Digiflex India Ltd

ORDER %

27.05.2011

¶1The presentpetitionhas been filed under Sections391 and 394 of the Companies Act, 1956 (in short 'Act') by the petitioners/Propoundersnamely, Shri Arun Khanna and Smt. Suman Khanna (the promoters and. the management) seeking approval/sanctionofthe SchemeofRevival(in short 'Scheme')ofthe PetitionerCompany,i.e., M/S. DIGIFLEXINDIALIMITED. ^ of13 Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing.

¶2The petitioner-companywas incorporatedon 25^*^ August, 1988 with the objectiveof, inter alia, estabUshinga state of the art plant to manufactureLatex Surgical and ExaminationGloves with a capacity of 60 million gloves per annum. The petitioners namely, Shri Arun Khanna and Smt. Suman Khanna were the promoter and first Directors of the petitioner-company.

¶3The registered office of the petitioner-companyis situated at New Delhi, within the jurisdiction of this Court. In the year, 1993,the petitioner-companycame out with its maiden public issue and expanded its capacityto produce a total of 240 million gloves per annum.

¶4The present authorizedshare capital of the petitioner-company is Rs.20,00,00,000/-(Rupees Twenty Crores) divided into 02(Two) crores equity shares of Rs.lO/- each. The present issued, subscribed and paid up capital of the petitioner-companyis Rs.6,11,00,000/- (Rupees Six Crores Eleven Lakhs) divided into 61,10,000 equity shares of Rs. 10/- each fully paid up.

¶5The petitioner-company suffered severe losses, pursuant to which a reference was made to BIFR under Section of SICA. In the Page 2 of13 said proceedingsbefore BIFR, on a considerationof the matter, an order recommending winding up of the petitioner-company was passedwhichwas forwardto this Courton 30^*^ September,1998.

¶6In the year, 1998, M/s. Singapore Tong Teik (Pte) Ltd., a creditor of M/s. Digiflex India Ltd. had filed C.P. No. 381 of 1998 under Section433(e)ofthe Act on 22"''July, 1998. The petitionwas admitted on 30^*" April, 1999 and citations were ordered to be published. Apart from the said petitionanotherC.P. No. 8/1999 was also filed by another creditor namely, M/s. Sunny Exports under Sections 433 and 434 of the Act on the ground of its inability to pay its admitted debts.

¶7On 12^^^ December, 2002, after hearing the counsel for the petitioner-companyin C.P. No.381 of 1998, the Official Liquidator attached to this Court was appointed as the Provisional Liquidator to take over all the assets of the petitioner-companyherein, includingthe books of accounts and other records and to prepare an inventory in respectthereof. During the pendencyof the liquidationproceedings the plant and machineryof the petitioner-companywas auctionedon 15'*^July, 2004.

¶8During the pendency of the liquidation proceedings, the promotersofthepetitioner-companypreferredthepresentSchemefor Revival,beingC.A.(M)No. 43 of 2008 in C.P. No. 381 of 1998. The salient features of the Scheme have been incorporated and detailed in thepresentpetitionand the accompanyingaffidavitofthe petitioner.

¶9The promoters of the petitioner-companyhave found an investor namely, M/s. AKM Systems Pvt. Ltd., an investment companyownedby a relative,which is willingto investRs.l2 crores into the petitioner-companythrough issue of equity and loan. The promotersofpetitioner-companyhave also approachedall the secured creditorsof the petitioner-companyandhave enteredinto a One Time Settlement(OTS) with all the secured creditors. With regard to the unsecured creditors, it is submittedthat no claim was received by the Official Liquidator from any of the unsecured creditors despite advertisementin newspaperspublishedin July, 2004 invitingclaims. Therefore, the claims of the unsecured creditor were barred by time. However, the promoters of petitioner-company have under the Scheme made a provision of 20% payment towards the amount claimedby the unsecuredcreditors. They have further undertakento Page 4 of13 A bring in additionalfunds as and when the funds are requiredtowards any unforeseen liabilities.

