IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.S.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE K.PADMANABHAN NAIR WEDNESDAY, THE 20TH DECEMBER 2006 / 29TH AGRAHAYANA 1928 Co. Appeal.No. 1 of 2006() ------------------------- AGAINST THE JUDGEMENT IN CP.13/2005 Dated 23/08/2005 .................... APPELLANT/RESPONDENT NO.8: ------------------------------------------- UCO BANK UCO BANK, 13/22, K.G. ROAD, BANGALORE-560 009. BY ADV. SRI.GEORGE KARITHANAM VARGHESE SRI.V.J.JOHN SRI.C.I.ABRAHAM SRI.JOSE KURIAKOSE (VILANGATTIL) RESPONDENTS: PETITIONER COMPANY, RESPONDENTS 1 TO 7 & 9 TO 21: ---------------------------------------------------------------------------------- 1. BPL LIMITED HAVING ITS REGISTERED OFFICE AT BPL WORKS PALAKKAD-678 707, KERALA. 2. BNP PARIBAS, `LANDMARK', 3RD FLOOR, 21-15, M.G. ROAD, BANGALORE-560 001. 3. INDUSIND BANK LTD., REGD.OFFICE GEN THIMMAYA ROAD, PUNE-400 001. 4. THE BANK OF RAJASTHAN LTD., REGD.OFFICE AT CLOCK TOWER, UDAIPUR RAJASTHAN AND CENTRAL OFFICE AT C-3 SP MARG, C. SCHEME, JAIPUR. 5. U.T.I. BANK LTD., CENTRAL OFFICE AT MAKER TOWER, 13TH FLOOR, CUFFE PARALE, COLABA, MUMBAI-400 005. 6. KARNATAKA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., MSIL HOUSE, 36, CUNNINGHAM ROAD, BANGALORE-560 052. 7. ING BANK N.V.604, EMBASSERY CENTRE, NEXT TO STATUE RESTARURANT, NARIMAN POINT, MUMBAI. 8. ING BANK N.V., 7TH FLOOR, HOECHST HOUSE, 193 NARIMAN POINT, MUMBAI-400 021. 9. THE HONGKONG AND SHANGHAI BANKING CORPORATION, P.B.NO.5267, NO.7, M.G. ROAD, BANGALORE-560 001. 10. INFRASTRUCTURE LEASING & FINANCIAL SERVICE LIMITED, `WESCARE TOWERS' 3RD FLOOR, 16 CENOTAPH ROAD, TAYNAMPET, CHENNAI-600 018. 11. ABU DHABI COMMERCIAL BANK, CITI CENTRE, NO.28 CHURCH STREET, BANGALORE-560 001. 12. BANK OF INDIA, STAR HOUSE, C 5 G BLOCK, BANDRA KURLA COMPLEX BANDRA EAST, MUMBAI-400 051. 13. JAMMU AND KASHMIR BANK LTD., CENTRAL TREASURY AND INVESTMENT DEPARTMENT CORPORATE OFFICE, M.A. ROAD, SRINAGAR. 14. LIFE INSURANCE CORPORATINO OF INDIA CENTRAL OFFICE AT YOGAKSHEMA, JEEVN BHIMA MARG, NARIMAN POINT, MUMBAI-400 021. 15. ICICI BANK LTD., LAND MARK, RACE COURCE CIRCLE, VADODARA-390 215. 16. ASSET RECONSTRUCTION COMPANY (INDIA) LTD REGD.OFFICE, 17TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI-400 021. 17. CENTURIAN BANK LTD., CHOICE TOWERS, MANORAMAN JUNCTION, KOCHI-16. 18. CANARA BANK, CONTONMENT BRANCH, BANGALORE. 19. A.B.N. AMBRO BANK. 20. REGISTRAR OF COMPANIES OF KERALA, 21. CENTRAL GOVERNMENT. R1 BY ADV. SRI. P.K. KURIAN (SENIOR ADVOCATE) SRI. ANTONY DOMINIC R4 BY ADV. SRI PARAS JAIN SRI.N.BALAKRISHNA PILLAI SRI.M.PATHROSE MATTHAI (SR.) SRI.SANTHOSH MATHAI SRI.C.G.SUNIL SRI.SATHEESH MORTHI SRI.B.G.BASHEER SRI.M.P.R.NAIR SRI.S.SAJU SRI.LAL GEORGE SRI.V.GIRI SRI.V.M.KURIAN SRI.JOSEPH KODIANTHARA SRI.JOHN VARGHESE SRI.E.K.NANDAKUMAR SRI.JOHN VARGHESE, ASSISTANT SG SRI.K.K.CHANDRAN PILLAI SMT.M.E.NUSFA SRI.K.M.FIROZ THIS COMPANY APPEAL HAVING BEEN FINALLY HEARD ON 19/10/2006, ALONG WITH COA NO. 22 OF 2005 COA NO. 24 OF 2005 COA NO. 11 OF 2006 CROSS OBJECTION NO. 126 OF 2005 THE COURT ON 20/12/2006 DELIVERED THE FOLLOWING: COA 1/06 Etc. 1 K.S.RADHAKRISHNAN & K. PADMANABHAN NAIR, JJ. ------------------------------------------------------------------------------------- Company Appeal Nos. 1 of 2006, 22 of 2005, 24 of 2005, 11 of 2006 and Cross Objection 126/05 in COA. 22/2005. ------------------------------------------------------------------------------------- Dated: 20th December 2006 JUDGMENT Radhakrishnan, J. C.P. No 13 of 2005 was an application preferred by BPL Limited under Sections 391 to 394 of the Companies Act seeking an order of confirmation of sanction for the Scheme of Arrangement as amended by amendments approved at the meeting of the secured creditors of the Company so as to be binding with effect from 31st March 2003 on the petitioner Company and all of its secured creditors and preference shareholders and also for other attendant reliefs, orders and directions. Learned Company Judge by order dated 23rd August 2005 accorded sanction for the Scheme and gave COA 1/06 Etc. 2 the following directions. i) The scheme of arrangement as amended by amendments approved at the meeting