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Judgment
Gita Mittal, J.—By this judgment, I propose to decide CA No. 817/2009 filed on 25th May, 2009 whereby the promoters/erstwhile joint managing directors of Sunstar Lubricants Ltd. have, inter alia, prayed for recalling of winding up order dated 3rd December, 2003 and acceptance of the revival scheme of the company as well as CA No. 1085/2009 dated 25th August, 2009 both filed u/s 391(1) & 394 of Companies Act, 1956 by Shri Ashok Bahadur praying for dispensation of the requirement of the meeting of the creditors of the company under liquidation for approval of the scheme.
M/s. Sunstar Lubricants Limited (hereinafter referred to as ''the Company'') was originally incorporated on 19th December, 1988 with the Registrar of Companies, NCT of Delhi & Haryana at New Delhi and commenced production on 19th January, 1989.
The company was promoted by first generation entrepreneurs Sh. Uday Singh and Sh. Ashok Bahadur. At the time of incorporation, the company had the following promoter directors :
(i) Sh. Uday Singh
(ii) Sh. Ashok Bahadur
(iii) Sh. Naveen Chopra
The company was engaged in the development of various grades of automobile coolants to become the original equipment manufacturer and supplier to various auto manufacturers which included Maruti, Telco, Ashok Leyland, Escorts. Originally the industrial activity was commenced in rented premises in Udyog Vihar, Gurgaon. The company thereafter decided to expand its manufacturing activity to the complimentary fields of engine oils, brake fluid and other auto care products for which there were few competitors in the country. It even had a collaboration with M/s Liqui Moily of Germany. The company set up its lubricating oils manufacturing unit in the industrial estate of Dharuhera, Haryana and also relocated its coolants manufacturing unit there. This project envisaged a capital lay out of Rs. 2550.00 lakhs (including Rs. 500 lakhs as additional margin working capital).
On account of primary market weakness and depression, the company was unable to raise the capital through the rights issue which had been permitted by SEBI. A revision in the means of finance of the company was undertaken resulting in generation of finance by promoters contribution.
However, even these finances were not received by the company. The term loan from IFCI was restricted to the tune of only Rs. 14.77 crores; the promoters contributed Rs. 608 lacs and the internal accruals of the company were Rs. 642 lacs.
In the meantime, several development factors intervened in the mid nineties. Due to liberalization of the Indian economy, various multi national corporations entered the Indian market for lubricating oil business, posing stiff competition to the petitioner.
The automobile industry in the country also started showing recessionary trends in 1996 reducing the GDP growth, resulting in reduction of the freight business of industrial goods. As a result, the demand of lubricating oils was depressed on account of lower manufacturing of heavy and medium commercial vehicles; lower manufacturing of passenger cars in the country where the company''s products were being used; and lower freight movement resulting in shrinking of the replacement market in heavy and light commercial vehicles. In addition, the company was compelled to utilize its working capital funds to finance the continuing and gradual losses.
Due to the unhealthy market conditions there was internal delay in completing the capital project at Dharuhera. There was scrutiny and reconciliation of debtors and reassessment of the market value of the stock in trade. As a result, the petitioner was forced to reduce its net sales with long credit resulting in reduction of their sales and consequently also the profits. In view of the unsatisfactory operations and working results, the financial position of the company deteriorated, resulting in erosion of its net worth, with share capital of Rs. 1178 lacs and reserves and surplus of Rs. 669 lacs aggregating to Rs. 1847 lacs only, as on 31st March, 1998, as against accumulated losses of Rs. 2644 lacs.
In view of its eroded net worth, on 31st December, 1998, the Company made a reference to the Board for Industrial and Financial Reconstruction (''BIFR'' hereafter) u/s 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and the Company was registered as a sick company vide the order dated 11th May, 1999.
The IFCI Ltd. was appointed as the Operating Agency u/s 17(3) of the SICA to prepare a draft rehabilitation scheme (DRS) of the company based on a proposal to be submitted by the company. However, despite repeated opportunities, the BIFR found that the scheme proposed by the company was not as per RBI guidelines and the company was unable to put forth a viable revised proposal. Consequently, by an order passed on 4th May, 2000, the BIFR directed the IFCI to issue an advertisement for change of management of the company.
