-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION Appeal No.52l of 2004 with Notice of Motion no.238l of 2004 with Notice of Motion no.2492 of 2004 Shree Niwas Girni Kamgar Kruti Samiti.. Appellants vs Rangnath Basudev Somani and ors.. Respondents Dr.Virendra Tulzapurkar with Mr. Anirudh Joshi i/b S.M.Dharap for the appellants Mr.P.G.Rao, Official Liquidator, present. Ms Hutoxi Tavadia with Mr Mahesh Thorat for respondent no. 5 Mr. Darius Khambata with Mr.Riyaz Chagla with Mr. Mukul Taly and Mr. S.J.Kadam i/b S Mohamedbhai and Co for the Intervener Mr.Rafiq Dada, Sr Counsel with Mr. T Cooper i/b M/s Little and co for State Bank of India. Mr.Aspi Chinoy, Sr Counsel with Mr.A.Ramkrishna for Intervener Anand Agarwal. Mrs.Molina Thakur for M/s Sion Steel- Intervener Mr.K.F.Merchant i/b M/s Little and Co for Punjab and Sindh Bank. Mr.D.R.Mehta for Central Bank of India -2- Mr.B.R.Zaveri for Intervenor Mr.S.Subramaniam for Intervenor. with Appeal No. 527 of 2004 with Notice of Motion No. 2482 of 2004 with Notice of Motion No.249l of 2004 with Notice of Motion No.2380 of 200r with Notice of Motion No.l24l of 2004 Lodha Builders Pvt Ltd. .... Appellants vs Official Liquidator and ors.. Respondents Mr I Chagla Sr Counsel with Mr.Virag Tulzapurkar with Mr. Rohit Kapadia i/b Mr B B Parekh for the appellants Mr.P.G.Rao, Official Liquidator, present. Ms Hutoxi Tavadia with Mr Mahesh Thorat for respondent no. 6 Mr. Darius Khambata with Mr.Riyaz Chagla with Mr. Mukul Taly and Mr. S.J.Kadam i/b S Mohamedbhai and Co for the Intervenor Mr.Rafiq Dada, Sr Counsel with Mr. T Cooper i/b M/s Little and co for State Bank of India. -3- Mr.Aspi Chinoy, Sr Counsel with Mr.A.Ramkrishna for Intervenor Anand Agarwal. Mrs.Molina Thakur for M/s Sion Steel- Intervenor Mr.K.F.Merchant i/b M/s Little and Co for Punjab and Sindh Bank. Mr.D.R.Mehta for Centarl Bank of India Mr.B.R.Zaveri for Intervenor Mr.S.Subramaniam for Intervenor. with Appeal No.534 of 2004 with Notice of Motion N0o.2490 of 2004 with Notice of Motion No.505 of 2005 Rangnath B Somani and ors. Appellants vs The Official Liquidator and ors. Respondents Mr Hiralal Thakkar i/b Ms Sharila D’Souza for the appellants Mr.P.G.Rao, Official Liquidator, present. Ms Hutoxi Tavadia with Mr Mahesh Thorat for respondent no. 5 Mr. Darius Khambata with Mr.Riyaz Chagla with Mr. Mukul Taly and Mr. S.J.Kadam i/b S Mohamedbhai and Co for the Intervenor Mr.Rafiq Dada, Sr Counsel with Mr. T Cooper i/b M/s Little and co for State Bank of India. -4- Mr.Aspi Chinoy, Sr Counsel with Mr.A.Ramkrishna for Intervenor Anand Agarwal. Mrs.Molina Thakur for M/s Sion Steel- Intervenor Mr.K.F.Merchant i/b M/s Little and Co for Punjab and Sindh Bank. Mr.D.R.Mehta for Centarl Bank of India Mr.B.R.Zaveri for Intervenor Mr.S.Subramaniam for Intervenor. CORAM;A.P.SHAH & S.J VAZIFDAR JJ. Dated 21.3.2005 Oral Judgment:(Per A.P.Shah J.) . Appeals admitted. 2. By consent of the learned counsel for the parties, appeals were taken up for hearing. We have heard the learned counsel for the parties. Appeals are being disposed of by this judgment. 3. These appeals arise out of the judgment and order of the learned Company Judge in Company Petition No.3l5 of 2004 decided on 23.7.2004.The learned Company Judge by the impugned judgment rejected a scheme of revival of Shree Niwas Cotton Mills Ltd ( now in liquidation), hereinafter -5- referred to as the "Company".The scheme has been approved by the overwhelming majority by the shareholders and creditors, both secured and unsecured and the Union representing about 4500 workmen. Not a single creditor including any workman or shareholder or any person connected with the company or affected by the scheme opposed it either before the learned Company Judge or before us. The State Bank of India withdrew its consent only temporarily and that too only after the present Appeals were fully heard by another Division Bench. Before us finally even the SBI, after certain modifications, has consented to the scheme. The learned Company Judge has,however, held that the scheme submitted for sanction is not for revival of the Company, but for disposal of its assets and if the scheme is for disposal of assets by undertaking its development then it is better that the Official Liquidator disposes of the property. The shareholders, sponsors of the scheme and Kruti Samiti of workers have preferred these appeals impugning the judgment of the learned Company Judge. In order to appreciate the grievance of the appellants ventilated before us by the learned counsel Mr.Iqbal Chagla, Dr Virendra Tulzapurkar and Mr. Ravi Kadam, it will be -6- necessary to glance through the relevant background facts. 