M.B. Shah, J.
1. One April 14, 1986, in Company petition No. 68 of 1985, Kamla Spinning and Manufacturing Mills Private Limited was ordered to be wound up under the provisions of the Companies Act, 1956. The official liquidator was appointed as liquidator of the company. By order dated march 27, 1989, passed in Company Application No. 173 of 1988, Gujarat Technical Consultancy Organisation Limited (GTCO) was appointed as a valuer to assess the value of the assets and properties of the above company and also to prepare an inventory. GTCO submitted a valuation report dated May 24, 1989, showing the total value of the land, buildings and other civil construction, office furniture, office equipment and miscellaneous scrap, stores items, plant and machinery and excess stock at Rs. 2,00,23,975.
2. After the receipt of the report on August 2, 1989, this court (A. S. Qureshi J.) directed the official liquidator to invite offers for taking over the assets of the company on lease with a view to re-start it and run it on a regular basis so as to generate employment for the workers who have been out of job for several years. At that time, the court took into consideration the fact that, in the interest of the company in liquidation as well as of the creditors and the workers, a party which is ready and willing to take the mill company on leave and licence for re-starting and who is in a position to invest money and is having expertise to re-start may apply. Thereafter, the matter was adjourned from time to time. On October 25, 1989, the offers received were considered and it was decided to give a fresh advertisement for inviting fresh offers with certain modifications, as stated in the said orders. After the fresh advertisement, five offers were received by the official liquidator. Out of the five offerors, three offerors had withdrawn their offers. During that time, one of the offerors, Neptune Trading Co., has sponsored a scheme of compromise and/or arrangement between Kamla Spinning and . and its creditors and employees and the State of Gujarat through the petitioner, Rajiv Cotton Traders, by filing Company Application No. 218 of 1990 in Company Petition No. 68 of 1985. Prior to that application, Arvind Mills Limited, Ahmedabad, had also filed Company Application No. 272 of 1989 and has submitted a proposed scheme of arrangement. However, that application was withdrawn in view of the scheme tendered by Rajiv Cotton Traders.
3. Thereafter, on October 12, 1990, in Company Application No. 218 of 1990, this court directed the holding of separate meetings of various classes of creditors of the company and other persons as mentioned in the judge's summons as per the schedule stated in the order after giving proper advertisement as directed. Mr. P. J. Patel, Assistant Secretary to the Chief Justice, was directed to act as chairman for the said meetings. According to his report, meetings of the various classes of creditors and employees of Kamla Spinning and Manufacturing Mills Private Limited were held on November 27, 1990, as stated below :
(1) Secured creditors of the company 10.00 a.m.(meeting of the Bank of Baroda was adjourned toDecember 20, 1990, at 9.30 a.m. The meeting washeld on the said date and time)(2) Statutory creditors of the company 10.30 a.m.(3) Ahmedabad Electricity Company Ltd. 11.00 a.m.(4) Ahmedabad Municipal Corporation (meeting wasadjourned to December 20, 1990, at 10.00 a.m.Thereafter, it was adjourned to January 5, 1991,at 9.30 a.m. The meeting was held on the said dateand time.) 11.30 a.m.(5) Government of Gujarat 12.00 noon(6) Unsecured creditors of the company (except 12.30 p.m.employees of the company)(7) Employees of the company 3.30 p.m.
4. The detailed report is submitted by the chairman. The following are the conclusions :
'28.1. The secured creditor, viz., the Bank of Baroda, voted in favour of the scheme subject of course to the modification indicated in the letter at annexure 'L' hereto. 28.2 The Employees' State insurance Corporation, one of the statutory creditors of the company, voted in favour of the scheme, subject of course to the modification indicated in the resolution at annexure 'B' hereto.
28.3 The rest of the statutory creditors, namely, Collector of Central Excise and Customs, Chief Commissioner of Income-tax, Regional Provident Fund Commissioner and Commissioner of Sales Tax did not attend the meetings of the statutory creditors of the company.
