In Re: Dhar Cement Ltd. (in Liquidation)

Prakash Shrivastava, J.—This order will govern the disposal of the pending applications including the application for permanent stay of the winding up proceedings in Company Petition No. 17 of 2002 and also Company Petition No. 21 of 2013. Since both these matters are interconnected, hence they are decided by this common order. Heard, counsel for the parties in Company Petition No. 21 of 2013 which is a petition under section 394 of the Companies Act, 1956 (for short "the Act") seeking sanction of the scheme of arrangement and reconstruction between Dhar Cement Ltd., the company under liquidation, and its shareholders and creditors.

Also heard counsel for the parties on the following I.As. filed in Company Petition No. 17 of 2002, which is a petition for winding up of the company in liquidation, i.e., Dhar Cement Ltd. :

"(i) I.A. No. 828 of 2013 filed by one of the promoters of the company under section 466 of the Companies Act, 1956 read with rule 9 of the Companies (Court) Rules, 1959, for permanent stay of the winding up proceedings.

(ii) I.A. Nos. 1621 of 2013, 1622 of 2013, 1868 of 2013, 1869 of 2013, 1870 of 2013, 1872 of 2013, 1873 of 2013, 1946 of 2013, 4656 of 2013, 4657 of 2013, 4655 of 2013, 5940 of 2013, 5943 of 2013, 5942 of 2013, 5944 of 2013, 5945 of 2013, 5941 of 2013, 7126 of 2013 and 7508 of 2013 filed by the ex-workers of the company in liquidation under rule 9 of the Companies (Court) Rules, 1959, for directions to the official liquidator to settle their dues and to release the payment.

(iii) I. A Nos. 4837 of 2013, 4973 of 2013 and 4974 of 2013 filed by some of the workers under rule 9 of the Companies (Court) Rules, 1959, to issue appropriate directions for accepting, approving, signing, settling and releasing the claims of the applicant workers for provident fund.

(iv) I.A. No. 6303 of 2013 filed by the M.P. Paschim Kshetra Vidyut Vitran Co. Ltd. (MPPKWCL) for direction to the official liquidator to settle the dues of the applicant and to release the payment."

In brief, the company in liquidation, i.e., Dhar Cement Ltd., was incorporated on November 24, 1979, for manufacturing ordinary portland cement. The registered office of the company is situated at village Jeerabad, District, Dhar (M.P.). The BIFR on May 13, 1998, had declared the company to be a sick industrial company under section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985. The company''s proposal was rejected and the BIFR had prima facie reached the conclusion in respect of the winding up of the company under section 20(1) of the Companies Act, and had issued the show-cause notice for winding up on February 18, 2002. Thereafter, the BIFR on May 14, 2002, had held that it would be just, equitable and in the public interest to wind up the company, accordingly reference was made to this court for necessary action along with the opinion of the BIFR which was registered as Company Petition No. 17 of 2002 and this court vide order dated August 8, 2003, had concurred with the opinion of the BIFR and had found it fit to direct winding up of the company in accordance with the provisions of the Companies Act read with the Companies (Court) Rules, 1959 and had appointed the official liquidator to be the liquidator of the company and the liquidation proceedings were started. On March 12, 2004, the sale committee was constituted and the prayer for getting the valuation of the assets of the company from registered valuer was accepted. The official liquidator had taken possession of the assets of the company and twice the attempts were made to auction the assets of the company, but the assets could not be sold. The official liquidator in the meanwhile is discharging the responsibility of protecting the assets of the company by making adequate security arrangements. This court vide order dated November 25, 2010, while considering the O.L.R. No. 15 of 2009 for appointment of valuer to assess the value of the property of the company, had noted that the property was deteriorating and the plant and machinery were lying in open condition subject to theft. This court had permitted the fresh valuation of the property, and though the fresh valuation was done but further steps for auctioning the property could not be taken up.

