1. The petitioner has taken out present petition seeking below mentioned direction and relief:-
"22(A) This Honourable Court would be pleased to sanction the scheme of revival and rehabilitation of the petitioner company as per annexure-C as to be binding on all the members, secured and unsecured creditors of the company and on the said company.
(B) A Notice of this petition may be issued to the Regional Director, Company Law Administration, Mumbai as well as on the official liquidator attached to this Honourable Court acting as provisional liquidator of the petitioner company.
(C)....
(D).."
2. The petitioner has presented a scheme (hereinafter referred to as "proposed scheme") for compromise and / or arrangement on the ground that the secured creditors have sacrificed or agreed to sacrifice part of their claims for revival and rehabilitation of the company.
3. In support of the request made in present petition, the petitioner has placed below mentioned facts for consideration.
3.1 It is claimed that the company named Madhu Fabrics Limited was incorporated in 1983 and it started its manufacturing activities on 1985. It is claimed that due to difficulties in market situation the company turned into sick unit within meaning of the term under Section 3(1)(o) of Sick Industrial Companies (Special Provisions) Act (SICA for short) and reference was made to the board for Industrial and Financial Reconstruction (Board for short) which was registered as Case No. 74 of 1992. It is further claimed that during the hearing before the Board all the parties concerned in the proceedings were of the view that the company could be revived if proper scheme of rehabilitation was prepared and implemented. Therefore, a scheme was prepared and finalized with the approval of the Industrial Development Bank of India as operating agency. The scheme was approved by the board vide its order dated 22.8.1995.
3.2 It appears that the board appointed a chartered accountant for the purpose of company's valuation. The independent valuer appointed by the Board suggested, vide his report that the distress value of the total assets of the company would be about Rs.2.7 crore. It also appears that the promoters could not bring necessary equity capital to the tune of about Rs.2.7 crore which they were required to inject and the State Government also did not agree to grant benefit and concession which the scheme envisaged and accepted. According to the petitioners the said suggestion was on higher side and the valuation of the company would be at around Rs.133.25 lacs. Subsequently the company suggested that in view of passage of time the valuation of the assets of the company was further reduced and it would be around Rs.104 lacs.
3.3 Now the promoters have come forward claiming that the value of the company would be Rs.125 lacs. The promoters also offer to pay the debts to the secured creditor. Before company came forward with proposed scheme, the Board arrived at opinion that the company accumulated losses exceed its net worth and the Board recommended that company should be wound up.
3.4 The said opinion of the board was carried in appeal before the appellate authority by the company. The appeal was rejected. The order of the appellate authority was challenged by filing writ petition being SCA No.5124 of 2000. The company also filed the application under Section 391 for sanction of scheme of rehabilitation. The said application was registered as Company Application No.446 of 2000 in Company Petition No.31 of 2000. The said matters were disposed of by the Court by a common judgment dated 10.1.2001 under which the company petition No. 31 of 2000 was admitted and OL was appointed as provisional liquidator.
3.5 The said order dated 10.1.2001 was challenged before the Division Bench. It is claimed that the Division Bench allowed the company to approach the Company Court for appropriate orders including order recalling the earlier order dated 10.1.2001. It is also claimed that during the hearing of the application filed by the company a suggestion to present rehabilitation scheme was made.
3.6 On the other hand when the company petition No. 31 of 2000 came up for hearing order dated 10.8.2004 was passed directing the OL to issue advertisement and on 19.8.2004 IDBI was directed to comply with the said direction. However subsequently in view of an application which was moved by IDBI, direction for publication of advertisement was withheld. Thereafter again under order dated 22.2.2005 IDBI was directed to issue advertisement in accordance with order dated 10.8.2004. Again, at the request of the company, Court considered it appropriate to differ the direction for publication on advertisement until 1.3.2005. It is claimed by the petitioner that direction extending time has been further extended from time to time and consequently the advertisement has not been published.
3.7 The promoters of the company have now brought proposed scheme for consideration and sanction by the Court.
3.8 It appears that subsequently the petitioner had taken out Company Application No.76 of 2005 seeking permission to convene meeting of the shareholders, secured creditor and unsecured creditor to consider the scheme and approve the same with or without amendment. The Court passed order dated 23.3.2005 in said Company application No. 76 of 2005 and directed the petitioner to convene meeting of equity shareholders, secured creditors and unsecured creditors. The Registrar of this Court was appointed as Chairman for the meeting. The petitioner has claimed that notice convening meeting was forwarded individually to the members of the company, secured creditors and unsecured creditors. Notice was advertised in the Newspaper in English Language and Gujarati Language on 7th April, 2005 and the meetings of the members, secured creditors and unsecured creditors were convened on 30th April, 2005. On conclusion of the meetings, the Chairman submitted his report stating that resolution approving the proposed scheme was passed subject to certain amendments suggested in the meetings of the secured creditor and unsecured creditor unanimously in the said meetings.
3.9 The petitioner has, in the petition expressed hope and confidence that upon rehabilitation company will be able to carry on its business successfully and will be able to meet with its liability. It is also claimed that fresh validity report has been prepared by a consultant which recommends that the petitioner would be a viable unit and would be in position to discharge its liability as indicated in the scheme. It is also claimed that the company would be able to generate employment and earn adequate profit to pay its dues. The petitioner has given details of the dues of the creditors as on the date when the scheme was framed / presented.
