In Re : Dcm Estates And ... vs Unknown
2003 Latest Caselaw 1090 Del

JUDGMENT

Mukul Mudgal, J.

1. This petition filed under Section 391 and 394 of the Companies Act (hereinafter referred to as 'the Act') seeks the sanctioning of the Scheme of Restructuring of the petitioner company, i.e., DEIL. In May, 2000, an application, CA 829/2000 was filed by the petitioner company for convening the meetings of shareholders and creditors of the company for approving the Scheme of Restructuring.

2. As per the prayer made in C.A. No. 829/2000, on 26th May, 2000, this Court directed the convening of meetings of secured creditors, unsecured creditors & shareholders on 14th July, 2000. 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 way of the prescribed publication in Statesman and Veer Arjun. By the Reports dated 11th October, 2000, both the Official Liquidator and the Regional Director, Department of Company Affairs have not indicated any objection to the proposed scheme.

4. On 15th March, 2001, the Court recorded a statement of Gruh Finance, a secured creditor of the company that it had no objection to the scheme subject to the continuance of the existing charge in its favor. HDFC, another secured creditor also filed an affidavit on 15th March, 2001 recording its unconditional support to the two resolutions moved on 14th July, 2000. Then on 25th April, 2001, the IFCI, another secured creditor, also got recorded its no objection to the scheme.

5. The reasons which led to the forwarding of the scheme propounded by the applicant company are as under:-

(a) The proposed Scheme of Restructuring (in short 'the Scheme') was occasioned by the delay and stoppage of work on the real estate project of the Petitioner Company where substantial investments had been made, causing tremendous burden on the cash flow of the Company;

(b) Originally the company was promoted by M/s DCM Limited, holding 25% shares today, to undertake the business of real estate development, construction and maintenance of industrial estates;

(c) The Company had acquired bulk rights in properties at Bara Hindu Rao, owned by M/s DCM limited at market prices and were selling these rights to the retail customeRs.

(d) In December, 1995, Tiara Investments Holdings Limited, Mauritius ('Tiara') which was formed by Thakral Investments Ltd., First Capital Corporation Ltd. and Khattar Holdings Pvt. Ltd. invested Rs. 70.20 crores in the petitioner company and presently holds 32.5% of the equity of the Petitioner Company.

(e) The operations had been commenced by the petitioner company in March, 1994 which since acquired rights to sell residential flats and factories of the site being acquired by the company to the extent of 11.75 lakhs sq. ft. out of 66.53 acres.

(f) The project was undertaken to be redeveloped by building Flatted Factories by DCM Ltd., that is DCM Technoplaza and Residential Apartments. All these formed the real estate project:

(g) Accordingly these rights were acquired on a total consideration of Rs. 251.17 crores out of which Rs. 141.47 crores, already stood paid. Since M/s DCM Ltd. is still an unpaid vendor to the extent of Rs. 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/Kishenganj 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 fulfilllment of the obligations to the customers/flatbuyers;

(k) The scheme accordingly envisages the revival and restructuring of the applicant Company.

6. The salient features of the scheme are as follows:

(a) Restructuring of the company by developments of the real estate project of the M/s DCM Ltd., at the Bara Hindu Rao site by purchase of the balance development rights from M/s DCM Ltd for a consideration of Rs. 288.2 crores (including existing dues of Rs. 109.70 crores owed to M/s DCM Ltd);

(b) This consideration of Rs. 288.2 crores is to be repaid in installments spread over for a period of six years and shall be used by the DCM to repay its debts;

(c) Under the present Scheme and under the Scheme of Restructuring and Arrangement of DCM (as per CP Nos. 247-248 of 2000), DCM would convey to the Company all rights in freehold and leasehold lands at the site so as to construct, develop and sell subject to pre-existing sale agreements, without any encumbrance, lien, charge or other liability, except the liens and mortgages already existing in favor of the Creditors of the Company and the Non-Convertible Debenture Holders of DCM;

(d) Tiara would be granted majority stake in the Company by subscribing to 2.6 crores in equity shares in cash at part, and will accordingly become a majority shareholder of the Company enhancing its shareholding from the existing 32.5% to 59%;

(e) Consequently the development construction and sale of the real estate project would effectively be taken over by Tiara in view of its majority stake after the restructuring of the Company.