At this stage Pradeep Kasliwal, one of the promoters of the company in liquidation, has filed I.A. No. 828 of 2013 dated February 11, 2013, along with the scheme of arrangement and reconstruction with a prayer, inter alia, to stay the liquidation proceedings by exercising the power under section 466 of the Companies Act. The same promoter has also filed a separate petition being Company Petition No. 21 of 2013 under sections 391 to 394 of the Companies Act to sanction the scheme of arrangement and reconstruction of the company in liquidation with a view to revive the said company. He is one of the promoters and ex-managing director having 27 per cent, major shareholding in the company in liquidation and is a contributory under section 428 of the Companies Act. The stand of the applicant based upon the judgments of the Delhi High Court in the matter of A.K. Misra v. Wearwell Cycle Co. (India) Ltd. (in liquidation) reported in [1993] 78 Comp. Cas. 252 (Delhi), in the matter of National Steel and General Mills Vs. Official Liquidator, , in the matter of In Re: Rajdhani Grains and Jaggery Exchange Ltd., , the judgment of the Madras High Court in the matter of N.A.P. Alagiri Raja and Company Vs. N. Guruswamy and Others, , judgment of Punjab and Haryana High Court in the matter of M.M. Sehgal Vs. Sehgal Papers Ltd. (In Liquidation), , judgment of the Bombay High Court in the matter of In Re: Vasant Investment Corporation Ltd., and the judgment of the Calcutta High Court in the matter of Rajendra Prosad Agarwalla and Others Vs. Official Liquidator, about the maintainability of the application and petition at the instance of the contributory has not been disputed by any of the parties. The fact stated in the application that the applicant was involved and instrumental in promoting and setting up the entire project of the company as promoter and was also involved into the day to day activities of the company as managing director and he is having substantial stake of the company and is the most adversely affected person due to the closure of the company, has also not been disputed by any of the parties.

Before proceeding further in the matter, it would be relevant to consider the relevant provisions of the Act as also the law relating to the manner in which such an application and petition for revival of the company in liquidation is required to be treated. Section 466 of the Companies Act provides for the stay of the winding up at any time after making a winding up order. Such a stay can be granted on the application of the official liquidator, any creditor or contributory. While passing the order, the proof to the satisfaction of the company court needs consideration requiring stay of winding up proceedings. In case where the scheme of revival genuinely contemplates, revival of whole or part of the business of the company and the scheme is bona fide and not a ruse to dispose of the assets of the company in liquidation, and it satisfies the element of public interest and commercial morality, then it is open to the company court to stay the winding up proceedings and permit revival of the company in liquidation. A company facing winding up proceedings is expressly included in section 391(1). It is no longer res integra that section 391 of the Act would apply even in a case where an order of winding up has been made and the liquidator has been appointed. Though on the appointment of the official liquidator after passing the winding up order and on placing the assets in possession of the official liquidator, the assets become custodia legis but there is no bar for revival of the company, if the real purpose underlying the scheme for reconstruction and revival is bona fide and the scheme is just, fair, reasonable and in public interest. It is also undisputed that while choosing between revival of the company and its winding up, the court normally leans in favour of revival of the company and normally attempt is made to ensure revival of the company rather than dissolving it.

The Supreme Court in the matter of Meghal Homes Pvt. Ltd. Vs. Shree Niwas Girni K.K. Samiti and Others, , while considering the similar issue, has held that (page 434 of 139 Comp Cas) :

"The argument that section 391 would not apply to a company, which has already been ordered to be wound up cannot be accepted in view of the language of section 391(1) of the Act, which speaks of a company which is being wound up. If we substitute the definition in section 390(a) of the Act, this would mean a company liable to be wound up and which is being wound up. It also does not appear to be necessary to restrict the scope of that provision considering the purpose for which it is enacted, namely, the revival of a company including a company that is liable to be wound up or is being wound up and normally, the attempt must be to ensure that rather than dissolving a company it is allowed to revive. Moreover, section 391(1)(b) gives a right to the liquidator in the case of a company which is being wound up, to propose a compromise or arrangement with creditors and members indicating that the provision would apply even in a case where an order of winding up has been made and a liquidator had been appointed. Equally, it does not appear to be necessary to go elaborately into the question whether in the case of a company in liquidation, only the official liquidator could propose a compromise or arrangement with the creditors and members as contemplated by section 391 of the Act or any of the contributories or creditors also can come forward with such an application. By and large, the High Courts are seen to have taken the view that the right of the official liquidator to make an application under section 391 of the Act was in addition to the right inhering in the creditors, the contributories or members and the power need not be restricted to a motion only by the liquidator. For the purpose of this case, we do not think that it is necessary to examine this question also in depth. We are inclined to proceed on the basis that the Somanis, as contributories or the members of the company, are entitled to make an application to the company court in terms of section 391 of the Act for the purpose of acceptance of a compromise or arrangement with the creditors and members...

