1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.702 OF 2009 CONNECTED WITH COMPANY APPLICATION NO.525 OF 2009 In the matter of the Companies Act, 1956; AND In the matter of Nath Bio-Genes (India) Limited, a Company incorporated under the Companies Act I of 1956, having its Registered Office at Nath House, Nath Road, Aurangabad - 431 005; AND In the matter of Section 391 read with Section 394 of the Companies Act I of 1956 for the Scheme of Arrangement / Compromise between Nath Bio-Genes (India) Limited and its Secured Creditors, including Debenture Holders. Nath Bio-Genes (India) Limited, a Company incorporated under the Companies Act I of 1957, having its Registered Office at Nath House, Nath Road, Aurangabad - 431 005. Petitioners 2 Coram: S. J. KATHAWALLA J. Date: 27th October 2010 Mr. D. V. Merchant, Senior Counsel alongwith Mr. Dilip Rai i/b Aruna Singh, Advocate for the Petitioner. Mr. Jimmy Avasia alongwith Mr. Riyaz Chagla i/b Mr. S. K. Mohapatra, for Regional Director Mr. S. K. Chari i/b M/ s. M. V. Kini & Co. for Canara Bank (Secured Creditor) P.C.: 1) Heard learned Counsel for the parties. 2) The sanction of the Court is sought under Sections 391 to 394 of the Companies Act, 1956 to the Scheme of Arrangement/ Compromise between M/ s. Nath Bio-Genes (India) Ltd. and its Secured Creditors, including Debenture Holders. 3) The Counsel appearing on behalf of petitioners stated that they have complied with all statutory requirements as per direction of this Court and they have filed necessary affidavits of compliance in the Court. Moreover, Petitioner Company undertakes to comply with all statutory requirements, if any, as required under Companies Act, 1956 and the rules made there under. The Undertaking is accepted. 3 4) The Regional Director has filed an affidavit, inter alia, stating that:- i) As per Clause 1.9 of Part II of the Scheme, guarantor includes in addition to the promoters stated therein other public limited Companies also. ii) As per Clause No.1.6 of the Scheme, the amount due and payable by the Company is as on 31/12/08. iii) As per Clause 4A of the Scheme, the Petitioner Company shall allot 48 lacs equity shares of Rs.10/- each in lieu of payment of mature debenture amount payable by the Company to Bank of India, now acquired by ARCIL. iv) As per Clause No.4A(vii), the guarantor either directly or through their nominee shall jointly and severely obliged to purchase the said shares as per the schedule of purchase period discussed therein. Similarly as per Clause No.4B the company and the guarantors shall jointly and/or severely pay an aggregate amount of Rs.1360.82. As per the Exhibit "B" attached to the Scheme, the repayment schedule has already commenced from 31/ 12/2008 and payable in 13 installments ending on 15/12/2011. v) From the foregoing paragraphs it is clear that in addition to the Petitioner Company the guarantors are also jointly and severely responsible for the repayment of dues payable by the Petitioner Company. However, the guarantors are not a party to the proceedings before this Hon 'ble High Court. 4 vi) It is pertinent to consider by this Hon'ble High Court that without hearing of the guarantor (3rd party), no order can be passed that too fixing financial responsibility on a body corporate by an Order of this Hon 'ble High Court. vii) It is, therefore, necessary to bring the said guarantor as necessary party in this proceeding before this Hon'ble High Court so that the consent of the guarantors/their views shall be obtained before passing any Order by this Hon 'ble Court. viii) Consequent thereto the prayer clause of the Petition needs to be amended so that the Order, if any, passed by this Hon 'ble High Court approving the Scheme is binding on the Petitioner Company, its guarantors and all its Secured Creditors. ix) As stated hereinabove, as per the Exhibit "B" attached to the Scheme, the amount proposed to be settled are payable in 13 installments. However, it is noticed that as per Exhibit "B" the installments for the period ending 31/12/08, 31/03/09, 30/06/09, 30 / 09 / 09 and 31 / 12/09 have already become overdue. It is not clear whether the Petitioner or guarantors, if any, have made any payments to the Secured Creditors. If not paid, how the above 5 installments are going to be paid and for which a fresh schedule needs to be fixed by the Hon'ble - Court. x) Similarly, for the repurchase of new shares proposed to be allotted by the Company, the due date fixed in Para 4A(vii) of the Scheme has also already 5 commenced and hence if need be a fresh schedule has to be fixed by this Hon 'ble High Court. xi) As the Company is a listed Company for allotment of new shares to the extent of 48 lacs equity shares, the approval of Stock Exchanges and compliance with the SEBI Guidelines are required. In this regard, what has been stated by the Company in Para No.4H may not be in conformity with the existing guidelines of SEBI. Therefore, the Petitioner Company may be directed to comply with the Regulatory conditions of SEBI/Stock Exchanges in which the existing shares of the Petitioner Company are already listed for the reasons that: a) In the event the new shares are repurchased by the promoters their holding may increase substantially. b) Besides Para 5G of the Scheme also provides for conversion of Unsecured Loans given by promoters and associate companies amounting to 47.70 lacs equity shares of Rs.l 0/- each. These new shares also need to be cleared by Stock Exchanges. xii) The conversion of the Unsecured Loans into equity shares are not permissible in as much as the terms of Issue of such loan did not provide for such option for conversion, as also the same was not approved by Central Government as required under provision to sub section (3) of Section 81A of the Act. Therefore, instead of converting loan into equity, the promoters be directed to infuse fresh funds and the option, for 6 conversion of loan into equity be deleted from the said Clause. 