ORDER
N.V. Ramana, J.
1. By this application, filed under Rule 9 of the Companies (Court) Rules, 1959, M/s. Deepika Chit Fund Private Limited, the applicant herein, inter alia prays this Court to constitute Collection and Disbursal Committee, consisting of one Director each from both the Transferor Company and Transferee Company and a Commissioner to be appointed by this Court, and pass such other order or orders as this Court deems fit and proper in the circumstances of the case.
2. M/s. Deepika Chit Funds Private Limited (hereinafter referred to as 'the Transferee Company') was incorporated under the provisions of the Companies Act, 1956 (for short 'the Companies Act') as a Private Limited Company on 13-1-1989. The authorized share capital of the Transferee Company is Rs. 50,00,000/- divided into 50,000 equity shares of Rs. 100/- each. The issued, subscribed and paid-up capital of the Transferee Company is Rs. 30,00,000/- divided into 30,000 equity shares of Rs. 100/-each fully paid up.
3. The main objects of the Transferee Company, as reflected by its Memorandum and Articles of Association, is to establish and carry on the business of chit funds for the benefit of members and to act as foreman for any of the chit fund series for the promoters of the chits in the State of Andhra Pradesh or anywhere in India, to carry on chit fund business of all kinds permitted by law, and to raise funds from the members and other persons, firms, associations, companies etc.
4. M/s. Deepika Leasing and Finance Limited (hereinafter referred to as 'the Transferor Company') was incorporated under the provisions of the Companies Act, as a Public Limited Company on 21-8-1990. The authorized share capital of the Transferor Company is Rs. 10,00,00,000/- divided into 70,00,000 equity shares of Rs. 10/- each and 3,00,000 preference shares of Rs. 100/- each. The issued, subscribed and paid-up capital of the Transferor Company is Rs. 8,00,35,000/-divided into 50,03,500 equity shares of Rs. 10/-each and 3,00,000 preference shares of Rs. 100/- each.
5. The main objects of the Transferor Company, as reflected by its Memorandum of Association, is to carry on and undertake the business of hire purchase, leasing, factoring, investments, trading, financing on hire purchase lease of all kinds of movable and immovable property, lands, buildings, plant and machinery etc., to advance, deposit or lend money, securities and properties to or with any company, body corporate, firm, person or association with or without security, to carry on and undertake the business of underwriting, sub-underwriting, invest in, acquire, buy, hold, sell or otherwise deal in securities of every kind and description including shares, debentures, units, bonds, and to carry on and undertake the business of portfolio managers, asset managers, investment Counsellors, merchant bankers etc.
6. This Court, by order dated 25-9-2003, passed in C.A. No. 793 of 2003, dispensed with the meeting of the shareholders of the Transferee Company having regard to the fact that all the seven shareholders had filed affidavits consenting to the proposed Scheme of Arrangement between the Transferee Company and the Transferor Company. Whereas, by reason of another order passed on the same day in C.A. No. 791 of 2003, this Court directed convening of the meeting of the shareholders of the Transferor Company for considering and approving the Scheme of Arrangement and the arrangement proposed with the Deposit Holders and Unprized Subscribers, and appointed a Chairman to oversee the conduct of the meetings. The Chairman having notified the date of the meetings in the newspapers, conducted the meetings on the appointed day on 22-11-2003, and filed report stating that out of 61 equity shareholders, who attended the meeting either by themselves or their proxies, 58 shareholders holding 20,27,227 equity shares of Rs. 10/- had cast their votes in favour of the scheme, that three shareholders entitled to 1,300 equity shares of Rs. 10/- each voted against the scheme, and that the votes polled in favour of the scheme accounted to 99.93% of the value of the shares.
7. Insofar as the Deposit Holders is concerned, it is stated that out of 1153 Deposit Holders who were present either by themselves or their proxies, 1011 Deposit Holders, whose total value of deposits constituted Rs. 7,10,77,987/- had cast their votes in favour of the scheme, while 107 Deposit Holders, holding deposits valued at Rs.71,16,675/-, had voted against the scheme, 35 Deposit Holders entitled to Rs. 15,00,176/- had cast invalid votes. That in all the value of the votes polled in favour of the scheme was 89.18%.
8. Part II of the Scheme of Arrangement, which was approved by the Shareholders and Deposit Holders and Unprized Subscribers of the Transferee and Transferor Companies in their meetings held on 22-11-2003, inter alia provides for constitution of Collection and Disbursal Committee in Clause 2.6. Clause 2.6 of the Scheme of Arrangement, which provides for constitution of Collection and Disbursal Committee and enlists the powers and nature of duties to be performed by the said Collection and Disbursal Committee, reads thus.
Collection and Disbursal Committee;
2.6 That a Collection and Disbursal Committee comprising of one Director each from the Transferor and the Transferee Company and a Commissioner to be appointed by the Hon'ble High Court be constituted. The powers and responsibilities of the Collector and Disbursal Committee shall be.
(a) To take immediate charge of all the movable and immovable assets, actionable claims of the company.
(b) To take immediate steps to execute the decrees that were obtained by both the Transferor and the Transferee Companies and to take expeditious steps for execution of the decrees and collection of the funds.
(c) To identity the suits and other legal proceedings that are to be brought against the debtors of the Transferor and the Transferee Companies, and forthwith institute the said suits and expeditiously proceed for recovery of the dues in the terms of decrees to be obtained.
(d) From time to time to report to the Hon'ble Court about the status of collection by execution of decrees, institution of suits, investments etc.
(e) To pay and discharge the liabilities to the creditors of the petitioner/Transferor Company and the Transferee Company in such manner, as may be determined by this Hon'ble Court, keeping in view the interests of the small depositors and preference Shareholders.
9. Pursuant to the approval of the Scheme of Arrangement by the Shareholders, Deposit Holders and Unprized Subscribers of the Transferor and Transferee Companies, the Transferor and Transferee Companies, filed C.P.Nos. 196 and 197 of 2003 for grant of sanction to the Scheme of Arrangement. Pending grant of approval, the Transferee Company, filed C.A.No. 795 of 2003 to constitute Collection and Disbursal Committee.
10. The learned Counsel for the petitioners submits that the Transferor and Transferee Companies were carrying on their business of chits, leasing, finance etc. and were making good profits until the beginning of January, 1999 when the RBI amended its Regulations with respect to Non-Banking Financial Institutions having regard to the fact that some, of the Non-Banking Financial Institutions which did not conduct the business in accordance with the RBI guidelines and Regulations and violated them, have either collapsed or were on the verge of collapse.
