N.P.V. RAMASWAl\IY UDA YAR ETC. v. ALL lNDIA SUHSCRlBER ASSOCIATION AND OTHERS ETC.

N.P.V. RAMASWAl\IY UDA YAR ETC. A v.

ALL lNDIA SUHSCRlBER ASSOCIATION AND OTHERS ETC.

MAY 14, 1993

[R.M. SAHAIAND N. VENKATACHALA,.J.J,J JJ Companies Ac1, 1956 : Ss. 391, .:/33, ./3./. ././3-Su/Jsidiary company cond11c1ing chi1s-Defa11/1 in pay111ent 10 subscribers-\ Finding up order by High Co11rt-Revival e.ffort and 111ulerwking of liability 10 pay credi1ors l>y Holding Company-Compromise and arrange111en1 approved b:r High Co11rt-Winding 11p order held in aheya11ce-Permissio11.fi1r sale of land /Jy Holding Compt111Y to pay C Creditvrs-Oifer by intlivid11a/-Cu11111er c~[fer by Creditors associa1io11-High Court's order for sale i11 favo11r cf creditors assucia1iu11-Appea/s /Jy Holding Company anti 01//er bidder-Directions by S11pre111e Co11rt protecting creditor's in1erests.

D A subsidiary company ofthc appellant-holding com pan~· (C.A. No. 2866

- of 1993) di\'crtcd to the appellant rupees ten crores received b~· it by way of chit subscriptions. It foikd t•• pay the subscribers the prize money. When some of'thc subscribers inili',;tnl winding up proceedings against the subsid- iary compan~· the appellant appeared before the High Court and undertook the liability of'the subsidiaQ· company to an extentofa sum of Rs 10.40 Crorcs E to the subscribers. The High Court appro\'ed the scheme of compromise and arrangcri1cnt under s. 391 of' the Companies Act and directed the winding up order to he held in abe~·ancc on the condition that the appellant-holding compan~· would pay otl'thc amount of' Rs. 10.40 Crores to the subscribers, within fi\'C ~·cars. It also rcsti·ictcd alienation of any propcrt~· by the holding compan~· without obtaining prior permission of the Court. E\'en ten ~·cars after the order of the High Court, more than one third of the subscribers remained unpaid.

l\lcanwhilc the appellant company took steps to sell 20.79 acres of land to pay the Creditors. The appellant in C.A.No. 2863-65 of'1973 made an offer where as the respondent-creditors' association made a counter ofl'er.

The High Court accepted the offer of' Creditors' association. Hence the appeals b~· special leave.

Disposing of' the appeals, this Court gave the following H 903

~· 904 SUPRE.\IE COURT REPORTS (1993] 3 S.C.R.

Directions : ] . The holding compan~· shall deposit with the oflicial A Receiver or Assignee concerned a sum equh·alent to the deposited sum on which the High Court had directed sale deed to he executed in favour of the creditors association together with 25% interest minus the interest, if any earned hy the deposit, made, calculated on the deposited amount, from the date of' deposit till 31st July, 1993, within a period of three months. B

2Copy pinpoint2. Out of the amount mentioned in condition (1) above, a sum ~quivalent to the amount deposited b~· creditors Association, together with interest at 25'7c thereon from the date of deposit upto 31st July, 1993 shall be refunded to the creditors association in lieu of their claim for the disputed land being gh·cn up. The balance amount shall remain for the benefit of general bod~· of c creditors of the subsidiar~· company.

3Copy pinpoint3. The holding company shall pa~· through the receiver the entire out.;tanding debts pa~·ablc to the subscribers who were members of the creditors association on the date when their claim applications were decided )) b)· the High Court, together with interest thereon at 12 per cent from the date of decision till 31st Jul~-, 1993.

4Copy pinpoint4. In case the above terms and conditions arc complied with, within the period allowed then the disputed land offered for sale b)· the holding company and purchased h~· creditors' associations shall stand released in holding compan)"s favour. If such deposit., arc not made, the sale in favour of creditors compan)· shall stand confirmed

5 In l'icw of the offer made b)· the appellant in Appeals No. 2863-65 of 1993, the land on its release shall he sold, for a price not less than five lakhs per acre. The amount so realised shall also he deposited of the holding company with the rcceh·er for distribution among general bod)· of creditors of the suhsidiar~· company.

6.1. The receh·er shall further take steps to sec that the holding compan~· fulfils it..; obligations and pa)'S the entire balance within a period of' one year from 31st August, 1993.

6.2. In case of failure to clear the dues of all the subscribers it shall he open to an~· unpaid subscriber to approach the High Court for recalling the order passed b~· the High Court for in 1983 direction the winding up to be put in abe~·ance, as well as to take steps to get the amount realised from assets of

............_ the holding l'omp;111~-. If sud1 an application is made it shall he disposed of hy A ___,. the High Court expeditiously in uceordancc with luw ufter hearing parties concerned.

CIVILAPPELLATE JURISDICTION: Civil Appeal Nos. 2863-65of1993.

From the Judgment and Order dated 21.2.91 of the Kerala High Court in n C.M.P. No. 2170/90, 596/91, 597/91 in M.F.A. No. 518 of 1981.

WITH

Civil Appeal No. 2866 of 1993. c K.K. VenugopaL, G. Ramaswamy, M.N. Krishnamani, K.P. Dandapani. E.M.S. Anam, P.N. Puri, A.T.fyt. Sampath, Pravir Choudhary for the Petitioner/ Appellant.

Shanti Bhushan,Joshph Vellapally. R.K. Jain, A. Mariarputham, forM/s A. o MarL~-putham ~Md Mrs. Aruna Mathur for Mrs. Aruna Mathur & Co. for the respondents. i The ]JJJgment of the Court was delivered by

R.~t.SAHAI, J, How far could we protect the interests of subscribers who had subr.cribed to a chit run by a subsidiary company of the appellant ordered to be woµnd up when allegedly subscriptions were made good by them not merely out of their hard savings but also of sums got by even, pledging and selling the jeYJelleries and ornaments of their wives, in the fond hope of getting a lumpsum amount on a future date, to meet the expenses of marriages in the family or health hazards of family members and the like, is the issue that really bothered us at the hearing of the appeals.

About 15 years ago the subsidiary company under winding up, diverted the amount of rupees ten crores received by it by way of chit subscriptions to its holding company (the appellant) resulting in its inability to pay the subscribers, when they became entitled to get the prize amounts. When some of the subscribers approached the High Court and succeeded in getting the subsidiary company wound up, the appellant holding company appeared in Court and prayed for an opportunity to be gi\'en to it to re\'ivc its subsidiary company. That prayer was accepted by a Division Bench of The Kerala High Court in the case of S11darsha11 Chits (India) Ltd., v. G.S. Pilai ILR 1983 vol. 1 Kerala p. 700. The Division H

<)06 St'PRE~IE COl'RT REPORTS [199:1] 3 S.C.R. -~ Ikrn:h appmved the scheme of compromise and arrangement under Sec. 391 of the A Companies Act. C\1nsequently, it ordered the winding up order to be held in abeyance on condition that the holding company shall execute a sernrity bond to cover subsidiary company's liability to the extent of a sum of Rs. I 0.40 crores owed to its subscribers. It also directed the holding company to pay off that amount within a period or five years. Restriction was also placed on alienation of any property by the holding company without obtaining prior permission of the Court. Arrangement was made for managing affairs of the appellant-company as well. Apart from the Bnard of Directors an Additional Director was nominated to supervise and keep a watch on the affairs of the company. Since than the appellant- company is run as directed by the High Court but neitherthe subscribers are paid, as a body of creditors, not the entire amount of rupees ten crores and odd is paid by the appellant to the subsidiary company. True, that out of nearly one Iakh subscribers, twenty nine thousand and odd subscribers only remain unpaid. But. that is hardly satisfactory. Regret is that more than one third of the subscribers remain unpaid even after ten years from the date the High Court ordered the winding up to be in abeyance. Paymentofrupees two crores and odd by the holding company which had the benefit of ten crores and odd rupees .for the last 15 years, which amount by any standard is equivalent to fifty crores ofmpees of today, we must state, is a p1)or consolation, for the holding company to claim that all steps to discharge its obligations is taken.