¶10In terms of the Scheme, it is proposedto reduce the capital of the petitioner-companyby 50%, i.e., to Rs.3.05 crores by makingthe equityshareofRs.lO/-eachata face valueofRs.5/-eachpaidup.

¶11Against the investmentof Rs.l2 crores, M/s. AKM Systems Pvt. Ltd. shall be issued20,00,000equity sharesof Rs.5/- eachto the investor. Further, 30,00,000convertible debenturesof Rs.lO/-each would be issued convertible after one year in 30,00,000 equity shares of Rs.5/- each, a premium of Rs.5/= each. The balance Rs.8 crores will be received by the petitioner-companyas a loan against the security of the petitioner-company's property at Village Thirumalayampalayam,Keralaand againstthe personalguaranteesof the promoters.

¶12In CA(M) No. 43 of 2008, this Court after consideringthe aforesaidfacts,vide its orderdated20^^ February,2009 was pleasedto grant stay of the winding up order. This Court vide its order also directed the Official Liquidatorto draw up the inventory of all the immovable and movable assets of the Company and the possession of ^ o/7i the properties was handed over to the promoters. Mr. S.K. Luthra, was appointed as the administrator to supervise the affairs of the Company at a remuneration of Rs.50,000/- per month and was directed to file monthly reports about the functioning of the Company. It is necessary to point out that due to the death of Mr. S.K. Luthra, Mr. Rajiv Bahl was appointed as the administrator.

¶13This Courtvide its orderdated20^ February,2009 was pleased to dispense with the meeting of the secured creditors in view of the fact that all the secured creditors had entered into an OTS with the petitioner-company. Significantly, the petitioner-company has made all payments with regard to the OTS. However, directions were issued to call for the meetings of the unsecured creditors and equity shareholders of the petitioner-company.

¶14In terms of order dated 20"^ February, 2009 passed by this Court, the notices of the said meetings were sent individually to all the unsecured creditors and equity shareholders of the petitioner-company by UPC together with a copy of the Scheme. A notice of the meetings was also published in newspapers 'Statesman' (English Daily) and 'Jansatta'(RegionalLanguageDaily) in 20^^ April, 2009 edition.An Page 6 of13 affidavit of the Chairpersons placing the UPC receipts and a copy of the newspaper publications were also filed along with an affidavit on 11"'May,2009.

¶15Inaccordancewiththe orderdated20^*^ February,2009,meeting of unsecured creditors were held under the Chairmanship of Ms. Anju Khurana, Deputy Registrar, Delhi High Court on 16^^ May, 2009, wherein all the unsecured creditors of the petitioner-company who were present and voting, voted in favour of the Scheme, which was unanimously approved by the unsecured creditors.

¶16The meeting of equity shareholders was held under the Chairmanshipof Mr. Lorren Bamniyal,Deputy Registrar, Delhi High Court on 16^'' May, 2009, wherein all the equity shareholdersof the Applicant Companywho were present and voting, voted in favour of the Scheme, which was unanimously approved by the equity shareholders. The respective Chairpersons filed their reports which are part of the Court record.

¶17Upon the present second motion petition being filed, this Court had issued notices to the Regional Director, Northern Regional and the Official Liquidator attached to this Court. Citations were also Page 7 of13 directed to be published in the 'The Statesman' (English) and 'Jansatta' (Hindi) in terms of the Company (Court) Rules, 1959.

¶18Affidavit has been filed on behalf of the petitioner-company for the publicationof citations in the above said newspapers on 24"^ August, 2009. The copies of the newspaper clippings containing the publications have also been filed along with the affidavit. The affidavit also states that in pursuance to the publication carried out in the newspapers, neither the petitioner-companynor the counsel has received any objection from any person to the Scheme for which sanction has been sought from this Court.

¶19The Regional Director in its report filed with this Court has confirmedthat no complaintshave been received against the proposed Scheme from any person/party interest in the Scheme in any manner.