3.10 The scheme envisages and contemplates that the secured creditors and unsecured creditors will sacrifice part of their claims. As per the original proposal the unsecured creditors will be paid 50% of the dues however in the amended scheme the rate is reduced to only 10%. The promoters of the scheme are required to inject a sum of Rs.33 lacs.
3.11 So far as the secured creditors are concerned, the petitioner has claimed that the proposed scheme contemplates that the secured creditors should forgo and sacrifice part of their claim. It is also claimed that secured creditors have agreed to freeze their dues as per the details of dues placed in the report given to the Board. Consequently, the details of payment to be made to the secured creditors would be as mentioned below:-
Name of Secured Creditors Amount (Rs. In Lacs) (1) Industrial Development Bank of India 50.12 (2) Industrial Finance Corporation of India Limited 24.95 (3) Kotak Mahindra Bank Ltd.
24.85 (4) State Bank of India 22.37 (5) State Bank of Travancore 10.96 Total 133.25 (Note:
An amount of Rs.24.85 Lacs was, as per earlier arrangement, payable to ICICI Ltd. Subsequently, ICICI Ltd., has assigned the said amount to Kotal Mahindra Bank Limited and hence the name of Kotal Mahindra Bank Limited has been inserted in the scheme.) The aforesaid amount will be paid in 18 equal monthly installments which will not bear any interest. The installments will start after 15 days but within one month from the date of passing of necessary Resolution at the meeting of secured creditors to be convened pursuant to the order of this Hon'ble Court.
The company agrees to have the consent decree on the basis of the scheme passed by Debts Recovery Tribunal in recover proceedings filed by each of the secured creditors. If any, default is committed the scheme will fail. (this paragraph is added pursuant to the resolution passed at the meeting of the secured creditors held on 8th June, 2005) C:-
Unsecured Creditors There are various unsecured creditors aggregating to Rs.25.51 lacs. It is proposed that each creditors will be paid 20% of its dues and 80% of the dues will be sacrificed by such creditors. In view of the sacrifice given by the secured creditors, it is hoped that the company will be able to get them convinced and the creditors will cooperate. 10% of this amount will be disbursed in two installments - the first installments will be paid after payment to the secured creditors is cover, and the balance 10% will be paid after 12 months fro the first disbursement.
18. It is claimed by the petitioner that for the purpose of rehabilitation the average capacity utilization is at 60% to 70% i.e. 6 lacs to 7 lacs per month. It is also accepted by the petitioner company that in the implementation of the scheme and for rehabilitation and revival, the company would also undertake processing work and the net realization would be about Rs. 6 to lacs per month which will be initially utilized to pay monthly installments to the secured creditors."
3.12 Before proceeding further, it may be mentioned that the petitioner has claimed that the scheme does not contemplate or propose any compromise from the side of the workers. It is also claimed that any compromise is not offered to the workers because at the relevant time the company had no workmen on its wage register. So far as the workers are concerned it is provided in the scheme that as such there are no workmen who are entitled for any terminal benefit at this stage.
4. After presentation of the petition public advertisement was directed to be issued. The notice to the OL and the Regional Director was also directed to be issued. In response to the notices the OL has filed report dated 6.8.2010. In his report the OL has submitted, inter alia that:-
"(b) The official liquidator further most respectfully submits that the official liquidator has deployed security agency for safe guarding the assets and properties of the company and the security agency are raising security bills on regular basis. As on July 2010 an amount of Rs.21,20,644/- is claimed by the security agency towards security bills. In this connection the official liquidator most respectfully submits that the official liquidator is having no liquid funds in the said company's A/c. To meet with the security expenses. Therefore, the official liquidator vide letter dated 8.10.2009 and subsequent reminders dated 15.7.2010 requested the petitioner to deposit in the office of the official liquidator Rs. 21,20,644/- towards security expenses. Copies of the letter dated 8.10.2009 and 15.7.2010 is annexed and marked as annexure A (Colly). The petitioner has not yet deposited in the office of the official liquidator the aforesaid amount towards security expenses. That, therefore, this Hon'ble Court may be pleased to direct the petitioner to deposit in the office of the official liquidator an amount of Rs.21,20,644/- towards security expenses forthwith.
2. That, as regards to affidavit dated 14.7.2010 of Majoor Mahajan Mandal, it is stated in the said affidavit that the company was closed down w.e.f. 1.1.1992 without following due procedure of law. The statement made by the petitioner in its additional affidavit dated 21.6.2010 is false and contrary to the facts. Claim of 255 workers is submitted in the office of the official liquidator aggregating to Rs.2,53,73,926/-, which is already annexed by Majoor Mahajan Mandal at annexure R-I to the affidavit dated 14.7.2010. It is further stated in the said affidavit that the petitioner company has not paid the wages w.e.f. 1.11.1991 to 31.12.2001 and other legal dues i.e. gratuity, retrenchment compensation, leave encahsment etc. to the employee / workmen. Moreover, the petitioner has not produced any evidences with regard to payment if any, to the employees / workmen of the company. In this connection the official liquidator most respectfully submits that no payment is made to employees / workmen from the office of official liquidator till date. In addition to above, the scheme of compromise and / or revival is pending before this Hon'ble Court. Therefore, the official liquidator has not yet initiated any steps for sale of the assets and properties of the company. Moreover the official liquidator is having no liquid funds in the company's A/c. To make payment ot the workmen of the company, if so ordered.