7. The scheme also envisages restructuring of the debt in the following manner so as to repay its debts owned by the company to various creditors:-

(a) There are 6 Banks and Financial Institutions (HDFC, ICICI, IFCI, Gruh Finance, Canara Bank and SBI Home Finance), who are creditors. The other creditors are : DCM Ltd. and Focus Estates Pvt. Limited.

(b) The Financial Institutions and Banks have been given two options for settlements of their debts as per Clause 21 of the Scheme, and the option is to be exercised within 45 days from the date of sanction of the Scheme.

(c) The Option I involved restructuring of loan in such a way that the contractual rate of interest (other than penal and interest on interest) and Principal Loan due as on 31st March, 1998 is to be paid in three equal installments in the 36th, 48th and 60th month from the date of commencement of construction at the site. The 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 overwhelmingly voted upon and approved the present scheme. It is also submitted that all the statutory procedures prescribed under Section 391 and 394(4) of the Act and the Company Court Rules 1959 have been followed. There have been no objections raised by the Official Liquidator and the Regional Director, Kanpur to the present scheme.

The results of the meeting of the shareholders given by the Chairman appointed by this Court indicated as under:-

"Shareholders representing 100% of the share represented at the meeting voted in favor of the Resolutions, Shareholders representing NIL% of the shares represented at the meeting voted against the resolutions. Shareholders cast NIL invalid vote. Copies of the Counting Scrutinee and Report Sheet, polling papers and all other related papers are annexed. On the basis of the aforesaid results of the voting, the chairman declared that the Resolutions proposing the modification and the amended Scheme of Restructuring were carried and approved by the Shareholders by special majority."

The result of the meeting of the unsecured creditors indicated by the Chairman appointed by this Court indicated as under:-

"7. That thereupon the proposed two resolutions for amending Clause No. 20(xvi) of the Scheme and the Scheme of Arrangement of the Company with modification, were put to vote by poll.

There were 28 participants who cast their Vote and passed the Resolution for modification. While there were 29 participants who cast their vote for "Scheme of Arrangement". There was one dissenting vote for second Resolution.

8. That the Attendance Sheet and Slip of the Unsecured Creditors Along with their Authority, Letters/proxies, Polling papers and the Poll Result are being annexed hereto in Original.

9. That I also appointed two, "Scrutineers" namely Mr. Ajay Khanna and Mr. M.G. Aneja who scrutinized the Votes given on poll.

10. That the proposed modification for amending clause No. 20 (xvi) of the Scheme as well as the modified "Scheme of Restructuring" were approved by the Unsecured Creditors of the Company and both the Resolutions were passed in favor of the proposed scheme."

The result of the meeting of the secured creditors have been by excluding and including DCM Ltd., and Focus is graphically set out as follows:-

"Voting Pattern without 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

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

2330202443

9. The position of law relating to the powers and obligations of a Company Court under Section 391 to Section 394 of the Act has been judicially determined to be as under:-

(a) In United Bank of India Ltd. v. United India Credit and Development Company Ltd. (1977) 47 Com. Cases 689 it was held that while exercising the discretionary power of the Company Court to sanction a scheme, it must be viewed as a whole by taking into consideration the objective of the scheme and surrounding circumstances and the Court must take into view the local conditions. The Court must honour the collective wisdom of shareholders and is not required to analyze the impact or potential of the scheme clause-wise;

