SPGL; Sri Ranjit Kumar v. ARCIL; and Sri S.R. Ashok

Judgment

(per Hon’ble Sri Justice D.S.R.Varma) Since all the appeals are filed assailing the judgment rendered by the Company Court, we propose to dispose of these appeals by this common judgment.

2. Heard Sri V.Aka Venkataramana, Sri V.Shekhar, learned Senior Counsel, representing Sri M.Mohan Rao; Sri V.S.Raju, and Sri Vedula Srinivas, learned counsel appearing for the appellants as well as Sri S.Ravi, learned Senior Counsel appearing for the respondent-SPGL; Sri Ranjit Kumar, learned Senior Counsel, representing Sri S.Niranjan Reddy appearing for respondent-ARCIL; and Sri S.R. Ashok, learned Senior Counsel, representing Sri P.Venkat Reddy, learned counsel appearing for respondent-ARCIL, respectively, in the appeals.

3. Aggrieved by the common order dated 5.10.2007 passed by the learned Company Judge in Company Petition No.43 of 2007 and Company Application Nos.852, 974, 1071, 1240, and 1199, 1200, 1201, 1202 of 2007 and Company Application (SR).Nos.2310, 3349, 4432 and 3351 of 2007, respondent No.9 in C.P.No.43 of 2007 filed O.S.A.No.1 of 2009, respondent Nos.1 and 2 filed O.S.A.No.62 of 2009, respondent Nos.3 to 7 O.S.A.No.65 of 2007, and respondent No.8 filed O.S.A.No.66 of

4. For the sake of convenience, in this common judgment, the appellants herein are referred to as “the respondents- objectors” and the 1st respondent herein is referred to as “the petitioner company” and the Trustee of ARCIL-Spectrum Power Generation Limited Trusts is referred to as “ARCIL”.

5. The facts that led to filing of the present appeals, in brief, are as under: The 1st respondent in these appeals, namely, Spectrum Power Generation Limited (SPGL), who is the petitioner company in C.P.No.43 of 2007 filed a Company Petition under Section 391 of the Companies Act, 1956 (for short, ‘the Companies Act’) read with Rule 79 of the Company Court Rules, 1959 seeking approval of the scheme arrangement made between SPGL and its secured creditors and members, under which the debts as well as capital was proposed to be restructured. SPGL is a company incorporated under the provisions of the Companies Act, having its registered office at Hyderabad and its objects, briefly, are to generate, distribute and supply electricity power by setting up Thermal Power Plants through various methods. The other objects are elaborated by the learned Company Judge in the impugned judgment.

6. It appears that there was a proposal by the Government to set up a gas based power plant in Andhra Pradesh and the same was granted to National Thermal Power Corporation (NTPC) by the central government. But since NTPC was busily involved in various other projects, the said project was decided to be allocated to a private company and as a consequence to the said decision, tenders were invited. The project was awarded to the Original Promoters of the Company on 19.6.1992, but, after the allotment, because of the intervention of various circumstances, which are not necessary to mention, could not proceed with implementation of the project, as expected.

7. The petitioner company had entered into a long term Power Purchase Agreement (hereinafter referred to as “PPA”) with the erstwhile Andhra Pradesh State Electricity Board. Due to various circumstances, the rights under PPA were transferred from A.P. TRANSCO to the distribution companies with effect from

9.6.2005. Since then, the Andhra Pradesh Coordination Committee (APCC) has been constituted to represent the distribution companies and coordinate the company in respect of the PPA. It appears that the completed cost of the project stands at Rs.972-60 crores and the reason for the cost overrun is primarily due to various factors. The said cost was funded through different equities and loans from different sources. The revised completed cost details were submitted to APSEB/A.P. TRANSCO approval and the same yet to be approved.

8. The petitioner company has been operating under severe financial constraints due to numerous factors as set out in the scheme, which resulted in its net worth becoming negative and the petitioner company failed to fulfil its financial commitments towards the repayment of loans/credit facilities due to various secured creditors. For various other reasons, the amounts due to be paid to the secured creditors has been mounted to Rs.1,23,506- 41 lakhs and as a result the petitioner company has been in default as it could not make payments of both principal and interest. Further, the petitioner company started incurring losses since 2003. The accumulated losses were to the extent of Rs.14,03,08,843/-, which had subsequently grown up Rs.244,49,98,645/- as on 31.3.2006. The said figure had further aggravated to more than Rs.1100,40,31,924/-.

9. The only source of income of the petitioner company was the sales realisation from the purchaser which comes to an average of Rs.22-00 crores per month, which is far lesser than the amount due to be paid to the secured creditors. The said realisation sources are also very likely to be further reduced in the coming years. Due to various reasons, particularly due to the delay in infusion, the petitioner company turned into a Non- Performing Asset (hereinafter referred to as “NPA”). Hence, it had necessitated to rehabilitate the petitioner company by restructuring its debt and capital structure in order to protect and safe-guard the interests of the company, its shareholders, creditors and other stakeholders and also mainly to avoid the risk of the company going into liquidation.

10. It was at that stage, the Asset Reconstruction Company (India) Limited (hereinafter referred to as “ARCIL”) had issued an invitation for expression of interest inviting bids from prospective bidders for the resolution of the debt due from the petitioner company. In consequence thereof, ARCIL had received various bids and among them Pinnacle Overseas Assets Limited (hereinafter referred to as “POAL”) was the successful bidder. A sanction letter was also issued by ARCIL to POAL incorporating various terms necessary for restructuring the debt and capital of the petitioner company. The Board of Directors of the Company also had executed a definitive agreement with ARCIL and POAL. Pursuant to the execution of the said definitive agreement, the scheme has been prepared by the petitioner company, as it is interested in the revival/rehabilitation of its business. It is to be remembered here that the said scheme was not only in the interest of the petitioner company, but also the creditors and shareholders.