When a company is ordered to be wound up, the assets of it, are put in possession of the official liquidator. The assets become custodia legis. The follow up, in the absence of a revival of the company, is the realisation of the assets of the company by the official liquidator and distribution of the proceeds to the creditors, workers, and contributories of the company ultimately resulting in the death of the company by an order under section 481 of the Act, being passed. But, nothing stands in the way of the company court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the company. In that context, the court has necessarily to see whether the scheme contemplates revival of the business of the company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of section 529 and section 529A of the Act. Of course, the court has to see the bona fides of the scheme and to ensure that what is put forward is not a ruse to dispose of the assets of the company in liquidation...

We cannot understand the decision in Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., , as standing in the way of understanding the scope of the provisions of the Act in the above manner. We are therefore satisfied that the company court was bound to consider whether the liquidation was liable to be stayed for a period or permanently while adverting to the question whether the scheme is one for revival of the company or that part of the business of the company which it is permissible to revive under the relevant laws or whether it is a ruse to dispose of the assets of the company by a private arrangement. If it comes to the latter conclusion, then it is the duty of the court in which the properties are vested on liquidation, to dispose of the properties, realise the assets and distribute the same in accordance with law."

The Delhi High Court also in the matter of Sunstar Lubricants Ltd. and its creditors, vide order dated April 8, 2010, passed in Company Petition No. 154 of 2002 taking note of the judgment of the different High Courts on this issue, has held as under :

"54. It has been repeatedly held that whenever option is available between revival of the company and its winding up, courts must as far as possible lean in favour of the company. The same facilitates creation of the prospect of generating jobs and putting the assets of the company in productive use as against their disposal and distribution (Ref: In Re.: Wearwell Cycle Co. (I.) Ltd. (In Liquidation), and Ferro Alloys Corporation Vs. National Steel and General Mills (P) Ltd., .

In [1922] 2 Ch D 723 (Anglo-Continental Supply Co. Ltd., In re) the court held that before giving a sanction to the scheme of arrangement, it would see ''Firstly, that the provisions of the statute have been complied with. Secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and thirdly, that the arrangement is such as a man of business would reasonably approve''. These requirements appear to have been satisfied in the present case.

In the decision reported at In Re: JVG Leasing (Securities and Finance) Ltd. and Others, , the court found that the propounded scheme for revival was lacking in bona fide, incomplete and not viable. However, the principles which were laid down by the court with regard to consideration of a scheme for revival deserve to be considered in extenso and read as follows (page 797 of 144 Comp Cas) :

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

These principles were reiterated by this court in the judgment In Re: Soldier United Motor Tpt. Co. Ltd., and (S.N. Bhalla v. Soldier United Motor Tpt. Co. Ltd.)

It has also been held that so long as a scheme is bona fide and is not intended to shift misdeeds of ex-directors or is otherwise equitable; the court would put its seal of approval on any proposal which is fair and reasonable and propounded in good faith (Ref : [1996] 22 CLA 200 (Saroj G. Poddar, In re)). The Bombay High Court in the judgment reported at Shree Niwas Girni Kamgar Kruti Samiti Vs. Rangnath Basudev Somani, observed as follows (page 776 of 127 Comp Cas) :

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

The Supreme Court in the matter of Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., , has defined the broad contour of the jurisdiction of the company court and has laid down the parameters for granting sanction to the scheme in terms of sections 391 and 393 of the Companies Act on following terms (page 813 of 87 Comp Cas) :

"However, the 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 scheme as required by section 391(2). On 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 game 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 culled 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-

(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 of 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, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act.

(3) The provisions of this section 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 parties who are sui juris with their eyes open 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 and economic interest by majority agree to give the 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 the subject of a series of decisions of the different High Courts and this court as well as by the courts in England which had also occasion to consider schemes under pari materia 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 Buckley on the Companies Acts, 14th edition. They are as under (at page 473) :

''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 the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an 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 it is empowered to bind, or some blot is found in the scheme.''