3. In the facts stated above, this Hon'ble Court may be pleased to direct the petitioner to deposit in the office of the official liquidator an amount of Rs. 21,20,644/- towards security expenses forthwith. That, this Hon'ble Court may be further pleased to direct the petitioner to place on records of this Hon'ble court, the provision, if any, made for payment to the employee / workmen as submitted by Majoor Mahajan Mandal in its affidavit dated 14.7.2010. This Hon'ble Court may be further pleased to direct the petitioner to deposit an amount of Rs.2,53,73,926/- in the office of the official liquidator towards workers claim."
4.1 On perusal of the report of OL it emerges that the OL had deployed security guards for protection of the properties of the company and for that purpose OL has incurred security expenses to the tune of Rs.21,20,644/-.
4.2 The OL has also claimed that despite demand, the petitioner has yet not deposited the said amount towards security expenses.
4.3 Besides the said details, the OL has also mentioned that he has received affidavit dated 14.7.2010 from the union representing the workmen of the company. It is also mentioned by the OL that office of OL has received claims from about 255 workmen of the company which is to the tune of Rs.2,53,73,926/-.
4.4 The OL has further submitted that the details mentioned by the petitioner in its additional affidavit dated 21.6.2010 are incorrect and are contrary to the facts. In the result the OL has prayed that before making final order with reference to the request for sanction of the scheme, the petitioner may be directed to deposit Rs.21,20,644/- towards security expenses and also to deposit a sum of Rs.2,53,73,926/- towards claim of the workman.
4.5 The workers / union have also claimed and alleged that the State Bank of India had, on earlier occasion, vehemently opposed proposed scheme and now suddenly the same secured creditor has given consent and approved the same scheme. According to the workers / union such change in stand by State Bank of India creates doubt about the conduct of the petitioner and also of the said secured creditors.
5. As against the affidavits filed by the Union for the workers and OL the authorized representative of the petitioner- promoter has filed affidavit claiming that there is no liability towards workmen inasmuch as on the relevant date the company did not have any worker on its roll and that the petitioner is not claiming any compromise or arrangement with the workers / union or any sacrifice from the workers and if any liability is crystallized in future and is directed against the company upon its revival, then the petitioner shall discharge the same in accordance with law.
6. In such factual background, learned Senior Counsel for the petitioner has submitted that in view of the provisions under Section 391 to section 394 of the Act the Court may examine the scheme presented by the promoter / petitioner independently and in light of the provision contained in the scheme uninfluenced by rejection, if any, of the previous scheme. He has further submitted that present scheme complies and fulfills all requirements prescribed under the relevant provisions including the provision contained under section 391 to section 394 of the Act and that therefore there is no justification to decline the sanction. The learned senior counsel for the petitioner also submitted that so far as secured creditors are concerned, the petitioner has either paid - off or settled the entire claims of all secured creditors and each one has filed separate affidavit or pursis admitting the payment / settlement of their respective claims and consequently the company is discharged, of all claims, by the secured creditors.
6.1 So far as the workers and their claims are concerned the learned Senior Counsel for petitioner submitted that in the first instance the workers / union have no locus, in the facts of present case, to oppose the scheme inasmuch as the petitioner company is not seeking any compromise or settlement with the workers so far as their claims are concerned and that actually on the relevant date i.e. when the operations of the company were closed down and also when the order of winding up came to be passed, company had no workers on its roll and resultantly there were no claims from the side of workers. It is also asserted that any litigation or claim from the side of workers is not pending against the company in any Court. The learned Senior Counsel also submitted that if any liability is determined by the court then the petitioner, upon the scheme being approved and consequent revival, discharge such liability in accordance with law. He submitted that when all the dues and claims of all secured creditors are finally settled and now when there is no liability of any secured claim against the company and when during the meeting of unsecured creditors the unsecured creditors also have approved the scheme, there is no justification not to sanction the scheme.
7. Mr. Upadhyay learned advocate has appeared for the workers / union and opposed the petition and the scheme on singular ground viz. that the scheme does not make any provision for claim of the workers. The learned counsel submitted, in light of annexure at R1 (pages 77 to
94) to the affidavit dated 14th July 2010, that the total claim of 255 workers is to the tune of Rs.2,53,73,926/-. The learned advocate for the workers / union submitted that neither the petitioner has deposited the amount equivalent to the claim of the workers nor any provision in the scheme is made to ensure payment of the dues to the workers. Thus a scheme which does not deal with the claim of workers and which does not make any provision to fulfill and discharge the said obligation ought not be accepted. In light of such claims and submissions the learned counsel for the union / workers opposed the petition and the scheme.