of the secured creditors on April 16,2005 being Annexure-D1 to the Company Petition No 13/2004 is sanctioned so as to be binding with effect from 31.3.2003 on the petitioner company and all of its secured creditors and preference shareholders, including any secured creditor and preference shareholder that may have obtained any decree, order or direction from any court, tribunal or any other authority, without any further act or deed by the petitioner company, in respect of the outstanding debt of the petitioner company as of March 31, 2003 to all its secured creditors and preference shareholders, which amount shall be as has been determined on the basis of the figures agreed and accepted between the petitioner Company and each of the secured creditors at the meeting of the secured creditors convened and held on April 16, 2005 and hence the figure as was specified in the application filed by the petitioner Company under Section 391(1) of the Companies act stands modified accordingly. ii) The petitioner company shall within 30 days after the date of sealing of this order cause a certified copy thereof to be delivered tot he Registrar of Companies, Kerala for registration. iii) On the coming into effect by the scheme of Arrangement being filed by the petitioner Company with the Registrar of Companies, Kerala and with effect from 31.3.2003, the outstanding debt of the petitioner Company owed to all secured creditors and Preference Shareholders as of 31.3.2003 shall be restructured on the terms and conditions and in the manner provided for in the Scheme of Arrangement as annexed in Annexure D1 to the petition. COA 1/06 Etc. 3 iv) The total outstanding debt of the petitioner Company to all its secured creditors and Preference Shareholders as of 31.3.2003 of the petitioner Company shall be restructured under the Scheme of Arrangement and all the rights and liabilities relating to such outstanding debt to secured creditors and Preference Shareholders as of 31.3.2003 shall stand created under the Scheme of Arrangement. In addition, the petitioner Company and the Secured Creditors and Preference Shareholders shall enter into any documentation that may be required, only to give formal effect to the restructuring and for the modification of the security contemplated by the Scheme of Arrangement, and to govern the prospective/ongoing relationship between the petitioner Company and its Secured Creditors and Preference Shareholders (including covenants of the petitioner Company, supervision of the management of the petitioner Company, Event of Default etc.). However, upon the Scheme of arrangement coming into effect, in the absence of the formal documentation referred to above, the rights, obligations and privileges of the petitioner Company and the Secured Creditors and Preference Shareholders shall be governed by the provisions of the Scheme of Arrangement as detailed in Annexure D1 to the petition. v) Any legal or other proceedings pending against the petitioner Company, in India or abroad, relating to any of the outstanding debt of the petitioner Company to Secured Creditors and Preference Shareholders shall, on the effectiveness of the Scheme of Arrangement, be terminated and the rights, obligations and liabilities of the parties shall be governed by the terms of the Scheme of Arrangement. COA 1/06 Etc. 4 Four secured creditors, viz., Bank of Rajasthan Limited, Indusind Bank Limited, UCO Bank and Karnataka State Industrial Development Corporation Limited have preferred Company Appeals Nos. 22/05, 24/05, 1/06 and 11/2006 respectively under Section 391 (7) of the Companies Act, 1956 read with Section 5 of the Kerala High Court Act, 1958. Cross objection No 126/2005 was preferred by BPL Limited, the first respondent in Company Appeal No 22 of 2005. Bank of Rajasthan had not filed any objection before the Company Judge in granting approval to the Scheme of Arrangement, but filed Company Appeal No. 22 of 2005 supporting the contentions raised by Indusind Bank in CO.A. No 24 of 2005. 