Dcm Financial Services Ltd. vs Ms. Sanjana Malhotra And Ors.
2003 Latest Caselaw 473 Del

JUDGMENT

Pradeep Nandrajog, J.

1. Hearing in the appeal was concluded on 17.3.2003. Parties were directed to file written synopsis by 24.3.2003. Appellant had filed its written synopsis before hearing had commenced but had sought leave to file further synopsis to respond to some of the queries which arose during hearing. On 24th March, 2003 oral prayer was made on behalf of the appellant that further time be granted to file written response to the queries raised during arguments. On 28.3.2003 the written response was filed by the appellant. Some of the objectors had filed written submissions prior to the hearing. No further written submissions have been filed on behalf of the objectors. The appeal is directed against the order dated 20.12.2001 passed by the learned Company Judge in CP No.48/2001. By the impugned judgment, petition filed under Section 391(2) of the Companies Act, 1956 (hereinafter referred as the Act) was dismissed. The learned Company Judge has primarily dismissed the petition filed by the appellant on two grounds:-

(i) The unsecured creditors were denied the opportunity to consider the scheme which was placed in the meeting of the unsecured creditors, in as much as, the scheme which was circulated along with the notice, was later on modified by the appellant and without being put to notice, the modified scheme was presented for consideration in the meeting of the unsecured creditors.

(ii) The valuation of Rs.30 per share was without any empirical material or evaluation of data and since a large part of the dues of the unsecured creditors was to be repaid by issue of equity shares, interest and unsecured creditors was jeopardised .

2. Though, no conclusions have been arrived at adverse to the appellant, the learned Company Judge has commented on the conduct of the appellant in with-holding relevant information and material from the unsecured creditors as also the Court. Various other issues which were raised by the objectors before the learned Company Judge were considered but did not find favor with the learned Company Judge. Though, at the hearing in appeal, some of the objectors raised grievances regarding what transpired in the meeting, but in the absence of any objections filed to the report of the Chairman appointed by the learned Company Judge to chair the meeting of the unsecured creditors, we proceed on the assumption that what is reported by the Chairman o the meeting of the unsecured creditors which was held on 18.2.2002, is correct. Before going into the legal issues raised, it would be useful to have a conspectus of the facts. On 13.2.1992, a company "Tanvi Leasing and Finance Pvt. Ltd." was incorporated. On 28.2.1992 the name was changed to "DCM Financial Services Pvt. Ltd.". On 22.7.1993 the word " Private" was dropped. The company is at present known as "M/s DCM Financial Services Ltd." (hereinafter referred to as the Company). The company is a non-banking financial company. Business was conducted smoothly till the year 1996 when as a result of liabilities outgrowing assets, a liquidity crunch arose. The company began to default in returning deposits to the creditors and in particular those who had invested money with the appellant in fixed deposits.

3. Investors approached Consumer Courts and the Company Law Board. Decrees and orders were passed against the appellant to pay the amount under the fixed deposits held by the depositors. On 17.11.1997, the Reserve Bank of India injuncted the company from receiving further deposits. Restraint against alienation of any property or assets without the prior written permission of RBI was imposed, except for the purpose of meeting he obligations of the depositors. In effect, company could not undertake fresh business. The promoters of the company felt that the company was viable and thereby proposed to restructure the company. The restructuring plan aimed at aggressive recovery of amounts due to company as lease rentals and hire purchase installments; investing in formation and technology, (then considered to be a bright star business); induction of new capital by the promoters to the extent of Rs.16 crores; and finally restructure of debts in a just and equitable manner. The company had secured and unsecured creditors. Secured creditors are its debenture holders, SBI Home Finance Ltd, SIDBI, Punjab and Sind Bank and IndusInd Bank. The total amount payable to these secured creditors as on 30.9.1999 was Rs.4953.59 lacs. Under the modified scheme as proposed to be got approved, the said amount is Rs. 5558.09 lacs.