8. It would be appropriate to consider the relevant details and salient features of the scheme, in background of aforesaid facts. In the preamble of the scheme it is mentioned that:
"Madhu Fabrics Limited ('MFL' for short) was incorporated in 1983 and has started its manufacturing activities in 1985. Initially the company carried on its activities effectively and which was a profit making company. The decade of 1991 of the twentieth century was a decade of disaster for the textile industry as a whole and the company could not remain an exception to the same. The company started facing difficulties due to the circumstances beyond control. As a result the company became a sick company within the meaning of Section 3(1)(0) of the Sick Industrial Companies (Special Civil Provisions) Act and a reference was accordingly made to the Board for Industrial and Financial Reconstruction (BIFR) which was numbered as Case No.74 of 1992."
8.1 The crux of the scheme is mentioned in para 10 and 11 of the petition wherein it is mentioned that:
"10.
In the above circumstances, the applicant presents the present scheme for revival of their company. The present scheme is based on getting job work of Gray Fabrics. The company has adequate and necessary machinery for dyeing, printing, bleaching and finishing Grey cotton and blended fabrics approximately rated capacity of 10 lacs meter per month. For the purpose of preparing the scheme and computing projections, average capacity utilization is considered 60% to 70%, that is 6.00 lacs to 7.00 lacs meter per month subject to necessary change upon necessary product mixed.
11. It is expected that unless unforeseen circumstances, the company would be able to achieve its production target. It is expected that from the above processing work the net realization would be Rs.6.00 lacs to Rs.7.00 lacs per month, which will be initially utilized to pay the monthly installments to the secured creditors as stated hereafter."
8.2 The proposed scheme then lists the sacrifices which are expected from promoters, financial institutions and unsecured creditors. The details in this regard are extracted and quoted hereinabove earlier.
8.3 Besides this the petitioners have stated in para 19 and 20 of the petition that:-
"19.
As stated in the scheme of rehabilitation, the company would be able to carry on its business successfully and will be able to meet with its liability. Subsequent to the holding of the meeting as aforesaid, a fresh viability report has been prepared by the consultants, which shows that the petition unit would be a viable unit and would be in a position to discharge its liability as indicated in the scheme. The company craves leave to refer to and rely upon the said report, when produced.
20. It is submitted that in view of what is stated in the viable report, the company would be able to general employment, necessary profit and would be able to pay of its dues. It would therefore be in the interest of justice and fitness of things that the scheme of revival approved by the members, secured creditors and unsecured creditors of the company at annexure"C" be sanctioned by this Honourable Court."
9. It is pertinent to note that though in paragraph 10 and 11 of the scheme the petitioner has mentioned that it would be able to procure and execute job work of grey fabrics, the details of the approximate number of the workmen the petitioner company would recruit and / or the details of the machinery i.e. the number of available / existing machines and their condition and as to whether all of them are in operational condition or not and as to whether it would be purchasing machinery and if such a need arises then how and from where the finance would be arranged etc. are not mentioned in the scheme.
9.1 The memorandum of association gives out that it is permissible for the company to carry on business other than the manufacturing activity i.e. trading etc. and in view of its provisions it appears that the company contemplates or keeps the option open to start any other activity i.e. other than manufacturing. In that event i.e. if the company really intends to start only trading activity and does not intend to start manufacturing activity and has not faithfully declared and clarified this aspect then the proposal will not be of any help to the workmen.
9.2 So far as the secured creditors are concerned it is stipulated and declared by the petitioners that as of now (i.e. at the time when the hearing of the petition commenced) the company has settled all claims of all secured creditors in terms of the settlement / understanding arrived at by the company with the respective secured creditors. One Shri Manish P. Patel authorized representative of the company has declared, in the affidavit dated 7.12.2010 that the company has fully paid the amount to IDBI and IFCI. So far as Kotak Mahindara Bank Limited is concerned, a pursis dated 31.8.2011 along with the consent terms arrived at between the said two parties signed by the authorized representative of the bank and the advocate of bank and the authorized representative of the company and company's advocate is placed on record and it is declared and stipulated by the learned Senior Counsel for the company and the said bank that the claim of the said bank is also settled.
9.3 The learned counsel for the petitioner company has declared and stipulated that all claims of all secured creditors are now settled and there are no outstanding or unpaid secured creditors.
10. The said stipulation and declaration brings in picture the issues related to the workmen.
10.1 Here, on this count, very vague and completely contradicting and conflicting situation and details are available on record.
10.2 The petitioners have, in vague manner, merely mentioned that at the relevant time company had no workmen on its roll and the scheme does not propose any arrangement with the workers.
10.3 In this context it is necessary and appropriate to note that the company has not placed on record any material or cogent evidence to demonstrate that before the unit was closed whether the workmen were retrenched after following the procedure prescribed under Industrial Disputes Act 1947 (hereinafter referred to as "I.D. Act") and Bombay Industrial Relations Act, 1996 (hereinafter referred to as "B.I.R. Act") and necessary payment of all dues including retrenchment compensation was paid to all workmen or not.
10.4 There is also no material on record to satisfy the court that if the workers were not retrenched and if the unit was treated as "closed" whether at the time of closure the amount payable to the workmen towards their dues including the compensation payable as "closure compensation" was paid to all workers.
10.5 Any material to demonstrate as to how the services of the workmen were put to an end and how they were relieved, and what payments were paid to the workmen is not placed on record and yet it is claimed that the company has no workers.
10.6 As mentioned earlier, the workmen have claimed that their dues are outstanding whereas, through its authorized representative the petitioners have disputed and denied such liability and has also claimed that the company had closed its operations from 1.1.1992, thus, at the relevant time the company had no workers on its pay roll.