11. The learned Counsel submits that though the Transferor Company was doing its business in accordance with the RBI guidelines and Regulations, the collapse of some of the Non-Banking Financial Institutions, had a great impact on the finances and functioning of the Transferor Company having regard to the fact that the Deposit Holders who had invested their monies, panicking that the Transferor Company would also down its shutters without paying their monies, indulged in withdrawing their deposits prematurely, and as a result thereof, large chunks of the money mobilized through fixed deposits, which were either invested or financed in the course of business, could not be realized immediately. Thus, the Transferor Company which was left with no liquid money, could not pay to its Deposit Holders and the cheques issued by it were dishonoured. Due to non-payment of monies to Deposit Holders and dishonour of cheques issued to them, some of the Deposit Holders filed Criminal Cases against the Directors of the Transferor Company, Taking advantage of this misfortune, some of the prized bidders of the chits, either stopped or evaded paying the monthly premiums, and as a result thereof, the Transferor and Transferee Companies had defaulted in making payments to the Unprized Chit Subscribers. The Transferee Company also started facing problems in getting released the chit security deposits lying with various Registrars of Chits against the completed chit groups, resulting in heavy liquidity crunch.
12. The learned Counsel submits that the sudden adverse and volte face turn of events, had a cascading effect on the finances and functioning of the Transferor and Transferee Companies, and as of now, the Transferor and Transferee Companies are due and liable to pay a sum of Rs. 9.77 crores to the different Deposit Holders and Unprized Chit Subscribers. The learned Counsel submits that an amount of Rs. 3.75 crores along with interest thereon is lying with the Director of Chits, and amounts in excess of the amounts due and liable to be paid by the Transferor and Transferee Companies, are locked up in legal battles -in some cases the Transferor and Transferee Companies have obtained money decrees to the tune of Rs. 8.00 crores, and in some cases monies to the tune of Rs. 10.00 crores are yet to be realized, and due to pendency of several criminal cases and non-functioning of the Transferor and Transferee Companies, they are unable to take effective steps for executing the decrees and proceed with the matters for recovery of the dues from the defaulters in the pending suits, and that if a Collection and Disbursal Committee is constituted as agreed to by the Shareholders, Deposit Holders and Unprized Chit Subscribers of the Transferor and Transferee Companies, there is possibility of substantial amounts to the tune of Rs. 7.00 crores, being recovered from the defaulters, and prayed that pending approval of the Scheme of Arrangement, a Collection and Disbursal Committee, be appointed and all further proceedings, both civil and criminal, including proceedings before the consumer forum and other forums, initiated by various persons against the Transferor and Transferee Companies and their Directors, as stayed by this Court by order dated 26-9-2003, in the applications C.A.Nos.792 and 794 of 2003, for a period of three weeks, and extended from time to time, be stayed. In support of his submission that pending approval of the Scheme of Arrangement, this Court can satisfy itself as regards the feasibility of the arrangement, and can pass any interim order as fit, placed reliance on the Clause (iv) and the proviso appended to Sub-section (1) of Section 391 of the Companies Act, which provides for the power to adjudicate any of such incidental, consequential and supplementary matters as are necessary to secure the salvaging/reconstruction.
13. M/s. Karnataka Bank Ltd., which had sanctioned various financial facilities in the form of overdraft and bills facility, working capital and BPC purchase facility to the Transferor and Transferee Companies, filed C.A. Nos. 2848 and 2849 of 2003 to implead itself as party-respondent to the stay applications filed by the Transferor and Transferee Companies. The learned Counsel appearing on behalf of the implead petitioner-bank submits that when the Transferor and Transferee Companies failed to pay the loan amounts, the bank filed applications before the Debts Recovery Tribunal, Hyderabad, in O.A. Nos. 599 and 701 of 2001 against the Transferor and Transferee Companies and O.A. Nos. 655 and 714 of 2001 against two other companies, namely M/s. Daisy Systems Limited and M/s. Blue Pencil Advertising Private Limited, floated by the Directors of the Transferor and Transferee Companies, for recovery of a sum of Rs. 38,54,650/-, Rs. 1,84,57,156-30 ps., Rs. 2,70,83,763-20 ps. and Rs. 27,93,301-96 ps. along with interest thereon, and obtained decrees for the said amounts. In all, the Transferor and Transferee Companies are liable to pay an amount of more than Rs. 2.20 crores to the bank, and that because of the orders of stay dated 26-9-2003 granted by this Court in C.A. Nos. 792 and 794 of 2003, the bank is unable to execute the decrees, and thus prayed that it being a necessary and proper party, should be impleaded, and inasmuch as the order of stay is operating against their interests, prayed to vacate the said order.
14. One Mr. Khaza Masood Ali, who claims to be the Prized Unpaid Subscriber of the Transferee Company, for a sum of Rs. 5,00,000/- in Chit No. XLT2V-37, has filed applications in C.A. Nos. 2857 and 2858 of 2003, one to implead himself as party respondent in C.A. No. 793 of 2003 and the other to dismiss the said application. The learned Counsel appearing on his behalf submits that the applicant is neither a debtor nor a creditor of the Transferee Company. The applicant being a Prized Unpaid Subscriber cannot be treated as a creditor of the Transferee Company, and accordingly he cannot be proceeded against under the provisions of the Companies Act, 1956. He submits that the applicant being a member of chit, is governed by the provisions of the A.P. Chit Fund Act, 1971, and having regard to the fact that the said Act does not provide for a Scheme of Arrangement by the Foreman with the Subscribers, the proposed Scheme of Arrangement, cannot be brought into effect. It is submitted that under Section 392 of the Companies Act, 1956, the Court shall have power to give such directions as may be necessary at the time of making the order under Clause (a) of Sub-section (2) of Section 392 of the Companies Act, or at any time thereafter, and not before approval of the scheme, and likewise even under Section 394 of the Companies Act, the Court can pass orders by the order sanctioning the scheme or by subsequent order in respect of the matters mentioned in Clauses (i) to (vi) and not before an order approving the scheme is passed.