4. We may note at the bar it was submitted that this amount payable to the secured creditors represents up to date interest credited to the account of the secured creditors as due and payable to them. Unsecured creditors are fix deposit holders and equity share holders whose dividend remained unpaid. There are some intercorporates deposits and one trade creditor M/s Pressman Leasing. Total amount payable to the unsecured creditors as on 30.9.1999 w as Rs.8431.82 lacs and as per the modified scheme the amount payable was Rs.7174.69 lacs. We may note, that at the bar, during arguments it was informed to us by Sh.Ashok Desai, Sr.Advocate that as regards the fixed deposit holders the amount reflected is the amount of the fixed deposit at its face value without accrued interest thereon. F or secured creditors and one unsecured creditor M/s Pressman Leasing Ltd. the amounts reflect the principal plus accrued interest. We may also note that there is no provision in the scheme for payment of dues to the trade creditors and it is not the Case of the company that there are no claimants claiming money payable to them under business conducted by them with the appellant.

5. As required by the Act, the company set into motion the process of restructure by filing CA No.811/2000, being an application under Section 391(1) of the Act seeking directions to convene meeting of its secured and unsecured creditors for the purpose o f considering a "scheme of arrangement for reorganisation of the share capital of DCM Financial Services Ltd. and for compromise with its secured and unsecured creditors." This application was allowed vide the order dated 24.5.2000 and the requisite me ting of the secured and unsecured creditors was directed to be held on 8.7.2000. At the request of the company the date for holding the above meeting was postponed from time to time by the learned Company Judge. This adjournment for conduct of the meeting, was granted by the learned Company Judge since it was stated by the company that it was holding discussions with its secured creditors regarding the original scheme as said creditors had reservations on the scheme as was presented to the Court. The learned Company Judge finally fixed 18.12.2000 as the date for meeting of the unsecured creditors and 19.12.2000 as the date of meeting of secured creditors. Since we are concerned with the objections filed by the unsecured creditors we may note that a notice dated 15.11.2000 was issued to the unsecured creditors of the company notifying them of the meeting which was to be held on 18.12.2000. A copy of the scheme, explanatory statement required under Section 393 of the Act and a form of proxy was sent. Notice of the meeting was published in "Statesman" (English) and "Veer Arjun" (Hindi) on 18th , 23th and 24th November, 2000. The meeting was held on 18.12. 000. Report was filed by the Chairman of the meeting who was appointed by the Court. As per the report 398 unsecured creditors in person and 6269 through proxies amounting to total of 6667 unsecured creditors were present.

6. They represented Rs.1765.87 lacs of the unsecured debts. 4492 votes were cast (including 8 invalid votes). 98.81% in number and 98.93% in value of the unsecured creditors present in voting, voted in favor. It may, however, be noted that the votes casted were otherwise 5.2% in number of the unsecured creditors refreshing a debt value of about 18.5% of the unsecured debts. The minutes of the meeting were prepared and signed by the Chairman appointed by the Court. As per the report the Chartered Accountants appointed to scrutinis and verify the records pertaining to proxy forms, attendance sheets, registers and verification of signatures carried out the exercise and the meeting was held peacefully. We may noted one fact which to out mind is relevant. 6667 unsecured creditors n person or through proxies attended the meeting and only 4492 votes were cast. Thus approximately 2200 unsecured creditors did not cast their votes. The figure appears to be disaportionately high. We would deal with this aspect of the matter a little later. Events of significant developments took place between 24.5.2000 when the learned Company Judge directed to convene meeting of the secured and unsecured creditors and 18.12.2000 when the meeting of the unsecured creditors was held. The company continued to negotiate with the secured creditors and to secure their consent made amendments to the scheme. It also released payments to the secured creditors. The company managed to finally secure the individual consent of the secured creditors by mid December, 2000. The company modified the scheme which was presented to the Court when directions were sought to convene the meeting of the secured and unsecured creditors. On 18.12.2000 the Board of Directors of the company passed a resolution approving the modified scheme. This is stated to have been done on 18.12.2000 prior to the time when the meeting of the unsecured creditors was held. When the unsecured creditors met at the meeting, what was placed for their approval was not the original scheme which was circulated along with the notice of the meeting to the unsecured creditors but it was the modified scheme which was approved a few h ours prior on the same date itself by the Board of Directors of the company. It is this modified scheme which is stated to have been approved by the unsecured creditors in the meeting held on 18.12.2000. The learned Company Judge has held that it was i permissible in law to circulate and notify one scheme and introduced a modified scheme at the meeting. It has been held that no doubt, persons attending the meeting can incorporate modifications in the scheme, but this modification has to spring in the meeting itself. Assailing the judgment of the learned Company Judge in respect of the first of the two grounds held against the appellant by the learned Company judge, Sh.Ashok Desai, Sr.Advocate contended that:-

(i) A reading of Section 391 of the Act read with Rules 69 to 73 of the Companies (Courts) Rules 1959 in conjunction with Form No.36 shows that an amended modified scheme can be presented at the meeting.