The company preferred an appeal before the Appellate Authority, Industrial & Financial Reconstruction (for short ''AAIFR'') against the order dated 4th May, 2000 of the BIFR. Despite opportunities given by the appellate authority as well, no viable proposal could be propounded by the promoters for rehabilitation of the company on a one time settlement basis because of limited resources.
The banks and financial institutions appear to have been opposed to any financial sacrifices by them before the BIFR and had preferred winding up of the company. It was, therefore, concluded that the company/promoters were apparently not serious in reviving the company and that they were merely buying time. They had also failed to comply with the AAIFR''s order to deposit Rs. 20 lakhs each month which suggested their intention of merely buying time. Therefore, an order was again passed on 7th December, 2000 by the Bench ordering change of management of the company and also giving an opportunity to the present promoters to submit an offer in response to the advertisement to be got published in this regard by the operating agency.
The company''s second appeal assailing the order dated 7th December, 2000, to the AAIFR was dismissed by its order dated 30th May, 2001, holding that sufficient opportunity had been given to the existing promoters to submit their proposals. The promoters were given an opportunity by the AAIFR to submit a proposal in response to the advertisement for change of management in terms of the orders dated 7th December, 2000. The Appellate Authority left it open to the BIFR to consider offers, if any, received in response to the advertisement on their comparative merit and proceed in accordance with law.
This turn of events and developments thereafter finally led to the BIFR making an order on 18th June, 2001, issuing a show cause notice to the company to explain why it should not be wound up u/s 20(1) of the SICA for non-submission of a comprehensive rehabilitation proposal to the operating agency and also in the absence of any rehabilitation proposal, why permission should not be granted to the secured creditors to pursue recovery suits against the company/guarantors. A public notice was also issued by the BIFR in this behalf. The company failed to submit any proposal despite the advertisement for change of management or respond to the request of the secured creditors for filing suits against the company.
It is noteworthy that in the proceedings before the BIFR, the company was represented by Sh. Ashok Bahadur, Joint MD and Sh. S.K Mehra, its Company Secretary besides counsel who had submitted that the delay had resulted on account of negotiating proposed one time settlements with the banks. So far as the secured creditors of the company are concerned, they were all recommending winding up of the company. The proposals previously submitted had been found to be unacceptable to the secured creditors and potentially not viable.
Consequently, the Board for Industrial and Financial Reconstruction expressed an opinion u/s 20(1) of Sick Industrial Companies (Special Provisions) Act, 1985 on 5th March, 2002 that M/s. Sunstar Lubricants Limited, was a sick company and it would be just, equitable and in public interest to wind it up.
The recommendation of the BIFR to this court was registered as Company Petition No. 154/2002. After considering the records, the opinion expressed by BIFR and on hearing the parties, the court was satisfied that the net worth of the Company had been substantially eroded and there was no real possibility of any revival or rehabilitation of the Company and it would also not be possible for the company to effectively exceed its net worth within a reasonable time. Accordingly, vide an order dated 3rd December, 2003, the Company was ordered to be wound up; and the Official Liquidator attached to this court was appointed as its liquidator with the direction to take over the assets and records of the Company. Citations of the winding up order were directed to be published in ''Statesman'' (English) and ''Jansatta'' (Hindi) and also in the Delhi Gazette.
Pursuant to the winding up order passed on 3rd December, 2003, the Official Liquidator took over the following assets belonging to the Company (in liqn.):
(i) Land & Building at plot no. 24 on NH-8, Narsingpur, Manesar, Delhi-Jaipur Highway (Haryana);
(ii) Land & Building at KPF-121, Rajokari, Gurgaon Road, border situated at Village Kapashera, Tehsil Mehrauli, New Delhi;
(iii) Land & Building and Plant & Machinery within 500m. of the NH-8, Delhi-Jaipur, National Highway in Daruhera, District Rewari;
(iv) SAS House (first floor), Sapru Marg, Lucknow, UP; and
(v) the Flat No. 3/10, Hailey Road, New Delhi.
