IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY PETITION No 140 of 2001 With COMPANY APPLICATION NO. 230 OF 2001 For Approval and Signature: Hon'ble MR.JUSTICE N.G.NANDI ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- ARVIND MILLS LTD. Versus . -------------------------------------------------------------- Appearance: 1. COMPANY PETITION No. 140 of 2001 MR SN SOPARKAR, LD SR. COUNSEL WITH MRS SWATI SOPARKAR for Petitioner MR SB VAKIL, LD SR. COUNSEL WITH AS VAKIL FOR United Bank of Switzerland MR PC KAVINA, LD COUNSEL WITH MR. A.S. DIWAN & N.C. THAKKAR for Commerzebank AG MR PP BANAJI LD COUNSEL for Fuji Bank MS RAJNI IYER LD COUNSEL WITH JAL SOLI UNWALA for Bank of Nova Scotia Asia Ltd MR S.N.SHELAT, LD. SR. COUNSELWITH NV ANJARIA for Deutsche Bank MR K.S.NAVATI, SR. COUNSEL WITH MS MEGHA JANI FOR Uco Bank MS PJ DAVAWALA LD COUNSEL for UOI, Dept. Of Company Affairs MR MIHIR H JOSHI LD COUNSEL for State Bank of Saurashtra MR. SANDIP SINGHI, LD. COUNSEL for Exim Bank MR D.S. VASAWADA LD COUNSEL for TLA -------------------------------------------------------------- CORAM : MR.JUSTICE N.G.NANDI Date of decision: 08/04/2002 CAV JUDGEMENT 1. This Petition under Section 391 (1) of the Companies Act (herein after referred to as the 'Act') has been filed by Arvind Mills Limited (herein after referred to as the "Company" ), seeking sanction to the Scheme of Restructuring of its debts, floated by the creditors. The Company was incorporated on 1-6-1931 as a Public Limited Company to carry on business of spinning, weaving, manufacturing, dealing in cotton or other fabrics, substances and the preparation, dyeing or colouring of any of the said substances and the sale of yarn cloth or other manufactured fabrics and products and to carry on the business namely cotton spinners etc; that the Company had the authorised issued and subscribed share capital running into crores of rupees and issued equity shares of Rs.100,54,99,450/- with redeemable cumulative and non-convertable preference shares etc; that the Company and its associated textile companies employed over 10,000 persons in and around the city of Ahmedabad making them a largest private sector employer in the State of Gujarat; that the petitioner Company earned profit for pretty long time; that the Company obtained borrowings/credits from various Banks and financial institutions to finance its business needs and as on 31-3-2000 the total debt of the Company mounted to approximately $ 593 million or Rs.2,700-00 crores; that 64 percent of that is from on-shore lenders and balance from off-shore lenders. That during the period between years 1997-2000 the Company started making loss and was confronted with falling denim price and increase in manufacturing cost. The changed supply and demand structure in the industry, world-wide intensified price competition and as a result there was steep fall in the Company's sales realisation. That, on account of sharp increase in fuel expenses, significant cost and time overrun in certain projects, pre-operative expenses due to longer period of trial production and translation loss on dollar debt due to the depreciation of Indian rupees, the company did not generate adequate operational cash to service its debt during the Financial Year 2000. That the petitioner Company felt the need for rescheduling and restructuring of its debts. That the Company proactively sought a debt restructuring in a comprehensive manner that could prevent it from seeking repeated roll-overs from several lenders at differing terms. That the Company held meetings with its lenders to formulate its debt restructuring and lenders elected representatives to form a Steering Committee in order to implement the restructuring process in an efficient manner. On 14-11-2000 the Steering Committee approved the restructuring plan for launch to all lenders. That the detailed terms of the restructuring were incorporated in Term Sheet which was despatched to all lenders on 25-1-2001 for their approval. A large majority of the existing lenders have approved the 'Term Sheet' incorporating the detailed terms of the restructuring. 