Dee Cee Trading and Finance Ltd. vs Pudumjee Agro Industries Ltd.

SMT. K.K. Bamm, J.—The petitioners seek a direction that the company, Pudumjee Agro Industries Limited, be ordered and directed to be wound up and that the official liquidator be appointed as liquidator of all the assets, properties with all the powers under the provisions of the Companies Act, 1956.

The petitioners are the unsecured creditors of Kapil Agro Limited to the extent of Rs. 1,80,000 which amount has been lent and advanced by them from time to time. The petitioners are also entitled to interest at the rate of 12 per cent. per annum on the said advance. The statement of account of Kapil Agro Limited (exhibit "A" to the petition) for the period ending March 31, 1990, reflects that a sum of Rs. 1,80,000 is due to the petitioners.

It transpires that Kapil Agro Limited was declared a sick unit under the Sick Industrial Companies (Special Provisions) Act, 1985, and a revival scheme was proposed by way of amalgamation of Kapil Agro Limited with Pudumjee and Company Limited. This revival scheme was placed before the Board for consideration. By an order dated May 8, 1990, the scheme of amalgamation and rehabilitation of Kapil Agro Limited was sanctioned and the same was directed to come into force with immediate effect. The transfer date as specified in the said scheme was April 1, 1989, with all debts, liabilities, duties and obligations of the transferor-company pursuant to the order of the BIFR. Therefore, according to the petitioners, by virtue of the order dated May 8, 1990, with effect from April 1, 1989, all debts, liabilities, duties and obligations of Kapil Agro Limited excepting the liability towards interest up to March 31, 1990, in respect of the unsecured loans stood transferred to the company and the transferee-company was liable to pay the debts of the petitioners to the tune of Rs. 1,80,000.

As the transferee-company failed to honour its commitment under the scheme, the petitioners by their advocate''s letter dated November 5, 1990, called upon the respondent-company to pay the amount which letter, though received, was not replied to. Hence, by letter dated April 2, 1991, under the provisions of section 434 of the Companies Act, 1956, the petitioners sent a notice through their advocate calling upon the company to pay to the petitioners a sum of Rs. 1,80,000. This letter was received by the company who, by their advocate''s letter dated April 21, 1991, contended that the petitioners being unsecured creditors, they were not entitled to recover that amount on that date inasmuch as the petitioners were required to receive the amount under a package scheme which was required to be implemented in toto. Being unsecured creditors, they cannot claim a preference over the secured creditors and on that count the company challenged the right of the petitioners to issue the notice or to file the petition.

So far as the company is concerned, it transpires that Kapil Agro Limited became a sick unit by the order dated April 4, 1989, passed by the BIFR. By order dated July 27, 1989, the State Bank of India was appointed as the operating agency to submit the scheme of revival of the sick company, Kapil Agro Limited. The scheme contained various terms and conditions. The BIFR, by their order dated May 8, 1990, consented for the merger of the company Kapil Agro Limited with Pudumjee and Company Limited. As per the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, an enquiry was conducted u/s 16 of the Act to determine whether Kapil Agro Limited had become a sick industrial company or not.

In the course of the enquiry and in finalising the scheme, certain guidelines were laid down which were required to be followed. The guidelines are so enumerated in exhibit "1". Clause (13) of the guidelines reads as under :

"13. In finalising the scheme they will follow the following guidelines.

(i) In view of the poor performance and lack of interest of the present promoters, efforts should be made to find out alternative promoters, who can take over the company and provide additional funds as well as strong management. The possibility of amalgamation of the company with some other healthy company should also be explored...

(iv) The scheme should be for a period of 7 to 10 years with acceptable DSCR. In case it is found that within the normal guidelines the resulting DSCR is less than 1.33., the gap (interest-free funds required) should be indicated to reach acceptable DSCR."

The draft scheme that was placed before the Board was sanctioned on May 8, 1990 (exhibit "2"), and along with this sanction, the scheme of rehabilitation was enclosed.

As per this scheme, the financial institutions and banks were to grant reliefs as set out therein, namely, to reduce the rate of interest on the term loans by 2 per cent. points; to waive all penal interest, damages and charges, to fund the amount of interest and certain benefits as set out therein.

Reference is required to be made to the viability clause which is required to be taken into consideration for considering whether the scheme was viable for the company. The said "viability" clause reads as under :

"Viability. - On the basis of production plan proposed by FPC, the projected profitability of KAL is given in annexure II. Projected profitability statement in respect of the amalgamated company and projected balance-sheet of KAL as well as amalgamated company are given in annexures III to V. The working sheet in respect of debt service coverage ratio for KAL unit as well as the amalgamated company are given in annexures VI and VII. It will be seen that FPC, the amalgamated company would be able to service its entire debt over a period of 10 years with a comfortable DSCR 2.611. On merger as on April 1, 1989, the entire accumulated losses of KAL would be fully absorbed by FPC against its reserves."

