Scheme Of Revival Between M/S ... vs --
2010 Latest Caselaw 1823 Del

                 IN THE HIGH COURT OF DELHI

                 CA Nos.817/2009 & 1085/2009
                     in C.P.No. 154/2002


                       Reserved on 23rd December, 2009
                   Date of pronouncement: 8th April, 2010

 In the matter of
 The Companies Act, 1956:

 And

 Applications under Sections 391 & 394
 of the Companies Act, 1956

 Scheme of Revival between:

 M/s. Sunstar Lubricants Limited
                                      ...   Applicant Company
       AND

 its creditors
                            Through Ms. Meenakshi Arora,
                            Advocate for the applicant
                            Counsel for the Official Liquidator
CORAM:
HON'BLE MS. JUSTICE GITA MITTAL

       1. Whether reporters of local papers may be allowed to see
            the Judgment?                          Yes
       2. To be referred to the Reporter or not?   Yes
       3. Whether the judgment should be reported in the Digest?Yes

 GITA MITTAL, J.

1. By this judgment, I propose to decide CA No. 817/2009

filed on 25th May, 2009 whereby the promoters/erstwhile joint

managing directors of Sunstar Lubricants Ltd. have, inter alia,

prayed for recalling of winding up order dated 3rd December,

2003 and acceptance of the revival scheme of the company as

well as CA No. 1085/2009 dated 25th August, 2009 both filed

under Section 391(1) & 394 of Companies Act, 1956 by Shri

Ashok Bahadur praying for dispensation of the requirement of

the meeting of the creditors of the company under liquidation

for approval of the scheme.

2. M/s. Sunstar Lubricants Limited (hereinafter referred to as

'the Company') was originally incorporated on 19th December,

1988 with the Registrar of Companies, NCT of Delhi & Haryana

at New Delhi and commenced production on 19th January, 1989.

3. The company was promoted by first generation

entrepreneurs Sh. Uday Singh and Sh. Ashok Bahadur. At the

time of incorporation, the company had the following promoter

directors :-

(i)     Sh. Uday Singh

(ii)    Sh. Ashok Bahadur

(iii)   Sh. Naveen Chopra

4. The company was engaged in the development of various

grades of automobile coolants to become the original

equipment manufacturer and supplier to various auto

manufacturers which included Maruti, Telco, Ashok Leyland,

Escorts. Originally the industrial activity was commenced in

rented premises in Udyog Vihar, Gurgaon. The company

thereafter decided to expand its manufacturing activity to the

complimentary fields of engine oils, brake fluid and other auto

care products for which there were few competitors in the

country. It even had a collaboration with M/s Liqui Moily of

Germany. The company set up its lubricating oils

manufacturing unit in the industrial estate of Dharuhera,

Haryana and also relocated its coolants manufacturing unit

there. This project envisaged a capital lay out of Rs.2550.00

lakhs (including Rs.500 lakhs as additional margin working

capital).

5. On account of primary market weakness and depression,

the company was unable to raise the capital through the rights

issue which had been permitted by SEBI. A revision in the

means of finance of the company was undertaken resulting in

generation of finance by promoters contribution.

However, even these finances were not received by the

company. The term loan from IFCI was restricted to the tune of

only Rs.14.77 crores; the promoters contributed Rs.608 lacs and

the internal accruals of the company were Rs.642 lacs.

6. In the meantime, several development factors intervened

in the mid nineties. Due to liberalization of the Indian economy,

various multi national corporations entered the Indian market

for lubricating oil business, posing stiff competition to the

petitioner.

The automobile industry in the country also started

showing recessionary trends in 1996 reducing the GDP growth,

resulting in reduction of the freight business of industrial goods.

As a result, the demand of lubricating oils was depressed on

account of lower manufacturing of heavy and medium

commercial vehicles; lower manufacturing of passenger cars in

the country where the company's products were being used;

and lower freight movement resulting in shrinking of the

replacement market in heavy and light commercial vehicles. In

addition, the company was compelled to utilize its working

capital funds to finance the continuing and gradual losses.

7. Due to the unhealthy market conditions there was internal

delay in completing the capital project at Dharuhera. There was

scrutiny and reconciliation of debtors and reassessment of the

market value of the stock in trade. As a result, the petitioner

was forced to reduce its net sales with long credit resulting in

reduction of their sales and consequently also the profits. In

view of the unsatisfactory operations and working results, the

financial position of the company deteriorated, resulting in

erosion of its net worth, with share capital of Rs.1178 lacs and

reserves and surplus of Rs.669 lacs aggregating to Rs.1847 lacs

only, as on 31st March, 1998, as against accumulated losses of

Rs.2644 lacs.

