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Petitioner: Paramount Spinning Mills Limited VS Respondent: Bank of Punjab
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title: Paramount Spinning Mills Limited vs Bank of Punjab Case No.: JCM No. 05 of 2019 Date of Judgment:2019-10-25 Reported As: 2019 SHC 420 Result: petition allowed
Judgment Muhammad Junaid Ghaf far, J. This is a Petition under Section 279 to 283 and 285(8) of the Companies Act, 2017, seeking approval of an arrangemen t / compromise entered into between Petitioner No.1 and Petitioners No.2 to 14. The Petitioner No.1 is a Public Company authorized to carry on business mainly of textiles and its authorized share capital is Rs.250,000,000/- divided into 25,000,000 ordinary shares of Rs.10 /- each, whereas, paid-up share capital of this Petitioner is currently Rs.173,523,290/-. The Petitioner Nos.2 to 14 are all Banking Companies, as defined in the Banking Companies Ordinance 1962 or non-banking finance companies, as defined in Part-VIII A of the Companies Ordinance, 1984 and from time to time, have provided finance as defined in the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("FIO") to the Petitioner No.1. It is a matter of an admitted position that Petitioner No.1 has defaulted in honoring the repayments to its lenders, and now these secured creditors along with the Borrower Company / Petitioner No.1 have entered into an arrangement/compromise for the purposes of paying the existing liabilities of the secured creditors, in the manner so specified in the said arrangement / scheme. 2. Learned Counsel for Petitioner No.1 has contended that Petitioner Nos.2 to 14 (in respect of the finance facilities availed by Petitioner No.1) constitute approximately 70.13% of the existing liabilities to the extent of principal amount as on 31.12.2018. Per learned Counsel for various reasons, the Petitio ner No.1 has faced significant difficulties in meeting its financial obligatio ns towards its creditors, whereas, the Creditors have already filed various proceedings including Suits for recovery of finances, and at the same the Petitioner No.1 has also filed various proceedings against its certain secured creditors, which are also pending. He has further contended that as a consequence of discussion with its secured creditors, terms for the purposes of settlement and compromise have been prepared and through the Scheme of Arrangement now before the Court, the Petitioners seek approval of the same in terms of the provisions of the Companies Act, 2017. According to him the Scheme of Arrangement, attached as Annexure "B" hereto, gives full particulars of the proposed compromise / arrangement including, but
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not limited to, the background leading up to the same, the objective of the arrangement, details of the existing liabilities, the manner in which the Petitioner No.1 shall repay the existing liabilities of its secured creditors, the mechanics / procedure of such repayment, the obligations of the Petitioner No.1, the principal sponsor of the Petitioner No.1 and the secured credito rs of the Petitioner No.1, and the consequences of a default by the Petitioner No.1, along with all related and ancillary matters. Per learned Counsel the Scheme of Arrangement be treated as part and parcel of the petition . According to him all consenting creditors have appointed United Bank Limited as the lead creditor, who will manage this scheme of compromise and all other Petitioners have consented to such an agreement. He further submits that after filing of this petition, on an application in terms of Rule 55 of the Companies (Court Rules) 1997, on 20.05.2019, permission was granted to conduct a meeting of the petitioners as well as the creditors to consider and approve the scheme, including objections, if any, and the meeting has been conducted in compliance of the orders of this Court and the Chairman has filed his report on 08.07.2019. According to him, as reflected from the report, out of the two non-consenting creditors, one remained absent, and the other opposed the scheme. Whereas, 75.34% in value of the outstanding principal amount of the secured creditors were present and voted by giving consent to such arrangement. As to the objections raised on behalf of one of the secured creditors (Bank of Punjab), learned Counsel has relied upon the judgment reported as Gulshan Weaving Mills Limited v. Al Baraka Bank (Pakistan) Limited and 8 others (2018 CLD 737) and has contended that a learned Division Bench of this Court has been pleased to overrule similar / identical objections, and therefore, the Scheme be allowed and approved for further proceedings. 3. Insofar as, the Petitioner Nos.2 to 14 are concerned, Mr. Mikael Azmat Rahim, appearing on their behalf has adopted the arguments of the Petitioner No.1' s Counsel and has prayed for allowing this Petition. 