The learned Counsel for the Transferor and Transferee Companies in response to the plea of the bank submitted that though the Transferor and Transferee Companies mooted proposal for settlement of the dues under One Time Settlement in respect of the dues of the Transferor and Transferee Companies and two other concerns floated by the Directors of the Transferor and Transferee Companies for Rs. 2.5 crores, the bank has agreed for settlement at Rs. 3.00 crores. He, however, submits that inasmuch as the monies of the banks are fully secured by way of equitable mortgage, they cannot have any grievance against the Scheme of Arrangement, and cannot seek vacation of the stay.
15. Replying to the contention of the Unprized Chit Subscriber, it is stated that inasmuch as majority of the Deposit Holders and Unprized Subscribers approved the Scheme of Arrangement and appointment of Collection and Disbursal Committee, a sole Unprized Chit Subscriber cannot take any exception thereto and more so when the scheme proposed is to his advantage for any amount recovered by the Collection and Disbursal Committee, would also be made available and disbursed to him.
16. By order dated 29-10-2003, this Court appointed Sri A. Venku Reddy, retired District Judge; to examine the financial soundness of the Transferor and Transferee Companies and ascertain their assets and liabilities. Sri A. Venku Reddy having ascertained the assets and liabilities of the Transferor and Transferee Companies with reference to the records made available to him, filed detailed report stating that the estimated realizable assets and liabilities of the Transferee Company as at 22-8-2003 stand at Rs. 1,725.00 lakhs and Rs. 1,650.69 lakhs, and likewise, the estimated realizable assets and liabilities of the Transferor Company as at 22-8-2003 stand at Rs. 12,83,73,138/- and Rs. 12,43,97,702/-, which is almost equal, and inasmuch as the loans due by the Transferor and Transferee Companies to banks are fully are secured by mortgage of immovable assets, the said dues have not been considered. It is stated that the total liabilities of the Transferor Company and the Transferee Company to their Deposit Holders and Unpaid Chit Subscribers is Rs. 1,558.00 lakhs, and whereas the total realizable assets of the Transferor and Transferee Companies from hire purchase debtors, Government bonds and chit security deposits, is Rs. 142.00 lakhs and Rs. 1,725.00 lakhs respectively. Insofar as the Transferee Company is concerned, it is further reported by the Commissioner that a total amount covered by Chit Security Deposit is Rs. 3,77,62,500/-. The balance sheet for the year ending i.e., on 31-3-1999 discloses that the chit deposits to an extent of Rs. 2,58,83,379/- together with interest accrued up to the said date have to be recovered. If the chit deposits made during the year 1999-2000 are also added, the amount would increase to Rs. 3.77 crores and if corresponding interest up to date is included it would be Rs. 4.50 crores. The Transferee Company has as many as 1288 civil suits against the prized subscribers and the total amount covered by the disputes and pending suits with interest is Rs. 7,66,74,211/-. The amount due from the prized subscriber against whom the legal action is yet to be taken is shown as Rs. 9,98,82,858/- from the list of defaulters of 5,705. It is further stated that total amount of Rs. 660.69 lakhs is due by the said Transferee Company to as many 3,004 Deposit Holders who subscribed to various chits, and a sum of Rs. 9.00 crores is payble to the Transferor Company. It is stated that except the Chit Security Deposit and the Government Bonds, rest of the monies mentioned under different heads, can be recovered if prompt legal action is initiated and the decrees obtained by the Transferor and Transferee Companies against various individuals are executed immediately before the expiry of period of limitation. He opined that an effective collecting and disbursal agency which can command confidence of the creditors as well as the debtors of the companies is required. That unless and until the huge amounts due to the Transferor and Transferee Companies by various individuals are substantially recovered, the Transferor and Transferee Companies will not be in a position to survive and discharge the amounts due by them to their Deposit Holders and Unprized Chit Subscribers.
17. In the wake of the serious allegations of mismanagement and siphoning and diversion of public funds by the Directors of the Transferor and Transferee Companies, to the companies promoted by them, this Court with a view to remove the misgivings and to satisfy itself of the financial soundness of the Transferor and Transferee Companies and to have a clear and transparent picture of the affairs of the Companies, upon hearing the learned Counsel appearing on behalf of the respective parties, by order dated 5-2-2004 appointed a Committee of Commissioners comprising Sri A. Venku Reddy, retired District Judge and Sri M.V. Durga Prasad, a practising Advocate in this Court, to examine the feasibility and viability of the scheme with reference to the accounts, documents and other records maintained by the Transferor and Transferee Companies, and for the purpose of sale of properties owned by the Transferor and Transferee Companies, recovery and distribution of monies to the Deposit Holders and Unprized Chit Subscribers of the Transferor and Transferee Companies. The Committee of Commissioners upon having lengthy and daylong deliberations and discussions for two days with the Directors of the Transferor and Transferee companies, submitted an interim report on 25-2-2004, which is placed on record. A reading of the report would disclose that there is no audit of the accounts of the Transferor and Transferee Companies since 1999-2000. There is no settlement arrived at by the Transferor and Transferee Companies with Karnataka Bank Limited to whom they owe money and who had obtained money decrees from the Debts Recovery Tribunal in O.A. No. 599 of 2001 on 27-1-2003 and in O.A. No. 701 of 2001 on 8-8-2003, for a sum of Rs. 38,54,650.41 and Rs. 1,84,57,156-30 ps. respectively against the Transferee Company and its Directors with future interest at the rate of 19% per annum. The report also discloses that Karnataka Bank Limited had also obtained decrees against the sister concerns of the Transferor and Transferee Companies. The report, which is based on the abstract statements of suit filed accounts, including decretal amounts, discloses the consolidated statements of general receivables of both the Transferor and Transferee Companies, as under:
Receivables of the Transferee Company -Rs. 9,98,82,858-00 ps.
2. Receivables of the Transferor Company-Rs. 1,12,41,800-00 ps.
3. Total fixed deposits of Transferee
Company- Rs. 3,75,00,000-00 ps.
4. Amount involved in suit filed accounts, including decretal amounts -
Rs. 7,66,74,299-00 ps.
18. The report of the Committee of Commissioners also sets out the steps to be taken in the direction of recovery of the monies due to the Transferor and Transferee Companies, where the recovered monies have to be kept/invested, who should be empowered to receive the monies so recovered from the debtors of the Transferor and Transferee Companies. It is stated that unless and until the stay orders are suitably modified/relaxed suspending the attachments and garnishee orders against the accounts/ deposits of the Transferor and Transferee Companies, the amounts under the said attachment orders cannot be received and remitted into the account to be opened by the Directors of Transferor and Transferee Companies as per the proposals formulated by them for recovery and mobilization of funds.
