IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.966 OF 2007 CONNECTED WITH COMPANY APPLICATION NO.1002 OF 2007 In the matter of sections 100, 391 and 392 of the Companies Act, 1956; And In the matter of Scheme of Compromise or Arrangement between JD Orgochem Ltd and its Secured Creditors and Equity Shareholders JD Orgochem Ltd. .. Petitioner WITH COMPANY APPLICATION NO.53 OF 2008 IN COMPANY PETITION NO.966 OF 2007 J.D.Orgochem Ltd. .. Petitioner/ Respondent And Dyes and Chemical Workers Union .. Applicant --- Mr.Hemant Sethi i/by Hemant Sethi & Co for petitioner. Ms.Priya Ranade i/by Harshal & Co for UTI. Mr.C.J.Joy i/by S.K.Mohapatra for Regional Director. Mr.S.M.Oak with Ms.Bhavana Mhatre i/by Ms.Gayatri Singh for workers & applicant in C.A.No.53 of 2008. --- CORAM: S.C.DHARMADHIKARI CORAM: S.C.DHARMADHIKARI CORAM: S.C.DHARMADHIKARI J. J. J. DATE : 20th June, 2008 DATE : 20th June, 2008 DATE : 20th June, 2008 P.C. P.C. P.C. 1. This Company Petition has been filed under sections 100, 391 and 392 of the Companies Act, 1956. Sanction of this Court is sought to the scheme of :2: compromise arising between petition company and its secured creditors so also equity shareholders. 2. In the petition it has been pointed out that the petitioner was incorporated on 05th October, 1973. Thereafter, name of the petitioner underwent change. After a fresh certificate of incorporation, the present name of the company has been inserted in the scheme as well as proceedings. 3. After setting out the objects, share capital and the financial position, it is contended that the petitioner manufactures dyes, dyes intermediates and organic chemicals. Its manufacturing facilities are at Thane-Belapur Industrial area and MIDC Industrial area, Patalganga, District Raigad. Both plants of the petitioner are closed. The contention is that the operations have become un-economic. In order to meet the business and long-term working capital requirements, the petitioner company is required to obtain financial assistance from banks and financial institutions by way of secured loans and privately placed secured debentures. The securities are set out and thereafter the market position and the losses are referred to. The accumulated losses leading to reference under BIFR and the petitioner being declared a sick company so also rehabilitation scheme are referred to. Subsequently :3: some of secured creditors exercised their rights under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short Securitization Act). In the light of the exercise of the powers conferred by Securitization Act by a majority of secured creditors the reference before BIFR has abated. This is the position in terms of statutory provisions. 4. Now, the present scheme, according to petitioner is for revival of operations through induction of fresh equity resources, sale of surplus assets to retire a part of the unsustainable debt and reorganization of the remaining debt burden to sustainable level through a comprehensive restructuring-cum-waivers of the liabilities. The scheme envisages sale of surplus assets and restructuring of the debt. The present debt burden of the company cannot be satisfied and that is how the petition averments proceed. Further, it is contended that the revival scheme is prepared with the help of Asset Reconstruction Company (India) Ltd. The said agency/company had approved the scheme in particular. They are the majority secured creditors. It is in such circumstances and the above factual background that the sanction is sought. The object of the scheme and its salient features are set out in the petition. A copy of the scheme is also annexed to the :4: petition. 5. It is pointed out that the statutory compliance was made in as much as Company Application No.1002 of 2007 was moved and direction sought with regard to convening of meetings of the secured creditors (1st and 2nd charge holders) and equity share holders. The meetings were directed to be convened vide order dated 21st September, 2007. Accordingly, meetings were held of the above creditors on 27th October, 2007. The order is in Company Application No.1002 of 2007 and a copy thereof is annexed to the petition. Thereafter, the chairman’s report and the text of the resolution passed at the meeting are annexed. In para 21 to 24 it is pointed out that the scheme was put before the three secured creditors who are 2nd charge holders and two out of them have voted in favour of the scheme. Their claim is to the tune of Rs.39 crores approximately. One secured creditor (2nd charge holder) to whom an amount of Rs.3,29,920/- is allegedly due and payable opposed the scheme. Thus, the percentage of this majority approval has been set out alongwith text of resolution. Similar is the position with regard to equity share holders who have voted in favour of the scheme substantially. Thus, 28 out of 30 equity share holders present at the meeting voted in favour of the scheme. The resolutions also have been set out and the same are :5: annexed along with Chairman’s reports. Thus, all statutory compliances have been made, declarations given on oath given and the petition prays that the Court should sanction the above scheme. 6. The Regional Director has filed an affidavit and has stated that upon scrutiny of the scheme so also verification thereof, certain queries were raised by the Registrar of Companies to whom the Regional Director had forwarded the scheme. It is stated that he examined the scheme from various angles including shareholder’s interest, creditor’s interest and the public interest. The Registrar of Companies has forwarded his report and has stated that there is no violation of any law nor is the scheme contrary to the interest of the above and public. In such circumstances, he prays that appropriate orders be passed. 