(ii) The amendment incorporated in the original scheme pertaining to unsecure creditors made a slight change which in law could be described as "de -minimise".

(iii) Rights of the unsecured creditors were enlarged and not diminished and hence no prejudice was caused to them.

(iv) Relying on the observations in Miheer H.Mafatlal V. Mafatlal Industries Ltd., (1996) Vol.87 Comp.Cas. 792, it was contended that as long as the scheme was just, fair and reasonable and was such that prudent men of business taking a commercial decision beneficial to the class represented by them, the Court would not sit in appeal while sanctioning the scheme. It was contended that the commercial wisdom of the majority of the class of persons who with their open eyes, have given approval to the scheme, even if in the view of the Court there could be a better scheme for the company, would be no ground to refuse sanction to the scheme for it would amount to the Court exercising appellate jurisdiction and not supervisory jurisdiction over the scheme.

7. To appreciate the contention raised, the relevant Sections of the Act, Rules and Forms be noted:-

S. 391. Power to compromise or make arrangements with creditors and members:-

(1) Where a compromise or arrangement is proposed:-

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them;

the Court may, on the application of the company or of any creditor or member of the Company, on in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of class of members, as the case may be, to be called, held and conducted in such manner as the Court directs.

(2) If a majority in number representing three-fourth 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 Secion 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 creditors of the class, all the members, or all the members of the c ass, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company: {Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom and application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation of the company under Sections 235 to 251, and the like.}

(3) An order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instruments constitution of the company.

(5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to (one hundred rupees) for each copy in respect of which default is made.

(6) The Court may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the Court thinks fit, until the application is finally disposed of.

(7) An appeal shall lie from any order made by a Court exercising original jurisdiction under this section to the Court empowered to hear appeals from the decisions of that Court, of if more than one Court is so empowered, to the Court of inferior jurisdiction .

8. The provisions of sub-sections (3) to (6) shall apply in relation to the appellate order and the appeal as they apply in relation to the original order and the application. . S. 393. Information as to compromises or arrangements with creditors and members.-

(1)Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under Section 391:-

(a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect, and in particular, stating any material interests of the directors, managing director, or manager of the company, whether in their capacity as such or as member or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if, and in so far as, it is different from the effect on the like interests of other persons; and

(b) in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid.

(2) Where the compromise or arrangement affects the rights of debenture-holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company's directors.

(3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement.

(4) Where default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to (fifty thousand rupees); and for the purpose of this ub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company: . Provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person, being a director, managing director, manager or trustee for debenture-holders, to supply the necessary particulars as to his material interests.

(5) Every director, managing director or manager of the company, and every trustee for debenture-holders of the company, shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section; and if h fails to do so, he shall be punishable with fine which may extend to(five thousand rupees).

9. Rule 73. Notice of meeting:-

The notice of meeting to be given to the creditors or members of any class, as the case may be, shall be in Form No.36, and shall be sent to them individually by the Chairman appointed for the meeting, or, if, the Court may direct, by post under certificate of posting to their last known address not less than 21 clear days before the date fixed for the meeting. It shall be accompanied by a copy of the proposed compromise or arrangement and of the statement required to be fur . FORM NO.36 (See rule 73) {Heading as in Form No.1} Company Application No........... of 19........... ....................Applicant(s) Notice convening meeting . . . To ........................ ........................ . Take notice that by an order made on ..... 19....... the Court has directed that a meeting of (here mentioned the class of creditors of whom the meeting is to be held) of the company be held at ......... on the .......... day of ..........19............. . at ..........o'clock, for the purpose of considering, and if thought fit, approving, with or without modification, the compromise or arrangement proposed to be made between the said company and (here mentioned the class of creditors or members with who the compromising or arrangement is to be made) of the company. Take further notice that in pursuance of the said order, a meeting of (here mentioned the class of creditors or members of whom the meeting is to be held) of the company will be held at ............ on ..........(Day), the ......... day of .......... 19 ......... when you are requested to attend.

10. Take further notice that you may attend and vote at the said meeting in person or by proxy, provided that a proxy in the prescribed form, duly signed by you, is deposited at the registered office of the company at ........ not later than 48 hours before the meeting.