In addition, movable assets, including vehicles, were also taken into possession by the Official Liquidator.
The Company was shown to have four secured creditors, namely, the Canara Bank, the State Bank of Indore, IFCI Limited, and the Andhra Bank. In addition, the Company also had two more creditors, namely, HSBC and Standard Chartered Bank and four unsecured creditors and some other statutory dues.
With a view to revive the Company and to pay off the debts of secured and unsecured creditors, the promoter directors of the Company, identified an investor, namely M/s. IO Global Services Private Limited, having its registered office at Flat No. 43, 10, Hailey Road, New Delhi which according to them, agreed to infuse necessary funds in the Company to pay off the outstanding debts of the various secured creditors, including the IFCI Limited and to join the management of the Company for the purpose of restructuring and revival of the Company.
The promoters of the company, it appears, approached the IFCI Ltd., by way of a proposal dated 8th November, 2006 for a one time settlement (OTS). This proposal was considered by the IFCI Ltd. and after negotiations, a revised OTS proposal was submitted by a letter dated 23rd November, 2006 enhancing the offer for the compromise amount to 14.15 crores. This proposal was accepted by the IFCI Ltd. by a sanction letter dated 29th November, 2006 whereby it agreed to accept a total sum of Rs. 14.15 crores in full and final settlement of all its claims against the Company.
The applicant has also stated on record that even prior to the winding up order on 3rd December, 2003, the promoters (who were also guarantors of the loan), had effected the settlement with the Standard Chartered Bank and the Hongkong and Shanghai Banking Corporation Limited (also two secured creditors of the company) in the year 2002 and cleared the entire outstanding dues to these creditors in full and final settlement of their claims.
In this background, vide the order dated 30th November, 2006 passed in CA 1390/2006 in these proceedings filed by the promoters of the Company, this court cancelled further auction proceedings with respect to the assets of the Company and directed the promoters of the Company to deposit a sum of Rs. 6,93,482/-, being the proportionate expenditure incurred by the Official Liquidator for publication of citations & sale proclamation and security charges, etc. w.e.f. 1st December, 2006 onwards. The Court also directed the promoters to deposit a further sum of Rs. 50,00,000/- with the Official Liquidator to show bonafides of the applicant and payment to the security agency and bank charges of the bidders.
Pursuant to the said directions, the promoters deposited the entire sum of money with the Official Liquidator.
Another OTS proposal submitted by the promoter with the State Bank of Indore was accepted by it for a sum of Rs. 65 lakhs and a sanction letter dated 30th March, 2007 was issued. As per the scheme placed before this court, the promoters are stated to have deposited Rs. 32.52 lakhs on the date of filing of the scheme before this court.
So far as the Canara Bank and Andhra Bank are concerned, the OTS proposals by the promoters of the company were also accepted. It has been submitted that dues to the tune of Rs. 12 lakhs were paid by the promoters to the Andhra Bank at the time of obtaining its in principle approval to the settlement. The balance amount was paid out of the funds lying with the Official Liquidator from the sale of the assets of the company.
The one time settlement proposal by the promoters to the Canara Bank was also accepted and communicated vide bank''s letter dated 5th November, 2008 whereby it agreed to accept Rs. 900 lakhs in full and final settlement of its claims subject to payment on terms communicated thereafter.
The applicant has claimed that the promoters have paid a total sum of Rs. 5.37 crores to the IFCI Ltd., as well as the Official Liquidator from their own resources with the assistance of the strategic investor.
On 7th December, 2007, the promoter directors of the Company filed CA (M) No. 168/2007, inter-alia, propounding a Scheme for revival of the Company and seeking convening of the meetings of the secured creditors of the Company to consider and approve the proposed Scheme of Revival of the Company. The promoters also placed on record their One Time Settlement proposal made to the IFCI Limited and the sanction letter issued by IFCI accepting the proposal for a total sum of Rs. 14,15,00,000/-. The promoters also placed on record details of One Time Settlement entered into with the other two secured creditors, namely, Andhra Bank and State Bank of Indore.