(b) In Re Cotton Agents Rajasthan Ltd reported as (1969) 39 Company Cases 663 (Raj), at Page 663, Piramal Spinning and Weaving Mills Ltd 1980 (50) Company Cases 514 (Bomb) and in the matter of Nayug Investments Ltd (1993) 3 Company L.J., 305 (Del) it has been held that when after notice to shareholders and other concerned, the scheme has been approved and no objection filed, the scheme should be considered by the Court to be fair to all concerned;

(c) In Vadlamudi Rama Rao v. Asian Coffee Ltd 2000 CLC 1356 (AP), it was held that once financial institutions approved the scheme of amalgamation by an overwhelming majority, the Court cannot at the instances of the members of the Company enter into a role of a fault finder;

(d) In Ucal Fuel Systems Ltd. reported as (1992) 73 Com. Cases 63 (Mad) @ 73, the Court held that a unanimous decision of the shareholders ought not be lightly interfered with;

(e) In Shankarnarayna Hotels v. Official Liquidator 1992 (74) Com. Cases 290 @ P. 299-300 and Kamla Sugar Mills Ltd reported as (1984) 55 Com. Cases 308 (Mad) @ P. 73, it was held that a Company Court in its discretionary jurisdiction must take a overall view of the scheme to find it fair and reasonable and if a scheme of amalgamation benefits both companies and affairs of the companies are not conducted contrary to interest of the members of the companies and public interest, the determination of commercial merits and demerits of the scheme is not the domain of the Company Court particularly when the collective wisdom of the shareholders has been expressed in favor of the scheme and

(f) In Cetex Petro Chemicals Ltd reported as (1992) 73 Com. Cases 298, 311 and 313 (Mad) it was held that it is for the members of the company to judge the benefits of a scheme and not for the Company Court.

10. In Miheer H. Mafatlal v. Mafatlal Industries Ltd. reported as [1996] 87 Company Cases 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 the court gets satisfied about the same ; 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. The company court has also to satisfy itself that the 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 the same class whom they purported to represent. The scheme as a whole must also be 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.

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 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."

11. In the case of Maneckchowk and Ahmedabad Manufacturing Co. Ltd. [1970] 40 Company Cases 819 in a comprehensive and exhaustive summation of law under Section 391-394 of the Act, the Gujarat High Court held as under:

"............(i) The court in exercising its discretion in sanctioning a scheme of compromise with members and creditors under Section 391(2) of the Companies Act, 1956, must treat it as cardinal that its function does not extend to usurping the view of the members or creditors. It must look at the scheme to see that it is a reasonable one and, while so doing, the court will be strongly influenced by a big majority vote and the reasons which actuated the contesting creditors in opposing the scheme. None the less it is essential that the scheme must be a fair and equitable one, though it is none of the business of the court to judge upon the commercial merits which in fact is the function of the creditors and membeRs.

(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., 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) whether the class or classes have been fairly represented; and (c) whether the arrangement is such as a man of business would reasonably approve."

........

(vii) A very general statement that there are several acts of mismanagement which must be investigated in winding up proceedings is rather vague and

(viii)

.....

(xi) If the holders of the preference shares meet in a meeting separate from the meeting of the ordinary shareholders and in each meeting the proposal for further issue of shares was considered and voted upon by a majority of 75 per cent of members present and voting, it can be said that the special resolution has been adopted. What is of the essence of the matter is that the persons affected must have an opportunity to consider the proposal and deliberate together. If the deliberations are carried on by two distinct classes having distinct interests separately it cannot be said that the proposal has not been considered in a general meeting. A too narrow and strict view may necessitate first convening the meeting of two classes together and then for the purpose of the scheme separate meetings of each class. It would be idle formality.

...............

(xxi) It is always a moot question what constitutes "a class" of creditors. The creditors comprising the different classes must have different interests. When one finds a different state of fact existing among different creditors which may differently affect their minds and their judgment, they must be divided into different classes. "Class" must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. In order to constitute a class, members belonging to the class must form a homogeneous group with commonality of interest.