8. In view of its eroded net worth, on 31st December, 1998,

the Company made a reference to the Board for Industrial and

Financial Reconstruction ('BIFR' hereafter) under Section 15(1)

of Sick Industrial Companies (Special Provisions) Act, 1985

(SICA) and the Company was registered as a sick company vide

the order dated 11th May, 1999.

9. The IFCI Ltd. was appointed as the Operating Agency

under section 17(3) of the SICA to prepare a draft rehabilitation

scheme (DRS) of the company based on a proposal to be

submitted by the company. However, despite repeated

opportunities, the BIFR found that the scheme proposed by the

company was not as per RBI guidelines and the company was

unable to put forth a viable revised proposal. Consequently, by

an order passed on 4th May, 2000, the BIFR directed the IFCI to

issue an advertisement for change of management of the

company.

10. The company preferred an appeal before the Appellate

Authority, Industrial & Financial Reconstruction (for short

'AAIFR') against the order dated 4th May, 2000 of the BIFR.

Despite opportunities given by the appellate authority as well,

no viable proposal could be propounded by the promoters for

rehabilitation of the company on a one time settlement basis

because of limited resources.

11. The banks and financial institutions appear to have been

opposed to any financial sacrifices by them before the BIFR and

had preferred winding up of the company. It was, therefore,

concluded that the company/promoters were apparently not

serious in reviving the company and that they were merely

buying time. They had also failed to comply with the AAIFR's

order to deposit Rs.20 lakhs each month which suggested their

intention of merely buying time. Therefore, an order was again

passed on 7th December, 2000 by the Bench ordering change of

management of the company and also giving an opportunity to

the present promoters to submit an offer in response to the

advertisement to be got published in this regard by the

operating agency.

12. The company's second appeal assailing the order dated 7th

December, 2000, to the AAIFR was dismissed by its order dated

30th May, 2001, holding that sufficient opportunity had been

given to the existing promoters to submit their proposals. The

promoters were given an opportunity by the AAIFR to submit a

proposal in response to the advertisement for change of

management in terms of the orders dated 7th December, 2000.

The Appellate Authority left it open to the BIFR to consider

offers, if any, received in response to the advertisement on their

comparative merit and proceed in accordance with law.

13. This turn of events and developments thereafter finally led

to the BIFR making an order on 18th June, 2001, issuing a show

cause notice to the company to explain why it should not be

wound up under Section 20(1) of the SICA for non-submission of

a comprehensive rehabilitation proposal to the operating

agency and also in the absence of any rehabilitation proposal,

why permission should not be granted to the secured creditors

to pursue recovery suits against the company/guarantors. A

public notice was also issued by the BIFR in this behalf. The

company failed to submit any proposal despite the

advertisement for change of management or respond to the

request of the secured creditors for filing suits against the

company.

14. It is noteworthy that in the proceedings before the BIFR,

the company was represented by Sh. Ashok Bahadur, Joint MD

and Sh. S. K. Mehra, its Company Secretary besides counsel who

had submitted that the delay had resulted on account of

negotiating proposed one time settlements with the banks. So

far as the secured creditors of the company are concerned, they

were all recommending winding up of the company. The

proposals previously submitted had been found to be

unacceptable to the secured creditors and potentially not viable.

15. Consequently, the Board for Industrial and Financial

Reconstruction expressed an opinion under Section 20(1) of Sick

Industrial Companies (Special Provisions) Act, 1985 on 5th

March, 2002 that M/s. Sunstar Lubricants Limited, was a sick

company and it would be just, equitable and in public interest to

wind it up.

16. The recommendation of the BIFR to this court was

registered as Company Petition No. 154/2002. After considering

the records, the opinion expressed by BIFR and on hearing the

parties, the court was satisfied that the net worth of the

Company had been substantially eroded and there was no real

possibility of any revival or rehabilitation of the Company and it

would also not be possible for the company to effectively

exceed its net worth within a reasonable time. Accordingly, vide

an order dated 3rd December, 2003, the Company was ordered

to be wound up; and the Official Liquidator attached to this

court was appointed as its liquidator with the direction to take

over the assets and records of the Company. Citations of the

winding up order were directed to be published in 'Statesman'

(English) and 'Jansatta' (Hindi) and also in the Delhi Gazette.

17. Pursuant to the winding up order passed on 3rd December,

2003, the Official Liquidator took over the following assets

belonging to the Company (in liqn.):

      (i) Land & Building at      plot no. 24       on NH-8,
      Narsingpur, Manesar,         Delhi-Jaipur      Highway
      (Haryana);

(ii) Land & Building at KPF-121, Rajokari, Gurgaon Road, border situated at Village Kapashera, Tehsil Mehrauli, New Delhi;

(iii) Land & Building and Plant & Machinery within 500m. of the NH-8, Delhi-Jaipur, National Highway in Daruhera, District Rewari;

(iv) SAS House (first floor), Sapru Marg, Lucknow, UP; and

(v) the Flat No. 3/10, Hailey Road, New Delhi.