11. This court has appointed Shri........., and failing him, Shri........... to be the Chairman of the said meeting. A copy each of the compromise or arrangement, the statement under section 393 and a form of proxy is enclosed. Dated this ........... day of ............ 19 ......... . Chairman appointed for the meeting (or as the case may be) . {Note. - All alterations made in the form of the proxy should be initiated} A perusal of Section 393(1)(a) of the Act shows that a notice convening the meeting called under Section 391 of the Act should be accompanied by the statement setting-forth the terms of the compromise or the arrangement, explaining its effect. As ob served by the learned Company Judge, this statement must explain the effect of the arrangement in a manner that a lay person is conveyed the effect of the scheme in an intelligible manner. Admittedly, no explanatory statement was sent to the unsecured creditors explaining the modified scheme. What was sent to them with the notice convening the meeting was an explanatory statement dated 15.11.2000 which explained the original scheme. Indeed, explanatory statement pertaining to the modified scheme could not be sent as the same was approved by the Board of Directors of the Company only on 18.12.2000 i.e. the day of the meeting. Further, it is not the case of the appellant that an explanatory statement was drawn up pursuant to the decision of the Board of Directors taken on 18.12.2000 to modify the scheme. Re Ratners Group plc., (1988) BCLC 685 at page 687 has a useful passage, which may be noted : usually means that they are treated equally, but may mean that they are treated equally save as to some who have consented to their being treated unequally, so that counsel's word 'equitably' is the correct word, which I adopt and accept. The second principle to be applied is that the shareholders at the general meeting had the proposals properly explained to them so that they could exercise an informed judgment on them. And the third principle is that creditors of the company are satisfied s A passage from Tiessen V. Henderson, (1989) 1 Ch.861 at pages 870-871, may also be noted : but leave it to the majority. I cannot tell whether he would have left it to the majority of the meeting to decide if he had known the real facts. He did not know the real facts; and, therefore, I think the resolution is not binding upon him. In Bank of Baroda Ltd. V. Mahindra Ugine Steel Co. Ltd., (1976) 46 Comp.Cas. 277, it was held : might say that he could not approve it. So to use these principles would in reality be to misuse them and it would tantamount to abdication of a statutory function and duty imposed on the court and a breach of faith reposed in it by that class of small shareholders who for obvious reasons cannot and do not participate in the meeting or in the proceedings before the court and also by the dissident members who look upon the court to protect their interests even if they are not pr sent before it having regard to the costs and inconvenience involved. The Court cannot, therefore, adopt a laissez fair attitude of the kind suggested by counsel merely because the requisite majority has passed the scheme and no discordant voice As noted above, argument of counsel for he appellant on this aspect of the matter was that a perusal of Section 391 of the Act read with Rules 69 to 73 and Form 36 shows that in the meeting the scheme could be approved with or without modification s. This position flowed directly from Rule 79 argued the counsel, inasmuch as the rule stated that where the proposed compromise or arrangement is agreed to, with or without modifications, the company is to present a petition for confirmation of the compromise or arrangement. Drawing our attention to Form 36 being the statutory form of the notice convening the meeting, counsel contended that even this statutory form of the notice convening the meeting stipulated that the creditors or members were to put to notice that the scheme could be approved with or without modifications. It was contended that the very jurisprudence of the meeting includes and implies, the possibility of the modifications being made to the subject of the meeting. meeting implies the coming together, meeting of minds, discussions and negotiations amongst the persons attending the meeting and making of amendments and discussions pursuant to the discussions. Following passage from Halsbury's Law of England (4th edition V.7) was cited : 'Vol.716. Amendments to Resolution : Any amendment fairly arisen at a resolution which is specified in the notice of the meeting and within the scope of the notice, may be proposed and passed at the meeting, and a chairman has no right to refuse to put such amendment.