11. Consequent upon the said decision, the Board of Directors of the Company, at its meeting held on 27.1.2007, approved the scheme of arrangement subject to the approval of the shareholders, secured creditors and the Court. Accordingly, the petitioner company filed an application before the learned Company Court an application C.A.No.261 of 2007 to convene the meeting of the shareholders and the secured creditors and the meeting of the shareholders was conducted in the presence of the Chairpersons appointed by the Company Court. As per the orders of the Company Court, a separate meeting of Equity Shareholders was also conducted on the same day. Pursuant to the said meetings, the Chairpersons filed reports stating that out of 16 secured creditors of the company, all the secured creditors were present either through their representatives or the proxies and that out of 16 secured creditors, 15 secured creditors representing

98.49% of the total outstanding debit due to the secured creditor viz., UTI Asset Management Company Private Limited, holding

1.51% out of the total outstanding debt, voted against the resolution. Similarly, with reference Equity Shareholders, the reports shows that 69 shareholders were present ether directly or through proxies and out of them, 65 shareholders representing

99.99% of the total value of shares held by the shareholders voted in favour of the resolution, while 4 shareholders representing

0.01% of the total value of shares voted against the resolution.

12. One of the shareholders, by name R.R. Godavari Power Limited, Mauritius, had sent a communication dated 16.3.2007, proposing certain modifications in the scheme of arrangement, which relates to the alteration in the capital clause. The said proposal by way of modification was also approved. A bare perusal of the scheme would only show that the existing share capital would be converted into 0.05% redeemable preference shares, to be redeemed at the end of 15 years. From out of the outstanding amount to be paid to ARCIL, a sum of Rs.50-00 crores should be paid by the bidder (POAL), which intends to step into the company in the capacity of Manager as well as investor and equity holder. The schedule of the scheme further provides that in addition to the above Rs.50-00 crores already paid, a further amount of Rs.100-00 crores should be paid by POAL. In addition to it, it was proposed that the secured creditors would be paid by the company an amount of Rs.150-00 crores out of the outstanding amount in 60 monthly instalments, commencing from 30.4.2007 with interest at 10% per annum with quarterly rests. A further sum of Rs.175-00 crores was proposed to be paid as bullet payment on

31.3.2012 to the secured creditors (pro rata inter se) with 10% interest per annum. It further contemplates that a sum of Rs.325- 00 crores out of the outstanding amount to be paid by issuance of compulsorily convertible debentures to the secured creditors.

13. A further amount of Rs.8-50 crores to be paid to secured creditors within 7 days of the sanction of the scheme by the Court in lieu of past interest overdues and other charges. In view of the above, the petitioner company sought approval of the scheme by the Company Court.

14. Company Application Nos.1199, 1200, 1201 and 1202 of 2007 have been filed by the Trustee of ARCIL-Spectrum Power Generations Limited Trusts, who have acquired 80% of the financial assets of the petitioner company, seeking to implead as party-respondents to support the scheme of arrangement proposed by the petitioner Company. Being a securitisation and asset reconstruction company, financial assets of petitioner company were acquired by the said Trustees in accordance with the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity “the Securitisation Act”).

15. Pursuant to the said acquisition and in accordance with the provisions of the Securitisation Act, ARCIL had invited Expression of Interest for resolution of the dues of the company and among the four offers received, ARCIL found the offer submitted by one Lehman Brothers Commercial Corporation (Asia) Limited on behalf of POAL as the most beneficial to the lenders.

16. ARCIL, having been satisfied with the said offer of the POAL, had issued a letter of acceptance and the bidder deposited a sum of Rs.50-00 crores as was proposed. Further, the nominees of the POAL were also co-opted on the Board of Directors of the Company. Later, the Company has filed the present application under Section 391 of the Companies Act seeking sanction of the scheme of arrangement to reconstruct the debt and capital of the company.

17. Implead applications are filed on behalf of some of the shareholders, who are the appellants herein. C.A.No.852 of 2007

is filed by Sri M.Kishan Rao individually, as well as on behalf of his HUF, representing the promoter shareholder of the company in question. Further, similar applications are also C.A.Nos.1071 and 1240 of 2007 on behalf of two of his group companies viz., M/s. Bambino Agro Industries Limited and Bambino Finance Private Limited, which are stated to be the shareholders, to come on record as respondents, opposing the proposed scheme. On behalf of 5 individual shareholders, C.A.No.974 of 2007 is filed to get themselves impleaded as party- respondents opposing the scheme.

18. It was the specific averment of Sri M.Kishan Rao, who got impleaded as respondent in the company petition before the learned Company Judge that he was a shareholder holding 27,370 shares, while his HUF was holding 18,85,090 shares, apart from the share hold by the group companies and though their names are being shown in the register of shareholders of the company, they were not allowed to participate in the meeting of the ARCIL by addressing letter dated 20.3.2007 informing them that ARCIL had been exercising its right to vote and, therefore, they were not asked to participate in the meeting of the company, which was convened as per the directions of the Company Court. It is his specific contention that since they were prevented participating in the meeting of the shareholders they could not raise any objection with regard to the scheme. It is further averred that apart from being shareholders of the petitioner company, the respondents have substantial interest and stake in the company as the promoters and guarantors for the loans availed by the company from the banks and financial institutions.

19. The learned Company Judge having gone through the rival contentions and the material available on record, through the impugned order dated 5.10.2007, allowed the implead applications filed by the applicants as party-respondents in the Company Petition, however, approved the scheme of arrangement, while rejecting the objection petitions filed by the implead respondents- objectors opposing the scheme of arrangement. Aggrieved by the same, the present appeals have been preferred by the implead respondents-objectors.

20. It was specifically averred by the respondents-objectors in the said guarantees that subsequent to the change in the management of the petitioner company in October, 2003, were never extended and that the said guarantees also ceased to exist when ARCIL took over the petitioner company under Securitization Act and through a sham and dubious bidding process allotted the same to POAL. The respondents-objectors further questioned the bidding process conducted by the ARCIL when the petitioner company was headed by an illegally elected Chairman and Directors and the said issue was subject matter of a civil suit and, therefore, such illegally elected Chairman and Directors cannot correspond with the ARCL and could all the things in finalizing the bidding process.

21. Broadly, it is the specific contention of the respondents- objectors that the company application is a bundle of distorted facts and not in the best interest of the minority shareholders and the scheme was devised with a malafide intention of hijacking the petitioner company and its assets at a throw away price. It is the further contention of the respondents that under the earlier management, the petitioner company had repaid considerable amount to the banks and financial institutions. But, unfortunately, the financial institutions have appropriated the amounts remitted by the petitioner company unilaterally against the interest and penal interests without absorbing even part of the amount towards the principal debts. Therefore, it was claimed by the leading respondent-objector that he and his associates would continue to be the shareholders of the petitioner company, despite which the institutions and the company deprived the respondents and his associates from participating and exercising their right as shareholders and that the whole exercise undertaken by the ARCIL after taking over the secured assets and the management of the petitioner company, invited bids for expression of interest without following any uniform rule only with an intention to favour the present bidder i.e., POAL and that the whole bidding process conducted by ARCIL is far from law and suffers from lack of lack of transparency. It is also stated that the losses, which were minimal by the time the management of the petitioner company was taken over by the financial institutions, for which the financial institutions owed obligation to explain reasons and circumstances, under which the said losses have been mounted up, which the financial institutions have not explained.

