In Re: Analog Financial Services P. Ltd.

R. Sudhakar, J.—This company petition is filed under sections 391 and 394 of the Companies Act, 1956, to sanction the scheme of arrangement proposed by Analog Financial Services P. Ltd., under sections 391 to 394 of the Act between Viswapriya (India) Ltd., and its secured debenture holders. The brief facts of the case are as under : The petitioner is a shareholder of Viswapriya (India) Ltd., and holds 6,85,075 equity shares of Rs. 10 each of the Viswapriya (India) Ltd., representing 25 per cent, of the equity share capital, apart from 25 per cent, of the convertible preference shares of Viswapriya (India) Ltd. A copy of the letter from Viswapriya (India) Ltd., dated July 1, 2013, confirming that the petitioner is a registered shareholder is annexed as annexure D.

The petitioner-company has an authorised capital of Rs. 6 crores and paid-up capital of Rs. 6 crores and the same is evident from the audited balance-sheet of the petitioner-company as on June 30, 2012, annexed as annexure B.

The main objects of the petitioner-company are to be financial consultants, advisors, and managers, including rendering of merchant banking services to individuals, companies, and corporations; to engage in stock, share broking services on behalf of institutes, pension funds, corporations, retail clients in India and abroad; to enroll as a member of one or more Stock Exchange(s) in India or abroad for the purpose of dealing in shares, securities and in kinds of financial instruments; to carry on financing operations and perform financing services, apart from many other allied objects.

The memorandum of association of the petitioner-company also authorises it to make investments and engage in restructuring of companies and thus, they are entitled to propose for a scheme of arrangement in respect of its investee companies to protect the value of its investments. The board resolution passed on August 30, 2013, authorising the filing of the scheme in respect of the secured debentures of Viswapriya (India) Ltd., is annexed as annexure C.

It is stated that Viswapriya (India) Ltd., was incorporated as a private limited company on May 13, 1991 and was thereafter converted to a public limited company with effect from September 3, 1991. The certificate of incorporation along with the memorandum and articles of association is annexed as annexure E. The audited balance-sheet of Viswapriya (India) Ltd., as on March 31, 2012, is annexed and marked as annexure F.

The main objects of Viswapriya (India) Ltd., are to carry on business of trading, leasing and hire purchasing, purchasing on easy payment system, renting, plant and machinery of all kinds; to purchase, sell, develop, take in, exchange, lease hire or otherwise acquire, or finance the acquisition of whether for investment or sale or working the same as real or personal estate; to finance industrial enterprises by way of lending, advancing money, machinery, land, building; shed or such other assets; apart from other objects set out in the memorandum of association.

The financial position of Viswapriya (India) Ltd., as on September 30, 2013, is as under:

The unaudited accounts as on September 30, 2013, showing the final position of Viswapriya (India) Ltd., is annexed and marked as annexure G.

It is further stated that all the borrowings by Viswapriya (India) Ltd., from banks have been repaid and presently the Viswapriya (India) Ltd., has no bank borrowings.

It is stated that Viswapriya (India) Ltd., is presently focussed on dealing in long-term financing against revolving credit granted against Negotiable Instruments and has a fund base of Rs. 164.90 crores as at March 31, 2012. Of which, long-term borrowings of Rs. 119.21 crores are secured borrowings in the form of issuance of debentures. The secured debentures are issued under the terms of the debenture trust deed dated September 1, 2003, as amended from time to time. Matrix Trustee Co. P. Ltd., is the present trustee in respect of the debentures issued by Viswapriya (India) Ltd. A copy of the debenture trust deed dated September 1, 2003, along with the letter of Viswapriya (India) Ltd., dated March 15, 2013, confirming that the said Matrix Trustee Co. P. Ltd., is the trustee thereunder are annexed as annexures H and I respectively.

