' UMAR ATA BANDIAL. C.J.---This petition under section 284 of the Companies Ordinance, 1984 ("Ordinance") was filed initially by eight financial institutions which are lenders and secured creditors of the respondent No,1, Messrs Ittefaq Foundries (Pvt.) Ltd. ("IFL") for the sanction of an arrangement arrived by such creditors in terms of an agreement dated 30-6-1998 entered with the management of IFL a family owned private limited company. The said agreement is signed on behalf of the eight secured creditors by their authorized representatives and by IFL through its Director and Chief Executive, Mr. Farooq Barkat. During the course of these proceedings, a ninth secured creditor of IFL Messrs ADBP (now ZTBL) joined the proceedings in support of the arrangement proposed in the petition. By order of the Court dated 8-7-1998 passed in this petition a meeting of the secured creditor petitioners was convened under the chairmanship of Mian Aftab Farrukh, Advocate. Also by the same order a Committee ("Sale Committee'9 was constituted by the Court to: assume charge and takeover possession of and preserve the properties of IFL; to make a complete inventory of such properties; and to examine the possibility of disposal of the assets of the said company. These orders were passed in the light of the abovementioned agreement dated 30-6-1998 arrived between the secured creditors and management of the company which is as follows:- , "THE TERMS OF THE ARRANGEMENT UNDER SECTION 284 OF THE COMPANIES ORDINANCE 1984 BETWEEN THE ITTEFAQ FOUNDRIES (PVT.) LTD 1ST FLOOR, SIMLA TOWER, 5-DAVIS ROAD, LAHORE AND THE CREDITOR-BANKS NAMELY (1) NATIONAL BANK OF PAKISTAN (2) HABIB BANK LTD (3) UNITED BANK LTD
(4) AGRICULTURAL DEVELOPMENT BANK OF PAKISTAN (5) MUSLIM COMMERCIAL BANK LTD (6)
PAKISTAN INDUSTRIAL CREDIT AND INVESTMENT CORPORATION (7) BANK OF PUNJAB (8) FIRST PUNJAB MODARBA.
'That the Creditor-Banks shall move the Lahore High Court, Lahore for sanction of this arrangement in terms of section 284 of the Companies Ordinance 1984. The Company will also be at liberty to apply to the High Court in this behalf. The terms of this arrangement are:-- "(a) That the liability of the Company towards the Creditor-Banks will be determined by the Court to which a request shall be made in this regard.
(b) That the Company shall handover its Assets to the Creditor-Banks. These Assets consist of entire factory premises, including land, buildings, plant & machinery, stock in trade receivables, raw material and finished goods etc. These Assets shall also include the total Assets and liabilities of another dormant Company namely Ilyas Enterprises (Pvt.) Ltd., which was taken over by the Ittefaq Foundries (Pvt.) Ltd. The inventory of these Assets shall be prepared by the representatives of both the sides.
(c) These Assets will be disposed of by a Board comprising a representative of the Banks and a nominee of the Court. The Board, shall be empowered to manage the property during the interregnum, if need be to develop the same, through a development scheme or otherwise and take all necessary steps, as deemed fit by it, to secure the maximum sale price. The Board shall have the authority to dispose of the property in such manner as considered proper by it. The Board may seek guidance from the Court, on any issue: Any difference of opinion between the members of the Board shall be resolved by the Court. All sales shall be subject to confirmation by the Court.
(d) That the sale proceeds of the property, and the receivables on recovery thereof shall be distributed among the Creditor-Banks, in such ratio and in such manner, as mutually agreed upon by them. The court shall be moved and requested to enforce the recovery of the receivables.
(e) If the sale proceeds of the Assets coupled with the realization of the receivables, are more than tht liability of the Company, the balance shall be paid to the Company. On the other hand, if such sale proceeds and ' the recovery of receivables, is less than the liability of the Company, the Court will be requested to:
(a) determine such shortfall.
(b) fix the responsibility to make good such shortfall, and
(c) enforce the recovery in this behalf against the persons concerned.
(f) On full satisfaction of the Bank's debts, the un-appropriated guarantees/ securities shall stand released. Such release may be made under the Orders of the Court even earlier.
(g) That this arrangement is without prejudice to the rights of the Creditor-Banks and the Company under the law."
2. Pursuant to the order of the Court dated 8-7-1956 a public notice was published in the Daily 'Business Recorder" on 22-7-1998 and in the Daily Wawa-i-Waqt" on 23-7-1998 for convening a meeting of the creditors of IFL on 30-7-1998 at the company's registered office in Lahore. The report dated 18-8-1998 filed by Mr. Aftab Farrakh, Advocate, chairman of the creditors' meeting narrates that the creditors meeting was held on 30-7-1998, the minutes of which were separately recorded.
All persons attending the meeting were apprised of the contents of the arrangement as contained in the agreement dated 30-6-1998 reproduced above and "no one has raised any objection, rather accorded their approval".