2. British Physical Laboratories India Private Limited, in short BPL, was incorporated under the Companies Act on 16.4.1963. Later the company became a public limited company. Fresh Certificate of Incorporation shows that the authorised share capital of the company was Rs 40,00,00,000/- comprising of 4 lakhs equity shares of Rs 100/- each, and issued, subscribed and paid up share capital of Rs 27,68,99,000/- of the equity shares of Rs 10/- each and redeemable preference shares of Rs 28,34,00,000/-. The company had diversified its business in consumer electronics, colour COA 1/06 Etc. 5 television receivers, black and white television receivers, video cassette recorders etc. besides investments in facilities for dry cells, refrigerators and electronic components. Shares of the petitioner company were listed on several Stock Exchanges. The company had however faced with cash flow constraints for many years which had adversely affected the company's operations drying up the sales channel and resultant decline in sales leading to loss of Rs 287.8 crores for 18 months period ended on 30.09.2003 and taking the debt of the company to Rs 1494.57 crores as on 31.3.2003. The company however wanted to rejuvenate its CTV operations and regain its leadership position in the CTV industry especially when multinational brands entering the Indian market. The company therefore initiated a comprehensive restructuring of its primary operations involving rejuvenating its main CTV business through a joint venture with Sanyo, and proposed financial restructuring of the debt. The company had entered into a shareholder agreement with Sanyo Electric Co. Ltd. Japan. The company in terms of the agreement had to transfer its existing CTV business undertaking to the joint venture company constituting the BPL brand for CTV business, manufacturing, sales, service, marketing and distribution COA 1/06 Etc. 6 infrastructure. Both BPL and Sanyo are having equal equity partners in the ratio of 50:50 in the joint venture and the CTV business is valued at USD 80 million (approximately Rs 368 crores at current exchange rates). The company had to invest USD 10 million (approximately Rs 46 crores at current exchange rate) in the JTV company and to receive a net cash inflow of USD 70 million (approximately Rs 322 crores at current exchange rate) which will be used to meet the commitments towards its creditors. Scheme was accordingly approved by the Board of Directors of the Company and the directors in their meeting held on 20th September 2004. 3. The Reserve Bank of India framed a Corporate Debt Restructuring Scheme dated 23.8.2001 as amended by notification dated 5.2.2004 for the purpose of considering the relief in respect of the liabilities of the companies piloted by a financial institution. Several meetings were therefore held by this company for restructuring it, the last of which was held Mumbai on 8.10.2004 when more than 79% of the CDR lenders in terms of the exposure agreed for restructuring of the debts of the company and transfer of the CTV business to the proposed BPL-Sanyo joint venture company. In order to bind the secured creditors and preference COA 1/06 Etc. 7 shareholders including the non CDR lenders the company proposed to implement the restructuring through a Scheme of Arrangement between the company and its secured creditors and preference shareholders and therefore M.C.A. No 84 of 2004 was filed for holding a meeting for the purpose of consideration of the Scheme of Compromise/Arrangement made between the company and its creditors. The Company had also sought for stay of all proceedings pending before this court in C.P. Nos. 45 and 59 of 2003 , proceedings before the DRT, Bangalore, C.C. Nos 26057 to 26060 of 2003 before the Additional Chief Magistrate Court, Bangalore, New Delhi and also the proceedings initiated under the Securitisation Act against the Company. 