(xxii) Even if there are different groups within a class, the interests of which are different from the rest of the class or who are to be treated differently in the scheme, such groups must be treated as separate classes for the purpose of the scheme. Broadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. The group styled as a class should ordinarily be homogeneous and must have commonality of interest 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 Rs. 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 part of clause (a) of section 393(1) will be fully complied with.

..............

(xxx) The court has power at the time of making an order sanctioning the scheme under section 392(1)(b) to make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. This power can be exercised not for substituting the scheme as approved by the creditors and members but for making the scheme of compromise and arrangement effective and workable. In other words, the court can modify the scheme of compromise and arrangement so as to make it effective and workable."

12. In Tata Oil Mills Co. Ltd. and Hindustan Level Limited, reported as [1994] 3 Company LJ 46 (Bom), the Bombay High Court held as under:

"The role which the court has to play, before according its sanction under section 391(2) of the Companies Act, 1956, is more vital and potent; it is not only an inquisitorial and supervisory role but is also a pragmatic role which requires the forming of an independent and informal judgment as regards the feasibility or proper working of the scheme and making suitable modifications in the scheme and issuing appropriate directions with that end in view.

The scheme as approved by shareholders and creditors of both the companies has to be scrutinised by the court. The court, apart from the above, must also take into consideration the public interest and the interest of the employees of the two companies to ensure that they are not adversely affected by the scheme and that adequate provision is made for them. This is because this class of persons affected by the scheme has no locus standi in the meeting and the judgment of the majority in their regard need not necessarily be of a great value of a safe guide. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting; but, at the same time, the court will also be slow to differ from the meeting, unless either a class has not been properly consulted, or that the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme....."

13. In the matter of Rangkala Investments Ltd. reported as [1997] 89 Company Cases 754 (Guj), the Gujarat High Court held as under:

"............It would be permissible 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 [1994] 80 Company Cases 289 (Bom), 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 put to avoidable, unnecessary and cumbersome procedure of making repeated applications to the court for various other alterations or changes which might be needed effectively to implement the sanctioned scheme whose overall fairness and feasibility has been judged by the court under section 394 of the Act."

15. In the matter of Aradhana Beverages and Foods Company Limited reported as [1998] 93 Company Cases 899 (DEL), it was held by this Court as under:

"Unless the court is of the view that the proposed merger between the companies is for evading the law or is manifestly unfair and would defraud the shareholders and creditors, the company court will not interfere with a scheme of amalgamation. The shareholder and creditors are better equipped to guage the value of their shares with reference to market trends and if they have approved the amalgamation, the Regional Director cannot be heard to say that the merger would not be in the interest of the shareholders and creditors and consequently in public interest. In a given case, the interest of the shareholders may or may not be synonymous with the public interest."

16. The position of law in respect of the sanction of a scheme in respect of arrangement or compromise has also been dealt with in S.M. Holding Finance Pvt. Ltd. v. Mysore Machinery Manufacturing Ltd. (In liquidation) [1993] 78 Company Cases 432 wherein it has been held as under :

"Where sanction of the court for a scheme of arrangement or compromise is sought under section 391 of the Companies Act, 1956, the court must look at the scheme and see whether the Act has been complied with, whether the majority is bona fide and whether the scheme is a reasonable one or whether there is any reasonable objection to it or such an objection to it that any responsible person might say that he could not approve it. A reasonable compromise will be a compromise which can be regarded by reasonable person conversant with the subject as beneficial to those on both sides who are making it. On a proper reading of section 391, it is clear that the object of the section is not confiscation. Although in a meeting held under this section it is perfectly fair for every one to do and express what is best for himself, the court has to see what is reasonable and just as regards the interest of the whole class. What is to be considered by the court is not whether there is a loss of mere nominal, legal rights but whether what has been done is beneficial in a business sense."