19. In the background of the facts situation stated above, the only question that arises for consideration is whether this Court in exercise of its power under Section 391 of the Companies Act, make an enquiry into the financial soundness of the Transferor and Transferee Companies, and pending according its approval to the Scheme of Arrangement, under Sections'391 or 394 of the Companies Act, 1956 can appoint a Committee of Commissioners to run the affairs of the Transferor and Transferee Companies having regard to the fact that the operations of the Transferor and Transferee Companies have come to a standstill for various reasons stated above?
20. To consider this question, a reference be made to Sub-section (2) of Section 391 of the Companies Act, which reads thus:
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed under the rules made under Section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company.
Provided, that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under Sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest Auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Sections 235 - 251, and the like.
21. From a reading of the above it becomes clear that if a majority in number representing three-fourths in value of the creditors, class of creditors, or members, or class of members, as the case may be, present and voting either in person or proxy, agreed to scheme or arrangement, the scheme if sanctioned by the Court would be binding on all such persons. However, any such order to be passed under Sub-section (2) of Section 391 shall be subject to the satisfaction of this Court in terms of the proviso appended thereto. It is well settled law that the proviso appended to Sub-section (2) of Section 391 is mandatory in nature for no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or other person by whom an application has been made under Sub-section (1) has disclosed to the Court by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest Auditor's report on the accounts of the company's the pendency of any investigation proceedings in relation to the company under Sections 235 - 251, and the like. In In re, Maneckchowk and Ahmedabad ., 1970 (40) Company Cases 819 (Guj), Premier Motors (P) Ltd. v. Ashok Tandon, 1971 (41) Company Cases 656 (All), In re Navjivan Mills Co., Ltd. 1972 (42) Company Cases 265 (Guj), Bhagwan Singh and Sons P. Ltd. v. Kalawati, 1986 (60) Company Cases 94 (Del), Bharat Synthetics Ltd. v. Bank of India, 1995 (82) Company Cases 437 (Bom), In re Aradhana Beverages and Foods Co., Ltd., 1998 (93) Company Cases 899 (Del), and K.E.C. International Ltd. v. Karmik Employees, 2000 (1) CLJ 351, it was held by various High Courts that the proviso appended to Sub-section (2) of Section 391 of the Companies Act, 1956 is mandatory. The proviso appended to Sub-section (2) of Section 391 of the Companies Act, being mandatory in nature, it is incumbent upon this Court to satisfy itself about the financial soundness of the Transferor and Transferee Companies before it puts its seal of imprimatur on the Scheme of Arrangement.
22. In State of West Bengal v. Pronab Kr. Sur, : [2003]3SCR393 , the factual matrix of the matter before the Apex Court, ran thus: A winding up petition was filed by a creditor of the company before the High Court of Calcutta on the ground of its inability to discharge the debts and pending application, the company came forward with a scheme purportedly under Section 391(1) and 391(6) of the Companies Act, 1956, The said scheme inter alia envisaged making payment to the creditor by sale of a portion of company's land and the said application was rejected by the learned Single Judge of the Calcutta High Court on the ground that the property was mortgaged to the Bank and hence it was not feasible. On appeal, the Division Bench of the Calcutta High Court allowed the application, and in terms of the said order, the property was sold, and on application of the purchaser, the High Court directed the State Government to grant exemption and passed another order overruling the objections taken by the State Government. In the appeal filed by the State of West Bengal, the Apex Court finding fault with the Division Bench of the High Court, observed as follows:
The pre-requisite laid down under the Companies Act for passing the order under Section 391 or 394 cannot be treated as empty formalities which can be thrown to winds at the whim of the Judge. The most objectionable part of the impugned order is to consider one or two offers placed before the Court by the Company without giving due publicity. If the peculiar circumstances of the case required that the normal procedure of calling for bids through advertisement or other means of publicity was to be dispensed with, the Court should have at least recorded reasons for the same. But, nothing of that sort was done. The Division Bench should have acted with the awareness that there could be no arbitrary selection of the prospective purchaser, even assuring that an order for sale could be lawfully made. Above all, if the purpose was to rehabilitate or revive the company, definite proposals for revival should have been insisted upon and the High Court should have passed appropriate orders to ensure that the industry was put back on its wheels and started the production within a time frame....... ...................
23. In the instant case, this Court with a view to satisfy itself, is calling for the requisite material contemplated by the proviso appended to Sub-section (2) of Section 391 of the Companies Act, to satisfy itself about the workability of the scheme, which is in consonance with direction No. 5 of the Apex Court in the above judgment. In that view of the matter, there need not be any further dilation on the power of this Court to enquire into the matter before granting sanction to the scheme.
24. In S.K. Gupta v. K.P. Jain, AIR 1979 SC 734, the Apex Court had an occasion to consider the powers of the Court under Section 392 of the Companies Act, and having considered so, it held that there is no analogous provision to Section 392 in the Companies Act. The provisions of Sections 391 and 394 of the Companies Act provide that the Court must examine the viability of the scheme and other aspects before it sanctions. The role of Court is not that of a rubber stamp. It is both inquisitorial and supervisory. Therefore, it goes without saying that the Court should, before sanctioning the scheme must necessarily conduct an enquiry, which would take some time.
25. In the case on hand, the report of the Committee of Commissioners discloses that no audit was conducted since 1999 and the administration of the Transferor and Transferee Companies has been seriously affected after October, 2000. A number of suits and E.Ps. were already dismissed for default or for non-prosecution, and pending suits and proceedings require to be attended to immediately and immediate steps are required to be taken to realize the monies due to the Transferor and Transferee Companies. Unless the audit is conducted, the information so far furnished by the Transferor and Transferee Companies remains unauthenticated. The prerequisite of Section 391 or 394 of the Companies Act, as observed by the Apex Court in State of West Bengal v. Pronab Kr. Sur (supra) is not an empty formality and cannot be thrown to the winds, for no order sanctioning the scheme can be passed unless the latest Audit Report and the Report of the Official Liquidator etc., are made available to the Court. Therefore, if cannot be said that the Court is devoid of power to pass any orders of interlocutory nature to preserve and protect the assets of the company or to prevent the affairs of the company from being mismanaged or for proper conducting of the affairs of the company, pending consideration of the same.