In the case of Alabama, New Orleans, Texas and Pacific function Railway Co., In re [1886-90] All ERR Ext 1143 : [1891] 1 Ch D 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 (at pages 238-239) :

''What the court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority has been acting bona fide. The court also has to see that the minority is not being overridden 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 the scheme laid before them in the interests of those whom they represent, take a view which can reasonably be taken by businessmen. The court must look at the scheme, and see whether the Act has been complied with, whether the 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 one 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 similar effect were the observations of Fry L.J., which read as under (at page 247) :

''The next enquiry is-under what circumstances is the court to sanction a resolution which has been passed approving of a compromise or arrangement ? I shall not attempt to define what elements may 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 proposition was made in good faith; and, further, it must be satisfied that the proposal was at least so far fair and 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., In re [1922] 2 Ch D 723; 91 L.J. Ch 658, Astbury J., a century later (sic) reiterated the very same propositions as under (at page 736) :

''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 to promote interests adverse to those of the class whom they purport to represent; and, thirdly, that the arrangement is such as a man of business would reasonably approve.''

The learned single judge of the Calcutta High Court in the case of In Re: Maknam Investments Ltd. and Others, , 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 (at page 695) :

''It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that the proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether the merged companies will be ultimately benefited or will be able to economies in the matter of expenses is a matter for the shareholders to consider. If three companies are amalgamated, 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 Vs. Hindustan Lever Limited and others, wherein a Bench of three learned judges speaking through Sen J. on behalf of himself and Venkatachaliah C.J. 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 paragraphs 3 and 6 of the report (at pages 37, 39) :

''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 into 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 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 the profit of the shareholders or whether the interest of employees was protected but it has to ensure that the merger shall not result in impeding promotion of industry or 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 and Co. Ltd., In re [1933] All ER Rep 105 (Ch D) and Bugle Press Ltd., In re [1960] 1 All ER 768 : [1960] 2 WLR 658 : [1961] 31 Comp Cas 369 (CA) : [1961] Ch D 270 that the power of the court is to be satisfied only whether the provisions of the Act have been complied with or 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.''

Sen J., speaking for himself and Venkatachaliah C.J., also toed 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 (at page 65 of 83 Comp Cas) :

''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 is 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 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 assets is really meaningless. Very many cotton mills and jute mills in India have become sick and are on the verge of liquidation, even though they have large assets. The scheme has been sanctioned almost unanimously by the shareholders, debenture holders, secured creditors, unsecured creditors and preference shareholders of both the companies. There must exist very strong reasons for withholding sanction to such a scheme. 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, settings 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(2).

(3) That the concerned meetings, of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.

(4) That all necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by section 391(1).

(5) That all the requisite material contemplated by the proviso to sub-section (2) of section 391 of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same.

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

(7) That the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising 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 could 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."

Thus in the present matter also the issue relating to revival of the company and approval of the scheme of arrangement and reconstruction needs to be considered in the light of the above position in law.

The scheme of arrangement and reconstruction filed in Company Petition No. 21 of 2013 as annexure P/5 is between Dhar Cement Ltd., and its shareholders and creditors and it proposes revival of the company in liquidation. It has been pleaded that the outstanding dues of the company towards its secured creditors have been fully and finally settled by the promoters, and the company will also settle the dues of the unsecured creditors. The company also proposes to offer employment to all its past willing employees on market comparable terms.

In the first state petition filed under section 391 of the Act being Company Application No. 1 of 2013, this court vide order dated February 27, 2013, had dispensed with the meeting of the secured creditors taking note of the petitioner''s submission that there were six secured creditors and their dues were cleared and the secured creditors had given the no dues certificate. This court on February 27, 2013, had directed the meeting of the shareholders as well as the unsecured creditors and had also appointed the chairman/alternate chairman for convening the meeting and directed the advertisement in accordance with law. The chairman appointed by this court, had submitted the report dated April 9, 2013, stating that meeting of the equity shareholders and the unsecured creditors was held as per the direction of this court, and the shareholders as well as the unsecured creditors had unanimously approved the proposed scheme.

This court vide order dated February 27, 2013, had stayed the winding up proceedings of the company in Company Petition No. 17 of 2002.

In the present Company Petition No. 21 of 2013 under section 394 of the Act, this court on April 17, 2013, had issued notice to the Registrar of Companies, Madhya Pradesh and Chhattisgarh-Gwalior, Regional Director, Western Region-Ahmedabad and to the official liquidator. The petitioner was also directed to advertise the petition in accordance with the Rules in the Official Gazette of the State and two dairy newspapers having circulation in the city of Indore namely Naiduniya (Hindi) and Free Press (English). The compliance affidavit dated May 17, 2013 and May 13, 2013, relating to the Dasti service as well as the publication of notice in the two newspapers and Official Gazette have been filed.

The Regional Director in his report affidavit dated July 17, 2013, has raised certain objections, which are dealt with hereunder :

"(i) In paragraph 2(a) of the report, it is stated that the accounting treatment mentioned in the scheme is not in accordance with the accounting principle and the share forfeited account represents reserve which are of capital nature and cannot be made available for distribution of dividend, therefore, the petitioner be directed not to adjust the share forfeited account in general reserved account and/or to declare dividend out of such reserves.

In response to this, the petitioner in the affidavit dated August 7, 2013, has undertaken to abide by and follow all the applicable accounting standards and to the treatment for forfeited share account balance as also to report the compliance of all the necessary accounting standard in the audited annual accounts and the report of the board of directors of the company.

(ii) In paragraph 2(b) the Regional Director has objected that the petitioner-company has not submitted the chairman''s report and has not submitted the documentary evidence regarding the settlement with secured creditors of the OTS amounting to Rs. 5.70 crores.

In this regard counsel for the petitioner has drawn the attention of this court to the report of the chairman dated April 9, 2013, as also the no dues certificate filed as annexure A/6 in Company Petition No. 1 of 2013, which negate the above objection.

(iii) The Regional Director in paragraph 2(c) of the report has raised an objection that since the chairman''s report has not been submitted to the Regional Director, therefore, his office is not aware of the consent of the financial institution and, therefore, the petitioner be directed to place on record that the financial institutions, being major shareholders, were sent notice while convening the meeting of the shareholders.

Counsel for the petitioner has drawn the attention of this court to the list of shareholders submitted by the chairman along with the report and also his statement on affidavit dated August 7, 2013, to show that all the shareholders of the company including the member financial institutions were served with the notice of the meeting with the shareholders, as per the direction of this court.

(iv) In paragraph 2(d) the Regional Director has stated that the petitioner should be directed to follow all the procedure as may be required by the appropriate authorities of the Mining Department, etc., on the payment of fee, if any, for renewal of licence, other approvals and permissions in the name of the company on sanction of the scheme.

In this regard, the petitioner has stated in the affidavit dated August 7, 2013, that all the applications for necessary approval, licence and permissions will be submitted to the concerned authorities immediately on sanction of the scheme of arrangement and reconstruction, and the petitioner has undertaken to follow the prescribed procedure in this regard.

(v) In paragraph 2(e) the Regional Director has raised an objection that in the project report, various calculations are not certified by any professional, therefore, the petitioner be directed to place on record the certified copy of the project report.

The petitioner along with the affidavit dated August 7, 2013, has placed on record the project report of revival of Dhar Cement Ltd., duly certified by the chartered accountant.

(vi) In paragraph 2(f) the Regional Director has stated that since it is a case of reduction of capital under sections 78, 100 to 104 and section 106 of the Companies Act, therefore, the petitioner be directed to add the words "and reduced" as suffix to its name, as required by the provisions of Sub-section (3) of section 102 of the Act.

In this regard, it has been pointed out by counsel for the petitioner that the scheme does not involve any diminution of liability in respect of unpaid share capital or repayment to any shareholders of any paid-up share capital, therefore, the provisions of section 101 are not applicable.

In view of the material which has been pointed out by counsel for the petitioner, no special reasons are found as required by section 102(2) of the Act to direct the company to add the words "and reduced" as suffix to its name, and this court is of the opinion that such a direction is not necessary in the present case.

(vii) In paragraph 2(g) the Regional Director has observed about considering the latest valuation of the properties/assets of the company while considering the present petition.

In this regard, the petitioner has stated in the affidavit dated August 7, 2013, that he has already paid a sum of Rs. 6 crores for settlement of dues of the creditors, which is more than the last valuation of the properties. Even otherwise in latter part of this order, this court has directed the official liquidator to prepare the inventory of the assets including the full details of the land and take appropriate photographs as well as do the videography of the handing over and taking over possession of the assets, and the petitioner and other concerning directors of the company have been restrained from transferring, alienating or parting with possession of any of the assets of the company without the leave of this court.

(viii) The Regional Director in paragraph 2(h) has raised objection relating to the dues of the Commercial Tax Department of the State as well as the dues of the workers.

In respect of the dues of the Commercial Tax Department, the petitioner in his affidavit dated August 7, 2013, has undertaken to meet all the statutory liabilities of the company under liquidation in accordance with law. In respect of the claims of the workers, this court in the latter part of this order has constituted a Claim Committee and has issued suitable directions to safeguard the interest of the workers.

(ix) In paragraph 2(i) the Regional Director has raised objection relating to the claim of the ex-workers, but in this regard the suitable directions relating to constitution of the Claim Committee and adjudication of their claims have been issued in the later part of this order.

(x) In paragraph 2(j) the Regional Director has objected to unilateral condition of withdrawal of the scheme as contained in paragraph 1.7 part D of the scheme.

In this regard, the petitioner has pointed out that the said objection of the Regional Director is based upon the apprehension, which is unfounded because the petitioner has already entered into one time settlement with the secured creditors and repaid their dues unconditionally amounting to Rs. 6 crorers and if the petitioner withdraws from the Scheme, then he would suffer the loss of said amount. It has further been pointed out that the successful operation of the plant is subject to the various sanction, approvals and permissions from the State Government in accordance with the Industrial Policy of the State, which may vary with the change in the policy, therefore, the said clause has been incorporated."

In view of the aforesaid analysis the objections which have been raised by the Regional Director in his report dated July 17, 2013, do not survive. Apart from the above objections, the Regional Director has no other objection and it has been stated in the report that the Registrar of Companies of the State of Madhya Pradesh and Chhattisgarh had submitted his report to the Regional Director vide letter dated May 27, 2013 and June 14, 2013 and as per the said report, there is no complaint against the company including any complaint/representation against the proposed scheme of arrangement and reconstruction, and the Regional Director has no other objection, and it is stated that the scheme of arrangement may be considered by this court. The Regional Director had submitted the second report in the form of affidavit dated September 27, 2013, but it is not disputed by counsel for the respective parties that the, second affidavit is mere reiteration of the objections raised in the earlier report affidavit dated July 17, 2013.

The official liquidator has also submitted, his report marked as O.L.R. No. 19 of 2013. The objections raised by the official liquidator are dealt with as under:

"(i) The first objection of the official liquidator is that as per section 252 of the Companies Act, every public company should have at least three directors but in the case of the petitioner, there are only two directors.

In this regard the petitioner in his reply affidavit dated August 7, 2013, has undertaken to increase the number of directors of the company to minimum three, in accordance with section 252 of the Companies Act, immediately on sanction of the scheme by this court.

(ii) Another objection of the official liquidator is in respect of the unsettled dues of the ex-workers of the company.

In this regard, this court in the latter part of this order has constituted a Claim Committee and has issued suitable directions to safeguard the interest of the ex-workers of the company.

(iii) Regarding the objection relating to the preferential dues amounting to Rs. 15,43,98,162 it has been stated on oath by the petitioner in the affidavit dated August 7, 2013, that all the dues of the Government will be settled by the company in accordance with the applicable provision."

Apart from the above, the official liquidator has not raised any other objection. The report of the official liquidator discloses that the petitioner in compliance of the order of this court dated February 27, 2013, has deposited a sum of Rs. 37,87,550 on March 12, 2013. It has further been stated by the official liquidator that no claim has been received from any unsecured creditors of the company and that the official liquidator has not received any complaint against the proposed scheme of arrangement and reconstruction from any person or party interested in the scheme in any manner. It has further been expressed by the official liquidator that except for the above objections, the affairs of the company have not been conducted in a manner prejudicial to the interest of its members, creditors or to public interest.

The official liquidator has sought a direction to the petitioner to deposit a sum of Rs. 1,20,507 incurred by the official liquidator towards security expenses to safeguard the assets of the petitioner-company from March 1, 2013 to May 31, 2013. The petitioner has undertaken to pay the same immediately on sanction of the scheme. The official liquidator has also prayed for a direction to the promoters/contributors not to sell the immovable properties (land, building, plant and machinery) situated at village Jeerabad, District Dhar and mining leasehold rights of the company till the commencement of operation of the plant and continue the same restriction for another one year after the plant becomes operational. In this regard suitable directions have been issued in the operative part of this order.

In the present case, it is not disputed by any of the secured creditors or the official liquidator that the applicant has cleared the outstanding dues of the secured creditors and that the scheme of reconstruction/revival has been approved by the unsecured creditor and shareholders.

