1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SHOW CAUSE NOTICE NO.1 OF 2008 WITH SHOW CAUSE NOTICE NO.1 OF 2009 IN CHAIRMAN’S REPORT DATED 14TH JULY, 2008 IN COMPANY APPLICATION (LODGING) NO. 673 OF 2003 IN COMPANY PETITION NO. 327 OF 2001. WITH COMPANY APPLICATION (LODGING) NO. 75 OF 2002 WITH COMPANY APPLICATION NO. 139 OF 2002 WITH CHAIRMAN'S REPORT DATED 31ST MARCH 2008. AND COMPANY APPLICATION NO.1530 OF 2008 IN COMPANY PETITION NO.327 OF 2001 EUROPLAST INDIA LTD.A COMPANY ) INCORPORATED UNDER COMPANIES ACT, ) 1956 AND HAVING ITS REGISTERED ) OFFICE AT KHOPOLI PEN ROAD, ) VILLAGE VANVATE,TALUKA-KHALAPUR, ) DIST.-RAIGADH. ) ... APPLICANT. ...... Mr.Pankaj S.Shah for Applicant (Europlast India Ltd.) and for noticee Nos. 5 and 6. Mr.Ram Apte, Sr.Counsel with Mr.A.A.Garge for Creditor (Ashoka Buildcon Pvt.Ltd.). Mr.Satish Shah with Mr.A.C.Tamhane i/b Tamhane & Co. for M/s.S.H.Kelkar & Co. Pvt.Ltd. 2 Mr.Vishal Kanade with Mr.Shahzad Qazi i/b Negandhi, Shah & Himayatullah for Noticee No.17 in SCN No.1/2008. Mr.Anant Narayan, Noticee No.2 (Advocate) in-person in SCN No.1/2008. Ms.Deepali Deshmukh i/b Bilawala & Co. for Noticee No.4 in SCN No. 1/2008. Mr.R.N.Pareek, Noticee No.16 (Advocate) in-person in SCN No.1/2008. Mr.N.J.D’Monte for some of the unsecured creditors and for fix deposit holders. Mr.B.G.Tangsali for Noticee No.1 in SCN No.1/2009. Mrs.P.U.Badadare for Noticee No.2 in SCN No.1/2009. Ms.Annie Fernandes, Noticee (Advocate) in-person in SCN No.1/2009. Mr.A.P.Kothari, Dy.Official Assignee/Court appointed Chairman. ....... CORAM:- A.M.KHANWILKAR, J DATED :- JANUARY 7, 2010. JUDGMENT: 1. This common order will dispose of all the pending applications, show cause notices and Chairman' reports. 2. The background in which the present proceedings have emanated can be briefly mentioned as follows: 3 The unsecured creditors of M/s. Europlast India Ltd. (hereinafter referred to as `E' for the sake of brevity) passed resolution on 14th October, 2000 which read thus:. “Resolved that subject to floor price for sale of the assets of the `E' company i.e. Land and factory building at Khopoli is fixed at Rs.3.60 Crores. Creditors are voting for the following Scheme. The amount will be paid to the creditors through the Hon'ble Court within three months from the date of receipt of the entire consideration in proportionate after incorporating the additional names of creditors, if any, not later than three months from today after proper verification from the Books of Accounts of the Applicant company and rest of the claim is given up by the creditors. Provided that the Sale is completed within six months from the date of the Order of the Hon'ble Bombay High Court sanctioning the Scheme.” The said “E” company presented the scheme of compromise and/or arrangement before this Hon'ble Court for sanction in exercise of powers under section 391 of the Companies Act, 1956. The same read thus: “EXHIBIT “A” SCHEME OF COMPROMISE AND/OR ARRANGEMENT BETWEEN EUROPLAST INDIA LIMITED AND ITS CREDTORS 1. In this Scheme, unless in consistent with the subject of context the following expressions shall have the following meanings:- 1.1 “The COMPANY” means Europlast India Ltd. existing company within the meaning of the Companies Act, 1956, having its registered office at Khopoli-Pen Road, Village Vanvate, Tal. Khalapur Dist. Raigad-410203, Maharashtra. 4 1.2 ‘The said Act’ means the Companies Act, 1956. 1.3 ‘The appointed date’ means 31st March, 2000. 1.4 ‘The Effective Date’ means the date on which the certified copy of the order of the High Court at Mumbai, Sanctioning this scheme is filed with the Registrar of Companies Maharashtra and Goa. 1.5 ‘Creditors’ means persons having financial claims for Fixed Deposits and Liquinotes against the Company as on 31st March, 2000 irrespective of whether those persons have instituted proceedings against the Company inter alia by way of suits or criminal complaints U/s. 138 of Negotiable Instrument Act or petition for winding up of the Company or for recovery of such claims and have not obtained decrees or orders by consent or otherwise in their favour for payment of such claims against the Company, but does not include those who have been paid in full or part as on 31st March, 2000 in respect of such claims in terms of such decrees, orders or otherwise and also does not include any other persons having claims against the company whether secured or not. 1.6 “Claims” means dues of the creditors of the Company other than trade creditors for goods and services inclusive of interest being provided as for the arrangement pertaining thereto. 1.7 ‘Scheme’ means the scheme of compromise in its present form with any modifications as may be appointed by the creditors and approved or imposed or directed by the High Court at Mumbai. 