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PETITIONER: N.P.V. RAMASWAMY UDAYAR ETC.

       Vs.

RESPONDENT: ALL INDIA SUBSCRIBER ASSOCIATION AND OTHERS ETC.

DATE OF JUDGMENT14/05/1993

BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) VENKATACHALA N. (J)

CITATION:  1993 SCR  (3) 903        1993 SCC  (3) 233  JT 1993 (3)   452        1993 SCALE  (2)938

ACT: % Companies  Act  1956 : Ss. 391, 433,  434,  443-  Subsidiary company conducting chits-Default in payment to  subscribers- Winding   up   order  by  High  Court-Revival   effort   and undertaking  of  liability  to  pay  crediters  by   Holding Company-Compromise  and arrangement approved by High  Court- Winding  up  order held in abeyance-Permission for  sale  of land   by   Holding  Company  to  pay   Creditors-Offer   by individual-Counter   offer  by  Creditors   association-High Court’s  order for sale in favour of creditors  association- Appeals  by Holding Company and other  bidder-Directions  by Supreme Court protecting creditors interests.

HEADNOTE: A subsidiary company of the appellant-holding company  (C.A. No.  2866  of  1993) diverted to the  appellant  rupees  ten crores  received  by it by way of  chit  subscriptions.   It failed to pay the subscribers the prize money.  When some of the subscribers initiated winding up proceedings against the subsidiary  company the appellant appeared before  the  High Court and undertook the liability of the subsidiary  company to an extent of a sum of Rs 10.40 Crores to the subscribers. The  High  Court  approved  the  scheme  of  compromise  and arrangement  under s. 391 of the Companies Act and  directed the winding up order to be held in abeyance on the condition that the appellant-holding company would pay off the  amount or  Rs. 10.40 Crores to the subscribers, within five  years. It  also  restricted  alienation (of  any  property  by  the holding company.  Without obtaining prior permission (of the Court.   Even ten %,Cars after the order of the High  Court, more than one third of the subscribers remained unpaid. Meanwhile  the  appellant company took steps to  sell  20.79 acres  of  land  to pay the  Creditors.   The  appellant  in C.A.No.  2863-65  (if  1973  made  an  offer  where  as  the respondent-creditors’ association made a counter offer. The   High   Court  accepted  the   (offer   of   Creditors’ association.  Hence the appeals by special leave. Disposing of the appeals, this Court gave the following 904 Directions  : 1. The holding company shall deposit with  the official Receiver fir Assignee concerned a sum equivalent to

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the deposited sum on which the High Court had directed  sale deed  to be executed in favour of the creditors  association together with 25% interest minus the interest, if any earned by  the deposit, made, calculated (in the deposited  amount, from  the date of deposit till 31st.  July, 1993,  within  a period of three months. 2.   Out  of the amount mentioned in condition (1) above,  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  refunded  to the  creditors  association in lieu of their claim  for  the disputed  land  being given up.  The  balance  amount  shall remain  for the benefit of general body of creditors of  the subsidiary company. 3.   Tile holding company shall pay through the receiver the entire outstanding debts payable to the subscribers who were members of the creditors association on the date when  their claim applications were decided by the High Court,  together with  interest  thereon  at 12 per cent  from  the  date  of decision till 31st July, 1993. 4.   In  case  the above terms and conditions  are  complied with,  within  the  period allowed then  the  disputed  land offered  for  sale by the holding company and  purchased  by creditors’  associations  shall stand  released  in  holding company’s  favour.  If such deposits are not made, the  sale in favour of creditors company shall stand confirmed 5.   In  view of the offer made by the appellant in  Appeals No. 2863-65 of 1993, the land on its release shall be  sold, for a price not less titan five lakhs per acre.  The  amount so  realised shall also be deposited of the holding  company with  the  receiver for distribution among general  body  of creditors of the subsidiary, company. 6.1. 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 31st August, 1993. 6.2. In  case  of  failure to clear the  dues  of  all  tile subscribers  it shall he open to an%. unpaid  subscriber  to approach  the High Court for recalling the order  passed  by the  High Court for in 1983 direction the winding up  to  be plot in abeyance, as well as to the steps to get the  amount realised front assets of 905 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 concerned.

JUDGMENT: CIVIL, APPELLATE JURISDICTION: Civil Appeal Nos. 2863-65  of 1993. From the Judgment and Order dated 21.2.91 of the Kerala High Court  in C.M.P. No. 2170/90, 596/91, 597/91 in  M.F.A.  No. 518 of 1981.                             WITH                Civil Appeal No. 2960 of 1993. K.K.   Venugopal,  G.  Ramaswamy,  M.N.  Krishnamani,   K.P. Dandapani  E.M.S.  Anam, P.N. Puri, A.T.M.  Sampath,  Pravir Choudhary for the Petitioner/ Appellant. Shanti   Bhushan.    Joshph   Vellapall   v.   R.K.Jain,   A Mariarputham, for M/s A. Mariarputham and Mrs. Aruna  Mathur for Mrs. Aruna Mathur & Co. for the respondents. The Judgment of the Court was delivered by R.M.  SAHAI,  J. How far could we protect the  interests  of subscribers who had subscribed to a chit run by a subsidiary

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company  of  the  appellant  ordered to  be  wound  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 jewelleries 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 (yet  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 given to it to  revive  its subsidiary company.  That prayer was accepted by a  Division Bench of The Kerala High Court in the case of Suarshan Chits (India)  Ltd., v. G.S. Pilai ILR 1983 vol. 1 Kerala p.  700. The Division 906 Bench  approved  the scheme of  compromise  and  arrangement under  Sec.  391  of the Companies  Act.   Consequently,  it ordered  the  winding  up order to be held  in  abeyance  on condition that the holding company shall execute a  security bond  to cover subsidiary company’s liability to the  extent of  a sum of Rs. 10.40 crores owed to its  subscribers.   It also  directed  the holding company to pay off  that  amount within a period of five years.  Restriction was also  placed on  alienation  of  any property by  tile  holding,  company without obtaining prior permission of the Court. Arrangement was  made for managing, affairs of the appellant-company  as well.  Apart  from  the Board  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  neither   the 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 lakh  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.  Payment of rupees 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 of  rupees of today, we must state, is a  poor  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 company 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  of  rupees with  in a period of five years has successfully evaded  the payment  by offering a pittance.  From the date of offer  in 1987   six   ears   have  elapsed  but   no   amount   worth consideration, appears to have been paid to the subscribers.

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We  consider it unnecessary 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  of Udayar.  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 our opinion that rupees fifty two  lakhs  and odd the total amount for which the land 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 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:               (1)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  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  31st  July,  1993,               within a period of three months from today.               (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 (1), a sum equivalent               to   the   amount   deposited   by   creditors               Association,  together  with interest  at  25%                             thereon  from  the date of  deposit  upto  31s t               July, 1993 shall be 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               (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               Court,  together  with interest  there  of  12               percent  from the date of decision  till  31st               July, 1993, within same period, namely,  three               months.  This amount too shall deposited  with               the  receiver for immediate payment  to  those               cre-

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             908               tors-subscribers for giving discharge of their               claims against the subsidiary company.               (4)   In  case the above 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 disputed land offered for               sale  by the holding company and purchased  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 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 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 31st  August,               1993.               (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.               (c)   It  shall  also be open  to  the  unpaid                             subscribers to approach the High Court for  th e               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 concerned. Both the appeals are decided accordingly.  The parties shall bear their own costs. R.P                                    Appeals disposed of. 909