4. This litigation has a chequered history spanning over two decades. This is the second attempt for revival of the Company, first having failed in l995. The Company was incorporated on 5.2.l935. By order dated 25.7.l984 passed in Company Petition No.642 of l983 filed by Reliance Textiles Industries Ltd, the Company was ordered to be wound up and the Official Liquidator was appointed Liquidator of the Company. On such order being passed, the Official Liquidator has taken in his possession and custody all the asset of the Company. The principal fixed asset of the Company on the date of it being ordered to be wound up comprised of immovable property being land and building of the mills situated at Senapati Bapat Marg,Lower Parel, Mumbai.The said property is free hold property acquired by the Company in the year l935. The building known as "Shree Niwas House" situated at Hazarimal Somani Marg, Mumbai is another fixed asset of the Company. The plant, machinery, fixtures and furnitures, an inventory of which has been prepared as per the directions of the Official Liquidator belong to the Company.The -7- total liability of the Company as on the date of the order of winding up as per the statement of affairs dated l.9.l989 filed with the Official Liquidator amounted to Rs l8,8l,52,844. The Company has the liability towards secured creditors, debenture holders, statutory creditors, sundry creditors, fixed depositors, preference shareholders and workmen. 5. The authorized share capital of the Company is Rs.5,00,00,000 divided into 4,00,000 equity shares of Rs.l00 each and l,00,000 preference shares of Rs.l00 each. The issued, subscribed and paid up share capital of the Company is Rs.l,l4,80,000 divided into l,l0,000 equity shares of Rs.l00 each and 4,8005.20%. redeemable cumulative preference shares of Rs.l00 each. At the time of passing of the winding up order of the Company, Bangur family and Somani family were respectively holding 40% and 20% shares in the capital of the Company. The Life Insurance Corporation of India was holding 20% share capital of the Company and the remaining 20% shares were held by the sundry shareholders. The members of the Somani family were managing the affairs of the Company till July l984 when it was ordered to be wound up. -8- 6. It appears that the Official Liquidator received certain offers to take over the said mills from one S.S.Bhandari and Kantikumar Kanoria and on the report of the Official Liquidator the learned Company Judge vide his orders dated ll.8.l994 and l8.8.l994 directed that any one including said Bhandari would make offer to take over with a view to restart the mills so as to provide employment to the workers of the Company and not for the purpose of development or sale of the land or property belonging to the Company and the Official Liquidator would consider only those offers which were received within the prescribed time accompanied by pay order or demand draft of Rs.l crore. By order dated l.9.l994 the learned Company Judge directed that the proposals be invited by advertisement in sealed covers in two categories,first category for the submission of the scheme for revival of the industry and absorption of dislodged workmen and another category for outright purchase of the assets of the company. In appeals which were preferred by Kantikumar Kanoria and Kruti Samiti of workmen, the Division Bench vide order dated 28.9.l994 modified the order of the learned Company Judge dated l.9.l994 by -9- directing the learned Company Judge to consider only the proposals for revival of the textile mills and directing the Official Liquidator to issue fresh advertisement making it clear that only the proposals and not any scheme under section 39l of the Companies Act for revival of the mills would be considered. By further order dated 30.9.l994 the Division Bench directed the learned Company Judge to also consider the scheme for revival,if any, submitted by Somanis in accordance with the provisions of the Act. 7. Pursuant to the order of the Division Bench, Somanis presented a company application before the learned Company Judge for confirmation and approval of the scheme of compromise or arrangement to be arrived at between the Company and its creditors and members. It was proposed that if such a scheme is sanctioned, the Company would come out of liquidation by making payment of all liabilities in the manner set out in the said scheme and would revive and rehabilitate the Company so that the Company could thereafter continue to carry on its business and/or any business that may be permitted under the law. The scheme of compromise was opposed by the workmen, State Government and Banks -10- on the ground that it was not bona fide and was made for extraneous reasons. The scheme was also opposed on the ground that the Somanis did not have requisite financial strength to discharge the outstanding liability of the creditors and thereafter to restart the mills and provide employment to the displaced workmen. The learned Company Judge by his order dated l7.l0.l994 directed that the general meeting of the share holders of the Company be convened to consider the scheme submitted by Somanis and certain other directions were also issued by the learned Company Judge. 