22. It is the further contention of the respondents-objectors that the scheme in question is violative of the provisions of Section 391 of the Companies Act, in addition to violation of the respondent and his associates’ rights as shareholders and creditors and that there was a hidden agenda behind the scheme to take over the project of the company.

23. It is their further contention that if really the Board of Directors have approved the scheme on 27.1.2007, the same ought to have been mentioned in the annual report for the year ending 31.3.2006, which is conspicuously absent, and which contravenes the terms of Section 217 of the Companies Act.

24. It is the further contention of the respondents-objectors that ARCIL had accepted the bid of one Lehman Brothers Commercial Corporation Asia Limited. However, the successful bidder was stated to be a company, by name POAL, in which the Lehman Brothers Commercial Corporation Asia Limited has a miniscule share of 10%.

25. It is the further contention of the respondents-objectors that even assuming that the petitioner company was a non- performing asset (though it was still generating about Rs.22-00 crores per month at the time of the filing for sanction of the scheme), a prudent business strategy would be to go for Asset Reconstruction only after all other alternatives for settlements, like compromise settlement schemes, restructuring/re-schedulement, Lok Adalat etc., have been exhausted and that the petitioner company instead of exhausting such alternatives, hastily and in complete disregard to the interest of not only the petitioner company and the shareholders, but also the interest of the creditors went ahead with the Asset Reconstruction.

26. It is the further contention of the respondents-objectors that when these disparities are brought to the notice of the learned Company Judge, he should have lifted the corporate veil and exposed the fraud being perpetrated by the petitioner company and further that the object of the scheme was to ensure that there was independent investigation the acts of the previous management headed by Mr. Mohan Rao and his group.

27. It is also the contention of the respondents-objectors that restructuring of the capital either in the scheme or bidding is expressly prohibited by proviso to Section 394 of the Companies Act.

28. It is their further contention that by virtue of issuing fresh equity share capital as per the scheme, the status of the respondents-objectors as Preferential Shareholders would be reduced to Equity Shareholders, which is unfair.

29. Sri V.S. Raju, learned counsel appearing for one of the respondents-objectors contended that the financial statement of the company was not placed before the Company Court.

30. In retaliation to the above contentions, Sri Ranjith Kumar, learned Senior Counsel appearing for the petitioner company (SPGL) contended that Section 391 (3) of the Companies Act contemplates that if a majority in number, representing ¾ in value of the creditors or class of creditors agree to any compromise and if sanctioned by the Court, the same is binding on all the creditors, however, subject to satisfaction of the Court on aspects like disclosure of latest financial position of the company, the auditors reports and the pendency of any investigation proceedings under Sections 235 to 251 etc., and such compromise or scheme, as the case may be, arrived at by the company is binding on all others, including the dissenting parties.

31. It is also contended by the learned Senior Counsel for the petitioner company that it is not restructuring of capital that is in question, but it is the question of restructuring of the debts, which is permissible under law. It is further contended that the approved scheme was arrived for restructuring/ settlement of the debts under restructuring of its capital structure under the provisions of Sections 81, 100 and 391 to 394 of the Companies Act.

32. Section 394 deals with facilitating reconstruction and amalgamation of the companies, whereas Section 100 deals with special resolution for reduction of share capital also and since the scheme specifically envisages restructuring of the capital debts, the same is permissible under Section 100 and 394 of the Companies Act and the scheme formulated and approved by the Company was under different provisions, including Section 100.

33. As per Section 13 (4) of Securitisation Act, the secured creditors may take recourse to recover his secured debt. Therefore, the ARCIL, being a secured creditor, has vast powers under the Securitisation Act and the powers of ARCIL have already been considered by the learned Company Judge. Further, it is not only the respondents-objectors, who are at loss, all the shareholders, regardless of their status as Preferential Shareholders or Equity Shareholders, are at loss.

34. It is further contended that the pledge made by the respondents-objectors in favour of the secured creditors is comprehensive in nature but not a pledge simplicitor.

35. It is further contended that pledge is outside the scope of Section 31(b) of the Securitisation Act. Therefore, ARCIL cannot get any rights of the respondents-objectors, nor can it be treated as an authorization and also that the conversion of equity capital into preferential share capital is not provided under law.

36. At the outset, we must state that though many of these grounds are argued before us, many of the controversial issues, as contended above broadly, were not subjected to discussion before us. However, some of the important questions that have been raised and urged before us also incidentally touch upon those other grounds.

37. Apart from the various contentions, the main contention raised by the respondents-objectors is that the scheme, as approved by the learned Company Court, is not in the best interest of the petitioner company and its shareholders.

38. The ultimate issues that fall for consideration are :- (1) Whether the right of the respondents-objectors to putforth their objections in formulating the scheme of arrangement was taken away by the petitioner company by preventing them to participate in the meeting of Board of Directors? If so, what is the effect? (2) Whether ARCIL was justified in addressing letters requesting the respondents-objectors not to participate in the meeting of the Board of Directors convened for approval of the scheme of arrangement on the ground that by virtue of the pledge agreement, the respondents-objectors had given up their right to participate in the meeting and exercise their right of voting? (3) Whether the scheme of arrangement arrived at in the meeting and as approved by the Company Court is in the shareholders? the petitioner company and interest of

39. In Re Issue Nos.1 and 2 : Insofar as these two issues, in a way, the question that falls for consideration is as to whether the scheme was formulated by the petitioner company in a fair and reasonable manner?

40. Several objections have been raised before the learned Company Judge to the effect that the procedure adopted before formulating the scheme was not in consonance with either law or expected fairness. The first objection raised by the respondents- objectors is that there was no transparency in the bidding process. For Eg. The shareholding of POAL was not specified and that the petitioner company was being managed by the illegally elected Chairman and Directors and the relevant material as contemplated under proviso to sub-section (2) of Section 391 of the Companies Act was not complied with.