In addition, movable assets, including vehicles, were also

taken into possession by the Official Liquidator.

18. The Company was shown to have four secured creditors,

namely, the Canara Bank, the State Bank of Indore, IFCI Limited,

and the Andhra Bank. In addition, the Company also had two

more creditors, namely, HSBC and Standard Chartered Bank and

four unsecured creditors and some other statutory dues.

19. With a view to revive the Company and to pay off the

debts of secured and unsecured creditors, the promoter

directors of the Company, identified an investor, namely M/s. IO

Global Services Private Limited, having its registered office at

Flat No. 43, 10, Hailey Road, New Delhi which according to

them, agreed to infuse necessary funds in the Company to pay

off the outstanding debts of the various secured creditors,

including the IFCI Limited and to join the management of the

Company for the purpose of restructuring and revival of the

Company.

20. The promoters of the company, it appears, approached the

IFCI Ltd., by way of a proposal dated 8th November, 2006 for a

one time settlement (OTS). This proposal was considered by the

IFCI Ltd. and after negotiations, a revised OTS proposal was

submitted by a letter dated 23rd November, 2006 enhancing the

offer for the compromise amount to 14.15 crores. This proposal

was accepted by the IFCI Ltd. by a sanction letter dated 29th

November, 2006 whereby it agreed to accept a total sum of

Rs.14.15 crores in full and final settlement of all its claims

against the Company.

21. The applicant has also stated on record that even prior to

the winding up order on 3rd December, 2003, the promoters

(who were also guarantors of the loan), had effected the

settlement with the Standard Chartered Bank and the Hongkong

and Shanghai Banking Corporation Limited (also two secured

creditors of the company) in the year 2002 and cleared the

entire outstanding dues to these creditors in full and final

settlement of their claims.

22. In this background, vide the order dated 30th November,

2006 passed in CA 1390/2006 in these proceedings filed by the

promoters of the Company, this court cancelled further auction

proceedings with respect to the assets of the Company and

directed the promoters of the Company to deposit a sum of

Rs.6,93,482/-, being the proportionate expenditure incurred by

the Official Liquidator for publication of citations & sale

proclamation and security charges, etc. w.e.f. 1st December,

2006 onwards. The Court also directed the promoters to deposit

a further sum of Rs.50,00,000/- with the Official Liquidator to

show bonafides of the applicant and payment to the security

agency and bank charges of the bidders.

Pursuant to the said directions, the promoters deposited

the entire sum of money with the Official Liquidator.

23. Another OTS proposal submitted by the promoter with the

State Bank of Indore was accepted by it for a sum of Rs.65 lakhs

and a sanction letter dated 30th March, 2007 was issued. As per

the scheme placed before this court, the promoters are stated

to have deposited Rs.32.52 lakhs on the date of filing of the

scheme before this court.

24. So far as the Canara Bank and Andhra Bank are

concerned, the OTS proposals by the promoters of the company

were also accepted. It has been submitted that dues to the

tune of Rs.12 lakhs were paid by the promoters to the Andhra

Bank at the time of obtaining its in-principle approval to the

settlement. The balance amount was paid out of the funds lying

with the Official Liquidator from the sale of the assets of the

company.

25. The one time settlement proposal by the promoters to the

Canara Bank was also accepted and communicated vide bank's

letter dated 5th November, 2008 whereby it agreed to accept

Rs.900 lakhs in full and final settlement of its claims subject to

payment on terms communicated thereafter.

26. The applicant has claimed that the promoters have paid a

total sum of Rs.5.37 crores to the IFCI Ltd., as well as the Official

Liquidator from their own resources with the assistance of the

strategic investor.

27. On 7th December, 2007, the promoter directors of the

Company filed CA (M) No. 168/2007, inter-alia, propounding a

Scheme for revival of the Company and seeking convening of

the meetings of the secured creditors of the Company to

consider and approve the proposed Scheme of Revival of the

Company. The promoters also placed on record their One Time

Settlement proposal made to the IFCI Limited and the sanction

letter issued by IFCI accepting the proposal for a total sum of

Rs.14,15,00,000/-. The promoters also placed on record details

of One Time Settlement entered into with the other two secured

creditors, namely, Andhra Bank and State Bank of Indore.