16-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] 2nd 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. Secondly, written resolutions instead of those passed in meetings are now capable of being registered, e.g., section 192 of the Companies Act. Thirdly, the doctrine of lifting the veil of incorporation and looking at the reality of the action of the members enables the court to hold that consent of the overwhelming majority of the shareholders outside the meeting is sufficient to show that the resolution was supported by virtually all the members of the company. In these three ways substantial compliance rather than formal compliance meets the requirements of the statute."

In the said decision, it is further observed as follows:

" A third exception to the rule that all the shareholders of a company must cast their votes in a formally called meeting is made by the doctrine of acquiescence. If all the shareholders acquiesce in a certain arrangement, the question of a meeting having been called does not arise at all."

In the backdrop of this decision as well as on proper interpretation of section 391(2) which is not mandatory, but directory and there has been substantial compliance that three-fourths value of the unsecured creditors have agreed to and approved the scheme, the contention of the objector that there was no proper compliance with the Act and that the court has no jurisdiction to sanction the scheme will have to be rejected. As already noticed, once the scheme is held to be reasonable and proper, merely because there is one objector to the approval of the scheme, who is none other than the sole dissenter, the court should not refuse to sanction the scheme. What the court could do in such circumstances is to give protection to the dissenter, by amending the scheme. The above views of mine receive support from Palmer's Company Law, volume 1, twenty-third edition, para 79-13, which reads :

"...... The court will not, however, upset a scheme for minor irregularities, as where consent of a class has been subsequently obtained, and where the necessary majority of one class was absent when the petition was presented, the court allowed a fresh petition to be presented subsequently when the necessary majority was later obtained, without requiring the other class meetings to be held again."

Thus not only the Karnataka High Court in the above judgment, but also this Court in Mazola's Theatres (P) Ltd. 's case (supra) have 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 creditors of the class, all the members, or all the members of the class, 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."

This provision contemplates approval of the scheme by three-fourth majority in value of the creditors and all members present and voting at the said meetings. As evident from the reports filed by the independent Chairpersons, the results of the meetings indicate that a majority exceeding the requisite majority as per Section 391(2) have approved the proposed Scheme. The O.L. & the Regional Director, Kanpur have not raised any objection to the scheme. Consent of one of the secured creditor, Gruh Finance has been recorded on 15th March, 2001 and the statement of IFCI another secured creditor has been recorded on 25th April, 2001 by this Court. DCM Technoplaza & Green Acres Flatbuyers' Association had raised objections by moving an intervention application. However, on 10th May, 2003 the disputes raised by the aforesaid Association were settled & amicably resolved. Consequently the said settlement was filed in this Court by way of CA.618/2003 in this petition and was taken on record and an affidavit incorporating the company's willingness to extend the terms and conditions of the agreement dated 10th March, 2003 to such flatbuyers (non-members of Association) who had entered into a provisional bookings and arrangements originally with K.N.A. and/or Ansals and/or with the petitioner Company and/or with DCM Ltd., provided such flatbuyers signed the requisite amended Bookings/Agreements/Arrangements in order to incorporate the terms and conditions of the settlement dated 10th May, 2003 to their original provisional bookings/Agreements/Arrangements. While taking this settlement on record, it is made clear that the company will remain bound by the terms of the settlement as incorporated in CA 618/03 and the affidavits dated 21st May, 2003. The summary of the scheme has been enumerated in this order. The only surviving objection has been raised in C.A. 1306/2001 by SBI Home Finance.

18. In CA 1306/2001 the SBI Home Finance (S.H.F. for short) through its counsel Shri S.L. Gupta has contended that:

(i)Rs. 5 crores were advanced by S.H.F. to DEIL and it secured the said loan by mortgage of land & building of DCM Limited 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 is a secured creditor of DEIL for the sum of Rs. 109.62 crores. It has also been submitted that even it was assumed that the DCM was not a secured creditor of DEIL, it would not make any material difference to the present scheme as consents have been given by HDFC, IFCI, ICICI Bank and Gruh Finance as recorded in the Order dated 15th March, 2001 in the case of Gruh Finance and 25th April, 2001 in the case of IFCI and as per the affidavit dated 15th March, 2001 by ICICI and HDFC and by a consent letter of the Canara Bank.

