ORDER
Sunil Ambwani, J.
1. This Company Application No. 21 of 1998 under Section 391(1) the Companies Act, 1956 (‘the Act’) along with application under Section 392(6) was filed on 20-11-1998, praying for Judge’s summons for calling a meeting of creditors of the company to consider a scheme of compromise and/or arrangement between the company and a class of its creditors enclosed as Ext. ‘1’ to the application. On its presentation, the Court directed the matter to be listed along with pending creditors
winding up petitions against the company mentioned in Ext. ‘B’ to the application. On 27-11-1998, the matter was directed to be listed along with pending company petition Nos. 12, 15, 16, 84, 89 of 1997 and company petitionNos. 18, 92,125 & 27of 1998. By order dated30-l 1-1998, this Court felt that before hearing the copies of the application be served on the counsel for the petitioners in the aforesaid company petitions inviting reply/counter affidavits. Objections have been filed by Basant Agro Tech. (1) Ltd. Akshaya Corporation, Metro Chem Industry Ltd. ION Exchange, Raunaq Financial Ltd. Rajeev Securities & Sales (P.) Ltd. and Gill and Company to which the company has filed a rejoinder affidavit of Shri Sandeep Chaturvedi, Manager (Legal) of the company.
2. While the application under Section 391(1) was pending an order was passed by this Court in a Creditors winding up petition filed by Gill & Company on 5-11-1998 to deposit a sum of Rs. 10,00,000 by Bank Draft in 2 equal instalments. The first instalment of Rs. 50,00,000 was to be deposited within six weeks from the date of order and the second instalment was be payable within six weeks thereafter and in the event of default, the petition was directed to be advertised in accordance with Rule 24 of the Companies (Court) Rules, 1959. Aggrieved the respondent company Vidiani Engineers Ltd. filed a Special Appeal No. 1065 of 1998 which was admitted on 10-12-1998 and that while staying the deposit of Rupees Five Lacs directed by learned Single Judge the company was required to comply with deposit of first instalment of Rupees Five Lacs, with a clarification that advertisement shall remain stayed provided the appellant-company complies with the directions. In the short counter affidavit of Minoo Fall Titina, holding special power of attorney of Gill & Co., it has been stated, and has not been denied by the counsel for the company, that the order for deposit of 50 lakh was not complied with by the company. A short counter affidavit of Minoo Fali Titina, holding special power of attorney on behalf of Jaykumari Mani Lal Shah, a creditor of the company, to the same effect has been filed informing the Court that the company has failed to comply with the direction to deposit Rs. 50 lakh and thus the compromise scheme which has been formulated in not feasible and credible at all.
3. In the application under Section 391(1) of the Act, the company has stated that it was incorporated with authorised shares capital of Rs. 15,00,00,000 divided into 1,50,00,000 equity share of Rs. 10 each, out of which Rs. 12,58,28,900 was subscribed up to 31-3-1998. The company made good profitable business up to 1995-96 but on account of the false assurance given by the Bankers of the company namely Federal Bank to enhance the working capital, the bank delayed the sanctioning of the enhancement of the working capital to the company, who by that time, had accepted big orders on the basis of the assurance given by the bank and thus the company was forced to borrow and arrange working capital from the private lenders at exorbitant rated.
These short-term private borrowings were for temporary period and that their repayment become due even before the dispatch/delivery were ready of the aforesaid big orders. The company had, therefore, to borrow further funds to honour the commitment of repayment to private lenders. As the assured bank finance did not materialized, the company came into the debt trap of private lenders. The company fell further into financial liquidity crunch which resulted into default in payment to the creditors. The post-dated cheques issued were dishounoured on which the creditors resorted to the criminal proceedings under Section 138 of the Negotiable Instrument Act, 1881 the list of which has been annexed to the application as Exhibit ‘A’, This list shows that as many as 106 criminal complaints under Section 138 of the Negotiable Instrument Act were pending against the company for dishonour of cheques, in Bombay, Pune, Delhi, Jodhpur and in various other parts of the country. Exhibit ‘B’ is the list of ten winding up petitions filed before this Court and Exhibit ‘C’ is the list of eleven suits pending against the company in High Court at Bombay, Calcutta and Madras and D.R.T . New Delhi. The most significant of this is suit No. 581 of 1998 filed by Federal Bank Ltd. against the company in High Court at Bombay. Ext. ‘C-1’ is the list of five cases which have been settled by the company and list 4 cases which have been partly settled including company application No. 16 of 1997 filed by Basant Agro Tech India Ltd. at High Court Allahabad. Exhibit ‘C-11’ is the list of about 74 creditors who have served demand notice on the company and Exhibit ‘C-111’ is the list of creditors totalling Rs. 25,65,600 to whom third party security has been given by way of pledging the shares. Exhibit ‘D’ ‘E’ ‘F’ arc the letters issued by the Federal Bank Ltd. In October, November & December, 1995 certifying that the applicant company is respectable and can be treated to be good up to a sum of Rs. 16,40,00,000. This letter is dated 16-10-1995.