8. Against the order of the learned Company Judge dated l7.l0.l994, appeals were preferred by Kantikumar Kanoria and Silvenia Sign Finance Ltd. The Kamgar Kruti Samiti also preferred appeal challenging the order of the learned Company Judge. The said appeals were disposed of on 4.4.l995 by order passed by the Division Bench of Acting Chief Justice Pendse and Jhunjhunwala J. The Bench noted that the scheme as proposed by Somanis is not based on any viable report. The Somanis,though required under the provisions of section 39l of the Act, have not disclosed to the Court all material facts -11- relating to the latest financial position of the Company. It was also noted that the estimate of the market value of the mill land of Rs.200 crores given by the learned counsel appearing for Somanies was on a lower side more particularly when the prices in real estate in the metropolis continue to escalate unlimitedly. The estimate of liability of over l8 crores given by the learned counsel was on the basis of statement of affairs filed in September l989. With lapse of over 5 years the liabilities of the Company had multiplied, the workmen’s liability itself was in the proximity of Rs.60 crores. The deposit of Rs.l8 crores and bank guarantee of Rs.l2 crores therefore cannot be considered as adequate and sufficient resource to revive the Company. It was therefore held that the intention behind the prosecution of the scheme was to acquire huge land and other real estate belonging to the Company at a meager throw away price ostensibly under the guise of reviving the mills with no real intention to revive the same. 9. Ultimately, the Division Bench issued the following directions: "14. In the facts of the case, it is -12- essential that a viability report is obtained before consideration as to whether it is possible to revive or re-open the mills and as such the orders passed on the said Report of the Official Liquidator earlier than the order impugned in these Appeals need not be given any effect. The Official Liquidator is directed to replace the said Report before the learned Company Judge may consider giving directions on the report after taking into consideration the undermentioned suggestions after inviting viability report. The learned Government Pleader has suggested that the viability report should be obtained from Industrial Development Bank of India and assured that if IDBI is requested to submit the viability report, IDBI would do so within a period of three months. The learned company Judge may consider the suggestion of the learned Government Pleader and should call for the viability report before considering the following suggestions :- (1) Whether it is possible and viable to reopen the mills/or any portion of it and -13- run it profitably and without disposing of immovable assets of the Company ; (2) In case the mills cannot be re-started then whether any department or process of the mills could be started as viable ; (3) In case any party who comes forward with an offer to pay off all the creditors, take the Company out of winding up and revive and restart the mills happens to be a shareholder of the Company, such party should surrender the shareholdings in the capital of the Company at the value to be determined by the Court ; (4) In case above courses are not workable then whether the mills can be restarted by disposing of part of its assets to generate finance after payment to all the creditors ; (5) In case even the course under clause (4) above is not possible, then Official Liquidator may sale the assets by public -14- auction in which event the shareholders of the Company will be at liberty to bid. It is open for the learned Company Judge to give any other suitable directions in the matter keeping in mind that the whole anxiety is to revive the Company and to restart the mills which is in the interest not only of the workers and creditors of the Company but also in the general interest of the public. Needless to say that the revival of the Company and restarting of the mills will generate more employment and will be for healthy economy of the Contrary." (emphasis supplied) l0. By further order dated l5.l2.l995 the Division Bench appointed S.B.I Capital Markets Ltd as the agency to make a viability report considering five options suggested in the order dated 4.4.l995 as