JUDGMENT Sunil Ambwani, J.
1. This is a petition for obtaining sanction of the Scheme of Restructuring (in short, the Scheme), without any modification,between petitioner's company and its secured creditors, to reduce the interest liability on the debt burden on the petitioner company. The Scheme, was prepared by State Bank of India through its Industrial Finance Branch, New Delhi, the leader of the working capital consortium to the petitioner-company under the Corporate Debt Re-structuring Mechanism (CDR' Mechanism),and submitted to the Corporate Debt Restructuring Forum ('CDR Forum') set up by the Reserve Bank of India as a package to the company involving re-phasing of repayment of the existing terms loans and debentures, and induction of fresh funds, to the extent of erosion in the working capital of the petitioner's company.
2. The 'CDR Mechanism' set up by the Reserve Bank of India vide its Circular dated 23.8.2001, ensures a timely and transparent mechanism for the restructuring of the corporate debt, of viable corporate entities affected by internal or external fixation outside the purview of the Board of BIFR, DRT and other legal proceedings for the benefit of all concerned. It applies to multiple banking syndicate consortium accounts, with outstanding exposure of Rs. 20 crores or above ,with financers and financial institutions.
3. The participating lenders namely State Bank of India, Bank of India, ICICI Bank, IDBI, State Bank of Patiyala, Punjab National Bank and Bank of Baroda, all parties to Corporate Debt Restructuring Empowered Group (CDREG) approved the scheme in meeting dated 15.9.2003 and granted their respective approval detailed in para 13 of the petition.
Salient features of the scheme provides? as follows;
I. Rescheduling of existing term liabilities, commensurate with future cashflows.
ii. Reduction in interest rates and bring them to a level which could be afforded by the sugar units.
iii. Arrangement to induct of fresh funds to, meet shortfall in working capital requirements resulted by fall in free sale sugar prices. A short fall of Rs. 22 crores has been identified by SBI.
iv. Setting up ethanol project in distillery division and expansion therein so that revenues from distillery division may be increased.
v. Cost cutting measures to be taken by the Company.
4. The Court passed orders convening meeting of the secured creditors. In this order dated 13.9.2004, the Chairman of the meetings was directed to add an exposure statement in the advertisement as well as the notices of the meeting to the effect that the meeting shall be convened without prejudice to the rights of the Unit Trust of India as involved in O.A. No. 69 of 2004 pending before Debt Recovery Tribunal, Lucknow. In Company Appeal No. 4 of 2004 a Division Bench of this Court by its order dated 14.10.2004 relying upon Rainbow Denim Ltd. v. Rama Pctro Chemicals Ltd. , found that it was not necessary to add such an exposure statement. The Unit Trust of India was however permitted to raise all such objections before the learned Judge when the confirmation scheme is taken up after the meeting of the secured creditors of the applicant-company. Sri Rajeev Sharma, Advocate, the Chairman of the meeting advertised the notice of the meeting in 'Times of India', published from New Delhi and 'Dainik Jagaran' published from Meerut on 14.10.2004 convening the meeting 0n 6.11.2004.
5. The Chairman reported to the Court that the meeting was attended by 14 secured creditors in person or proxy representing the total value of amount outstanding as March. 31, 2004 at Rs. 20303.19 lakhs. It was approved by 12 secured creditors excluding UTI having the total voting power of Rs. 18096.47 lakhs without any modification which constituted 88.94% of the secured creditors by value as on 31.3.2004. The Unit Trust of India having an aggregate value of Rs. 2206.72 lakhs as on March 31, 2004 attended and voted against the proposed scheme vide their letter dated 5.11.2004 produced by Mr. Satish Kumar on behalf of UTI.
6. This petition for sanction of the scheme was directed to be advertised for hearing by order dated 13.12.2004. In the affidavit of service of Sri Yashwant Singh authorized by petitioner company brings on record, the advertisements carried out in the 'Times of India' published from New Delhi and 'Amar Ujala'. published from Meerut dated 14.4.2005,advertising the date of hearing.
