In Re: Punjab Maize Products Ltd. (In Liquidation)

M.S. Liberhan, J.—Implementation of 1977 sanctioned processing plant in joint sector by the Government of India, taken up in 1979, commissioned glucose plant in 1980, dextrose monohydrate and starch units became operative somewhere in 1981 and 1982. The company was closed down in June, 1983. Rehabilitation of the company was proposed at Rs. 187 lakhs. Mr. T. S. Rai and Associates, applicants'' proposal for rehabilitation of the company was accepted in 1985. The petition for winding up by Universal Starch Chem Allied Ltd. on the company''s being unable to pay admitted debts, was allowed in 1986. The winding up order was affirmed in appeal, vide order dated February 24, 1992.

The petitioners sought the revocation of the winding up, approval of the revival scheme proposed and interim stay during the winding up proceedings, and further restraining the official liquidator from taking possession of the company during the pendency of the proceedings. The petitioner, T.S. Rai''s proposal by his scheme 1985 for rehabilitation and revival of company was approved by the Industrial Finance Corporation of India.

In the meanwhile the Government of India approved and allowed disinvestment of the shareholding of Indian Drugs and Pharmaceuticals Ltd. (IDPL) in Punjab Maize Products Limited (PMPL) under liquidation, in favour of Punjab State Industrial Development Corporation (PSIDC). The promoters too approved T.S. Rai''s scheme of revival. The shareholding of the promoters on payment of 10 per cent. of share money was transferred in favour of T.S. Rai and Associates, who were allowed to take over the company subject to their incurring expenditure of Rs. 2 lakhs per month. Apart from ploughing in Rs. 5 crores, alternative basic material was found, i.e., rice machinery, etc., for it, installed and successfully experimented. It got a sanction of financial institutions like IDBI, IFCI, Oriental Insurance Company and Canara Bank. The memo of understanding dated March 15, 1991, with financial institutions and secured creditors as permitted by the High Court, for repayment of secured loans with bank guarantee by Standard and Chartered Bank was signed. It is averred that in the eventuality of the company being liquidated, no assets shall be left for payment to unsecured creditors, after the liability of secured creditors is met.

During the course of proceedings vide order dated April 4, 1993, the applicants were allowed to sign the memorandum of understanding without prejudice to the rights of creditors or other parties. Subject to the final order, the applicants were injuncted from alienating or disposing of assets of the company and the usual business of the company was allowed to be carried on.

Notice was served on the industrial and financial institutions, as well as on the public at large. Notice was also duly published in daily newspapers on January 23, 1994, and in the Official Gazette on January 7, 1994. Notice under rule 86 of the report of the official liquidator was served on the official liquidator. A similar notice was sent to the Government of India through the Regional Director. The Central Government and the official liquidator filed their reports.

It may be noticed that a similar claim was declined on October 27, 1989, in C. P. No. 126 of 1986. Another similar request made by the petitioners was dismissed as withdrawn in C, P. No. 47 of 1992, vide order dated November 20, 1992. The respondents contend that the said judgment operates as res judicata. The assets of Rs. 370 lakhs have been given to Mr. T. S. Rai and Associates for a paltry sum of Rs. 37 lakhs which is against public interest. The unsecured creditors have been offered only 20 per cent. of their debt and that too in three, six-monthly instalments without any interest. Thus, the scheme is not bona fide apart from the fact that it is not feasible and is against the public interest.

On hearing learned counsel for the parties this court, vide its order dated April 12, 1994, directed to hold meetings, under the chairpersons appointed by the court, of the secured, unsecured creditors and the shareholders to consider the scheme put forth by the applicants for rehabilitation of the company.

In compliance with the order of this court the shareholders, Jaswant Singh Rai, Iqbal Singh Rai, Mrs. Surjit Kaur, Tarlochan Singh Rai, Rai Management and Tech. Services Limited, Channel Island, U. K. holders of 25 lakhs shares approved the scheme. I may hasten to add that the Rai family is holder of 16 shares while Rai Management and Tech. Services Ltd., U. K., is holder of 99.9976 shares. It may be noticed that it is a virtual taking over of the company by the family of Mr. T. S. Rai.