well as the scheme of the Somanis. The SBI Capital Markets Ltd submitted a report dated l3.6.l996 stating inter alia that option nos.l and 2 were not viable. Option No.3 was left to the discretion of the Court. Option no.4 was found to be the only -15- viable option i.e.revival of the industry through part sale of the assets of the Company. Option no 5 i.e. sale of the assets of the Company through Liquidator was considered not relevant since option no. 4 was viable. It appears that thereafter the Official Liquidator submitted his report dated 26.l2.l996 in which after referring to the report of the SBI Capital Markets Ltd he stated that out of 5 options suggested in the order of the Division Bench dated 4.4.l995, only 4th option was viable i.e. part of the assets of the Company be sold off in order to revive the Company. He further submitted that the Somanis may be directed to modify their scheme in the light of the viability study conducted by SBI Capital Markets Ltd. By Government Resolution dated 7.ll.l998 the State Government announced its Industrial Location Policy. As per the above policy it is not possible to restart the shut down textile mill of the Company at is own location. In 200l, Regulation 58 of the Development Control Regulations was modified by the Government of Maharashtra whereby development of all mill land was permitted. ll. In December, 2003 the Somanies proposed a modified scheme for revival/ rehabilitation of the -16- Company. A company application being Company Application No.4 of 2004 was filed for the purpose of having meetings of the shareholders, secured creditors, preferential creditors, fixed depositors, preference shareholders, debenture holders, sundry creditors and workers of the Company. By an order dated 3l.l.2004, the learned Company Judge directed the aforesaid meetings to be held.In the meetings the scheme was approved with certain modifications by l00% majority of the shareholders, preference share holders, secured creditors, fixed depositors, preferential creditors and unsecured creditors and 99.94% majority of the staff and workers. Somanis thereafter moved Company Petition No.3l5 of 2004 to sanction the aforesaid scheme along with modifications which have been approved in the above meeting. l2. At this stage, it would be necessary to note some salient features of the modified scheme. The scheme is one for revival of the Company and selling off one of the assets of the Company i.e. the mill land, other assets of the Company including godown, office building "Shree Niwas House" are not for sale under the said scheme. Under clause 5.l of part 5 of the scheme, it is -17- provided that after discharging the liability of all the creditors as per the scheme, the extra funds available with the Company will be used to start a viable industry in Maharashtra which will generate employment. Under the scheme, all classes of creditors, debenture holders, sundry creditors and preference shareholders are to be satisfied fully. The secured creditors i.e State Bank of India and Punjab and Sindh Bank are being paid Rs.38.00 crores plus interest and Rs.7.94 crores plus interest respectively.Annexure 2 of the scheme provides the schedule under which secured creditors S.B.I and PSB are to be paid off fully within a period of 2l months from the date of sanction of the scheme. Under clause 4.7 of the scheme, the workers are to be paid an amount of Rs.45.00 crores in time bound programe. The entire payments of all the workers will be made within one year from the date of sanction. We may mention at this stage that upon liquidation, the workers would get much less than the amount payable under the scheme and according to Kamgar Kruti Samiti, the workers would be entitled to get only about Rs.7.00 crores in liquidation. Under Annexure 3 to the scheme, it is mentioned that in addition to the money brought in by the sponsor i.e. Lodha Builders Pvt Ltd (LBPL) -18- to pay off the liability of the Company a revenue sharing arrangement between LBPL and the Company is envisaged. It is provided that the developable area of the property exceeding 7.5 lac sq ft will be shared between the LBPL and the Company in the ratio of 55:45 and that the construction cost will be borne only by the LBPL. The Official Liquidator by his report dated 6.6.2004 accorded his consent to the scheme submitted by Somanis to pay all the creditors and bring in additional funds if required. l3. The scheme was strongly supported by all the concerned parties i.e. shareholders, secured creditors, unsecured creditors, preferential creditors as well as Kruti Samiti and the recognized Union i.e. RMMS who represented the workmen’s cause. It appears that pending consideration of the scheme propounded by the Somanis