MAHARASHTRA APEX Vs. NIL

JUDGEMENT

(1.) THE petitioner - Maha Rashtra Apex Corporation Limited has filed this petition under Section 391-393 read with Section 394a of the Companies Act 1956 (for short hereinafter referred to as the Act) seeking sanction of this court to the scheme of compromise and arrangement (revised) entered into between them and its creditors, share holders, bond holders, deposit holders,

(2.) THE case of the petitioner is as hereunder; the petitioner company was incorporated on the 26th day of April 1943 under the Indian Companies Act 1913 as a public limited company under the name and style of Maharashtra Apex Bank Limited. They obtained a certificate of commencement of business on 5th May 1943. Subsequently the name of the petitioner was changed to Maharashtra Apex Corporation Limited on 2nd September 1955. Thereafter the name of the company was changed as Maha Rashtra Apex Corporation Limited on 22 March 1996. The registered office of the petitioner-company is situated at Syndicate House, Upendra Nagar, Manipal, in the State of Karnataka. The authorized capital of the petitioner-company is Rs. 40 crores divided into 1 crores equity shares of Rs. 10-00 each and Rs. 2 crores redeemable cumulative preference shares of Rs. 10/-each. The details of the issued, subscribed and paid up share capital of the petitioner-company as on 31st March 2002 is set out in paragraphs-5 and 6 of the petition. As is clear from the said paragraphs the petitioner-company has issued 1,41,50,100 equity shares of Rs. 10-00 each; 17,63,500, 17. 5% redeemable cumulative preference shares of Rs. 10-00 each. It is stated that subsequent to 31st March 2002 no material change or alteration has been made to the share capital of the petitioner-company. However, they have not paid redemption amount on preference shares on the due dates in respect of repayment falling due from September 2002 onwards. The petitioners equity shares are listed at National Stock Exchange, Mangalore, Pune, Bangalore and Mumbai Stock Exchanges and comprises of around 12000 public equity share holders besides equity shares held by the promoters and their associates. In para-8 of the petition they have set out the share holding as on 31. 3. 2002. The main object of the petitioner-company is set out in the memorandum of association. It discloses that the petitioner-company is mainly engaged in deposit mobilization, hire purchase, leasing, bill discounting, demand loans and money changing business etc. The petitioner-company is a non-banking financial company classified as hire purchase and equipment leasing company by the Reserve Bank of India, The audited accounts of the company for the year ending 31st March 2002 is produced along with the petition. It discloses that the accumulated loss as on 31st March 2002 stood at around Rs. 105. 85 crores. The petitioner-company submits that the fiscal reforms and the rapid changes in the monetary system necessitated structural adjustments and further even economy in the country had moved from regulated interest regime to deregulated interest rate mechanisms subject however to the directions and instructions and to the over-all policy frame-work issued by the Reserve Bank of India, ft is contended that the petitioner-company is managing its business affairs without any major difficulty or constraints right from the inception in the year 1943 and have paid uninterrupted dividend since its inception till 1999. The petitioner had set up over 100 branches and supported by over 350 sub-offices, over the length and breadth of the country wide network of agents. Due to adverse financial situations they have closed down many of its breaches and is presently functioning through 36 branches across the country. The petitioner-company could mobilize over Rs. l00 crores deposits during the period April-December 1997 and deployed them in financial assets with utmost commercial prudence and probity. However, with the introduction of the new regulation in January, 1998 by the RBI, the petitioner-company all of a sudden had to face grave and unprecedented difficulties by virtual ban on acceptance of fresh deposits which seriously jeopardized the resource mobilization of the petitioner company. The petitioner-company though had enjoyed sufficient capital adequacy ratio, in view of the rating norms introduced linked with the ceiling of acceptance of deposits by RBI, the petitioner company was suddenly and irrationally down graded during the period 1998, which seriously affected the resource mobilization particularly in the form of fixed deposits from the public. It resulted in increasing the cost of overheads and servicing of the deposit holders. The position in the industrial sector coupled with the slow down of the economy and other factors, particularly, in the transport industry, adversely affected the process of recovery of the loaned amount with interest it seriously affected the nature of security in terms of money value held by the petitioners. In the absence of extending the benefit of approaching Debt Recovery Tribunal which is extended only to Banks and other financial institutions, the NBFCs are required to pursue civil remedies only for recovery of outstanding amount and this has also compounded the problems faced by the petitioner-company. The income from the operations was drastly reduced because of the aforesaid factors. In IS months period prior to 31. 