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Bharat Vijay Mills Ltd., - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberCompany Applications Nos. 171, 172, 251 and 259 of 1979 in Company Petition No. 9 of 1979
Judge
Reported in[1980]50CompCas7(Guj)
ActsCompanies Act, 1956 - Sections 39(1); Income Tax Act - Sections 72A; Monopolies and Restrictive Trade Practices Act, 1969
AppellantBharat Vijay Mills Ltd., ;phalgun Pankajkumar and Co., ;kashyab Zip Industries Pvt. Ltd. and New G
Advocates: I.M. Nanavati, Adv. in C.A. No. 171 of 1979,; J.M. Thakore and;
Excerpt:
.....and restrictive trade practices act, 1969 - applications made under section 391 (1) - whether time limit be fixed for entertaining application under section 391 (1) - whether condition be imposed upon proposers of various schemes including appellants - where proposer incorporates any pre-condition in scheme court can legitimately impose upon him counter condition that sanction under section 391 (2) will be accorded on condition that proposer on his part obtains necessary approvals within reasonable time-limit fixed by court - imposition of time-limit in matter of obtaining requisite approval from statutory authority not likely to cause prejudice to proposer of scheme - held, both questions answered in affirmative. - - , is made a pre-condition and whether a condition should be..........each of these applications, it has become necessary to consider two questions : first, whether a time limit should be fixed for entertaining hereafter any application under section 391(1) of the act which might be made by any party who is interested in proposing a 'scheme of amalgamation, arrangement and compromise between the company, its members and creditors and any other company and, secondly, whether a condition should be imposed upon the proposers of various schemes including the applicants herein requiring them to obtain sanction and/or approval and/or consent of various statutory authorities within a specified time limit in view of the fact that such sanction and/or approval and/or consent is and is likely to be made by such proposers the condition for the scheme to be.....
Judgment:

P.D. Desai, J.

1. These various applications have been made by different applicants for appropriate orders under Section 391(1) of the Companies Act, 1956 (hereinafter referred to as 'the Act'). The applicants in Company Applications Nos. 172 of 1979, 251 of 1979 and 259 of 1979 have prayed that separate meetings of (1) equity shareholders, (2) secured creditors, (3) statutory creditors, (4) unsecured creditors and (5) workers and employees of the Sidhpur Mills Company Ltd. (hereinafter referred to as 'the company') be ordered to be convened to consider and, if thought fit, to approve, with or without modification, the scheme of amalgamation, arrangement and compromise proposed by each applicant. The prayer in Company Application No. 171 of 1979 is that separate meetings of the equity and preference shareholders of the Bharat Vijay Mills Ltd. be convened for the purpose of considering and, if thought fit, approving with or without modification, the scheme of amalgamation, arrangement and compromise proposed to be made between the company, its members and creditors and the Bharat Vijay Mills Co. Ltd. Incidental prayers with regard to the manner of convening, holding and conducting the said meetings, publication of notice and advertisement of such meetings, appointment of chairman to preside over such meetings and submission of the report of the chairman to the court have also been made in each of the applications.

2. Before issuing necessary directions as prayed for in each of these applications, it has become necessary to consider two questions : first, whether a time limit should be fixed for entertaining hereafter any application under Section 391(1) of the Act which might be made by any party who is interested in proposing a 'scheme of amalgamation, arrangement and compromise between the company, its members and creditors and any other company and, secondly, whether a condition should be imposed upon the proposers of various schemes including the applicants herein requiring them to obtain sanction and/or approval and/or consent of various statutory authorities within a specified time limit in view of the fact that such sanction and/or approval and/or consent is and is likely to be made by such proposers the condition for the scheme to be operative. The court thinks it necessary to consider these questions at the outset for the reasons which follow. Besides, the Majoor Mahajan Sangh, Sidhpur, which is the representative union of the employees of the company, has also invited the court to consider these questions and submitted that time-limits in respect of both the matters covered by the aforesaid questions should be imposed in the larger interests of all concerned and, more particularly, bearing in mind the plight of about 1,700 to 1,800 workmen who are out of employment since January or February, 1979.