3. The IFL is a private limited company engaged in the business of steel re-rolling and manufacturing of allied products. It is owned by seven brothers and their family members. The different families constituting membership of IFL are given in the following chart:-- Family No.Name% of shareholding
1. Sharif14.08%
2. Shafi14.90%
3. Miraj14.29%
4. Siraj12.44%
5. Barkat15.43%
6. Aziz 14.29%
7. Bashir14.37%
4. It appears that the creditors' arrangement proposed in the petition did not have the backing of all the family shareholders of IFL. As a result on 19-8-1998, Family No,2 filed an application hearing C.M. No,1151-1998 for their impleadment in the proceedings. Thereafter Family No,1 filed an application bearing C.M. No, 2069/L of 1999 offering payment of its 1/7th share of the amount claimed by creditor banks in cash or through property and seeking its release from the said claims.
On 24-9-1999, the Court issued notices in the said application to the other six families who constituted the remaining membership of IFL to state their response on the offer made by the applicant. It is in the said context that all families that are shareholders of IFL became parties to the instant proceedings and expressed their opinion on the creditors' proposed arrangement as well as other proposals that were tabled by shareholders of the company.
5. The petitioner banks seemingly lost interest in the creditors' arrangement proposed in the petition after political events forced the members of the Family No,1 into imprisonment late in the year 1999. This is evident from the Court's order dated 30-6-2000 which is reproduced below:-- "Learned counsel for the petitioner seeks another adjournment in order to obtain instructions. It has been noted that at the request of the learned counsel for the petitioner the case is being adjourned for last more than 6 months. In the interest of justice a last and final opportunity is allowed to the petitioner to either proceed with the case or to make a statement about settlement."
' The said disinterest by the petitioner banks is reflected in subsequent orders passed by the Court.
Reference may be made to order dated 15-4-2003 which is reproduced below:- "Learned counsel for Bank of Punjab stated that in some of the meetings, National Bank of Pakistan and Habib Bank Limited conveyed that in order to streamline the dispute, they may not pursue these matters any more. Learned counsel appearing on behalf of applicant bank sought one month's time to obtain fresh instructions in the matter. He also stated that he will consult his clients on possibility of having a creditors' meeting in this matter."
6. Meanwhile, in exercise of powers conferred by the order of Court dated 8-7-1998 the Sale Committee proceeded to dispose of raw materials and other moveable assets of IFL. On 27-1-2000 the said Sale Committee was reconstituted upon the demise of its Member (Legal), namely, Ch. Muhammad Sadiq, Advocate who had been appointed by the Court. In his place, with the consent of all parties concerned, Mr. Iqbal Hameed-ur-Rehman, Advocate was appointed as Member of the Sale Committee. The actions taken by the Sale Committee and the progress made by it in the case is recounted, inter alia, in its Report No,20 dated 7-7-2004. This report gives an account of the movable assets of the company that were realized through auction and sale. In particular, the report mentions the efforts made by the committee for arranging a buyer for the fixed assets ("Offered Assets" of the IFL and two other group companies Messrs Brothers Steel Pvt. Ltd. And Messrs Brothers Pvt. Ltd. Whose assets under separate agreements also form part of the arrangement proposed by the petitioner banks. The different bidders that approached the Sale Committee for purchasing the Offered Assets include: Star Cotton Corporation (Pvt.) Ltd., Usman Traders, Ahmad Steel Consortium of Companies and Mian Muhammad .Ilyas Miraj, Family No,3. The said parties tendered bids for the offered assets but these were found to be inadequate.
7. Another bidder Al-Rehmat Group is reported to have offered an aggregate amount of Rs,2.15 billion as price of the offered assets in the bid dated 9-2-2004. The petitioner's secured creditors considered the said bid and decided to accept the same. On the basis of the said support given by the creditor banks, the Sale Committee recommended acceptance of the bid to the Court in its report No,20 dated 7-7-2004. The said report was taken up for consideration by the Court when notices thereon were issued to the parties on 9-9-2004. Objections to the said proposal were filed by certain families constituting shareholders of the group companies.
8. According to the order dated 13-10-2004 the objections and replies to report No,20 were argued on behalf of Families Nos. 1 to 3. Family No,3 disputed the bid by Al-Rehrnat Group and sought permission to match the same. Family No,7 objected that receivables of the three group companies should not be included in the sale bid as a result of which the price offered by Al- Rehmat Group stood diminished. The proceedings were adjourned to 14-10-2004 when one of the secured creditors, the Bank of Punjab, also objected to the acceptance of the bid by Al-Rehmat Group. In view of the objections raised by persons belonging to the class of secured creditors as well as by Family shareholders of the three group companies, the learned Company Judge also ordered for draft terms and conditions of advertisement for sale of assets to be proposed by consensus of the parties, secured creditors and shareholders.
9. As the matter became contentious, on 22-10-2004 Family No,1 also came out squarely against the offer made by Al-Rehmat Group and sought competitive bidding after public notice of sale. The said position is noted in the order dated 22-10-2004 passed in these proceedings. In the circumstances, by consent of both secured creditors and the shareholders of the three group companies owning the offered assets, the aforenoted order charts a roadmap to the following effect: all the parties agree to the interim sale of the offered assets by Sale Committee on the basis of jointly agreed terms and conditions; the interim sale shall not prejudice the objections to the scheme of arrangement proposed by the creditor banks under section 284(2) of the Ordinance which objections shall be adjudicated by the Court upon finalization of the interim sale; thirdly, that the modes and modalities for settlement of claims against the three group companies shall also be dealt with after finalization of sale of the offered assets and collection of their sale proceeds.