7. The Court has not received any objections,other than objections filed by UTI through Sri Shambhu Chopra, Advocate. These objection's are detailed as below;
1. The total investment/exposure in\ M/s Simbhaoli Sugar Mills Ltd. Of V T.L Is in the form of 14% non-convertible debentures totalling to Rs. 2206.73 lakhs (principal amount). The UTI case pending in DRT Lucknow is stayed by this Hon'ble Court.
2. It is expedient in the interest of justice that all creditors who have provided term loans/foreign currency loans to the Company, apart from UTI, should be considered as a separate class of creditors and should not he clubbed along with other creditors as UTI holds 94.92% of the total debentures of the company.
3. UTI is not a member of CDR (Corporate Debt Restructuring) and UTI's investment/exposure in the Company's debentures is not taken into consideration at the time of calculating the super majority for approval or rejection of any restructuring package. This situation applies in the instance case also and hence UTI is neither bound by the CDR package nor is its investment/exposure in UTI to be affected by the CDR package at all.
4. The proposed Scheme of Arrangement envisages a long repayment period (4 ears), reduction in rate of interest (both retrospective and prospective) which does not suit UTI business and regulatory requirements. UTI is willing to consider to examine any restructuring package only after the company clears the entire outstanding simple interest dues.
5. From the details of secured creditors provided by the Company in the Scheme of Arrangement, it is observed that HDFC Ltd's exposure has reduced from Rs. 54.28 lakhs as on March 31, 2003 to Rs. 22.93 lakhs as on March 31,2004, which, priina facie, implies that the Company has made preferential payments to HDFC Ltd.
6. That as per the Scheme of Arrangement, any future sale of the fixed assets by the Company will be first utilised to fund its Voluntary Retirement Scheme (VRS). UTl has basic objection to this proposal. No fixed asset charged to UTl should be sold without prior written consent of UTl and the sale proceeds should be utilised for UTI' dues proportionately, based on the charge of assets to UTl.
7. It is, therefore prayed that UTl, which holds 44,13,451 non-convertible debentures in the Company, may be paid its dues and it may not be subjected to the Scheme of Arrangement pending in this Court in view of its heavy investment on which the repayments are due along with interest-/
8. The first objection of UTI claiming itself to be a separate class of creditors, not to be clubbed along with other creditors, as UTl holds 94,92 % of the total debentures of the company, has been answered in the matter of SIEL Ltd. (2005) 1 Com. L.J. 369, (Del.). In this case the Delhi High Court held that'debenture' is a security like any other security. All secured creditors including debenture holders enjoy same status and rights and there is no conflict of interest at all amongst them. All the secured creditors including debenture holders have rights in the company. The UTl as debenture holders is also a secured lender like all other secured creditors and does not constitute a separate class. In Miheer H. Mafat Lal 1996 4 Com. L.J. 124 (SC) the Supreme Court, while considering a scheme of amalgamation under Section 391 and 392, defined the jurisdiction of the Company Court in granting sanction of the scheme. Once the parameters about requirement of the scheme have been met, the Court has no further jurisdiction to sit in appeal with 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 acts like an umpire in a game of Cricket who has to see with both the team's play, the game according to the rules and do not over step their limits. With regard to the class of the creditors, the Supreme Court observed that the Court shall not consider what class of creditors or members should be made parties to the scheme. This is for the company to decide in accordance with what the scheme purports to achieve. Unless a separate and different type of scheme of compromise is offered to a special class by a class of creditors or shareholders otherwise equally circumscribed by the class, no separate meeting for such special class are required to be convened. So long the procedure has been followed and the scheme approved by the majority is bonafide, just and fair, and is not violative of any provision of law and is not unconscionable, nor contrary to public policy, the Court shall not pierce the veil of apparent corporate purpose underlying the scheme.
9. A debenture holder does not enjoy any different positions other than the secured creditor. All the secured creditors enjoy the same status and rights and constitute one class.