In the winding up proceedings, an application, CA No. 1278/2007 was filed by the ex-Managing Director, Sh. Ashok Bahadur, praying for directions for the sale of the properties belonging to the company (in liqn.) at Village Kapasehra, Teshil Mehrauli, New Delhi; Land located at NH-8, Delhi-Jaipur Highway, Daruhera, District Rewari; SAS House (1st Floor), Sapro Marg, Lucknow; and a Suite at 10, Hailey Road, New Delhi. A direction was also sought to the OL to release a sum of Rs. 32.50 lacs in favor of the State Bank of Indore out of the funds submitted by the applicant with the Official Liquidator.
Vide order dated 11th December, 2007, the Official Liquidator was directed to take steps for the sale of the said properties in consultation with the secured creditors. The Official Liquidator was further directed to invite claims from the workers as well as the secured creditors.
Pursuant to the said directions, claims were invited by publication in ''Times of India'' (English) and ''Nav Bharat Times'' (Hindi).
Vide order dated 25th February, 2008, the properties belonging to the Company and possessed by the Official Liquidator were put to auction. The properties mentioned in Para 14 above, except at Sl. No. (i), were auctioned by the court and the total value realized was Rs. 22,83,00,000/-.
Claims of three preferential creditors, viz. Provident Fund Commissioner, Delhi for a sum of Rs. 14,81,264/-; Sales Tax Authority, Tamil Nadu for a sum of Rs. 10,97,847/- and Sales Tax Authority, Rewari, Haryana for a sum of Rs. 19,50,123/- and one unsecured creditor, namely, M/s. Pearl Polymer Private Limited for a sum of Rs. 17,58,398/-, were received by the official liquidator.
Sh. Ashok Bahadur, the promoter and erstwhile Joint Managing Director of the Company filed CA No. 331/2008 seeking disbursement of the following amounts to the secured creditors of the company in liquidation from the amounts realized by the Official Liquidator from the sale of the assets belonging to the Company:-
IFCI Ltd.
Rs. 10.65 crores
Andhra Bank
Rs. 1.08 crores
State Bank of Indore
Rs. 20.5 lakhs
This application was accepted by the court on 27th March, 2008 and the Official Liquidator was directed to conditionally release an amount of Rs. 11 crores to the IFCI Ltd.; Rs. 1.08 crores to the Andhra Bank and Rs. 20.5 lakhs to the State Bank of Indore forthwith, as the one time settlement required payment till 31st March, 2008.
It may be noted that the application being CA(M) No. 168/07 propounding a scheme for revival was permitted to be withdrawn by this court by an order passed on 6th May, 2009 by the company with liberty to file the scheme of revival. The promoters have filed the proposed revival scheme by way of CA No. 817/09 placing the above facts on record.
On 25th November, 2008, the CA No. 1322/2008 in CP No. 154/2002 was filed by the promoters stating that the only secured creditor remaining to be paid was the Canara Bank and that they had entered into a one time settlement with it also for a sum of Rs. 900 lacs. A prayer was made that the said amount be directed to be released in favor of the Canara bank. In view of the fact that a sum of Rs. 10,72,61,606/- was available in the account of the company with the Official Liquidator, and the amount payable to the preferential creditors being only approximately Rs. 45 lacs, on 28th November, 2008 this court directed the Official Liquidator to make payment of Rs. 900 lacs to the Canara Bank from the fund available in the account of the Company.
The Official Liquidator has filed a report dated 16th February, 2009 on record confirming that other than the land at Village Narsinghpur, Gurgaon, all assets of the company stood valued and already auctioned. It is further confirmed that all secured creditors of the company stand paid and that there are no secured creditors.
Despite repeated publications at various stages of the proceedings noticed above, claims of only four preferential and other creditors were received by the Official Liquidator which have been detailed herein above. The claim of the provident fund department stands admitted by the Official Liquidator for Rs. 14,81,264/-. The claims of the other creditors were disputed by the ex-management and were stated to be sub-judice. It is observed in this report that the ex-management in their statement of affairs had disclosed claims of ESI, PF, Sales Tax and Income Tax (TDS) and some other unsecured creditors.