2. The Scheme although effective from the appointed date shall become operative from the effective date. 3. The claim of all persons, concerns and/or bodies or Bodies Corporate who do not come within the definition of ‘Creditors’ referred to above, will stand outside the purview of the scheme. 3.1 Upon coming into effect of this scheme and immediately on expiry of the three months from the effective date, the creditors of the Company shall be paid their dues in the following manner: a) there are in all about 698 creditors for Fixed Deposits amounting totally Rs.1,22,83,284/-(maturity value) b) There are in all 480 creditors for liquinotes amounting totally Rs.2,46,38,000. 5 c) the Company to pay the said dues has decided to dispose off, out of its other assets, the land alongwith the factory building at Khopoli, Maharashtra. d) The Company has estimated the net value of the said land and factory building at Rs.3.80 Crores. e) The Company out of the said amount of Rs.3.80 Crores desires to pay off to the said creditors in monthly installments as mentioned below : To Creditors upto Rs. 25,000/- In monthly 12 equal instalments. To Creditors upto Rs.25,000/- In monthly 18 equal instalments. to Rs.50,000/- To Creditors upto Rs. 50,000/- In monthly 24 equal instalments. to Rs.1,00,000/- To Creditors upto Rs.1,00,000/- In monthly 36 equal instalments. and above 4. The creditors will not be paid any interest after 31st March, 2000. 5. All payments received by the creditors from and on behalf of the Company after 31st March, 2000 shall be adjusted and/or deemed to be adjusted against their dues as on 31st March, 2000 as appearing in the books of the accounts of the Company. 6. The Creditors covered by the Scheme shall not be entitled to claim any payment save and except in accordance with the scheme. 7. In calculating the claims of the creditors and/or payments to be made by the Company to the Creditors under the ‘Scheme’ the amount stated in the ‘Lists’ annexed hereto and marked as Exhibit E and Exhibit F shall be treated as final and conclusive. The Creditors whose claims are disputed shall be paid to be extent the company admits their claims in accordance with the provisions of the ‘Scheme’. For the balance amount, which is not admitted by the Company in the manner aforesaid the payment will be made after the concerned creditors obtain any decree or order from any court of competent jurisdiction in this regard subsequent to the effective date and in such case such creditors will however, be entitled to all arrears of installments under the scheme and such arrears shall be paid within twelve months from the obtaining of such decree or order provided, however, that such decree or order from any Court of competent jurisdiction is obtained after effective date. 6 8. The scheme shall become valid, operative and binding as from the date of the order of the Hon’ble High Court of Bombay sanctioning of this scheme between the company and creditors including creditors, whose claims are disputed as aforesaid. 9. Subject to the provisions of Clause 7, above the commencement and/or continuation of all suits and proceedings including of those now pending against the Company by the Creditors shall remain stayed. 10. The Board of the Directors of the Company may consent on behalf of the Company any modification of this scheme or accept any condition which the Hon’ble High Court of Bombay may think fit to impose or approve or may do all acts, deeds and things necessary for carrying this scheme into effect.” The scheme was duly considered by the company Judge of this Court on 18th July, 2001 and the Company Petition No.327 of 2001 filed under section 391 of the Act was disposed of in terms of the said order which reads thus: “P.C.: The petitioner company has filed this petition seeking sanction of the scheme of compromise/arrangement at Exh.B as modified and annexed at Exh. C. It appears that the scheme is for the benefit of unsecured creditors of the petitioner company. Pursuant to an order dated 4.8.2000 passed by this court the petitioners had convened a meeting of the unsecured creditors on 14.10.2000. In the meeting scheme was approved and sanctioned by the unsecured creditors including the applicant Shri Brain Thomas D’Souza. From the minutes of the meeting it appears that the unsecured creditors in value of Rs.1.60 lakhs were represented by Shri Rego, the learned counsel appearing for the said Shri D’Souza. The scheme has been signed by the unsecured creditors who were present in the meeting and a resolution to that effect was passed which appears on page 48 of the paper book. The resolution appears signatures including the signature of the learned counsel Shri Rego. 2. The Regional Director of the Department of Company Affairs has not filed any objection to the scheme, though