10.7 On this count it should be mentioned that such submission or such perception is misconceived inasmuch as unless closure is effected in accordance with law and after following procedure prescribed by law, such closure would not be considered legal in eye of law and the liability towards payment of workers' wages continue until closure is completed in accordance with law or winding-up is ordered. (see the decision in case of Textile Labour Association v. Official Liquidator of Jubilee Mills [2000{4} GLR 2923] 10.8 In present case, as mentioned above, the petitioner has not placed on record any material to establish that while effecting closure prescribed procedure was followed and the services of the workers were brought to an end after following prescribed procedure including payment of closure compensation.
10.9 Thus, unless it is established in appropriate proceedings before competent forum that the closure was effected after following prescribed procedure and the services of workers were determined in accordance with law and after completing all formalities, mere assertion without any supporting documents that the company had no workers on its pay roll at the relevant time - particularly after 1.1.1992 - would not be of any assistance to the company in claiming and in satisfying Court's anxiety that there is no claim from, or liability towards claim of, workmen.
It is one thing to say that there is no litigation pending from the side of workmen and another thing to prove that there are no claim by or liability towards claim of workmen and / or that the workmen do not have any claim against the company.
10.10 In ordinary course of liquidation proceedings the official liquidator would invite, after publishing appropriate advertisement, claims from all workmen and such claims would be verified in light of relevant provisions. However in present case the petitioner has, without placing on record any supporting material, claimed that there are no claims from workmen. On the other hand official liquidator has asserted that claim and dues in the sum of about Rs.2.54 crores are outstanding.
10.11 Duty is cast on the court to be extra cautious as regards claim of workmen and it is court's duty and obligation to ensure that all precautions and measures are taken to ascertain as to whether there are any unpaid dues or claims payable to the workmen, or not. The Court is the guardian for the workmen and their interests and claim, in the winding -up proceedings and / or proceedings connected with winding - up process or arising therefrom.
When the petitioners claim one thing and the official liquidator assets another - particularly opposite and contrary to petitioner's claim, then court would prefer, in absence of any cogent evidence establishing petitioner's claim to accept and rely on liquidator's assertions.
10.12 If there are such claims then it would be permissible to the Court, rather an obligation on the Court, to direct the company-applicant to make appropriate provision in the scheme and / or to provide appropriate and sufficient measures in the order and to prescribe proper and sufficient safeguards to protect the interest and claims of the workmen and in the event of petitioner's refusal or failure to comply, to decline the sanction and reject the scheme.
11. The company has attempted to claim that the respondent union has no locus to represent the worker since its recognition was cancelled in December 1992. A copy of order said to have been passed by the Registrar is placed on record. A glance at the said order clarifies that the Registrar has only cancelled the status of the union as the "representative union" under the provisions of B.I.R. Act. The registration of a union as an association / union (under Trade Unions Act, 1926) is a different matter and concept from the conferment of status of "representative union" under provisions of BIR Act. Cancellation of said status does not automatically result into cancellation of union's registration as an association / union under the provisions of Trade Unions Act. Besides this, it is Court's authority, jurisdiction, privilege and discretion to allow relevant and necessary material and details from other source and Court may, if the details are found satisfactory and reliable, take it into consideration.
11.1 Therefore, it would be misconceived to claim and contend that the union does not have authority to represent the workmen in the proceedings under Companies Act 1956 though it may be true that the union may not have authority to appear, as representative union in proceedings under BIR Act.
11.2 Now, coming to the issue about litigation by or against workmen it is noticed from the record that the petitioner has placed copies of certain orders passed by Labourt Court Ahmedabad in connection with complaint number 3 of 1992 to 47 of 1992 which were filed under Section 106, 107 and 109 of BIR Act. It appears that the concerned labour Court passed common order dated 15.10.1993 in the above referred Criminal Application Nos. 3 of 1992 to 47 of 1992 and dismissed the said applications by a common order, however, on ground of non-prosecution (for want of presence of / prosecution by workmen). The petitioner company has also placed on record copy of order dated 12.7.1993 in application No.129 of 1990 which was preferred under Section 78 read with section 79 of BIR Act. The said application is also dismissed, vide said order dated 12.7.1993 on ground of non-prosecution (for want of presence of / prosecution by workmen). In the said order the details of the grievance made in the application No. 129 of 1990 are not mentioned.
12. Thus, what appears from the said orders is that the said proceedings
- applications are not decided on merits and the relief prayed for therein are not rejected or denied on merits but the applications have been dismissed for want of presence of the workmen.
13. This aspect is relevant in view of the fact that according to the submissions on behalf of the workmen, they have claimed for unpaid salary for the months of November and December 1991 (which is claimed to be in the sum of about Rs. 3.92 Lacs) there is also further claim for salary of workmen from 1.1.1992 to 31.12.2000 (which seems to be to the tune of about Rs.1,88,87,980/- i.e. about 1.89 crores), in addition to this, it is also claimed that the workmen are not paid amount towards gratuity and retrenchment compensation which is said to be about Rs.20.31 lacs and 20.31 lacs respectively. According to the submissions on behalf of the workmen the total claim is for about Rs.2.54 crores (2,53,73,926/-) towards their unpaid dues.