certain builders including Kantikumar Kanoria, K Raheja Universal Pvt Ltd and M/s Meghal Homes Pvt Ltd intervened in the matter and sought substitution of the sponsors of the scheme by offering better price for implementing the scheme. One of the interveners, namely, Kantikumar Kanoria has given offer to pay a sum of Rs.l50 crores to -19- buy the assets of the Company. The learned Company Judge, however, rejected the scheme on two counts. First, that the option given to the Somanis by the order of the Division Bench dated 4.4.l995 was for submitting a scheme for revival of the Company whereas the scheme is not for reviving it and is for disposal of the assets. Secondly, the sponsors have offered to pay Rs.97.50 crores whereas the interveners have made offer to the tune of Rs.l50 crores and the scheme being for disposal of the assets, it is better that this court itself disposes of the property in the course of liquidating the Company and not in a scheme under section 39l. Consequently, the learned Company Judge directed that the advertisements be issued in the leading newspapers inviting offers for sale of the assets of the Company. Being aggrieved the Somanis and LBPL have filed Appeal No. 534 of 2004 and Appeal No 529 of 2004 respectively. Appeal No.52l of 2004 is filed by the Kamgar Kruti Samiti. l4. When the above appeals were placed before the Division Bench of Gokhale and Mohite JJ. an interlocutory order was passed directing the Somanis as well as interveners to submit fresh scheme if they so desired. Pursuant to the -20- direction of the Division Bench, Meghal Homes and K Raheja submitted their own schemes for revival of the Company. One M/s Anand Agarwal and Associates who was never a party to the proceedings also submitted a scheme on 7.2.2005. Under the scheme submitted by M/s Anand Agarwal the Company would acquire controlling interest in a cotton textile mill by name M/s Suditi Industries Ltd at Navi Mumbai. We shall discus the rights of the interveners who have filed the schemes a little later but at this stage we may only state that it is revealed during the course of hearing that the said M/s Suditi Industries Ltd is declared as a sick industry under the SICA Act. It is also required to be stated that Mr.Aspi Chinoy learned counsel appearing for M/s Anand Agarwal candidly admitted that alternate schemes submitted by the interveners cannot be considered by the Court and even if a better scheme is submitted, that would not be a ground for refusing the sanction to the scheme, but he contended that the scheme of revival of a mere corporate existence of a Company is not envisaged by section 39l read with section 393 and the Court has no option save and except to reject the scheme and the liquidation proceedings should be proceeded to its logical conclusion leading to -21- the sale of the assets of the Company, whatever be the consequence on any of the creditors or workers. l5. In view of the direction dated l5.l2.2004, the scheme submitted by Somanis has been also modified to the benefit of all the concerned persons and especially the workers. Under the modified scheme the State Bank of India and Punjab and Sindh Bank are being paid Rs.45 crores and Rs.8.59 crores respectively.It is also provided that till such time the entire amount is paid to SBI and PSB, the sponsors LBPL will be only entitled to create charge on the mill property which ranks lower in priority than the existing charge of the two banks. It appears that at one stage the SBI had withdrawn its consent to the scheme but after modification of the scheme as above the bank is fully supporting the scheme. The amount of two banks is payable within the time indicated in the affidavit filed by LBPL dated 21.3.2005. As far as the workers are concerned the modified scheme reads as under :- "I say that on implementation of the scheme sponsored by LBPL, benefits to the tune of Rs.120 crores will flow towards the workers as follows :- -22- (a) Payment of Rs.45 crores to workers within 90 days of sanction of scheme - 22.50 crores immediately and balance within 90 days. (b). Unit spread over approx. 1,00,000 sq.ft. to be setup on the mill premises for the purpose of spinning and garment production at total cost of 40 crores. (c) School and retail unit valued at over 15 crores to be set-up on the mill land and handed over to workers trust, free of cost. (d) Unit to be set-up in rural Maharashtra at total outlay of over Rs.20 crores by Shreeniwas Cotton Mills Ltd. (SCML). 5. I respectfully say and submit that the Hon’ble Court should choose between either of the following two options with respect to the benefits being given to the -23- workers by LBPL : Option A: i) Payment of Rs.45 crores as detailed in Clause 3 a hereinabove + ii)