The secured debentures are all covered by the security of the assets backing the loans granted by the Viswapriya (India) Ltd. Viswapriya (India) Ltd., has given long-term revolving financing where the principal and interest are both repayable in lump-sum only at the end of the loan period. Due to weaker conditions in economy, the borrowers demanded funds and Viswapriya (India) Ltd., had difficulties in ensuring cash flows from such assets, which resulted in a liquidity squeeze despite its substantial solvency. Viswapriya (India) Ltd., has informed the petitioner that though it has substantial receivables, which are not presently due in view of the revolving nature of the loans, it is unable to raise temporary finance against the same.

The petitioner is interested to ensure that the Viswapriya (India) Ltd., continues to operate as a "going concern" and is not forced to act in any manner to the detriment of any of its stakeholders. The petitioner states that the prospect of coercive action even by a small fraction of the debenture holders may cause panic both amongst other debenture holders as also amongst the operating management of the company and it is necessary that the orderly functioning of the company is protected.

The petitioner states that a rescheduling of the secured debenture obligations would ensure that Viswapriya (India) Ltd., is able to continue to operate and meet the obligations to all its creditors and also continue as a going concern in the interest of all stakeholders, including the petitioner herein, without threat of any coercive action at the instance of a small minority of debenture holders.

The petitioner states that the scheme of arrangement proposed does not in any manner seek any waiver of any monies due to the secured debenture holders and only seeks rescheduling of the due dates and the delay in payment consequent to such rescheduling is proposed to be compensated by payment of interest at the contracted rates for the delayed period of payment and as such except for postponement in due date of the debentures against payment of interest for such postponement there is no prejudice whatsoever caused to the secured debenture holders by the scheme of arrangement.

Under such circumstances, the petitioner, in the interest of Viswapriya (India) Ltd., its shareholders and the various creditors, propounded the present scheme of arrangement under sections 391 to 394 of the Companies Act, 1956. It is stated that the scheme provides for the rescheduling of the secured debentures to ensure that all the debenture holders are paid fully, including interest for delayed payment, and in a orderly fashion out of the operations of Viswapriya (India) Ltd., without impairing the continuance of the operations of the said company.

Heard learned counsel for the petitioner; Mr. R. Sankaranarayanan, the court appointed chairman; Mr. Satish Parasanan, Mr. R. Swaminathan, Mr. Karthick Seshadri, and M/s. Ram and Rajan Associates, learned counsel for objectors; Mr. M. Vaidyanathan, learned counsel for M/s. Viswapriya (India) Ltd.; and Mr. N. Ramesh, learned Central Government Standing Counsel appearing for the Regional Director, Ministry of Corporate Affairs.

Before proceeding further, it is necessary to refer to the various terms of the scheme of arrangement, annexed as annexure J, which read as under :

"OBJECTS OF THE SCHEME OF ARRANGEMENT

The reasons and circumstances leading to and justifying the proposed scheme of arrangement and which make it beneficial for the company, its secured debenture holders, its shareholder and all concerned are as follows:--

(a) The company has a networth of over Rs. 32 crores and has had continuous profits in each year of its over 2 decade existence.

(b) The company is solvent and all its assets which exceed the liabilities are capable of being realised and are in excess of the total of its liabilities and as such the liabilities can be repaid wholly.

(c) The company has never suffered any cash strain in its over 2 decade existence and the current dislocation is only arising out of the weakened economic conditions which has resulted in borrowers exercising the rollover option as against the settlement of the loans.

(d) The company by effecting the scheme would ensure that business operations are continued normally and by this method the assets would either be realised for full value in due course or would be refinanced by other creditors who would substitute the secured debenture holders thus protecting the interest of the secured debenture holders and the other stakeholders in full.

(e) The implementation of the scheme as proposed will ensure that the secured debenture holders are able to realise their interest and principal without any sacrifice whatsoever as there is only a extension of tenure for which compensation by way of contracted rate of interest is proposed under the scheme and there is no reduction proposed either in the rate of interest or the amount due to be repaid. The company's business track record is the strength of the company which should not be allowed to be impaired merely by the temporary cash squeeze faced by the company presently.