served, long back on 25.5.2001. It 7 appears that the Regional Director has written a letter dated 17th July, 2001 requiring the petitioner to furnish balance sheet of the company as on 31.3.2000 and four other documents viz. (a) copy of memorandum of association of the petitioner company. (b) list of creditors. (c) Company application and (d) Newspaper cutting in respect of publication of holding of meeting of creditors. I must record here that the petition was adjourned from time to time for the say of the Regional Director in the matter. It appears that besides, the serving a copy of the letter dated 17.7.2001 on the learned advocate Shri Pandit for the petitioner today in court the Regional Director has not bothered to examine the petition and file his objection, if any. In view of the objection by the unsecured creditors who are complaining of delay in payment of their deposits I have refused to adjourn the matter. I have myself examined the scheme of compromise in the interest of unsecured creditors, who have approved the said scheme. I presume that the interest of the unsecured creditors has been protected by the learned counsel who was personally present in the meeting. It is therefore not necessary to adjourn the matter which would further delay the implementation of the scheme. There is no material before me not to accept the scheme and not to sanction the scheme. Shri Rego the learned counsel for one of the unsecured creditors has filed an affidavit of Shri D’Souza to pray to vacate the order dated 9.6.2000 where by ad interim stay to the proceedings in CR No.45 of 2000 pending in the Court of the Special Judge under the Maharashtra Protection of Interest of Depositors (Finance Establishment) Act, 1999 was granted by this Court(Bobde,J.) on 9.6.2000. Shri Rego submits that the criminal proceedings which are pending before the Special Court under the aforesaid special Act should be continued to proceed further in accordance with law. He further submits that the criminal proceedings are all together different from the civil proceedings before this Court under section 391(b) of the Companies Act, 1956. Shri Pandit however, submits that on the complaint by the unsecured creditors the police have investigated in the complaint in the said act and that the Directors were arrested and were kept in custody and were subsequently released on bail. Shri Pandit further submits that the investigation at the end of the police are completed and the entire record was submitted by the company during the course of the investigation and that the record is in the custody of the special court. Shri Pandit submits that he has no objection if the criminal proceedings continue and his clients would extend all cooperation in the proceedings before the Special Court. His 8 prayer however is that no arrest of any of the Directors/employees should be permitted or allowed. 3. As held in the case of UMA Investments Pvt.Ltd. reported in Company Cases 1977 Vol.47 page 242, by the learned Single Judge of this Court the criminal proceedings can be commenced or continued notwithstanding the fact that the scheme was compromised or arrangement has been initiated under section 391. I am in respectful agreement with the said ratio in the said judgment. If the criminal proceedings are commenced they should be allowed to complete as expeditiously as possible and to let the criminal law take its own course and criminal proceedings should not be held up because civil proceedings are initiated and are pending. In the present case the scheme of compromise was approved by the unsecured creditors and has been sanctioned by this court today. Under the scheme the unsecured creditors would stand benefited. There is no reason why the criminal proceedings should not be allowed to be completed in accordance with law. At the same time I agree with Shri Pandit that the Director/employees of the petitioner company need not undergo once again harassment and rearrest by the police which would be unwarranted as the entire record is in the custody of the Special Court. If the presence of any of the Directors or employees is required in the Court the court certainly can issue summons to such persons to remain present in the court and Shri Pandit assures this Court that they will certainly remain present in the court and extend dull cooperation in the proceedings. According to me, therefore, their arrest will not be necessary unless of course the Special court finds that the Directors/employees were not cooperating in the proceedings, the Special court would certainly have powers and discretion to issue appropriate orders in that respect. In the aforesaid reasons I vacate the ad interim order passed by this court on 9.6.2000 staying the proceedings in C.R.No.45/2000 pending before the Special Judge, under MPID Act, 1999. It is hoped that the proceedings would be expeditiously disposed of. In the aforesaid circumstances the company petition is disposed of as above with no order as to costs. All concerned to act on a copy of this order duly authenticated by the Company Registrar.” 