13.1 However, on the spacious plea that at the relevant time there were no workmen on its pay roll the petitioner company has not made any provision in the scheme nor offered any arrangement so far as the claim of the workmen are concerned.
13.2 As mentioned above, the company has not placed on record any material to demonstrate before the Court and satisfy the Court that the workmen were retrenched after following prescribed procedure and after complying the requirement of paying retrenchment compensation.
13.3 So as to support its plea that the unit was closed down, the company has, in the alternate (to the proposition of retrenchment) also not produced any material to demonstrate before the Court that the closure of the unit was effected in accordance with law and after following prescribed procedure and the workmen were paid closure compensation and other retiral dues.
13.4 Without showing any material explaining as to how the services of all workmen were brought to an end, the petitioner company expects the court to believe that at the relevant time there was not a single workmen in its employment. It is not the case of the company that the workmen had tendered resignations and left the employment.
13.5 It is also not the case of the company that all workmen were retrenched in accordance with law or their service came to an end upon closure which was brought into effect in accordance with law.
13.6 It is also not the case of the company that for appropriate reasons the services of the workmen were terminated / dismissed by passing appropriate dismissal / termination orders passed en mass and at a time against all workmen under applicable standing orders.
13.7 The learned senior counsel for the company would contend that the company does not expect any compromise or arrangement from the workmen and if any workmen has any claim against the company he / they are at liberty to raise such claim before appropriate forum and prosecute it in accordance with law.
13.8 In this context, it is relevant to consider that the winding up order was passed somewhere in 2000 and according to the company the operations were closed since 1.1.1992 thus, for almost 8 years (prior to the order of winding up) the workers were not paid their salaries and other benefits and after order of winding up any amounts have not been paid and it appears that the official liquidator has received claim from about 225 workers aggregating to Rs. 2,53,73,926/-. On the other hand the petitioners have, without any satisfactory explanation disowned the liability and has claimed that it is not liable to pay any amount, as claimed by the OL, to the workers as it had no workers on its pay roll.
13.9 The issues such as: where did all the workmen go and how did all workmen suddenly disappear and how did their services come to an end or how were their services brought to an end and whether the workers were retrenched or they were relieved on closure of unit and whether they were paid retrenchment or closure compensation are (i.e. some of the relevant aspects) not explained, clarified and dealt with by the petitioners and, on the other hand, any provision for any liability towards claim of workmen has not been made in the scheme.
14. In such facts and circumstances, in view of this Court the options available to the Court are; one, to reject the scheme, second, to afford opportunity to the company to modify the scheme and submit modified scheme, third option would be a combination of first and second options, and in a given case the court can, also prescribe appropriate, and if necessary, stringent, conditions as conditions precedent / pre-requisites for sanctioning the scheme.
15. It is necessary to keep in focus that the petitioners are the original promoters and the very same management under whose administration and leadership the company turned into sick industrial undertaking and ultimately BIFR had to forward the opinion for order of winding up and now the same persons / management have come forward with the proposed scheme.
15.1 Besides this, on earlier occasion when the very same promoters had submitted a scheme for sanction, but they could not bring and infuse necessary funds.
16. Now, so far as the proposed scheme is concerned, it merely recites that the promoters shall inject a sum of Rs.33 lacs and then the scheme recites the details about the sacrifices which the financial institutions / secured creditor will have to make.
16.1 Furthermore, as mentioned earlier there is no explanation as to how court it be that the company required a sum of Rs.2.7 Crores for revival and rehabilitation in 1992-1993 whereas in 2005 the promoters have managed to show that only Rs.33 Lakhs will be required (even after about 13 years) in 2005. It is pertinent to note that the said figure was the projection of requirement before the creditors were paid off i.e. the said sum does not reflect the position of the requirement after clearing the dues of creditors. Despite such anomaly any explanation is not coming out from the scheme or even otherwise. This is besides the point that the unsecured creditors are still unpaid.
16.2 As regards unsecured creditors it is mentioned in the proposed scheme that the total amount payable to the unsecured creditors is approximately Rs. 25.51 lacs. It is however not clarified that the said amount is mentioned by taking which date as the base. Furthermore, it is mentioned that the unsecured creditor will be paid only 20% of their dues and they will have to sacrifice 80% of their dues. Even the said 20% of dues are proposed to be paid in installment and that the first installment will be paid only after payment to secured creditors is over and balance amount will be paid after 12 months. How the said funds will be made available is not clear from the plain reading of the scheme.
16.3 It is also relevant that consent of unsecured creditors is not placed on record. The promoters have only expressed hope that the unsecured creditors would agree and accept the proposal.
16.4 The court is conscious that a scheme for revival is considered better option to the action of continuing the liquidation proceedings (i.e. winding up) inasmuch as it not only serves the interest of secured creditors but the option of revival scheme is mainly beneficial to and in the interest of the workers.
17. However, that would be so in the event there is a bonafide and genuine proposal and readiness and sincere interest to actually revive the company and its manufacturing activities which alone would provide opportunity of employment to the workers and prove to be in their interest, but it could be, and that therefore the Court should pierce the mask and see through the veil to find out whether it is, a facade or a mask to take away the assets and properties of the company from the custody of court - official liquidator and then to dispose off the assets and properties of the company without really creating opportunity of employment for the workers.