28.4 The Ahmedabad Electricity Company Ltd. voted in favour of the scheme subject to what is stated in its letter dated
28.5. The meeting of the Ahmedabad Municipal Corporation stands adjourned to January 21, 1991, as submitted hereinabove.
28.6. The Government of Gujarat voted in favour of the scheme.
28.7. The unsecured creditors of the company who attended the meeting voted in favour of he scheme.
28.8. The employees of the company who attended the meeting voted in favour of the scheme.'
5. Thereafter, this petition is filed for sanctioning the scheme as modified and approved by all concerned. It has been pointed out in the balance-sheet as on April 14, 1986, i.e., the date of winding-up order that the financial liabilities of the company were as under :
(Rs. in lakhs)'1. Secured creditors (Bank of Baroda) 65.152. Other preferential creditors 4.803. Dues of the workmen and employees 33.484. Unsecured creditors including depositors 142.28'
6. At the time of hearing of this matter, Mr. Desai, learned advocate appearing on behalf of the Bank of Baroda (the only secured creditor) states that the bank approves the scheme, annexure 'D', which is already modified as per the bank's suggestion.
7. Mr. Vasavada, learned advocate appearing on behalf of the T.L.A., also states that the employees of the company fully approve the scheme, annexure 'D', and request that the scheme may be sanctioned at the earliest so that the employees may get back their jobs as early as possible. The agreement on behalf of the employees is incorporated in the scheme is paragraph 5.5.
8. On behalf of the Ahmedabad Municipal Corporation, the Deputy Municipal Commissioner attended the meeting on January 5, 1991, and he has produced the letter dated January 4, 1991, stating that the proposal forwarded by Neptune Trading Company which is on lines similar to the submitted by Arvind Mills Ltd., in the matter of Nagri Mills is under the consideration of the Corporation and that the Corporation would take a decision on merits. In the report, part II submitted by the chairman, it has been stated that the standing committee of the Ahmedabad Municipal Corporation, vide its resolution No. 1914 dated January 24, 1991, has approved the scheme proposed by Rajiv Cotton Traders subject to certain terms and conditions. It should also be noted that the Employees' State Insurance Corporation and A.E.C. have also approved the scheme.
9. Lastly, it should be mentioned that the State of Gujarat has passed a resolution dated March 13, 1991, which is produced by the petitioner by filing an affidavit on March 15, 1991. The said resolution, inter alia, provides for giving some benefits to Kamla Spinning and Manufacturing Mills Private Limited, Ahmedabad, on its revival by Neptune Trading Company (Rajiv Traders). This would be clear from paragraphs 5 and 6 of the resolution which read as under :
'5. The High Level Committee constituted under Government Resolution Industries, Mines and Energy Department No. WPT-1089-4648-T, dated October 19, 1989, and June 19, 1990, have carefully considered the proposal of Neptune Trading Company (Rajiv Cotton Traders), Ahmedabad, for revival of Kamla Spinning and ., Ahmedabad, from liquidation.
6. The Government is pleased to grant to following concessions : Nature of benefit Extent of benefit Extended toExemption/payment 90% of he amount of (a) Kamla Spinningfrom the paymentof sales fixed capital empl- and .,sales tax on elec- the closed underta- Ahmedabad, wouldtricity and elect- king, i.e., Kamla be eligible forricity duty payable Spinning and ., Ahmedabad. their option fortheir ownactivitiesto the extentof 90% of the inv-estment made byNeptune TradingCo. (Rajiv Cotton Tra-ders), Ahmedabad, forrevival of the closedundertaking or for thepurchase of assets ofthe closed undertaking,i.e., Kamla Spinning and., Ahm-edabad, from theliquidator.
Explanation :
Fixed capital employed would be defined as follows :-
'Eligible fixed capital investment' means investment in land - the actual price paid for the land to the extent needed but excluding land development charges.
- new building.
- new plant and machinery and imported second-hand machinery and installation expenditure capitalised for plant and machinery, capital interest during construction not exceeding 5% of the total fixed capital investment.
- technical know-how fees or draining fees in lump sum to foreign collaborators or foreign suppliers as approved by the Government of India or paid to laboratories organised by the State Government or the Central Government.
- the amount spent on rationalisation and other dues of workers.
- working capital (whether raised through banks or otherwise and including working capital margin), goodwill fees, engineering fees, commissioning fees, commissioning expenses, royalties capitalised or otherwise, pre-operative expenses, expenditure on trucks, cars, vans, trailers, tractors and transport vehicles and catalysts will not be considered as eligible fixed investment for the purpose of this scheme, plant and machinery used or installed anywhere in India and shifted, purchased, leased, hired, licensed or transferred in any manner will not be considered as fixed capital investment eligible for these incentives.