10. Pursuant to the foregoing terms of the consent order dated 22-10-2004, draft terms of public sale of the offered assets were approved by Court in its order dated 2-12-2004. The bid price of Rs,2.15 billion offered by Al-Rehmat Group was directed to be treated as a reserve price. An amount of Rs,50.0 million already deposited by the said bidder was treated as requisite pre-deposit by all bidders in terms of Article 6(i) of the public notice of sale.
11. Report No,22 filed by the Sale Committee mentions that the advertisement of sale of the offered assets was published in Daily Khaleej Times (U.A.E.) on 13-12-2004 and in Daily Jang (U.K.) on 14-12- 2004. Such notices were also published in four local newspapers on 11-12-2004. Seven bids were received. Before the bids could be opened by the Sale Committee, an intra court appeal titled Mian Mira/-udDin etc. v. NBP etc. Bearing I.C.A. No,16-L of 2004 was filed by a member of Family No,3 against the aforenoted order dated 22-10-2004 by the learned Company Judge. It was challenged that the impugned order wrongly directed the interim sale of the offered assets without deciding the objections to the maintainability of the present petition under section 284(2) of the Ordinance.
On 22-12-2004 a learned Division Bench of this Court ordered that sealed tenders received by Sale Committee shall not be opened. That restraint was relaxed by order dated 3-1-2005 to allow the opening of bids but restraining confirmation of sale until 13-1-2005. Accordingly, tile bids were opened, after negotiations, Messrs MAS-TECH Steel Industries raised its bid of Rs,2.151 billion to Rs,2.48 billion to become the highest bidder. Accordingly, report No,22 recommends to the Court sale in favour of the said highest bidder.
12. The order dated 22-12-2004 passed in I.C.A. No,16-L of 2004 records that the appellant Family No,3 claimed that it was a 50% shareholder of the three group companies and without passing any order of winding up, this Court had ordered sale of the offered assets at the interim stage without final decision of the petition. For present purposes, it may be noted that apart from the interim order dated 3-1-2005 that restrains confirmation of sale by the Court, the learned Division Bench did not pass any order in the said appeal to stay the proceedings in the present petition.
13. On objections filed by other bidders in the present proceedings on 10-1-2005, this Court restrained post bid-negotiations by the Sale Committee. A spate of applications followed thereafter which prevented the consideration of the highest bid by this Court. Ultimately, on 29-7- 2005 this Court ordered that the decision of the appeal bearing I.C.As. No,16-L of 2004 and 17-L of 2004 be awaited. The present proceedings then remained dormant for nearly five years to await the outcome of the said intra court appeals. On 16-2-2010 this Court examined the ad interim orders, passed in the said I.C.A. No,16-L of 2004 to consider their effect on the present proceedings.
It was accordingly noted that the interim order dated 22-12-2004:-- "restrains the opening of bids for the property under sale; it does not restrain proceedings of this Court. Learned counsel for the parties submit that a compromise under section 284 of the Companies Ordinance, 1984 has been arrived which has not yet been sanctioned by the Court.
They shall assist the Court on the merits of that compromise which forms the basis of the present proceedings." (emphasis added)
14. The order dated 16-2-2010 accordingly revived the dormant proceedings in the present petition.
On 10-5-2010 the Court examined the record to note that all pending objection applications against the sale of offered assets had been dismissed on 22-10-2004. That orders passed in I.C.As.
Nos.16-L and 17-L, of 2004 did not injunct the sanction of the creditors' resolution dated 30-7-1998 pursuant to the agreement entered on 30-6-1998. It may be recalled that in I.C.A. No,16-L of 2004 learned Division Bench of this Court had on 3-1-2005 modified its interim order dated 22-12-2004 and directed that "process of sale, including opening of bids, may continue but the sale of assets to any bidder shall not be confirmed till 13-1-2005." Consequently, this Court ordered the parties to the lis, namely, secured creditors, respondent group companies and auction purchasers to assist the Court on how the proceedings under section 284(2) of the Ordinance could progress further.
15. One of the members of Sale Committee since 1998, namely, Kh. Abdul Qadeer, Chartered Accountant filed applications before the Court bearing C.M: Nos.230 and 242 of 2010 claiming his past remuneration with effect from 15-12-2005. The background to the relief prayed in the applications is that whilst this petition was lying dormant, the Court had ordered on 15-12-2005 that the members of Sale Committee would not receive any remuneration but may collect expenses incurred on the security guards and utility bills. The creditor banks opposed the payment of the claimed remuneration in C.M. Nos.230 and 242 of 2010. None of the two remaining members of the Sale Committee prayed for the said relief. Also except for safe keeping no work had been done by the Sale Committee during the dormancy of the petition. Therefore the applications were placed on a back burner. Nevertheless, the applicant member who was sole signatory of the bank account of the Sale Committee filed yet another application bearing C.M. No,29 of 2011 for the same relief.