17.1 The court is required to be vigilant and has to jealously guard against such possibility, rather mischief.
17.2 In present case the scheme does not contain any proposal or provision with reference to the claim of the workers. Even after the affidavit by the OL and the union / workers, the petitioners have played the same tune without placing on record any material dealing with, or clarifying, the aspects discussed earlier.
18. Besides the said vital lacuna the scheme is vague and eloquently silent about other relevant details as well e.g. the conditions of machinery, the alternative if the unsecured creditors do not accept the proposal so far as their dues are concerned, the obligation of complying the conditions and requirements under the provisions of Industrial Disputes Act read with BIR Act viz. of offering employment
- reinstatement to the retrenched workmen upon restarting the manufacturing activities and, above all, about the obligation to make payment towards the claims and dues of the workmen.
18.1 When the scheme is considered from the aforesaid perspective it appears hollow and without real substance.
18.2 It does not inspire and generate confidence and trust and invites deeper scrutiny and analysis for being satisfied about its bonafides and genuineness.
18.3 In such circumstances the court would ordinarily not touch the scheme and would reject the scheme.
18.4 The petitioners have placed on record communication from financial institution / secured creditors i.e. from, IDBI (letter dated 26.11.2009 and its own communication dated 27.11.2009) and the communication from State Bank of India (letter dated 8.6.2009) and the communication from IFCI (letter 21.3.2009) as well as communication from State Bank of Travancore (letter dated 19.9.2009) declaring - certifying that the said financial institutions do not have any dues to be recovered from the company and their claims are settled. Thus, on strength of "no due certificates" issued by the financial institutions the petitioners have claimed that they have settled the claims of all financial institutions and that therefore instead of carrying forward the liquidation process it would be in the interest of the company that the proposed scheme for revival is granted.
18.5 In light of such facts the court is inclined to not accept and to reject the scheme in its present form and with its present details and proposals. However, while not accepting the scheme in its present form and with present details and proposal, the Court, having regard to the fact that liberty towards all secured creditors is discharged and considering the interest of workmen (if the manufacturing activity is genuinely revived) find it appropriate to grant last opportunity to submit a fresh and improved scheme which must as maximum requirement fulfill the conditions mentioned hereinafter and it must also deal with all relevant and material aspects and also take care of the aspects discussed in present order.
18.6 This court would hasten to add and clarify that the court may take up for consideration such fresh and improved scheme only if it is submitted within reasonable time and only if it addresses and takes care of and satisfies the court on all relevant aspects, otherwise such scheme also may be rejected and that would be the last opportunity for the petitioners to submit a scheme.
18.7 The Court considers it appropriate to grant such opportunity in view of the observation by the Apex Court that scheme of revival is a better option to liquidation.
18.8 Besides other aspects in the scheme, if at all the petitioners are inclined and interested to submit fresh scheme, must stipulate and declare that (a) any part or parcel of land of the company shall not be sold or alienated or encumbered or given on lease / rent to anyone in any manner without prior sanction and permission by the Court (b) when the manufacturing activity are revived the company shall comply the condition of reinstating the relieved / discharged workmen and the provisions contained under I.D. Act read with BIR Act shall be complied with in terms and spirit (c) the details of all the machineries and their condition will be clearly mentioned and that will be supported by certificate of qualified and government approved engineer - valuer (d) necessary and appropriate provision for making payment of the entire dues of the workmen - as per certificate of chartered accountant (on verification of claims) shall be made and the amount as may be quantified by the official liquidator on the basis of chartered accountant's verification report, shall be deposited (e) a fresh valuation report prepared by qualified and approved valuer - which should state, inter alia, the possibility of revival, requirement of funds, condition of plant and machinery and such other relevant aspects (f) to ensure proper implementation and to ensure that any conditions are not violated, initially the court may only suspend the order of winding up for such period as may be considered appropriate by the court and after reasonable period, further appropriate orders may be passed.
The above mentioned aspects are only illustrative and have been mentioned as the minimum requirements which the court would expect in the scheme which may be presented after this order.
19. It would be open to the workers and the official liquidator to suggest any other requirement which the court may take into account while considering the request for sanction qua the fresh scheme, if it is submitted.
20. In present form the proposed scheme is not found satisfactory and acceptable as it does not satisfy the court and therefore at this stage it is rejected however with last opportunity to the petitioners (or other person interested in submitting a scheme) to submit fresh scheme for revival within reasonable time i.e. 90 days. Such fresh scheme must address the above mentioned aspects and must contain necessary and appropriate provisions to take care of the said issues.
21. The court has kept the option of submitting fresh scheme open only upon being concerned about the interest of the workers so that the revival, on satisfactory conditions, may at least generate and provide reinstatement / employment to the workers.
In the meanwhile the official liquidator shall publish an advertisement, if already not published, about the winding up order and inviting claims from the workers and unsecured creditors and from any secured creditors (if there are any) other than those whose claims have been settled and who have accepted the settlement and issued no due certificate. (It is unfortunate that during the entire intervening period the official liquidator has not verified or not forwarded for verification the claims received from the workmen or if the said process is undertaken then the details and the result have not been placed on record). The official liquidator shall get the claims of the workers verified though chartered accountant. For the said purpose the official liquidator will be at liberty to engage service of a chartered accountant from the penal of chartered accountants maintained by the office of OL. The OL shall request the chartered accountant to submit the report within 90 days.
