Gujarat High Court
Legal Representatives Of ... vs N/A on 10 November, 2023
Bench: Ashutosh Shastri
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/O.J.APPEAL NO. 13 of 2019
In
R/COMPANY PETITION NO. 264 of 2008
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2019
In
R/O.J.APPEAL NO. 13 of 2019
With
CIVIL APPLICATION (FOR DIRECTION) NO. 2 of 2023
In
R/O.J.APPEAL NO. 13 of 2019
With
CIVIL APPLICATION (FOR DIRECTION) NO. 3 of 2023
In
R/O.J.APPEAL NO. 13 of 2019
With
CIVIL APPLICATION (FOR ORDERS) NO. 4 of 2023
In
R/O.J.APPEAL NO. 13 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI
and
HONOURABLE MR. JUSTICE J. C. DOSHI
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India or any order
made thereunder ?
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LEGAL REPRESENTATIVES OF BHUPENDRA BHAGWATPRASAD
Versus
N/A.
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Appearance:
for the Appellant(s) No. 1.1
MR. MIHIR JOSHI, SENIOR ADVOCATE WITH MR. A.S. VAKIL(962) and
MR. SANDIP SINGHI, ADVOCATE for the Appellant(s) No. 1,1.2,2
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MS. P.J. DAVAWALA(240) for the Opponent(s) No. 1
MR MITUL K SHELAT(2419) for the Opponent(s) No. 1
MRS SANGEETA N PAHWA for the Opponent (s) No
MR DS VASAVADA for the Opponent (s) No.
MR AJ YAGNIK for the Opponent (s) No.
MR PRABHAKAR UPADYAY(1060) for the Opponent(s) No. 1
==================================================
CORAM:HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI
and
HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 10/11/2023
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI)
[1] By way of present Appeal, a challenge is made to the final
judgment and order dated 12.03.2019 passed by the learned
Single Judge in Company Petition No.264 of 2008 by which
Company Petition came to be dismissed.
[2] The brief background of the facts leading to rise of present
Appeal are to the effect that appellants - original petitioners
have filed Company Petition under Sections 391 & 394 of the
Companies Act, 1956 (hereinafter referred as to "the Act")
which was registered as Company Petition No.264 of 2008 for
the reliefs which are set out in paragraph No.19, we deem it
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proper to quote the same hereunder:-
"(A) that the scheme of compromise/ arrangement (Exh.-A)
be sanctioned so as to be binding on all the creditors of the
Company as defined under the said scheme of
compromise/ arrangement and also be binding on the
Company.
(B) to pass such incidental, consequential and
supplemental orders and issue such directions as may be
thought fit and proper in the facts and circumstances of
the case."
[2.1] A scheme of compromise was for revival of Prasad Mills
Ltd. (in liquidation) (to be referred as `the Company`) which
according to original petitioners, was ordered to be wound up
by the Company Court vide order dated 23.08.1988 (the date of
the order of winding-up referred in other proceedings / orders is
dated 05.5.1989). According to original petitioners, the
movable properties of the Company i.e. stock of goods, plant,
machineries etc. were disposed of in the year 1998 for
aggregate consideration amount of Rs.131 lakhs. However, the
land admeasuring about 36971.25 sq. mtrs., which was reduced
to some extent on account of acquisition by the Ahmedabad
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Municipal Corporation for road widening, continued to be in
possession of the Official Liquidator with cash in bank balance
of the Company's account. In respect of same, the Scheme of
Compromise / Arrangement between Prasad Mills Ltd. (in
liquidation) and its creditors / members was framed and the
terms of the said schemes are reflecting in detailed as narrated
in the impugned judgment in paragraph 3, which at a later point
of time, the same would be properly reflected in the present
order and attempt was made by the original petitioners for
giving justification of the scheme and later on, based upon the
aforesaid scheme, the Court passed an order for putting the
properties (leasehold land) of the Company to sale and one of
the promoters of the petitioner No.2, at a relevant point of time,
made the highest offer of Rs.7.75 crores in the said process of
sale and the Official Liquidator had recommended for
confirmation of sale in their favour. Later on, it appears that
few persons claiming to be the heirs of the lessor of the land
filed Company Applications claiming possession of the land,
which applications stated to have been rejected, against which
they preferred O.J. Appeals wherein the Appellate Court was
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pleased to grant interim injunction against the sale of the rights
in the said land. Subsequently, It is the case of the original
petitioners that the petitioner No.2 had requisite resources to
sponsor and support the Scheme of Compromise / Arrangement
of the Company that the dues of IDBI being secured creditor of
the Company were settled and paid up by the original petitioner
No.2, for which the IDBI assigned its right, title and interest in
the debt due to IDBI to the company along with its security
interest in its favour. In respect of dues related to the SBI,
being other secured creditor of the Company had also settled
the account for sum of Rs.2,64,14,885/- and the said settled
account is proposed to be paid in terms of the scheme.
According to the original petitioners, the original petitioner
No.2 had acquired 5693 numbers of equity shares of the
Company, out of which 3669 equity shares are acquired as
assignee of IDBI and 2024 equity shares are acquired as
purchasers from various shareholders / contributors of the
Company, transfer of which is subject to the approval of this
Court as the Company is in liquidation proceedings.
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[2.2] According to the original petitioners, the IDBI filed
Company Application No.414 of 2007 to ratify its action in
assigning all its rights, title and interest and underlining
security against the Company in favour of the original petitioner
No.2 and to consider in terms of Section 536 of the Act, the
assignment to the petitioner No.2 of all rights, title, interest and
benefits of IDBI together with security interest, including pledge
of 3669 fully paid-up equity shares. The said application, after
hearing, was allowed by the Court by its order dated 25.8.2008
and the action of IDBI was ratified and the Official Liquidator
was directed to effect transfer of above shares in the name of
the original petitioner No.2 and to deal with the original
petitioner No.2 as assignee of IDBI in future transactions which
may take up in the winding-up proceedings. Thereafter, the O.J.
Appeals, filed by the heirs of the lessor, were dismissed and the
application of the promoter of original petitioner No.2 for
direction to accept the recommendation of the Official
Liquidator to confirm the sale was also disposed of with O.J.
Appeals and the Official Liquidator was directed to proceed with
the sale of the leasehold rights of the Company by issuing fresh
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advertisement. Against such orders, the heirs of the lessor
preferred Special Leave to Appeals and simultaneously, the
promoter of the original petitioner No.2 also filed SLP.
[2.3] It is the assertion of the original petitioners that a report
initially was filed by the Assistant Official Liquidator on
10.04.2010 wherein it was stated that the workers of the
company made claim of Rs.23,01,46,874/- towards their dues.
The said claims of the workers were verified by the Chartered
Accountant and the claim of the workers were found admissible
to the extent of Rs.7,90,88,784/-. It is further stated that out of
the sale proceeds of the assets of the company, an amount of
Rs.60 lakhs was paid to the SBI and an amount of Rs.77,32,407/-
was paid to the workers of the Company on ad-hoc basis.
Subsequently, an amount of Rs.19 lakhs was paid to IDBI on ad-
hoc basis and equal amount of Rs.19 lakhs was also paid to the
workers on ad-hoc basis. The Official Liquidator had fund of
Rs.63,20,965/- in the Company's account. It was further
asserted that from the land of the Company, the land
admeasuring 1027.06 sq. mtrs., out of 36971.25 sq. mtrs. was
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acquired by Ahmedabad Municipal Corporation for road
widening and towards that an amount of Rs.59,05,962/- by way
of compensation was received by the Official Liquidator. It is
further stated that the scheme had already been approved by
the respective classes of the creditors and the shareholders in
their meeting and in principle, the Official Liquidator did not
wish to object the scheme of revival of the Company, more
particularly, in view of the fact that the claims of the workers of
the Company are proposed to be settled and paid in full as per
the scheme.
[2.4] It is also reflecting from the impugned order, as stated in
paragraph 10, that on behalf of the State of Gujarat, the Under
Secretary Shri Ashwinkumar M. Trivedi, Industries and Mines
Department has filed an affidavit to the effect that the State
Government gave guarantee of Rs.138.06 lakhs to the SBI for
the dues of the Company and the State Government then paid
Rs.138.06 lakhs to the SBI, which the SBI acknowledged as full
and final settlement towards dues of the Company.
Simultaneously, on behalf of the Central Government, the
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Regional Director, Shri Rakesh Chandra has also filed affidavit
indicating that if the scheme is to be approved, the Company
would automatically become subsidiary of the sponsor company
and the original petitioner No.2 since has already 57% of the
share capital out of subscribed and paid up share capitals of
10,000 number of equity shares and it has proposed more
allotment of equity shares of 2,20,000 to it. It was also pointed
out in said affidavit that the entire plants, machineries and
superstructure of the Company have already been removed and
it is not possible to revive the company for its original business,
however, if the object clause of the company provides to do any
other business, the same can be proposed by the shareholders
for commencing new business activity in the event of the
scheme being approved by this Court and other facts are also
incidentally stated in the affidavit.
[2.5] It is also reflecting from the assertion that on behalf of the
petitioners, an additional affidavit on 28.02.2012 was filed by
Shri Shaan Jhaveri, Director of the original petitioner No.2
stating that the petitioners have made payment towards the
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scheme in the petition and by indicating tabular form such
payment is projected which reads as under:-
Particulars of payments made towards scheme
(Rs. In lacs)
Sr. No. Particulars Amount
1 Govt. of Gujarat on account of SBI 227-38
2 State Bank of India 430-90
3 IDBI 15-00
4 ESIC` 19-19
5 Expenses like legal/ professional fees, 81-72
travelling, administrative etc.
Total 774-19
[2.6] It is further appearing that series of applications appear to
have been submitted and in that context before the petition
could actually be heard finally for consideration of the scheme,
one Prasad Mills Kamdar Samiti filed Company Application
No.207 of 2014 in the petition for being impleaded as party
respondent on the ground that they are represented 521
workers of the Company and stated to have not been taken in
the affidavit in connection with proposed scheme and it was also
stated that TLA filed a confidence giving consent to the scheme
without taking consent of those 521 workers. It is further
reflecting that before the said application i.e. Company
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Application No.207 of 2014 could be decided, Special Leave to
Appeal filed by the promoter of the original petitioner No.2 Shri
Shaan Jhaveri, who is now the Director of the original petitioner
No.2 Company, was disposed of by Hon'ble Apex Court by
recording the statement of learned advocate appearing for Shri
Shaan Jhaveri that in view of certain orders made in S.L.P
No.29282-84 of 2008, his petition did not survive and the same
had become infructuous. But according to learned advocate Mr.
Apurva Vakil who pointed out that further order dated
01.09.2015 passed by the Hon'ble Apex Court in the pending
S.L.Ps of the heirs of the lessor. Operative part thereof are
reproduced in an order, which reads as under:-
"We have been apprised by Mr. Apurva Vakil, learned
counsel appearing for respondent No.4, who is the
petitioner before the High Court in Company Petition
No.264 of 2008 (the present petition) that though there
has been a request by this Court for proceeding with the
matter as per the suggestions given, the same has not yet
been done. Regard being made to earlier orders passed,
we reiterate the request and expect the High Court to
dispose of the petition by end of November 2015. We
would also request the High Court not to grant
adjournment to either of the parties and the parties are
directed not to seek any adjournment before the High
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Court. Let the application be listed in the second week of
January 2016. The Registrar (Judicial) is directed to send
copy of this order to the Registrar General of High Court
of Gujarat so that the High Court can place it before the
concerned Company Judge."
[2.7] It was thereafter submitted that in view of such the
Company Application No.207 of 2014 filed by Prasad Mills
Kamdar Samiti on behalf of 521 workers was rejected by
judgment dated 22.09.2015 and against the said order of
rejection, Prasad Mills Kamdar Samiti has filed S.L.P. before
Hon'ble Supreme Court, which is stated to be pending.
However, no stay had been granted though interim stay has
been granted against the proceedings of the present petition.
Even, no request was also made on behalf of Prasad Mills
Kamdar Samiti not to proceed with the hearing of the petition
on account of such pendency of the SLP filed by it before
Hon'ble Supreme Court. A fact was stated that the very 521
workers for whom Prasad Mills Kamdar Samiti had filed above
Company Application, now the Ahmedabad Mill Mazdoor Union
(to be referred as the Union) has come forward with notice of
intention dated 29.02.2016 addressed to learned advocate Mr.
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Vakil for the original petitioners indicating that more than 500
workmen, who are members of the Union, and accordingly, an
affidavit dated 29.02.2016 submitted to present their objections
against the petition in view of Rule 34 of the Company Court
Rules. Based on such notice of intention and affidavit of
objections against petition, the Union claims right to be heard
for considering their objections against the petition.
Accordingly, with these backgrounds, it appears that the
petition was heard by the learned Single Judge at length and the
petition by the judgment and order dated 12.03.2019 came to be
rejected and along with that the Company Application No.437 of
2016 also disposed of, which order is made the subject matter of
present Appeal before us.
[3] Proceedings of O.J. Appeal No.13 of 2019 further reveals
that in original Company Petition No.264 of 2008, during the
course of submission, the written submissions were also
submitted in detailed in the month of March, 2019 along with
the list of events, the written submissions were also filed by
Textile Labour Association dated 04.03.2019 and in addition to,
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the submission on behalf of Ahmedabad Mill Mazdoor Union
also appears to have been submitted and later on, the record
reveals that some additional affidavits by the appellants were
also filed, one dated 08.05.2019 and another dated 22.10.2021
and with these background of record, the learned advocates
appearing on behalf of the respective sides have requested the
Court to take up the hearing of main O.J. Appeal i.e. O.J. Appeal
No.13 of 2019 and accordingly, the Court took up the hearing.
[4] At this stage, we may also mentioned that along with this
main O. J. Appeal, which has been argued by learned advocates,
have also submitted that Company Application No.427 of 2008
is filed basically for convening / dispensing with the meetings of
creditors, equity shareholders, workmen for considering the
scheme, whereas Company Application No. 207 of 2014 was
filed for seeking permission to be joined as party respondent in
the main Company Petition No.264 of 2008. Company
Application No.34 of 2013 is also submitted with a request to
take on record the objections filed by the applicant opposing the
sanction of the scheme of compromise / revival of the company
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in liquidation, whereas Company Application No.213 of 1996
was also stated to be pending and was filed for permission to
dispose of assets of the company in liquidation i.e. Prasad Mills
Company Ltd. The said application is filed by official liquidator.
Yet another Company Application No. 85 of 1997 is filed for
realizing the securities filed by State Bank of India, Ahmedabad,
wehereas Company Application No.308 of 1998 is filed by TLA
for seeking payment of dues to the workers of Mills Company (in
liquidation) to the tune of Rs.23 crores and odd amount. Yet
another Company Application No.96 of 1999 is filed by TLA for
seeking appropriate direction directing official liquidator to pay
the amount of due and payable to the respondent workers
whose names have been shown in the judges summons, ex-
workers of the Mills Company, whereas Company Application
No.323 of 2001 was filed by TLA again for disbursement of
entire amount realized by official liquidator by sale of assets of
the Company to the workers of Prasad Mills Comapny Limited.
Yet another Company Application No.453 of 1999 has been
submitted by one of the employees, namely, Dhaniram
Ramchandra for directing the official liquidator to pay all the
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benefits as per the order dated 23.02.1998 passed in Company
Application No.9 of 1998.
[5] Large number of applications, interlocutory in nature,
have been submitted and as a part of that, one another
Company Application No.9 of 1998 again filed by Mr. Daniram
to grant permission to proceed with pending Recovery
Application No. 300 of 1993 which is pending before the Labour
Court, Ahmedabad, whereas Company Application No.414 of
2007 submitted by IDBI Limited to rectify the action of
applicant in assigning all rights, title interest and underlying
securities in favour of respondent No.2 and Company
Application Nos. 33/2004 and 34/2004 were submitted by one
Mr. Jabalsinh Laskari seeking declaration that official liquidator
has no right to sale the land in question. Yet another Company
Application No.462 of 1999 was submitted by Mr. Laskari, as
stated above, for seeking recovery of leased land on the ground
that Prasad Mills was already ordered to be wound-up, whereas
Company Application No.93 of 2008 was filed again by Mr.
Laskari and two others claiming to be legal heirs of Mr.
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Drugaprasad Laskari to recall and stay the operation and
implementation of order dated 22.08.2008 passed by the Court
in Company Application No.427 of 2008. Company Application
No.437 of 2016 was filed by the applicant basically for seeking
direction against respondent i.e. Ahmedabad Mills Mazdoor
Union be directed to produce the documents referred to in an
affidavit dated 29.02.2016 filed in Company Petition No.264 of
2008 and since the main O. J. Appeal was requested to be heard
by learned advocates, these applications were not independently
argued since the main concentration was with respect to main
O. J. Appeals.
[6] Mr. Mihir Joshi, learned senior advocate appearing with
Mr. A. S. Vakil and Mr. Sandip Singhi, learned advocates for the
appellants has contended that the order under challenge is not
only unjust and unsustainable, but also reflects non-application
of mind to the material issues involved in the proceedings and
as such the exercise undertaken by the learned Single Judge is
not in consonance with settled proposition of law. From the
findings given by the learned Single Judge, Mr. Joshi, learned
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senior advocate has summarized few findings from the overall
judgment and has submitted that it was observed that there was
no move from any side for actual revival of the company from
the date of the order of winding-up of the Company till the
process for sale of land which was initiated in the year 2006. It
has further been contended that revival of the Company, which
has gone in liquidation, cannot be de-linked of its objects and
cannot be considered irrespective of business activities to be
carried out after its revival and it has been observed that there
has to be a concrete and specific provision in the scheme as to
nature of business activities to be carried on after revival of the
Company, in the absence of which, the scheme could be taken
as ruse to grab the land of the company under the guise of
revival and as such the proposers of the scheme cannot be
allowed to fruitfully get away with revival of the scheme with no
basic foundation for doing business for the company and
provision made in Clause 5 of the scheme for the business of the
Company is as vague and thereby disposed of the petition. It
has further been pointed out by Mr. Joshi, learned senior
advocate that yet another erroneous finding which is reflecting
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from the order to the effect that against the payment made by
the appellant No.2 of Rs.15 Lakhs to IDBI to get assignment of
rights of IDBI in its favour, it wants allotment of equity shares
and it also wants further allotment of large number of equity
share i.e. of 2,20,000 equity shares. The Court finds that
though the appellant No.2 claims to have assignment of rights
which IDBI had in the above shares against the payment of
amount of Rs.15 Lakhs as consideration, it still wants further
allotment of equity shares against this very amount paid for
setting the dues of IDBI reflect on the intention of the appellant
No.2 that the scheme proposed by it is nothing but to swallow
the company under the guise of revival of the company and that
could not be considered. Mr. Joshi, learned senior advocate has
further pointed out from the impugned order that no workmen
could be denied to have his say on the grievance that his
interest was not duly taken care of for determination on his
claim for his dues. It has been pointed out that the Court when
asked to learned advocate Mr. Vasavda to provide the copy of
the order made for verification / examination of the claims of the
workmen for final determination of the dues of the workmen,
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neither he could provide the copy of any such order nor any
other advocate could provide copy of the order, if passed and
even Registry could not provide such original record and as
such also, the learned Single Judge did not consider the case. A
further observation is also pointed out by Mr. Joshi, learned
senior advocate from the order that Court finds that it could not
be disputed before the Court that IDBI was not the secured
creditor against the immovable properties of the Company, and
therefore, it could not have been considered as secured creditor
in the meeting of the secured creditors which is reflecting from
paragraph 53 of the order and in fact, it has been observed that,
Naynaben, who was equity shareholder, for whom it is stated
that she consented to the scheme has come out with serious
grievance in her reply as to way in which the Chairman
conducted the meeting with shareholders and these are the
broad observations based upon which according to Mr. Joshi,
learned senior advocate, an impugned order came to be passed.
Hence, for the purpose of meeting with aforesaid broad
observations which are reflecting from the impugned order, the
learned Single Judge has referred to and relied upon few
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decisions of the Hon'ble Apex Court while dealing with such
finding which according to Mr. Joshi, learned senior advocate
are erroneous.
[6.1] Firstly, a reference is made to few observations made by
Hon'ble Apex Court in the case of Miheer H. Mafatlal versus
Mafatlal Industries Limited reported in (1997) 1 SCC 579
and by referring to paragraphs 28 and 29 of the said judgment
has submitted that commercial wisdom of the parties to the
scheme ought to have been considered and the Court will not
act as a court of appeal and sit in judgment over the informed
view of the parties and the court has neither the expertise nor
the jurisdiction to delve deep into the commercial wisdom
exercised by the creditors and members. It has further
contended that the Company Court's jurisdiction is peripheral
and supervisory and not appellate. The court acts like an
umpire in a game of cricket who has to see that both the teams
play their game according to the rules and do not overstep the
limits and as such by referring to this decision, it has been
contended by Mr. Joshi, learned senior advocate that order
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passed by the learned Single Judge is not sustainable in the eye
of law.