3. It would not be out of place to recapitulate the circumstances under which the various schemes for amalgamation, arrangement and compromise have been proposed by the applicants herein. The company was incorporated on March 3, 1921, under the Baroda State Companies Act as a public company limited by shares. It is an existing company within the meaning of Section 3 of the Act. Its registered office is situate at Sidhpur within the State of Gujarat. Its manufacturing unit consisting of a composite textile mill is also situate at Sidhpur. The said manufacturing unit employed about 1,700 to 1,800 workmen up to January 17, 1979. From that day onwards, the manufacturing unit ceased to work at its full capacity in the spinning and weaving department and gradually production declined and the unit stopped manufacturing activity on February 12, 1979. The company's financial position reveals that as on March 31, 1978, the entire paid up capital and reserves had been wiped out by losses. The company's loss as on that day including the carried forward loss of the previous years amounted to Rs. 1,10,57,321. The pro forma balance-sheet as at January 31, 1979, indicates that the accumulated losses have risen to Rs. 1,90,82,000 as on that day. The workmen were not paid their wages by the company since November, 1978.

4. The applicant in Company Application No. 172 of 1979, who claims to be a creditor of the company in the sum of Rs. 24,01,336, has instituted Company Petition No. 9 of 1979 on February 28, 1979, to wind up the company. On February 26, 1979, the petitioning-creditor moved Company Application No. 85 of 1979 for appointment of the official liquidator as provisional liquidator. By an order made on April 10/11, 1979, by this court, the official liquidator was appointed as provisional liquidator of the company with certain specified powers. One of the powers given to the provisional liquidator was to explore the possibility of and to make all endeavour to restart the business of the company. Subsequently, by an order dated May 9, 1979, passed in Company Application No. 187 of 1979, the provisional liquidator was directed to pay the arrears of wages for the month of November, 1978, to the employees of the company who were not employed in a managerial capacity and whose total emoluments did not exceed Rs. 1,000 per month at the relevant time out of the funds made available to him for the purpose by the Bank of Baroda who is one of the secured creditors of the company.

5. After the aforesaid Order dated April 10/11, 1979, was made, the three applicants herein have proposed their respective schemes of amalgamation, arrangement and compromise. There is one more application under Section 391(1) of the Act, namely, Company Application No. 173 of 1979 in Company Petition No. 9 of 1979 wherein the applicant has proposed the scheme of arrangement and compromise between the various classes of shareholders, creditors and workers and employees of the company and the company itself. The applicant in the said application, however, has sought adjournment from time to time and at present he is not seeking any directions under Section 391(1).