In the said viability clause, there is a reference to the annexures which reveal that so far as the unsecured creditors are concerned, as per the projected balance-sheet, their liabilities will be honoured by 1997-98. This projected balance-sheet also reflects the payment of dues of secured loans as also the other debts and liabilities of Kapil Agro Limited. So far as this statement is concerned, the petitioners have vehemently contended that these annexures do not form part of the scheme and that a perusal of these annexures will also reveal that the respondents were liable to pay interest which till date has not been paid nor has any certificate been filed with the relevant authorities.

It is also contended on behalf of the petitioners that so far as the viability clause is concerned, the same was not a part of the scheme as is sanctioned by the BIFR. According to the petitioners, therefore, they are entitled to receive the amount and are also entitled to the prayer for winding up. So far as the question of winding up is concerned, section 433 of the Companies Act, 1956, provides the circumstances under which a company may be wound up by the court. Clause (e) of section 433 of the Companies Act stipulates that if the company is unable to pay its debts, the company may be wound up by the court. Clause (f) of section 433 stipulates that if the court is of the opinion that it is just and equitable that the company should be wound up, the company may be wound up.

So far as this petition is concerned, the question that arises is as to whether the amalgamated company, Pudumjee Agro Industries Limited, can be wound up merely on the basis that a notice of demand was sent and that they have failed to pay the amount. So far as the respondent-company is concerned, it is not that the respondent-company is in financial straits or that it is unable to honour its commitments, but it is a case of the respondent-company that so far as the commitment of the petitioners is concerned, the same is liable to be paid in 1997-98.

One has to test and it is also urged on behalf of the respondent-company that if the respondents are required to honour the commitments of the petitioners and accelerate payment to the petitioners, the same will disturb and prejudice the implementation of the scheme. It is also contended on behalf of the petitioners that the respondent-company was required to pay and clear up the liabilities within a reasonable period. However, in the light of the contentions raised by the respondent-company so far as the implementation of the scheme is concerned, the same was a package deal and it was to be implemented from time to time. That means that the implementation qua the various creditors of the company were formulated and if payment is required to be made to an unsecured creditor, preferring him to a secured creditor, the same would, to a large extent, deprive the implementation of the scheme. That factor is required to be taken into consideration for the purpose of determining whether the petitioners are entitled to an order of winding up.

It is not the case of the petitioner or the respondent-company that they are unable to pay their debts as apparently they are in a sound financial state, but according to the respondent-company the same is a package deal and that reference is required to be invited to the guidelines for the purpose of finalising the scheme which, in terms, clearly specifies that the scheme should be for a period of 7 to 10 years. In pursuance of and in consonance with these guidelines at the time when the draft scheme was submitted, the question of viability was also taken into account which also, in terms, specified that the amalgamated company will be able to service its entire debt over a period of ten years which is supported by the document in annexure "5" which in terms provides that so far as the payment of unsecured creditors is concerned, the same is to be cleared by 1997-98. Therefore, it is not open to the petitioners to contend that the respondent-company was liable to pay the amount immediately upon the scheme being sanctioned or within a reasonable time as per the provisions of the Contract Act. It is also not open to the petitioners to contend that these annexures are not to be looked into or referred to more particularly since these annexures are part of the draft scheme which was submitted. On a perusal of the scheme it is apparent that it was viable only if the said package deal was resorted to. Therefore, so far as the petitioners are concerned, the petitioners have not been able to bring before the court material to show that the company is not in a position to pay its debts and for that reason required to be wound up.

It was also urged on behalf of the respondent-company that as per the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, in view of the fact that the scheme has been sanctioned and is under the implementation, legal proceedings should be suspended. If the petitioners have any grievance, they are required to make an application before the Board. For that purpose, reference is invited to the words "industrial company" which has been defined u/s 3(e) of the Sick Industrial Companies (Special Provisions) Act, 1985, as under :

"3. (e) ''industrial company'' means a company which owns one or more industrial undertakings."

However, so far as section 22 of the Sick Industrial Companies (Special Provisions) Act is concerned, it cannot be contended that the same has application to the respondent-company inasmuch as the industrial company referred to is Kapil Agro Industries Limited and not the amalgamated company. By virtue of the fact that the company has been amalgamated with the respondent-company, Kapil Agro Limited ceases to have an independent entity. Therefore, so far as section 22 of the Sick Industrial Companies (Special Provisions) Act is concerned, the same is not applicable to the respondent-company. It is, therefore, not open to the respondent-company to contend that the petitioners are not entitled to file proceedings for winding up inasmuch as the proceedings for winding up is not in respect of Kapil Agro Limited, but it is in respect of the amalgamated company.

However, so far as the petition is concerned, in the light of my above discussion on the aspect that the petitioners have not been in a position to prove that the respondent-company is unable to pay its debts and in the light of the arguments advanced that the liability to pay was under the scheme which was a package deal in respect of which the respondent-company was liable to pay the amount over a period of time, so far as the unsecured creditors are concerned, as per annexure "5" the liability would be cleared off by 1997-98. So far as the petitioners are concerned, the petition is not maintainable and the same stands dismissed. Certified copy expedited.