12. Shri Ashok Desai, Senior Advocate contended that pursuant to CA.No.811/2000, being a petition filed by the appellant company under Section 391 of the Act, vide order dated 24.5.2000, the learned Company Judge was pleased to convene the meeting of the secured and unsecured creditors for approving with or without modifications the scheme. Vide orders dated 7.6.2000, 16.6.2000, 3.8.2000 and 29.9.2000 the Company Judge postponed the date of the meeting pursuant to applications filed by the appellant in which applications it was stated that the secured creditors were not agreeing to the scheme as proposed and that the appellant was negotiating with them. Finally, on 6.11.2000 it was again brought to the notice of the learned Company Judge hat meeting be postponed as negotiations with secured creditors were still on. Our attention was specifically drawn to the order dated 29.9.2000 passed by learned Company Judge wherein it was noted that the company had brought to the notice of the learned Company Judge that the modifications agreed to by the secured creditors could be incorporated in the scheme as presented. In sum and substance, the argument was that the learned Company Judge had permitted the company to modify the scheme. In our opinion, argument of the appellant cannot be accepted for the simple reason that where Legislature had codified the law and has provided a manner of doing an act, recourse to principles of common law is not permissible. Section 393 of the Act mandates that an explanatory statement has to be furnished explaining the scheme. It cannot thus be argued that it would be open to the company not to circulate the explanatory statement explaining the scheme which is presented at the meeting. The act that the body of unsecured creditors could have modified the scheme, would be within the domain of powers of the unsecured creditors but this would not mean that the company would be absolved of its liability to comply with the requirement of Section 393 of the Act. We have noted above some of the passages from various judgments emphasising the importance of the explanatory statement. Indeed, the importance of the explanatory statement cannot be belittled. It is no doubt true that the learned Company Judge had initially convened the meeting vide order dated 24.5.2000 and had from time to time, on an application moved by the appellant, postponed the date of the meeting. It is no doubt true that the appellant had brought to the notice of the learned Company Judge that postponement of the meeting was required because the secured creditors were not agreeing to the scheme as originally proposed. However, the appellant had itself stated to be learned Company Judge that it would incorporate the modifications/amendments brought in the scheme, based on negotiations with the secured creditors, in the explanatory statement. We are required, only to note the following submission of the appellant before the learned Company Judge as recorded in the order dated 29.9.2000 :- sectors of the banks and financial institutions are known. Learned counsel submits that once a favorable decision is taken by the banks and financial institutions it will be easier and more convenient for the meetings of the secured and unsecure creditors to consider the proposed scheme. Learned counsel further submits that if the banks/ financial institutions suggest any modification to the scheme the applicant could incorporate such modifications/ amendments in the scheme to be presented before the meetings of the secured and unsecured creditors. It is also stated that the applicant company cannot compel the banks and financial institutions or their Boards of Directors to rush to take a hasty decision in the matter. There The reliance by learned senior counsel for the appellant on the judgment reported in Manekchowk and Ahmedabad Manufacturing Co. Ltd., (1970) 40 Company cases 819, wherein it was held that where the secured creditors approve the scheme with modification, it was not necessary to present the modified scheme to the unsecured creditors is of little assistance. In the said case, it was the scheme explained in the explanatory statement which was considered by the secured as well as unsecured creditors. It was open to any category of the creditors to have approved the scheme with or without modifications. This does not mean that the company can modify the scheme suo-moto and without notifying the same along with the notice convening the meeting resent the same at the meeting of the creditors. We have noted above that approximately one-third of the unsecured creditors , who were present at the meeting, did not caste their votes. To our mind, this prima facie shows that large body of unsecured creditors did get confused as they were presented with the scheme different than the one which was notified to them for being placed for consideration in the meeting. We may now deal with the submissions (ii) and (iii), noted by us above, made by Shri Ashok Desai, Senior Advocate pertaining to the first ground held against the appellant by the learned Company Judge, As noted above submission was that the amendment incorporated pertains to unsecured creditors made a slight change which in law could be described as "de-minims" and that rights of the unsecured creditors were not diminished and hence no prejudice was caused to them. The learned Company Judge has noted the salient features of the modified scheme, the original scheme and had contrasted the same. Since, it was not disputed by the appellant that the said comparison and contrast recorded by the learned Company Judge was incorrect, we take note of the same as it is, for considering the submissions made by the learned senior counsel for the appellant. The learned Company Judge recorded as under :

