B.K. Mehta, J.
1. All that is asked for by this applicant is the permission to convene the meeting of the shareholders and creditors to consider with or without modifications the arrangement of the scheme of compromise and arrangement between the Krishnakumar Mills Company Ltd. under liquidation, and the creditors and members of the aforesaid mills. The application is made by one Ratilal Manila Shah, of M/s. National Machinery Mfg. Works, having their office at Tavdipura, Ahmedabad. The said firm claims itself to be a creditor of the mills-company to the tune of Rs. 1,41,000. The scheme has been opposed at the initial stage of issuing directions on the summons being taken out mainly by the two secured creditors, namely, the Gujarat State Financial Corporation and the State Bank of Saurashtra. On behalf of the Corporation as well as the State Bank of Saurashtra, affidavits-in-reply to this application have been filed and they have opposed any orders being issued by this court for convening the meeting of the shareholders and creditors for consideration of the scheme contending, inter alia, that the scheme is neither reasonable nor practicable of being implemented and a similar scheme was in the past rejected by the court summarily.
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2. Since the company closed down its business, the creditors started pressing the company of payment of the dues and ultimately in the month of August, 1971, Messrs. Bhaidas Cursondas & Company of Khamgaon filed Company Petition No. 19 of 1971 for winding up the affairs of the company. This court by an order dated 7th February, 1972, wound up the company. The appeal filed by the company, being Original Jurisdiction Appeal No. 2 of 1972, was also dismissed by the order of the court dated 6th March, 1972. The official liquidator appointed by this court had taken out a judge's summons in Company Application No. 19 of 1974, for powers to sell the movable and immovable properties of the company by public auction in accordance with the directions given by this court from time to time. This court by its order of 13the May, 1974, permitted the official liquidator to sell the asset of the company by inviting offers as mentioned therein. Both the secured creditors, viz., the Gujarat State Financial Corporation and the State Bank of Saurashtra have agreed to the sale of the assets of the company by the liquidator, free from their change subject to the conditions that the sale proceeds realised shall be charged with and retained as their security for the repayment of their loan together with interest and all other costs, charges and expenses, etc., payable in connection therewith. The official liquidator has, accordingly, advertised the sale of the assets in the various newspapers and the advertisements have appeared in the newspapers all over India. The last date for receiving the tenders is 15th July, 1974, which on receipt, shall be placed before this court on 16th July, 1974, that is, to-morrow. The tenderers are required to remain present at the time of opening of tenders so as to enable them to raise their offers. The official liquidator has for the purposes of advertisements incurred expenses to the extent of Rs. 6,000 by way of advertisement charges. the invitation of offers for the purchase of this unit together with the valuation report has been circulated with the terms and conditions of sale to 32 Chambers of Commerce and Industries, and Federations of Mills & Industries in India, and some of these chambers and federations have, in turn, circulated the news regarding the sale of the assets of this mills-company to their respective members. It is at this stage that this application has been made under section 391 for obtaining leave to convene the meeting of the shareholders and creditors to consider the scheme, the draft of which has been annexed to the affidavit filed in support of the summons at annexure 'A'.
3. The Gujarat State Financial Corporation is a secured creditor of the company and the legal adviser of the company has also filed an affidavit in-reply opposing the court giving any directions on the summons, which has been taken out. A sum of over Rs. 17 lakhs approximately is due and payable by the company to the Gujarat State financial Corporation. The Corporation has on 29th November, 1971, filed an application in the court of the district judge at Bhavnagar being Civil Miscellaneous Application No. 59 of 1971 under the provisions of sections 31 and 32 of the State Financial Corporations Act for the recovery of its dues. At that time the total payment due and payable to the Corporation by the aforesaid company was Rs. 18,83,608.48. The interest at the rate of Rs. 454.55 per day was accruing since November 26, 1971. As a result of the winding-up order passed by this court, the said proceedings have been transferred to this court and they are pending against the company. On behalf of the State Bank of Saurashtra, one Arvindray Chimanlal Parikh has filed an affidavit-in-reply opposing the scheme at an initial stage. The amount of Rs. 4,95,000 is due to the State Bank of Saurashtra under the various accounts of the mills-company with them.
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4. In In re Alabama, New Orleans, Texas and Pacific Junction Railway Company, the relevant principles which the court has to bear in mind in connection with the sanction to be granted, have been laid down succinctly. The court was considering the scheme at the final stage, whether the sanction to the scheme as approved and adopted by the meeting of the shareholders and creditors should be accorded or not. However, the principles which are to be borne in mind have been stated in clear terms; firstly, that the provisions of the statute have been complied with or not; and, secondly, that the majority has been acting bona fide or not. The court has to consider a further factor which has been laid down as under :
'Further than that, the court has to look at the scheme and see whether it is one as to which persons action honestly, and viewing the scheme laid before them in the interest of those whom they represent, take a view which can be reasonably taken by business men. 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 of it.'