3. 2000 the income from the operation was Rs. 101. 60 crores whereas Rs. 53. 02 crores was the income from operations for the year ended 31. 3. 2001. However, the year ending on 31. 3. 2002 showed the income from operations only as Rs. 26. 08 crores. In spite of these difficulties experienced by them up to 31st March 2002, the petitioner has discharged all its statutory obligations. Apprehending that in future they would not be able to comply with these obligations the existing terms and conditions of acceptance/renewal deposit and issue of bonds had contemplated proposing a scheme of arrangement and compromise with its creditors during April 2002. The Reserve Bank of India imposed a specific condition that the petitioner-company can only renew deposits up to 31st March 2002. In fact the petitioner-company was holding deposits of Rs. 110 crores maturing after 31st March 2002 which obviously could not even be deployed in the NBFCs business. The accumulated loss crossing beyond the net worth of the petitioner-company has seriously affected the business activities. The petitioner contends, as on 31. 3. 2002 still has the value of the assets including loaned assets, hire purchase assets etc. , being much more than the liabilities to be met including the repayment of all debts of the secured and unsecured creditors of the petitioner-company. Due to the defaults committed by the borrowers, the petitioner-company initiated legal proceedings for recovery of the said amount and their recovery was not satisfactory. Due to the mismatch of the assets recovery verses repayment commitment, difference between the projected cash flow and the projected pay out for the commitments of the petitioner-company on the existing terms resulted in the petitioner-company making certain defaults in the repayment which cause was the major factor for them to have considered rescheduling/ restructuring the debt outstanding by drawing up a scheme of arrangement and compromise with the creditors during April 2002. Under the circumstances, the petitioner-company analyzed various options including the option for seeking deferment for meeting the repayments of the debts of the secured and unsecured creditors and for making out a suitable programme of restructure and re-arrangement of the outstanding debts. The Board of Directors in formulating the scheme of arrangement and restructuring had formed a bona fide and sincere opinion that some of the subsidiary companies wherein the petitioner-company had invested in the form of share capital, should also form a part of the arrangement and restructuring being proposed, so that the creditors of the petitioner-company are not deprived of any of their legitimate debts being repaid. Accordingly, they were of the opinion that the subsidiary company Maharashtra Apex Asset Management Company Limited should undertake the said responsibility for recovery and distribution of the proceeds recovered to the bond holders and deposit holders of the petitioner-company. Therefore at the meeting held on 15 April 2002 the Board of Directors approved the Scheme of Arrangement/restructure between the petitioner-company, its share holders and creditors in participation with the subsidiaries, Kurlon Limited and Maharashtra Apex Asset Management Company Limited. Accordingly the petitioner-company preferred an application to this court in Company Application No. 226/2002 seeking directions of this court for convening the class meetings of the share holders and creditors of the petitioner company. By order dt 17. 4. 2002 this court passed an order directing the company to hold separate meetings of the equity share holders, preference share holders, secured creditors and unsecured creditors on 14th June 2002 to consider the case of arrangement/restructure. Statutory notices were sent to alt the creditors, members along with other legal requirements. An application C. A. No. 350/2002 was filed for appointment of additional Chairman for the said meetings which was also granted by this court. In the meanwhile by order dated 13. 5. 2002 the Reserve Bank of India prohibited the petitioner-company from acceptance of deposits and directed the petitioner-company not to sell, transfer, create charge, mortgage or deal in any manner with the companys property and assets without their prior written permission. Further by order dt 13. 