7. The scheme is opposed by the workers. Affidavit in reply is filed by one Shashikant Gawade who claims to be a workman/employee employed at Turbhe. He states that he is working in factory for more than 18 years. He submits that possession of the factory was taken and thereafter a sale took place pursuant to private treaty. The sale was certified at the amount mentioned in the affidavit. But according to him the property was sold at a value much below its worth in the market. Thus, it :6: is stated that dues of above 420 workers are outstanding and there are no business operations. Secured creditors have stepped in and have taken over movable and immovable assets and therefore, the company is as good as non-functional. He refers to certain resignation letters of workmen. The resignations were conditional. Only part payment of dues has been made and the dues which is legal and legitimate has not been cleared. Reference is also made to various orders passed by the Industrial Court in favour of the workmen. Finally, it is contended that the scheme of arrangement does not have any clause pertaining to payment of legal dues of workers who were employed with the petitioner company at Turbhe plant. The petition does not contain the correct statement of facts and some of the statements are misleading. Thus, neither is the employment assured nor payment of legal dues. 8. The secured creditor, namely the administrator of UTI Asset Management Company Ltd. and UTI Trustee Company Pvt. Ltd. are the other objector and they have pointed out that the notice/intimation of the meeting was received by the objectors on 04th October, 2007. By the time the sanction of the appropriate authority was obtained, the statutory period of 21 days for filing proxy forms expired. In such circumstances, though the objector’s representative attended the meeting and :7: expressed their intention to oppose the Scheme, on technical grounds, the Chairman has not allowed the representative to raise objections nor has taken into consideration their objections. In para 3 of the affidavit filed in this Court on 04th April, 2008 it is contended that the scheme/arrangement proposes that the petitioner will reduce its liability to the UTI from the present principal of Rs.400 lakhs to Rs.180 lakhs and that too by extending period of payment to four years from 30th March, 2007 to 30th September, 2011. The scheme is therefore not viable and certainly not in the interest of the unit holders. The unit holders have to make a large sacrifice and the administrator as well as the UTI being trustees of the funds of these unit holders have rightly stepped in and opposed the scheme. 9. The parameters within which the objections to the scheme have to be considered so also the issue of sanction are by now well settled. In the latest decision brought to my notice by Mr.Sethi appearing for the petitioner, the Supreme Court was concerned with the proceedings initiated by UTI itself. The Supreme Court has after referring to section 391 read with section 393 in para 33 of the decision set out the exceptions laid down in the earlier decision. The decision is in the case of Miheer H.Mafatlal V. Mafatlal Industries Ltd. (792 Company Cases Vol.87). This decision has been :8: followed consistently. In such circumstances, while rejecting that the stand of UTI that a separate meeting should be convened and they be treated as separate class, the Supreme Court has observed that when this Court considers the scheme it must scrutinise it as a whole and if it is found to be fair and reasonable from the point of view of sound business and commercial decision, beneficial to the class for whom the scheme is meant, then, the Court cannot interfere. The Court is not exercising appellate powers and has no authority to substitute its own views and opinions. It cannot suggest any alternatives and direct their inclusion. Ultimately, the scheme is a commercial document according to the Supreme Court. In such circumstances, the present proceedings also will have to be decided on the touchstone of these settled principles. 10. Having examined the scheme with the assistance of learned counsel appearing for the parties so also perusing the affidavit of Regional Director, I am of the view that the same is not prejudicial to the interest of the creditors and shareholders. The same is also not contrary to public policy and public interest. 11. Mr.Oak appearing for the union however would urge that the union has locus to object to the Scheme having sanctioned. After inviting my attention to section 391 :9: (a), 393 and other provisions of the Companies Act so also the decision of the Supreme Court reported in [(2007) 7 S.C.C. 753 (Meghal Homes (P) Ltd. Vs. Shree Niwas Girni K.K.Samiti & Ors.) he contends that if workers interest are sacrificed or are completely ignored then this Court should not sanction the scheme. Ultimately, this is a Public Limited Company. It cannot be said that the workers have no role in its functioning. Placing reliance upon the decision reported in AIR 1983 Supreme Court 75 and another decision of the Division Bench of this Court reported in 2006(108) FLR 605 (Khandelwal Tube Mill Kamgar Sangh, Kanhan and Government of Maharashtra & Ors.) he submits that the present scheme does not take care of any claims and legal dues of the workman. The workman have no employment and now even their dues are not being paid. In such circumstances, this Court should not sanction the scheme. 