3. After the above said scheme was sanctioned by the company Judge of this Court, one of the creditor of the Company M/s. Ashok Buildcon Pvt. Ltd. had resorted to arbitration proceedings against 9 the “E” Company. The said arbitration proceedings were decided against the “E” Company whereunder the said M/s. Ashoka Buildcon Pvt.Ltd. became entitled to recover substantial amount. Accordingly, the said creditor filed execution proceedings against the “E” company. The Executing Court was pleased to attach the property of the “E” company and also directed sale of the property consequent to the said attachment for sum of Rs.50 Lakhs only by issuing sale notification/proclamation on 4th August, 2003. 4. The “E” Company immediately rushed to this Court and filed Company Application No.673 of 2003 for staying the auction to be held on 28th August, 2003. One of the unsecured creditor also filed company application (Lodg) No. 75 of 2002 for staying of auction sale to be held on 28th August, 2003 at Panvel of the suit property belonging to the “E” Company being land and factory building situated at Khopoli, Village Vanvatti, Taluka Khalapur, District-Raigad. It was further prayed that pending decision of the said application further proceedings pending before the executing Court be stayed. At the same time, one more Application being Company Application (Lodg) No.139 of 2003 was moved before this Court since the suit property in question could not be disposed of inspite of 10 the order dated 18th July, 2001. In this Application, it was prayed that the scheme of compromise dated 18th July, 2001 be modified to a limited extent of granting further period of 12 months for the disposal of the Companies land and factory building at Khopoli or in the alternative the said property be ordered to be disposed of by the Special committee of unsecured creditors of the applicant company under the supervision of this Hon'ble Court or in the alternative, the Court may appoint any fit and proper person to dispose of the assets of the company. All these three applications came to be disposed of by a common order on 12th February, 2004. Relevant portion of the said order reads thus: “2. Having considered the rival submissions, the foremost question that arises for my consideration is whether the said Ashoka Buildcon Pvt.Ltd., can be allowed to proceed with the auction of the immovable assets of the Company? To my mind, that question will have to be answered in the negative for more than one reason. In the first place, the proceedings are already pending before this Court for granting further time or to modify the scheme as already sanctioned on 18.7.2001 by this Court. Indeed, the time granted under the scheme as sanctioned by this Court on 18.7.2001 has already expired, but the fact remains that application has been filed not only by the Company, but also by some of the Unsecured Creditors to give effect to the scheme which was already sanctioned. The said Ashoka Buildcon Pvt.Ltd., has become creditor by virtue of the award passed in its favour and against the company on 30.11.2001. The said Ashoka Buildcon Pvt.Ltd. in that sense is also one of the Unsecured Creditors. Taking overall view of the matter I would think it appropriate to first consider the application filed on behalf of the Company as well as Unsecured Creditors for modification of the scheme which was originally sanctioned by this Court on 18.1.2001. Neither the company nor the Unsecured Creditors are averse to the sale of the property so as to ensure disbursement of the sale proceeds on pari passu basis amongst the Unsecured Creditors. The said Ashoka Buildcon Pvt.Ltd. being one of the Unsecured creditors would also be benefited by the said proposal which was approved by this Court, if this Court was to modify the scheme already approved earlier. 11 3. Accordingly, in my opinion, it would be appropriate to appoint Committee of Unsecured Creditors to facilitate sale of the immovable assets of the Company so as to recover proper sale proceeds corresponding to the fair market price of the said assets. 4. The Committee shall consist of five persons. The Company Registrar of this Court is appointed as Chairman of this Committee, being an independent person. One representative of the company M/s. Europlast India Limited, one representative of Ashoka Buildcon Pvt.Ltd., and two representatives of the remaining Unsecured Creditors to be notified to the Company Registrar of this Court within two weeks from today. 