20. It is submitted that as per the judgment of S.M. Holding Finance Pvt. Ltd v. Mysore Machinery Manufacturers 1993 Vol.78 Com. Cases 432 even consents given after the meeting by creditors/members would be valid. It was also submitted that these consents constitute 93.11% in value and 5 out of 6 in numbers of the entire body of the secured creditors that have approved and consented to the present scheme instead of the requisite statutory requirement of 3/4th in number and value of the creditors present in voting.

21. In reply to the SHF's plea that the balance sheet of DEIL as on 31st March, 1999 does not reflect the DCM as secured creditor, it is submitted by the counsel for the DCM that the figures shown are in respect of secured loans. DEIL has not taken a loan from DCM but has an obligation to pay the balance unpaid consideration to DCM. From CA 980/2000, it is clear that in entries relating to current liabilities of DEIL as on 31st March, 1999 under the heading "dues of other than small-scale industrial undertakings" an amount of Rs. 109.7 crores have been shown as a liability of DEIL. This liability of DEIL to DCM thus figures in the accounts.

22. In reply to the SHF's plea that the DCM in fact is a debtor of DEIL instead of being its creditor as per MOU dated 21st September, 1994, it has been submitted that the clause 1 as well as clause 4 of the MOU which are extracted below demonstrate that the DCM has already carried out obligation under the MOU and since the area in question has been allotted to DEIL, and therefore, DCM cannot be a debtor of DEIL:-

"1. DCM hereby offers to sell, out of its total shares, 270, 000 sq. ft. (approximately) in DCM Green Acres and 350000 sq. ft. (approximately) in DCM Techno Plaza to DEIL on the terms and conditions hereinaftr stated below-

The offer shall be open up 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 Rs. 3 crores to DCM. Out of this, Rs. 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 plea of the SHF's 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, it is submitted by the company that there was no guarantee given by DCM or by Indian promoters of DEIL in respect of the financial facilities availed by DEIL from the objector. Consequently the said clauses, i.e., clauses xiv and xv cannot in any manner harm or prejudice the interests of the objector. It is further submitted that in any event these clauses do not prejudice the interests of any other creditors who have already given their consents to the scheme as the security for the loans availed from them by DEIL was the charge held by each of these banks and financial institutions on a pari passu basis. Further security is provided by the fact that the DCM under clause 12 has also undertaken not to dispose of its shareholding in DEIL until the completion of the project in line with the commitment of the Tiara to DEIL creditors and until DEIL creditors are paid under the scheme. It is further submitted that the mortgage on the freehold land constructed/to be constructed will remain with the financial institutions and the banks as security for the loans advanced by them. Therefore, the above clauses and the release/withdrawal of guarantees contemplated under the scheme do not prejudice any of the creditors of DEIL as all of them, barring SHF have already approved the scheme containing these clauses.

24. In answer to the plea of the SHF that the scheme was meant to avoid the payment of stamp duty as DCM and DEIL were attempting to transfer their land without payment of stamp duty, it is submitted that the present Scheme of Restructuring and Arrangement, there is no conveyance of land and title and that when the development is complete, title in each individual flat will be conveyed to the flat buyers by an agreement/deed which will be duly stamped. Consequently no stamp duty is payable at this stage. In any case this Court has power under Section 391 to 394 of the Act to transfer land under the Scheme of Arrangement/Amalgamation

25. In answer to the plea of the SHF that the banks and financial institutions like HDFC, ICICI, 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 Rs. 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 Rs. 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 Rs. 12.28 crores payable under the DCM's Scheme of Restructuring and Arrangement but its stake in DEIL is much more and is Rs. 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 answer to the plea of the SHF that the DEIL has not disclosed the source of cash needed to make the present scheme workable, it has been submitted that a detailed chart at internal page 11-12 of the scheme demonstrates the inflows and the outflows from DEIL from first to the sixth year from the date of the sanction of the scheme.