It is stated in the preamble that in the last two to three years, the company has faced a severe liquidity crisis. Several factors (which are mentioned) were said to be responsible for this. It is admitted that the company has defaulted in payment t o fixed depositors due to fund constraints. ........................... ........................... . Chapter I of the modified scheme gives the definitions and the financial position of the company from its audited balance sheet as on 30th September,1999. A tabular statement is given with respect to the proposed rearrangement and the cash flow identified by the company, which will enable it to make the payments. The promoters of the modified scheme are to invest Rs.16 crores in equity shares @ Rs.40/- per share (that is at a premium of Rs.30/- per share). In addition to this amount, the promoters agreed to underwrite the shortfall n projected cash flow subject to a maximum of Rs.5 crores. Paragraph 7 of Chapter I of the modified scheme deals with the revised equity share capital of the company. This is based not only on the fresh issue of equity shares to the promoters, but also a conversion of a part of the creditors debt (both secured and unsecured) into equity shares @ Rs.30/- per share (that is at a premium of Rs.20/- per share). The available funds are to be applied under the supervision of Ernst and Young, Chartered Accountants (paragraph 8). Future fund flows are to be mentioned by the Chartered Accountants with the assistance of Canara Bank or any other scheduled bank (paragraph 3 of Chapter II). This court, of course, also h s the power of supervision under the provisions of the Act.

13. Chapter II of modified scheme deals with debt settlement and this is really the heart and soul of modified scheme. This Chapter concerns itself with the five major creditors:

(a) SBI Home Finance.

(B) Fixed depositors, ICD lenders and creditors for unpaid dividend excluding promoters.

(C) Debenture Holders.

(D) Banks and institutions.

(E) M/s Pressman Leasing.

14. The original scheme postulated a settlement with SBI Home Finance in the following terms:

(i) The Company is entering into a settlement with SBI Home Finance whereby the company shall

(A) pay Rs.2.9 crores to SBI Home Finance by 30th October,2000, and

(B) issue shares worth Rs.45 lacs (at a premium of Rs.20) to SBI Home Finance within 90 days of the Effective date.

(ii) Immediately upon receipt by SBI Home Finance of the payment mentioned in A above, SBI Home Finance will release the title deeds of the NBCC building.

(iii) Within one week of the release by SBI Home Finance of the title deeds of the NBCC building, the company shall file the requisite discharge certificate and forms with the Registrar of Companies, Delhi for satisfaction of the charge.

15. The modified scheme pertaining to SBI Home Finance reads as follows :

(i) The Company has entered into a compromise settlement and a consent decree has been awarded by the Delhi High Court in Civil Suit No.234 of 2000 'SBI Home Finance Ltd. Vs. DCM Financial Services Ltd. And another'. Pursuant thereto the company has agreed to :-

(A) pay Rs.2.90 crores to SBI Home Finance on or before 31st March,2001 under a monthly schedule of payments commencing from December,2000; and

(B)discharge the sum of Rs.25,00,000/- by issuance of equity shares of the face value of Rs.10/- in accordance with the terms of the scheme, at the rate as approved from all secured creditors and unsecured creditors pursuant to the scheme within 90 days of effective date.

(ii) Upon the receipt of the sum of Rs.2.90 crores as above by SBI Home Finance Ltd., the immovable property mortgaged comprised in the NBCC Building and owned by the company, shall stand released without any further act or deed on the part of either SBI Home Finance Ltd. or the company, and the mortgage shall stand discharged, be enabled to sell the same for achieving the cash flow streams as set out in clause 6 in Chapter I herein above.

(iii) Subsequent to (ii) above, the company shall be permitted to file the relevant forms with the Registrar of Companies, Delhi and confirm the discharge by certifying, for the purposes of satisfaction of charge.

(iv) In the event of default in payment of Rs.2.90 crores on or before 31-3-2001 in terms of the consent decree, the entire suit amount of Rs.4.07 crores together with pendente lite and future interest @ 22% p.a. And costs shall become due and payable.

In so far as fixed depositors etc. and debenture holders are concerned, there is no major change between the original scheme and the modified scheme, except for the addition of two new Clauses in the modified scheme. The relevant portion of these Cl uses (to the extent they are objected to in this Court) read as under :

(V) For any delay in payment on due date to the fixed depositors under this scheme, they shall be entitled to receive delayed interest at the rate of 10% p.a. for any delay in payment on due dates, in accordance with the due dates as provided n the Scheme. Default interest, if any, as above, as computed in accordance with this rate, shall at the end of each 30th June be aggregated, and shall be subject to conversion into equity shares in accordance with the SEBI formula applicable for pring for preferential issuance as prevalent at the relevant time. The Board of Directors shall -- - - - - amount due.