The record shows that in spite of the two attempts, the property of the company could not be auctioned. The official liquidator has stated that the applicant had settled dues of all the secured creditors of the company in liquidation through one time settlement and has also paid Rs. 5 lakhs to IFCI towards buy-back of equity share of the company. As per the reply of the official liquidator, the payments of the statutory dues are pending and the workers dues and the dues of the provident fund is also pending.

In respect of the statutory dues, part "C" of the scheme provides for the manner of clearing those dues and it has been stated that the company will receive certain incentives under the Madhya Pradesh Industrial Policy, 2010, which may, inter alia, include waiver of interest, penalties, and such other penal charges as may otherwise be leviable against the outstanding tax dues and will settle the dues in terms of the memorandum of understanding. It is further stated in part "C" of the scheme that the company will pay its outstanding dues (excluding any interest, penalty or surcharge) towards the Mining Department of Government of Madhya Pradesh as well as towards leasehold land of the Government of Madhya Pradesh.

I.A. Nos. 1621 of 2013, 1622 of 2013, 1868 of 2013, 1869 of 2013, 1870 of 2013, 1872 of 2013, 1873 of 2013, 1946 of 2013, 4656 of 2013, 4657 of 2013, 4655 of 2013, 5940 of 2013, 5943 of 2013, 5942 of 2013, 5944 of 2013, 5945 of 2013, 5941 of 2013, 7126 of 2013 and 7508 of 2013 have been filed by the 19 workers claiming that they have not been given compensation or wages and other entitlements by the employer, i.e., the company or by the official liquidator. Counsel for the workers pressing these applications has submitted that the pending dues of these 19 workers is about Rs. 60 lakhs. He has further submitted that the scheme of compromise does not take into confidence the workers and paragraph 4.2 and 1.7 of the scheme relating to the workers is vague. Learned counsel appearing for the promoter/contributory has submitted that he is ready to settle the pending dues of all the workers, for which a Claim Committee may be constituted by this court. He has further submitted that whatever claim is settled by the Claim Committee, the promoter/contributory before this court will accept it without any objection and will pay the same to the workers within a time bound period. He has also submitted that all the willing ex-workers of the company in liquidation will be given employment on revival of the company and he has agreed to deposit a part of the claim of 19 workers with the official liquidator to show his bona fide.

Counsel for the workers responding to the above submission of counsel for the promoter/contributory has submitted that once the winding up proceedings are permanently stayed, then the workers will have no avenue to ventilate their grievance against the adjudication of claim by the Claim Committee, therefore, the winding up petition be kept pending for the said limited purpose.

Having heard learned counsel for the parties on the issue of the pending claims of the ex-workers of the company in liquidation, it is found that the workers'' claim cannot be ignored and it is the bounden duty of the promoter/contributory before this court to satisfy the claim of the workers but at the same time it is to be kept in mind that the revival of the company in liquidation is in the interest of the ex-workers, since there is an offer of re-employment to all the willing workers. Since the company is situated in the interiors, therefore, revival of the company will also give an opportunity of employment to the other eligible workers in the neighbouring areas. Thus, I am of the opinion that the interest of the workers would be adequately protected if a Claim Committee is appointed and the claim of the workers is adjudicated. Accordingly, following directions are issued :

"(i) Hon''ble Mr. Justice S.P. Khare (Retired Judge of the Madhya Pradesh High Court), R/o. A-1, 202, Shehnai Residency, A.B. Road, Indore is appointed as one man Claim Committee to adjudicate the claims of the ex-workers of the company in liquidation.

(ii) The official liquidator is directed to issue advertisement in two local newspapers (1) Dainik Bhaskar-(Hindi); (2) Free Press (English) circulated in the area where the mill is located, inviting the claims of the ex-workers of the company in liquidation and to place the said claims before the above Claim Committee. Let this exercise be completed by the official liquidator within two months from the date of this order.

(iii) The Claim Committee may decide the claim of the workers within 3 months from the date the claims are placed by the official liquidator before the Claim Committee.

(iv) As undertaken by the applicant-promoter/contributory, the claim of the workers settled by the Claim Committee will be paid by the promoter/contributory before this court within two months from the date of adjudication of claim by the Claim Committee.

(v) To show the bona fides, the promoter/contributory before this court will deposit a sum of Rs. 30 lakhs with the official liquidator within a period of one month from the date of passing of this order, which will be adjusted against the final adjudication of claim by the Claim Committee.

(vi) If any ex-worker is aggrieved by the adjudication done by the Claim Committee, it would be open to him to file an appropriate application in Company Petition No. 17 of 2002.