The meeting of the secured creditors was attended by five out of 10 secured creditors entitled to the total value of the company amounting to Rs. 4 crores 25 lakhs to approve the memorandum of understanding already signed on July 26, 1993,

It would be expedient to note a few facts with respect to the meeting held by the unsecured creditors. There are totally 106 unsecured creditors, out of which only 13 of them attended the meeting either being present in person or through proxies. Out of the unsecured creditors, 8 holding 83,731 per cent. of the unsecured debt approved the scheme. 1 may hasten to add that PSIDC which has already transferred its shares to the proposer owes as to creditor Rs. 1,94,17,715 which makes 76.3200 per cent. The other creditors who have got some substantive amounts due are National Small Industries Corporation Ltd. which has got to its credit 14,23,694.48, i.e., 5.5958 per cent. of the debt, the creditors, Karam Chand Thapar and Shakti Coal Traders, Raja Ram to whom Rs. 30,06,076, Rs. 2,55,872 and Rs. 1,59,097, respectively, are due. It makes them creditors to the extent of 3.3297 per cent.

It is well-established that the court has to address itself before approval of a scheme of revival to the feasibility and viability of the scheme, the bona fides of the applicants and the application, the solvency of the applicants, ensure that scheme is not a cloak or a device to cover the misdeeds of promoters or shareholders, compunction of commercial morality, public interest, the circumstances likely to result in perilous consequences affecting members of the public at large with no possibility of the same being compensated with cost, the reasonableness of the compromise, public interest as well as the creditors'' interest, and the circumstances necessitating the proposed arrangement, the objects to be achieved by the said arrangement, the effect of it on the material interest of creditors, debentureholders, trustees of the debentureholders, the justness of the scheme, the latest financial position of the company, the pendency of any investigating proceedings, smooth and satisfactory working of the scheme, violation of any law or deposits, etc. The role of the court is vital and that of a vigilant participant. The approach for revival is pragmatic : S.M. Holding Finance Pvt. Ltd. v. Mysore Machinery Manufacturers Ltd. [1993] 78 Comp Cas 432 (Kar), Gulabchand Chhotalal Parikh Vs. State of Bombay (Now Gujarat), , In Re: Sakamari Steel and Alloys Ltd., ), Minerva Mills Ltd. v. Union of India SCR 206 R. Raghavan v. Samarias Housing Finance Ltd. [1991] 1 Comp LJ 155 (Mad ) and In Re.: Wearwell Cycle Co. (I.) Ltd. (In Liquidation), may be referred to for drawing support for the various considerations spelled out above.

Under orders of this court separate meetings of shareholders, secured creditors and unsecured creditors were held on April 12, 1994. The shareholders and secured creditors approved the scheme of rehabilitation in its entirety particularly keeping in view the memo of understanding signed by them as well as the guarantee furnished. Interest on secured loans till the date of signing the memo of understanding, i.e., July 26, 1993, was waived.

Out of 106 unsecured creditors 12 attended the meeting. Eight out of 12 constituting 83.7318 per cent. unsecured credit supported the scheme, annexure "X". Four, constituting the credit to the extent 3.2777 per cent. opposed the compromise. The official liquidator reported that payments are being made per schedule to memo of understanding.

The Regional Director reported that the affairs of the company do not appear to have been conducted in any manner prejudicial to the interest of members or the public.

In the totality of circumstances, i.e., investment made by the non-resident Indians, company based in foreign country, welfare of labour, change of raw material for the plant as well as change in plant brought, substantial/large number of creditors, secured and unsecured for substantial amount supported the scheme of rehabilitation, it would be in the interest of the company to give a chance of rehabilitation. 1 may add that in spite of wide publication of notice neither any unsecured creditor has come forward to oppose the scheme nor do I find any commercial immorality or it being against public interest under the garb or a cloak of rehabilitation or likely to defraud the general public or the persons interested. There is no gainsaying in the eventuality of the company being wound up that the assets of the company would hardly be able to clear the liabilities of the secured creditors only. Nothing would survive for unsecured creditors or the shareholders. There is not an iota of evidence on record or even a suggestion on the part of the official liquidator or the Central Government or any creditor, shareholder or debenture-holder that the scheme is either not feasible or not viable or it lacks bona fides.

The solitary fact that unsecured creditors of the value of percentage are opposed to the compromise cannot be permitted to hold the other creditors or the company to ransom particularly when small creditors to the tune of Rs. 5,000 are to be paid in full. I may hasten to add that out of unsecured creditors for Rs. 2,54,42,421 creditors of Rs. 1,94,17,715 have already accepted the compromise. The petitioner has also undertaken that the unsecured creditors except the promoters shall be paid 20 per cent. of their amount due.

In view of this undertaking given by the petitioner the arrangement (annexure P-1 in C. P. No. 29 of 1993) is accepted. The winding up order dated November 25, 1986, passed by this court in C. P. No. 66 of 1983, is recalled. Operation of the winding up order has already been stayed by this court, vide orders dated March 19, 1993, passed in C. A. No. 80 of 1993. The official liquidator is further directed to hand back possession of the assets and books of account, etc., if any, to the company through its managing director.