2. The Company filed Company Application No. 160 of 2001 for requisite directions for convening meeting of the various classes of Creditors of the Company. Vide order dated 13-6-2001 the Court directed the Company to convene meeting of its various classes of creditors for the purpose of considering and if thought fit approve with or without modifications, the arrangement embodied in the Scheme of Arrangement. The order further directed Mr. A.L. Shah, Advocate and failing him Mr. A.C. Gandhi, Advocate to act as Chairman of the meeting of the Classes of Creditors of the Company, i.e. unsecured creditors, working capital lenders and secured creditors of the Company and to report the result thereof to this Court. Necessary notices of the meeting together with copy of the Scheme, explanatory statement and form of proxy were individually sent to each of the creditors of the company; that on 13-7-2001 meeting of each of the class of creditors of the Company was held at the Registered Office of the Company in accordance with the order dated 13-6-2001; that the meeting of the Unsecured Creditors of the Company was attended by 21 unsecured creditors. That the Scheme duly amended was placed for consideration of the meeting, after inviting debate thereon and the question submitted to the meeting of secured creditors, unsecured creditors and working capital lenders was, whether Unsecured/ Secured/ Working capital Creditors of the Company approved the Scheme of Arrangement submitted at the meeting in the form of resolution. That, thereupon the aforesaid resolution on the proposed Scheme of Arrangement was put to vote by poll. That twenty (20) Unsecured creditors holding Rs.8914.94 million of the outstanding unsecured debt of the Company as on March 31, 2000 voted in favour of the said Scheme of Arrangement, representing 95.24 % in the number of Unsecured Creditors and 98.95 % in value of the total outstanding unsecured debt of the Company as on of March 31, 2000, present and voting, excluding invalid ballot papers. One unsecured creditor voted against the Scheme of Arrangement representing 4.76 % in the number of Unsecured Creditors and 1.05 % in value of the total outstanding unsecured debt of the Company as of March 31, 2000 present and voting. Thus the Scheme was approved and resolution was passed with the requisite majority. That the meting of the Working Capital Lenders of the Company was attended by 12 Working Capital Lenders. That the resolution on the proposed Scheme of Arrangement was put to vote by poll. Ten Working Capital Lenders holding Rs.4432.32 million of the outstanding working capital debt of the Company as of March 31,2000 voted in favour of the said Scheme of Arrangement representing 90.91 % in number of Working Capital Lenders and 96.2 % in value of the total outstanding working capital debt of the Company as of March 31, 2000, present and voting, excluding invalid ballot papers. One Working Capital Lender holding Rs. 175 million of the outstanding unsecured debt of the Company as of March 31, 2000 voted against the said Scheme of Arrangement representing 9.09 % in number of Working Capital Lenders and 3.80 % in value of the total outstanding working capital debt of the Company as of March 31, 2000, present and voting. One vote was found to be invalid. The Scheme was approved and resolution was passed by the Working Capital lenders with the requisite majority. That the meeting of the Secured Creditors of the Company was attended by fourty six (46) Secured Creditors. Fourty (40) Secured Creditors holding Rs.10735.30 million of the outstanding secured debt of the Company as of March 31, 2000 voted in favour of the amendment representing 90.09 % in the number of Secured Creditors and 89.90 % in value of the total outstanding secured debt of the Company as of March 31, 2000,present and voting, excluding invalid ballot paper. Four (4) Secured Creditors holding Rs.1205.16 million of the outstanding secured debt of the Company as of March 31, 2000 voted against the said Scheme of Arrangement representing 9.09 % in the number of Secured Creditors and 10.09 % in value of the total outstanding secured debt of the Company as of March 31,2000, present and voting. Two (2) votes were found to be invalid. The amendment was approved and the resolution was passed with the requisite majority. Thereafter the Scheme duly amended was placed for consideration of the meeting. The meeting passed requisite resolution and approved the Scheme. Thereupon, resolution on the proposed Scheme of Arrangement was put to vote by poll. Thirty five (35) Secured Creditors holding Rs.9565.03 million of the outstanding secured debt of the Company as of March 31, 2000 voted in favour of the said Scheme of Arrangement representing 85.36 % in the number of Secured Creditors and 88.56 % in value of the total outstanding secured debt of the Company as of March 31, 2000, present and voting, excluding invalid ballot papers. Six (6) Secured Creditors holding Rs.1235.16 million of the outstanding secured debt of the Company as of March 31, 2000 voted against the said Scheme of Arrangement representing 14.63 % in the number of secured creditors and 11.43 % in value of the total outstanding secured debt of the Company as of March 31,2000 present and voting. Five (5) votes were found to be invalid. That the Scheme was approved and resolution was passed with the requisite majority. 3. The Company along with the petition under sec. 391 (1) of the Act presented the Scheme 'Exhibit D' floated by the body of creditors for approval and prayed for the reliefs stated in para-24 of the petition. The petition was admitted on 25-7-2001. This Court directed the petition to be advertised in Times of India (Ahmedabad edition),Gujarat Samachar (Ahmedabad edition) and Sandesh (Ahmedabad edition). Notice in official gazette was dispensed with. The notice to the Central Government was directed to be served through Regional Director,Department of Company Affairs, Bombay. Mr. S.B. Vakil, learned senior counsel with Mr. A.S. Vakil for respondent United Bank of Switzerland, Mr. P.C. Kavina, learned counsel with Mr. A.S. Diwan and Mr. N.C. Thakkar for respondent Commerzebank AG, Mr.P.P. Banaji, learned counsel for respondent Fuji Bank, Ms. Rajni Iyer, learned counsel with Mr.Jal Soli Unwala for respondent Bank of Nova Scotia Asia Ltd, Mr. S.N.Shelat, learned senior counsel with Mr. N.V. Anjaria for respondent Deutsche Bank, Mr. K.S. Nanavati, learned senior counsel with Ms. Megha Jani for respondent Uco Bank, Ms. P.J. Davawala, learned counsel for UOI, Dept. of Company Affairs, Mr. Mihir Joshi, learned counsel for respondent State Bank of Saurashtra, Mr. Sandip Singhi, learned counsel for respondent Exim Bank and Mr. D.S. Vasawada, learned counsel for Textile Labour Association appeared on advance copy being supplied to them. The petition was published in the newspapers referred to above as directed by this Court. 4. Secured Creditors, namely Commerzebank AG, and The Bank of Nova-Scotia Asia Limited, Singapore Branch filed collective objections to the Scheme of Arrangement in response to the public notice of the Company's Advocate published in the issue dated 27-7-2001 of Times of India (Ahmedabad edition). The objectors in their affidavit of objections raised following disputes, namely (1) that the Company cannot invoke jurisdiction of this Court under section 391 of the Act as the Company is a "Relief Undertaking" under the provisions of Bombay Relief Undertaking Act, (2) Jurisdiction to entertainment this petition, (3) there is no genuine compromise or arrangement, (4) the Scheme operates unfairly, while favouring some creditors, the Scheme seeks to confiscate the legitimate rights and securities of the Objectors and members of its class, (5) Sanction of the Scheme, if accorded by this Court would operate as a cloak to cover up the legitimize fraud perpetrated by the Company in collusion with one of its lenders, ICICI Limited (ICICI) and also would legitimize criminal acts and breach of trust as also legitimize gross acts of misfeasance and malfeasance by the Company and ICICI, (6) that the relief sought are beyond the scope of the powers of this Court under section 391 of the Act, and (7) the Scheme offends public and commercial morality, and that the Scheme does not have the approval by requisite majority, that the foreign currency lenders (offshore lenders) have not been constituted as a separate class. 5. On 1-2-2002 Ms. P.J. Davawala, learned Additional Standing Counsel for Central Government stated that the Government of India has no objection to the sanctioning of the Scheme or restructuring and produced letter dated 13-9-2001 by Registrar of Companies, Gujarat, to the said effect. 6. I have heard Mr. S.N. Soparkar, learned senior counsel with Mrs. Swati Soparkar for the petitioner Company, Mr. S.B. Vakil, learned senior counsel with Mr. A.S. Vakil for United Bank of Switzerland, Mr. P.C. Kavina, learned counsel with Mr. A.S. Diwan & Mr. N.C. Thakkar for Commerzebank AG, Mr. P.P. Banaji, learned counsel for Fuji Bank, Ms. Rajni Iyer,learned counsel with Mr. Jal Soli Unwala for Bank of Nova Scotia Asia Ltd, Mr. S.N. Shelat, learned senior counsel with Mr. N.V. Anjaria for Deutsche Bank, Mr. K.S. Nanavati, learned senior counsel with Ms. Megha Jani for Uco Bank, Ms. P.J. Davawala, learned counsel for Union of India, Department of Company Affairs, Mr. Mihir Joshi, learned counsel for State Bank of Saurashtra, M/s. Singhi & Company for Exim Bank and Mr. D.S. Vasawada,learned counsel for Textile Labour Association. 