41. For the sake of convenience and ready reference, Section 391 of the Companies Act, to the extent relevant, is extracted hereunder. “391. Power to compromise or make arrangements with creditors and members. (1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them; the [Tribunal] may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the [Tribunal] directs. (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 arrangement shall, if sanctioned by the [Tribunal], 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 : arrangement, compromise [Provided that no order sanctioning any compromise or arrangement shall be made by the [Tribunal] unless the [Tribunal] is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the [Tribunal], 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 pendency of any investigation proceedings in relation to the company under section 235 to section 251, and the like.]” the company, From the above proviso, it is obvious that the compromise or arrangement cannot be sanctioned by the Court unless the Court is satisfied regarding the material facts relating to the petitioner company, such as financial position, accounts etc.

42. Much stress has been laid on this aspect contenting that the financial statement of the petitioner company is not filed before the Company Court and in such circumstances the scheme ought not have been approved by the Company Judge and such scheme deserves to be rejected.

43. In this context, reliance is placed on Bharat Synthetics Ltd. v. Bank of India[1] wherein a learned single Judge of Bombay High Court, while dealing with this aspect, held that non- compliance with the proviso to sub-section (2) of Section 391 of the Companies Act can be a ground to reject the petition filed under Section 391 of the said Act seeking sanction of the scheme.

44. But, in Jaypee Cement Ltd. In Re.[2] a learned single Judge of Allahabad High Court, while considering the objections with reference to non-filing of the latest financial statement, held that the concerned company should produce before the Court the latest financial position that is available. However, it was held that if the same was not produced by the company, the Court should call for it and give an opportunity to the company to produce the relevant record and examine the same, instead of dismissing the petition on that ground. In other words, such compliance was treated to be a technical error, which can be corrected by the interference of the Court. Failure in that regard itself cannot be a ground to reject the scheme, if it is otherwise found to be in the best interest of the company, by way of calling for the records for perusal by the Court.

45. Though the above judgments are rendered by two learned single Judges of two different High Courts, still, if they are read together, what emerges is that in order to obtain the sanction of the scheme of the company by the Court, all the relevant material regarding latest financial status of the company shall imperatively be placed before the Court for perusal. But, at the same time, on that score alone, the scheme cannot be rejected, inasmuch as such failure on the part of the company can be corrected by the intervention of the Court by way of calling for the relevant records.

46. Therefore, what is more important is the larger interest of the company. Perhaps, that is the reason why the language employed in proviso to sub-section (2) of Section 391 of the Companies Act is to the effect that “no sanction of compromise or arrangement can be granted unless the Court is satisfied that the applicant had disclosed to the Court by affidavit or otherwise all material facts relating to the company.” The said language leads us to the conclusion that though it is imperative for the company to produce all the relevant records, that can be done by way of even filing an affidavit or produce the records. If really the intention of the legislation is to the effect that the entire material as on the date of making application to the Court for approval of the scheme is to be produced before the Court, the question of furnishing information by way of affidavit does not arise. But, that procedure also was accepted by the above proviso, which suggests that it is sufficient on the part of the company to produce the relevant material by way of affidavit or by way of filing the latest statement relating to the financial position of the company.

47. It is equally important for the Court to correct that mistake or failure by way of calling for the records. All this is, in the best interest of the company and its shareholders, the scheme which was proposed, if meant for the purpose of wriggling out the company from the fatal eventuality of its winding up.

48. It is further on record that the petitioner company had, in fact, filed the Annual Report for the year ending 31.3.2006 and also limited review report of the Auditors upto December, 2006, which were available as on the date of filing of the Company Petition seeking sanction of the scheme and since an objection was raised for the subsequent year also i.e., till July, 2007, an un-audited report upto 31.3.2007 also was filed.

49. Therefore, what is required is the financial position just immediately prior to filing of the application has to be made available to the Court and that requirement is met with by way of filing the Annual Report upto 31.3.2006, in which year the company petition was filed. In addition to that, the unaudited report up to

31.3.2007 was also furnished to the Court. As a matter of fact, there was no much difference in the financial position of the petitioner company between March, 2006 and March, 2007. The financial losses had already mounted to a horculious figure of Rs.1,235 crores.

50. Some other objections were also raised stating that the financial statements containing distorted figures were filed. In that connection, it was stated that the amount payable to O & M Contractors was inflated, for which there was no explanation. This objection also was explained by the petitioner Company stating that there was a settlement with O & M Contractors, under which the company was given all the spares worth more than Rs.25-00 crores and, therefore, the difference in the figures is the additional cost of spares and settlement of the claim etc., but not by way of payment of the share capital to any shareholder. This is a pure question of fact, which this Court cannot go into with miniscule details.

51. It was further alleged by the respondents-objectors that though the Annual Accounts of the petitioner company for the year ending 31.3.2006 was approved on 27.1.2006 and, if the scheme was also approved at that meeting, the same would have found place in the Annual Report for the year ending 31.3.2006. This objection also was effectively answered by the petitioner company stating that it was not a relevant material, because any decision of the Board is to be approved by the shareholders, creditors and the Court, in particular. Therefore, there was no mention of the said details in the Annual Report. In other words, the Annual Report and the scheme are two different documents. The Annual Report is subject to the scrutiny of all the shareholders, creditors and also by the Court, if necessary, for the purpose of according approval to the scheme.

52. As regards the further allegation that the scheme was approved by the illegally elected Chairman and Directors, this also was answered effectively and conveniently by the petitioner company stating that the bidding process was not the subject matter of the scheme.

53. It was further explained that ARCIL is the leading secured creditor which took over the assets of the company which had lost the hope of recovering the loan amount, which had mounted to a tune of Rs.1,235-00 Crores.

54. It is also on record that after taking over the assets of the petitioner company, ARCIL had inducted its own Directors – rather virtually it was ARCIL, which was managing the affairs of the petitioner company. Therefore, ARCIL, having taken the reins of the petitioner company, has every right to choose the best bidder who can invest capital and bring technical and managerial expertise to resurrect the company.

55. It is to be further remembered that the petitioner company was almost at the stage of winding up. Therefore, having given up the custody, care and management of the petitioner company leading secured creditor i.e., ARCIL, shareholders of the petitioner company, who were waiting for some security to their respective shares, cannot dictate terms to ARCIL. Therefore, it is the subjective satisfaction of such leading secured creditor to sell to the best person among the available lot i.e., POAL. In this regard, it was noticed by the Company Judge that it was not the case of the respondents-objectors that there are better bidders even as on that date.

