prothonotary & Senior Master if he chooses to persue Suit No.3290/86. It is made clear that withdrawal of this amount on furnishing solvent security will not prevent the secured creditor from persuing Suit No.3290/1986 or from executing any decree for an amount exceeding Rs. 52,07,50,000/- with interest accruing thereon as on the date of the decree against properties of the company. If however, there is no affidavit accepting the sanctioned scheme filed within 30 days from the date of deposit then this amount of Rs. 52,07,50,000/- will be transferred by the Prothonotary & Senior Master to the account of Suit No.3290/86 an....