This was decided on 28-1-2011 ordering the removal of the said applicant/member of the Sale Committee. He was directed to hand over charge of the books of account and records of the committee to the creditors' appointed member of Sale Committee, namely, Mr. Saleem Ansar of NBP. Whereas the ousted member, Kh. Abdul Qadeer, was sole signatory to such bank account, the nominated member of Sale Committee requested for such account to be operated jointly by the remaining two members till further orders. The said request was allowed. But the two members of the Sale Committee expressed reservation to take charge of books of account of the Sale Committee prepared by its ousted member unless their audit was first conducted.
16. Accordingly, on 15-2-2011 it was ordered that audit of the Sale Committee books be carried out by a chartered accountant firm from the date of the committee's appointment on 8-7-1998 until handing over of the books of accounts by the ousted member. From time to time in 2012 the auditor pointed out various lapses in the supporting documentation provided by the ousted member of the Sale Committee. Finally, the draft audit report of the Sale Committee's books of account has recently been presented to the Court. It highlights a discrepancy of Rs,46.577 million in the books of account in respect of unvouched expenses and disbursements made by the ousted member. Proceedings have been initiated against Kh. Abdul Qadeer, the ousted member of the Sale Committee for obtaining his explanation and, if so indicated, for recovery of the amount of unsubstantiated expenditure.
17. Although this petition was revived in the year 2010, yet, the I.C.A. No, 16-L of 2004 and I.C.A. No,17-L of 2004 have continued to suffer from disinterest of the parties to that lis. The appeals are still pending and the operative injunction dated 3-1-2005 restraining finalization of sale of offered assets still governs the field_As the matter has remained pending since 1998, the Court made efforts to revive the stalled proceedings to the extent permissible in the light of the, injunctive order made by the learned Division Bench. The Sale Committee submitted draft terms of notice of sale of the offered assets of the three group companies on 10-1--2(411. Learned counsel for the creditors and the Family shareholders of the three group companies were invited to file their comments or objections in writing to the said notice.
18. Whilst the matter of propriety and sufficiency of the terms of notice of sale was under consideration, this Court emphasized the fairness and transparency of the proposed sale process.
During the proceedings on 26-6-2011 it was pointed out by the members of Sale Committee that machinery forming part of the offered assets was lying in disuse for over a decade. For the sale of offered assets on "as is where is basis", to be fair it was necessary that a reliable inventory thereof was available to facilitate due diligence by potential bidders. Accordingly, physical inspection and survey of the offered assets belonging to the three group companies was ordered. It was conducted by three PBA approved valuers, namely, SURVAL Lahore, EXCELL Enterprises Lahore and BFA (Pvt.) Ltd Lahore. Their survey reports were submitted in Court on 23-12-2011. In order to secure the transparency of sale of the offered assets and to facilitate due diligence by potential bidders, by order dated 30-1-2012, the Court directed the establishment of a data room, announcement of a schedule for physical inspection of the offered assets, provision of due diligence materials and data, assistance on the terms and conditions of sale so that adequate information is made available to potential bidders to facilitate their assessment of value of the assets. Based on reports and information provided by the Sale Committee, on 12-7-2012 the Court directed that the reserve price for the offered assets be fixed at Rs,6.0 billion. The matter was adjourned to 18-9,2012 after the summer vacation for further proceedings.
19. Immediately upon the reopening of the Court after summer vacation, C.M. No,365 of 2012 filed by Family No,3 came up for hearing before the Court on 10-9-2012. The said application opposed approval by the Court of the proposed notice of sale of offered assets submitted by the Sale Committee. The ground of objection was that the said notice included for sale private properties belonging to the objector-applicant. These properties could not be sold to discharge the liabilities of the three group companies. After hearing the learned counsel for the parties, C.M. No,365 of 2012 was dismissed on 27-9-2012. A direction was also given to the Sale Committee to proceed with the due diligence measures mentioned above.
20. The said order was appealed in I.C.A. No,9 of 2012 titled Mian Muhammad 11 as Mera' and 5 others v. Messrs Ittefaq Foundries (Pvt.) Ltd. And 9 others. A learned Division Bench of this Court passed ad interim injunction dated 10-12-2012 suspending the operation of the impugned order dated 27-9-2012 passed by the Court. The said ad interim order remained in effect until I.C.A. No,9 of 2012 was dismissed on 17-2-2014. The said appellate judgment was again challenged before the Hon'ble Supreme Court in C.P. No,462 of 2014 titled Mian Muhammad Iluas. Mira) and others v.
Messrs Ittefaa Foundries (Pvt.) Ltd and others. However, that petition was dismissed as withdrawn vide order of the Hon'ble Supreme Court dated 7-4-2014.
21. The dismissal of the I.C.A. No,9 of 2012 on 17-2-2014 proved to be a watershed in the progress of the present petition. It appears that the disputant families, amongst the sponsors/shareholders of the three group companies owning the offered assets for sale, entered into a settlement on their differences. That settlement has been reported to but not been placed on the record in the present proceedings. However, the material consequence of the said settlement on the present proceedings is that all living family members/shareholders of the three group companies have filed their letters of consent in support of the arrangement under section 284 of the Ordinance proposed by the secured creditors, including settlement of their outstanding dues from the sale of the offered assets on as is where is basis at a price of Rs,6.0 billion in favour of Messrs Al-Rehmat Group.