5. In In re Crescent Bank Ltd., the court was concerned whether it should give directions for convening the meeting of the creditors and shareholders for purposes of considering, and, if thought fit, approving a scheme of arrangement with or without modification. It has been held that, where a scheme of arrangement is proposed under section 153 of the Companies Act, the court must be satisfied that it is reasonable and capable of being implemented by the company, before granting leave to convene meetings of creditors and shareholders to consider the scheme. The court, has, therefore, to consider whether the scheme as proposed is reasonable and practicable of being implemented. The two secured creditors, namely, Gujarat State Financial Corporation and the State Bank of Saurashtra, are opposed to this scheme. The total value of the said two secured creditors would be in the vicinity of about Rs. 22 lakhs to Rs. 23 lakhs out of the total value of Rs. 40 lakhs. It is, therefore, clear to me that to give directions to convene the meeting of the creditors would be an exercise in futility, inasmuch as the creditors of the value of more than 1/2 of the total value of the creditors are opposing the scheme. It would never be a practicable measure to give directions to hold meeting of the creditors in that view of the matter. Mr. Shelat, the learned advocate appearing on behalf of the sponsor of the scheme, urged that the court must not turn down the scheme at this initial stage and on the principle of indoor management must give an opportunity to the shareholders as well as the creditors to consider what is best in their interest, and it may be that as the meeting of the creditors, the two secured creditors would have a second thought on the matter and may, after considering what are the prospects of the satisfaction of their outstanding and debts, well consider it businesslike to accept the scheme. On behalf of the official liquidator as well as the Corporation and the Bank it has been strenously urged that if the directions are given by this court to convene the meeting of the creditors and shareholders, the prospective purchasers of this unit will be scared away, as their deposit of earnest money as well as 25 per cent. of their offer would be locked up till the court ultimately decides about the sanctioning of the scheme. It has been also pointed out to me on behalf of the official liquidator as well as the Corporation that a similar scheme of arrangement was presented by a former director, one Mr. I. J. Mehta to this court by Company Application in Company Petition No. 19 of 1971. The court had directed a notice to be issued to the Gujarat State Industrial Investment Corporation. At that time also the scheme was seriously opposed by the secured creditors and by the Gujarat Industrial investment Corporation. And this court by its order of 26th June, 1972, discharged the notice as the scheme at the notice stage was seriously opposed by the secured creditors and by the Gujarat Industrial Investment Corporation and in the opinion of the court no useful purpose would be served by calling a meeting. The scheme was also found to be unworkable. Mr. Shah has given me a short summary of what were the broad features of the scheme which were rejected by this court at that time and also the board features of the present scheme. It appears on perusal of these features that the present scheme is more or less similar. Apart from that similarity, the very fact that the two secured creditors, of the value of Rs. 22 lakhs, which is more than half the total value of the creditors, secured as well as unsecured, are opposing the scheme, it cannot be urged successfully that the scheme is practicable of implementation. Even on a consideration of the different provisions of the scheme, broadly, to suggest that the preferential shareholding of Gujarat Industrial Investment Corporation be converted in loan capital is very much against the present trend when the Government and the financial agencies are desirous of converting the loan capital into preferential and equity shareholding. The proposal as far as the Gujarat State Financial Corporations is concerned is also not very clear and specific. Though it has been provided that the interest amount would be capitalised and treated as principal, it has not been clearly stated how the principal amount of Rs. 15 lakhs will be paid. However, assuming that the capitalised interest amount as well as the principal amount are to be paid within the stipulated half-yearly instalments, which would be spread over a period of 8 1/2 years, I do not think that the Corporation can even on second thought agree to such a proposal. The proposal, as far as the State Bank of Saurashtra is concerned, is to convert the amount of Rs. 3 lakhs out of Rs. 4,00,000 due and payable on account of pledge and hypothecation account into the maid-term loan would also meet with the same fate and the Bank has opposed it. To suggest that they must allow the hypothecation and pledge account to be satisfied and to agree to the creation of a second charge in its favour is a proposal, which I do not think that the Bank can agree to. The proposal in respect of the labour is also equally objectionable. To suggest that they should agree to waiver of compensation under section 25FFF of the Industrial Disputes Act, and notice pay and gratuity only in consideration of the recommencement of the mills could not be received favourably by the workers. A discrimination made between the workmen and the clerical staff in the matter of repayment of their dues is also one, which cannot be appreciated. In that view of the matter, therefore, I do not think that the scheme can be said to be either reasonable or practicable in the interest of the secured creditors as well as workmen and the office staff. The main consideration which has weighed with me at this stage is that the two secured creditors representing more than half the interest in the total value of the secured creditors have opposed the scheme. In that state of affairs, therefore, the scheme would not be able to be passed by the majority of the creditors of the secured class representing more than 3/4th value.
6. The result is that for the reasons hereinabove, I do not think that I can persuade myself to give the directions to convene the meeting of the shareholders and creditors. The application is, therefore, rejected with no order as to costs.
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