SHIV KUMAR SHARMA, J. - (1.) MODERN Denim Ltd., (in short 'the petitioner -company') has filed this petition under Section 391 of the Companies Act, 1956 (hereinafter shall be referred to as 'the Act of 1956') for sanctioning the scheme of compromise between the petitioner -company and its secured creditors.
(2.) THE petitioner -company was incorporated as Modern Suitings P. Ltd., in November, 1977, as a part of Modern group of companies. As a part of an exercise to restructure its activity the Modern Suitings Ltd. spun off its suiting division to Modern Syntex (India) Ltd. in April, 1993 under the scheme of arrangement approved by this court. The name of Modern Suitings Ltd., thereafter was changed to the present name, i.e., Modern Denim Ltd. (in short 'MDL'). The petitioner -company till 1997 was earning profits and its operations were profitable. From the year 1998 the operations of the petitioner -company suffered losses on account of worldwide recession and excess supply scenario in denim industry. This situation remained worst till 2001 -2002. On account of accumulated losses the net worth of the petitioner -company was completely eroded as on March 31, 2000 and consequently upon reference to the Board for Industrial and Financial Reconstruction (in short 'BIFR') to get itself registered as a sick industrial company in terms of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. The petitioner -company was declared as a sick company. It has been given out in the petition that the revival scheme was under progress. In the petition it was stated that the debt burden of the petitioner -company reached at unserviceable level and in these circumstances it was not possible for it to carry on its business effectively without reducing the debts due to the creditors to a serviceable level and further a necessity was felt for rescheduling and restructuring of the existing debts. For this purpose an elaborate scheme of compromise was prepared in order to enter into compromise with the secured creditors of the petitioner -company. It is averred in the petition that it is imperative in the best interest of the company and also the creditors to settle the debts in terms of the scheme of compromise which would prevent the company from getting insolvent. The creditors would also be benefited through the channel of recovery, if the company remains a running concern, and the same is not put under liquidation. It is submitted that the proposed scheme of compromise with secured creditors would enhance the opportunities of revival of the company by benefiting the company. The petitioner -company in its board meeting approved the proposed scheme of compromise by unanimously passing a resolution in its meeting held on August 10, 2006. Thereafter, the petitioner -company filed Company Application No. 44 of 2006 before this court. This Court on August 18, 2006 directed to convene meeting of the secured creditors of the petitioner -company for the purpose of considering the said scheme of compromise. The meeting of the secured creditors was convened on September 20, 2006. The meeting was attended by 11 secured creditors and the total value of their debts was Rs. 224.86 crores. The proposed scheme was approved by seven secured creditors holding Rs. 181.53 crores of the secured debts representing 80.73 per cent, in value of the total value of debts as against four secured creditors holding Rs. 43.33 crores of the secured debts representing 19.27 per cent, of the total value of debts present and voted.
(3.) THE Regional Director, Ministry of Company Affairs, New Delhi, in the affidavit stated that out of 11 secured creditors who participated in voting, four secured creditors having their debts aggregating to Rs. 43.33 crores voted against the scheme. It is submitted that the Registrar of Companies, Jaipur, intimated to its office regarding receipt of some complaints in respect of non payment of fixed deposits under Section 58A of the Companies Act, which is subject to Company Law Board orders dated December 29, 1997. The petitioner -company failed to submit no objection certificate to the scheme of arrangement from the Jaipur Stock Exchange. The petitioner -company vide its letter dated November 18, 2006, informed that the scheme of compromise is for the secured creditors and not for the shareholders and hence NoC from the Jaipur Stock Exchange was not obtained. The Regional Director in his affidavit also incorporated the auditor's report. In paragraph (v) of the auditor's report, it was stated: (v) The directors, other than the nominee directors of the company are restricted from being appointed as director in other companies under Clause (b) of Section 274(1)(g) of the Companies Act, 1956, as the company has defaulted in payment of deposits, term loans, redemption of debentures and interest thereon. In paragraph (vi) of the auditor's report it was stated thus: (a) Compound interest, penal and liquidation damages in respect of all borrowings have not been provided, amount of which is unascertainable pending confirmation/reconciliation. (b) Dividend for the year amounting to Rs. 110.75 lakhs on cumulative redeemable preference shares has not been provided. The total amount of dividend not provided till March 31, 2006, amounts to Rs. 1,107.50 lakhs. (c) Provision for the interest for certain secured and unsecured loans amounting to Rs. 486.69 lakhs has not been made in accounts. The total amount of interest not provided till March 31, 2006, amounts to Rs. 2737.36 lakhs. (d) Balances of debtors, creditors, advances and loans, etc., are subject to confirmation and reconciliation, if any. (e) Pursuant to restructuring of some of the borrowings, the company has taken credit of Rs. 14,212.52 lakhs to the profit and loss account as exceptional items, pending fulfilment of future obligations. Total credit taken by the company up to March 31, 2006, which are subject to fulfillment of future amounts to Rs. 19,994.95 lakhs. (f)The accounts of the company have been prepared on going concern basis though the BIFR has declared the company as a sick company. ;