- only those assets which are acquired and paid during the operative period of this scheme will be eligible for these incentives under this scheme.'
10. From the aforesaid facts, it is clear that, as per the report of the chairmen as to the outcome of the meetings, firstly, the scheme has been approved by almost all persons who are entitled to approve the scheme or object to the said scheme. Secondly, the statutory requirement is also complied with. Mr. P. M. Raval, learned advocate appearing on behalf of the Central Government, has not raised any objection to the approval of the said scheme. Thirdly, the employees of the company and the representative union, i.e., Textile Labour Association, have also approved the scheme and it is submitted by learned advocate, Mr. Vasavada, that the scheme is in the interest of the workers and should be sanctioned at the earliest. Mr. Desai, learned advocate appearing on behalf of the Bank of Baroda (secured creditor), submitted that the scheme is fair and reasonable and does not hurt any class or classes of persons affected thereby. Fourthly, Mr. Nanavati submitted that as Kamla Spinning Mills was a private limited company, the applicant has already arranged with the shareholders for purchasing all the shares held by the previous management.
11. The next question which would require consideration is whether the scheme is fair and reasonable and propounded in good faith by the applicant. One fact should be taken into consideration that Neptune Trading Company is in business since the year 1940. It is also having more than 350 powerlooms and a process house in the name and style of Neptune Textile Mills Limited and it employs 300 workers. The following are the activities mentioned by the applicant in its affidavit in support of the judge's summons in Company Application No. 218 of 1990 :
'7. Neptune Trading Company is also partnership firm and it was established in the year 1940. The names of the partners of the firm are as under :-
(1) Shri Jashvantlal Popatlal Shah. (2) Shri Nareshchandra Popatalal Shah.
7.1. This firm is one of the units of the Neptune group of industries. The necessary details of various units of the group and the group activities are as under :
(1) Distribution of yarn - annual turnover Rs. 40 crores.
(2) Manufacturing and sale of cloth - annual turnover Rs. 10 crores.
(3) Sales and distribution of PVC film/sheeting and leather cloth - annual turnover Rs. 250 lakhs.
(4) Distribution of PVC flooring - annual turnover Rs. 100 lakhs.
7.2. The group has also started manufacturing high pressure cleaning equipment with the technical collaboration of Alfred Karcher and Co., West Germany, in the name and style of Neptune Equipments Pvt. Ltd. The group has also started manufacturing HDPE woven sacks in the name and style of Neptune Polymer.
7.2. The said firm is having agencies for selling of yarn of leading composite textiles/spinning mills in Gujarat. Neptune group is having more than 350 powerlooms and a process house in the name and style of Neptune Textile Mills Ltd. The group as a whole employs more than 300 employees. One of the partners of the said firm, Shri Jashvant Popatlal Shah, is the President of the Gujarat Powerloom Association.
7.3. In view of its diverse activities, the said firm has got excellent business relations with commercial bankers and, due to creditable performance, it enjoys confidence of bankers as well as merchants, suppliers and other connected with trade.'
12. This aspect is not denied by any one. Therefore, taking into consideration the overall facts of the matter, in my view, it seems that the scheme sponsored by the applicant is fair and reasonable. It is approved by almost all concerned. There is nothing on record to doubt that it is not propounded in good faith.
13. However, Mr. Vakharia, learned advocate appearing on behalf of the applicant in Company Application No. 42 of 1991, submitted that the court should not sanction the scheme but grant a licence to the applicant, All-India Scheduled Castes Development Co-operative Society Limited, for running Kamla Spinning and . as per the offer, annexure 'B', to Company Application No. 42 of 1991. In the said offer, it has been stated that the applicant gives an offer to take Kamla Spinning Mills on leave and licence basis for a minimum period of five years on the terms and conditions mentioned therein. The terms and conditions, inter alia, provided that the society is offering a monthly compensation of Rs. 1,11,000 for running the company on lease basis for a period of five years. It also provides that the amount of compensation for the first three months which will be Rs. 3,33,000 shall be paid by the society in monthly instalments of Rs. 27,750 along with the amount of compensation of Rs. 1,11,000 for the period of 12 months. The other conditions provide that Ahmedabad Electricity Company should be directed to supply power without insisting on payment of any past dues and/or any extra cost for connecting the power and that the Government of Gujarat should be directed to give benefits as are given to sick units for a period of five years or up to the extended lease period. With regard to its experience, it has been stated that the society is financially very sound and that it has undertaken the following projects :- (a) Flower project. (b) Seeds multiplication and vegetable project. (c) Deep-sea fishery project.