22. Eight out of 36 shareholders of the three group companies have passed away. From the last corporate returns filed with SECP by the three group companies, it appears that the deceased members owned shares equal to 29.65% of total voting power in the three group companies.
Obviously, NOCs could not be filed by the deceased members, nevertheless their heirs have to the extent of 18.65% voting power in the said companies have given their NOCs in support of the arrangement and sale in favour of Al-Rehmat Group at its enhanced bid of Rs,6.0 billion. The net result is that roughly 89% of the total shareholding/voting power of the three group companies, owning the offered assets for sale, support the arrangement under section 284 of the Ordinance proposed by the petitioner banks and also the sale of the offered assets to Al-Rehmat Group at a price of Rs,6.0 billion. Needless to say, with reference to the judicially prescribed criteria for sanction of creditors' arrangement under section 284 of the Ordinance, there is no shareholder opposition to the aforesaid arrangement or sale of the offered assets at the said price.
23. As duly reflected in the SECP's certificate of charges registered against the assets of the three group companies, all the secured creditors holding the said charges are petitioners before the Court. As already noted the secured creditors of these companies unanimously support the proposed arrangement under section 284 of the Ordinance and the sale of the offered assets to Al-Rehmat Group at Rs,6.0 billion. In terms of section 284(2) of the Ordinance a creditors' arrangement, bearing support of 75% or more of the class of such creditors for discharge of outstanding liabilities qualifies for approval and sanction by the Court. In the present case, with 100% endorsement of all secured creditors of the three group companies, the creditors arrangement proposed under section 284 of the Ordinance is eminently eligible for approval by the Court.
24. It is common ground that the offered assets for sale comprise pledged, mortgaged and charged securities of the petitioner banks. This fact is noted in the order of this Court dated 27-9- 2012 passed in C.M. No,365 of 2012 filed by Family No,3. The said order has been affirmed in I.C.A.
No,9 of 2012 vide judgment dated 17-2-2014. It has been held that the fact that charged properties forming subject matter of sale under the arrangement include private properties of certain Family members does not vitiate the arrangement under section 284 of the Ordinance proposed by secured creditors. There is no requirement of law that only properties belonging to a debtor/customer company can constitute charged securities for its secured creditors. In the present case, the private members and sponsors of the three group companies have admittedly charged, mortgaged and encumbered their private assets for obtaining finance for the said companies. Such mortgaged, charged or encumbered assets can be sold validly to discharge the liabilities owed to the secured creditors.
25. The provisions of section 284 of the Ordinance deal with different types of arrangements proposed either by a class of secured creditors or by a class of members of a company. To appreciate the requirements of law for considering an arrangement proposed under section 284 of the Ordinance by creditors of a company, it is useful to first read the said provision of law:- "Power to 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 Court may, on the application in a summary way 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 member of the company or class of members, as the case may be, to be called, held and conducted in such manner as the Court 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 Court be binding on all the creditors or the class of creditors or on all the members or class of members, as the case may be, and also on the company, or, in the case of a company in the course of being would up, on the liquidator and contributories of the company: ' Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under subsection (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company and the like.
(3) An order made under subsection (2) shall have no effect until a certified copy of the order has been filed with the registrar within thirty days and a copy of every such order shall be annexed to every copy of the memorandum of the company issued after the order has been made and filed as aforesaid, 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.
(4) If a company makes default in complying with subsection (3), the company and every officer of the company who is knowingly wilfully in default shall be liable to a fine which may extend to five thousand rupees for each copy in respect of which default is made.
(5) The Court may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as it thinks fit and proper until the application is finally disposed of.
(6) In this section the expression "company" means any company liable to be wound up under this Ordinance and the expression "arrangement" includes a reorganization 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, 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."
' Messrs Pakland Cement Limited through Director Shamim Muskeg Siddiqui (2002 CLD 1392) and Caravan East Fabrics Limited v. Askari Commercial Bank Limited (2006 CLD 895) are two precedents dealing with the arrangements proposed by secured creditors of debtor companies for the discharge of their liabilities. The said authorities draw upon legal material from other jurisdictions to settle the important principles governing approval of creditors' arrangements. In the Pakland cement case it is held that the statutory jurisdiction of the Court under section 284 of the Ordinance is regulated as follows:-- "(a) The jurisdiction of the Court in this regard is neither appellate nor revisional but only supervisoru in nature;
(b) the statutory majoritu must be present
(c) the company should consent to the scheme of arrangement;
(d) the Court would see as a whole whether the scheme is fair. For this purpose it would not launch any investigation or consider each and every provision of the scheme of arrangement minutely.
The Court would lean in favour of honouring the wishes of the majority,.
(e) Onus is on the objectors to establish that the scheme is mala fide or unfair. As regards the latter, unfairness per se would not be enough unless and Until the unfairness is obvious and convincing; U) Court would prefer to keep the Company alive so as to sanction the scheme rather than allow the company to go into liquidation;
(g) decree-holders and non-decree-holders do not constitute separate classes and as such it is not necessary to have different meetings in relation thereto;
(h) there should not be a differential treatment based upon discrimination between creditors of the same class,.