6. I shall take up for consideration first the question whether any dateline should be fixed beyond which no application under Section 391(1) proposing any scheme of amalgamation, arrangement and compromise should be entertained in the instant case. The question requires to be examined in two different aspects. The first aspect is whether the court has the power to adopt such a course. Section 391(1) confers upon the court discretion to order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the court directs, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator. It is true that when a statute confers a discretionary power on the court, such power has to be exercised judicially as and when occasion arises and that, therefore, ordinarily discretion must be brought to bear on every case as and when it comes up before the court. The rule, however, does not preclude the court from evolving in advance and following certain rules, precedents, standards or policy to guide it in the exercise of its discretion as and when the occasion arises. Such self-imposed fetter on the exercise of discretion is a familiar phenomenon in diverse spheres of the judicial firmament. So far as the exercise of discretion under Section 391(1) is concerned it cannot be overlooked that, in the very nature of things, a scheme of amalgamation, arrangement and compromise has to subserve various conflicting interests and meet with the approval of different classes of members and creditors. Experience has shown that each scheme that is proposed successively, therefore, has its own distinguishing features and more often than not each of such scheme is designed to buy conflicting interests upon more attractive terms. The procedure, which the law has laid down for the consideration and approval of such schemes by different classes and for the ultimate sanction of any of such schemes by the court, is a fairly protracted and time-consuming one. In the case of a company which has stopped its business and whose losses are mounting up and plant and machinery are deteriorating day by day, it would not, therefore, be in the interest of the company itself to allow scheme after scheme to be sponsored ad infinitum. Adoption of such a course might defeat the very purpose of devising a living workable scheme, namely, providing early relief and infusing life into a sick unit which otherwise would have to be wound up resulting in its civil death. Protracted proceedings would not also be in public interest. Loss of production is a national loss. It also affects public exchequer by loss of revenue. Continued unemployment, apart from the untold misery which it would inevitably impose upon workmen for no fault of theirs, might lead to industrial unrest in the locality giving rise in its wake to myriad problems. Individual rights have, therefore, to be balanced against collective rights and also against public interest. If the court, therefore, thinks, for the aforesaid reasons which it can legitimately entertain, that beyond a reasonable date-line it will not exercise its discretion in the matter of ordering a meeting or meetings of the creditors or class of creditors or of the members or class of members, as the case may be, of a company to be convened upon an application made by any party under Section 391(1) to consider a proposed scheme of amalgamation, arrangement or compromise and has given an advance intimation thereof to all intending proposers of such scheme, no objection could possibly be taken to such a course. In my opinion, therefore, there is no legal bar against the court laying down a rule or policy that it will not exercise its discretion under Section 391(1) and convene a meeting of various classes of shareholders and creditors and workmen to consider a new scheme after certain time-limit, provided, of course, the time-limit which is set up is reasonable and an advance intimation of the court's adoption of such a course is given in a suitable manner to the intending proposers of the schemes.

7. The second aspect is whether, on the facts and in the circumstances of the case, there is any reason, which the court considers legitimate, to fix the date-line. The back-drop against which this aspect must be considered has already been set out earlier. The company is deep down in debts and its losses are mounting up from day-to-day on account of recurring interest liability. The manufacturing unit of the company has come to a grinding halt since February 12, 1979. Its plant and machinery being out of commission are deteriorating from day-to-day. There are about 1,700 to 1,800 workmen of the company. Some of them have been out of employment since January 17, 1979, and all of them, except the security staff, are out of employment since February 12, 1979. No scheme of amalgamation, arrangement and compromise so far proposed has provided for any relief to the workmen in respect of this period of continued unemployment after the closure and it would not be unreasonable to assume that no scheme, if any, hereafter to be proposed would also make similar provision. Though the schemes so far proposed have provided for payment of interest in diverse ways to the secured and unsecured creditors on the amounts to be paid to them, none of the schemes has provided for payment of any interest to the workmen on the arrears of their wages. The workmen, therefore, suffer on all fronts by continued closure of the mill. Apart from these considerations, however, the factor which the court considers most relevant and material for the purposes of imposition of date-line is that all the three proposed schemes are made expressly subject to certain conditions in order to become operative. One of the conditions which is common to all the three schemes is the declaration of the Central Govt. under Section 72A of the I.T. Act to the effect that the accumulated loss and unabsorbed depreciation of the company, which under each scheme is the amalgamating company, shall be deemed to be the loss, or, as the case may be, allowance for depreciation of the amalgamated company and that the other provisions of the I.T. Act relating to set-off and carry forward of losses and allowance for depreciation shall apply accordingly. Indeed, the benefit of carry forward and set-off of accumulated loss and unabsorbed depreciation allowance is one of the strongest motivating factors which in these days brings forth schemes for amalgamation, arrangement and compromise and it would not be unreasonable to assume that in any scheme which might be hereafter proposed a similar condition would necessarily be an integral part. In the very nature of things, the recommendation of the specified authority and the satisfaction of the Central Govt. and the consequential declaration to the aforesaid effect are bound to consume some time. Another common feature in all the schemes so far proposed and which might hereafter be proposed is and will be the requisite consent of the Controller of Capital Issues for the issue of necessary share capital as envisaged in the scheme. The scheme proposed in Company Application No. 251 of 1979 is conditional upon the approval of the Central Govt. under the Monopolies and Restrictive Trade Practices Act, 1969. It is not unlikely that a scheme which might be proposed hereafter might also have such pre-conditions. Two of the schemes which are already proposed contemplate sanction of the schemes by two other High Courts, for, the registered offices of the proposed amalgamated companies are situate outside the State. It is not unlikely that a similar situation might arise in respect of a scheme which might be hereafter proposed by any interested party. It would thus appear that the schemes in hand are made conditional upon these various approvals, consents and sanctions being obtained from different authorities and courts, as the case may be, and more likely than not, such or similar conditions would find place even in any scheme that might be proposed hereafter. The securing of such approvals, consents and sanctions would in all likelihood be a time-consuming process with no guarantee of result and the scheme or schemes might conceivably be mutilated in the process. If, therefore, schemes after schemes which contain such pre-conditions--and in all likelihood such pre-conditions would exist in every scheme which is likely to be proposed--are allowed to go before the meetings of various classes of persons for their consideration upon applications made from time to time under Section 391(1), the manufacturing unit of the company, which has completely ceased its activity since February, 1979, will not possibly start for an indefinite period. As earlier stated, such a situation cannot be allowed to develop not only in the interest of the company and various classes of its shareholders, creditors and workmen but also in the larger public interest. In my opinion, therefore, a reasonable time-limit is required to be imposed in the instant case beyond which the court would refuse to make orders under Section 391(1) in respect of any new scheme of amalgamation, arrangement or compromise in respect of the company. In order to ensure that no intending proposer of such a scheme is put to a disadvantage, it would be necessary to give an advance public intimation of the court's decision in this behalf to all intending proposers. This could be achieved by directing the provisional liquidator to publish an advertisement in English and Gujarati newspapers having wide circulation.