14. From the aforesaid facts, it is apparent that the applicant society is not having any experience of doing business in textile industry. Having a flower project or a seed multiplication and vegetable project or deep-sea fishery project with the aid of the Government subsidy would not mean that the applicant is having any experience in running the textile mill. Apart from their experience, it seems that their intention to oppose the scheme submitted by Neptune Trading Company is not a bona fide one. It would be worthwhile to reproduce the observations made by the Division Bench of this court in the case of Bhavnagar Vegetable Products Ltd., In re [1984] 55 Comp Cas 107. The relevant observations are as under (at pages 143, 144) :
'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 issued and in order to clearly hear the heart-throbs of the real problem. 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 and 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 shareholders) as the secured creditors and nationalised 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 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. Gupta v. K. P. Jain [1979] 49 Comp Cas 342) as sponsor of the scheme to resurrect the company whereby life is being infused into 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 it 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.'
15. The aforesaid observations will apply mutatis mutandis to the contentions raised in the present case.
16. Apart from the aforesaid aspect, it should be noted that the client of learned advocate, Mr. Vakharia, had not proposed any scheme, but the proposal is only for lease or licence of the mills for running it for a period of five years or at the most for a period of ten years. That proposal is vehemently objected to by learned advocate, Mr. Desai, who is appearing for the secured creditor and learned advocate, Mr. Vasavada, who is appearing on behalf of the T.L.A. It should be noted that All-India Scheduled Castes Development Co-operative Society Limited is not having any expertise in, or experience of, running a textile mill. Further, no direction can be given to the State Government or to the Ahmedabad Electricity Company as prayed for by the applicant in its proposal. It seems that the society is not in a position to pay even the licence fee of Rs. 1,10,000 at a stretch and has asked for instalments. The employees are also not interested in the grant of licence to the applicant. In this view of the matter, there is no substance in the contention raised by Mr. Vakharia. Hence, it is ordered that the scheme which has been approved by all concerned and which is produced at annexure 'D' to Company Petition No. 2 of 1991 is sanctioned with effect from March 25, 1991, on the following terms and conditions :
(1) The order of winding up of the company passed on April 14, 1986, shall stand revoked from March 25, 1991.
(2) The official liquidator shall hand over possession of the assets of the company after making necessary inventory and completing other formalities with relevant records at the earliest.
(3) Kamla Spinning and manufacturing Mills Private Limited shall produce a certified copy to be filed with the Registrar of Companies, Gujarat State, Ahmedabad, for registration on the before April 25, 1991.
(4) With regard to the commission payable to the Central Government, the official liquidator shall submit his report within 15 days.
(5) This court reserves unto itself the right to direct institution of civil proceedings against and/or prosecution of the ex-directors of the company for criminal acts allegedly committed by all or any of them in connection with the affairs of the company.
(6) All the expenses incurred by the official liquidator for and on behalf of the company shall be borne by the company after this order becomes effective.
(7) The scheme will be implemented and carried out under this court's supervision and subject to the directions that this court may give from time to time for the better and efficient execution of the scheme.
(8) If any difficulty is experienced in the execution or implementation of the scheme hereby approved and modified or any doubt arises as regards the true meaning and scope of any of the terms imposed by this order, parties will be at liberty to apply for further directions.
17. In the result, Company Petition No. 2 of 1991 preferred under section 391(2) of the companies Act for according sanction to the scheme at annexure 'D' to the petition is allowed with the aforesaid directions. There shall be no order as to costs.
18. In view of the sanctioning of the scheme, Company Application No. 42 of 1991 would not survive and is rejected. Notice discharged.
19. Company Application No. 173 of 1988 filed for advertising, sale or auctioning the property would not survive and is rejected.