4. Learned Counsel appearing on behalf of Objector / Bank of Punjab has contended that the Scheme, as presented on behalf of the petitioners does not fall within the contemplation of Section 279 of the Act and he has read out Subsection (6) thereof in support of his contention. According to him, this is not a Scheme of reorganization; hence cannot be granted. Per learned Counsel in the Scheme the total liability has been shown as Rs.3.37 billion, whereas, the net value of the assets of Petitioner No.1 is Rs.1.837 billion, with a forced sale value of only Rs.1.474 billion; and therefore, this Scheme cannot be approved as it will not cater for the entire set of creditors. He has further argued that it is the case of Bank of Punjab that an amount of Rs.836.00 million is outstanding against the Petitioner No.1, whereas, various Courts have already passed decrees in its favour, and if the Scheme is granted as prayed, then it will seriously prejudice the interest of Bank of Punjab and would also amount to losing public money. According to him, the Court must consider the Scheme as a whole and when it is against the interest of public and intends to defeat the law itself, then such a Scheme must not be granted by the Court. Per learned Counsel in the meeting of creditors, they have raised various objections, which were not properly considered, therefore, the meeting so conducted, is not in accordance with the rules as well as the law. He has also referred to the provisions of FIO and has contended that this being a special law, must override any other provisions of Companies Act and in terms of the FIO, no such Scheme can be approved, whereas, it is only the Banking Court(s) having jurisdiction, who can decide the cases in accordance with FIO. Insofar as the judgment of the learned Division Bench in the case of Gulshan Weaving Mills Limited (Supra) as relied upon by the learned Counsel for the Petitioner No.1 is concerned, he has argued that on facts the same is not squarely applicable, whereas, even the said judgment supports the case of the objectors. He has prayed for dismissal of the Petition. 5. Learned Counsel appearing on behalf of SECP has argued that since the Banks are involved, therefore, the Petitioners be directed to obtain NOC from State Bank of Pakistan. He has also contended that the value of the assets in question is less than the outsta nding liability and there is difference in the loan amount as mentioned in the Scheme and the accounts of Petitioner No.1. 6. I have heard all the learned Counsel and perused the record. The facts have been briefly discussed hereinabove and as reflected from the record, presently , the Petitioners seek approval of the Scheme in question, whereby, the Petitioner Nos.2 to 14 have entered into a compromise with Petitioner No.1 for settlement of their liabilities in the manner so stated in the Scheme. The object of this Petition is to, inter alia, obtain sanction of this Court to the
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Scheme of Arrangement for compromise and arrangement as envisaged between Petitioner No.1 and its secured creditors (including Petitioner No.2 to 14), involving all existing liabilities of Petitioner No.1 towards it secured creditors. The Petitioner No.1, along with the Petitioner Nos.2 to 14 have approved the Scheme of Arrangement as according to them the same constitutes a viable solution for the secured creditors of Petitioner No.1 and it is their case that it is in the interest of all the parties. According to them, the same would, inter alia, allow the secured creditors to recover the outstanding amounts payable to them from Petitioner No.1, or a portion thereof, in the manner prescribed under the Scheme of Arrangement, as full and final settlement for all the outstanding amounts payable by the Petitioner No.1 to its secured creditors. Though the Scheme as whole is a complete document; however, it mainly encompasses the mode and manner in which it is to proceed further and reference in this regard may be made to Article-3; which relates to the object of the Scheme, Article 6 which is in respect of the sale of the assets and repayment of the existing liabilities whereas, in Schedule "C", the details of the existing liabilities of the secured creditors have been mentioned and according to it the secured creditors are owed Rs.2701.702 Million as the principal amount and Rs.671.296 Million as markup; making it a total of Rs.3372.998 Million, whereas, out of these outstanding liabilities, the two secured creditors, who have not consented to this Scheme, in total are owed, an amount of Rs.807.00 Million in principal and Rs.67.436 Million as markup and a total of Rs.874.436 Million, which is equal to 29.87% of the total outstanding liabilities, whereas, in percentage terms, Petitioner No.2 to 14 are owed 70.13% of the total principal liability. It is further provided that the secured creditors i.e. Petitioner No.2 to 14, out of which some of whom have a first charge on the mortgaged properties, have foregone their claims to that extent, and have agreed to the scheme of compromise, through which, a mechanism has been devised to settle the liabilities of the creditors. 