(VI) The Company shall ensure that adequate authorised capital is available for conversion of interest in arrears to equity and shall, if required, pass appropriate resolution from time to time for increasing its authorised share capital, if the nee arises.

16. As regards the banks and institutions, a huge change has been made in the modified scheme. In fact, it was submitted by one of the creditors that to this extent, the change was not a modification but a substitution. . The original scheme postulated a debt settlement with banks and institutions in the following terms :-

The amounts due as on 30th September,1997 together with simple interest payable @ 10% per annum on the principle debt for the period 30th September,1997 till 21st March,2000 as adjusted for any payments made during the period shall constitute the entire debt owed to such banks/ institution. The payment of such amounts (the debts) will be made as follows :

(i) Within 90 days of the effective date, on approval of the scheme the banks and institutions will be paid 15% of the amount computed as above.

(ii) Within 180 days of the effective date, on approval of the scheme the banks and institutions will be paid 10% of the amount computed as above.

(iii) Within 730 days of the effective date, on approval of the scheme the banks and institutions will be paid 25% of the amount computed as above.

(iv) Within 3 years of the effective date, on approval of the scheme the banks and institutions will be paid 25% of the amount computed as above.

(v) Within 4 years of the effective date, on approval of the scheme the banks and institutions will be paid the residual 25% of the amount computed as above.

17. The present security of receivables and current assets of the company will continue to secure payments to be made to the banks/institutions as above. However, on final payment as above, the security shall stand released and debt shall stand satisfied . In other words, the settlement with the three banks and institutions was uniform. However, in the modified scheme, these banks and institutions have been segregated into two categories, that is, SIDBI (on the one hand) and PSB and IndusInd Bank on the other.

18. The basic settlement with SIDBI remains the same as in the original scheme.

19. However, in so far as PSB and IndusInd Bank are concerned, the original scheme is completely given up. Instead, about two and a half printed pages of a totally new and different scheme is propounded. The modified scheme, in so far as it relates t o PSB and IndusInd Bank is concerned, has no relation or connection whatsoever with the original scheme. The modified scheme pertaining to these two banks is too vast for quotation and so is not being incorporated in this judgment. Suffice it to said that a completely new scheme is formulated by the company with respect to PSB and IndusInd Bank.

20. The original scheme with M/s Pressman Leasing remains virtually unchanged (except for the amount of the debt and the installments for clearing this debt). There is, however, an addition in the modified scheme in Clause (i) pertaining to M/s Pressman Leasing. The original arrangement with the "further" arrangement reads as follows :

Further, equity shares of the face value of Rs.10 each shall be issued to them at the issue price of Rs.30 per share or at any other price as approved pursuant to the scheme for the aggregate value of Rs.8 lacs. Such allotment and delivery of the . Chapter III is the final Chapter in the modified scheme. This contains some general terms and conditions.

21. Looking at the modified scheme as a whole, it was submitted on behalf of the company that there is sufficient material to show that the modified scheme will be duly and faithfully implemented. It is said that the Chartered Accountants are of world-wide repute and will file a report on the implementation of the modified scheme, semiannually, in this Court. The Chartered Accountants will also operate a no-lien escrow account in the name of the company into which account the Company's receipts ill be deposited and payments made for the purposes of the modified scheme. Monitoring of the modified scheme will be with the assistance of Canara Bank (or any other scheduled bank). This court can also supervise the implementation of the modified scheme and take care of any grievance of any aggrieved creditor.

22. According to the company, there is enough cash flow available for repayment of the debt. It was submitted at the Bar, that the accounts with SBI Home Finance have since been squared up. Consequently, an asset worth Rs.13 crores is available because the NBCC Building, which was mortgaged to SBI Home Finance has since been released. The Company has receivables of Rs.36 crores, the promoters are putting in Rs.16 crores in cash in terms of equity shares besides underwriting up to Rs.5 crores in t e event of a shortfall in the projected cash flow. They are also giving up the unpaid dividend on their equity shareholdings. The company will engage itself in the business of information technology, which undertaking has already generated order of Rs.60 lakhs which are under execution. The company expects a cash infusion or cash availability of about Rs.33 crores from the new project. In other words, the total funds available to the company are about Rs.103 crores while the total payable to the creditors on the sanctioning of the modified scheme would be only Rs.84 crores.

