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2002 Supreme(Cal) 631
High Court Of Calcutta
Amitava Lala
KAL ELECTRONIC AND CONSULTANCY (P.) LTD. - Appellant
Versus
HINDUSTAN DEVELOPMENT CORPORATION LTD. - Respondent
C. S. 149 Of 2001
Decided On : 09/20/2002
D.DAS, D.SINHA, G.S.ASOPA, K.V.VISWANATHAN, M.DAS GUPTA, R.BASU CHOWDHURY, R.MITRA, S.BOSE, S.N.MUKHERJEE
The pendency of a proceeding before the BIFR under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, does not bar a company from proceeding with an application before a court, if the company was not a sick company at the relevant point of time and the application is made jointly by two companies, one of which is a running concern.
Headnote:
COMPANY LAW - SCHEME OF ARRANGEMENT - UPGRADATION OF CHARGE - TERMS OF SETTLEMENT - MAINTAINABILITY OF APPLICATION - RES JUDICATA - TERRITORIAL JURISDICTION - INVOCATION OF JURISDICTION OF BIFR - SCOPE AND AMBIT OF SECTION 22 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 - VALUATION OF ASSETS - COMPREHENSIVE APPLICATION - APPOINTMENT OF SPECIAL OFFICERS - EXECUTION OF DOCUMENTS AND DEEDS - REMUNERATION OF SPECIAL OFFICERS.
Fact of the Case:
A joint application was filed by two companies, one being a going concern and the other having financial stringency, for consideration and confirmation of a scheme of arrangement amongst themselves. The shareholders of both the companies approved the scheme by an overwhelming majority. Subsequently, a joint application was made under Section 391(2) of the Companies Act, 1956, before the High Court. Advertisements were published as per the direction of the court. Various secured creditors of the company gave their "no objection" letter through the Company Law Board in respect of the scheme of arrangement. On April 26, 2000, the said scheme of arrangement was duly confirmed by the High Court.
Finding of the Court:
1. The application filed by the petitioners is maintainable. The principle of res judicata is not applicable in the present case as the principle of "res sub judice" is attracted herein. 2. The court has territorial jurisdiction to hear the suit as the cause of action is arising within the jurisdiction. 3. The pendency of the proceeding before the BIFR under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, does not bar the company from proceeding with the application, as the company was not a sick company at the relevant point of time and the present application is made jointly by two companies, one of which is a running concern. 4. The valuation report produced by the trustee bank, which reflects only the book value on the basis of the balance-sheet and not the market value, is not sufficient. 5. The suit is comprehensive in nature in connection with the right of debenture holders as per the resolution of the meeting. 6. The apprehension of the debenture holders in respect of losing their status by upgradation of the charge with the Punjab National Bank is not justified as the rank pari passu is applicable amongst the debenture holders themselves and not with others.
Issues: 1. Whether the application filed by the petitioners is maintainable? 2. Whether the court has territorial jurisdiction to hear the suit? 3. Whether the pendency of the proceeding before the BIFR under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, bars the company from proceeding with the application? 4. Whether the valuation report produced by the trustee bank is sufficient? 5. Whether the suit is comprehensive in nature in connection with the right of debenture holders as per the resolution of the meeting? 6. Whether the apprehension of the debenture holders in respect of losing their status by upgradation of the charge with the Punjab National Bank is justified?
Ratio Decidendi: 1. The principle of res judicata is not applicable in the present case as the principle of "res sub judice" is attracted herein. 2. The court has territorial jurisdiction to hear the suit as the cause of action is arising within the jurisdiction. 3. The pendency of the proceeding before the BIFR under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, does not bar the company from proceeding with the application, as the company was not a sick company at the relevant point of time and the present application is made jointly by two companies, one of which is a running concern. 4. The valuation report produced by the trustee bank, which reflects only the book value on the basis of the balance-sheet and not the market value, is not sufficient. 5. The suit is comprehensive in nature in connection with the right of debenture holders as per the resolution of the meeting. 6. The apprehension of the debenture holders in respect of losing their status by upgradation of the charge with the Punjab National Bank is not justified as the rank pari passu is applicable amongst the debenture holders themselves and not with others.