26. I shall now proceed to examine the various provisions. Rule 6 of the Companies (Court) Rules, 1959 makes applicable the provisions of the Code of Civil Procedure, 1908 to the proceedings under the Companies Act. Order XXXIX, Rule 7 C.P.C. provides for detention, preservation, inspection, etc., of subject-matter of suit. It cannot be disputed that the Company Court, is vested with inherent power, which is saved by Rule 9 of the Companies (Court) Rules, 1959. Rules 82 to 84 of the Companies (Court) Rules, 1959 which also deal with the power of the Company Court to issue directions, read as follows:
82. Application for directions under Section 394.--Where the compromise or arrangement has been proposed for the purpose of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and the matters involved cannot be dealt with or dealt with adequately on the petition for sanction of the compromise or arrangement, an application shall be made to the Court under Section 394, by a summons supported by affidavit, for directions of the Court as to the proceedings to be taken. Notice of the summons shall be given in such manner and to such persons as the Court may direct.
83. Directions at hearing of application.--Upon the hearing of the summons or upon any adjourned hearing thereof the Court may make such order or give such directions as it may think fit, as to the proceedings to be taken for the purpose of reconstruction or amalgamation, as the case may be, including, where necessary, an inquiry as to the creditors of the transferor company and the securing of the debts and claims of any of the dissenting creditors in such manner as to the Court may seen just.
84. Order under Section 394.--An order made under Section 394 shall be in Form No. 42 with such variation as the circumstances may require.
27. A reading of the above Rules make it amply clear that where compromise or arrangement has been proposed for the purpose of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and the matters involved cannot be dealt with or dealt with adequately on the petition for sanction of the compromise or scheme, an application shall be made to the Court under Section 394, supported by affidavit, and the Court may make such order or give such directions as it may think fit as to the proceedings to be taken for the purpose of reconstruction or amalgamation as the case may be including where necessary an inquiry as to the creditors of the transferor company and for securing of the debts and claims of any of the dissenting creditors in such manner as the Court may seem just. This apart, there is no provision either in the Companies Act, 1956 or the Companies (Court) Rules, 1959 which limits the power of the Court, to issue directions under Rule 83. Admittedly, this is a case of reconstruction, and none can have any doubt as to the power of the Company Court to pass interlocutory directions pending consideration of a petition under Section 391 or 394 of the Companies Act.
28. Secondly, Sections 390 - 394 of the Companies Act appearing in Chapter V of the Companies Act, deal with arbitration, compromise, arrangement with and reconstruction. It is significant to note that the provisions of this Chapter cannot be read in isolation with other provisions in the Companies Act. In view of Section 390(1)(a), Sub-section (2) of Section 392 and Section 446 and Clause (c) of Sub-section (2) of Section 446 of the Companies Act, the provisions of Chapter V of Part VI have to be read with the provisions of Part VII of the Companies Act, which deal with the winding up of the company.
29. It is long well settled that a scheme proposed under Section 391 of the Companies Act is an alternative to winding up. In re London Chartered Bank of Australia, (1893) 3 Ch 540, See also the judgments of the Madras High Court in In re Travancore Quilon Bank Ltd., AIR 1983 Mad 318 and of the Kerala High Court in Sudarsan Chits (India) Ltd. v. Sukumaran Pillai, 1983 (1) ILR 700, Vaughan Williams J, - whether or not a scheme under Section 391 is an alternative to winding up or not - There cannot be any doubt that it provides a better alternative to winding up. A similar view was taken by Venkataramana, J, in In re Travancore Quilon Bank Ltd, AIR 1939 Mad. 318.
30. Part VI and Part VII of the Companies Act together lay down the law relating to Corporate Insolvency. In an application under Section 391 or Section 390 - 394 of the Companies Act, the Court may pass an order of winding up under Section 433 of the Companies Act, if the scheme is not found to be workable. Likewise, in a Company Application for winding up under Section 433 of the Companies Act, the Court may entertain an application for the scheme for amalgamation or arrangement with the creditors under Sections 391 and 390 - 394 of the Companies Act and the same cannot be doubted. In this context, the observations of the Apex Court in S.K. Gupta are apt and significant, and they read thus:
If the Court under Section 392 can order winding up of the company on the application of any person interested in the affairs of the company who need not be a member or a creditor, it cannot be said that the Court cannot act on the application of such a person interested in the affairs of the company either to give directions or to make modifications as to make the compromise or arrangement workable. Winding up meaning civil death of a company, must be the ultimate resort of the Court. A living workable scheme infusing life into a sick unit is generally to be preferred to civil death of the company.
31. It is required to be kept in mind that, even where an application for winding up is filed under Section 433 of the Companies Act and when there is no arrangement with the creditors or a scheme for amalgamation or reconstruction, the Court need not order winding up. It is now well settled law that the Court can order beneficial winding up by appointing a provisional liquidator with or without the support of the administrators under Section 450 of the Companies Act. Reference in this context be made to judgments of High Courts of Madras, Gujarat, Punjab and Haryana and Kerala in Chamundi Theatre v. S. Chandrashekar Rao, 1975 (45) Company Cases 60 (Mad), Panchmahals Steels Ltd. v. Universal Steel Traders, 1976 (46) Company Cases 706 (Guj), In re Brunton and Company Engineers Limited, 1988 (63) Company Cases 299 (Ker), Bharti Telecom Ltd. v. Altos India Ltd. (No. 2), 1998 (94) Company Cases (P&H;), and St. Mary's Finance Ltd. v. R.G. Jayaprakash, 2000 (99) Company Cases 359 (Ker). When the Court can issue an order for winding up and initiate proceedings under Part VI of the Companies Act in a petition filed under Section 391 of the Companies Act and then, appoint a provisional liquidator under Section 450 of the Companies Act, it cannot be allowed to contend that the Court cannot do the same straightaway in exercise of powers under Section 391 of the Companies Act if the exigencies so warrant. Can it be said that we need to wait till things deteriorate and drift from bad to worse and from worse to the worst and then devise plans for salvaging. Law being dynamic and progressive, can never be interpreted in a narrow and retrogressive manner. All these provisions dealing with corporate insolvency must be read together as complimentary to each other in dealing with different kinds of situations.