(vii) All the expenses incurred by the official liquidator for inviting the claim and the expenses of the Claim Committee will be borne by the promoter/contributory present before this court.

(viii) I.A. Nos. 1621 of 2013, 1622 of 2013, 1868 of 2013, 1869 of 2013, 1870 of 2013, 1872 of 2013, 1873 of 2013, 1946 of 2013, 4656 of 2013, 4657 of 2013, 4655 of 2013, 5940 of 2013, 5943 of 2013, 5942 of 2013, 5944 of 2013, 5945 of 2013, 5941 of 2013, 7126 of 2013 and 7508 of 2013 are accordingly disposed of."

So far as I.A. Nos. 4837 of 2013, 4973 of 2013 and 4974 of 2013 are concerned, it has been fairly agreed by the official liquidator that he will have no objection in signing the application of these applicants for the purpose of provident fund dues. After this order, their applications can also be verified and signed by the competent person on behalf of the company. I.A. Nos. 4837 of 2013, 4973 of 2013 and 4974 of 2013 are accordingly disposed of.

So far as I.A. No. 6303 of 2013 is concerned, it is an I.A. filed by the Electricity Board claiming arrears of electricity charges from the company in liquidation. Counsel for the applicant-promoter/contributory has fairly stated before this court that these charges would be paid by the applicant in accordance with law, therefore, I.A. No. 6303 of 2013 is disposed of leaving it open to the applicant-Electricity Board to recover the arrears of electricity charges from the applicant-company in accordance with law.

In view of the above analysis, in Company Petition No. 21 of 2013 following directions are issued :

"(i) Having considered the scheme and on perusal of the record and report, the scheme appears to be fair and reasonable and not opposed to public interest.

(ii) Accordingly the scheme of arrangement and reconstruction filed as annexure P/5 to the petition is hereby approved. The said scheme be treated as part of this order. The petitioner shall, within 30 days from today, file with the Registrar of Companies, Madhya Pradesh a certified copy of this order.

(iii) In view of the foregoing discussion, it is hereby directed that no formal order is required to be drawn up in terms of rule 81 in Form 41.

(iv) The promoter/contributory before this court to pay the cost of Rs. 40,000 to the official liquidator for deposit in Common Pool Fund maintained by the official liquidator within four weeks from today and also to pay Rs. 15,000 to counsel for the Regional Director and Rs. 7,500 to counsel for the official liquidator within the same period."

Company Petition No. 21 of 2013 is accordingly disposed of.

So far as Company Petition No. 17 of 2002 is concerned, in view of the above and in terms of section 466 of the Companies Act, the following directions are issued :

"(i) Further proceedings of liquidation shall remain permanently stayed.

(ii) The official liquidator shall hand over the assets of the company in liquidation to the applicant promoter/contributory.

(iii) The inventory of the assets including the full details of the land, will be prepared and appropriate photographs as well as videography of the handing over and taking over possession of the assets will be undertaken by the official liquidator.

(iv) The applicant-promoter/contributory and the other concerning directors of the company shall remain prohibited from transferring, alienating or parting with possession of any of the assets of the company without the leave of the court. This will not preclude the applicant-promoter to approach the financial institutions for financial assistance and seek creation of charge on the assets of the company in liquidation by the financial institutions.

(v) The applicant-promoter will submit six monthly report to the official liquidator till the time the company becomes fully operational.

(vi) The official liquidator shall immediately make available the records of the company and hand over the same to the authorised representatives of the company.

(vii) All the expenses incurred by the official liquidator till the handing over of the assets of the company in liquidation including the expenses for handing over, will be borne by the applicant-promoter.

(viii) Company Petition No. 17 of 2002 will remain pending only for the limited purpose of permitting any of the ex-worker of the company to file an appropriate application before this court, having grievance against the adjudication of his claim by the Claim Committee constituted by this order.

(ix) In case if the applicant-promoter/contributory withdraws from the scheme, then he would immediately inform the official liquidator and the official liquidator will be at liberty to file an appropriate application for review of this order.

(x) The promoter before this court will furnish a copy of this order to the Registrar of Companies forthwith for taking necessary action in terms of section 466(3) of the Act.

(xi) I.A. No. 828 of 2013 in Company Petition No. 17 of 2002 is accordingly disposed of."

C. C. as per rules.