7. It is not much in dispute that the Company at one point of time a leading textile Company in the country fell into rough weather in the latter half of 1990's and incurred losses and confronted with financial crunch. As seen above its debts on 31-3-2000 mounted to approximately $ 593 million / Rs.2700/- Crores and 64 % of the aforesaid debt was from the onshore (Indian Currency) lenders and balance from offshore (foreign currency) lenders - the present objectors are the offshore lenders who have lent money to the Company in foreign currency, namely American dollars and the repayment thereof also agreed to be in the foreign currency. The Company filed Company Application being Company Application No. 160 of 2001 for directions for convening meeting of the various classes of creditors of the Company. Vide order dated 13-6-2001 this Court directed the Company to convene meeting of various classes of creditors of the Company for the purpose of considering and if thought fit approving with or without modification the arrangement embodied in the Scheme of Arrangement. After service of notice individually sent to the creditors as well as the publication of the notice in the local daily newspapers as directed in the said order, the meetings of the different classes of creditors i.e. Unsecured creditors, Working Capital Lenders and Secured Creditors of the Company were convened on 13-7-2001. The said meeting of the unsecured creditors was attended by 21 unsecured creditors. The meeting of the working capital lenders was attended by 12 working capital lenders. The meeting of the secured creditors was attended by 46 secured creditors. All the classes of creditors approved the scheme with requisite majority. Finally, amended Scheme of Compromise or Arrangement (Annexure-D) was put to vote by poll. 35 secured creditors, i.e. 88.56 % in value of the total outstanding secured debt of the Company as of March 31, 2000, present and voting, excluding invalid ballot papers. Six secured creditors representing 14.63 % in number of secured creditors and 11.43 % in value of the total outstanding secured debt of the Company as of March 31, 2000, present and voting, with 5 votes found to be invalid, approved the Scheme of Arrangement and the Chairman reported the result of all the three meetings to this Court vide Report dated 20-7-2001. It is not in dispute that, out of total number of secured creditors the present objectors four (4) in number have chosen to object to the Scheme being sanctioned by this Court under section 391 of the Act. 8. The salient features of the Scheme reproduced in para-14 of the petition read :- a) The Scheme of Arrangement (hereinafter referred to as the "Scheme") with the creditors has the effect of restructuring of the debt of the Company owed to the Existing Lenders (as defined in Section 1 of the Schedule) pursuant to Sections 391 and other relevant provisions of the Companies Act, 1956. b) In the Scheme, unless repugnant to the meaning or context thereof, the following expressions shall have the following meanings: I. "Act" means the Companies Act, 1956 or any statutory modification or re-enactment thereof; II. "Commencement Date" or "Appointed Date" shall mean April, 1, 2000, being the date as of which (or by reference to which) relevant Existing Credits will be restructured on the basis that relevant calculations of and relating to, Existing Creditors are made as of March 31, 2000; III. "effective Date" shall mean the date, which is the later of; i. the date on which the certified copy of the order of the High Court of Gujarat sanctioning the Scheme is filed with the Registrar of Companies, Gujarat, and; ii. the date on which all the conditions precedent set forth in Section 3 (A) and Section 3 (B) of the Schedule are,unless waived as per Clause 19 of the Scheme, satisfied; IV. "Existing Credits" shall mean the credit facilities as specified in Appendix 1 and Appendix 2 of the Schedule; and V. "Schedule" means the schedule annexed to the Scheme being the'Term Sheet' in relation to the restructuring. c) The Term Sheet annexed as the Schedule to the Scheme shall be, unless the Scheme provides otherwise, deemed to be incorporated by reference herein, and all capitalised terms in the Scheme which are not otherwise defined shall have the meaning given to them in the Schedule. The Schedule forms an integral part of the Scheme and all actions that are contemplated to be done or done under or in pursuance of the Term Sheet shall be deemed to have been done in pursuance of the Scheme. Upon the coming into effect of the Scheme, the provisions set forth in the Term Sheet shall become binding in terms of the provisions of the Scheme and shall operate notwithstanding anything to the contrary contained in any deed, instrument or writing, provided that all references to signing of Restructuring Documents to implement the restructuring would be construed as referring to the implementation of the restructuring through the Scheme of Arrangement and "Closing Date" as defined in Section 1 of the Schedule would be construed as referring to the Effect Date and no effect would be given to the date mentioned therein. It is, however, clarified that in the event of any conflict between the Scheme and the Term Sheet, the former shall prevail over the latter. d) From the Effective Date and with effect from the Commencement Date and subject to the provisions of the Scheme including in relation to the execution of any documentation to