28. In answer to the non-disclosure of the latest financial position as mandated under Section 391(2) of the Act, it is submitted that the latest annual report of the DEIL for the year 2000-01 and 2001-02 have already been given to the Court on 13th November, 2002.

29. So far as plea of SHF that the majority in the meeting of the secured creditors was manipulated is concerned, subsequently during the proceedings in this Court IFCI HDFC, ICICI Bank and Gruh Finance have recorded their consents to the scheme. Whatever be the merit of the SHF's plea in view of the position of law laid down in SM Holding Finance Pvt. Ltd's case (supra), such consents even given after the meeting are valid as per the said judgment and consequently such consents constituting 93.11% in value and 5 out of 6 in numbers comply with the statutory requirement. Accordingly this plea of SHF is not sustainable.

30. In so far as the SHF's plea that the current bookings rates make the project non-viable, this is a decision for the shareholders and the creditors to take. In view of the position of law as enumerated in this judgment, it is not for this Court to substitute its commercial wisdom for that of the concerned parties, i.e., shareholders and the creditors. Accordingly, this plea of SHF also cannot be sustained.

31. In so far as the plea that DEIL is not experienced in the real estate business and that the real estate market is at a low ebb is concerned, this is also a matter of commercial wisdom of the shareholders and the creditors and since they have exercised their franchise in favor of the scheme by a substantive majority, this Court cannot substitute its own judgment for those of the concerned parties. Accordingly, this plea cannot be sustained.

32. Similarly, the pleas about DCM being in breach of its contractual obligation and not being in a position of an unpaid vendor and the differential rate of interest to the secured creditors at the 10% and 12% by the DCM is concerned, this again has been accepted by financial institutions and the 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 guarantee given by DCM or Indian promoters of DEIL in respect of the financial facilities availed by DEIL from the objector. In my view, SHF can only plead its own cause because all other secured creditors have accepted the scheme. I am only required, therefore, to consider the interests of the SHF in respect of its loan to DEIL and the release, if any, of the guarantee by the DCM and personal guarantees given by the Indian promoters for such loan.

35. Clauses (xiv) and (xv) read as under:-

"xiv) The guarantees given by DCM for loan to DEIL will lapse and any shares pledged by DCM on behalf of DEIL for loans availed by DEIL will also be released to DCM after sanction of the scheme of restructuring of DCM and DEIL by the Hon'ble High Court and on DEIL receiving vacant possession of lands specified in Schedule IV of MOU;

xiv) Similarly, the personal guarantees given by the Indian promoters primarily for loans taken by DEIL shall be allowed to be withdrawn on approval of the Scheme of Arrangement/Restructuring of DEIL. Any shares pledged by the Indian Promoters or their associate companies on behalf of DEIL for loans availed by DEIL will also be released to the promoters after sanction of the scheme of restructuring of DCM and DEIL by the Hon'ble High Court and on DEIL receiving vacant possession of lands specified in Schedule IV of MOU."

36. I am of the view that since the other secured creditors who have already accepted the scheme, SHF's plea as to the release of guarantees cannot be considered in so far as the other secured creditors are concerned. However, the learned Senior Counsel for the DEIL Shri C.S. Vaidyanathan has submitted that in so far as SBI Home Finance (SHF) was concerned, the following securities were given by DEIL:-

"a. Demand promissory note for Rs. 500 lacs in favor of SBI Home Finance Limited.

b. First mortgage of entire freehold land owned by DCM Ltd., and construction thereon, present and future, situated at Kishanganj and Bara Hindu Rao, Delhi.

c. The mortgage referred to above shall rank pari-passu with mortgages to be created in favor of participating lending Institutions/Banks for their proposed term loans.

d. Equitable mortgage of flats, present and future, held by the company, on pari-passu charge basis.

e. A lien on the receivables of the company against the sale of said flats.