4. Application was opposed by various financial institutions including the Indusind Bank, Bank of Rajasthan, UTI Bank etc. Indusind Bank stated that it had filed O.A No 66/2003 before the DRT, Mumbai apart from C.C.7102/2002 before the 10th Metropolitan Magistrate Court, Andheri under Section 138 of the Negotiable Instruments Act and those proceedings are pending and that the provisions contained in the RDB Act have overriding effect . Contention was also raised that application under Section 391 (1) of COA 1/06 Etc. 8 the Act is not maintainable in view of the various proceedings pending before the DRT, Criminal court as well as before this court. Bank of Rajasthan had also stated that the winding up proceedings C.P. Nos 15 and 45 of 2003 are pending before this court and O.A. No 255/2003 is pending before the DRT, Mumbai. The UTI Bank had also stated that it has filed O.A. 85/2004 before the DRT, Mumbai and also C.C. 1018 to 1021 and 1032 of 2003 before the Metropolitan Court,New Delhi under Section 138 of the Negotiable Instruments Act. Learned Company Judge repelled all those contentions and took the view that in the absence of any express provision ousting the jurisdiction of the Company Court to consider such an application filed under Section 391 (1) of the Companies Act, that the application is maintainable. In support of this learned judge placed reliance on the decision of this court in M.F.A.No 1068 of 2000. Learned Company Judge also held as follows: “The line of decisions noticed above clearly show that while considering an application under Section 391(1) of the Companies Act for convening a meeting is pending, though this court by virtue of the powers conferred under Section 396 (1) of the Companies Act may stay any suit or proceedings against the Company on such term, as the court may think fit until the application is finally disposed of, or the expression “suit or proceedings” does not take in a criminal proceedings initiated under Section 138 of the Negotiable Instruments Act nor can the COA 1/06 Etc. 9 proceeding pending before the Special Tribunal, namely, the DRT or Securitisation Act could be stayed in exercise of such powers. As respect the proceedings of the DRT is concerned, it is governed by a special statute having exclusive jurisdiction on a matter pending before it, which stands outside the ambit of the term “proceedings” under Section 391(6) of the Companies Act. As held by the apex court this court will not have any jurisdiction to stay such proceedings pending before the Special Tribunal. Hence, the application seeking stay of the proceedings pending before the criminal court filed under Section 138 of the Negotiable Instruments Act and also against the proceedings initiated before the DRT and Securitisation Act cannot be stayed in exercise of the powers under Section 391 (6) of the Companies Act.” The learned Company Judge also took the view that the appropriate stage to consider the contentions of the nature canvassed by the various financial Institutions is when the matter comes up for consideration under Section 391 (2) of the Act. Learned Company Judge therefore allowed M.C.A. 84/2004 and ordered to convene a meeting of the secured creditors for the purpose of considering and if thought fit approving with or without modification of the compromise/arrangement proposed. Justice T.V. Ramakrishnan, a retired judge of this court, was appointed as the Chairman for the meeting. Learned Company Judge gave a direction that the value of each member/creditor should be in accordance with the books of the company and in case of dispute, the Chairman should determine the value. The meeting was ordered to be convened on 16.04.2005. COA 1/06 Etc. 10 5. Indusind Bank Limited, Bank of Rajasthan Limited and UTI Bank Limited had however filed Company Appeals Nos. 2/2005, 4/2005 and 3/2005 respectively before the Division Bench against the order in MCA No 84 of 2004. Various contentions were raised before the Division Bench pointing out the effect of the DRT Act on Section 391 (1) of the Companies Act. Placing reliance on the decision in Allahabad Bank v. Canara Bank and another (101 Company Cases 64), Rainbow Denim Ltd v. Rama Petrochemicals Ltd (116 Company Cases 640) and Sakamari Steel v. Alloy Steel Ltd (51 Company Cases 256) those Banks had attacked the finding of the Company Judge that they legally bound by the terms of the “Inter-Creditor Agreement”. The Division Bench, however, held as follows: “Thus, if there is nothing in the Act which precludes a creditor who has approached the Tribunal by agreement to satisfy with a lesser