5) In response to the above mentioned queries raised by the Regional Director, the Petitioner has filed an affidavit dated 15th March, 2010 of one Mr. Ramesh S. Phadatare, Manager (Legal & Finance) of the Petitioner Company. In the said affidavit, it is, inter alia, stated that the Regional; Director vide its letter dated 21 st December, 2009 had raised similar to what has been stated by him in his aforesaid affidavit. It is further stated that the Petitioner by its letter dated 26th December, 2009 has already explained the said queries. A copy of the said letter dated 26th December, 2009 is also annexed to the said affidavit. So far as queries raised in paragraphs 6(i) to 6 (viii) of the said affidavit are concerned, the Counsel for the Petitioner tendered the respective affidavit of guarantors giving undertaking to abide by the Scheme. The Counsel further submits that along with the said Affidavits, the corporate guarantors have filed the resolutions passed by the respective companies giving the undertakings and their respective letter of consent and that the copies of the same have already been filed with the Regional Director. The said Affidavits are taken on record. 7 The undertaking given in the said affidavits are accepted. The Counsel for the Petitioner submits that the said guarantees are not given under the scheme for the first time and the same were given to the Secured Creditors prior to de-merger of Nath Seeds Ltd., i.e. prior to the year 2000. Therefore Section 372A of the Companies Act will not apply as the guarantees are not given under the Scheme. In any event, the Scheme itself under Clause 5(h) provides that the guarantors have to obtain specific approval within 60 days from the date of passing of the Scheme. 6) So far as the queries raised in paragraph 6(ix) and 6(x) of the Affidavit of Regional Director is concerned, the Counsel for the Petitioner submits that the Petitioners shall make the payments to the Secured Creditors and repurchase the new shares as per the provisions of Scheme from the effective date. 7) So far as the queries raised in paragraph- 6(xi) and 6(xi)(a) of the Affidavit of Regional Director is. concerned, the Counsel for the -Petitioner submits that the Petitioner Company is listed with the Ahmedabad Stock Exchange and that the said Stock Exchange has given its no objection to the Scheme. A copy of 8 the said letter of the said Exchange is annexed to the Affidavit filed by the Petitioner Company. The Petitioner Company undertakes that the Petitioner Company will maintain 250/0 of the public share holding at any given time. The said undertaking is accepted. 8) So far the query raised by the Regional Director in paragraph 6(xi)(b) and 6(xii) of the Affidavit are concerned, the Counsel for the Petitioner submits that in the Clause 5(g) of the Scheme it is already provided that the promoters and associates of the Company / guarantors would either infuse funds or convert the existing Unsecured Loan in to equity shares in the Company. The Counsel for the Petitioner on behalf of Petitioner Company undertakes that the Petitioner will infuse fresh funds instead of converting loan into equity and accordingly the provision of the Section 81(lA)(3)(b)(i) of the Companies Act will not be violated and the said undertaking is accepted 9) The Counsel appearing for Regional Director has raised a query regarding the lapsing of the Scheme. The Counsel for the Petitioner Company submits that in Clause 9 of Part IV of the Scheme, it is mentioned that in the event of this Scheme not being effective for any reason whatsoever on or before September, 2009 or such other date as may be extended by the 9 secured creditors, who are not less than 75°Jb in terms of debt, the Scheme would come to an end. The Counsel further submits that one of the Secured Creditor, viz., ARCIL has already given its consent vide letter dated 6 th October, 2010 to the proposed Scheme. The said letter has already been taken on record at the time of hearing of the said Petition on 15th October, 2010. Moreover, the counsel for the other Secured Creditor, viz., Canara Bank, is present in the Court and on instructions of his clients, he submit that his clients has no objection to the proposed Scheme. The Counsel for the Petitioner further submits that the said Secured Creditors constitute more than 75°Jb in terms of secured debts. 10) From the material on record, the scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy. None of the parties concerned have come forward to oppose the scheme. 11) Since all the requisite statutory compliances have been fulfilled, the Company Petition is made absolute in terms of prayer clauses (a) & (b). 12) The Petitioner Company to lodge a copy of this order and the scheme duly authenticated by the Company Registrar, High 10 Court, Bombay, with the concerned Superintendent of Stamps for the purpose of adjudication of stamp duty payable, if any, on the same within 60 days from the date of this order. 13) The Petitioner to pay costs of Rs.I0,000/- to the Regional Director, Western Region, Mumbai. Costs to be paid within four weeks from the date of this order. 14) Filing and issuance of the drawn up order is dispensed with. 15) All the authorities concerned to act on a copy of this order along with scheme duly authenticated by the Company Registrar, High Court Bombay. (8. J. KATHAWALLA, J.)