28. In the winding up proceedings, an application, CA No.

1278/2007 was filed by the ex-Managing Director, Sh. Ashok

Bahadur, praying for directions for the sale of the properties

belonging to the company (in liqn.) at Village Kapasehra, Teshil

Mehrauli, New Delhi; Land located at NH-8, Delhi-Jaipur

Highway, Daruhera, District Rewari; SAS House (1st Floor), Sapro

Marg, Lucknow; and a Suite at 10, Hailey Road, New Delhi. A

direction was also sought to the OL to release a sum of Rs.32.50

lacs in favour of the State Bank of Indore out of the funds

submitted by the applicant with the Official Liquidator.

29. Vide order dated 11th December, 2007, the Official

Liquidator was directed to take steps for the sale of the said

properties in consultation with the secured creditors. The

Official Liquidator was further directed to invite claims from the

workers as well as the secured creditors.

Pursuant to the said directions, claims were invited by

publication in 'Times of India' (English) and 'Nav Bharat Times'

(Hindi).

30. Vide order dated 25th February, 2008, the properties

belonging to the Company and possessed by the Official

Liquidator were put to auction. The properties mentioned in Para

14 above, except at Sl. No. (i), were auctioned by the court and

the total value realized was Rs.22,83,00,000/-.

31. Claims of three preferential creditors, viz. Provident Fund

Commissioner, Delhi for a sum of Rs.14,81,264/-; Sales Tax

Authority, Tamil Nadu for a sum of Rs.10,97,847/- and Sales Tax

Authority, Rewari, Haryana for a sum of Rs.19,50,123/- and one

unsecured creditor, namely, M/s. Pearl Polymer Private Limited

for a sum of Rs.17,58,398/-, were received by the official

liquidator.

32. Sh. Ashok Bahadur, the promoter and erstwhile Joint

Managing Director of the Company filed CA No. 331/2008

seeking disbursement of the following amounts to the secured

creditors of the company in liquidation from the amounts

realized by the Official Liquidator from the sale of the assets

belonging to the Company:-

      IFCI Ltd.            Rs.10.65 crores

      Andhra Bank          Rs.1.08 crores

      State Bank of Indore Rs.20.5 lakhs

This application was accepted by the court on 27th March,

2008 and the Official Liquidator was directed to conditionally

release an amount of Rs.11 crores to the IFCI Ltd.; Rs.1.08

crores to the Andhra Bank and Rs.20.5 lakhs to the State Bank

of Indore forthwith, as the one time settlement required

payment till 31st March, 2008.

33. It may be noted that the application being CA(M) No.

168/07 propounding a scheme for revival was permitted to be

withdrawn by this court by an order passed on 6th May, 2009 by

the company with liberty to file the scheme of revival. The

promoters have filed the proposed revival scheme by way of CA

No. 817/09 placing the above facts on record.

34. On 25th November, 2008, the CA No. 1322/2008 in CP No.

154/2002 was filed by the promoters stating that the only

secured creditor remaining to be paid was the Canara Bank and

that they had entered into a one time settlement with it also for

a sum of Rs.900 lacs. A prayer was made that the said amount

be directed to be released in favour of the Canara bank. In

view of the fact that a sum of Rs.10,72,61,606/- was available in

the account of the company with the Official Liquidator, and the

amount payable to the preferential creditors being only

approximately Rs.45 lacs, on 28th November, 2008 this court

directed the Official Liquidator to make payment of Rs.900 lacs

to the Canara Bank from the fund available in the account of the

Company.

35. The Official Liquidator has filed a report dated 16th

February, 2009 on record confirming that other than the land at

Village Narsinghpur, Gurgaon, all assets of the company stood

valued and already auctioned. It is further confirmed that all

secured creditors of the company stand paid and that there are

no secured creditors.

36. Despite repeated publications at various stages of the

proceedings noticed above, claims of only four preferential and

other creditors were received by the Official Liquidator which

have been detailed herein-above. The claim of the provident

fund department stands admitted by the Official Liquidator for

Rs.14,81,264/-. The claims of the other creditors were disputed

by the ex-management and were stated to be sub-judice. It is

observed in this report that the ex-management in their

statement of affairs had disclosed claims of ESI, PF, Sales Tax

and Income Tax (TDS) and some other unsecured creditors.

37. Vide CA No. 263/2009, it was contended by Mr. Ashok

Bahadur, propounder of the Scheme, that an amount of

Rs.1,81,95,769/- was lying in the account of the company and

the amount payable towards statutory dues was only to the

tune of Rs.45,29,234/- and to the unsecured creditor to the tune

of Rs.17,58,398/- and prayed that the Official Liquidator be

directed to scrutinize the claims expeditiously and settle the

dues from the fund available in the account of the Company.

38. The Official Liquidator submitted a report dated 17th March,

2009 stating that the claim of Sales Tax Authority, Rewari was

admitted for a sum of Rs.10,22,622/- only. In addition, the claim

of ESI for an amount of Rs.8,21,000/- and the Income Tax

Authority for a sum of Rs.1,29,000/- was also admitted to be

payable. The claim of the Employees Provident Fund

Commissioner was admitted to the extent of Rs.14,81,264.00.