7. This present petition has been filed under Section 279 of the Companies Act, 2017, which reads as under:- "279. Compromise with creditors and members.- (1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them, or between the company and its members or any class of them, the Commission may, on the application of the company or of any creditor or member of the company or, in the case of a company being wound up, of the liquidator , order a meeting of the credito rs or class of creditors, or of the members of the company or class of members, as the case may be, to be called, held and conducted in such manner as the Commission directs. (2) If a majority in number representing three-fourths in value of the creditors or class of creditors, or members, as the case may be, present and voting either in person or, where proxies are allowed, by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Commission be binding on the company , all its creditors, all the members, the liquidators and the contributories of the company , as the case may be: Provided that no order sanctioning any compromise or arrangement shall be made by the Commission unless the Commission is satisfied that the company or any other person by whom an application has been made under sub- section (1) has disclosed to the Commission, by affidavit or otherwise, all material facts relating to the company , such as the financial position of the company , the auditor's report on the latest accounts of the company , the pendency of any investigation proceedings in relation to the company and the like. (3) A copy of the order under sub-sectio n (2) sanctioning the compromise or arrangement duly certified by an authorized officer of the Commission shall be forwarded to the registrar within seven days from the date of the order . (4) A copy of the order under sub-section (2) shall be annexed to every copy of the memorandum of the company issued after the order has been made or in the case of a company not having a memorandum to every copy so issued of the instrument constituting or defining the constitution of the company . (5) The Court may, at any time after an application has been made to the Commission under this section, stay the commencement or continuation of any suit or proceeding until final disposal of the application. (6) In this section the expression "company" means any company liable to be wound up under this Act and the expression "arrangement" includes a re-organization of the share-capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both those methods,
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and for the purposes of this section unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors. (7) Any contravention or default in complying with requirements of sub-section (4) shall be an offence liable to a penalty of level 1 on the standard scale 8. Perusal of the above provision reflects that in Sub- section (1), it has been provided that where a compromise or arrangement is proposed between a company and its creditors or any class of them, or between the company and its members or any class of them, the Commission may, (here, the power of the Commission has been entrusted and assigned to the respective Company Benches of the High Court' s Court vide SRO 840(I)/2017 dated 17.8.2017 issued in terms of s.285(8) of the Companies Act 2017) on the application of the company or of any creditor or member of the company or, in the case of a company being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of the company or class of members, as the case may be, to be called, held and conducted in such manner as the Commission [Court] directs. Subsection (2) provides that if a majority in number representing three-fourths in value of the creditors or class of creditors, or members, as the case may be, present and voting either in person or, where proxies are allowed, by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Commission be binding on the company, all its creditors, all the members, the liquidators and the contributories of the company, as the case may be. On 18.03.2019, when this petition was presented before this Court, and an order was sought for convening the meeting of the Petitioners and the creditors, this Court before granting such permission, issued directions for issuance of notice to the non-consenting creditors, i.e. National Bank of Pakistan and Bank of Punjab, and thereafter the Counsel has affected appearance on behalf of Bank of Punjab. Insofar as National Bank of Pakistan is concerned, their Litigation Manager Azmat Zuberi appeared before the Court on 15.04.2019 and sought time to engage a Counsel. Again on 