[6.2] Yet another decision is also referred to by learned senior
advocate which is in the case of Meghal Homes (P) Ltd.
versus Shree Nivas Girni K. K. Samiti & Ors. reported in
(2007) 7 SCC 753 and by pointing out in paragraph 51, it has
been contended that there is no incongruity in looking into
aspects of public interest, commercial morality and the bona
fide intention to revive a company while considering whether
the scheme should be accepted or not and as such has
contended that the scope of such test / principle for review, in
scheme proceedings, propounded by Hon'ble Apex Court ought
to have been taken into consideration having not done so the
order is not sustainable.
[6.3] Mr. Mihir Joshi, learned senior advocate has further
pointed out yet another decision in case of Larsen and Toubro
Ltd. reported in 2004 SCC OnLine Bombay 1082 and by
referring to paragraphs 29, 30, 32, 40, 41, 86 and 100, a
contention is raised that in this competitive market, the
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corporate world with exhaustive strategies is a must. If
aforesaid scheme, the scope of judicial review is bleak and it is
difficult for the courts to express their opinion on such matters
since business adjustments or arrangement cannot be decided
or thrusted or imposed by the court especially when such
arrangement or adjustment or such scheme if within the
framework of the law.
[6.4] Mr. Joshi, learned senior advocate has also referred to few
other decisions on the issue of public policy and how it has to be
dealt with and examined while decision making process. The
observations contained in the said decisions have been pressed
into service. One judgment in case of Bhagwant Genuji
Girme versus Gangabisan Ramgopal reported in ILR 1941
Bombay 71 and by referring to paragraphs 79 and 80, it has
been contended that as ordinarily understood, "public policy" is
the principle under which freedom of contract or private
dealings is restricted by law or the good of the community but
then it has been submitted that words "public policy" is a vague
and unsatisfactory term, and calculated to lead to uncertainty
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and error, when applied to the decision of legal rights; it is
capable to being understood in different senses and as such the
Court while dealing with the scheme has to kept in mind the
principles that it is no longer legitimate for the courts to invent
a new head of public policy and the Court is not free to
speculate upon what in its opinion is for the good of the
community of in face. Hence, he has submitted that the
conclusions which are arrived at by the Court while passing the
impugned order are not in consonance with the law laid down
and to substantiate this. Yet another decision is brought to the
notice of this Court which is in the case of Gherulal Parakh
versus Mahadeodas Maiya & Ors. reported in 1959 Supp
(2) SCR 406, paragraphs 21 and 22 have been relied upon.
[6.5] In the process of challenging the finding arrived at by the
learned Single Judge, the concept of commercial wisdom is also
pressed into service and for that purpose, Mr. Joshi, learned
senior advocate has made a reference to a decision which is in
the case of Ion Exchange (India) Limited reported in 2002
(1) Mh. L.J. 411 (Bom) and by referring to few paragraphs
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contained in the judgment precisely paragraphs 19, 20 and 26 a
contention is raised that the law as it has evolved in the area of
merger and amalgamation etc. has recognized the importance of
the Court not sitting as an Appellate Authority over the
commercial wisdom of those who seek to restructure business.
It has been contended that the need for this restatement is all
the greater today where the interplay of competition and the
forces of the market demand efficiency; cost effectiveness and
high levels of productivity etc. are evolved and as such viewed
in these context of this business reality, the scheme of
amalgamation should in the present case pass muster and by
referring to these observations, it has been submitted that so
long as it is not unfair the commercial wisdom of the Company
and the shareholders may be allowed to proceed ahead and as
such keeping the aforesaid principle in mind, learned senior
advocate has submitted that the observations contained in the
impugned judgment are not in consonance with settled
proposition of law. Hence, the illegality which has been
committed deserves to be corrected by setting aside the
impugned order.
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[6.6] Mr. Joshi, learned senior advocate has further submitted
that so far as observation raising doubt against the appellants it
is thoroughly ill-founded in view of the fact that the word
"immoral" is a very comprehensive word. Ordinarily it takes in
every aspect of personal conduct deviating from the standard
norms of life. But it depends upon time, place and situation
prevailing in the society. So the said concept cannot be applied
while not considering the scheme. Mr. Joshi, learned senior
advocate by referring to decision which is in the case of G.T.
Swamy versus Goodluck Agencies reported in 1988 SCC
OnLine Karnataka 175 and other decisions has submitted that
it is duty of the Court to look into not only the interests of the
creditors, but also the conduct of debtor and so long as the
scheme does not violate public interest norms, the Court's
intervention is uncalled for. Mr. Joshi, learned senior advocate
has further submitted that the findings arrived at by the learned
Single Judge in dismissing the scheme are not in consonance
with a series of decisions which have clearly pointed out the role
of the Court. Mr. Joshi, learned senior advocate while
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reiterating the submission, referred to the following decisions:-
"(i) In Re, Sidhpur Mills Co. Ltd. versus
Unknown reported in 1961 SCC OnLine Guj 38.
(ii) Vasant Investment Corporation Ltd. versus
Official Liquidator, Colaba Land and Mill Co. Ltd.
reported in 1979 SCC OnLine Bom 249.
(iii) Central Inland Water Transport
Corporation Limited and another versus Brojo
Nath Ganguly and another reported in (1986) 3
SCC 156.
(iv) G.T.Swamy versus Goodluck Agencies
reported in 1988 SCC OnLine Kar 175.
(v) Hindustant Lever Employees' Union versus
Hindustan Lever Ltd. reported in 1995 Supp (1)
SCC 499.
(vi) Kundanmal Dabriwala versus Dabriwala
Steels and Engineering Company Limited reported
in 2009 SCC OnLine P & H 2510.
(vii) Infrastructure Leasing & Financial
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Services Ltd. versus BPL Ltd. reported in (2015) 3
SCC 363.
(viii) State of Karnataka versus State of T.N.
reported in (2018) 4 SCC 1."
[7] As against this, Ms. P. J. Davawala, learned advocate
appearing on behalf of the official liquidator has vehemently
opposed the stand of the appellants and has submitted that
there is no error committed by learned Single Judge in not
considering the scheme. By referring to several clauses
contained in the scheme, a contention is raised that no error is
committed which may call for any interference. Ms. Davawala,
learned advocate has submitted that it is not correct on the part
of learned senior advocate for the appellants to contend that
Court's intervention is ousted. In fact, on an application made
by either party, the Court can even stay the winding-up process
after hearing the official liquidator and herein this case, no such
application for stay of winding-up was ever been made to the
Court who passed an order of winding-up. As a result of this, no
scheme can be considered keeping in view the proposition of
law laid down in case of Meghal Homes (P) Ltd. (supra). By
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way of pointing out written submissions, it has been contended
that the scheme has provided the cutoff date, appointed date
and effective date and the said dates have already been gone
long back and as such the scheme in question is deserve to be
treated as stale scheme and on that count alone, the same
deserves to be rejected.
[7.1] Though, it has been submitted that dues with respect to
IDBI have been settled, but there is no mention about the detail
circumstances how can they settled the dues with IDBI
especially when the scheme was pending and by referring to
pages 35 & 36 precisely Clauses (iv) & (vi), it has been
submitted that purchase of shares are not permitted by virtue of
effect of Section 536 of the Act once there is an order of
winding-up. Clause 4.1, reflecting on page 36, in which Clause
(a) indicates about the payment made by the sponsor and they
have discharged the liability of company / guarantor without any
authority from anybody and as such the same would tantamount
to be a fraudulent preference which is hit by Section 531(1) of
the Act. The sponsor who said to have paid the amount without
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any order from the Court and claiming that since they have paid
the amount to the creditors their scheme should be considered.
[7.2] Ms. Davawala, learned advocate has further submitted by
referring to page 37 that Clause (b) is an amount of SBI, which
was also settled by sponsor in view of letter dated 20.06.2008
which was addressed to appellant No.1 as a guarantor of the
Company, but that was an offer made by SBI and sponsor
cannot take advantage of the said offer. In respect of dues
relating to workmen by referring to Clause 4.3, it has been
submitted that dues were determined as on 13.02.2006 and
though it may be full and final settlement but no interest nor
any penalty is reflecting and surprisingly, TLA waived its right
to call for and attend the meeting. Opinion of other workmen
was not taken in respect to the scheme and even as on date
also, the other workmen have also certain grievances and it has
been found by the learned Single Judge that as per the report of
TLA, the payment is required to be made, but the said report is
not available with TLA though the same was directed to be
produced from the Registry, even the same was not available
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with the Registry. Accordingly, in view of this situation, the
scheme without any foundation may not be accepted. In respect
of the meetings, which took place of unsecured creditors, many
of the unsecured creditors whose addresses since were also not
available and many names were returned unserved and
creditors last know address was also not available for which
learned advocate for official liquidator is referring to an order
passed by another learned Single Judge dated 22.08.2008. The
unsecured creditors as per the scheme were required to be paid
in view of SOA which was filed way back in 1988 and not
entitled for any penalty interest etc. These circumstances have
also raised doubts about the scheme, and as such, the learned
Single Judge has rightly not accepted it. Learned Single Judge,
according to Ms. Davawala, learned advocate has further
rightly come to the conclusion that all the directors of sponsor
i.e. No.2, RPPL, ipso facto are the directors of the company and
as such in the absence of making any provisions, the intention is
clearly reflecting to take away the company. By referring to
other Clauses of the scheme more particularly Clause 7(viii). It
has been indicated that the limitation of the scheme appears to
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be till 31.03.2009, which date has passed long back and there
appears to be a provision is made with regard to an extension of
the said date beyond the aforesaid date by the sponsor, which
date has never been extended and even if it is extended, the
said was not in knowledge of either official liquidator or to any
other person concerned nor with the Court and as such now the
said date can never been extended in the present proceeding
since the Court is examining the order passed by the learned
Single Judge.
[7.3] It has been further contended by referring to the affidavit
of SBI that it is the only secure creditor and if the sponsor pays
to SBI on behalf of the company then it does not become
automatically secured creditor and the RPPL has assumed itself
a secured creditor and voted in the meeting as secured creditor
and as such the meeting itself is vitiated by their own action.
While dealing with the pledged shares of IDBI, RPPL does not
become secured creditor since Section 536 (2) of the Act no
transfer can be made after commencement of winding-up the
order. By submitting that RPPL was never the shareholder of
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the Company on the date of winding-up order which was passed
on 23.08.1988. So RPPL cannot be a shareholder of the
Company and their voting as a shareholder would vitiate the
whole meeting and as such on account of such circumstance
also, the scheme deserves to be fail. A reference was also made
of an order passed by the learned Single Judge (Justice
C.K.Buch) recognizing shareholding by RPPL from IDBI which is
dated 25.08.2008 and as such treating RPPL as the shareholder
of the company is erroneous. It has been vehemently contended
by Ms. Davawala, learned advocate that when the affidavit was
filed in the year 2009, the valuation of the land was shown as
Rs.15 crores and at present the valuation of land by two
Government Approved Valuers is placed on record on OLR 68 of
2019 and the said OLR 68 of 2019 was filed for valuation, for
inviting claims from all types of creditors, workers under
Section 529 of the Act. But then, an application was filed being
Company Application No.44 of 2019 stating that since the
appeal filed by RPPL is pending, the OL should not proceed
further which was considered by the Company Court, which is
reflecting on page 142.
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[7.4] It has further been submitted that O.J. Appeal No.66 of
2007 which was filed with specific prayer to stay (filed by RPPL)
which was rejected and the Liquidator was asked to proceed
further with regard to assignment of leasehold rights and the
said order was passed by Division Bench of this Court, reflecting
on page 152 of the paper book compilation. The said order
passed by Division Bench was challenged by one person named
as Shaan Zaveri which was rejected by Hon'ble Supreme Court
as not pressed by his counsel.
[7.5] Ms. Davawala, learned advocate has further submitted
that the meaning of compromise by referring to Britannica
Dictionary and has submitted that by virtue of Section 466 of
the Act as per as the observations contained in paragraph 31 in
the case of Meghal Homes (P) Ltd. (supra), even the viability
report is required to be called and in the absence thereof, it is
not possible to approve the scheme especially when with hard
words the learned Single Judge has rejected the same and as
such keeping in view the circumstances prevailing on record,
the learned advocate has then made a reference to the report
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submitted by official liquidator on 02.05.2019 which has clearly
indicated to permit the official liquidator to get the fresh
valuation of the assets and properties of the company in
liquidation from any two Government Approved Valuers and if
this course is not been adopted, serious prejudice will cause.
Ms. Davawala, learned advocate has thus submitted written
submissions by narrating all these relevant circumstance and
tendered the same on 03.08.2023 and has vehemently objected
against the scheme.
[8] In chorus, Mr. Mitul K. Shelat, learned advocate one of
the objector said to have authorized representative of workmen
has pointed out few facts and thereby has submitted that as on
the date of passing of an order of winding-up, the total workmen
employed in the company in liquidation, were 1440
(1429+10+1). But then, the services of the workmen have been
treated as having been retrenched having regard to the order of
winding-up dated 23.02.1988. According to Mr. Shelat, learned
advocate, the concerned auditor has not undertaken the
exercise of determination of outstanding amount payable to the
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workmen though quantified of Rs.7,90,88,784/- since the
exercise of examining claims is yet to be undertaken. In any
case, in the event of the company being revived, each of the
employees will be required to be treated as having been in the
employment of the Company till the date of their
superannuation. For that purpose, has made certain provisions,
namely, Section 25(o) of the Industrial Disputes Act, Section
25(ss) and made a reference to the order dated 14.02.2001 as
well as a decision reported in 1997 (2) GLR 1534.
[8.1] According to Mr. Shelat, learned advocate, the provisions
of the scheme which provide that all rights and claims of the
workmen under any other law would stand eschewed in view of
the scheme and as such the same would run contrary to the
statutory mandate contained under Sections 25(o) and 25(ss) of
the Industrial Disputes Act. As such, the scheme in question is
not possible to be sanctioned as ex facie contrary to law. Here
Mr. Shelat, learned advocate has pointed out that the
department of company affairs has also opined that the scheme
does not take into consideration the interest of the workmen
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and when that be so, the same cannot be sanctioned.
[9] Mr. A. J. Yagnik, learned advocate appearing for the
opponent has made a reference to the decision delivered by the
learned Single Judge dated 16.06.2012 passed in Company
Petition No.135 of 2005 and allied Applications and has made an
attempt to object to the scheme and for that purpose, has made
a reference to paragraphs 10.10 & 10.11 and by making such
reference has restricted his submissions. However, has also
pointed out the decision delivered by Hon'ble Apex Court which
is in the case of National Textile Workers' Union and
Others versus P. R. Ramakrishnan and others reported in
(1983) 1 SCC 228. Paragraph 11 of the said judgment is the
relevant observations which are tried to be projected before the
Court.
[10] Insofar as the stand of Textile Labour Association is
concerned, Mr. Prabhakar Upadyay, learned advocate has
submitted a written submissions by narrating sequence of
events and tried to clarify the stand. By narrating the
circumstances about existence of the workmen, it has been
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pointed out that on 05.05.1989 when the winding-up order was
passed by the Court, 1429 claimants workmen were alive and
after 38 years, as per the information available with the TLA,
there are hardly 300 workmen have remained alive and since
the sponsor has clearly indicated about readiness to pay the
dues as per the provisions contained under the Act, the TLA has
given its consent to the scheme. This consent has been given in
view of further fact that a statement was made before this Court
that from the date of winding-up order, sponsor will pay the
interest amount at the rate of 4%. Hence, the workmen of the
Mill Company (in liquidation) are going to get their dues of
Rs.7.91 crores as ascertained by the Chartered Accountant and
in addition to it, interest at the rate of 4% amounting to
Rs.11.08 crores approximately. The same appears to be fair,
reasonable and in the interest of workmen at large and as such
the representative of the workmen i.e. TLA has clearly taken a
stand to allow the Appeal since the workmen dues are going to
be taken care of. For substantiating such, Mr. Upadyay, learned
advocate representing TLA has also drawn the attention to this
Court in the case of Bank of Maharashtra versus Pandurang
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Keshav Gorwandkar and others reported in 2013 (2) G.L.H.
268 (SC) and has reiterated that TLA has no objection so long
as the interest of workmen is taken care of, as indicated above.
[11] Mr. D. S. Vasavada, learned advocate appearing for the
opponent who earlier appeared also before the learned Single
Judge has made a reference to a decision delivered by Division
Bench of this Court on 15.01.2013 passed in O. J. Appeal No.106
of 2009 and has also tried to drawn the attention of the Court
about official liquidator's report made in Company Application
No.96 of 1999 and the observations contained in the said report
precisely paragraphs 2 and 5 have been pointed out and to
substantiate his stand, Mr. Vasavada, learned advocate has also
made a reference to a decision dated 22.08.2008 passed in
Company Application No.427 of 2008 as well as the decision in
the case of Prasad Mills Kamdar Samiti versus Bhupendra
Bhagwatprasad Patel reported in 2015 (0) AIJEL-HC 233111
and then has submitted that dues of the workmen should be of
paramount consideration and so long as the said interest is
taken care of, there may not be any resistance.
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[12] Mrs. Sangeeta N. Pahwa, learned advocate appearing on
behalf of one of the objector, namely, Naynaben Girishchandra
has vehemently opposed the stand of the appellants and she has
submitted that the order does not required any interference.
Mrs. Pahwa, learned advocate has pointed out that originally
Girishchandra Bhagwatprasad HUF through its Karta Astik
Girishchandra filed Company Application No.34 of 2013
requested to take on record the objections filed by Astik
Girishchandra for and on behalf of his mother Naynaben
Girishchandra who also filed objection along with Company
Application No.34 of 2013 and pointed out that vide order dated
06.11.2015, the Hon'ble Court was pleased to allow the
Company Application No.34 of 2013 and ordered to take the
objections filed by an objector on record of Company Petition
No.264 of 2008. However, Mrs. Pahwa, learned advocate has
pointed out candidly that said order dated 06.11.2015 passed by
the learned Company Judge was challenged by the appellants by
way of O.J. Appeal No.53 of 2015 and on 18.01.2015, the
Hon'ble Court passed an order by observing in paragraph 19
that there is no limitation on the learned Company Judge from
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examining the objections and even suo moto objections can be
taken into account by the learned Company Judge. However,
this Court i.e. predecessor held that objector has no right to
maintain the application in question and as such insisted to be
joined as party in the proceedings. The order passed in O. J.
Appeal No.53 of 2015 was challenged by the appellant by filing
SLP No.3508 of 2016 before the Hon'ble Apex Court, which was
however dismissed by the Hon'ble Supreme Court vide order
dated 12.02.2016. Simultaneously, has also pointed out that the
said disposal of the proceedings in the Hon'ble Apex Court will
not debar Naynaben from objecting to the scheme since she
having a shareholding to the extent of 5 shares in the Company.
[12.1] By giving chronology of events, it has been
emphatically submitted that the objector Naynaben has a very
much right to object the scheme and to be heard on objections
not only of her but also of Astikbhai. Several objections have
been filed by the objector as pointed out by Mrs. Pahwa, learned
advocate and it has been stated that first objection was filed on
05.02.2013, pages 648 to 660, volume-IV and second objections
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was filed on 07.09.2015, pages 804 to 821, volume-V whereas
third objection was tendered on 09.03.2016, page 1320, volume-
VI after the order passed by the Division Bench dated
06.11.2015 and as such, Naynaben deserves to be heard on her
objections and requested the Court to consider. Even in present
Appeal also, the said Naynaben has filed objections, which are
reflecting on record. According to Mrs. Pahwa, learned
advocate, by virtue of observations contained and decisions
delivered by Hon'ble Apex Court in case of Meghal Homes (P)
Ltd. (supra), the present objector has got right to object the
present Appeal and as such has requested to consider her
objections before passing final order. It has been submitted
merely because the learned advocate of the objector did not
remain present, it cannot be said that she has waived her right
of objecting to the scheme and as such a contention is raised
that her objection deserves consideration.