32. Thirdly, Section 392 of the Companies Act cannot be said to contain limitations or put restrictions on the Court's power to pass interlocutory orders before sanctioning the scheme if it is viewed in proper perspective. It is significant to note that there is no provision corresponding to Section 392 of the Companies Act under the repealed Companies Act, 1933. In this context, a reference be made to the observations made by the apex Court in S.K. Gupta case, which read as under:
At the outset it may be mentioned that though a large number of provisions of the Companies Act, 1956 are in pari materia with the provisions of Companies Act, 1948 of the U.K. (U.K. Act for short), there is no provision analogous to Section 392 in the U.K. Act. The Court under the U.K. Act has no power to modify the scheme either at the time when it is offered for its sanction or at any time subsequent thereto. The Parliament has in its wisdom, conferred a power of wide amplitude on the High Court in India to provide for its continuous supervision of the carrying out of compromise and/or arrangement and also the consequential power to make the supervision effective by removing the hitches, obstacles or impediments in the working of compromise or arrangement by conferring power to give such modification in the compromise or arrangement as it may consider necessary for the proper working of the compromise and/or arrangement. Sub-section (2) confers power on the Court to act under Section 392 either on its own morion or on the application of any person interested in the affairs of the company. What falls for consideration is the true meaning of the expression 'on the application of any person interested in the affairs of the company'.
33. The Apex Court in the very same judgment, quoted with approval, the following observations of the Gujarat High Court in Mansukhlal v. M.V. Shah, (1976) 46 Company Cases 279;
The framers of the Company Law in India have conferred statutory powers on the High Court to make such modifications in the compromise or arrangement as the Court may consider necessary for the proper working of the compromise and arrangement. The power of the widest amplitude has been conferred on the Court under Section 392(1)(b) and the width and the magnitude of the power can be gauged from the language employed in Section 392(1)(a) which confers a sort of a supervisory role on the Court during the period the scheme of compromise or arrangement is being implemented. Reading Clauses (a) and (b) of Sub-section (1) of Section 392, it appears that Parliament did not want the Court to bejunctus officio as soon as the scheme of compromise and arrangement is sanctioned by it. The Court has a continuing supervision over the implementation of compromise and arrangement. Unenvisaged, unanticipated, unforeseen or even unimaginable hitches, obstruction and impediments may arise in the course of implementation of a scheme of compromise and arrangement and if on every such occasion, sponsors have to go back to the parties concerned for seeking their approval for a modification and then seek the approval of the Court, it would be a long drawn out, protracted, time-consuming process with no guarantee of result and the whole scheme of compromise and arrangement may be mutilated in the process. Parliament has, therefore, thought if (sic. It) fit to trust the wisdom of the Court rather than go back to the interested parties. If the parties have several times to decide the modification with the democratic process, the good part of any election machinery apart, the dirt may step in, the conflicting interests may be bought and sold, and, in the process, the whole scheme of compromise and arrangement may be jettisoned. In order, therefore, to guard against this eventuality and situation, which is clearly envisageable. Parliament has conferred power on the Court, not only to make modifications even at the time of sanctioning the scheme, but at any time thereafter during the period the scheme is being implemented. Conceding that, before the Court sanctions the scheme, it partakes the character of an emerging contract between the company and the creditors and members; once the Court approves it, it becomes a statutorily enforceable contract even on dissidents, with power in the Court to modify, amend or correct or revise the contract the outer periphery or the limit on the power being that, after testing it on the anvil of probabilities, surrounding circumstances and the prevalent state of affairs, it can be done for the proper working of the compromise and arrangement, and subject to this limit on the Court's power, the power seems to be absolute and of the widest amplitude and it would be unwise to curtain it by process of interpretation,
34. The above observations lucidly reflect the true object and purport of Section 392 of the Companies Act. The object and purport of Section 392 is that the Court sanctioning the scheme under Section 391 of the Companies Act shall not become functus officio, as is the position in United Kingdom. But, for Section 392 of the Companies Act, the position would have been same as in U.K. The object of Section 392 is not to limit or restrict the power of the Court, but to widen it and stretch beyond the sanction of the scheme.
35. However, in Nathaal Lal Chand v. Bharat Jute Mills Limited, 1983 (53) Company Cases 392, a learned Single Judge of Calcutta High Court placing reliance on the observations made by the Apex Court in S.K. Gupta held that interim order cannot be passed under Section 392 of the Companies Act. On the other hand, the Gujarat High Court in Tungabadhra Industries Ltd. v. National Dairy Board, See the judgment reported in 1989 Tax LR 2527, took the view that the powers conferred by Section 392 of the Companies Act on the Court may be exercised before or after the approval of the scheme, deriving the meaning from the words 'at the time of'.
36. A close examination of Sections 391 and 392 of the Companies Act would reveal that Sections 391 and 392 operate in different stages and they do not control each other. As noticed, Section 392 was inserted in the present Act, but for which the Court would have been rendered 'functus officio' once the scheme is approved, as in the case of U.K., Section 392 comes into operation after the enquiry under Section 391 is over. In fact, the Apex Court in S.K. Gupta pointed out this distinction (in para 14 @ p.740 and in para 16 @ p.741). In that view of the matter, this Court has no doubt in its mind that the Court under Section 391 of the Companies Act, is entitled to pass any interlocutory order either for the purpose of enquiry into the affairs of the company or for preservation of company's assets, pending the sanction of the proposed Scheme of Arrangement.
37. Fourthly, Section 391 of the Companies Act gives an indication of the commencement of power on the Court to pass interlocutory orders. It says that the Court has power to grant the stay from the date of application under Sub-section (1) of Section 391. However, it must be remembered that like Section 392, Section 391 also widens the power of the Court. While, Section 392 expands the power in terms of time, beyond the approval of the scheme, Section 391(6) expands the power of the Court to the proceedings pending before other Courts. Both these provisions only widen but do not curtail the power of the Court. In this context, reference be made to the judgment of the Delhi High Court in City Bank NA, New Delhi v. Ms. Satish Sondhi, 1986 Tax LR NOC 27 (Delhi), wherein it was held:
Originally, a secured creditor, whether a banking company or other financial institution, would not take precipitate steps for the realization of the outstanding by the disposal of the securities or otherwise, if such a step was likely to adversely affect any scheme of arrangement between the company and its creditors or to, otherwise defeat the process of rehabilitation of a sick industrial unit. If such a precipitate step is taken by a financial institution or a bank, which is likely to destablize a scheme of arrangement or the process of revival of an industrial unit. Ordinarily the company itself would take appropriate steps to have proper arrangements with such an institution so that there is no threat to the securities and the continuation of its industrial activity or likelihood of any disturbance in the implementation of the scheme. If such arrangement is not possible, even the Company Court may, in a fit case, make appropriate directions with regard to the course that the secured creditor may adopt in relation to a company under a scheme of arrangement, even though the secured creditor is outside the winding up or beyond the scope of any scheme. Such steps may include the stay of any suit that may be filed against the company in such circumstances.