Having noticed in brief, how matters have proceeded, we shall advert to the dispute which has arisen in respect of an offer now made by the holding compan:x to sell 20. 79 acres of land for paying the creditors. Whatever that be, one situation which has been brought about is, its successful attempt in involving many subscribers who had formed themselves into a creditors association and an owner of a factory adjoining-the disputed land, in litigation which has reached this Court more than once. It is unfortunate that a company which had volunteered to pay ten crores ofrupees within a period of five years has successfully evaded the payment by offering a pittance. From the date of offer in 1987 six years have elapsed but no amount worth consideration, appears to have been paid to the subscribers. We consider it unnecessar~ to recount in detail the offer made by Ramaswamy Udayar, the appellant in the other appeal, counter offer made by the creditors association, delay in payment by the association, extension of time by this Court for payment by the association, withdrawal of offer by the holding company in the meantime as the High Court had after detailed examination accepted the offer of creditors association for purchase of disputed land and rejection of the claim ofUdayar. Nor do we consider it necessary to deal with rival submission made by learned senior counsel appearing for respective parties, although we heard them at length, as in · >

H our opinion that rupees fifty two lakhs and odd the total amount for which the land

\'.P. \I. RAMASWAMY"· SUBSCRIBER ASSOCIATION [R.M. SAHA!, .I] 907

-- has to be sold could hardly be sufficient to relieve the agony of the body of subscribers for whose benefit the entire exercise was undertaken by the High Court.

As we have understood the matter, there may be a grain of truth in the allegation that it is Estate Dealers with vested interests who are interfering and in fact the amount paid by the creditors association is of estate dealers. It may also.

- be true that the total membership of the association is not even 5% of the unpaid subscribers.

In the said circumstances and taking into consideration the board consensus reached among learned counsel as to what needs to be done, we decide the two c appeals, one filed by the holding company for release of the land and other by Udayar for accepting his bid on the following terms and conditions :

(I) The holding company shall deposit with the official Receiver or Assignee concerned a sum equivalent to the deposited sum on which the High Court was pleased to direct sale deed to be executed D in favour of the creditors association together with 25% interest minus the interest, if any earned by the deposit made, calculated on the deposited amount, from the date of deposit till 3 lst July, 1993, within a period of three months from today.

E (2) Out of the amount of sale price of the land already deposited by the creditors Association and the interest if any earned thereon plus the sums of money to be deposited by the holding company under the above term and condition (I), a sum equivalent to the amount deposited by creditors Association, together with interest at 25% thereon from the date of deposit upto 31st July, 1993 shall be F refunded to the creditors association in lieu of their claim for ·· disputed land being given up. The balance amount shall remain the benefit of general body of creditors of the subsidiary compa

G (3) The holding company shall pay the entire outstanding de (amounts) payable to the subscribers who were members of creditors association on the date when their claim applications w decided by the Kerala High Coµrt, together with interest thereo1 12 per cent from the date of decision till 3 lst July, 1993, within same period, namely, three months. This amount too shall H deposited with the receiver for immediate payment to those en

A 908 SUPREME COL'RT REPORTS [ 1993 I 3 S.C.R.

tors-subscribers 'for giving discharge of their claims against the _,/ -·) I

' : ~ subsidiary company. "--=- (4) In ca-;e the abo\"e terms and conditions as to deposits to be made by the holding company are complied with. within the period allowed, for which no extension of time shall be granted, then the B disputed land offered for sale by the holding company and pur- chased by creditor's associations shall stand released in its (holding company's) favour. If such deposits are not made, the sale in favour of creditors company shall stand confirmed.

(5) An offer was made by the appellant in Appeal No. 6614 of 1991. .,, - c that the land being adjacent to its factory he was willing to pay even rupees five lakhs per acre. Therefore. on release if the land is sold, it shall be sold. as and when such occasion arises, for a price not less than five lakhs per acre. The amount so realised shall also be deposited by the holding company with the receiver for distribution among general body of creditors of the subsidiary company in D discharge of its obligations to pay of the creditors of the subsidiary company. ~

(6) (a) The receiver shall further take steps to see that the holding company fulfils its obligations and pays the entire balance within a period of one year from 3 lst August, 1993. E (b) In case of failure to clear the dues of all the subscribers it shall be open to any unpaid subscriber to approach the High Court for recalling the order passed by the High Court in 1983 directing the winding up to be put in abeyance.

F (c) It shall also be open to the unpaid subscribers to approach the High Court for the aforesaid reasons mentioned in clause (b) to take steps to get the amount realised from assets of the holding company. If such an application is made it shall be disposed of by the High Court expeditiously in accordance with law after hearing parties G concerned.

Both the appeals are decided accordingly. The parties shall bear their own costs. .- R.P. Appeals disposed of. ...