(i) the Court will not QO into commercial merits or viability of the decision reached by the majority;
(j) separate meeting of sub-class of shareholders are only required if separate terms and conditions are laid down in the scheme in their regard;
(k) a class of shareholders would mean where there is a commonality of interest, which will be when the respective interests are not so dissimilar so as to make it impossible for them to consult each other." (underlining supplied)
' The aforesaid principles laid down for judicial evaluation of a creditors' arrangement have been reiterated with somewhat different tenor in the other case of Caravan East Fabrics Ltd. Referred above to the following effect:-- "(1) The sanctioning Court has to see to it that all the requisite statutonj procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by law have been held.
(2) That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by law.
(3) That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
(4) That all necessary material indicated by law is placed before the voters at the concerned meetings.
(5) That all the requisite material contemplated by law is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
(6) That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policu. For ascertaining the real purpose underluina the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.
(7) That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
(8) That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant." (underlining supplied)
26. The following picture emerges after applying the above noted principles that have been crystalized in the two precedents under reference to the facts of the present case. There is unanimous support by the secured creditors for the arrangement under section 284 of the Ordinance proposed before the Court. This is evidenced from the report of chairman of the creditors' meeting held on 30-7-1998, the letters of consent filed on 23-4-2014 by each of the nine secured creditor banks to the arrangement under section 284 of the Ordinance including sale of the offered assets at Rs,6.0 billion to Al-Rehrnat Group. More recently in another meeting of secured creditors convened by the Sale Committee on 20-5-2014, all such creditors were duly represented.
They unanimously supported the proposed arrangement under section 284 of the Ordinance and also the sale of the offered assets on as is where is basis at Rs,6.0 billion to the present bidder before the Court, Messrs Al-Rehmat Group. Therefore, notwithstanding passage of nearly 16 years when the present arrangement was proposed before the Court, all secured creditors of the three group companies are agreed on the means by which the outstanding liabilities of the three group companies owed to the said financial institutions are to be settled, namely, from the sale proceeds of the offered assets at the agreed price of Rs,6.0 billion. The available support of secured creditors for the proposed arrangement under section 284 ibid far exceeds the requisite majority of the said class of creditors mandated under section 284(2) of the Ordinance. At this point it may be mentioned that proposed arrangement under section 284 ibid aims to sell only the charged assets that are either pledged, hypothecated or mortgaged to the secured creditors to cover finance availed by the three group companies. In relation to the said charged assets, the secured creditors are exclusive holders of security entitled to priority for payment and discharge through the realization of such assets. Reference is made to the rule laid down in Orix. Leasing Pakistan Ltd. v.
Sunshine Cloth Ltd. (2001 PTD 3146).
27. During the year 2004 the proposed arrangement under section 284 ibid was objected in the present proceedings by several shareholder Families in the three group companies. However, that situation has changed dramatically after a settlement was arrived between the shareholder Families of the three group companies. As a sequel to the said settlement the objections filed by a family member shareholder Mian Ilyas Miraj in C.P.No,462 of 2014 stood withdrawn vide order of the Hon'ble Supreme Court dated 7-4-2012. Every living shareholder of the three group companies supports the proposed arrangement under section 284 ibid and sale of the offered assets at a price of Rs,6.0 billion. The heirs of the deceased shareholders that support the said arrangement raise the shareholder endorsement for the arrangement under section 284 ibid and sale of offered asserts at Rs,6.0 billion to 89% of total equity/voting power in the three group companies. Members of seven families own entire the shareholding of the three group companies. There is no shareholder from the public in the said companies. In the foregoing scenario, there is no legal opposition or restraint to the approval of the creditors' management under section 284 ibid. The partial restraint imposed by the order dated 3-1-2005 passed in I.C.A. No,16-L of 2004 titled Mian Mirai-ud-Din etc v. NAP etc does not block the consideration and approval of the creditors' scheme under section 284 ibid. In a case of creditors' arrangement, section 284 of the Ordinance does not mandate that such an arrangement must enjoy the support of the management of the debtor company or any specific proportion of its membership. The judicially recognized role of members in a creditors' arrangement which is reiterated in the aforementioned precedents is to bring objections that disprove the bona fides or fairness of the scheme of arrangement.
28. On that score as mentioned above in the present case no objections have been filed before the Court by any shareholder. In fact all living shareholders and the heirs of some deceased members of the three group companies constituting 89% of the total equity and voting power in such companies have filed their letters of consent in favour of the arrangement and the sale of offered assets at a price of Rs,6.0 billion. The purpose of the arrangement is for the bona fide settlement of outstanding dues owed by the three group companies to the nine secured creditors that have been waiting for decision of this petition for the last sixteen years. The secured creditors are seeking recovery of public money. The object of the arrangement is achieved by the sale of properties charged to the petitioner banks. As such the said action neither infringes the rights of nor is disputed by other claimant, creditor or right, holder of the three group companies. This petition is comprehensible in the eyes of law because the secured creditors can claim exclusivity in their I recourse to the offered assets on the principles recognized in Orix Leasin Pakistan Ltd. v.
Sunshine Cloth Ltd. (2001 PTD 3146).
29. The following features of the case may be reiterated. The state of the record, object and purpose of the arrangement proposed by the petitioner banks, lack of any opposition from any quarter to the proposed arrangement, 100% support for the proposed arrangement by the secured creditors of the three group companies and 100% support of all living members of the three group companies. No opposition has been made by any member nor even any heir of a deceased member. By counting the responding legal heirs of deceased members, the members' support for the arrangement and sale is 89% of total voting power of the three group companies. These features show that the proposed arrangement promotes public policy of discharging debt to banks holding public money, that scheme is prudent and reasonable because it is un-objected from any quarter, that the scheme is not discriminatory in its effect or coercive in its terms. On the tests of validity laid down for sanctioning of creditors' arrangement, there are no grounds whatsoever to decline approval.
30. Nevertheless, the Court is under a duty to examine the over-all fairness of the creditors' arrangement. In this respect the Court ought to consider the fate of claims, if any, filed by preferential creditors recognized by law. Such consideration would entertain the claims raised or lodged by statutorily specified creditors, in particular, tax authoritie-, statutory funds and institutions and utility companie- An effort should be made by the Court that claims asserted by such preferential creditors under public law should not be ignored. Accordingly, the present arrangement is approved but subject to the condition that it shall be implemented in stages: Initially, by payment to the petitioner-secured creditors of the principal amounts claimed, followed by payment of accrued markup and cost of funds after adjustment of the reconciled, adjudicated or determined claims of preferential creditors of the three group companies. Subject to that condition the object, bona fides, fairness of the creditors' arrangement under section 284 of the Ordinance are unexceptionable in the eyes of law, Accordingly, the relief prayed in the petition is allowed to the said extent.
31. Learned counsel for the managements has filed a certificate on record that except for six recovery suits and six winding up petitions filed against the three group companies, by different secured creditors that are petitioners before the Court presently, no other claims for recovery have been decreed or are pending against the three group companies in any statutory forum or court of law. Learned counsel for the managements has submitted that three suits for recovery of damages filed by the three group companies against some petitioner creditors shall be withdrawn when the said creditors opt to withdraw their respective suits and winding up petitions against the three group companies.
32, The preferential claimants noted above that have approached this Court during the course of the present proceedings since 1998 are: LESCO, PESSI, EOBI, Customs, FBR. Two security services agencies engaged by the ousted Sale Committee member are before the Court for dishonoured cheques issued by him. These claimants have a grievance with the ousted member Kh. Abdul Qadeer and not any commercial dispute with the three group companies. Preference is therefore accorded to them pending action for recovery and other relief taken against the ousted member.
The claims raised by the said persons have nevertheless to be verified, determined, adjudicated or settled. The Sale Committee is pursuant to orders of the Court undertaking requisite steps in the said behalf. Clearly, the sale price of offered assets must cater for such determined or adjudicated claims apart from the dues owed to the petitioner creditors.
33. However, for the present purpose it must be noted that claimants referred above fall into a different category distinct from the category of secured creditors. Consequently, the said preferential claimants cannot override the interests M and rights of the secured creditors. Nor can the present arrangement proposed by the secured creditors be blocked at the instance of any of the claimants mentioned above. Infact there is no objection on this score from any of such claimants.
34. Notwithstanding the fact that there is no opposition to the second part of the arrangement, namely, sale of offered assets, the same cannot be undertaken or implemented presently without resolution of certain material issues. There is a surviving injunctive order passed in I.C.A. No,16-L of 2004 titled Mian Miraf-ud-Din etc. v. NBP etc. Which restrains finalization of sale of the offered assets. The basis of the said appeal has been erased by the approval of the creditors' arrangement under section 284 ibid. As a result not an interim sale but a final sale of the offered assets has to be considered by the Court. Nevertheless, on grounds of propriety it is fair for the Court to refrain from finalizing the matter of sale of the offered assets until the said order dated 3-1-2005 is vacated or the said I.C.A. Decided. Also, three group companies have admitted liability to the extent of principal amount of the claims of the petitioner banks, in total amounting to Rs,1.7 billion. Although it is acknowledged by the managements that such amounts are subject to charge of markup and cost of funds yet these heads of claim by the secured creditors are not verified amounts.
Accordingly, the reconciliation of such heads of claim have been referred by order of this Court dated 13-5-2014 to a chartered accountant appointed by both parties, namely, secured creditors and the managements of the three group companies for reconciliation of accounts and settlement of the liability under the said heads of claim. This is necessary so that the sanction of the Court is not used by the secured creditors to collect unverified, undetermined or unconsented dues.