8. The question then is as to what such a reasonable time-limit is on the facts and in the circumstances of the case. It appears to me, having regard to the fact (1) that the manufacturing unit of the company is closed since February, 1979, (2) that an order has been made in April, 1979, appointing the official liquidator as the provisional liquidator, (3) that an advertisement was published by the provisional liquidator in 'Times of India' on May 12, 1979, 'Sunday Standard' on May 13, 1979, ' Gujarat Sama-char ' on May 12, 1979, and 'Sandesh' on May 11, 1979, notifying that inspection of the mill premises and machinery of the company will be given to all persons or parties interested in putting forward a scheme of amalgamation, arrangement and compromise on May 21 and 22, 1979, and (4) that an advertisement regarding the convening of meetings of the various classes of shareholders, creditors and workmen of the company to consider the scheme proposed by the applicant in Company Applications Nos. 171 and 172 of 1979 has already been once published in 'Times of India' on June 1, 1979, 'Indian Express' on June 7, 1979, 'Gujarat Samachar' on June 1, 1979, and 'Sandesh' on June 8, 1979, it would be legitimate to presume that various interested parties already have an advance notice of the pendency of the winding-up petition and the attempts to reconstruct the company and that, therefore, it would be reasonable to fix August 31, 1979, as the final date beyond which the court would not issue any order convening meetings under Section 391(1) of the Act to consider any new scheme. The provisional liquidator is accordingly directed to publish an advertisement in the following newspapers on or before July 23, 1979, giving intimation that any party competent and interested in proposing a scheme of amalgamation, arrangement or compromise in respect of the company shall file an application under Section 391(1) on or before August 31, 1979, and that no directions under Section 391(1) shall be issued by the court in respect of any proposed scheme after the said date :

(1) Indian Express in its Ahmedabad and Bombay Editions ;(2) Financial Express ; (3) Gujarat Samachar ;(4) Sandesh ; (5) Janmabhumi ;(6) Bombay Samachar ; (7) Vyapar.

9. The cost of advertisements shall in equal proportions come out of the amounts which each of the applicants herein has been or will be directed to deposit with the provisional liquidator. The applicants have consented to the adoption of such a course.

