TUNGBHADRA INDUSTRIES LIMITED Vs. NATIONAL DAIRY DEVELOPMENT BOARD

JUDGEMENT

(1.) At times an illustration can simplify a complicated question and can have a more telling effect than any other mode of communication. The present is an occasion to do so in order to bring into focus the real issue and in order to clearly hear the heart throbs of the real problem.

(2.) Visualize a patient on his death bed. A Doctor (Dr. NDDB) has a medicine which will cure him is prepared to administer it to the patient and to save his life. Another Doctor (Dr. TIL) who was consulted earlier is not in a position to offer any effective medicine or save the life of the patient and confesses that such is the case. A learned Judge permits Doctor-NDDB to go ahead and save the life of the dying man whose life is precious to his family as also to the society. The Doctor who admittedly is neither willing to save the life nor has the capacity to do so DR. TIL objects to the order of the learned Judge and prefers an appeal on the ground that the patient had consulted him earlier and had agreed to be treated by him (Dr. TIL) before Dr. NDDB was brought in Such is the true scope of this appeal preferred by a Company- Tungabhadra Industries Ltd. (hereinafter referred to as the TIL) which itself is not prepared to offer terms as good as the terms offered by its rival-National Dairy Development Board (hereinafter referred to as the NDDB) by way of a Scheme to resurrect an economically ruined oil & vegetable Products manufacturing unit. The appellant Company TIL in terms admits that it is not in a position to implement even its own less attractive scheme (offering something less to creditors as also to share-holders) as the secured creditors and nationalized banks do not support it. Not prepared to offer the terms offered by its rival not prepared to implement its own scheme which is much inferior and is admittedly unworkable what locus standi has the appellant to challenge by way of this appeal an order sanctioning a scheme by the learned Company Judge ? What is the motivation ? Dog in the manger philosophy ? We are not told what interest the appellant has in challenging the impugned order. All that we are told is that on a microscopic examination of the relevant provisions (sections 391 and 392 of the Indian Companies Act) in the light of the interpretation canvassed by the appellant the learned Company Judge had no jurisdiction to order substitution of its rival in the place of the appellant (notwithstanding the law laid down by the Supreme Court in S. K. Guptas case: 49 Company Cases 342) as sponsor of the Scheme to resurrect the Company whereby life is being infused in a dead industrial unit and hundreds of workers will get employment consumers will get more consumer goods and the State will get more revenue. We are not prepared to do it but our rivals cannot be allowed to do it in view of the hair splitting technical pleas we have at our command-say the appellants. That is the crux of the question. So far as the legal contentions are concerned we see no substance in the same for reasons we shall presently indicate. The Backdrop:

(3.) A company known as Bhavnagar Vegetable Products Limited. having a total paid up capital of approximately Rs. 30 lacs incurred huge losses in the year ending on 31/12/1975 The profits and loss account of the company for the period ending 31/12/1975 reveals a loss of Rs. 201.71 lacs. And the total liabilities as and by way of secured and unsecured loans including current liabilities were around 315.75 lacs. Thus the entire capital of the Company its reserves and surpluses were washed away and its secured debts and other liabilities were so huge that neither the share- holders nor the creditors were likely to get any money. One of the creditors instituted a petition on 2/02/1976 under sec. 433 read with sec. 439 of the Indian Companies Act, 1956 (hereinafter referred to as the Act) for winding up the said company. The petition was admitted on 16/02/1976 In the course of the proceedings an attempt was made to evolve a Scheme in order to prevent the Company from being wound up and in order that the shareholders creditors and workers could retrieve a portion of what was due to them. A scheme was proposed by appellant TIL the details of which are set out in paragraph 11 of the judgement of the learned Company Judge which has given rise to the present appeal. Before the Scheme could be sanctioned under sec. 391 of the Act respondent No. 1-the NDDB proposed a Scheme of its own the details of which have been set out in paragraph 17 of the judgement of the learned Company Judge. Thus there were in the field two competitive Schemes. It so transpired that before NDDB presented its scheme the TIL scheme came up for consideration before all classes of creditors shareholders and workers. The meetings envisaged by the relevant provisions of the Act were called and the requisite majority voted in favour of the acceptance of the TIL scheme. On 4/10/1976 the Chairman appointed by the Court to preside over this meeting submitted his Report On 21/10/1976 the appellant (TIL) instituted a petition for sanctioning the scheme. Before final orders could be passed by the Court NDDB proposed its own scheme. Thus the scheme proposed by the appellant-TIL which was sanctioned by the requisite majority remained unsanctioned. The learned Company Judge who was seized of the matter at the relevant time issued appropriate directions in Company petition No. 9 of 1978 filed by NDDB for calling the meetings of the shareholders creditors and workers in order to consider the scheme sponsored by the NDDB. Strangely enough the equity shareholders who were prepared to accept 10 paise per share under the TIL scheme and had accepted the offer for payment at that rate in the course of the meetings called to consider the TIL scheme in 1976 refused to vote for the NDDB Scheme whereby they were offered Rs. 10.00 per share in place of 10 paise per share. In other words though they were offered a price which was 100 times the price offered by TIL they did not accept the offer. The NDDB revised its offer upwards by offering Rs. 15.00 per share in place of Rs. 10.00 per share. The equity shareholders who were prepared to accept 10 paise per share from TIL in 1976 were not prepared to accept Rs. 15.00 per share from NDDB. Thus the scheme as sponsored by NDDB did not secure necessary majority as required by sec. 391(2) of the Act. The resultant position was that the TIL Scheme which offered 10 paise per share to the equity shareholders secured the requisites majority and could have been sanctioned whereas the scheme sponsored by NDDB whereby 100 times the price offered by TIL. (which was subsequently raised to 150 times) could not secure the requisite majority from the equity shareholders. It appears that meanwhile TIL also increased its offer from 10 paise per share to Rs. 10.00 per share as against Rs. 15.00 per share offered by NDDB. Thus the appellant-TIL who had obtained consent of the equity shareholders and secured the requisite majority in respect of a scheme offering 10 paise per share was itself prepared to offer Rs. 10.00 per share when the NDDB scheme entered the field of competition. The appellant however did not agree to step up the price upto Rs. 15.00 per share. Meanwhile one more development took place. The Banks to whom the Company owed a very large sum by way of secured loans of the order of Rs. 80 lakhs which had initially lent support to TILs Scheme withdrew their support. In the course of hearing of a Summons taken out by NDDB learned Counsel for M/s. Velji Shamji & Co. the sponsor of TIL Scheme-made a statement before the Court that in view of withdrawal of the support by the Banks the scheme as put forward by TIL was not practicable. Under the circumstances the Court placed on record that TIL on whose behalf no body appeared before the Court on that day was out of the picture as a party sponsoring the scheme before the Court. The order passed by the learned Company Judge is in the following terms: