Arihant Duraplast Private Limited vs Shareholders And Unsecured Creditors

Ch. Mohd. Sharief Tariq, J

Under consideration is the Company Petition No. 497/CAA/2019 filed under Sections 230 to 232 of the Companies Act, 2013 r/w the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. As per the Scheme of Arrangement (in short, 'Scheme'), "M/s. Arihant Duraplast Private Limited" (hereinafter referred to as 'Petitioner Company') proposes to reorganize its capital by way of reduction to set off the accumulated loss of the Petitioner Company and the unsecured loan from Directors/Shareholders.

The Petitioner Company was incorporated on 25.03.2009 under the provisions of the Companies Act, 1956. The Registered Office of the Petitioner Company is situated at Plot No. C-19, SIPCOT Industrial Park, Irungattukottai, Kanchipuram - 602 117.

The Petitioner Company is carrying on the business of manufacturing all types commercial plastic items through injection moulding process. The details of the main objects are set out in the Memorandum of Association of the Petitioner Company.

The Board of Directors of the Petitioner Company vide Resolution dated 01.04.2018 have approved the Scheme. The other necessary requirements have also been fulfilled as per the Order dated 08.11.2018 passed by this Bench in CA/187/CAA/2018.

The Counsel appearing for the Petitioner Company has submitted that the rationale and circumstances that have necessitated the present Scheme is that the Company had been facing tough times and losses continuously and these losses had to be funded by way of unsecured loans from the shareholders. Further the Petitioner Company was restricted and prohibited from repayment of these unsecured loans by the Bankers, who have lent money to the Company. However, it is envisaged that if the Scheme is entered into between the creditors and the Petitioner Company with regard to the outstanding position of the said creditors as on the cut-off date is considered by the said Creditors and to avail further funding for the growth and to ensure a profitable survival of the Petitioner Company, the same shall lead to revival in regeneration of income and reduce the financial liquidity crunch. Further it was submitted that the sanctioning of Scheme will be for the benefit of the Petitioner Company, its shareholders and its creditors.

The Statutory Auditors of the Petitioner Company have examined the Scheme in terms of provisions of Sec. 232 of Companies Act, 2013 and the rules made thereunder and certified that Accounting treatment of the Petitioner Company is in compliance with Section 133 of the Companies Act, 2013.

The Regional Director, Chennai (in short, 'RD') in his Affidavit dated 10.04.2019 has submitted that the Scheme has stated about the Reorganization of the Capital and it has not made any mention about the writing off of the unsecured loan from the Director/Shareholder in lieu of the losses of the Company. In other words the Company has not stated how the losses of the Company has brought down from Rs. 16,17,63,702/- (Rupees Sixteen Crores Seventeen Lakhs Sixty Three Thousand Seven Hundred and Two Only) to Rs. 1,03,14,985/- (Rupees One Crore Three Lakhs Fourteeen Thousand Nine Hundred and Eighty Five Only) in the Scheme.

In reply to the observation made by the RD, the Counsel for the Petitioner made reference to the Part - IV of the Scheme which deals with Accounting Treatment which is as follows:-

Accounting Treatment

The amount of Unsecured Creditors pursuant to the Scheme shall be credited to Reconstruction Account.

The amount resulting from reduction in the Share Capital shall be credited to Capital Reduction Account.

The debit balance in the Surplus Account (P&L Account) of the Balance Sheet under Reserve and Surplus Schedule as of the Cut - Off date i.e. the accumulated losses shall also be transferred to Reconstruction Account.

The balance in Capital Reduction Account shall be Transferred to Reconstruction Account.

The balance available in the Reconstruction shall be under the Reserves and Surplus and shall be treated as Capital Reserves for the purpose of accounting.

The Counsel for the petitioner, in order to address the observation of the RD, has made reference to the Balance Sheet, which is placed at page 52 of the typed set filed with the petition, in which the equity share capital of Rs. 8,00,00,000/- as on 31.03.2018 is being reduced to Rs. 2,00,00,000/- as on 01.04.2018 and the Long term borrowings of Rs. 11,20,78,688/- as on 31.03.2018 has become NIL as on 01.04.2018. Apart from these, the RD has not made any other observation.

The Scheme will not cast any additional burden on the stakeholders and also will not prejudicially affect the interests of any class of the creditors in any manner. There is no requirement to modify the proposed Scheme. The Scheme appears to be fair and reasonable and is not contrary to public policy and not violative of any provisions of law. All the statutory compliances have been made under Sections 230 to 232 of the Companies Act, 2013.

Therefore, the Scheme annexed with Petition stands sanctioned. The Scheme sanctioned shall be binding on all the Shareholders, the Creditors of the Petitioner Company. The Scheme shall become effective from the Appointed Date viz., 01.04.2018.

However, it is further clarified that this Order will not be construed as an order granting exemption from payment of stamp duty or taxes or any other charges, if payable, as per the relevant provisions of law or from any applicable permissions that may have to be obtained or, even compliances that may have to be made as per the mandate of law.

The Company to the said Scheme or other person interested shall be at liberty to apply to this Bench for any direction that may be necessary with regard to the working of the said Scheme.

The Petitioner Company shall file with the concerned Registrar of Companies the certified copy of this Order within 30 days of the receipt of the order.

The Order of sanction to this Scheme shall be prepared by the Registry as per the relevant format provided under the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 notified on 14th December, 2016.

Thus, the Scheme stands sanctioned and CP/497/CAA/2019 stands disposed of.