Vide CA No. 263/2009, it was contended by Mr. Ashok Bahadur, propounder of the Scheme, that an amount of Rs. 1,81,95,769/- was lying in the account of the company and the amount payable towards statutory dues was only to the tune of Rs. 45,29,234/- and to the unsecured creditor to the tune of Rs. 17,58,398/- and prayed that the Official Liquidator be directed to scrutinize the claims expeditiously and settle the dues from the fund available in the account of the Company.
The Official Liquidator submitted a report dated 17th March, 2009 stating that the claim of Sales Tax Authority, Rewari was admitted for a sum of Rs. 10,22,622/- only. In addition, the claim of ESI for an amount of Rs. 8,21,000/- and the Income Tax Authority for a sum of Rs. 1,29,000/- was also admitted to be payable. The claim of the Employees Provident Fund Commissioner was admitted to the extent of Rs. 14,81,264.00. In this report, it was also informed that the Official Liquidator had sent the last and final reminder to the Sales Tax Department, Chennai to file its claim of Rs. 10,97,847/- in the prescribed form no. 66 and that the matter was pending at this stage. The court, accordingly, directed the Official Liquidator on 25th March, 2009 to make payments to all these creditors from the fund available in the account of the Company.
In view of the above position, an order dated 25th March, 2009 was passed in CA (M) No. 168/2007, the court observed that the present case is a fit case for staying further proceedings towards liquidation of the company since on account of asset realization, it had been possible to discharge all remaining liabilities of the Company, still leaving an immovable asset and surplus credit balance with the Official Liquidator to meet the pending liabilities. The court recorded its satisfaction in terms of Section 466 of the Companies Act, 1956 and issued the following directions:
(i) Further proceedings of liquidation shall remain permanently stayed;
(ii) The Official Liquidator shall hand over possession of land at NH-8, Narsinghpur, Manesar, Delhi-Jaipur Highway (Haryana). The land shall be clearly demarcated by boundaries and appropriate photographs as well as videography of the handing over and taking over the possession may be undertaken;
(iii) the ex-directors and the company shall remain prohibited from transferring, alienating or parting with possession of the said land whatsoever without the leave of the court; and
(iv) The Official Liquidator shall inventorize the available records of the company and hand over the same to the authorized representative of the company.
The promoter director also moved two applications, viz. CA No. 817/2009 dated 25th May, 2009 placing a scheme for revival for approval & CA No. 1085/2009 dated 25th August, 2009 seeking directions of this court to dispense with the requirement of convening the meetings of the shareholders and creditors of the Company and to accept the revival Scheme on the ground that the secured creditors of the Company have already been paid off and that the shareholders, constituting more than 75% of the total paid up capital of the Company, have accorded their consents & no objections to the Revival Scheme. It is further claimed that no proceedings u/s 235 to 251 of the Companies Act, 1956 are pending against the Company, and that no proceedings u/s 397 and 398 of the Companies Act, 1956 have ever been launched against the Company.
Learned counsel for the applicant has further drawn my attention to the signed consent to the proposed Scheme of Revival of the twelve shareholders who are holding 87,75,040 shares of the company which has been placed on record. It is submitted that at present there are 1,16,22,970 equity shares of the company and their details have been pointed out. The twelve shareholders who hold 87,75,040 equity shares, constitute 75.5% of the total equity shares. The majority of the shareholders thus have given their consents/no objections in writing to the proposed Scheme of Revival. The approval and consent of the individual directors Sh. Uday Singh, Ashok Bahadur and Navin Chopra have also been placed on record. The above narration of facts and the reports of the Official Liquidator indicate that all the secured creditors of the Company have already been paid off.