[12.2] Mrs. Pahwa, learned advocate has further submitted
that consideration of the scheme by the Court would run
contrary to the order dated 17.10.2008 passed by the Company
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Court in MCA No.96 of 2007 and to substantiate that
contention, a reference is made to page 60 of Appeal, which
relates to an order dated 17.10.2008. According to Mrs. Pahwa,
learned advocate, the Court directed the Official Liquidator to
publish the advertisement for sale of the assets of the Company
in liquidation whereas the learned advocate representing the
sponsorer submitted that the said order i.e. order passed in
MCA No.96 of 2007 dated 17.10.2008 may not come in the way
of sponsorer's scheme being considered. According to Mrs.
Pahwa, learned advocate, the land in question is the only asset
available with the Company which can yield adequate amount
which may benefit for disbursement of the claims of the
workers, secured creditors, statutory creditors and unsecured
creditors. As such, keeping in view the overall material, a
request is made not to consider the scheme as the same would
run counter the order passed in MCA No.96 of 2007. It has
been further contended that before liquidation of the company,
the company in question was declared as a Sick Industrial
Company and statutory authority could not revive the company
despite all efforts having been made and even Government at a
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time has also aided for revival and as such, it was very relevant
for the learned Company Judge to consider whether the scheme
provides for revival or not. It has been submitted that when the
statutory authorities have also not been able to revive the
company, it was obligatory on the part of sponsorer to find out
the possibility of revival of the company by obtaining the
viability report from the competent authority. Hence, when the
revival of the company is not possible at all, the proposed
scheme in absence of the viability report is not bona fide and as
such the same may not be accepted.
[12.3] By referring to the written submissions, it has been
submitted that before sanctioning the scheme proposed under
Section 391 of the Act, the relevant factors deserve
consideration and for that purpose, what are the factors which
would waive Company Judge. A reference is made to a decision
delivered by Hon'ble Apex Court reported in 2007 (7) SCC 753
(paragraphs 35, 44 to 47, 49 to 52) and such by referring to
these observations when the scheme is proposed during the
winding-up proceedings, it is the duty of the Court to find out
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whether the liquidation was liable to be stayed permanently or
not and for that purpose, what factors to be considered is
enumerated in Clause D of the written submissions. It has been
further contended that the Learned Single Judge has rightly
observed in paragraph 44 of the judgment that the Company in
Liquidation is not possible to be revived since the properties
except land belonging to Company in Liquidation has already
been disposed of and as such the scheme proposed is not a
scheme for revival of the Company in any case. The only
available asset left out is the land, and Clause 5 of the proposed
scheme does not provide any specific proposal as to how and in
what manner the sponsorer proposed to revive the Company in
the land of the Company. After observing and considering every
circumstance which is reflecting on record, the learned
Company Judge has rightly observed, according to Mrs. Pahwa,
learned advocate, in paragraphs 25 to 29 of the judgment that
proposed scheme is not bona fide and what is put forward is a
ruse to dispose of the assets of the company in liquidation and
there is no contrary material or assertion produced by the
appellants to contend otherwise, namely, the scheme is not a
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ruse to dispose of the assets of the Company in Liquidation.
Accordingly, keeping in view of the observations made by
learned Company Judge, present Appeal may not be entertained
and deserves to be dismissed.
[13] No other submissions have been made by learned
advocates appearing for the respective sides.
[14] In rejoinder to these stands taken by the objectors, Mr.
Mihir Joshi, learned senior advocate appearing with Mr. A. S.
Vakil and Mr. Sandip Singhi, learned advocates for the
appellants has pointed out that there is no unfairness in
proposed scheme, there is no immorality much less a
commercial immorality and the same is not in conflict with any
public policy and the proposed scheme is reflecting the
commercial wisdom of the appellants and as such by bringing
certain decisions on record, Mr. Joshi, learned senior advocate
has submitted that only aspect which is to be looked into by the
Court is whether scheme is fair and equitable and it is not for
the Court to judge the commercial wisdom contained in the
scheme and this is more so in view of the fact that the Court
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does not in that sense usurp the business, discretion of the
creditors and the members of the Company and therefore by
citing series of decisions as indicated above, Mr. Joshi, learned
senior advocate has submitted that the stand taken by the
Company does not deserve to be considered.
[14.1] Subsequently, Mr. Joshi, learned senior advocate has
also made a series of circumstances to point out and contend
that the observations and the ratio laid down by the Hon'ble
Apex Court in case of Meghal Homes (P) Ltd. (supra) is not
applicable in view of peculiar background of facts on hand and
thereafter has categorically submitted that the findings arrived
at by the learned Company Judge are not in consonance with the
settled proposition of law. In fact, according to Mr. Joshi,
learned senior advocate, there is no limitation period prescribed
for filing a scheme for revival of the Company which is wound-
up nor there any provisions of law which mandate filing of
scheme proceedings within a certain period from the date of
winding-up order. Before filing of the scheme by the appellants,
there were also certain uncertainties in respect of the leasehold
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land as the lessors had already initiated the proceedings
claiming the leasehold land from the Company. As indicated
above, the observations made by the learned Single Judge are
based on mere inferences and the same are not supported by
any cogent material. Mr. Joshi, learned senior advocate has
submitted chronologically how the stand of official liquidator is
not to be taken into consideration in respect of IDBI as well as
SBIs dues clearance. It has been submitted that in respect of
contention raised by Naynaben having merely a meager
shareholding of five shares, said Naynaben has no locus standi
to object the scheme before Appellate Court and this is in view
of the fact that pursuant to receipt of the notice and explanatory
statement, at a relevant point of time, Naynaben attended the
Court convened meeting, held on 25.09.2008, in respect of five
equity shares held by her and during the said Court convened
meeting, she approved the scheme and not objected and
surprisingly after a lapse of about three years, she filed an
application objecting to the scheme. The learned Single Judge
entertained the application submitted by her, but the same by
detailed order, the Division Bench of this Court was pleased to
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set aside the said order of learned Single Judge and while
disposing of the same, the Division Bench had observed that
there is no limitation on the part of Company Judge from
examining objections and taking into account such objections
even suo moto. Subsequently, the Hon'ble Apex Court
dismissed SLP preferred by Aastik and Naynaben vide order
dated 20.03.2018 and only observation which was made was
that this disposal of SLP will not debar Naynaben from objecting
to the scheme. It has been submitted By Mr. Joshi, learned
senior advocate that in the months of February / March, 2019,
the learned Single Judge heard the petition almost after 11
months from the order of Hon'ble Apex Court and before the
learned Single Judge, said Naynaben failed to appear and did
not raise any objections which otherwise required by virtue of
Rule 34 read with Form No.9 of the Companies (Court) Rules,
1959 and after passing of the impugned judgment dated
12.03.2019, the appellants preferred an appeal which came to
be admitted by the Division Bench on 19.12.2019. Till that point
of time, no leave was sought even from the Division Bench of
this Court to appear and object to the scheme by said Naynaben
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and when the hearing of the appeal commenced on 29.03.2023,
once again, for a period of 3 years, no steps were taken by
Naynaben to seek leave of the Division Bench of the Court to
appear and object to the scheme. Even at the time when
Division Bench heard this Appeal, no application was filed by
Naynaben seeking leave to appear and object to the scheme.
Further, according to Mr. Joshi, learned senior advocate, no
reasons for not appearing before the learned Single Judge
though permitted by Hon'ble Apex Court or the delay to seek
leave, no circumstances are forthcoming and further most
material circumstances that Naynaben had voted in favour of
the scheme at a relevant point of time, as indicated above, and
now under which valid circumstance, the stand is to be changed
is also not forthcoming. Even at present also, when the appeal
is being heard, no reasons or no explanations were provided
hence, considering this series of circumstances, according to
Mr. Joshi, learned senior advocate, Naynaben has stated to be
one of the main objector, has no locus standi to appear and
object to the scheme at an appellate stage before the Division
Bench and for this purpose, learned senior advocate has made a
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reference to the decision in case of Securities Insurance
Company reported in (1894) 2 Ch. 410 as well as in case of
Hindustan Development Corporation Limited and Ors.
versus Shaw Wallace and Co. Ltd. reported in
MANU/WB/0706/1999 mentioned in the written submission.
Hence, the objections even if raised deserves to be not
considered.
[14.2] Subsequently, against the order passed by the
learned Single Judge the contentions have been reiterated and
why the claim of the individual workmen cannot be considered
is narrated in the contentions and further has submitted that
the workmen union which has raised and issued has no locus
standi to appear in the present Appeal and this is more so in
view of the fact that while passing the impugned order by the
learned Single Judge, it was held that Union cannot be allowed
to raise the objections against the scheme for the said 521
workmen for whom Samiti had earlier filed application and
rejected by the Court not only on the ground that they were not
being represented through the representative union, but also on
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the ground of delay. It was further held by the learned Single
Judge that once in this very proceeding of the petition, the
Court rejected the application made on behalf of the same 521
workmen refusing to consider their objections through the
above Samiti, the same workmen, now coming through the
Union, could not be heard on their objections. As such, keeping
in view, the observations made by learned Single Judge also, the
stand taken by the Union is not possible to be accepted more
particularly when the Union has not challenged the impugned
judgment by filing any Appeal. At this stage, Mr. Joshi, learned
senior advocate has also clarified that reliance placed by the
Union on the provisions of Order 41 Rule 33 of the Code of Civil
Procedure, 1908 is completely misplaced since the said
provisions apply to the parties or respondent to the proceeding
and here in the instant case, neither Union was a party to the
proceedings nor held to be necessary of proper party. Thus,
Union would have no right to raise any objections to the scheme
in the Appeal preferred by the appellants and it has further
been submitted that the stand of the Union does not deserve to
be considered especially when the appellants were undertaken
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before the Court to take care of the interest of workmen when
the scheme is approved and when that be so, there is hardly any
reason for Union to raise any grievance. Hence, by narrating all
submissions, as contained in written submissions filed, Mr.
Joshi, learned senior advocate has requested to allow the Appeal
by setting aside the order passed by the learned Single Judge.
It has been emphatically submitted that certain harsh
observations which have been made by the learned Single Judge
that an attempt is made to ruse the property of the company are
thoroughly uncalled for in view of the specific clauses contained
in the proposed scheme. Hence, he has requested to set aside
the impugned order and allow the present Appeal.
[15] Having heard the learned advocates appearing for the
respective parties and having gone through the contentions and
material on record, following circumstances are not possible to
be ignored by the Court while coming to ultimate conclusion on
the order under challenged.
[16] Before dealing with the finding of the learned company
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Judge, proposition of law in the present controversy deserves to
be considered. In respect of role of the Court in reviewing the
scheme proceedings, the Hon'ble Apex Court has propounded
peripheral broad limits to exercise judicial review. In case of
Miheer H. Mafatlal (supra), the Hon'ble Apex Court has
propounded broadly that Court has to consider the pros and
cons of the scheme with a view to find out whether the scheme
is fair, just and reasonable and is not contrary to any provisions
of law and violate any public policy. The Court has to consider
the commercial wisdom of the parties to the scheme who have
taken an informed decision about the usefulness and propriety
of the scheme and the Court will not act as an appeal or sit over
the decision of the parties. Since the Court has neither the
expertise nor the jurisdiction to delve deep into the commercial
wisdom exercised by the creditors and members and as such
Company Court's jurisdiction is peripheral and supervisory and
not appellate. The court acts like an umpire in a game of
cricket who has to see that both the teams play their game
according to the rules and do not overstep the limits. The
relevant abstract contained in paragraphs 28 and 29, the Court
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would like to quote hereunder:-
"28. The relevant provisions of the Companies Act, 1956
are found in Chapter V of Part VI dealing with 'Arbitration,
Compromises, Arrangements and Reconstructions'. In the
present proceedings we will be concerned with
the Sections 391 and 393 of the Act. The relevant
provisions thereof read as under :
"391.(1) where a compromise or arrangement is proposed -
(a) between a company and its creditors or any class of
them ; or
(b) between a company and its members or any class of
them ;
the Court may, on the application of the Company or of any
creditor or member of the company, or in the case of to
company which is being wound up, of the liquidator, order
a meeting of creditors or class of creditors, or of the
members or class of members, held and conducted in such
manner as the Court directs.
(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, 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 :
Provided that no order sanctioning any compromise or
arrangement shall be made by the Court unless the Court
is satisfied that the company or any other person by whom
an application has been made under sub-section (1) has
disclosed to the Court, by affidavit or otherwise, all
material facts relating to the company, such as the latest
financial position of the company, the latest auditor's
report on the accounts of the company, the pendency of
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any investigation proceedings in relation to the company
under sections 235 to 251, and the like.
393.(1) Where a meeting of creditors or any class of
creditors, or of members or any class of members, is called
under section 391, -
(a) with every notice calling the meeting which is sent to a
creditor or member, there shall be sent also a statement
setting forth the terms of the compromise or arrangement
and explaining its effect : and in particular, stating any
material interests of the directors, managing director,
managing agent, secretaries and treasurers or manager of
the company, whether in their capacity as such or as
members or creditors of the company or otherwise, and
the effect on those interests, of the compromise or
arrangement, if, and in so far as, it is different from the
effect on the like interests of other persons; and
(b) in every notice calling the meeting which is given by
advertisement, there shall be included either such a
statement as aforesaid or a notification of the place at
which and the manner in which creditors or members
entitled to attend the meeting may obtain copies of such a
statements aforesaid."
The aforesaid provisions of the Act show that compromise
or arrangement can be proposed between a company and
its creditors or any class of them or between a company
and its members or any class of them. Such a compromise
would also take in its sweep any scheme of amalgamation/
merger or one company with another. When such a
scheme is put forward by a company for the sanction of the
Court in the first instance the Court has to direct holding
of meetings of creditors or class of creditors or members
or class of members who are concerned with such a
scheme and once the majority in number representing
three-fourths in value of creditors or class of creditors or
members or class of members, as the case may be, present
or voting either in person or by proxy at such a meeting
accord their approval to any compromise or arrangement
thus put to vote, and once binding to all creditors or class
of creditors or members or class of members, as the case
may be, which would also necessarily mean that even to
dissenting creditors or class of creditors or dissenting
members or class of members such sanctioned scheme
even though approved by a majority of the concerned
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creditors or members the Court has to be satisfied that the
company or any other person moving such an application
for sanction under sub-Section (2) of Section 391 has
disclosed all the relevant matters mentioned in the
provision to sub-section (2) of that Section. So far as the
meetings of the creditors or members, or their respective
classes for whom the Scheme is proposed are concerned, it
is enjoined by Section 391(1) (a) that the requisite
information as contemplated by the said provision is also
required to be placed for consideration of the concerned
voters so that the parties concerned before whom the
scheme is placed for voting can take an informed and
objective decision whether to vote for the scheme or
against it. On a conjoint reading of the relevant provisions
of Sections 391 and 393 it becomes at once clear that the
Company Court which is called upon to sanction such a
scheme has not merely to go by the ipse dixit of the
majority of the shareholders or creditors or their
respective classes who might have voted in favour of the
scheme by requisite majority but the Court has to consider
the pros and cons of the scheme with a view to finding out
whether the scheme is fair, just and reasonable and is not
contrary to any provisions of law and it does not violate
any public policy. This is implicit in the very concept of
compromise or arrangement which is required to receive
the imprimatur of a court of law. No court of law would
ever countenance any scheme of compromise or
arrangement arrived at between the parties and which
might be supported by the requisite majority if the Court
finds that it is an unconscionable or an illegal scheme or is
otherwise unfair or unjust to the class of shareholders or
creditors for whom it is meant. Consequently it cannot be
said that a Company Court before whom an application is
moved for sanctioning such a scheme which might have
got requisite majority support of the creditors or members
or any class of them for whom the scheme is mooted by the
concerned company, has to act merely as rubber stamp
and must almost automatically put its seal of approval on
such a scheme. t is trite to say that once the scheme gets
sanctioned by the Court it would bind even the dissenting
minority shareholders or creditors. Therefore, the fairness
of the scheme qua them also has to be kept in view by the
Company Court its sanction. It is, of course, true that so
far as the Company Court is concerned as per the statutory
provisions of Sections 391 and 393 of the Act the question
of voidability of the scheme will have to be judged subject
to the rider that a scheme sanctioned by majority will
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remain binding to a dissenting minority of creditors or
members as the case may be, even though they have not
consented to such scheme and to that extent absence of
their consent will have to effect the scheme. It can be
postulated that even in case of such a Scheme of
Compromise and Arrangement put up for sanction of a
Company Court it will have to be seen whether the
proposed scheme is lawful and just and fair to the whole
class of creditors or members including the dissenting
minority to whom it is offered for approval and which has
been approved by such class of persons with requisite
majority vote.
29. However further question remains whether the
Court has jurisdiction like an appellate authority to
minutely scrutinise the scheme and to arrive at an
independent conclusion whether the scheme should be
permitted to go through or not when the majority of the
creditors or members or their respective classes have
approved the this aspect the nature of compromise or
arrangement between the company and the creditors and
members has to be kept in view. It is the commercial
wisdom of the parties to the scheme who have taken an
informed decision about the usefulness and propriety of
the scheme by supporting it by the requisite majority vote
that has to be kept in view by the Court. The Court
certainly would not act as a court of appeal and sit in
judgment over the informed view of the concerned parties
to the compromise as the same would be in the realm of
corporate and commercial wisdom of the concerned
parties. The Court has neither the expertise nor the
jurisdiction to delve deep into the commercial wisdom
exercised by the creditors and members of the company
who have ratified the Scheme by the requisite majority.
Consequently the Company Court's jurisdiction to that
extent is peripheral and supervisory and not appellate. The
Court acts like an umpire in a game of cricket who has to
see that both the teams play their according to the rules
and do not overstep the limits. But subject to that how best
the game is to be played is left to the players and not to
the umpire. The supervisory jurisdiction of the Company
Court can also be called out from the provisions of Section
392 of the Act which reads as under :
"392, (1) Where a High Court makes an order
under section 391 sanctioning a compromise or an
arrangement in respect of a company, it -
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(a) shall have power to supervise the carrying out of the
compromise or arrangement ; and
(b) may, at the time of making such order or at any time
thereafter, give such directions in regard to any matter or
make such modifications in the compromise or
arrangement as it may consider necessary for the proper
working or the compromise or arrangement.
(2) If the Court aforesaid is satisfied that a compromise or
arrangement sanctioned under section 391 cannot be
worked satisfactorily with or without modifications, it may,
either on its own motion or on the application of any
person interested in the affairs of the company, and such
an order shall be deemed to be an order under section
433 of this Act.
(3) The provisions of this shall, so far as may be, also apply
to a company in respect of which an order has been made
before the commencement of this Act under section 153 of
the Indian Companies Act, 1913 (7 of 1913), sanctioning a
compromise or an arrangement."
Of course this Section deals with post-sanction
supervision. But the said provision itself clearly earmarks
the field in which the sanction of the Court operates. It is
obvious that the supervisor cannot ever be treated as the
author or a policy maker. Consequently the propriety and
the merits of the compromise or arrangement have to be
judged by the compromise or arrangement have to be
judged by the parties who as sui juris with their open eyes
and fully informed about the pros and cons of the Scheme
arrive at their own reasoned judgment and agree to be
bound by such compromise or arrangement. The Court
cannot, therefore, undertake the exercise of scrutinising
the scheme placed for its sanction with a view to finding
out whether a better scheme could have been adopted by
the parties. This exercise remains only for the parties and
is in the realm of commercial democracy permeating the
activities of the concerned creditors and members of the
company who in their best commercial economic interest
by majority agree to give green signal to such a
compromise or arrangement. The aforesaid statutory
scheme which is clearly discernible from the relevant
provisions of the Act, as seen above, has been subjected to
a series of decisions of different High Courts and this
Court as well as by the Courts in England which had also
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occasion to consider schemes under pari material English
Company Law. We will briefly refer to the relevant
decisions on the point. But before we do so we may also
usefully refer to the observations found in the oft-quoted
passage in Bucklay on the Companies Act 14th Edition.
They are as under :
"In exercising its power of sanction the Court will see, first
that the provisions of the statute have been complied with,
second, that the class was fairly represented by those who
attended the meeting and that he statutory majority are
acting bona fide and are not coercing the minority in order
to promote interest adverse to those of the class whom
they purposed to represent, and thirdly, that the
arrangement is such as intelligent and honest man, a
member of the class concerned and acting in respect of his
interest, might reasonably approve.
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 be slow to
differ from the meeting, unless either the class has not
been properly consulted, or the meeting has not
considered the matter with a view to the interest of the
class which is empowered to bind, or some blot is found in
the Scheme."