amount, we fail to see how it is open to the appellants to pursue with the opposition to the Scheme on the basis that the provisions of sub-section (2) of Section 391 of the Companies Act being opposed to the special provisions of the Debt Recovery Act, the Company Judge should not have ordered the convening of the meeting under Section 391 (1). We may note that the Apex Court has in a recent decision in Andhra Bank v. Official Liquidator and another (2005 CLC 531), partly overruled the dictum as laid down in the Allahabad Bank's case. The appellants do not COA 1/06 Etc. 11 have a case that the Inter Creditor Agreement is void or unenforceable on any ground whatsoever. In such circumstances, we find that the contention raised by the appellants based on the provisions of the Debt Recovery Act as interpreted by the Supreme Court in the Allahabad Bank's case supra, cannot be accepted. In this view of the matter, we feel that the appeals must fail and they are hence dismissed.” The Bank of Rajasthan then filed S.L.P (Civil) 14575 of 2005 before the Apex Court against the judgment of the Division Bench and the S. 6. Justice T.V. Ramakrishnan, Chairman of the meeting meeting had convened the meeting of the secured creditors on 16.04.2005. Meeting was attended either in person or by proxy by 32 secured creditors of the Company who were the holders of 1446.82 crores of the total outstanding debt of the company. Secured creditors like Karnataka State Industrial Investment & Development Corporation (appellant in COA 11/2006), Infra Structural Leasing & Financial Services Limited, Jammu and Kashmir Bank etc. did not participate in the proceedings. After the issuance of notice convening the meeting by the Chairman, the Company had forwarded a notice to the Chairman proposing three amendments to COA 1/06 Etc. 12 the scheme. The Chairman then directed the Company to circulate those amendments to all the secured creditors individually. The same was done. For the purpose of deciding the total number and value of votes possessed by each secured creditors, the company had placed a list of creditors indicating the total debt due to each of them as on 31.3.2003. The amount of debt shown in the above list as due to each creditor was informed to each participant. No representatives or proxies, had raised any dispute regarding the quantum of debt shown in the list in the meeting. Amendment sought for was opposed by a few representatives. Consequently poll was conducted. Total number of persons voted was 32, out of which 24 secured creditors having votes of the value of Rs 1290,57,86,510/- voted in favour of the resolution for amendments. Thus the number of creditors voted in favour of the three amendment resolutions amounted to 75% of the creditors present and voting in the meeting and 89.20% of the value of total votes polled. Thus all the three amendments were declared as approved. Later the original scheme as amended by the amendments approved by the meeting was placed before the Chairman. Twenty four secured creditors having a value of Rs 1290,57,86,510/- had voted in favour COA 1/06 Etc. 13 of the resolution and it satisfied the majority required for approval of the resolution as per Section 391 (2) of the Companies Act. Chairman therefore prepared a report to that effect on 20.04.2005. The Company therefore preferred C.P. No 13 of 2005 before the Company Judge to approve the Scheme of Arrangement as amended by the amendments approved at the meeting of the secured creditors on 16.04.2005 under Section 391 (2) of the Companies Act and prayed for the following reliefs. a) That the scheme of Arrangement as amended by amendments approved at the meeting of the Secured Creditors on April 16, 2005 being Annexure D-I to the petition, be sanctioned by this Honourable Court so as to be binding with effect from March 31,2003 on the petitioner Company and all of its secured creditors and preference shareholders, including any secured creditor and preference shareholder that may have obtained any decree, order or direction from any court, tribunal or any other authority, without any further act or deed by the petitioner company, in respect of the outstanding