56. What is more intriguing factor is, the present respondents-objectors had also participated in the bidding process through their company M/s. Ganta Infrastructures, but failed to stand in the contest. It appears that the said M/s. Ganta Infrastructures is owned by Sri M. Kishan Rao, who is the leading objector/respondent.

57. Therefore, what is obvious is the objectors having participated in the bidding process and failed in their attempt and also having chosen the litigious path, which eventually ended in losing the battle, had raised these objections. In other words, the unsuccessful party to the bidding process, having lost the legal battle, now had chosen to raise the present objections about the process of bidding etc.

58. If put in a different way, the kettle is calling the pot as black.

59. It was also observed by the Company Judge that the Chairman and Directors of the company were not parties to the bidding process and, in fact, as soon as the bidding process was over, they have resigned and the nominees of the bidder were inducted into the company, since the bidder had deposited a sum of Rs.50-00 crores as per the agreed terms with ARCIL.

60. The other contention of the respondents-objectors is that by virtue of the scheme of arrangement the status of the respondents-objectors has been reduced to that of Preferential Shareholders from Equity Shareholders. Of course, Preferential Shareholders stand on a higher footing marginally for few purposes in certain contingencies the Equity Shareholders.

61. In this connection, what is to be remembered is that it is not only the respondents-objectors, whose status will be reduced to that of Preferential Shareholders, the same is the case of the other shareholders, who are similarly placed and having similar stakes. If not, what would follow is meeting with the fatality of winding up of the petitioner company.

62. Another major contention of the respondents-objectors is that the respondents were prevented from participating in the meeting and exercising their voting right.

63. It is the claim of the respondents-objectors that Section 31 (b) of the Securitisation Act keeps the pledge of the movables out of the purview of the said Act. Section 31(b) of the Securitisation Act reads as follows: “31. Provisions of this Act not to apply in certain cases:- The provisions of this Act shall apply to- (b) a pledge of movables within the meaning of section 172 of the Indian Contract Act, 1872 (9 of 1872)”

64. Securitisation Act is intended to confer rights on the secured financial institutions to enforce the securities without recourse to ordinary Courts exercising civil jurisdiction under Section 9 C.P.C., but, conferring right to proceed against the secured properties either by itself or through Securitisation i.e., acquisition of financial assets by any Securitisation company or reconstruction company as noted in Section 2(z) of Securitisation Act. The said enactment also sets out enforcement of security interest in Chapter-III under Sections 13 to 19 of the said Act. What Section 31(b) of the Securitisation Act meant was that pledge of movables within the meaning of Section 172 of the Indian Contract Act, 1872 cannot be enforced by adopting procedure under the Securitisation Act. In fact, ARCIL was not making any attempt by way of the proposed scheme to enforce security interest the pledge document by following procedure prescribed by the said enactment. Therefore, Section 31(b) of the Securitisation Act has no relevance in these proceedings under Section 391 of the Companies Act.

65. The heading of the agreement of pledge, which was on record, reads as under: “General Power of Attorney Agreement for Pledge of shares”

66. As per clause (1) of the said agreement, the pledgers, who are the respondents/objectors gave an undertaking, which reads as under: “The Pledgors hereby confirm that for additionally securing the due repayment of the Loans together with the interest and other moneys payable by the Borrower to the Lenders under the Loan Agreements, the Pledgors have on release of the said share certificate by SBI on 06.03.2000 re-deposited with IDBI, IDBI acting for itself and as an agent of other Lenders, by way of pledge of all share certificates together with blank transfer deeds duly executed by the Pledgors. The interests of Lenders holding pledge of the shares as security for their respective Loans shall rank pari passu and the Pledgors hereby agree and undertake for issuance of a letter of confirmation in this regard to the Lenders.”

67. From the said agreement, it is to be seen that the Lenders are mentioned as IDBI, IFCI, ICICI, LIC, IB, UTI, GIC, NIA, UII, NIC and OIC. Undisputedly, they are called as Lenders. Clause (7) of the said agreement reads as under: “For giving effect to this Agreement, the Pledgors hereby constitute and appoint IDBI acting for itself and as agent of other Lenders as their attorney in their name and on their behalf to execute and do all acts and things and to complete, when required, the transfer of the said shares in favour of IDBI, IDBI acting for itself and as agent of other Lenders or such other person as may be required by IDBI or any of them and also to do all such other acts and things for giving effect to the provisions hereof and powers reserved to IDBI. The Pledgers hereby agree and undertake to ratify and confirm all and whatsoever IDBI shall lawfully do or cause to be done by virtue of this clause.” The said clause implies that an authorization has been given to IDBI acting as an agent.

68. Further, the relevant portion of Clause (5) of the said agreement reads as under: “The Pledgers hereby irrevocably authorize Lenders to attend any general meeting of members or meeting of any class of members or meeting of creditors or debenture holders of the Borrower and to exercise the voting rights in respect of the shares described in the first Schedule hereunder, in any manner, as Lenders may choose in its absolute discretion. To enable Lenders to exercise the voting rights, the Pledgers shall register the agreement with the Borrower/the Company with Instructions that as and when any intimation is received from Lenders in this behalf, Lenders should be permitted to attend and exercise the voting rights in respect of the said shares on any matter at any meeting of the Borrower………”

69. From the above two clauses of the agreement, it is abundantly clear that the respondents-objectors agreed with the Lenders, in consideration of the loans, not only to pledge all their share certificates, but also irrevocably authorize the said lenders to exercise the voting rights on any matter at any meeting of the borrower/petitioner company.

70. From the above agreement, it is obvious that; firstly, the respondents-objectors had pledged their stakes in favour of the lenders and; nextly, they have also authorized their respective lenders to participate in any meeting of the company, with no exception, and vote on their behalf.

71. It is to be noted that these agreements were entered into in the year 2002 – far before the scheme was on the anvil. It is not even their case that they were participating in the meetings of the company prior to the present meeting of the shareholders convened as per the directions of the Company Court on

23.3.2007 in which the scheme was slate to be formulated and, for the first time, they were prevented by ARCIL from participating in the meeting and exercise their voting right while ventilating their grievances/objections. It is the specific case of the company that for the past four years before the scheme, the respondents did not participate in the meetings and there is no denial to this averment.

72. In fact, through letter dated 20.3.2007, with reference to the meeting of shareholders to be conducted on 23.3.2007 pursuant the orders of the Company Court, respondents/objectors were requested to refrain from attending the meeting to be held on 23.3.2007. For ready reference, the relevant portion of the said letter dated 20.3.2007 is extracted hereunder. “You are aware that as security for financial assistance granted by Industrial Development Bank of India Ltd. (formerly Industrial Development Bank of India) (IDBI), IFCI Ltd. (formerly The Industrial Finance Corporation of India Ltd.) (IFCI), ICICI Bank Ltd. (formerly ICICI Ltd./The Industrial Credit & Investment Corporation of India (ICICI), IIBI Ltd. (formerly Industrial Reconstruction Bank of India) (IIBI), Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), National Insurance Company Limited (NIC), The New India Assurance Company Limited (NIA), The Oriental Insurance Company Limited (OIC), United (UII), UTI Asset India Insurance Company Limited Management Company Pvt. Ltd. (formerly Unit Trust of India) (UTI) and State Bank of India (SBI) (the Pledgees) to the Company, you have collectively pledged 2,64,89,700 equity shares held by you in the Company, viz., (Spectrum Power Generation Ltd.) and executed agreements for pledge of shares on March 6, 2000 in favour of the Pledgees (the Pledge Agreement), as per details given at Annexure-I. In terms of Clause 5 of the Pledge Agreement, you have irrevocably authorized, inter alia, the Pledgees, to attend any general meeting of the members of the Company and to exercise the voting rights in respect of the shares pledged by you, in any manner as the Pledgees may choose in their absolute discretion. The Company has convened a captioned meeting of the members of SPGL, pursuant to the order of the High Court of Judicature at Hyderabad, on March 23, 2007 at 3.00 pm at K.L.N. Auditorium, The Federation of Andhra Pradesh Chambers of Commerce & Industry, Federation House, 11-6- 841, Red Hills, Hyderabad-500004. Several events of default specified in the Loan Agreement have occurred including payment event of default. Pursuant to aforesaid Clause 5 of the Pledge Agreement, it has been decided by Arcil and the other Pledgees that the Pledgees shall attend the captioned meeting of the members of SPGL and exercise the voting rights in respect of 2,64,89,700 equity shares pledged by you. The Pledgees have authorized Arcil to attend and exercise voting rights in respect of the pledged shares at the said meeting of the members of the Company to be held on March 23, 2007 or any adjournment thereof. In the circumstances, we also request you to refrain from attending the said meeting of the members of the company and exercising voting rights in respect of the shares pledged by you.” (emphasis supplied by us)

73. From the above, what is obvious is; initially, the respondents-objectors have pledged the shares and authorized their lenders by way of pledge agreements to vote on their behalf in any meeting of the company, and subsequently, the said pledgees/financial institutions have authorized ARCIL to attend the meetings and exercise voting rights in respect of the pledged shares.

74. It is to be remembered that virtually it is the ARCIL, which had taken the reins of the management of the petitioner company by way of appointing its own Directors in order to give second breath to the company at the verge of winding up.

75. It is further conspicuous from the record that the respondents-objectors had never protested to the letter of request made by ARCIL, dated 20.3.2007, refraining participating in the meeting and exercise their right to vote. If really the respondents-objectors are aggrieved by the said letter, dated 20.3.2007, they would and should have protested the same by way of addressing letters. Obviously, no such attempt was ever made by the respondents-objectors, nor there is any material on record in that regard.

76. Hence, we are of the view that having not chosen to protest to the said letter dated 20.3.2007 at the earliest point of time, the respondents-objectors cannot raise such an objection at a later point of time. Of course, they have raised this objection before the Company Court, which had directed to convene a meeting of the shareholders on 23.3.2007 for approval of the scheme. Still, we are of the view that when the respondents- objectors are aggrieved by the letter dated 20.3.2007, they would have immediately addressed letters objecting for the same.

77. Therefore, what appears is, by virtue of the pledge agreements, ARCIL had requested the respondents-objectors to refrain from participating in the meeting to be held on 23.3.2007. Therefore, the feeble attempt made on behalf of the respondents- objectors that originally the pledge agreements were given to the respective pledgees, which are the financial institutions and, therefore, those pledgees can vote on their behalf, but not ARCIL merits no consideration.

78. It is to be further seen that in the same pledge agreement, the respondents-objectors have pledged not only their respective shares, but also had given an irrevocable authorization to the pledgees, refraining themselves from attending any meeting of the petitioner company, to vote on their behalf since 2002.

79. Even assuming that ‘pledge’ is beyond the scope of Section 31(b) of the Securitisation Act, that may apply only to the first part of the pledge agreement, but cannot be made applicable insofar as the authorization given to the pledgees to vote on their behalf, for the simple reason that authorization does not fall within the ambit of Section 172 of the Indian Contract Act.

80. Therefore, it is immaterial for us to go into the aspect as to whether the pledge of the shares is outside the applicability of the Securitisation Act or not? On the contrary, what is more relevant for us to consider, in the light of the present factual situation, is whether the authorization given to the pledgees to vote on their behalf is true and effective in law or not?

81. In this regard, we are of the considered view that the latter part of the pledge agreement, which deals with the authorization given to the pledgees to vote on their behalf in any meeting of the company, is binding on the respondents-objectors and there is no prohibition, as such, for the pledgees, inturn, to authorize ARCIL to vote on their behalf.

82. It is to be further seen that the pledgees, ARCIL and the petitioner company have identical interests i.e., the welfare of the company is the welfare of the pledgees. Furthermore, as already pointed out, the very pledge document is for two different and distinct purposes – one is, “the General Power of Attorney” and the other is “Agreement for pledge of shares”. In other words, both the above two purposes are incorporated in the same document and they are severable.

83. In view of the above, the submissions made on behalf of the respondents-objectors cannot be sustained.

84. Sri V.Sekhar, learned Senior Counsel appearing for the respondents-objectors, vehemently contended that as per Section 394 of the Companies Act, restructuring of the capital, either in the scheme or bidding, is expressly prohibited.

85. Now, the question is, in the absence of any express provision under the Companies Act, whether restructuring of the existing equity capital into redeemable preferential shares is permissible under law?

86. In this regard, it is to be seen that, in the instant case, by way of a special resolution the secured creditors have consented to such reduction and in consequence thereof, as a first step, converted the equity capital to redeemable preferential shares, which amounts to reduction of capital and, the other step taken by the petitioner company is, issuance of preferential shares, which was not prohibited under law.

87. In this regard, it has been brought to the notice of the Company Court by the Registrar of Companies by way of counter affidavit stating that Part-III of the scheme envisages that the existing equity capital of the company shall be restructured by converting the entire equity share capital of the company into redeemable preference shares with a coupon rate of 0.05% payable at the end of 15 years.

88. From the above statement, it is obvious that the restructuring of the capital is permissible under the scheme, but the Registrar of Companies was of the opinion that such reduction of equity capital would create a vacuum in equity share capital, though paid up capital remains the same by conversion of equity shares into preference shares.

89. It is further stated that clause-III provides for issue of fresh equity shares to the extent of Rs.150-00 Crores. Therefore, the Registrar of Companies was of the opinion that in order to avoid the vacuum in equity capital, the Company has to issue fresh equity shares of Rs.150-00 Crores before converting the existing equity shares of Rs.176,47,68,900/- so as to avoid such vacuum.

90. From the above, it is obvious that neither the scheme envisages, nor the Registrar of Company had opined to the effect that restructuring of the capital was totally prohibited.

91. In this regard, it has been contended by Sri S. Ravi, learned Senior Counsel appearing for the petitioner Company that the Company Petition was filed not only under Section 391 of the Companies Act, but also under Section 100 of the said Act and that the petitioner company had suffered enormous losses and its capital was completely eroded, which prompted the financial institutions and other banks to proceed under the Securitisation Act.

92. Section 100 of the Companies Act deals with the special resolution for reduction of share capital. For the sake of convenience and ready reference, Section 100 of the Companies Act is extracted hereunder: “100 Special resolution for reduction of share capital. (1) Subject to confirmation by the ["Tribunal"], a company limited by shares or a company limited by guarantee and having a share capital, may, if so authorised by its articles, by special resolution, reduce its share capital in any way; and in particular and without prejudice to the generality of the foregoing power, may- (a) extinguish or reduce the liability on any of its shares in respect of share capital not paid-up; (b) either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is lost, or is unrepresented by available assets; or (c) either with or without extinguishing or reducing liability on any of its shares, pay of any paid-up share capital which is in excess of the wants of the company; and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. (2) A special resolution under this section is in this Act referred to as "a resolution for reducing share capital".” From the above provision, it is obvious that the share capital can be reduced, however, subject to confirmation of the Court.

93. In the present case, restructuring of the capital by way of reduction was effected by the company through special resolution. The special resolution requires that atleast 75% of the shareholders present should cast their vote in favour of such resolution for acceptance. It appears that the secured creditors have consented for such reduction and as a consequence thereof, initially, the equity capital was converted into redeemable preference share and the next step initiated was issuance of preference capital to which the law does not prohibit.

94. When the company petition was filed in a comprehensive way, not only under Section 391 of the Companies Act, but also under Section 100 of the said Act, the requirement is satisfaction of the Court and, in the instant case, the Company Court having satisfied on merits, accepted the case of the petitioner company. Therefore, as postulated under Section 391 of the Companies Act, the compromise or arrangement by way of scheme is binding on all the creditors, members and also on the company.

95. It is further to be seen as contended by the leaned Senior Counsel Sri Ranjit Kumar that ARCIL acquired certain rights under the Securitisation Act. Special reference is made to the definitions of the said Act. Section 2 (l) which deals with “financial asset”, Section 2 (f) which deals with “borrower”, Section 2 (zd) which deals with “secured creditor”, Section 5 which deals with “acquisition of rights or interest in financial assets” and Section 9 which deals with “measures for assets reconstruction”. Section 9 enables a securitization company or reconstruction company for the purpose of asset reconstruction, subject to the guidelines of the Reserve Bank, may take any one or more of the following measures, namely:- (a) the proper management of the business of the borrower, by change in, or take over of, the management of the business of the borrower; (b) the sale or lease of a part or whole of the business of the borrower; (c) rescheduling of payment of debts payable by the borrower; (d) enforcement of security interest in accordance with the provisions of this Act; (e) settlement of dues payable by the borrower; (f) taking possession of secured assets in accordance with the provisions of this Act.

96. Therefore, in the face of the rights that are available to the secured creditor like ARCIL this court cannot interfere with exercising of such rights by ARCIL. The only thing that can be scrutinized is as to whether such recourse adopted by ARCIL in going for formulating a scheme is fair and legitimate and further as to whether the same is in the best interest of the company as a whole.

97. As already pointed out, it was contended by the respondents-objectors that the method adopted by ARCIL in restructuring the debts was not proper and that restructuring of the capital was not permissible. We have already answered insofar as restructuring of the capital is concerned, inasmuch as, the same was taken up as a measure of revitalizing the company which was suffering from enormous losses and such measures were being taken up by ARCIL, which itself is a creature under the statute.

98. Further, is also settled that any scheme formulated by the majority shareholders has the statutory force and is binding on all the parties i.e., the secured creditors and the financial institutions and also the dissenting shareholders of the company.

99. In MIHEER H.MAFATLAL v. MAFATLAL INDUSTRIES LTD.[3] at para 29, the apex court made following observations: “However further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by Section 391 sub-section (2 ). On the nature of compromise or arrangement between the company and the this aspect creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court certainly would not act as a Court of appeal and sit in judgement over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the concerned parties. The Court his neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority. Consequently the Company Court's jurisdiction to that extent is peripheral and supervisory and not appellant. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire.”

100. Eventually, the broad contours of the scope and ambit of the jurisdiction of the Company Court are earmarked as under: “1. The sanctioning Court has to see to it that all the requite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391 (1) (a) have been held.

2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391, sub-section (2 ).

3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.

4. That all necessary material indicated by Section 393 (1) (a) is placed before the voters at the concerned meetings as contemplated by Section 391,sub-section (1 ).

5. That all the requisite material contemplated by the proviso to sub-section (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.

6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.

7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.

8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.

9. Once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather supervisory jurisdiction.

101. Even though the above were stated to be broadly illustrative for the purpose of arriving at a conclusion in the present case, we can context the facts and circumstances of the present case on anvil of the said guidelines, inasmuch as, we are of the view that the further probe in-depth is not necessary.