10. The next question is whether any time-limit should be imposed upon the proposers of schemes in which the obtaining of the approvals, consents and sanctions of the various statutory authorities such as the Central Govt., is made a pre-condition and whether a condition should be imposed that in case such proposers fail to obtain the requisite approval, consent or sanction within such time limit, the schemes would not be considered for sanction under Section 391(2). All that has been stated above while considering the first question is relevant in the context of this question as well. Those very reasons can be legitimately pressed into service in the matter of imposition of such a condition. The court cannot, in the larger interests of all concerned, allow itself to be placed in a situation where it has to helplessly watch the proposers of schemes after schemes making each scheme conditional upon the obtaining of such approvals, consents, declarations and sanctions in their own interest and thereby indefinitely stalling the process of reconstruction of the company and restarting of its manufacturing unit. If the proposer incorporates any such pre-condition in the scheme, the court can legitimately impose upon him a counter-condition that an order under Section 391(1) will be made and sanction under Section 391(2) will be accorded on the condition that he on his part obtains the necessary approvals, consents, declarations and sanctions within a reasonable time-limit fixed by the court. It is true that the proposer has no control over those various statutory authorities. However, if a reasonable time-limit is fixed, it would not be unreasonable to assume that the concerned statutory authorities, who are responsible public authorities, would appreciate the legitimate reasons which weighed with the court in imposing such time-limit and exercise their respective powers and accord, if at all, approval, consent or sanction, as the case may be, within such time-limit. The order of the court imposing time-limit itself would be the motivating factor in that behalf. In case the proposer of a scheme finds that any of the statutory authorities is without any reasonable cause postponing the according of approval, consent or sanction, as the case may be, thus jeopardising his scheme, he is not totally helpless. It is always open to such a proposer to take out appropriate proceedings against such a statutory authority and obtain necessary orders from this court either under the Act or in exercise of its writ jurisdiction. It appears to me, therefore, that the imposition of a time-limit in the matter of obtaining the requisite approval, consent, declaration or sanction from the statutory authorities other than any other High Court is not likely to cause any prejudice to any party who has proposed or intends to propose a scheme. In my opinion, such a time-limit is required to be imposed on the facts and in the circumstances of the case.

11. The question then is as to what such time-limit should be. In view of the fact that August 31, 1979, has been fixed as the last date for issuance of directions, if any, under Section 391(1) in respect of any new scheme which might be proposed hereafter, it would be just, proper and reasonable if a period of six months from the said date is allowed to the proposer of all schemes for the purpose of obtaining the requisite approvals, consents, declarations and sanctions from all statutory authorities other than any other High Court. As regards sanction of any other High Court is concerned, no such condition can properly be imposed by this court. Accordingly, an order under Section 391(1) will be made and sanction, if any, under Section 391(2) will be accorded to the scheme of the applicants herein and to any new schemes hereafter to be proposed on the condition that each proposer shall obtain from the concerned statutory authority such as the Central Govt., the requisite approval, consent, declaration or sanction under the relevant provisions of the statute or statutes such as the I.T. Act, 1961, the M.R.T.P. Act, 1969, etc., on or before February 28, 1980. In the advertisement which has been directed to be issued by the provisional liquidator, intimation about the court's decision to impose such a condition must also be given.

12. Before parting with the case, it should be mentioned that all the parties appearing herein were agreed on the question of the court's power to impose time-limits as aforesaid and the desirability of imposing such time-limits in the instant case. Some of them were of the opinion, however, that the court should reserve to itself the power to relax the time limits on such terms and conditions as it might think fit to impose. Having given an anxious thought to the advisability of making such a broad reservation, I have reached the conclusion that such reservation, if any, might, in all probability, defeat the very object behind the imposition of time-limits. I shall, however, reserve to the court the power to relax both the aforesaid time-limits only in two cases ; first, to meet with cases of marginal over-stepping of time-limits under exceptional circumstances and, secondly, to overcome an extraordinary situation such as the one where all schemes sponsored are likely to fall or have fallen through for one reason or the other. Under such circumstances, the court might relax the time-limits subject to such terms and conditions as it might think it just, fit and proper to impose in the circumstances of the case. Beyond this no other and further reservation, in my opinion, requires to be made.

13. Order accordingly.


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