1 IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPLICATION NO.95 OF 2008 IN COMPANY PETITION NO.460 OF 2005 The Regional Director, ESIC, Mumbai. ..Applicants. V/s. Sharp Industries Ltd. & Ors. ..Respondents. Mr.H.V.Mehta for -Regional Director, ESIC. Ms. Gayatri Singh for Intervenors(Workers) Mr.Mangesh M.D.Patel for Respondent No.1. Mr.R.D.Soni i/b. Ram & Co. for Videocon International Ltd. CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J DATE : MARCH 7, 2008. DATE : MARCH 7, 2008. DATE : MARCH 7, 2008. P.C. : P.C. : P.C. : 1. Heard Counsel for the parties. Perused the relevant documents and pleadings on record. This Application has been filed by the Employees’ State Insurance Corporation, praying for modification of scheme of compromise or arrangement, in exercise of inherent powers of this Court, so as to direct the Respondent company to pay a sum of Rs.37,06,711/- (i.e.Rs.47,39,532/- minus Rs.10,32,821/-) with interest and further interest till payment. 2 2. Briefly stated, the scheme of compromise or arrangement was propounded by the Company to operate between the Company and its unsecured, secured and statutory creditors and equity shareholders. After following necessary procedure, the Company presented the scheme for approval of the Court. This Court approved the said scheme under Order dated November 17, 2005. 3. In so far as the Applicant is concerned, the claim of the Applicant is in relation to the unpaid contribution by the Company under the provisions of the Employees’ State Insurance Act, 1948. However, it is not in dispute that before the scheme was presented for approval of the Court, a meeting of secured creditors was convened on 10th March, 2005. The said meeting was attended by the representative of the Applicant, who in turn endorsed approval for the said scheme. It is a different matter that some controversy has now been raised by the Applicant about the efficacy of the endorsement on the Ballot Paper, which is suggestive of approval of the scheme by the Applicant. The fact remains that the said document alongwith the other relevant material were placed before the Court, when the scheme was presented for approval. It is also not in dispute 3 that the Applicant was duly served with the proceedings before the Court considered the approval of the proposed scheme. Indeed, the Applicant did not choose to appear in the said proceedings. Consequently, the Court proceeded to consider all objections taken by the unsecured Creditors and the workers and accorded approval to the scheme propounded by the Company in its Order dated 17th November, 2005. Therefore, the Company and all concerned have acted upon the said scheme. 4. The Applicant however, asserts that the Applicant has not supported the scheme, as was presented before the Court. The fact remains that the Court proceeded to approve the scheme presented by the Company upon considering all objections raised on behalf of the unsecured Creditors and workers, who appeared in the proceedings. The Applicant did not choose to remain present at the hearing at the relevant time. Significantly, after the approval of the scheme, the Company wrote to the Applicant restating that the scheme has been approved by the Company Court. Such letters were sent on 14/3/2006, 25th April, 2006 and 27th November, 2006. In other words, the fact that the scheme, as was presented before the Court has been approved, was apprised to 4 the Applicant from time to time. Nevertheless, the Applicant proceeded with issuance of recovery certificates against the Company, disregarding the arrangement directed under the scheme approved in terms of the Order dated 17th November, 2005. Consequent to the said recovery certificates, the Applicant proceeded against the Respondent company. It is at that stage, the Respondent company rushed to this Court by way of Company Application No.280 of 2007 on 13th March, 2007. While opposing the said Application, the Applicant, for the first time, asserted the grounds which are now restated in the present Application to contend that the scheme was not binding on the Applicant. The said Application was disposed off on 17th December, 2007 with liberty to the Applicant to pursue such other remedy, as may be permissible in law. In view of the said liberty, the Applicant has chosen to file the present Application for relief, as reproduced earlier. 5. In my opinion, although I have elaborately heard both the sides on merits of the grounds pressed into service by the Applicant, it is not necessary for me to burden this order with all those contentions raised before me. This is so because, the Applicant has approached this Court to invoke 5 powers under section 392, in particular subsection (2) thereof. The Counsel appearing for the Applicant also accepts that the present Application has been filed to invoke the powers of this Court in terms of section 392 of the Act. 6. The first question that needs to be addressed is, what is the scope of interference in exercise of power under section 392 of the Act. That issue is no more res integra. The Apex Court in the case of S.K.Gupta & Anr. V/s. K.P.Jain and another reported S.K.Gupta & Anr. V/s. K.P.Jain and another reported S.K.Gupta & Anr. V/s. K.P.Jain and another reported in (1979) Vol.49 CC 342 in (1979) Vol.49 CC 342 in (1979) Vol.49 CC 342 had occasion to consider the said aspect. While considering the scheme of provisions governing formulation and implementation of scheme for compromise and arrangement, with specific reference to the Section 392 of the Act, the Apex Court has expounded as follows: ". When a scheme is being considered by the court, in all its ramifications, for according its sanction, it would not be possible to comprehend all situations, eventualities and exigencies that may arise while implementing the scheme. When a detailed compromise and/or arrangement is worked out, hitches and impediments may arise and if there was no provision like the one in s.392, the only obvious alternative would be to follow the cumbersome procedure as provided in s.391(1), viz., again by approaching the class of creditors or members to whom the compromise and/or arrangement was offered to accord their sanction to the steps to be taken for removing such hitches and impediments. This would be unduly cumbersome 6 and time consuming and, therefore, the legislature in its wisdom conferred power of widest amplitude on the High Court under s.392 not only to give directions but to make such modification in the compromise and/or arrangement as the court may consider necessary, the only limit on the power of the court being that such directions can be given and modifications can be made for the proper working of the compromise and/or arrangement. The purpose underlying s.392 is to provide for effective working of the compromise and/or arrangement once sanctioned and over which the court must exercise continuous supervision [see s.392(1)], and if over a period there may arise obstacles, difficulties or impediments, to remove them, again, not for any other purpose but for the proper working of the compromise and/or arrangement. This power either to give directions to overcome the difficulties or if the provisions of the scheme themselves create an impediment, to modify the provision to the extent necessary, can only be exercised so as to provide for smooth working of the compromise and/or arrangement. To effectuate this purpose the power of widest amplitude has been conferred on the High Court and this is a basic departure from the scheme of the U.K. Act in which provision analogous to s.392 is absent. The sponsors of the scheme under s. 206 of the U.K.Act have tried to get over the difficulty by taking power in the scheme of compromise or arrangement to make alterations and modifications as proposed by the court. But the legislature foreseeing that a complex or complicated scheme of compromise or arrangement spread over a long period may face unforeseen and unanticipated obstacles, has conferred power of widest amplitude on the court to give directions and, if necessary, to modify the scheme for the proper working of the compromise or arrangement. The only limitation on the power of the court, as already priate to give or make such modifications in the scheme, must be for the proper working of the compromise and/or arrangement." (emphasis supplied) 7 It is amply clear that the power underlying section 392 can be exercised only to provide effective and smooth working of the compromise and/or arrangement. The Court may consider it appropriate to give or make such modification in the scheme of compromise and/or arrangement only for the proper working thereof. 7. However, the grievance brought before this Court in the present Application is obviously outside the sweep of section 392 of the Act. Inasmuch as, the grievance is that the sanction accorded by this Court to the scheme propounded by the Company in its Order dated 17th November, 2005 is in the first place product of fraud played upon the Applicant as well as the Court. Indeed, if it is a matter of fraud played upon the Court, an enquiry into that aspect can be addressed in the appropriate proceedings. 8. As aforesaid, the Applicant has approached this Court for the limited relief of modification of sanctioned scheme, which not only covers the claim and the rights of the secured creditors, but also other stakeholders in the Company. The fact that the statutory claim of the Applicant could not have been reduced in any manner, is a matter which ought to have been raised at the appropriate stage and could 8 have been addressed at the hearing of the proposal submitted to this Court, such as other objections raised by the unsecured creditors and the workers which have been elaborately considered in the Judgment delivered on 17th November, 2005. 9. In my opinion, therefore, the grievance of the Applicant though styled as relief for modification of the compromise or arrangement, is in essence, Application for review of the decision dated 17th November, 2005. However, no ground for review of that Order has been made in the present Application. In any case, the present Application is not pursued for the remedy of review of the Order, but the advocate for the Applicant was at pains to persuade me that the relief claimed in this Application should be granted in exercise of powers under section 392 of the Act. To my mind, that contention cannot be accepted. For the view that I have already taken, I do not think it apposite to address on other issues on merits, which are raised in this Application. 10. The Application is therefore, dismissed with observation that the Applicant may be free to pursue such other remedy, as may be advised. 9 11. Accordingly, this Application deserves to be dismissed. 12. At this stage, Counsel for the Applicant submits that the Applicant may be interested in carrying the matter in appeal, for which reason, the direction issued against the Applicant, while disposing of the Company Application No.280 of 2007, may be deferred for a further period of 8 weeks from today. Although this prayer is opposed by the Company, the same is accepted. (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J)