(f) As the company is solvent such restructuring will ensure that the company operates for the long-term good of all stakeholders and is not forced to take any short cuts which might impair the interests of the company and ultimately also the secured debenture holders if the scheme is not sanctioned.

(g) The scheme has been drafted with a view to protect the company and ensure that the interest of all stakeholders is also protected fully.

(h) The arrangement is intended to ensure continued profitable operations of the company and to settle the dues of its secured debenture holders in full. The arrangement would enable the company to re-structure its debts fully and completely and overcome the current mismatch.

(i) The scheme has been propounded by the applicant and in view of the strong solvency of the company it is estimated that no infusion of funds is required by the company but however the applicant has already committed to infusion of Rs. 15 crores into the company in 3 equal instalments by March 31, 2014, September 30, 2014 and March 31, 2015.

(j) The scheme if approved would enable the company to repay its secured debenture holders in full with contracted interest in the manner contemplated in the scheme and would thus benefit both the company as well as its secured debenture holders.

SALIENT FEATURES OF THE SCHEME

The following are some of the salient features of the said scheme of arrangement :

Part I--DEFINITIONS

"Appointed date" means January 31, 2013 (i.e., the 31st day of January, 2013).

''Creditors'' shall mean and include secured debenture holders (as defined under the scheme) of the company as on appointed date.

"Effective date" means the last of the dates on which the sanctions, consents, approvals required for the scheme are obtained.

Part II--THE SCHEME

The scheme shall become effective from the appointed date.

With effect from the appointed date, the dues of the company to its creditors shall be re-structured in the following manner and in accordance with the terms and conditions of the scheme:--

(A) Secured debenture holders:--In respect of all secured debentures holding debentures of the company as on the appointed date the terms of the debenture issued shall be modified as under :

(a) All interest whatsoever that is payable on the secured debentures from April 1, 2013, shall be paid within 9 months from the date on which due and the said amounts shall be paid with interest for the delayed period of 9 months at the contracted rate the debenture holder is entitled to in respect of the principal amount represented by the debenture.

(b) All principal amount due on the secured debentures allotted by the company on and up to the effective date and falling due on or after February 1, 2013, shall be payable on the following dates.

(i) 20 per cent, of the amount on completion of 1 year from the date on which the secured debenture was originally due

(ii) 30 per cent, of the amount on completion of 21 months from the date on which the secured debenture was originally due

(iii) 50 per cent, of the amount on completion of 33 months from the date on which the secured debenture was originally due

(c) In respect of all such payments in instalments, interest for delayed payment from the date on which the same became originally due till the date of actual repayment as per the scheme shall be payable along with the said instalments at the contracted rate at which the secured debentures carry.

(d) Notwithstanding the provisions above interest in respect of customers whose annual interest is below Rs. 3,000 in respect of their total debentures held in the company would be paid their interest in arrears if any on the effective date of the scheme.

(e) Notwithstanding the provisions hereinabove set out in respect of payment of principal amount owed on the debentures in 3 instalments it is clarified that the same shall apply only in respect of the principal amounts and that any accrued interest in the case of debenture holders who have opted for receiving their interest at the maturity of their debenture would be paid in the same manner in which interest is paid to the debenture holders opting for monthly or such other periodic interest payment.

(f) The secured debentures shall continue to be secured in the same fashion as presently and the terms of the debenture trust deed shall continue to operate for the benefit of the debenture holders.

Part III--GENERAL

The scheme is conditional upon and subject to the approvals of the secured debenture holders and any other approvals that may be required for the scheme under laws in force."