6. 2002 they cancelled the registration for undertaking NBFC activities of the petitioner-company. Petitioner challenged those orders by preferring statutory appeal and pending consideration on 14. 6,2002 the meeting which was called to consider and approve the scheme of arrangement was held and the meeting was disrupted by anguished mob behaviour of some section of the creditors. The meeting of the equity shareholders and preference shareholders were concluded in the morning session and there was lot of disturbance and pandemonium in the creditors meeting held in the afternoon. The Chairman of the meeting reported the said matter to this Court which is at Annexure-J to the petition. One of the reason for disturbance of the aforesaid meeting was opposition to involving subsidiary company of the petitioner namely Kurlon Ltd. , and Maharashtra Apex Asset Management Company Ltd. Taking into consideration the views expressed in the said meeting as well as the aforesaid position, again the Board of Directors in the meeting held on 22. 7. 2002 proposed to modify the scheme. Thereafter Company Application No. 720 of 2002 was filed seeking suitable direction of the court to convene a meeting of the shareholders and creditors. The petitioner also sought for direction to withdraw earlier C. A. No. 226/2002. This court permitted withdrawal of the earlier application. The aforesaid company Application was also withdrawn in order to put forth a better scheme acceptable to all sections. The earlier period proposed for repayment was ten years which was reduced to five years. Earlier interest had to be waived, whereas, in the modified arrangement interest up to 31st March 2001 has to be paid with these modifications the Board of Directors again on 11. 11. 2002 proposed a revised scheme. Thereafter Company Application No. 1108/2002 was filed before this court seeking leave of this court to convene respective class meetings of the members, preference share holders, bond holders as well as deposit holders. This court on 2. 1. 2003 allowed the said application, directed the petitioner to convene meeting on 14. 2. 2003 and 15. 2. 2003 at Manipal, and directed Dr. K. Sreenivasan, IPS Retd, failing him Ms. Nalini Venkatesh, failing her Mr. R. B. Deshpande to act as Chairman/chairperson and report the result of the meeting. Notice of the meeting was also advertised in Deccan Herald and Kannada Prabha both on 17. 1. 2003. As ordered meeting was held. In the meeting of the equity shareholders 252 equity shareholders were present, the value of the share was Rs. 6,89,26,670. Out of them 247 representing Rs. 6,89,07,160 i. e. , 99. 97% voted in favour of the scheme. Five persons representing Rs. 19,490 i. e. , 0. 03% voted against the Scheme. In so far as preference shareholders are concerned, 10 were present who represented the value of the shareholders as Rs. 7,90,000. All of them voted in favour of the Scheme. 16191 bond holders i. e. , secured creditors were present They represented the value of Rs. 56,50,64,997. 50. Out of them 15550 representing Rs. 54,60,01,799. 50 i. e. , 96. 63% voted in favour of the Scheme. 641 bond holders of the share vahie Rs. 1,90,63,198 representing 3. 37% voted against the scheme. 7233 deposit holders i. e. , unsecured creditors, of the value of Rs. 22,32,11,216 were present Out of them 7083 creditors representing the value of Rs. 21,64,88,406 i. e. , 96. 99% voted in favour of the Scheme. 150 persons of the value of Rs. 67,22,810 i. e. , 3. 01% voted against the scheme. While approving the scheme they suggested the following modifications. Clause 2 (b) be Substituted as -Appointed date means 1st Day of April 2002 clause 6. 4 be all Claimants under the Hardship cases shall be paid disbursements of a maximum of 75% of the Substituted as face value of the outstanding bonds/ deposits as on the appointed date, as may be determined by the Hardship Committee, according to a formula as may be laid down by the Committee wherever the settlement is being requested to be made under Hardship cases clause 6. 4 be subscriptions for bonds / deposits received and pending allotment / renewal and / or accepted / Substituted as renewed by the Company on or after 1. 4. 2002 shall be refunded in full on or before 31. 3. 2003 pending sanction. No interest shall accrue or be payable on such subscription for bonds/deposits. Clause 15 be no instalment shall, however, be delayed more than 12 months. Amended by Insertion of an Additional sentence At the end. The Chairman of the meeting submitted their report to the Court.

(3.) BROADLY stated the scheme envisages waiver of interest after 1. 4. 2002, payment of debts in five installments, instead of refund of the deposits on maturity etc. ft is thereafter the present petition was filed seeking sanction of the court for the scheme.