38. In Harish C. Rajkapoor and Ors. v. Jaferbhai Mohammed Bhai, 1989 (65) Company Cases 163 (Guj), it was held by the High Court of Gujarat that the proceedings under Section 391(6) of the Companies Act include criminal proceedings also.
39. In Allambag Tea and Trading Company Limited v. Union Bank of India, 1953 Company Cases 107 (Assam), the High Court of Assam, held that the stay order continues to be in force till final order sanctioning the scheme was passed, and it stands vacated, if scheme is rejected, and if the scheme is sanctioned, it becomes part of the scheme.
40. Fifthly, it must be remembered that the true purpose of Sections 391 - 394 of the Companies Act is revival or reconstruction of the company. The present case is one of revival and reconstruction of the companies both by means of compromise with creditors and amalgamation and is not merely a case of amalgamation of two companies. Both the Transferor and the Transferee Companies which were under common management suffered financial debility on account of certain unanticipated and unforeseen events, as stated in the earlier part of this order.
41. The summary of the case law, as is appearing from the above referred cases, in relation to the power of this Court under Section 391 of the Companies Act, to pass interlocutory order pending grant of its approval to the Scheme of Arrangement, is as follows:
1. In a case of revival or reconstruction of a company or companies, pending grant of approval to the Scheme of Arrangement, this Court in exercise of its power under Section 391 of the Companies Act, can conduct an enquiry as to the financial soundness of the companies, which are parties to the Scheme of Arrangement, and grant interim directions as are necessary for conducting such an enquiry.
2. Section 391 of the Companies Act, is a better alternative to winding up, and this Court while exercising power under Section 391 can, if the circumstances so warrant, pass orders for revival/ reconstruction of the companies instead of ordering winding up.
3. Under Section 391 of the Companies Act, the Court is empowered to pass any interlocutory order, either for the purpose of enquiry into the affairs of the companies or for preservation of the assets of the companies parties to the Scheme of Arrangement.
4. The power of the Court under Section 391 of the Act is wide in relation to the proceedings before it, and encompasses in it, to pass any interlocutory order, as it may deem fit, including grant of stay of proceedings of a suit filed against the companies that are parties to the Scheme of Arrangement before it.
5. The object and purpose of Section 391 of the Companies Act is to revive/ reconstruct the companies instead of administering them civil death.
42. It is the specific contention of the Transferee Company that they have sufficient assets, but are locked in legal battles, and if steps for their recovery are taken, it would put the company back on rails and it would also be able to discharge all its liabilities. If that be the case, as stated by the Apex Court in S.K. Gupta, a living workable scheme infusing life into a sick unit is generally to be preferred to civil death of the company. Hence, it must be held that the Company Court exercising powers under Sections 391 - 394 of the Companies Act, is empowered to pass such interlocutory orders as are necessary for making the scheme viable, pending the sanction of the scheme, relying on the language of Section 392 of the Companies Act.
43. A reading of the minutes of the meetings held by the Committee of Commissioners with the Directors of the Transferor and Transferee Companies and the report filed by the Committee of Commissioners on 25-2-2004 before this Court, discloses that detailed reports and information are required to be called for from the Board of Directors of the Transferor arid Transferee Companies in terms of the proviso to Section 391(2) of the Companies Act, and the deliberations and discussions undertaken by them, indicate that a consensus was arrived at between them as to the mode and manner of approach for making the scheme viable. It is required to be placed on record that none of the parties to the scheme have raised any objection as to the report of the Committee of Commissioners report dated 25-2-2004, though an argument was raised by sole objection petitioner that no interim directions can be given pending sanction of the scheme.
44. In the above view of the matter, and having regard to the report of the Committee of Commissioners, which discloses that the Transferor and Transferee Companies are having more assets than their liabilities, in the form of money decrees and monies recoverable from pending suits, from their defaulters, and that unless and until the decrees are executed and the pending suits brought to their logical conclusion, they will not be in a position to pay to their creditors, I am of the considered opinion that before this Court accords its sanction to the Scheme of Arrangement, proposed by the Shareholders, Deposit Holders and Unprized Chit Subscribers of the Transferor and Transferee Companies, it would be appropriate to appoint Committee of Commissioners, for recovery of the dues of the Transferor and Transferee Companies with the assistance of the Board of Directors. Therefore, having regard to power of this Court in terms of the proviso to Sub-section (1) of Section 391 of the Companies Act, 1956 while directing the continuance of the Committee of Commissioners, namely Sri A. Venku Reddy, retired District Judge and Sri. M.V. Durga Prasad, a practising Advocate of this Court, who were appointed by this Court on earlier occasion and who had even submitted their report, also direct the Board of Directors to take immediate steps in consultation with the Committee of Commissioners for obtaining the information and reports required and for the preservations and recovery of its assets including receivables without any further loss of time, subject to the limitations to be indicated below and also subject to the supervision of the Court:
(1) The Board of Directors of the Transferor and Transferee Companies shall have all the powers, functions and duties under law subject to the orders that may be passed by this Court from time to time, except transfer of any assets in favour of third parties and payment of any amount out of the funds of the respective Transferor and Transferee Companies, except as per Clause (2) below.
(2) The Board of Directors shall submit its bill of expenses, including the salaries payable to their staff, to the Committee of Commissioners for their approval and for appropriate directions, in terms of which, cheques will be issued on the accounts, to be opened to the credit of the above proceedings in the names of the Transferor and Transferee Companies.
(3) One Bank Account with a minimum deposit of Rs. 2,50,000/- (Rupees Two Lakhs and fifty thousand only) each shall be opened in the names of the Transferor and Transferee Companies by at least one Director each representing the Transferor and Transferee Companies jointly with the Committee of Commissioners, towards initial expenses, to be operated jointly, and as per the directions that may be passed by this Court from time to time.
(4) No amount shall be received by any person or official of the Transferor and Transferee Companies other than the two Directors, namely Sri. A Balaji and Sri. A.S. Prasad, jointly on behalf of the Transferor or the Transferee Company, except by way of Demand Drafts or crossed cheques payable to the accounts to be opened to the credit of the above proceedings in the names of the Transferor and Transferee Companies, as per Clause 3 against the receipts superscribed with the cause title of the above proceedings signed by both of them, disclosing clearly the particulars, such as payer, account number, branch, amount paid, date, outstanding amount, suit particulars in the case of suit filed account, etc. The receipt book should be in quadruplicate, of which the first copy shall be issued to the payer, second copy shall be submitted to the Committee of Commissioners along with weekly reports, third copy shall be submitted to the Auditor and the fourth copy shall be retained by the respective companies.