In terms of order dated 22nd December, 2009, the Official Liquidator handed over a statement setting out the details of claims received, their status and the amount available in the account of the Company. In the statement filed by the Official Liquidator, the following issues are raised:
(a) The claim amount of Rs. 14,81,264/- was not released to the Provident Fund Commissioner, Delhi;
(b) The admitted amount of Rs. 10,22,622/- towards the claim of the Sale Tax Authority, Rewari was not released since the propounder has furnished the copy of orders passed by Jt. Excise & Taxation Commissioner, Faridabad setting aside the demand/claim;
(c) The claim of Commercial Tax Deptt., Chennai is under scrutiny;
(d) The claim of ESI for Rs. 8,21,000/- had been admitted by the propounder;
(e) The claim of Income Tax for Rs. 1,29,000/- had been admitted by the propounder;
(f) The claim of Regional Provident Fund Commissioner, sub Registrar Office, Gurgaon for a sum of Rs. 23,080/- was filed in the year 2004 prior to inviting the claim;
(g) The claim of M/s. Pearl Polymer Limited for a sum of Rs. 17,58,398.23 is pending since the matter is subjudice in the High Court.
The total amount towards claims (a) to (g) is to the extent of Rs. 52,35,394.23
As against these claims the fund position of the company, as on 22nd December, 2009, was stated to be Rs. 1,85,72,407.96.
On 17.12.2009, the Official Liquidator filed an application, viz. CA No. 1742/2009 in CP No. 154/2002, submitting that the claims of certain statutory creditors were under scrutiny and that all the statutory authorities have to submit the necessary Form No. 66 and without which no payment can be released to them. So far as the claim of the Sales Tax Authority, Rewari is concerned, a perusal of the orders passed by the Jt. Excise & Taxation Commissioner, Faridabad shows that the assessment orders have been set aside as they were passed ex-parte and the matter stands remanded to the Assessing Authority for reassessment within a time bound manner. Nothing is placed on record to show whether the reassessment orders have been passed by the Assessing Authority or not and whether the same are acceptable to the propounders of the Scheme. So far as the remaining statutory claims are concerned, the Official Liquidator has informed the concerned authorities to file the requisite Form No. 66 to enable finalization of admitted claims.
Learned counsel for the applicant has thus submitted that some of the provisions of the Scheme with regard to clearing of the dues payable to the secured creditors already stand implemented.
So far as the unsecured creditors are concerned, it is submitted that the Company had the following claims against it:
(i) Mobil Sales Corporation
Rs. 2,41,10,929/-;
(ii) Indian Additives Limited
Rs. 34,96,198/-;
(iii) Anupam Products Limited
Rs. 10,11,050/-;
(iv) Pearl Polymer Limited
Rs. 17,56,578/-;
(v) Income Tax Department
Rs. 1,29,000/-;
(vi) Sales Tax Department
Rs. 65,76,000/-;
(vii) Provident Fund Department
Rs. 14,11,826/-; and
(viii) ESI
Rs. 8,20,472/-
The contention is that the total outstanding works out to Rs. 329 lacs which includes a sum of Rs. 8,20,472/- as payable to ESI and Rs. 14,11,826/- payable to the provident fund authorities. In addition, there are some statutory dues payable to the Income Tax Department and Sales Tax authorities. Learned counsel submits that while the claims of statutory authorities are not disputed and would be paid in terms of the Scheme of Revival, the claims put forth by M/s. Mobil Sales Corporation, Indian Additives Limited, Anupam Products Limited and Pearl Polymer Limited are disputed. It is further submitted that the promoters have already initiated talks for settlement with the said companies and the terms settled between the parties would be fully honored by the promoters. He has further submitted that at present an amount of Rs. 1,85,72,407.96 is available with the Official Liquidator in the account of the Company and the Company will be able to generate enough resources to pay off its debts in terms of the Scheme of Revival.
The applicant has further been submitted that the balance amounts which are lying with the official liquidator be retained till the working of the Scheme and settlement of the claims of the unsecured creditors to the extent that the same are legally tenable or consideration whereof is pending.
It is noteworthy that the Indian Additives Ltd., Mobile Sales Corporation and Anupam Products Ltd. have not filed any litigation seeking recovery of the aforesaid amounts. No claims have been made before the Official Liquidator as well despite the several public notices. No application for leave to prosecute claims against the company appears to have been made at any point of time. The matter has remained pending before the BIFR since 1999 and before this court since 2007.
Learned counsel for the applicant has further pointed out that the Scheme was in favor of the general public, shareholders, employees, public financial institutions and banks who have provided financial assistance to the Company and that the sanction of the Scheme would enable the Company to honor its commitments. Ms. Arora has further submitted that the Company under liquidation was a leading manufacturer of automobile coolants, lubricating oils and other related products and was an original equipment supplier to Maruti Udyog Limited, Ashok Leyland etc. and enjoys strong goodwill throughout India. Learned counsel submits that the Company continues to possess the technical know-how, expertise and the goodwill for manufacturing the automobile coolants, lubricating oils and other related products which has an ever growing demand. The submission is that if the Scheme of Revival is approved, the Company would not commence its own production at its factory for at least three to four years but will use the surplus blending facilities of other manufacturers to blend the lubricant by paying a nominal charge as it suits the promoters more now as they are starved of cash and that this practice of using other facilities to manufacture lubricant is prevalent world wide and not a new phenomenon. However, as the time progresses and the Company pays off its liabilities then it would utilize its surplus to set up a new factory in the premises situated at Narsingpur, Gurgaon (Haryana).
Mr. S.K. Luthra, learned standing counsel for the Official Liquidator submitted that they have no objection to the Scheme of Revival, as such. However, it is important that the assets of the Company must be protected till the dues of all the creditors are cleared.
It is noteworthy that no claims at all have been received from workmen.
The above narration would show that the equity shareholders holding more than 75% of the total equity shares have given their consents/no objections in writing to the proposed Scheme of Revival and all the secured creditors have been paid off.
Perusal of the scheme shows that secured creditors and unsecured creditors constituting about 87% of the total liability on receipt of the settled amount have withdrawn their respective claims before the Debt Recovery Tribunals. The scheme aims at making payment to unsecured creditors only as the secured creditors stand taken care of. The funding for payment of the creditors has been effected by not only release from the sale of immovable assets of the company but also from the contributions received from the promoters Sh. Uday Singh and Sh. Ashok Bahadur generated from their own resources. Various immovable properties of the company were auctioned by the Official Liquidator, which fetched an amount of Rs. 22.83 crores, which were utilized to pay off secured creditors to the extent of Rs. 21.2 crores and the balance amount Rs. 1.81 crore including interest as per the status report of the Official Liquidator is lying with the Official Liquidator, as on date which is much more than the amount of the statutory dues and other claims received by the Official Liquidator and the same is being utilized to pay off the statutory dues as per the directions of the court.
The promoter directors of the Company have made every effort to revive the Company and to show their bonafide intention, they also complied with the directions issued by this court from time to time and also settled the dues of all the secured creditors. They have also placed on record their willingness to pay the dues of the unsecured creditors as well as the statutory dues in accordance with the conditions stipulated in the Revival Scheme. The Revival Scheme provides that in terms of the financial plan for next six years i.e. w.e.f. 2008 to 2013, the company will be able to earn a Net Profit of Rs. 501.32 lacs, which would be sufficient to liquidate the unsecured debt of Rs. 307 lacs, if at all it is held to be payable. The Scheme details the process by which the promoters of the Company will raise funds for revival of the Company. A large number of steps pursuant to the Scheme filed in court already stand taken. The immovable assets of the Company, except land & building at plot on NH-8, Narsingpur, Manesar, Delhi-Jaipur Highway (Haryana), were auctioned and the claims of the secured creditors have already been settled. There is an amount of Rs. 1,85,72,407.96 lying in the account of the company and even after paying the statutory dues and the claim of the unsecured creditor, M/s. Pearl Polymer Limited, an amount of more than Rs. 1.25 crores will still be available in the account of the company. The other three unsecured creditors, as mentioned in the Revival Scheme, have not filed their claims although the Company had made provisions to pay off their debts also. It would be questionable as to whether such amounts could be legally claimed even now.