¶20The Official Liquidator in its report filed with this Court has also confirmed that no complaints have been received against the proposed Scheme from any person/party interested in the Scheme in any manner. However, the Official Liquidator raised some objections to the approval of the Scheme namely, that no project report has been filed by the Promoters. No MOU with the investor M/s. AKM System Page 8 of13 has been placed on record, no funds were infused by the promoters in terms of the Scheme, no list of shareholders has been provided, since the Scheme envisions reduction of share capital, the petitioner-company must comply with Sections 100-103 of the Act and objection pertaining to difference in amounts in respect of the unsecured creditors in the balance sheet, statement of affairs and the Scheme.

¶21In response to the objections raised by the Official Liquidator, the petitioner-companyfiled an affidaviton 4^^ June, 2009 clarifying all the objections raised by the Official Liquidator. In respect of the first two objections regarding non-filing of the project report and MOU with the investors, the petitioner-company has placed on record the project report as well as the MOU entered with the investor M/s. AKM Systems Pvt. Ltd. along with its affidavit. Insofar as the objection regarding no funds being infused by the promoters, it is clarified that the investor M/s. AKM Systems Pvt. Ltd. which has invested 12 Crores in the present Scheme, is an investment company owned by relatives of the promoters. Further, amounts of Rs.69,10,181.10/- outstanding towards promoters and/or promoter related companies have been waived by the promoters. In addition, Page 9 of13 R5.32,820/- and Rs.9,125/- towards Directors remuneration and conveyance was also waived by the promoters. As far as list of shareholdersis concerned,the same was available and was provided to the OfficialLiquidatorand also was the basisonwhichmeetingof shareholders was held. This fact is fiirther substantiated by the report filed by the Chairpersonof the meeting of equity shareholders,Mr. Lorren Bamniyal, Deputy Registrar,Delhi High Court.

¶22With regard to objection pertaining to reduction of share capital,it is statedthat the provisionsof Section391 of the Act is a complete code, and since the present Scheme includesreductionof sharecapital,thereis norequirementof complyingwith Sections100-103 of the Act. The last objectionpertaining to the alleged difference in amount against unsecured creditor is not correct as there is no variation in amounts mentioned in the Scheme and balance sheet. Further, since the Statement of Affairs were drawn up on 12^'' December,2002 while the balancesheetwas dated 31®^ March, 2002, variation in the amount is negligible.

¶23The Official Liquidator on examining the clarifications has stated that their objections stand clarified and that they have no Page 10 of13 objectionto the Scheme being sanctioned. Even today, Ms. Richa Kukreja, Deputy Registrar of Companies appearing for Regional Director and Mr. S.P. Singh, Inspector appearing for Official Liquidatorstates that they have no objectionto the present Scheme being sanctioned.

¶24However, an objectionto the Scheme was raised by UPFC, a secured creditor. It was contended by them that apart from the OTS amount of Rs.l35 lakhs, which they had received, as per their OTS letter,they were entitledto a pro rata amountfrom the sale of some plant and machinery. Accordingto them, their pro rata share was

26.78% of Rs.70 lakhs, which works out to Rs.18,75,000/-.

¶25The learned counsel for UPFC on instructions of Mr. Lalit Shrivastava,DeputySeniorManager(Law), UPFC who is personally present in Court stated that if they were paid this amount of Rs.18,75,000/-,they had no objection to the Scheme being allowed. While the Company and the promoters/propounders disputed the contentions of UPFC, as also their right to receive any fiirther money, however, to put a quietus to the matter and in the interests of the Scheme and without prejudice to their contentions they agreed to pay Page 11 of13 to UPFC the said amount of Rs. 18,75,000/-, which amount was duly handed over to Mr. Lalit Shrivastava by way of Demand Draft No. 203150 dated May, 2011 for Rs. 18,00,000/- drawn on ICICI th Bank Ltd., NBCC Place Branch and Cheque No. 10008942 dated 26 May, 2011 for Rs. 75,000/- drawn on The Federal Bank Ltd., Connaught Place Branch, who accepted them in fiill satisfaction and discharge of LiPFC's claims and objections with regard to the Scheme.