The petitioner initially filed C.A. No. 1007 of 2013, and this court passed 5 the following order on September 25, 2013 :

"This is an application taken out by a company, which holds 25 per cent, of the equity shares in the company by name M/s. Viswapriya (India) Ltd., praying for convening a meeting of the secured debenture holders of M/s. Viswapriya (India) Ltd., for the purpose of considering and approving, with or without modification, a scheme of arrangement to be made between M/s. Viswapriya (India) Ltd., and its secured debenture holders.

Heard Mr. Prakash Goklaney, learned counsel for the applicant and Mr. M. Vaidyanathan, learned counsel for M/s. Viswapriya (India) Ltd.

The applicant holds 6,85,075 equity shares of Rs. 10 each in the company known as M/s. Viswapriya (India) Ltd. The shareholding of the applicant-company is 25 per cent. The applicant proposes to sponsor a scheme of arrangement for the said company and if approved by the secured debenture holders, the applicant wishes to seek the sanction of this court for the scheme of arrangement. With this object in mind, the applicant has come up with the above application for convening a meeting of the secured debenture holders of the said company.

Normally, applications of these types are allowed as a matter of routine. But in the case on hand, the applicant has filed two more applications, one in C.A. No. 1009 of 2013 for a stay of further proceedings in connection with the investigation into criminal complaints lodged by the secured debenture holders of Viswapriya (India) Ltd., with the Economic Offences Wing of the State Police and another in C.A. No. 1010 of 2013 for a stay of further proceedings in connection with the investigation into criminal complaints lodged by the secured debenture holders of Viswapriya (India) Ltd., with the Registrar of Companies. Therefore, I carefully went through the documents filed including the memorandum and articles of association of the sponsor company, viz., Analog Financial Services P. Ltd., and the company for which a scheme is proposed, viz., Viswapriya (India) Ltd.

As per the details contained in paragraphs 6 to 21 of the affidavit, it is seen that Viswapriya (India) Ltd., was originally incorporated as a non-banking finance company (NBFC), under the name and style of "Viswapriya Financial Services and Securities P. Ltd". It subsequently became a public limited company. For reasons not immediately available, the certificate of registration of the said company was cancelled by the Reserve Bank of India in 2005 and the company could not secure an interim protective order on an appeal. Therefore, it ceased to be a NBFC. But the company altered its activities and changed its name as Viswapriya (India) Ltd., with effect from June 2, 2011. This is one important feature.

The next is that the company has a fund base of Rs. 164.90 crores as on March 31, 2012, out of which Rs. 132.26 crores represents long-term borrowings. This represents a sum of Rs. 119.21 crores taken as secured borrowings in the form of debentures. The debentures have been issued under the terms of the debenture trust deed dated September 1, 2003.

It appears that there are more than 1,500 debenture holders, residing in various parts of the country such as Mumbai, Hyderabad, Bangaluru, Chennai and few other cities. Though the applicant claims that it had issued debentures only to two persons and that they had transferred the same to more than 1,500 persons, the said claim is to be verified. But the fact remains that a few debenture holders have admittedly lodged criminal complaints either before the Economic Offences Wing of the State Police or the Registrar of Companies. From the memorandum and articles of association of the company Viswapriya (India) Ltd., and from their annual report for 2011-12, it is seen that one Mr. R. Subramanian is a director and a subscriber. I do not know if this R. Subramanian is the very same person who was the promoter of Subhiksha Trading Services Ltd., which is facing a host of litigation including the impounding of his passport by this court, but which has been stayed by the Supreme Court.

Therefore, in the light of the above facts, I am of the view that strict standards have to be applied for the convening of the meeting proposed by the sponsor. Hence, this application is allowed, directing a meeting of the secured debenture holders of the company Viswapriya (India) Ltd., to be convened in the following manner:--

(i) Date and Time--November 24, 2013, at 10.00 a.m.

(ii) Place--A public meeting hall to be finalised by the chairman appointed by this order, which will accommodate at least 200 persons.

(iii) Chairman--Mr. R. Sankaranarayanan, Advocate, 26, Dr. Radhakrishnan Salai, 9th Street, Mylapore, Ghennai-4.