The scope and ambit of the jurisdiction of the company court while consideration of a scheme for revival has been stated in the pronouncement reported at (1996) 87 Comp Cas 792 entitled Miheer H. Mafatlal vs. Mafatlal Industries Ltd. in the following terms :-
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 meetings as contemplated by Section 391(1)(a) have been held.
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).
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.
That all 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).
That all the requisite material contemplated by the proviso 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.
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.
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 of the same class whom they purported to represent.
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.
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.
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 favor 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 : (1998) 94 COM. Cases 723 Delhi in Wearwell Cycle Company (I) Ltd.; Ferro Alloys Corporation Vs. National Steel and General Mills (P) Ltd., ].
In (1922) 2 Ch. D. 723 Re. Anglo-Continental Supply Co. Ltd. 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 bonafide, 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 extensor and read as follows :
I am conscious of the principle 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 favor 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. In Re.: Saroj G. Poddar, (1996) 22 C.L.A.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 Sh. S.N. Bhalla Vs. Soldier United Motor Tpt. Co. Ltd.
It has also been held that so long as a Scheme is bonafide 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 Corporate LA 200 Re: Saroj G Poddar]. The Bombay High Court in the judgment reported at Shree Niwas Girni Kamgar Kruti Samiti Vs. Rangnath Basudev Somani, in para 29 observed as follows :-
29... 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.
It is trite that there is no legal prohibition to the grant of the Scheme for Revival and that the present application is maintainable despite the passing of the winding up order. (Re : (1938) 8 COM. Cases 313 (Madras) Re : Calicat Bank Ltd.; (1982) 52 COM. Cases 139 Re: Vasant Investment Corporation Ltd.)
The conduct of the promoters/applicants before this court would show that they have acted bonafide and have facilitated discharge of all liabilities even by sale of assets and generating funds from personal sources. The conduct of the promoters can also be tested from the angle that they have evinced an intention to secure even such liabilities of the company which are pending adjudication. Nothing has been pointed out by any person or even the Official Liquidator that the scheme is intended to bypass any other statute or avoid any judgment or liability. The Official Liquidator has supported acceptance of the scheme and nothing has been placed which would suggest that the proposed scheme as unworkable or not capable of being implemented. The prayer for approval of the proposed scheme for revival made appears to be bonafide and in the interest of equity and justice.
From the above narration, it is evident that the promoters have provided that the interest of unsecured creditors is fully protected and shall not be impacted adversely in any way if the proposed Scheme of Revival is sanctioned by this court. The majority of the shareholders have consented to the Scheme of Revival and the interest of the creditors also stands protected.
Accordingly, the requirement of convening and holding the meetings of the equity shareholders, secured and unsecured creditors of the petitioner company to consider and if thought fit, approve, with or without modification the proposed Scheme of Revival is dispensed with.
In view of the above discussion, the applications are allowed. The winding up order passed on 3rd December, 2003 is hereby recalled and the Scheme of Revival of M/s. Sunstar Lubricants Limited is approved subject to the following conditions:
(i) The promoters shall be bound by the terms of the Scheme & shall be liable for payment of all amounts held due & payable to the unsecured creditors;
(ii) The amount standing to the credit of the company lying with the Official Liquidator shall be retained by it for utilization for paying off the dues of the afore-noticed unsecured creditors.
(iii) The amount at serial no. (ii) shall be kept deposited in a fixed deposit receipt initially for a period of one year which shall be kept renewed till further orders which shall be sought from the court.
(iv) It shall be open for the company or the promoters to make an appropriate application placing before this court the result of the adjudication proceedings on the claims of the statutory authorities as well as the unsecured creditors and seek appropriate orders for adjustment of the dues out of the amounts lying with the Official Liquidator in case the adjudication results in an order against the company. In the alternative, it shall be open to them to seek appropriate orders for release of the amount(s) with all accruals thereon in favor of the company.
(v) The Official Liquidator shall be entitled to such expenses incurred by him, from the funds available in the accounts of the company. A report in this behalf shall be placed by the Official Liquidator before the court for appropriate directions with regard to the adjustments of the amounts.
The applications stand allowed in the above terms.