In this report, it was also informed that the Official Liquidator

had sent the last and final reminder to the Sales Tax

Department, Chennai to file its claim of Rs.10,97,847/- in the

prescribed form no. 66 and that the matter was pending at this

stage. The court, accordingly, directed the Official Liquidator on

25th March, 2009 to make payments to all these creditors from

the fund available in the account of the Company.

39. In view of the above position, an order dated 25th March,

2009 was passed in CA (M) No. 168/2007, the court observed

that the present case is a fit case for staying further

proceedings towards liquidation of the company since on

account of asset realization, it had been possible to discharge all

remaining liabilities of the Company, still leaving an immovable

asset and surplus credit balance with the Official Liquidator to

meet the pending liabilities. The court recorded its satisfaction

in terms of Section 466 of the Companies Act, 1956 and issued

the following directions:-

(i) Further proceedings of liquidation shall remain permanently stayed;

(ii) The Official Liquidator shall hand over possession of land at NH-8, Narsinghpur, Manesar, Delhi-Jaipur Highway (Haryana). The land shall be clearly demarcated by boundaries and appropriate photographs as well as videography of the handing over and taking over the possession may be undertaken;

(iii) the ex-directors and the company shall remain prohibited from transferring, alienating or parting with possession of the said land whatsoever without the leave of the court; and

(iv) The Official Liquidator shall inventorize the available records of the company and hand over the same to the authorized representative of the company.

40. The promoter director also moved two applications, viz. CA

No. 817/2009 dated 25th May, 2009 placing a scheme for revival

for approval & CA No. 1085/2009 dated 25th August, 2009

seeking directions of this court to dispense with the requirement

of convening the meetings of the shareholders and creditors of

the Company and to accept the revival Scheme on the ground

that the secured creditors of the Company have already been

paid off and that the shareholders, constituting more than 75%

of the total paid up capital of the Company, have accorded their

consents & no objections to the Revival Scheme. It is further

claimed that no proceedings under Section 235 to 251 of the

Companies Act, 1956 are pending against the Company, and

that no proceedings under Section 397 and 398 of the

Companies Act, 1956 have ever been launched against the

Company.

41. Learned counsel for the applicant has further drawn my

attention to the signed consent to the proposed Scheme of

Revival of the twelve shareholders who are holding 87,75,040

shares of the company which has been placed on record. It is

submitted that at present there are 1,16,22,970 equity shares of

the company and their details have been pointed out. The

twelve shareholders who hold 87,75,040 equity shares,

constitute 75.5% of the total equity shares. The majority of the

shareholders thus have given their consents/no objections in

writing to the proposed Scheme of Revival. The approval and

consent of the individual directors Sh. Uday Singh, Ashok

Bahadur and Navin Chopra have also been placed on record.

The above narration of facts and the reports of the Official

Liquidator indicate that all the secured creditors of the Company

have already been paid off.

42. In terms of order dated 22nd December, 2009, the Official

Liquidator handed over a statement setting out the details of

claims received, their status and the amount available in the

account of the Company. In the statement filed by the Official

Liquidator, the following issues are raised:

(a) The claim amount of Rs.14,81,264/- was not

released to the Provident Fund Commissioner, Delhi;

(b) The admitted amount of Rs.10,22,622/- towards the claim of the Sale Tax Authority, Rewari was not released since the propounder has furnished the copy of orders passed by Jt. Excise & Taxation Commissioner, Faridabad setting aside the demand/claim;

(c) The claim of Commercial Tax Deptt., Chennai is under scrutiny;

(d) The claim of ESI for Rs.8,21,000/- had been admitted by the propounder;

(e) The claim of Income Tax for Rs.1,29,000/- had been admitted by the propounder;

(f) The claim of Regional Provident Fund Commissioner, sub Registrar Office, Gurgaon for a sum of Rs.23,080/- was filed in the year 2004 prior to inviting the claim;

(g) The claim of M/s. Pearl Polymer Limited for a sum of Rs.17,58,398.23 is pending since the matter is subjudice in the High Court.

The total amount towards claims (a) to (g) is to the extent

of Rs.52,35,394.23

43. As against these claims the fund position of the company,

as on 22nd December, 2009, was stated to be Rs.1,85,72,407.96.