23. The banks, particularly PSB and IndusInd Bank have accepted (or at best not opposed) the modified scheme. These banks have agreed to forgo huge amounts due towards interest and have agreed to invest in the shareholding @ Rs.30/- per share. As regards the "small creditors", it was submitted that they are classified as fixed deposit holders, debenture holders and, ICD lenders (where the principle amount is Rs.5,000/- or less). They will be paid their principal amount in its entirety within 9o It is thus apparent that the modifications in the scheme are substantial. It is true that inspite of unsecured creditors save and accept Pressman Leasing Ltd., modifications appear to be minimal, but that, in our opinion would be wholly irrelevant in the view we have taken that it is mandatory to circulate the explanatory statement accompanying the notice and to explain the scheme. We may also note that in the modified scheme, benefit by way of payment of interest for delayed payment to the unsecured creditors has been incorporated, but as would be evident from our discussion in respect of the second ground held against the appellant by the learned Company Judge, the same is an illusory benefit. The second ground on which the learned Company Judge has faulted the scheme is the valuation of the share of the face value of Rs.10/- at a premium of Rs.20/- per share. As per the modified scheme, 50% of the amount lying in deposit to the unsecured creditors having a deposit above Rs.5,000/- is to be repaid in cash in the manner indicated in the scheme and the remaining 50% is to be converted into equity. Grievance of the unsecured creditors was that as such, the benefit of interest accruing on their deposit is being deprived to them since the year 1996 i.e. about seven years, and on the face value of the deposit the repayment by issue of equity shares is illusory, inasmuch as the value of the share of the company does not command any value today, nor in the near future is there any likelihood of increase in the value of the share. Objectors thus contended that effectively under the scheme, the unsecured creditors are being paid about 20% of their deposit, as against the secured creditors and one unsecured creditors, namely, Pressman Leasing which were getting their dues in substantial measure. Indeed at the Bar, learned senior counsel appearing for the company could cite no material to justify the value of the share at a premium of Rs.20/-. His only argument was that the promoters of the company, secured creditors and even Pressman Leasing was ready to have shares allotted to them at the same premium in respect of their dues. It was argued that the said company and secured creditors were prudent businessmen and this was an important factor while considering the value put on the share. The said argument appears attractive at the first blush, but a second look shows how hollow the same is. SBI Home Finance, a secured creditor, is being repaid Rs.2.9 crores with interest under the agreed schedule. A sum of Rs.25 lakhs is being converted into equity. SIDBI, another secured creditor would be getting the entire amount due. Punjab and Sind Bank would likewise receive the amount under the scheme in money value. Only the interest accumulated on the deferred payment would be converted into shares. Same is the position with IndusInd Bank. Having received a major part of the dues in money value, merely because the secured creditors agree to take a part of their dues by way of equity in the company, in our opinion, would be no ground to hold that there is adequate material to justify valuation of share of the company at Rs.30/- per share. In our opinion, a compromise requires give and take. It envisages surrender of right, but the surrender cannot be substituted with subjugation. Following observations of BOWEN LJ in Alabama, New Orleans, Texas and Pacific Junction Rly.Co. (1891) 1 Ch. 213 may be noted : compromise must be a compromise which can, by reasonable people conversant with the subject, be regarded as beneficial to those on both sides who are making it..... It would be improper for the Court to allow an arrangement to be forced on any class o creditors, if the arrangement cannot reasonably be supposed by sensible business people to be for the benefit of that class as such, otherwise the sanction of the court would be a sanction to what would be a scheme of confiscation. The object of this section is not confiscation. It is not that one person should be a victim, ands that the rest of the body should feast upon his rights. Its object is to enable compromise to be made which are for the common benefit of the creditors, or a class In the view we have taken, it is not necessary for us to deal with the fourth submissions made by learned senior counsel for the appellant, which submission flows out of the judgment of the Supreme Court in Miheer Mafatlal case (supra). Though the learned Company Judge has made certain observations in the impugned judgment on various other issues, but has drawn no adverse conclusions against the appellant and has expressly recorded in the judgment that he was noting the same for the purposes of record and leaving the discussion as such, we have refrained ourselves from going into the merits or demerits of those observations in view of the fact that no conclusions were drawn by the learned Company Judge from those observation . In view of the reasons stated above, we find no merits in the appeal. The same is accordingly dismissed. . . . .