4. In the scheme of compromise/arrangement, the company has defined the creditors to mean, those persons other than subsidiaries, associates, concerns and financial institute who had filed claims against the company as on 30-9-1998 towards bill discounting facilities, lease finance, short-term loans/inter-corporate deposit, irrespective of whether those persons have instituted proceedings against the company by way of suit or petition for winding up, or for recovery of the claim, and have not obtained decrees or orders by consent or otherwise in their favour for payment of such claim against the company, but does not include those who have been paid in full as on 30-9-1998. The claims have been defined to mean the dues of the creditors of the company inclusive of simple interest at the rate of 12 per cent per annum up to 30-9-1998 as per books of account of the company after giving due creditor payments made by the company up to 30-9-1998. The scheme with its appointed date 30-9-1998 provides that the creditors having their claims up to Rs. 5 lakh shall be paid within 12 months from the effective date. Those creditors having their claims above Rs. 5,00,000 but less than Rs. 20 lakh will be paid their
claims within 24 months from the effective date, but those having claim Rs. 20 lakh will be paid within 36 months from the effective date and that simple interest at the rate of 12 per cent per annum will be paid on reducing balance from the appointed date, till final payment during the period of 24 months after the expiration of 36 months from effective date and Clause 4 provides that the creditors will not be entitled to any interest after the expiration of 36 months from effective date. Clause-II of the scheme provides that the company has got sundry debtors of Rs. 53,58,19,807 against the sundry creditors of Rs. 67,24,182 and the company is expecting to recover the said outstanding debts from its debtors which is outstanding since long and as the said debtors have started making the payments, the company is very much hopeful to recover the same at earliest and propose to utilize the same in repayment of creditors claims. The company proposes to take up the matter of enhancement of working capital with their bankers and replace the short-term private borrowings with the above said bank finance, as the Maximum permissible Bank Finance to the company is more than Rs. 17,00,00,000 as against the availability of meager Rs. 6,25,00,000 bank finance at present. Company is also holding 80 lakh equity shares of Vidiani Agrotech Industries Ltd., acquired by the company by investing heavy sum of Rs. 8,00,00,000. The above Vidiani Agro Tech Industries Ltd. is likely to go in commercial production in ten to twelve months and Vidiani Agro Tech Industries Ltd. is expected to declare more than 20 per cent dividend in its very first year of working.
5. In the pending winding up proceedings the amount due against the company is Rs. 2,43,05,75,160 which was due in the year 1997-98 when these company petition are filed.
6. In the counter affidavits filed by Basant Agro Tech. Industries Ltd. and Akshya Corpn., it has been stated that the Federal Bank has filed a suit No. 581 of 1998 against the company on original side of the High Court at Bombay claiming a decree of Rs. 3,38,98,680 towards cash credit facility and Rs. 26,38,320 towards Bill discounting authorities. In paragraph 3 the objector stated that the statement of petitioners that there are creditors to the tune of Rs. 67,24,60,182 requires scrutiny as the list of unsecured creditors has not been supplied and that the company is merely floating proposal for settlement with a view to protract the winding up proceeding and to obtain relief from civil and criminal proceeding. In paragraph 4 of the objection the bona fides of the compromise or arrangement has been doubted. Commenting up Exhibit RA-1 which is the scheme of compromise/arrangement, it has been stated that payment of the creditors without admitting liability is sought to be deferred and that there is no concrete suggestion of source wherefrom the creditors would be paid. Commenting upon balance-sheet in para 5 of the objection it has been stated that the balance-sheet dated 32-3-1998 shows secured loan as Rs. 27,71,00,000 unsecured loans as Rs. 10,98,00,000 and current liabilities as Rs. 47,05,00,000. Total liability comes to Rs. 85,74,00,000. As against this,
the company has stated that there are debtors to the petitioners the extent of Rs. 53,58,00,000 of which the list has not been given. Out of these debts, of Rs. 33,08,00,000 are more than six months, the recoveries are, therefore, improbable. Besides, it has been stated that loans and advances are shown at Rs. 14.80 crores and cash and bank balance is said to be Rs. 1.06 crores, stock Rs. 3.13 crores total of which comes to Rs. 72.57 crores. No provision has been made for the liability of payment of interest on the said loans and the date from which interest is due has also not shown in the balance-sheet. In the profit and loss account Rs. 19,35,702 is shown as payment of interest but the amount of interest which is due towards secured and unsecured creditors has not been mentioned.