44. On 17.12.2009, the Official Liquidator filed an application,

viz. CA No. 1742/2009 in CP No. 154/2002, submitting that the

claims of certain statutory creditors were under scrutiny and

that all the statutory authorities have to submit the necessary

Form No. 66 and without which no payment can be released to

them. So far as the claim of the Sales Tax Authority, Rewari is

concerned, a perusal of the orders passed by the Jt. Excise &

Taxation Commissioner, Faridabad shows that the assessment

orders have been set aside as they were passed ex-parte and

the matter stands remanded to the Assessing Authority for

reassessment within a time bound manner. Nothing is placed

on record to show whether the reassessment orders have been

passed by the Assessing Authority or not and whether the same

are acceptable to the propounders of the Scheme. So far as the

remaining statutory claims are concerned, the Official Liquidator

has informed the concerned authorities to file the requisite Form

No. 66 to enable finalization of admitted claims.

45. Learned counsel for the applicant has thus submitted that

some of the provisions of the Scheme with regard to clearing of

the dues payable to the secured creditors already stand

implemented.

46. So far as the unsecured creditors are concerned, it is

submitted that the Company had the following claims against it:

(i) Mobil Sales Corporation : Rs.2,41,10,929/-;

(ii) Indian Additives Limited : Rs.34,96,198/-;

(iii) Anupam Products Limited : Rs.10,11,050/-;

(iv) Pearl Polymer Limited : Rs.17,56,578/-;

(v) Income Tax Department : Rs.1,29,000/-;

(vi) Sales Tax Department : Rs.65,76,000/-;

(vii) Provident Fund Department:            Rs.14,11,826/-; and

(viii) ESI                            :     Rs.8,20,472/-

The contention is that the total outstanding works out to

Rs.329 lacs which includes a sum of Rs.8,20,472/- as payable to

ESI and Rs.14,11,826/- payable to the provident fund

authorities. In addition, there are some statutory dues payable

to the Income Tax Department and Sales Tax authorities.

Learned counsel submits that while the claims of statutory

authorities are not disputed and would be paid in terms of the

Scheme of Revival, the claims put forth by M/s. Mobil Sales

Corporation, Indian Additives Limited, Anupam Products Limited

and Pearl Polymer Limited are disputed. It is further submitted

that the promoters have already initiated talks for settlement

with the said companies and the terms settled between the

parties would be fully honoured by the promoters. He has

further submitted that at present an amount of

Rs.1,85,72,407.96 is available with the Official Liquidator in the

account of the Company and the Company will be able to

generate enough resources to pay off its debts in terms of the

Scheme of Revival.

The applicant has further been submitted that the balance

amounts which are lying with the official liquidator be retained

till the working of the Scheme and settlement of the claims of

the unsecured creditors to the extent that the same are legally

tenable or consideration whereof is pending.

47. It is noteworthy that the Indian Additives Ltd., Mobile Sales

Corporation and Anupam Products Ltd. have not filed any

litigation seeking recovery of the aforesaid amounts. No claims

have been made before the Official Liquidator as well despite

the several public notices. No application for leave to prosecute

claims against the company appears to have been made at any

point of time. The matter has remained pending before the

BIFR since 1999 and before this court since 2007.

48. Learned counsel for the applicant has further pointed out

that the Scheme was in favour of the general public,

shareholders, employees, public financial institutions and banks

who have provided financial assistance to the Company and

that the sanction of the Scheme would enable the Company to

honour its commitments. Ms. Arora has further submitted that

the Company under liquidation was a leading manufacturer of

automobile coolants, lubricating oils and other related products

and was an original equipment supplier to Maruti Udyog Limited,

Ashok Leyland etc. and enjoys strong goodwill throughout India.

Learned counsel submits that the Company continues to

possess the technical know-how, expertise and the goodwill for

manufacturing the automobile coolants, lubricating oils and

other related products which has an ever growing demand. The

submission is that if the Scheme of Revival is approved, the

Company would not commence its own production at its factory

for at least three to four years but will use the surplus blending

facilities of other manufacturers to blend the lubricant by paying

a nominal charge as it suits the promoters more now as they are

starved of cash and that this practice of using other facilities to

manufacture lubricant is prevalent world wide and not a new

phenomenon. However, as the time progresses and the

Company pays off its liabilities then it would utilize its surplus to

set up a new factory in the premises situated at Narsingpur,

Gurgaon (Haryana).

49. Mr. S.K. Luthra, learned standing counsel for the Official

Liquidator submitted that they have no objection to the Scheme

of Revival, as such. However, it is important that the assets of

the Company must be protected till the dues of all the creditors

are cleared.

It is noteworthy that no claims at all have been received

from workmen.

50. The above narration would show that the equity

shareholders holding more than 75% of the total equity shares

have given their consents/no objections in writing to the

proposed Scheme of Revival and all the secured creditors have

been paid off.