It is, therefore, 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) payment of debts through installments spread-over within six years;

(c) acquisition of freehold and leasehold rights to construct, develop and sell, subject to pre-existing sale agreement;

(d) development of the entire project including leasehold and freehold properties and purchase of rights of unsold units, subject to pre-existing sale agreements;

(e) acquisition of a majority stake by Tiara to the extent of 59% of the equity;

(f) the construction development and sale by Tiara as a majority stakeholder;

(g) the debt resettlement conciliation, restructuring and the 2 options for settlement of the debts of the banks and financial institutions as per Clause 21 within 45 days of the sanction of the scheme;

(h) secured loan is to be restructured so that the outstanding interest at contractual rate and principal loan due as on 31st March, 1998 (minus penal interest and interest on interest) is paid in three equal installments in the 36th, 48th and 68th month from the date of the commencement of the construction at the site;

(i) the amount payable is to be bifurcated in three installments and into interest bearing loans and zero coupon bonds where all secured creditors will get equated returns;

(j) interest on interest bearing loan for the first 24th month is also to be paid in three equal installments in the 36th, 48th and 68th month from the date of the commencement of the construction at site;

(k) the second option provides to the banks and financial institutions to opt for equity and/or property and/or zero coupon Bonds in settlement of their dues.

39. The debt settlement will be paid in installments spread-over within a period of six yeaRs. The unsecured creditors i.e., flat buyers who have cancelled their bookings and such others whose debts will be settled from the first year of the operation of the company after the sanction of the scheme.

40. Thus it will be readily seen that the secured creditors of the company namely IFCI, Gruh Finance, ICICI, ICICI, HDFC, DCM Ltd and Focus Estates have granted their approval to the scheme. Canara Bank has also agreed to settle as per their letter dated 17th March, 2003. Furthermore there is no objection from any of the unsecured creditors of the company DEIL Ltd.

41. I am satisfied that

(a) The statutory procedure for holding the meeting and formulation of the scheme was complied with as per the requirement of Section 391(1)(a).

(b) It was approved by the requisite majority stipulated by Section 391(2).

(c) There was relevant and adequate material before creditors and members so as to arrive at a informed decision.

(d) Section 393(1)(a)'s requirement of placing relevant material before the voters at the statutory meeting under section 391(1) was complied with.

(e) Requisite material has been placed before the Court by the propounder of the Scheme under Section 391(2).

(f) There are no objections to the Scheme by any shareholder or unsecured/ secured creditor. The objections raised by the flat-buyers association have since been settled by virtue of orders passed in CA 618/2003 filed pursuant to a settlement dated 10th May, 2003. The only surviving objection is by SBI Home Finance Limited(hereinafter referred to as the `SHF') raised in CA 1306/2001 has already been dealt with separately.

(g) The Scheme is not contrary to any public policy nor does it violate any provisions of law.

(h) There has been no coercion of the minority by the majority of either the member or any class of creditors.

(i) Since financial institutions and banks save SHF have agreed to the scheme it is obvious that prudent men of business have found it viable commercially for the class of secured creditors.

(j) A living scheme like the present one approved by the vast majority, is preferable to compulsory liquidation.

(k) The majority view of the shareholders and the creditors have to be given weight.

(l) Neither the Regional Director, Department of Company Affairs nor the Official Liquidator attached to this Court have indicated any objections to the scheme.

(m) All the classes of creditors and members were fairly represented in the meetings.

42. I am, therefore, of the view that none of the objections to the scheme now survive and the scheme accordingly deserves to be sanctioned in view of the foregoing discussion. Company Petition No. 251/2000 therefore stands disposed of in terms of this judgment.