06.05.2019, he was in attendance and sought further time. Subsequently, permission was granted to convene the meeting of the Petitioners and secured creditors, as the non-consenting creditors were already on notice and had all available means to attend the meeting and oppose, if so desired. Record reflects that when the meeting was convened on 01.07.2019, Bank of Punjab participated, whereas, National Bank of Pakistan rema ined absent and they have also failed to affect appearance before the Court and to assist in respect of the Scheme in question despite being properly served. It is not in dispute that when the meeting was convened, 75.34% of the creditors in value were present and voted in favor of the scheme and it is only Bank of Punjab, who opposed the scheme. Insofar as the objections raised on behalf of Bank of Punjab are concerned, it appears that earlier in an almost identical case, a Company had filed JCM No.30/2016, seeking approval of a compromise scheme in similar terms and in that case also one of the secured creditors had opposed the scheme. In fact it was the same secured creditor i.e. Bank of Punjab. Their precise argument before the Company Judge was to the same effect, as contended in this matter . The learned Company Judge of this Court vide Order dated 03.04.2017, though approved the scheme of arrangement, but was pleased to hold that the Court is not required to challenge the wisdom of the creditors, who have opted for the approval of the Scheme, but according to the learned Judge, the decision was limited to them only and the Scheme was approved with a clarification that it only binds the consen ted creditors and not otherwise. The relevant finding of the learned Company Judge in the concluding paragraph reads as under:- "22. I am not interfering to challenge the wisdom of those creditors who opted for the approval of the Scheme but the decision should be limited to them only and it cannot trespass the rights and obligation arising out of the law. It is perhaps this common interest of consenting creditors which distinguishes the objection from rest of the secured creditors and since there is no commonality of interest between the objector and the consenting creditors the effect of this Scheme of Arrangement would not bind the objection. 23. Upshot of the above discussion is that this Scheme of Arrangement is approved with the clarification that it binds the consenting creditors and not otherwise and the petition is thus allowed to this extent and with the clarification mentioned hereinabove . The pending applications also stand disposed of." 9. Such order of approval of the Scheme with the above modification and condition was impugned in HCA No. 262/2017, by the Company and a learned Division Bench of this Court in the case of Gulshan Weaving Mills
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(Supra) has been pleased to allow the appeal and has set aside the observations of the learned Company Judge, whereby , the Scheme was approved only to the extent of consenting creditors and not otherwise. The relevant findings of the learned Division Bench are as under:- "14. Reverting to the case in hand, from perusal of the record it appears that the main objection of the Respondent/objector Bank is that the subject scheme of arrangement/compromise is not binding upon the respondent/objector (Bank of Punjab), as the objector is a decree holder and not merely a creditor , hence, having separate class from the other secured creditors. Term 'creditor' is of wide connotation whereas, its definition is inclusive in nature. In corporate parlance, creditor is a class of persons to whom company is indebted or owes a sum of money . Creditors may be preferential creditors, secured creditors and unsecured creditors. Reliance in this regard is placed on the case of Caravan East Fabrics Limited v . Askari Commercial Bank Ltd., Islamic Bank Ltd. ( 2006 CLD 895 ). The question regarding term 'class' came to be considered in the case of Sovereign Life Assurance Company v. Dodd (1892)2 QB 573 (CA). In the cited case, it was observed that the word 'class' is vague and to find out what is meant by it, one must look at the scope of the section which in the instant case, enables the Court to order a meeting of a Class of creditors to be called. One must interpret the term "class" in such a manner that it may prevent injustice and disadvantage to all the shareholders or creditors, and it must be confined to those persons whose rights are not dissimilar so as to make it impossible for them to consult together with a view to their common interest. Similarly, in the case of Maneckchowk and Ahmedabad Manufacturing Co. Ltd., (1970) 40 Company Cases 819, it was observed as under:- "Broadly speaking a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. The group styled as class should ordinarily be homogeneous and must have commonality of interest and the compromise offered to them