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2008 Supreme(Mad) 1460
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.K. MISRA & THE HONOURABLE MR. JUSTICE S. TAMILVANAN
Reserve Bank of India having its Central Office at Mumbai and Regional Office at Fort Glacis
Versus
Integrated Finance Company Ltd.
O.S.A.Nos.308 of 2006, 309, 312 of 2006 & O.S.A.No. 91 of 2007 & M.P.NOs.1 & 2 of 2006
Decided on : 30-04-2008
For the Petitioner:T. Poornam, V. Prakash, Senior Counsel, P.V. Ravichandran, T. Suresh , K.F. Manavalan, Advocates.
For the Respondent:Arvind P. Datar, Senior Counsel, P.H. Arvindh Pandian, K.M. Vijayan, Senior Counsel, Vijay Narayan, Senior Counsel, R. Viduthalai, Senior Counsel, Chandrasekhar, Advocates.
Headnote:A. COMPANIES ACT, 1956 - SECTION 391 to 393 - While considering scheme for sanction, courts are required to find out as to whether procedural aspects are complied with - Next question is whether scheme is commerically just and fair - Courts should also find out whether scheme is violative of any provisions of law or opposed to public policy - Courts cannot go into the nitty - gritty of the various suggestions in scheme - Company court cannot substitute its own wisdom for that of the share holders, who give consent to a scheme - Courts can intervene only in those rare cases when it is so unreasonable that no man of ordinary prudence can accept such a scheme (Para 9, 12.1, 12.2).
B. COMPANIES ACT, 1956 - SECTION 235 to 251, 391(1) and 391 (2) - Reserve Bank of India Act, 1934 - Section 45MB - While seeking permission of court under Section 391, company is required to act fairly and in a transparent manner - It includes duty of disclosing all relevant facts and circumstances - Requirement is for disclosure of any investigation pending under Section 235 to 251 and the like - Initiation of action by RBI under Section 45 MB of the RBI Act was an important aspect which ought to have been disclosed by company - Non-disclosure of action taken and initiated by RBI amounts to non-disclosure of relevant facts required to be disclosed under Section 391(1). (Paras 18 and 19).
C. RESERVE BANK OF INDIA ACT, 1934 - SECTION 45Q, 45QA - Companies Act, 1956 - Section 391 - 45Q makes it very clear that provisions of Chapter III-B shall have effect notwithstanding anything inconsistent therewith in any other law Section 45QA intends to protect depositors - It should have primacy over any other law inconsistent with such provision - If direct aspect of a scheme under Section 391 offends provisions contained in Chapter III-B, to that extent scheme under Section 391 must give way. (Para 15, 28, 29.1, 36).
Result: OSAs allowed.
P.K. Misra, J.
Company Petition No.160 of 2005 was filed under Section 391 of the Companies Act, 1956 (hereinafter referred to as “the Act”) by M/s. Integrated Finance Company Limited (hereinafter referred to as “the Company”), a private company incorporated under the Companies Act, for getting approval of the Scheme of arrangement/compromise between the said company and some of the creditors, namely, the deposit holders and bond holders.
1.1 The Company is a non-banking finance company incorporated under the Act and engaged in the business of hire purchase and lease. Expressing its inability to carry on its business on account of various factors, the Company presented a Scheme under Section 391 of the Act for an arrangement / compromise with the class of creditors, namely, the bond holders and deposit holders.
1.2 The salient features of the Scheme as contained in such petition are to the following effect :-
"4. PAYMENTS TO FIXED DEPOSIT HOLDERS / BOND HOLDERS
4.1 The Company would settle all the deposit holders up to maturity value of Rs.20,000/- as and when it falls due.
4.2 The scheme would provide for the following.
(a) Conversion of all the deposit holders and bond holders into secured convertible debentures carrying on interest of 6% p.a. convertible into equity before the expiry of 1 year from the date of allotment with an option to the company to prepay the value of debentures before the due date of conversion. The conversion price will be determined taking into account the valuation laid down by SEBI guidelines.
(b) The debentures will be issued with periodical interets payment option to the deposit/ bond holders who are holding regular interest payment option presently and for those deposit/ bond holders holding payment of interest under cumulative option, interest will be added to the value of the debenture for conversion at the time of maturity.
(c) By virtue of this scheme, all the deposit holders and bond holders would become secured creditors in the books of IFCL at the first year. The Trustees for the Bonds would be the Debenture Trustees in the post scheme scenario and a Debenture Trust Deed charging the assets of Rs.125 crores of receivables, accrued interest, investments, assets and available stock on hire would also be made so as to comply with all the norms for the purpose of fully convertible debentures.
3. By virtue of the conversion, the outflow of the company would be a quarterly payment of interest depending upon the type of deposit/ bond held by the creditors. At the end of the tenure the debentures would either be redeemed or converted as equity shares at the given appropriate exit route as the Company is a listed company and a fairly large tradable market capitalization being available for the liquidation of these converted shares. The conversion of deposit holders/ bond holders into secured convertible debentures and thereafter into equity shares of the company will ensure their benefits since the company established new lines of business such as financial BPO and is in the process of expanding the same.
4.4 The reduction in interest rates would result in cash flows from operations. Apart from this Rs.125 crores of stock hire being available which would be used for funding the operations.
4.5 A detailed cash flow will be furnished as may be directed by the Honble High Court giving out particulars of amount of recoverable from the stock on hire and through revenue generation from operations.
4.6 The scheme is not offered to the Banks since the stock on hire pledged / hypothecated is about Rs.80 crores as against their dues of Rs.62 crores. Since none of the banks interest is prejudiced nor any of the assets charged to them, this scheme is not being offered to them and it is only the deposit holders and bond holders whose right are being dealt with in the Scheme of Arrangement and compromise. Thus there is no direct or indirect interest of the Banks being prejudiced or affected.
5. Si