In the case of Re. Alabama, New Orleans Texas and Pacific
Junction Railway Company reported in 1891 (1) Chancery
Division 213 the relevant observations regarding the
power and jurisdiction of the Company Court which is
called upon to sanction a scheme of arrangement or
compromise between the company and its creditors or
shareholders were made by Lindley, L.J. as under :
"What the court has to do is to see, first of all, that the
provisions of that stature have been complied with; and,
secondly, that the minority has been acting bona fide. The
court also has to see that the minority is not being
overdone by a majority having interests of its own clashing
with those of the minority whom they seek to coerce.
Further than that, the Court has to look at the scheme and
see whether it is one as to which persons acting honestly,
and viewing scheme laid before them in the interests of
those whom they represent, take a view which can
reasonably be taken by businessman. The court must look
at the scheme, and see whether the Act has been complied
with, whether the Act has been complied with, whether the
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majority are acting bona fide, and whether they are
coercing the minority in order to promote interests
adverse to those of the class whom they purport to
represent; and then see whether the scheme is a
reasonable on or whether there is any reasonable
objection to it, or such an objection to it as that any
reasonable man might say that he could not approve it."
To the Similar effect were the observations of Fry, L.J.,
which read as under:
"The next enquiry is Under what circumstances is the
court to sanction a resolution which has been passed
approving of a companies or arrangement ? I shall not
attempt to define what elements my enter into the
consideration of the Court beyond this, that I do not doubt
for a moment that the Court is bound to ascertain that all
the conditions required by the statute have been complied
with; it is bound to be satisfied that the proportion was
made in good faith; and, further, it must be so far fair ad
reasonable, as that an intelligent and honest man, who is a
member of that class, and acting alone in respect of his
interest as such a member, might approve of it. What other
circumstances the court may take into consideration I will
not attempt to forecast."
In Anglo-continental Supply Co. Ltd. Re. (1992) 2 Ch. 723,
Asthury, J., a century later reiterated the very same
propositions as under :
"Before giving its sanction to a scheme of arrangement the
court will 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 of the class whom they
purport to represent; and, thirdly, that the arrangement is
such as a man of business would reasonably approve."
The learned Single Judge of the Calcutta High Court in the
case of Re. Mankam Investments Ltd. and others (1995) 4
Comp LJ 330 (Cal.) relying on a catena of decisions of the
English Courts and Indian High Courts observed as under
on the power and jurisdiction of the company Court which
is called upon to sanction a scheme of merger and
amalgamation of companies.
"It is a matter for the shareholders to consider
commercially whether amalgamation or merge is beneficial
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or not. The court is really not concerned with the
commercial decision of the shareholders until and unless
the court feels that proposed merger is manifestly unfair
or is being proposed unfairly and/or to defraud the other
shareholders. Whether the merged companies will be
ultimately benefitted or of expenses is a matter for the
shareholders to consider. If three there will be some
economies in the matter of expenses is a matter for the
shareholders to consider, certainly, there will be some
economies in the matter of maintaining accounts, filing of
returns and various other matters. However, the court is
really not concerned with the exact details of the matter
and if the shareholders approved the scheme by the
requisite majority, then the court only looks into the
scheme as to find out that it is not manifestly unfair and/or
is not intended to defraud or do injustice to the other
shareholders."
We may also in this connection profitably refer to the
judgment of this Court in the case of Hindustan Lever
Employees' Union v. Hindustan Lever Ltd. and others 1995
Supp. (1) SCC 499 wherein a Bench of three learned
judges speaking through Sen, J. on behalf of himself and
Venkatachaliah, CJ., and with which decision Sahai, J.,
concurred Sahai, J., in his concurring judgment in the
aforesaid case has made the following pertinent
observations in this connection in paras 3 and 6 of the
Report :
"But what was lost sight of was that the jurisdiction of the
Court in sanctioning a claim of merger is not to ascertain
with mathematical accuracy if the determination satisfied
the arithmetical test. A company court does not exercise
an appellate jurisdiction
* * *
Section 394 casts an obligation on the court to be satisfied
that the scheme for amalgamation or merger was not
contrary to public interest. The basic principle of such
satisfaction is none other than the broad and general
principles inherent in any compromise or settlement
entered between parties that it should not be unfair or
contrary to public policy or unconscionable. In
amalgamation of companies, the courts have evolved, the
principle "prudent business management test" or that the
scheme should not be a device to evade law. But when the
court is concerned with a scheme of merger with a
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subsidiary of foreign company then test is not only
whether the scheme shall result in maximising profits of
the shareholders or whether the interest of employees was
protected but it has to ensure the merger shall not result
in impeding promotion of industry or shall not result in
impeding promotion of industry or shall obstruct growth of
national economy. Liberalised economic policy is to
achieve this goal. The merger, therefore, should not be
contrary to this objective. Reliance on English decisions
Hoare & Co. Ltd. Re 1933 All ER Rep 105, Ch. D and Bugle
Press Ltd. Re. 1961 Ch 270 that the power of the court is
to be satisfied have complied with or that the classes were
fully represented and the arrangement was such as man of
business would reasonably approve between two private
companies may be correct and may normally be adhered to
but when the merger is with a subsidiary of a foreign
company then economic interest of the country may have
to be given precedence. The jurisdiction of the court in this
regard is comprehensive."
Sen, J. Speaking for himself and Venkatachaliah, CJ., also
towed the line indicated by Sahai, J., about the jurisdiction
of the Company Court while sanctioning the Scheme and
made the following pertinent observations in paragraph 84
at page 528 of the Report :
"An argument was also made that as a result of the
amalgamation, a large share of the market will be
captured by HLL. But there s nothing unlawful or illegal
about this. The Court will decline to sanction a scheme of
merger, if any tax fraud or any other illegality is involved.
But that is not the case here. A company may, on its own,
grow up to capture a large share of the market. But unless
it is shown that there is some illegality or fraud involved in
the scheme, the Court cannot decline to sanction a scheme
of amalgamation. It has to be borne in mind that this
proposal of amalgamation arose out of a sharp decline in
the business of TOMCO. Dr Dhavan has argued that
TOMCO is not yet a sick company. That may be right, but
TOMCO at this rate will become a sick Company, unless
something can be done to improve its performance. In the
last two years, it has sold its investments and other
properties. If this proposal of amalgamation is not
sanctioned, the consequence for TOMCO may be very
serious. The shareholders, the employees the creditors will
all suffer. The argument that the Company has large cotton
mills and jute mills in India have become sick and are on
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the verge of liquidation, even though they have large
assets. The Scheme has been sanctioned almost
unanimously by the shareholders, unsecured creditors and
preference shareholders of both the Companies. There
must exist very strong reasons for withholding of sanction
may turn out to be disastrous for 60,000 shareholders of
TOMCO and also a large number of its employees.
In view of the aforesaid settled legal position, therefore,
the scope and ambit of the jurisdiction of the Company
Court has clearly got earmarked. The following broad
contours of such jurisdiction have emerged :
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
meeting 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 fair to the
class as whole so as to legitimately blind even the
dissenting members of that class.
4. That all the 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
provision 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 of to
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
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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.
The aforesaid parameters of the scope and ambit of the
jurisdiction of the Company Court which is called upon to
sanction a Scheme of Compromise and Arrangement are
not exhaustive but only broadly illustrative of the contours
of the Court's jurisdiction.
[17] Yet another decision in case of Meghal Homes (P) Ltd.
(supra), it has been propounded by the Hon'ble Apex Court that
there is no incongruity in looking into aspect of public interest,
commercial morality and bona fide intention to revive a
Company while considering whether the scheme should be
accepted or not.
[18] So far as scheme is concerned, the Court has to see
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apparently that unless there is apparent illegality, unfairness,
unreasonableness where it is essential to pierce the veil of
corporate strategies. Otherwise, it is difficult to have judicial
review of this aspect of globalization and utility of material
sources by the businessman or experts in the field. Business
strategy is not the Court's domain and it is difficult for the Court
to express their opinion on such matters. Business adjustments
or arrangements cannot be decided or thrusted or imposed by
the Court especially when such arrangement or adjustment or
such scheme is within the framework of the law. This
proposition is well supported by the decision delivered by the
Bombay High Court in case of Larsen and Toubro Ltd.
(supra), since this being a relevant proposition, the relevant
abstract contained in paragraphs 29, 30, 32, 40, 41, 86 and 100,
the Court would like to quote hereunder:-
"29. Mr. Goolam Vahanvati, Advocate General, in
addition to the above principle, further relied on Sussex
Brick Co. Ltd., In re, [1960] 30 Comp Cas 536; [1961] 1 Ch
D 289 and supported the scheme on the foundation that
the onus of proof lies upon the objectors to show that such
scheme is unfair. He referred to the following paragraphs
(pages 538, 539 and 540):
"That being the undoubted law, I think that the
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present scheme and present offer are undoubtedly
open to criticism, and that a clever business man, a
man well versed in company law and matters which
influence dealings on the stock exchange, could find a
good many loopholes in it. That amounts to this: the
scheme is open to criticism; but does that go far
enough? That is the difficulty in the present case. It
has not been suggested on behalf of the applicant
that there has been any bad faith or any intentional
misleading of the applicant, but although the scheme
is open to a good deal of criticism, which might be
enlarged on at great length in one or more circulars,
what exactly the effect on the mind of the
shareholders would have been I do not pause to
inquire. That the scheme is open to criticism I have
no doubt, but can it be said therefore to be unfair? I
think it rather difficult to predicate unfairness in any
case in which there has been perfect good faith on
the side of the person who is alleged to have been
unfair. I think that the applicant is faced with the
very difficult task of discharging an onus which is
undoubtedly the heavy one of showing that he, being
the only man in regiment out of step, is the only man
whose views ought to prevail. That is the difficulty he
is faced with in the present case.
I agree that certain criticisms set out in the
applicant's affidavit show that a good case could be
made out for the formulation of a better scheme, of a
fairer scheme, of one which would have been more
attractive to the shareholders if they could have
understood the implications of the criticisms. I have
no doubt at all that a better scheme might have been
evolved, but is that enough? Is it necessary to
establish the validity of such an offer as put forward
in the present case? Is there any point in the scheme
on which a better view might have prevailed, and
rather more generous treatment might have been
offered to persons whose shares are sought to be
expropriated? A better and fairer offer might have
been made, possibly, but I do not think that because a
scheme is not 100 per cent, fair or right there is the
kind of unfairness with which Maugham J. was
dealing in the case to which I have referred. The
mere finding of items, or details, in the scheme which
are open to valid criticism, is not unfairness
consistent with the spirit of that judgment.
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A scheme must be obviously unfair, patently unfair,
unfair to the meanest intelligence. It cannot be said
that no scheme can be effective to bind a dissenting
shareholder unless it complies to the extent of 100
per cent, with the highest possible standards of
fairness, equity and reason. After all, a man may have
an offer made to him and, although he would prefer
something better, would be quite prepared to accept
it because it was good enough in all the
circumstances. It may be that the grounds for
criticising the present scheme are not grounds of
such a nature as to render the whole thing unfair in
the sense in which Maugham J. used the words in the
case which I have cited...
Without putting my own view as to how this scheme
could have been improved and made a little more
favourable and a little more fair, perhaps, to the
ordinary shareholders, I do not think that unfairness
in the sense in which it has been used in the reported
cases has been established. It must be affirmatively
established that, notwithstanding the view of the
majority, the scheme is unfair, and that is a different
thing from saying that it must be established that the
scheme is not a very fair or not a fair one; a scheme
has to be shown affirmatively, patently, obviously and
convincingly to be unfair."
30. The principle which he canvassed goes to the
root of the present matter. The objectors failed to
discharge their onus of proof of allegations of unfair,
illegal or against the public policy as contemplated under
the Companies Act. The scheme of the Companies Act has
to be read and understood in the context in which the
Companies Act and its scheme worked for the purpose and
benefit of the company and its shareholders. This
judgment has been referred to in Mafatlal's case, [1996]
87 Comp Cas 792 (SC) also at page 820. Those allegations
were without any proof, material and documents. Those
allegations were bare allegations without supporting
evidence or even basic averments. Those allegations were
general and are baseless and without any material.
32. Mr. Goolam Vahanvati further pointed out that in
reference to Grierson, Oldham and Adams Ltd., In re,
[1967] 37 Comp Cas 357 (Ch D); [1967] 1 WLR 385; [1968]
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1 Ch 17, opposition by minority shareholders or individual
shareholders cannot be considered against the majority of
the shareholders who have accepted the scheme in
question. He referred at page 391, to the following
paragraph (page 363 of 37 Comp Cas):
"The third general observation which arises out of the
arguments that have been put forward concerns the
question whether the test of the fairness of the offer is
fairness to the individual shareholder or fairness to the
body of shareholders as a whole. In my judgment, the test
of fairness is whether the offer is fair to the offerees as a
body and not whether it is fair to a particular shareholder
in the peculiar circumstances of his own case. Mr. Gurney-
Champion suggested that the contrary was the true view,
and he referred in support of that submission to certain
remakrs made by Vaisey J. in Sussex Brick Co. Ltd., In re,
[1960] 30 Comp Cas 536; [1961] 1 Ch D 289 which is
reported as a note to Bugle Press Ltd., In re, [1961] 31
Comp Cas 369; [1961] 1 Ch D 270 (CA)."
40. In my view, the present scheme of arrangement
is fair, just and in the interest of the public. Mere
allegations of the objectors are not sufficient and what is
to be seen by the court in such circumstances has been
crystallized in the following words:
"The Chancery Division in Sussex Brick Co. Ltd., In re,
[1960] 30 Comp Cas 536; [1961] 1 Ch D 289, while
discussing the scope and the jurisdiction of the company
court, has held at page 291 that (page 538):
'I think that the present scheme and the present offer are
undoubtedly open to criticism, and that a clever
businessman, a man well versed in company law and
matters which influence dealings on the stock exchange,
could find a good many loopholes in it'."
41. And further that,
"That the scheme is open to criticism I have no doubt, but
can it be said therefore to be unfair? I think it rather
difficult to predicate unfairness in any case in which there
has been perfect good faith on the side of the person who
is alleged to have been unfair. I think that the applicant is
faced with the very difficult task of discharging an onus
which is undoubtedly the heavy one of showing that he,
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being the only man in the regiment out of step, is the only
man whose views ought to prevail."
86. The trend which is noted, is that in such matters
where shareholders have admittedly lost their case in the
respective meetings as they were unable to convince the
majority of shareholders and/or in spite of their objections
and the majority decision have been taken against their
wish, still on such frivolous and baseless grounds, they are
again able to raise such objections before the court to halt
and hinder the sanction of the scheme The early sanction
of the scheme is the need of the hour, so that companies
can proceed further and do their business, which is
definitely in the interest of the public at large, specially
when the companies have a global vision. Such
shareholders, in my view, should be awarded with
exemplary costs so that in future they would not interfere
with the smooth functioning of such arrangements. This
should not be deemed to suggest that the objectors have
no right to point out to the court that the scheme in
question is against law, illegal, unfair, unjust or contrary to
public policy or interest, but such applications must be
made at the appropriate time with appropriate material on
record and not merely by allegations or bald statements or
on vague reasons. However, unless there is specific
provision made in the appropriate Court Rules about such
friviolous objections, I see no reason to award any
exemplary costs against such objectors. Such objections in
a given case, may be bona fide or in the interest of the
minority shareholders. One cannot overlook that the
oppression or any action of majority shareholders if
against the minority shareholders or case of oppression or
coercion, has a different forum to invoke. While
sanctioning the scheme of arrangement, this aspect of
coercion or oppression cannot be considered in such a
company petition at the instance of such objectors with no
material or no justification in support of their allegations of
oppression or monopolization or concentration of cement
industry, as such. No other objectors/intervenors have filed
any written objection or submission and not argued in
person or through advocate, except the objections referred
to in the judgment.
100. In this competitive market, the corporate world
with exhaustive strategies is a must. Companies know how
to make or arrange and adjust their business to run with
the national and international markets. Third person may
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not be in a position to provide them business strategies
and above all, companies know their respective
shareholders' need, may not be bound by the views
expressed by the third persons. Unless there is apparent
illegality, unfairness, unreasonableness where it is
essential to pierce the veil of corporate strategies.
Otherwise, it is difficult to have judicial review of this
aspect of globalization and utility of material sources by
the businessman or experts in the field. Business strategy
is not the court's domain. It is difficult for the courts to
express their opinion on such matters. Business
adjustments or arrangements cannot be decided or
thrusted or imposed by the court specially when such
arrangement or adjustment or such scheme is within the
framework of the law."
[19] In addition to this, it has also been the proposition that
commercial wisdom of the parties normally not to be interfered
with since Court does not investigate upon the commercial
merits or demerits of the scheme which is the function of those
who are interest in the arrangement. To what extent the Court
can enter into such arena of commercial wisdom and to what
extent Court should desist from interfering is well explained in
the decision in case of Ion Exchange (India) Limited (supra).
the relevant abstract contained in paragraphs 19, 20 and 26, the
Court would like to quote hereunder:-
"19. The exercise of discretion by the Court on an
application under section 391 of the Companies Act, 1956
has been elaborately dealt with in a Judgment of a learned
Single Judge, D. A. Desal, J. (as he then was) of the Gujarat
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High Court in the Maneckchowk and Ahmedabad
Manufacturing Co. Ltd.,: The learned Single Judge
emphasised that the effort of the Court is to consider
whether the scheme is reasonable and while doing so, the
Court will have due regard to a large majority vote and to
the reason, if any, which actuated the contesting creditors
in opposing the scheme. Though the scheme has to be fair
and equitable, it is not for the Court to judge upon the
commercial merits of the scheme. The Court does not in
that sense usurp the business discretion of the creditors
and members of the Company. The Court will sanction the
scheme unless it was conceived, designed or calculated to
cause injury to others. Similarly, if the Court comes to the
conclusion that the scheme is a cloak to cover the
misdeeds of the Company or is put forth with a view to
shield the Directors against an investigation into their
mismanagement, the scheme cannot be accepted only on
the ground that it has been approved by the creditors and
members.
20. The Judgment need not be burdened by a further
reference to decisions emanating in the High Courts save
and except to state that the decided cases emphasise that
the function of the Court is to determine having regard to
the general conditions, background and object of the
scheme whether it is fair and reasonable as a whole. The
Court does not investigate upon the commercial merits or
demerits of the scheme which is the function of those who
are Interested in the arangement. This view has been
taken by a learned Single Judge of the Madras High Court
in the case of Coimbatore Cotton Mills Ltd. v. Lakshmi
Mills Co. Ltd.,. In United Bank of India Ltd. v. United India
Credit and Development Company Ltd., the scope of the
jurisdiction of the High Court was formulated thus, by a
learned Single Judge of the Calcutta High Court :
"Further, the Court cannot speculate at this stage as to the
possibility, potentiality of the amalgamated-company in
future and its working. It is true that the Court is not a
mere rubber-stamp but. In sound exercise of its
discretionary power to sanction a scheme, must consider
the scheme as a whole having regard to the general
conditions, background, and object of the scheme and the
present day conditions, and atmosphere in the State where
the companies are going to function. Court cannot take a
pedantic and strict view of each and every clause in the
scheme and speculate as to its future, feasibility and
possibility at this stage. It is for the collective wisdom of
the shareholders who are primarily businessmen and
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Investors guided by the directors of a company to
determine the course of business they choose."
A reference may also be made to a Judgment of a learned
Single Judge of the Karnataka High Court in
Shankarnarayana Hotels Put. Ltd. v. Official Liquidator,
which reiterate these principles.
26. The wholly owned subsidiaries which the Transferee
seeks to formally amalgamate within its fold have
sustained losses. To object to the Scheme of
Amalgamation, as the Intervenor has done, on the ground
that there is no benefit to the transferee in merging with
loss making entities is a simplistic approach to a business
and economic problem. Surely, the business and
commercial wisdom of those who control corporate
enterprise cannot be predicated upn such simplistic
assumptions. The law and those whose duty it is to
interpret it must be conscious of the complexities of
business and economic life. The basic assumptions which
were the foundation of a closely regulated and controlled
economy have altered in present day society where
corporate enterprise has to gear itself up to a free form of
competition and an open interface with market forces. The
fortunes of corporate enterprise are liable to fluctuate with
necessary cycles. Changes in economic policy and
economic changes affect the fortunes of business as
assumptions and conditions in which corporate enterprises
function are altered. Corporate enterprise must be armed
with the ability to be efficient and to meet the
requirements of a rapidly evolving business reality.
Corporate restructuring is one of the means that can be
employed to meet the challenges and problems which
confront business. The law should be slow to retard or
impede the discretion of corporate enterprise to adapt
itself to needs of changing times and to meet the demands
of increasing competition. The law as it has evolved in the
area of mergers and amalgamations has recognized the
Importance of the Court not sitting as an Appellate
Authority over the commercial wisdom of those who seek
to restructure business. The need for this restatement is
all the greater today where the interplay of competition
and the forces of the market demand efficiency; cost
effectiveness and high levels of productivity. Viewed in the
context of this business reality, the Scheme of
Amalgamation should in the present case pass muster. The
holding company in the present case seeks to emerge from
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the economic difficulties which face its subsldiaris which
have become loss making entities. The effort is to pool
together human, financial and material resources and to
deploy them, upon amalgamation in a manner that would
enhance profitability. This is a permissible object and
nothing in the proposed scheme in the present case
militates against commercial morality, the public interest
or a view which a reasonable body or shareholders or
creditors would adopt. The transferor and the transferee
companies have annexed to the Company Petitions
sufficient material and financial data so as to enable the
Court to determine whether the Scheme of Amalgamation
is reasonable and workable. The averments contained in
paragraphs 17 and 25 of the Petitions cannot be looked
upon in isolation. There has been a sufficient disclosure in
the present case of the terms of the scheme as well as of
its effect so as to enable the Court to form a view of the
matter. The Intervenor in the present case has a claim of
Rs. 35 lakhs. The transferee will be in a position to meet
the claim should it be adjudicated by the competent form
in favour of the Intervenor."
[20] There is another principle on which the Court has to
examine is the aspect of commercial morality which is also quite
visible from one of the decisions delivered by Karnataka High
Court in case of G.T. Swamy (supra). With a view to see that
present judgment may not unnecessary overburden the gist is
not incorporated hereunder, but in summarized manner if to be
conveyed, it is propounded that although the consent of all the
creditors has been obtained, the Court will still consider
whether what they have agreed to is for the benefit of the
creditors as a whole and it is rather a duty of the Court to look,
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not only at the interests of the creditors, but also at the conduct
of the debtor.
[21] Further the role of the Court under Section 394 of the
Companies Act is to satisfy that scheme for amalgamation or
merger or the scheme which might have been placed for
approval was whether contrary to public interest or not. The
relevant observations contained in paragraphs 5, 6, 9 & 12 of a
decision in case of Hindustan Lever Employees' Union
(supra) deserves to be considered, as relevant and as such, the
Count deems it proper to quote hereunder:-
"5. What requires, however, a thoughtful
consideration is whether the company court has applied its
mind to the public interest involved in the merger. In this
regard tie Indian law is a departure from the English law
and it enjoins a duty on the court to examine objectively
and carefully if the merger was not violative of public
interest. No such provision exists in the English law. What
would be public interest cannot be put in a straight jacket.
It is a dynamic concept which keeps on changing. It has
been explained in Black's Law Dictionary as:
"something' in which the public, the community at large,
has some pecuniary interest, or some interest by which
their legal rights or liabilities are affected. It does not
mean anything so narrow as mere curiosity, whereas the
interest of the particular locality which may be affected by
the letters in question, interest shared by the citizens
generally in affairs of local, State or national Government."
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It is an expression of wide amplitude. It may have different
connotation and un-derstanding when used in service law
and yet a different meaning in criminal law than civil law
and its shade may be entirely different in Company Law.
Its perspective may change: when merger is of two Indian
companies. But when it is with subsidiary of foreign
company the con-sideration may be entirely different. It is
not the interest of shareholders or the employees only but
the interest of society which may have to be examined.
And a scheme valid and good may yet be bad if it is against
public interest.
6. Section 394 casts an obligation on the court to be
satisfied that the scheme for amalgamation or merger was
not contrary to public interest. The basic principle of such
satisfaction is none other than the broad arid general
principles inherent in any compromise or settlement
entered be- tween parties that it should not be unfair of
contrary to public policy or unconscionable. In
amalgamation of companies, the courts have evolved, the
principle of, 'prudent business management test' or that
the scheme should not be a device to evade law. But when
the court is concerned with a scheme of merger with a
subsidiary of a foreign company then the test is not only
whether the scheme shall result in maximising profits of
the shareholders or whether the interest of employees was
protected but it has to ensure that merger shall not result
in impeding promotion of industry or shall obstruct growth
of national economy. Liberalised economic policy is to
achieve this goal. The merger, therefore, should not be
contrary to this objective. Reliance on English decision for
Custina Re Haare, 1933 AER Ch. 105 and Bugle Press LIC,
1961 Chancery Division 270 that the power of the court is
to be satisfied only whether the provisions of the Act have
been complied with or that the class or classes were fully
represented and the arrangement was such as a man of
business would reasonably approve between two private
companies may be correct and may normally be adhered to
but when the merger is with a subsidiary of a foreign
company then economic interest of the country may have
to be given precedence. The jurisdiction of the court in this
regard is comprehensive.
9. Each of these challenges claimed to be violative
of public interest have to be examined in the prevailing
atmosphere which opted for liberalisation of the
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Government policies to promote economic growth of the
country. What is remarkable is that the Legislature itself
has amended Foreign Exchange Regulation Act, 1973 by
Act 29 of 1993 ('FERA' for short), the Monopolies and
Restrictive Trade Practices Act, 1969 and Companies Act,
1956 by Act of 58 of 1991, The amendment in MRTP Act
was effected as :
"The basic philosophy behind the MRTP Act was never to
inhibit industrial growth in any manner but to ensure that
such growth is channelised for the public good and is not
instrumental in per-petuating concentration of economic
power to the common detriment. With the growing
complexity of industrial structure and the need for
achieving economies of scale for ensuring higher
productivity and competitive advantage in the
international market, the thrust of the industrial policy has
shifted to controlling and regulating the monopolistic,
restrictive and unfair trade practices rather than making it
necessary for certain undertakings to obtain prior approval
of the Central Government for expansion, establishment of
new undertakings, merger, amalgamation, take over and
appointment of Directors. It has been the experience of the
Govern-ment that pre-entry restriction under the MRTP
Act on the investment decision of the corporate sector has
outlived its utility and has become a hindrance to the
speedy implementation of industrial projects".
In pursuance of this objective, Sections 20 to 26 were
repealed. Section 23 of it which empowered the
Commission to examine the scheme of amalgamation or
merger is no more on the statute book. The argument of
the Petitioners that the Commission being court of primary
jurisdiction the Company Court should have stayed its
hands and awaited the decision of the Commission does
not appear after amendment to be sound. Effect of the
merger resulting in monopoly is already pending before
the Commission. Therefore, no further comment is called
for.
12. Even assuming that the assets are being
transferred for a very meager sum but that by itself would
not render the agreement bad or against public policy.
Once the FERA was amended and assets of the Indian
company could be transferred to foreign company then the
amalgamation cannot be withheld when the shareholders
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themselves did not raise any objection nor was it raised by
financial institutions or statutory bodies. The challenge,
therefore, founded on transfer of assets at lower price
cannot be upheld as violative of public interest.
[22] In addition to this, it appears that much emphasis has
been placed in case of Meghal Homes (P) Ltd. (supra) but
the said case if to be viewed would indicate that in the said
case, initially the Company Court passed an order on
01.09.1994 directing the official liquidator to issue public notice
inviting offers for revival of the textile mills, namely, Shreenivas
Cotton Mills Limited then one Mr. Ranganath Somani, a
contributory, filed Company Application for convening of the
meetings to consider a scheme for revival of the Company and
in that case, clause 1.5 of the scheme proposed by Mr.
Ranganath Somani, it was mentioned that the scheme does not
envisage sale of any of the assets or properties of SCML and it
is for the revival of the textile mill and in that factual scenario,
the Company Court directed convening of the meetings. The
said order of the Company Court directing convening of the
meetings was also challenged in the Appeal. The Division
Bench, by its order dated 04.04.1995, allowed the Appeal and
set aside the order of the Company Court directing convening
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the meetings and simultaneously, the Division Bench gave
directions to the Company Court for the purpose of reviving the
Company and to restart the Mills. It is in this context, a
memorandum of understanding was executed on 29.06.2003
between Somani Group and Lodha Builders Private Limited
wherein Lodha Builders agreed to pay some consideration and
certain built-up area to enable Lodha Builders to develop the
properties of SCML and in that context, an application was
submitted before Company Court for seeking direction for
convening of the meeting to consider the amended scheme and
under the amended scheme, what was sought for approval was
development and transfer of properties. Yet another amendment
to the scheme and instead exploring the possibility of revival,
the intention was otherwise, and as such, Company Court
rejected the amended scheme on 23.07.2004, by holding that
the scheme is basically in substance for disposal of property.
The said order was challenged before Appellate Court, the
Appellant Court sanctioned the scheme and the said Appellant
Court's order was challenged before the Hon'ble Apex Court.
Hence, it is in such peculiar background of fact, the Hon'ble
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Apex Court held that the scheme was not intended for any
revival and the same was more in the realm of disposal of the
assets. This proposition, which is tried to be canvassed by the
parties opposing the scheme is without considering the peculiar
background of present facts on hand.
[23] The aforesaid judgment, according to Mr. Joshi, learned
senior advocate, is not applicable in view of the fact that under
the scheme which is proposed by the appellant, there is no
disposal of assets of the Company intended and further there is
no clause seeking sale or dispose of assets or starting the
business at any other place except where the land of the
company is situated and therefore, the scheme is not intended
to dispose of the assets, namely, the land and the principle laid
down in Meghal Homes (P) Ltd. (supra) is not applicable.
[24] In the light of aforesaid broad proposition, laid down in
catena of decisions, reverting back to the case on hand, it seems
that the scheme of compromise is intended for revival of the
Mills Company which was already wound-up by the Company
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Court vide order dated 23.08.1988 (the date of the order of
winding-up referred in other proceedings / orders is dated
05.5.1989). Somewhere in the year 1998, the movable
properties of the company, namely, the stock of goods, plant,
machineries etc. were disposed of for an aggregate amount of
Rs.131 lakhs and what was left out is the immovable property in
the nature of land admeasuring 36971.25 sq. mtrs., which was
stated to be reduced to some extent on account of acquisition by
the Ahmedabad Municipal Corporation for road widening, but
continued to be in possession of the Official Liquidator with cash
in bank balance of the Company's account.
[25] The scheme of compromise, which has been submitted
before the Company Court is detailed out in its entirety with
relevant clauses which are narrated in paragraph 3 of the
judgment and order dated 12.03.2019. But some of few clauses,
which are very relevant to the issue needs to be considered and
as such, we deem it proper to quote hereunder:-
"2. The scheme of compromise is for revival of Prasad Mills
Ltd. (in liquidation) (to be referred as `the Company`)
which, as stated by the petitioners in the petition, was
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ordered to be wound up by this Court on 23.8.1988 (The
date of the order of winding up referred in other
proceedings/orders is 05.5.1989). As stated in the petition,
the movable properties of the Company namely stock of
goods, plant, machineries etc. were disposed of in the year
1998 for aggregate consideration of Rs.131 lac. However,
the land admeasuring about 36971.25 Sq. Mtrs., which is
stated to be reduced to some extent on account of
acquisition by the Ahmedabad Municipal Corporation for
road widening, continued to be in possession of the Official
Liquidator with cash in bank balance of the Company's
account .
3. ii) 'Appointed date' means 1st August 2008 or such date
that the High Court of Gujarat may direct.
iii) 'Applicant' means Mr. Bhupendra Bagwatprasad Patel,
who is ex-director of the Company and guarantor for the
dues of the Company to the Secured Creditors.
iv) 'Cut off date' means 23 rd August, 1988; being the date
on which the statement of Affairs of the company has been
drawn and the date on which the provisions liquidator was
appointed by the High Court of Gujarat.
vi) (a) 'Secured Creditors' means creditors having lent
money or granted credit facilities to the Company in the
form of loan, deposit, guarantee or other finances or funds
which is/are secured by way of a charge created over the
movable and/or immovable properties and assets of the
Company on account of deed of hypothecation, mortgage
or deposit of title deeds, as the case may be and include
the State Bank of India and/or IDBI Bank Ltd. or its
respective assignee/s.
(b) 'Statutory Creditors' means those creditors of the
Company as on the cut off date to whom the amount is due
under the Stature including statutory rules, regulations or
bye-laws.
(c) 'Workmen' means persons who were in the employment
of the Company and 'Workmen's dues' means dues of the
'Workmen'; both caused to have been ascertained by the
Official Liquidator, in terms of Section 529 of the Act.
vii) 'Effective Date' means the date on which the scheme
comes into effect in terms of clause No 7 vii).
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xi) 'Scheme' means the proposed scheme of compromise or
arrangement between the Company and its creditors,
shareholders and the sponsor/s or the proposed scheme
with such modification(s), if any, made as per directions of
the High Court or otherwise, for reconstruction of the
Company.
Xii) 'SOA' means the copy of the Statement of Affairs
stating the position of assets and liabilities of the Company
as on 23rd August 1988.
xiii) 'Sponsor' means Riverfront Properties Pvt. Ltd.
(RPPL), a company registered under the provisions of the
Companies Act, 1956, presently having its registered office
at SERA, 13, Gandhibag Society, Law Garden, Ahmedabad,
Pin Code380006 and/or its nominee, assignee,
representative.
2. Background :
i) Prasad Mills Ltd. (in liquidation) has been registered as
a company on 3rd September 1914 at Sr. No.41 with the
office of the Registrar of Companies, Bombay under its
erstwhile name i.e. Bechardas Spinning and Weaving Mills
Ltd. Its registered office used to be at Raikhad, Ahmedabd,
380001. The Company was engaged in the business of
manufacturing textiles. The operations of the Company
came to standstill around January 1984 due to financial
difficulties, interalia the non payment of electricity supply
bill/s. The Company used to be under the protection and
purview of Bombay Relief Undertakings Act (Special
Provisions) Act, 1958 upto May 1986. On 23rd August
1988, pursuant to winding up petitions before the High
Court of Gujarat, the Company was directed to be wound
up. Properties and assets of the company came into
possession of the Official Liquidator from 23rd August
1988. In the year 1998, movable properties of the
company, namely, the stock of goods, plant and machinery
etc. and superstructure of the building/s were put to sale
by the Official Liquidator and accordingly the said assets
were disposed off for the aggregate consideration of
Rs.131 lacs. Thereafter the properties and assets of the
company that have remained are (i) freehold and leasehold
rights of land admeausring about 36971.25 Sq. mtrs.,
which is now reduced by the area as actually acquired by
the Ahmedabad Municipal Corporation for widening of the
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road; (ii) unrealised investments/ dues of the company, if
any and (iii) cash and bank balance with the Official
Liquidator. The Company is entitled to the usage of the
leasehold portion of the land on account of a lease deed
dated 10.12.1916 executed between late Shri Durgaprasad
Shabhuprasad Lashkari and the Company. The period of
lease is for 199 years and lease rent payable per annum is
about Rs.3500/-. Pursuant to the directions of the Gujarat
High Court, leasehold rights in the said land have been put
to sale by the Official Liquidator. Pursuant thereto the
promoters of the Sponsor-RPPL have bidded in their
personal capacity for the acquisition of the leasehold
rights in April May 2006. the offer of the said promoters of
the sponsor being the highest (RS 7.75 crores) has been
recommended by the Official Liquidator vide his report
no.45 of 2005 for acceptance/ confirmation by the Gujarat
High Court. Simultaneously, aggrieved by the action of the
Official Liquidator, few persons claiming to be the heirs/
legal representatives / successors of the late lessorShri
Durgaprasad Shambhuprasad Lashkari; initiated
proceedings before Gujarat High Court seeking a direction
that the Official Liquidator of the Company should hand
over possession of the lands to the said alleged heirs/legal
representatives and also seeking an injunction restraining
the Official Liquidator from selling/transferring the
lands/leasehold rights of the company. The learned Single
Judge of the Gujarat High Court dismissed the said
proceedings of the heirs/legal representatives. Being
aggrieved by the same some of the alleged heirs/legal
representatives have preferred appeals before the
appellate forum of the Gujarat High Court. Pending the
Appelas, the appelalte forum of the Gujarat High Court has
granted an interim injunction against sale of such rights.
The said appeals are heard and the judgement is awaited.
On account of the interim order passed by the appellate
forum of the Gujarat High Court in the appeals, the Official
Liquidator's report 45/2005 is awaiting further orders.
ii) Shri Bhupendra Bhagwatprasad Patel is one of the
equity shareholders and an ex-director of the Company. He
ceased to be the director of the Company on its winding
up. He has extended his personal guarantee for the
outstanding dues of the Company to its secured creditors.
iii) Riverfront Properties Pvt.Ltd. (RPPL) - the sponsor is a
company registered under the provisions of the Companies
Act, 1956. Its registered office is situated at 'Sera',
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Gandhibag Society, Near Law Garden, Ellisbridge,
Ahmedabad 380006. RPPL is promoted by Mr. Shaan
Zaveri, Mr.Mischa Gorchov and Mr.Anand Shah.
Promoters of RPPL are; interalia, engaged in the business
of civil construction and real estate development. RPPL
has the requisite resources to sponsor and support the
scheme of compromise and arrangement of the Company.
iv) Dues of the Industrial Development Bank of India(IDBI),
being the secured creditor the Company, has been settled
and paid off by the Sponsor-RPPL. IDBI has assigned its
right, title and interest in the debt due to IDBI from the
Company along with its security interest in favour of the
Sponsor-RPPL. IDBI has filed Company Application No.414
of 2007 before the Gujarat High Court seeking appropriate
directions under the provisions of the Companies Act,
1956, thereby seeking to substitute the name of the
Sponsor-RPPL in place of IDBI as the secured creditor of
the Company. The said Company Application 414/2007 is
pending the awaits decision of the Gujarat High Court.
v) Dues of State Bank of India has (SBI), being the other
secured creditor of the Company, has been settled for
Rs.2,64,14,885/- (Rupees two crores fourteen lacs eight
hundred eighty five) vide its letter dated 20th June 2008
bearing No.SAMB / 08-09/ TRP. 513. The said settled
amount is proposed to be paid off in terms of the scheme.
vi) Sponsor-RPPL has acquired interest in aggregate 5693
nos. of Equity Shares of the Company. Out of the said 5693
shares, 3669 Equity Shares are acquired as the assignee of
the debt of the IDBI and 2024 Equity Shares are acquired
as the purchaser from various Shareholders/
contributories of the Company. As the Company is in
winding up, the transfer of shares is subject to the
approval of the Gujarat High Court. Sponsor has
approached the Official liquidator vide its letter dated 26th
November 2007 and 14th July 2008 respectively, with a
request to recognise the sponsor- RPPL's rights, title and
interest in the said 2024 Equity shares and to effectuate
the changes in the List of Contributories of the Company.
3. Basic of the Scheme
The Scheme proposes the settlement and payment of dues
of the following creditors of the Company:
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(i) for the secured creditors as has been agreed to between
the Applicant, Sponsor and the creditor;
(ii) for the workmen, and Ahmedabad Municipal
Corporation as per their respective claims stated and
ascertained by the official liquidator; and
(iii) for those Creditors whose names with their respective
dues have been stated in the SOA.
The Scheme also proposes the redemption of preference
share capital an issue and allotment of fresh Equity Share
Capital.
4.1 Secured Creditors
i) Industrial Development Bank of India (IDBI) and State
Bank of India (SBI)
4.3 Workmen
i) 'Workmen's dues' as ascertained by the Official
Liquidator and reported to the High Court of Gujarat vide
the Official Liquidator's report dated 13th February 2006
in Company Application No.96 of 1999 in Company
Petition No.21 of 1984 shall be treated as the amount
settled, due and payable.
ii) Any interest or additional amount of whatever nature
other than the sum settled in i) above shall not be
considered, calculated or paid.
iii) Amount due and payable as per sub clause i) shall be
paid to the workmen towards the full and final settlement
of their dues.
iv) If any amount that is paid by the erstwhile company or
the liquidator or that has been appropriated by the
workmen after the cut off date, the same shall be deducted
from the amount so payable under sub clause i) and the
balance thereafter alone shall be payable.
v) Such sum shall be paid within 3 (three) months form
effective date.
vi) Upon settlement of dues of the workmen in terms of the
above, all the rights of workmen including the right to
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occupy the premises and properties of the Company and
all the obligations of the company with respect to all or
any of them arising out of, from or on account
employment, terms related thereto and anything
connected therewith or incidental thereto shall cease to
exist and finally extinguished with effect from the cut off
date.
Vii) If any suit, writ petition, appeal, revision or other
proceedings of whatever nature against the Company and/
or its Principal Officer is filed by any of its workmen, the
same shall be withdrawn upon payment /settlement in
terms of the Scheme by the concerned workmen. However,
any such suit, writ petition, appeal, revision or other
proceedings of whatever nature against the Company and/
or its Principal Officer shall not be proceeded further by
the concerned workmen from the date of sanction of the
Scheme.