¶26Upon perusal of the Scheme, this Court is of the opinion that the Scheme appears to be fair and reasonable. There are also no objections pending to the Scheme.

¶27In view of the approval accorded by the Shareholders and Creditors of the petitioner-company, representation/reports filed by the Regional Director, Northern Region and the Official Liquidator attached with this Court to the proposed Scheme, there appears to be no impediment to the grant of sanction of the Scheme under Section 391 and 394 of the Act. Consequently, sanction is hereby granted to the Scheme of Revival under Section 391 and 394 of the Act. The petitioner-company shall comply with the statutory requirements in Page 12 of13 accordancewith the law. Certified copy of the order be filed with the Registrarof Companieswithin30 days from the date of receiptof the same. It is, however, clarified that this order will not be construedas an ordergrantingexemptionfrom paymentof taxes andothercharges, if payablein accordancewith any law, orpermission/compliancewith any other requirementwhich may be specificallyrequiredunder any law.

¶28Mr. Vivek Malik, learned counsel for petitioner voluntarily statesthat PetitionerCompanywoulddeposita sumof Rs. 25,000/-in the OfficialLiquidators'CommonPool Fundwithinthreeweeks from today. The said statementis accepted.

¶29The petition is disposedof in the aboveterms. Order dasti. MAY 27,2011 m Page 13 of13 ^^7 * IN THE HIGH COURT OF DELHI AT NEW DELHI + CO.PET. 266/2009 IN THE MATTER OF DIGIFLEX INDIA LTD Petitioner Through: Mr. Angad Mehta, Advocate for Mr. Arun Kathpalia, Advocate for applicant company. Mr. Kanwal Chaudhary, Advocate for Official Liquidator. CORAM: HON'BLE MR. JUSTICE MANMOHAN ORDER %

13.12.2011 Co. ApdI. 1631/2011 in Co.Pet. 266/2009 Present application has been filed with the following prayers:- "A. pass appropriate orders directing the Ojficial Liquidator to provide the Applicant Company with the accounts/audited accounts of the Applicant Company prepared and/or filed periodically with this Hon 'ble Court, along with the account of the machines sold and expenses incurred; B. pass appropriate orders directing the Official Liquidator to transfer to the Applicant Company the balance funds from the sale proceeds of the plant and machinery in the account ofthe Applicant Company. C. pass any other orfurther orders as this Hon 'ble Court may deem fit and proper in the facts and circumstances of the case." I J Mr. Kanwal Chaudhary,learned counsel for OfficialLiquidator has drawn the attention of this Court to the reply filed by the Official Liquidatorwhereinthe annual statementof the applicantcompanyhas been enclosed. Mr. Chaudhary further states that as of today a balance of Rs.60,50,459.01/-is available in the account of the apphcant company. He, however, clarifiesthat the aforesaidamount can be releasedto the applicantcompanyonlyafterdeductingthe Govermnentcommission. Mr. Angad Mehta, learned counsel for applicant company states that he has no objectionto the GovernmentCommissionbeing deducted from the above-mentioned amount. Keepingin view the aforesaid,the OfficialLiquidatoris directed to release the amount of Rs.60,50,459.01/- to the applicant company after deducting the Govermnent Commission. Withthe aforesaidconsent,presentapplicationstandsdisposedof. y~. MANM(3H5N;j DECEMBER 13,2011 js

#24 * IN THE HIGH COURT OF DELHI AT NEW DELHI + CO.PET. 266/2009 IN THE MATTER OF M/S.DIGIFLEX INDIA LTD Petitioner Through Mr. ArunKathpaliawithMr. Vivek MaUk, Advocates Mr. Sonal Kumar Singh, Advocate for UPFC with Mr. Laht Srivastava, Deputy Sr. Manager (Law). Mr. Rajiv Bahl, Administrator Ms. Richa Kukreja, Deputy Registrar ofCompaniesfor RD(1^). Mr. S.P. Singh, Inspector for Official Liquidator. CORAM: HON'BLE MR. JUSTICE MANMOHAN