debt of the petitioner company as of March 31, 2003 to all its secured creditors and preference shareholders, which amount shall be as has been determined on the basis of the figures agreed and accepted between the petitioner company and each of the secured creditors at the meeting of the secured creditors convened and held on April 16, 2005 and hence the figure as was specified in the application filed by the petitioner company under Section 391(1) of the Act stands modified accordingly. COA 1/06 Etc. 14 b) That this Hon'ble Court hold that upon the scheme being sanctioned by this Hon'ble Court and coming into effect by the same being filed by the petitioner company with the Registrar of Companies, Kerala and with effect from March 31, 2003, the outstanding debt of the petitioner Company owned to all secured creditors and preference shareholders as of March 31, 2003 shall be restructured on the terms and conditions and in the manner provided for in Scheme of Arrangement as annexed in Annexure D1. c) That this Hon'ble Court hold that the total outstanding debt of the petitioner company to all its secured creditors and preference shareholders as of March 31, 2003 of the petitioner company shall have been restructured under the Scheme of Arrangement and all rights and liabilities relating to such outstanding debt to secured creditors and preference shareholders as of March 31, 2003 are created under the Scheme of Arrangement, that in addition, the petitioner Company and the Secured Creditors and Preference Shareholders shall enter into any documentation that may be required, only to give formal effect to the restructuring and for the modification of the security contemplated by the Scheme of Arrangement, and to govern the prospective/ongoing relationship between the petitioner Company and its secured creditors and Preference Shareholders (including covenants of the petitioner Company, supervision of the management of the petitioner Company, events of default etc.) and and that, however, upon the Scheme of Arrangement coming into effect, in the absence of the formal documentation referred to above, the rights, obligations and privileges of the petitioner company and the secured creditors and preference shareholders shall be governed by the provisions of the Scheme of Arrangement as detailed in Annexure D1. d) That this Hon'ble Court hold that any legal COA 1/06 Etc. 15 or other proceeding pending against the petitioner company in India or abroad, relating to any of the outstanding debt of the petitioner company to secured creditors and Prefrence Shareholders shall, on the effectiveness of the Scheme of Arrangement, be terminated and the rights, obligations and liabilities of the parties shall be governed by the terms of Scheme of Arrangement. e) That this Hon'ble Court hold that the petitioner Company shall within 30 days after the date of sealing of the order to be made herein or within such other time as may be permitted by the Hon'ble Court cause a certified copy thereof to be delivered to the Registrar of Companies, Kerala for registration. f) That such further or others order/orders be made and/or directions be given as this Hon'ble Court may deem fit and proper. Learned Company Judge in paragraph 4 of the judgment has minuted thus: “On the basis of the materials on record, including those placed after the commencement of the proceedings in the company petition and on the basis of the submissions of the counsel, it is noticed that around 99% of the secured creditors, going by the credits, have supported the Scheme as of now. Those who supported at the meeting of the secured creditors on 16.4.2005 included nationalised banks and various other institutions, including public sector bodies. After certain objections were filed to the Scheme, during the pendency of this Company Petition, many of them have been withdrawn. The Canara Bank and the Centurion Bank have also placed statements supporting the COA 1/06 Etc. 16 scheme. “ Going by what is minuted by the Company Judge in the judgment, objection was raised, only by Indusind Bank Limited at the time of arguments before the learned single judge. No objection was raised