must be identical." Thus, it is the commonality of the interests held in the company which can be considered for treating the holders of such interest as one Class. The possession of common characteristics or agreement with the proposal for arrangement made will not render such persons making the proposal as a distinct class. If a set of persons making the proposal because of the commonality of the interest in the proposal of compromise or arrangement is to be treated as distinct class within the meaning of section 284 then there would not be any proposal which can be defeated by the majority as all such persons making the proposal will rank for treatment as a Class by themselves. Such interpretation would render subsection (2) of Section 284 of the Ordinance as redundant. The respondent/objector being secured creditor as such cannot be termed as a distinct/separate 'Class'. If the stance of the respondent/objector is accepted, then there would remain no need to hold the meeting for ascertainment of wishes of majority in number representing 3/4th in value of the creditors or class of creditors. In the circumstances, all the secured creditors who may have filed suits or obtained decrees are to be deemed to be of the same class as other secured creditors. Reliance in this regard can be placed upon the case of Mian Hamidul Haq and others v. Taj Company Ltd. (1991 MLD 841). 15. We may further observe that the objections to any compromise or arrangement, if any, based on classification, jurisdiction or otherwise, must be raised at the earliest opportunity. Objections raised immediately on receipt of notice of proposed scheme of compromise or settlement are usually given due consideration. In case objections are not raised at the first available opportunity, same may not be considered by the Court to thwart the legal course available under the law to the majority Shareholders, Members of the Company and its Creditors. Reliance in this regard can be placed on the cases of Capital Assets Leasing Corporation Ltd. (2003 CLD 1713) and Alstom Power Boilers Ltd. v. State Bank of India and another (2002) 112 Comp. Cases 674). In the instant case, it may be noted that the Objector Bank neither raised any objection upon receiving notice of the sanction of scheme nor at the time of meeting, called upon the directions of the learned Company Judge, hence, it estopped from raising objection of the nature at the time of final hearing of the sanction of scheme by the court. 16. The case law cited at the bar fully supports the stance of the appellant. Hence, in view of the above discussion, we are of the opinion that the impugned clarification is violative of the Scheme and scope of subsection (2) of
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section 284 of the Company Ordinance, 1984, and as such not sustainable in law, hence, the same is liable to be struck down. Foregoing are the reasons for our short order dated 21.1 1.2017, whereby instant High Court Appeal was allowed." 10. From perusal of the above judgment of the learned Division Bench it clearly reflects that insofar as the objections now being raised by Bank of Punjab are concerned, they already stand decided against them. It is a matter of record and as confirmed by their Counsel, the said judgment has not been challenged any further before the Hon'ble Supreme Court. Therefore, it is binding on this Bench and cannot be deviated from in identical facts, notwithstanding the weightage and attraction in the arguments so raised by the learned Counsel for Bank of Punjab. I may observe that this sounds attractive and so also somewhat emotional, but Courts are not required to decide cases on the basis of emotions. The decisions are to be given on the basis of mandate of law. The Court is duty bound to apply the law, come what may, as sometimes the law may not permit something which ought to have been, but there is very little the Court can do about it, for it is and should be, emphatically the duty of the Court to apply it, but not rewrite what has been enacted by the law makers / competent authority. The Court must not reach a decision which it likes, but must try to reach a decision which law compels. And this is the way a Court (like this Court) must work as no doubt the Court might reach to a decision it dislikes, but believes that the law demands it. This is the only way the Court can only be admired. It is not for the Court to legislate, but for the legislature to do so. The decision makers are required to adopt law as it is, but not as they wish to be. 11. In my view the objection of Bank of Punjab has been taken care of in an elucidative manner by the learned Division Bench in the case above, and this Bench cannot take any alternate or contrary view as the said precedent is a binding precedent. Nothing has been argued so as to even remotely suggest that the judgment of…
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