51. Perusal of the scheme shows that secured creditors and

unsecured creditors constituting about 87% of the total liability

on receipt of the settled amount have withdrawn their

respective claims before the Debt Recovery Tribunals. The

scheme aims at making payment to unsecured creditors only as

the secured creditors stand taken care of. The funding for

payment of the creditors has been effected by not only release

from the sale of immovable assets of the company but also from

the contributions received from the promoters Sh. Uday Singh

and Sh. Ashok Bahadur generated from their own resources.

Various immovable properties of the company were auctioned

by the Official Liquidator, which fetched an amount of Rs.22.83

crores, which were utilized to pay off secured creditors to the

extent of Rs.21.2 crores and the balance amount Rs.1.81 crore

including interest as per the status report of the Official

Liquidator is lying with the Official Liquidator, as on date which

is much more than the amount of the statutory dues and other

claims received by the Official Liquidator and the same is being

utilized to pay off the statutory dues as per the directions of the

court.

52. The promoter directors of the Company have made every

effort to revive the Company and to show their bonafide

intention, they also complied with the directions issued by this

court from time to time and also settled the dues of all the

secured creditors. They have also placed on record their

willingness to pay the dues of the unsecured creditors as well as

the statutory dues in accordance with the conditions stipulated

in the Revival Scheme. The Revival Scheme provides that in

terms of the the financial plan for next six years i.e. w.e.f. 2008

to 2013, the company will be able to earn a Net Profit of

Rs.501.32 lacs, which would be sufficient to liquidate the

unsecured debt of Rs.307 lacs, if at all it is held to be payable.

The Scheme details the process by which the promoters of the

Company will raise funds for revival of the Company. A large

number of steps pursuant to the Scheme filed in court already

stand taken. The immovable assets of the Company, except

land & building at plot on NH-8, Narsingpur, Manesar, Delhi-

Jaipur Highway (Haryana), were auctioned and the claims of the

secured creditors have already been settled. There is an

amount of Rs.1,85,72,407.96 lying in the account of the

company and even after paying the statutory dues and the

claim of the unsecured creditor, M/s. Pearl Polymer Limited, an

amount of more than Rs.1.25 crores will still be available in the

account of the company. The other three unsecured creditors,

as mentioned in the Revival Scheme, have not filed their claims

although the Company had made provisions to pay off their

debts also. It would be questionable as to whether such

amounts could be legally claimed even now.

53. The scope and ambit of the jurisdiction of the company

court while consideration of a scheme for revival has been

stated in the pronouncement reported at (1996) 87 Comp Cas

792 entitled Miheer H. Mafatlal vs. Mafatlal Industries

Ltd. in the following terms :-

1. 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.

2. 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).

3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an 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.

4. 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).

5. That all the requisite material contemplated by the proviso of 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.

6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.

7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.

8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.

9. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate

jurisdiction over the scheme rather than its supervisory jurisdiction."

54. It has been repeatedly held that whenever option is

available between revival of the company and its winding up,

courts must as far as possible lean in favour of the company.

The same facilitates creation of the prospect of generating jobs

and putting the assets of the company in productive use as

against their disposal and distribution. [Ref : (1998) 94

Com.Cases 723 Delhi in Wearwell Cycle Company (I) Ltd.;

120 (2005) DLT 58 Ferro Alloys Corporation vs. National

Steel & General Mills (P) Ltd.].

55. In (1922) 2 Ch. D. 723 Re. Anglo-Continental Supply

Co. Ltd. the Court held that before giving a sanction to the

scheme of arrangement, it would see "Firstly, that the

provisions of the statute have been complied with. Secondly,

that the class was fairly represented by those who attended the

meeting and that the statutory majority are acting bona fide and

are not coercing the minority in order to promote interests

adverse to those of the class whom they purport to represent;

and thirdly, that the arrangement is such as a man of business

would reasonably approve". These requirements appear to

have been satisfied in the present case.

56. In the decision reported at MANU/DE/2353/2005 :

[2008] 144 CompCas 780 (Delhi) in Re: JVG Leasing

(Securities and Finance) Ltd. and Ors., the court found that

the propounded scheme for revival was lacking in bonafide,

incomplete and not viable. However, the principles which were

laid down by the court with regard to consideration of a scheme

for revival deserve to be considered in extenso and read as

follows :-

"24. I am conscious of the principle of law which have come to be established over a period of time through series of judgments that whenever choice is available to the court between revival of the company and its winding up, the court must as far as possible lean in favor of revival of the company. However, that does not mean that whenever a scheme for revival is filed, the court has to automatically and routinely sanction the same. It is also the duty of the court to satisfy itself that the scheme is genuine and bona fide . The court has also to satisfy about the feasibility, completeness and workability of the scheme. The court does not function as a mere rubber stamp or post office and it is incumbent upon the court to be satisfied prima facie about the genuineness of the scheme. If the scheme is intended to be a cloak to achieve some other purpose rather than projected purpose of the revival of the scheme, it would be unfair to the creditors and other persons if such scheme is sanctioned and propounders are allowed to achieve their oblique purpose. In Re.: Saroj G.Poddar, (1996) 22 C.L.A.200, the court refused to sanction the proposed scheme after it was found that .the entire exercise undertaken by the sponsor with the support of the workers union was intended to acquire the land of the company for its exploitation. The court also found that the scheme was not genuine but patently fraudulent as it had been evolved as a cloak to cover the misdeeds of the directors to avoid

misfeasance proceedings against them."

