GUJARAT LEASE FINANCING LTD. Vs. STATE

JUDGEMENT

(1.) THIS petition is filed under Section 391 of the Companies Act, 1956 for sanction of a scheme of compromise with the consortium of 16 Banks being the Secured Creditors of the petitioner Company.

(2.) THE petitioner Company is a public limited Company which is engaged in the field of financial services. It is a Non -Banking Financial Company (NBFC) and had a good track record till 1996 - 97. However, Company's position dramatically changed since 1997 - 98. A lot of factors contributed to the downfall of NBFC industry. During that period, various sectors of Indian economy were going through recessionary conditions and the industrial activity slowed down due to law GDP growth, sagging markets, low investor confidence, etc. A number of NBFCs were downgraded by the rating agencies leading to an overall drop in investor confidence. In order to safeguard the interest of public, especially the small investors, Reserve Bank of India (RBI) imposed stringent policies and conditions on NBFC. The Banks and financial institutions developed negative attitude towards NBFC industry. All these factors led to reduced availability of long term funds to NBFCs and they had to depend on high cost short term funds. Over and above this, Banks and multi -National Companies started lending aggressively in retail sector and as a result thereof, the return on funds dropped from typically 22 -24% to 16 -17% while cost of funds continued to be in the range of 15 -16%. This has adversely affected to all NBFCs in general and the petitioner Company to a great extent in particular. The Company's financial position deteriorated considerably in 1997 -98 and the rating agencies downgraded the rating of the petitioner Company to below the investment grade. Moreover, a large number of its lease and hire purchase debtors defaulted on payment and this has adversely affected the availability of funds to the Company and in the absence of sufficient funds, the Company conducted negligible business from September, 1997 onwards. The Company has incurred a substantial loss of Rs. 39 Crore in the year 1997 and since then the Company has made the provisions continuously for non -performing assets and has written off the debts of substantial amount.

(3.) THE Company, therefore, presented a proposal of compromise for (i) the Consortium of Banks and (ii) debenture holders of 'G' series. The proposed Scheme of Compromise was an attempt to protect and reinforce the interest of the Bankers and G -series debenture holders. At the meeting of the Consortium of Banks, convened for the purpose of obtaining the approval of the parties to the compromise, in pursuant to the directions issued by this Court, the scheme was not approved by the requisite statutory majority. However, at the meeting of the G -series debenture holders, after deliberations and discussions at length, modifications were suggested and the same were accepted by the Company, which was that 'Against the total amount payable to them as on Appointed date a total amount of 65% (including the amount paid after the Appointed date and upto the Effective date) shall be paid in full and final payment of the amount payable to them.' The petition for the sanction of this Court to this revised scheme with the 'G' series debenture holders was filed and vide order dated 05.12.2003 passed by this Court (Coram : - K.M. Mehta, J.) the said scheme was sanctioned and pursuant to the said order, the Company has already paid off the dues of the 'G' series debenture holders.