5. Business of the Company
In contemporary facts and circumstances, the original
business of the company i.e. manufacturing of textiles, if
not found viable by the company / sponsor, the company
shall diversify into such other business activities which
may be found suitable, viable and permissible in
accordance with the laws of the land.
6. Finance, Accounting and Managerial Aspects:
ii) On the Scheme being effective, in consideration of funds
there for having been provided by the sponsor, the
Company shall be empowered to issue and allot 2,20,000
Nos. of Equity Share of Rs.250/- each aggregating to
Rs.5,50,00,000/- (Rupees five crores fifty lacs only) to the
sponsor or its nominee. Equity shares so issued and
allotted shall rank pari passu with the existing equity
shares in all respects.
7. General:
vii) This scheme is conditional upon and shall not become
operative until all the following conditions are fulfilled,
viz.:
viii) In the event of any of the aforesaid sanctions and
approvals, referred to in the preceding Clause 7 vii) above,
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not being obtained and / or the Scheme not being
sanctioned by the High Court and / or the order or orders
not being passed as aforesaid before 31.03.2009 or within
such further period or periods as may be considered by the
Sponsor without any limitations, the Scheme of
Arrangement shall stand revoked, cancelled and be of no
effect.
4. The petitioner No.1 is ex-Director of the Company and
the petitioner No.2 is the Private Limited Company stated
to have been incorporated on 13.6.2006 and engaged in
the business of civil construction and real estate
development. Before filing the petition, the petitioners had
moved Company Application No.427 of 2008 seeking order
for convening the meetings of various creditors and equity
shareholders of the Company for the purpose of
considering and, if thought fit, approving with or without
modification, a scheme of compromise, to be made
between the Company and its creditors. On the said
application, the Court made order dated 22.8.2008 to
convene the meeting of the secured creditors, statutory
creditors and other creditors (as defined in the scheme) of
the company for the purpose as aforesaid and also of the
equity shareholders. However, as recorded in the said
order, the meeting with the workmen of the Company was
dispensed with in view of the affidavit dated 26.7.2008
submitted by the Textile Labour Association (TLA) giving
its consent to the scheme and waiving its right to be called
for meeting and to attend the meeting. It appears that
thereafter, the Chairman appointed for such meetings
convened separate meetings of the secured creditors,
statutory creditors and shareholders. The Chairman who
convened the meetings submitted his report dated
6.10.2008 as per which, the meeting with secured
creditors was held on 25.9.2008 at 11 O'clock and at
commencement of the meeting, representatives of two
creditors, one Riverfront Properties Pvt. Ltd. -the
petitioner No.2 and another State Bank of India (SBI),
were present and the representatives of SBI left the
meeting after stating that by virtue of the OTS entered by
SBI with the Government of Gujarat, it had surrendered its
security rights. The Chairman recorded that the secured
creditor - the petitioner No.2 voted in favour of the
scheme, then the meeting with the statutory creditors was
held at 12.00 noon wherein voting against the proposed
scheme was recorded as NIL, then meeting with other
creditors was held at 1.00 p.m. wherein voting against the
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proposed scheme was recorded as NIL, then meeting of
equity shareholders was held at 2.00 p.m and in
particulars of the equity shareholders, it was recorded that
two shareholders, named Manubhai S. Shah and Kanubhai
S. Shah, who each had one share, voted against the
scheme and the other equity shareholders voted in favour
of the scheme."
[26] The details with regard to the share capitals subscribed
paid-up as on 31.12.1984 is stated in tabular form which reads
as under:-
"5. The petitioners have given out the details of share
capitals, issued subscribed/ paid-up as on 31.12.1984, as
under:-
18,000 Ordinary Shares of Rs.250/- each Rs.45,00,000
4000- 6.43% (Taxable) Cumulative Redeemable Rs.5,00,000
Preference Shares each of Rs.125/-
(redeemable with the notice of one Month at
Face Value)
Total Rs.50,00,000
Issued Subscribed & Paid-up:
10,000 Ordinary Shares of Rs.250/- Rs.25,00,000
3866- 6.43% Taxable) Cumulative Redeemable Rs.4,83,250/-
Preference Shares each of Rs.125/-
(redeemable with the notice of one Month at
Face Value)
Total Rs.29,83,250.00
6. Though it is stated in the petition that Memorandum of
Association of the company was not available at the time of
filing the petition, however later on, copy of Memorandum
of Association came to be placed on record with the
Additional Affidavit filed by shri Shan Zaveri- the Director
of the petitioner No.2 company. In clause 3 of the
Memorandum of Association, the objects for which the
Company was established are stated as under:-
(n) To carry on any other business which may seem to the
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company capable of being conveniently carried on in the
connection with the above, or calculated directly or
indirectly to enhance the value of, or render profitable any
of the Company's property or rights.
(x) To sell or dispose of the undertaking of the company or
any part there of in such manner and for such
consideration as the company may think fit, and in
particular for shares (Fully or partly paid up,) debentures,
debenture stock or securities of any other company,
whether promoted by this company for the purpose or not,
and to improve, manage, develop, exchange, lease, dispose
of, turn to account of otherwise deal with all any part of
the property and rights of the company."
[27] In the light of aforesaid clauses, after evaluating the
details, the submissions of learned advocates and after
considering the material, the learned Company Judge has
arrived at a conclusion, which conclusion is made the subject
matter of present appeal, which we deem it proper to quote
hereunder:
"21. Keeping in mind the above principles of law, the
scheme proposed by the petitioners shall be required to be
examined.
22. It is not in dispute that all movable properties, i.e.
stock of goods, plants and machineries and super-
structures were sold by the Official Liquidator with the
permission of the Court in the year 1998 and out of the
sale proceeds received of Rs.131 lac, ad-hoc
disbursements were made amongst SBI, IDBI and the
workmen on pro-rata basis. Thus, from 1998, the only
property which has remained with the Company is the land
admeasuring 35722.41 Sq. Mtrs. While the heirs of the
lessor took out the proceedings to get back the land
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remained with the Company, the Official Liquidator started
proceeding for sale of the rights in the land. Thus, from
1988 to 1998 i.e. between the order made for winding up
of the company till the movable properties were sold, and
thereafter till process for sale of the land was initiated in
2006, there was no move from anybody for revival of the
company. While dismissing the O J Appeals of the heirs of
the lessor, the Court directed Official Liquidator to issue
fresh advertisement. Thereafter, shri Shaan Jhaveri filed
application to recall the order for fresh advertisement and
to accept the recommendation of the Official Liquidator for
confirming the sale in his favour. Hon'ble Division Bench
of this Court, while rejecting such application, being Misc.
Civil Application No.96 of 2007, has observed in paragraph
No. 6 to 9 of its order dated 17.10.2008 as under:-
6. In view of the above discussion, OJ Civil Application
No.257 of 2008 is dismissed. OJ Misc.Civil Application
No.96 of 2007 is also dismissed with liberty to the
applicant to withdraw the amount of EMD, if still lying
with the Official Liquidator and also with liberty to submit
a fresh offer in response to the advertisement which the
Official Liquidator will hereafter issue.
7. Mr.Soparkar, learned counsel for Shaan Zaveri
applicant in OJ Misc. Civil Application No.96 of 2007
states that his client has already moved a scheme for
revival of the Company which is posted for final hearing on
17.11.2008 and requests that it may be clarified that this
order should not come in the way of his client's scheme
being considered by the Company Court.
8. The only property still available with the Company in
winding up is land admeasuring 35,722 sq.mtrs. in
Ahmedabad, The Company was ordered to be wound up by
order dated 05.05.1989. Its factory and machinery were
sold long back. It is high time that the land is sold and the
proceeds thereof are made available for disbursement to
the workers, secured creditors, statutory creditors and if
possible, to unsecured creditors also. It was on account of
the interim stay during pendency of OJ Appeal Nos.65 to
67 of 2006 (which appeals are disposed of today by a
separate judgment ) that everything was put on hold and
the Official Liquidator was restrained from selling the
leasehold rights of the Company in liquidation. In fact as
pointed out on behalf of the Textile Labour Association at
the hearing of the appeals, the other assets of the
Company in liquidation have not yielded high returns as
they were buildings and machineries which has
depreciated before the sale. It is only the land which has
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appreciated in value and therefore, the land measuring
35,772 sq.mtrs. is the only asset available with the
Company in winding up which can yield adequate returns
for disbursement of the claims of the workers, secured
creditors, statutory creditors and, if possible, unsecured
creditors also.
9. For the forgoing reasons, Mr.Soparkar's request is
rejected.
23. As stated above, the heirs of the lessor filed SLPs
before Hon'ble Supreme Court, and Shri Shaan Jhaveri
also approached Hon'ble Supreme Court by filing SLP
against the order made on his application. The SLP of Shri
Shaan Jhaveri was disposed of on the statement of his
Counsel that it would not survive and thereafter, Hon'ble
Supreme Court even dismissed the SLPs of the heirs of the
lessor by its order dated 29.3.2016.
24. As could be noticed from the objects of the company,
the Company was established to carry on its business
concerning the work of spinning and weaving and to deal
in cloths and other goods and fabrics whether in textile,
friable, or knitted and other various kinds of work as a Mill
company. In furtherance of its objects to carry on its
business as a Mill company, it has in its objects made
provisions to purchase or take on lease or otherwise to
acquire any right or privilege in any property for the
purpose of its business and to enhance the value of its
properties.
25. It is required to note that the revival of the company,
which has gone in liquidation, cannot be de-linked of its
objects and cannot be considered irrespective of business
activities to be carried on after its revival. When the
company, which has all throughout from its birth/
incorporation functioned as Mill company with textile
business, has already lost its machineries, plants,
superstructures, etc., which were the basic need for doing
its business, and is left with only the land as its property,
there has to be a concrete and specific provision in the
scheme as to the nature of business activities to be carried
on after revival of the company, in absence of which, the
scheme could be taken as ruse to grab the land of the
Company under the guise of revival of the Company.
26. In clause 5 of the proposed scheme, the petitioners
have provided for business of the Company as under:-
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"In contemporary facts and circumstances, the original
business of the company i.e. manufacturing of textiles, if
not found viable by the company / sponsor, the company
shall diversify into such other business activities which
may be found suitable, viable and permissible in
accordance with the laws of the land."
27. Learned senior advocate Mr. Soparkar however
submitted that the company was incorporated when the
old Companies Act, 1913 was in operation and under the
old Act, there was no distinction, like the main objects or
the ancillary objects of the company for doing its business
and that clause (n) in the objects of the company could be
read as suitably provided for doing any business, the
purpose of which is to enhance the value of or render
profitable any of the company's properties or its rights and
therefore, on revival of the company, it would be left to the
company to decide whether to diversify into other business
activities which may be found suitable, if manufacturing of
the textiles is not found viable by the company.
28. The Court finds that it may be permissible for any
company to take on any other business activity within the
objects of the Company, if it finds that its original business
activity may not be possible to be carried on any longer on
account of various factors. But, when the scheme is
proposed for revival of the company, it cannot be on ipse
dixit as to doing of business on revival of the company and
the proposers of the scheme cannot be allowed to fruitfully
get away with revival of the scheme with no basic
foundation for doing business for the Company and to say
that leave it to us, whatever we think, we will do with the
properties of the company.
29. The above provision made in clause 5 of the scheme for
the business of the Company is as vague as it could be and
has its own reflection on the intention of the petitioner
No.2 to get the land of the Company, which it had already
decided when it offered Rs.7.75 crore for purchase of the
land of the Company in the auction held by the Official
Liquidator. It appears that with this intention, the
petitioner no.2 started paying dues to the secured creditor-
the SBI, the State Government of its guarantee and to ESI
after moving the scheme. As observed in the above order
dated 17.10.2008, the Court, while dismissing the
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application of the promoter of the petitioner No.2, refused
to accede to the request made on his behalf to clarify that
the said order should not come in his way when his scheme
would be considered by observing that the land was the
only assets of the Company which could yield high return
for disbursement to workers and all creditors.
30. Pending consideration of the scheme, the petitioner
No.2 paid dues of the SBI, which was of Rs.4,17,90,192/-
somewhere in the month of November 2012 and also paid
guarantee amount to the State Government and also paid
dues of the ESI and to this effect, affidavit dated
12.2.2012, as referred above, giving details of payments
made to the State Government, SBI, IDBI and ESIC was
made by its Director. Now, based on the above such
payments made, it is urged before the Court that the
secured creditors are fully paid, that the workers have
consented through TLA to accept the dues as ascertained
by the Official Liquidator as per his report dated 13.2.2006
and that the statutory creditors and majority shareholders
have no objection to grant sanction to the scheme. It is not
the law laid down that the payment of dues to the secured
creditors is the only consideration for revival of the
scheme. Even if the secured creditors are fully paid and
the scheme makes the provisions for payment of dues to
other creditors and the workers of the Company, the Court
shall be still required to decide whether the scheme
brought before it for its approval is in fact the scheme for
revival of the company or there is some other intention
behind the scheme. As held by Hon`ble Supreme Court in
the case of Miheer Mafatlal (supra), the Company Court
which is called upon to sanction such a scheme has not
merely to go by the ipse dixit of the majority of the
shareholders or creditors or their respective classes who
might have voted in favour of the scheme by requisite
majority but the Court has to consider the pros and cons of
the scheme with a view to finding out whether the scheme
is fair, just and reasonable and is not contrary to any
provisions of law and it does not violate any public policy.
This is implicit in the very concept of compromise or
arrangement which is required to receive the imprimatur
of a Court of law. No Court of law would ever countenance
any scheme of compromise or arrangement arrived at
between the parties and which might be supported by the
requisite majority if the Court finds that it is an
unconscionable or an illegal scheme or is otherwise unfair
or unjust to the class of shareholders or creditors for
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whom it is meant. Consequently it cannot be said that a
Company Court before whom an application is moved for
sanctioning such a scheme which might have got the
requisite majority support of the creditors or members or
any class of them for whom the scheme is mooted by the
concerned company, has to act merely as a rubber stamp
and must almost automatically put its seal of approval on
such a scheme. As stated in the petition, the promoters of
petitioner No.2 Company were in real estate business and
the petitioner No.2 is a company registered under the Act.
It deals in real estate business. After its promoters
remained unsuccessful in getting the sale confirmed in
their favour with the offer of Rs.7.75 crore for purchase of
the rights in the land left with the company, it started
managing to pay/ satisfy the dues of IDBI, SBI and other
creditors of the company. As per the provisions made in
the scheme, against the payment made by the petitioner
No.2 of Rs.15 lac to IDBI to get assignment of rights of
IDBI in its favour, it wants allotment of equity shares and it
also wants further allotment of large number of equity
shares i. e of 2,20,000 equity shares in consideration of
funds to be provided by it on scheme being effective. The
petitioner No.2 has already claimed that it has acquired
rights in 5693 equity shares of the company. These 5693
equity shares of the company include 3669 equity shares,
in which the petitioner No.2 claims transfer of rights by
assignment by IDBI in its favour. These very shares were
pledged with IDBI by the share holders of the Company as
security against the financial facilities advanced to the
Company. The Court finds that though the petitioner No.2
claims to have assignment of rights which the IDBI had in
the above shares against the payment of amount of Rs.15
lac as consideration, it still wants further allotment of
equity shares against this very amount paid for settling the
dues of IDBI. Such provision made in the scheme for
assignment of further equity shares for settling the dues of
IDBI and further provision made in clause (6) (ii) of the
scheme for allotment of 2,20,000 equity shares on scheme
being effective, in consideration of the funds to be
provided, reflect on the intention of the petitioner No.2
that the scheme proposed by it is nothing but to swallow
the company under the guise of revival of the company.
Such intention gets fortified by referring to clause 5 in the
scheme for business of the company, where, as discussed
above, there is no concrete proposal for doing any
business activity, much less the business activity related to
the original business of the company. Therefore, it appears
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to the Court that approving/ sanctioning the scheme
proposed by the petitioners would amount to allowing the
petitioner No.2 to grab the only immovable properties- the
land now left with the company. As per the principles of
law settled, the Court is not to sit in appeal over the
commercial wisdom behind the scheme, however the Court
is not to mechanically grant its approval to the scheme
even when it finds the scheme is not for revival of the
Company. At this stage, it is required to note that as back
as in 1984, the Government came out with notification for
providing relief to the sick textile industries under which
the company was declared as Relief Undertaking. For the
company which had already suffered deterioration and
could not come out of its financial crises though
Government extended relief to it and ultimately suffered
the winding up, what worth of the scheme could be for
revival of such Company when it appears to the Court that
the petitioners are interested only in the land of the
Company. The petitioner no.1 is the ex-Director of the
Company and appears to have come in help of the
petitioner no.2 to grab the land of the Company without
any real intention for revival of the Company.
31. It is required to note that indisputably, SBI was the
only secured creditor against the immovable properties of
the company. The IDBI had no security interest against
immovable properties of the company. As stated by the
petitioners, IDBI had sanctioned financial facility to the
company, against which the company had hypothecated
the plants, machineries and stocks and group of
shareholders had pledged their shares with IDBI as
security. However, in the scheme, the IDBI is shown as
secured creditor. For the secured creditors, it is stated in
the scheme that the dues of SBI are settled for a sum of
Rs.2,64,14,885/- and reference to some part-payment to
SBI is made in the scheme. In the affidavit-in-reply dated
14.3.2009 filed on behalf of SBI, the SBI has taken
objection against the way in which the meeting of the
secured creditors was conducted by the Chairman of the
meetings and it is stated that how on payment of Rs.15 lac,
being the value of debt of IDBI, made by the petitioner
No.2, the petitioner No.2 could have been permitted to
cast its vote as secured creditor in the meeting of the
secured creditors when the IDBI was not the secured
creditor. Serious grievance is made in the affidavit against
the Chairman of the meetings stating that the Chairman of
the meetings, without verifying the position of the
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petitioner No.2 vis-a-vis the status of IDBI, permitted the
petitioner No.2 to vote as secured creditor, which was
nothing but a fraud committed by the petitioner No.2 and
since the petitioner No.2 was permitted to vote as secured
creditor, the proceedings of the meeting conducted by the
Chairman for the scheme of compromise would stand
vitiated. Further stand taken by the SBI in its affidavit is
that the petitioner No.2 could not have been otherwise
considered as shareholder of the company and therefore, it
was also not entitled to participate in the meeting of the
shareholders and to vote as shareholder of the company. It
is further stated in the affidavit that the scheme presented
is, in fact, not for revival of the company but the main idea
behind the scheme is to grab the valuable properties of the
company. It is pointed out that the lands left with the
company are of Survey Nos.4823 to 4832, 4844 to 4895,
4899, 4901 to 4911, 5002 to 5011 and 5049 admeasuring
35072 Sq. Mtrs. in Raikhad area of Ahmedabad city and
the price of such lands on account of Riverfront project
would go much higher beyond Rs.15 crore, to be realized if
auction is to be held. Learned advocate Mr. Shelat
submitted that now the value of the land as per the present
market value prevailing in the area could be taken beyond
100 crore.
32. The workers' dues remained unpaid all throughout
except that after selling the movable properties, the
workers got ad-hoc disbursement. Though, as observed
above, in view of the order passed earlier by this Court in
the application made by Prasad Mills Kamdar Samiti, the
same 521 workmen could not be permitted to raise their
objections through another Union, though it is registered
Union, however in the context of the provisions of Sections
529, 529-A and 530 of the Act for the workmen's dues, no
workman could be denied to have his say on the grievance
that his interest was not duly taken care of for
determination on his claim for his dues. In this context,
learned advocate Mr. Shelat made strenuous efforts to
point out that procedure not known to law was followed by
the petitioners in the matter of making prayer to dispense
with the meeting with the workmen by annexing the
affidavit of TLA. Mr. Shelat submitted that TLA decided,
without taking all the workers in confidence, to accept the
dues ascertained as referred in the scheme, though at no
point of time, the claims of the workers were ever called
for and the final determination on the claims of the
workers was ever made. However, learned advocate Mr.
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Vasavada appearing for TLA submitted that all throughout,
TLA represented the workmen of the company and at no
point of time, any workman has made any greivance
against the TLA as regards its decision to accept the dues
ascertained and to give consent to the scheme. He
submitted that reference to the workmen's dues
ascertained in the scheme is on the basis of the Official
Liquidator's Report dated 13.2.2006 filed in Company
Application No.196 of 1999. However, the Court when
asked to learned advocate Mr. Vasavda to provide the copy
of order made for verification/ examination of the claims of
the workmen for final determination of the dues of the
workmen, neither he could provide copy of any such order
nor any other advocate could provide copy of the order, if
passed. It is required to note that when the Court asked
the Registry to provide original record of the company
petition and the applications made therein as also the
orders made on the applications, including the order for
verification/examination of the claims for final
determination of the dues the workmen, the Registry could
not provide such original record.