These principles were reiterated by this court in the

judgment MANU/DE/0864/2005 : 123 (2005) DLT 45 in Re:

Soldier United Motor Tpt. Co. Ltd. AND Sh. S.N. Bhalla

Vs. Soldier United Motor Tpt. Co. Ltd.

57. It has also been held that so long as a Scheme is bonafide

and is not intended to shift misdeeds of ex-directors or is

otherwise equitable, the court would put its seal of approval on

any proposal which is fair and reasonable and propounded in

good faith. [Ref: (1996) 22 Corporate LA 200 Re: Saroj G

Poddar]. The Bombay High Court in the judgment reported at

MANU/MH/0509/2005 : [2005] 127 CompCas 752(Bom)

Shree Niwas Girni Kamgar Kruti Samiti Vs. Rangnath

Basudev Somani in para 29 observed as follows :-

"29. ..... Sections 391 and 393 of the Companies Act permits any reasonable form of arrangement between the company and shareholders and its creditors and leave the nature of the arrangement to the realm of the commercial wisdom of the concerned parties. The scheme for revival of the Company, therefore, need not necessarily be for functioning of the same activities that were carried on prior to the starting of liquidation proceedings and it is always open for the shareholders to revive the company and carry on business in accordance with law."

58. It is trite that there is no legal prohibition to the grant of

the Scheme for Revival and that the present application is

maintainable despite the passing of the winding up order. (Re :

(1938) 8 Com.Cases 313 (Madras) Re : Calicat Bank Ltd. ;

(1982) 52 Com.Cases 139 Re: Vasant Investment

Corporation Ltd.)

59. The conduct of the promoters/applicants before this court

would show that they have acted bonafide and have facilitated

discharge of all liabilities even by sale of assets and generating

funds from personal sources. The conduct of the promoters can

also be tested from the angle that they have evinced an

intention to secure even such liabilities of the company which

are pending adjudication. Nothing has been pointed out by any

person or even the Official Liquidator that the scheme is

intended to bypass any other statute or avoid any judgment or

liability. The Official Liquidator has supported acceptance of

the scheme and nothing has been placed which would suggest

that the proposed scheme as unworkable or not capable of

being implemented. The prayer for approval of the proposed

scheme for revival made appears to be bonafide and in the

interest of equity and justice.

60. From the above narration, it is evident that the promoters

have provided that the interest of unsecured creditors is fully

protected and shall not be impacted adversely in any way if the

proposed Scheme of Revival is sanctioned by this court. The

majority of the shareholders have consented to the Scheme of

Revival and the interest of the creditors also stands protected.

61. Accordingly, the requirement of convening and holding the

meetings of the equity shareholders, secured and unsecured

creditors of the petitioner company to consider and if thought

fit, approve, with or without modification the proposed Scheme

of Revival is dispensed with.

62. In view of the above discussion, the applications are

allowed. The winding up order passed on 3rd December, 2003 is

hereby recalled and the Scheme of Revival of M/s. Sunstar

Lubricants Limited is approved subject to the following

conditions:

(i) The promoters shall be bound by the terms of the Scheme & shall be liable for payment of all amounts held due & payable to the unsecured creditors;

(ii) The amount standing to the credit of the company lying with the Official Liquidator shall be retained by it for utilization for paying off the dues of the afore-noticed unsecured creditors.

(iii) The amount at serial no. (ii) shall be kept deposited in a fixed deposit receipt initially for a period of one year which shall be kept renewed till further orders which shall be sought from the court.

(iv) It shall be open for the company or the promoters to make an appropriate application placing before this court the result of the adjudication proceedings on the claims of the statutory authorities as well as the unsecured creditors and seek

appropriate orders for adjustment of the dues out of the amounts lying with the Official Liquidator in case the adjudication results in an order against the company. In the alternative, it shall be open to them to seek appropriate orders for release of the amount(s) with all accruals thereon in favour of the company.

(v) The Official Liquidator shall be entitled to such expenses incurred by him, from the funds available in the accounts of the company. A report in this behalf shall be placed by the Official Liquidator before the court for appropriate directions with regard to the adjustments of the amounts.

63. The applications stand allowed in the above terms.

(GITA MITTAL) JUDGE April 8, 2010 kr