102. At the cost of repetition, the facts, in brief, and as we expressed our views in the earlier paras are:- firstly; that there is no deviation of the procedure prescribed under law. The sanctioning court is on the considered view had gone through the relevant material placed before it and expressed its considered view elaborately. secondly; admittedly, the scheme was approved by the majority of the shareholders. Even according to the respondents- objectors, their share is around 12% and odd. Even this 12% of the shareholders have participated in the voting through their pledgees by virtue of the authorization given by them in favour of those pledgees who are the secured creditors. The majority was overwhelming. Even if the dissenting shareholders were allowed to participate in the meeting, the majority was more than 85% in favour of the scheme. This overwhelming majority is to the satisfaction of the required conditions under sub-section (2) of Section 391 of the Companies Act, 1956. thirdly; the entire material was placed before the creditors during the course of meeting, or it is not the case of anybody that no such material was placed before participation of the meeting dated 23-3-2007 except of the respondents. fourthly; the entire material as postulated by sub-section (2) of Section 391 of the Companies Act, 1956 was placed before the court. Of course, there was a complaint made by the respondents- objectors to the effect that some material like financial statements preceding the formulation of the scheme was not supplied to the court. The learned Company Judge had recorded a categorical finding that entire material regarding the financial position up to 2006 was placed before the court, however, as a dispute was raised by the respondents, the information for the subsequent period i.e., up to March, 2007 also was furnished by way of filing the un-audited statements. We already expressed our view in this regard stating that the material supplied by the company before the court was sufficient. fifthly; we also expressed our view that the respondents were merely requested to refrain from attending the meeting and voting. We are of the view on this issue that the same cannot be treated as a coercive step on the part of the company or any of the secured creditors and even though there was a letter addressed by ARCIL to the respondents-objectors, no letter of protest was placed before the company or ARCIL. sixthly; it goes without saying from a perusal of the common order of the learned Company Judge that he expressed his complete satisfaction about the procedure adopted by the company and ARCIL in the course of bringing out the scheme as satisfactory.

103. In Re Issue No.3 : Now, in the above circumstances, the only question that remains to be addressed is as to whether the scheme was fair and reasonable and in the interest of company and its shareholders ?

104. In this regard, we deem it appropriate to fall back upon the facts that actually prompted the company and inturn ARCIL to invoke the provisions of Section 391 of the Companies Act.

105. In this regard, the learned Senior Counsel Sri Shekhar heavily placed reliance on MIHEER H.MAFATLAL’s case (3 supra), wherein it was observed that the corporate veil has to be pierced which would expose the corporate fraud in presenting the said scheme.

106. No doubt, the court can go into the question of corporate fraud in appropriate cases, where it is abundantly found. But, as we already expressed our view that there was no coercion on the part of the secured creditor, which has taken over the reigns of the management of the company, in order to have a better management and to bring out the company from the possibility of being dissolved or wound up. In fact, it is our view that if the scheme was not proved by the court as per the wish of the absolute majority of the shareholders and the secured creditors, the only possible option for the company was to have itself dissolved or wound up, in which event the losses of the company or its shareholders would have been much more intense and beyond anybody’s comprehension.

107. The basic facts are – the company had authorized share capital of Rs.235 Crores as on 31-3-2006. The issued, subscribed and paid up share capital of the company as on the said date was about Rs.176 Crores. Due to various reasons, the Central Electricity Authority had approved the project with a capital cost of Rs.748.43 Crores on 03-01-1994. The complete cost of the project was Rs.972.60 Crores. The reason for the cost overrun being due to various unforeseen reasons. The outstanding debt due from the company as on the appointed date to the secured creditors had mounted to Rs.1235 Crores and the cash flow before the company was very meager and the accumulated losses were mounting from time to time and the returns by way of sales realization were only to the tune of Rs.22 Crores as against the total accumulated losses of Rs.1235 Crores.

108. This was broad picture, in brief, regarding the state in which the company was, before it went into the hands of ARCIL, which forced the company to streamline the management by way of infusing managerial and technical expertise of the highest level, and also to restructure the company’s capital etc. Under these circumstances, ARCIL had issued an invitation for expression of interest inviting bids from prospective bidders for the resolution of the debts due from the company. In that process, POAL was found to be the highest bidder. When ARCIL, which is the secured creditor, which was virtually managing the affairs of the company has all rights under the Statute to adopt various methods to restructure the entire management, which would alleviate the company and its shareholders.

109. In view of our opinions expressed already regarding the finality of the scheme as approved by the learned Company Judge and in the light of the above factual background, we are of the considered view that the scheme had been formulated by the company spear-headed by ARCIL, is in the absolute interest of the company and its shareholders, or otherwise the very existence of the company was in great jeopardize. We have already so expressed our views that the conduct of Sri Kishan Rao in participating the bid along with POAL, it is borne out from the record that one Ganta Infrastructures is the company owned by Sri Kishan Rao and having lost in the contest, resorted to approach this court by way of filing a writ petition, which ended in dismissal, which again was challenged in a writ appeal, which also eventually was dismissed. Therefore, it appears that had he been successful bidder, he would have been in the place of POAL and would have resorted to the same procedure that was being now adopted by ARCIL by way of formulating a scheme. In other words, it is only his loss in the race of bidding process prompted to raise this present dispute. This conduct cannot also be appreciated, which virtually amounts to blowing hot and cold.

110. For the aforementioned reasons, we find no reason to interfere with the impugned common order rendered by the learned Judge in the Company Petition and all the appeals are liable to be dismissed.

111. In the result, all the appeals are dismissed. No order as to costs. ___________________ D.S.R. VARMA, J ___________________________________ SAMUDRALA GOVINDARAJULU, J Date: 27-04-2010. Msr/AK. HON’BLE SRI JUSTICE D.S.R.VARMA AND HON’BLE SRI JUSTICE SAMUDRALA GOVINDARAJULU O.S.A.No.1 of 2009 O.S.A.Nos.62, 65 and 66 of 2007 (Pre-delivery Common Judgment rendered by Hon’ble Sri Justice D.S.R. Varma)

27.04.2010. [1] (1995) Vol.82 of Comp.Cases 437 [2] 2004 (2) Comp.L.J. 105 (All) [3] (1997) 1 SCC 579