(5) The Board of Directors shall submit Weekly Reports with respect to the following matters, to the Committee of Commissioners:
(a) The status of suit filed accounts.
(b) Actions initiated against the non-suit filed cases of both the companies.
(c) Amounts collected along with the receipts and the copy of counterfoil of the pay-in-slip.
(d) Any other action taken by the Directors or any material development requiring immediate attention of the Committee of Commissioners.
(e) Summary of items (a) to (d) above.
(f) Amount collected and deposited in the bank accounts, with bank statements.
(g) Expenditure incurred during the week, with vouchers and other supporting documents.
(h) Report of the Auditor with respect to (a) to (g) above.
(6) The Board of Directors along with their Auditor and weekly reports as above shall meet the Committee of Commissioners every week for review and for preparation of monthly review report to be submitted to this Court.
(7) The Transferor and Transferee Companies are permitted to renew all the fixed deposits up to 31-3-2004 or such other nearest possible date as may be pointed out by the banker concerned, so as to gain full benefit of interest from the date of expiry of F.D.Rs. All the F.D.Rs. and the F.D.Rs. to be renewed shall be transferred to one Branch and to the credit of the above proceedings in the names of the Transferor and Transferee Companies, subject to further orders that may be passed by this Court from time to time. The Board of Directors of the Transferor and Transferee Companies shall address letters to their bankers, for transfer and renewal of all the existing accounts standing in the names of the Transferor and Transferee Companies, as above, enclosing a copy of this order and thereafter file Action Taken Report with complete details before the Committee of Commissioners.
(8) The Bankers of the Transferor and Transferee Companies shall close all the existing bank accounts of the Transferor and Transferee Companies and remit the entire credit balance, including interest or any other amounts received or standing to the account of the Transferor and Transferee Companies, and remit them to the credit of the bank accounts to be opened to the credit of the above proceedings in the names of the Transferor and Transferee Companies. The amounts received in excess of Rs. 2,00,000/- shall be converted into F.D.Rs. to the nearest possible future date, which shall not be later than three months from today, so as to earn interest thereon.
(9) The Board of Directors of the Transferor and Transferee Companies shall follow scrupulously the plan of action devised by consensus during the meetings held on 22-2-2004, minutes of which are filed along with the Committee of Commissioners.
(10) Except the persons authorized by this order, neither the Board of Directors nor any other person representing the Transferor and Transferee Companies, shall operate any other bank account except the bank accounts to be opened to the credit of the above proceedings in the names of the Transferor and Transferee Companies, as per Clause (3) above.
(11) The Board of Directors of the Transferor and Transferee Companies are permitted to;
(a) To appoint M/s. Anandam and Company, Secunderabad, as Auditors, subject to their giving an undertaking to complete the audit up to date within one month and to assist the Committee of Commissioners as per this order. Their remuneration shall be fixed in advance with the approval of the Committee of Commissioners.
(b) To continue the existing Advocates subject to the satisfaction of the Committee of Commissioners about their performance and on their giving an undertaking to send weekly reports about all the suits or other proceedings along with the details of expenditure incurred or to be incurred and also to submit their statement of bill of expenses and fee received and to be received, to the Committee of Commissioners. If any existing Counsel shows disinclination to continue or to give the undertaking or to furnish reports or their performance is unsatisfactory, the Committee of Commissioners, may appoint fresh Advocates on such terms and conditions and subject to their undertaking to furnish weekly reports etc., as indicated above.
(c) To appoint three Typists/Data Entry Operators, three Court Clerks and three Field Assistants on daily wage basis.
(d) To issue suitable advertisements in Eenadu and Deccan Chronicle daily newspapers, with minimum expenditure, with prior approval of the Committee of Commissioners.
(12) The Board of Directors of the Transferor and Transferee Companies shall submit audited balance sheets for the period from 1999-2000 to till date and make settlement with M/s. Karnataka Bank Limited within a period of one month from the date of this order and file report before the Committee of Commissioners.
(13) Apart from all the above, the Committee of Commissioners shall have the general power to appoint Advocates on behalf of the Transferor and Transferee Companies and fix their remuneration. To appoint fresh Auditor on such terms and conditions as may be necessary, if the present Auditor fails to audit and submit reports, as directed above. They are empowered to issue directions as are necessary for the purpose of and general administration of the Transferor and Transferee Companies.
(14) In case of any difficulty arising in the implementation of this order, the Committee of Commissioners may approach this Court for any direction or clarification etc., which they may require with regard to the implementation of the order or for any modification thereof.
(15) The remuneration of the Committee of Commissioners is tentatively fixed at Rs. 10,000/- each per month.
To facilitate the implementation of this order, it becomes necessary for this Court to continue the orders of stay granted by this Court on 26-9-2003 in C.A. Nos. 792 and 794 of 2003, and extended from time to time, until further orders. The stay shall operate against M/s. Karnataka Bank Ltd. for a period of one month to enable the Transferor and Transferee Companies make settlement with the said Bank. However, if no settlement is arrived at within one month, M/s. Karnataka Bank Limited shall be at liberty to proceed against the properties mortgaged to them in respect of the loans advanced by them to the Transferor and Transferee Companies. At any rate, they shall not sell the properties mortgaged to them without the prior permission of this Court and the sale also shall not be confirmed without prior permission of the Court. The stay shall continue to operate against M/s. Karnataka Bank Limited and others in all other respects.
45. In the result, C.A. No. 795 of 2002 is allowed subject to the aforementioned directions. CA No. 2848 and 2857 of 2003, filed by M/s. Karnataka Bank Limited and one Mr. Khaza Masood Ali, seeking their impleadment are allowed. The application CA No. 2849 of 2003, filed by M/s. Karnataka Bank Limited seeking their impleadment is ordered, and while the application CA No. 2858 of 2003, filed by Mr. Khaza Masood Ali seeking to dismiss the application CA No.793 of 2003, whereby meeting of the shareholders of the Transferee Company was called for was dispensed with, is dismissed.
46. The matter shall be listed every month for the reports of the Committee of Commissioners and the Board of Directors.