Final Decision: The application filed by the petitioners is allowed. Mr. Kalyan Banerjee and Mr. Tridib Kr. Sarkar are appointed as Special Officers to execute appropriate documents for the upgradation of the existing charge in favour of the Punjab National Bank and to execute a deed of release of the charge of the cyanide plant of defendant No. 3 company, respectively. The Special Officers will be entitled to remuneration of 1,000 gms. each, which will be paid by the defendant companies at the first instance. Conveyances and other incidental charges will also be borne out by them.
( 1 ) DEFENDANT No. 1 is a company having financial stringency. Defendant No. 3 company is a going concern. This is a joint application of both the companies. The plaintiff-company is the debenture holder of defendant No. 1 company. The convertible part of such debentures has already been converted into equity shares and the non-convertible part has been redeemed. Defendant No. 2 is the trustee bank of the debenture holders.
( 2 ) UPON observing recent recession in the steel industry defendant No. 1 and defendant No. 3 wanted to make arrangement amongst themselves. As a result whereof an application for consideration and confirmation of the scheme of arrangement was jointly made before this High Court having company jurisdiction. Shareholders of both the companies were directed to hold separate meetings. The shareholders of both the companies by an overwhelming majority accorded approval of the scheme of arrangement. Subsequently, a joint application was made under Section 391 (2) of the Companies Act, 1956, before this High Court. Advertisements were published as per direction of the court. Notice was served upon the Central Government through the Regional Director, Eastern Region, Company Law Board. Besides the Central Government various secured creditors of the company like Industrial Development Bank of India (IDBI), Air Force Group Insurance Society, Unit Trust of India, Naval Group Insurance Fund, Industrial Finance Corporation of India Ltd. (IFCI) and Industrial Credit and Investment Corporation of India Ltd. (ICICI) gave their "no objection" letter through the Company Law Board in respect of the scheme of arrangement. On April 26, 2000, the said scheme of arrangement was duly confirmed by this High Court.
( 3 ) THE Bank of Baroda, trustee of the debenture holders did not appear in the scheme at any stage. However, Bank of Baroda, during the pendency of the confirmation, expressed its desire to hold separate meetings of the debenture holders series (vii), (viii) and (ix) which were pending for redemption. By a notice dated January 28, 2000, of defendant No. 1, debenture holders meeting was held on February 22, 2000. Such notice was not only sent by post to the debenture holders but the same was published in the newspaper, i. e. , The Financial Express all over India. According to the petitioners such newspaper published from Bangalore, where the office of the debenture holder company is situate. In any event on February 22, 2000, a meeting was held and ballots were counted on the basis of the debenture value. The meeting was further adjourned till March 7, 2000, where the proposals were finally resolved. This is to be noted hereunder that the Bank of Baroda being the trustee of such debenture holders not only took the initiative of calling the meetings of the debenture holders but also drew up the resolution.
( 4 ) THE relevant part of the resolution is that the debenture trustee was thereby authorised to elevate the existing second charge of the Punjab National Bank on the movable and immovable properties relating to the company's composite steel plant of its unit Madhya Pradesh Iron and Steel Company situate at Malanpur, Distric Bhind (Madhya Pradesh) for the outstanding credit facilities granted by the Punjab National Bank, to a first charge ranking pari passu with the existing charges thereon of the debenture holders/lenders. It was further resolved that the trustee-Bank of Baroda be and are hereby permitted and authorised to release the mortgage on the entire cyanide plant of Cyanides and Chemicals Company comprising land situated at Olpad, District Surat along with buildings and structures, plant and machinery, and other fixed movable assets created on February 24, 1993, in favour of the trustee. It was also resolved that the trustee-Bank of Baroda be and are hereby permitted and authorised to accept additional security by way of legal mortgage of land at block No. 690, having an area of 3,946