33. It is required to note that either in the scheme for
revival/ rehabilitation or in the proceeding for winding up
of the company, the workmen's dues are at center.
However, it is not that for nonpayment of the workmen's
dues, no scheme for revival could be considered by the
Court but it is equally true that simply because there is a
provision made in the scheme for settling the dues of the
workmen, the Court would desist itself from considering
the nature of the scheme or the intention behind proposing
the scheme for compromise. In fact, in the context of the
workmen's dues, the Official Liquidator in his report dated
21.3.2012 has stated that the Company Application No.388
of 1998 was filed for 1429 workers claiming amount of
Rs.23,01,46,874/-, that the claims of the workers,
according to the Chartered Accountant, were found
admissible to the extent of Rs.7,90,88,784/-. However, the
Official Liquidator has further stated that till date, the
claims of the workers, secured creditors and statutory
creditors are not invited as per the Company Court Rules
by the Official Liquidator and it was the workers' Union
which on its own had forwarded the list of the workers and
their claims to the Chartered Accountant for verification.
Learned senior advocate Mr. Soparkar however submitted
that when there is no opposition from the representative
union against the scheme, the petitioners would not object
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to whatever the court provides for more benefits to the
workers and when there is no opposition from the secured
creditors and from majority shareholders, there could not
be any objection in sanctioning the scheme considering the
legislative intention behind making the provision of
Sections 391 to 394 of the Act. Learned advocate Mr.
Desai however submitted that the report of the Chairman
of the meeting held with the secured creditors and
shareholders could not be relied to sanction the scheme.
The Court finds that it could not be disputed before the
Court that IDBI was not the secured creditor against the
immovable properties of the company and therefore it
could not have been considered as secured creditor in the
meeting of the secured creditors. In fact, Nayanaben , who
was equity shareholder, for whom it is stated that she
consented to the scheme has come out with serious
grievance in her reply as to the way in which the Chairman
conducted the meeting with the shareholders. Irrespective
of the objection taken by Nayanaben in her reply, the
Court finds that since the IDBI could not have been
considered as secured creditor, the petitioner no.2 could
not be allowed to take part as secured creditor in the
meeting of the secured creditors. The Court finds that
though the SBI has now not opposed on receiving the full
payment of its dues, to grant sanction to the scheme for
revival of the company, such would hardly carry the matter
any further in favour of the petitioners inasmuch as the
Court does not find that the scheme proposed is for revival
of the company. Learned advocate Mr. Vasavada however
submitted that for long time, the workmen have been
waiting for their dues and when the scheme has come with
provision for payment of dues of the workmen, the
workmen would have been satisfied with the dues
ascertained as per the report of the Official Liquidator
otherwise they would see the light of payment of their
dues after long time. But, such would hardly be
consideration for sanctioning the scheme. When the
valuable land as a property is available with the company
and if such land could be successfully sold in near future,
the workmen of the company may get more amount than
what they would have expected. Be that as it may, for the
reasons stated above, the Court does not find that the
scheme deserves to be accepted and approved by this
Court in exercise of the powers under Sections 391 to 394
of the Act. The petition is therefore, required to be
rejected. It is accordingly rejected. Notice discharged."
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[28] The aforesaid observation and conclusion which has been
arrived at has led to rejection of petition and notice came to be
discharged and it is this conclusion was agitated to be not in
consonance with intent of the scheme by the learned senior
advocate appearing on behalf of appellants. The detail
submissions, which we have considered, if to be perused in the
context of aforesaid observations, we find the following features
to arrive at an ultimate conclusion.
[29] The scheme in question, which has been incorporated in
paragraph 3 is consisting of several clauses, which not only
define "appointed date", "applicant", "cut off date", "Secured
Creditors", "Statutory Creditors", "Effective Date" in the
meaning of scheme and several such clauses. In term, "Secured
Creditors" as defined in Clause No. 1(vi)(a), which reads as
under:-
"(a) 'Secured Creditors' means creditors having lent
money or granted credit facilities to the Company in the
form of loan, deposit, guarantee or other finances or funds
which is/are secured by way of a charge created over the
movable and/or immovable properties and assets of the
Company on account of deed of hypothecation, mortgage
or deposit of title deeds, as the case may be and include
the State Bank of India and/or IDBI Bank Ltd. or its
respective assignee/s."
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[30] The "workmen" as defined in Clause 1(vi)(c). The relevant
definition of scheme is incorporated in Clause 1(xi), which reads
as under:-
"xi) 'Scheme' means the proposed scheme of compromise
or arrangement between the Company and its creditors,
shareholders and the sponsor/s or the proposed scheme
with such modification(s), if any, made as per directions of
the High Court or otherwise, for reconstruction of the
Company."
[31] The "sponsor" means Riverfront Properties Pvt. Ltd.
(RPPL), as mentioned in Clause 1 (xiii). The background which
has been narrated in Clause 2 (i) which is the factual foundation
and as such, we deem it proper to incorporate hereunder:-
"i) Prasad Mills Ltd. (in liquidation) has been registered as
a company on 3 rd September 1914 at Sr. No.41 with the
office of the Registrar of Companies, Bombay under its
erstwhile name i.e. Bechardas Spinning and Weaving Mills
Ltd. Its registered office used to be at Raikhad, Ahmedabd,
380001. The Company was engaged in the business of
manufacturing textiles. The operations of the Company
came to standstill around January 1984 due to financial
difficulties, interalia the non payment of electricity supply
bill/s. The Company used to be under the protection and
purview of Bombay Relief Undertakings Act (Special
Provisions) Act, 1958 upto May 1986. On 23 rd August
1988, pursuant to winding up petitions before the High
Court of Gujarat, the Company was directed to be wound
up. Properties and assets of the company came into
possession of the Official Liquidator from 23 rd August
1988. In the year 1998, movable properties of the
company, namely, the stock of goods, plant and machinery
etc. and superstructure of the building/s were put to sale
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by the Official Liquidator and accordingly the said assets
were disposed off for the aggregate consideration of
Rs.131 lacs. Thereafter the properties and assets of the
company that have remained are (i) freehold and leasehold
rights of land admeausring about 36971.25 Sq. mtrs.,
which is now reduced by the area as actually acquired by
the Ahmedabad Municipal Corporation for widening of the
road; (ii) unrealised investments/ dues of the company, if
any and (iii) cash and bank balance with the Official
Liquidator. The Company is entitled to the usage of the
leasehold portion of the land on account of a lease deed
dated 10.12.1916 executed between late Shri Durgaprasad
Shabhuprasad Lashkari and the Company. The period of
lease is for 199 years and lease rent payable per annum is
about Rs.3500/-. Pursuant to the directions of the Gujarat
High Court, leasehold rights in the said land have been put
to sale by the Official Liquidator. Pursuant thereto the
promoters of the Sponsor-RPPL have bidded in their
personal capacity for the acquisition of the leasehold
rights in April May 2006. the offer of the said promoters of
the sponsor being the highest (RS 7.75 crores) has been
recommended by the Official Liquidator vide his report
no.45 of 2005 for acceptance/ confirmation by the Gujarat
High Court. Simultaneously, aggrieved by the action of the
Official Liquidator, few persons claiming to be the heirs/
legal representatives / successors of the late lessor- Shri
Durgaprasad Shambhuprasad Lashkari; initiated
proceedings before Gujarat High Court seeking a direction
that the Official Liquidator of the Company should hand
over possession of the lands to the said alleged heirs/legal
representatives and also seeking an injunction restraining
the Official Liquidator from selling/transferring the
lands/leasehold rights of the company. The learned Single
Judge of the Gujarat High Court dismissed the said
proceedings of the heirs/legal representatives. Being
aggrieved by the same some of the alleged heirs/legal
representatives have preferred appeals before the
appellate forum of the Gujarat High Court. Pending the
Appelas, the appelalte forum of the Gujarat High Court has
granted an interim injunction against sale of such rights.
The said appeals are heard and the judgement is awaited.
On account of the interim order passed by the appellate
forum of the Gujarat High Court in the appeals, the Official
Liquidator's report 45/2005 is awaiting further orders."
[32] Clause 2(iv) is with regard to dues of the Company, which
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is quoted hereunder:-
"iv) Dues of the Industrial Development Bank of
India(IDBI), being the secured creditor the Company, has
been settled and paid off by the Sponsor-RPPL. IDBI has
assigned its right, title and interest in the debt due to IDBI
from the Company along with its security interest in favour
of the Sponsor-RPPL. IDBI has filed Company Application
No.414 of 2007 before the Gujarat High Court seeking
appropriate directions under the provisions of the
Companies Act, 1956, thereby seeking to substitute the
name of the Sponsor-RPPL in place of IDBI as the secured
creditor of the Company. The said Company Application
414/2007 is pending the awaits decision of the Gujarat
High Court."
[33] Similarly Clause 2(vi) being relevant, we thought it fit to
reproduce hereunder:-
"vi) Sponsor-RPPL has acquired interest in aggregate 5693
nos. of Equity Shares of the Company. Out of the said 5693
shares, 3669 Equity Shares are acquired as the assignee of
the debt of the IDBI and 2024 Equity Shares are acquired
as the purchaser from various Shareholders/
contributories of the Company. As the Company is in
winding up, the transfer of shares is subject to the
approval of the Gujarat High Court. Sponsor has
approached the Official liquidator vide its letter dated 26 th
November 2007 and 14 th July 2008 respectively, with a
request to recognise the sponsor- RPPL's rights, title and
interest in the said 2024 Equity shares and to effectuate
the changes in the List of Contributories of the Company."
[34] Though the learned Single Judge has narrated all these
relevant clauses practically the entire scheme and since we are
in appeal, we reproduce few relevant clauses to examine as to
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whether the reasons assigned by the learned Single Judge i.e.
Company Court are in consonance with clauses of the scheme or
not. The term Secured Creditor also needs an attention and as
such, we deem it proper to reproduced hereunder:
"4.1 Secured Creditors
i) Industrial Development Bank of India (IDBI) and State
Bank of India (SBI)
a. Dues of the IDBI, being a Secured Creditor, has been
settled for the sum of Rs. 15,00,000/- (Rupees fifteen lacs)
and the same have been paid for in full by the sponsor to
the IDBI. There are no outstanding dues which are payable
to IDBI by the Company. Subject to the provision of the
Scheme and vide paragraph No.6(ii) of the Scheme,
payment of such settled dues of the IDBI as have been
made by the Sponsor, shall be adjusted towards issue and
allotment of Equity Shares of the Company.
b. Dues of the State Bank of India, being the other
Secured Creditor, have been settled for the sum of Rs.
2,64,14,885/- (Rupees two crores sixty four lacs fourteen
thousand eight hundred eighty five) by the Applicant. For
the said settlement, a sum of Rs. 13,00,000/- (Rupees
thirteen lacs) has been tendered by the Sponsor to the
State Bank of India being a sum of Rs.2,51,14,885/-
(Rupees two crores fifty one lacs fourteen thousand eight
hundred eighty five) is proposed to be paid by the Sponsor
in terms of the its letter dated 20 th June 2008 bearing No.
SAMB / 08-09 / TRP / 513.
State Bank of India, vide the aforesaid letter dated 20 th
June 2008 has conveyed that (i) upfront deposit of Rs.
13,00,000/- tendered towards the settlement of dues has
been adjusted towards the said sum of Rs.2,64,14,885/-;
(ii) balance of Rs. 2,51,14,551/- (Rupees two crores fifty
one lacs fourteen thousand five hundred fifty one only)
shall have to be paid before 20 th July 2008, failing which,
such amount can be paid within the grace period of
another 3 months i.e. till 20 th October 2008. However,
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interest at SBAR i.e. @12.25% shall have to be paid for the
payment not made, from sanctioned date of such
settlement i.e. 17 th June 2008 till its actual payment; and
(iii) failure to pay such settled dues even with the said
grace period shall cancel the agreed to settlement and
bank shall be entitled to recover the dues as determined
by the Debt Recovery Tribunal, Ahmedabad.
Subject to the provisions of the Scheme and vide
paragraph No.6ii) of the Scheme, payment of such dues of
the State Bank of India, as have been made and to be
effected by the Sponsor shall be adjusted towards issue
and allotment of Equity Shares of the Company.
ii) Amount due and payable as per the above sub clause (i)
b) shall be paid to the State Bank of India towards the full
and final settlement of its dues within 1 (one) month from
effective date.
iii) Any sum above the amount settled and due as per sub
clause (i) above, whether principal, interest, charge,
penalty or the like shall not be calculated or paid to any of
the secured creditors.
iv) If any suit, writ petition, appeals, revision or other
proceedings of whatever nature against the Company are
filed by any of the said Secured Creditors, the same shall
be withdrawn upon the payment being made to the said
creditor in terms of the Scheme. However, any such suit,
writ petition, appeal, revision or other proceedings of
whatever nature against the Company and/or the
Guarantor/s shall not be proceeded further by the said
Secured Creditor from the date of sanction of the Scheme.
v) Upon payment of dues of the Secured Creditor/s in
terms of (i) and (ii) above, each of the said Secured
Creditor/s shall release its respective charge,
encumbrance, lien or the like, if any, over the respective
properties and assets of the Company and/or that of its
guarantor's and shall forthwith or simultaneously had over
the original documents evidencing or creating the said
charge along with the title deeds of the properties and
assets of the Company or that of its guarantors and shall
forthwith and simultaneously also execute the documents
in this behalf and at any rate not later than 15 days from
the receipt of the respective amounts in terms of the
Scheme."
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[35] Clause 4.3 relates to workmen and since Official
Liquidator is objecting to the scheme on a substantial ground of
interest of workers also, we deem it proper to quote paragraph
4.3 hereunder:-
"4.3 Workmen
i) 'Workmen's dues' as ascertained by the Official
Liquidator and reported to the High Court of Gujarat vide
the Official Liquidator's report dated 13 th February 2006
in Company Application No.96 of 1999 in Company
Petition No.21 of 1984 shall be treated as the amount
settled, due and payable.
ii) Any interest or additional amount of whatever nature
other than the sum settled in i) above shall not be
considered, calculated or paid.
iii) Amount due and payable as per sub clause i) shall be
paid to the workmen towards the full and final settlement
of their dues.
iv) If any amount that is paid by the erstwhile company or
the liquidator or that has been appropriated by the
workmen after the cut off date, the same shall be deducted
from the amount so payable under sub clause i) and the
balance thereafter alone shall be payable.
v) Such sum shall be paid within 3 (three) months form
effective date.
vi) Upon settlement of dues of the workmen in terms of the
above, all the rights of workmen including the right to
occupy the premises and properties of the Company and
all the obligations of the company with respect to all or
any of them arising out of, from or on account
employment, terms related thereto and anything
connected therewith or incidental thereto shall cease to
exist and finally extinguished with effect from the cut off
date.
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Vii) If any suit, writ petition, appeal, revision or other
proceedings of whatever nature against the Company and/
or its Principal Officer is filed by any of its workmen, the
same shall be withdrawn upon payment /settlement in
terms of the Scheme by the concerned workmen. However,
any such suit, writ petition, appeal, revision or other
proceedings of whatever nature against the Company and/
or its Principal Officer shall not be proceeded further by
the concerned workmen from the date of sanction of the
Scheme."
[36] The main substantive Clause 5 relates to business of the
Company which being the most relevant clause deserves to be
quoted hereunder:-
"5. Business of the Company
In contemporary facts and circumstances, the original
business of the company i.e. manufacturing of textiles, if
not found viable by the company / sponsor, the company
shall diversify into such other business activities which
may be found suitable, viable and permissible in
accordance with the laws of the land."
[37] Clause 6 is dealing with Finance, Accounting and
Managerial aspects whereas Clauses 7(vii) & (viii) reflecting on
page 29 are also quoted hereunder:-
"6. Finance, Accounting and Managerial Aspects:
i) Sponsor shall provide the funds for the Scheme and the
Company shall bear with the cost of the scheme.
ii) On the Scheme being effective, in consideration of funds
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there for having been provided by the sponsor, the
Company shall be empowered to issue and allot 2,20,000
Nos. of Equity Share of Rs.250/- each aggregating to
Rs.5,50,00,000/- (Rupees five crores fifty lacs only) to the
sponsor or its nominee. Equity shares so issued and
allotted shall rank pari passu with the existing equity
shares in all respects.
iii) Issue and allotment of such equity shares shall be
considered as compliances as to supplementing the capital
of the Company in terms of the provisions of section 80 of
the Act, as far as redemption of 3866 No of 6.43% (subject
to Tax) Preference Share of Rs.125/- each, are concerned.
iv) Notwithstanding the above, sponsor shall have full
rights and privileges to leverage the funds i.e. proportion
of debt and equity; that they may introduce to bring this
scheme into effect. Additionally, sponsor shall have
complete discretion as to the choice of financial
instrument/s as to the debt or equity and terms and
conditions governing the same; and the Company shall
accordingly issue and allot the shares/ instrument/s of debt
in favour of the sponsor or its nominee. However, so far as
the terms of the payment of interest is concerned, the debt
or instrument of debt shall not bear the annual rate of
interest in excess of 500 basis points above the upper band
of the prime lending rate declared by the Reserve Bank of
India for the last financial year from time to time.
v) The members of the board of directors, in consultation
with the auditors may give suitable accounting treatment
to any deletion, sale, disposal of assets or settlement,
payment, reduction of liabilities, diminution, impairment or
accretion in the value of assets or for any of the
transactions of the Company whether arising out of the
scheme of during the time its properties and assets
remained vested in the Liquidation. Such accounting
effects shall be recorded under the head of
"Reconstruction Account". Accumulated losses of the
company shall merge into the "Reconstruction Account"
Credit balance "Reconstruction Account", if any, would be
treated as free reserve for all purposes and debit balance,
if any, shall be treated as the cost of improvement in the
leasehold rights of the land.
vi) Upon sanction of the scheme, board of directors of the
Company shall be freshly constituted. Till the board of
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directors of the Company is so constituted, members of the
board of directors of the Sponsor shall, by virtue of their
office be ipso facto directors of the Company.
7. General:
vii) This scheme is conditional upon and shall not become
operative until all the following conditions are fulfilled,
viz.:
(a) sanction by the High Court of Gujarat under Section
391 of the Act, and necessary Order or Orders being
passed and the same being filed with the Registrar of
Companies, Gujarat;
(b) Liquidator of the Company hands over peaceful
possession of all the properties and assets of the Company;
whether moveable or immoveable, which are so far not
disposed off, alienated or transferred by his office under
the directives or order/s of the High Court of Gujarat, in
the same order and condition in which he had taken
possession of from the Company.
viii) In the event of any of the aforesaid sanctions and
approvals, referred to in the preceding Clause 7 vii) above,
not being obtained and / or the Scheme not being
sanctioned by the High Court and / or the order or orders
not being passed as aforesaid before 31.03.2009 or within
such further period or periods as may be considered by the
Sponsor without any limitations, the Scheme of
Arrangement shall stand revoked, cancelled and be of no
effect."
[38] On the basis of these clauses and after narrating the same,
it has been recorded by the learned Single Judge that petitioner
No.1 is the ex-Director of the Company and the petitioner No.2
is the Private Limited Company and engaged in the business of
civil construction and real estate development and did move an
application being Company Application No.427 of 2008 before
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the Court which was dealt with vide order dated 22.08.2008
whereby a meeting was convened of secured creditors, statutory
creditors and other creditors and also of the equity
shareholders. Since the Textile Labour Association (TLA) had
giving its consent to the scheme and waiving its right to be
called for meeting and to attend the meeting. The meeting with
the workmen of the Company was dispensed with in view of
specific affidavit on oath filed by TLA on 26.07.2008.
[39] The meeting which was convened, the Chairman
submitted his report on 06.10.2008 in which it was indicated
that the meeting was scheduled on 25.09.2008 at 11 O'clock
and at the time of commencement of meeting, the
representatives of two creditors, one Riverfront Properties Pvt.
Ltd. - the petitioner No.2 and another State Bank of India (SBI),
were present and the representatives of SBI left the meeting
after indicating the particulars with regard to the OTS entered
into by SBI with the Government of Gujarat, it had surrendered
its security rights. After clearing the dues, who became the
secured creditor, voted in favour of the scheme and the meeting
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which then was convened at 12.00 p.m. wherein the voting
against the proposed scheme was recorded as NIL.