35. The second issue that requires resolution is the matter of ex parte demand of income tax in the amount of Rs,958.9 million raised under tax demand certificate dated 29-4-2014 issued by Deputy Commissioner (Legal) Zone-IV, RTO Lahore to the following effect:-- Name of Tax Payer Asst. YearAmountDate of assessm ent Messrs Ittefaq Foundries (Pvt.) Ltd.93-94 2750412 22-1-1995 93-94 7136821 6-6-1997 93-94 22316403026-6-2000 93-94 2126230630-12-2000 93-94 19515555929-6-2002 93-94 446328068-5-2002 94-95 31020 18-5-1998 94-95 27852546-6-1997 94-95 81900 28-8-1996 94-95 72314120 26-6-2000 94-95 694782530-12-2000 94-95 5999791829-6-2002 94-95 144628248-5-2002 95-96 217444 6-6-1997 95-96 45400 28-8-1996 95-96 126703 30-12-2000 95-96 340 29-6-2002 95-96 253406 8-5-2002 96-97 186445 96-97 1267033 26-6-2000 96-97 173174 8-5-2002 97-98 86587 98-99 20849158819-6-2001 98-99 9651167131-10-2002 Total 958918456 ' This demand is created principally in relation to the industrial business operations of IFL during and after the financial year 1993-94. Learned counsel for the managements submits that said industry closed down its operation in the year 1993. During the period when IFL was in full production, its annual income tax liability assessed and discharged by the said company was significantly less than the demand created ex parte for a period when business operations were closed down. Accordingly, he states that huge ex parte income tax liability claimed for financial years is grossly exaggerated and must be adjudicated. Consequently, whilst FBR as a preferential creditor cannot be ignored with respect to its claim against the three group companies yet again its demand must at least pass the first departmental adjudicatory forum for fixation of the liability.
Accordingly, the outcome of such proceedings should be awaited.
36. The third issue which requires attention of this Court is that any bidder which has maintained its initial deposit of Rs,50 million made in the bidding process of 2004, as recorded in report No, 22 of the Sale Committee dated 17-1-2005, should not be excluded from the proceedings of sale of the offered assets. During the course of present proceedings, Messrs AKD Securities, a bidder at Rs,2.16 billion, was not interested to compete with the creditors and members' consented bid of Rs, 6.0 billion given by Messrs Al-Rehmat Group. Accordingly, by order dated 9-5-2014 its request for withdrawal of deposit of Rs,50.0 million was allowed. However, upon scrutiny of its record the Sale Committee has reported that one other bidder, namely, Messrs MAS-TECH Steel Industries Karachi, has still kept intact its deposit of Rs,50.0 million made in the 2004 biding. On Court's direction the said bidder was contacted and has by letter dated 26-5-2014 decided not to compete with bid by Al-Rehmat Group. It is also requested in the letter that the deposited amount be refunded. Messrs MAS-TECH Steel Industries had originally given a negotiated bid of Rs,2.48 billion and thereby became the highest bidder at that stage. It is in the interest of justice that the said bidder is given an opportunity to join these proceedings to affirm or disown the contents of the aforesaid letter dated 26-5-2014. That aspect of the matter needs to be addressed before the finalization of the consented sale so that its implementation is not scuttled at the instance of disenchanted interested party for being denied an opportunity to compete in the sale of the offered assets.
37. The offered assets under sale value billions of rupees. These assets pertain to the steel business that is an essential infrastructural industry. In the eyes of law, public interest and policy require that such industry is entrusted to bona fide hands. To establish, its bona fides, the highest bidder before the Court, Messrs Al-Rehmat Group has since the year 2004 deposited Rs,50.0 million with the Sale Committee. According to certificate dated 27-5-2014 issued by Silkbank Ltd., 14-Egerton Road Branch, Lahore, the said bidder has segregated for deposit an amount equating 25% of bid price, that is an amount of Rs,1.55 billion in its bank account Notwithstanding its financial strength the - consented buyer of a huge industrial unit must possess other credentials that satisfy the criteria of domicile, credit worthiness, bona fide business operations and profile, tax probity and compliance by both the buyer and its sponsors. Antecedents of said bidders and its sponsors on the aforesaid aspects have yet to be verified and cleared by the Sale Committee. Be that as it may the seriousness shown by Messrs Al-Rehmat Group to demonstrate its bona fides and reliability for purposes of honouring its bid is noted. It is accordingly ordered that account No, 0003-2004639939 in the name of Messrs AlRehmat Metal Works (Pvt.) Ltd. Maintained at Silkbank Main Branch, 14- Egerton Road, Lahore shall be placed under lien of the Sale Committee. The funds therein shall not be moved or encumbered without permission of this Court for a period of two months.
38. The smaller claimants against the three group companies like, PESSI, LESCO, EOBI must also be entertained for their statutory claims to be adjusted or settled. This can be done after verification of their claims to consider whether there are sufficient funds or other tangible security available for discharging the said claims. It goes without saying that at the time of confirmation of sale, remuneration for the two members of the Sale Committee must also be fixed. Both of them have worked for seven years against one ad hoc payment of Rs,5,00,000 each in the year 2010. In comparison the third member of sale committee, namely, Kh. Abdul Qadeer, who was removed by order of the Court dated 28-1-2011 has collected Rs, 50,000 per month by way of remuneration until 15-12-2005. In addition there is an audit objection on disbursements made by him to the extent of Rs,46.0 million approximately. That matter also needs to be dealt with firmly before the conclusion of the instant proceedings.
39. In the light of the foregoing pending issues the matter of sale of offered assets is not concluded today. It goes without saying that the creditors arrangement approved today would become redundant if the sale of the offered assets pursuant thereto is delayed or avoided. Accordingly, the matters mentioned above that need to be dealt with and determined prior to approving the sale of assets ought to be resolved at the earliest.
40. Come up on 26-6-2014 for hearing of the aforementioned pending issues predicating the finalization of the sale of the offered assets and implementation of the proposed arrangement by the creditors.