give formal effect thereto, the Existing Credits of the Company shall be restructured on the terms and conditions and in the manner provided for in the Schedule. e) The restructuring of the Preference Shares may be effected, if need be, by a separate proceedings in accordance with the terms and conditions mentioned in Section 2 (D) of the Schedule. f) Pursuant to Section 1 (under clause (c) of the heading "Credits to be Restructured") of the Schedule, the Non-Retail Public Debenture holders shall be restructured under the Scheme in the same manner as the Restructured Lenders and would accordingly elect or be deemed have elected to participate in either the Buyback Schemes or the Restructuring Schemes on the same terms and conditions as the Restructured Lenders. g) Excluded Debt: The Excluded Debt shall remain unaffected by the restructuring contemplated under the Scheme and the Company shall continue to make the payments due in relation to them as and when they become due and payable. Provided however, that any consequential changes to their terms in relation to the restructuring of the security or otherwise to give effect to the restructuring of the debt under the Scheme, shall be carried out by the Company. h) Modification of Security: From the Effective Date and subject to the provisions of the Scheme including in relation to the execution of any documentation to give formal effect thereto,the approvals from any party which is not a holder of the Existing Credits and the time frame therefor, the following security shall be deemed to be created and/or modified in the manner provided for in Section 4 of the Schedule: (i) security held by the Existing Lenders (first charge and second charge); (ii) security held by the Working Capital Lenders; and (iii) security to be created in favour of the lenders providing the New Debt and/or participating in Debt Buyback Scheme C. i) Documentation: The Existing Credits of the Company have been restructured under the Scheme and all rights and liabilities relating to the restructured debt are created under the Scheme. In addition, the Company and the Restructured Lenders shall enter into any documentation that may be required, only to give formal effect to the restructuring and for the creation of the security contemplated by the Scheme,and to govern the prospective/ongoing relationship between the Company and its Existing Lenders (including covenants of the Company,supervision of the management of the Company, Events of Default etc.) Section 11 (C) of the Schedule and the references in the Schedule to Restructuring Documents would be construed accordingly. Provided however that on and from the Effective Date, in the absence of the formal documentation referred to above, the rights,obligations and privileges of the Company and the Existing Lenders shall continue to be governed by the documents in relation to the Existing Credits in so far as the same are not inconsistent with the provisions of the Scheme, and to the extent of any inconsistency between the Scheme and the said documents the Scheme shall prevail. j) Election to the Restructuring and Buyback Schemes: As indicated in Section 2 (A) of the Schedule (under the heading "Election Process") the Restructured Lenders are to make elections to the Debt Buyback Schemes and/or the Restructuring Schemes. Such election shall be made within seven days from the date of conclusion of the meeting of the classes of the Existing Lenders. As this election has already been made by most of the Existing Lenders consenting to the Term Sheet pursuant to a circular sent by the Company, such Existing Lenders would not be required to send fresh letters of election and in the absence of such fresh letters of election their existing elections shall be deemed to be the elections for the purposes of the Scheme. The Existing Lenders not consenting to the Scheme at the meeting of the classes of the creditors would be dealt with in accordance with Section 11 (B) of the Scheme. k) Regulatory Approvals for Payments: The Company shall make all the payments contemplated under the Debt Buyback Schemes, subject to all necessary regulatory approvals. The Company shall make all necessary applications ( and shall do all follow up actions that may be required) to the relevant regulatory authorities for effecting such payments. In the event that any payments that are required to be made by the Company cannot be made immediately due to regulatory reasons, the Company shall open a separate no lien account with a third party agent acceptable to the Existing Lenders whose payments cannot be made and such account would be charged to the Security Agent or any other agent chosen by such Existing Lenders for the benefit of the Existing Lenders and the Company would make all necessary applications