Subsequently, another round of meeting with other creditors
took place at 1.00 p.m. wherein also the voting against the
proposed scheme was recorded as NIL. Subsequently, meeting
with equity shareholders was also held simultaneously at 2.00
p.m. and in particulars of the equity shareholders, it was
recorded that two shareholders, named as Manubhai S. Shah
and Kanubhai S. Shah, who each had one share, voted against
the scheme and the other equity shareholders voted in favour of
the scheme.
[40] The petitioners had detailed out the share capitals
particulars, issued subscribed / paid-up as on 31.12.1984, which
indicates hereunder:-
18,000 Ordinary Shares of Rs.250/- each Rs.45,00,000
4000- 6.43% (Taxable) Cumulative Redeemable Rs.5,00,000
Preference Shares each of Rs.125/-
(redeemable with the notice of one Month at
Face Value)
Total Rs.50,00,000
Issued Subscribed & Paid-up:
10,000 Ordinary Shares of Rs.250/- Rs.25,00,000
3866- 6.43% Taxable) Cumulative Redeemable Rs.4,83,250/-
Preference Shares each of Rs.125/-
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(redeemable with the notice of one Month at
Face Value)
Total Rs.29,83,250.00
[41] At this juncture, it is to be noted that Naynaben one of the
stakeholders of marginal shares at that time did not object to
the scheme. Of course, subsequently, attempted to object as an
afterthought measure, but according to the appellants, the
meeting was concluded and prior thereto, the objections which
were raised, were also dealt with.
[42] Then the question arose with regard to the land of the
Company in which after the Court passed an order for putting
the properties (leasehold land) of the Company to sale, that the
promoters of the petitioner No.2, at a relevant point of time,
made the highest offer of Rs.7.75 crore in the process of sale
and the Official Liquidator had recommended for confirmation
of sale in their favour, but few persons claiming to be the heirs
of the lessor of the land submitted Company Applications
claiming possession of the land, that learned Company Judge
rejected such applications, against which they filed O.J Appeals
wherein the Appellate Court granted interim injunction against
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sale of the rights in the land. Subsequently, a change has taken
place where original petitioner No.2 had resources to sponsor
and support the scheme of compromise / arrangement of the
Company, that the dues of the Industrial Development Bank of
India (IDBI), being secured creditor of the Company, were
settled and paid up by the petitioner No.2, for which the IDBI
specifically as assigned its right, title and interest in the debt
due to IDBI from the Company along with its security interest in
its favour, the same is not in dispute. Simultaneously, the dues
of the SBI, being other secured creditor of the Company has
also been settled for Rs.2,64,14,885/- and the said settled
amount is proposed to be paid in terms of the scheme and as a
result of this, the petitioner No.2 has acquired 5693 numbers of
equity shares of the Company, out of which 3669 equity shares
were acquired as assignee of IDBI and 2024 equity shares were
acquired as purchasers from various shareholders / contributors
of the Company and transfer of which was made the subject
matter of approval of the Court in Company is in liquidation.
[43] Facts further reveals as has been recorded that at a
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relevant point of time the IDBI filed Company Application
No.414 of 2007 to ratify its action in assigning all its rights, title
and interest in favour of the petitioner No.2 of the Company and
to consider the same by virtue of Section 536 of the Act and the
Court vide order dated 25.8.2008 was pleased to allow the
application and the action of IDBI was ratified and the same was
passed after hearing all the parties and the Official Liquidator
was directed to effect the transfer of above shares in the name
of the petitioner No.2 and to deal with the petitioner No.2 as
assignee of IDBI in future transactions which may take up in the
winding-up proceedings. It is also reveal that the OJ Appeals
filed by the legal heirs of original lessor were dismissed and the
application of the promoter of petitioner No.2 for direction to
accept the recommendation of the Official Liquidator to confirm
the sale was also disposed of along with appeals and then the
Official Liquidator was directed to proceed with the sale of the
leasehold rights and against this orders, the heirs of the lessor
filed Special Leave to Appeals and the promoter of the
petitioner no.2 also filed SLP.
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[44] It has been further recorded incidentally that in the first
report dated 10.4.2010 filed by the Assistant Official Liquidator,
the workers of the company made claim towards their dues to
the extent of Rs.23,01,46,874/- and then the said claims of the
workers were verified by the Chartered Accountant and the
claims of the workers were found to be admissible to the extent
of Rs.7,90,88,784/-. It is further stated that out of the sale
proceeds of the assets of the company, an amount of Rs.60 lac
was paid to the SBI and an amount of Rs.77,32,407/- was paid to
the workers of the Company on ad-hoc basis and then a sum of
Rs.19 lac was paid to IDBI on ad-hoc basis and equal amount of
Rs.19 lac was again paid to the workers on ad-hoc basis, which
remain left out fund of Rs.63,20,965/- with Official Liquidator in
the company's account.
[45] A further additional affidavit dated 28.02.2012 being part
of the records also indicates that one of the Directors of
petitioner No.2 stating on oath that the petitioners have made
the payment towards the scheme including Government
statutory dues, SBI, IDBI, ESIC etc. which is charted out in his
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affidavit dated 28.02.2012, which reads as under:-
Particulars of payments made towards scheme
(Rs. In lacs)
Sr. No. Particulars Amount
1 Govt. of Gujarat on account of SBI 227-38
2 State Bank of India 430-90
3 IDBI 15-00
4 ESIC` 19-19
5 Expenses like legal/ professional 81-72
fees, travelling, administrative etc.
Total 774-19
[46] Insofar as the dues of workers are concerned, the
controversy tried to be generated in which Prasad Mills Kamdar
Samiti filed Company Application No.207 of 2014 in the petition
seeking to join as party respondent in the petition on the ground
that 521 workers of the Company, were not been taken into
confidence with regard to the proposed scheme and TLA had
filed affidavit without taking then in confidence and before the
said application i.e. Company Application No.207 of 2014 could
be decided, the Special Leave to Appeal filed by the promoter of
the petitioner no.2 was disposed of by Hon'ble Apex Court by
recording the statement of learned advocate appearing for such
promoter that in view of orders made in S.L.P No.29282-84 of
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2008, his petition did not survive and the same had become
infructuous. But then, on 01.09.2015, the Hon'ble Apex Court
passed a further order in S.L.P. filed by heirs of lessor in which
Hon'ble Apex Court expected the High Court to dispose of the
main proceeding latest by November, 2015 and it was
thereafter, the Company Application filed by Kamdar Samiti, as
referred hereinabove, was rejected by the Company Court vide
order dated 22.09.2015 and against the said rejection of
application, Prasad Mills Kamdar Samiti has filed S.L.P., but no
stay was granted against the proceeding of the petition and it
was said that at the time when learned Single Judge was heard
the said SLP was pending. But then no request was made on
behalf of Prasad Mills Kamdar Samiti in any manner as recorded
in the order itself, not to proceed with the hearing of the
petition on account of pendency of the SLP, and then change
has taken place wherein the very 521 workers who were with
Kamdar Samiti now have come forward through Ahmedabad
Mill Mazdoor Union and has also come forward with notice of
intention dated 29.02.2016 addressed to learned advocate Mr.
Vakil by indicating that such notice is being given for more than
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500 workmen, who are members of the Mazdoor Union, and
forwarded their objections in accordance with Rule 34 of the
Company Court Rules.
[47] It is also recorded by the learned Single Judge that when
the hearing of the petition commenced, as expected by the
Hon'ble Apex Court, learned advocate Mr. Vakil appearing for
the petitioners, learned advocate Mr. D.S. Vasavda appearing
for TLA, learned advocate Mr. Roshan Desai appearing for the
Official Liquidator and learned advocate Mr. Mitul Shelat
appearing for the Union. However, nobody had appeared before
the Court for other parties including one of the agitated
stakeholders - Naynaben did not appear as stated by learned
advocate appearing for the appellants.
[48] In aforesaid background of facts, it was submitted by
learned counsel appearing before the learned Single Judge that
all secured creditors voted in favour of the scheme as were fully
paid, and so far as workers are concerned, in view of the
specific affidavit, as stated above, the meeting was dispensed
with the workers and more than 3/4 th majority of shareholders
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voted in favour of the scheme. The TLA was representing all
workers of the company, had given specific consent for approval
of the scheme and as such when the scheme contains no
provision which runs against the public policy or public interest
and the same being genuine and fair even for enhanced benefits
of the workers sanctioned of scheme was required to be
accepted and categorically it was stated and left it to the Court
that if Court finds that the interest of workmen as indicated 521
in numbers is to be taken care of in whatever way, the Court
may provide or suggest and for that, expressly, it was stated
that the petitioners have no objections if by taking such
measure, scheme is approved. This submission is recorded in
paragraph 14 in specific terms. Simultaneously, it was also
submitted the by virtue of rejection of Company Application
No.207 of 2014, the Majdoor Union has no locus-standi to object
the scheme on behalf of very same workmen who were
represented and given consent and as such when overall
interest is kept in mind in the scheme, there is hardly any
reason for the learned Single Judge to come to a different
conclusion on the basis of mere surmises and conjectures and
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supportless inferences and as such it was requested to set aside
the order.
[49] In respect of one of the objectors - Naynaben, it was
clearly narrated that at a relevant point of time, she did not
raise objections and then, as an afterthought measure, is trying
to put on hold the entire scheme and the said Naynaben had
merely five shares. It was also specifically stated that said
Naynaben, who was equity shareholder, she consented to the
scheme originally and then came out with grievance with in her
reply with regard to conducting of meeting by the Chairman. So
in substance, said Nayanaben had objected basically against the
meeting being conducted, but then, according to appellants, the
object of the scheme may not be defeated. So taken such basic
pleas, it appears that an inference has been drawn by the
learned Single Judge that in substance the scheme has got the
effect of valuable land of the Company to be taken away and in
reality, the business of the Mill Company would not revive.
[50] At this stage, it is not in dispute that over the period of
time, a substantive change has taken place in the surroundings
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of land in question, TP schemes have been introduced and
implemented, the plant and machinery were sold away years
ago and the area is undisputedly found to be fully developed
area whether business of Mills Company can be regenerated or
not is the assessment and domain of the majority creditors and
shareholders of the Company. The scheme has clearly provided
in Clause 5 about business of the Company which has indicated
that in contemporary facts and circumstances, the original
business of the company i.e. manufacturing of textiles, if not
found viable by the company / sponsor, the company shall
diversify into such other business activities which may be found
suitable, viable and permissible in accordance with the laws of
the land. A close perusal of this clause is not remotely
indicating that there is inclination to done away with the land in
question in any manner. Had there been so intent of disposing
of the land itself or any intention of petitioners to grab the land
the words could not have been in the manner in which it is
incorporated in Clause 5, as indicated above. The basic
intention is to diversify such other business activity suitable and
viable. It appears that the learned Single Judge has swayed
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away by earlier circumstance and assumed that somehow
appellants want to grab the land of the Company, as indicated in
paragraph 30 of the judgment. The scheme has the intention of
reviving the business, but on account of change of circumstance
if not found viable then intent is to diversify to some other
business activity.
[51] If the clause contained in Memorandum of Association
particularly Clause 3 which projects the object of the company,
one of such object was also permitting to carry on any other
business, which clause being relevant, we deem it proper to
quote hereunder:-
"(n) To carry on any other business which may seem to the
company capable of being conveniently carried on in the
connection with the above, or calculated directly or
indirectly to enhance the value of, or render profitable any
of the Company's property or rights."
[52] So in broad factual matrix if the record indicates that all
payments have been made in substantial to the secured
creditors including Government debt, the interest of workers is
also been taken care of and further precaution if required also
assured to be incorporated and in the context if the scheme has
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ultimately being placed after conducting meetings and after
receiving consent from TLA with regard to workers, the
inference drawn by the learned Single Judge that appellants
ought to grab the land appears to be rather contrary to the
record nor visible from any clauses of the scheme and as such,
such inference drawn appears to be perverse. The base of the
scheme is to take the business or if not possible of regeneration
of Mills Business then to diversify such other business which is
permissible. So intent to grab the land is not getting
substantiated from any corner of plots. Apart from that, so far
as workers dues are concerned, though TLA has given consent
even independently the appellants ought to protect the interest
and take care of the interest of workers. On the contrary, it
appears that the workers are trying to change their stand from
TLA to Kamdar Samiti then to Mazdoor Union and trying to
change the stand from time to time. The controversy has also
erupted as to who is now recognized as representative Union,
but the fact remains that those 521 workers which are narrated
have been in part being paid the amount as indicated to some
extent intermittently and with the specific affidavit, it was
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noticed that meeting of the workers who was dispensed with
since TLA was representing and did gave consent in favour of
the scheme.
[53] In the light of aforesaid material, it appears that the
observations contained in paragraph 14 of the impugned
judgment that the secured creditors voted in favour of the
scheme were fully paid up, but the same was not the submission
of learned advocate for the appellants that the secured creditors
who voted at the Court convened meeting were fully paid up.
Similarly as observed in paragraph 22 of the impugned
judgment that from the years 1988 to 1998 or even till the
movable properties were sold, there was no move from anybody
for revival of the Company, but the learned Single Judge has lost
sight of the fact that there was a specific contention that there
is no period of limitation prescribed under the act for the
purpose of filing proceedings for revival of the company (in
winding-up) and for making proposal for revival of any company
in liquidation is not requiring any specific period form the date
of winding-up the order.
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[54] It further appears that learned Single Judge has failed to
appreciate that there was no provision in the Companies Act
that if a scheme for revival is proposed in respect of a Company
in liquidation whose plant, machinery, building, equipments,
superstructure, etc. is sold, no scheme for revival can thereafter
be proposed and the learned senior advocate appearing for the
appellants has rightly submitted that there is no provision under
the Companies Act or otherwise that if revival of a Company in
liquidation is proposed, the revival will necessarily have to be of
the same business. The scheme was sanctioned by the statutory
majority all of whom were conscious of Clause 5 of the scheme
and in any case, there was no opposition to the scheme by
anybody including the Official Liquidator or the workmen on the
ground that Clause 5 of the scheme is inadequate in as much as
in the event the company is unable to do the textile business
post revival, the scheme has failed to specify the second
alternative. In fact, Clause 5 was never objected at a stage
where the same was approved and then placed for approval.
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[55] Apart from this, the substantial apprehension which has
been shown about the disposal of the land in question of the
Company, it was ought to have been noticed by the learned
Single Judge that the company in liquidation was only having
leasehold rights over the land and the ownership of the land was
not of the company in liquidation and further the scheme did not
contemplate divesting of its lease hold rights over the land nor
deprive the company in liquidation of such leasehold rights and
all the clauses of the scheme, even did not contemplate utilizing
such leasehold rights for the purpose of discharging its
obligations towards the creditors of the company in liquidation.
So apprehension which has been raised about disposal of the
land or grabbing the same is out of place looking to the
provisions of the scheme.
[56] Yet a further fact has also been lost sight of the learned
Single Judge that the company in liquidation was incorporated
under the provisions of Companies Act in which there was no
distinction like the main objects or the ancillary objects. Clause
(n) of the object clause of the company suitably provided for
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doing any business for the purpose of which the value of and
render profitable any of the properties of the company and that
is the reason why Clause 5 appears to have been made out in
the scheme which is approved by statutory majority.
[57] The overall reading of the clauses of the scheme appears
that harsh observations which has been made by the learned
Single Judge to done away with the land appears to be out of
place from clauses of the scheme and further secured creditors
as well as interest of workmen is also being taken care of. So
the scheme appears to be not that much apprehensive but the
learned Single Judge has concluded. On the contrary, it appears
that by virtue of clauses contained in the scheme more
particularly Clause 5 is in the overall interest of the creditors
and workers concerned and the same found to be just,
reasonable and fair and not in conflict with any of the provisions
in the act, not does it violate any public policy and as such when
the overall interest is taken care of by treading the clauses in
scheme which was accepted by majority and further the interest
of workers around 521, as indicated above, is taken care of , we
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see no reason to hold that the scheme runs counter to the public
policy or is unjust so apparently arbitrary which may not
required any sanction.
[58] At this stage, we may also observe that at a relevant point
of time the objections were raised against the scheme for some
521 workmen for whom Prasad Mills Kamdar Samiti had filed
Company Application No. 207 of 2014, but while coming to the
conclusion, the learned Single Judge appears to have not
appropriately construed the provisions of Sections 529, 529A
and 530 of the Companies Act which do not enable a workman
to have his say on the grievance that his interest was not duly
taken care of for determination of his claim of his dues.
Further, at any rate no "individual workman" has come forward
at the time of hearing before the learned Single Judge making
any such grievance and as such when that be so, it does not
appear that interest of workmen only at jeopardize at any time.
In fact, by virtue of provisions contained under the Companies
Act and the same manner that of secured creditors, the interest
of workmen would be taken care of and more so when it has
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been clearly stated by the learned senior advocate appearing on
behalf of the appellants and undertaken also that they are ready
and willing to take care of the interest of workman in any form
while seeing approval of the scheme and for that we are sure
that Official Liquidator would also be in a position to take care
of the said issue keeping in view the specific assurance recorded
of the appellants through the learned senior advocate.
[59] Additionally, it appears that some grievance is voiced out
at the behest of Naynaben holding a meager amount of shares
and the same has been given undue weightage by observing in
paragraph 33 of the impugned judgment passed by the learned
Single Judge. Firstly, Naynaben herself did not appear at the
time of hearing of the Company Petition at a stage where the
same was desired. Secondly, none of the parties who were
present at the time of hearing of the Company Petition have
even remotely referred to the affidavit of Naynaben and as such
the reference which has made of Naynaben and her affidavit in
the impugned judgment is without putting notice to the
appellants for which no opportunity was given. If the stand
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taken by the said Naynaben perused, even at a initial stage no
grievance was voiced out and later on, it appears that as an
afterthought measure some objections have been tried to be
raised. The conjoint effect of the pleadings including additional
affidavit-in-reply filed by the appellants dated 08.05.2019, the
chronology whereof would indicate that the scheme floated is
not detrimental to the interest of stakeholders and cannot be
said that it is highly unfair, unworkable or unreasonable in any
form. The clauses contained in the scheme more particularly
Clause 5 which is not indicate disposal of the land, as indicated
above, but has got a discretion that if the original business is
not workable then any other business which may be proposed by
the shareholders for commencing new business activity would
be left as an alternative and as such the observations made by
the learned Single Judge and apprehension voiced of
squandering away the land of the company or grabbing the
same is appearing to be out of place. On the contrary, the
overall interest of secured creditors and and workmen if to be
looked into, the scheme deserves to go-on. Further, as
indicated above, the learned advocates given assurance to the
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Court as recorded in later part of paragraph 14 of the judgment
that if the Court finds that interest of workmen is to be taken
care of in more better way, the Court may provide for the same,
to which the petitioners i.e. present appellants will have no
objection if the Court is to approve the scheme. So when this
stand is being reflecting, the conclusion arrived at by the
learned Single Judge and the recorded on internal page 54 of
the judgment is out of place and as such the scheme could serve
the better interest of all concerned stakeholders and as such the
same is not possible to be construed as illegal, unreasonable or
unfair nor contrary to any public policy. Hence, overall
consideration of the material on record would suggest that
approval of the scheme on the contrary would be in the interest
of all stakeholders. Hence, Court see no reason not to all the
reliefs claimed by the appellants in original petition.
[60] In view of the discussion above and in view of the
peripheral scope of judicial review on such issues, as discussed
above, we are of the opinion that order passed by the learned
Single Judge is not sustainable in the eye of law. Hence, we set
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aside the same hereby and grant the relief seeking approval of
the scheme.
[61] In view of the present order having been passed in main O.
J. Appeals, the applications which are stated hereinbefore are
consigned on record and disposed of accordingly.
[62] However, we make it clear that pursuant to this every
steps must be of the appellants in the interest of all
stakeholders including workmen in specific.
[63] With these observations, we allow the appeal. Since main
appeal stands allowed, the other cognate Civil Applications
stand disposed of.
(ASHUTOSH SHASTRI, J.)
(J. C. DOSHI, J.)
FURTHER ORDER
After pronouncement of the judgment, learned advocate
Ms. PJ Davawala one of the contesting respondent has
requested that operation of the present order be suspended for
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some time so as to enable them to approach the higher forum.
Considering the controversy involved and in view of the
fact that appeal is of the year 2019, we deem it proper to grant
eight weeks time from today. Though, objection is raised by
learned counsel appearing for the appellants, but considering
the aforesaid circumstances, we deem it proper to grant this
reasonable time as stated above and effect of order stands
suspended for eight (8) weeks hereafter.
(ASHUTOSH SHASTRI, J)
(J. C. DOSHI,J)
Dharmendrakumar/phalguni