With the aforesaid clarification present petition being Company Petition No.135 of 2005 is disposed of.
22. So far as the Company Application No. 287 of 2005 is concerned, the applicant i.e. petitioner in Company Petition No.135 of 2005 had, at the relevant time i.e. in August 2005 taken out Judges Summons (which came to be registered as Company Application No.287 of 2005) seeking below mentioned relief and directions:-
"(A) Pending the hearing and final disposal of the Applicant Company's above referred Company Petition No. 135 of 2005 for sanction of the scheme of compromise and / or arrangement for rehabilitation, this Honourable Court would be pleased to stay the winding up proceedings being Company Petition No.31 of 2000 on the file of this Honourable Court.
(B) This Honourable Court would be further pleased to defer the order of advertisement of the petition in Company Petition No.31 of 2000 on the file of this Honourable Court pending the hearing and final disposal of the Applicant Company's petition being Company Petition No.135 of 2005 for sanction of the scheme of compromise and / or agreement.
(C).........
(D)........."
Now, by present order the said Company Petition No. 135 of 2005 is disposed of. Therefore, the relief prayed for in present application would not survive inasmuch as by the said application the applicant - petitioner made prayer which was relevant during pendency of the petition. Since now the petition has been disposed of the application seeking relief of interlocutory - interim nature would not survive. Hence the application being Company Application No. 287 of 2005 stands disposed of accordingly.
23. So far as Company Petition No.31 of 2000 is concerned, it is relevant to mention that in Company Petition No. 135 of 2005 and in the proposed scheme of which reference has been made in the said Company Petition No. 135 of 2005 the petitioners have mentioned details related to said Company Petition No.31 of 2000. Actually, the opinion of BIFR was registered by the Court as Company Petition No.31 of 2000. The details regarding subsequent proceedings related to said Company Petition No.31 of 2000 are mentioned in paragraph Nos. 7 and 8 of the scheme and the said details are stated briefly in paragraph No.8 of Company Petition No. 135 of 2005. In paragraph Nos. 7 and 8 of the scheme the petitioners have stated that:-
"7.
In the meantime, BIFR came to the opinion that the Company was not likely to make its net worth exceed the accumulated losses within a reasonable time and therefore sent its opinion to the Honourable High Court of Gujarat that the company should be wound up. The said opinion received by the High Court was numbered as Company Petition No.31 of 2000. It is also pertinent to state at this stage, that the said opinion was taken in Appeal before the the Appellate Authority but the said Appeal was rejected. Hence the order of Appellate Authority was also challenged by way of filing the writ petition in the Gujarat High Court being Special Civil Application No. 5124 of 2000. The company also filed an application under Section 391 for sanction of a scheme of rehabilitation of the company in the said Company Petition. The said Application was numbered as Company Application No.446 of 2000. All these matters were heard and disposed of by a common judgment dated 10.1.2001. By the said order, the Honourable High Court admitted the petition, issued directions for advertisement and appointed official liquidator as Provisional Liquidator. The said order was challenged before the Division Bench of the Honourable High Court. The Division Bench gave directions to approach the learned Company Judge for appropriate orders recalling the said order dated 10.1.2001. When the said application for recalling the order in Company Application No.81 of 2002 came up for hearing, the learned Single Judge directed to file rehabilitation scheme by way of a separate application and hence a separate application for approving the rehabilitation scheme under Section 391 of the Companies Act, 1956 is presented to the Honourable High Court.
8. The Honourable High Court of Gujarat dismissed the Writ Petition, admitted the Company Petition and directed advertisement and rejected the application for consideration of the rehabilitation scheme. Against this judgment, O.J. Appeal as well as Letters Patent Appeal were preferred by this Honourable Court, which were numbered as O.J. Appeal No.2 of 2001 and L.P.A. No.19 of 2001. The aforesaid O.J. Appeal and L.P.A. were disposed of by the Honourable Gujarat High Court with direction to approach the Company Judge for recalling its order for seeking appropriate relief."
In its opinion BIFR recommended winding up of the company. In view of the fact that by order dated 10.1.2001 in SCA No.5124 of 2000 the Court admitted Company Petition No.31 of 2000 and Company Petition No.32 of 2000 and appointed OL and now by present order the petition being Company Petition No. 135 of 2005 is disposed of and the scheme is not accepted and further directions to OL have been issued, the said petition being Company Petition No.31 of 2000 would not survive. Therefore, in view of the present order passed in Company Petition No. 135 of 2005 the said Company Petition No.31 of 2000 also stands disposed of.
24. So far as the Company Application No.110 of 2005 is concerned, it emerges from the record that during pendency of Company Petition No.31 of 2000, the petitioner had taken out said Company Application No.110 of 2005 for interim / interlocutory relief and direction viz. stay of winding up proceedings being Company Petition No.31 of 2000. However, in view of the present order passed in Company Petition No. 135 of 2005 the said application would not survive and therefore it is disposed of in light of the direction contained in the present order in Company Petition No. 135 of 2005.
(K.M.THAKER,J.) Suresh* Top