10. The Supreme Court while considering the objections of UTI to the scheme for restructure in the Administration of the Specified undertaking of the Unit Trust of India v. Garware Polyester Ltd. (2005) 4 Com. L.J. 531 (SC) held that commercial documents must be construed in a manner as are understood in commercial parlance. Such documents must be read reasonably so as to make it workable. In the event, the majority of the creditors, approved the scheme, the Court may consider the question of grant of sanction thereto. The scheme does not require unanimity or any veto power in favour of any debenture holder, so as to shuttle the decision of the majority. When the scheme applies equally to all secured creditors including the debenture holders the appellants (UTI) cannot be treated as a separate class. Once it is shown that the scheme is fair and reasonable and the requisite majority has recorded their decision in its favour, the Court in absence of any unforeseen, unjustness or unreasonableness to reject the same.
11. The Scheme in this matter, in my opinion also serves the interest of the debenture holders including the Unit Trust of India. It secured timely payment of interest at the reduced rate agreed to, by all secured creditors. The negative covenants in the scheme namely the reduced rate of interest, should be read along with positive covenants of debt payments to be made by the company to all its secured creditors including debenture holders. There is nothing to show that the Unit Trust of India has agreed to pay its subscribers, a fixed rate of interest which it shall not be even to pay by the reduced coupon rate. It is well known that the Administrator of the Specified Undertaking of the Unit Trust of India has converted itself into the scheme as providing for bonds with fixed rate of tax free interest, at a much reduced rate,and mutual funds in which the net asset value is flexible. There is no such objection raised by UTI that the scheme contravenes any provision of law, or is not in public interest.
12. In the present case the scheme reduces the interest liability of the debenture holders from 14% to 12.5% w.e.f. 1.4.2003. Prior to this period the coupon rate is to be restored from the date of increase to 14% per annum upto 31.3.2003. The outstanding simple interest of the UTI after re-computation at the rate of 14% since beginning upto 31.3.2003 is to be repaid as provided in the scheme. The UTI has commonality of interest of securing their dues. They have common security ranking pari passu and hence it falls in the same class as secured creditors. The scheme has been approved by 88.94% of the vote value of secured creditors,without any modification.
13. The Official Liquidator representing the Central Government has not made any objections to the scheme other than placing on the record that UTI has not agreed to the scheme.
14. I do not find much substance in the contention of Sri Shambhu Chopra that since UTI is not member of CDR , and UTI investment/exposure was not taken into consideration at the time of calculating the super majority in approval or rejection of restructuring package, the scheme may not be approved. The CDR considered, framed and approved the scheme which was put to vote and has been approved by 88.94% of the total value of debt outstanding against the company. Further I also do not find substance in the contention of Sri Shambhu Chopra that HDFC has been preferred with regard to repayment of its loans. Sri Yashvant Verma, learned Counsel for the company points out that HDFC is not a secured creditor. It had provided funds for construction of workers quarters, the repayments of which has reduced the debt burden from Rs. 54.28 lakhs as on 31.3.2003 to Rs. 22.93 lakhs as on 31.3.2004 by way of payment of the constructions carried out by HDFC.
15. In the end Sri Shambhu Chopra submits that the Court must secure a mechanism to guarantee the monitoring and implementation of the scheme. Sri Yashwant Verrna states that, there arc sufficient guidelines in the scheme provided for its periodical review. The additional conditions incorporated in the scheme provide for monitoring and half yearly review to be undertaken by the lenders. Sri Verma, however, has no objection if such review is made quarterly and in case of any preferential treatment, the UTI or any other secured creditors may raise objections to the monitoring Committee consisting of SBI, IDBI, IFCI, ICCI, PNB, BOB, Bank of Patiala. The UTI proposes and shall be allowed to join as member of the monitoring committee.
16. The Company Petition is accordingly allowed. The Scheme of Restructuring is sanctioned, without any modification, subject to the supervision by the monitoring committee with UTI, to be included as a member envisaged in the Scheme,which may review the implementation of the provisions of the scheme in its' meetings to be called quarterly. The office shall draw formal order which may be filed by the petitioner company with the Registrar of the Company within the statutory period, prescribed by the Companies Act, 1956.