PASUPATI FABRICS LTD Vs. PRIYANKA OVERSEASE PVT LTD

JUDGEMENT

(1.) Pasupati Fabrics Ltd. (hereinafter called as 'the company') was incorporated as a public limited company in the year 1991. Barely within 10 years of its existence, its net worth was fully eroded. It being an industrial company defined under Section 3 (e) of Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as 'SICA'), it became imperative for it to approach the Board for Industrial and Financial Reconstruction (BIFR) and thus a reference in terms of Section 15 (1) of SICA was filed before the BIFR in March, 2001. It was registered as BIFR Case No. 375/2001. The BIFR declared the company as a sick industrial company under Section 3(1) (o) of SICA . The Industrial Development Bank of India (IDBI), its main creditor, was appointed as the operative agency under Section 17(3) of SICA for the purposes of preparing a rehabilitation scheme. The Draft Rehabilitation Scheme (DRS) for the revival of the company was prepared; suggestions/objections were invited to the same; those suggestions and observations received from the concerned parties were considered by the BIFR and ultimately vide order dated 5th February, 2004 the rehabilitation scheme was sanctioned by the BIFR subject to certain modifications.

(2.) I shall advert to the main provisions of the Sanctioned Scheme (SS) at the appropriate stage. However, it may be pointed out here itself that the SS, inter alia, provides for arrangement with the secured creditors, including the IDBI and also lays down the manner in which they are to be paid. IDBI, like other creditors, had to forgo substantial part of its dues recoverable from the company and the reduced amount is to be paid in a phased manner. Under the SS, IDBI is to be allotted equity shares worth Rs. 23 crores at par. To enable the IDBI to get this equity stakes, the SS provides for restructuring the authorised capital of the company and reduction of equity share by 35% and issue of 0.0001% redeemable preference shares. Provision is also made for purchase of shares, which are to be allotted to IDBI, by promoter (s) of the company. Because of this buy back clause of shares by the promoters, dispute has arisen between Mr. Vijay Kumar Jain and his associate companies on the one hand and Mr. Raj Kumar Jain and his associate companies on the other hand. According to Mr. Vijay Kumar Jain, he is the only promoter, envisaged in the SS, who has right to buy back these shares. On the other hand, case of Mr. Raj Kumar Jain is that the promoters of the company, when it was incorporated in the year 199.1, were Mr. Vijay Kumar Jain, Mr. Ramesh Kumar Jain, Mr. Mukesh Kumar Jain and their associates. He and his group companies named in the prospectus being the associates have to be treated as 'promoters' and, therefore, this buy back facility is provided to all the promoters in the same ratio in which they are holding the shares in the company. Therefore, the core dispute is as to who are the promoters entitled to buy back the shares which are to be allotted to IDBI.

(3.) The aforesaid dispute is not to be considered in isolation as certain other incidental issues have also cropped up in the process.