12. The learned counsel appearing for the UTI reiterated contents of the affidavit in reply and the objections therein. She urges that the scheme is not in the interest of the unit holders and the first charge holders. Therefore, the scheme should not be sanctioned. 13. Assuming for the purposes of the present petition :10: that the workers can be heard when the scheme is being sanctioned and proceeding on the basis that they can step in because they had filed application being Company Application No.53 of 2008, I am of the opinion that other larger issues need not be addressed in the facts of this case. Assuming that the workers can step in and raise the objection to the scheme, yet, I am of the opinion that sanction cannot be refused in peculiar facts of this case to the scheme only because the workers are objecting to it. The workers have admittedly their remedies and they have availed of the same. Some of the decisions as stated by them are in their favour. The matter pertaining to the legal dues is also pending. All their legal rights and contentions in such proceedings are not affected merely because the arrangement as proposed by the Company with its shareholders, equity share holders and secured creditors is sanctioned. No provision is brought to my notice by Mr.Oak which would jeopardise the rights of the workers under industrial law or otherwise. The remedy available to them under the industrial law so also company law is not affected neither their contentions in the same prejudiced in any manner. Such being the legal position, in my view, there is no substance in the objection raised by the workers to the scheme. Additionally, Mr.Sethi after taking instructions makes a statement that the petitioner would provide for :11: settlement of all legal dues of the workmen and merely because the present scheme is sanctioned does not mean that the same would not be settled or met by the petitioner. The workers dues are thus secured by the statement of the company. 14. As far as UTI is concerned, all that is suggested is another alternative. That four years is too longer a period and that UTI and its trustees will have to wait for repayment of the dues till that time is the objection. It is contended that because the objections have not been allowed to be raised in the meeting or that objections during the hearing of this petition have not been accepted, that would be considered as an act of consent on the part of UTI to the scheme. In my view, there is no force in this contention. No amount of consent can take away the legal rights vested in the UTI as secured creditor. Merely because the scheme envisages postponement of repayment or rescheduling of the debt does not mean that the UTI cannot exercise its powers under general law. If they can be otherwise exercised and all remedies in that behalf are provided for then I see no prejudice to UTI in this case. Merely because this Court sanctions the scheme does not mean that the legal rights of UTI come to an end. All those rights and remedies so also contentions therein are intact and the sanction is without prejudice thereto. :12: Needless to state that the clarification sought by Mr.Sethi appearing for the company in so far as the effect of the order of sanction is not diluted nor is affected adversely. The law, if permits the petitioner to take a plea in the proceedings that are to be initiated or may be initiated by secured creditors including UTI with regard a sanctioned scheme being binding on all, is also available for being urged. If urged, the clarification as above does not prejudice the petitioner. As of now, there are no proceedings by UTI. It may instituted proceedings or may not and accept the arrangement. Therefore, all apprehensions of the petitioner are premature. In any event petitioners’ legal rights are also intact. 15. Having thus disposed of the objections and clarified the matter, I am of the opinion that the scheme deserves to be sanctioned. More so, in the light of the report of Registrar of Companies and the affidavit of the Regional Director. As a result of the above discussion, Company Petition is made absolute in terms of prayer clauses (a) to (c). Company Applications which are placed alongwith this petition are accordingly disposed of. 16. At this stage Mr.Oak appearing for the Union applies for stay of this order. Mr.Sethi opposes and :13: submits that the order does not in any manner affect the workers. More particularly in the light of the clarification issued and statements recorded. In my view, the objection of Mr.Sethi has some basis. In the light of the above clarification, there is no necessity of staying the operation of this order. Accordingly application is refused. 17. Petitioner company to lodge a copy of this order and the scheme with the concerned superintendent of Stamps for the purposes of adjudication of stamp duty payable, if any, on the same within 30 days of obtaining the certified copy and/or an authenticated copy of the order. 18. Petitioner to pay cost of Rs.5000/- to the Regional Director and Official Liquidator each. Costs to be paid within four weeks from today. 19. Filing and issuance of the drawn up order is dispensed with. 20. All Authorities concerned to act on a copy of this order alongwith scheme to be authenticated by the company Registry. :14: (S.C.Dharmadhikari, J)