5. The said Committee is authorised to take steps to issue the advertisement for inviting offers from public for auction of immovable assets of the Company on usual terms and conditions. 6. Before issuing the advertisement, the Committee shall call for valuation report regarding the immovable assets to be auctioned, from the empaneled valuers of this Court. 7. The proposed auction to be concluded within twelve weeks from today and the sale proceeds received be deposited in this Court so that the same can be disbursed amongst all the Unsecured Creditors on para pasu basis. 8. Accordingly, applications filed by the Company and some of the Unsecured Creditors are allowed on the above terms.” In terms of the above order, the Committee appointed by the Court under the Chairmanship of the then Company Registrar of this Court and other five members was expected to take steps to dispose of the specified property of “E” Company in consonance with the observations made therein. That was to generate funds so as to repay the dues of the unsecured creditors which at the relevant time was stated to be around Rs. 6(six) Crores. There were 698 creditors for fixed deposits valued at Rs. 1,22,83,248/-; 480 creditors for liquinotes valuing Rs.2,46,38,000/-. 12 Whereas, net value of the land and factory of the company was assessed at only Rs.3.80 Crores. 5. It is however, noticed that the Committee did not take any steps in the matter as was expected under the order of the Court. Instead, the then Board of Directors of the “E” company passed resolution on 28th August, 2006 which read thus: “CERTIFIED TRUE COPY OF THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS HELD ON MONDAY, 28th AUGUST, 2006 AT 3:00 PM AT KHOPOLI-PEN ROAD, VILLAGE VANVATE, TALUKA KHALAPUR, DISTT.RAIGAD, MAHARASHTRA. “RESOLVED THAT pursuant to section 192 A and other applicable provisions, if any, of the Companies Act, 1956 and the rules made there under, approval of the Board be and is hereby accorded to conduct a postal ballot to seek the approval of the members of the company by an ordinary resolution to sell/transfer/and/or otherwise dispose off the property of the Company situated at Khopoli-pen Road, Village Vanvate, Taluka Khalapur, Distt. Raigad, Maharashtra and that the draft notice together with the explanatory statement annexed thereto as placed before the Board be and is hereby approved and that the said notice along with the explanatory statement thereto be issued to the members by Mr.Ajay Naithani, Director of the Company.” “FURTHER RESOLVED THAT the Board has directed Mr.Deepak Arora, Director of the Company to find a suitable place to shift the registered office of the Company.” “FURTHER RESOLVED THAT Mr.Praveen Bhatt has given her consent to act as a scrutinizer, for a period not exceeding sixty days from the date of appointment, to conduct the postal ballot of the company on a remuneration and out of pocket expenses as may be fixed by the Board.” “FURTHER RESOLVED THAT Mr.Deepak Arora and Mr.Ajay Naithani, Directors of the company be and are hereby authorized to monitor the entire 13 process of Postal Ballot and that they are authorized to do all acts, deeds and things as may be necessary and/or expedite in its discretion for the completion of the above transactions in the best interest of the company and to settle all questions or difficulties that may arise in the course of the implementation of the said resolution.” For EURO PLAST INDIA LIMITED sd/- Ajay Naithani DIRECTOR” It is common ground that no prior intimation of this intended sale of the property by means other than the one provided under the order of this Court dated 12th February, 2004 was brought to the notice either of the Committee appointed by the Court for sale of the property or of this Court. At this stage, it is relevant to make note of the fact that by this resolution, the then Board of directors of the “E” Company assigned the job of intended sale of the suit property to one Mr. Ajay Naithani, director; Mr. Deepak Arora, Director and one Mr. Pravin Bhat. Significantly, the said Pravin Bhatt is a person none other than the ex-director of Gorakhnath Electrical Private Ltd.(hereinafter referred to as “G” company). Soon thereafter, the suit property was conveyed in favour of the “G” company on 29th November, 2006. Besides the above resolution, the Board of Directors of “E” Company allegedly passed another resolution on 18th November, 2006, which reads thus: 14 “CERTIFIED TRUE COPY OF THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF M/s EURO PLAST INDIA LIMITED AT ITS REGISTERED OFFICE ON SATURDAY, 18th NOVEMBER, 2006. “RESOLVED THAT the company do hereby authorise Mr.Naresh Kaushik as Authorised Representative to deal on behalf of the company in the property of the company situated at Khopoli Pen Road, Village Vanvate, Taluka Khalapur,