(iv) Notices--One notice of the meeting shall be published in Indian Express, All India Edition and another notice in Dinamalar, All India Edition, at least 21 days before the date of the meeting. Individual notices shall also be served upon all debenture holders by the registered post acknowledgement due and the chairman of the meeting shall verify whether the notices have been sent to the correct address.

(v) Quorum--Since there are 1,500 members, residing in several cities across the country, the Quorum for the meeting shall be at least 100 members present in person or by proxy.

Within a week of the conduct of the meeting, the chairman shall file a report into court.

The chairman shall be paid a remuneration of Rs. 25,000 (rupees twenty-five thousand only) and he is entitled to take the assistance of a company secretary for ensuring strict compliance with the above conditions."

Consequent to the said order, the chairman appointed by this court convened a meeting of the debenture holders of Viswapriya (India) Ltd., on November 24, 2013 and he has filed his report, which reads as under :

"REPORT BY CHAIRMAN

I, R. Sankaranarayanan, son of S. Ramanathan, aged about 61 years having office at No. 26, Dr. Radhakrishnan Salai, 9th Street, Mylapore, Chennai-600 004, do hereby solemnly affirm and sincerely state as follows :

I have been appointed by this hon'ble court to act as chairman of the meeting of the debenture holders of Viswapriya (India) Ltd., summoned by notice served individually upon them and by advertisement dated 1st day of November, 2013 and 2nd day of November, 2013 and held on 24th day of November, 2013, do hereby report to this hon'ble court as follows:--

(a) The said meeting was attended either personally or by proxy by 2,164 (two thousand one hundred and sixty four only) number of debenture holders of Viswapriya (India) Ltd., entitled together to 8,39,291 (eight lakhs thirty nine thousand two hundred and ninety one only) representing total value of debentures of Rs. 83,92,91,000 (rupees eighty three crores ninety two lakhs and ninety one thousand only).

(b) The arrangement was taken as read and explained by the nominee of the applicant to the meeting and the question submitted to the said meeting was whether the debenture holders of Viswapriya (India) Ltd., approved the scheme of arrangement submitted to the meeting and agreed thereto.

(c) The said meeting was of the opinion that the arrangement should be approved and agreed to/for the result of the voting upon the said question was as follows:

(d) A summary of the proceedings and the secretary's report are appended to this report.

Dated at Chennai this 2nd day of December, 2013."

Pursuant to the convening of the abovesaid meeting and filing of report 7 dated December 2, 2013, of the chairman appointed by this court, the company petition was filed for the relief stated supra.

In this company petition, objections were sought and certain debenture 8 holders and third parties filed objections, which were considered by the court at length and a series of interim orders were passed. Nevertheless, almost all the objectors have now agreed to the sanction of the scheme of arrangement. Mr. N. Ramesh, the Central Government Standing Counsel has not filed any report objecting to the sanction of the scheme of the arrangement.

On going through the report of the chairman of the meeting, which is 9 extracted above, it is clear that 93.16 per cent, of the debenture holders have agreed to the scheme of arrangement. An affidavit has been filed by the Founder-Director of Viswapriya (India) Ltd., accepting the scheme of arrangement and undertaking to abide by the scheme of arrangement. That apart, in accordance with the terms of the scheme of arrangement, there are substantial assets to discharge the claims of the debenture holders. Considering all these factors, the court is of the view that the company petition, as prayed for, can be ordered.

For the foregoing reasons, this company petition is ordered as prayed for 10 and the scheme of arrangement between Viswapriya (India) Ltd., and its secured debenture holders, as proposed by the petitioner; accepted by 93.16 per cent, of debenture holders, and undertaken to be honoured by the managing director of Viswapriya (India) Ltd., is sanctioned. In view of the order passed in the company petition, no further orders 11 need be passed in Company Applications Nos. 501 and 502 of 2014 and they are closed.