7. Shri Navin Sinha, Senior Advocate, appearing for the objectors has also drawn attention to the 8lh Annual Report 1997-98 annexed to the supplementary rejoinder affidavit of Sri Sandeep Chaturvcdi filed on 25-5-1998, more particularly to paragraphs 5 and 8 to Schedule ‘K’ Notes of Account which provides as follows :
“5. Provision has not been made in the accounts for interest on term loan from IDBI amounting to Rs. 359.71 lacs, interest on 19. Non-convertible Debentures amounting to Rs. 29,76 lacs, interest on working capital loans from Federal Bank amounting to Rs. 76.06 lacs, interest on loan from State Bank of Banaras Ltd. amounting to Rs. 26.86 lacs, interest on loan from Mashrcque Bank amounting to Rs. 56,43 lacs, interest on loan on Hire Purchase basis amounting to Rs. 32,70 lacs, interest on bills payable and discounted amounting to Rs. 246.51 lacs, interest on unsecured loans from various parties amount unascertained. Also interest of earlier years amounting to Rs. 271.65 lacs on bill payable and discounted has not been provided. With the result the profit of the company has been overstated by Rs. 1135,67 lacs and to that extent the liabilities of the company has been understated.”.
“8. Investments (Quoted, other than trade) represent 80 lakhs equity shares of Rs. 10 each amounting to 8 crores in Vidiani Agrotech Industries Ltd. Market value of the Investments, which are valued at cost, is Rs. 40,00,000 as on 31st March, 1998. In the opinion of Directors, no provision for diminution in value of Investment if considered necessary as required in Standard of Accounting for Investments (AS13) issued by the Institute of Chartered Accountants of India which has come into force from 1st April, 1995 since the diminution in value is considered temporary and investments are locked in for a period of 5 years from the commencement of commercial production in the said company.”
8. This application under Section 391(1) is pending since 20-11-1998. The order-sheet shows that it could not be heard on account of adjournment taken by the applicant company on 10-5-1999, 25-5-1999, 4-8-1999, 21-8-1999, 27-1-2000, 11-2-2000, 19-4-2000, 28-7-2000 and 16-7-2001 out of the aforesaid dates, the matter was adjourned on 4-8-1999, 28-7-2001 and 16-7-2001 on the ground that the cases of Senior Counsel Shri S.P. Gupta appearing for company are adjourned. It is thus apparent that the
company Vidiani Engineers Ltd. was not interested to get the application heard expeditiously. The whole object of the applicant appears to be to delay the proceedings in which the company. Vidiani Engineers Ltd., which is heavily indebted, has succeeded. Not attempt has been made to update the application by filing the balance-sheet and the lasted position of the creditors and debtors which are required to be paid. Balance-sheet up to the year 30-3-2000 and 30-3-2001 have not been filed. The company is unable to give the current status of Original Suit No. 581 of 1998 filed by Federal Bank on the original side of the High Court at Bombay and the other suits filed by Banaras State Bank Ltd. I find considerable substance raised by Shri Naveen Sinha, Senior Advocate, that the company has filed to disclose its true and correct financial position to the Court. The hope expressed by the company in recovering the amount from its creditors and further amount to be raised from Bank and Financial Institutes by way of working capital in the scheme does not inspire any confidence. The names of debtors and the steps taken by them has not been disclosed. The Bank has already recalled their dues and have filed suits against the company. The shares of Vidiani Agro Tech. Industries Ltd. stated to be worth Rs. 8,00,00,000 have been found to be valued by the auditors for only Rs. 40 lakh and there is nothing on record to show that Vidiani Agro Tech Industries Ltd. which was expected to give 20 per cent dividend has gone into production. From Auditors report, it is found that the profit of the company has been over stated by Rs. 1135,67 lacs and to that extent the liability has been understated.
The agreed interest due to the bank and financial institutes has also not been projected in the balance-sheet for the year ended 31-3-1998. The balance-sheet therefore, appears to be prepared and doctored for the purposes of acceptance of the compromise/schemes by the Court.
9. In paragraph 7 of the rejoinder affidavit the company has given the list of creditors who have given their approval to the scheme by giving affidavit. The total credit to these 653 creditors comes to Rs. 7,78,02,931 which is not even 10 per cent of the total amount due to the secured creditors as stated in the balance-sheet for annual account for the year ended 31-3-1998.
10. In the aforesaid facts and circumstances, I find that the company has not truly disclosed its financial position to the Court. The account for the year ending 31-3-1998, which confirms the basis of scheme, do not project the true and correct picture of the financial position of the company. Further the company has delayed the consideration of the scheme by seeking adjournment from 1999 to 2001, for obvious purposes to delay the hearing of the company petition, and that in the entirety of the facts and circumstances the basis of the scheme and its proposals are unfair and are not capable of being implemented. The company application filed under Section 391(1) along with application under Section 391(6) of the Companies Act, 1956 is accordingly dismissed.
