Companies Act, 1956 - Sections 391 & 394 - compromise with creditor - court sanctioned the scheme and kept one creditor out of the scheme - whether correct - Held,Yes.
Brief facts: The appellant is aggrieved by the finding returned by the learned Company Judge in its order dated 31.03.2006. The learned Company Judge while sanctioning the Scheme proposed by the appellant sheld that the Sugar Development Fund (SDF), a Government Company shall remain outside the Scheme. This order was challenged by filing an application (C.A. No. 504/2006) under Rules 9 and 6 of the Company (Court) Rules 1959 seeking modification of the order dated 31.03.2006; the submission that the SDF has been inadvertently kept out of the Scheme was negative and the order dated 26.04.2006 had rejected this argument of the appellants.
Decision: Appeal dismissed.
Reason: In the order dated 31.03.2006, the learned Company Judge had noted that the fact finding returned by the Chairperson (of the secured creditors) was incorrect. This is also evident from the record. Record shows that A. Ramachandran who was appearing on behalf of the IFCI (Nodal Agency of SDF) did not have the requisite authority to cast its vote on behalf of the SDF and had thus been precluded from casting its vote. It has wrongly been recorded in the report dated 22.07.2005 that the SDF has voted in favour of the Scheme. The submission of the learned counsel for the appellant that a 3/4th majority of the secured creditors had voted in favour of the Scheme is thus incorrect. Section 392 of the said Act envisages a situation of 3/4th majority of the creditors present and voting. The SDF was neither present and nor did it vote. This is substantiated from the record.
Company Application No. 109/2005 in para 11 had enlisted the list of secured creditors (as noted supra) computing their liability. An amount of Rs. 182 lacs had been shown as due to the IDBI. A sum of Rs. 149.60 lacs was due to the IIBI. This is mentioned in the proposed scheme of arrangement itself. The amount due to the SDF comprised of the principal figure of Rs. 728.60 lacs with an interest quotient of Rs.722.81 lacs equivalent to Rs.1451.41 lacs. The letter dated 18.10.2005 (prior to the date of the convening of the meeting of the secured creditors) addressed by the IFCI to the advocate of the promoters clearly and categorically stated that SDF has to remain outside the Scheme as the extant rules of the SDF did not permit a re-structure of its debt; it should therefore be kept outside the purview of the scheme. SDF had also not voted in the Scheme. Submission of the appellant that 75% of the secured creditors had voted in favour of the Scheme is thus an incorrect fact.
The Central Government had given two loans to the Company. The first loan was of Rs. 561.10 lacs which were notified as a custodian loan. The second loan of Rs. 728.60 lacs was given by the SDF. Under the proposed Scheme, the promoters had proposed to reduce the loan of Rs. 561.10 lacs to nil and the loan of Rs 728.60 lacs to 25%. Admittedly, the settlement with the other two secured creditors i.e. the IDBI and the IIBI was a settlement of 40% of their total dues. In this context, the submission of the learned counsel for the respondent that there was no justification or reason as to why the SDF would have accorded consent to a reduced figure of 25% is a submission not without force. Even otherwise within the same class all creditors had to be treated at part and within the said class, there could not be any discrimination. All the secured creditors have been classified as a single class. Payment of 40% of the dues to IDBI and IIBI with a reduced payment of 25% to the SDF and a nil payment for the custodian loan to government was prima facie an unfair proposal.The majority decision of the same class of voters should be just and fair to the class as a whole in order to bind the dissenting members of that class. This was clearly not so in the instant case. It is in fact the duty of the court to go through the proposed Scheme carefully and find out whether all the provisions of law and directions of the court as to the conduct of meetings have been complied with and whether Scheme is in the interest of the Company as well as that of its creditors and only then it should be given effect to. The court is not a mere rubber stamp or a post office. It is incumbent upon the Court to be satisfied prima facie that the Scheme is genuine, bona fide and in the interests of the creditors and the Company. The Court may refuse to put its seal of approval if the purpose of the Scheme is not bona fide.
The order dated 31.03.2006 had noted that the promoters of the Scheme had in fact pointed out that the loans of the Central Government should be kept outside the scope of the Scheme and their claim could be apportioned. While expressing its reservation to the proposed Scheme, the Single Judge had however noted that it could in no manner be presumed that the Central Government had agreed to entirely waive off its custodian loan of Rs.561.10 lacs to nil or to reduce SDF loan (also a government loan) from Rs.728.60 lacs to Rs. 182.15 lacs. Both these loans being central government loans were permitted to be treated as outside the Scheme. The different parameters for settlement with the IDBI and IIBI by paying of 40% of their total dues whereas the government dues of which the custodian loan was sought to be reduced to nil and the SDF loan being reduced to 25% of its principal was also noted. These distinct parameters applied qua different secured creditors was against fairness. Accordingly, on the specific request of the learned counsel for the promoters, a concession was granted and the government loans which included not only the custodian loan but also the SDF loan were kept outside the Scheme.
The scheme of arrangement, as noted supra, was in fact sanctioned only to benefit the class of unsecured creditors and the employees as apart from the OTS settlement with the IDBI and IIBI, the Scheme envisaged payment to the said persons. The Company Judge had noted that in the eventuality that the Scheme is not sanctioned there could be no other alternate but to wind up the company because the dues of the Company were enormous. In this background, the submission of the leaned counsel for the appellant that it was an inadvertent mistake and error which had crept in the order of the Company Judge while excluding SDF from the Scheme is mis-understood. It was deliberately and intentionally noted and for the reasons as discussed (supra) that the SDF loan also being a government loan, both the custodian loan and the SDF were to be excluded from the purview of the Scheme. The Company Judge has ample power to pass such an order.